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Form 2.03[3]—Subfranchise Agreement
EXHIBIT H
FORM OF SUBFRANCHISE AGREEMENT
ABC RESTAURANTS
SUBFRANCHISE AGREEMENT
Dated:
TABLE OF CONTENTS
I. GRANT OF SUBFRANCHISE AND SUBLICENSE 2033-6
1.1 Grant 2033-6
II. FRANCHISED RESTAURANT 2033-6
2.1 Franchised Restaurant 2033-6
2.2 Exclusive Territory 2033-7
2.3 Construction and Renovation 2033-7
III. TERM OF SUBFRANCHISE AGREEMENT 2033-8
3.1 Term 2033-8
3.2 Renewal 2033-8
3.3 Form and Manner of Renewal 2033-8
3.4 Conditions Precedent to Renewal 2033-9
IV. PAYMENTS BY FRANCHISEE 2033-9
4.1 Initial Franchise Fee 2033-9
4.2 Royalty Fee 2033-10
4.3 Advertising Fee
2033-10
4.4 Other Payments to Subfranchisor 2033-10
4.5 Gross Sales 2033-10
4.6 Reporting 2033-10
4.7 Payments 2033-11
4.8 Application of Funds 2033-11
4.9 Interest on Late Payments 2033-11
4.10 Audit Expenses 2033-11
V. TRADEMARKS 2033-12
5.1 Non-Ownership of Trademarks
2033-12
5.2 Use of Trademarks 2033-12
5.3 Non-Use of Trade Name 2033-12
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5.4 Use of Other Trademarks 2033-12
5.5 Defense of Trademarks
2033-12
5.6 Prosecution of Infringers 2033-13
5.7 Modification of Trademarks 2033-13
5.8 Acts in Derogation of the Trademarks 2033-13
5.9 Prohibition Against Disputing Subfranchisor's Rights 2033-13
5.10 Assumed Name Registration 2033-13
VI. ADVERTISING AND PROMOTION BY FRANCHISEE 2033-14
6.1 General
2033-14
6.2 Local Advertising 2033-14
6.3 Co-Op Advertising 2033-14
6.4 Telephone Numbers and Directory Advertising
2033-15
6.5 Promotional Campaigns
2033-15
6.6 Advertising Fund 2033-15
VII. OPERATION OF THE BUSINESS 2033-16
7.1 Products 2033-16
7.2 Commitment of Time 2033-17
7.3 Operations Manual 2033-17
7.4 Insurance 2033-18
7.5 Books and Records 2033-19
7.6 Right of Inspection 2033-19
7.7 Compliance with Laws 2033-19
7.8 Suggested Prices 2033-19
7.9 Cash Registers 2033-20
VIII. OTHER SERVICES OF THE SUBFRANCHISOR 2033-20
8.1 Training and Supervision 2033-20
8.2 Reporting Forms 2033-21
IX. ASSIGNMENT AND RIGHT OF FIRST REFUSAL 2033-21
9.1 Assignment by Subfranchisor 2033-21
9.2 Assignment by Subfranchisee 2033-21
9.3 Franchisee Information
2033-23
9.4 Right of First Refusal 2033-23
9.5 Corporate or Partnership Franchisee 2033-23
X. NON-COMPETITION
2033-24
10.1 General 2033-24
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10.2 Personnel 2033-25
XI. DEFAULT AND TERMINATION 2033-25
11.1 Termination with Notice 2033-25
11.2 Termination without Notice 2033-26
(a) Abandonment 2033-26
(b) Bankruptcy and Insolvency 2033-26
(c) Death or Incapacity of Subfranchisee 2033-26
(d) Knowing Underreporting 2033-26
(e) Repeated Defaults 2033-27
(f) Misrepresentation 2033-27
(g) Violation of Law 2033-27
11.3 Cross-Default 2033-27
XII. FURTHER OBLIGATIONS AND RIGHTS OF THE PARTIES UPON RESCISSION, TERMINATION OR EXPIRATION
2033-27
12.1 Subfranchisor's Rights
2033-27
12.2 Termination without Prejudice
2033-28
12.3 Assignment of Lease for Location 2033-28
12.4 Telephone Numbers 2033-28
XIII. ARBITRATION 2033-28
13.1 General
2033-28
XIV. GENERAL CONDITIONS AND PROVISIONS 2033-28
14.1 Relationship of Franchisee to Subfranchisor 2033-29
14.2 Indemnity by Franchisee 2033-29
14.3 Subfranchisor's Right to Cure Defaults 2033-29
14.4 Waiver and Delay 2033-29
14.5 Survival of Covenants 2033-29
14.6 Successors and Assigns
2033-30
14.7 Joint and Several Liability 2033-30
14.8 Governing Law 2033-30
14.9 Entire Agreement 2033-30
14.10 Titles for Convenience 2033-30
14.11 Gender 2033-31
14.12 Severability 2033-31
14.13 Counterparts 2033-31
14.14 Fees and Expenses 2033-31
14.15 Notices 2033-32
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14.16 Right of Offset
2033-32
14.17 Time of Essence 2033-32
XV. SUBMISSION OF AGREEMENT 2033-32
15.1 General
2033-32
XVI. ACKNOWLEDGMENT 2033-32
16.1 General 2033-32
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SUBFRANCHISE AGREEMENT
THIS SUBFRANCHISE AGREEMENT (“Agreement”) is made and entered into this
day of , 19 , by and between , a corporation organized under the
laws of (“Subfranchisor”), and (“Subfranchisee”)
with reference to the following facts:A. Subfranchisor has been granted by (“Master Franchisor”), the right to use and
sublicense throughout certain rights and interests as follows:
(i) the “ABC” name and such other related trademarks, trade names, service marks,
logotypes, insignias, trade dress and designs as Master Franchisor may expressly authorize from
time to time (the “Trademarks”) for use in connection with the development, operation and
maintenance of restaurants featuring and such other menu items as Subfranchisor may
use and authorize from time to time (the “Franchised Business”); and
(ii) Master Franchisor's processes, trade secrets and procedures for the operation of such
restaurants, including advertising, sales techniques, materials, signs, exterior decoration and
decor, personnel management and control systems, bookkeeping and accounting methods, and in
general, a style, system and method of business operation developed through and by reason of its
prior business experience (the “System”).B. Subfranchisee desires to obtain a subfranchise and sublicense to use the System and
Trademarks in conjunction with the operation of one (1) “ABC” restaurant (the “Restaurant”), in
accordance with the terms and conditions of this Agreement, and the Operations Manual (as
defined below).
WHEREFORE IT IS AGREED
I
GRANT OF SUBFRANCHISE AND SUBLICENSE
1.1 Grant Subfranchisor hereby grants to Subfranchisee and Subfranchisee hereby accepts, a sublicense
to use and display the Trademarks, and to use the System, in connection with the operat ion of one
(1) Restaurant at, and only at, the location described below upon the terms and subject to the
provisions of this Agreement, during the term hereof.
II
FRANCHISED RESTAURANT
2.1 Franchised Restaurant (a) The Franchised Business shall be located at the following address ,
(the “Location”).(b) If the Location is leased by Subfranchisee, Subfranchisee shall duly and timely perform all
of the terms, conditions, covenants and obligations imposed upon him under the lease.
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2.2 Exclusive Territory
For so long as this Agreement shall remain in effect, Subfranchisor shall not operate or grant a
franchise to any other entity to operate a Franchised Business within the geographic are a described
on the map which is attached hereto as Exhibit “A,” and which is incorporated herein by this
reference (the “Territory”).
2.3 Construction and Renovation
(a) If at the time of execution of this Agreement the Restaurant has not been constructed, or if
the building at the Location has been constructed but does not comply with Subfranchisor's
standards in effect for new “ABC” restaurants at the time of the execution of this Franchise
Agreement, Subfranchisee shall at his sole cost and expense promptly cause the Restaurant and
Location to be constructed, equipped and improved in accordance with such standards, unless
Subfranchisor shall, in writing, agree to modifications thereof. Such modifications will
customarily be made only if required by zoning or similar laws, landlord requirements, unique plot
problems or similar matters. Subfranchisee shall employ architects and general contractors of his
own selection, and at his sole cost and expense, to prepare such architectural, engineering and
construction drawings and site plans, and to obtain all permits and approvals, required to c onstruct,
remodel, renovate, and/or equip the Restaurant and Location. When completed, said Restaurant
and Location shall in all respect comply with the Subfranchisor's specifications therefor. (b) Subfranchisee shall commence construction or renovation, as the case may be, as soon as
possible but in no event later than three (3) months after the date of execution of this Agreement. (c) Subject only to causes beyond the reasonable control of Subfranchisee, such as, by way of
illustration, strikes, material shortages, fires and other acts of God, which Subfranchisee coul d not
by the exercise of due diligence have avoided, Subfranchisee shall complete construction or
renovation, as the case may be, of the Restaurant and all improvements therein, including
installation of all fixtures, signs, equipment and furnishings as soon as possible but in no event
later than five (5) months after commencement thereof. At all times prior to Subfranchisee
commencing the operation of the Franchised Business, Subfranchisor shall have the right to
inspect and examine the premises and any fixtures, signs, furnishings and equipment for the
purpose of insuring compliance with Subfranchisor's standards and specifications.
(d) Subfranchisee agrees that the operation of the Franchised Business by Subfranchisee shall
commence not later than eight (8) months following the date of the execution hereof. (e) The time periods for the commencement and completion of construction and the
installation of fixtures, signs, machinery and equipment as referred to in this Paragraph 2.3 are of
the essence of this Agreement. (f) If Subfranchisee fails to perform his obligations contained in this Paragraph 2.3,
Subfranchisor may deem the Subfranchisee's failure to so perform his obligations as aforesaid to
constitute a material breach of this Agreement, in which event the Subfranchisor shall notify
Subfranchisee to such effect. If the franchisee cures such default within thirty (30) days after
Subfranchisor's notice of the material breach specified in Subfranchisor's notice, which time shall
be of the essence of this Agreement, such default shall be deemed cured. If, however,
Subfranchisee fails to cure such default within said thirty (30) day period, then in such event this
Agreement shall be deemed terminated without any further notice.
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III
TERM OF SUBFRANCHISE AGREEMENT
3.1 Term (a) Unless sooner terminated in accordance herewith, and subject to paragraph 3.1(b) below,
the term of this Agreement (the “Term”) shall commence upon the execution hereof and shall
expire twenty (20) years thereafter. (b) Notwithstanding paragraph 3.1(a), if this Agreement is executed by Subfranchisee in
connection with Subfranchisee's purchase of an existing Franchised Business, the Term hereof
shall be equal to the then remaining term of the subfranchise agreement which relates to the
Franchised Business so purchased.
3.2 Renewal
(a) Subject to paragraph 3.4, Subfranchisee shall have the right, but not the obligation,
following the expiration of the Term hereof, to enter into a new subfranchise agreement in the
form then generally being offered (or if none are thus being offered, in the form then being offe red
for renewal of existing subfranchises) to prospective “ABC” subfranchisees in the state of
, as modified pursuant to paragraph 3.2(b) hereof (the “Renewal Subfranchise Agreement”) for a
term equal to ten (10) years, or the duration of Subfranchisee's right to occupy the Location,
whichever is less. The term of such new subfranchise agreement shall commence upon the da te of
expiration of the Term hereof. (b) Notwithstanding anything herein contained to the contrary, the Renewal Subfranchise
Agreement, if executed by parties hereto, shall differ, and be modified, from Subfranchisor's then-
current form of subfranchise agreement in the following respects:
(i) Subfranchisee shall not be required to pay any Initial Fee (as defined in paragraph 4.1
below); and
(ii) There shall be no further right to renew the agreement.
3.3 Form and Manner of Renewal
If Subfranchisee desires to exercise its right to enter into the Renewal Subfranchise Agree ment
(the “Renewal Right”), it shall do so in the following manner:
(a) Not less than three (3) months nor more than twelve (12) months prior to the expiration of
the Term of this Agreement, Subfranchisee shall request from Subfranchisor in writing a copy of
its then-current Renewal Subfranchise Agreement. (b) Within thirty (30) days after receipt of Subfranchisee's said written request, Subfranchisor
shall deliver to Subfranchisee two (2) copies of its Renewal Subfranchise Agreement.
(c) Within thirty (30) days after Subfranchisee receives said copies of the Renewal
Subfranchise Agreement, Subfranchisee shall execute two (2) copies of said Renewal
Subfranchise Agreement and return same to Subfranchisor.
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(d) If Subfranchisee shall fail to perform any of the acts, or deliver any of the notices re quired
pursuant to the provisions of subsections (a), (b) or (c) of this paragraph 3.3, in a timely fashion,
such failure shall be deemed an election by Subfranchisee not to exercise his right and option to
enter into the Renewal Subfranchise Agreement, and such failure shall cause Subfranchise e's said
right and option to automatically lapse and expire.
(e) Provided that Subfranchisee shall have exercised his Renewal Right, in the form and
manner herein described, and shall have complied with all of the conditions containe d in paragraph
3.4 hereof, Subfranchisor shall execute the Renewal Subfranchise Agreement executed by
Subfranchisee and shall, promptly at the expiration of the Term hereof, deliver one (1) fully
executed copy of the Renewal Subfranchise Agreement to Subfranchisee.
3.4 Conditions Precedent to Renewal
Subfranchisee's right to enter into the Renewal Subfranchise Agreement, in accordance with
the provisions of Section 3.2 hereof, is conditioned upon Subfranchisee's fulfillment of each and
all of the following conditions precedent: (a) At the time Subfranchisee notifies Subfranchisor of its election to renew pursuant to
paragraph 3.3(a) above and at all times from such notification to the time of the commencement of
the term of the Renewal Subfranchise Agreement, Subfranchisee shall have strictly performed all
of his obligations under this Agreement, the Operations Manual and under all other agreements
which may during said period be in effect between Subfranchisee and Subfranchisor. (b) Subfranchisee shall have not received two (2) or more notices of default during any twenty-
four (24) month period during the Term of this Agreement, whether or not such defaults were
cured. (c) Subfranchisee shall have obtained the right to continue to occupy the Restaurant foll owing
the expiration of the Term hereof.
(d) Prior to the expiration of this Agreement, Subfranchisee shall have remodeled and
renovated the Restaurant to conform to the Subfranchisor's then current standards and
specifications for new “ABC” restaurants.
IV
PAYMENTS BY FRANCHISEE
4.1 Initial Franchise Fee (a) Unless the Franchise Agreement is executed in connection with the renewal or transfer of
an existing franchise, Subfranchisee shall pay to Subfranchisor the sum of Dollars ($
) as an initial franchise fee (the “Initial Fee”), payable upon the execution of this
Agreement. Except as herein expressly provided this fee is not refundable in whole or in part , and
shall be deemed fully earned upon the execution hereof. (b) If Subfranchisee has executed this Franchise Agreement in connection with a transfer of an
existing franchisee's Franchised Business, no Initial Fee shall be payable, however, Subfranchisee
shall pay Subfranchisor a transfer fee in the amount of Dollars ($ ) which is
intended to cover the Subfranchisor's administrative costs and expenses associated with the
transfer, and, in addition, a training fee in the amount of Dollars ($ ) unless said
training fee is waived by Subfranchisor in its sole discretion.
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4.2 Royalty Fee
Subfranchisee shall pay a continuing royalty fee (the “Royalty”) equal to
percent ( %) of Subfranchisee's Gross Sales, as hereinafter defined, in accordance with
paragraph 4.6 below.
4.3 Advertising FeeIn addition to all other payments provided for herein, the Subfranchisee shall pay to
Subfranchisor, concurrently with the submission of Subfranchisee's Royalty payment as described
in paragraph 4.2 above, an Advertising Fee in an amount equal to percent ( %) of the
Subfranchisee's Gross Sales, which shall paid by the Subfranchisor to the Master Franchisor's
Advertising Fund, which shall be administered by Master Franchisor in accordance with Section
6.6 below.
4.4 Other Payments to Subfranchisor
In addition to all other payments provided herein, Subfranchisee shall pay to Subfranchisor, or
its subsidiaries, affiliates or designees, as applicable, promptly when due: (a) The amount of all sales taxes, use taxes, personal property taxes and similar taxe s, imposed
upon Subfranchisee and required to be collected or paid by Subfranchisor on account of goods or
services furnished by the Subfranchisee by sale, lease or otherwise or on account of royalties or
initial franchise fees collected by Subfranchisor from Subfranchisee. (b) All amounts advanced by Subfranchisor or which Subfranchisor has paid, or for which
Subfranchisor has become obligated to pay on behalf of Subfranchisee for any reason whatsoever.
4.5 Gross Sales
The term “Gross Sales” as used herein shall mean all sums received or receivable by
Subfranchisee, directly or indirectly, from or in connection with the operation of the Franchised
Business, including revenues generated from any and all sources on account of the sale of food,
alcoholic beverages, and other goods and products (including but not limited to vending machi nes,
games, slot machines, amusement rides, and telephones), and from the rendering of services of any
kind or nature, at or from the Restaurant, or under, or in any way connected with the use of, the
Trademarks, whether for cash, credit, or barter. There shall be deducted from Gross Sales for
purposes of said computation (but only to the extent that they have been included) the amount of
all sales tax receipts or similar tax receipts which, by law, are chargeable to customers, if such
taxes are separately stated when the customer is charged, and the amount of any actual refunds,
rebates, over-rings, and allowances given to customers in good faith.
4.6 Reporting
(a) On Monday of each week during the Term hereof, Subfranchisee shall submit a weekly
sales report, on a form prescribed by Subfranchisor, reporting all Gross Sales for the preceding
week. In addition, on or before the tenth (10th) day of each month during the Term hereof,
simultaneously with Subfranchisee's Royalty Fee payment, Subfranchisee shall submit a monthly
sales summary signed by Subfranchisee, on a form prescribed by Subfranchisor, reporting all
Gross Sales for the preceding month, and such additional financial information as Subfranchisor
may from time to time request. (Such reports are hereinafter referred to as “Weekly Sales
Reports,” “Monthly Sales Reports,” or collectively as “Gross Sales Reports”).
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(b) On or before the thirtieth (30th) day following each calendar quarter during the Term
hereof, Subfranchisee shall submit to Subfranchisor financial statements for the preceding quarte r,
including a balance sheet and profit and loss statement, prepared in the form and manner by the
Subfranchisor and in accordance with generally accepted accounting principles. (c) Within sixty (60) days following the end of each of calendar year, Subfranchisee shall
submit to Subfranchisor an unaudited annual financial statement prepared in accordance with
generally accepted accounting principles, and in such form and manner prescribed by
Subfranchisor, which shall be certified by Subfranchisee to be accurate and complete.
4.7 Payments
(a) On or before the tenth (10th) day of each month during the Term hereof, Subfranchisee
shall pay Subfranchisor the full amount of:
(i) the Royalty Fee due to Subfranchisor for the preceding month;
(ii) the Advertising Fund Fee due to Subfranchisor for the preceding month; and (b) Subfranchisor shall have the right, but not the obligation, at any time during the Term
hereof, to require Subfranchisee to instruct its bank to pay the amounts identified in this Section
4.7 directly to Subfranchisor from Subfranchisee's account, by such automatic payment
mechanism as Subfranchisor may reasonably designate and upon the terms and conditions set forth
herein. Upon Subfranchisor's written notice of such election, Subfranchisee shall so instruct its
bank.
4.8 Application of Funds
If Subfranchisee shall be delinquent in the payment of any obligation to Subfranchisor
hereunder, or under any other agreement with Subfranchisor, Subfranchisor shall have the
absolute right to apply any payments received from Subfranchisee to any obligation owed,
whether under this Agreement or otherwise, notwithstanding any contrary designation by
Subfranchisee as to application.
4.9 Interest on Late Payments
If Subfranchisee shall fail to pay to Subfranchisor the entire amount of Subfranchisee's
Royalty Fee, Advertising Fund Fee, or any other sums owed to Subfranchisor, promptly when due,
Subfranchisee shall pay to Subfranchisor, in addition to all other amounts which are due but
unpaid, interest on the unpaid amounts, from the due date thereof, at the rate of one and one-half
percent (1-1/2%) per month, or the highest rate allowable under applicable law, whicheve r is less.
4.10 Audit Expenses If Subfranchisor should cause an audit to be made and the Gross Sales as shown by
Subfranchisee's records for any reporting period should be found to be understated by more than
two percent (2%), Subfranchisee shall be responsible for and shall immediately pay to
Subfranchisor the cost of such audit (in addition to all amounts which are due but unpaid);
otherwise, the cost of such audit shall be paid by Subfranchisor.
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V
TRADEMARKS
5.1 Non-Ownership of Trademarks Nothing herein shall give Subfranchisee any right, title or interest in or to any of the
Trademarks, except a mere privilege and license during the term hereof, to display and use the
same according to the terms and conditions herein contained.
5.2 Use of Trademarks
(a) Subject to paragraph 5.7, Subfranchisee agrees that the Franchised Business herein
sublicensed and subfranchised shall be named “ABC” without any suffix or prefix attached thereto
and that Subfranchisee shall use and display such of the Trademarks and such signs, advertising
and slogans as Subfranchisor may from time to time prescribe or approve, including, but without
limitation, that Subfranchisee's name shall be clearly marked on the Restaurant premises as well as
on all Subfranchisee's business stationery in a manner specified or approved by Subfranchisor and
which clearly indicates that Subfranchisee is the person, firm or corporation, as the case may be,
owning and operating that Restaurant business under the name “ABC” pursuant to a Franchise
Agreement with Subfranchisor. Subfranchisee shall also use the symbol (R) or TM, as directed by
Subfranchisor to indicate to the public that the “ABC” Trademarks used by the Subfranchisee are
owned by the Master Franchisor.
(b) Upon the expiration or sooner termination of this Agreement, Subfranchisor may, if
Subfranchisee does not do so, execute in Subfranchisee's name and on Subfranchisee's behalf, any
and all documents necessary to end and cause the discontinuance of Subfranchisee's use of the
Trademarks and the person serving from time to time as the Secretary of Subfranchisor is hereby
irrevocably appointed and designated as Subfranchisee's attorney-in-fact so to do.
5.3 Non-Use of Trade Name
If Subfranchisee is a corporation or partnership, it shall not use the Trademarks, or any words
or symbols which are confusingly similar thereto, as all or part of Subfranchisee's name.
5.4 Use of Other Trademarks
Subfranchisee shall not display the trademark, service mark, trade name, insignia or logotype
of any other person, firm or corporation in connection with the operation of the Franchised
Business without the express prior written consent of Subfranchisor, which may be withheld in its
sole subjective discretion.
5.5 Defense of Trademarks
(a) In the event that Subfranchisee receives notice, or is informed, of any claim, suit or demand
against Subfranchisee on account of any alleged infringement, unfair competition, or similar
matter on account of its use of the Trademarks in accordance with the terms of this Agreement,
Subfranchisee shall promptly notify Subfranchisor of any such claim, suit or demand. Thereupon,
Subfranchisor and Master Franchisor shall take such action as they may deem necessary and
appropriate to protect and defend Subfranchisee against any such claim by any third party and
Subfranchisor shall indemnify Subfranchisee against any loss, costs or expenses incurred in
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connection therewith. Subfranchisee shall not settle or compromise any such claim by a third party
without the prior written consent of Subfranchisor and Master Franchisor. Master Franchisor shall
have the sole right to defend, compromise or settle any such claim, in its discretion, at Master
Franchisor's sole cost and expense, using attorneys of its own choosing, and Subfranchisee agrees
to cooperate fully with Master Franchisor and Subfranchisor in connection with the defense of any
such claim. Subfranchisee may participate at its own expense in such defense or settlement, but
Master Franchisor's and Subfranchisor's decisions with regard thereto shall be final. (b) In the event that Subfranchisee shall be prevented from using any of the Trademarks,
including but not limited to the name “ABC,” by reason of such Trademark(s) infringing the
proprietary rights of any third party, Subfranchisee shall cease the use of such Trademark(s), and
modify any and all signs, menu boards and other items display such Trademark(s) promptly upon
receipt of notice from Subfranchisor, in the manner prescribed by Subfranchisor in such notice.
5.6 Prosecution of Infringers
In the event that Subfranchisee shall receive notice or is informed or learns that a ny third party,
which he believes to be unauthorized to use the Trademarks, is using the Trademarks or any
variant thereof, Subfranchisee shall promptly notify Subfranchisor of the facts relating to such
alleged infringing use. Thereupon, Subfranchisor shall notify Master Franchisor who may, in its
sole discretion, determine whether or not it wishes to take any action against such third person on
account of such alleged infringement of the Trademarks. Subfranchisee shall have no right to make
any demand against any such alleged infringer or to prosecute any claim of any kind or nature
whatsoever against such alleged infringer for or on account of such alleged infringement.
5.7 Modification of Trademarks
From time to time, in the Operations Manual or in directives or bulletins supplementa l thereto,
Subfranchisor may add to, delete or modify any or all of the Trademarks Subfranchisee shall use,
or cease using, as may be applicable, the Trademarks, including but not limited to, any such
modified or additional trade names, trademarks, service marks, logotypes and commercial
symbols, in strict accordance with the procedures, policies, rules and regulations contained in the
Operations Manual or in written directives issued by Subfranchisor to Subfranchisee from time to
time, as though they were specifically set forth in this Agreement.
5.8 Acts in Derogation of the Trademarks
Subfranchisee agrees that the Trademarks are the exclusive property of the Master Franchisor
and Subfranchisee now asserts no claim and will hereafter assert no claim to any goodwill,
reputation or ownership thereof by virtue of Subfranchisee's licensed and/or franchised use
thereof, or otherwise. Subfranchisee agrees that it will not do or permit any act or thi ng to be done
in derogation of any of the rights of Subfranchisor or Subfranchisor's licensor in connection with
the same, either during the Term of this Agreement or thereafter, and that it will use the
Trademarks only for the uses and in the manner licensed and/or franchised hereunder and as here in
provided.
5.9 Prohibition Against Disputing Subfranchisor's Rights
Subfranchisee agrees that he will not, during or after the Term of this Agreement, in any way
dispute or impugn the validity of the Trademarks sublicensed hereunder, or the rights of Master
Franchisor or Subfranchisor thereto, or the rights of Master Franchisor, Subfranchisor or other
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subfranchisees of Subfranchisor to use the same, both during the Term of this Agreement and
thereafter.
5.10 Assumed Name Registration
In the event that Subfranchisee is required to do so by any statute or ordinance, Subfranchisee
shall promptly upon the execution of this Agreement file with applicable government agencies or
offices, a notice of its intent to conduct its business under the name “ABC.” Promptly upon the
expiration or termination of this Agreement for any reason whatsoever, Subfranchisee shall
promptly execute and file such documents as may be necessary to revoke or terminate such
assumed name registration, and if Subfranchisee shall fail to promptly execute and file such
documents as may be necessary to effectively revoke and terminate such assumed name
registration, Subfranchisee hereby irrevocably appoints and designates the person serving from
time to time as the secretary of Subfranchisor as his Attorney-in-fact to do so for and on behalf and
in the name of Subfranchisee.
VI
ADVERTISING AND PROMOTION BY FRANCHISEE
6.1 General Subfranchisee shall conduct all local advertising and promotion in accordance with such
provisions with respect to format, content and media as are from time to time contained in the
Operations Manual. No advertising material may be used by Subfranchisee without
Subfranchisor's prior written approval.
6.2 Local Advertising
In addition to the advertising fees required to be paid by Subfranchisee pursuant to paragraph
4.3 hereof, Subfranchisee shall expend an amount equal to ( %) percent of monthly
Gross Sales for local advertising relating to Subfranchisee's Restaurant.
6.3 Co-op Advertising
(a) The Master Franchisor shall have the right at any time, and from time to t ime, to create Co-
op Advertising Regions. If and when Master Franchisor creates a Co-op Advertising Region for
the region in which the Franchised Business is located, Subfranchisee shall become a subscriber
and member thereof, and participate therein, in accordance with the Subscription Agreement and
By-laws of such Co-op Advertising Region. The size and content of such regions, when and if
established by the Master Franchisor, shall be binding upon Subfranchisor and Subfranchisee and
all other “ABC” franchisees and subfranchisees similarly situated who are required by t he terms of
their franchise agreements to so participate. At all meetings of such Co-op Advertising Region
each participating franchisee and subfranchisee shall be entitled to one (1) vote for each of its
“ABC” Restaurants located within such Co-op Advertising Region. At any time upon reasonable
notice, twenty percent (20%) of the eligible member votes, a majority of the directors, or Master
Franchisor by itself, may call a meeting of all members of a Co-op Advertising Regi on. Except as
provided in paragraph 6.3(b), and except for any amendment of the Articles of Incorporation or
By-laws of the Co-op Advertising Region (which shall require the affirmative vote of the Master
Franchisor), all matters concerning operation of a Co-op Advertising Region shall be decided by
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majority vote, provided that a quorum is present, and such vote shall bind all members of said
region, subject to Subfranchisor's approval pursuant to paragraph 6.1. For purposes hereof, a
quorum shall consist of members entitled to cast at least 50% of the total number of votes in such
Cooperative Advertising Region.
(b) Upon the approval of at least a majority of the votes represented by all of the members of
the Co-op Advertising Region, the Co-op Advertising Region members may vote to require each
member to contribute up to, but not greater than, percent ( %) and not less than
percent ( %) of the Gross Sales of all of such member's “ABC” Restaurants in said
Co-op Advertising Region for a regional co-op advertising program or programs. In the event of
approval of such additional regional advertising contributions as aforesaid, each franchisee and
subfranchisee, including Subfranchisee shall contribute to the Co-op Advertising Region in
accordance with said vote. (c) Expenditures made by Subfranchisee pursuant to any Co-op Advertising Region program,
in accordance with paragraph 6.3, shall be credited against Subfranchisee's local advertising
requirement described in paragraph 6.2 above.
6.4 Telephone Numbers and Directory Advertising
(a) Subfranchisee shall at its sole expense subscribe for and maintain throughout the term
hereof one (1) or more telephone numbers, which shall be listed in such telephone directory or
directories servicing Subfranchisee's Territory and such adjacent or nearby areas as Subfranchisor
may designate, in the manner prescribed by Subfranchisor. In all advertising placed by
Subfranchisee in which such listed number(s) appear, there shall not appear any other telephone
numbers subscribed for by Subfranchisee personally or in the conduct of any other business.
6.5 Promotional Campaigns.
From time to time during the term hereof, the Subfranchisor shall have the right to establish
and conduct promotional campaigns, which may by way of illustration and not limitation promot e
particular products or marketing themes. Subfranchisee agrees to participate in such promotional
campaigns upon such terms and conditions as the Subfranchisor may establish. Subfranchisee
acknowledges and agrees that such participation may require Subfranchisee to purchase point of
sale advertising material, posters, flyers, product displays and other promotional materi al. Nothing
herein shall be construed to require Subfranchisee to charge any prices for the goods and services
offered at Subfranchisee's Restaurant other than those determined by Subfranchisee in his sole and
absolute discretion.
6.6 Advertising Fund.
(a) Master Franchisor administratively segregates on its books and records all advertising fees
received from Subfranchisor, Subfranchisee and all other franchisees and subfranchisees of the
Master Franchisor. Subfranchisor shall pay to Master Franchisor an amount equal to all
Advertising Fund Fees it receives from its subfranchisees, including Subfranchisee. Subfranchisor
will similarly contribute to the Advertising Fund for each Franchised Business that Subfranchisor
operates, the amount that Subfranchisor would be required to contribute if it were a subfranchi see.
(b) If less than the total of all contributions to the Advertising Fund are expended during any
fiscal year, such excess may be accumulated for use during subsequent years. If Master Franchisor
advances money to the Advertising Fund, Master Franchisor will be entitled to be reimbursed for
such advances.
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(c) Advertising Fund revenues will be expended for national, regional, or local advertising,
public relations or promotional campaigns or programs designed to promote and enhance the
image, identity or patronage of franchised subfranchised and Master Franchisor-owned “ABC”
businesses. Such expenditures may include, without limitation (a) conducting marketing studies,
and the production and purchase of advertising art, commercials, musical jingles, print
advertisements, point of sale materials, media advertising, outdoor advertising art, vehicle decals,
and direct mail pamphlets and literature; and (b) a payment to Master Franchisor or its affiliates,
for internal expenses incurred in connection with the operation of its advertising department, if
any, and the administration of the Advertising Fund; provided, however, that Master Franchisor
shall not allocate more than fifteen percent (15%) of all such Advertising Fund contributions to
said internal expenses incurred by Master Franchisor or its affiliates. Actual direct costs incurred
by Master Franchisor or its affiliates for the production of advertising shall not be subject to or
included in said Fifteen percent (15%) limitation. Master Franchisor shall determine, in its final
and subjective discretion, exercised in good faith, the cost, media, content, format, style, timing,
allocation and all other matters relating to such advertising, public relations and promotional
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campaigns. Nothing herein shall be construed to require Master Franchisor to allocate or expend
Advertising Fund Contributions so as to benefit any particular franchisee or group of franchisees
on a pro rata or proportional basis or otherwise. Any additional advertising shall be at the sol e cost
and expense of Franchisee, subject to the provisions set forth herein in Article VII. (d) Upon written request, Subfranchisor shall furnish to Subfranchisee within one hundred
twenty (120) days after the end of each calendar year, a report for the preceding year, prepared and
certified correct by an officer of the Master Franchisor containing the calculations of the amount
which Master Franchisor actually expended during such calendar year and the amount remaining
which shall be carried over for use during the following year(s).
VII
OPERATION OF THE BUSINESS
7.1 Products (a) Subfranchisor may, from time to time throughout the Term hereof in its sole subjective
discretion, require that Subfranchisee use, offer and/or promote, and maintain in stock at the
Restaurant in such quantities as are needed to meet reasonably anticipated consumer demand,
certain secret proprietary spice mixes, sauces, marinades and other ingredients and product s which
are manufactured pursuant to the secret proprietary recipes, specifications and/or formulas of
Subfranchisor or Master Franchisor (“Proprietary Products”). Subfranchisee shall purchase
Proprietary Products only from Master Franchisor, Subfranchisor or their designees. Neither
Master Franchisor nor Subfranchisor shall be obligated to reveal such recipes, specifications
and/or formulas of such Proprietary Products to Subfranchisee, non-designated suppliers, or any
other third parties.
(b) Subfranchisor may designate food products, ingredients, cooking oil, condiments,
beverages, fixtures, furnishings, equipment, uniforms, supplies, forms and other products and
equipment other than Proprietary Products which Subfranchisee may or must use and/or offer and
sell at the Restaurant (“Non-Proprietary Products”). Subfranchisee may, but shall not be obligate d
to, purchase such Non-Proprietary Products from Master Franchisor or Subfranchisor, if Master
Franchisor or Subfranchisor supplies same. Subfranchisee may use, offer or sell only such Non-
Proprietary Products that Subfranchisor has expressly authorized, and that were purchased or
obtained from Master Franchisor or Subfranchisor or a supplier designated or approved by Master
Franchisor or Subfranchisor pursuant to subparagraph (c) below. (c) Subfranchisee may purchase authorized Non-Proprietary Products from (i) Master
Franchisor or Subfranchisor, (ii) suppliers designated by Master Franchisor or Subfranchisor, or
(iii) suppliers selected by Subfranchisee and approved in writing by Master Franchisor or
Subfranchisor prior to Subfranchisee making such purchase(s). With respect to each such supplier
designated or approved by Subfranchisor, such supplier shall have demonstrated to the reasonable
satisfaction of Subfranchisor:
1. Its ability to supply a Non-Proprietary Product meeting the Master Franchisor's
specifications, which may include, without limitation, specifications as to brand name, contents,
quality, and compliance with governmental standards and regulations; and
2. Its reliability with respect to the consistent quality of its products or services. In the event that Subfranchisee should desire to procure any authorized Non-Proprietary
Products from a supplier other than Subfranchisor or a supplier previously approved or designated
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by Subfranchisor, Subfranchisor shall, upon request of Subfranchisee, furnish to Subfranchisee
specifications for such Non-Proprietary Products if such are not contained in the Operations
Manual. Subfranchisee shall thereafter deliver written notice to Subfranchisor of his desire to seek
approval of such supplier, which notice shall (i) identify the name and address of such suppli er, (ii)
contain such information as may be requested by Subfranchisor or required to be provided
pursuant to the Operations Manual, and (iii) identify the authorized Non-Proprietary Products
desired to be purchased from such supplier. The Subfranchisor may thereupon request that the
proposed supplier furnish Subfranchisor at no charge with product samples, specifications and
such other information as Subfranchisor may require. Should Subfranchisor not deliver to
Subfranchisee, within thirty (30) business days after it has received such notice and all inform ation
and other items requested by Subfranchisor in order to evaluate the proposed supplier, a written
statement of disapproval with respect to such supplier, it shall be deemed that such supplier is
approved by Subfranchisor as a supplier of the authorized Non-Proprietary Products described in
such notice until such time as Subfranchisor or Master Franchisor may subsequently withdraw
such approval. As a further condition of such approval, Subfranchisor may require such supplier to
agree in writing (i) to provide from time to time upon Subfranchisor's request free samples of any
Non-Proprietary Product it intends to supply to Subfranchisee, and (ii) to faithfully comply with
Subfranchisor's and Master Franchisor's specifications for applicable Non-Proprietary Products
sold by it, and (iii) that it shall sell any Non-Proprietary Product bearing the Trademarks only to
franchisees and subfranchisee's of Subfranchisor and only pursuant to a Trademark License
Agreement in form prescribed by Master Franchisor. Subfranchisee shall reimburse Subfranchisor
for all product testing costs paid by Subfranchisor to Master Franchisor or third parties in
determining whether to approve a supplier selected by Subfranchisee. (d) Subfranchisor may, from time to time, authorize Subfranchisee to test market products
and/or services in connection with the operation of the Franchise Business. Subfranchisee agrees
to cooperate with Subfranchisor in connection with the conduct of such test marketing programs
and agrees to comply with the Subfranchisor's rules and regulations established from time to time
in connection herewith.
7.2 Commitment of Time
During the Term of this Agreement, Subfranchisee, or a manager acceptable to Subfranchisor,
shall, except as otherwise expressly agreed to by Subfranchisor in writing, devote his full time and
best efforts exclusively to the operation of the Franchised Business. If Subfranchisee is a
corporation or a partnership, such Subfranchisee shall select a full time manager acceptable to
Subfranchisor in its sole discretion to devote his or her full-time and best efforts to the Franchised
Business. It is understood and agreed by the parties hereto that the Franchised Business shall be
operated during such minimum hours and days established by Subfranchisor from time to time, but
in any event during not less than the hours and days during which other restaurants in
Subfranchisee's vicinity are typically open and operating. If Subfranchisee operates more than one
(1) Restaurant, Subfranchisee shall devote his full time efforts to all such Restaurants, c ollectively,
and shall employ a full time manager, acceptable to Subfranchisor, to supervise each such
Restaurant.
7.3 Operations Manual
(a) Subfranchisee shall operate the Franchised Business in strict compliance with the sta ndard
procedures, policies, rules and regulations established by Master Franchisor and incorporated in
the ABC operations manual(s) as same may be amended and revised from time to time, including
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all bulletins, supplements and ancillary manuals (collectively referred to herein as the “Operations
Manual”). The subject matter of the Operations Manual may include, without limitation, matters
such as: forms, information relating to product and menu specifications, cash control, purchase
orders, general operations, labor schedules, personnel, Gross Sales reports, payroll procedures,
training and accounting; safety and sanitation; design specifications and color of uniforms; display
of signs and notices;
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authorized and required equipment and fixtures, including specifications therefor; Trademark
usage; insurance requirements; lease requirements; decor; standards for management and
personnel, hours of operation; yellow page and local advertising formats; standards of
maintenance and appearance of the Restaurant.
(b) Master Franchisor and Subfranchisor shall have the right to modify the Operations Manual
at any time and from time to time by the addition, deletion or other modific ation to the provisions
thereof. All such modifications shall be equally applicable to all similarly si tuated subfranchisees,
and no such modification shall alter Subfranchisee's fundamental status and rights under this
Agreement. Modifications in the Operations Manual shall become effective upon delivery of
written notice thereof to Subfranchisee unless a longer period is specified in such written notice.
The Operations Manual, as modified from time to time as hereinabove provided shall be an
integral part of this Agreement and reference made in this Agreement, or in any amendments,
exhibits or schedules hereto, to the Operations Manual shall be deemed to mean the Operations
Manual kept current by amendments from time to time. Upon the execution of this Agreement,
Subfranchisor shall furnish to Subfranchisee one (1) copy of the Operations Manual, unless
Subfranchisee purchased the Franchised Business from an existing franchisee or entered into this
Agreement as a Renewal Franchise Agreement. Upon the expiration or termination of this
Agreement for any reason whatsoever, Subfranchisee shall immediately return the Operations
Manual to Subfranchisor. Subfranchisee shall not make, or cause or allow to be made, any copies
or reproductions of all or any portion of the Operations Manual without Subfranchisor's express
prior written consent.
7.4 Insurance
Subfranchisor shall prescribe minimum standards and limits for certain types of insurance
coverage to be purchased by Subfranchisee, in order to standardize insurance coverage and afford
Subfranchisee and Subfranchisor protection against insurable risks, including but not limited to
business interruption coverage, and Subfranchisee shall purchase such insurance promptly after
execution hereof and in any event prior to commencing construction of the Restaurant and keep
same in full force and effect during the entire Term and any extensions of this Agreement,
amending said insurance from time to time as necessary in order to remain in compliance with
Subfranchisor's standards and specifications. Said standards and limits shall be established in
Subfranchisor's Operations Manual. If Subfranchisee fails or refuses to purchase insurance
conforming to the standards and limits prescribed by Subfranchisor, Subfranchisor may obtain,
through agents and insurance companies of its own choosing, such insurance as is necessary to
meet such standards. Payments for such insurance shall be made by Subfranchisee. Nothing
contained herein shall be construed or deemed to impose on Subfranchisor any duty or obligation
to obtain or maintain any specific forms, kinds or amounts of insurance for or on behalf of
Subfranchisee, or as an undertaking or representation by Subfranchisor that such insurance as may
be obtained by Subfranchisee or by Subfranchisor for Subfranchisee will insure Subfranchisee
against any or all insurable risks of loss which may or can arise out of, or in connection with, the
operation of the Subfranchisee's Business. Subfranchisee may obtain, on Subfranchisee's own
behalf, and at Subfranchisee's own cost and expense, such insurance as Subfranchisee may from
time to time desire, in addition to that obtained on Subfranchisee's behalf by Subfranchisor, or as
may be required herein. All insurance as may be obtained by Subfranchisor for Subfranchisee may
be amended, cancelled, terminated or modified at any time upon ten (10) days written notice to
Subfranchisee. All insurance purchased by Subfranchisee shall name Subfranchisor and such
affiliates of Subfranchisor as Subfranchisor may direct as additional assureds, shall contain a
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blanket waiver of the insured's right of subrogation in respect of or against Subfranchisor or such
affiliate(s), and shall provide that Subfranchisor be given at least ten 10 days prior writt en notice of
any termination, amendment, cancellation, or modification thereof. Subfranchisee shall promptly
provide Subfranchisor with certificates of insurance evidencing such coverage no later than ten
(10) days after the purchase of the insurance required herein, and throughout the term and any
extension hereof evidencing continued coverage.
7.5 Books and Records
(a) Subfranchisee covenants and agrees that he shall keep and maintain during the term hereof
full, complete and true records of all revenues and all expenditures in the form and manner as
specified or directed by Subfranchisor in its Operations Manual or otherwise. All financial rec ords
must be kept by Subfranchisee for a minimum of five (5) years or such longer period as may be
prescribed by law. (b) If pursuant to the Operations Manual Subfranchisor establishes a requirement to use same,
Subfranchisee agrees that it shall, as soon as reasonably practicable, purchase or lease, and
thereafter install, use, maintain and upgrade such computer facilities, facsimile equipment,
hardware, software and other such equipment, for the purpose of performing cash register,
bookkeeping, accounting or other functions related to the operation of the Franchised Business.
All such computer facilities, facsimile equipment, hardware, software and other equipment shall
be compatible with Subfranchisor's system as modified from time to time and shall meet and be
maintained in compliance with Subfranchisor's specifications therefor as set forth in the
Operations Manual.
7.6 Right of Inspection
Subfranchisor and Master Franchisor shall have the right from time to time, and without prior
notice to Subfranchisee, to send representatives to the Restaurant, to inspect Subfranchisee's
operations, business methods, service, management, Financial Records and administration, and t o
determine the quality thereof and the faithfulness of Subfranchisee's compliance with the
provisions of this Agreement and the Operations Manual, and Subfranchisee shall cooperate fully
with Subfranchisor and its representatives and agents with respect to such inspections.
Subfranchisee shall permit Subfranchisor and its representatives or agents to copy, examine or
audit, physically or by electronic or other methods, the computers, books of accounts, bank
statements, check stubs, customer invoices, documents, records, papers, and tax return records
(“Financial Records”) of Subfranchisee at any time or times. Upon fifteen (15) days prior notice,
Subfranchisee shall deliver photocopies of all Financial Records to Subfranchisor or its
representatives at such location as Subfranchisor may designate. Subfranchisor shall bear the c ost
of all such inspections, provided that if any such inspection discloses that Subfranchisee has failed
to comply with any provision of this Agreement or the Operations Manual in a manner tha t would
permit Subfranchisor to terminate this Agreement if uncured, the direct costs of such inspections
shall be borne by Subfranchisee.
7.7 Compliance with Laws
Subfranchisee shall operate the Franchised Business in strict compliance with all applicable
laws, rules and regulations of all governmental authorities, shall comply with all a pplicable wage,
hour, and other governmental laws and regulations (including any and all licensing requirement s),
and shall prepare, file and retain all necessary tax returns, and pay promptly all ta xes imposed upon
Subfranchisee or upon Subfranchisee's Franchised Business or property.
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7.8 Suggested Prices
Subfranchisor may advise Subfranchisee, from time to time, as to the various suggested price s.
Subfranchisor and Subfranchisee hereby agree that any such list or schedule of prices furnished to
Subfranchisee by Subfranchisor is by way of recommendation only, and is not to be construed as
binding or mandatory upon Subfranchisee.
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7.9 Cash Registers
Subject to paragraph 7.5(b), Subfranchisee shall cause all sales to be registered upon an
electronic non-resettable cash register of the type and having the characteristics specified by
Subfranchisor, and shall provide to Subfranchisor access to permit reading of the running total of
said cash register at any time or times at Subfranchisor's sole discretion. Subfranchisee shall repair
all malfunctions immediately and shall follow Subfranchisor's policies and procedures as
established from time to time during any period during which the cash register is not fully
operational. Subfranchisee shall provide Subfranchisor with the serial number of each such cash
register prior to using same and shall keep and preserve all cash register tapes, tape readings, and
other mechanical or electronic recordations of cash register readings, for such period of tim e and in
such manner as Subfranchisor may from time to time prescribe.
VIII
OTHER SERVICES OF THE SUBFRANCHISOR
8.1 Training and Supervision (a) Unless the Subfranchisee is an existing franchisee of the Subfranchisor at the time this
Agreement is executed: Subfranchisor shall, at no extra charge, cause one (1) person who shall be
the manager of the Restaurant to be trained in the Subfranchisor's System and methods of
operation; in the case of a corporate or partnership Subfranchisee, a shareholder or partner sele cted
by Subfranchisee and approved by Subfranchisor pursuant to paragraph 8.3 hereof shall also be
trained by Subfranchisor, and in the case of a sole proprietor who will not also be the manager of
the Restaurant, such sole proprietor shall also be trained by Subfranchisor. Such initial training
program shall consist of (i) training at a “ABC” Restaurant designated by the Subfranchisor for
such period of time as Subfranchisor deems necessary in its sole discretion, (ii) one (1) week of
training at Subfranchisee's Restaurant prior to the opening of the Restaurant and (iii) one (1) week
of training at Subfranchisee's Restaurant following the opening thereof. Subfranchisor will pay no
compensation for any services performed by such trainee(s), and Subfranchisee shall pay all travel
and living expenses incurred by such trainee(s).
(b) Each restaurant manager employed by Subfranchisee shall attend the Subfranchisor's
training program, unless waived by the Subfranchisor by reason of such manager's prior training
and qualifications. The Subfranchisor shall train one (1) new manager employed by Subfranchisee
each year during the Term hereof at no additional charge to Subfranchisee. If Subfranchisor trai ns
any additional managers or other personnel, Subfranchisee shall pay the Subfranchisor's standard
training fees then in effect. The Subfranchisee, in all cases, shall bear all tra vel and living expenses
incurred by such trainee(s), and Subfranchisor shall pay no compensation for any services
performed by such trainee(s) in connection with such training program. (c) Subfranchisor may, from time to time, at its discretion, make available to Subfranchisee
additional training courses or programs during the term of this Agreement. Subfranchisor shall
have the right to make attendance by Subfranchisee or the manager of the Restaurant mandatory
with respect to certain of such courses and shall have the right to make Subfranchisee 's attendance
at other such training courses optional. Subfranchisor shall make no charge for mandatory traini ng
courses but may, in its discretion, establish charges applicable to all franchisees similarly situated,
for optional training courses. With respect to either mandatory or optional training courses,
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Subfranchisee shall pay all transportation costs, food, lodging and similar costs incurred in
connection with attendance at such courses. The time and place of both mandatory and optional
training courses shall be at Subfranchisor's sole discretion.
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(d) Subfranchisor or Master Franchisor may, from time to time, at their discretion, cause their
field representatives to visit Subfranchisee's Restaurant for the purpose of rendering advice and
consultation or training, with respect to the Restaurant, its operation and performance, or to
determine compliance by Subfranchisee with the Operations Manual. Further, Subfranchisee shall
have the right to inquire of Subfranchisor's headquarters staff, its field representatives and training
staff with respect to problems relating to the operation of the Restaurant, by telephone or
correspondence, and Subfranchisor shall use its best efforts to diligently respond to such inquiries,
in order to assist Subfranchisee in the operation of the Restaurant.
8.2 Reporting Forms
Subfranchisor will furnish to Subfranchisee the standard reporting forms and charts of
accounts that are required to be used by Subfranchisee.
IX
ASSIGNMENT AND RIGHT OF FIRST REFUSAL
9.1 Assignment by Subfranchisor (a) Subfranchisor shall have the right to assign this Agreement, and all of its rights and
privileges hereunder to any other person, firm or corporation without Subfranchisee's prior
consent; provided that, in respect to any assignment resulting in the subsequent performance by
the assignee of the functions of Subfranchisor, the assignee shall expressly assume and agree to
perform such obligations. (b) Without limiting the generality of the foregoing, Subfranchisee expressly agrees that
Subfranchisor may assign this agreement to Master Franchisor, and upon such assignment Master
Franchisor shall succeed to all rights and obligations of Subfranchisor hereunder, provided
however that Master Franchisor shall not be liable to Subfranchisee for or on account of any
liabilities or obligations of Subfranchisor accruing prior to the date of such assignment.
9.2 Assignment by Subfranchisee
(a) This Agreement has been entered into by Subfranchisor in reliance upon and in
consideration of the singular personal skill, qualifications and trust and confidence reposed in
Subfranchisee or, in the case of a corporate or partnership franchisee, the principal officers or
partners thereof who will actively and substantially participate in the ownership and operation of
the Franchised Business. Therefore, neither Subfranchisee's interest in this Agreement nor any of
its rights or privileges nor any interest in the Franchised Business or in the Subfranchisee shall be
assigned, transferred, shared or divided, voluntarily or involuntarily, by operation of law or
otherwise, directly or indirectly, in any manner, without the prior written consent of Subfranchisor
and subject to Subfranchisor's right of first refusal as provided for in subparagraph 9.4 of this
Article IX. Notwithstanding anything herein to the contrary, in the event of the death or legal
incapacity of Subfranchisee or, in the case of a corporate franchisee, a shareholder owning twent y
percent (20%) or more of the Subfranchisee's capital shares or voting power, or in the case of a
general or limited partnership Subfranchisee, a general partner owning twenty percent (20%) or
more of the partnership interest, the transfer of Subfranchisee's interest in this Agreement or such
shareholder's stock or voting power or partner's partnership interest, to his heirs, personal
representatives or conservators, as applicable, shall require Subfranchisor's written consent, but
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shall not give rise to Subfranchisor's right of first refusal hereunder (as set forth in Section 9.4,
hereafter), although such right of first refusal shall apply as to any proposed transfer or assignment
by such heirs, personal representatives or conservators.
(b) Should Subfranchisor not elect to exercise its said right of first refusal, or should such right
of first refusal be inapplicable, as herein provided, Subfranchisor may impose any reasonable
condition(s) to the granting of its consent. Without limiting the generality of the foregoing, the
imposition of any or all of the following conditions to its consent to any such assignment shall be
deemed to be reasonable:
(i) that the assignee (or the principal officers, shareholders, directors or partners of the
assignee in the case of a corporate or partnership assignee) demonstrate that he has the skills,
qualifications and economic resources necessary, in Subfranchisor's judgment, reasonably
exercised, to own and operate the Franchised Business contemplated by this Agreement, and by all
other agreements between the Subfranchisor and such assignee, and all agreements proposed to be
assigned to such assignee.
(ii) that the assignee expressly assumes in writing for the benefit of Subfranchisor all of the
obligations of Subfranchisee under this Agreement;
(iii) that the assignee shall have completed the Subfranchisor's training program to
Subfranchisor's satisfaction, exercised in good faith;
(iv) that as of the date of any such assignment, the assignor shall have strictly compli ed with
all of its obligations to Subfranchisor, whether under this Agreement or any other agreement,
arrangement or understanding with Subfranchisor;
(v) that unless Subfranchisor agrees otherwise in writing the assignee shall execute
Subfranchisor's franchise agreement then being offered to prospective franchisees of
Subfranchisor (except that the assignee shall not be obligated to pay the Initial Fee and the Term
thereof shall expire on the stated expiration date of this Agreement) and assignor shall assign to the
assignee the lease or sublease for the Restaurant and all other agreements relating to the
Franchised Business;
(vi) that the lessor, if any, of the Location shall have consented to the assignment of the
Location lease;
(vii) that Subfranchisee shall have expressly agreed in writing to comply with the non-
competition covenants set forth in Article X hereof and with all other post-termina tion obligations
contained herein; and
(viii) that the assignee shall pay to Subfranchisor a transfer fee equal to
Dollars ($ ) which is reasonably required to cover its expenses relating to said assignme nt, and
a training fee of Dollars ($ ), except that Subfranchisor will agree to
waive such training fee if the case of an assignment to an existing franchisee who is not then in
default of any of his obligations under his Franchise Agreement to Subfranchisor.
(c) If Subfranchisee is a corporation, the death or legal incapacity of any shareholder owning
twenty percent (20%) or more of the capital shares or voting power of Subfranchisee, the issuance
of any securities by Subfranchisee, the transfer of twenty percent (20%) or more in the aggregate
of the capital shares or voting power of Subfranchisee, by operation of law or otherwise, or any
merger, share redemption, consolidation, reorganization or recapitalization involving
Subfranchisee, shall be deemed to be an assignment of this Agreement within the meaning of this
Article XI. If Subfranchisee is a partnership, the legal incapacity, death or withdrawal of any
general partner, admission of any additional general partner, or the transfer of any general pa rtner's
Form 2.03[3]
2033-26©
STP FF 10/96
interest in the property, management or profits and/or losses of the partnership shall be deem ed to
be an assignment hereunder. (d) Subfranchisee shall not in any event have the right to pledge, encumber, hypothecate or
otherwise give any third party a security interest in this Agreement in any manner whatsoever.
9.3 Franchisee Inf
