Franchise Agreement
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EXHIBIT A
Boston Pizza Restaurants, LP FRANCHISE AGREEMENT
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ITEM
TABLE OF CONTENTS
PAGE
I. GRANT OF FRANCHISE.......................................................................................................2
A. Grant...................................................................................................................................2
B. Territory.............................................................................................................................2
C. Relocation...........................................................................................................................3
D. Reservation of Certain Rights............................................................................................4
H. TERM AND RENEWAL..........................................................................................................4
A. Initial Term.........................................................................................................................4
B. Renewal Term....................................................................................................................4
IH. DUTIES OF FRANCHISOR....................................................................................................5
A. Pre-Opening Obligations..................,.................................................................................5
B. Post-Opening Obligations..................................................................................................6
IV. FEES...........................................................................................................................................7
A. Payments to Franchisor......................................................................................................7
B. Audit & Reporting Procedures...........................................................................................7
C. Definition of Gross Sales...................................................................................................8
V. DUTIES OF FRANCHISEE....................................................................................................8
A. Compliance with System....................................................................................................8
B. Site Requirements...............................................................................................................8
C. Pre-Opening Requirements................................................................................................9
D. Construction and Opening Requirements...........................................................................9
E. Initial Training..................................................................................................................10
F. Investor Orientation Program...........................................................................................10
G. Supervision Requirements................................................................................................10
H. On-Going Training and Bi-Annual Meetings...................................................................11
I. Operation of the Franchised Business..............................................................................11
J. Maintenance and Equipment Upgrades............................................................................11
K. Health and Safety Standards.............................................................................................11
L. Working Capital...............................................................................................................11
M. Refurbishment..................................................................................................................12
N. Compliance with Uniform Standards...............................................................................12
O. Purchase and Lease of Products, Equipment and Supplies..............................................13
P. Inspection of Premises......................................................................................................13
Q. Proprietary Methods.........................................................................................................13
R. Development of the Market..............................................................................................13
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S. Display of Proprietary Marks and Logos.........................................................................13
T. Computerized Point-of-Sale System................................................................................14
U. Intranet/Extranet...............................................................................................................14
V. Franchisee's Organizational Structure.............................................................................14
W. Execution of Guaranty, Undertaking and Other Requirements........................................15
VI, PROPRIETARY MARKS......................................................................................................15
A. Grant of License...............................................................................................................15
B. Conditions for Use............................................................................................................16
C. Acknowledgements..........................................................................................................17
VH. CONFIDENTIAL MANUALS...............................................................................................17
A. Compliance.......................................................................................................................17
B. Use....................................................................................................................................18
C. Confidentiality..................................................................................................................18
D. Trade Secrets....................................................................................................................18
E. Access...............................................................................................................................18
F. Duplication.......................................................................................................................18
G. Franchisor's Property.......................................................................................................18
H. Updates or Revisions........................................................................................................18
I. Master Set.........................................................................................................................18
J. Replacement Fee..............................................................................................................18
Vffl. CONFIDENTIAL INFORMATION.....................................................................................18
A. Confidential Relationship.................................................................................................18
B. Obligations of Franchisee and Principals.........................................................................19
C. Confidential Information Defined....................................................................................19
D. Protection of Information.................................................................................................19
E. Remedies..........................................................................................................................20
F. Communication with Customers......................................................................................20
G. Communication with Lenders..........................................................................................20
DC. ACCOUNTING, INSPECTIONS AND RECORDS............................................................20
A. Maintenance of Books and Records.................................................................................20
B. Reporting..........................................................................................................................20
C. Financial and Related Reporting......................................................................................20
D. Other Submissions............................................................................................................21
E. Inspection of Financial Records.......................................................................................21
X. ADVERTISING.......................................................................................................................21
A. Submission and Approval of Promotional and Marketing Materials...............................21
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B. The National Cooperative Advertising Fund Contribution..............................................21
C. Minimum Local Marketing Expenditure..........................................................................22
XI. INSURANCE...........................................................................................................................22
A. Procurement......................................................................................................................22
B. Minimum Coverage.......................................................................................................... 22
C. Construction Coverage.....................................................................................................23
D. Certificates.......................................................................................................................23
E. Independence of Coverage Requirements........................................................................23
F. Failure to Procure.............................................................................................................23
G. Third Parties.....................................................................................................................24
Xn. TRANSFER OF INTEREST..................................................................................................24
A. Transfer by Franchisor.....................................................................................................24
B. Transfer by Franchisee.....................................................................................................24
C. Additional Transfer Requirements for Legal Entity Transferees.....................................27
D. Offerings by Franchisee...................................................................................................27
E. Franchisor's Right of First Refusal..................................................................................27
F. Transfer Upon Death or Mental Incapacity......................................................................28
G. Non-Waiver of Claims.....................................................................................................28
H. Operation of the Franchised Business by Franchisor.......................................................28
Xm. DEFAULT AND TERMINATION........................................................................................28
A. Material Default With No Opportunity To Cure..............................................................28
B. Default With Thirty (30) Day Opportunity To Cure........................................................31
C. No Right or Remedy.........................................................................................................32
D. Default and Termination..................................................................................................32
E. Right to Purchase..............................................................................................................32
F. Liquidated Damages.........................................................................................................32
XIV. OBLIGATIONS UPON TERMINATION............................................................................32
A. Cessation of Operation.....................................................................................................32
B. Cessation of Use of Proprietary Marks............................................................................32
C. Cancellation of Name.......................................................................................................33
D. Optional Assignment of Lease.........................................................................................33
E. Franchisor's Right to Continue Operations......................................................................33
F. Non-Usage of Marks........................................................................................................33
G. Prompt Payment Upon Default........................................................................................34
H. Payment of Costs..............................................................................................................34
I. Return of Materials...........................................................................................................34
J. Assignment of Telephone Listings...................................................................................34
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K. Option to Purchase...........................................................................................................34
L. Covenant of Further Assurances......................................................................................35
M. Compliance with Covenants.............................................................................................35
N. No Further Interest...........................................................................................................35
XV. COVENANTS, REPRESENTATIONS AND WARRANTIES..........................................35
A. Best Efforts.......................................................................................................................35
B. Non-Solicitation and Non-Competition...........................................................................35
C. Restrictive Covenants.......................................................................................................35
D. No Undue Hardship..........................................................................................................36
E. Inapplicability of Restrictions..........................................................................................36
F. Independence of Covenants..............................................................................................36
G. Mission.............................................................................................................................36
H. Modification of Covenants...............................................................................................36
I. Enforcement of Covenants...............................................................................................36
J. Injunctive Relief...............................................................................................................36
K. Terrorist and Money Laundering Activities.....................................................................37
L. Written Agreements.........................................................................*...............................37
XVI. CHANGES AND MODIFICATIONS...................................................................................37
XVn. TAXES AND INDEBTEDNESS............................................................................................38
A. Payment............................................................................................................................38
B. Dispute.............................................................................................................................38
C. Compliance with Federal, State and Local Laws.............................................................38
D. Duty to Notify..................................................................................................................38
XVm. INDEPENDENT CONTRACTOR AND INDEMNIFICATION.......................................38
A. Independent Contractor and Indemnification...................................................................38
B. Identification....................................................................................................................39
C. No False Representations.................................................................................................39
D. No Liability......................................................................................................................40
XIX. APPROVALS AND WAIVERS.............................................................................................40
A. Written Consent................................................................................................................40
B. No Waiver........................................................................................................................40
C. WAIVER OF JURY TRIAL............................................................................................40
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XX. NOTICES.................................................................................................................................41
XXI. RELEASE OF PRIOR CLAIMS...........................................................................................41
XXn. DISCLOSURE STATEMENT AND DISCLAIMER..........................................................41
A. Compliance with Applicable Laws..................................................................................41
B. Receipt of Agreement.......................................................................................................41
XXni. ENTIRE AGREEMENT........................................................................................................42
XXIV. SEVERABILITY AND CONSTRUCTION.........................................................................42
A. Severability.......................................................................................................................42
B. Business Judgment...........................................................................................................42
C. Covenants.........................................................................................................................43
D. Captions............................................................................................................................43
E. References........................................................................................................................43
F. Definition of Franchisee...................................................................................................43
G. Force Majeure...................................................................................................................43
XXV. APPLICABLE LAW..............................................................................................................43
A. Governing Law.................................................................................................................43
B. Jurisdiction and Venue.....................................................................................................43
C. Remedy.............................................................................................................................44
D. Injunctive Relief...............................................................................................................44
XXVI. LIMITATIONS ON CLAIMS AND DAMAGES................................................................44
XXVII. ACKNOWLEDGMENTS......................................................................................................44
ATTACHMENTS TO FRANCHISE AGREEMENT:
Attachment A: Location Addendum
Attachment B: Mandatory Addendum to Lease Agreement
Attachment C: Telephone Assignment Agreement and Power of Attorney
Attachment D: Guaranty and Undertaking
Attachment E: Certificate of Corporate Status
Attachment F: Boston Link Franchisee Agreement
Attachment G: Principals' Undertaking
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BOSTON PIZZA RESTAURANTS, LP FRANCHISE AGREEMENT
THIS AGREEMENT is made and entered into this Insert Day day of Insert Month, Insert
Year(the "Effective Date"), by and between Boston Pizza Restaurants, LP, a limited partnership formed under the laws of the State of Delaware, whose principal place of business is 1501 LBJ Freeway, Suite 450, Dallas, Texas, 75234 (hereinafter referred to as "BPR" or "Franchisor") and Insert Name of Franchisee, a Insert kind of entity, with a current address of Insert Address (hereinafter referred to as the "Franchisee").
WITNESSETH:
WHEREAS, the Franchisor holds the exclusive United States franchise rights to a proprietary system owned by BP International Rights Holdings Inc. ("BP Holdings"), which has been developed through significant expenditures of time, skill, effort and money (hereinafter the "System") relating to the establishment, development and operation of a Boston's The Gourmet Pizza restaurant operating under the System and the Proprietary Marks which offers pizza and pasta dishes in a full service casual dining restaurant environment (hereinafter a "Restaurant", which term includes both franchised outlets and outlets owned by Franchisor or its affiliates);
WHEREAS, the System features a distinctive exterior and interior design, decor, color scheme, fixtures and furnishings for Restaurants, as well as uniform standards, specifications, methods, policies and procedures for Restaurant operations, inventory and management control, training and assistance, and advertising and promotional programs, all of which may be changed, improved upon, and further developed from time to time;
WHEREAS, Franchisor, through its dedicated operations, marketing methods, and merchandising policies, has developed the reputation, public image and goodwill of its System and established a firm foundation for its Restaurant operations consisting of the highest standards of training, management, supervision, appearance, services and quality of products;
WHEREAS, the System is identified by means of certain trade names, service marks, trade marks, logos, emblems and indicia of origin, including the mark Boston's The Gourmet Pizza and logo, and such other trade names, service marks, and trademarks as are now, and may hereafter be designated for use in connection with the System (the "Proprietary Marks") which Proprietary Marks are owned by BP Holdings;
WHEREAS, BP Holdings has licensed and granted Franchisor the exclusive right and license to sub-license and monitor the use of the System and the Proprietary Marks in the United States;
WHEREAS, BP Holdings continues to develop, expand, use, control and add to the Proprietary Marks and the System for the benefit of and exclusive use by the Franchisor and its franchisees in order to identify for the public the source of the products and services marketed there under and to represent the System's high standards of quality and service;
WHEREAS, the Franchisee acknowledges its contract is solely with the Franchisor, a limited partnership, and that it shall have no recourse against Boston Pizza Restaurants (U.S.A.), Inc. ("BP USA") as a limited partner or otherwise or against BP Holdings or any of Franchisor's other affiliated entities, and that it is relying exclusively on the assets, equity, and credit of Boston Pizza Restaurants, LP and its corporate general partner;
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WHEREAS, the Franchisee desires to operate a Restaurant under the System and the Proprietary Marks and to obtain a license from the Franchisor for that purpose, as well as to receive the training and other assistance provided by the Franchisor in connection therewith;
WHEREAS, the Franchisee hereby acknowledges that it has read this Agreement and the Franchisor's Uniform Franchise Offering Circular, and that it has no knowledge of any representations about the Restaurants or about the Franchisor or its franchising program or policies made by the Franchisor or by its officers, directors, shareholders, employees or agents which are contrary to the statements in the Franchisor's Uniform Franchise Offering Circular or to the terms of this Agreement, and that it understands and accepts the terms, conditions and covenants contained in this Agreement as being reasonably necessary to maintain the Franchisor's high standards of quality and service and the uniformity of those standards at all facilities which operate pursuant to the System and thereby to protect and preserve the goodwill of the Proprietary Marks; and
WHEREAS, the Franchisee understands and acknowledges the importance of the Franchisor's uniformly high standards of quality and service and the necessity of operating the Franchised Business granted hereunder in strict conformity with the Franchisor's quality control standards and specifications.
NOW, THEREFORE, the parties, in consideration of the promises, undertakings and commitments of each party to the other set forth herein, hereby mutually agree as follows:
I. GRANT OF FRANCHISE
A. Grant. The Franchisor hereby grants to the Franchisee and Franchisee accepts, upon the terms and conditions herein contained, the non-exclusive and personal license, right and authority to operate a Restaurant (The Restaurant operated under this Agreement shall be referred to herein as the "Franchised Business") in strict conformity with the Franchisor's quality control standards and specifications which are a material part of the System, which may be changed, improved and further developed from time to time, only at the Franchised Location more particularly described in Attachment A. The Franchisee hereby accepts such license and agrees to perform all of its obligations in connection therewith as set forth herein. The Franchisee must secure control of the site (that is, have a binding letter of intent or a signed purchase or option agreement) and must receive the Franchisor's written approval for the site within one hundred and twenty (120) days of the Effective Date.
B. Territory. Provided the Franchisee at all times remains in full compliance with its obligations under this Agreement, the Franchisor agrees not to commence operation of, or grant a third party the right to commence operation of, a Restaurant at a physical premises within a one (1) mile radius of the Franchised Location set forth in Attachment A, unless such location is within the geographic boundaries of a statistical metropolitan area ("SMA") with a population greater than one million persons, in which case the Franchisor agrees not to commence operation of, or grant a third party the right to commence operation of, a Restaurant within a one-half (1/2) mile radius of the Franchised Location (the "Territory"). However, the Franchisor reserves the right to commence operation of, or grant a third party the right to commence operation of, "quick express" units within non-captive venues within the Territory, after providing the Franchisee with a thirty (30) day right of first refusal. The Franchisor also reserves the right to commence operation of, or grant a third party the right to commence operation of, "quick express" units in any captive venues within or outside the Territory, and the Franchisee shall not have any right of first refusal for "quick express" units located within captive venues. For purposes of this Agreement, "captive" venues means locations in which customers will primarily be drawn from an enclosed or limited facility, including, but not limited to, sports facilities and arenas, entertainment facilities, amusement parks, auditoriums, public transportation facilities, military bases and government facilities, college campuses, shopping malls (including food courts), grocery stores and supermarkets, hospitals and any other similar facilities and locations. A "quick express" unit is a Boston's The Gourmet Pizza restaurant operating under the System and the Proprietary Marks which offers a limited menu and/or limited service (rather than full service). Franchisor reserves all rights not expressly granted
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herein, including without limitation, the right to take the following actions within or outside the Territory regardless of proximity to, or competitive impact on, the Franchised Business:
1. Commence operation of company-owned Restaurants or license third parties to commence operation of Restaurants providing products or services under marks other than the Proprietary Marks;
2. Notwithstanding any rights of first refusal granted to Franchisee under this Section I.B., offer and sell food products, including frozen products, under the Proprietary Marks or any other marks, through grocery stores, convenience stores, hotel shops and kiosks, theatres, gas stations or other retail locations, or through mail order or catalogues or on the Internet;
3. Notwithstanding any rights of first refusal granted to Franchisee under this Section I.B., offer or sell food products, including frozen products, under the Proprietary Marks or any other marks at "Special Events" after providing the Franchisee with thirty (30) days notice and a ten (10) day opportunity to participate in the "Special Event" pursuant to terms agreeable to the Franchisor and the Franchisee. "Special Event" means carnivals, fairs, school events, charity functions, community festivals, conventions, business gatherings, private parties and similar events and gatherings that last for no more than 30 consecutive days; and
4. Subject to the right of first refusal granted to Franchisee under this Section I.B., offer or sell any products or services, under the Proprietary Marks or any other marks, through any other channel of distribution.
The Franchisor may commence operation of company-owned Restaurants or license third parties to commence operation of Restaurants at any site the Franchisor deems appropriate outside of the Territory.
C. Relocation. Franchisee may relocate the Franchised Business to a new location in the Territory upon the following conditions:
1. Franchisee shall not be in default of any provision of this Agreement, any ancillary agreement with the Franchisor or the lease for the existing location;
2. Franchisee shall deliver to Franchisor a current financial statement, including a profit and loss statement for the Franchised Business during the last twelve (12) months of operation, dating back from the date of Franchisee's request, at the existing location, and a copy of the proposed lease, if applicable, for the new location;
3. The proposed new location for the Franchised Business is not within the development territory or the individual territory of any other existing or proposed Restaurant;
4. The proposed new location for the Franchised Business is acceptable to Franchisor in its sole discretion;
5. The new Franchised Business must be constructed, located and equipped in accordance with Franchisor's then current design and other standards; and
6. Franchisee must be current on all of Franchisee's financial obligations to Franchisor and its affiliates.
7. The Franchisee must receive prior written approval from BPR.
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Franchisee must give Franchisor written notice of the proposed relocation one hundred eighty (180) days before the relocation date. In the event that Franchisee fails to timely deliver such notice, this shall be grounds for default with opportunity to cure as set forth in Section XHLB herein. Relocation without providing proper notice as required in this Section to the Franchisor shall be grounds for default without opportunity to cure as set forth in Section XIII.A herein. The Franchised Business must open for business in the new location within thirty (30) days (which may be extended for another thirty (30) days for good cause (as solely determined by "BPR") of the date on which the Franchised Business in the old location closed. Franchisee shall also enter into Franchisor's then-current form of Franchise Agreement, including the then-current royalty rate and advertising contributions and expenditures. Franchisee must provide Franchisor with a copy of the site purchase agreement or executed lease, as applicable, for the new location.
D. Reservation of Certain Rights. Subject to Section LB. hereinabove, the Franchisor reserves the right to commence operation of Restaurants at any site the Franchisor deems appropriate. The Franchisor also reserves the right to sell related products and services in other channels of distribution as set forth in Section LB. The Franchisor reserves the right to offer, grant and support franchises in similar and other lines of business. The Franchisor makes no representation or warranty to the Franchisee that there will be any right to participate in such franchises.
EL TERM AND RENEWAL
A. Initial Term. Except as otherwise provided herein, the term (the "Initial Term") of this Agreement shall be for ten (10) years commencing on the Scheduled Opening Date.
B. Renewal Term. The Franchisee may, at its option, continue the Franchised Business for an additional ten (10) year term, or at Franchisor's sole option, such period as remains in the existing lease underlying the initial term of this Agreement, if such period shall be shorter than ten (10) years (the "Renewal Term"). The Initial Term and the Renewal Term shall be referred to collectively as the "Term" throughout this Agreement. Renewal shall be subject to the following conditions, which must be met prior to the Renewal Term, unless and to the extent expressly waived in writing by the Franchisor:
1. The Franchisee shall give the Franchisor written notice of its election to renew this Agreement not less than six (6) months prior to the end of the current term of this Agreement;
2. At least six (6) months prior to the expiration of the current term of this Agreement or one (1) month after the date of notice pursuant to Section H.B.1. whichever is later, the Franchisor may inspect the Franchised Business and give notice of all required modifications to the nature and quality of the products and services offered at the Franchised Business, the Franchisee's advertising, marketing and promotional programs, its financial and inventory control systems, and the maintenance, refurbishing, equipment upgrade and replacement, renovating and remodelling necessary to comply with the Franchisor's then current standards and specifications and with the requirements of the lease for the Franchised Business. If the Franchisee elects to renew this Agreement, then the Franchisee shall complete, to the Franchisor's satisfaction, all such required modifications, as well as adopt and implement any new methods, programs, modifications, techniques or operational systems required by the Franchisor's notice no later than two (2) months prior to expiration of the current term of this Agreement;
3. The Franchisee shall not be in default of any provision of this Agreement, any amendment hereof or successor hereto, or any other agreement between the Franchisee and the Franchisor or its subsidiaries, affiliates and suppliers. The Franchisee shall have substantially complied with all of the terms and conditions of such agreements during the terms thereof and shall not have committed any Material Defaults during the term of the Agreement;
4. The Franchisee shall have satisfied all monetary obligations (which shall not include any incorrect billings by Franchisor) owed by the Franchisee to the Franchisor and its subsidiaries,
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affiliates and suppliers and shall have timely met those obligations throughout the term of this Agreement;
5. The Franchisee shall have executed upon renewal the Franchisor's then-current form of Franchise Agreement. The new Franchise Agreement shall supersede in all respects this Agreement, and the terms of which may differ from the terms of this Agreement, including, without limitation, the requirement of a higher percentage royalty fee and/or advertising contributions. In lieu of the then current initial franchise fee or its equivalent for such renewal period, however, the Franchisee shall be required to pay a renewal fee of twenty-five percent (25%) of the then-current initial franchise fee;
6. The Franchisee or its Operating Principal and its approved manager or managers, including its General Manager and Kitchen Manager as designated from time to time by Franchisor in Franchisor's sole discretion, shall have attended the Franchisor's then-current orientation and training programs at the Franchisee's expense;
7. The Franchisee, its shareholders, directors and officers shall have executed a general release, in a form prescribed by the Franchisor, of any and all claims against the Franchisor and its subsidiaries and affiliates, and their respective officers, directors, agents and employees. The Franchisee shall not be required, however, to release the Franchisor for violations of or failure to comply with federal or state franchise registration and disclosure laws;
8. The Franchisee shall have presented evidence satisfactory to the Franchisor that it has the right to remain in possession of the premises where the Franchised Business is located for the duration of the renewal term;
9. The Franchisee's operation and management of the Franchised Business shall be in frill compliance with the System; and
10. The Franchisee shall maintain and be in good standing with all of its necessary and applicable licenses and permits.
In the event that any of the foregoing conditions to renewal have not been met at least two (2) months prior to the expiration of the current term of this Agreement, then the Franchisor shall have no obligation to renew this Agreement and shall give the Franchisee at least thirty (30) days prior written notice of its intent not to renew this Agreement, which notice shall set forth the reasons for such refusal to renew.
HI. DUTIES OF FRANCHISOR
A. Pre-Opening Obligations. The duties of the Franchisor prior to the opening of the Franchised Business are as follows:
1. To provide an Initial Training program in the operation of the Franchised Business, featuring both classroom and on-the-job training, for the Franchisee, or Operating Principal, and up to three (3) of its approved managers, including its General Manager and Kitchen Manager, and also provide an Investor Orientation Program for all non-operating Principals;
2. To provide the Franchisee with written specifications for the operation and management of the Franchised Business;
3. To loan to the Franchisee one (1) set of the Franchisor's confidential systems manuals (the "Manuals") that will include specifications for management and operations, equipment, supplies, and inventory. The Manuals are confidential and remain the property of the Franchisor. The Franchisor may modify the Manuals from time to time in its sole discretion;
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4. To provide a set of prototypical plans for the construction of a typical Restaurant. These plans are for informational purposes only and shall not be relied upon by the Franchisee in the construction of its Franchised Business. The Franchisee is required to employ a registered architect and/or engineer previously approved by BPR, develop its own working drawings for the construction of its Franchised Business which must substantially comply with Franchisor's prototypical plans unless changes are approved in writing in advance by Franchisor, and provide all final design and construction documents to the Franchisor for its review and approval prior to the commencement of construction;
5. To provide the Franchisee with such site selection assistance as the Franchisor deems advisable, subject to the availability of personnel. The Franchisor's written approval of the site is required as evidenced by execution of Attachment A; however, a designation of the site as being suitable for a Restaurant shall not be deemed a representation or warranty as to the likelihood of success by the Franchisee. THE FRANCHISOR HAS PROVIDED NO DATA AND MADE NO STATEMENT THAT WOULD EXPRESSLY OR IMPLIEDLY SUGGEST THAT APPROVAL OF A SITE IS ANY REPRESENTATION AND WARRANTY OF THE SITE'S EVENTUAL PERFORMANCE. The Franchisee acknowledges and agrees that its success will be due to factors beyond the control of the Franchisor; and
6. To provide to the Franchisee up to five (5) employees to provide on-site pre-opening and opening supervision and assistance for three (3) weeks. BPR reserves the right to charge three hundred fifty dollars ($350) per employee per day for this on-site training in its sole discretion. This on-site training is in addition to the initial training program described in Section HI.A. 1, above, which is provided free of charge, except that, the Franchisee must pay the expenses of its attendees at the initial training program.
B. Post-Opening Obligations. The obligations of the Franchisor following the opening of the Franchised Business are as follows:
1. To provide such general advisory assistance and field support deemed by Franchisor, in Franchisor's sole discretion, to be helpful to the Franchisee in the ongoing operation, advertising and promotion of the Franchised Business including the provision of periodic Brand Equity Review ("B.E.R.") Assessments. In the event that the Franchised Business fails a B.E.R. assessment, the Franchisor will charge the Franchisee for all costs associated with such assessment;
2. To continue its efforts to establish and maintain high standards of quality, cleanliness, safety, customer satisfaction and service;
3. To provide to the Franchisee updates, revisions and amendments to its Manuals, as the Franchisor deems advisable in its sole discretion;
4. Subject to the availability of the Franchisor's staff, to provide management consulting services for special projects or assistance at the rate of three hundred fifty dollars ($350) per person per day, plus reimbursement of all reasonable expenses incurred by the Franchisor in connection with the rendering of such services. (The Franchisor reserves the right to make reasonable adjustments from time to time to such daily rate in its sole discretion; these consulting fees are non-refundable and must be paid in advance.) Such services will be provided only upon the request of the Franchisee, and do not include Franchisor's periodic BE.R. Assessment of the Franchised Business or advice unilaterally given by the Franchisor with respect to concept changes required by the Franchisor;
5. To administer the National Cooperative Advertising Fund with the advertising contributions remitted by its franchisees;
6. To coordinate and conduct periodic mandatory training programs for its network of franchisees as the Franchisor deems necessary in its sole discretion; and
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7. On a periodic basis, to conduct, as the Franchisor deems advisable, quality control audits of the Franchised Business and its operations and evaluations of the methods and the staff employed therein.
All of the obligations of the Franchisor hereunder are to the Franchisee, and no other party is entitled to rely on, enforce or obtain relief for breach of such obligations either directly or by subrogation.
IV. FEES
A. Payments to Franchisor. In consideration of the right and license to operate the Franchised Business granted herein, the Franchisee shall pay to the Franchisor the following fees:
1. Initial Franchise Fee. The total initial franchise fee payable to the Franchisor by the Franchisee is fifty thousand dollars ($50,000) which is payable upon execution of the Franchise Agreement. The initial franchise fee is deemed fully earned upon receipt by the Franchisor, and is nonrefundable.
2. Royalty Fees. The Franchisee shall pay to the Franchisor a continuing nonrefundable weekly royalty fee of five percent (5%) of Gross Sales as that term is defined herein. Subject to applicable banking laws and regulations, the Franchisor shall establish a direct debit program with the Franchisee's bank to allow for the electronic transfer of the weekly royalty payment. In the event that the direct debit program is not available, Franchisee must pay the Franchisor directly and the payment must be received by the Franchisor on the Thursday of the week following the week for which the payment is due.
3. Mandatory Advertising. Throughout the term of this Agreement and any renewals thereof, the Franchisee must spend a total of four percent (4%) of its Gross Sales on local marketing and the National Cooperative Advertising Fund (the "Advertising Fund"). The Franchisor will require the Franchisee to contribute three percent (3%) of its Gross Sales to the Advertising Fund and to spend one percent (1%) of its Gross Sales on local marketing, for a total of four percent (4%) of Gross Sales on mandatory advertising, both as required pursuant to Section X.
4. Interest Charges on Late Payments. If any sums required to be paid by the Franchisee to the Franchisor under this Agreement are not received in full by the Franchisor when due, Franchisor shall assess a late fee of one hundred dollars ($100) for each week that any payment is delinquent. In addition, all overdue amounts will bear interest, until paid, at the rate of two (2) times the prime rate then being charged by the Chase Manhattan Bank, N.A. on the date payment was due, or the highest rate permitted by applicable state law, whichever is less (the "Default Rate"). Interest shall be calculated on a daily basis. Interest charges are non-refundable. Such interest shall be in addition to any other remedies Franchisor may have.
B. Audit & Reporting Procedures. The Franchisor has the right to audit the books and records of the Franchisee upon reasonable notice. An audit will be conducted at the Franchisor's expense, unless such audit discloses an understatement in any report of three percent (3%) or more, in which case the Franchisee must pay for any and all costs and expenses incurred by the Franchisor in connection with the audit (including, without limitation, reasonable accountants' and attorneys' fees), together with interest on undisclosed or under-reported amounts at the Default Rate, which will be payable immediately upon receipt of written notice from the Franchisor. All such audit fees, costs and expenses, as well as the interest thereon, are non-refundable.
The Franchisee must maintain and preserve during the term of this Agreement, and must preserve for the time period specified in the Manuals, full, complete and accurate books, records and accounts and all supporting materials in accordance with the Franchisor's procedures and guidelines. The Franchisee is required by this Agreement to periodically submit to the Franchisor, at the Franchisee's expense, certain
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reports, records, information and data as the Franchisor may reasonably designate upon request or as specified in writing.
During the term of this Agreement, the Franchisee must submit to the Franchisor, a financial statement including all Gross Sales during the preceding month and such other data and information regarding the operation of the Franchised Business as the Franchisor may reasonably require. All such reports must be received by the Franchisor on or before the tenth (10th) day of each calendar month. The Franchisee must also submit to the Franchisor, upon request, a copy of any of its federal and state sales or income tax returns applicable to the Franchised Business.
At its expense, the Franchisee must submit to the Franchisor an annual financial statement that includes an income statement in a form acceptable to the Franchisor and Franchisee's lender, together with copies of federal and state tax returns for the Franchisee within ninety (90) days of the Franchisee's fiscal year end. The financial statement must be compiled by an independent certified public accounting firm and signed by the Franchisee's President or Treasurer attesting that the statement is true and correct.
The Franchisee must also submit exact copies of the Franchisee's invoices for goods purchased from suppliers and copies of Franchisee's operating reports to its landlord and/or shopping mall operator immediately following Franchisor's request for the same.
C. Definition of Gross Sales. "Gross Sales" is defined as all sales generated through the Franchised Business including fees for any products or goods sold by the Franchisee, whether for cash or credit (regardless of collectability, except as provided below), and income of every kind or nature related to the Franchised Business, including, without limitation, revenues from the sale of branded merchandise and food products and from the use of jukeboxes, vending machines, video games, pinball machines or similar arcade-like machines, and from video lottery terminals where permitted by law; provided, however, that "Gross Sales" shall not include any sales tax or other taxes collected from customers by the Franchisee for transmittal to the appropriate taxing authority. When calculating Gross Sales, the Franchisee may deduct that portion of the normal full menu price of any item that is not collected by the Franchisee as a result of Franchisor-approved promotions (whether local or system-wide, including coupons) and manager discounts (collectively, "Sales Discounts"), as well as discounted employee meals. Sales Discounts and discounted employee meals must be fully disclosed on all reports submitted to the Franchisor by the Franchisee and Franchisor reserves the right, in its sole discretion, to disallow any Sales Discounts not meeting the requirements set forth herein. Sales Discounts and discounted employee meals each may not exceed two and one-half percent (2'/2%) of Gross Sales (as calculated prior to the deduction for Sales Discounts and discounted employee meals).
V. DUTIES OF FRANCHISEE
A. Compliance with System. The Franchisee understands and acknowledges that every detail of the appearance and operation of the Franchised Business in compliance with the System is critical to the Franchisor, the Franchisee and other franchisees in order to:
1. Develop and maintain high and uniform operating standards;
2. Increase the demand for the products and services sold by franchisees; and
3. Protect the Proprietary Marks and the System, and the Franchisor's trade secrets, reputation and goodwill.
B. Site Requirements. The Franchisee will have a period of one-hundred twenty (120) days following the Effective Date of this Agreement to secure Franchisor's approval of the site as evidenced by franchisor's execution of Attachment A, and to provide the Franchisor with fully executed site control documents and related addenda that may be required by the Franchisor in its sole discretion. At the
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Franchisees request, the Franchisor may, in its sole discretion, provide general site-related assistance to the Franchisee, provided that the Franchisee understands and agrees that the Franchisor makes no warranty regarding the Franchise Business, or the Franchisee's success or failure at the Franchisee's chosen site.
C. Pre-Qpening Requirements. The Franchisee will have a period of two hundred ten (210) days following the Effective Date of this Agreement to commence construction of the Franchise Business. Commencement of construction is defined as excavation for footings with continuous, uninterrupted construction progress thereafter until opening of the facility. Before commencing any construction or leasehold improvements of the Franchised Business, the Franchisee, at its expense, shall comply with all of the following requirements.
1. The Franchisee shall have received the Franchisor's prior written approval of the site selected by the Franchisee for the operation of the Franchised Business, as evidenced by the parties' execution of Exhibit A and submittal of all fully executed site control documents, in accordance with the terms of this Agreement;
2. The proposed site must be in compliance with all applicable local and state laws, regulations and ordinances including all zoning, signage and parking requirements;
3. The Franchisee agrees to be responsible for all reasonable expenses incurred by the Franchisor in its review and approval of the proposed site(s), the Franchisor's review and monitoring of the construction of the Franchised Business and the final inspection of the Franchised Business prior to its authorized opening.
4. The Franchisee shall employ a qualified general contractor, or such other qualified person as the Franchisor may approve, in its sole discretion for the purposes of supervising the construction of the Franchised Business and ensuring the completion of all construction or leasehold improvements. The Franchisee shall submit to the Franchisor a statement identifying the general contractor and describing the general contractor's qualifications and financial responsibility, and the Franchisor shall supply the Franchisee with its approval or disapproval of the general contractor within ten (10) business days of the Franchisor's receipt of such statement;
5. The Franchisee shall obtain all liquor and business licenses, permits and certifications required for lawful construction and ongoing operation of the Franchised Business (including, without limitation, zoning, access, variances, health and safety, sign and fire requirements) and shall certify in writing to the Franchisor that all such licenses, permits and certifications have been obtained;
6. The Franchisee shall provide to the Franchisor written evidence of the Franchisee's funding commitments in a form acceptable to the Franchisor. The Franchisee further agrees to provide the Franchisor with authorization to contact funding sources directly to discuss all financial aspects of the proposed development.
7. The Franchisor shall secure construction insurance coverage as required in Section XI.C.
D. Construction and Opening Requirements. The Franchisee shall completely construct and equip, at Franchisee's expense, the approved Franchised Location in accordance with Franchisor's standards and specifications. During the period of construction, Franchisee shall provide to Franchisor such periodic progress reports as Franchisor may require, in its sole discretion. Such reports shall be signed by Franchisee and its general contractor, warranting that construction is proceeding on schedule and in accordance with the approved final plans and with all applicable laws, ordinances and regulations. Franchisor and its agents shall have the right to inspect the construction at all reasonable times. Franchisee shall complete construction (including all exterior and interior carpentry, electrical, painting,
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and finishing work, and installation of all furnishings, fixtures, equipment, and signs) in accordance with the approved final plans, at Franchisee's expense, within one (1) year following the Effective Date of this Agreement, exclusive of time lost by reason of strikes, lockouts, fire, and other casualties and acts of God. Franchisee shall promptly notify Franchisor of the date of completion of construction and thereafter the Franchisor shall conduct a final inspection of the Franchised Business and its premises. Franchisee shall not open the Franchised Business without the express written authorization of Franchisor, and Franchisor's authorization to open may be conditioned upon Franchisee's strict compliance with all initial inventory, fixtures, furnishings, and equipment requirements. Franchisee shall open the Franchised Business for operation within thirty (30) days after receipt of Franchisor's written authorization to open, which will not be unreasonably withheld, provided that the Franchised Business has been fully staffed and that all employees have successfully completed training. Franchisor and Franchisee agree that time is of the essence in the construction and opening of the Franchised Business.
E. Initial Training. In accordance with the terms and conditions set forth in Section III above, the Franchisee, or Operating Principal, and up to three (3) designated managers shall attend and complete to the Franchisor's reasonable satisfaction the Franchisor's initial training program at least thirty (30) days prior to the opening of the Franchised Business. The training program shall consist of at least six (6) weeks of initial training in Restaurant operations at the Franchisor's training center in Dallas, Texas, followed by a one (1) week program at Boston Pizza International Inc.'s training facility in Richmond, British Columbia, Canada or at BPR's training facility in Dallas, Texas, (the "Initial Training Program"). In addition, the Franchisor shall also furnish to one person initial training of up to three (3) weeks as Kitchen Manager (the "Kitchen Manager Training Program"). Franchisor will provide the initial training program at no cost to the Franchisee for up to five (5) of Franchisee's employees. The Franchisee shall be responsible for all expenses associated with said training, including meals, lodging, travel and wages. In addition, the Franchisor will provide to the Franchisee up to five (5) employees to provide on-site pre-opening and opening supervision and assistance for at least three (3) weeks. The Franchisor reserves the right to charge three hundred fifty dollars ($350) per Franchisor employee per day for this on-site training.
F. Investor Orientation Program. In addition to Item V.E. above, all non-operating principals of the Franchisee are required to attend the Franchisor's Investor Orientation Program at least 120 days prior to the opening of the Franchised Business. The Investor Orientation Program shall consist of basic reviews and interaction with development, training, construction, marketing and financial departments. The Investor Orientation Program includes at least twenty-two (22) hours of classroom and "on-the-job" training and is held at the Franchisor's corporate facilities in Dallas, Texas. The program is provided at no cost to the Franchisee; however, the Franchisee shall be responsible for all other related expenses, including travel, meals, lodging and wages.
G. Supervision Requirements. At all times after the date of the opening of the Franchised Business, the Franchised Business shall be under the direct, on-premises supervision of the Franchisee or an Operating Principal, who is a general partner or owns at least ten percent (10%) of the voting shares of the Franchised Business (the "Operating Principal"), designated by Franchisee and approved by Franchisor, who: (i) has attended and successfully completed the Franchisor's training program; and (ii) who shall be responsible for overseeing the operation of the Franchised Business and communicating with the Franchisor, and shall be the person designated by the Franchisee with whom the Franchisor may conduct all communications. In addition, Franchisee shall also have at all times (a) a General Manager (the "General Manager") who shall work on a full-time basis in the management and operation of the Franchised Business, be the full-time General Manager of the Franchised Business on a day-to-day basis, and shall have successfully completed the Initial Training Program, as provided herein, to the satisfaction of the Franchisor; and (b) a Kitchen Manager (the "Kitchen Manager") who shall work, on a full-time basis at the Franchised Business as its Kitchen Manager and shall have successfully completed the Kitchen Manager Training Program, as provided herein, to the satisfaction of the Franchisor. The Operating Principal, General Manager and Kitchen Manager are collectively referred to as the "Managers." The Operating Principal and the General Manager may be the same person provided such
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person meets all requirements of both positions. A General Manager designated under this Section is strongly encouraged to hold an equity position within the Franchised Business of not less than ten percent (10%). The Franchisee shall not permit anyone to replace any Manager without the prior written approval of the Franchisor. The Franchisor may require, as a condition of such approval, that the proposed replacement successfully complete the Initial Training Program or Kitchen Manager Training Program, as applicable, to the satisfaction of the Franchisor. The Franchisor reserves the right to charge its then current standard training fee to the Franchisee for training any proposed replacement. In the event of the resignation, termination, incapacity or death of any Operating Principal or General Manager, the Franchisee shall have a period of thirty (30) days after any such event to complete arrangements for a replacement who will successfully complete training within 120 days of placement and is otherwise reasonably acceptable to the Franchisor. The Franchisor will charge its then current training fee for the provision of any training beyond that provided to the initial five (5) persons, including substitute, refresher and any other training.
H. On-Going Training and Bi-Annual Meetings. The Franchisee shall cause its employees (including any person subsequently acting as a Manager of the Franchised Business) to attend and complete, to the Franchisor's reasonable satisfaction, such special programs or periodic additional training as the Franchisor may require in writing from time to time. Attendance by Franchisee or its General Manager is required at no fewer than three (3) national or regional meetings held by the Franchisor of no more than four (4) days duration at a location to be designated each year by Franchisor, or at such other location as may be specified by the Franchisor. In addition, Franchisee shall be required to send at least one (1) employee to an annual "Train the Trainer" meeting each year. The Franchisor shall only provide and pay for instruction and training materials in connection ongoing training and meetings. The Franchisee and/or its General Manager and its employees shall be responsible for any other expenses incurred, including meals, lodging, travel and wages. Franchisor reserves the right to cancel its annual, regional or training meetings, reschedule its annual, regional or training meetings, or increase the number of meetings in any given year in its sole discretion. If required by Franchisor, some or all of the Managers will be required to complete, to the satisfaction of the Franchisor, a refresher training program any time after the seventh year of the Initial Term has elapsed, or, in the event a partial or complete Reftirbishment of the Franchised Business has been completed prior to the end of the seventh year of the term, upon completion of such partial or complete Refurbishment of the Franchised Business.
I. Operation of the Franchised Business. The Franchisee shall use the Franchised Premises solely for the operation of the Franchised Business that is licensed hereunder in strict accordance with the Manuals; shall keep the Franchised Business open and in normal operation for such minimum hours and days as the Franchisor may from time to time prescribe; and shall refrain at all times from using or permitting the use of the premises of the Franchised Business for any other purpose or activity other than as contemplated by this Agreement without first obtaining the written consent of the Franchisor.
J. Maintenance and Equipment Upgrades. The Franchisee shall continuously maintain the Franchised Business in the highest degree of sanitation, repair and condition as the Franchisor may reasonably require, and in connection therewith shall make such additions, alterations, repairs and replacements thereto (but not without the Franchisor's prior written consent) as may be required for that purpose, including without limitation, such periodic redecorating, replacement of inventory and replacement of obsolete signs, fixtures or materials, and upgrading of equipment as the Franchisor may reasonably direct, or as otherwise required under the lease for the Franchised Business.
K. Health and Safety Standards. The Franchisee shall meet and maintain the highest safety standards and ratings applicable to the operation and management of the Franchised Business and its personnel as the Franchisor may reasonably require.
L. Working Capital. The Franchisee shall meet and maintain sufficient levels of working capital for use in connection with the management and operation of the Franchised Business as the
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Franchisor may reasonably require. The amount of working capital required to be maintained by the Franchisee shall be determined from time to time by the Franchisor in its sole discretion.
M. Refurbishment. Subject to the express provisions of Section V.J. with regard to equipment upgrades, on or before the Refurbishment Date set forth on Attachment A, the Franchisee shall refurbish (a "Refurbishment") the Franchised Business, at its expense, to conform to the then current Restaurant design and decor, trade dress, color scheme, equipment, furniture and fixture package, and presentation of trademarks and service marks consistent with the design concepts then in effect for new Restaurants licensed to operate under the System and in accordance with the Manuals, including, without limitation, such structural changes, remodeling, redecoration and other modifications to existing improvements as deemed necessary by the Franchisor.
N. Compliance with Uniform Standards. The Franchisee shall operate the Franchised Business in conformity with such uniform methods, standards and specifications as the Franchisor may from time to time prescribe to ensure that the highest degree of product quality and service is uniformly maintained. The Franchisee shall conduct its business in a manner that reflects favorably at all times on the System and the Proprietary Marks. The Franchisee shall at no time engage in deceptive, misleading or unethical practices or conduct any other act which may have a negative impact on the reputation and goodwill of the Franchisor or any other franchisee operating under the System. Pursuant to this ongoing responsibility, the Franchisee agrees:
1. To maintain in sufficient supply as the Franchisor may prescribe in the Manuals or otherwise in writing and use at all times only such products and supplies as conform to the Franchisor's standards and specifications as contained in the Manuals, and to refrain from deviating from the Manual without the Franchisor's prior written consent;
2. To sell or offer for sale only such products and services as meet the Franchisor's uniform standards of quality and quantity which have been expressly approved for sale in writing by the Franchisor in accordance with the Franchisor's methods and techniques; to sell or offer for sale all approved items; to refrain from any deviation from the Franchisor's standards and specifications for preparing, serving or selling such products or services; and to discontinue selling and offering for sale any such products or services as the Franchisor may, in its sole discretion, disapprove in writing at any time;
3. To lease or purchase and install at the Franchisee's expense all fixtures, furnishings, signs and equipment as the Franchisor may reasonably specify from time to time in the Manuals or otherwise in writing, and to refrain from installing or permitting to be installed on or about the Franchised Business without the Franchisor's prior written consent any fixtures, furnishings, signs, cards, promotional literature, equipment or other items not previously specifically approved as meeting the Franchisor's standards and conforming to the Franchisor's specifications;
4. To purchase or lease and maintain any and all signs for use at the Franchised Business, whether for interior or exterior use, in conformity with the Franchisor's quality control standards and specifications;
5. To employ such minimum number of employees as may be prescribed by the Franchisor and to comply with all applicable federal, state and local laws, rules and regulations with respect to such employees;
6. To maintain a competent, conscientious staff;
7. To maintain all licenses and permits in good standing; and
8. To maintain and implement written policies prohibiting unlawful harassment, discrimination and retaliation by any person in connection with the operation of the Franchised Business
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and display all required employment-related notifications in compliance with applicable federal and state law.
O. Purchase and Lease of Products, Equipment and Supplies. Franchisee shall lease or purchase all products, initial inventory, equipment, supplies and other materials required for the operation of the Franchised Business solely from approved suppliers who shall have proved, to the continuing reasonable satisfaction of the Franchisor, the ability to meet the Franchisor's reasonable standards and specifications for such products and related items. For certain proprietary products the sole approved supplier may be the Franchisor. Such approved suppliers must meet all of the Franchisor's specifications and standards as to content, quality, appearance, warranty, performance and serviceability and must adequately demonstrate their capacity and facilities to supply the Franchisee's needs for an effective and efficient operation of the Franchised Business as well as all Restaurants operating under the Franchisor's System. Franchisee acknowledges and agrees that Franchisor may derive revenue from the sale of certain proprietary food products or receive rebates from Franchisee's purchases, and Franchisor shall be entitled to utilize this revenue for any purpose in its sole discretion.
P. Inspection of Premises. The Franchisee shall permit the Franchisor or its agents or representatives to enter upon the premises of the Franchised Business at any time for purposes of conducting inspections, including Brand Equity Review Assessments ("B.E.R. Assessment"), taking photographs and interviewing employees and customers. The Franchisee shall cooperate fully with the Franchisor's agents or representatives in such inspections by rendering such assistance as they may reasonably request. Upon notice from the Franchisor or its agents or representatives, and without limiting the Franchisor's other rights under this Agreement, the Franchisee shall take such steps as may be necessary to immediately and diligently correct any deficiencies detected during such inspections, including, without limitation, immediately ceasing and preventing the further use of any products, equipment, inventory, advertising materials, supplies or other items that do not conform to the Franchisor's then current specifications, standards or requirements. In the event the Franchisee fails or refuses to correct such deficiencies within five (5) business days after receipt of written notice of such deficiencies, the Franchisor shall have the right to enter upon the premises of the Franchised Business, without being guilty of trespass or any other tort, for the purpose of making or causing to be made such corrections as may be required, at the sole expense of the Franchisee, which the Franchisee agrees to pay upon demand. Franchisee's failure to earn a satisfactory minimum score on three (3) consecutive B.E.R. Assessments may constitute an incurable Material Default.
Q. Proprietary Methods. The Franchisee acknowledges and agrees that the Franchisor has developed certain products, services, operational systems and management techniques and may continue to develop additional products and proprietary methods and techniques for use in the operation of the Franchised Business which are all highly confidential and which are trade secrets of the Franchisor. Because of the importance of quality control, uniformity of product and the significance of such proprietary products in the System, it is to the mutual benefit of the parties that the Franchisor closely controls the dissemination of this proprietary information. Accordingly, the Franchisee agrees that in the event such information and techniques become a part of the System, the Franchisee shall comply and strictly follow these techniques in the operation of its business and shall purchase from the Franchisor or from an approved source designated by the Franchisor any supplies or materials necessary to protect and implement such techniques.
R. Development of the Market. The Franchisee shall at all times use its best efforts to promote and increase the sales and consumer recognition of the products and services offered at the Franchised Business pursuant to the System and the Manuals, to effect the widest and best possible distribution of the Franchisor's products and services from the Franchised Business and to devote its best efforts in controlling the Franchised Business, its managers, assistants and employees.
S. Display of Proprietary Marks and Logos. The Franchisee shall display the Franchisor's Proprietary Marks and logos at the Franchised Business, on uniforms and otherwise in the manner
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prescribed by the Franchisor. The color, design and location of said displays shall be specified by the Franchisor and may be changed from time to time in the sole discretion of the Franchisor. The Franchisee shall conspicuously display to customers any sign or notice designated by the Franchisor serving to notify and inform third parties that the Franchisor is engaged in the business of franchising and providing sufficient information to enable third parties to contact the Franchisor to inquire about prospective franchises. The Franchisee shall not display any signs or posters at the premises or elsewhere without the prior written consent of the Franchisor.
T. Computerized Point-of-Sale System. The Franchisee must purchase and maintain the computer hardware required by the Franchisor for operation of the Franchised Business, including computers), modem(s), cash drawer(s), receipt printer and report printer. In addition, the Franchisee shall purchase from Franchisor's required source the Franchisor's proprietary computer software for operation of the point of sale system. Moreover, the Franchisee must source all maintenance service and repairs from a Franchisor approved supplier. The Franchisor shall have unlimited access to the data generated by the Franchisee's computerized point of sale system and will poll via modem all of its franchisees' computer systems in order to compile sales data, consumer trends, food and labor costs, and other such financial and marketing information as it may deem appropriate. In order to accomplish the polling referenced above, the Franchisee will maintain a dedicated telephone or broadband connection. The Franchisor may distribute this data on a confidential basis to its franchisees. The Franchisee must purchase and pay for upgrades or new software as required by the Franchisor from time to time in Franchisor's sole discretion.
U. Intranet/Extranet. The Franchisee agrees to participate in any Extranet or Intranet that the Franchisor may from time to time establish in its sole discretion. The Franchisor may require the Franchisee to obtain specified computer hardware, software and/or an Internet connection (collectively, "Computer Facilities") and may periodically modify specifications for same, all at the Franchisee's expense.
The Franchisor may charge the Franchisee a reasonable fee if the Franchisor develops or has developed (and, once developed, for modifying and enhancing) proprietary software, an Extranet or an Intranet and for other computer maintenance and support services that the Franchisor or any of its affiliates provides to the Franchisee, and the Franchisee agrees to sign any software license agreement or similar document that the Franchisor or any of its affiliates prescribes to regulate the Franchisee's use of, and the respective rights and responsibilities of the Franchisor, Franchisee, and others with respect to, the software, the Intranet and the Extranet, as applicable.
The Franchisee will have sole and complete responsibility for: (l)the acquisition, operation, monitoring, maintenance and upgrading of the Computer Facilities, including date related readiness of the system; (2) the manner in which the Franchisee's Computer Facilities interface with the Franchisor's computer system, Intranet and Extranet and those of third parties; and (3) any and all consequences that may arise if the Computer Facilities are not properly installed, operated, monitored, maintained and upgraded.
Franchisee shall at all times comply with the terms of the Boston Link Franchisee Agreement attached to this Agreement as Attachment F.
V. Franchisee's Organizational Structure. The following requirements shall apply to the Franchisee if the Franchisee is a corporation, limited liability company, partnership, or other legal entity, in addition to those requirements set forth elsewhere in this Agreement, the Manuals or otherwise:
1. The Franchisee shall be a newly organized entity and its Articles of Incorporation or other organizational documents, as applicable, shall at all times provide that its activities are confined exclusively to operating the Franchised Business hereunder and shall contain certain provisions designed
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to effectively restrict the transferability or alienability (including by way of security) of the ownership interests of the entity subject to the terms and restrictions set forth in Section XII.
2. Copies of the Articles of Incorporation, Bylaws and/or other organizational, constitutional and governing documents, and any amendments thereto, including all relevant resolutions authorizing entry into this Agreement, shall be promptly furnished to the Franchisor, prior to Franchisee's execution of this Agreement.
3. Each stock certificate of the Franchisee or other form of evidence of ownership issued to shareholders or other interest holders, as applicable, in Franchisee shall have conspicuously endorsed upon its face a statement in a form satisfactory to the Franchisor, such as:
"THE TRANSFER, PLEDGE OR ALIENATION OF THIS STOCK IS SUBJECT TO THE TERMS AND RESTRICTIONS CONTAINED WITHIN THE FRANCHISE AGREEMENT BETWEEN BOSTON PIZZA RESTAURANTS, LP AND INSERT NAME OF FRANCHISEE."
4. The Franchisee shall maintain a current list of all owners of record and all beneficial owners of any class of voting stock or other ownership interest, as applicable, of the Franchisee and shall furnish the list to the Franchisor upon request, together with the addresses and phone numbers of each shareholder or other interest holder.
W. Execution of Guaranty, Undertaking and Other Requirements.
Each of Franchisee's "Controlling Principals" shall jointly and severally guarantee the Franchisee's performance hereunder and shall bind themselves to the terms of this Agreement by executing the Guaranty and Undertaking attached hereto as Attachment D; provided, however, that the requirements of this Section V.W. shall not apply to an entity publicly-held (listed on a recognized exchange or NASDAQ) as of the date of this Agreement. The term "Controlling Principal" means one or more of Franchisee's principals who (a) individually or collectively own a Controlling Interest in Franchisee, or (b) have been designated by Franchisor as Controlling Principals. Except for Controlling Principals who have signed a Guaranty and Undertaking in the form attached hereto as Attachment D, each individual who owns any common stock or other voting equity interests in Franchisee or has authority to cause Franchisee to take or omit any action that Franchisee is required to take or omit in accordance with this Agreement (referred to herein as a "Principal") shall execute the Principals' Undertaking attached hereto as Attachment G. As used herein, "Controlling Interest" means possession, directly or indirectly, of the power to direct or cause the direction, of the management and policies of an entity, whether through ownership of voting securities, by contract or otherwise.
In addition to the obligations specifically set forth in this Section V, the Franchisee shall comply with all other requirements set forth in this Agreement, in the Manuals or as the Franchisor may designate from time to time.
VI. PROPRIETARY MARKS
A. Grant of License. BP Holdings licensed to the Franchisor the exclusive license to use and license others to use the Proprietary Marks in the United States, including the federally registered mark "Boston's The Gourmet Pizza." The Franchisor hereby grants the Franchisee the right and license to use the Proprietary Marks only in connection with the operation of its Franchised Business and the provision of services and products to its customers. The Franchisor represents with respect to the Proprietary Marks that: (1) the Franchisor has, to the best of the Franchisor's knowledge, licensed from BP Holdings, all right, title and interest in and to the Proprietary Marks in the United States and to the best of the Franchisor's knowledge, BP Holdings owns all right, title and interest in and to the Proprietary Marks in the United States; (2) the Franchisor has taken all steps which it deems reasonably necessary to
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preserve and protect the ownership and validity of such Proprietary Marks in the United States; and (3) the Franchisor will use and license the Franchisee and other franchisees to use the Proprietary Marks only in accordance with the System and the operating standards and quality control specifications attendant thereto which underlie the goodwill associated with and symbolized by the Proprietary Marks.
B. Conditions for Use. With respect to the Franchisee's use of the Proprietary Marks pursuant to the license granted under this Agreement, the Franchisee agrees that:
1. The Franchisee shall use only the Proprietary Marks designated by the Franchisor and shall use them only in the manner required or authorized and permitted by the Franchisor.
2. The Franchisee shall use the Proprietary Marks only in connection with the right and license to operate the Franchised Business granted hereunder.
3. During the term of this Agreement and any renewal hereof, the Franchisee shall identify itself as a licensee and not the owner of the Proprietary Marks and shall make any necessary filings under state law to reflect such status. In addition, the Franchisee shall identify itself as a licensee of the Proprietary Marks on all invoices, order forms, receipts, business stationery and contracts, as well as at the Franchised Business on any sign provided by the Franchisor, which shall be conspicuously displayed, to customers.
4. The Franchisee's right to use the Proprietary Marks is limited to such uses as are authorized under this Agreement or in the Manuals, and any unauthorized use thereof shall constitute an infringement of the Franchisor's rights and grounds for termination of this Agreement.
5. The Franchisee shall not use the Proprietary Marks to incur or secure any obligation or indebtedness.
6. The Franchisee shall not use the Proprietary Marks as part of its corporate or other legal name.
7. The Franchisee shall comply with the Franchisor's instructions in filing and maintaining the requisite trade name or fictitious name registrations, and shall execute any documents deemed necessary by the Franchisor or its counsel to obtain protection for the Proprietary Marks or to maintain their continued validity and enforceability.
8. Franchisee must notify Franchisor immediately by telephone, and promptly thereafter in writing, of any apparent infringement of, or challenge to, Franchisee's use of any Proprietary Marks, or any claim by any person of any rights in any Proprietary Marks, and Franchisee and the Principals will not communicate with any person other than Franchisor, its counsel and Franchisee's counsel in connection with any infringement, challenge, or claim. Franchisor may take any actions it deems appropriate in connection with any infringement or challenge, and the right to control exclusively any settlement, litigation, or proceeding (including, but not limited to, actions before the Trademark Office and Trademark Trial and Appeal Board) arising out of any alleged infringement, challenge, or claim or otherwise relating to any Proprietary Marks. Franchisee shall not enter into any settlement of any claim or suit or conduct any settlement negotiations relative thereto without the prior approval of Franchisor. Franchisee will execute all instruments and documents, render any assistance, and do any other acts or things that may, in the opinion of Franchisor, reasonably be necessary or advisable to protect and maintain the interests of Franchisor in any litigation or other proceeding or to otherwise protect and maintain the interests of Franchisor in the Proprietary Marks. Franchisee shall at all times have the right to be represented by counsel at Franchisee's expense.
9. If it becomes advisable at any time, in the sole discretion of the Franchisor, to modify or discontinue the use of any name or Proprietary Mark and/or to use one or more additional or substitute
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names or marks in connection with the advertising, marketing or operation of the Franchised Business, the Franchisee shall comply with Franchisor's directions within a reasonable time period designated by Franchisor after receiving notice thereof, including, at Franchisee's expense, making such changes to the interior and exterior signs and menus as Franchisor deems necessary. Franchisor will not be obligated to reimburse Franchisee for any expenses or loss of revenue attributable to any modified or discontinued names or Proprietary Marks or for any expenditures Franchisee incurs to promote modified or substitute names or marks.
C. Acknowledgements. The Franchisee expressly understands and acknowledges that:
1. BP Holdings, and the Franchisor, by way of license from BP Holdings, are the exclusive owners of all right, title and interest in and to the Proprietary Marks and the goodwill associated with and symbolized by them;
2. The Proprietary Marks are valid and serve to identify the System and those who are licensed to operate a Restaurant in accordance with the System;
3. The Franchisee's use of the Proprietary Marks pursuant to this Agreement does not give the Franchisee any ownership interest or other interest in or to the Proprietary Marks, except the nonexclusive license granted herein;
4. Any and all goodwill arising from the Franchisee's use of the Proprietary Marks and/or the System shall inure solely and exclusively to the benefit of BP Holdings and, in accordance with all laws, its licensee, the Franchisor. Upon expiration or termination of this Agreement no monetary amount shall be assigned as attributable to any goodwill associated with the Franchisee's use of the System or the Proprietary Marks;
5. The license and rights to use the Proprietary Marks granted hereunder to the Franchisee are nonexclusive, and the Franchisor thus may: (a) itself use, and grant franchises and licenses to others to use, the Proprietary Marks and the System; (b) establish, develop and franchise other systems, different from the System licensed to the Franchisee herein, without offering or providing the Franchisee any rights in, to or under such other systems; and (c) modify or change, in whole or in part, any aspect of the Proprietary Marks or the System;
6. The Franchisor reserves the right to substitute different trade names, trademarks and service marks for use in identifying the System, the Franchised Business and other Restaurants operating thereunder, all of which shall become Proprietary Marks;
7. The Franchisor shall have no liability to the Franchisee for any senior users that may claim rights to the Proprietary Marks; and
8. The Franchisee shall not register or attempt to register the Proprietary Marks in the Franchisee's name or that of any other person, firm, entity or corporation.
VH. CONFIDENTIAL MANUALS.
A. Compliance. In order to protect the reputation and goodwill of the Franchisor and to maintain uniform standards of operation in connection with the Proprietary Marks, the Franchisee shall conduct its business in strict compliance with the operational systems, procedures, policies, methods and requirements prescribed in the Manuals and any supplemental bulletins, notices, revisions, modifications or amendments thereto, all of which shall be deemed a part thereof. One registered set of the Manuals shall be provided to the Franchisee on loan from the Franchisor during the training program, and the Franchisee shall sign a corresponding receipt for the Manuals. The Franchisor reserves the right to
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provide the Manuals and updates to the Manuals in electronic form, and the Franchisee agrees to comply with all confidentiality procedures including, if applicable, use of restricted passwords.
B. Use. The Franchisee agrees to immediately adopt and use the programs, services, methods, standards, materials, policies and procedures set forth in the Manuals, as they may be modified by the Franchisor from time to time in Franchisor's sole discretion. The Franchisee acknowledges that the Franchisor is the owner or licensee of all proprietary rights in and to the System, and the Manuals, and any changes or supplements thereto.
C. Confidentiality. The Franchisee and the Principals shall at all times treat the Manuals, any other manuals created for or approved for use in the operation of the Franchised Business and all of the information contained therein as proprietary and confidential, and shall use all reasonable efforts to maintain such information as confidential. The Manuals must remain on the premises of the Franchised Business at all times.
D. Trade Secrets. The Franchisee acknowledges, knows and agrees that the Manuals have been designated as "trade secrets" owned and treated as such by the Franchisor.
E. Access. The trade secrets must be accorded maximum security consistent with the Franchisee's need to make frequent reference thereto. The Franchisee shall strictly limit access to the Manuals to employees who have a demonstrable and valid need to know the information contained therein in order to perform their duties. The Franchisee shall strictly follow any provisions in the Manuals regarding the care, storage and use of the Manuals and all related proprietary information.
F. Duplication. The Franchisee and the Principals shall not at any time, without the Franchisor's prior written consent, copy, duplicate, record or otherwise reproduce in any manner any part of the Manuals, updates, supplements or related materials, in whole or in part, or otherwise make the same available to any unauthorized person.
G. Franchisor's Property. The Manuals shall at all times remain the sole property of the Franchisor. Upon the expiration or termination of this Agreement for any reason, the Franchisee shall return to the Franchisor the Manuals and all supplements thereto.
H. Updates or Revisions. The Franchisor retains the right to prescribe additions to, deletions from or revisions to the Manual