Franchise Agreement

The original documents were scanned as an image. The original file can be downloaded at the link above.

Sample Franchise Agreement


THIS FRANCHISE AGREEMENT ("Agreement") with effective date of__________

_______________________(acceptance date by Franchisor), by and between HuHot Mongolian

Grills, LLC, a Montana corporation ("Franchisor," "We," "Our," or "Us"), whose principal address is 223 East Main Street, Missoula, Montana 59802, and ____________________________________("Franchisee" or "You"), whose principal address is


A.         We operate a franchise network to own and operate sit-down restaurants offering Asian-style cuisine cooked on a grill, using fresh meats, poultry, fish, seafood, vegetables, and home-made sauces, individually selected by the customer ("HuHot Restaurants"). These Restaurants will be operated under the service mark "HuHot Mongolian Grills," plus design, and such other trademarks, service marks and commercial symbols (collectively "Marks") as we will authorize from time to time. Such Restaurants will be operated in accordance with certain required formats, systems, methods of food preparation and service, standards and procedures, and trade dress, which we may modify from time to time ("System").

B.         A "HuHot Restaurant" is a restaurant in a free-standing building, strip center or mall location, which we recommend to be approximately 4,000 to 6,500 square feet with seating capacity for 100 to 225 customers and a full bar service or with beer and wine service from a service bar.

C.         We grant to certain persons who meet our qualifications a franchise ("Franchise") to own and operate a HuHot Restaurant utilizing the Marks and System.

D.         You have applied for a license to own and operate a HuHot Restaurant at the location described in Rider A to this Agreement. We have approved your application in reliance upon all of the representations made therein and in this Agreement. You represent to us, as an inducement to our entry into this Agreement, that you have made no misrepresentations in obtaining the Franchise herein granted.

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a.        Grant. Subject to the provisions of this Agreement, we hereby grant to

Franchisee a franchise ("Franchise") to operate a HuHot Restaurant in or at the following general location (when the exact location is determined, the parties will complete Riders A and B):

and to use the Marks and the System in the operation thereof. Termination or expiration of this Agreement shall constitute a termination or expiration of the Franchise. You agree that for the entire term of this Agreement you will at all times fairly, honestly and diligently perform your obligations hereunder, and that you will continuously exert your best efforts to promote and enhance the business of the Restaurant and the goodwill of the Marks.

b.         Restrictions Upon Your Channels of Distribution. You are restricted solely to the retail sale of products and services authorized to be sold under this Agreement. You are expressly prohibited from engaging in the wholesale distribution of products under this Agreement. The rights herein granted to you are specifically limited to the operation of business from the Restaurant location. You shall not solicit for business, promote the business, and/or offer and sell products sold under this Agreement through the use of a toll-free number, catalog, or the Internet or any other computer on-line service (except for online take-out service).

c.         Rights Reserved By Franchisor. Except as otherwise provided herein, we (on behalf of ourselves and our affiliates) retain the right, in our sole discretion and without granting any rights to you:

i.         to operate, or to grant other persons the right to operate, Restaurants at

such locations and on such terms and conditions as we deem appropriate; and

ii.         to sell the products and services authorized for Restaurants under the

Marks or other trademarks, service marks and commercial symbols through similar or dissimilar channels of distribution and pursuant to such terms and conditions as we deem appropriate.

d.         Your Protected Area. We agree that we will not establish and operate or grant a franchise for the establishment and operation of a HuHot Restaurant within the area designated in Rider B hereto ("Your Protected Area")

e.         Corporation, Limited Liability Company, or Partnership. If Franchisee at any time is a corporation, limited liability company, or general or limited partnership (collectively, an "Entity"), you agree and represent that:

i.         You will have the authority to execute, deliver, and perform your

obligations under this Agreement and all related agreements, and are duly organized or formed and validly existing in good standing under the laws of the state of your incorporation or formation;

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ii.         Your organizational documents, operating agreement, or partnership

agreement, as applicable, will recite that this Agreement restricts the issuance and transfer of any ownership interests in Franchisee, and all certificates and other documents representing ownership interests in Franchisee will bear a legend referring to this Agreement's restrictions;

iii. Rider C to this Agreement completely and accurately describes all of Franchisee's owners and their interests in Franchisee as of the Effective Date;

iv. Each of Franchisee's owners during this Agreement's term will execute a guaranty in the form we prescribe (Rider C), undertaking personally to be bound, jointly and severally, by all provisions of this Agreement and any ancillary agreements between Franchisee and Franchisor. You and Franchisee's owners agree to sign and deliver to us revised Rider C to reflect any permitted changes in the information that Rider C now contains; and

v. The Restaurant and other Franchised Businesses, if applicable, will be the only businesses you operate (although Franchisee's owners may have other, non-competitive business interests).


a.         Term. The term of this Agreement (the "Term") shall commence on the date of this Agreement and expire fifteen (15) years from such date, unless sooner terminated as provided in Sections 15 and 16 hereof.

b.         Grant of a Successor Franchise.

iii. You may, at your option, acquire a grant of a successor franchise for additional successive five (5) year terms, unless sooner terminated as provided in Sections 15 and 16 hereof, provided that:

(1)        You have given us written notice of your election to acquire a successor franchise not less than six (6) months nor more than twelve (12) months prior to the end of the then-current term. An election by you to renew the lease or sublease for the premises of the Restaurant or to execute a new lease or sublease for such premises shall be deemed an election by you to acquire a successor franchise for the then-current term of such lease or sublease;

(2)        You are not at such time in material breach of any of your obligations under this Agreement or any other agreement between Franchisee and Franchisor or any of its affiliates;

(3)        You have substantially complied with all the terms and conditions of this Agreement and have met the operating and quality standards and

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procedures we prescribe for HuHot Restaurants during the Term;

(4)       You have satisfied all monetary obligations owed to us, our affiliates and designated suppliers, and have timely met these obligations throughout the Term;

(5)       You have agreed to upgrade the Restaurant to our then-current standards of decor, equipment, and menu offerings;

(6)       You comply with our then-current qualification and training requirements; and

(7)       You execute a general release, in a form prescribed by us, of any claim against Franchisor, its affiliates, and their officers, directors, agents and employees.

iv. The grant of a successor franchise shall be effectuated by the execution by Franchisor and Franchisee of the then-current form of standard franchise agreement and all other agreements and legal instruments and documents then customarily used by us in the granting of Franchises for HuHot Restaurants, which may contain substantially different provisions from this Agreement, except that no initial franchise fee shall be payable upon any such grant of a successor franchise.

iii. We may extend this Agreement's term for the time period necessary to either give you reasonable time to correct deficiencies or to give us adequate time to give notice to you of our refusal to grant a successor franchise as required under this Agreement or under applicable law. If you fail to notify us of your election to acquire a successor franchise within the prescribed time period, we need not grant you a successor franchise.


a.        Location and Lease.

i.         You may operate the Restaurant only at the location specified in

Paragraph 1 .a and Rider A to this Agreement and may not relocate the Restaurant except with our prior written consent. If the site for the Restaurant has not been located by you at the time of execution of this Agreement, you agree to locate and submit to us for approval, a site suitable for the operation of a HuHot Restaurant and acceptable to us. You must locate the site for your Restaurant and submit a site report to us. We shall assist you in the selection and shall not unreasonably withhold our approval of a site that in our judgment is suitable in terms of demographic characteristics, traffic patterns, parking, character of neighborhood, competition from other businesses within the area, the proximity to the site and other commercial characteristics, and the size, appearance and other physical characteristics of the site.

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ii. You acknowledge and agree that, if we recommend or give you information regarding a site for the Premises, that is not a representation or warranty of any kind, express or implied, of the site's suitability for a Restaurant or any other purpose. Our recommendation indicates only that we believe that the site meets our then acceptable criteria. Applying criteria that have appeared effective with other sites and premises might not accurately reflect the potential for all sites and premises, and demographic and/or other factors included in or excluded from our criteria could change, altering the potential of a site and premises. The uncertainty and instability of these criteria are beyond our control, and we are not responsible if a site and premises we recommend fail to meet your expectations. You acknowledge and agree that your acceptance of the Franchise is based on your own independent investigation of the site's suitability for the Premises.

b.         Restaurant Development. You agree that prior to obtaining possession of the site for the Restaurant, you shall secure all financing required to fully develop the Restaurant. You further agree that, promptly after obtaining possession of the site for the Restaurant, you will: (a) cause to be prepared and submit for approval by us a site plan together with a design fee of not more than $6,000 total to Collaborative Design Architects and High Country Design Architects or such other architect or designer designated by us (collectively "Site Planner"). Site Planner shall then provide basic drawings and specifications [including requirements for dimensions, exterior design, materials, interior layout, equipment, fixtures, furniture, signs, and decorating) required for the development of a HuHot Restaurant. You are required to take these drawings and specifications to an approved architect who will modify them, as required, to meet applicable ordinances, building codes or permit requirements (we must approve any such modifications to the drawings and specifications)]; (b) obtain all required zoning changes, all required building, utility, health, sanitation and sign permits, liquor licenses, and any other required permits and licenses; (c) purchase or lease equipment, fixtures, furniture and signs as hereinafter provided; (d) complete the construction and/or remodeling, equip, furnish and decorate the Restaurant in full and strict compliance with plans and specifications approved by us and all applicable ordinances, building codes and permit requirements; (e) obtain all customary contractors' sworn statements and partial and full waivers of lien for construction, remodeling, decorating and installation services; and (f) upon completion of construction, furnish us with costs for the construction, equipment, build-out, deposits, and total development of the Restaurant. Once the Restaurant is established and approved by us, no changes in the interior or exterior design of the Restaurant or the equipment or fixtures used within may be made without our prior written consent.

c.         Equipment Fixtures, Furnishings and Signs. You agree to use in the operation of the Restaurant only those brands and models of equipment, fixtures, furniture, point-of-sale computer system ("POS System"), exterior and interior signs, decor items and tableware that we have approved for use in HuHot Restaurants as meeting our requirements for performance, warranties, design and appearance. If you propose to purchase or lease any item of equipment, fixtures, furniture, POS System, signs, decor items or tableware not theretofore approved by us as meeting our specifications, you shall first notify us, and we may require submission of sufficient specifications, photographs, drawings and/or other information and samples to determine whether such items meet our specifications. We shall have the right to charge you a

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reasonable testing fee of not more than $250 to cover our costs incurred in making such determination. We shall advise you within a reasonable time whether such item meets our specifications. In the event that we do not maintain a list of approved suppliers with respect to one or more items required by us for use in HuHot Restaurants, you may purchase or lease any such item from any source.

No vending machines, unapproved newspapers or periodicals, juke boxes or other music producing machines, gum or candy machines, games, pinball machines or other mechanical devices shall be installed or operated at the Restaurant without our prior written consent.

d.         Point of Purchase Software System ("POS System"). You shall purchase and use in your operation of the Restaurant the POS hardware and software specified by us. We shall have the right to contract with third parties to update the POS System from time to time. In such event, you shall be responsible for properly loading the updated programs onto your computer in a timely manner. Thereafter, you shall use the updated point of purchase software program in the operation of your Restaurant. Any such requirement to update the Restaurant's POS System shall be considered "Restaurant Refurbishing" and shall be subject to dollar and frequency limitations detailed in Paragraph 3.e. below.

e.         Restaurant Refurbishing,

i.         Subject to the terms and conditions hereafter set forth, you agree to effect

such refurbishing of the Restaurant (in addition to regular maintenance and repair) as we from time to time reasonably require to maintain or improve the appearance and efficient operation of the Restaurant, and/or to comply with our then-current standards for a HuHot Restaurant. Refurbishing may include: (a) the substitution or addition of new or improved equipment; (b) the substitution or addition of new or improved fixtures, furniture and signs; (c) replacement of worn out or obsolete equipment, fixtures, furniture and signs; (d) redecorating; (e) repair of the interior and exterior of the premises; and (f) structural modifications and remodeling of the premises.

ii. Your obligation to refurbish the Restaurant as hereinabove provided shall be subject to the following terms and conditions: (a) you shall not be required to make aggregate expenditures for refurbishing in excess of 1% of the accumulative gross revenues of the Restaurant during the six preceding years to the date of any such required refurbishing; and we shall not require such refurbishing more often than every six years; (b) you shall not be required to effect any refurbishing of the Restaurant during the last three (3) years of the initial or any term of a successor franchise except in connection with acquisition of a successor franchise; and all refurbishing shall be completed within six (6) months of your receipt of notice thereof from us.

f.          Restaurant Opening. You shall complete development of the Restaurant, obtain all licenses required by us for the operation of the Restaurant and have the Restaurant ready to open and commence the conduct of your business not later than sixteen (16) months from the date of this Agreement. If you fail to commence the conduct of business by the deadline set forth above in this Subparagraph 3.f, then this Agreement and the Franchise granted hereby may, at

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our sole option, be terminated upon our giving you written notice.

g.        Relocation of Restaurant.

i.         If your lease for the premises of the Restaurant terminates without fault on

your part, or expires and is unable to be renewed by you at market rent and on substantially the same other material terms and conditions, or if in our mutual judgment there is a change in the character of the location of the Restaurant sufficiently detrimental to its business potential to warrant its relocation, or if you desire to relocate to another site within your Protected Area under this Agreement, we shall grant permission for relocation of the Restaurant to a location approved by us in accordance with the criteria then generally used by us in approving sites for HuHot Restaurants. You acknowledge that we shall not be obligated to approve a relocation which would violate the exclusive territory or any other contractual right of any other HuHot franchisee. Any relocation shall be at your sole expense, and shall not be undertaken without our prior written consent. We shall have the right to charge you for services we render to you in connection with such relocation. We shall also have the right to require you to construct, furnish and equip the relocated Restaurant to conform to our then current image, standards, and specifications for construction and equipment for all new HuHot Restaurants.

ii. In the event of a relocation of the Restaurant, you shall promptly remove from the former Restaurant premises any and all signs, fixtures, furniture, posters, equipment, menus, advertising materials, stationery, supplies, forms and other articles which display any of the Marks and distinctive features or designs associated with the System. Any articles which display any of the Marks or any distinctive features or designs associated with the System which are not used by you at the new Restaurant location shall be disposed of by you as directed by us following notice to us to the effect such articles will not be used at the new Restaurant. Furthermore, you shall, at your expense, immediately make such modifications or alterations as may be necessary to distinguish the former Restaurant premises so clearly from its former appearance and from other HuHot Restaurants so as to prevent any possibility of confusion by the public (including, without limitation, removal of all distinctive physical and structural features identifying HuHot Restaurants and removal of all distinctive signs and emblems), you shall, at your expense, make such specific additional changes as we may reasonably request for this purpose. If you fail to initiate immediately or complete such alterations within such period of time as we deem appropriate, You agree that we or our designated agents may enter the premises of the former Restaurant and adjacent areas at any time to make such alterations as we deem appropriate to distinguish your former Restaurant premises, without liability for trespass. You expressly acknowledge that failure to make such alterations will cause irreparable injury to us and hereby consent to entry, at your expense, of an ex parte order by any court of competent jurisdiction authorizing us or our agents to take such action, if we seek such an order. Compliance with the foregoing shall be a condition subsequent to our approval of any relocation request by you, and in the event complete de-identification of the former Restaurant premises is not properly and completely undertaken, we may then revoke our permission for relocation and declare a

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default under this Agreement. 4. TRAINING AND GUIDANCE.

a.         Training. We shall furnish, and you shall complete to our satisfaction, our initial training program in all phases of the operations of a HuHot Restaurant, including unit operations, food and beverage preparation and service, bookkeeping, inventory management, and local restaurant marketing. Such training program shall be for a minimum of ten (10) days at our training facility and a Restaurant location. We shall also furnish on-site training at your Restaurant around the time of the Restaurant opening for such time as we deem appropriate. Training shall be furnished to you or a Franchisor-approved manager designated by you (or, if Franchisee is a corporation, partnership or limited liability company, to its controlling shareholder, managing partner, member or a Franchisor-approved manager) and one additional person designated by you. The cost of such training is included in the initial franchise fee. We also shall furnish our initial training program to new managers of your Restaurant on reasonable request and subject to space availability and class scheduling, you shall pay to us $1,500 for each manager to whom such training is given. If you delegate the direct supervision of the HuHot Restaurant to a HuHot-approved and trained manager, you (or, if you are a corporation, partnership or limited liability company, a controlling shareholder, managing partner or member) shall complete an owner's training program incorporating portions of our initial training program. If we provide refresher and supplemental training programs, you are required to attend such training. You shall be responsible for the travel and living expenses (including local transportation expenses) incurred while attending the initial training program, owner's training, and any refresher training programs.

b.         Guidance and Assistance. We shall furnish guidance to you with respect to: (1) specifications, standards and operating procedures utilized by HuHot Restaurants, and any modifications thereof; (2) specification of approved fixtures, equipment, furniture, POS System, signs, operating materials and supplies; (3) methods of food preparation and service and improvements thereon; (4) the establishment and maintenance of administrative, bookkeeping, accounting and general operating and management procedures; and (5) local marketing of your Restaurant. Such guidance shall, in our discretion, be furnished in or supplemented by our Operations Manual, bulletins, written reports and recommendations, other written materials, and/or telephonic consultations or consultations at our offices, at your Restaurant, or at other locations. We shall advise you from time to time of operational concerns at or in your Restaurant as disclosed by reports submitted to or inspections made by us. We shall make no separate charge to you for such operating assistance, provided that we may make reasonable charges for forms and other materials supplied to you and for operating assistance or training made necessary in our judgment as a result of your failure to comply with any provision of this Agreement or any specification, standard or operating procedure prescribed by us or operating assistance requested by you in excess of that normally provided by us.

c.         Operations Manual and Restaurant Development Manual. We will lend to you during the term of the Franchise one copy of the Operations Manual. The Operations Manual shall contain mandatory and suggested specifications, standards, and operating procedures we prescribe from time to time for a HuHot Restaurant and information relative to

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your other obligations hereunder. We in our sole discretion may create and lend to you a separate Restaurant Development Manual containing specifications for site selection and procedures for opening the Restaurant. All Manuals may be modified from time to time to reflect changes in the specifications, standards and operating procedures of HuHot Restaurants. You shall keep your copy of the Operations Manual and Restaurant Development Manual, if any, current by immediately inserting all modified pages furnished by us for the Manuals and received by you. In the event of a dispute relative to the contents of the Manuals, the master copies maintained by us at our principal office shall be controlling. You may not at any time copy any part of the Manuals, or remove any Manuals from your place of business.

d. Delegation of Performance. You agree that we have the right to delegate the performance of any portion or all of our obligations under this Agreement to third-party designees, whether these designees are our agents or independent contractors with whom we have contracted to perform such obligations.

5.        MARKS.

a.         Ownership and Goodwill of Marks. You acknowledge that we own the Marks and are authorized to use the Marks in connection with our franchise program. Your right to use the Marks is derived solely from this Agreement and is limited to the conduct of business pursuant to and in compliance with this Agreement and all applicable specifications, standards and operating procedures prescribed by us from time to time during the term of this Agreement. Any unauthorized use of the Marks by you shall constitute an infringement of our rights in and to the Marks. You agree that all usage of the Marks by you and any goodwill established thereby shall inure to our exclusive benefit, and you acknowledge that this Agreement does not confer any goodwill or other interests in the Marks upon you. You shall not, at any time during the term of this Agreement or after its termination or expiration, contest the validity or ownership of any of the Marks or assist any others in contesting the validity or ownership of any of the Marks. All provisions of this Agreement applicable to the Marks shall apply to any additional trademarks, service marks, logo forms and commercial symbols hereafter authorized for use by and licensed to you pursuant to this Agreement.

b.         Limitations on Use of Marks. You agree to use the Marks as the sole identification of the Restaurant, provided that you shall identify yourself as the independent owner thereof in the manner we prescribe. You shall not use any Mark as part of any corporate or trade name or with any prefix, suffix or other modifying words, nicknames, terms, designs or symbols, or in any modified form (including, without limitation, any local or special adaptations or artistic variations of any of the Marks), nor may you use any Mark in connection with the sale of any unauthorized product or service or in any other manner not expressly authorized in writing by us. You shall not for your own account register the Marks on the Internet or any other computer on-line service, create and maintain your own web site on the Internet using the Marks, or use the Marks on the Internet in any other manner. You agree to display the Marks prominently and in the manner we prescribe on signs, forms, and other materials and articles, and in no other manner. Further, you agree to give such notices of trademark or service mark ownership or registration and copyrights as we specify and to obtain such fictitious or assumed name registrations as may be required under applicable law. Any and all uses of any of the

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Marks shall include such information and samples as we may require. You may not use "HuHot Mongolian Grills" or "HuHot" or a derivative thereof in its corporate, assumed, or other formal name.

c.         Notification of Infringements and Claims. You shall notify us immediately in writing of any apparent infringement of or challenge to your use of any Mark, or claim by any person other than Franchisor or its franchises or affiliates of any rights in any Mark or any similar trade name, trademark, or service mark of which you become aware. You shall not communicate with any person other than us and our counsel in connection with any such infringement, challenge or claim. We have sole discretion to take such action as we deem appropriate and to control exclusively any litigation, U.S. Patent and Trademark Office proceeding or any other administrative proceeding arising out of any infringement, challenge or claim or otherwise relating to any Mark. You agree to execute any and all instruments and documents, render such assistance and do such acts and things as may, in the opinion of our counsel, be necessary or advisable to protect and maintain our interests in any such litigation, U.S. Patent and Trademark Office proceeding or other administrative proceedings or otherwise to protect and maintain our interests in the Marks.

d.         Discontinuance of Use of Marks. It if becomes advisable at any time and for any reason, in our sole discretion, for us and/or you to modify or discontinue use of any Mark, and/or use one or more substitute trademarks or service marks, you agree to comply therewith within a reasonable time after notice thereof by us and our sole obligation shall be to reimburse you for your out-of-pocket expenses of complying with these obligations.

e.         Indemnification of Franchisee. We agree to indemnify you against and to reimburse you for all direct, but not consequential (including, but not limited to, loss of revenue and/or profits), damages for which you are held liable in any proceeding arising out of the use of any Mark pursuant to and in compliance with this Agreement, and for all costs reasonably incurred by you in the defense of any such claim brought against you or in any such proceeding in which you are named as a party, provided that you have timely notified us of such claim or proceeding and have otherwise complied with this Agreement, cooperated fully with us and our attorneys. You agree that we shall have the right to defend any such claim. If we defend such claim, we shall have no obligation to indemnify or reimburse you with respect to any fees or disbursements of any attorney separately retained by you.


a. The Proprietary Information. We possess (and will continue to develop and acquire) certain proprietary information, some of which constitutes trade secrets under applicable law (the "Proprietary Information"), relating to developing and operating Restaurants, including (without limitation):

site selection criteria;

training and operations materials and manuals;

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the recipes of items prepared and sold in HuHot Restaurants

methods, formats, specifications, standards, systems, procedures, sales and marketing techniques, knowledge, and experience used in developing and operating Restaurants;

marketing and advertising programs for Restaurants;

knowledge of, specifications for, and suppliers of products and supplies used in the Restaurant;

Customer list and data, including names, addresses and other information;

knowledge of the operating results and financial performance of Restaurants other than your Restaurant; and

graphic designs and related intellectual property.

Any and all other information, processes or techniques which we designate as confidential or proprietary also shall be deemed Proprietary Information. We will disclose the Proprietary Information to you through furnishing you sample drawings and specifications for development and operation of the Restaurant, training programs, the Operations Manual, Restaurant Development Manual, if any, and through guidance furnished to you during the term of this Agreement.

Proprietary Information does not include information, knowledge, or know-how which you can demonstrate lawfully came to your attention before we provided it to you directly or indirectly; which, at the time we disclosed it to you, already had lawfully become generally known in the relevant industry through publication or communication by others (without violating an obligation to us); or which, after we disclose it to you, lawfully becomes generally known in the relevant industry through publication or communication by others (without violating an obligation to us). However, if we include any matter in Proprietary Information, anyone who claims that it is not Proprietary Information must prove that one of the exclusions provided in this paragraph is fulfilled.

b. Limitations on Franchisee's Use. You acknowledge and agree that you will not acquire any interest in the Proprietary Information, other than the right to utilize the same in the development and operation of the Restaurant pursuant to this Agreement and in accordance with the terms of this Agreement or other agreements between Franchisee and Franchisor or its affiliates, and that the use or duplication of the Proprietary Information in any other business would constitute an unfair method of competition. You hereby agree that you and your affiliates, officers, directors, partners and all owners of any interest in Franchisee and/or the Restaurant: (a) will not use the Proprietary Information in any other business or capacity; (b) will maintain the absolute confidentiality of the Proprietary Information during and after the Term; (c) will not make unauthorized copies of any portion of the Proprietary Information disclosed in written, visual, auditory or other tangible form; and (d) will adopt and implement all reasonable procedures we prescribe from time to time to prevent unauthorized use or disclosure of the

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Proprietary Information including, without limitation, restrictions on disclosure thereof to employees and the use of nondisclosure and non-competition clauses in employment agreements with employees and agents in the form we prescribe. We have the right to regulate the form of agreements that you use and to be a third party beneficiary of those agreements with independent enforcement rights. In connection with this obligation, you shall notify us of the name and address of each affiliate, officer, director, partner, supervisory employee and owner of Franchisee and shall update such information whenever necessary. Such notification shall contain and have annexed thereto a copy of the Confidentiality and Non-Competition Agreement executed by the individual at the time he or she acquires an interest in or becomes associated with or employed by. In said agreement such individual shall consent to be bound by the restrictive covenants contained in said Agreement and to our and your enforcement of such covenants. Your obligations pursuant to this Paragraph 6.b shall survive the termination or expiration of this Agreement.

c.         Innovations. All ideas, concepts, techniques, and marketing, advertising or other

materials relating to a Restaurant, whether or not protectable intellectual property and whether created by or for you or Franchisee's owners or employees, must be promptly disclosed to us and will be deemed to be our sole and exclusive property, part of the Franchise System, and works made-for-hire for us. To the extent that any item does not qualify as a "work made-for-hire" for us, by this paragraph you assign ownership of that item, and all related rights to that item, to us and agree to take whatever action (including signing assignment or other documents) we request to evidence our ownership or to help us obtain intellectual property rights in the item.


a.         Independent Contractors. It is understood and agreed by the parties that this Agreement does not create a fiduciary relationship between them, that Franchisor and Franchisee shall be independent contractors and that nothing in this Agreement is intended to make either party a general or special agent, legal representative, subsidiary, joint venturer, partner, employee or servant of the other for any purpose.

b.         Franchisee's Obligations. You shall conspicuously identify yourself in all dealings with customers, suppliers, public officials, Restaurant personnel, and others as the owner of the Restaurant under a Franchise granted from Franchisor, and shall place such notices of independent ownership on such forms, stationery, business cards, advertising and other materials as we may require from time to time. We have not authorized or empowered you to use the Marks except as provided by this Agreement, and you shall not employ any Mark in signing any contract, check, purchase agreement, negotiable instrument or other legal obligation without our prior written consent or employ any Mark in a manner that may result in liability to us for your indebtedness or obligation.

c.         Negation of Liability. Neither Franchisor nor Franchisee shall make any express or implied agreements, guaranties or representations or incur any debt in the name of or on behalf of the other or represent that their relationship is other than that of franchisor and franchisee. Neither Franchisor nor Franchisee shall be obligated by or have any liability under any agreements or representations made by the other. We shall have no liability or obligation for

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any damages to any person or property directly or indirectly arising out of the development or operation of the Restaurant, whether or not caused by your negligent or willful action or failure to act. We shall have no liability for any sales, use, excise, gross receipts, property or other taxes of Franchisee or the Restaurant.

d. Indemnification. You agree to indemnify Franchisor and its subsidiaries, affiliates, stockholders, directors, officers, employees, agents and assignees against and to reimburse them for all obligations, damages, and taxes for which they are held liable and for all costs reasonably incurred by them in the defense of any claims brought against them or in any action in which they are named as a party (including without limitation, reasonable attorneys' and expert witness fees, costs of investigation and proof of facts, court costs, other litigation expenses, and travel and living expenses) as a result of or related in any way to the operation of the Restaurant, except to the extent caused solely by our negligent or willful action or failure to act. We have the right to defend any such claim against us. You shall also indemnify and hold us and our officers, directors, employees and agents harmless from any and all claims, demands or liabilities arising from the offer or sale of securities, whether asserted by a purchaser of any security or by a governmental agency. We have the right to defend any such claims.

e*         Survival. The indemnities and assumptions of liabilities and obligations herein

shall continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement.


a.         Initial Franchise Fee. You agree to pay to us, upon execution of this Agreement, an initial franchise fee of $35,000. The initial franchise fee shall be fully earned by us upon its payment, and shall be non-refundable, except that in the event that we determine following training that you have not completed training to our satisfaction, we may terminate this Agreement, and shall promptly return to you $25,000 of the initial franchise fee.

b.         Royalty Fee. You agree to pay to us a weekly royalty fee in the amount of five percent (5%) [six percent (6%) if local law does not permit a royalty to be paid or received on sales of alcoholic beverages] of the Gross Revenues of the Restaurant (as defined in Paragraph 8.c. hereof). The royalty fee shall be payable on or before each Friday for the preceding Reporting Week (Monday through Sunday).

c.         Definition of "Gross Revenues." As used in this Agreement, the term "Gross Revenues" shall mean the entire amount of all gross sales and business receipts, including direct or indirect barter transactions (for products and services consumed or furnished on or off premises) arising out of the operation of the Restaurant, or through or by means of the business conducted in connection therewith, whether for cash or credit, and including proceeds of business interruption insurance policies, but excluding: (1) sales, use, or service taxes collected from customers and paid to the appropriate taxing authority; (2) all bona fide customer refunds and approved rebates, discounts and allowances; and (3) where local law prohibits the collection or payment of a fee from you based on sales of alcoholic beverages, all receipts from such sales.

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d.         Interest on Late Payments. All Royalty Fees, Marketing Fund Contributions and other amounts which you owe to us or our affiliate shall bear interest after their due date at the lower of 1.5% per month, or the highest contract rate allowed by local law. You acknowledge that this Paragraph shall not constitute our agreement to accept such payments after same are due or a commitment by us to extend credit to, or otherwise finance, your operation of the Restaurant. Further, you acknowledge that your failure to pay all such amounts when due shall constitute grounds for termination of this Agreement, as provided in Section 16 hereof, notwithstanding the provisions of this Paragraph.

e.         Application of Payments. Notwithstanding any designation by you, we shall have sole discretion to apply any payments by you to any past due indebtedness of Franchisee for Royalty Fees, Marketing Fund Contributions, purchases from us or our affiliates, interest or other indebtedness owed to us or our affiliates


a.         Image of the Restaurant. The presentation of an image in compliance with our minimum standards and specifications to the public is an essential element of a successful franchise system. You shall offer for sale all products and services that we, in our sole discretion, may from time to time require, and shall make such reasonable expenditures as may be necessary to enable it to fulfill such obligation, including, without limitation, the purchase or lease of new equipment or services, and the hiring and training of suitable personnel. You further agree that the Restaurant will not, without our prior written approval, provide and/or offer for sale any products or services not then authorized by us for HuHot Restaurants. We reserve the right to revoke our approval of any products or suppliers previously authorized at any time upon written notice to you, provided that you may continue to offer and sell all remaining on-hand or ordered non-cancelable inventory of such products ordered from such suppliers as of the date of receipt of written notice from us. We may, but are not required to, from time to time, conduct market research and testing to determine consumer trends and the salability of new food and beverage products and services. If reasonably possible, you agree to cooperate by participating in our market research programs, test marketing of new services and products in the Restaurant and providing us with timely reports and other relevant information regarding such market research.

b.         Standards and Sources of Supplies.

i.         You agree that the Restaurant will

(1)       use ingredients and prepare and offer for sale other beverages and food products

(2)        use menus and logoed materials, and

(3)        offer for sale other products and services

which conform to our specifications and quality standards and/or are purchased from suppliers approved from time to time by us (which may include Franchisor and/or its affiliates).

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ii. You agree to use in the operation of the Restaurant only signs, equipment, merchandise, materials and supplies that conform to our minimum specifications and quality standards and/or are purchased from suppliers we approve from time to time.

iii. We may, from time to time, modify the minimum standards and specifications and/or the list of approved brands and/or suppliers. If you propose to use or offer any food products or beverages, or ingredients or supplies or other products or services (other than those which must be purchased pursuant to Paragraph 9.b.i) which do not comply with our then-current minimum standards or specifications or which are purchased from a supplier that has not been approved, you shall first notify us in writing and submit sufficient information, specifications and samples concerning such item or supplier for our determination as to whether such item complies with our specifications and standards, and/or whether the supplier meets our approved supplier criteria. We shall have the right to charge you a reasonable fee to cover our costs incurred in making such determination, which, in the case of new items, shall be not more than $250. We shall, within a reasonable time, notify you whether or not such proposed item or supplier is approved. We may from time to time prescribe procedures for submission of requests for approval of items or suppliers, and obligations which approved suppliers must assume (which may be incorporated into a written agreement to be executed by approved suppliers). We may impose limits on the number of suppliers and/or brands for any ingredient, food or beverage product or logoed materials, used or served by the Restaurant. We may collect a service fee on items purchased by you through national marketing contracts negotiated and maintained by us. Such service fee shall be established and paid to the Marketing Fund in the manner we prescribe from time to time.

iv. You shall not offer and sell any branded products in the Restaurant without our prior written consent. You shall offer and sell branded products which have been approved by us only in the manner we prescribe from time to time. We reserve the right to revoke the approval of a previously authorized branded product.

v. You shall at all times maintain an inventory of approved food products, beverages and ingredients and other products sufficient in quantity to meet customer demand.

vi. We reserve the right to require you to use proprietary sauces in the Restaurant and to offer such sauces for retail sale if we so require.

vii. We may receive payments from suppliers on account of purchases by you and other franchise owners from those suppliers. We may, but are not required to, contribute said payments toward the Advertising Fund.

c. Operating Procedures. You acknowledge that each and every detail of the appearance and operation of the Restaurant in compliance with our high standards is important to Franchisor and other HuHot Restaurants. You agree to cooperate with us by maintaining such high standards in the operation of the Restaurant. You agree to comply with all mandatory specifications, standards and operating procedures relating to the function and operation of a

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HuHot Restaurant including, without limitation, specifications, standards and operating procedures and rules relating to: (1) hours during which you shall operate the Restaurant; (2) methods and procedures relating to the acquisition, storage and preparation of products you offer or use in the operation of the Restaurant; (3) advertising and promotion; (4) use of standard menus; (5) the handling of customer inquiries and complaints; and (6) use of approved POS System. We reserve the right to approve all menu items and final copy of your menu prior to printing. Mandatory specifications, standards and operating procedures we prescribe from time to time in the Operations Manual, Restaurant Development Manual, if any, or otherwise communicated to you in writing, shall constitute provisions of this Agreement as if fully set forth herein. All references herein to this Agreement shall include all such mandatory specifications, standards and operating procedures.

d.         Compliance with Laws and Good Business Practices. You shall secure and maintain in force in your name all required licenses, permits and certificates relating to the operation of the Restaurant. You shall operate the Restaurant in full compliance with all applicable laws, ordinances and regulations including, without limitation, all government regulations relating to the retail sale of alcoholic beverages, workers' compensation insurance, unemployment insurance and withholding and payment of federal and state income taxes, social security taxes and sales taxes. All advertising by you shall be completely factual, in good taste in our judgment, and shall conform to the highest standards of ethical advertising. Both parties, in all dealings with customers, suppliers, employees, public officials and each other, shall adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct. Both parties agree to refrain from any business or advertising practice that may be injurious to the other and the goodwill associated with the Marks and other HuHot Restaurants. In the event you fail to secure any license or permit required for the operation of the Restaurant, we, at our option and in addition to our other rights and remedies hereunder, may obtain such license or permit on behalf of Franchisee and you shall fully cooperate with us in our efforts to obtain such license or permit on behalf of Franchisee and shall pay to us, on demand, all costs and charges incurred by us.

e.         Management and Personnel of the Business. The Restaurant shall at all times be under your supervision, and shall at all times be under the full-time management by you or a qualified manager who has successfully completed our training program (or, if you are a corporation, partnership or limited liability company, your majority shareholder or partner or managing member, or qualified manager who has successfully completed our training program). You shall hire all employees of the Restaurant and shall be exclusively responsible for the terms of their employment and compensation and for the proper training of such employees. If (other -than as part of initial training as provided in Paragraph 4.a hereof) you request us to train your manager, you shall pay us a Training Fee in the amount of $1,500. You shall establish at the Restaurant for all employees a training program meeting the standards we prescribe. You shall require all managers of the Restaurant to execute our then-current form of Confidentiality and Non-Competition Agreement and shall require all employees to execute our then current form of Confidentiality Agreement. Upon reasonable request, you agree to provide us a copy of an executed Confidentiality and Non-Competition Agreement for each manager of the Restaurant. You shall require all employees to maintain a neat and clean appearance and to conform to the standards of dress specified by us from time to time. You shall not, during the term of this Agreement and for a period of two (2) years following termination or expiration of this

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Agreement for any reason, recruit or hire any employee of Franchisor or a HuHot Restaurant operated by Franchisor, an affiliate of Franchisor or another franchisee of Franchisor, without obtaining our prior written permission, such affiliate, or franchisee. If the Restaurant at any time is not being managed by you or a qualified, trained, full-time manager, we may appoint a manager for the Restaurant and charge a reasonable management fee (currently $250 per day) during the period in which we manage the Restaurant.

f.          Exclusive Relationship, We have entered into this Agreement with you on the express condition that you and Franchisee's owners will deal exclusively with us. You therefore agree that during the term of this Agreement, except for the Restaurant and other HuHot Restaurants operated under franchise agreements with us, neither you nor any of Franchisee's owners or approved managers shall (1) have any direct or indirect ownership interest in any Competitive Business located or operating anywhere in the world; (2) have any direct or indirect ownership interest in any entity which grants franchises or licenses or establishes joint ventures for operation of Competitive Businesses anywhere in the world; or (3) perform services as a director, officer, manager, employee, consultant, representative, agent, lessor, lender, or otherwise for any Competitive Business or any business which grants franchises or licenses or establishes joint ventures for the operation of Competitive Businesses anywhere in the world. The restrictions of this Paragraph shall not be applicable to the ownership of shares of a class of securities listed on a stock exchange or traded on an over-the-counter market that represent three percent (3%) or less of the number of shares of that class of securities issued and outstanding. The term "Competitive Business" shall mean a restaurant offering food prepared within view of customers on a "Mongolian Grill," "Mongolian Barbeque," or similar cooking surface.

g.         Insurance.

i.         During the Term, you shall maintain in force, under policies of insurance

issued by carriers approved by us, comprehensive general liability and property damage insurance against claims for bodily and personal injury, death and property damage caused by or occurring in conjunction with the operation of the Restaurant, or otherwise in conjunction with the conduct of business by you pursuant to the Franchise Agreement, under one or more policies of insurance containing: Workers Compensation including Employers Liability insurance in the limit of no less than $500,000; Comprehensive General Liability with a General Aggregate of no less than $1,000,000 which must include "Hired and Non-Owned" automobile liability coverage; Products Liability of $1,000,000; host liquor liability coverage if and to the extent such liability is imposed by applicable law; and Business Interruption insurance in an amount equal to at least six months of gross revenue. In addition, if you use a vehicle to transport products or supplies, you must maintain Comprehensive Auto Liability of no less than $1,000,000. We may periodically increase the amounts of coverage required under such insurance policies and require different or additional kinds of insurance at any time, including excess liability insurance, to reflect inflation, identification of new risks, changes in law or standards of liability, higher damage awards or other relevant changes in circumstances. Each insurance policy shall name HuHot Mongolian Grills, L.L.C., 223 East Main Street, Missoula, Montana 59802 as an additional insured on a primary basis with respect to policies secured, and shall provide for thirty (30) days' prior written

UFOC 04/06 HuHot                                                                                                                              4/14/06


notice to us of any material modification, cancellation or expiration of such policy.

ii.        Upon request, you shall furnish us with a copy of each insurance policy to

be maintained by you for the immediately following term and of the payment of the premiums therefor. If you fail or refuse to maintain required insurance coverage, or to furnish satisfactory evidence thereof and the payment of the premiums therefor, we, at our option and in addition to our other rights and remedies hereunder, may obtain such insurance coverage on behalf of Franchisee and you shall fully cooperate with us in our effort to obtain such insurance policies, promptly execute all forms or instruments required to obtain or maintain such insurance and pay to us, on demand, any costs (including administrative) and premiums incurred by us.

iii. Your obligations to maintain insurance coverage as herein described shall not be affected in any manner by reason of any separate insurance maintained by us, nor shall the maintenance of such insurance relieve you of any obligations under Section 7 of this Agreement.

h. Participation in System-wide Internet Web Site. You acknowledge that the Internet is a powerful, expanding medium through which business is conducted. We shall, at our discretion, determine the content and use of the web site or other listing. We shall retain all rights relating to the web site or other listing and may alter or terminate the web site at our discretion. You acknowledge that certain information obtained through your participation in the HuHot Web Site may be considered Proprietary Information, including access codes and identification codes. You shall be prohibited from establishing your own web site or other listing on the Internet using the Marks and/or System without our prior approval.

i.         Cooperation in Displaying Franchisor's Franchise Literature. You agree to

cooperate with us in displaying our franchise literature, and will notify us when the supply of franchise literature on the Restaurants' premises is low. You will not be responsible for paying for any of the franchise literature.

j.         Variation of System Standards. Because complete and detailed uniformity

under many varying conditions might not be possible or practical, you acknowledge that we specifically reserve the right and privilege, as we consider to be best, to vary System standards for any franchise owner based upon the peculiarities of any condition that we consider important to that franchise owner's successful operation. You have no right to require us to grant you a similar variation or accommodation


a.        By Franchisor.

i.         You agree to pay a Marketing Fund Contribution equal to one half of one

percent (0.5%) of the Gross Revenues as defined in Paragraph 8.c of this Agreement at the same time and in the same manner as the Royalty. When there are 500 HuHot Restaurants, we have the right to increase the Marketing Fund Contribution paid by you,

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not to exceed three percent (3%) of Gross Revenues. We agree that HuHot Restaurants owned by us will contribute to the Marketing Fund on the same basis as franchised HuHot Restaurants.

ii. We will have sole discretion over all marketing programs funded by the Marketing Fund, including creative concepts, materials and endorsements, and the geographic markets, media placement and allocation of expenditures. The Marketing Fund may be used to pay the costs of preparing and producing video, audio and written advertising and promotional materials and electronic media; developing, implementing, and maintaining an electronic commerce Website and/or related strategies; administering multi-regional advertising programs, including purchasing direct mail and other media advertising and employing advertising agencies; and supporting public relations, market research and other advertising and marketing activities, as determined by us. We reserve the right to expend a portion of the Marketing Fund on advertising that is principally a solicitation for the sale of franchises. However, we will not expend an amount for this use that is greater than amounts contributed to the Marketing Fund by company-owned or affiliate-owned HuHot Restaurants. We will account for the Marketing Fund separately from our other funds. We will not use the Marketing Fund to defray any of our genera! operating expenses, except for reasonable salaries, administrative costs and overhead as we may incur in activities reasonably related to the administration of the Marketing Fund and our marketing programs, including conducting market research, preparing advertising, promotional and marketing materials and collecting and accounting for contributions to the Marketing Fund. In the event all the Marketing Fund Contributions collected in any year are not expended in that same year, we have the right to roll said unused monies for use in the succeeding year. We are not required to have the Marketing Fund audited; however, we will furnish you an unaudited annual report of the Marketing Fund upon written request.

iii. You understand and acknowledge that the Marketing Fund is intended to enhance recognition of the Marks and patronage of HuHot Restaurants. We are under no obligation to: (i) spend any amount in your market; (ii) ensure that expenditures of the Marketing Fund in or affecting any geographic area are proportionate or equivalent to the Marketing Fund Contributions paid by HuHot Restaurants operating in that geographic area; or (iii) insure that any HuHot Restaurants will benefit directly or in proportion to their Marketing Fund Contributions from the development of advertising, promotional and marketing materials or programs.

iv. We assume no direct or indirect liability or obligation to you or to the Marketing Fund with respect to any failure by any franchisees of Franchisor to make any contributions to the Fund. The Marketing Fund will not be our asset. Although the Fund is not a trust. We will hold all Fund contributions for the benefit of the contributors and use contributions only for the purposes described in this Section. We do not owe any fiduciary obligation to you for administering the Fund or any other reason.

v. We have the right to waive, reduce, forgive, or otherwise modify the obligation of other franchisees to contribute to the Marketing Fund, and to make

UFOC 04/06 HuHot                                                                                                                              4/14/06


The original documents were scanned as an image. The original file can be downloaded at the link above.