Franchise Agreement

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Sample Franchise Agreement

This AGREEMENT made as of________________,_______, by and between

Steak-Out Franchising, Inc., ("Franchisor") and ____________________________________,

("Franchisee"), and the Owners of the Franchisee as herein set forth. The principal place of business of each is set forth in Exhibit A.

WITNESSETH:

WHEREAS, Franchisor conducts a proprietary business pursuant to which it has a right to license the Licensed Marks and to require the business of the Franchisee, and its use of the Licensed Marks, to be conducted in a prescribed manner; and

WHEREAS, Franchisee and Owners, after fully considering the provisions hereof, reviewing the materials furnished by Franchisor, and making such investigations as they care to make, have made representations and given assurances to Franchisor and have requested to enter into this Agreement; and

WHEREAS, Franchisor is willing to enter into this Agreement in reliance upon the representations and assurances given by the Franchisee and the Owners;

NOW, THEREFORE, in consideration of the premises and mutual promises herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties have agreed as follows.

GRANT

Section 1.1. Grant of Franchise. Franchisor hereby grants to Franchisee the right to conduct the Business at the Premises (together the "Unit"), and to use the Licensed Marks and the Steak-Out System thereat, upon the terms herein set forth.

a. This grant applies to one Unit, located as set forth in Exhibit B. This Agreement applies only to the Business and the Premises on which that Unit is located, and conveys no rights to any other unit, premises or business.

b. Delivery and other operations of the Business may be conducted only within the Delivery Area, as hereinafter defined.

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c. The license to sell freshly cooked foods in the Delivery Area, subject to nonsubstantiaJ or inadvertent encroachments, with respect to the type of Business co iducted at the Unit during the term of this Agreement and so long as Franchisee is not in default hereunder, is exclusive to the Franchisee. Franchisor will grant no other Franchisee the right to deliver from a Steak-Out Unit located within the Delivery Area.

d. Unless otherwise approved by Franchisor, in its sole discretion, Franchisee shall conduct all aspects of the Business solely at the Premises.

e. Franchisee shall not conduct, or allow others to conduct, any other business or commercial operations from the Premises or as part of the Business.

f. Franchisee understands and agrees that Franchisor reserves the right, either directly or through affiliates, to operate or franchise or license others to operate or franchise restaurants or other food related establishments or businesses other than Steak-Out Units, and Franchisee agrees that Franchisor and its affiliates may do so within the Delivery Area; provided, that sue ti restaurants or food establishments or businesses do not operate Steak-Out Units on a delivery basis. Franchisor also reserves the right to develop, market and conduct any other business under the Marks or any other trademark.

g. This Agreement is subject to the terms of an Area Development Agreem ent between the parties, if one exists.

h. Owners, and each person who later becomes an Owner, hereby guarantee ] ^:ranchisee's

obligations hereunder, and shall further separately execute a guaranty agreement in the fc rm attached hereto as Exhibit C.

II TERM

Section 2.1. Initial Term. The "Initial Term" of this Agreement shall commence on the date first above written (the "Effective Date") and, unless earlier terminated pursuant to the provisions hereof, shall extend until the tenth anniversary thereof.

Section 2.2. Renewal Term. Provided the Renewal Conditions are met, Franchisee: nay renew the grant herein made for one (1) additional term often (10) years (the "Renewal Term"). The Renewal Conditions are:

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a. Franchisee shall have strictly complied with the provisions of this Agreement and all agreements collateral hereto, throughout its Initial Term and with any Area Development Agreement to which it is subject to the satisfaction of the Franchisor, in its sole discretion.

b. All other Steak-Out units which Franchisee then operates shall have complied with the provisions of their agreements throughout their terms to the satisfaction of Franchisor, in its sole discretion, and shall comply with Franchisor's then current standards and requirements.

c. Franchisee shall have submitted a lease of the Premises to be occupied, which Lease, Premises and Unit shall be subject to the approval of Franchisor in accord with Section III.

d. Franchisee shall refurbish the Unit to conform to then current standards specified by Franchisor.

e. Franchisee shall have executed a new Franchise Agreement in the form and containing the provisions then used by Franchisor with respect to new franchisees, which may contain provisions materially different from this Agreement, and shall meet Franchisor's criteria for the granting of new franchises at that time.

f. Franchisee shall pay to Franchisor a Renewal Fee in an amount and on a schedule specified by Franchisor as its then specification for Renewal Fees. The Renewal Fee currently specified is set forth in Exhibit D.

Section 23. Renewal Exercise. Franchisee shall exercise its option for a Renewal Term by giving Franchisor unconditional, written notice of exercise not less than six (6) nor more than twelve (12) months prior to the expiration of the Initial Term. Upon receipt of such notice Franchisor, in its sole discretion, shall determine whether Franchisee has satisfied the foregoing conditions. Within thirty (30) days after making such determination, Franchisor shall notify Franchisee in writing whether Franchisee is eligible to exercise its option for a Renewal Term. If eligible, Franchisee shall take all actions necessary to complete its renewal prior to thirty (30) days before the expiration of this Agreement.

Section 2.4. Expiration Upon Lease Termination . At the sole option of Franchisor, this Agreement shall expire prior to the stated expiration date of the Initial Term or any Renewal Term simultaneously with any termination or expiration of Franchisee's interest in any Premises Lease.

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PREMISES AND SPECIFIED AREA

Section 3.1. Premises. The Premises shall be in conformity with Franchisor's spec: fications and the Confidential Operations Manual. The Premises may be either owned or leased by Franchisee. Without limiting the foregoing, the Premises shall be at a location accepted by Franchisor, shall be subject to lease and/or ownership terms approved by Franchisor and shall have building plans approved by the Franchisor. Construction of the Premises shall be performed by a General Contractor approved by the Franchisor, and such building shall be constructed, furnished, maintained and refurbished in conformity with Franchisor's specifications. Franchisee's Lease of the Premises, (the "Premises Lease"), if any, shall be subject to Franchisor's approval.

Section 3.2. Deliverv Area. The Business shall make no deliveries except within the geographic area specified by Franchisor from time to time ("the "Delivery Area"). The Delivery Area may be expanded or reduced by Franchisor in its sole discretion, upon sixty days prior written notice, to account for, among other things, changing market conditions, population changes, the extent to which Franchisee is fully serving available customers, and other relevant conditions. The Delivery Area shall not be reduced to an area encompassing less than the number of potential customers

specified in F.yhihit B or expanded to an area larger than can be reasonably fully served

by the Unit,

unless Franchisee otherwise agrees. B.

The Delivery Area initially specified is described in Exhibit

Section 33. Relocation Application. In the event the Premises Lease is terminated or expires and cannot be renewed during the term of this Agreement, or otherwise for good business {reasons not deemed by Franchisor to conflict with its obj ectives, Franchisee may apply to Franchisor for the right to relocate the Unit, which application shall not be unreasonably denied, provided that thq Relocation Conditions are met. The Relocation Conditions are:

a. The proposed new location is within the Delivery Area;

b. Franchisee shall have strictly complied with the provisions of this Agreement throughout its term and with any Area Development Agreement to which it is subject to the satisfaction of the Franchisor, in its sole discretion;

c. Franchisee's proposed new location and the lease thereon (which is also contemplated by the term Premises Lease, as used herein) is approved in writing by Franchisor;

d. The proposed location does not conflict with or intrude upon the Permitted Area of any other Steak-Out unit;

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e. All other Steak-Out units which Franchisee then operates shall have complied with the provisions of their agreements throughout their terms to the satisfaction of Franchisor, in its sole discretion, and shall comply with Franchisor's then current standards and requirements;

f. Franchisee shall have submitted a lease of the Premises to be occupied, which Lease, Premises and Unit shall be subject to the approval of Franchisor;

g. Franchisee can commence business at such new location within ninety (90) days after the Relocation Application is approved and Franchisee is not in default of any obligation to a lender or other third party that would in Franchisor's opinion materially impact Franchisee's ability to conduct the Business; and

h. Franchisee has paid a Relocation Fee in the amount and on the schedule then

specified by Franchisor and reimbursed Franchisor all out-of-pocket expenses with respect thereto. The Relocation Fee currently specified is set forth in Exhibit D.

Section 3.4. Sole Use Of Premises. Franchisee shall use the Premises solely for the operation of the Business in the manner and pursuant to the standards prescribed herein, in the Confidential Operations Manual or otherwise in writing, and shall refrain from using or permitting the use of the Premises for any other purpose or activity at any time.

Section 3.5 Maintenance Of Premises. Franchisee shall maintain the Premises, and all fixtures, furnishings, signs and equipment therein, in conformity with Franchisor's then current standards at all times during the term of this Agreement, and shall make such repairs and replacements thereto as Franchisor may require. Without limiting the generality of the foregoing, Franchisee specifically agrees:

a. to keep the Business at all times in a high degree of safety, sanitation, repair, order and condition, including, without limitation, such periodic repainting of the exterior and interior of the Unit, and such maintenance and repairs to all fixtures, furnishings, uniforms, signs and equipment as Franchisor may from time to time reasonably direct;

b. to meet and maintain at all times at least the minimum governmental standards and ratings applicable to the operation of the Business as required from time to time by Franchisor;

c. to cause its employees to wear apparel which conforms strictly to the specifications, design, color and style approved by Franchisor from time to time; and

d. to assure that all delivery vehicles shall be in good repair, shall at least meet minimum governmental standards for safety if owned or leased by Franchisee or Owners, shall be used solely

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in connection with the Business (other than for personal use if owned by independent delivery personnel) and shall be operated solely by persons who are properly licensed to operate such vehicles, and who shall obey all traffic laws and otherwise operate such vehicles in a safe manner.

Section 3.6 Refurbishment Franchisee agrees that, in order to maintain a modern, safe, sanitary and uniform image, Franchisor shall have the right, at any time and from time to time after the expiration of five (5) years from the Effective Date (or sooner with respect to delivery vehicles, damage or deterioration) in the reasonable discretion of Franchisor and with respect to parts of the Business not in compliance with Franchisor's standards to require Franchisee to perform such remodeling, repairs, replacements and redecoration in and upon the Premises, equipment (including delivery vehicles) and furnishings used by Franchisee as Franchisor shall deem appropriate to bring the Premises, including equipment and fixtures, up to the then current standards of newly developed Steak-Out units. Franchisee shall complete such remodeling, repairs, replacements and ^decoration within four months from the date refurbishment notice is issued by Franchisor.

CERTAIN DEFINITIONS

Section 4.1 Certain Terms Used in the Agreement.

a. "Accounting Period" - Franchisor utilizes a 52-53 week fiscal year that ends on the Sunday closest to the last day of the calendar year. Franchisor's fiscal year is divided into accounting periods. The length of an accounting period shall be set by the Franchisor.

b. "Affiliate" - Any individual person or legal entity that directly or indirec tly owns or controls an entity, that is directly or indirectly owned or controlled by any such entity, or t lat is under common control with the such entity. For purposes of this definition, "control" means the power to direct, cause the direction of or substantially influence the management and policies of an entity, whether through ownership of stock or debt or otherwise, and any member of an Owner's Immediate Family shall be deemed to control or be controlled by Franchisee.

c. "Area Development Agreement" - The agreement defining the geographic area, if any, in which the Franchisee has right to develop additional Steak-Out units and the terns of that development This Agreement is subject to an Area Development Agreement if the Franchisee has rights to develop such units in addition to the Unit contemplated hereby. However, this, Agreement may also be entered into by franchisees that have no Area Development Agreement with Franchisor.

d. "Business" - The business conducted by the Franchisee at and from the Premises under the license granted hereby, which shall be confined to the delivery, take out and catering of

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food or other items as specified by Franchisor from time to time, and marketing incidental thereto, and which shall be conducted in accord with the Confidential Operations Manual. All other business activities of each and every kind are reserved to the Franchisor.

e. "Competitive Business" - Any business specializing in the delivery, take out or catering of food or other items as specified by Franchisor from time to time for use in Steak-Out units and/or any restaurant business specializing in delivery, takeout or catering of steaks, chicken or burgers, other than as a franchisee of the Steak-Out System.

f. "Confidential Operations Manual" - As referenced in Section XI and elsewhere refers to a series of individual manuals and written instruction, and periodic revisions thereto, including but not limited to operations manuals, marketing manuals, information systems manuals and training manuals.

g. "Continuing Fee" - As referenced in Sections 7.1 and 17.1 refers to the Royalties and Promotion and Development Fee.

h. "Designated Manager" - That person specified pursuant to Section 9.9.

i. "Grand Opening Advertising" - Activities and costs required of Franchisee by

Section 12.3.

j. "General Contractor" - The prime contractor who is responsible for most of the

work at the construction site, including that performed by the subcontractors. In some states and/or locales the general contractor is required to be licensed.

k. "Immediate Family - Spouse, parents, brothers, sisters and children, whether natural

or adopted.

1. "Licensed Marks" - The tradenames, trademarks, "service marks, Trade Dress, logos,

symbols, design patents and other mdicia of origin as are now designated by Franchisor (or as may hereafter be designated by Franchisor) and/or owned by Franchisor and used to identify the services and/or products offered by Steak-Out units, as further designated by Franchisor from time to time. The current Licensed Marks are further identified in Exhibit E

m. "Local Advertising" - Activities and costs required of Franchisee by Section 12.2.

n. "Offering Circular" - The Franchisor's Franchise Offering Circular.

o. "Operating Partner" - The natural person contemplated by Section 5.2 and designated by Franchisee in Exhibit A. and approved by Franchisor, who shall be responsible for management of the Unit.

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p. "Owner" - Each person or entity that has a direct or indirect legal or beneficial

ownership interest in Franchisee.

q. "Permitted Area" - means the combination of (1) the "Delivery Area" in which the Unit contemplated hereby may operate, as contemplated by Section 3.2 hereof, and (2) such additional "Development Area" as the Franchisee has pursuant to an Area Developmei it Agreement, if one exists. The Permitted Area and the market therein contained shall belong to Franchisor, subject only to the limited right of use by Franchisee licensed herein.

r. "Promotion" - activities and costs contemplated by Section 12.1.

s. "Premises" - The location identified in Section 1.1 at which Franchisee has been

granted the right to operate a Steak-Out unit pursuant to this Agreement.

t. "Premises Lease" - The Lease of the Premises which must comply with the

requirements stated herein.

"Relocation Conditions" - The conditions set forth in Section 3.3.

"Renewal Conditions" - The conditions set forth in Section 2.2.

"Royalty Sales" - The aggregate gross amount of all revenues from whatever source derived or derivable (including proceeds of insurance or amounts paid by other parties for business interruption or diminution of sales), without discount or concession (whether in the form of cash, credit, agreements to pay or other consideration, and whether or not payment is received at the time of sale or any such amounts prove uncollectible), which arise from or are derived by Franchisee or by any other person from business conducted or which originated, in, on, from or through the Premises, or from the sale of any products or provision of any services associated with tie use of the Licensed Marks, whether such business is conducted in compliance with or in violation < >f the terms of this Agreement, excluding only sales or other tax receipts from customers (the collect! >n of which is required by law), provided the amount thereof is added to the selling price and actually paid by the Franchisee to the taxing authority. Special and product promotion revenues and complimentary or coupon meals and delivery, setup and other charges to the customer shall not be excluded from Royalty Sales.

x. "System" - The business methods, designs, equipment, configurations and

arrangements for developing and operating Steak-Out units. The System includes, without limitation, the Licensed Marks, Trade Dress, the Confidential Operations Manual, building layouts, equipment, information systems, formulas and specifications for authorized food products and beverages, methods of inventory and operations control and certain business practices and policies. In connection therewith, Franchisor has developed a plan and system relating to the franchising of Units, specializing in the delivery, take-out and catering of steaks, burgers, chicken and other items,

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which system includes site evaluation, equipment selection and layouts, accounting methods, merchandising, advertising, sales and promotional techniques, personnel training, and other matters relating to the operation and promotion of such restaurant(s).

y. "Telephone Number" - The Telephone Number of the Business as required by

Section 9.6 hereof, or other telephone and facsimile numbers used by the Business.

z. "Trade Dress" - The Unit design, decor and image, including uniforms, menu forms and layout and operating methods, which Franchisor authorizes and requires Franchisee to use in connection with the operation of a Unit, as it may be revised and further developed by Franchisor or its affiliates from time to time and as further described in the Confidential Operations Manual.

aa. "Transfer Conditions" - The conditions set forth in Section 15.3.

bb. "Unit" - The Steak-Out store, the Premises and the Business operated by Franchisee on the Premises pursuant to this Agreement.

ORGANIZATION AND MANAGEMENT OF FRANCHISEE

Section 5.1. Organization. Franchisee and each of its Owners represent, warrant and agree that:

a. Franchisee is either an existing corporate or other entity franchisee executing a new Franchise Agreement or a newly formed (as set forth in Exhibit F1 corporation, limited partnership or limited liability company, (duly organized and validly existing under the laws of the state of its formation, and, if a foreign entity, is duly qualified to transact business in the state in which the Unit is located;

b. Franchisee and each of its Owners have the authority to execute, deliver and perform its obligations under this Agreement;

c. True and complete copies of the articles of incorporation or organization, bylaws, partnership agreement, shareholders or buy-sell agreements, voting trust agreements, employment agreements, management agreements, professional engagement agreements, and all other documents relating to the ownership, organization, voting, management or control of Franchisee have been delivered to Franchisor;

d. The documents and agreements contemplated by Section 5.1(c) provide that its activities must be restricted to those necessary solely for conduct of the Business in accordance with this Agreement;

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e. The documents and agreements contemplated by Section 5.1(c) require that the

issuance and assignment of any direct or indirect legal or beneficial ownership interest in Franchisee is restricted by the terms of this Agreement; and all certificates representing direct or indirect legal or beneficial ownership interest in Franchisee now or hereafter issued bear a legend reciting or referring to such restrictions;

All amendments and modifications to the documents and agreements by Section 5.1(c) and new agreements of similar type will be delivered contemporaneously with their making;

contemplated to Franchisor

g. Exhibits A and F hereto correctly identify each and every Owner, Operating Parmer, director, officer, manager, accountant, attorney, and banker of Franchisee, and completely and accurately describe the nature and extent of each Owner's interest in Franchisee. Updated Exhibits A and F shall be furnished promptly to Franchisor, so that they (as so revised and signed by Franchisee) are at all times current, complete and accurate. Franchisee shall furnish to Franchisor from time to time upon request a full listing of all employees, former employees, and existing and former independent contractors of the Unit, designating therein the functions, addresses, telephone numbers and social security numbers of each;

h. Each Owner shall be a natural person acting in his individual capacity, unless otherwise approved by Franchisor. One Owner must own not less than fifty-one percent (51 %) of the equity and voting rights of Franchisee;

i. All documents, including all financial statements or other documents submitted to

Franchisor by or on behalf of Franchisee are true, complete and correct and do not contain any material misstatement; and

j. Franchisee shall be the sole owner and operator of the Business, aid shall not

incorporate or create any subsidiary to own or operate the Business, or cede ownership, n lanagement or control of store Business or the Premises to any other party, or hold the lease for the Premises, or enter into any material contract related to the Business, without the prior written cmsent of the Franchisor.

Section 5.2. Operating Partner/Management of Business Franchisee shall designate iExhibit A as the "Operating Partner" a natural person approved by Franchisor who shall: (a) own i ind control, or have the right to own and control (subject to conditions reasonably acceptable to Frar chisor) not less than twenty (20%) percent of the equity and voting rights of Franchisee, (b) have the authority to bind Franchisee regarding all operational decisions with respect to the Unit, and (c) have completed Franchisor's training program to Franchisor's satisfaction. The Operating Partner shall supervise the operation of the Unit, and any other units granted under the Area Development Agreement, on a full time basis. The Unit shall also be managed by an on-site Designated Manager who has completed Franchisor's training program to Franchisor's satisfaction.

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VI OPERATING ASSISTANCE

Section 6.1. Pre-Opening Assistance . Prior to Franchisee's commencement of business, Franchisor shall provide Franchisee with:

a. information with respect to preliminary plans and layouts for the Unit, and standards and specifications for all fixtures, signs, improvements, equipment, food and packaging and other related facilities for use in typical or similar Steak-Out units;

b. such information as may be available to Franchisor concerning possible sources of signs, equipment, fixtures, furnishings, improvements and other products and services available in connection with the operation of Steak-Out units;

c. training in accord with Section X hereof;

d. such on-Premises pre-opening or opening assistance in the initial operation of the Business as Franchisor may, in its discretion, deem appropriate;

e. on loan, one copy of the Confidential Operations Manual, (as herein defined) which may be amended from time to time by Franchisor in its sole discretion;

f. a supply of master copies of accounting forms for reporting transactions to Franchisor; and

g. if Franchisee so requests, assistance and advice in locating the Premises and negotiating the Premises Lease; provided that Franchisor's services with respect thereto shall be advisory only, and shall in no event constitute representations, warranties or covenants of Franchisor and shall be deemed to be rendered only on a best efforts basis. See Section 7.1(d) herein.

Section 6.2. Continuing Assistance . To the extent Franchisor, in its sole discretion deems reasonable, Franchisor shall continue its efforts to maintain standards of quality, appearance and service at all Steak-Out units, thereby mamtaining the public image and reputation of the Steak-Out System and the demand for the products and services provided thereunder. To that end Franchisor may in its sole discretion, provide Franchisee with such of the following as it shall deem appropriate:

a. periodic assistance in local advertising and marketing;

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b. periodic individual or group counseling in the operation of the Business rendered in person, by seminar, or by newsletters or bulletins made available from time to time throughout the

System;

c. advice concerning operating problems, new techniques or opera[ting methods disclosed by reports submitted to or inspections made by Franchisor;

d. advice with respect to new and improved methods of operation or business procedures developed by Franchisor, use of the Confidential Operations Manual, management materials, promotional materials, advertising formats and the Licensed Marks;

e. the opportunity to participate, on the same basis as other similar franchisees, in promotions and in group purchasing programs for inventory, supplies, insurance and equipment which Franchisor may, from time to time, use, develop, sponsor or provide and upon such terms and conditions as may be determined solely by Franchisor;

f. periodic inspections of the Unit and of the products and services it offers, which may or may not be announced and for which the Owner(s) need not be present; and

g. use of Steak-Out's computer information and communication systems (the "Steak-Out Information System" or "SOI System") in accord with the Information Systems Agreement that Franchisee shall execute in the form attached hereto as Exhibit G.

FEES AND EXPENSE REIMBURSEMENTS

Section 7.1. Fees And Expenses. In consideration of the execution and continuance of this Agreement, Franchisee shall pay fees and reimburse expenses to Franchisor, or to such pird parties performing services related thereto as it may specify, as follows:

a. Initial Franchise Fee. An initial nonrefundable Franchise Fee, whiph shall be

deemed earned when paid, in the amount and on the schedule set forth in Exhibit D.

b. Royalties. A continuing royalty equal to a percentage of Royalty Sales in and on the schedule set forth in Exhibit P.

the amount

c. Promotion and Development Fee. A continuing fee equal to a percentage of Royalty Sales in the current amount and on the current schedule set forth in Exhibit D. which may

be revised from time to time by the Franchisor in its sole discretion upon ninety (90)

written notice, after consultation with such advisory groups as may be established pursuant to

days prior

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Section 12.1 hereof, to not more than six percent (6%), provided that in no event may such fee exceed three percent (3%) of Royalty Sales prior to the end of the first fiscal year following the execution of this Agreement, 4% of Royalty Sales prior to the end of the second fiscal year following the execution of this Agreement and 5% of Royalty Sales prior to the end of the third fiscal year following the execution of this Agreement. The proceeds of such fee shall be used for Promotion, as specified in Section 12.1 and for other purposes in direct and indirect support of franchisees and development of the Steak-Out System. If at any time such fee shall exceed two percent, such excess shall be expended in connection with system-wide advertising or media campaigns, area Promotion activities affecting local areas, advertising co-ops, product and service price reductions, or direct franchisee support activities, and related costs.

d. Training Costs. Such costs as are incurred by the Franchisor in training Franchisee's

personnel as provided in Section X hereof.

e. Communication and Information Systems Fees Communication and Information Systems Fees in the current amounts and on the current schedule set forth in Exhibit D. as more particularly set forth in the Information Systems Agreement.

f. Compliance Expenses. Such reasonable and necessary costs as the Franchisor incurs, if any, in connection with any failure of the Franchisee to comply with this Agreement or any Area Development Agreement to which the parties hereto are subject, including costs of arbitration, litigation, attorneys, accountants and other assistants. Without limiting the foregoing, Franchisor may in particular charge a reasonable fee with respect to late submission or non submission by Franchisee of any financial statement or other report or evidence of insurance required by the Franchisor to be submitted by Franchisee from time to time.

g. Relocation Fee. A fee in the amount and on the schedule as then specified by Franchisor as contemplated by Section 3.3(h), and reimbursement of all Franchisor's out-of-pocket expenses with respect thereto. The Relocation Fee currently specified is set forth in Rxhihit D.

h. Transfer Fee. Transfer Fee in the amount and on the schedule as then specified by Franchisor, and reimbursement of all Franchisor's out-of-pocket expenses with respect to any request for transfer of ownership of the Franchisee, as contemplated by Section XV. The Transfer Fee currently specified is set forth in Exhibit D.

i. Renewal Fee. Renewal Fee in the amount and on the schedule then specified by the

Franchisor, as contemplated by Section 2.2(f), the current amount of which is set forth in Exhibit P.: and

j. Miscellaneous. Such other fees and expenses as the parties jointly agree to from

time to time.

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Section 7.2. Method of Payment and Collection. All fees and expenses due to the Franchisor, after payment of the Initial Franchise Fee, shall be collected and paid by electronic funds transfer initiated by or at the direction of the Franchisor from the accounts of the Franchisee maintained in accord with Section 7.3 hereof, or at the Franchisor's election by any other means, with such frequency as the Franchisor shall elect. The electronic funds transfer and debit entries to Franchisee's bank account shall be made pursuant to authorization agreements for pre-authorized payments which Franchisee agrees to execute and deliver to Franchisor in the form attached hereto as Exhibit H or such other forms as Franchisor shall specify from time to time.

Section 7.3. Accounts. Franchisee shall maintain all bank accounts relating to the Business as specified by Franchisor and shall confirm Franchisor's right to draft monies from such accounts, electronically or otherwise, from time to time, in payment of fees and expenses set forth herein.

Section 7.4. Charge for Payment Default . If any fee or any other amount due under this Agreement is not paid when due, Franchisee shall pay a service charge equal to the lesser of the daily equivalent of eighteen (18%) percent per annum of such overdue amount per year or the lighest rate then permitted by applicable law for each day such amount is past due. If Franchisor employs an attorney to consider or to collect any amount due from Franchisee under this Agreement, Franchisee shall pay all costs of collection, including fifteen percent (15%) of amounts due as attorney's fees, and interest thereon. At Franchisor's election, past due interest may be added to and become a part of principal due, and shall itself bear interest.

Section 7.5. Order of Payment Application. Franchisee's payments shall be applied in such order as Franchisor may designate from time to time. Franchisee may not designate an order for application of any fees different from that designated by Franchisor and Franchisor may accept fees paid pursuant to different instructions without any obligation to follow such instructions, (ven if such payment is made by its terms conditional on such instructions being followed. This provision may be waived only by written agreement signed by Franchisor.

Section 7.6 Holding for Franchisor's Benefit. Royalties and Promotion and Develo] >ment Fees provided for herein shall become the property of the Franchisor at the instant that the s; tie or other individual transactions on which such sums are based occurs and prior to their co lection by Franchisor such sums shall be held by the Franchisee in trust for the benefit of Franchisor. Both those and other amounts payable under this Section VTI shall be timely due and payable by Franchisee without regard to any controversy or other matter, and shall not be subject to any claims, set off or holding by Franchisee for any reason.

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LICENSED MARKS

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Section 8.1. Ownership of Marks and Associated Goodwill. Franchisor has the sole right to act as licensor of the Licensed Marks. All goodwill associated with the Steak-Out System and/or identified by the Licensed Marks shall inure directly and exclusively to the benefit of Franchisor. Franchisee shall not represent in any manner that it has acquired any ownership rights in the Licensed Marks or any marks, names or indicia which are or may be confusingly similar thereto, except as authorized in this Agreement. Upon the expiration or termination of this Agreement for any reason, no monetary amount shall be assigned by Franchisee as attributable to any goodwill associated with its use of the Licensed Marks. Franchisor may transfer the Licensed Marks and goodwill to another party in its discretion and without consent of or interference from Franchisee.

Section 8.2. Use of Marks. Franchisee understands and agrees that any use of the Licensed Marks, or any marks, images or other logos similar thereto, other than as expressly authorized by this Agreement, without Franchisor's prior written consent, is an infringement of Franchisor's rights therein and that the right to use the Licensed Marks granted herein does not extend beyond the termination or expiration of this Agreement. During the term of this Agreement and thereafter, Franchisee shall not, directly or indirectly, commit any act of infringement or contest or aid others in contesting the validity of Franchisor's right to use the Licensed Marks or take any other action in derogation thereof.

Section 8.3. Policing of Marks. Franchisee acknowledges an obligation to police the use of the Licensed Marks and agrees to do so. Franchisee shall promptly notify Franchisor of any claim, demand or cause of action that Franchisor may have based upon or arising from any unauthorized attempt by any person or legal entity to use the Licensed Marks, or colorable variation thereof, or any other mark, name or indicia in which Franchisor has or claims a proprietary interest. Franchisee shall assist Franchisor, upon request, in taking such action, if any, as Franchisor may deem appropriate to halt such activities, but shall take no action nor incur any expenses on Franchisor's behalf without Franchisor's prior written approval. If Franchisor undertakes the defense or prosecution of any litigation relating to the Licensed Marks, Franchisee shall execute any and all documents and do such acts and things as may, in the opinion of Franchisor's legal counsel, be reasonably necessary to carry out such defense or prosecution.

Section 8.4. Exclusive Operation Under The Marks. Franchisee shall operate and advertise only under the names or marks from time to time designated by Franchisor, shall adopt and use the Licensed Marks solely in the manner prescribed by Franchisor, shall refrain from using the Licensed Marks to perform any activity or to incur any obligation or indebtedness in such a manner as may, in any way, subject Franchisor to liability therefor, shall observe all laws with respect to the registration of trade names and assumed or fictitious names, and shall include in any application therefor a statement that Franchisee's use of the Licensed Marks is limited by the terms of this Agreement, and shall provide Franchisor with a copy of any such application and other registration documents), shall observe such requirements with respect to trademark and service mark registrations and copyright notices as Franchisor may, from time to time, require, including, without limitation, affixing "SM," "TM," or "®" adjacent to all such Licensed Marks in any and all uses

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thereof, and shall utilize such other appropriate notice of ownership, registration and copyright as Franchisor may require.

Franchisee shall not adopt, use or register as its corporate name (by filing a certificate or articles of incorporation, organization or otherwise), any trade or business name, style or design which includes or is similar to the Licensed Marks or other identifying characteristics.

Section 8.5. Modification of Marks. Franchisor reserves the right, in its sole discretion, to designate one or more new, modified or replacement Licensed Marks for use by franchisees and to require the use by Franchisee of any such new, modified or replacement Licensed Marks in addition to or in lieu of any previously designated Licensed Marks. Any expenses or costs associa ed with the use by Franchisee of any such new, modified or replacement Licensed Marks shall be the sole responsibility of Franchisee. Franchisee shall have up to ninety (90) days from the da ;e of notice from Franchisor to comply with this subsection.

Section 8.6. Cessation Of Mark Use In Event of Termination or Expiration. This Agreement shall be deemed to create a lien, perfectible at its option by Franchisor by exclusive sigr ature upon lien perfecting documents, upon all exterior and interior sign facia, menus and other items bearing any Licensed Marks. Franchisees shall allow no other lien, claim or encumbrance to be created or exist upon such items. In the event of any termination or expiration of this Agreement, (Franchisee shall immediately remove such facia bearing any of the Licensed Marks from the Premises and deliver such menus and other items to Franchisor. If Franchisee fails to make such alteration and delivery within fifteen (15) days after termination or expiration of this Agreement, Franchisor or its designated agents may enter upon the Premises at any time to make such alterations and take possession of such items, at Franchisee's sole risk and expense, without liability for trespass, and Franchisee shall bear the expense thereof.

STANDARDS OF OPERATION

Section 9.1. Franchisee's Pre-Construction Obligations. Before commencing construction of the Unit, Franchisee shall, at its expense, prepare and furnish to Franchisor, for its approval, and shall obtain Franchisor's approval therefor before committing thereto, the following:

a. Proposed Site. A proposed site for the operation of the Unit which shall comply with

such site criteria as Franchisor may prescribe from time to time;

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b. Plans and Specifications. All preliminary and final plans and specifications (including all changes and modifications). Two sets of final plans with respect to each proposed Unit must be provided to Franchisor. An identical set must be retained at the job site;

c. Permits and Certifications. All permits and certifications as may be required for the lawful operation of the Business, together with copies of all building inspection reports and certifications from all governmental authorities having jurisdiction over the Premises and the Business that all necessary permits have been obtained and that all requirements for construction and operation have been met;

d. Proposed Lease Agreements. A copy of the proposed Premises Lease, which shall provide Franchisor:

1. the right to enter the Premises to make any modification necessary to protect the Licensed Marks or to protect the rights listed herein, including under Sections 3.5 and 8.6;

2. "Collateral Assignment of Lease" in the form attached hereto as Exhibit I. or such other form as Franchisor may prescribe from time to time, executed by Franchisee and the lessor of the Premises, providing Franchisor notice of Franchisee's default of the Premises Lease, a right to cure such default and the right to assume the Premises Lease with the right to sublease or assign to a Steak-Out franchisee; or the right to act as lessee under the Premises Lease and to sub-lease or assign the Premises Lease to Franchisee or others; and

3. assurance that the Premises Lease shall be for a term which, with renewal options exercisable by Franchisee, is not less than the Initial Term.

4. Franchisor's standard items required in Premises Leases, including but not limited to terms relating to Approved Name Usage, the Terms of the Leases, Assignment of Lease, Defaults, Adequate Parking, Signage and Roof Penetrations.

e. Insurance. Evidence that Franchisee's contractor has insurance coverage reasonably satisfactory to Franchisor.

f. General Contractor. Proposed "General Contractor" must be approved by Franchisor.

Section 9.2. Timely Completion of Construction. Unless prohibited by adverse weather conditions, acts of God, force majeure or other events beyond the control of Franchisee, Franchisee shall complete or arrange for the completion of the construction of the Unit at the Premises in accordance with the approved site and building plans and, subject to Section 9.3 hereof, open the Business to the public not later than the earlier of: (i) the date on which Franchisee's Premises Lease requires Franchisee to commence its business; or (ii) one hundred twenty (120) days after the

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Effective Date hereof. Franchisee shall secure to Franchisor and its agents the right to inspect the construction at any reasonable time, shall correct, upon request and at Franchisee's e xpense, any deviation from the approved site layout and plan, and shall furnish to Franchisor a copy of the certificate of completion and obtain Franchisor's approval of the completed construction, at Franchisor's election, either prior to or within 21 days after opening, all or any part of the business for operation.

Section 93. Opening. The Business shall not be opened to the public prior to receipt of

authorization to do so by Franchisor. Franchisee shall provide Franchisor with a certificate of occupancy and business license within ten (10) days after issuance.

copy of its

Section 9.4. Fixtures and Equipment. All fixtures, equipment and supplies for selected by Franchisee shall meet the quality standards set forth in the Confidential Manual or otherwise by Franchisor in writing, subject to compliance with applicab regulations.

the

Business Operations

e laws and

Section 9.5. Signage. Franchisee shall acquire and utilize all signs as required by Franchisor for use at or in connection with the Business and shall acquire such signage in the manner and from the sources specified by Franchisor. Franchisor may vary such requirements from time to time depending upon applicable local zoning or regulatory requirements and other factors deemed by Franchisor to be in its best interest.

Section 9.6. Telephone Number and Related Items. The only telephone numbers) assigned to the Business or used in connection with the Unit shall be those approved in advance by Franchisor. Franchisee shall execute and deliver to Franchisor a form of assignment of telephone numbers and listings required by the applicable local or other telephone company(s) or such other form of assignment as Franchisor shall prescribe (the "Telephone Number Assignment") prior to the commencement ofuse of such numbers). See Exhibit J. Franchisee acknowledges and agrees that the telephone company and all listing services may accept this Agreement or the Telepho le Number Assignment as conclusive evidence of Franchisor's exclusive right in such telephone numbers and listings and its authority to direct their transfer. Franchisee shall be solely responsible for all fees, charges and costs attributable to the Telephone Numbers until such time, if any, as Franchisor

effectuates the Telephone Number Assignment pursuant to Franchisee's Post Term Obi

igations.

Franchisee shall immediately notify the telephone company providing service to the Franchisee and all telephone directory publishers of the termination or expiration of Franchisee's right to use any telephone number and any regular, classified or other telephone directory listings associated with any Mark, and to authorize transfer thereof to Franchisor at its direction, franchisee acknowledges that, as between it and Franchisor, Franchisor has the sole rights to and im erest in all telephone numbers and directory listings associated with any Mark. Franchisee authorizes Franchisor, and hereby appoints Franchisor and any of its officers as Franchisee^ attorney in fact, to direct the telephone company providing service to the Franchisee and all telephone directory

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publishers to transfer any telephone numbers and directory listings to Franchisor at its direction, should Franchisee fail or refuse to do so. The telephone company providing such service and all telephone directory publishers may accept such direction or this Agreement as conclusive proof of Franchisor's exclusive rights in such telephone numbers and directory listings and Franchisor's authority to direct their transfer.

Franchisee shall not authorize or allow calls made to the above referenced telephone numbers to be transferred or redirected to any other number, or directory inquiries regarding numbers of the Business to be referred to any other Business.

Section 9.7. Compliance With Standards. Franchisee shall comply with all Steak-Out System rules, regulations and policies and maintain standards of quality, appearances and operations, make repairs, replacements and refurbishments for the Business as prescribed by Franchisor which are by their terms mandatory, including, without limitation, those contained in the Confidential Operations Manual, to insure that Franchisor's required degree of quality, service and image is uniformly maintained, and shall refrain from deviating therefrom and from otherwise operating in any manner which adversely reflects on Franchisor's name and goodwill, or on the Licensed Marks. Without limiting the generality of the foregoing, Franchisee specifically agrees:

a. to purchase and install, at Franchisee's expense, all such fixtures, furnishings, signs, equipment, and vehicles as Franchisor may prescribe from time to time; and to refrain from installing, or permitting to be installed, on or about or in connection with the Premises or the Business, any such item not meeting Franchisor's standards and specifications;

b. to maintain in sufficient supply, and use at all times, only operating products, materials, standard reporting forms, supplies and expendables, including paper and packaging goods, as conform with Franchisor's then current standards and specifications and to refrain from using nonconforming items without Franchisor's prior consent; and

c. to sell and offer for sale all such products, goods and services as Franchisor may from time to time require, and only those which Franchisor may, from time to time approve, which are not subsequently disapproved, as meeting its quality standards and specifications. In addition to any refurbishment required by other Sections hereof, in order to introduce new products or services through the Steak-Out System, Franchisee may be required to expend amounts on new, different or modified equipment or fixtures necessary to offer such new services or products. In such event, Franchisee shall have up to three (3) months to complete any modifications necessitated by the introduction of such new products and/or services.

Section 9.8. Operation Only By Franchisee. The Unit shall be operated only by the Franchisee. No part of the Premises shall be leased to or managed by any party other than Franchisee without Franchisor's prior written consent.

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Section 9.9. Principal Operator. At all times during the term of this Agreement jhere shall be at least one employee of Franchisee (the "Designated Manager") who:

a. is principally responsible for the operation of the Business on a full-tim 5, day-to-day in-person basis at the Unit;

b. has attended and satisfactorily completed such training, retraining or refresher training programs as Franchisor may require, in its sole discretion, at such times a id places as Franchisor may reasonably designate; and

c. has executed a confidentiality agreement as specified in Section 9.25 tereof.

Section 9.10. Staffing. Franchisee shall hire all employees of the Unit and shall be exclusively responsible for the terms of their employment, including compensation, and for the proper training and supervision of employees in the operation of the Unit. Franchisor shall have the right, but not the obligation, to require the strict enforcement of this Agreement with respect thereto. Franchisee shall employ at least one Designated Manager, one cook, one driver and one other employee for each working shift, and such number of additional other personnel as is required for the projper conduct of the Business and is consistent with the policies set forth in the Confidential Operations Manual. Franchisee shall at all times staff the Business with such number of employees and operate the Business diligently so as to maximize the revenues and profits therefrom. Franchisor si lall have no right or obligation to require any individual employee of Franchisee to take any specijic action in contravention of any instruction of Franchisee, except in the case of urgencies constituting a breach of this Agreement, but may advise and support Franchisee employees from time I to time in conjunction with Franchisor's activities.

Section 9.11. Operation Only By Approved And Trained Personnel. Franchisee shall assure that all persons employed or contracted by Franchisee are adequately supervised and are trained appropriately for their jobs and in conformity with the Franchisor's specifications, including that training specified in Section X hereof. At all times the Unit shall be operated directly by an Operating Partner or a Designated Manager and an assistant manager and next most important key employee who shall have completed the training described herein and shall have been approved by the Franchisor and not subsequently disapproved.

a. Approval Process. Franchisee shall notify Franchisor in writing at least 30 days

prior to employing any such person filling one of the positions described in this section, setting forth in reasonable detail all pertinent information relative to the individual's character and business background and experience. No such person shall be employed to operate the Business (or any part thereof) without Franchisor's prior consent, based upon such standards and requirements as Franchisor may from time to time specify, in writing or otherwise. If Franchisor rejects or later disapproves such personnel, it shall notify Franchisee of the pertinent reasons therefor. Franchisee agrees not to employ any person who is required to complete Franchisor's training program but who

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fails or refuses to do so. No such person shall be deemed an employee of Franchisor for any purpose whatsoever, regardless of their approval or non approval by Franchisor.

b. Individual Failure To Comply. If any trainee fails to complete the required training

program satisfactorily, Franchisor may notify Franchisee of such failure and require Franchisee to designate a substitute trainee. If Franchisee fails to designate a substitute trainee that completes the training to Franchisor's satisfaction, Franchisor may, at its sole option, require Franchisee to pay Franchisor for additional training or training for up to one additional substitute trainee, provided that if trainee and the substitute trainee, if any, fails to complete the training to Franchisor's satisfaction, Franchisor may, at its sole option, elect to terminate this Agreement. Franchisor may, at its option, require other of Franchisee's initial and subsequent management employees to attend and satisfactorily complete all or any part of such training programs.

Section 9.12. Product Compliance Testing. Franchisee shall permit Franchisor or its agents, at any reasonable time, to remove from the Premises, at Franchisor's option, samples of any products, materials, supplies and expendables without payment therefor, in amounts reasonably necessary for testing by Franchisor or an mdependent laboratory, to determine whether such samples meet Franchisor's then current standards and specifications, including, without limitation, maximum fat content of meat, with no liability of Franchisor for any damage to such samples as a result of such testing.

Section 9.13. Approved Suppliers. Franchisee shall purchase all food products, packaging, ingredients, spices, sauces, seasonings, mixes, marinades, beverages, fixtures, furnishings, signs, equipment (including delivery vehicles), systems, inventory, uniforms, advertising materials, paper and plastic products and other supplies, products and materials, and the distribution thereof, required for the operation of the Business solely from suppliers who demonstrate, to the continuing reasonable satisfaction of Franchisor, the ability to meet Franchisor's reasonable standards and specifications for such items, who possess adequate quality controls and capacity to supply Franchisee's needs promptly and reliably, and who have been approved for such items in writing by Franchisor and not thereafter disapproved. Franchisor reserves the right to designate itself or an affiliate an approved supplier or sole supplier and to make a profit from sales to Franchisee as well as to enter into joint ventures, joint projects and co-developments with suppliers, vendors, or others and to receive such payments and contributions from vendors as it shall decide. Franchisor may approve or require a single distributor or supplier for any products, materials or supplies. If Franchisee desires to purchase any items from an unapproved supplier, Franchisee shall submit to Franchisor a written request for such approval in accordance with procedures prescribed from time to time by Franchisor. If Franchisor has not specifically approved such request within thirty (3 0) days of receipt of such request, it shall be deemed to be disapproved. At its discretion, Franchisor may charge reasonable fees based on its direct and indirect costs for testing, assessing and approving suppliers requested by Franchisee. Franchisee grants Franchisor, in its own discretion, from time to time the right to receive from such suppliers records of Franchisee's purchases and payments and

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

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