EXHIBIT 10.76
CHESAPEAKE BAGEL BAKERY
FRANCHISE AGREEMENT
BETWEEN
AFC ENTERPRISES, INC.
AND
___________________________________
Unit No.: ______
Dev. Agr. No.: ______
Dated: _____________
AFC ENTERPRISES, INC.
CHESAPEAKE BAGEL BAKERY
FRANCHISE AGREEMENT
TABLE OF CONTENTS
I. APPOINTMENT..........................................2
II. TERM............................................... 3
III. FEES............................................... 5
IV. ACCOUNTING AND RECORDS............................. 7
V. PROPRIETARY MARKS.................................. 9
VI. OBLIGATIONS OF CORPORATE OR PARTNERSHIP FRANCHISEE. 12
VII. CONFIDENTIAL OPERATING STANDARDS MANUAL............ 13
VIII. TRAINING........................................... 13
IX. DUTIES OF THE FRANCHISOR........................... 14
X. DUTIES OF THE FRANCHISEE........................... 15
XI. INSURANCE.......................................... 21
XII. CONFIDENTIAL INFORMATION........................... 24
XIII. COVENANTS.......................................... 24
XIV. TRANSFERABILITY OF INTEREST........................ 27
XV. TERMINATION........................................ 30
XVI. EFFECT OF TERMINATION OR EXPIRATION................ 33
XVII. TAXES, PERMITS, AND INDEBTEDNESS................... 36
XVIII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION......... 36
XIX. APPROVALS AND WAIVERS.............................. 37
XX. NOTICES............................................ 38
XXI. SEVERABILITY AND CONSTRUCTION...................... 38
XXII. ENTIRE AGREEMENT: SURVIVAL........................ 39
XXIII. ACKNOWLEDGMENTS.................................... 40
XXIV. APPLICABLE LAW: VENUE............................. 41
XXV. CORPORATE FRANCHISEE............................... 42
i
AFC ENTERPRISES, INC.
CHESAPEAKE BAGEL BAKERY
FRANCHISE AGREEMENT
THIS AGREEMENT (the "Agreement") is made this _______ day of _________,
19___, by and between AFC ENTERPRISES, INC. (f/k/a America's Favorite Chicken
Company), a Minnesota corporation, having its principal place of business at Six
Concourse Parkway, Suite 1700, Atlanta, Georgia, 30328-5352, U.S.A.
("Franchisor" or "Chesapeake Bagel Bakery") and ________________________________
____________________________________, [jointly and severally where more than
one], ("Franchisee").
WITNESSETH:
WHEREAS, Franchisor has developed and owns a unique system for opening
and operating specializing in bagels, breads, sandwiches, salads and other
bakery products and other menu items developed and owned by Franchisor (the
"Chesapeake Bagel Bakery System" or "CBB System");
WHEREAS, the distinguishing characteristics of Franchisor's Chesapeake
Bagel Bakery System include, without limitation, the name "Chesapeake Bagel
Bakery"; specially designed buildings, distinctive interior and exterior
layouts, decor, color schemes, and furnishings; confidential food formulae and
recipes used in the preparation of food products and, particularly, formulas and
specifications for baking bagels, breads and other bakery products; specialized
menus; standards and specifications for equipment, equipment layouts, products,
operating procedures, and management programs, all of which may be changed,
improved, and further developed by Franchisor from time to time;
WHEREAS, Franchisor identifies the Chesapeake Bagel Bakery System by
means of certain trade names, service marks, trademarks, logos, emblems, and
other indicia of origin, including, but not limited to, the mark "Chesapeake
Bagel Bakery" and such other trade names, service marks, trademarks and trade
dress as are now, or may hereafter, be designated by Franchisor for use in
connection with the Chesapeake Bagel Bakery System (collectively referred to as
the "Proprietary Marks");
WHEREAS, Franchisor continues to develop, use, and control the use of
such Proprietary Marks in order to identify for the public the source of
services and products marketed thereunder in the Chesapeake Bagel Bakery System
and to represent the System's high standards of quality, appearance, and
service;
WHEREAS, Franchisee wishes to be assisted, trained, and licensed by
Franchisor as a Chesapeake Bagel Bakery franchisee and licensed to use, in
connection therewith, the Chesapeake Bagel Bakery System;
WHEREAS, Franchisee understands the importance of the Chesapeake Bagel
Bakery System and Chesapeake Bagel Bakery high and uniform standards of quality,
cleanliness, appearance, and service, and the necessity of opening and operating
Chesapeake Bagel Bakery Restaurants in conformity with the Chesapeake Bagel
Bakery System;
NOW, THEREFORE, the parties hereto agree as follows:
I. APPOINTMENT
1.01. Franchisor grants to Franchisee a franchise to open and operate a
Chesapeake Bagel Bakery restaurant (the "Unit", "Franchised Unit", "Franchised
Business" or "Restaurant") at one location only, such location to be described
as:
Store Number:
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
upon the terms and conditions herein contained and subject to the terms and
conditions contained in the development agreement between Franchisor and
Franchisee, dated , (the "Development Agreement"),
which is incorporated herein by reference; and a license to use in connection
therewith Franchisor's Proprietary Marks and the Chesapeake Bagel Bakery System.
1.02. Protected Territory.
1. Subject to the terms and conditions of this Agreement
and provided Franchisee is not otherwise in default of
this Agreement and/or any other Agreement between
Franchisor (or any parent, subsidiary or affiliate of
Franchisor) and Franchisee (or any parent, subsidiary or
affiliate of Franchisee), Franchisor shall not
establish, nor franchise another to establish a
restaurant under the Chesapeake Bagel Bakery System, for
the term of this Agreement, within the area described in
2
Exhibit "C" of this Agreement (the "Protected Area"),
without Franchisee's prior written consent.
Notwithstanding the foregoing, Franchisor may, from time
to time during the term hereof, reduce or modify the
Protected Area to encompass a geographic area
immediately surrounding the Franchised Unit which shall
include a population (residential and/or daytime
business or commercial) of no less than 50,000 people,
which modification shall become effective upon
Franchisee's receipt of written notice from Franchisor
to Franchisee.
2. The provisions of Section 1.02 (A) hereof shall not
apply with respect to the following types of locations
within the Protected Area, at which Franchisor retains
the right, in its sole discretion, to franchise and/or
operate Chesapeake Bagel Bakery restaurants, and to
distribute by any means Chesapeake Bagel Bakery
products:
1. Existing Franchised Units and/or Franchised
Units for which Franchise Agreements were
previously executed
2. Transportation facilities (including
airports, train stations, bus stations,
etc.)
3. Toll roads and major thoroughfares
4. Educational facilities (including schools,
colleges and universities)
5. Institutional feeding facilities (including,
but not limited to, airports, hospitals,
hotels, and corporate or school cafeterias
6. Government institutions and facilities
7. Enclosed shopping malls
8. Military bases
9. Casinos
10. Amusement and/or theme parks
1.03. Except as otherwise set forth herein, (a) the franchise granted
to Franchisee under this Agreement is non-exclusive, and grants to Franchisee
the rights to establish and operate the Franchised Unit at only the specific
location set forth hereinabove, (b) no exclusive, protected or other territorial
rights in the contiguous area or market of such Franchised Unit or otherwise is
hereby granted or to be inferred and (c) Franchisor and/or its affiliates have
the right to operate and grant as many other franchises for the operation of
Chesapeake Bagel Bakery restaurants, anywhere in the world, as they shall, in
their sole discretion, elect.
3
II. TERM
2.01. Except as otherwise provided in this Agreement, the initial
term of this Franchise Agreement (the "Term") shall expire on the twentieth
(20th) anniversary of the date of commencement of operation of the Franchised
Unit. For all purposes under this Agreement, the date of commencement of
operation of the Franchised Unit shall be the date verified in writing by
Franchisor and delivered to Franchisee in a form substantially similar to the
"Notice" attached hereto as Exhibit "A". Franchisee agrees and shall be
obligated to operate the Franchised Unit and perform hereunder for the full Term
of this Agreement.
2.02. Franchisee may, at its option, renew this franchise for one (1)
additional period of ten (10) years, provided that, at the time of renewal:
A. Franchisee gives Franchisor written notice of such election
to renew not less than six (6) months nor more than twelve
(12) months prior to the end of the initial term;
B. Franchisee executes Franchisor's then-current standard form
of franchise agreement, which may include, without
limitation, a higher royalty fee and a higher advertising
contribution, if any, than that contained in this Agreement;
and the term of which shall be the renewal term as specified
in Section 2.02. hereof, but shall contain no further
renewal rights;
C. Franchisee executes a general release in a form prescribed
by Franchisor of any and all claims against Franchisor and
its subsidiaries, and affiliates, and their respective
officers, directors, agents, and employees;
D. Franchisee is not in default of any provision of this
Agreement, or any amendment hereof or successor hereto, or
any other agreement between Franchisee and Franchisor, or
any subsidiary or affiliate of Franchisor, and Franchisee
has fully and faithfully performed all of Franchisee's
obligations throughout the term of this Agreement;
E. Franchisee has paid or otherwise satisfied all monetary
obligations owed by Franchisee to Franchisor and its
subsidiaries and affiliates and any indebtedness of
Franchisee which is guaranteed by Franchisor, and Franchisee
has timely paid or otherwise satisfied these obligations
throughout the term of this Agreement;
F. Franchisee agrees, at its sole cost and expense, to reimage,
renovate, refurbish and modernize the Franchised Unit,
within the time frame required by Franchisor, including the
building design, parking lot, landscaping, equipment, signs,
interior and exterior decor items, fixtures, furnishings,
4
trade dress, color scheme, presentation of trademarks and
service marks, supplies and other products and materials to
meet Franchisor's then-current standards, specifications and
design criteria for Chesapeake Bagel Bakery restaurants, as
contained in the then-current franchise agreement,
Confidential Operating Standards Manual (as defined herein),
or otherwise in writing, including, without limitation, such
structural changes, remodeling and redecoration and such
modifications to existing improvement as may be necessary to
do so.
G. Franchisee shall pay to Franchisor a renewal fee equal to
fifty percent (50%) of Franchisor's standard initial
franchise fee in effect at the date of renewal.
III. FEES
3.01. In consideration of the franchise granted to Franchisee herein,
Franchisee shall pay to the Franchisor the following:
A. A franchise fee of ________________________ Dollars ($XXX)
payable upon execution of this Agreement by Franchisee. Such
franchise fee shall be fully earned by Franchisor upon
execution of this Agreement by Franchisee and is in addition
to any development fees paid to Franchisor by Franchisee.
B. A recurring, non-refundable royalty fee of four percent(4%)
of Gross Sales (as defined herein) during the term of this
Agreement, payable weekly (or on such other basis as may be
set forth in the Confidential Operating Standards Manual (as
defined herein) or otherwise agreed to in writing by
Franchisor) on the Gross Sales of the preceding week. The
royalty fee shall increase to five percent (5%) of Gross
Sales effective January 1, 1999.
3.02. In addition to the payments provided for in Section 3.01. hereof,
Franchisee, recognizing the value of advertising and the importance of the
standardization of advertising and promotion to the goodwill and public image of
the System, agrees to pay to the Chesapeake Bagel Bakery national creative and
production fund (the "NCP Fund) a recurring, non-refundable contribution ("NCP
Fund Contribution") in an amount to be determined by Franchisor, in its sole
discretion, not to exceed two percent (2%) of the Gross Sales for the preceding
week, payable weekly (or on such other basis as may be set forth in the
Confidential Operating Standards Manual or otherwise agreed to in writing by
Franchisor). The NCP Fund Contribution shall be expended by the NCP Fund for
national, regional, and/or local advertising and promotional materials and
market research for the Chesapeake Bagel Bakery System, under the following
conditions and limitations:
5
A. The NCP Fund, all contributions thereto, and any earnings thereon,
shall be used exclusively to pay any and all costs of maintaining,
administering, directing, producing and preparing market research,
advertising, marketing materials and/or promotional activities for
the Chesapeake Bagel Bakery System. Franchisee shall pay the NCP
Fund Contribution by separate check made payable to the NCP Fund.
All sums paid by the Franchisee to the NCP Fund shall be maintained
in an account separate from other funds of Franchisor and shall not
be used to defray any of Franchisor's expenses except as provided
herein, and as Franchisor may incur in activities reasonably related
to the administration or direction of the NCP Fund and advertising
and marketing programs for franchisees and the Chesapeake Bagel
Bakery System. The NCP Fund and its earnings shall not otherwise
inure to the benefit of Franchisor. Franchisor shall maintain a
separate bookkeeping account for the NCP Fund.
B. The selection of media and locale for media placement shall be at
the sole discretion of the Franchisor.
C. All reasonable costs incurred by Franchisor or charged to Franchisor
by third parties for market research and the production and
dissemination of advertising, marketing and promotional materials
may be charged to the NCP Fund.
D. Franchisor, upon request, shall provide Franchisee with an annual
accounting of receipts and disbursements of the NCP Fund.
E. It is anticipated that all contributions to and earnings of the NCP
Fund will be expended for market research, costs of creating and
producing advertising materials, marketing and/or promotional
purposes during the taxable year in which contributions and earnings
are received. If, however, excess amounts remain in the NCP Fund at
the end of a taxable year, all expenditures in the following taxable
year(s) shall be made first out of accumulated earnings from
previous years, next out of earnings in the current year, and
finally from contributions.
F. The NCP Fund is not, and shall not be, an asset of Franchisor.
Although the NCP Fund is intended to be of perpetual duration,
Franchisor maintains the right to terminate the NCP Fund; provided,
however, that the NCP Fund shall not be terminated until all monies
in the NCP Fund have been expended for the purposes stated herein.
6
G. Franchisee understands that such advertising and marketing is
intended to maximize the public's awareness of the Franchised Units
and the System, and that Franchisor accordingly undertakes no
obligation to insure that any individual Franchisee benefits
directly or on a pro rata basis from the placement, if any, of such
advertising or marketing in its local market. Franchisee further
acknowledges that its failure to derive any such benefit, whether
directly or indirectly, shall not be cause for Franchisee's
nonpayment or reduction of the required contributions to the NCP
Fund.
3.03. If any monetary obligations owed by Franchisee to Franchisor and
its subsidiaries and affiliates are more than seven (7) days overdue, Franchisee
shall, in addition to such obligations, pay to Franchisor a sum equal to one and
one-half percent (1 1/2%) of the overdue balance per month, or the highest rate
permitted by law, whichever is less, from the date said payment is due.
3.04. For the purposes of this Agreement, the term "Gross Sales" shall
mean all revenues generated by Franchisee's business conducted upon, from or
with respect to the Franchised Unit, whether such sales are evidenced by cash,
check, credit, charge, account, barter or exchange. Gross Sales shall include,
without limitation, monies or credit received from the sale of food and
merchandise, from tangible property of every kind and nature, promotional or
otherwise, and for services performed from or at the Franchised Unit, including
without limitation such off-premises services as catering and delivery. Gross
Sales shall not include the sale of food or merchandise for which refunds have
been made in good faith to customers, the sale of equipment used in the
operation of the Franchised Unit, nor shall it include sales, meals, use or
excise tax imposed by a governmental authority directly on sales and collected
from customers; provided that the amount for such tax is added to the selling
price or absorbed therein, and is actually paid by Franchisee to such
governmental authority.
3.05. In addition to the payments provided for in Sections 3.01 and
3.02 hereof, Franchisee agrees to pay to the Local Media Fund (the "Local Media
Fund") a recurring non-refundable contribution (the "Local Media Fund
Contribution") in an amount to be determined by Franchisor, in its sole
discretion, not to exceed three percent (3%) of the gross Sales of the
Franchised Unit, payable weekly on the Gross Sales for the preceding week.
Franchisee's Local Media Fund Contribution shall be reduced by an amount equal
to Franchisee's actual contribution, for the corresponding period, to a local
advertising cooperative established pursuant to Section 10.05 of this Agreement.
The Local Media Fund contribution shall be expended by the Local Media Fund for
advertising and promotions in the DMA in which the Franchised Unit is located.
Franchisor will consider requests from Franchisee for reimbursement from the
Local Media Fund, for costs incurred by Franchisee related to local advertising
conducted by Franchisee in the DMA in which the Franchised Unit is located,
provided (i) such advertising has been approved, in advance, by Franchisor and
is consistent with the most recent marketing plan of the Local Media Fund, (ii)
7
the costs expended by Franchisee on local advertising are verified by invoice
and/or such other documentation as Franchisor shall require and (iii) the amount
reimbursed shall not exceed the amount of Franchisee's contribution to the Local
Media Fund.
IV. ACCOUNTING AND RECORDS
4.01. Accurate Books and Records. During the Term of this Agreement,
Franchisee shall maintain and preserve, for at least three (3) years from the
dates of their preparation, full, complete and accurate books, records and
accounts in accordance with generally accepted accounting principles and in the
form and the manner prescribed by Franchisor from time-to-time in the
Confidential Operating Standards Manual or otherwise in writing. These records
shall include, without limitation, cash register sales tape (including non-
resettable readings), meals, sales and other tax returns, duplicate deposit
slips and other evidence of Gross Sales and all other business transactions.
4.02. Royalty Reports. Franchisee shall submit to Franchisor, no
later than the date each weekly royalty payment is due during the Term of this
Agreement, a report on forms prescribed by Franchisor, accurately reflecting all
Gross Sales during the preceding week and such other forms, reports, records,
financial statements or information as Franchisor may reasonably require in the
Confidential Operating Standards Manual, or otherwise in writing.
4.03. Quarterly Statement. Franchisee shall, at its expense, submit to
Franchisor quarterly, within thirty (30) days following the end of each quarter
during the Term hereof, an unaudited financial statement with such detail as
Franchisor may reasonably require (hereinafter, "Quarterly Statement") together
with a certificate executed by Franchisee stating that such financial statement
is true and accurate. Upon Franchisor's request, Franchisee shall submit to
Franchisor, with each Quarterly Statement, copies of any state or local sales
tax returns ("Sales Tax Returns") filed by Franchisee for the period included in
the Quarterly Statement. In the event Franchisee prepares financial statements
on the basis of thirteen (13), four (4) week periods ("Periods"), the Quarterly
Statements shall be submitted within thirty (30) days following the end of the
third (3rd), sixth (6th), ninth (9th) and thirteenth (13th) Periods.
4.04. Annual Financial Statements. Franchisee shall, at its expense,
submit to Franchisor within ninety (90) days following the end of each calendar
or fiscal year during the Term of this Agreement, an unaudited financial
statement for the preceding calendar or fiscal year, together with a certificate
executed by Franchisee certifying that such financial statement is true and
accurate (hereinafter, "Annual Financial Statements") and such other information
in such form as Franchisor may reasonably require. Upon written request from
Franchisor, the foregoing Annual Financial Statement shall include both a profit
and loss statement and a balance sheet, and shall be prepared in accordance with
generally accepted accounting principles. In the event Franchisee defaults under
this Agreement, Franchisor may require, upon written notice to Franchisee, that
all Annual Financial Statements submitted thereafter include a "Review Report"
prepared by an independent Certified Public Accountant.
8
4.05. Other Reports. Franchisee shall also submit to Franchisor, for
review or auditing, such other forms, financial statements, reports, records,
information and data as Franchisor may reasonably designate, in the form and at
the times and places reasonably required by Franchisor, upon request and as
specified from time-to-time in the Confidential Operating Standards Manual or
otherwise in writing. If Franchisee has combined or consolidated financial
information relating to the Franchised Unit with that of any other business or
businesses, including a business licensed by Franchisor, Franchisee shall
simultaneously submit to Franchisor, for review or auditing, the forms, reports,
records and financial statements (including, but not limited to the Quarterly
Statements and Annual Financial Statements) which contain the detailed financial
information relating to the Franchised Unit, separate and apart from the
financial information of such other businesses. Franchisee hereby authorizes all
of its suppliers and distributors to release to Franchisor, upon Franchisor's
request, any and all of its books, records, accounts or other information
relating to goods, products and supplies sold to Franchisee and/or the
Franchised Unit.
4.06. Equipment. Franchisee shall record all sales on cash registers
or other point-of-sale equipment approved, in writing, by Franchisor
(hereinafter "POS Equipment").
4.07. Franchisor's Right of Audit. Franchisor or its designated
agents or auditors shall have the right at all reasonable times to audit, review
and examine by any means, including electronically through the use of
telecommunications devices or otherwise, at its expense, the books, records,
accounts, and tax returns of Franchisee. If any such audit, review or
examination reveals that Gross Sales have been understated in any report to
Franchisor, Franchisee shall immediately pay to Franchisor the royalty fee and
NCP Fund Contribution due with respect to the amount understated upon demand, in
addition to interest from the date such amount was due until paid, at the rate
of one and one-half percent (1.5%) per month. If any such understatement exceeds
two percent (2%) of Gross Sales as set forth in the report, Franchisee shall, in
addition, upon demand, reimburse Franchisor for any and all costs and expenses
connected with such audit, review or examination (including, without limitation,
reasonable accounting and attorneys' fees). The foregoing remedies shall be in
addition to any other rights and remedies Franchisor may have.
V. PROPRIETARY MARKS
5.01. It is understood and agreed that the franchise granted herein
to use Franchisor's Proprietary Marks applies only to use in connection with the
operation of the Franchised Unit franchised in this Agreement at the location
designated in Section I hereof, and includes only such Proprietary Marks as are
now designated or which may hereafter be designated, in the Confidential
Operating Standards Manual or otherwise in writing as a part of the System
(which might or might not be all of the Proprietary Marks pertaining to the
System owned by the Franchisor), and does not include any other mark, name, or
9
indicia of origin of Franchisor now existing or which may hereafter be adopted
or acquired by Franchisor.
5.02. With respect to Franchisee's use of the Proprietary Marks
pursuant to this Agreement, Franchisee acknowledges and agrees that:
A. Franchisee shall not use the Proprietary Marks as part of
Franchisee's corporate or other business name;
B. Franchisee shall not hold out or otherwise use the
Proprietary Marks to perform any activity or incur any
obligation or indebtedness in such manner as might, in any
way, make Franchisor liable therefor, without Franchisor's
prior written consent;
C. Franchisee shall execute any documents and provide such
other assistance deemed necessary by Franchisor or its
counsel to obtain protection for the Proprietary Marks or to
maintain the continued validity of such Proprietary Marks;
and
D. Franchisor reserves the right to substitute different
Proprietary Marks for use in identifying the System and the
franchised businesses operating thereunder, and Franchisee
agrees to immediately substitute Proprietary Marks upon
receipt of written notice from Franchisor.
5.03. Franchisee expressly acknowledges Franchisor's exclusive right
to use the mark Chesapeake Bagel Bakery for restaurant services, bakery products
including bagels and other related food products; the building configuration;
and the other Proprietary Marks of the System. Franchisee agrees not to
represent in any manner that it has any ownership in the Proprietary Marks or
the right to use the Proprietary Marks except as provided in this Agreement.
Franchisee further agrees that its use of the Proprietary Marks shall not create
in its favor any right, title, or interest in or to the Proprietary Marks, and
that all of such use shall inure to the benefit of Franchisor.
5.04. Franchisee acknowledges that the use of the Proprietary Marks
outside the scope of this license, without Franchisor's prior written consent,
is an infringement of Franchisor's exclusive right to use the Proprietary Marks,
and during the term of this Agreement and after the expiration or termination
hereof, Franchisee covenants not to, directly or indirectly, commit an act of
infringement or contest or aid in contesting the validity or ownership of
Franchisor's Proprietary Marks, or take any other action in derogation thereof.
5.05. Franchisee shall promptly notify Franchisor of any suspected
infringement of, or challenge to, the validity of the ownership of, or
Franchisor's right to use, the Proprietary Marks licensed hereunder. Franchisee
10
acknowledges that Franchisor has the right to control any administrative
proceeding or litigation involving the Proprietary Marks. In the event
Franchisor undertakes the defense or prosecution of any litigation relating to
the Proprietary Marks, Franchisee agrees to execute any and all documents and to
do such acts and things as may, in the opinion of counsel for Franchisor, be
necessary to carry out such defense or prosecution. Except to the extent that
such litigation is the result of Franchisee's use of the Proprietary Marks in a
manner inconsistent with the terms of this Agreement, Franchisor agrees to
reimburse Franchisee for its out of pocket costs in doing such acts and things,
except that Franchisee shall bear the salary costs of its employees.
5.06. Franchisee understands and agrees that its license with respect
to the Proprietary Marks is non-exclusive to the extent that Franchisor has and
retains the right under this Agreement:
A. To grant other licenses for the Proprietary Marks, in addition to
those licenses already granted to existing franchisees;
B. To develop and establish other franchise systems for the same,
similar, or different products or services utilizing proprietary
marks not now or hereafter designated as part of the System licensed
by this Agreement, and to grant licenses thereto, without providing
Franchisee any right therein; and
C. To develop and establish other systems for the sale, at wholesale or
retail, of similar or different products utilizing the same or
similar Proprietary Marks, without providing Franchisee any right
therein.
5.07. Franchisee acknowledges and expressly agrees that any and all
goodwill associated with the System and identified by the Proprietary Marks used
in connection therewith shall inure directly and exclusively to the benefit of
Franchisor and is the property of Franchisor, and that upon the expiration or
termination of this Agreement or any other agreement, no monetary amount shall
be assigned as attributable to any goodwill associated with any of Franchisee's
activities in the operation of the Franchised Unit granted herein, or
Franchisee's use of the Proprietary Marks.
5.08. Franchisee understands and acknowledges that each and every
detail of the Chesapeake Bagel Bakery System is important to Franchisee,
Franchisor, and other franchisees in order to develop and maintain high and
uniform standards of quality and services, and hence to protect the reputation
and goodwill of Chesapeake Bagel Bakery restaurants. Accordingly, Franchisee
covenants:
A. To operate and advertise the Franchised Unit, at Franchisee's own
expense, under the name "Chesapeake Bagel Bakery," without prefix or
suffix;
B. To adopt and use the Proprietary Marks licensed hereunder solely
in the manner prescribed by Franchisor;
11
C. To observe such reasonable requirements with respect to trademark
registration notices as Franchisor may from time to time direct in
the Confidential Operating Standards Manual or otherwise in writing.
5.09. In order to preserve the validity and integrity of the
Proprietary Marks licensed herein and to assure that Franchisee is properly
employing the same in the operation of the Franchised Unit, Franchisor or its
agents shall at all reasonable times have the right to inspect Franchisee's
operations, premises, and Franchised Unit and make periodic evaluations of the
services provided and the products sold and used therein. Franchisee shall
cooperate with Franchisor's representatives in such inspections and render such
assistance to the representatives as may reasonably be requested.
VI. OBLIGATIONS OF CORPORATE OR PARTNERSHIP FRANCHISEE
6.01. If Franchisee, or any successor to or assignee of Franchisee,
is a corporation, or limited liability company:
A. Franchisee shall furnish to Franchisor, upon execution or any
subsequent transfer of this Agreement, a copy of the Franchisee's
Articles of Incorporation, Certificate of Incorporation, Bylaws and
a list of shareholders showing the percentage interest of each, and
shall thereafter promptly furnish Franchisor with a copy of any and
all amendments or modifications thereto;
B. Franchisee shall promptly furnish Franchisor, on a regular basis,
with certified copies of such corporate records material to the
Franchised Business as Franchisor may require from time to time in
the Confidential Operating Standards Manual or otherwise in writing;
and
C. Franchisee shall maintain stop-transfer instructions against the
transfer, on its records, of any securities with voting rights,
subject to the restrictions of this Agreement, and each stock
certificate of the corporate Franchisee representing each share of
stock, shall have conspicuously endorsed upon it the following
legend:
"The transfer of this stock is subject to the terms and conditions of a
CHESAPEAKE BAGEL BAKERY Franchise Agreement with AFC ENTERPRISES, INC. dated
___________. Reference is made to the provisions of said Franchise Agreement
and to the Articles and By-Laws of this corporation."
12
6.02. If the Franchisee, or any successor to or assignee of
Franchisee, is a partnership, limited partnership or limited liability
partnership, Franchisee shall furnish to Franchisor, upon execution or any
subsequent transfer of this Agreement, a copy of Franchisee's Articles of
Partnership, if any, and Partnership Agreement, and shall thereafter promptly
furnish Franchisor with a copy of any and all amendments or modifications
thereto.
VII. CONFIDENTIAL OPERATING STANDARDS MANUAL.
7.01. In order to protect the reputation and goodwill of Franchisor
and the Chesapeake Bagel Bakery System and to maintain uniform standards of
operation under Franchisor's Proprietary Marks, Franchisee shall conduct the
Franchised Business in accordance with Franchisor's Confidential Operating
Standards Manual (hereinafter, together with any other manuals created or
approved for use in the operation of the Franchised Business granted herein, and
all amendments and updates thereto, the "Manual").
7.02. Franchisee shall at all times treat the Manual, and the
information contained therein, as confidential, and shall use all reasonable
efforts to keep such information secret and confidential. Franchisee shall not,
at any time, without Franchisor's prior written consent, copy, duplicate,
record, or otherwise make the Manual available to any unauthorized person or
entity.
7.03. The Manual shall at all times remain the sole property of
Franchisor.
7.04. In order for Franchisee to benefit from new knowledge
information, methods and technology adopted and used by Franchisor in the
operation of the System, Franchisor may from time-to-time revise the Manual and
Franchisee agrees to adhere to and abide by all such revisions.
7.05. Franchisee agrees at all times to keep its copy of the Manual
current and up-to-date, and in the event of any dispute as to the contents of
Franchisee's Manual, the terms of the master copy of the Manual maintained by
Franchisor at Franchisor's home office, shall be controlling.
7.06. The Manual is intended to further the purposes of this Agreement,
and is specifically incorporated, by reference, into this Agreement. Except as
otherwise set forth in this Agreement, in the event of a conflict between the
terms of this Agreement and the terms of the Manual, the terms of this Agreement
shall control.
VIII. TRAINING
13
8.01. Franchisee, a partner of Franchisee if Franchisee is a
partnership, or a principal shareholder of Franchisee if Franchisee is a
corporation, must complete, to Franchisor's satisfaction, the Chesapeake Bagel
Bakery New Franchisee Orientation Program ("NFOP") prior to opening the first
franchised Chesapeake Bagel Bakery unit operated by Franchisee. NFOP shall
consist of one (1) forty (40) hour week of workshops and seminars conducted at a
training facility designated by Franchisor.
8.02. In addition to completing the NFOP, Franchisee (or a partner or
principal shareholder of Franchisee), and two (2) to four (4) designated
management employees of Franchisee, must attend and complete, to Franchisor's
satisfaction, the Chesapeake Bagel Bakery basic management training program
("BMT"), prior to opening the Franchised Unit. The exact number of Franchisee's
management employees required to attend and complete BMT shall be determined by
Franchisor in its sole discretion, but in no event shall the number be less than
two (2). BMT shall consist of up to five (5) weeks of in-store restaurant
operations training at a facility designated by Franchisor (a "Certified
Training Facility") and certain self-directed study programs. A management
employee of Franchisee that successfully completes BMT, shall be certified by
Franchisor as an "BMT Certified Manager".
8.03. Franchisee shall maintain the number of BMT Certified Managers
designated by the Franchisor in the employ of the Franchised Unit throughout the
term of this Agreement, which in no event shall be less than three (3). In the
event that Franchisee or any BMT Certified Manager ceases active employment at
the Franchised Unit, Franchisee must enroll a qualified replacement in the BMT
program within thirty (30) days of cessation of such individual's employment.
The replacement employee shall attend and complete the next regularly scheduled
BMT program to Franchisor's satisfaction.
8.04. The cost of conducting the NFOP and BMT programs (instruction and
required materials) shall be borne by Franchisor. All other expenses during
NFOP and BMT, including meals and lodging, wages and travel, shall be borne by
Franchisee.
8.05. Franchisor may make available to Franchisee or Franchisee's
employees, from time to time, such additional training programs as Franchisor,
in its sole discretion, may choose to conduct. Attendance at said training
programs may be mandatory. The cost of conducting such additional training
programs (instruction and required materials) shall be borne by Franchisor. All
other expenses during the training period, including meals and lodging, wages
and travel, shall be borne by the Franchisee.
IX. DUTIES OF THE FRANCHISOR
14
9.01. Franchisor will make available to Franchisee such continuing
advisory assistance in the operation of the Franchised Business, in person or by
electronic or written bulletins made available from time to time, as Franchisor
may deem appropriate.
9.02. Franchisor, in its sole discretion, may provide opening
assistance to Franchisee at the Franchised Unit.
9.03. Franchisor will make available to Franchisee standard plans and
specifications to be utilized only in the construction of the Franchised Unit.
No modification to or deviations from the standard plans and specifications may
be made without the written consent of Franchisor. Franchisee shall obtain, at
its expense, further qualified architectural and engineering services to prepare
surveys, site and foundation plans, and to adapt the standard plans and
specifications to applicable local or state laws, regulations or ordinances.
Franchisee shall bear the cost of preparing plans containing deviations or
modifications from the standard plans.
9.04. Franchisor will loan one (1) copy of the Manual to Franchisee
for the duration of this Agreement, which the Manual contains the standards,
specifications, procedures and techniques of the Chesapeake Bagel Bakery System.
9.05. Franchisor will continue its efforts to maintain high and uniform
standards of quality, cleanliness, appearance and service at all Chesapeake
Bagel Bakery restaurants, to protect and enhance the reputation of the
Chesapeake Bagel Bakery System and the demand for the products and services of
the System. Franchisor will establish uniform criteria for approving suppliers;
make every reasonable effort to disseminate its standards and specifications to
prospective suppliers of the Franchisee upon the written request of the
Franchisee, provided that Franchisor may elect not to make available to
prospective suppliers the standards and specifications for such food formulae or
equipment designs deemed by Franchisor in its sole discretion to be
confidential; and may conduct periodic inspections of the premises and
evaluations of the products used and sold at the Franchised Unit and in all
other Chesapeake Bagel Bakery restaurants.
9.06. Franchisor will provide training to Franchisee as set forth in
Article VIII hereof.
X. DUTIES OF THE FRANCHISEE
Franchisee understands and acknowledges that every detail of the System
is important to Franchisor, Franchisee and other franchisees in order to develop
and maintain high and uniform operating standards, to increase the demand for
Chesapeake Bagel Bakery products and services, and to protect the reputation and
goodwill of Franchisor. Accordingly, Franchisee agrees that:
15
10.01. Franchisee shall maintain, at all times during the term of this
Agreement, at Franchisee's expense, the premises of the Franchised Unit and all
fixtures, furnishings, signs, systems and equipment (hereinafter "improvements")
thereon or therein, in conformity with Franchisor's high standards and public
image and to make such additions, alterations, repairs, and replacements thereto
(but no others, without Franchisor's prior written consent) as may be required
by Franchisor, including but not limited to the following:
A. To keep the Franchised Unit in the highest degree of sanitation and
repair, including, without limitation, such periodic repainting,
repairs or replacement of impaired equipment, and replacement of
obsolete signs, as Franchisor may reasonably direct;
B. To meet and maintain the highest governmental standards and ratings
applicable to the operation of the Franchised Business;
C. At its sole cost and expense, to complete a full reimaging,
renovation, refurbishment and modernization of the Franchised Unit,
within the time frame required by Franchisor, but no more often than
once every seven (7) years, including the building design, parking
lot, landscaping, equipment, signs, interior and exterior decor
items, fixtures, furnishings, trade dress, color scheme,
presentation of trademarks and service marks, supplies and other
products and materials, to meet Franchisor's then-current standards,
specifications and design criteria for Chesapeake Bagel Bakery
restaurants, including without limitation, such structural changes,
remodeling and redecoration and such modifications to existing
improvements as may be necessary to do so (hereinafter, a
"Franchised Unit Renovation"). Franchisee shall not be required to
perform a Franchised Unit Renovation if there are less than five (5)
years remaining on the term of this Agreement. Nothing herein shall
be deemed to limit Franchisee's other obligations, during the term
of this Agreement, to operate the Franchised Unit in accordance with
Franchisor's standards and specifications for the Chesapeake Bagel
Bakery System, including, but not limited to, the obligations set
forth in this Section X.
10.02. Franchisee shall operate the Franchised Unit in conformity with
such uniform methods, standards, and specifications as Franchisor may from time
to time prescribe in the Manual or otherwise in writing, to insure that the
highest degree of quality, service and cleanliness is uniformly maintained and
to refrain from any deviation therefrom and from otherwise operating in any
manner which reflects adversely on Franchisor's name and goodwill or on the
Proprietary Marks, and in connection therewith:
16
A. To maintain in sufficient supply, and use at all times, only
such ingredients, products, materials, supplies, and paper
goods as conform to Franchisor's standards and specifications,
and to refrain from deviating therefrom by using non-conforming
items, without Franchisor's prior written consent;
B. To sell or offer for sale only such products and menu items
that have been expressly approved for sale in writing by
Franchisor, meet Franchisor's uniform standards of quality and
quantity and as have been prepared in accordance with
Franchisor's methods and techniques for product preparation; to
sell or offer for sale the minimum menu items specified in the
Manual or otherwise in writing; to refrain from any deviation
from Franchisor's standards and specifications for serving or
selling the menu items, without Franchisor's prior written
consent; upon thirty (30) days written notice from Franchisor,
to sell or offer for sale only such beverages produced by
Franchisor's Designated Beverage Supplier (as defined in
Section 10.03 below); and to discontinue selling or offering
for sale such items as Franchisor may, in its discretion,
disapprove in writing at any time;
C. To use the premises of the Franchised Unit solely for the
purpose of conducting the business franchised hereunder, and to
conduct no other business or activity thereon, whether for
profit or otherwise, without Franchisor's prior written
consent;
D. To keep the Franchised Unit open and in normal operation during
such business hours as Franchisor may prescribe in the Manual
or otherwise in writing;
E. To permit Franchisor or its agents, at any time during ordinary
business hours, to remove from the Franchised Unit samples of
any ingredients, products, materials, supplies, and paper goods
used in the operation of the Franchised Unit, without payment
therefor, in amounts reasonably necessary for testing by
Franchisor or an independent laboratory, to determine whether
such samples meet Franchisor's then-current standards and
specifications. In addition to any other remedies it may have
under this Agreement, Franchisor may require Franchisee to bear
the cost of such testing if any such ingredient, products,
materials, supplier or paper goods have been obtained from a
supplier not approved by Franchisor, or if the sample fails to
conform to Franchisor's specifications;
F. To purchase, install and construct, at Franchisee's expense,
all improvements furnishings, signs and equipment specified in
the approved standard plans and specifications, and such other
furnishings, signs or equipment as Franchisor may reasonably
direct from time to time in the Manual or otherwise in writing;
and to refrain from installing or permitting to be installed on
or about the premises of the Franchised Unit, without
Franchisor's written consent, any improvements, furnishings,
signs or equipment not first approved in writing as meeting
Franchisor's standards and specifications;
17
G. To comply with all applicable federal, state and local laws,
regulations and ordinances pertaining to the operation of the
Franchised Business; and
H. Franchisee shall grant Franchisor and its agents the right to
enter upon the premises of the Franchised Unit at any time
during ordinary business hours for the purpose of conducting
inspections; cooperate with Franchisor's representatives in
such inspections by rendering such assistance as they may
reasonably request; and, upon notice from Franchisor or its
agents, and without limiting Franchisor's other rights under
this Agreement, take such steps as may be necessary immediately
to correct the deficiencies detected during any such
inspection, including, without limitation, immediately
desisting from the further use of any equipment, promotional
materials, products, or supplies that do not conform with
Franchisor's then-current specifications, standards, or
requirements.
10.03. Franchisee shall (i) purchase all ingredients, products,
materials, supplies, and other items required in the operation of the Franchised
Business which are or incorporate trade-secrets of Franchisor, as designated by
Franchisor ("Trade-Secret Products") only from Franchisor or suppliers
designated by Franchisor; and (ii) upon thirty (30) days prior written notice
that Franchisor has designated an exclusive beverage supplier for any or all
beverage products sold within the Chesapeake Bagel Bakery System ("Designated
Beverage Products"), Franchisee shall purchase all such Designated Beverage
Products only from Franchisor's designated beverage supplier ("Designated
Beverage Supplier").
10.04. Franchisee shall purchase all ingredients, products, materials,
supplies, paper goods, and other items required for the operation of the
Franchised Business, except Trade-Secret Products and Designated Beverage
Products, 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 in writing by Franchisor and such approval has not
thereafter been revoked. If Franchisee desires to purchase any such items from
an unapproved supplier, Franchisee shall submit to Franchisor a written request
for approval, or shall request the supplier itself to seek approval. Franchisor
shall have the right to require, as a condition of its approval, that its
representatives be permitted to inspect the supplier's facilities, and that
samples from the supplier be delivered, at Franchisor's option, either to
18
Franchisor or to an independent laboratory designated by Franchisor for testing
prior to granting approval. A charge not to exceed Franchisor's reasonable cost
of inspection and the actual cost of testing shall be paid by the supplier or
Franchisee. Franchisor reserves the right, at its option, to reinspect the
facilities and products of any such approved supplier from time to time and to
revoke its approval upon failure of such supplier to continue to meet any of the
foregoing criteria.
10.05. Franchisor shall have the right, in its sole discretion, to
establish a local advertising cooperative ("Cooperative") in any dominant market
area ("DMA"). In addition, a Cooperative for the DMA in which the Franchised
Unit is located may be established upon the favorable vote of the owners of all
Chesapeake Bagel Bakery restaurants (including non-franchised restaurants)
within the same DMA. Each owner will be entitled to cast one (1) vote for each
restaurant owned and operated by that owner within such DMA. If 80% of all votes
entitled to be cast vote in favor of establishing a Cooperative, then such
Cooperative shall be formed.
A. Once a Cooperative is established in the DMA in which the
Franchised Unit is located, Franchisee shall become a member of
such Cooperative upon commencement of operation of the
Franchised Unit if the Cooperative is in existence at that
time, or no later than thirty (30) days after the date on which
the Cooperative commences operation. In no event shall
Franchisee be required to be a member of more than one
Cooperative with respect to the Franchised Unit.
B. If a Cooperative has been established, Franchisee shall
contribute an amount, to be determined by the Cooperative,
which shall not be less than two percent (2%) of its weekly
Gross Sales.
C. Each Cooperative shall be organized and governed in a form and
manner, and shall commence operations on a date, approved in
advance by Franchisor in writing.
(1) Each Cooperative shall be organized for the exclusive
purpose of administering regional advertising programs and
developing, subject to Franchisor's approval, standardized
promotional materials for use by its members in local
advertising.
(2) No advertising or promotional plans or materials may be
used by a Cooperative or furnished to its members without the
prior approval of the Franchisor, pursuant to the procedures and
terms set forth in Section 10.07 hereof.
(3) Franchisee shall pay its required contribution to the
Cooperative weekly on Gross Sales for the preceding week,
together with such
19
statements or reports as may be required by Franchisor, or by
the Cooperative with the Franchisor's prior written approval.
D. Franchisor, in its sole discretion, may grant an exemption to
any franchisee for any length of time from the requirement of
membership in a Cooperative, and/or from the obligation to
contribute thereto (including a reduction, deferral or waiver of
such contribution), upon written request of such franchisee
stating reasons supporting such exemption. Franchisor's decision
concerning such request for exemption shall be final. If an
exemption is granted to a franchisee, such franchisee shall be
required to expend on local advertising, on a monthly basis, the
same amount as would otherwise be assessed by the Cooperative,
as set forth in Section 10.05.B hereof.
10.06. All local advertising by Franchisee shall be in such media, and
of such type and format as Franchisor may approve; shall be conducted in a
dignified manner; and shall conform to such standards and requirements as
Franchisor may specify. Franchisee shall not use any advertising or promotional
plans or materials unless and until Franchisee has received written approval
from Franchisor, pursuant to the procedures and terms set forth in Section 10.07
hereof.
10.07. All advertising and promotional plans proposed to be used by
Franchisee or the Cooperative, where applicable, except such plans and materials
that have been previously approved by Franchisor shall be submitted to
Franchisor for Franchisor's written approval (except with respect to prices to
be charged) prior to any use thereof. Franchisor shall use its best efforts to
complete its review of Franchisee's proposed advertising and promotional plans
within fifteen (15) days after Franchisor receives such plans. If written
approval is not received by Franchisee or the Cooperative from Franchisor within
fifteen (15) days after receipt by Franchisor of such plans, Franchisor shall be
deemed to have disapproved such plans.
10.08. Franchisee shall, at Franchisor's request, require all of its
supervisory employees, as a condition of their employment, to execute an
agreement prohibiting them, during the term of their employment or thereafter,
from communicating, divulging, or using for the benefit of any person, persons,
partnership, association, corporation or other entity any confidential
information, trade secrets, knowledge, or know-how concerning the Chesapeake
Bagel Bakery System or methods of operation of the Franchised Unit which may be
acquired as a result of their employment with Franchisee or other franchisees.
A duplicate original of each such agreement shall be provided by Franchisee to
Franchisor immediately upon execution.
10.09. If Franchisee operates more than four (4) Franchised Units,
Franchisee shall have a supervisor, which may be Franchisee, to supervise and
coordinate the operation of the Franchised Units (hereinafter, a "Supervisor").
In addition to the foregoing, Franchisee shall employ an additional Supervisor
upon the opening of Franchisee's sixth (6th) Franchised Unit and upon the
opening of each successive fifth (5th) Franchised Unit thereafter. Each
20
Supervisor shall attend and successfully complete the BMT program set forth in
Section 8.02 hereof prior to assuming any supervisory responsibilities and shall
meet such other standards as Franchisor may reasonably impose. No Supervisor may
have supervisory responsibilities for more than eight (8) Franchised Units.
10.10. If at any time the Franchised Unit is proposed to be operated
by an entity or individual other than the Franchisee, Franchisor reserves the
right to review and approve the operating entity or individual and to require
and approve an operating agreement prior to such party's assumption of
operations. Franchisor may, in its sole discretion, reject either the operating
entity, the individual operator or the operating agreement. If approved by
Franchisor, the operating entity and/or individual shall agree in writing to
comply with all of Franchisee's obligations under the Franchise Agreement as
though such party were the franchisee designated therein, on such form as may be
designated by Franchisor. The operation of the Franchised Unit by any party
other than Franchisee, without Franchisor's prior written consent, shall be
deemed a material default of this Agreement for which Franchisee may terminate
this Agreement pursuant to the provisions of Section 15.02 hereof.
10.11. Franchisee shall become a member of any purchasing cooperative
established by Franchisor for the Chesapeake Bagel Bakery System and shall
remain a member in good standing thereof throughout the term of this Agreement
and shall pay all reasonable membership fees assessed by such purchasing
association. Franchisee shall, prior to opening the Franchised Unit, become a
member of the Churchs Operators Purchasing Association (hereinafter "COPA"), or
any successor thereto, shall remain a member in good standing of COPA throughout
the term of this Agreement (or until a separate Purchasing Cooperative is
established by Franchisor for the Chesapeake Bagel Bakery System), and shall pay
all reasonable membership fees assessed by COPA.
10.12 Franchisee shall, within thirty (30) days from receipt of
written notice from Franchisor, purchase and install computer hardware and
software equipment at the Franchised Unit and/or at Franchisee's principal
business office, which computer hardware shall include telecommunications
devices, and which software may be a single program or set of programs, all of
which must be obtained in accordance with the Franchisor's standards and
specifications (the "Required Computer Equipment"). The Required Computer
Equipment shall permit 24 hour per day electronic communications between
Franchisor and Franchisee including access to the internet and Franchisor's
intranet,"AFC On-Line" or any successor thereto. Franchisee shall only be
required to purchase and install the Required Computer Equipment at one, central
location, which shall satisfy the conditions of this section 10.02 (or its
equivalent) for all Franchised Units operated by Franchisee.
10.13. Franchisee shall comply with all other requirements set forth
in this Agreement.
21
XI. INSURANCE
11.01. Insurance Program. Franchisee shall procure, prior to commence
ment of construction of the Franchised Unit, and shall maintain in full force
and effect during the Term of this Agreement at Franchisee's expense, an
insurance policy or policies protecting Franchisee and Franchisor, and their
officers, directors, agents and employees, against any loss, liability, or
expense whatsoever from personal injury, death or property damage or casualty,
including, fire, lightning, theft, vandalism, malicious mischief, and other
perils normally included in an extended coverage endorsement arising from,
occurring upon or in connection with the construction, operation or occupancy of
the Franchised Unit, as Franchisor may reasonably require for its own and
Franchisee's protection.
11.02. Insurance Requirements. Such policy or policies shall be
written by an insurance company satisfactory to Franchisor, and shall include,
at a minimum the following coverage:
A. Workers' Compensation Insurance, with statutory limits as
-------------------------------
required by the laws and regulations applicable to the
employees of Franchisee who are engaged in the performance
of their duties relating to the Franchised Unit, including
any pre-opening training programs, as well as such other
insurance as may be required by statute or regulation of the
state in which the Franchised Unit is located.
B. Employer's Liability Insurance, for employee bodily
------------------------------
injuries and deaths, with a limit of $500,000 each accident.
C. Comprehensive or Commercial General Liability Insurance,
-------------------------------------------------------
covering claims for bodily injury, death and property
damage, including Premises and Operations, Independent
Contractors, Products and Completed Operations, Personal
Injury, Contractual, and Broadform Property Damage liability
coverages, with limits as follows:
Occurrence/Aggregate Limit of $1,000,000 for bodily injury,
death and property damage each occurrence and $2,000,000 for
general aggregate or
Split liability limits of:
$1,000,000 for bodily injury per person
$1,000,000 for bodily injury per occurrence
$ 500,000 for property damage
D. Comprehensive Automobile Liability Insurance, if applicable,
--------------------------------------------
covering owned, non-owned and hired vehicles, with limits
as follows:
22
Combined Single Limit of $500,000 for bodily injury, death
and property damage per occurrence
or
Split liability limits of:
$500,000 for bodily injury per person
$500,000 for bodily injury per occurrence
$250,000 for property damage
E. All Risk Property Insurance, on a replacement cost basis,
---------------------------
with limits as appropriate, covering the real property of
Franchisee and any real property which the Franchisee may be
obligated to insure by contract. Such real property may
including building, machinery, equipment, furniture,
fixtures and inventory.
11.03. All such policies of insurance shall provide that the same
shall not be canceled, modified or changed without first giving thirty (30) days
prior written notice thereof to Franchisor. No such cancellation, modification
or change shall affect Franchisee's obligation to maintain the insurance
coverages required by this Agreement. Except for Workers' Compensation
Insurance, Franchisor shall be named as an Additional Insured on all such
required policies. All liability insurance policies shall be written on an
"occurrence" policy form. Franchisee shall be responsible for payment of any and
all deductibles from insured claims under its policies of insurance. The
coverage afforded under any insurance policy obtained by Franchisee pursuant to
this Agreement shall be primary coverage regardless of whether or not Franchisor
has similar coverage. Franchisee shall not satisfy the requirements of this
Article XI unless and until certificates of such insurance, including renewals
thereof, have been delivered to and approved by Franchisor. Franchisee shall not
self-insure any of the insurance coverages required by this Agreement, or non-
subscribe to any State's applicable workmen's compensation laws without the
prior written consent of Franchisor. The minimum limits of coverage required by
this Agreement may be satisfied by a combination of primary and excess or
umbrella insurance policies. Franchisor shall have the right, at any time during
the term of this Agreement to increase the minimum limits of insurance coverage
or otherwise modify the insurance requirements of this Agreement upon written
notice in the Manual or as otherwise prescribed by Franchisor in writing. If
Franchisee shall fail to comply with any of the insurance requirements herein,
upon written notice to Franchisee by Franchisor, Franchisor may, without any
obligation to do so, procure such insurance and Franchisee shall pay Franchisor,
upon demand, the cost thereof plus interest at the maximum rate permitted by
law, and a reasonable administrative fee designated by Franchisor.
11.04. No Limitation on Coverage. Franchisee's obligation to obtain
and maintain the foregoing policy or policies of insurance in the amounts
23
specified shall not be limited in any way by reason of any insurance which may
be maintained by Franchisor, nor shall Franchisee's performance of that
obligation relieve it of liability under the indemnity provisions set forth in
Section XVIII of this Agreement.
11.05. Issuance of Insurance. Franchisee must obtain the insurance
required by this Agreement no later than fifteen (15) days before the date on
which any construction is commenced. The Franchised Unit shall not be opened for
business prior to Franchisor's receipt of satisfactory evidence that all
insurance required by this Agreement is in effect. Upon obtaining such
insurance, and on each policy renewal date thereafter, Franchisee shall promptly
submit evidence of satisfactory insurance and proof of payment therefor to
Franchisor, together with, upon request, copies of all policies and policy
amendments. The evidence of insurance shall include a statement by the insurer
that the policy or policies will not be canceled or materially altered without
at least thirty (30) days prior written notice to Franchisor.
XII. CONFIDENTIAL INFORMATION
12.01. Franchisee shall not, during the term of this Agreement or
thereafter, communicate, divulge, or use for the benefit of any other person,
persons, partnership, association, corporation or other entity, any confidential
information, knowledge or know-how concerning the construction and methods of
operation of the Franchised Business which may be communicated to Franchisee, or
of which Franchisee may be apprised, by virtue of Franchisee's operation under
the terms of this Agreement. Franchisee shall divulge such confidential
information only to such employees of Franchisee as must have access to it in
order to exercise the franchise rights granted hereunder and to establish and
operate the Franchised Unit pursuant hereto and as Franchisee may be required by
law, provided Franchisee shall give Franchisor prior written notice of any such
required disclosure immediately upon receipt of notice by Franchisee in order
for Franchisor to have the opportunity to seek a protective order or take such
other actions as it deems appropriate under the circumstances.
12.02. Any and all information, knowledge, and know-how, including,
without limitation, drawings, materials, equipment, recipes, prepared mixtures
or blends of spices or other food products, and other data, which Franchisor
designates as confidential, and any information, knowledge, or know-how which
may be derived by analysis thereof, shall be deemed confidential for purposes of
this Agreement, except information which Franchisee can demonstrate came to
Franchisee's attention prior to disclosure thereof by Franchisor; or which, at
the time of disclosure thereof by Franchisor to Franchisee, had become a part of
the public domain, through publication or communication by others; or which,
after disclosure to Franchisee by Franchisor, becomes a part of the public
domain, through publication or communication by others.
XIII. COVENANTS
13.01. Franchisee covenants that, during the term of the Agreement,
except as otherwise approved in writing by Franchisor, Franchisee or,
24
alternatively, one designated management employee if that employee assumes
primary responsibility for the operation of the Franchised Unit, shall devote
full time, energy and best efforts to the management and operation of the
Franchised Business.
13.02. Franchisee acknowledges that, pursuant to this Agreement,
Franchisee will receive valuable specialized training and confidential
information, including without limitation, information regarding the
operational, sales, promotional, and marketing methods, procedures and
techniques of Franchisor and the System.
Franchisee covenants that, during the term of this Agreement,
Franchisee (who, unless otherwise specified, shall include, for purposes of this
Section XIII, collectively and individually, all officers, directors and holders
of a beneficial interest of five percent (5%) or more of the securities with
voting rights of Franchisee and of any corporation, directly or indirectly
controlling Franchisee, if Franchisee is a corporation, and the general partner
and any limited partners, including any corporation, and the officers, directors
and holders of a beneficial interest of five percent (5%) or more of securities
with voting rights of a corporation which controls, directly or indirectly, any
general or limited partner, if Franchisee is a partnership) shall not, either
directly or indirectly, for itself or on behalf of, or in conjunction with, any
person, persons, partnership, association or corporation or other entity:
A. Divert or attempt to divert any business or customer of the
business franchised hereunder to any competitor by direct or
indirect inducements or otherwise, or to do or perform,
directly or indirectly, any other act injurious or prejudicial
to the goodwill associated with Franchisor's Proprietary Marks
and the System;
B. Employ or seek to employ any person who is, at that time,
employed by Franchisor or by any other Chesapeake Bagel Bakery
franchisee, or otherwise, directly or indirectly, induce such
person to leave his or her employment therewith; or
C. Own, maintain, operate, engage in, or have any interest in any
fast food (either takeout, on premises consumption, or a
combination thereof) restaurant that specializes in the sale of
bakery products, including bagels, breads and other food
products substantially similar to those sold within the
Chesapeake Bagel Bakery System (a "Bagel Bakery Restaurant");
provided, however, that the term "Bagel Bakery Restaurant"
shall not apply to any business operated by Franchisee under a
franchise agreement with Franchisor or an affiliate of
Franchisor.
25
13.03. Franchisee covenants that Franchisee shall not, regardless of
the cause for termination, either directly or indirectly, for itself, or
through, on behalf of, or in conjunction with any person, persons, partnership,
association, corporation or other entity:
A. For a period of two (2) years following the termination or
expiration of this Agreement, own, maintain, engage in, or have
any interest in any Bagel Bakery Restaurant which is located
within a radius of ten (10) miles of the location specified in
Section I hereof, or the location of any other Chesapeake Bagel
Bakery restaurant under the System, whether owned by Franchisor
or any other Chesapeake Bagel Bakery franchisee, which is in
existence as of the date of expiration or termination of this
Agreement; or
B. For a period of one (1) year following the termination or
expiration of this Agreement, employ or seek to employ any
person who is, at the time, employed by Franchisor or by any
other Chesapeake Bagel Bakery franchisee, or otherwise,
directly or indirectly, induce such person to leave his or her
employment therewith.
13.04. At Franchisor's request, Franchisee shall require and obtain
execution of covenants similar to those set forth in this Section XIII
(including covenants applicable upon the termination of a person's relationship
with Franchisee) in a form satisfactory to Franchisor, including, without
limitation, specific identification of Franchisor as a third party beneficiary
of such covenants with the independent right to enforce them, from any or all of
the following persons:
A. All managers and assistant managers of the Franchised Unit,
and any other personnel employed by Franchisee who have
received or will receive training from Franchisor;
B. All officers, directors, and holders of a direct or indirect
beneficial ownership interest of five percent (5%) or more in
Franchisee.
The failure of Franchisee to obtain execution of a covenant required by
this Section 13.04 shall constitute a material breach of this Agreement. A
duplicate original of each such covenant shall be provided by Franchisee to
Franchisor immediately upon execution.
13.05. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
If all or any portion of a covenant in this Section XIII, is held unreasonable
or unenforceable by a court or agency having jurisdiction in a final decision,
Franchisee expressly agrees to be bound by any lesser covenant subsumed within
the terms of such covenant that imposes the maximum duty permitted by law, as if
the resulting covenant was separately stated in and made a part of this Section
XIII.
26
A. Right to Reduce Covenants. Franchisee understands and acknowledges
-------------------------
that Franchisor shall have the right, in its sole discretion, to
reduce the scope of any covenant set forth in Sections 13.02. and
13.03. of this Agreement, or any portion thereof, without
Franchisee's consent, effective immediately upon receipt by
Franchisee of written notice thereof, and Franchisee agrees that it
shall comply with any covenant as so modified, which shall be fully
enforceable notwithstanding the provisions of Section XXII hereof.
B. Injunctive Relief. The parties acknowledge that it will be
-----------------
difficult to ascertain with any degree of certainty the amount of
damages resulting from a breach by Franchisee of any of the
covenants contained in this Section XIII. It is further agreed and
acknowledged that any violation by Franchisee of any of said
covenants will cause irreparable harm to Franchisor. Accordingly,
Franchisee agrees that upon proof of the existence of a violation of
any of said covenants, Franchisor will be entitled to injunctive
relief against Franchisee in any court of competent jurisdiction
having authority to grant such relief, together with all costs and
reasonable attorney's fees incurred by Franchisor in bringing such
action.
XIV. TRANSFERABILITY OF INTEREST
14.01. Transfer by Franchisor. This Agreement shall inure to the
benefit of the successors and assigns of Franchisor. Franchisor shall have the
right to transfer or assign its interest in this Agreement to any person,
persons, partnership, association, corporation, or other entity. If Franchisor's
assignee assumes all the obligations of Franchisor hereunder and sends
Franchisee written notice of the assignment so attesting, Franchisee agrees
promptly to execute a general release of Franchisor, and any affiliates of
Franchisor, from claims or liabilities of Franchisor under this Agreement.
14.02. Transfer by Franchisee. Franchisee understands and
acknowledges that the rights and duties set forth in this Agreement are personal
to Franchisee, and that Franchisor has granted this Agreement in reliance on
Franchisee's business skill and financial capacity. Accordingly, neither (i)
Franchisee, nor (ii) any immediate or remote successor to Franchisee, nor (iii)
any individual, partnership, corporation or other legal entity which directly or
indirectly owns any interest in the Franchisee or in this Franchise Agreement,
shall sell, assign, transfer, convey, donate, pledge, mortgage, or otherwise
encumber any direct or indirect interest in this Agreement or in any legal
entity which owns the Franchised Business without the prior written consent of
Franchisor. Acceptance by Franchisor of any royalty fee, advertising fee or any
other amount accruing hereunder from any third party, including, but not limited
to any proposed transferee, shall not constitute Franchisor's approval of such
party as a transferee or the transfer of this Franchise Agreement to such party.
27
Any purported assignment or transfer, by operation of law or otherwise, not
having the written consent of Franchisor, shall be null and void, and shall
constitute a material breach of this Agreement, for which Franchisor may then
terminate without opportunity to cure pursuant to Section 15.02.E. of this
Agreement.
14.03. Conditions for Consent. Franchisor shall not unreasonably with
hold its consent to any transfer referred to in Section 14.02., when requested;
provided, however, that prior to the time of transfer;
A. All of Franchisee's accrued monetary obligations to Franchisor
and its subsidiaries and affiliates shall have been satisfied;
B. Franchisee shall have agreed to remain obligated under the
covenants contained in Section XIII hereof as if this Agreement
had been terminated on the date of the transfer;
C. The transferee must be of good moral character and reputation,
in the reasonable judgment of the Franchisor;
D. The Franchisor shall have determined, to its satisfaction, that
the transferee's qualifications meet the Franchisor's then
current criteria for new franchisees;
E. Franchisee and transferee shall execute a written assignment,
in a form satisfactory to Franchisor, pursuant to which the
transferee shall assume all of the obligations of Franchisee
under this Agreement and Franchisee shall unconditionally
release any and all claims Franchisee might have against
Franchisor as of the date of the assignment;
F. The transferee shall execute the then-current form of Franchise
Agreement and such other then-current ancillary agreements as
Franchisor may reasonably require. The then-current form of
Franchise Agreement may have significantly different provisions
including, without limitation, a higher royalty fee and
advertising contribution than that contained in this Agreement.
The then-current form of Franchise Agreement will expire on the
expiration date of this Agreement and will contain the same
renewal rights, if any, as are available to Franchisee herein;
G. The transferee shall agree at its sole cost and expense, to (i)
complete a Franchised Unit Renovation, within the time frame
required by Franchisor, unless a Franchised Unit Renovation was
completed within seven (7) years prior to the date of the
transfer and (ii) perform such other scope of work as may be
determined by Franchisor.
28
H. The transferee and such other individuals as may be designated
by Franchisor in the Manual or otherwise in writing, must have
successfully completed the training course then in effect for
new franchisees. If the Franchised Unit is the transferee's
first Chesapeake Bagel Bakery restaurant, the transferee shall
pay to Franchisor the then-standard Training Fee;
I. If the transferee is a partnership, the partnership agreement
shall provide that further assignments or transfers of any
interest in the partnership are subject to all restrictions
imposed upon assignments and transfers in this Agreement;
J. Franchisee shall, at Franchisor's option and request, execute a
written guarantee of the transferee's obligations under the
Agreement, which guarantee shall not exceed a period of three
(3) years from the date of transfer.
K. The Franchisee shall pay to Franchisor a transfer fee of Five
Thousand Dollars ($5,000), to cover Franchisor's administrative
expenses in connection with the transfer; however no additional
franchise fee shall be charged by Franchisor for a transfer. If
the transferee is (i) a corporation formed by Franchisee for
the convenience of ownership and in which the Franchisee is the
sole shareholder, or (ii) an existing Franchisee under this
Agreement, no transfer fee shall be required.
14.04. Grant of Security Interest. Franchisee shall grant no security
interest in this Agreement, the Franchised Business, or in any of its assets
unless the secured party agrees that, in the event of any default by Franchisee
under any documents related to the security interest (i) Franchisor shall be
provided with notice of default and given a reasonable time within which to cure
said default, (ii) Franchisor shall have the right and option to be substituted
as obligor to the secured party and to cure any default of Franchisee or to
purchase the rights of the secured party upon payment of all sums then due to
such secured party, except such amounts which may have become due as a result of
any acceleration of the payment dates based upon the Franchisee's default, and
(iii) the secured party shall agree to such other requirements as Franchisor, in
its sole discretion, deems reasonable and necessary to protect the integrity of
the Proprietary Marks and the Chesapeake Bagel Bakery System.
14.05. Transfer on Death or Mental Incapacity. Upon the death or
mental incapacity of any person with an interest in this Agreement, the
Franchised Business or Franchisee, the executor, administrator, or personal
representative of such person shall transfer his interest to a third party
approved by Franchisor within 12 months after such death or mental incapacity.
Such transfer, including, without limitation, transfer by devise or inheritance,
shall be subject to the same conditions as any inter vivos transfer. However, in
29
the case of transfer by devise or inheritance, if the heirs or beneficiaries of
any such person are unable to meet the conditions in this Section XIV, the
personal representative of the deceased Franchisee shall have a reasonable time,
but in no event more than eighteen (18) months from Franchisee's death, to
dispose of the deceased's interest in this Agreement and the business conducted
pursuant hereto, which disposition shall be subject to all the terms and
conditions for assignments and transfers contained in this Agreement. If the
interest is not disposed of within twelve (12) or eighteen (18) months,
whichever is applicable, Franchisor may terminate this Agreement.
14.06. Right of First Refusal. Any party holding an interest in this
Agreement, the Franchised Business or in Franchisee, and who desires to accept a
bona fide offer from a third party to purchase such interest, shall notify
Franchisor in writing of such offer within ten (10) days of receipt of such
offer, and shall provide such information and documentation relating to the
offer as Franchisor may require. Franchisor shall have the right and option,
exercisable within thirty (30) days after receipt of such written notification,
to send written notice to the seller that Franchisor intends to purchase the
seller's interest on the same terms and conditions offered by the third party.
In the event that Franchisor elects to purchase the seller's interest, closing
on such purchase must occur within sixty (60) days from the date of notice to
the seller of the election to purchase by Franchisor. Any material change in
the terms of any offer prior to closing shall constitute a new offer subject to
the same rights of first refusal by Franchisor as in the case of an initial
offer. Failure of Franchisor to exercise the option afforded by this Section
14.06. shall not constitute a waiver of any other provisions of this Agreement,
including all of the requirements of this Section XIV, with respect to a
proposed transfer.
In the event the consideration, terms, and/or conditions offered by a
third party are such that Franchisor may not reasonably be required to furnish
the same consideration, terms, and/or conditions, then Franchisor may purchase
the interest in this Agreement, Franchisee, or the Franchised Business proposed
to be sold for the reasonable equivalent in cash. If the parties cannot agree
within a reasonable time as to the reasonable equivalent in cash of the
consideration, terms, and/or conditions offered by the third party, an
independent appraiser shall be designated by Franchisor, and his determination
shall be binding upon the parties.
14.07. Offerings by Franchisee. Securities or partnership interests in
Franchisee may be offered to the public, by private offering or otherwise, only
with the prior written consent of Franchisor, which consent shall not be
unreasonably withheld. All materials required for such offering by federal or
state law shall be submitted to Franchisor for review prior to their being filed
with any governmental agency; and any materials to be used in any exempt
offering shall be submitted to Franchisor for review prior to their use. No
offering of such securities shall imply (by use of the Proprietary Marks or
otherwise) that Franchisor is participating in the underwriting, issuance, or
offering of securities by Franchisee; and Franchisor's review of any offering
shall be limited solely to the subject of the relationship between Franchisee
and Franchisor. Franchisee and the other participants in the offering shall
fully indemnify Franchisor in connection with the offering. For each proposed
offering, Franchisee shall pay to Franchisor a non-refundable fee of Five
Thousand Dollars ($5,000), or such greater amount as is necessary to reimburse
30
Franchisor for its reasonable costs and expenses associated with reviewing the
proposed offering, including, without limitation, legal and accounting fees.
Franchisee shall give Franchisor written notice at least sixty (60) days prior
to the date of commencement any offering or other transaction covered by this
Section 14.07.
XV. TERMINATION
15.01. Franchisee shall be deemed to be in default under this
Agreement, and all rights granted herein shall automatically terminate without
notice to Franchisee, if Franchisee shall become insolvent or make a general
assignment for the benefit of creditors; if a petition in bankruptcy is filed by
Franchisee or such a petition is filed against Franchisee and not opposed by
Franchisee; or if Franchisee is adjudicated bankrupt or insolvent; or if a
receiver or other custodian (permanent or temporary) of Franchisee's assets or
property, or any part thereof, is appointed by any court of competent
jurisdiction; or if proceedings for a composition with creditors under the
applicable law of any jurisdiction should be instituted by or against
Franchisee; or if a final judgment remains unsatisfied or of record for thirty
(30) days or longer (unless a supersedeas bond is filed); or if Franchisee is
dissolved; or if execution is levied against Franchisee's property or business;
or if suit to foreclose any lien or mortgage against the premises or equipment
of any Franchised Unit developed hereunder is instituted against the Franchisee
and not dismissed within thirty (30) days; or if the real or personal property
of any Restaurant developed hereunder shall be sold after levy thereon by any
sheriff, marshal, or constable.
15.02. Franchisee shall be deemed to be in default and Franchisor may,
at its option, terminate this Agreement and all rights granted hereunder without
affording Franchisee any opportunity to cure the default upon the occurrence of
any of the following events:
A. If Franchisee fails to complete construction of the Franchised
Unit and opens for business within one hundred eighty (180)
days of execution of this Agreement. Franchisor may, in its
sole discretion, extend this period to address unforeseen
construction delays, not within the control of Franchisee.
B. If Franchisee at any time ceases to operate the Franchised Unit
or otherwise abandons the Franchised Unit, or loses the right
to possession of the premises of the Franchised Unit, or
otherwise forfeits the right to do or transact business in the
jurisdiction where the Franchised Unit is located; provided,
however, that if, through no fault of Franchisee, the premises
are damaged or destroyed by an event not within the control of
Franchisee such that repairs or reconstruction cannot be
completed within one hundred eighty (180) days thereafter, then
Franchisee shall have thirty (30) days after such event in
which to apply for Franchisor's approval to relocate and/or
reconstruct the premises, which approval shall not be
unreasonably withheld, but may be conditioned upon the payment
of an agreed minimum royalty to Franchisor during the period in
which the Franchised Unit is not in operation;
31
C. If Franchisee is convicted of or pleads guilty to a felony, a
crime involving moral turpitude, or any other crime or offense
that Franchisor believes is reasonably likely to have an
adverse effect on the System, the Proprietary Marks, the
goodwill associated therewith, or Franchisor's interest
therein;
D. If a threat or danger to public health or safety results from
the construction, maintenance, or operation of the Franchised
Unit;
E. If Franchisee, or any partner or shareholder of Franchisee
purports to transfer any rights or obligations under this
Agreement or any interest in Franchisee to any third party
without Franchisor's prior written consent, contrary to the
terms of Section XIV hereof;
F. If Franchisee fails to comply with the in-term covenants in
Section 13.02. hereof or fails to obtain execution of the
covenants required under Sections 10.08. or 13.04. hereof;
G. If, contrary to the terms of Section VII hereof, Franchisee
discloses or divulges the contents of the Manual or any other
confidential information provided to Franchisee by Franchisor;
H. If an approved transfer is not effected as required by Section
14.05 hereof, following Franchisee's death or mental
incapacity;
I. If Franchisee knowingly maintains false books or records, or
submits any false reports to Franchisor;
J. If Franchisee or any individual, group, association, limited or
general partnership, corporation or other business entity which
directly or indirectly controls, is controlled by, or is under
common control with Franchisee; or which directly or indirectly
owns, controls, or holds power to vote ten percent (10%) or
more of the outstanding voting securities of Franchisee; or
which has in common with Franchisee one or more partners,
officers, directors, trustees, branch managers, or other
persons occupying similar status or performing similar
functions ("Affiliate") commits any act of default under any
other Franchise Agreement, Development Agreement (except for
failure to meet the development schedule thereunder), asset
purchase agreement, promissory note or any other agreement
entered into by Franchisee or an Affiliate of Franchisee, and
Franchisor, or any parent, subsidiary, affiliate, predecessor
or successor to Franchisor;
32
K. If Franchisee, after or during a default pursuant to Section
15.03. hereof, commits the same default again, whether or not
such default is cured after notice; or
L. If Franchisee defaults more than once in any twelve (12) month
period under Section 15.03. hereof for failure to substantially
comply with any of the requirements imposed by this Agreement,
whether or not cured after notice.
M. If Franchisee refuses to permit Franchisor or its agents to
enter upon the premises of the Franchised Unit to conduct any
periodic inspection as set forth in Sections 5.09. and 10.02.H
hereof.
N. If Franchisee uses any of Franchisor's Proprietary Marks in any
unauthorized manner or is otherwise in default of the
provisions of Section V hereof.
15.03. Except as provided in Sections 15.01 and 15.02 of this
Agreement, upon any default by Franchisee which is susceptible of being cured,
Franchisor may terminate this Agreement only by giving written Notice of
Termination stating the nature of such default to Franchisee at least ten (10)
days prior to the effective date of termination if the default is for failure to
pay royalties, NCP Fund Contributions (including Cooperative contributions, if
any are due and/or any other financial obligations owed to Franchisor by
Franchisee), and thirty (30) days, prior to the effective date of termination
for any other default, provided, however, that Franchisee may avoid termination
by curing such default to Franchisor's satisfaction within the ten (10) day or
thirty (30) day period, as applicable. If any such default is not cured within
the specified time, this Agreement shall terminate without further notice to
Franchisee effective immediately upon the expiration of the ten (10) day or
thirty (30) day period, as applicable, or such longer period as applicable law
may require. Notwithstanding anything to the contrary set forth in this
Agreement, Franchisee hereby acknowledges that any agreement between Franchisee
and Franchisor relating to past due amounts accruing hereunder, (an "Arrearage
Agreement"), including, but not limited to any promissory note, payment plan or
amendment to this agreement shall be deemed to be a material part of this
agreement and shall be incorporated herein by reference. A default under any
Arrearage Agreement shall be deemed a material default of this Franchise
Agreement, regardless of the reason Franchisee fails to pay the amount which is
the subject of such Arrearage Agreement.
15.04. Franchisee shall indemnify and hold Franchisor harmless for all
costs, expenses and any losses incurred by Franchisor in enforcing the
provisions hereof, or in upholding the propriety of any action or determination
by Franchisor pursuant to this Agreement, or in defending any claims made by
Franchisee against Franchisor, or arising in any manner from Franchisee's breach
of or failure to perform any covenant or obligation hereunder, including,
without limitation, reasonable litigation expenses and attorney's fees incurred
by Franchisor in connection with any threatened or pending litigation relating
33
to any part of this Agreement, unless Franchisee shall be found, after due legal
proceedings, to have complied with all of the terms, provisions, conditions and
covenants hereof.
XVI. EFFECT OF TERMINATION OR EXPIRATION
16.01. Upon termination or expiration of this Agreement, all rights
granted herein shall forthwith terminate, and:
A. Franchisee shall immediately cease to operate the Franchised
Unit as a Chesapeake Bagel Bakery restaurant, and shall not
thereafter, directly or indirectly, represent to the public
that the restaurant is a Chesapeake Bagel Bakery restaurant;
B. Franchisee shall immediately and permanently cease to use, by
advertising or in any manner whatsoever, any menus, recipes,
confidential food for formulae, equipment, methods, procedures,
and the techniques associated with the System, Franchisor's
Proprietary Marks, and Franchisor's other trade names,
trademarks and service marks associated with the Chesapeake
Bagel Bakery System. In particular, and without limitation,
Franchisee shall cease to use all signs, furniture, fixtures,
equipment, advertising materials, stationery, forms, packaging,
containers and any other articles which display the Proprietary
Marks;
C. Franchisee agrees, in the event Franchisee continues to operate
or subsequently begins to operate restaurants or other
businesses, not to use any reproduction, counterfeit, copy, or
colorable imitation of the Proprietary Marks in conjunction
with such other business which is likely to cause confusion or
mistake or to deceive, and further agrees not to utilize any
trade dress, designation of origin, description, or
representation which falsely suggests or represents an
association or connection with Franchisor;
D. Franchisee agrees, upon termination or expiration of this
Agreement or upon cessation of the Franchised Business at the
location specified in Section I hereof for any reason, whether
or not Franchisee continues to operate any business at such
location, and whether or not Franchisee owns or leases the
location, to make such modifications or alterations to the
Franchised Unit premises immediately upon termination or
expiration of this Agreement or cessation of operation of the
Franchised Business as may be necessary to prevent the
operation of any businesses thereon by Franchisee or others in
derogation of this Section XVI, and shall make such specified
34
additional changes thereto as Franchisor may reasonably request
for that purpose. The modifications and alterations required by
this Section XVI shall include, but are not limited to, removal
of all trade dress, proprietary marks and other indicia of the
Chesapeake Bagel Bakery System;
E. Franchisee shall immediately pay all sums owing to Franchisor
and its subsidiaries and affiliates. In the event of
termination for any default by Franchisee, such sums shall
include all damages, costs and expenses, including reasonable
attorneys' fees, incurred by Franchisor as a result of the
default; and
F. Franchisee shall immediately turn over to Franchisor the
Manual, all other manuals, records, files, instructions,
correspondence and any and all other materials relating to the
operation of the Franchised Business in Franchisee's possession
and all copies thereof (all of which are acknowledged to be
Franchisor's property) and shall retain no copy or record of
any of the foregoing, with the exception of Franchisee's copy
of this Agreement, any correspondence between the parties, and
any other documents which Franchisee reasonably needs for
compliance with any provision of law.
16.02. Franchisor shall have the right (but not the duty) to be
exercised by notice of intent to do so within thirty (30) days after termination
or expiration of this Agreement, to purchase any and all improvements,
equipment, advertising and promotional materials, ingredients, products,
materials, supplies, paper goods and any items bearing Franchisor's Proprietary
Marks at current fair market value. If the parties cannot agree on a fair market
value within a reasonable time, an independent appraiser shall be designated by
Franchisor, and his determination of fair market value shall be binding. If
Franchisor elects to exercise any option to purchase herein provided, it shall
have the right to set-off all amounts due from Franchisee under this Agreement
and the cost of the appraisal, if any, against any payment therefor.
16.03. In the event the premises are leased to Franchisee, Franchisee
shall, upon termination of this Agreement and upon request by Franchisor,
immediately assign, set over and transfer unto Franchisor, at Franchisor's sole
option and discretion, said lease and the premises, including improvements. Any
such lease entered into by Franchisee shall contain a clause specifying the
landlord's consent to assign such lease to Franchisor or its assignee in the
event this Agreement is terminated.
16.04. Franchisee shall pay to Franchisor all damages, costs, and
expenses, including reasonable attorneys' fees, incurred by Franchisor in
seeking recovery of damages caused by any action of Franchisee in violation of,
or in obtaining injunctive relief for the enforcement of, any portion of this
Section XVI. Further, Franchisee acknowledges and agrees that any failure to
comply with the provisions of this Section XVI, shall result in irreparable
injury to Franchisor.
35
16.05. All provisions of this Agreement which, by their terms or
intent, are designed to survive the expiration or termination of this Agreement,
shall so survive the expiration and/or termination of this Agreement.
16.06. Franchisee shall comply with the covenants contained in Section
XIII of this Agreement.
16.07. Franchisee shall execute such documents as Franchisor may
reasonably require to effectuate termination of the franchise and Franchisee's
rights to use the trademarks and systems of Franchisor.
XVII. TAXES, PERMITS, AND INDEBTEDNESS
17.01. Franchisee shall promptly pay when due all taxes, accounts and
other indebtedness of every kind incurred by Franchisee in the conduct of the
Franchised Business under this Agreement.
17.02. Franchisee, in the conduct of the Franchised Business, shall
comply with all applicable laws and regulations, and shall timely obtain any and
all permits, certificates, or licenses necessary for the full and proper conduct
of the businesses operated under this Agreement, including, without limitation,
licenses to do business, trade name registrations, sales tax permits and fire
clearances.
XVIII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
18.01. This Agreement does not constitute Franchisee an agent, legal
representative, joint venturer, partner, employee or servant of Franchisor for
any purpose whatsoever. It is understood and agreed that Franchisee shall be an
independent contractor and is in no way authorized to make any contract,
agreement, warranty, or representation on behalf of Franchisor. The parties
further agree that this Agreement does not create any fiduciary relationship
between them.
18.02. During the term of this Agreement and any extensions hereof,
Franchisee agrees to take such action as Franchisor deems reasonably necessary
36
for Franchisee to inform and hold itself out to the public as an independent
contractor operating the Franchised Business pursuant to a franchise from
Franchisor, including, without limitation, exhibiting a notice of that fact at
the Franchised Business in form and substance satisfactory to Franchisor.
18.03 Franchisee agrees to defend, indemnify and hold harmless
Franchisor, its parent, subsidiaries and affiliates, and their respective
officers, directors, employees, agents, successors and assigns from all claims,
demands, losses, damages, liabilities, cost and expenses (including attorney's
fees and expense of litigation) resulting from, or alleged to have resulted
from, or in connection with Franchisee's operation of the Franchised Business,
including, but not limited to, any claim or actions based on or arising out of
any injuries, including death to persons or damages to or destruction of
property, sustained or alleged to have been sustained in connection with or to
have arisen out of or incidental to the Franchised Business and/or the
performance of this contract by Franchisee, its agents, employees, and/or its
subcontractors, their agents and employees, or anyone for whose acts they may be
liable, regardless of whether or not such claim, demand, damage, loss,
liability, cost or expense is caused in whole or in part by the negligence of
Franchisor, Franchisor's representative, or the employees, agents, invitees, or
licensees thereof.
18.04 Franchisor shall advise Franchisee in the event Franchisor
receives notice that a claim has been or may be filed with respect to a matter
covered by this Agreement, and Franchisee shall immediately assume the defense
thereof at Franchisee's sole cost and expense. In any event, Franchisor will
have the right, through counsel of its choice, to control any matter to the
extent it could directly or indirectly affect Franchisor and/or its parent,
subsidiaries or affiliates or their officers, directors, employees, agents,
successors or assigns. If Franchisee fails to assume such defense, Franchisor
may defend, settle, and litigate such action in the manner it deems appropriate
and Franchisee shall, immediately upon demand, pay to Franchisor all costs
(including attorney's fees and cost of litigation) incurred by Franchisor in
affecting such defense, in addition to any sum which Franchisor may pay by
reason of any settlement or judgment against Franchisor.
18.05 Franchisor's right to indemnity hereunder shall exist
notwithstanding that joint or several liability may be imposed upon Franchisor
by statute, ordinance, regulation or judicial decision.
18.06 Franchisee agrees to pay Franchisor all expenses including
attorney's fees and court costs, incurred by Franchisor, its parent,
subsidiaries, affiliates, and their successors and assigns to remedy any
defaults of or enforce any rights under this Agreement, effect termination of
this Agreement or collect any amounts due under this Agreement.
XIX. APPROVALS AND WAIVERS
19.01. Whenever this Agreement requires the prior approval of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent shall be in writing.
37
19.02. Franchisor makes no warranties or guarantees upon which
Franchisee may rely, and assumes no liability or obligation to Franchisee or any
third party to which Franchisor would not otherwise be subject, by providing any
waiver, approval, advice, consent, or suggestions to Franchisee in connection
with this Agreement, or by reason of any neglect, delay, or denial of any
request therefor.
19.03. No failure of Franchisor to exercise any power reserved to it
in this Agreement, or to insist upon compliance by Franchisee with any
obligation or condition in this Agreement, and no custom or practice of the
parties at variance with the terms hereof, shall constitute a waiver of
Franchisor's right to demand exact compliance with the terms of this Agreement.
Waiver by Franchisor of any particular default shall not affect or impair
Franchisor's right in respect to any subsequent default of the same or of a
different nature, nor shall any delay, forbearance, or omission of Franchisor to
exercise any power or rights arising out of any breach or default by Franchisee
of any of the terms, provisions, or covenants of this Agreement, affect or
impair Franchisor's rights, nor shall such constitute a waiver by Franchisor of
any rights, hereunder or right to declare any subsequent breach or default.
Subsequent acceptance by Franchisor of any payments due to it shall not be
deemed to be a waiver by Franchisor of any preceding breach by Franchisee of any
terms, covenants, or conditions of this Agreement.
XX. NOTICES
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered, sent by registered mail, or by
other means which will provide evidence of the date received to the respective
parties at the following addresses unless and until a different address has been
designated by written notice to the other party:
Notices to Franchisor: Franchise Department
AFC ENTERPRISES, INC.
Six Concourse Pkwy., Suite 1700
Atlanta, Georgia 30328-5352
cc: Legal Department
Notices to Franchisee: ____________________________
____________________________
____________________________
[ATTN:] ____________________
All written notices and reports permitted or required to be delivered
by the provisions of this Agreement shall be addressed to the party to be
38
notified at its most current principal business address of which the notifying
party has been notified and shall be deemed so delivered (i) at the time
delivered by hand; (ii) one (1) business day after sending by telegraph,
facsimile or comparable electronic system; or (iii) if sent by registered or
certified mail or by other means which affords the sender evidence of delivery,
on the date and time of receipt or attempted delivery if delivery has been
refused or rendered impossible by the party being notified.
XXI. SEVERABILITY AND CONSTRUCTION
21.01. Except as expressly provided to the contrary herein, each
section, paragraph, part, term, and/or provision of this Agreement shall be
considered severable; and if, for any reason, any section, part, term, and/or
provision herein is determined to be invalid and contrary to, or in conflict
with, any existing or future law or regulation by a court or agency having valid
jurisdiction, such shall not impair the operation, or have any other effect
upon, such other portions, sections, parts, terms, and/or provisions of this
Agreement as may remain otherwise intelligible, and the latter shall continue to
be given full force and effect to bind the parties hereto; and said invalid
portions, sections, parts, terms, and/or provisions shall be deemed not to be
part of this Agreement.
21.02. Except as has been expressly provided to the contrary herein,
nothing in this Agreement is intended, nor shall be deemed, to confer upon any
person or legal entity other than Franchisee, Franchisor, Franchisor's officer,
directors, and employees, and Franchisee's permitted and Franchisor's respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
21.03. All captions in the Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
21.04. All references herein to the masculine, neuter or singular
shall be construed to include the masculine, feminine, neuter or plural, where
applicable, and all acknowledgments, promises, covenants, agreements and
obligations herein made or undertaken by Franchisee shall be deemed jointly and
severally undertaken by all the parties hereto on behalf of Franchisee.
21.05. This Agreement may be executed in counterparts, and each copy so
executed shall be deemed an original.
XXII. ENTIRE AGREEMENT: SURVIVAL
22.01. This Agreement, the documents referred to herein, the
Development Agreement, if any, and the exhibits hereto, constitute the entire,
full and complete agreement between Franchisor and Franchisee concerning the
subject matter hereof and supersede any and all prior agreements. Except for
those permitted to be made unilaterally by Franchisor hereunder, no amendment,
change, modification or variance of this Agreement shall be binding on either
party unless in writing and executed by Franchisor and Franchisee.
Representations by either party, whether oral, in writing, electronic or
otherwise, that are not set forth in this Agreement shall not be binding upon
the party alleged to have made such representations and shall be of no force or
effect.
39
I have read this Section 22.01 and agree that I have not been induced
by and am not relying upon any representation not contained in this Agreement.
_________________________________, Franchisee
22.02. Notwithstanding anything herein to the contrary, upon the
termination of this Agreement for any reason whatsoever (including the execution
of a subsequent Franchise Agreement pursuant to the provisions of Sections
2.02.B and 14.03.F), or upon the expiration of the Term hereof, any provisions
of this Agreement which, by their nature, extend beyond the expiration or
termination of this Agreement, shall survive termination or expiration and be
fully binding and enforceable as though such termination or expiration had not
occurred.
XXIII. ACKNOWLEDGMENTS
23.01. Franchisee acknowledges that Franchisee has conducted an
independent investigation of the Chesapeake Bagel Bakery franchise and
recognized that the business venture contemplated by this Agreement involves
business risks and Franchisee's success will be largely dependent upon the
ability of the Franchisee as an independent business entity.
FRANCHISOR EXPRESSLY DISCLAIMS THE MAKING OF, AND FRANCHISEE ______ACKNOWLEDGES
THAT FRANCHISEE HAS NOT RECEIVED, ANY WARRANTY OR GUARANTY, EXPRESSED OR
IMPLIED, AS TO THE POTENTIAL VOLUME, PROFITS OR SUCCESS OF THE BUSINESS VENTURE
CONTEMPLATED BY THIS AGREEMENT.
Franchisee must initial __________
23.02. FRANCHISEE ACKNOWLEDGES THAT FRANCHISEE HAS RECEIVED A COMPLETED
COPY OF THIS AGREEMENT, THE EXHIBITS HERETO, IF ANY, AND THE AGREEMENTS RELATING
THERETO, IF ANY, AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO THE DATE ON WHICH THIS
AGREEMENT WAS EXECUTED. FRANCHISEE
40
FURTHER ACKNOWLEDGES THAT FRANCHISEE HAS RECEIVED THE DISCLOSURE DOCUMENT
REQUIRED BY THE TRADE REGULATION RULE OF THE FEDERAL TRADE COMMISSION ENTITLED
"DISCLOSURE REQUIREMENTS AND PROHIBITIONS CONCERNING FRANCHISING AND BUSINESS
OPPORTUNITY VENTURES" AT LEAST TEN (10) BUSINESS DAYS PRIOR TO THE DATE ON WHICH
THIS AGREEMENT WAS EXECUTED.
Franchisee must initial _________
23.03. FRANCHISEE ACKNOWLEDGES THAT FRANCHISEE HAS READ AND
UNDERSTOOD THIS AGREEMENT, THE EXHIBITS HERETO, IF ANY, AND AGREEMENTS RELATING
THERETO, IF ANY, AND THAT FRANCHISOR HAS ACCORDED FRANCHISEE AMPLE TIME AND
OPPORTUNITY AND HAS ENCOURAGED FRANCHISEE TO CONSULT WITH ADVISORS OF
FRANCHISEE'S OWN CHOOSING ABOUT THE POTENTIAL BENEFITS AND RISKS OF ENTERING
INTO THIS AGREEMENT.
Franchisee must initial _________
23.04. FRANCHISEE RECOGNIZES AND UNDERSTANDS THAT IT MAY INCUR
OTHER EXPENSES AND/OR OBLIGATIONS AS PART OF THE INITIAL INVESTMENT IN THE
FRANCHISED BUSINESS WHICH THE TERMS OF THIS AGREEMENT MAY NOT _____ ADDRESS, AND
WHICH INCLUDE WITHOUT LIMITATION: OPENING ADVERTISING, EQUIPMENT, FIXTURES,
OTHER FIXED ASSETS, CONSTRUCTION, LEASEHOLD IMPROVEMENTS AND DECORATING COSTS AS
WELL AS WORKING CAPITAL NECESSARY TO COMMENCE OPERATIONS.
Franchisee must initial _________
XXIV. APPLICABLE LAW: VENUE
24.01. Applicable Law. This Agreement takes effect upon its
acceptance and execution by Franchisor and shall be interpreted and construed
under the laws of the State of Georgia which laws shall prevail in the event of
any conflict of law (without regard to, and without giving effect to, the
application of Georgia choice of law or conflict of law rules) except to the
extent governed by the U. S. Trademark Act of 1946, 15 U.S.C. (S) 1051, et seq.
(the " Lanham Act") as amended; provided, however, that if the covenants in
Article XIII of this Agreement would not be enforceable under the laws of
Georgia, and the Franchised Unit is located outside of Georgia, then such
covenants shall be interpreted and construed under the laws of the state in
which the Franchised Unit is located. Nothing in this Section XXV is intended by
the parties to subject this Agreement to any franchise or similar law, rule, or
regulation of the State of Georgia to which this Agreement would not otherwise
be subject.
24.02. The parties agree that any action brought by Franchisee against
Franchisor in any court, whether federal or state, shall be brought within such
state and in the judicial district in which Franchisor has its principal place
of business. Any action brought by Franchisor against Franchisee in any court,
whether federal or state, may be brought within the state and in the judicial
41
district in which Franchisor has its principal place of business. Franchisee
hereby consents to personal jurisdiction and venue in the state and judicial
district in which Franchisor has its principal place of business.
24.03. No right or remedy herein conferred upon or reserved to
Franchisor is exclusive of any other right or remedy herein, or by law or equity
provided or permitted; but each shall be cumulative of any other right or remedy
provided in this Agreement
24.04. Nothing herein contained shall bar Franchisor's right to obtain
injunctive relief against threatened conduct that will cause it loss or damages,
under the usual equity rules, including the applicable rules for obtaining
restraining orders and preliminary injunctions.
24.05. Any and all claims and actions arising out of or relating to
this Agreement (including, but not limited to, the offer and sale of this
franchise), the relationship of Franchisee and Franchisor, or Franchisee's
operation of the Franchised Unit, brought by Franchisee shall be commenced
within eighteen (18) months from the occurrence of the facts giving rise to such
claim or action, or such claim or action shall be barred.
24.06. Franchisor and Franchisee hereby waive to the fullest extent
permitted by law any right to or claim of any consequential, punitive, or
exemplary damages against the other, and agree that in the event of a dispute
between them each shall be limited to the recovery of any actual damages
sustained by it.
XXV. CORPORATE FRANCHISEE
In the event the Franchisee named herein is a corporation at the time of
execution of this Agreement, it is warranted, covenanted and represented to
Franchisor that:
25.01. All of the issued and outstanding stock of Franchisee is owned,
legally and beneficially, by the person or persons listed on Exhibit "B"
attached hereto.
25.02. The above-named person or persons has (have) individually, and
jointly and severally, executed this Agreement, and such person, or one of such
persons, is and shall be the chief executive officer of the Franchisee
corporation, holding such corporate office or offices as may be necessary to
maintain and exercise the actual power and authority actively to direct the
affairs of the Franchisee.
25.03. Franchisee is validly incorporated and duly existing under the
laws of the State of , is duly qualified to conduct business therein, and has
its principal place of business at . Franchisee shall promptly notify
Franchisor in writing of any change thereto during the term of this Agreement.
42
{SIGNATURE PAGE TO FRANCHISE AGREEMENT FOLLOWS}
43
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, sealed, and delivered this Agreement in triplicate
on the day and year first above-written.
WITNESS: FRANCHISOR:
AFC ENTERPRISES, INC.
__________________________ By: __________________________________
__________________________
WITNESS: FRANCHISEE:
__________________________ By: __________________________________
__________________________
{SIGNATURE PAGE TO FRANCHISE AGREEMENT}
44
EXHIBIT "A"
CHESAPEAKE BAGEL BAKERY
FRANCHISE AGREEMENT
NOTICE OF COMMENCEMENT DATE
Name of Franchisee: _______________________________________________________
Franchise Agreement Dated: ________________________________________________
Franchise Premises Address: _______________________________________________
___________________________________________________________________________
___________________________________________________________________________
Store Number: _____________________________________________________________
NOTICE is hereby given to the abovementioned Franchisee pursuant to Section 2.01
of the Franchise Agreement that the Term of the abovementioned Franchise
Agreement commenced on ________________, 19___, and that the Term shall expire
on ________________, _____, unless the Franchise Agreement is terminated
earlier, pursuant to its terms and conditions.
AFC ENTERPRISES, INC.
By: ___________________________________
Title: ________________________________
Date of Notice: _______________________
45
EXHIBIT "B"
SHAREHOLDERS OF FRANCHISEE
(For Corporate Franchisees)
Name of Number of % Ownership
Shareholders Shares of Franchisee Title
------------ ------ ------------- -----
46
EXHIBIT "C"
-----------
PROTECTED AREA
--------------
47