Church's Chicken Franchise Agreement - AFC Enterprises Inc.
S A M P L E
CHURCHS CHICKEN
FRANCHISE AGREEMENT
BETWEEN
AFC ENTERPRISES, INC.
AND
___________________________________
Unit No.: ___________
Dev. Agr. No.: ______
Dated: ______________
<PAGE>
AFC ENTERPRISES, INC.
CHURCHS CHICKEN
FRANCHISE AGREEMENT
TABLE OF CONTENTS
I. APPOINTMENT........................................................ 2
II. TERM............................................................... 3
III. FEES............................................................... 4
IV. ACCOUNTING AND RECORDS............................................. 6
V. PROPRIETARY MARKS.................................................. 7
VI. OBLIGATIONS OF CORPORATE OR PARTNERSHIP FRANCHISEE................. 10
VII. CONFIDENTIAL OPERATING STANDARDS MANUAL............................ 10
VIII. TRAINING........................................................... 11
IX. DUTIES OF THE FRANCHISOR........................................... 12
X. DUTIES OF THE FRANCHISEE........................................... 12
XI. INSURANCE.......................................................... 17
XII. CONFIDENTIAL INFORMATION........................................... 20
XIII. COVENANTS.......................................................... 20
XIV. TRANSFERABILITY OF INTEREST........................................ 22
XV. TERMINATION........................................................ 25
XVI. EFFECT OF TERMINATION OR EXPIRATION................................ 28
XVII. TAXES, PERMITS, AND INDEBTEDNESS................................... 30
XVIII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION......................... 30
XIX. APPROVALS AND WAIVERS.............................................. 31
XX. NOTICES............................................................ 31
XXI. SEVERABILITY AND CONSTRUCTION...................................... 32
XXII. ENTIRE AGREEMENT: SURVIVAL........................................ 33
XXIII. ACKNOWLEDGMENTS.................................................... 33
XXIV. APPLICABLE LAW: VENUE............................................. 34
XXV. CORPORATE FRANCHISEE............................................... 35
i
<PAGE>
AFC ENTERPRISES, INC.
CHURCHS CHICKEN
FRANCHISE AGREEMENT
THIS AGREEMENT (the "Agreement") is made this ____ day of __________, 20__,
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
"Churchs") and ________________________________________________________________
[jointly and severally where more than one], ("Franchisee").
WITNESSETH:
WHEREAS, Franchisor has developed and owns a unique system for opening and
operating restaurants specializing in fried chicken and other menu items
developed and owned by Franchisor (the "Churchs System" or "System");
WHEREAS, the distinguishing characteristics of Franchisor's Churchs System
include, without limitation, the names "Churchs" and "Churchs Chicken";
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, a unique seasoning and
batter formula for preparing Churchs chicken; 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 Churchs System by means of certain trade
names, service marks, trademarks, logos, emblems, and other indicia of origin,
including, but not limited to, the mark "Churchs" and "Churchs Chicken" 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 Churchs
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 Churchs 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 Churchs franchisee and licensed to use, in connection therewith,
the Churchs System;
WHEREAS, Franchisee understands the importance of the Churchs System and
Churchs high and uniform standards of quality, cleanliness, appearance, and
service, and the necessity of opening and operating Churchs Restaurants in
conformity with the Churchs System;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
I. APPOINTMENT
1.01. Franchisor grants to Franchisee a franchise to open and operate a
Churchs Chicken 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 Churchs 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 Churchs System, for the term of
this Agreement, within the area described in Exhibit "C" of this
Agreement (the "Protected Area"), without Franchisees 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 if the
Franchised Unit is operated in any of the following types of
locations and/or with respect to such locations within the
Protected Area, at which Franchisor retains the right, in its
sole discretion, to franchise and/or operate Churchs Chicken
restaurants, and to distribute by any means Churchs Chicken
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
2
<PAGE>
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
Churchs Chicken restaurants, anywhere in the world, as they shall, in their sole
discretion, elect.
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;
3
<PAGE>
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 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
Churchs 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 Fifteen Thousand Dollars ($15,000) 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 five percent (5%) 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.
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 Churchs Advertising Fund ("Advertising Fund") a
recurring, non-refundable advertising fund contribution ("Advertising Fund
Contribution") in an amount to be determined by Franchisor, in its sole
discretion, not to exceed four percent (4%) of the Gross Sales for the preceding
week (or an Advertising Fund Contribution not to exceed one percent (1%) of such
Gross Sales if the Franchised Unit participates in an advertising cooperative
pursuant to Section 10.05.) 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 Advertising Fund Contribution shall be expended by
4
<PAGE>
the Advertising Fund for national, regional, and/or local advertising and
promotional materials and market research for the Churchs System, under the
following conditions and limitations:
A. The Advertising 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 Churchs System. Franchisee shall
pay the Advertising Fund Contribution by separate check made
payable to the Advertising Fund. All sums paid by the Franchisee
to the Advertising 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 Advertising Fund and
advertising and marketing programs for franchisees and the
Churchs System. The Advertising Fund and its earnings shall not
otherwise inure to the benefit of Franchisor. Franchisor shall
maintain a separate bookkeeping account for the Advertising 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 Advertising Fund.
D. Franchisor, upon request, shall provide Franchisee with an annual
accounting of receipts and disbursements of the Advertising Fund.
E. It is anticipated that all contributions to and earnings of the
Advertising Fund will be expended for market research,
advertising, marketing and/or promotional purposes during the
taxable year in which contributions and earnings are received.
If, however, excess amounts remain in the Advertising 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 Advertising Fund is not, and shall not be, an asset of
Franchisor. Although the Advertising Fund is intended to be of
perpetual duration, Franchisor maintains the right to terminate
the Advertising Fund; provided, however, that the Advertising
Fund shall not be terminated until all monies in the Advertising
Fund have been expended for the purposes stated herein.
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
5
<PAGE>
cause for Franchisee's nonpayment or reduction of the required
contributions to the Advertising 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 %) 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.
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.
6
<PAGE>
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.
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 related to the Franchised Unit. 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 Advertising 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
7
<PAGE>
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
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 Churchs for restaurant services, fried chicken, 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
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
8
<PAGE>
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 Churchs 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
Churchs restaurants. Accordingly, Franchisee covenants:
A. To operate and advertise the Franchised Unit, at Franchisee's
own expense, under the name "Churchs Chicken," without prefix
or suffix;
B. To adopt and use the Proprietary Marks licensed hereunder
solely in the manner prescribed by Franchisor;
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.
9
<PAGE>
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 Churchs Chicken 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."
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 Churchs 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.
10
<PAGE>
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
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 Churchs New Franchisee Orientation
Program ("NFOP") prior to opening the first franchised Churchs Chicken unit
operated by Franchisee. NFOP shall consist of two (2) days of workshops and
seminars including CD-ROM instruction 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 up to four (4) designated management
employees of Franchisee, must attend and complete, to Franchisor's satisfaction,
the Churchs Management In Training program ("MIT"), prior to opening the
Franchised Unit. The exact number of Franchisee's management employees required
to attend and complete MIT shall be determined by Franchisor in its sole
discretion, but in no event shall the number be less than two (2). MIT 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 MIT, shall be certified by Franchisor as an "MIT
Certified Manager".
8.03. Franchisee shall maintain the number of MIT 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 two (2). In the
event that Franchisee or any MIT Certified Manager ceases active employment at
the Franchised Unit, Franchisee must enroll a qualified replacement in the MIT
program within thirty (30) days of cessation of such individual's employment.
The replacement employee shall attend and complete the next regularly scheduled
MIT program to Franchisor's satisfaction.
8.04. The cost of conducting the NFOP and MIT programs (instruction and
required materials) shall be borne by Franchisor. All other expenses during NFOP
and MIT, including meals and lodging, wages and travel, shall be borne by
Franchisee.
11
<PAGE>
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
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 Churchs System.
9.05. Franchisor will continue its efforts to maintain high and uniform
standards of quality, cleanliness, appearance and service at all Churchs
restaurants, to protect and enhance the reputation of the Churchs 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 Churchs 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
Churchs products and services, and to protect the reputation and goodwill of
Franchisor. Accordingly, Franchisee agrees that:
12
<PAGE>
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 Churchs 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 Churchs 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:
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
13
<PAGE>
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;
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
14
<PAGE>
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 Churchs 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
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 an 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 Churchs
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 when added to the amount required by Franchisor to be
contributed to the Advertising Fund, shall not be less than
four percent (4%) of its weekly Gross Sales.
15
<PAGE>
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 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 Churchs System
or methods of operation of the Franchised Unit which may be
16
<PAGE>
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 one (1) Franchised Unit,
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 ninth (9th) Franchised Unit and upon the
opening of each successive eighth (8th) Franchised Unit thereafter. Each
Supervisor shall attend and successfully complete the MIT 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, 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, 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.
XI. INSURANCE
11.01. Insurance Program. Franchisee shall procure, prior to commencement
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,
17
<PAGE>
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:
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.
18
<PAGE>
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. 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. 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. Insurance Obtained by Franchisee Shall Be Primary to Franchisors
Own Insurance. Franchisee agrees that all insurance policies obtained by
Franchisee pursuant to Sections 11.01 and 11.02 shall be primary coverage, the
applicable limits of which shall be exhausted before any benefits (defense or
indemnity) may be obtained under any other insurance (including self-insurance)
providing coverage to Franchisor. In the event payments are required to be made
under Franchisor's own insurance policies or self-insurance (whether for defense
or indemnity) before the applicable coverage limits for the insurance policies
obtained by Franchisee are exhausted, then Franchisee hereby agrees to
reimburse, hold harmless and indemnify the Franchisor and its insurers for such
payments. Franchisee shall notify its insurers of this Agreement and shall use
best efforts to obtain an endorsement on each policy it obtains pursuant to
Sections 11.01 and 11.02 stating as follows:
The applicable limits of this policy shall be applied and exhausted
before any benefits may be obtained (whether for defense or
indemnity) under any other insurance (including self-insurance)
that may provide coverage to Franchisor. All insurance coverage
obtained by Franchisor shall be considered excess insurance with
respect to this policy, the benefits of which excess insurance
shall not be available until the applicable limits of this policy
are exhausted.
11.05. No Limitation on Coverage. Franchisee's obligation to obtain and
maintain the foregoing policy or policies of insurance in the amounts 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.
11.06. 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
19
<PAGE>
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, 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
20
<PAGE>
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 Churchs 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 chicken ("Chicken Restaurant"); provided, however, that the
term "Chicken Restaurant" shall not apply to any business
operated by Franchisee under a franchise agreement with
Franchisor or an affiliate of Franchisor.
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 Chicken 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 Churchs Chicken
restaurant under the System, whether owned by Franchisor or
any other Churchs 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 Churchs 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;
21
<PAGE>
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.
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,
22
<PAGE>
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.
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
----------------------
withhold 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.
23
<PAGE>
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 Churchs 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 Churchs 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 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
---- ----
24
<PAGE>
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
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 Franchisee or against Franchisee and not
opposed by 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
25
<PAGE>
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;
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;
26
<PAGE>
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;
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, Advertising 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,
27
<PAGE>
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
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 Churchs restaurant, and shall not thereafter,
directly or indirectly, represent to the public that the
restaurant is a Churchs 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
Churchs 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
28
<PAGE>
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 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 Churchs 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.
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.
29
<PAGE>
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
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,
30
<PAGE>
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.
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:
31
<PAGE>
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 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 acknowledgements, 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.
32
<PAGE>
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.
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 Churchs 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 Franchisee
GUARANTY, EXPRESSED OR IMPLIED, AS TO THE POTENTIAL VOLUME, PROFITS OR must
initial SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT.
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
33
<PAGE>
_____ FURTHER ACKNOWLEDGES THAT FRANCHISEE HAS RECEIVED THE DISCLOSURE
Franchisee DOCUMENT REQUIRED BY THE TRADE REGULATION RULE OF THE FEDERAL TRADE
must initial 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.
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 FRANCHISEE TO CONSULT WITH ADVISORS OF FRANCHISEE'S OWN CHOOSING
must initial ABOUT THE POTENTIAL BENEFITS AND RISKS OF ENTERING INTO THIS
AGREEMENT.
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,
Franchisee EQUIPMENT, FIXTURES, OTHER FIXED ASSETS, CONSTRUCTION, LEASEHOLD
must initial IMPROVEMENTS AND DECORATING COSTS AS WELL AS WORKING CAPITAL
NECESSARY TO COMMENCE OPERATIONS.
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. 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
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
34
<PAGE>
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.
{SIGNATURE PAGE TO FRANCHISE AGREEMENT FOLLOWS}
35
<PAGE>
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}
36
<PAGE>
EXHIBIT "A"
-----------
CHURCHS CHICKEN
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 ________________, 20___, 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: ______________________
37
<PAGE>
EXHIBIT "B"
-----------
SHAREHOLDERS OF FRANCHISEE
--------------------------
(For Corporate Franchisees)
Name of Number of % Ownership
Shareholders Shares of Franchisee Title
------------ ------ ------------- -----
38
<PAGE>
EXHIBIT "C"
-----------
PROTECTED AREA
--------------
39