Franchise Agreement for Chili's Grill & Bar Restaurant - Brinker International Inc. and NE Restaurant Co. Inc.
FORM OF
CHILI'S GRILL & BAR(R) RESTAURANT
FRANCHISE AGREEMENT
CHILI'S GRILL & BAR(R) RESTAURANT
FRANCHISE AGREEMENT
TABLE OF CONTENTS
PAGE
I. GRANT...........................................................2
II. TERM AND RENEWAL................................................2
III. DUTIES OF FRANCHISOR............................................3
IV. FEES............................................................4
V. DUTIES, REPRESENTATIONS, WARRANTIES AND COVENANTS OF
FRANCHISEE......................................................5
VI. PROPRIETARY MARKS..............................................12
VII. CONFIDENTIAL MANUAL OF OPERATING DATA..........................14
VIII. CONFIDENTIAL INFORMATION.......................................15
IX. ACCOUNTING AND RECORDS.........................................16
X. ADVERTISING....................................................17
XI. INSURANCE......................................................20
XII. TRANSFER OF INTEREST...........................................22
XIII. DEFAULT AND TERMINATION........................................28
XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION.....................32
XV. COVENANTS......................................................34
XVI. TAXES, PERMITS AND INDEBTEDNESS................................37
XVII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION.....................37
XVIII. APPROVALS AND WAIVERS..........................................38
XIX. NOTICES........................................................38
XX. ENTIRE AGREEMENT...............................................39
XXI. SEVERABILITY AND CONSTRUCTION..................................39
XXII. APPLICABLE LAW.................................................41
XXIII. ACKNOWLEDGMENTS................................................41
GUARANTY
ATTACHMENT A-APPROVED LOCATION
ATTACHMENT B-STATEMENT OF OWNERSHIP INTERESTS
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CHILI'S GRILL & BAR(R) RESTAURANT
FRANCHISE AGREEMENT
THIS AGREEMENT is made and entered into as of the 22nd day of
September, 1997 between BRINKER INTERNATIONAL, INC., a Delaware corporation
(hereinafter "Franchisor") and NE RESTAURANT COMPANY, INC., a Delaware
corporation (hereinafter "Franchisee").
W I T N E S S E T H:
WHEREAS, Franchisor, as the result of the expenditure of time, skill,
effort and money, has developed and owns and shall continue to develop in its
reasonable business judgment, a unique and distinctive system (hereinafter
"System") relating to the establishment and operation of full service,
adult-oriented restaurants featuring a specialized menu and full-bar service;
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior design, decor, color
scheme, and furnishings; special recipes and menu items; uniform standards,
specifications, and procedures for operations; quality and uniformity of
products and services offered; procedures for inventory and management control;
training and assistance; and advertising and promotional programs; all of which
may be changed, improved, and further developed by Franchisor from time to time;
WHEREAS, Franchisor identifies the System by means of certain trade
names, service marks, trademarks, logos, emblems and indicia of origin,
including, but not limited to, the mark "CHILI'S," and such other trade names,
service marks, and trademarks as are now designated (and may hereafter be
designated by Franchisor in writing) for use in connection with the System
(hereinafter referred to as "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 and under the System, and to represent
the System's high standards of quality, appearance and service;
WHEREAS, Franchisor and Franchisee have entered into a Development
Agreement dated October 1, 1991 (the "Development Agreement"), relating to the
development by Franchisee of Chili's Grill & Bar restaurants;
WHEREAS, Franchisee understands and acknowledges the importance of
Franchisor's high standards of quality, cleanliness, appearance and service and
the necessity of operating the business franchised hereunder in conformity with
Franchisor's standards and specifications; and
WHEREAS, Franchisee desires to use the System in connection with the
operation of a Chili's Grill & Bar restaurant at the location specified in
Attachment A hereto, as well as to receive the training and other assistance
provided by Franchisor in connection therewith;
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree as
follows:
I. GRANT
A. Franchisor hereby grants to Franchisee, upon the terms and
conditions herein contained, the right and franchise, and Franchisee undertakes
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the obligation, to operate a Chili's Grill & Bar restaurant (hereinafter
referred to as "Restaurant" or "franchised business") and to use solely in
connection therewith the Proprietary Marks and the System, as it may be changed,
improved and further developed from time to time, only at the approved location
as provided in Section I.B.
B. The street address of the location approved pursuant to Section IV.
of the Development Agreement shall be set forth in Attachment A hereto.
Franchisee shall not relocate the franchised business without the express prior
written consent of Franchisor.
C. Except as provided below, this franchise is non-exclusive and is
granted subject to the terms of Section VI.C.(6) hereof. Subject to compliance
with the terms and conditions of this Agreement, Franchisor shall not establish,
nor authorize anyone other than Franchisee to establish a Chili's Grill & Bar
Restaurant within a two (2) mile radius of the Restaurant. In the event "gross
sales" (hereinafter defined) from the Restaurant are less than the average gross
sales of the restaurants comprising the System, this radius restriction shall be
increased to three (3) miles. The grant of this franchise does not imply the
grant of rights to any other location or territory.
II. TERM AND RENEWAL
A. Except as otherwise provided herein, the terms of this Agreement
shall expire twenty (20) years from the date on which the Restaurant is opened
for business; provided, however, this Agreement shall expire at the earlier of
twenty (20) years from the date of opening for business or upon expiration or
termination of the initial term or renewal term or terms of the lease.
B. Franchisee may, at its option, renew this Agreement for one (1)
additional consecutive term of twenty (20) years, subject to the following
conditions which must be met prior to renewal:
(1) Franchisee shall give Franchisor written notice of
Franchisee's election to renew not less than twelve (12) months nor more than
twenty-four (24) months prior to the end of the initial term;
(2) Franchisee shall make or provide for, in a manner
satisfactory to Franchisor, such renovation and modernization of the Restaurant
premises as Franchisor may reasonably require, including, without limitation,
renovation of signs, furnishings, fixtures and decor, to reflect the
then-current standards and image of the System;
(3) Franchisee shall not be in material default of any provision
of this Agreement, any amendment hereof or successor hereto, any other agreement
between Franchisee and Franchisor or its subsidiaries and affiliates, or any
agreement between a legal entity affiliated with Franchisee (or having the same
or substantially similar management and ownership composition as Franchisee) and
Franchisor; and Franchisee shall have substantially complied with all the terms
and conditions of such agreements during the terms thereof;
(4) Franchisee shall have satisfied all monetary obligations owed
by Franchisee to Franchisor and its subsidiaries and affiliates and shall have
timely met those obligations throughout the term of this Agreement;
(5) Franchisee shall present satisfactory evidence that
Franchisee has the right to remain in possession of the approved location for
the duration of the renewal term of this Agreement;
(6) Franchisee shall execute Franchisor's then-current form of
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renewal franchise agreement, which agreement shall supersede this Agreement in
all respects, and the terms of which may differ from the terms of this
Agreement, but shall not cause an increase in the percentage royalty fee and
advertising contribution; provided, however, that Franchisee shall pay, in lieu
of an initial franchise fee, a renewal fee not to exceed fifty percent (50%) of
the then- current initial franchise fee then being charged to new franchisees
under the System;
(7) Franchisee shall execute 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; and
(8) Franchisee shall comply with Franchisor's then-current
qualification and training requirements.
III. DUTIES OF FRANCHISOR
A. Franchisor shall provide an initial training program for either
Franchisee's Operating Principal or Operating Designee (as described herein) and
up to four (4) of Franchisee's managers, and shall make available such other
training programs as it deems appropriate. All training provided by Franchisor
shall be subject to the terms set forth in Section V.F. of this Agreement.
B. Franchisor shall provide such on-site pre-opening and opening
supervision and assistance (which may include, at Franchisee's expense, an
opening crew as described in Section V.E. hereof) as Franchisor deems advisable,
subject (as to timing) to the availability of personnel. Franchisor shall
provide such continuing advisory assistance to Franchisee in the operation of
the franchised business as Franchisor deems advisable.
C. Franchisor shall make available, from time to time, research data
relating to merchandising, marketing, and advertising; and, at Franchisee's
expense, promotional materials for local advertising by Franchisee. Franchisor
shall have the right to review and approve or disapprove all advertising and
promotional materials which Franchisee proposes to use, pursuant to Section X.D.
hereof.
D. Franchisor shall provide Franchisee, on loan, one copy (or such
other number as Franchisor deems appropriate) of the Confidential Manual of
Operating Data. The Confidential Manual of Operating Data shall consist of a
Food & Beverage Manual, Operations Manual, Managers' Training Manual, Employee
and Management Training Guide, and an Equipment and Design Specifications Book
(collectively the "MOD Manual").
E. Franchisor shall provide to Franchisee, from time to time as
Franchisor deems appropriate, advice and written materials concerning techniques
of managing and operating the franchised business, including new developments
and improvements in restaurant equipment, food products, packaging and
preparation.
F. Franchisor shall seek to maintain the high standards of quality,
appearance and service of the System, and to that end shall conduct, as it deems
advisable, inspections of the Restaurant franchised hereunder, and evaluations
of the products sold and services rendered therein.
IV. FEES
A. Franchisee shall pay to Franchisor an initial franchise fee of
FORTY THOUSAND DOLLARS ($40,000), payable as follows:
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(1) On or before the date of commencement of construction (as
defined in Section IV. of the Development Agreement), TWENTY THOUSAND DOLLARS
($20,000); and
(2) At least ten (10) days prior to the date on which the
Restaurant opens for business, TWENTY THOUSAND DOLLARS ($20,000).
Upon payment of each portion of the initial franchise fee, that
portion shall be deemed fully earned and nonrefundable in consideration for
administrative and other expenses incurred by Franchisor in granting this
franchise and for Franchisor's lost or deferred opportunity to franchise to
others.
B. During the initial term of this Agreement, Franchisee shall pay to
Franchisor a continuing monthly royalty fee in an amount equal to four percent
(4%) of the gross sales of the Restaurant, as defined in Section IV.D. hereof.
C. All monthly payments required by this Section IV. and Sections
X.A.(1), X.B.(1)(e) and X.C.(1) shall be paid by the tenth (10th) day of each
month on the gross sales for the preceding calendar month, and shall be
submitted to Franchisor at the address provided under Section XIX. hereof, in
care of the "Treasurer," together with any reports or statements required under
Section IX.B. hereof. Franchisee shall not be entitled to withhold payments due
Franchisor on grounds of alleged non-performance by Franchisor of obligations
under this Agreement. Any payment or report not actually received by Franchisor
on or before such date shall be deemed overdue. If any payment is overdue,
Franchisee shall pay Franchisor, in addition to the overdue amount, interest on
such amount from the date it was due until paid at the rate of eighteen percent
(18%) per annum, or the maximum rate permitted by law, whichever is less.
Entitlement to such interest shall be in addition to any other remedies
Franchisor may have.
D. As used in this Agreement, "gross sales" shall include all revenue
from the sale of all services and products and all other income of every kind
and nature related to the franchised business, whether for cash or credit and
regardless of collection in the case of credit; provided, however, that "gross
sales" shall not include any (i) sales taxes or other taxes collected from
customers by Franchisee for transmittal to the appropriate taxing authority,
(ii) amounts received directly by Franchisee's employees from customers as
gratuities or tips for services rendered, (iii) promotional discount sales or
coupons to the extent Franchisee realizes no revenue therefrom through issuance,
redemption, or otherwise, or (iv) receipts from cigarette vending machines or
pay telephones; provided that the exclusions permissionable pursuant to clauses
(iii) and (iv) above shall in no event exceed four percent (4%) of Gross
Receipts.
V. DUTIES, REPRESENTATIONS, WARRANTIES AND COVENANTS OF FRANCHISEE
A. Franchisee understands and acknowledges that every detail of the
franchised business is important to Franchisee, Franchisor and other franchisees
in order to develop and maintain high operating standards, to increase the
demand for the services and products sold by all franchisees, and to protect
Franchisor's reputation and goodwill.
B. In the event Franchisee is a corporation or a partnership,
Franchisee represents, warrants and covenants that:
(1) Franchisee is duly organized and validly existing under the
state law of its formation;
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(2) Franchisee is duly qualified and is authorized to do business
in each jurisdiction in which its business activities or the nature of the
properties owned by it require such qualification;
(3) Franchisee's corporate charter or written partnership
agreement shall at all times provide that the activities of Franchisee are
confined exclusively to operating Chili's Grill & Bar restaurants as franchised
herein unless otherwise consented to by Franchisor in writing;
(4) The execution of this Agreement and the transactions
contemplated hereby are within Franchisee's corporate power, or if Franchisee is
a partnership, permitted under Franchisee's written partnership agreement;
(5) If Franchisee is a corporation, copies of Franchisee's
Articles of Incorporation, Bylaws, other governing documents and any amendments
thereto, including the resolution of the Board of Directors authorizing entry
into and performance of this Agreement have been promptly furnished to
Franchisor; or, if Franchisee is a partnership, copies of Franchisee's written
partnership agreement, other governing documents and any amendments thereto have
been promptly furnished to Franchisor, including evidence of consent or approval
of the entry into and performance of this Agreement by the requisite number or
percentage of partners, if such approval or consent is required by Franchisee's
written partnership agreement;
(6) If Franchisee is a corporation or a partnership, all
interests in Franchisee are owned as set forth in Attachment F hereto. In
addition, if Franchisee is a corporation, Franchisee shall maintain a current
list of all owners of record and all beneficial owners of any class of voting
securities of the corporation; or if Franchisee is a partnership, Franchisee
shall maintain a current list of all owners of an interest in the partnership.
Such lists shall be furnished to Franchisor upon request. Franchisee shall
execute an addendum to Attachment F as deemed necessary by Franchisor in order
to ensure the information contained in Attachment F is true, accurate and
complete at all times;
(7) If Franchisee is a corporation, Franchisee shall maintain
stop-transfer instructions against the transfer on its records of any equity
securities and each stock certificate of the corporation shall have
conspicuously endorsed upon its face a statement in a form satisfactory to
Franchisor that it is held subject to and that further assignment or transfer
thereof is subject to all restrictions imposed upon assignments by this
Agreement; provided, however, that the requirements of this Section V.B.(7)
shall not apply to a publicly-held corporation. If Franchisee is a partnership,
its written partnership agreement shall provide that ownership of an interest in
the partnership is held subject to and that further assignment or transfer is
subject to all restrictions imposed upon assignments by this Agreement. If
Franchisee is a limited partnership, its Agreement of Limited Partnership may
not provide for more than one (1) general partner and if such general partner is
a corporation, such corporation shall comply with the provisions of Section
V.B.(5) and the first sentence of this Section V.B.(7);
(8) If any Franchisee's Principal (as defined in Section XXI.F.),
officer or director of Franchisee shall cease to serve as such or any individual
shall become a Franchisee's Principal subsequent to the execution of this
Agreement, Franchisee agrees to provide Franchisor with notice thereof within
ten (10) days subsequent to such change. Any new Franchisee's Principal shall
execute an addendum to this Agreement agreeing to be individually bound by all
obligations of Franchisee's Principals hereunder. If Franchisee is a limited
partnership having a corporation as its sole general partner, then those
<PAGE>
individuals who would be Franchisee's Principals if such corporation was the
Franchisee hereunder shall comply with all of the provisions of this Section
V.B.(8);
(9) Benjamin Jacobson, Dennis Pedra, and Paul Hoagland
(collectively, the "Guarantors") shall jointly and severally guarantee
Franchisee's performance hereunder and shall bind themselves to the terms of
this Agreement pursuant to the terms and conditions of the Guaranty attached
hereto; and
(10) Franchisee acknowledges and agrees that the representations,
warranties and covenants set forth above at Sections V.B.(1) - (9) are
continuing obligations of Franchisee and that any failure to comply with such
representations, warranties and covenants shall constitute a material event of
default under Section XIII.C. pursuant to which Franchisor may terminate this
Agreement.
C. Prior to opening for business, Franchisee shall comply with all
pre-opening requirements set forth in this Agreement, Section IV. of the
Development Agreement, the MOD Manual, and/or any other reasonable requirements
set forth elsewhere in writing by Franchisor.
D. Franchisee shall designate and retain an individual to serve as the
"Operating Principal" of the franchised business. The Operating Principal shall
meet the following qualifications:
(1) (a) If Franchisee is a corporation, the Operating Principal
shall, at all times during which he serves as Operating Principal, be entitled,
under its governing documents, to cast a sufficient number of votes to require
such corporation to take or omit to take any action which such corporation is
required to take or omit to take under the express terms of this Agreement. The
Operating Principal must, directly or indirectly, at all times during which he
serves as Operating Principal, own at least seven and eight-tenths percent
(7.8%) of each class of Franchisee's capital stock issued and outstanding.
Direct or indirect ownership shall include, but not be limited to (a) shares in
Franchisee owned by a partnership consisting solely of the Operating Principal
and his or her relatives, or (b) shares in Developer owned by a trust
established by the Operating Principal for the benefit of his or her spouse
and/or children, provided that, in the case of (a), the Operating Principal has
voting control over all such shares and, in the case of (b), the ownership
interest of such trust in Developer is not more than three-tenths percent
(0.3%). Upon the written request of Franchisor, the Operating Principal shall
provide evidence reasonably satisfactory to Franchisor evidencing the ownership
and voting control described in this Section V.D.(l)(a).
(b) If Franchisee is a partnership, the Operating Principal
shall, at all times during which he serves as Operating Principal be entitled
under the partnership agreement or applicable law to act on behalf of the
partnership [(x) in his individual capacity by being either (A) the sole
managing partner of a general partnership, or (B) the sole general partner of a
limited partnership, or (y) by being the sole shareholder of a corporation which
is the sole general partner of a limited partnership] without the approval or
consent of any other partners of the partnership or be able to cast a sufficient
number of votes to require such partnership to take or omit to take any action
which such partnership is required to take or omit to take under the express
terms of this Agreement. The Operating Principal must, directly or indirectly,
at all times during which he serves as Operating Principal, own at least seven
and eight-tenths percent (7.8%) of the partnership interests in such partnership
(unless the limited partnership interests of the Operating Principal are diluted
on a pro-rata basis with all of the other limited partners in the partnership
<PAGE>
pursuant to a transaction described in Section XII.B.3.(iii) hereof) and must
own and control all of the issued and outstanding capital stock of the corporate
general partner or corporate managing partner of such partnership. Direct or
indirect ownership shall include, but not be limited to (a) partnership
interests in Developer owned by a partnership consisting solely of the Operating
Principal and his or her relatives, or (b) partnership interests in Developer
owned by a trust established by the Operating Principal for the benefit of his
or her spouse and/or children, provided that, in the case of (a), the Operating
Principal has voting control over all such partnership interests and, in the
case of (b), the ownership interest of such trust in Developer is not more than
three-tenths percent (0.3%). Upon the written request of Franchisor, the
Operating Principal shall provide evidence reasonably satisfactory to Franchisor
of the ownership and voting control described in this Section VI.B.(3)(a)(ii).
(c) Except as may otherwise be provided in this Agreement,
the Operating Principal's interest in Franchisee shall be and shall remain free
of any pledge, mortgage, hypothecation, lien, charge, encumbrance, voting
agreement, proxy, security interest or purchase right or options.
(2) The Operating Principal, or such other designee of Franchisee
approved or rejected in writing by Franchisor in its sole and absolute
discretion ("Operating Designee"), shall devote full time and best efforts to
the supervision and conduct of the business franchised hereunder, shall execute
this Agreement, and shall be individually bound by all obligations of Franchisee
and the Operating Principal hereunder. Dennis Pedra shall initially be the
approved Operating Designee acting on behalf of the Franchisee and the Operating
Principal. The Operating Designee must, directly or indirectly, at all times
during which he serves as Operating Designee, own at least one and two-tenths
percent (1.2%) of (i) each class of Franchisee's capital stock issued and
outstanding, or (ii) the partnership interests in Franchisee (unless the limited
partnership interests of the Operating Designee are diluted on a pro-rata basis
with all of the other limited partners in the partnership pursuant to a
transaction described in Section XII.B.3.(iii) hereof). The Operating Principal
shall be responsible for insuring that the obligations of the Operating
Principal as provided herein are fully performed in accordance with this
Agreement by the Operating Principal or the Operating Designee, as applicable.
(3) The Operating Principal shall be a person acceptable to both
Franchisee and Franchisor. The granting or withholding by Franchisor of approval
of a proposed Operating Principal shall be within the sole and absolute
discretion of Franchisor. Benjamin Jacobson shall be the initial Operating
Principal.
If, at any time or for any reason, the Operating Principal or the Operating
Designee, if applicable, no longer qualifies to act as such, Franchisee shall
promptly designate another Operating Principal or a successor Operating
Designee, as appropriate, subject to the approval of Franchisor and to the
satisfaction of the qualifications listed above. Any sale, transfer or
assignment of the Operating Principal's or Operating Designee's interest in
Franchisee, or any portion thereof shall be subject to the restrictions on
transfer described in Section XII. hereof, and any failure to comply with such
requirements shall be deemed a material event of default by Franchisee under
Section XIII.C.(5) hereof.
E. In connection with the opening of the Restaurant, Franchisee shall
conduct, at Franchisee's expense, such promotional and advertising activities as
Franchisor may reasonably require. Franchisee agrees that Franchisor, in its
reasonable business judgment, may require that the Restaurant be staffed, in
whole or in part, by an opening crew composed of specially trained
representatives of Franchisor, for a total period not to exceed twelve (12) days
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before or after the date of opening of the Restaurant. If and only if Franchisee
has an insufficient number of employees who have been trained to serve as
members of an opening crew pursuant to the criteria set forth in the MOD Manual,
then Franchisee further agrees to reimburse Franchisor for all reasonable
expenses incurred in providing such opening crew for the Restaurant, including
costs of transportation, lodging, meals and wages.
F. Franchisee agrees that it is important to the operation of the
System and the Restaurant franchised hereunder that Franchisee and Franchisee's
employees receive such training as Franchisor may require, and to that end
agrees as follows:
(1) a. Prior to the opening of the Restaurant, the Operating
Principal or Operating Designee and at least two (2) of Franchisee's managers
(up to a maximum of 4 managers) shall attend and complete, to Franchisor's
satisfaction, the initial training program conducted by Franchisor and/or
employees of Franchisee who have satisfied the initial training program criteria
set forth in the MOD Manual. Except as provided in V.F.(1)b., Franchisor shall
provide instructors and training materials for the pre-opening initial training
of five (5) representatives of Franchisee. Any person subsequently employed by
Franchisee in the position of manager and each subsequent Operating Principal or
Operating Designee, if any, shall attend and complete, to Franchisor's
satisfaction, an initial training program satisfying the criteria set forth in
the MOD Manual; and Franchisee shall pay to Franchisor a training fee at the
then- current rate being charged by Franchisor to franchisees for such training.
b. If Franchisee operates a Chili's Grill & Bar restaurant
other than the Restaurant and the Operating Principal or Operating Designee and
at least two (2) managers for such restaurant have satisfied the initial
training criteria set forth in the MOD Manual, Franchisee may conduct the
initial training program required hereunder for Franchisee's managers. If
Franchisee conducts such initial training, Franchisee's managers shall
satisfactorily complete such training as set forth in the MOD Manual.
(2) Franchisee shall cause its Operating Principal or Operating
Designee, managers and other employees to attend and complete, to Franchisor's
satisfaction, such courses, seminars, conferences and other training programs as
Franchisor may require from time to time. The Operating Principal or Operating
Designee, Franchisee's managers and other employees may also attend such
optional courses, seminars, conferences and training programs as Franchisor may
offer from time to time. Franchisee shall pay to Franchisor the training fee, if
any, then being charged by Franchisor to franchisees for such additional
required or optional training.
(3) Franchisee or its employees shall be responsible for any and
all other expenses incurred by them in connection with any training programs
hereunder, including, without limitation, the costs of transportation, lodging,
meals and wages.
G. Franchisee shall use the Restaurant premises solely for the
operation of the business franchised hereunder; shall keep the business open and
in normal operation for such hours and days as Franchisor may from time to time
specify in the MOD Manual or as Franchisor may otherwise approve in writing; and
shall refrain from using or permitting the use of the premises for any other
purpose or activity at any time without first obtaining the written consent of
Franchisor.
H. Franchisee agrees to maintain a competent, conscientious, trained
staff, including at least three (3) fully trained full-time managers (one or
both of whom may be the Operating Principal and/or the Operating Designee), and
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to take such steps as are necessary to ensure that its employees preserve good
customer relations and comply with such dress code as Franchisor may prescribe.
I. Franchisee shall meet and maintain the highest health standards and
ratings applicable to the operation of the Restaurant. Franchisee shall furnish
to Franchisor, within five (5) days after receipt thereof, a copy of any
inspection report, warning, citation, certificate and/or rating which indicates
Franchisee's failure to meet or maintain the highest applicable health or safety
standards in the operation of the Restaurant.
J. To ensure that the highest degree of quality and service is
maintained, Franchisee shall operate the Restaurant in strict conformity with
such methods, standards and specifications as Franchisor may from time to time
prescribe in the MOD Manual or otherwise in writing. Franchisee agrees:
(1) To maintain in sufficient supply, and to use and/or sell at
all times, only such menu items, ingredients, products, materials, supplies and
paper goods as conform with Franchisor's standards and specifications, and to
refrain from deviating therefrom by the use or offer of non-conforming items,
without Franchisor's prior written consent.
(2) To sell or offer for sale only such menu items, products and
services as have been expressly approved for sale in writing by Franchisor; to
sell or offer for sale all types of menu items, products and services specified
by Franchisor; to refrain from any deviation from Franchisor's standards and
specifications without Franchisor's prior written consent; and to discontinue
selling and offering for sale any menu items, products or services which
Franchisor may, in its discretion, disapprove in writing at any time. With
respect to the offer and sale of all menu items, products and services,
Franchisee shall have sole discretion as to the prices to be charged to
customers.
(3) To permit Franchisor or its agents, at any reasonable time,
to remove samples of food or non-food items from Franchisee's inventory, or from
the Restaurant, without payment therefor, in amounts reasonably necessary for
testing by Franchisor or an independent laboratory to determine whether said
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 the supplier of the item has not
previously been approved by Franchisor or if the sample fails to conform with
Franchisor's specifications.
(4) To purchase and install, at Franchisee's expense, all
fixtures, furnishings, equipment, decor and signs as Franchisor may reasonably
direct from time to time in the MOD Manual or otherwise in writing; and to
refrain from installing or permitting to be installed on or about the Restaurant
premises, without Franchisor's prior written consent, any fixtures, furnishings,
equipment, decor, signs, games, vending machines or other items not previously
approved as meeting Franchisor's standards and specifications.
(5) To sell or offer for sale products and services only at the
Restaurant and to refrain from off-premises sales or catering unless expressly
authorized by Franchisor in writing, which authorization shall not be
unreasonably withheld or delayed.
K. Franchisee shall purchase all food items, ingredients, supplies,
materials and other products used or offered for sale at the Restaurant solely
from suppliers (including manufacturers, distributors and other sources) who
demonstrate, to the continuing reasonable satisfaction of Franchisor, the
ability to meet Franchisor's then-current standards and specifications for such
<PAGE>
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
prior to any purchases by Franchisee from any such supplier; and who have not
thereafter been disapproved. If Franchisee desires to purchase any products from
an unapproved supplier, Franchisee shall submit to Franchisor a written request
for such approval, or shall request the supplier itself to do so. Franchisee
shall not purchase from any supplier until and unless such supplier has been
approved in writing by Franchisor. Franchisor shall have the right to require
that its representatives be permitted to inspect the supplier's facilities, and
that samples from the supplier be delivered, either to Franchisor or to an
independent laboratory designated by Franchisor for testing. A charge not to
exceed the reasonable cost of the inspection and the actual cost of the test
shall be paid by Franchisee or the supplier. Franchisor reserves the right, at
its option, to re-inspect from time to time the facilities and products of any
such approved supplier and to revoke its approval upon the supplier's failure to
continue to meet any of Franchisor's then-current criteria. Nothing in the
foregoing shall be construed to require Franchisor to approve any particular
supplier.
L. Franchisee acknowledges and agrees that Franchisor may develop for
use in the System certain products which are highly confidential secret recipes
and which are trade secrets of Franchisor. Because of the importance of quality
and uniformity of production and the significance of such products in the
System, it is to the mutual benefit of the parties that Franchisor closely
control the production and distribution of such products. Accordingly,
Franchisee agrees that, in the event such products become a part of the System,
Franchisee shall use only Franchisor's secret recipe products and shall purchase
from Franchisor or from a source designated by Franchisor all of Franchisee's
requirements of such products.
M. Franchisee shall require all advertising and promotional materials,
signs, decorations, paper goods (including disposable food containers, napkins,
menus and all forms and stationery used in the franchised business), and other
items which may be designated by Franchisor to bear the Proprietary Marks in the
form, color, location and manner prescribed by Franchisor.
N. Franchisee shall maintain the Restaurant in a high degree of
sanitation, repair and condition, and in connection therewith shall make such
additions, alterations, repairs and replacements thereto (but no others without
Franchisor's prior written consent) as may be required for that purpose,
including, without limitation, such periodic repainting or replacement of
obsolete signs, furnishings, equipment and decor as Franchisor may reasonably
direct.
O. Upon Franchisor's reasonable request, Franchisee shall make all
improvements and alterations that Franchisor may determine to be necessary for
the Restaurant to conform with the System image as it may be prescribed by
Franchisor at that time. Franchisee shall undertake and complete such
improvements and alterations within reasonable times specified by Franchisor.
Franchisee acknowledges Franchisor's right to make changes in the System image
as it reasonably deems appropriate. Notwithstanding the foregoing, Franchisee
shall not be required to make any such improvements or alterations unless at
least fifty percent (50%) of the restaurants of the same prototype or style
owned and operated by Franchisor have made the same or similar improvements and
alterations.
P. Franchisee shall grant Franchisor and its agents the right to enter
upon the Restaurant premises at any time for the purpose of conducting
inspections; shall cooperate with Franchisor's representatives in such
inspections by rendering such assistance as they may reasonably request; and,
<PAGE>
upon notice from Franchisor or its agents and without limiting Franchisor's
other rights under this Agreement, shall take such steps as may be necessary to
correct immediately any deficiencies detected during any such inspection. Should
Franchisee, for any reason, fail to correct such deficiencies within a
reasonable time as determined by Franchisor, Franchisor shall have the right and
authority (without, however, any obligation to do so), to correct such
deficiencies and to charge Franchisee a reasonable fee for Franchisor's expenses
in so acting, payable by Franchisee immediately upon demand.
Q. Franchisee shall comply with all other requirements set forth in
this Agreement.
VI. PROPRIETARY MARKS
A. Franchisor represents with respect to the Proprietary Marks that:
(1) Franchisor is the owner of all right, title and interest in
and to the Proprietary Marks.
(2) Franchisor has taken and will take all steps reasonably
necessary to preserve and protect the ownership in and validity of the
Proprietary Marks.
(3) Franchisor will permit Franchisee and other franchisees to
use the Proprietary Marks only in accordance with the System and the standards
and specifications attendant thereto which underlie the goodwill associated with
and symbolized by the Proprietary Marks.
B. With respect to Franchisee's licensed use of the Proprietary Marks
pursuant to this Agreement, Franchisee agrees that:
(1) Franchisee shall use only the Proprietary Marks designated by
Franchisor, and shall use them only in the manner authorized and permitted by
Franchisor.
(2) Franchisee shall use the Proprietary Marks only for the
operation of the business franchised hereunder and only at the location
authorized hereunder, or in advertising for the business conducted at or from
that location.
(3) Unless otherwise authorized or required by Franchisor,
Franchisee shall operate and advertise the franchised business only under the
name "Chili's Grill & Bar" without prefix or suffix.
(4) During the term of this Agreement and any renewal hereof,
Franchisee shall identify itself as the owner of the franchised business in
conjunction with any use of the Proprietary Marks, including, but not limited
to, uses on invoices, order forms, receipts and contracts, as well as the
display of a notice in such content and form and at such conspicuous locations
on the premises of the franchised business as Franchisor may designate in
writing.
(5) Franchisee's right to use the Proprietary Marks is limited to
such uses as are authorized under this Agreement, and any unauthorized use
thereof shall constitute an infringement of Franchisor's rights.
(6) Franchisee shall not use the Proprietary Marks to incur any
obligation or indebtedness on behalf of Franchisor.
(7) Franchisee shall not use the Proprietary Marks as part of its
<PAGE>
corporate or other legal name.
(8) Franchisee shall comply with Franchisor's instructions in
filing and maintaining the requisite trade name or fictitious name
registrations, and shall execute any documents deemed necessary by Franchisor or
its counsel to obtain protection for the Proprietary Marks or to maintain their
continued validity and enforceability.
(9) In the event that litigation involving the Proprietary Marks
is instituted or threatened against Franchisee, Franchisee shall promptly notify
Franchisor and shall cooperate fully in defending or settling such litigation.
C. Franchisee expressly understands and acknowledges that:
(1) Franchisor is the owner of all right, title and interest in
and to the Proprietary Marks and the goodwill associated with and symbolized by
them.
(2) The Proprietary Marks are valid and serve to identify the
System and those who are authorized to operate under the System.
(3) Franchisee shall not directly or indirectly contest the
validity or Franchisor's ownership of the Proprietary Marks.
(4) Franchisee's use of the Proprietary Marks pursuant to this
Agreement does not give Franchisee any ownership interest or other interest in
or to the Proprietary Marks, except the license granted by this Agreement.
(5) Any and all goodwill arising from Franchisee's use of the
Proprietary Marks in its franchised operation under the System shall inure
solely and exclusively to Franchisor's benefit, and upon expiration or
termination of this Agreement and the license herein granted, no monetary amount
shall be assigned as attributable to any goodwill associated with Franchisee's
use of the System or the Proprietary Marks.
(6) The right and license of the Proprietary Marks granted
hereunder to Franchisee is non-exclusive, and Franchisor thus has and retains
the rights, among others:
(a) To use the Proprietary Marks itself in connection with
selling products and services;
(b) To grant other licenses for the Proprietary Marks, in
addition to those licenses already granted to existing franchisees;
(c) To develop and establish other systems using the same or
similar Proprietary Marks, or other proprietary marks, and to grant licenses or
franchises thereto without providing any rights therein to Franchisee.
(7) Franchisor reserves the right to substitute different
Proprietary Marks for use in identifying the System and the business operating
thereunder if Franchisor's currently owned Proprietary Marks no longer can be
used, or if Franchisor, in its sole discretion, determines that substitution of
different Proprietary Marks will be beneficial to the System, including, but not
limited to, restaurants owned by Franchisor.
VII. CONFIDENTIAL MANUAL OF OPERATING DATA
A. In order to protect the reputation and goodwill of Franchisor and
to maintain high standards of operation under Franchisor's Proprietary Marks,
<PAGE>
Franchisee shall conduct its business in accordance with the MOD Manual, at
least one copy of which Franchisee acknowledges having received on loan from
Franchisor for the term of this Agreement.
B. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals shall at all times treat the MOD Manual, any other
manuals created for or approved for use in the operation of the franchised
business, and the information contained therein, as confidential, and shall use
all reasonable efforts to maintain such information as secret and confidential.
Franchisee, the Operating Principal, the Operating Designee, and Franchisee's
Principals shall not at any time copy, duplicate, record or otherwise reproduce
the foregoing materials, in whole or in part, nor otherwise make the same
available to any unauthorized person. Notwithstanding anything to the contrary
contained in this Agreement, the restrictions on Franchisee's disclosure and use
of any confidential information shall not apply to the following:
(1) information, processes, or techniques which are or become
generally known and used in the food service or restaurant industry, other than
through disclosure (whether deliberate or inadvertent) by Franchisee;
(2) disclosure of any confidential information in judicial or
administrative proceedings to the extent that Franchisee is legally compelled to
disclose such information, provided Franchisee shall have used its best efforts,
and shall have afforded Franchisor the opportunity to obtain an appropriate
protective order, or other assurance satisfactory to Franchisor, of confidential
treatment for the information required to be so disclosed; and
(3) disclosure to Franchisee's employees to the extent necessary
for the proper operation of the Restaurant.
C. The MOD Manual shall at all times remain the sole property of
Franchisor and shall at all times be kept in a secure place on the Restaurant
premises.
D. Franchisor may from time to time revise the contents of the MOD
Manual, and Franchisee expressly agrees to comply with each new or changed
standard.
E. Franchisee shall at all times maintain the MOD Manual at the
Restaurant and ensure that the MOD Manual is kept current and up to date; and,
in the event of any dispute as to the contents of the MOD Manual, the terms of
the master copy of the MOD Manual maintained by Franchisor at Franchisor's home
office shall be controlling.
VIII. CONFIDENTIAL INFORMATION
A. Neither Franchisee, the Operating Principal, the Operating
Designee, nor Franchisee's Principals shall, during the term of this Agreement
or thereafter, communicate, divulge or use for the benefit of any other person,
persons, partnership, association or corporation any confidential information,
knowledge or know-how concerning the methods of operation of the business
franchised hereunder which may be communicated to Franchisee, the Operating
Principal, the Operating Designee, or Franchisee's Principals or of which they
may be apprised in connection with the operation of the Restaurant under the
terms of this Agreement. Franchisee, the Operating Principal, the Operating
Designee, and Franchisee's Principals shall divulge such confidential
information only to such of Franchisee's employees as must have access to it in
order to operate the franchised business and who are either the Operating
Principal, the Operating Designee, a Franchisee's Principal, or who have signed
an agreement substantially in the form attached hereto as Attachment B, C, D, or
<PAGE>
E. Any and all information, knowledge, know-how and techniques provided by
Franchisor to Franchisee shall be deemed confidential for purposes of this
Agreement.
B. Franchisee shall require its restaurant managers, members of Board
of Directors (except for Franchisee's Principals), any other person or entity
having access to any confidential information of Franchisor, and any corporation
directly or indirectly controlling Franchisee, if Franchisee is a corporation
(or of any corporate general partner and any individual or corporation directly
or indirectly controlling a general partner of Franchisee, if Franchisee is a
partnership), to execute covenants that they will maintain the confidentiality
of information they receive in connection with their relationship with
Franchisee. Such covenants shall be substantially in the form contained in
Attachment B for Franchisor's restaurant managers and other persons having
access to confidential information of Franchisor.
C. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals acknowledge that any failure to comply with the
requirements of this Section VIII., or the willful and knowing aiding or
abetting of a third party in an action which would be a breach of Section VIII
or a breach of the agreement attached hereto as Attachment B if such third party
had been a party to either this Agreement, or the agreement attached hereto as
Attachment B, respectively, shall constitute a material event of default under
Section XIII.C.(7) and will cause Franchisor irreparable injury; and, therefore,
Franchisee, the Operating Principal, the Operating Designee, and Franchisee's
Principals agree to pay all court costs and reasonable attorneys' fees incurred
by Franchisor in obtaining specific performance of, or an injunction against
violation of, the requirements of this Section VIII.
IX. ACCOUNTING AND RECORDS
A. Franchisee shall maintain during the term of this Agreement, and
shall preserve for at least five (5) 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 manner prescribed
by Franchisor from time to time in the MOD Manual or otherwise in writing.
B. Franchisee shall submit to Franchisor, at the address provided
under Section XIX. hereof, in care of the "Treasurer," no later than the tenth
(10th) day of each month during the term of this Agreement after the opening of
the franchised business, a remittance report, in the form prescribed by
Franchisor, accurately reflecting all gross sales during the preceding calendar
month, and such other data or information as Franchisor may require. In
particular, and without limiting the foregoing, Franchisee shall submit a
quarterly and fiscal-year-to-date profit and loss statement (which may be
unaudited) for the franchised business, and shall submit copies of all state
sales tax returns for the franchised business.
C. Franchisee shall, at Franchisee's expense, submit to Franchisor, in
the form prescribed by Franchisor, a quarterly balance sheet (which may be
unaudited) within thirty (30) days after the end of each quarter of the fiscal
year of the franchised business during the term hereof. Each such statement
shall be signed by Franchisee or by Franchisee's treasurer or chief financial
officer attesting that it is true, complete and correct.
D. Franchisee shall, at its expense, provide to Franchisor a complete
audited annual financial statement prepared by an independent certified public
accountant satisfactory to Franchisor, within ninety (90) days after the end of
each fiscal year of the franchised business during the term hereof, showing the
results of operations of the franchised business during said fiscal year.
<PAGE>
E. Franchisee shall also submit to Franchisor, for review or auditing,
such other forms, 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
MOD Manual or otherwise in writing.
F. Franchisor or its designated agents shall have the right at all
reasonable times to examine and copy, at Franchisor's expense, the books,
records and sales and liquor tax returns of Franchisee. Franchisor shall also
have the right, at any time, to have an independent audit made of the books of
Franchisee. If an inspection should reveal that any payments have been
understated in any report to Franchisor, then Franchisee shall immediately pay
to Franchisor the amount understated upon demand, in addition to interest from
the date such amount was due until paid, at the rate of eighteen percent (18%)
per annum, or the maximum rate permitted by law, whichever is less. If an
inspection discloses an understatement in any report of two percent (2%) or
more, Franchisee shall, in addition, reimburse Franchisor for any and all costs
and expenses connected with the inspection (including, without limitation,
travel, lodging and wage expenses and reasonable accounting and legal costs).
The foregoing remedies shall be in addition to any other remedies Franchisor may
have.
X. ADVERTISING
Recognizing the value of advertising, and the importance of the
standardization of advertising programs to the furtherance of the goodwill and
public image of the System, the parties agree as follows:
A. Until Franchisor has established a cooperative for the
administration of a regional advertising program, as defined in Section X.B.
below, or a national advertising fund, as defined in Section X.C. below,
applicable to the Restaurant, the Franchisee shall be obligated to expend or
contribute the following sums during the term of this Agreement in the manner
provided below:
(1) One-half of one percent (1/2%) of the gross sales of the
Restaurant for the preceding month shall be paid to Franchisor on the tenth
(10th) day of each month in the manner provided in Section IV.C. to be used
exclusively for the purpose of maintaining, administering, directing and
preparing advertising and promotional activities for the benefit of the System,
including, but not limited to, creative costs associated therewith.
(2) Two percent (2%) of the gross sales of the Restaurant shall
be spent by Franchisee on appropriate local advertising approved by Franchisor
for the benefit of the Restaurant. Franchisor shall have the right to require
reasonable documentation, on a semi- annual basis, to evidence that expenditures
by Franchisee have been made or contracted for. Franchisee shall have the
discretion to expend such funds as and when Franchisee reasonably deems
appropriate, so long as the Franchisee's expenditure schedule is acceptable to
Franchisor in its reasonable discretion. Notwithstanding the above, in the event
such funds have not been spent or committed by Franchisee as scheduled,
Franchisor may require the Franchisee to remit such funds to Franchisor to be
spent on local advertising in the local area of the Restaurant.
B. Franchisee agrees that Franchisor shall have the right, in its
discretion, to designate any geographical area (e.g., an area of dominant
influence or "ADI") as a region for purposes of establishing an advertising
cooperative ("Cooperative"). A Cooperative may be composed of one or more
Chili's Grill & Bar restaurants operated by Franchisor and/or one or more
<PAGE>
Chili's Grill & Bar restaurants operated by Franchisee or another franchisee of
Franchisor. In the event a Cooperative is established for a geographic area
which includes the ADI, if any, in which the Restaurant is located, Franchisor
agrees that the Cooperative shall administer an advertising program within such
ADI. If a Cooperative has been established for the geographic area in which the
Restaurant is located at the time the Franchisee commences business hereunder,
Franchisee shall immediately become a member of such Cooperative. If a
Cooperative applicable to the Franchisee's Restaurant is established at any
later time during the term of this Agreement, Franchisee shall become a member
of such Cooperative no later than thirty (30) days after the date on which the
Cooperative commences operation as provided below:
(1) Each Cooperative shall be organized and governed in a form
and manner, and shall commence operation on a date, approved in advance by
Franchisor in writing.
(a) Each Cooperative shall be organized for the exclusive
purposes of administering regional advertising programs and developing, subject
to Franchisor's approval, standardized promotional materials for use by the
members in local advertising.
(b) Each Cooperative shall be Franchisor's designee for
maintaining and administering advertising and promotional programs in each
region and all contributions to and expenditures of each Cooperative shall be
subject to the provisions applicable to the Fund set forth in Section X.C.
hereof.
(c) No advertising or promotional plans or materials may be
used by a Cooperative or furnished to its members without the prior approval of
Franchisor. All such plans and materials shall be submitted to Franchisor in
accordance with the procedure set forth in Section X.D. hereof.
(d) All payments pursuant to Section X.B.(l)(e) and any
earnings thereon shall be used exclusively to meet any and all costs of
maintaining, advertising, directing and preparing advertising and/or promotional
activities (including, among other things, the cost of preparing and conducting
television, radio, magazine and newspaper advertising campaigns, direct mail and
outdoor billboard advertising; marketing surveys and other public relations
activities; employing advertising agencies to assist therein; and providing
promotional brochures and other marketing materials to the restaurants operated
under the System) in connection with the regional advertising program.
(e) Franchisee shall submit to the Cooperative, no later
than the tenth (10th) day of each month, for the preceding calendar month, three
percent (3%) of the gross sales of the Restaurant, and shall submit to the
Cooperative and to Franchisor, by such date, such other statements or reports as
may be required by Franchisor or by the Cooperative with Franchisor's prior
written approval. Franchisee's obligation to provide such statements or reports
shall be subject to Section IX.
(2) Franchisor, in its sole discretion, may grant to any
franchisee an exemption for any length of time from the requirement of
membership in a Cooperative, upon written request of such franchisee stating
reasons supporting such exemption. Franchisor may require as a condition of
granting such exemption that the franchisee expend on local advertising, in a
manner approved in advance by Franchisor, and supported by such proof of
expenditures as Franchisor may require, at least the amount that the franchisee
would have contributed to a Cooperative. Franchisor's decision concerning such
request for exemption shall be final.
<PAGE>
(3) In addition to the advertising contribution described in
Section X.B.(1)(e), the Franchisee shall spend each month, one-half of one
percent (1/2%) of gross sales of the Restaurant for the preceding month on
appropriate local advertising approved by Franchisor for the benefit of the
Restaurant. Franchisor shall have the right to require reasonable documentation,
on a semi-annual basis to evidence such expenditures. Franchisee shall have the
discretion to expend such funds as and when Franchisee reasonably deems
appropriate as long as Franchisee's expenditure schedule is acceptable to the
Franchisor in its reasonable discretion. In the event such funds are not
expended or committed by Franchisee as scheduled, Franchisor may require the
Franchisee to remit such funds to Franchisor to be spent on local advertising in
the Restaurant's local area.
C. Upon establishment of a national advertising fund as defined in
Section X.C.(1) hereof, Franchisee's obligations shall be as follows:
(1) On the tenth (10th) day of each month during the term of this
Agreement, Franchisee shall contribute an amount equal to three and one-half
percent (3-1/2%) of Franchisee's gross sales for the preceding month for
advertising and promotional purposes in the manner provided in Section IV.C.
Franchisee shall allocate its contributions as Franchisor may designate between
the national advertising fund (hereinafter "Fund"), described in Section X.C.(2)
hereof, and any Cooperative designated for Franchisee's Restaurant, as defined
in Section X.B. hereof, provided, however, that Franchisee shall not be
obligated to expend or contribute more than three and one-half percent (3-1/2%)
of Franchisee's monthly gross sales for advertising and promotional purposes.
Franchisee is encouraged and will be permitted to conduct additional local
advertising at its expense, subject to the terms and conditions contained in
Section X.D. hereof.
(2) Franchisee agrees to make contributions to the Fund as
required under Section X.C.(1) hereof, and further agrees that the Fund shall be
maintained and administered by Franchisor or its designee, as follows:
(a) Franchisor shall oversee all advertising and promotional
programs with sole discretion to approve or disapprove the creative concepts,
materials and media used in such programs, and the placement and allocation
thereof. Franchisee agrees and acknowledges that the Fund is intended to
maximize general public recognition and acceptance of the Proprietary Marks for
the benefit of the System.
(b) The Fund, all contributions thereto, and any earnings
thereon shall be used exclusively to meet any and all costs of maintaining,
administering, directing and preparing advertising and/or promotional activities
(including, among other things, the cost of preparing and conducting television,
radio, magazine and newspaper advertising campaigns; direct mail and outdoor
billboard advertising; marketing surveys and other public relations activities;
employing advertising agencies to assist therein; and providing promotional
brochures and other marketing materials to the restaurants operated under the
System).
(c) Franchisee shall contribute to the Fund by separate
check made payable to the Fund. All sums paid by the Franchisee to the Fund
shall be maintained in an account separate from the other monies of Franchisor
and shall not be used to defray any of Franchisor's expenses, except for such
reasonable administrative costs and overhead, if any, as Franchisor may incur in
activities reasonably related to the administration or direction of the Fund and
advertising programs for franchisees and the System. The Fund and its earnings
shall not otherwise inure to the benefit of Franchisor. Franchisor or its
designee shall maintain separate bookkeeping accounts for the Fund.
<PAGE>
(d) It is anticipated that all contributions to and earnings
of the Fund shall be expended for advertising and/or promotional purposes during
the taxable year within which the contributions and earnings are received. If,
however, excess amounts remain in the Fund at the end of such 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.
(e) The Fund shall not be an asset of Franchisor or its
designee. A statement of the operations of the Fund as shown on the books of
Franchisor or its designee shall be prepared annually by Franchisor and shall be
made available to Franchisee upon Franchisee's request.
(f) Although the Fund is intended to be of perpetual
duration, Franchisor maintains the right to terminate the Fund. The Fund shall
not be terminated, however, until all monies in the Fund have been expended for
advertising and/or promotional purposes.
D. All advertising and promotion by Franchisee in any medium shall be
conducted in a dignified manner and shall conform to the standards and
requirements of Franchisor as set forth in the MOD Manual or otherwise.
Franchisee shall obtain Franchisor's prior approval of all advertising and
promotional plans and materials that Franchisee desires to use and that have not
been prepared or previously approved by Franchisor within one (1) year.
Franchisee shall submit such unapproved plans and materials to Franchisor (by
personal delivery or through the mail, return receipt requested), and Franchisor
shall approve or disapprove such plans and materials within fourteen (14) days
from the date of receipt thereof by Franchisor. Franchisee shall use no such
plans or materials until they have been approved by Franchisor and shall
promptly discontinue use of any advertising or promotional plans or materials
upon notice from Franchisor.
E. Franchisee shall have the right to sell its products and offer
services at any prices it may determine, and shall in no way be bound by any
price which may be recommended or suggested by Franchisor.
XI. INSURANCE
A. Franchisee shall procure, prior to the commencement of any
operations under this Agreement, and shall maintain in full force and effect at
all times during the term of this Agreement at Franchisee's expense, an
insurance policy or policies protecting Franchisee and Franchisor, and their
respective subsidiaries, officers, directors, partners and employees, against
any demand or claim with respect to personal injury, death or property damage,
or any loss, liability or expense whatsoever arising or occurring in connection
with the franchised business.
B. Such policy or policies shall be written by a responsible carrier
or carriers acceptable to Franchisor and shall include, at a minimum (except as
additional coverages and higher policy limits may reasonably be specified by
Franchisor from time to time), in accordance with standards and specifications
set forth in the MOD Manual or otherwise in writing, the following:
(1) Comprehensive General Liability Insurance, including broad
form contractual liability, broad form property damage, personal injury,
completed operations, products liability, host liquor liability and fire damage
coverage, in the amount of One Million Dollars ($1,000,000) per occurrence for
bodily injury, and Five Hundred Thousand Dollars ($500,000) per occurrence for
property damage.
<PAGE>
(2) "All Risks" coverage (including or excluding earthquake and
flood) for the full cost of replacement of the Restaurant premises and all other
property in which Franchisor may have an interest; if such insurance policy is
to contain a co-insurance clause, the co- insurance requirement may not be less
than ninety percent (90%).
(3) Employer's Liability and Workers' Compensation insurance in
amounts prescribed by the state or locality in which the franchised business is
located and operated; and such other insurance as may be required by the state
or locality in which the franchised business is located and operated.
(4) Franchisee may, with the prior written consent of Franchisor,
elect to have reasonable deductibles in connection with the coverage required
under Sections XI.B.(l) and (2) hereof.
C. In connection with any construction, renovation, refurbishment or
remodeling of the Restaurant, Franchisee shall maintain Builder's Risks
insurance in form and amount, and written by a carrier or carriers, reasonably
satisfactory to Franchisor.
D. Franchisee's obligation to obtain and maintain the foregoing policy
or policies 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 XVII.C. of this Agreement.
E. All public liability and property damage policies shall contain a
provision that Franchisor, although named as an insured, shall nevertheless be
entitled to recover under said policies on any loss occasioned to Franchisor or
its servants, agents or employees by reason of the negligence of Franchisee or
its servants, agents or employees.
F. At least thirty (30) days prior to the time any insurance is first
required to be carried by Franchisee, and thereafter at least thirty (30) days
prior to the expiration of any such policy, Franchisee shall deliver to
Franchisor Certificates of Insurance evidencing the proper coverage with limits
not less than those required hereunder. In addition, if requested by Franchisor,
Franchisee shall deliver to Franchisor a copy of the insurance policy or
policies required hereunder. All insurance policies required hereunder, with the
exception of Workers' Compensation, shall name Franchisor, and each of its
partners, subsidiaries, affiliates, officers, directors, agents and employees as
additional insureds. Further, all insurance policies required hereunder shall
expressly provide that no less than thirty (30) days' prior written notice shall
be given to Franchisor in the event of a material alteration to or cancellation
of the policies.
G. Should Franchisee, for any reason, fail to procure or maintain the
insurance required by this Agreement, as such requirements may be revised from
time to time by Franchisor in the MOD Manual or otherwise in writing, Franchisor
shall have the right and authority (without, however, any obligation to do so)
immediately to procure such insurance and to charge same to Franchisee, which
charges, together with a reasonable fee for Franchisor's expenses in so acting,
shall be payable by Franchisee immediately upon notice. The foregoing remedies
shall be in addition to any other remedies Franchisor may have.
XII. TRANSFER OF INTEREST
A. TRANSFER BY FRANCHISOR:
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Franchisor shall have the right to transfer or assign this
Agreement and all or any part of its rights or obligations herein to any person
or legal entity.
B. TRANSFER BY FRANCHISEE:
(1) Franchisee understands and acknowledges that the rights and
duties set forth in this Agreement are personal to Franchisee, and that
Franchisor has granted this franchise in reliance on the business skill,
financial capacity and personal character of the Franchisee and any guarantor of
Franchisee. Accordingly, neither Franchisee nor any initial or subsequent
successor or assign to any part of Franchisee's interest in this franchise, nor
any individual, partnership, corporation or other entity which directly or
indirectly has or owns any interest in this Agreement, in the franchised
business or in Franchisee shall sell, assign, transfer, convey, give away,
pledge, mortgage or otherwise encumber any direct or indirect interest in this
Agreement, in the franchised business or in any entity which owns this franchise
without the prior written consent of Franchisor; provided, however, that
Franchisor's prior written consent shall not be required for a transfer of less
than a one percent (1%) interest in a publicly-held corporation, and further,
Franchisor's prior written consent for a Minority Interest Transfer (as
hereinafter defined) shall be exclusively based upon the requirements enumerated
in Section XII.B.(3) hereof. A publicly-held corporation is a corporation having
its securities registered pursuant to Section 12 under the Securities Exchange
Act of 1934, as amended, or a corporation subject to the requirements of Section
15(d) under the Securities Exchange Act of 1934, as amended. Any purported
assignment or transfer, by operation of law or otherwise, not having the written
consent of Franchisor required by this Section XII.B.(l) shall be null and void
and shall constitute a material breach of this Agreement, for which Franchisor
may then terminate this Agreement without opportunity to cure pursuant to
Section XIII.C.(5) of this Agreement.
(2) Franchisor shall not unreasonably withhold its consent to a
transfer of any interest in Franchisee, in the franchised business or in this
Agreement. Franchisor may, in its sole discretion, require any or all of the
following as conditions of its approval:
(a) All of Franchisee's accrued monetary obligations and all
other outstanding obligations to Franchisor, its subsidiaries and its affiliates
shall have been satisfied;
(b) Franchisee is not in material default of any provision
of this Agreement, any amendment hereof or successor hereto, or any other
agreement between Franchisee and Franchisor, or its subsidiaries and affiliates;
(c) The transferor shall have executed a general release, in
a form satisfactory to Franchisor, of any and all claims against Franchisor and
its officers, directors, shareholders and employees, in their corporate and
individual capacities, including, without limitation, claims arising under this
Agreement and federal, state and local laws, rules and ordinances;
(d) If the transferee is the Operating Principal or the
Operating Designee, then the requirements of Section V.D. shall be satisfied by
such transferee;
(e) If the transferee is a Franchisee's Principal, then the
requirements of Section V.B.(8) shall be satisfied by such transferee;
(f) The transferee shall enter into a written agreement, in
a form satisfactory to Franchisor, assuming full, unconditional, joint and
<PAGE>
several liability for and agreeing to perform from the date of the transfer, all
obligations, covenants and agreements contained in this Agreement which the
transferor was obligated to perform. If, however, the transferee is to become an
Operating Principal, Operating Designee, or Franchisee's Principal, such
transferee shall be required to enter into a written agreement, in a form
reasonably satisfactory to Franchisor assuming full, unconditional, joint and
several liability for and agreeing to perform from the date of the transfer, all
obligations, covenants, and agreements contained in this Agreement;
(g) The transferee shall demonstrate to Franchisor's
satisfaction that transferee meets the criteria considered by Franchisor when
reviewing a prospective franchisee's application for a franchise including but
not limited to Franchisor's educational, managerial and business standards;
transferee's good moral character, business reputation and credit rating;
transferee's aptitude and ability to conduct the business franchised herein (as
may be evidenced by prior related business experience or otherwise);
transferee's financial resources and capital for operation of the business; and
the geographic proximity of other Chili's Grill & Bar restaurants owned or
operated by transferee and the territories or areas with respect to which
transferee is obligated to develop Chili's Grill & Bar restaurants pursuant to
any development agreement between Franchisor and Franchisee, in relation to the
Restaurant.
(h) At Franchisor's option, the transferee shall execute
(and/or, upon Franchisor's request, shall cause all interested parties to
execute), for a term ending on the expiration date of this Agreement and with
such renewal term as may be provided by this Agreement, the standard form
franchise agreement then being offered to new System franchisees and other
ancillary agreements as Franchisor may require for the franchised business,
which agreements shall supersede this Agreement and its ancillary documents in
all respects and the terms of which agreements may differ from the terms of this
Agreement, except that the percentage royalty fee and advertising contribution
shall remain unchanged; provided, however, that the transferee shall not be
required to pay any initial franchise fee;
(i) The transferee, at its expense, shall upgrade the
Restaurant to conform to the then-current standards and specifications of System
restaurants, and shall complete the upgrading and other requirements within the
time specified by Franchisor. Notwithstanding the foregoing, Franchisee shall
not be required to make any such upgrade unless at least fifty percent (50%) of
the restaurants of the same prototype or style owned or operated by Franchisor
have made the same or similar upgrade;
(j) If a transfer of all of Franchisee's interest in this
Agreement, Franchisee and any guarantor of Franchisee shall remain liable for
all of the obligations to Franchisor in connection with the franchised business
prior to the effective date of the transfer and shall execute any and all
instruments reasonably requested by Franchisor to evidence such liability;
(k) At the transferee's expense, the transferee, the
transferee's manager, the transferee's Operating Principal and the transferee's
Operating Designee, if applicable, shall complete any training programs then in
effect for franchisees upon such terms and conditions as Franchisor may
reasonably require;
(l) Franchisee shall pay a transfer fee in an amount
sufficient to reimburse Franchisor for its actual and reasonable costs and
expenses associated with reviewing the application to transfer, including,
without limitation, legal and accounting fees; and
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(m) If transferee is a corporation or a partnership,
transferee shall make and will be bound by any or all of the representations,
warranties and covenants set forth at Section V.B. as Franchisor requests.
Transferee shall provide to Franchisor evidence satisfactory to Franchisor that
the terms of Section V.B. have been satisfied and are true and correct on the
date of transfer.
(3) Franchisor will apply the transfer requirements set forth in
Section XII.B.(2) to all transfers requiring Franchisor's consent except a
Minority Interest Transfer (as hereinafter defined). Franchisor shall not
unreasonably withhold its consent to a transfer of any interest in Franchisee,
in the franchised business or in this Agreement. Minority Interest Transfer
shall be defined as a transfer or transfers by an interest holder or holders in
Franchisee or in a general partner of Franchisee wherein such interest holder(s)
do not include the Operating Principal and the Operating Designee.
Notwithstanding the foregoing, the Operating Principal and the Operating
Designee shall be permitted to transfer any direct or indirect ownership
interest in Developer provided that the voting control and minimum ownership
requirements set forth in Section V.D. of this Agreement continue to be
satisfied. Minority Interest Transfer shall be defined further to exclude any
transfer by an interest holder or holders in Franchisee or in a general partner
of Franchisee, which transfer(s) is/are reasonably calculated to be made in
conjunction with, as a part of, reasonably contemporaneous with, or in the same
transaction with, any transfer by the Operating Principal or Operating Designee.
Franchisor may, in its sole discretion, require any or all of the following as
conditions of its approval of a Minority Interest Transfer (except for a
Minority Interest Transfer or a series of Minority Interest Transfers (i) from
Holdings Group, Inc. to an investment partnership controlled by the controlling
shareholder of Tiger Management Corporation, (ii) in which, in the aggregate,
ten percent (10%) or less of the interest of the transferor is to be transferred
to (x) a partnership consisting solely of the transferor and his or her
relatives, or (y) a trust established by the transferor for the benefit of his
or her spouse or children), or (iii) in which additional limited partnership
interests in Franchisee are issued to certain key employees of, or consultants
to, Franchisee pursuant to Section 2.2 of Franchisee's Agreement of Limited
Partnership in an amount not to exceed twelve percent (12%) of the aggregate
limited partnership interests in Franchisee (after taking such issuance into
consideration), provided that each such transferee is already a limited partner
in Franchisee and will not become the Operating Principal, Operating Designee,
or a Franchisee's Principal:
(a) All of Franchisee's accrued monetary obligations and all
other outstanding obligations to Franchisor, its subsidiaries and its affiliates
shall have been satisfied;
(b) Franchisee is not in material default of any provision
of this Agreement, any amendment hereof or successor hereto, or any other
agreement between Franchisee and Franchisor, or its subsidiaries and affiliates;
(c) The transferor shall have executed a general release, in
a form satisfactory to Franchisor, of any and all claims against Franchisor and
its officers, directors, shareholders and employees, in their corporate and
individual capacities, including, without limitation, claims arising under this
Agreement and federal, state and local laws, rules and ordinances;
(d) The transferee, if such person is to become the
Operating Principal or the Operating Designee, or if a person or entity
described in Section VIII.B. of this Agreement (and upon Franchisor's request,
all interested parties), shall enter into a written agreement, in a form
satisfactory to Franchisor, assuming full, unconditional, joint and several
<PAGE>
liability for and agreeing to perform from the date of the transfer, the
covenants and agreements contained in Sections VII., VIII., and XV. of this
Agreement;
(e) The transferee shall demonstrate to Franchisor's
satisfaction the following: that transferee meets the criteria considered by
Franchisor when reviewing a prospective franchisee's application for a
franchise, including but not limited to, Franchisor's educational, managerial
and business standards; that transferee (if such transferee is to serve as the
Operating Principal, the Operating Designee, or as a Franchisee's Principal)
possesses a good moral character, business reputation and credit rating; that
transferee (if such transferee is to serve as the Operating Principal, the
Operating Designee, or as a Franchisee's Principal) has the aptitude and ability
to conduct the business franchised herein (as may be evidenced by prior related
business experience or otherwise); and that transferee has reasonably adequate
financial resources and capital to operate the business;
(f) Franchisee and any guarantor of Franchisee shall remain
liable for all of the obligations to Franchisor in connection with the
franchised business prior to the effective date of the transfer and shall
execute any and all instruments reasonably requested by Franchisor to evidence
such liability;
(g) The transferor shall pay a transfer fee in an amount
sufficient to reimburse Franchisor for its actual and reasonable costs and
expenses associated with reviewing the application to transfer, including,
without limitation, legal and accounting fees; and
(h) If transferee is a corporation or a partnership,
transferee shall make and will be bound by any or all of the representations,
warranties and covenants set forth at Section V.B. as Franchisor requests.
Transferee shall provide to Franchisor evidence satisfactory to Franchisor that
the terms of Section V.B. have been satisfied and are true and correct on the
date of transfer.
(4) Franchisee shall not grant a security interest in the
franchised business or in any of its assets, without Franchisor's prior written
consent, which shall not be unreasonably withheld. In connection therewith, the
secured party will be required by Franchisor to agree that in the event of any
default by Franchisee under any documents related to the security interest,
Franchisor shall have the right and option to be substituted as obligor to the
secured party and to cure any default of Franchisee.
(5) Franchisee acknowledges and agrees that each condition which
must be met by the transferee is reasonable and necessary to assure such
transferee's full performance of the obligations hereunder.
C. TRANSFER FOR CONVENIENCE OF OWNERSHIP:
In the event the proposed transfer is to a corporation or
partnership formed solely for the convenience of ownership, Franchisor's consent
may be conditioned upon any of the requirements set forth at Section XII.B.(2),
except that the requirements set forth at Sections XII.B.(2)(c), (g), (h), (i),
(k) and (1) shall not apply. With respect to a transfer to a corporation or
partnership formed for the convenience of ownership, Franchisee shall be the
owner of all of the voting stock or interest of the corporation and if
Franchisee is more than one individual, each individual shall have the same
proportionate ownership interest in the corporation as he had in Franchisee
prior to the transfer.
<PAGE>
D. RIGHT OF FIRST REFUSAL:
(1) Any party holding any interest in this Agreement, in
Franchisee or in the franchised business who desires to accept any BONA FIDE
offer from a third party to purchase such interest shall promptly notify
Franchisor in writing of each 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 thirty (30) 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 XII.D. shall not constitute a waiver of any other provision of
this Agreement, including all of the requirements of this Section XII., with
respect to a proposed transfer.
(2) In the event an offer from a third party provides for payment
of consideration other than cash or involves certain intangible benefits,
Franchisor may elect to purchase the interest proposed to be sold for the
reasonable equivalent in cash. If the parties cannot agree within a reasonable
time on the reasonable equivalent in cash of the non-cash part of the offer,
then Franchisor shall appoint an independent appraiser and Developer shall
appoint an independent appraiser. In the event both parties do not select the
same appraiser, the two appraisers shall select a third appraiser which shall,
within thirty (30) days of appointment, determine the fair market value of the
non-cash part of the offer, and its determination shall be binding. If, however,
due to the comparative tax consequences of such transactions, Franchisor's cash
offer compares unfavorably to an offer made by a third party including, in whole
or in part, non-cash consideration, then Franchisee may elect to rescind its
acceptance of such third party offer and Franchisor shall have no right of first
refusal with respect to such offer.
(3) Notwithstanding anything in this Section XII.D. to the
contrary, Franchisor agrees to waive the right of first refusal described herein
with respect to Minority Interest Transfers and transfers by the Operating
Principal and Operating Designee if the Operating Principal and the Operating
Designee will continue to satisfy the voting control and minimum ownership
requirements set forth in Section V.D. of this Agreement.
E. TRANSFER UPON DEATH OR PERMANENT DISABILITY:
(1) Upon the death of any person with an interest in this
Agreement, the franchised business or in Franchisee (the "Deceased"), the
executor, administrator or other personal representative of the Deceased shall
transfer such interest to a third party approved by Franchisor and meeting the
requirements set forth in this Agreement within twelve (12) months after the
death. If no personal representative is designated or appointed or no probate
proceedings are instituted with respect to the estate of the Deceased, then the
distributee of such interest must be approved by Franchisor. If the distributee
is not approved by Franchisor, then the distributee shall transfer such interest
to a third party approved by Franchisor within twelve (12) months after the
death of the Deceased.
(2) Upon the permanent disability of any person with an interest
in this Agreement, the franchised business or in Franchisee, Franchisor may, in
its sole discretion, require such interest to be transferred to a third party
<PAGE>
meeting the requirements set forth in this Agreement in accordance with the
conditions described in this Section XII. within twelve (12) months after notice
to Franchisee. "Permanent disability" shall mean any physical, emotional or
mental injury, illness or incapacity which would prevent a person from
performing the obligations set forth in this Agreement or in the Guaranty
attached to this Agreement for at least ninety (90) consecutive days and from
which condition recovery within ninety (90) days from the date of determination
of disability is unlikely. Permanent disability shall be determined by a
licensed practicing physician selected by Franchisor upon examination of the
person; or if the person refuses to submit to an examination, then such person
shall be automatically deemed permanently disabled as of the date of such
refusal for the purpose of this Section XII. The costs of any examination
required by this Section XII.E.(2) shall be paid by Franchisor.
(3) Upon the death or claim of permanent disability of any person
with an interest in this Agreement, the franchised business or in Franchisee,
Franchisee or a representative of Franchisee must promptly notify Franchisor of
such death or claim of permanent disability. Any transfer upon death or
permanent disability shall be subject to the same terms and conditions as
described in Section XII. for any INTER VIVOS transfer. If an interest is not
transferred upon death or permanent disability as required in this Section
XII.E., in accordance with the terms and conditions of this Section XII.,
Franchisor may terminate this Agreement.
F. NON-WAIVER OF CLAIMS:
Franchisor's consent to a transfer of any interest in the franchise
granted herein shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
G. 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 (whether or not Franchisor's consent is required under Section
XII.B. hereof), which consent shall not be unreasonably withheld. All materials
required for such offering by federal or state law shall be submitted to
Franchisor for a limited review as discussed below 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 such review prior to their use. No
Franchisee offering shall imply (by use of the Proprietary Marks or otherwise)
that Franchisor is participating in an underwriting, issuance or offering of
Franchisee or Franchisor securities; and Franchisor's review of any offering
shall be limited solely to the subject of the relationship between Franchisee
and Franchisor. Franchisor may, at its option, require Franchisee's offering
materials to contain a written statement prescribed by Franchisor concerning the
limitations described in the preceding sentence. Franchisee and the other
participants in the offering must 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 thirty (30) days prior to the date of commencement of any offering or
other transaction covered by this Section XII.G.
XIII. DEFAULT AND TERMINATION
<PAGE>
A. Franchisee acknowledges and agrees that each of the Franchisee's
obligations described in this Agreement is a material and essential obligation
of Franchisee; that nonperformance of such obligations will adversely and
substantially affect the Franchisor and the System; and agrees that the exercise
by Franchisor of the rights and remedies set forth herein are appropriate and
reasonable.
B. 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 makes a general assignment
for the benefit of creditors; or if Franchisee files a voluntary petition under
any section or chapter of federal bankruptcy laws or under any similar law or
statute of the United States or any state thereof, or admits in writing its
inability to pay its debts when due; or if Franchisee is adjudicated a bankrupt
or insolvent in proceedings filed against Franchisee under any section or
chapter of federal bankruptcy laws or under any similar law or statute of the
United States or any state thereof, or if a bill in equity or other proceeding
for the appointment of a receiver of Franchisee or other custodian for
Franchisee's business or assets is filed and consented to by Franchisee; 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 any state
or federal law should be instituted by or against Franchisee and are not
dismissed within thirty (30) days; or if a final judgment remains unsatisfied or
of record for thirty (30) days or longer (unless supersedeas bond is filed); or
if Franchisee is dissolved; or if execution is levied against Franchisee's
business or property and such execution is not lifted, released, or dismissed
within thirty (30) days; or if suit to foreclose any lien or mortgage against
the Restaurant premises or equipment is instituted against Franchisee and not
dismissed within thirty (30) days; or if the real or personal property of
Franchisee's Restaurant shall be sold after levy thereupon by any sheriff,
marshal or constable; or if any legal entity affiliated with Franchisee (or
having the same or substantially similar management and ownership composition to
Franchisee including, but not limited to, NE Restaurant (Cambridge) Limited
Partnership, a Massachusetts limited partnership, and NE Restaurant
(Glastonbury) Limited Partnership, a Connecticut limited partnership) which is
the franchisee under a separate Franchise Agreement with Franchisor, or is the
developer under any Development Agreement with Franchisor, is in default under
any similar provision or provisions of such other Franchise Agreement or
Development Agreement. If Franchisee is a limited partnership, all of the events
of default described in this Section XIII.B. shall be read to include similar
events involving Franchisee's general partner.
C. 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, effective immediately
upon notice to Franchisee, upon the occurrence of any of the following events:
(1) If Franchisee at any time forfeits the right to do or
transact business in the jurisdiction where the Restaurant is located and such
right is not reinstated within ten (10) days thereafter, ceases to operate or
otherwise abandons the franchised business, or loses the right to possession of
the premises. Notwithstanding the foregoing, if the Restaurant is damaged by
fire or other casualty, Franchisee shall, at its sole cost and expense,
expeditiously repair such damage as soon as possible after the occurrence
thereof. In the event such casualty loss requires the closing of the Restaurant
for more than ninety (90) days, then unless repair and reconstruction work has
commenced in earnest within such ninety (90) day period, and unless the
Restaurant is reopened and in full operation no later than one (1) year after
the date of such casualty, then same shall constitute a default hereunder.
<PAGE>
Provided that the prior written approval of Franchisor is obtained, 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 Restaurant is not in operation due to fire or other casualty, Franchisee may
construct and open a different Restaurant within the trade area of such damaged
Restaurant within one (1) year after the date of such casualty loss. Such
substituted Restaurant shall be exempt from the Restaurant franchise fee
requirement provided for in Section IV.A. of this Agreement.
(2) If Franchisee, the Operating Principal, the Operating
Designee, or any of Franchisee's Principals is convicted of 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;
(3) If a threat or danger to public health or safety results from
the construction, maintenance, or operation of the Restaurant and same is not
cured within thirty (30) days after Franchisee is notified of such threat or
danger;
(4) If Franchisee fails to propose a qualified Operating
Principal, or Operating Designee, or any replacement thereof, within a
reasonable time as required under Section V.D. hereof;
(5) If Franchisee or any partner or shareholder in Franchisee
purports to transfer any rights or obligations under this Agreement or any
interest in Franchisee or the franchised business to any third party without
Franchisor's prior written consent, contrary to the terms of Section XII. of
this Agreement;
(6) If Franchisee, the Operating Principal, the Operating
Designee, or any of Franchisee's Principals fails to comply with the in-term
covenants in Section XV.B. hereof or Franchisee fails to obtain execution of the
covenants and related agreements required under Sections VIII.B. or XV.H.
hereof,
(7) If, contrary to the terms of Sections VII. or VIII. hereof,
Franchisee, the Operating Principal, the Operating Designee, or any of
Franchisee's Principals discloses or divulges the contents of the MOD Manual or
other confidential information provided to Franchisee, the Operating Principal,
the Operating Designee, or Franchisee's Principals by Franchisor;
(8) If a transfer upon death or permanent disability is not
transferred in accordance with Section XII. within the time periods required by
Section XII.E. hereof;
(9) If Franchisee knowingly maintains false books or records, or
submits any false reports to Franchisor;
(10) If Franchisee breaches any of the covenants set forth in
Section V.B. or has falsely made any of the representations or warranties set
forth in Section V.B.;
(11) If Franchisee repeatedly is in default under Section XIII.D.
hereof for failure substantially to comply with any of the requirements imposed
by this Agreement, whether or not cured after notice; or
(12) If any legal entity affiliated with Franchisee (or having
the same or substantially similar management and ownership composition to
<PAGE>
Franchisee) which is the franchisee under a separate Franchise Agreement with
Franchisor, is in default of any similar provision or provisions of such other
Franchise Agreement.
D. Except as provided in Sections XIII.B. and C. 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 thirty (30) days prior
to the effective date of termination; provided, however, that Franchisee may
avoid termination by immediately initiating a remedy to cure such default and
curing it to Franchisor's satisfaction within the thirty-day period, and by
promptly providing proof thereof to Franchisor. If any such default is not cured
within the specified time, or such longer period as applicable law may require
or as Franchisor may deem appropriate in its sole and absolute discretion, this
Agreement shall terminate without further notice to Franchisee effective
immediately upon the expiration of the thirty-day period or such longer period
as applicable law may require or as Franchisor may grant in its sole and
absolute discretion. Defaults which are susceptible of cure hereunder may
include, but are not limited to, the following illustrative events:
(1) If Franchisee fails to comply with any of the requirements
imposed by this Agreement, as it may from time to time be amended or reasonably
be supplemented by the MOD Manual, or fails to carry out the terms of this
Agreement in good faith.
(2) If Franchisee fails, refuses, or neglects promptly to pay any
monies owing to Franchisor or its subsidiaries or affiliates when due, or to
submit the financial or other information required by Franchisor under this
Agreement.
(3) If Franchisee fails to maintain or observe any of the
standards or procedures prescribed by Franchisor in this Agreement, the MOD
Manual, or otherwise in writing.
(4) Except as provided in Section XIII.C.(5) hereof, if
Franchisee fails, refuses, or neglects to obtain Franchisor's prior written
approval or consent as required by this Agreement.
(5) If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks or otherwise materially impairs the goodwill associated
therewith or Franchisor's rights therein.
(6) If Franchisee engages in any business or markets any service
or product under a name or mark which, in Franchisor's opinion, is confusingly
similar to the Proprietary Marks.
XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION
Upon termination or expiration of this Agreement, all rights granted
hereunder to Franchisee shall forthwith terminate, and:
A. Franchisee shall immediately cease to operate the business
franchised under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a present or former
franchisee of Franchisor.
B. Franchisee shall immediately and permanently cease to use, in any
manner whatsoever, any confidential methods, procedures and techniques
associated with the System; the Proprietary Mark "CHILI'S(R)"; and all other
Proprietary Marks and distinctive forms, slogans, signs, symbols, and devices
<PAGE>
associated with the System. In particular, Franchisee shall cease to use,
without limitation, all signs, advertising materials, displays, stationery,
forms and any other articles which display the Proprietary Marks.
C. Franchisee shall take such action as may be necessary to cancel any
assumed name or equivalent registration which contains the mark "CHILI'S(R)" or
any other service mark or trademark of Franchisor, and Franchisee shall furnish
Franchisor with evidence satisfactory to Franchisor of compliance with this
obligation within five (5) days after termination or expiration of this
Agreement.
D. 1. If Franchisee operates the Restaurant under a lease for the
Restaurant premises with a third party, Franchisee shall, at Franchisor's
option, assign to Franchisor any interest which Franchisee has in any lease or
sublease for the premises of the franchised business. Franchisor may exercise
such option at or within thirty (30) days after either termination or (subject
to any existing right to renew) expiration of this Agreement. In the event
Franchisor exercises such option and acquires the lease or sublease for the
premises of the franchised business, Franchisee shall indemnify and hold
harmless Franchisor for any claim, loss, cost, or damage relating to a period of
time prior to the acquisition of such lease or sublease, and Franchisor shall
indemnify and hold harmless Franchisee for any claim, loss, cost, or damage
relating to a period of time after the acquisition of such lease or sublease. In
the event Franchisor does not elect to exercise its option to acquire the lease
or sublease for the premises of the franchised business, Franchisee shall make
such modifications or alterations to the premises operated hereunder (including,
without limitation, the changing of the telephone number) immediately upon
termination or expiration of this Agreement as may be necessary to distinguish
the appearance of said premises from that of other restaurants under the System,
and shall make such specific additional changes thereto as Franchisor may
reasonably request for that purpose. In the event Franchisee fails or refuses to
comply with the requirements of this Section XIV., Franchisor shall have the
right to enter upon the premises where Franchisee's franchised business was
conducted, without being guilty of trespass or any other tort, for the purpose
of making or causing to be made such changes as may be required, at the expense
of Franchisee, which expense Franchisee agrees to pay upon demand.
2. Except as provided in Section XIV.D.3., Franchisor shall have
the option, to be exercised within thirty (30) days after termination or
expiration of this Agreement, to purchase from Franchisee any or all of the
furnishings, equipment, signs, fixtures, supplies, or inventory of Franchisee
related to the operation of the franchised business, at Franchisee's cost or
fair market value, whichever is less. Franchisor shall be purchasing
Franchisee's assets only and shall be assuming no liabilities whatsoever.
If the parties cannot agree on a fair market value within thirty
(30) days after Franchisor's exercise of its option, then Franchisor shall
appoint an independent appraiser and Franchisee shall appoint an independent
appraiser. In the event both parties do not select the same appraiser, the two
appraisers shall select a third appraiser which shall, within thirty (30) days
of appointment, determine the fair market value of the non-cash part of the
offer and its determination shall be binding. In the event of such appraisal,
each party shall bear its own legal and other costs and shall split the
appraisal fees. If Franchisor elects to exercise any option to purchase herein
provided, it shall have the right to set off all amounts due from Franchisee
hereunder, against any payment therefor.
3. In addition to the options described in Section XIV.D. 1. and
2. and if Franchisee owns the Restaurant premises, Franchisor shall have the
option, to be exercised at or within thirty (30) days after termination or
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expiration of this Agreement, to purchase the Restaurant premises including any
building thereon, if applicable, for the fair market value of the land and
building, and the furnishings, equipment, signs, fixtures, supplies and
inventory therein at Franchisee's cost or fair market value, whichever is less.
Fair market value shall be determined using the procedure described in Section
XIV.D.2. Franchisor shall be purchasing assets only and shall be assuming no
liabilities whatsoever. If Franchisee does not own the land on which the
Restaurant is operated and Franchisor exercises its option for an assignment of
the lease, Franchisor may exercise this option for the purpose of purchasing the
building if owned by Franchisee and related assets as described above.
4. With respect to the options described in Section XIV.D. L,
Franchisee shall deliver to Franchisor in a form satisfactory to Franchisor,
such warranties, deeds, releases of lien, bills of sale, assignments and such
other documents and instruments which Franchisor deems necessary in order to
perfect Franchisor's title and possession in and to the properties being
purchased or assigned and to meet the requirements of all tax and government
authorities.
5. The time for closing of the purchase and sale of the
properties described in Section XIV.D.2. and 3. shall be a date not later than
thirty (30) days after the purchase price is determined by the parties or the
determination of the appraisers, whichever is later, unless the parties mutually
agree to designate another date. The time for closing on the assignment of the
lease described in Section XIV.D.1. shall be a date no later than ten (10) days
after Franchisor's exercise of its option thereunder unless Franchisor is also
exercising its options under Section XIV.D.2. or D.3. in which case the date of
the closing shall be on the same closing date prescribed for such options, as
applicable. Closing shall take place at Franchisor's corporate offices or at
such other location as the parties may agree.
E. Franchisee agrees, in the event it continues to operate or
subsequently begins to operate any other business, not to use any reproduction,
counterfeit, copy or colorable imitation of the Proprietary Marks, either in
connection with such other business or the promotion thereof, which is likely to
cause confusion, mistake, or deception, or which is likely to dilute
Franchisor's rights in and to the Proprietary Marks, and further agrees not to
utilize any designation of origin or description or representation which falsely
suggests or represents an association or connection with Franchisor constituting
unfair competition.
F. Franchisee shall promptly pay all sums owing to Franchisor and its
subsidiaries and affiliates. In the event of termination for any default of
Franchisee, such sums shall include all damages, costs and expenses, including
reasonable attorneys' fees, incurred by Franchisor as a result of the default,
which obligation shall give rise to and remain, until paid in full, a lien in
favor of Franchisor against any and all of the personal property, furnishings,
equipment, signs, fixtures, and inventory owned by Franchisee and on the
premises operated hereunder at the time of default.
G. Franchisee shall pay to Franchisor all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor subsequent to the
termination or expiration of this Agreement in obtaining injunctive or other
relief for the enforcement of any provisions of this Section XIV.
H. Franchisee shall immediately deliver to Franchisor all manuals,
including the MOD Manual, records, files, instructions, correspondence, all
materials related to operating the franchised business, including, without
limitation, brochures, agreements, invoices, and any and all other materials
relating to the operation of the franchised business in Franchisee's possession,
<PAGE>
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, except
Franchisee's copy of this Agreement, Franchisee's business and financial
records, and copies of any correspondence between the parties and any other
documents which Franchisee reasonably needs for compliance with any provision of
law.
I. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals shall comply with the restrictions on confidential
information contained in Section VIII.A. and the covenants contained in Section
XV.B. of this Agreement. Any other person required to execute similar covenants
pursuant to Sections VIII.B. or XV.H. shall also comply with such covenants.
XV. COVENANTS
A. Franchisee and the Operating Principal covenant that during the
term of this Agreement except as otherwise approved in writing by Franchisor,
Franchisee, and either the Operating Principal or the Operating Designee shall
devote full time, energy, and best efforts to the management and operation of
the business franchised hereunder.
B. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals specifically acknowledge that, pursuant to this
Agreement, Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals will receive valuable specialized training, trade
secrets and confidential information, including, without limitation, information
regarding the operational, sales, promotional and marketing methods and
techniques of Franchisor and the System which is beyond the present skills and
experience of Franchisee, the Operating Principal, the Operating Designee,
Franchisee's Principals and Franchisee's managers and employees. Franchisee, the
Operating Principal, the Operating Designee, and Franchisee's Principals
acknowledge that such training, trade secrets and confidential information
provide a competitive advantage and will be valuable to them in the development
of the franchised business, and that gaining access to such training, trade
secrets and confidential information is, therefore, a primary reason why they
are entering into this Agreement. In consideration for such training, trade
secrets and confidential information, Franchisee, the Operating Principal, the
Operating Designee, and Franchisee's Principals covenant that during the term of
this Agreement (or, with respect to the Operating Principal, during the term of
this Agreement for so long as such person owns any interest in Franchisee or,
with respect to the Operating Designee, during the term of this Agreement for so
long as such person serves as the Operating Designee on behalf of Franchisee and
the Operating Principal or, with respect to each of Franchisee's Principals,
during the term of this Agreement for so long as such individual or entity
satisfies the definition of "Franchisee's Principals" as described in Section
XXI.F. of this Agreement), and for a continuous uninterrupted period commencing
upon the expiration or termination of this Agreement, regardless of the cause
for termination (or, with respect to the Operating Principal or each of
Franchisee's Principals, commencing upon the earlier of: (i) the expiration or
termination of this Agreement, or (ii) with respect to the Operating Principal,
the termination of all of the Operating Principals' interest in Franchisee; or,
with respect to the Operating Designee, during the term of this Agreement for so
long as such person serves as the Operating Designee on behalf of Franchisee and
the Operating Principal; or, with respect to each of Franchisee's Principals,
the time such individual or entity ceases to satisfy the definition of
"Franchisee's Principals" as described in Section XXI.F. of this Agreement) and
continuing for two (2) years thereafter (except in the case of restaurant
managers, to whom such two (2) year period shall not be applicable), and as
otherwise approved in writing by the Franchisor, neither Franchisee, the
Operating Principal, the Operating Designee, nor Franchisee's Principals shall,
<PAGE>
directly or indirectly, for themselves, or through, on behalf of or in
conjunction with any person, persons, partnership, or corporation:
(1) Divert or attempt to divert any business or customer of the
business franchised hereunder to any competitor, by direct or indirect
inducement or otherwise, or do or perform, directly or indirectly, any other act
injurious or prejudicial to the goodwill associated with Franchisor's
Proprietary Marks and the System.
(2) Employ or seek to employ any person who is at that time
employed by Franchisor or by any other franchisee or developer of Franchisor, or
otherwise directly or indirectly induce such person to leave his or her
employment.
(3) Own, maintain, operate, engage in, or have any interest in
any business in the United States which is in the full-service casual dining
market segment of the restaurant industry having as a primary menu item any of
the following: hamburgers or other sandwiches, salads, barbecue ribs, fajitas,
and other Southwestern and Mexican-style cuisine. The current seven percent (7%)
ownership interest of Dennis Pedra in Uno Concepts, Inc. shall not be deemed to
be a violation of this Section XV.B.(3) although no new or additional
investments in Uno Concepts, Inc. or in any other restaurant business shall be
permitted by Dennis Pedra.
C. Section XV.B.(3) shall not apply to ownership of less than ten
percent (10%) beneficial interest in the outstanding equity securities of any
publicly-held corporation.
D. 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 XV. is held unreasonable or
unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which Franchisor is a party, Franchisee, the Operating
Principal, the Operating Designee, and Franchisee's Principals expressly agree
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
were separately stated in and made a part of this Section XV.
E. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals understand and acknowledge that Franchisor shall have
the right, in its sole discretion, to reduce the scope of any covenant set forth
in Section XV.B. in this Agreement, or any portion thereof, without their
consent, effective immediately upon notice to Franchisee; and Franchisee, the
Operating Principal, the Operating Designee, and Franchisee's Principals agree
that they shall comply forthwith with any covenant as so modified, which shall
be fully enforceable notwithstanding the provisions of Section XX. hereof.
F. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals expressly agree that the existence of any claims they
may have against Franchisor, whether or not arising from this Agreement, shall
not constitute a defense to the enforcement by Franchisor of the covenants in
this Section XV. If either Franchisor or Franchisee institutes any action or
proceeding seeking legal or equitable relief in connection with enforcement of
this Section XV, then the non-prevailing party in such action or proceeding
shall reimburse the prevailing party for its reasonable expenses, attorneys'
fees, investigation costs, and all costs and disbursements incurred herein by
the prevailing party, including without limitation, any such reasonable fees,
costs, or disbursements incurred on any appeal from such action or proceeding.
G. Franchisee, the Operating Principal, the Operating Designee, and
<PAGE>
Franchisee's Principals acknowledge that a violation of the terms of this
Section XV. or the willful and knowing aiding or abetting of a third party in an
action which would be a violation of this Section XV. if such third party was a
party to this Agreement would result in irreparable injury to Franchisor for
which no adequate remedy at law may be available, and Franchisee, the Operating
Principal, the Operating Designee, and Franchisee's Principals accordingly
consent to the issuance of an injunction prohibiting any conduct by Franchisee,
the Operating Principal, the Operating Designee, or Franchisee's Principals in
violation of the terms of this Section XV.
H. At Franchisor's request, Franchisee shall require and obtain
execution of covenants similar to those set forth in this Section XV. (including
covenants applicable upon the termination of a person's relationship with
Franchisee) from its restaurant managers, members of its advisory board, any
other person or entity who has received or will receive training or confidential
information from Franchisor and any corporation directly or indirectly
controlling Franchisee, if Franchisee is a corporation (or of any corporate
general partner and any individual or corporation directly or indirectly
controlling a general partner of Franchisee, if Franchisee is a partnership).
The covenants required by this Section XV.H. shall be substantially in the form
contained in Attachment B for Franchisee's restaurant managers and other persons
having access to confidential information of Franchisor, Attachment C for Lee
Ainslie (and his successors on Franchisee's advisory board), Attachment D for
Alan McDowell, and Attachment E for Thomas Devlin. Failure by Franchisee to
obtain execution of the covenants required by this Section XV.H. shall
constitute a default under Section XIII.C.(6) hereof.
XVI. TAXES, PERMITS AND INDEBTEDNESS
A. Franchisee shall promptly pay when due all taxes levied or
assessed, including, without limitation, unemployment and sales taxes, and all
accounts and other indebtedness of every kind incurred by Franchisee in the
conduct of the business franchised under this Agreement. Franchisee shall pay to
Franchisor an amount equal to any sales tax, gross receipts tax, or similar tax
(other than income tax) imposed on Franchisor with respect to any payments to
Franchisor required under this Agreement, unless the tax is credited against
income tax otherwise payable by Franchisor.
B. In the event of any BONA FIDE dispute as to Franchisee's liability
for taxes assessed or other indebtedness, Franchisee may contest the validity or
the amount of the tax or indebtedness in accordance with procedures of the
taxing authority or applicable law; however, in no event shall Franchisee permit
a tax sale or seizure by levy of execution or similar writ or warrant, or
attachment by a creditor, to occur against the premises of the franchised
business, or any improvements thereon.
C. Franchisee shall comply with all federal, state and local laws,
rules and regulations, and shall timely obtain any and all permits,
certificates, or licenses necessary for the full and proper conduct of the
business franchised under this Agreement, including, without limitation,
licenses to do business, fictitious name registrations, sales tax permits and
fire clearances.
D. Franchisee shall notify Franchisor in writing within five (5) days
of the commencement of any action, suit, or proceeding, and of the issuance of
any order, writ, injunction, award, or decree of any court, agency, or other
governmental instrumentality, which may adversely affect the operation or
financial condition of the franchised business.
XVII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
<PAGE>
A. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that Franchisee
shall be an independent contractor, and that nothing in this Agreement is
intended to constitute either party an agent, legal representative, subsidiary,
joint venturer, partner, employee, or servant of the other for any purpose
whatsoever.
B. During the term of this Agreement and any extensions hereof,
Franchisee shall hold itself out to the public as an independent contractor
operating the business pursuant to a franchise from Franchisor. Franchisee
agrees to take such action as may be necessary to do so, including, without
limitation, exhibiting a notice of that fact in a conspicuous place in the
franchised premises, the content of which Franchisor reserves the right to
specify.
C. It is understood and agreed that nothing in this Agreement
authorizes Franchisee, the Operating Principal, the Operating Designee, or any
of Franchisee's Principals to make any contract, agreement, warranty, or
representation on Franchisor's behalf, or to incur any debt or other obligation
in Franchisor's name; and that Franchisor shall in no event assume liability
for, or be deemed liable hereunder as a result of, any such action; nor shall
Franchisor be liable by reason of any act or omission of Franchisee in its
conduct of the franchised business or for any claim or judgment arising
therefrom against Franchisee or Franchisor. Franchisee shall indemnify and hold
Franchisor, and Franchisor's officers, directors, and employees harmless against
any and all claims arising directly or indirectly from, as a result of, or in
connection with Franchisee's operation of the franchised business, as well as
the costs, including attorneys' fees, of defending against them, except for
claims arising directly or indirectly from the negligence of Franchisor, its
officers, directors, or employees.
XVIII. APPROVALS AND WAIVERS
A. Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent shall be obtained in writing.
B. Franchisor makes no warranties or guarantees upon which Franchisee,
the Operating Principal, the Operating Designee, or Franchisee's Principals may
rely, and assumes no liability or obligation to Franchisee or such persons, by
providing any waiver, approval, consent, or suggestion to Franchisee, the
Operating Principal, the Operating Designee, or Franchisee's Principals in
connection with this Agreement, or by reason of any neglect, delay, or denial of
any request therefor.
C. No delay, waiver, omission, or forbearance on the part of
Franchisor to exercise any right, option, duty, or power arising out of any
breach or default by Franchisee, the Operating Principal, the Operating
Designee, or Franchisee's Principals under any of the terms, provisions,
covenants, or conditions hereof, shall constitute a waiver by Franchisor to
enforce any such right, option, duty, or power as against Franchisee, the
Operating Principal, the Operating Designee, or Franchisee's Principals, or as
to any subsequent breach or default. Subsequent acceptance by Franchisor of any
payments due to it hereunder shall not be deemed to be a waiver by Franchisor of
any preceding breach by Franchisee, the Operating Principal, the Operating
Designee, or Franchisee's Principals of any terms, provisions, covenants, or
conditions of this Agreement.
XIX. NOTICES
<PAGE>
Any and all notices required or permitted under this Agreement shall
be in writing and shall be personally delivered or mailed by expedited delivery
service or certified or registered mail, return receipt requested, or sent by
prepaid telex or facsimile (provided the sender confirms the telex or facsimile
by sending an original confirmation copy thereof by certified or registered mail
or expedited delivery service within three (3) business days after transmission
thereof) to the respective parties at the following addresses unless and until a
different address has been designated by written notice to the other party:
Notices to Franchisor: Brinker International, Inc.
6820 LBJ Freeway
Dallas, Texas 75240
Attention: General Counsel
Notices to Franchisee,
Operating Principal,
Operating Designee,
and Franchisee's Principals:
NE Restaurant Company, Inc.
300 Pond Street
Randolph, Massachusetts 02368
Any notice shall be deemed to have been given at the time of personal
delivery or, in the case of facsimile or telex, upon receipt (provided
confirmation is sent as described above) or, in the case of expedited delivery
service or registered or certified mail, three (3) business days after the date
and time of mailing. Business day for the purpose of this Section XIX. excludes
Saturday, Sunday, and the following national holidays: New Year's Day, Martin
Luther King Day, Washington's Birthday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving, and Christmas.
XX. ENTIRE AGREEMENT
This Agreement, the documents referred to herein, and the Attachment
hereto constitute the entire, full and complete Agreement between Franchisor and
Franchisee concerning the subject matter hereof, and shall supersede all prior
agreements, no other representations having induced Franchisee to execute this
Agreement. Except for those permitted to be made unilaterally by Franchisor
hereunder, no amendment, change, or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties and executed by
their authorized officers or agents in writing.
XXI. SEVERABILITY AND CONSTRUCTION
A. Except as expressly provided to the contrary herein, each portion,
section, 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 of, 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 and bind the parties hereto; and said invalid
portions, sections, parts, terms and/or provisions shall be deemed not to be a
part of this Agreement.
B. Except as 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 officers,
<PAGE>
directors, and employees, and such of Franchisee's and Franchisor's respective
successors and assigns as may be contemplated (and, as to Franchisee, permitted)
by Section XII. hereof, any rights or remedies under or by reason of this
Agreement.
C. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals, as applicable, expressly agree to be bound by any
promise or covenant imposing the maximum duty permitted by law which is subsumed
within the terms of any provision hereof, as though it were separately
articulated in and made a part of this Agreement, that may result from striking
from any of the provisions hereof any portion or portions which a court may hold
to be unreasonable and unenforceable in a final decision to which Franchisor is
a party, or from reducing the scope of any promise or covenant to the extent
required to comply with such a court order.
D. All captions in this Agreement are intended solely for the
convenience of all parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
E. All references herein to the masculine, neuter, or singular shall
be construed to include the masculine, feminine, neuter, or plural, where
applicable; and, without limiting the obligations individually undertaken by the
Operating Principal and Franchisee's Principals hereunder, all acknowledgments,
promises, covenants, agreements and obligations herein made or undertaken by
Franchisee shall be deemed jointly and severally undertaken by all those
executing this Agreement on behalf of Franchisee.
F. The term "Franchisee's Principals" as used in this Agreement shall
include, collectively or individually, Franchisee's spouse, if Franchisee is an
individual; all officers and directors of, and all other holders of a beneficial
interest of twelve percent (12%) or more of the securities of, Franchisee and
any corporation directly or indirectly controlling Franchisee, if Franchisee is
a corporation; the general partners of Franchisee and the officers and directors
of, and all other holders of a beneficial interest of twelve percent (12%) or
more of the securities of, a corporate general partner and any individual or
corporation which controls, directly or indirectly, any general partner, if
Franchisee is a partnership; and members of Franchisee's advisory board. For
purposes of this definition, the Operating Principal, the Operating Designee,
Thomas R. Devlin, Alan McDowell, and Holdings Group, Inc. shall not be
considered to be Franchisee's Principals.
G. This Agreement may be executed in triplicate, and each copy so
executed shall be deemed an original.
H. If at any time during the term of this Agreement either Franchisor
or Franchisee shall institute any action or proceeding against the other
relating to the provisions of this Agreement or any default hereunder, the
non-prevailing party in such action or proceeding shall reimburse the prevailing
party for its reasonable expenses, attorneys' fees, investigation costs, and all
costs and disbursements incurred herein by the prevailing party, including
without limitation any such reasonable fees, costs, or disbursements incurred on
any appeal from such action or proceeding.
XXII. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY
FRANCHISOR IN TEXAS, AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE LAWS
THEREOF (EXCEPT FOR TEXAS CHOICE OF LAW RULES).
B. THE PARTIES AGREE THAT ANY ACTION BROUGHT BY EITHER PARTY AGAINST
<PAGE>
THE OTHER IN ANY COURT, WHETHER FEDERAL OR STATE, SHALL BE BROUGHT WITHIN THE
STATE OF TEXAS IN THE JUDICIAL DISTRICT IN WHICH FRANCHISOR HAS ITS PRINCIPAL
PLACE OF BUSINESS; PROVIDED, HOWEVER, WITH RESPECT TO ANY ACTION WHICH INCLUDES
INJUNCTIVE RELIEF, FRANCHISOR MAY BRING SUCH ACTION IN ANY STATE WHICH HAS
JURISDICTION. THE PARTIES DO HEREBY WAIVE ALL QUESTIONS OF PERSONAL JURISDICTION
OR VENUE FOR THE PURPOSE OF CARRYING OUT THIS PROVISION.
C. No right or remedy conferred upon or reserved to Franchisor or
Franchisee by this Agreement is intended to be, nor shall be deemed, exclusive
of any other right or remedy herein or by law or equity provided or permitted,
but each shall be cumulative of every other right or remedy.
D. 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.
XXIII. ACKNOWLEDGMENTS
A. Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals acknowledge that they have conducted an independent
investigation of the business franchised hereunder, and recognize that the
business venture contemplated by this Agreement involves business risks and that
Franchisee's success will be largely dependent upon the ability of Franchisee,
the Operating Principal, the Operating Designee, and its Franchisee's Principals
as independent business people. Franchisor expressly disclaims the making of,
and Franchisee, the Operating Principal, the Operating Designee, and
Franchisee's Principals acknowledge not having received, any warranty or
guarantee, express or implied as to the potential volume, profits, or success of
the business venture contemplated by this Agreement.
B. Franchisee acknowledges that it received a copy of the complete
Chili's Grill & Bar Restaurant Franchise Agreement, the Attachments thereto, and
agreements relating thereto, if any, at least five (5) business days prior to
the date on which this Agreement was executed. Franchisee further acknowledges
that it has received the disclosure document required by the Trade Regulation
Rule of the Federal Trade Commission entitled "Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures" at least
ten (10) business days prior to the date on which this Agreement was executed.
C. Franchisee acknowledges that it has read and understood this
Agreement, the Attachments hereto, and agreements relating hereto, if any, and
that Franchisor has accorded Franchisee ample time and opportunity to consult
with advisors of Franchisee's own choosing about the potential benefits and
risks of entering into this Agreement.
IN WITNESS WHEREOF, the parties hereto have duty executed, sealed, and
delivered this Agreement in triplicate on the day and year first above written.
BRINKER INTERNATIONAL, INC.,
a Delaware corporation
SEAL
<PAGE>
By: _____________________________ By: _____________________________
Assistant Secretary Roger F. Thomson
Executive Vice President,
General Counsel and
Secretary
NE RESTAURANT COMPANY, INC.,
a Delaware corporation
SEAL
_____________________________ By: _____________________________
Secretary Paul Hoagland
Chief Financial Officer
_____________________________ _____________________________
Benjamin Jacobson,
Operating Principal
_____________________________ _____________________________
Witness Dennis Pedra,
Operating Designee
Each of the undersigned acknowledges and agrees as follows:
(1) Each has read the terms and conditions of this Franchise
Agreement;
(2) Each is included in the term "Franchisor's Principals" as
described in Section XXI.F. of this Franchise Agreement; and
(3) Each individually, jointly and severally makes all of the
covenants, representations and agreements of Franchisee's Principals set forth
in this Franchise Agreement and is obligated to perform thereunder.
ATTEST: FRANCHISEE'S PRINCIPALS
_____________________________ _____________________________
Witness Paul Hoagland
_____________________________ _____________________________
Witness Dennis Pedra
NE RESTAURANT COMPANY, INC., a
<PAGE>
Delaware corporation
_____________________________ By: _____________________________
Witness Benjamin R. Jacobson,
Chairman of the Board
GUARANTY
As an inducement to BRINKER INTERNATIONAL, INC. ("Franchisor") to
execute the foregoing Franchise Agreement, including the Attachments thereto of
even date, the undersigned, jointly and severally, hereby agree to be bound by
all the terms and conditions of the above Franchise Agreement including any
amendments or modifications thereto whenever made (hereinafter the "Agreement")
and unconditionally and irrevocably guarantee to Franchisor and its successors
and assigns that all of Franchisee's obligations under the Agreement will be
punctually paid and performed.
Upon default by Franchisee or notice from Franchisor, the undersigned
will immediately make each payment and perform each obligation required of
Franchisee under this Agreement. Without affecting the obligations of the
undersigned under this Guaranty, Franchisor may, without notice to the
undersigned, renew, extend, modify, amend, or release any indebtedness or
obligation of Franchisee, or settle, adjust, or compromise any claims against
Franchisee.
The undersigned waive all demands and notices of every kind with
respect to this Guaranty and the Agreement, including, without limitation,
notice of: the amendment or modification of this Guaranty or the Agreement, the
demand for payment or performance by Franchisee, any default by Franchisee or
any guarantor, and any release of any guarantor or other security for the
Agreement or the obligations of Franchisee.
Franchisor may pursue its rights against the undersigned without first
exhausting its remedies against Franchisee and without joining any other
guarantor hereto and no delay on the part of Franchisor in the exercise of any
right or remedy shall operate as a waiver of such right or remedy, and no single
or partial exercise by Franchisor of any right or remedy shall preclude the
further exercise of such right or remedy.
Upon receipt by Franchisor of notice of the death of an individual
guarantor, the estate of such guarantor will be bound by this Guaranty but only
for defaults and obligations hereunder existing at the time of death, and the
obligations of the other guarantors hereunder will continue in full force and
effect.
Notwithstanding anything herein to the contrary, this Guaranty shall
terminate and have no further force and effect as of one (1) year from the date
of execution of this Guaranty and the joint and several liability of the
undersigned for payments hereunder is limited to a total of Two Hundred Thousand
and No/100 Dollars ($200,000.00) (I.E., the aggregate liability for all of the
undersigned for payments hereunder is limited to $200,000.00).
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Guaranty this
22nd day of Sept., 1997.
GUARANTORS:
ATTEST WITNESS:
_______________________ By: _______________________
Benjamin Jacobson
ATTEST WITNESS:
_______________________ By: _______________________
Dennis Pedra
ATTEST WITNESS:
_______________________ By: _______________________
Paul Hoagland