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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1999
COMMISSION FILE NO. 1-12134
CUSIP NO. 286199-20-3
ELEPHANT & CASTLE GROUP INC.
(NAME OF SMALL BUSINESS ISSUER)
PROVINCE OF BRITISH COLUMBIA NOT APPLICABLE
(State or other (IRS Employer
jurisdiction of Identification Number)
incorporation)
856 Homer Street
VANCOUVER, B.C. CANADA V6B 2W5
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code: (604) 684-6451
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 13 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
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Issuer's revenues during the fiscal year ended December 26, 1999: CDN
$50,104,000 (converts at applicable exchange rates to U.S. $34,084,000).
Aggregate market value of voting stock held by non-affiliates of the Registrant
as at March 16, 2000: U.S.$5,289,209 (CDN $7,775,137).
Number of shares outstanding of Issuer's Common Stock as of December 26, 1999:
3,694,709. See footnote (a) below.
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
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<CAPTION>
NASDAQ Number of
Title of Each Class Symbol Shares Outstanding
- ------------------------------- ------ ------------------
<S> <C> <C>
Common Stock, without par value PUBFC 5,289,209(a)
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(a) Calculated as of March 16, 2000. In December 1999 the Company reached an
agreement with the holders of its 8% notes whereby US$1,582,500 of these
notes were to be converted into 1,582,500 shares. These shares were issued in
January 2000. This number is subject to adjustment for a "reverse split"
consolidation of the Company's share capital approved at the Extraordinary
General Meeting of shareholders held on March 23, 2000.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including statements made with respect to the results of operations and
businesses of the Company. Words such as "may," "should," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are based upon management's current plans, expectations, estimates
and assumptions and are subject to a number of risks and uncertainties that
could significantly affect current plans, anticipated actions and the Company's
financial condition and results of operations. Factors that may cause actual
results to differ materially from
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those discussed in such-forward looking statements include, among other, the
following possibilities: (i) fluctuations in foreign currency exchange rates;
(ii) heightened competition, the entry of new competitors; (iii) the
inability to carry out development plans or to do so without delays; (iv)
loss of key executives; and (v) general economic and business conditions. The
Company does not intend to update these cautionary statements.
ITEM 1 DESCRIPTION OF BUSINESS
a. GENERAL
As of the date of this report, the Company currently owns and
operates a chain of 24 full-service casual dining restaurants and pubs, 17 of
which are located in Canada and 7 of which are located in the United States.
Eighteen of the Registrant's restaurants are operated under the name
"Elephant & Castle", an English pub concept, five of which are in the United
States. In addition to the owned and operated units, there are 3 Elephant &
Castle franchises, including the first United States franchise, which opened
in Grove City, Pennsylvania in January, 2000.
The Company also owns and operates an "Alamo Grill" red meat
steakhouse at the Mall of America, Bloomington, Minnesota. The Company
intends to expand its chain of Alamo Grill steakhouse restaurants through
franchising. The first Alamo Grill franchise was opened in January 2000 in
Atlanta. Additional franchises are under negotiation.
The Company is also a joint venture partner with, and exclusive
licensee of, Rainforest Cafe, Inc. (NASDAQ: RAIN) for the development of
Rainforest Cafe restaurants in Canada through a joint venture entity,
Canadian Rainforest Restaurants Inc. ("CRRI"). CRRI's first Canadian
Rainforest Cafe restaurant opened in June of 1998 in Vancouver, B.C. The
second opened in Scarborough (Toronto) Canada, in early 1999, and a third
opened at Yorkdale, also in Toronto, Canada, in the summer of 1999. CRRI has
signed a lease for the development of a Rainforest Cafe in The Forum,
Montreal and additionally has sub-franchised Rainforest Cafe to Canadian
Niagara Hotels for the development of one Rainforest Cafe in Niagara,
Ontario. These units, when opened, will comprise
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the full extent of the Company's contractual commitment to open five
Rainforest Cafes in Canada by March 2001. The Company's continuing revenues
from its interest in the Canadian Rainforest Cafe restaurants constitute a
significant part of the Company's continuing revenues.
There are thus three focal points for the current and future
operations of the Company, [i] owned and operated pub and casual dining
restaurants both in the United States and Canada; [ii] licensed owned and
operated, and sublicensed Canadian Rainforest restaurants; and [iii]
franchising activities, relating to both Elephant & Castle and Alamo.
1999 RESULTS OF OPERATIONS
During 1999, the Company opened two Canadian Rainforest restaurants,
both in Metro Toronto, made current plans for one additional Canadian
Rainforest restaurant to be opened in The Forum, Montreal later this year,
and sub-franchised the Rainforest Cafe to Canadian Niagara Hotels for the
development of one restaurant in Niagara, Ontario. The Company also opened a
second Elephant & Castle restaurant in Toronto, Ontario during December, 1999.
In 1999, the Company's sales increased to CDN $50,104,000 from CDN
$42,630,000 for the comparable period in 1998.
The sales increase was achieved primarily through the opening of the
Canadian Rainforest Cafe restaurants and the operation for the full year of
the "twin" restaurant, comprising an Alamo Grill restaurant and an Elephant &
Castle restaurant operating from a common kitchen, in Franklin Mills,
Pennsylvania. See Management's Discussion and Analysis, Item 7 hereinafter.
During the fiscal year ended December 26, 1999, the Company incurred
a net loss of CDN $4,262,000 compared to a net loss of CDN $929,000 for the
corresponding period in 1998.
1999 results of operations reflect the costs associated with the
resolution of certain disputes and corporate restructuring and a decline in
income from restaurant operations from CDN $3,770,000 to CDN $2,844,000.
General and administrative expenses decreased from 8.5% of sales in 1998 to
6.8% of sales in 1999, partly as a result of administrative cost reduction
steps taken during the year. Interest on long term debt increased to CDN
$2,056,000 in 1999 from CDN $1,084,000 in 1998 due to increased borrowings
and higher interest cost.
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The Company resolved its long-standing legal dispute with Shilo Inns
in October, 1999. The settlement that was reached will result in cash
payments of US $400,000 over 24 months, plus the issue of 150,000 common
shares. A provision of CDN $775,000 was made in 1999 to cover the cost of
this settlement.
As part of a restructuring of corporate office operations,
employment contracts with two executive officers of the Company were not
renewed, and other corporate staff were terminated. CDN $867,000 was provided
for retiring allowances and other costs related to the restructuring.
A portion of a tax dispute that arose in 1989 has been resolved in
the Company's favour. The Company has reserved CDN $125,000 for the estimated
cost of settling the remainder.
FINANCINGS
1995 GEIPPP II FINANCING. In December of 1995, the Company completed
a major financing with a prominent U.S. private limited partnership money
manager, General Electric Investment Private Placement Partners II ("GEIPPP
II"). That financing ultimately added U.S. $1,000,000 (CDN $1,370,000) in
equity before issue costs and U.S. $9,000,000 (CDN $13,140,000) in
subordinated convertible notes to the Company's long term debt structure. In
October, 1999 the Company granted a security interest to GEIPPP II over
substantially all of its assets in exchange for a waiver of certain interest
payments, waiver of existing defaults and a relaxation of certain financial
covenants.
DELPHI FINANCING. In February of 1999, the Company completed an
additional private placement equity financing with a group of U.S. investors.
The financing was arranged by Delphi Financial Corporation of Minneapolis
Minnesota. In total the Company raised U.S. $3,265,000 (CDN $4,897,500) from
the sale and issuance of additional Subordinated Convertible Notes (the "'99
Notes"). The '99 Notes have a five year term, bear interest at 8% per annum
payable quarterly in arrears commencing on June 30, 1999, in cash or Common
Shares, to the extent fully registered Common Shares of the Company are
available, at the option of the Company. All of the '99 Notes unpaid and not
converted by December 31, 2003 are immediately due and payable on such date,
together with a 25% premium on the unpaid principal amount thereof. The terms
of the '99 Notes were renegotiated in October, 1999 following which
$1,582,000 of these `99 Notes were converted into common stock at $1 per
share in exchange for the waiver of penalties associated
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with the delay in registration of the underlying securities and adjustment to
the one year warrants to the terms noted below.
The Company has a right for optional redemption of the remaining `99
Notes at 100% of par, plus accrued and unpaid interest, from time to time
during the period that the '99 Notes are outstanding if the market price for
the Company's Common Shares equals or exceeds 150% of the conversion price
for fifteen (15) consecutive trading days, under certain circumstances. Each
of the holders of the '99 Notes also received one year warrants, extended to
three years, to purchase an equal number of Common Shares. The Warrants are
exercisable at U.S. $2.00 per share until 31st January, 2001 and at U.S.
$3.00 thereafter. GEIPPP II participated in the Delphi Financing, and
purchased U.S. $2,000,000 additional of the 1999 Notes, U.S. $1,000,000 of
which was subsequently converted into 1,000,000 Common Shares.
The additional financings described under the Delphi transactions
together have a significant dilutive effect on the existing warrant and
option instruments outstanding. U.S. $6,000,000 of the funds borrowed by the
Company from GEIPPP II are now convertible by it, at its option, at U.S.
$3.84 per share and U.S. $3,000,000 of such Notes are convertible at U.S.
$5.00 per share. If the '99 Notes expire without conversion and the Warrants
expire without exercise thereof, upward adjustments would apply with respect
to the GEIPPP II conversion and exercise prices. Similarly, if the GEIPPP II
instruments expire or terminate without conversion or exercise, corresponding
upward adjustments of exercise rights and number of shares purchasable would
impact on other existing instruments. At the present time, GEIPPP II has the
right through conversion privileges and warrant exercise rights to acquire
approximately 58.8% of the Company's Common Shares, assuming exercise of all
such rights and privileges.
RESTAURANTS IN OPERATION
ELEPHANT & CASTLE. At the Elephant & Castle restaurants, the Company
seeks to distinguish itself from competitive restaurants by its distinctive
British style and Tudor decor, and by featuring a wide variety of menu items
including a large number of English-style dishes. The Company's restaurants
offer a broad menu at popular prices. The menu is regularly updated to keep
up with current trends in customers' tastes. The average check per customer,
including beverage, was approximately CDN $14.00 during 1999, a number which
has more or less been stable since 1992. Although all of the Company's
restaurants provide full liquor service, alcoholic beverages are primarily
served to complement meals.
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MALL RESTAURANTS. The Company's mall restaurants average
approximately 5,000 square feet, with a typical seating capacity of 220. The
restaurants are open 7 days a week for lunch, dinner and late-night dining.
Average unit sales are approximately CDN $1,200,000 with a sales mix of
approximately 60% food and approximately 40% alcoholic beverages. Due to
their location at major downtown and suburban malls and office complexes, the
Elephant & Castle restaurants cater to both shoppers and office workers.
HOTEL RESTAURANTS. The Company has agreements for the operation of
restaurants in 5 hotel locations in Canada and the United States, including 3
Holiday Inn locations. The Winnipeg Crowne Plaza Holiday Inn Elephant &
Castle restaurant was opened on May 18, 1994. The Philadelphia Holiday Inn
unit was opened on February 28, 1995, and the San Diego Holiday Inn was
opened on July 1, 1996. The Boston, Massachusetts and Seattle, Washington
sites added in 1997 are in hotel locations other than Holiday Inn. The
Company hopes to build additional hotel restaurant units at first-class
hotels over the next several years. In the opinion of management, the three
key ingredients in the selection of hotel based units are: (1) the control of
occupancy costs; (2) the capacity to work synergistically with a hotel
management seeking to divorce itself from direct involvement in food and
beverage operations; and (3) the Company's ability to control the menu,
kitchen and restaurant amenities.
ALAMO GRILL. In October of 1996, the Company acquired all of the
capital stock of Alamo Grill, Inc. ("Alamo"), a one unit restaurant business
located at the Mall of America, Bloomington, Minnesota. The acquisition
provided the Company with a "red meat" concept restaurant. The single unit
Alamo has been operated successfully and profitably by the Company since its
acquisition. The new "Alamo Grill" restaurants (Registrant may use such name
or variants thereof) are casual steakhouse restaurants with a distinctive
southwestern design and theme. They are intended to be franchise restaurants
located primarily in U.S. hotels. The menu is positioned to deliver an
average spend of U.S. $14-16 Dollars for food at dinner. Each restaurant is
planned to be up to 6,500 square feet with up to a 240-seat capacity. See
also Franchising.
THE CANADIAN RAINFOREST CAFE VENTURE. As of May 1, 1997, the Company
signed agreements with Rainforest Cafe, Inc. ("RCI") relating to the Canadian
Rainforest Joint Venture. The agreements provide for the establishment of a
jointly-owned Canadian corporation, Canadian Rainforest Restaurants, Inc.
("CRRI") in by
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the power to nominate three of the five CRRI directors and by a management
agreement.
The Registrant simultaneously acquired from RCI an exclusive Area
Development Agreement for U.S. $500,000 (CDN $685,000), U.S. $250,000 (CDN
$343,000) paid in advance, and U.S. $50,000 (CDN $69,000) per annum thereafter
until the balance is paid. The Area Development Agreement has been assigned to
CRRI, the joint venture company. Each restaurant built within the exclusive
territory of Canada will also enter into a license arrangement with RCI. The
Rainforest Cafe restaurants, a trademark and trade name protected concept,
provide patrons with a rainforest environment, which is both attractive and
entertaining, and has been sought out by mall operators and others on favorable
terms as a destination location.
In 1999 an additional company, Yorkdale Rainforest Restaurant Inc.
("YRRI"), was formed for the development of one of the Rainforest Cafe
restaurants. CRRI and RCI each have a 50% interest in the Common Stock of YRRI,
giving the Registrant an effective 25% interest. The Registrant effectively
controls YRRI, as to day to day operations, through its management service
contract.
A section of the premises of each Canadian Rainforest Cafe restaurant
is set aside for the sale of rainforest related merchandise. The Company has
slightly modified the basic physical structure of each Rainforest restaurant. In
the United States, Rainforest Cafe, Inc. has quickly expanded from its first
unit at Mall of America, Bloomington, Minnesota to a worldwide chain. RCI has
Development Agreements for foreign expansion in numerous areas. The Registrant's
interest is solely in the Rainforest Cafe restaurants located in Canada.
Thus far, the Company has invested CDN $5.45 million, net, through
December 26, 1999, in the joint venture entity towards the creation of the first
three Canadian Rainforest restaurants. The Company will receive a management fee
of 1.5% of sales from each licensed restaurant in addition to distributions it
receives as a shareholder of CRRI.
Each Rainforest Cafe presents an equatorial rainforest motif, a diverse
interesting menu and high quality food which is intended to appeal to a broad
customer base. The five restaurants planned to date (one in greater Vancouver
opened June, 1998, two in Toronto Scarborough February, 1999 - Yorkdale July,
1999, one in Montreal scheduled to open in November, 2000, and one to be opened
in Niagara, Ontario under a sub-franchise agreement) will range from 13,000 to
20,000 square feet and seat from 340 to 400 people. Due to the size and scope of
these facilities, it is necessary that
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they be positioned in very high traffic areas to attract the necessary
clientele. The anticipated sales mix from the Canadian Rainforest Cafe is 10%
retail items, and 90% food and beverage. RCI has the right to buy out the
Company's interest in Canadian Rainforest Restaurants, Inc. based on a
formula amounting to not less than five times EBITDA after seven years of
operations. The Company has an equivalent right to buy out RCI's interest in
the venture, which is only exercisable after the 15th anniversary of
operations.
RCI has signed a definitive merger agreement with Landry's Seafood
Restaurants, Inc. This agreement is subject to regulatory and shareholder
consent. The Company currently has no relationship with Landry's.
FRANKLIN MILLS "TWIN" RESTAURANT. In 1998 the Company opened a
dual-brand "twin" restaurant in Franklin Mills, outside of Philadelphia,
Pennsylvania. The E&C/Alamo is approximately 14,000 square feet and shares a
common kitchen. The efficiencies of the dual-brand concept intended to be
realized include facility and construction cost limitations, while presenting
two distinct brand images to the public. This unit has not operated at
satisfactory volume or profit levels due to lack of foot traffic passing. The
Company is considering alternative, better and higher uses for the Franklin
Mills premises, and may be required to consider closure or partial closure
pending more favorable results or such alternative better or higher use.
Closure of the Franklin Mills facility could have a material adverse effect
on the total assets, net assets and shareholders equity of the Company. The
Company's income from restaurant operations in 1999, before losses at
Franklin Mills, and a one-time provision of CDN $250,000 for the closing of a
small Canadian location, was $5,002,000. A successful assignment, transfer or
closure, without continuing rent obligation, of Franklin Mills would,
therefore, be expected to have a favorable impact on continuing net income of
the Company. In the absence of improved foot traffic in that section of the
mall, the Company is actively seeking to involve the Landlord at Franklin
Mills in its efforts to find a better or higher uses for the premises.
FRANCHISING. Management of the company believes that the Company's
"brand" identification is a valuable asset. Three franchised locations of the
Elephant & Castle brand are now open, one at the new international terminal
at Vancouver International Airport, a second to a pair of former employees in
London, Ontario and a third, opened in January, 2000, in Grove City,
Pennsylvania.
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In 1999 the Company signed an exclusive franchise agreement with
Holiday Inn Hotels, whereby Holiday Inn Hotels and its franchises have the
exclusive right to franchise the Alamo Grill brand in hotel locations in the
United States. In consideration for this exclusivity, Holiday Inn Hotels has
undertaken to promote the brand to its franchisees as the exclusively
endorsed steakhouse restaurant. The first such franchise opened in a Holiday
Inn hotel in College Park, near Atlanta, Georgia. Additional franchises are
currently under negotiation.
The Company signed a sub-franchise agreement with Canadian Niagara
Hotels for the right to develop a Rainforest Cafe in Niagara, Ontario. This
unit is expected to open in the spring of 2001.
Future activities are intended to include an expansion of the
Company's franchising activities for both the Alamo Grill and the Elephant &
Castle brand. No further sub-franchises of the Rainforest Cafe brand are
currently anticipated.
FUTURE COMPANY GROWTH. The Company's strategy for future growth of
its Elephant & Castle and Alamo Grill concepts involves both franchising and
development of company owned and operated locations. These will be
predominantly hotel-based or in high traffic, urban centre locations. The
Company's intention is to cluster restaurants in prime locations in chosen
geographic regions. Key points for consideration include the need for
consistency in use and revenues resulting therefrom. The Company's current
cash position and cash flow from operations should be adequate to permit the
development of one to two additional Company owned facilities per year,
without further capital transactions.
ADDITIONAL INFORMATION
b. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
During each of the last three years, the Company considers that it has
been substantially engaged in a single line of business -- the ownership and
operation of casual dining restaurants, and does not separately segment its
financial results.
c. NARRATIVE DESCRIPTION OF THE BUSINESS.
i. PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS. See
Description of the Business - General.
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ii. DISTRIBUTION METHODS. The Company focuses on the casual
dining segment. The Company has not set out to establish its restaurants as
"destination locations". Instead, it relies primarily on its high-traffic,
convenient downtown and suburban mall, and most recently, high-occupancy
hotel locations, consumer satisfaction and reputation to attract new and
repeat customers.
The Company conducts many local promotions and loyalty programs
geared to the neighborhoods and markets the restaurants serve, and supports
these with print and direct mail advertising. During fiscal 1999, the
Company's expenditures for advertising and promotional activities were
approximately 2% of its revenues.
iii. STATUS OF NEW DEVELOPMENTS. The Company is constantly
in the process of examining, evaluating and undertaking various new
restaurant opportunities.
RELATIONSHIP WITH HOTEL OPERATORS
The Registrant's relationship with hotel operators, such as Holiday
Inn is predicated on (i) shared investment in significant physical
improvements to the facility at the onset of the occupancy; (ii) costs of
occupancy measured by a percentage of the unit's revenues; (iii) adequate
time to recruit and train a restaurant staff of Registrant's selection; and
(iv) reliance upon restaurant operator's control of the physical environment
and menu selections. The Registrant currently operates additional hotel
restaurants at the Club Quarters Hotel (Boston, Massachusetts) and Cavanaughs
Inn (Seattle, Washington) and Rosedale Hotel (Vancouver, Canada).
iv. COMPETITORS AND COMPETITIVE BUSINESS CONDITIONS. The
restaurant and food service industry is highly competitive and fragmented.
There are an uncountable number of restaurants and other food and beverage
service operations that complete directly and indirectly with the Company. In
addition, many restaurant chains have significantly greater financial
resources and higher sales volumes than the Company. Restaurant revenues are
affected by changing consumer tastes and discretionary spending priorities,
local economic conditions, demographic trends, traffic patterns, the ability
of business customers to deduct restaurant expenses, the increasing trend
towards prohibition of smoking in restaurants and the type, number and
location of competing restaurants. In addition, factors such as inflation and
increased food, liquor, labor and other employee compensation costs can
adversely affect profitability. The Company believes that its ability to
compete effectively and successfully will depend on, among other things,
management's ability to continue to offer quality food for moderate
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prices, management's ability to control labor costs, and ultimately on the
executive determinations as to extensions of the brand (I.E., selection of
sites for new locations and related strategies).
v. SUPPLIERS. Food products and related restaurant supplies
are purchased both through home office purchasing programs and already at the
restaurant level from specified food producers, independent wholesale food
distributors and manufacturers. This process enables the Company to ensure
quality companies. Management believes all essential food and beverage
products are available from multiple sources in all of the locations it
serves, and that it is not dependent on any one of a limited number of
suppliers.
vi. DEPENDENCE ON CUSTOMERS. Elephant & Castle appeals to a
diverse customer base, including business and professional people who occupy
offices in the vicinity of the restaurants, shoppers from the malls, downtown
tourists, and others. The Company's locations and broad menu attract traffic
from lunch through mid-afternoon, dinner and into the evening hours. Most all
of the Company's restaurants are open seven days and evenings, each week. All
items on the menu are available for take-out, although take-out customers
account for less than 2% of total restaurant sales.
vii. TRADEMARKS; LICENSES. The Company has registered "The
Elephant & Castle Pub & Restaurant" with the Canadian Trademarks Office, and
with the United States Patent and Trademark Office. The Company acquired "The
Elephant & Castle" trademark in the United States. The Company agreed to pay
U.S. $50,000 (CDN $75,000), plus a one-time fee of U.S. $5,000 (CDN $7,500)
per location for the first ten locations for the mark. The Company regards
its "Elephant & Castle" trademark as having substantial value and as being an
important factor in the marketing of its restaurants. The Company is not
aware of any infringing uses that could materially affect its business or any
prior claim to the trademarks in its business.
viii. GOVERNMENTAL LICENSES AND APPROVALS. The Company is
subject to various rules, regulations and laws affecting its business. Each
of the Company's restaurants is subject to licensing and regulations by a
number of governmental authorities, including alcoholic beverage control and
health, safety and fire agencies in the state, province or municipality in
which the restaurant is located. Difficulties in obtaining or failure to
obtain the required licenses or approvals could prevent or delay the
development of a new restaurant in a new location. Management believes the
Company is in compliance in all material respects with
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all relevant regulations. The Company has never experienced unusual
difficulties or delays in obtaining the required licenses or approvals
required to open a new restaurant.
Various Canadian federal and provincial labor laws govern
the Company's relationship with its employees, including such matters as
minimum wage requirements, overtime and other working conditions. Significant
additional government-imposed increases in minimum wage, paid leaves of
absences and mandated health benefits, or increased tax reporting and tax
payment requirements for employees who receive gratuities, may impose
significant burdens on the Company. The Company's restaurants in the United
States are subject to similar requirements.
Alcoholic beverage control regulations require each of the
Company's restaurants to apply to a state authority and, in certain
locations, county and municipal authorities, for a license and permit to sell
alcoholic beverages in the premises. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily
operations of the Company's restaurants. The Company has not encountered any
material problems related to alcoholic beverage licensing to date. The
failure to receive or retain, or a delay in obtaining a liquor license in a
particular location could adversely affect the Company's ability to obtain
such a license elsewhere.
ix. Y2K COMPLIANCE. Business operations are affected by the
Year 2000 readiness of infrastructure suppliers in areas such as utilities,
communications, transportation and other services. In this environment, there
is potential for instances of failure that could cause disruptions in
business processes for the Company or adversely impact its customers.
Preparation by the Company for Year 2000 was effective, and no material
occurrences of Year 2000 failure were experienced. See also discussion of Y2K
under Management's Discussion and Analysis, Item 7 herein.
x. EFFECT OF EXISTING AND PROBABLE GOVERNMENTAL
REGULATIONS. The Company is subject to "dram-shop" statutes in California,
Pennsylvania and Washington and may become subject to similar proposed
legislation in Canada. "Dram-shop" statutes generally provide a person
injured by an intoxicated person the right to recover damages from an
establishment which wrongfully served alcoholic beverages to such a person.
The Company carries liquor liability coverage which it believes to be
consistent with the coverage carried by other entities in the restaurant
industry. Even though the Company is covered by insurance, a judgment against
the Company under a "dram-shop" statute in excess of the
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Company's liability coverage could have a material adverse effect on the
Company. The Company has never been the subject of a "dram-shop" claim.
xi. RESEARCH AND DEVELOPMENT. The Company places
significant emphasis on the design and interior decor of its restaurants. The
Company is employing the same basic architectural design, decors and
construction techniques for the Canadian Rainforest Cafe restaurants as
Rainforest Cafe has used for its restaurants in the U.S.
The Company's Elephant & Castle unit designs requires somewhat
higher capital costs and furniture and fixtures investment to open a new
restaurant than is typical in the industry. Landlord contributions defray a
part or a substantial part of interior design and decor at a typical new
restaurant. The Company believes that its design and decor features enhance
the dining experience. Each restaurant typically features large, airy dining
areas. Two of the restaurants offer atrium seating, and several offer patio
seating, which adds substantially to seasonal capacity, revenues and profits.
Table layouts are flexible, permitting re-arrangement of seating to
accommodate large groups and effective utilization of maximum seating
capacity.
The Company also believes that the location of a restaurant is
important to its success. In general, significant time and resources are
spent in determining whether a prospective site is acceptable. Traditional
Elephant & Castle restaurants were located at high-profile sites at
malls/office complexes within larger metropolitan areas. In selecting future
sites, the Registrant intends to analyze demographic information for each
prospective site, hotel occupancy, hotel uses, and factors such as
visibility, traffic patterns, accessibility, proximity of shopping areas,
offices, parks, tourist attractions, and competitive restaurants.
xii. COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL
LAWS. The Company is not aware of, and does not anticipate any significant
costs related to compliance with environmental laws.
xiii. NUMBER OF TOTAL EMPLOYEES AND FULL-TIME EMPLOYEES. As
of December 26, 1999, the Company, including its Canadian Rainforest Cafe
joint venture, employed approximately 1,700 persons on a full-time and
part-time basis. 23 of such persons serve in administrative or executive
capacities, approximately 100 serve as restaurant management personnel and
the remainder are hourly workers in the Company's restaurant operations. The
Company believes that its working conditions and compensation packages are
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competitive with those offered by its competitors. Management considers the
Company's relations with its employees to be good, and its rate of employee
turnover, particularly among management employees, to be low in relation to
industry standards. The Company has an agreement with the union which
represented the former workers at the predecessor restaurant located at the
Holiday Inn unit in Philadelphia which requires the Registrant to seek new
hires first from among the pool of available union hiring hall personnel. The
Company's service personnel at the San Diego Elephant & Castle unit and
Rosie's on Robson are unionized. In 1999 the Company experienced its only
organized work stoppage, strike or labor dispute. This strike, by the staff
of Rosie's on Robson, lasted for a period of 2 weeks.
The Company has sought to attract and retain high-quality,
knowledgeable restaurant management and staff. Each restaurant is managed by
one general manager, and from one to three assistant managers depending on
volume. Most restaurants, again depending on volume, also have one kitchen
manager and one to three assistant kitchen managers. On average, general
managers have about five years' experience with the Company. The Company also
employs regional managers and may be required to add additional supervisory
people as the chain expands. As the Company adds new restaurants, its future
success may depend in part on its ability to continue to attract and train
capable additional managers. The Company also anticipates that the opening of
additional restaurants including at hotel sites in the United States will
require a commensurate increase in employees. The Company does not expect a
proportionate increase in the number of corporate or administrative
personnel. Restaurant managers, many of whom have moved up through the ranks,
are required to complete a training program during which they are instructed
in areas including food quality and preparations, customer service, alcohol
service, liquor liability avoidance and employee relations. The Company
believes its training programs for managers and other employees are
comparable to the training provided for managers and other employees at
substantially larger restaurant chains. Restaurant managers are also provided
with operations manuals relating to food and beverage standards and other
expectations of restaurant operations. Management has made a conscious
commitment to provide customer service of the highest standards. In addition
to evaluations made by the customers, the Company uses a "designated
customer" quality control program to independently monitor service and
operations. "Designated customers" are independent people who test the
standards of food, beverage and service as customers of the restaurant
without the knowledge of management or staff. Done on a periodic basis, their
findings are reported to corporate management. Efficient, attentive and
friendly service is integral to the Company's overall
-15-
<PAGE>
concept. Any new employee at all functional levels is closely supervised
after his or her on-the-job training. Management regularly solicits employee
suggestions concerning operations, and endeavors to be responsive to employee
concerns.
The Company believes its commitment to employee morale is also
critical to its long-term success. The Company has compiled a favorable
record of employee retention. The average tenure of a restaurant general
manager in the Elephant & Castle chain is five years. The Company considers
the quality of its employee interaction with customers to be an important
element of its business strategy.
-16-
<PAGE>
ITEM 2 PROPERTIES
The Company directly, and through its Canadian Rainforest Cafe
restaurant affiliate (shown by *), currently operates 14 mall based
restaurants, including the "twin" restaurants at Franklin Mills added in
1998. All of such facilities are leased properties. The following table
provides opening date, square footage and indoor seating capacity information
with respect to each of the mall based restaurants currently in operation:
<TABLE>
<CAPTION>
INDOOR
CITY MALL OPENING DATE SQUARE FEET SEATING(A)
- ---- ---- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Regina,Sask. Cornwall Centre Aug. 1981 5,375 220
Ottawa, Ont. Rideau Center Mar. 1983 7,119 280
West Edm., Alb. West Edmonton Jul. 1988 6,500 245
Edmonton, Alb. Eaton Center Sep. 1988 5,939 225
Victoria, B.C. Eaton Center Jun. 1989 5,640 225
Bellingham, WA Bellis Fair May 1990 5,200 220
Saskatoon, Sask. Midtown Plaza Oct. 1990 5,815 225
Calgary, Alb. Eaton Center Dec. 1990 5,851 225
Surrey, B.C. Guildford Town May 1992 4,835 200
Bloomington, MN Mall of America Oct. 1996 6,750 280
*Vancouver, BC Metrotown Jun. 1998 18,000 340
Philadelphia, PA Franklin Mills Nov. 1998 11,400 396
*Toronto, Ont. Scarborough Feb. 1999 20,000 394
*Toronto, Ont. Yorkdale Jul. 1999 20,000 396
</TABLE>
(a) Outdoor/patio seating is available at a number of the locations, and not
included herein.
All of the restaurants are located on leased sites. The Company owns
the furnishings, fixtures and equipment in each of its mall based
restaurants. Existing restaurant leases have expirations ranging from 2000
through 2017 (including existing renewal options). The Company does not
anticipate any difficulties renewing its existing leases as they expire. Mall
leases typically provide for fixed rent plus payment of certain escalations
and operating expenses, against a percentage at restaurant sales.
The Company's hotel restaurant leases are more typically focused on
a percentage of restaurant sales, against a minimum base rental. Thus, while
the Company's aggregate annual minimum rent continues to increase, such rent
per facility and per square foot controlled by the Company is typically
declining.
The Company's facilities at Hotels and other non-mall locations are
occupied on the following basis:
-17-
<PAGE>
<TABLE>
<CAPTION>
HOTEL LOCATIONS OPENING DATE SQUARE FT. INDOOR SEATING
- --------------- ------------ ---------- --------------
<S> <C> <C> <C>
Winnipeg May 1994 4,300 180
Philadelphia February 1995 7,900 310
Rosie's/Vancouver August, 1995 5,500 200
San Diego July 1996 7,500 300
Seattle August, 1997 7,600 230
Boston November, 1997 9,500 200
OTHER NON-MALL LOCATIONS
- ------------------------
BCIT
(Burnaby,B.C.) September, 1995 4,500 300
Toronto
King Street October, 1996 9,200 330
Edmonton November, 1997 5,600 180
Toronto
Yonge Street December, 1999 3,200 160
</TABLE>
The following table sets forth, for all restaurants by location, the
earliest expiration date of the leases and the minimum annual rent:
<TABLE>
<CAPTION>
EARLIEST
LOCATION EXPIRATION DATE MINIMUM ANNUAL RENT
- -------- --------------- -------------------
<S> <C> <C>
Regina, Cornwall Centre 2000 CDN $19,000
BCIT, Burnaby, B.C. 2000 105,000
Edmonton Eaton Center 2001 109,000
Minneapolis, Mall of America 2002 344,000
West Edmonton Mall 2003 130,000
Ottawa Rideau Center 2003 165,000
Victoria Eaton Center 2004 169,000
Winnipeg, Holiday Inn 2004 60,000
Saskatoon Midtown Plaza 2005 158,000
Bellingham Bellis Fair 2005 152,000
Rosie's, Rosedale 2005 60,000
Philadelphia, Holiday Inn 2005 150,000
Calgary Eaton Center 2005 94,000
San Diego, Holiday Inn 2006 90,000
Surrey, Guildford 2007 156,000
Boston, Club Quarters 2007 90,000
Philadelphia, Franklin Mills 2008 413,000
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
EARLIEST
LOCATION EXPIRATION DATE MINIMUM ANNUAL RENT
- -------- --------------- -------------------
<S> <C> <C>
Toronto (Yonge Street) 2008 110,000
Toronto (King Street) 2011 92,000
Edmonton, White Ave 2012 95,000
Seattle, Cavanaughs 2012 84,000
Vancouver, Metrotown 2013 585,000
Toronto, Scarborough 2014 1,073,000
Toronto, Yorkdale 2014 1,073,000
TOTAL: CDN $5,576,000
==============
</TABLE>
In earlier years, the Company was able to decrease the aggregate per
unit minimum annual rental obligations by selective locations and appropriate
lease provisions. The minimum annual rental obligations per unit are
currently increasing, however, with the Canadian Rainforest Cafe restaurants
substantially increased space and location needs, which are, in turn,
providing greater per unit revenues from operations to the Registrant.
-19-
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
From time to time lawsuits are filed against the Company in the
ordinary course of business. The Company is not currently a party to any
litigation which would, if adversely determined, have a material adverse
effect on the Company or its business and is not aware of any such threatened
litigation.
SHILO LITIGATION
In late 1992, the Company obtained the right to operate all of the
food and beverage services at the Shilo Hotel & Resort complex in Yuma,
Arizona. In addition, on July 1, 1993, the Company added the food and
beverage operations at a second Shilo Hotel in Pomona, California. After a
breakdown in the business relationship between the parties, on August 22,
1995, Shilo asserted legal claims against the Company, and commenced
litigation. The Company settled this litigation in October 1999 for cash
payments of U.S.$400,000 over 24 months plus 150,000 shares of Common Stock
of the Company.
TAX REASSESSMENT
In 1989 and 1990, the Canadian subsidiary received Notices of Reassessment
from Revenue Canada and the Ministry of Revenue, Ontario, regarding a
construction allowance received in 1984 from the landlord for its former
Sarnia location. The reassessment has been under appeal since 1989. The
Company reached substantial agreement with Revenue Canada, subject to the
confirmation of certain facts, for the settlement of the reassessment for tax
and interest estimated to be CDN $125,000. Full provision for this sum has
been made.
-20-
<PAGE>
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual General Meeting was initially scheduled to be held on
August 23, 1999, and was subsequently adjourned upon the motion of a group of
insurgent shareholders ("Shareholder Group"). On October 19, 1999, the Company
and such Shareholder Group agreed to a Memorandum of Agreement providing,
INTER-ALIA, for the election of two additional independent directors; the
appointment of Richard Bryant as President of the Company; the scheduling of the
2000 Annual General Meeting to be held on or before June 29, 2000; allowance for
the shareholder group to require certain additional changes in the Board
composition under certain circumstances prior to the Year 2000 Annual General
Meeting. The Company currently believes that Management's relationship with the
Shareholder Group has been stabilized, and that the governance of the
corporation will proceed on a mutually acceptable basis. GEIPPII, the Company's
largest equity holder, is not a member of the Shareholder Group.
Following the Memorandum of Agreement, the 1999 Annual General Meeting proceeded
on October 22, 1999, and the management slate of director nominees was elected.
Two additional independent directors, one of whom was a former director of the
Company, were then elected to the Board by the directors, theretofore elected by
the shareholders.
-21-
<PAGE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is, and has been since June 29, 1993, traded
on NASDAQ - small cap market and the Pacific Exchange (PUBS). The NASDAQ symbol
was changed from PUBSF to PUBFC in early 2000 and is expected to change to PUBCD
in the near future.
The range of high and low sales prices for the Common Stock from
January 1, 1998, to the end of 1999 has been:
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
First Quarter of 1998: $7.625 $5.375
Second Quarter of 1998: $6.375 $4.25
Third Quarter of 1998: $6.50 $2.375
Fourth Quarter of 1998: $4.125 $1.75
First Quarter of 1999: $2.125 $1.594
Second Quarter of 1999: $2.25 $1.50
Third Quarter of 1999: $1.625 $0.688
Fourth Quarter of 1999: $0.594 $1.156
</TABLE>
The approximate number of record holders of the Company's common stock
as of January 2000 is 536.
The company has been required by NASDAQ to take certain actions to
avoid the delisting of its Common Stock due to the fact that the price thereof
had fallen below the NASDAQ's $1.00 per share minimum price. A proposal to
consolidate the shares on a 1 for 2 basis was approved by shareholders at an
Extraordinary General Meeting held on March 23, 2000, and trading will commence
on this basis on 27th March, 2000.
-22-
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
1999 1998 1997 1996 1995
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Sales $50,104 $42,630 $34,231 $29,284 $25,764
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Income from Restaurant 2,844 3,770 1,883 1,587 791
Operations
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Earnings before Interest (2,196) 156 (912) (840) (1,493)
and Taxes
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Net Income (4,262) (930) (1,416) (1,174) (1,578)
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Total Assets 30,028 30,797 24,621 16,767 15,888
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Shareholder's Equity 6,793 8,621 10,209 7,928 7,318
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Long Term Debt $15,792 $16,605 $10,279 $5,337 $5,384
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Average Shares 3,513,000 3,197,000 2,947,000 2,683,000 2,503,000
Outstanding
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
Earnings Per Share $(1.21) $(0.29) $(0.48) $(0.44) $(0.63)
- -------------------------- ---------------- ------------------- ----------------- ----------------- ------------------
</TABLE>
-23-
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIFTY TWO WEEKS ENDED DECEMBER 26, 1999 VS. FIFTY TWO WEEKS ENDED
DECEMBER 27, 1998
NET INCOME
For the fifty two weeks ended December 26, 1999, the Company's net loss was CDN
($4,262,000) compared to CDN ($929,000) for the corresponding period in 1998.
Loss per share for the current period was CDN ($1.21), compared to ($0.29) in
1998. The average number of shares outstanding increased from 3,197,000 in 1998
to 3,513,000 for the current year.
Included in the current year are certain costs associated with the resolution of
certain disputes and corporate restructuring.
The 1999 net loss excluding the operating loss at the Franklin Mills location
and the one-time items mentioned above was CDN ($87,000) or CDN ($0.02) per
share.
SALES
Sales increased 17.5% during the fifty two weeks ended December 26, 1999 to CDN
$50,104,000 from CDN $42,630,000 in 1998. As discussed above, the 1999 figure
includes sales for four new locations: Franklin Mills PA (opened November 13,
1998); Rainforest - Scarborough ON (opened February 4, 1999); Rainforest -
Yorkdale ON (opened June 30, 1999); and Toronto ON (opened November 10, 1999).
The Company disposed of its London ON location, by way of a franchise agreement
with two of its location managers, on September 28, 1998.
For the thirteen Canadian E&C locations open throughout both periods, sales for
the fifty two weeks December 26, 1999 totaled CDN $19,703,000 and were down 1.8%
compared to the fifty two weeks ended December 27, 1998. Newly enacted bans on
indoor smoking at several locations and the impact of the Eaton's department
store chain bankruptcy on several mall locations contributed to the decline.
For the six US locations open throughout both periods, sales for the 1999 period
were US $12,657,000 and were down 1.9% compared to the prior year. Food sales,
which make up approximately 70% of
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<PAGE>
total sales were up slightly, but beverage
sales were down, again partially attributable to restrictions on indoor smoking.
Sales at the Franklin Mills location continue to disappoint, despite numerous
targeted marketing programs implemented during 1999.
Sales at the Rainforest - Sales at theme restaurants such as Rainforest are not
considered to be "comparable" until after eighteen months of operation. None of
the locations have yet reached that point of comparability. As discussed under
"Site Developments" above, the Company has developed strategies and programs,
including the hiring of an experienced marketing and promotions manager, in
order to take advantage of the sales potential in the markets served by the
restaurants.
FOOD AND BEVERAGE COSTS
Overall, food and beverage costs, as a percentage of sales, increased marginally
to 28.8% for the fifty two weeks ended December 26, 1999, compared to 28.1% for
the fifty two weeks ended December 27, 1998. Excluding Franklin Mills, the food
and beverage percentage would have been 28.6%.
LABOUR AND BENEFITS COSTS
Labour and benefits decreased from 32.3% of sales in 1998 to 32.0% in the
current period. The disappointing sales at the Franklin Mills location led to
unacceptably high labour rates at that location and influenced the overall rate.
Excluding Franklin Mills, the labour and benefits rate would have been 30.8%, a
1.5% (of sales) improvement over the comparable period in 1998. The decrease is
being driven by continued emphasis on cost management techniques at all
locations.
OCCUPANCY AND OTHER OPERATING COSTS
Occupancy and other operating expenses increased as a percentage of sales from
24.8% in 1998 to 25.5% in the current period. Excluding Franklin Mills, the rate
would have been 24.0%, representing an improvement of 0.8% compared to 1998.
RESTAURANT CLOSING COSTS
Included in the results for 1999 is a provision of CDN $250,000 for the costs of
closure (scheduled for March 25, 2000) of an older Canadian mall-based
restaurant. There were no such costs in the comparable period of 1998.
-25-
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization costs increased to 7.6% of sales for the current
period from 5.9% last year. Amortization of pre-opening costs for new
restaurants, which is effected over the twelve months following opening, is the
major driver of the cost increase. The combination of low sales and high
development costs at Franklin Mills had a significant impact on the rate.
Without Franklin Mills, the depreciation and amortization rate was 5.6% of
sales.
INCOME FROM RESTAURANT OPERATIONS
As a result of the above factors, income from restaurant operations, as a
percentage of sales, decreased from 8.8% for the fifty two weeks ended December
27, 1998 to 5.7% for the current period. In dollars terms, the decrease was from
CDN $3,770,000 to CDN $2,844,000.
The impact of Franklin Mills was disproportionate. Excluding Franklin Mills, and
the one-time provision for potential closing costs of a Canadian location,
income from restaurant operations improved to 10.5% of sales in the current
period from 8.8% in the comparable period last year. In dollar terms, the
improvement was CDN $1,232,000, from CDN $3,770,000 to CDN $5,002,000.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs decreased from 8.5% of sales in 1998 to 6.8% in
the current period. Economies of scale are now being achieved as new restaurants
are opened without commensurate increases in general and administrative costs.
In dollar terms, general and administrative costs were down slightly from last
year, despite higher legal costs incurred during 1999.
RETIRING ALLOWANCES AND OTHER COSTS
As part of a restructuring of corporate office in 1999, employment contracts
with two executive officers of the company were not renewed, and other corporate
staff were terminated. CDN $867,000 has been provided for retiring allowances
and other costs related to the restructuring.
LEGAL SETTLEMENT
The Company reached an agreement with Shilo Management Corporation to settle a
legal dispute that arose in 1995. The cost of the settlement was CDN $775,000
and has been included in the results
-26-
<PAGE>
for the fifty two weeks ended December 26, 1999.
INTEREST ON LONG TERM DEBT
Interest on long term debt rose to CDN $2,056,000 for the fifty two weeks ended
December 26, 1999, compared to CDN $1,085,000 for the comparable period in 1998.
The increase is attributable to interest on funds raised in late 1998 and early
1999 to finance the construction of the new Canadian Rainforest Cafe operations
and the Franklin Mills location.
(LOSS) BEFORE TAXES
The Company incurred a loss before income taxes of CDN ($4,252,000) for 1999
compared to a loss of CDN ($929,000) for 1998. As discussed above, the Company
experienced a negative impact from its new Franklin Mills location, which more
than offset improved performance at the remainder of its locations. Significant
improvements in labour, occupancy and other costs were offset by poor
performance in these areas at Franklin Mills. The poor performance at Franklin
Mills, plus increased interest costs, some of which was related to Franklin
Mills, and CDN $1,912,000 in one-time costs related to retiring allowances,
settlement of an old legal dispute and the potential closure of one location
resulted in the increased loss for the year.
INCOME TAXES
The Company incurred a loss in the fifty two week period ended December 26, 1999
and therefore has no current tax liability. The Company also has loss
carry-forwards that will reduce its effective tax rate in future periods.
Included in 1999 is a provision of CDN $125,000 representing the Company's
current estimate of the cost of settling a dispute that dates back to 1984. This
dispute had been carried as a contingent liability, with an estimated possible
cost of CDN $785,000 as at December 27, 1998. A portion of the dispute has been
settled, and, subject to confirmation of certain facts by the taxing
authorities, the Company believes the balance of the dispute will be resolved
for the CDN $125,000 recorded in the current period. Should a change to this
estimate be necessary, it will be recorded at the time such determination is
made. A deferred income tax recovery of CDN $125,000 related to timing
differences in a joint venture has also been recorded in the current period.
FIFTY TWO WEEKS ENDED DECEMBER 27, 1998 VS. TWELVE MONTHS ENDED
DECEMBER 31, 1997
-27-
<PAGE>
NET INCOME
For the year ended December 27, 1998, the Company's net loss was CDN
($929,000) compared to a net loss of CDN ($1,416,000) for the corresponding
period in 1997. Income from restaurant operations increased to CDN $3,769,000 in
1998 from CDN $1,883,000 in 1997. Overall, loss per share in 1998 was CDN
($0.29) compared to CDN ($0.48) in 1997.
The Company reports its results in accordance with Canadian Generally
Accepted Accounting Principles (CDN GAAP). See below, and Note XX to the audited
financial statements for discussion and reconciliation between CDN GAAP and
United States Generally Accepted Accounting Principles (US GAAP).
INCOME FROM RESTAURANT OPERATIONS
Income from restaurant operations, at CDN $3,769,000 was up 100.2% over
1997 and, as a percentage of sales, increased to 8.8% in 1998 from 5.5% in 1997.
There are four principal reasons for this improvement. Firstly, the opening of
higher volume stores and closing of two lower volume locations enhanced overall
operating margins. Secondly, food and beverage cost percentages showed
improvement throughout the year. Thirdly, labor cost percentages were lower than
the previous year. Fourthly, the 1997 figure included CDN $200,000 in costs
relating to the closure of two restaurants during the year and CDN $130,000
related to a lease guarantee on a former location.
SALES
Sales increased 24.5% during the 1998 year to CDN $42,630,000 from CDN
$34,231,000 in 1997. The Company's joint venture with Rainforest Cafe Inc.
opened its first location during 1998, in Vancouver (June 12th ). The Company
also entered a franchise agreement for its corporately owned location in London,
Ontario on September 28, 1998. The Company opened three locations in 1997, in
Seattle (August 28th), Boston (November 4th) and Edmonton (November 20th). It
also closed two low volume locations in 1997 (Vancouver in February and Thunder
Bay in August) as their leases expired. The result of opening higher volume
stores and closing lower volume locations has seen the average weekly sales
volume per unit in 1998 increase by 13.2% over the 1997 figure.
For the twelve Canadian locations open throughout both years, 1998
sales totaled CDN $19,274,000 and were up 2.5% from 1997.
-29-
<PAGE>
For the four U.S. locations open throughout both years, sales decreased
2.5% from 1997. A 20.4% decrease at the Bellingham, WA location accounted for
the majority of the decrease. The mall in which this restaurant is located is
largely dependent on Canadian cross border shoppers and the relative decrease in
value of the Canadian dollar versus the US dollar has caused mall traffic to
decline. The year on year impact of this is expected to be much less severe in
1999.
The Company's Rainforest Cafe joint venture opened its first location,
in Vancouver, BC, in June, 1998. Its second unit opened in Metro Toronto in
February, 1999. Sales continue to be in line with management's expectations.
COSTS AND EXPENSES
FOOD AND BEVERAGE COSTS
Overall, food and beverage costs, as a percentage of sales, decreased
to 28.1% for the twelve months ended December 27, 1998 compared to 29.1% for the
corresponding period in 1997. The Company implemented a number of purchasing
programs in 1998 that decreased the food and beverage percentage during the
year, and generated recovery of certain rebates and credits from prior years.
LABOR AND BENEFITS COSTS
Labor and benefits costs decreased from 33.0% of sales in 1997 to 32.3%
for the 1998 period. The Company is continuing to review labor schedules and
believes further labor efficiencies are deliverable.
OCCUPANCY AND OTHER COSTS
Occupancy and other operating costs decreased as a percentage of sales
from 25.7% in 1997 to 24.8% in 1998. This is primarily the result of the
Company's strategy of focusing new developments in high traffic urban locations
and moving away from its traditional suburban mall locations. This is resulting
in lower occupancy percentages at the newer locations and is driving the overall
rate down.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs increased slightly to 5.9% of sales
for 1998 compared to 5.7% in 1997. Higher development costs and shorter
amortization periods at new locations, compared
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<PAGE>
to older suburban mall
locations, plus amortization of higher pre-opening costs, are the cause of the
increase in the percentage.
RESTAURANT CLOSING COSTS
During 1997 the Company closed two mall locations on the expiration of
their respective leases. The costs associated with these closings were
approximately CDN $200,000. The Company also incurred costs of CDN $130,000
related to a lease guarantee on a former property. The Company did not close any
locations during 1998, although it did enter into a franchise agreement for its
London, Ontario location. There was no net cost to the Company.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative expenses increased from 7.2% of sales in
1997 to 8.5% in 1998. The 1998 figure contains full year costs for three new
executives hired in the second half of 1997, causing the overall rate to
increase. Hiring these executives was a necessary step in the development of the
infrastructure needed to allow the Company to expand and return to
profitability. Mr. Martin O'Dowd, former President of Rainforest Cafe Inc.,
joined the Company in August, 1997 as President of the U.S. operations with the
mandate to expand the Company's U.S. presence and to oversee the development of
Rainforest Cafes in Canada. In March, 1998 Mr. O'Dowd was appointed President
and Chief Executive Officer of the Company. Mr. Colin Stacey, former President
of Keg Restaurants, also joined the Company in August, 1997, as Chief Operating
Officer responsible for Canadian operations. In March, 1998 he was given
responsibility for all Canadian and US Elephant & Castle and Alamo locations.
Mr. Richard Bryant, formerly Chief Financial Officer of Keg Restaurants, joined
the Company in November, 1997 as Chief Financial Officer. While the costs of
these executives, plus other additions to corporate management caused general
and administrative costs to rise over the near term, the Company believes its
long term general and expense percentage will be brought down to under 7.0% as
new stores are added without incurring proportionate additional costs.
RETIRING ALLOWANCES AND OTHER COSTS
In December, 1997 one of the founders of the Company, Mr. Peter Barnett
retired from his position as Executive Vice President. Under the terms of his
employment contract Mr. Barnett was paid a retiring allowance on his retirement.
Other costs arose from settlement of two labor matters with former employees.
There were no such items in 1998.
-31-
<PAGE>
INTEREST ON LONG TERM DEBT
Interest on long term debt increased to CDN $1,084,858 in 1998 from CDN
$503,715 in 1997. There are three main reasons for the increase. Firstly, during
1998 the Company completed two US $2,000,000 (for a total of CDN $5,740,000)
financings. The first was a convertible debenture financing with General
Electric Private Placement Partners, II (GEIPPP II) as part of a 1995 agreement.
The second, also with GEIPPP II, was part of a convertible debenture financing
that saw an additional US $1,105,000 (CDN $1,657,500) raised from other
investors in February, 1999. Secondly, during 1997 the Company also completed
two US $2,000,000 (CDN $3,000,000 each, for a total of CDN $6,000,000)
convertible subordinated debenture financings with GEIPPP II under the 1995
agreement. The 1998 year includes a full year's interest on the 1997 financings.
Thirdly, the decline in the relative value of the Canadian dollar versus the US
dollar during 1998 resulted in a translation adjustment of CDN $1,170,000, CDN
$130,000 of which is included in interest expense for the 1998 year. The balance
of the translation adjustment will be charged to interest expense over the life
of the related debt. As a result of these factors, , interest on long term debt
in 1998 was substantially higher than 1997, and will be higher again in 1999.
(LOSS) BEFORE TAXES
The Company incurred a loss before income taxes of CDN ($929,000) in
1998 compared to a loss of CDN ($1,416,000) in 1997. The 1997 figure includes a
total of CDN $677,000 in restaurant closing costs, retiring allowances and other
costs. There were no such costs in 1998. The 1997 loss before these items was
CDN ($739,000). During 1998, income from restaurant operations increased by CDN
$1,886,000. This was offset by an increase of CDN $1,165,000 in general and
administrative expenses and CDN $581,000 in interest costs.
Management believes the additions it made to executive management
during 1997, plus the additional financings it has been successful in
completing, have positioned the Company to successfully roll-out its expansion
plans, including the development of Rainforest Cafe in Canada. Management is
targeting a return to profitability in 1999.
INCOME TAXES
The Company incurred losses in each of 1998 and 1997 and therefore has
no tax liability. The Company also has loss carry-forwards which will reduce its
effective tax rate in future years.
-32-
<PAGE>
FINANCIAL CONDITION AND OTHER ITEMS
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has cash balances slightly in excess of CDN $1.0 million.
Aside from day to day operating requirements, its most immediate cash
requirements are to pay the cash components of its legal settlements and
retiring allowance obligations. Funds on hand, plus cash flow from operations
will be sufficient to satisfy these current requirements. The Company's growth
strategy, as discussed on page two of this report, is to focus on strengthening
the profitability of existing operations and leveraging the brands' strength
through franchising and through corporate store growth to the extent deliverable
from internally generated cash flow. The Company does not anticipate the need
for additional external funding to meet its current plans and commitments.
YEAR 2000
The Company spent considerable time and effort in completing Year 2000 readiness
assessments and preparing for the roll-over of the calendar. The Company
experienced no problems before, during or after the roll-over.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CDN AND U.S. GAAP)
The Company prepares its financial statements in accordance with CDN GAAP. (The
reader is referred to Note 18 of the Consolidated Financial Statements for the
year ended December 26, 1999 for additional explanation.) The Financial
statements, if prepared in accordance with U.S. GAAP would have differed as
follows:
Net loss for the year ended December 26, 1999 would be decreased by CDN
$1,189,000 comprised of recognition on non-capital loss carry-forwards,
offset by dividends on paid-in capital that would be treated as
interest expense under U.S. GAAP; by amortization expense resulting
from exclusion of the first option period in calculating the
amortization of certain leasehold improvements; and by pre-opening
costs that would be expensed under U.S. GAAP.
Net loss for the year ended December 27, 1998 would be decreased by CDN
$280,000 comprised of recognition of non-capital loss carry forwards,
offset by dividends on paid-in capital that would be treated as
interest under U.S. GAAP, and by amortization expense resulting from
exclusion of the
-33-
<PAGE>
first option period in calculating the amortization of
certain leasehold improvements. The impact of this adjustment would be
to decrease the net loss per share from CDN ($0.29) under CDN GAAP to
CDN ($0.20) under U.S. GAAP.
Shareholders' Equity at December 26, 1999 under U.S. GAAP would be CDN
$7,325,000 compared to CDN $6,793,000 under CDN GAAP, due to the cumulative
effect of reconciliation adjustments.
Shareholders' Equity at December 27, 1998 under U.S. GAAP would have been CDN
$6,760,000 compared to CDN $ 8,261,000 under CDN GAAP
-34-
<PAGE>
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Intentionally omitted.
-35-
<PAGE>
ITEM 8 FINANCIAL STATEMENTS
The Company's consolidated financial statements and the report of the
independent accountants thereon appear beginning at page F-2. See index to
consolidated Financial Statements on page F-1.
-36-
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. Not applicable.
-37-
<PAGE>
PART III
ITEM 10 The information required by PART III will be incorporated by
ITEM 11 reference from Registrant's definitive proxy statement or
ITEM 12 definitive information statement, provided such definitive proxy
ITEM 13 statement or definitive information statement is filed not later
than 120 days after the end of the fiscal year covered by the
Form 10-K, or by an amendment to the Form 10-K, not later than the
end of such 120 day period.
-38-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) See Index to Exhibits, attached.
(b) During the last quarter of the period covered by this report,
the Registrant filed no reports on Form 8-K.
-39-
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1999
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
MANAGEMENT REPORT 1
AUDITORS' REPORT TO THE SHAREHOLDERS 2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-21
</TABLE>
<PAGE>
MANAGEMENT REPORT
Management is responsible for preparing the Company's financial statements and
the other information that appears in this annual report. Management believes
that the financial statements fairly reflect the form and substance of
transactions and reasonably present the Company's financial condition and
results of operations in conformity with generally accepted accounting
principles. Management has included in the Company's financial statements
amounts that are based on estimates and judgments, which it believes are
reasonable under the circumstances.
The Company maintains a system of internal accounting policies, procedures and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements and that assets are
adequately safeguarded.
Panell Kerr Forster audits the Company's financial statements in accordance with
generally accepted auditing standards and provides an objective, independent
review of the Company's internal controls and the fairness of its reported
financial condition and results of operations.
Elephant and Castle Group Inc's Board of Directors has an Audit Committee
composed of non-management Directors. The Committee meets with financial
management and the independent auditors to review internal accounting controls
and accounting, auditing and financial reporting matters.
"Richard Bryant"
Chief Financial Officer
F-1
<PAGE>
AUDITORS' REPORT
TO THE SHAREHOLDERS OF ELEPHANT & CASTLE GROUP INC.
We have audited the consolidated balance sheets of Elephant & Castle Group Inc.
as at December 26, 1999 and December 27, 1998 and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 26,
1999, December 27, 1998 and December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada which do not differ in any material respects from auditing standards
generally accepted in the United States. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Elephant & Castle Group Inc. as at
December 26, 1999 and December 27, 1998 and the results of its operations and
its cash flows for the years ended December 26, 1999, December 27, 1998 and
December 31, 1997 in accordance with generally accepted accounting principles in
Canada applied on a consistent basis. Accounting principles generally accepted
in Canada differ in certain significant respects from accounting principles
generally accepted in the United States and are discussed in Note 16 to the
consolidated financial statements.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, Canada
March 14, 2000, except for note 7(f)
which is as of March 23, 2000
F-2
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED BALANCE SHEETS
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
============================================================================================
DECEMBER 26, DECEMBER 27,
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (note 6)
CURRENT
Cash and term deposits $ 1,014 $ 2,468
Accounts receivable (note 13(c)) 863 557
Inventory 1,062 808
Deposits and prepaid expenses 419 517
Pre-opening costs 167 891
- --------------------------------------------------------------------------------------------
3,525 5,241
FIXED (note 3) 22,649 21,291
GOODWILL 1,949 2,053
OTHER (note 4) 1,905 2,212
- --------------------------------------------------------------------------------------------
$ 30,028 $ 30,797
============================================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (note 5) $ 7,443 $ 5,931
Current portion of long-term debt (note 6) 62 105
- --------------------------------------------------------------------------------------------
7,505 6,036
LONG-TERM DEBT (note 6) 15,730 16,500
- --------------------------------------------------------------------------------------------
23,235 22,536
- --------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 7)
Authorized
20,000,000 Common shares without par value
Issued
3,694,709 (1998 - 3,321,334) Common shares 13,955 12,982
OTHER PAID-IN CAPITAL (note 7(a)) 0 844
SUBSCRIPTIONS RECEIVED 2,374 0
CURRENCY TRANSLATION ADJUSTMENT (618) (1,051)
DEFICIT (8,918) (4,514)
- --------------------------------------------------------------------------------------------
6,793 8,261
- --------------------------------------------------------------------------------------------
$ 30,028 $ 30,797
============================================================================================
</TABLE>
Contingencies and Commitments (notes 9 and 10)
Approved on behalf of the Board:
"R. Bryant" "C. Stacey"
.............................. Director ........................... Director
R. Bryant C. Stacey
See notes to consolidated financial statements.
F-3
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT LOSS PER SHARE)
<TABLE>
<CAPTION>
========================================================================================================
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 50,104 $ 42,630 $ 34,231
- --------------------------------------------------------------------------------------------------------
RESTAURANT EXPENSES
Food and beverage 14,418 11,990 9,946
Operating
Labour 16,026 13,764 11,305
Occupancy and other 12,760 10,581 8,802
Restaurant closing costs (note 11) 250 0 330
Depreciation and amortization 3,806 2,525 1,965
- --------------------------------------------------------------------------------------------------------
47,260 38,860 32,348
- --------------------------------------------------------------------------------------------------------
INCOME FROM RESTAURANT OPERATIONS 2,844 3,770 1,883
- --------------------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES 3,398 3,614 2,448
RETIRING ALLOWANCES AND OTHER COSTS (note 11) 867 0 347
LEGAL SETTLEMENT (note 9(a)) 775 0 0
INTEREST ON LONG-TERM DEBT 2,056 1,085 504
- --------------------------------------------------------------------------------------------------------
7,096 4,699 3,299
- --------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (4,252) (929) (1,416)
INCOME TAXES (note 9(b)) 125 0 0
DEFERRED INCOME TAXES (115) 0 0
- --------------------------------------------------------------------------------------------------------
NET LOSS FOR YEAR $ (4,262) $ (929) $ (1,416)
========================================================================================================
NET LOSS PER COMMON SHARE $ (1.21) $ (0.29) $ (0.48)
========================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,513,000 3,197,000 2,947,000
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
============================================================================================================================
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF COMMON SHARES ISSUED
Beginning balance 3,321,334 3,002,183 2,822,225
Issue of shares
For interest (note 6) 32,500 15,000 70,555
For settlement of legal matter (note 9(a)) 150,000 0 0
For services 0 1,000 2,000
For exercise of options 0 0 17,833
On exercise of warrants 0 0 75,000
On conversion of other paid-in capital (note 7(a)) 190,875 303,151 14,570
- ----------------------------------------------------------------------------------------------------------------------------
3,694,709 3,321,334 3,002,183
============================================================================================================================
COMMON SHARES ISSUED
Beginning balance $ 12,982 $ 11,228 $ 9,876
Issue of shares
For interest (note 6) 98 29 472
For settlement of legal matter (note 9(a)) 303 0 0
For services 0 3 21
For exercise of options 0 0 129
On exercise of warrants 0 0 599
On conversion of other paid-in capital (note 7(a)) 572 1,722 131
- ----------------------------------------------------------------------------------------------------------------------------
Ending balance 13,955 12,982 11,228
- ----------------------------------------------------------------------------------------------------------------------------
OTHER PAID-IN CAPITAL
Beginning balance 844 2,421 0
Issue of other paid-in capital (note 7(a)) 0 0 2,548
Paid-in capital converted into shares (844) (1,577) (127)
- ----------------------------------------------------------------------------------------------------------------------------
Ending balance 0 844 2,421
- ----------------------------------------------------------------------------------------------------------------------------
SHARE SUBSCRIPTIONS
Beginning balance 0 0 0
Amount reserved to issue shares 2,374 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Ending balance 2,374 0 0
- ----------------------------------------------------------------------------------------------------------------------------
CURRENCY TRANSLATION ADJUSTMENT
Beginning balance (1,051) 0 0
Deferred gain (loss) incurred during year 433 (1,051) 0
- ----------------------------------------------------------------------------------------------------------------------------
Ending balance (618) (1,051) 0
- ----------------------------------------------------------------------------------------------------------------------------
DEFICIT
Beginning balance (4,514) (3,440) (1,948)
Dividends paid on other paid-in capital (142) (145) (76)
Net loss (4,262) (929) (1,416)
- ----------------------------------------------------------------------------------------------------------------------------
Ending balance (8,918) (4,514) (3,440)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 6,793 $ 8,261 $ 10,209
============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
=========================================================================================
1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net loss $ (4,262) $ (929) $ (1,416)
Operating items not using cash 5,023 2,502 2,317
- -----------------------------------------------------------------------------------------
761 1,573 901
- -----------------------------------------------------------------------------------------
CHANGES IN NON-CASH WORKING CAPITAL
Accounts receivable (306) 115 (195)
Inventory (254) (125) (33)
Deposits and prepaid expenses 98 140 (33)
Accounts payable and accrued liabilities 1,512 1,645 864
- -----------------------------------------------------------------------------------------
1,050 1,775 603
- -----------------------------------------------------------------------------------------
1,811 3,348 1,504
- -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of fixed assets (3,857) (8,682) (5,306)
Acquisition of other assets (546) (1,326) (870)
Acquisition of trademark 0 (17) (14)
- -----------------------------------------------------------------------------------------
(4,403) (10,025) (6,190)
- -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Deferred finance charges (364) (108) (216)
Obligation under capital leases 0 0 (21)
Proceeds from long-term debt 1,847 5,740 5,480
Repayment of long-term debt (345) (584) (538)
Issuance of shares for cash 0 0 728
Issuance of convertible debentures (note 7(a)) 0 0 2,549
- -----------------------------------------------------------------------------------------
1,138 5,048 7,982
- -----------------------------------------------------------------------------------------
INFLOW (OUTFLOW) OF CASH (1,454) (1,629) 3,296
CASH AND TERM DEPOSITS, BEGINNING OF YEAR 2,468 4,097 801
- -----------------------------------------------------------------------------------------
CASH AND TERM DEPOSITS, END OF YEAR $ 1,014 $ 2,468 $ 4,097
=========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 820 $ 723 $ 388
Income taxes 0 0 0
=========================================================================================
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSAND OF DOLLARS)
================================================================================
1. BASIS OF PRESENTATION
These financial statements include the accounts of Elephant & Castle
Group Inc. ("the Company"), its wholly-owned subsidiaries and its
proportionate share of jointly owned assets, liabilities and restaurant
operations:
(a) The Elephant and Castle Canada Inc. ("the Canadian
subsidiary") which owns and operates English style restaurants
across Canada under the name "The Elephant & Castle Restaurant
and Pub" and a New York style deli under the name "Rosie's";
(b) Elephant & Castle Inc. ("the U.S. subsidiary" incorporated in
Texas) and its subsidiaries which own and operate English
style restaurants in Washington, Pennsylvania, Massachusetts
and California;
(c) Alamo Grill, Inc. ("Alamo" incorporated in Indiana) which owns
and operates a red meat steak house at the Mall of America,
Bloomington, Minnesota;
(d) Elephant & Castle International, Inc. incorporated in Texas,
September 4, 1997 to franchise the Elephant & Castle
British-style pub and restaurant and Alamo Grill steakhouse
concept;
(e) Canadian Rainforest Restaurants, Inc. ("CRRI") was
incorporated during 1997 and is equally owned with Rainforest
Cafe Canada Holding Inc. ("RCCH") for the purpose of
undertaking the development of rainforest theme restaurants
within Canada. Under the terms of the agreement RCCH will have
the option to purchase the Company's interest in CRRI after
six years operations based on a predetermined formula of cash
flow and investment.
Yorkdale Rainforest Restaurant Inc. was incorporated June 29,
1999 and is equally owned by CRRI and RCCH. The restaurant
commenced operations in July 1999.
All significant inter-company balances and transactions are eliminated.
These consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles and all figures are
in Canadian dollars unless otherwise stated. Canadian generally
accepted accounting principles differ in certain respects from
accounting principles generally accepted in the United States. The
significant differences and the approximate related effect on the
consolidated financial statements are set forth in Note 16.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Franchise fees
The Company recognizes initial fees from the sale of
franchises as a recovery of general and administrative
expenses. Continuing franchise fees are included in sales as
they are earned.
(b) Inventory
Inventory consists of food, beverages and retail merchandise
and is recorded at the lower of cost or market. Cost is
determined using the first-in, first-out method.
F-7
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Fixed assets
Fixed assets are recorded at cost and are depreciated annually
as follows:
Furniture and fixtures - 10% straight-line method
Computer equipment - 20% straight-line method
Improvements to leased premises and property under capital
leases are being amortized on the straight-line method over
the term of the lease plus the first renewal option. For
locations opened subsequent to January 1, 1993, such
improvements are being amortized on a straight-line basis over
the term of the lease.
China, glassware and cutlery are not depreciated and
replacements are charged directly to operations.
(d) Goodwill
Goodwill is recorded at cost and amortization is calculated on
a straight-line basis over periods from 10 to 40 years.
(e) Pre-opening costs
Pre-opening costs represent amounts for staff training costs,
payroll for trainees, rents paid prior to opening, travel and
accommodation of trainers and supplies consumed prior to
opening which were all incurred to open new locations. These
costs are amortized on a straight-line basis over 12 months.
(f) Other assets
The following other assets are recorded at cost which is
amortized annually as follows:
Deferred finance costs - Term of the related
financial instruments
Restaurant development rights - 5 Years
Deferred franchise costs - 5 Years
Trademark - 10 Years
(g) Foreign currency translation
Amounts recorded in foreign currency are translated into
Canadian dollars as follows:
(i) Monetary assets and liabilities at the rate of
exchange in effect at the balance sheet date;
(ii) Non-monetary assets and liabilities at the exchange
rates prevailing at the time of the acquisition of
the assets or assumption of the liabilities; and,
(iii) Revenues and expenses (excluding depreciation and
amortization which are translated at the same rate as
the related asset), at the average rate of exchange
for the year.
F-8
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gains and losses arising from this translation of foreign
currency are included in net income except for unrealized
gains and losses on long-term monetary assets and liabilities,
which are deferred and amortized over the lives of those
items. The unrealized gains and losses will be recognized as
amounts are received or paid and are included as a separate
component of shareholders' equity.
(h) Net loss per share
Net loss per share computations are based on the weighted
average number of common shares outstanding during the year.
There is no dilutive effect on net loss per share in 1999,
1998 or 1997 after the assumed exercise of stock options,
warrants or convertible debentures.
(i) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates and would impact future results of operations
and cash flows.
3. FIXED ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
ACCUMULATED
COST DEPRECIATION NET
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements $23,253 $ 6,463 $16,790
Furniture and fixtures 9,906 5,067 4,839
China, glassware and cutlery 539 0 539
Computer equipment 735 254 481
- --------------------------------------------------------------------------------
$34,433 $11,784 $22,649
================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
1998
- --------------------------------------------------------------------------------
ACCUMULATED
DEPRECIATION
AND
COST AMORTIZATION NET
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements $20,429 $ 4,759 $15,670
Furniture and fixtures 9,041 43,362 4,679
China, glassware and cutlery 508 0 508
Computer equipment 598 164 434
- -------------------------------------------------------------------------------
$30,576 $48,285 $21,291
===============================================================================
</TABLE>
F-9
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
4. OTHER ASSETS
<TABLE>
<CAPTION>
===========================================================================================
1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred finance costs $ 701 $ 481
Rainforest Restaurant developments rights 440 408
Deferred franchise costs 228 273
Trademark 123 123
Other 298 202
Deferred income tax recoverable 115 0
Note receivable June 1, 2000 (note 13(c)) 0 350
Prepaid interest (additional consideration for below market
interest rate) 0 375
- -------------------------------------------------------------------------------------------
$1,905 $2,212
===========================================================================================
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
=========================================================================
1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Trade payables $2,168 $1,687
Occupancy and other operating expenses 1,335 760
Accrued salaries, wages and related taxes 893 819
Other payables 777 494
Retiring allowances 639 0
Debt redemption and other interest costs 495 0
Closing costs and legal settlement 400 307
Sales taxes 311 311
Prepaid supplier rebates 250 0
Construction costs 175 1,553
- -------------------------------------------------------------------------
$7,443 $5,931
=========================================================================
</TABLE>
F-10
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
=========================================================================================================================
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Electric Investment Private Placement Partners II ("GEIPPPII)",
a limited partnership, $9,000 U.S. ($13,140 CDN.) convertible
subordinated debentures, interest only at 5% per annum to November
1997, 6% per annum to November 1998, 7% per annum to November
1999 and 8% per annum thereafter, repayable in equal semi-annual
instalments of one eighth of the principal amount outstanding
commencing November 2001. In consideration for the below market
interest rates, the agreement provides for the issuance to the lender of
70,555 common shares in each of 1996 and 1997 and 15,000
common shares in each of 1998 and 1999. The lender may exercise
its conversion privilege at any time on the basis of one share for each
$3.84 U.S. of principal. A Security Agreement granting security over
substantially all of the company's assets was entered into with the
lender in 1999 $13,140 $13,500
Convertible subordinated notes issued February 1999 $3,265 U.S.
($4,897 CDN.), due December 31, 2003, interest at 8% per annum
payable quarterly in cash or common shares commencing June 30,
1999. Notes unpaid and not converted by December 31, 2003 are
immediately due and payable with a 25% premium on the unpaid
principal. The terms were renegotiated in October 1999 and $1,583
U.S. of the notes were converted into 1,582,500 common shares at $1
U.S. per share in exchange for waiver of penalties and extension of one
year warrants to three year warrants (see note 7(e) below). The
Company may, if the market price of its common shares equals or
exceeds 150% of the conversion price for fifteen consecutive trading
days, redeem the remaining notes at 100% of par plus accrued and
unpaid interest. GEIPPPII participated in the above financing by
purchasing $2,000 U.S. of which $1,000 U.S. was subsequently
converted into 1,000,000 common shares, included in the above 2,457 0
GEIPPPII a limited partnership $2,000 U.S. ($3,000 CDN.). Bridge loan
due in June 2000 0 3,000
Capital lease obligations repayable over terms ranging from 36 to 60
months, interest rates average 13% 171 0
Camdev Properties Inc. - repayable in monthly instalments of $3
including interest at 13%, due August 1, 2000, secured by a charge on
certain leasehold improvements 24 33
Toronto-Dominion Bank term loans 0 72
- -------------------------------------------------------------------------------------------------------------------------
15,792 16,605
Less: Current portion 62 105
- -------------------------------------------------------------------------------------------------------------------------
$15,730 $16,500
=========================================================================================================================
</TABLE>
F-11
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)
================================================================================
6. LONG-TERM DEBT (Continued)
Long-term debt principal repayments due in each of the next five years
and thereafter are approximately as follows:
<TABLE>
<S> <C>
================================================================================
2000 $ 62
2001 1,685
2002 5,789
2003 3,313
2004 3,299
Thereafter 1,644
- --------------------------------------------------------------------------------
$15,792
================================================================================
</TABLE>
7. CAPITAL STOCK
(a) In July 1997, the Company issued $2,000 U.S. ($2,740 CDN.) of
6% convertible subordinated debentures recorded as "other
paid-in capital". As at December 27, 1998 $616 U.S. ($844
CDN.) remained outstanding. During 1999, 190,875 shares were
issued to convert $386 U.S. ($597 CDN.) and the remainder were
redeemed for cash.
In December 1999 the Company reached an agreement with the
holders of its 8% notes whereby $1,583 U.S. ($2,374 CDN.) is
to be converted into 1,582,500 shares. These shares were
issued in January 2000. The conversion rate on the remaining
$1,683 remains unchanged at $2 U.S. per share.
(b) Stock option plans have been adopted as follows:
(i) The 1993 Founders' option plan set aside 100,000
common shares. Options on the entire 100,000 shares
have been granted at $6.60 U.S. ($9.04 CDN.). These
options become exercisable on the 5th through 9th
anniversary date of granting. 43,750 of these options
were cancelled through December 26, 1999.
(ii) The 1993 employee option plan set aside 100,000
common shares. Options have been granted for
approximately 90,000 shares. All options expire on
the 5th anniversary date of the grant. 17,833 of the
options have been exercised through December 26, 1999
and 38,833 of the options were cancelled through
December 26, 1999.
(iii) The 1997 employee option plan set aside 400,000
common shares. Options have been granted for 278,000
shares. All options expire on the 5th anniversary
date of the grant. None have been exercised through
December 26, 1999 and 50,000 of the options were
cancelled through December 26, 1999.
F-12
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)
================================================================================
7. CAPITAL STOCK (Continued)
(iv) The 1993 directors' option plan set aside 20,000
common shares. All have been granted and none have
been exercised through December 26, 1999.
There are 1,262,584 (including the 925,000 options in (c)
below) options outstanding at December 26, 1999 exercisable at
various prices detailed in note 16(e).
(c) During 1998, options for 945,000 common shares were granted to
five key executives, four of whom commenced employment with
the Company in 1997. None have been exercised and 20,000 of
these options were cancelled through December 26, 1999.
(d) During 1994, 63,500 shares were issued to a director at $4.75
U.S. per share. At December 26, 1999, $300 U.S. ($411 CDN.) of
these proceeds were unpaid. The amount unpaid was charged to
shareholders' equity in the 1994 fiscal year.
(e) At December 26, 1999, warrants to purchase common shares were
outstanding as follows:
<TABLE>
<CAPTION>
================================================================================
EXERCISE
EXPIRY DATE PRICE NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 4.75 - $ 5.25 U.S. 144,500
2001 $ 8.16 U.S. 6,125
2002 $ 4.91 U.S. 977,597
2002 $ 3.84 U.S. 703,125
2003 $ 2.00 - $ 3.00 U.S. 1,632,500
- --------------------------------------------------------------------------------
3,463,847
================================================================================
</TABLE>
These warrants are subject to an anti-dilution provision,
which provides for an adjustment to the exercise price to take
into consideration the issue of other shares, or securities
convertible into shares, at prices below the existing exercise
price. In addition the number of shares issued on exercise may
increase such that the total dollar amount paid on exercise of
these warrants will be the same at all times regardless of the
exercise price.
(f) Shareholders approved a special resolution on March 23, 2000
to consolidate the Company's authorized and issued capital
stock on a one for two basis. All numbers of shares, options
and warrants reported in these financial statements are on a
pre-consolidated basis.
F-13
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
8. FINANCIAL INSTRUMENTS
(a) Fair value
The carrying value of cash and term deposits, accounts
receivable, accounts payable and accrued liabilities
approximate their fair value because of the short maturity of
these financial instruments.
The carrying values of convertible subordinated debentures
held by General Electric Investment Private Placement Partners
II and convertible subordinated notes issued in February 1999
approximate their fair value because the interest payments
over the term of the debentures approximated market rates when
the agreements were finalized.
The carrying value of 6% convertible subordinated debentures
recorded as "other paid-in capital" has been adjusted to
reflect market rates at the date the transaction was
completed.
(b) Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash and term deposits and accounts
receivable. Cash and term deposits are placed with major
financial institutions rated in the two highest grades by
nationally recognized rating agencies. Credit risk from
customer exposure is nominal due to the nature of the
business.
(c) Interest rate risk
The Company is not exposed to significant interest rate risk
due to the short-term maturity of its monetary current assets
and current liabilities and the relatively small amount of
long-term debt subject to interest rate changes.
(d) Translation risk
The Company translates the results of U.S. operations into
Canadian currency using rates approximating the average
exchange rate for the year. The exchange rate may vary from
time to time. This risk is minimized to the extent U.S.
capital expansions are financed through borrowing in U.S.
dollars and all non-Canadian source revenues and expenses are
in U.S. dollars.
F-14
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
9. CONTINGENCIES
(a) The Company was a party to two ten year lease agreements with
Shilo Hotels ("Shilo") relating to facilities located at Yuma,
Arizona and Pomona, California respectively. The Company
asserted certain claims against Shilo by reason of the lease
agreements. Shilo, in turn, asserted claims against the
Company and commenced litigation in the Superior Court, State
of Arizona, County of Yuma. The Company resolved its
long-standing legal dispute with Shilo Inns in October, 1999.
Shilo had been seeking general and special damages amounting
to approximately $3,840,000, plus costs. The settlement that
was reached will result in cash payments over 24 months, plus
the issue of 150,000 common shares. A provision of $775,000
was made in 1999 to cover the cost of this settlement.
(b) In 1989 and 1990, the Canadian subsidiary received Notices of
Reassessment from Revenue Canada and the Ontario Ministry of
Revenue regarding a construction allowance received in 1984
from the landlord for its former Sarnia, Ontario location. The
reassessment has been under appeal since 1989. The amount of
tax reassessed was $209. Including interest accrued
retroactively since 1984, the total amount disputed at
December 26, 1999 approximates $785.
A portion of the dispute has been settled in the Company's
favour and a tax provision of $125 has been made for the
estimated remainder of the dispute.
10. COMMITMENTS
(a) The subsidiaries are committed to leases on their restaurant
locations extending into the 2014 fiscal year. Minimum annual
rentals for the restaurants excluding realty taxes, common
area maintenance and other charges are as follows:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
2000 $ 4,414
2001 4,357
2002 4,110
2003 3,863
2004 3,604
2005 to 2014 inclusive 19,854
- --------------------------------------------------------------------------------
$40,202
================================================================================
</TABLE>
Each of the aforementioned leases provide for the payment of
additional rent based on percentages of gross annual revenue
in excess of minimum rents, or other graduated formulae
derived from gross revenue as defined in the particular lease
agreements. The percentages range from 6% to 11%.
F-15
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
10. COMMITMENTS (Continued)
(b) The Company has committed, through its joint venture agreement
with Rainforest Cafe Canada Holding Inc., to open a minimum of
five Canadian Rainforest restaurants by March, 2001. In 1998
the first restaurant opened in Vancouver, B.C. at a total cost
of approximately $6 million, the second and third restaurants
located in Scarborough and Yorkdale, Ontario opened in 1999.
The total cost incurred to December 26, 1999 approximates $9
million. A lease has been signed for one additional location
and a sub-franchise agreement has been signed for the fifth
location.
11. RESTAURANT CLOSING COSTS, RETIRING ALLOWANCES AND OTHER COSTS
<TABLE>
<CAPTION>
================================================================================
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RESTAURANT CLOSING COSTS
Disposal of assets and demolition costs relating to
restaurant lease not renewed $250 $ 0 $330
================================================================================
RETIRING ALLOWANCES AND OTHER COSTS
Senior executive retirement allowances $820 $ 0 $261
Other former employee costs 47 0 86
- --------------------------------------------------------------------------------
$867 $ 0 $347
================================================================================
LEGAL SETTLEMENT
Legal settlement costs (note 9(a)) $775 $ 0 $ 0
================================================================================
</TABLE>
12. INCOME TAX
The Company has the following available tax losses, the benefits of
which have not been recorded in these financial statements:
(i) Non-capital losses of approximately $5,960 which can be
applied against future income for Canadian tax purposes up to
and including 2005.
(ii) Net capital losses of approximately $400 which can be applied
against future capital gains income for Canadian tax purposes
indefinitely.
(iii) Operating losses of approximately $823 U.S. ($1,240 CDN.)
which may be carried forward to apply against future years'
income for United States income tax purposes expiring up to
2013.
F-16
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
13. RELATED PARTY TRANSACTIONS
(a) Included in general and administrative are wages and
management fees paid to directors, former directors, officers,
former officers and personal service corporations used by
these individuals for a total of $717 (1998 - $800) (1997 -
$590).
(b) A shareholder and a former director of the Company provides
legal and consulting services to the Company. Fees for these
services totalled $122 (1998 - $103) (1997 - $80).
(c) The Company holds a non-interest bearing promissory note for
$350 (included in accounts receivable at December 26, 1999)
from a director and officer of the Company. 100,000 shares in
the capital stock of the Company are pledged as security for
payment of the note.
(d) GEIPPPII (note 6) is related to the Company by way of its
share ownership in the Company and the election of two
directors to the Board. Interest payments totalled $824 in
1999, $762 in 1998 and $834 in 1997 consisting of cash of $725
in 1999, $732 in 1998 and $362 in 1997; the balance was paid
by share issuances.
14. GEOGRAPHIC SEGMENTED DATA
<TABLE>
<CAPTION>
================================================================================================================
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers
Canada $ 28,703 $ 23,647 $ 21,227
United States 21,401 18,983 13,004
- ----------------------------------------------------------------------------------------------------------------
$ 50,104 $ 42,630 $ 34,231
================================================================================================================
Income from restaurant operations
Canada $ 2,225 $ 2,224 $ 1,107
United States 619 1,546 776
- ----------------------------------------------------------------------------------------------------------------
2,844 3,770 1,883
Other charges 7,096 4,699 3,299
- ----------------------------------------------------------------------------------------------------------------
Loss before income taxes $ (4,252) $ (929) $ (1,416)
================================================================================================================
Identifiable assets
Canada $ 16,501 $ 14,072 $ 11,345
United States 11,598 14,101 11,155
- ----------------------------------------------------------------------------------------------------------------
$ 28,099 $ 28,173 $ 22,500
================================================================================================================
</TABLE>
15. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. Although the change in date has occurred, it is not possible to
conclude that all aspects of the Year 2000 Issue that may affect the Company,
including those related to customers, suppliers, or other third parties, have
been fully resolved.
F-17
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
16. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP)
(a) Recent accounting pronouncements
(i) Earnings per share
In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per
Share". The statement is effective for financial
statements for periods ending after December 15,
1997, and changes the method in which earnings per
share will be determined. The Company's adoption of
FASB 128 for U.S. GAAP purposes results in no
difference in net income (loss) disclosure.
(ii) Income tax
Under Canadian GAAP, the future tax benefits related
to the non-capital loss carry forwards have not been
recorded in the accounts. Under U.S. GAAP, companies
must follow the requirements of Statement of
Financial Accounting Standards No. 109 (SFAS 109)
which requires the use of the asset/liability method
for measurement of tax liabilities, wherein deferred
tax assets are recognized as well as deferred tax
liabilities.
The Company has significant non-capital loss
carryforwards (note 12). SFAS 109 would require the
recognition of a long-term tax asset for the future
benefit expected from the application of these
carryforwards to future profitable years. If it is
expected that the entire amount of non-capital loss
carryforwards will not be utilized, then a valuation
allowance is applied to the asset to reasonably state
the asset at its expected value. Under SFAS 109,
disclosure of the amount of the valuation allowance
is required. As of December 26, 1999 the valuation
allowance is equal to 100% of the deferred tax net
except for the amount recognized in income in note
16(b) for $1,559. Changes in the value of the
deferred tax asset are recognized each year as income
tax expense.
(iii) SFAS 130, "Reporting Comprehensive Income" and SFAS
131, "Disclosures About Segments of an Enterprise and
Related Information" were also issued in 1997. These
standards, which became effective in 1998, expand or
modify disclosures and, accordingly, will have no
effect on the Corporation's consolidated financial
position, results of operations or cash flows. Under
U.S. GAAP, the Company would have reported
comprehensive loss of $2,640.
(iv) In April 1998, the American Institute of Certified
Public Accountants (AICPA) issued Statement of
Position No. 98-5 (SOP 98-5), "Reporting on the Costs
of Start-Up Activities". SOP 98-5 generally requires
costs of start-up activities to be expensed instead
of being capitalized and amortized and is required to
be adopted no later than January 1, 1999. Under U.S.
GAAP in fiscal 1999 the Company would be required to
write-off pre-opening costs which amounted to $167 at
December 26, 1999.
F-18
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
16. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP) (Continued)
(b) Reconciliation of earnings reported in accordance with
Canadian GAAP and U.S. GAAP:
<TABLE>
<CAPTION>
======================================================================================================
1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss - Canadian GAAP $(4,262) $(929) $(1,416)
Adjustments increasing net loss
Amortization of improvement costs * (61) (61) (110)
Dividend on paid-in capital that would be treated as
interest under U.S. GAAP (note 7(a)) (142) (145) (76)
Pre-opening costs expensed for U.S. GAAP (167) 0 0
Recognition of non-capital loss carry forwards ** 1,559 486 0
- ------------------------------------------------------------------------------------------------------
Net loss U.S. GAAP (3,073) (649) (1,602)
Comprehensive income adjustments 433 (1,051) 0
- ------------------------------------------------------------------------------------------------------
Comprehensive loss U.S. GAAP $(2,640) $(1,700) $(1,602)
======================================================================================================
Net loss per common share
Canadian GAAP $(1.21) $(0.29) $(0.48)
======================================================================================================
U.S. GAAP $(0.87) $(0.20) $(0.54)
======================================================================================================
Weighted average number of
shares outstanding 3,513,000 3,197,000 2,947,000
======================================================================================================
</TABLE>
* Under U.S. GAAP, amortization of leasehold improvement costs
would be restricted to the term of the lease.
** Carry forward loss that would be recorded as a deferred tax
asset under U.S. GAAP.
F-19
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
16. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP) (Continued)
(c) Reconciliation of shareholders' equity reported in accordance
with Canadian GAAP and U.S. GAAP:
<TABLE>
<CAPTION>
===================================================================================================
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity, end of year under
Canadian GAAP $ 6,793 $ 8,261 $ 10,209
Beneficial conversion feature of
convertible subordinated debentures
(notes 7 and 16(d)(i)) 2,436 2,436 2,436
Cumulative increase in net loss reported
under Canadian GAAP to net loss under
U.S. GAAP (1,904) (3,093) (3,373)
Other paid-in capital under Canadian
GAAP (note 7(a)) treated as debt
obligation for U.S. GAAP 0 (844) (2,421)
- ---------------------------------------------------------------------------------------------------
Shareholders' equity, end of year under $ 7,325 $ 6,760 $ 6,851
U.S. GAAP
===================================================================================================
</TABLE>
(i) The beneficial conversion feature of convertible
subordinated debentures is accounted for as an
interest expense at the date of issue of the
security. This policy conforms to the accounting for
these transactions announced by the SEC staff in
March, 1997.
The reconciliation of shareholders' equity reported
in accordance with Canadian GAAP and U.S. GAAP has
been adjusted by $2,436 Cdn. to reflect this charge
to income and increase in capital in 1995.
F-20
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1999, DECEMBER 27, 1998 AND DECEMBER 31, 1997
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
================================================================================
16. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP) (Continued)
(d) Stock options
The Company has granted founders, directors and certain
employees stock options. Stock option activity is summarized
as follows:
<TABLE>
<CAPTION>
====================================================================================
NUMBER EXERCISE PRICE
OF SHARES (U.S.$) (CDN.$)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding, December 31, 1996 195,800 $ 6.19 * $ 8.47
1997 - Granted 224,000 6.00 8.22
1997 - Exercised (17,833) 5.28 * 7.23
- ------------------------------------------------------------------------------------
Balance outstanding, December 31, 1997 401,967 6.11 * 8.37
1998 - Granted 1,050,000 6.52 9.79
1998 - Cancelled (139,383) 6.04 9.07
- ------------------------------------------------------------------------------------
Balance outstanding, December 27, 1998 1,312,584 6.45 * 9.67
1999 - Cancelled (50,000) 5.68 8.23
- ------------------------------------------------------------------------------------
Balance, outstanding December 26, 1999 1,262,584 $ 6.48 * $ 9.40
====================================================================================
</TABLE>
* Weighted average exercise price.
In 1995 the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation", which contains a fair value-based
method for valuing stock-based compensation that entities may
use. This measures compensation cost at the grant date based
on the fair value of the award. Compensation is then
recognized over the service period, which is usually the
vesting period. For U.S. GAAP purposes management accounts for
options under APB Opinion No. 25. As option exercise prices
approximated market price on the dates of grants no
compensation expense has been recognized. If the alternative
accounting-related provisions of SFAS No. 123 had been adopted
as of the beginning of 1995, the effect on 1997, 1998 and 1999
U.S. GAAP net loss per share would have been immaterial.
F-21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) Elephant & Castle Group Inc.
By s\ Richard Bryant
----------------------------------------------------------------------
RICHARD BRYANT, PRESIDENT, CHIEF EXECUTIVE OFFICER/DIRECTOR
Date March 23, 2000
----------------------------------------------------------------------
By s\ Daniel Debou
----------------------------------------------------------------------
DANIEL DEBOU, CHIEF ACCOUNTING OFFICER
Date March 23, 2000
----------------------------------------------------------------------
In accordance with the Exchange Act, this report has been
additionally signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By s\ Jeffrey Barnett
----------------------------------------------------------------------
JEFFREY BARNETT, DIRECTOR
Date March 23, 2000
----------------------------------------------------------------------
By s\ Martin O'Dowd
----------------------------------------------------------------------
MARTIN O'DOWD, DIRECTOR
Date March 23, 2000
----------------------------------------------------------------------
By s\ George Pitman
----------------------------------------------------------------------
GEORGE W. PITMAN, DIRECTOR
Date March 23, 2000
----------------------------------------------------------------------
By s\ William McEwen
----------------------------------------------------------------------
WILLIAM MCEWEN, DIRECTOR
-40-
<PAGE>
Date March 23, 2000
----------------------------------------------------------------------
By s\ David Wiederecht
----------------------------------------------------------------------
DAVID WIEDERECHT, DIRECTOR
Date March 23, 2000
----------------------------------------------------------------------
By s\ Anthony Mariani
----------------------------------------------------------------------
ANTHONY MARIANI, DIRECTOR
Date March 23, 2000
----------------------------------------------------------------------
By s\ David Matheson
----------------------------------------------------------------------
DAVID MATHESON, DIRECTOR
Date March 23, 2000
----------------------------------------------------------------------
-41-
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
- --------
3.1 Certificate of Incorporation and *
Certificate of Name Change of
Registrant
3.2 Articles of Association of Registrant *
3.3 Certificate of Amalgamation, dated *
May 1, 1990, The Elephant and Castle
Canada Inc.
3.4 Resolution to increase the authorized ******
share capital of Registrant
3.5 Amendment to Articles of Association of (X)
Registrant, dated March 23, 2000
3.6 Memorandum of Agreement dated October 19,
1999 between the Company and a shareholder
group relative to governance of the Corporation (X)
4.1 Form of certificate evidencing shares *
of Common Stock
4.2 Form of Underwriter's Warrant Agreement *
between Registrant and the Underwriter
4.3 Form of Subordinated Convertible Note
issued in Delphi Financing *****
4.4 Form of Noteholders Warrant issued in
Delphi Financing *****
4.5 Form of amended Noteholder Warrant issued (X)
on renegotiation of Delphi Financing
10.1 Bank Loan Agreement, dated September 13, *
1990, with Toronto Dominion Bank
10.2 Letter Agreement dated June 26, 1991, *
regarding expansion of facilities at
-42-
<PAGE>
Edmonton Eaton Centre food court relocation
10.3 Retailer Application dated May 23, 1992, *
and Specimen Agreement for Alberta Lotteries
and Alberta Gaming Control
10.4 License Agreement dated July 9, 1992, with *
Servomation Inc. relating to B.C. Place
Stadium
10.5 Restaurant lease dated November 10, 1992, *
with Shilo Management Corporation, relating
to the Shilo Inn, Yuma, Arizona
10.6 Letter Agreement, with Shilo Management *
Corporation relating to Shilo Hotel, Pomona,
California
10.7 Restaurant Lease Agreement with Holiday Inns **
of Canada, Ltd., relating to Holiday Inn Crowne
Plaza at Winnipeg, Manitoba.
10.8 Restaurant Lease Agreement relating to Holiday
Inn, Philadelphia, Pennsylvania ***
10.9 Abstract of Restaurant Lease relating to Holiday
Inn, San Diego Lease ****
10.10 Revised Lease Abstract of Restaurant Lease relating to
Canadian Rainforest Restaurants, Inc. (Yorkdale) *****
10.11 Revised Lease Abstract of Restaurant Lease relating to
Canadian Rainforest Restaurants, Inc. (Montreal) *****
10.12 Revised Lease Abstract of Canadian Rainforest Restaurants,
Inc. (Burnaby, B.C.) *****
10.13 Lease Abstract of Elephant & Castle Group, Inc. (Edmonton) *****
10.14 Lease Abstract of Canadian Rainforest Restaurants, Inc.,
(Scarborough, Ont.) (X)
10.15 Lease Abstract of Elephant & Castle Group, Inc.
(Franklin Mills, Pennsylvania) (X)
10.16 Abstract of Canadian Niagara Hotels sub-franchise (X)
-43-
<PAGE>
10.17 Abstract of Holiday Inns Hotels Exclusivity Agreement
re: franchise facilities (X)
10.18 Form of Franchise Agreement for Alamo Grill (X)
10.19 Form of Franchise Agreement for Elephant & Castle (X)
21 List of Subsidiaries ****
24.1 Irrevocable Consents and Power of Attorney on
Form F-X *
99.1 Canadian Declaration as of May 11, 1990, *
claiming the trade name "The Elephant and
Castle"
99.2 Filing receipt dated February 5, 1993, for *
U.S. service mark application "E&C"
99.3 Filing receipt dated February 5, 1993, for *
U.S. service mark "Elephant Mug"
- ----------------------
X Filed herewith.
* Incorporated by reference from the Exhibits filed with the Company's
Registration Statement on Form SB-2 (Registration No. 33-60612)
Modification of the numbering of the exhibits is in accordance with
Item 601 of Registration S-B.
** Filed with Registrant's 10-K SB for the Fiscal Year ended
December 31, 1993.
*** Filed with Registrant's 10-K SB for the Fiscal Year Ended
December 31, 1994.
**** Filed with Registrant's 10-KSB A-1 for Fiscal Year Ended
December 31, 1996
***** Filed with Registrant's 10-K for Fiscal Year Ended
December 27, 1998
****** Filed with Registrant's 8-K dated December 8, 1999
-44-
<PAGE>
EXHIBIT 3.5
TEXT OF SPECIAL RESOLUTION
------------------------------------
-44-
<PAGE>
-45-
CONSOLIDATION OF COMMON SHARES
UPON MOTION duly made, IT IS RESOLVED AS A SPECIAL RESOLUTION THAT:
1. The 20,000,000 Common shares without par value in the capital of the
Elephant & Castle (the "Company") be consolidated into 10,000,000
Comm0n shares without par value, every tow Common shares before
Consolidation being consolidated into one share (the "Consolidation"),
and the memorandum of the Company be altered accordingly so that it
shall be in the form set out in Schedule A.
2. No fractional Common shares of the Corporation be issued in connection
with the Consolidation, and the number of Common shares to be received
by each shareholder will be rounded down to the nearest whole number of
Common shares which that shareholder would otherwise be entitled to
receive upon such Consolidation.
- -----------------------------------------------------------------------------
COMPANY ACT
MEMORANDUM
of
Elephant & Castle Group Inc.
(the "Company")
(as altered by special resolution of the Company
passed on March 23, 2000)
1. The name of the Company is Elephant & Castle Group Inc.
2. The authorized capital of the Company consists of 10,000,000 Common
shares without par value.
-45-
<PAGE>
-46-
EXHIBIT 3.6
MEMORANDUM OF AGREEMENT dated as of October 19, 1999 by and among the parties
listed on Schedule A hereto (the "Shareholder Group"), the parties listed on
Schedule B hereto and Elephant & Castle Group Inc. (the "Company").
Background:
A. At the Annual General Meeting (the "Meeting") of Shareholders
of the Company held on August 23, 1999, representatives of the
Shareholder Group expressed dissatisfaction over certain
aspects of the Company's business and affairs, including the
conduct of the board of directors (the "Board"), and sought to
adjourn the meeting pending the mailing of a revised proxy
statement by the Company containing expanded disclosure of
certain matters and in order to provide the Shareholder Group
with an opportunity to discuss their concerns with management
of the Company ("Management");
B. The Meeting was adjourned until 9:00 a.m. on Friday, October
22, 1999 and on September 13, 1999 a supplemental proxy
statement (the "Supplemental Proxy Statement") was mailed to
all Shareholders.
C. Representatives of the Shareholder Group have had discussions
with representatives of Management and have reached certain
agreements, as set out below, as to matters to be proposed to
and considered by Shareholders at the Meeting and as to
certain actions to be taken by the Company following the
Meeting.
1. ELECTION OF DIRECTORS
Each of the members of the Shareholder Group agrees not to nominate or
to vote or cause to be voted any of the shares beneficially owned by
such member, in person or by proxy, at the adjourned Meeting for any
candidates for the Board other than the nominees listed in the
Supplemental Proxy Statement.
2. APPOINTMENT OF ADDITIONAL INDEPENDENT DIRECTORS
At the first meeting of the Board following the conclusion of the
adjourned Meeting,, which will be held as soon as practicable following
the conclusion of the adjourned Meeting and in any event within thirty
(30) days of the date of this Agreement, the Company, through the
Board, will, pursuant to Section 110(3) of the COMPANY ACT, RSBC 1996 c
62, as amended and Article 13.4 of the Company's Articles, cause the
following persons to be appointed as additional directors for a term
(subject to the provisions of Paragraph 5 of this Agreement) to expire
at the conclusion of the annual general meeting of the Company to be
held in the year 2000, such appointments to take effect upon the
receipt of signed forms of consent to act:
Mr. David Matheson
Apt. 22C, The Kempinski Hotel Apartments
Djakarta, Indonesia
Vice-President and Director of Equatorial Energy, Inc.
-46-
<PAGE>
Mr. William C. McEwen
1356 Camwell Drive
West Vancouver, BC V75 2M5
Chairman of Canadian Maple Leaf Financial
3. APPOINTMENT OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
(a) Within a reasonable period following conclusion of the
adjourned Meeting, and in any event within 30 days of the date
of this Agreement, Mr. O'Dowd will resign as President of the
Company and the Company, through the Board, will appoint Mr.
Richard Bryant as President of the Company in replacement of
Mr. Martin O'Dowd and will confirm Mr. Bryant in his current
office as Chief Executive Officer.
(b) Within 120 days of the date of this Agreement, all duties and
functions being discharged and exercised by Mr. O'Dowd will be
assumed by other officers of the Company reporting to Mr.
Bryant and from the date of such assumption of duties the
Company will make no further payments of remuneration to Mr.
O'Dowd (other than directors' fees approved by the Board to be
paid to Directors who are independent of the Company's
Management or payments made in the 90 day period following the
termination of Mr. O'Dowd's existing service and consulting
agreements, pursuant to the terms of such agreements).
(c) Mr. Bryant's appointment will be made pursuant to a service
contract for a one-year term to be approved by the members of
the Board who are independent of the Company's Management
which will contain provisions as to compensation and severance
arrangements approved by the Compensation Committee of the
Board and to the effect that the renewal or extension of its
term will be subject to a satisfactory assessment of Mr.
Bryant's performance made by the Board (with any director who
shall have been or shall at such time be part of the Company's
Management abstaining from voting on such assessment).
4. NEXT ANNUAL GENERAL MEETING
The Company will hold its next Annual General Meeting of Shareholders
(the "2000 AGM") on or prior to June 29, 2000. Prior to April 27, 2000,
the Company will seek to reach agreement among the members of the Board
as to the nominees for director to be proposed to Shareholders at the
2000 AGM. Failing agreement among all directors, the Board may act in
accordance with the preference of a majority, but:
(a) Mr. O'Dowd will not be included among the Company's nominees;
(b) if the Company proposes a nominee for election to the Board in
place of Mr. O'Dowd, such nominee will be independent of
Management, not affiliated with any major creditor or
shareholder of the Company and preferably with a hospitality
industry or public company background; and
(c) if Mr. David Matheson is not included among the Company's
nominees for election to the Board, the Company will nominate
in his stead a person independent of Management, not
affiliated with any major creditor or shareholder of the
Company and preferably with a hospitality industry or public
company background.
-47-
<PAGE>
5. CHANGES IN BOARD COMPOSITION PRIOR TO THE 2000 AGM
(a) In certain events, the Shareholder Group will have the right
to require changes in the Board prior to the 2000 AGM,
specifically:
- if the Company shall not have achieved a measurable
improvement in financial and operational performance
(as defined in subparagraph 5(d) below) by February
25, 2000, or
- if the stock of the Company shall not be listed on
the Nasdaq system on February 25, 2000.
(b) If either of the above events occur, the Shareholder Group (or
members of the Shareholder Group holding at least two-thirds
of the aggregate number of shares held by all members of the
Shareholder Group) may by notice in writing ("Notice") require
the Company to make changes to the Board in accordance with
the procedure set out in subparagraph 5(c) below.
(c) Forthwith upon receipt of Notice, Mr. David Matheson and Mr.
Martin O'Dowd shall resign from the Board and the boards of
directors of all subsidiaries of the Company (and in the
absence of a letter of resignation will be deemed to have
resigned) and the two vacancies created by their resignations
shall as soon as practicable and in any event within 30 days
of receipt of the Notice be filled by the appointment of two
persons, independent of Management, not affiliated with any
major creditor or shareholder of the Company and preferably
with a hospitality industry or public company background,
selected by:
(i) unanimous agreement of the remaining directors; or
(ii) failing agreement within 20 days of receipt of
Notice, one director shall be selected by Mr. Irving
Glovin, Attorney of 400 Skyewiay Road, Suite 400, Los
Angeles, California, 90049 from a list of three
persons submitted by the President of the Company to
Ladner Downs and the Company shall cause one director
to be selected by Mr. Peter H. Stafford, Q.C. of
Russell & DuMoulin, Canadian counsel to the Company,
from a list of three persons submitted on behalf of
the Shareholder Group. Such selections shall be made
and the Company shall be notified of such selections
within seven (7) days of Ladner Downs and Russell &
DuMoulin receiving the list of nominees, in each
case. (In case either Mr. Glovin or Mr. Stafford are
unwilling or unable to act, their replacements shall
be selected by the Shareholder Group or the Board, as
the case may be.)
(d) For the purpose of this paragraph 5, "a measurable improvement
in financial and operational performance" shall conclusively
be deemed to have occurred in either of the following events:
- the weighted average price of the Company's stock for
the 30 trading days ending on February 25, 2000 shall
be US$1.50 or more; or
- the weighted average price of the Company's stock for
the 30 trading days ending on February 25, 2000 shall
be US$1.00 or more AND the Company shall have
achieved earnings from operations in the nine week
period ended
-48-
<PAGE>
-49-
February 25, 2000 in excess of those
reported for the same period in 1999 as certified by
the President and Chief Executive Officer on or
before March 10, 2000.
(e) If the Company takes any action to consolidate its shares, the
target prices of US$1.50 and US$1.00 shall be proportionately
adjusted to reflect the consolidation. In the event of
disagreement among the partners as to the adjustment to be
made, the Company's auditors, at the instance of any party,
will determine the adjustment and the auditor's decision will
be binding on the parties.
(f) Except as contemplated by this Agreement, prior to April 27,
1999, the Shareholders Group will not take any other steps
directed at changing the composition of the Board.
6. MISCELLANEOUS
(a) The Company will ensure that all its SEDAR filings are brought
up to date within 30 days of the date of this Agreement.
(b) By way of a contribution to the out-of-pocket costs of the
Shareholder group, the Company will pay to Ladner Downs, as
solicitors for the Shareholder Group, the sum of Cdn. $20,000
by October 25, 1999 and a further Cdn.$20,000 at such time as
the Board considers it appropriate but in no event later than
June 30, 2000.
(c) Following the conclusion of the adjourned Meeting and the
appointment of the additional directors as contemplated in
paragraph 2, the Company will issue a news release which will
include appropriate disclosure of the material aspects of this
Agreement. The Company will consult with Ladner Downs as to
the contents of the proposed news release and will provide to
Ladner Downs a copy of the release prior to publication.
(d) Any notice to be given by the Shareholder Group or any member
of the Shareholder Group to the Company must be in writing and
delivered or sent by facsimile transmission to the Company at
its Vancouver office at Fifth Floor, 856 Homer Street,
Vancouver, British Columbia, Canada V6B 2W5 Telephone:
604-684-6451, Facsimile: 604-684-8595, marked for the
attention of the President. Any notice to be given by the
Company to the Shareholder Group or to any member of the
Shareholder Group must be in writing and delivered or sent by
facsimile transmission, c/o Ladner Downs, Barristers and
Solicitors, 1200 Waterfront Centre, 200 Burrard Street, P.O.
Box 48600, Vancouver, British Columbia, Canada V7X 1T2,
Telephone: 604-640-4245, Facsimile: 604-687-1415, marked for
the attention of Mr. Fred R. Pletcher.
(e) Time is of the essence of this Agreement.
(f) This Agreement will enure to the benefit of and be binding
upon the respective legal representatives and successors of
the parties.
(g) This Agreement may not be amended except in writing signed by
the parties.
-49-
<PAGE>
(h) None of the parties may assign any right, benefit or interest
in this Agreement without the written consent of the other
parties to this Agreement, and any purported assignment
without such consent will be void.
(i) This Agreement will be governed by and construed in accordance
with the laws of the Province of British Columbia and the
federal laws of Canada applicable therein.
(j) This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes
every previous agreement, communication, expectation,
negotiation, representation or understanding, whether oral or
written, express or implied, among the parties with respect to
the subject mater of this Agreement.
(k) This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
This Agreement and any counterpart thereof may be delivered by
facsimile and when delivered will be deemed to be an original.
7. EXECUTION
To evidence their agreement, the members of the Shareholder Group have
signed opposite their respective names on Schedule A hereto and the
Company has executed this Agreement by its authorized officers below.
In order to confirm their concurrence that the obligations undertaken
by the Company in this Agreement are in the best interests of the
Company and its shareholders and to evidence their agreement to act
accordingly, the persons to be nominated or appointed as directors,
including the two additional directors, to be appointed under paragraph
2, have signed opposite their respective names in Schedule B.
DATED this 21st day of October, 1999.
ELEPHANT & CASTLE GROUP INC.
By:
---------------------------------
R. Bryant - Director & CEO
By:
---------------------------------
Jeffrey Barnett - Director
-50-
<PAGE>
SCHEDULE A
MEMBERS OF THE SHAREHOLDER GROUP
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED SIGNATURE
<S> <C> <C>
Peter Barnett 552,375
--------------------------
Steven Bramsen 80,100
--------------------------
Benjamin Dayson 38,000
--------------------------
Philip Dayson 20,000
--------------------------
Renovay Investments Ltd. 4,000
--------------------------
Irv Glovin 11,000
--------------------------
Bob McGrath 2,500
--------------------------
Sharon Ram-Ditta 700
--------------------------
Michael Tobin 18,000
--------------------------
Lawrence Usher 50,000
--------------------------
Yitzchak Wineberg 8,000
--------------------------
</TABLE>
-1-
<PAGE>
SCHEDULE B
MEMBERS OF PROPOSED BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME SIGNATURE
<S> <C>
Jeffrey M. Barnett
-----------------------------------------
Martin O'Dowd
-----------------------------------------
Colin Stacey
-----------------------------------------
David Wiederecht
-----------------------------------------
Anthony Mariani
-----------------------------------------
Richard H. Bryant
-----------------------------------------
George W. Pitman
-----------------------------------------
William C. McEwen
-----------------------------------------
David Matheson
-----------------------------------------
</TABLE>
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
EXHIBIT 4.5
ELEPHANT & CASTLE GROUP INC.
NOTEHOLDER'S EXCHANGE WARRANT
NO. DATED AS OF DECEMBER 3, 1999
Elephant & Castle Group, Inc., a corporation organized under the Province of
British Columbia (the "Company"), hereby agrees that, for value received,
_____________________. or its assigns, is entitled, subject to the terms set
forth below, to purchase from the Company, at any time after the date hereof and
prior to January 31, 2001, _____________________ (_____________) shares of the
$0.1 par value Common stock of the Company (the "Common Stock"), at an exercise
price of $2.00 per share and prior to January 31, 2003 at an exercise price of
$3.00, which exercise prices are subject to adjustment as provided herein. Terms
not otherwise defined herein shall have the meaning ascribed in that certain
Agency Agreement by and between Delphi Financial Corporation and the Company
dated as of February 1, 1999.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant shall
be exercised by surrendering this Warrant with the form of exercise
attached hereto duly executed by such holder, to the Company at its
principal office, accompanied by payment, in cash or by cashier's check
payable to the order of the Company or by cashless exercise pursuant to
Section 2 hereof, of the purchase price payable in respect of the
Common Stock being purchased. If less exercise, execute and deliver to
the holder hereof a new Warrant (dated the date hereof) evidencing the
number of shares of common Stock not so purchased. As soon as practical
after the exercise of this Warrant and payment of the purchase price,
the Company will cause to be issued in the name of and delivered to the
holder hereof or as such holder may direct, a certificate or
certificates representing the shares purchased upon such exercise.
2. ANTI-DILUTION ADJUSTMENTS. If the Company shall at any time hereafter
subdivide or combine its outstanding shares of Common Stock, or declare
a dividend payable in Common Stock, the exercise price in effect
immediately prior to the subdivision, combination or record date for
such dividend payable in Common Stock shall forthwith be
proportionately
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
increased, in the case of combination, or proportionately decreased,
in the case of subdivision or declaration of a dividend payable in
Common Stock, and each share of Common Stock purchasable upon
exercise of this Warrant, immediately preceding such event, shall be
changed to the number determined by dividing the then current
exercise price by the exercise price as adjusted after such
subdivision, combination or dividend payable in Common Stock.
No fractional shares of Common Stock are to be issue upon the exercise of the
Warrant, but the Company shall pay a cash adjustment in respect of any fraction
of a share which would otherwise be issuable in an amount equal to the same
fraction of the market price per share of Common Stock on the day of exercise as
determined in good faith by the Company.
In case of any capital reorganization or any reclassification of the
shares of Common Stock of the Company, or in the case of any consolidation with
or merger of the Company into or with another corporation, or the sale of all or
substantially all of its assets to another corporation, which is effected in
such a manner that the holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as part of such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the holder of
the Warrant shall have the right thereafter to receive, upon the exercise
hereof, the kind and amount of shares of stock or other securities or property
which the holder would have been entitled to receive if, immediately prior to
such reorganization, reclassification, consolidation, merger or sale, the holder
had held the number of shares of Common Stock which were then purchasable upon
the exercise of the Warrant. In any such case, appropriate adjustment (as
determined in good faith by the Board of Directors of the Company) shall be made
in the application of the provisions set forth herein with respect to the rights
and interest thereafter of the holder of the Warrant, to the end that the
provisions set forth herein (including provisions with respect to adjustments of
the exercise price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the exercise of the Warrant.
When any adjustment is required to be made in the exercise price,
initial or adjusted, the Company shall forthwith determine the new exercise
price, and
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
(a) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the new
exercise price; and
(b) cause a copy of such statement to be mailed to the holder of
the Warrant as of a date within (10) days after the date when
the circumstances giving rise to the adjustment occurred.
3. TRANSFERABILITY. Prior to making any transfer of the Warrant or of any
Common Stock purchased upon the exercise of the Warrant, the holder
will give written notice to the Company describing briefly the manner
of any such proposed transfer. The holder will not make any such
transfer until (i) the Company has notified it that, in the opinion of
its counsel, registration under the Act is not required with respect to
such transfer, or (ii) a registration statement covering the proposed
distribution has been filed by the Company and has become effective.
The holder will then make any disposition only pursuant to the
conditions of such opinion or registration. The Company agrees that,
upon receipt of written notice from the holder hereof with respect to
such proposed distribution, it will use its best efforts, in
consultation with the holder's counsel, to ascertain as promptly as
possible whether or not registration is required, and will advise the
holder promptly with respect thereto, and the holder will cooperate in
providing the Company with information necessary to make such
determination.
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
4. REGISTRATION RIGHTS.
(a) REGISTRATION. The Company shall register the shares of Common Stock
issuable upon exercise of the Warrants in the registration statement on
Form S-3 (or its equivalent) when the Company registers the shares of
Common Stock issuable upon conversion of the securities sold in the
First Private Placement.
(b) "PIGGYBACK" REGISTRATION RIGHTS. If, at any time after the date hereof
and prior to the expiration of one (1) year from the date hereof, the
Company shall propose to file any registration statement under the
Securities Act of 1933, as amended, covering a public offering of the
Company's Common Stock and permitting the inclusion of shares of
selling shareholders, it will notify the holder hereof at least thirty
(30) days prior to each such filing and will include in the
registration statement (to the extent permitted by applicable
regulation) the Common Stock purchased by the holder or purchasable by
the holder upon the exercise of the Warrant to the extent requested by
the holder hereof. Notwithstanding the foregoing, the number of shares
of the holders of the Warrants proposed to be registered shall thereby
be reduced pro rata with any other selling shareholder (other than the
Company) upon the request of the managing underwriting of such offering
subject to the prior rights of any other selling shareholders that give
it first priority in any such registration. If the registration
statement or offering statement filed pursuant to such forty-five (45)
day notice has not become effective within six months following the
date such notice is given to the holder hereof, the Company must again
notify such holder in the manner provided above.
(c) OTHER.
(i) All expenses of any such registrations referred to in this
Section 4, except the fees of counsel to such holders and
underwriting commissions or discount, shall be borne by the
Company
(ii) The Company will mail to the holder hereof, at the last known
post office address, written notice of any exercise of the
rights granted under this Section 4, by certified or
registered mail, return receipt requested, and each holder
shall have thirty (30) days from the day of deposit of such
notice in the U.S. Mail to
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
notify the Company in writing whether such holder wishes to
join in such exercise.
(iii) The Company will furnish the holder hereof with a reasonable
number of copies of any prospectus included in such filings
and will amend or supplement the same as required during the
period of required use thereof. The Company will maintain the
effectiveness of any shelf registration statement or the
offering statement filed by the Company, whether or not at the
request of the holder hereof, for at least six (6) months
following the effective date thereof.
(iv) In the case of the filing of any registration statement, and
to the extent permissible under the Act and controlling
precedent thereunder, the Company and the holder hereof shall
provide cross indemnification agreements to each other in
customary scope covering the accuracy and completeness of the
information furnished.
(v) The holder of the Warrant agrees to cooperate with the Company
in the preparation and filing of any registration statement or
offering statement, and in the furnishing of information
concerning the holder for inclusion therein, or in any efforts
by the Company to establish that the proposed sale is exempt
under the Act as to any proposed distribution.
(vi) The Company shall have no obligation under this Section 4 to
register any of the shares of the holders if in accordance
with the Rule 144, promulgated under the Securities Act of
1933, as amended, the holder may sell all his shares of common
stock obtained upon an exercise of this Warrant within ninety
(90) days immediately following the request for registration.
5. NOTICES. The Company shall mail to the registered holder of the
Warrant, at its last known post office address appearing on the books
of the Company, not less than fifteen (15) days prior to the date on
which (a) a record will be taken for the purpose of determining the
holders of Common Stock entitled to dividends (other than cash
dividends) or subscription rights, or (b) a record will be taken (or in
lieu thereof the transfer books will be closed) for the
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
purpose of determining the holders of Common Stock entitled to
notice of and to vote at a meeting of stockholders at which any
capital reorganization, reclassification of shares of Common Stock,
consolidation, merger, dissolution, liquidation, winding up or sale
of substantially all of the Company's assets, shall be considered
and acted upon.
6. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant upon the basis
herein set forth shall at all times be reserved for the exercise
thereof.
7. MISCELLANEOUS. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the term "Common Stock" shall include any
stock of any class of the Company other than preferred stock with a
fixed limit on dividends and a fixed amount payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names and
addresses of all holders of warrants originally issued under the terms of, and
concurrent with, this Warrant.
The representations, warranties and agreements herein contained
shall survive the exercise of this Warrant. References to the "holder of"
include the immediate holder of shares purchased on the exercise of this
Warrant, and the word "holder" shall include the plural thereof. This Warrant
shall be interpreted under the laws of the STATE OF MINNESOTA.
All shares of Common Stock or other securities issued upon the exercise
of this Warrant shall be validly issued, fully paid and non-assessable, and the
Company will pay all taxes in respect of the issuer thereof.
Notwithstanding anything contained herein to the contrary, the Holder
of this Warrant shall not be deemed a stockholder (including, no right to vote
on any matters coming, before the shareholders) of the Company for any purpose
whatsoever until and unless this Warrant is duly exercised.
IN WITNESS WHEREOF, this Warrant has been duly executed by Elephant &
Castle Group, Inc., this ____ day of December, 1999.
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
ELEPHANT & CASTLE GROUP, INC.
By:_______________________
Title:______________________
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
EXHIBIT 10.14
CANADIAN RAINFOREST RESTAURANTS, INC.
Lease Abstract
1. PROJECT Scarborough Shopping Centre, Scarborough,
Ontario
2. TENANT Canadian Rainforest Restaurants, Inc.
3. STORE AREA Unspecified Gross Leaseable Area of not less
than 20,000 square feet
4. TRADE NAME Rainforest Cafe
5. USE For the operation of a traditional
"Rainforest Cafe" restaurant
6. TERM 15 years
7. TERM START
DATE January 1, 1999
8. TERM EXPIRY
DATE December 31, 2013
9. GROSS RENT CDN $53.64 per sq ft of the exact Gross Leaseable
Area of the store
10. EXTENSION First Extension Term: 5 years
PERIODS Second Extension Term: 5 years
11. PERCENTAGE 5.00% of Gross Revenue, less the aggregate of
RENT the Artificial Gross Rent and the amount of Realty
Taxes (other than any Initial Business Tax Component)
Payable by tenant under section 3.3, all as provided
under section 3.2. For the purpose of this key data
item 11 and section 3.2, the "Artificial Gross Rent
"means $33.00 per square foot per annum of the Gross
Leaseable Area of the Store.
12. PREPAID RENT Nil
13. SECURITY Nil
DEPOSIT
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
14. INITIAL PRO- Nil
MOTION CHARGE
15. FIXTURING 180 Days
PERIOD
16. LANDLORD c/o 20 Vic Management Inc., 20 Victoria Street,
ADDRESS Suite 900, Toronto, Ontario, M5C 2N8
17. GUARANTOR None
18. PROPERTY 20 Vic Management Inc.
MANAGER
19. LANDLORD TENANT
ALLOWANCE CDN $2,000,000
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
EXHIBIT 10.15
ELEPHANT & CASTLE GROUP INC.
Lease Abstract
1. PROJECT Franklin Mills Shopping Centre, Philadelphia,
Pennsylvania
2. TENANT Elephant & Castle Pennsylvania Group Inc.
3. STORE AREA Unspecified Gross Leaseable Area of
approximately 15,000 square feet
4. TRADE NAME Elephant & Castle and Alamo Grill
5. USE For the operation of two full service casual
dining restaurants and bars
6. TERM 10 years
7. TERM START
DATE November 20, 1998
8. TERM EXPIRY
DATE November 19, 2008
9. MINIMUM RENT Years 1 - 5: $285,000
Years 1 - 10: $313,500
10. EXTENSION First Extension Term: 5 years
PERIODS Second Extension Term: 5 years
Third Extension Term: 5 years
11. PERCENTAGE 5.00% on sale in excess or $6,000,000 per
annum
12. PREPAID RENT Nil
13. SECURITY Nil
DEPOSIT
14. INITIAL PRO- Nil
MOTION CHARGE
15. FIXTURING 150 Days
PERIOD
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
16. LANDLORD Franklin Mills Associates LLP
ADDRESS 1300 Wilson Boulevard, Suite 400
Arlington, Virginia 22209
17. GUARANTOR None
18. PROPERTY
MANAGER
19. LANDLORD TENANT
ALLOWANCE $456,000
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
EXHIBIT 10.16
CANADIAN RAINFOREST RESTAURANTS, INC.
Abstract of Canadian Niagara Sub-Franchise
PARTIES TO AGREEMENT Canadian Rainforest Restaurants, Inc. ("CRRI")
Rainforest Cafe, Inc.("RCI") Jungle Restaurants Niagara
("JRN")
GRANT OF FRANCHISE RCI and CRRI grant a franchise for the development of one
Rainforest Cafe in Niagara Falls, Ontario
INITIAL TERM Ten years
RENEWALS Three terms of 5 years each
LICENCE FEE CDN $900,000 payable on execution
OPENING FEE CDN $100,000 payable on opening of restaurant
ROYALTIES Seven % of Gross Sales
ADVERTISING Three % of Gross Sales
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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EXHIBIT 10.17
ELEPHANT & CASTLE INTERNATIONAL, INC.
Abstract of Exclusive Development Agreement
PARTIES TO AGREEMENT Bass Resources, Inc.("Bass")
Elephant & Castle International, Inc.("E&C")
COVENANT NOT TO DEVELOP E&C agrees not to develop or franchise Alamo Grill
in any hotels in the U.S. other than Holiday Inn
Hotels.
AGREEMENT OF EXCLUSIVITY Bass agrees not to endorse the development of any
other steakhouse restaurant other than Alamo Grill
by Holiday Inn franchisees in the U.S., nor enter
into any co-branding arrangement with any other
steakhouse concept other than Alamo Grill.
DURATION OF AGREEMENT April 19, 1999 until December 31, 2001.
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
EXHIBIT 10.18
ELEPHANT & CASTLE INTERNATIONAL, INC.
7657 Anagram Drive
Eden Prairie, Minnesota 55344
(612) 294-1333
Fax: (612) 294-1342
ALAMO GRILL-TM- RESTAURANT
FRANCHISE AGREEMENT
<TABLE>
<CAPTION>
FRANCHISEE FRANCHISED LOCATION
- ------------------------------------ -------------------------------------
<S> <C>
Name Street
- ------------------------------------ -------------------------------------
Street City State Zip Code
( )
- ------------------------------------ -------------------------------------
City State Zip Code Area Code Telephone
( ) ( )
- ------------------------------------ -------------------------------------
Area Code Telephone Area Code Fax
( )
- ------------------------------------ -------------------------------------
Area Code Fax E-Mail Address
- ------------------------------------ Franchised Restaurant No......
E-Mail Address
</TABLE>
_____________________
Date of Franchise Agreement
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
ELEPHANT & CASTLE INTERNATIONAL, INC.
ALAMO GRILL-TM- RESTAURANT
FRANCHISE AGREEMENT INDEX
Page
ARTICLE 1 DEFINITIONS.........................................................2
1.1 Designated Market Area......................................2
1.2 Dollars.....................................................2
1.3 Franchise...................................................2
1.4 General Manager.............................................3
1.5 Gross Sales.................................................3
1.6 Marks.......................................................3
1.7 Ownership Interest..........................................3
1.8 Owner.......................................................4
1.9 Restaurant System...........................................4
1.10 Week........................................................4
ARTICLE 2 GRANT OF FRANCHISE..................................................4
2.1 Franchised Location.........................................4
2.2 Exclusive Area..............................................4
2.3 Undetermined Franchised Location............................5
2.4 Lease or Purchase of Franchised Location....................5
2.5 Relocation..................................................5
2.6 Conditions..................................................6
2.7 Personal License............................................6
ARTICLE 3 TERM OF AGREEMENT...................................................6
3.1 Term........................................................6
3.2 Term of Lease...............................................6
3.3 Reacquisition Option........................................6
3.4 Terms of Option.............................................7
ARTICLE 4 INITIAL FEE; APPROVAL OF FRANCHISEE.................................8
4.1 Initial Fee.................................................8
4.2 Termination of Franchise....................................8
4.3 Refund of Initial Fee.......................................9
ARTICLE 5 CONTINUING FEE......................................................9
5.1 Amount of Continuing Fee; Date Payable......................9
5.2 Interest on Unpaid Continuing Fees..........................9
5.3 Reports.....................................................9
5.4 Franchisee's Obligation to Pay.............................10
5.5 Pre-Authorized Bank Debits.................................10
ARTICLE 6 LOCAL ADVERTISING..................................................11
6.1 Local Advertising Expenditure..............................11
6.2 Reports of Local Advertising Expenditures..................11
6.3 Telephone Directory Listings...............................11
6.4 Grand Opening Advertising..................................11
ARTICLE 7 FINANCIAL STATEMENTS...............................................12
7.1 Monthly Reports and Financial Statements...................12
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT i 475250.5
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7.2 Due Date; Verification of Monthly Reports and Financial
Statements.................................................12
7.3 Substantiation of Monthly Reports and Financial
Statements.................................................12
7.4 Sales and Income Tax Returns...............................12
7.5 Audit Rights...............................................13
7.6 Payment of Audit Costs.....................................13
7.7 Refusal to Submit Records or Permit Audit..................13
ARTICLE 8 QUALITY CONTROL, UNIFORMITY AND STANDARDS..........................14
8.1 Quality and Service Standards..............................14
8.2 Identification of Restaurant...............................14
8.3 Compliance with Standards..................................14
8.4 Alterations to Restaurant..................................15
8.5 Prohibited Sales...........................................15
8.6 Other Business.............................................15
8.7 Franchisee's Name..........................................15
8.8 Operation of Alamo Grill-TM- Restaurant.....................15
8.9 Business Hours.............................................16
8.10 Personnel..................................................16
8.11 Standards of Service.......................................16
8.12 Alcoholic Beverages........................................16
8.13 Vending Machines and Entertainment Devices.................16
8.14 Gambling Machines; Tickets.................................16
8.15 Standard Attire or Uniforms................................17
8.16 Credit Cards...............................................17
8.17 Gift Certificates and Coupons..............................17
8.18 Music and Music Selection..................................17
8.19 Approved Advertising.......................................17
8.20 Compliance with Applicable Law.............................17
8.21 Payment of Taxes...........................................18
8.22 "Franchise" and Other Taxes................................18
8.23 Payments to Creditors......................................18
8.24 Security Interest in Franchise Agreement...................18
8.25 Inspection Rights..........................................18
8.26 Default Notices and Significant Correspondence.............19
ARTICLE 9 PRODUCTS AND SERVICES..............................................19
9.1 Limitations on Products and Services.......................19
9.2 Limitation on Sales........................................20
9.3 Approved Suppliers and Distributors........................20
9.4 Designated Suppliers.......................................21
9.5 Use of Rebates from Suppliers..............................21
9.6 Limitation on Branding, Development and Sale of Products...22
9.7 Independent Shopping Services..............................22
ARTICLE 10 STANDARD OPERATIONS MANUAL........................................22
10.1 Compliance with Manual.....................................22
10.2 Revisions to Manual........................................23
10.3 Confidentiality of Manual..................................23
10.4 Confidentiality of Other Information.......................23
ARTICLE 11 BUSINESS PREMISES.................................................24
11.1 Site Location..............................................24
11.2 Site Location Criteria.....................................24
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT ii 475250.5
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11.3 Construction and Remodeling Costs..........................25
11.4 Compliance with Specifications.............................25
11.5 Inspection During Construction or Renovation...............25
11.6 Maintenance................................................26
11.7 Remodeling of Business Premises............................26
ARTICLE 12 SIGNS.............................................................26
12.1 Approved Signs.............................................26
12.2 Payment of Costs and Expenses..............................27
12.3 Modifications; Inspection..................................27
ARTICLE 13 TELECOMMUNICATION AND COMPUTER EQUIPMENT..........................27
13.1 Telecommunication Equipment................................27
13.2 Satellite and Cable Television.............................27
13.3 Computer Hardware..........................................28
13.4 Software...................................................28
13.5 Access to Computer Data....................................28
13.6 Internet Provider..........................................28
13.7 E-Mail Address.............................................28
ARTICLE 14 INSURANCE.........................................................29
14.1 General Liability Insurance................................29
14.2 Liquor Liability Insurance.................................29
14.3 Automobile Liability Insurance.............................29
14.4 Property Insurance.........................................29
14.5 Building Insurance.........................................30
14.6 Umbrella Liability.........................................30
14.7 Insurance Required by Law..................................30
14.8 Insurance Companies; Evidence of Coverage..................30
14.9 Defense of Claims..........................................30
14.10 Rights of E & C............................................30
ARTICLE 15 LICENSING OF MARKS AND RESTAURANT SYSTEM..........................31
15.1 Right to License Marks.....................................31
15.2 Conditions to License of Marks.............................31
15.3 Franchisee's Use of Marks..................................31
15.4 Adverse Claims to Marks....................................32
15.5 Defense or Enforcement of Rights to Marks..................32
15.6 Tender of Defense..........................................33
15.7 Franchisee's Right to Participate in Litigation............33
ARTICLE 16 TRAINING PROGRAM; OPENING ASSISTANCE..............................33
16.1 Training...................................................33
16.2 Changes in Personnel.......................................34
16.3 Initial Training of New Personnel..........................34
16.4 Payment of Salaries and Expenses...........................35
16.5 Opening Assistance.........................................35
16.6 Advisory Assistance........................................35
16.7 Hiring and Training of Employees by Franchisee.............36
ARTICLE 17 ASSIGNMENT........................................................36
17.1 Assignment by E & C........................................36
17.2 Assignment by Franchisee to Owned or Controlled Entity.....36
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT iii 475250.5
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17.3 Assignment by Individual Franchisee in Event of Death or
Permanent Disability.......................................36
17.4 Sale of Ownership Interests to Public......................37
17.5 E & C's Warrant............................................38
17.6 Assignment by Franchisee...................................38
17.7 Acknowledgment of Restrictions.............................39
17.8 Transfer Fee...............................................39
17.9 Transfer to Competitor Prohibited..........................40
ARTICLE 18 TERMINATION RIGHTS OF E & C.......................................40
18.1 Conditions of Breach.......................................40
18.2 Notice of Breach...........................................41
18.3 Arbitration................................................42
18.4 Notice of Termination......................................42
18.5 Immediate Termination Rights of E & C......................42
18.6 Notice of Immediate Termination............................43
18.7 Other Remedies.............................................43
ARTICLE 19 FRANCHISEE'S TERMINATION RIGHTS...................................44
19.1 Conditions of Breach.......................................44
19.2 Notice of Breach...........................................44
19.3 Arbitration................................................44
19.4 Waiver.....................................................45
19.5 Injunctive Relief..........................................45
ARTICLE 20 FRANCHISEE'S OBLIGATIONS UPON TERMINATION.........................46
20.1 Termination of Use of Marks; Other Obligations.............46
20.2 Alteration of Franchised Location..........................46
20.3 Cancellation of Telephone Directory Listings...............46
20.4 Continuation of Obligations................................47
ARTICLE 21 FRANCHISEE'S COVENANTS NOT TO COMPETE.............................47
21.1 Consideration..............................................47
21.2 In-Term Covenant Not to Compete............................48
21.3 Post-Term Covenant Not to Compete..........................48
21.4 Injunctive Relief..........................................48
21.5 Severability...............................................49
ARTICLE 22 INDEPENDENT CONTRACTORS; INDEMNIFICATION..........................49
22.1 Independent Contractors....................................49
22.2 Indemnification............................................50
22.3 Payment of Costs and Expenses..............................50
22.4 Continuation of Obligations................................51
ARTICLE 23 ARBITRATION.......................................................51
23.1 Mediation..................................................51
23.2 Disputes Subject to Arbitration............................51
23.3 Notice of Dispute..........................................51
23.4 Demand for Arbitration.....................................51
23.5 Venue and Jurisdiction.....................................52
23.6 Powers of Arbitrator(s)....................................52
23.7 Disputes Not Subject to Arbitration........................53
23.8 No Collateral Estoppel or Class Actions....................53
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT iv 475250.5
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23.9 De Novo Hearing on Merits..................................53
23.10 Confidentiality............................................54
23.11 Performance During Arbitration of Disputes.................54
ARTICLE 24 ENFORCEMENT.......................................................54
24.1 Injunctive Relief..........................................54
24.2 Severability...............................................55
24.3 Waiver.....................................................55
24.4 Payments to E & C..........................................55
24.5 Effect of Wrongful Termination.............................56
24.6 Cumulative Rights..........................................56
24.7 Binding Agreement..........................................56
24.8 Joint and Several Liability................................56
24.9 No Oral Modification.......................................56
24.10 Entire Agreement...........................................56
24.11 Headings; Terms............................................57
24.12 Venue and Jurisdiction.....................................57
24.13 Federal Arbitration Act....................................57
24.14 Contractual Statute of Limitations.........................57
ARTICLE 25 NOTICES...........................................................58
ARTICLE 26 DISCLAIMER; ACKNOWLEDGMENTS.......................................58
26.1 Disclaimer.................................................58
26.2 Acknowledgments by Franchisee..............................58
26.3 Other Franchisees..........................................59
26.4 Receipt of Agreement and Uniform Franchise
Offering Circular..........................................59
26.5 Elephant & Castle-R- Restaurants............................59
ARTICLE 27 FRANCHISEE'S LEGAL COUNSEL........................................60
ARTICLE 28 GOVERNING LAW; STATE MODIFICATIONS................................60
28.1 Governing Law; Severability................................60
28.2 Applicable State Laws......................................60
28.3 State Law Modifications....................................61
28.4 Severability...............................................65
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT v 475250.5
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The following information will have to be completed by E & C and the Franchisee
prior to the time that this Agreement is signed by the parties:
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<CAPTION>
PERSON
COMPLETING
ARTICLE PAGE INFORMATION REQUIRED COMPLETED INFORMATION
- ------- ---- ------------------------------------ --------- -----------
<S> <C> <C> <C> <C>
N/A F-1 Date of Agreement _________ ___________
N/A F-1 Name of Franchisee _________ ___________
N/A F-1 Business Structure of Franchisee _________ ___________
2.1 F-4 Franchised Location _________ ___________
27 F-44 Name, address and telephone _________ ___________
number of Franchisee's attorney
or advisor
N/A F-49 Signature of E & C _________ ___________
N/A F-49 Signature(s) of Franchisee _________ ___________
N/A F-49 Signature(s) of Owners and _________ ___________
percentage of Ownership
Interest (if applicable)
N/A F-51 Signature(s) of Personal Guarantors _________ ___________
and percentage of Ownership
Interest (if applicable)
</TABLE>
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT vi 475250.5
<PAGE>
ELEPHANT & CASTLE INTERNATIONAL, INC.
ALAMO GRILL-TM- RESTAURANT
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (this "Agreement") is made, entered into and effective
this day of ____________, 199_, by and between Elephant & Castle International,
Inc., a Texas corporation, with its principal office at 7657 Anagram Drive,
Eden Prairie, Minnesota 55344 (hereinafter referred to as "E & C"), and
_________________________________ a(n) _______________________________________
(hereinafter referred to as the "Franchisee");
RECITALS
ALAMO GRILL-TM- RESTAURANT SYSTEM. E & C has developed over time at significant
cost and investment a distinctive restaurant system for operating and
franchising restaurants under the name "Alamo Grill-TM-" which are casual full
service mid-priced Southwestern style steakhouse restaurants with a distinctive
and novel Southwestern decor, and which serve a wide variety of high-quality
food and beverage items at moderate prices featuring American and Southwestern
dishes (the "Restaurant System"). The Restaurant System contains distinctive
concepts including, without limitation, special seasonings, recipes and menu
items; unique cooking styles and methods; food line management systems;
distinctive building and interior design, decor and furnishings; specific
standards, specifications and procedures for operations; quality, consistency
and uniformity requirements for the foods, beverages, products and services
offered to the public; methods, procedures and requirements for operations,
quality and inventory control, and training and assistance; and advertising and
promotional programs.
E & C MARKS. E & C has widely and extensively publicized the name "Alamo
Grill-TM-" to the public as an organization of restaurant businesses operating
under the Restaurant System. E & C has the right and authority to license the
use of the name "Alamo Grill-TM-" the Alamo Grill logo, and other trademarks,
trade names, service marks, logos, commercial symbols, phrases, slogans and tag
lines which are now owned or which will be developed by E & C (hereinafter
referred to as the "Marks"). E & C will continue to develop, use, and control
the use of the Marks in order to identify for the public the source of foods,
products and services marketed under the Restaurant System, and to represent to
the public the high standards of quality, appearance, cleanliness and service of
the Restaurant System.
OPERATION OF ALAMO GRILL-TM- RESTAURANT. The Franchisee desires to develop, own
and operate an Alamo Grill-TM- restaurant (hereinafter referred to as the "Alamo
Grill-TM- Restaurant" or the "Restaurant") at the location set forth in Article
2 in compliance with the Restaurant System and with all of the quality,
consistency and uniformity standards and specifications
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
as established and promulgated from time to time by E & C. The Franchisee
understands and acknowledges the importance of the high standards of quality,
appearance, cleanliness and service established by E & C, and the necessity
of operating the Franchisee's Restaurant in strict conformity with the
standards and specifications established by E & C.
RIGHT TO USE MARKS AND RESTAURANT SYSTEM. E & C is willing to provide the
Franchisee with the recipes, cooking and food preparation techniques, food line
management systems, menu content and design, decor and color schemes,
intellectual property, and other operational, marketing, advertising,
promotional and business information, experience and "know how" related to the
Restaurant System. The Franchisee acknowledges that it would take substantial
capital and human resources to develop a restaurant business similar to the
Alamo Grill-TM- Restaurant and, consequently, the Franchisee desires to acquire
the right to use the Marks and the Restaurant System and to own and operate an
Alamo Grill-TM- Restaurant pursuant to the terms and conditions set forth in
this Agreement. The Franchisee acknowledges that E & C would not grant the Alamo
Grill-TM- Restaurant Franchise to the Franchisee or provide the Franchisee with
the business information and "know how" about the Restaurant System unless the
Franchisee agreed to comply with all of the terms and conditions of this
Agreement and agreed to pay the Initial Fee, the Continuing Fees and all other
fees specified in this Agreement.
REVIEW OF AGREEMENT. The Franchisee has had a full and adequate opportunity to
read and review this Agreement and to be thoroughly advised of the terms and
conditions of this Agreement by an attorney or other personal representative,
and has had sufficient time to evaluate and investigate the Restaurant System,
the financial requirements and the risks associated with the Restaurant System.
Pursuant to the above Recitals and in consideration of the mutual promises and
covenants set forth in this Agreement, E & C and the Franchisee agree and
contract as follows:
DEFINITIONS
For purposes of this Agreement, the following words will have the following
definitions:
DESIGNATED MARKET AREA
"Designated Market Area" will mean each television market exclusive of another
based upon a preponderance of television viewing hours as defined by the A.C.
Nielsen ratings service or such other ratings service as may be designated by
E & C.
DOLLARS
"Dollars" will mean United States of America dollars.
FRANCHISE
"Franchise" will mean the right granted by E & C to the Franchisee authorizing
the Franchisee to operate an Alamo Grill-TM- Restaurant at the Franchised
Location in conformity with the Restaurant System using the name "Alamo
Grill-TM-" and the other Marks.
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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GENERAL MANAGER
"General Manager" will mean the individual responsible for the overall
management and operation of the Franchisee's Alamo Grill-TM- Restaurant
including, but not limited to, administration, basic operations, marketing,
customer and community relations, record keeping, employee staffing and
training, inventory control, hiring and firing, food preparation and maintenance
of the Franchised Location.
GROSS SALES
"Gross Sales" will mean the total dollar sales from all customers of the
Franchisee's Alamo Grill-TM- Restaurant, and will include all cash and credit
sales made by the Franchisee of every kind and nature made at, from, by or in
connection with the Franchisee's Alamo Grill-TM- Restaurant business
including, but not limited to, all dollars and income received from the sale
of: (a) foods, food products and food items; (b) alcoholic and non-alcoholic
beverages and drinks; (c) admission or cover charges; (d) telephones, vending
machines, pool tables, dart board machines, video games and all other
amusement games; (e) slot machines and gaming machines; (f) net fees received
from automated teller machines; (g) lotteries, lottery tickets and pull tabs;
(h) hats, shirts, T-shirts, sweatshirts and other clothing; (i) cigars,
cigarettes, tobacco products, candies and gum; catering; (j) room service;
(k) banquets; (l) carry-out items; (m) any and all other foods, products,
products and services; (n) all off-premises sales of foods, food products and
all other products and services offered in connection with the Franchisee's
Alamo Grill-TM- Restaurant; and (o) all sales, use or gross receipts tax
rebates. "Gross Sales" will not include any sales, use or gross receipts tax
imposed by any federal, state, municipal or governmental authority directly
upon sales, if the amount of the tax is added to the selling price and is
charged to the customer, a specific record is made at the time of each sale
of the amount of such tax, and the amount of such tax is paid to the
appropriate taxing authority by the Franchisee; the amount of all discounts
and coupons issued to the public by the Franchisee and which are taken or
redeemed at the Franchisee's Alamo Grill-TM-Restaurant provided that a
specific record is made each time a customer takes a discount or redeems a
coupon of the amount of the reduction in the menu price as a result of such
discount taken or coupon redeemed; and, the amount of all employee meal
discounts (e.g., manager meals) taken by employees of the Franchisee at the
Franchisee's Alamo Grill-TM- Restaurant provided that a specific record is
made each time an employee takes an employee meal discount of the amount of
the reduction in menu price as a result of such discount.
MARKS
"Marks" will include the name "Alamo Grill-TM-" and such other trademarks, trade
names, service marks, logos, commercial symbols, phrases, slogans, and tag lines
as E & C has or may develop for use in connection with Alamo Grill-TM-
Restaurants.
OWNERSHIP INTEREST
"Ownership Interest" will mean the share(s) of capital stock if
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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the Franchisee is a corporation, a membership interest if the Franchisee is a
limited liability company, a partnership interest if the Franchisee is a
partnership, limited or general partnership interests if the Franchisee is a
limited partnership and will include all other types and means of ownership
of the Franchisee.
OWNER
"Owner" will mean any person or entity that owns shares of capital stock in the
Franchisee if the Franchisee is a corporation, a membership interest in the
Franchisee if the Franchisee is a limited liability company, a partnership
interest in the Franchisee if the Franchisee is a partnership, a limited or
general partnership interest if the Franchisee is a limited partnership and will
include all other persons or entities owning any other type or means of
Ownership Interest.
RESTAURANT SYSTEM
"Restaurant System" will mean the distinctive foods, beverages, food products,
and other products and services which are associated with the trademarks, trade
names, service marks, copyrights, distinctive interior and exterior building
designs, decor, furnishings, menus, uniforms, slogans, signs, logos, commercial
symbols and color combinations of Alamo Grill-TM- Restaurants. "Restaurant
System" will include all of the quality, consistency and uniformity
requirements; the standards, specifications and procedures for product and
services, operations, cleanliness, sanitation, control, training, advertising
and promotion, service, appearance; and, all instructions, procedures, methods
and specifications promulgated by E & C.
WEEK
"Week" or "weekly" will mean a period of seven (7) consecutive days from Monday
through Sunday.
GRANT OF FRANCHISE
FRANCHISED LOCATION
E & C hereby grants the Franchisee the personal right to operate one Alamo
Grill-TM- Restaurant in conformity with the Restaurant System using the name
"Alamo Grill-TM-" and other specified Marks at the following single location:
_____________________________________________________________________________
which is referred to as the "Franchised Location."
EXCLUSIVE AREA
Except as provided to the contrary in this Article, the Franchisee will receive
an "Exclusive Area" consisting of the area within a three (3) mile radius of the
Franchised Location; provided, however, that if the Franchisee's Alamo Grill-TM-
Restaurant is located in any of the top forty (40) Metropolitan
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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Statistical Areas in the United States as determined by the United States
Department of Commerce, then the Franchisee will receive an Exclusive Area
consisting of the area within a one-half (1/2) mile radius of the Franchised
Location. The Franchisee's Exclusive Area is exclusive to the extent that E &
C will not franchise, license, develop, own or operate ("develop") an Alamo
Grill-TM-Restaurant in the Exclusive Area. Notwithstanding the foregoing, E &
C will have thE absolute right to: (a) develop other restaurant business
concepts under other brand names even if the locations for the concepts are
within the Exclusive Area; (b) develop Alamo Grill-TM- Restaurants in the
Exclusive Area if they are located at or within an airport terminal, a
stadium or arena or other venue for semi-professional or professional sports,
or a college or university campus; (c) market, distribute and sell, on a
wholesale or retail basis, clothing, goods, foods, products or any other
items sold under any of the Marks, by direct sale, mail order, infomercials,
telemarketing or by any other marketing or distribution method, even if such
sales take place in, or are to distributors, retailers, or consumers who are
located in the Exclusive Area; and (d) advertise, promote and participate in
special events and promotional activities which take place in the Exclusive
Area including, without limitation, parades, holiday celebrations, cooking,
recipe or restaurant competitions, sporting events, and fund-raising and
charitable events, and sell any product or service, including any product or
service sold under any of the Marks, in connection with such participation.
UNDETERMINED FRANCHISED LOCATION
If the Franchised Location has not yet been determined as of the date of this
Agreement, then the geographic area in which the Franchisee's Restaurant is to
be located will be described or otherwise defined in an exhibit signed by the
parties and attached to this Agreement. When the address of the Franchised
Location is determined, it will be inserted into this Agreement and initialed by
the parties.
LEASE OR PURCHASE OF FRANCHISED LOCATION
The Franchisee will not sign any lease, purchase agreement or obtain any related
rights to possession, occupancy or ownership of the Franchised Location prior to
the date set forth on Page F-1 of this Agreement. If the Franchisee leases the
Franchised Location, then the Franchisee will use its best efforts to negotiate
a lease term that coincides with the term of this Agreement.
RELOCATION
The Franchisee may, with the prior written approval of E & C, relocate the
Franchised Location if (a) the proposed new location does not compete with any
Alamo Grill-TM- Restaurant operated by E & C or any other franchisee, (b) the
proposed new location is within the Franchisee's Exclusive Area, and (c) the
proposed new location does not infringe upon and is not located within the
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exclusive area of another Alamo Grill franchisee, area franchisee, master
franchisee or subfranchisee. The new location of the Restaurant, including
the real estate and the building, must comply with all applicable provisions
of this Agreement and with the then-current image, decor and specifications
of E & C. Within ten (10) days after receipt by the Franchisee of E & C's
written approval of the relocation of the Franchised Location, the Franchisee
will pay to E & C a relocation fee of five thousand dollars ($5,000).
CONDITIONS
The Franchisee hereby undertakes the obligation to operate the Alamo Grill-TM-
Restaurant using the Restaurant System at the Franchised Location in strict
compliance with the terms and conditions of this Agreement for the entire term
of this Agreement. The rights and privileges granted to the Franchisee by E & C
under this Agreement are applicable only to the single location designated as
the Franchised Location, are personal in nature, and may not be used elsewhere
or at any other location by the Franchisee.
PERSONAL LICENSE
The Franchisee will not have the right to franchise, subfranchise, license or
sublicense its rights under this Agreement. The Franchisee will not have the
right to pledge, assign or transfer this Agreement or its rights under this
Agreement, except as specifically provided for in this Agreement.
TERM OF AGREEMENT
TERM
The term of this Agreement will be for twenty (20) years, commencing on the date
set forth on Page F-1 of this Agreement. This Agreement will not be enforceable
until it has been signed by both the Franchisee and E & C.
TERM OF LEASE
If the term of the lease for the Franchised Location (excluding any renewal
terms) is for a term that is longer than the term of this Agreement, then the
term of this Agreement will be automatically extended to coincide with the
initial term of the Franchisee's lease for the Franchised Location; provided,
however, that if the Franchisee, or any of the Franchisee's Owners, owns, either
directly or indirectly, the Franchised Location, including the business
premises, the real estate or the building, then the term of this Agreement will
be for twenty (20) years.
REACQUISITION OPTION
At the end of the term of this Agreement, the Franchisee will have the right and
option to reacquire the Franchise for the Franchised Location for one additional
ten (10) year term,
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provided that the Franchisee has complied with all material terms and
conditions of this Agreement and has agreed to and has complied in all
respects with the following conditions: (a) the Franchisee has given E & C
written notice at least one (1) year prior to the end of the term of this
Agreement of its intention to reacquire the Franchise for the Franchised
Location; (b) all monetary obligations owed by the Franchisee to E & C have
been paid or satisfied prior to the end of the term of this Agreement, and
have been timely met throughout the term of this Agreement; (c) the
Franchisee has agreed, in writing, to remodel, modernize and redecorate the
Franchised Location, and to replace and modernize the signs, furniture,
fixtures, supplies and equipment used in the Franchisee's Restaurant so that
the Franchisee's Restaurant will reflect the image portrayed by the
then-current image, decor and specifications of E & C for Alamo Grill-TM-
Restaurants (the "Modernization") and has agreed to make such capital
expenditures as are necessary to complete the required Modernization; (d) as
of the date the Franchisee exercises its option to reacquire the Franchise
for the Franchised Location, the Franchisee either owns the Franchised
Location, or the Franchisee has the right to lease the Franchised Location
for a term that coincides with the term of the then-current standard Alamo
Grill franchise agreement; (e) the Franchisee (or the Franchisee's Operating
Partner), the Franchisee's General Manager and the Franchisee's Chef have
completed the required training designated by E & C for new Alamo Grill
franchisees to ensure that the Franchisee is in conformity with the
then-current qualifications and operational requirements established by E &
C; and (f) the Franchisee agrees to execute and comply with the then-current
standard franchise agreement being offered to new franchisees by E & C,
subject further to the provisions of Article 3.4 of this Agreement.
TERMS OF OPTION
The Franchisee will have the option to reacquire the Franchise for the
Franchised Location under the same terms and conditions as are then being
offered to other franchisees under the then-current standard Alamo Grill
franchise agreement; provided, however, that the term of the franchise agreement
executed by the Franchisee to reacquire the Franchise will be for ten (10)
years, as specified in Article 3.3 of this Agreement. The Franchisee will be
required to pay E & C a reacquisition fee equal to twenty-five percent (25%) of
the Initial Fee specified in the then-current standard Alamo Grill franchise
agreement, which will be payable in full on the date the Franchisee signs the
then-current standard franchise agreement executed pursuant to this option. The
reacquisition fee is payment, in part, to E & C for: (a) training at the time of
the reacquisition for the
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Franchisee (or the Franchisee's Operating Partner), the Franchisee's General
Manager and the Franchisee's Chef (but not payment for the travel, lodging,
and living expenses, salaries, and all other expenses of any persons
attending such training, which will be paid by the Franchisee); (b) providing
the Franchisee with the then-current standards relating to the image of Alamo
Grill-TM- Restaurants, including decor, fixtures, furniture and sign
specifications; (c) providing the Franchisee with the then-current
specifications for the supplies and equipment to be used in the operation of
the Restaurant; and (d) administrative and out-of-pocket expenses incurred by
E & C in connection with the reacquisition, including employee salaries,
attorneys' fees and long-distance telephone calls. The Franchisee will be
required to pay the Continuing Fee and all other fees at the rates specified
in the then-current standard franchise agreement. The Franchisee will also
pay any additional fees specified or provided for by the terms of the
then-current standard franchise agreement. The Franchisee acknowledges that
the terms, conditions and economics of future Alamo Grill franchise
agreements of E & C may, at that time, vary in substance and form from the
terms, conditions and economics of this Agreement.
INITIAL FEE; APPROVAL OF FRANCHISEE
INITIAL FEE
The Franchisee will pay E & C an Initial Fee of thirty-five thousand dollars
($35,000), which will be payable in full on the date the Franchisee signs
this Agreement. The Initial Fee payable by the Franchisee is payment, in
part, to E & C for the costs incurred by E & C to operate its business,
including costs for general sales and administrative expenses, travel, long
distance telephone calls, training, opening costs, marketing costs, legal and
accounting fees, compliance with franchising and other laws, and the initial
services rendered to the Franchisee as described in this Agreement.
TERMINATION OF FRANCHISE
E & C will have the right to terminate this Agreement at any time within one
hundred twenty (120) days after the date of this Agreement if: (a) any required
or other financial, personal or other information provided by the Franchisee to
E & C is materially false, misleading, incomplete or inaccurate; (b) the
Franchisee has not purchased or leased a site for the Franchised Location or has
done so in a manner not in compliance with Article 2.4 and Article 11 of this
Agreement; (c) the Franchisee fails to apply for and obtain a valid license for
the service of food for its Alamo Grill-TM- Restaurant from the appropriate
governmental agencies; (d) the Franchisee fails to apply for and obtain a valid
liquor license for its Alamo Grill-TM- Restaurant from the
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appropriate governmental authorities; or (e) the Franchisee (or its Operating
Partner), the Franchisee's General Manager and the Franchisee's Chef fail to
complete the training program described in Article 16.1 of this Agreement.
REFUND OF INITIAL FEE
If this Agreement is terminated by E & C pursuant to Article 4.2, then E & C
will retain fifty percent (50%) of the Initial Fee paid by the Franchisee as
payment for the administrative and out-of-pocket expenses incurred by E & C
including, but not limited to, executives' and employees' salaries,
salespersons' commissions, attorneys' fees, accountants' fees, travel expenses,
training costs, legal compliance, marketing costs and long distance telephone
calls.
CONTINUING FEE
AMOUNT OF CONTINUING FEE; DATE PAYABLE
In addition to the Initial Fee payable by the Franchisee, the Franchisee will
pay E & C a weekly Continuing Fee equal to the greater of: (a) five percent (5%)
of the Franchisee's weekly Gross Sales for the preceding week; or (b) one
thousand two hundred and fifty dollars ($1,250). The weekly Continuing Fee will
be paid to E & C by the Franchisee by Wednesday of each week for the preceding
week. The minimum weekly Continuing Fee of one thousand two hundred and fifty
dollars ($1,250) will not be applicable until the first full week of the seventh
month after the date of this Agreement, and beginning on Wednesday of that week,
the Franchisee will pay the greater of the amounts set forth above.
INTEREST ON UNPAID CONTINUING FEES
If the Franchisee fails to remit the Continuing Fee due to E & C as provided for
in Article 5.1, then the amount of the unpaid and past due Continuing Fee will
bear simple interest at the lesser of the maximum legal rate allowable by
applicable law or eighteen percent (18%) simple interest per annum. The
Franchisee will pay E & C an administrative fee of seventy-five dollars ($75)
for each delinquent Continuing Fee payment within ten (10) days after the
delinquent Continuing Fee was due. The Franchisee will also reimburse E & C for
any and all costs incurred by E & C in the collection of unpaid and past due
Continuing Fee payments including, but not limited to, attorneys' fees,
deposition costs, expert witness fees, investigation costs, accounting fees,
filing fees and travel expenses.
REPORTS
The Franchisee will maintain an accurate written record of the weekly Gross
Sales for the Franchisee's Alamo Grill-TM- Restaurant and other information
specified by E & C, and will submit weekly reports for the Franchisee's
Restaurant using the forms and formats that E & C prescribes in writing. The
weekly reports will
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be e-mailed or faxed to E & C by Wednesday of each week for the preceding
week. The weekly reports will be signed by the Franchisee and will include
the Franchisee's weekly Gross Sales, the weekly Continuing Fee payment as
calculated by the Franchisee, and such other information as may be required
by E & C.
FRANCHISEE'S OBLIGATION TO PAY
The Continuing Fee payable to E & C under this Article will be calculated and
paid to E & C by the Franchisee each week during the entire term of this
Agreement, and the Franchisee's failure to pay the weekly Continuing Fee to
E & C will be deemed to be a material breach of this Agreement. The
Franchisee's obligation to pay E & C the Continuing Fee pursuant to the terms
of this Agreement will be absolute and unconditional, and will remain in full
force and effect until the term of this Agreement has expired or until this
Agreement has been terminated in accordance with the terms and conditions set
forth in this Agreement and applicable law. The Franchisee will not have the
"right of offset" and, as a consequence, the Franchisee will timely pay all
Continuing Fees due to E & C under this Agreement regardless of any claims or
allegations the Franchisee may allege against E & C.
PRE-AUTHORIZED BANK DEBITS
The Franchisee will, from time to time during the term of this Agreement,
execute such documents as E & C may request to provide the Franchisee's
unconditional and irrevocable authority and direction to its bank authorizing
and directing the Franchisee's bank to pay and deposit directly to the account
of E & C, and to charge to the account of the Franchisee, the amount of the
weekly Continuing Fee payable by the Franchisee pursuant to this Agreement on
Wednesday of each week for the Continuing Fee due for the preceding week. The
authorizations will be in the form prescribed by a bank specified by E & C and
will permit E & C to designate the amount to be debited or drafted from the
Franchisee's account and to adjust such amount from time to time to the amount
of the weekly Continuing Fee payable to E & C by the Franchisee, as calculated
by the Franchisee in the report of weekly Gross Sales submitted by the
Franchisee pursuant to Article 5.3 of this Agreement. If the Franchisee fails at
any time to provide the weekly reports required under Article 5.3, then E & C
will have the absolute right to debit the Franchisee's bank account for the same
amount as the most recent debit to the Franchisee's bank account that was based
on actual Gross Sales provided by the Franchisee. The Franchisee will, at all
times during the term of this Agreement, maintain a balance in its account at
its bank sufficient to allow the appropriate amount to be debited from the
Franchisee's account for payment of the
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Continuing Fee payable by the Franchisee for deposit in the account of E & C.
LOCAL ADVERTISING
LOCAL ADVERTISING EXPENDITURE
Each quarter for the entire term of this Agreement, the Franchisee will spend at
a minimum for approved local advertising for its Alamo Grill-TM- Restaurant an
amount equal to two percent (2%) of the quarterly Gross Sales of the
Franchisee's Alamo Grill-TM- Restaurant (the "Local Advertising Expenditure").
For the purposes of this Article, local advertising will include television,
radio, newspaper, billboards, magazine, direct mail and other print advertising,
which has been approved by E & C prior to broadcast, publication or
distribution.
REPORTS OF LOCAL ADVERTISING EXPENDITURES
Within 10 (ten) days after the end of each quarter, the Franchisee will, in a
form prescribed by E & C, furnish E & C with an accurate accounting of the
Franchisee's Local Advertising Expenditure during the quarter just ended. If the
Franchisee has failed to spend the required amount for the Local Advertising
Expenditure, then the Franchisee will deposit with E & C the difference between
the amount that should have been spent by the Franchisee for the Local
Advertising Expenditure and the amount actually spent, and this amount will be
spent by E & C for advertising and promotion in the Franchisee's Designated
Market Area in a manner deemed appropriate by E & C in its sole discretion.
TELEPHONE DIRECTORY LISTINGS
The Franchisee will continually list and advertise in the "Yellow Pages" in the
Franchisee's market area under the heading "Restaurant" and/or other listings
designated by E & C in writing. The format, size and content of the listings and
advertising will conform in all respects to the standards established by E & C
and specified in the Standard Operations Manual. The Franchisee will also take
all steps necessary to be listed in the "White Pages" for the Franchisee's
market area. Expenditures made by the Franchisee for Yellow Pages or White Pages
advertising may be applied to the Local Advertising Expenditure set forth in
Article 6.1 of this Agreement.
GRAND OPENING ADVERTISING
The Franchisee will spend, within the period of time from ninety (90) days prior
to the day of the grand opening to 11:00 p.m. on the day of the grand opening, a
minimum of fifteen thousand dollars ($15,000) for grand opening advertising of
the Franchisee's Alamo Grill-TM- Restaurant. Payments, rebates, or allowances
received by the Franchisee from vendors and used by the Franchisee in connection
with advertising and promoting the
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grand opening of the Franchisee's Alamo Grill-TM- Restaurant may be applied
to the minimum grand opening expenditure requirement set forth in this
Article. The Franchisee's expenditures for grand opening advertising will not
be applied to the Local Advertising Expenditure requirement set forth in
Article 6.1 of this Agreement.
FINANCIAL STATEMENTS
MONTHLY REPORTS AND FINANCIAL STATEMENTS
The Franchisee will, at its expense, prepare a monthly and year-to-date balance
sheet and profit and loss statement for the Franchisee's Restaurant (the
"Monthly Report"). The Franchisee will also prepare, at its expense, annual
financial statements, consisting of a balance sheet, profit and loss statement,
statement of cash flows and explanatory footnotes, for the Franchisee's
Restaurant (the "Financial Statements"). All Monthly Reports and Financial
Statements provided to E & C pursuant to this Article will be in substantially
the form prescribed by E & C in writing, will conform to the standard chart of
accounts prescribed by E & C and will be prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
DUE DATE; VERIFICATION OF MONTHLY REPORTS AND FINANCIAL STATEMENTS
The Monthly Report for the Franchisee's Restaurant will be delivered to E & C
within twenty (20) days after the end of the month. The Franchisee's Financial
Statements will be delivered to E & C within ninety (90) days after the
Franchisee's fiscal year end. The Franchisee's Monthly Reports and Financial
Statements must be verified by the Franchisee's Chief Financial Officer.
SUBSTANTIATION OF MONTHLY REPORTS AND FINANCIAL STATEMENTS
Within three (3) business days after receiving a written request from E & C, the
Franchisee will provide E & C with originals or exact copies of all documents,
records and other materials including, but not limited to, cash register tapes,
customer checks, point-of-sale system records, payroll records and purchasing
and expense records, requested by E & C to substantiate the Monthly Reports and
Financial Statements submitted by the Franchisee pursuant to this Article. E & C
will maintain the confidentiality of all information, documents, records and
other materials submitted by the Franchisee to E & C pursuant to this Article.
However, if the information, documents, records or other materials are relevant
to any issue in any mediation, arbitration or court proceeding between E & C and
the Franchisee, then E & C may disclose the information, documents, records or
other materials in such proceeding.
SALES AND INCOME TAX RETURNS
Within fifteen (15) days after receipt of a written request from
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E & C, the Franchisee will furnish E & C with exact copies of all state sales
tax returns and all state and federal income tax returns filed by the
Franchisee relating to the operation of the Franchisee's Alamo Grill-TM-
Restaurant.
AUDIT RIGHTS
Within three (3) business days after receiving written notice from E & C, the
Franchisee and the Franchisee's accountants will make all of their computer and
hand prepared records and ledgers, the sales ledger, work papers, books, bank
statements, federal and state income tax returns, federal and state sales tax
returns, daily cash register tapes, accounts, and other financial information
relating to Gross Sales, food and liquor costs, and labor costs (the "Financial
Records") available to E & C during business hours for review and audit by E & C
or its designee. If the Financial Records are computerized, then the Franchisee
will grant E & C or its designees the absolute right to access the Franchisee's
computer and software programs containing the Financial Records and the absolute
right to copy the Financial Records to a computer disk or to any portable or
other computer owned or controlled by E & C. The Financial Records for each
fiscal year will be kept in a secure place by the Franchisee and will be
available for audit by E & C for at least five (5) years. The Franchisee will
provide E & C with adequate facilities to conduct the audit. E & C will maintain
the confidentiality of all information, documents, records and other materials
reviewed or copied by E & C during an audit conducted by E & C pursuant to this
Article. However, if the information, documents, records or other materials are
relevant to any issue in any mediation, arbitration or court proceeding between
E & C and the Franchisee, then E & C may disclose the information, documents,
records or other materials in such proceeding.
PAYMENT OF AUDIT COSTS
If an audit of the Franchisee's Financial Records reveals any deficiencies in
the Continuing Fees payable to E & C, then the Franchisee will, within five (5)
days after receipt of an invoice from E & C indicating the amounts owed, pay to
E & C any deficiency owed to E & C, together with interest as provided for
herein. If an audit by E & C results in a determination that the Franchisee's
Gross Sales were understated by more than one percent (1%) in any year or in any
month, then the Franchisee will, within fifteen (15) days after receipt of an
invoice from E & C, pay E & C all costs and expenses (including employee
salaries, travel costs, room and board, and audit fees) that E & C incurred for
the audit of the Franchisee's Financial Records.
REFUSAL TO SUBMIT RECORDS OR PERMIT AUDIT
The Franchisee's failure or refusal to provide the documents, records or other
materials requested by E & C to substantiate the Monthly Reports or Financial
Statements in accordance with Article 7.3 or to produce the Financial Records in
accordance
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with Article 7.5 will be grounds for the immediate termination of this
Agreement by E & C.
QUALITY CONTROL, UNIFORMITY AND STANDARDS
QUALITY AND SERVICE STANDARDS
E & C will develop, from time to time, uniform standards of quality, cleanliness
and service regarding the business operations of the Franchisee's Alamo
Grill-TM- Restaurant to protect and maintain (for the benefit of E & C and all
of its Alamo Grill franchisees) the distinction, valuable goodwill and
uniformity represented and symbolized by the Marks and the Restaurant System.
Accordingly, to ensure that all Alamo Grill franchisees will maintain and adhere
to the uniformity requirements and quality standards for the foods, products and
services associated with the Marks and the Restaurant System, the Franchisee
agrees to maintain the uniformity and quality standards required by E & C for
all foods, products and services associated with the Marks and the Restaurant
System and agrees to the terms and conditions contained in this Article to
assure the public that all Alamo Grill-TM- Restaurants will be uniform in nature
and will sell and dispense quality foods, products and services.
IDENTIFICATION OF RESTAURANT
The Franchisee will operate the Restaurant so that it is clearly identified and
advertised as an Alamo Grill-TM- Restaurant. The style and form of the words
"Alamo Grill-TM-" and the other Marks used in any advertising, marketing, public
relations or promotional program must have the prior written approval of E & C.
The Franchisee will use the name "Alamo Grill-TM-", the approved logos and all
graphics commonly associated with the Restaurant System and the Marks which now
or hereafter may form a part of the Restaurant System, on all paper supplies,
furnishings, advertising, public relations and promotional materials, signs,
stationery, business cards, linens, towels, napkins, aprons, menus, food and
beverage containers, placemats, uniforms, clothing and other materials in the
identical combination and manner as may be prescribed by E & C in writing. The
Franchisee will, at its expense, comply with all legal notices of registration
required by E & C or its attorneys and will, at its expense, comply with all
trademark, trade name, service mark, copyright, patent or other notice markings
that are required by E & C or by applicable law.
COMPLIANCE WITH STANDARDS
The Franchisee will use the Marks and the Restaurant System in strict compliance
with the moral and ethical standards, quality standards, health standards,
operating procedures, specifications, requirements and instructions required by
E & C, which may be amended and supplemented by E & C from time to time.
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ALTERATIONS TO RESTAURANT
The Franchisee will not install or permit to be installed in, on or above the
Restaurant, without the prior written consent of E & C, any fixtures,
furnishings, equipment, decor, signs or other items not previously approved by
E & C.
PROHIBITED SALES
The Franchisee will offer for sale at the Franchised Location only those menu
items, food products and other products approved in writing by E & C. E & C will
provide the Franchisee with a sample of the standard Alamo Grill menu and all
subsequent modifications to the menu.
OTHER BUSINESS
The Franchisee will use the Franchised Location solely for the operation of an
Alamo Grill-TM- Restaurant and will not directly or indirectly operate or engage
in any other business or activity from the Franchised Location without the prior
written consent of E & C. The Franchisee will not participate in any dual
branding program, or in any other program, promotion or business pursuant to
which a trademark, service mark, trade name, logo, slogan, or commercial symbol
owned by any person or entity other than E & C is displayed, featured or used in
connection with the Franchisee's Alamo Grill-TM- Restaurant without the prior
written consent of E & C.
FRANCHISEE'S NAME
The Franchisee will not use the name "Alamo Grill-TM-", or any derivative
thereof in its corporate, partnership or sole proprietorship name. The
Franchisee will hold itself out to the public as an independent contractor
operating its Alamo Grill-TM- Restaurant pursuant to a Franchise from E & C. The
Franchisee will file for a certificate of assumed name in the manner required by
applicable state law to notify the public that the Franchisee is operating its
Alamo Grill-TM- Restaurant as an independent contractor pursuant to this
Agreement.
OPERATION OF ALAMO GRILL-TM- RESTAURANT
The Franchisee will be totally and solely responsible for the operation of its
Alamo Grill-TM- Restaurant, and will control, supervise and manage all the
employees, agents and independent contractors who work for or with the
Franchisee. The Franchisee will be responsible for the acts of its employees,
agents, and independent contractors and will take all reasonable business
actions necessary to ensure that its employees, agents and independent
contractors comply with all applicable federal, state, city, local and municipal
laws, statutes, ordinances, rules and regulations. E & C will not have any
right, obligation or responsibility to control, supervise or manage the
Franchisee's employees, agents or independent contractors.
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BUSINESS HOURS
The Franchisee's Alamo Grill-TM- Restaurant will be open from 11:00 a.m. to
11:00 p.m. every day of the week, or during such other normal business hours as
otherwise may be specified by E & C in the Standard Operations Manual.
PERSONNEL
The Franchisee will at all times during business hours have management personnel
on duty who are responsible for supervising the employees and the business
operations of the Franchisee's Restaurant. The Franchisee will maintain a
competent, conscientious and adequately trained staff with enough personnel to
operate the Restaurant in a professional and competent manner and to guarantee
efficient service to the Franchisee's customers. The Franchisee will take such
steps as are necessary to ensure that its employees develop and preserve good
customer relations, render competent, prompt, courteous and knowledgeable
service and meet the quality and service standards established by E & C.
STANDARDS OF SERVICE
The Franchisee will at all times give prompt, courteous and efficient service to
its customers. The Franchisee will, in all dealings with its customers,
suppliers and the public, adhere to the highest standards of honesty, integrity,
fair dealing and ethical conduct.
ALCOHOLIC BEVERAGES
The Franchisee will serve beer, wine and alcoholic beverages at its Alamo
Grill-TM- Restaurant. The Franchisee will comply with all federal, state, city,
local and municipal licensing, insurance and other laws, regulations and
requirements applicable to the sale of alcoholic beverages by the Franchisee.
The Franchisee will comply with the liquor liability insurance requirements set
forth in Article 14 of this Agreement.
VENDING MACHINES AND ENTERTAINMENT DEVICES
Other than those items which the Franchisee must procure and place in the
premises of the Franchised Location as specified in the Standard Operations
Manual, the Franchisee will not permit any jukebox, video and electronic games,
vending machines (including cigarette, gum and candy machines), newspaper racks,
rides or other mechanical or electronic entertainment devices or coin or token
operated machines (including pinball) to be used on the premises of the
Franchised Location without the prior written approval of E & C.
GAMBLING MACHINES; TICKETS
The Franchisee will not permit any gambling machines or other gambling devices
to be used on the premises of the Franchised Location, except with the prior
written approval of E & C. The Franchisee will not keep or offer for sale or
allow employees to offer for sale at or near the Franchised Location any
tickets,
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ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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subscriptions, pools, chances, raffles, lottery tickets or pull tabs,
except with the prior written approval of E & C.
STANDARD ATTIRE OR UNIFORMS
The Franchisee will require its employees to wear the standard attire or
uniforms described in the Standard Operations Manual. All employees of the
Franchisee will wear clean and neat attire or uniforms and will practice good
personal hygiene.
CREDIT CARDS
The Franchisee will honor all credit, charge, courtesy or cash cards or other
credit devices required or approved by E & C in writing. The Franchisee must
obtain the written approval of E & C prior to honoring any unapproved credit,
charge, courtesy or cash cards or other credit devices.
GIFT CERTIFICATES AND COUPONS
The Franchisee will offer the gift certificates issued by E & C for use by its
Alamo Grill franchisees. The Franchisee will not have the right to sell or issue
gift certificates except those that have been obtained from E & C. The
Franchisee will not issue coupons or discounts of any type, except as may be
approved in advance in writing by E & C. Such coupons will clearly state that
they are redeemable only at the Franchisee's Alamo Grill-TM- Restaurant, and not
at any other Alamo Grill-TM- Restaurant.
MUSIC AND MUSIC SELECTION
In order to maintain the image and ambiance associated with the Restaurant
System, the Franchisee will only play the music and music selections that have
been approved by E & C as set forth in the Standard Operations Manual.
APPROVED ADVERTISING
The Franchisee will not conduct any advertising and/or promotion for its Alamo
Grill-TM- Restaurant business unless and until E & C has given the Franchisee
prior written approval for all concepts, materials and media proposed for any
such advertising and/or promotion. The Franchisee will not permit any third
party to advertise its business, services or products on the premises of the
Franchisee's Alamo Grill-TM- Restaurant without the prior written approval of E
& C.
COMPLIANCE WITH APPLICABLE LAW
The Franchisee will, at its expense, comply with all applicable federal, state,
city, local and municipal laws, statutes, ordinances, rules and regulations
pertaining to the construction or remodeling of the Franchised Location and the
operation of the Franchisee's Alamo Grill-TM- Restaurant including, but not
limited to, all health, food service and liquor licensing laws, all health and
safety regulations, all environmental laws, all laws relating to employees,
including all wage and hour laws, employment laws, workers' compensation laws,
discrimination laws, sexual harassment laws, and disability discrimination laws.
The
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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Franchisee will, at its expense, be solely and exclusively responsible for
determining the licenses and permits required by law for the Franchisee's Alamo
Grill-TM- Restaurant, for obtaining and qualifying for all such licenses and
permits, and for complying with all applicable laws.
PAYMENT OF TAXES
The Franchisee will be absolutely and exclusively responsible and liable for
filing all required tax returns and for the prompt payment of all federal,
state, city and local taxes including, but not limited to, individual and
corporate income taxes, sales and use taxes, franchise taxes, gross receipts
taxes, employee withholding taxes, F.I.C.A. taxes, inventory taxes, liquor
taxes, personal property taxes and real estate taxes (hereinafter referred to as
"taxes") payable in connection with the Franchisee's Alamo Grill-TM- Restaurant
business. E & C will have no liability for these or any other taxes which arise
or result from the Franchisee's Restaurant business and the Franchisee will
indemnify E & C for any such taxes that may be assessed or levied against E & C
which arise out of or result from the Franchisee's Restaurant.
"FRANCHISE" AND OTHER TAXES
If any "franchise" or other tax which is based upon the Gross Sales, receipts,
sales, business activities or operation of the Franchisee's Alamo Grill-TM-
Restaurant is imposed upon E & C by any taxing authority, then the Franchisee
will reimburse E & C in an amount equal to the amount of such taxes and related
costs imposed upon and paid by E & C. The Franchisee will be notified in writing
when E & C is entitled to reimbursement for the payment of such taxes and, in
that event, the Franchisee will pay E & C the amount specified in the written
notice within ten (10) days after receipt of the written notice.
PAYMENTS TO CREDITORS
The Franchisee will timely pay all of its obligations and liabilities due and
payable to E & C suppliers, lessors and its creditors.
SECURITY INTEREST IN FRANCHISE AGREEMENT
This Agreement and the Franchise granted to the Franchisee hereunder may not be
used as collateral or be the subject of a security interest, lien, levy,
attachment or execution by the Franchisee's creditors or any financial
institution, except with the prior written approval of E & C.
INSPECTION RIGHTS
The Franchisee will permit E & C or its representatives to enter, remain on, and
inspect the Franchised Location, whenever E & C reasonably deems it appropriate
and without prior notice, to interview the Franchisee's employees and customers,
to take photographs and videotapes of and to examine the interior and
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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exterior of the Franchised Location, to examine representative samples of the
foods, beverages and other products sold or used at the Franchisee's
Restaurant and to evaluate the quality of the foods, beverages, products and
services provided by the Franchisee to its customers. E & C will also have
the right to send a representative of E & C to dine at the Franchisee's Alamo
Grill-TM- Restaurant to evaluate the operations of the Franchisee's Alamo
Grill-TM- Restaurant and the quality of the foods and services provided by
the Franchisee to its customers. E & C will have the right to use all
interviews, photographs and videotapes of the Franchisee's Alamo Grill-TM-
Restaurant for such purposes as E & C deems appropriate including, but not
limited to, use in advertising, marketing and promotional materials. The
Franchisee will not be entitled to, and hereby expressly waives, any right
that it may have to be compensated by E & C, its advertising agencies, and
other Alamo Grill franchisees for the use of such photographs or videotapes
for advertising, marketing and promotional purposes.
DEFAULT NOTICES AND SIGNIFICANT CORRESPONDENCE
The Franchisee will deliver to E & C, immediately upon receipt by the Franchisee
or delivery at the Franchised Location, an exact copy of all: (a) notices of
default received from the landlord of the Franchised Location or any mortgagee,
trustee under any deed of trust, contract for deed holder, lessor, or any other
party with respect to the Franchised Location; (b) notifications or other
correspondence relating to any legal proceeding or lawsuit relating in any way
to the Franchisee's Restaurant or to the Franchised Location; (c) consumer
lawsuits, complaints or claims filed with or served upon the Franchisee or a
better business bureau; (d) employee lawsuits, complaints or claims; and (e)
inspection reports or any other notices, claims, reports, warnings or citations
from or by any governmental authority, including any health or safety authority.
Upon a written request from E & C, the Franchisee will provide such additional
information as may be required by E & C regarding the subject matter of the
correspondence or other documents received by the Franchisee.
PRODUCTS AND SERVICES
LIMITATIONS ON PRODUCTS AND SERVICES
The Franchisee will sell only those foods, beverages, food products, clothing,
and services and other items approved by E & C in writing and will offer for
sale all foods, beverages, food products, clothing, services and other items
prescribed by E & C or approved by E & C in writing. Prior to the opening of the
Alamo Grill-TM- Restaurant, E & C will provide the Franchisee with a written
schedule of all foods, food products, beverages,
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ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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clothing, and other items for sale, and the fixtures, supplies and equipment
necessary and required to commence operation of the Franchisee's Restaurant.
The Franchisee will maintain sufficient inventories of foods, beverages, food
products, clothing, and other items to realize the full potential of the
Restaurant. The Franchisee will conform to all customer service standards
prescribed by E & C in writing. The Franchisee will have the absolute right
to sell all foods, beverages, food products, clothing, services and other
items at whatever prices and on whatever terms it deems appropriate.
LIMITATION ON SALES
The Franchisee will offer for sale and sell those foods, beverages, food
products, clothing, services and other items offered for sale in connection with
the Franchisee's Alamo Grill-TM- Restaurant or which are sold under any oF the
Marks only on a retail basis at the Franchisee's Franchised Location. The
Franchisee will not offer for sale or sell on a wholesale or retail basis at any
other location or in any other premises, or by means of the Internet, catalogue
or mail order sales, telemarketing, or by any other method of sales or
distribution, any of the foods, beverages, food products, clothing, services or
other items offered for sale or sold in connection with the Franchisee's Alamo
Grill-TM- Restaurant or which are sold under any of the Marks.
APPROVED SUPPLIERS AND DISTRIBUTORS
The Franchisee will purchase from suppliers and distributors approved in writing
by E & C those foods, food items, beverages, recipe ingredients, goods,
products, clothing, merchandise, supplies, sundries, uniforms, machinery, signs,
furniture, fixtures, equipment and services (sometimes referred to in this
Agreement as "products and services") designated in writing by E & C which are
to be used or sold by the Franchisee and which E & C determines must meet the
standards of quality and uniformity required to protect the valuable goodwill
and uniformity symbolized by and associated with the Marks and the Restaurant
System and/or to protect the health and safety of the Franchisee's employees,
customers and guests. E & C will provide the Franchisee with a list of the
approved suppliers and distributors for these products and services. The
Franchisee will have the right and option to purchase these products and
services from other or outside suppliers and distributors provided that such
products and services conform in quality to the standards and specifications of
E & C and provided that E & C determines that the supplier's or distributor's
business reputation, quality standards, delivery performance, credit rating, and
other factors determined by E & C are satisfactory. If the Franchisee desires to
purchase any products or services from such other suppliers
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and distributors, then the Franchisee must, at its expense, submit samples
and specifications, and other business and product information as requested,
to E & C for review and/or product testing to determine whether the supplier
or distributor and its products and services are satisfactory to E & C and
comply with E & C's standards and specifications. E & C will also have the
right to inspect the facilities of the proposed supplier or distributor. The
Franchisee will reimburse E & C for the costs and expenses incurred by E & C
to conduct an inspection of the facilities of the unapproved supplier or
distributor within thirty (30) days after the Franchisee's receipt of an
invoice for such costs and expenses from E & C. E & C will complete all
product testing within thirty (30) days after E & C receives the samples and
other requested information from the Franchisee, and will notify the
Franchisee of its determination within fifteen (15) days after completion of
the testing process. The written approval of E & C must be obtained by the
Franchisee before any previously unapproved products and services are sold by
or used by the Franchisee or any previously unapproved supplier or
distributor is used by the Franchisee.
DESIGNATED SUPPLIERS
The Franchisee will purchase from designated suppliers those proprietary
seasonings and other foods, food items and recipe ingredients, and clothing
items designated in writing by E & C which are to be used or sold by the
Franchisee and which E & C determines must meet the standards of quality and
uniformity required to protect the valuable goodwill and uniformity symbolized
by and associated with the Marks and the Restaurant System. In addition, the
Franchisee will purchase and use in its Restaurant operations all the brand name
products required by E & C. Such required brand name products may be purchased
from any commercial supplier of such products.
USE OF REBATES FROM SUPPLIERS
Any rebates or other payments paid to E & C by a supplier as a result of the
Franchisee's purchases from the supplier will be used by E & C for the creation,
development and production of advertising and promotional materials, marketing
or related research and development, advertising and marketing expenses, product
and food research and development, advertising materials, production costs,
brochures, ad slicks, radio, film and television commercials, videotapes,
newspaper, magazine and other print advertising, direct mail pieces,
photographer costs, photographs, pictures, designs, services provided by
advertising agencies, public relations firms or other marketing, research or
consulting firms or agencies, market research and marketing surveys, menu design
and graphics, customer incentive programs, sponsorships, marketing meetings,
sales incentives, development
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of Home Pages on the Internet, Internet access provider costs, Internet/World
Wide Web programming and advertising, subscriptions to industry newsletters
or magazines, marketing or industry studies, books and research materials,
administrative costs or salaries for marketing support personnel.
LIMITATION ON BRANDING, DEVELOPMENT AND SALE OF PRODUCTS
Nothing in this Agreement gives the Franchisee the right to, and the Franchisee
will not: (a) use or display the Marks on or in connection with any product or
service other than those products and services prescribed or approved by E & C;
(b) acquire, develop or manufacture any product using the name "Alamo Grill-TM-"
or any of the Marks, or direct any other person or entity to do so; (c) acquire,
develop or manufacture any product that has been developed or manufactured by or
for E & C for use in the Restaurant System and which is sold under any of the
Marks, or direct any other person or entity to do so; and (d) use, have access
to, or have any rights to any proprietary formulas, ingredients, or recipes for
any product created by or at the direction of E & C and sold under the name
"Alamo Grill-TM-" or any of the Marks.
INDEPENDENT SHOPPING SERVICES
E & C will have the right to hire an independent shopping service to visit, dine
at and evaluate the Franchisee's Alamo Grill-TM- Restaurant and the quality of
the foods, beverages and services provided to customers by the Franchisee's
Alamo Grill-TM- Restaurant. E & C will determine the number and frequency of the
visits the shopping service will make to the Franchisee's Alamo Grill-TM-
Restaurant and the form of the reports the shopping service will provide to E &
C. The fees charged by the shopping service for visiting and evaluating the
Franchisee's Alamo Grill-TM- Restaurant will be paid by E & C. E & C will
provide the Franchisee with copies of all reports prepared by the shopping
service evaluating the Franchisee's Alamo Grill-TM- Restaurant.
STANDARD OPERATIONS MANUAL
COMPLIANCE WITH MANUAL
In order to protect the reputation and goodwill of E & C, and to maintain the
uniform operating standards under the Marks and the Restaurant System, the
Franchisee will at all times conduct its business and operate its Alamo
Grill-TM- Restaurant in compliance with E & C's confidential and copyrighted
Standard Operations Manual (sometimes referred to as the "Manual") which is
incorporated herein and made part of this Agreement. The Franchisee will conform
to the common image and identity created by the foods, beverages, products,
music, food portions, recipes, ingredients, cooking techniques and processes,
cleanliness, sanitation and services associated with the Alamo Grill-TM-
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ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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Restaurant which are portrayed and described by the Manual. The Franchisee
acknowledges having received on loan from E & C one copy of the Manual.
REVISIONS TO MANUAL
E & C reserves the right to and may from time to time revise the Standard
Operations Manual. The Franchisee will, as promptly as reasonably possible,
modify the operations of the Restaurant to implement all changes, additions and
supplements made by E & C to the Restaurant System which are reflected by the
Manual. The Franchisee will implement all operational changes to the Restaurant
System deemed necessary by E & C to: (a) improve the standards of service or the
food, food items, beverages, and products offered for sale under the Restaurant
System; (b) protect the goodwill associated with the Marks; (c) improve the
operation of the Franchisee's Restaurant; or (d) protect the health and safety
of the Franchisee's employees, customers or guests. The Franchisee will at all
times keep its copy of the Manual current and up-to-date, and in the event of
any dispute regarding the Manual, the terms of the master copy of the Manual
maintained by E & C will be controlling in all respects.
CONFIDENTIALITY OF MANUAL
The Standard Operations Manual, and all revisions thereto, will at all times
during the term of this Agreement and thereafter remain the sole and exclusive
property of E & C, which will own all copyright and other interests related to
the Manual. The Franchisee will at all times during the term of this Agreement
and thereafter treat the Manual and any other manuals created for or approved
for use in the operation of the Franchisee's Alamo Grill-TM- Restaurant as
secret and confidential, and the Franchisee will use all reasonable means to
keep such information secret and confidential. Neither the Franchisee nor any
employees of the Franchisee will make any copy, duplication, record or
reproduction of the Manual, or any portion thereof, available to any
unauthorized person. The Franchisee will not use the Manual or any information
contained therein in connection with the operation of any other business or for
any purpose other than in conjunction with the operation of the Franchisee's
Alamo Grill-TM- Restaurant.
CONFIDENTIALITY OF OTHER INFORMATION
E & C and the Franchisee expressly understand and agree that E & C will be
disclosing and providing to the Franchisee certain confidential and proprietary
information concerning the Restaurant System and the procedures, operations,
technology and data used in connection with the Restaurant System. The
Franchisee will not, during the term of this Agreement or thereafter,
communicate, divulge or use for the benefit of any other person or entity any
such confidential and proprietary
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ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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information, knowledge or know-how concerning the methods of operation of the
Alamo Grill-TM- Restaurant which may be communicated to the Franchisee, or of
which the Franchisee may be apprised by virtue of this Agreement. The
Franchisee will divulge such confidential and proprietary information only to
its employees who must have access to it in order to operate the Franchisee's
Alamo Grill-TM- Restaurant. Any and all information, knowledge and know-how
including, without limitation, drawings, client lists, materials, equipment,
technology, methods, procedures, techniques, recipes, specifications,
computer programs, systems and other data which E & C copyrights or
designates as confidential or proprietary will be deemed confidential and
proprietary for the purposes of this Agreement.
BUSINESS PREMISES
SITE LOCATION
The Franchisee will be solely responsible for selecting the site of the
Franchised Location for the Franchisee's Alamo Grill-TM- Restaurant, regardless
of whether the Franchised Location is owned or leased by the Franchisee. The
Franchisee will retain an experienced commercial real estate broker or
salesperson who has at least five (5) years experience in locating restaurant
sites to advise the Franchisee and to locate, acquire, purchase or lease the
site for the Franchisee's Alamo Grill-TM- Restaurant. Accordingly, no provision
in this Agreement will be construed or interpreted to impose any obligation upon
E & C to locate a site for the Franchised Location, to assist the Franchisee in
the selection of a suitable site for the Franchised Location, or to provide any
assistance to the Franchisee in the purchase or lease of the Franchised
Location.
SITE LOCATION CRITERIA
E & C may require that the Franchisee provide to E & C for its review site
information relating to, among other things, accessibility, visibility,
potential traffic flows, population trends, household income and financial
statistics, lease terms and other demographic information. The review of the
site conducted by E & C will not be deemed to be a warranty, representation or
guaranty by E & C that if the Franchisee's Alamo Grill-TM- Restaurant is opened
and operated at that site, it will be a financial success. E & C will have the
right to require the Franchisee to obtain, at the Franchisee's expense, an
economic feasibility and demographics study for the proposed site of the
Franchised Location. Any feasibility and demographics study required by E & C
will be completed by a real estate or marketing expert mutually agreed upon in
writing by E & C and the Franchisee.
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ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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CONSTRUCTION AND REMODELING COSTS
The Franchisee will, at its cost, retain a licensed architect and will be
responsible for the preparation of the floor plans, layouts, working drawings
and construction plans and architectural plans and specifications for the
Franchisee's Alamo Grill-TM- Restaurant. The Franchisee will be responsible for
the accuracy of such floor plans, layouts, drawings, plans and specifications.
The Franchisee will, at its expense, be solely responsible for all costs and
expenses incurred for the construction, renovation or remodeling of the
Franchisee's Alamo Grill-TM- Restaurant at the Franchised Location including,
but not limited to, all costs for architectural plans and specifications, all
modifications to the floor plans and layouts necessitated by the structure,
construction or layout of the Franchised Location, building permits, site
preparation, demolition, construction of the parking lot, landscaping, heating,
ventilation and air conditioning, interior decorations, furniture, fixtures,
equipment, leasehold improvements, labor, architectural and engineering fees,
electricians, plumbers, general contractors and subcontractors.
COMPLIANCE WITH SPECIFICATIONS
The Franchised Location and the Franchisee's Restaurant will conform to all
specifications for decor, furniture, fixtures, equipment, exterior and interior
decorating designs and color schemes established by E & C. The Franchisee will
obtain and pay for the furniture, fixtures, supplies and equipment required by E
& C and used by the Franchisee for the operation of its Alamo Grill-TM-
Restaurant. The furniture, fixtures and equipment used in the Franchisee's Alamo
Grill-TM- Restaurant must be installed and located in accordance with the floor
plans approved by E & C, and must conform to the quality standards and
uniformity requirements established by E & C.
INSPECTION DURING CONSTRUCTION OR RENOVATION
The Franchisee will be solely responsible for inspecting the Franchised Location
during construction or renovation to confirm that the Franchised Location is
being constructed or renovated in a workmanlike manner and according to the
specifications established by E & C. The Franchisee will be solely responsible
for complying with all applicable local, state and federal laws, ordinances,
statutes and building codes, and for acquiring all licenses and building and
other permits required by all federal, state, city, municipal and local laws in
connection with the construction or renovation of the Franchisee's business
premises at the Franchised Location. E & C will have no responsibility to the
Franchisee or any other party if the Franchised Location is not constructed or
renovated by the Franchisee or its architect or contractor: (a) according to the
standard specifications
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established by E & C; (b) in compliance with all applicable federal, state or
local laws or ordinances; or (c) in a workmanlike manner. The Franchisee will
not open the Restaurant for business without the prior written approval of E
& C.
MAINTENANCE
The Franchisee will, at its expense, repair, paint and keep in a clean and
sanitary condition the interior, the exterior, the parking lot, signage,
exterior lighting, and the grounds of the Franchised Location and the
Franchisee's Restaurant, and will replace all floor covering, wall coverings,
light fixtures, curtains, blinds, shades, furniture, room furnishings, wall
hangings, signs, fixtures and other decor items as they become worn-out, soiled
or in disrepair. All mechanical equipment, including ventilation, heating and
air conditioning, must be kept in good working order by the Franchisee at all
times. All replacement equipment, decor items, furniture, fixtures, signs,
supplies and other items used in the Restaurant by the Franchisee must comply
with the then-current standards and specifications of E & C.
REMODELING OF BUSINESS PREMISES
The Franchisee will make the reasonable capital expenditures necessary to
extensively remodel, modernize, redecorate and renovate ("remodel" or
"remodeling") the Franchisee's Restaurant and to replace and modernize the
furniture, fixtures, supplies and equipment ("FF&E") so that the Franchisee's
Restaurant will reflect the then-current image of an Alamo Grill-TM- Restaurant.
All remodeling and all replacements for the FF&E must conform to the
then-current specifications of E & C. The Franchisee will commence remodeling
the Franchised Location within four (4) months after the date the Franchisee
receives written notice from E & C specifying the required remodeling, and will
diligently complete such remodeling within a reasonable time after its
commencement. Except as provided for in Article 11.6 of this Agreement, the
Franchisee will not be required to remodel the Restaurant, or to replace and
modernize its FF&E more than once every five (5) years during the term of this
Agreement.
SIGNS
APPROVED SIGNS
The signs used at the Franchised Location (the "Signs") must comply with the
standard sign plans and specifications established by E & C. E & C will provide
the Franchisee with a copy of the standard sign plans and specifications and the
Franchisee will, at its expense, prepare or cause the preparation of complete
and detailed plans and specifications for the Signs and will submit such plans
and specifications to E & C for its written approval. E & C will have the
absolute right to inspect,
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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examine, videotape and photograph the Signs for any reason at any time during
the term of this Agreement.
PAYMENT OF COSTS AND EXPENSES
The Franchisee will, at its expense, be responsible for any and all installation
costs, sign costs, architectural fees, engineering costs, construction costs,
permits, licenses, repairs, maintenance, utilities, insurance, taxes,
assessments and levies in connection with the construction, erection,
maintenance or use of the Signs including, if applicable, all electrical work,
construction of the base and foundation, relocation of power lines and all
required soil preparation work. The Franchisee will comply with all federal,
state and local laws, regulations, building codes and ordinances relating to the
construction, erection, maintenance and use of the Signs.
MODIFICATIONS; INSPECTION
The Franchisee may not alter, remove, change, modify, or redesign the Signs
unless approved by E & C in writing. E & C will have the unequivocal and
unilateral right to redesign the plans and specifications for the Signs during
the term of this Agreement without the approval or consent of the Franchisee.
Within thirty (30) days after receipt of written notice from E & C, the
Franchisee must, at its expense, either modify or replace the Signs so that the
Signs displayed at the Franchised Location will comply with the redesigned plans
and specifications as issued by E & C. The Franchisee will not be required to
modify or replace the Signs more than once every five (5) years.
TELECOMMUNICATION AND COMPUTER EQUIPMENT
TELECOMMUNICATION EQUIPMENT
The Franchisee will, at its sole expense, obtain and maintain at all times
during the term of this Agreement, the telephone answering equipment, electronic
telephone facsimile ("fax") equipment, and such other telecommunications
equipment as may from time to time be required by E & C for use in the operation
of the Franchisee's Alamo Grill-TM- Restaurant business. At all times during the
term of this Agreement, all telecommunication and fax equipment must be in
compliance with the then-current standards and specifications established by E &
C, and must be in operation to send and receive information at such times as may
be required by E & C.
SATELLITE AND CABLE TELEVISION
The Franchisee will, at its sole expense, obtain, maintain and provide for
viewing by the customers in the Franchisee's Restaurant, those cable and
satellite television stations, networks and/or systems as may be specified in
writing from time to time by E & C. The Franchisee will, at its sole expense,
obtain and maintain all services and equipment necessary to
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receive and display such cable and satellite television stations in
accordance with the Standard Operations Manual.
COMPUTER HARDWARE
The Franchisee will, at its sole expense, purchase the computer hardware and
peripherals, including printers, monitors, modems and networking equipment (the
"Computer Equipment") that will serve as, or integrate with, the Franchisee's
point-of-sale cash register. All Computer Equipment must meet the standards and
specifications established by E & C and must be compatible with the software
described in Article 13.4. The Franchisee will update the Computer Equipment as
may from time to time be required by E & C. The Franchisee will purchase a
maintenance agreement for on-site maintenance of the Franchisee's point-of-sale
cash register.
SOFTWARE
The Franchisee will purchase the computer software and operating system
specified by E & C, including software for accounting and cost control, which
meets the specifications described in the Standard Operations Manual. The
Franchisee will, from time to time, update the computer software to meet the
then-current standards and specifications issued by E & C.
ACCESS TO COMPUTER DATA
E & C will, at all times during the term of this Agreement, have the right to
directly access all sales, financial, marketing, management and other business
information and all other data maintained and stored by the Franchisee in its
computer databases ("Data and Information"). The Franchisee will, at its
expense, configure its computer and maintain the communications software and
hardware necessary to permit E & C to access the Data and Information by modem
and telephone lines and to upload and download the Data and Information and
other business information from and to the Franchisee's computers, computer data
bases and software programs.
INTERNET PROVIDER
The Franchisee will, at all times during the term of this Agreement, at the
Franchisee's expense, have access to the Internet through the Microsoft Network,
America Online, Prodigy, CompuServe or other Internet access provider designated
or approved by E & C.
E-MAIL ADDRESS
The Franchisee will, at all times during the term of this Agreement, maintain an
e-mail address on the Internet. The Franchisee's e-mail address will be provided
to E & C and will be used as a method for the Franchisee and E & C to
communicate with each other and to transmit documents and other information. The
Franchisee will not use the words "Alamo Grill-TM-" as any part of its e-mail
address or its domain name if a Home Page is
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maintained by the Franchisee on the Internet. The Franchisee will review its
e-mail at least once a day and will respond to all e-mails within twenty-four
(24) hours, except for weekend e-mails, which will be answered every Monday.
INSURANCE
GENERAL LIABILITY INSURANCE
The Franchisee will procure and maintain in full force and effect, at its sole
cost and expense, a general liability insurance policy with coverage of at least
one million dollars ($1,000,000) per occurrence insuring the Franchisee, E & C
and their respective officers, directors, agents and employees from and against
any and all loss, liability, claim or expense of any kind whatsoever, including
bodily injury, personal injury, food poisoning or other sickness, death,
property damage, products liability and all other occurrences resulting from the
condition, operation, use, business or occupancy of the Franchisee's Restaurant
and the Franchised Location, including the surrounding premises or area, the
parking area and the sidewalks of the Franchised Location.
LIQUOR LIABILITY INSURANCE
The Franchisee will procure and maintain in full force and effect, at its sole
cost and expense, liquor liability insurance with coverage of at least two
million dollars ($2,000,000) per occurrence insuring the Franchisee, E & C and
their respective officers, directors, agents and employees from any and all
loss, liability, claim or expense of any kind whatsoever, including bodily
injury, personal injury, death, property damage and all other occurrences
resulting from the sale of liquor by the Franchisee or any of the Franchisee's
employees in connection with the Franchisee's Restaurant.
AUTOMOBILE LIABILITY INSURANCE
The Franchisee will procure and maintain in full force and effect, at its sole
cost and expense, automobile liability insurance with coverage of at least one
million dollars ($1,000,000) per occurrence insuring the Franchisee, E & C and
their respective officers, directors, agents and employees from any and all
loss, liability, claim or expense of any kind whatsoever resulting from the use,
operation or maintenance of all automobiles or vehicles owned by the Franchisee
or used by the Franchisee or any of the Franchisee's employees (including
automobiles owned or leased by any employee of the Franchisee) in connection
with the Franchisee's Restaurant.
PROPERTY INSURANCE
The Franchisee will procure and maintain in full force and effect, at its sole
cost and expense, "all risks" property insurance coverage, which will include
fire and extended
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coverage, for the inventory, machinery, equipment, fixtures and furnishings
owned or leased by the Franchisee and used by the Franchisee at the
Franchised Location. The Franchisee's property insurance policy (including
fire and extended coverage) must have coverage limits equal to at least
"replacement" cost.
BUILDING INSURANCE
If the Franchisee, or any of the Franchisee's Owners, owns, either directly or
indirectly, the building or the business premises at the Franchised Location,
then the Franchisee will insure the building or the business premises for and
against all risk, loss and damages in an amount equal to at least "replacement"
cost. If the Franchised Location is either partially or completely destroyed by
fire or any other catastrophe, then the Franchisee will use the insurance
proceeds to repair or reconstruct the Franchised Location and recommence
business as soon as reasonably possible.
UMBRELLA LIABILITY
The Franchisee will, at its sole cost and expense, purchase and maintain
umbrella liability insurance in the amount of one million dollars ($1,000,000)
that will provide liability insurance coverage for any liability incurred by the
Franchisee in excess of the primary general liability, liquor liability,
automobile liability and other liability insurance coverage carried by the
Franchisee.
INSURANCE REQUIRED BY LAW
The Franchisee will, at its sole cost and expense, procure and maintain all
other insurance required by state or federal law, including workers'
compensation insurance for its employees.
INSURANCE COMPANIES; EVIDENCE OF COVERAGE
All insurance companies providing coverage to the Franchisee must be acceptable
to and approved by E & C, and must be licensed in the state where coverage is
provided. The Franchisee will provide E & C with certificates of insurance
evidencing the insurance coverage required of the Franchisee pursuant to this
Article no later than the date the Franchisee opens for business, and the
Franchisee will immediately provide, upon expiration, change or cancellation, a
new certificate of insurance to E & C.
DEFENSE OF CLAIMS
All liability insurance policies procured and maintained by the Franchisee in
connection with the Franchisee's Restaurant will require the insurance company
to provide and pay for attorneys to defend any legal actions, lawsuits or claims
brought against the Franchisee, E & C, and their respective officers, directors,
agents and employees.
RIGHTS OF E & C
All insurance policies procured and maintained by the Franchisee pursuant to
this Article will name E & C as an additional
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insured, will contain endorsements by the insurance companies waiving all
rights of subrogation against E & C, and will stipulate that E & C will
receive copies of all notices of cancellation, nonrenewal, or coverage
reduction or elimination at least thirty (30) days prior to the effective
date of such cancellation, nonrenewal or coverage change.
LICENSING OF MARKS AND RESTAURANT SYSTEM
RIGHT TO LICENSE MARKS
E & C warrants that, except as otherwise provided for herein, it has the right
to grant the Franchise and to license the Marks and the Restaurant System to the
Franchisee. Any and all improvements made by the Franchisee to the Marks or the
Restaurant System will be the sole and absolute property of E & C, which will
have the exclusive right to register and protect all such improvements in its
name in accordance with applicable law. The Franchisee's right to use and
identify with the Marks and the Restaurant System will exist concurrently with
the term of this Agreement and such use by the Franchisee will inure exclusively
to the benefit of E & C.
CONDITIONS TO LICENSE OF MARKS
E & C hereby grants to the Franchisee the nonexclusive personal right to use the
Marks and the Restaurant System in accordance with the provisions of this
Agreement. The Franchisee's nonexclusive personal right to use "Alamo Grill-TM-"
as the name of the Franchisee's Restaurant and its right to use the Marks and
the Restaurant System applies only to the Franchisee's Restaurant at the
Franchised Location and such rights will exist only so long as the Franchisee
fully performs and complies with all of the conditions, terms and covenants of
this Agreement. "Nonexclusive," for the purposes of this Article, will mean that
E & C has or will grant franchises to other franchisees authorizing such
franchisees to operate Alamo Grill-TM- Restaurants in conformity with the
Restaurant System using the name "Alamo Grill-TM-" and the other Marks, and that
E & C, its affiliates and/or subsidiaries havE operated and will operate Alamo
Grill-TM- Restaurants.
FRANCHISEE'S USE OF MARKS
The Franchisee will only use the Marks designated by E & C and only in the
manner authorized and permitted by E & C. The Franchisee's right to use the
Marks is limited to the uses set forth in this Agreement and any unauthorized
use will constitute an infringement of the rights of E & C under this Agreement
and under the Lanham Act (15 U.S.C. Section 1051, ET SEQ.). The Franchisee will
not have or acquire any rights in any of the Marks or thE Restaurant System
other than the right of use as provided herein. The Franchisee will have the
right to use the Marks and the
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Restaurant System only in the manner prescribed, directed and approved by E &
C in writing and will not have the right to use the Marks in connection with
the sale of any products or services other than those prescribed or approved
by E & C for sale by the Franchisee. If, in the judgment of E & C, the acts
of the Franchisee infringe upon or demean the goodwill, uniformity, quality
or business standing associated with the Marks or the Restaurant System, then
the Franchisee will, upon written notice from E & C, immediately modify its
use of the Marks or the Restaurant System in the manner prescribed by E & C
in writing.
ADVERSE CLAIMS TO MARKS
If there are any claims by any third party that its rights to any or all of the
Marks are superior to those of E & C and if the attorneys for E & C are of the
opinion that such claim by a third party is legally meritorious, or if there is
an adjudication by a court of competent jurisdiction that any party's rights to
the Marks are superior to those of E & C, then upon receiving written notice
from E & C, the Franchisee will, at its sole expense, immediately adopt and use
the changes and amendments to the Marks that are specified by E & C. If so
specified, the Franchisee will immediately cease using the Marks specified by E
& C, and will, as soon as reasonably possible, commence using the new
trademarks, trade names, service marks, logos, designs and commercial symbols
designated by E & C in writing at the Franchised Location, and in connection
with all advertising, marketing and promotion of the Franchisee's Restaurant.
The Franchisee will not make any changes or amendments whatsoever to the Marks
or the Restaurant System unless specified or approved in advance by E & C in
writing.
DEFENSE OR ENFORCEMENT OF RIGHTS TO MARKS
The Franchisee will have no right to and will not defend or enforce any rights
associated with the Marks or the Restaurant System in any court or other
proceedings for or against imitation, infringement, prior use or for any other
claim or allegation. The Franchisee will give E & C immediate written notice of
any and all claims or complaints made against or associated with the Marks and
the Restaurant System and will, without compensation for its time and at its
expense, cooperate in all respects with E & C in any lawsuits or other
proceedings involving the Marks and the Restaurant System. E & C will have the
sole and absolute right to determine whether it will commence or defend any
litigation involving the Marks and/or the Restaurant System, and the cost and
expense of all litigation incurred by E & C, including attorneys' fees,
specifically relating to the Marks or the Restaurant System will be paid by E &
C.
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TENDER OF DEFENSE
If the Franchisee is named as a defendant or party in any action involving the
Marks or the Restaurant System and if the Franchisee is named as a defendant or
party solely because the plaintiff or claimant is alleging that the Franchisee
does not have the right to use the Marks or the Restaurant System licensed by E
& C to the Franchisee at the Franchised Location pursuant to this Agreement,
then the Franchisee will have the right to tender the defense of the action to E
& C and E & C will, at its expense, defend the Franchisee in the action provided
that the Franchisee has tendered defense of the action to E & C within seven (7)
days after receiving service of the pleadings or the Summons and Complaint
relating to the action. E & C will indemnify and hold the Franchisee harmless
from any damages assessed against the Franchisee in any actions resulting solely
from the Franchisee's proper and authorized use of the Marks and the Restaurant
System at the Franchised Location if the Franchisee has timely tendered defense
of the action to E & C.
FRANCHISEE'S RIGHT TO PARTICIPATE IN LITIGATION
The Franchisee may, at its expense, retain an attorney to represent it
individually in all litigation and court proceedings involving the Marks or the
Restaurant System, and may do so with respect to matters involving only the
Franchisee (i.e., not involving E & C or its interests); however, E & C and its
attorneys will control and conduct all litigation involving the Marks or the
Restaurant System and the rights of E & C. Except as expressly provided for
herein, E & C will have no liability to the Franchisee for any costs that the
Franchisee may incur in any litigation involving the Marks or the Restaurant
System, and the Franchisee will pay for all costs, including attorneys' fees,
that it may incur in any litigation or proceeding arising as a result of matters
referred to under this Article, unless it tenders the defense to E & C in a
timely manner pursuant to and in accordance with Article 15.6.
TRAINING PROGRAM; OPENING ASSISTANCE
TRAINING
E & C will provide a training program for the Franchisee (or the Franchisee's
Operating Partner), the Franchisee's General Manager and the Franchisee's Chef
at an approved training site designated by E & C, to educate, familiarize and
acquaint them with the Restaurant System and the operations of the Alamo
Grill-TM- Restaurant. The Alamo Grill training program will include on-the-job
instruction on basic business procedures, equipment operation and maintenance,
hiring and training of employees, scheduling, advertising and promotion,
purchasing procedures, food preparation, food safety, food presentation, food
quality,
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food portions, liquor service, food and beverage inventory and cost control,
customer service, janitorial service, general maintenance and other topics
selected by E & C. The Franchisee (or the Franchisee's Operating Partner),
the Franchisee's General Manager and the Franchisee's Chef must successfully
complete the Alamo Grill training program and be certified in writing by E &
C prior to commencing the business operations of the Franchisee's Restaurant.
The training program will be scheduled by E & C in its sole discretion and
will be for a minimum of five (5) consecutive days for the Franchisee (or the
Franchisee's Operating Partner), and for a minimum of thirty (30) consecutive
days for the Franchisee's General Manager and for the Franchisee's Chef. The
Franchisee (or the Franchisee's Operating Partner), the Franchisee's General
Manager and the Franchisee's Chef must begin training within ninety (90) days
after the date of this Agreement, unless the parties agree in writing to a
different date due to conflicts with the construction or opening schedule for
the Restaurant. If the Franchisee (or the Franchisee's Operating Partner),
the Franchisee's General Manager or the Franchisee's Chef do not successfully
complete the required training program within one hundred twenty (120) days
after the date of this Agreement, then such person(s) will not be permitted
or authorized to participate in the operations of the Franchisee's
Restaurant, and E & C will have the right to terminate this Agreement
pursuant to Article 4.2.
CHANGES IN PERSONNEL
The Franchisee must at all times employ General Managers and Chefs who have
successfully completed the prescribed training program and, consequently, have
been certified in writing by E & C to participate in the operation of the
Franchisee's Alamo Grill-TM- Restaurant. The Franchisee will immediately notify
E & C in writing of any personnel changes in the positions of General Manager or
Chef of the Franchisee's Restaurant. If the Franchisee hires a new General
Manager or a new Chef who has not successfully completed the required Alamo
Grill training program, then that person must begin the training program within
thirty (30) days after the date of hire by the Franchisee, and must attend and
successfully complete the training program. If, in the judgment of E & C, the
new General Manager or the new Chef does not successfully complete the required
Alamo Grill training program, then the Franchisee will not permit that person to
continue to participate in the operation of the Franchisee's Restaurant.
INITIAL TRAINING OF NEW PERSONNEL
The initial training program for new General Managers and new Chefs, as required
by Article 16.2 of this Agreement, will be conducted by E & C either at the
Franchised Location or at
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another location designated by E & C at the sole discretion of the E & C. If
E & C provides the initial training program for a new General Manager or a
new Chef at the Franchised Location, then the Franchisee will pay E & C the
then-current per day on-site training fee and reimburse E & C for all
expenses it incurs in connection with providing the training at the
Franchised Location, including travel, lodging, food, and automobile rental
costs. If the initial training program of new personnel is provided by E & C
at another site designated by E & C other than the Franchised Location, then
there will be no per day training fee and the Franchisee will not be required
to reimburse E & C for its expenses.
PAYMENT OF SALARIES AND EXPENSES
The Franchisee will pay the salaries, fringe benefits, payroll taxes,
unemployment compensation, workers' compensation insurance, lodging, food,
automobile rental, travel costs and all other expenses for all persons who
attend any type of training program on behalf of the Franchisee.
OPENING ASSISTANCE
After the Franchisee (or the Franchisee's Operating Partner), the Franchisee's
General Manager and the Franchisee's Chef have successfully completed the Alamo
Grill training program and have been certified, E & C will arrange for a
training coordinator, a host/hostess trainer, a barkeeping trainer, four (4)
kitchen staff trainers, and five (5) service staff trainers to be at the
Franchised Location for a period of not less than fourteen (14) consecutive days
to provide opening assistance to the Franchisee. The opening assistance will
include implementing internal controls, assistance with training employees, and
implementing the Franchisee's initial business operations. The Franchisee will
pay E & C an Opening Assistance Fee of twenty thousand dollars ($20,000) within
five (5) days after the date the Franchisee opens its Restaurant for business.
The Franchisee will accept and fully cooperate with the opening assistance
provided by E & C, and will not open and commence initial business operations
until E & C has given the Franchisee written approval to open the Franchisee's
Restaurant.
ADVISORY ASSISTANCE
If, after the opening of the Franchisee's Restaurant, E & C provides any
advisory management, operations or other assistance to the Franchisee at the
Franchised Location, then within five (5) days after receipt of an invoice from
E & C specifying the amount owed, the Franchisee will pay E & C the then-current
per diem fees charged by E & C and reimburse E & C for the expenses E & C
incurred in connection with providing the advisory assistance to the Franchisee
at the Franchised Location, including travel costs, lodging, food and automobile
rental
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costs.
HIRING AND TRAINING OF EMPLOYEES BY FRANCHISEE
The Franchisee will hire all employees of the Restaurant, will be exclusively
responsible for the terms of their employment and compensation, and will
implement a training program for employees of the Restaurant in compliance with
the Standard Operations Manual. The Franchisee will at all times maintain a
staff of trained employees sufficient to efficiently operate the Restaurant in
compliance with E & C's standards.
ASSIGNMENT
ASSIGNMENT BY E & C
This Agreement may be unilaterally assigned by E & C to a person or entity
without the approval of the Franchisee and will inure to the benefit of the
successors and assigns of E & C. E & C will provide the Franchisee with written
notice of any such assignment, and the assignee will be required to fully
perform all obligations of E & C under this Agreement.
ASSIGNMENT BY FRANCHISEE TO OWNED OR CONTROLLED ENTITY
If the Franchisee is an individual or a partnership, this Agreement may be
transferred by the Franchisee to a corporation or limited liability company that
is owned or controlled by the Franchisee without paying any transfer fee,
provided that: (a) the Franchisee and the shareholders who own the voting
capital stock of the assignee corporation or the members who own the membership
interests of the assignee limited liability company sign or have signed a
personal guaranty in the form attached to this Agreement; (b) the Franchisee
furnishes prior written proof to E & C substantiating that the assignee
corporation or limited liability company will be financially able to perform all
of the terms and conditions of this Agreement; and (c) none of the shareholders
or members operate, franchise, develop, manage or control any restaurant concept
that is in any way similar to or competitive with the Franchisee's Alamo
Grill-TM- Restaurant. The Franchisee will give E & C fifteen (15) days prior
written notice of the assignment of this Agreement to a corporation or limited
liability company owned or controlled by the Franchisee; however, the assignment
of this Agreement will not be valid or effective until E & C has received the
documents which its attorneys deem reasonably necessary to properly and legally
document the assignment of this Agreement to the corporation or limited
liability company as provided herein.
ASSIGNMENT BY INDIVIDUAL FRANCHISEE IN EVENT OF DEATH OR PERMANENT DISABILITY
If the Franchisee is an individual, then in the event of the death or permanent
disability of the Franchisee, this Agreement may be assigned, transferred or
bequeathed by the Franchisee to
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any designated person or beneficiary without the payment of any transfer fee.
However, the assignment of this Agreement to the transferee, assignee or
beneficiary of the Franchisee will be subject to the applicable provisions of
Article 17.6, and will not be valid or effective until E & C has received the
properly executed legal documents which its attorneys deem necessary to
properly and legally document the transfer, assignment or bequest of this
Agreement. The transferee, assignee or beneficiary must agree to be
unconditionally bound by the terms and conditions of this Agreement and to
personally guarantee the performance of the Franchisee's obligations under
this Agreement. Furthermore, the transferee, assignee or beneficiary must
complete the initial training program as set forth in Article 16.1 of this
Agreement. The training will be conducted by E & C at a location designated
by E & C. There will be no charge to the transferee, assignee or beneficiary
for the initial training program, but that person's salary and expenses will
be paid in accordance with Article 16.4 of this Agreement.
SALE OF OWNERSHIP INTERESTS TO PUBLIC
If the Franchisee is a corporation or limited liability company and intends to
sell any Ownership Interests to the public under any foreign, federal or state
securities laws, then the Franchisee will provide E & C with written notice of
the proposed public offering and with a copy of the proposed placement
memorandum, offering circular or prospectus for its review at least twenty (20)
days prior to the time that any such document is filed with any foreign or state
securities commission or the Securities and Exchange Commission. The
Franchisee's Owner(s), prior to the public offering will, at all times, retain
ownership of at least a fifty-one percent (51 %) of the Ownership Interests of
the Franchisee. E & C will have the absolute right to attend all "due diligence"
meetings held in preparation for the offer to sell Ownership Interests to the
public, and the Franchisee will give E & C at least five (5) business days prior
written notice of such meetings. The Franchisee will pay E & C twenty thousand
dollars ($20,000) for the legal, accounting and related due diligence costs
incurred by E & C in connection with any public offering. This amount will be
payable in full within thirty (30) days after the date on which the Franchisee
provides written notice of the proposed public offering to E & C and will be
payable even if the Franchisee is unable to complete the public offering. The
Franchisee will not offer any Ownership Interests using or under the name "Alamo
Grill-TM-," or any similar name. The Franchisee will not have the right to sell
any Ownership Interests to the public or to any other person or entity until the
Franchisee has complied in all respects with the applicable provisions of this
Agreement.
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E & C'S WARRANT
The Franchisee hereby agrees to grant to E & C, effective upon the sale of any
Ownership Interests to the public, a warrant or an option (a "Warrant") to
purchase for a period of five (5) years up to five percent (5%) of the Ownership
Interests purchased in such offering at an exercise price equal to the purchase
price of the Ownership Interests in such offering. The Warrant will contain
customary anti-dilution provisions, incidental or "piggyback" registration
rights and a cashless conversion right whereby E & C will have the right to
require the Franchisee to convert the Warrant into Ownership Interests using the
current market value of the Ownership Interests without payment by E & C of any
cash exercise price at any time prior to its expiration as provided for in this
provision.
ASSIGNMENT BY FRANCHISEE
This Agreement and the rights granted to the Franchisee pursuant to this
Agreement may be sold, assigned or transferred by the Franchisee only with the
prior written approval of E & C. E & C will not unreasonably withhold its
written consent to any sale, assignment or transfer of this Agreement, if the
sale, assignment or transfer does not violate Article 17.9 of this Agreement and
if the Franchisee and/or the transferee franchisee comply with the following
conditions: (a) the Franchisee has provided written notice to E & C of the
proposed sale, assignment or transfer of this Agreement at least ninety (90)
days prior to the transaction; (b) all of the Franchisee's monetary obligations
due to E & C have been paid in full, and the Franchisee is not otherwise in
default under this Agreement; (c) the Franchisee has executed a written
agreement, in a form satisfactory to E & C, in which the Franchisee agrees to
observe all applicable provisions of this Agreement, including the provisions
with obligations and covenants that continue beyond the expiration or
termination of this Agreement, which includes the covenants not to compete
contained in Article 21 of this Agreement; (d) E & C and the Franchisee have
executed a joint and mutual release, in a form satisfactory to E & C, of any and
all claims against E & C or the Franchisee and of any and all claims against
their officers, directors, shareholders, Owners, agents and employees, in their
corporate and individual capacities arising from, in connection with, or as a
result of this Agreement or the Franchisee's purchase of the Franchise
including, without limitation, all claims arising under any federal or state
franchising laws or any other federal, state or local law, rule or ordinance;
provided, however, that E & C and the Franchisee may exclude from the coverage
of the release any prior or concurrent written agreements between them; (e) the
transferee franchisee has demonstrated to the satisfaction of E & C that he, she
or it
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meets the managerial, financial and business standards required by E & C for
new franchisees, possesses a good business reputation and credit rating, and
possesses the aptitude and ability to operate the Alamo Grill-TM- Restaurant
in an economic and businesslike manner (as may be evidenced by prior related
business experience or otherwise); (f) the transferee franchisee and all
parties having a legal or beneficial interest in the transferee franchisee
including, if applicable, the transferee franchisee's Owners and the Personal
Guarantors, execute the transfer and assignment agreement between E & C, the
Franchisee and the transferee franchisee and such other ancillary agreements
as E & C or its legal counsel may require for the transfer of this Agreement
for the Franchisee's Alamo Grill-TM- Restaurant to the transferee franchisee;
(g) the transferee franchisee has purchased the Franchised Location, acquired
the lease for the Franchised Location or otherwise acquired possession of and
access to the Franchised Location for a term consistent with the remaining
term of this Agreement; (h) the transferee franchisee has purchased or
otherwise acquired a valid liquor license and a valid food service license
for the Alamo Grill-TM-Restaurant at the Franchised Location; and (i) the
transferee franchisee has successfully completed the initial training program
as set forth in Article 16.1 of this Agreement.
ACKNOWLEDGMENT OF RESTRICTIONS
The Franchisee acknowledges and agrees that the restrictions on transfer imposed
herein are reasonable and necessary to protect the Restaurant System and the
Marks, as well as the reputation and image of E & C, and are for the protection
of E & C, the Franchisee and all other franchisees who own and operate Alamo
Grill-TM- Restaurants. Any assignment or transfer permitted by this Article will
not be effective until E & C receives a completely executed copy of all transfer
documents and E & C consents to the transfer in writing. Any attempted
assignment or transfer made without complying with the requirements of this
Article will be void.
TRANSFER FEE
If this Agreement is assigned, transferred or bequeathed to another person or
entity, or if the Franchisee's Owner(s) transfers in the aggregate controlling
interest in the Franchisee to a third party, then except as provided for in
Article 17.2 or Article 17.3, the Franchisee will pay E & C on or before the
date of transfer a transfer fee of five thousand dollars ($5,000) to cover the
costs incurred by E & C in connection with the transfer, including attorneys'
fees, accountants' fees, out-of-pocket expenses, long distance telephone calls,
administrative costs and the time of its employees and officers. The transfer
fee also covers the cost to E & C to provide the initial training
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program to the transferee franchisee in a location designated by E & C.
However, the transfer fee does not cover the salary of or expenses incurred
by the transferee franchisee in connection with attending the initial
training program, and salary and expenses of that person will be paid in
accordance with Article 16.5 of this Agreement.
TRANSFER TO COMPETITOR PROHIBITED
The Franchisee and the Franchisee's Owners will not sell, assign or transfer
this Agreement or their Ownership Interests in the Franchisee or in the
Franchise to any person, partnership, corporation or entity that owns, operates,
franchises, develops, consults with, manages, is involved in, or controls any
restaurant business that is in any way competitive with an Alamo Grill-TM-
Restaurant. If E & C refuses to permit a transfer of this Agreement under this
Article, then the Franchisee's and the Franchisee's Owners only remedy will be
to have an arbitrator determine whether the proposed transferee is a competitor
of E & C.
TERMINATION RIGHTS OF E & C
CONDITIONS OF BREACH
In addition to its other rights of termination contained in this Agreement, E &
C will have the right to terminate this Agreement if: (a) the Franchisee fails
to open and commence operations of its Alamo Grill-TM- Restaurant within twelve
(12) months after the date of this Agreement or when the Franchised Location is
ready for the Franchisee's occupancy, whichever is earlier; (b) the Franchisee
violates any material provision, term or condition of this Agreement including,
but not limited to, the failure to timely pay the Initial Fee, the Opening
Assistance Fee, any Continuing Fees, or any other monetary obligations or fees
due pursuant to this Agreement; (c) the Franchisee or any of its directors,
officers or majority Owners are convicted of, or plead guilty to or no contest
to, a charge of violating any law relating to the Franchisee's Alamo Grill-TM-
Restaurant, or any felony; (d) the Franchisee fails to timely pay any of its
obligations or liabilities due and owing to E & C, suppliers, banks, purveyors,
other creditors or to any federal, state or municipal government (including, if
applicable, federal and state income, sales, property, withholding and
unemployment taxes); (e) the Franchisee is determined to be insolvent within the
meaning of applicable state or federal law, any involuntary petition for
bankruptcy is filed against the Franchisee, or the Franchisee files for
bankruptcy or is adjudicated a bankrupt under applicable state or federal law;
(f) the Franchisee makes an assignment for the benefit of creditors or enters
into any similar arrangement for the disposition of its assets for the
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benefit of creditors; (g) any check issued by the Franchisee is dishonored
because of insufficient funds (except where the check is dishonored because
of an error in bookkeeping or accounting) or closed accounts; (h) the
Franchisee voluntarily or otherwise abandons the franchised Restaurant; (i)
the Franchisee is involved in any act or conduct which materially impairs the
goodwill associated with the name "Alamo Grill-TM-" or any other Marks or the
Restaurant System; (j) the lease for the Franchised Location is terminated or
canceled for nonpayment of rent or other legal reasons, or the Franchisee
otherwise loses possession of all or a significant portion of the Franchised
Location; (k) the Franchisee's food service license or liquor license for the
Franchised Location is terminated or canceled for any reason, or the
Franchisee otherwise loses the food service license or liquor license for its
Alamo Grill-TM- Restaurant; (l) the Franchisee fails to timely file any
federal or state income or sales tax return or fails to timely pay any
federal or state income or sales taxes, or (m) the Franchisee fails or
refuses to provide the documents, records and other materials requested by E
& C to substantiate the Monthly Reports and Financial Statements pursuant to
Article 7.3 or to produce and permit E & C to audit the Franchisee's
Financial Records in accordance with Article 7.5 of this Agreement.
NOTICE OF BREACH
Except as provided in Article 4.2, Article 18.5 and Article 18.6 of this
Agreement, E & C will not have the right to terminate this Agreement until: (a)
written notice setting forth the alleged breach in detail has been delivered to
the Franchisee by E & C; and (b) after receiving the written notice, the
Franchisee fails to correct the alleged breach within the period of time
specified by applicable law. If applicable law does not specify a time period to
correct an alleged breach, then the Franchisee will have thirty (30) days after
receipt of the written notice to correct the alleged breach, except where the
written notice states that the Franchisee is delinquent in the payment of any
Initial Fees, Continuing Fees or other fees payable to E & C pursuant to this
Agreement, in which case the Franchisee will have ten (10) days after receipt of
written notice to correct the breach by making full payment (including
administrative fees and interest as provided for herein) to E & C. If the
Franchisee fails to correct the alleged breach set forth in the written notice
within the applicable period of time, then this Agreement may be terminated by E
& C as provided for in this Agreement. For the purposes of this Agreement, an
alleged breach of this Agreement by the Franchisee will be deemed to be
"corrected" if both E & C and the Franchisee agree in writing that the alleged
breach has been corrected.
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ARBITRATION
If the Franchisee notices arbitration in accordance with Article 23 of this
Agreement within the time period established in Article 18.2 for correcting the
alleged breach, then E & C will not have the right to terminate this Agreement
until the facts of the alleged breach have been submitted to arbitration, the
arbitrator determines that the Franchisee has breached this Agreement and the
Franchisee fails to correct the breach within the applicable time period. If the
arbitrator determines that the Franchisee has violated or breached this
Agreement as alleged by E & C in the written notice given to the Franchisee,
then unless applicable law specifies otherwise, the Franchisee will have thirty
(30) days from the date the arbitrator issues a written determination on the
matter to correct the specified breach or violation of this Agreement, except
where the Franchisee's breach is for failure to pay any fees or other payments
to E & C, in which case the Franchisee will have ten (10) days to make full
payment, including all interest and administrative fees, to E & C. If the
Franchisee does timely correct the specified breach or violation of this
Agreement, then this Agreement will remain in full force and effect. For the
purpose of this Agreement, any controversy or dispute on the issue of whether
the Franchisee has timely corrected the specified breach or violation of this
Agreement will also be subject to arbitration as provided for herein. The time
limitations set forth in this Article within which the Franchisee may demand
arbitration of a dispute or controversy relating to the right of E & C to
terminate this Agreement for an alleged breach are mandatory. If the Franchisee
fails to comply with the time limitations set forth in this Article, then E & C
may terminate this Agreement as provided for herein.
NOTICE OF TERMINATION
Except as provided in Article 18.5 and Article 18.6, if E & C has complied with
the provisions of Article 18.2 and the Franchisee has not corrected the alleged
breach set forth in the written notice within the time period specified in this
Agreement, then E & C will have the absolute right to terminate this Agreement
by giving the Franchisee written notice stating to the Franchisee that this
Agreement is terminated and in that event the effective date of termination of
this Agreement will be the day the written notice of termination is received by
the Franchisee.
IMMEDIATE TERMINATION RIGHTS OF E & C
E & C will have the absolute right, unless precluded by applicable law, to
immediately terminate this Agreement if: (a) the Franchisee or any of its
directors, officers or majority Owners are convicted of, or plead guilty to or
no contest to a charge of violating any law relating to the Franchisee's Alamo
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Grill-TM- Restaurant, or any felony; (b) the Franchisee is deemed insolvent
within the meaning of applicable state or federal law, any involuntary
petition for bankruptcy is filed against the Franchisee, or the Franchisee
files for bankruptcy or is adjudicated a bankrupt under applicable state or
federal law; (c) the Franchisee makes an assignment for the benefit of
creditors or enters into any similar arrangement for the disposition of its
assets for the benefit of creditors; (d) the Franchisee voluntarily or
otherwise abandons the Restaurant; (e) the Franchisee fails or refuses to
provide the documents, records and other materials requested by E & C to
substantiate the Monthly Reports and Financial Statements pursuant to Article
7.3 or to produce and permit E & C to audit the Franchisee's Financial
Records in accordance with Article 7.5 of this Agreement; (f) the Franchisee
is involved in any act or conduct which materially impairs the goodwill
associated with the Marks of E & C or with the Restaurant System and the
Franchisee fails to correct the breach within twenty-four (24) hours after
receipt of written notice from E & C of the breach; or (g) the Franchisee
violates any provision, term or condition of this Agreement three (3) or more
times during a twelve (12) month period, without regard to whether the
violations were of a similar or different nature or whether the violations
were corrected within the prescribed cure period after receipt of written
notice of the violations.
NOTICE OF IMMEDIATE TERMINATION
Except as set forth in Article 18.5(f), if this Agreement is terminated by E & C
pursuant to Article 18.5 above, then E & C will give the Franchisee written
notice by personal service or prepaid registered or certified mail that this
Agreement is terminated and in that event the effective date of termination of
this Agreement will be the day the written notice of termination is received by
the Franchisee. If this Agreement is terminated by E & C pursuant to Article
18.5(f), then this Agreement will terminate on the first minute of the
twenty-fifth hour after receipt of the written notice of termination if the
Franchisee fails to correct the alleged breach within twenty-four (24) hours
after receiving the written notice of termination.
OTHER REMEDIES
Nothing in this Article will preclude E & C from seeking other remedies or
damages under state or federal laws, common law, or under this Agreement against
the Franchisee including, but not limited to, attorneys' fees, punitive damages
and injunctive relief. If this Agreement is terminated by E & C pursuant to this
Article, or if the Franchisee breaches this Agreement by a wrongful termination
or a termination that is not in strict compliance with the terms and conditions
of Article 19 of this Agreement, then E & C will be entitled to all damages from
the
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Franchisee that E & C has sustained and will sustain in the future as a
result of the Franchisee's breach of this Agreement.
FRANCHISEE'S TERMINATION RIGHTS
CONDITIONS OF BREACH
The Franchisee will have the right to terminate this Agreement, as provided
herein, if E & C violates any material provision, term or condition of this
Agreement, or fails to timely pay any material uncontested obligations due and
owing to the Franchisee.
NOTICE OF BREACH
The Franchisee will not have the right to terminate this Agreement or to
commence any action, lawsuit or proceeding against E & C for breach of this
Agreement, injunctive relief, violation of any state, federal or local law
(including alleged violations of franchise laws), violation of common law
(including allegations of fraud and misrepresentation), rescission, general or
punitive damages, or termination, unless and until: (a) written notice setting
forth the alleged breach or violation in detail has been delivered to E & C by
the Franchisee; and (b) E & C fails to correct the alleged breach or violation
within thirty (30) days after receipt of the written notice. If E & C fails to
correct the alleged breach or violation within thirty (30) days after receiving
written notice, then this Agreement may be terminated by the Franchisee as
provided for in this Agreement. For the purposes of this Agreement, an alleged
breach or violation of this Agreement by E & C will be deemed to be "corrected"
if both E & C and the Franchisee agree in writing that the alleged breach or
violation has been corrected.
ARBITRATION
If E & C notices arbitration in accordance with Article 23 of this Agreement
within thirty (30) days after the date E & C receives written notice of any
alleged breach of this Agreement from the Franchisee, then the Franchisee will
not have the right to terminate this Agreement until the facts of the alleged
breach have been submitted to arbitration, the arbitrator determines that E & C
has breached this Agreement and Franchisee fails to timely correct the breach as
set forth in this Agreement. If the arbitrator determines that E & C has
violated or breached this Agreement as alleged by the Franchisee in the written
notice given to E & C, then E & C will have thirty (30) days after the date the
arbitrator issues a written determination on the matter to correct the specified
breach or violation of this Agreement, then this Agreement will remain in full
force and effect. If E & C does timely correct the specified breach or violation
of this Agreement, then this Agreement will remain in full force and effect. If
E & C does not correct the specified breach or violation of this Agreement, then
the Franchisee will have the
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right to terminate this Agreement by giving E & C written notice by personal
service or prepaid registered or certified mail that this Agreement is
terminated and in that event the effective date of termination of this
Agreement will be the day the written notice of termination is received by E
& C. For the purpose of this Agreement, any controversy or dispute on the
issue of whether E & C has timely corrected the specified breach or violation
of this Agreement will also be subject to arbitration as provided for herein.
The time limitation set forth in this Article within which E & C may demand
arbitration of a dispute or controversy relating to the right of the
Franchisee to terminate this Agreement for an alleged breach is mandatory. If
E & C fails to comply with the time limitation set forth in this Article,
then the Franchisee may terminate this Agreement as provided for herein.
WAIVER
The Franchisee must give E & C immediate written notice of any alleged breach or
violation of this Agreement after the Franchisee has knowledge of, believes,
determines, is of the opinion, or becomes aware of facts and circumstances
reasonably indicating that there has been an alleged breach or violation of this
Agreement by E & C. If the Franchisee fails to give written notice to E & C as
provided for herein of any alleged breach or violation of this Agreement within
one (1) year after the date that the Franchisee has knowledge of, believes,
determines, is of the opinion that, or becomes aware of facts and circumstances
reasonably indicating that the Franchisee may have a claim under any state law,
federal law or common law because there has been an alleged breach or violation
by E & C, then the alleged breach or violation by E & C will be deemed to be
condoned, approved and waived by the Franchisee, the alleged breach or violation
by E & C will not be deemed to be a breach or violation of this Agreement by E &
C, and the Franchisee will be barred from commencing any action against E & C
for that specific alleged breach or violation.
INJUNCTIVE RELIEF
Notwithstanding any of the foregoing provisions, if the Franchisee gives E & C
written notice of an alleged breach or violation of this Agreement or of any
federal or state laws that give rise to a claim that the Franchisee has the
right to terminate this Agreement, then E & C will have the absolute right to
immediately commence legal action against the Franchisee to enjoin and prevent
the termination of this Agreement by the Franchisee without giving the
Franchisee any notice and without regard to any waiting period that may be
contained in this Agreement. If E & C commences such legal action against the
Franchisee, then the Franchisee will not have the right to
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terminate this Agreement, unless and until a court of competent jurisdiction
has ruled on the merits that E & C has breached this Agreement in the manner
alleged by the Franchisee, and then only if E & C fails to begin the actions
necessary to correct the breach or violation within sixty (60) days after a
final judgment has been entered against E & C and all time for appeals by E &
C has expired.
FRANCHISEE'S OBLIGATIONS UPON TERMINATION
TERMINATION OF USE OF MARKS; OTHER OBLIGATIONS
If this Agreement is canceled or terminated for any reason or this Agreement
expires, then the Franchisee will: (a) within five (5) days after termination,
pay all Continuing Fees, other fees and other amounts due and owing under this
Agreement or under any other contract, promissory note or other obligation due
and owing by the Franchisee to E & C; (b) immediately return to E & C by first
class prepaid United States mail the Manual, menus, advertising materials and
all other printed materials pertaining to the Restaurant; and (c) comply with
all other applicable provisions of this Agreement. Upon termination or
expiration of this Agreement for any reason, the Franchisee's right to use
"Alamo Grill-TM-" the other Marks and the Restaurant System will terminate
immediately.
ALTERATION OF FRANCHISED LOCATION
If this Agreement expires or is terminated for any reason or if the Franchised
Location ever ceases to be used for the Franchisee's Alamo Grill-TM- Restaurant,
then within thirty (30) days after the date of the expiration or termination of
this Agreement, the Franchisee will, at its expense, alter, modify and change
both the exterior and interior appearance of the building and the Franchised
Location so that it will be clearly distinguished from the standard appearance
of an Alamo Grill-TM- Restaurant. At a minimum, such changes and modifications
to the Franchised Location will include: (a) repainting and, where applicable,
recovering both the exterior and interior walls of the Franchised Location with
totally different colors, including removing any distinctive colors, designs and
paneling from the walls; (b) removing all furniture, fixtures and decor items
associated with an Alamo Grill-TM- Restaurant and replacing them with other
decor items not of the general type and appearance customarily used in Alamo
Grill-TM- Restaurants; (c) removing all exterior and interior Alamo Grill-TM-
signs; and (d) immediately discontinuing use of the approved wall decor items
and window decals, and refraining from using any items which may be confusingly
similar to those used in an Alamo Grill-TM- Restaurant.
CANCELLATION OF TELEPHONE DIRECTORY LISTINGS
Upon termination or expiration of this Agreement, or if E & C
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acquires the Franchisee's Alamo Grill-TM- Restaurant pursuant to this
Agreement, E & C will have the absolute right to notify the telephone company
and all listing agencies of the termination or expiration of the Franchisee's
right to use all telephone numbers and all classified and other directory
listings for the Restaurant and to authorize the telephone company and all
listing agencies to transfer to E & C or its assignee all telephone numbers
and directory listings of the Franchisee's Alamo Grill-TM- Restaurant. The
Franchisee acknowledges and agrees that E & C has the absolute right and
interest in and to all telephone numbers and directory listings associated
with the Marks, and the Franchisee hereby authorizes E & C to direct the
telephone company and all listing agencies to transfer the Franchisee's
telephone numbers and directory listings to E & C or to an assignee of E & C,
if this Agreement expires or is terminated or if E & C acquires the
Franchisee's Alamo Grill-TM- Restaurant. The telephone company and all
listing agencies may accept this Agreement as evidence of the exclusive
rights of E & C to such telephone numbers and directory listings and this
Agreement will constitute the authority from the Franchisee for the telephone
company and listing agency to transfer all such telephone numbers and
directory listings to E & C. This Agreement will constitute a release of the
telephone company and listing agencies by the Franchisee from any and all
claims, actions and damages that the Franchisee may at any time have the
right to allege against them in connection with this Article.
CONTINUATION OF OBLIGATIONS
The indemnities and covenants contained in this Agreement will continue in full
force and effect subsequent to and notwithstanding the expiration or termination
of this Agreement.
FRANCHISEE'S COVENANTS NOT TO COMPETE
CONSIDERATION
The Franchisee, the Owners and the Personal Guarantors acknowledge that the
Franchisee, its officers, executives and employees will receive specialized
training, marketing and advertising plans, business strategies, confidential
recipe, cooking, and food preparation information, and trade secrets from E & C
pertaining to the Restaurant System and the operation of the Alamo Grill-TM-
Restaurant. In consideration for this information, the Franchisee, the Owners
and the Personal Guarantors will comply in all respects with the provisions of
this Article. E & C has advised the Franchisee that this provision is a material
provision of this Agreement, and that E & C will not sell an Alamo Grill-TM-
Restaurant Franchise to any person or entity that owns or intends to own,
operate or be involved in any business that competes directly or indirectly
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with an Alamo Grill-TM- Restaurant; provided however, that E & C may, under
certain circumstances, exclude from the coverage of Article 21.2 and Article
21.3 existing operational restaurant(s) owned and operated by the Franchisee
as of the date of this Agreement, and the Franchisee may, with the written
consent of E & C, continue to own and operate such restaurants during the
term of this Agreement and thereafter.
IN-TERM COVENANT NOT TO COMPETE
The Franchisee, the Owners and the Personal Guarantors will not, during the term
of this Agreement, on their own account or as an employee, agent, consultant,
affiliate, licensee, partner, officer, director, or shareholder of any other
person, firm, entity, partnership or corporation, own, operate, lease,
franchise, conduct, engage in, be connected with, have any interest in, or
assist any person or entity engaged in any restaurant concept that is in any way
similar to or competitive with an Alamo Grill-TM- Restaurant, except with the
prior written consent of E & C.
POST-TERM COVENANT NOT TO COMPETE
The Franchisee, the Owners and the Personal Guarantors will not, for a period of
twelve (12) months after the termination or expiration of this Agreement on
their own account or as an employee, principal, agent, independent contractor,
consultant, affiliate, licensee, partner, officer, director or shareholder of
any other person, firm, entity, partnership or corporation, own, operate, lease,
franchise, conduct, engage in, be connected with, have any interest in or assist
any person or entity engaged in any restaurant concept that is in any way
similar to or competitive with an Alamo Grill-TM- Restaurant and which is
located within ten (10) miles of the Franchised Location or any other Alamo
Grill-TM- Restaurant, or within any exclusive area granted by E & C or any
affiliate of E & C pursuant to a Development Agreement or other territorial
agreement. The Franchisee, the Owners and the Personal Guarantors expressly
agree that the time and geographical limitations set forth in this provision are
reasonable and necessary to protect E & C and its franchisees if this Agreement
expires or is terminated by either party for any reason, and that this covenant
not to compete is necessary to permit E & C the opportunity to resell and/or
develop a new Alamo Grill-TM- Restaurant at or in the area near the Franchised
Location.
INJUNCTIVE RELIEF
The Franchisee, the Owners and the Personal Guarantors agree that the provisions
of this Article are necessary to protect the legitimate business interest of E &
C and its franchisees including, without limitation, preventing the unauthorized
dissemination of marketing, promotional and other confidential information to
competitors of E & C and its franchisees,
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protecting recipes, cooking and food preparation techniques and other trade
secrets, protecting the integrity of the franchise system of E & C,
preventing duplication of the Restaurant System by unauthorized third
parties, and preventing damage to and/or loss of goodwill associated with the
Marks. The Franchisee, the Owners and the Personal Guarantors also agree that
damages alone cannot adequately compensate E & C if there is a violation of
this Article by the Franchisee, the Owners or the Personal Guarantors, and
that injunctive relief against the Franchisee is essential for the protection
of E & C and its franchisees. The Franchisee, the Owners and the Personal
Guarantors agree, therefore, that if E & C alleges that the Franchisee, the
Owners or the Personal Guarantors have breached or violated this Article,
then E & C will have the right to petition a court of competent jurisdiction
for injunctive relief against the Franchisee, the Owners and the Personal
Guarantors, in addition to all other remedies that may be available to E & C.
E & C will not be required to post a bond or other security for any
injunctive proceeding. If E & C is granted ex parte injunctive relief against
the Franchisee, the Owners or the Personal Guarantors, then the Franchisee,
the Owners or the Personal Guarantors will have the right to petition the
court for a hearing on the merits at the earliest time convenient to the
court.
SEVERABILITY
It is the desire and intent of the parties to this Agreement, including the
Owners and the Personal Guarantors, that the provisions of this Article be
enforced to the fullest extent permissible under the laws and public policy
applied in each jurisdiction in which enforcement is sought. Accordingly, if any
part of this Article is adjudicated to be invalid or unenforceable, then this
Article will be deemed to modify or delete that portion thus adjudicated to be
invalid or unenforceable, such modification or deletion to apply only with
respect to the operation of this Article in the particular jurisdiction in which
the adjudication is made. Further, to the extent any provision of this Article
is deemed unenforceable by virtue of its scope or limitation, the parties to
this Agreement, including the Owners and the Personal Guarantors, agree that the
scope and limitation provisions will nevertheless, be enforceable to the fullest
extent permissible under the laws and public policies applied in such
jurisdiction where enforcement is sought.
INDEPENDENT CONTRACTORS; INDEMNIFICATION
INDEPENDENT CONTRACTORS
E & C and the Franchisee are each independent contractors and, as
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a consequence, there is no employer-employee or principal-agent relationship
between E & C and the Franchisee. The Franchisee will not have the right to
and will not make any agreements, representations or warranties in the name
of or on behalf of E & C or represent that their relationship is other than
that of franchisor and franchisee. Neither E & C nor the Franchisee will be
obligated by or have any liability to the other under any agreements or
representations made by the other to any third parties.
INDEMNIFICATION
E & C will not be obligated to any person or entity for any damages arising out
of, from, in connection with, or as a result of the Franchisee's negligence, the
Franchisee's wrongdoing or the operation of the Franchisee's Alamo Grill-TM-
Restaurant. Therefore, the Franchisee will indemnify and hold E & C harmless
against, and will reimburse E & C for, all damages for which E & C is held
liable and for all costs incurred by E & C in the defense of any claim or action
brought against E & C arising from, in connection with, arising out of, or as a
result of the Franchisee's negligence, the Franchisee's wrongdoing or the
operation of the Franchisee's Alamo Grill-TM- Restaurant including, without
limitation, attorneys' fees, investigation expenses, court costs, deposition
expenses, and travel and living expenses. The Franchisee will indemnify E & C,
without limitation, for all claims and damages arising from, out of, in
connection with, or as a result of: (a) any personal injury, property damage,
commercial loss or environmental contamination resulting from any act or
omission of the Franchisee or its employees, agents or representatives; (b) any
failure on the part of the Franchisee to comply with any requirement of any laws
or any governmental authority; (c) any failure of the Franchisee to pay any of
its obligations to any person or entity; (d) any failure of the Franchisee to
comply with any requirement or condition of this Agreement or any other
agreement with E & C; (e) any misfeasance or malfeasance by the Franchisee; and
(f) any tort. E & C will have the right to defend any claim made against it
arising from, as a result of, in connection with or out of the Franchisee's
negligence or the operation of the Franchisee's Alamo Grill-TM- Restaurant.
PAYMENT OF COSTS AND EXPENSES
The Franchisee will indemnify E & C for all costs and expenses incurred by E & C
in enforcing any term, condition or provision of this Agreement or in enjoining
any violation of this Agreement by the Franchisee including, without limitation,
attorneys' fees, expert witness fees, costs of investigation, court costs,
litigation expenses, arbitration fees, costs and expenses, and travel and living
expenses.
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CONTINUATION OF OBLIGATIONS
The indemnification and other obligations contained herein will continue in full
force and effect subsequent to and notwithstanding the expiration or termination
of this Agreement.
ARBITRATION
MEDIATION
E & C and the Franchisee acknowledge that resolving disputes prior to commencing
arbitration hearings or court proceedings is in the best interests of both
parties. Therefore, the Franchisee and E & C will, when practical, attempt to
resolve disputes by non-binding mediation. The parties agree that they will act
in good faith to settle any dispute between them; however, either party will
have the right to decline to mediate the dispute.
DISPUTES SUBJECT TO ARBITRATION
Except as expressly provided to the contrary in Article 23.7 of this Agreement,
all disputes and controversies, including allegations of fraud,
misrepresentation and violation of any state or federal laws or regulations,
arising under, as a result of, or in connection with this Agreement, the
Franchised Location, the Franchisee's Restaurant business or the Personal
Guaranty attached to this Agreement are subject to and will be resolved
exclusively by arbitration conducted in accordance with the Commercial Rules and
Regulations of the American Arbitration Association.
NOTICE OF DISPUTE
The party alleging the dispute must provide the other party with written notice
setting forth the alleged dispute in detail. The party who receives written
notice alleging the dispute will have thirty (30) days after receipt of the
written notice to resolve the dispute specified in the written notice. If the
written notice alleges that the Franchisee is delinquent in the payment of any
fees or other payments payable to E & C, the Franchisee will have ten (10) days
to make full payment (including interest and administrative fees as provided for
herein) to E & C.
DEMAND FOR ARBITRATION
If the dispute alleged by either party has not been corrected, settled or
compromised within the time period provided for in this Agreement, then either
party may demand arbitration by giving the other party written notice. Within
ten (10) days after a written demand for arbitration has been delivered by the
party demanding arbitration, either party will have the right to request the
office of the American Arbitration Association in Minneapolis, Minnesota to
initiate the procedures necessary to appoint an arbitrator. Either party will
have the right to demand that the arbitration hearings be conducted by three (3)
arbitrators. The arbitrator(s) will be appointed as provided
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herein within sixty (60) days after a written demand for arbitration has been
made in accordance with the Rules and Regulation of the American Arbitration
Association.
VENUE AND JURISDICTION
All arbitration hearings will take place exclusively in Hennepin County,
Minnesota or at the general offices of E & C, and will be held no earlier than
ninety (90) days after the arbitrator(s) has (have) been selected. E & C and the
Franchisee, its officers and directors, and the Owners and Personal Guarantors
do hereby agree and submit to personal jurisdiction in the State of Minnesota in
connection with any arbitration hearings hereunder and any suits brought to
enforce the decision of the arbitrator(s), and do hereby waive any rights to
contest venue and jurisdiction in the State of Minnesota and any claims that
venue and jurisdiction are invalid.
POWERS OF ARBITRATOR(S)
The authority of the arbitrator(s) will be limited to making a finding,
judgment, decision and award relating to the interpretation of or adherence to
the written provisions of this Agreement. The Federal Rules of Evidence (the
"Rules") will apply to all arbitration hearings and the introduction of all
evidence, testimony, records, affidavits, documents and memoranda in any
arbitration hearing must comply in all respects with the Rules and legal
precedents interpreting the Rules. Both parties will have the absolute right to
cross-examine any person who has testified against them or in favor of the other
party. The arbitrator(s) will have no authority to add to, delete or modify in
any manner the terms and provisions of this Agreement. All findings, judgments,
decisions and awards of the arbitrator(s) will be limited to the dispute set
forth in the written demand for arbitration, and the arbitrator(s) will have no
authority to decide any other issues. The arbitrator(s) will not have the right
or authority to award punitive damages to either E & C or the Franchisee or
their officers, directors, shareholders, Owners and Personal Guarantors, and E &
C and the Franchisee and their officers, directors, shareholders or Owners, and
the Personal Guarantors expressly waive their rights to plead or seek punitive
damages. All findings, judgments, decisions and awards by the arbitrator(s) will
be in writing, will be made within sixty (60) days after the arbitration
hearings have been completed, and will be final and binding on E & C and the
Franchisee, except as provided for in Article 23.9. The written decision of the
arbitrator(s) will be deemed to be an order, judgment and decree and may be
entered as such in any court of competent jurisdiction by either party thirty
(30) days thereafter, unless any party elects to pursue its rights under Article
23.9.
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DISPUTES NOT SUBJECT TO ARBITRATION
The following disputes between E & C and the Franchisee will not be subject to
arbitration: (a) any disputes arising between E & C and the Franchisee which are
set forth in Article 24.1; (b) any dispute involving the Marks or which arise
under or as a result of Article 15 of this Agreement; (c) any dispute involving
immediate termination of this Agreement by E & C pursuant to Article 18.5 and
Article 18.6 of this Agreement; and (d) any dispute involving enforcement of the
covenants not to compete contained in Article 21 of this Agreement.
NO COLLATERAL ESTOPPEL OR CLASS ACTIONS
Except as provided by Article 23.9, all arbitration findings, conclusions,
orders and awards made by the arbitrator(s) will be final and binding on E & C
and the Franchisee; however, such arbitration findings, conclusions, orders and
awards may not be used: (a) to collaterally estop either the Franchisee or E & C
from raising any like or similar issue or defense in any subsequent arbitration,
litigation, court hearing or other proceeding involving third parties, including
other franchisees; or (b) by any third party or other franchisee to establish
any fact, action, finding, violation or otherwise used by any third party or
other franchisee as evidence, in any arbitration, litigation, court hearing or
other proceeding involving E & C or the Franchisee. In any arbitration between
them, neither E & C nor the Franchisee may introduce as evidence, or otherwise
use to establish any fact, action, finding or violation, any findings,
conclusions, orders or awards resulting from any prior arbitration, litigation,
court hearing or other proceeding involving the Franchisee and a third party, or
E & C and a third party or other franchisees. No party except E & C, the
Franchisee, and their officers, directors, shareholders or Owners and the
Personal Guarantors will have the right to join in any arbitration proceeding
arising under this Agreement, and therefore, the arbitrator(s) will not be
authorized to permit class actions or to permit any other party to be involved
in any arbitration proceeding brought by either party under this Agreement.
DE NOVO HEARING ON MERITS
If the arbitrator(s) awards either E & C or the Franchisee damages (including
actual damages, costs and attorneys' fees) in excess of one hundred thousand
dollars ($100,000) in any arbitration proceeding commenced pursuant to this
Agreement, then the party who has been held liable by the arbitrator(s) will
have the right to a de novo hearing on the merits by commencing an action in a
court of competent jurisdiction in accordance with the provisions of this
Agreement. If the party held liable by the arbitrator(s) commences a court
action as provided for herein,
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then neither party will have the right to introduce the arbitrator's(s')
decision or findings in any such court action and the arbitrator's(s')
decision and findings will be of no force and effect and will not be final or
binding on either E & C or the Franchisee. If the party who has been held
liable by the arbitrator(s) for over one hundred thousand dollars ($100,000)
in damages fails to commence a court action within thirty (30) days after
receiving the arbitrator's(s') written award, then the arbitrator's(s')
findings, judgments, decisions and awards will be final and binding on E & C,
the Franchisee and all other parties and may be entered as an order decree
and judgment in any court of competent jurisdiction by any party.
CONFIDENTIALITY
All evidence, testimony, records, documents, findings, decisions, judgments and
awards pertaining to any arbitration hearing between E & C and the Franchisee
will be secret and confidential in all respects. E & C and the Franchisee will
not disclose the decision or award of the arbitrator(s) and will not disclose
any evidence, testimony, records, documents, findings, orders, or other matters
from the arbitration hearing to any person or entity except as required by law.
Nothing herein will prevent either party from disclosing or using any
information presented in any arbitration proceeding in any subsequent court
hearing brought pursuant to Article 23.9.
PERFORMANCE DURING ARBITRATION OF DISPUTES
E & C and the Franchisee will fully comply with all of the terms and conditions
of this Agreement and will fully perform their respective obligations under this
Agreement during the entire time of the arbitration process.
ENFORCEMENT
INJUNCTIVE RELIEF
E & C will have the right to petition a court of competent jurisdiction for the
entry of temporary and permanent injunctions and orders of specific performance
enforcing the provisions of this Agreement for any action relating to: (a) the
Franchisee's improper use of the Marks or the Restaurant System; (b) the
obligations of the Franchisee upon termination or expiration of this Agreement;
(c) the sale, transfer or assignment of this Agreement, the Franchisee's
Restaurant or the Ownership Interests of the Franchisee; (d) the Franchisee's
violation of the provisions of this Agreement relating to confidentiality and
the covenants not to compete; and (e) any act or omission by the Franchisee or
the Franchisee's employees that (1) constitutes a violation of any applicable
law, ordinance or regulation, (2) is dishonest or misleading to the guests or
customers of the Franchisee's Restaurant or other Alamo Grill-TM- Restaurants,
(3)
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constitutes a danger to the employees, public, guests, or customers of the
Franchisee's Restaurant, or (4) may impair the goodwill associated with the
Marks or the Restaurant System.
SEVERABILITY
All provisions of this Agreement are severable and this Agreement will be
interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained herein and partially valid and enforceable
provisions will be enforced to the extent valid and enforceable. If any
applicable law or rule of any jurisdiction requires a greater prior notice of
the termination of this Agreement than is required hereunder or the taking of
some other action not required hereunder, or if under any applicable law or rule
of any jurisdiction, any provision of this Agreement or any specification,
standard or operating procedure prescribed by E & C is invalid or unenforceable
under applicable law, then the prior notice or other action required by such law
or rule will be substituted for the notice requirements hereof, or such invalid
or unenforceable provision, specification, standard or operating procedure will
be modified to the extent required to be valid and enforceable. Such
modifications to this Agreement will be effective only in such jurisdiction.
WAIVER
E & C and the Franchisee may, by written instrument signed by E & C and the
Franchisee, waive any obligation of or restriction upon the other under this
Agreement. Acceptance by E & C of any payment by the Franchisee and the failure,
refusal or neglect of E & C to exercise any right under this Agreement or to
insist upon full compliance by the Franchisee of its obligations hereunder
including, without limitation, any mandatory specification, standard or
operating procedure, will not constitute a waiver by E & C of any provision of
this Agreement. E & C will have the right to waive obligations or restrictions
for other franchisees under their franchise agreements without waiving those
obligations or restrictions for the Franchisee and, except to the extent
provided by law, E & C will have the right to negotiate terms and conditions,
grant concessions and waive obligations for other franchisees of E & C without
granting those same rights to the Franchisee and without incurring any liability
to the Franchisee whatsoever.
PAYMENTS TO E & C
The Franchisee will not, on grounds of the alleged nonperformance by E & C of
any of its obligations under this Agreement, any other contract between E & C
and the Franchisee, or for any other reason, withhold payment of any Continuing
Fees or any other fees or payments due E & C pursuant to this Agreement or
pursuant to any other contract, agreement or obligation to E & C. The Franchisee
will not have the right to "offset" or withhold any
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liquidated or unliquidated amounts, damages or other funds allegedly due to
the Franchisee by E & C against any Continuing Fees or any other fees or
payments due to E & C under this Agreement.
EFFECT OF WRONGFUL TERMINATION
If either E & C or the Franchisee takes any action to terminate this Agreement
or the Franchisee takes any action to convert its Alamo Grill-TM- Restaurant to
another business, and such actions were taken without first complying with the
terms and conditions of Article 18 or Article 19 of this Agreement, as
applicable, then such actions will not relieve either party of, or release
either party from, any of its obligations under this Agreement, and the terms
and conditions of this Agreement will remain in full force and effect and the
parties will be obligated to fully perform all terms and conditions until such
time as this Agreement expires or is terminated in accordance with the
provisions of this Agreement and applicable law, as determined by arbitration or
a court of competent jurisdiction.
CUMULATIVE RIGHTS
The rights of E & C hereunder are cumulative and no exercise or enforcement by E
& C of any right or remedy hereunder will preclude the exercise or enforcement
by E & C of any other right or remedy hereunder or which E & C is entitled by
law to enforce.
BINDING AGREEMENT
This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns and successors in interest.
JOINT AND SEVERAL LIABILITY
If the Franchisee consists of more than one person, their liability under this
Agreement will be deemed to be joint and several.
NO ORAL MODIFICATION
No modification, change, addition, rescission, release, amendment or waiver of
this Agreement and no approval, consent or authorization required by any
provision of this Agreement may be made by any person except by a written
agreement signed by a duly authorized officer or partner of the Franchisee and
the President or a Vice President of E & C.
ENTIRE AGREEMENT
This Agreement supersedes and terminates all prior agreements, either oral or in
writing, between the parties involving the franchise relationship and therefore,
representations, inducements, promises or agreements alleged by either E & C or
the Franchisee that are not contained in this Agreement will not be enforceable.
The Recitals are part of this Agreement, which constitutes the entire agreement
of the parties, and there are no other oral or written understandings or
agreements between E & C
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and the Franchisee relating to the subject matter of this Agreement. This
Agreement will not supersede any written agreements or contracts that are
signed concurrently with this Agreement.
HEADINGS; TERMS
The headings of the Articles are for convenience only and do not in any way
define, limit or construe the contents of such Articles. The term "Franchisee"
as used herein is applicable to one or more individuals, a corporation, a
limited liability company, a partnership or a limited partnership, as the case
may be, and the singular usage includes the plural, the masculine usage includes
the neuter and the feminine, and the neuter usage includes the masculine and the
feminine. References to "Franchisee," "assignee" and "transferee" which are
applicable to an individual or individuals will mean the Owner or Owners of the
equity or operating control of the Franchisee or any such assignee or transferee
if the Franchisee or such assignee or transferee is a corporation, a limited
liability company, a partnership, or a limited partnership.
VENUE AND JURISDICTION
All litigation, court proceedings, arbitration proceedings, mediation
proceedings, lawsuits, court hearings and other hearings initiated by the
Franchisee or E & C must and will be venued exclusively in Hennepin County,
Minnesota. The Franchisee, each of its officers and directors, and the Owners
and Personal Guarantors do hereby agree and submit to personal jurisdiction in
the State of Minnesota for the purposes of any suit, proceeding or hearing
brought to enforce or construe the terms of this Agreement or to resolve any
dispute or controversy arising under, as a result of, or in connection with this
Agreement, the Franchised Location or the Franchisee's Alamo Grill-TM-
Restaurant, and do hereby agree and stipulate that any such suits, proceedings
and hearings will be exclusively venued and held in Hennepin County, Minnesota.
The Franchisee, each of its officers and directors, and the Owners and Personal
Guarantors waive any rights to contest such venue and jurisdiction and any
claims that such venue and jurisdiction are invalid.
FEDERAL ARBITRATION ACT
Any issue regarding arbitration will be governed by the Federal Arbitration Act
and the federal common law of arbitration.
CONTRACTUAL STATUTE OF LIMITATIONS
Any and all claims and actions arising out of or relating to this Agreement, the
relationship of the Franchisee and E & C, or the Franchisee's operation of the
Restaurant brought by either party against the other, whether in arbitration or
any other proceeding, will be commenced within one (1) year from the occurrence
of the facts giving rise to such claim or action, or
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such claim or action will be barred.
NOTICES
All notices to E & C will be in writing and will be made by personal service
upon an officer or director of E & C or sent by prepaid registered or certified
mail addressed to Mr. Martin O'Dowd, President and Chief Executive Officer of
Elephant & Castle International, Inc., 7657 Anagram Drive, Eden Prairie,
Minnesota 55344 or such other address as E & C may subsequently designate in
writing, with a copy to G. Thomas MacIntosh, II, Attorney at Law, Mackall,
Crounse & Moore, PLC, 1400 AT&T Tower, 901 Marquette Avenue, Minneapolis,
Minnesota 55402-2859. All notices to the Franchisee will be made by personal
service upon the Franchisee (or, if applicable, upon an officer or director of
the Franchisee) or sent by prepaid registered or certified mail addressed to the
Franchisee at the Franchised Location, or such other address as the Franchisee
may subsequently designate in writing. For the purposes of this Agreement,
personal service will include service by a recognized overnight delivery service
(such as Federal Express, Airborne Express or UPS) which requires a written
receipt of delivery from the addressee.
DISCLAIMER; ACKNOWLEDGMENTS
DISCLAIMER
E & C does not warrant or guarantee to the Franchisee that the Franchisee will
derive income or profit from the Alamo Grill-TM- Restaurant, or that E & C will
refund all or part of the Initial Fee or the price paid for the Franchisee's
Restaurant or repurchase any of the supplies, products, technology or equipment
supplied or sold by E & C or by an approved or designated supplier if the
Franchisee is in any way unsatisfied with its Restaurant. E & C expressly
disclaims the making of any express or implied representations or warranties
regarding the sales, earnings, income, profits, Gross Sales, business or
financial success, or value of the Franchisee's Restaurant except as contained
in the copy of E & C's Uniform Franchise Offering Circular received by the
Franchisee.
ACKNOWLEDGMENTS BY FRANCHISEE
The Franchisee acknowledges that it has conducted an independent investigation
of the Alamo Grill-TM- Restaurant and recognizes that the business venture
contemplated by this Agreement involves business and economic risks. The
Franchisee acknowledges that the financial, business and economic success of the
Franchisee's Alamo Grill-TM- Restaurant will be primarily dependent upon the
personal efforts of the Franchisee, its management and its employees, and on
economic conditions in the area where the Franchised Location is located and
economic conditions in
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general. The Franchisee acknowledges that it has not received any estimates,
projections, representations, warranties or guaranties, expressed or implied,
regarding potential sales, Gross Sales, income, profits, earnings, expenses,
financial or business success, value of the Restaurant, or other economic
matters pertaining to the Franchisee's Restaurant from E & C or any of its
agents that were not expressly set forth in the Uniform Franchise Offering
Circular received by the Franchisee from E & C (hereinafter referred to in
this provision as "Representations"). The Franchisee further acknowledges
that if it had received any such Representations, it would not have executed
this Agreement, and that it would have promptly notified the President of E &
C in writing of the person or persons making such Representations, and
provided to E & C a specific written statement detailing the Representations
made.
OTHER FRANCHISEES
The Franchisee acknowledges that other franchisees of E & C have or will be
granted franchises at different times, different locations, under different
economic conditions and in different situations, and further acknowledges that
the economics and terms and conditions of such other franchises may vary
substantially in form and in substance from those contained in this Agreement.
RECEIPT OF AGREEMENT AND UNIFORM FRANCHISE OFFERING CIRCULAR
The Franchisee acknowledges that it received a copy of this Agreement with all
material blanks fully completed at least five (5) business days prior to the
date that this Agreement was executed by the Franchisee. The Franchisee further
acknowledges that it received a copy of E & C's Uniform Franchise Offering
Circular at least ten (10) business days prior to the date on which this
Agreement was executed.
ELEPHANT & CASTLE-Registered Trademark- RESTAURANTS
The Franchisee agrees and acknowledges that the Elephant & Castle-Registered
Trademark- restaurants which are or will be operated or franchised by E & C
("Elephant & Castle-Registered Trademark- Restaurants") are restaurants that
address different markets and thus are not competitive with Alamo Grill-TM-
Restaurants. Further, the Franchisee acknowledges and agrees that, except as
restricted by the terms of the Franchise Agreements with Elephant & Castle
franchisees, E & C will have the absolute right to develop, own, manage,
license and franchise Elephant & Castle-Registered Trademark- Restaurants at
any location in the world, and the Franchisee hereby waives any and all
rights that it may have or allege against E & C or any affiliate of E & C
resulting from the operation of any Elephant & Castle- Registered
Trademark-Restaurants, including those Elephant & Castle- Registered
Trademark-Restaurants that may be in, near or adjacent to the Franchisee's
Exclusive Area or the Franchisee's Alamo Grill-TM- Restaurant.
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FRANCHISEE'S LEGAL COUNSEL
The Franchisee acknowledges that this Agreement constitutes a legal document
which grants certain rights to and imposes certain obligations upon the
Franchisee. The Franchisee has been advised by E & C to retain an attorney or
advisor prior to the execution of this Agreement to review the Uniform Franchise
Offering Circular, to review this Agreement in detail, to review all legal
documents, to review the economics, operations and other business aspects of the
Alamo Grill-TM- Restaurant, to determine compliance with franchising and other
applicable laws, and to advise the Franchisee on economic risks, liabilities,
obligations and rights under this Agreement and to advise the Franchisee on tax
issues, financing matters, applicable state and federal laws, liquor laws,
health and safety laws, environmental laws, employee issues, insurance,
structure of the Restaurant business, and other business matters. The name of
the Franchisee's attorney or other advisor is:
Attorney's Name:_____________________________________________________________
Name of Firm:________________________________________________________________
Address:_____________________________________________________________________
City, State, Zip Code:__________________
Telephone Number: (___)_________________
Fax Number: (___)_______________________
GOVERNING LAW; STATE MODIFICATIONS
GOVERNING LAW; SEVERABILITY
Except to the extent governed by the United States Trademark Act of 1946 (Lanham
Act, 15 U.S.C. Section 1051, ET SEQ.), this Agreement and the relationship
between E & C and the Franchisee will be governed by the laws of the state in
which the Franchised Location is located. The provisions of this Agreement which
conflict with or are inconsistent with applicable governing law will be
superseded and/or modified by such applicable law only to the extent such
provisions are inconsistent. All other provisions of this Agreement will be
enforceable as originally made and entered into upon the execution of this
Agreement by the Franchisee and E & C.
APPLICABLE STATE LAWS
If applicable, the following states have statutes which may supersede the
provisions of this Agreement in the Franchisee's relationship with E & C in the
areas of termination and renewal of the Franchise: ARKANSAS [Stat. Section
70-807], CALIFORNIA [Bus. & Prof. Code Sections 20000-20043], CONNECTICUT [Gen.
Stat. Section 42-133e, ET SEQ.], DELAWARE [Code Section 2552], HAWAII [Rev.
Stat. Section 482E-1], ILLINOIS [815 ILCS 705/19-20],
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INDIANA [Stat. Section 23-2-2.7], MICHIGAN [Stat. Section 19.854(27)],
MINNESOTA [Stat. Section 80C.14], MISSISSIPPI [Code Section 75-24-51],
MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat. Section 87-401], NEW
JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws Section 37-5A-51]
, VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code Section 19.100.180]
, and WISCONSIN [Stat. Section 135.03]. These and other states may have court
decisions which may supersede the provisions of this Agreement in the
Franchisee's relationship with E & C in the areas of termination and renewal
of the Franchise.
STATE LAW MODIFICATIONS
If the Franchisee's Alamo Grill-TM- Restaurant is located in any one of the
states indicated below in this Article, or if the laws of any such state are
otherwise applicable, then the designated provisions of this Agreement will be
amended and revised as follows:
CALIFORNIA. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
CALIFORNIA, THEN: (1) THE COVENANT NOT TO COMPETE UPON TERMINATION OR EXPIRATION
OF THIS AGREEMENT CONTAINED IN ARTICLE 21.3 MAY BE UNENFORCEABLE, EXCEPT IN
CERTAIN CIRCUMSTANCES PROVIDED BY LAW; AND (2) PROVISIONS OF THIS AGREEMENT
GIVING E & C THE RIGHT TO TERMINATE IN THE EVENT OF THE FRANCHISEE'S BANKRUPTCY
MAY NOT BE ENFORCEABLE UNDER FEDERAL BANKRUPTCY LAWS (11 U.S.C. SEC. 101, ET
SEQ.).
ILLINOIS. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
ILLINOIS, THEN: (1) THE DESIGNATION OF JURISDICTION AND VENUE IN HENNEPIN
COUNTY, MINNESOTA CONTAINED IN ARTICLE 23.5 AND ARTICLE 24.12 OF THIS AGREEMENT
WILL BE INAPPLICABLE; PROVIDED, HOWEVER, THAT SUCH INAPPLICABILITY WILL NOT BE
CONSTRUED TO MEAN THAT SUCH VENUE IS IMPROPER, OR THAT THE FRANCHISEE, ITS
OFFICERS, DIRECTORS, OWNERS AND THE PERSONAL GUARANTORS ARE NOT SUBJECT TO
JURISDICTION IN THE STATE OF MINNESOTA, OR IN ANY OTHER STATE; (2) ARTICLE 24.14
OF THIS AGREEMENT IS HEREBY AMENDED TO PROVIDE THAT SECTION 27 OF THE ILLINOIS
FRANCHISE DISCLOSURE ACT WILL BE APPLICABLE TO ANY ACTION MAINTAINED BY THE
FRANCHISEE TO ENFORCE ANY LIABILITY CREATED BY THE ACT; AND (3) ANY CONDITION,
STIPULATION OR PROVISION OF THIS AGREEMENT REQUIRING THE FRANCHISEE TO WAIVE
COMPLIANCE WITH ANY PROVISION OF THE ILLINOIS FRANCHISE DISCLOSURE ACT IS VOID;
THEREFORE, ANY ACKNOWLEDGMENTS CONTAINED IN ARTICLE 26.2 AND ARTICLE 26.4 OF
THIS AGREEMENT WHICH WAIVE COMPLIANCE WITH THE ILLINOIS FRANCHISE DISCLOSURE ACT
WILL BE DELETED FROM THIS AGREEMENT.
INDIANA. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
INDIANA, THEN: (1) ARTICLE 17.6(d) OF THIS AGREEMENT WILL BE INAPPLICABLE; (2)
THE POST-TERM COVENANT NOT TO COMPETE CONTAINED IN ARTICLE 21.3 OF THIS
AGREEMENT WILL BE ENFORCEABLE ONLY WITHIN THE EXCLUSIVE AREA; (3) ARTICLE 21.4
AND ARTICLE 24.1
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
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OF THIS AGREEMENT WILL BE AMENDED TO PROVIDE THAT A COURT OF COMPETENT
JURISDICTION WILL DETERMINE WHETHER E & C WILL BE ENTITLED TO INJUNCTIVE
RELIEF IN ANY INJUNCTIVE PROCEEDING COMMENCED BY E & C AGAINST THE
FRANCHISEE; (4) THE DESIGNATION OF JURISDICTION AND VENUE IN HENNEPIN COUNTY,
MINNESOTA CONTAINED IN ARTICLE 24.12 OF THIS AGREEMENT IS INAPPLICABLE;
PROVIDED, HOWEVER, THAT SUCH INAPPLICABILITY WILL NOT BE CONSTRUED TO MEAN
THAT SUCH VENUE IS IMPROPER, OR THAT THE FRANCHISEE, ITS OFFICERS, DIRECTORS,
OWNERS AND THE PERSONAL GUARANTORS ARE NOT SUBJECT TO JURISDICTION IN THE
STATE OF MINNESOTA, OR IN ANY OTHER STATE; (5) ARBITRATION HEARINGS WILL BE
CONDUCTED IN INDIANAPOLIS, INDIANA OR AT A MUTUALLY AGREED UPON LOCATION; (6)
THE FRANCHISEE DOES NOT, BY SIGNING THIS AGREEMENT, WAIVE ITS RIGHTS UNDER
INDIANA LAW WITH RESPECT TO ANY REPRESENTATIONS MADE BY E & C PRIOR TO THE
DATE OF THIS AGREEMENT; (7) NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT
TO THE CONTRARY, THE FRANCHISEE WILL HAVE UP TO TWO YEARS TO BRING AN ACTION
AGAINST E & C FOR A VIOLATION OF THE INDIANA DECEPTIVE FRANCHISE PRACTICES
ACT, AND UP TO THREE YEARS FROM THE DATE OF DISCOVERY TO BRING AN ACTION
AGAINST E & C FOR A VIOLATION OF THE INDIANA FRANCHISE DISCLOSURE LAW; AND
(8) NOTWITHSTANDING ANY PROVISIONS OF THIS AGREEMENT TO THE CONTRARY, A COURT
OF COMPETENT JURISDICTION WILL DETERMINE WHETHER E & C WILL BE REQUIRED TO
POST A BOND OR OTHER SECURITY, AND THE AMOUNT OF SUCH BOND OR OTHER SECURITY,
IN ANY INJUNCTIVE PROCEEDING COMMENCED BY E & C AGAINST THE FRANCHISEE.
MARYLAND. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
MARYLAND, THEN (1) ARTICLE 17.6(d) OF THIS AGREEMENT IS HEREBY AMENDED TO
PROVIDE THAT SUCH RELEASE WILL NOT RELIEVE E & C FROM ANY LIABILITY IMPOSED BY
THE MARYLAND FRANCHISE REGISTRATION AND DISCLOSURE LAW; (2) WITH THE EXCEPTION
OF MEDIATION OR ARBITRATION PROCEEDINGS, THE DESIGNATION OF JURISDICTION AND
VENUE IN HENNEPIN COUNTY, MINNESOTA CONTAINED IN ARTICLE 23.5 AND ARTICLE 24.12
WILL BE INAPPLICABLE; PROVIDED, HOWEVER, THAT SUCH INAPPLICABILITY IN THE STATE
OF MARYLAND WILL NOT BE CONSTRUED TO MEAN THAT VENUE IN HENNEPIN COUNTY,
MINNESOTA IS IMPROPER, OR THAT THE FRANCHISEE, ITS OFFICERS, DIRECTORS, OWNERS
AND PERSONAL GUARANTORS ARE NOT SUBJECT TO JURISDICTION IN HENNEPIN COUNTY,
MINNESOTA, OR IN ANY OTHER STATE; AND (3) THE ACKNOWLEDGMENTS MADE BY THE
FRANCHISEE CONTAINED IN ARTICLE 26 OF THIS AGREEMENT WILL NOT BE CONSTRUED TO
ACT AS A WAIVER OF THE FRANCHISEE'S RIGHTS UNDER THE MARYLAND FRANCHISE
REGISTRATION AND DISCLOSURE LAW.
MINNESOTA. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
MINNESOTA, THEN: (1) ARTICLE 3 OF THIS AGREEMENT WILL BE AMENDED TO PROVIDE
THAT, EXCEPT IN CERTAIN CIRCUMSTANCES SPECIFIED BY LAW, E & C MUST GIVE THE
FRANCHISEE AT LEAST ONE HUNDRED EIGHTY (180) DAYS PRIOR WRITTEN NOTICE OF
NONRENEWAL OF
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
THE FRANCHISE; (2) ARTICLE 18.2 WILL BE AMENDED TO REQUIRE THAT, EXCEPT AS
SET FORTH IN ARTICLE 18.5 AND 18.6, IN THE EVENT E & C GIVES THE FRANCHISEE
WRITTEN NOTICE THAT THE FRANCHISEE HAS BREACHED THIS AGREEMENT, SUCH WRITTEN
NOTICE WILL BE GIVEN TO THE FRANCHISEE AT LEAST NINETY (90) DAYS PRIOR TO THE
DATE THIS AGREEMENT IS TERMINATED BY E & C, AND THE FRANCHISEE WILL HAVE
SIXTY (60) DAYS AFTER SUCH WRITTEN NOTICE WITHIN WHICH TO CORRECT THE BREACH
SPECIFIED IN THE WRITTEN NOTICE; (3) NOTWITHSTANDING ANY PROVISIONS OF THIS
AGREEMENT TO THE CONTRARY, A COURT OF COMPETENT JURISDICTION WILL DETERMINE
WHETHER E & C WILL BE REQUIRED TO POST A BOND OR OTHER SECURITY, AND THE
AMOUNT OF SUCH BOND OR OTHER SECURITY, IN ANY INJUNCTIVE PROCEEDING COMMENCED
BY E & C AGAINST THE FRANCHISEE, THE OWNERS OR THE PERSONAL GUARANTORS; (4)
ARTICLE 17.6(d) OF THIS AGREEMENT WILL BE INAPPLICABLE; AND (5) IN ACCORDANCE
WITH MINN. STAT. SEC. 80C.17, SUBD. 5, THE FRANCHISEE WILL HAVE NO MORE THAN
THREE YEARS AFTER THE CAUSE OF ACTION ACCRUES TO COMMENCE AN ACTION PURSUANT
TO MINN. STAT. SEC. 80C. 17.
NEW YORK. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK, THEN (1) ARTICLE 17.1 OF THIS AGREEMENT WILL BE AMENDED TO PROVIDE THAT E
& C MAY NOT ASSIGN THIS AGREEMENT UNLESS, IN ITS REASONABLE JUDGMENT, THE
ASSIGNEE WILL BE ABLE TO PERFORM E & C'S OBLIGATIONS UNDER THIS AGREEMENT; (2)
ARTICLE 22.1 OF THIS AGREEMENT WILL BE AMENDED TO PROVIDE THAT THE FRANCHISEE
WILL NOT BE REQUIRED TO INDEMNIFY E & C AGAINST CLAIMS ARISING OUT OF E & C'S
BREACH OF CONTRACT, NEGLIGENCE OR OTHER CIVIL WRONG; HOWEVER, SUCH AMENDMENT OF
ARTICLE 22.1 WILL NOT AFFECT IN ANY WAY THE FRANCHISEE'S OBLIGATION TO OBTAIN
AND MAINTAIN INSURANCE COVERAGE IN ACCORDANCE WITH ARTICLE 14; (3) ANY
MODIFICATIONS TO THE MANUAL MADE BY E & C WILL NOT UNREASONABLY INCREASE THE
FRANCHISEE'S OBLIGATIONS UNDER THIS AGREEMENT AND WILL NOT PLACE AN EXCESSIVE
ECONOMIC BURDEN ON THE FRANCHISEE'S OPERATIONS; AND (4) ARTICLE 17.6(d) OF THIS
AGREEMENT IS HEREBY AMENDED TO PROVIDE THAT ALL RIGHTS ARISING IN THE
FRANCHISEE'S FAVOR FROM THE PROVISIONS OF ARTICLE 33 OF THE GBL OF THE STATE OF
NEW YORK AND THE REGULATIONS ISSUED THEREUNDER SHALL REMAIN IN FORCE, IT BEING
THE INTENT OF THIS PROVISION THAT THE NON-WAIVER PROVISIONS OF SECTIONS 687.4
AND 687.5 OF THE GBL BE SATISFIED.
NORTH DAKOTA. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
NORTH DAKOTA, THEN: (1) THE COVENANT NOT TO COMPETE UPON TERMINATION OR
EXPIRATION OF THIS AGREEMENT CONTAINED IN ARTICLE 21.3 OF THIS AGREEMENT MAY BE
UNENFORCEABLE, EXCEPT IN CERTAIN CIRCUMSTANCES PROVIDED BY LAW; (2) ARBITRATION
HEARINGS WILL BE CONDUCTED IN FARGO, NORTH DAKOTA OR AT A MUTUALLY AGREED UPON
LOCATION; AND (3) THE CONSENT BY THE FRANCHISEE TO JURISDICTION AND VENUE IN
HENNEPIN COUNTY, MINNESOTA CONTAINED IN
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
ARTICLE 24.12 IS INAPPLICABLE; PROVIDED, HOWEVER, THAT SUCH INAPPLICABILITY
IN THE STATE OF NORTH DAKOTA WILL NOT BE CONSTRUED TO MEAN THAT VENUE IN
HENNEPIN COUNTY, MINNESOTA IS IMPROPER, OR THAT THE FRANCHISEE, ITS OFFICERS,
DIRECTORS, OWNERS AND THE PERSONAL GUARANTORS ARE NOT SUBJECT TO JURISDICTION
IN THE STATE OF MINNESOTA, OR IN ANY OTHER STATE.
RHODE ISLAND. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
RHODE ISLAND, THEN ANY PROVISION OF THIS AGREEMENT WHICH RESTRICTS JURISDICTION
OR VENUE TO A FORUM OUTSIDE THE STATE OF RHODE ISLAND IS VOID WITH RESPECT TO A
CLAIM OTHERWISE ENFORCEABLE UNDER THE RHODE ISLAND FRANCHISE INVESTMENT ACT.
SOUTH DAKOTA. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE
OF SOUTH DAKOTA, THEN: (1) ARTICLE 18 OF THIS AGREEMENT WILL BE AMENDED TO
PROVIDE THAT IF THE FRANCHISEE BREACHES THE PROVISIONS OF THIS AGREEMENT,
INCLUDING THE FAILURE TO MEET PERFORMANCE OR QUALITY STANDARDS OR TO PAY ANY
FEES OR OTHER PAYMENTS PAYABLE TO E & C PURSUANT TO THIS AGREEMENT, E & C
WILL PROVIDE THE FRANCHISEE WITH AT LEAST THIRTY (30) DAYS WRITTEN NOTICE AND
AN OPPORTUNITY TO CURE PRIOR TO THE TERMINATION OF THIS AGREEMENT BY E & C;
(2) THE COVENANT NOT TO COMPETE UPON TERMINATION OR EXPIRATION OF THIS
AGREEMENT CONTAINED IN ARTICLE 21.3 OF THIS AGREEMENT MAY BE UNENFORCEABLE,
EXCEPT IN CERTAIN CIRCUMSTANCES PROVIDED BY LAW; (3) ANY PROVISION OF THIS
AGREEMENT WHICH DESIGNATES JURISDICTION OR VENUE OUTSIDE OF THE STATE OF
SOUTH DAKOTA OR REQUIRES THE FRANCHISEE TO AGREE TO JURISDICTION OR VENUE IN
A FORUM OUTSIDE OF THE STATE OF SOUTH DAKOTA IS VOID WITH RESPECT TO ANY
CAUSE OF ACTION WHICH IS OTHERWISE ENFORCEABLE IN THE STATE OF SOUTH DAKOTA;
(4) PURSUANT TO SDCL SECTIONS 37-5A-86, ANY ACKNOWLEDGMENT PROVISION,
DISCLAIMER, INTEGRATION CLAUSE OR PROVISION HAVING A SIMILAR EFFECT IN THIS
AGREEMENT WILL NOT NEGATE OR ACT TO REMOVE FROM JUDICIAL REVIEW ANY
STATEMENT, MISREPRESENTATION OR ACTION THAT VIOLATES CHAPTER 37-5A OR A RULE
OR ORDER UNDER CHAPTER 37-5A; (5) ARBITRATION HEARINGS WILL BE CONDUCTED IN
SIOUX FALLS, SOUTH DAKOTA, OR AT A MUTUALLY AGREED UPON LOCATION; AND (6)
PROVISIONS OF THIS AGREEMENT WHICH REQUIRE THAT ACTIONS BE COMMENCED WITHIN
ONE YEAR AND THAT LIMIT THE PARTIES' RIGHTS TO RECOVER PUNITIVE, EXEMPLARY,
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES MAY NOT BE ENFORCEABLE
UNDER SOUTH DAKOTA LAW.
WASHINGTON. IF THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF
WASHINGTON, THEN: (1) IN THE EVENT OF A CONFLICT OF LAWS, THE PROVISIONS OF THE
WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, CHAPTER 19.100 RCW, WILL
PREVAIL; (2) A RELEASE OR WAIVER OF RIGHTS EXECUTED BY THE FRANCHISEE WILL NOT
INCLUDE RIGHTS UNDER THE WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, EXCEPT
WHEN EXECUTED PURSUANT TO A NEGOTIATED SETTLEMENT AFTER THIS AGREEMENT IS IN
EFFECT AND WHERE THE PARTIES ARE REPRESENTED
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
BY INDEPENDENT COUNSEL; (3) ANY PROVISION OF THIS AGREEMENT WHICH
UNREASONABLY RESTRICTS OR LIMITS THE STATUTE OF LIMITATIONS PERIOD FOR CLAIMS
UNDER THE WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, RIGHTS OR REMEDIES
UNDER THE WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, SUCH AS A RIGHT TO
A JURY TRIAL, MAY NOT BE ENFORCEABLE; AND (4) TRANSFER FEES ARE COLLECTIBLE
BY E & C TO THE EXTENT THAT THEY REFLECT E & C REASONABLE ESTIMATED OR ACTUAL
COSTS IN EFFECTING A TRANSFER.
SEVERABILITY
The severability provisions of this Agreement will pertain to all of the
applicable laws which conflict with or modify the provisions of this Agreement
including, but not limited to, the provisions of this Agreement specifically
addressed in Article 28.3 above.
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT 475250.5
<PAGE>
IN WITNESS WHEREOF, E & C, the Franchisee and the Franchisee's Owners have
respectively signed this Agreement as of the day and year set forth on Page F-1
of this Agreement.
<TABLE>
<S> <C>
In the Presence of: ELEPHANT & CASTLE INTERNATIONAL, INC.
___________________________________ By _________________________________
Its ________________________________
In the Presence of: "FRANCHISEE"
___________________________________ ____________________________________
___________________________________ ____________________________________
___________________________________ ____________________________________
___________________________________ ____________________________________
</TABLE>
The undersigned Owners of the Franchisee hereby agree to be bound by the terms
and conditions of this Agreement:
<TABLE>
<S> <C> <C>
IN THE PRESENCE OF: OWNERS PERCENTAGE
OF OWNERSHIP
______________________ _______________________ ______________________%
______________________ _______________________ ______________________%
______________________ _______________________ ______________________%
______________________ _______________________ ______________________%
</TABLE>
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT F-66 475250.5
<PAGE>
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THE FRANCHISE AGREEMENT
In consideration of the execution of this Agreement by E & C, and for other good
and valuable consideration, the undersigned, for themselves, their heirs,
successors, and assigns, do individually, jointly and severally hereby become
surety and guaranty for the payment of all amounts and the performance of the
covenants, terms and conditions of this Agreement, including the covenants not
to compete, to be paid, kept and performed by the Franchisee.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement, including the covenants not to compete, and agree that this Personal
Guaranty should be construed as though the undersigned and each of them executed
an agreement containing the identical terms and conditions of this Agreement.
If any default should at any time be made therein by the Franchisee, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay to E & C the Initial Fee,
Opening Assistance Fee, Continuing Fees and other fees due and payable to E & C
under the terms and conditions of this Agreement.
In addition, if the Franchisee fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors and
assigns, do hereby, individually, jointly and severally, promise and agree to
comply with the terms and conditions of this Agreement for and on behalf of the
Franchisee.
If the Franchisee is at any time in default on any obligation to pay monies to E
& C or any subsidiary or affiliate of E & C, whether for Initial Fees, Opening
Assistance Fees, Continuing Fees, merchandise, products, supplies, furniture,
fixtures, equipment or other products purchased by the Franchisee from E & C or
any subsidiary or affiliate of E & C, or for any other indebtedness of the
Franchisee to E & C or any subsidiary or affiliate of E & C, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay all such monies due and payable
from the Franchisee to E & C or any subsidiary or affiliate of E & C upon
default by the Franchisee.
The maximum individual liability that each Personal Guarantor will incur under
this Personal Guaranty is two hundred fifty thousand dollars ($250,000).
It is further understood and agreed by the undersigned that the provisions,
covenants and conditions of this Personal Guaranty
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT F-67 475250.5
<PAGE>
will inure to the benefit of the successors and assigns of E & C. Except as
provided by applicable law, all litigation, actions or proceedings pertaining
to this Personal Guaranty will be brought and venued in accordance with
Article 24.12 of the Franchise Agreement.
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT F-68 475250.5
<PAGE>
PERSONAL GUARANTORS
<TABLE>
<S> <C>
- ------------------------------------ -------------------------------------
Individually Individually
Percentage of Ownership Interest___% Percentage of Ownership Interest____%
- ------------------------------------ -------------------------------------
Address Address
- ------------------------------------ -------------------------------------
City State Zip Code City State Zip Code
( ) ( )
- ------------------------------------ -------------------------------------
Area Code Telephone Area Code Telephone
- ------------------------------------ -------------------------------------
Individually Individually
Percentage of Ownership Interest___% Percentage of Ownership Interest____%
- ------------------------------------ -------------------------------------
Address Address
- ------------------------------------ -------------------------------------
City State Zip Code City State Zip Code
( ) ( )
- ------------------------------------ -------------------------------------
Area Code Telephone Area Code Telephone
- ------------------------------------ -------------------------------------
Individually Individually
Percentage of Ownership Interest___% Percentage of Ownership Interest____%
- ------------------------------------ -------------------------------------
Address Address
- ------------------------------------ -------------------------------------
City State Zip Code City State Zip Code
( ) ( )
- ------------------------------------ -------------------------------------
Area Code Telephone Area Code Telephone
</TABLE>
ELEPHANT & CASTLE INTERNATIONAL, INC. 5 GTM/LEH/JAW 042199
ALAMO GRILL FRANCHISE AGREEMENT F-69 475250.5
<PAGE>
the image portrayed by the then-current image, decor and specifications of E & C
for Alamo Grill-TM- Restaurants (the "Modernization") and has agreed to make
such capital expenditures as are necessary to complete the required
Modernization; (d) as of the date the Franchisee exercises its option to
reacquire the Franchise for the Franchised Location, the Franchisee either owns
the Franchised Location, or the Franchisee has the right to lease the Franchised
Location for a term that coincides with the term of the then-current standard
Alamo Grill franchise agreement; (e) the Franchisee (or the Franchisee's
Operating Partner), the Franchisee's General Manager and the Franchisee's Chef
have completed the required training designated by E & C for new Alamo Grill
franchisees to ensure that the Franchisee is in conformity with the then-current
qualifications and operational requirements established by E & C; and (f) the
Franchisee agrees to execute and comply with the then-current standard franchise
agreement being offered to new franchisees by E & C, subject further to the
provisions of Article 3.4 of this Agreement.
3.4 TERMS OF OPTION
The Franchisee will have the option to reacquire the Franchise for the
Franchised Location under the same terms and conditions as are then being
offered to other franchisees under the then-current standard Alamo Grill
franchise agreement; provided, however, that the term of the franchise agreement
executed by the Franchisee to reacquire the Franchise will be for ten (10)
years, as specified in Article 3.3 of this Agreement. The Franchisee will be
required to pay E & C a reacquisition fee equal to twenty-five percent (25%) of
the Initial Fee specified in the then-current standard Alamo Grill franchise
agreement, which will be payable in full on the date the Franchisee signs the
then-current standard franchise agreement executed pursuant to this option. The
reacquisition fee is payment, in part, to E & C for: (a) training at the time of
the reacquisition for the Franchisee (or the Franchisee's Operating Partner),
the Franchisee's General Manager and the Franchisee's Chef (but not payment for
the travel, lodging, and living expenses, salaries, and all other expenses of
any persons attending such training, which will be paid by the Franchisee); (b)
providing the Franchisee with the then-current standards relating to the image
of Alamo Grill-TM- Restaurants, including decor, fixtures, furniture and sign
specifications; (c) providing the Franchisee with the then-current
specifications for the supplies and equipment to be used in the operation of the
Restaurant; and (d) administrative and out-of-pocket expenses incurred by E & C
in connection with the reacquisition, including employee salaries, attorneys'
fees and long-distance telephone calls. The Franchisee will be required to pay
the Continuing Fee and all other fees at the rates specified in the then-current
standard franchise agreement. The Franchisee will also pay any additional fees
specified or provided for by the terms of the then-current standard franchise
agreement.
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
FRANCHISE AGREEMENT F-70 426304 9
<PAGE>
The Franchisee will also pay any additional fees specified or provided for by
the terms of the then-current standard franchise agreement.
The Franchisee acknowledges that the terms, conditions and economics of
future Alamo Grill franchise agreements of E & C may, at that time, vary in
substance and form from the terms, conditions and economics of this Agreement.
ARTICLE 4
INITIAL FEE; APPROVAL OF FRANCHISEE
4.1 INITIAL FEE
The Franchisee will pay E & C a nonrefundable Initial Fee of thirty-five
thousand dollars ($35,000), which will be payable in full on the date the
Franchisee commences business. The Initial Fee payable by the Franchisee is
payment, in part, to E & C for the costs incurred by E & C to operate its
business, including costs for general sales and administrative expenses, travel,
long distance telephone calls, training, opening costs, marketing costs, legal
and accounting fees, compliance with franchising and other laws, and the initial
services rendered to the Franchisee as described in this Agreement.
4.2 TERMINATION OF FRANCHISE
E & C will have the right to terminate this Agreement at any time within one
hundred twenty (120) days after the date of this Agreement if: (a) any required
or other financial, personal or other information provided by the Franchisee to
E & C is materially false, misleading, incomplete or inaccurate; (b) the
Franchisee has not purchased or leased a site for the Franchised Location or has
done so in a manner not in compliance with Article 2.4 and Article 11 of this
Agreement; (c) the Franchisee fails to apply for and obtain a valid license for
the service of food for its Alamo Grill-TM- Restaurant from the appropriate
governmental agencies; (d) the Franchisee fails to apply for and obtain a valid
liquor license for its Alamo Grill-TM- Restaurant from the appropriate
governmental authorities; or (e) the Franchisee (or its Operating Partner), the
Franchisee's General Manager and the Franchisee's Chef fail to complete the
training program described in Article 16.1 of this Agreement.
4.3 PAYMENT OF COSTS
If this Agreement is terminated by E & C pursuant to Article 4.2, then within
ten (10) days after termination, the Franchisee will pay E & C fifty percent
(50%) of the Initial Fee as payment for the administrative and out-of-pocket
expenses incurred by E & C including, but not limited to, executives' and
employees' salaries, salespersons' commissions, attorneys' fees, accountants'
fees, travel expenses, training costs, legal compliance, marketing costs and
long distance telephone calls.
ARTICLE 5
CONTINUING FEE
5.1 AMOUNT OF CONTINUING FEE; DATE PAYABLE
In addition to the Initial Fee payable by the Franchisee, the
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
FRANCHISE AGREEMENT F-71 426304 9
<PAGE>
Franchisee will pay E & C a weekly Continuing Fee equal to the greater of:
(a) five percent (5%) of the Franchisee's weekly Gross Sales for the
preceding week; or (b) one thousand two hundred and fifty dollars ($1,250).
The weekly Continuing Fee will be paid to E & C by the Franchisee by
Wednesday of each week for the preceding week. The minimum weekly Continuing
Fee of one thousand two hundred and fifty dollars ($1,250) will not be
applicable until the first full week of the seventh month after the date of
this Agreement, and beginning on Wednesday of that week, the Franchisee will
pay the greater of the amounts set forth above.
5.2 INTEREST ON UNPAID CONTINUING FEES
If the Franchisee fails to remit the Continuing Fee due to E & C as provided for
in Article 5.1, then the amount of the unpaid and past due Continuing Fee will
bear simple interest at the lesser of the maximum legal rate allowable by
applicable law or eighteen percent (18%) simple interest per annum. The
Franchisee will pay E & C an administrative fee of seventy-five dollars ($75)
for each delinquent Continuing Fee payment within ten (10) days after the
delinquent Continuing Fee was due. The Franchisee will also reimburse E & C for
any and all costs incurred by E & C in the collection of unpaid and past due
Continuing Fee payments including, but not limited to, attorneys' fees,
deposition costs, expert witness fees, investigation costs, accounting fees,
filing fees and travel expenses.
5.3 REPORTS
The Franchisee will maintain an accurate written record of the weekly Gross
Sales for the Franchisee's Alamo Grill-TM- Restaurant and other information
specified by E & C, and will submit
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
FRANCHISE AGREEMENT F-72 426304 9
<PAGE>
EXHIBIT 10.19
ELEPHANT & CASTLE INTERNATIONAL, INC.
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (this "Agreement") is made, entered into and
effective this _______ day of ____________, 19_, by and between Elephant &
Castle International, Inc., a Texas corporation, with its principal office at
7657 Anagram Drive, Eden Prairie, Minnesota 55344 (hereinafter referred to as
"Elephant & Castle"), and _________________________________,
a(n)_______________________________________ (hereinafter referred to as the
"Franchisee");
RECITALS
ELEPHANT & CASTLE-Registered Trademark- RESTAURANT SYSTEM. Elephant & Castle
has developed over time at significant cost and investment a distinctive
restaurant system for operating and franchising restaurants under the name
"Elephant & Castle-Registered Trademark-" which incorporate an Anglo/British
style pub restaurant and Tudor/Victorian decor, and which serve a wide
variety of high-quality food and beverage items featuring English-style
dishes, including fish and chips, shepherds pie, "bangers and mash," and Old
Country soups and desserts (the "Restaurant System"). The Restaurant System
contains distinctive concepts including, without limitation, special
seasonings, recipes and menu items; unique cooking styles and methods; food
line management systems; distinctive building and interior design, decor and
furnishings; specific standards, specifications and procedures for
operations; quality, consistency and uniformity requirements for the foods,
beverages, products and services offered to the public; methods, procedures
and requirements for operations, quality and inventory control, and training
and assistance; and advertising and promotional programs.
ELEPHANT & CASTLE MARKS. Elephant & Castle has widely and extensively
publicized the name "Elephant & Castle-Registered Trademark-" to the public
as an organization of restaurant businesses operating under the Restaurant
System. Elephant & Castle has the right and authority to license the use of
the name "Elephant & Castle-Registered Trademark-," the Elephant & Castle
logo, and other trademarks, trade names, service marks, logos, commercial
symbols, phrases, slogans and tag lines which are now owned or which will be
developed by Elephant & Castle (hereinafter referred to as the "Marks").
Elephant & Castle will continue to develop, use, and control the use of the
Marks in order to identify for the public the source of foods, products and
services marketed under the Restaurant System, and to represent to the public
the high standards of quality, appearance, cleanliness and service of the
Restaurant System.
OPERATION OF ELEPHANT & CASTLE-Registered Trademark- RESTAURANT. The
Franchisee desires to develop, own and operate an Elephant &
Castle-Registered Trademark- restaurant (hereinafter referred to as the
"Elephant & Castle-Registered Trademark- Restaurant" or the "Restaurant") at
the location set forth in Article 2 in compliance with the Restaurant System
and with all of the quality, consistency and uniformity standards and
specifications as established and promulgated from time to time by Elephant &
Castle. The Franchisee understands and acknowledges the importance of the
high standards of quality, appearance, cleanliness and service established by
Elephant & Castle, and the necessity of operating the Franchisee's Restaurant
in strict conformity with the standards and specifications established by
Elephant & Castle.
RIGHT TO USE MARKS AND RESTAURANT SYSTEM. Elephant & Castle is willing to
provide the Franchisee with the recipes, cooking and food preparation
techniques, food line management systems, menu content and design, decor and
color schemes, intellectual property, and other operational, marketing,
advertising, promotional and business information, experience and "know how"
related to the
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Restaurant System. The Franchisee acknowledges that it would take substantial
capital and human resources to develop a restaurant business similar to the
Elephant & Castle-Registered Trademark- Restaurant and, consequently, the
Franchisee desires to acquire the right to use the Marks and the Restaurant
System and to own and operate an Elephant & Castle-Registered Trademark-
Restaurant pursuant to the terms and conditions set forth in this Agreement.
The Franchisee acknowledges that Elephant & Castle would not grant the
Elephant & Castle-Registered Trademark- Restaurant Franchise to the
Franchisee or provide the Franchisee with the business information and "know
how" about the Restaurant System unless the Franchisee agreed to comply with
all of the terms and conditions of this Agreement and agreed to pay the
Initial Fee, the Continuing Fees and all other fees specified in this
Agreement.
REVIEW OF AGREEMENT. The Franchisee has had a full and adequate opportunity to
read and review this Agreement and to be thoroughly advised of the terms and
conditions of this Agreement by an attorney or other personal representative,
and has had sufficient time to evaluate and investigate the Restaurant System,
the financial requirements and the risks associated with the Restaurant System.
Pursuant to the above Recitals and in consideration of the mutual promises and
covenants set forth in this Agreement, Elephant & Castle and the Franchisee
agree and contract as follows:
DEFINITIONS
For purposes of this Agreement, the following words will have the following
definitions:
DESIGNATED MARKET AREA.
"Designated Market Area" will mean each television market exclusive of another
based upon a preponderance of television viewing hours as defined by the A.C.
Nielsen ratings service or such other ratings service as may be designated by
Elephant & Castle.
DOLLARS.
"Dollars" will mean United States of America dollars.
FRANCHISE.
"Franchise" will mean the right granted by Elephant & Castle to the
Franchisee authorizing the Franchisee to operate an Elephant &
Castle-Registered Trademark- Restaurant at the Franchised Location in
conformity with the Restaurant System using the name "Elephant &
Castle-Registered Trademark-" and the other Marks.
GENERAL MANAGER.
"General Manager" will mean the individual responsible for the overall
management and operation of the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant including, but not limited to, administration, basic
operations, marketing, customer and community relations, record keeping,
employee staffing and training, inventory control, hiring and firing, food
preparation and maintenance of the Franchised Location.
GROSS SALES.
"Gross Sales" will mean the total dollar sales from all customers of the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant, and will
include all cash and credit sales made by the Franchisee of every kind and
nature made at, from, by or in connection with the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant business including, but not limited
to, all dollars and income received from the sale of: (a) foods, food
products and food items; (b) alcoholic and non-alcoholic beverages and
drinks; (c) admission or cover charges; (d) telephones, vending machines,
pool tables, dart board machines, video games and all other amusement games;
(e) slot machines and gaming machines; (f) net fees received from automated
teller machines; (g) lotteries, lottery tickets and pull tabs; (h) hats,
shirts, T-shirts,
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sweatshirts and other clothing; (i) cigars, cigarettes, tobacco products,
candies and gum; (j) catering; (k) room service; (l) banquets; (m) carry-out
items; (n) any and all other foods, products, products and services; (o) all
off-premises sales of foods, food products and all other products and
services offered in connection with the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant; and (p) all sales, use or gross
receipts tax rebates. "Gross Sales" will not include any sales, use or gross
receipts tax imposed by any federal, state, municipal or governmental
authority directly upon sales, if the amount of the tax is added to the
selling price and is charged to the customer, a specific record is made at
the time of each sale of the amount of such tax, and the amount of such tax
is paid to the appropriate taxing authority by the Franchisee; the amount of
all discounts and coupons issued to the public by the Franchisee and which
are taken or redeemed at the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant provided that a specific record is made each time a
customer takes a discount or redeems a coupon of the amount of the reduction
in the menu price as a result of such discount taken or coupon redeemed; and,
the amount of all employee meal discounts (E.G., manager meals) taken by
employees of the Franchisee at the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant provided that a specific record is made each time an
employee takes an employee meal discount of the amount of the reduction in
menu price as a result of such discount.
MARKS.
"Marks" will include the name "Elephant & Castle-Registered Trademark-", the
Elephant & Castle logo, "Pub Grub-TM-" and such other trademarks, trade
names, service marks, logos, commercial symbols, phrases, slogans, and tag
lines as Elephant & Castle has or may develop for use in connection with
Elephant & Castle-Registered Trademark- Restaurants.
OWNERSHIP INTEREST.
"Ownership Interest" will mean the share(s) of capital stock if the Franchisee
is a corporation, a membership interest if the Franchisee is a limited liability
company, a partnership interest if the Franchisee is a partnership, limited or
general partnership interests if the Franchisee is a limited partnership and
will include all other types and means of ownership of the Franchisee.
OWNER.
"Owner" will mean any person or entity that owns shares of capital stock in the
Franchisee if the Franchisee is a corporation, a membership interest in the
Franchisee if the Franchisee is a limited liability company, a partnership
interest in the Franchisee if the Franchisee is a partnership, a limited or
general partnership interest if the Franchisee is a limited partnership and will
include all other persons or entities owning any other type or means of
Ownership Interest.
RESTAURANT SYSTEM.
"Restaurant System" will mean the distinctive foods, beverages, food products,
and other products and services which are associated with the trademarks, trade
names, service marks, copyrights, distinctive interior and exterior building
designs, decor, furnishings, menus, uniforms, slogans, signs, logos, commercial
symbols and color combinations of Elephant & Castle. "Restaurant System" will
include all of the quality, consistency and uniformity requirements; the
standards, specifications and procedures for product and services, operations,
cleanliness, sanitation, control, training, advertising and promotion, service,
appearance; and, all instructions, procedures, methods and specifications
promulgated by Elephant & Castle.
WEEK.
"Week" or "weekly" will mean a period of seven (7) consecutive days from Monday
through Sunday.
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GRANT OF FRANCHISE
FRANCHISED LOCATION.
Elephant & Castle hereby grants the Franchisee the personal right to operate
one Elephant & Castle-Registered Trademark- Restaurant in conformity with the
Restaurant System using the name "Elephant & Castle-Registered Trademark-"
and other specified Marks at the following single location__________________
____________________________________________________________________________,
which is referred to as the "Franchised Location."
EXCLUSIVE AREA.
Except as provided to the contrary in this Article, the Franchisee will
receive an "Exclusive Area" consisting of the area within a three (3) mile
radius of the Franchised Location; provided, however, that if the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant is located in
any of the top forty (40) Metropolitan Statistical Areas in the United States
as determined by the United States Department of Commerce, then the
Franchisee will receive an Exclusive Area consisting of the area within a
one-half (1/2) mile radius of the Franchised Location. The Franchisee's
Exclusive Area is exclusive to the extent that Elephant & Castle will not
franchise, license, develop, own or operate ("develop") an Elephant &
Castle-Registered Trademark- Restaurant in the Exclusive Area.
Notwithstanding the foregoing, Elephant & Castle will have the absolute right
to:
(a) Develop other restaurant business concepts under other brand
names even if the locations for the concepts are within the
Exclusive Area;
(b) Develop Elephant & Castle-Registered Trademark- Restaurants
in the Exclusive Area if they are located at or within an
airport terminal, a stadium or arena or other venue for
semi-professional or professional sports, or a college or
university campus;
(c) Market, distribute and sell, on a wholesale or retail basis,
clothing, goods, foods, products or any other items sold under
any of the Marks, by direct sale, mail order, infomercials,
telemarketing or by any other marketing or distribution
method, even if such sales take place in, or are to
distributors, retailers, or consumers who are located in the
Exclusive Area; and,
(d) Advertise, promote and participate in special events and
promotional activities which take place in the Exclusive Area
including, without limitation, parades, holiday celebrations,
cooking, recipe or restaurant competitions, sporting events,
and fund-raising and charitable events, and sell any product
or service, including any product or service sold under any of
the Marks, in connection with such participation.
UNDETERMINED FRANCHISED LOCATION.
If the Franchised Location has not yet been determined as of the date of this
Agreement, then the geographic area in which the Franchisee's Restaurant is
to be located will be described or otherwise defined in an exhibit signed by
the parties and attached to this Agreement. When the address of the
Franchised Location is determined, it will be inserted into this Agreement
and initialed by the parties.
LEASE OR PURCHASE OF FRANCHISED LOCATION.
The Franchisee will not sign any lease, purchase agreement or obtain any
related rights to possession, occupancy or ownership of the Franchised
Location prior to the date set forth on Page F-1 of this Agreement. If the
Franchisee leases the Franchised Location, then the Franchisee will use its
best efforts to negotiate a lease term that coincides with the term of this
Agreement.
RELOCATION.
The Franchisee may, with the prior written approval of Elephant & Castle,
relocate the Franchised Location if (a) the proposed new location does not
compete with any Elephant & Castle-Registered Trademark- Restaurant
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operated by Elephant & Castle or any other franchisee, (b) the proposed new
location is within the Franchisee's Exclusive Area, and (c) the proposed new
location does not infringe upon and is not located within the exclusive area
of another Elephant & Castle franchisee, area franchisee, master franchisee
or subfranchisee. The new location of the Restaurant, including the real
estate and the building, must comply with all applicable provisions of this
Agreement and with the then-current image, decor and specifications of
Elephant & Castle. Within ten (10) days after receipt by the Franchisee of
Elephant & Castle's written approval of the relocation of the Franchised
Location, the Franchisee will pay to Elephant & Castle a relocation fee of
five thousand dollars ($5,000).
CONDITIONS.
The Franchisee hereby undertakes the obligation to operate the Elephant &
Castle-Registered Trademark- Restaurant using the Restaurant System at the
Franchised Location in strict compliance with the terms and conditions of
this Agreement for the entire term of this Agreement. The rights and
privileges granted to the Franchisee by Elephant & Castle under this
Agreement are applicable only to the single location designated as the
Franchised Location, are personal in nature, and may not be used elsewhere or
at any other location by the Franchisee.
PERSONAL LICENSE.
The Franchisee will not have the right to franchise, subfranchise, license or
sublicense its rights under this Agreement. The Franchisee will not have the
right to pledge, assign or transfer this Agreement or its rights under this
Agreement, except as specifically provided for in this Agreement.
TERM OF AGREEMENT
TERM.
The term of this Agreement will be for twenty (20) years, commencing on the date
set forth on Page F-1 of this Agreement. This Agreement will not be enforceable
until it has been signed by both the Franchisee and Elephant & Castle.
TERM OF LEASE.
If the term of the lease for the Franchised Location (excluding any renewal
terms) is for a term that is longer than the term of this Agreement, then the
term of this Agreement will be automatically extended to coincide with the
initial term of the Franchisee's lease for the Franchised Location; provided,
however, that if the Franchisee, or any of the Franchisee's Owners, owns, either
directly or indirectly, the Franchised Location, including the business
premises, the real estate or the building, then the term of this Agreement will
be for twenty (20) years.
REACQUISITION OPTION.
At the end of the term of this Agreement, the Franchisee will have the right
and option to reacquire the Franchise for the Franchised Location for one
additional ten (10) year term, provided that the Franchisee has complied with
all material terms and conditions of this Agreement and has agreed to and has
complied in all respects with the following conditions: (a) the Franchisee
has given Elephant & Castle written notice at least one (1) year prior to the
end of the term of this Agreement of its intention to reacquire the Franchise
for the Franchised Location; (b) all monetary obligations owed by the
Franchisee to Elephant & Castle have been paid or satisfied prior to the end
of the term of this Agreement, and have been timely met throughout the term
of this Agreement; (c) the Franchisee has agreed, in writing, to remodel,
modernize and redecorate the Franchised Location, and to replace and
modernize the signs, furniture, fixtures, supplies and equipment used in the
Franchisee's Restaurant so that the Franchisee's Restaurant will reflect the
image portrayed by the then-current image, decor and specifications of
Elephant & Castle (the "Modernization") and has agreed to make such capital
expenditures as are necessary to complete the required Modernization; (d) as
of the date the
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Franchisee exercises its option to reacquire the Franchise for the Franchised
Location, the Franchisee either owns the Franchised Location, or the
Franchisee has the right to lease the Franchised Location for a term that
coincides with the term of the then-current standard Elephant & Castle
franchise agreement; (e) the Franchisee (or the Franchisee's Operating
Partner), the Franchisee's General Manager and the Franchisee's Chef have
completed the required training designated by Elephant & Castle for new
franchisees to ensure that the Franchisee is in conformity with the
then-current qualifications and operational requirements established by
Elephant & Castle; and (f) the Franchisee agrees to execute and comply with
the then-current standard franchise agreement being offered to new
franchisees by Elephant & Castle, subject further to the provisions of
Article 3.4 of this Agreement.
TERMS OF OPTION.
The Franchisee will have the option to reacquire the Franchise for the
Franchised Location under the same terms and conditions as are then being
offered to other franchisees under the then-current standard Elephant &
Castle franchise agreement; provided, however, that the term of the franchise
agreement executed by the Franchisee to reacquire the Franchise will be for
ten (10) years, as specified in Article 3.3 of this Agreement. The Franchisee
will be required to pay Elephant & Castle a reacquisition fee equal to
twenty-five percent (25%) of the Initial Fee specified in the then-current
standard Elephant & Castle franchise agreement, which will be payable in full
on the date the Franchisee signs the then-current standard franchise
agreement executed pursuant to this option. The reacquisition fee is payment,
in part, to Elephant & Castle for: (a) training at the time of the
reacquisition for the Franchisee (or the Franchisee's Operating Partner), the
Franchisee's General Manager and the Franchisee's Chef (but not payment for
the travel, lodging, and living expenses, salaries, and all other expenses of
any persons attending such training, which will be paid by the Franchisee);
(b) providing the Franchisee with the then-current standards relating to the
image of Elephant & Castle-Registered Trademark-Restaurants, including decor,
fixtures, furniture and sign specifications; (c) providing the Franchisee
with the then-current specifications for the supplies and equipment to be
used in the operation of the Restaurant; and (d) administrative and
out-of-pocket expenses incurred by Elephant & Castle in connection with the
reacquisition, including employee salaries, attorneys' fees and long-distance
telephone calls. The Franchisee will be required to pay the Continuing Fee
and all other fees at the rates specified in the then-current standard
franchise agreement. The Franchisee will also pay any additional fees
specified or provided for by the terms of the then-current standard franchise
agreement. The Franchisee acknowledges that the terms, conditions and
economics of future franchise agreements of Elephant & Castle may, at that
time, vary in substance and form from the terms, conditions and economics of
this Agreement.
INITIAL FEE; APPROVAL OF FRANCHISEE
INITIAL FEE.
The Franchisee will pay Elephant & Castle an Initial Fee of thirty-five
thousand dollars ($35,000), which will be payable in full on the date the
Franchisee signs this Agreement. The Initial Fee payable by the Franchisee is
payment, in part, to Elephant & Castle for the costs incurred by Elephant &
Castle to operate its business, including costs for general sales and
administrative expenses, travel, long distance telephone calls, training,
opening costs, marketing costs, legal and accounting fees, compliance with
franchising and other laws, and the initial services rendered to the
Franchisee as described in this Agreement.
TERMINATION OF FRANCHISE.
Elephant & Castle will have the right to terminate this Agreement at any time
within one hundred twenty (120) days after the date of this Agreement if: (a)
any required or other financial, personal or other information provided by
the Franchisee to Elephant & Castle is materially false, misleading,
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incomplete or inaccurate; (b) the Franchisee has not purchased or leased a
site for the Franchised Location or has done so in a manner not in compliance
with Article 2.4 and Article 11 of this Agreement; (c) the Franchisee fails
to apply for and obtain a valid license for the service of food for its
Elephant & Castle-Registered Trademark-Restaurant from the appropriate
governmental agencies; (d) the Franchisee fails to apply for and obtain a
valid liquor license for its Elephant & Castle-Registered
Trademark-Restaurant from the appropriate governmental authorities; or (e)
the Franchisee (or its Operating Partner), the Franchisee's General Manager
and the Franchisee's Chef fail to complete the Elephant & Castle training
program described in Article 16.1 of this Agreement.
REFUND OF INITIAL FEE.
If this Agreement is terminated by Elephant & Castle pursuant to Article 4.2,
then Elephant & Castle will retain fifty percent (50%) of the Initial Fee paid
by the Franchisee as payment for the administrative and out-of-pocket expenses
incurred by Elephant & Castle including, but not limited to, executives' and
employees' salaries, salespersons' commissions, attorneys' fees, accountants'
fees, travel expenses, training costs, legal compliance, marketing costs and
long distance telephone calls.
CONTINUING FEE
AMOUNT OF CONTINUING FEE; DATE PAYABLE.
In addition to the Initial Fee payable by the Franchisee, the Franchisee will
pay Elephant & Castle a weekly Continuing Fee equal to the greater of: (a)
five percent (5%) of the Franchisee's weekly Gross Sales for the preceding
week; or (b) one thousand two hundred and fifty dollars ($1,250). The weekly
Continuing Fee will be paid to Elephant & Castle by the Franchisee by
Wednesday of each week for the preceding week. The minimum weekly Continuing
Fee of one thousand two hundred and fifty dollars ($1,250) will not be
applicable until the first full week of the seventh month after the date of
this Agreement, and beginning on Wednesday of that week, the Franchisee will
pay the greater of the amounts set forth above.
INTEREST ON UNPAID CONTINUING FEES.
If the Franchisee fails to remit the Continuing Fee due to Elephant & Castle as
provided for in Article 5.1, then the amount of the unpaid and past due
Continuing Fee will bear simple interest at the lesser of the maximum legal rate
allowable by applicable law or eighteen percent (18%) simple interest per annum.
The Franchisee will pay Elephant & Castle an administrative fee of seventy-five
dollars ($75) for each delinquent Continuing Fee payment within ten (10) days
after the delinquent Continuing Fee was due. The Franchisee will also reimburse
Elephant & Castle for any and all costs incurred by Elephant & Castle in the
collection of unpaid and past due Continuing Fee payments including, but not
limited to, attorneys' fees, deposition costs, expert witness fees,
investigation costs, accounting fees, filing fees and travel expenses.
REPORTS.
The Franchisee will maintain an accurate written record of the weekly Gross
Sales for the Franchisee's Elephant & Castle-Registered Trademark- Restaurant
and other information specified by Elephant & Castle, and will submit weekly
reports for the Franchisee's Restaurant using the forms and formats that
Elephant & Castle prescribes in writing. The weekly reports will be e-mailed
or faxed to Elephant & Castle by Wednesday of each week for the preceding
week. The weekly reports will be signed by the Franchisee and will include
the Franchisee's weekly Gross Sales, the weekly Continuing Fee payment as
calculated by the Franchisee, and such other information as may be required
by Elephant & Castle.
FRANCHISEE'S OBLIGATION TO PAY.
The Continuing Fee payable to Elephant & Castle under this Article will be
calculated and paid to Elephant & Castle by the Franchisee each week during
the entire term of this Agreement, and the
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Franchisee's failure to pay the weekly Continuing Fee to Elephant & Castle
will be deemed to be a material breach of this Agreement. The Franchisee's
obligation to pay Elephant & Castle the Continuing Fee pursuant to the terms
of this Agreement will be absolute and unconditional, and will remain in full
force and effect until the term of this Agreement has expired or until this
Agreement has been terminated in accordance with the terms and conditions set
forth in this Agreement and applicable law. The Franchisee will not have the
"right of offset" and, as a consequence, the Franchisee will timely pay all
Continuing Fees due to Elephant & Castle under this Agreement regardless of
any claims or allegations the Franchisee may allege against Elephant & Castle.
PRE-AUTHORIZED BANK DEBITS.
The Franchisee will, from time to time during the term of this Agreement,
execute such documents as Elephant & Castle may request to provide the
Franchisee's unconditional and irrevocable authority and direction to its
bank authorizing and directing the Franchisee's bank to pay and deposit
directly to the account of Elephant & Castle, and to charge to the account of
the Franchisee, the amount of the weekly Continuing Fee payable by the
Franchisee pursuant to this Agreement on Wednesday of each week for the
Continuing Fee due for the preceding week. The authorizations will be in the
form prescribed by a bank specified by Elephant & Castle and will permit
Elephant & Castle to designate the amount to be debited or drafted from the
Franchisee's account and to adjust such amount from time to time to the
amount of the weekly Continuing Fee payable to Elephant & Castle by the
Franchisee, as calculated by the Franchisee in the report of weekly Gross
Sales submitted by the Franchisee pursuant to Article 5.3 of this Agreement.
If the Franchisee fails at any time to provide the weekly reports required
under Article 5.3, then Elephant & Castle will have the absolute right to
debit the Franchisee's bank account for the same amount as the most recent
debit to the Franchisee's bank account that was based on actual Gross Sales
provided by the Franchisee. The Franchisee will, at all times during the term
of this Agreement, maintain a balance in its account at its bank sufficient
to allow the appropriate amount to be debited from the Franchisee's account
for payment of the Continuing Fee payable by the Franchisee for deposit in
the account of Elephant & Castle.
LOCAL ADVERTISING
LOCAL ADVERTISING EXPENDITURE.
Each quarter for the entire term of this Agreement, the Franchisee will spend
at a minimum for approved local advertising for its Elephant &
Castle-Registered Trademark- Restaurant an amount equal to two percent (2%)
of the quarterly Gross Sales of the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant (the "Local Advertising Expenditure"). For the purposes
of this Article, local advertising will include television, radio, newspaper,
billboards, magazine, direct mail and other print advertising, which has been
approved by Elephant & Castle prior to broadcast, publication or distribution.
REPORTS OF LOCAL ADVERTISING EXPENDITURES.
Within 10 (ten) days after the end of each quarter, the Franchisee will, in a
form prescribed by Elephant & Castle, furnish Elephant & Castle with an
accurate accounting of the Franchisee's Local Advertising Expenditure during
the quarter just ended. If the Franchisee has failed to spend the required
amount for the Local Advertising Expenditure, then the Franchisee will
deposit with Elephant & Castle the difference between the amount that should
have been spent by the Franchisee for the Local Advertising Expenditure and
the amount actually spent, and this amount will be spent by Elephant & Castle
for advertising and promotion in the Franchisee's Designated Market Area in a
manner deemed appropriate by Elephant & Castle in its sole discretion.
TELEPHONE DIRECTORY LISTINGS.
The Franchisee will continually list and advertise in the "Yellow Pages" in the
Franchisee's market area under the heading "Restaurant" and/or other listings
designated by Elephant & Castle in writing. The
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format, size and content of the listings and advertising will conform in all
respects to the standards established by Elephant & Castle and specified in
the Standard Operations Manual. The Franchisee will also take all steps
necessary to be listed in the "White Pages" for the Franchisee's market area.
Expenditures made by the Franchisee for Yellow Pages or White Pages
advertising may be applied to the Local Advertising Expenditure set forth in
Article 6.1 of this Agreement.
GRAND OPENING ADVERTISING.
The Franchisee will spend, within the period of time from ninety (90) days
prior to the day of the grand opening to 11:00 p.m. on the day of the grand
opening, a minimum of fifteen thousand dollars ($15,000) for grand opening
advertising of the Franchisee's Elephant & Castle-Registered Trademark-
Restaurant. Payments, rebates, or allowances received by the Franchisee from
vendors and used by the Franchisee in connection with advertising and
promoting the grand opening of the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant may be applied to the minimum grand opening expenditure
requirement set forth in this Article. The Franchisee's expenditures for
grand opening advertising will not be applied to the Local Advertising
Expenditure requirement set forth in Article 6.1 of this Agreement.
FINANCIAL STATEMENTS
MONTHLY REPORTS AND FINANCIAL STATEMENTS.
The Franchisee will, at its expense, prepare a monthly and year-to-date
balance sheet and profit and loss statement for the Franchisee's Restaurant
("the Monthly Report"). The Franchisee will also prepare, at its expense,
annual financial statements, consisting of a balance sheet, profit and loss
statement, statement of cash flows and explanatory footnotes, for the
Franchisee's Restaurant (the "Financial Statements"). All Monthly Reports and
Financial Statements provided to Elephant & Castle pursuant to this Article
will be in substantially the form prescribed by Elephant & Castle in writing,
will conform to the standard chart of accounts prescribed by Elephant &
Castle and will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis.
DUE DATE; VERIFICATION OF MONTHLY REPORTS AND FINANCIAL STATEMENTS.
The Monthly Report for the Franchisee's Restaurant will be delivered to Elephant
& Castle within twenty (20) days after the end of the month. The Franchisee's
Financial Statements will be delivered to Elephant & Castle within ninety (90)
days after the Franchisee's fiscal year end. The Franchisee's Monthly Reports
and Financial Statements must be verified by the Franchisee's Chief Financial
Officer.
SUBSTANTIATION OF MONTHLY REPORTS AND FINANCIAL STATEMENTS.
Within three (3) business days after receiving a written request from Elephant &
Castle, the Franchisee will provide Elephant & Castle with originals or exact
copies of all documents, records and other materials including, but not limited
to, cash register tapes, customer checks, point-of-sale system records, payroll
records and purchasing and expense records, requested by Elephant & Castle to
substantiate the Monthly Reports and Financial Statements submitted by the
Franchisee pursuant to this Article. Elephant & Castle will maintain the
confidentiality of all information, documents, records and other materials
submitted by the Franchisee to Elephant & Castle pursuant to this Article.
However, if the information, documents, records or other materials are relevant
to any issue in any mediation, arbitration or court proceeding between Elephant
& Castle and the Franchisee, then Elephant & Castle may disclose the
information, documents, records or other materials in such proceeding.
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SALES AND INCOME TAX RETURNS.
Within fifteen (15) days after receipt of a written request from Elephant &
Castle, the Franchisee will furnish Elephant & Castle with exact copies of all
state sales tax returns and all state and federal income tax returns filed by
the Franchisee relating to the operation of the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant.
AUDIT RIGHTS.
Within three (3) business days after receiving written notice from Elephant &
Castle, the Franchisee and the Franchisee's accountants will make all of their
computer and hand prepared records and ledgers, the sales ledger, work papers,
books, bank statements, federal and state income tax returns, federal and state
sales tax returns, daily cash register tapes, accounts, and other financial
information relating to Gross Sales, food and liquor costs, and labor costs (the
"Financial Records") available to Elephant & Castle during business hours for
review and audit by Elephant & Castle or its designee. If the Financial Records
are computerized, then the Franchisee will grant Elephant & Castle or its
designees the absolute right to access the Franchisee's computer and software
programs containing the Financial Records and the absolute right to copy the
Financial Records to a computer disk or to any portable or other computer owned
or controlled by Elephant & Castle. The Financial Records for each fiscal year
will be kept in a secure place by the Franchisee and will be available for audit
by Elephant & Castle for at least five (5) years. The Franchisee will provide
Elephant & Castle with adequate facilities to conduct the audit. Elephant &
Castle will maintain the confidentiality of all information, documents, records
and other materials reviewed or copied by Elephant & Castle during an audit
conducted by Elephant & Castle pursuant to this Article. However, if the
information, documents, records or other materials are relevant to any issue in
any mediation, arbitration or court proceeding between Elephant & Castle and the
Franchisee, then Elephant & Castle may disclose the information, documents,
records or other materials in such proceeding.
PAYMENT OF AUDIT COSTS.
If an audit of the Franchisee's Financial Records reveals any deficiencies in
the Continuing Fees payable to Elephant & Castle, then the Franchisee will,
within five (5) days after receipt of an invoice from Elephant & Castle
indicating the amounts owed, pay to Elephant & Castle any deficiency owed to
Elephant & Castle, together with interest as provided for herein. If an audit by
Elephant & Castle results in a determination that the Franchisee's Gross Sales
were understated by more than one percent (1%) in any year or in any month, then
the Franchisee will, within fifteen (15) days after receipt of an invoice from
Elephant & Castle, pay Elephant & Castle all costs and expenses (including
employee salaries, travel costs, room and board, and audit fees) that Elephant &
Castle incurred for the audit of the Franchisee's Financial Records.
REFUSAL TO SUBMIT RECORDS OR PERMIT AUDIT.
The Franchisee's failure or refusal to provide the documents, records or other
materials requested by Elephant & Castle to substantiate the Monthly Reports or
Financial Statements in accordance with Article 7.3 or to produce the Financial
Records in accordance with Article 7.5 will be grounds for the immediate
termination of this Agreement by Elephant & Castle.
QUALITY CONTROL, UNIFORMITY AND STANDARDS
QUALITY AND SERVICE STANDARDS.
Elephant & Castle will develop, from time to time, uniform standards of
quality, cleanliness and service regarding the business operations of the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant to protect
and maintain (for the benefit of Elephant & Castle and all of its
franchisees) the distinction, valuable goodwill and uniformity represented
and symbolized by the Marks and the Restaurant System. Accordingly, to ensure
that all Elephant & Castle franchisees will maintain and adhere to the
uniformity
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requirements and quality standards for the foods, products and services
associated with the Marks and the Restaurant System, the Franchisee agrees to
maintain the uniformity and quality standards required by Elephant & Castle
for all foods, products and services associated with the Marks and the
Restaurant System and agrees to the terms and conditions contained in this
Article to assure the public that all Elephant & Castle-Registered
Trademark- Restaurants will be uniform in nature and will sell and dispense
quality foods, products and services.
IDENTIFICATION OF RESTAURANT.
The Franchisee will operate the Restaurant so that it is clearly identified
and advertised as an Elephant & Castle-Registered Trademark- Restaurant. The
style and form of the words "Elephant & Castle-Registered Trademark-" and the
other Marks used in any advertising, marketing, public relations or
promotional program must have the prior written approval of Elephant &
Castle. The Franchisee will use the name "Elephant & Castle-Registered
Trademark-," the approved logos and all graphics commonly associated with the
Restaurant System and the Marks which now or hereafter may form a part of the
Restaurant System, on all paper supplies, furnishings, advertising, public
relations and promotional materials, signs, stationery, business cards,
linens, towels, napkins, aprons, menus, food and beverage containers,
placemats, uniforms, clothing and other materials in the identical
combination and manner as may be prescribed by Elephant & Castle in writing.
The Franchisee will, at its expense, comply with all legal notices of
registration required by Elephant & Castle or its attorneys and will, at its
expense, comply with all trademark, trade name, service mark, copyright,
patent or other notice markings that are required by Elephant & Castle or by
applicable law.
COMPLIANCE WITH STANDARDS.
The Franchisee will use the Marks and the Restaurant System in strict compliance
with the moral and ethical standards, quality standards, health standards,
operating procedures, specifications, requirements and instructions required by
Elephant & Castle, which may be amended and supplemented by Elephant & Castle
from time to time.
ALTERATIONS TO RESTAURANT.
The Franchisee will not install or permit to be installed in, on or above the
Restaurant, without the prior written consent of Elephant & Castle, any
fixtures, furnishings, equipment, decor, signs or other items not previously
approved by Elephant & Castle.
PROHIBITED SALES.
The Franchisee will offer for sale at the Franchised Location only those menu
items, food products and other products approved in writing by Elephant &
Castle. Elephant & Castle will provide the Franchisee with a sample of the
standard Elephant & Castle menu and all subsequent modifications to the menu.
OTHER BUSINESS.
The Franchisee will use the Franchised Location solely for the operation of
an Elephant & Castle-Registered Trademark- Restaurant and will not directly
or indirectly operate or engage in any other business or activity from the
Franchised Location without the prior written consent of Elephant & Castle.
The Franchisee will not participate in any dual branding program, or in any
other program, promotion or business pursuant to which a trademark, service
mark, trade name, logo, slogan, or commercial symbol owned by any person or
entity other than Elephant & Castle is displayed, featured or used in
connection with the Franchisee's Elephant & Castle-Registered Trademark-
Restaurant without the prior written consent of Elephant & Castle.
FRANCHISEE'S NAME.
The Franchisee will not use the name "Elephant & Castle-Registered
Trademark-" or any derivative thereof in its corporate, partnership or sole
proprietorship name. The Franchisee will hold itself out to the public as an
independent contractor operating its Elephant & Castle-Registered Trademark-
Restaurant pursuant to a Franchise from Elephant & Castle. The Franchisee
will file for a certificate of assumed name in the manner required
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by applicable state law to notify the public that the Franchisee is operating
its Elephant & Castle-Registered Trademark- Restaurant as an independent
contractor pursuant to this Agreement.
OPERATION OF ELEPHANT & CASTLE-Registered Trademark- RESTAURANT.
The Franchisee will be totally and solely responsible for the operation of
its Elephant & Castle-Registered Trademark- Restaurant, and will control,
supervise and manage all the employees, agents and independent contractors
who work for or with the Franchisee. The Franchisee will be responsible for
the acts of its employees, agents, and independent contractors and will take
all reasonable business actions necessary to ensure that its employees,
agents and independent contractors comply with all applicable federal, state,
city, local and municipal laws, statutes, ordinances, rules and regulations.
Elephant & Castle will not have any right, obligation or responsibility to
control, supervise or manage the Franchisee's employees, agents or
independent contractors.
BUSINESS HOURS.
The Franchisee's Elephant & Castle-Registered Trademark- Restaurant will be
open from 11:00 a.m. to 11:00 p.m. every day of the week, or during such
other normal business hours as otherwise may be specified by Elephant &
Castle in the Standard Operations Manual.
PERSONNEL.
The Franchisee will at all times during business hours have management personnel
on duty who are responsible for supervising the employees and the business
operations of the Franchisee's Restaurant. The Franchisee will maintain a
competent, conscientious and adequately trained staff with enough personnel to
operate the Restaurant in a professional and competent manner and to guarantee
efficient service to the Franchisee's customers. The Franchisee will take such
steps as are necessary to ensure that its employees develop and preserve good
customer relations, render competent, prompt, courteous and knowledgeable
service and meet the quality and service standards established by Elephant &
Castle.
STANDARDS OF SERVICE.
The Franchisee will at all times give prompt, courteous and efficient service to
its customers. The Franchisee will, in all dealings with its customers,
suppliers and the public, adhere to the highest standards of honesty, integrity,
fair dealing and ethical conduct.
ALCOHOLIC BEVERAGES.
The Franchisee will serve beer, wine and alcoholic beverages at its Elephant
& Castle-Registered Trademark- Restaurant. The Franchisee will comply with
all federal, state, city, local and municipal licensing, insurance and other
laws, regulations and requirements applicable to the sale of alcoholic
beverages by the Franchisee. The Franchisee will comply with the liquor
liability insurance requirements set forth in Article 14 of this Agreement.
VENDING MACHINES AND ENTERTAINMENT DEVICES.
Other than those items which the Franchisee must procure and place in the
premises of the Franchised Location as specified in the Standard Operations
Manual, the Franchisee will not permit any jukebox, video and electronic games,
vending machines (including cigarette, gum and candy machines), newspaper racks,
rides or other mechanical or electronic entertainment devices or coin or token
operated machines (including pinball) to be used on the premises of the
Franchised Location without the prior written approval of Elephant & Castle.
GAMBLING MACHINES; TICKETS.
The Franchisee will not permit any gambling machines or other gambling devices
to be used on the premises of the Franchised Location, except with the prior
written approval of Elephant & Castle. The Franchisee will not keep or offer for
sale or allow employees to offer for sale at or near the Franchised
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Location any tickets, subscriptions, pools, chances, raffles, lottery tickets
or pull tabs, except with the prior written approval of Elephant & Castle.
STANDARD ATTIRE OR UNIFORMS.
The Franchisee will require its employees to wear the standard attire or
uniforms described in the Standard Operations Manual. All employees of the
Franchisee will wear clean and neat attire or uniforms and will practice good
personal hygiene.
CREDIT CARDS.
The Franchisee will honor all credit, charge, courtesy or cash cards or other
credit devices required or approved by Elephant & Castle in writing. The
Franchisee must obtain the written approval of Elephant & Castle prior to
honoring any unapproved credit, charge, courtesy or cash cards or other credit
devices.
GIFT CERTIFICATES AND COUPONS.
The Franchisee will offer the gift certificates issued by Elephant & Castle
for use by its franchisees. The Franchisee will not have the right to sell or
issue gift certificates except those that have been obtained from Elephant &
Castle. The Franchisee will not issue coupons or discounts of any type,
except as may be approved in advance in writing by Elephant & Castle. Such
coupons will clearly state that they are redeemable only at the Franchisee's
Elephant & Castle-Registered Trademark- Restaurant, and not at any other
Elephant & Castle-Registered Trademark- Restaurant.
MUSIC AND MUSIC SELECTION.
In order to maintain the image and ambiance associated with the Restaurant
System, the Franchisee will only play the music and music selections that have
been approved by Elephant & Castle as set forth in the Standard Operations
Manual.
APPROVED ADVERTISING.
The Franchisee will not conduct any advertising and/or promotion for its
Elephant & Castle-Registered Trademark- Restaurant business unless and until
Elephant & Castle has given the Franchisee prior written approval for all
concepts, materials and media proposed for any such advertising and/or
promotion. The Franchisee will not permit any third party to advertise its
business, services or products on the premises of the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant without the prior written approval of
Elephant & Castle.
COMPLIANCE WITH APPLICABLE LAW.
The Franchisee will, at its expense, comply with all applicable federal,
state, city, local and municipal laws, statutes, ordinances, rules and
regulations pertaining to the construction or remodeling of the Franchised
Location and the operation of the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant including, but not limited to, all health, food service
and liquor licensing laws, all health and safety regulations, all
environmental laws, all laws relating to employees, including all wage and
hour laws, employment laws, workers' compensation laws, discrimination laws,
sexual harassment laws, and disability discrimination laws. The Franchisee
will, at its expense, be solely and exclusively responsible for determining
the licenses and permits required by law for the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant, for obtaining and qualifying for all
such licenses and permits, and for complying with all applicable laws.
PAYMENT OF TAXES.
The Franchisee will be absolutely and exclusively responsible and liable for
filing all required tax returns and for the prompt payment of all federal,
state, city and local taxes including, but not limited to, individual and
corporate income taxes, sales and use taxes, franchise taxes, gross receipts
taxes, employee withholding taxes, F.I.C.A. taxes, inventory taxes, liquor
taxes, personal property taxes and
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real estate taxes (hereinafter referred to as "taxes") payable in connection
with the Franchisee's Elephant & Castle-Registered Trademark- Restaurant
business. Elephant & Castle will have no liability for these or any other
taxes which arise or result from the Franchisee's Restaurant business and the
Franchisee will indemnify Elephant & Castle for any such taxes that may be
assessed or levied against Elephant & Castle which arise out of or result
from the Franchisee's Restaurant.
"FRANCHISE" AND OTHER TAXES.
If any "franchise" or other tax which is based upon the Gross Sales,
receipts, sales, business activities or operation of the Franchisee's
Elephant & Castle-Registered Trademark- Restaurant is imposed upon Elephant &
Castle by any taxing authority, then the Franchisee will reimburse Elephant &
Castle in an amount equal to the amount of such taxes and related costs
imposed upon and paid by Elephant & Castle. The Franchisee will be notified
in writing when Elephant & Castle is entitled to reimbursement for the
payment of such taxes and, in that event, the Franchisee will pay Elephant &
Castle the amount specified in the written notice within ten (10) days after
receipt of the written notice.
PAYMENTS TO CREDITORS.
The Franchisee will timely pay all of its obligations and liabilities due and
payable to Elephant & Castle, suppliers, lessors and its creditors.
SECURITY INTEREST IN FRANCHISE AGREEMENT.
This Agreement and the Franchise granted to the Franchisee hereunder may not be
used as collateral or be the subject of a security interest, lien, levy,
attachment or execution by the Franchisee's creditors or any financial
institution, except with the prior written approval of Elephant & Castle.
INSPECTION RIGHTS.
The Franchisee will permit Elephant & Castle or its representatives to enter,
remain on, and inspect the Franchised Location, whenever Elephant & Castle
reasonably deems it appropriate and without prior notice, to interview the
Franchisee's employees and customers, to take photographs and videotapes of
and to examine the interior and exterior of the Franchised Location, to
examine representative samples of the foods, beverages and other products
sold or used at the Franchisee's Restaurant and to evaluate the quality of
the foods, beverages, products and services provided by the Franchisee to its
customers. Elephant & Castle will also have the right to send a
representative of Elephant & Castle to dine at the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant to evaluate the operations of the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant and the
quality of the foods and services provided by the Franchisee to its
customers. Elephant & Castle will have the right to use all interviews,
photographs and videotapes of the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant for such purposes as Elephant & Castle deems
appropriate including, but not limited to, use in advertising, marketing and
promotional materials. The Franchisee will not be entitled to, and hereby
expressly waives, any right that it may have to be compensated by Elephant &
Castle, its advertising agencies, and other Elephant & Castle franchisees for
the use of such photographs or videotapes for advertising, marketing and
promotional purposes.
DEFAULT NOTICES AND SIGNIFICANT CORRESPONDENCE.
The Franchisee will deliver to Elephant & Castle, immediately upon receipt by
the Franchisee or delivery at the Franchised Location, an exact copy of all:
(a) notices of default received from the landlord of the Franchised Location
or any mortgagee, trustee under any deed of trust, contract for deed holder,
lessor, or any other party with respect to the Franchised Location; (b)
notifications or other correspondence relating to any legal proceeding or
lawsuit relating in any way to the Franchisee's Restaurant or to the
Franchised Location; (c) consumer lawsuits, complaints or claims filed with
or served upon the Franchisee or a better business bureau; (d) employee
lawsuits, complaints or claims; and (e) inspection reports or any other
notices, claims, reports, warnings or citations from or by any governmental
authority, including any health or safety authority. Upon a
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written request from Elephant & Castle, the Franchisee will provide such
additional information as may be required by Elephant & Castle regarding the
subject matter of the correspondence or other documents received by the
Franchisee.
PRODUCTS AND SERVICES
LIMITATIONS ON PRODUCTS AND SERVICES.
The Franchisee will sell only those foods, beverages, food products, clothing,
and services and other items approved by Elephant & Castle in writing and will
offer for sale all foods, beverages, food products, clothing, services and other
items prescribed by Elephant & Castle or approved by Elephant & Castle in
writing. Prior to the opening of the Restaurant, Elephant & Castle will provide
the Franchisee with a written schedule of all foods, food products, beverages,
clothing, and other items for sale, and the fixtures, supplies and equipment
necessary and required to commence operation of the Franchisee's Restaurant. The
Franchisee will maintain sufficient inventories of foods, beverages, food
products, clothing, and other items to realize the full potential of the
Restaurant. The Franchisee will conform to all customer service standards
prescribed by Elephant & Castle in writing. The Franchisee will have the
absolute right to sell all foods, beverages, food products, clothing, services
and other items at whatever prices and on whatever terms it deems appropriate.
LIMITATION ON SALES.
The Franchisee will offer for sale and sell those foods, beverages, food
products, clothing, services and other items offered for sale in connection
with the Franchisee's Elephant & Castle-Registered Trademark- Restaurant or
which are sold under any of the Marks only on a retail basis at the
Franchisee's Franchised Location. The Franchisee will not offer for sale or
sell on a wholesale or retail basis at any other location or in any other
premises, or by means of the Internet, catalogue or mail order sales,
telemarketing, or by any other method of sales or distribution, any of the
foods, beverages, food products, clothing, services or other items offered
for sale or sold in connection with the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant or which are sold under any of the
Marks.
APPROVED SUPPLIERS AND DISTRIBUTORS.
The Franchisee will purchase from suppliers and distributors approved in
writing by Elephant & Castle those foods, food items, beverages, recipe
ingredients, goods, products, clothing, merchandise, supplies, sundries,
uniforms, machinery, signs, furniture, fixtures, equipment and services
(sometimes referred to in this Agreement as "products and services")
designated in writing by Elephant & Castle which are to be used or sold by
the Franchisee and which Elephant & Castle determines must meet the standards
of quality and uniformity required to protect the valuable goodwill and
uniformity symbolized by and associated with the Marks and the Restaurant
System and/or to protect the health and safety of the Franchisee's employees,
customers and guests. Elephant & Castle will provide the Franchisee with a
list of the approved suppliers and distributors for these products and
services. The Franchisee will have the right and option to purchase these
products and services from other or outside suppliers and distributors
provided that such products and services conform in quality to the standards
and specifications of Elephant & Castle and provided that Elephant & Castle
determines that the supplier's or distributor's business reputation, quality
standards, delivery performance, credit rating, and other factors determined
by Elephant & Castle are satisfactory. If the Franchisee desires to purchase
any products or services from such other suppliers and distributors, then the
Franchisee must, at its expense, submit samples and specifications, and other
business and product information as requested, to Elephant & Castle for
review and/or product testing to determine whether the supplier or
distributor and its products and services are satisfactory to Elephant &
Castle and comply with Elephant & Castle's standards and specifications.
Elephant & Castle will also have the right to inspect the facilities of the
proposed supplier or distributor. The Franchisee will reimburse Elephant &
Castle for the costs and expenses incurred by Elephant & Castle to conduct an
inspection of the facilities of
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the unapproved supplier or distributor within thirty (30) days after the
Franchisee's receipt of an invoice for such costs and expenses from Elephant
& Castle. Elephant & Castle will complete all product testing within thirty
(30) days after Elephant & Castle receives the samples and other requested
information from the Franchisee, and will notify the Franchisee of its
determination within fifteen (15) days after completion of the testing
process. The written approval of Elephant & Castle must be obtained by the
Franchisee before any previously unapproved products and services are sold by
or used by the Franchisee or any previously unapproved supplier or
distributor is used by the Franchisee.
DESIGNATED SUPPLIERS.
The Franchisee will purchase from designated suppliers those proprietary
seasonings and other foods, food items and recipe ingredients, and clothing
items designated in writing by Elephant & Castle which are to be used or sold by
the Franchisee and which Elephant & Castle determines must meet the standards of
quality and uniformity required to protect the valuable goodwill and uniformity
symbolized by and associated with the Marks and the Restaurant System. In
addition, the Franchisee will purchase and use in its Restaurant operations all
the brand name products required by Elephant & Castle. Such required brand name
products may be purchased from any commercial supplier of such products.
USE OF REBATES FROM SUPPLIERS.
Any rebates or other payments paid to Elephant & Castle by a supplier as a
result of the Franchisee's purchases from the supplier will be used by
Elephant & Castle for the creation, development and production of advertising
and promotional materials, marketing or related research and development,
advertising and marketing expenses, product and food research and
development, advertising materials, production costs, brochures, ad slicks,
radio, film and television commercials, videotapes, newspaper, magazine and
other print advertising, direct mail pieces, photographer costs, photographs,
pictures, designs, services provided by advertising agencies, public
relations firms or other marketing, research or consulting firms or agencies,
market research and marketing surveys, menu design and graphics, customer
incentive programs, sponsorships, marketing meetings, sales incentives,
development of Home Pages on the Internet, Internet access provider costs,
Internet/World Wide Web programming and advertising, subscriptions to
industry newsletters or magazines, marketing or industry studies, books and
research materials, administrative costs or salaries for marketing support
personnel.
LIMITATION ON BRANDING, DEVELOPMENT AND SALE OF PRODUCTS.
Nothing in this Agreement gives the Franchisee the right to, and the
Franchisee will not: (a) use or display the Marks on or in connection with
any product or service other than those products and services prescribed or
approved by Elephant & Castle; (b) acquire, develop or manufacture any
product using the name "Elephant & Castle-Registered Trademark-" or any of
the Marks, or direct any other person or entity to do so; (c) acquire,
develop or manufacture any product that has been developed or manufactured by
or for Elephant & Castle for use in the Restaurant System and which is sold
under any of the Marks, or direct any other person or entity to do so; and
(d) use, have access to, or have any rights to any proprietary formulas,
ingredients, or recipes for any product created by or at the direction of
Elephant & Castle and sold under the name "Elephant & Castle-Registered
Trademark-" or any of the Marks.
INDEPENDENT SHOPPING SERVICES.
Elephant & Castle will have the right to hire an independent shopping service
to visit, dine at and evaluate the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant and the quality of the foods, beverages and services
provided to customers by the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant. Elephant & Castle will determine the number and
frequency of the visits the shopping service will make to the Franchisee's
Elephant & Castle-Registered Trademark- Restaurant and the form of the
reports the shopping service will provide to Elephant & Castle. The fees
charged by the shopping service for visiting and evaluating the Franchisee's
Elephant & Castle-Registered Trademark- Restaurant will be paid by Elephant &
Castle. Elephant & Castle
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will provide the Franchisee with copies of all reports prepared by the
shopping service evaluating the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant.
STANDARD OPERATIONS MANUAL
COMPLIANCE WITH MANUAL.
In order to protect the reputation and goodwill of Elephant & Castle, and to
maintain the uniform operating standards under the Marks and the Restaurant
System, the Franchisee will at all times conduct its business and operate its
Elephant & Castle-Registered Trademark- Restaurant in compliance with
Elephant & Castle's confidential and copyrighted Standard Operations Manual
(sometimes referred to as the "Manual") which is incorporated herein and made
part of this Agreement. The Franchisee will conform to the common image and
identity created by the foods, beverages, products, music, food portions,
recipes, ingredients, cooking techniques and processes, cleanliness,
sanitation and services associated with the Elephant & Castle-Registered
Trademark- Restaurant which are portrayed and described by the Manual. The
Franchisee acknowledges having received on loan from Elephant & Castle one
copy of the Manual.
REVISIONS TO MANUAL.
Elephant & Castle reserves the right to and may from time to time revise the
Standard Operations Manual. The Franchisee will, as promptly as reasonably
possible, modify the operations of the Restaurant to implement all changes,
additions and supplements made by Elephant & Castle to the Restaurant System
which are reflected by the Manual. The Franchisee will implement all operational
changes to the Restaurant System deemed necessary by Elephant & Castle to: (a)
improve the standards of service or the food, food items, beverages, and
products offered for sale under the Restaurant System; (b) protect the goodwill
associated with the Marks; (c) improve the operation of the Franchisee's
Restaurant; or (d) protect the health and safety of the Franchisee's employees,
customers or guests. The Franchisee will at all times keep its copy of the
Manual current and up-to-date, and in the event of any dispute regarding the
Manual, the terms of the master copy of the Manual maintained by Elephant &
Castle will be controlling in all respects.
CONFIDENTIALITY OF MANUAL.
The Standard Operations Manual, and all revisions thereto, will at all times
during the term of this Agreement and thereafter remain the sole and
exclusive property of Elephant & Castle, which will own all copyright and
other interests related to the Manual. The Franchisee will at all times
during the term of this Agreement and thereafter treat the Manual and any
other manuals created for or approved for use in the operation of the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant as secret and
confidential, and the Franchisee will use all reasonable means to keep such
information secret and confidential. Neither the Franchisee nor any employees
of the Franchisee will make any copy, duplication, record or reproduction of
the Manual, or any portion thereof, available to any unauthorized person. The
Franchisee will not use the Manual or any information contained therein in
connection with the operation of any other business or for any purpose other
than in conjunction with the operation of the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant.
CONFIDENTIALITY OF OTHER INFORMATION.
Elephant & Castle and the Franchisee expressly understand and agree that
Elephant & Castle will be disclosing and providing to the Franchisee certain
confidential and proprietary information concerning the Restaurant System and
the procedures, operations, technology and data used in connection with the
Restaurant System. The Franchisee will not, during the term of this Agreement
or thereafter, communicate, divulge or use for the benefit of any other
person or entity any such confidential and proprietary information, knowledge
or know-how concerning the methods of operation of the Elephant &
Castle-Registered Trademark- Restaurant which may be communicated to the
Franchisee, or of which the Franchisee may
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be apprised by virtue of this Agreement. The Franchisee will divulge such
confidential and proprietary information only to its employees who must have
access to it in order to operate the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant. Any and all information, knowledge
and know-how including, without limitation, drawings, client lists,
materials, equipment, technology, methods, procedures, techniques, recipes,
specifications, computer programs, systems and other data which Elephant &
Castle copyrights or designates as confidential or proprietary will be deemed
confidential and proprietary for the purposes of this Agreement.
BUSINESS PREMISES
SITE LOCATION.
The Franchisee will be solely responsible for selecting the site of the
Franchised Location for the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant, regardless of whether the Franchised Location is owned
or leased by the Franchisee. The Franchisee will retain an experienced
commercial real estate broker or salesperson who has at least five (5) years
experience in locating restaurant sites to advise the Franchisee and to
locate, acquire, purchase or lease the site for the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant. Accordingly, no provision in this
Agreement will be construed or interpreted to impose any obligation upon
Elephant & Castle to locate a site for the Franchised Location, to assist the
Franchisee in the selection of a suitable site for the Franchised Location,
or to provide any assistance to the Franchisee in the purchase or lease of
the Franchised Location.
SITE LOCATION CRITERIA.
Elephant & Castle may require that the Franchisee provide to Elephant &
Castle for its review site information relating to, among other things,
accessibility, visibility, potential traffic flows, population trends,
household income and financial statistics, lease terms and other demographic
information. The review of the site conducted by Elephant & Castle will not
be deemed to be a warranty, representation or guaranty by Elephant & Castle
that if the Franchisee's Elephant & Castle-Registered Trademark- Restaurant
is opened and operated at that site, it will be a financial success. Elephant
& Castle will have the right to require the Franchisee to obtain, at the
Franchisee's expense, an economic feasibility and demographics study for the
proposed site of the Franchised Location. Any feasibility and demographics
study required by Elephant & Castle will be completed by a real estate or
marketing expert mutually agreed upon in writing by Elephant & Castle and the
Franchisee.
CONSTRUCTION AND REMODELING COSTS.
The Franchisee will, at its cost, retain a licensed architect and will be
responsible for the preparation of the floor plans, layouts, working drawings
and construction plans and architectural plans and specifications for the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant. The
Franchisee will be responsible for the accuracy of such floor plans, layouts,
drawings, plans and specifications. The Franchisee will, at its expense, be
solely responsible for all costs and expenses incurred for the construction,
renovation or remodeling of the Franchisee's Elephant & Castle-Registered
Trademark- Restaurant at the Franchised Location including, but not limited
to, all costs for architectural plans and specifications, all modifications
to the floor plans and layouts necessitated by the structure, construction or
layout of the Franchised Location, building permits, site preparation,
demolition, construction of the parking lot, landscaping, heating,
ventilation and air conditioning, interior decorations, furniture, fixtures,
equipment, leasehold improvements, labor, architectural and engineering fees,
electricians, plumbers, general contractors and subcontractors.
COMPLIANCE WITH SPECIFICATIONS.
The Franchised Location and the Franchisee's Restaurant will conform to all
specifications for decor, furniture, fixtures, equipment, exterior and
interior decorating designs and color schemes established by Elephant &
Castle. The Franchisee will obtain and pay for the furniture, fixtures,
supplies and
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equipment required by Elephant & Castle and used by the Franchisee for the
operation of its Elephant & Castle-Registered Trademark- Restaurant. The
furniture, fixtures and equipment used in the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant must be installed and located in
accordance with the floor plans approved by Elephant & Castle, and must
conform to the quality standards and uniformity requirements established by
Elephant & Castle.
INSPECTION DURING CONSTRUCTION OR RENOVATION.
The Franchisee will be solely responsible for inspecting the Franchised Location
during construction or renovation to confirm that the Franchised Location is
being constructed or renovated in a workmanlike manner and according to the
specifications established by Elephant & Castle. The Franchisee will be solely
responsible for complying with all applicable local, state and federal laws,
ordinances, statutes and building codes, and for acquiring all licenses and
building and other permits required by all federal, state, city, municipal and
local laws in connection with the construction or renovation of the Franchisee's
business premises at the Franchised Location. Elephant & Castle will have no
responsibility to the Franchisee or any other party if the Franchised Location
is not constructed or renovated by the Franchisee or its architect or
contractor: (a) according to the standard specifications established by Elephant
& Castle; (b) in compliance with all applicable federal, state or local laws or
ordinances; or (c) in a workmanlike manner. The Franchisee will not open the
Restaurant for business without the prior written approval of Elephant & Castle.
MAINTENANCE.
The Franchisee will, at its expense, repair, paint and keep in a clean and
sanitary condition the interior, the exterior, the parking lot, signage,
exterior lighting, and the grounds of the Franchised Location and the
Franchisee's Restaurant, and will replace all floor covering, wall coverings,
light fixtures, curtains, blinds, shades, furniture, room furnishings, wall
hangings, signs, fixtures and other decor items as they become worn-out, soiled
or in disrepair. All mechanical equipment, including ventilation, heating and
air conditioning, must be kept in good working order by the Franchisee at all
times. All replacement equipment, decor items, furniture, fixtures, signs,
supplies and other items used in the Restaurant by the Franchisee must comply
with the then-current standards and specifications of Elephant & Castle.
REMODELING OF BUSINESS PREMISES.
The Franchisee will make the reasonable capital expenditures necessary to
extensively remodel, modernize, redecorate and renovate ("remodel" or
"remodeling") the Franchisee's Restaurant and to replace and modernize the
furniture, fixtures, supplies and equipment ("FF&E") so that the Franchisee's
Restaurant will reflect the then-current image of an Elephant &
Castle-Registered Trademark- Restaurant. All remodeling and all replacements
for the FF&E must conform to the then-current specifications of Elephant &
Castle. The Franchisee will commence remodeling the Franchised Location
within four (4) months after the date the Franchisee receives written notice
from Elephant & Castle specifying the required remodeling, and will
diligently complete such remodeling within a reasonable time after its
commencement. Except as provided for in Article 11.6 of this Agreement, the
Franchisee will not be required to remodel the Restaurant, or to replace and
modernize its FF&E more than once every five (5) years during the term of
this Agreement.
SIGNS
APPROVED SIGNS.
The signs used at the Franchised Location (the "Signs") must comply with the
standard sign plans and specifications established by Elephant & Castle.
Elephant & Castle will provide the Franchisee with a copy of the standard
sign plans and specifications and the Franchisee will, at its expense,
prepare or cause the preparation of complete and detailed plans and
specifications for the Signs and will submit such plans and specifications to
Elephant & Castle for its written approval. Elephant & Castle
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will have the absolute right to inspect, examine, videotape and photograph
the Signs for any reason at any time during the term of this Agreement.
PAYMENT OF COSTS AND EXPENSES.
The Franchisee will, at its expense, be responsible for any and all installation
costs, sign costs, architectural fees, engineering costs, construction costs,
permits, licenses, repairs, maintenance, utilities, insurance, taxes,
assessments and levies in connection with the construction, erection,
maintenance or use of the Signs including, if applicable, all electrical work,
construction of the base and foundation, relocation of power lines and all
required soil preparation work. The Franchisee will comply with all federal,
state and local laws, regulations, building codes and ordinances relating to the
construction, erection, maintenance and use of the Signs.
MODIFICATIONS; INSPECTION.
The Franchisee may not alter, remove, change, modify, or redesign the Signs
unless approved by Elephant & Castle in writing. Elephant & Castle will have
the unequivocal and unilateral right to redesign the plans and specifications
for the Signs during the term of this Agreement without the approval or
consent of the Franchisee. Within thirty (30) days after receipt of written
notice from Elephant & Castle, the Franchisee must, at its expense, either
modify or replace the Signs so that the Signs displayed at the Franchised
Location will comply with the redesigned plans and specifications as issued
by Elephant & Castle. The Franchisee will not be required to modify or
replace the Signs more than once every five (5) years.
TELECOMMUNICATION AND COMPUTER EQUIPMENT
TELECOMMUNICATION EQUIPMENT.
The Franchisee will, at its sole expense, obtain and maintain at all times
during the term of this Agreement, the telephone answering equipment,
electronic telephone facsimile ("fax") equipment, and such other
telecommunications equipment as may from time to time be required by Elephant
& Castle for use in the operation of the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant business. At all times during the
term of this Agreement, all telecommunication and fax equipment must be in
compliance with the then-current standards and specifications established by
Elephant & Castle, and must be in operation to send and receive information
at such times as may be required by Elephant & Castle.
SATELLITE AND CABLE TELEVISION.
The Franchisee will, at its sole expense, obtain, maintain and provide for
viewing by the customers in the Franchisee's Restaurant, those cable and
satellite television stations, networks and/or systems as may be specified in
writing from time to time by Elephant & Castle. The Franchisee will, at its
sole expense, obtain and maintain all services and equipment necessary to
receive and display such cable and satellite television stations in
accordance with the Standard Operations Manual.
COMPUTER HARDWARE.
The Franchisee will, at its sole expense, purchase the computer hardware and
peripherals, including printers, monitors, modems and networking equipment
(the "Computer Equipment") that will serve as, or integrate with, the
Franchisee's point-of-sale cash register. All Computer Equipment must meet
the standards and specifications established by Elephant & Castle and must be
compatible with the software described in Article 13.4. The Franchisee will
update the Computer Equipment as may from time to time be required by
Elephant & Castle. The Franchisee will purchase a maintenance agreement for
on-site maintenance of the Franchisee's point-of-sale cash register.
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SOFTWARE.
The Franchisee will purchase the computer software and operating system
specified by Elephant & Castle, including software for accounting and cost
control, which meets the specifications described in the Standard Operations
Manual. The Franchisee will, from time to time, update the computer software to
meet the then-current standards and specifications issued by Elephant & Castle.
ACCESS TO COMPUTER DATA.
Elephant & Castle will, at all times during the term of this Agreement, have
the right to directly access all sales, financial, marketing, management and
other business information and all other data maintained and stored by the
Franchisee in its computer databases ("Data and Information"). The Franchisee
will, at its expense, configure its computer and maintain the communications
software and hardware necessary to permit Elephant & Castle to access the
Data and Information by modem and telephone lines and to upload and download
the Data and Information and other business information from and to the
Franchisee's computers, computer data bases and software programs.
INTERNET PROVIDER.
The Franchisee will, at all times during the term of this Agreement, at the
Franchisee's expense, have access to the Internet through the Microsoft
Network, America Online, Prodigy, CompuServe or other Internet access
provider designated or approved by Elephant & Castle.
E-MAIL ADDRESS.
The Franchisee will, at all times during the term of this Agreement, maintain
an e-mail address on the Internet. The Franchisee's e-mail address will be
provided to Elephant & Castle and will be used as a method for the Franchisee
and Elephant & Castle to communicate with each other and to transmit
documents and other information. The Franchisee will not use the words
"Elephant & Castle-Registered Trademark-" as any part of its e-mail address
or its domain name if a Home Page is maintained by the Franchisee on the
Internet. The Franchisee will review its e-mail at least once a day and will
respond to all e-mails within twenty-four (24) hours, except for weekend
e-mails, which will be answered every Monday.
INSURANCE
GENERAL LIABILITY INSURANCE.
The Franchisee will procure and maintain in full force and effect, at its
sole cost and expense, a general liability insurance policy with coverage of
at least one million dollars ($1,000,000) per occurrence insuring the
Franchisee, Elephant & Castle and their respective officers, directors,
agents and employees from and against any and all loss, liability, claim or
expense of any kind whatsoever, including bodily injury, personal injury,
food poisoning or other sickness, death, property damage, products liability
and all other occurrences resulting from the condition, operation, use,
business or occupancy of the Franchisee's Restaurant and the Franchised
Location, including the surrounding premises or area, the parking area and
the sidewalks of the Franchised Location.
LIQUOR LIABILITY INSURANCE.
The Franchisee will procure and maintain in full force and effect, at its
sole cost and expense, liquor liability insurance with coverage of at least
two million dollars ($2,000,000) per occurrence insuring the Franchisee,
Elephant & Castle and their respective officers, directors, agents and
employees from any and all loss, liability, claim or expense of any kind
whatsoever, including bodily injury, personal injury, death, property damage
and all other occurrences resulting from the sale of liquor by the Franchisee
or any of the Franchisee's employees in connection with the Franchisee's
Restaurant.
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AUTOMOBILE LIABILITY INSURANCE.
The Franchisee will procure and maintain in full force and effect, at its sole
cost and expense, automobile liability insurance with coverage of at least one
million dollars ($1,000,000) per occurrence insuring the Franchisee, Elephant &
Castle and their respective officers, directors, agents and employees from any
and all loss, liability, claim or expense of any kind whatsoever resulting from
the use, operation or maintenance of all automobiles or vehicles owned by the
Franchisee or used by the Franchisee or any of the Franchisee's employees
(including automobiles owned or leased by any employee of the Franchisee) in
connection with the Franchisee's Restaurant.
PROPERTY INSURANCE.
The Franchisee will procure and maintain in full force and effect, at its sole
cost and expense, "all risks" property insurance coverage, which will include
fire and extended coverage, for the inventory, machinery, equipment, fixtures
and furnishings owned or leased by the Franchisee and used by the Franchisee at
the Franchised Location. The Franchisee's property insurance policy (including
fire and extended coverage) must have coverage limits equal to at least
"replacement" cost.
BUILDING INSURANCE.
If the Franchisee, or any of the Franchisee's Owners, owns, either directly or
indirectly, the building or the business premises at the Franchised Location,
then the Franchisee will insure the building or the business premises for and
against all risk, loss and damages in an amount equal to at least "replacement"
cost. If the Franchised Location is either partially or completely destroyed by
fire or any other catastrophe, then the Franchisee will use the insurance
proceeds to repair or reconstruct the Franchised Location and recommence
business as soon as reasonably possible.
UMBRELLA LIABILITY.
The Franchisee will, at its sole cost and expense, purchase and maintain
umbrella liability insurance in the amount of one million dollars ($1,000,000)
that will provide liability insurance coverage for any liability incurred by the
Franchisee in excess of the primary general liability, liquor liability,
automobile liability and other liability insurance coverage carried by the
Franchisee.
INSURANCE REQUIRED BY LAW.
The Franchisee will, at its sole cost and expense, procure and maintain all
other insurance required by state or federal law, including workers'
compensation insurance for its employees.
INSURANCE COMPANIES; EVIDENCE OF COVERAGE.
All insurance companies providing coverage to the Franchisee must be acceptable
to and approved by Elephant & Castle, and must be licensed in the state where
coverage is provided. The Franchisee will provide Elephant & Castle with
certificates of insurance evidencing the insurance coverage required of the
Franchisee pursuant to this Article no later than the date the Franchisee opens
for business, and the Franchisee will immediately provide, upon expiration,
change or cancellation, a new certificate of insurance to Elephant & Castle.
DEFENSE OF CLAIMS.
All liability insurance policies procured and maintained by the Franchisee in
connection with the Franchisee's Restaurant will require the insurance company
to provide and pay for attorneys to defend any legal actions, lawsuits or claims
brought against the Franchisee, Elephant & Castle, and their respective
officers, directors, agents and employees.
RIGHTS OF ELEPHANT & CASTLE.
All insurance policies procured and maintained by the Franchisee pursuant to
this Article will name Elephant & Castle as an additional insured, will contain
endorsements by the insurance companies
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waiving all rights of subrogation against Elephant & Castle, and will
stipulate that Elephant & Castle will receive copies of all notices of
cancellation, nonrenewal, or coverage reduction or elimination at least
thirty (30) days prior to the effective date of such cancellation, nonrenewal
or coverage change.
LICENSING OF MARKS AND RESTAURANT SYSTEM
RIGHT TO LICENSE MARKS.
Elephant & Castle warrants that, except as otherwise provided for herein, it has
the right to grant the Franchise and to license the Marks and the Restaurant
System to the Franchisee. Any and all improvements made by the Franchisee to the
Marks or the Restaurant System will be the sole and absolute property of
Elephant & Castle, which will have the exclusive right to register and protect
all such improvements in its name in accordance with applicable law. The
Franchisee's right to use and identify with the Marks and the Restaurant System
will exist concurrently with the term of this Agreement and such use by the
Franchisee will inure exclusively to the benefit of Elephant & Castle.
CONDITIONS TO LICENSE OF MARKS.
Elephant & Castle hereby grants to the Franchisee the nonexclusive personal
right to use the Marks and the Restaurant System in accordance with the
provisions of this Agreement. The Franchisee's nonexclusive personal right to
use "Elephant & Castle-Registered Trademark-" as the name of the Franchisee's
Restaurant and its right to use the Marks and the Restaurant System applies
only to the Franchisee's Restaurant at the Franchised Location and such
rights will exist only so long as the Franchisee fully performs and complies
with all of the conditions, terms and covenants of this Agreement.
"Nonexclusive," for the purposes of this Article, will mean that Elephant &
Castle has or will grant franchises to other franchisees authorizing such
franchisees to operate Elephant & Castle-Registered Trademark- Restaurants in
conformity with the Restaurant System using the name "Elephant &
Castle-Registered Trademark-" and the other Marks, and that Elephant &
Castle, its affiliates and/or subsidiaries have operated and will operate
Elephant & Castle-Registered Trademark- Restaurants.
FRANCHISEE'S USE OF MARKS.
The Franchisee will only use the Marks designated by Elephant & Castle and
only in the manner authorized and permitted by Elephant & Castle. The
Franchisee's right to use the Marks is limited to the uses set forth in this
Agreement and any unauthorized use will constitute an infringement of the
rights of Elephant & Castle under this Agreement and under the Lanham Act (15
U.S.C. Sections 1051, ET SEQ.). The Franchisee will not have or acquire any
rights in any of the Marks or the Restaurant System other than the right of
use as provided herein. The Franchisee will have the right to use the Marks
and the Restaurant System only in the manner prescribed, directed and
approved by Elephant & Castle in writing and will not have the right to use
the Marks in connection with the sale of any products or services other than
those prescribed or approved by Elephant & Castle for sale by the Franchisee.
If, in the judgment of Elephant & Castle, the acts of the Franchisee infringe
upon or demean the goodwill, uniformity, quality or business standing
associated with the Marks or the Restaurant System, then the Franchisee will,
upon written notice from Elephant & Castle, immediately modify its use of the
Marks or the Restaurant System in the manner prescribed by Elephant & Castle
in writing.
ADVERSE CLAIMS TO MARKS.
If there are any claims by any third party that its rights to any or all of the
Marks are superior to those of Elephant & Castle and if the attorneys for
Elephant & Castle are of the opinion that such claim by a third party is legally
meritorious, or if there is an adjudication by a court of competent jurisdiction
that any party's rights to the Marks are superior to those of Elephant & Castle,
then upon receiving written notice from Elephant & Castle, the Franchisee will,
at its sole expense, immediately adopt and use the changes and amendments to the
Marks that are specified by Elephant & Castle. If so specified, the
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Franchisee will immediately cease using the Marks specified by Elephant &
Castle, and will, as soon as reasonably possible, commence using the new
trademarks, trade names, service marks, logos, designs and commercial symbols
designated by Elephant & Castle in writing at the Franchised Location, and in
connection with all advertising, marketing and promotion of the Franchisee's
Restaurant. The Franchisee will not make any changes or amendments whatsoever
to the Marks or the Restaurant System unless specified or approved in advance
by Elephant & Castle in writing.
DEFENSE OR ENFORCEMENT OF RIGHTS TO MARKS.
The Franchisee will have no right to and will not defend or enforce any rights
associated with the Marks or the Restaurant System in any court or other
proceedings for or against imitation, infringement, prior use or for any other
claim or allegation. The Franchisee will give Elephant & Castle immediate
written notice of any and all claims or complaints made against or associated
with the Marks and the Restaurant System and will, without compensation for its
time and at its expense, cooperate in all respects with Elephant & Castle in any
lawsuits or other proceedings involving the Marks and the Restaurant System.
Elephant & Castle will have the sole and absolute right to determine whether it
will commence or defend any litigation involving the Marks and/or the Restaurant
System, and the cost and expense of all litigation incurred by Elephant &
Castle, including attorneys' fees, specifically relating to the Marks or the
Restaurant System will be paid by Elephant & Castle.
TENDER OF DEFENSE.
If the Franchisee is named as a defendant or party in any action involving the
Marks or the Restaurant System and if the Franchisee is named as a defendant or
party solely because the plaintiff or claimant is alleging that the Franchisee
does not have the right to use the Marks or the Restaurant System licensed by
Elephant & Castle to the Franchisee at the Franchised Location pursuant to this
Agreement, then the Franchisee will have the right to tender the defense of the
action to Elephant & Castle and Elephant & Castle will, at its expense, defend
the Franchisee in the action provided that the Franchisee has tendered defense
of the action to Elephant & Castle within seven (7) days after receiving service
of the pleadings or the Summons and Complaint relating to the action. Elephant &
Castle will indemnify and hold the Franchisee harmless from any damages assessed
against the Franchisee in any actions resulting solely from the Franchisee's
proper and authorized use of the Marks and the Restaurant System at the
Franchised Location if the Franchisee has timely tendered defense of the action
to Elephant & Castle.
FRANCHISEE'S RIGHT TO PARTICIPATE IN LITIGATION.
The Franchisee may, at its expense, retain an attorney to represent it
individually in all litigation and court proceedings involving the Marks or the
Restaurant System, and may do so with respect to matters involving only the
Franchisee (I.E., not involving Elephant & Castle or its interests); however,
Elephant & Castle and its attorneys will control and conduct all litigation
involving the Marks or the Restaurant System and the rights of Elephant &
Castle. Except as expressly provided for herein, Elephant & Castle will have no
liability to the Franchisee for any costs that the Franchisee may incur in any
litigation involving the Marks or the Restaurant System, and the Franchisee will
pay for all costs, including attorneys' fees, that it may incur in any
litigation or proceeding arising as a result of matters referred to under this
Article, unless it tenders the defense to Elephant & Castle in a timely manner
pursuant to and in accordance with Article 15.6.
TRAINING PROGRAM; OPENING ASSISTANCE
TRAINING.
Elephant & Castle will provide a training program for the Franchisee (or the
Franchisee's Operating Partner), the Franchisee's General Manager and the
Franchisee's Chef at an approved training site designated by Elephant &
Castle, to educate, familiarize and acquaint them with the Restaurant
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System and the operations of the Elephant & Castle-Registered Trademark-
Restaurant. The Elephant & Castle training program will include on-the-job
instruction on basic business procedures, equipment operation and
maintenance, hiring and training of employees, scheduling, advertising and
promotion, purchasing procedures, food preparation, food safety, food
presentation, food quality, food portions, liquor service, food and beverage
inventory and cost control, customer service, janitorial service, general
maintenance and other topics selected by Elephant & Castle. The Franchisee
(or the Franchisee's Operating Partner), the Franchisee's General Manager and
the Franchisee's Chef must successfully complete the Elephant & Castle
training program and be certified in writing by Elephant & Castle prior to
commencing the business operations of the Franchisee's Restaurant. The
training program will be scheduled by Elephant & Castle in its sole
discretion and will be for a minimum of five (5) consecutive days for the
Franchisee (or the Franchisee's Operating Partner), and for a minimum of
thirty (30) consecutive days for the Franchisee's General Manager and for the
Franchisee's Chef. The Franchisee (or the Franchisee's Operating Partner),
the Franchisee's General Manager and the Franchisee's Chef must begin
training within ninety (90) days after the date of this Agreement, unless the
parties agree in writing to a different date due to conflicts with the
construction or opening schedule for the Restaurant. If the Franchisee (or
the Franchisee's Operating Partner), the Franchisee's General Manager or the
Franchisee's Chef do not successfully complete the required training program
within one hundred twenty (120) days after the date of this Agreement, then
such person(s) will not be permitted or authorized to participate in the
operations of the Franchisee's Restaurant, and Elephant & Castle will have
the right to terminate this Agreement pursuant to Article 4.2.
CHANGES IN PERSONNEL.
The Franchisee must at all times employ General Managers and Chefs who have
successfully completed the prescribed training program and, consequently,
have been certified in writing by Elephant & Castle to participate in the
operation of the Franchisee's Elephant & Castle-Registered Trademark-
Restaurant. The Franchisee will immediately notify Elephant & Castle in
writing of any personnel changes in the positions of General Manager or Chef
of the Franchisee's Restaurant. If the Franchisee hires a new General Manager
or a new Chef who has not successfully completed the required Elephant &
Castle training program, then that person must begin the training program
within thirty (30) days after the date of hire by the Franchisee, and must
attend and successfully complete the training program. If, in the judgment of
Elephant & Castle, the new General Manager or the new Chef does not
successfully complete the required Elephant & Castle training program, then
the Franchisee will not permit that person to continue to participate in the
operation of the Franchisee's Restaurant.
INITIAL TRAINING OF NEW PERSONNEL.
The initial training program for new General Managers and new Chefs, as required
by Article 16.2 of this Agreement, will be conducted by Elephant & Castle either
at the Franchised Location or at another location designated by Elephant &
Castle at the sole discretion of Elephant & Castle. If Elephant & Castle
provides the initial training program for a new General Manager or a new Chef at
the Franchised Location, then the Franchisee will pay Elephant & Castle the
then-current per day on-site training fee and reimburse Elephant & Castle for
all expenses it incurs in connection with providing the training at the
Franchised Location, including travel, lodging, food, and automobile rental
costs. If the initial training program of new personnel is provided by Elephant
& Castle at another site designated by Elephant & Castle other than the
Franchised Location, then there will be no per day training fee and the
Franchisee will not be required to reimburse Elephant & Castle for its expenses.
PAYMENT OF SALARIES AND EXPENSES.
The Franchisee will pay the salaries, fringe benefits, payroll taxes,
unemployment compensation, workers' compensation insurance, lodging, food,
automobile rental, travel costs and all other expenses for all persons who
attend any type of Elephant & Castle training program on behalf of the
Franchisee.
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OPENING ASSISTANCE.
After the Franchisee (or the Franchisee's Operating Partner), the
Franchisee's General Manager and the Franchisee's Chef have successfully
completed the Elephant & Castle training program and have been certified,
Elephant & Castle will arrange for a training coordinator, a host/hostess
trainer, a barkeeping trainer, four (4) kitchen staff trainers, and five (5)
service staff trainers to be at the Franchised Location for a period of not
less than fourteen (14) consecutive days to provide opening assistance to the
Franchisee. The opening assistance will include implementing internal
controls, assistance with training employees, and implementing the
Franchisee's initial business operations. The Franchisee will pay Elephant &
Castle an opening assistance fee of twenty thousand dollars ($20,000) within
five (5) days after the date the Franchisee opens its Restaurant for
business. The Franchisee will accept and fully cooperate with the opening
assistance provided by Elephant & Castle, and will not open and commence
initial business operations until Elephant & Castle has given the Franchisee
written approval to open the Franchisee's Restaurant.
ADVISORY ASSISTANCE.
If, after the opening of the Franchisee's Restaurant, Elephant & Castle provides
any advisory management, operations or other assistance to the Franchisee at the
Franchised Location, then within five (5) days after receipt of an invoice from
Elephant & Castle specifying the amount owed, the Franchisee will pay Elephant &
Castle the then-current per diem fees charged by Elephant & Castle and reimburse
Elephant & Castle for the expenses Elephant & Castle incurred in connection with
providing the advisory assistance to the Franchisee at the Franchised Location,
including travel costs, lodging, food and automobile rental costs.
HIRING AND TRAINING OF EMPLOYEES BY FRANCHISEE.
The Franchisee will hire all employees of the Restaurant, will be exclusively
responsible for the terms of their employment and compensation, and will
implement a training program for employees of the Restaurant in compliance with
the Standard Operations Manual. The Franchisee will at all times maintain a
staff of trained employees sufficient to efficiently operate the Restaurant in
compliance with Elephant & Castle's standards.
ASSIGNMENT
ASSIGNMENT BY ELEPHANT & CASTLE.
This Agreement may be unilaterally assigned by Elephant & Castle to a person or
entity without the approval of the Franchisee and will inure to the benefit of
the successors and assigns of Elephant & Castle. Elephant & Castle will provide
the Franchisee with written notice of any such assignment, and the assignee will
be required to fully perform all obligations of Elephant & Castle under this
Agreement.
ASSIGNMENT BY FRANCHISEE TO OWNED OR CONTROLLED ENTITY.
If the Franchisee is an individual or a partnership, this Agreement may be
transferred by the Franchisee to a corporation or limited liability company
that is owned or controlled by the Franchisee without paying any transfer
fee, provided that: (a) the Franchisee and the shareholders who own the
voting capital stock of the assignee corporation or the members who own the
membership interests of the assignee limited liability company sign or have
signed a personal guaranty in the form attached to this Agreement; (b) the
Franchisee furnishes prior written proof to Elephant & Castle substantiating
that the assignee corporation or limited liability company will be
financially able to perform all of the terms and conditions of this
Agreement; and (c) none of the shareholders or members operate, franchise,
develop, manage or control any Anglo/British style pub or related restaurant
concept that is in any way similar to or competitive with the Franchisee's
Elephant & Castle-Registered Trademark- Restaurant. The Franchisee will give
Elephant & Castle fifteen (15) days prior written notice of the assignment of
this Agreement to a corporation or limited liability company owned or
controlled by the Franchisee;
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however, the assignment of this Agreement will not be valid or effective
until Elephant & Castle has received the documents which its attorneys deem
reasonably necessary to properly and legally document the assignment of this
Agreement to the corporation or limited liability company as provided herein.
ASSIGNMENT BY INDIVIDUAL FRANCHISEE IN EVENT OF DEATH OR PERMANENT
DISABILITY.
If the Franchisee is an individual, then in the event of the death or
permanent disability of the Franchisee, this Agreement may be assigned,
transferred or bequeathed by the Franchisee to any designated person or
beneficiary without the payment of any transfer fee. However, the assignment
of this Agreement to the transferee, assignee or beneficiary of the
Franchisee will be subject to the applicable provisions of Article 17.6, and
will not be valid or effective until Elephant & Castle has received the
properly executed legal documents which its attorneys deem necessary to
properly and legally document the transfer, assignment or bequest of this
Agreement. The transferee, assignee or beneficiary must agree to be
unconditionally bound by the terms and conditions of this Agreement and to
personally guarantee the performance of the Franchisee's obligations under
this Agreement. Furthermore, the transferee, assignee or beneficiary must
complete the initial training program as set forth in Article 16.1 of this
Agreement. The training will be conducted by Elephant & Castle at a location
designated by Elephant & Castle. There will be no charge to the transferee,
assignee or beneficiary for the initial training program, but that person's
salary and expenses will be paid in accordance with Article 16.4 of this
Agreement.
SALE OF OWNERSHIP INTERESTS TO PUBLIC.
If the Franchisee is a corporation or limited liability company and intends
to sell any Ownership Interests to the public under any foreign, federal or
state securities laws, then the Franchisee will provide Elephant & Castle
with written notice of the proposed public offering and with a copy of the
proposed placement memorandum, offering circular or prospectus for its review
at least twenty (20) days prior to the time that any such document is filed
with any foreign or state securities commission or the Securities and
Exchange Commission. The Franchisee's Owner(s), prior to the public offering
will, at all times, retain ownership of at least a fifty-one percent (51%) of
the Ownership Interests of the Franchisee. Elephant & Castle will have the
absolute right to attend all "due diligence" meetings held in preparation for
the offer to sell Ownership Interests to the public, and the Franchisee will
give Elephant & Castle at least five (5) business days prior written notice
of such meetings. The Franchisee will pay Elephant & Castle twenty thousand
dollars ($20,000) for the legal, accounting and related due diligence costs
incurred by Elephant & Castle in connection with any public offering. This
amount will be payable in full within thirty (30) days after the date on
which the Franchisee provides written notice of the proposed public offering
to Elephant & Castle and will be payable even if the Franchisee is unable to
complete the public offering. The Franchisee will not offer any Ownership
Interests using or under the name "Elephant & Castle-Registered Trademark-,"
or any similar name. The Franchisee will not have the right to sell any
Ownership Interests to the public or to any other person or entity until the
Franchisee has complied in all respects with the applicable provisions of
this Agreement.
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ELEPHANT & CASTLE'S WARRANT.
The Franchisee hereby agrees to grant to Elephant & Castle, effective upon
the sale of any Ownership Interests to the public, a warrant or an option (a
"Warrant") to purchase for a period of five (5) years up to five percent (5%)
of the Ownership Interests purchased in such offering at an exercise price
equal to the purchase price of the Ownership Interests in such offering. The
Warrant will contain customary anti-dilution provisions, incidental or
"piggyback" registration rights and a cashless conversion right whereby
Elephant & Castle will have the right to require the Franchisee to convert
the Warrant into Ownership Interests using the current market value of the
Ownership Interests without payment by Elephant & Castle of any cash exercise
price at any time prior to its expiration as provided for in this provision.
ASSIGNMENT BY FRANCHISEE.
This Agreement and the rights granted to the Franchisee pursuant to this
Agreement may be sold, assigned or transferred by the Franchisee only with
the prior written approval of Elephant & Castle. Elephant & Castle will not
unreasonably withhold its written consent to any sale, assignment or transfer
of this Agreement, if the sale, assignment or transfer does not violate
Article 17.9 of this Agreement and if the Franchisee and/or the transferee
franchisee comply with the following conditions: (a) the Franchisee has
provided written notice to Elephant & Castle of the proposed sale, assignment
or transfer of this Agreement at least ninety (90) days prior to the
transaction; (b) all of the Franchisee's monetary obligations due to Elephant
& Castle have been paid in full, and the Franchisee is not otherwise in
default under this Agreement; (c) the Franchisee has executed a written
agreement, in a form satisfactory to Elephant & Castle, in which the
Franchisee agrees to observe all applicable provisions of this Agreement,
including the provisions with obligations and covenants that continue beyond
the expiration or termination of this Agreement, which includes the covenants
not to compete contained in Article 21 of this Agreement; (d) Elephant &
Castle and the Franchisee have executed a joint and mutual release, in a form
satisfactory to Elephant & Castle, of any and all claims against Elephant &
Castle or the Franchisee and of any and all claims against their officers,
directors, shareholders, Owners, agents and employees, in their corporate and
individual capacities arising from, in connection with, or as a result of
this Agreement or the Franchisee's purchase of the Franchise including,
without limitation, all claims arising under any federal or state franchising
laws or any other federal, state or local law, rule or ordinance; provided,
however, that Elephant & Castle and the Franchisee may exclude from the
coverage of the release any prior or concurrent written agreements between
them; (e) the transferee franchisee has demonstrated to the satisfaction of
Elephant & Castle that he, she or it meets the managerial, financial and
business standards required by Elephant & Castle for new franchisees,
possesses a good business reputation and credit rating, and possesses the
aptitude and ability to operate the Elephant & Castle-Registered Trademark-
Restaurant in an economic and businesslike manner (as may be evidenced by
prior related business experience or otherwise); (f) the transferee
franchisee and all parties having a legal or beneficial interest in the
transferee franchisee including, if applicable, the transferee franchisee's
Owners and the Personal Guarantors, execute the transfer and assignment
agreement between Elephant & Castle, the Franchisee and the transferee
franchisee and such other ancillary agreements as Elephant & Castle or its
legal counsel may require for the transfer of this Agreement for the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant to the
transferee franchisee; (g) the transferee franchisee has purchased the
Franchised Location, acquired the lease for the Franchised Location or
otherwise acquired possession of and access to the Franchised Location for a
term consistent with the remaining term of this Agreement; (h) the transferee
franchisee has purchased or otherwise acquired a valid liquor license and a
valid food service license for the Elephant & Castle-Registered Trademark-
Restaurant at the Franchised Location; and (i) the transferee franchisee has
successfully completed the initial training program as set forth in Article
16.1 of this Agreement.
ACKNOWLEDGMENT OF RESTRICTIONS.
The Franchisee acknowledges and agrees that the restrictions on transfer
imposed herein are reasonable and necessary to protect the Restaurant System
and the Marks, as well as the reputation
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and image of Elephant & Castle, and are for the protection of Elephant &
Castle, the Franchisee and all other franchisees who own and operate Elephant
& Castle-Registered Trademark- Restaurants. Any assignment or transfer
permitted by this Article will not be effective until Elephant & Castle
receives a completely executed copy of all transfer documents and Elephant &
Castle consents to the transfer in writing. Any attempted assignment or
transfer made without complying with the requirements of this Article will be
void.
TRANSFER FEE.
If this Agreement is assigned, transferred or bequeathed to another person or
entity, or if the Franchisee's Owner(s) transfers in the aggregate controlling
interest in the Franchisee to a third party, then except as provided for in
Article 17.2 or Article 17.3, the Franchisee will pay Elephant & Castle on or
before the date of transfer a transfer fee of five thousand dollars ($5,000) to
cover the costs incurred by Elephant & Castle in connection with the transfer,
including attorneys' fees, accountants' fees, out-of-pocket expenses, long
distance telephone calls, administrative costs and the time of its employees and
officers. The transfer fee also covers the cost to Elephant & Castle to provide
the initial training program to the transferee franchisee at the location
designated by Elephant & Castle. However, the transfer fee does not cover the
salary of or expenses incurred by the transferee franchisee in connection with
attending the initial training program, and salary and expenses of that person
will be paid in accordance with Article 16.5 of this Agreement.
TRANSFER TO COMPETITOR PROHIBITED.
The Franchisee and the Franchisee's Owners will not sell, assign or transfer
this Agreement or their Ownership Interests in the Franchisee or in the
Franchise to any person, partnership, corporation or entity that owns,
operates, franchises, develops, consults with, manages, is involved in, or
controls any Anglo/British style pub restaurant business that is in any way
competitive with an Elephant & Castle-Registered Trademark- Restaurant. If
Elephant & Castle refuses to permit a transfer of this Agreement under this
Article, then the Franchisee's and the Franchisee's Owners only remedy will
be to have an arbitrator determine whether the proposed transferee is a
competitor of Elephant & Castle.
TERMINATION RIGHTS OF ELEPHANT & CASTLE
CONDITIONS OF BREACH.
In addition to its other rights of termination contained in this Agreement,
Elephant & Castle will have the right to terminate this Agreement if: (a) the
Franchisee fails to open and commence operations of its Elephant &
Castle-Registered Trademark-Restaurant within twelve (12) months after the
date of this Agreement or when the Franchised Location is ready for the
Franchisee's occupancy, whichever is earlier; (b) the Franchisee violates any
material provision, term or condition of this Agreement including, but not
limited to, the failure to timely pay the Initial Fee, any Continuing Fees,
or any other monetary obligations or fees due pursuant to this Agreement; (c)
the Franchisee or any of its directors, officers or majority Owners are
convicted of, or plead guilty to or no contest to, a charge of violating any
law relating to the Franchisee's Elephant & Castle-Registered
Trademark-Restaurant, or any felony; (d) the Franchisee fails to timely pay
any of its obligations or liabilities due and owing to Elephant & Castle,
suppliers, banks, purveyors, other creditors or to any federal, state or
municipal government (including, if applicable, federal and state income,
sales, property, withholding and unemployment taxes); (e) the Franchisee is
determined to be insolvent within the meaning of applicable state or federal
law, any involuntary petition for bankruptcy is filed against the Franchisee,
or the Franchisee files for bankruptcy or is
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adjudicated a bankrupt under applicable state or federal law; (f) the
Franchisee makes an assignment for the benefit of creditors or enters into
any similar arrangement for the disposition of its assets for the benefit of
creditors; (g) any check issued by the Franchisee is dishonored because of
insufficient funds (except where the check is dishonored because of an error
in bookkeeping or accounting) or closed accounts; (h) the Franchisee
voluntarily or otherwise abandons the franchised Restaurant; (i) the
Franchisee is involved in any act or conduct which materially impairs the
goodwill associated with the name "Elephant & Castle-Registered Trademark-"
or any other Marks or the Restaurant System; (j) the lease for the Franchised
Location is terminated or canceled for non-payment of rent or other legal
reasons, or the Franchisee otherwise loses possession of all or a significant
portion of the Franchised Location; (k) the Franchisee's food service license
or liquor license for the Franchised Location is terminated or canceled for
any reason, or the Franchisee otherwise loses the food service license or
liquor license for its Elephant & Castle-Registered Trademark- Restaurant;
(l) the Franchisee fails to timely file any federal or state income or sales
tax return or fails to timely pay any federal or state income or sales taxes,
or (m) the Franchisee fails or refuses to provide the documents, records and
other materials requested by Elephant & Castle to substantiate the Monthly
Reports and Financial Statements pursuant to Article 7.3 or to produce and
permit Elephant & Castle to audit the Franchisee's Financial Records in
accordance with Article 7.5 of this Agreement.
NOTICE OF BREACH.
Except as provided in Article 4.2, Article 18.5 and Article 18.6 of this
Agreement, Elephant & Castle will not have the right to terminate this
Agreement until: (a) written notice setting forth the alleged breach in
detail has been delivered to the Franchisee by Elephant & Castle; and (b)
after receiving the written notice, the Franchisee fails to correct the
alleged breach within the period of time specified by applicable law. If
applicable law does not specify a time period to correct an alleged breach,
then the Franchisee will have thirty (30) days after receipt of the written
notice to correct the alleged breach, except where the written notice states
that the Franchisee is delinquent in the payment of any Initial Fees,
Continuing Fees or other fees payable to Elephant & Castle pursuant to this
Agreement, in which case the Franchisee will have ten (10) days after receipt
of written notice to correct the breach by making full payment (including
administrative fees and interest as provided for herein) to Elephant &
Castle. If the Franchisee fails to correct the alleged breach set forth in
the written notice within the applicable period of time, then this Agreement
may be terminated by Elephant & Castle as provided for in this Agreement. For
the purposes of this Agreement, an alleged breach of this Agreement by the
Franchisee will be deemed to be "corrected" if both Elephant & Castle and the
Franchisee agree in writing that the alleged breach has been corrected.
ARBITRATION.
If the Franchisee notices arbitration in accordance with Article 23 of this
Agreement within the time period established in Article 18.2 for correcting
the alleged breach, then Elephant & Castle will not have the right to
terminate this Agreement until the facts of the alleged breach have been
submitted to arbitration, the arbitrator determines that the Franchisee has
breached this Agreement and the Franchisee fails to correct the breach within
the applicable time period. If the arbitrator determines that the Franchisee
has violated or breached this Agreement as alleged by Elephant & Castle in
the written notice given to the Franchisee, then unless applicable law
specifies otherwise, the Franchisee will have thirty (30) days from the date
the arbitrator issues a written determination on the matter to correct the
specified breach or violation of this Agreement, except where the
Franchisee's breach is for failure to pay any fees or other payments to
Elephant & Castle, in which case the Franchisee will have ten (10) days to
make full payment, including all interest and administrative fees, to
Elephant & Castle. If the Franchisee does timely correct the specified breach
or violation of this Agreement, then this Agreement will remain in full force
and effect. For the purpose of this Agreement, any controversy or dispute on
the issue of whether the Franchisee has timely corrected the specified breach
or violation of this Agreement will also be subject to arbitration as
provided for herein. The time limitations set forth in this Article within
which the Franchisee may demand arbitration of a dispute or controversy
relating
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to the right of Elephant & Castle to terminate this Agreement for an alleged
breach are mandatory. If the Franchisee fails to comply with the time
limitations set forth in this Article, then Elephant & Castle may terminate
this Agreement as provided for herein.
NOTICE OF TERMINATION.
Except as provided in Article 18.5 and Article 18.6, if Elephant & Castle has
complied with the provisions of Article 18.2 and the Franchisee has not
corrected the alleged breach set forth in the written notice within the time
period specified in this Agreement, then Elephant & Castle will have the
absolute right to terminate this Agreement by giving the Franchisee written
notice stating to the Franchisee that this Agreement is terminated and in
that event the effective date of termination of this Agreement will be the
day the written notice of termination is received by the Franchisee.
IMMEDIATE TERMINATION RIGHTS OF ELEPHANT & CASTLE.
Elephant & Castle will have the absolute right, unless precluded by
applicable law, to immediately terminate this Agreement if: (a) the
Franchisee or any of its directors, officers or majority Owners are convicted
of, or plead guilty to or no contest to a charge of violating any law
relating to the Franchisee's Elephant & Castle-Registered Trademark-
Restaurant, or any felony; (b) the Franchisee is deemed insolvent within the
meaning of applicable state or federal law, any involuntary petition for
bankruptcy is filed against the Franchisee, or the Franchisee files for
bankruptcy or is adjudicated a bankrupt under applicable state or federal
law; (c) the Franchisee makes an assignment for the benefit of creditors or
enters into any similar arrangement for the disposition of its assets for the
benefit of creditors; (d) the Franchisee voluntarily or otherwise abandons
the Restaurant; (e) the Franchisee fails or refuses to provide the documents,
records and other materials requested by Elephant & Castle to substantiate
the Monthly Reports and Financial Statements pursuant to Article 7.3 or to
produce and permit Elephant & Castle to audit the Franchisee's Financial
Records in accordance with Article 7.5 of this Agreement; (f) the Franchisee
is involved in any act or conduct which materially impairs the goodwill
associated with the Marks of Elephant & Castle or with the Restaurant System
and the Franchisee fails to correct the breach within twenty-four (24) hours
after receipt of written notice from Elephant & Castle of the breach; or (g)
the Franchisee violates any provision, term or condition of this Agreement
three (3) or more times during a twelve (12) month period, without regard to
whether the violations were of a similar or different nature or whether the
violations were corrected within the prescribed cure period after receipt of
written notice of the violations.
NOTICE OF IMMEDIATE TERMINATION.
Except as set forth in Article 18.5(f), if this Agreement is terminated by
Elephant & Castle pursuant to Article 18.5 above, then Elephant & Castle will
give the Franchisee written notice by personal service or prepaid registered
or certified mail that this Agreement is terminated and in that event the
effective date of termination of this Agreement will be the day the written
notice of termination is received by the Franchisee. If this Agreement is
terminated by Elephant & Castle pursuant to Article 18.5(f), then this
Agreement will terminate on the first minute of the twenty-fifth hour after
receipt of the written notice of termination if the Franchisee fails to
correct the alleged breach within twenty-four (24) hours after receiving the
written notice of termination.
OTHER REMEDIES.
Nothing in this Article will preclude Elephant & Castle from seeking other
remedies or damages under state or federal laws, common law, or under this
Agreement against the Franchisee including, but not limited to, attorneys' fees,
punitive damages and injunctive relief. If this Agreement is terminated by
Elephant & Castle pursuant to this Article, or if the Franchisee breaches this
Agreement by a wrongful termination or a termination that is not in strict
compliance with the terms and conditions of Article 19 of this Agreement, then
Elephant & Castle will be entitled to all damages from the Franchisee that
Elephant & Castle has sustained and will sustain in the future as a result of
the Franchisee's breach of this Agreement.
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FRANCHISEE'S TERMINATION RIGHTS
CONDITIONS OF BREACH.
The Franchisee will have the right to terminate this Agreement, as provided
herein, if Elephant & Castle violates any material provision, term or condition
of this Agreement, or fails to timely pay any material uncontested obligations
due and owing to the Franchisee.
NOTICE OF BREACH.
The Franchisee will not have the right to terminate this Agreement or to
commence any action, lawsuit or proceeding against Elephant & Castle for
breach of this Agreement, injunctive relief, violation of any state, federal
or local law (including alleged violations of franchise laws), violation of
common law (including allegations of fraud and misrepresentation),
rescission, general or punitive damages, or termination, unless and until:
(a) written notice setting forth the alleged breach or violation in detail
has been delivered to Elephant & Castle by the Franchisee; and (b) Elephant &
Castle fails to correct the alleged breach or violation within thirty (30)
days after receipt of the written notice. If Elephant & Castle fails to
correct the alleged breach or violation within thirty (30) days after
receiving written notice, then this Agreement may be terminated by the
Franchisee as provided for in this Agreement. For the purposes of this
Agreement, an alleged breach or violation of this Agreement by Elephant &
Castle will be deemed to be "corrected" if both Elephant & Castle and the
Franchisee agree in writing that the alleged breach or violation has been
corrected.
ARBITRATION.
If Elephant & Castle notices arbitration in accordance with Article 23 of this
Agreement within thirty (30) days after the date Elephant & Castle receives
written notice of any alleged breach of this Agreement from the Franchisee, then
the Franchisee will not have the right to terminate this Agreement until the
facts of the alleged breach have been submitted to arbitration, the arbitrator
determines that Elephant & Castle has breached this Agreement and Franchisee
fails to timely correct the breach as set forth in this Agreement. If the
arbitrator determines that Elephant & Castle has violated or breached this
Agreement as alleged by the Franchisee in the written notice given to Elephant &
Castle, then Elephant & Castle will have thirty (30) days after the date the
arbitrator issues a written determination on the matter to correct the specified
breach or violation of this Agreement, then this Agreement will remain in full
force and effect. If Elephant & Castle does timely correct the specified breach
or violation of this Agreement, then this Agreement will remain in full force
and effect. If Elephant & Castle does not correct the specified breach or
violation of this Agreement, then the Franchisee will have the right to
terminate this Agreement by giving Elephant & Castle written notice by personal
service or prepaid registered or certified mail that this Agreement is
terminated and in that event the effective date of termination of this Agreement
will be the day the written notice of termination is received by Elephant &
Castle. For the purpose of this Agreement, any controversy or dispute on the
issue of whether Elephant & Castle has timely corrected the specified breach or
violation of this Agreement will also be subject to arbitration as provided for
herein. The time limitation set forth in this Article within which Elephant &
Castle may demand arbitration of a dispute or controversy relating to the right
of the Franchisee to terminate this Agreement for an alleged breach is
mandatory. If Elephant & Castle fails to comply with the time limitation set
forth in this Article, then the Franchisee may terminate this Agreement as
provided for herein.
WAIVER.
The Franchisee must give Elephant & Castle immediate written notice of any
alleged breach or violation of this Agreement after the Franchisee has
knowledge of, believes, determines, is of the opinion, or becomes aware of
facts and circumstances reasonably indicating that there has been an alleged
breach or violation of this Agreement by Elephant & Castle. If the Franchisee
fails to give
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written notice to Elephant & Castle as provided for herein of
any alleged breach or violation of this Agreement within one (1) year after
the date that the Franchisee has knowledge of, believes, determines, is of
the opinion that, or becomes aware of facts and circumstances reasonably
indicating that the Franchisee may have a claim under any state law, federal
law or common law because there has been an alleged breach or violation by
Elephant & Castle, then the alleged breach or violation by Elephant & Castle
will be deemed to be condoned, approved and waived by the Franchisee, the
alleged breach or violation by Elephant & Castle will not be deemed to be a
breach or violation of this Agreement by Elephant & Castle, and the
Franchisee will be barred from commencing any action against Elephant &
Castle for that specific alleged breach or violation.
INJUNCTIVE RELIEF.
Notwithstanding any of the foregoing provisions, if the Franchisee gives
Elephant & Castle written notice of an alleged breach or violation of this
Agreement or of any federal or state laws that give rise to a claim that the
Franchisee has the right to terminate this Agreement, then Elephant & Castle
will have the absolute right to immediately commence legal action against the
Franchisee to enjoin and prevent the termination of this Agreement by the
Franchisee without giving the Franchisee any notice and without regard to any
waiting period that may be contained in this Agreement. If Elephant & Castle
commences such legal action against the Franchisee, then the Franchisee will not
have the right to terminate this Agreement, unless and until a court of
competent jurisdiction has ruled on the merits that Elephant & Castle has
breached this Agreement in the manner alleged by the Franchisee, and then only
if Elephant & Castle fails to begin the actions necessary to correct the breach
or violation within sixty (60) days after a final judgment has been entered
against Elephant & Castle and all time for appeals by Elephant & Castle has
expired.
FRANCHISEE'S OBLIGATIONS UPON TERMINATION
TERMINATION OF USE OF MARKS; OTHER OBLIGATIONS.
If this Agreement is canceled or terminated for any reason or this Agreement
expires, then the Franchisee will: (a) within five (5) days after
termination, pay all Continuing Fees, other fees and other amounts due and
owing under this Agreement or under any other contract, promissory note or
other obligation due and owing by the Franchisee to Elephant & Castle; (b)
immediately return to Elephant & Castle by first class prepaid United States
mail the Manual, menus, advertising materials and all other printed materials
pertaining to the Restaurant; and (c) comply with all other applicable
provisions of this Agreement. Upon termination or expiration of this
Agreement for any reason, the Franchisee's right to use "Elephant &
Castle-Registered Trademark-," the other Marks and the Restaurant System will
terminate immediately.
ALTERATION OF FRANCHISED LOCATION.
If this Agreement expires or is terminated for any reason or if the
Franchised Location ever ceases to be used for the Franchisee's Elephant &
Castle-Registered Trademark-Restaurant, then within thirty (30) days after
the date of the expiration or termination of this Agreement, the Franchisee
will, at its expense, alter, modify and change both the exterior and interior
appearance of the building and the Franchised Location so that it will be
clearly distinguished from the standard appearance of an Elephant &
Castle-Registered Trademark- Restaurant. At a minimum, such changes and
modifications to the Franchised Location will include: (a) repainting and,
where applicable, recovering both the exterior and interior walls of the
Franchised Location with totally different colors, including removing any
distinctive colors, designs and paneling from the walls; (b) removing all
furniture, fixtures and decor items associated with an Elephant &
Castle-Registered Trademark- Restaurant and replacing them with other decor
items not of the general type and appearance customarily used in Elephant &
Castle-Registered Trademark-Restaurants; (c) removing all exterior and
interior Elephant & Castle-Registered Trademark- signs; and (d) immediately
discontinuing use of the approved wall decor items and window decals, and
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refraining from using any items which may be confusingly similar to those
used in an Elephant & Castle-Registered Trademark- Restaurant.
CANCELLATION OF TELEPHONE DIRECTORY LISTINGS.
Upon termination or expiration of this Agreement, or if Elephant & Castle
acquires the Franchisee's Elephant & Castle-Registered Trademark- Restaurant
pursuant to this Agreement, Elephant & Castle will have the absolute right to
notify the telephone company and all listing agencies of the termination or
expiration of the Franchisee's right to use all telephone numbers and all
classified and other directory listings for the Restaurant and to authorize
the telephone company and all listing agencies to transfer to Elephant &
Castle or its assignee all telephone numbers and directory listings of the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant. The
Franchisee acknowledges and agrees that Elephant & Castle has the absolute
right and interest in and to all telephone numbers and directory listings
associated with the Marks, and the Franchisee hereby authorizes Elephant &
Castle to direct the telephone company and all listing agencies to transfer
the Franchisee's telephone numbers and directory listings to Elephant &
Castle or to an assignee of Elephant & Castle, if this Agreement expires or
is terminated or if Elephant & Castle acquires the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant. The telephone company and all
listing agencies may accept this Agreement as evidence of the exclusive
rights of Elephant & Castle to such telephone numbers and directory listings
and this Agreement will constitute the authority from the Franchisee for the
telephone company and listing agency to transfer all such telephone numbers
and directory listings to Elephant & Castle. This Agreement will constitute a
release of the telephone company and listing agencies by the Franchisee from
any and all claims, actions and damages that the Franchisee may at any time
have the right to allege against them in connection with this Article.
CONTINUATION OF OBLIGATIONS.
The indemnities and covenants contained in this Agreement will continue in
full force and effect subsequent to and notwithstanding the expiration or
termination of this Agreement.
FRANCHISEE'S COVENANTS NOT TO COMPETE
CONSIDERATION.
The Franchisee, the Owners and the Personal Guarantors acknowledge that the
Franchisee, its officers, executives and employees will receive specialized
training, marketing and advertising plans, business strategies, confidential
recipe, cooking, and food preparation information, and trade secrets from
Elephant & Castle pertaining to the Restaurant System and the operation of
the Elephant & Castle-Registered Trademark- Restaurant. In consideration for
this information, the Franchisee, the Owners and the Personal Guarantors will
comply in all respects with the provisions of this Article. Elephant & Castle
has advised the Franchisee that this provision is a material provision of
this Agreement, and that Elephant & Castle will not sell an Elephant &
Castle-Registered Trademark- Restaurant Franchise to any person or entity
that owns or intends to own, operate or be involved in any business that
competes directly or indirectly with an Elephant & Castle-Registered
Trademark- Restaurant; provided however, that Elephant & Castle may, under
certain circumstances, exclude from the coverage of Article 21.2 and Article
21.3 existing operational restaurant(s) owned and operated by the Franchisee
as of the date of this Agreement, and the Franchisee may, with the written
consent of Elephant & Castle, continue to own and operate such restaurants
during the term of this Agreement and thereafter.
IN-TERM COVENANT NOT TO COMPETE.
The Franchisee, the Owners and the Personal Guarantors will not, during the
term of this Agreement, on their own account or as an employee, agent,
consultant, affiliate, licensee, partner, officer, director, or shareholder
of any other person, firm, entity, partnership or corporation, own, operate,
lease, franchise, conduct, engage in, be connected with, have any interest
in, or assist any person or entity
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engaged in any Anglo/British style pub restaurant concept that is in any way
similar to or competitive with an Elephant & Castle-Registered Trademark-
Restaurant, except with the prior written consent of Elephant & Castle.
POST-TERM COVENANT NOT TO COMPETE.
The Franchisee, the Owners and the Personal Guarantors will not, for a period
of twelve (12) months after the termination or expiration of this Agreement
on their own account or as an employee, principal, agent, independent
contractor, consultant, affiliate, licensee, partner, officer, director or
shareholder of any other person, firm, entity, partnership or corporation,
own, operate, lease, franchise, conduct, engage in, be connected with, have
any interest in or assist any person or entity engaged in any Anglo/British
style pub restaurant concept that is in any way similar to or competitive
with an Elephant & Castle-Registered Trademark-Restaurant and which is
located within ten (10) miles of the Franchised Location or any other
Elephant & Castle-Registered Trademark- Restaurant, or within any exclusive
area granted by Elephant & Castle or any affiliate of Elephant & Castle
pursuant to a Development Agreement or other territorial agreement. The
Franchisee, the Owners and the Personal Guarantors expressly agree that the
time and geographical limitations set forth in this provision are reasonable
and necessary to protect Elephant & Castle and its franchisees if this
Agreement expires or is terminated by either party for any reason, and that
this covenant not to compete is necessary to permit Elephant & Castle the
opportunity to resell and/or develop a new Elephant & Castle-Registered
Trademark- Restaurant at or in the area near the Franchised Location.
INJUNCTIVE RELIEF.
The Franchisee, the Owners and the Personal Guarantors agree that the
provisions of this Article are necessary to protect the legitimate business
interest of Elephant & Castle and its franchisees including, without
limitation, preventing the unauthorized dissemination of marketing,
promotional and other confidential information to competitors of Elephant &
Castle and its franchisees, protecting recipes, cooking and food preparation
techniques and other trade secrets, protecting the integrity of the franchise
system of Elephant & Castle, preventing duplication of the Restaurant System
by unauthorized third parties, and preventing damage to and/or loss of
goodwill associated with the Marks. The Franchisee, the Owners and the
Personal Guarantors also agree that damages alone cannot adequately
compensate Elephant & Castle if there is a violation of this Article by the
Franchisee, the Owners or the Personal Guarantors, and that injunctive relief
against the Franchisee is essential for the protection of Elephant & Castle
and its franchisees. The Franchisee, the Owners and the Personal Guarantors
agree, therefore, that if Elephant & Castle alleges that the Franchisee, the
Owners or the Personal Guarantors have breached or violated this Article,
then Elephant & Castle will have the right to petition a court of competent
jurisdiction for injunctive relief against the Franchisee, the Owners and the
Personal Guarantors, in addition to all other remedies that may be available
to Elephant & Castle. Elephant & Castle will not be required to post a bond
or other security for any injunctive proceeding. If Elephant & Castle is
granted ex parte injunctive relief against the Franchisee, the Owners or the
Personal Guarantors, then the Franchisee, the Owners or the Personal
Guarantors will have the right to petition the court for a hearing on the
merits at the earliest time convenient to the court.
SEVERABILITY.
It is the desire and intent of the parties to this Agreement, including the
Owners and the Personal Guarantors, that the provisions of this Article be
enforced to the fullest extent permissible under the laws and public policy
applied in each jurisdiction in which enforcement is sought. Accordingly, if any
part of this Article is adjudicated to be invalid or unenforceable, then this
Article will be deemed to modify or delete that portion thus adjudicated to be
invalid or unenforceable, such modification or deletion to apply only with
respect to the operation of this Article in the particular jurisdiction in which
the adjudication is made. Further, to the extent any provision of this Article
is deemed unenforceable by virtue of its scope or limitation, the parties to
this Agreement, including the Owners and the Personal Guarantors, agree that the
scope and limitation provisions will nevertheless, be enforceable
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to the fullest extent permissible under the laws and public policies applied
in such jurisdiction where enforcement is sought.
INDEPENDENT CONTRACTORS; INDEMNIFICATION
INDEPENDENT CONTRACTORS.
Elephant & Castle and the Franchisee are each independent contractors and, as a
consequence, there is no employer-employee or principal-agent relationship
between Elephant & Castle and the Franchisee. The Franchisee will not have the
right to and will not make any agreements, representations or warranties in the
name of or on behalf of Elephant & Castle or represent that their relationship
is other than that of franchisor and franchisee. Neither Elephant & Castle nor
the Franchisee will be obligated by or have any liability to the other under any
agreements or representations made by the other to any third parties.
INDEMNIFICATION.
Elephant & Castle will not be obligated to any person or entity for any
damages arising out of, from, in connection with, or as a result of the
Franchisee's negligence, the Franchisee's wrongdoing or the operation of the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant. Therefore,
the Franchisee will indemnify and hold Elephant & Castle harmless against,
and will reimburse Elephant & Castle for, all damages for which Elephant &
Castle is held liable and for all costs incurred by Elephant & Castle in the
defense of any claim or action brought against Elephant & Castle arising
from, in connection with, arising out of, or as a result of the Franchisee's
negligence, the Franchisee's wrongdoing or the operation of the Franchisee's
Elephant & Castle-Registered Trademark- Restaurant including, without
limitation, attorneys' fees, investigation expenses, court costs, deposition
expenses, and travel and living expenses. The Franchisee will indemnify
Elephant & Castle, without limitation, for all claims and damages arising
from, out of, in connection with, or as a result of: (a) any personal injury,
property damage, commercial loss or environmental contamination resulting
from any act or omission of the Franchisee or its employees, agents or
representatives; (b) any failure on the part of the Franchisee to comply with
any requirement of any laws or any governmental authority; (c) any failure of
the Franchisee to pay any of its obligations to any person or entity; (d) any
failure of the Franchisee to comply with any requirement or condition of this
Agreement or any other agreement with Elephant & Castle; (e) any misfeasance
or malfeasance by the Franchisee; and (f) any tort. Elephant & Castle will
have the right to defend any claim made against it arising from, as a result
of, in connection with or out of the Franchisee's negligence or the operation
of the Franchisee's Elephant & Castle-Registered Trademark- Restaurant.
PAYMENT OF COSTS AND EXPENSES.
The Franchisee will indemnify Elephant & Castle for all costs and expenses
incurred by Elephant & Castle in enforcing any term, condition or provision of
this Agreement or in enjoining any violation of this Agreement by the Franchisee
including, without limitation, attorneys' fees, expert witness fees, costs of
investigation, court costs, litigation expenses, arbitration fees, costs and
expenses, and travel and living expenses.
CONTINUATION OF OBLIGATIONS.
The indemnification and other obligations contained herein will continue in full
force and effect subsequent to and notwithstanding the expiration or termination
of this Agreement.
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ARBITRATION
MEDIATION.
Elephant & Castle and the Franchisee acknowledge that resolving disputes
prior to commencing arbitration hearings or court proceedings is in the best
interests of both parties. Therefore, the Franchisee and Elephant & Castle
will, when practical, attempt to resolve disputes by non-binding mediation.
The parties agree that they will act in good faith to settle any dispute
between them; however, either party will have the right to decline to mediate
the dispute.
DISPUTES SUBJECT TO ARBITRATION.
Except as expressly provided to the contrary in Article 23.7 of this
Agreement, all disputes and controversies, including allegations of fraud,
misrepresentation and violation of any state or federal laws or regulations,
arising under, as a result of, or in connection with this Agreement, the
Franchised Location, the Franchisee's Restaurant business or the Personal
Guaranty attached to this Agreement are subject to and will be resolved
exclusively by arbitration conducted in accordance with the Commercial Rules
and Regulations of the American Arbitration Association.
NOTICE OF DISPUTE.
The party alleging the dispute must provide the other party with written
notice setting forth the alleged dispute in detail. The party who receives
written notice alleging the dispute will have thirty (30) days after receipt
of the written notice to resolve the dispute specified in the written notice.
If the written notice alleges that the Franchisee is delinquent in the
payment of any fees or other payments payable to Elephant & Castle, the
Franchisee will have ten (10) days to make full payment (including interest
and administrative fees as provided for herein) to Elephant & Castle.
DEMAND FOR ARBITRATION.
If the dispute alleged by either party has not been corrected, settled or
compromised within the time period provided for in this Agreement, then either
party may demand arbitration by giving the other party written notice. Within
ten (10) days after a written demand for arbitration has been delivered by the
party demanding arbitration, either party will have the right to request the
office of the American Arbitration Association in Minneapolis, Minnesota to
initiate the procedures necessary to appoint an arbitrator. Either party will
have the right to demand that the arbitration hearings be conducted by three (3)
arbitrators. The arbitrator(s) will be appointed as provided herein within sixty
(60) days after a written demand for arbitration has been made in accordance
with the Rules and Regulation of the American Arbitration Association.
VENUE AND JURISDICTION.
All arbitration hearings will take place exclusively in Hennepin County,
Minnesota or at the general offices of Elephant & Castle, and will be held no
earlier than ninety (90) days after the arbitrator(s) has (have) been selected.
Elephant & Castle and the Franchisee, its officers and directors, and the Owners
and Personal Guarantors do hereby agree and submit to personal jurisdiction in
the State of Minnesota in connection with any arbitration hearings hereunder and
any suits brought to enforce the decision of the arbitrator(s), and do hereby
waive any rights to contest venue and jurisdiction in the State of Minnesota and
any claims that venue and jurisdiction are invalid.
POWERS OF ARBITRATOR(S).
The authority of the arbitrator(s) will be limited to making a finding,
judgment, decision and award relating to the interpretation of or adherence to
the written provisions of this Agreement. The Federal Rules of Evidence (the
"Rules") will apply to all arbitration hearings and the introduction of all
evidence, testimony, records, affidavits, documents and memoranda in any
arbitration hearing must comply in
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all respects with the Rules and legal precedents interpreting the Rules. Both
parties will have the absolute right to cross-examine any person who has
testified against them or in favor of the other party. The arbitrator(s) will
have no authority to add to, delete or modify in any manner the terms and
provisions of this Agreement. All findings, judgments, decisions and awards
of the arbitrator(s) will be limited to the dispute set forth in the written
demand for arbitration, and the arbitrator(s) will have no authority to
decide any other issues. The arbitrator(s) will not have the right or
authority to award punitive damages to either Elephant & Castle or the
Franchisee or their officers, directors, shareholders, Owners and Personal
Guarantors, and Elephant & Castle and the Franchisee and their officers,
directors, shareholders or Owners, and the Personal Guarantors expressly
waive their rights to plead or seek punitive damages. All findings,
judgments, decisions and awards by the arbitrator(s) will be in writing, will
be made within sixty (60) days after the arbitration hearings have been
completed, and will be final and binding on Elephant & Castle and the
Franchisee, except as provided for in Article 23.9. The written decision of
the arbitrator(s) will be deemed to be an order, judgment and decree and may
be entered as such in any court of competent jurisdiction by either party
thirty (30) days thereafter, unless any party elects to pursue its rights
under Article 23.9.
DISPUTES NOT SUBJECT TO ARBITRATION.
The following disputes between Elephant & Castle and the Franchisee will not be
subject to arbitration: (a) any disputes arising between Elephant & Castle and
the Franchisee which are set forth in Article 24.1; (b) any dispute involving
the Marks or which arise under or as a result of Article 15 of this Agreement;
(c) any dispute involving immediate termination of this Agreement by Elephant &
Castle pursuant to Article 18.5 and Article 18.6 of this Agreement; and (d) any
dispute involving enforcement of the covenants not to compete contained in
Article 21 of this Agreement.
NO COLLATERAL ESTOPPEL OR CLASS ACTIONS.
Except as provided by Article 23.9, all arbitration findings, conclusions,
orders and awards made by the arbitrator(s) will be final and binding on
Elephant & Castle and the Franchisee; however, such arbitration findings,
conclusions, orders and awards may not be used: (a) to collaterally estop either
the Franchisee or Elephant & Castle from raising any like or similar issue or
defense in any subsequent arbitration, litigation, court hearing or other
proceeding involving third parties, including other franchisees; or (b) by any
third party or other franchisee to establish any fact, action, finding,
violation or otherwise used by any third party or other franchisee as evidence,
in any arbitration, litigation, court hearing or other proceeding involving
Elephant & Castle or the Franchisee. In any arbitration between them, neither
Elephant & Castle nor the Franchisee may introduce as evidence, or otherwise use
to establish any fact, action, finding or violation, any findings, conclusions,
orders or awards resulting from any prior arbitration, litigation, court hearing
or other proceeding involving the Franchisee and a third party, or Elephant &
Castle and a third party or other franchisees. No party except Elephant &
Castle, the Franchisee, and their officers, directors, shareholders or Owners
and the Personal Guarantors will have the right to join in any arbitration
proceeding arising under this Agreement, and therefore, the arbitrator(s) will
not be authorized to permit class actions or to permit any other party to be
involved in any arbitration proceeding brought by either party under this
Agreement.
DE NOVO HEARING ON MERITS.
If the arbitrator(s) awards either Elephant & Castle or the Franchisee damages
(including actual damages, costs and attorneys' fees) in excess of one hundred
thousand dollars ($100,000) in any arbitration proceeding commenced pursuant to
this Agreement, then the party who has been held liable by the arbitrator(s)
will have the right to a de novo hearing on the merits by commencing an action
in a court of competent jurisdiction in accordance with the provisions of this
Agreement. If the party held liable by the arbitrator(s) commences a court
action as provided for herein, then neither party will have the right to
introduce the arbitrator's(s') decision or findings in any such court action and
the arbitrator's(s') decision and findings will be of no force and effect and
will not be final or binding on
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either Elephant & Castle or the Franchisee. If the party who has been held
liable by the arbitrator(s) for over one hundred thousand dollars ($100,000)
in damages fails to commence a court action within thirty (30) days after
receiving the arbitrator's(s') written award, then the arbitrator's(s')
findings, judgments, decisions and awards will be final and binding on
Elephant & Castle, the Franchisee and all other parties and may be entered as
an order decree and judgment in any court of competent jurisdiction by any
party.
CONFIDENTIALITY.
All evidence, testimony, records, documents, findings, decisions, judgments and
awards pertaining to any arbitration hearing between Elephant & Castle and the
Franchisee will be secret and confidential in all respects. Elephant & Castle
and the Franchisee will not disclose the decision or award of the arbitrator(s)
and will not disclose any evidence, testimony, records, documents, findings,
orders, or other matters from the arbitration hearing to any person or entity
except as required by law. Nothing herein will prevent either party from
disclosing or using any information presented in any arbitration proceeding in
any subsequent court hearing brought pursuant to Article 23.9.
PERFORMANCE DURING ARBITRATION OF DISPUTES.
Elephant & Castle and the Franchisee will fully comply with all of the terms and
conditions of this Agreement and will fully perform their respective obligations
under this Agreement during the entire time of the arbitration process.
ENFORCEMENT
INJUNCTIVE RELIEF.
Elephant & Castle will have the right to petition a court of competent
jurisdiction for the entry of temporary and permanent injunctions and orders
of specific performance enforcing the provisions of this Agreement for any
action relating to: (a) the Franchisee's improper use of the Marks or the
Restaurant System; (b) the obligations of the Franchisee upon termination or
expiration of this Agreement; (c) the sale, transfer or assignment of this
Agreement, the Franchisee's Restaurant or the Ownership Interests of the
Franchisee; (d) the Franchisee's violation of the provisions of this
Agreement relating to confidentiality and the covenants not to compete; and
(e) any act or omission by the Franchisee or the Franchisee's employees that
(1) constitutes a violation of any applicable law, ordinance or regulation,
(2) is dishonest or misleading to the guests or customers of the Franchisee's
Restaurant or other Elephant & Castle-Registered Trademark- Restaurants, (3)
constitutes a danger to the employees, public, guests, or customers of the
Franchisee's Restaurant, or (4) may impair the goodwill associated with the
Marks or the Restaurant System.
SEVERABILITY.
All provisions of this Agreement are severable and this Agreement will be
interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained herein and partially valid and enforceable
provisions will be enforced to the extent valid and enforceable. If any
applicable law or rule of any jurisdiction requires a greater prior notice of
the termination of this Agreement than is required hereunder or the taking of
some other action not required hereunder, or if under any applicable law or
rule of any jurisdiction, any provision of this Agreement or any
specification, standard or operating procedure prescribed by Elephant &
Castle is invalid or unenforceable under applicable law, then the prior
notice or other action required by such law or rule will be substituted for
the notice requirements hereof, or such invalid or unenforceable provision,
specification, standard or operating procedure will be modified to the extent
required to be valid and enforceable. Such modifications to this Agreement
will be effective only in such jurisdiction.
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WAIVER.
Elephant & Castle and the Franchisee may, by written instrument signed by
Elephant & Castle and the Franchisee, waive any obligation of or restriction
upon the other under this Agreement. Acceptance by Elephant & Castle of any
payment by the Franchisee and the failure, refusal or neglect of Elephant &
Castle to exercise any right under this Agreement or to insist upon full
compliance by the Franchisee of its obligations hereunder including, without
limitation, any mandatory specification, standard or operating procedure,
will not constitute a waiver by Elephant & Castle of any provision of this
Agreement. Elephant & Castle will have the right to waive obligations or
restrictions for other franchisees under their franchise agreements without
waiving those obligations or restrictions for the Franchisee and, except to
the extent provided by law, Elephant & Castle will have the right to
negotiate terms and conditions, grant concessions and waive obligations for
other franchisees of Elephant & Castle without granting those same rights to
the Franchisee and without incurring any liability to the Franchisee
whatsoever.
PAYMENTS TO ELEPHANT & CASTLE.
The Franchisee will not, on grounds of the alleged nonperformance by Elephant &
Castle of any of its obligations under this Agreement, any other contract
between Elephant & Castle and the Franchisee, or for any other reason, withhold
payment of any Continuing Fees or any other fees or payments due Elephant &
Castle pursuant to this Agreement or pursuant to any other contract, agreement
or obligation to Elephant & Castle. The Franchisee will not have the right to
"offset" or withhold any liquidated or unliquidated amounts, damages or other
funds allegedly due to the Franchisee by Elephant & Castle against any
Continuing Fees or any other fees or payments due to Elephant & Castle under
this Agreement.
EFFECT OF WRONGFUL TERMINATION.
If either Elephant & Castle or the Franchisee takes any action to terminate
this Agreement or the Franchisee takes any action to convert its Elephant &
Castle-Registered Trademark-Restaurant to another business, and such actions
were taken without first complying with the terms and conditions of Article
18 or Article 19 of this Agreement, as applicable, then such actions will not
relieve either party of, or release either party from, any of its obligations
under this Agreement, and the terms and conditions of this Agreement will
remain in full force and effect and the parties will be obligated to fully
perform all terms and conditions until such time as this Agreement expires or
is terminated in accordance with the provisions of this Agreement and
applicable law, as determined by arbitration or a court of competent
jurisdiction.
CUMULATIVE RIGHTS.
The rights of Elephant & Castle hereunder are cumulative and no exercise or
enforcement by Elephant & Castle of any right or remedy hereunder will preclude
the exercise or enforcement by Elephant & Castle of any other right or remedy
hereunder or which Elephant & Castle is entitled by law to enforce.
BINDING AGREEMENT.
This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns and successors in interest.
JOINT AND SEVERAL LIABILITY.
If the Franchisee consists of more than one person, their liability under this
Agreement will be deemed to be joint and several.
NO ORAL MODIFICATION.
No modification, change, addition, rescission, release, amendment or waiver of
this Agreement and no approval, consent or authorization required by any
provision of this Agreement may be made by any person except by a written
agreement signed by a duly authorized officer or partner of the Franchisee and
the President or a Vice President of Elephant & Castle.
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ENTIRE AGREEMENT.
This Agreement supersedes and terminates all prior agreements, either oral or
in writing, between the parties involving the franchise relationship and
therefore, representations, inducements, promises or agreements alleged by
either Elephant & Castle or the Franchisee that are not contained in this
Agreement will not be enforceable. The Recitals are part of this Agreement,
which constitutes the entire agreement of the parties, and there are no other
oral or written understandings or agreements between Elephant & Castle and
the Franchisee relating to the subject matter of this Agreement. This
Agreement will not supersede any written agreements or contracts that are
signed concurrently with this Agreement.
HEADINGS; TERMS.
The headings of the Articles are for convenience only and do not in any way
define, limit or construe the contents of such Articles. The term "Franchisee"
as used herein is applicable to one or more individuals, a corporation, a
limited liability company, a partnership or a limited partnership, as the case
may be, and the singular usage includes the plural, the masculine usage includes
the neuter and the feminine, and the neuter usage includes the masculine and the
feminine. References to "Franchisee," "assignee" and "transferee" which are
applicable to an individual or individuals will mean the Owner or Owners of the
equity or operating control of the Franchisee or any such assignee or transferee
if the Franchisee or such assignee or transferee is a corporation, a limited
liability company, a partnership, or a limited partnership.
VENUE AND JURISDICTION.
All litigation, court proceedings, arbitration proceedings, mediation
proceedings, lawsuits, court hearings and other hearings initiated by the
Franchisee or Elephant & Castle must and will be venued exclusively in
Hennepin County, Minnesota. The Franchisee, each of its officers and
directors, and the Owners and Personal Guarantors do hereby agree and submit
to personal jurisdiction in the State of Minnesota for the purposes of any
suit, proceeding or hearing brought to enforce or construe the terms of this
Agreement or to resolve any dispute or controversy arising under, as a result
of, or in connection with this Agreement, the Franchised Location or the
Franchisee's Elephant & Castle-Registered Trademark- Restaurant, and do
hereby agree and stipulate that any such suits, proceedings and hearings will
be exclusively venued and held in Hennepin County, Minnesota. The Franchisee,
each of its officers and directors, and the Owners and Personal Guarantors
waive any rights to contest such venue and jurisdiction and any claims that
such venue and jurisdiction are invalid.
FEDERAL ARBITRATION ACT.
Any issue regarding arbitration will be governed by the Federal Arbitration Act
and the federal common law of arbitration.
CONTRACTUAL STATUTE OF LIMITATIONS.
Any and all claims and actions arising out of or relating to this Agreement, the
relationship of the Franchisee and Elephant & Castle, or the Franchisee's
operation of the Restaurant brought by either party against the other, whether
in arbitration or any other proceeding, will be commenced within one (1) year
from the occurrence of the facts giving rise to such claim or action, or such
claim or action will be barred.
NOTICES
All notices to Elephant & Castle will be in writing and will be made by personal
service upon an officer or director of Elephant & Castle or sent by prepaid
registered or certified mail addressed to Mr. Martin O'Dowd, President and Chief
Executive Officer of Elephant & Castle International, Inc., 7657 Anagram
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Drive, Eden Prairie, Minnesota 55344 or such other address as Elephant &
Castle may subsequently designate in writing, with a copy to G. Thomas
MacIntosh, II, Attorney at Law, Mackall, Crounse & Moore, PLC, 1400 AT&T
Tower, 901 Marquette Avenue, Minneapolis, Minnesota 55402-2859. All notices
to the Franchisee will be made by personal service upon the Franchisee (or,
if applicable, upon an officer or director of the Franchisee) or sent by
prepaid registered or certified mail addressed to the Franchisee at the
Franchised Location, or such other address as the Franchisee may subsequently
designate in writing. For the purposes of this Agreement, personal service
will include service by a recognized overnight delivery service (such as
Federal Express, Airborne Express or UPS) which requires a written receipt of
delivery from the addressee.
DISCLAIMER; ACKNOWLEDGMENTS
DISCLAIMER.
Elephant & Castle does not warrant or guarantee to the Franchisee that the
Franchisee will derive income or profit from the Elephant & Castle-Registered
Trademark-Restaurant, or that Elephant & Castle will refund all or part of
the Initial Fee or the price paid for the Franchisee's Restaurant or
repurchase any of the supplies, products, technology or equipment supplied or
sold by Elephant & Castle or by an approved or designated supplier if the
Franchisee is in any way unsatisfied with its Restaurant. Elephant & Castle
expressly disclaims the making of any express or implied representations or
warranties regarding the sales, earnings, income, profits, Gross Sales,
business or financial success, or value of the Franchisee's Restaurant except
as contained in the Elephant & Castle Uniform Franchise Offering Circular
received by the Franchisee.
ACKNOWLEDGMENTS BY FRANCHISEE.
The Franchisee acknowledges that it has conducted an independent
investigation of the Elephant & Castle-Registered Trademark- Restaurant and
recognizes that the business venture contemplated by this Agreement involves
business and economic risks. The Franchisee acknowledges that the financial,
business and economic success of the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant will be primarily dependent upon the
personal efforts of the Franchisee, its management and its employees, and on
economic conditions in the area where the Franchised Location is located and
economic conditions in general. The Franchisee acknowledges that it has not
received any estimates, projections, representations, warranties or
guaranties, expressed or implied, regarding potential sales, Gross Sales,
income, profits, earnings, expenses, financial or business success, value of
the Restaurant, or other economic matters pertaining to the Franchisee's
Restaurant from Elephant & Castle or any of its agents that were not
expressly set forth in the Elephant & Castle Uniform Franchise Offering
Circular received by the Franchisee from Elephant & Castle (hereinafter
referred to in this provision as "Representations"). The Franchisee further
acknowledges that if it had received any such Representations, it would not
have executed this Agreement, and that it would have promptly notified the
President of Elephant & Castle in writing of the person or persons making
such Representations, and provided to Elephant & Castle a specific written
statement detailing the Representations made.
OTHER FRANCHISEES.
The Franchisee acknowledges that other franchisees of Elephant & Castle have
or will be granted franchises at different times, different locations, under
different economic conditions and in different situations, and further
acknowledges that the economics and terms and conditions of such other
franchises may vary substantially in form and in substance from those
contained in this Agreement.
RECEIPT OF AGREEMENT AND UNIFORM FRANCHISE OFFERING CIRCULAR.
The Franchisee acknowledges that it received a copy of this Agreement with
all material blanks fully completed at least five (5) business days prior to
the date that this Agreement was executed by the Franchisee. The Franchisee
further acknowledges that it received a copy of the Elephant & Castle
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Uniform Franchise Offering Circular at least ten (10) business days prior to
the date on which this Agreement was executed.
ALAMO GRILL-TM- RESTAURANTS.
The Franchisee agrees and acknowledges that the Alamo Grill-TM- restaurants
which are or will be operated or franchised by Elephant & Castle ("Alamo
Grill-TM- Restaurants") are restaurants that address different markets and
thus are not competitive with Elephant & Castle-Registered Trademark-
Restaurants. Further, the Franchisee acknowledges and agrees that, except as
restricted by the terms of the Franchise Agreements with its Alamo Grill
franchisees, Elephant & Castle will have the absolute right to develop, own,
manage, license and franchise Alamo Grill-TM- Restaurants at any location in
the world, and the Franchisee hereby waives any and all rights that it may
have or allege against Elephant & Castle or any affiliate of Elephant &
Castle resulting from the operation of any Alamo Grill-TM- Restaurant,
including those Alamo Grill-TM- Restaurants that may be in, near or adjacent
to the Franchisee's Exclusive Area or the Franchisee's Elephant &
Castle-Registered Trademark- Restaurant.
FRANCHISEE'S LEGAL COUNSEL
The Franchisee acknowledges that this Agreement constitutes a legal document
which grants certain rights to and imposes certain obligations upon the
Franchisee. The Franchisee has been advised by Elephant & Castle to retain an
attorney or advisor prior to the execution of this Agreement to review the
Elephant & Castle Uniform Franchise Offering Circular, to review this
Agreement in detail, to review all legal documents, to review the economics,
operations and other business aspects of the Elephant & Castle-Registered
Trademark- Restaurant, to determine compliance with franchising and other
applicable laws, and to advise the Franchisee on economic risks, liabilities,
obligations and rights under this Agreement and to advise the Franchisee on
tax issues, financing matters, applicable state and federal laws, liquor
laws, health and safety laws, environmental laws, employee issues, insurance,
structure of the Restaurant business, and other business matters. The name of
the Franchisee's attorney or other advisor is:
Attorney's Name:____________________________________________________
Name of Firm:_______________________________________________________
Address:____________________________________________________________
City, State, Zip Code:_______________________
Telephone Number: ( )_____________________
Fax Number: ( )___________________________
GOVERNING LAW; STATE MODIFICATIONS
GOVERNING LAW; SEVERABILITY.
Except to the extent governed by the United States Trademark Act of 1946 (Lanham
Act, 15 U.S.C. Sections 1051, et seq.), this Agreement and the relationship
between Elephant & Castle and the Franchisee will be governed by the laws of the
state in which the Franchised Location is located. The provisions of this
Agreement which conflict with or are inconsistent with applicable governing law
will be superseded and/or modified by such applicable law only to the extent
such provisions are inconsistent. All other provisions of this Agreement will be
enforceable as originally made and entered into upon the execution of this
Agreement by the Franchisee and Elephant & Castle.
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APPLICABLE STATE LAWS.
If applicable, the following states have statutes which may supersede the
provisions of this Agreement in the Franchisee's relationship with Elephant &
Castle in the areas of termination and renewal of the Franchise: ARKANSAS
[Stat. Section 70-807], CALIFORNIA [Bus. & Prof. Code Sections 20000-20043],
CONNECTICUT [Gen. Stat. Section 42-133e, ET SEQ.], DELAWARE
[Code Section 2552], HAWAII [Rev. Stat. Section 482E-1], ILLINOIS
[815 ILCS 705/19-20], INDIANA [Stat. Section 23-2-2.7], MICHIGAN
[Stat. Section 19.854(27)], MINNESOTA [Stat. Section 80C.14], MISSISSIPPI
[Code Section 75-24-51], MISSOURI [Stat. Section 407.400], NEBRASKA
[Rev. Stat. Section 87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA
[Codified Laws Section 37-5A-51], VIRGINIA [Code 13.1-557-574-13.1-564],
WASHINGTON [Code Section 19.100.180], and WISCONSIN [Stat. Section 135.03].
These and other states may have court decisions which may supersede the
provisions of this Agreement in the Franchisee's relationship with Elephant &
Castle in the areas of termination and renewal of the Franchise.
STATE LAW MODIFICATIONS.
If the Franchisee's Elephant & Castle-Registered Trademark- Restaurant is
located in any one of the states indicated below in this Article, or if the
laws of any such state are otherwise applicable, then the designated
provisions of this Agreement will be amended and revised as follows:
(a) CALIFORNIA. If this Agreement is governed by the laws of the State
of California, then: (1) the covenant not to compete upon termination
or expiration of this Agreement contained in Article 21.3 may be
unenforceable, except in certain circumstances provided by law; and (2)
provisions of this Agreement giving Elephant & Castle the right to
terminate in the event of the Franchisee's bankruptcy may not be
enforceable under federal bankruptcy laws (11 U.S.C. Sec. 101, ET
SEQ.).
(b) ILLINOIS. If this Agreement is governed by the laws of the State of
Illinois, then: (1) the designation of jurisdiction and venue in
Hennepin County, Minnesota contained in Article 23.5 and Article 24.12
of this Agreement will be inapplicable; provided, however, that such
inapplicability will not be construed to mean that such venue is
improper, or that the Franchisee, its officers, directors, Owners and
the Personal Guarantors are not subject to jurisdiction in the State of
Minnesota, or in any other state; (2) Article 24.14 of this Agreement
is hereby amended to provide that Section 27 of the Illinois Franchise
Disclosure Act will be applicable to any action maintained by the
Franchisee to enforce any liability created by the Act; and (3) any
condition, stipulation or provision of this Agreement requiring the
Franchisee to waive compliance with any provision of the Illinois
Franchise Disclosure Act is void; therefore, any acknowledgments
contained in Article 26.2 and Article 26.4 of this Agreement which
waive compliance with the Illinois Franchise Disclosure Act will be
deleted from this Agreement.
(c) INDIANA. If this Agreement is governed by the laws of the State of
Indiana, then: (1) Article 17.6(d) of this Agreement will be
inapplicable; (2) the post-term covenant not to compete contained in
Article 21.3 of this Agreement will be enforceable only within the
Exclusive Area; (3) Article 21.4 and Article 24.1 of this Agreement
will be amended to provide that a court of competent jurisdiction will
determine whether Elephant & Castle will be entitled to injunctive
relief in any injunctive proceeding commenced by Elephant & Castle
against the Franchisee; (4) the designation of jurisdiction and venue
in Hennepin County, Minnesota contained in Article 24.12 of this
Agreement is inapplicable; provided, however, that such inapplicability
will not be construed to mean that such venue is improper, or that the
Franchisee, its officers, directors, Owners and the Personal Guarantors
are not subject to jurisdiction in the State of Minnesota, or in any
other state; (5) arbitration hearings will be conducted in
Indianapolis, Indiana or at a mutually agreed upon location; (6) the
Franchisee
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does not, by signing this Agreement, waive its rights under
Indiana law with respect to any representations made by Elephant &
Castle prior to the date of this Agreement; (7) notwithstanding any
provision of this Agreement to the contrary, the Franchisee will have
up to two years to bring an action against Elephant & Castle for a
violation of the Indiana Deceptive Franchise Practices Act, and up to
three years from the date of discovery to bring an action against
Elephant & Castle for a violation of the Indiana Franchise Disclosure
Law; and (8) notwithstanding any provisions of this Agreement to the
contrary, a court of competent jurisdiction will determine whether
Elephant & Castle will be required to post a bond or other security,
and the amount of such bond or other security, in any injunctive
proceeding commenced by Elephant & Castle against the Franchisee.
(d) MARYLAND. If this Agreement is governed by the laws of the State of
Maryland, then: (1) Article 17.6(d) of this Agreement is hereby amended
to provide that such release will not relieve Elephant & Castle from
any liability imposed by the Maryland Franchise Registration and
Disclosure Law; (2) with the exception of mediation or arbitration
proceedings, the designation of jurisdiction and venue in Hennepin
County, Minnesota contained in Article 23.5 and Article 24.12 will be
inapplicable; provided, however, that such inapplicability in the State
of Maryland will not be construed to mean that venue in Hennepin
County, Minnesota is improper, or that the Franchisee, its officers,
directors, Owners and Personal Guarantors are not subject to
jurisdiction in Hennepin County, Minnesota, or in any other state; and
(3) the acknowledgments made by the Franchisee contained in Article 26
of this Agreement will not be construed to act as a waiver of the
Franchisee's rights under the Maryland Franchise Registration and
Disclosure Law.
(e) MINNESOTA. If this Agreement is governed by the laws of the State
of Minnesota, then: (1) Article 3 of this Agreement will be amended to
provide that, except in certain circumstances specified by law,
Elephant & Castle must give the Franchisee at least one hundred eighty
(180) days prior written notice of nonrenewal of the Franchise; (2)
Article 18.2 will be amended to require that, except as set forth in
Article 18.5 and 18.6, in the event Elephant & Castle gives the
Franchisee written notice that the Franchisee has breached this
Agreement, such written notice will be given to the Franchisee at least
ninety (90) days prior to the date this Agreement is terminated by
Elephant & Castle, and the Franchisee will have sixty (60) days after
such written notice within which to correct the breach specified in the
written notice; (3) notwithstanding any provisions of this Agreement to
the contrary, a court of competent jurisdiction will determine whether
Elephant & Castle will be required to post a bond or other security,
and the amount of such bond or other security, in any injunctive
proceeding commenced by Elephant & Castle against the Franchisee, the
Owners or the Personal Guarantors; (4) Article 17.6(d) of this
Agreement will be inapplicable; and (5) in accordance with Minn. Stat.
Sec. 80C.17, Subd. 5, the Franchisee will have no more than three years
after the cause of action accrues to commence an action pursuant to
Minn. Stat. Sec. 80C.17.
(f) NEW YORK. If this Agreement is governed by the laws of the State of
New York, then: (1) Article 17.1 of this Agreement will be amended to
provide that Elephant & Castle may not assign this Agreement unless, in
its reasonable judgment, the assignee will be able to perform Elephant
& Castle's obligations under this Agreement; (2) Article 22.1 of this
Agreement will be amended to provide that the Franchisee will not be
required to indemnify Elephant & Castle against claims arising out of
Elephant & Castle's breach of contract, negligence or other civil
wrong; however, such amendment of Article 22.1 will not affect in any
way the Franchisee's obligation to obtain and maintain insurance
coverage in accordance with Article 14; (3) any modifications to the
Manual made by Elephant & Castle will not unreasonably increase the
Franchisee's obligations under this Agreement and will not place an
excessive economic
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burden on the Franchisee's operations; and (4)
Article 17.6(d) of this Agreement is hereby amended to provide that all
rights arising in the Franchisee's favor from the provisions of Article
33 of the GBL of the State of New York and the regulations issued
thereunder shall remain in force, it being the intent of this provision
that the non-waiver provisions of Sections 687.4 and 687.5 of the GBL
be satisfied.
(g) NORTH DAKOTA. If this Agreement is governed by the laws of the
State of North Dakota, then: (1) the covenant not to compete upon
termination or expiration of this Agreement contained in Article 21.3
of this Agreement may be unenforceable, except in certain circumstances
provided by law; (2) arbitration hearings will be conducted in Fargo,
North Dakota or at a mutually agreed upon location; (3) Article 24.2 is
amended to provide that the prevailing party will pay all attorneys'
fees, costs and expenses incurred by the other party in enforcing any
term, condition or provision of this Agreement or in enjoining any
violation of this Agreement by the other party; and (4) the consent by
the Franchisee to jurisdiction and venue in Hennepin County, Minnesota
contained in Article 24.12 is inapplicable; provided, however, that
such inapplicability in the State of North Dakota will not be construed
to mean that venue in Hennepin County, Minnesota is improper, or that
the Franchisee, its officers, directors, Owners and the Personal
Guarantors are not subject to jurisdiction in the State of Minnesota,
or in any other state.
(h) RHODE ISLAND. If this Agreement is governed by the laws of the
State of Rhode Island, then any provision of this Agreement which
restricts jurisdiction or venue to a forum outside the State of Rhode
Island is void with respect to a claim otherwise enforceable under the
Rhode Island Franchise Investment Act.
(i) SOUTH DAKOTA. If this Agreement is governed by the laws of the
State of South Dakota, then: (1) Article 18 of this Agreement will be
amended to provide that if the Franchisee breaches the provisions of
this Agreement, including the failure to meet performance or quality
standards or to pay any fees or other payments payable to Elephant &
Castle pursuant to this Agreement, Elephant & Castle will provide the
Franchisee with at least thirty (30) days written notice and an
opportunity to cure prior to the termination of this Agreement by
Elephant & Castle; (2) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 21.3 of this
Agreement may be unenforceable, except in certain circumstances
provided by law; (3) any provision of this Agreement which designates
jurisdiction or venue outside of the State of South Dakota or requires
the Franchisee to agree to jurisdiction or venue in a forum outside of
the State of South Dakota is void with respect to any cause of action
which is otherwise enforceable in the State of South Dakota; (4)
pursuant to SDCL Sections 37-5A-86, any acknowledgment provision,
disclaimer, integration clause or provision having a similar effect in
this Agreement will not negate or act to remove from judicial review
any statement, misrepresentation or action that violates Chapter 37-5A
or a rule or order under Chapter 37-5A; (5) arbitration hearings will
be conducted in Sioux Falls, South Dakota or at a mutually agreed upon
location; and (6) provisions of this Agreement which require that
actions be commenced within one year and that limit the parties' rights
to recover punitive, exemplary, incidental, indirect, special or
consequential damages may not be enforceable under South Dakota law.
(j) WASHINGTON. If this Agreement is governed by the laws of the State
of Washington, then: (1) in the event of a conflict of laws, the
provisions of the Washington Franchise Investment Protection Act,
Chapter 19.100 RCW, will prevail; (2) a release or waiver of rights
executed by the Franchisee will not include rights under the Washington
Franchise Investment Protection Act, except when executed pursuant to a
negotiated settlement after this Agreement is in effect and where the
parties are represented by independent counsel; (3) any
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provision of this Agreement which unreasonably restricts or limits the
statute of limitations period for claims under the Washington Franchise
Investment Protection Act, rights or remedies under the Washington
Franchise Investment Protection Act, such as a right to a jury trial,
may not be enforceable; and (4) transfer fees are collectible by
Elephant & Castle to the extent that they reflect Elephant & Castle
reasonable estimated or actual costs in effecting a transfer.
SEVERABILITY.
The severability provisions of this Agreement will pertain to all of the
applicable laws which conflict with or modify the provisions of this Agreement
including, but not limited to, the provisions of this Agreement specifically
addressed in Article 28.3 above.
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IN WITNESS WHEREOF, Elephant & Castle, the Franchisee and the Franchisee's
Owners have respectively signed this Agreement effective as of the day and year
set forth on Page F-1 of this Agreement.
In the Presence of: ELEPHANT & CASTLE INTERNATIONAL, INC.
By
- ----------------------------------- --------------------------------
Its
- ----------------------------------- --------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
The undersigned Owners of the Franchisee hereby agree to be bound by the
terms and conditions of this Agreement.
In the Presence of: OWNERS Percentage of
Ownership
- ------------------------ ---------------------------- ----------------- %
- ------------------------ ---------------------------- ----------------- %
- ------------------------ ---------------------------- ----------------- %
- ------------------------ ---------------------------- ----------------- %
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PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THE FRANCHISE AGREEMENT
In consideration of the execution of this Agreement by Elephant & Castle, and
for other good and valuable consideration, the undersigned, for themselves,
their heirs, successors, and assigns, do individually, jointly and severally
hereby become surety and guaranty for the payment of all amounts and the
performance of the covenants, terms and conditions of this Agreement,
including the covenants not to compete, to be paid, kept and performed by the
Franchisee.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement, including the covenants not to compete, and agree that this
Personal Guaranty should be construed as though the undersigned and each of
them executed an agreement containing the identical terms and conditions of
this Agreement.
If any default should at any time be made therein by the Franchisee, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay to Elephant & Castle all
Initial Fees, Continuing Fees and other fees due and payable to Elephant &
Castle under the terms and conditions of this Agreement.
In addition, if the Franchisee fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors
and assigns, do hereby, individually, jointly and severally, promise and
agree to comply with the terms and conditions of this Agreement for and on
behalf of the Franchisee.
If the Franchisee is at any time in default on any obligation to pay monies
to Elephant & Castle or any subsidiary or affiliate of Elephant & Castle,
whether for Initial Fees, Continuing Fees, merchandise, products, supplies,
furniture, fixtures, equipment or other products purchased by the Franchisee
from Elephant & Castle or any subsidiary or affiliate of Elephant & Castle,
or for any other indebtedness of the Franchisee to Elephant & Castle or any
subsidiary or affiliate of Elephant & Castle, then the undersigned, their
heirs, successors and assigns, do hereby, individually, jointly and
severally, promise and agree to pay all such monies due and payable from the
Franchisee to Elephant & Castle or any subsidiary or affiliate of Elephant &
Castle upon default by the Franchisee.
The maximum individual liability that each Personal Guarantor will incur
under this Personal Guaranty is two hundred fifty thousand dollars ($250,000).
It is further understood and agreed by the undersigned that the provisions,
covenants and conditions of this Personal Guaranty will inure to the benefit
of the successors and assigns of Elephant & Castle.
Except as provided by applicable law, all litigation, actions or proceedings
pertaining to this Personal Guaranty will be brought and venued in accordance
with Article 24.12 of the Franchise Agreement.
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PERSONAL GUARANTORS
- ------------------------------------- -------------------------------------
Individually Individually
Percentage of Ownership Interest ___% Percentage of Ownership Interest ___%
- ------------------------------------- -------------------------------------
Address Address
- ------------------------------------- -------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- -------------------------------------
Telephone Telephone
- ------------------------------------- -------------------------------------
Individually Individually
Percentage of Ownership Interest ___% Percentage of Ownership Interest ___%
- ------------------------------------- -------------------------------------
Address Address
- ------------------------------------- -------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- -------------------------------------
Telephone Telephone
- ------------------------------------- -------------------------------------
Individually Individually
Percentage of Ownership Interest ___% Percentage of Ownership Interest ___%
- ------------------------------------- -------------------------------------
Address Address
- ------------------------------------- -------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- -------------------------------------
Telephone Telephone
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ELEPHANT & CASTLE INTERNATIONAL, INC.
7657 Anagram Drive
Eden Prairie, Minnesota 55344
(612) 294-1333
Fax: (612) 294-1342
ELEPHANT & CASTLE-R- RESTAURANT
FRANCHISE AGREEMENT
FRANCHISEE FRANCHISED LOCATION
- ------------------------------------- -------------------------------------
Name Street
- ------------------------------------- -------------------------------------
Street City State Zip Code
- ------------------------------------- -------------------------------------
( )
- ------------------------------------- -------------------------------------
City State Zip Code Area Code Telephone
( ) ( )
- ------------------------------------- -------------------------------------
Area Code Telephone Area Code Fax
( )
- ------------------------------------- -------------------------------------
Area Code Fax E-Mail Address
Franchised Restaurant No.
- ------------------------------------- -----------
E-Mail Address
-------------------------------------
Date of Franchise Agreement
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<PAGE>
ELEPHANT & CASTLE INTERNATIONAL, INC.
FRANCHISE AGREEMENT INDEX
Page
ARTICLE 1 DEFINITIONS....................................................74
1.1 Designated Market Area......................................74
1.2 Dollars.....................................................74
1.3 Franchise...................................................74
1.4 General Manager.............................................74
1.5 Gross Sales.................................................74
1.6 Marks.......................................................75
1.7 Ownership Interest..........................................75
1.8 Owner.......................................................75
1.9 Restaurant System...........................................75
1.10 Week.......................................................75
ARTICLE 2 GRANT OF FRANCHISE.............................................76
2.1 Franchised Location.........................................76
2.2 Exclusive Area..............................................76
2.3 Undetermined Franchised Location............................76
2.4 Lease or Purchase of Franchised Location....................76
2.5 Relocation..................................................76
2.6 Conditions..................................................77
2.7 Personal License............................................77
ARTICLE 3 TERM OF AGREEMENT..............................................77
3.1 Term........................................................77
3.2 Term of Lease...............................................77
3.3 Reacquisition Option........................................77
3.4 Terms of Option.............................................78
ARTICLE 4 INITIAL FEE; APPROVAL OF FRANCHISEE............................78
4.1 Initial Fee.................................................78
4.2 Termination of Franchise....................................78
4.3 Refund of Initial Fee.......................................79
ARTICLE 5 CONTINUING FEE.................................................79
5.1 Amount of Continuing Fee; Date Payable......................79
5.2 Interest on Unpaid Continuing Fees..........................79
5.3 Reports.....................................................79
5.4 Franchisee's Obligation to Pay..............................79
5.5 Pre-Authorized Bank Debits..................................80
ARTICLE 6 LOCAL ADVERTISING..............................................80
6.1 Local Advertising Expenditure...............................80
6.2 Reports of Local Advertising Expenditures...................80
6.3 Telephone Directory Listings................................80
6.4 Grand Opening Advertising...................................81
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ARTICLE 7 FINANCIAL STATEMENTS...........................................81
7.1 Monthly Reports and Financial Statements....................81
7.2 Due Date; Verification of Monthly Reports and Financial
Statements..................................................81
7.3 Substantiation of Monthly Reports and Financial Statements..81
7.4 Sales and Income Tax Returns................................82
7.5 Audit Rights................................................82
7.6 Payment of Audit Costs......................................82
7.7 Refusal to Submit Records or Permit Audit...................82
ARTICLE 8 QUALITY CONTROL, UNIFORMITY AND STANDARDS......................82
8.1 Quality and Service Standards...............................82
8.2 Identification of Restaurant................................83
8.3 Compliance with Standards...................................83
8.4 Alterations to Restaurant...................................83
8.5 Prohibited Sales............................................83
8.6 Other Business..............................................83
8.7 Franchisee's Name...........................................83
8.8 Operation of Elephant & Castle-R-Restaurant.................84
8.9 Business Hours..............................................84
8.10 Personnel..................................................84
8.11 Standards of Service.......................................84
8.12 Alcoholic Beverages........................................84
8.13 Vending Machines and Entertainment Devices.................84
8.14 Gambling Machines; Tickets.................................84
8.15 Standard Attire or Uniforms................................85
8.16 Credit Cards...............................................85
8.17 Gift Certificates and Coupons..............................85
8.18 Music and Music Selection..................................85
8.19 Approved Advertising.......................................85
8.20 Compliance with Applicable Law.............................85
8.21 Payment of Taxes...........................................85
8.22 "Franchise" and Other Taxes................................86
8.23 Payments to Creditors......................................86
8.24 Security Interest in Franchise Agreement...................86
8.25 Inspection Rights..........................................86
8.26 Default Notices and Significant Correspondence.............86
ARTICLE 9 PRODUCTS AND SERVICES..........................................87
9.1 Limitations on Products and Services........................87
9.2 Limitation on Sales.........................................87
9.3 Approved Suppliers and Distributors.........................87
9.4 Designated Suppliers........................................88
9.5 Use of Rebates from Suppliers...............................88
9.6 Limitation on Branding, Development and Sale of Products....88
9.7 Independent Shopping Services...............................88
ARTICLE 10 STANDARD OPERATIONS MANUAL....................................89
10.1 Compliance with Manual.....................................89
10.2 Revisions to Manual........................................89
10.3 Confidentiality of Manual..................................89
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
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10.4 Confidentiality of Other Information.......................89
ARTICLE 11 BUSINESS PREMISES.............................................90
11.1 Site Location..............................................90
11.2 Site Location Criteria.....................................90
11.3 Construction and Remodeling Costs..........................90
11.4 Compliance with Specifications.............................90
11.5 Inspection During Construction or Renovation...............91
11.6 Maintenance................................................91
11.7 Remodeling of Business Premises............................91
ARTICLE 12 SIGNS.........................................................91
12.1 Approved Signs.............................................91
12.2 Payment of Costs and Expenses..............................92
12.3 Modifications; Inspection..................................92
ARTICLE 13 TELECOMMUNICATION AND COMPUTER EQUIPMENT......................92
13.1 Telecommunication Equipment................................92
13.2 Satellite and Cable Television.............................92
13.3 Computer Hardware..........................................92
13.4 Software...................................................93
13.5 Access to Computer Data....................................93
13.6 Internet Provider..........................................93
13.7 E-Mail Address.............................................93
ARTICLE 14 INSURANCE.....................................................93
14.1 General Liability Insurance................................93
14.2 Liquor Liability Insurance.................................93
14.3 Automobile Liability Insurance.............................94
14.4 Property Insurance.........................................94
14.5 Building Insurance.........................................94
14.6 Umbrella Liability.........................................94
14.7 Insurance Required by Law..................................94
14.8 Insurance Companies; Evidence of Coverage..................94
14.9 Defense of Claims..........................................94
14.10 Rights of Elephant & Castle...............................94
ARTICLE 15 LICENSING OF MARKS AND RESTAURANT SYSTEM......................95
15.1 Right to License Marks.....................................95
15.2 Conditions to License of Marks.............................95
15.3 Franchisee's Use of Marks..................................95
15.4 Adverse Claims to Marks....................................95
15.5 Defense or Enforcement of Rights to Marks..................96
15.6 Tender of Defense..........................................96
15.7 Franchisee's Right to Participate in Litigation............96
ARTICLE 16 TRAINING PROGRAM; OPENING ASSISTANCE..........................96
16.1 Training...................................................96
16.2 Changes in Personnel.......................................97
16.3 Initial Training of New Personnel..........................97
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
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16.4 Payment of Salaries and Expenses............................97
16.5 Opening Assistance..........................................98
16.6 Advisory Assistance.........................................98
16.7 Hiring and Training of Employees by Franchisee..............98
ARTICLE 17 ASSIGNMENT.....................................................98
17.1 Assignment by Elephant & Castle.............................98
17.2 Assignment by Franchisee to Owned or Controlled Entity......98
17.3 Assignment by Individual Franchisee in Event of Death or
Permanent Disability........................................99
17.4 Sale of Ownership Interests to Public.......................99
17.5 Elephant & Castle's Warrant................................100
17.6 Assignment by Franchisee...................................100
17.7 Acknowledgment of Restrictions.............................100
17.8 Transfer Fee...............................................101
17.9 Transfer to Competitor Prohibited..........................101
ARTICLE 18 TERMINATION RIGHTS OF ELEPHANT & CASTLE.......................101
18.1 Conditions of Breach.......................................101
18.2 Notice of Breach...........................................102
18.3 Arbitration................................................102
18.4 Notice of Termination......................................103
18.5 Immediate Termination Rights of Elephant & Castle..........103
18.6 Notice of Immediate Termination............................103
18.7 Other Remedies.............................................103
ARTICLE 19 FRANCHISEE'S TERMINATION RIGHTS...............................104
19.1 Conditions of Breach.......................................104
19.2 Notice of Breach...........................................104
19.3 Arbitration................................................104
19.4 Waiver.....................................................104
19.5 Injunctive Relief..........................................105
ARTICLE 20 FRANCHISEE'S OBLIGATIONS UPON TERMINATION.....................105
20.1 Termination of Use of Marks; Other Obligations.............105
20.2 Alteration of Franchised Location..........................105
20.3 Cancellation of Telephone Directory Listings...............106
20.4 Continuation of Obligations................................106
ARTICLE 21 FRANCHISEE'S COVENANTS NOT TO COMPETE.........................106
21.1 Consideration..............................................106
21.2 In-Term Covenant Not to Compete............................106
21.3 Post-Term Covenant Not to Compete..........................107
21.4 Injunctive Relief..........................................107
21.5 Severability...............................................107
ARTICLE 22 INDEPENDENT CONTRACTORS; INDEMNIFICATION......................108
22.1 Independent Contractors....................................108
22.2 Indemnification............................................108
22.3 Payment of Costs and Expenses..............................108
22.4 Continuation of Obligations................................108
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
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ARTICLE 23 ARBITRATION...................................................109
23.1 Mediation..................................................109
23.2 Disputes Subject to Arbitration............................109
23.3 Notice of Dispute..........................................109
23.4 Demand for Arbitration.....................................109
23.5 Venue and Jurisdiction.....................................109
23.6 Powers of Arbitrator(s)....................................109
23.7 Disputes Not Subject to Arbitration........................110
23.8 No Collateral Estoppel or Class Actions....................110
23.9 De Novo Hearing on Merits..................................110
23.10 Confidentiality...........................................110
23.11 Performance During Arbitration of Disputes................110
ARTICLE 24 ENFORCEMENT...................................................111
24.1 Injunctive Relief..........................................111
24.2 Severability...............................................111
24.3 Waiver.....................................................112
24.4 Payments to Elephant & Castle..............................112
24.5 Effect of Wrongful Termination.............................112
24.6 Cumulative Rights..........................................112
24.7 Binding Agreement..........................................112
24.8 Joint and Several Liability................................112
24.9 No Oral Modification.......................................112
24.10 Entire Agreement..........................................113
24.11 Headings; Terms...........................................113
24.12 Venue and Jurisdiction....................................113
24.13 Federal Arbitration Act...................................113
24.14 Contractual Statute of Limitations........................113
ARTICLE 25 NOTICES.......................................................113
ARTICLE 26 DISCLAIMER; ACKNOWLEDGMENTS...................................114
26.1 Disclaimer.................................................114
26.2 Acknowledgments by Franchisee..............................114
26.3 Other Franchisees..........................................114
26.4 Receipt of Agreement and Uniform Franchise
Offering Circular..........................................114
26.5 Alamo Grill-TM-Restaurants.................................115
ARTICLE 27 FRANCHISEE'S LEGAL COUNSEL....................................115
ARTICLE 28 GOVERNING LAW; STATE MODIFICATIONS............................115
28.1 Governing Law; Severability................................115
28.2 Applicable State Laws......................................116
28.3 State Law Modifications....................................116
28.4 Severability...............................................119
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
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The following information will have to be completed by Elephant & Castle and the
Franchisee prior to the time that this Agreement is signed by the parties:
<TABLE>
<CAPTION>
Article Page Information Required Completed Person Completing
Information
<S> <C> <C> <C> <C>
N/A F-1 Date of Agreement
------------ ------------------
N/A F-1 Name of Franchisee
------------ ------------------
N/A F-1 Business Structure of Franchisee
------------ ------------------
2.1 F-4 Franchised Location
------------ ------------------
27 F-44 Name, address and telephone number
of Franchisee's attorney or advisor
------------ ------------------
N/A F-49 Signature of Elephant & Castle
------------ ------------------
N/A F-49 Signature(s) of Franchisee
------------ ------------------
N/A F-49 Signature(s) of Owners and
percentage of Ownership Interest
(if applicable)
------------ ------------------
N/A F-51 Signature(s) of Personal Guarantors
and percentage of Ownership
Interest (if applicable)
------------ ------------------
</TABLE>
ELEPHANT & CASTLE INTERNATIONAL, INC. 15 GTM/RCA 032999
FRANCHISE AGREEMENT -vi- 426304 9
<PAGE>
ARTICLE 4
INITIAL FEE; APPROVAL OF FRANCHISEE
4.1 INITIAL FEE.
The Franchisee will pay Elephant & Castle a nonrefundable Initial Fee of
thirty-five thousand dollars ($35,000), which will be payable in full on the
date the Franchisee commences business. The Initial Fee payable by the
Franchisee is payment, in part, to Elephant & Castle for the costs incurred
by Elephant & Castle to operate its business, including costs for general
sales and administrative expenses, travel, long distance telephone calls,
training, opening costs, marketing costs, legal and accounting fees,
compliance with franchising and other laws, and the initial services rendered
to the Franchisee as described in this Agreement.
4.2 TERMINATION OF FRANCHISE.
Elephant & Castle will have the right to terminate this Agreement at any time
within one hundred twenty (120) days after the date of this Agreement if: (a)
any required or other financial, personal or other information provided by
the Franchisee to Elephant & Castle is materially false, misleading,
incomplete or inaccurate; (b) the Franchisee has not purchased or leased a
site for the Franchised Location or has done so in a manner not in compliance
with Article 2.4 and Article 11 of this Agreement; (c) the Franchisee fails
to apply for and obtain a valid license for the service of food for its
Elephant & Castle-R-Restaurant from the appropriate governmental agencies;
(d) the Franchisee fails to apply for and obtain a valid liquor license for
its Elephant & Castle-R-Restaurant from the appropriate governmental
authorities; or (e) the Franchisee (or its Operating Partner), the
Franchisee's General Manager and the Franchisee's Chef fail to complete the
Elephant & Castle training program described in Article 16.1 of this
Agreement.
4.3 PAYMENT OF COSTS.
If this Agreement is terminated by Elephant & Castle pursuant to Article 4.2,
then, within ten (10) days after termination, the Franchisee will pay
Elephant & Castle fifty percent (50%) of the Initial Fee as payment for the
administrative and out-of-pocket expenses incurred by Elephant & Castle
including, but not limited to, executives' and employees' salaries,
salespersons' commissions, attorneys' fees, accountants' fees, travel
expenses, training costs, legal compliance, marketing costs and long distance
telephone calls.
ARTICLE 5
CONTINUING FEE
5.1 AMOUNT OF CONTINUING FEE; DATE PAYABLE.
In addition to the Initial Fee payable by the Franchisee, the Franchisee will
pay Elephant & Castle a weekly Continuing Fee equal to the greater of: (a)
five percent (5%) of the Franchisee's weekly Gross Sales for the preceding
week; or (b) one thousand two hundred and fifty dollars ($1,250). The weekly
Continuing Fee will be paid to Elephant & Castle by the Franchisee by
Wednesday of each week for the preceding week. The minimum weekly Continuing
Fee of one thousand two hundred and fifty dollars ($1,250) will not be
applicable until the first full week of the seventh month after the date of
this Agreement, and beginning on Wednesday of that week, the Franchisee will
pay the greater of the amounts set forth above.
5.2 INTEREST ON UNPAID CONTINUING FEES.
If the Franchisee fails to remit the Continuing Fee due to Elephant & Castle
as provided for in Article 5.1, then the amount of the unpaid and past due
Continuing Fee will bear simple interest at the lesser of the maximum legal
rate allowable by applicable law or eighteen percent (18%) simple interest
per annum. The Franchisee will pay Elephant & Castle an administrative fee of
seventy-five dollars ($75)
<PAGE>
for each delinquent Continuing Fee payment within ten (10) days after the
delinquent
