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Area Franchise Agreement

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Sectors: Services
Governing Law: California , View California State Laws
Effective Date: July 01, 1960
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EXHIBIT 10.8


AREA FRANCHISE AGREEMENT


This Agreement by and between INTERNATIONAL HOUSE OF PANCAKES, INC., a Delaware corporation, successor in interest to THE INTERNATIONAL HOUSE OF PANCAKES COMMISSARY, (hereinafter referred to as " Franchisor" ) and FMS MANAGEMENT SYSTEMS, INC., a Florida corporation, successor in interest to ABE FINKEL and CORINNE FINKEL, A.J.A. CORPORATION, (hereinafter referred to as " Franchisee" ) is made with reference to the following facts:


A. Franchisor has developed and is continuing to develop certain unique systems, products, methods, techniques and other trade secrets (hereinafter referred to as the " Systems" ) for operating restaurants selling pancakes and various other food products under the names " The International House of Pancakes" and " International House of Pancakes Restaurant" (hereinafter referred to as " IHOP" ). The System, conducted in accordance with the provisions of this Agreement and Franchisor' s Operations Manual, Operations Bulletins, and all notices, amendments and supplements relating thereto (collectively referred to herein as " Operations Bulletins" ) will enable such businesses to compete more effectively in their respective marketplaces;


B. Franchisor now owns and hereafter will develop or purchase valuable trademarks, service marks, trade names, logotypes and other commercial symbols used to identify the System (hereinafter referred to as the " Trademarks" ); and


C. Franchisor or its predecessor in interest has granted to Franchisee or its predecessor in interest an exclusive franchise and license to operate and/or subfranchise International House of Pancakes restaurants within the area hereinafter described pursuant to an Area Franchise Agreement dated July 1, 1960, (hereinafter referred to as " Old Agreement" ); and


D. The parties now desire to modify the terms of the Old Agreement by terminating same and entering into a new agreement (hereinafter " Agreement" ) to use the System and Trademarks associated therewith in connection with the operation and/or subfranchising of IHOP restaurants within the area hereinafter described under the names " The International House of Pancakes" and " International House of Pancakes Restaurants" and Franchisor is willing to grant said Area Franchise under the terms and subject to the conditions hereinafter set forth.


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WHEREFORE, IT IS AGREED for and in consideration of Ten Dollars ($10.00) each to the other in hand paid, and for the mutual covenants and promises contained herein to the following:


I


GRANT OF FRANCHISE


1.01 Franchised Area. Franchisor hereby grants to Franchisee, and Franchisee hereby accepts, in accordance with the provisions of this Agreement and any ancillary documents pertaining hereto, an exclusive franchise and license to operate and/or to subfranchise the operation of International House of Pancakes restaurants within the following area of the United States:


All Counties of the State of Florida and the Counties of Glynn, Wayne, Camden, Charlton, Decatur, Grady, Miller, Seminole, Thomas, Berrien, Brooks, Cook, Echols, Lanier, Lowndes, Appling, Atkinson, Bacon, Branskey, Clinch, Coffee, Jeff Davis, Pierce, and Ware, Georgia.


1.02 Exclusive Territory. So long as Franchisee faithfully performs and observes each and all of the obligations and conditions to be performed and observed by Franchisee under or in connection with this Agreement, Franchisor, during the term of this Agreement, shall not own, operate, franchise or license any " International House of Pancakes" restaurant within that area described above (hereinafter " Franchised Area" ). Franchisee acknowledges and agrees that Franchisor, or its direct or indirect parent, subsidiary, or affiliated corporations, may now or hereafter own, operate, franchise and license both within and without the Franchised Area other restaurants under different trademarks, and trade names, or service marks, including without limitation, Copper Penny Family Coffee Shop, and that such other restaurants offer products similar to those which are or may be offered by the Franchised Restaurants.


1.03 Use of System. The franchise granted hereby is a license to use and/or license others to use Franchisor' s trade name, goodwill, and trade secrets in the operation of pancake specialty restaurants solely within the area specified herein and in strict compliance with the terms hereof. Nothing herein contained shall be construed so as to require Franchisor to divulge any secret processes, formulas, or ingredients, except pursuant to this Agreement. It is expressly agreed that the ownership of all right, title and interest in and to


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said trade name, goodwill, and trade secrets is and shall remain vested solely in Franchisor.


II


TERM OF FRANCHISE


2.01 Term. The term of this Agreement shall commence on the date hereof and shall terminate on June 30, 2010, unless otherwise terminated pursuant to the provisions of this Agreement, but shall be subject to extension or reduction of the term as provided in Section IV hereinbelow.


III


SERVICES OF FRANCHISOR


3.01 Disclosure of Procedures. Franchisor will disclose to Franchisee its standard operating procedures and, in connection therewith, will furnish copies of all manuals, bulletins, instruction sheets, forms, etc.


3.02 Training. Franchisee acknowledges that it has previously undergone training conducted by Franchisor for the operation of an IHOP restaurant. If Franchisee shall require additional training for any of its personnel, Franchisor shall provide said training to be given at an IHOP restaurant or a training center designated from time to time by Franchisor. Franchisor will pay no compensation for any services performed by trainee during such training period and all expenses incurred by Franchisee or said trainee in connection with such training, including, but not limited to, air fare and other transportation costs, meals, lodging and other living expenses, shall be at the sole expense of the Franchisee, and Franchisee shall also pay Franchisor' s then applicable training fee, which as of this date is Five Thousand Dollars ($5,000.00).


3.03 Additional Assistance. In addition to the foregoing, Franchisor shall provide Franchisee with additional assistance from the staff of Franchisor or its corporate affiliates upon Franchisee' s request and subject to staff availability, at the then prevailing price per person, per day, as shall be specified from time to time in the Operations Bulletins, plus reasonable transportation and living expenses.


3.04 Sale of Food Products and Supplies. Franchisor shall either sell to Franchisee or make available to Franchisee through an authorized supplier, at standard prices and terms which shall be no higher nor more onerous


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than the prices and terms granted to any other area franchisee, for authorized distributor (but subject to Section 5.07 (a) below) all dry pancake mixes, and IHOP logo items including but not limited to imprinted paper goods, and custom patterned china, that Franchisee shall need for use in its own operations and for resale to or use by subfranchisees.


3.05 Improvements. All improvements made by Franchisor in its products, procedures or designs will be made available to Franchisee.


3.06 Indemnification. In the event that any third party makes any claim, by suit or otherwise, against the Franchisee because of the Franchisee' s use in accordance with this Agreement of the Trademarks, the Franchisee shall immediately notify the Franchisor in writing. After receipt of said notice, Franchisor shall promptly take such action as may be necessary to protect and defend Franchisee against any such claim, suit or demand, and Franchisor shall protect, indemnify and save Franchisee harmless from any loss, costs or expenses arising out of or relating to any such claim, demand, or suit. Franchisee shall have no right to settle, compromise, or litigate any such claim except in strict compliance with any specific directives provided by Franchisor relating to such specific claim. Franchisor shall have the right to defend, compromise or settle any such claim at Franchisor' s sole cost and expense, using attorneys of its own choosing, and Franchisee agrees to cooperate fully with Franchisor in connection with the defense of any such claim.


IV


FEES AND EXTENSIONS OR REDUCTIONS OF TERM


4.01 Continuing Royalty. For and in consideration of Franchisor' s execution and performance of this Agreement, Franchisee shall pay in United States Do1lars to Franchisor a Continuing Royalty equal to one percent (1%) of all Franchisee' s monthly Gross Sales as hereinafter defined. Should the annual Continuing Royalty paid to Franchisor by Franchisee under this Agreement in respect of any fiscal year of Franchisee (commencing with Franchisee' s fiscal year beginning October 1, 1987) be less than Three Hundred Thousand Dollars ($300,000.00) (" minimum Continuing Royalty" ) in respect of eighty-eight (88) International House of Pancakes Restaurants operated or subfranchised by Franchisee as of December 31, 1987, (" existing units" ), Franchisee will lose one (1) year of any extension of the term hereof earned by Franchisee pursuant to


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Section 4.06 below; provided, however:


(a) Franchisee can avoid any such loss of extension(s) earned pursuant to Section 4.06 below by paying to Franchisor within ninety (90) days of the end of its fiscal year the difference between Three Hundred Thousand Dollars ($300,000.00) and the amount of Continuing Royalty actually paid in respect of such fiscal year; and


(b) the Three Hundred Thousand Dollar ($300,000.00) per annum minimum Continuing Royalty as stated above shall be reduced by the amount of the last full year' s royalty paid in respect of any existing unit(s) lost as a result of condemnation, eminent domain, any government action, or unforeseeable " Acts of God;" and


(c) there shall be no minimum Continuing Royalty whatsoever from and after October 1, 1997.


4.02 Advertising Fee. In addition to Franchisee' s obligation to pay a Continuing Royalty as set forth above, Franchisee shall pay to Franchisor, for national advertising and for the preservation, promotion and enhancement of the value of all franchises and goodwill attached thereto, a sum equal to one- quarter of one percent (.25%) of Franchisee' s monthly Gross Sales as hereinafter defined.


4.03 Payments. Payments of said Continuing Royalty and the Advertising Fee for each monthly period shall be due no later than forty-five (45) days after the day ending the month in which such Gross Sales were earned. All such payments shall be accompanied by a statement in such form and detail as shall be from time to time required by Franchisor from its Franchisees, showing how such Continuing Royalty was computed for such month, and accompanied by a copy of Franchisee' s monthly sales tax reports. All payments measured by Gross Sales shall be accompanied above by a statement of Gross Sales, itemized by restaurant location, certified to be correct by Franchisee.


4.04 Definition of Gross Sales. The term " Gross Sales," as used in this Agreement, shall mean the total revenues derived by Franchisee in and from all IHOP restaurants in the Franchised Area, operated by virtue of this Agreement whether operated by Franchisee or a subfranchisee (which restaurants are hereinafter referred to as " Franchised Restaurants" ), whether for cash sales of food and other merchandise or otherwise (whether or not payment is received


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therefor), or charge sales thereof, or revenues from any source arising out of the operation of the Franchised Restaurants, deducting therefrom: (a) all refunds and allowances, if any; (b) any sales or excise taxes which are separately stated and which the Franchisee or its subfranchisees collects from customers and pays to any federal, state or local taxing authority; and (c) any amounts deposits in any vending machines or pay telephones which are located in or about the Franchised Restaurants.


4.05 Records.


(a) Franchisee or its subfranchisees shall record all sales on individual machine serial numbered guest checks and shall keep and maintain accurate records thereof. Franchisee shall cause all such sales to be registered upon a nonresettable cash register of the type specified by Franchisor, having a lock-in running total, and shall, at any time, at Franchisor' s sole discretion, provide to Franchisor or its authorized representatives, a key to permit reading of the running total of the cash register.


(b) Franchisee shall keep and preserve for a period of not less than thirty-six (36) months after the end of each calendar year or any longer period as may be required by applicable law, all business records, including, but not limited to, cash register tape readings, standardized numbered guest checks, sales tax or other tax returns, bank books, and other evidence of Gross Sales and business transactions for such year. Franchisor shall have the right at any time, notwithstanding the terms contained in Paragraph 5.04, to enter Franchisee' s or its subfranchisees' premises to inspect, audit and make or request copies of books of account, bank statements, documents, records, tax returns, papers and files of Franchisee relating to Gross Sales and business transacted and, upon request by Franchisor, Franchisee shall make any such materials available for inspection at Franchisee' s premises. If Franchisor should cause an audit to be made and the Gross Sales and business transacted as shown by Franchisee' s statements should be found to be understated by any amount, Franchisee shall immediately pay to Franchisor the additional amount payable as shown by such audit, plus interest thereon at the highest rate of interest allowed by law, and if they are found to be understated by two percent (2%) or more, Franchisee shall also immediately pay to Franchisor the cost of such audit; otherwise, the cost of the audit shall be paid by Franchisor. If


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Franchisee should at any time cause an audit of Franchisee' s business or any IHOP restaurant operated by Franchisee or any subfranchisee of Franchisee to be made by a public accountant, Franchisee shall furnish the Franchisor with a copy of said audit, without any cost or expense to the Franchisor.


(c) Franchisee agrees to allow Franchisor access to the state, federal and local income tax returns of the Franchisee and Franchisee hereby waives any privilege pertaining thereto.


(d) Within forty-five (45) days after the expiration of each three (3) month period, franchisee shall furnish Franchisor with Franchisee' s unaudited profit and loss statement for such quarter and within one hundred eighty (180) days after the end of each fiscal year, Franchisee shall furnish Franchisor with an audited profit and loss statement and balance sheet of Franchisee for such fiscal year. All such financial statements shall be prepared in accordance with Generally Accepted Accounting Principles (" GAAP" ) consistently applied from applicable period to period and shall be certified by Franchisee' s Chief Executive Officer or Chief Financial Officer, as being true and correct, and as being prepared in accordance with GAAP consistently applied from applicable period to period. All such financial statements shall all comply with any specific requirements as Franchisor may from time to time designate. Franchisee hereby irrevocably consents to Franchisor' s use of said financial statements, at Franchisor' s election, in Franchisor' s offering circular for the offer and sale of franchises.


4.06 Extensions of Term: For each International House of Pancakes Restaurant (in excess of the eighty-eight (88) International House of Pancakes Restaurants operated or subfranchised by Franchisee as of December 31, 1987,) opened for operation, directly or through a subfranchisee, by Franchisee from and after the date of execution hereof through June 30, 1993, two (2) years shall be added to the term hereof. For each such restaurant opened for operation, directly by Franchisee or through a subfranchisee, by Franchisee for the period beginning July 1, 1993, and ending June 30, 2003, a period of one (lyear shall be added to the term hereof. For each such unit opened for operation, directly or through a subfranchisee, by Franchisee from and after July 1, 2003, a period of six (6) months shall be added to the term hereof. Additionally, in respect of a net of five (5) units which were added to the


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International House of Pancakes Restaurants operated or subfranchised by Franchisee for the period from January 1, 1987, through December 31, 1987, a period of five (5) years shall be and is hereby added to the term hereof.


V


DUTIES OF FRANCHISEE


5.01 Compliance with Laws and Operations Bulletins. Franchisee shall, and shall cause its subfranchisees to, operate the Franchised Restaurants in strict compliance with all applicable laws, rules and regulations of duly constituted governmental authorities and in strict compliance with the standard procedures, policies, rules and regulations established by Franchisor and incorporated herein, or in Franchisor' s Operations Bulletins. Such standard procedures, policies, rules and regulations established by Franchisor may be revised from time to time as circumstances warrant, and may exist from time to time as though they were specifically set forth in this Agreement, and when incorporated in Franchisor' s Operations Bulletins, the same shall be deemed incorporated herein by reference. By way of illustration and without limitation, such standard procedures, policies, rules and regulations may or will specify accounting records and information, payment procedures, specifications for required supplies and purchases, including Trademarked Products, hours of operation (which may vary from location to location), advertising and promotion, cooperative programs, specifications regarding required insurance, minimum standards and qualifications for employees, design and color of uniforms, menu items, methods of production and food presentation, including the size and serving thereof, standards of sanitation, maintenance and repair requirements, specifications of furniture, fixtures and equipment, flue cleaning, and fire prevention service, appearance and cleanliness of premises, accounti
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