Long John Silvers, Inc. v. Willingham et al

Filing 1

COMPLAINT against All Defendants Filing fee $ 350, receipt number 644-1280591., filed by Long John Silvers, Inc.. (Attachments: # 1 Cover Sheet, # 2 Exhibit A. Oracle Fran Ag part 1 & 2, # 3 Exhibit B. Broadway Fran Ag part 1 & 2, # 4 Exhibit C. Guaranty Agreements, # 5 Exhibit D. Conditional Reinstatement, # 6 Exhibit E. Default Ltrs, # 7 Exhibit F. Termination Ltr, # 8 Exhibit G. Bankruptcy Desist Ordr, # 9 Exhibit H. LJS Trademarks, # 10 Summons J. Willingham, # 11 Summons P. Willingham) (JSS)

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FRANCHISE

THIS

FRANCHISE

AGREEMENT

JAN 2 0 21m
Delaware

corporation

,
("Company"),

AGREEMENT

is

dated

and it is entered

for

reference

into between

and SOUTHWEST

SEAFOOD

purposes

LONG JOHN

SHOPPES,

as

SILVER'S,

of

INC., a

LLC, an Arizona Limited

Liability Company ("Franchisee").

PRELIMINARY

A.

The Company

system ("System")

STATEMENTS:

is the developer of and sole and exclusive owner of a distinctive food service

under which food is sold to the public from restaurants

and other facilities operated under the

name "Long John Silver's" (flLJS Restaurants").

B.

The System so developed now includes, among other things, the following elements, all or some

of which may be deleted, changed,
procedures

for the preparation

recipes for food products,
uniforms,

improved

or further

and serving of food and beverage products;

consumers;

control and procedures

(4) plans and specifications

style, design, decor, furnishings,
operating

that is described

communications

confidential

designed to be advantageous

for distinctive premises, featuring

equipment

to LJS Restaurant
characteristic

operators

interior

and

and exterior

layout and interior and exterior signage; (5) a uniform method of

in the "Long John Silver's Confidential

Manual

of Operations"

and in other

to franchisees, including without limitation, in bulletins, video and audio tapes, computer disks,

being hereinafter

Silver's"),

(2) special ingredients,

and other paper and plastic items); (3) methods of achieving

on-line and via other electronic means (all such other communications

trademarks,

from time to time: (1)

a secret batter mix and distinctive service accessories (including, without limitation,

menus, cartons, packages, containers

quality and quantity

developed by the Company

collectively referred

to as the "Confidential

and any supplements

Manual");

or additions thereto

(6) distinctive

and characteristic

service marks (including, without limitation, "Long John Silver's Seafood Shops" and "Long John
signs, designs and emblems as the Company

writing as prescribed

designates in the Confidential

for use with the System ("Proprietary

Marks");

Manual or otherwise in

(7) a public image that each restaurant

other facility is a unit in an established franchise system and that all are operated

with uniform standards

or
of

service and product quality and portions; (8) such exclusive copyrights and trade secrets as have been and may
from time to time be developed, which are owned by the Company and which are disclosed to its franchisees in
confidence in connection with the construction

C.
pursuant

Franchisee

wishes to obtain

and operation of an LJS Restaurant.

a franchise

from the Company

to operate

an LJS Restaurant

to the System and to be afforded, or to have its designated personnel afforded, the training and other

assistance provided by the Company in connection therewith.

D.
necessary

Franchisee
to maintain

the goodwill

Rev. 3/04

recognizes

the Company's

and enhance

the public

that

the terms

and conditions

high and uniform standards
image of the Proprietary

1

in this Agreement

are reasonably

of quality and service designed to protect
Marks

and the System,

and Franchisee

()
J1

recognizes the necessity of opening and operating the franchised LJS Restaurant in faithful compliance with

G

the Company's standards and specifications.

SECTION 1: GRANT OF FRANCHISE

1.01

Grant of Franchise.
(a)

This francbise is being granted based on the application, financial statements and other

documents submitted by Franchisee to the Company or its affiliates (hereinafter defined) prior to the Company's
execution of this Agreement. Franchisee represents and warrants that those materials: (1) are accurate and
complete as of their respective dates and the date of this Agreement; and (2) do not omit the statement of any
material fact necessary to make them not misleading.
(b)

Subject to the conditions of this Agreement and Franchisee's continuing good faith performance

under tbis Agreement, the Company grants to Franchisee: (1) the right to build and operate an LJS Restaurant
("Franchised Restaurant") and to use the System at the location described on Schedule I ("Location"); (2) the
right to use such Proprietary Marks of the Company as are now or may hereafter be specifically designated by
the Company in writing for use with the System (as they may be changed, improved, and further developed from
time to time) in conjunction with the Franchised Restaurant; and (3) the right to indicate to tbe public that the
Franchised Restaurant is operated as a part of, or a unit in, the LJS Restaurant chain.
(c)

The Company shall not own, operate or grant (nor grant others the right to own, operate or

grant) a franchise for an LJS Restaurant within the area surrounding the Location designated as the "Territory"
on Schedule I attached hereto. Nothwithstanding the foregoing, the Company shall have the right to own,
operate or franchise within the Territory, LJS Restaurants at the locations described in Section l.Ol(d) of this
Agreement.
(d)

The Company may own or operate, or grant franchises or licenses for others to operate LJS

Restaurants:
(I)

within the Territory at the following locations: on rights-of-way of any limited access

highways or toll roads, airports, campus, educational, industrial or health care institutions, office or business
complexes or buildings (excluding exterior in-line units in shopping or strip malls), military installations, or at
athletic arenas, expositions, convention centers, fairs, zoos, theme parks, interior mall locations or similar
facilities or events; and
(2)

anywhere outside the Territory (regardless whether such location is within the trading

area of, or otherwise proximate to the Franchised Restaurant) on such terms and conditions as the Company
deems appropriate.

The Site Proposal Review referenced and further defined in Section l.OI(f) below shall

govern disputes arising from the Company's development of new LJS Restaurants outside the Territory.
(e)

The Company reserves the right to sell within the Territory, directly or through third parties and

through such channels of distribution as the Company may determine (including mail order and internet sales),
products that are the same as, or similar to, those sold in LJS Restaurants, using brand names the same as, or
similar to, the Proprietary Marks designated for use with the System, provided:
(I)

The items sold by the Company are of comparable quality to any like items sold in LJS

Restaurants, are either packaged or bottled and are not sold for preparation or consumption upon any particular

Rev. 3/04

2

o

(]

premises or outlet from which the items may be sold, and are not sold by the Company through restaurant
outlets; and
(2)

In the event that any premises or outlet from which the items are sold is located within

the Territory, the Company shall transfer and contribute to LJS Advertising, Inc. ("LJS Advertising",
hereinafter further defined) on an annual basis an amount equal to one-half of the net income generated by the
sales of such items from such outlet to be used and administered by LJS Advertising for advertising and
marketing programs pursuant to Section 7.01 of this Agreement. As used in this Section 1.01(e)(2),the term "net
income" shall mean net income from the sales of such items as reflected in the Company's annual audited
financial statements.
(I)

The Company's then current Site Proposal Review Policy ("Guidelines", a copy of the Guidelines

in effect as of the date of this Agreement being annexed hereto) shall govern any dispute that arises out of
Company's decision to develop or authorize the development of a new LJS Restaurant outside the Territory.

1.02

Other Restaurants.
(a)

Franchisee understands that the Company and its affiliates (hereinafter defined) may operate and

franchise restaurants and food establishments other than LJS Restaurants. Franchisee agrees that the Company,
its parent corporation and affiliates may do so at any location, including locations within the Territory, provided
that: (a) such restaurants and food establishments are not operated under the names "Long John Silver'S",
"Long John Silver's Seafood Shops" or similar trade names; (b) if such restaurants are located within the
Territory, the gross sales of seafood of the restaurant or food establishment do not constitute or are not likely to
constitute twenty percent (20%) or more of all sales of the restaurant or food establishment; or (c) if such
restaurants are located within the Territory the restaurant or food establishment does not sell any battered
seafood product in a quick service or "fast food" format. Franchisee further acknowledges and agrees that this
franchise is solely for the Location and affords Franchisee no rights in any additional franchise to be operated at
any other location. Neither this Agreement nor the franchise issued hereunder obligates the Company in any way
to sell or issue any other franchise.
(b)

As used in this Agreement with reference to Company or the Franchisee, "afflltate'' shall mean

any entity that controls, is under common control with or is controlled respectively by the Company or the
Franchisee.

1.03

Acceptance of Franchise; Use of Premises.
(a)

Franchisee accepts the franchise and agrees to diligently develop and operate the Franchised

Restaurant and to diligently promote the interests of the System for the term of this Agreement and any
renewal thereof. Franchisee agrees to construct, maintain and operate the Franchised Restaurant only at the
Location, and in accordance with (1) the Company's plans and specifications, (2) the System, (3) the
Confidential Manual, (4) other manuals and procedures as may be included in the System and revised from
time to time, and (5) the terms of this Agreement.
(b)

Franchisee agrees to use the Franchised Restaurant and the premises upon which it is located

("Franchised Restaurant Premises") solely for the operation of the Franchised Restaurant and purposes
designated in this Agreement and for no other purpose.

Rev. 3/04

3

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1.04

Company Services.
The Company agrees to provide Franchisee with the following materials and services for the

Franchised Restaurant:
(a)

upon Franchisee's request, written guidelines for site selection;

(b)

standard plans, drawings and specifications for the Franchised Restaurant and its related

facilities;
(c)

standard layouts and specifications for fixtures, furnishings, interior design and decor, signs and

equipment for the System;
(d)

such pre-opening assistance as the Company may, in its discretion, deem necessary for Franchisee

to meet System standards;
(e)

a pre-opening management training program and such other training at such locations and for

such periods as may be designated by the Company from time to time in the Confidential Manual, subject to
Section 5.03 of this Agreement;
(1)

on-site opening assistance for the Franchised Restaurant, if determined by the Company to be

necessary;
(g)

one (1) copy of the Confidential Manual (a registered copy of which is concurrently with the

execution hereof delivered and loaned to Franchisee for the term hereof), and such additions and modifications
thereto as the Company may issue from time to time, in its discretion. The Company will require payment of its
then current replacement fee for replacing copies of the Confidential Manual.
(h)

a sample of the Company's standardized chart of accounts, statement of earnings and balance

sheet, to be used by Franchisee for reporting to the Company;
(i)

the Company's regular and continuing supervisory services and periodic inspections and

evaluations of Franchisee's operation;

0)

the Long John Silver's marketing and advertising program(s);

(k)

reasonable efforts, upon Franchisee's written request, to disseminate to suppliers designated by

Franchisee, the System standards and specifications for nonsecret food products and equipment items not subject
to Company patent rights.

NEITHER

THE COMPANY'S

ACCEPTANCE

OF THE LOCATION

NOR ANY INFORMATION

COMMUNICATED TO FRANCHISEE REGARDING THE COMPANY'S SITE SELECTION CRITERIA
FOR LJS RESTAURANTS SHALL CONSTITUTE A WARRANTY OR REPRESENTATION OF ANY
KIND, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OF THE LOCATION FOR AN LJS
RESTAURANT OR FOR ANY OTHER PURPOSE.

THE COMPANY'S ACCEPTANCE

OF THE

PROPOSED SITE MERELY SIGNIFIES THAT IT IS WILLING TO GRANT A FRANCHISE FOR AN
LJS RESTAURANT FOR SUCH LOCATION.

THE COMPANY IS NOT RESPONSIBLE FOR THE

FAILURE OF THE LOCATION TO MEET FRANCHISEE'S EXPECTATIONS AS TO POTENTIAL
REVENUES. FRANCHISEE'S DECISION TO OPERATE AN LJS RESTAURANT AT THE LOCATION
IS BASED SOLELY ON FRANCHISEE'S INDEPENDENT INVESTIGATION OF THE SUITABILITY OF
THE LOCATION FOR AN LJS RESTAURANT.

Rev. 3/04

4

SECTION 2: TERM
(Delete 2.01 or 2.02)

2.01

Ownership of Franchised Restaurant.
(a)

Franellisee warrants aad reflresents to tile Comflany tllat Franehisee OWRS
tile FraRehised

Restaurant Premises. Franellisee agnes tllat it shall natify tile CaffiflaBYia writing ar any ehaage regarding its
ownershifl er the FFBaehisedRes.auraal Premises.
(b)

Unless pre>,tieuslyterminated pursuant to the terms af this Agreement, the term af tile francllise

granted herein shall be twenty (1D) years eommeBeing an the date tllat the Franehised Restaurant opens far

COffiflllny'sreeords ("Opening Date").

I!'J IT IAl
2.02

HEft

r-#..lI/

Lease of Franchised Restaurant.
(a)

Franchisee warrants and represents to the Company that Franchisee leases or subleases the

Franchised Restaurant Premises pursuant to a lease or sublease agreement, of which Franchisee has provided
the Company with a true and accurate copy (together with any modifications or renewals thereof, "Lease").
Franchisee shall promptly provide the Company with copies of any material modifications of the Lease.
Franchisee shall cause the Lease to contain a provision that allows Franchisee and the Company to fulfill the
requirements of Section 11.02(c) and 11.03(c).
(b)

Unless flFe~iouslyterminated pursuant to the terms af tllis Agreements The term of the franchise

granted herein shall be twenty (10) fifteen (15) years commencing on April 30, 2002 and expiring on April 30,
2017 the date that the Franchised Restaurant apens far business as reparteE! by Franchisee in accorE!IlBee,j\tith
'
the terms of this Agreement and as reflected en the Camplln)"s rccerE!s(,'OpeniBg Date"). Provided, however,
that Franchisee agrees that it shall not open the Franchised Restaurant for business prior to the Lease
commencement date and the term of this Agreement shall not extend beyond the expiration of Franchisee's

::se.

Renewal.
(a)

INITIAlHER'!¢'[

Franchisee may, at its option, renew this franchise for two (2) additional term(s) of five (5)

years each; however, Franchisee's exercise of its renewal option shall not extend the term of this franchise
beyond the expiration of Franchisee's Lease. In addition, in order to exercise its renewal option, Franchisee
must satisfy all of the following conditions:

(1) Franchisee must give the Company written notice of its

election to renew no less than six (6) months, nor more than nine (9) months, prior to the end of the then
current term. (2) At the time when notice is given and at the end of the then current term, Franchisee must
not be in default of any provision of this Agreement, or any other agreement between Franchisee or any of its
affiliates and the Company or any of the Company's affiliates, and Franchisee and all of its affiliates shall
have substantially complied with the terms and conditions of all such agreements during the initial and any
prior renewal term(s) of this Agreement.

(3)

Franchisee and all of its affiliates shall have satisfied all

monetary obligations owed by them to the Company, its subsidiaries and affiliates prior to renewal, and have
timely met all such obligations throughout the initial and all prior renewal terms of this Agreement.

(4)

Franchisee shall provide such financial information regarding Franchisee as the Company reasonably may
Rev. 3/04

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request.

a

(5) Franchisee must execute the Company's then current standard

form renewal franchise~:1
'-'
agreement (and cause the execution of personal guarantees and other attachments as required by such
renewal franchise agreement), which may contain terms and conditions substantially different from those set
forth herein, including, without limitation, increased royalty fees and advertising expenditures (provided that
the Company shall then be requiring such increased royalty fees and/or advertising expenditures,

provided

that such renewal franchise agreement shall not provide for royalty fees or advertising contributions in excess
of those the Company then requires of new franchisees for LJS Restaurants similar to the Franchised
Restaurant.

(6) Franchisee and each of its Owners (hereinafter defined) shall execute a general release, in a

form satisfactory to the Company, of any and all claims Franchisee may have as of the date of execution of
the renewal franchise agreement, or arising from an event or events which occurred prior to such date,
against the Company and its officers, directors, shareholders

and employees, in their corporate

and

individual capacities, including, without limitation, claims arising under federal, state and local laws, rules
and ordinances, unless such claims are pending and not finally resolved as of the date Franchisee's notice of
renewal is due. (7) Franchisee shall present evidence satisfactory to the Company that Franchisee has the
right to remain in possession of the Franchised Restaurant Premises for the duration of the renewal term;
and (8) Franchisee shall complete, or provide for, such renovation and modernization of the Franchised
Restaurant and Franchised Restaurant Premises as the Company may reasonably require, including, without
limitation, such remodeling (including structural modifications), redecoration, repair and replacement of
fixtures, furniture, signs and equipment, as may be necessary both to reflect the then current public image
required by the Company of new franchisees and to ensure the presentation of the Proprietary
consistent with such image.
(b)

Marks

The Company may, at its option and in its sole discretion, conditionally accept Franchisee's

exercise of its renewal option pending Franchisee's satisfaction of the conditions set forth in Section 2.03(a). In
such event, Franchisee agrees to execute the Company's then current standard form renewal franchise agreement
pursuant to Section 2.03(a)(5), which agreement may provide for a term of a duration substantially shorter than
the renewal term provided for in this Agreement and which may grant to the Company the right to terminate the
same immediately upon notice to Franchisee.
(c)

Upon the expiration of the initial term of this Agreement as stated in Section 2.02(b) and the

renewal terms as stated in Section 2.03(a), Franchisee shall be entitled to the issuance of a new franchise
agreement for the Franchised Restaurant, subject to the following conditions: (1) Franchisee shall have made
written application to the Company for the new franchise agreement no less than six (6) months, nor more than
nine (9) months, prior to the expiration of the then current term; (2) Franchisee shall have tendered to the
Company, concurrently with the delivery of the application for the new franchise agreement, and in lieu of the
initial fee prescribed by the franchise agreement, an administrative fee equal to 10% of the initial fee; and (3)
Franchisee shall have satisfied all of the conditions for renewal set forth in Sections 2.03(a)(2) through 2.03(a)(8),
inclusive. The new franchise agreement shall provide for an initial term and option term'S, if any, equal to the
terms then being offered by the Company to new franchisees for LJS Restaurants similar to the Franchised
Restaurant and it shall not provide for royalty fees or advertising contributions in excess of those the Company
then requires of new franchisees for LJS Restaurants similar to the Franchised Restaurant.

Rev. 3/04

6

SECTION 3: PREMISES AND EOUIPMENT
3.01

Construction of Restaurant.
(a)

The Company shall furnish to Franchisee one copy of a preliminary site layout, a set of

generic plans and specifications for a standard Long John Silver's restaurant of the type specified in this
subsection, and a list of and layout for standardized furnishings and equipment for the specified type of
restaurant.
(b)

Franchisee at its expense (1) shall have the generic plans and specifications adapted as necessary

to construct and operate the Long John Silver's restaurant on the Franchised Restaurant Premises, and (2) shall
have such adapted plans including the final site layout stamped by an architect licensed by the state where the
Franchised Restaurant will be located. Any such adaptations and all plans, specifications and layouts other than
those furnished by the Company must be approved in writing by the Company prior to Franchisee's obtaining
permits, construction bids or commencing construction.

The Company's approval shall signify only its

acceptance of the appearance of the restaurant building, and shall not signify that the approved plans or
specifications comply with applicable codes. Such approval shall not result in any liability of the Company to
Franchisee. Franchisee agrees to indemnify the Company against claims of liability relating to such approval as
provided in Section 9.01 of this Agreement.
(c)

Layout and plans and specifications, prepared or approved by the Company, shall not thereafter

be changed or modified without the Company's prior written consent. Before commencing any construction of
the Franchised Restaurant, Franchisee shall furnish to the Company a letter certifying that all required permits
and certifications required for the lawful construction and operation of the Franchised Restaurant have been
obtained and all other requirements for its lawful construction and operation have been met, including, without
limitation, zoning, access, signage, fire, health and safety requirements.
(d)

Construction of the building and improvements shall begin as soon as possible after the Company

furnishes or approves the site layout, plans and specifications (the "Approval Date").

The building and

improvements shall be constructed in strict compliance with the plans and specifications and shall be completed
within eight (8) months after the Approval Date. The Company, in its discretion, may inspect the construction at
all reasonable times. At least thirty (30) days in advance of the Franchised Restaurant's projected Opening Date,
Franchisee shall, by written notice, request the Company to perform its final inspection. Franchisee shall open the
Franchised Restaurant for business as soon after completion of the building and installation of furnishings and
equipment as is reasonably possible, but in no event before the Company's final inspection is performed and
written approval is given.
(e)

If the Franchised Restaurant is damaged or rendered totally or partially untenantable by fire or

other casualty, Franchisee shall repair or restore the Franchised Restaurant to its former condition within a
reasonable time, not to exceed six (6) months after the date of the fire or casualty. The proceeds of all insurance
carried by Franchisee covering the Franchised Restaurant Premises shall be applied to the cost of repairing or
restoring the Franchised Restaurant, and Franchisee shall pay the balance, if any, of such costs. If, in the
Company's reasonable judgment, the damage or destruction is of such an extent that it is feasible for Franchisee,
without incurring substantial expense additional to the insurance proceeds, to repair or reconstruct the LJS
Restaurant in accordance with the then standard Long John Silver's layout and decor specifications, the
Company may require Franchisee to repair or reconstruct the LJS Restaurant in accordance with those
Rev. 3/04

7

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specifications.

Notwithstanding

the foregoing, if the Franchised

Restaurant

is rendered

total I)' or partially

X

'"'

untenantable

by fire or other casualty within two (2) years prior to the date of expiration of the initial term of this

Agreement or any renewal term, Franchisee

may terminate this Agreement, provided that Franchisee shall have

notified the Company in writing of its election to terminate no later than thirty (30) days following the casualty.

3.02

Purchase
(a)

and Installation

Franchisee

of Equiement

shall purchase and install and use in and about tile Franchised

such items and only such items of equipment
equipment,

and FurniShing.

fixtures, furnishings,

(ineluding, without limitation,

Restaurant

Premises

food and beverage preparation

interior and exterior slgnage, make-up air and exhaust handling equipmt!nt,

electronic cash registers, software and computers) and other personal property (collectively> "Equipment")

as are

designated by the Company from time to time as Approved Brands on the Company's required Equipment
Furnishings

and

List in the Confidential Manual. or which otherwise have been approved by the Company in writing

and which strictly conform to the appearance,

uniform standards

System as established from time to time. The Company's

or the

and specifications

specifications and standards

Company and the

for such Equipment

shall

be provided to Franchisee upon written request. If Franchisee desires to purcbase or install any item not so listed
or approved, Franchisee or the supplier of such item shall submit to the Company a written request Corapproval
of the item,

The Company shaJi have the right to require, among other things, that a sample of the item be

delivered (or otherwise be made available in a manner acceptable to the Company),
either to the Company or to an independent

certified laboratory

acting on the request for approval.

Il(}t

Franchisee

or by the item's supplier.

revoke its approval

jf

option,

designafed by the Company for testing prior to

to exceed the cost of the testing shall be paid to the Company by

The Company shall nilt be Hable for any damage to such items resulting

The Company reserves the right to retest any item previously approved by it, and to

from the testing process.

notification

A charge

at the Company's

the item fails to continue to meet the Company's

by the Company, through

revision of tbe Confidential

standards

and specifications.

Upon

Manual or otherwise, that approval of any

item bas been revoked, Franchisee sban not thereafter purchase or, if tbe Company so directs. use such item. The
Company may at any and all times inspect all Equipment

and its installation to assure Franchisee's

compliance

with the Company's standards and spedfications.
(b)

Franchisee

shall not install, sell or use on the Franchised

machines, telephone booths, entertainment

Restaurant

Premises any vending

devices, products or services not Included in the System without the

Company's prior written consent.

33)3

Maintenance of Premises and Equipment.
(a)

Franchisee shall maintain at all times during the term of this Agreement and any renewals hereof,

at Franchisee's

expense, the Franchised

higb standards

and public image of the Company and the System, and shall make no additions ur alterations to

the Franchised Restaurant
(b)
repair

Franchisee

and condition,

Restaurant

thereon in conformity with the

Premises without the Company's prior written consent.
shall keep the Francbised

including,

without

limitation,

replacement

of obsolete signs and Equipment.

then current

standards

Rev. 3/04

Premises and all Equipment

Restaurant

such pertedlc

as the Company

set out in the Confidential

Premises in the highest degree of sanitation,
repainting,

may reasonably

Manual or otherwise.

8

repairs

to Equipment

direct in accordance

and

with its

D
1'1

(c)

Franchisee

shall not attach or exhibit any signs, displays or posters on or in the exterior or

interior of the Franchised

Restaurant

or on the Franchised

Restaurant

Premises, other than signs, posters or

displays then currently supplied, required or authorized in writing by the Company, nor permit others to do so.
(d)
addition

If Franchisee

fails to comply with this Section 3.03 in the Company's

to all other rights the Company

Franchisee

must take to correct

has, the Company

such deficiency.

may notify Franchisee

If Franchisee

judgment,

then in

and specify the action

fails or refuses within ten (10) days after

delivery of such notice, to initiate and thereafter

continue in good faith and with due diligence a bona fide

program

to complete such required

sanitation

addition

to all other rights in this Agreement),

Premises

maintenance,

and effect such maintenance,

and repair, the Company

but not the obligation,

repairs

or sanitation

will have the right (in

to enter the Franchised

on Franchisee's

behalf

Restaurant

and at Franchisee's

expense.

3.04

Renovation

of Equipment

In addition

to performing

Company's

request,

Premises
Marks

and Premises.

maintenance

structural

improvements.

remodeling,

The Company

SECTION

then current

replacement

public image, including,

of Equipment,

agrees that it will not require

a capital cost on a per restaurant

4.01

Sections 3.03(a) and (b), Franchisee

redecoration

4: SUPPLIES,

FOOD PRODUCTS,

without

RECIPE

Restaurant

of the Proprietary
limitation,

extensive

and modifications

any image enhancement

basis in excess of that being required

shall, at the

the Franchised

design, trade dress, color schemes and presentation

with the Company's

changes,

under

but no more often than once every five (5) years, refurbish

to conform to the building
consistent

required

to existing

refurbishment

of Company-owned

that has

LJS Restaurants.

ITEMS AND UNIFORMS

Use of Food, Supplies and Other Items.
(a)

Franchisee shall serve, sell or offer for sale all food and beverage products and only such products

(1) as are listed as standard
uniform standards

menu items from time to time in the Confidential Manual; (2) as meet the Company's

of quality and portions and appear on the Company's

List from time to time in the Confidential
and food handling and preparation

Approved Food and Beverage Brands

Manual; and (3) as have been prepared

methods and procedures

designated

in accordance with the recipes

from time to time in the Confidential

Manual.
(b)

Franchisee

shall maintain

aU such products

in sufficient supply at all times.

(c)

Franchisee shall discontinue immediately serving, selling or offering for sale any of such products

as the Company may, in its sole discretion, disapprove in writing at any time.

4.02

Sampling and Testing.
Franchisee shall permit the Company or its agents, at any and all reasonable times, to remove from the

Franchised
reasonably

Restaurant

Premises

of any inventory

items, without

necessary for testing by the Company or an independent,

the samples meet the Company's

Rev. 3/04

samples

then current standards

certified laboratory,

and specifications.

9

payment

therefor,

in amounts

to determine whether

0

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<.l
4.03

{]
U

Suppliers of Food Supplies and Other Items.
(a)

Franchisee shall purchase from the Company or sources designated by the Company such secret

recipe items as are set forth from time to time in the Confidential Manual.

Franchisee shall not purchase such

items from any other source or use any other item in substitution therefor.
(b)

Except as set forth in Section 4.03(a), Franchisee shall purchase only those food products, paper

and plastic goods and service items (collectively, "Products")

that conform to the specifications and standards

(including standards for handling and distribution of products) of the Company and the System in effect from
time to time and which are included on the Company's then eurrent Approved Food and Beverage Brands and
Approved Paper Brands Lists appearing in the Confidential Manual.

Franchisee may purchase such approved

Products from any source. Franchisee must request the Company's approval of any Products not included on the
Approved Lists, and the Company may require samples of any such Products to be submitted to it or to a
designated independent, certified testing laboratory for testing to determine whether approval shall be granted.
The Company agrees that it will not unreasonably withhold its approval for any Product upon receiving such a
request so long as such Product meets the Company's then current specifications and standards.

Franchisee shall

pay upon invoice to Company a charge not to exceed the cost of such testing. The Company reserves the right to
retest any Product previously approved by it and to revoke its approval of any Product that fails to continue to
meet the Company's standards

and specifications.

Upon notification by the Company that any Product being

used is unapproved or otherwise does not satisfy the specifications and standards of the Company and System,
Franchisee

shall not thereafter

purchase

and, if the Company

so directs, immediately

cease to use the

unacceptable Product.

4.04

Uniforms.
Franchisee

shall purchase,

for its employees'

use, uniforms

that conform strictly to the current

specification, design and style of the Company as set forth from time to time in the Confidential Manual or
otherwise in writing.

4.05

Purchasing Cooperative Membership.
So long as this Agreement is in effect, Franchisee

John Silver's National Purchasing Cooperative,
its Certificate

of Incorporation

shall become and remain a member of the Long

Inc. or its successors (the "Purchasing

and Bylaws as in effect from time to time, including without limitation the

provisions of the Bylaws concerning purchasing commitments.
a member

of the Purchasing

Co-op"), and abide by

Co-op shall terminate

Franchisee's

upon dissolution

obligation to become and remain

of the Purchasing

Co-op, or if an

agreement is reached between the Company and the Franchise Association (defined in Section 14.01) to delete
from this Agreement the requirement

that Franchisee

become and remain

a member

of the Purchasing

Co-op.

4.06

Fountain Beverages.
Notwithstanding

any provision in Section 4 or this Agreement to the contrary, Franchisee agrees that it

shall sell in the Franchised

Restaurant

The Coca Cola Company's

fountain beverages (hereinafter

defined),

including Coca Cola Classic, diet Coke and Sprite, except to the extent that: (1) the foregoing agreement is

Rev. 3/04

10

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prohibited by applicable law; or (2) Franchisee is a party to or bound by any existing agreement that prohibits ~]
Franchisee from selling The Coca Cola Company's fountain beverages. The phrase "fountain beverages" shall
mean beverages that are dispensed from post-mix, pre-mix or frozen beverage dispensers, bubblers or similar
equipment.

SECTION 5: OPERATING STANDARDS, PROCEDURES, TRAINING AND SERVICING

5.01

Operational Standards.
(a)

Franchisee shall not be permitted to open the Franchised Restaurant for business unless at the

time of such opening, all of the following conditions have been met:
(1)

Franchisee and its owners and affiliates are not in default under any agreement

between Franchisee or any of its owners and affiliates and the Company or any of the Company's affiliates and,
during the six (6) month period immediately preceding the proposed Opening Date, Franchisee has not continued
in default beyond any applicable cure period under any agreement between Franchisee or any of its affiliates and
the Company or any of its affiliates.
(2)

Franchisee is current on all monetary and nonmonetary obligations due the Company

(3)

The Company has determined, in its reasonable discretion, that Franchisee is operating

and its affiliates.

each of its Franchised Restaurants, and is capable of operating the proposed Franchised Restaurant, in
accordance with the terms of all franchise agreements between Franchisee and the Company, and in accordance
with the Long John Silver's System (as may be set forth in the Confidential Manual or otherwise from time to
time by the Company).
(4)

Franchisee has provided such financial information regarding Franchisee as the

Company reasonably may request.
(5)

Franchisee's architect has certified to the Company that the Franchised Restaurant

was constructed strictly in accordance with the final plans and specifications approved by the Company, and that
the equipment installed at the Franchised Restaurant complies with the equipment specifications in effect as of
the date the Company approved the site for the Franchised Restaurant.
(b)

Franchisee shall operate the Franchised Restaurant in strict accordance with the Confidential

Manual which, among other things, sets forth the standard method of operation for an LJS Restaurant, the
business format, recipes, menus and instructions for food preparation and the control of quality and portions.
Franchisee shall keep the Confidential Manual and all of its contents in confidence except to the extent disclosure
is necessary to operate the Franchised Restaurant. Franchisee understands and agrees the Company may, from
time to time, revise the contents of the Confidential Manual and such other manuals, standards, instructions,
formulas, recipes and specifications, if any, as it may develop for use with the System, and Franchisee

shall

comply with each changed requirement within such reasonable time as the Company may require.
(c)

Franchisee shall at all times keep current its copy of the Confidential Manual and other manuals

issued to it by the Company; in the event of any dispute as to the contents, current status and completeness of any
of such manuals, the master copy of such manual maintained by the Company shall control.
(d)

Franchisee shall promptly pay when due all taxes levied or assessed on Franchisee in the conduct

of the business franchised under this Agreement including, without limitation, unemployment and sales taxes. In
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the event of any bona fide dispute as to liability for taxes assessed, Franchisee may contest the validity or the

0

amount of the tax in accordance with procedures of the taxing authority or applicable law; however, in no event
shall Franchisee permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a
creditor, to occur against the Franchised Restaurant Premises, or any improvements thereon.
(e)

Franchisee shall comply with aU federal, state, and local laws, rules and regulations, and shall

timely obtain and maintain all permits, certificates and licenses necessary for the full and proper conduct of the
Franchised Restaurant, including, without limitation, building and other construction and occupancy permits,
licenses to do business and fictitious name registrations, sales tax permits, health and sanitation permits and
ratings and fire code clearances. Copies of all inspection reports, warnings, certificates and ratings issued by any
governmental entity during the term of this Agreement in connection with the conduct of the Franchised
Restaurant which cite or indicate Franchisee's failure to meet or maintain the highest governmental standards or
less than full compliance by Franchisee with any applicable law, rule or regulation shall be forwarded to the
Company within five (5) days of Franchisee's receipt thereof, and Franchisee shall remedy same within the time
period specified in the respective citation, report or other notice, or within ten (10) days if no time period is so
specified.
(I)

Franchisee shall not sell or offer for sale any alcoholic beverages at or from its premises, except

beer or wine, which may be offered only where lawful and in strict compliance with the Confidential Manual.

5.02

Operating Hours.
The Franchised Restaurant shall be open and in normal operation for such minimum hours and days as

may from time to time be prescribed in the Confidential Manual or otherwise by the Company in writing.

5.03

Training.
(a)

The Company will maintain and conduct programs for training Franchisee and its employees.

The Company shall maintain unit(s) and/or training center(s) as deemed necessary by the Company for training
Franchisee and such of its executive, managerial and supervisory employees as the Company deems necessary.
The Company shall determine (1) the number of Franchisee's employees to be Company-trained, (2) the training
period necessary to adequately train the employees, and (3) whether and when the employees have satisfactorily
completed training.

In so doing, the Company shall consider the background, experience and training

performance of the trainee.

Unless otherwise specified in writing by the Company, Franchisee's opening

manager, prior to opening the Franchised Restaurant, and all successor managers, prior to assuming the position
of manager in the Franchised Restaurant, shall successfully complete the minimum period then currently
specified by the Company for management training at such location(s) as the Company may designate.
(b)

In addition to the required management training, all other employees of Franchisee must undergo

such on-the-job and instructional training as the Company may from time to time require. Franchisee shall
purchase and use such training materials, equipment and supplies to properly conduct such training as may be
specified by the Company from time to time in the Confidential Manual.
(c)

Franchisee and such executive, managerial, supervisory and other employees as the Company

from time to time may require, shall attend and successfully complete subsequent training, refresher, and
retraining programs conducted by the Company.

Rev. 3/04

12

(d)

Upon failure for any reason of Franchisee

training, retraining

or refresher

program

required

or any of its employees to complete successfully

by the Company, Franchisee

who shall attend and successfully complete the program,

c
C1
any 0

shall designate another trainee

and who, if the Company so directs, shall perform the

functions of the category of employee for which the program was offered.
(e)

Franchisee

shall pay all expenses of travel, room, board, training

salaries or wages of Franchisee's

supplies and materials

and

employees while in training, as well as fees to defray the cost of any meeting

room facilities as shall be established by the Company from time to time. The Company agrees that fees charged
for supplies, materials or meeting room facilities shall only be used to cover the Company's

costs incurred

for

such supplies, materials or meeting room facilities and not to generate a profit [or the Company.
(t)

The Company at its expense will furnish a representative

Franchised

Restaurant

to assist in the opening activities of the

for a period not to exceed one (1) week, consisting of seven (7) eight (8}-hour days. Upon

request by Franchisee, or if the Company deems additional assistance necessary, the representative
for a reasonable
reasonable

period determined

expenses (induding

management

by the Company,

salary) in providing the representative

staff shall be at work in the Franchised

Company's

representative.

and Franchisee

Notwithstanding

Restaurant

notwithstanding

Restaurant

period.

Restaurant

for its

Franchisee's

during the hours assistance is provided by the
at its option, may decline to provide

fails to give written notice to the Company

Restaurant

is not the first US Restaurant

its Owners or affiliates, then the Company's

activities of the Franchised

the Company

not less than thirty (30) days in advance of the Opening Date.

the foregoing, if the Franchised

opened by Franchisee,

for the additional

the foregoing, the Company,

the assistance set forth in this Section 5.03(t) if Franchisee
opening of the Franchised

shall reimburse

shall remain

training

of the

Further,

constructed

and assistance

and

in the opening

shall be as deemed necessary by the Company upon, if deemed advisable

by the Company, consultation with Franchisee.

5.04

Continuing
(a)

Services.

The Company shall furnish to Franchisee,

from time to time, such merchandising

and operating

aids and services, and printed material in connection therewith, as are furnished generally to other franchisees of
the Company.
(b)

The Company from time to time, in its discretion, shall send its representatives

Restaurant

to consult with Franchisee

Franchised

Restaurant,

determine

or its management

and shall inspect the Franchised

the efficiency and quality of the operation

representative

Restaurant

relative

to the Franchised

to the operation

of the

Premises with or without prior notice to

and the faithfulness of Franchisee's

compliance

with the

System.
(c)
furnish

On reasonable written request by Franchisee, as determined

services regarding

specific problems

encountered

by Franchisee

by the Company, the Company shall
which are beyond the scope of the

services provided by the Company under Section 5.04(b). Franchisee sball reimburse

the Company promptly for

its actual time expended and expenses incurred in aiding Franchisee with such problems.

Rev. 3/04

13

SECTION

6.01

6: FEES AND ADVERTISING

EXPENDITURES

Initial and Royalty Fee.
(a)

Franchisee shall pay to the Company, upon the execution of this Agreement,

DODreeHFriRg, nonrefuRdable

fraDchise fee of Twenty

ThoHsand

Dollars

(SZCJ,OOO).

a renewal

QD

iRitial

fee of Two

Thousand Dollars ($2,000).
(b)

Franchisee shall pay to the Company as a royalty fee, a sum equal to five flerceRt (5%) four

percent (4%) of Franchisee's Gross Receipts (as defined below) from the operation of the Franchised Restaurant
until April 30, 2007. Upon and following May 1, 2007, Franchisee shall pay to the Company royalty fees
calculated at the then-current standard rate then being offered by the Company pursuant to its then-current
Uniform Franchise Offering Circular for restaurants similar to the Franchised Restaurant. Franchisee shall pay
the royalty fee monthly by the twentieth (20th) day of each month for the preceding month's Gross Receipts. A
report of the Gross Receipts of the Franchised Restaurant for the preceding month shall accompany eac
payment.

6.02

Advertising Contributions.
(a)

Franchisee shall pay to the Company or its designee for advertising and marketing progr ms as

described in Sections 7.01(a) and 7.01(b), a sum equal to five percent (5%) of Franchisee's Gross Receipts from
the operation of the Franchised Restaurant. Payment shall be made on or before the twentieth (20th) day of each
month for the preceding month's Gross Receipts. A report of the Gross Receipts of the Franchised Restaurant
for the preceding month shall accompany each payment.
(b)

Franchisee shall pay to the Company or its designee, upon execution of this Agreement, an

additional sum equal to either (at Franchisee's election) Three Thousand Dollars ($3,000) or Five Thousand
Dollars ($5,000), for pre-opening and opening advertising arranged for and placed by the Company or its
designee. The Franchisee must give written notice to the Company of the opening of tbe Franchised Restaurant
not less than thirty (30) days in advance of the Opening Date to allow the Company to arrange for pre-opening
and opening advertising. The pre-opening/opening advertising fee is non-refundable. So long as the Company
receives the pre-opening and opening advertising payment from Franchisee, the Company shall, during the first
year of operation of the Franchised Restaurant, divert from the advertising contributions received from
Franchisee under Section 6.02(a) of this Agreement a matching amount (either $3,000 or $5,(00) to be used for a
grand opening advertising program for the Franchised Restaurant to be approved and administered by the
Company.

6.03

Definition of Gross Receipts.
"Gross Receipts" for computation of the fees payable pursuant to Sections 6.01 and 6.02 shall mean

gross receipts from sales of food, food products, beverages and any other items or services sold in or from the
Franchised Restaurant Premises or derived from the business operated on the Premises, excluding only

(1)

receipts from approved pay telephones, if any, and (2) all sales, use, excise and similar taxes separately billed and
collected by Franchisee for, and remitted to, governmental authorities and agencies.

Rev. 3/04

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6.04

G
0

Charge on Late Payments.
In addition to any other rights the Company may have, the Company will impose a charge on late

payments of the lesser of (1) the maximum rate permitted by Kentucky law or (2) one and one-half percent (1
1/2%) per month, from the date due until paid.

6.05

Gross Receipts Tax.
Franchisee shall pay the Company an amount equ~1to any sales, value added, gross receipts or similar

tax required to be paid or collected by the Company and calculated solely on required payments from Franchisee
to the Company hereunder.

6.06

Direct Debit Arrangement.
The Company shall have the right, upon written notice to Franchisee, to require Franchisee to establish

a direct debit arrangement as described in this Section 6.06 upon the occurrence of any of the fellewing events:
(1) In the event that Franchisee has been delinquent in the payment of any of its monetary obligations to
Company or its affiliates on two (2) or more occasions during any twelve (12) month period; or (2) in the event
that Company has given Franchisee a notice of default arising from any of its monetary Obligations under this
Agreement. If and when the Company exercises its rights established in this Section 6.06, Franchisee shall
establish a direct debit arrangement with Franchisee's bank(s) for all payments to be made to the Company or
any of its affiliates. Such direct debit arrangement shall be entered into between Franchisee and its bank(s) and
shall provide for the eJectronic transfer of funds from Franchisee's bank(s) to the Company's accounts within
twenty-four (24) hours of receipt of written instructions from the Company, whether transmitted by facsimile,
courier or regular mail and such instructions may be for multiple future transfers. Franchisee shall maintain
sufficient funds in its account at all times to ensure that all amounts due the Company and its affiliates are
)

promptly and fully paid.
SECTION 7: ADVERTISING

7.01

Origination and Approval of Advertising.
(a)

Recognizing the value of advertising, and the importance of the standardization of advertising to

the furtherance of the goodwill and public image of the System, Franchisee agrees that the Company or its
designee shall conduct, determine, maintain and administer all national, regional, local and other advertising and
marketing as may be instituted from time to time, and shall direct all such advertising and marketing with sole
discretion over the concepts, materials, media, nature, type, scope, frequency, place, form, copy, layout and
context used therein. The Company agrees to periodically consult with and advise the Franchise Association
Board (hereafter defined) in planning the Company's advertising and marketing programs and budget.
(b)

The Company shall make advertising expenditures for each of its Company-owned LJS

Restaurants in the United States equivalent to those it requires from comparable franchised LJS Restaurants in
the United States. The Company may spend in any fiscal year an amount greater or less than the aggregate
contributions of all LJS Restaurants in advertising expenditures in that year. Additional advertising funds may
be advanced by the Company or obtained from other lenders to cover deficits or to establish surpluses to be
invested for future use. Franchisee agrees that its advertising contributions may be used to meet any and all costs
Rev. 3/04

15

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8

incident to the advertising and marketing programs, including without limitation: (1) consumer public relations, !.l
""'

marketing research, development of advertising materials, media placement and all forms of sales promotions;
(2) taxes upon income generated by advertising contributions; and (3) such reasonable administrative costs and
overhead, if any, as may be incurred by the Company or its affiliates in conducting market research, preparing
advertising and marketing materials, or in other activities reasonably related to the administration or direction of
LJS advertising funds. The Company agrees that all advertising contributions and any income generated as a
result of such contributions (including commissions, rebates or discounts for media or advertising purchases)
shall be used to promote the sales of LJS Restaurants, including the cost of developing and producing such
advertising, and not to generate net income or profit for the Company or its affiliates nor to defray unallocated
general operating expenses that are not reasonably related to the administration of the Company's advertising
and marketing programs. Franchisee understands and acknowledges that advertising expenditures are intended
to maximize general public recognition and acceptance of all LJS Restaurants, and the Company makes no
representation or warranty that any particular LJS Restaurant, including the Franchised Restaurant, will benefit
directly or pro-rata from such advertising. The Company does not act as a trustee or in any other fiduciary
capacity with respect to the advertising monies.
(c)

To promote and increase the demand for the products and services of the Franchised Restaurant,

Franchisee may conduct, at its separate expense, advertising in addition to that received for the expenditures
described in Section 6.02. All such additional advertising must either be prepared or previously approved in
writing by the Company.
(d)

Franchisee shall, at its separate expense: (1) obtain a listing in the white pages of the telephone

directories serving the location of the Franchised Restaurant, which listing shall be the kind and size as may be
specified by the Company for all LJS Restaurants from time to time in the Confidential Manual or otherwise in
writing; and (2) obtain and maintain an adequate supply of brochures, pamphlets and promotional materials of
the kind and size, and at such locations in and around the Franchised Restaurant as the Company may
reasonably require of all LJS Restaurants from time to time in the Confidential Manual or otherwise in writing.
(e)

Upon written request from Franchisee, the Company or its designee(s) will provide Franchisee

with special or additional approved local advertising and marketing plans and materials, including, without
limitation, newspaper photostats, radio commercial duplicates, merchandising materials, sales aids, special
promotions and similar advertising and marketing materials. Such special or additional materials and services
shall be provided at the Company's cost, including reasonable overhead, which shall be in addition to the fee
specified in Section 6.02.

7.02

Advertising Agency and Use of Advertising Contributions.
(a)

The Company shall have the right to delegate and redelegate its responsibilities and duties

hereunder to any designee(s) of its choosing, including LJS Advertising, or any successor or other agency;
however, the right of final approval of all advertising programs shall be retained at all times by the Company.
Any usual agency commissions and discounts granted for media purchases shall be netted against the invoices for
such purchases.

The Company further agrees that, subject to unforeseeable matters beyond the Company's

reasonable control, the annual amounts spent by the Company for total agency expenses and production costs
(excluding media commissions), including allocated administrative costs and overhead, shall not exceed 25% of
the sum of the annual total franchisee advertising contributions; and (2) total annual advertising expenditures
Rev. 3/04

16

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made by the Company for each of its Company-owned LJS Restaurants in the United States in accordance with
Section 7.01(b) above.
(b)

The Company agrees to provide to the Franchise Association Board (hereinafter defined)

quarterly financial statements with respect to the Company's advertising programs and expenditures.

The

Company further agrees that the Franchise Association Board may cause the Company's books and records
of accounts for its advertising programs to be audited from time to time, provided that any such audits: (1)
must be preceded by reasonable prior written notice to the Company; (2) must be performed no more
frequently than annually; (3) must be performed at the Company's corporate

headquarters

and not

unreasonably interfere with the Company's conduct of its business; (4) must be performed by a recognized
national accounting firm reasonably acceptable to the Company; (5) must be provided or made available to
Franchisee by the Franchise Association upon request; and (6) must be performed in accordance with
generally accepted accounting procedures. One half of the cost of such audit shall be paid by the Franchisee
Association and one half of such cost shall be paid from advertising contributions, provided that the portion
of the costs paid from advertising contributions shall not exceed $10,000.00.

SECTION 8: BOOKS, RECORDS, CONTROL PROCEDURES
8.01

Bookkeeping System.
(a)

The Company shall furnish to Franchisee cost-control procedures to which Franchisee shall

adhere, as well as a sample format of a chart of accounts, statement of earnings and balance sheet, which
Franchisee shall use in reporting to the Company.
(b)

The Company shall have the right to require Franchisee to use computer-based cash registers

and software that are fully compatible with the Company's computer system and which include an
information interface capability which allows Franchisee to communicate electronically with the Company's
computer system.

The Company, in its sole discretion, may require Franchisee to obtain a data grade

telephone line to be used to facilitate communications between Franchisee's computer-based cash registers
and the Company's computer system. The Company shall not be entitled to require Franchisee to replace its
then existing cash register or point of sale system (including any such system installed to meet the
requirements of this Section 8.01(b» more frequently than once every five (5) years from the date of
installation by Franchisee of any cash register or point of sale system installed to meet the requirements of
this Section 8.01(b).

8.02

Reports.
At the Company's request and as specified from time to time in the Confidential Manual or otherwise in

writing, Franchisee shall submit to the Company, for review or auditing, such forms, reports, records and
financial statements as the Company may reasonably designate.
8.03

Marketing Information.
At the Company's request, Franchisee shall promptly furnish requested marketing information based on

Franchisee's records.

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8.04

I"ranchisee's Records.

f1
~

Franchisee shall at all times maintain and preserve, during the term of this Agreement, full, complete
and accurate books, records and accounts in accordance with generally accepted accounting principles, of such
kind, for such length of time and in the form and manner prescribed by the Company from time to time in the
Confidential Manual or otherwise in writing.

8.05

Inspection of Franchisee's Records.
The Company shall have the right to examine and audit Franchisee's records, accounts and books at

reasonable times and places (including, without limitation, at Franchisee's principal place of business).
Franchisee shall immediately pay to the Company the amount of any overdue, unreported or understated
payment disclosed by such audit, with late payment charges thereon as provided in paragraph 6.04 herein. If any
audit reveals an understatement of gross receipts by Franchisee in excess of three percent (3%), Franchisee shall
also pay the Company's fees, charges and expenses (including, without limitation, travel expenses and reasonable
accounting and legal fees) incurred in connection with such audit.

SECTION 9: INSURANCE AND INDEMNITY

9.01

Indemnity.
Franchisee agrees to indemnify and hold harmless the Company, its affiliates and their respective

officers and employees from liability for any and aU debts, obligations, damages, claims, liability, demands,
actions, suits, proceedings, judgments or costs of any kind or nature, including attorneys' fees arising directly or
indirectly from, as a result of, or otherwise in connection with, Franchisee's operation of the Franchised
Restaurant ("lndenmified Matter").

The Company shall have the right to defend and settle any lndenmified

Matter in such manner as the Company deems appropriate, in its sole discretion, and without Franchisee'S
consent. Franchisee agrees to reimburse the Company for all costs reasonably incurred in defending such
Indenmified Matter, including, without limitation, reasonable attorneys' fees. Franchisee's obligations under this
Section shall continue in full force and effect subsequent to the expiration or termination of this Agreement.

9.02

Franchisee's Insurance.
(a)

Prior to opening the Franchised Restaurant, Franchisee, at its expense, shall obtain, and

thereafter maintain during the entire term of this Agreement and any renewal(s) thereof, the following insurance
in full force and effect:
(I)

comprehensive general liability insurance (through a single policy or by a primary

policy with one or more excess or umbrella policies) including personal injury, bodily injury, liquor liability
(where applicable) and products liability insurance, with minimum policy limits of Five Million Dollars
($5,000,000) in the aggregate, and One Million Dollars ($1,000,000) per occurrence, and property damage

insurance with policy limits in the minimum amount of One Million Dollars ($1,000,000) per occurrence, insuring
Franchisee and the Company, as well as the Company's affiliates, officers, directors, and employees, as additional
named insureds, against any liability that may accrue or have accrued against them, and any claim that is
brought against them, by reason of the operation by Franchisee of its business, or by reason of any incident which
may occur upon, in, about or in connection with the Franchised Restaurant Premises;
Rev. 3/04

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(2)

worker's

compensation, social security, unemployment compensation, disability

insurance and such other insurance coverages as may now or hereafter be required by law; and
(3)

fire, business interruption, casualty and extended coverage insurance with limits of not

less than the full replacement cost of the Franchised Restaurant and its Equipment and other improvements.
(b)

Franchisee acknowledges that the minimum coverages and policy limits required by this Section

9.02 may be reasonably increased from time to time by the Company for its own and Franchisee's protection and

Franchisee agrees to comply with such new requirements promptly upon receipt of written notice from the
Company; however, in no event shall any such increase require minimum policy limits greater than (1) limits
then required for Company-owned LJS Restaurants, or (2) Five Million Dollars ($5,000,000), whichever is less.
Every insurance policy required by this Section 9.02 shall be written by one or more insurance companies
possessing an A.M. Best rating of at least A, XII, or such other rating as the Company may specify in the
Confidential Manual or otherwise in writing.
(c)

Franchisee's Obligation to obtain and maintain the foregoing insurance in the amounts specified

shall not be diminished in any way by reason of any insurance which may be maintained by the Company, nor
shall such obligation relieve Franchisee of liability under the indemnity provisions set forth in Section 9.01.

9.03

Evidence of Insurance.
Franchisee shall deliver or cause to be delivered certificates (or copies thereof) of all insurance required

by this Section 9 to the Company or, at the Company's request, the policy or policies shall be deposited with and
held by the Company or its designee. Franchisee shall also deliver to the Company evidence of payment of all
insurance premiums.

9.04

~
All insurance policies shall provide for notice to the Company of any cancellation, termination,

modification or nonrenewal thereunder at least thirty (30) days prior to such occurrence and shall permit, but not
require, the Company to cure any default in payment of premiums within ten (10) days after written notice. If
the Company cures the default, Franchisee shall immediately pay the Company the cost of curing the default
together with a reasonable administrative fee to defray the Company's expenses in connection therewith.

9.05

Waiver of Subrogation.
Franchisee and its successors and assigns hereby waive, prior to loss, all of their rights of recovery from

the Company, its affiliates, successors and assigns, and their right to sue for loss or damage to the Franchised
Restaurant and the Franchised Restaurant Premises, the adjacent premises and improvements or other property
of Franchisee; provided such loss or damage is within the coverage of the insurance provided for herein. AIl
property insurance policies carried by Franchisee on the Franchised Restaurant or adjoining property shan, if
reasonably possible, contain an express waiver of subrogation.

Rev. 3/04

19

~

0

SECTION 10:
OWNERSHIP

AND LIMITA nONS

PROPRIETARY

10.0 I

Ownership of Proprietary

ON USE OF

MARKS, TRADE SECRETS

Marks, Trade Secrets.

All right, title and interest in and to all Proprietary

Marks, trade secrets, systems, instruction manuals

and the goodwill associated therewith are the sole property ofthe Company or its affiliates and no such right, title
or interest is or shall be transferred

by virtue of this Agreement.

Franchisee shall not represent in any manner

that it has any such ownership, right, title or interest. Franchisee acknowledges that on expiration or termination
of this Agreement, no monetary sum shall be designated by it as attributable

to any goodwill associated with

Franchisee's use of the System and the Proprietary Marks.

10.02

Limitations on Use of Proprietary
(a)

Franchisee

Marks.

acknowledges that the use of the Proprietary

Marks or other components of the

System outside the scope of this Agreement without the Company's prior written consent, is an infringement of
the Company's exclusive right, title and interest in and to the System and the Proprietary
shall not, while this Agreement
infringement

remains in effect and thereafter,

Marks.

Franchisee

directly or indirectly, commit any act of

or contest or aid in contesting the validity or the Company's

ownership

of the System or

Proprietary Marks, or take any other action in derogation thereof.
(b)

Franchisee

shall not incorporate

any of the Proprietary

Marks, including without limitation

"Long John Silver's Seafood Shops" or "Long John Silver's," or words similar thereto in any trade, corporate or
firm name of Franchisee or any of its affiliates.
(c)

Franchisee shall not display or use any of the Proprietary

Marks or other components of the

System except as specifically authorized hereunder, nor do or omit to do anything to endanger the Company's
proprietary

10J»)

right to use the Proprietary Marks or the System.

Use of Proprietary
Franchisee

Marks.

understands

and acknowledges that each and every detail of the System is important

to

Franchisee, the Company and other franchisees to develop and maintain high and uniform standards of quality
and service, and to protect the reputation and goodwill of LJS Restaurants.
(a)

Therefore, Franchisee shall:

operate and advertise under the System name as specified in the Confidential Manual, without

prefix or suffix;
(b)

adopt and use the Proprietary

(c)

observe such requirements

Marks solely in the manner prescribed

with respect to trademark

registration

by the Company;

and copyright notices as the

Company may from time to time direct in the Confidential Manual or otherwise in writing;
(d)

use, promote and offer for sale only those menu items, products and services which are part of the

System and meet the standards

or specifications as prescribed

Confidential Manual or otherwise in writing.

Rev. 3/04

20

by the Company

from time to time in the

10.04

Defense of Proprietary Marks.
Franchisee shall promptly notify the Company of any claim, demand, or cause of action based upon or

arising from any attempt by any other person, firm or corporation to use the Proprietary Marks or any colorable
imitation thereof. Franchisee also agrees to notify the Company promptly of any litigation instituted by any
person, firm, corporation or governmental agency against the Company or Franchisee relating to the Proprietary
Marks, and the Company shall have the sole right and duty to defend any such action. The Company shall have
the exclusive right to contest or bring action against any third party regarding the third party's use of any of the
Proprietary Marks and shall exercise such right in its sole discretion. In any defense or prosecution of any
litigation relating to the Proprietary Marks or components of the System undertaken by the Company,
Franchisee shall cooperate with the Company and execute any and all documents and take all actions as may be
desirable or necessary in the opinion of the Company's counsel, to carry out such defense or prosecution. The
Company makes no representation or warranty, express or implied, as to the use, exclusive ownership, validity or
enforceability of the Proprietary Marks.

10.05

Nondisclosure of Trade Secrets and Confidential Information.
(a)

The Company has disclosed and will continue to disclose to Franchisee certain confidential

information relating to the development, marketing and operation of LJS Restaurants, including without
limitation: (1) ingredients, specifications, recipes, and methods of preparation and presentation of certain food
and beverage products; (2) site selection criteria for LJS Restaurants and plans and specifications for the
development of LJS Restaurants; (3) sales, marketing and advertising programs and techniques for LJS
Restaurants; (4) knowledge of specifications for, and suppliers of, certain food products, materials, supplies and
equipment; (5) knowledge of operating results and financial performance of LJS Restaurants, other than the
Franchised Restaurant; and (6) methods of labor control, inventory control, storage, product handling and
management of US Restaurants (collectively "Proprietary Information"). Without the Company's prior written
approval, Franchisee shall not, during the term of the Agreement, any renewal hereof and thereafter (regardless
of cause of termination) divulge any Proprietary Information nor use any Proprietary Information for the benefit
of any other person or entity. Notwithstanding the foregoing, Franchisee may disclose Proprietary Information
without the Company's prior written consent (1) during the term hereof to Franchisee'S employees only to the
extent necessary for operation of the Franchised Restaurant; and (2) to the extent such Proprietary Information
has become public other than through any action or disclosure of Franchisee.
(b)

Franchisee acknowledges that the Company will suffer irreparable harm and that monetary

damages will be inadequate to compensate the Company for any breach by Franchisee of the terms of Section
10.05(a); therefore, Franchisee agrees that for such breach the Company shall be entitled to injunctive relief in
addition to all other remedies it may have.
10.06

Survival.
The covenants set forth in this Section 10 shall survive the termination or expiration of this
Agreement.

Rev. 3/04

21

SECTION 11: TERMINATION

11.01

Termination.
(a)

Franchisee shall be deemed to be in default, and all rights granted under this Agreement shall

automatically terminate without notice to Franchisee upon the occurrence of any of the following events:
(1)

if Franchisee shall become insolvent or make a general assignment for the benefit of

(2)

if a petition is filed against and consented

creditors.

adjudicated

a bankrupt

(permanent

or if Franchisee

is

or insolvent.

(3)
for Franchisee's

to by Franchisee,

if any proceeding for the appointment

of a receiver of Franchisee or other custodian

business or assets is filed and consented to by Franchisee, or if a receiver or other custodian

or temporary)

of Franchisee's

assets or property, or any part thereof, is appointed by a court of

competent jurisdiction.
(4)

if a final judgment

against Franchisee

or affecting Franchisee's

business remains

unsatisfied or of record for thirty (30) days or longer (unless supersedeas bond is filed).
(5)

if execution is levied against Franchisee's

any lien against the assets of the Franchised

Restaurant

within thirty (30) days, or if the assets of the Franchised

business or property,

is instituted

or suit to foreclose

against Franchisee

Restaurant

and not dismissed

are sold after levy thereupon

by any

sheriff, marshal or constable.
(b)

Franchisee shall be deemed to be in default, and the Company may. at its option, terminate this

Agreement and all rights granted hereunder at any time by notice to Franchisee without any opportunity to cure
the default, upon the occurrence of any of the following events:
(I)

if Franchisee

fails for any reason to have opened the Franchised

business within one (1) year from the date hereof, or thereafter

Restaurant

for

ceases to operate or otherwise abandons or

forfeits the legal right to transact business at the Franchised Restaurant;
(2)

if Franchisee

is convicted of a felony, a crime involving moral turpitude,

other crime or offense that is reasonably
System, the Proprietary
(3)
Agreement
paragraph

if Franchisee

purports

to transfer

the Company's

to affect adversely the
rights therein;

any rights or obligations

prior written

arising under

consent, contrary

this

to the terms of

13.02 of this Agreement;
if Franchisee

any other identifying characteristic
therewith, or the Company's
(5)
confidential information

in a restaurant
confidentiality

misuses or makes any unauthorized

use of the Proprietary

of the System, or otherwise materially

Marks or

impairs the goodwill associated

rights therein;

if Franchisee

discloses to a third

party

any Proprietary

Information

learned from the Company or relating to the System or if Franchisee

to be used any such information

or other

uses or permits

or secret, unique or confidential food product or other element of the System

or business other than the Franchised

Restaurant

or if Franchisee

breaches

any duty of

imposed on Franchisee in this Agreement or otherwise by law;
(6)

Rev. 3/04

sole judgment,

Marks, the goodwill associated therewith or the Company's

to any third party without

(4)

Franchisee

likely, in the Company's

or any

if three (3) or more notices of default pursuant

to Section 11.01(c) have been sent to

for the same, similar or different defaults within a twelve (12)-month period, in which event this
22

!w

'"
Yl
2'1

Agreement may be terminated

sending the fourth (4th) or any subsequent Notice of ~l
'..J

in lieu of the Company's

Default;
(7)

if Franchisee made or makes any material misrepresentation

to the Company in any

information or report provided prior to or during the term of this Agreement; or
(8)

if Franchisee

fails to repair or restore the Franchised

Restaurant

Premises to its

former condition within six (6) months of its being damaged or rendered totally or partially untenantable

by

fire or other casualty, as required by Section 3.01(e).
(c)

Franchisee shall be deemed to be in default and the Company may, at its option, terminate this

Agreement and all rights granted under this Agreement without further notice upon the occurrence of any of the
following events and Franchisee's failure to cure such default within the time period set forth below:
if Franchisee

(1)

fails, refuses or neglects to adhere to the standards

and specifications

of the System as set forth in the Confidential

Manual and otherwise adopted by the Company from time to

time, including without limitation Franchisee's

failure to adhere to Sections 4.01(a), 4.01(b), 4.01(c), 4.03(a) or

4.03 (b) of this Agreement;
(2)

if Franchisee

or any of its affiliates fails, refuses or neglects to pay promptly when

due any amounts owed to the Company or any of its affiliates;
(3)
other information

if Franchisee

fails, refuses or neglects to submit to the Company

any financial or

required under this Agreement;

(4)

if Franchisee

fails, refuses

or neglects to obtain

the Company's

prior

written

approval or consent as required under this Agreement;
(5)

if Franchisee fails, refuses or neglects to observe the conditions governing the sale of

beer or wine set out in Section 5.01(1);
(6)

if Franchisee

fails, refuses or neglects to observe any other of its obligations under

this Agreement or to carry out the terms of this franchise in good faith.
(d)

Franchisee shall have the opportunity

and right to cure the events of default listed in Section

11.01(c) for a period of three (3) days with respect to Subsection (1), ten (10) days with respect to Subsection (2)
and thirty (30) days with respect to Subsections (3) through (6) following the Company's

delivery of written

notice of default.

11.02

Effect of Termination
(a)

or Expiration.

Franchisee, upon any termination

or expiration of this Agreement, shall promptly pay to the

Company, its affiliates and subsidiaries any and all sums owed to them.
default by Franchisee,

In the event of termination

such sums shall include all actual and consequential

for any

damages, costs and expenses,

including reasonable attorneys' fees and expenses, incurred by the Company as a result of the default (whether
such fees and expenses are incurred

through use of the Company's

own legal staff or otherwise), and late

payment charges thereon until paid at the lower of (1) the highest rate permitted by Kentucky law, or (2) one and
one-half percent (1 112%) per month. Franchise acknowledges and agrees that the proximate cause of the actual
and consequential damages sustained by Company is Franchisee's act of default and not Company's exercise of
its right to terminate this Agreement.

The foregoing obligation shall give rise to and remain a lien in favor of the

Company against any and all of the assets of the Franchisee at the time of default including specifically, but not
limited to, the Franchised Restaurant.
Rev. 3/04

23

of'1

't!
,,1
(b)
terminate.

Upon termination or expiration hereof for any reason, all of Franchisee's rights hereunder shall
Franchisee

shall immediately

cease to use any Proprietary

Information

or other trade secrets

disclosed to it hereunder or any paper or plastic goods, emblems, signs (other than pole signs and roof signs,
which are governed by Section 11.02(c», displays or other property on which the Company's name, any of the
Proprietary

Marks or any confusing simulation thereof are imprinted.

Franchisee shall not otherwise use or

duplicate the System or any portion thereof or assist others to do so. Franchisee shall, on or before the effective
date of termination or expiration: (1) remove from the Franchised Restaurant

Premises all signs, emblems and

displays identifying it as being associated with the Company or the System; (2) cease to use and return to the
Company all copies of the Confidential Manual and all other manuals, instructions or materials delivered to it by
the Company or otherwise hereunder; and (3) relinquish its Franchised Restaurant telephone number.
(c)

Upon termination

or expiration of this Agreement, unless otherwise directed in writing by the

Company, Franchisee shall modify the exterior and interior design and decor of the Franchised

Restaurant

Premises and shall make or cause to be made such changes in signs, buildings and structures as the Company
shall reasonably direct, so as to effectively distinguish the Franchised Restaurant from its former appearance and
from any other US Restaurant.
termination

or expiration

Franchisee shall commence the required modifications immediately upon the

of this Agreement

and shall complete the modifications

following the date of termination or expiration.

within thirty (30) days

If Franchisee fails or refuses to comply with this Section 11.02(c),

in addition to any other rights which the Company may have, the Company shall have the right to enter upon the
Franchised Restaurant Premises without being guilty of trespass or any other tort and make or cause to be made
such changes at Franchisee's expense, which Franchisee shall pay on demand.
(d)

Franchisee and the Company agree that the Company's damages resulting from a breach of the

provisions of this Section 11.02 are difficult to estimate or determine accurately.

Therefore, in the event of a

breach by Franchisee of the provisions of this Section, Franchisee shall pay the Company the sum of Fifty Dollars
($50) per day beginning on the thirty-first

(31st) day after the date of termination

or expiration

of this

Agreement, not to exceed a maximum of Seven Thousand Five Hundred Dollars ($7,500) if termination occurs
during the first ten (10) years of this Agreement, and a maximum of Ten Thousand Dollars ($10,000) thereafter.
Such payment shall be made as liquidated damages and not as a penalty, it having been agreed by Franchisee and
the Company that the payments are reasonably representative of the actual damage sustained by the Company in
the event of such a breach.

However, notwithstanding

the provision for liquidated damages, the Company shall

be entitled to injunctive relief if Franchisee continues to operate as an US Restaurant

or breaches any other

covenant herein.
(e)
indebtedness

The covenants set forth in Sections 11.02(a) through (d), inclusive, and all rights, claims and
that may accrue to the Company

under

this Agreement

shall survive any termination

or

expiration of this Agreement and be enforceable by the Company.
(I)

Upon termination or expiration of this Agreement, Franchisee shall cease to hold itself out in any

way as a franchisee of the Company or do anything that would indicate any relationship between it and the
Company.

11.03

Company's Purchase Rights and Obligations.
(a)

Upon termination

or expiration

of this Agreement,

the Company

purchase all of the assets and business comprising the Franchised Restaurant,
Rev. 3/04

24

shall have the option to

including the land and building,

0

the leasehold estate and improvements, and any items of LJS Restaurant Equipment, including without limitation
equipment, furnishings, signs, sign faces, decor, food items and supplies of Franchisee ("Business Property").
Any such purchase shall be made at the fair market, going concern value of the Business Property, including an
appropriate

allowance for goodwill, if any. If Franchisee and the Company cannot agree on the fair market value

of the Business Property within a reasonable time, the Company and Franchisee each shall commission at their
respective expense an appraisal of the value of the Business Property by a person or firm experienced in the
appraisal of restaurant

property.

The two (2) appraised values shall be averaged and that average shall be the

fair market value of the Business Property and binding upon the parties.

Provided, however, if the two (2)

appraisals differ by more than ten percent (10%), the two (2) appraisers shall appoint a third appraiser, whose
appraisal shall be binding upon the parties as the fair market value of the Business Property.
third appraisal shall be borne equally by the Company and Franchisee.

The cost oCthe

If the Company elects to exercise its

option to purchase, it shall have the right to set off against the purchase price all amounts due from Franchisee
under this Agreement.

Franchisee shall cause any lease that affects the Franchised Restaurant

other item subject to this option to contain appropriate

Premises or any

language permitting the Company to assume such lease

without fees or additional charges.
(b)

In the case of expiration,

the Company

shall exercise

Franchisee notice at least thirty (30) days prior to expiration.
the Company
termination.

Provided, however, that in either case (expiration

following Company's

receipt of the determination

hereunder

In the case of termination

shall exercise its option by giving Franchisee

right to rescind the exercise of its option upon written

its option

for any other reason,

notice within thirty
or termination)

(30) days after such

the Company shall have the

notice given to Franchisee

within ten (10) days

of the fair market value of the Business Property.

event the Company shall exercise its option, the closing shall be held and the purchase
within thirty (30) days of the date of such exercise. The Company's option hereunder
its right under any security agreement
surety's subrogation
(c)

substantially

In the

price shall be paid

is without prejudice to

held by it or with respect to which it may have a guarantor's

or

interest.

In the event that at any time during the term of this Agreement

date that is one (1) year following the termination
Agreement,

by giving

Franchisee

of this Agreement

or at any time prior to the

or the expiration

of the term of this

desires to accept any bona fide written offer from a third party to purchase

all of the assets comprising the Franchised

Restaurant,

Franchisee

shall so notify the Company

in writing, such notice to contain a copy of the offer and any other written information
given or received by the third party offeror.

all or

relating to the offer

The Company shall have the option to purchase such assets on

the same terms and conditions offered by the third party, except that the Company shall have at least fifteen
(15) days to prepare
required

for closing. If the third party offer is such that the Company

to furnish the same consideration,

may not reasonably

be

terms or conditions, then the Company may purchase the assets

to be sold for the reasonable equivalent in cash. If the Company elects to exercise its option, it shall have the
right to set off against purchase price all amounts due from Franchisee

under this Agreement.

Franchisee

shall cause any lease that affects the Franchised Restaurant

Premises or any other item subject to this option

to contain appropriate

to assume such lease without fees or additional

charges.

language permitting

The Company shall notify the Franchisee of its intention to exercise its option within thirty (30) days

after receipt of the Franchisee's

notice and other required information.

the third party offer prior to transfer
Rev. 3/04

the Company

Any material change in the terms of

to the third party shall constitute

25

a new offer, subject to the same

e
0

n

\:J

(j
option by the Company

as in the case of an initial offer.

The Company's

failure to exercise the option

afforded by this Section shall not constitute a waiver of any other provision of this Agreement, nor shall such
failure constitute a waiver of its right to exercise its option with respect to any subsequent third party offer.

11.04

Company's Obligation to Purchase.
Franchisee shall notify the Company within ten (10) days of the expiration

or termination

of this

Agreement of its desire to sell its unbroken inventory packages of approved items and supplies to the Company.
At the expiration of the ten (10) day notice period, Franchisee shall deliver such items at its expense, with an
itemized inventory listing, to the nearest Company-owned
designated

by the Company.

LJS Restaurant

The Company shall purchase

or to such other unit as may be

such items at Franchisee's

cost and shall pay

Franchisee, or set off the amount due therefor against any amount owed the Company by Franchisee, within
seven (7) days after delivery.

SECTION 12: FRANCHISEE'S

12.01

OTHER BUSINESS INTERESTS

Notification of Other Business Activity.
Without limiting Franchisee's

its intention to participate

obligations under Section 12.02, Franchisee shall notify the Company of

or engage directly or indirectly in any other restaurant,

business activity, at least thirty (30) days before (1) Franchisee
understanding

food service or hospitality

becomes a party

to any agreement

relating to such activity or (2) such activity commences, whichever is earlier.

or

Franchisee shall

provide the Company with such information about the activity as the Company may reasonably request.

12.02

Competing Business.
Unless otherwise specified, the term "Owners" as used in this Section 12.02 and in this Agreement shall

include, individually and collectively, all partners, officers, directors, members and holders, directly or indirectly
(and any partners, officers or directors of any such holder), of any beneficial interest in any entity comprising
Franchisee or in the franchise granted hereunder.
Franchisee

will receive valuable training

Franchisee acknowledges that, pursuant to this Agreement,

and confidential and trade secret information,

including, without

limitation, information regarding the promotional, operational, sales and marketing methods and techniques of
the Company and the System. Franchisee further acknowledges its obligation under this Agreement to develop
the franchised business and to promote the interests of the System. Accordingly, Franchisee agrees that:
(a)

During the term of the Agreement. Franchisee and its Owners shall not, except as otherwise

approved in writing by the Company, either directly or indirectly, for itself, or through, on behalf of, or in
conjunction with any person, persons, partnership,

or corporation, own, maintain, engage in, or have any interest

in any restaurant or food service business if (1) the gross sales of seafood of that restaurant or business constitute
or are likely to constitute twenty percent (20%) or more of all sales of the restaurant

or business, or (2) the

restaurant or business sells any battered seafood product in a quick service or "fast food" format
(b)

Subject to Section 12.02(a), Franchisee and its Owners may, during the term of this Agreement,

own all or a portion of a restaurant, food service or hospitality business, on the condition tbat:

Rev. 31M

26

C

n

~;J

(1)

Franchisee does not use or allow others to use any part of the System in such

il

~J
LJ

business;
(2)

such business does not employ or seek to employ any person who is at that time

employed by the Company, or otherwise induce such employee to leave his or her employment;
(3)

such business is not advertised on or from the Franchised Restaurant Premises and

the business does not share or is not combined in any advertisement with the Franchised Restaurant; and
(4)

No business shall be directed or diverted at any time for any reason by Franchisee

from the Franchised Restaurant to any such restaurant, food service or hospitality business.
(c)

For a period of one (1) year after the expiration or termination of this Agreement, regardless of

the cause of termination, Franchisee and its Owners shall not, except as otherwise approved in writing by the
Company, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person,
persons, partnership or corporation, own, maintain, engage in, or have any interest in any restaurant or business
engaged in food service, which is located within one and one-half (1 112)miles of the Franchised Restaurant, if (1)
the gross sales of seafood of the restaurant or business constitute or are likely to constitute twenty percent (20%)
or more of all sales of the restaurant or business, or (2) the restaurant sells any battered seafood product in a
quick service or "fast food" format.
(d)

The Company shall have the right, in its sole discretion and without Franchisee's consent, to

reduce the scope of any covenant in Section 12.02. Any covenant as reduced shall be fully enforceable. The
reduction shall be effective immediately upon receipt by Franchisee of written notice thereof, and Franchisee
shall comply immediately with the covenant as so reduced.
(e)

Franchisee expressly agrees that any claim it may have against the Company, whether or not

arising from this Agreement, shall not constitute a defense to the Company's enforcement of the covenants in this
Section 12.02.
(t)

Franchisee acknowledges that its failure to comply with the requirements of this Section 12.02 will

cause the Company irreparable injury, and Franchisee hereby accordingly agrees that in addition to all other legal
or equitable rights and remedies which the Company may have under this Agreement or otherwise, the Company
shall be entitled and Franchisee hereby consents to the entry of an order by any court of competent jurisdiction for
specific performance of, or for an injunction against violation of, the requirements of this Section 12.02.
(g)

Franchisee expressly acknowledges that its Owners possess skills and abilities of a general nature

and have other opportunities for exploiting such skills, so that enforcement of the covenants in this Article will
not deprive any of them of their goodwin or ability to earn a living. If Franchisee or any of its Owners fails or
refuses to abide by any of the foregoing covenants, and the Company obtains enforcement in a judicial or
arbitration proceeding, the applicable covenant shall be in effect and continue for a period of time expiring one
(1) year after the date Franchisee or its Owners or such other person as may be affected commences compliance
with the order enforcing the applicable covenant.
(h)

Subsections (a) through (d) of this Section 12.02 shall not apply to ownership by Franchisee or

any Owner of less than a ten percent (10%) beneficial interest in the outstanding equity securities of any
corporation which is registered under the Securities Exchange Act of 1934, unless Franchisee shall also serve as a
director or executive officer of or in a management capacity in such corporation.

Rev. 3/04

27

SECTION 13: ASSIGNMENT

13.01

OR TRANSFER

Assignment by Company.
The Company

may assign this Agreement

and any or all benefits and obligations

arising from it

without notice to or consent from Franchisee, provided that the assignee assumes and agrees to perform the
Company's

13.02

obligation under this Agreement accruing after the date of the assignment.

Franchisee as Corporation
(a)

indirectly,

or Other Entity; Assignment by Franchisee.

Franchisee and its Owners shall not, without the Company's
voluntarily

or involuntarily,

prior written consent, directly or

by operation of law or otherwise, sell, assign, transfer,

convey, give

away, pledge, mortgage or otherwise encumber any interest or partial interest in Franchisee, this Agreement,
or in the franchise granted herein, or offer or attempt to do so, or permit the same to be done. Any actual or
purported

assignment

occurring

by operation

of law or otherwise

without the Company's

prior written

consent shall be a material default of this Agreement and shall be null and void.
(b)

If Franchisee or any successor is a partnership,
(1)

The Articles

By-Laws, Articles of Organization,

of Partnership,

limited liability company or corporation:

Partnership

Agreement,

Operating Agreement and other organizational

shall provide that the issuance and transfer of any interest in Franchisee
Agreement.

Articles of Incorporation,
and governing documents

is restricted

by the terms of this

Copies of such documents and of resolutions of Franchisee's board of directors authorizing its entry

into this Agreement shall be furnished to the Company upon request.
(2)

All general partners

and all direct and indirect holders of a ten percent (10%) or

greater equity interest in any entity comprising Franchisee shall upon Franchisee's execution of this Agreement
execute an agreement personally guaranteeing to the Company the full payment and performance of Franchisee's
obligations to the Company and undertaking

to be bound, individually, jointly and severally, by all the terms of

this Agreement, including, without limitation, the restrictions on assignment contained herein.

The personal

Guaranty shall be in the form annexed hereto as Exhibit "B" or in such other form as the Company may from
time to time prescribe.
(3)

Franchisee shall not use the name "Long John Silver's,

tt

any other Proprietary

Mark,

or any name deceptively similar thereto, in a public offering of its securities, except to reflect its franchise
relationship with the Company.

Neither Franchisee nor any of its Owners may issue or sell, or offer to issue or

sell, any securities of Franchisee or an affiliate of Franchisee, regardless of whether such sale or offer would be
required to be registered pursuant to the provisions of the Securities Act of 1933, as amended, or the securities
laws of any other jurisdiction, without obtaining the Company's prior written consent and complying with all of
the Company's requirements

and restrictions concerning use of information about the Company, its affiliates or

the System.
(4)

Franchisee shall furnish the Company, at the time of execution of this Agreement and

upon all transfers subject to the provisions of this Section 13.02, a list of all stockholders, members and partners
having an interest in Franchisee, their respective percentage interests and the number of shares directly and
indirectly owned or controlled by each.
(5)

Franchisee,

if a corporation,

shall maintain

stop transfer

instructions

against the

transfer on its records of any securities with voting rights subject to the restrictions of this Section 13.02 and shall
Rev. 3/04

28

f1

f.)

,.1

cause all certificates representing

outstanding voting securities to be surrendered

for reissuance and cause all f1
t,.;

certificates for voting securities in the future to be issued with this legend printed conspicuously upon the face of
each certificate:
"The transfer of this certificate and the shares it represents is subject to the terms and
conditions of a certain Franchise Agreement with Long John Silver's, Inc. Reference is
made to that Agreement

and to certain restrictive provisions of the Articles and

By-Laws ofthis corporation."

(c)

Franchisee

acknowledges

and agrees that the restrictions

on transfer

imposed herein are

reasonable and necessary to protect the System, the Company's Proprietary Marks, Proprietary

Information and

operating procedures and quality, as well as the Company's high reputation and image, and are for the protection
of the Company, Franchisee, and other franchisees.

No attempted assignment or transfer permitted by this

Section 13.02 shall take effect without the Company's written consent.
(d)

Upon Franchisee's written request, the Company shall not unreasonably withhold its consent to

any assignment subject to the restrictions

of this Section 13.02; however, the Company's

consent may be

conditioned on the satisfaction of the following requirements:
(1)

neither Franchisee nor any successor or affiliate of Franchisee is in default under this

Agreement or any other agreement with the Company, and all of the accrued monetary obligations of Franchisee
or such successor or affiliate to the Company have been satisfied;
(2)

the assignor or transferor and its Owners (as defined in Section 12.02) have executed:

(a) a general release under seal, in a form prescribed

by the Company,

of any and all claims against the

Company, its affiliates and their officers, directors and employees in their individual and corporate capacities;
and (b) a transfer agreement in a form prescribed by the company;
(3)

the assignee or transferee has demonstrated

all of the Company's then current requirements

to the Company's satisfaction that it meets

for new franchisees, including, without limitation, background

check, financial and restaurant managerial experience requirements;
(4)

the assignee or transferee has executed and/or caused all necessary parties to execute:

(a) the Company's then current standard form Franchise Agreement, including the personal guaranty described
in Section 13.02(b)(2) and such other then current ancillary agreements as the Company may reasonably require;
and (b) a transfer agreement in a form prescribed by the Company.

The Franchise Agreement shall be for a

term expiring on the expiration date of this Agreement and it shall be renewable only upon the terms set forth in
such then current Franchise Agreement;
(5)

in the sole discretion of the Company,

the assignee or transferee

employees responsible for the operation of the Franchised Restaurant

and any of its

shall have satisfactorily completed the

Company's training then in effect for all new franchisees;
(6)

Franchisee shall have paid or caused to have been paid to the Company a transfer fee

as follows: (a) for transfers to existing Long John Silver's franchisees or franchisees of Company affiliates, $2,000
for the first Franchise Agreement transfer and $1,000 for each additional transfer consummated
same transaction;

as part of the

(b) for transfers to parties other than existing Long John Silver's franchisees or franchisees of

Company affiliates, $2,000 for the first Franchise Agreement transfer and $1,500 for each additional transfer
consummated as part of the same transaction; (c) in the case of an assignment to a corporation for convenience of
Rev. 3/04

29

fj
{]

ownership pursuant to Section I3.02(e), no transfer fee shall be payable; and (d) in the case of the assignment of
this Agreement by Franchisee to an affiliate as a contemporaneous part of the assignment of additional franchise
agreements for LJS Restaurants by Franchisee to an affiliate, the transfer fee shall be $2,000 for the first
Franchise Agreement transferred and $1,000 for each additional transfer consummated as part of the same
transaction, not to exceed $5,000.
(7)
(8)
(e)

the assignee or transferee is not a business competitor of the Company; and
the requirements of Section 15.08(b) are met.

If Franchisee is an individual and desires to assign all of his rights to a corporation formed

solely for convenience of ownership, the Company's consent to such assignment shall be conditioned on the
following requirements, in addition to those in Sections 13.02(b) and (c):
(1)

the assignee's Articles of Incorporation and By Laws shall provide that its activities

shall be confined exclusively to operating the Franchised Restaurant or other businesses franchised under similar
agreements with the Company, its subsidiaries, or affiliates;
(2)

Franchisee shall be the owner of a majority voting interest in the securities of the

(3)

all shareholders of the assignee corporation to which Subsection 13.02(b)(2) applies

assignee; and

shall compJy with the requirements of that Subsection.
(t)

Upon the dissolution or death of Franchisee or of a stockholder, member or a general partner of

Franchisee, the personal representative or trustee who is legally authorized to transfer the affected interest may
sell, assign or otherwise transfer the affected interest in Franchisee to a third party, subject to the conditions set
forth in this Agreement for any other transfer. If the personal representative does not receive, or desire to accept,
a bona fide offer to sell such interest, and if under applicable law Franchisee's rights in this Agreement and in the
Franchised Restaurant are distributable to heirs or legatees who would otherwise qualify as franchisees and
assignees under the terms of this Section 13.02, the Company shall consent to such assignment, provided such
prospective assignees agree to accept all the conditions imposed on Franchisee by this Agreement.
(g)

If any person, partnership, corporation or other entity with an interest subject to the restrictions

of this Section 13.02 desires to accept any bona fide written offer from a third party to purchase such interest, the
prospective transferor shall notify the Company in writing of each such offer, such notice to contain a copy of the
offer and any other written information relating to the offer given or received by the third party offeror. The
Company shall have tbe option to purchase such business, franchise and interest, including any lease, on the same
terms and conditions offered by tbe third party, except that the Company shall have at least fifteen (15) days to
prepare for closing. If the third party offer is such that the Company may not reasonably be required to furnish
the same consideration, terms or conditions, then the Company may purchase the interest to be sold for the
reasonable equivalent in cash. If the parties cannot agree within a reasonable time on the reasonable equivalent
in cash of the consideration, terms, or conditions contained in the offer, the consideration shall be determined by
an independent appraiser designated by the Company, whose determination shall be binding. The Company
shall notify the prospective transferor of its intention to exercise its option witbin thirty (30) days after receipt of
the transferor's notice and other required information. Any material change in tbe terms of the third party offer
prior to transfer to the third party shall constitute a new offer, subject to the same option by the Company as in
the case of an initial offer. The Company's failure to exercise the option afforded by this Section 13.02(g) shall
not constitute a waiver of any other provision of this Agreement, including any of the requirements of Section
Rev. 3/04

30

i:1
""

e
n
13.02 with respect to the proposed transfer, nor shall such failure constitute a waiver of its right to exercise its
option with respect to any subsequent third party offer.
(h)

The Company's consent to a transfer of any interest subject to the restrictions of this Section

13.02 shall not constitute a waiver of any claims it may have against the assignor, nor shall it be deemed a waiver
of the Company's right to demand exact compliance with any of the terms of this Agreement by the assignee at
any time and from time to time.

SECTION 14: FRANCHISE

14.01

ASSOCIATION

Franchise Association.
The Company

franchisees ("Franchise

will recognize one (1) independent

association that represents

Long John Silver's

Association") so long as such association shall continue to meet the criteria set forth in

Sections 14.01 and 14.02 of this Agreement.

Subject to the foregoing, the Company will not restrict Franchisee

from associating with other LJS Franchise Owners, nor from forming or participating in the lawful activities of
any independent

association of LJS franchisees.

As used in this Section 14.01, the phrase "LJS Franchise

Owner'[s]" shall mean the person or entity that has executed and is identified as the franchisee in an LJS
franchise agreement.
(a)

The membership

of the Franchise Association must be comprised of (1) LJS Franchise

Owners owning at least 51% of all Long John Silver's franchise owned and operated restaurants

in the

United States; and (2) 51% of all LJS Franchise Owners in the United States.
(b)

The Franchise Association must be governed by written by-laws that are not inconsistent with the

provisions of this Agreement and that provide that the Franchise Association shall advise the Company of any
material

changes to the by-laws.

The Franchise

Association Board (hereinafter

defined) shall provide the

Company with a certified copy of the by-laws and any material amendments to the by-laws. The Company shall
have no obligation to enforce the by-laws.
(c)

The Franchise Association must have been formed for a primary

advising the Company in representing

purpose of consulting and

the interests of Long John Silver's franchisees, and membership in the

Franchise Association must be limited solely to LJS Franchise Owners that are not owned or controlled by the
Company or any affiliate of the Company.
(d)

The Franchise Association must have at least one (1) standing committee appointed

by the

Franchise Association Board whose primary function is to manage audits of the Company's books and records
with respect to the Company's

advertising and system purchasing

functions pursuant

to Sections 7.02(b) and

4.05(b) above.
14.02

Franchise Association Board.
(a)

The Franchise Association must be governed and represented by a board of directors or like body

that is duly elected on a periodic basis by the Franchise
Board").

Association membership

("Franchise

To ensure that the composition of the Franchise Association Board is representative

Association

of all Franchise

Association members: (1) At least 40% of the Franchise Association Board must be nominated and elected in
regional elections by LJS Franchise

Owners living or having principal

business offices within designated

geographic areas determined by the Franchise Association Board or the Franchise Association in an effort to
have each of the regionally elected Franchise Association Board members represent
Rev. 3/04

31

an approximately

equal

0

G
number of US Restaurants;

and (2) At least 10% of the Franchise Association Board must be nominated and ~
'_1

elected by US Franchise Owners who own five (5) or less LJS Restaurants.
(b)

The Franchise

Association Board

must be composed of LJS Franchise

Owners who are

individuals, or individuals who own, directly or indirectly, a controlling equity interest in US Franchise Owners
that are partnerships, corporations, limited liability companies or other entities.
(c)

Any US Franchise Owner that has received from LJS written notice of default of a monetary

obligation in excess of $5,000.00 or a material non-monetary

obligation under one or more of its US franchise

agreements and has not cured or in good faith disputed in writing in its entirety such default as of the date for
nominations for the Franchisee Association Board shall not be eligible for election.
(d)

The Franchise Association Board shall have the authority to bind and represent the Franchise

Association and the Company shall have the right to rely on the authority of the Franchise Association Board.
The person

serving

as chairman

of the Franchise

Association

Board

and president

of the Franchise

Association shall have the authority to bind and represent the Franchise Association Board and the Company
shall have the right to rely on such authority.

If the Franchise

Association

by-laws allow the offices of

chairman and president to be occupied by two (2) different persons, the Company shall have the right to rely
upon the authority of the person holding the office of president.

14.03

Consultation

With Franchisee Association.

The Company shall have the right to consult with and advise the Franchise Association Board on a
periodic basis.

The Company will consult with and advise the Franchise Association Board with respect to

the Company's

advertising

and marketing

programs

pursuant

to Section 7.01(a). The Company agrees that

it shall provide the Franchise Association Board with a specimen copy of the Company's
Offering Circular

("UFOCtI)

and all material amendments

Uniform Franchise

thereto as and when the Company files the same

with state franchising authorities;

the UFOC shall be marked to show revisions to the UFOC as compared to

the most previously issued UFOC.

In addition, the Company shall advise the Franchise Association Board of

all material changes to the Company's standard form franchise agreement.

SECTION 15: GENERAL PROVISIONS

15.01

Improvements

to System.

All improvements

in the System developed by Franchisee, the Company or other franchisees shall be

and become the sole and absolute
improvements

15.02

of the Company.

The Company

may incorporate

such

into the System and shall have the sole and exclusive right to copyright, register and protect

such improvements
improvements

property

in the Company's

own name to the exclusion of Franchisee,

whose right to use such

shall be limited to its rights as a franchisee hereunder.

Governing Law Exclusive Jurisdiction.
(a)

This Agreement has been accepted by the Company and shall be deemed to have been made at

Louisville, Kentucky,
Commonwealth

Rev. 3/04

and shall be governed and construed

under and in accordance

of Kentucky, which law shall prevail in the event of any conflict oflaw.

32

with the laws of the

i]
(b)

Franchisee and the Company agree that any action arising out of or relating to this Agreement

(including, without limitation, the offer and sale of the Franchise), shall be instituted and maintained only in a
state or federal court of general jurisdiction in Jefferson County, Kentucky, and Franchisee irrevocably submits
to the jurisdiction of such court and waives any objection it may have to either the jurisdiction or venue of such
court.

15.03

Severability.
(a)

Except as expressly provided to the contrary herein, each section, part, term and provision of this

Agreement shall be considered severable.

If, for any reason, any section, part, term or provision of this

Agreement is determined to be invalid, contrary to, or in conflict with, any existing or future law or regulation of
a court or agency having valid jurisdiction, such determination shall not impair th~ operation or affect such other
portions, sections, parts, terms or provisions of this Agreement as may remain otherwise intelligible, and the
latter will continue to be given full force and effect and bind the parties hereto. Such invalid sections, parts, terms
and provisions shall be deemed not to be a part of this Agreement.
(b)

If any applicable law or rule requires a greater period for notice to or performance by Franchisee

than the period(s) provided in this Agreement, the period required by such law or rule shall be substituted for the
period specified herein.
(c)

If any court in a final decision to which the Company is a party holds any provision of this

Agreement or portion thereof to be unenforceable or reduces the scope of any covenant or provision herein,
Franchisee shall be bound to the fullest extent by such covenant or provision as reformed or reduced to the
maximum extent consistent with such decision, and as if such reformed or reduced provision were separately set
forth in and made a part of this Agreement.

15.04

Franchisee Is Independent Contractor.
(a)

This Agreement does not create a fiduciary relationship between the parties hereto. Franchisee

shall be at all times an independent contractor, and nothing herein contained shall constitute Franchisee as the
agent; legal representative, partner, joint venturer or employee of the Company. Franchisee shall not have any
right or power to and shall not bind or obligate the Company in any way or manner whatsoever, nor represent
that it has the right to do so.
(b)

Franchisee shall have sole responsibility for, and shall promptly pay when due, all taxes levied or

assessed by reason of its operation and performance under this Agreement, including, but not limited to, local,
state and federal, property, license, sales, use, leasehold, excise and income taxes. Franchisee shall be solely
responsible for all loss, damage and contractual liabilities to third persons originating in or in connection with the
operation of the Franchised Restaurant and for all claims and demands for damages to property and for injury,
illness or death of persons directly or indirectly resulting therefrom. Franchisee shall indemnify and save the
Company harmless from any such claims for taxes and other liabilities, loss, expense or damage.
(c)

In all building directories, public records and in its relationship

with other persons,

Franchisee shall indicate its independent ownership of the Franchised Restaurant

and that it is only a

franchisee of the Company. Franchisee and any permitted assignee shall file, and keep on file at all times in
the proper public office for the locality involved, a statement Showing the actual name of Franchisee as the
proprietor of its business, if such is required or permitted by the law of the state and for the locality where
Rev. 3104

33

fl

0

~
fl
the Franchised
(d)

Restaurant

and Franchisee's

principal

G

place of business are located.

Franchisee shall affix a plaque or have printed or painted in a manner, form and style prescribed

by the Company, in one or more places upon the Franchised

Restaurant

Premises and upon its business forms

and stationery, a notification to the public to the effect that Franchisee is franchised by the Company.
UP()O

request will furnish

the Company

with reasonable

proof of its compliance

Franchisee

with the terms of Sections

15.04(c) and (d).

15.05

Section Titles.
Section titles and Section and Subsection references are used for convenience only and shall not affect

the meaning or construction

15.06

of any provision of this Agreement.

Entire Agreement.
This Agreement, which shan include the preamble recitals, constitutes the entire agreement of the parties

and supersedes all prior negotiations, commitments,
to the subjed

and undertakings

matter hereof, excepting only tbe following agreements:

representations

15.07

representations

NONE

of the parties with respect

• The Company has made no

inducing the execution ofthis Agreement other than are expressly stated herein.

Number and Gender.
All the terms and words used in this Agreement, regardless of the number and gender in which they are

used, shan be deemed and construed

to include any other number (singular

or plural), and any other gender

(masculine, feminine or neuter), as the context or sense of this Agreement or any paragraph
require, the same as if such words have been fully and properly written in the appropriate

15.08

Obligations
(a)

obligations

ofInterested

or clause hereof may
number and gender.

Parties.

Except as otherwise provided herein, all acknowledgments,
herein made or undertaken

by Franchisee

promises, covenants, agreements

and

shall be jointly and severally made or undertaken

by

Franchisee, all persons signing this Agreement in their individual capacities and all guarantors.
(b)

Franchisee

shall forward to the Company

concurrently

Agreement

and prior to the acquisition of any interest in Franchisee

Agreement

and any extension hereof, a Confidentiality

Exhibit A (as it may be revised by the Company

with the execution and delivery of this
by a third party during the term of this

and Non-Competition

Agreement in the form set forth in

from time to time), executed by every Owner (as defined in

Section 12.02) of Franchisee.

15.09

Written Approval, Waiver and Nonwaiver.
(a)

Whenever

this Agreement

requires

the prior approval

01'

consent of the Company,

shall make a timely written request therefor, and such approval must be obtained in writing.
Agreement

expressly

obligates the Company

to reasonably

approve

the Company has the absolute right

for any reason to refuse any request by Franchisee or to withhold the Company's

approval of or consent to any

The Company may also consider at its option and, in its sole discretion, other reasonable

prior requests severally submitted in writing by Franchisee
Rev. 3/04

Except where this

or consent to (or not to unreasonably

withhold its approval of or consent to) any action or request by Franchisee,

action by Franchisee.

Franchisee

34

for the Company's

waiver of any obligation imposed

~3
by this Agreement. The Company makes no warranties or guarantees upon which Franchisee may rely, and
assumes no liability or obligation to Franchisee, by providing any waiver, approval, consent, or suggestion to
Franchisee in connection with this franchise or by any neglect or delay in furnishing the same.
(b)

No failure of the Company to exercise any power reserved to it by this Agreement, or to insist

upon strict compliance by Franchisee with any obligation or condition hereunder, and no custom or practice of
the parties at variance with the terms hereof, shall constitute a waiver of the Company's right to demand exact
compliance with all of the terms hereof. Waiver by the Company of any particular default by Franchisee shall
not affect or impair the Company's rights with respect to any subsequent default of the same, similar or different
nature, nor shall any delay, forbearance, or omission of the Company to exercise any power or right arising out of
any breach or default by Franchisee of any of the terms, provisions, or covenants hereof, affect or impair the
Company's right to exercise the same, nor shall such constitute a waiver by the Company of any right hereunder,
or the right to declare any subsequent breach a default and to terminate this Agreement prior to the expiration of
its term. Subsequent acceptance by the Company of any payments due to it hereunder shall not be deemed to be
a waiver by the Company or any preceding breach by Franchisee of any terms, covenants or conditions of this
Agreement.
(c)

No right or remedy conferred upon or reserved to the Company or Franchisee by this Agreement

is intended to be, nor shall it be deemed, exclusive of any other right or remedy herein or by law or equity
provided or permitted; but each shall be cumulative of every other right or remedy.
(d)

No amendment, change or variance from this Agreement shall be binding on either party unless

mutually agreed to by the parties and executed in writing.
15.10

Notices, Payments.
(a)

Subject to Section IS.I0(d), aU notices, requests and reports permitted or required to be delivered

by the provisions of this Agreement shall be deemed delivered: (1) at the time delivered by hand to the recipient
party (or to an officer, director or partner of the recipient party); (2) on the same date of the transmission by
facsimile, telegraph or other reasonably reliable electronic communication system; (3) one (1) business day after
being placed in the hands of a commercial courier service for guaranteed overnight delivery; or (4) four (4)
business days after placement in the United States Mail by Registered or Certified Mail, Return Receipt
Requested, postage prepaid and addressed to the party to be notified at its most current principal business
address of which the notifying party has been notified in writing.
(b)

If notice is sent to the Company, it shall be addressed to the attention of the President, Long John

Silver's, Inc., 1441 Gardiner Lane, Louisville, Kentucky 40213, with a copy to the attention of the General
Counsel, at the above address, or at such other address as the Company shall from time to time designate in
writing.
(c)

If notice is sent to Franchisee, it shall be addressed to Franchisee, care of its designated agent,

at 4321 North Bear Claw Way, Tucson, Arizona 85749 or at such other address as Franchisee shall from time
to time designate in writing.
(d)

All payments and reports to accompany payments required to be made hereunder to the

Company shall be sent by the means specified in Subsection lS.10(a) (1) (3) or (4) above or by electronic wire
payment transfer, addressed to the attention of the Treasurer at the above address, or at such address or by such
other means as the Company shall from time to time designate in writing. Any payment not actually received by
Rev. 3/04

35

e
G

G
the Company on or before the date specified herein shall be deemed overdue if not postmarked at least five (5) ~
.'"

days prior to the date due.

15.11

Designated Agent of Franchisee.
Franchisee hereby designates John Willingham to act in its behalf and execute all documents in all

transactions with the Company. All actions by such designee shall be binding upon Franchisee and shall be
valid and binding on any partnerships as if done by each and every partner.

The Company shall have no

duty to deal with anyone other than the designee; however, any documents submitted to the Company
executed by any other officer or partner shall be valid and binding upon Franchisee.

Franchisee shall

promptly notify the Company in writing of any change in its designee.

15.12

Acknowledgments.
(a)

Franchisee acknowledges that it has conducted an independent investigation of the business

franchised hereunder, and recognizes that the business venture contemplated by this Agreement involves
business risks and that its success will be largely dependent upon Franchisee's independent business ability. The
Company expressly disclaims the making of, and Franchisee acknowledges that it has not received, any warranty
or guarantee, express or implied, as to the potential volume, profits or success of the business venture
contemplated by this Agreement.
(b)

Franchisee acknowledges that it has received, has had an ample time to read, has read, and

fully understands

this Agreement.

Franchisee further acknowledges that the Company has fully and

adequately explained the provisions of this Agreement, and that Franchisee has had an adequate opportunity
to be advised by advisors of its own choosing regarding all pertinent aspects of this franchise and the
franchise relationship.
(c)

Franchisee acknowledges that it received a copy of this Agreement, the attachments and

related agreements if any, at least five (5) business days prior to the date on which this Agreement was
executed.

Franchisee further acknowledges that it has received the disclosure document required by the

Trade Regulation Rule of the Federal Trade Commission, titled "Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity

Ventures,"

and such additional documents as are

required by the state in which Franchisee is located at least ten (10) days prior to the date on which this
Agreement was executed.

Rev. 3/04

36

IN WITNESS

WHEREOF,

the Company

and Franchisee

have executed-t

is Agreement

as of tlle-<ltatel-£l

indicated below.

Date:----'O~/_f_J/JC.J.o'+I...Io(..I2.=.t12:::::...5-----SOUTHWEST

SEAFOOD

WITNESS:

X

-fh.p pJ JJp?
Dato:/

Rev. 3/04

37

~?M
7

SHOPPES,

LLC

CONFlDENTIALITY AND NONCOMPETITION AGREEMENT

JAN 20&6

THIS AGREEMENT, dated for reference purposes as of

,is

entered into by and between Long John Silver's, Inc., a Delaware corporation ("Company")

and John

Willingham, whose notice address is: 4321 North Bear Claw Way, Tucson, Arizona 85749, ("Interested
Party"):

On

JAN 2 0 2f1J5

, the Company entered into a Franchise Agreement with

SOUTHWEST SEAFOOD SHOPPES, LLC ("Franchisee").

Interested Party understands that Franchisee

will be in default under Franchise Agreement and its franchise rights may be terminated if each general
partner or stockholder of Franchisee does not execute a written agreement to be personally bound by the
covenants in Sections 10.05 and 12.02 of the Franchise Agreement. Interested Party desires to acquire and/or
maintain an interest in Franchisee, and has an interest in ensuring that Franchisee complies fully with all of
the terms of the Franchise Agreement.
In consideration of the Company's agreement not to terminate the Franchise Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Interested Party
hereby agrees:
(1)

That he or she will comply with all the requirements set forth in Section 12.02 of the Franchise

Agreement.
(2)

That he or she will observe the restrictions on disclosure of confidential and trade secret

information set forth in Section 10.05 of the Franchise Agreement, both during its term and after its termination
or expiration, regardless of whether he continues to be directly or indirectly associated with the Company or
Franchisee.
IN

WITNESS

LOUiS Vi 11/1 Xtnft1Ckij

WHEREOF,

the

parties

hereto

have

executed

this

on the day and year first above written.

WITNESS:

INTERESTED PARTY

Exhibit A

Agreement

at

COMMONWEALTH OF KENTUCKY

)
)

COUNTY OF JEFFERSON

)
GUARANTY

For value received, the receipt and sufficiency of which is hereby acknowledged, and in order to induce Long
John Silver's, Inc. ("LIS"), a Delaware corporation and/or LJS Advertising, Inc., a Delaware corporation
(hereinafter referred to as "Obligees," whether one or both) to enter into certain Franchise Agreements, Advertising
Agreements, Leases, Subleases, Promissory Notes, Mortgages, Deeds of Trust, Security Agreements, or Contracts
and to do certain business with Southwest Seafood Shoppes, LLC (the "Obligor"), of
Tucson, Arizona, the undersigned (hereinafter referred to as the "Guarantors," whether one or more) jointly and
severally guarantee unconditionally and absolutely to Obligees that the Obligor will fully, promptly and faithfully
perform, pay and discharge aU of the Obligor's present and future indebtedness or obligations to Obligees, whether
direct or indirect, absolute or contingent, primary or secondary, joint or several, and all renewals and extensions
thereof, including, but not limited to, any indebtedness or obligations arising by any terms, covenants or conditions
of any Franchise Agreements, Advertising Agreements, Leases, Subleases, Promissory Notes, Mortgages, Deeds of
Trust, Security Agreements, or Contracts between Obligees and the Obligor, including, without limitation, any
representations, warranties and indemnities contained in such Franchise Agreements, Advertising Agreements,
Leases, Subleases, Promissory Notes, Mortgages, Deeds of Trust, Security Agreements, or Contracts (collectively
the "Guaranteed Obligations"), relating to or arising out of the operation of a LJS outlet (hereinafter referred to as
the "Outlet") located at 7120 East Broadway, Tucson, AZ 85710.
In the event of default by the Obligor in performance, payment, or discharge of all or part of the Guaranteed
Obligations, the Guarantors, jointly and severally, shall, on demand and without further notice of dishonor or other
notice which may be required to be given by any statute or rule of law, perform, payor discharge such Guaranteed
Obligations and pay all losses, costs, and expenses which Obligees may suffer by reason of the default. Unless
otherwise required pursuant to the Guaranteed Obligations or otherwise directed by LJS, such performance, payment
or discharge shall be made at Obligees' main office in Louisville, Kentucky. Guarantors hereby severally waive
notice of acceptance of this Guaranty and all other notices in connection herewith or in connection with the
Guaranteed Obligations and waive diligence, presentment, demand protest and notice of non-payment, protest and
suit on the part of Obligees in the enforcement or collection of any of the Guaranteed Obligations and agree that
Obligees shall not be required first to endeavor to secure performance or discharge of or collect from the Obligor
any Guaranteed Obligations or to foreclose, proceed against or exhaust any collateral or security for any Guaranteed
Obligations, before requiring Guarantors, or any of them, to perform, payor discharge the full liability hereby
created. Suit may be brought and maintained against anyone or more of the Guarantors, at the election of Obligees,
without joinder of the Obligor or the other Guarantors as parties thereto. If Obligees institute and prevail in any
action at law or in equity against Guarantors based entirely or in part on the terms of this Agreement, Obligees shall
be entitled to recover, in addition to any judgment entered in their favor, reasonable attorney's fees, court costs and
all of Obligees' expenses in connection with the litigation. If Guarantors prevail in any such action instituted by
Obligees, they will be entitled to such fees, costs and expenses. Ifneither side prevails, each will bear his own costs.
Demand hereunder shall be deemed to have been made when made in person or mailed postage prepaid to the
respective Guarantors' most recent address on file with Obligees.
This Guaranty is continuing and shall continue to apply without regard to the form or amount of Guaranteed
Obligations which the Obligor may create, renew, extend or alter, in whole or in part, without notice to the
Guarantors.
Obligees may from time to time, at their discretion and with or without valuable consideration, surrender,
release, subordinate, exchange or alter any Guaranteed Obligation without affecting the liability of the Guarantors
under this Guaranty and this Guaranty shall continue effective notwithstanding any legal disability of the Obligor to
incur any Guaranteed Obligations. Any action or inaction by Obligees with regard to the Guaranteed Obligations or
this Guaranty shall not impair or diminish the obligations of the Guarantors hereunder. Obligees shall not be liable
for their failure to use diligence in the enforcement of collection of the Guaranteed Obligations or in preserving the
liability of any person liable thereon.

Exhibit B

Obligees are relying and are entitled to rely upon each and all of the provisions of this Guaranty; and accordingly if any
provision or provisions of this Guaranty should be held to be invalid or ineffective, then all other provisions shall continue in
full force and effect notwithstanding. This Guaranty is not intended and does not replace, cancel or otherwise modify or affect
any other guaranty of the Guarantors, or any of them, held by Obligees now or hereafter, relating to the Obligor or other
persons or entities.
Guarantors hereby unconditionally and absolutely guarantee the payment of all of said Guaranteed Obligations,
regardless of any act or omission of Obligees or any party with reference to any of said indebtedness or any security or rights
existing or to exist in connection therewith; and Guarantors agree that Obligees shall in no way be obligated to bring or
prosecute any action against Obligor of said Guaranteed Obligations or make any demand on Obligor or give any notice of any
kind to any party. Obligees shall not be liable or accountable in any respect, nor shall Guarantors have a right of recourse
against Obligees by reason of, any act or omission on the part of Obligees in connection with any of the matters herein
mentioned.
The amount of the maximum aggregate liability of the Guarantors under this Guaranty is the sum of Two Hundred-Fifty
Thousand and nollOO dollars ($250,000) and the date on which this Guaranty terminates is Twentv (20) years from the date
of execution set forth below, provided, however, that such termination shall not affect the liability of the Guarantors with
respect to:
(1) Guaranteed Obligations created or incurred prior to such date; or
(2) Extensions or renewals of, interest accruing on, or fees, costs, or expenses incurred with respect to, such Guaranteed
Obligations on or after such date.
Executed this

day of

JAN 20. ,2o_.

GUARANTORS;

Signa
Print

Exhibit B

SCHEDULE

I

The Location is:

7120 East Broadway
Tucson, AZ 8571 0

The Territory

is the area comprised

of a circle having a one and one-half (1 Yz) mile radius with the above

Location as the center point of the circle.

In addition, the Company will not own, operate or grant a franchise for (nor grant to others the right to own,
operate or grant a franchise for) a Co-branded

LJS Restaurant

three (3) mile radius and having the Franchised
Territory"),

Restaurant

Territory,

operated

in conjunction

branded

LJS Restaurant"

"Co-branded

LJS Restaurant"

as the center of such circle ("Extended

shall mean a location at which an LJS Restaurant

shall exclude the following locations and facilities, and the Company shall have the
within the Extended Territory

at such locations and facilities: (1) LJS Restaurants

within or in conjunction
is subordinate

with the LJS Restaurant

to the LJS Restaurant

to counter trade dress and menuboard;
unless an additional

established

from the convenience

with an additional

where the additional

signage and the additional
and (2) LJS Restaurants

and reputable

brand's

brand's

(but not within the
brand or concept operated

or concept's

or concept's

interior image is limited

within a convenience

food service brand is operated

exterior signage

store or gas station,

in conjunction

with the LJS

store or gas station. In addition, the Company shall have the right to own,

operate or franchise LJS Restaurants
fae ilities described

is

with and at the same location as another food service business. The term "Co-

right to own, operate or franchise LJS Restaurants

Restaurant

of a circle having a

expiring April 30, 2007. As used in this Schedule 1, and solely for purposes of defining the

Extended

Territory)

within an area comprised

within the Extended Territory

in Section 1.01(d) (1) ofthe Franchise

(and the Territory)

Agreement,

at the locations and
~

INITIAL

SITE PROPOSAL REVIEW POLICY
November 5,1999

SECTION 1: PRELIMINARY
1.0t

STATEMENTS

General Pumose.
(a)

One of Long John Silver's lnc.'s (uLJS") prime objectives is to expand its restaurant system

("System") through the development

of new franchised outlets to enable LJS, its franchisees and the System to

compete against other restaurant chains.

While LJS, as the developer, owner and licensor of the trademarks and

other elements of the System, has sole decision-making

authority regarding the granting and denial of franchises,

LJS desires to be responsive to its existing franchisees' concerns about the possible impact of the development of a
new franchised or LJS-owned restaurant on existing franchisees' LJS restaurant operations.
(b)

The purpose of this Policy is to provide an efficient and effective process for reconciling disputes

relating to LJS restaurant development.
(c)

This Policy has been adopted effective as of November 5, 1999 ("Effective Date") in conjunction

with the Long John Silver's Franchise Advisory Board ("FAB"), as the same was constituted on the date hereof. For
a period of five (5) years following the Effective Date, LJS will not materially modify this Policy without the
approval of the FAB, or any successor board of directors or other governing body of the then-recognized

association

)

of LJS franchisees ("Board").

Following the date that is five (5) years after the Effective Date, LJS may materially

modify this Policy only upon consultation with the Board.

SECTION 2: NOTIFICATION
2.1

OF NEW FRANCHISE DEVELOPMENT

Notification.
(a)

Within fifteen (15) days following LJS's determination that it intends to approve a new franchised

LJS restaurant site or to develop a new company-owned

LJS restaurant site ("Proposed Site"), LJS shall first provide

notice ("Notice") to all LJS franchisees whose existing LJS restaurant operations may be significantly adversely
affected by development of the Proposed Site ("Potentially Impacted Franchisee[ s]").
(b)

As used in this Policy, "Potentially

Impacted

Franchisees"

who are entitled to receive an

Application Notice are:
(I)

LJS franchisees who have one or more existing units within ten (10) miles of

the Proposed Site if LJS determines that population within the area of a circle having a three (3)-mile
radius and the Potentially Impacted Franchisee's existing LJS restaurant as the center point ("Population
Density") is 10,000 or less; and
(2)

LJS franchisees who have one or more units within five (5) miles of the

Proposed Site if US determines that the Population Density is more than 10,000 and less than 20,000; and
(3)

US franchisees who have one or more units within three (3) miles of the

Proposed Site if US determines that the Population Density is 20,000 or more.
(4)

Notwithstanding

the

foregoing

Sections

2.01(b)(1)

through

2.0 1(b)(3),

inclusive,

Potentially Impacted Franchisees shall not include any LIS franchisee who has received from US written notice of
default of a monetary obligation in excess of $5,000.00 or a material non-monetary obligation under one or more of
its LIS franchise agreements and has not cured or in good faith disputed in writing in its entirety such default as of
the date of the Application Notice.
(c)

Proposed Sites shall exclude LIS restaurants at the following locations ("Excluded Sites"): on

rights-of-way of any limited access highways or toll roads, airports, campus, educational, industrial or health care
institutions, office or business complexes or buildings, military installations, or at athletic arenas, expositions,
convention centers, fairs, zoos, theme parks or similar facilities or events. Potentially Impacted Franchisees shall
not be entitled to object to the development of, and shall not receive any Application Notice for Excluded Sites.

SECTION 3: IMPACT STUDY

3.0 I

Initiation of Impact Study.
(a)

Each Potentially Impacted Franchisee who reasonably believes that the development of the

Proposed Site will have a significant adverse impact (hereinafter defined) upon the revenue generated from its
existing US restaurant(s) shall have the right to commission an impact study by an Approved Consultant
(hereinafter defined) in order to support the Potentially Impacted Franchisee's position.
(b)

Each Potentially Impacted Franchisee shall have ten (10) days following the date of the Notice to

notify LIS of its intent to commission an impact study. The Potentially Impacted Franchisee's notice shall include a
check in the amount of $5,000.00 payable to LIS, and the Potentially Impacted Franchisee's selection of a restaurant
industry consulting firm from the list of approved consultants ("Approved Consultants") that LIS shall provide to
the Franchise Association Board from time to time. The Approved Consultants shall not be affiliates of LIS or any
LIS franchisee and LIS shan consult with and advise the Board in developing the list of Approved Consultants.
Alternatively, a Potentially Impacted Franchisee may directly engage an Approved Consultant to conduct the impact
study, so long as the Potentially Impacted Franchisee provides US with reasonably satisfactory proof of
engagement along with the Potentially Impacted Franchisee's notice. The engagement shall require the Approved
Consultant to deliver the results of the impact study within a reasonable time concurrently to LIS and the Potentially
Impacted Franchisee.
(c)

A Potentially Impacted Franchisee who initiates an impact study pursuant to this Policy is referred

to as an "Objecting Franchisee".

3.02

Cost ofImpact Study.
(a)

If the results of the impact study conclude that development of the Proposed Site will significantly

adversely impact (hereinafter defined) the gross sales generated by the Objecting Franchisee's LIS restaurant, then
US will reimburse (or refund, as applicable) the $5,000.00 paid by the Objecting Franchisee and LIS shall pay the
cost of the impact study. If the impact study concludes that development of the Proposed Site will not significantly
adversely impact the gross sales generated by the Objecting Franchisee's LIS restaurant, then the cost of the impact

·

.

.'

study shall be paid directly by the Objecting Franchisee or out of the $5,000.00 submitted to US by the Objecting
Franchisee (with any excess funds to be returned promptly).

3.03

Significant Adverse Impact.
(a)

The development of a Proposed Site will be deemed to have a significant adverse impact upon an

Objecting Franchisee's LJS restaurant ifthe impact study commissioned by the Objecting Franchisee concludes that,
solely as a result of the opening of an LJS restaurant at the Proposed Site and without giving effect to any margin of
error or like concept, the annual gross sales generated by the Objecting Franchisee's US restaurant will decrease by
ten percent (10%) or more over the period of one (I) year following the opening date of the new LJS restaurant at
the Proposed Site.

3.04

US's and Objecting Franchisee's Elections.
(a)

If the results of the impact study conclude that development of the Proposed Site will significantly

adversely impact the revenue generated by the Objecting Franchisee's LJS restaurant, then US must elect one of the
alternatives set forth in Section 3.04(a)(1) or (2) below, such election to be made in writing and delivered to the
Objecting Franchisee within fifteen (15) days following the date that the Approved Consultant delivers the impact
study to US.
(I)

LJS shall not develop or approve development of the Proposed Site; or

(2)

US shall offer to execute an agreement that will obligate US to divert and

allocate, for a period of one (1) year following the opening date of the new US restaurant at the Proposed
Site, an amount equal to one-half (1/2) of the Objecting Franchisee's royalties paid by the Objecting
Franchisee during such one (1) year period for the purpose of funding local (i.e., in the market area in
which the Objecting Franchisee's restaurant lies) advertising and marketing programs approved by US.
(3)

The Objecting Franchisee shall have fifteen (15) days following its receipt of any offer

made by LJS pursuant to Section 3.04(a)(2) above within which to accept or reject the offer.

The Objecting

Franchisee's acceptance or rejection must be made in writing and its failure to timely deliver its acceptance or
rejection shall be deemed acceptance of US's offer. If the Objecting Franchisee accepts the offer, then US may
develop or approve development of the Proposed Site and the Objecting Franchisee shall release US from any
liability to the Objecting Franchisee arising from US's development or approval of the development.

If the

Objecting Franchisee rejects the offer, LJS shall not approve the Applicant's development of the Proposed Site.
(b)

If the results of the impact study conclude that development of the Proposed Site will not

significantly adversely impact the revenue generated by the Objecting Franchisee's US restaurant, then US may
develop or approve development of the Proposed Site. In the event that LJS approves the development of Proposed
Site and an Objecting Franchisee continues to object, then the Objecting Franchisee must elect one of the following
alternatives, such election to be made in writing delivered to US within fifteen (15) days following the date that US
notifies Objecting Franchisee of the intended development of the Proposed Site:

-.

.

.

.
(1)

The Objecting Franchisee and US shall execute an agreement that win

obligate US to divert and allocate, for a period of six (6) months following the opening date of the new
LJS restaurant at the Proposed Site, an amount equal to one-half (112) of the Objecting Franchisee's
royalties paid by the Objecting Franchisee during such six (6) month period for the purpose of funding
local (i.e., in the market area in which the Objecting Franchisee's restaurant lies) advertising and marketing
programs approved by US.

If the Objecting Franchisee chooses this alternative, then the Objecting

Franchisee shall release US from any liability arising from US's approval of the Applicant's development.
(2)

Alternatively, the Objecting Franchisee shall have the right to pursue against

US such remedies as are available under applicable law.
The Objecting Franchisee's

election shall be its sole and exclusive remedy for the potential or actual

adverse effect of the development of the Proposed Site.

OWNERSHIP OF SOUTHWEST SEAFOOD SHOPPES, LLC
An Arizona Limited Liability Company

John Willingham
Mike Barbee
Diane Preece
Patrick H. Cahalan Trust
Paul Chenoweth
Jack & Pauline Willingham
Burce Miller
Mark & Carla Willingham
Kerry Habiger
Dan Gutierrez
Jim & Sharon Lowell
Thring Investment
Mark & Charline Kuntz
Leo Nathanson
Marsha Schmidt
Bob Koster

SOUTHWEST SEAFOOD SHOPPES, LLC
(Franchisee)

ltle Man;M.mber
Date:

j /,

"Zvloy
z

73.5%
8.0%
2.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.2%
1.0%
0.6%
1.5%
0.6%
1.2%
0.9%
1.5%