EXHIBIT E
STANDARD FORM
APPLEBEE'S NEIGHBORHOOD GRILL & BAR
DEVELOPMENT AGREEMENT
------------------------
(Name of Developer)
------------------------
(Date)
-------------------------
(General Description of Territory)
E-1
2004
TABLE OF CONTENTS
RECITALS................................................................
E-3
1.
GRANT OF DEVELOPMENT RIGHTS....................................
E-4
2.
INITIAL DEVELOPMENT SCHEDULE...................................
E-4
3.
SUBSEQUENT DEVELOPMENT SCHEDULE;
DEVELOPMENT OBLIGATIONS GENERALLY..............................
E-5
4.
FRANCHISE FEE AND ROYALTY RATE.................................
E-13
5.
SITE APPROVALS:
PLANS AND SPECIFICATIONS......................
E-14
6.
FEES AND FRANCHISE AGREEMENTS..................................
E-16
7.
DEVELOPER ORGANIZATION, AUTHORITY,
FINANCIAL CONDITION AND SHAREHOLDERS...........................
E-16
8.
TRANSFER.......................................................
E-19
9.
TERMINATION....................................................
E-23
10.
PREREQUISITES TO OBTAINING FRANCHISES
FOR INDIVIDUAL RESTAURANT UNITS................................
E-24
11.
RESTRICTIONS...................................................
E-25
12.
DEVELOPMENT PROCEDURES.........................................
E-27
13.
NO WAIVER OF DEFAULT...........................................
E-28
14.
FORCE MAJEURE..................................................
E-29
15.
CONSTRUCTION, SEVERABILITY, GOVERNING
LAW AND JURISDICTION...........................................
E-29
16.
MISCELLANEOUS..................................................
E-30
APPENDIX A:
TERRITORY..................................................
E-33
APPENDIX B:
FORM OF FRANCHISE AGREEMENT................................
E-34
APPENDIX C:
STATEMENT OF OWNERSHIP INTERESTS...........................
E-35
APPENDIX D:
REVIEW AND CONSENT WITH RESPECT
TO TRANSFERS...............................................
E-36
APPENDIX E:
CONFIDENTIALITY AGREEMENT AND
COVENANT NOT TO COMPETE....................................
E-37
APPENDIX F:
CONFIDENTIALITY AGREEMENT..................................
E-40
E-2
2004
APPLEBEE'S NEIGHBORHOOD GRILL & BAR
DEVELOPMENT AGREEMENT
This Agreement is made this ________ day of ___________________,
20_____, by and
between APPLEBEE'S INTERNATIONAL,
INC., a Delaware corporation
("FRANCHISOR"),
________________________________________,
a (_______________
corporation, sole
proprietorship,
______________________
partnership,
_________________ limited
partnership [
strike inappropriate
language
]) ("DEVELOPER") and ________________
________________________________
(collectively,
the
"PRINCIPAL
SHAREHOLDERS"
and,
individually,
a "PRINCIPAL
SHAREHOLDER" of Developer if a corporation or
general
partner of
Developer
is a limited
partnership
having as its general
partner
a
corporation)
and
______________________________________________
("GENERAL PARTNER") of Developer if Developer is a limited
partnership).*
* (If
Developer
is
not a
corporation
or a sole
proprietorship,
or if
Developer is a limited liability
company,
the parties hereto hereby agree that
an Addendum
shall be attached to this
Agreement
so as properly to reflect the
responsibilities of the partners of any general partnership, the
general partner
of any limited partnership and the shareholders of any corporate
general partner
of any partnership, or the members of any limited liability
company.)
WITNESSETH:
RECITALS
A.
Franchisor
owns the rights to develop and
operate a unique
system of
restaurants which specialize in the sale of high quality,
moderately priced food
and
alcoholic
beverages
in
an
attractive,
casual
setting,
which
include
proprietary
rights
in
certain
valuable
trade
names,
service
marks
and
trademarks,
including the service mark Applebee's
Neighborhood Grill & Bar and
variations
of such
mark,
designs,
decor and
color
schemes
for
restaurant
premises,
signs,
equipment,
procedures
and formulae for
preparing
food and
beverage
products,
specifications
for
certain
food and
beverage
products,
inventory
methods,
operating
methods,
financial control
concepts,
training
facilities and teaching techniques (the "System").
B. Franchisor has
established,
through its own development and operation,
and through the granting of franchises, a chain of Applebee's
Neighborhood Grill
& Bar restaurants which are distinctive; which are similar in
appearance, design
and decor; and which are uniform in operation and product
consistency.
C. The value of Franchisor's
trade names,
service marks and trademarks is
based upon: (1) the maintenance of uniform high quality
standards in connection
with the preparation and sale of Franchisor-approved food and
beverage products,
(2) the uniform high standards of appearance of the individual
restaurant units
in the System, (3) the use of distinctive
trademarks,
service marks,
building
designs and advertising
signs
representing a uniformly high quality of product
and services,
and (4) the assumption by Franchisor
and its
franchisees of the
obligation
to maintain and enhance the goodwill
and public
acceptance
of the
System (and of Franchisor's
E-3
2004
trade
names,
service
marks and
trademarks)
by strict
adherence to the high
standards required by Franchisor.
D. Developer
desires to obtain the exclusive
right to develop
restaurant
units franchised by Franchisor
within the geographic area specified in Appendix
A hereto ("Territory"),
for the period specified in Subsection 1.1, pursuant to
the terms, conditions and provisions which are set forth in this
Agreement.
NOW,
THEREFORE,
in
consideration
of
Franchisor
granting to
Developer
the
exclusive
right to develop
restaurant
units
franchised by
Franchisor
which
employ the System
("Restaurants")
in the
Territory
for such
period,
and in
consideration
of the mutual
obligations
which are provided for herein,
it is
hereby agreed as follows:
1.
GRANT OF DEVELOPMENT RIGHTS
1.1 Franchisor grants Developer the exclusive right to develop
Restaurants
only in the Territory for a period commencing on the date hereof
and expiring on
___________,
20__, unless sooner terminated as hereinafter provided.
Developer
has no rights
under
this
Agreement
to
develop
Restaurants
outside
of the
Territory or to develop
restaurants
which do not employ the System,
including
the Applebee's Neighborhood Grill & Bar service mark.
1.2
During
the term of this
Agreement,
Franchisor
shall not
operate a
restaurant
utilizing
the
System
or
license
any other
person to
operate a
restaurant
utilizing
the
System in the
Territory.
However,
nothing in this
Agreement
shall
prohibit
or
infringe
upon
Franchisor's
right to operate a
restaurant
or license any other person to operate a restaurant in the
Territory
which does not utilize the System or use the Applebee's
Neighborhood Grill & Bar
service mark. In addition, Franchisor specifically reserves the
right to operate
or license any other person to operate
restaurants
in any
location
within an
airport
(serviced by one or more public or charter
carrier),
arena,
stadium,
state or national park, or military
fort,
post or base which may be within the
boundaries of the Territory otherwise granted to Developer.
Further,
Developer
acknowledges and agrees that Franchisor or any one (1) or more of
its subsidiary
or affiliated
companies or divisions shall have the right to operate or license
any other
person to operate
such other
restaurants
which may or will compete
with the
Restaurants,
under a system and
service
mark other than
Applebee's
Neighborhood Grill & Bar.
1.3 After this Agreement
expires or is terminated,
Franchisor
shall have
the
complete
and
unrestricted
right to operate or license
other
persons to
operate a restaurant utilizing the System in the Territory.
2.
INITIAL DEVELOPMENT SCHEDULE
2.1
Developer
shall
develop
a total
of
_________
(____)
Restaurants
franchised by Franchisor
in the Territory
during the period
commencing on the
date hereof and
expiring on
_____________,
20_____,
in
accordance
with the
following development schedule:
E-4
2004
(a)¹ During the first Initial Development Period under this
Agreement,
Developer
shall develop at least _________
(___)
Restaurants
within the
Territory,
each of which shall be open for operation and doing business on
_________________,
________
(the
end of the
first
Initial
Development
Period under this Agreement).
(b) During the second Initial Development Period under this
Agreement,
Developer
shall
develop the number of
Restaurants
within the
Territory
necessary to result in the
existence of _________
(___) such
Restaurants
developed by Developer
which are open for operation and doing
business on
_________________,
________
(the end of the
second
Initial
Development
Period under this Agreement).
(c) During the third Initial
Development Period under this Agreement,
Developer
shall
develop the number of
Restaurants
within the
Territory
necessary to result in the existence of _________
(____) such
Restaurants
developed by Developer
which are open for operation and doing
business on
______________,
________ (the end of the third Initial
Development Period
under this Agreement).
Each of the periods
specified
in
Subparagraphs
(a) through
(___)
hereof is
sometimes referred to hereinafter as an "Initial Development
Period."
2.2 During any Initial
Development
Period,
subject to the
provisions of
this Agreement,
Developer is free to develop more than the total minimum number
of
Restaurants
which
Developer
is
required to develop
during that
Initial
Development Period. Any such Restaurants developed, open for
operation and doing
business
during an Initial
Development
Period in excess of the minimum number
required to be developed during that Initial Development Period
shall be applied
to satisfy Developer's development obligation during the next
succeeding Initial
Development Period or next succeeding Subsequent
Development Period (as defined
in Section 3 hereof),
if any,
as the case may be.
Notwithstanding
the above,
Developer shall not develop more than the total number
Restaurants
approved by
Franchisor for development under this Agreement.
2.3 Strict compliance with the development schedule specified in
Subsection
2.1 hereof is of the essence of this
Agreement.
If Developer
fails to fulfill
its
specified
development
obligation
with
respect
to any
of
the
Initial
Development
Periods
specified in Subsection 2.1 hereof,
this Agreement
shall
terminate
sixty (60) days after the end of the
Initial
Development
Period in
question,
unless
by the
end of such
sixty
(60)
day
period
Developer
has
fulfilled
the
development
obligation
relating
to such
Initial
Development
Period.
3.
SUBSEQUENT DEVELOPMENT SCHEDULE; DEVELOPMENT OBLIGATIONS GENERALLY
3.1 During the period commencing on ______________,
20_____,
and expiring
on _________________,
20____,
Developer shall develop and open for business in
the Territory,
in
________________________________
¹ The periods
specified in
Subsection
2.1(a)-(c)
may be revised,
deleted or
added to in order to reflect the number of Restaurants Developer is
obligated to
develop
and the
time
in
which
the
Developer
is
obligated
to
open
such
Restaurants.
E-5
2004
accordance with the parameters
established under Subsection 3.2, that number of
additional
Restaurants
as is required to achieve at the end of such period,
a
total number of Restaurants open for business within the Territory
which,
after
including the Restaurants developed during the Initial Development
Periods, will
equal the Minimum
Development
Potential of the
Territory
(as defined
herein
below).
3.2 (a) Each
consecutive
two (2) year period,
commencing with the period
beginning on _______________,
20____, is hereafter referred to as a "Subsequent
Development Period."
(b) On or
before
the
commencement
of each
Subsequent
Development
Period,
Franchisor
shall
provide to
Developer
in writing the number of
Restaurants to be developed by Developer during such Subsequent
Development
Period
("Subsequent
Development
Schedule"),
together
with
a
detailed
summary of the Minimum Development Potential calculations used to
determine
the Subsequent
Development
Schedule.
The minimum
development
potential
("Minimum Development Potential") shall be determined as follows:
(i) Each Area of Dominant Influence ("A.D.I."),
as determined by
the
1988
Arbitron
Ratings,
comprising
all
or a
portion
of
the
Territory shall be placed into one of four market categories
("Market
Categories"),
identified as either a "Small Market", defined as those
A.D.I.'s
containing
less than
135,000
households
in
metropolitan
counties
within the
Territory
with
incomes
greater
than
$25,000
("Income
Qualified Metro Household");
a "Medium Market",
defined as
those A.D.I.'s
containing
135,000 to 399,999 Income
Qualified Metro
Households;
a "Large
Market",
defined as those A.D.I.'s
containing
400,000 to 1,399,999
Income
Qualified Metro
Households;
or a "Mega
Market", defined as those A.D.I.'s containing 1,400,000 or more
Income
Qualified Metro Households (Small Market,
Medium Market, Large Market
or Mega
Market
may also be
referred
to herein
individually
as an
"A.D.I. Market" or collectively as "A.D.I.
Markets". The income level
set forth above may,
but need not, be adjusted
upward or downward by
Franchisor
once every
five (5) years in order to reflect
changes in
household
income,
such
adjustments to be determined by reference to
the United States Census Bureau's Median
Household Income Index or if
such
index no longer
exists
at the time it is to be used,
then the
index employed shall be such other
generally
known index used by NPD
Crest or other such similar company then used by Franchisor.
(ii) Each county within an A.D.I. Market shall be classified as a
"Metropolitan
County", those counties with a total population greater
than
50,000;
a "Small
Town
County",
those
counties
with a total
population of 20,000 to 50,000;
or an "Other County",
those counties
with a total population less than 20,000
(Metropolitan
County, Small
Town
County and Other
County may be for
description
purposes
also
referred to herein as a "County Type").
(iii) Each A.D.I. Market shall at that time be assigned to one of
four
development
groups
according
to
the
level
of
development
penetration
which
Developer
has
achieved
in the A.D.I.
Market as
compared
to the
level of
development
penetration
achieved
by all
domestic
development in the System.
The four development groups
E-6
2004
will be determined by ranking each A.D.I. in the System within each
of
the Market
Categories
from most
developed to least
developed.
The
A.D.I.'s in ranking order from most developed to least developed
shall
then be divided
into four
substantially
equal
development
groups:
"Opportunistic
Group", "Second Group", "Third Group" and "Lower Limit
Group".
The average number of Restaurants per Income
Qualified Metro
Household
developed by the top three territories in the System of the
Second Group in each A.D.I.
Market
category shall be the development
target for each such A.D.I. Market category ("Penetration Target").
(iv) The total number of Restaurants to be developed by Developer
in each Metropolitan
County of an A.D.I. Market shall be equal to the
number of Income
Qualified
Metro
Households
in such A.D.I.
Market
divided
by
the
Penetration
Target
("Metropolitan
Development
Potential").
The Metropolitan
Development Potential minus the number
of Restaurants in each Metropolitan
County then open and operating in
said
A.D.I.
Market
shall
be the
number
of
Restaurants
in
each
Metropolitan
County
then
available
for
development
in the A.D.I.
Market ("Metropolitan Development Balance").
(v) The Minimum Development Potential shall be the maximum number
of Restaurants
Franchisor
may include on the Subsequent
Development
Schedule
and thus require
Developer to develop in the A.D.I.
Market
during the next Subsequent
Development Period;
subject,
however, to
the minimum and maximum development criteria outlined in paragraph
(c)
and (d) of this
Subsection 3.2. In the event,
however,
a particular
A.D.I. Market is in the Opportunistic Group,
Developer and Franchisor
shall
negotiate
in
good
faith
a
mutually
agreeable
Subsequent
Development Schedule;
provided,
however, said Subsequent Development
Schedule
shall
not
reflect a number
of
Restaurants
less than the
remaining
undeveloped
portion
of
the
Metropolitan
Development
Potential,
nor shall the Developer be required
(without its consent)
to
develop
more
than
the
remaining
undeveloped
portion
of
the
Metropolitan Development Potential.
(c) During each Subsequent
Development Period that Developer has less
than ten (10)
Restaurants
open and operating in the Territory,
Developer
shall be required to develop no more than one (1) Restaurant
each calendar
year that the number of Restaurants in Developer's
Territory does not meet
or exceed the Minimum Development
Potential of the Territory.
During each
Subsequent
Development
Period
that
Developer
has
ten
(10)
or
more
Restaurants
in the
Territory,
Developer
shall be required to develop no
more
than two (2)
Restaurants
each
calendar
year
that the
number
of
Restaurants
in
the
Territory
does
not
meet
or
exceed
the
Minimum
Development Potential for the Territory.
(d)
Notwithstanding
the
Minimum
Development
Potential
for
which
Developer
might otherwise be obligated in order to satisfy the Penetration
Target for the Territory,
Developer
shall not be required to develop more
than ten (10) Restaurants in any one calendar year in the
Territory. In the
event Developer holds other
development
agreements with the System or the
Principal
Shareholders
of
Developer
are
the
identical
Principal
Shareholders
of other
entities
who hold other
development
agreement(s)
within
the
System
(such
other
entities
being
defined
hereunder
as
"Affiliates"),
Developer,
together
with such
E-7
2004
Affiliates,
may limit its combined
development under all such development
agreements
to no more than ten (10)
Restaurants
in the
aggregate in any
calendar year. Provided,
however,
Developer and Principal
Shareholder(s)
hereby
acknowledge
that if
Developer
exercises
its
option
under this
provision to limit its combined
development
with its Affiliates and after
so limited its
development,
Developer
(together with its Affiliate) does
not achieve such aggregate development, Developer shall be in
default under
that development agreement (or all such development
agreements as the case
may be) but
only
such
development
agreement(s)
which
did not meet the
individual
Subsequent
Development
Schedule
calculated and agreed to for
that individual development agreement.
(e) If the Developer has timely developed and opened for operation
the
Restaurant
called for by the Initial
Development
Schedule and thereafter
during a Subsequent
Development
Period objects to the
development of the
last Restaurant
required during that Subsequent
Development
Period under
Article 3 hereof, then Franchisor hereby grants Developer the right
to make
a written
demand for a study as to
whether
said last
Restaurant
may be
located in the
Territory
or
whether
said
Restaurant
will at that time
cannibalize
the sales
and
traffic
with
respect
to its other
existing
Restaurants
in the
Territory.
In the event a written
request for such a
study
is
received
by
Franchisor
prior
to the
end
of the
Subsequent
Development
Period
in
question
and
prior
to
any
default
under
the
Development
Agreement,
then in such an event,
Franchisor
and
Developer
shall in good faith attempt to resolve the issue regarding whether
the last
Restaurant
should or should not be developed
and opened.
If an agreement
cannot be reached
(which
process may include the Franchisor and Developer
ordering a PIN study at Developer's
cost),
Franchisor and Developer shall
submit the disagreement to the National Franchise Mediation Board
("NFMB"),
as herein defined below,
for handling and
disposition.
The submission of
said disagreement will be in accordance with subsection 3.2 (f)(i)
hereof.
(f) The following
shall apply to the
submission to the NFMB pursuant
to the preceding paragraph:
(i) The
disagreement
shall be submitted by the Developer by way of a
written demand for mediation tendered to Franchisor within thirty
(30)
days after
Franchisor
has
indicated to Developer
than an agreement
cannot be reached.
Developer will deposit
$35,000 with Franchisor at
the time of the filing of its
written
demand for
mediation.
If the
demand
or the
deposit
or
either
or both of them are not so timely
made,
then in such an event,
the
Developer
shall be deemed to have
waived its right to request mediation and further,
shall be deemed to
have elected to accept the full number of
Restaurants
Franchisor had
determined for the Subsequent Development Period then in question.
The
NFMB will determine in its sole discretion the procedure,
time limits
and
additional
filing and
responses
required
with
respect to the
mediation.
However,
it is understood
and agreed by all parties that
the mediation is intended to provide a more expeditious
resolution of
the
matter
submitted
to the
NFMB.
The
mediation
decision
to be
rendered
by
the
NFMB
will
be
binding
upon
all
parties
to the
mediation.
The party for whom a favorable
decision is rendered shall
receive from the other party reimbursement for all out-of-pocket
costs
and
expenses,
including
attorneys'
fees incurred and any PIN study
conducted
with respect to the
mediation,
which are determined to be
reasonable by the NFMB.
E-8
2004
(ii) At the
conclusion
of the
mediation,
the NFMB shall
issue its
decision
either
supporting
Developer and
indicating
that the last
Restaurant
need
not
be
developed
as
a
part
of
the
Subsequent
Development Period in question,
or conversely,
supporting Franchisor
and
indicating
that
the
last
Restaurant
should
be a part of the
development for that Subsequent Development Period. If the decision
of
the NFMB supports the Developer,
then in such an event, the Developer
shall
maintain
its
exclusive
rights
to the
Territory,
and shall
continue
to
maintain
its right to develop
therein
in the
future.
Provided,
however,
Franchisor may request further development during
future Subsequent
Development Periods. In addition,
Franchisor shall
reimburse
Developer
the
$35,000
previously
deposited
at
the
commencement of the mediation process.
(iii) If the
decision of the NFMB
supports the
Franchisor,
then in
such an event,
the Developer
shall be required to construct and open
the last Restaurant,
pursuant to the development
schedule originally
listed as a part of the Subsequent
Development Period so in question.
In
addition,
the
funds
previously
deposited
by
Developer
with
Franchisor
shall
be
applied
to the
Franchise
Fee
due
for
such
Restaurant.
However,
in the event
Developer
fails to
develop
the
Restaurant,
the
$35,000
shall be
forfeited
and shall
become
the
exclusive
property
of
Franchisor
and
further,
the
exclusive
development
rights
granted
by
the
Development
Agreement
shall
terminate and be of no further force and effect.
(iv) If,
after a new
developer
has been
appointed to open the last
Restaurant,
and said Restaurant has opened for operation,
and within
the
first
twelve
(12)
months
of
operation
of
said
Restaurant,
Developer
believes
that said new
developer's
Restaurant
has had a
significant
cannibalization
effect
upon one or more of
Developer's
Restaurants,
then in such an event, the Developer may avail itself of
the following post impact process
("Post Impact
Process").
The Post
Impact
Process will consist of the submission of the positions of the
Developer,
new
developer
and
Franchisor
to the NFMB for study and
mediation.
The Post Impact
Process is and shall be from time to time
more fully
outlined in the Manuals.
The NFMB shall have the right to
issue a non-binding determination as to whether or not the
Developer's
Restaurant
or
Restaurants
(as the
case
may
be)
were,
in
fact,
significantly
cannibalized
as
contended
by
Developer
and
if
so
determined,
a recommendation
on whether any and what type of royalty
relief
or other
relief,
if any,
shall be
granted
Developer.
The
parties agree to exhaust the foregoing remedies and seek the
mediation
provided by the NFMB prior to
submitting
the matter to any
judicial
tribunal.
3.3
Strict
compliance
with
the
development
schedule
established
in
accordance with
Subsection 3.2 hereof is of the essence of this
Agreement.
If
Developer
shall fail to
fulfill
its
specified
development
obligation
with
respect to any Subsequent Development Period, this Agreement shall
automatically
terminate sixty (60) days after the end of the Subsequent
Development Period in
question,
unless
by the
end of such
sixty
(60)
day
period
Developer
has
fulfilled the development
obligation
relating to such
Subsequent
Development
Period.
3.4 If,
during the term of this
Agreement,
(a)
Developer
transfers
or
disposes of any Restaurant developed hereunder in accordance with
the provisions
hereof,
or for any other
reason
E-9
2004
ceases to
operate
any
Restaurant
developed
hereunder,
and (b)
after
such
transfer or other cessation of operation the premises no longer are
utilized for
the operation of a Restaurant, Developer's development obligation
in the Initial
or Subsequent
Development
Period in which such transfer or other
cessation of
operations
occurred
shall
increase,
subject to the
general
limitations
on
Developer's development obligations set forth in Section 2 and
Section 3, by the
number of
Restaurants
which
Developer
so
transferred,
disposed of or which
otherwise ceased to operate.
3.5
Franchisor
represents
that it is the sole owner of the service
mark
Applebee's
Neighborhood
Grill & Bar.
If
Franchisor
determines
that a third
person
has rights
under the law of any state
with
respect to such mark which
precludes
Developer from fulfilling any portion of its development
obligations
pursuant to this
Agreement,
Franchisor and Developer
shall
negotiate in good
faith for a revision of those
development
obligations,
a redefinition
of the
Territory, or such other modifications of this Agreement as may be
reasonable in
the circumstances.
3.6 Notwithstanding
the foregoing
Subsection 3.2 and in addition thereto,
Franchisor shall further divide those counties identified as Small
Town Counties
and Other Counties ("STC") and provide for the development of such
counties.
(a) Franchisor
shall request
Developer to commit to develop and open
for operation pursuant to a pre-determined
development schedule the number
of
Restaurants
utilizing
a
Small
Town
Restaurant
prototype
("STC
Restaurant") and in the specified counties set forth on the written
request
tendered to
Developer by
Franchisor
(the "STC
Notice").
The STC Notice
provided Developer will further reflect the proposed
development
schedule
for all such STC Restaurants. Within 30 days of Developer's receipt
of such
STC
Notice,
Developer
shall
indicate
in writing
whether it desires to
develop
an STC
Restaurant
in all or a portion
of the
counties
listed.
Thereafter,
the development
schedule
suggested in the STC Notice will be
adjusted by the Franchisor, using the same pace of development as
set forth
in Subsection 3.2(c) and Subsection
3.2(d).
With respect to this process,
the
Franchisor and Developer
will review the
development
feasibility of
each county listed in the STC Notice,
giving appropriate
consideration to
such
factors
as
liquor
license
availability,
proximity
to
existing
Restaurants, the presence or absence of competitive concepts and
other such
matters as
Franchisor
deems
appropriate.
Any counties
removed from the
purview of the STC Notice by such negotiations will be returned to
the pool
of unused
counties
for
possible
future
development.
At or before
the
conclusion
of the 30-day
notice
period,
unless
otherwise
extended
in
writing, Developer shall:
(i)
Signify its agreement to develop in accordance
with the
STC Notice in all of the listed
counties and in accordance
with
the proposed
development
schedule included with the revised STC
Notice and as a result,
Developer's
exclusive
right to develop
Restaurants
in
the
Territory
as
previously
granted
remains
unaffected;
(ii)
Signify its agreement to develop an STC Restaurant in a
portion of the STC Notice listed counties,
and in such an event,
Developer
shall no longer
have the
exclusive
right to develop
Restaurants
in the counties in which it chose
E-10
2004
not to
develop
the STC
Restaurant
and will be
subject to the
terms set forth in subparagraph (c) below; or
(iii)
Reject the
development of an STC Restaurant in all of
the STC Notice listed counties,
and in such an event,
Developer
shall no longer have the exclusive
right to develop
Restaurants
in the
counties
listed
in the
final
STC
Notice
and will be
subject to the terms of subparagraph (c) below; or
(iv)
Seek
mediation of the
inclusion of one or more of the
counties in the STC Notice with the National Franchise
Mediation
Board in accordance with Subsection 3.6(b); or
(v)
Fail to respond in writing to the STC
Notice,
in which
event the Developer
will no longer have the
exclusive
right to
develop
Restaurants
in the counties set forth in the STC Notice
and will be subject to the terms of subparagraph (c) below.
(b) In the event the
Developer
contests the STC Notice as referenced
in subsection
3.6(a)(iv) above,
such disagreement
shall be submitted for
mediation
to the
National
Franchise
Mediation
Board,
which
shall
be
comprised
of
two
(2)
individuals
appointed
by
Franchisor,
two
(2)
individuals
appointed
by the
Franchise
Business
Council
and
one
(1)
individual chosen by the foregoing four (4) individuals, in
accordance with
the following:
(i)
Developer
will deposit with
Franchisor at the time of
the filing of its written demand for mediation an amount equal to
$35,000
times the number of counties
about which
Developer
is
contesting
development.
Notwithstanding
the
foregoing,
in no
event shall less than $35,000 be so deposited.
If the deposit is
not so timely made, then in such an event, the Developer shall be
deemed to have waived its right to request mediation and further,
deemed
to
have
elected
alternative
(v)
as
set
forth
in
subparagraph 3.6(a).
(ii)
The NFMB
will
determine
in its sole
discretion
the
procedure,
time
limits
and
additional
filing
and
responses
required with respect to the mediation. However, it is understood
and agreed by all
parties
that the
mediation
is
intended
to
provide a more expeditious
resolution of the matter submitted to
the NFMB.
(iii)
The mediation decision to be rendered by the NFMB will
be binding upon all parties to the mediation.
(iv)
The party for whom a
favorable
decision
is
rendered
shall
receive
from
the
other
party
reimbursement
for
all
out-of-pocket
costs and
expenses,
including
attorneys'
fees,
incurred with respect to the mediation which are determined to be
reasonable by the NFMB.
(v)
At the conclusion of the mediation, the NFMB shall issue
its decision
E-11
2004
either
supporting
Developer and indicating that the county(ies)
to which the
Developer
objected
shall be removed
from the STC
Notice
and
returned
to the
pool
of
unused
county(ies),
or
conversely,
supporting
Franchisor
and
indicating
that
the
county(ies)
about
which an
objection
was raised
should be so
included in the STC Notice and therefore an STC Restaurant should
be developed therein.
(vi)
If the
decision of the NFMB
supports
the
Developer,
then in such an event, the Developer shall maintain its exclusive
right to the
county(ies)
in
question,
and shall
continue
to
maintain its right to develop therein in the future. In addition,
the amount deposited by Developer shall be refunded to Developer.
(vii)
If the decision of the NFMB
supports the
Franchisor,
then in
such an
event,
the
Developer
shall
be
required
to
construct
the STC
Restaurant
in the
county(ies)
in question,
pursuant to the development schedule originally listed in the STC
Notice.
The
funds
previously
deposited
by
Developer
with
Franchisor
shall be applied to the Franchise Fee due for each of
said
units at the rate of $35,000
per each
unit.
In the event
Developer
fails to develop some or all of the STC Restaurants in
the
county(ies)
here in question,
any unused
deposit shall be
forfeited and further,
the Developer's
exclusive
rights to the
county(ies) in which no development
occurred shall be terminated
and
not
subject
to
any
first
right
of
refusal
rights,
notwithstanding anything herein to the contrary.
(c) Except as otherwise provided in subparagraph 3.6(b) hereof, in
the
event that the Developer,
after receiving its STC Notice, falls within the
purview of subsections
3.6(a)(ii),
(iii), or (v) above,
the counties for
which the
Developer
rejected
the
right to
develop
an STC
Restaurant,
Franchisor
may in its
discretion
seek another
franchisee to develop the
rejected
counties or develop STC Restaurants in those counties on its own.
Upon the
identification
of a
bona fide
prospective
franchisee for those
counties or upon the determination by Franchisor that it will
develop those
counties,
Franchisor shall provide Developer with a written first right of
refusal
notice
("FROR
Notice"),
which
FROR
Notice
will set forth the
counties in question and the schedule of development.
Developer shall have
30 days
within
which to
respond
to such FROR
Notice in
writing.
Such
response shall be solely to accept or reject in whole its right of
refusal.
No partial acceptances will be honored by the Franchisor.
In the event the
Developer
fails to respond or
responds
and
indicates
its desire not to
develop the counties listed,
then
Developer's
exclusive right to develop
such counties shall no longer be valid and
exclusivity
rights
previously
granted in the
Development
Agreement as to those
counties shall be of no
further effect, and in such an event the Franchisor may grant a
third party
prospective
franchisee
the
right to
develop
STC
Restaurants
in those
counties
or
develop
STC
Restaurants
itself,
without
regard
to
the
Developer.
Conversely,
if the
Developer
responds
to the FROR Notice in
writing and
indicates
its desire to build the STC
Restaurants
listed in
compliance
with the
schedule
set forth,
and at the same time
tenders a
non-refundable deposit in the amount of $35,000 for each of the
Restaurants
to be developed in the counties
listed in the FROR Notice,
the
Developer
shall
have the right to
E-12
2004
develop said STC
Restaurants
and shall further retain the exclusive right
to develop Restaurants in the counties so listed.
(d) As to the other counties
unallocated
under the foregoing process
set forth in
subsection
(c) above,
Franchisor
may issue future
notices
regarding development of the same STC Restaurants for use in some
or all of
the
counties.
Further,
Franchisor
may
create
other
new
small
town
prototypes using the System developed for the Restaurants, which
extend the
brand name but which would more
likely be
adaptable
to the
demographics
shown for some or all of the other counties which have not been
identified
for
development
under the preceding
sentence or under
subparagraph
(b)
above.
As each such release
(which may be in one or more
increments)
is
developed by the Franchisor, the same procedures set forth in
subparagraphs
(a) and (b) above shall apply.
(e) The
development
and
opening
of an STC
Restaurant
in a listed
county will not apply to or substitute for the
development
required under
Section 2.1 hereof.
However,
in the event
Developer fails to develop and
open the Restaurants called for under Section 3.6(a) hereof
pursuant to the
schedule established by Franchisor,
such default in development shall only
affect the Developer's right to open and operate in the counties so
listed.
If Developer
fails to open one or more of the STC Restaurants in the total
aggregate
time
period set forth in the
schedule,
then in such an event,
Developer
shall
lose its
rights to develop
any STC
Restaurants
in the
counties
listed in the STC Notice or the FROR
Notice (as the case may be)
wherein no Restaurant is in operation and further, the exclusivity
provided
by this
Development
Agreement shall be of no further force or effect with
respect
to those
counties
listed
in said
Notice
(but
only as to said
affected
counties) and Franchisor may grant development
rights to a third
party or develop said counties
itself.
It is
understood
that the 60-day
period provided for in Section 2.3 of the Development Agreement
shall apply
to all of the Restaurants to be developed under this paragraph.
4.
FRANCHISE FEE AND ROYALTY RATE
4.1 Developer shall pay Franchisor a franchise fee of
$_____________
with
respect to each Restaurant which is developed
pursuant to this Agreement during
the Initial Development
Periods.
Thereafter,
Developer shall pay Franchisor a
franchise
fee in an amount
which is equal to the amount of the
franchise
fee
then in effect at the time of the issuance of the
franchise
agreement for each
additional restaurant to be opened during any Subsequent
Development Period. The
amount
of the
franchise
fee
shall
be set
forth in the
franchise
offering
circular
received by the Developer from
Franchisor
immediately
preceding the
issuance of such franchise agreement.
Simultaneously with the execution of this
Agreement,
Developer shall pay to Franchisor, by certified check, the amount
of
$__________ ("Franchise Fee Deposit"). Said Franchise Fee Deposit
shall be equal
to the
greater
of (a)
the
franchise
fee for
one of the
Restaurants
to be
developed during the Initial
Development
Periods,
or (b) ten percent (10%) of
the entire
franchise
fees
covering
the
_________
(___)
Restaurants
to be
developed
during the first three¹ (3) Initial
Development
Periods pursuant to
this
Agreement
(as reduced by a credit of
_______________________________
¹ In the
event
there
are more or less
than
three
(3)
Initial
Development
Periods,
these fees are payable for each of the Restaurants provided for in
the
applicable total number of Initial Development Periods.
E-13
2004
$6,000 based on
Developer's
prior
payment,
if so paid,
of a
non-refundable
$6,000 application fee). The remaining balance of the franchise
fees for each of
the Restaurants to be developed during the three (3) Initial
Development Periods
shall be paid by certified check as follows: one-half (1/2) of the
balance shall
be paid upon signing a franchise agreement for that Restaurant and
the remaining
balance shall be paid
fourteen (14) days prior to the scheduled
opening of the
Restaurant.
The Franchise Fee Deposit shall be proportionately allocated to the
franchise
fee due with
respect to each
Restaurant
to which it
applies.
The
franchise
fee
with
respect
to
each
Restaurant
to be
developed
during
a
Subsequent
Development
Period or with
respect to any
additional
Restaurants
developed
during the Initial
Development
Periods
shall be paid by
certified
check in the same manner.
4.2 Except as provided in this Subsection 4.2 and in Subsection
19.1 of the
form of franchise
agreement
which is attached
hereto as Appendix B, Developer
shall have no right to recover from Franchisor,
directly or indirectly,
any of
the
franchise
fees which are prepaid
pursuant to
Subsection
4.1 hereof.
If
Developer's
failure to develop the total
number of
Restaurants
specified
in
Subsection
2.1 of this
Agreement is the result of the assertion of rights by a
third party as described in Subsection 3.5 hereof,
those prepaid franchise fees
which relate to the
Restaurants
which cannot be so developed shall be refunded
to Developer in cash.
4.3 As partial
consideration for the rights granted to Developer
pursuant
to the franchise
agreements
covering the Restaurants which Developer
develops
hereunder,
Developer (as franchisee under each such franchise
agreement) shall
pay Franchisor a monthly royalty fee as determined by Franchisor.
Until January
1, 2020,
the monthly
royalty fee shall not exceed
four
percent
(4%) of each
calendar
month's
gross sales (as that term is defined in the form of franchise
agreement
which is attached
hereto as
Appendix
B).
Thereafter,
the monthly
royalty fee shall be as determined by Franchisor.
4.4
Pursuant
to
its
obligations
hereunder
and
under
the
applicable
franchise
agreements,
Franchisor will make various
expenditures in connection
with the
development of prospective
Restaurant
sites by Developer,
including
expenditures
for
travel,
lodging,
meals,
obtaining
of
information
about
prospective sites, demographic
information,
traffic counts, and inquiries into
local laws and
ordinances.
Developer
shall
promptly
notify
Franchisor of a
decision to cease
development
of a prospective
Restaurant
site. In the event
that
Developer
fails to open a
restaurant
at any such
site,
in lieu of the
payment of the
franchise fee therefor,
Franchisor in its sole
discretion
may
require
Developer to reimburse
Franchisor for Franchisor's
expenditures
with
respect to that site. In such event,
Franchisor shall provide Developer with an
itemized
list of
Franchisor's
expenditures
with
respect to that site within
thirty (30) business days after
Franchisor
receives
notice that
Developer no
longer
intends
to
develop a
Restaurant
at that site,
and
Developer
shall
reimburse Franchisor for such costs within thirty (30) days after
receiving such
list.
5.
SITE APPROVALS: PLANS AND SPECIFICATIONS
5.1 Developer assumes all cost,
liability,
expense and responsibility for
locating,
obtaining,
financing and developing sites for
Restaurants,
and for
constructing and equipping Restaurants at such sites. To assist
Developer in the
site
selection
process,
Franchisor
will
provide
Developer
with
certain
demographic
information
regarding the site, will conduct an
E-14
2004
on-site
inspection and will review any lease or contract under
negotiation for
the prospective site, such services to be provided to Developer at
no additional
cost. The development of a Restaurant at any site must be approved
by Franchisor
in accordance with its then-existing site approval procedure. In
connection with
a request for
approval of a proposed
site for a
Restaurant,
Developer
shall
provide a related contract of sale or lease agreement and such
other information
and material as the Franchisor may reasonably require.
Franchisor's approval of
a prospective
Restaurant
site shall not be unreasonably
withheld.
Franchisor
shall
notify
Developer
whether it
approves a proposed
site and the
related
contract
of sale
or
lease
agreement
within
thirty
(30)
business
days of
receiving
Developer's request for approval.
Failure of Franchisor to so notify
Developer
within such thirty (30)
business day period shall be deemed to be an
approval
of such
site and the
related
contract
of sale or lease
agreement.
Developer
acknowledges that
Franchisor's
approval of a prospective site for a
Restaurant
does not
constitute
a
representation,
promise
or
guarantee
by
Franchisor
that a
Restaurant
operated
at that
site
will be
profitable
or
otherwise
successful.
Developer
shall not make any
binding
commitment
to a
prospective
vendor
or
lessor
of real
estate
with
respect
to a site for a
Restaurant
unless
Franchisor
has
approved
that
site
in
accordance
with
Franchisor's
then-existing
site
approval
procedure.
After
Franchisor
has
approved a site for a Restaurant, Developer shall provide
Franchisor with a copy
of the executed
contract of sale or lease, as applicable,
relating to the site
within a reasonable period of time.
5.2
For
each
Restaurant
which
Developer
develops
pursuant
to
this
Agreement,
Franchisor
will
make
available
to
Developer
Franchisor's
specifications for a typical Restaurant. Developer will obtain
architectural and
engineering services independently and at its own expense.
Franchisor shall have
the
right to review
all such
architectural
and/or
engineering
plans
which
Developer
obtains
and to
prohibit
the
implementation
of any plan,
or part
thereof, which Franchisor, in its sole and absolute discretion,
believes is not
consistent
with the best interests of the System.
In the event that Franchisor
desires
to
prohibit
the
implementation
of any such plan,
or part
thereof,
Franchisor
shall so
notify
Developer
within
thirty
(30)
business
days of
receiving such
architectural
and/or
engineering plans for review.
Failure of
Franchisor
to so notify
Developer
within such thirty (30) business day period
shall be deemed to be an approval of such plans.
In the event
Franchisor
does
object to any such plan,
Franchisor
shall provide
Developer with a reasonable
detailed list of changes
necessary to make such plans acceptable to Franchisor.
Franchisor
shall,
upon
resubmission
of such
plans,
with
such
changes
as
Developer has prepared,
notify
Developer
within fifteen (15) business days of
receiving such plans whether they are acceptable. Failure to so
notify Developer
within such fifteen
(15)
business day period shall be deemed to be an approval
of such amended plans.
5.3 If Developer
acquires a leasehold
interest in a site,
that leasehold
interest
shall be for a term
which is at least as long as the term of the form
of
franchise
agreement
which is attached
hereto as Appendix B, and the lease
shall provide that if the applicable
franchise agreement is terminated prior to
the expiration of that term for whatever reason,
Developer may assign the lease
to Franchisor
without the lessor having any right to impose
conditions on such
assignment or to obtain any payment in connection therewith.
E-15
2004
6.
FEES AND FRANCHISE AGREEMENTS
Not later
than
ninety
(90) days
prior to the
scheduled
opening of any
Restaurant which has been developed pursuant to this Agreement,
Developer shall
deliver to Franchisor an executed franchise agreement
substantially in the form
which is attached
hereto as Appendix B, provided,
however,
that the franchise
agreement which Developer
executes shall require the payment of a franchise fee
in the
amount
described
in
Subsection
4.1,
royalty
fees as
described
in
Subsection
4.3,
and
advertising
payments
at the rates then
established
by
Franchisor with respect to new
Restaurants,
except that in no event shall such
rates
exceed five
percent
(5%) of a
Restaurant's
gross sales (as defined in
Subsection 9.3 of the form of a franchise
agreement which is attached hereto as
Appendix B).
7.
DEVELOPER ORGANIZATION, AUTHORITY, FINANCIAL
CONDITION AND SHAREHOLDERS
7.1 Developer and each
Principal
Shareholder
represent and warrant that:
(a) Developer is a corporation duly
incorporated,
validly existing and in good
standing under the laws of the state of its incorporation; (b)
Developer is duly
qualified
and is authorized to do business and is in good standing as a
foreign
corporation in each jurisdiction in which its business
activities or the nature
of the properties owned by it requires such qualification; (c) the
execution and
delivery of this Agreement and the transactions
contemplated
hereby are within
Developer's
corporate
power;
(d) the execution and delivery of this Agreement
have been duly
authorized by the Developer;
(e) the articles of
incorporation
and by-laws of Developer delivered to Franchisor are true, complete
and correct,
and there have been no changes therein since the date thereof; (f)
the certified
copies of the minutes
electing the officers of Developer
and
authorizing
the
execution
and delivery of this
Agreement are true,
correct and complete,
and
there have been no changes therein since the date(s)
thereof;
(g) the specimen
stock
certificate
delivered to Franchisor
is a true
specimen of
Developer's
stock
certificate;
(h) the
financial
statement
of Developer
and
financial
statements of its Principal
Shareholders,
heretofore
delivered to Franchisor,
are true,
complete and correct,
and fairly present the financial
positions of
Developer and each Principal Shareholder,
respectively, as of the date thereof;
(i) such financial
statements
have been prepared in accordance
with generally
accepted
accounting
principles;
and (j) there have been no materially a
