EXHIBIT 10.1
STANDARD FORM
APPLEBEE'S NEIGHBORHOOD GRILL & BAR
DEVELOPMENT AGREEMENT
------------------------
(Name of Developer)
------------------------
(Date)
-------------------------
(General Description of Territory)
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TABLE OF CONTENTS
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RECITALS.............................................................................................
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1.
GRANT OF
DEVELOPMENT
RIGHTS.................................................................
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2. INITIAL DEVELOPMENT
SCHEDULE................................................................
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3.
SUBSEQUENT
DEVELOPMENT SCHEDULE;
DEVELOPMENT OBLIGATIONS
GENERALLY...........................................................
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4.
FRANCHISE FEE
AND ROYALTY
RATE..............................................................
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5.
SITE APPROVALS:
PLANS AND
SPECIFICATIONS...................................................
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6.
FEES AND
FRANCHISE
AGREEMENTS...............................................................
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7.
DEVELOPER
ORGANIZATION, AUTHORITY,
FINANCIAL CONDITION AND
SHAREHOLDERS........................................................
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8.
TRANSFER....................................................................................
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9.
TERMINATION.................................................................................
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10.
PREREQUISITES TO
OBTAINING FRANCHISES
FOR INDIVIDUAL RESTAURANT
UNITS.............................................................
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11.
RESTRICTIONS................................................................................
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12.
DEVELOPMENT
PROCEDURES......................................................................
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13.
NO WAIVER OF
DEFAULT........................................................................
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14.
FORCE
MAJEURE...............................................................................
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15.
CONSTRUCTION,
SEVERABILITY, GOVERNING
LAW AND
JURISDICTION........................................................................
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16.
MISCELLANEOUS...............................................................................
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APPENDIX A:
TERRITORY....................................................................
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APPENDIX B:
FORM OF FRANCHISE
AGREEMENT..................................................
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APPENDIX C:
STATEMENT OF OWNERSHIP
INTERESTS............................................. E-34
APPENDIX D:
REVIEW AND CONSENT WITH RESPECT
TO
TRANSFERS.................................................................
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APPENDIX E:
CONFIDENTIALITY AGREEMENT AND
COVENANT NOT TO
COMPETE......................................................
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APPENDIX F:
CONFIDENTIALITY
AGREEMENT....................................................
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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
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obligation to maintain
and enhance the goodwill and public acceptance of the
System (and of Franchisor's 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:
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(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
accordance with the parameters established under Subsection
3.2, that number of additional Restaurants as is required to
achieve at the end
(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.
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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 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
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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 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,
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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.
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(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
ceases to operate
any Restaurant developed
hereunder, and (b)
after such transfer or
other cessation
of operation the
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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 not to develop the STC Restaurant and will
be subject to the terms set forth in subparagraph (c) below; or
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(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 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)
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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 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
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<PAGE>
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 three(1) (3) Initial Development Periods pursuant
to
this Agreement
(as reduced by a
credit of $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
(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.
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<PAGE>
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 for a fee,
will conduct an on-site
inspection (if deemed
necessary), and, at no
additional cost, will
review any
lease or contract under negotiation for the prospective site. 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
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<PAGE>
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.
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
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<PAGE>
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)
