STANDARD FORM APPLEBEE'S NEIGHBORHOOD GRILL & BAR DEVELOPMENT AGREEMENTDevelopment Agreement |
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STANDARD FORM
APPLEBEE'S NEIGHBORHOOD GRILL & BAR
DEVELOPMENT AGREEMENT
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(Name of Developer)
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(Date)
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(General Description of Territory)
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TABLE OF CONTENTS
RECITALS................................................................. E-3
1. GRANT OF DEVELOPMENT RIGHTS....................................... E-4
2. INITIAL DEVELOPMENT SCHEDULE...................................... E-5
3. SUBSEQUENT DEVELOPMENT SCHEDULE;
DEVELOPMENT OBLIGATIONS GENERALLY................................. E-6
4. FRANCHISE FEE AND ROYALTY RATE.................................... E-13
5. SITE APPROVALS: PLANS AND SPECIFICATIONS......................... E-15
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
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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
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.
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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.
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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:
(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.
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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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 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").
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(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
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, 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.
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(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.
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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
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;