FORM OF FRANCHISE AGREEMENT

Franchise Agreement

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APPLEBEE'S INTERNATIONAL, INC

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Title: FORM OF FRANCHISE AGREEMENT
Date: 3/12/2004
Industry: Restaurants Sector: Services

FORM OF FRANCHISE AGREEMENT, Parties: applebee's international inc

STANDARD FORM

APPLEBEE'S NEIGHBORHOOD GRILL & BAR

FRANCHISE AGREEMENT

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(Location Address)

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(Franchisee Name)

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(Date)

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TABLE OF CONTENTS

RECITALS................................................................. 3

1. FRANCHISE GRANT AND TERM........................................ 4

2. UNIFORM STANDARDS............................................... 5

3. COMPLIANCE WITH THE SYSTEM...................................... 6

4. GENERAL SERVICES OF FRANCHISOR.................................. 6

5. RESTAURANT SYSTEM AND PROCEDURES................................ 7

6. TRAINING........................................................ 10

7. RESTAURANT MAINTENANCE.......................................... 10

8. ADVERTISING..................................................... 11

9. FEES............................................................ 13

10. RECORD KEEPING.................................................. 15

11. FRANCHISEE ORGANIZATION, AUTHORITY,

FINANCIAL CONDITION AND SHAREHOLDERS............................ 15

12. TRANSFER........................................................ 18

13. CONFIDENTIALITY; RESTRICTIONS................................... 21

14. INSPECTIONS..................................................... 23

15. RELATIONSHIP OF PARTIES AND INDEMNIFICATION..................... 24

16. INSURANCE....................................................... 26

17. DEBTS AND TAXES................................................. 28

18. TRADE NAMES, SERVICE MARKS AND TRADEMARKS....................... 28

19. EXPIRATION AND TERMINATION; OPTION TO

PURCHASE RESTAURANT; ATTORNEYS' FEES............................ 30

20. NO WAIVER OF DEFAULT............................................ 35

21. CONSTRUCTION, SEVERABILITY,

GOVERNING LAW AND JURISDICTION.................................. 35

22. INTERFERENCE WITH EMPLOYMENT RELATIONS.......................... 36

23. LIQUOR LICENSE.................................................. 37

24. FORCE MAJEURE................................................... 37

25. MISCELLANEOUS................................................... 38

26. ACKNOWLEDGMENTS................................................. 39

EXHIBIT 1: ROYALTY FEE................................................ 41

APPENDIX A: STATEMENT OF OWNERSHIP INTERESTS........................... 42

APPENDIX B: REVIEW AND CONSENT WITH

RESPECT TO TRANSFERS....................................... 43

APPENDIX C: CONFIDENTIALITY AGREEMENT.................................. 44

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APPLEBEE'S NEIGHBORHOOD GRILL & BAR

FRANCHISE 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])

("FRANCHISEE") and --------------------------------------

______________________________ (collectively, the "PRINCIPAL SHAREHOLDERS" and,

individually, a "PRINCIPAL SHAREHOLDER" of Franchisee if a corporation or

general partner if Franchisee is a limited partnership having as its general

partner a corporation) and

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("GENERAL PARTNER" of Franchisee if Franchisee is a limited partnership).*

* (If Franchisee is not a corporation or a sole proprietorship, or if

Franchisee 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 includes

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 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.

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D. Franchisor, Franchisee and the Principal Shareholders have entered into

a Development Agreement dated __________________, 20____ ("Development

Agreement"), relating to the development by Franchisee of Applebee's

Neighborhood Grill & Bar restaurants.

E. Franchisee desires to use the System in connection with the operation

of an Applebee's Neighborhood Grill & Bar restaurant at the location which is

specified in Subsection 1.1 of this Agreement, pursuant to the terms, conditions

and provisions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual obligations contained herein, it

is hereby agreed as follows:

1. FRANCHISE GRANT AND TERM

1.1 Franchisor grants Franchisee, for the term stated below, the right,

license and privilege:

(a) to use the System incident to the operation of an Applebee's

Neighborhood Grill & Bar restaurant at ____________________________________

(the "Restaurant");

(b) to use the trade names, service marks and trademarks which

Franchisor shall from time to time designate as part of the System, but only

in connection with the sale at the Restaurant of those products which

Franchisor has designated and approved; and

1.2 The term of the franchise shall commence as of the Commencement Date,

as hereinafter defined, and shall end twenty (20) years thereafter, unless this

Agreement is terminated prior to that date in accordance with its provisions.

"Commencement Date," as used herein, shall mean the date upon which the

Restaurant opens for business. The parties agree to affix to this Agreement an

addendum expressly setting forth the Commencement Date, which, when so affixed,

shall become a part of this Agreement.

1.3 At the expiration of the term hereof, Franchisee shall have an option

to operate the Restaurant for four (4) successive terms of five (5) years

(unless the franchise agreement with respect to that additional term is sooner

terminated in accordance with its provisions), provided that immediately prior

to each such five (5) year term (a) Franchisee satisfies the requirements which

Franchisor then-imposes on its new franchisees, (b) all other restaurant units

within the System which Franchisee then-operates substantially comply, in the

opinion of Franchisor, with Franchisor's then-current standards, specifications,

requirements and instructions, and (c) Franchisee executes the form of franchise

agreement which Franchisor is then using with respect to new restaurants within

the System, with the amount of royalty and advertising fees payable at the rates

then-prevailing under the franchise agreements which Franchisor is then using

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for new restaurants within the System, and Franchisee pays to Franchisor for

each of said five (5) year periods a franchise fee equal to ten percent (10%) of

the prevailing franchise fee paid by new franchisees at that time. Any franchise

agreement which Franchisee executes for such additional term will also contain

options to obtain an assignment of Franchisee's lease with a third party and/or

to purchase certain property or to purchase or lease the Restaurant premises

exercisable by Franchisor upon termination thereof and an option to purchase or

lease the Restaurant premises exercisable by Franchisor upon expiration of the

renewal term (subject to any then-existing renewal rights of Franchisee). Such

options will contain provisions substantially similar to the provisions of

Franchisor's options described in Subsection 19.4 hereof. Franchisee shall give

Franchisor written notice of its desire to exercise its option to operate the

Restaurant for an additional term no earlier than twelve (12) months, and no

later than seven (7) months, prior to expiration of the initial term. If

Franchisee gives that notice, Franchisor, in its sole discretion, reasonably

exercised, shall determine whether Franchisee has satisfied the foregoing

requirements. Within forty-five (45) days of receiving the notice described

above, Franchisor shall notify Franchisee in writing whether or not Franchisee

is eligible to exercise the option described in this Subsection.

1.4 During the period from the date of this Agreement to the expiration or

earlier termination of this Agreement, Franchisor shall not establish a

restaurant unit utilizing the System, or license another franchisee to establish

a restaurant unit utilizing the System, at any location within the lesser of a

three (3) mile radius of the Restaurant or a radius from the Restaurant which

includes either a daytime or residential population of forty thousand (40,000)

or more people. Notwithstanding the foregoing, Franchisor may establish a

restaurant unit or may license a restaurant unit to a third party within the

geographic area set forth in the preceding sentence, provided that (i) such

restaurant is located within an airport (serviced by one or more public or

charter carrier), arena, stadium, state or national park, or military fort, post

or base, (ii) is located across an international border, or (iii) does not

utilize the System or utilize the Applebee's Neighborhood Grill & Bar service

mark.

1.5 Franchisee, in consideration of the benefits and privileges provided to

it by this Agreement, agrees to operate the Restaurant and perform as required

hereunder for the full term of this Agreement.

1.6 This Agreement is entered into pursuant to and subject to the terms and

conditions which are set forth in the Development Agreement.

2. UNIFORM STANDARDS

2.1 The System is a comprehensive restaurant system for the retailing of

certain uniform and quality food and beverage products (including alcoholic

beverages), emphasizing a varied menu of high quality, moderately priced food

products (including appetizers, creative sandwiches, dinner entrees and

desserts), a selection of alcoholic and other beverages, and prompt and

courteous service in a clean, wholesome, casual atmosphere. The foundation of

the System is the establishment and maintenance of a reputation among the public

for the operation of high quality restaurant units. A fundamental requirement of

the System, this Franchise Agreement and franchises which Franchisor will grant

to others is adherence by all franchisees to Franchisor's standards and policies

providing for the uniform operation of all restaurant units within the System,

including, but not limited to, (a) selling only those products which Franchisor

has designated and approved, (b) using only Franchisor's prescribed building

layout and designs, equipment, signs, interior and exterior decor items,

fixtures and furnishings, (c) adhering strictly to Franchisor's standards and

specifications relating to the selection, purchase, storage, preparation,

packaging, service and sale of all food and beverage products being sold at the

Restaurant, and (d) satisfying all of Franchisor's prescribed standards of

quality, service and cleanliness. Compliance by all franchisees with the

foregoing standards and policies in conjunction with the use of Franchisor's

trade names, service marks and trademarks provides the basis for the wide public

acceptance of the System and its valuable goodwill. Accordingly, strict

adherence by all franchisees to all aspects of the System is required at all

times.

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2.2 The provisions of the Agreement shall be interpreted to give effect to

the intent of the parties stated in this Section 2 to assure that Franchisee

shall operate the Restaurant in conformity with the System, through strict

adherence to Franchisor's standards and policies as they now exist and as they

may be modified from time to time.

3. COMPLIANCE WITH THE SYSTEM

Franchisee acknowledges that every component of the System is important to

Franchisor, to all franchisees and to the operation of the Restaurant, including

the requirements (a) that only those products designated and approved by the

Franchisor are sold at the Restaurant, and (b) that there is uniformity of food

and beverage specifications, preparation methods, quality, appearance, building

and interior design, color and decor, landscaping, facilities and service among

all restaurant units in the System. Accordingly, Franchisee agrees to and shall

comply with all aspects of the System (as it now exists and as it may be

modified from time to time). Franchisee recognizes and agrees that Franchisor

may prohibit the use of the System and its trade names, notwithstanding the

granting of this Agreement, if Franchisee fails to design, construct, equip or

furnish its Restaurant in compliance with the specifications designated by

Franchisor, unless prior written approval has been received from Franchisor.

4. GENERAL SERVICES OF FRANCHISOR

4.1 Franchisor shall advise and consult with Franchisee periodically in

connection with the operation of the Restaurant, and at other reasonable times

upon Franchisee's request. Franchisor will provide to Franchisee such of its

know-how, new developments, techniques and improvements in areas of restaurant

design, management, food and beverage preparation, sales promotion and service

concepts as may be pertinent to the construction and operation of the Restaurant

under the System. Franchisor may provide the foregoing information (a) by

sending representatives to visit the Restaurant, (b) by providing written or

other material, (c) at meetings or seminars, and (d) at training sessions at

Franchisor's training facility and/or such other locations as may be selected by

Franchisor from time to time. Franchisor also shall make available to Franchisee

all additional services, facilities, rights and privileges which Franchisor

makes available from time to time to its franchisees of the System generally.

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4.2 For approximately eight (8) days prior to the opening of the Restaurant

and the first six (6) days that the Restaurant is open for business, Franchisor

shall provide Franchisee, at Franchisor's expense, with the services of up to a

maximum of six (6) of Franchisor's training personnel to facilitate proper

operation of the kitchen, bar and dining room areas during that period and to

assist in correcting any operational problems which may arise.

4.3 From time to time during the term of this Agreement, Franchisor will

develop and test new menu items. The menu consists of approved national food and

beverage selections. Franchisee shall comply with all menu changes which

generally occur every six (6) months. The menu may be modified to reflect food

and beverage items peculiar to Franchisee's local area, subject to Franchisor's

testing and approval.

5. RESTAURANT SYSTEM AND PROCEDURES

5.1 Franchisor shall furnish Franchisee with advice and assistance in

managing and operating the Restaurant, and Franchisor's representatives will

visit the Restaurant periodically. Franchisor will assist Franchisee in

coordinating the Restaurant's pre-opening activities, and as noted more

particularly in Subsection 4.2 hereof, shall provide Franchisee with the

services of certain of Franchisor's personnel to facilitate proper operation of

the Restaurant when it opens for business.

5.2 Franchisee shall designate an employee who will supervise the

Restaurant, and devote his or her full time, best efforts and constant personal

attention to the day-to-day operation of the Restaurant (the "General Manager").

Franchisee also shall designate an employee who will supervise the Restaurant

kitchen, and devote his or her full time, best efforts and constant personal

attention to the day-to-day operation of the Restaurant kitchen (the "Kitchen

Manager").

5.3 Franchisee shall require that the General Manager, the Kitchen Manager

and each of Franchisee's employees who serve as Restaurant managers to maintain

his or her principal personal residence within a usual driving time of not more

than approximately one (1) hour from the Restaurant. Franchisor reserves the

right to require that, as a condition of his or her employment, the General

Manager must successfully complete Franchisor's interview process and a

psychological profile test in a manner which satisfies a uniform standard

established by Franchisor. The test shall be administered by Franchisor, or by a

testing agency designated by Franchisor, at Franchisee's expense.

5.4 Unless Franchisor shall have given its prior written approval,

Franchisee shall keep the Restaurant open for business only during the hours

which are specified by Franchisor in the Franchise Operations Manual or in such

other materials or manuals provided or made available by Franchisor to

Franchisee (collectively the "Manuals"), provided that such hours do not

conflict with state laws or local ordinances relating to the sale of alcoholic

beverages or governing the hours during which restaurant establishments may be

open for business. In addition, Franchisee expressly agrees to:

(a) operate the Restaurant in a clean, safe and orderly manner,

providing courteous, first-class service to the public;

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(b) diligently promote and make every reasonable effort to increase

the business of the Restaurant;

Franchisor's trade names, service marks and trademarks and such other

insignia, slogans, emblems, symbols, designs and other identifying

characteristics as may be developed or established from time to time by

Franchisor and included in the Manuals, subject to the limitations of

Subsections 8.4 and 8.5 hereof;

(d) prohibit and, to the best of Franchisee's ability, prevent the use

of the Restaurant for any immoral or illegal purpose, or for any other

purpose, business activity, use of function which is not expressly

authorized hereunder or in the Manuals; and

(e) comply fully with all applicable laws and regulations, including,

but not limited to, those relating to building construction, maintenance and

safety, environmental, fire prevention, food safety, public access and the

sale of alcoholic beverages.

5.5 Franchisee hereby acknowledges receipt and loan of a copy of the

Manuals heretofore or hereinafter furnished to Franchisee, and agrees to

faithfully, completely and continuously perform, fulfill, observe and follow

all instructions, requirements, standards, specifications, systems and

procedures contained therein, including (a) those relating to the construction,

design, decor, building and equipping of the Restaurant, (b) those relating to

the selection, purchase, storage, preparation, packaging, service and sale of

all products being sold at the Restaurant, (c) those relating to the maintenance

and repair of Restaurant building, grounds, equipment, signs, interior and

exterior decor items, fixtures and furnishings, and (d) those relating to

employee uniforms and dress, accounting, bookkeeping, record retention, and

other business systems, procedures and operations. The Manuals are incorporated

herein by reference and hereby made part of this Agreement. Franchisee

acknowledges and agrees that the materials contained in the Manuals are

integral, necessary and material elements of the System.

5.6 Franchisee understands, acknowledges and agrees that strict conformity

with the System, including the standards, specifications, systems, procedures,

requirements and instructions contained in this Agreement and in the Manuals, is

vitally important, not only to the success of Franchisor, but to the collective

success of all of Franchisor's other franchisees, by reason of the benefits

which Franchisor and all of its franchisees will derive from uniformity in

products sold, identity, quality, appearance, facilities and service among all

restaurant units which are part of the System. Without limiting the generality

of the foregoing provisions, Franchisee agrees to adhere strictly to the

requirements in the Manuals relating (a) to the construction, design, decor,

building and equipping of the Restaurant, (b) to the maximum permissible ratio

of sales of alcoholic beverages to sales of food at the Restaurant, and (c) to

the limitations on the number of video games or similar devices which may be

placed on the Restaurant premises. Any failure to adhere to the standards,

specifications, systems, requirements or instructions contained in this

Agreement or in the Manuals shall constitute a material breach of this

Agreement.

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5.7 Franchisor shall have the right, at any time and from time to time, in

the good faith exercise of its reasonable business judgment, consistent with the

overall best interests of the System generally, having due regard for the

financial burden which may be placed upon its franchisees, to revise, amend,

delete from and add to the System and the material contained in the Manuals.

Franchisee expressly agrees to comply with all such revisions, amendments,

deletions and additions.

5.8 Franchisee shall offer for sale from the Restaurant, at all times when

the Restaurant is open for business, only the products which are expressly

designated in the Manuals, except, as noted more particularly in Subsection 4.3,

to the extent that Franchisee has obtained Franchisor's prior written consent to

a modification of that requirement. No product shall be offered or sold at or

from the Restaurant under, or in connection with, any trademark or service mark

other than Franchisor's designated trademarks and service marks without

Franchisor's prior written consent.

5.9 Franchisee shall obtain all food and beverage products, equipments,

signs, interior and exterior decor items, fixtures, furnishings, supplies, and

other products and materials required for the operation of or sold at the

Restaurant solely from suppliers (including manufacturers, distributors and

other sources) who demonstrate, to Franchisor's continuing reasonable

satisfaction, the ability to meet Franchisor's then-current standards and

specifications for such items; who possess adequate quality controls and

capacity to supply Franchisee's needs promptly and reliably; and who have been

approved in writing by Franchisor and not thereafter disapproved. The Manuals

contain a list of approved suppliers. If Franchisee desires to purchase any

items from an unapproved supplier, Franchisee shall submit to Franchisor a

written request for such approval, which approval shall not be unreasonably

withheld, or shall request the supplier itself to do so. Franchisor shall have

the right to inspect the supplier's facilities, and to require that samples from

the supplier be delivered, at Franchisor's option, either to Franchisor or to an

independent, certified laboratory designated by Franchisor for testing.

Franchisee or the supplier shall pay the costs of any such test. Franchisor

shall notify Franchisee in writing within forty-five (45) days of receiving any

such request whether it disapproves the supplier. Failure by Franchisor to so

notify Franchisee within that period shall be deemed to constitute Franchisor's

approval of such supplier. Franchisor reserves the right, at its option, to

reinspect the facilities and retest products of any such approved supplier at

any time and to revoke its approval upon the supplier's failure to continue to

meet any of Franchisor's criteria. Notwithstanding the foregoing, any supplier

of goods having any trademark, trade name, service mark, logo or symbol owned by

Franchisor shall not be approved to supply Franchisee such goods until such

supplier has entered a written agreement with Franchisor regarding the

production, use and sale of such goods.

5.10 No food or beverage product, interior or exterior decor item, sign,

item of equipment, fixtures, furnishings or supplies, or other product or

material required for the operation of the Restaurant, which bears any of

Franchisor's trade names, service marks or trademarks, shall be used or sold in

or upon the Restaurant premises unless the same shall have been first submitted

to and approved in writing by Franchisor.

5.11 The Manuals and all related material furnished to Franchisee hereunder

are and shall remain the property of Franchisor, and must be returned to

Franchisor, along with any copies made thereof, immediately upon request or upon

the expiration or earlier termination of this Agreement.

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6. TRAINING

6.1 Franchisor shall make its operations training course available to the

General Manager, the Kitchen Manager, and Franchisee's Assistant Managers and

other Restaurant managers.

6.2 Before the Restaurant opens for business, and thereafter as replacement

personnel are employed by Franchisee, the General Manager, the Kitchen Manager

and each Assistant Manager shall attend Franchisor's operations training

facility for such period of time as Franchisor shall deem reasonably necessary,

and shall successfully complete that course to Franchisor's reasonable

satisfaction. If the General Manager, Kitchen Manager or an Assistant Manager

fails to successfully complete Franchisor's operations training course,

Franchisor may require designation of a new General Manager, Kitchen Manager or

Assistant Manager, as the case may be, and Franchisee shall designate a new

General Manager, Kitchen Manager or Assistant Manager, who shall be required to

successfully complete such training course.

6.3 The General Manager, the Kitchen Manager and each Assistant Manager

shall, from time to time as reasonably required by Franchisor, attend and

successfully complete to Franchisor's reasonable satisfaction a

Franchisor-provided refresher course in restaurant operations.

6.4 Franchisee shall be responsible for the Restaurant's compliance with

the operating standards, methods, techniques and material taught at Franchisor's

operations training course, and shall cause the employees of the Restaurant to

be trained in such standards, methods and techniques as are relevant to the

performance of their respective duties.

6.5 Attendance of the General Manager, the Kitchen Manager and each

Assistant Manager at any of Franchisor's training courses shall be tuition-free.

Franchisee shall pay all other costs and expenses relating to the attendance of

Franchisee's personnel at any of Franchisor's training courses, including,

without limitation, the cost of travel, lodging, meals, and other related and

incidental expenses.

7. RESTAURANT MAINTENANCE

7.1 Franchisee shall, at Franchisee's sole cost and expense, maintain the

Restaurant in conformity with the standards, specifications and requirements of

the System, as the same may be designated by Franchisor from time to time.

Franchisee specifically agrees to repair or replace, at Franchisee's cost and

expense, equipment, signs, interior and exterior decor items, fixtures,

furnishings, supplies, and other products and materials required for the

operation of the Restaurant as necessary or desirable, and to obtain, at

Franchisee's cost and expense, any new or additional equipment, signs, interior

and exterior decor items, fixtures, furnishings, supplies, and other products

and materials which may be reasonably required by Franchisor for new products or

procedures. Except as may be expressly provided in the Manuals, no alterations

or improvements, or changes of any kind in design, equipment, signs, interior or

exterior decor items, fixtures or furnishings shall be made in or about the

Restaurant or Restaurant premises without the prior written approval of

Franchisor in each instance.

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7.2 In order to assure the continued success of the Restaurant, Franchisee

shall, at any time from time to time after ________________, _________, (i.e.,

six [6] years after the date of this Agreement) as reasonably required by

Franchisor (taking into consideration the cost and then-remaining term of this

Agreement), modernize the Restaurant premises, equipment, signs, interior and

exterior decor items, fixtures, furnishings, supplies, and other products and

materials required for the operation of the Restaurant, to Franchisor's

then-current standards and specifications, provided that at the time Franchisor

requires Franchisee to so modernize the Restaurant premises at least twenty-five

percent (25%) of Franchisor-owned and operated Restaurants meet such standards

and specifications. Franchisee's obligations under this Subsection are in

addition to, and shall not relieve Franchisee from, any of its other obligations

under this Agreement, including those contained in the Manuals.

7.3 If Franchisee is or becomes a lessee of the Restaurant premises,

Franchisee shall have included in the lease provisions expressly permitting both

Franchisee and Franchisor to take all actions and make all alterations referred

to under Subsections 7.1 and 7.2 hereof, requiring the lessor thereunder to give

Franchisor reasonable notice of any contemplated termination, and providing that

Franchisee has the unrestricted right to 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. Franchisee shall not, without the prior

written consent of Franchisor, execute any lease or other agreement which

imposes, or purports to impose, any limitations on the ability of Franchisee

and/or of Franchisor to operate additional restaurants at any particular

location beyond the geographic limitation set forth in Section 1.4 hereof, or

any lease the term of which is shorter than the term of this Agreement.

8. ADVERTISING

8.1 Franchisor shall develop and administer advertising, public relations

and sales promotion programs designed to promote and enhance the collective

success of all restaurant units in the System. It is expressly understood,

acknowledged and agreed that in all phases of such advertising and promotion,

including, without limitation, type, quantity, timing, placement and choice of

media and medium, market areas, advertising agencies and public relations firms,

Franchisor's decisions shall be final and binding. Franchisee shall have the

right to participate actively in all such advertising, public relations and

sales promotion programs, but only in full and complete accordance with such

terms and conditions as may be established by Franchisor for each such program.

8.2 Franchisee shall pay Franchisor, in the manner described in Section 9

hereof, a minimum dollar amount equal to two and twenty-five hundredths percent

(2.25%) of Franchisee's gross sales, as defined in Subsection 9.3 hereof. Such

funds shall become the sole and absolute property of Franchisor, to be allocated

to a separate "advertising account" established by Franchisor. Franchisor shall

use such funds for market studies, advertising and marketing studies or

services, production of commercials, advertising copy and layouts, traffic

costs, agency fees, marketing personnel, or any other costs associated with the

development, marketing and testing of advertising, and for the purchase of

advertising time, space or materials in national, regional or other advertising

media, in a manner determined by Franchisor in its sole discretion. Within six

(6) months following the end of Franchisor's fiscal year, Franchisor shall

provide all franchisees with an accounting of all amounts received from them and

expended by Franchisor for the matters set forth above. In addition, Franchisee

shall expend a minimum dollar amount equal to one and one-half percent (1.5%) of

Franchisee's gross sales, for local promotional activities, subject to the

provisions of Subsections 8.4 and 8.5 hereof. Franchisor shall have the right at

all times to review Franchisee's books and records, and to require Franchisee to

produce evidence of its gross sales and local promotional activities, to ensure

Franchisee's compliance with this Section. Any amount determined by said audit

to be due Franchisor as part of the advertising fee will be paid to Franchisor

by Franchisee within ten (10) days thereafter. At any time after execution of

this Agreement, Franchisor may in its sole discretion increase, to a maximum of

four percent (4%) of gross sales, the percentage of gross sales which Franchisee

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shall be required to pay to Franchisor for allocation to a separate advertising

account pursuant to this Subsection 8.2. Franchisor shall use the funds paid

pursuant to that increased percentage requirement solely for the purchase of

advertising time, space or materials in national, regional or other advertising

media, in a manner determined by Franchisor in its sole discretion, provided

that in each calendar year (or other twelve [12] month period established by

Franchisor) in which Franchisor makes expenditures for advertising from such an

advertising account, so long as Franchisee is in compliance with its obligations

hereunder, Franchisor's expenditures for advertising in the Territory

encompassed by the Development Agreement (including expenditures for national or

regional advertising in media which reach that Territory) shall be on a basis

which is roughly proportional to Franchisee's contribution to that advertising

account during that calendar year or other twelve (12) month period. Franchisor

also may increase the percentage of gross sales which Franchisee shall be

required to spend for local promotional activities, provided however, that in no

event shall Franchisee be required to make payments pursuant to this Subsection

8.2 in a dollar amount in excess of five percent (5%) of gross sales.

8.3 Franchisee shall submit to Franchisor, for Franchisor's approval, an

advertising campaign plan relating to the promotion of the opening of the

Restaurant which is sufficient to meet the needs of the market. The Manuals

contain a Press Release kit to assist Franchisee in this regard. Franchisee

shall conduct the approved advertising campaign and make all expenditures for

advertising to promote the opening of the Restaurant no later than sixty (60)

days after the Restaurant opens for business. Franchisor will reimburse fifty

percent (50%) of Franchisee's out-of-pocket opening advertising expenditures up

to a maximum of two thousand five hundred dollars ($2,500), if Franchisee meets

the following criteria:

(a) Franchisee's opening advertising expenditures are made within

sixty (60) days after the opening of the Restaurant;

(b) Franchisee submits to Franchisor within one hundred twenty (120)

days after the opening of the Restaurant documentation for the opening

advertising expenditures, such as paid invoices from suppliers of goods or

services evidencing expenditure on the opening advertising promotion; and

the approved advertising campaign plan and in accordance with the Grand

Opening Reimbursement Program Policy Guidelines set forth in the Manuals.

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8.4 Nothing in the foregoing Subsections shall be deemed to prohibit

Franchisee from making additional expenditures for local promotional activities.

All of the Franchisee's local promotional activities shall utilize approved

advertising media. "Approved advertising media" are limited to the following:

(a) Newspapers, magazines and other such periodicals;

(b) Radio and television;

and

(d) Handbills, flyers, door-hangers and direct mail.

In the event Franchisee wants to use a form of advertising medium not set forth

above, Franchisee shall submit a description of such medium and advertising to

Franchisor. Franchisor shall notify Franchisee whether it approves the use of

such medium within thirty (30) days of Franchisee's request. Failure by

Franchisor to so notify Franchisee within that period shall be deemed to

constitute Franchisor's approval of such request. Guidelines for local

promotional activities are contained in the Manuals, including Franchisee's

required participation in any co-operative marketing program.

8.5 All advertising copy and other materials employed by Franchisee in

local promotional activities shall be in strict accordance and conformity with

the standards, formats and specimens contained in the Manuals and shall receive

the prior approval of Franchisor. In the event Franchisee wishes to deviate from

the materials contained in the Manuals, Franchisee shall submit, in each

instance, the proposed advertising copy and materials to Franchisor for approval

in advance of publication. Franchisor shall notify Franchisee in writing, within

fifteen (15) days of such submission, whether Franchisor disapproves such

advertising copy and materials. Failure by Franchisor to so notify Franchisee

within that period shall be deemed to constitute Franchisor's approval of such

advertising copy and materials. In no event shall Franchisee's advertising

contain any statement or material which may be considered (a) in bad taste or

offensive to the public or to any group of persons, (b) defamatory of any person

or an attack on any competitor, (c) to infringe upon the use, without

permission, of any other persons' trade name, trademark, service mark or

identification, or (d) inconsistent with the public image of Franchisor or of

the System.

9. FEES

9.1 As partial consideration for the rights granted hereunder, Franchisee

shall pay Franchisor:

(a) an initial franchise fee of _____________________ dollars

($__________), to be paid in the manner prescribed in Subsection 4.l of the

Development Agreement as payment for the grant of the franchise;

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(b) a monthly royalty fee as determined by Franchisor, not to exceed

five percent (5%) of each calendar month's gross sales, as provided in

Subsection 4.3 of the Development Agreement, as payment for Franchisee's

continuing right to operate the Restaurant as part of the System (see

Exhibit 1); and

calendar month's gross sales as Franchisor may require pursuant to

Subsection 8.2 hereof.

9.2 The fees referred to in Subsections 9.l(b) and (c) (the "Fees") shall

be paid by check mailed and postmarked on or before the twelfth day of the next

full month immediately following the month to which the Fees relate. Any Fees,

including the initial franchise fee, which are not paid when due shall bear

interest from and after the due dates thereof at the rate of eighteen percent

(18%) per annum or the highest rate permitted by applicable law, whichever is

less.

9.3 (a) Except for the sale of a gift certificate (on which royalty shall

be due and payable upon redemption of the gift certificate and as provided in

Subsection 9.3(b) hereof, the term "gross sales," as used in this Agreement,

shall mean all receipts (cash, cash equivalents or credit) or revenues from

sales from all business conducted upon or from the Restaurant premises, whether

evidenced by check, cash, credit, charge account, exchange or otherwise,

including, but not limited to, amounts received from the sale of goods, wares

and merchandise (including sales of food beverages and tangible property of

every kind and nature, promotional or otherwise), from all services performed

from or at the Restaurant premises, and from all orders taken or received at the

Restaurant premises, regardless of where such orders are filled. Gross sales

shall not be reduced by any deductions for cash shortages incurred in connection

with the transaction of business with customers, credit card company charges or

theft which is reimbursed by insurance or is not reported to the appropriate

police authorities. Each charge or sale upon installment or credit shall be

treated as a sale for the full price in the month during which such charge or

sale shall be first made, irrespective of the time when Franchisee shall receive

payment (whether full or partial) therefor.

(b) Gross sales shall not include: (i) the sale of merchandise for

which cash has been refunded or, except as provided in the second sentence of

Subsection 9.3(a), not received, or allowances made for merchandise, if the

sales of any such returned or exchanged merchandise shall have been previously

included in gross sales, (ii) the amount of any sales tax imposed by any

federal, state, municipal or other governmental authority directly on sales and

intended to be collected from customers, provided that the amount thereof is

added to the selling price and actually paid by the Franchisee to such

governmental authority, (iii) the sale of merchandise for which a gift

certificate is redeemed, if the initial sale of the gift certificate shall have

been previously included in gross sales, (iv) the sale of waste products of the

Restaurant, (v) telephone, game and vending machine revenues, (vi) the sale of

non-food items or beverages at a discount in connection with a promotional

campaign, (vii) one-time sale of furniture, fixtures or equipment, and (viii)

theft which is not covered by insurance and is reported to the appropriate

police authorities. In addition, Franchisor may, from time to time, in writing,

permit or allow certain other items to be excluded from gross sales. Any such

permission or allowance may be revoked or withdrawn at Franchisor's discretion.

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10. RECORD KEEPING

10.1 Franchisee shall employ a point of sale system approved by Franchisor,

without modification, in connection with the business of the Restaurant.

Franchisee shall use such bookkeeping and record keeping forms as shall be

prescribed in the Manuals.

10.2 Franchisee shall complete and submit to Franchisor, on a regular,

continuous basis, each of the following reports, in the form specified in the

Manuals:

(a) monthly Restaurant reports, on or before the twelfth day of each

calendar month following the month to which the report relates;

(b) annual Restaurant reports, on or before the fifteenth day of April

of each year; and

calendar week to which the report relates.

10.3 The annual Restaurant reports referred to above shall include a balance

sheet dated as of the end of Franchisee's fiscal year or calendar year and a

profit and loss statement for such year, together with such additional financial

information as Franchisor may reasonably request. Such balance sheet and profit

and loss statement shall be prepared in accordance with generally accepted

accounting principles, certified as correct and complete by Franchisee's chief

executive officer, president, chief financial officer or controller and reported

on and reviewed by an independent state-licensed certified public accountant. If

Franchisee fails to provide Franchisor with such balance sheet and profit and

loss statement, Franchisor shall have the right to have an independent audit

made of Franchisee's books and records, and Franchisee shall promptly reimburse

Franchisor for the cost thereof.

10.4 Each of the reports referred to in this Section 10 shall be completed

by Franchisee or its accountant in the respective specimen forms, and in

accordance with the instructions, contained in the Manuals. Subsection 10.3

notwithstanding, time is of the essence with respect to the completion and

submission of each such report.

11. FRANCHISEE ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS

11.1 Franchisee and each Principal Shareholder represent and warrant that:

(a) Franchisee is a corporation duly incorporated, validly existing and in good

standing under the laws of the State of its incorporation; (b) Franchisee 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 transaction contemplated hereby

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are within Franchisee's corporate power; (d) the execution and delivery of this

Agreement has been duly authorized by the Franchisee; (e) the articles of

incorporation and by-laws of Franchisee 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

Franchisee 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 Franchisee's stock certificate; (h) the balance sheet of

Franchisee as of ____________________, ________ ("Balance Sheet") and the

balance sheets of its Principal Shareholders as of ____________________,

________, heretofore delivered to Franchisor, are true, complete and correct,

and fairly present the financial positions of Franchisee and each Principal

Shareholder, respectively, as of the dates thereof; (i) the Balance Sheet and

each such balance sheet have been prepared in accordance with generally accepted

accounting principles; and (j) there have been no materially adverse changes in

the condition, assets or liabilities of Franchisee or Principal Shareholders

since the date or dates thereof.

11.2 Franchisee and each Principal Shareholder covenant that during the term

of this Agreement: (a) Franchisee shall do or cause to be done all things

necessary to preserve and keep in full force its corporate existence and shall

be 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; (b) Franchisee shall have the corporate authority to carry out

the terms of this Agreement; and (c) Franchisee shall print, in a conspicuous

fashion on all certificates representing shares of its stock when issued, a

legend referring to this Agreement and the restrictions on and obligations of

Franchisee and Principal Shareholders hereunder, including the restrictions on

transfer of Franchisee's shares.

11.3 In addition to the financial information which Franchisee is required

to provide to Franchisor under Subsections 10.2 and 11.1 hereof, Franchisee and

Principal Shareholders shall provide Franchisor with such other financial

information as Franchisor may reasonably request from time to time, including,

on an annual basis, copies of the then-most current financial statements of

Franchisee and each Principal Shareholder, dated as of the end of the last

preceding fiscal year of the Franchisee or Principal Shareholder, said

statements to be delivered to Franchisor no later than April 15 of each year,

which financial statements shall conform to the standards set forth in

Subsection 11.1 hereof.

11.4 Franchisee and each Principal Shareholder represent, warrant and

covenant that all Interests (as defined in Subsection 12.4 hereto) in Franchisee

are owned as set forth on Appendix A hereto, that no Interest has been pledged

or hypothecated (except in accordance with Section 12 of this Agreement), and

that no change will be made in the ownership of any such Interest other than as

permitted by this Agreement, or otherwise consented to in writing by Franchisor.

Franchisee and Principal Shareholders agree to furnish Franchisor with such

evidence as Franchisor may request, from time to time, for the purpose of

assuring Franchisor that the Interests of Franchisee and Principal Shareholders

remain as represented herein.

11.5 Each Principal Shareholder, jointly and severally, hereby personally

and unconditionally guarantees each of Franchisee's financial obligations to

Franchisor (including, but not limited to, all obligations relating to the

payment of fees by Franchisee to Franchisor). Each Principal Shareholder agrees

that Franchisor may resort to such Principal Shareholder (or any of them) for

payment of any such financial obligation, whether or not Franchisor shall have

proceeded against Franchisee, any other Principal Shareholder or any other

obligor primarily or secondarily obligated to Franchisor with respect to such

financial obligation. Each Principal Shareholder hereby expressly waives

presentment, demand, notice of dishonor, protest, and all other notices

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whatsoever with respect to Franchisor's enforcement of this guaranty. In

addition, each Principal Shareholder agrees that if the performance or

observance by Franchisee of any term or provision hereof is waived or the time

of performance thereof extended by Franchisor, or payment of any such financial

obligation is accelerated in accordance with any agreement between Franchisor

and any party liable in respect thereto or extended or renewed, in whole or in

part, all as Franchisor may determine, whether or not notice to or consent by

any Principal Shareholder or any other party liable in respect to such financial

obligations is given or obtained, such actions shall not affect or alter the

guaranty of each Principal Shareholder described in this Subsection.

11.6 Franchisee and each Principal Shareholder represent and warrant to

Franchisor that:

(a) Neither Franchisee nor any Principal Shareholder or any other

person with a direct or indirect ownership interest in Franchisee is

identified, either by name or an alias, pseudonym or nickname, on the

list of "Specially Designated Nationals and Blocked Persons" maintained

by the U.S. Treasury Department's Office of Foreign Assets Control

(texts available at www.treas.gov/offices/enforcement/ofac/). Further,

Franchisee and its Principal Shareholders represent and warrant that

neither has violated and agree that neither will violate any law (in

effect now or which may become effective in the future) prohibiting

corrupt business practices, money laundering or the aid or support of

persons or entities who conspire to commit acts of terror against any

person or government, including acts prohibited by the U.S. Patriot Act

(text available at http://www.epic.org/privacy/terrorism/hr3162.html),

U.S. Executive Order 13244 (text available at

http://treas.gov/offices/enforcement/ofac/sanctions/terrorism.html), or

similar law;

(b) Franchisee has not made, nor has any Principal Shareholder made,

any expenditures other than for lawful purposes or directly or

indirectly offered, gave, promised to give or authorized the payment or

the gift of any money, or anything of value, to any person or entity,

while knowing or having reason to know that all or a portion of such

money or thing of value would be given or promised, directly or

indirectly, to any government official, official of an international

organization, officer or employee of a foreign government or anyone

acting in an official capacity for a foreign government, for the

purpose of (1) influencing any action, inaction or decision of such

official in a manner contrary to his or her position or creating an

improper advantage; or (2) inducing such official to influence any

government or instrumentality thereof to effect or influence any act or

decision of such government or instrumentality.

entity who has any direct or indirect ownership interest is or will

become directly or indirectly owned or controlled by governmental

authorities of any country that is subject to a United States embargo;

and

Franchisee understands and its Principal Shareholders understand and have

been advised by legal counsel on the requirements of the United States Foreign

Corrupt Practices Act (currently located at

www.usdoj.gov/criminal/fraud/fcpa.html, any local foreign corrupt practices laws

and the Patriot Act (currently located at

www.epic.org/privacy/terrorism/hr3162.html, acknowledge the importance to

Franchisor and the Restaurants and the parties' relationship of their respective

compliance with the requirements of these laws, including any applicable

auditing requirements and any requirement to report or provide access to

information to Franchisor or any government, that is made part of any applicable

law, and agree to take all steps required by their consultants, agents and

employees to comply with such laws prior to engaging or employing any such

individuals or entities.

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12. TRANSFER

12.1 There shall be no Transfer of any Interest of Franchisee, or of a

Principal Shareholder in Franchisee, in whole or in part (whether voluntarily or

by operation of law), directly, indirectly or contingently, except in accordance

with the provisions of this Section 12. "Transfer" and "Interest" are defined in

Subsections 12.2, 12.3 and 12.4. Any proposed Transfer also shall be subject to

the provisions of the Development Agreement, which are incorporated herein by

reference.

12.2 Except as provided in Subsection 12.3, "Transfer" shall mean any

assignment, sale, pledge, hypothecation, gift or any other event which would

change ownership of or change or create a new Interest, including, but not

limited to:

(a) any change in the ownership of or rights in or to any shares of

stock or other equity interest in Franchisee which would result from the act

of any shareholder of Franchisee ("Shareholder"), such as a sale, exchange,

pledge or hypothecation of shares, or any interest in or rights to any of

Franchisee's profits, revenues or assets, or any such change which would

result by operation of law; and

(b) any change in the percentage interest owned by any Shareholder in

the shares of stock of Franchisee, or interests in its profits, revenues or

assets which would result from any act of Franchisee such as a sale, pledge

or hypothecation of any Restaurant assets (other than a pledge of assets to

secure bona fide loans made or credit extended in connection with

acquisition of the assets pledged, provided that immediately before and

after such transaction the net worth of Franchisee shall not be less than

the amount which is reflected on the Balance Sheet referred to in Subsection

11.1 of this Agreement); any sale or issuance of any shares of Franchisee's

stock; the retirement or redemption of any shares of Franchisee's stock; or

any sale

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