FRANCHISE DEVELOPMENT AGREEMENT

EXHIBIT 10.28

FRANCHISE DEVELOPMENT AGREEMENT

(Non-exclusive/Exclusive)

 

THIS FRANCHISE DEVELOPMENT AGREEMENT (“Agreement”) is made and entered into this              day of             , 200    , by and between EL POLLO LOCO, INC., a Delaware corporation, with its principal place of business at 3333 Michelson Drive, Suite 550, Irvine, California 92612 (referred to herein as “El Pollo Loco” or “Franchisor”) and                     , with its principal place of business at                      (“Developer”).

 

RECITALS

 

A. Franchisor owns certain proprietary and other property rights and interests in and to the “El Pollo Loco” trademark and service mark, and such other trademarks, service marks, logo types, insignias, trade dress designs and commercial symbols as Franchisor may from time to time authorize or direct Developer to use in connection with the operation of an “El Pollo Loco” Restaurant (the “El Pollo Loco Marks”). Franchisor has a distinctive plan for the operation of retail outlets for the sale of flame-broiled food items and related products, which plan includes but is not limited to the El Pollo Loco Marks and the Operations Manual (the “Manual”), policies, standards, procedures, employee uniforms, signs, menu boards and related items, and the reputation and goodwill of the El Pollo Loco chain of restaurants (collectively, the “El Pollo Loco System”).

 

B. Developer represents that it is experienced in and has independent knowledge of the nature and specifics of the restaurant business. Developer represents that in entering into this Agreement it has relied solely on its personal knowledge and has not relied on any representations of Franchisor or any of its officers, directors, employees or agents, except those representations contained in any legally required disclosure document delivered to Developer.

 

C. Developer desires to obtain development rights from Franchisor within a specified geographical area (the “Territory”) specified in Exhibit “A” attached hereto and made a part hereof.

 

D. Franchisor is willing to grant the (non-exclusive/exclusive) right to develop and open El Pollo Loco restaurants within the Territory referenced in Exhibit “A.”

 

NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, the parties hereto agree as follows:

 

1.	Development Rights in Territory.

 

1.1 Franchisor hereby grants to Developer, subject to the terms and conditions of this Agreement (if 2.8 applicable add “, and specifically Section 2.8

 

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hereof,”) and as long as Developer shall not be in default of this Agreement or any other development, franchise or other agreement between Developer and Franchisor, non-exclusive/exclusive development rights to obtain franchises to establish and operate              franchised restaurants, and to use the El Pollo Loco System solely in connection therewith, at specific locations to be designated in separate franchise agreements (the “Franchise Agreements”). (If exclusive agreement add “Developer expressly acknowledges that the exclusive rights granted herein apply only to the right to develop new restaurants in the Territory, and no exclusive territory or radius protection for the term of any franchise agreement is granted herein.”) The Franchise Agreements executed in accordance with this Agreement shall be in the form currently in use by Franchisor at the time of approval of the specific restaurant site by Franchisor.

 

1.2 Within thirty (30) days of the date of execution of this Agreement, Developer shall meet with Franchisor’s development representatives and begin preparation of a market development plan for the Territory (identifying specific key areas, key intersections and trade areas in the Territory) and all development pursuant to this Agreement shall be in accordance with this plan (the “Market Plan”). The Market Plan shall include proposed radii of areas where sites are to located, ranking and prioritization of site locations and other information customarily used by market planners in the restaurant industry. Developer shall propose the Market Plan and Franchisor shall approve or disapprove the Market Plan in its reasonable discretion within thirty (30) days thereafter. If Franchisor disapproves the Market Plan, it shall provide written comments to Developer to enable it to amend the Market Plan. In any event, the initial Market Plan shall be completed and approved by Franchisor and Developer no later than one hundred and twenty (120) days from the date of execution of this Agreement (the “Initial Planning Phase”). Developer acknowledges that no extensions of time on the Development Schedule (as defined below) shall be granted by Franchisor to Developer as a result of Developer’s failure to complete a satisfactory Market Plan with the Initial Planning Phase.

 

1.3 The parties hereto recognize that demographics, market economics, real estate values, competition and other conditions may change in the Territory over the term of this Agreement and that such changes may impact the Market Plan. Therefore, the parties agree that it is in their respective best interests to review the Market Plan periodically throughout the term of this Agreement. On the first anniversary of the approval of the initial Market Plan and at least once annually thereafter, Developer and Franchisor shall review the Market Plan and make such revisions as are required to maximize the successful development of the El Pollo Loco System in the Territory.

 

2.0	Limitation on Development Rights.

 

2.1 Developer must open to the public the number of El Pollo Loco restaurants each calendar year as required on the Development Schedule, all as set forth on Exhibit “B” attached hereto and made a part hereof.

 

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2.2 For purposes of the Development Schedule in Exhibit “B”, no credit will be given for the development of El Pollo Loco restaurants outside the Territory, regardless of the fact that Developer may, upon proper application, obtain from Franchisor an El Pollo Loco Franchise Agreement (“Franchise Agreement”) for any such development.

 

2.3 Although this Agreement affords the Developer the right to develop and open El Pollo Loco restaurants within the Territory, as set forth on Exhibit “A”, all restaurants developed under this Agreement must be duly licensed through individual Franchise Agreements. Developer will execute El Pollo Loco’s then standard Franchise Agreement in use at the time of execution for each restaurant developed under this Agreement, and agrees to pay Franchisor the current fees, royalties and other required payments in accordance with the Uniform Franchise Offering Circular then in effect. Execution of the appropriate Franchise Agreement and payment of the initial franchise fee and/or any other required fees must be accomplished prior to the commencement of construction at any site.

 

2.4 Developer must satisfy all Franchisor’s financial and operational criteria then in effect prior to El Pollo Loco’s execution of each standard Franchise Agreement issued pursuant to this Agreement. Developer shall provide Franchisor with current information pertaining to Developer’s financial condition and the financial condition of the majority and managing members/partners/shareholders of Developer at any time upon El Pollo Loco’s request and in no event less than once annually. Developer acknowledges that, among other things, it will be required to submit annual financial statements of Developer and personal financial statements of each of its principal owners and Managing Members to be eligible for financial approval by El Pollo Loco. In the event any of the majority owners of Developer shall also be the Managing Members and/or majority owners of any other entity which is a franchisee of El Pollo Loco, then each such franchisee entity must be operationally and financially approved by Franchisor before approval for expansion will be granted to any one franchisee entity. “Managing Members” shall be any individuals who are designated as the primary decision makers or general managers of the franchisee entity and those individuals who (individually or collectively) own at least 51% interest in the franchisee entity.

 

2.5 Developer shall submit a proposed site for each franchised unit to be developed under this Agreement for acceptance by Franchisor’s Real Estate Site Approval Committee (“RESAC”), together with such site information as may be reasonably required by Franchisor to evaluate the proposed site. Franchisor shall, provided there exists no default by Developer under this Agreement or any other development, franchise or other agreement between Franchisor and Developer, evaluate each site proposed for which Developer has provided all necessary evaluation information, and shall promptly, but not more than sixty (60) days after receipt of Developer’s proposal, send to Developer written notice of acceptance or non-acceptance of the site. Site approval does not assure that a Franchise Agreement will be executed. Execution of the Franchise Agreement is contingent upon Developer purchasing or leasing the proposed site.

 

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Within ninety (90) days after Franchisor’s site acceptance, Developer shall:

 

a)

Submit in writing to Franchisor, satisfactory proof to Franchisor that Developer;

 

(i)

owns the site; or

 

(ii)

has leased the site for a term which, with renewal options is not less than the initial term of the Franchise Agreement; or

 

(iii)

has entered into a written agreement to purchase or to lease the approved site on terms provided herein, subject, only to obtaining necessary governmental permits.

 

(iv)

If Developer has leased the site, the lease shall contain the provisions required in Section 4.2 of the Franchise Agreement.

 

2.6 Franchisor shall retain the right to:

 

a) Open and operate El Pollo Loco restaurants or franchise others to open and operate El Pollo Loco restaurants, at all universities, colleges, hospitals, municipal facilities, public transportation facilities, shopping malls, stadiums, amusement parks and similar locations of a “non-standard” nature, regardless of location within the Territory;

 

b) Open and operate or franchise others to open and operate non-standard El Pollo Loco restaurants within the Territory under the El Pollo Loco System (e.g., within drug stores, supermarkets, department stores, truck stops, hotel or motel chains, stadiums, etc.); and

 

c) Open and operate or franchise others to open and operate El Pollo Loco restaurants located within the Territory which have been acquired by El Pollo Loco on or after the date of this Agreement.

 

2.7 The purpose of this Agreement is to promote orderly incremental growth within the El Pollo Loco System. The acquisition of existing El Pollo Loco restaurants by Developer does not represent incremental growth and, therefore, does not satisfy the terms of this Agreement pertaining to development.

 

2.8 (To be added where there are existing restaurants in the territory) Developer acknowledges that Franchisor (i) is operating a unit or (ii) has granted franchise rights in or (iii) approved a new site for development for those locations identified in Exhibit “C” attached hereto and incorporated herein by this reference. Developer further acknowledges that Franchisor retains discretion to approve or disapprove any proposed location for development under this Agreement if, in Franchisor’s reasonable judgment, such proposed location is not suitable for an El Pollo Loco restaurant or such proposed location will have a material adverse effect on the profitability of another existing El Pollo Loco

 

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location (or approved site) in the Territory. Developer covenants to use its reasonable best efforts to avoid selecting proposed locations that would adversely impact pre-existing locations in the Territory. Franchisor covenants to advise Developer of any new site approved or proposed closures of El Pollo Loco restaurants in the Territory during the term of this Agreement.

 

3.0	Development Fee.

 

Developer shall pay to Franchisor a non-refundable deposit equal to Ten Thousand Dollars ($10,000.00), in immediately available funds, for the first restaurant to be developed under this Agreement. For each subsequent restaurant to be developed under this Agreement, Developer shall pay Franchisor a deposit equal to Five Thousand Dollars ($5,000.00). This deposit shall be paid upon the execution of this Agreement. The $10,000/$5,000 deposit, whichever is applicable, for each restaurant shall be applied against the initial franchise fee payable upon the execution of the Franchise Agreement applicable to each restaurant. If this Agreement is terminated pursuant to Section 9.0 or 10.0 below, all deposits, or any unused portion thereof, shall be forfeited to Franchisor in consideration of the rights granted in the Territory up to the time of termination.

 

4.0	Term of Development Agreement.

 

This Agreement shall commence on the date specified in Exhibit “B”. Unless terminated pursuant to Section 9.0 or 10.0 below, it shall expire upon the earlier of the date specified in Exhibit “B” or upon the opening of the last restaurant listed in the Development Schedule.

 

5.0	Territory Conflicts.

 

5.1 Any continued operation of a restaurant operated by Franchisor or a franchisee of Franchisor within the Territory on or before the date of this Agreement shall not be considered to constitute a breach of this Agreement.

 

5.2 The rights granted Developer in this Agreement are subject to any prior territorial rights of other franchisees which may now exist in the Territory, whether or not those rights are currently being enforced. In the event of a conflict in territorial rights, whether under a Franchise Agreement or separate territorial or development agreement, the earlier in time shall prevail. Developer shall be free to negotiate with any person, corporation or other entity, which claims territorial rights adverse to the rights granted under this Agreement, for the assignment of those prior territorial rights. For this purpose, Franchisor agrees to approve any such assignment not in conflict with the other terms of this Agreement, subject to the condition of any Franchise Agreements involved, and current policies pertaining to assignments, including, but not limited to, satisfaction of all past due debts owed to Franchisor and the execution of a General Release.

 

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5.3 In the event of third party claims to the right to develop any Territory other than those specified above, it is the responsibility of El Pollo Loco, where the right is exclusive, to protect and maintain Developer’s right to the Development of the Territory. However, if it appears to El Pollo Loco, in its sole discretion, that protection of the Territory by legal action is not advisable, whether due to the anticipation of, or the actual protracted nature of the action, the costs involved, the uncertainty of outcome, or otherwise, Franchisor has the right to terminate this Agreement, provided that it refunds to Developer the balance, if any, of the deposit made pursuant to Section 3.0, which has not been applied against the initial franchise fees for Franchise Agreements to be acquired under this Agreement.

 

6.0	Proprietary Rights of El Pollo Loco.

 

6.1 Developer expressly acknowledges El Pollo Loco’s exclusive right, title, and interest in an to the trade name, service mark and trademark “El Pollo Loco”, and such other trade names, service marks, and trademarks which are designated as part of the El Pollo Loco System (the “Marks”), and Developer agrees not to represent in any manner that Developer has any ownership in El Pollo Loco Marks. This Agreement is not a Franchise Agreement. Developer may not open an El Pollo Loco restaurant or use the El Pollo Loco Marks at a particular site until it executes a Franchise Agreement for that site. Developer’s use of the El Pollo Loco Marks shall be limited to those rights granted under each individual Franchise Agreement. Developer further agrees that its use of the Marks shall not create in its favor any right, title, or interest in or to El Pollo Loco Marks, but that all of such use shall inure to the benefit of El Pollo Loco, and Developer has no rights to the Marks except to the degree specifically granted by the individual Franchise Agreements. Building designs and specifications, color schemes and combinations, sign design specifications, and interior building layouts (including equipment, equipment specification, equipment layouts, and interior color schemes and combinations) are acknowledged by Developer to comprise part of the El Pollo Loco System. Developer shall have no right to license or franchise others to use the Marks by virtue of this Agreement.

 

6.2 Developer recognizes the unique value and secondary meaning attached to the El Pollo Loco Marks and the El Pollo Loco System, and Developer agrees that any noncompliance with the terms of this Agreement or any unauthorized or improper use will cause irreparable damage to Franchisor and its franchisees. Developer, therefore, agrees that if it should engage in any such unauthorized or improper use during, or after, the term of this Agreement, Franchisor shall be entitled to both seek temporary and permanent injunctive relief from any court of competent jurisdiction in addition to any other remedies prescribed by law.