STANDARD FORM APPLEBEE'S NEIGHBORHOOD GRILL & BAR FRANCHISE AGREEMENTFranchise Agreement |
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EXHIBIT F
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.....................................................................F-3
1. FRANCHISE GRANT AND TERM........................................F-4
2. UNIFORM STANDARDS...............................................F-5
3. COMPLIANCE WITH THE SYSTEM......................................F-6
4. GENERAL SERVICES OF FRANCHISOR..................................F-6
5. RESTAURANT SYSTEM AND PROCEDURES................................F-7
6. TRAINING.......................................................F-10
7. RESTAURANT MAINTENANCE.........................................F-10
8. ADVERTISING....................................................F-11
9. FEES...........................................................F-13
10. RECORD KEEPING.................................................F-15
11. FRANCHISEE ORGANIZATION, AUTHORITY,
FINANCIAL CONDITION AND SHAREHOLDERS...........................F-16
12. TRANSFER.......................................................F-19
13. CONFIDENTIALITY; RESTRICTIONS..................................F-23
14. INSPECTIONS....................................................F-24
15. RELATIONSHIP OF PARTIES AND INDEMNIFICATION....................F-25
16. INSURANCE......................................................F-27
17. DEBTS AND TAXES................................................F-29
18. TRADE NAMES, SERVICE MARKS AND TRADEMARKS......................F-29
19. EXPIRATION AND TERMINATION; OPTION TO
PURCHASE RESTAURANT; ATTORNEYS' FEES...........................F-31
20. NO WAIVER OF DEFAULT...........................................F-36
21. CONSTRUCTION, SEVERABILITY,
GOVERNING LAW AND JURISDICTION.................................F-36
22. INTERFERENCE WITH EMPLOYMENT RELATIONS.........................F-37
23. LIQUOR LICENSE.................................................F-38
24. FORCE MAJEURE..................................................F-38
25. MISCELLANEOUS..................................................F-39
26. ACKNOWLEDGMENTS................................................F-41
EXHIBIT 1: ROYALTY FEE................................................F-43
APPENDIX A: STATEMENT OF OWNERSHIP INTERESTS...........................F-44
APPENDIX B: REVIEW AND CONSENT WITH
RESPECT TO TRANSFERS.......................................F-45
APPENDIX C: CONFIDENTIALITY AGREEMENT..................................F-46
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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
________________________________________________________________________________
("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
(c) to hold itself out to the public as a Franchisee of Franchisor.
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 that Franchisor, without
obtaining the signature of Franchisee, may 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; provided, however, the three (3) mile radius will be reduced to
the extent it would extend over an international border. 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), train station, bus
terminal, port authority, campus at any college, university or other
post-secondary education institution, hospitals and other health care
facilities, 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
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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.
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,
furnish or operate 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. Franchisee shall
reimburse Franchisor for any additional training support required or requested.
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;
(c) advertise the business of the Restaurant by the use of the
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 or 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.
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
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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 sixty (60) 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,
Franchisor's affiliates or approved franchisees of 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. For purposes of
clarification, Franchisor may require the lease to contain such other provisions
as may be specified in Franchisor's then current lease approval policy or the
terms and conditions of Franchisor's approval of the site for the Restaurant.
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 seventy five hundredths percent
(2.75%) 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
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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 percent (1%) 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
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. For
purposes of clarification, Franchisor may also decrease the amounts required to
be paid or expended by Franchisor pursuant to this Subsection 8.2.
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, and the
approved advertising campaign has been conducted, 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
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(c) Franchisee's opening advertising expenditures are made pursuant to
the approved advertising campaign plan and in accordance with the Grand
Opening Reimbursement Program Policy Guidelines set forth in the Manuals.
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;
(c) Outdoor advertising by signs displayed on billboards or buildings;
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:
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(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;
(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
(c) a monthly advertising fee equal to such percentage of each 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 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 card (on which royalty shall be due
and payable upon redemption of the gift card 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, debit card, 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 (including any
payments received from the sale of meals to employees). 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 card is
redeemed, if the initial sale of the gift card 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
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other items to be excluded from gross sales. Any such permission or allowance
may be revoked or withdrawn at Franchisor's discretion.
9.4 Franchisee agrees that, subject to the provisions of this Section 9.4,
Franchisor may withdraw funds from Franchisee's designated bank account by
electronic funds transfer ("EFT") in the amount of any royalties or other fees
payable to Franchisor under this Agreement. Franchisor will make each EFT
withdrawal of the royalty fees described in Section 9.1(b) and advertising fees
described in Section 9.1(c) on the dates such payments are due. Franchisor may
withdraw any other payments owed to Franchisor pursuant to, or in connection
with, this Agreement if such payments become more than 10 days past due.
Franchisee's designated bank account for EFT withdrawals shall at all times be
maintained in the United States and such account shall permit EFT withdrawals by
Franchisor without approval of, or involvement by, a government agency or
authority. If Franchisee has not submitted a monthly Restaurant report as
required by Section 10.2(a) hereof, Franchisor may make an EFT withdrawal for
overdue royalty fees based on a good faith estimate of the Gross Sales for the
applicable month. After the applicable monthly Restaurant report is submitted,
Franchisor will make an appropriate credit to Franchisee for any overpayment or
will invoice Franchisee for any underpayment, as applicable.
9.5 Franchisee will, upon execution of this Agreement, execute a document
in the form of Appendix D, granting to Franchisor the authority to process EFTs
from Franchisee's designated bank account. From time-to-time at Franchisor's
request, Franchisee will execute any additional documents necessary to confirm
or update this authority. Franchisee will be responsible for any EFT transfer
fee or similar charge imposed by Franchisee's bank, and for any service charges
incurred by Franchisor and/or imposed by Franchisee's bank should any EFT not be
honored by Franchisee's bank for any reason. Throughout the term of this
Agreement, Franchisee will maintain a minimum balance of $___________ ("Minimum
Balance") in the bank account against which EFTs are to be drawn under this
Agreement. It will be a material event of default if Franchisee allows the
amount on deposit in the account to fall below two-thirds of the Minimum
Balance, closes the account without Franchisor's consent, or closes the account
with Franchisor's consent, but fails to promptly establish another account and
execute all documents necessary for Franchisor to process all payments by EFT
from the new account. Franchisee acknowledges that the Minimum Balance is the
minimum amount required for the Restaurant and that such amount is in addition
to the Minimum Balance specified for any other Restaurant operated by
Franchisee. Franchisor may increase the Minimum Balance from time to time (but
not more frequently than once per year) to an amount up to 150% of the average
monthly royalty and advertising fees for the Restaurant for the immediately
preceding 12-month period.
10. RECORD KEEPING; ACCESS TO INFORMATION
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:
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(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;
(c) weekly gross sales reports, on or before the Tuesday following the
calendar week to which the report relates; and
(d) such additional reports as the Franchisor shall request.
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.
10.5 Franchisee shall install and maintain such equipment, make such
arrangements and follow such procedures as Franchisor may require in the Manuals
or otherwise in writing (including the establishment and maintenance of
Internet, intranet or extranet access or such other means of electronic
communication, as specified by Franchisor from time to time) to permit
Franchisor to access, download, and retrieve electronically, by
telecommunication or other designated method, any information stored in
Franchisee's electronic cash registers or on Franchisee's computer systems,
including information concerning the gross sales of the Restaurant, and to
permit Franchisor to upload and for Franchisee to receive and download
information from Franchisor with or without Franchisee's prior consent.
Franchisee further agrees that Franchisor will have and be afforded access to
such information at the times and in the manner that Franchisor may specify from
time to time, including extracting information by electronic, digital or other
means.
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
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execution and delivery of this Agreement and the transaction contemplated hereby
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
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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
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.
(c) Franchisee nor any Principal Shareholder or any other person or
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
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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.
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 connecti
