STANDARD FORM
XXXXXXXX'X NEIGHBORHOOD GRILL & BAR
DEVELOPMENT AGREEMENT
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(Name of Developer)
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(Date)
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(General Description of Territory)
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TABLE OF CONTENTS
RECITALS................................................................. E-3
1. GRANT OF DEVELOPMENT RIGHTS....................................... E-4
2. INITIAL DEVELOPMENT SCHEDULE...................................... E-5
3. SUBSEQUENT DEVELOPMENT SCHEDULE;
DEVELOPMENT OBLIGATIONS GENERALLY................................. E-6
4. FRANCHISE FEE AND ROYALTY RATE.................................... E-13
5. SITE APPROVALS: PLANS AND SPECIFICATIONS......................... E-15
6. FEES AND FRANCHISE AGREEMENTS..................................... E-16
7. DEVELOPER ORGANIZATION, AUTHORITY,
FINANCIAL CONDITION AND SHAREHOLDERS.............................. E-16
8. TRANSFER.......................................................... E-19
9. TERMINATION....................................................... E-23
10. PREREQUISITES TO OBTAINING FRANCHISES
FOR INDIVIDUAL RESTAURANT UNITS................................... E-24
11. RESTRICTIONS...................................................... E-25
12. DEVELOPMENT PROCEDURES............................................ E-27
13. NO WAIVER OF DEFAULT.............................................. E-28
14. FORCE MAJEURE..................................................... E-29
15. CONSTRUCTION, SEVERABILITY, GOVERNING
LAW AND JURISDICTION.............................................. E-29
16. MISCELLANEOUS..................................................... E-30
APPENDIX A: TERRITORY.................................................. E-33
APPENDIX B: FORM OF FRANCHISE AGREEMENT................................ E-34
APPENDIX C: STATEMENT OF OWNERSHIP INTERESTS........................... E-35
APPENDIX D: REVIEW AND CONSENT WITH RESPECT
TO TRANSFERS............................................... E-36
APPENDIX E: CONFIDENTIALITY AGREEMENT AND
COVENANT NOT TO COMPETE.................................... E-37
APPENDIX F: CONFIDENTIALITY AGREEMENT.................................. E-40
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XXXXXXXX'X NEIGHBORHOOD GRILL & BAR
DEVELOPMENT AGREEMENT
This Agreement is made this ________ day of ___________________, 20_____, by and
between XXXXXXXX'X INTERNATIONAL, INC., a Delaware corporation ("FRANCHISOR"),
________________________________________, a (_______________ corporation, sole
proprietorship, ______________________ partnership, _________________ limited
partnership [strike inappropriate language]) ("DEVELOPER") and ----------------
________________________________ (collectively, the "PRINCIPAL SHAREHOLDERS"
and, individually, a "PRINCIPAL SHAREHOLDER" of Developer if a corporation or
general partner of Developer is a limited partnership having as its general
partner a corporation) and ______________________________________________
("GENERAL PARTNER") of Developer if Developer is a limited partnership).*
* (If Developer is not a corporation or a sole proprietorship, or if
Developer is a limited liability company, the parties hereto hereby agree that
an Addendum shall be attached to this Agreement so as properly to reflect the
responsibilities of the partners of any general partnership, the general partner
of any limited partnership and the shareholders of any corporate general partner
of any partnership, or the members of any limited liability company.)
WITNESSETH:
RECITALS
A. Franchisor owns the rights to develop and operate a unique system of
restaurants which specialize in the sale of high quality, moderately priced food
and alcoholic beverages in an attractive, casual setting, which include
proprietary rights in certain valuable trade names, service marks and
trademarks, including the service xxxx Xxxxxxxx'x Neighborhood Grill & Bar and
variations of such xxxx, designs, decor and color schemes for restaurant
premises, signs, equipment, procedures and formulae for preparing food and
beverage products, specifications for certain food and beverage products,
inventory methods, operating methods, financial control concepts, training
facilities and teaching techniques (the "System").
B. Franchisor has established, through its own development and operation,
and through the granting of franchises, a chain of Xxxxxxxx'x Neighborhood Grill
& Bar restaurants which are distinctive; which are similar in appearance, design
and decor; and which are uniform in operation and product consistency.
C. The value of Franchisor's trade names, service marks and trademarks is
based upon: (1) the maintenance of uniform high quality standards in connection
with the preparation and sale of Franchisor-approved food and beverage products,
(2) the uniform high standards of appearance of the individual restaurant units
in the System, (3) the use of distinctive trademarks, service marks, building
designs and advertising signs representing a uniformly high quality of product
and services, and (4) the assumption by Franchisor and its franchisees of the
obligation to maintain and enhance the goodwill and public acceptance of the
System (and of Franchisor's trade names, service marks and trademarks) by strict
adherence to the high standards required by Franchisor.
D. Developer desires to obtain the exclusive right to develop restaurant
units franchised by Franchisor within the geographic area specified in Appendix
A hereto ("Territory"), for the period specified in Subsection 1.1, pursuant to
the terms, conditions and provisions which are set forth in this Agreement.
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NOW, THEREFORE, in consideration of Franchisor granting to Developer the
exclusive right to develop restaurant units franchised by Franchisor which
employ the System ("Restaurants") in the Territory for such period, and in
consideration of the mutual obligations which are provided for herein, it is
hereby agreed as follows:
1. GRANT OF DEVELOPMENT RIGHTS
1.1 Franchisor grants Developer the exclusive right to develop Restaurants
only in the Territory for a period commencing on the date hereof and expiring on
___________, 20__, unless sooner terminated as hereinafter provided. Developer
has no rights under this Agreement to develop Restaurants outside of the
Territory or to develop restaurants which do not employ the System, including
the Xxxxxxxx'x Neighborhood Grill & Bar service xxxx.
1.2 During the term of this Agreement, Franchisor shall not operate a
restaurant utilizing the System or license any other person to operate a
restaurant utilizing the System in the Territory. However, nothing in this
Agreement shall prohibit or infringe upon Franchisor's right to operate a
restaurant or license any other person to operate a restaurant in the Territory
which does not utilize the System or use the Xxxxxxxx'x Neighborhood Grill & Bar
service xxxx. In addition, Franchisor specifically reserves the right to operate
or license any other person to operate restaurants in any location within an
airport (serviced by one or more public or charter carrier), arena, stadium,
state or national park, or military fort, post or base which may be within the
boundaries of the Territory otherwise granted to Developer. Further, Developer
acknowledges and agrees that Franchisor or any one (1) or more of its subsidiary
or affiliated companies or divisions shall have the right to operate or license
any other person to operate such other restaurants which may or will compete
with the Restaurants, under a system and service xxxx other than Xxxxxxxx'x
Neighborhood Grill & Bar.
1.3 After this Agreement expires or is terminated, Franchisor shall have
the complete and unrestricted right to operate or license other persons to
operate a restaurant utilizing the System in the Territory.
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2. INITIAL DEVELOPMENT SCHEDULE
2.1 Developer shall develop a total of _________ (____) Restaurants
franchised by Franchisor in the Territory during the period commencing on the
date hereof and expiring on _____________, 20_____, in accordance with the
following development schedule:
(a)1 During the first Initial Development Period under this Agreement,
Developer shall develop at least _________ (___) Restaurants within the
Territory, each of which shall be open for operation and doing business on
_________________, ________ (the end of the first Initial Development Period
under this Agreement).
(b) During the second Initial Development Period under this Agreement,
Developer shall develop the number of Restaurants within the Territory
necessary to result in the existence of _________ (___) such Restaurants
developed by Developer which are open for operation and doing business on
_________________, ________ (the end of the second Initial Development
Period under this Agreement).
(c) During the third Initial Development Period under this Agreement,
Developer shall develop the number of Restaurants within the Territory
necessary to result in the existence of _________ (____) such Restaurants
developed by Developer which are open for operation and doing business on
______________, ________ (the end of the third Initial Development Period
under this Agreement).
Each of the periods specified in Subparagraphs (a) through (___) hereof is
sometimes referred to hereinafter as an "Initial Development Period."
2.2 During any Initial Development Period, subject to the provisions of
this Agreement, Developer is free to develop more than the total minimum number
of Restaurants which Developer is required to develop during that Initial
Development Period. Any such Restaurants developed, open for operation and doing
business during an Initial Development Period in excess of the minimum number
required to be developed during that Initial Development Period shall be applied
to satisfy Developer's development obligation during the next succeeding Initial
Development Period or next succeeding Subsequent Development Period (as defined
in Section 3 hereof), if any, as the case may be. Notwithstanding the above,
Developer shall not develop more than the total number Restaurants approved by
Franchisor for development under this Agreement.
2.3 Strict compliance with the development schedule specified in Subsection
2.1 hereof is of the essence of this Agreement. If Developer fails to fulfill
its specified development obligation with respect to any of the Initial
Development Periods specified in Subsection 2.1 hereof, this Agreement shall
terminate sixty (60) days after the end of the Initial Development Period in
question, unless by the end of such sixty (60) day period Developer has
fulfilled the development obligation relating to such Initial Development
Period.
1 The periods specified in Subsection 2.1(a)-(c) may be revised, deleted or
added to in order to reflect the number of Restaurants Developer is obligated to
develop and the time in which the Developer is obligated to open such
Restaurants.
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3. SUBSEQUENT DEVELOPMENT SCHEDULE; DEVELOPMENT OBLIGATIONS GENERALLY
3.1 During the period commencing on ______________, 20_____, and expiring
on _______________, 20____, Developer shall develop and open for business in the
Territory, in accordance with the parameters established under Subsection 3.2,
that number of additional Restaurants as is required to achieve at the end of
such period, a total number of Restaurants open for business within the
Territory which, after including the Restaurants developed during the Initial
Development Periods, will equal the Minimum Development Potential of the
Territory (as defined herein below).
3.2 (a) Each consecutive two (2) year period, commencing with the period
beginning on _______________, 20____, is hereafter referred to as a "Subsequent
Development Period."
(b) On or before the commencement of each Subsequent Development
Period, Franchisor shall provide to Developer in writing the number of
Restaurants to be developed by Developer during such Subsequent Development
Period ("Subsequent Development Schedule"), together with a detailed summary
of the Minimum Development Potential calculations used to determine the
Subsequent Development Schedule. The minimum development potential ("Minimum
Development Potential") shall be determined as follows:
(i) Each Area of Dominant Influence ("A.D.I."), as determined by
the 1988 Arbitron Ratings, comprising all or a portion of the Territory
shall be placed into one of four market categories ("Market
Categories"), identified as either a "Small Market", defined as those
A.D.I.'s containing less than 135,000 households in metropolitan
counties within the Territory with incomes greater than $25,000
("Income Qualified Metro Household"); a "Medium Market", defined as
those A.D.I.'s containing 135,000 to 399,999 Income Qualified Metro
Households; a "Large Market", defined as those A.D.I.'s containing
400,000 to 1,399,999 Income Qualified Metro Households; or a "Mega
Market", defined as those A.D.I.'s containing 1,400,000 or more Income
Qualified Metro Households (Small Market, Medium Market, Large Market
or Mega Market may also be referred to herein individually as an
"A.D.I. Market" or collectively as "A.D.I. Markets". The income level
set forth above may, but need not, be adjusted upward or downward by
Franchisor once every five (5) years in order to reflect changes in
household income, such adjustments to be determined by reference to the
United States Census Bureau's Median Household Income Index or if such
index no longer exists at the time it is to be used, then the index
employed shall be such other generally known index used by NPD Crest or
other such similar company then used by Franchisor.
(ii) Each county within an A.D.I. Market shall be classified as a
"Metropolitan County", those counties with a total population greater
than 50,000; a "Small Town County", those counties with a total
population of 20,000 to 50,000; or an "Other County", those counties
with a total population less than 20,000 (Metropolitan County, Small
Town County and Other County may be for description purposes also
referred to herein as a "County Type").
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(iii) Each A.D.I. Market shall at that time be assigned to one of
four development groups according to the level of development
penetration which Developer has achieved in the A.D.I. Market as
compared to the level of development penetration achieved by all
domestic development in the System. The four development groups will be
determined by ranking each A.D.I. in the System within each of the
Market Categories from most developed to least developed. The A.D.I.'s
in ranking order from most developed to least developed shall then be
divided into four substantially equal development groups:
"Opportunistic Group", "Second Group", "Third Group" and "Lower Limit
Group". The average number of Restaurants per Income Qualified Metro
Household developed by the top three territories in the System of the
Second Group in each A.D.I. Market category shall be the development
target for each such A.D.I. Market category ("Penetration Target").
(iv) The total number of Restaurants to be developed by Developer
in each Metropolitan County of an A.D.I. Market shall be equal to the
number of Income Qualified Metro Households in such A.D.I. Market
divided by the Penetration Target ("Metropolitan Development
Potential"). The Metropolitan Development Potential minus the number of
Restaurants in each Metropolitan County then open and operating in said
A.D.I. Market shall be the number of Restaurants in each Metropolitan
County then available for development in the A.D.I. Market
("Metropolitan Development Balance").
(v) The Minimum Development Potential shall be the maximum
number of Restaurants Franchisor may include on the Subsequent
Development Schedule and thus require Developer to develop in the
A.D.I. Market during the next Subsequent Development Period; subject,
however, to the minimum and maximum development criteria outlined in
paragraph (c) and (d) of this Subsection 3.2. In the event, however, a
particular A.D.I. Market is in the Opportunistic Group, Developer and
Franchisor shall negotiate in good faith a mutually agreeable
Subsequent Development Schedule; provided, however, said Subsequent
Development Schedule shall not reflect a number of Restaurants less
than the remaining undeveloped portion of the Metropolitan Development
Potential, nor shall the Developer be required (without its consent) to
develop more than the remaining undeveloped portion of the Metropolitan
Development Potential.
(c) During each Subsequent Development Period that Developer has less
than ten (10) Restaurants open and operating in the Territory, Developer
shall be required to develop no more than one (1) Restaurant each calendar
year that the number of Restaurants in Developer's Territory does not meet
or exceed the Minimum Development Potential of the Territory. During each
Subsequent Development Period that Developer has ten (10) or more
Restaurants in the Territory, Developer shall be required to develop no more
than two (2) Restaurants each calendar year that the number of Restaurants
in the Territory does not meet or exceed the Minimum Development Potential
for the Territory.
(d) Notwithstanding the Minimum Development Potential for which
Developer might otherwise be obligated in order to satisfy the Penetration
Target for the Territory, Developer shall not be required to develop more
than ten (10) Restaurants in any one calendar year in the Territory. In the
event Developer holds other development agreements with the System or the
Principal Shareholders of Developer are the identical Principal Shareholders
of other entities who hold other development agreement(s) within the System
(such other entities being defined hereunder as "Affiliates"), Developer,
together with such Affiliates, may limit its combined development under all
such development agreements to no more than ten (10) Restaurants in the
aggregate in any calendar year. Provided, however, Developer and Principal
Shareholder(s) hereby acknowledge that if Developer exercises its option
under this provision to limit its combined development with its Affiliates
and after so limited its development, Developer (together with its
Affiliate) does not achieve such aggregate development, Developer shall be
in default under that development agreement (or all such development
agreements as the case may be) but only such development agreement(s) which
did not meet the individual Subsequent Development Schedule calculated and
agreed to for that individual development agreement.
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(e) If the Developer has timely developed and opened for operation the
Restaurant called for by the Initial Development Schedule and thereafter
during a Subsequent Development Period objects to the development of the
last Restaurant required during that Subsequent Development Period under
Article 3 hereof, then Franchisor hereby grants Developer the right to make
a written demand for a study as to whether said last Restaurant may be
located in the Territory or whether said Restaurant will at that time
cannibalize the sales and traffic with respect to its other existing
Restaurants in the Territory. In the event a written request for such a
study is received by Franchisor prior to the end of the Subsequent
Development Period in question and prior to any default under the
Development Agreement, then in such an event, Franchisor and Developer shall
in good faith attempt to resolve the issue regarding whether the last
Restaurant should or should not be developed and opened. If an agreement
cannot be reached (which process may include the Franchisor and Developer
ordering a PIN study at Developer's cost), Franchisor and Developer shall
submit the disagreement to the National Franchise Mediation Board ("NFMB"),
as herein defined below, for handling and disposition. The submission of
said disagreement will be in accordance with subsection 3.2 (f)(i) hereof.
(f) The following shall apply to the submission to the NFMB pursuant
to the preceding paragraph:
(i) The disagreement shall be submitted by the Developer by way
of a written demand for mediation tendered to Franchisor within thirty
(30) days after Franchisor has indicated to Developer than an agreement
cannot be reached. Developer will deposit $35,000 with Franchisor at
the time of the filing of its written demand for mediation. If the
demand or the deposit or either or both of them are not so timely made,
then in such an event, the Developer shall be deemed to have waived its
right to request mediation and further, shall be deemed to have elected
to accept the full number of Restaurants Franchisor had determined for
the Subsequent Development Period then in question. The NFMB will
determine in its sole discretion the procedure, time limits and
additional filing and responses required with respect to the mediation.
However, it is understood and agreed by all parties that the mediation
is intended to provide a more expeditious resolution of the matter
submitted to the NFMB. The mediation decision to be rendered by the
NFMB will be binding upon all parties to the mediation. The party for
whom a favorable decision is rendered shall receive from the other
party reimbursement for all out-of-pocket costs and expenses, including
attorneys' fees incurred and any PIN study conducted with respect to
the mediation, which are determined to be reasonable by the NFMB.
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(ii) At the conclusion of the mediation, the NFMB shall issue its
decision either supporting Developer and indicating that the last
Restaurant need not be developed as a part of the Subsequent
Development Period in question, or conversely, supporting Franchisor
and indicating that the last Restaurant should be a part of the
development for that Subsequent Development Period. If the decision of
the NFMB supports the Developer, then in such an event, the Developer
shall maintain its exclusive rights to the Territory, and shall
continue to maintain its right to develop therein in the future.
Provided, however, Franchisor may request further development during
future Subsequent Development Periods. In addition, Franchisor shall
reimburse Developer the $35,000 previously deposited at the
commencement of the mediation process.
(iii) If the decision of the NFMB supports the Franchisor, then in
such an event, the Developer shall be required to construct and open
the last Restaurant, pursuant to the development schedule originally
listed as a part of the Subsequent Development Period so in question.
In addition, the funds previously deposited by Developer with
Franchisor shall be applied to the Franchise Fee due for such
Restaurant. However, in the event Developer fails to develop the
Restaurant, the $35,000 shall be forfeited and shall become the
exclusive property of Franchisor and further, the exclusive development
rights granted by the Development Agreement shall terminate and be of
no further force and effect.
(iv) If, after a new developer has been appointed to open the
last Restaurant, and said Restaurant has opened for operation, and
within the first twelve (12) months of operation of said Restaurant,
Developer believes that said new developer's Restaurant has had a
significant cannibalization effect upon one or more of Developer's
Restaurants, then in such an event, the Developer may avail itself of
the following post impact process ("Post Impact Process"). The Post
Impact Process will consist of the submission of the positions of the
Developer, new developer and Franchisor to the NFMB for study and
mediation. The Post Impact Process is and shall be from time to time
more fully outlined in the Manuals. The NFMB shall have the right to
issue a non-binding determination as to whether or not the Developer's
Restaurant or Restaurants (as the case may be) were, in fact,
significantly cannibalized as contended by Developer and if so
determined, a recommendation on whether any and what type of royalty
relief or other relief, if any, shall be granted Developer. The parties
agree to exhaust the foregoing remedies and seek the mediation provided
by the NFMB prior to submitting the matter to any judicial tribunal.
3.3 Strict compliance with the development schedule established in
accordance with Subsection 3.2 hereof is of the essence of this Agreement. If
Developer shall fail to fulfill its specified development obligation with
respect to any Subsequent Development Period, this Agreement shall automatically
terminate sixty (60) days after the end of the Subsequent Development Period in
question, unless by the end of such sixty (60) day period Developer has
fulfilled the development obligation relating to such Subsequent Development
Period.
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3.4 If, during the term of this Agreement, (a) Developer transfers or
disposes of any Restaurant developed hereunder in accordance with the provisions
hereof, or for any other reason ceases to operate any Restaurant developed
hereunder, and (b) after such transfer or other cessation of operation the
premises no longer are utilized for the operation of a Restaurant, Developer's
development obligation in the Initial or Subsequent Development Period in which
such transfer or other cessation of operations occurred shall increase, subject
to the general limitations on Developer's development obligations set forth in
Section 2 and Section 3, by the number of Restaurants which Developer so
transferred, disposed of or which otherwise ceased to operate.
3.5 Franchisor represents that it is the sole owner of the service xxxx
Xxxxxxxx'x Neighborhood Grill & Bar. If Franchisor determines that a third
person has rights under the law of any state with respect to such xxxx which
precludes Developer from fulfilling any portion of its development obligations
pursuant to this Agreement, Franchisor and Developer shall negotiate in good
faith for a revision of those development obligations, a redefinition of the
Territory, or such other modifications of this Agreement as may be reasonable in
the circumstances.
3.6 Notwithstanding the foregoing Subsection 3.2 and in addition thereto,
Franchisor shall further divide those counties identified as Small Town Counties
and Other Counties ("STC") and provide for the development of such counties.
(a) Franchisor shall request Developer to commit to develop and open
for operation pursuant to a pre-determined development schedule the number
of Restaurants utilizing a Small Town Restaurant prototype ("STC
Restaurant") and in the specified counties set forth on the written request
tendered to Developer by Franchisor (the "STC Notice"). The STC Notice
provided Developer will further reflect the proposed development schedule
for all such STC Restaurants. Within 30 days of Developer's receipt of such
STC Notice, Developer shall indicate in writing whether it desires to
develop an STC Restaurant in all or a portion of the counties listed.
Thereafter, the development schedule suggested in the STC Notice will be
adjusted by the Franchisor, using the same pace of development as set forth
in Subsection 3.2(c) and Subsection 3.2(d). With respect to this process,
the Franchisor and Developer will review the development feasibility of each
county listed in the STC Notice, giving appropriate consideration to such
factors as liquor license availability, proximity to existing Restaurants,
the presence or absence of competitive concepts and other such matters as
Franchisor deems appropriate. Any counties removed from the purview of the
STC Notice by such negotiations will be returned to the pool of unused
counties for possible future development. At or before the conclusion of the
30-day notice period, unless otherwise extended in writing, Developer shall:
(i) Signify its agreement to develop in accordance with the STC
Notice in all of the listed counties and in accordance with the
proposed development schedule included with the revised STC Notice and
as a result, Developer's exclusive right to develop Restaurants in the
Territory as previously granted remains unaffected;
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(ii) Signify its agreement to develop an STC Restaurant in a
portion of the STC Notice listed counties, and in such an event,
Developer shall no longer have the exclusive right to develop
Restaurants in the counties in which it chose not to develop the STC
Restaurant and will be subject to the terms set forth in subparagraph
(c) below; or
(iii) Reject the development of an STC Restaurant in all of the
STC Notice listed counties, and in such an event, Developer shall no
longer have the exclusive right to develop Restaurants in the counties
listed in the final STC Notice and will be subject to the terms of
subparagraph (c) below; or
(iv) Seek mediation of the inclusion of one or more of the
counties in the STC Notice with the National Franchise Mediation Board
in accordance with Subsection 3.6(b); or
(v) Fail to respond in writing to the STC Notice, in which event
the Developer will no longer have the exclusive right to develop
Restaurants in the counties set forth in the STC Notice and will be
subject to the terms of subparagraph (c) below.
(b) In the event the Developer contests the STC Notice as referenced
in subsection 3.6(a)(iv) above, such disagreement shall be submitted for
mediation to the National Franchise Mediation Board, which shall be
comprised of two (2) individuals appointed by Franchisor, two (2)
individuals appointed by the Franchise Business Council and one (1)
individual chosen by the foregoing four (4) individuals, in accordance with
the following:
(i) Developer will deposit with Franchisor at the time of the
filing of its written demand for mediation an amount equal to $35,000
times the number of counties about which Developer is contesting
development. Notwithstanding the foregoing, in no event shall less than
$35,000 be so deposited. If the deposit is not so timely made, then in
such an event, the Developer shall be deemed to have waived its right
to request mediation and further, deemed to have elected alternative
(v) as set forth in subparagraph 3.6(a).
(ii) The NFMB will determine in its sole discretion the procedure,
time limits and additional filing and responses required with respect
to the mediation. However, it is understood and agreed by all parties
that the mediation is intended to provide a more expeditious resolution
of the matter submitted to the NFMB.
(iii) The mediation decision to be rendered by the NFMB will be
binding upon all parties to the mediation.
(iv) The party for whom a favorable decision is rendered shall
receive from the other party reimbursement for all out-of-pocket costs
and expenses, including attorneys' fees, incurred with respect to the
mediation which are determined to be reasonable by the NFMB.
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(v) At the conclusion of the mediation, the NFMB shall issue its
decision either supporting Developer and indicating that the
county(ies) to which the Developer objected shall be removed from the
STC Notice and returned to the pool of unused county(ies), or
conversely, supporting Franchisor and indicating that the county(ies)
about which an objection was raised should be so included in the STC
Notice and therefore an STC Restaurant should be developed therein.
(vi) If the decision of the NFMB supports the Developer, then in
such an event, the Developer shall maintain its exclusive right to the
county(ies) in question, and shall continue to maintain its right to
develop therein in the future. In addition, the amount deposited by
Developer shall be refunded to Developer.
(vii) If the decision of the NFMB supports the Franchisor, then in
such an event, the Developer shall be required to construct the STC
Restaurant in the county(ies) in question, pursuant to the development
schedule originally listed in the STC Notice. The funds previously
deposited by Developer with Franchisor shall be applied to the
Franchise Fee due for each of said units at the rate of $35,000 per
each unit. In the event Developer fails to develop some or all of the
STC Restaurants in the county(ies) here in question, any unused deposit
shall be forfeited and further, the Developer's exclusive rights to the
county(ies) in which no development occurred shall be terminated and
not subject to any first right of refusal rights, notwithstanding
anything herein to the contrary.
(c) Except as otherwise provided in subparagraph 3.6(b) hereof, in the
event that the Developer, after receiving its STC Notice, falls within the
purview of subsections 3.6(a)(ii), (iii), or (v) above, the counties for
which the Developer rejected the right to develop an STC Restaurant,
Franchisor may in its discretion seek another franchisee to develop the
rejected counties or develop STC Restaurants in those counties on its own.
Upon the identification of a bona fide prospective franchisee for those
counties or upon the determination by Franchisor that it will develop those
counties, Franchisor shall provide Developer with a written first right of
refusal notice ("FROR Notice"), which FROR Notice will set forth the
counties in question and the schedule of development. Developer shall have
30 days within which to respond to such FROR Notice in writing. Such
response shall be solely to accept or reject in whole its right of refusal.
No partial acceptances will be honored by the Franchisor. In the event the
Developer fails to respond or responds and indicates its desire not to
develop the counties listed, then Developer's exclusive right to develop
such counties shall no longer be valid and exclusivity rights previously
granted in the Development Agreement as to those counties shall be of no
further effect, and in such an event the Franchisor may grant a third party
prospective franchisee the right to develop STC Restaurants in those
counties or develop STC Restaurants itself, without regard to the Developer.
Conversely, if the Developer responds to the FROR Notice in writing and
indicates its desire to build the STC Restaurants listed in compliance with
the schedule set forth, and at the same time tenders a non-refundable
deposit in the amount of $35,000 for each of the Restaurants to be developed
in the counties listed in the FROR Notice, the Developer shall have the
right to develop said STC Restaurants and shall further retain the exclusive
right to develop Restaurants in the counties so listed.
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(d) As to the other counties unallocated under the foregoing process
set forth in subsection (c) above, Franchisor may issue future notices
regarding development of the same STC Restaurants for use in some or all of
the counties. Further, Franchisor may create other new small town prototypes
using the System developed for the Restaurants, which extend the brand name
but which would more likely be adaptable to the demographics shown for some
or all of the other counties which have not been identified for development
under the preceding sentence or under subparagraph (b) above. As each such
release (which may be in one or more increments) is developed by the
Franchisor, the same procedures set forth in subparagraphs (a) and (b) above
shall apply.
(e) The development and opening of an STC Restaurant in a listed
county will not apply to or substitute for the development required under
Section 2.1 hereof. However, in the event Developer fails to develop and
open the Restaurants called for under Section 3.6(a) hereof pursuant to the
schedule established by Franchisor, such default in development shall only
affect the Developer's right to open and operate in the counties so listed.
If Developer fails to open one or more of the STC Restaurants in the total
aggregate time period set forth in the schedule, then in such an event,
Developer shall lose its rights to develop any STC Restaurants in the
counties listed in the STC Notice or the FROR Notice (as the case may be)
wherein no Restaurant is in operation and further, the exclusivity provided
by this Development Agreement shall be of no further force or effect with
respect to those counties listed in said Notice (but only as to said
affected counties) and Franchisor may grant development rights to a third
party or develop said counties itself. It is understood that the 60-day
period provided for in Section 2.3 of the Development Agreement shall apply
to all of the Restaurants to be developed under this paragraph.
4. FRANCHISE FEE AND ROYALTY RATE
4.1 Developer shall pay Franchisor a franchise fee of $_____________ with
respect to each Restaurant which is developed pursuant to this Agreement during
the Initial Development Periods. Thereafter, Developer shall pay Franchisor a
franchise fee in an amount which is equal to the amount of the franchise fee
then in effect at the time of the issuance of the franchise agreement for each
additional restaurant to be opened during any Subsequent Development Period. The
amount of the franchise fee shall be set forth in the franchise offering
circular received by the Developer from Franchisor immediately preceding the
issuance of such franchise agreement. Simultaneously with the execution of this
Agreement, Developer shall pay to Franchisor, by certified check, the amount of
$__________ ("Franchise Fee Deposit"). Said Franchise Fee Deposit shall be equal
to the greater of (a) the franchise fee for one of the Restaurants to be
developed during the Initial Development Periods, or (b) ten percent (10%) of
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the entire franchise fees covering the _________ (___) Restaurants to be
developed during the first three1 (3) Initial Development Periods pursuant to
this Agreement (as reduced by a credit of $6,000 based on Developer's prior
payment, if so paid, of a non-refundable $6,000 application fee). The remaining
balance of the franchise fees for each of the Restaurants to be developed during
the three (3) Initial Development Periods shall be paid by certified check as
follows: one-half (1/2) of the balance shall be paid upon signing a franchise
agreement for that Restaurant and the remaining balance shall be paid fourteen
(14) days prior to the scheduled opening of the Restaurant. The Franchise Fee
Deposit shall be proportionately allocated to the franchise fee due with respect
to each Restaurant to which it applies. The franchise fee with respect to each
Restaurant to be developed during a Subsequent Development Period or with
respect to any additional Restaurants developed during the Initial Development
Periods shall be paid by certified check in the same manner.
4.2 Except as provided in this Subsection 4.2 and in Subsection 19.1 of the
form of franchise agreement which is attached hereto as Appendix B, Developer
shall have no right to recover from Franchisor, directly or indirectly, any of
the franchise fees which are prepaid pursuant to Subsection 4.1 hereof. If
Developer's failure to develop the total number of Restaurants specified in
Subsection 2.1 of this Agreement is the result of the assertion of rights by a
third party as described in Subsection 3.5 hereof, those prepaid franchise fees
which relate to the Restaurants which cannot be so developed shall be refunded
to Developer in cash.
4.3 As partial consideration for the rights granted to Developer pursuant
to the franchise agreements covering the Restaurants which Developer develops
hereunder, Developer (as franchisee under each such franchise agreement) shall
pay Franchisor a monthly royalty fee as determined by Franchisor. Until January
1, 2020, the monthly royalty fee shall not exceed four percent (4%) of each
calendar month's gross sales (as that term is defined in the form of franchise
agreement which is attached hereto as Appendix B). Thereafter, the monthly
royalty fee shall be as determined by Franchisor.
4.4 Pursuant to its obligations hereunder and under the applicable
franchise agreements, Franchisor will make various expenditures in connection
with the development of prospective Restaurant sites by Developer, including
expenditures for travel, lodging, meals, obtaining of information about
prospective sites, demographic information, traffic counts, and inquiries into
local laws and ordinances. Developer shall promptly notify Franchisor of a
decision to cease development of a prospective Restaurant site. In the event
that Developer fails to open a restaurant at any such site, in lieu of the
payment of the franchise fee therefor, Franchisor in its sole discretion may
require Developer to reimburse Franchisor for Franchisor's expenditures with
respect to that site. In such event, Franchisor shall provide Developer with
an itemized list of Franchisor's expenditures with respect to that site within
thirty (30) business days after Franchisor receives notice that Developer no
longer intends to develop a Restaurant at that site, and Developer shall
reimburse Franchisor for such costs within thirty (30) days after receiving such
list.
1 In the event there are more or less than three (3) Initial Development
Periods, these fees are payable for each of the Restaurants provided for in the
applicable total number of Initial Development Periods.
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5. SITE APPROVALS: PLANS AND SPECIFICATIONS
5.1 Developer assumes all cost, liability, expense and responsibility for
locating, obtaining, financing and developing sites for Restaurants, and for
constructing and equipping Restaurants at such sites. To assist Developer in the
site selection process, Franchisor will provide Developer with certain
demographic information regarding the site, will conduct an on-site inspection
and will review any lease or contract under negotiation for the prospective
site, such services to be provided to Developer at no additional cost. The
development of a Restaurant at any site must be approved by Franchisor in
accordance with its then-existing site approval procedure. In connection with a
request for approval of a proposed site for a Restaurant, Developer shall
provide a related contract of sale or lease agreement and such other information
and material as the Franchisor may reasonably require. Franchisor's approval of
a prospective Restaurant site shall not be unreasonably withheld. Franchisor
shall notify Developer whether it approves a proposed site and the related
contract of sale or lease agreement within thirty (30) business days of
receiving Developer's request for approval. Failure of Franchisor to so notify
Developer within such thirty (30) business day period shall be deemed to be an
approval of such site and the related contract of sale or lease agreement.
Developer acknowledges that Franchisor's approval of a prospective site for a
Restaurant does not constitute a representation, promise or guarantee by
Franchisor that a Restaurant operated at that site will be profitable or
otherwise successful. Developer shall not make any binding commitment to a
prospective vendor or lessor of real estate with respect to a site for a
Restaurant unless Franchisor has approved that site in accordance with
Franchisor's then-existing site approval procedure. After Franchisor has
approved a site for a Restaurant, Developer shall provide Franchisor with a copy
of the executed contract of sale or lease, as applicable, relating to the site
within a reasonable period of time.
5.2 For each Restaurant which Developer develops pursuant to this
Agreement, Franchisor will make available to Developer Franchisor's
specifications for a typical Restaurant. Developer will obtain architectural and
engineering services independently and at its own expense. Franchisor shall have
the right to review all such architectural and/or engineering plans which
Developer obtains and to prohibit the implementation of any plan, or part
thereof, which Franchisor, in its sole and absolute discretion, believes is not
consistent with the best interests of the System. In the event that Franchisor
desires to prohibit the implementation of any such plan, or part thereof,
Franchisor shall so notify Developer within thirty (30) business days of
receiving such architectural and/or engineering plans for review. Failure of
Franchisor to so notify Developer within such thirty (30) business day period
shall be deemed to be an approval of such plans. In the event Franchisor does
object to any such plan, Franchisor shall provide Developer with a reasonable
detailed list of changes necessary to make such plans acceptable to Franchisor.
Franchisor shall, upon resubmission of such plans, with such changes as
Developer has prepared, notify Developer within fifteen (15) business days of
receiving such plans whether they are acceptable. Failure to so notify Developer
within such fifteen (15) business day period shall be deemed to be an approval
of such amended plans.
5.3 If Developer acquires a leasehold interest in a site, that leasehold
interest shall be for a term which is at least as long as the term of the form
of franchise agreement which is attached hereto as Appendix B, and the lease
shall provide that if the applicable franchise agreement is terminated prior to
the expiration of that term for whatever reason, Developer may assign the lease
to Franchisor without the lessor having any right to impose conditions on such
assignment or to obtain any payment in connection therewith.
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6. FEES AND FRANCHISE AGREEMENTS
Not later than ninety (90) days prior to the scheduled opening of any
Restaurant which has been developed pursuant to this Agreement, Developer shall
deliver to Franchisor an executed franchise agreement substantially in the form
which is attached hereto as Appendix B, provided, however, that the franchise
agreement which Developer executes shall require the payment of a franchise fee
in the amount described in Subsection 4.1, royalty fees as described in
Subsection 4.3, and advertising payments at the rates then established by
Franchisor with respect to new Restaurants, except that in no event shall such
rates exceed five percent (5%) of a Restaurant's gross sales (as defined in
Subsection 9.3 of the form of a franchise agreement which is attached hereto as
Appendix B).
7. DEVELOPER ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS
7.1 Developer and each Principal Shareholder represent and warrant that:(a)
Developer is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation; (b) Developer is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in each jurisdiction in which its business activities or the nature
of the properties owned by it requires such qualification; (c) the execution and
delivery of this Agreement and the transactions contemplated hereby are within
Developer's corporate power; (d) the execution and delivery of this Agreement
have been duly authorized by the Developer; (e) the articles of incorporation
and by-laws of Developer delivered to Franchisor are true, complete and correct,
and there have been no changes therein since the date thereof; (f) the certified
copies of the minutes electing the officers of Developer and authorizing the
execution and delivery of this Agreement are true, correct and complete, and
there have been no changes therein since the date(s) thereof; (g) the specimen
stock certificate delivered to Franchisor is a true specimen of Developer's
stock certificate; (h) the financial statement of Developer and financial
statements of its Principal Shareholders, heretofore delivered to Franchisor,
are true, complete and correct, and fairly present the financial positions of
Developer and each Principal Shareholder, respectively, as of the date thereof;
(i) such financial statements 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 Developer or Principal
Shareholders since the date or dates thereof.
7.2 Developer and each Principal Shareholder covenant that during the term
of this Agreement: (a) Developer 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) Developer shall have the corporate authority to carry out the
terms of this Agreement; and (c) Developer 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 Developer
and Principal Shareholders hereunder, including the restrictions on transfer of
Developer's shares.
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7.3 Prior to development of the first Restaurant pursuant to this
Agreement, Developer shall maintain an average monthly balance of five hundred
thousand dollars ($500,000) in liquid assets. For purposes of this Agreement,
"liquid assets" shall consist of cash, cash available to Developer pursuant to
an irrevocable line of credit issued by a commercial bank in favor of Developer,
marketable securities, or any other similar asset which Franchisor's Chief
Financial Officer designates in writing as a liquid asset. After development of
the first Restaurant pursuant to this Agreement, and at any time thereafter in
which Developer is operating one (1) Restaurant in the Territory, Developer
shall maintain an average monthly balance of three hundred twenty-five thousand
dollars ($325,000) in liquid assets. After development of the second Restaurant
pursuant to this Agreement, and thereafter, so long as Developer is operating at
least two (2) Restaurants in the Territory, Developer shall maintain an average
monthly balance of one hundred fifty thousand dollars ($150,000) in liquid
assets. At all times Developer shall maintain the necessary financial resources
to satisfy its development obligations hereunder.
7.4 In addition to its obligations pursuant to Subsections 7.1 and 7.3
hereof, Developer and Principal Shareholders shall provide Franchisor with such
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 Developer and each Principal Shareholder, dated as of the end of
the last preceding fiscal year of the Developer 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 7.1 hereof.
7.5 Developer and each Principal Shareholder represent, warrant and
covenant that all Interests (as defined in Subsection 8.4 hereto) in Developer
are owned as set forth on Appendix C hereto, that no Interest has been pledged
or hypothecated (except in accordance with Section 8 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.
Developer 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 Developer and Principal Shareholders
remain as represented herein.
7.6 Each Principal Shareholder, jointly and severally, hereby personally
and unconditionally guarantees each of Developer's financial obligations to
Franchisor (including, but not limited to, all obligations relating to the
payment of fees by Developer 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 Developer, 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 Developer 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.
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7.7 Developer and each Principal Shareholder represent and warrant to
Franchisor that:
(a) Neither Developer nor any Principal Shareholder or any other
person with a direct or indirect ownership interest in Developer 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 xxx.xxxxx.xxx/xxxxxxx/xxxxxxxxxxx/xxxx/). Further, Developer 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
xxxx://xxx.xxxx.xxx/xxxxxxx/xxxxxxxxx/xx0000.xxxx), U.S. Executive Order
13244 (text available at
xxxx://xxxxx.xxx/xxxxxxx/xxxxxxxxxxx/xxxx/xxxxxxxxx/xxxxxxxxx.xxxx), or
similar law;
(b) Developer 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) Developer 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
Developer 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
xxx.xxxxx.xxx/xxxxxxxx/xxxxx/xxxx.xxxx, any local foreign corrupt practices laws
and the Patriot Act (currently located at
xxx.xxxx.xxx/xxxxxxx/xxxxxxxxx/xx0000.xxxx, 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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8. TRANSFER
8.1 There shall be no Transfer of any Interest of Developer, or of a
Principal Shareholder in Developer, 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 8. "Transfer" and "Interest" are defined in
Subsections 8.2, 8.3 and 8.4.
8.2 Except as provided in Subsection 8.3, "Transfer" shall mean any
assignment, sale, pledge, hypothecation, gift or any other such event which
would change ownership of 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 Developer which would result from the act
of any shareholder of Developer ("Shareholder"), such as a sale, exchange,
pledge or hypothecation of shares, or any interest in or rights to any of
Developer'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 Developer, or interests in its profits, revenues or
assets which would result from any act of Developer 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 Developer satisfies the applicable liquid asset
requirement described in Subsection 7.3 of this Agreement); any sale or
issuance of any shares of Developer's stock; the retirement or redemption of
any shares of Developer's stock; or any sale or grant to any person of any
right to participate in or otherwise to share or become entitled to any part
of Developer's profits, revenues, assets or equity.
8.3 "Transfer" shall not include (a) a change in the ownership of or rights
to any shares or other equity interest in Developer pursuant to a public
offering of Developer's securities registered under the Securities Act of 1933,
or (b) a change in the ownership of or rights to any securities or other equity
interest in Developer pursuant to a private offering of Developer's securities
exempted from registration under such Act, provided that Developer provides
Franchisor with a copy of its prospectus and/or offering memorandum ten (10)
days prior to its filing with the Securities and Exchange Commission or
circulation to third parties so that Franchisor may comment and, if necessary,
correct any information concerning Franchisor and/or the System, and further
provided that after giving effect to any such public or private offering, the
Principal Shareholders, or any of them, "control" Developer. For purposes of
this Section 8, "control" means either (1) owning legal and equitable title to
fifty-one percent (51%) or more of the outstanding voting securities of
Developer, which are not subject to a proxy granted to or contract with any
other person or party granting that party the right to vote part or all of such
securities, or (2) having and continually exercising the contractual power
presently to designate a majority of the directors of Developer.
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8.4 "Interest" shall mean: when referring to interests or rights in
Developer, any shares of Developer's stock, and any other equitable or legal
right in or to any of Developer's stock, revenues, profits or assets; when
referring to rights or assets of Developer, Developer's rights under and
interest in this Agreement, any Restaurant and its revenues, profits and assets.
8.5 (a) The Interest of a Principal Shareholder may be transferred to such
Principal Shareholder's spouse or children or to a person designated in such
Principal Shareholder's will or trust (individually and collectively referred to
as "Successor"), upon such Principal Shareholder's death or permanent
incapacity, without Franchisor's approval, provided that such Successor shall
agree to be bound by the restrictions contained in this Section 8, and the other
agreements and covenants of the Principal Shareholders contained in this
Agreement.
(b) The Interest of a Principal Shareholder may not be transferred to
another Principal Shareholder without Franchisor's approval, which approval will
not be unreasonably withheld.
(c) The Interest of a Successor may only be transferred in accordance
with Subsection 8.5(b) or 8.8, regardless of whether such Transfer is for
consideration or by gift or will or other device.
8.6 Until such date as Developer has developed and opened for operation
forty percent (40%) of the number of Restaurants required by Subsection 2.1
hereof and the number of Restaurants required by Subsection 3.1 hereof as said
total aggregate number is set forth on Appendix A, Developer shall have no right
to Transfer this Agreement or any rights or obligations under this Agreement,
and any franchise agreements to be issued pursuant hereto shall be issued solely
to the Developer, which as of the date of issuance of each such franchise
agreement shall be owned by the Principal Shareholders to the extent
hereinbefore provided. Any transfer or attempted transfer in contravention of
this provision shall be void and of no effect. If, after the date Developer has
developed and opened for continuous operation the number of Restaurants required
by this Subsection 8.6, the Principal Shareholders desire to dispose of all or
substantially all of the Interests of the Principal Shareholders in Developer,
or the Principal Shareholders (or Developer) desire to dispose of all or
substantially all of Developer's Interest in this Agreement or in the assets
which Developer has acquired pursuant to this Agreement, the Principal
Shareholders or Developer, as the case may be, shall notify Franchisor of that
desire, in writing, thirty (30) days before announcing that fact publicly or
engaging the services of a broker or sales agent.
8.7 (a) If at any time any of the Principal Shareholders or Developer, as
the case may be, obtains from a third party or third parties a bona fide offer
(the "Offer") in writing for the purchase of all or substantially all of the
Interests of the Principal Shareholders in Developer or in the Restaurant assets
which Developer has acquired as a result of this Agreement, the Principal
Shareholders or Developer shall give notice (the "Selling Notice") to Franchisor
stating that the Principal Shareholders or Developer, as the case may be, have
received the Offer, identifying the prospective purchaser by name and address,
specifying the proposed purchase price and attaching a true and complete copy of
the Offer. Notwithstanding the foregoing, however, Developer and Principal
Shareholders understand and agree that, as provided in Subsection 8.6 hereof,
until such time as Developer has developed and opened for operation the number
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of Restaurants required by said Subsection 8.6. hereof, any portion of any Offer
regarding the right to develop Restaurants or Developer's Interest in this
Agreement shall be invalid and of no force or effect, it being expressly
understood and agreed that such rights may not be transferred, and any franchise
agreements to be granted hereunder shall be issued solely to Developer, which
shall be owned by the Principal Shareholders as hereinbefore set forth. At such
time as Developer has developed and opened for operation the number of
Restaurants required by Subsection 8.6, any portion of such an Offer regarding
Developer's Interest in this Agreement shall be effective in accordance with its
terms.
(b) Franchisor shall have an option to purchase (the "Option"),
exercisable within a period of forty-five (45) days after receipt of the Selling
Notice (the "Option Period"), such Interests at the price and on the conditions
set forth in the Offer, except that Franchisor shall not be obligated to pay any
finder's or broker's fee, and if the Offer provides for payment of consideration
other than cash, or if the Offer involves certain intangible benefits,
Franchisor may elect to purchase such Interests by offering a reasonable dollar
value substitute including, at Franchisor's option, cash or the common stock or
other securities of the Franchisor or any combination thereof for the
non-cash/intangible benefits part of the Offer.
(c) The Option shall be exercisable by Franchisor delivering to the
Principal Shareholders or Developer, as the case may be, within the Option
Period, a notice (i) stating that the Option is being exercised, and (ii)
specifying the time, date and place at which such purchase and sale will take
place, which date shall be within forty-five (45) days after Franchisor delivers
such notice. Developer shall provide Franchisor access to and copies of such
information and documentation Franchisor shall request regarding the purchase.
The forty-five (45) day limitation described at the end of the preceding
sentence shall not apply if at the end of said forty-five (45) day period the
only issue which prevents completion of the purchase and sale is the need to
effect transfers of the applicable liquor licenses. In the event of such a
delay, the purchase and sale shall take place within seven (7) business days
after those liquor licenses have been transferred.
(d) If the Option is not exercised, the Principal Shareholders or
Developer, as the case may be, may sell the Interests in or of Developer to the
third party which made the Offer, on conditions no more favorable to the
third-party offerer than those set forth in the Offer, provided that Franchisor
approves the proposed transferee in accordance with the criteria set forth in
Appendix D and provided further that such sale takes place within ninety (90)
days after the expiration of the Option Period. The ninety (90) day limitation
described in the preceding sentence shall not apply if at the end of said ninety
(90) day period the issue which prevents completion of the purchase and sale is
either the need to effect transfers of the applicable liquor licenses or consent
or approval of the transaction by a state or federal regulatory agency. In the
event of such a delay, the purchase and sale shall take place within seven (7)
business days after those issues have been resolved or waived by Franchisor. In
the event of such a transfer, Franchisor may, in its discretion, require an
amendment to Subsection 2.1 of this Agreement in order to increase or decrease
the number of restaurants required thereby and the dates of the Initial
Development Periods referred to therein.
(e) If the Option is not exercised, the Principal Shareholders or
Developer, as the case may be, shall immediately notify Franchisor in writing of
any change in the terms of an Offer. Any change in the terms of an Offer shall
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cause it to be deemed a new Offer, conferring upon Franchisor a new Option
pursuant to this Subsection 8.7; the Option Period with respect to the new
Option shall be deemed to commence on the day on which Franchisor receives
written notice of a change in the terms of the original Offer. Provided however,
in such an instance, Franchisor shall provide Franchisee its response within
fifteen (15) days after Franchisor's receipt of all of the modified terms,
unless such changes are deemed material by Franchisor and in such an event,
Franchisor shall have a forty-five (45) day period within which to review said
changes.
8.8 (a) Developer understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Developer and that Franchisor has
entered into this Agreement in reliance on the business skill and financial
capacity of Developer, and the business skill, financial capability and personal
character of each Principal Shareholder. Any transfer of Principal Shareholders'
Interest in Developer or in Developer's Interest in this Agreement in
contravention of this Section 8 shall cause the immediate termination of all
development rights granted herein with respect to Restaurants not otherwise open
for operation. Except as otherwise set forth in this Section 8, the Principal
Shareholders shall at all times retain control of Developer. Except as otherwise
provided in this Section 8, no Transfer of any part of Developer's Interest in
this Agreement, and no Transfer of any Interest of any Principal Shareholder
shall be completed except in accordance with this Subsection 8.8. In the event
of such a proposed Transfer of any part of Developer's Interest in this
Agreement, or of any Interest of any Principal Shareholder, the party or parties
desiring to effect such Transfer shall give Franchisor notice in writing of the
proposed Transfer, which notice shall set forth the name and address of the
proposed transferee, its financial condition, including a copy of its financial
statement dated not more than ninety (90) days prior to the date of said notice,
and all the terms and conditions of the proposed Transfer. Upon receiving such
notice, Franchisor may (i) approve the Transfer, or (ii) withhold its consent to
the Transfer. Franchisor shall, within forty-five (45) days of receiving such
notice and all the information required therein, advise the party or parties
desiring to effect the Transfer whether it (1) approves the Transfer, or (2)
withholds its consent to the Transfer, giving the reasons for such disapproval.
Failure of Franchisor to so advise said party or parties within that forty-five
(45) day period shall be deemed to be approval of the proposed Transfer.
Appendix D sets forth the criteria for obtaining Franchisor's consent to a
proposed Transfer.
(b) In the event that Franchisor approves the Transfer, and the
Transfer is not completed within ninety (90) days of the later of (i) expiration
of the forty-five (45) day notice period, or (ii) delivery of notice of
Franchisor's approval of the proposed Transfer, Franchisor's approval of the
proposed Transfer shall automatically be revoked. The ninety (90) day limitation
described in the preceding sentence shall not apply if at the end of said ninety
(90) day period the only issue which prevents completion of the Transfer is the
need to effect transfers of the applicable liquor licenses. In the event of such
a delay, the Transfer shall take place within seven (7) business days after
those liquor licenses have been transferred. Any subsequent proposal to complete
the proposed Transfer shall be subject to Franchisor's right of approval as
provided herein. The party which desires to effect the proposed Transfer shall
immediately notify Franchisor in writing of any change in the terms of a
Transfer. Any change in terms of a Transfer prior to closing shall cause it to
be deemed a new Transfer, revoking any approval previously given by Franchisor
and conferring upon Franchisor a new right to approve such Transfer, which shall
be deemed to commence on the day on which Franchisor receives written notice of
such change in terms.
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8.9 In connection with any request for Franchisor's approval of a proposed
Transfer to this Section 8, the parties to the proposed Transfer shall pay
Franchisor a nonaccountable fee to defray the actual cost of review and the
administrative and professional expenses related to the proposed Transfer and
the preparation and execution of documents and agreements, up to a maximum of
two thousand five hundred dollars ($2,500).
9. TERMINATION
9.1 This Agreement shall expire on _______________, 20____, unless sooner
terminated pursuant to the terms hereof.
9.2 Franchisor shall have the right to terminate this Agreement immediately
upon written notice to Developer stating the reason for such termination, and
Developer shall no longer have any of the rights created by this Agreement, in
the event of:
(a) development by Developer of a Restaurant without first obtaining
approval from Franchisor of the Restaurant site or of Developer's
architectural and/or engineering plans in accordance with Section 5 hereof;
(b) any breach or default of any of the provisions of Sections 8 and
11 of this Agreement and Subsection 14.1 of any franchise agreement entered
into pursuant to this Agreement;
(c) the filing by Developer of a petition in bankruptcy, an
arrangement for the benefit of creditors, or a petition for reorganization;
the filing against Developer of a petition in bankruptcy, an arrangement for
the benefit of creditors, or petition for reorganization, not dismissed
within ninety (90) days of the filing thereof; the making of an assignment
by Developer for the benefit of creditors; or the appointment of a receiver
or trustee for Developer, which receiver or trustee shall not have been
dismissed within ninety (90) days of such appointment;
(d) the discovery by Franchisor that Developer made any material
misrepresentation or omitted any material fact in the information which was
furnished to Franchisor in connection with this Agreement;
(e) failure by Developer to locate and employ a Director of Operations
who is approved by Franchisor in accordance with Subsection 12.2 within
ninety (90) days of the date of this Agreement or, with respect to a
replacement Director of Operations, failure by Developer to locate such a
replacement who is approved by Franchisor in accordance with Subsection 12.2
within one hundred eighty (180) days of the date on which the last Director
of Operations who was approved by Franchisor ceased to be employed by
Developer in that capacity;
(f) any part of this Agreement relating to the payment of fees to
Franchisor, or the preservation of any of Franchisor's trade names, service
marks, trademarks, trade secrets or secret formulae licensed or disclosed
hereunder or under any franchise agreement between Franchisor and Developer,
for any reason being declared invalid or unenforceable;
E-23
(g) Developer or any Principal Shareholder being convicted of or
pleading nolo contendere to a felony or any crime involving moral turpitude;
or
(h) the franchisee under any franchise agreement executed pursuant to
this Agreement committing a default subject to immediate termination under
the franchise agreement.
9.3 Except as provided above in Subsection 9.2, if Developer defaults in
the performance or observance of any of its other obligations hereunder or under
any franchise agreement between Developer and Franchisor, and any such default
continues for a period of thirty (30) days after written notice to Developer
specifying such default, Franchisor shall have the right to terminate this
Agreement upon written notice to Developer. If Developer defaults in the
performance or observance of the same obligation two (2) or more times within a
twelve (12) month period, Franchisor shall have the right to terminate this
Agreement immediately upon commission of the second act of default, upon written
notice to Developer stating the reason for such termination, without allowance
for any curative period.
9.4 This Agreement shall automatically terminate under the conditions and
at the times specified in Subsection 2.3 and 3.3.
10. PREREQUISITES TO OBTAINING FRANCHISES FOR INDIVIDUAL RESTAURANT UNITS
10.1 Developer understands and agrees that this Agreement does not confer
upon Developer a right to obtain a franchise for any Restaurant, but is intended
by the parties to set forth the terms and conditions which, if fully satisfied,
shall entitle Developer to obtain such a franchise, located within the
Territory. Developer further understands that until the date Developer opens for
operation all those Restaurants required under Subsection 8.6 of this Agreement,
such aforesaid terms and conditions may only be satisfied by Developer (and not
an assignee or transferee thereof), who shall remain at all times owned and
controlled by the Principal Shareholders as herein set forth.
10.2 In the event that Developer shall have obtained Franchisor's approval
of a particular proposed site for a Restaurant, and if Franchisor, in the
exercise of its sole discretion, has granted Developer operational, financial
and legal approval, then Franchisor will grant Developer a franchise for a
Restaurant at the site in question. As used herein, Franchisor will give
Developer "operational", "financial" and "legal" approval under the following
circumstances:
"Operational" approval will be granted if Franchisor has determined, in the
exercise of its sole discretion, that Developer is conducting the operation
of each of its Restaurants, and is capable of conducting the operation of
the proposed Restaurant, including physical aspects thereof, (a) in
accordance with the terms and conditions of this Agreement, (b) in
accordance with the provisions of the respective franchise agreements, and
(c) in accordance with the standards, specifications and procedures set
forth and described in the Franchise Operations Manual and in any other
materials or manuals provided or made available to Developer by Franchisor
E-24
(collectively, the "Manuals"), as such may be amended from time to time.
Developer understands that changes in said standards, specifications and
procedures may become necessary from time to time. Developer agrees to
accept said changes, and Developer further agrees that it is within the sole
discretion of Franchisor to make said changes.
"Financial" approval will be granted if (a) Developer is not in breach of
its obligations under Subsection 7.3 hereof and has been and is faithfully
performing all terms and conditions under each of its existing franchise
agreements with Franchisor, (b) Developer or its affiliates is not in
default of any money obligations owed to Franchisor, and (c) Developer is
not in default of any financial obligation to any of its suppliers, unless
any such obligation is being disputed in good faith by the Developer.
Developer acknowledges and agrees that it is vital to Franchisor's interest
that each of its franchisees be financially sound to avoid failure of a
franchised business (which would adversely affect the reputation and good
name of Franchisor and the System). Developer acknowledges and agrees that
it is vital to Franchisor's interest and to the interests of the System that
Developer (in its capacity as franchisee) remain current in satisfying its
financial obligations to it suppliers.
"Legal" approval will be granted if Franchisor has determined, in the
exercise of its sole discretion, that Developer has submitted to Franchisor,
in a timely manner as requested, all information and documents requested by
Franchisor prior to and as a basis for the issuance of individual franchises
or pursuant to any right granted to Franchisor by this Agreement or by any
franchise agreement between Developer and Franchisor, and has taken such
additional actions in connection therewith as may be requested from time to
time.
10.3 It is understood and agreed that the foregoing criteria apply to the
operational, financial and legal aspects of any Restaurant franchised by
Franchisor in which Developer or any Principal Shareholder has any legal or
equitable interest. It is further understood and agreed that Developer and
Principal Shareholders have an ongoing responsibility to operate each Restaurant
in which Developer or any Principal Shareholder has any legal or equitable
interest in a manner which satisfies the foregoing requirements for operational,
financial and legal approval.
11. RESTRICTIONS
11.1 Developer and its Principal Shareholders acknowledge that over the term
of this Agreement they are to receive proprietary information which Franchisor
has developed over time at great expense, including, but not limited to, methods
of site selection, marketing methods, product analysis and selection, and
service methods and skills relating to the development and operation of
Restaurants. They further acknowledge that this information, which includes, but
is not necessarily limited to, that contained in the Manuals, is not generally
known in the industry and is beyond their own present skills and experience, and
that to develop it themselves would be expensive, time-consuming and difficult.
Developer and Principal Shareholders further acknowledge that the Franchisor's
information provides a competitive advantage and will be valuable to them in the
development of their business, and that gaining access to it is therefore a
primary reason why they are entering into this Agreement. Accordingly, Developer
and its Principal Shareholders agree that Franchisor's information, as described
E-25
above, which may or may not be "trade secrets" under prevailing judicial
interpretations or statutes, is private and valuable, and constitutes trade
secrets belonging to Franchisor; and in consideration of Franchisor's
confidential disclosure to them of these trade secrets, Developer and Principal
Shareholders agree as follows:
(a) During the term of this Agreement, neither Developer nor any
Principal Shareholder, for so long as such Principal Shareholder owns an
Interest in Developer, may, without the prior written consent of Franchisor,
directly or indirectly engage in, or acquire any financial or beneficial
interest (including any interest in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, advise, help, guarantee
loans or make loans to, any restaurant business whose menu or method of
operation is similar to that employed by restaurant units within the System
which is either (i) located in the Territory, (ii) located in the Area of
Dominant Influence (as defined and established from time to time by Arbitron
Ratings Company) of any Restaurant developed pursuant to this Agreement,
(iii) located within a five (5) mile radius of any restaurant unit within
the System, or (iv) determined by Franchisor, exercising reasonable good
faith judgment, to be a direct competitor of the System.
(b) Neither Developer, for two (2) years following the termination of
this Agreement, nor any Principal Shareholder, for two (2) years following
the termination of all of his or her Interest in Developer or the
termination of this Agreement, whichever occurs first, may directly or
indirectly engage in, or acquire any financial or beneficial interest
(including any interest in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, advise, help, guarantee
loans or make loans to, any restaurant business whose menu or method of
operation is similar to that employed by restaurant units within the System
which is located either (i) in the Territory, (ii) in the Area of Dominant
Influence (as defined and established from time to time by Arbitron Ratings
Company) of any Restaurant developed pursuant to this Agreement, (iii)
within a five (5) mile radius of any restaurant unit within the System, or
(iv) within any area for which an active, currently binding development
agreement has been granted by Franchisor to another franchisee as of the
date of termination.
11.2 Neither Developer nor any Shareholder shall at any time (a) appropriate
or use the trade secrets incorporated in the System, or any portion thereof, in
any other restaurant business which is not within the System, (b) disclose or
reveal any portion of the System to any person other than to Developer's
employees as an incident of their training, (c) acquire any right to use any
name, xxxx or other intellectual property right which may be granted pursuant to
any agreement between Franchisor and Developer, except in connection with the
operation of a Restaurant, or (d) communicate, divulge or use for the benefit of
any other person or entity any confidential information, knowledge or know-how
concerning the methods of development or operation of a restaurant utilizing the
System, which may be communicated by Franchisor in connection with the
Restaurants to be developed hereunder.
11.3 Developer and Principal Shareholders agree that the provisions of this
Section 11 are and have been a primary inducement to Franchisor to enter into
this Agreement, and that in the event of breach thereof Franchisor would be
irreparably injured and would be without an adequate remedy at law. Therefore,
in the event of a breach, or a threatened or attempted breach, of any of such
E-26
provisions Franchisor shall be entitled, in addition to any other remedies which
it may have hereunder or in law or in equity (including the right to terminate
this Agreement), to a preliminary and/or permanent injunction and a decree for
specific performance of the terms hereof without the necessity of showing actual
or threatened damage, and without being required to furnish a bond or other
security.
11.4 The restrictions contained in Subsection 11.1 above shall not apply to
ownership of less than two percent (2%) of the shares of a company whose shares
are listed and traded on a national securities exchange if such shares are owned
for investment only, and are not owned by an officer, director, employee or
consultant of such publicly traded company.
11.5 If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this Section 11 determines that it would be
invalid or unenforceable as written, then the provisions hereof shall be deemed
to be modified or limited to such extent or in such manner as necessary for such
provisions to be valid and enforceable to the greatest extent possible.
12. DEVELOPMENT PROCEDURES
12.1 Franchisor will use its reasonable efforts to furnish Developer with
advice in developing Restaurants and in selecting sites therefor.
12.2 Developer shall designate an individual employee who shall be
personally responsible for Developer's activities during the term of this
Agreement, and who shall devote his or her full-time, best efforts and constant
personal attention, on a day-to-day basis, to Developer's activities in the
Territory (the "Director of Operations"). Developer shall require that the
Director of Operations maintain his or her principal personal residence in the
Territory. Franchisor reserves the right to require that, as a condition of his
or her employment with Developer, the Director of Operations, as well as each
supervisory employee referred to in Subsection 12.3, 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
Developer's expense. Developer's designation of the first Director of
Operations, and any subsequent Director of Operations, shall be subject to the
written approval of Franchisor, which approval shall not be arbitrarily
withheld, and shall also be subject to the time limitations described in
Subsection 9.2(e) hereof. Franchisor shall notify Developer in writing within
fourteen (14) business days of receipt of Developer's request whether Franchisor
disapproves such person. Failure by Franchisor to so notify Developer within
that period shall be deemed to constitute Franchisor's approval of such person.
12.3 In the event that Developer desires to designate an employee (in
addition to the Director of Operations) who will have supervisory authority over
the development of operation of more than one (1) Restaurant within the
Territory, Developer's designation of such a supervisory employee shall be
subject to the written approval of Franchisor, which approval shall not be
arbitrarily withheld. Franchisor shall notify Developer in writing within
fourteen (14) business days of receipt of Developer's request whether Franchisor
E-27
disapproves such person. Failure by Franchisor to so notify Developer within
that period shall be deemed to constitute Franchisor's approval of such person.
Developer shall require that any such supervisory employee maintain his or her
principal personal residence in the Territory.
12.4 Developer shall require the Director of Operations to execute a
confidentiality agreement and covenant not to compete in the form attached
hereto as Appendix E. In addition, at Franchisor's request, Developer shall
obtain from the Director of Operations an agreement verifying his or her
employment status. Developer shall require that each other employee of Developer
who will have supervisory authority over the development or operation of more
than one (1) Restaurant execute a confidentiality agreement in the form attached
hereto as Appendix F. Developer shall be responsible for compliance of its
employees with the agreements identified in this Subsection, including the
payment of any costs needed to enforce the obligations.
12.5 (a) Developer shall require its Director of Operations and any other
supervisory employee designated pursuant to Subsection 12.3 to attend and to
successfully complete to Franchisor's reasonable satisfaction an operations
training course provided by Franchisor. If the Director of Operations or any
such supervisory employee fails to successfully complete Franchisor's operations
training course, Franchisor may require designation of a new Director of
Operations or replacement supervisory employee, as the case may be, and
Developer shall designate a new Director of Operations or replacement
supervisory employee who shall be required to successfully complete such
training course.
(b) The Director of Operations and supervisory employees designated
pursuant to Subsection 12.3 shall, from time to time as reasonably requested by
Franchisor, attend and successfully complete to Franchisor's reasonable
satisfaction a Franchisor-provided refresher course in restaurant operations.
12.6 With respect to each Restaurant within the Territory developed by
Developer, Developer's employees must satisfy the training requirements
described in Section 6 of Appendix B hereto. After Developer opens it first
Restaurant pursuant to this Agreement, Franchisor may at its option, and subject
to such conditions as Franchisor deems necessary, permit Developer (at
Developer's own expense) to conduct a portion of the required training at one of
Developer's existing Restaurants. In that event, Developer will be required to
provide qualified personnel to administer training tests and to maintain records
relating to the training and performance of employees.
13. NO WAIVER OF DEFAULT
13.1 The waiver by any party to this Agreement of any breach or default, or
series of breaches or defaults, of any term, covenant or condition herein, or of
any same or similar term, covenant or condition contained in any other agreement
between Franchisor and any other person, shall not be deemed a waiver of any
subsequent or continuing breach or default of the same or any other term,
covenant or condition in this Agreement, or in any other agreement between
Franchisor and any other person.
E-28
13.2 All rights and remedies of Franchisor shall be cumulative and not
alternative, in addition to and not exclusive of any other rights or remedies
which are provided for herein or which may be available at law or in equity in
case of any breach, failure or default or threatened breach, failure or default
of any term, provision or condition of this Agreement. Franchisor's rights and
remedies shall be continuing and shall not be exhausted by any one (1) or more
uses thereof, and may be exercised at any time or from time to time as often as
may be expedient; and any option or election to enforce any such right or remedy
may be exercised or taken at any time and from time to time. The expiration or
earlier termination of this Agreement shall not discharge or release Developer
or any Principal Shareholder from any liability or obligation then accrued, or
any liability or obligation continuing beyond, or arising out of, the expiration
or earlier termination of this Agreement.
14. FORCE MAJEURE
14.1 As used in this Agreement, the term "Force Majeure" shall mean any act
of God, strike, lock-out or other industrial disturbance, war (declared or
undeclared), riot, epidemic, fire or other catastrophe, act of any government
and any other similar cause not within the control of the party affected
thereby.
14.2 If the performance of any obligation by any party under this Agreement
is prevented or delayed by reason of Force Majeure, which cannot be overcome by
use of normal commercial measures, the parties shall be relieved of their
respective obligations to the extent the parties are respectively necessarily
prevented or delayed in such performance during the period of such Force
Majeure. The party whose performance is affected by an event of Force Majeure
shall give prompt notice of such Force Majeure event to the other party by
facsimile, telephone or telegram (in each case to be confirmed in writing),
setting forth the nature thereof and an estimate as to its duration, and shall
be liable for failure to give such timely notice only to the extent of damage
actually caused.
15. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION
15.1 If any part of this Agreement shall for any reason be declared invalid,
unenforceable or impaired in any way, the validity of the remaining portions
shall remain in full force and effect as if this Agreement had been executed
with such invalid portion eliminated, and it is hereby declared the intention of
the parties that they would have executed the remaining portion of this
Agreement without including therein any such portions which might be declared
invalid; provided however, that in the event any part hereof relating to the
payment of fees to Franchisor, or the preservation of any of Franchisor's trade
names, service marks, trademarks, trade secrets or secret formulae licensed or
disclosed hereunder or pursuant to any franchise agreement between Franchisor
and Developer is for any reason declared invalid or unenforceable, then
Franchisor shall have the option of terminating this Agreement upon written
notice to Developer. If any clause or provision herein would be deemed invalid
E-29
or unenforceable as written, it shall be deemed to be modified or limited to
such extent or in such manner as may be necessary to render the clause or
provision valid and enforceable to the greatest extent possible in light of the
interest of the parties expressed in that clause or provision, subject to the
provisions of the preceding sentence.
15.2 DEVELOPER AND PRINCIPAL SHAREHOLDERS ACKNOWLEDGE THAT FRANCHISOR MAY
ENTER INTO OTHER DEVELOPMENT AGREEMENTS THROUGHOUT THE UNITED STATES ON TERMS
AND CONDITIONS SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT IS OF
MUTUAL BENEFIT TO DEVELOPER AND PRINCIPAL SHAREHOLDERS AND TO FRANCHISOR THAT
THESE TERMS AND CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES
AGREE THAT TO THE EXTENT THAT THE LAW OF THE STATE OF KANSAS DOES NOT CONFLICT
WITH LOCAL FRANCHISE STATUTES, RULES AND REGULATIONS, KANSAS LAW SHALL APPLY TO
THE CONSTRUCTION OF THIS AGREEMENT AND SHALL GOVERN ALL QUESTIONS WHICH ARISE
WITH REFERENCE HERETO; PROVIDED HOWEVER, THAT PROVISIONS OF KANSAS LAW REGARDING
CONFLICTS OF LAW SHALL NOT APPLY HERETO.
15.3 THE PARTIES AGREE THAT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE THEREOF WHICH CANNOT BE
AMICABLY SETTLED, EXCEPT AS OTHERWISE PROVIDED HEREIN, MAY, AT THE OPTION OF THE
CLAIMANT, BE RESOLVED BY A PROCEEDING IN A COURT IN XXXXXXX COUNTY, KANSAS, AND
DEVELOPER AND THE PRINCIPAL SHAREHOLDERS EACH IRREVOCABLY ACCEPT THE
JURISDICTION OF THE COURTS OF THE STATE OF KANSAS AND THE FEDERAL COURTS SERVING
XXXXXXX COUNTY, KANSAS FOR SUCH CLAIMS, CONTROVERSIES OR DISPUTES.
The parties agree that service of process in any proceeding arising out of
or relating to this Agreement or the performance thereof may be made as to
Developer and any Principal Shareholder by serving a person of suitable age and
discretion (such as the person in charge of the office) at the address of
Developer specified in this Agreement and as to Franchisor by serving the
president or a vice-president of Franchisor at the address of Franchisor or by
serving Franchisor's registered agent.
16. MISCELLANEOUS
16.1 All notices and other communications required or permitted to be given
hereunder shall be deemed given when delivered in person, by overnight courier
service, facsimile transmission or mailed by registered or certified mail
addressed to the recipient at the address set forth below, unless that party
shall have given written notice of change of address to the sending party, in
which event the new address so specified shall be used.
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FRANCHISOR: Xxxxxxxx'x International, Inc.
0000 X. 000xx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, Xxxxxx 00000
Attention: President
DEVELOPER: ______________________________
______________________________
______________________________
PRINCIPAL SHAREHOLDERS: ______________________________
______________________________
16.2 All terms used in this Agreement, regardless of the number and gender
in which they are used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context or sense of this Agreement may require, the same as if such words
had been written in this Agreement themselves. The headings inserted in this
Agreement are for reference purposes only and shall not affect the construction
of this Agreement or limit the generality of any of its provisions. The term
"business day" means any day other than Saturday, Sunday, or the following
national holidays: New Year's Day, Xxxxxx Xxxxxx Xxxx Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving and Christmas.
16.4 This Agreement, the Uniform Franchise Offering Circular currently in
effect and the documents referred to herein constitute the entire agreement
between parties, superseding and canceling any and all prior and contemporaneous
agreements, understandings, representations, inducements and statements, oral or
written, of the parties in connection with the subject matter hereof.
16.5 Except as expressly authorized herein, no amendment or modification of
this Agreement shall be binding unless executed in writing both by Franchisor
and by Developer and Principal Shareholders.
16.6 In the event that any party to this Agreement initiates any legal
proceeding to construe or enforce any of the terms, conditions and/or provisions
of this Agreement, including, but not limited to, its termination provisions, or
to obtain damages or other relief to which any party may be entitled by virtue
of this Agreement, the prevailing party or parties shall be paid its reasonable
attorneys' fees and expenses by other party or parties.
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IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date first above written.
FRANCHISOR:
ATTEST: XXXXXXXX'X INTERNATIONAL, INC.
_______________________________________ By: _________________________________
Name: _________________________________ Name: _______________________________
Title: ________________________________ Title:_______________________________
DEVELOPER:
ATTEST: _____________________________________
Name: _________________________________ Name: _______________________________
Title: ________________________________ Title:_______________________________
PRINCIPAL SHAREHOLDER(S):
_______________________________________ _____________________________________
Witness Name: _______________________________
_______________________________________ _____________________________________
Witness Name: _______________________________
_______________________________________ _____________________________________
Witness Name: _______________________________
E-32
APPENDIX A TO DEVELOPMENT AGREEMENT
TERRITORY
Franchisor specifically excludes from the Territory, and reserves the right
to operate or license any other person to operate restaurants in, any
location within an airport (serviced by one or more public or charter
carrier), arena, stadium, state or national park, or military fort, post or
base which may be within the boundaries of the Territory otherwise granted
to Developer.
One hundred percent (100%) of the number of Restaurants required by
Subsections 2.1 and 3.1 is __________ (_____).
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APPENDIX B TO DEVELOPMENT AGREEMENT
FORM FRANCHISE AGREEMENT
(See Exhibit F to this Offering Circular)
E-34
APPENDIX C TO DEVELOPMENT AGREEMENT
STATEMENT OF OWNERSHIP INTERESTS
Percent of Issued and
Shareholder Outstanding Shares of Developer
E-35
APPENDIX D TO DEVELOPMENT AGREEMENT
REVIEW AND CONSENT WITH RESPECT TO TRANSFERS
In determining whether to grant or to withhold consent to a proposed
Transfer, Franchisor shall consider all of the facts and circumstances which it
views as relevant in the particular instance, including, but not limited to, any
of the following: (i) work experience and aptitude of Proposed New Owner and/or
proposed new management (a proposed transferee of a Principal Shareholder's
Interest and/or a proposed transferee of this Agreement is referred to as
"Proposed New Owner"); (ii) financial background and condition of Proposed New
Owner, and actual and pro forma financial condition of Developer; (iii)
character and reputation of Proposed New Owner; (iv) conflicting interests of
Proposed New Owner; (v) the terms and conditions of Proposed New Owner's rights,
if the proposed Transfer is a pledge or hypothecation; (vi) the adequacy of
Developer's operation (as Franchisee) of any Restaurant and compliance with the
System and this Agreement; and (vii) such other criteria and conditions as
Franchisor shall then consider relevant in the case of an application for a new
franchise to operate a restaurant unit within the System by an applicant that is
not then currently doing so. Franchisor's consent also may be conditioned upon
execution by Proposed New Owner of an agreement whereby Proposed New Owner
assumes full, unconditional, joint and several liability for, and agrees to
perform from the date of such Transfer, all obligations, covenants and
agreements contained herein to the same extent as if it had been an original
party to this Agreement and may also require Developer and Principal
Shareholders, including the proposed Transferor(s), to execute a general release
which releases Franchisor from any claims they may have had or then have against
Franchisor. In the event Proposed New Owner is a partnership (including, but not
limited to, a limited partnership), Proposed New Owner will also be required to
execute an addendum to the Agreement which amends the references to Developer
and its Principal Shareholders to include the partnership approved by Franchisor
and Proposed New Owner's general partner(s) and the principal shareholders of
the general partner(s), if the general partner(s) is a corporation. This
addendum will contain a provision including in the definition of "Transfer" the
withdrawal, removal or voluntary/involuntary dissolution (if applicable) of the
general partner(s) or the substitution or addition of a new general partner.
Developer or Principal Shareholders, as the case may be, shall provide
Franchisor with such information as it may require in connection with a request
for approval of a proposed Transfer.
E-36
APPENDIX E TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AGREEMENT AND
COVENANT NOT TO COMPETE
THIS AGREEMENT is made this ________ day of ________________, 20______, by
and between _______________________________________, a _____________ corporation
("Developer"), and __________________________, an individual employed by
Developer ("Employee").
WITNESSETH:
WHEREAS, XXXXXXXX'X INTERNATIONAL, INC. ("Applebee's") is the owner of all
rights in and to a unique system for the development and operation of
restaurants (the "System"), which includes proprietary rights in valuable trade
names, service marks and trademarks, including the service xxxx Xxxxxxxx'x
Neighborhood Grill & Bar and variations of such xxxx, designs 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, a
training facility and teaching techniques;
WHEREAS, Developer is the owner of the exclusive right to develop
restaurants franchised by Applebee's which utilize the System ("Restaurants")
for the period and in the territory described in the Development Agreement
between Applebee's and Developer (the "Development Agreement");
WHEREAS, Developer and Employee acknowledge that Applebee's information as
described above was developed over time at great expense, is not generally known
in the industry and is beyond Developer's own present skills and experience, and
that to develop it itself would be expensive, time-consuming and difficult, that
it provides a competitive advantage and will be valuable to Developer in the
development of its business, and that gaining access to it was therefore a
primary reason why Developer entered into the Development Agreement; and
WHEREAS, in consideration of Applebee's confidential disclosure to Developer
of these trade secrets, Developer has agreed to be obligated by the terms of
Development Agreement to execute, with its Director of Operations, a written
agreement protecting Applebee's trade secrets and confidential information
entrusted to Employee, and protecting against unfair competition;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
contained herein, the parties agree as follows:
(1) The parties acknowledge and agree that Employee is or will be employed
in a supervisory or managerial capacity and in such capacity will have access to
information and materials which constitute trade secrets and confidential and
proprietary information. The parties further acknowledge and agree that any
actual or potential direct or indirect competitor of Applebee's or of any of its
franchisees shall not have access to such trade secrets and confidential
information.
E-37
(2) The parties acknowledge and agree that the System includes trade
secrets and confidential information which Applebee's has revealed or will
reveal to Developer in confidence, and that protection of said trade secrets
and confidential information and protection of Applebee's against unfair
competition from others who enjoy or who have had access to said trade secrets
and confidential information are essential for the maintenance of goodwill and
special value of the System.
(3) Employee agrees that he or she shall not at any time (i) appropriate or
use the trade secrets incorporated in the System, or any portion thereof, for
use in any business which is not within the System; (ii) disclose or reveal any
portion of the System to any person other than to Developer's employees as an
incident of their training; (iii) acquire any right to use, or to license or
franchise the use of any name, xxxx or other intellectual property right which
is or may be granted by any franchise agreement between Applebee's and
Developer; or (iv) communicate, divulge or use for the benefit of any other
person or entity any confidential information, knowledge or know-how concerning
the methods of development or operation of a Restaurant which may be
communicated to Employee or of which Employee may be apprised by virtue of
Employee's employment by Developer. Employee shall divulge such confidential
information only to such of Developer's other employees as must have access to
that information in order to operate a Restaurant or to develop a prospective
site for a Restaurant. Any and all information, knowledge and know-how,
including, without limitation, drawings, materials, equipment, specifications,
techniques and other data, which Applebee's designates as confidential, shall be
deemed confidential for purposes of this Agreement.
(4) Employee agrees that for the duration of his or her employment by
Developer, and for two (2) years following termination thereof, Employee may
not, without the prior written consent of Applebee's, directly or indirectly,
for himself or through, on behalf of or in conjunction with any person,
partnership or corporation, engage in or acquire any financial or beneficial
interest (including any interest in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, advise, help, guarantee loans
or make loans to, any restaurant business whose menu or method of operation is
the same as or similar to that employed by restaurant units within the System
which is located either (a) in the Territory, as defined in the Development
Agreement, or (b) in the Area of Dominant Influence (as defined and established
from time to time by Arbitron Ratings Company) of any Restaurant developed
pursuant to the Development Agreement.
(5) Employee further acknowledges and agrees that the Franchise Operations
Manual and any other materials and manuals provided or made available to
Developer by Applebee's (collectively, the "Manuals"), described in Section 5 of
the form of franchise agreement which is attached as Appendix B to the
Development Agreement are loaned by Applebee's to Developer for limited purposes
only, remain the property of Applebee's, and may not be reproduced, in whole or
in part, without the written consent of Applebee's.
(6) Employee agrees to surrender to Developer or to Applebee's each and
every copy of the Manuals and any other information or material in his or her
possession or control upon request, upon termination of employment, or upon
completion of the use for which said Manuals or other information or material
may have been furnished to Employee.
E-38
(7) The parties agree that in the event of a breach of this Agreement,
Applebee's would be irreparably injured and would be without an adequate remedy
at law. Therefore, in the event of a breach or a threatened or attempted breach
of any of the provisions hereof, Applebee's shall be entitled to enforce the
provisions of this agreement as a third-party beneficiary hereof and shall be
entitled, in addition to any other remedies which it may have hereunder at law
or in equity (including the right to terminate the Development Agreement), to a
temporary and/or permanent injunction and a decree for specific performance of
the terms hereof without the necessity of showing actual or threatened damage,
and without being required to furnish a bond or other security.
(8) The restrictions in Subsection (4) hereof shall not apply to ownership
of less than two percent (2%) of the shares of a company whose shares are traded
on a national securities exchange if such shares are owned for investment only,
and are not owned by an officer, director, employee or consultant of such
publicly traded company.
(9) If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this Agreement determines that it would be invalid
or unenforceable as written, the provisions hereof shall be deemed to be
modified or limited to such extent or in such manner necessary for such
provisions to be valid and enforceable to the greatest extent possible.
(10) In the event that any party to this Agreement or Applebee's initiates
any legal proceeding to construe or enforce any of the terms, conditions and/or
provisions of this Agreement, or to obtain damages or other relief to which any
party may be entitled by virtue of this Agreement, the prevailing party or
parties shall be paid its/their reasonable attorneys' fees and expenses by other
party or parties.
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date first above written.
DEVELOPER: EMPLOYEE:
By:__________________________________ By:______________________________________
Name:________________________________ Name: ___________________________________
Title: ______________________________
E-39
APPENDIX F TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made this ________ day of ________________, 20_______, by
and between ________________________________________, a _____________
corporation ("Developer"), and __________________________, an individual
employed by Developer ("Employee").
WITNESSETH:
WHEREAS, XXXXXXXX'X INTERNATIONAL, INC. ("Applebee's") is the owner of all
rights in and to a unique system for the development and operation of
restaurants (the "System"), which includes proprietary rights in valuable trade
names, service marks and trademarks, including the service xxxx Xxxxxxxx'x
Neighborhood Grill & Bar and variations of such xxxx, designs 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, a
training facility and teaching techniques;
WHEREAS, Developer is the owner of the exclusive right to develop
restaurants franchised by Applebee's which utilize the System ("Restaurants")
for the period and in the territory described in the Development Agreement
between Applebee's and Developer (the "Development Agreement"); and
WHEREAS, Developer acknowledges that Applebee's information as described
above was developed over time at great expense, is not generally known in the
industry and is beyond Developer's own present skills and experience, and that
to develop it itself would be expensive, time-consuming and difficult, that it
provides a competitive advantage and will be valuable to Developer in the
development of its business, and that gaining access to it was therefore a
primary reason why Developer entered into the Development Agreement; and
WHEREAS, in consideration of Applebee's confidential disclosure to Developer
of these trade secrets, Developer has agreed to be obligated by the terms of
Development Agreement to execute, with each employee of Developer who will have
supervisory authority over the development or operation of more than one
Restaurant in the Territory described in the Development Agreement, a written
agreement protecting Applebee's trade secrets and confidential information
entrusted to Employee;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
contained herein, the parties agree as follows:
(1) The parties acknowledge and agree that Employee is or will be employed
in a supervisory or managerial capacity and in such capacity will have access to
information and materials which constitute trade secrets and confidential and
proprietary information. The parties further acknowledge and agree that any
actual or potential direct or indirect competitor of Applebee's, or of any of
its franchisees, shall not have access to such trade secrets and confidential
information.
(2) The parties acknowledge and agree that the System includes trade
secrets and confidential information which Applebee's has revealed to Developer
in confidence, and that protection of said trade secrets and confidential
information and protection of Applebee's against unfair competition from others
who enjoy or who have had access to said trade secrets and confidential
information are essential for the maintenance of goodwill and special value of
the System.
E-40
(3) Employee agrees that he or she shall not at any time (i) appropriate or
use the trade secrets incorporated in the System, or any portion thereof, for
use in any business which is not within the System; (ii) disclose or reveal any
portion of the System to any person other than to Developer's employees as an
incident of their training; (iii) acquire any right to use, or to license or
franchise the use of any name, xxxx or other intellectual property right which
is or may be granted by any franchise agreement between Applebee's and
Developer; or (iv) communicate, divulge or use for the benefit of any other
person or entity any confidential information, knowledge or know-how concerning
the methods of development or operation of a Restaurant which may be
communicated to Employee or of which Employee may be apprised by virtue of
Employee's employment by Developer. Employee shall divulge such confidential
information only to such of Developer's other employees as must have access to
that information in order to operate a Restaurant or to develop a prospective
site for a Restaurant. Any and information, knowledge and know-how, including,
without limitation, drawings, materials, equipment, specifications, techniques
and other data, which Applebee's designates as confidential, shall be deemed
confidential for purposes of this Agreement.
(4) Employee further acknowledges and agrees that the Franchise Operations
Manual and any other materials or manuals provided or made available to
Developer by Applebee's (collectively, the "Manuals"), described in Section 5 of
the applicable franchise agreement between Applebee's and Developer, are loaned
by Applebee's to Developer for limited purposes only, remain the property of
Applebee's, and may not be reproduced, in whole or in part, without the written
consent of Applebee's.
(5) Employee agrees to surrender to Developer or to Applebee's each and
every copy of the Manuals and any other information or material in his or her
possession or control upon request, upon termination of employment or upon
completion of the use for which said Manuals or other information or material
may have been furnished to Employee.
(6) The parties agree that in the event of a breach of this Agreement,
Applebee's would be irreparably injured and would be without an adequate remedy
at law. Therefore, in the event of a breach or a threatened or attempted breach
of any of the provisions hereof, Applebee's shall be entitled to enforce the
provisions of this Agreement as a third-party beneficiary hereof and shall be
entitled, in addition to any other remedies which it may have hereunder at law
or in equity (including the right to terminate the Development Agreement), to a
temporary and/or permanent injunction and a decree for specific performance of
the terms hereof without the necessity of showing actual or threatened damage,
and without being required to furnish a bond or other security.
(7) If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this Agreement determines that it would be invalid
or unenforceable as written, the provisions hereof shall be deemed to be
modified or limited to such extent or in such manner necessary for such
provisions to be valid and enforceable to the greatest extent possible.
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date first above written.
DEVELOPER EMPLOYEE
By:__________________________________ By:______________________________________
Name:________________________________ Name:____________________________________
Title:_______________________________
E-41
