UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 000-17962
Applebee's International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 43-1461763
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207
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(Address of principal executive offices and zip code)
(913) 967-4000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01
per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 3, 1997 was $790,907,669 based upon the closing sale
price on March 3, 1997.
The number of shares of the registrant's common stock outstanding as of March 3,
1997 was 31,323,076.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement to be filed pursuant to regulation 14A under the Securities
Exchange Act of 1934 is incorporated into Part III hereof.
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APPLEBEE'S INTERNATIONAL, INC.
FORM 10-K
FISCAL YEAR ENDED DECEMBER 29, 1996
INDEX
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Page
PART I
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Item 1. Business................................................................................ 3
Item 2. Properties.............................................................................. 16
Item 3. Legal Proceedings....................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders..................................... 18
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................................................... 19
Item 6. Selected Financial Data................................................................. 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 21
Item 8. Financial Statements and Supplementary Data............................................. 28
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................................ 28
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 29
Item 11. Executive Compensation.................................................................. 29
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 29
Item 13. Certain Relationships and Related Transactions.......................................... 29
PART IV
Item 14. Exhibits and Reports on Form 8-K........................................................ 30
Signatures.............................................................................................. 31
</TABLE>
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PART I
Item 1. Business
General
Applebee's International, Inc. and its subsidiaries (the "Company") develops,
franchises and operates casual dining restaurants principally under the names
"Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina."
The Company opened its first restaurant in 1986 and initially developed and
operated six restaurants as a franchisee of the Applebee's Neighborhood Grill &
Bar Division (the "Applebee's Division") of an indirect subsidiary of W.R. Grace
& Co. In March 1988, the Company acquired substantially all the assets of its
franchisor. At the time of this acquisition, the Applebee's Division operated 14
restaurants and had ten franchisees, including the Company, operating 41
franchise restaurants.
As of December 29, 1996, there were 819 Applebee's restaurants, of which 671
were operated by franchisees and 148 were owned or operated by the Company. The
restaurants were located in 45 states, Canada, Europe, and the Caribbean. During
1996, 163 new restaurants were opened, including 134 franchise restaurants and
29 Company restaurants.
As part of its long-term growth strategy, the Company acquired the Rio Bravo
Cantina chain of Mexican casual dining restaurants in March 1995. In late 1995
and early 1996, the Company identified the first Rio Bravo Cantina franchisees
and began franchise expansion in 1996. During 1996, 14 new restaurants were
opened, including nine franchise restaurants and five Company restaurants. As of
December 29, 1996, there were 30 Rio Bravo Cantina restaurants located in 11
states, of which nine were operated by franchisees and 21 were owned by the
Company. The Company also owns four other specialty restaurants.
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The following table sets forth certain unaudited financial information and other
restaurant data relating to Company and franchise restaurants, as reported to
the Company by franchisees.
<TABLE>
<CAPTION>
Fiscal Year Ended
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December 29, December 31, December 25,
1996 1995 1994
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Number of restaurants:
Applebee's:
Company(1):
Beginning of year............................ 128 97 75
Restaurant openings.......................... 29 27 23
Restaurant closings.......................... (3) (1) (1)
Restaurants acquired from (by) franchisees... (6) 5 --
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End of year.................................. 148 128 97
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Franchise:
Beginning of year............................ 538 408 286
Restaurant openings.......................... 134 135 122
Restaurant closings.......................... (7) -- --
Restaurants acquired by (from) franchisees... 6 (5) --
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End of year.................................. 671 538 408
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Total Applebee's:
Beginning of year............................ 666 505 361
Restaurant openings.......................... 163 162 145
Restaurant closings.......................... (10) (1) (1)
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End of year.................................. 819 666 505
================= ================ =================
Rio Bravo Cantinas:
Company:
Beginning of year............................ 16 12 9
Restaurant openings.......................... 5 4 3
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End of year.................................. 21 16 12
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Franchise:
Beginning of year............................ -- -- --
Restaurant openings.......................... 9 -- --
----------------- ---------------- -----------------
End of year.................................. 9 -- --
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Total Rio Bravo Cantinas:
Beginning of year............................ 16 12 9
Restaurant openings.......................... 14 4 3
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End of year.................................. 30 16 12
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Specialty restaurants:
Beginning of year............................ 4 4 6
Restaurant closings(2)....................... -- -- (2)
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End of year.................................. 4 4 4
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Total number of restaurants:
Beginning of year............................ 686 521 376
Restaurant openings.......................... 177 166 148
Restaurant closings.......................... (10) (1) (3)
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End of year.................................. 853 686 521
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</TABLE>
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<TABLE>
<CAPTION>
Fiscal Year Ended
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December 29, December 31, December 25,
1996 1995 1994
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Weighted average weekly sales per restaurant:
Applebee's:
Company(1).................................. $ 40,366 $ 39,977 $ 39,924
Franchise................................... $ 39,870 $ 40,922 $ 41,010
Total Applebee's............................ $ 39,961 $ 40,737 $ 40,789
Rio Bravo Cantinas (Company)(3) ................ $ 66,743 $ 66,158 $ 68,637
Change in comparable restaurant sales(4) :
Applebee's:
Company(1).................................. 1.1 % 0.3% 3.7%
Franchise................................... (1.2)% 0.5% 3.1%
Total Applebee's............................ (0.8)% 0.5% 3.2%
Rio Bravo Cantinas (Company).................... 3.9 % 0.9% 9.5%
Total system sales (in thousands):
Applebee's...................................... $ 1,539,277 $ 1,248,383 $ 882,515
</TABLE>
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(1) Includes certain Texas restaurants operated by the Company under a
management agreement since July 1990 (two at the end of 1994 and 1995 and
one at the end of 1996).
(2) Represents two specialty restaurants which were converted to Rio Bravo
Cantina restaurants during 1994.
(3) Excludes one restaurant which is open for dinner only.
(4) When computing comparable restaurant sales, restaurants open for at least
18 months are compared from period to period.
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The Applebee's System
Concept. Each Applebee's restaurant is designed as an attractive, friendly,
neighborhood establishment featuring moderately priced, high quality food and
beverage items, table service and a comfortable atmosphere. Applebee's
restaurants appeal to a wide range of customers including families with
children, young adults and senior citizens.
Applebee's restaurants are designed according to Company specifications and are
located in free-standing buildings, end caps of strip shopping centers, and
shopping malls. The Company's two current free-standing restaurant prototypes
are approximately 5,000 and 5,400 square feet and seat approximately 175 and 200
patrons, respectively. The Company is currently developing a third prototype
that will be less than 5,000 square feet and seat almost 200 patrons. Each
Applebee's restaurant has a centrally located bar and many restaurants offer
patio seating. The decor of each restaurant incorporates artifacts and
memorabilia such as old movie posters, musical instruments and sports equipment
along with photographs and magazine and newspaper articles highlighting local
history and personalities, giving each restaurant an individual, neighborhood
identity.
Menu. Each Applebee's restaurant offers a diverse menu of high quality,
moderately priced food and beverage items consisting of traditional favorites
and innovative dishes. The restaurants feature a broad selection of entrees,
including beef, chicken, seafood and pasta items prepared in a variety of
cuisines, as well as appetizers, salads, sandwiches, specialty drinks and
desserts. Most restaurants offer beer, wine, liquor and premium specialty
drinks. During 1996, alcoholic beverages accounted for 15.8% of Company owned
Applebee's restaurant sales. The Company continuously develops and tests new
menu items through regional consumer tastings and additional tests in selected
Company and franchise restaurants. Franchisees are required to present a menu
consisting of approximately 65% of selections from the Company approved list of
national core items and approximately 35% of additional items selected from the
Company approved list of optional items.
Restaurant Operations. All restaurants are operated in accordance with uniform
operating standards and specifications relating to the quality and preparation
of menu items, selection of menu items, maintenance and cleanliness of premises,
and employee conduct. The Company's operational standards are based upon "QSCVC"
quality, service, cleanliness, value and courtesy. All standards and
specifications are developed by the Company, with input from franchisees, and
applied on a system-wide basis.
Training. The Company has an operations training course for general managers,
kitchen managers and other restaurant managers. The course consists of in-store
task-oriented training and formal administrative, customer service, and
financial training which may last from 10 to 12 weeks. A team of Company
employed trainers is provided for each new restaurant to conduct hands-on
training for all restaurant employees to ensure compliance with Company
standards.
The Company also operates Applebee University, which offers restaurant managers
specialized training programs, and conducts regular meetings that emphasize
leadership, quality of food preparation, and service. In 1996, the Company
conducted 12 Applebee University sessions consisting of approximately four days
of continuing education in a classroom setting. The Company, generally through
in-restaurant seminars and video presentations, provides periodic training for
its restaurant employees regarding topics such as the responsible service of
alcohol and food sanitation and storage.
Advertising. The Company has historically concentrated its advertising and
marketing efforts primarily on four food-specific promotions each year, with
each promotion featuring a specific theme or ethnic cuisine. The Company will
6
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add two optional promotions in 1997. The Company advertises on a national,
regional and local basis, utilizing primarily television, radio and print media.
In 1996, approximately 3.9% of sales for Company Applebee's restaurants was
spent on advertising, including 1.5% contributed to the national advertising
pool which develops and funds the specific national promotions. All franchisees
are also required to contribute 1.5% of sales to the national advertising pool.
The remainder of the Company's advertising expenditures are focused on local
advertising in areas with Company owned restaurants.
Purchasing. Maintaining high food quality and system-wide consistency is a
central focus of the Company's purchasing program. The Company mandates quality
standards for all products used in the restaurants and maintains a limited list
of approved suppliers from which the Company and its franchisees must select.
The Company has negotiated purchasing agreements with most of its approved
suppliers which result in volume discounts for the Company and its franchisees,
and when necessary, purchases and maintains inventories of Riblets, a specialty
item on the Applebee's menu, to assure sufficient supplies for the system.
Company Applebee's Restaurants
Company Restaurant Openings and Acquisitions. The Company's expansion strategy
is to cluster restaurants in targeted markets, thereby increasing consumer
awareness and enabling the Company to take advantage of operational,
distribution, and advertising efficiencies. The Company's experience in
developing markets indicates that the opening of multiple restaurants within a
particular market results in increased market share.
In order to maximize overall system growth, the Company's expansion strategy
through 1992 emphasized franchise arrangements with experienced, successful and
financially capable restaurant operators. Although the Company continues to
expand the Applebee's system across the United States through franchise
operations, commencing in 1992, the system growth strategy also included
increasing the number of Company restaurants through the direct development of
strategic territories and, if available under acceptable financial terms, by
selectively acquiring existing franchise restaurants and terminating related
development rights held by the selling franchisee. In that regard, the Company
has expanded from a total of 31 owned or operated restaurants as of December 27,
1992 to a total of 148 as of December 29, 1996 through the opening of 93 new
restaurants and the acquisition of 37 franchise restaurants over the last four
years. In February 1997, the Company entered into an agreement to purchase the
assets of 11 operating Applebee's franchise restaurants located in the St. Louis
metropolitan area. Final closing is subject to obtaining licenses and third
party consents and is expected to occur early in the second quarter of 1997.
The Company anticipates opening approximately 35 new Applebee's restaurants in
1997, including two new restaurants in the St. Louis market, although it may
open more restaurants depending upon the availability of appropriate new sites.
The areas in which the Company's restaurants are located and the areas where the
Company opened new restaurants during 1996 are set forth in the following table.
The Company currently intends to continue developing restaurants in all of the
following areas:
7
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<CAPTION>
Company
Company Restaurants
Restaurants as of
Opened in December 29,
Area 1996 1996
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<S> <C> <C>
Minneapolis/St. Paul, Minnesota............................. 5 25
New England (includes Massachusetts, Vermont,
New Hampshire, Rhode Island, Maine and
parts of Connecticut)..................................... 6 24
Detroit/Southern Michigan................................... 5 23
North/Central Texas......................................... 1 20
Kansas City, Missouri/Kansas................................ 2 18
Las Vegas/Reno, Nevada...................................... 4 9
San Diego/Southern California............................... 1 8
Atlanta, Georgia............................................ -- 7
Philadelphia, Pennsylvania.................................. 1 6
Albuquerque, New Mexico..................................... 1 4
Long Island, New York....................................... 3 4
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29 148
================== ==================
</TABLE>
In October 1996, the Company completed the sale of six of its eight Company
owned Applebee's restaurants located in the San Bernardino and Riverside
counties of southern California. The operations of the six restaurants and
future restaurant development in the market area were assumed by an existing
Applebee's franchisee. The Company intends to dispose of the two remaining
restaurants in the territory during 1997, and in March 1997, entered into a
lease termination agreement for one of these restaurants.
The Company is also currently assessing its strategic direction with respect to
the operations of its remaining southern California presence, comprised of six
Company owned Applebee's restaurants in the San Diego market area, and future
restaurant development in this territory. The Company's alternatives for the San
Diego market may include continued operation of the restaurants and development
of new restaurants, a franchisee alliance for future development of the
remainder of the market, or the possible sale of the existing restaurants to a
franchisee.
Restaurant Operations. The staff for a typical Applebee's restaurant consists of
one general manager, one kitchen manager, three assistant managers and
approximately 85 hourly employees. All managers of Company owned restaurants
receive a salary and performance bonus based on restaurant sales, profits and
adherence to Company standards. As of December 29, 1996, the Company employed
eight Regional Vice Presidents of Operations/Directors of Operations and 25
District Managers, whose duties include regular restaurant visits and
inspections and the ongoing maintenance of the Company standards of quality,
service, cleanliness, value, and courtesy. In addition to providing a
significant contribution to revenues and operating earnings, Company restaurants
are used for many purposes which are integral to the development of the entire
system, including testing of new menu items and training of franchise restaurant
managers and operating personnel. In addition, the operation of Company
restaurants enables the Company to develop and refine its operating standards
and specifications further and to understand and better respond to day-to-day
management and operating concerns of franchisees.
8
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The Applebee's Franchise System
Franchise Territory and Restaurant Openings. The Company currently has exclusive
franchise arrangements with approximately 55 franchise groups, including eight
international franchisees. The Company has generally selected franchisees that
are experienced multi-unit restaurant operators who have been involved with
other restaurant concepts. The Company's franchisees operate Applebee's
restaurants in 39 states, Canada, Europe, and the Caribbean. Virtually all
territories in the contiguous 48 states have been granted to franchisees or
designated for Company development.
As of December 29, 1996, there were 671 franchise restaurants. Franchisees
opened 122 restaurants in 1994, 135 restaurants in 1995, and 134 restaurants in
1996. The Company anticipates at least 100 franchise restaurant openings in
1997.
Development of Restaurants. The Company makes available to franchisees the
physical specifications for a typical restaurant, retaining the right to
prohibit or modify the use of any plan. Each franchisee, with assistance from
the Company, is responsible for selecting the site for each restaurant within
its territory, subject to Company approval. The Company conducts a physical
inspection, reviews any proposed lease or purchase agreement, and makes
available demographic studies.
Domestic Franchise Arrangements. Each Applebee's franchise arrangement consists
of a development agreement and separate franchise agreements. Development
agreements grant the exclusive right to develop a number of restaurants in a
designated geographical area. The term of a domestic development agreement is
generally 20 years. A separate franchise agreement is entered into by the
franchisee relating to the operation of each restaurant which has a term of 20
years and permits renewal for up to an additional 20 years in accordance with
the terms contained in the then current franchise agreement (including the then
current royalty rates and advertising fees) and upon payment of an additional
franchise fee.
For each restaurant developed, a franchisee is currently obligated to pay to the
Company a royalty fee equal to 4% of the restaurant's monthly gross sales. The
Company's current form of development agreement requires an initial franchise
fee of $35,000 for each restaurant developed during its term. The terms,
royalties and advertising fees under a limited number of franchise agreements
and the franchise fees under older development agreements vary from the
currently offered arrangements.
Advertising. Domestic franchisees are required to spend at least 1.5% of gross
sales on local advertising and promotional activities, in addition to their
contribution of 1.5% of gross sales to the national advertising account.
Franchisees also promote the opening of each restaurant and the Company, subject
to certain conditions, reimburses the franchisee for 50% of the out-of-pocket
opening advertising expenditures, up to a maximum of $2,500. The Company can
increase the combined amount of the advertising fee and the amount required to
be spent on local advertising and promotional activities to a maximum of 5% of
gross sales.
Training and Support. The Company provides ongoing advice and assistance to
franchisees in connection with the operation and management of each restaurant
through training sessions, meetings, seminars, on-premises visits, and by
written or other material. Such advice and assistance relates to revisions to
operating manual policies and procedures, and new developments, techniques, and
improvements in restaurant management, food and beverage preparation, sales
promotion, and service concepts.
9
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Quality Control. The Company continuously monitors franchisee operations and
inspects restaurants, principally through its full-time franchise consultants
(23 at December 29, 1996) who report to the Company's Executive Director of
Franchise Operations. The Company makes both scheduled and unannounced
inspections of restaurants to ensure that only approved products are in use and
that Company prescribed practices and procedures are being followed. A minimum
of three planned visits are made each year, during which a representative of the
Company conducts an inspection and consultation at each restaurant. The Company
has the right to terminate a franchise if a franchisee does not operate and
maintain a restaurant in accordance with the Company's requirements.
Franchise Business Council. The Company maintains a Franchise Business Council
which provides advice to the Company regarding operations, marketing, product
development and other aspects of restaurant operations for the purpose of
improving the franchise system. As of December 29, 1996, the Franchise Business
Council consisted of eight franchisee representatives and three members of the
Company's senior management. One franchisee representative is a permanent
member, one franchisee representative must be a franchisee with five or less
restaurants, and any franchisee who operates 10% or more of the total number of
system restaurants is reserved a seat (currently one franchisee). The remaining
franchisee representatives are elected by franchisees prior to and announced at
the annual franchise convention.
International Franchise Agreements. The Company has begun pursuing international
franchising of the Applebee's concept under a long-term strategy of controlled
expansion. This strategy includes seeking highly qualified franchisees with the
resources to open multiple restaurants in each territory and the familiarity
with the specific local business environment. The Company is currently focusing
on international franchising in Canada, Europe and the Mediterranean region.
In this regard, the Company currently has development agreements with eight
international franchisees. The agreements involve the development of Applebee's
restaurants in Canada, the Benelux region of Northern Europe, Germany, Sweden,
Greece, and certain countries in the Middle East. Five restaurants were opened
during 1996 --one in the Netherlands, two in Germany, and two in Canada. In
addition, the Company is considering potential franchisees for several other
countries.
The success of further international expansion will be dependent upon, among
other things, local acceptance of the Applebee's concept, and the Company's
ability to attract qualified franchisees and operating personnel, to comply with
the regulatory requirements of the local jurisdictions, and to supervise
international franchisee operations effectively.
Franchise Financing. Although financing is the sole responsibility of the
franchisee, the Company makes available to franchisees the names and addresses
of financial institutions interested in financing the costs of restaurant
development for qualified franchisees. None of these financial institutions is
an affiliate or agent of the Company, and the Company has no control over the
terms or conditions of any financing arrangement offered by these financial
institutions. Under a previous franchise financing program, the Company provided
a limited guaranty of loans made to certain franchisees. See Notes to
Consolidated Financial Statements of the Company included elsewhere herein. On
infrequent occasions, when the Company believes it is necessary to support
franchise development in a strategic territory, the Company has made secured
loans to franchisees, agreed to defer collection of royalties, or guaranteed
equipment leases.
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Rio Bravo Cantina Restaurants
General. In March 1995, a wholly-owned subsidiary of the Company merged with and
into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the
"IRC Merger," through which the Company acquired the Rio Bravo Cantina chain of
Mexican casual dining restaurants. As a result of the IRC Merger, IRC became a
wholly-owned subsidiary of the Company. At the time of the IRC Merger, IRC
operated 17 restaurants, including 13 Rio Bravo Cantina restaurants, and four
other specialty restaurants.
Expansion. As of December 29, 1996, the Company operated 21 Rio Bravo Cantina
restaurants and franchisees operated nine Rio Bravo Cantina restaurants in 11
states. During 1996, the Rio Bravo Cantina concept was expanded into eight new
states. The Company opened five Rio Bravo Cantina restaurants in 1996, and
expects to open nine Rio Bravo Cantina restaurants in 1997. In addition, the
Company has identified 15 Rio Bravo Cantina franchisees, all of whom are
experienced Applebee's franchisees. The related development territories for the
15 franchisees encompass all or parts of 20 states. These franchisees have
commitments to build more than 100 restaurants over the next several years,
including nine which were opened in 1996, and the Company expects approximately
18 franchise restaurants to open in 1997.
Concept. Rio Bravo Cantina restaurants offer generous portions of fresh Tex-Mex
and Mexican cuisine at attractive prices. The restaurants feature tortillas made
on the premises, fresh daily specials, a variety of signature margaritas and
distinctive Mexican architecture and interior decor which create a festive
atmosphere reminiscent of an authentic Mexican cantina. The design of the
restaurants incorporates materials such as exposed brick, barn wood, Mexican
tile floors and stucco walls embellished with various signs, inscriptions and
other items depicting a rustic border motif.
Rio Bravo Cantina restaurants can be located in either free-standing buildings
or strip shopping centers and are adaptable to conversions of pre-existing
restaurant sites. Of the 14 openings in 1996, seven were conversions. Existing
locations, many of which are conversions of other restaurants, range in size
from 6,600 to 10,300 square feet and seat between 225 and 450 customers. Most of
the restaurants have a patio area providing additional seating during much of
the year. The current free-standing prototype is approximately 6,900 square
feet, and seats approximately 240 people with an optional outdoor patio area
that seats approximately 45 patrons. A new smaller prototype is currently being
developed which is approximately 5,600 square feet and seats approximately 210
people with an optional outdoor patio area that seats 36 patrons.
Menu. All but one Rio Bravo Cantina restaurant are open for lunch and dinner
seven days a week. The menu includes traditional Mexican food items such as
burritos, enchiladas, tamales and tacos. In addition, the menu offers a wide
variety of other favorites such as beef, chicken and shrimp fajitas,
quesadillas, shrimp dishes, and a variety of salads and desserts. A large
variety of Mexican and domestic beers, Sangria, and signature margaritas are
also featured. The lunch menu offers entrees priced from $4.75 to $7.75 and
dinner entrees priced from $5.99 to $12.99. During 1996, alcoholic beverages
accounted for approximately 30% of total Company restaurant sales.
The Rio Bravo Franchise System
Franchise Arrangements. Each Rio Bravo Cantina franchise arrangement consists of
a development agreement and separate franchise agreements. Development
agreements grant the exclusive right to develop a number of restaurants in a
designated geographical area. The term of a domestic development agreement is
generally 15 years. A separate franchise agreement is entered into by the
11
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franchisee relating to the operation of each restaurant which has a term of 15
years and permits renewal for up to an additional 15 years in accordance with
the terms contained in the then current franchise agreement (including the then
current royalty rates and advertising fees) and upon payment of an additional
franchise fee.
For each restaurant developed, a franchisee is obligated to pay to the Company a
royalty fee equal to 4% of the restaurant's gross sales. Beginning in 2000, the
royalty fee will increase to 4.25%. The development agreement requires an
initial franchise fee of $40,000 for each restaurant developed during its term.
Franchisees are currently required to spend at least 1.5% of gross sales on
local advertising and promotional activities, in addition to a contribution of
2.0% of gross sales to the national advertising account.
Rio Bravo Roundtable. The Company maintains a Rio Bravo Roundtable which
provides advice to the Company regarding operations, marketing, product
development, and other aspects of restaurant operations for the purpose of
improving the franchise system. As of December 29, 1996, the Rio Bravo
Roundtable consisted of five franchisee representatives appointed by the Company
and two members of the Company's senior management. Beginning in 1997, the
franchisee representatives will be elected by franchisees at an annual meeting.
Specialty Restaurants
In connection with the acquisition of the Rio Bravo Cantina concept, the Company
also acquired four specialty restaurants, comprised of two Green Hills Grille
restaurants in Nashville, Tennessee and Huntsville, Alabama, an upscale Rio
Bravo Cantina called the Rio Bravo Grill in Atlanta, Georgia and Ray's on the
River in Atlanta, Georgia. The Company currently has no expansion plan for these
specialty restaurant concepts.
Competition
The restaurant industry is highly competitive with respect to price, service,
location, concept and food type and quality, and competition is expected to
intensify. There are a number of well-established competitors with significant
financial and other resources. Some of the Company's competitors have been in
existence for a substantially longer period than the Company and may be better
established in the markets where the Company's restaurants are or may be
located. The restaurant business is often affected by changes in consumer
tastes, national, regional or local economic conditions, demographic trends,
traffic patterns, the availability and cost of suitable locations, and the type,
number, and location of competing restaurants. The Company has begun to
experience increased competition in attracting and retaining qualified
restaurant management personnel as well as continued competition for sites. In
addition, factors such as inflation, increased food, labor and benefits costs,
and the availability of and competition for hourly employees may adversely
affect the restaurant industry in general and the Company's restaurants in
particular.
Service Marks
The Company owns the rights to the "Applebee's Neighborhood Grill & Bar" and
"Rio Bravo Cantina" service marks and certain variations thereof in the United
States and, with respect to the Applebee's mark, in various foreign countries.
The Company is aware of names and marks similar to the service marks of the
Company used by third parties in certain limited geographical areas. The Company
intends to protect its service marks by appropriate legal action where and when
necessary.
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Government Regulation
The Company's restaurants are subject to numerous federal, state, and local laws
affecting health, sanitation and safety standards, as well as to state and local
licensing regulation of the sale of alcoholic beverages. Each restaurant
requires appropriate licenses from regulatory authorities allowing it to sell
liquor, beer, and wine, and each restaurant requires food service licenses from
local health authorities. The Company's licenses to sell alcoholic beverages
must be renewed annually and may be suspended or revoked at any time for cause,
including violation by the Company or its employees of any law or regulation
pertaining to alcoholic beverage control, such as those regulating the minimum
age of patrons or employees, advertising, wholesale purchasing, and inventory
control. The failure of a restaurant to obtain or retain liquor or food service
licenses could have a material adverse effect on its operations. In order to
reduce this risk, each restaurant is operated in accordance with standardized
procedures designed to facilitate compliance with all applicable codes and
regulations.
The Company's employment practices are governed by various governmental
employment regulations, including minimum wage, overtime, immigration, family
leave and working condition regulations.
The Company is subject to a variety of federal and state laws governing
franchise sales and the franchise relationship. In general, these laws and
regulations impose certain disclosure and registration requirements prior to the
sale and marketing of franchises. Recent decisions of several state and federal
courts and recently enacted or proposed federal and state laws demonstrate a
trend toward increased protection of the rights and interests of franchisees
against franchisors. Such decisions and laws may limit the ability of
franchisors to enforce certain provisions of franchise agreements or to alter or
terminate franchise agreements. Due to the scope of the Company's business and
the complexity of franchise regulations, minor compliance issues may be
encountered from time to time; however, the Company does not believe any such
issues will have a material adverse effect on its business.
Under certain court decisions and statutes, owners of restaurants and bars in
some states in which the Company owns or operates restaurants may be held liable
for serving alcohol to intoxicated customers whose subsequent conduct results in
injury or death to a third party, and no assurance can be given that the Company
will not be subject to such liability. The Company believes its insurance
presently provides adequate coverage for such liability.
Employees
At December 29, 1996, the Company employed approximately 16,300 full and
part-time employees, of whom approximately 350 were corporate personnel, 950
were restaurant managers or managers in training and 15,000 were employed in
non-management full and part-time restaurant positions. Of the 350 corporate
employees, 95 were in management positions and 255 were general office
employees, including part-time employees.
The Company considers its employee relations to be good. Most employees, other
than restaurant management and corporate personnel, are paid on an hourly basis.
The Company believes that it provides working conditions and wages that compare
favorably with those of its competition. The Company has never experienced a
work stoppage due to labor difficulty and the Company's employees are not
covered by a collective bargaining agreement.
13
<PAGE>
Executive Officers of the Registrant
The executive officers of the Company as of December 29, 1996 are shown below.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Abe J. Gustin, Jr................62 Chairman of the Board of Directors and Chief Executive Officer
(Co-Chief Executive Officer effective January 1, 1997)
Lloyd L. Hill....................52 President, Chief Operating Officer and Member of the Board
of Directors (Co-Chief Executive Officer effective
January 1, 1997)
Burton M. Sack...................59 Executive Vice President of New Business Development and
Member of the Board of Directors
George D. Shadid.................42 Executive Vice President, Chief Financial Officer and Treasurer
Robert A. Martin.................66 Executive Vice President of Marketing and Member of the
Board of Directors
Steven K. Lumpkin................42 Senior Vice President of Administration
Ronald J. Marks..................41 Vice President of Research & Development (promoted to Senior Vice
President effective January 1, 1997)
Stuart F. Waggoner...............51 Senior Vice President of Operations
Philip J. Hickey, Jr.............42 President and Chief Operating Officer of Rio Bravo
International, Inc. (a wholly-owned subsidiary of
Applebee's International, Inc.)
</TABLE>
Abe J. Gustin, Jr. has been a director of the Company since September 1983 when
the Company was formed. He served as Chairman of the Board of Directors of the
Company from September 1983 until January 1988 and was again elected as Chairman
in September 1992. He was Vice President from November 1987 to January 1988, and
from January 1988 until December 1994, he served as President of the Company.
Mr. Gustin served as Chief Executive Officer of the Company through 1996, and
effective January 1, 1997, became Co-Chief Executive Officer along with Lloyd L.
Hill. From 1983 to 1990, he also served as Chairman of Juneau Holding Co., a
Kansas City, Missouri-based franchisee which operated Taco Bell restaurants.
Lloyd L. Hill was elected a director of the Company in August 1989 and was
appointed Executive Vice President and Chief Operating Officer of the Company in
January 1994. In December 1994, he assumed the role of President in addition to
his role as Chief Operating Officer. Effective January 1, 1997, Mr. Hill assumed
the role of Co-Chief Executive Officer along with Mr. Gustin. From 1990 to 1994,
he served as President of Kimberly Quality Care, a home health care and nurse
personnel staffing company, where he also served as a director from 1988 to
1994, having joined that organization in 1980.
Mr. Gustin and Mr. Hill will share the responsibilities of Chief Executive
Officer through 1997. Beginning in 1998, Mr. Gustin will retain his position as
the Chairman of the Board and Mr. Hill will remain Chief Executive Officer.
Burton M. Sack was elected a director and appointed an Executive Vice President
of the Company effective October 24, 1994. In January 1996, Mr. Sack was
appointed Executive Vice President of New Business Development with
responsibility for international franchising. Mr. Sack was the principal
14
<PAGE>
shareholder, a director and the President of Pub Ventures of New England, Inc.,
a former franchisee of the Company which was acquired by the Company in October
1994.
George D. Shadid was employed by the Company in August 1992, and served as
Senior Vice President and Chief Financial Officer until January 1994 when he was
promoted to Executive Vice President and Chief Financial Officer. He also became
Treasurer in March 1995. From 1985 to 1987, he served as Corporate Controller of
Gilbert/Robinson, Inc., at which time he was promoted to Vice President, and in
1988 assumed the position of Vice President and Chief Financial Officer, which
he held until joining the Company. In November 1991, Gilbert/Robinson, Inc.
filed a petition for bankruptcy, which was discharged in December 1992. From
1976 until 1985, Mr. Shadid was employed by Deloitte & Touche LLP.
Robert A. Martin was elected a director of the Company in August 1989. In April
1991, he became Vice President of Marketing, and in January 1994, he was
promoted to Senior Vice President of Marketing. In January 1996, Mr. Martin was
promoted to Executive Vice President of Marketing. From January 1990 to April
1991, he served as President of Kayemar Enterprises, a Kansas City-based
marketing consulting firm. From 1983 to January 1990, he served as the
President, Chief Operating Officer and a director of Juneau Holding Co., of
which Mr. Gustin, Chief Executive Officer of the Company, was Chairman. From
July 1977 to June 1981, he served as President of United Vintners Winery and
prior to that time was employed for 25 years by Schlitz Brewing Company, most
recently in the position of Senior Vice President of Sales and Marketing.
Steven K. Lumpkin was employed by the Company in May 1995 as Vice President of
Administration. In January 1996, he was promoted to Senior Vice President of
Administration. From July 1993 until January 1995, Mr. Lumpkin was a Senior Vice
President with a division of the Olsten Corporation, Olsten Kimberly Quality
Care. From June 1990 until July 1993, Mr. Lumpkin was an Executive Vice
President and a member of the board of directors of Kimberly Quality Care. From
January 1978 until June 1990, Mr. Lumpkin was employed by Price Waterhouse LLP,
where he served as a management consulting partner and certified public
accountant.
Ronald J. Marks has been an employee of the Company since March 1988 and served
as Director of Product Development until March 1991, when he became Director of
Menu Development. In February 1992, he was promoted to Executive Director of
Research and Development, and in February 1993, Mr. Marks was promoted to Vice
President of Research and Development. He was promoted to Senior Vice President
of Research and Development in January 1997.
Stuart F. Waggoner has been an employee of the Company since December 1988 and
served as the Executive Director of Franchise Operations until March 1991, when
he became Vice President of Franchise Operations. In December 1994, Mr. Waggoner
assumed the newly created position of Senior Vice President of Operations, and
has overall responsibility for franchise and Company owned Applebee's restaurant
operations. From October 1987 to December 1988, Mr. Waggoner was a Vice
President of Operations for Eateries', Inc., a restaurant company based in
Oklahoma City, Oklahoma. From 1985 to July 1987, Mr. Waggoner was President of
Pendleton's Bar & Grill in Dallas, Texas. From October 1974 to March 1985, Mr.
Waggoner was Vice President of Restaurant Administration for TGI Friday's, Inc.,
in Dallas, Texas.
Philip J. Hickey, Jr. joined the Company in connection with the merger with
Innovative Restaurant Concepts, Inc. ("IRC") in March 1995 where he had been
President and Chief Operating Officer since 1992. He currently serves as
President and Chief Operating Officer of Rio Bravo International, Inc., a
wholly-owned subsidiary of Applebee's International, Inc. He co-founded the
15
<PAGE>
Green Hills Grille concept in 1990 in Nashville, Tennessee, which was acquired
by IRC in 1992. Mr. Hickey was the co-creator of the Cooker Restaurant concept,
founded in 1984, and was President and Chief Operating Officer of the Cooker
Restaurant Corporation from 1984 to 1989. From 1976 to 1983, Mr. Hickey was
employed by Gilbert/Robinson, Inc., operators of the Houlihan's restaurant
chain.
Item 2. Properties
At December 29, 1996, the Company owned or operated 173 restaurants, of which it
leased the land and building for 63 sites, owned the building and leased the
land for 51 sites, and owned the land and building for 59 sites. In addition, as
of December 29, 1996, the Company owned three sites for future development of
restaurants and had entered into 24 lease agreements for restaurant sites the
Company plans to open during 1997. The Company's leases generally have an
initial term of 15 to 20 years, with renewal terms of 5 to 20 years, and provide
for a fixed rental plus, in certain instances, percentage rentals based on gross
sales.
The Company owns an 80,000 square foot office building in which its corporate
offices are headquartered in Overland Park, Kansas, located in the metropolitan
Kansas City area. As of December 29, 1996, approximately 14% of the building was
leased to third parties until such time as the Company may need additional
office space. The Company also leases office space in certain of the regions in
which it operates restaurants.
Under its franchise agreements, the Company has certain rights to gain control
of a restaurant site in the event of default under the lease or the franchise
agreement.
16
<PAGE>
The following table sets forth the 45 states and the four international
countries in which Applebee's and Rio Bravo Cantina restaurants are located and
the number of restaurants operating in each state or country as of December 29,
1996:
<TABLE>
<CAPTION>
Number of Restaurants
-----------------------------------------------------------------------------------------
State or Country Franchise Company Total System
- ----------------------- ----------------------------- ----------------------------- -----------------------------
Applebee's Rio Bravo Applebee's Rio Bravo Applebee's Rio Bravo
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Alabama................ 15 -- -- -- 15 --
Arizona................ 15 -- -- -- 15 --
Arkansas............... 6 -- -- -- 6 --
California............. 39 -- 8 -- 47 --
Colorado............... 21 -- -- -- 21 --
Florida................ 59 1 -- 8 59 9
Georgia................ 36 2 7 7 43 9
Idaho.................. 1 -- -- -- 1 --
Illinois............... 31 -- -- -- 31 --
Indiana................ 31 1 -- -- 31 1
Iowa................... 12 -- -- -- 12 --
Kansas................. 7 1 7 1 14 2
Kentucky............... 19 1 -- -- 19 1
Louisiana.............. 12 -- -- -- 12 --
Maryland............... 12 -- -- -- 12 --
Massachusetts.......... -- -- 12 -- 12 --
Michigan............... 4 -- 23 2 27 2
Minnesota.............. -- -- 25 2 25 2
Mississippi............ 10 -- -- -- 10 --
Missouri............... 16 1 11 -- 27 1
Montana................ 4 -- -- -- 4 --
Nebraska............... 7 -- -- -- 7 --
Nevada................. -- -- 9 -- 9 --
New Hampshire.......... -- -- 7 -- 7 --
New Jersey............. 7 -- -- -- 7 --
New Mexico............. 2 -- 4 -- 6 --
New York............... 22 -- 4 -- 26 --
North Carolina......... 29 1 -- -- 29 1
North Dakota........... 5 -- -- -- 5 --
Ohio................... 47 1 -- -- 47 1
Oklahoma............... 7 -- -- -- 7 --
Oregon................. 5 -- -- -- 5 --
Pennsylvania........... 11 -- 6 -- 17 --
Rhode Island........... -- -- 4 -- 4 --
South Carolina......... 33 -- -- -- 33 --
South Dakota........... 2 -- -- -- 2 --
Tennessee.............. 39 -- -- 1 39 1
Texas.................. 17 -- 20 -- 37 --
Utah................... 6 -- -- -- 6 --
Vermont................ -- -- 1 -- 1 --
Virginia............... 38 -- -- -- 38 --
Washington............. 10 -- -- -- 10 --
West Virginia.......... 4 -- -- -- 4 --
Wisconsin.............. 19 -- -- -- 19 --
Wyoming................ 2 -- -- -- 2 --
International:
Canada................. 4 -- -- -- 4 --
Germany................ 2 -- -- -- 2 --
The Netherlands........ 2 -- -- -- 2 --
Curacao................ 1 -- -- -- 1 --
-------------- -------------- -------------- -------------- -------------- --------------
671 9 148 21 819 30
============== ============== ============== ============== ============== ==============
</TABLE>
17
<PAGE>
Item 3. Legal Proceedings
As of December 29, 1996, the Company was using assets owned by a former
franchisee in the operation of one restaurant under a purchase rights agreement
which required the Company to make certain payments to the franchisee's lender.
In 1991, a dispute arose between the lender and the Company over the amount of
the payments due the lender. Based upon a then current independent appraisal,
the Company offered to settle the dispute and purchase the assets for $1,000,000
in 1991. The lender rejected the Company's offer and claimed that the Company
had guaranteed the entire $2,400,000 debt of the franchisee. In November 1992,
the lender was declared insolvent by the FDIC and has since been liquidated. The
Company was contacted by the FDIC, and in 1993, the Company offered to settle
the issue and purchase the assets at the three restaurants then being operated
for $182,000. The Company closed one of the three restaurants in 1994 and
lowered its offer to $120,000 to settle the issue and purchase the assets at the
two then remaining restaurants. The FDIC declined the Company's offer,
indicating instead its preliminary position that the Company should pay the
entire debt of the franchisee. The Company closed one of the two remaining
restaurants in February 1996, and does not currently intend to make an
additional settlement offer to the FDIC. In the fourth quarter of 1996, the
Company received information indicating that the franchisee's indebtedness to
the FDIC had been acquired by a third party. The Company has not been contacted
by the third party. In the event that the Company were to pay an amount
determined to be in excess of the fair market value of the assets, the Company
will recognize a loss at the time of such payment.
In addition, the Company is involved in various legal actions arising in the
normal course of business. While the resolution of any of such actions or the
matter described above may have an impact on the financial results for the
period in which it is resolved, the Company believes that the ultimate
disposition of these matters will not, in the aggregate, have a material adverse
effect upon its business or consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
18
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
1. The Company's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol APPB.
The table below sets forth for the fiscal quarters indicated the
reported high and low last sale prices of the Company's common stock,
as reported on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
High Low High Low
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
First Quarter $ 25.75 $ 17.75 $ 22.00 $ 13.38
Second Quarter $ 32.50 $ 25.00 $ 26.50 $ 20.50
Third Quarter $ 34.25 $ 25.00 $ 31.50 $ 23.50
Fourth Quarter $ 30.00 $ 23.12 $ 29.75 $ 21.63
</TABLE>
2. Number of stockholders of record at December 29, 1996: 1,246
3. An annual dividend of $0.06 per common share was declared on November
21, 1995 for stockholders of record on December 26, 1995, and the
dividend was payable on January 12, 1996. An annual dividend of $0.07
per common share was declared on November 25, 1996 for stockholders of
record on December 6, 1996, and the dividend was payable on January 13,
1997.
The Company presently anticipates continuing the payment of cash
dividends based upon its annual net income. The actual amount of such
dividends will depend upon future earnings, results of operations,
capital requirements, the financial condition of the Company and
certain other factors. There can be no assurance as to the amount of
net income that the Company will generate in 1997 or future years and,
accordingly, there can be no assurance as to the amount that will be
available for the declaration of dividends, if any.
19
<PAGE>
Item 6. Selected Financial Data
The following table sets forth for the periods and the dates indicated selected
financial data of the Company. All amounts reflect the mergers with Pub Ventures
of New England, Inc. and Innovative Restaurant Concepts, Inc., which were
accounted for as poolings of interests. The fiscal year ended December 31, 1995
contained 53 weeks, and all other periods presented contained 52 weeks. The
following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------------
December 29, December 31, December 25, December 26, December 27,
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ----------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
EARNINGS DATA:
Company restaurant sales.............. $ 358,990 $ 299,824 $ 222,445 $ 159,482 $ 85,459
Franchise income...................... 54,141 43,739 31,419 21,324 14,319
--------------- --------------- --------------- --------------- ----------------
Total operating revenues......... $ 413,131 $ 343,563 $ 253,864 $ 180,806 $ 99,778
=============== =============== =============== =============== ================
Operating earnings.................... $ 58,833 $ 45,712 $ 29,311 $ 19,677 $ 9,226
Net earnings.......................... $ 38,014 $ 27,420 $ 17,823 $ 12,551 $ 6,335
Net earnings per common share......... $ 1.22 $ 0.94 $ 0.64 $ 0.46 $ 0.26
Dividends per share................... $ 0.07 $ 0.06 $ 0.05 $ 0.04 $ 0.03
Weighted average shares
outstanding........................ 31,188 29,319 27,970 27,543 24,755
BALANCE SHEET DATA
(AT END OF FISCAL YEAR):
Total assets.......................... $ 314,111 $ 270,680 $ 180,014 $ 138,680 $ 92,383
Long-term obligations, including
current portion..................... $ 25,843 $ 27,427 $ 38,697 $ 19,845 $ 10,212
Stockholders' equity.................. $ 244,764 $ 203,993 $ 108,788 $ 92,680 $ 68,561
</TABLE>
20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's revenues are generated from two primary sources: Company
restaurant sales (food and beverage sales) and franchise income consisting of
franchise restaurant royalties (generally 4% of each franchise restaurant's
monthly gross sales) and franchise fees (which typically range from $30,000 to
$35,000 for each Applebee's restaurant opened and $40,000 for each Rio Bravo
Cantina restaurant opened). Beverage sales include sales of alcoholic beverages,
while non-alcoholic beverages are included in food sales. Certain expenses (food
and beverage, labor, direct and occupancy costs, and pre-opening expenses)
relate directly to Company restaurants, and other expenses (general and
administrative and amortization expenses) relate to both Company restaurants and
franchise operations.
The Company operates on a 52 or 53 week fiscal year ending on the last Sunday in
December. The Company's fiscal years ended December 29, 1996, December 31, 1995
and December 25, 1994 contained 52, 53 and 52 weeks, respectively, and are
referred to hereafter as 1996, 1995 and 1994, respectively.
Acquisitions
On October 24, 1994, a wholly-owned subsidiary of the Company merged with and
into Pub Ventures of New England, Inc. ("PVNE"), the Company's franchisee for
the New England area, referred to herein as the "PVNE Merger." As a result of
the PVNE Merger, PVNE became a wholly-owned subsidiary of the Company. The PVNE
Merger was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements include the accounts and
operations of the merged entities for all periods presented. At the time of the
PVNE Merger, PVNE operated 14 Applebee's restaurants.
On March 23, 1995, a wholly-owned subsidiary of the Company merged with and into
Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the "IRC
Merger." As a result of the IRC Merger, IRC became a wholly-owned subsidiary of
the Company. The IRC Merger was accounted for as a pooling of interests and,
accordingly, the accompanying consolidated financial statements include the
accounts and operations of the merged entities for all periods presented. At the
time of the IRC Merger, IRC operated 17 restaurants, including 13 Rio Bravo
Cantina restaurants, and four other specialty restaurants, comprised of Ray's on
the River, two Green Hills Grille restaurants, and the Rio Bravo Grill.
On April 3, 1995, the Company acquired the operations and assets of five
franchise restaurants in the Philadelphia metropolitan area, referred to herein
as the "Philadelphia Acquisition." The Philadelphia Acquisition was accounted
for as a purchase and, accordingly, the results of operations of such
restaurants have been reflected in the consolidated financial statements
subsequent to the date of acquisition.
In February 1997, the Company entered into an agreement to purchase the assets
of 11 operating Applebee's franchise restaurants located in the St. Louis
metropolitan area for approximately $36.1 million, subject to adjustment. The
purchase price will be paid in a combination of cash and $2.5 million of
promissory notes, and the transaction will be accounted for as a purchase. Final
closing is subject to obtaining licenses and third party consents and is
expected to occur early in the second quarter of 1997.
21
<PAGE>
Prior to September 7, 1994, PVNE was classified as an S Corporation and
accordingly, stockholders were responsible for paying their proportionate share
of federal and certain state income taxes. In addition, the combined earnings of
IRC included earnings of limited partnerships which were not taxable entities
for federal and state income tax purposes. The accompanying consolidated
statements of earnings reflect provisions for income taxes on a pro forma basis
as if the Company had been liable for federal and state income taxes on PVNE's
earnings prior to September 7, 1994 and the earnings of IRC's limited
partnerships at statutory rates.
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of earnings expressed as a percentage
of total operating revenues, except where otherwise noted.
Percentages may not add due to rounding.
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
December 29, December 31, December 25,
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Revenues:
Company restaurant sales......................... 86.9% 87.3% 87.6%
Franchise income................................. 13.1 12.7 12.4
--------------- ---------------- ---------------
Total operating revenues...................... 100.0% 100.0% 100.0%
=============== ================ ===============
Cost of sales (as a percentage of
Company restaurant sales):
Food and beverage................................ 28.0% 28.3% 29.2%
Labor............................................ 31.5 31.7 31.8
Direct and occupancy............................. 24.4 24.1 24.2
Pre-opening expense.............................. 1.0 0.8 0.9
--------------- ---------------- ---------------
Total cost of sales........................... 84.9% 84.8% 86.1%
=============== ================ ===============
General and administrative expenses................... 10.6% 11.3% 11.5%
Merger costs.......................................... -- 0.5 0.4
Amortization of intangible assets..................... 0.6 0.7 0.8
Loss on disposition of restaurants and equipment...... 0.8 0.2 0.3
--------------- ---------------- ---------------
Operating earnings.................................... 14.2 13.3 11.6
--------------- ---------------- ---------------
Other income (expense):
Investment income................................ 0.7 0.5 0.4
Interest expense................................. (0.4) (0.7) (0.8)
Other income..................................... 0.1 0.1 0.1
--------------- ---------------- ---------------
Total other income (expense).................. 0.5 (0.1) (0.3)
--------------- ---------------- ---------------
Earnings before income taxes.......................... 14.7 13.2 11.3
Income taxes (including pro forma provision for
income taxes).................................... 5.5 5.2 4.3
--------------- ---------------- ---------------
Net earnings.......................................... 9.2% 8.0% 7.0%
=============== ================ ===============
</TABLE>
22
<PAGE>
Fiscal Year Ended December 29, 1996 Compared With Fiscal Year Ended December 31,
1995
Company Restaurant Sales. Overall Company restaurant sales increased $59,166,000
(20%) from $299,824,000 in 1995 to $358,990,000 in 1996. Sales for Company owned
Applebee's restaurants increased $47,743,000 (20%) from $237,350,000 in 1995 to
$285,093,000 in 1996, due primarily to Company restaurant openings and sales
from the five Philadelphia restaurants acquired in April 1995, as well as an
increase in comparable restaurant sales. Sales for Company owned Rio Bravo
Cantina restaurants were $48,135,000 and $59,523,000 in 1995 and 1996,
respectively, and sales for the specialty restaurants were $14,339,000 and
$14,374,000 in 1995 and 1996, respectively. The increase in sales for the Rio
Bravo Cantina restaurants resulted primarily from Company restaurant openings
and an increase in comparable restaurant sales.
Comparable restaurant sales at Company owned or operated Applebee's restaurants
increased by 1.1% in 1996. Weighted average weekly sales at Company owned or
operated Applebee's restaurants increased 1.0% from $39,977 in 1995 to $40,366
in 1996. The Company believes these increases were due, in part, to successful
food-specific promotions backed by an increase in advertising spending, as a
percentage of sales, in 1996.
The Company does not expect significant comparable restaurant sales increases
and may experience comparable restaurant sales decreases during the 1997 fiscal
year for Company owned Applebee's restaurants, as many of its restaurants
operate near sales capacity and various markets continue to experience
competitive pressures. A menu price increase was implemented during the fourth
quarter of 1996 for certain menu items. Although the Company's experience in
developing markets indicates that the opening of multiple restaurants within a
particular market results in increased market share, decreases in comparable
restaurant sales may result.
Comparable restaurant sales for Company owned Rio Bravo Cantina restaurants
increased by 3.9% in 1996. Weighted average weekly sales (excluding one
restaurant that is open for dinner only) increased slightly from $66,158 in 1995
to $66,743 in 1996 and were impacted by the expected lower sales volumes at new
restaurants.
Franchise Income. Overall franchise income increased $10,402,000 (24%) from
$43,739,000 in 1995 to $54,141,000 in 1996. This increase was due primarily to
the increased number of franchise Applebee's restaurants operating during 1996
as compared to 1995. The remaining increase in franchise income resulted
primarily from franchise fees earned relating to the opening of the first nine
franchise Rio Bravo Cantina restaurants during 1996. These increases were
partially offset by decreases in weighted average weekly sales and comparable
sales for franchise Applebee's restaurants which decreased 2.6% and 1.2%,
respectively, in 1996.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 28.3%
in 1995 to 28.0% in 1996, due primarily to operational improvements, purchasing
efficiencies resulting from the Company's rapid growth and early payment
discounts, and the menu price increase implemented in the fourth quarter of
1996. In addition, the Company experienced an increase in food costs in the
second quarter of 1995 as a result of winter flooding in California which caused
shortages of certain produce items and a significant increase in related costs.
Beverage sales, as a percentage of Company restaurant sales, declined from 18.9%
in 1995 to 18.3% in 1996, which had a negative impact on overall food and
beverage costs. Management believes that the reduction in beverage sales is due
in part to the continuation of the overall trend toward increased awareness of
responsible alcohol consumption.
23
<PAGE>
Labor costs decreased from 31.7% in 1995 to 31.5% in 1996. Labor costs, as a
percentage of sales, were positively affected by an overall reduction in
workers' compensation costs due to favorable historical claims experience and
improved hourly labor efficiency. Such decreases were partially offset by higher
management costs in 1996. Overall labor costs continue to be adversely affected
by the lower sales volumes in the southern California market. The Company does
not expect a significant increase in labor costs resulting from the first phase
of the minimum wage increase which became effective October 1, 1996.
Direct and occupancy costs increased from 24.1% in 1995 to 24.4% in 1996 due
primarily to higher advertising expense and depreciation expense which were
partially offset by lower rent expense. The southern California market continues
to have a negative impact on overall direct and occupancy costs due to the
absorption of such expenses, which are primarily fixed in nature, over a lower
sales base in those markets.
Pre-opening expense increased from $2,234,000 in 1995 to $3,557,000 in 1996 due
primarily to the opening of two additional Applebee's restaurants and one
additional Rio Bravo Cantina restaurant in 1996 and costs incurred relating to
the reopening of two Applebee's restaurants after being rebuilt. The Company
also incurred higher pre-opening costs for each of the five Rio Bravo Cantina
restaurants that were opened in 1996 as compared to those opened in 1995.
General and Administrative Expenses. General and administrative expenses
decreased in 1996 to 10.6% from 11.3% in 1995, due primarily to the absorption
of general and administrative expenses over a larger revenue base. General and
administrative expenses increased by $5,134,000 during 1996 compared to 1995 due
primarily to the costs of additional personnel associated with the Company's
development efforts and system-wide expansion, including costs related to the
franchising and expansion of the Rio Bravo Cantina concept.
Merger Costs. The Company incurred merger costs of $1,770,000 in 1995 relating
to the IRC Merger. The impact of these costs on pro forma net earnings per
common share was approximately $0.06 in 1995.
Loss on Disposition of Restaurants and Equipment. In October 1996, the Company
completed the sale of six of its eight Company owned Applebee's restaurants
located in the San Bernardino and Riverside counties of southern California. The
operations of the six restaurants and future restaurant development in the
market area were assumed by an existing Applebee's franchisee. The sales price
was $8,500,000 and a loss on the disposition of the properties of $75,000 was
recorded in the third quarter of 1996. During the fourth quarter of 1996, the
Company recognized a loss of $2,500,000 primarily relating to the intended
disposition of the two remaining restaurants in the territory.
The Company is also currently assessing its strategic direction with respect to
the operations of its remaining southern California presence, comprised of six
Company owned Applebee's restaurants in the San Diego market area, and future
restaurant development in this territory. The Company's alternatives for the San
Diego market may include continued operation of the restaurants and development
of new restaurants, a franchisee alliance for future development of the
remainder of the market, or the possible sale of the existing restaurants to a
franchisee.
During 1995, the Company recognized a loss of $615,000 relating to the planned
disposition of two restaurants in 1996, including $275,000 relating to one
restaurant managed under a purchase rights agreement. The Company continues to
operate one restaurant under this agreement.
24
<PAGE>
Investment Income. Investment income increased in 1996 compared to 1995
primarily as a result of increases in cash and cash equivalents and short-term
investments resulting from the proceeds of the Company's stock offering in July
1995.
Interest Expense. Interest expense decreased in 1996 compared to 1995 primarily
as a result of a decrease in interest related to the revolving credit facility
incurred in 1995 and a decrease in long-term debt resulting from the payoff in
August 1995 of the debt assumed in connection with the IRC Merger.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 37.4% in 1996 compared to 39.5% in 1995. Excluding
non-deductible merger costs, the effective income tax rate would have been 38.0%
in 1995. The remaining decrease in the Company's overall effective tax rate in
1996 was due primarily to a reduction in state income taxes.
Fiscal Year Ended December 31, 1995 Compared With Fiscal Year Ended December 25,
1994
Company Restaurant Sales. Overall Company restaurant sales increased $77,379,000
(35%) from $222,445,000 in 1994 to $299,824,000 in 1995. Sales for Company owned
Applebee's restaurants increased $66,417,000 (39%) from $170,933,000 in 1994 to
$237,350,000 in 1995, due primarily to Company restaurant openings and sales
from the five Philadelphia restaurants acquired in April 1995. Sales for the Rio
Bravo Cantina restaurants were $36,679,000 and $48,135,000 in 1994 and 1995,
respectively, and sales for the specialty restaurants were $14,833,000 and
$14,339,000 in 1994 and 1995, respectively. The increase in sales for the Rio
Bravo Cantina restaurants resulted primarily from Company restaurant openings.
The decrease in sales for the specialty restaurants was due to the conversion of
two Casa Gallardo restaurants to Rio Bravo Cantina restaurants during 1994.
Comparable restaurant sales at Company owned or operated Applebee's restaurants
increased by 0.3% in 1995. Weighted average weekly sales at Company owned or
operated Applebee's restaurants increased slightly from $39,924 in 1994 to
$39,977 in 1995.
Comparable restaurant sales for the Rio Bravo Cantina restaurants increased by
0.9% in 1995, although weighted average weekly sales (excluding one restaurant
that is open for dinner only) declined from $68,637 in 1994 to $66,158 in 1995.
The decrease in weighted average weekly sales was due primarily to the lower
than average sales volumes of two new restaurants opened during 1994 which were
opened in a market where there was already an existing Rio Bravo Cantina
restaurant.
Weighted average weekly sales at Company owned Applebee's restaurants continued
to be adversely affected by the southern California and Texas territories.
Weighted average weekly sales in the Texas market improved steadily throughout
1995, increasing from $31,000 in 1994 to $33,000 in 1995, and operating margins
improved accordingly. However, the California market did not show improvements
in either weighted average weekly sales, which decreased from $28,000 in 1994 to
$26,000 in 1995, or operating margins. When entering highly competitive new
markets, or territories where the Company has not yet established a market
presence, early sales levels and profit margins are expected to be lower than in
markets where the Company has a concentration of restaurants or has established
customer awareness.
Franchise Income. Franchise income increased $12,320,000 (39%) from $31,419,000
in 1994 to $43,739,000 in 1995. This increase was due primarily to the increased
number of franchise restaurants operating during 1995 as compared to 1994.
Franchise restaurant weighted average weekly sales decreased 0.2%, and
comparable franchise restaurant sales increased 0.5% in 1995. The remaining
25
<PAGE>
increase in franchise income was due to an increase in franchise fees of
$409,000 in 1995 resulting from an increase in the number of franchise
restaurant openings from 122 in 1994 to 135 in 1995.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 29.2%
in 1994 to 28.3% in 1995, primarily as a result of the menu price increase
implemented in mid-July 1994 at Applebee's restaurants, operational
improvements, purchasing efficiencies resulting from the Company's rapid growth
and early payment discounts. These items were partially offset by an increase in
food costs in the second quarter of 1995 as a result of the winter flooding in
California which caused shortages of certain produce items and a significant
increase in related costs. The Company did not increase its menu prices to
offset the effects of such increased costs. In addition, food and beverage costs
were negatively impacted by the effect of the continued decline in beverage
sales, as a percentage of overall Company restaurant sales, from 20.5% in 1994
to 18.9% in 1995, as margins on alcoholic beverage sales are higher than those
for food sales. Management believes that the reduction in beverage sales is due
in part to the continuation of the overall trend toward increased awareness of
responsible alcohol consumption.
Labor costs decreased slightly from 31.8% in 1994 to 31.7% in 1995. Labor costs,
as a percentage of sales, were positively impacted by an overall reduction in
workers' compensation insurance costs due to favorable historical claims
experience, but were adversely affected by an increase in management costs and
the lower sales volumes in the southern California market.
Direct and occupancy costs decreased slightly from 24.2% in 1994 to 24.1% in
1995. The decrease was due primarily to a decrease in rent expense resulting
from an increase in the proportion of owned versus leased properties. The
southern California and Texas markets continue to have a negative impact on
overall direct and occupancy costs due to the absorption of such expenses, which
are primarily fixed in nature, over a lower sales base in those markets.
General and Administrative Expenses. General and administrative expenses
decreased in 1995 to 11.3% from 11.5% in 1994, due primarily to the absorption
of general and administrative expenses over a larger revenue base. General and
administrative expenses increased by $9,586,000 during 1995 compared to 1994 due
primarily to the costs of additional personnel associated with the Company's
development efforts and system-wide expansion, and higher incentive compensation
expense. A portion of the increase was due to an increase in the Company's
training costs relating to new Company and franchise restaurant openings and the
training of restaurant managers.
Merger Costs. The Company incurred merger costs of $1,770,000 in 1995 relating
to the IRC Merger. The impact of these costs on pro forma net earnings per
common share was approximately $0.06 in 1995. The Company also incurred merger
costs of $920,000 in 1994 relating to the PVNE Merger. The impact of these costs
on pro forma net earnings per common share was approximately $0.03 in 1994.
Loss on Disposition of Restaurants and Equipment. During 1995, the Company
recognized a loss of $615,000 relating to the planned disposition of two
restaurants in early 1996, including $275,000 relating to one restaurant managed
under a purchase rights agreement. The Company continues to operate one
restaurant under this agreement. During 1994, the Company recognized a loss of
$223,000 resulting from the closure and termination of the lease agreement of
one restaurant managed under the purchase rights agreement. This loss was
partially offset by a gain of $54,000 resulting from the sale of one restaurant
to a new franchisee. In addition, during 1994 the Company replaced a majority of
its restaurant point-of-sale systems with upgraded systems technology which
resulted in a write-off of approximately $552,000 for the costs of the existing
equipment in 1994.
26
<PAGE>
Investment Income. Investment income increased in 1995 compared to 1994
primarily as a result of increases in cash and cash equivalents and short-term
investments resulting from the proceeds of the Company's stock offering in July
1995.
Interest Expense. Interest expense increased in 1995 compared to 1994 primarily
as a result of interest related to the $20,000,000 of senior unsecured notes
issued in the second quarter of 1994 and borrowings under the revolving credit
facility prior to the Company's stock offering in July 1995. This increase was
partially offset by a decrease in long-term debt resulting from the payoff of
the debt assumed in connection with the IRC Merger.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 39.5% in 1995 compared to 37.7% in 1994. Excluding
non-deductible merger costs, the effective income tax rate would have been 38.0%
in 1995 compared to 36.7% in 1994. The increase in the Company's overall
effective tax rate in 1995 was due to an increase in state income taxes, the
elimination of the Targeted Jobs Tax Credit in 1995, and a reduction in
tax-exempt interest.
Liquidity and Capital Resources
The Company's need for capital resources historically has resulted from, and for
the foreseeable future is expected to relate primarily to, the construction and
acquisition of restaurants. Such capital has been provided by public stock
offerings, debt financing, and ongoing Company operations, including cash
generated from Company and franchise operations, credit from trade suppliers,
real estate lease financing, and landlord contributions to leasehold
improvements. The Company has also used its common stock as consideration in the
acquisition of restaurants. In addition, the Company assumed debt or issued new
debt in connection with certain mergers and acquisitions.
Capital expenditures were $61,581,000 in 1995 (which includes $9,682,000 related
to the Philadelphia Acquisition) and $65,672,000 in 1996. The Company currently
expects to open approximately 35 Applebee's restaurants (including two new
restaurants in the St. Louis area) and nine Rio Bravo Cantina restaurants in
1997. Capital expenditures in fiscal 1997 are expected to be between
$120,000,000 and $125,000,000 primarily for the development of new restaurants,
acquisitions of restaurants (including $36,100,000 relating to the St. Louis
acquisition), refurbishments of and capital replacements for existing
restaurants, and enhancements to information systems for the Company's
restaurants and corporate office. The amount of actual capital expenditures will
be dependent upon, among other things, the proportion of leased versus owned
properties as the Company expects to continue to purchase a portion of its
sites. In addition, if the Company opens more restaurants than it currently
anticipates or acquires additional restaurants, its capital requirements will
increase accordingly.
The Company has certain debt agreements containing various covenants and
restrictions which, among other things, require the maintenance of a stipulated
fixed charge coverage ratio and minimum consolidated net worth, as defined, and
also limited additional indebtedness in excess of specified amounts. The debt
agreements also restrict the amount of retained earnings available for the
payment of cash dividends. At December 29, 1996, retained earnings were not
restricted for the payment of cash dividends. The Company is currently in
compliance with the covenants of all of its debt agreements.
27
<PAGE>
The Company believes that its liquid assets and cash generated from operations,
combined with borrowings available under its $20,000,000 revolving credit
facility, will provide sufficient funds for its capital requirements for the
foreseeable future. As of December 29, 1996, the Company held liquid assets
totaling $57,410,000, consisting of cash and cash equivalents ($17,346,000) and
short-term investments ($40,064,000). No amounts were outstanding under the
revolving credit facility; however, standby letters of credit issued under the
facility totaling $1,324,000 were outstanding as of December 29, 1996.
Inflation
Substantial increases in costs and expenses, particularly food, supplies, labor
and operating expenses could have a significant impact on the Company's
operating results to the extent that such increases cannot be passed along to
customers. The Company does not believe that inflation has materially affected
its operating results during the past three years.
A majority of the Company's employees are paid hourly rates related to federal
and state minimum wage laws and various laws that allow for credits to that
wage. An increase in the minimum wage has recently been passed by the Federal
government and is also being discussed by various state governments. Although
the Company has been able to and will continue to attempt to pass along
increases in costs through food and beverage price increases, there can be no
assurance that all such increases can be reflected in its prices or that
increased prices will be absorbed by customers without diminishing, to some
degree, customer spending at its restaurants.
Item 8. Financial Statements and Supplementary Data
See the Index to Financial Statements on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
28
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
For information with respect to the executive officers of the Company, see
"Executive Officers of the Registrant" in Part I of this report. For information
with respect to the Directors of the Company, see the Proxy Statement for the
Annual Meeting of Stockholders to be held on or about May 14, 1997, which is
incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the caption "Executive Compensation" in the
Proxy Statement for the Annual Meeting of Stockholders to be held on or about
May 14, 1997, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Security Ownership of Officers,
Directors and Certain Beneficial Owners" in the Proxy Statement for the Annual
Meeting of Stockholders to be held on or about May 14, 1997, is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Transactions" in the Proxy
Statement for the Annual Meeting of Stockholders to be held on or about May 14,
1997, is incorporated herein by reference.
29
<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K
(a) List of documents filed as part of this report:
1. Financial Statements:
The financial statements are listed in the accompanying "Index
to Financial Statements" on Page F-1.
2. Exhibits:
The exhibits filed with or incorporated by reference in this
report are listed on the Exhibit Index beginning on page E-1.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on November 25, 1996, announcing
the declaration of a dividend on its common stock to stockholders of
record as of December 6, 1996, payable on January 13, 1997.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLEBEE'S INTERNATIONAL, INC.
Date: March 6, 1997 By: /s/ Abe J. Gustin, Jr.
---------------- --------------------------------
Abe J. Gustin, Jr.
Chairman and Co-Chief Executive Officer
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Abe J. Gustin, Jr. and Robert T. Steinkamp, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-K, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Abe J. Gustin, Jr. Date: March 6, 1997
--------------------------- ---------------
Abe J. Gustin, Jr.
Director, Chairman and Co-Chief Executive Officer
(co-principal executive officer)
By: /s/ Lloyd L. Hill Date: March 7, 1997
--------------------------- ---------------
Lloyd L. Hill
Director and Co-Chief Executive Officer
(co-principal executive officer)
By: /s/ George D. Shadid Date: March 10, 1997
--------------------------- ---------------
George D. Shadid
Executive Vice President and Chief Financial Officer
(principal financial officer)
By: /s/ Mark A. Peterson Date: March 7, 1997
--------------------------- ---------------
Mark A. Peterson
Vice President and Controller
(principal accounting officer)
31
<PAGE>
By: /s/ D. Patrick Curran Date: March 4, 1997
--------------------------- ---------------
D. Patrick Curran
Director
By: /s/ Eric L. Hansen Date: March 4, 1997
--------------------------- ---------------
Eric L. Hansen
Director
By: /s/ Jack P. Helms Date: March 6, 1997
--------------------------- ---------------
Jack P. Helms
Director
By: /s/ Kenneth D. Hill Date: March 4, 1997
--------------------------- ---------------
Kenneth D. Hill
Director
By: /s/ Robert A. Martin Date: March 6, 1997
--------------------------- ---------------
Robert A. Martin
Director
By: /s/ Johyne H. Reck Date: March 4, 1997
--------------------------- ---------------
Johyne H. Reck
Director
By: /s/ Burton M. Sack Date: March 7, 1997
--------------------------- ---------------
Burton M. Sack
Director
By: /s/ Raymond D. Schoenbaum Date: March 4, 1997
--------------------------- ---------------
Raymond D. Schoenbaum
Director
32
<PAGE>
<TABLE>
<CAPTION>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C>
Independent Auditors' Reports............................................................................ F-2
Consolidated Balance Sheets as of December 29, 1996 and
December 31, 1995 .................................................................................. F-4
Consolidated Statements of Earnings for the Fiscal Years Ended
December 29, 1996, December 31, 1995 and December 25, 1994........................................... F-5
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended December 29, 1996, December 31, 1995 and December 25, 1994..................................... F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 29, 1996, December 31, 1995 and December 25, 1994........................................... F-7
Notes to Consolidated Financial Statements............................................................... F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Applebee's International, Inc.:
We have audited the accompanying consolidated balance sheets of Applebee's
International, Inc. and subsidiaries (the "Company") as of December 29, 1996 and
December 31, 1995 and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 29, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the combined financial statements of Innovative Restaurant Concepts,
Inc. and subsidiaries, Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P., and CG
Restaurant Partners, Ltd. (collectively referred to as "IRC") for the fiscal
year ended December 25, 1994, which financial statements reflect total operating
revenues constituting approximately 20% of the related consolidated financial
statement total for the fiscal year ended December 25, 1994. The combined
financial statements of IRC were audited by other auditors, whose report thereon
has been furnished to us, and our opinion expressed herein, insofar as it
relates to the amounts indicated for IRC in the consolidated financial
statements, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the aforementioned report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Applebee's International, Inc. and subsidiaries at December 29, 1996 and
December 31, 1995, and the consolidated results of their operations and cash
flows for each of the three fiscal years in the period ended December 29, 1996
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
February 21, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Innovative Restaurant Concepts, Inc. and
the Partners of Cobb/Gwinnett Rio, Ltd.,
Rio Real Estate, L.P., and
CG Restaurant Partners, Ltd.:
We have audited the combined statements of operations, stockholders' equity and
partners' capital, and cash flows of INNOVATIVE RESTAURANT CONCEPTS, INC. (a
Georgia corporation) AND SUBSIDIARIES, COBB/GWINNETT RIO, LTD. (a Georgia
limited partnership), RIO REAL ESTATE, L.P. (a Georgia limited partnership), AND
CG RESTAURANT PARTNERS, LTD. (a Georgia limited partnership) for the year ended
December 25, 1994 (not separately presented herein). These financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Innovative
Restaurant Concepts, Inc. and subsidiaries, Cobb/Gwinnett Rio, Ltd., Rio Real
Estate, L.P., and CG Restaurant Partners, Ltd., for the year ended December 25,
1994 in conformity with generally accepted accounting principles.
As discussed in Note 9 to the financial statements (not separately presented
herein), the stockholders and partners of the Companies entered into an
agreement on October 14, 1994 to exchange 100% of the outstanding common stock
and partnership units of the Companies for common stock of an unrelated entity.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 22, 1995
F-3
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 17,346 $ 30,188
Short-term investments, at market value...................................... 40,064 21,836
Receivables, net of allowance................................................ 19,245 9,843
Inventories.................................................................. 4,557 10,036
Prepaid and other current assets............................................. 2,780 2,654
------------- --------------
Total current assets...................................................... 83,992 74,557
Property and equipment, net....................................................... 196,950 159,832
Goodwill, net..................................................................... 22,607 25,780
Franchise interest and rights, net................................................ 5,236 5,805
Deferred income taxes............................................................. 1,366 719
Other assets...................................................................... 3,960 3,987
------------- --------------
$ 314,111 $ 270,680
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................ $ 968 $ 935
Current portion of obligations under noncompetition and consulting agreement. 220 220
Accounts payable............................................................. 11,949 11,183
Accrued expenses and other current liabilities............................... 25,597 22,635
Accrued dividends............................................................ 2,191 1,861
Accrued income taxes......................................................... 918 1,641
------------- --------------
Total current liabilities................................................. 41,843 38,475
------------- --------------
Non-current liabilities:
Long-term debt - less current portion........................................ 24,435 25,832
Franchise deposits........................................................... 1,793 1,168
Obligations under noncompetition and consulting agreement - less current
portion................................................................... 220 440
------------- --------------
Total non-current liabilities............................................. 26,448 27,440
------------- --------------
Total liabilities......................................................... 68,291 65,915
Minority interest in joint venture................................................ 1,056 772
Commitments and contingencies (Notes 7, 8 and 13) Stockholders' equity:
Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares;.
no shares issued.......................................................... -- --
Common stock - par value $0.01 per share: authorized - 125,000,000 shares;
issued - 31,580,955 shares in 1996 and 31,298,517 shares in 1995.......... 316 313
Additional paid-in capital................................................... 153,028 148,081
Retained earnings............................................................ 92,081 56,258
Unrealized gain on short-term investments, net of income taxes............... 188 190
------------- --------------
245,613 204,842
Treasury stock - 281,772 shares in 1996 and 1995, at cost.................... (849) (849)
------------- --------------
Total stockholders' equity................................................ 244,764 203,993
------------- --------------
$ 314,111 $ 270,680
============= ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
December 29, December 31, December 25,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Company restaurant sales................................ $ 358,990 $ 299,824 $ 222,445
Franchise income........................................ 54,141 43,739 31,419
------------- ------------- -------------
Total operating revenues............................. 413,131 343,563 253,864
------------- ------------- -------------
Cost of Company restaurant sales:
Food and beverage....................................... 100,534 84,776 64,819
Labor................................................... 112,969 94,935 70,777
Direct and occupancy.................................... 87,740 72,228 53,883
Pre-opening expense..................................... 3,557 2,234 2,093
------------- ------------- -------------
Total cost of Company restaurant sales............... 304,800 254,173 191,572
------------- ------------- -------------
General and administrative expenses.......................... 43,887 38,753 29,167
Merger costs................................................. -- 1,770 920
Amortization of intangible assets............................ 2,293 2,305 2,033
Loss on disposition of restaurants and equipment............. 3,318 850 861
------------- ------------- -------------
Operating earnings........................................... 58,833 45,712 29,311
------------- ------------- -------------
Other income (expense):
Investment income....................................... 2,863 1,764 1,065
Interest expense........................................ (1,571) (2,507) (2,029)
Other income............................................ 600 357 253
------------- ------------- -------------
Total other income (expense)......................... 1,892 (386) (711)
------------- ------------- -------------
Earnings before income taxes................................. 60,725 45,326 28,600
Income taxes................................................. 22,711 17,906 10,777
------------- ------------- -------------
Net earnings................................................. $ 38,014 $ 27,420 $ 17,823
============= ============= ==============
Net earnings per common share................................ $ 1.22 $ 0.94 $ 0.64
============= ============= =============
Weighted average shares outstanding.......................... 31,188 29,319 27,970
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Common Stock Additional on Total
------------------------- Paid-In Retained Short-Term Treasury Stockholders'
Shares Amount Capital Earnings Investments Stock Equity
-------------- ---------- ------------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 26, 1993......... 28,185,720 $ 282 $ 73,397 $ 19,850 $ -- $ (849) $ 92,680
Dividends on common stock,
at a rate of $0.05 per share.. -- -- -- (1,269) -- -- (1,269)
Stock options exercised......... 109,759 1 661 -- -- -- 662
Income tax benefit upon exercise
of stock options.............. -- -- 215 -- -- -- 215
Unrealized loss on short-term
investments, net of income
taxes......................... -- -- -- -- (96) -- (96)
Transactions of pooled companies
prior to acquisition, net..... -- -- 4,402 (6,953) -- -- (2,551)
Pro forma provision for income
taxes of pooled companies..... -- -- -- 1,324 -- -- 1,324
Net earnings.................... -- -- -- 17,823 -- -- 17,823
-------------- ---------- ------------ ----------- ---------- -------------------------
Balance, December 25, 1994......... 28,295,479 283 78,675 30,775 (96) (849) 108,788
Issuance of common stock from
public offering............... 2,415,000 24 60,410 -- -- -- 60,434
Dividends on common stock,
$0.06 per share............... -- -- -- (1,861) -- -- (1,861)
Stock options exercised:
Company....................... 588,038 6 4,649 -- -- -- 4,655
IRC........................... -- -- 1,333 -- -- -- 1,333
Income tax benefit upon exercise
of stock options.............. -- -- 2,615 -- -- -- 2,615
Change in unrealized gain on
short-term investments, net of
income taxes.................. -- -- -- -- 286 -- 286
Adjustment related to tax basis
of pooled entities............ -- -- 250 -- -- -- 250
Pro forma provision for income
taxes of pooled company....... -- -- -- 73 -- -- 73
Reclassification of net income
of IRC partnerships........... -- -- 149 (149) -- -- --
Net earnings.................... -- -- -- 27,420 -- -- 27,420
-------------- ---------- ------------ ----------- ---------- ----------- -------------
Balance, December 31, 1995......... 31,298,517 $ 313 $ 148,081 $ 56,258 $ 190 $ (849) $ 203,993
Dividends on common stock,
$0.07 per share............... -- -- -- (2,191) -- -- (2,191)
Stock options exercised......... 282,438 3 3,798 -- -- -- 3,801
Income tax benefit upon exercise
of stock options.............. -- -- 1,149 -- -- -- 1,149
Change in unrealized gain on
short-term investments, net of (2) (2)
income taxes..................
Net earnings.................... -- -- -- 38,014 -- -- 38,014
-------------- ---------- ------------ ----------- ---------- -------------------------
Balance, December 29, 1996......... 31,580,955 $ 316 $ 153,028 $ 92,081 $ 188 $ (849) $ 244,764
============== ========== ============ =========== ========== =========== =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
December 29, December 31, December 25,
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................... $ 38,014 $ 27,420 $ 17,823
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization............................... 15,652 11,964 8,997
Amortization of intangible assets........................... 2,293 2,305 2,033
Loss (gain) on sale of investments.......................... 27 (67) (112)
Deferred income tax provision (benefit)..................... 128 (179) 100
Loss on disposition of restaurants and equipment............ 3,318 850 661
Pro forma provision for income taxes of pooled companies.... -- 73 1,324
Changes in assets and liabilities (exclusive of effects of
acquisitions other than pooled companies):
Receivables................................................. (2,702) (2,447) (1,101)
Inventories................................................. 5,479 (4,877) (2,879)
Prepaid and other current assets............................ (898) 155 (802)
Accounts payable............................................ 766 433 1,293
Accrued expenses and other current liabilities.............. 2,806 5,307 5,269
Accrued income taxes........................................ (723) (328) (672)
Franchise deposits.......................................... 625 (187) 92
Other....................................................... (139) 356 (1,198)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 64,646 40,778 30,828
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments............................ (49,487) (16,809) (8,306)
Maturities and sales of short-term investments................. 31,149 4,392 9,942
Purchases of property and equipment............................ (65,672) (51,899) (45,419)
Acquisitions of restaurants.................................... -- (9,682) (3,315)
Proceeds from sale of restaurants and equipment................ 4,314 104 1,474
--------------- --------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES....................... (79,696) (73,894) (45,624)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock......................... -- 60,434 --
Dividends paid................................................. (1,861) (1,269) (879)
Issuance of common stock upon exercise of stock options........ 3,801 5,988 662
Income tax benefit upon exercise of stock options.............. 1,149 2,615 215
Proceeds from issuance of long-term debt....................... -- 8,087 27,116
Payments on long-term debt..................................... (945) (22,179) (8,020)
Payments under noncompetition and consulting agreement......... (220) (220) (244)
Minority interest in net earnings of joint venture............. 284 214 69
Cash transactions of pooled companies prior to acquisition, net -- -- (2,543)
--------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 2,208 53,670 16,376
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (12,842) 20,554 1,580
CASH AND CASH EQUIVALENTS, beginning of period...................... 30,188 9,634 8,054
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of period............................ $ 17,346 $ 30,188 $ 9,634
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------
December 29, December 31, December 25,
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Income taxes................................................ $ 22,437 $ 15,537 $ 9,806
================= ================= =================
Interest.................................................... $ 1,061 $ 3,060 $ 1,927
================= ================= =================
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capitalized leases of $2,610,000 were recorded in April 1995 when the Company
acquired the operations and assets of five franchise restaurants. A capitalized
lease of $424,000 was recorded in July 1995 when the Company entered into a
lease for a new restaurant. This lease was transferred to a franchisee in
connection with the sale of six restaurants in October 1996.
The Company received a $5,000,000 promissory note in connection with the sale of
six restaurants in October 1996 (see Note 11), which was paid in full in January
1997.
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
See notes to consolidated financial statements.
F-8
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Applebee's International, Inc. and its subsidiaries (the "Company") develops,
franchises and operates casual dining restaurants principally under the names
"Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina." As of December
29, 1996, there were 819 Applebee's restaurants, of which 671 were operated by
franchisees and 148 were operated by the Company, and 30 Rio Bravo Cantina
restaurants, of which nine were operated by franchisees and 21 were operated by
the Company. The Company also operated four other specialty restaurants. Such
restaurants were located in 45 states, Canada, Europe and the Caribbean.
2. Summary of Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and its
controlled-interest joint venture. All material intercompany profits,
transactions and balances have been eliminated.
Fiscal year: The Company's fiscal year ends on the last Sunday of the calendar
year. The fiscal years ended December 29, 1996, December 31, 1995 and December
25, 1994 contained 52, 53 and 52 weeks, respectively, and are referred to
hereafter as 1996, 1995 and 1994, respectively.
Short-term investments: Short-term investments are comprised of U.S. government
and agency securities, certificates of deposit, state and municipal bonds and
preferred stocks. Gains and losses from sales are determined using the specific
identification method. As of December 29, 1996, all short-term investments have
been classified as available-for-sale.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market. At December 29, 1996 and December 31, 1995, $1,285,000 and
$7,132,000, respectively of "Riblets" were included in inventories in the
accompanying consolidated balance sheets. The Company purchases large quantities
of Riblets, a specialty item on the Applebee's menu, to use in Company operated
restaurants as well as to make them available to franchisees generally at its
cost.
Pre-opening expense: The Company expenses direct training and other costs
related to opening new or relocated restaurants in the month of opening.
Property and equipment: Property and equipment are stated at cost. Depreciation
is provided primarily on a straight-line method over the estimated useful lives
of the assets. Leasehold improvements are amortized over the shorter of the
estimated useful life or the lease term of the related asset. The general ranges
of original depreciable lives are as follows:
Years
Buildings................................................... 20
Leasehold improvements...................................... 15-20
Furniture and equipment..................................... 3-7
Interest has been capitalized in connection with the development of new
restaurants and is amortized over the estimated useful life of the related
asset. Interest costs of $618,000, $624,000 and $201,000 were capitalized during
1996, 1995 and 1994, respectively.
Goodwill: Goodwill represents the excess of cost over fair market value of net
assets acquired by the Company. Goodwill is being amortized over periods ranging
from 15 to 20 years on a straight-line basis. Accumulated amortization at
F-9
<PAGE>
December 29, 1996 and December 31, 1995 was $5,155,000 and $3,739,000,
respectively.
Impairment of long-lived assets: The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets," as of the beginning of its 1996 fiscal year. SFAS 121
establishes accounting standards for the impairment of long-lived assets,
certain intangibles, and goodwill related to those assets. The adoption of this
Statement did not have an effect on the Company's consolidated financial
statements.
Franchise interest and rights: Franchise interest and rights represent
allocations of purchase price to either the purchased restaurants or franchise
operations acquired. The allocated costs are amortized over the estimated life
of the restaurants or the franchise agreements on a straight-line basis ranging
from 7 to 20 years. Accumulated amortization at December 29, 1996 and December
31, 1995 was $5,695,000 and $5,126,000, respectively.
Franchise revenues: Franchise revenues are recognized in accordance with SFAS
No. 45 which requires deferral until substantial performance of franchisor
obligations is complete. Initial franchise fees, included in franchise income in
the consolidated statements of earnings, totaled $4,615,000, $4,162,000 and
$3,753,000 for 1996, 1995 and 1994, respectively.
Advertising costs: The Company expenses advertising costs for Company owned
restaurants as incurred except for production costs of advertising which are
expensed the first time the advertising takes place. Advertising expense related
to Company restaurants was $16,470,000, $12,749,000 and $8,793,000 for 1996,
1995 and 1994, respectively.
Stock-based compensation: The Company has adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." The Statement
encourages rather than requires companies to adopt a new method that accounts
for stock compensation awards based on their estimated fair value at the date
they are granted. Companies are permitted, however, to continue accounting for
stock compensation awards under APB Opinion No. 25 which requires compensation
cost to be recognized based on the excess, if any, between the quoted market
price of the stock at the date of grant and the amount an employee must pay to
acquire the stock. The Company has elected to continue to apply APB Opinion No.
25 and has disclosed the pro forma net income and earnings per share, determined
as if the new method had been applied, in Note 15.
Earnings per share: Earnings per share are computed based on the weighted
average number of common shares outstanding. The shares issuable under the 1989
Employee Stock Option Plan or the 1995 Equity Incentive Plan (see Note 15) are
excluded from the computations, because their dilutive effect is not material.
Pervasiveness of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. Disclosures about Fair Value of Financial Instruments
The following methods were used in estimating fair value disclosures for
significant financial instruments of the Company. The carrying amount of cash
and cash equivalents approximates fair value because of the short maturity of
those instruments. The carrying amount of short-term investments is based on
F-10
<PAGE>
quoted market prices. The fair value of the Company's long-term debt, excluding
capitalized lease obligations, is estimated based on quotations made on similar
issues.
The estimated fair values of the Company's financial instruments are as follows
(in thousands):
<TABLE>
<CAPTION>
December 29, 1996 December 31, 1995
----------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents.............. $ 17,346 $ 17,346 $ 30,188 $ 30,188
Short-term investments................. $ 40,064 $ 40,064 $ 21,836 $ 21,836
Long-term debt, excluding
capitalized lease obligations........ $ 22,780 $ 23,099 $ 23,725 $ 24,811
</TABLE>
4. Acquisitions
IRC Merger: On March 23, 1995, a wholly-owned subsidiary of the Company merged
with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein
as the "IRC Merger." Immediately prior to the IRC Merger, IRC's affiliated
limited partnerships, Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P. and CG
Restaurant Partners, Ltd., were liquidated, and contemporaneously with the IRC
Merger, the Company acquired the interests of the limited partners in the
distributed assets of these partnerships. As a result of the IRC Merger, IRC
became a wholly-owned subsidiary of the Company. A total of approximately
2,630,000 shares of the Company's newly-issued common stock was issued to the
shareholders and limited partners of IRC, including IRC shares issued in 1995
upon the exercise of IRC stock options prior to the IRC Merger. IRC employees
also exchanged pre-existing stock options for options to purchase approximately
147,000 shares of the Company's common stock. In addition, the Company assumed
approximately $13,700,000 of IRC indebtedness, of which $1,270,000 was repaid at
closing and the remainder was repaid during 1995. At the time of the IRC Merger,
IRC operated 17 restaurants, 13 of which were Rio Bravo Cantinas, a Mexican
restaurant concept, and four were other specialty restaurants. The IRC Merger
was accounted for as a pooling of interests. Merger costs of $1,770,000 relating
to the IRC Merger were expensed in the first quarter of 1995. Merger costs
include investment banking fees, legal and accounting fees, and other merger
related expenses. The impact of these costs on net earnings per common share was
approximately $0.06 in 1995.
PVNE Merger: On October 24, 1994, a wholly-owned subsidiary of the Company
merged with and into Pub Ventures of New England, Inc. ("PVNE"), referred to
herein as the "PVNE Merger." As a result of the PVNE Merger, PVNE became a
wholly-owned subsidiary of the Company. The shareholders of PVNE received an
aggregate of 3,300,000 shares of the Company's newly-issued common stock. At the
time of the PVNE Merger, PVNE operated 14 Applebee's restaurants, and several
restaurant sites were under development. The PVNE Merger was accounted for as a
pooling of interests. Merger costs of $920,000 relating to the PVNE Merger were
expensed in the fourth quarter of 1994. Merger costs include investment banking
fees, legal and accounting fees, and severance and benefits-related costs. The
impact of these costs on pro forma net earnings per common share was
approximately $0.03 in 1994.
Other restaurant acquisitions: During 1994, the Company acquired the operations
of two franchise restaurants and the related land, furniture and fixtures. The
total purchase price was approximately $3,315,000 and has been allocated to the
fair value of net assets acquired, and resulted in an allocation to goodwill of
$515,000. The 1994 financial statements reflect the results of operations of
such restaurants subsequent to the date of acquisition.
On April 3, 1995, the Company acquired the operations of five franchise
restaurants and the related furniture and fixtures, certain land and leasehold
improvements and rights to future development of restaurants for a total
purchase price of $9,682,000. The acquisition was accounted for as a purchase,
F-11
<PAGE>
and accordingly, the purchase price has been allocated to the fair value of net
assets acquired and resulted in an allocation to goodwill of $6,432,000. In
connection with this acquisition, the Company also recorded capitalized leases
of $2,608,000. The 1995 financial statements reflect the results of operations
of such restaurants subsequent to the date of acquisition.
Results of operations of these purchased restaurants prior to acquisition were
not material in relation to the Company's operating results for the periods
shown.
5. Short-Term Investments
The amortized cost, estimated market value and unrealized gains or losses on
short-term investments are as follows (in thousands):
<TABLE>
<CAPTION>
December 29, 1996 December 31, 1995
------------------------------------------ ------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gain Value Cost Gain Value
-------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit........ $ 19 $ -- $ 19 $ 19 $ -- $ 19
Preferred stocks............... 1,374 52 1,426 1,832 115 1,947
U.S. government and
agency securities........... 19,829 150 19,979 16,809 67 16,876
State and local
municipal securities........ 18,541 99 18,640 2,870 124 2,994
-------------- ------------- ------------- ------------- ------------- --------------
$ 39,763 $ 301 $ 40,064 $ 21,530 $ 306 $ 21,836
============== ============= ============= ============= ============= ==============
</TABLE>
The amortized cost and estimated market value of debt securities as of December
29, 1996, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Market
Cost Value
------------------ -----------------
<S> <C> <C>
Due within one year or less..................................... $ 9,030 $ 9,039
Due after one year through five years........................... 28,040 28,300
Due after five years through ten years.......................... 202 210
Due after ten years............................................. 1,098 1,070
------------------ -----------------
$ 38,370 $ 38,619
================== =================
</TABLE>
6. Receivables
Receivables are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Franchise royalty, advertising and trade receivables............. $ 9,801 $ 7,615
Notes receivable................................................. 6,305 --
Credit card receivables.......................................... 1,636 1,578
Interest and dividends receivable................................ 833 337
Franchise fee receivables........................................ 425 589
Other............................................................ 515 447
----------------- -----------------
19,515 10,566
Less allowance for bad debts..................................... 270 723
----------------- -----------------
$ 19,245 $ 9,843
================= =================
</TABLE>
F-12
<PAGE>
Included in notes receivable as of December 29, 1996 was a $5,000,000 promissory
note which was received from a franchisee in connection with the sale of six
restaurants in October 1996 (see Note 11), which was paid in full in January
1997.
No provision for bad debts was recorded during 1996. The provision for bad debts
totaled $250,000 and $418,000 for 1995 and 1994, respectively. Write-offs
against the allowance for bad debts totaled $453,000 and $267,000 during 1996
and 1995, respectively. No amounts were written off during 1994.
7. Property and Equipment
Property and equipment, net is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
----------------- ------------------
<S> <C> <C>
Land............................................................. $ 38,340 $ 34,527
Buildings and leasehold improvements............................. 125,486 95,933
Furniture and equipment.......................................... 77,034 59,430
Construction in progress......................................... 7,882 7,564
----------------- ------------------
248,742 197,454
Less accumulated depreciation and capitalized
lease amortization............................................ 51,792 37,622
----------------- ------------------
$ 196,950 $ 159,832
================= ==================
</TABLE>
Property under capitalized leases in the amount of $2,610,000 and $3,034,000 at
December 29, 1996 and December 31, 1995, respectively, is included in buildings
and leasehold improvements. Accumulated amortization of such property amounted
to $225,000 and $105,000 at December 29, 1996 and December 31, 1995,
respectively. Capitalized leases relate to the buildings on certain restaurant
properties. The land portions of the restaurant property leases are accounted
for as operating leases.
Depreciation and capitalized lease amortization expense relating to property and
equipment totaled $15,652,000, $11,964,000 and $8,997,000 for 1996, 1995 and
1994, respectively. Of these amounts, $145,000 and $105,000 related to
capitalized lease amortization during 1996 and 1995, respectively.
The Company leases certain of its restaurants. The leases generally provide for
payment of minimum annual rent, real estate taxes, insurance and maintenance
and, in some cases, contingent rent (calculated as a percentage of sales) in
excess of minimum rent. Total rental expense for all operating leases is
composed of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ -----------------
<S> <C> <C> <C>
Minimum rent................................. $ 8,138 $ 7,300 $ 5,797
Contingent rent.............................. 1,451 1,520 1,532
------------------ ------------------ -----------------
$ 9,589 $ 8,820 $ 7,329
================== ================== =================
</TABLE>
F-13
<PAGE>
The present value of capitalized lease payments and the future minimum lease
payments under noncancelable operating leases (including leases executed for
sites to be developed in 1997) as of December 29, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
------------------ -----------------
<S> <C> <C>
1997............................................................. $ 238 $ 9,957
1998............................................................. 238 10,537
1999............................................................. 238 10,267
2000............................................................. 273 9,875
2001............................................................. 290 9,683
Thereafter....................................................... 4,774 81,688
------------------ ------------------
Total minimum lease payments..................................... 6,051 $ 132,007
==================
Less amounts representing interest............................... 3,428
------------------
Present value of minimum lease payments.......................... $ 2,623
==================
</TABLE>
In February 1997, the Company exercised its option to purchase the buildings
underlying three capital leases and the related land under three operating
leases for a total of $3,650,000. As a result, $2,140,000 of the capitalized
lease obligations recorded as of December 29, 1996 were retired, and future
minimum lease payments under the three operating leases of $2,937,000 as of
December 29, 1996 were eliminated.
8. Long-Term Debt
Long-term debt, including capitalized lease obligations, is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------------ -----------------
<S> <C> <C>
Unsecured notes payable; 7.70% interest per annum, with
principal payments beginning in 1998; due May 2004........... $ 20,000 $ 20,000
Secured bank note; 6.69% interest per annum; due in
quarterly installments of principal and interest through
October 1998................................................. 1,200 1,800
Unsecured promissory notes issued in connection with the
acquisition of restaurants; 8.00% interest per annum; due
in annual installments of principal and interest through
February 2000................................................ 1,544 1,874
Capitalized lease obligations.................................... 2,623 3,042
Other............................................................ 36 51
------------------ -----------------
Total long-term debt............................................. 25,403 26,767
Less current portion of long-term debt........................... 968 935
------------------ -----------------
Long-term debt - less current portion............................ $ 24,435 $ 25,832
================== =================
</TABLE>
During 1995, the Company obtained a $20,000,000 unsecured bank revolving credit
facility which expires on December 31, 1997. Of this amount, $5,000,000 can be
utilized for standby letters of credit. The revolving credit facility bears
interest at LIBOR plus 0.60% or the prime rate, at the Company's option, and
requires the Company to pay a commitment fee of 0.15% on any unused portion of
the facility. As of December 29, 1996, no amounts were outstanding under the
facility. Standby letters of credit issued under the facility totaling
$1,324,000 and $213,000 were outstanding as of December 29, 1996 and December
31, 1995, respectively.
F-14
<PAGE>
The debt agreements contain various covenants and restrictions which, among
other things, require the maintenance of a stipulated fixed charge coverage
ratio and minimum consolidated net worth, as defined, and limit additional
indebtedness in excess of specified amounts. The debt agreements also restrict
the amount available for the payment of cash dividends. At December 29, 1996,
retained earnings were not restricted for the payment of cash dividends. The
Company is currently in compliance with the covenants of all of its debt
agreements.
Maturities of long-term debt, including capitalized lease obligations, for each
of the five fiscal years subsequent to December 29, 1996, ending during the
years indicated, are as follows (in thousands):
1997.................................................. $ 968
1998.................................................. 3,859
1999.................................................. 3,241
2000.................................................. 3,302
2001.................................................. 2,903
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------------ -----------------
<S> <C> <C>
Compensation and related taxes.................................... $ 9,828 $ 8,962
Gift certificates................................................. 3,826 2,382
Sales and use taxes............................................... 2,006 2,521
Insurance......................................................... 1,596 1,866
Rent.............................................................. 2,477 1,761
Other............................................................. 5,864 5,143
------------------ -----------------
$ 25,597 $ 22,635
================== =================
</TABLE>
10. Joint Venture
In 1992, the Company entered into a joint venture arrangement with its
franchisee in Nevada. Based on its control over operating policies of the joint
venture, the Company has consolidated the joint venture for financial statement
purposes. The Company had an option to purchase the remaining 50% interest for
$1,275,000, which was exercised in February 1997.
11. Loss on Disposition of Restaurants and Equipment
In October 1996, the Company completed the sale of six of its eight Company
owned Applebee's restaurants located in the San Bernardino and Riverside
counties of southern California. The operations of the six restaurants and
future restaurant development in the market area were assumed by an existing
Applebee's franchisee. The sales price was $8,500,000 and a loss on the
disposition of the properties of $75,000 was recorded in the third quarter of
1996. During the fourth quarter of 1996, the Company recognized a loss of
$2,500,000 primarily relating to the intended disposition of the two remaining
restaurants in the territory. In March 1997, the Company entered into a lease
termination agreement for one of these restaurants.
During 1995, the Company recognized a loss of $615,000 relating to the
disposition of two restaurants in 1996, including $275,000 relating to one
restaurant managed under a purchase rights agreement. The Company continues to
operate one restaurant under this agreement.
F-15
<PAGE>
During 1994, the Company recognized a loss of $223,000 resulting from the
closure and termination of the lease agreement of one restaurant managed under
the purchase rights agreement. This loss was partially offset by a gain of
$54,000 resulting from the sale of one restaurant to a new franchisee. In
addition, during 1994 the Company replaced a majority of its restaurant
point-of-sale systems with upgraded systems technology which resulted in a
write-off of approximately $552,000 for the costs of the existing equipment in
1994.
12. Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax return.
Prior to September 7, 1994, PVNE, a pooled company, was classified as an S
Corporation and accordingly, stockholders were responsible for paying their
proportionate share of federal and certain state income taxes. In addition, the
combined earnings of IRC, a pooled company, included earnings of limited
partnerships which were not taxable entities for federal and state income tax
purposes. The accompanying consolidated statements of earnings reflect
provisions for income taxes on a pro forma basis as if the Company were liable
for federal and state income taxes on PVNE's earnings prior to September 7, 1994
and the earnings of IRC's limited partnerships for periods prior to the IRC
Merger at a statutory rate of 39%.
The income tax provision (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Current provision:
Federal............................................ $ 18,783 $ 15,163 $ 7,934
State.............................................. 3,800 2,849 1,419
Deferred provision (benefit)........................... 128 (179) 100
Pro forma provision for income taxes
of pooled companies................................ -- 73 1,324
--------------- --------------- ----------------
Income taxes........................................... $ 22,711 $ 17,906 $ 10,777
=============== =============== ================
</TABLE>
The deferred income tax provision (benefit) is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Franchise deposits..................................... $ 77 $ 85 $ (36)
Depreciation........................................... 617 13 109
Allowance for bad debts................................ 345 (72) (163)
Accrued expenses....................................... 203 (125) (99)
Property and equipment writedown....................... (935) -- --
Other.................................................. (179) (80) 289
--------------- --------------- ----------------
Deferred income tax provision (benefit)................ 128 (179) 100
Adjustment to tax basis of pooled companies............ -- (1,350) --
Deferred income taxes related to change in
unrealized gain (loss) on investments.............. (3) 173 (57)
--------------- --------------- ----------------
Net change in deferred income taxes.................... $ 125 $ (1,356) $ 43
=============== =============== ================
</TABLE>
F-16
<PAGE>
A reconciliation between the income tax provision and the expected tax
determined by applying the statutory Federal income tax rates to earnings before
income taxes follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Federal income tax at statutory rates.................. $ 21,254 $ 15,864 $ 9,916
Increase (decrease) to income tax expense:
Amortization of goodwill .......................... 276 281 267
State income taxes, net of federal benefit......... 2,470 1,852 1,039
Merger costs....................................... -- 625 271
Tax exempt investment income....................... (338) (169) (207)
Meals and entertainment disallowance............... 317 258 186
FICA tip tax credit................................ (1,136) (985) (641)
Other.............................................. (132) 180 (54)
--------------- --------------- ----------------
Income taxes........................................... $ 22,711 $ 17,906 $ 10,777
=============== =============== ================
</TABLE>
The net current deferred tax asset amounts are included in "prepaid and other
current assets" in the accompanying consolidated balance sheets. The significant
components of deferred tax assets and liabilities and the related balance sheet
classifications are as follows (in thousands):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
----------------- ------------------
<S> <C> <C>
Classified as current:
Allowance for bad debts..................................... $ 15 $ 361
Accrued expenses............................................ 245 510
Other, net.................................................. (495) (334)
----------------- ------------------
Net deferred tax asset (liability).......................... $ (235) $ 537
================= ==================
Classified as non-current:
Depreciation differences.................................... $ 484 $ 166
Franchise deposits.......................................... 366 444
Other, net.................................................. 516 109
----------------- ------------------
Net deferred tax asset...................................... $ 1,366 $ 719
================= ==================
</TABLE>
13. Commitments and Contingencies
Litigation, claims and disputes: As of December 29, 1996, the Company was using
assets owned by a former franchisee in the operation of one restaurant under a
purchase rights agreement which required the Company to make certain payments to
the franchisee's lender. In 1991, a dispute arose between the lender and the
Company over the amount of the payments due the lender. Based upon a then
current independent appraisal, the Company offered to settle the dispute and
purchase the assets for $1,000,000 in 1991. The lender rejected the Company's
offer and claimed that the Company had guaranteed the entire $2,400,000 debt of
the franchisee. In November 1992, the lender was declared insolvent by the FDIC
and has since been liquidated. The Company was contacted by the FDIC, and in
1993, the Company offered to settle the issue and purchase the assets at the
three restaurants then being operated for $182,000. The Company closed one of
the three restaurants in 1994 and lowered its offer to $120,000 to settle the
issue and purchase the assets at the two then remaining restaurants. The FDIC
declined the Company's offer, indicating instead its preliminary position that
the Company should pay the entire debt of the franchisee. The Company closed one
of the two remaining restaurants in February 1996, and does not currently intend
to make an additional settlement offer to the FDIC. In the fourth quarter of
1996, the Company received information indicating that the franchisee's
indebtedness to the FDIC had been acquired by a third party. The Company has not
been contacted by the third party. In the event that the Company were to pay an
F-17
<PAGE>
amount determined to be in excess of the fair market value of the assets, the
Company will recognize a loss at the time of such payment.
In addition, the Company is involved in various legal actions arising in the
normal course of business. While the resolution of any of such actions or the
matter described above may have an impact on the financial results for the
period in which it is resolved, the Company believes that the ultimate
disposition of these matters will not, in the aggregate, have a material adverse
effect upon its business or consolidated financial position.
Franchise financing: The Company entered into an agreement in 1992 with a
financing source to provide up to $75,000,000 of financing to Company
franchisees to fund development of new franchise restaurants. The Company
provided a limited guaranty of loans made under the agreement. The Company's
maximum recourse obligation of 10% of the amount funded is reduced beginning in
the second year of each long-term loan and thereafter decreases ratably to zero
after the seventh year of each loan. At December 29, 1996, approximately
$48,000,000 had been funded through this financing source. The Company has not
been apprised of any defaults under this agreement by franchisees. This
agreement expired on December 31, 1994 and was not renewed, although some loan
commitments as of the termination date were thereafter funded through December
31, 1995.
Severance agreements: The Company has severance and employment agreements with
certain officers providing for severance payments to be made in the event the
employee resigns or is terminated related to a change in control (as defined in
the agreements). If the severance payments had been due as of December 29, 1996,
the Company would have been required to make payments aggregating approximately
$5,500,000. In addition, the Company has severance and employment agreements
with certain officers which contain severance provisions not related to a change
in control, and such provisions would have required aggregate payments of
approximately $4,400,000 if such officers had been terminated as of December 29,
1996.
14. Stockholders' Equity
On July 28, 1995, the Company completed a public offering of its common stock
consisting of 2,100,000 shares sold by the Company and 300,000 shares sold by
certain stockholders of the Company. In addition, the Company and the selling
stockholders granted the underwriters an option to purchase 315,000 and 45,000
shares, respectively, to cover over-allotments, which was exercised on August 9,
1995. Net proceeds of $60,434,000, after expenses, were received from the
offering. A portion of the net proceeds of the offering was used to retire
approximately $12,500,000 of secured debt assumed in certain acquisitions and to
repay the outstanding balance of the Company's revolving credit facility of
$5,000,000.
On September 7, 1994, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan") and declared a dividend, issued on September 19,
1994, of one Right for each outstanding share of Common Stock of the Company
(the "Common Shares"). The Rights become exercisable if a person or group
acquires more than 15% of the outstanding Common Shares, other than pursuant to
a Qualifying Offer (as defined) or makes a tender offer for more than 15% of the
outstanding Common Shares, other than pursuant to a Qualifying Offer. Upon the
occurrence of such an event, each Right entitles the holder (other than the
acquiror) to purchase for $75 the economic equivalent of Common Shares, or in
certain circumstances, stock of the acquiring entity, worth twice as much. The
Rights will expire on September 7, 2004 unless earlier redeemed by the Company,
and are redeemable prior to becoming exercisable at $0.01 per Right.
F-18
<PAGE>
15. Employee Benefit Plans
Employee stock option plan: During 1989, the Company's Board of Directors
approved the 1989 Employee Stock Option Plan (the "1989 Plan") which provided
for the grant of both qualified and nonqualified options as determined by a
committee appointed by the Board of Directors. At the 1995 Annual Meeting of
Stockholders, the 1989 Employee Stock Option Plan was terminated, and the 1995
Equity Incentive Plan (the "1995 Plan") was approved. Stock options outstanding
under the existing 1989 Stock Option Plan were not affected by the termination
of that plan.
Options under the 1989 Plan were granted for a term of three to ten years and
were generally exercisable one year from date of grant. The 1995 Plan allows the
granting of stock options, stock appreciation rights, restricted stock awards,
performance unit awards and performance share awards (collectively, "Awards") to
eligible participants. The number of shares authorized to be issued pursuant to
the 1995 Plan is 2,000,000. Options granted under the 1995 Plan during 1995 have
a term of five to ten years and are generally exercisable three years from date
of grant. Options granted under the 1995 Plan during 1996 have a term of ten
years and are generally 50% exercisable three years from date of grant, 25%
exercisable four years from date of grant, and 25% exercisable five years from
date of grant. Subject to the terms of the 1995 Plan, the Committee has the sole
discretion to determine the employees who shall be granted Awards, the size and
types of such Awards, and the terms and conditions of such Awards. Under both
plans, the option price for both qualified and nonqualified options as of the
date granted cannot be less than the fair market value of the Company's common
stock.
The Company accounts for both plans in accordance with APB Opinion No. 25 which
requires compensation cost to be recognized based on the excess, if any, between
the quoted market price of the stock at the date of grant and the amount an
employee must pay to acquire the stock. Under this method, no compensation cost
has been recognized for stock option awards.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value as prescribed by SFAS 123 (see Note 1), the
Company's net earnings and net earnings per common share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Net earnings, as reported.................................. $ 38,014 $ 27,420
============== ==============
Net earnings, pro forma.................................... $ 32,863 $ 25,613
============== ==============
Net earnings per common share, as reported................. $ 1.22 $ 0.94
============== ==============
Net earnings per common share, pro forma................... $ 1.05 $ 0.87
============== ==============
</TABLE>
The weighted average fair value at date of grant for options granted during 1996
and 1995 was $15.14 and $14.77 per share, respectively, which, for the purposes
of this disclosure, is assumed to be amortized over the respective vesting
period of the grants. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1996 and 1995: dividend yield of
0.26% for both years; expected volatility of 58% and 63%, respectively;
risk-free interest rate of 6.2% and 6.4%, respectively; and expected lives of
4.9 and 4.0 years, respectively.
F-19
<PAGE>
Transactions relative to both plans are as follows:
<TABLE>
<CAPTION>
1995 Plan 1989 Plan
------------------------------------- -------------------------------------
Weighted Weighted
Number of Average Number of Average
Options Exercise Price Options Exercise Price
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Options outstanding at
December 26, 1993............ -- -- 1,149,388 $ 9.44
Granted.................. -- -- 603,500 $ 13.97
Exercised................. -- -- (109,759) $ 6.02
Canceled.................. -- -- (48,450) $ 13.19
------------------ -----------------
Options outstanding at
December 25, 1994............ -- -- 1,594,679 $ 11.29
Granted.................. 891,300 $ 28.01 163,000 $ 18.80
Exercised................. -- -- (588,038) $ 7.92
Canceled.................. (15,000) $ 28.50 (71,100) $ 15.59
------------------ -----------------
Options outstanding at
December 31, 1995............ 876,300 $ 28.00 1,098,541 $ 13.92
Granted.................. 1,073,701 $ 27.99 -- --
Exercised................. -- -- (282,438) $ 27.46
Canceled.................. (120,658) $ 28.39 (4,400) $ 13.73
------------------ -----------------
Options outstanding at
December 29, 1996............ 1,829,343 $ 27.97 811,703 $ 14.09
================== =================
Options exercisable at
December 29, 1996............ 156,000 $ 25.67 811,703 $ 14.09
================== =================
Options available for grant at
December 29, 1996............ 170,657 --
</TABLE>
The following table summarizes information relating to fixed-priced stock
options outstanding for both plans at December 29, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------------------------- --------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1989 Plan:
$ 3.02 to $ 7.63 59,194 5.3 years $ 5.19 59,194 $ 5.19
$ 11.83 to $ 14.69 622,509 4.5 years $ 13.73 622,509 $ 13.73
$ 19.25 to $ 21.88 130,000 4.1 years $ 19.84 130,000 $ 19.84
--------------- ---------------
$ 3.02 to $ 21.88 811,703 4.5 years $ 14.09 811,703 $ 14.09
=============== ===============
1995 Plan:
$ 24.00 to $ 25.00 130,000 3.4 years $ 24.97 126,000 $ 25.00
$ 28.00 to $ 29.25 1,699,343 9.1 years $ 28.20 30,000 $ 28.50
--------------- ---------------
$ 24.00 to $ 29.25 1,829,343 8.7 years $ 27.97 156,000 $ 25.67
=============== ===============
</TABLE>
F-20
<PAGE>
Employee retirement plans: During 1992, the Company established a profit sharing
plan and trust in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches 25% of employee contributions, not to exceed 2% of the
employee's total annual compensation, with the Company contributions vesting at
the rate of 20% each year beginning after the employee's second year of service.
During 1994, the Company established a non-qualified defined contribution
retirement plan for key employees. The Company's contributions under both plans
in 1996, 1995 and 1994 were $570,000, $312,000 and $127,000, respectively.
The Company adopted amendments to the 401(k) plan in 1996 which will become
effective beginning in 1997. The Company's matching contributions will be
increased to 35% and 50% of employee contributions in 1997 and 1998,
respectively, not to exceed 2.8% and 4.0%, respectively, of the employee's total
annual compensation, and will be made in shares of the Company's common stock.
The Company's contributions will vest at the rate of 60% after the employee's
third year of service, 80% after four years of service and 100% after five years
of service. The number of common shares authorized pursuant to the 401(k) plan
is 50,000.
Employee stock purchase plan: During 1996, the Company established an employee
stock purchase plan in accordance with Section 423 of the Internal Revenue Code.
Beginning in 1997, the plan will allow employees to purchase shares of the
Company's common stock at a 10% discount. The plan is subject to approval at the
1997 Annual Meeting of Stockholders. The number of common shares authorized
pursuant to the plan is 200,000.
Employee stock ownership plan: The Company's Board of Directors approved an
employee stock ownership plan in January 1997 which is effective beginning in
1997. The Company's contributions to this plan are completely discretionary and
will be made in shares of the Company's common stock.
16. Related Party Transactions
The Company and certain franchisees have obtained restaurant equipment from a
company owned by an individual who is related to a director and a stockholder of
the Company. During 1996, 1995 and 1994, the Company paid $426,000, $3,128,000
and $3,869,000, respectively, for equipment and services purchased from this
company.
The Company leases a restaurant site from a corporation whose ownership is
composed of certain current and former stockholders, directors and officers of
the Company. The lease has a term of 20 years with two renewal options. The
lease provides for rentals in an amount equal to approximately 7% of gross sales
of the restaurants. During 1995, the Company entered into an agreement with this
party to lease additional parking space at the same site. Rents incurred under
both leases totaled $185,000, $186,000 and $173,000 for 1996, 1995 and 1994,
respectively, and are included in direct and occupancy costs in the consolidated
statements of earnings.
The Company leases a restaurant site from a partnership in which a former
director who is related to a director and a stockholder of the Company holds a
50% interest. The lease has a term of 20 years with two options to renew. The
lease provides for rentals in an amount equal to approximately 7% of gross sales
of the restaurant. Rents incurred under the lease were $113,000 for each of
1996, 1995 and 1994, and are included in direct and occupancy costs in the
consolidated statements of earnings.
The Company leases certain office space under an operating lease from a
partnership in which a director of the Company holds a 37.5% interest. The lease
expires in December 1997; however, the Company has the option to terminate the
lease with 30 days notice. Rents incurred under the lease were $104,000, $84,000
and $74,000 for 1996, 1995 and 1994, respectively, and are included in general
and administrative expenses in the consolidated statements of earnings.
F-21
<PAGE>
17. Subsequent Events
In February 1997, the Company entered into an agreement to purchase the assets
of 11 operating Applebee's franchise restaurants located in the St. Louis
metropolitan area for approximately $36,100,000, subject to adjustment. The
purchase price will be paid in a combination of cash and $2,500,000 of
promissory notes, and the transaction will be accounted for as a purchase. Final
closing is subject to obtaining licenses and third party consents and is
expected to occur early in the second quarter of 1997. One of the principals of
the franchisee is related to a director and a stockholder of the Company.
18. Quarterly Results of Operations (Unaudited)
The following presents the unaudited consolidated quarterly results of
operations for 1996 and 1995 (in thousands, except per share amounts). During
the fourth quarter of 1996, the Company recognized a loss of $2,500,000
primarily relating to the intended disposition of two restaurants in southern
California. Merger costs of $1,770,000 related to the IRC Merger were expensed
in the first quarter of 1995.
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
Fiscal Quarter Ended
---------------------------------------------------------------
March 31, June 30, September 29, December 29,
1996 1996 1996 1996
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Company restaurant sales....................... $ 82,640 $ 91,116 $ 92,969 $ 92,265
Franchise income............................... 12,401 13,469 14,105 14,166
------------- -------------- ------------- -------------
Total operating revenues.................... 95,041 104,585 107,074 106,431
------------- -------------- ------------- -------------
Cost of Company restaurant sales:
Food and beverage.............................. 23,351 25,549 26,172 25,462
Labor.......................................... 26,859 28,292 29,027 28,791
Direct and occupancy........................... 20,463 22,865 22,049 22,363
Pre-opening expense............................ 249 925 865 1,518
------------- -------------- ------------- -------------
Total cost of Company restaurant sales...... 70,922 77,631 78,113 78,134
------------- -------------- ------------- -------------
General and administrative expenses................. 10,385 11,109 11,152 11,241
Merger costs........................................ -- -- -- --
Amortization of intangible assets................... 588 570 570 565
Loss on disposition of restaurants and equipment.... 115 424 183 2,596
------------- -------------- ------------- -------------
Operating earnings.................................. 13,031 14,851 17,056 13,895
------------- -------------- ------------- -------------
Other income (expense):
Investment income.............................. 801 597 694 771
Interest expense............................... (446) (434) (363) (328)
Other income................................... 105 200 205 90
------------- -------------- ------------- -------------
Total other income (expense)................ 460 363 536 533
------------- -------------- ------------- -------------
Earnings before income taxes........................ 13,491 15,214 17,592 14,428
Income taxes........................................ 5,126 5,639 6,598 5,348
------------- -------------- ------------- -------------
Net earnings........................................ $ 8,365 $ 9,575 $ 10,994 $ 9,080
============= ============== ============= =============
Net earnings per common share....................... $ 0.27 $ 0.31 $ 0.35 $ 0.29
============= ============== ============= =============
Weighted average shares outstanding................. 31,033 31,148 31,277 31,295
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------
Fiscal Quarter Ended
---------------------------------------------------------------
March 26, June 25, September 24, December 31,
1995 1995 1995 1995
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Company restaurant sales....................... $ 66,021 $ 73,120 $ 76,965 $ 83,718
Franchise income............................... 9,418 10,681 11,116 12,524
------------- -------------- ------------- -------------
Total operating revenues.................... 75,439 83,801 88,081 96,242
------------- -------------- ------------- -------------
Cost of Company restaurant sales:
Food and beverage.............................. 18,908 20,953 21,375 23,540
Labor.......................................... 21,068 23,061 24,284 26,522
Direct and occupancy........................... 15,378 17,807 18,708 20,335
Pre-opening expense............................ 633 423 326 852
------------- -------------- ------------- -------------
Total cost of Company restaurant sales...... 55,987 62,244 64,693 71,249
------------- -------------- ------------- -------------
General and administrative expenses................. 8,909 9,480 9,292 11,072
Merger costs........................................ 1,770 -- -- --
Amortization of intangible assets................... 515 595 588 607
Loss on disposition of restaurants and equipment.... 26 80 60 684
------------- -------------- ------------- -------------
Operating earnings.................................. 8,232 11,402 13,448 12,630
------------- -------------- ------------- -------------
Other income (expense):
Investment income.............................. 237 210 563 754
Interest expense............................... (614) (679) (833) (381)
Other income................................... 82 71 111 93
------------- -------------- ------------- -------------
Total other income (expense)................ (295) (398) (159) 466
------------- -------------- ------------- -------------
Earnings before income taxes........................ 7,937 11,004 13,289 13,096
Income taxes........................................ 3,684 4,193 5,050 4,979
------------- -------------- ------------- -------------
Net earnings........................................ $ 4,253 $ 6,811 $ 8,239 $ 8,117
============= ============== ============= =============
Net earnings per common share....................... $ 0.15 $ 0.24 $ 0.28 $ 0.26
============= ============== ============= =============
Weighted average shares outstanding................. 28,078 28,244 29,821 31,000
</TABLE>
-----------------------------
F-23
<PAGE>
APPLEBEE'S INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------- ---------------------------------------------------------------
3.1 Certificate of Incorporation, as amended, of Registrant
(incorporated by reference to Exhibit 3.1 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995).
3.2 Restated and Amended By-laws of the Registrant.
4.1 Shareholder Rights Plan contained in Rights Agreement dated as
of September 7, 1994, between Applebee's International, Inc.
and Chemical Bank, as Rights Agent (incorporated by reference
to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 25, 1994).
4.2 Certificate of the Voting Powers, Designations, Preferences and
Relative Participating, Optional and Other Special Rights and
Qualifications of Series A Participating Cumulative Preferred
Stock of Applebee's International, Inc. (incorporated by
reference to Exhibit 4.2 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
9.1 Voting Agreement, dated as of July 15, 1989, among John Hamra,
Abe J. Gustin, Jr. and Johyne Hamra Reck, as amended by
Acknowledgment and Amendment to Stockholders' Voting Agreement
dated February 11, 1992 (incorporated by reference to Exhibit
9.1 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 25, 1994).
9.2 Amendment to Stockholder's Voting Agreement dated March 17,
1995 (incorporated by reference to Exhibit 9.1 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 26, 1995).
10.1 Indemnification Agreement, dated March 16, 1988, between John
Hamra and Applebee's International, Inc. (incorporated by
reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
10.2 Indemnification Agreement, dated March 16, 1988, between Abe J.
Gustin, Jr. and Applebee's International, Inc. (incorporated by
reference to Exhibit 10.2 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
10.3 Indemnification Agreement, dated March 16, 1988, between Johyne
Reck and Applebee's International, Inc. (incorporated by
reference to Exhibit 10.3 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
10.4 Form of Applebee's Development Agreement (incorporated by
reference to Exhibit 10.4 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
E-1
<PAGE>
Exhibit
Number Description of Exhibit
- --------------- ---------------------------------------------------------------
10.5 Form of Applebee's Franchise Agreement (incorporated by
reference to Exhibit 10.5 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.6 Schedule of Applebee's Development and Franchise Agreements as
of December 29, 1996.
10.7 Form of Rio Bravo Cantina Development Agreement.
10.8 Form of Rio Bravo Cantina Franchise Agreement.
10.9 Schedule of Rio Bravo Cantina Development and Franchise
Agreements as of December 29, 1996.
10.10 Purchase Rights Agreement dated January 17, 1990 by and between
Applebee's International, Inc. and Apple Star, Inc.
(incorporated by reference to Exhibit 10.7 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
25, 1994).
10.11 Note Purchase Agreement, dated as of June 1, 1994, for
$20,000,000 7.70% Senior Notes due May 31, 2004 (incorporated
by reference to Exhibit 10.2 of the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 26,
1994).
Management Contracts and Compensatory Plans or Arrangements
10.12 1995 Equity Incentive Plan, as amended.
10.13 Employment Agreement, dated January 1, 1996, with Abe J.
Gustin, Jr. (incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996).
10.14 Employment Agreement, dated January 27, 1994, with Lloyd L.
Hill (incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 27, 1994).
10.15 Severance and Noncompetition Agreement, dated January 27, 1994,
with Lloyd L. Hill (incorporated by reference to Exhibit 10.5
of the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 27, 1994).
10.16 Employment Agreement, dated March 1, 1995, with George D.
Shadid (incorporated by reference to Exhibit 10.3 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 26, 1995).
E-2
<PAGE>
Exhibit
Number Description of Exhibit
- --------------- ---------------------------------------------------------------
10.17 Amended Consulting Agreement, dated March 1, 1996, between
Applebee's International, Inc. and Kenneth D. Hill
(incorporated by reference to Exhibit 10.2 of the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996).
10.18 Employment Agreement between Applebee's International, Inc. and
Philip J. Hickey (incorporated by reference to Exhibit 10.21 of
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.19 1994 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 26, 1994).
10.20 Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.29 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 25, 1994).
10.21 Schedule of parties to Indemnification Agreement (incorporated
by reference to Exhibit 10.24 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.22 Form of Severance Agreement (incorporated by reference to
Exhibit 10.30 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 25, 1994).
10.23 Schedule of parties to Severance Agreement (incorporated by
reference to Exhibit 10.26 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
21 Subsidiaries of Applebee's International, Inc.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
24 Power of Attorney (see page 31 of the Form 10-K).
27 Financial Data Schedule.
E-3
Bylaws Approved: August 10, 1992
APPLEBEE'S INTERNATIONAL, INC.
* * * * *
FIRST RESTATEMENT OF
B Y - L A W S
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in Kansas City, State of Missouri, at such place as may
be fixed from time to time by the board of directors, or at such other place
either within or without the state of Delaware as shall be designated from time
to time by the board of directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year
1988, shall be held on the fifteenth day of July if not a legal holiday, and if
a legal holiday, then on the next secular day following, at 10:00 A.M., or at
such other date and time as shall be designated from time to time by the board
of directors and stated in the notice of the meeting, at which they shall elect
by a plurality vote a board of directors, and transact such other business as
may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
1
<PAGE>
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than an announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
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Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III - Amended January 26, 1994
Amended March 8, 1995
DIRECTORS
Section 1. Number; Election; Terms. The business and affairs of the
corporation shall be managed by the board of directors. The number of directors
which shall constitute the whole board of directors of the corporation shall be
not less than six nor more than nine. The exact number of directors within the
minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by the board of directors pursuant to a resolution
adopted by the affirmative vote of at least all but one of the entire board of
directors.
Upon the effectiveness of the amendment to the certificate of
incorporation of the corporation pursuant to the Delaware General Corporation
Law, the board of directors of the corporation shall be divided into three
classes, designated Class I, Class II, and Class III, which at all times shall
be as nearly equal in number as possible, as determined by the board of
directors. If the board of directors shall by resolution increase the number of
directors which shall constitute the entire board, such additional directors
shall be designated to serve in either Class I, Class II, or Class III, at the
discretion of the board of directors, so long as each class is maintained as
nearly equal in number as possible. The term of office of the initial Class I
directors shall expire at the annual meeting of stockholders next succeeding the
date which these by-laws are adopted, the term of office of the initial Class II
directors shall expire at the annual meeting of stockholders next succeeding the
annual meeting at which the term of office of the initial Class I directors
expires, and the term of office of the initial Class III directors shall expire
at the annual meeting of stockholders next succeeding the annual meeting at
which the term of office of the initial Class II directors expires. The
appointment of incumbent directors to board of director Classes I, II and III at
the time of said effectiveness of the amendment to the certificate of
incorporation shall be by a resolution adopted by a majority of the stockholders
entitled to vote in an election of directors.
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At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those terms expired at
the time of such meeting shall be elected to hold office until the third
succeeding annual meeting of stockholders of their election. In the event of any
increase in the number of directors of the corporation, the additional directors
shall be so classified that all classes of directors shall be increased equally
as nearly as possible.
Election of directors of the corporation need not be by written ballot.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
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Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the president
on seven days' notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors unless the
board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
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In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same of any
other class or classes of stock of the corporation) adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
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ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a chairman of the board, a president, a secretary and
a treasurer. The board of directors may also choose one or more vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chairman of the board, a
president, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD
Section 6. The chairman of the board of directors shall preside at all
meetings of the stockholders and the board of directors, and shall have
supervision of such matters as may be designated to him by the board of
directors.
Section 7. He may also sign all notes, agreements or other instruments
in writing made and entered into for or on behalf of the corporation.
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THE PRESIDENT
Section 8. The president, in the absence of the chairman of the board,
shall preside at all meetings of the stockholders and the board of directors. He
shall have general and active management of the business of the corporation and
shall see that all orders and resolutions of the board of directors are carried
into effect.
Section 9. He shall execute stock certificates, bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has singed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE - Amended August 15, 1994
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty day prior to any other action. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting: provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
AMENDMENTS
Section 1. Subject to any requirements set forth in these by-laws,
these by-laws may be amended or repealed, and any new by-laws may be adopted, by
a majority of the stockholders entitled to vote or by a majority of the board of
directors, except that the provisions of Article III may be amended only by the
affirmative vote of at least all but one of the board of directors or by the
vote of eighty percent of the stockholders entitled to vote.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. The corporation shall indemnify each person who has been or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
investigative or appellate (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was an officer or
director of the corporation or is or was serving at the corporation's request as
a director or officer of any Other Enterprise against all liabilities and
expenses, including, without limitation, judgments, amounts paid in settlement
(provided that such settlement and all amounts paid in connection therewith are
approved in advance by the corporation in accordance with Section 4 of this
Article IX, which approval shall not be unreasonably withheld), attorneys' fees,
ERISA excise taxes or penalties, fines and other expenses actually and
reasonably incurred by such person in connection with such action, suit or
proceeding (including without limitation the investigation, defense, settlement
or appeal of such action, suit or proceeding) if such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful;
provided, however, that the corporation shall not be required to indemnify or
advance expenses to any such person or persons seeking indemnification or
advancement of expenses in connection with an action, suit or proceeding
initiated by such person unless the initiation of such action, suit or
proceeding was authorized by the board of directors of the corporation. The
termination of any such action, suit or proceeding by judgment, order,
settlement, conviction or under a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding that he had reasonable cause to believe that his conduct was
unlawful.
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Section 2. The corporation shall indemnify each person who has been or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
an officer or director of the corporation or is or was serving at the
corporation's request as a director or officer of any Other Enterprise against
amounts paid in settlement thereof (provided that such settlement and all
amounts paid in connection therewith are approved in advance by the corporation
in accordance with Section 4 of this Article IX, which approval shall not be
unreasonably withheld) and all expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action, suit or proceeding (including without limitation the
investigation, defense, settlement or appeal of such action, suit or proceeding)
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification under this Section 2 shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
liable to the corporation unless and only to the extent that the court in which
the action, suit or proceeding is brought determines upon application that,
despite the adjudication of liability and in view of all the circumstances of
the case, the person is fairly and reasonably entitled to such indemnification.
Section 3. Notwithstanding the other provisions of this Article IX, to
the extent that a person who is or was serving as a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of any Other Enterprise, has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article IX (including the dismissal of any such action,
suit or proceeding without prejudice), or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 4. Prior to indemnifying a person pursuant to the provisions of
Sections 1 and 2 of this Article IX, unless ordered by a court and except as
otherwise provided by Section 3 of this Article IX, the corporation shall
determine that such person has met the specified standard of conduct entitling
such person to indemnification as set forth under Sections 1 and 2 of this
Article IX. Any determination that a person shall or shall not be indemnified
under the provisions of Sections 1 and 2 of this Article IX shall be made by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding, or if such quorum is not
obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or by the
stockholders, and such determination shall be final and binding upon the
corporation; provided, however, that in the event such determination is adverse
to the person or persons to be indemnified hereunder, such person or persons
shall have the right to maintain an action in any court of competent
jurisdiction against the corporation to determine whether or not such person has
met the requisite standard of conduct and is entitled to such indemnification
hereunder. If such court action is successful and the person or persons is
determined to be entitled to such indemnification, such person or persons shall
be reimbursed by the corporation for all fees and expenses (including attorneys'
fees) actually and reasonably incurred in connection with any such action
(including without limitation the investigation, defense, settlement or appeal
of such action).
13
<PAGE>
Section 5. Expenses (including attorneys' fees) actually and reasonably
incurred by a person who may be entitled to indemnification hereunder in
defending an action, suit or proceeding, whether civil, criminal,
administrative, investigative or appellate, shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that he is not entitled to indemnification by the
corporation. Notwithstanding the foregoing, no advance shall be made by the
corporation if a determination is reasonably and promptly made by (i) the board
of directors by a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding for which the advancement is
requested, (ii) if a quorum is not obtainable, or even if obtainable, if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders, that, based upon the facts known
to the board, counsel or stockholders at the time such determination is made,
such person acted in bad faith and in a manner that such person did not believe
to be in or not opposed to the best interest of the corporation, or, with
respect to any criminal proceeding, that such person believed or had reasonable
cause to believe his conduct was unlawful. In no event shall any advance be made
in instances where the board, stockholders or independent legal counsel
reasonably determines that such person deliberately breached his duty to the
corporation or its stockholders.
Section 6. The indemnification and advancement of expenses provided by
this Article IX shall not be exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, under the certificate of incorporation, by-laws, agreement, vote of
stockholders or disinterested directors, policy of insurance or otherwise, both
as to action in their official capacity and as to action in another capacity
while holding their respective offices, and shall not limit in any way any right
which the corporation may have to make additional indemnifications with respect
to the same or different persons or classes of persons. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article IX
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors, administrators
and estate of such a person.
Section 7. Upon resolution passed by the board of directors, the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of any Other Enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article IX.
Section 8. The rights granted by this Article IX shall be vested in
each person entitled to indemnification hereunder as a bargained-for,
contractual condition of such person's acceptance of his election or appointment
as a director or officer of the corporation or serving at the request of the
corporation as a director or officer of any Other Enterprise and while this
Article IX may be amended or repealed, no such amendment or repeal shall
release, terminate or adversely affect the rights of such person under this
Article IX with respect to any act taken or the failure to take any act by such
person prior to such amendment or repeal or with respect to any action, suit or
proceeding with respect to such act or failure to act filed after such amendment
or repeal.
14
<PAGE>
Section 9. For purposes of this Article IX, references to "the
corporation" shall, if and only if the board of directors shall determine,
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers or persons serving at the
request of such constituent corporation as a director or officer of any Other
Enterprise, so that any person who is or was a director or officer of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director or officer of any Other Enterprise, shall stand in the
same position under the provisions of this Article IX with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
Section 10. For the purpose of this Article IX, references to "Other
Enterprises" or "Other Enterprise" shall include without limitation any other
corporation, partnership, joint venture, trust or employee benefit plan;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; references to "defense" shall include
investigations of any threatened, pending or completed action, suit or
proceeding as well as appeals thereof and shall also include any defensive
assertion of a cross claim or counterclaim; and references to "serving at the
request of the corporation" shall include any service as a director or officer
of a corporation which imposes duties on, or involves services by, such director
or officer with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of any employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
IX. For the purpose of this Article IX, unless the board of directors of the
corporation shall determine otherwise, any director or officer of the
corporation who shall serve as an officer or director of any Other Enterprise of
which the corporation, directly or indirectly, is a stockholder or creditor, or
in which the corporation is in any way interested, shall be presumed to be
serving as such director or officer at the request of the corporation. In all
other instances where any person shall serve as a director or officer of an
Other Enterprise, if it is not otherwise established that such person is or was
serving as such director or officer at the request of the corporation, the board
of directors of the corporation shall determine whether such person is or was
serving at the request of the corporation, and it shall not be necessary to show
any actual or prior request for such service, which determination shall be final
and binding on the corporation and the person seeking indemnification.
Section 11. If any provision of this Article IX or the application of
any such provision to any person or circumstance is held invalid, illegal or
unenforceable for any reason whatsoever, the remaining provisions of this
Article IX and the application of such provisions to other persons or
circumstances shall not be affected thereby and to the fullest extent possible
the court finding such provision invalid, illegal or unenforceable shall modify
and construe the provisions so as to render it valid and enforceable as against
all persons or entities and to give the maximum possible protection to persons
subject to indemnification hereby within the bounds of validity, legality and
enforceability. Without limiting the generality of the foregoing, if any officer
or director of the corporation or any person who is or was serving at the
request of the corporation as a director or officer of any Other Enterprise, is
entitled under any provision of this Article IX, to indemnification by the
corporation for some or a portion of the judgments, amounts paid in settlement,
attorneys' fees, ERISA excise taxes or penalties, fines or other expenses
actually and reasonably incurred by any such person in connection with any
threatened, pending or completed action, suit or proceeding (including without
limitation, the investigation, defense, settlement or appeal of such action,
suit or proceeding), whether civil, criminal, administrative, investigative or
appellate, but not, however, for all of the total amount thereof, the
corporation shall nevertheless indemnify such person for the portion thereof to
which such person is entitled.
15
<PAGE>
AMENDMENT TO THE BY-LAWS
OF
APPLEBEE'S INTERNATIONAL, INC.
Section 1 of Article III is amended by adding at the end of the Present Section
1 the following paragraph:
"Nominations of persons for election to the board of directors of the
corporation may be made by or at the direction of the board of directors, by any
nominating committee or person appointed by the board of directors, or by any
shareholder of the corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section 1
of Article III. Such nominations, other than those made by or at the direction
of the board of directors, shall be made pursuant to written notice to the
secretary of the corporation complying with the requirements of this Section. To
be timely, a shareholder's notice shall be delivered to or mailed and received
at the principal executive offices of the corporation not less than 60 days nor
more than 75 days prior to the meeting; provided, however, that in the event
first notice or first public disclosure of the date of the meeting is given or
made to shareholders during the 60 day period prior to the meeting, notice by
the shareholder to be timely must be so delivered or received not later than the
close of business of the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
shareholder's notice to the secretary shall include:
(a) as to each whom the shareholder proposes to nominate for election
or re-election as a director,
(i) the name, age, business address and residence address of
the person;
(ii) the principal occupation or employment of the person;
(iii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the person;
(iv) any other information relating to the person as would be
required to be disclosed in solicitation of proxies for election of
directors pursuant to the proxy rules of the Securities and Exchange
Commission had such person be nominated, or intended to be nominated,
by the board of directors of the corporation; and
(v) the written consent of such person to serve as director of
the corporation if so elected; and
(b) As to the shareholder giving the notice,
(i) the name and record address of the shareholder;
(ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the shareholder;
(iii) a representation that the shareholder is holder of
record of capital stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; and
(iv) a description of all arrangements or understandings
between the shareholder and each nominee and any person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder.
The corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as director of the corporation. No
person shall be eligible for election as a director of the corporation, and the
chairman of the meeting may refuse to acknowledge the nomination of any person,
unless such person nominated in compliance with the foregoing procedure."
<PAGE>
Applebee's International, Inc.
Amendment to Bylaws - August 15, 1994
FIXING OF RECORD DATE
Section 5. (a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive
payments of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful
action other than stockholder action by written consent, the Board of
Directors may fix a record date, which shall not precede the date such
record date is fixed and shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to
any such other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next
preceding the day on which notice is given. The record date for any
other purpose other than stockholder action by written consent shall be
at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting; provided, however, that
the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without
a meeting, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date shall
not be more than 10 days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or
take corporate action by written consent shall, by written notice to
the Secretary, provide a copy of the corporate action proposed to be
authorized or taken and request the Board of Directors to fix a record
date. The Board of Directors shall promptly, but in all events within
10 days after the date on which such a copy of the proposed corporate
action and request are received, adopt a resolution fixing the record
date. If no record date has been fixed by the Board of Directors within
10 days of the date on which such a request is received, the record
date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or any officer or agent of the corporation having custody of
the book in which proceedings of meeting of stockholders are recorded.
Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action
by the Board of Directors required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the date
on which the Board of Directors adopts the resolution taking such prior
action.
<PAGE>
Applebee's International, Inc.
Amendment to Bylaws - March 8, 1995
Section 1 of Article 3 is amended by deleting the first paragraph of Section 1
of Article III and inserting in its place and stead the following:
"Section 1. Number; Election, Terms. The business and affairs of the
corporation shall be managed by the board of directors. The number of directors
which shall constitute the whole board of directors of the corporation shall not
be less than six nor more than ten. The exact number of directors within the
minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by the board of directors pursuant to a resolution
adopted by the affirmative votes of at least all but one of the entire board of
directors."
<PAGE>
Adopted at
the November 1, 1996 Regular Meeting of the Board of Directors:
RESOLVED, that the first paragraph of Article III, Section 1 of the
Bylaws of the Company be, and they hereby are, amended by deleting the
same as it now appears and inserting in its place and stead the
following:
"Section 1. Number; Election; Terms. The business and affairs of the
corporation shall be managed by the board of directors. The number of
directors which shall constitute the whole board of directors of the
corporation shall not be less than 9 nor more than 11. The exact number
of directors within the minimum and maximum limitations specified in
the preceding sentence shall be fixed from time to time by the board of
directors pursuant to a resolution adopted by the affirmative votes of
at least all but one of the entire board of directors."
APPLEBEE'S INTERNATIONAL, INC.
DEVELOPMENT AND FRANCHISE AGREEMENT SCHEDULE
AS OF DECEMBER 29, 1996
<TABLE>
<CAPTION>
(3) (5)
DATE OF DEVELOPMENT
DEVELOPMENT (4) SCHEDULE
(1) AGREEMENT OR TERRITORY (all or part (total
DEVELOPER NAME (2) FRANCHISE of the states/countries restaurants/
AND ADDRESS PRINCIPALS AGREEMENT listed) OR LOCATION deadline)
<S> <C> <C> <C> <C>
AB ENTERPRISES Joseph K. Wong 09-24-93 CA, OR 5/09-30-96
804 E. Cypress Anna Wong Amended: 03-10-95
Suite B
Redding, CA 96002
A. 09-20-94 1801 Hilltop Drive
Redding, CA
B. 04-30-96 2030 Business Lane
Chico, CA
C. 11-26-96 1388 Biddle Road
Medford, OR
A.N.A., INC. Glenn D. Durham 10-10-91 AL, TN 10/04-30-97
822 Columbiana Road Fred W. Gustin Amended: 06-01-93
Birmingham, AL 35209 06-06-95
A. 02-14-89 601 Brookwood Village Mall
Homewood, AL
B. 10-09-90 1240 Eastdale Mall
Montgomery, AL
C. 02-26-92 3028 S. Memorial Parkway
Huntsville, AL
D. 11-19-92 100 Century Plaza
7520 Crestwood Boulevard
Birmingham, AL
E. 10-12-93 1700 Rainbow Drive
Gadsden, AL
F. 05-03-94 62 McFarland Boulevard
Northport, AL
G. 10-31-94 2041-A Beltline Road, S.W.
Decatur, AL
H. 01-24-95 302 Hughes Road
Madison, AL
I. 02-28-95 3001 Carter Hill Road
Montgomery, AL
1
<PAGE>
J. 10-04-95 360 Cahaba Valley
Pelham, AL
APPELTRADET Steffan Linder 01-22-96 Kingdom of Sweden 10/06-30-00
RESTAURANT AB Eva Linder
Berrzelli Park 9 Gerard Toor
Box 77 87 Mats Israelsson
103 96 Stockholm, Caroline Israelsson
SWEDEN
A. 01-22-96 (to be determined)
APPLE AMERICAN Donald W. Strang, Jr. 04-10-96 DE 4/12-31-98
OF DELAWARE Allen S. Musikantow
8905 Lake Avenue MCM Investments of
Cleveland, OH 44102 Delaware, L.L.C.
APPLE AMERICAN Donald W. Strang, Jr. 06-25-89 13/12-31-96
LIMITED Allen S. Musikantow Amended: 01-15-90
PARTNERSHIP OF 04-24-91
INDIANA 06-24-92
8905 Lake Avenue 07-19-93
Cleveland, OH 44102 01-01-95
A. 10-16-89 5046 W. Pike Plaza
Indianapolis, IN
B. 06-18-90 4040 E. 82nd Street
Indianapolis, IN
C. 12-18-90 1436 W. 86th Street
Indianapolis, IN
D. 05-12-92 1050 Broad Ripple Avenue
Indianapolis, IN
E. 08-08-92 2415 Sagamore Pkwy., South
Lafayette, IN
F. 11-10-92 1241 U.S. 31 North, #L-5
Greenwood, IN
G. 12-14-93 1900 25th Street
Columbus, IN
H. 06-08-94 14711 U.S. 31 North
Carmel, IN
I. 11-03-94 1423 W. McGalliard Road
Muncie, IN
2
<PAGE>
J. 05-02-95 119 N. Baldwin
Marion, IN
K. 05-09-95 1922 E. 53rd Street
Anderson, IN
L. 05-31-95 3720 S. Reed Road
Kokomo, IN
M. 06-12-95 2894 E. 3rd Street
Bloomington, IN
N. 11-21-95 5664 Crawfordsville Road
Indianapolis, IN
O. 02-13-96 700 N. Morton Street
Franklin, IN
P. 02-27-96 8310 East 96th
Fishers, IN
Q. 08-13-96 109 S. Memorial Drive
New Castle, IN
R. 10-15-96 2659 E. Main Street
Plainfield, IN
S. in normal 1516 S. Washington Street
process Crawfordsville, IN
APPLE AMERICAN Donald W. Strang, Jr. 04-10-96 NJ 8/12-31-99
LIMITED Allen S. Musikantow
PARTNERSHIP OF
NEW JERSEY
8905 Lake Avenue
Cleveland, OH 44102
APPLE AMERICAN Donald W. Strang, Jr. 11-11-92 OH 17/12-31-96
LIMITED Allen S. Musikantow Amended: 07-19-93
PARTNERSHIP OF 12-01-94
OHIO 03-10-95
8905 Lake Avenue 07-31-95
Cleveland, OH 44102
A. 04-02-90 5658 Mayfield Road
Lyndhurst, OH
B. 06-26-90 5010 Great Northern
Plaza South
North Olmstead, OH
3
<PAGE>
C. 11-20-91 3000 Westgate Mall
Fairview Park, OH
D. 01-19-93 4981 Dressler Road
N. Canton, OH
E. 08-31-93 508 Howe Avenue
Cuyahoga Falls, OH
F. 09-24-93 6871 Pearl Road
Middlesburg Heights, OH
G. 12-07-93 3989 Burbank Road
Wooster, OH
H. 12-06-94 8174 Mentor Avenue
Mentor, OH
I. 12-13-94 1023 N. Lexington-Springmill Rd.
Ontario, OH
J. 12-15-94 6140 S.O.M. Center Road
Solon, OH
K. 01-24-95 7159 Macedonia Commons Blvd.
Macedonia, OH
L. 05-23-95 4800 Ridge Road
Brooklyn, OH
M. 06-06-95 5503 Milan Road
Sandusky, OH
N. 10-31-95 1540 W. River Road
Elyria, OH
O. 02-20-96 4115 Pearl Street
Medina, OH
P. 03-05-96 411 Northfield Road
Bedford Heights, OH
Q. 08-07-96 233 Graff Road, S.E.
New Philadelphia, OH
R. 09-04-96 17771 S. Park Center
Strongsville, OH
S. in normal 4296 Kent Road
process Stow, OH
4
<PAGE>
APPLE AMERICAN Donald W. Strang, Jr. 05-07-91 WA 14/12-31-99
LIMITED Allen S. Musikantow Amended: 03-01-92
PARTNERSHIP OF 07-19-93
WASHINGTON 12-01-94
8905 Lake Avenue 02-12-96
Cleveland, OH 44102
A. 12-03-92 1842 S. SeaTac Mall
Federal Way, WA
B. 03-11-93 4626 196th Street, Southwest
Lynnwood, WA
C. 06-08-94 806 S.E. Everett Mall Way
Everett, WA
D. 11-30-94 3510 S. Meridian
Puyallup, WA
E. 07-18-95 17790 Southcenter Parkway
Tukwila, WA
F. 01-02-96 1919 S. 72nd Street
Tacoma, WA
APPLE Joe S. Thomson 04-09-96 AR, LA, OK, TX 8/05-31-98
ARKANSAS, INC. El Chico Restaurants
P.O. Box 1867 of Arkansas
Texarkana, TX 75504
A. 06-15-93 5110 Summerhill Road
Texarkana, TX
B. 10-19-93 9088 Mansfield Road
Shreveport, LA
C. 03-08-94 6818 Rogers Avenue
Ft. Smith, AR
D. 04-09-96 2126 Airline Drive
Bossier City, LA
E. 05-29-96 4078 N. College
Fayetteville, AR
APPLE-BAY EAST, INC. Richard L. Winders 12-18-92 CA 8/04-30-97
2263 South Shore Center Howard L. Hatfield Amended: 02-19-94
Alameda, CA 94501
A. 06-14-94 2263 South Shore Center
Alameda, CA
5
<PAGE>
B. 09-27-94 4301 N. 1st Street
Livermore, CA
C. 01-08-96 24041 Southland Drive
Hayward, CA
D. 12-17-96 2819 Ygnacio Valley Road
Walnut Creek, CA
APPLE BY Ronald A. Caselli 12-24-92 CA 12/12-31-97
THE BAY, INC. Christian J. Knox Amended: 06-30-94
2200 Laurelwood Road 05-01-95
Santa Clara, CA 95054
A. 03-15-94 1041 Admiral Callaghan Lane
Vallejo, CA
B. 07-26-94 9105 E. Stockton Boulevard
Elk Grove, CA
C. 11-08-94 2170 Golden Centre Lane
Gold River, CA
D. 04-04-95 160 Nut Tree Parkway
Vacaville, CA
E. 10-02-95 2442 N. Kettleman Lane
Lodi, CA
F. 03-05-96 3900 Sisk Road
Modesto, CA
APPLE BY Ronald A. Caselli 12-24-92 CA 9/12-31-98
THE BAY, INC. Christian J. Knox Amended: 02-28-94
2200 Laurelwood Road 05-01-95
Santa Clara, CA 95054
A. 05-05-94 8200 Arroyo Circle
Gilroy, CA
B. 08-22-95 84 Ranch Drive
Milpitas, CA
APPLE DESERT, L.C. Louis J. Burnett 12-07-94 AZ, CA 4/07-31-97
255 E. Brown Street Susan Burnett Amended: 05-01-95
Suite 210 David B. Pisaneschi
Birmingham, MI 48009 Glenn W. Gray
Robert L. Gray
A. 04-16-96 3101 S. Fourth Avenue
Yuma, AZ
6
<PAGE>
APPLE DEVELOPMENT Peter W. Feldman 06-08-92 Curacao No Development
ASSOCIATES I Henry DeRooy Amended: 01-24-94 Rights
777 Yamato Road 08-25-94
Suite 135 12-15-94
Boca Raton, FL 33431 Terminated: 12-01-95
A. 10-18-94 Oude Caracasbaaiweg NST 93
Curacao, Netherlands Antilles
APPLE DEVELOPMENT Peter W. Feldman 06-08-92 No Development
ASSOCIATES II Henry DeRooy Amended: 08-25-94 Rights
777 Yamato Road Terminated
Suite 135
Boca Raton, FL 33431
A. Closed: Plaza Las Americas
03-14-96 La Terraza, Local #324
Hato Rey, PR
B. Closed: Plaza del Caribe Mall
03-14-96 Store #230, El Carrusel
Ponce by Pass, Ponce, PR
APPLE EAST, INC. Edwin F. Scheibel, Jr. 08-05-94 CT 4/12-01-98
89 Taunton Hill Road Cynthia H. Scheibel Amended: 02-28-95
Newtown, CT 06470 01-04-96
APPLE GOLD, INC. Michael D. Olander 07-01-94 NC, VA 29/01-31-98
170 Windchime Court Amended: 02-01-96
Raleigh, NC 27615
A. 06-10-85 1389 Kildair Farm Road
Cary, NC
B. 06-28-85 7471 Six Forks Road
Raleigh, NC
C. 01-28-87 4004 Capital Boulevard
Raleigh, NC
D. 01-28-87 1508 E. Franklin Road
Chapel Hill, NC
E. 08-21-87 3400 Westgate Drive
Durham, NC
F. 09-10-87 2001 N. Main
High Point, NC
7
<PAGE>
G. 06-13-88 476 Western Boulevard
Jacksonville, NC
H. 02-01-89 1120 N. Wesleyan Boulevard
Rocky Mount, NC
I. 01-22-90 3103 Garden Road
Burlington, NC
J. 07-31-90 202 S.W. Greenville Blvd.
Greenville, NC
K. 12-18-90 9616 E. Independence Blvd.
Matthews, NC
L. 01-03-91 3625 Hillsborough Street
Raleigh, NC
M. 07-01-91 10921 Carolina Place Pkwy.
Pineville, NC
N. 03-24-92 4406 W. Wendover Avenue
Greensboro, NC
O. 05-18-93 2180 Highway 70, Southeast
Hickory, NC
P. 09-29-93 1115 Glenway Drive
Statesville, NC
Q. 07-19-94 901 N. Spence Avenue
Goldsboro, NC
R. 10-18-94 8700 J.W. Clay
Charlotte, NC
S. 01-10-95 3200 Battleground Avenue
Greensboro, NC
T. 05-16-95 2239 W. Roosevelt Boulevard
Monroe, NC
U. 09-19-95 5120 New Center Drive
Wilmington, NC
V. 11-07-95 1990 Griffin Road
Winston-Salem, NC
W. 12-19-95 1403 N. Sand Hills Blvd.
Aberdeen, NC
X. 03-05-96 1240 U.S. Highway 29 North
Concord, NC
8
<PAGE>
Y. 04-29-96 3400 Clairndon Blvd.
New Bern, NC
Z. 11-12-96 2300 Forest Hills Road
Wilson, NC
APPLE-METRO, INC. Roy Raeburn 03-23-94 NY 8/11-01-99
640 E. Boston Post Road Zane Tankel Amended: 04-01-95
Mamaroneck, NY 10543
A. 10-25-94 Staten Island Mall
2655 Richmond Avenue
Staten Island, NY
B. 06-06-95 640 E. Boston Post Road
Mamaroneck, NY
C. 11-07-95 430 New Dorp Lane
Staten Island, NY
APPLE MIDDLE EAST Abdel Mohsen Al Homaizi 09-28-96 Bahrain, Egypt, Kuwait, 12/08-01-01
RESTAURANTS Apple Middle East LLC Lebanon, United Arab
COMPANY, LLC Emirates
P.O. Box 42 Safat
13001 KUWAIT
APPLE NORTH, INC. Martin Hittinger 08-30-91 NY No Development
80 Palisade Avenue Eddie G. Hittinger Amended: 11-27-92 Rights
Cliffside Park, NJ 07010 Kenneth Brolin Terminated: 12-01-93
A. 03-11-92 Wappinger Plaza
1271 Route 9
Wappinger Falls, NY
B. 08-10-93 194 Colonie Center Mall
Albany, NY
C. 11-21-95 18 Park Avenue
Clifton Park, NY
APPLE PARTNERS Thomas K. DeNomme 03-15-91 IL, MO 12/03-15-95
LIMITED Richard H. Adler Amended: 01-26-93
PARTNERSHIP 10-21-94
Corporate Plaza II
6480 Rockside Woods
Boulevard, South
Suite 380
Cleveland, OH 44131
9
<PAGE>
A. 03-15-91 Orchard Bend
11977 St. Charles Rock Road
Bridgeton, MO
B. 03-15-91 2921 S. Service Road
St. Charles, MO
C. 06-17-91 11077 New Halls Ferry Road
Florissant, MO
D. 03-17-92 Fairview Heights Plaza
Shopping Center
#47 Ludwig Drive
Fairview Heights, IL
E. 06-02-92 9031 Watson Road
St. Louis, MO
F. 09-22-92 6734 Clayton Road
Richmond Heights, MO
G. 04-06-93 1110 Big Bill Road
Arnold, MO
H. 12-14-93 13560 N. Barrett Pkwy. Dr.
Des Peres, MO
I. 08-23-94 105 Potomac Boulevard
Mt. Vernon, IL
J. 04-08-96 2309 N. U.S. Highway 67
Florissant, MO
K. 04-22-96 14830 Manchester Road
Ballwin, MO
APPLE PARTNERS Thomas K. DeNomme 01-26-93 OR, WA 10/12-01-97
LIMITED Richard H. Adler Amended: 06-17-93
PARTNERSHIP 10-21-94
Corporate Plaza II 03-10-95
6480 Rockside Woods
Boulevard, South
Suite 380
Cleveland, OH 44131
A. 07-13-93 1220 N.W. 185th Avenue
Beaverton, OR
B. 11-09-93 6325 S.W. Meadows Road
Lake Oswego, OR
C. 12-22-95 Lancaster Mall
747 Lancaster Drive, N.E.
Salem, OR
10
<PAGE>
D. 04-24-96 12717 S.E. 2nd Circle
Vancouver, MA
E. 11-18-96 1439 N.E. Halsey
Portland, OR
APPLE William F. Palmer 02-01-89 GA 10/08-01-94
RESTAURANTS, INC. Theresa J. Palmer Amended: 04-08-92
4219 Pleasant Hill Road 07-31-92
Building 12-D, Suite B 03-25-93
Duluth, GA 30136 04-05-94
A. 02-01-89 655 Georgia Highway 120
Lawrenceville, GA
B. 10-01-89 2445 Mall Boulevard
Kennesaw, GA
C. 10-15-90 1152 Old Salem Road
Conyers, GA
D. 03-11-91 Perimeter Mall, Suite 2054
4400 Ashford-Dunwoody Rd.
Atlanta, GA
E. 11-25-91 826 Turner McCall Boulevard
Rome, GA
F. 08-10-92 1705 Browns Bridge Road
Gainesville, GA
G. 05-03-93 504 Lakeland Plaza
Cumming, GA
H. 02-21-94 2728 Spring Road
Smyrna, GA
I. 12-19-94 3676 Highway 138
Stockbridge, GA
J. 03-21-95 226 W. Broad Street
Athens, GA
K. 05-08-95 1925 Highway 124
Snellville, GA
L. 02-05-96 185 Cherokee Place
Cartersville, GA
M. 06-17-96 971 Bullsboro Drive
Newnan, GA
11
<PAGE>
APPLE RESTAURANTS Benoit Wesley 07-01-94 The Netherlands, Belgium, 24/07-31-04
EUROPE, B.V. Roger L. Cohen Amended: 05-04-95 Luxembourg
One Main Plaza 12-28-95
Suite 1000 12-09-96
Kansas City, MO 64111
A. 07-04-94 In De Cramer 169
6412 PM Heerlen
The Netherlands
B. 05-17-96 Gevers Deynootplein 32
2586CK Scheveningen, Holland
C. 09-03-96 Wychenseweg 174
6538SX Nijmegen, Holland
APPLE RESTAURANTS William F. Palmer 03-25-93 FL 10/08-31-97
OF CENTRAL Theresa J. Palmer Amended: 04-22-93
FLORIDA, L.P., LTD. 05-01-95
4219 Pleasant Hill Road
Building 12-D, Suite B
Duluth, GA 30136
A. 07-26-93 1545 Palm Bay Road
Melbourne, FL
B. 11-22-93 100 Sykes Creek Pkwy. North
Merritt Island, FL
C. 04-18-94 12103 Collegiate Way
Orlando, FL
D. 06-26-95 2599 Enterprise Road
Orange City, FL
E. 10-23-95 3001 W. Eau Gellie Blvd.
Melbourne, FL
F. 02-12-96 150 Williamson Blvd.
Ormond Beach, FL
G. 08-19-96 1390 Dunlawton Avenue
Port Orange, FL
APPLE SAUCE, INC. W. Curtis Smith 02-11-92 IN, OH 10/03-01-97
207 Grandview Drive James Paul Borke Amended: 10-20-92
Suite 125 08-25-94
Ft. Mitchell, KY 41017 10-05-94
12
<PAGE>
A. 11-03-92 650 W. Lincoln Highway
Schererville, IN
B. 08-24-93 5788 Coventry Lane
Ft. Wayne, IN
C. 12-21-93 4510 N. Clinton Street
Ft. Wayne, IN
D. 11-15-94 4057 S. Franklin Street
Michigan City, IN
E. 04-25-95 670 Morthland
Valparaiso, IN
F. 07-04-95 6615 N. Main Street
Granger, IN
G. 09-19-95 266 E. Alexis Road
Toledo, OH
H. 11-07-95 3241 Interchange Drive
Elkhart, IN
I. 12-05-95 531 Dussel Road
Maumee, OH
J. 06-11-96 4702 Monroe Street
Toledo, OH
K. 06-17-96 8425 Broadway
Merrillville, IN
L. 07-30-96 3296 Elida Road
Lima, OH
APPLE SAUCE, INC. W. Curtis Smith 09-09-92 FL 13/12-31-98
207 Grandview Drive James Paul Borke Amended: 09-30-93
Suite 125 10-05-94
Ft. Mitchell, KY 41017 03-28-95
A. 04-12-94 10135 Pines Boulevard
Pembroke Pines, FL
B. 07-12-94 12719 W. Sunrise Boulevard
Sunrise, FL
C. 02-15-95 1179 S. University Drive
Plantation, FL
D. 09-12-95 2729 University Drive
Coral Springs, FL
13
<PAGE>
E. 10-10-96 9815 N.W. 41st Street
Miami, FL
APPLE SOUTH, INC. Tom E. DuPree, Jr. 01-06-85 GA, NC, SC */12-31-00
Hancock @ Washington Amended: 03-04-91
Madison, GA 30650 01-10-92
05-14-93
01-26-94
06-22-94
02-24-95
See Footnote Below
A. 01-13-86 430 Congaree Road
Greenville, SC
B. 07-31-86 2344 Broad River Rd. @ I-20
Columbia, SC
C. 01-28-87 7818 Rivers Avenue
N. Charleston, SC
D. 01-28-87 3441 Clemson Boulevard
Anderson, SC
E. 01-28-87 9 Park Lane
Hilton Head, SC
F. 06-01-87 1859 Sam Rittenburg
Charleston, SC
G. 10-19-87 811 S. Irby Street
Florence, SC
H. 10-18-87 4505 Devine Street
Columbia, SC
I. 10-19-87 7602 Greenville Highway
Spartanburg, SC
J. 01-15-88 841 Broad Street
Sumter, SC
K. 06-01-89 24 N. Market Street
Charleston, SC
L. 04-11-89 1635 Four Seasons Boulevard
Hendersonville, NC
14
<PAGE>
M. 01-08-90 1922 Augusta Street
Greenville, SC
N. 05-21-90 1360 Whiskey Road
Aiken, SC
O. 06-25-90 88 Old Trolley Road
Summerville, SC
P. 11-17-90 5055 Calhoun Memorial Blvd.
Easley, SC
Q. 12-30-90 115 Tunnel Road
Asheville, NC
R. 11-23-91 245 O'Neil Court
Columbia, SC
S. 06-27-92 704 Wade Hampton Blvd.
Greer, SC
T. 11-25-92 696 Bypass 123
Seneca, SC
U. 06-27-93 1617 Bypass 72 Northeast
Greenwood, SC
V. 07-28-93 227 Dave Lyle Boulevard
Rock Hill, SC
W. 09-24-93 3944 Grandview Drive
Simpsonville, SC
X. 11-22-93 1486 Stuart Engles Boulevard
Mt. Pleasant, SC
Y. 05-23-94 7915 N. Kings Highway
Myrtle Beach, SC
Z. 05-30-94 64 Beacon Drive
Greenville, SC
a. 07-25-94 1512 W. Floyd Baker Avenue
Gaffney, SC
b. 09-12-94 1268 Highway 9 Bypass
Lancaster, SC
c. 09-26-94 5185 Fernadina Road
Columbia, SC
d. 10-31-94 605 Columbia Avenue
Lexington, SC
15
<PAGE>
e. 11-07-94 1655 Hendersonville Road
Asheville, NC
f. 12-05-94 1065 S. Big A Road
Toccoa, GA
g. 01-30-95 2360 Chestnut Street
Orangeburg, SC
h. 06-19-95 2338 Boundary Street
Beaufort, SC
i. 06-26-95 1271 Folly Road
Charleston, SC
j. 08-07-95 1221 Woodruff Road
Greenville, SC
k. 07-26-96 4910 Ashley Phosphate Road
North Charleston, SC
APPLE SOUTH, INC. Tom E. DuPree, Jr. 09-24-86 FL */12-31-00
Hancock @ Washington Amended: 05-31-90
Madison, GA 30650 03-04-91
01-10-92
01-26-94
See Footnote, Page 14
A. 02-09-87 13550 S. Tamiami Trail
Ft. Myers, FL
B. 05-16-88 10501 S. U.S. Highway 1
Port St. Lucie, FL
C. 04-17-89 701 N. Congress Avenue
Boynton Beach, FL
D. 05-10-90 3971 S. Tamiami Trail
Sarasota, FL
E. 01-18-93 6775 W. Indiantown Road
Jupiter, FL
F. 10-12-93 6706 Forrest Hill Boulevard
Green Acres, FL
G. 01-31-94 4890 Okeechobee Road
Ft. Pierce, FL
16
<PAGE>
H. 03-21-94 15151 N. Cleveland Avenue
N. Ft. Myers, FL
I. 03-28-94 20 Electric Drive
Sarasota, FL
J. 10-31-94 4329 S. Tamiami Trail
Venice, FL
K. 12-12-94 1975 Military Trail
W. Palm Beach, FL
L. 03-28-95 5082 Airport Pulling Rd., N.
Naples, FL
M. 05-01-95 3373 S.E. Federal Highway
Stuart, FL
N. 12-04-95 19010 Murdock Circle
Port Charlotte, FL
O. 02-21-96 5335 20th Street
Vero Beach, FL
P. 03-05-96 2228 Del Prado Blvd. South
Cape Coral, FL
Q. 04-29-96 26801 S. Tamiami Trail
Bonita Springs, FL
R. 09-05-96 1720 S. Federal Highway
Delray Beach, FL
S. 09-05-96 100 U.S. Highway 441
Royal Palm Beach, FL
APPLE SOUTH, INC. Tom E. DuPree, Jr. 06-06-88 AL, AR, MO, MS, TN */12-31-00
Hancock @ Washington Amended: 03-04-91
Madison, GA 30650 01-10-92
01-01-94
01-26-94
See Footnote, Page 14
A. 05-26-88 2114 Union Avenue
Memphis, TN
B. 08-15-88 6025 Winchester Road
Memphis, TN
17
<PAGE>
C. 12-19-88 900 E. County Line Road
Ridgeland, MS
D. 04-15-89 4835 American Way
Memphis, TN
E. 01-02-90 3703 Hardy Street
Hattiesburg, MS
F. 06-11-90 2890 Bartlett Road
Bartlett, TN
G. 05-25-92 3448 Poplar Avenue
Memphis, TN
H. 10-19-92 584 Carriage House Drive
Jackson, TN
I. 11-16-92 1106 Germantown Parkway
Cordova, TN
J. 03-28-93 885 Barnes Crossing Road
Tupelo, MS
K. 09-10-93 2332 Highway 45 North
Columbus, MS
L. 09-24-93 6482 Poplar Avenue
Memphis, TN
M. 08-15-94 710 DeSoto Cove
Horn Lake, MS
O. 03-20-95 814 Highway 12 West
Starkville, MS
P. 04-29-95 9319 Highway 49
Gulfport, MS
Q. 05-23-95 929 Poplar
Collierville, TN
R. 08-07-95 3954 Austin Peay Highway
Memphis, TN
S. 11-06-95 2389 Lakeland Drive
Flowood, MS
T. 01-15-96 106 Hwy 11 & 80
Meridian, MS
U. 03-25-96 2700 Lake Road
Dyersburg, TN
18
<PAGE>
V. 04-08-96 2019 Highway 15 North
Laurel, MS
APPLE SOUTH, INC. Tom E. DuPree, Jr. 06-19-88 IN, KY, MD, NC, OH, PA, */12-31-00
Hancock @ Washington Amended: 03-04-91 VA, WV, District of
Madison, GA 30650 01-10-92 Columbia
01-26-94
12-23-94
02-24-95
See Footnote, Page 14
A. 06-19-88 2159 Coliseum Drive
Hampton, VA
B. 08-15-88 900 Moorefield Park Drive
Richmond, VA
C. 08-22-88 808 Lynnhaven Parkway
Virginia Beach, VA
D. 05-01-89 12235 Jefferson Avenue
Newport News, VA
E. 04-14-89 9601 W. Broad Street
Glen Allen, VA
F. 05-01-89 4535 Outer Loop
Louisville, KY
G. 04-11-89 9201 Hurstbourne Lane
Louisville, KY
H. 09-24-90 2225 Taylorsville Road
Louisville, KY
I. 07-15-91 Greentree Mall
Hwy. 131 & Greentree Blvd.
Clarksville, IN
J. 12-14-91 3624 Candlers Mountain Road
Lynchburg, VA
K. 03-27-92 4717 Dixie Highway
Louisville, KY
L. 03-29-92 5400 W. Broad Street
Richmond, VA
M. 06-27-92 4942 Valley View Blvd., N/NW
Roanoke, VA
19
<PAGE>
N. 09-21-92 2611 Hundred Road West
Chester, VA
O. 09-26-92 10823 Hull Street
Richmond, VA
P. 12-21-92 449 S. Park Circle
Colonial Heights, VA
Q. 01-29-93 12913 Shelbyville Road
Louisville, KY
R. 04-09-93 Regency Square Mall
1404 Parham Road
Richmond, VA
S. 06-27-93 2790 Market Street, Northeast
Christianburg, VA
T. 08-16-93 4132 Portsmouth Boulevard
Chesapeake, VA
U. 09-07-93 14441 Brookfield Tower Dr.
Chantilly, VA
V. 09-20-93 12970 Fair Lakes
Shopping Center
Fairfax, VA
W. 11-29-93 4340 Electric Road
Roanoke, VA
X. 12-13-93 5750 Virginia Beach Blvd.
Norfolk, VA
Y. 02-08-94 10600 Dixie Highway
Louisville, KY
Z. 02-28-94 1520 Sam's Circle
Chesapeake, VA
a. 02-28-94 410 Old Mountain Crossroad
Danville, VA
b. 04-18-94 281 W. Commonwealth
Martinsville, VA
c. 06-13-94 9625 Lee Highway
Fairfax, VA
d. 06-26-94 6310 Richmond Highway
Alexandria, VA
20
<PAGE>
e. 07-11-94 7913 Sudley Road
Manassas, VA
f. 08-29-94 10151 Brook Road
Glen Allen, VA
g. 12-05-94 4040 Virginia Beach Blvd.
Virginia Beach, VA
h. 12-19-94 4100 N.W. Crain Highway
Bowie, MD
i. 02-06-95 3610 Crain Highway
Waldorf, MD
j. 02-06-95 1426 Kempsville Road
Virginia Beach, VA
k. 05-22-95 571 Branchlands Boulevard
Charlottesville, VA
l. 05-29-95 5000 Shelbyville Road
Louisville, KY
m. 07-24-95 1496 Greenville Avenue
Staunton, VA
n. 07-31-95 755 Foxcroft Drive
Martinsburg, WV
o. 09-18-95 1206 N. Main Street
Suffolk, VA
p. 10-16-95 13850 Noblewood Plaza
Woodbridge, VA
q. 10-26-95 45480 Miramar Way
California, MD
r. 11-06-95 1756 General Booth Boulevard
Virginia Beach, VA
s. 11-13-95 4306 S. Lauburnum Avenue
Richmond, VA
t. 11-27-95 955 Edwards Ferry Road
Leesburg, VA
u. 12-04-95 1050 Wayne Avenue
Chambersburg, PA
v. 02-05-96 1481 Wesel Boulevard
Hagerstown, MD
21
<PAGE>
w. 05-31-96 561 First Colonial Road
Virginia Beach, VA
x. 06-17-96 5613 Spectrum Drive
Frederick, MD
y. 06-17-96 7272 Baltimore Avenue
College Park, MD
z. 06-17-96 19 Mall Road
Barboursville, WV
AA. 09-05-96 389 S. John Scott Avenue
Steubenville, OH
BB. 09-05-96 2851 Plank Road
Fredericksburg, VA
CC. 09-22-96 3 Dudley Farms Lane
Charleston, WV
DD. 10-07-96 1000 Largo Center Drive
Largo, MD
EE. 10-14-96 127 E. Broad Street
Falls Church, VA
FF. 10-14-96 50655 Valley Frontage Road
St. Clairsville, OH
GG. 10-21-96 21048 Frederick Road
Germantown, MD
HH. 11-18-96 802 Grand Central Avenue
Vienna, WV
II. 12-09-96 45979 Denizen Plaza
Sterling, VA
APPLE SOUTH, INC. Tom E. DuPree, Jr. 04-24-91 KY, TN */12-31-00
Hancock @ Washington Amended: 01-10-92
Madison, GA 30650 01-26-94
07-27-94
See Footnote, Page 14
A. 04-24-91 335 Harding Place
Nashville, TN
B. 04-24-91 718 Thompson Lane
Nashville, TN
22
<PAGE>
C. 04-24-91 7645 U.S. Highway 70 South
Nashville, TN
D. 04-24-91 5270 Hickory Hollow Pkwy.
Antioch, TN
E. 12-31-91 2400 Elliston Place
(Management Nashville, TN
Agreement--
effective
01-23-92)
F. 09-14-92 1720 Old Fort Parkway
Suites C170 & C180
Murfreesboro, TN
G. 11-25-92 5055 Old Hickory Boulevard
Hermitage, TN
H. 06-07-93 1420 Interstate Drive
Cookeville, TN
I. 11-22-93 2545 Scottsville Road
Bowling Green, KY
J. 05-30-94 230 E. Main Street
Hendersonville, TN
K. 12-19-94 1915 N. Jackson Street
Tullahoma, TN
L. 03-27-95 3066 Wilma Rudolph Blvd.
Clarksville, TN
M. 06-19-95 1557 N. Gallatin Pike
Madison, TN
N. 09-26-95 1656 Westgate Circle
Brentwood, TN
O. 01-29-96 705 S. James Campbell Blvd.
Columbia, TN
APPLE SOUTH, INC. Tom E. DuPree, Jr. 05-12-92 FL, GA */12-31-00
Hancock @ Washington Amended: 01-26-94
Madison, GA 30650 07-27-94
See Footnote, Page 14
23
<PAGE>
A. 05-12-92 10502 San Jose Boulevard
Jacksonville, FL
B. 05-12-92 492 Blanding Boulevard
Orange Park, FL
C. 05-12-92 4194 S. 3rd Street
Jacksonville Beach, FL
D. 05-12-92 9498 Atlantic Boulevard
Jacksonville, FL
E. 05-12-92 9485 Bay Meadows Road
Jacksonville, FL
F. 06-07-93 225 State Road 312
St. Augustine, FL
G. 03-31-94 177 Altama Connector
Brunswick, GA
H. 09-26-94 1901 Memorial Drive
Waycross, GA
I. 03-13-95 574 Busch Drive
Jacksonville, FL
J. 05-22-95 113 The Lake Boulevard
Kingsland, GA
K. 08-16-95 Route 17, Box 2219
Lake City, FL
L. 08-16-95 6251 103rd Street
Jacksonville, FL
M. 12-02-96 13201 Atlantic Blvd.
Jacksonville, FL
APPLE SOUTH, INC. Tom E. DuPree, Jr. 11-28-89 GA, KY, NC, TN, VA */12-31-00
Hancock @ Washington Amended: 08-23-91
Madison, GA 30650 04-15-92
04-12-94
07-27-94
See Footnote, Page 14
A. 05-17-88 261 N. Peters Road
Knoxville, TN
24
<PAGE>
B. 10-01-88 6928 Kingston Pike
Knoxville, TN
C. 02-14-89 1213 Oak Ridge Turnpike
Oak Ridge, TN
D. 07-24-90 1661 E. Stone Drive
Kingsport, TN
E. 09-11-90 1322 W. Walnut Avenue
Dalton, GA
F. 02-12-91 2342 Shallowford Village Rd.
Chattanooga, TN
G. 04-14-92 2100 N. Roane Street
Johnson City, TN
H. 01-12-93 358 Northgate Mall
Chattanooga, TN
I. 08-10-93 2564 Alcoa Highway
Alcoa, TN
J. 05-23-94 5316 Central Avenue Pike
Knoxville, TN
K. 08-29-94 168 Paul Huff Parkway
Cleveland, TN
L. 02-27-95 3216 E. Towne Circle Mall
Knoxville, TN
M. 03-21-95 5536 Decatur Pike
Athens, TN
N. 03-27-95 2771 E. Andrew Johnson Hwy.
Greeneville, TN
O. 09-26-95 437 Parkway
Gatlinburg, TN
P. 10-23-95 2328 W. Andrew Jackson
Morristown, TN
APPLE SOUTH, INC. Tom E. DuPree, Jr. 04-25-95 IA, IL, MO, WI */12-31-00
Hancock @ Washington Amended: See Footnote,
Madison, GA 30650 Page 14
25
<PAGE>
A. 12-27-90 6845 E. State Street
Rockford, IL
B. 03-29-92 3024 Milton Avenue
Janesville, WI
C. 01-19-93 6301 University Avenue
Cedar Falls, IA
D. 08-24-93 105 Chestnut
Ames, IA
E. 12-14-93 3838 Elmore Avenue
Davenport, IA
F. 02-08-94 11410 Forest
Clive, IA
G. 07-26-94 6301 S.E. 14th Street
W. Des Moines, IA
H. 11-01-94 303 Collins Road
Cedar Rapids, IA
I. 09-18-95 3900 Merle Hay Road
Des Moines, IA
J. 06-04-96 6844 N. War Memorial
Peoria, IL
K. 07-30-96 1771 Riverside Road
Rockford, IL
L. 08-12-96 1802 S. West Street
Freeport, IL
M. 09-05-96 1001 E. First Street
Ankeny, IA
N. 09-16-96 3805 41st Avenue
Moline, IL
O. 10-14-96 3920 E. Lincoln Way
Sterling, IL
P. 12-09-96 306 Cleveland
Muscatine, IA
APPLE SOUTH, INC. Tom E. DuPree, Jr. 07-11-90 MI, MN, WI */12-31-00
Hancock @ Washington Amended: 04-08-93
Madison, GA 30650 08-03-94
See Footnote, Page 14
26
<PAGE>
A. 09-19-90 2500 N. Mayfair Road
Wauwatosa, WI
B. 05-06-91 20101 W. Bluemound Road
Waukesha, WI
C. 09-06-91 5100 S. 76th Street
Greenfield, WI
D. 08-04-92 5900 N. Port Washington Rd.
Glendale, WI
E. 04-13-93 660 S. Whitney Way
Madison, WI
F. 05-18-93 4710 E. Towne Boulevard
Madison, WI
G. 08-16-93 3730 W. College Avenue
Appleton, WI
H. 05-30-94 900 Hansen Road
Ashwaubenon, WI
I. 11-28-94 4745 Golf Road
Eau Claire, WI
J. 01-23-95 2521 S. Greenbay Road
Racine, WI
K. 06-30-95 2221 W. Stewart Avenue
Wausau, WI
L. 02-19-96 1700 S. Koeller Road
Oshkosh, WI
M. 07-29-96 2420 W. Mason Street
Greenbay, WI
N. 09-05-96 4435 Calumet Avenue
Manitowoc, WI
O. 09-16-96 5609 Hwy. 10 East
Stevens Point, WI
P. 10-28-96 841 W. Johnson Street
Fond Du Lac, WI
Q. 11-11-96 2510 W. Washington
West Bend, WI
27
<PAGE>
APPLE SOUTH, INC. Tom E. DuPree, Jr. See Footnote, Page 14 IL, WI */12-31-00
Hancock @ Washington
Madison, GA 30650
A. 11-22-91 One Schaumburg Place
601 Martingale Road
Schaumburg, IL
B. 09-09-92 354 W. Army Trail Road
Bloomingdale, IL
C. 02-16-93 60 Waukegan Road
Deerfield, IL
D. 03-23-93 Randhurst Shopping Center
999 Elmhurst Road
Mt. Prospect, IL
E. 11-15-93 880 S. Barringon Road
Streamwood, IL
F. 12-16-93 9380 Joliet Road
Hodgkins, IL
G. 04-08-94 5690 Northwest Highway
Crystal Lake, IL
H. 04-08-94 1191 E. Ogden Avenue
Naperville, IL
I. 06-30-95 4937 W. Cal-Sag Road
Crestwood, IL
J. 10-30-95 1040 N. Kenzie
Bradley, IL
K. 01-29-96 2411 Sycamore Road
DeKalb, IL
L. 02-05-96 6950 75th Street
Kenosha, WI
M. 02-26-96 1296 West Booughton Road
Bolingbrook, IL
N. 03-05-96 125 S. Randall Road
Elgin, IL
O. 06-04-96 2795 Plainfield Road
Joliet, IL
28
<PAGE>
P. 11-18-96 1690 S. Randall Road
Geneva, IL
Q. 12-10-96 6447 Grand Avenue
Gurnee, IL
APPLE David A. McHam 08-31-92 TX No Development
VENTURES, INC. Joseph A. King Amended: 09-30-93 Rights
2500 Tanglewilde, #300 William A. McDaniel Terminated: 10-01-94
Houston, TX 77063 Walter G. Ackermann
A. 08-31-92 938 E. Nasa Road
Closed: 11-04-96 Houston, TX
B. 08-31-92 3375 Highway 6 South
Closed: 11-04-96 Sugarland, TX
C. 08-31-92 7092 Highway 6 North
Closed: 11-04-96 Houston, TX
D. 05-27-94 529 Sharpstown Center, #539
Closed: 11-04-96 Houston, TX
APPLEBAY Leonard E. Rhode 03-18-93 CA 8/9-30-98
FOODS, INC. Beverly A. Rhode Amended: 05-27-94
100 W. El Camino Real 07-27-94
Suite 76 03-07-95
Mountain View, CA
94040
A. 12-19-95 2250 Santa Rosa Avenue
Santa Rosa, CA
B. 06-07-96 5301 Old Redwood Hwy.
Petaluma, CA
APPLEJAM, INC. Joel S. Marks 08-01-88 AL, FL, GA 8/09-01-96
P.O. Box 956308 Milton A. Stahl Amended: 11-18-91
Duluth, GA 30136-9506 08-20-93
03-10-94
10-12-94
A. 12-01-88 1170 Appalachee Parkway
Tallahassee, FL
B. 02-14-89 1400 Village Square Blvd.
Tallahassee, FL
C. 04-17-90 637 Westover Boulevard
Albany, GA
29
<PAGE>
D. 06-25-91 678 W. 23rd Street
Panama City, FL
E. 12-08-92 3050 Ross Clark Circle, S.W.
Dothan, AL
F. 05-10-94 1301 S. Augustine Road
Valdosta, GA
G. 08-23-94 1005 N.W. 13th Street
Gainesville, FL
H. 05-21-96 1401 Capital Circle, N.W.
Tallahassee, FL
APPLEJAM, INC. Joel S. Marks 01-15-92 TX 6/12-31-98
P.O. Box 956308 Milton A. Stahl Amended: 06-24-93
Duluth, GA 30136-9506 02-28-95
02-12-96
A. 07-19-93 5809 Loop 410 Northwest
San Antonio, TX
B. 04-12-94 97 Loop 410 Northeast
San Antonio, TX
C. 09-19-95 995 I-35
New Braunfels, TX
APPLERAY, INC. E. Ray Morris 04-03-85 FL No Development
5660 Peachtree Bruce W. German Amended: 08-05-86 Rights
Industrial Boulevard Alvin G. Kruse Terminated: 03-16-88
Venture Park, Bldg. #3
Norcross, GA 30071
A. 10-18-85 220 Wekiva Springs Road
Longwood, FL
APPLEROCK, INC. Gene Cain 05-21-92 AR, MO No Development
11711 Hermitage Road Charles M. Cain Amended: 01-01-94 Rights
Suite 4 Andria D. Cain 08-25-94
Little Rock, AR 72211 Terminated: 10-29-96
BROOKLYN- Nicholas Katos 12-07-94 NY 4/06-30-98
APPLE, LTD. Michael Katos
164-17 Union Turnpike Stephen Katos
Flushing, NY 11367
30
<PAGE>
BRUNSWICK, GMbH Daniel Meyer 03-11-96 Berlin, Sachsen and 5/12-31-97
Brunswick Recreation Sachsen-Anhalt in
Centers Federal Republic of
1 North Field Court Germany
Lake Forest, IL 60045
A. 03-11-96 lm US-Play im Elebe Park
Peschel Strasse 31
Dresden, Germany
B. 08-26-96 AM Pfalberg 3
Magdeberg, Germany
C. 09-02-96 Handelsstrasse 4
Leipzig, Germany
B.T. WOODLIPP, INC. Larry Brown 11-15-95 PA, WV 11/12-31-98
Towne Centre Offices James T. Thomas
1789 S. Braddock Avenue Apple-Penn, Inc.
Suite 340 John L. Turley
Pittsburgh, PA 15218 Dan B. Turley, Jr.
Larry Graves
A. 06-11-90 The Bourse Shops
2101 Greentree Road
Pittsburgh, PA
B. 05-28-91 North Hills Village Mall
4801 McKnight Road
Pittsburgh, PA
C. 11-12-91 Edgewood Towne Centre
1601 S. Braddock Avenue
Pittsburgh, PA
D. 08-09-93 2045 Lebanon Church Road
West Mifflin, PA
E. 01-10-94 4039 Washington Road
McMurray, PA
F. 10-21-96 425 Galleria Drive
Johnstown, PA
CAFE VENTURES, INC. William F. Palmer 04-11-83 GA 5/04-11-93
4219 Pleasant Hill Road Mickey Munir (Employment
Building 12-D, Suite B Lovay Sharif Agreement)
Duluth, GA 30136
31
<PAGE>
A. 10-01-85 490 Franklin Road
Marietta, GA
B. 05-12-86 2095 Pleasant Hill
Duluth, GA
C. 07-18-87 11070 Alpharetta
Roswell, GA
D. 05-26-88 5200 Highway 78
Stone Mountain, GA
CALABEE'S, INC. John R. Bifone 08-27-92 CA 2/09-01-94
444 N. Amelia Ave., #3C Amended: 09-29-92
San Dimas, CA 91773 09-30-93
08-01-94
05-01-95
A. 08-10-93 674 W. Arrow Highway
San Dimas, CA
B. 10-31-94 300 S. California
West Covina, CA
C. 09-17-96 502 W. Huntington Drive
Monrovia, CA
D. 12-16-96 9241 Monte Vista Avenue
Montclair, CA
CAN-APPLE Joseph Mandolfo 05-19-93 Manitoba, Canada 5/12-31-96
INVESTMENTS INC. Nancy Mandolfo Amended: 03-24-94
P.O. Box 280 10-24-94
Plattsmouth, NE 68048 12-30-94
02-28-95
A. 06-24-94 2065 Pembina Highway
Winnipeg, MB CAN
B. 11-03-95 1150 Grant Avenue
Winnipeg, MB CAN
CAN-APPLE Joseph Mandolfo 03-01-95 Alberta, Canada 12/06-30-01
INVESTMENTS INC. Nancy Mandolfo
P.O. Box 280
Plattsmouth, NE 68048
A. 03-01-95 10338 109th Street
Edmonton, Alberta Canada
32
<PAGE>
B. 01-05-96 13006 50th Street
Edmonton, Alberta Canada
CASUAL RESTAURANT Franklin W. Carson 06-23-89 FL
CONCEPTS, INC. Terminated: 08-23-91
Tampa Bay Marina Center
205 S. Hoover St., #402
Tampa, FL 33609
A. 01-23-90 5110 East Bay Drive
Clearwater, FL
B. 05-15-90 30180 U.S. Highway 19 N.
Clearwater, FL
CASUAL RESTAURANT Franklin W. Carson 08-11-92 FL 8/06-30-97
CONCEPTS II, INC. Amended: 05-14-93
Tampa Bay Marina Center 11-15-93
205 S. Hoover St., #402 02-02-94
Tampa, FL 33609 08-03-94
02-28-95
A. 06-07-93 5779 E. Fowler Avenue
Temple Terrace, FL
B. 02-02-94 4301 Cortez Road
Bradenton, FL
C. 01-16-95 4700 4th Street, North
St. Petersburg, FL
D. 07-03-95 10911 Starkey Road
Largo, FL
E. 06-18-96 3255 University Pkwy.
Bradenton, FL
F. 06-18-96 3702 W. McKay Avenue, S.
Tampa, FL
CONCORD Lawrence S. Bird 07-01-91 KS, MO, NE 5/08-31-97
HOSPITALITY, INC. Amended: 07-05-91
P.O. Box 6212 11-27-94
Lincoln, NE 68516 01-31-95
09-01-95
A. 04-07-92 100 Manhattan Town Center
3rd & Poyntz, Suite P-5
Manhattan, KS
33
<PAGE>
B. 06-03-92 5928 S.W. 17th Street
Topeka, KS
C. 04-20-93 3730 Village Drive
Lincoln, NE
D. 08-09-94 4004 Frederick Boulevard
St. Joseph, MO
E. 08-15-95 102 Platte Oasis Parkway
North Platte, NE
F. 07-30-96 6100 O Street
Lincoln, NE
CONCORD Lawrence S. Bird 09-07-93 OK, NM, TX 5/12-31-96
HOSPITALITY, INC. Amended: 09-01-94
P.O. Box 6212 11-27-94
Lincoln, NE 68516 11-29-95
A. 04-22-94 2714 Soncy Road
Amarillo, TX
B. 05-27-94 4025 S. Loop 289
Lubbock, TX
C. 10-16-95 2911 Kemp Boulevard
Wichita Falls, TX
D. 09-16-96 6211 N.W Cache Road
Lawton, OK
CONCORD Lawrence S. Bird 10-25-95 NE, WY 3/04-30-97
HOSPITALITY, INC.
P.O. Box 6212
Lincoln, NE 68516
A. 08-03-94 2621 5th Avenue
Scottsbluff, NE
B. 10-22-96 3209 Grand Avenue
Laramie, WY
EHI REALTY, INC. Edward W. Doherty 08-30-91 NJ 8/06-30-97
7 Pearl Court William A. Johnson Amended: 12-10-92
Allendale, NJ 07401 07-31-93
08-03-94
A. 10-26-93 1282 Centennial Avenue
Piscataway, NJ
34
<PAGE>
B. 12-07-93 14 Park Road
Tinton Falls, NJ
C. 11-09-94 Fashion Center Mall
17 North & Ridgewood East
Paramus, NJ
D. 06-13-95 1599 Route 22, West
Watchung, NJ
E. 11-21-95 52 Brick Plaza
Brick, NJ
F. 04-16-96 Rt. 46 @ Riverview Drive
Totowa, NJ
G. 11-12-96 251 Woodbridge Ctr. Drive
Woodbridge, NJ
EHI REALTY, INC. Edward W. Doherty 11-06-96 NJ 3/08-31-99
7 Pearl Court William A. Johnson
Allendale, NJ 07401
EJM Myron Thompson 06-29-90 MN, ND No Development
ENTERPRISES, INC. Joseph J. Deck Amended: 09-03-90 Rights
P.O. Box 0969 Engen Eckmann Terminated: 08-16-93
Minot, ND 58702-0969
A. 11-13-90 2302 15th Street, S.W.
Minot, ND
B. 04-14-92 434 S. 3rd
Bismarck, ND
EL APPLE, INC. John M. Verlander 05-23-94 NM, TX 6/05-31-97
5835 Onix, Suite 300 James J. Gore Amended: 03-07-95
El Paso, TX 79912
A. 05-27-94 5800 N. Mesa
El Paso, TX
B. 03-13-95 1766 Airway Boulevard
El Paso, TX
C. 11-01-95 7956 Gateway East
El Paso, TX
D. 06-27-96 2501 E. Lohman
Las Cruces, NM
35
<PAGE>
E. 08-29-96 4700 Woodrow Bean
El Paso, TX
GRANDAPPLE, L.L.C. Myron Thompson 12-07-93 MN, ND 2/10-31-94
P.O. Box 0969 Engen Eckmann Amended: 03-27-95
Minot, ND 58702-0969 03-28-95
A. 12-07-93 2351 S. Columbia Road
Grand Forks, ND
B. 11-08-94 2800 13th Avenue, Southwest
Fargo, ND
C. 12-19-95 289 15th Street, West
Dickinson, ND
GULF COAST Thomas G. Kellogg 11-01-88 LA, MS 9/06-30-96
RESTAURANTS, INC. Kathryn G. Kellogg Amended: 11-19-90
2320 Oak Road 02-07-92
Building G, Suite 202 11-05-92
Snellville, GA 30278 10-11-93
07-19-94
A. 08-14-89 1000 W. Esplanada Avenue
Kenner, LA
B. 06-18-90 3701 Veterans
Memorial Boulevard
Metarie, LA
C. 04-07-92 850 I-10 Service Road
Slidell, LA
D. 03-02-93 315 N. Highway 190
Covington, LA
E. 12-21-93 5630 Johnston Street
Lafayette, LA
F. 11-14-95 4005 General DeGaulle
New Orleans, LA
GULF COAST Thomas G. Kellogg 07-14-93 LA, MS 5/06-30-96
RESTAURANTS, INC. Kathryn G. Kellogg Amended: 03-10-95
2320 Oak Road
Building G, Suite 202
Snellville, GA 30278
A. 07-18-94 3006 College Drive
Baton Rouge, LA
36
<PAGE>
B. 05-09-95 4808 S. Sherwood Forest
Baton Rouge, LA
C. 01-30-96 9702 Airline Highway
Baton Rouge, LA
D. 06-04-96 1500 MacArthur Drive
Alexandria, LA
J.S. VENTURES, INC. James H. Stevens 10-10-92 IA, KS, MO, NE 5/12-31-96
1130 Haskell Amended: 05-14-93
Wichita, KS 67213 10-20-93
02-28-95
A. 08-07-89 6730 W. Central
Wichita, KS
B. 01-15-91 2035 N. Rock Road, Ste. 101
Wichita, KS
C. 09-22-92 3350 S. 143rd Place
Omaha, NE
D. 12-14-93 2875 S. 9th
Salina, KS
E. 07-05-94 4760 S. Broadway
Wichita, KS
F. 11-08-94 7450 W. Dodge Street
Omaha, NE
G. 02-28-95 1609 E. 17th Street
Hutchinson, KS
H. 06-04-96 13208 W. Maple Road
Omaha, NE
KEYSTONE Stephen H. Davenport 05-14-93 PA 6/05-31-97
APPLE, INC. Amended: 03-28-95
P.O. Box 616
Lemoyne, PA 17043-0616
A. 05-04-94 4401 Jonestown Road
Harrisburg, PA
B. 05-16-95 1181 Mae Street
Hummelstown, PA
37
<PAGE>
CHRISTIAN J. KNOX Christian J. Knox
2200 Laurelwood Road
Santa Clara, CA 95054
A. 12-19-94 311 Lake Merced
Daly City, CA
K.S. APPLE, INC. Nicholas Katos 12-07-94 NY 6/06-30-99
164-17 Union Turnpike Michael S. Shaevitz Amended: 03-07-95
Flushing, NY 11367
MARANO Leon J. Marano 06-25-91 CA 5/12-31-95
ENTERPRISES, INC. Amended: 03-01-93
96 Shaw Avenue 06-30-94
Suite 232
Clovis, CA 93612
A. 06-23-92 Fig Garden Village
5126 N. Palm Avenue
Fresno, CA
B. 08-31-93 98 Shaw Avenue
Clovis, CA
C. 12-12-94 1665 W. Lacey Boulevard
Hanford, CA
D. 06-20-95 7007 N. Cedar
Fresno, CA
E. 03-05-96 3604 West Shaw
Fresno, CA
MERCER ROSE, L.P. Harold T. Rose 02-01-96 NJ 2/08-31-97
127 South State Street
Newton, PA 18940
MILLER APPLE William M. Wentworth 07-20-92 MI, WI 6/11-30-96
LIMITED Elizabeth Wentworth Amended: 11-04-92
PARTNERSHIP 09-28-93
G-4488 Bristol Road 07-18-94
Flint, MI 48507 02-28-95
A. 11-16-93 G3131 Miller Road
Flint, MI
B. 12-15-94 2260 Tittabawassee
Saginaw, MI
38
<PAGE>
C. 11-28-95 4135 N. Court Street
Burton, MI
D. 06-04-96 2384 U.S. 31 South
Traverse City, MI
MILOMEL, LTD. GEKAT General 10-27-96 Bulgaria, Serbia & 9/12-31-02
1050 Crown Pointe Parkway Constructions, S.A. Scopia, Romania
Crown Pointe Tower 2000 Nikos Koubatis Hellenic Rep. of Greece
Suite 310 Mihalis Papaloupulos Greece controlled Island
Atlanta, GA 30338 Island of Cyprus
A. 10-27-96 (to be determined)
O.K. APPLE, INC. Michael D. Olander 03-01-96 KS, OK 10/12-31-98
P.O. Box 1291
Lumberton, NC 28359
A. 01-26-93 3900 S. Elm Place
Broken Arrow, OK
B. 06-15-93 4733 S. Yale Avenue
Tulsa, OK
C. 09-21-93 9409 E. 71st Street
Tulsa, OK
D. 06-20-95 3521 S. Broadway
Edmond, OK
E. 05-01-96 317 N. Perkins
Stillwater, OK
F. 07-30-96 500 Ed Noble Pkwy.
Norman, OK
O.K. APPLE, INC. Michael D. Olander 10-29-96 6/12-31-99
P.O. Box 1291
Lumberton, NC 28359
A. 09-13-93 4333 Warden Road*
Little Rock, AR
B. 11-09-94 4426 Central Avenue*
Hot Springs, AR
39
<PAGE>
C. 06-19-95 12110 Chenal Parkway*
Little Rock, AR
PACIFIC APPLE Joseph J. Lal
CALIFORNIA, INC. Renu Lal
7311 Greenhaven Drive
Suite 270
Sacramento, CA 95831
A. 03-18-94 1415 S. Bradley
Santa Maria, CA
B. 09-26-95 305 Madonna Road
San Luis Obispo, CA
PACIFIC APPLE FOODS Joseph J. Lal 09-24-93 ID, OR, WA 4/04-30-96
CORPORATION Renu Lal Amended: 10-11-93
7311 Greenhaven Drive 02-28-95
Suite 270
Sacramento, CA 95831
A. 10-03-95 280 Hanley
Coeur D'Alene, ID
B. 11-10-95 12217 E. Mission Avenue
Spokane, WA
C. 01-04-96 606 N. Columbia Ctr. Blvd.
Kennewick, WA
D. 06-04-96 4007 29th Street
Spokane, WA
PACIFIC GOLD, INC. Michael Olander 04-03-96 CA 10/06-30-01
170 Windchime Court
Raleigh, NC 27614
A. 11-15-94 18279 Brookhurst Street
Fountain Valley, CA
B. 04-03-96 1238 W. Imperial Highway
La Habra, CA
PACIFIC GOLD, INC. Michael Olander 10-14-96 CA 11/12-31-99
170 Windchime Court
Raleigh, NC 27615
40
<PAGE>
A. 01-01-96 4070 E. Highland Avenue*
Highland, CA
B. 01-01-96 2046 Redlands Blvd.*
Redlands, CA
C. 01-01-96 3820 Mulberry*
Riverside, CA
D. 01-01-96 521 N. McKinley*
Corona, CA
E. 01-01-96 3956 Grand Avenue*
Chino, CA
F. 01-01-96 10709 Foothill Blvd.*
Rancho Cucamonga, CA
PORTER Todd G. Porter 10-09-92 IA, MN, MT, NE, SD, WY 3/09-30-95
APPLE COMPANY Amended: 03-28-94
4305 S. Louise Avenue
Suite 101-B
Sioux Falls, SD 57106
A. 06-05-91 3800 S. Louise Avenue
Sioux Falls, SD
B. 08-17-93 1700 Hamilton Boulevard
Sioux City, IA
C. 08-09-94 4555 Southern Hills Dr., #106
Sioux City, IA
D. 12-05-95 2160 Haines Avenue
Rapid City, SD
RCI IDAHO, LLC Stephen A. Grove 08-29-96 ID, OR 4/06-30-99
400 Interstate N. Parkway
Suite 1200
Atlanta, GA 30339
RCI NEW Stephen A. Grove 08-10-96 NM 6/07-31-99
MEXICO, LLC
400 Interstate N. Parkway
Suite 1200
Atlanta, GA 30339
41
<PAGE>
A. 12-16-96 2212 North Main
Roswell, NM 88201
R.C.I. WEST, INC. Stephen A. Grove 12-21-88 CO 17/12-31-96
400 Interstate N. Pkwy. Amended: 03-18-91
Suite 970 01-02-92
Atlanta, GA 30339 12-04-92
01-01-95
A. 10-02-89 3301 Tamarac Drive
Denver, CO
B. 10-23-90 5250 S. Wadsworth Boulevard
Lakewood, CO
C. 06-08-92 4306 S. College Avenue
Ft. Collins, CO
D. 09-07-92 14091 E. Iliff Avenue
Aurora, CO
E. 10-05-92 8292 S. University Boulevard
Littleton, CO
F. 04-12-93 410 S. Colorado Boulevard
Glendale, CO
G. 11-15-93 100 W. 104th Avenue
Northglenn, CO
H. 01-24-94 9010 N. Wadsworth Parkway
Westminster, CO
I. 03-21-94 6405 W. 120th Avenue
Broomfield, CO
J. 05-30-94 1250 S. Hover Road
Building 10-A
Longmont, CO
K. 08-29-94 1906 28th Street
Boulder, CO
L. 10-31-94 10625 W. Colfax Avenue
Lakewood, CO
M. 12-19-94 297 E. 120th Avenue
Thornton, CO
N. 03-13-95 592 S. McCaslin Boulevard
Louisville, CO
42
<PAGE>
O. 06-26-95 10440 E. Arapahoe Road
Englewood, CO
P. 10-23-95 5265 Wadsworth Boulevard
Arvada, CO
R.C.I. WEST, INC. Stephen A. Grove 12-22-92 CO 6/08-31-97
400 Interstate N. Pkwy. Amended: 03-19-93
Suite 970 07-19-94
Atlanta, GA 30339 03-07-95
09-01-95
A. 10-03-94 1360 Cragin Road
Colorado Springs, CO
B. 04-03-95 3428 N. Elizabeth
Pueblo, CO
C. 07-10-95 3708 E. Galley
Colorado Springs, CO
D. 11-27-95 711 Horizon Drive
Grand Junction, CO
E. 05-06-96 4100 West 10th Street
Greeley, CO
RENAISSANT Anthony R. Alvarez 08-27-92 TX 3/03-31-95
DEVELOPMENT Estella M. Alvarez Amended: 10-20-93
CORPORATION 05-01-95
8000 I-10 West
Suite 1150
San Antonio, TX
A. 12-07-93 514 E. Expressway 83
McAllen, TX
B. 08-25-94 4601 N. 10th Street
N. McAllen, TX
C. 10-18-94 7601 San Dario
Laredo, TX
D. 07-25-95 2960 Boca Chica Boulevard
Brownsville, TX
E. 10-23-95 1519 W. Harrison
Harlingen, TX
43
<PAGE>
RENAISSANT Anthony R. Alvarez 10-23-95 TX 2/10-31-97
DEVELOPMENT Estella M. Alvarez
CORPORATION
8000 I-10 West
Suite 1150
San Antonio, TX 78230
A. 12-19-95 6490 N. Navarro
Victoria, TX
RESTAURANT Stephen A. Grove 11-02-90 AL, GA 9/06-30-96
CONCEPTS, INC. Amended: 10-10-93
400 Interstate N. Pkwy. 07-01-94
Suite 970
Atlanta, GA 30339
A. 06-17-85 2301 Airport Thruway, #F-1
Columbus, GA
B. 06-17-85 3150 Wrightsboro Road
Augusta, GA
C. 01-28-87 3117 Washington Road
Augusta, GA
D. 08-21-87 480 Mall Boulevard
Savannah, GA
E. 04-01-91 595 Bobby Jones Expressway
Augusta, GA
F. 06-28-92 165 Tom Hill, Sr. Boulevard
Macon, GA
G. 05-17-93 3229 Gentian Boulevard
Columbus, GA
H. 07-26-93 1627-34 Opelika Road
Auburn, AL
I. 10-25-93 11120 Abercorn
Savannah, GA
J. 04-04-94 314 Russell Parkway
Warner Robbins, GA
K. 09-05-94 4705 Highway 80
Savannah Island, GA
L. 12-05-94 612 E. Hamric Avenue
Oxford, AL
44
<PAGE>
M. 06-05-95 2574 Riverside Drive
Macon, GA
N. 10-30-95 3652 Eisenhower
Macon, GA
ROSE CASUAL Harold T. Rose 08-04-93 MD 10/06-30-99
DINING, INC. Amended: 09-09-94
127 S. State Street 02-28-95
Newtown, PA 18940
A. 01-17-95 2141 Generals Highway
Annapolis, MD
B. 10-31-95 2703 N. Salisbury Boulevard
Salisbury, MD
C. 05-13-96 6505 Baltimore National Pike
Catonsville, MD
D. 12-10-96 8610 LaSalle Road
Towson, MD
RYAN RESTAURANT William O. Ryan 03-05-96 MT 5/12-31-97
CORPORATION Beverly R. Ryan
790 King Park Drive
Billings, MT 59102
A. 11-23-93 740 24th Street, West
Billings, MT
B. 03-05-96 1108 North 7th Avenue
Bozeman, MT
C. 07-24-96 4041 Highway 93 South
Missoula, MT
D. in normal 1200 E. Idaho
process Kalispell, MT
SCOTT'S APPLE, INC. Nicholas C. Scott 08-26-92 PA 2/10-31-94
4045 W. 12th Street Amended: 10-30-93
Erie, PA 16505
A. 01-24-94 7790 Peach Street
Erie, PA
B. 03-21-95 2911 W. 12th Street
Erie, PA
45
<PAGE>
SCRANTON ROSE, L.P. Harold T. Rose 02-01-96 PA 3/12-31-98
127 South State Street
Newton, PA 18940
SPECTRUM APPLE, L.P. John D. Gantes 08-11-94 CA 10/11-30-00
P.O. Box 80340 Linda B. Gantes Amended: 03-28-95
Rancho Santa George J. Gantes
Margarita, CA 92688
A. 09-05-95 23626 Valencia Boulevard
Santa Clarita, CA
B. 04-16-96 39720 N. 10th Street West
Palmdale, CA
C. 07-30-96 291 Ventura Blvd.
Camarillo, CA
DENNIS STOCKARD Dennis Stockard 11-14-94 IL, IN, KY, MO, TN No Development
P.O. Box 1399 Assigned: 03-25-96 Rights
Cape Girardeau, MO
63702
T.L. CANNON Matthew J. Fairbairn 06-22-90 NY, PA 8/06-30-96
CORPORATION David Stein Amended: 01-17-92
201 ATP Tour Blvd. 03-01-94
Suite 120 10-03-94
Ponte Vedra Beach, FL 32082
A. 03-12-91 3050 Winton Road South
Rochester, NY
B. 09-30-91 5017 Transit Road
Williamsville, NY
C. 06-23-92 3 Builders Square
4405 Milestrip Road
Hamburg, NY
D. 07-21-92 585 Moseley Road
Fairport, NY
E. 08-24-93 200 Paddy Creek Circle
Rochester, NY
F. 08-23-94 1683 E. Ridge Road
Rochester, NY
G. 10-04-94 1900 Military Road
Niagara Falls, NY
46
<PAGE>
H. 11-22-94 1641 Niagara Falls Boulevard
Amherst, NY
I. 06-20-95 1955 Empire Boulevard
Webster, NY
J. 08-29-95 5822 S. Transit Road
Lockport, NY
K. 04-02-96 340 E. Fairmount Avenue
Lakewood, NY
L. 07-30-96 2656 Delaware Avenue
Buffalo, NY
T.L. CANNON Matthew J. Fairbairn 12-22-92 NY 6/06-30-96
CORPORATION David Stein Amended: 02-03-93
201 ATP Tour Blvd. 04-08-94
Suite 120 05-01-95
Ponte Vedra Beach, FL 32082
A. 09-28-93 3189 Erie Boulevard, East
De Witt, NY
B. 07-06-94 628 S. Main Street
N. Syracuse, NY
C. 02-13-95 3975 Route 31
Liverpool, NY
D. 01-10-96 877 Country Route 64
Elmira, NY
T.L. CANNON Matthew J. Fairbairn 08-14-96 NY, PA 6/07-31-99
CORPORATION David Stein
201 ATP Tour Blvd.
Suite 120
Ponte Vedra Beach, FL 32082
T.S.S.O., INC. Frank C. Sedowicz 01-15-92 AL, FL, MS 2/06-30-95
5555 Oakbrook Parkway Lois J. Sedowicz Amended: 08-30-93
Suite 320 03-28-95
Norcross, GA 30093
A. 04-30-85 5760 Airport Boulevard
Mobile, AL
B. 03-31-86 5091 Bayou Boulevard
Pensacola, FL
47
<PAGE>
C. 08-15-88 330 Mary Esther Cutoff
Mary Esther, FL
D. 01-24-91 5701 Emerald Coast
Parkway - Sandestin
Destin, FL
E. 12-06-93 4940 Government Boulevard
Mobile, AL
F. 07-10-95 165 E. Nine Mile Road
Pensacola, FL
T.S.S.O., INC. Frank C. Sedowicz 11-20-91 IA, IL, MO 6/12-31-95
5555 Oakbrook Parkway Lois J. Sedowicz Amended: 04-07-93
Suite 320 08-16-93
Snellville, GA 30278
A. 11-02-92 3335 Veterans Parkway
Springfield, IL
B. 08-16-93 1966 N. Henderson Street
Galesburg, IL
C. 08-29-94 405 N. Main
E. Peoria, IL
D. 10-17-94 1275 S. Route 51
Forsyth, IL
E. 11-07-94 502 N. Veterans Parkway
Bloomington, IL
F. 08-28-95 116 S. Roosevelt
Burlington, IA
G. 02-26-96 3827 Broadway
Quincy, IL
THE OZARK Gregory R. Walton 05-21-92 AR, MO 5/12-31-96
APPLES, INC. Amended: 04-21-93
3252 Roanoke 07-01-93
Kansas City, MO 64111 11-15-93
01-29-96
A. 06-15-93 1855 E. Primrose
Springfield, MO
B. 01-03-94 2010 I-70 Drive, Southwest
Columbia, MO
48
<PAGE>
C. 06-01-94 1836 W. Highway 76
Branson, MO
D. 06-27-95 2319 Missouri Boulevard
Jefferson City, MO
THE OZARK Gregory R. Walton 01-29-96 AR, KS, MO, OK 2/12-31-97
APPLES, INC.
3252 Roanoke
Kansas City, MO 64111
A. 07-19-94 2825 E. 32nd Street
Joplin, MO
B. 06-19-96 528 N. 47th Street
Rogers, AR
THOMAS & KING, INC. Michael J. Scanlon 05-31-88 IN, KY, OH 31/05-30-97
1065 Newtown Pike Ronald T. Reynolds Amended: 05-31-91
Lexington, KY 40511 Douglas M. Wilson 08-06-93
06-07-95
07-30-96
A. 08-01-88 2573 Richmond Road
Lexington, KY
B. 11-14-88 7383 Turfway Road
Florence, KY
C. 02-24-89 105 N. Springsboro Pike
W. Carrollton, OH
D. 05-11-89 340 Glensprings Drive
Springdale, OH
E. 10-09-89 4009 Nicholasville Road
Block B
Lexington, KY
F. 04-11-89 10635 Techwood Circle
Blue Ash, OH
G. 03-12-90 9998 King's Auto Mall Road
Deerfield Township, OH
H. 05-11-90 2755 Brice Road
Reynoldsburg, OH
I. 08-20-90 2555 Shiloh Springs Road
Trotwood, OH
49
<PAGE>
J. 12-11-90 6669 Dublin Center Drive
Dublin, OH
K. 07-15-91 967 Hebron Road
Heath, OH
L. 12-16-91 5050 Crookshank
Cincinnati, OH
M. 08-17-92 4440 Glen Este-
Withamsville Road
Batavia, OH
N. 11-09-92 4600 East Broad Street
White Hall, OH
O. 03-01-93 1389 U.S. 127 South
Frankfort, KY
P. 04-05-93 30 Crestview Hills Mall Road
Crestview Hills, KY
Q. 06-21-93 480 Ackerman Road
Columbus, OH
R. 09-06-93 700 Washington Blvd., N.W.
Hamilton, OH
S. 10-04-93 853 Eastern Bypass
Richmond, KY
T. 01-17-94 Northgate Mall
9595 Colrain Avenue
Cincinnati, OH
U. 04-11-94 910 Beaumont Center Pkwy.
Lexington, KY
V. 06-13-94 3240 Towne Boulevard
Middletown, OH
W. 10-03-94 8331 Old Troy Pike
Huber Heights, OH
X. 12-02-94 1800 W. 1st Street
Springfield, OH
Y. 05-29-95 4425 National Road East
Richmond, IN
Z. 08-07-95 1615 Rivervalley Circle North
Lancaster, OH
50
<PAGE>
a. 01-29-96 1525 N. Lexington Avenue
Winchester, KY
b. 01-30-96 1 Madison Avenue
Covington, KY
c. 05-20-96 3894 Morse Road
Columbus, OH
d. 07-25-96 1759 W. Main Street
Troy, OH
e. 09-23-96 1514 Mt. Vernon Avenue
Marion, OH
THOMAS & KING, INC. Michael J. Scanlon 02-24-94 OH, PA 4/10-31-96
1065 Newtown Pike Ronald T. Reynolds Amended: 02-28-95
Lexington, KY 40511 Douglas M. Wilson
A. 08-28-95 904 Great East Plaza
Niles, OH
THOMAS & KING, INC. Michael J. Scanlon 10-23-90 AZ 11/08-15-96
1065 Newtown Pike Ronald T. Reynolds Amended: 10-21-94
Lexington, KY 40511 Douglas M. Wilson 06-01-95
A. 03-31-93 2053 S. Alma School Road
Mesa, AZ
B. 12-18-90 2720 W. Bell Road
Phoenix, AZ
C. 07-08-91 565 E. Wetmore
Tucson, AZ
D. 12-08-92 6259 E. Southern Avenue
Mesa, AZ
E. 05-17-93 Park Mall, Building E
5870 East Broadway
Tucson, AZ
F. 06-14-93 2032 E. Baseline Road
Mesa, AZ
G. 09-27-93 8001 W. Bell Road
Peoria, AZ
H. 06-26-94 1655 W. Elliott
Tempe, AZ
51
<PAGE>
I. 12-12-94 10460 N. 90th Street
Scottsdale, AZ
J. 05-22-95 2547 N. 44th Street
Phoenix, AZ
K. 10-09-95 2 East Camelback
Phoenix, AZ
L. 11-20-95 4924 E. Shea Boulevard
Phoenix, AZ
M. 02-26-96 1881 West Highway 69
Prescott, AZ
N. 08-19-96 5880 W. Peoria
Glendale, AZ
THOMAS & KING, INC. Michael J. Scanlon 11-14-94* IL, IN, KY, MO, TN 7/09-30-97
1065 Newton Pike Ronald T. Reynolds
Lexington, KY 40511 Douglas M. Wilson
A. 09-26-91 202 S. Broadview*
Cape Girardeau, MO
B. 10-27-92 3990 Hinkleville Road*
Paducah, KY
C. 07-06-93 5120 Frederica*
Owensboro, KY
D. 12-13-94 2506 S. 3rd Street*
Terre Haute, IN
E. 04-04-95 1125 E. Main*
Carbondale, IL
F. 08-01-95 5100 E. Morgan*
Evansville, IN
THUNDER APPLE Robert A. Syroid 08-08-94 City of Thunder Bay, Ontario, 1/06-29-97
NORTH, INC. Brenda Syroid Amended: 09-20-95 Canada
920 Tungsten Street 08-29-96
Thunder Bay, ON CAN
P7B 5Z6
A. 08-08-94 (to be determined)
52
<PAGE>
WILD WEST APPLE Calvin E. Keller 10-21-94 ID, NE, OR, WY No Development
VENTURES, A Linda A. Keller Amended: 02-28-95 Rights
LIMITED LIABILITY Terminated: 11-01-95
COMPANY
2220 Dell Range Blvd.
Suite 102
Cheyenne, WY 82009
A. 07-07-92 1401 Dell Range Boulevard
Cheyenne, WY
WILLIAM TELL, INC. John B. Prince 05-14-93 ID, NV, UT 8/11-30-97
71 W. Apricot Avenue Amended: 03-01-95
Salt Lake City, UT 84103
A. 04-12-94 6123 S. State Street
Murray, UT
B. 12-19-94 5678 S. Redwood Road
Taylorsville, UT
C. 01-22-96 1622 N. 1000 West
Layton, UT
D. 04-29-96 1125 W. Riverdale Road
Riverdale, UT
E. 08-19-96 680 West 1300 South
Orem, UT
F. 11-11-96 7047 S. 1300 East
Midvale, UT
</TABLE>
53
EXHIBIT B
RIO BRAVO CANTINA
DEVELOPMENT AGREEMENT
---------------------------------------
(Name of Developer)
---------------------------------------
(Date)
---------------------------------------
(General Description of Territory)
FORM: January 28, 1996
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.......................................................... 1
I. GRANT............................................................. 1
II. FEES.............................................................. 3
III. SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS............. 4
IV. TERM; RIGHT OF FIRST REFUSAL...................................... 6
V. DUTIES OF DEVELOPER............................................... 7
VI. DEFAULT AND TERMINATION........................................... 10
VII. TRANSFER OF INTEREST.............................................. 13
VIII. COVENANTS......................................................... 18
IX. INDEPENDENT CONTRACTOR AND INDEMNIFICATION........................ 21
X. APPROVALS......................................................... 23
XI. NON-WAIVER AND REMEDIES........................................... 23
XII. NOTICES........................................................... 24
XIII. SEVERABILITY AND CONSTRUCTION..................................... 25
XIV. ENTIRE AGREEMENT; APPLICABLE LAW; MEDIATION....................... 26
XV. ACKNOWLEDGMENTS................................................... 28
ATTACHMENT A - FRANCHISE AGREEMENT
ATTACHMENT B - CONFIDENTIALITY AGREEMENT AND ANCILLARY COVENANTS NOT TO COMPETE
ATTACHMENT C - STATEMENT OF OWNERSHIP INTERESTS AND DEVELOPER'S PRINCIPALS
ATTACHMENT D - DESCRIPTION OF TERRITORY
<PAGE>
RIO BRAVO CANTINA
DEVELOPMENT AGREEMENT
This Development Agreement (the "Agreement") is made and entered into
this __________ day of ____________________, 19______, between RIO BRAVO
INTERNATIONAL, INC., a Kansas corporation ("Franchisor") and
__________________________________________ ("Developer").
WITNESSETH:
WHEREAS, as the result of the expenditure of time, skill, effort and
money, Franchisor has obtained the right to develop a unique and distinctive
system (hereinafter "System") related to establishing and operating full-service
restaurants featuring Mexican, Tex-Mex, Southwestern and other proprietary
cuisine and full-service bar with specialty drinks in a casual dining
atmosphere;
WHEREAS, Franchisor owns the System and the Marks (as defined below)
and has the right to use and license others to use the System and the Marks;
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior design, decor, color
scheme, and furnishings; secret recipes and special menu items; uniform
standards, specifications, and procedures for operations; quality and uniformity
of products and services offered; procedures for inventory, management and
financial control; training and assistance; and advertising and promotional
programs; all of which may be changed, improved, and further developed by
Franchisor from time to time;
WHEREAS, Franchisor identifies the System by means of certain trade
names, service marks, trademarks, emblems and indicia of origin, including, but
not limited to, the marks "Rio Bravo Cantina," and such other trade names,
service marks and trademarks as are now designated (and may hereafter be
designated by Franchisor in writing) for use in connection with the System
(hereinafter referred to as "Marks");
WHEREAS, Franchisor continues to develop, use and control the use of
such Marks in order to identify for the public the source of services and
products marketed thereunder and under the System, and to represent the System's
high standards of quality, appearance and service;
WHEREAS, Developer wishes to obtain certain development rights to
operate full-service Rio Bravo Cantina restaurants (hereinafter "Restaurant" or
"Rio Bravo Cantina restaurant") under the System in the territory described in
this Development Agreement;
NOW, THEREFORE, the parties, in consideration of the mutual
undertakings and commitments set forth herein, the receipt and sufficiency of
which are hereby acknowledged, agree as follows:
I. GRANT
A. In reliance on the representations and warranties of Developer and
its Controlling Principals (as defined in Section XIII.E. of this Agreement)
hereunder, Franchisor hereby grants to Developer and Developer hereby accepts,
pursuant to the terms and conditions of this Agreement, the right and obligation
to develop one (1) Restaurant within the geographic area described below (the
"Territory"). Developer shall be granted rights to develop additional
Restaurants subject to Developer's full compliance with all conditions precedent
to the grant of such rights outlined below, which rights shall be exercised
1
<PAGE>
according to Section III.A. and according to the development schedule in Section
III.B. (the "Development Schedule").
B. Developer and the Controlling Principals understand and acknowledge
that the rights and duties set forth in this Agreement are inextricably
intertwined, are personal to Developer and its Controlling Principals (as
applicable), are non-delegable, and that Franchisor has granted such rights in
reliance on the business skill, financial capacity, personal character of, and
expectations of performance of the duties hereunder by, Developer and the
Controlling Principals. Developer and the Controlling Principals have
represented to Franchisor that they have entered this Agreement for the purpose
and with the intention to fully comply with the Restaurant development
obligations hereunder and not for the purpose of reselling the development
rights granted herein. Developer and the Controlling Principals understand and
agree that this Agreement does not confer upon Developer a right to develop or
franchise to operate any Restaurant, but is intended by the parties to set forth
the terms and conditions which, if fully satisfied by Developer, shall entitle
Developer to obtain the right to develop and operate each Restaurant within the
Territory.
C. Each of the following conditions and approvals must have occurred or
be obtained before the grant of the right by Franchisor to develop each
Restaurant shall become effective. Developer must meet the "operational",
"financial", "legal" and "ownership" conditions, as set forth below
(collectively the "Conditions") before such rights shall become effective:
(1) "Operational": Developer is in compliance with the
Development Schedule and this Agreement. Developer and its affiliates (an
affiliate of a person or entity is any entity that is controlled by, controlling
or under common control with such person or entity) are in compliance with any
other development agreement between Developer and its affiliates and Franchisor
and its affiliates. Developer is conducting the operation of its existing
Restaurants, if any, and is capable of conducting the operation of the proposed
Restaurant (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 Manuals (defined in the Franchise Agreement), as such
Manuals may be amended from time to time, or otherwise in writing.
(2) "Financial": Developer and the Controlling Principals
satisfy Franchisor's then-current financial criteria for developers and
controlling principals of Rio Bravo Cantina restaurants with respect to
Developer's operation of its existing Restaurants, if any, and the proposed
Restaurant. Developer and the Controlling Principals have been and are
faithfully performing all terms and conditions under each of the existing
Franchise Agreements with Franchisor. Developer is not in default, and has not
been in default during the twelve (12) months preceding Developer's request for
Financial approval, of any monetary obligations owed to Franchisor under any
Franchise Agreement or other agreement between Developer or any of its
affiliates and Franchisor. 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 Rio Bravo Cantina restaurant and that such failure would adversely
affect the reputation and good name of Franchisor and the System.
(3) "Legal": Developer has submitted to Franchisor, in a
timely manner, 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 by Franchisor from time to time.
(4) "Ownership": Neither Developer nor any of its Controlling
Principals (as applicable) shall have transferred a Controlling Interest in
Developer as defined in Section VII.G. The Developer and Controlling Principals
upon whom Franchisor has relied to perform the duties under this Agreement shall
continue to own and exercise control over a Controlling Interest in Developer.
Neither Developer nor any of its Controlling Principals (as applicable) shall
have transferred any interest in a Franchise Agreement prior to the completion
2
<PAGE>
and opening of the Rio Bravo Cantina restaurant for business to the public.
If Franchisor determines, in its sole discretion, that Developer and
the Controlling Principals have met all of the Conditions described above prior
to the grant of the right to establish each additional Restaurant, then
Franchisor shall grant to Developer the right to develop such additional
Restaurant pursuant to the Development Schedule. The Conditions described above
shall survive the termination or expiration of this Agreement and shall apply
with respect to any Franchise Agreement executed pursuant to this Development
Agreement.
D. The Territory in which Developer has been granted the rights to
develop Restaurants shall include the geographic area described in Attachment D
below:
E. Developer acknowledges and understands that the rights granted
hereunder pertain only to the development of a full-service Rio Bravo Cantina
restaurant. Except as provided in this Agreement, and subject to Developer's
full compliance with this Agreement and any other agreement among Developer or
any of its affiliates and Franchisor or any of its affiliates, neither
Franchisor nor its affiliates shall establish or authorize any other person or
entity, other than Developer, to establish a full-service Rio Bravo Cantina
restaurant in the Territory during the term of this Agreement. Notwithstanding
the above, Franchisor, any franchisee and any other authorized person or entity
shall have the right, at any time, to advertise and promote the System in the
Territory. Developer acknowledges and agrees that Franchisor and its affiliates
operate restaurants under the Marks. Further, Franchisor and its affiliates may
offer and sell (and may authorize others to offer and sell): (i) collateral
products under the Marks, at or from any location, such as pre-packaged food and
beverage products and Rio Bravo Cantina restaurant memorabilia; (ii) food and
beverage services under the Marks at or through any Rio Bravo Cantina restaurant
or other permanent, temporary or seasonal food service facility providing in
whole or in part the products and services offered by a full-service Rio Bravo
Cantina restaurant in any Reserved Area (as defined below) in the Territory; and
(iii) any food and beverage products and services under any other names and
marks. A Reserved Area is defined as any airports, airline/transportation
commissaries, the interior of national chain hotels, stadiums and arenas.
Provided, however, prior to conducting or authorizing any person or entity to
conduct the business described in subparagraph (ii), and if Developer meets each
of the conditions outlined in Section I.C. of this Agreement and meets any other
criteria necessary to offer and sell the Rio Bravo Cantina products in the
Reserved Area within the Territory (as described in subparagraph (ii) above),
Franchisor shall offer to Developer the right to offer and sell such products on
such terms and conditions as Franchisor shall determine at that time. In
connection with the notice to Developer of the offer, Franchisor shall provide
Developer with the necessary information concerning such bona fide third party
to provide the products and services. Once such offer has been made to Developer
by Franchisor in writing, Developer shall have the right to accept such offer
within thirty (30) days after receipt of such written notification. If Developer
fails to notify Franchisor in writing of Developer's intent to accept the offer
within the thirty-day time period, Franchisor may conduct such business itself,
or authorize any other person or entity to do so.
F. This Agreement is not a franchise agreement and does not grant to
Developer any right or license to operate a Restaurant, distribute goods or
services, or any right to use or interest in the Marks.
II. FEES
A. As partial consideration for the development rights to be granted to
Developer herein and the rights to be granted to Developer under separate
franchise agreements ("Franchise Agreements"), Developer shall pay to Franchisor
a total development fee of ______________________ Dollars ($_________). The
development fee shall be calculated by multiplying the number of Franchise
Agreements to be signed under the Development Schedule by Five Thousand Dollars
($5,000.00). Any application fee paid by Developer to Franchisor prior to the
3
<PAGE>
signing of this Agreement shall be credited against the development fee required
under this Section. The development fee shall be due upon the execution of this
Agreement and deemed fully earned by Franchisor for administrative and other
expenses incurred by Franchisor and for the development opportunities lost or
deferred as a result of the rights granted to Developer herein.
B. In addition, and as further consideration for the development rights
to be granted hereunder and the rights to be granted to Developer under separate
Franchise Agreements, Developer shall pay to Franchisor an initial franchise fee
of Forty Thousand Dollars ($40,000) for the first Restaurant to be developed
under this Agreement, and Forty Thousand Dollars ($40,000) for each additional
Restaurant to be opened under this Agreement. The pro rata portion of the
development fee allocable to each Restaurant shall be credited against the
initial franchise fee due for that Restaurant. The initial franchise fee shall
be paid to Franchisor as follows: (i) fifty percent (50%) upon the commencement
of construction of the Restaurant as defined under the applicable Franchise
Agreement, and (ii) the remaining fifty percent (50%) at the earlier of thirty
(30) days prior to the Opening date (as defined in the Franchise Agreement) or
three (3) business days prior to the date the training crew provided under the
Franchise Agreement is scheduled by Franchisor to arrive to conduct opening
training. All franchise fees are deemed nonrefundable.
C. During the term of each Franchise Agreement that Developer shall
execute pursuant to Section III.C. hereof, Developer shall pay to Franchisor a
royalty fee equal to four percent (4%) ("Royalty Rate") of the monthly Gross
Sales of the Restaurant (as defined in Section IV.C. of Attachment A and such
other applicable Sections in future Franchise Agreements); provided, however,
notwithstanding the foregoing, from and after January 1, 2000, the term "Royalty
Rate" shall be defined as four and one-quarter percent (4 1/4%). All Franchise
Agreements issued prior to January 1, 2000 shall reflect that the Royalty Rate
shall increase to four and one-quarter percent (4 1/4%) as of January 1, 2000
and all Franchise Agreements issued in accordance herewith after January 1, 2000
shall include a Royalty Rate of four and one-quarter percent (4 1/4%).
D. Developer shall not be entitled to withhold payments due Franchisor
under this Agreement on grounds of alleged nonperformance by Franchisor
hereunder. Any payment not actually received by Franchisor on or before the date
due shall be deemed overdue. Time is of the essence with respect to all payments
to be made by Developer to Franchisor. All unpaid obligations under this
Agreement shall bear interest from the date due until paid at the lesser of (i)
the prime commercial rate of interest plus three percent (3%), as reported in
the Wall Street Journal (Midwest edition) from time to time or by any bank or
financial institution designated from time to time by Franchisor (but in no
event less than twelve percent (12%) per annum), or (ii) the maximum rate
allowed by applicable law. Notwithstanding anything to the contrary contained
herein, no provision of this Agreement shall require the payment or permit the
collection of interest in excess of the maximum rate allowed by applicable law.
If any excess of interest is provided for herein, or shall be adjudicated to be
so provided in this Agreement, the provisions of this paragraph shall govern and
prevail, and neither Developer nor its Principals shall be obligated to pay the
excess amount of such interest. If for any reason interest in excess of the
maximum rate allowed by applicable law shall be deemed charged, required or
permitted, any such excess shall be applied as a payment and reduction of any
other amounts which may be due and owing hereunder, and if no such amounts are
due and owing hereunder then such excess shall be repaid to the party that paid
such interest.
III. SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS
A. Developer shall exercise the development rights granted hereunder
only by entering into a separate Franchise Agreement with Franchisor for each
Restaurant for which a development right is granted. The Franchise Agreement to
be executed for the first Restaurant to be developed by Developer under this
Agreement shall be executed and delivered to Franchisor concurrently with the
execution and delivery of this Agreement and shall be in the form of the
Franchise Agreement attached as Attachment A. All subsequent Restaurants
4
<PAGE>
developed under the Development Schedule set forth in Section III.B.(1) hereof
shall be established and operated pursuant to the form of Franchise Agreement
attached as Attachment A.
B. (1) Acknowledging that time is of the essence, and subject to
the requirements of Section I., Developer agrees to exercise its development
rights according to Section III.A. and according to the Development Schedule
below, which schedule designates the number of Restaurants in the Territory to
be established and in operation by Developer upon the expiration of each of the
designated development periods (the "Development Periods").
<TABLE>
<CAPTION>
==================================================================================================================
Cumulative Total Number of
Restaurants Located in the Territory
Expiration Date of Which Developer Shall Have
Development Period Development Period Open and in Operation
==================================================================================================================
<S> <C> <C> <C>
1.
------------------------------------- -------------------------- -------------------------------------------------
2.
------------------------------------- -------------------------- -------------------------------------------------
3.
------------------------------------- -------------------------- -------------------------------------------------
4.
------------------------------------- -------------------------- -------------------------------------------------
5.
------------------------------------- -------------------------- -------------------------------------------------
</TABLE>
During any of the Development Periods set forth above, subject to the terms and
conditions of this Agreement, Developer, with Franchisor's prior written
consent, may develop more than the total minimum number of Restaurants which
Developer is required to develop during that Development Period. Notwithstanding
the above, Developer shall not open or operate more than the cumulative total
number of Restaurants Developer is obligated to develop under this Agreement as
set forth above in the Development Schedule. Any Restaurants developed during a
Development Period in excess of the minimum number of Restaurants required to be
developed upon expiration of that Development Period shall be applied to satisfy
Developer's development obligation during the next succeeding Development
Period, if any.
(2) If during the term of this Agreement, Developer ceases to
operate any Restaurant developed under this Agreement for any reason, Developer
shall develop a replacement Restaurant to fulfill Developer's obligation to have
open and in operation the required number of Restaurants upon the expiration of
each Development Period. The replacement Restaurant shall be developed within a
reasonable time to be agreed upon by the parties after Developer ceases to
operate the Restaurant to be replaced. If during the term of this Agreement,
Developer, in accordance with the terms of any Franchise Agreement for a
Restaurant developed under this Agreement, transfers its interest in such
Restaurant, the transferred Restaurant shall continue to be counted in
determining whether Developer has complied with the Development Schedule so long
as it continues to be operated as a Rio Bravo Cantina restaurant. If the
transferred Restaurant ceases to be operated as a Rio Bravo Cantina restaurant
during the term of this Agreement, Developer shall develop a replacement
Restaurant within a reasonable time to be agreed upon by the parties after the
transferred Restaurant ceases to be operated as a Rio Bravo Cantina restaurant.
In either case, the reasonable time period shall apply to the development of the
replacement Restaurant only, and extend the term of the applicable Development
Period to the end of the mutually agreed upon time period; provided, however,
that in no event shall such time period exceed one hundred eighty (180) days.
(3) (a) Developer shall open each Restaurant developed
hereunder and shall commence business in accordance with the Development
Schedule described in this Section III., unless Developer obtains an extension
5
<PAGE>
of the Development Period, at the expiration of which, Developer was to have had
open and in operation a Restaurant. Notwithstanding the above, Developer shall
have the right to receive two (2) extensions of such Development Period as such
may be necessary to complete construction and commence operation of such
Restaurant. Each extension shall be for an additional thirty (30) day period
commencing upon the expiration of the applicable Development Period, including
any previous extensions thereof ("Extension Date"). No more than two (2)
extensions of any Development Period will be permitted. If an extension of a
Development Period exercised by Developer, the Opening Date (as defined in the
Franchise Agreement) shall be extended to the Extension Date. No extension of
any Development Period shall affect the duration of any other Development Period
or any of Developer's other development obligations. If an extension is
exercised in the final Development Period, the term of this Agreement shall be
extended to the Extension Date and thereafter, Developer shall have no further
rights under this Agreement except as provided in Section IV. The provisions of
this Section III.B.(3) does not apply to the development of a replacement
Restaurant under Section III.B.(2).
(b) Developer shall notify Franchisor in writing at least
sixty (60) days prior to the Projected Opening Date for a Restaurant that
Developer will be unable to complete construction and commence operation of the
Restaurant by the expiration date of the Development Period in which such
Restaurant was to have been opened. In such notice Developer shall request the
Franchisor to consider its request for extension and include a description of
the reasons for such failure to develop in a timely manner and the expected date
of completion of construction and opening, if the extension were to be granted.
(4) Failure by Developer to adhere to the Development Schedule
(including any extensions thereof) or to any time period for the development of
replacement Restaurants as set forth in Section III.B.(2) shall constitute a
material event of default under this Agreement.
C. Developer acknowledges that the projected opening dates ("Projected
Opening Dates") for each Restaurant set forth below are reasonable and
consistent with the requirements of the Development Schedule. Subject to
Developer's compliance with Section I. hereof, Developer shall execute a
Franchise Agreement for each Restaurant at or prior to the applicable execution
date ("Execution Date") set forth below which Developer and Franchisor agree and
acknowledge shall be a date no later than four hundred and twelve (412) days
prior to the Projected Opening Date for the applicable Restaurant for the First
Restaurant to be developed and three hundred eighty-two (382) days, for such
subsequent Restaurant to be developed.
<TABLE>
<CAPTION>
==================================================================================================================
Restaurant Projected Opening Date Execution Date
==================================================================================================================
<S> <C> <C> <C>
1.
------------------------------------- -------------------------- -------------------------------------------------
2.
------------------------------------- -------------------------- -------------------------------------------------
3.
------------------------------------- -------------------------- -------------------------------------------------
4.
------------------------------------- -------------------------- -------------------------------------------------
5.
------------------------------------- -------------------------- -------------------------------------------------
</TABLE>
IV. TERM; RIGHT OF FIRST REFUSAL
A. Unless sooner terminated in accordance with this Agreement, the term
of this Agreement and all rights granted by Franchisor under this Agreement
shall expire on the date on which Developer successfully and in a timely manner
has exercised all of the development rights and completed the development
obligations under this Agreement in accordance with the Development Schedule
6
<PAGE>
(including, if applicable, any extension thereof under Section III.B.(3) or for
a replacement Restaurant pursuant to Section III.B.(2)).
B. Notwithstanding the above, if Developer has complied with the terms
and conditions of this Agreement, including developing each and every Restaurant
in accordance with the Development Schedule, prior to developing, or authorizing
any other person or entity to develop, any Restaurant in the Territory,
Franchisor shall offer to Developer the right to develop such additional
Restaurants that may be developed within the Territory. In connection with the
right, Developer will be offered an option to extend this Agreement to develop
such additional Restaurants within the Territory. Franchisor shall provide
written notice to Developer of the number of Restaurants to be developed and the
terms of such development. Developer shall have thirty (30) days after receiving
Franchisor's written notice to exercise such right by providing written notice
to Franchisor of Developer's intent to exercise such right. In order to exercise
the right, Developer shall pay to Franchisor all franchise fee deposits required
by Franchisor for such development rights. The extension shall contain a new
development schedule setting forth the number and the time period for
development of each Restaurant (the "Supplementary Development Schedule").
V. DUTIES OF DEVELOPER
Developer and the Controlling Principals (as defined in Section
XIII.E.), as applicable, make the following representations, warranties and
covenants and accept the following obligations:
A. (1) If Developer is a corporation or a partnership,
Developer represents, warrants and covenants that:
(a) Developer is duly organized and validly existing
under the state law of its formation;
(b) Developer is duly qualified and is authorized to do
business in each jurisdiction in which its business activities or the nature of
the properties owned by it require such qualification;
(c) Developer's corporate charter or written partnership
agreement shall at all times provide that the activities of Developer are
confined exclusively to the development and operation of Rio Bravo Cantina
restaurants, unless otherwise consented to by Franchisor in writing. Developer
shall not use the Marks as part of its corporate or other legal name, and shall
obtain Franchisor's approval of such corporate or other legal name prior to
filing it with the applicable state authority;
(d) The execution of this Agreement and the performance
of the transactions contemplated hereby are within Developer's corporate power,
if Developer is a corporation or if Developer is a partnership, permitted under
Developer's written partnership agreement and have been duly authorized by
Developer;
(e) If Developer is a corporation, copies of Developer's
articles of incorporation, bylaws, other governing documents, any amendments
thereto, resolutions of the Board of Directors authorizing entry into and
performance of this Agreement, and any certificates, buy-sell agreements or
other documents restricting the sale or transfer of stock of the corporation,
and any other documents as may be reasonably required by Franchisor shall have
been furnished to Franchisor prior to the execution of this Agreement; or, if
Developer is a partnership, copies of Developer's written partnership agreement,
other governing documents and any amendments thereto shall have been furnished
to Franchisor prior to the execution of this Agreement, including evidence of
consent or approval of the entry into and performance of this Agreement by the
requisite number or percentage of partners, if such approval or consent is
required by Developer's written partnership agreement;
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(f) If Developer is a corporation, partnership or other
form of legal entity other than an individual, the ownership interests in
Developer are accurately and completely described in Attachment C. Further, if
Developer is a corporation, Developer shall maintain at all times a current list
of all owners of record and all beneficial owners of any class of voting
securities in Developer or, if Developer is a partnership or other form of legal
entity, Developer shall maintain at all times a current list of all owners of an
interest in the partnership or entity. Developer shall immediately provide a
copy of the updated list to Franchisor upon the occurrence of any change of
ownership and otherwise make its list of owners available to Franchisor upon
request;
(g) If, after the execution of this Agreement, any
person ceases to qualify as one of the Developer's Principals (defined in
Section XIII.E.) or if any individual succeeds to or otherwise comes to occupy a
position which would, upon designation by Franchisor, qualify him as one of
Developer's Principals, Developer shall notify Franchisor within ten (10) days
after any such change and, upon designation of such person by Franchisor as one
of Developer's Principals or as a Controlling Principal, as the case may be,
such person shall execute such documents and instruments (including, as
applicable, this Agreement) as may be required by Franchisor to be executed by
others in such positions;
(h) If Developer is a corporation, Developer shall
maintain stop-transfer instructions against the transfer on its records of any
of its equity securities and each stock certificate representing stock of the
corporation shall have conspicuously endorsed upon it a statement in a form
satisfactory to Franchisor that it is held subject to all restrictions imposed
upon assignments by this Agreement; provided, however, that the requirements of
this Section shall not apply to the transfer of equity securities of a
publicly-held corporation (as defined in Section XIII.E.). If Developer is a
partnership, its written partnership agreement shall provide that ownership of
an interest in the partnership is held subject to all restrictions imposed upon
assignments by this Agreement;
(i) Developer and, at Franchisor's request, each of the
Controlling Principals, have provided Franchisor with the most recent financial
statements of Developer and such Principals. Such financial statements present
fairly the financial position of Developer and each of the Controlling
Principals, as applicable, at the dates indicated therein and with respect to
Developer, the results of its operations and its cash flow for the year then
ended. Developer agrees that it shall maintain at all times, during the term of
this Agreement, sufficient working capital to fulfill its obligations under this
Agreement. Each of the financial statements mentioned above shall be certified
as true, complete and correct and shall have been prepared in conformity with
generally accepted accounting principles applicable to the respective periods
involved and, except as expressly described in the applicable notes, applied on
a consistent basis. No material liabilities, adverse claims, commitments or
obligations of any nature exist as of the date of this Agreement, whether
accrued, unliquidated, absolute, contingent or otherwise, which are not
reflected as liabilities on the financial statements of Developer or such
Principals. At Franchisor's request, Developer shall provide an annual balance
sheet and income statement in a form prescribed by Franchisor (which may be
unaudited) within twenty (20) days after Franchisor's request;
(j) The Developer's Principals (as defined in Section
XIII.E.) shall each execute and bind themselves to the confidentiality and
noncompetition covenants set forth in the Confidentiality Agreement and
Ancillary Covenants Not to Compete which forms Attachment B to this Agreement
(see Sections VIII.B.(2) and VIII.I.). The Controlling Principals shall jointly
and severally guarantee Developer's performance of all of Developer's
obligations, covenants and agreements described in this Agreement pursuant to
the terms and conditions of the guaranty contained herein, and shall otherwise
bind themselves to the terms of this Agreement as stated herein; and
(k) Developer and the Controlling Principals acknowledge
and agree that the representations, warranties and covenants set forth above in
Section V.A.(1)(a) - (j) are continuing obligations of Developer and the
Controlling Principals, as applicable, and that any failure to comply with such
representations, warranties and covenants shall constitute a material event of
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default under this Agreement. Developer will cooperate with Franchisor in any
efforts made by Franchisor to verify compliance with such representations,
warranties and covenants.
(2) Upon the execution of this Agreement, Developer shall
designate and retain an individual to serve as the Operating Principal of
Developer (the "Operating Principal"). If Developer is an individual, Developer
shall perform all obligations of the Operating Principal. The Operating
Principal shall, during the entire period he serves as such, meet the following
qualifications:
(a) The Operating Principal may, at its option, and,
subject to the approval of Franchisor, designate an individual to perform the
duties and obligations of Operating Principal described herein; provided that
Operating Principal shall take all necessary action to ensure that such designee
conducts and fulfills all of Operating Principal's obligations in accordance
with the terms of this Agreement and Operating Principal shall remain fully
responsible for such performance.
(b) The Operating Principal must maintain a direct or
indirect ownership interest in the Developer. Except as may otherwise be
provided in this Agreement, the Operating Principal's interest in Developer
shall be and shall remain free of any pledge, mortgage, hypothecation, lien,
charge, encumbrance, voting agreement, proxy, security interest or purchase
right or options.
(c) Developer and the Operating Principal (or his
designee, if applicable) shall devote substantial full time and best efforts to
the supervision and conduct of the business contemplated by this Agreement.
Operating Principal shall execute this Agreement as one of the Controlling
Principals, and shall be individually, jointly and severally, bound by all
obligations of Developer, the Operating Principal and the Controlling Principals
hereunder. Operating Principal, however, shall have no greater or lesser
personal liability for Developer's performance than any other of the Controlling
Principals.
(d) The Operating Principal (and any such designee)
shall meet Franchisor's standards and criteria for such individual, as set forth
in the Manuals as defined herein or otherwise in writing by Franchisor.
(e) If, during the term of this Agreement, the Operating
Principal or any designee is not able to continue to serve in the capacity of
Operating Principal or no longer qualifies to act as such in accordance with
this Section, Developer shall promptly notify Franchisor and designate a
replacement within sixty (60) days after the Operating Principal or such
designee ceases to serve or be so qualified, such replacement being subject to
the same qualifications and restrictions listed above. Developer shall provide
for interim management of the activities contemplated under this Agreement until
such replacement is so designated, such interim management to be conducted in
accordance with this Agreement. Any failure to comply with the requirements of
this Section V.A.(2) shall be deemed a material event of default under this
Agreement.
(3) Developer and the Controlling Principals understand that
compliance by all developers and franchisees operating under the System with
Franchisor's training, development and operational requirements is an essential
and material element of the System and that Franchisor and developers and
franchisees operating under the System consequently expend substantial time,
effort and expense in training management personnel for the development and
operation of their respective Rio Bravo Cantina restaurants. Accordingly,
Developer and the Controlling Principals agree that if during the term of this
Agreement, Developer or any Controlling Principal shall designate or employ in a
managerial position any individual who is at the time or was within the
preceding one hundred eighty (180) days employed in a managerial position by
Franchisor or any of its affiliates, including, but not limited to, individuals
employed by Franchisor to work in its Rio Bravo Cantina restaurants, or by any
other developer or franchisee operating under the System, then such former
employer of such individual shall be entitled to be compensated for the
reasonable costs and expenses, of whatever nature or kind, incurred by such
employer related to training such employee. The parties hereto agree that such
expenditures may be uncertain and difficult to ascertain and, therefore, agree
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that the compensation specified herein reasonably represents such expenditures
and is not a penalty. An amount equal to the compensation of such employee for
the twelve (12) month period (or such shorter time, if applicable) immediately
prior to the termination of his employment with such former employer shall be
paid by Developer or the applicable Controlling Principal, as the case may be,
within thirty (30) days after written notice unless otherwise agreed with such
former employer. In seeking any individual to serve in such managerial position,
Developer and the Controlling Principals shall not discriminate in any manner
whatsoever against any individual, to whom the provisions of this Section apply,
on the basis of the compensation required to be paid hereunder if Developer or
any Controlling Principal designates or employs such individual. The parties
hereto expressly acknowledge and agree that no current or former employee of
Franchisor, its affiliates, Developer, or of any other entity operating under
the System shall be a third party beneficiary of this Agreement or any provision
hereof. Notwithstanding the above, solely for purposes of bringing an action to
collect any payment due under this Section, such former employer shall be a
third-party beneficiary of this Section V.A.(3). Franchisor expressly disclaims
any representations and warranties regarding the performance of any employee or
former employee of Franchisor, its affiliates or any developer or franchisee
operating under the System, who is designated or employed by Developer or any
Controlling Principal in any capacity, and Franchisor shall not be liable for
any losses, of whatever nature or kind, incurred by Developer or any Controlling
Principal in connection therewith.
(4) Developer shall comply with all requirements of federal,
state and local laws, rules, regulations, and orders.
B. Developer shall comply with all other requirements and perform such
other obligations as provided hereunder.
VI. DEFAULT AND TERMINATION
A. Developer shall be deemed to be materially in default under this
Agreement and all rights granted herein shall automatically terminate without
notice to Developer:
(1) if Developer becomes insolvent or makes a general
assignment for the benefit of creditors or files a voluntary petition under any
section or chapter of federal bankruptcy laws or under any similar law or
statute of the United States or any state or admits in writing its inability to
pay its debts when due;
(2) if Developer is adjudicated bankrupt or insolvent in
proceedings filed against Developer under any section or chapter of federal
bankruptcy law or any similar law or statute of the United States or any state;
(3) if a bill in equity or other proceeding for the
appointment of a receiver of Developer or other custodian for Developer's
business or assets is filed and consented to by Developer, or if a receiver or
other custodian (permanent or temporary) of Developer's assets or property, or
any part thereof, is appointed by any court of competent jurisdiction;
(4) if proceedings for a composition with creditors under any
state or federal law are instituted by or against Developer;
(5) if a final judgment against Developer remains unsatisfied
or of record for thirty (30) days or longer (unless supersedeas bond is filed);
(6) if Developer is dissolved;
(7) if execution is levied against Developer's business or
property related to the Restaurants or the System;
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(8) if suit to foreclose any lien or mortgage against the
premises or equipment of any business operated hereunder or under any Franchise
Agreement is instituted and not dismissed within ninety (90) days; or
(9) if the real or personal property of any business operated
hereunder or under any Franchise Agreement shall be sold after levy by any
sheriff, marshal or constable.
Notwithstanding, the provisions of this Section VI.A. above, Developer
shall not be deemed to be in default of this section in those instances where a
bankruptcy of insolvency proceeding was filed against Developer or a
receivership or composition was instituted against Developer, unless Developer
has not caused such actions to be dismissed within ninety (90) days of the
filing of such actions.
B. Developer shall be deemed to be materially in default and Franchisor
may, at its option, terminate this Agreement and all rights granted hereunder,
without affording Developer any opportunity to cure the default except as
provided below, effective immediately upon written notice to Developer, upon the
occurrence of any of the following events of default:
(1) If Developer fails to comply with the Development Schedule
or the Supplemental Development Schedule, if any (or any extension thereof
approved by Franchisor in writing), or if Developer fails to develop a
replacement Restaurant within any time period agreed upon by the parties under
Section III.B.(2);
(2) If Developer fails to execute each Franchise Agreement in
accordance with Section III.C. (or within thirty (30) days thereafter);
(3) If Developer or any of the Controlling Principals is
convicted of, or shall have entered a plea of nolo contendere to, a felony, a
crime involving moral turpitude or any other crime or offense that Franchisor
believes is reasonably likely to have an adverse effect on the System, the
Marks, the goodwill associated therewith or Franchisor's interests therein. With
respect to the other crime or offense that Franchisor believes is reasonably
likely to have an adverse effect on the System, the Marks, the goodwill
associated therewith, or Franchisor's interest therein, referred to in this
Section VI.B.(3), Franchisor shall give Developer thirty (30) days notice of its
belief of adverse effect prior to terminating this Agreement in order to permit
Developer an opportunity to cure such default;
(4) If a threat or danger to public health or safety results
from the construction, maintenance or operation of any Restaurant developed
under this Agreement;
(5) If Developer fails to designate a qualified replacement
Operating Principal or designee appointed by Operating Principal within the time
required under Section V.A.(2)(e);
(6) If Developer or any of the Controlling Principals breach
in any material respect any of the representations, warranties and covenants in
Section V.A.;
(7) If Developer or any of the Controlling Principals
transfers or attempts to transfer any rights or obligations under this Agreement
to any third party;
(8) If Developer or any of the Controlling Principals
transfers or attempts to transfer a controlling interest in Developer without
first obtaining Franchisor's written consent pursuant to Section VII.B.;
(9) If Developer or any of the Controlling Principals fails to
comply with the covenants in Section VIII.A. and B.(1) or VIII.C. or if
Developer fails to obtain the execution of the covenants required under Section
VIII.B.(2) or VIII.I. within thirty (30) days following Franchisor's request
that Developer obtain the execution of such covenants;
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(10) If an approved transfer upon death or permanent
disability is not effected within the time period and in the manner prescribed
by Section VII.E., or within thirty (30) days thereafter;
(11) If Developer misuses or makes any unauthorized use of the
Marks or materially impairs the goodwill associated therewith or with the System
or Franchisor's rights therein and does not cure such default within twenty-four
(24) hours following notice from Franchisor;
(12) If Developer or any of its affiliates fails, refuses or
neglects promptly to pay when due any monetary obligation owing to Franchisor or
any of its affiliates under this Agreement, any Franchise Agreement or any other
agreement and does not cure such default within fourteen (14) days following
notice from Franchisor (or such other applicable cure period contained in such
other agreement, unless no cure period is stated or such period is less than
fourteen (14) days, in which case the fourteen (14) day cure period shall
apply); and
(13) If Developer, or any of the Controlling Principals,
repeatedly commits a material event of default under this Agreement, whether or
not such defaults are of the same or different nature and whether or not such
defaults have been cured by Developer after notice by Franchisor.
C. Except as provided above in Section VI.B., if Developer fails to
comply with any other term or condition imposed by this Agreement, any Franchise
Agreement or any other development or franchise agreement between Developer and
Franchisor, as such may from time to time be amended, Franchisor may terminate
this Agreement only by giving written notice of termination stating the nature
of such default to Developer at least thirty (30) days prior to the effective
date of termination; provided, however, that Developer may avoid termination by
immediately initiating a remedy to cure such default and curing it to
Franchisor's satisfaction within the thirty (30) day period and by promptly
providing proof thereof to Franchisor. If Developer initiates a remedy to cure
the default during the initial thirty (30) day period, but is unable to complete
such remedy to Franchisor's satisfaction within such thirty (30) day period,
Developer shall have an additional thirty (30) days or such longer period as
applicable law may require, to effectuate a cure of the default, notwithstanding
any other term set forth in this Section VI.C. Furthermore, in interpreting
Section VI.C., a default under a Franchise Agreement with respect to that
Restaurant's opening date will not be a default under this Section unless the
failure to open the Restaurant otherwise violates the terms of this Agreement.
If any such default is not cured within the specified time, or such longer
period as applicable law may require, subject to Section VII.D., Developer's
rights under this Agreement shall terminate without further notice to Developer
effective immediately upon the expiration of the thirty (30) day period or such
longer period as applicable law may require.
D. Upon default by Developer under Section VI.B. or C., Franchisor has
the option, in its sole discretion, in addition to, or instead of, exercising
its right to terminate this Agreement as provided in Sections VI.B. and C., to
do any one or more of the following:
(1) terminate or modify any territorial rights granted to
Developer in Section I.B.;
(2) reduce the area of such territorial rights;
(3) reduce the number of Restaurants which Developer may
establish pursuant to Section III.B.(1);
(4) with respect to Section VI.B.(1), permit Developer obtain
an extension of the Development Schedule under Section III.B.;
(5) terminate or modify any right of first refusal granted to
Developer in Section IV.B.; or
(6) pursue any other remedy Franchisor may have at law or in
equity.
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E. (1) Upon the termination or expiration of thi s Agreement,
Developer shall have no right to establish or operate any Restaurant for
which Franchise Agreement has not been executed by Franchisor and delivered
to Developer at the time of termination or expiration.
(2) If Franchisor elects to terminate the territorial rights
granted to Developer in Section I.B., modify such territorial rights or reduce
the area of territorial rights as provided in Section VI.D. above, Developer
shall continue to develop Restaurants in accordance with the Development
Schedule, or Supplementary Development Schedule, to the extent that the number
of Restaurants Developer is required to develop is reduced and/or the area in
which such Restaurants are required to be developed is reduced by Franchisor
pursuant to Sections VI.D.(2) and (3).
(3) If Franchisor exercises any of its rights in Section
VI.D., or if this Agreement otherwise expires or terminates, Franchisor shall be
entitled to establish, and to license others to establish, Restaurants in the
Territory or in the portion thereof no longer part of the Territory or pursuant
to any other modification of Developer's territorial rights, except as may be
otherwise provided under any Franchise Agreement which is then in effect between
Franchisor and Developer.
F. Franchisor's exercise of any of its options under Section VI.D.
shall not, in the event of a default, constitute a waiver by Franchisor to
exercise its option to terminate this Agreement at any time with respect to a
subsequent event of default of a similar or different nature.
G. No default under this Agreement shall constitute a default under any
Franchise Agreement between the parties hereto, unless the default is also a
default under the terms of such Franchise Agreement.
H. Upon default of Developer and the early termination of this
Agreement, Franchisor shall have the right to purchase the assets of all of the
Restaurants opened pursuant to Franchise Agreements executed under the terms of
this Agreement which are then likewise in default. The terms and conditions of
the purchase transaction, including but not limited to, the purchase price for
the assets of such Restaurants, shall be determined in accordance with the
provisions contained in the applicable Franchise Agreement permitting the
Franchisor to purchase, at its option, such assets upon termination or
expiration of the Franchise Agreement.
I. No right or remedy herein conferred upon or reserved to Franchisor
is exclusive of any other right or remedy provided or permitted by law or in
equity.
J. Upon termination or expiration of this Agreement, Developer and the
Controlling Principals shall comply with the restrictions on confidential
information contained in Section VIII.B. and the covenants against competition
contained in Section VIII.D. Any other person required to execute similar
covenants pursuant to Section VIII.B.(2) or VIII.I. shall also comply with such
covenants.
VII. TRANSFER OF INTEREST
A. Franchisor shall have the right to transfer or assign this Agreement
and all or any part of its rights or obligations herein to any person or legal
entity without Developer's consent. Specifically, and without limitation to the
foregoing, Developer expressly affirms and agrees that Franchisor may sell its
assets, the Marks or the System to a third party; may offer its securities
privately or publicly; may merge, acquire other corporations, or be acquired by
another corporation; may undertake a refinancing, recapitalization, leveraged
buyout or other economic or financial restructuring; and, with regard to any or
all of the above sales, assignments and dispositions, Developer expressly and
specifically waives any claims, demands or damages against Franchisor arising
from or related to the transfer of the Marks (or any variation thereof) or the
System from Franchisor to any other party. Nothing contained in this Agreement
shall require Franchisor to remain in the business of operating or licensing the
operation of Rio Bravo Cantina restaurants or other restaurant businesses or to
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offer any services or products, whether or not bearing the Marks, to Developer,
if Franchisor exercises its rights hereunder to assign its rights in this
Agreement.
B. (1) Developer and the Controlling Principals understand and
acknowledge that the rights and duties set forth in this Agreement are personal
to Developer and that Franchisor has granted such rights in reliance on the
business skill, financial capacity and personal character of Developer and the
Controlling Principals and with the expectation that the duties and obligations
contained in this Agreement will be performed by Developer and those Controlling
Principals signing this Agreement. Accordingly, neither Developer nor any
Controlling Principal, nor any successor or assign of Developer or any
Controlling Principal, shall sell, assign, transfer, convey, give away, pledge,
mortgage or otherwise dispose of or encumber any direct or indirect interest in
this Agreement. In addition, neither Developer nor any Controlling Principals
shall sell, assign, transfer, convey, give away, pledge, mortgage or otherwise
dispose of any direct or indirect interest in Developer without the prior
written consent of Franchisor. Any purported assignment or transfer, by
operation of law or otherwise, made in violation of this Agreement shall be null
and void and shall constitute a material event of default under this Agreement.
(2) If Developer or a Controlling Principal wishes to transfer
any interest in Developer, transferor and the proposed transferee shall apply to
Franchisor for its consent. Franchisor may, in its sole discretion, require any
or all of the following as conditions of its approval to any such transfer:
(a) All the accrued monetary obligations of Developer or
any of its affiliates and all other outstanding obligations to Franchisor or any
of its affiliates arising under this Agreement or any Franchise Agreement or
other agreement shall have been satisfied in a timely manner and Developer shall
have satisfied all trade accounts and other debts, of whatever nature or kind,
in a timely manner;
(b) Developer and its affiliates are not in default of
any provision of this Agreement, any amendment hereof or successor hereto, or
any Franchise Agreement or other agreement between Developer or any of its
affiliates and Franchisor or any of its affiliates; and Developer shall have
substantially and timely complied with all the terms and conditions of such
agreements during the terms thereof;
(c) The transferor and its principals, as applicable,
shall have executed a general release, in a form satisfactory to Franchisor, of
any and all claims, against Franchisor and its affiliates, their respective
partners, and the officers, directors, shareholders, partners, agents,
representatives, independent contractors, servants and employees of each of
them, in their corporate and individual capacities, including, without
limitation, claims arising under this Agreement, any Franchise Agreement and any
other agreement between Developer and Franchisor or any of its affiliates or
under federal, state or local laws, rules, and regulations or orders;
(d) The transferee shall demonstrate to Franchisor's
satisfaction that transferee meets the criteria considered by Franchisor when
reviewing a prospective developer's application for development rights,
including, but not limited to, Franchisor's educational, managerial and business
standards, transferee's good moral character, business reputation and credit
rating, transferee's aptitude and ability to conduct the business contemplated
hereunder (as may be evidenced by prior related business experience or
otherwise), transferee's financial resources and capital for operation of the
business, and the geographic proximity of other territories with respect to
which transferee has been granted development rights or of other Rio Bravo
Cantina restaurants operated by transferee, if any;
(e) The transferee shall enter into a written agreement,
in a form prescribed by Franchisor, assuming full, unconditional, joint and
several, liability for and agreeing to perform from the date of the transfer,
all obligations, covenants and agreements of Developer in this Agreement; and,
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if transferee is a corporation or a partnership, transferee's shareholders,
partners or other investors, as applicable, shall also execute such agreement as
transferee's principals, and guarantee the performance of all such obligations,
covenants and agreements;
(f) The transferee shall execute the standard form
development agreement then being offered to new System developers or a revised
form of this Agreement, as Franchisor deems appropriate, and such other
ancillary agreements as Franchisor may require, which agreements shall supersede
this Agreement and its ancillary documents in all respects and the terms of
which agreements may differ from the terms of this Agreement, and if the
transferee is a corporation or partnership, transferee's shareholders, partners
or other investors, as applicable, shall also execute such agreements as
transferee's principals, and guarantee the performance of all such obligations,
covenants and agreements;
(g) The transferor shall remain liable for all of the
obligations to Franchisor in connection with this Agreement incurred prior to
the effective date of the transfer and shall execute any and all instruments
reasonably requested by Franchisor to evidence such liability;
(h) Developer shall pay a transfer fee of Three Thousand
Five Hundred Dollars ($3,500);
(i) Developer shall have completed the development of at
least forty percent (40%) of all the Restaurants required to be developed under
Section III. of this Agreement, and such Restaurants have been continuously open
and in operation by Developer. In determining the total number of Restaurants to
be developed in the Territory, Franchisor and Developer have agreed that the
number of such Restaurants is ___________ upon the effective date of such a
transfer, the transferee will possess all rights under the Agreement, including
the right of any future development of the Territory previously held by
Developer; and
(j) If transferee is a corporation or a partnership,
transferee shall make and will be bound by any or all of the representations,
warranties and covenants in Section V.A. as Franchisor requests. Transferee
shall provide to Franchisor evidence satisfactory to Franchisor that the terms
of Section VI.A. have been satisfied and are true and correct on the date of
transfer.
(3) Developer acknowledges and agrees that each condition
which must be met by the transferee is reasonable and necessary to ensure such
transferee's full performance of the obligations hereunder.
C. If the proposed transfer is to a corporation formed solely for the
convenience of ownership, Franchisor's consent may be conditioned upon any of
the requirements in Section VII.B.(2), except that the requirements in Sections
VII.B.(2)(c), (d), (f), and (i) shall not apply. With respect to a transfer to a
corporation formed for the convenience of ownership, Developer shall be the
owner of all the voting stock or interest of the corporation, and if Developer
is more than one individual, each individual shall have the same proportionate
ownership interest in the corporation as he had in Developer prior to the
transfer. Developer and each of its Controlling Principals, as applicable, may
transfer, sell or assign their respective interests in Developer, by and amongst
themselves with Franchisor's prior written consent, which consent shall not be
unreasonably withheld; but may be conditioned on compliance with Section
VII.B.(2), except that such transfer, sale or assignment shall not effect a
change in the controlling interest in Developer and such transfer shall not be
subject to Sections VII.B.(2)(d), (e), (f), (h), (i) and (j).
D. (1) If Developer or a Controlling Principal wishes to transfer
any ownership interest in Developer, pursuant to any bona fide offer received
from a third party to purchase such interest, then such proposed seller shall
promptly notify Franchisor in writing of each such offer, and shall provide such
information and documentation relating to the offer as Franchisor may require.
Franchisor shall have the right and option, exercisable within thirty (30)
business days after receipt of such written notification and copies of all
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documentation requested by Franchisor describing the terms of such offer, to
send written notice to the transferor that Franchisor intends to purchase the
transferor's interest on the same terms and conditions offered by the third
party. In the event that Franchisor elects to purchase the transferor's
interest, closing on such purchase must occur within the later of sixty (60)
business days from the date of notice to the transferor of the election to
purchase by Franchisor, ten (10) business days from the date Franchisor receives
or obtains all necessary permits and approvals, or such other date the parties
agree upon in writing. Any material change in the terms of any offer prior to
closing shall constitute a new offer subject to the same rights of first refusal
by Franchisor as in the case of an initial offer. Failure of Franchisor to
exercise the option afforded by this Section VII.D. shall not constitute a
waiver of any other provision of this Agreement, including all of the
requirements of this Section VII. relating to a proposed transfer.
(2) If the offer from a third party provides for payment of
consideration other than cash or involves certain intangible benefits,
Franchisor may elect to purchase the interest proposed to be sold for the
reasonable equivalent in cash, its, or its parent's publicly-traded securities,
or intangible benefits similar to those being offered. In addition, if the
publicly-traded securities referred to in this Section are being offered as a
reasonable equivalent to publicly-traded securities offered by a third party,
the registration and/or restricted nature of such securities offered by
Franchisor will be substantially similar to those offered by the third party. If
the parties cannot agree within a reasonable time on the reasonable equivalent
in cash of the non-cash part of the offer, then such amount shall be determined
by two (2) appraisers qualified to determine the value of the non-cash offer,
with each party selecting one (1) appraiser, and the average of their
determinations shall be final and binding. In the event of such appraisal, each
party shall bear its own legal and other costs and shall split the appraisal
fees. If the Franchisor exercises its right of first refusal herein provided, it
also shall have the right to set off (i) all fees for any such independent
appraiser due from Developer hereunder and (ii) all amounts due from Developer
to Franchisor or any of its affiliates.
(3) Failure to comply with the provisions of this Section
VII.D. prior to the transfer of any interest in Developer or in this Agreement
shall constitute a material event of default under this Agreement.
E. (1) Upon the death of Developer (if Developer is a natural
person) or any Controlling Principal who has an interest in Developer (the
"Deceased"), the executor, administrator or other personal representative of the
Deceased shall transfer such interest to a third party in accordance with the
conditions described in this Section VII.E. within twelve (12) months after the
death. If no personal representative is designated or appointed or no probate
proceedings are instituted with respect to the estate of the Deceased, then the
distributee of such interest must be approved by Franchisor. If the distributee
is not approved by Franchisor, then the distributee shall transfer such interest
to a third party approved by Franchisor within twelve (12) months after the
death of the Deceased.
(2) Upon the permanent disability of Developer (if Developer
is a natural person) or any Controlling Principal who has an interest in
Developer, Franchisor may require such interest to be transferred to a third
party approved by Franchisor within six (6) months after notice to Developer.
"Permanent disability" shall mean any physical, emotional or mental injury,
illness or incapacity which would prevent a person from performing the
obligations set forth in this Agreement or in the guaranty made part of this
Agreement for at least ninety (90) consecutive days and from which condition
recovery within ninety (90) days from the date of determination of disability is
unlikely. Permanent disability shall be determined upon examination of the
person by a licensed practicing physician selected by Franchisor; or if the
person refuses to submit to an examination, then such person shall be
automatically deemed permanently disabled as of the date of such refusal for the
purpose of this Section VII.E. The costs of any examination required by this
Section shall be paid by Franchisor.
(3) Upon the death or claim of permanent disability of
Developer or any Controlling Principal, Developer or a representative of
Developer, must promptly notify Franchisor of such death or claim of permanent
disability. Any transfer upon death or permanent disability shall be subject to
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the same terms and conditions as described in this Section VII. for any inter
vivos transfer. If an interest is not transferred upon death or permanent
disability as required in this Section VII.E., then such failure shall
constitute a material event of default under this Agreement.
(4) A Controlling Principal may transfer its interest in
Developer to such Principal's spouse or children (collectively referred to as
"Successor") as so designated in such Principal's will or trust, upon such
Principal's death or permanent disability, without Franchisor's approval,
provided that such Successor agrees to be bound by the restrictions contained in
this Section VII and all other agreements and covenants of the Controlling
Principal contained in the Development Agreement. Further, a Controlling
Principal may transfer his interest in Developer to an inter vivos trust
established for his Successor, upon the prior written consent of Franchisor,
which consent will not be unreasonably withheld.
F. Franchisor's consent to a transfer of any interest in Developer
described herein shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
G. Securities or partnership interests in Developer may be offered to
the public (a "public offering") only with the prior written consent of
Franchisor, which consent shall be considered in good faith. As a condition of
its approval to such offering, Franchisor may, in its sole discretion, require
that immediately after such offering that Developer and the Controlling
Principals retain a Controlling Interest in Developer. For the purpose of this
Agreement, "Controlling Interest" shall mean: (a) if Developer is a corporation,
that the Controlling Principals, either individually or cumulatively, (i)
directly or indirectly own at least fifty-one percent (51%) of the shares of
each class of Developer's issued and outstanding capital stock and (ii) be
entitled, under its governing documents and under any agreements among the
shareholders, to cast a sufficient number of votes to require such corporation
to take or omit to take any action which such corporation is required to take or
omit to take under this Agreement, or (b) if Developer is a partnership, that
the Controlling Principals (i) own at least a fifty-one percent (51%) interest
in the operating profits and operating losses of the partnership as well as at
least a fifty-one percent (51%) ownership interest in the partnership (and at
least a fifty-one percent (51%) interest in the shares of each class of capital
stock of any corporate general partner) and (ii) be entitled under its
partnership agreement or applicable law to act on behalf of the partnership
without the approval or consent of any other partner or be able to cast a
sufficient number of votes to require the partnership to take or omit to take
any action which the partnership is required to take or omit to take under this
Agreement.
H. All materials required for such public offering by federal or state
law shall be submitted to Franchisor for a limited review as discussed below
prior to being filed with any governmental agency; and any materials (including
any private placement memoranda) to be used in any exempt offering or private
placement shall be submitted to Franchisor for such review prior to their use.
No offering by Developer (public or private) shall imply (by use of the Marks or
otherwise) that Franchisor is participating in an underwriting, issuance or
offering of Developer's or Franchisor's securities or the securities of any
affiliate of Franchisor; and Franchisor's review of any offering materials shall
be limited solely to the subject of the relationship between Developer and
Franchisor and its affiliates. Franchisor may, at its option, require
Developer's offering materials to contain a written statement prescribed by
Franchisor concerning the limitations described in the preceding sentence.
Developer, its Controlling Principals and the other participants in the offering
must fully indemnify Franchisor and its affiliates, their respective partners,
and the officers, directors, shareholders, partners, agents, representatives,
independent contractors, servants and employees of each of them, in connection
with the offering. For each proposed public or private offering, Developer shall
pay to Franchisor a nonrefundable fee of Three Thousand Five Hundred Dollars
($3,500), or such greater amount as is necessary to reimburse Franchisor for its
reasonable costs and expenses associated with reviewing the proposed offering
materials, including, without limitation, legal and accounting fees. Developer
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shall give Franchisor written notice at least thirty (30) days prior to the date
of commencement of any offering or other transaction covered by this Section.
I. If any person holding an interest in Developer (other than Developer
or a Controlling Principal, which parties shall be subject to the provisions set
forth above) transfers such interest, then Developer shall promptly notify
Franchisor of such proposed transfer in writing and shall provide such
information relative thereto as Franchisor may reasonably request prior to such
transfer. Such transferee may not be one of Franchisor's competitors. Such
transferee will be a Developer's Principal and as such shall execute a
confidentiality agreement and ancillary covenants not to compete in the form
then required by Franchisor, which form shall be in substantially the same form
attached hereto as Attachment B (see Sections VIII.B.(2) and VIII.I.).
Franchisor also reserves the right to designate the transferee as one of the
Controlling Principals.
VIII. COVENANTS
A. Developer and the Operating Principal covenant that during the term
of this Agreement, except as otherwise approved in writing by Franchisor,
Developer and the Operating Principal (and the approved designee for Operating
Principal) shall devote full time, energy and best efforts to the management and
operation of the development activities contemplated under this Agreement;
provided, however, if Developer has an approved designee for Operating
Principal, Operating Principal shall only be required to devote that time which
is reasonably necessary for the operation of the Developer.
B. (1) Developer and each of the Controlling Principals shall
not, during the term of this Agreement and thereafter, communicate or divulge
to, or use for the benefit of, any other person, persons, partnership,
association or corporation and, following the termination or expiration of this
Agreement, shall not use for their own benefit, any confidential information,
knowledge or know-how concerning the methods of development and operation of the
Restaurants which may be communicated to Developer or any of the Controlling
Principals or of which they may be apprised under this Agreement. Developer and
each of the Controlling Principals shall disclose such confidential information
only to the Controlling Principals and Developer's personnel who must have
access to it in connection with their employment with Developer. Any and all
information, knowledge, know-how, techniques and any materials used in or
related to the System which Franchisor provides to Developer in connection with
this Agreement shall be deemed confidential for the purposes of this Agreement.
Neither Developer nor the Controlling Principals shall at any time, without
Franchisor's prior written consent, copy, duplicate, record or otherwise
reproduce such materials or information, in whole or in part, nor otherwise make
the same available to any unauthorized person. The covenant in this Section
shall survive the expiration or termination of this Agreement and shall be
perpetually binding upon Developer and each of the Controlling Principals.
(2) Developer shall require and obtain execution of covenants
similar to those set forth in Section VIII.B.(1) from all personnel of Developer
who receive or have access to confidential information. Such covenants shall be
substantially in the form contained in Attachment B. All of Developer's
Principals not required to sign this Agreement as a Controlling Principal also
must execute such covenants.
C. Developer and the Controlling Principals specifically acknowledge
that, pursuant to this Agreement, Developer and the Controlling Principals will
receive valuable training, trade secrets and confidential information which are
beyond the present skills and experience of Developer and the Controlling
Principals and Developer's managers and employees and that Developer has the
right and the obligation, arising from this Agreement, to develop the Territory
for the benefit of the System. Developer and the Controlling Principals
acknowledge that such specialized training, trade secrets and confidential
information provide a competitive advantage and will be valuable to them in the
development and operation of the Restaurants and that gaining access to such
specialized training, trade secrets and confidential information is, therefore,
a primary reason for entering into this Agreement. In consideration for such
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specialized training, trade secrets, confidential information and rights,
Developer and the Controlling Principals covenant that with respect to
Developer, during the term of this Agreement (or with respect to each of the
Controlling Principals, during the term of this Agreement for so long as such
individual or entity satisfies the definition of "Controlling Principals" as
described in Section XIII.E. of this Agreement) except as otherwise approved in
writing by Franchisor, neither Developer nor any of the Controlling Principals
shall, either directly or indirectly, for themselves, or through, on behalf of
or in conjunction with any person(s), partnership or corporation:
(1) Divert, or attempt to divert, any business or customer of
the business described hereunder to any competitor, by direct or indirect
inducement or otherwise, or do or perform, directly or indirectly, any other act
injurious or prejudicial to the goodwill associated with the Marks and the
System.
(2) Except with respect to restaurants operated under
franchise agreements between Developer and its affiliates, and Franchisor or its
affiliates, own, maintain, operate, engage in, or have any financial or
beneficial interest in (including any interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures), advise, assist or make
loans to, any business that is of a character and concept similar to the
Restaurant. As used herein, the term "similar" means a restaurant business which
looks like, copies, imitates, or operates in a manner similar to a "Rio Bravo
Cantina" restaurant, including, but not limited to, a restaurant business which
offers and sells Mexican, Tex-Mex or other Southwestern cuisine, including,
tacos, enchiladas, fajitas, quesadillas, nachos, or similar fare, and such menu
items constitute forty percent (40%) or more of the appetizers or entrees listed
in its menu, and which business is located within the United States, its
territories or commonwealths, or any other country, province, state or
geographic area in which Franchisor has used, sought registration of or
registered the same or similar Marks or operates or licenses others to operate a
business under the same or similar Marks.
D. With respect to Developer, and for a continuous uninterrupted period
commencing upon the expiration or termination of, or transfer of all of
Developer's interest in, this Agreement (or with respect to each of the
Controlling Principals, commencing upon the earlier of: (i) the expiration,
termination of, or transfer of all of Developer's interest in this Agreement or
(ii) the time such individual or entity ceases to satisfy the definition of
"Controlling Principals" as described in Section XIII.E. of this Agreement), and
continuing for two (2) years thereafter, except as otherwise approved in writing
by Franchisor, neither Developer nor any of the Controlling Principals shall,
either directly or indirectly, for themselves or through, on behalf of or in
conjunction with any person(s), partnership or corporation:
(1) Divert, or attempt to divert, any business or customer of
the business described hereunder to any competitor, by direct or indirect
inducement or otherwise, or do or perform, directly or indirectly, any other act
injurious or prejudicial to the goodwill associated with Franchisor's Marks and
the System.
(2) Employ, or seek to employ, any person who is at that time
or was within the preceding one hundred eighty (180) days employed by
Franchisor, any of its affiliates or by any other developer or franchisee of
Franchisor, or otherwise directly or indirectly induce such person to leave that
person's employment; provided, however, that Developer may employ such person in
a managerial position with respect to Developer's operation of a Rio Bravo
Cantina restaurant pursuant to the terms of the Franchise Agreement applicable
to such Rio Bravo Cantina restaurant.
(3) Except with respect to restaurants operated under
franchise agreements between Developer and its affiliates, and Franchisor or its
affiliates, own, maintain, operate, engage in, or have any financial or
beneficial interest in (including any interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures), advise, assist or make
loans to, any business that is of a character and concept similar to the
Restaurant. As used herein, the term "similar" means a restaurant business which
looks like, copies, imitates, or operates in a manner similar to a "Rio Bravo
Cantina" restaurant, including, but not limited to, a restaurant business which
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offers and sells Mexican, Tex-Mex or other Southwestern cuisine, including,
tacos, enchiladas, fajitas, quesadillas, nachos, or similar fare, and such menu
items constitute forty percent (40%) or more of the appetizers or entrees listed
in its menu and which business is, or is intended to be, located within the
Assigned Area or within a twenty-five (25) mile radius of the location of any
Rio Bravo Cantina restaurant or food service facility in existence or under
construction (or where land has been purchased or a lease has been executed) at
any given time during such period.
E. Section VIII.C.(2) and D.3. shall not apply to ownership of less
than a three percent (3%) beneficial interest in the outstanding equity
securities of any publicly-held corporation.
F. The parties acknowledge and agree that each of the covenants
contained herein are reasonable limitations as to time, geographical area, and
scope of activity to be restrained and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of Franchisor. The
parties agree that each of the above covenants shall be construed as independent
of any other covenant or provision of this Agreement. If all or any portion of a
covenant in this Section VIII. is held unreasonable or unenforceable by a court
or agency having valid jurisdiction in an unappealed final decision to which
Franchisor is a party, Developer and the Controlling Principals expressly agree
to be bound by any lesser covenant subsumed within the terms of such covenant
that imposes the maximum duty permitted by law, as if the resulting covenant
were separately stated in and made a part of this Section.
G. Developer and the Controlling Principals understand and acknowledge
that Franchisor shall have the right to reduce the scope of any covenant set
forth in Section VIII.B., or any portion thereof, without their consent,
effective immediately upon notice to Developer; and Developer and the
Controlling Principals agree that they shall immediately comply with any
covenant as so modified, which shall be fully enforceable notwithstanding the
provisions of Section XIV.A.
H. Developer and the Controlling Principals expressly agree that the
existence of any claims they may have against Franchisor, whether or not arising
from this Agreement, shall not constitute a defense to the enforcement by
Franchisor of the covenants in this Section VIII. Developer and the Controlling
Principals agree to pay all costs and expenses (including reasonable attorneys'
fees) incurred by Franchisor in connection with the enforcement of this Section.
I. Developer shall require and obtain execution of covenants similar to
those set forth in Section VIII.C. and VIII.D. (including covenants applicable
upon the termination of a person's employment with Developer) from all personnel
of Developer who have received or will have access to confidential information
or training from Franchisor. Such covenants shall be substantially in the form
set forth in Attachment B. All of Developer's Principals not required to sign
this Agreement as a Controlling Principal also must execute such covenants.
Notwithstanding the foregoing, Franchisor reserves the right to decrease the
period of time or geographic scope of the noncompetition covenant set forth in
Attachment B or eliminate such noncompetition covenant altogether for any party
that is required to execute such agreement under this Section VIII.I.
J. Failure to comply with the requirements of this Section shall
constitute a material event of default under this Agreement. Developer and the
Controlling Principals acknowledge that a violation of this Section would result
in irreparable injury to Franchisor for which no adequate remedy at law may be
available, and Developer and the Controlling Principals accordingly consent to
the issuance of an injunction prohibiting any conduct by Developer or the
Controlling Principals in violation of the terms of this Section. Developer and
the Controlling Principals agree to pay all court costs and reasonable legal
fees incurred by Franchisor in obtaining specific performance, injunctive relief
or any other remedy available to Franchisor for any violation of the
requirements of this Section.
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IX. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. The parties acknowledge and agree that this Agreement does not
create a fiduciary relationship between them, that Developer shall be an
independent contractor and that nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, joint employer or servant of the other for any
purpose.
B. During the term of this Agreement, Developer shall hold itself out
to the public as an independent contractor conducting its development operations
pursuant to development rights granted by Franchisor. Developer agrees to take
such action as shall be necessary to that end, including, without limitation,
exhibiting a notice of that fact in a conspicuous place in any Restaurant
established under any Franchise Agreement for the purposes hereunder, the
content and form of which Franchisor reserves the right to specify in writing.
C. Developer understands and agrees that nothing in this Agreement
authorizes Developer or any of the Controlling Principals to make any contract,
agreement, warranty or representation on Franchisor's behalf, or to incur any
debt or other obligation in Franchisor's name and that Franchisor shall in no
event assume liability for, or be deemed liable under this Agreement as a result
of, any such action, or for any act or omission of Developer or any of the
Controlling Principals or any claim or judgment arising therefrom.
D. (1) Developer and each of the Controlling Principals shall,
at all times, indemnify and hold harmless to the fullest extent permitted by law
Franchisor and its affiliates, successors and assigns, their respective partners
and affiliates, and the officers, directors, shareholders, partners, agents,
representatives, independent contractors, servants and employees of each of them
("Indemnitees") from all "losses and expenses" (as defined in Section
IX.D.(4)(b) below) incurred in connection with any action, suit, proceeding,
claim, demand, investigation or inquiry (formal or informal), or any settlement
thereof (whether or not a formal proceeding or action has been instituted) which
arises out of or is based upon any of the following:
(a) The infringement, alleged infringement, or any other
violation or alleged violation by Developer or any of the Controlling Principals
of any patent, mark, copyright or other proprietary right owned or controlled by
third parties (except as such may occur with respect to any rights to use the
Marks, any copyrights or other proprietary information granted to Developer
under an Franchise Agreement);
(b) The violation, breach or asserted violation or
breach by Developer or any of the Controlling Principals of any federal, state
or local law, regulation, ruling, standard or directive, or any industry
standard;
(c) Libel, slander or any other form of defamation of
Franchisor, the System, or any developer or franchisee under the System, by
Developer or by any of the Controlling Principals;
(d) The violation or breach by Developer or by any of
the Controlling Principals of any warranty, representation, agreement or
obligation in this Agreement or in any Franchise Agreement or other agreement
between Developer or any of its affiliates and Franchisor or any of its
affiliates, their respective partners, or the officers, directors, shareholders,
partners, agents, representatives, independent contractors and employees of any
of them; and
(e) Acts, errors or omissions of Developer, any of
Developer's affiliates and any of the Controlling Principals and the officers,
directors, shareholders, partners, agents, independent contractors, servants,
employees and representatives of Developer and its affiliates in connection with
the performance of the development activities contemplated under this Agreement
or the establishment and operation of any Restaurant pursuant to an Franchise
Agreement.
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(2) Developer and each of the Controlling Principals agree to
give Franchisor immediate notice of any such action, suit, proceeding, claim,
demand, inquiry or investigation. At the expense and risk of Developer and each
of the Controlling Principals, Franchisor may elect to control (but under no
circumstance is obligated to undertake), and associate counsel of its own
choosing with respect to, the defense and/or settlement of any such action,
suit, proceeding, claim, demand, inquiry or investigation. Such an undertaking
by Franchisor shall, in no manner or form, diminish the obligation of Developer
and each of the Controlling Principals to indemnify the Indemnitees and to hold
them harmless.
(3) In order to protect persons or property or its reputation
or goodwill, or the reputation or goodwill of others, Franchisor may, at any
time and without notice, as it, in its judgment deems appropriate, consent or
agree to settlements or take such other remedial or corrective action as it
deems expedient with respect to the action, suit, proceeding, claim, demand,
inquiry or investigation if, in Franchisor's sole judgment, there are reasonable
grounds to believe that:
(a) any of the acts or circumstances enumerated in
Section IX.D.(1) above has occurred; or
(b) any act, error or omission as described in Section
IX.D.(1)(e) may result directly or indirectly in damage, injury or harm to any
person or any property.
(4) (a) All losses and expenses incurred under this Section
IX. shall be chargeable to and paid by Developer or any of the Controlling
Principals pursuant to its obligations of indemnity under this Section,
regardless of any action, activity or defense undertaken by Franchisor or the
subsequent success or failure of such action, activity or defense.
(b) As used in this Section IX., the phrase "losses and
expenses" shall include, without limitation, all losses, compensatory, exemplary
or punitive damages, fines, charges, costs, expenses, lost profits, legal fees,
court costs, settlement amounts, judgments, compensation for damages to
Franchisor's reputation and goodwill, costs of or resulting from delays,
financing, costs of advertising material and media time/space and costs of
changing, substituting or replacing the same, and any and all expenses of
recall, refunds, compensation, public notices and other such amounts incurred in
connection with the matters described.
(5) The Indemnitees do not assume any liability whatsoever for
acts, errors or omissions of those with whom Developer, any of the Controlling
Principals or Developer's affiliates or any of the officers, directors,
shareholders, partners, agents, representatives, independent contractors and
employees of Developer or its affiliates may contract, regardless of the
purpose. Developer and each of the Controlling Principals shall hold harmless
and indemnify the Indemnitees for all losses and expenses which may arise out of
any acts, errors or omissions of Developer, the Controlling Principals,
Developer's affiliates, the officers, directors, shareholders, partners, agents,
representatives, independent contractors and employees of Developer and its
affiliates and any such third parties without limitation and without regard to
the cause or causes thereof or the negligence of Franchisor or any other party
or parties arising in connection therewith, and whether such negligence be sole,
joint or concurrent or active or passive.
(6) Under no circumstances shall the Indemnitees be required
or obligated to seek recovery from third parties or otherwise mitigate their
losses to maintain a claim against Developer or any of the Controlling
Principals. Developer and each of the Controlling Principals agree that the
failure to pursue such recovery or mitigate loss will in no way reduce the
amounts recoverable from Developer or any of the Controlling Principals by the
Indemnitees.
(7) Developer and the Controlling Principals expressly agree
that the terms of this Section IX.D. shall survive the termination, expiration
or transfer of this Agreement or any interest herein.
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E. Franchisor shall, at all times, indemnify and hold harmless to the
fullest extent permitted by law, Developer and each of the Controlling
Principals, successors and assigns, and the officers, directors, shareholders
and employees of each of them ("Reciprocal Indemnitees") from all "Developer
Losses and Expenses" incurred in connection with any third party action, suit,
proceeding, claim, demand, investigation or inquiry (formal or informal), or any
settlement thereof (whether or not a formal proceeding or action has been
instituted), which arises out of or is based upon any of the following:
(1) The violation, breach or asserted violation or breach by
Franchisor of any federal, state or local statute or regulation;
(2) Libel, slander or any other form of defamation of a third
party by Franchisor, or any person acting by, for or on behalf of Franchisor;
(3) The intentional or malicious infliction of injury as to
any third party by Franchisor; or
(4) Food or beverage offered for sale under the Marks in the
Territory by Franchisor or some other licensee of Franchisor.
For purposes of this section, "Developer Losses and Expenses" shall
include all compensatory damages, costs, legal fees, court costs and expenses
incurred in connection with matters indemnified above.
X. APPROVALS
A. Whenever this Agreement requires the prior approval or consent of
Franchisor, Developer shall make a timely written request to Franchisor and such
approval or consent shall be obtained in writing.
B. Franchisor makes no warranties or guarantees upon which Developer
may rely and assumes no liability or obligation to Developer or any third party
to which it would not otherwise be subject, by providing any waiver, approval,
advice, consent or suggestion to Developer in connection with this Agreement, or
by reason of any neglect, delay or denial of any request therefor.
XI. NON-WAIVER AND REMEDIES
A. No delay, waiver, omission or forbearance on the part of Franchisor
to exercise any right, option, duty or power arising out of any breach or
default by Developer or the Controlling Principals under this Agreement shall
constitute a waiver by Franchisor to enforce any such right, option, duty or
power against Developer or the Controlling Principals, or as to a subsequent
breach or default by Developer or the Controlling Principals. Acceptance by
Franchisor of any payments due to it hereunder subsequent to the time at which
such payments are due shall not be deemed to be a waiver by Franchisor of any
preceding breach by Developer or the Controlling Principals of any terms,
provisions, covenants or conditions of this Agreement.
B. All rights and remedies of the parties to this Agreement 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 or any
other agreement between Developer or any of its affiliates and Franchisor or any
of its affiliates. The rights and remedies of the parties to this Agreement
shall be continuing and shall not be exhausted by any one 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
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exercised or taken at any time and from time to time. The expiration, earlier
termination or exercise of Franchisor's rights pursuant to Section VII. of this
Agreement shall not discharge or release Developer or any of the Controlling
Principals from any liability or obligation then accrued, or any liability or
obligation continuing beyond, or arising out of, the expiration, the earlier
termination or the exercise of such rights under this Agreement. Additionally,
Developer and the Controlling Principals shall pay all court costs and
reasonable attorneys' fees incurred by Franchisor in obtaining any remedy
available to Franchisor for any violation of this Agreement.
XII. NOTICES
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered or sent by expedited delivery
service or certified or registered mail, return receipt requested, first-class
postage prepaid, or sent by prepaid facsimile, telegram or telex (provided that
the sender confirms the facsimile, telegram or telex by sending an original
confirmation copy by certified or registered mail or expedited delivery service
within three (3) business days after transmission) to the respective parties at
the following addresses unless and until a different address has been designated
by written notice to the other party:
Notices to Franchisor: Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: CEO
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: President
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: General Counsel
Facsimile: (913) 341-1696
Notices to Developer and
the Controlling Principals: _________________________
_________________________
_________________________
_________________________
Attention: ______________
Facsimile: ______________
Any notice shall be deemed to have been given at the time of personal
delivery or, in the case of facsimile, telegram or telex, upon transmission
(provided confirmation is sent as described above) or, in the case of expedited
delivery service or registered or certified mail, three (3) business days after
the date and time of mailing. Business days for the purpose of this Agreement
excludes Saturday, Sunday and the following national holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving and Christmas.
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XIII. SEVERABILITY AND CONSTRUCTION
A. Except as expressly provided to the contrary herein, each portion,
section, part, term and provision of this Agreement shall be considered
severable; and if, for any reason, any portion, section, part, term or provision
is determined to be invalid and contrary to, or in conflict with, any existing
or future law or regulation by a court or agency having valid jurisdiction, this
shall not impair the operation of, or have any other effect upon, the other
portions, sections, parts, terms or provisions of this Agreement that may remain
otherwise intelligible, and the latter shall continue to be given full force and
effect and bind the parties; the invalid portions, sections, parts, terms or
provisions shall be deemed not to be part of this Agreement; and there shall be
automatically added such portion, section, part, term or provision as similar as
possible to that which was severed which shall be valid and not contrary to or
in conflict with any law or regulation.
B. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Developer and Franchisor's, officers, directors and personnel
and such of Developer's and Franchisor's respective successors and assigns as
may be contemplated (and, as to Developer, authorized by Section VII.), any
rights or remedies under or as a result of this Agreement.
C. All captions in this Agreement are intended solely for the
convenience of the parties and shall not affect the meaning or construction of
any provision of this Agreement.
D. All references to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, where
applicable. Without limiting the obligations individually undertaken by the
Controlling Principals under this Agreement, all acknowledgments, promises,
covenants, agreements and obligations made or undertaken by Developer in this
Agreement shall be deemed, jointly and severally, undertaken by all of the
Controlling Principals.
E. The term "Developer's Principals" shall include, collectively and
individually, all officers and directors of Developer (including the officers
and directors of any general partner of Developer) whom Franchisor designates as
Developer's Principals and all holders of an ownership interest in Developer and
of any entity directly or indirectly controlling Developer, and any other person
or entity controlling, controlled by or under common control with Developer. The
initial Developer's Principals shall be listed on Attachment C. The term
"Controlling Principals" shall include, collectively and individually, any
Developer's Principal who has been designated by Franchisor as a Controlling
Principal hereunder. For purposes of this Agreement, a publicly-held corporation
is a corporation registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or a corporation subject to the requirements of Section
15(d) of such Act.
F. This Agreement may be executed in counterparts and each copy so
executed shall be deemed an original.
G. This Agreement shall not become effective until signed by either
Chairman of the Board, President or Vice President of Franchisor.
H. Each reference in this Agreement to a corporation or partnership
shall be deemed to also refer to a limited liability company and any other
entity or organization similar thereto. Each reference to the organizational
documents, equity owners, directors, and officers of a corporation in this
Agreement shall be deemed to refer to the functional equivalents of such
organizational documents, equity owners, directors, and officers, as applicable,
in the case of a limited liability company or any other entity or organization
similar thereto.
I. 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
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thereby. 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 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 telephone or telegram
or facsimile (in each case to be confirmed in writing), setting forth the nature
thereof and an estimate as to its duration, and such party shall be liable for
the failure to give such timely notice only to the extent of damage actually
caused.
XIV. ENTIRE AGREEMENT; APPLICABLE LAW; MEDIATION
A. This Agreement, the documents referred to herein and the Attachments
hereto, constitute the entire, full and complete agreement between Franchisor
and Developer and the Controlling Principals concerning the subject matter
hereof and shall supersede all prior related agreements between Franchisor and
Developer and the Controlling Principals. Except for those permitted to be made
unilaterally by Franchisor hereunder, no amendment, change or variance from this
Agreement shall be binding on either party unless mutually agreed to by the
parties and executed by their authorized officers or agents in writing.
B. THE PARTIES AGREE TO SUBMIT ANY CLAIM, CONTROVERSY OR DISPUTE
ARISING OUT OF OR RELATING TO THIS AGREEMENT (AND ATTACHMENTS) OR THE
RELATIONSHIP CREATED BY THIS AGREEMENT TO NON-BINDING MEDIATION PRIOR TO
BRINGING SUCH CLAIM, CONTROVERSY OR DISPUTE IN A COURT. THE MEDIATION SHALL BE
CONDUCTED THROUGH EITHER AN INDIVIDUAL MEDIATOR OR A MEDIATOR APPOINTED BY A
MEDIATION SERVICES ORGANIZATION OR BODY, EXPERIENCED IN THE MEDIATION OF
DISPUTES BETWEEN FRANCHISORS AND FRANCHISEES, AGREED UPON BY THE PARTIES AND,
FAILING SUCH AGREEMENT WITHIN A REASONABLE PERIOD OF TIME AFTER EITHER PARTY HAS
NOTIFIED THE OTHER OF ITS DESIRE TO SEEK MEDIATION OF ANY CLAIM, CONTROVERSY OR
DISPUTE (NOT TO EXCEED FIFTEEN (15) DAYS), THROUGH THE AMERICAN ARBITRATION
ASSOCIATION IN ACCORDANCE WITH ITS RULES GOVERNING MEDIATION, AT FRANCHISOR'S
CORPORATE HEADQUARTERS IN OVERLAND PARK, KANSAS. THE COSTS AND EXPENSES OF
MEDIATION, INCLUDING COMPENSATION AND EXPENSES OF THE MEDIATOR, SHALL BE BORNE
BY THE PARTIES EQUALLY. IF THE PARTIES ARE UNABLE TO RESOLVE THE CLAIM,
CONTROVERSY OR DISPUTE WITHIN NINETY (90) DAYS AFTER THE MEDIATOR HAS BEEN
APPOINTED, THEN EITHER PARTY MAY SUBMIT SUCH CLAIM, CONTROVERSY OR DISPUTE TO A
COURT IN ACCORDANCE WITH SECTION XIV.C. BELOW. NOTWITHSTANDING THE FOREGOING,
EITHER PARTY MAY BRING AN ACTION (1) FOR MONIES OWED, (2) FOR INJUNCTIVE RELIEF,
OR (3) INVOLVING THE POSSESSION OR DISPOSITION OF, OR OTHER RELIEF RELATING TO,
REAL PROPERTY IN A COURT HAVING JURISDICTION AND IN ACCORDANCE WITH SECTION
XIV.C. BELOW, WITHOUT SUBMITTING SUCH ACTION TO MEDIATION.
C. WITH RESPECT TO ANY CLAIMS, CONTROVERSIES OR DISPUTES WHICH ARE NOT
FINALLY RESOLVED THROUGH MEDIATION OR AS OTHERWISE PROVIDED ABOVE, DEVELOPER AND
THE CONTROLLING PRINCIPALS HEREBY IRREVOCABLY SUBMIT THEMSELVES TO THE
JURISDICTION OF THE STATE COURTS OF JOHNSON COUNTY, KANSAS AND THE FEDERAL
DISTRICT COURT OF KANSAS IN KANSAS CITY, KANSAS. DEVELOPER AND THE CONTROLLING
PRINCIPALS HEREBY WAIVE ALL QUESTIONS OF PERSONAL JURISDICTION FOR THE PURPOSE
OF CARRYING OUT THIS PROVISION. DEVELOPER AND THE CONTROLLING PRINCIPALS HEREBY
AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON ANY OF THEM IN ANY PROCEEDING
RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE RELATIONSHIP CREATED BY THIS
AGREEMENT BY ANY MEANS ALLOWED BY KANSAS OR FEDERAL LAW. DEVELOPER AND THE
CONTROLLING PRINCIPALS FURTHER AGREE THAT VENUE FOR ANY PROCEEDING RELATING TO
OR ARISING OUT OF THIS AGREEMENT SHALL BE JOHNSON COUNTY, KANSAS; PROVIDED,
HOWEVER, WITH RESPECT TO ANY ACTION (1) FOR MONIES OWED, (2) FOR INJUNCTIVE OR
OTHER EXTRAORDINARY RELIEF OR (3) INVOLVING POSSESSION OR DISPOSITION OF, OR
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OTHER RELIEF RELATING TO, REAL PROPERTY, FRANCHISOR MAY BRING SUCH ACTION IN ANY
STATE OR FEDERAL DISTRICT COURT WHICH HAS JURISDICTION. WITH RESPECT TO ALL
CLAIMS, CONTROVERSIES, DISPUTES OR ACTIONS, THIS AGREEMENT SHALL BE GOVERNED AND
ENFORCED UNDER KANSAS LAW (EXCEPT FOR KANSAS CHOICE OF LAW RULES).
D. DEVELOPER, THE CONTROLLING PRINCIPALS AND FRANCHISOR ACKNOWLEDGE
THAT THE PARTIES' AGREEMENT REGARDING APPLICABLE STATE LAW AND FORUM SET FORTH
IN SECTION XIV.C. ABOVE PROVIDES EACH OF THE PARTIES WITH THE MUTUAL BENEFIT OF
UNIFORM INTERPRETATION OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF THIS
AGREEMENT OR THE PARTIES' RELATIONSHIP CREATED BY THIS AGREEMENT. EACH OF
DEVELOPER, THE CONTROLLING PRINCIPALS AND FRANCHISOR FURTHER ACKNOWLEDGES THE
RECEIPT AND SUFFICIENCY OF MUTUAL CONSIDERATION FOR SUCH BENEFIT.
E. DEVELOPER, THE CONTROLLING PRINCIPALS AND FRANCHISOR ACKNOWLEDGE
THAT THE EXECUTION OF THIS AGREEMENT AND ACCEPTANCE OF THE TERMS BY THE PARTIES
OCCURRED IN OVERLAND PARK, KANSAS, AND FURTHER ACKNOWLEDGE THAT THE PERFORMANCE
OF CERTAIN OBLIGATIONS OF DEVELOPER ARISING UNDER THIS AGREEMENT, INCLUDING, BUT
NOT LIMITED TO, THE PAYMENT OF MONIES DUE HEREUNDER, SHALL OCCUR IN OVERLAND
PARK, KANSAS.
F. WITHOUT LIMITING ANY OF THE FOREGOING, FRANCHISOR RESERVES THE
RIGHT, AT ANY TIME, TO CREATE A DISPUTE RESOLUTION PROGRAM AND RELATED
SPECIFICATIONS, STANDARDS, PROCEDURES AND RULES FOR THE IMPLEMENTATION THEREOF
TO BE ADMINISTERED BY FRANCHISOR OR ITS DESIGNEES FOR THE BENEFIT OF ALL
DEVELOPERS AND FRANCHISEES CONDUCTING BUSINESS UNDER THE SYSTEM. THE STANDARDS,
SPECIFICATIONS, PROCEDURES AND RULES FOR SUCH DISPUTE RESOLUTION PROGRAM SHALL
BE MADE PART OF THE MANUALS, AND DEVELOPER SHALL COMPLY WITH ALL SUCH STANDARDS,
SPECIFICATIONS, PROCEDURES AND RULES IN SEEKING RESOLUTION OF ANY CLAIMS,
CONTROVERSIES OR DISPUTES WITH OR INVOLVING FRANCHISOR OR OTHER DEVELOPERS OR
FRANCHISEES, IF APPLICABLE UNDER THE PROGRAM. IF SUCH DISPUTE RESOLUTION PROGRAM
IS MADE MANDATORY, THEN DEVELOPER AND FRANCHISOR AGREE TO SUBMIT ANY CLAIMS,
CONTROVERSIES OR DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT (AND
ATTACHMENTS) OR THE RELATIONSHIP CREATED BY THIS AGREEMENT FOR RESOLUTION IN
ACCORDANCE WITH SUCH DISPUTE RESOLUTION PROGRAM PRIOR TO SEEKING RESOLUTION OF
SUCH CLAIMS, CONTROVERSIES OR DISPUTES IN THE MANNER DESCRIBED IN SECTIONS
XIV.B. - E. (PROVIDED THAT THE PROVISIONS OF SECTION XIV. CONCERNING
FRANCHISOR'S RIGHT TO SEEK RELIEF IN A COURT FOR CERTAIN ACTIONS INCLUDING FOR
INJUNCTIVE OR OTHER EXTRAORDINARY RELIEF SHALL NOT BE SUPERSEDED OR AFFECTED BY
THIS SECTION XIV.F. OR IF SUCH CLAIM, CONTROVERSY OR DISPUTE RELATES TO ANOTHER
DEVELOPER OR FRANCHISEE, DEVELOPER AGREES TO PARTICIPATE IN THE PROGRAM AND
SUBMIT ANY SUCH CLAIMS, CONTROVERSIES OR DISPUTES IN ACCORDANCE WITH THE
PROGRAM'S STANDARDS, SPECIFICATIONS, PROCEDURES AND RULES, PRIOR TO SEEKING
RESOLUTION OF SUCH CLAIM BY ANY OTHER JUDICIAL OR LEGALLY AVAILABLE MEANS. THE
MEDIATION CONTEMPLATED BY THIS SECTION XIV.F. SHALL, IF ESTABLISHED BY THE
FRANCHISOR, BE CONDUCTED BY AN INDEPENDENT THIRD PARTY MEDIATION ORGANIZATION,
SHALL BE NON-BINDING AND THE COSTS OF THE MEDIATION (BUT NOT EACH PARTY'S
ATTORNEYS' FEES AND OTHER COSTS) SHALL BE SHARED EQUALLY BETWEEN THE PARTIES.
G. DEVELOPER AND THE CONTROLLING PRINCIPALS HEREBY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO OR CLAIM OR ANY PUNITIVE,
EXEMPLARY, INCIDENTAL, INDIRECT, SPECIAL, CONSEQUENTIAL OR OTHER DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS) AGAINST FRANCHISOR, ITS
AFFILIATES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS,
AGENTS, REPRESENTATIVES, INDEPENDENT CONTRACTORS, SERVANTS AND EMPLOYEES, IN
THEIR CORPORATE AND INDIVIDUAL CAPACITIES, ARISING OUT OF ANY CAUSE WHATSOEVER
(WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE, STRICT LIABILITY, OTHER
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TORT OR OTHERWISE) AND AGREES THAT IN THE EVENT OF A DISPUTE, DEVELOPER AND THE
CONTROLLING PRINCIPALS SHALL BE LIMITED TO THE RECOVERY OF ANY ACTUAL DAMAGES
SUSTAINED BY IT. IF ANY OTHER TERM OF THIS AGREEMENT IS FOUND OR DETERMINED TO
BE UNCONSCIONABLE OR UNENFORCEABLE FOR ANY REASON, THE FOREGOING PROVISIONS OF
WAIVER BY AGREEMENT OF PUNITIVE, EXEMPLARY, INCIDENTAL, INDIRECT, SPECIAL,
CONSEQUENTIAL OR OTHER DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS)
SHALL CONTINUE IN FULL FORCE AND EFFECT.
XV. ACKNOWLEDGMENTS
A. Developer acknowledges that it has conducted an independent
investigation of the business venture contemplated by this Agreement and
recognizes that the success of this business venture involves substantial
business risks and will largely depend upon the ability of Developer. Franchisor
expressly disclaims making, and Developer acknowledges that it has not received
or relied on, any warranty or guarantee, express or implied, as to the potential
volume, profits or success of the business venture contemplated by this
Agreement.
B. Developer acknowledges that Developer has received, read and
understands this Agreement and the related Attachments and agreements and that
Franchisor has afforded Developer sufficient time and opportunity to consult
with advisors selected by Developer about the potential benefits and risks of
entering into this Agreement.
C. Developer acknowledges that it received a complete copy of this
Agreement and all related Attachments and agreements at least five (5) business
days prior to the date on which this Agreement was executed. Developer further
acknowledges that it has received the disclosure document required by the Trade
Regulation Rule of the Federal Trade Commission entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" at least ten (10) business days prior to the date on which this
Agreement was executed.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the day and year first above written.
FRANCHISOR:
RIO BRAVO INTERNATIONAL, INC.,
ATTEST: a Kansas corporation
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
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DEVELOPER:
____________________________
ATTEST:
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
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CONTROLLING PRINCIPALS
Each of the undersigned acknowledges and agrees as follows:
(1) Each has read the terms and conditions of the Development Agreement
and acknowledges that the execution of this guaranty and the undertakings of the
Controlling Principals in the Development Agreement are in partial consideration
for, and a condition to, the granting of the development rights in the
Development Agreement, and that Franchisor would not have granted such rights
without the execution of this guaranty and such undertakings by each of the
undersigned;
(2) Each is included in the term "Controlling Principals" as described
in Section XIII.E. of the Development Agreement;
(3) Each individually, jointly and severally, makes all of the
covenants, representations, warranties and agreements of the Controlling
Principals set forth in the Development Agreement and is obligated to perform
thereunder; and
(4) Each individually, jointly and severally, unconditionally and
irrevocably guarantees to Franchisor and its successors and assigns that all of
Developer's obligations under the Development Agreement will be punctually paid
and performed. Upon default by Developer or upon notice from Franchisor, each
will immediately make each payment and perform each obligation required of
Developer under the Development Agreement. Without affecting the obligations of
any of the Controlling Principals under this guaranty, Franchisor may, without
notice to the Controlling Principals, waive, renew, extend, modify, amend or
release any indebtedness or obligation of Developer or settle, adjust or
compromise any claims that Franchisor may have against Developer. Each of the
Controlling Principals waives all demands and notices of every kind with respect
to the enforcement of this guaranty, including, without limitation, notice of
presentment, demand for payment or performance by Developer, any default by
Developer or any guarantor and any release of any guarantor or other security
for this guaranty or the obligations of Developer. Franchisor may pursue its
rights against any of the Controlling Principals without first exhausting its
remedies against Developer and without joining any other guarantor hereto and no
delay on the part of Franchisor in the exercise of any right or remedy shall
operate as a waiver of such right or remedy, and no single or partial exercise
by Franchisor of any right or remedy shall preclude the further exercise of such
right or remedy. Upon receipt by Franchisor of notice of the death of any of the
Controlling Principals, the estate of the deceased will be bound by the
foregoing guaranty, but only for defaults and obligations under the Development
Agreement existing at the time of death, and in such event, the obligations of
the remaining Controlling Principals shall continue in full force and effect.
The amount of liability under this guarantee for each individual Controlling
Principal shall be limited to four hundred thousand dollars ($400,000) until
such time as the second Restaurant to be opened under the Development Agreement
is opened for business, and thereafter, such undertaking shall increase by an
amount equal to four hundred thousand dollars ($400,000) for each additional
Restaurant opened hereunder (beginning with an increase for the second
Restaurant) with a maximum amount of such undertaking/guaranty being limited to
two million dollars ($2,000,000). Such four hundred thousand dollars ($400,000)
shall be computed upon each Restaurant opened by Developer pursuant to the
Development Agreement within six (6) months prior to the exercise by Franchisor
of the rights granted it by the document referred to in this paragraph.
Additionally, with respect to the individual designated as Operating
Principal, Operating Principal acknowledges that the undertakings by Operating
Principal under this guaranty are made and given in partial consideration of,
and as a condition to, Franchisor's grant of rights to develop Restaurants as
described herein; Operating Principal individually, jointly and severally, makes
all of the
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covenants, representations and agreements of Developer and Operating Principal
set forth in the Development Agreement and is obligated to perform hereunder.
ATTEST: CONTROLLING PRINCIPALS:
________________________ __________________________
Witness *Name:____________________
________________________ __________________________
Witness *Name:____________________
________________________ __________________________
Witness *Name:____________________
* Denotes individual who is Developer's Operating Principal
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ATTACHMENT A TO DEVELOPMENT AGREEMENT
FRANCHISE AGREEMENT
(See Exhibit C of Offering Circular)
A-1
<PAGE>
ATTACHMENT B TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AGREEMENT AND ANCILLARY COVENANTS NOT TO COMPETE
This Agreement is made and entered into this _______ day of
___________________, 19______, between RIO BRAVO INTERNATIONAL, INC., a Kansas
corporation ("Franchisor"), _________________ ("Developer") and
__________________________ ("Covenantor").
RECITALS
WHEREAS, Franchisor has obtained the right to develop a unique system
(the "System") for the development and operation of full-service Restaurants
under the name and marks Rio Bravo Cantina restaurant ("Restaurants"); and
WHEREAS, the System includes, but is not limited to, certain trade
names, service marks, trademarks, logos, emblems and indicia of origin,
including, but not limited to, the marks "Rio Bravo" and "Rio Bravo Cantina,"
and such other trade names, service marks, trademarks, logos, insignia, slogans,
emblems, designs and commercial symbols as Franchisor may develop in the future
to identify for the public the source of services and products marketed under
such marks and under the System and representing the System's high standards of
quality, appearance and service and distinctive exterior and interior design,
decor and color scheme and furnishings ("Marks"); secret recipes and special
menu items; uniform standards, specifications and procedures for inventory and
management and financial control; operations; quality and uniformity of products
and services offered; procedures for management and financial control; training
and assistance; and advertising and promotional programs; all of which may be
changed, improved and further developed by Franchisor from time to time and are
used by Franchisor in connection with the operation of the System ("Trade
Secrets"); and
WHEREAS, the Marks and Trade Secrets provide economic advantages to
Franchisor and are not generally known to, and are not readily ascertainable by
proper means by, Franchisor's competitors who could obtain economic value from
knowledge and use of the Trade Secrets; and
WHEREAS, Franchisor has taken and intends to take all reasonable steps
to maintain the confidentiality and secrecy of the Trade Secrets; and
WHEREAS, Franchisor has granted Developer the limited right to develop
Restaurants using the System, the Marks and the Trade Secrets for the period
defined in the development agreement made and entered into on
_____________________, 19_______ ("Development Agreement"), by and between
Franchisor and Developer; and
WHEREAS, Franchisor and Developer have agreed in the Development
Agreement on the importance to Franchisor and to Developer and other licensed
users of the System of restricting the use, access and dissemination of the
Trade Secrets; and
WHEREAS, it will be necessary for certain employees, agents,
independent contractors, officers, directors and interest holders of Developer,
or any entity having an interest in Developer ("Covenantor") to have access to
and to use some or all of the Trade Secrets in the management and operation of
Developer's business using the System; and
WHEREAS, Developer has agreed to obtain from those covenantors written
agreements protecting the Trade Secrets and the System against unfair
competition; and
WHEREAS, Covenantor wishes to remain, or wishes to become associated
with or employed by Developer; and WHEREAS, Covenantor wishes and needs to
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receive and use the Trade Secrets in the course of his employment or association
in order to effectively perform his services for Developer; and
WHEREAS, Covenantor acknowledges that receipt of and the right to use
the Trade Secrets constitutes independent valuable consideration for the
representations, promises and covenants made by Covenantor herein;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, the parties agree as follows:
Confidentiality Agreement
1. Franchisor and/or Developer shall disclose to Covenantor some or all
of the Trade Secrets relating to the System. All information and materials,
including, without limitation, any manuals, drawings, specifications, techniques
and compilations of data which Franchisor provides to Developer and/or
Covenantor shall be deemed confidential Trade Secrets for the purposes of this
Agreement.
2. Covenantor shall receive the Trade Secrets in confidence and shall,
at all times, maintain them in confidence, and use them only in the course of
his employment or association with Developer and then only in connection with
the development and/or operation by Developer of a Restaurant for so long as
Developer is licensed by Franchisor to use the System.
3. Covenantor shall not at any time make copies of any documents or
compilations containing some or all of the Trade Secrets without Franchisor's
express written permission.
4. Covenantor shall not at any time disclose or permit the disclosure
of the Trade Secrets except to other employees of Developer and only to the
limited extent necessary to train or assist other employees of Developer in the
development or operation of a Restaurant using the System.
5. Covenantor shall surrender any material containing some or all of
the Trade Secrets to Developer or Franchisor, upon request, or upon termination
of employment by Developer, or upon conclusion of the use for which such
information or material may have been furnished to Covenantor.
6. Covenantor shall not at any time, directly or indirectly, do any act
or omit to do any act that would or would likely be injurious or prejudicial to
the goodwill associated with the Trade Secrets and the System.
7. All manuals are loaned by Franchisor to Developer for limited
purposes only and remain the property of Franchisor and may not be reproduced,
in whole or in part, without Franchisor's written consent.
Covenants Not to Compete
1. In order to protect the goodwill and unique qualities of the System
and the confidentiality and value of the Trade Secrets, and in consideration for
the disclosure to Covenantor of the Trade Secrets, Covenantor further agrees and
covenants as follows:
a. Not to divert, or attempt to divert, directly or
indirectly, any business, business opportunity, or customer of the Restaurants
to any competitor.
b. Not to employ, or seek to employ, any person who is at the
time or was within the preceding one hundred eighty (180) days employed by
Franchisor, any of its affiliates or any franchisee or developer of Franchisor,
or otherwise directly or indirectly induce such person to leave that person's
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employment except as may occur in connection with Developer's employment of such
person if permitted under the Development Agreement.
*c. Except with respect to Restaurants described in the
Development Agreement and other restaurants operated under franchise agreements
between Developer and its affiliates, and Franchisor or its affiliates, not to
directly or indirectly, for himself or through, on behalf of, or in conjunction
with any person, partnership or corporation, without the prior written consent
of Franchisor, own, maintain, operate, engage in, or have any financial or
beneficial interest in (including any interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures), advise, assist or make
loans to, any business that is of a character and concept similar to the
Restaurant. As used herein, the term "similar" means a restaurant business which
looks like, copies, imitates, or operates in a manner similar to a "Rio Bravo
Cantina" restaurant, including, but not limited to, a restaurant business which
offers and sells Mexican, Tex-Mex or other Southwestern cuisine, including,
tacos, enchiladas, fajitas, quesadillas, nachos or similar fare, and such menu
items constitute forty percent (40%) or more of the appetizers or entrees listed
in its menu, and which business is located within the United States, its
territories or commonwealths, or any other country, province, state or
geographic area in which Franchisor has used, sought registration of or
registered the same or similar Marks or operates or licenses others to operate a
business under the same or similar Marks.
2. In further consideration for the disclosure to Covenantor of the
Trade Secrets and to protect the uniqueness of the System, Covenantor agrees and
covenants that for one (1) year following the earlier of the expiration,
termination or transfer of all of Developer's interest in the Development
Agreement or the termination of his association with or employment by Developer,
Covenantor will not without the prior written consent of Franchisor:
a. Divert or attempt to divert, directly or indirectly, any
business, business opportunity or customer of the Restaurants to any competitor.
b. Employ, or seek to employ, any person who is at the time or
was within the preceding one hundred eighty (180) days employed by Franchisor,
any of its affiliates or any franchisee or developer of Franchisor, or otherwise
directly or indirectly induce such persons to leave that person's employment.
*c. Except with respect to restaurants operated under
franchise agreements between Developer and its affiliates, and Franchisor or its
affiliates, directly or indirectly, for himself or through, on behalf of or in
conjunction with any person, partnership or corporation, own, maintain, operate,
engage in, or have any financial or beneficial interest in (including any
interest in corporations, partnerships, trusts, unincorporated associations or
joint ventures), advise, assist or make loans to, any business that is of a
character and concept similar to the Restaurant. As used herein, the term
"similar" means a restaurant business which looks like, copies, imitates, or
operates in a manner similar to a "Rio Bravo Cantina" restaurant, including, but
not limited to, a restaurant business which offers and sells Mexican, Tex-Mex or
other Southwestern cuisine, including, tacos, enchiladas, fajitas, quesadillas,
or similar fare, and such menu items constitute forty percent (40%) or more of
the appetizers or entrees listed in its menu, and which business is, or is
intended to be located within the Territory, as such term is defined in the
Development Agreement (and as described in the map attached thereto), or within
a twenty-five (25) mile radius of the location of any Rio Bravo restaurant or
other food service facility in existence or under construction (or where land
has been purchased or a lease executed) at any given time during such period.
- --------
* May be deleted if Franchisor does not require Developer to obtain the
execution of this covenant by Covenantor. See Section VIII.I. of the Development
Agreement.
B-3
<PAGE>
Miscellaneous
1. Developer shall make all commercially reasonable efforts to ensure
that Covenantor acts as required by this Agreement.
2. Covenantor agrees that in the event of a breach of this Agreement,
Franchisor would be irreparably injured and be without an adequate remedy at
law. Therefore, in the event of such a breach, or threatened or attempted breach
of any of the provisions hereof, Franchisor shall be entitled to enforce the
provisions of this Agreement and shall be entitled, in addition to any other
remedies which are made available to it at law or in equity, including the right
to terminate the Development Agreement or any franchise agreement, to a
temporary and/or permanent injunction and a decree for the specific performance
of the terms of this Agreement, without the necessity of showing actual or
threatened harm and without being required to furnish a bond or other security.
3. Covenantor agrees to pay all expenses (including court costs and
reasonable attorneys' fees) incurred by Franchisor and Developer in enforcing
this Agreement.
4. Any failure by Franchisor or the Developer to object to or take
action with respect to any breach of any provision of this Agreement by
Covenantor shall not operate or be construed as a waiver of or consent to that
breach or any subsequent breach by Covenantor.
5. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS, WITHOUT REFERENCE TO KANSAS
CHOICE OF LAW PRINCIPLES. COVENANTOR HEREBY IRREVOCABLY SUBMITS HIMSELF TO THE
JURISDICTION OF THE STATE COURTS OF JOHNSON COUNTY, KANSAS AND THE FEDERAL
DISTRICT COURT FOR KANSAS IN KANSAS CITY, KANSAS. COVENANTOR HEREBY WAIVES ALL
QUESTIONS OF PERSONAL JURISDICTION OR VENUE FOR THE PURPOSE OF CARRYING OUT THIS
PROVISION. COVENANTOR HEREBY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON HIM
IN ANY PROCEEDING RELATING TO OR ARISING UNDER THIS AGREEMENT OR THE
RELATIONSHIP CREATED BY THIS AGREEMENT BY ANY MEANS ALLOWED BY KANSAS OR FEDERAL
LAW. COVENANTOR FURTHER AGREES THAT VENUE FOR ANY PROCEEDING RELATING TO OR
ARISING OUT OF THIS AGREEMENT SHALL BE JOHNSON COUNTY, KANSAS; PROVIDED,
HOWEVER, WITH RESPECT TO ANY ACTION WHICH INCLUDES INJUNCTIVE RELIEF OR OTHER
EXTRAORDINARY RELIEF, FRANCHISOR OR DEVELOPER MAY BRING SUCH ACTION IN ANY COURT
IN ANY STATE WHICH HAS JURISDICTION.
6. The parties acknowledge and agree that each of the covenants
contained herein are reasonable limitations as to time, geographical area, and
scope of activity to be restrained and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of Franchisor. The
parties agree that each of the foregoing covenants shall be construed as
independent of any other covenant or provision of this Agreement. If all or any
portion of a covenant in this Agreement is held unreasonable or unenforceable by
a court or agency having valid jurisdiction in any unappealed final decision to
which Franchisor is a party, Covenantor expressly agrees to be bound by any
lesser covenant subsumed within the terms of such covenant that imposes the
maximum duty permitted by law, as if the resulting covenant were separately
stated in and made a part of this Agreement.
7. This Agreement contains the entire agreement of the parties
regarding the subject matter hereof. This Agreement may be modified only by a
duly authorized writing executed by all parties.
8. All notices and demands required to be given hereunder shall be in
writing and shall be sent by personal delivery, expedited delivery service,
certified or registered mail, return receipt requested, first-class postage
prepaid, facsimile, telegram or telex (provided that the sender confirms the
facsimile, telegram or telex by sending an original confirmation copy by
certified or registered mail or expedited delivery service within three (3)
B-4
<PAGE>
business days after transmission), to the respective parties at the following
addresses unless and until a different address has been designated by written
notice to the other parties.
If directed to Franchisor, the notice shall be addressed to:
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: CEO
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: President
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: General Counsel
Facsimile: (913) 341-1696
If directed to Developer, the notice shall be addressed to:
__________________________
__________________________
__________________________
Attention: ______________
Facsimile: ______________
If directed to Covenantor, the notice shall be addressed to:
__________________________
__________________________
__________________________
Attention: ______________
Facsimile: ______________
Any notices sent by personal delivery shall be deemed given upon
receipt. Any notices given by telex or facsimile shall be deemed given upon
transmission, provided confirmation is made as provided above. Any notice sent
by expedited delivery service or registered or certified mail shall be deemed
given three (3) business days after the time of mailing. Any change in the
foregoing addresses shall be effected by giving fifteen (15) days written notice
of such change to the other parties. Business day for the purpose of this
Agreement excludes Saturday, Sunday and the following national holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving and Christmas.
9. The rights and remedies of Franchisor under this Agreement are fully
assignable and transferable and shall inure to the benefit of its respective
affiliates, successors and assigns. The respective obligations of Developer and
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<PAGE>
Covenantor hereunder may not be assigned by Developer or Covenantor, without the
prior written consent of Franchisor.
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
witnessed by their signatures below.
FRANCHISOR:
RIO BRAVO INTERNATIONAL, INC.,
ATTEST: a Kansas corporation
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
DEVELOPER:
____________________________
ATTEST:
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
COVENANTOR:
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
B-6
<PAGE>
ATTACHMENT C TO DEVELOPMENT AGREEMENT
STATEMENT OF OWNERSHIP INTERESTS AND DEVELOPER'S PRINCIPALS
A. The following is a list of shareholders, partners or other investors in
Developer, including all investors who own or hold a direct or indirect
interest in Developer, and a description of the nature of their interest:
Name Percentage of Ownership/Nature of Interest
B. The following is a list of all of Developer's Principals described in and
designated pursuant to Section XIII.E. of the Development Agreement, each
of whom shall execute the Confidentiality Agreement and Ancillary Covenants
Not to Compete substantially in the form set forth in Attachment B (see
Sections VIII.B.(2) and VIII.I. of the Development Agreement):
C-1
<PAGE>
ATTACHMENT D TO DEVELOPMENT AGREEMENT
DESCRIPTION OF TERRITORY
The Territory in which Developer has been granted the rights to develop
Restaurants shall include the geographic area described below:
D-1
EXHIBIT C
RIO BRAVO CANTINA
FRANCHISE AGREEMENT
--------------------------
(Location Address)
--------------------------
(Franchisee Name)
--------------------------
(Date)
FORM: January 26, 1996
<PAGE>
TABLE OF CONTENTS
Page
RECITALS......................................................... 1
I. GRANT............................................................ 1
II. SITE SELECTION, PLANS AND CONSTRUCTION........................... 3
III. TERM AND RENEWAL................................................. 5
IV. FEES............................................................. 6
V. FRANCHISOR'S OBLIGATIONS......................................... 8
VI. FRANCHISEE'S AGREEMENTS, REPRESENTATIONS,
WARRANTIES AND COVENANTS......................................... 9
VII. FRANCHISE OPERATIONS............................................. 15
VIII. ADVERTISING AND RELATED FEES..................................... 18
IX. MARKS............................................................ 21
X. CONFIDENTIALITY AND NONCOMPETITION COVENANTS..................... 23
XI. BOOKS AND RECORDS................................................ 26
XII. INSURANCE........................................................ 28
XIII. DEBTS AND TAXES.................................................. 29
XIV. TRANSFER OF INTEREST............................................. 30
XV. INDEMNIFICATION.................................................. 35
XVI. RELATIONSHIP OF THE PARTIES...................................... 37
XVII. TERMINATION...................................................... 37
XVIII. POST-TERMINATION................................................. 40
XIX. MISCELLANEOUS.................................................... 43
XX. ACKNOWLEDGMENTS.................................................. 48
ATTACHMENT A - APPROVED LOCATION, ASSIGNED AREA, AND OPENING DATE
ATTACHMENT B - LEASE RIDER
ATTACHMENT C - STATEMENT OF OWNERSHIP INTERESTS AND FRANCHISEE'S PRINCIPALS
ATTACHMENT D - CONFIDENTIALITY AGREEMENT AND ANCILLARY COVENANTS NOT TO COMPETE
ATTACHMENT E - CHRONOLOGICAL TABLE OF SELECTED EVENTS
<PAGE>
RIO BRAVO CANTINA
FRANCHISE AGREEMENT
This Franchise Agreement (the "Agreement") is made and entered into
this _________ day of ____________________, 19_______, between RIO BRAVO
INTERNATIONAL, INC., a Kansas corporation ("Franchisor") and
_______________________________________ ("Franchisee").
WITNESSETH:
WHEREAS, as the result of the expenditure of time, skill, effort and
money, Franchisor has obtained the right to develop a unique and distinctive
system (hereinafter "System") related to establishing and operating full-service
restaurants featuring Mexican, Tex-Mex, Southwestern and other proprietary
cuisine and full-service bar with specialty drinks in a casual dining
atmosphere;
WHEREAS, Franchisor owns the System and the Marks (as defined below)
and has the right to use and license others to use the System and the Marks;
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior design, decor, color
scheme, and furnishings; secret recipes and special menu items; uniform
standards, specifications, and procedures for operations; quality and uniformity
of products and services offered; procedures for inventory, management and
financial control; training and assistance; and advertising and promotional
programs; all of which may be changed, improved, and further developed by
Franchisor from time to time;
WHEREAS, Franchisor continues to develop, use and control the use of
such Marks in order to identify for the public the source of services and
products marketed thereunder and under the System, and to represent the System's
high standards of quality, appearance and service;
WHEREAS, Franchisee desires to use the System in connection with the
operation of a Rio Bravo Cantina restaurant at the location specified in
Attachment A hereto, as well as to receive the training and other assistance
provided by Franchisor in connection therewith;
I. GRANT
A. In reliance on the representations and warranties of Franchisee and
its Controlling Principals (as defined in Section XIX.S.) hereunder, Franchisor
hereby grants to Franchisee, upon the terms and conditions in this Agreement,
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the right and license, and Franchisee hereby accepts the right and obligation,
to operate a Rio Bravo Cantina restaurant under the Marks and the System in
accordance with this Agreement ("Restaurant" or "franchised business").
Franchisee and the Controlling Principals have represented to Franchisor that
they have entered this Agreement with the intention to comply fully with the
obligations to construct a Restaurant hereunder and not for the purpose of
reselling the rights to develop the Restaurant hereunder. Franchisee and the
Controlling Principals understand and acknowledge that Franchisor has granted
such rights in reliance on the business skill, financial capacity, personal
character of, and expectations of performance hereunder by Franchisee and the
Controlling Principals and that this Agreement and the rights and obligations
hereunder may not be transferred until after the Restaurant is open for business
to the public and in accordance with Section II.G.
B. The specific street address of the Restaurant approved by Franchisor
("Approved Location" or "Location") shall be set forth in Attachment A.
Franchisee shall not relocate the Restaurant without the express prior written
consent of Franchisor. This Agreement does not grant to Franchisee the right or
license to operate the Restaurant or to offer or sell any products or services
described in this Agreement at or from any other location.
C. Upon Franchisee's selection of an Approved Location for the
Restaurant, Franchisee will be assigned a primary area of operation ("Assigned
Area") that will also be described in Attachment A. Except as provided in this
Agreement, and subject to Franchisee's full compliance with this Agreement and
any other agreement between Franchisee or any of its affiliates and Franchisor
or any of its affiliates, neither Franchisor nor any affiliate shall establish
or authorize any person or entity, other than Franchisee, to establish a Rio
Bravo Cantina restaurant in the Assigned Area during the term of this Agreement.
Notwithstanding the above, Franchisor and any other authorized person or entity
(including any other Rio Bravo' franchisee) shall have the right, at any time,
to advertise and promote the System in the Assigned Area. Franchisee
acknowledges and agrees that the franchise granted hereby is only for the
operation of one (1) Restaurant. Accordingly, in the Assigned Area, Franchisor
and its affiliates may also offer and sell, and may authorize others to offer
and sell: (i) collateral products under the Marks, at or from any location, such
as pre-packaged food and beverage products and Rio Bravo Cantina restaurant
memorabilia; (ii) food and beverage services under the Marks at or through any
Rio Bravo Cantina restaurant or other permanent, temporary or seasonal food
service facility providing in whole or in part the products and services offered
by a full-service Rio Bravo Cantina restaurant in any Reserved Area (as defined
below) in the Assigned Area; and (iii) any food and beverage products and
services under any other names and marks. A Reserved Area is defined as any
airports, airline/transportation commissaries, the interior of national chain
hotels, stadiums and arenas. Provided, however, prior to conducting or
authorizing any person or entity to conduct the business described in
subparagraph (ii), and if Franchisee meets each of the conditions outlined in
Section I.C. of the Development Agreement executed between Franchisor and
Franchisee (the "Development Agreement"), and meets any other criteria necessary
to offer and sell the Rio Bravo Cantina products in the Reserved Area within the
Territory (as described in subparagraph (ii) above), Franchisor shall offer to
Franchisee the right to offer and sell such products on such terms and
conditions as Franchisor shall determine at that time. In connection with the
notice to Franchisee of the offer, Franchisor shall provide Franchisee with the
necessary information concerning such bona fide third party to provide the
products and services. Once such offer has been made to Franchisee by Franchisor
in writing, Franchisee shall have the right to accept such offer within thirty
(30) days after receipt of such written notification. If Franchisee fails to
notify Franchisor in writing of Franchisee's intent to accept the offer within
the thirty-day time period, Franchisor may conduct such business itself, or
authorize any other person or entity to do so.
D. If Franchisee is unable to continue the operation of the Restaurant
at the Approved Location because of the occurrence of a force majeure event
described in Section XVII.A.(3)(e), then Franchisee may request Franchisor's
approval to relocate the Restaurant to another location in the Assigned Area.
Any other request to relocate the Restaurant shall also be subject to the same
procedures. If Franchisor elects to grant Franchisee the right to relocate the
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Restaurant, then Franchisee shall comply with the applicable site selection and
construction procedures set forth in Section II.
3
<PAGE>
II. SITE SELECTION, PLANS AND CONSTRUCTION
A. Franchisee assumes all cost, liability, expense and responsibility
for locating, obtaining and developing a site for the Restaurant within the
Assigned Area and for constructing and equipping the Restaurant at such site.
Franchisee shall not make any binding commitment to a prospective vendor or
lessor of real estate with respect to a site for the Restaurant unless the site
is approved as set forth below. Franchisee acknowledges that the location,
selection, procurement and development of a site for the Restaurant is
Franchisee's responsibility; that in discharging such responsibility Franchisee
may consult with real estate and other professionals of Franchisee's choosing;
and that Franchisor's approval of a prospective site and the rendering of
assistance in the selection of a site does not constitute a representation,
promise, warranty or guarantee, express or implied, by Franchisor that the
Restaurant operated at that site will be profitable or otherwise successful.
B. Prior to acquiring a site for the Restaurant by lease or purchase,
Franchisee shall locate a site for the Restaurant that satisfies the site
selection guidelines provided to Franchisee by Franchisor pursuant to Section
V.A. and shall submit to Franchisor in the form specified by Franchisor a
description of the site, including evidence satisfactory to Franchisor
demonstrating that the site satisfies Franchisor's site selection guidelines,
together with such other information and materials as Franchisor may reasonably
require, including, but not limited to, a letter of intent or other evidence
satisfactory to Franchisor which confirms Franchisee's favorable prospects for
obtaining the site. Recognizing that time is of the essence, Franchisee agrees
that it will submit such information and materials for the proposed site to
Franchisor for its approval no later than one hundred eighty (180) days after
the execution of this Agreement, if this Agreement is for the first Restaurant
to be developed under the Development Agreement, and no later than ninety (90)
days after the execution of this Agreement, for any subsequent Restaurant to be
developed pursuant to the Development Agreement. Franchisor shall have
forty-five (45) days after receipt of this information and materials to approve
or disapprove, in its sole discretion, the proposed site as the location for the
Restaurant. If Franchisor does not respond within forty-five (45) days after its
receipt of such information and materials, such site shall be deemed approved by
Franchisor.
C. (1) Within sixty (60) days after Franchisor has approved the site
for the Restaurant as described above (which may be extended up to one hundred
eighty (180) days as approved by Franchisor in writing), Franchisee shall
acquire the site by purchase or lease, at Franchisee's expense, as the Location
for the Restaurant. Failure by Franchisee to acquire the site for the Restaurant
within the time and in the manner required herein shall constitute a material
event of default under this Agreement. After a site for the Restaurant is
approved by Franchisor and acquired by Franchisee pursuant to this Agreement the
Location shall be described in Attachment A.
(2) If Franchisee will purchase the premises for the Restaurant,
Franchisee shall submit a copy of the proposed contract of sale to Franchisor
for its written approval prior to its execution and shall furnish to Franchisor
a copy of the executed contract of sale within ten (10) days after execution. If
Franchisee will occupy the premises of the Restaurant under a lease, Franchisee
shall submit a copy of the proposed lease to Franchisor for written approval
prior to its execution and shall furnish to Franchisor a copy of the executed
lease within ten (10) days after execution. No lease for the Restaurant premises
shall be approved by Franchisor unless a rider to the lease, prepared by
Franchisor and executed by Franchisor, Franchisee and the lessor, in
substantially the form attached as Attachment B, is attached to the lease and
incorporated therein. If Franchisee leases the premises from a party affiliated
with Franchisee, such lease rider shall set forth a monthly rental to be paid by
Franchisor (in the event that Franchisor assumes the right to operate the
restaurant) that shall not exceed the fair market value of rent charged for
similar locations between unrelated third parties. Franchisor shall have thirty
(30) days after receipt of the proposed lease or the proposed contract of sale
to either approve or disapprove such documentation prior to its execution.
D. Franchisee shall be responsible for obtaining all zoning
classifications and clearances which may be required by state or local laws,
ordinances or regulations or which may be necessary as a result of any
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restrictive covenants relating to the Restaurant premises. Prior to beginning
the construction of the Restaurant, Franchisee shall (i) obtain all permits,
licenses and certifications required for the lawful construction or remodeling
and operation of the Restaurant, and (ii) certify in writing to Franchisor that
the insurance coverage specified in Section XII. is in full force and effect and
that all required approvals, clearances, permits and certifications have been
obtained. Upon request, Franchisee shall provide to Franchisor additional copies
of Franchisee's insurance policies or certificates of insurance and copies of
all such approvals, clearances, permits and certifications.
E. Franchisee must obtain any architectural, engineering and design
services it deems necessary for the construction of the Restaurant at its own
expense from an architectural design firm approved by Franchisor. Franchisee
shall adapt the prototypical architectural and design plans and specifications
for construction of the Restaurant provided to Franchisee by Franchisor in
accordance with Section V.C. as necessary for the construction of the Restaurant
and shall submit such adapted plans to Franchisor for review. If Franchisor
determines, in good faith, that any such plans are not consistent with the best
interests of the System, Franchisor may prohibit the implementation of such
plans, and in this event will notify Franchisee of any objection(s) within
forty-five (45) days of receiving such plans. If Franchisor fails to notify
Franchisee of an objection to the plans within this time period, Franchisee may
use such plans. If Franchisor objects to any such plans, it shall provide
Franchisee with a reasonably detailed list of changes necessary to make the
plans acceptable. Franchisor shall, upon a resubmission of the plans with such
changes, notify Franchisee within fifteen (15) days of receiving the resubmitted
plans whether the plans are acceptable. If Franchisor fails to notify Franchisee
of any objection within such time period, Franchisee may use the resubmitted
plans. Franchisee acknowledges that Franchisor's review of such plans relates
only to compliance with the System and that acceptance by Franchisor of such
plans does not constitute a representation, warranty, or guarantee, express or
implied, by Franchisor that such plans are accurate or free of error concerning
their design or structural application.
F. Franchisee shall commence and diligently pursue construction or
remodeling of the Restaurant, as applicable. Commencement of construction shall
be defined as the time at which any site work is initiated by or on behalf of
Franchisee at the location approved for the Restaurant. Site work includes,
without limitation, paving of parking areas, installing outdoor lighting and
sidewalks, extending utilities, demising of interior walls and demolishing of
any existing premises. During the time of construction or remodeling, Franchisee
shall provide Franchisor with such periodic reports regarding the progress of
the construction or remodeling as may be reasonably requested by Franchisor. In
addition, Franchisor may make such on-site inspections as it may deem reasonably
necessary to evaluate such progress. Franchisee shall notify Franchisor of the
scheduled date for completion of construction or remodeling no later than sixty
(60) days prior to such date. Within a reasonable time after the date
construction or remodeling is completed, Franchisor may, at its option, conduct
an inspection of the completed Restaurant. Franchisee acknowledges and agrees
that Franchisee will not open the Restaurant for business without the written
authorization of Franchisor and that authorization to open shall be conditioned
upon Franchisee's strict compliance with this Agreement.
G. Franchisee acknowledges that time is of the essence. Subject to
Franchisee's compliance with the conditions stated below, Franchisee shall open
the Restaurant and commence business within four hundred and seventy-two (472)
days after the execution of this Agreement, if this is the first Franchise
Agreement executed pursuant to the Development Agreement, and within three
hundred and eighty-two (382) days, for any subsequent Franchise Agreement
executed pursuant to the Development Agreement, unless Franchisee obtains an
extension of such time period from Franchisor in writing. The date the
Restaurant opens for business to the public as provided herein ("Opening Date")
shall be set forth in Attachment A. Prior to opening, Franchisee shall complete
all exterior and interior preparations for the Restaurant, including
installation of equipment, fixtures, furnishings and signs, pursuant to the
plans and specifications approved by Franchisor, and shall comply with all other
pre-opening obligations of Franchisee, including, but not limited to, those
obligations described in Sections VI.B. - G., to Franchisor's satisfaction. If
Franchisee fails to comply with any of such obligations, Franchisor shall have
the right to prohibit Franchisee from commencing business. Franchisee's failure
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to open the Restaurant and commence business in accordance with the foregoing
shall be deemed a material event of default under this Agreement.
III. TERM AND RENEWAL
A. Unless sooner terminated as provided in Section XVII. hereof, the
term of this Agreement shall continue from the date stated on the first page
hereof until the earlier of (i) fifteen (15) years from Opening Date or (ii) the
expiration or termination of Franchisee's right to possess the Restaurant
premises.
B. Franchisee may, at its option, renew the rights under this Agreement
for three (3) additional consecutive terms of five (5) years each (provided that
such renewal term shall automatically terminate upon the expiration or
termination of Franchisee's right to possess the Restaurant premises), subject
to any or all of the following conditions which must, in Franchisor's
discretion, be met prior to and at the time of renewal:
(1) Franchisee shall give Franchisor written notice of Franchisee's
election to renew not less than seven (7) months nor more than twelve (12)
months prior to the end of the initial term or first renewal term, as
applicable;
(2) Franchisee shall repair or replace, at Franchisee's cost and
expense, equipment (including electronic cash register or computer hardware or
software systems inclusive of any software licensed to Franchisee pursuant to
the software license agreement executed by Franchisee under Section VII.K.),
signs, interior and exterior decor items, fixtures, furnishings, or catering
vehicles, if applicable, supplies and other products and materials required for
the operation of the Restaurant as Franchisor may reasonably require and shall
obtain, at Franchisee's cost and expense, any new or additional equipment,
fixtures, supplies and other products and materials which may be reasonably
required by Franchisor for Franchisee to offer and sell new menu items from the
Restaurant or to provide the Restaurant's services in the manner specified by
Franchisor and shall otherwise modernize the Restaurant premises, equipment
(including electronic cash register or computer hardware or software systems),
signs, interior and exterior decor items, fixtures, furnishings, catering
vehicles, supplies and other products and materials required for the operation
of the Restaurant, as reasonably required by Franchisor to reflect the
then-current standards and image of the System as contained in the Manuals (as
defined in Section V.D.) or otherwise provided in writing by Franchisor;
(3) Franchisee shall not be in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee or any of its affiliates and Franchisor or any of its
affiliates; and Franchisee shall have substantially and timely complied with all
the terms and conditions of such agreements during the terms thereof;
(4) Franchisee shall have satisfied all monetary obligations owed by
Franchisee to Franchisor and its affiliates under this Agreement and any other
agreement between Franchisee or any of its affiliates and Franchisor or any of
its affiliates and shall have timely met those obligations throughout the terms
thereof;
(5) Franchisee shall present satisfactory evidence that Franchisee
has the right to remain in possession of the Restaurant premises or obtain
Franchisor's approval of a new site for the operation of the Restaurant for the
duration of the renewal term of this Agreement;
(6) Franchisee shall execute Franchisor's then-current form of
renewal franchise agreement, which agreement shall supersede this Agreement in
all respects, and the terms of which may differ from the terms of this
Agreement, including, without limitation, a higher percentage royalty fee,
advertising contribution or expenditure requirement; provided, however, that
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Franchisee shall pay to Franchisor, in lieu of an initial franchise fee, a
renewal fee representing ten percent (10%) of Franchisor's then-current initial
franchise fee for each renewal term;
(7) In exchange for a general release from Franchisor of any and all
claims against Franchisee, its Controlling Principals and employees, except for
any current unpaid royalties and advertising fees and claims by third parties
for which indemnification is required hereunder, Franchisee and the Controlling
Principals (as defined in Section XIX.S.) shall execute a general release of any
and all claims against Franchisor and its affiliates, their respective partners,
and the officers, directors, shareholders, partners, agents, representatives,
independent contractors, servants and employees of each of them, in their
corporate and individual capacities, including, without limitation, claims
arising under this Agreement or under federal, state or local laws, rules,
regulations or orders; and
(8) Franchisee shall comply with Franchisor's then-current
qualification and training requirements.
IV. FEES
A. Franchisee shall pay to Franchisor an initial franchise fee of
__________________________ Dollars ($______________). The initial franchise fee
shall be paid to Franchisor as follows: (i) fifty percent (50%) upon the
commencement of construction of the Restaurant as defined in Section II.F., and
(ii) the remaining fifty percent (50%) at the earlier of thirty (30) days prior
to the Opening Date (as defined hereunder) or three (3) business days prior to
the date the training crew provided under Section VI.E.(3) is scheduled by
Franchisor to arrive to conduct opening training. The initial franchise fee is
in partial consideration of the administrative and other expenses incurred by
Franchisor in granting the franchise hereunder and for its lost or deferred
opportunity to grant such franchise to any other party, and is nonrefundable
when paid in accordance with the provisions hereof.
B. (1) During the term of this Agreement, Franchisee shall pay to
Franchisor, in partial consideration for the rights herein granted, a continuing
royalty fee equal to four percent (4%) ("Royalty Rate") of the monthly Gross
Sales of the Restaurant (as defined in Section IV.C. of this Agreement);
provided, however, notwithstanding the foregoing, from and after January 1,
2000, the term "Royalty Rate" shall be defined as four and one-quarter percent
(4 1/4%) of Gross Sales. Such royalty fee shall be due and payable each four (4)
or five (5) week accounting period specified by Franchisor ("Accounting Period")
based on the Gross Sales for the preceding Accounting Period. The first such
Accounting Period shall begin on the Opening Date and end on the last day of
that Accounting Period that corresponds to the end of the then-current
Accounting Period as determined in accordance with Franchisor's manuals. Such
royalty fee shall be received by Franchisor on or before the twelfth (12th) day
following the end of such Accounting Period, provided that such day is a
business day. A business day for the purpose of this Agreement means any day
other than Saturday, Sunday or the following national holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving and Christmas. If the date on
which such payment would otherwise be due is not a business day, then payment
shall be due on the next business day.
(2) Each royalty fee payment shall be accompanied or preceded by a
royalty report itemizing the Gross Sales for the preceding Accounting Period
("Royalty Report") and any other reports required hereunder. Notwithstanding the
foregoing, Franchisee shall provide Franchisor with such Gross Sales information
on the twelfth (12th) day following the Accounting Period (or next business day
if the twelfth (12th) day is not a business day) by facsimile transmission,
telephone, or such other method of delivery as Franchisor may reasonably direct.
Franchisee shall also provide Franchisor with a weekly Gross Sales report
(covering the period from Monday through Sunday) by Tuesday of each week for the
preceding week's sales in a form designated by Franchisor by facsimile
transmission, telephone, data communication or such other method of delivery as
Franchisor may reasonably direct.
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(3) Franchisee shall not be entitled to withhold payments due
Franchisor under this Agreement on grounds of alleged nonperformance by
Franchisor hereunder. Any payment or report not actually received by Franchisor
on or before such date shall be deemed overdue. Time is of the essence with
respect to all payments to be made by Franchisee to Franchisor. All unpaid
obligations under this Agreement shall bear interest from the date due until
paid at the lesser of (i) the prime commercial rate of interest plus three
percent (3%) as reported in the Wall Street Journal (Midwestern edition) from
time to time or by any bank or financial institution designated from time to
time by Franchisor (but in no event less than twelve percent (12%) per annum),
or (ii) the maximum rate allowed by applicable law. Notwithstanding anything to
the contrary contained herein, no provision of this Agreement shall require the
payment or permit the collection of interest in excess of the maximum rate
allowed by applicable law. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided in this Agreement, the
provisions of this paragraph shall govern and prevail, and neither Franchisee
nor its Principals shall be obligated to pay the excess amount of such interest.
If for any reason interest in excess of the maximum rate allowed by applicable
law shall be deemed charged, required or permitted, any such excess shall be
applied as a payment and reduction of any other amounts which may be due and
owing hereunder, and if no such amounts are due and owing hereunder then such
excess shall be repaid to the party that paid such interest.
C. For the purposes of determining the royalties to be paid hereunder,
"Gross Sales" shall mean the total selling price of all services and products
and all income of every other kind and nature related to the Restaurant
(including, without limitation, income related to catering and permitted
wholesale activities, and any sales or orders of food products or food
preparation services provided from or related to the Restaurant), whether for
cash or credit and regardless of collection in the case of credit. Gross Sales
shall expressly exclude only the following:
(1) Receipts from the operation of any public telephone installed in
the Restaurant, or products from vending or gaming machines located at the
Restaurant, except for any amount representing Franchisee's share of such
revenues;
(2) Sums representing sales taxes collected directly from customers,
based upon present or future laws of federal, state or local governments,
collected by Franchisee in the operation of the Restaurant, and any other tax,
excise or duty which is levied or assessed against Franchisee by any federal,
state, municipal or local authority, based on sales of specific merchandise sold
at or from the Restaurant, provided that such taxes are actually transmitted to
the appropriate taxing authority;
(3) Returns to shippers or manufacturers; and
(4) Proceeds from isolated sales of trade fixtures not constituting
any part of Franchisee's products and services offered for resale at the
Restaurant nor having any material effect upon the ongoing operation of the
Restaurant required under this Agreement.
Franchisor may, from time to time, authorize certain other items
to be excluded from Gross Sales. Any such permission may be revoked or withdrawn
at any time in writing by Franchisor in its discretion.
In addition to the foregoing, the following are included within
the definition of "Gross Sales" described except as noted below:
(1) The full value of meals furnished to Franchisee's employees as
an incident to their employment except that the value of any discounts extended
to such employees may be credited against Gross Sales during the Accounting
Period in which the meals were furnished for the purpose of determining the
amount of Gross Sales upon which the royalty fee is due; and
(2) All proceeds from the sale of coupons, gift certificates or
vouchers; provided that at the time such coupons, gift certificates or vouchers
are redeemed the retail price thereof may be credited against Gross Sales during
the Accounting Period in which such coupon, gift certificate or voucher is
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redeemed for the purpose of determining the amount of Gross Sales upon which the
royalty fee is due.
In the event Franchisor shall require Franchisee to acquire and
utilize an electronic cash register system, then if a cash shortage occurs (as
defined in the Manuals), the amount of Gross Sales shall be determined based on
the records of the electronic cash register system or point of sale system and
any cash shortage shall not be considered in the determination.
D. Franchisee shall pay such other fees or amounts described in this
Agreement.
V. FRANCHISOR'S OBLIGATIONS
Franchisor agrees to provide the services described below with regard
to the Restaurant:
A. Franchisor's written site selection guidelines and such site
selection assistance as Franchisor may deem advisable.
B. Such on-site evaluation as Franchisor may deem necessary on its own
initiative or in response to Franchisee's reasonable request for site approval;
provided that Franchisor shall not provide an on-site evaluation for any
proposed site prior to the receipt of all required information and materials
concerning such site prepared pursuant to Section II. Franchisor (or its
designee) will provide at no additional charge to Franchisee two (2) on-site
evaluations for the Restaurant. Thereafter, if additional on-site evaluations
are deemed appropriate by Franchisor, or upon Franchisee's reasonable request,
or if Franchisee fails to open a Restaurant at an approved site after Franchisor
has conducted its on-site evaluation, Franchisor reserves the right to charge
Franchisee the reasonable expenses incurred by Franchisor (or its designee) in
connection with such on-site evaluation, including, without limitation, the cost
of travel, lodging, meals and wages.
C. On loan, a set of prototypical architectural and design plans and
specifications for a Restaurant. At Franchisee's request, Franchisor may provide
to Franchisee Diazo Mylars, Erasable Vellums, Paper Sepias and Auto Cad discs
for use by Franchisee's architect. Franchisor shall provide the prototype
drawings and Autocad discs at no additional charge, but Franchisee shall pay
Franchisor's cost for any of the other items listed above. Franchisee shall
independently, and at Franchisee's expense, have such architectural and design
plans and specifications adapted for construction of the Restaurant in
accordance with Section II.
D. On loan, one (1) set of Confidential Operations Manuals and such
other manuals and written materials as Franchisor shall have developed for use
in the franchised business (as the same may be revised by Franchisor from time
to time, the "Manuals"), as more fully described in Section X.A.
E. Visits to the Restaurant and evaluations of the products sold and
services rendered therein from time to time as reasonably determined by
Franchisor, as more fully described in Section VII.E.(6).
F. At Franchisor's discretion, certain advertising and promotional
materials and information developed by Franchisor from time to time for use by
Franchisee in marketing and conducting local advertising for the Restaurant.
Franchisor shall have the right to charge a reasonable amount for such
advertising and promotional materials. Franchisor shall also have the right to
review and approve or disapprove all advertising and promotional materials that
Franchisee proposes to use, pursuant to Section VIII.
G. At Franchisor's discretion, advice and written materials concerning
techniques of managing and operating the Restaurant from time to time developed
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by Franchisor, including new developments and improvements in Restaurant
equipment and food products, source specifications and the packaging and
preparation thereof, including those requirements for all proprietary items.
H. From time to time and at Franchisor's discretion, at a reasonable
cost make available for resale to Franchisee's customers, certain merchandise
identifying the System, such as pre-packaged food products and Rio Bravo
memorabilia, in sufficient amounts to meet customer demand.
I. A list of approved suppliers as described in Section VII.D. from
time to time as Franchisor deems appropriate.
J. An initial training program for Franchisee's Operating Principal,
General Manager and other Restaurant personnel and other training programs in
accordance with the provisions of Section VI.E.(1), (2) and (4).
K. In connection with the opening of the Restaurant, on-site assistance
in accordance with the provisions of Section VI.E.(3).
L. Establishment and administration of an advertising fund and/or
advertising cooperatives and placement of a Yellow Pages trademark and other
business listings at Franchisor's discretion in accordance with Section VIII.
M. At Franchisor's discretion, coordination of an annual convention to
which each franchisee in good standing will be invited. Attendance at the
convention will not be mandatory. Based on Franchisor's annually published
schedule, each Franchisee will be entitled to bring a specified number of
persons per Restaurant operated to the convention without additional charge. Any
attendees in excess of that number will be required to pay a registration fee to
compensate Franchisor for the costs incurred in connection with coordinating and
holding the convention. Franchisee shall be responsible for all expenses of its
personnel attending the convention, including, travel, meals and lodging.
N. At Franchisor's discretion, certain computer software for use in the
operation of the Restaurant which may be developed or acquired by Franchisor or
its designee and licensed to Franchisee pursuant to Section VII.K. If Franchisor
or its designee licenses such computer software to Franchisee, Franchisor or its
designee shall also make available to Franchisee any upgrades, enhancements or
replacements to the software that are acquired or developed from time to time.
Franchisor reserves the right to charge a reasonable fee for such software,
upgrades, enhancements or replacements.
VI. FRANCHISEE'S AGREEMENTS, REPRESENTATIONS, WARRANTIES AND COVENANTS
A. Each of Franchisee and the Controlling Principals covenants and
agrees that it shall make all commercially reasonable efforts to operate the
Restaurant so as to achieve optimum sales.
B. If Franchisee is a corporation or partnership, Franchisee and the
Controlling Principals represent, warrant and covenant that:
(1) Franchisee is duly organized and validly existing under the
state law of its formation;
(2) Franchisee is duly qualified and is authorized to do business in
each jurisdiction in which its business activities or the nature of the
properties owned by it require such qualification;
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(3) Franchisee's corporate charter or written partnership agreement
shall at all times provide that the activities of Franchisee are confined
exclusively to the operation of the Restaurant, unless otherwise consented to in
writing by Franchisor;
(4) The execution of this Agreement and the consummation of the
transactions contemplated hereby are within Franchisee's corporate power, if
Franchisee is a corporation, or if Franchisee is a partnership, permitted under
Franchisee's written partnership agreement and have been duly authorized by
Franchisee;
(5) If Franchisee is a corporation, copies of Franchisee's articles
of incorporation, bylaws, other governing documents, any amendments thereto,
resolutions of the Board of Directors authorizing entry into and performance of
this Agreement, and any certificates, buy-sell agreements or other documents
restricting the sale or transfer of stock of the corporation, and any other
documents as may be reasonably required by Franchisor shall be furnished to
Franchisor prior to the execution of this Agreement; or, if Franchisee is a
partnership, copies of Franchisee's written partnership agreement, other
governing documents and any amendments thereto shall be furnished to Franchisor
prior to the execution of this Agreement, including evidence of consent or
approval of the entry into and performance of this Agreement by the requisite
number or percentage of partners, if such approval or consent is required by
Franchisee's written partnership agreement;
(6) If Franchisee is a corporation, partnership or other form of
legal entity other than an individual, the ownership interests in Franchisee are
accurately and completely described in Attachment C. Further, if Franchisee is a
corporation, Franchisee shall maintain at all times a current list of all owners
of record and all beneficial owners of any class of voting securities in
Franchisee or, if Franchisee is a partnership or other form of legal entity,
Franchisee shall maintain at all times a current list of all owners of an
interest in the partnership or entity. Franchisee shall immediately provide a
copy of the updated list to Franchisor upon the occurrence of any change of
ownership and otherwise make its list of owners available to Franchisor upon
request;
(7) If Franchisee is a corporation, Franchisee shall maintain
stop-transfer instructions against the transfer on its records of any of its
equity securities and each stock certificate representing stock of the
corporation shall have conspicuously endorsed upon it a statement in a form
satisfactory to Franchisor that it is held subject to all restrictions imposed
upon assignments by this Agreement; provided, however, that the requirements of
this Section shall not apply to the transfer of equity securities of a
publicly-held corporation (as defined in Section XIX.S.). If Franchisee is a
partnership, its written partnership agreement shall provide that ownership of
an interest in the partnership is held subject to all restrictions imposed upon
assignments by this Agreement;
(8) Franchisee and, at Franchisor's request, each of the Controlling
Principals, has provided Franchisor with the most recent financial statements of
Franchisee and such Controlling Principals. Such financial statements present
fairly the financial position of Franchisee and each of the Controlling
Principals, as applicable, at the dates indicated therein and with respect to
Franchisee, the results of its operations and its cash flow for the year then
ended. Franchisee agrees that it shall maintain at all times, during the term of
this Agreement, sufficient working capital to fulfill its obligations required
under this Agreement. Each of the financial statements mentioned above shall be
certified as true, complete and correct and shall have been prepared in
conformity with generally accepted accounting principles applicable to the
respective periods involved and, except as expressly described in the applicable
notes, applied on a consistent basis. No material liabilities, adverse claims,
commitments or obligations of any nature exist as of the date of this Agreement,
whether accrued, unliquidated, absolute, contingent or otherwise, which are not
reflected as liabilities on the financial statements of Franchisee or the
Controlling Principals.
(9) If, after the execution of this Agreement, any person ceases to
qualify as one of Franchisee's Principals (defined in Section XIX.S.) or if any
individual succeeds to or otherwise comes to occupy a position which would, upon
designation by Franchisor, qualify him as one of Franchisee's Principals,
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Franchisee shall notify Franchisor within ten (10) days after any such change
and, upon designation of such person by Franchisor as one of Franchisee's
Principals or as a Controlling Principal, as the case may be, such person shall
execute such documents and instruments (including, as applicable, this
Agreement) as may be required by Franchisor to be executed by others in such
positions;
(10) Franchisee's Principals (as defined in Section XIX.S.) shall
each execute and bind themselves to the confidentiality and noncompetition
covenants set forth in the Confidentiality Agreement and Ancillary Covenants Not
to Compete which forms Attachment D to this Agreement (see Sections X.B.(2) and
X.C.(4)). The Controlling Principals shall, jointly and severally, guarantee
Franchisee's performance of all of Franchisee's obligations, covenants and
agreements hereunder pursuant to the terms and conditions of the guaranty
contained herein, and shall otherwise bind themselves to the terms of this
Agreement as stated herein; and
(11) Franchisee and the Controlling Principals acknowledge and agree
that the representations, warranties and covenants set forth above in Sections
VI.B.(1) - (10) are continuing obligations of Franchisee and the Controlling
Principals, as applicable, and that any failure to comply with such
representations, warranties and covenants shall constitute a material event of
default under this Agreement. Franchisee and the Controlling Principals will
cooperate with Franchisor in any efforts made by Franchisor to verify compliance
with such representations, warranties and covenants.
C. Upon the execution of this Agreement, Franchisee shall designate and
retain an individual to serve as the Operating Principal of the Restaurant (the
"Operating Principal"). If Franchisee is an individual, Franchisee shall perform
all obligations of the Operating Principal. The Operating Principal shall,
during the entire period he serves as such, meet the following qualifications:
(1) The Operating Principal must, at its option, either serve as the
General Manager (as defined in Section VI.D.) or, subject to the approval of
Franchisor, designate another individual (the Operating Principal's designee) to
serve as the General Manager of the Restaurant. In Franchisor's discretion, any
individual designated by an Operating Principal to serve as the General Manager,
may also perform the duties and obligations of Operating Principal pertaining to
the supervision and conduct of the franchised business described herein;
provided, that Operating Principal shall take all necessary action to ensure
that such designee conducts and fulfills all of such obligations in accordance
with the terms of this Agreement and provided further, that Operating Principal
shall remain fully responsible for such performance.
(2) The Operating Principal must maintain a direct or indirect
ownership interest in Franchisee. Except as may otherwise be provided in this
Agreement, the Operating Principal's interest in Franchisee shall be and shall
remain free of any pledge, mortgage, hypothecation, lien, charge, encumbrance,
voting agreement, proxy, security interest or purchase right or options.
Operating Principal shall execute this Agreement as one of the Controlling
Principals, and shall be individually, jointly and severally, bound by all
obligations of Franchisee, the Operating Principal and the Controlling
Principals hereunder. Operating Principal, however, shall have no greater or
lesser personal liability for the Franchisee's performance than any other of the
Controlling Principals.
(3) Franchisee and the Operating Principal (or his designee, if
applicable) shall devote substantial full time and best efforts to the
supervision and conduct of the franchised business.
(4) The Operating Principal (and his designee, if applicable) shall
meet Franchisor's standards and criteria for such individual, as set forth in
the Manuals or otherwise in writing by Franchisor.
(5) If, during the term of this Agreement, the Operating Principal
or any designee is not able to continue to serve or no longer qualifies to act
in accordance with this Section, Franchisee shall promptly notify Franchisor and
designate a replacement within sixty (60) days after the Operating Principal or
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such designee ceases to serve or be so qualified, such replacement being subject
to the same qualifications and restrictions listed above. Franchisee shall
provide for interim management of the activities contemplated under this
Agreement until such replacement is so designated, such interim management to be
conducted in accordance with this Agreement. Any failure to comply with the
requirements of this Section VI.C. shall be deemed a material event of default
under this Agreement.
D. Franchisee shall designate and retain at all times a general manager
("General Manager") to direct the operation and management of the Restaurant.
Franchisee shall designate its General Manager concurrently with the execution
of this Agreement. The General Manager shall be responsible for the daily
operation of the Restaurant. The General Manager may, but need not, be one of
the Controlling Principals. The General Manager shall, during the entire period
he serves as General Manager, meet the following qualifications:
(1) The General Manager shall satisfy Franchisor's educational and
business experience criteria as set forth in the Manuals as defined herein or
otherwise in writing by Franchisor;
(2) The General Manager shall devote full time and best efforts to
the supervision and management of the Restaurant;
(3) The General Manager shall be an individual acceptable to
Franchisor; and
(4) The General Manager shall satisfy the training requirements set
forth in Section VI.E. If, during the term of this Agreement, the General
Manager is not able to continue to serve in such capacity or no longer qualifies
to act as such in accordance with this Section, Franchisee shall promptly notify
Franchisor and designate a replacement within one hundred twenty (120) days
after the General Manager ceases to serve, such replacement being subject to the
same qualifications listed above. Franchisee shall provide for interim
management of the Restaurant until such replacement is so designated, such
interim management to be conducted in accordance with the terms of this
Agreement. Any failure to comply with the requirements of this Section VI.D.
shall be deemed a material event of default under Section XVII.A.(3)(p) hereof.
(5) Franchisee shall also designate and retain at all times at least
two (2) assistant managers, one (1) kitchen manager and one (1) assistant
kitchen manager to assist in the operation and management of the Restaurant.
Pursuant to the Development Agreement, Franchisee shall designate a director of
operations ("Director of Operations") who shall be responsible for overseeing
and supervising the activities of all Restaurant management personnel. Each of
such persons shall satisfy Franchisor's educational and business experience
criteria as set forth in the Manuals and shall complete to Franchisor's
satisfaction Franchisor's training requirements set forth in Section VI.E.
(6) Franchisor reserves the right to require each of Franchisee's
Director of Operations and any other management and supervisory employees who
oversee the development and operation of more than one (1) Restaurant, and each
General Manager to successfully complete Franchisor's interview process and a
psychological profile test, which test may be administered by Franchisor or a
testing agency designated by Franchisor. Franchisee shall pay all costs charged
by any designated testing agency.
E. Franchisee agrees that it is necessary to the continued operation of
the System and the Restaurant that Franchisee's Operating Principal and General
Manager (including any subsequently designated or replacement Operating
Principal or General Manager) receive such training as Franchisor may require.
Accordingly Franchisee agrees as follows:
(1) Not later than one hundred twenty (120) days prior to the date
the Restaurant commences operations, Franchisee's Operating Principal, General
Manager and such other Restaurant personnel designated by Franchisor, including
Franchisee's training officer, shall attend and complete, to Franchisor's
satisfaction, Franchisor's initial training program. At Franchisee's discretion
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and with the Franchisor's prior written consent, Franchisee may designate up to
six (6) additional person(s) selected by Franchisee and approved by Franchisor
to attend and complete the initial training program to Franchisor's
satisfaction. If the Restaurant is the first Rio Bravo Cantina restaurant
established by Franchisee, (a) training shall be conducted by Franchisor or its
designee at a Franchisor-operated Restaurant or such other location designated
by Franchisor, and (b) Franchisor shall provide instructors and training
materials for the initial training of the Operating Principal, General Manager,
and such other Restaurant personnel designated by Franchisor to attend training
at no additional charge to Franchisee. Franchisor shall, however, have the right
to charge Franchisee for the cost of written training materials and other
technology provided to such additional personnel attending such training at the
request of Franchisee. Franchisee shall be responsible for any and all expenses
incurred by Franchisee or Franchisee's Operating Principal, General Manager and
other Restaurant personnel in connection with any initial training program,
including, without limitation, costs of travel, lodging, meals and wages.
Notwithstanding the above, upon the request of Franchisor and at
all times subject to the approval of Franchisor, Franchisee shall, at its
expense, conduct the initial training program and other training programs
prescribed by Franchisor for any initial General Manager or other Restaurant
personnel for any Restaurant developed by Franchisee subsequent to its first
Restaurant, and for any replacement or successor Operating Principal, General
Manager and any other Restaurant personnel of Franchisee at any of Franchisee's
Restaurants. In such case, Franchisee may be required to have any person trained
by Franchisee receive Franchisor's training certification. Franchisor reserves
the right to charge Franchisee for the cost of written training materials and
any other technology provided for any initial training to any initial General
Manager or any other Restaurant personnel for any Rio Bravo Cantina restaurant
developed by Franchisee subsequent to its first Restaurant and, otherwise, for
any initial training provided to a replacement or successor Operating Principal,
General Manager or other designated Restaurant personnel, if Franchisee is not
approved by Franchisor to provide such training.
Franchisor shall determine, in its sole discretion, whether the
Operating Principal and the General Manager and other designated Restaurant
personnel have satisfactorily completed initial training. If the initial
training program is not satisfactorily completed by the Operating Principal,
General Manager or other designated Restaurant personnel or if Franchisor in its
reasonable business judgment based upon the performance of such persons,
determines that the training program cannot be satisfactorily completed by any
such person, Franchisee shall designate a replacement to satisfactorily complete
such training. In its discretion, Franchisor may also require Franchisee to
designate additional Restaurant personnel to satisfactorily complete the initial
training program. Any required replacement and any successor Operating Principal
or General Manager (or other designated Restaurant personnel) must also
satisfactorily complete initial training.
(2) Franchisee's Operating Principal, General Manager and such other
Restaurant personnel as Franchisor shall designate shall attend such additional
training programs and seminars as Franchisor may offer from time to time, if
Franchisor requires such attendance. For all such programs and seminars,
Franchisor will provide the instructors and training materials. However,
Franchisor reserves the right to impose a reasonable fee for such additional
training programs and seminars that are not mandatory. Franchisee shall be
responsible for any and all expenses incurred by Franchisee or its Operating
Principal, General Manager and other Restaurant personnel in connection with
such additional training, including, without limitation, costs of travel,
lodging, meals, and wages.
(3) In connection with the opening of the Restaurant, Franchisor
shall provide Franchisee with a trained representative (or representatives) of
Franchisor to provide on-site pre-opening and opening training, supervision, and
assistance to Franchisee for a period of fourteen (14) days. Franchisee shall
not be required to pay a fee for such assistance. With respect to the opening
assistance described above provided to a replacement Rio Bravo Cantina
restaurant established by Franchisee pursuant to Section I.D. hereof, Franchisor
reserves the right to require Franchisee to pay to Franchisor the per diem fee
then being charged to franchisees generally for opening assistance, as well as
any expenses incurred by such representative, such as costs of travel, lodging,
meals and wages.
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(4) Upon the reasonable request of Franchisee or as Franchisor shall
deem appropriate, Franchisor shall, during the term hereof and subject to the
availability of personnel, provide Franchisee with additional trained
representatives who shall provide on-site remedial assistance to Franchisee's
Restaurant personnel. For additional assistance requested by Franchisee,
Franchisee shall pay the per diem fee then being charged to franchisees under
the System for the services of such trained representatives, plus their costs of
travel, lodging, meals, and wages. The per diem fee will not be charged if such
additional assistance is provided based on Franchisor's determination that such
assistance is necessary; however, Franchisor reserves the right to charge for
its reasonable expenses incurred in connection with providing such assistance.
(5) Franchisee and the Controlling Principals understand that
compliance by all franchisees (including, as applicable, any developer)
operating under the System with Franchisor's training, development and
operational requirements is an essential and material element of the System and
that Franchisor and franchisees operating under the System consequently expend
substantial time, effort and expense in training management personnel for the
development and operation of their respective Rio Bravo Cantina restaurants.
Accordingly, Franchisee and the Controlling Principals agree that if Franchisee
or any Controlling Principal shall, during the term of this Agreement and
without the prior written consent of the affected employer, designate as General
Manager or employ in a managerial position any individual who is at the time or
was within the preceding one hundred eighty (180) days employed in a managerial
or supervisory position by Franchisor or any of its affiliates, franchisees,
including, but not limited to, individuals employed to work in Rio Bravo Cantina
restaurants operated by Franchisor or any affiliate or by any franchisee, then
such former employer of such individual shall be entitled to be compensated for
the reasonable costs and expenses, of whatever nature or kind, incurred by such
employer in connection with the training of such employee. The parties hereto
agree that such expenditures may be uncertain and difficult to ascertain and
therefore agree that the compensation specified herein reasonably represents
such expenditures and is not a penalty. An amount equal to the compensation of
such employee for the twelve (12) month period (or such shorter time, if
applicable) immediately prior to the termination of his employment with such
former employer shall be paid by Franchisee or the applicable Controlling
Principal, as the case may be, within thirty (30) days after written notice,
otherwise agreed with the former employer. In seeking any individual to serve as
General Manager or in such other managerial position, Franchisee and the
Controlling Principals shall not discriminate in any manner whatsoever against
any individual to whom the provisions of this Section apply, on the basis of the
compensation required to be paid hereunder. The parties hereto expressly
acknowledge and agree that no current or former employee of Franchisor, its
affiliates, Franchisee, or of any other entity operating under the System shall
be a third party beneficiary of this Agreement or any provision hereof, except
for the covenant stated in the immediately preceding sentence. Franchisor hereby
expressly disclaims any representations and warranties regarding the performance
of any employee or former employee of Franchisor, its affiliates or any
franchisee under the System, who is designated as Franchisee's General Manager
or employed by Franchisee or any of the Controlling Principals in any capacity,
and Franchisor shall not be liable for any losses, of whatever nature or kind,
incurred by Franchisee or any Controlling Principal in connection therewith.
Notwithstanding the above, solely for purposes of bringing an action to collect
any payment due under this Section, such former employer shall be a third-party
beneficiary of this Section VI.E.(5).
F. Franchisee shall comply with all requirements of federal, state and
local laws, rules, regulations, and orders.
G. Franchisee shall comply with all other requirements and perform such
other obligations as provided hereunder.
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VII. FRANCHISE OPERATIONS
A. Franchisee understands the importance of maintaining uniformity
among all of the Rio Bravo Cantina restaurants and the importance of complying
with all of Franchisor's standards and specifications relating to the operation
of the Restaurant.
B. Franchisee shall maintain the Restaurant in a high degree of
sanitation, repair and condition, and in connection therewith shall make such
additions, alterations, repairs and replacements thereto (but no others without
Franchisor's prior written consent) as may be required for that purpose,
including, without limitation, such periodic repainting or replacement of
obsolete signs, furnishings, equipment (including, but not limited to,
electronic cash register or computer hardware and software systems), and decor
as Franchisor may reasonably direct. Franchisee shall also obtain, at
Franchisee's cost and expense, any new or additional equipment (including
electronic cash register or computer hardware and software systems), fixtures,
supplies and other products and materials which may be reasonably required by
Franchisor for Franchisee to offer and sell new menu items from the Restaurant
or to provide the Restaurant services in the manner specified by Franchisor,
such as through carry-out, or catering arrangements. Except as may be expressly
provided in the Manuals, no alterations or improvements or changes of any kind
in design, equipment, signs, interior or exterior decor items, fixtures or
furnishings shall be made in or about the Restaurant or its premises without the
prior written approval of Franchisor.
C. To assure the continued success of the Restaurant, Franchisee shall,
upon the request of Franchisor, make other improvements to modernize the
Restaurant premises, equipment (including electronic cash register or computer
hardware and software systems), signs, interior and exterior decor items,
fixtures, furnishings, supplies and other products and materials required for
the operation of the Restaurant, to Franchisor's then-current standards and
specifications. Notwithstanding the above, Franchisee agrees that it will make
such capital improvements or modifications described in this Section VII.C. if
so requested by Franchisor on or before the fifth anniversary of the Opening
Date, or at such other time during the term of this Agreement that twenty
percent (20%) of the Rio Bravo Cantina restaurants then operated by Franchisor
or its affiliates have made or are utilizing best efforts to make such
improvements or modifications.
D. Franchisee shall comply with all of Franchisor's standards and
specifications (including brand specifications) relating to the purchase of all
food and beverage items, ingredients, supplies, materials, fixtures,
furnishings, equipment (including electronic cash register and computer hardware
and software systems) and other products used or offered for sale at the
Restaurant. Except as provided in Sections VII.F., VII.J. and VII.K., Franchisee
shall obtain such items from suppliers (including manufacturers, distributors
and other sources) who continue to demonstrate the ability to meet Franchisor's
then-current standards and specifications for food and beverage items,
ingredients, supplies, materials, fixtures, furnishings, equipment and other
items used or offered for sale at Rio Bravo Cantina restaurants and who possess
adequate quality controls and capacity to supply Franchisee's needs promptly and
reliably; and who have been approved in writing by Franchisor prior to any
purchases by Franchisee from any such supplier; and who have not thereafter been
disapproved by Franchisor. If Franchisee desires to purchase, lease or use any
products or other items from an unapproved supplier, Franchisee shall submit to
Franchisor a written request for such approval, or shall request the supplier
itself to do so. Franchisee shall not purchase or lease from any supplier until
and unless such supplier has been approved in writing by Franchisor. Franchisor
shall have the right to require that its representatives be permitted to inspect
the supplier's facilities, and that samples from the supplier be delivered,
either to Franchisor or to an independent laboratory designated by Franchisor
for testing. A charge not to exceed the reasonable cost of the inspection and
the actual cost of the test shall be paid by the supplier, or if the supplier is
unwilling to pay such fee, the Franchisee if the Franchisee wishes to use the
supplier. Franchisor reserves the right, at its option, to re-inspect from time
to time the facilities and products of any such approved supplier and to revoke
its approval upon the supplier's failure to continue to meet any of Franchisor's
then-current criteria. Nothing in the foregoing shall be construed to require
Franchisor to approve any particular supplier.
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E. To ensure that the highest degree of quality and service is
maintained, Franchisee shall operate the Restaurant in strict conformity with
such methods, standards and specifications of Franchisor set forth in the
Manuals and as may from time to time otherwise be prescribed in writing. In
particular, Franchisee also agrees:
(1) To sell or offer for sale all menu items, products and services
required by Franchisor, utilizing the method, manner and style of distribution
prescribed by Franchisor including, but not limited to, dine-in, carry-out or
catering, only as expressly authorized by Franchisor in writing in the Manuals
or otherwise. Franchisee agrees to comply with the terms of any such
distribution program and in connection therewith to execute such documents or
instruments that Franchisor may deem necessary to such program.
(2) To sell and offer for sale only the menu items, products and
services that have been expressly approved for sale in writing by Franchisor; to
discontinue selling and offering for sale any menu items, products or services
and to discontinue any method, manner or style of distribution (including, but
not limited to, dine-in, carry-out or catering, as applicable) which Franchisor
may, in its sole discretion, disapprove in writing at any time; and to refrain
from deviating from Franchisor's standards and specifications without
Franchisor's prior written consent.
(3) To maintain in sufficient supply and to use and sell at all
times only such food and beverage items, ingredients, products, materials,
supplies and paper goods that conform to Franchisor's standards and
specifications; to prepare all menu items in accordance with Franchisor's
recipes and procedures for preparation contained in the Manuals or other written
directives, including, but not limited to, the prescribed measurements of
ingredients; and to refrain from deviating from Franchisor's standards and
specifications by the use or offer of non-conforming items or differing amounts
of any items, without Franchisor's prior written consent.
(4) To permit Franchisor or its agents, at any reasonable time, to
remove a reasonable number of samples of food or non-food items from
Franchisee's inventory, or from the Restaurant, in amounts reasonably necessary
for testing by Franchisor or an independent laboratory to determine whether such
samples meet Franchisor's then-current standards and specifications. Franchisor
shall pay to Franchisee an amount equal to Franchisee's cost of the samples
taken for testing. In addition to any other remedies it may have under this
Agreement, Franchisor may require Franchisee to bear the cost of such testing if
the supplier of the item has not previously been approved by Franchisor or if
the sample fails to conform with Franchisor's specifications.
(5) To purchase or lease and install, at Franchisee's expense, all
fixtures, furnishings, equipment (including electronic cash register and
computer hardware and software systems), decor items, signs, or catering
vehicles, and related items as Franchisor may reasonably direct from time to
time in the Manuals or otherwise in writing; and to refrain from installing or
permitting to be installed on or about the Restaurant premises, without
Franchisor's prior written consent, any fixtures, furnishings, equipment, or
catering vehicles, decor items, signs, games, vending machines or other items
not previously approved as meeting Franchisor's standards and specifications. If
any of the property described above is leased by Franchisee from a third party,
such lease shall be approved by Franchisor, in writing, prior to execution.
Franchisor's approval shall be conditioned upon such lease containing a
provision which permits any interest of Franchisee in the lease to be assigned
to Franchisor upon the termination or expiration of this Agreement and which
prohibits the lessor from imposing an assignment or related fee upon Franchisor
in connection with such assignment.
(6) To grant Franchisor and its agents the right to enter upon the
Restaurant premises and any motor vehicles at any time for the purpose of
conducting inspections; to cooperate with Franchisor's representatives in such
inspections by rendering such assistance as they may reasonably request; and,
upon notice from Franchisor or its agents and without limiting Franchisor's
other rights under this Agreement, to take such steps as may be necessary to
correct immediately any deficiencies detected during any such inspection. Should
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Franchisee, for any reason, fail to correct such deficiencies within a
reasonable time as determined by Franchisor, Franchisor shall have the right and
authority (without, however, any obligation to do so) to correct such
deficiencies and charge Franchisee a reasonable fee for Franchisor's expenses in
so acting, payable by Franchisee immediately upon demand.
(7) To maintain a competent, conscientious, trained staff and to
take such steps as are necessary to ensure that its employees preserve good
customer relations and comply with such uniform standards as Franchisor may
prescribe.
(8) To maintain in sufficient supply and prominently display such
customer satisfaction forms as Franchisor may require and to forward all
completed customer satisfaction forms to Franchisor or to Franchisor's designee
at such times as Franchisor may direct.
(9) To play in the Restaurant such recorded or programmed music as
Franchisor may from time to time require in the Manual or otherwise in writing
and to obtain such copyright licenses as may be necessary to authorize the
playing of such recorded music.
(10) At Franchisor's request (and Franchisee's expense), to install
and maintain equipment in accordance with Franchisor's specifications to permit
Franchisor to access and retrieve by telecommunication any information stored on
electronic cash registers (or other computer hardware and software) Franchisee
is required to utilize at the Restaurant premises as specified in the Manuals,
thereby permitting Franchisor to inspect and monitor electronically information
concerning Franchisee's Restaurant, Gross Sales and such other information as
may be contained or stored in such equipment and software. Franchisor shall have
telephone access as provided herein at such times and in such manner as
Franchisor shall from time to time specify.
F. Franchisee acknowledges and agrees that Franchisor has and may
continue to develop for use in the System (i) certain products which are
prepared using Franchisor's unique process and/or confidential secret recipes
and which are trade secrets of Franchisor and (ii) other proprietary products,
including, without limitation, those that bear the Marks. Because of the
importance of quality and uniformity of production and the significance of such
products in the System, it is to the mutual benefit of the parties that
Franchisor closely control the production and distribution of such products.
Accordingly, Franchisee agrees that Franchisee shall use only Franchisor's
secret recipe and proprietary products and shall purchase solely from Franchisor
or from a source designated by Franchisor all of Franchisee's requirements for
such products.
G. Franchisee shall require all advertising and promotional materials,
signs, decorations, paper goods (including menus and all forms and stationery
used in the franchised business), and other items which may be designated by
Franchisor to bear the Marks in the form, color, location and manner prescribed
by Franchisor.
H. Franchisee shall process and handle all consumer complaints
connected with or relating to the Restaurant, and shall promptly notify
Franchisor by telephone and in writing of all of the following complaints: (i)
food related illnesses, (ii) safety or health violations, (iii) claims exceeding
Ten Thousand Dollars ($10,000) in the aggregate in any month, (iv) dram shop
violations, (v) liquor license violations and (vi) any other material claims
against or losses suffered by Franchisee as defined in the Manuals. Franchisee
shall maintain for Franchisor's inspection any inspection reports affecting the
Restaurant or equipment located in the Restaurant during the term of this
Agreement and for thirty (30) days after the expiration or earlier termination
hereof.
I. Upon the execution of this Agreement or at any time thereafter,
Franchisee shall, at the option of Franchisor, execute such forms and documents
as Franchisor deems necessary to appoint Franchisor its true and lawful
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attorney-in-fact with full power and authority for the sole purpose of assigning
to Franchisor all rights to the telephone numbers of the Restaurant and any
related and other business listings upon the termination or expiration of this
Agreement as required under Section XVIII.M.
J. Any vehicle used by Franchisee to deliver Restaurant products and
services to customers shall meet Franchisor's standards with respect to
appearance and ability to satisfy the requirements imposed on Franchisee
hereunder. Franchisee shall place such signs and decor items on the vehicle as
Franchisor requires and shall at all times keep such vehicle clean and in good
working order. Franchisee shall not engage or utilize any individual in the
operation of a motor vehicle in connection with providing services hereunder who
is under the age of eighteen (18) years or who does not possess a valid driver's
license under the laws of the state in which Franchisee provides such services.
Franchisee shall require each such individual to comply with all laws,
regulations and rules of the road and to use due care and caution in the
operation and maintenance of motor vehicles. Except as noted above, Franchisor
does not set forth any standards or exercise control over any motor vehicle
utilized by Franchisee.
K. If so requested by Franchisor during the term of this Agreement,
Franchisee shall enter into a software license agreement with Franchisor for the
license of certain proprietary software that Franchisor may elect to provide for
the operation of the Restaurant. If Franchisor requires Franchisee to use the
software, Franchisee shall pay a fee not to exceed the list price of software
performing similar functions in the restaurant industry.
VIII. ADVERTISING AND RELATED FEES
Recognizing the value of advertising and the importance of the
standardization of advertising programs to the furtherance of the goodwill and
public image of the System, the parties agree as follows:
A. Franchisor may from time to time develop and administer advertising
and sales promotion programs designed to promote and enhance the collective
success of all Restaurants operating under the System. Franchisee shall
participate in all such advertising and sales promotion programs in accordance
with the terms and conditions established by Franchisor for each program. In all
aspects of these programs, including, without limitation, the type, quantity,
timing, placement and choice of media, market areas and advertising agencies,
the standards and specifications established by Franchisor shall be final and
binding upon Franchisee.
B. Subject to any allocation of Franchisee's expenditures for local
advertising to the National Fund as described in Section VIII.C. or to the
Cooperative as described in Section VIII.D., Franchisee shall spend, annually
throughout the term of this Agreement, not less than one and one-half percent (1
1/2%) of the Gross Sales of the Restaurant on advertising for the Restaurant in
its Assigned Area ("Local Advertising"). Franchisee shall submit to Franchisor
an advertising expenditure report accurately reflecting such expenditures for
the preceding period on or before the twelfth (12th) day following Franchisor's
request, provided that such day is a business day. If that day is not a business
day, then such report shall be due on the next business day. Franchisor shall
request such report with no greater frequency than every ninety (90) days. Costs
and expenditures incurred by Franchisee in connection with any of the following
shall not be included in Franchisee's expenditures on Local Advertising for
purposes of this Section, unless approved in advance by Franchisor in writing:
(1) Incentive programs for employees or agents of Franchisee,
including the cost of honoring any coupons distributed in connection with such
programs;
(2) Food and beverage research expenditures;
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(3) Food and beverage costs incurred in any promotion, except as
authorized in the Manuals;
(4) Salaries and expenses of any employees or agents of Franchisee,
including salaries or expenses for attendance at advertising meetings or
activities;
(5) Charitable, political or other contributions or donations,
unless otherwise related to promotional events;
(6) In-store materials consisting of fixtures or equipment; and
(7) Seminar and educational costs and expenses of employees of
Franchisee;
C. In addition to the expenditures provided for in Section
VIII.B.,Franchisee agrees to contribute two percent (2%) of the Gross Sales of
the Restaurant for each Accounting Period to an advertising fund established and
administered by Franchisor or its designee for the purpose of advertising the
System on a regional or national basis (the "National Fund" or "Fund"). Such
contribution shall be paid to Franchisor as Franchisor may direct on or before
the twelfth (12th) day following each Accounting Period, provided that such day
is a business day. If that date is not a business day, then payment shall be due
on the next business day. During the term of this Agreement, Franchisor may, in
its sole discretion, require Franchisee to allocate to the National Fund all or
a portion of Franchisee's expenditures for Local Advertising as described in
Section VIII.B. or required contributions to a Cooperative as described in
Section VIII.D. Any amount so allocated shall be credited against Franchisee's
Local Advertising or Cooperative contribution requirement as applicable. Each
National Fund contribution shall be accompanied by an advertising report
itemizing the Gross Sales for the preceding Accounting Period in the format
prescribed by Franchisor. Notwithstanding the foregoing, Franchisee shall
provide Franchisor with such information on the twelfth (12th) day following the
Accounting Period (or next business day if the twelfth (12th) day is not a
business day) by facsimile transmission, telephone, or such other method of
delivery as Franchisor may reasonably direct.
Franchisee agrees that the National Fund shall be maintained and
administered by Franchisor or its designee as follows:
(1) Franchisor shall direct all advertising programs and shall have
the right to approve or disapprove the creative concepts, materials and media
used in such programs and the placement and allocation thereof. Franchisee
agrees and acknowledges that the National Fund is intended to maximize general
public recognition and acceptance of the Marks and enhance the collective
success of all Restaurants operating under the System. Franchisor shall, with
respect to Rio Bravo Cantina restaurants operated by Franchisor or any
affiliate, contribute to the National Fund generally on the same basis as
Franchisee. In administering the National Fund, Franchisor and its designees
shall use reasonable commercial efforts in each calendar year to ensure that its
expenditures for advertising placement are approximately proportional to each
franchisee's contributions to the Fund within any given Territory (as that term
is defined in each respective Development Agreement) during that twelve (12)
month period.
(2) Franchisee agrees that the National Fund may be used to satisfy
any and all costs of maintaining, administering, directing and preparing
advertising (including, without limitation, the cost of preparing and conducting
television, radio, magazine and newspaper advertising campaigns; direct mail and
outdoor billboard advertising; public relations activities; employing
advertising agencies to assist therein; and costs of Franchisor's personnel and
other departmental costs for advertising that is internally administered or
prepared by Franchisor and any other expenditures for marketing activities made
by Franchisor; provided, however, such expenditures for Franchisor's personnel
cost shall not exceed seventy-five percent (75%) of such administrative salaries
or ten percent (10%) of the total contributions to the National Fund). All sums
paid by Franchisee to the National Fund shall be maintained in a separate
account by Franchisor and shall not be used to defray any of Franchisor's
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general operating expenses, except for such reasonable administrative costs and
overhead, if any, as Franchisor may incur in activities reasonably related to
the administration or direction of the Fund and advertising programs for
franchisees and the System. The National Fund and its earnings shall not
otherwise inure to the benefit of Franchisor. The National Fund is operated
solely as a conduit for collecting and expending the advertising fees as
outlined above.
(3) An unaudited statement of the operations of the National Fund
shall be prepared annually by Franchisor and shall be made available to
Franchisee upon request.
(4) Although the National Fund is intended to be of perpetual
duration, Franchisor may terminate the Fund. The National Fund shall not be
terminated, however, until all monies in the Fund have been expended for
advertising or promotional purposes or returned to contributing franchised
businesses or those operated by Franchisor or any affiliate, without interest,
on the basis of their respective contributions.
D. Franchisee agrees that Franchisor shall have the right, in its sole
discretion, to designate any geographic area in which two (2) or more Rio Bravo
Cantina restaurants are located as a region for purposes of establishing an
advertising cooperative ("Cooperative"). The members of the Cooperative for any
area shall, at a minimum, consist of all Rio Bravo Cantina restaurants. Each
Cooperative shall be organized and governed in a form and manner, and shall
commence operation on a date, determined in advance by Franchisor. Each
Cooperative shall be organized for the exclusive purposes of administering
advertising programs and developing, subject to Franchisor's approval pursuant
to Section VIII.H., promotional materials for use by the members in Local
Advertising. If at the time of the execution of this Agreement a Cooperative has
been established for a geographic area that encompasses the Restaurant, or if
any such Cooperative is established during the term of this Agreement,
Franchisee shall execute such documents as are required by Franchisor
immediately upon the request of Franchisor and shall become a member of the
Cooperative pursuant to the terms of those documents. Franchisee shall
participate in the Cooperative as follows:
(1) Subject to any allocation of Franchisee's Cooperative
contribution to the National Fund as described in Section VIII.C., Franchisee
shall contribute to the Cooperative such amounts required by the documents
governing the Cooperative; provided, however, Franchisee will not be required to
contribute more than one and fifteen one hundredths of one percent (1.15%) of
Franchisee's Gross Sales during each Accounting Period to the Cooperative
unless, subject to Franchisor's approval, the members of the Cooperative agree
to the payment of a larger fee. The payment of any Cooperative fee shall be
applied toward satisfaction of the Franchisee's Local Advertising requirement
set forth in Section VIII.B.;
(2) Franchisee shall submit to the Cooperative and to Franchisor
such statements and reports as may be required by Franchisor or by the
Cooperative. All contributions to the Cooperative shall be maintained and
administered in accordance with the documents governing the Cooperative. The
Cooperative shall be operated solely as a conduit for the collection and
expenditure of the Cooperative fees for the purposes outlined above; and
(3) No advertising or promotional plans or materials may be used by
the Cooperative or furnished to its members without the prior approval of
Franchisor. All such plans and materials shall be submitted to Franchisor in
accordance with the procedure set forth in Section VIII.H.
E Notwithstanding anything to the contrary herein, Franchisor shall
have the right to increase or decrease Franchisee's required advertising
contributions or payments under this Section VIII. (i) to the National Fund,
(ii) to a Cooperative, or (iii) for Local Advertising; however, the total amount
of such required contributions or payments shall not exceed four and one-half
percent (4 1/2%) of Gross Sales, and Local Advertising shall not be less than
one percent (1%) of Gross Sales.
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F. Franchisee in its discretion, may plan and conduct, at Franchisee's
expense, a grand opening campaign relating to the opening of the Restaurant, in
accordance with the Manuals. If Franchisee chooses to conduct a grand opening
advertising campaign, Franchisor, after receiving all requested documentation,
will reimburse Franchisee fifty percent (50%) of Franchisee's expenditures for
the grand opening advertising up to a total reimbursement of Three Thousand
Dollars ($3,000.00). All advertising materials and methods used by Franchisee in
connection with such grand opening campaign must be approved by Franchisor in
accordance with Section VIII.H. Amounts paid by Franchisee for the grand opening
campaign shall not be credited toward any other obligation of Franchisee in this
Section VIII.
G. Franchisee shall also pay its pro rata share of the cost of a Yellow
Pages trademark or other business listings to be placed by Franchisor on behalf
of all Rio Bravo Cantina restaurants in the Rio Bravo Cantina restaurant's local
market area. If Franchisee operates the only Rio Bravo Cantina restaurant under
the System in the local market area, Franchisee shall be responsible for full
payment of any Yellow Pages trademark advertising or other business listing,
unless Franchisor determines that placement of a Yellow Pages trademark listing
or other business listings for such local market area is not economically
justified. Any amount paid by Franchisee for such Yellow Pages trademark or
other business listings may be applied by Franchisee toward satisfaction of its
Local Advertising requirement.
H. All advertising and promotion by Franchisee in any medium shall be
conducted in a professional manner and shall conform to the standards and
requirements of Franchisor as set forth in the Manuals or otherwise. Franchisee
shall obtain Franchisor's approval of all advertising and promotional plans and
materials prior to use if such plans and materials have not been prepared by
Franchisor or previously approved by Franchisor during the twelve (12) months
prior to their proposed use. Franchisee shall submit such unapproved plans and
materials to Franchisor, and Franchisor shall approve or disapprove such plans
and materials within thirty (30) business days of Franchisor's receipt thereof.
Franchisee shall not use such unapproved plans or materials until they have been
approved by Franchisor, and shall promptly discontinue use of any advertising or
promotional plans or materials, whether or not previously approved, upon notice
from Franchisor.
I. Franchisor may provide Franchisee with suggested retail prices for
the products, merchandise and services offered by the Restaurant. However,
Franchisee shall have the right to sell its products and merchandise and offer
services at any prices Franchisee may determine, and shall in no way be bound by
any price which may be recommended or suggested by Franchisor. If Franchisee
elects to sell any or all its products or merchandise at any price recommended
by Franchisor, Franchisee acknowledges that Franchisor has made no guarantee or
warranty that offering such products or merchandise at the recommended price
will enhance Franchisee's sales or profits.
IX. MARKS
A. Franchisor grants Franchisee the right to use the Marks during the
term of this Agreement in accordance with the System and related standards and
specifications.
B. Franchisee expressly understands and acknowledges that:
(1) As between Franchisor and Franchisee, Franchisor is the owner of
all right, title and interest in and to the Marks and the goodwill associated
with and symbolized by them.
(2) Neither Franchisee nor any Controlling Principal shall take any
action that would prejudice or interfere with the validity of Franchisor's
rights with respect to the Marks. Nothing in this Agreement shall give the
Franchisee any right, title, or interest in or to any of the Marks or any of
Franchisor's service marks, trademarks, trade names, trade dress, logos,
copyrights or proprietary materials, except the right to use the Marks and the
System in accordance with the terms and conditions of this Agreement for the
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operation of the Restaurant and only at or from its approved location or in
approved advertising related to the Restaurant.
(3) Franchisee understands and agrees that any and all goodwill
arising from Franchisee's use of the Marks and the System shall inure solely and
exclusively to Franchisor's benefit, and upon expiration or termination of this
Agreement and the license herein granted, no monetary amount shall be assigned
as attributable to any goodwill associated with Franchisee's use of the Marks.
(4 Franchisee shall not contest the validity of Franchisor's
interest in the Marks or assist others to contest the validity of Franchisor's
interest in the Marks.
(5) Franchisee acknowledges that any unauthorized use of the Marks
shall constitute an infringement of Franchisor's rights in the Marks and a
material event of default hereunder. Franchisee agrees that it shall provide
Franchisor with all assignments, affidavits, documents, information and
assistance Franchisor reasonably requests to fully vest in Franchisor all such
rights, title and interest in and to the Marks, including all such items as are
reasonably requested by Franchisor to register, maintain and enforce such rights
in the Marks.
(6) Franchisor reserves the right to substitute different Marks for
use in identifying the System and the Restaurant if Franchisor's current Marks
no longer can be used, or if Franchisor, in its sole discretion, determines that
substitution of different Marks will be beneficial to the System. In such event,
Franchisor may require Franchisee, at Franchisee's expense, to discontinue or
modify Franchisee's use of any of the Marks or to use one or more additional or
substitute Marks, if Franchisor has made, or is in the process of making, such
changes to at least sixty percent (60%) of Franchisor's company-owned or
affiliate-owned Restaurants.
C. With respect to Franchisee's franchised use of the Marks pursuant to
this Agreement, Franchisee further agrees that:
(1) Unless otherwise authorized or required by Franchisor,
Franchisee shall operate and advertise the Restaurant only under the name "Rio
Bravo Cantina" without prefix or suffix. Franchisee shall not use the Marks as
part of its corporate or other legal name, and shall obtain the Franchisor's
approval of such corporate or other legal name prior to filing it with the
applicable state authority.
(2) During the term of this Agreement and any renewal hereof,
Franchisee shall identify itself as the owner of the Restaurant, and as a
Franchisee of Franchisor, in conjunction with any use of the Marks, including,
but not limited to, uses on invoices, order forms, receipts and contracts, as
well as the display of a notice in such content and form and at such conspicuous
locations on the premises of the Restaurant or any catering vehicle as
Franchisor may designate in writing.
(3) Franchisee shall not use the Marks to incur any obligation or
indebtedness on behalf of Franchisor.
(4) Franchisee shall comply with Franchisor's instructions in filing
and maintaining the requisite trade name or fictitious name registrations, and
shall execute any documents deemed necessary by Franchisor or its counsel to
obtain protection of the Marks or to maintain their continued validity and
enforceability.
D. Franchisee shall notify Franchisor immediately by telephone and
thereafter in writing of any apparent infringement of or challenge to
Franchisee's use of any Mark, and of any claim by any person of any rights in
any Mark, and Franchisee and the Controlling Principals shall not communicate
with any person other than Franchisor, its counsel and Franchisee's counsel in
connection with any such infringement, challenge or claim. Franchisor shall have
complete discretion to take such action as it deems appropriate in connection
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with the foregoing, and the right to control exclusively, any settlement,
litigation or Patent and Trademark Office action or other proceeding arising out
of any such alleged infringement, challenge or claim or otherwise relating to
any Mark. Franchisee agrees to execute any and all instruments and documents,
render such assistance, and do such acts or things as may, in the opinion of
Franchisor, reasonably be necessary or advisable to protect and maintain the
interests of Franchisor in any litigation or other proceeding or to otherwise
protect and maintain the interests of Franchisor or any other interested party
in the Marks. Franchisor will indemnify Franchisee against and reimburse
Franchisee for all damages for which Franchisee is held liable in any proceeding
arising out of Franchisee's use of any of the Marks (including settlement
amounts), provided that the conduct of Franchisee and the Controlling Principals
with respect to such proceeding and use of the Marks is in full compliance with
the terms of this Agreement. If Franchisor fails to properly defend Franchisee
as aforesaid, and Franchisee is entitled to indemnification and defense, then
Franchisee shall be entitled to defend itself with counsel of its choice and
Franchisor shall be liable to Franchisee for the amount of damages paid by
Franchisee, its costs and reasonable attorneys' fees incurred.
E. The right and license of the Marks granted hereunder to Franchisee
is nonexclusive and Franchisor thus has and retains the following rights, among
others, subject only to the limitations of Section I.:
(1) To grant other licenses for use of the Marks;
(2) To develop and establish other systems using the Marks or other
names or marks and to grant licenses thereto without providing any rights to
Franchisee; and
(3) To engage, directly or indirectly, through its employees,
representatives, licensees, assigns, agents and others, at wholesale, retail or
otherwise, in (i) the production, distribution, license and sale of products and
services, and (ii) the use in connection with such production, distribution and
sale, of the Marks and any and all trademarks, trade names, service marks,
logos, insignia, slogans, emblems, symbols, designs and other identifying
characteristics as may be developed or used from time to time by Franchisor.
X. CONFIDENTIALITY AND NONCOMPETITION COVENANTS
A. (1) To protect the reputation and goodwill of Franchisor and to
maintain high standards of operation under the Marks, Franchisee shall conduct
its business in accordance with the Manuals, other written directives which
Franchisor may issue to Franchisee from time to time whether or not such
directives are included in the Manuals, and any other manuals and materials
created or approved for use in the operation of the franchised business.
(2) Franchisee and the Controlling Principals shall at all times
treat the Manuals, any written directives of Franchisor, and any other manuals
and materials and the information contained therein as confidential and shall
maintain such information as trade secrets and confidential in accordance with
this Section X. Franchisee and the Controlling Principals shall divulge and make
such materials available only to such of Franchisee's employees as must have
access to it in order to operate the Restaurant. Franchisee and the Controlling
Principals shall not at any time copy, duplicate, record or otherwise reproduce
these materials, in whole or in part, or otherwise make the same available to
any person other than those authorized above.
(3) The Manuals, written directives, other manuals and materials,
and any other confidential communications provided or approved by Franchisor
shall at all times remain the sole property of Franchisor, shall be kept in a
secure place on the Restaurant premises, and shall be returned to Franchisor
immediately upon request or upon termination or expiration of this Agreement.
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(4) The Manuals, any written directives, and any other manuals and
materials issued by Franchisor and any modifications to such materials shall
supplement this Agreement.
(5) Franchisor may from time to time revise the contents of the
Manuals and the contents of any other manuals and materials created or approved
for use in the operation of the franchised business. Franchisee shall remove and
return to Franchisor all pages of the Manual that have been replaced or updated
by Franchisor. Franchisee expressly agrees to comply with each new or changed
standard.
(6) Franchisee shall at all times ensure that the Manuals are kept
current and up to date. In the event of any dispute as to the contents of the
Manuals, the terms of the master copy of the Manuals maintained by Franchisor at
Franchisor's corporate office shall control.
(7) Franchisor will charge a replacement fee equal to Franchisor's
actual cost of such Manuals for any replacement Manual requested by Franchisee.
B. (1) Neither Franchisee nor any Controlling Principal shall, during
the term of this Agreement or thereafter, communicate, divulge or use for the
benefit of any other person, persons, partnership, association or corporation
and, following the expiration or termination of this Agreement, they shall not
use for their own benefit, any confidential information, knowledge or know-how
concerning the methods of operation of the franchised business which may be
communicated to them or of which they may be apprised in connection with the
operation of the Restaurant under the terms of this Agreement. Franchisee and
the Controlling Principals shall divulge such confidential information only to
such of Franchisee's employees as must have access to it in order to operate the
Restaurant. Any and all information, knowledge, know-how, techniques and any
materials used in or related to the System which Franchisor provides to
Franchisee in connection with this Agreement shall be deemed confidential for
purposes of this Agreement. Neither Franchisee nor the Controlling Principals
shall at any time, without Franchisor's prior written consent, copy, duplicate,
record or otherwise reproduce such materials or information, in whole or in
part, nor otherwise make the same available to any unauthorized person. The
covenant in this Section shall survive the expiration, termination or transfer
of this Agreement or any interest herein and shall be perpetually binding upon
Franchisee and each of the Controlling Principals.
(2) Franchisee shall require and obtain the execution of covenants
similar to those set forth in Section X.B.(1) from its General Manager and all
other personnel of Franchisee who receive or will have access to confidential
information. Such covenants shall be substantially in the form set forth in
Attachment D. All of Franchisee's Principals not required to sign this Agreement
as a Controlling Principal also must execute such covenants.
(3) If Franchisee or the Controlling Principals develop any new
concept, process, product, recipe, or improvement in the operation or promotion
of the Restaurant, Franchisee is required to promptly notify Franchisor and
provide Franchisor with all necessary related information, without compensation.
Franchisee and the Controlling Principals acknowledge that any such concept,
process, product, recipe, or improvement will become the property of Franchisor,
and Franchisor may use or disclose such information to other franchisees as it
determines to be appropriate.
C. (1) Franchisee and the Controlling Principals specifically
acknowledge that, pursuant to this Agreement, Franchisee and the Controlling
Principals will receive valuable training, trade secrets and confidential
information, including, without limitation, information regarding the
operational, sales, promotional and marketing methods and techniques of
Franchisor and the System which are beyond the present skills and experience of
Franchisee and the Controlling Principals and Franchisee's managers and
employees. Franchisee and the Controlling Principals acknowledge that such
specialized training, trade secrets and confidential information provide a
competitive advantage and will be valuable to them in the development and
operation of the Restaurant, and that gaining access to such specialized
training, trade secrets and confidential information is, therefore, a primary
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reason why they are entering into this Agreement. In consideration for such
specialized training, trade secrets, confidential information and rights,
Franchisee and the Controlling Principals covenant that with respect to
Franchisee, during the term of this Agreement (or with respect to each of the
Controlling Principals, during the term of this Agreement for so long as such
individual or entity satisfies the definition of "Controlling Principals" as
described in Section XIX.S. of this Agreement), except as otherwise approved in
writing by Franchisor, neither Franchisee nor any of the Controlling Principals
shall, either directly or indirectly, for themselves or through, on behalf of or
in conjunction with any person(s), partnership or corporation:
(a) Divert, or attempt to divert, any business or customer of
the franchised business to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with the Marks and the System.
(b) Own, maintain, operate, engage in, or have any financial or
beneficial interest in (including any interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures), advise, assist or make
loans to, any business that is of a character and concept similar to the
Restaurant. As used herein, the term "similar" means a restaurant business which
looks like, copies, imitates, or operates in a manner similar to a "Rio Bravo
Cantina" restaurant, including, but not limited to, a restaurant business which
offers and sells Mexican, Tex-Mex or other Southwestern cuisine, including,
tacos, enchiladas, fajitas, quesadillas, nachos or similar fare, and such menu
items constitute forty percent (40%) or more of the appetizers or entrees listed
on its menu as determined by Franchisor, in its sole discretion, and which
business is located within the United States, its territories or commonwealths,
or any other country, province, state or geographic area in which Franchisor has
used, sought registration of or registered the same or similar Marks or operates
or licenses others to operate a business under the same or similar Marks.
(2) With respect to Franchisee,and for a continuous uninterrupted
period commencing upon the expiration, termination of, or transfer of all of
Franchisee's interest in, this Agreement (or, with respect to each of the
Controlling Principals, commencing upon the earlier of: (i) the expiration,
termination of, or transfer of all of Franchisee's interest in, this Agreement
or (ii) the time such individual or entity ceases to satisfy the definition of
"Controlling Principals" as described in Section XIX.S. of this Agreement) and
continuing for two (2) years thereafter, except as otherwise approved in writing
by Franchisor, neither Franchisee, nor any of the Controlling Principals shall,
directly or indirectly, for themselves, or through, on behalf of or in
conjunction with any person, persons, partnership, or corporation:
(a) Divert, or attempt to divert, any business or customer of
the franchised business to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with the Marks and the System.
(b) Employ, or seek to employ, any person who is at that time or
was within the preceding one hundred eighty (180) days employed by Franchisor,
any of its affiliates or by any other franchisee (including, as applicable, any
developer) of Franchisor, or otherwise directly or indirectly induce such person
to leave that person's employment.
(c) Own, maintain, operate, engage in, or have any financial or
beneficial interest in (including any interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures), advise, assist or make
loans to, any business that is of a character and concept similar to the
Restaurant. As used herein, the term "similar" means a restaurant business which
looks like, copies, imitates, or operates in a manner similar to a "Rio Bravo
Cantina" restaurant, including, but not limited to, a restaurant business which
offers and sells Mexican, Tex-Mex or other Southwestern cuisine, including,
tacos, enchiladas, fajitas, quesadillas, nachos or similar fare, and such menu
items which constitute forty percent (40%) or more of the appetizers or entrees
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listed in its menu as determined by Franchisor, in its sole discretion, and
which business is, or is intended to be, located within the Assigned Area or
within a twenty-five (25) mile radius of the location of any Rio Bravo Cantina
restaurant or food service facility in existence or under construction (or where
land has been purchased or a lease has been executed) at any given time during
such period.
(3) The parties acknowledge and agree that each of the covenants
contained herein are reasonable limitations as to time, geographical area, and
scope of activity to be restrained and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of Franchisor. The
parties agree that each of the covenants herein shall be construed as
independent of any other covenant or provision of this Agreement. If all or any
portion of a covenant in this Section is held unreasonable or unenforceable by a
court or agency having valid jurisdiction in an unappealed final decision to
which Franchisor is a party, Franchisee and the Controlling Principals expressly
agree to be bound by any lesser covenant subsumed within the terms of such
covenant that imposes the maximum duty permitted by law, as if the resulting
covenant were separately stated in and made a part of this Section. Sections
X.C.(1)(b) and (2)(c) shall not apply to the ownership of less than a three
percent (3%) beneficial interest in the outstanding equity securities of any
publicly-held corporation.
(a) Franchisee and the Controlling Principals understand and
acknowledge that Franchisor shall have the right to reduce the scope of any
covenant set forth in this Section X.C. in this Agreement, or any portion
thereof, without their consent, effective immediately upon notice to Franchisee;
and Franchisee and the Controlling Principals agree that they shall comply
forthwith with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section XIX.B. hereof.
(b) Franchisee and the Controlling Principals expressly agree
that the existence of any claims they may have against Franchisor, whether or
not arising from this Agreement, shall not constitute a defense to the
enforcement by Franchisor of the covenants in this Section.
(4) Franchisee shall require and obtain execution of covenants
similar to those set forth in this Section X.C. (including covenants applicable
upon the termination of a person's employment with Franchisee) from its General
Manager and all other personnel of Franchisee who have received or will have
access to training from Franchisor. Such covenants shall be substantially in the
form set forth in Attachment D. All of Franchisee's Principals not required to
sign this Agreement as a Controlling Principal also must execute such covenants.
Notwithstanding the foregoing, Franchisor reserves the right to decrease the
period of time or geographic scope of the noncompetition covenant set forth in
Attachment D or eliminate such noncompetition covenant altogether for any party
that is required to execute such agreement under this Section X.C.(4).
D. Franchisee and the Controlling Principals acknowledge that any
failure to comply with the requirements of this Section shall constitute a
material event of default under Section XVII. hereof. Franchisee and the
Controlling Principals acknowledge that a violation of the terms of this Section
would result in irreparable injury to Franchisor for which no adequate remedy at
law may be available, and Franchisee and the Controlling Principals accordingly
consent to the issuance of an injunction prohibiting any conduct by Franchisee
or the Controlling Principals in violation of the terms of this Section.
Franchisee and the Controlling Principals agree to pay all court costs and
reasonable attorneys' fees incurred by Franchisor in connection with the
enforcement of this Section, including payment of all costs and expenses for
obtaining specific performance of, or an injunction against violation of, the
requirements of such Section.
XI. BOOKS AND RECORDS
A. Franchisee shall maintain during the term of this Agreement, and
shall preserve for at least five (5) years from the dates of their preparation,
full, complete and accurate books, records and accounts, including, but not
limited to, sales slips, coupons, purchase orders, payroll records, check stubs,
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bank statements, sales tax records and returns, cash receipts and disbursements,
journals and ledgers, and backup or archived records of information maintained
on any computer system in accordance with generally accepted accounting
principles, as applicable, and in the form and manner prescribed by Franchisor
from time to time in the Manual or otherwise in writing.
B. In addition to the remittance reports required by Sections IV. and
VIII. hereof, Franchisee shall comply with the following reporting obligations:
(1) If requested by Franchisor, Franchisee shall, at Franchisee's
expense, submit to Franchisor, in the form prescribed by Franchisor, a profit
and loss statement for each month (which may be unaudited) for Franchisee within
twenty (20) days after the end of each month during the term hereof. In
addition, Franchisee shall, at Franchisee's expense, submit to Franchisor, in
the form prescribed by Franchisor, a balance sheet for the period ending date
requested (which may be unaudited) within twenty (20) days after Franchisor's
request. Each such statement shall be signed by Franchisee's treasurer or chief
financial officer or comparable officer attesting that it is true, complete and
correct;
(2) Franchisee shall, at its expense, provide to Franchisor a
complete annual financial statement (which may be unaudited) for Franchisee
prepared by an independent certified public accountant satisfactory to
Franchisor, within ninety (90) days after the end of each fiscal year of
Franchisee during the term hereof, showing the results of operations of
Franchisee during such fiscal year; Franchisor reserves the right to require the
financial statements described above to be audited by an independent certified
public accountant satisfactory to Franchisor at Franchisee's cost and expense.
(3) Franchisee shall also submit to Franchisor, for review or
auditing, such other forms, reports, records, information and data as Franchisor
may reasonably designate, in the form and at the times and places reasonably
required by Franchisor, upon request and as specified from time to time in
writing.
C. Franchisor or its designees shall have the right at all reasonable
times to review, audit, examine and copy any or all of the books and records of
Franchisee at the Restaurant. Franchisee shall make such books and records
available to Franchisor or its designees immediately upon request. If any
required royalty payment to Franchisor is delinquent, or if an inspection should
reveal that any such payment was understated in any report to Franchisor, then
Franchisee shall immediately pay to Franchisor the amount overdue or understated
upon demand with interest determined in accordance with the provisions of
Section IV.B.(3). If an inspection discloses an understatement in any report of
three percent (3%) or more, Franchisee shall, in addition, reimburse Franchisor
for all costs and expenses connected with the inspection (including, without
limitation, reasonable accounting and attorneys' fees). These remedies shall be
in addition to any other remedies Franchisor may have at law or in equity.
D. Franchisee understands and agrees that the receipt or acceptance by
Franchisor of any of the statements furnished or royalties paid to Franchisor
(or the cashing of any royalty checks or processing of any electronic fund
transfers) shall not preclude Franchisor from questioning the correctness
thereof at any time and, in the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately be rectified
by the Franchisee and the appropriate payment shall be made by the Franchisee.
E. Franchisee hereby authorizes (and agrees to execute any other
documents deemed necessary to effect such authorization) all banks, financial
institutions, businesses, suppliers, manufacturers, contractors, vendors and
other persons or entities with which Franchisee does business to disclose to
Franchisor any requested financial information in their possession relating to
Franchisee's business as it relates to the System or the Restaurant. Franchisee
authorizes Franchisor to disclose data from Franchisee's reports, if Franchisor
determines, in its sole discretion, that such disclosure is necessary or
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advisable, which disclosure may include disclosure to prospective or existing
franchisees or other third parties.
F. In addition to the information, books, records and reports
Franchisee must provide with respect to the Restaurant and Franchisee described
above, each of the Controlling Principals shall provide to Franchisor unaudited
annual financial statements containing the information requested by Franchisor
with respect to each such Controlling Principal within ninety (90) days after
the end of Franchisee's fiscal year.
XII. INSURANCE
A. (1) Franchisee shall procure, upon execution of this Agreement, and
shall maintain in full force and effect at all times during the term of this
Agreement at Franchisee's expense, an insurance policy or policies protecting
Franchisee and Franchisor and its affiliates, successors and assigns, and the
officers, directors, shareholders, partners, agents, representatives,
independent contractors and employees of each of them against any demand or
claim with respect to personal injury, death or property damage, or any loss,
liability or expense whatsoever arising or occurring upon or in connection with
the Restaurant.
(2) Such policy or policies shall be written by a responsible
carrier or carriers reasonably acceptable to Franchisor and shall include, at a
minimum (except as additional coverages and higher policy limits may reasonably
be specified by Franchisor from time to time), in accordance with standards and
specifications set forth in writing, the following:
(a) Comprehensive General Liability Insurance, including broad
form contractual liability, broad form property damage, personal injury, liquor
liability, advertising injury, completed operations, products liability and fire
damage coverage, in the amount of One Million Dollars ($1,000,000.00) each
person, One Million Dollars ($1,000,000.00) each occurrence.
(b) "All Risks" coverage for the full cost of replacement of the
Restaurant premises and all other property in which Franchisor may have an
interest with no coinsurance clause for the premises.
(c) Automobile liability coverage, including coverage of owned,
non-owned and hired vehicles, with coverage in amounts not less than One Million
Dollars ($1,000,000) combined single limit.
(d) Employer's Liability in the amount of Five Hundred Thousand
Dollars ($500,000.00) bodily injury by accident and Five Hundred Thousand
($500,000.00) bodily injury by disease.
(e) Worker's compensation insurance in amounts provided by
applicable law or, if permissible under applicable law, a legally appropriate
alternative providing substantially similar compensation for injured workers
satisfactory to Franchisor, provided that Franchisee (i) maintains an excess
indemnity or "umbrella" policy covering employer's liability and/or a
medical/disability policy covering medical expenses for on-the-job accidents,
which policy or policies shall contain such coverage amounts as Franchisee and
Franchisor shall mutually agree upon, and (ii) conducts and maintains a risk
management and safety program for its employees as the Franchisee and Franchisor
shall mutually agree is appropriate. Such policies shall also include a waiver
of subrogation in favor of Franchisor and its affiliates and the officers,
directors, shareholders, partners, agents, representatives, independent
contractors, servants and employees of each of them.
(f) An umbrella policy covering any excess claims in the amount
of Ten Million Dollars ($10,000,000.00).
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(g) Such other insurance as may be required by the state or
locality in which the Restaurant is located and operated.
(h) Franchisee may, with the prior written consent of
Franchisor, elect to have reasonable deductibles in connection with the coverage
required under Sections XII.A.(2)(a) - (g) hereof. Such policies shall also
include a waiver of subrogation in favor of Franchisor, its affiliates and the
respective officers, directors, shareholders, partners, agents, representatives,
independent contractors, servants and employees of each of them.
(3) In connection with any construction, renovation, refurbishment
or remodeling of the Restaurant, Franchisee shall maintain Builder's
Risks/Installation insurance in forms and amounts, and written by a carrier or
carriers, reasonably satisfactory to Franchisor.
(4) Franchisee's obligation to obtain and maintain the foregoing
policy or policies in the amounts specified shall not be limited in any way by
reason of any insurance which may be maintained by Franchisor, nor shall
Franchisee's performance of that obligation relieve it of liability under the
indemnity provisions set forth in Section XV. of this Agreement.
(5) All public liability and property damage policies shall contain
a provision that Franchisor and its affiliates and the officers, directors,
shareholders, partners, agents, representatives, independent contractors,
servants and employees of each of them, although named as insureds, shall
nevertheless be entitled to recover under such policies on any loss occasioned
to Franchisor or its servants, agents or employees by reason of the negligence
of Franchisee or its servants, agents or employees.
(6) Upon execution of this Agreement, and thereafter in accordance
with Section VI. hereof and thirty (30) days prior to the expiration of any such
policy, Franchisee shall deliver to Franchisor Certificates of Insurance
evidencing the existence and continuation of proper coverage with limits not
less than those required hereunder. In addition, if requested by Franchisor,
Franchisee shall deliver to Franchisor a copy of the insurance policy or
policies required hereunder. All insurance policies required hereunder, with the
exception of workers' compensation, shall name Franchisor and its affiliates and
the officers, directors, shareholders, partners, agents, representatives,
independent contractors, servants and employees of each of them, as additional
insureds, and shall expressly provide that any interest of same therein shall
not be affected by any breach by Franchisee of any policy provisions. Further,
all insurance policies required hereunder shall expressly provide that no less
than thirty (30) days' prior written notice shall be given to Franchisor in the
event of a material alteration to or cancellation of the policies.
(7) Should Franchisee, or any reason, fail to procure or maintain
the insurance required by this Agreement, as such requirements may be revised
from time to time by Franchisor in writing, Franchisor shall have the right and
authority (without, however, any obligation to do so) immediately to procure
such insurance and to charge same to Franchisee, which charges, together with a
reasonable fee for Franchisor's expenses in so acting, shall be payable by
Franchisee immediately upon notice. The foregoing remedies shall be in addition
to any other remedies Franchisor may have at law or in equity.
XIII. DEBTS AND TAXES
A. Franchisee shall promptly pay when due all Taxes (as defined below),
levied or assessed, and all accounts and other indebtedness of every kind
incurred by Franchisee in the conduct of the franchised business under this
Agreement. Without limiting the provisions of Section XV., Franchisee shall be
solely liable for the payment of all Taxes and shall indemnify Franchisor for
the full amount of all such Taxes and for any liability (including penalties,
interest and expenses) arising from or concerning the payment of Taxes, whether
Taxes were correctly or legally asserted or not.
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B. Each payment to be made to Franchisor hereunder shall be made free
and clear and without deduction for any Taxes. The term "Taxes" means any
present or future taxes, levies, imposts, duties or other charges of whatsoever
nature, including any interest or penalties thereon, imposed by any government
or political subdivision of such government on or relating to the operation of
the franchised business, the payment of monies, or the exercise of rights
granted pursuant to this Agreement, except Taxes imposed on or measured by
Franchisor's net income.
C. In the event of any bona fide dispute as to Franchisee's liability
for taxes assessed or other indebtedness, Franchisee may contest the validity or
the amount of the tax or indebtedness in accordance with the procedures of the
taxing authority or applicable law. However, in no event shall Franchisee permit
a tax sale or seizure by levy of execution or similar writ or warrant or
attachment by a creditor, to occur against the premises of the franchised
business or any improvements thereon.
D. Franchisee shall comply with all federal, state and local laws,
rules and regulations and shall timely obtain any and all permits, certificates
or licenses necessary for the full and proper conduct of the franchised
business, including, without limitation, licenses to do business, fictitious
name registrations, sales tax permits, fire clearances, health permits,
certificates of occupancy and any permits, certificates or licenses required by
any environmental law, rule or regulation.
E. Franchisee shall notify Franchisor in writing within five (5) days
after the commencement of any action, suit or proceeding and of the issuance of
any order, writ, injunction, award or decree of any court, agency or other
governmental instrumentality, which may adversely affect the operation or
financial condition of the franchised business.
XIV. TRANSFER OF INTEREST
A. Franchisor shall have the right to transfer or assign this Agreement
and all or any part of its rights or obligations herein to any person or legal
entity. Specifically, and without limitation of the foregoing, Franchisee agrees
that Franchisor may sell its assets and may sell or license the Marks or the
System to a third party; may offer its securities privately or publicly; may
merge, acquire other corporations or be acquired by another corporation; may
undertake a refinancing, recapitalization, leveraged buyout or other economic or
financial restructuring; and with regard to any or all of the above sales,
assignments and dispositions, Franchisee expressly and specifically waives any
claims, demands, or damages against Franchisor arising from or related to the
transfer of the Marks (or any variation thereof) or the System from Franchisor
to any other party. Nothing contained in this Agreement shall require Franchisor
to offer any services or products, whether or not bearing the Marks, to
Franchisee, if Franchisor assigns its rights in this Agreement.
B. (1) Franchisee understands and acknowledges that the rights and
duties set forth in this Agreement are personal to Franchisee, and that
Franchisor has granted rights under this Agreement in reliance on the business
skill, financial capacity and personal character of Franchisee and the
Controlling Principals. Accordingly, neither Franchisee nor any Controlling
Principal, nor any successor or assign of Franchisee or any Controlling
Principal, shall sell, assign, transfer, convey, give away, pledge, mortgage or
otherwise encumber any direct or indirect interest in this Agreement, in the
Restaurant or in Franchisee without the prior written consent of Franchisor. Any
purported assignment or transfer, by operation of law or otherwise, made in
violation of this Agreement shall be null and void and shall constitute a
material event of default under this Agreement.
(2) If Franchisee wishes to transfer all or part of its interest in
the Restaurant or this Agreement or if Franchisee or a Controlling Principal
wishes to transfer any ownership interest in Franchisee, transferor and the
proposed transferee shall apply to Franchisor for its consent. Franchisor may,
in its sole discretion, require any or all of the following as conditions of its
approval:
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(a) All of the accrued monetary obligations of Franchisee or any
of its affiliates and all other outstanding obligations to Franchisor or any of
its affiliates arising under this Agreement or any other agreement shall have
been satisfied in a timely manner and Franchisee shall have satisfied all trade
accounts and other debts, of whatever nature or kind, in a timely manner;
(b) Franchisee and its affiliates shall not be in default of any
provision of this Agreement, any amendment hereof or successor hereto, or any
other agreement between Franchisee or any of its affiliates and Franchisor or
any of its affiliates, and Franchisee shall have substantially and timely
complied with all the terms and conditions of such agreements during the terms
thereof;
(c) The transferor and its principals (if applicable) shall have
executed a general release, in a form satisfactory to Franchisor, of any and all
claims against Franchisor, its affiliates and the officers, directors,
shareholders, partners, agents, representatives, independent contractors,
servants and employees of each of them, in their corporate and individual
capacities, including, without limitation, claims arising under this Agreement
and federal, state and local laws, rules and regulations;
(d) The transferee shall demonstrate to Franchisor's
satisfaction that transferee meets the criteria considered by Franchisor when
reviewing a prospective franchisee's application for a license, including, but
not limited to, Franchisor's educational, managerial and business standards;
transferee's good moral character, business reputation and credit rating;
transferee's aptitude and ability to conduct the business franchised herein (as
may be evidenced by prior related business experience or otherwise);
transferee's financial resources and capital for operation of the business; and
the geographic proximity and number of other Rio Bravo Cantina restaurants owned
or operated by transferee;
(e) The transferee shall enter into a written agreement, in a
form satisfactory to Franchisor, assuming full, unconditional, joint and several
liability for, and agreeing to perform from the date of the transfer, all
obligations, covenants and agreements contained in this Agreement; and, if
transferee is a corporation or a partnership, transferee's shareholders,
partners or other investors, as applicable, shall execute such agreement as
transferee's principals and guarantee the performance of all such obligations,
covenants and agreements;
(f) The transferee shall execute, for a term ending on the
expiration date of this Agreement and with such renewal terms as may be provided
by this Agreement, the standard form franchise agreement then being offered to
new System franchisees and other ancillary agreements as Franchisor may require
for the Restaurant, which agreements shall supersede this Agreement and its
ancillary documents in all respects and the terms of which agreements may differ
from the terms of this Agreement, including, without limitation, a higher
percentage royalty fee, advertising contribution or expenditure requirement;
provided, however, that the transferee shall not be required to pay any initial
franchise fee; and, if transferee is a corporation or a partnership,
transferee's shareholders, partners or other investors, as applicable, shall
execute such agreement as transferee's principals and guarantee the performance
of all such obligations, covenants and agreements;
(g) The transferee, at its expense, shall renovate, modernize
and otherwise upgrade the Restaurant and, if applicable, any catering vehicles
to conform to the then-current standards and specifications of the System, and
shall complete the upgrading and other requirements within the time period
reasonably specified by Franchisor;
(h The transferor shall remain liable for all of the
obligations to Franchisor in connection with the Restaurant incurred prior to
the effective date of the transfer and shall execute any and all instruments
reasonably requested by Franchisor to evidence such liability;
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(i) At the transferee's expense, the transferee, the
transferee's operating principal, general manager and/or any other applicable
Restaurant personnel shall complete any training programs then in effect for
franchisees of Rio Bravo Cantina restaurants upon such terms and conditions as
Franchisor may reasonably require;
(j Franchisee shall pay a transfer fee of Three Thousand Five
Hundred Dollars ($3,500) to Franchisor;
(k) If the transferee is a corporation or a partnership, the
transferee shall make and will be bound by any or all of the representations,
warranties and covenants set forth at Section VI. as Franchisor requests.
Transferee shall provide to Franchisor evidence satisfactory to Franchisor that
the terms of such Section have been satisfied and are true and correct on the
date of transfer; or
(l) Franchisee shall have completed its obligations to construct
and open the Restaurant to the public for business under Section II. of this
Agreement.
(3) Franchisee shall not grant a security interest in the Restaurant
or in any of Franchisee's assets without Franchisor's prior written consent,
which shall not be unreasonably withheld. In connection therewith, the secured
party will be required by Franchisor to agree that in the event of any default
by Franchisee under any documents related to the security interest, Franchisor
shall have the right and option to be substituted as obligor to the secured
party and to cure any default of Franchisee.
(4) Franchisee acknowledges and agrees that each condition which
must be met by the transferee is reasonable and necessary to assure such
transferee's full performance of the obligations hereunder.
C. If the proposed transfer is to a corporation formed solely for the
convenience of ownership, Franchisor's consent may be conditioned upon any of
the requirements set forth at Section XIV.B.(2), except that the requirements
set forth at Sections XIV.B.(2)(c), (d), (f), (g), (i) and (j) shall not apply.
With respect to a transfer to a corporation formed for the convenience of
ownership, Franchisee shall be the owner of all of the voting stock or interest
of the corporation and if Franchisee is more than one individual, each
individual shall have the same proportionate ownership interest in the
corporation as he had in Franchisee prior to the transfer.
D. (1) If Franchisee wishes to transfer all or part of its interest in
the Restaurant or this Agreement or if Franchisee or a Controlling Principal
wishes to transfer any ownership interest in Franchisee, pursuant to any bona
fide offer received from a third party to purchase such interest, then such
proposed seller shall promptly notify Franchisor in writing of each such offer,
and shall provide such information and documentation relating to the offer as
Franchisor may require. Franchisor shall have the right and option, exercisable
within thirty (30) business days after receipt of such written notification and
copies of all documentation requested by Franchisor describing the terms of such
offer, to send written notice to the seller that Franchisor intends to purchase
the seller's interest on the same terms and conditions offered by the third
party. In the event that Franchisor elects to purchase the seller's interest,
closing on such purchase must occur within the later of sixty (60) business days
from the date of notice to the seller of the election to purchase by Franchisor,
ten (10) business days after the date Franchisor receives and obtains all
necessary permits and approvals, or such other date as the parties agree upon in
writing. Any material change in the terms of any offer prior to closing shall
constitute a new offer subject to the same right of first refusal by Franchisor
as in the case of an initial offer. Failure of Franchisor to exercise the option
afforded by this Section XIV.D. shall not constitute a waiver of any other
provision of this Agreement, including all of the requirements of Section XIV.,
with respect to a proposed transfer.
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(2) If the offer from a third party provides for payment of
consideration other than cash or involves certain intangible benefits,
Franchisor may elect to purchase the interest proposed to be sold for the
reasonable equivalent in cash, its, or its parent's publicly-traded securities,
or intangible benefits similar to those being offered. In addition, if the
publicly-traded securities referred to in this Section are being offered as a
reasonable equivalent to publicly-traded securities offered by a third party,
the registration and/or restricted nature of such securities offered by
Franchisor will be substantially similar to those offered by the third party. If
the parties cannot agree within a reasonable time on the reasonable cash
equivalent of the non-cash part of the offer, then such amount shall be
determined by two (2) appraisers qualified to determine the value of the
non-cash offer, with each party selecting one (1) appraiser, and the average of
their determinations shall be binding. In the event of such appraisal, each
party shall bear its own legal and other costs and shall split the appraisal
fees equally. If the Franchisor exercises its right of first refusal herein
provided, it also shall have the right to set off against any payment therefor
(i) all fees for any such independent appraiser due from Franchisee hereunder,
and (ii) all amounts due from Franchisee to Franchisor or any of its affiliates.
(3) Failure to comply with the provisions of this Section prior to
the transfer of any interest in Franchisee, the Restaurant or this Agreement
shall constitute a material event of default under this Agreement.
E. (1) Upon the death of Franchisee (if a natural person) or any
Controlling Principal who is a natural person and who has an interest in this
Agreement, the Restaurant or Franchisee (the "Deceased"), the executor,
administrator or other personal representative of the Deceased shall transfer
such interest to a third party approved by Franchisor within six (6) months
after the death. If no personal representative is designated or appointed or no
probate proceedings are instituted with respect to the estate of the Deceased,
then the distributee of such interest must be approved by Franchisor. If the
distributee is not approved by Franchisor, then the distributee shall transfer
such interest to a third party approved by Franchisor within six (6) months
after the death of the Deceased.
(2) Upon the permanent disability of Franchisee (if a natural
person) or any Controlling Principal who is a natural person and who has an
interest in this Agreement, the Restaurant or Franchisee, Franchisor may require
such interest to be transferred to a third party in accordance with the
conditions described in this Section XIV. within six (6) months after notice to
Franchisee. "Permanent disability" shall mean any physical, emotional or mental
injury, illness or incapacity which would prevent a person from performing the
obligations set forth in this Agreement or in the guaranty made part of this
Agreement for at least ninety (90) consecutive days and from which condition
recovery within ninety (90) days from the date of determination of disability is
unlikely. Permanent disability shall be determined by a licensed practicing
physician selected by Franchisor, upon examination of the person; or if the
person refuses to submit to an examination, then such person automatically shall
be deemed permanently disabled as of the date of such refusal for the purpose of
this Section XIV.E. The costs of any examination required by this Section shall
be paid by Franchisor.
(3) Upon the death or claim of permanent disability of Franchisee or
any Controlling Principal, Franchisee or a representative of Franchisee must
notify Franchisor of such death or claim of permanent disability within thirty
(30) days of its occurrence. Any transfer upon death or permanent disability
shall be subject to the same terms and conditions as described in this Section
for any inter vivos transfer. If an interest is not transferred upon death or
permanent disability as required in this Section, then such failure shall
constitute a material event of default under this Agreement.
(4) A Controlling Principal may transfer its interest in Franchisee
to such Principal's spouse or children (collectively referred to as "Successor")
as so designated in such Principal's will or trust, upon such Principal's death
or permanent disability, without Franchisor's approval, provided that such
Successor agrees to be bound by the restrictions contained in this Section XIV.
and all other agreements and covenants of the Controlling Principal contained in
this Agreement. Further, a Controlling Principal may transfer his interest in
Franchisee to an inter vivos trust established for his Successor, upon the prior
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written consent of Franchisor, which consent will not be unreasonably withheld.
F. Franchisor's consent to a transfer of any interest described herein
shall not constitute a waiver of any claims which Franchisor may have against
the transferring party, nor shall it be deemed a waiver of Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
G. Securities or partnership interests in Franchisee may be offered to
the public (a "public offering") only with the prior written consent of
Franchisor, which consent shall be considered in good faith. As a condition of
its approval to such offering, Franchisor may, in its sole discretion, require
that immediately after such offering that Franchisee and the Controlling
Principals retain a Controlling Interest in Franchisee. For the purpose of this
Agreement, "Controlling Interest" shall mean: (a) if Franchisee is a
corporation, that the Controlling Principals, either individually or
cumulatively, (i) directly or indirectly own at least fifty-one percent (51%) of
the shares of each class of Franchisee's issued and outstanding capital stock
and (ii) be entitled, under its governing documents and under any agreements
among the shareholders, to cast a sufficient number of votes to require such
corporation to take or omit to take any action which such corporation is
required to take or omit to take under this Agreement, or (b) if Franchisee is a
partnership, that the Controlling Principals (i) own at least a fifty-one
percent (51%) interest in the operating profits and operating losses of the
partnership as well as at least a fifty-one percent (51%) ownership interest in
the partnership (and at least a fifty-one percent (51%) interest in the shares
of each class of capital stock of any corporate general partner) and (ii) be
entitled under its partnership agreement or applicable law to act on behalf of
the partnership without the approval or consent of any other partner or be able
to cast a sufficient number of votes to require the partnership to take or omit
to take any action which the partnership is required to take or omit to take
under this Agreement.
H. All materials required for a public offering by federal or state law
shall be submitted to Franchisor for a limited review as discussed below prior
to being filed with any governmental agency; and any materials (including any
private placement memoranda) to be used in any exempt offering or private
placement shall be submitted to Franchisor for such review prior to their use.
No Franchisee offering (public or private) shall imply (by use of the Marks or
otherwise) that Franchisor is participating in an underwriting, issuance or
offering of securities of Franchisee or Franchisor, and Franchisor's review of
any offering materials shall be limited solely to the subject of the
relationship between Franchisee and Franchisor and its affiliates. Franchisor
may, at its option, require Franchisee's offering materials to contain a written
statement prescribed by Franchisor concerning the limitations described in the
preceding sentence. Franchisee, its Controlling Principals and the other
participants in the offering must fully indemnify Franchisor, and its
affiliates, their respective partners and the officers, directors, shareholders,
partners, agents, representatives, independent contractors, servants and
employees of each of them, in connection with the offering. For each proposed
public or private offering, Franchisee shall pay to Franchisor a non-refundable
fee of Three Thousand Five Hundred Dollars ($3,500), or such greater amount as
is necessary to reimburse Franchisor for its reasonable costs and expenses
associated with reviewing the proposed offering, including, without limitation,
legal and accounting fees. Franchisee shall give Franchisor written notice at
least thirty (30) days prior to the date of commencement of any offering or
other transaction covered by Section XIV.G.
I. If any person holding an interest in Franchisee, this Agreement or
the Restaurant (other than Franchisee or a Controlling Principal, which parties
shall be subject to the provisions set forth above) transfers such interest,
then Franchisee shall promptly notify Franchisor of such proposed transfer in
writing and shall provide such information relative thereto as Franchisor may
reasonably request prior to such transfer. Such transferee may not be a
competitor of Franchisor. Such transferee will be a Franchisee's Principal and
as such will have to execute a confidentiality agreement and ancillary covenants
not to compete in the form then required by Franchisor, which form shall be in
substantially the same form attached hereto as Attachment D (see Sections
X.B.(2) and X.C.(4)). Franchisor also reserves the right to designate the
transferee as one of the Controlling Principals.
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XV. INDEMNIFICATION
A. Franchisee and each of the Controlling Principals shall, at all
times, indemnify and hold harmless to the fullest extent permitted by law
Franchisor, its affiliates, successors and assigns, and the officers, directors,
shareholders, partners, agents, representatives, independent contractors,
servants and employees of each of them ("Indemnitees"), from all "losses and
expenses" (as defined in Section XV.D.(2) below) incurred in connection with any
action, suit, proceeding, claim, demand, investigation or inquiry (formal or
informal), or any settlement thereof (whether or not a formal proceeding or
action has been instituted) which arises out of or is based upon any of the
following:
(1) The infringement, alleged infringement, or any other violation
or alleged violation by Franchisee or any of the Controlling Principals of any
patent, mark or copyright or other proprietary right owned or controlled by
third parties (except as such may occur with respect to any right to use the
Marks, any copyrights or other proprietary information granted hereunder
pursuant to Sections IX. and X.);
(2) The violation, breach or asserted violation or breach by
Franchisee or any of the Controlling Principals of any federal, state or local
law, regulation, ruling, standard or directive or any industry standard;
(3) Libel, slander or any other form of defamation of Franchisor,
the System or any developer or franchisee operating under the System, by
Franchisee or by any of the Controlling Principals;
(4) The violation or breach by Franchisee or by any of the
Controlling Principals of any warranty, representation, agreement or obligation
in this Agreement or in any other agreement between Franchisee or any of its
affiliates and Franchisor or any of its affiliates, or the officers, directors,
shareholders, partners, agents, representatives, independent contractors,
servants and employees of any of them; and
(5) Acts, errors, or omissions of Franchisee, any of Franchisee's
affiliates and any of the Controlling Principals and the officers, directors,
shareholders, partners, agents, representatives, independent contractors and
employees of each of them in connection with the establishment and operation of
the Restaurant, including, but not limited to, any acts, errors or omissions of
any of the foregoing in the operation of any motor vehicle. The parties
understand and agree that Franchisor cannot and does not exercise control over
the manner of operation of any motor vehicles used by, or on behalf of,
Franchisee or any employee, agent or independent contractor of Franchisee and
that the safe operation of any motor vehicle is, therefore, Franchisee's
responsibility.
B. Franchisee and each of the Controlling Principals agree to give
Franchisor prompt notice of any such action, suit, proceeding, claim, demand,
inquiry, or investigation. At the expense and risk of Franchisee and each of the
Controlling Principals, Franchisor may elect to assume (but under no
circumstance is obligated to undertake) or associate counsel of its own choosing
with respect to, the defense and/or settlement of any such action, suit,
proceeding, claim, demand, inquiry or investigation. Such an undertaking by
Franchisor shall, in no manner or form, diminish the obligation of Franchisee
and each of the Controlling Principals to indemnify the Indemnitees and to hold
them harmless.
C. In order to protect persons or property, or its reputation or
goodwill, or the reputation or goodwill of others, Franchisor may, at any time
and without notice, as it, in its judgment deems appropriate, consent or agree
to settlements or take such other remedial or corrective action as it deems
expedient with respect to the action, suit, proceeding, claim, demand, inquiry
or investigation if, in Franchisor's sole judgment, there are reasonable grounds
to believe that:
(1) any of the acts or circumstances enumerated in Section XV.A.(1)
- - (4) above have occurred; or
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(2) any act, error, or omission as described in Section XV.A.(5) may
result directly or indirectly in damage, injury, or harm to any person or any
property.
D. (1) All losses and expenses incurred under this Section XV. shall be
chargeable to and paid by Franchisee or any of the Controlling Principals
pursuant to its obligations of indemnity under this Section, regardless of any
actions, activity or defense undertaken by Franchisor or the subsequent success
or failure of such actions, activity, or defense.
(2) As used in this Section XV., the phrase "losses and expenses"
shall include, without limitation, all losses, compensatory, exemplary or
punitive damages, fines, charges, costs, expenses, lost profits, reasonable
attorneys' fees, court costs, settlement amounts, judgments, compensation for
damages to the Franchisor's reputation and goodwill, costs of or resulting from
delays, financing, costs of advertising material and media time/space, and costs
of changing, substituting or replacing the same, and any and all expenses of
recall, refunds, compensation, public notices and other such amounts incurred in
connection with the matters described.
E. The Indemnitees do not assume any liability whatsoever for acts,
errors, or omissions of any third party with whom Franchisee, any of the
Controlling Principals, Franchisee's affiliates or any of the officers,
directors, shareholders, partners, agents, representatives, independent
contractors and employees of Franchisee or its affiliates may contract,
regardless of the purpose. Franchisee and each of the Controlling Principals
shall hold harmless and indemnify the Indemnitees for all losses and expenses
which may arise out of any acts, errors or omissions of Franchisee, the
Controlling Principals, Franchisee's affiliates, the officers, directors,
shareholders, partners, agents, representatives, independent contractors and
employees of Franchisee and its affiliates and any such other third parties
without limitation and without regard to the cause or causes thereof or the
negligence (whether such negligence be sole, joint or concurrent, or active or
passive) or strict liability of Franchisor or any other party or parties arising
in connection therewith.
F. Under no circumstances shall the Indemnitees be required or
obligated to seek recovery from third parties or otherwise mitigate their losses
in order to maintain a claim against Franchisee or any of the Controlling
Principals. Franchisee and each of the Controlling Principals agree that the
failure to pursue such recovery or mitigate loss will in no way reduce the
amounts recoverable from Franchisee or any of the Controlling Principals by the
Indemnitees.
G. Franchisee and the Controlling Principals expressly agree that the
terms of this Section XV. shall survive the termination, expiration or transfer
of this Agreement or any interest herein.
H. Franchisor shall, at all times, indemnify and hold harmless to the
fullest extent permitted by law, Franchisee and each of the Controlling
Principals, successors and assigns, and the officers, directors, shareholders
and employees of each of them ("Reciprocal Indemnitees") from all "Franchisee
Losses and Expenses" incurred in connection with any third party action, suit,
proceeding, claim, demand, investigation or inquiry (formal or informal), or any
settlement thereof (whether or not a formal proceeding or action has been
instituted), which arises out of or is based upon any of the following:
(1) The violation, breach or asserted violation or breach by
Franchisor of any federal, state or local statute or regulation;
(2) Libel, slander or any other form of defamation of a third party
by Franchisor, or any person acting by, for or on behalf of Franchisor;
(3) The intentional or malicious infliction of injury as to any
third party by Franchisor; or
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(4) Food or beverage offered for sale under the Marks in the
Assigned Area by Franchisor or some other licensee of Franchisor.
For purposes of this section, "Franchisee Losses and Expenses"
shall include all compensatory damages, costs, legal fees, court costs and
expenses incurred in connection with matters indemnified above.
XVI. RELATIONSHIP OF THE PARTIES
A. The parties acknowledge and agree that this Agreement does not
create a fiduciary relationship between them, that Franchisee shall be an
independent contractor, and that nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, joint employer or servant of the other for any
purpose.
B. During the term of this Agreement, Franchisee shall hold itself out
to the public as an independent contractor conducting its Restaurant operations
pursuant to the rights granted by Franchisor. Franchisee agrees to take such
action as shall be necessary to that end, including, without limitation,
exhibiting a notice of that fact in a conspicuous place on the Restaurant
premises established for the purposes hereunder or on any catering vehicle and
on all letterhead, business cards, forms, and as further described in the
Manuals Franchisor reserves the right to specify in writing the content and form
of such notice.
C. Franchisee understands and agrees that nothing in this Agreement
authorizes Franchisee or any of the Controlling Principals to make any contract,
agreement, warranty or representation on Franchisor's behalf, or to incur any
debt or other obligation in Franchisor's name, and that Franchisor shall in no
event assume liability for, or be deemed liable under this Agreement as a result
of, any such action, or for any act or omission of Franchisee or any of the
Controlling Principals or any claim or judgment arising therefrom.
XVII. TERMINATION
A. (1) Franchisee acknowledges and agrees that each of Franchisee's
obligations described in this Agreement is a material and essential obligation
of Franchisee; that nonperformance of such obligations will adversely and
substantially affect the Franchisor and the System; and that the exercise by
Franchisor of the rights and remedies set forth herein is appropriate and
reasonable.
(2) Franchisee shall be deemed to be in default under this
Agreement, and all rights granted herein shall automatically terminate without
notice to Franchisee:
(a) if Franchisee shall become insolvent or makes a general
assignment for the benefit of creditors;
(b) or if Franchisee files a voluntary petition under any
section or chapter of federal bankruptcy law or under any similar law or statute
of the United States or any state thereof, or admits in writing its inability to
pay its debts when due;
(c) or if Franchisee is adjudicated a bankrupt or insolvent in
proceedings filed against Franchisee under any section or chapter of federal
bankruptcy laws or under any similar law or statute of the United States or any
state; or if a bill in equity or other proceeding for the appointment of a
receiver of Franchisee or other custodian for Franchisee's business or assets is
filed and consented to by Franchisee; or if a receiver or other custodian
(permanent or temporary) of Franchisee's assets or property, or any part
thereof, is appointed by any court of competent jurisdiction;
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(d) or if proceedings for a composition with creditors under any
state or federal law should be instituted by or against Franchisee;
(e) or if a final judgment remains unsatisfied or of record for
thirty (30) days or longer (unless supersedeas bond is filed);
(f) or if Franchisee is dissolved;
(g) or if execution is levied against Franchisee's business or
property used in connection with the Restaurant or System;
(h) or if suit to foreclose any lien or mortgage against the
Restaurant premises or equipment is instituted against Franchisee and not
dismissed within ninety (90) days; or
(i) or if the real or personal property of Franchisee's
Restaurant shall be sold after levy thereupon by any sheriff, marshal or
constable.
Notwithstanding, the provisions of this Section XVII.A.(2) above,
Franchisee shall not be deemed to be in default of this section in those
instances where a bankruptcy of insolvency proceeding was filed against
Franchisee or a receivership or composition was instituted against Franchisee,
unless Franchisee has not caused such actions to be dismissed within ninety (90)
days of the filing of such actions.
(3) Franchisee shall be deemed to be in material default and
Franchisor may, at its option, terminate this Agreement and all rights granted
hereunder, without affording Franchisee any opportunity to cure the default,
effective immediately upon notice to Franchisee, upon the occurrence of any of
the following events:
(a) If Franchisee operates the Restaurant or sells any products
or services authorized by Franchisor for sale at the Restaurant at a location
which has not been approved by Franchisor;
(b) If Franchisee fails to acquire an approved location for the
Restaurant within the time and in the manner specified in Section II;
(c) If Franchisee fails to construct or remodel the Restaurant
in accordance with the plans and specifications provided to Franchisee under
Section V.C. as such plans may be adapted with Franchisor's approval in
accordance with Section II.E.;
(d) If Franchisee fails to open the Restaurant for business as a
Rio Bravo Cantina restaurant within the period specified in Section II.G.
hereof, unless such delay is due to delays in construction caused by cases of
Force Majeure and in such event, the provisions of Section XVII.A.(3)(e)
regarding Force Majeure shall apply;
(e) If Franchisee at any time ceases to operate or otherwise
abandons the Restaurant, or loses the right to possession of the premises, or
otherwise forfeits the right to do or transact business in the jurisdiction
where the Restaurant is located; provided, however, that this provision shall
not apply in cases of Force Majeure (acts of God, strikes, lockouts or other
industrial disturbances, war, riot, epidemic, fire or other catastrophe or other
forces beyond Franchisee's control), if through no fault of Franchisee, the
premises are damaged or destroyed by an event as described above, provided that
Franchisee applies within thirty (30) days after such event, for Franchisor's
approval to relocate or reconstruct the premises (which approval shall not be
unreasonably withheld) and Franchisee diligently pursues such reconstruction or
relocation; such approval may be conditioned upon the payment of an agreed
minimum fee to Franchisor during the period in which the Restaurant is not in
operation;
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(f) If Franchisee or any of the Controlling Principals is
convicted of, or has entered a plea of nolo contendere to, a felony, a crime
involving moral turpitude, or any other crime or offense that Franchisor
believes is reasonably likely to have an adverse effect on the System, the
Marks, the goodwill associated therewith, or Franchisor's interests therein.
With respect the other crime or offense that Franchisor believes is reasonably
likely to have an adverse effect on the System, the Marks, the goodwill
associated therewith, or Franchisor's interest therein, referred to in this
Section XVII.A.(3)(f), Franchisor shall give Franchisee thirty (30) days notice
of its belief of adverse effect prior to terminating this Agreement in order to
permit Franchisee an opportunity to cure such default;
(g) If a threat or danger to public health or safety results
from the construction, maintenance or operation of the Restaurant;
(h) If Franchisee fails to propose a qualified replacement or
successor Operating Principal (or his designee, as applicable) within the time
required under Section VI.C.(5) hereof;
(i) If Franchisee or any of the Controlling Principals purports
to transfer any rights or obligations under this Agreement or any interest in
Franchisee or the Restaurant to any third party without Franchisor's prior
written consent, without offering Franchisor a right of first refusal with
respect to such transfer, contrary to the terms of Section XIV. of this
Agreement, or prior to the construction and opening of the Restaurant for
business to the public under Section II. hereof;
(j) If Franchisee or any of its affiliates fails, refuses, or
neglects promptly to pay any monies owing to Franchisor when due under this
Agreement, or any other agreement, or to submit the financial or other
information required by Franchisor under this Agreement and does not cure such
default within fourteen (14) days following notice from Franchisor (or such
other cure period specified in such other agreement, unless no cure period is
stated or such period is less than fourteen (14) days, in which case the
fourteen (14) day cure period shall apply);
(k) If Franchisee or any of the Controlling Principals fails to
comply with the in-term covenants in Section X.C. hereof or Franchisee fails to
obtain execution of the covenants and related agreements required under Section
X.C.(4) hereof within thirty (30) days after being requested to do so by
Franchisor;
(l) If, contrary to the terms of Section X.B.(1) hereof,
Franchisee or any of the Controlling Principals discloses or divulges any
confidential information provided to Franchisee or the Controlling Principals by
Franchisor, or fails to obtain execution of covenants and related agreements
required under Section X.B.(2) hereof within thirty (30) days after being
requested to do so by Franchisor;
(m) If a transfer upon death or permanent disability is not made
in accordance with Section XIV. and within the time periods therein, or within
thirty (30) days thereafter;
(n) If Franchisee knowingly maintains false books or records, or
submits any false reports to Franchisor;
(o) If Franchisee breaches in any material respect any of the
covenants in any material respect set forth in Section VI. or has falsely made
any of the representations or warranties set forth in Section VI.;
(p) If Franchisee fails to propose a qualified replacement or
successor General Manager within the time required under Section VI.D.(4);
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(q) If Franchisee fails to procure and maintain such insurance
policies as required by Section XII. and Franchisee fails to cure such default
within seven (7) days following notice from Franchisor;
(r) If Franchisee misuses or makes any unauthorized use of the
Marks or otherwise materially impairs the goodwill associated therewith or
Franchisor's rights therein; provided that, notwithstanding the above,
Franchisee shall be entitled to notice of such event of default and shall have
twenty-four (24) hours to cure such default; or
(s) If Franchisee or any of the Controlling Principals
repeatedly commits a material event of default under this Agreement, whether or
not such defaults are of the same or different nature and whether or not such
defaults have been cured by Franchisee after notice by Franchisor.
B. Except as provided in Sections XVII.A.(2) and (3) of this Agreement,
upon any default by Franchisee which is susceptible of being cured, Franchisor
may terminate this Agreement by giving written notice of termination stating the
nature of such default to Franchisee at least thirty (30) days prior to the
effective date of termination. However, Franchisee may avoid termination by
immediately initiating a remedy to cure such default and curing it to
Franchisor's satisfaction within the thirty (30) day period and by promptly
providing proof thereof to Franchisor. If Franchisee initiates a remedy to cure
the default during the initial thirty (30) day period, but is unable to complete
such remedy to Franchisor's satisfaction within such thirty (30) day period,
Franchisee shall have an additional thirty (30) days or such longer period as
applicable law may require, to effectuate a cure of the default, notwithstanding
any other term set forth in this Section XVII.B. If any such default is not
cured within the specified time, or such longer period as applicable law may
require, this Agreement shall terminate without further notice to Franchisee
effective immediately upon the expiration of the thirty-day (30) period or such
longer period as applicable law may require. Defaults which are susceptible of
cure hereunder may include, but are not limited to, the following illustrative
events:
(1) If Franchisee fails to comply with any of the requirements
imposed by this Agreement, as it may from time to time be amended or reasonably
be supplemented by Franchisor, or fails to carry out the terms of this Agreement
in good faith.
(2) If Franchisee fails to maintain or observe any of the standards,
specifications or procedures prescribed by Franchisor in this Agreement or
otherwise in writing.
(3) If Franchisee fails, refuses, or neglects to obtain Franchisor's
prior written approval or consent as required by this Agreement.
XVIII. POST-TERMINATION
Upon termination or expiration of this Agreement, all rights granted
hereunder to Franchisee shall forthwith terminate, and:
A. Franchisee shall immediately cease to operate the Restaurant under
this Agreement, and shall not thereafter, directly or indirectly, represent to
the public or hold itself out as a present or former franchisee of Franchisor.
B. Franchisee shall immediately and permanently cease to use, in any
manner whatsoever, any confidential methods, computer software, procedures, and
techniques associated with the System; the mark "Rio Bravo"; and all other Marks
and distinctive forms, slogans, signs, symbols, and devices associated with the
System. In particular, Franchisee shall cease to use, without limitation, all
signs, advertising materials, displays, stationery, forms and any other articles
which display the Marks.
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C. Franchisee shall take such action as may be necessary to cancel any
assumed name or equivalent registration which contains the mark "Rio Bravo
Cantina" or any other service mark or trademark of Franchisor, and Franchisee
shall furnish Franchisor with evidence satisfactory to Franchisor of compliance
with this obligation within five (5) days after termination or expiration of
this Agreement.
D. Franchisee agrees, in the event it continues to operate or
subsequently begins to operate any other business, not to use any reproduction,
counterfeit, copy or colorable imitation of the Marks, either in connection with
such other business or the promotion thereof, which is likely to cause
confusion, mistake, or deception, or which is likely to dilute Franchisor's
rights in and to the Marks, and further agrees not to utilize any designation of
origin or description or representation which falsely suggests or represents an
association or connection with Franchisor constituting unfair competition.
E. Franchisee and its Controlling Principals shall promptly pay all
sums owing to Franchisor and its affiliates. Such sums shall include all
damages, costs and expenses, including reasonable attorneys' fees, incurred by
Franchisor as a result of any default by Franchisee, which obligation shall give
rise to and remain, until paid in full, a lien in favor of Franchisor against
any and all of the personal property, furnishings, equipment, signs, fixtures,
and inventory owned by Franchisee and on the premises operated hereunder at the
time of default.
F. Franchisee and the Controlling Principals shall pay to Franchisor
all damages, costs and expenses, including reasonable attorneys' fees, incurred
by Franchisor in connection with obtaining any remedy available to Franchisor
for any violation of this Agreement and, subsequent to the termination or
expiration of this Agreement, in obtaining injunctive or other relief for the
enforcement of any provisions of this Section XVIII.
G. Franchisee shall immediately deliver to Franchisor all Manuals,
software (if any) licensed by Franchisor, records, files, instructions,
correspondence, all materials related to operating the Restaurant, including,
without limitation, agreements, invoices, and any and all other materials
relating to the operation of the Restaurant in Franchisee's possession or
control, and all copies thereof (all of which are acknowledged to be
Franchisor's property), and shall retain no copy or record of any of the
foregoing, except Franchisee's copy of this Agreement and of any correspondence
between the parties and any other documents which Franchisee reasonably needs
for compliance with any provision of law.
H. Franchisee and the Controlling Principals shall comply with the
restrictions on confidential information contained in Section X. of this
Agreement and shall also comply with the non-competition covenants contained in
Section X. Any other person required to execute similar covenants pursuant to
Section X. shall also comply with such covenants.
I. Franchisee shall also immediately furnish Franchisor an itemized
list of all advertising and sales promotion materials bearing the Marks or any
of Franchisor's distinctive markings, designs, labels, or other marks thereon,
whether located on Franchisee's premises or under Franchisee's control at any
other location. Franchisor shall have the right to inspect these materials.
Franchisor shall have the option, exercisable within thirty (30) days after such
inspection, to purchase any or all of the materials at Franchisee's cost, or to
require Franchisee to destroy and properly dispose of such materials. Materials
not purchased by Franchisor shall not be utilized by Franchisee or any other
party for any purpose unless authorized in writing by Franchisor.
J. If Franchisee operates the Restaurant under a lease for the
Restaurant premises with a third party or, with respect to any lease for
equipment used in the operation of the franchised business, then, Franchisee
shall, at Franchisor's option, assign to Franchisor any interest which
Franchisee has in any lease or sublease for the premises of the Restaurant or
any equipment related thereto. Franchisor may exercise such option at or within
thirty (30) days after either termination or (subject to any existing right to
renew) expiration of this Agreement. In the event Franchisor does not elect to
exercise its option to acquire the lease or sublease for the Restaurant
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premises, Franchisee shall make such modifications or alterations to the
Restaurant premises as are necessary to distinguish the appearance of the
Restaurant from that of other restaurants operating under the System and shall
make such specific additional changes as Franchisor may reasonably request. If
Franchisee fails or refuses to comply with the requirements of this Section
XVIII.J., Franchisor shall have the right to enter upon the premises of the
franchised business, without being guilty of trespass or any other crime or
tort, to make or cause to be made such changes as may be required, at the
expense of Franchisee, which expense Franchisee agrees to pay upon demand.
K. (1) Except as provided in Section XVIII.I., Franchisor shall have
the option, to be exercised within thirty (30) days after termination or
expiration of this Agreement, to purchase from Franchisee any or all of the
furnishings, equipment (including any electronic cash register or computer
hardware and software systems), signs, fixtures, motor vehicles, supplies, and
inventory of Franchisee related to the operation of the Restaurant, at fair
market value, whichever is less. Franchisor shall be purchasing Franchisee's
assets only and shall be assuming no liabilities whatsoever, unless otherwise
agreed to in writing by the parties. If the parties cannot agree on the fair
market value within thirty (30) days of Franchisor's exercise of its option,
fair market value shall be determined by two (2) appraisers, with each party
selecting one (1) appraiser. The appraisers appointed by each party shall select
a third appraiser and the average of the determination of each of the three (3)
appraisers shall be binding. The costs of the third party appraiser shall be
paid equally by the Franchisor and the Franchisee. In the event of such
appraisal, each party shall bear its own legal and other costs and shall split
the other appraisal fees equally. If Franchisor elects to exercise any option to
purchase herein provided, it shall have the right to set off (i) all fees for
any such independent appraiser due from Franchisee, (ii) all amounts due from
Franchisee to Franchisor or any of its affiliates, and (iii) any costs incurred
in connection with any escrow arrangement (including reasonable legal fees),
against any payment therefor and shall pay the remaining amount in cash.
(2) In addition to the options described above and if Franchisee
owns the Restaurant premises, then, Franchisor shall have the option, to be
exercised at or within thirty (30) days after termination or expiration of this
Agreement, to purchase the Restaurant premises including any building thereon,
if applicable, for the fair market value of the land and building, and any or
all of the furnishings, equipment, signs, fixtures, vehicles, supplies and
inventory therein at fair market value, whichever is less. Franchisor shall
purchase assets only and shall assume no liabilities whatsoever, unless
otherwise agreed to in writing by the parties. If Franchisee does not own the
land on which the Restaurant is operated and Franchisor exercises its option for
an assignment of the lease, Franchisor may exercise this option for the purpose
of purchasing the building if owned by Franchisee and related assets as
described above. If the parties cannot agree on fair market value within thirty
(30) days of Franchisor's exercise of its option, fair market value shall be
determined in accordance with appraisal procedure described above.
(3) With respect to the options described in Sections XVIII.J. and
K(1) and (2), Franchisee shall deliver to Franchisor in a form satisfactory to
Franchisor, such warranties, deeds, releases of lien, bills of sale, assignments
and such other documents and instruments which Franchisor deems necessary in
order to perfect Franchisor's title and possession in and to the properties
being purchased or assigned and to meet the requirements of all tax and
government authorities. If, at the time of closing, Franchisee has not obtained
all of these certificates and other documents, Franchisor may place the purchase
price or rent in escrow pending issuance of any required certificates or
documents.
(4) The time for closing of the purchase and sale of the properties
described in Section XVIII.K.(1) and (2) shall be a date not later than sixty
(60) days after the purchase price is determined by the parties or the
determination of the appraisers, or such date Franchisor receives and obtains
all necessary permits and approvals, whichever is later, unless the parties
mutually agree to designate another date. The time for closing on the assignment
of the lease described in Section XVIII.J. shall be a date no later than ten
(10) days after Franchisor's exercise of its option thereunder unless Franchisor
is exercising its options under either Section XVIII.K.(1) or (2), in which case
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the date of the closing shall be on the same closing date prescribed for such
option. Closing shall take place at Franchisor's corporate offices or at such
other location as the parties may agree.
L. Franchisor shall be entitled to assign any and all of its options in
this Section to any other party, without the consent of Franchisee.
M. Franchisee, at the option of Franchisor, shall assign to Franchisor
all rights to the telephone numbers of the Restaurant and any related Yellow
Pages trademark listing or other business listings and execute all forms and
documents required by Franchisor and any telephone company at any time to
transfer such service and numbers to Franchisor. Notwithstanding any forms and
documents which may have been executed by Franchisor under Section VII.I.,
Franchisee hereby appoints Franchisor its true and lawful agent and
attorney-in-fact with full power and authority, for the sole purpose of taking
such action as is necessary to complete such assignment. This power of attorney
shall survive the expiration or termination of this Agreement. Franchisee shall
thereafter use different telephone numbers at or in connection with any
subsequent business conducted by Franchisee.
XIX. MISCELLANEOUS
A. Any and all notices required or permitted under this Agreement shall
be in writing and shall be personally delivered or sent by expedited delivery
service or certified or registered mail, return receipt requested, first-class
postage prepaid, or sent by prepaid facsimile, telegram or telex (provided that
the sender confirms the facsimile, telegram or telex by sending an original
confirmation copy by certified or registered mail or expedited delivery service
within three (3) business days after transmission) to the respective parties at
the following addresses unless and until a different address has been designated
by written notice to the other party:
Notices to Franchisor: Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: CEO
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: President
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: General Counsel
Facsimile: (913) 341-1696
Notices to Franchisee and
the Controlling Principals: _________________________
_________________________
_________________________
_________________________
Attention: ______________
Facsimile: ______________
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Any notice shall be deemed to have been given at the time of personal
delivery or, in the case of facsimile, telegram or telex, upon transmission
(provided confirmation is sent as described above) or, in the case of expedited
delivery service or registered or certified mail, three (3) business days after
the date and time of mailing.
B. This Agreement, the documents referred to herein, and the
Attachments hereto, constitute the entire, full and complete agreement between
Franchisor and Franchisee and the Controlling Principals concerning the subject
matter hereof and shall supersede all prior related agreements between
Franchisor and Franchisee and the Controlling Principals. Except for those
permitted to be made unilaterally by Franchisor hereunder, no amendment, change
or variance from this Agreement shall be binding on either party unless mutually
agreed to by the parties and executed by their authorized officers or agents in
writing.
C. No delay, waiver, omission or forbearance on the part of Franchisor
to exercise any right, option, duty or power arising out of any breach or
default by Franchisee or the Controlling Principals under this Agreement shall
constitute a waiver by Franchisor to enforce any such right, option, duty or
power against Franchisee or the Controlling Principals, or as to a subsequent
breach or default by Franchisee or the Controlling Principals. Acceptance by
Franchisor of any payments due to it hereunder subsequent to the time at which
such payments are due shall not be deemed to be a waiver by Franchisor of any
preceding breach by Franchisee or the Controlling Principals of any terms,
provisions, covenants or conditions of this Agreement.
D. Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor, and
such approval or consent shall be obtained in writing.
E. Franchisor makes no warranties or guarantees upon which Franchisee
may rely and assumes no liability or obligation to Franchisee or any third party
to which it would not otherwise be subject, by providing any waiver, approval,
advice, consent or suggestion to Franchisee in connection with this Agreement,
or by reason of any neglect, delay or denial of any request therefor.
F. If a Force Majeure event shall occur, then, in addition to payments
required under Section XVII.A.(3)(e), Franchisee shall continue to be obligated
to pay to Franchisor any and all amounts that it shall have duly become
obligated to pay in accordance with the terms of this Agreement prior to the
occurrence of any Force Majeure event and the Indemnitees shall continue to be
indemnified and held harmless by Franchisee in accordance with Section XV.
Except as provided in Section XVII.A.(3)(e) and the immediately preceding
sentence herein, none of the parties hereto shall be held liable for a failure
to comply with any terms and conditions of this Agreement when such failure is
caused by an event of Force Majeure. Upon the occurrence of any event of the
type referred to herein, the party affected thereby shall give prompt notice
thereof to the other parties, together with a description of the event, the
duration for which the party expects its ability to comply with the provisions
of the Agreement to be affected thereby and a plan for resuming operation under
the Agreement, which the party shall promptly undertake and maintain with due
diligence. Such affected party shall be liable for failure to give timely notice
only to the extent of damage actually caused.
G. THE PARTIES AGREE TO SUBMIT ANY CLAIM, CONTROVERSY OR DISPUTE
ARISING OUT OF OR RELATING TO THIS AGREEMENT (AND ATTACHMENTS) OR THE
RELATIONSHIP CREATED BY THIS AGREEMENT TO NON-BINDING MEDIATION PRIOR TO
BRINGING SUCH CLAIM, CONTROVERSY OR DISPUTE IN A COURT OR BEFORE ANY OTHER
TRIBUNAL. THE MEDIATION SHALL BE CONDUCTED THROUGH EITHER AN INDIVIDUAL MEDIATOR
OR A MEDIATOR APPOINTED BY A MEDIATION SERVICES ORGANIZATION OR BODY,
EXPERIENCED IN THE MEDIATION OF DISPUTES BETWEEN FRANCHISORS AND FRANCHISEES,
AGREED UPON BY THE PARTIES AND, FAILING SUCH AGREEMENT WITHIN A REASONABLE
PERIOD OF TIME AFTER EITHER PARTY HAS NOTIFIED THE OTHER OF ITS DESIRE TO SEEK
MEDIATION OF ANY CLAIM, CONTROVERSY OR DISPUTE (NOT TO EXCEED FIFTEEN (15)
DAYS), BY THE AMERICAN ARBITRATION ASSOCIATION (OR ANY SUCCESSOR ORGANIZATION)
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IN ACCORDANCE WITH ITS RULES GOVERNING MEDIATION, AT FRANCHISOR'S CORPORATE
HEADQUARTERS IN OVERLAND PARK, KANSAS. THE COSTS AND EXPENSES OF MEDIATION,
INCLUDING COMPENSATION AND EXPENSES OF THE MEDIATOR (AND EXCEPT FOR THE
ATTORNEYS FEES INCURRED BY EITHER PARTY), SHALL BE BORNE BY THE PARTIES EQUALLY.
IF THE PARTIES ARE UNABLE TO RESOLVE THE CLAIM, CONTROVERSY OR DISPUTE WITHIN
NINETY (90) DAYS AFTER THE MEDIATOR HAS BEEN CHOSEN, THEN EITHER PARTY MAY BRING
A LEGAL PROCEEDING UNDER SECTION XIX.H. BELOW TO RESOLVE SUCH CLAIM, CONTROVERSY
OR DISPUTE UNLESS SUCH TIME PERIOD IS EXTENDED BY WRITTEN AGREEMENT OF THE
PARTIES. NOTWITHSTANDING THE FOREGOING, FRANCHISOR MAY BRING AN ACTION (1) FOR
MONIES OWED, (2) FOR INJUNCTIVE OR OTHER EXTRAORDINARY RELIEF, OR (3) TO OBTAIN
POSSESSION OF OR TO SECURE OTHER RELIEF RELATING TO, THE RESTAURANT PREMISES IN
A COURT HAVING JURISDICTION AND IN ACCORDANCE WITH SECTION XIX.H. BELOW, WITHOUT
FIRST SUBMITTING SUCH ACTION TO MEDIATION.
H. WITH RESPECT TO ANY CLAIMS, CONTROVERSIES OR DISPUTES WHICH ARE NOT
FINALLY RESOLVED THROUGH MEDIATION OR AS OTHERWISE PROVIDED ABOVE, FRANCHISEE
AND THE CONTROLLING PRINCIPALS HEREBY IRREVOCABLY SUBMIT THEMSELVES TO THE
JURISDICTION OF THE STATE COURTS OF JOHNSON COUNTY, KANSAS AND THE FEDERAL
DISTRICT COURT OF KANSAS IN KANSAS CITY, KANSAS. FRANCHISEE AND THE CONTROLLING
PRINCIPALS HEREBY AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON ANY OF THEM IN
ANY PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE RELATIONSHIP
CREATED BY THIS AGREEMENT BY ANY MEANS ALLOWED BY KANSAS OR FEDERAL LAW.
FRANCHISEE AND THE CONTROLLING PRINCIPALS FURTHER AGREE THAT VENUE FOR ANY
PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT SHALL BE JOHNSON COUNTY,
KANSAS; PROVIDED, HOWEVER, WITH RESPECT TO ANY ACTION (1) FOR MONIES OWED, (2)
FOR INJUNCTIVE OR OTHER EXTRAORDINARY RELIEF, OR (3) INVOLVING POSSESSION OR
DISPOSITION OF, OR OTHER RELIEF RELATING TO, REAL PROPERTY, FRANCHISOR MAY BRING
SUCH ACTION IN ANY STATE OR FEDERAL DISTRICT COURT WHICH HAS JURISDICTION. WITH
RESPECT TO ALL CLAIMS, CONTROVERSIES, DISPUTES OR ACTIONS, THIS AGREEMENT SHALL
BE GOVERNED AND ENFORCED UNDER KANSAS LAW (EXCEPT FOR KANSAS CHOICE OF LAW
RULES).
I. FRANCHISEE, THE CONTROLLING PRINCIPALS AND FRANCHISOR ACKNOWLEDGE
THAT THE PARTIES' AGREEMENT REGARDING APPLICABLE STATE LAW AND FORUM SET FORTH
IN SECTION XIX.H. ABOVE PROVIDE EACH OF THE PARTIES WITH THE MUTUAL BENEFIT OF
UNIFORM INTERPRETATION OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF THIS
AGREEMENT OR THE PARTIES' RELATIONSHIP CREATED BY THIS AGREEMENT. EACH OF
FRANCHISEE, THE CONTROLLING PRINCIPALS AND FRANCHISOR FURTHER ACKNOWLEDGES THE
RECEIPT AND SUFFICIENCY OF MUTUAL CONSIDERATION FOR SUCH BENEFIT.
J. FRANCHISEE, THE CONTROLLING PRINCIPALS AND FRANCHISOR ACKNOWLEDGE
THAT THE EXECUTION OF THIS AGREEMENT AND ACCEPTANCE OF THE TERMS BY THE PARTIES
OCCURRED IN OVERLAND PARK, KANSAS, AND FURTHER ACKNOWLEDGE THAT THE PERFORMANCE
OF CERTAIN OBLIGATIONS OF FRANCHISEE ARISING UNDER THIS AGREEMENT, INCLUDING,
BUT NOT LIMITED TO, THE PAYMENT OF MONIES DUE HEREUNDER AND THE SATISFACTION OF
CERTAIN TRAINING REQUIREMENTS OF FRANCHISOR, SHALL OCCUR IN OVERLAND PARK,
KANSAS.
K. WITHOUT LIMITING ANY OF THE FOREGOING, FRANCHISOR RESERVES THE
RIGHT, AT ANY TIME, TO CREATE A DISPUTE RESOLUTION PROGRAM AND RELATED
SPECIFICATIONS, STANDARDS, PROCEDURES AND RULES FOR THE IMPLEMENTATION THEREOF
TO BE ADMINISTERED BY FRANCHISOR OR ITS DESIGNEES FOR THE BENEFIT OF ALL
FRANCHISEES CONDUCTING BUSINESS UNDER THE SYSTEM. THE STANDARDS, SPECIFICATIONS,
PROCEDURES AND RULES FOR SUCH DISPUTE RESOLUTION PROGRAM SHALL BE MADE PART OF
THE MANUALS, AND FRANCHISEE SHALL COMPLY WITH ALL SUCH STANDARDS,
SPECIFICATIONS, PROCEDURES AND RULES IN SEEKING RESOLUTION OF ANY CLAIMS,
CONTROVERSIES OR DISPUTES WITH OR INVOLVING FRANCHISOR OR OTHER FRANCHISEES, IF
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APPLICABLE UNDER THE PROGRAM. IF SUCH DISPUTE RESOLUTION PROGRAM IS MADE
MANDATORY, THEN FRANCHISEE AND FRANCHISOR AGREE TO SUBMIT ANY CLAIMS,
CONTROVERSIES OR DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT (AND
ATTACHMENTS) OR THE RELATIONSHIP CREATED BY THIS AGREEMENT FOR RESOLUTION IN
ACCORDANCE WITH SUCH DISPUTE RESOLUTION PROGRAM PRIOR TO SEEKING RESOLUTION OF
SUCH CLAIMS, CONTROVERSIES OR DISPUTES IN THE MANNER DESCRIBED IN SECTIONS
XIX.G. - J. (PROVIDED THAT THE PROVISIONS OF SECTION XIX CONCERNING FRANCHISOR'S
RIGHT TO SEEK RELIEF IN A COURT FOR CERTAIN ACTIONS INCLUDING FOR INJUNCTIVE OR
OTHER EXTRAORDINARY RELIEF SHALL NOT BE SUPERSEDED OR AFFECTED BY THIS SECTION
XIX.K.) OR IF SUCH CLAIM, CONTROVERSY OR DISPUTE RELATES TO ANOTHER FRANCHISEE,
FRANCHISEE AGREES TO PARTICIPATE IN THE PROGRAM AND SUBMIT ANY SUCH CLAIMS,
CONTROVERSIES OR DISPUTES IN ACCORDANCE WITH THE PROGRAM'S STANDARDS,
SPECIFICATIONS, PROCEDURES AND RULES, PRIOR TO SEEKING RESOLUTION OF SUCH CLAIM
BY ANY OTHER JUDICIAL OR LEGALLY AVAILABLE MEANS. THE MEDIATION CONTEMPLATED BY
SECTION XIX.K. OF THIS AGREEMENT SHALL, IF ESTABLISHED BY THE FRANCHISOR, BE
CONDUCTED BY AN INDEPENDENT THIRD PARTY MEDIATION ORGANIZATION, SHALL BE
NON-BINDING AND THE COSTS OF THE MEDIATION (BUT NOT EACH PARTY'S ATTORNEYS' FEES
AND COSTS) SHALL BE SHARED EQUALLY BETWEEN THE PARTIES.
L. FRANCHISEE AND THE CONTROLLING PRINCIPALS HEREBY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO OR CLAIM OR ANY PUNITIVE,
EXEMPLARY, INCIDENTAL, INDIRECT, SPECIAL, CONSEQUENTIAL OR OTHER DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS) AGAINST FRANCHISOR, ITS
AFFILIATES, AND THE OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS, AGENTS,
REPRESENTATIVES, INDEPENDENT CONTRACTORS, SERVANTS AND EMPLOYEES OF EACH OF
THEM, IN THEIR CORPORATE AND INDIVIDUAL CAPACITIES, ARISING OUT OF ANY CAUSE
WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE, STRICT
LIABILITY, OTHER TORT OR OTHERWISE) AND AGREES THAT IN THE EVENT OF A DISPUTE,
FRANCHISEE AND THE CONTROLLING PRINCIPALS SHALL BE LIMITED TO THE RECOVERY OF
ANY ACTUAL DAMAGES SUSTAINED BY IT. IF ANY OTHER TERM OF THIS AGREEMENT IS FOUND
OR DETERMINED TO BE UNCONSCIONABLE OR UNENFORCEABLE FOR ANY REASON, THE
FOREGOING PROVISIONS OF WAIVER BY AGREEMENT OF PUNITIVE, EXEMPLARY, INCIDENTAL,
INDIRECT, SPECIAL, CONSEQUENTIAL OR OTHER DAMAGES (INCLUDING, WITHOUT
LIMITATION, LOSS OF PROFITS) SHALL CONTINUE IN FULL FORCE AND EFFECT.
M. This Agreement may be executed in multiple counterparts, each of
which when so executed shall be an original, and all of which shall constitute
one and the same instrument.
N. The captions used in connection with the sections and subsections of
this Agreement are inserted only for purpose of reference. Such captions shall
not be deemed to govern, limit, modify or in any other manner affect the scope,
meaning or intent of the provisions of this Agreement or any part thereof nor
shall such captions otherwise be given any legal effect.
O. Any obligation of Franchisee or the Controlling Principals that
contemplates performance of such obligation after termination or expiration of
this Agreement or the transfer of any interest of Franchisee or the Controlling
Principals therein, shall be deemed to survive such termination, expiration or
transfer.
P. Except as expressly provided to the contrary herein, each portion,
section, part, term and provision of this Agreement shall be considered
severable; and if, for any reason, any portion, section, part, term or provision
is determined to be invalid and contrary to, or in conflict with, any existing
or future law or regulation by a court or agency having valid jurisdiction, this
shall not impair the operation of, or have any other effect upon, the other
portions, sections, parts, terms or provisions of this Agreement that may remain
otherwise intelligible, and the latter shall continue to be given full force and
effect and bind the parties; the invalid portions, sections, parts, terms or
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provisions shall be deemed not to be part of this Agreement; and there shall be
automatically added such portion, section, part, term or provision as similar as
possible to that which was severed which shall be valid and not contrary to or
in conflict with any law or regulation.
Q. All references herein to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, where
applicable. Without limiting the obligations individually undertaken by the
Controlling Principals under this Agreement, all acknowledgments, promises,
covenants, agreements and obligations made or undertaken by Franchisee in this
Agreement shall be deemed, jointly and severally, undertaken by all of the
Controlling Principals.
R. All rights and remedies of the parties to this Agreement 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 or any
other agreement between Franchisee or any of its affiliates and Franchisor or
any of its affiliates. The rights and remedies of the parties to this Agreement
shall be continuing and shall not be exhausted by any one 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, earlier
termination or exercise of Franchisor's rights pursuant to Section XVIII. of
this Agreement shall not discharge or release Franchisee or any of the
Controlling Principals from any liability or obligation then accrued, or any
liability or obligation continuing beyond, or arising out of, the expiration,
the earlier termination or the exercise of such rights under this Agreement.
S. The term "Franchisee's Principals" shall include, collectively and
individually, all officers and directors of Franchisee (including the officers
and directors of any general partner of Franchisee) whom Franchisor designates
as Franchisee's Principals, all holders of an ownership interest in Franchisee
and in any entity directly or indirectly controlling Franchisee, and any other
person or entity controlling, controlled by, or under common control with
Franchisee. The initial Franchisee's Principals shall be listed on Attachment C.
The term "Controlling Principals" shall include, collectively and individually,
any Franchisee's Principal who has been designated by Franchisor as a
Controlling Principal hereunder. For purposes of this Agreement, a publicly-held
corporation is a corporation registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, or a corporation subject to the requirements
of Section 15(d) of such Act.
T. Each reference in this Agreement to a corporation or partnership
shall be deemed to also refer to a limited liability company and any other
entity or organization similar thereto. Each reference to the organizational
documents, equity owners, directors, and officers of a corporation in this
Agreement shall be deemed to refer to the functional equivalents of such
organizational documents, equity owners, directors, and officers, as applicable,
in the case of a limited liability company or any other entity or organization
similar thereto.
U. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Franchisee, Franchisor, Franchisor's officers, directors and
personnel and such of Franchisee's and Franchisor's respective successors and
assigns as may be contemplated (and, as to Franchisee, authorized by Section
XIV.), any rights or remedies under or as a result of this Agreement.
V. This Agreement shall not become effective until signed by either
Chairman of the Board, President or Vice President of Franchisor.
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XX. ACKNOWLEDGMENTS
A. Franchisee acknowledges that it has conducted an independent
investigation of the business venture contemplated by this Agreement and
recognizes that the success of this business venture involves substantial
business risks and will largely depend upon the ability of Franchisee.
Franchisor expressly disclaims making, and Franchisee acknowledges that it has
not received or relied on, any warranty or guarantee, express or implied, as to
the potential volume, profits or success of the business venture contemplated by
this Agreement.
B. Franchisee acknowledges that Franchisee has received, read and
understands this Agreement and the related Attachments and agreements and that
Franchisor has afforded Franchisee sufficient time and opportunity to consult
with advisors selected by Franchisee about the potential benefits and risks of
entering into this Agreement.
C Franchisee acknowledges that it received a complete copy of this
Agreement and all related Attachments and agreements at least five (5) business
days prior to the date on which this Agreement was executed. Franchisee further
acknowledges that it has received the disclosure document required by the Trade
Regulation Rule of the Federal Trade Commission entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" at least ten (10) business days prior to the date on which this
Agreement was executed.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized representative as of the date
first above written.
FRANCHISOR:
RIO BRAVO INTERNATIONAL, INC.,
ATTEST: a Kansas corporation
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
FRANCHISEE:
____________________________
ATTEST:
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
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CONTROLLING PRINCIPALS
Each of the undersigned acknowledges and agrees as follows:
(1) Each has read the terms and conditions of the Franchise Agreement
and acknowledges that the execution of this guaranty and the undertakings of the
Controlling Principals in the Franchise Agreement are in partial consideration
for, and a condition to the granting of this license, and that Franchisor would
not have granted this license without the execution of this guaranty and such
undertakings by each of the undersigned;
(2) Each is included in the term "Controlling Principals" as described
in Section XIX.S. of the Franchise Agreement;
(3) Each individually, jointly and severally, makes all of the
covenants, representations, warranties and agreements of the Controlling
Principals set forth in the Franchise Agreement and is obligated to perform
thereunder; and
(4) Each individually, jointly and severally, unconditionally and
irrevocably guarantees to Franchisor and its successors and assigns that all of
Franchisee's obligations under the Franchise Agreement will be punctually paid
and performed. Upon default by Franchisee or upon notice from Franchisor, each
will immediately make each payment and perform each obligation required of
Franchisee under the Franchise Agreement. Without affecting the obligations of
any of the Controlling Principals under this guaranty, Franchisor may, without
notice to the Controlling Principals, waive, renew, extend, modify, amend or
release any indebtedness or obligation of Franchisee or settle, adjust or
compromise any claims that Franchisor may have against Franchisee. Each of the
Controlling Principals waives all demands and notices of every kind with respect
to the enforcement of this guaranty, including, without limitation, notice of
presentment, demand for payment or performance by Franchisee, any default by
Franchisee or any guarantor and any release of any guarantor or other security
for this guaranty or the obligations of Franchisee. Franchisor may pursue its
rights against any of the Controlling Principals without first exhausting its
remedies against Franchisee and without joining any other guarantor hereto and
no delay on the part of Franchisor in the exercise of any right or remedy shall
operate as a waiver of such right or remedy, and no single or partial exercise
by Franchisor of any right or remedy shall preclude the further exercise of such
right or remedy. Upon receipt by Franchisor of notice of the death of any of the
Controlling Principals, the estate of the deceased will be bound by the
foregoing guaranty, but only for defaults and obligations under the Franchise
Agreement existing at the time of death, and in such event, the obligations of
the remaining Controlling Principals shall continue in full force and effect.
The amount of liability under this guarantee for each individual Controlling
Principal shall be limited to four hundred thousand dollars ($400,000) until
such time as the second Restaurant to be opened under any Development Agreement
between Franchisor and Franchisee is opened for business, and thereafter, such
undertaking shall increase by an amount equal to four hundred thousand dollars
($400,000) for each additional Restaurant opened under the Development Agreement
(beginning with an increase for the second Restaurant) with a maximum amount of
such undertaking/guaranty being limited to two million dollars ($2,000,000).
Such four hundred thousand dollars ($400,000) shall be computed upon each
Restaurant opened by Franchisee pursuant to the Development Agreement within six
(6) months prior to the exercise by Franchisor of the rights granted it by the
document referred to in this paragraph.
Additionally, with respect to the individual designated as Operating
Principal, Operating Principal acknowledges that the undertakings by Operating
Principal under this guaranty are made and given in partial consideration of,
and as a condition to, Franchisor's grant of rights to operate the Restaurant as
described herein; Operating Principal individually, jointly and severally, makes
all of the
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covenants, representations and agreements of Franchisee and Operating Principal
set forth in the Franchise Agreement and is obligated to perform hereunder.
ATTEST: CONTROLLING PRINCIPALS:
Witness *Name:
Witness Name:
Witness Name:
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* Denotes individual who is Franchisee's Operating Principal
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ATTACHMENT A TO FRANCHISE AGREEMENT
APPROVED LOCATION, ASSIGNED AREA,
AREA OF PRIMARY RESPONSIBILITY AND OPENING DATE
1. APPROVED LOCATION
Pursuant to Sections I.B. and II.C. of the Franchise Agreement,
the Restaurant shall be located at the following approved location:
2. ASSIGNED AREA
Pursuant to Section I.C. of the Franchise Agreement, the
Assigned Area shall be:
A radius surrounding the Restaurant which is equal to the
lesser of five (5) miles or the area containing forty thousand
(40,000) day or night time population.
3. OPENING DATE
Pursuant to Section II.G. of the Franchise Agreement, the
Opening Date of the Restaurant is _________________, 19________.
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ATTACHMENT B TO FRANCHISE AGREEMENT
LEASE RIDER
This Lease Rider is made and entered into this ________ day of
_____________________, 19_______ by and between RIO BRAVO INTERNATIONAL, INC., a
Kansas corporation ("Franchisor"), ____________________________ ("Franchisee")
and ___________________________ ("Landlord").
WHEREAS, Franchisor and Franchisee are parties to that certain
Franchise Agreement dated ____________________, 19_______ ("Franchise
Agreement");
WHEREAS, Franchisee and Landlord desire to enter into a lease (the
"Lease") pursuant to which Franchisee will occupy the premises located at
___________________________________________________ (the "Premises") for a
restaurant (hereinafter "Restaurant" or "franchised business") licensed under
the Franchise Agreement; and
WHEREAS, as a condition to entering into the Lease, the Franchisee is
required under the Franchise Agreement to execute this Lease Rider along with
the Landlord and Franchisor;
NOW, THEREFORE, in consideration of the mutual undertakings and
commitments set forth herein and in the Franchise Agreement, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
(1) During the term of the Franchise Agreement, the Premises shall be
used only for the operation of the Restaurant.
(2) Landlord consents to Franchisee's use of such marks and signs, and
interior and exterior decor items, color schemes and related components of the
Rio Bravo system, plans, specifications, location of the building and its
entrance, as Franchisor may prescribe for the Restaurant.
(3) Landlord agrees to furnish Franchisor with copies of any and all
letters and notices sent to Franchisee pertaining to the Lease and the Premises,
at the same time that such letters and notices are sent to Franchisee.
(4) Franchisor shall have the right to enter the Premises to make any
modification or alteration necessary to protect the Rio Bravo system and marks
or to cure any default under the Franchise Agreement entered into between
Franchisor and Franchisee or under the Lease, without being guilty of trespass
or any other crime or tort, and Landlord shall not be responsible for any
expenses or damages arising from Franchisor's action in connection therewith.
(5) Franchisee shall be permitted to assign the Lease to Franchisor or
its designee upon the expiration or earlier termination of the Franchise
Agreement and the Landlord hereby consents to such assignment and agrees not to
impose or assess any assignment fee or similar charge, accelerate rent under the
Lease in connection with such assignment, or to require Franchisor to pay any
past due rent not paid by Franchisee.
(6) In the event of such assignment, Franchisor or any designee
designated by Franchisor will agree to assume from the date of assignment all
obligations of Franchisee remaining under the Lease, and in such event
Franchisor or any designee shall assume Franchisee's occupancy rights, and the
right to sublease the Premises, for the remainder of the term of the Lease.
(7) Franchisee shall not assign the Lease or renew or extend the term
thereof without the prior written consent of Franchisor.
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(8) Landlord and Franchisee shall not amend or otherwise modify the
Lease in any manner that could materially affect any of the foregoing
requirements without the prior written consent of Franchisor.
(9) The terms of this Lease Rider will supersede any conflicting terms
of the Lease.
(10)Franchisor is not a party to the Lease and shall have no liability
under the Lease unless and until said Lease is assigned to, and assumed by,
Franchisor as herein provided.
IN WITNESS WHEREOF, the parties have executed this Lease Rider as of
the date first above written.
FRANCHISOR:
RIO BRAVO INTERNATIONAL, INC.,
a Kansas corporation
By:_________________________
Name:_______________________
Title:______________________
FRANCHISEE:
By:_________________________
Name:_______________________
Title:______________________
LANDLORD:
By:_________________________
Name:_______________________
Title:______________________
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ATTACHMENT C TO FRANCHISE AGREEMENT
STATEMENT OF OWNERSHIP INTERESTS AND FRANCHISEE'S PRINCIPALS
A. The following is a list of shareholders, partners or other investors in
Franchisee, including all investors who own or hold a direct or indirect
interest in Franchisee, and a description of the nature of their interest:
Name Percentage of Ownership/Nature of Interest
B. In addition to the persons listed in paragraph A, the following is a list
of all of Franchisee's Principals described in and designated pursuant to
Section XIX.S. of the Franchise Agreement. Unless designated as a
Controlling Principal, each of Franchisee's Principals shall execute the
Confidentiality Agreement and Ancillary Covenants Not to Compete
substantially in the form set forth in Attachment D (see Sections X.B.(2)
and X.C.(4) of the Franchise Agreement):
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ATTACHMENT D TO FRANCHISE AGREEMENT
CONFIDENTIALITY AGREEMENT AND ANCILLARY COVENANTS NOT TO COMPETE
This Agreement is made and entered into this _______ day of
_____________________, 19_______, between RIO BRAVO INTERNATIONAL, INC., a
Kansas corporation ("Franchisor"), ___________________ ("Franchisee") and
______________________ ("Covenantor").
RECITALS
WHEREAS, Franchisor has obtained the right to develop a unique system
(the "System") for the development and operation of restaurant under the name
and mark "Rio Bravo" ("Restaurants"); and
WHEREAS, the System includes, but is not limited to, distinctive
exterior and interior design, decor and color scheme and furnishings, a unique
process and secret recipes for the preparation of signature beverages, secret
recipes and special menu items; uniform standards, specifications and procedures
for inventory and management and financial control; operations; quality and
uniformity of products and services offered; procedures for management and
financial control; training and assistance; and advertising and promotional
programs; all of which may be changed, improved and further developed by
Franchisor from time to time and are used by Franchisor in connection with the
operation of the System ("Trade Secrets"); and
WHEREAS, Restaurants under the System are operated under certain trade
names, service marks, trademarks, logos, emblems and indicia of origin,
including, but not limited to, the marks "Rio Bravo" and such other trade names,
service marks, trademarks, logos, insignia, slogans, emblems, designs and
commercial symbols as Franchisor may develop in the future to identify for the
public the source of services and products marketed under such marks and under
the System and representing the System's high standards of quality, appearance
and service ("Marks"); and
WHEREAS, the Marks and Trade Secrets provide economic advantages to
Franchisor and are not generally known to, and are not readily ascertainable by
proper means by, Franchisor's competitors who could obtain economic value from
knowledge and use of the Trade Secrets; and
WHEREAS, Franchisor has taken and intends to take all reasonable steps
to maintain the confidentiality and secrecy of the Trade Secrets; and
WHEREAS, Franchisor has granted Franchisee the limited right to operate
a Restaurant using the System, the Marks and the Trade Secrets for the period
defined in the franchise agreement made and entered into on
_____________________, 19_______ ("Franchise Agreement"), by and between
Franchisor and Franchisee; and
WHEREAS, Franchisor and Franchisee have agreed in the Franchise
Agreement on the importance to Franchisor and to Franchisee and other licensed
users of the System of restricting the use, access and dissemination of the
Trade Secrets; and
WHEREAS, it will be necessary for certain employees, agents,
independent contractors, officers, directors and interest holders of Franchisee,
or any entity having an interest in Franchisee ("Covenantor") to have access to
and to use some or all of the Trade Secrets in the management and operation of
Franchisee's business using the System; and
WHEREAS, Franchisee has agreed to obtain from those covenantors'
written agreements protecting the Trade Secrets and the System against unfair
competition; and
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WHEREAS, Covenantor wishes to remain, or wishes to become associated
with or employed by Franchisee; and
WHEREAS, Covenantor wishes and needs to receive and use the Trade
Secrets in the course of his employment or association in order to effectively
perform his services for Franchisee; and
WHEREAS, Covenantor acknowledges that receipt of and the right to use
the Trade Secrets constitutes independent valuable consideration for the
representations, promises and covenants made by Covenantor herein;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, the parties agree as follows:
Confidentiality Agreement
1. Franchisor and/or Franchisee shall disclose to Covenantor some or
all of the Trade Secrets relating to the System. All information and materials,
including, without limitation, manuals, drawings, specifications, techniques and
compilations of data which Franchisor provides to Franchisee and/or Covenantor
shall be deemed confidential Trade Secrets for the purposes of this Agreement.
2. Covenantor shall receive the Trade Secrets in confidence and shall,
at all times, maintain them in confidence, and use them only in the course of
his employment or association with an Franchisee and then only in connection
with the development and/or operation by Franchisee of a Restaurant for so long
as Franchisee is licensed by Franchisor to use the System.
3. Covenantor shall not at any time make copies of any documents or
compilations containing some or all of the Trade Secrets without Franchisor's
express written permission.
4. Covenantor shall not at any time disclose or permit the disclosure
of the Trade Secrets except to other employees of Franchisee and only to the
limited extent necessary to train or assist other employees of Franchisee in the
development or operation of a Restaurant using the System.
5. Covenantor shall surrender any material containing some or all of
the Trade Secrets to Franchisee or Franchisor, upon request, or upon termination
of employment by Franchisee, or upon conclusion of the use for which such
information or material may have been furnished to Covenantor.
6. Covenantor shall not at any time, directly or indirectly, do any act
or omit to do any act that would or would likely be injurious or prejudicial to
the goodwill associated with the Trade Secrets and the System.
7. All manuals are loaned by Franchisor to Franchisee for limited
purposes only and remain the property of Franchisor and may not be reproduced,
in whole or in part, without Franchisor's written consent.
Covenants Not to Compete
1. In order to protect the goodwill and unique qualities of the System
and the confidentiality and value of the Trade Secrets, and in consideration for
the disclosure to Covenantor of the Trade Secrets, Covenantor further agrees and
covenants as follows:
a. Not to divert, or attempt to divert, directly or indirectly, any
business, business opportunity, or customer of the Franchisee's Restaurant to
any competitor.
b. Not to employ, or seek to employ, any person who is at the time
or was within the preceding ninety (90) days employed by Franchisor, any of its
affiliates or any franchisee (including, as applicable, any developer) of
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Franchisor, or otherwise directly or indirectly induce such person to leave that
person's employment.
*c. Except for the Restaurant described in the Franchise Agreement,
not to directly or indirectly, for himself or through, on behalf of, or in
conjunction with any person, partnership or corporation, without the prior
written consent of Franchisor, own, maintain, operate, engage in, or have any
financial or beneficial interest in (including any interest in corporations,
partnerships, trusts, unincorporated associations or joint ventures), advise,
assist or make loans to, any business that is of a character and concept similar
to the Restaurant. As used herein, the term "similar" means a restaurant
business which looks like, copies, imitates, or operates in a manner similar to
a "Rio Bravo Cantina" restaurant, including, but not limited to, a restaurant
business which offers and sells Mexican, Tex-Mex or other Southwestern cuisine,
including, tacos, enchiladas, fajitas, quesadillas, or similar fare, and such
menu items constitute forty percent (40%) or more of the appetizers or entrees
listed in its menu as determined by Franchisor, in its sole discretion, and
which business is located within the United States, its territories or
commonwealths, or any other country, province, state or geographic area in which
Franchisor has used, sought registration of or registered the same or similar
Marks or operates or licenses others to operate a business under the same or
similar Marks.
2. In further consideration for the disclosure to Covenantor of the
Trade Secrets and to protect the uniqueness of the System, Covenantor agrees and
covenants that for one (1) year following the earlier of the expiration,
termination or transfer of all of Franchisee's interest in the Franchise
Agreement or the termination of his association with or employment by
Franchisee, Covenantor will not without the prior written consent of Franchisor:
a. Divert or attempt to divert, directly or indirectly, any
business, business opportunity or customer of the Restaurant to any competitor.
b. Employ, or seek to employ, any person who is at the time or
was within the preceding ninety (90) days employed by Franchisor, any of its
affiliates or any franchisee (including, as applicable, any developer) of
Franchisor, or otherwise directly or indirectly induce such persons to leave
that person's employment.
*c. Directly or indirectly, for himself or through, on behalf of or
in conjunction with any person, partnership or corporation, own, maintain,
operate, engage in, or have any financial or beneficial interest in (including
any interest in corporations, partnerships, trusts, unincorporated associations
or joint ventures), advise, assist or make loans to, any business that is of a
character and concept similar to the Restaurant. As used herein, the term
"similar" means a restaurant business which looks like, copies, imitates, or
operates in a manner similar to a "Rio Bravo Cantina" restaurant, including, but
not limited to, a restaurant business which offers and sells Mexican, Tex-Mex or
other Southwestern cuisine, including, tacos, enchiladas, fajitas, quesadillas,
or similar fare, and such menu items constitute forty percent (40%) or more of
the appetizers or entrees listed in its menu as determined by Franchisor, in its
sole discretion, and which business is, or is intended to be located within the
Territory, as such term is defined in the Development Agreement (and as
described in the map attached thereto), or within a twenty-five (25)-mile radius
of the location of any Rio Bravo restaurant or other food service facility in
existence or under construction (or where land has been purchased or a lease
executed) at any given time during such period.
- --------
* May be deleted if Franchisor does not require Franchisee to obtain the
execution of this covenant by Covenantor. See Section X.C.(4) of the Franchise
Agreement.
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Miscellaneous
1. Franchisee shall make all commercially reasonable efforts to ensure
that Covenantor acts as required by this Agreement.
2. Covenantor agrees that in the event of a breach of this Agreement,
Franchisor would be irreparably injured and be without an adequate remedy at
law. Therefore, in the event of such a breach, or threatened or attempted breach
of any of the provisions hereof, Franchisor shall be entitled to enforce the
provisions of this Agreement and shall be entitled, in addition to any other
remedies which are made available to it at law or in equity, including the right
to terminate the Franchise Agreement, to a temporary and/or permanent injunction
and a decree for the specific performance of the terms of this Agreement,
without the necessity of showing actual or threatened harm and without being
required to furnish a bond or other security.
3. Covenantor agrees to pay all expenses (including court costs and
reasonable attorneys' fees) incurred by Franchisor and Franchisee in enforcing
this Agreement.
4. Any failure by Franchisor or the Franchisee to object to or take
action with respect to any breach of any provision of this Agreement by
Covenantor shall not operate or be construed as a waiver of or consent to that
breach or any subsequent breach by Covenantor.
5. THIS AGREEMENT SHALL BE INTERPRETED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS, WITHOUT REFERENCE TO KANSAS
CHOICE OF LAW PRINCIPLES. COVENANTOR HEREBY IRREVOCABLY SUBMITS HIMSELF TO THE
JURISDICTION OF THE STATE COURTS OF JOHNSON COUNTY, KANSAS AND THE FEDERAL
DISTRICT OF KANSAS IN KANSAS CITY, KANSAS. COVENANTOR HEREBY WAIVES ALL
QUESTIONS OF PERSONAL JURISDICTION OR VENUE FOR THE PURPOSE OF CARRYING OUT THIS
PROVISION. COVENANTOR HEREBY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON HIM
IN ANY PROCEEDING RELATING TO OR ARISING UNDER THIS AGREEMENT OR THE
RELATIONSHIP CREATED BY THIS AGREEMENT BY ANY MEANS ALLOWED BY KANSAS OR FEDERAL
LAW. COVENANTOR FURTHER AGREES THAT VENUE FOR ANY PROCEEDING RELATING TO OR
ARISING OUT OF THIS AGREEMENT SHALL BE JOHNSON COUNTY, KANSAS; PROVIDED,
HOWEVER, WITH RESPECT TO ANY ACTION WHICH INCLUDES INJUNCTIVE RELIEF OR OTHER
EXTRAORDINARY RELIEF, FRANCHISOR OR FRANCHISEE MAY BRING SUCH ACTION IN ANY
COURT IN ANY STATE WHICH HAS JURISDICTION.
6. The parties acknowledge and agree that each of the covenants
contained herein are reasonable limitations as to time, geographical area, and
scope of activity to be restrained and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of Franchisor. The
parties agree that each of the foregoing covenants shall be construed as
independent of any other covenant or provision of this Agreement. If all or any
portion of a covenant in this Agreement is held unreasonable or unenforceable by
a court or agency having valid jurisdiction in any unappealed final decision to
which Franchisor is a party, Covenantor expressly agrees to be bound by any
lesser covenant subsumed within the terms of such covenant that imposes the
maximum duty permitted by law, as if the resulting covenant were separately
stated in and made a part of this Agreement.
7. This Agreement contains the entire agreement of the parties
regarding the subject matter hereof. This Agreement may be modified only by a
duly authorized writing executed by all parties.
8. All notices and demands required to be given hereunder shall be in
writing and shall be sent by personal delivery, expedited delivery service,
certified or registered mail, return receipt requested, first-class postage
prepaid, facsimile, telegram or telex (provided that the sender confirms the
facsimile, telegram or telex by sending an original confirmation copy by
certified or registered mail or expedited delivery service within three (3)
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business days after transmission), to the respective parties at the following
addresses unless and until a different address has been designated by written
notice to the other parties.
If directed to Franchisor, the notice shall be addressed to:
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: CEO
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: President
Facsimile: (913) 967-8104
Rio Bravo International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Attention: General Counsel
Facsimile: (913) 341-1696
If directed to Franchisee, the notice shall be addressed to:
__________________________
__________________________
__________________________
Attention: ______________
Facsimile: ______________
If directed to Covenantor, the notice shall be addressed to:
__________________________
__________________________
__________________________
Attention: ______________
Facsimile: ______________
Any notices sent by personal delivery shall be deemed given upon
receipt. Any notices given by telex or facsimile shall be deemed given upon
transmission, provided confirmation is made as provided above. Any notice sent
by expedited delivery service or registered or certified mail shall be deemed
given three (3) business days after the time of mailing. Any change in the
foregoing addresses shall be effected by giving thirty (30) days written notice
of such change to the other parties. Business day for the purpose of this
Agreement excludes Saturday, Sunday and the following national holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving and Christmas.
9. The rights and remedies of Franchisor under this Agreement are fully
assignable and transferable and shall inure to the benefit of its respective
affiliates, successors and assigns. The respective obligations of Franchisee and
D-5
<PAGE>
Covenantor hereunder may not be assigned by Franchisee or Covenantor, without
the prior written consent of Franchisor.
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
witnessed by their signatures below.
FRANCHISOR:
RIO BRAVO INTERNATIONAL, INC.,
ATTEST: a Kansas corporation
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
FRANCHISEE:
____________________________
ATTEST:
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
Title:_______________________ Title:______________________
COVENANTOR:
_____________________________ By:_________________________
Name: _______________________ Name:_______________________
D-6
<PAGE>
ATTACHMENT E TO FRANCHISE AGREEMENT
CHRONOLOGICAL TABLE OF SELECTED EVENTS
<TABLE>
<CAPTION>
ITEM TIME SECTION
- ------------------------------------ ------------------------------------ -----------------
<S> <C> <C>
Payment of Initial Franchise Fee Execution of Franchise Agreement IV.A.
Designation of Operating Principal Execution of Franchise Agreement VI.C., D.
(and Designee, if applicable);
Designation of General Manager
Acquisition of Insurance Execution of Franchise Agreement XII.A.
Submission of Proposed Site 180 days following execution of first II.B.
Franchise Agreement and 90 days
after each subsequent Franchise
Agreement
Approval or Disapproval of Proposed 45 days after receipt of information II.B.
Site by Franchisor
Execution of Lease or Other 60 days following Franchisor's II.C.
Acquisition of Approved Site approval of the site (up to 180 days
on approval)
Approval or Disapproval of Proposed 45 days after receipt of plans II.E.
Architectural Plans by Franchisor
Commencement of Construction Initiation of site work at the II.F.
Restaurant
Submission of Notice of Completion 60 days prior to scheduled completion II.F.
of Construction of construction
Completion of Initial Training By 120 days prior to Opening Date VI.E.(1)
Managers
Opening of Restaurant 472 days following execution of II.G.
Franchise Agreement for the first
Restaurant developed and 382 days
for each subsequent Restaurant
developed
Payment of Royalty Fee and On or before the 12th day following IV.B.(1); VIII.C.
Advertising Fees the end of each Accounting Period
Expiration of Term 15 Years from Opening Date or the III.A.
Expiration or Termination of
Franchisee's Right to Possess the
Restaurant Premises
</TABLE>
E-1
RIO BRAVO INTERNATIONAL, INC.
DEVELOPMENT AND FRANCHISE AGREEMENT SCHEDULE
AS OF DECEMBER 29, 1996
<TABLE>
<CAPTION>
(3) (5)
DATE OF DEVELOPMENT
DEVELOPMENT (4) SCHEDULE
(1) AGREEMENT OR TERRITORY (all or part (total
DEVELOPER NAME (2) FRANCHISE of the states/countries restaurants/
AND ADDRESS PRINCIPALS AGREEMENT listed) OR LOCATION deadline)
<S> <C> <C> <C> <C>
APPLE CANTINAS Frank C. Sedowicz (in normal process) IL, IA, MO, WI 5/04-15-01
(GEORGIA), INC. Lois J. Sedowicz
5555 Oakbrook Parkway Apple Cantinas, Inc.
Suite 355
Norcross, GA 30093
APPLE-METRO, INC. Roy Raeburn (in normal process) NY 5/05-15-01
640 East Boston Post Rd. Zane Tankel
Mamaronek, NY 10543
APPLE SAUCE, INC. W. Curtis Smith 08-15-96 IN, OH 5/01-31-01
207 Grandview Drive James P. Borke
Suite 125 A. 08-15-96 500 E. 81st Avenue
Ft. Mitchell, KY 41017 Merrillville, IN
APPLE SAUCE, INC. W. Curtis Smith 08-15-96 FL 5/01-31-01
207 Grandview Drive James P. Borke
Suite 125 A. 08-15-96 (to be determined)
Ft. Mitchell, KY 41017
BRAVO AMERICAN Donald W. Strang, Jr. (in normal process) IL 5/07-15-01
CHICAGO LIMITED Allen S. Musikantow
LIABILITY COMPANY
8905 Lake Avenue
Cleveland, OH 44102
BRAVO AMERICAN Donald W. Strang, Jr. 11-11-96 IN 5/01-31-01
INDIANA LIMITED Allen S. Musikantow
LIABILITY COMPANY A. 11-11-96 2525 Sagamore Pkwy. S.
8905 Lake Avenue Lafayette, IN
Cleveland, OH 44102
BRAVO AMERICAN Donald W. Strang, Jr. 02-07-96 OH 5/06-30-00
OHIO LIMITED Allen S. Musikantow
LIABILITY COMPANY A. 02-07-96 1541 Golden Gate Plaza
8905 Lake Avenue Mayfield Heights, OH
Cleveland, OH 44102
B. in normal 17227 SouthPark Center
process Strongsville, OH
1
<PAGE>
CONCORD Larry S. Bird (in normal process) KS, MO, NE 5/03-15-01
HOSPITALITY, INC.
1701 Windhoek Drive
P.O. Box 6212
Lincoln, NE 68512
DAKOTA RIO, INC. Todd G. Porter (in normal process) SD, MT, WY, NE, MN, IA 3/08-15-99
101B Empire Office Ctr.
4305 S. Louise Avenue
Sioux Falls, SD 57106
DSMF, INC. Matthew J. Fairbairn (in normal process) NY, PA 5/04-15-01
201 ATP Tour Blvd. David Stein
Suite 120
Ponte Vedra Beach, FL
HEARTLAND RIO, INC. James H. Stevens 01-16-96 KS, IA, MO, NE 3/10-31-98
2400 N. Woodlawn
Suite 140 A. 01-16-96 8310 E. 21st Street
Wichita, KS 67220 Wichita, KS
MANZANA GRANDE, Myron Thompson (in normal process) ND, SD, MN 3/08-15-99
INC. Engen Eckmann
1225 S. Broadway
Minot, ND 58701
MISS-ALA-RIO, INC. Glenn D. Durham 01-24-96 AL, GA, TN, FL, MS 5/06-30-00
822 Columbiana Raod Fred Gustin
Birmingham, AL 35209 A. 01-24-96 (to be determined)
OZARK RIO, INC. Gregory R. Walton 02-29-96 MO, AR, OK, KS 4/08-31-99
3252 Roanoke
Kansas City, MO 64111 A. 02-29-96 2040 E. Independence Ave.
Springfield, MO
B. in normal Hwy. 71 Bypass & College
process Fayetteville, AR
RCI CANTINA, LLC Stephen A. Grove 02-01-96 AL, GA, SC 4/08-31-99
400 Interstate N. Pkwy.
Suite 1200 A. 02-01-96 2128 Washington Road
Atlanta, GA 30339 Augusta, GA
B. in normal 169 Tom Hill Senior
process Macon, GA
2
<PAGE>
RIORO, INC. Michael Olander 02-29-96 NC, SC 5/06-30-00
170 Windchime Court
Raleigh, NC A. 02-29-96 US 521 & I-485
Charlotte, NC
RIORO, INC. Michael Olander 02-29-96 WV, NC 5/06-30-00
170 Windchime Court Amended: 08-29-96
Raleigh, NC
A. 02-29-96 (to be determined)
SOUTH COAST William F. Palmer 02-22-96 FL 5/06-30-00
CANTINAS, INC. Amended: in process
6620 McGinnis Ferry Road
Suite B A. 02-29-96 (to be determined)
Duluth, GA 30155
SOUTH COAST William F. Palmer 02-22-96 NC, SC, GA 5/06-30-00
CANTINAS, INC. Amended: in process
6620 McGinnis Ferry Road
Suite B A. 02-22-96 34 Tunnel Road
Duluth, GA 30155 Asheville, NC
B. in normal 21 Roper Mountain Road
process Greenville, SC
T & K PARTNERS, LTD. Michael J. Scanlon 02-29-96 KY, OH, IN 5/06-30-00
249 E. Main Street Amended: 08-15-96
Suite 101
Lexington, KY A. 02-29-96 2349 Richmond Road
Lexington, KY
B. 08-15-96 7980 Hosbrook Road
Madeira, OH
T & K PARTNERS, LTD. Michael J. Scanlon 02-29-96 OH, IN, PA 5/06-30-00
249 E. Main Street Amended: 08-14-96
Suite 101
Lexington, KY A. 02-29-96 40 Hutchinson Avenue
Worthington, OH
THE RIO TRIO Joel S. Marks 01-17-96 FL, GA 4/08-31-99
CORPORATION Milton A. Stahl
P.O. Box 956308 A. 01-17-96 1926 Capital Circle, N.E.
Duluth, GA 30136 Tallahassee, FL
3
<PAGE>
THE RIO TRIO Joel S. Marks 08-10-96 VA, WV, NC 5/01-31-01
CORPORATION Milton A. Stahl
P.O. Box 956308 A. 08-10-96 4105 Chesapeake Square Blvd.
Duluth, GA 30136 Chesapeake, VA
</TABLE>
4
APPLEBEE'S INTERNATIONAL, INC.
1995 EQUITY INCENTIVE PLAN
SECTION 1
PURPOSE AND DURATION
1.1 Effective Date. This Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units and
Performance Shares. This Plan shall become effective upon the affirmative vote
of the holders of a majority of the Shares which are present in person or by
proxy and entitled to vote at the 1995 Annual Meeting of Stockholders.
1.2 Purpose of this Plan. This Plan is intended to attract, motivate, and
retain (a) employees of the Company and its Affiliates, (b) consultants who
provide significant services to the Company and its Affiliates, and (c)
directors of the Company who are employees of neither the Company nor any
Affiliate. This Plan also is designed to further the growth and financial
success of the Company and its Affiliates by aligning the interests of the
Participants, through the ownership of Shares and through other incentives, with
the interests of the Company's stockholders.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
"1934 Act" means the Securities Exchange Act of 1934, as amended. Reference
to a specific section of the 1934 Act or regulation thereunder shall include
such section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Affiliate" means any corporation or any other entity (including, but not
limited to, partnerships and joint ventures) controlling, controlled by or under
common control with the Company.
"Affiliated SAR" means an SAR that is granted in connection with a related
Option, and that automatically will be deemed to be exercised at the same time
that the related Option is exercised.
1
<PAGE>
"Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units or Performance Shares.
"Award Agreement" means the written agreement setting forth the terms and
provisions applicable to each Award granted under this Plan.
"Board" or "Board of Directors" means the Board of Directors of the
Company.
"Change in Control" shall have the meaning assigned to such term in Section
13.2.
"Code" means the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include such section
or regulation, any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Committee" means the committee appointed by the Board (pursuant to Section
3.1) to administer this Plan.
"Company" means Applebee's International, Inc., a Delaware corporation, and
any successor thereto. With respect to the definitions of the Performance Goals,
the Committee in its sole discretion may determine that "Company" means
Applebee's International and its consolidated subsidiaries.
"Consultant" means any consultant, independent contractor or other person
who provides significant services to the Company or its Affiliates, but who is
neither an Employee nor a Director.
"Director" means any individual who is a member of the Board of Directors
of the Company.
"Disability" means a permanent and total disability within the meaning of
Code section 22(e)(3), provided that in the case of Awards other than Incentive
Stock Options, the Committee in its sole discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
"Earnings Per Share" means as to any Fiscal Year, the Company's Net Income
or a business unit's Pro Forma Net Income, divided by a weighted average number
of Shares outstanding and dilutive equivalent Shares deemed outstanding.
"Employee" means any employee of the Company or of an Affiliate, whether
such employee is so employed at the time this Plan is adopted or becomes so
employed subsequent to the adoption of this Plan.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. Reference to a specific section of ERISA or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
"Exercise Price" means the price at which a Share may be purchased by a
Participant pursuant to the exercise of an Option.
"Fair Market Value" means the last quoted per share selling price at which
Shares are traded on any given date, or if no Shares are traded on such date,
the most recent prior date on which Shares were traded, as reported in The Wall
Street Journal. Notwithstanding the preceding, for federal, state and local
income tax reporting purposes, fair market value shall be determined by the
Committee (or its delegate) in accordance with uniform and nondiscriminatory
standards adopted by it from time to time.
"Fiscal Year" means the fiscal year of the Company.
"Freestanding SAR" means a SAR that is granted independently of any Option.
"Grant Date" means, with respect to an Award, the date that the Award was
granted.
"Incentive Stock Option" means an Option to purchase Shares which is
designated as an Incentive Stock Option and is intended to meet the requirements
of section 422 of the Code.
"Individual MBOs" means as to a Participant, the objective and measurable
goals set by a "management by objectives" process and approved by the Committee
(in its sole discretion).
"Net Income" means as to any Fiscal Year, the income after taxes of the
Company for the Fiscal Year determined in accordance with generally accepted
accounting principles; provided, however, that prior to the Fiscal Year, the
Committee shall determine whether any significant item(s) shall be included or
excluded from the calculation of Net Income with respect to one or more
Participants.
"Nonemployee Director" means a Director who is not an employee of the
Company or of any Affiliate.
"Nonqualified Stock Option" means an Option to purchase Shares which is not
an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonqualified Stock Option.
"Participant" means an Employee, Consultant or Nonemployee Director who has
an outstanding Award.
3
<PAGE>
"Performance Goals" means the goal(s) (or combined goal(s)) determined by
the Committee (in its sole discretion) to be applicable to a Participant with
respect to an Award. As determined by the Committee, the Performance Goals
applicable to an Award may provide for a targeted level or levels of achievement
using one or more of the following measures: (a) Earnings Per Share, (b)
Individual MBOs, (c) Net Income, (d) Pro Forma Net Income, (e) Return on
Designated Assets, (f) Return on Revenues, and (g) Satisfaction MBOs. The
Performance Goals may differ from Participant to Participant and from Award to
Award.
"Performance Period" shall have the meaning assigned to such term in
Section 8.3.
"Performance Share" means an Award granted to a Participant pursuant to
Section 8.
"Performance Unit" means an Award granted to a Participant pursuant to
Section 8.
"Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock are subject to restrictions and, therefore, the
Shares are subject to a substantial risk of forfeiture. As provided in Section
7, such restrictions may be based on the passage of time, the achievement of
target levels of performance or the occurrence of other events as determined by
the Committee in its sole discretion.
"Plan" means the Applebee's International, Inc. 1995 Equity Incentive Plan,
as set forth in this instrument and as hereafter amended from time to time.
"Pro Forma Net Income" means as to any business unit for any Fiscal Year,
the portion of Company's Net Income allocable to such business unit; provided,
however, that prior to such Fiscal Year, the Committee shall determine the basis
on which such allocation shall be made.
"Restricted Stock" means an Award granted to a Participant pursuant to
Section 7.
"Retirement" means, in the case of an Employee, a Termination of Service by
reason of the Employee's retirement at or after age sixty-five (65). With
respect to a Consultant, no Termination of Service shall be deemed to be on
account of "Retirement". With respect to a Nonemployee Director, "Retirement"
means termination of service on the Board at or after age seventy (70).
"Return on Designated Assets" means as to any Fiscal Year, (a) the Pro
Forma Net Income of a business unit, divided by the average of beginning and
ending business unit designated assets, or (b) the Net Income of the Company,
divided by the average of beginning and ending designated corporate assets.
"Return on Revenues" means as to any Fiscal Year, the percentage equal to
the Company's Net Income or the business unit's Pro Forma Net Income, divided by
the Company's or the business unit's Annual Revenue.
4
<PAGE>
"Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing or superseding such regulation.
"Satisfaction MBOs" means as to any Participant, the objective and
measurable individual goals set by a "management by objectives" process and
approved by the Committee, which goals relate to the satisfaction of external or
internal requirements.
"Section 16 Person" means a person who, with respect to the Shares, is
subject to section 16 of the 1934 Act.
"Shares" means the shares of common stock of the Company.
"Stock Appreciation Right" or "SAR" means an Award, granted alone or in
connection with a related Option, that is designated as a SAR pursuant to
Section 7.
"Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"Tandem SAR" means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
"Termination of Service" means (a) in the case of an Employee, a cessation
of the employee-employer relationship between an employee and the Company or an
Affiliate for any reason, including, but not limited to, a cessation by
resignation, discharge, death, Disability, Retirement or the disaffiliation of
an Affiliate, but excluding any such cessation where there is a simultaneous
reemployment by the Company or an Affiliate, and (b) in the case of a
Consultant, a cessation of the service relationship between a Consultant and the
Company or an Affiliate for any reason, including, but not limited to, a
cessation by resignation, discharge, death, Disability or the disaffiliation of
an Affiliate, but excluding any such cessation where there is a simultaneous
reengagement of the Consultant by the Company or an Affiliate.
SECTION 3
ADMINISTRATION
3.1 The Committee. This Plan shall be administered by the Committee. The
Committee shall consist of not less than two (2) Directors. The members of the
Committee shall be appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors. The Committee shall be comprised solely of
Directors who both are (a) "non-employee directors" under Rule 16b-3, and (b)
"outside directors" under section 162(m) of the Code.
5
<PAGE>
3.2 Authority of the Committee. It shall be the duty of the Committee to
administer this Plan in accordance with its provisions. The Committee shall have
all powers and discretion necessary or appropriate to administer this Plan and
to control its operation, including, but not limited to, the power to (a)
determine which Employees and Consultants shall be granted Awards, (b) prescribe
the terms and conditions of the Awards (other than the Options granted to
Directors pursuant to Section 9), (c) interpret this Plan and the Awards, (d)
adopt rules for the administration, interpretation and application of this Plan
as are consistent therewith, and (e) interpret, amend or revoke any such rules.
3.3 Delegation by the Committee. The Committee, in its sole discretion and
on such terms and conditions as it may provide, may delegate all or any part of
its authority and powers under this Plan to one or more directors or officers of
the Company; provided, however, that the Committee may not delegate its
authority and powers (a) with respect to Section 16 Persons, or (b) in any way
which would jeopardize this Plan's qualification under section 162(m) of the
Code or Rule 16b-3.
3.4 Nonemployee Director Options. Notwithstanding any contrary provision of
this Section 3, the Board shall administer Section 9 of this Plan, and the
Committee shall exercise no discretion with respect to Section 9. In the Board's
administration of Section 9 and the Options granted to Nonemployee Directors,
the Board shall have all authority and discretion otherwise granted to the
Committee with respect to the administration of this Plan.
3.5 Decisions Binding. All determinations and decisions made by the
Committee, the Board and any delegate of the Committee pursuant to Section 3.3
shall be final, conclusive, and binding on all persons, and shall be given the
maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THIS PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the
total number of Shares available for grant under this Plan shall not exceed
2,000,000. Shares granted under this Plan may be either authorized but unissued
Shares or treasury Shares, or any combination thereof.
4.2 Lapsed Awards. If an Award is settled in cash, or is cancelled,
terminates, expires or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award thereafter shall be available to be the subject
of an Award.
4.3 Adjustments in Awards and Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, stock split, Share combination, or other change in
the corporate structure of the Company affecting the Shares, the Committee shall
6
<PAGE>
adjust the number and class of Shares which may be delivered under this Plan,
the number, class and price of Shares subject to outstanding Awards, and the
numerical limits of Sections 4.1, 5.1, 6.1, 7.1 and 8.1, in such manner as the
Committee (in its sole discretion) shall determine to be advisable or
appropriate to prevent the dilution or diminution of such Awards. In the case of
Options granted to Nonemployee Directors pursuant to Section 9, the foregoing
adjustments shall be made by the Board with respect to Options granted and that
may be granted thereafter from time to time pursuant to Section 9.
Notwithstanding the preceding, the number of Shares subject to any Award always
shall be a whole number.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of this Plan,
Options may be granted to Employees and Consultants at any time and from time to
time as determined by the Committee in its sole discretion. The Committee, in
its sole discretion, shall determine the number of Shares subject to each
Option; provided, however, that during any Fiscal Year, no Participant shall be
granted Options covering more than 100,000 Shares. The Committee may grant
Incentive Stock Options, Nonqualified Stock Options, or any combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to exercise of the
Option and such other terms and conditions as the Committee, in its sole
discretion, shall determine. The Award Agreement also shall specify whether the
Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock
Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive Stock
Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date; provided,
however, that if on the Grant Date, the Employee (together with persons
whose stock ownership is attributed to the Employee pursuant to section
424(d) of the Code) owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the Exercise Price shall be not less than one hundred ten
percent (110%) of the Fair Market Value of a Share on the Grant Date.
7
<PAGE>
5.3.3 Substitute Options. Notwithstanding the provisions of Sections
5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates
a transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons
who become Employees or Consultants on account of such transaction may be
granted Options in substitution for options granted by such former employer
or recipient of services. If such substitute Options are granted, the
Committee, in its sole discretion and consistent with section 424(a) of the
Code, may determine that such substitute Options shall have an exercise
price less than one hundred (100%) of the Fair Market Value of the Shares
on the Grant Date.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate upon the earlier
of the first to occur of the following events:
(a) The date for termination of the Option set forth in the Award
Agreement; or
(b) The expiration of ten (10) years from the Grant Date; or
(c) The expiration of one (1) year from the date of the
Optionee's Termination of Service for a reason other than the
Optionee's death, Disability or Retirement (except as provided in
Section 5.8.2 regarding Incentive Stock Options); or
(d) The expiration of three (3) years from the date of the
Optionee's Termination of Service by reason of Disability (except as
provided in Section 5.8.2 regarding Incentive Stock Options) or death;
or
(e) The expiration of three (3) years from the date of the
Optionee's Retirement (except as provided in Section 5.8.2 regarding
Incentive Stock Options).
5.4.2 Committee Discretion. Subject to the limits of Section 5.4.1,
the Committee, in its sole discretion, (a) shall provide in each Award
Agreement when each Option expires and becomes unexercisable, and (b) may,
after an Option is granted, extend the maximum term of the Option (subject
to Section 5.8.4 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under this Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option.
8
<PAGE>
5.6 Payment. Options shall be exercised by the Participant's delivery of a
written notice of exercise to the Secretary of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to the
Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines (i) to provide legal consideration for the Shares, and
(ii) to be consistent with the purposes of this Plan.
As soon as practicable after receipt of a written notification of exercise
and full payment for the Shares purchased, the Company shall deliver to the
Participant (or the Participant's designated broker), Share certificates (which
may be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable or appropriate in its sole discretion, including, but not
limited to, restrictions related to applicable Federal securities laws, the
requirements of any national securities exchange or system upon which Shares are
then listed or traded, and any blue sky or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
5.8.1 Exercisability. The aggregate Fair Market Value (determined on
the Grant Date(s)) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Employee during any
calendar year (under all plans of the Company and its Subsidiaries) shall
not exceed $100,000.
5.8.2 Termination of Service. No Incentive Stock Option may be
exercised more than three (3) months after the Participant's Termination of
Service for any reason other than Disability or death, unless (a) the
Participant dies during such three-month period, and (b) the Award
Agreement or the Committee permits later exercise. No Incentive Stock
Option may be exercised more than one (1) year after the Participant's
termination of employment on account of Disability, unless (a) the
Participant dies during such one-year period, and (b) the Award Agreement
or the Committee permits later exercise.
5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be
granted only to persons who are employees of the Company or a Subsidiary on
the Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be exercised after the
expiration of ten (10) years from the Grant Date; provided, however, that
if the Option is granted to an Employee who, together with persons whose
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stock ownership is attributed to the Employee pursuant to section 424(d) of
the Code, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its Subsidiaries,
the Option may not be exercised after the expiration of five (5) years from
the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of this Plan, an SAR
may be granted to Employees and Consultants at any time and from time to time as
shall be determined by the Committee, in its sole discretion. The Committee may
grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination
thereof.
6.1.1 Number of Shares. The Committee shall have complete discretion
to determine the number of SARs granted to any Participant, provided that
during any Fiscal Year, no Participant shall be granted SARs covering more
than 100,000 Shares.
6.1.2 Exercise Price and Other Terms. The Committee, subject to the
provisions of this Plan, shall have complete discretion to determine the
terms and conditions of SARs granted under this Plan; provided, however,
that the exercise price of a Freestanding SAR shall be not less than one
hundred percent (100%) of the Fair Market Value of a Share on the Grant
Date. The exercise price of Tandem or Affiliated SARs shall equal the
Exercise Price of the related Option.
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout
with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to the underlying
Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the
Tandem SAR shall be exercisable only when the Fair Market Value of the Shares
subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be
exercised upon the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
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6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable
on such terms and conditions as the Committee, in its sole discretion, shall
determine.
6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the exercise price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.
6.6 Expiration of SARs. An SAR granted under this Plan shall expire upon
the date determined by the Committee, in its sole discretion, as set forth in
the Award Agreement. Notwithstanding the foregoing, the terms and provisions of
Section 5.4 also shall apply to SARs.
6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The positive difference between the Fair Market Value of a Share
on the date of exercise over the exercise price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the sole discretion of the Committee, the payment upon SAR exercise may
be in cash, in Shares of equivalent value, or in any combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of this
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Consultants in such amounts as the Committee,
in its sole discretion, shall determine. The Committee, in its sole discretion,
shall determine the number of Shares to be granted to each Participant;
provided, however, that during any Fiscal Year, no Participant shall receive
more than 100,000 Shares of Restricted Stock.
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, and such other terms and conditions as the
Committee, in its sole discretion, shall determine. Unless the Committee, in its
sole discretion, determines otherwise, Shares of Restricted Stock shall be held
by the Company as escrow agent until the end of the applicable Period of
Restriction.
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7.3 Transferability. Except as provided in this Section 7, Shares of
Restricted Stock may not be sold, transferred, gifted, bequeathed, pledged,
assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily,
until the end of the applicable Period of Restriction.
7.4 Other Restrictions. The Committee, in its sole discretion, may impose
such other restrictions on Shares of Restricted Stock as it may deem advisable
or appropriate in accordance with this Section 7.4.
7.4.1 General Restrictions. The Committee may set restrictions based
upon (a) the achievement of specific performance objectives (Company-wide,
divisional or individual), (b) applicable Federal or state securities laws,
or (c) any other basis determined by the Committee in its sole discretion.
7.4.2 Section 162(m) Performance Restrictions. For purposes of
qualifying grants of Restricted Stock as "performance-based compensation"
under section 162(m) of the Code, the Committee, in its sole discretion,
may set restrictions based upon the achievement of Performance Goals. The
Performance Goals shall be set by the Committee on or before the latest
date permissible to enable the Restricted Stock to qualify as
"performance-based compensation" under section 162(m) of the Code. In
granting Restricted Stock that is intended to qualify under Code section
162(m), the Committee shall follow any procedures determined by it in its
sole discretion from time to time to be necessary, advisable or appropriate
to ensure qualification of the Restricted Stock under Code section 162(m)
(e.g., in determining the Performance Goals).
7.4.3 Legend on Certificates. The Committee, in its sole discretion,
may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions. For example, the Committee may
determine that some or all certificates representing Shares of Restricted
Stock shall bear the following legend:
"THE SALE OR OTHER TRANSFER OF THE SHARES OF STOCK REPRESENTED BY
THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY OPERATION
OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET
FORTH IN THE APPLEBEE'S INTERNATIONAL, INC. 1995 EQUITY INCENTIVE
PLAN, AND IN A RESTRICTED STOCK AGREEMENT. A COPY OF THIS PLAN
AND SUCH RESTRICTED STOCK AGREEMENT MAY BE OBTAINED FROM THE
SECRETARY OF APPLEBEE'S INTERNATIONAL, INC."
7.5 Removal of Restrictions. Except as otherwise provided in this Section
7, Shares of Restricted Stock covered by each Restricted Stock grant made under
this Plan shall be released from escrow as soon as practicable after the end of
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the applicable Period of Restriction. The Committee, in its sole discretion, may
accelerate the time at which any restrictions shall lapse and remove any
restrictions; provided, however, that the Period of Restriction on Shares
granted to a Section 16 Person may not lapse until at least six (6) months after
the Grant Date (or such shorter period as may be permissible while maintaining
compliance with Rule 16b-3). After the end of the applicable Period of
Restriction, the Participant shall be entitled to have any legend or legends
under Section 7.4.3 removed from his or her Share certificate, and the Shares
shall be freely transferable by the Participant.
7.6 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares, unless the applicable Award Agreement provides
otherwise.
7.7 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such Shares unless
otherwise provided in the applicable Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
7.8 Return of Restricted Stock to Company. On the date set forth in the
applicable Award Agreement, the Restricted Stock for which restrictions have not
lapsed shall revert to the Company and thereafter shall be available for grant
under this Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/Shares. Performance Units and Performance
Shares may be granted to Employees and Consultants at any time and from time to
time, as shall be determined by the Committee, in its sole discretion. The
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to each Participant; provided,
however, that during any Fiscal Year, (a) no Participant shall receive
Performance Units having an initial value greater than $250,000, and (b) no
Participant shall receive more than 100,000 Performance Shares.
8.2 Value of Performance Units/Shares. Each Performance Unit shall have an
initial value that is established by the Committee on or before the Grant Date.
Each Performance Share shall have an initial value equal to the Fair Market
Value of a Share on the Grant Date.
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8.3 Performance Objectives and Other Terms. The Committee shall set
performance objectives in its sole discretion which, depending on the extent to
which they are met, will determine the number or value of Performance Units or
Performance Shares, or both, that will be paid out to the Participants. The time
period during which the performance objectives must be met shall be called the
"Performance Period". Performance Periods of Awards granted to Section 16
Persons shall, in all cases, exceed six (6) months in length (or such shorter
period as may be permissible while maintaining compliance with Rule 16b-3). Each
Award of Performance Units or Performance Shares shall be evidenced by an Award
Agreement that shall specify the Performance Period, and such other terms and
conditions as the Committee, in its sole discretion, shall determine.
8.3.1 General Performance Objectives. The Committee may set
performance objectives based upon (a) the achievement of Company-wide,
divisional or individual goals, (b) applicable Federal or state securities
laws, or (c) any other basis determined by the Committee in its discretion.
8.3.2 Section 162(m) Performance Objectives. For purposes of
qualifying grants of Performance Units or Performance Shares as
"performance-based compensation" under section 162(m) of the Code, the
Committee, in its sole discretion, may determine that the performance
objectives applicable to Performance Units or Performance Shares, as the
case may be, shall be based on the achievement of Performance Goals. The
Performance Goals shall be set by the Committee on or before the latest
date permissible to enable the Performance Units or Performance Shares, as
the case may be, to qualify as "performance-based compensation" under
section 162(m) of the Code. In granting Performance Units or Performance
Shares which are intended to qualify under Code section 162(m), the
Committee shall follow any procedures determined by it from time to time to
be necessary or appropriate in its sole discretion to ensure qualification
of the Performance Units or Performance Shares, as the case may be, under
Code section 162(m) (e.g., in determining the Performance Goals).
8.4 Earning of Performance Units/Shares. After the applicable Performance
Period has ended, the holder of Performance Units or Performance Shares shall be
entitled to receive a payout of the number of Performance Units or Performance
Shares, as the case may be, earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the corresponding
performance objectives have been achieved. After the grant of a Performance Unit
or Performance Share, the Committee, in its sole discretion, may reduce or waive
any performance objectives for such Performance Unit or Performance Share;
provided, however, that Performance Periods of Awards granted to Section 16
Persons shall not be less than six (6) months (or such shorter period as may be
permissible while maintaining compliance with Rule 16b-3).
8.5 Form and Timing of Payment of Performance Units/Shares. Payment of
earned Performance Units or Performance Shares shall be made as soon as
practicable after the end of the applicable Performance Period. The Committee,
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in its sole discretion, may pay earned Performance Units or Performance Shares
in the form of cash, in Shares (which have an aggregate Fair Market Value equal
to the value of the earned Performance Units or Performance Shares, as the case
may be, at the end of the applicable Performance Period), or in any combination
thereof.
8.6 Cancellation of Performance Units/Shares. On the earlier of date set
forth in the Award Agreement or the Participant's Termination of Service (other
than by death, Disability or, with respect to an Employee, Retirement), all
unearned or unvested Performance Units or Performance Shares shall be forfeited
to the Company, and thereafter shall be available for grant under this Plan. In
the event of a Participant's death, Disability or, with respect to an Employee,
Retirement, prior to the end of a Performance Period, the Committee shall reduce
his or her Performance Units or Performance Shares proportionately based on the
date of such Termination of Service.
SECTION 9
DIRECTOR OPTIONS
The provisions of this Section 9 are applicable only to Options granted
to Nonemployee Directors. The provisions of Section 5 are applicable to Options
granted to Employees and Consultants (and to the extent provided in Section
9.2.6, to Director Options).
9.1 Granting of Options.
9.1.1 Nonemployee Director Grants. Each Nonemployee Director
shall receive an annual grant of Director Options to purchase 5,000
shares of Stock. Such amount shall automatically increase (i) by 2,000
shares in the event that Net Income for the Fiscal Year immediately
preceding the year in which the Director Option is granted (the
"Measurement Year") exceeded by at least 20% the Net Income for the
Fiscal Year immediately preceding the Measurement Year, and (ii) by 100
shares for each additional increment of 1% above 20% by which the Net
Income for the Measurement Year exceeded the Net Income for the Fiscal
Year immediately preceding the Measurement Year. In no event shall the
number of Director Options granted in any Fiscal Year exceed 9,000
shares.
9.1.2 Employee Director Grants. Employee Directors shall only
receive Options in their capacity as Employees and not in their
capacity as Directors.
9.1.3 Date of Grant. All Director Options shall be granted at
the annual meeting of the Board.
9.2 Terms of Options.
9.2.1 Option Agreement. Each Option granted pursuant to this
Section 9 shall be evidenced by a written stock option agreement which
shall be executed by the Optionee and the Company.
9.2.2 Exercise Price. The Exercise Price for the Shares
subject to each Option granted pursuant to this Section 9 shall be 100%
of the Fair Market Value of such Shares on the Grant Date.
9.2.3 Exercisability. Each Option granted pursuant to Section
9.1.1 shall become immediately exercisable on the first anniversary of
the Grant Date. Notwithstanding the preceding, once an optionee ceases
to be a Director, his or her Options which are not exercisable shall
not become exercisable thereafter.
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9.2.4 Expiration of Options. Each Option shall terminate upon
the first to occur of the following events:
(a) The expiration of ten (10) years from the Grant Date; or
(b) The expiration of one (1) year from the date of the
Optionee's termination of service as a Director for any reason.
9.2.5 Not Incentive Stock Options. Options granted pursuant to
this Section 9 shall not be designated as Incentive Stock Options.
9.2.6 Other Terms. All provisions of this Plan not
inconsistent with this Section 9 shall apply to Options granted to
Nonemployee Directors; provided, however, that Section 5.2 (relating to
the Committee's discretion to set the terms and conditions of Options)
shall be inapplicable with respect to Nonemployee Directors.
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SECTION 10
MISCELLANEOUS
10.1 Deferrals. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be due to such Participant under an Award. Any such
deferral election shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
10.2 No Effect on Employment or Service. Nothing in this Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of this Plan, transfer of employment of a Participant between the
Company and any of its Affiliates (or between Affiliates) shall not be deemed a
Termination of Service. Employment with the Company and its Affiliates is on an
at-will basis only, unless otherwise provided by an applicable employment
agreement between the Participant and the Company or its Affiliate, as the case
may be.
10.3 Participation. No Employee or Consultant shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
10.4 Indemnification. Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability or expense (including
attorneys' fees) that may be imposed upon or reasonably incurred by him or her
in connection with or resulting from any claim, action, suit or proceeding to
which he or she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under this Plan or any Award Agreement,
and (b) from any and all amounts paid by him or her in settlement thereof, with
the Company's prior written approval, or paid by him or her in satisfaction of
any judgment in any such claim, action, suit or proceeding against him or her;
provided, however, that he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to handle
and defend it on his or her own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Certificate of Incorporation or
Bylaws, by contract, as a matter of law or otherwise, or under any power that
the Company may have to indemnify them or hold them harmless.
10.5 Successors. All obligations of the Company under this Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise, of all or substantially
all of the business or assets of the Company.
10.6 Beneficiary Designations. If permitted by the Committee, a Participant
under this Plan may name a beneficiary or beneficiaries to whom any vested but
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unpaid Award shall be paid in the event of the Participant's death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such designation, any vested benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate and, subject to
the terms of this Plan and of the applicable Award Agreement, any unexercised
vested Award may be exercised by the administrator or executor of the
Participant's estate.
10.7 Transferability. No Award granted under this Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will, by the laws of descent and distribution, or to the limited extent
provided in Section 10.6; provided, however, that an Award granted under this
Plan may be transferred to a holder's family members, to trusts created for the
benefit of the holder or the holder's family members, or to charitable entities.
10.8 No Rights as Stockholder. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary thereof) shall have
any of the rights or privileges of a stockholder of the Company with respect to
any Shares issuable pursuant to an Award (or the exercise thereof), unless and
until certificates representing such Shares shall have been issued, recorded on
the records of the Company or its transfer agents or registrars, and delivered
to the Participant (or his or her beneficiary).
SECTION 11
AMENDMENT, TERMINATION, AND DURATION
11.1 Amendment, Suspension, or Termination. The Board, in its sole
discretion, may amend or terminate this Plan, or any part thereof, at any time
and for any reason; provided, however, that if and to the extent required to
maintain this Plan's qualification under Rule 16b-3, any such amendment shall be
subject to stockholder approval; further provided, however, that as required by
Rule 16b-3, the provisions of Section 9 regarding the manner for determining the
amount, exercise price, and timing of Director Options shall in no event be
amended more than once every six (6) months, other than to comport with changes
in the Code or ERISA. (ERISA currently is inapplicable to this Plan.) The
amendment, suspension or termination of this Plan shall not, without the consent
of the Participant, alter or impair any rights or obligations under any Award
theretofore granted to such Participant. No Award may be granted during any
period of suspension or after termination of this Plan.
11.2 Duration of this Plan. This Plan shall become effective on the date
specified herein, and subject to Section 11.1 (regarding the Board's right to
amend or terminate this Plan), shall remain in effect thereafter; provided,
however, that without further stockholder approval, no Incentive Stock Option
may be granted under this Plan after the tenth anniversary of the effective date
of this Plan.
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SECTION 12
TAX WITHHOLDING
12.1 Withholding Requirements. Prior to the delivery of any Shares or cash
pursuant to an Award (or the exercise thereof), the Company shall have the power
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state and local taxes
(including the Participant's FICA obligation) required to be withheld with
respect to such Award (or the exercise thereof).
12.2 Withholding Arrangements. The Committee, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit a
Participant to satisfy such tax withholding obligation, in whole or in part, by
(a) electing to have the Company withhold otherwise deliverable Shares, or (b)
delivering to the Company Shares then owned by the Participant having a Fair
Market Value equal to the amount required to be withheld. The amount of the
withholding requirement shall be deemed to include any amount that the Committee
agrees may be withheld at the time any such election is made, not to exceed the
amount determined by using the maximum federal, state or local marginal income
tax rates applicable to the Participant with respect to the Award on the date
that the amount of tax to be withheld is to be determined. The Fair Market Value
of the Shares to be withheld or delivered shall be determined as of the date
that the taxes are required to be withheld.
SECTION 13
CHANGE IN CONTROL
13.1 Change in Control. In the event of a Change in Control of the Company,
all Awards granted under this Plan that then are outstanding and not then
exercisable or are subject to restrictions, shall, unless otherwise provided for
in the Agreements applicable thereto, become immediately exercisable, and all
restrictions shall be removed, as of the first date that the Change in Control
has been deemed to have occurred, and shall remain as such for the remaining
life of the Award as provided herein and within the provisions of the related
Agreements.
13.2 Definition. For purposes of Section 13.1 above, a Change in Control of
the Company shall be deemed to have occurred if the conditions set forth in any
one or more of the following shall have been satisfied, unless such condition
shall have received prior approval of a majority vote of the Continuing
Directors, as defined below, indicating that Section 13.1 shall not apply
thereto:
(a) any "person", as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing
thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities;
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(b) during any period of two consecutive years (not including any
period prior to the Effective Date of this Plan), individuals
("Existing Directors") who at the beginning of such period constitute
the Board of Directors, and any new director (an "Approved Director")
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
paragraph (a), (b) or (c) of this Section 13.2) whose election by the
Board of Directors or nomination for election by the Company's
shareholders was approved by a vote of a least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
previously was so approved (Existing Directors together with Approved
Directors constituting "Continuing Directors"), cease for any reason
to constitute at least a majority of the Board of Directors; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other person, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities for the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (ii) a merger in which no "person" (as defined in
Section 13.2(a)) acquires more than thirty percent (30%) of the
combined voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets (or
any transaction having a similar effect).
SECTION 14
LEGAL CONSTRUCTION
14.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
14.2 Severability. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.
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14.3 Requirements of Law. The grant of Awards and the issuance of Shares
under this Plan shall be subject to all applicable laws, rules and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required from time to time.
14.4 Securities Law Compliance. With respect to Section 16 Persons, Awards
under this Plan are intended to comply with all applicable conditions of Rule
16b-3. To the extent any provision of this Plan, Award Agreement or action by
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable or appropriate by the Committee in
its sole discretion.
14.5 Governing Law. This Plan and all Award Agreements shall be construed
in accordance with and governed by the laws of the State of Kansas (excluding
its conflict of laws provisions).
14.6 Captions. Captions are provided herein for convenience of reference
only, and shall not serve as a basis for interpretation or construction of this
Plan.
21
APPLEBEE'S INTERNATIONAL, INC. SUBSIDIARY CORPORATIONS
(100% owned unless indicated)
Applebee's of Michigan, Inc.
Applebee's of Minnesota, Inc.
Applebee's of New Mexico, Inc.
Applebee's of New York, Inc.
Applebee's Neighborhood Grill & Bar of Georgia, Inc.
Applebee's of Nevada, Inc.
Applebee's of Pennsylvania, Inc.
Applebee's of Texas, Inc.
AII Services, Inc.
Gourmet Systems, Inc.
Gourmet Systems of Arizona, Inc.
Gourmet Systems of California, Inc.
Gourmet Systems of Kansas, Inc.
Gourmet Systems of Georgia, Inc.
Gourmet Systems of Minnesota, Inc.
Gourmet Systems of Nevada, Inc.
Gourmet Systems of Tennessee, Inc. (formerly known as Applebee's of
Tennessee, Inc.)
1 GourmetWest of Nevada, Limited-Liability Company
2 Apple American Limited Partnership of Minnesota
3 Applebee's Northeast, Inc. (formerly known as Pub Ventures of New
England, Inc.)
4 Apple Vermont Restaurants, Inc.
5 Innovative Restaurant Concepts, Inc.
6 IRC Kansas, Inc.
Rio Bravo International, Inc.
Rio Bravo Restaurants, Inc.
7 Rio Bravo Services, Inc.
8 Summit Restaurants, Inc.
1 50% owned by Gourmet Systems of Nevada, Inc.
2 A Limited Partnership in which Gourmet Systems of Minnesota is as general
partner and Applebee's of Minnesota is a limited partner.
3 This company was acquired by way of merger as of October 24, 1994 and is
now a wholly-owned subsidiary of Applebee's International, Inc.
4 This company is a wholly-owned subsidiary of Pub Ventures of New England,
Inc. and as a result of Pub Ventures of New England, Inc. now being a
wholly-owned subsidiary of Applebee's International, Inc., this company is
in effect a wholly-owned subsidiary of that wholly-owned subsidiary.
5 This company is a wholly-owned subsidiary of Rio Bravo International, Inc.
and as a result of Rio Bravo International, Inc. now being a wholly-owned
subsidiary of Applebee's International, Inc., this company is in effect a
wholly-owned subsidiary of that wholly-owned subsidiary.
6 This company is a wholly-owned subsidiary of Innovative Restaurant
Concepts, Inc.
7 This company is a wholly-owned subsidiary of Rio Bravo International, Inc.
8 This company is a wholly-owned subsidiary of Innovative Restaurant
Concepts, Inc.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-72282 of Applebee's International, Inc. on Form S-8 of our report dated
February 21, 1997, appearing in this Annual Report on Form 10-K of Applebee's
International, Inc. for the year ended December 29, 1996, and to the reference
to us under the heading "Experts" in such Registration Statement.
We also consent to the incorporation by reference in Registration Statement No.
33-59421 of Applebee's International, Inc. on Form S-3 of our report dated
February 21, 1997, appearing in this Annual Report on Form 10-K of Applebee's
International, Inc. for the year ended December 29, 1996, and to the reference
to us under the heading "Experts" in such Registration Statement.
We also consent to the incorporation by reference in Registration Statement No.
33-62419 of Applebee's International, Inc. on Form S-3 of our report dated
February 21, 1997, appearing in this Annual Report on Form 10-K of Applebee's
International, Inc. for the year ended December 29, 1996, and to the reference
to us under the heading "Experts" in such Registration Statement.
We consent to the incorporation by reference in the Registration Statement No.
333-01969 of Applebee's International, Inc. on Form S-8 of our report dated
February 21, 1997, appearing in this Annual Report on Form 10-K of Applebee's
International, Inc. for the year ended December 29, 1996, and to the reference
to us under the heading "Experts" in such Registration Statement.
We consent to the incorporation by reference in the Registration Statement No.
333-17823 of Applebee's International, Inc. on Form S-8 of our report dated
February 21, 1997, appearing in this Annual Report on Form 10-K of Applebee's
International, Inc. for the year ended December 29, 1996, and to the reference
to us under the heading "Experts" in such Registration Statement.
We consent to the incorporation by reference in the Registration Statement No.
333-17825 of Applebee's International, Inc. on Form S-8 of our report dated
February 21, 1997, appearing in this Annual Report on Form 10-K of Applebee's
International, Inc. for the year ended December 29, 1996, and to the reference
to us under the heading "Experts" in such Registration Statement.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 10, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 22, 1995, included in this Form 10-K into the Company's
previously filed Registration Statement File No. 33-72282 of Applebee's
International, Inc.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 10, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 22, 1995, included in this Form 10-K into the Company's
previously filed Registration Statement File No. 33-59421 of Applebee's
International, Inc.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 10, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 22, 1995, included in this Form 10-K into the previously
filed Registration Statement File No. 33-62419 of Applebee's International, Inc.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 10, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 22, 1995, included in this Form 10-K into the previously
filed Registration Statement File No. 333-01969 of Applebee's International,
Inc.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 10, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 22, 1995, included in this Form 10-K into the previously
filed Registration Statement File No. 333-17823 of Applebee's International,
Inc.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 10, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 22, 1995, included in this Form 10-K into the previously
filed Registration Statement File No. 333-17825 of Applebee's International,
Inc.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 17,346
<SECURITIES> 40,064
<RECEIVABLES> 19,515
<ALLOWANCES> 270
<INVENTORY> 4,557
<CURRENT-ASSETS> 83,992
<PP&E> 248,742
<DEPRECIATION> 51,792
<TOTAL-ASSETS> 314,111
<CURRENT-LIABILITIES> 41,843
<BONDS> 24,435
0
0
<COMMON> 316
<OTHER-SE> 244,448
<TOTAL-LIABILITY-AND-EQUITY> 314,111
<SALES> 358,990
<TOTAL-REVENUES> 413,131
<CGS> 304,800
<TOTAL-COSTS> 348,687
<OTHER-EXPENSES> 5,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,571
<INCOME-PRETAX> 60,725
<INCOME-TAX> 22,711
<INCOME-CONTINUING> 38,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,014
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
