-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N1AOlXNq3xLcNZL7687lLZJu6Vrmjn+xKscFuJNQG6XtL3kZyI1wqm5V7BVau3p5 1UbNXIXaHwVQTSrTuHyiig== 0000853665-00-000061.txt : 20000328 0000853665-00-000061.hdr.sgml : 20000328 ACCESSION NUMBER: 0000853665-00-000061 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19991226 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLEBEES INTERNATIONAL INC CENTRAL INDEX KEY: 0000853665 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 431461763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17962 FILM NUMBER: 579534 BUSINESS ADDRESS: STREET 1: 4551 W 107TH ST STE 100 CITY: OVERLAND PARK STATE: KS ZIP: 66207 BUSINESS PHONE: 9139674000 MAIL ADDRESS: STREET 1: 4551 W 107TH STREET STREET 2: SUITE 100 CITY: OVERLAND PARK STATE: KS ZIP: 66207 10-K 1 FOR THE FISCAL YEAR ENDED DECEMBER 26, 1999 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 26, 1999 ----------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ----------------------- Commission File Number: 000-17962 Applebee's International, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 43-1461763 --------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207 ------------------------------------------------------------------------------- (Address of principal executive offices and zip code) (913) 967-4000 ---------------------------------------------------- (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 16, 2000 was $777,280,316 based upon the closing sale price on March 16, 2000. The number of shares of the registrant's common stock outstanding as of March 16, 2000 was 26,573,686. 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. 1
APPLEBEE'S INTERNATIONAL, INC. FORM 10-K FISCAL YEAR ENDED DECEMBER 26, 1999 INDEX Page PART I Item 1. Business................................................................................ 3 Item 2. Properties.............................................................................. 14 Item 3. Legal Proceedings....................................................................... 16 Item 4. Submission of Matters to a Vote of Security Holders..................................... 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................................... 17 Item 6. Selected Financial Data................................................................. 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 19 Item 8. Financial Statements and Supplementary Data............................................. 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 26 PART III Item 10. Directors and Executive Officers of the Registrant...................................... 27 Item 11. Executive Compensation.................................................................. 27 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 27 Item 13. Certain Relationships and Related Transactions.......................................... 27 PART IV Item 14. Exhibits and Reports on Form 8-K........................................................ 28 Signatures.............................................................................................. 29
2 PART I Item 1. Business General Applebee's International, Inc. and its subsidiaries (the "Company") develops, franchises and operates casual dining restaurants under the name "Applebee's Neighborhood Grill & Bar." With nearly 1,200 restaurants and $2.35 billion in annual system sales, Applebee's Neighborhood Grill and Bar is the largest casual dining concept in America, both in terms of number of restaurants and market share. 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 26, 1999, there were 1,168 Applebee's restaurants, of which 906 were operated by franchisees and 262 were operated by the Company. The restaurants were located in 49 states and eight international countries. During 1999, 107 new restaurants were opened, including 80 franchise restaurants and 27 Company restaurants. The Company acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants in March 1995. On April 12, 1999, the Company completed the sale of the concept, which was comprised of 65 restaurants, including 40 Company restaurants and 25 franchised restaurants. On April 26, 1999, the Company completed the sale of its four specialty restaurants, which were also acquired in 1995. With the divestiture of the Rio Bravo Cantina concept, the Company's strategy is to focus singularly on the Applebee's concept. During 1998, the Company introduced a new "small-town" restaurant prototype developed for communities of less than 25,000 population. The Company expects the long-term potential development of the small-town prototype to be at least 150 restaurants. Based on continued successful market penetration of the Applebee's concept as well as the new potential for small-towns, the Company now expects the ultimate domestic potential of the Applebee's system to be at least 1,800 restaurants. 3 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.
Fiscal Year Ended ----------------------------------------------------- December 26, December 27, December 28, 1999 1998 1997 ----------------- ---------------- ----------------- Number of restaurants: Applebee's: Company(1): Beginning of year............................ 247 190 148 Restaurant openings.......................... 27 32 32 Restaurant closings.......................... -- (2) (1) Restaurants acquired from (by) franchisees... (12) 27 11 ----------------- ---------------- ----------------- End of year.................................. 262 247 190 ----------------- ---------------- ----------------- Franchise: Beginning of year............................ 817 770 671 Restaurant openings.......................... 80 84 113 Restaurant closings.......................... (3) (10) (3) Restaurants acquired by (from) franchisees... 12 (27) (11) ----------------- ---------------- ----------------- End of year.................................. 906 817 770 ----------------- ---------------- ----------------- Total Applebee's: Beginning of year............................ 1,064 960 819 Restaurant openings.......................... 107 116 145 Restaurant closings.......................... (3) (12) (4) ----------------- ---------------- ----------------- End of year.................................. 1,168 1,064 960 ================= ================ ================= Rio Bravo Cantinas: Company: Beginning of year............................ 40 31 21 Restaurant openings.......................... -- 9 10 Restaurants divested......................... (40) -- -- ----------------- ---------------- ----------------- End of year.................................. -- 40 31 ----------------- ---------------- ----------------- Franchise: Beginning of year............................ 26 24 9 Restaurant openings.......................... -- 4 16 Restaurant closings.......................... (1) (2) (1) Restaurants divested......................... (25) -- -- ----------------- ---------------- ----------------- End of year.................................. -- 26 24 ----------------- ---------------- ----------------- Total Rio Bravo Cantinas: Beginning of year............................ 66 55 30 Restaurant openings.......................... -- 13 26 Restaurant closings.......................... (1) (2) (1) Restaurants divested......................... (65) -- -- ----------------- ---------------- ----------------- End of year.................................. -- 66 55 ================= ================ ================= Specialty Restaurants................................. -- 4 4 ================= ================ ================= Total number of restaurants: Beginning of year............................ 1,134 1,019 853 Restaurant openings.......................... 107 129 171 Restaurant closings.......................... (4) (14) (5) Restaurants divested......................... (69) -- -- ----------------- ---------------- ----------------- End of year.................................. 1,168 1,134 1,019 ================= ================ =================
4
Fiscal Year Ended ----------------------------------------------------- December 26, December 27, December 28, 1999 1998 1997 ----------------- ---------------- ----------------- Weighted average weekly sales per restaurant: Applebee's: Company(1).................................. $ 41,674 $ 40,664 $ 41,176 Franchise................................... $ 40,297 $ 39,077 $ 39,513 Total Applebee's............................ $ 40,619 $ 39,428 $ 39,826 Rio Bravo Cantinas: Company(2).................................. -- $ 52,789 $ 60,946 Franchise................................... -- $ 41,675 $ 49,288 Total Rio Bravo Cantinas.................... -- $ 47,966 $ 56,206 Change in comparable restaurant sales:(3) Applebee's: Company(1).................................. 4.4% (0.4)% 0.1 % Franchise................................... 2.9% (0.1)% 0.6 % Total Applebee's............................ 3.2% (0.2)% 0.5 % Rio Bravo Cantinas (Company).................... -- (6.8)% (1.6)% Total system sales (in thousands): Applebee's...................................... $2,347,388 $2,066,273 $1,818,503 Rio Bravo Cantinas.............................. 42,661 150,899 128,196 Specialty restaurants........................... 4,806 14,373 14,435 ----------------- ---------------- ----------------- Total system sales.......................... $2,394,855 $2,231,545 $1,961,134 ================= ================ =================
- -------- (1) Includes one Texas restaurant operated by the Company under a management agreement since July 1990. (2) Excludes one restaurant which is open for dinner only. (3) When computing comparable restaurant sales, restaurants open for at least 18 months are compared from period to period. 5 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 has four free-standing restaurant prototypes. The two larger prototypes are approximately 4,700 and 5,000 square feet and seat approximately 165 and 200 patrons, respectively. There are also two "small-town" prototypes which are approximately 3,800 and 4,300 square feet and seat approximately 135 and 145 patrons, respectively. During 1998, the Company introduced the new small-town restaurant prototype for communities of less than 25,000 population. There were 19 test units of the new small-town designs open as of December 26, 1999, nine by the Company and ten by franchisees, and additional units are in the development pipeline for both the Company and selected franchisees. The Company expects the long-term potential development of the small-town prototype to be at least 150 restaurants. Based on continued successful market penetration of the Applebee's concept as well as the new potential for small-towns, the Company now expects the ultimate domestic potential of the Applebee's system to be at least 1,800 restaurants. Each Applebee's restaurant has a 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. Each Applebee's restaurant is required to be remodeled every six years to embody the design elements of the current prototype. 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. Substantially all restaurants offer beer, wine, liquor and premium specialty drinks. During 1999, alcoholic beverages accounted for 13.7% 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. All standards and specifications are developed by the Company, with input from franchisees, and are 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 typically lasts from six to ten weeks. A team of Company employed trainers is provided for new restaurants to conduct hands-on training for all restaurant employees to ensure compliance with Company standards. 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. 6 Advertising. The Company has historically concentrated its advertising and marketing efforts primarily on food-specific promotions, with each promotion featuring a specific theme or ethnic cuisine. The Company advertises on a national, regional and local basis, utilizing primarily television, radio and print media. In 1999, approximately 4.0% 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. Beginning in 2000, the contribution to the national advertising pool will increase from 1.5% to 2.1% of sales. 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 262 as of December 26, 1999 through the opening of 184 new restaurants and the acquisition of 81 franchise restaurants over the last seven years. In addition, as part of its portfolio management strategy, the Company has sold 26 restaurants to franchisees during this period, including 12 restaurants in the Philadelphia market in December 1999. The Company opened 27 new Applebee's restaurants in 1999 and anticipates opening approximately 25 to 27 new Applebee's restaurants in 2000, although it may open more or less 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 1999 are set forth in the following table. 7
Company Company Restaurants Restaurants as of Opened in December 26, Area 1999 1999 ------------------------------------------------------------- ----------------- ------------------ New England (includes Massachusetts, Vermont, New Hampshire, Rhode Island and Maine).................... 6 41 Detroit/Southern Michigan................................... 6 40 Virginia.................................................... 2 37 Minneapolis/St. Paul, Minnesota............................. 3 35 North/Central Texas......................................... 3 27 Kansas City, Missouri/Kansas................................ 2 24 St. Louis, Missouri/Illinois................................ 3 24 Las Vegas/Reno, Nevada...................................... -- 12 Atlanta, Georgia............................................ 1 9 San Diego/Southern California............................... -- 7 Albuquerque, New Mexico..................................... -- 6 Philadelphia, Pennsylvania.................................. 1 -- ----------------- ------------------ 27 262 ================= ==================
Restaurant Operations. The staff for a typical Applebee's restaurant consists of one general manager, one kitchen manager, two or three assistant managers and approximately 60 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 26, 1999, the Company employed nine Regional Vice Presidents of Operations/Directors of Operations and 43 Area Directors, 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. The Applebee's Franchise System Franchise Territory and Restaurant Openings. The Company currently has exclusive franchise arrangements with approximately 68 franchise groups, including 13 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 42 states and eight international countries. Virtually all territories in the contiguous 48 states have been granted to franchisees or designated for Company development. As of December 26, 1999, there were 906 franchise restaurants. Franchisees opened 113 restaurants in 1997, 84 restaurants in 1998 and 80 restaurants in 1999. The Company anticipates between 90 to 100 franchise restaurant openings in 2000. 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. 8 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 franchise agreements for many franchisees allow the Company to increase royalty fees up to 5% of gross sales; however, the Company has agreed to withhold consideration of such action until on or after January 1, 2003. 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. Through 1999, domestic franchisees were 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 fund. To fund the Company's brand-building strategy, the required contribution to the national advertising fund will increase to 2.1% of gross sales in 2000, and may increase from 2.1% to a maximum of 2.5% of gross sales in 2001. Beginning in 2002, the required contribution will be 2.5% of gross sales. 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. The Company also has franchise business managers (12 at December 26, 1999) who are responsible for assisting each franchisee with business planning, development, technology and human resources efforts. Quality Control. The Company continuously monitors franchisee operations and inspects restaurants, principally through its full-time franchise territory managers (14 at December 26, 1999). 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 26, 1999, the Franchise Business Council consisted of seven franchisee representatives, two members of the Company's senior management, and the Company's Chairman of the Board. 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 (currently none) is reserved a seat. In addition, the Company's Chairman is a permanent member of the Franchise Business Council. The remaining franchisee representatives are elected by franchisees prior to, and announced at, the annual franchise convention. 9 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 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 major cities in Canada, Mexico, Central America and the Middle East. In this regard, the Company currently has development agreements with 13 international franchisees. The Company had 26 international restaurants in operation as of December 26, 1999. The success of current international operations and 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 information relating to 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. Competition Competition in the casual dining segment of the restaurant industry is expected to remain intense with respect to price, service, location, concept, and the type and quality of food. There is also intense competition for real estate sites, qualified management personnel, and hourly restaurant staff. The Company's competitors include national, regional and local chains, as well as local owner-operated restaurants. There are a number of well-established competitors, some of which have been in existence for a longer period than the Company and may be better established in the markets where the Company's restaurants are or may be located. The Company has begun to experience increased competition in attracting and retaining qualified management level operating personnel. Service Marks The Company owns the rights to the "Applebee's Neighborhood Grill & Bar(R)" service mark and certain variations thereof in the United States and 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. 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. 10 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 26, 1999, the Company employed approximately 16,700 full and part-time employees, of whom approximately 380 were corporate personnel, 1,220 were restaurant managers or managers in training and 15,100 were employed in non-management full and part-time restaurant positions. Of the 380 corporate employees, 140 were in management positions and 240 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. 11 Executive Officers of the Registrant The executive officers of the Company as of December 26, 1999 are shown below.
Name Age Position Abe J. Gustin, Jr................ 65 Chairman of the Board of Directors Lloyd L. Hill.................... 55 Chief Executive Officer, President and Member of the Board of Directors Steven K. Lumpkin................ 45 Executive Vice President of Strategic Development George D. Shadid................. 45 Executive Vice President and Chief Financial Officer, Treasurer and Member of the Board of Directors Julia A. Stewart................. 44 President of Applebee's Division Larry A. Cates................... 51 President of International Division Karen B. Eadon................... 46 Senior Vice President of Marketing Louis A. Kaucic.................. 48 Senior Vice President of Human Resources John F. Koch..................... 40 Senior Vice President of Research and Development Carin L. Stutz................... 43 Senior Vice President of Company Operations
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. In January 1998, Mr. Hill assumed the full duties of Chief Executive Officer while Mr. Gustin retained his position as the Chairman of the Board and continued as an active executive of the Company through December 1998. In January 1999, Mr. Gustin retired as an active executive of the Company but continues as Chairman of the Board and serves as a member of the Company's Franchise Business Council. 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. In January 1998, Mr. Gustin retained his position as the Chairman of the Board and Mr. Hill assumed the full duties of Chief Executive Officer. From December 1989 to December 1993, 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 1993, having joined that organization in 1980. 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. In November 1997, he assumed the position of Senior Vice President of Strategic Development and in January 1998 was promoted to Executive Vice President of Strategic Development. 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. 12 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. In March 1999, Mr. Shadid was elected a director of the Company. 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. From 1976 until 1985, Mr. Shadid was employed by Deloitte & Touche LLP. Julia A. Stewart was employed by the Company in October 1998 as President of its Applebee's Division. From July 1991 until September 1998, Ms. Stewart held several key executive positions with Taco Bell Corporation, a division of Tricon Global Restaurants, Inc. Most recently, she served as National Vice President of Franchise and License for over 5,200 Taco Bell units, and was previously Taco Bell's Western Region Vice President of Operations with responsibility for over 1,200 company-owned restaurants. Prior to joining Taco Bell, she held key marketing positions over a 15-year period, including Vice President of Marketing, Research and Development with Stuart Anderson's Black Angus/Cattle Company Restaurants. Larry A. Cates was employed by the Company in May 1997 as President of its International Division. Prior to joining the Company, Mr. Cates spent the previous 17 years with PepsiCo Restaurants developing international markets for that company's Pizza Hut, Taco Bell and KFC brands. From 1994 to 1997, Mr. Cates was Vice President of Franchising and Development - Europe/Middle East, and from 1990 to 1994, he was Chief Executive Officer of Pizza Hut UK, Ltd., a joint venture between PepsiCo Restaurants and Whitbread. Karen B. Eadon was employed by the Company in March 1999 as Senior Vice President of Marketing. From April 1995 to March 1999, Ms. Eadon was Vice President of Retail Marketing Programs with ARCO Products, a leading gasoline retail and convenience store chain. From April 1993 to November 1994, she was employed as Vice President of Marketing by Carl Karcher Enterprises, owner and franchisor of Carl's Jr. restaurants. From 1985 to 1993, Ms. Eadon held several key marketing positions with Taco Bell Corporation. Louis A. Kaucic was employed by the Company in October 1997 as Senior Vice President of Human Resources. From July 1992 until October 1997, Mr. Kaucic was Vice President of Human Resources and later promoted to Senior Vice President of Human Resources with Unique Casual Restaurants, Inc., which operates several restaurant concepts. From 1982 to 1992, he was employed by Pizza Hut in a variety of positions, including Director of Employee Relations. From 1978 to 1982, Mr. Kaucic was employed by Kellogg's as an Industrial Relations Manager. Mr. Kaucic is a director of the Women's Food Service Forum. John F. Koch was employed by the Company in February 1999 as Senior Vice President of Research and Development. From January 1990 to February 1999, Mr. Koch held various positions with The Olive Garden, most recently as the Senior Vice President of Food and Beverage. Mr. Koch has over 20 years experience in the restaurant industry. Carin L. Stutz was employed by the Company in November 1999 as Senior Vice President of Operations. From July 1994 to November 1999, Ms. Stutz was Division Vice President with Wendy's International. From 1993 to 1994, she was Regional Operations Vice President for Sodexho, USA. From 1990 to 1993, Ms. Stutz was employed by Nutri/System, Inc. as a Vice President of Corporate Operations. Prior to 1990, Ms. Stutz was employed for 12 years with Wendy's International. 13 Item 2. Properties At December 26, 1999, the Company owned or operated 262 restaurants, of which it leased the land and building for 59 sites, owned the building and leased the land for 80 sites, and owned the land and building for 123 sites. In addition, as of December 26, 1999, the Company owned 8 sites for future development of restaurants and had entered into 4 lease agreements for restaurant sites the Company plans to open during 2000. 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. 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. The following table sets forth the 49 states and the eight international countries in which Applebee's are located and the number of restaurants operating in each state or country as of December 26, 1999: 14
Number of Restaurants ----------------------------------------------------- State or Country Company Franchise Total System ---------------------------------- -------------- -------------- -------------- Domestic: -------- Alabama........................ -- 22 22 Alaska......................... -- 1 1 Arizona........................ -- 18 18 Arkansas....................... -- 6 6 California..................... 7 56 63 Colorado....................... -- 25 25 Connecticut.................... -- 4 4 Delaware....................... -- 4 4 Florida........................ -- 70 70 Georgia........................ 9 48 57 Idaho.......................... -- 6 6 Illinois....................... 6 40 46 Indiana........................ -- 44 44 Iowa........................... -- 19 19 Kansas......................... 10 13 23 Kentucky....................... -- 23 23 Louisiana...................... -- 17 17 Maine.......................... 4 -- 4 Maryland....................... -- 18 18 Massachusetts.................. 19 -- 19 Michigan....................... 40 8 48 Minnesota...................... 35 -- 35 Mississippi.................... -- 12 12 Missouri....................... 32 8 40 Montana........................ -- 6 6 Nebraska....................... -- 10 10 Nevada......................... 12 -- 12 New Hampshire.................. 11 -- 11 New Jersey..................... -- 20 20 New Mexico..................... 6 4 10 New York....................... -- 50 50 North Carolina................. 1 39 40 North Dakota................... -- 6 6 Ohio........................... -- 58 58 Oklahoma....................... -- 13 13 Oregon......................... -- 10 10 Pennsylvania................... -- 35 35 Rhode Island................... 5 -- 5 South Carolina................. -- 36 36 South Dakota................... -- 2 2 Tennessee...................... -- 40 40 Texas.......................... 27 23 50 Utah........................... -- 7 7 Vermont........................ 2 -- 2 Virginia....................... 36 9 45 Washington..................... -- 12 12 West Virginia.................. -- 11 11 Wisconsin...................... -- 24 24 Wyoming........................ -- 3 3 -------------- -------------- -------------- Total Domestic................. 262 880 1,142 -------------- -------------- --------------
15
Number of Restaurants ----------------------------------------------------- State or Country Company Franchise Total System ---------------------------------- -------------- -------------- -------------- International: ------------- Canada......................... -- 11 11 Germany........................ -- 2 2 Greece......................... -- 1 1 Honduras....................... -- 1 1 Kuwait......................... -- 1 1 Mexico......................... -- 3 3 Netherlands.................... -- 5 5 Sweden......................... -- 2 2 -------------- -------------- -------------- Total International............ -- 26 26 -------------- -------------- -------------- 262 906 1,168 ============== ============== ==============
Item 3. Legal Proceedings As of December 26, 1999, the Company was using assets owned by a former franchisee in the operation of one restaurant which remains under a purchase rights agreement that 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 under that agreement and as to whether the Company had agreed to guarantee the franchisee's debt. Based upon a then-current independent appraisal, the Company offered to settle the dispute and purchase the assets of the three then-existing restaurants for $1,000,000 in 1991. In November 1992, the lender was declared insolvent by the FDIC and has since been liquidated. The Company closed one of the three restaurants in 1994 and one of the two remaining restaurants in February 1996. 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. In June 1997, the third party filed a lawsuit against the Company seeking approximately $3,800,000. In April 1999, a summary judgment of $3,833,000 was awarded to the third party. The Company has filed an appeal and believes it has meritorious defenses. As of December 26, 1999, the Company believes it has recorded adequate reserves for this matter. The Company has reached an agreement in principle to settle a dispute with the Company's franchisee for Germany regarding disclosures allegedly made or omitted by the Company. In addition, the Company is involved in various legal actions arising in the normal course of business. While the resolution of the matters described above may have an impact on the financial results for the period in which they are 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. 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 1. The Company's common stock trades on The Nasdaq Stock Market(R)under the symbol APPB. The table below sets forth for the fiscal quarters indicated the reported high and low sale prices of the Company's common stock, as reported on The Nasdaq Stock Market.
1999 1998 ------------------------------- ------------------------------- High Low High Low --------------- --------------- --------------- --------------- First Quarter $ 28.69 $ 20.00 $ 23.75 $ 16.13 Second Quarter $ 32.75 $ 22.50 $ 26.00 $ 20.00 Third Quarter $ 34.94 $ 29.88 $ 24.63 $ 18.25 Fourth Quarter $ 35.00 $ 23.00 $ 22.13 $ 16.88
2. Number of stockholders of record at December 26, 1999: 1,173 3. An annual dividend of $0.10 per common share was declared on December 16, 1999 for stockholders of record on December 27, 1999, and the dividend was payable on January 28, 2000. An annual dividend of $0.09 per common share was declared on November 19, 1998 for stockholders of record on December 16, 1998, and the dividend was payable on January 21, 1999. 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 2000 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. 17 Item 6. Selected Financial Data The following table sets forth for the periods and the dates indicated selected financial data of the Company. 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.
Fiscal Year Ended -------------------------------------------------------------------------------- December 26, December 27, December 28, December 29, December 31, 1999 1998 1997 1996 1995 --------------- --------------- --------------- --------------- ---------------- (in thousands, except per share amounts) STATEMENT OF EARNINGS DATA: Company restaurant sales................. $ 596,754 $ 580,840 $ 452,173 $ 358,990 $ 299,824 Franchise income......................... 72,830 66,722 63,647 54,141 43,739 --------------- --------------- --------------- --------------- ---------------- Total operating revenues............ $ 669,584 $ 647,562 $ 515,820 $ 413,131 $ 343,563 =============== =============== =============== =============== ================ Operating earnings....................... $ 94,910 $ 88,562 $ 71,283 $ 58,833 $ 45,712 Earnings before extraordinary item....... $ 54,198 $ 50,656 $ 45,091 $ 38,014 $ 27,420 Basic earnings per share before extraordinary item.................... $ 1.91 $ 1.67 $ 1.44 $ 1.22 $ 0.94 Diluted earnings per share before extraordinary item.................... $ 1.89 $ 1.67 $ 1.43 $ 1.21 $ 0.92 Net earnings............................. $ 54,198 $ 50,015 $ 45,091 $ 38,014 $ 27,420 Basic net earnings per share............. $ 1.91 $ 1.65 $ 1.44 $ 1.22 $ 0.94 Diluted net earnings per share........... $ 1.89 $ 1.65 $ 1.43 $ 1.21 $ 0.92 Dividends per share...................... $ 0.10 $ 0.09 $ 0.08 $ 0.07 $ 0.06 Basic weighted average shares outstanding........................... 28,403 30,272 31,401 31,188 29,319 Diluted weighted average shares outstanding........................... 28,601 30,385 31,640 31,533 29,860 BALANCE SHEET DATA (AT END OF FISCAL YEAR): Total assets............................. $ 442,216 $ 510,904 $ 377,474 $ 314,111 $ 270,680 Long-term obligations, including current portion........................ $ 108,100 $ 147,188 $ 29,105 $ 25,843 $ 27,427 Stockholders' equity..................... $ 253,873 $ 296,053 $ 290,443 $ 244,764 $ 203,993
18 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). 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 26, 1999, December 27, 1998 and December 28, 1997 contained 52 weeks and are referred to hereafter as 1999, 1998 and 1997, respectively. Acquisitions On April 14, 1997, the Company acquired the operations and assets of 11 franchise restaurants in the St. Louis metropolitan area, referred to herein as the "St. Louis Acquisition." The St. Louis 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. On March 30, 1998, the Company acquired the operations and assets of 33 restaurants in the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville, referred to herein as the "Virginia Acquisition." The Virginia Acquisition was accounted for as a purchase in the second quarter of 1998 and, accordingly, the results of operations of such restaurants have been reflected in the consolidated financial statements subsequent to the date of acquisition. Divestitures On April 12, 1999, the Company completed the sale of its Rio Bravo Cantina concept, which was comprised of 65 restaurants, including 40 Company restaurants and 25 franchised restaurants. The Company received $53 million in consideration ($47 million in cash at closing and a $6 million 8% subordinated note due in ten years). On April 26, 1999, the Company also completed the sale of its four specialty restaurants for $12 million in cash. The two sale transactions and related expenses resulted in a loss on disposition of $9,000,000 before income taxes ($5,670,000 net of income taxes), which was recorded in the first quarter of 1999. Total Company restaurant sales, franchise income and cost of Company restaurant sales for the 1999 period prior to divestiture were $33,444,000, $26,000 and $30,331,000, respectively, for both the Rio Bravo Cantina and specialty restaurants. On December 13, 1999, the Company completed the sale of 12 Applebee's restaurants in the Philadelphia market for $23,465,000. The operations of the restaurants and future restaurant development in the market area were assumed by an existing Applebee's franchisee. In connection with this transaction, the Company recognized a gain in the fourth quarter of 1999 of $4,193,000 ($2,650,000 net of income taxes). Total Company restaurant sales and cost of Company restaurant sales for these restaurants for the 1999 period prior to divestiture were $22,759,000 and $18,568,000, respectively. 19 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.
Fiscal Year Ended ------------------------------------------------ December 26, December 27, December 28, 1999 1998 1997 -------------- -------------- ---------------- Revenues: Company restaurant sales......................... 89.1% 89.7% 87.7% Franchise income................................. 10.9 10.3 12.3 -------------- -------------- ---------------- Total operating revenues...................... 100.0% 100.0% 100.0% ============== ============== ================ Cost of sales (as a percentage of Company restaurant sales): Food and beverage................................ 27.5% 27.4% 27.5% Labor............................................ 31.6 31.9 32.1 Direct and occupancy............................. 24.4 25.3 25.3 Pre-opening expense.............................. 0.3 0.5 0.8 -------------- -------------- ---------------- Total cost of sales........................... 83.7% 85.1% 85.7% ============== ============== ================ General and administrative expenses................... 9.5% 9.0% 10.2% Amortization of intangible assets..................... 0.9 0.9 0.6 Loss on disposition of restaurants and equipment...... 0.8 0.1 0.2 -------------- -------------- ---------------- Operating earnings.................................... 14.2 13.7 13.8 -------------- -------------- ---------------- Other income (expense): Investment income................................ 0.2 0.2 0.4 Interest expense................................. (1.6) (1.5) (0.3) Other income..................................... 0.1 0.1 0.1 -------------- -------------- ---------------- Total other income (expense).................. (1.4) (1.3) 0.1 -------------- -------------- ---------------- Earnings before income taxes and extraordinary item... 12.8 12.4 13.9 Income taxes.......................................... 4.7 4.6 5.2 -------------- -------------- ---------------- Earnings before extraordinary item.................... 8.1 7.8 8.7 Extraordinary loss from early extinguishment of debt, net of income taxes..................... -- (0.1) -- -------------- -------------- ---------------- Net earnings.......................................... 8.1% 7.7% 8.7% ============== ============== ================
20 Fiscal Year Ended December 26, 1999 Compared With Fiscal Year Ended December 27, 1998 Company Restaurant Sales. Total Company restaurant sales increased $15,914,000 (3%) from $580,840,000 in 1998 to $596,754,000 in 1999. Sales for Company Applebee's restaurants increased $91,730,000 (19%) from $471,580,000 in 1998 to $563,310,000 in 1999 due primarily to Company restaurant openings, increases in comparable restaurant sales and incremental sales from the 33 Virginia restaurants acquired in March 1998. Sales for Company Rio Bravo Cantina restaurants decreased from $94,887,000 in 1998 to $28,638,000 in 1999, and sales for the specialty restaurants decreased from $14,373,000 in 1998 to $4,806,000 in 1999 as a result of their divestiture in April 1999. Comparable restaurant sales at Company Applebee's restaurants increased by 4.4% in 1999. Weighted average weekly sales at Company Applebee's restaurants increased 2.5% from $40,664 in 1998 to $41,674 in 1999. These increases were due to increased customer traffic as a result of the success of the Company's food promotions, an increase in network television advertising in 1999 and increased sales of appetizers, drinks and desserts. Franchise Income. Overall franchise income increased $6,108,000 (9%) from $66,722,000 in 1998 to $72,830,000 in 1999 due primarily to the increased number of franchise Applebee's restaurants operating during 1999 as compared to 1998. Successful system-wide food promotions also contributed to increases of 2.9% and 3.1%, respectively, in comparable restaurant sales and weighted average weekly sales for franchise Applebee's restaurants in 1999. These increases were partially offset by a reduction in franchise royalties as a result of the sale of the Rio Bravo Cantina concept during the second quarter of 1999 and the waiver of royalties related to these restaurants, as well as the acquisition of the Virginia restaurants in the second quarter of 1998. Cost of Company Restaurant Sales. Food and beverage costs increased from 27.4% in 1998 to 27.5% in 1999. This increase resulted from the Company's strategy of investing in higher cost food promotional items, which was partially offset by the impact of the sale of the Rio Bravo restaurants. In addition, beverage sales, as a percentage of total Company restaurant sales, declined from 16.6% in 1998 to 14.4% in 1999 which had a negative impact on overall food and beverage costs, as a percentage of Company restaurant sales. This decrease was due, in part, to the sale of the Rio Bravo restaurants, which had a higher proportion of beverage sales. Management also believes that the reduction in beverage sales was due, in part, to the continuation of the overall trend toward increased awareness of responsible alcohol consumption as well as a higher rate of growth in food sales resulting from successful food promotions. Labor costs decreased from 31.9% in 1998 to 31.6% in 1999. The decrease was due primarily to lower labor costs in the acquired Virginia restaurants and the impact of the sale of the Rio Bravo restaurants. These decreases were partially offset by continued pressure on both hourly labor and management costs due to low unemployment as well as the highly competitive nature of the restaurant industry. Direct and occupancy costs decreased from 25.3% in 1998 to 24.4% in 1999. This decrease was due primarily to the sale of the Rio Bravo restaurants, a decrease in advertising costs, as a percentage of sales, and leverage resulting from the sales increases at Applebee's restaurants in 1999. General and Administrative Expenses. General and administrative expenses increased from 9.0% in 1998 to 9.5% in 1999 due to the absorption of general and administrative expenses over a lower revenue base as a result of the divestiture of the Rio Bravo and specialty restaurants. General and administrative expenses increased by $5,294,000 during 1999 compared to 1998 due primarily to increased incentive compensation expense as a result of the Company's performance. 21 Loss on Disposition of Restaurants and Equipment. Loss on disposition of restaurants and equipment increased from $952,000 in 1998 to $5,607,000 in 1999 due primarily to the loss on the disposition of the Rio Bravo Cantina and specialty restaurants of $9,000,000 which was partially offset by the gain on the sale of the Philadelphia restaurants of $4,193,000. Interest Expense. Interest expense increased in 1999 compared to 1998 primarily as a result of interest associated with borrowings under the Company's credit facilities for stock repurchases. Income Taxes. The effective income tax rate, as a percentage of earnings before income taxes, was 36.8% in 1999 compared to 37.0% in 1998. The decrease in the Company's overall effective tax rate in 1999 was due primarily to an increase in credits resulting from FICA taxes on tips and Work Opportunity Tax Credits. Fiscal Year Ended December 27, 1998 Compared With Fiscal Year Ended December 28, 1997 Company Restaurant Sales. Total Company restaurant sales increased $128,667,000 (28%) from $452,173,000 in 1997 to $580,840,000 in 1998. Sales for Company Applebee's restaurants increased $117,137,000 (33%) from $354,443,000 in 1997 to $471,580,000 in 1998 due primarily to Company restaurant openings, sales from the 33 Virginia restaurants acquired in March 1998, and incremental sales from the 11 St. Louis restaurants acquired in April 1997. Sales for Company Rio Bravo Cantina restaurants were $83,295,000 and $94,887,000 in 1997 and 1998, respectively, and sales for the specialty restaurants were $14,435,000 and $14,373,000 in 1997 and 1998, respectively. The increase in sales for the Rio Bravo Cantina restaurants resulted from Company restaurant openings. Comparable restaurant sales at Company Applebee's restaurants decreased by 0.4% in 1998. Weighted average weekly sales at Company Applebee's restaurants decreased 1.2% from $41,176 in 1997 to $40,664 in 1998. Comparable restaurant sales and weighted average weekly sales at Company Applebee's restaurants in 1998 were positively affected by menu price increases implemented during the fourth quarter of 1997 for certain menu items. Comparable restaurant sales for Company Rio Bravo Cantina restaurants decreased by 6.8% in 1998 due primarily to competition in the Atlanta and Florida markets. Weighted average weekly sales (excluding one restaurant that is open for dinner only) decreased from $60,946 in 1997 to $52,789 in 1998. Weighted average weekly sales in 1998 were also impacted by new restaurant openings in new markets. Franchise Income. Overall franchise income increased $3,075,000 (5%) from $63,647,000 in 1997 to $66,722,000 in 1998 due primarily to the increased number of franchise Applebee's and Rio Bravo Cantina restaurants operating during 1998 as compared to 1997. This increase was partially offset by a reduction in franchise royalties as a result of the acquisition of the Virginia restaurants in the second quarter of 1998 and the St. Louis restaurants in the second quarter of 1997, as well as a reduction in franchise fees due to a decline in franchise openings from 129 restaurants in 1997 to 88 restaurants in 1998. In addition, comparable restaurant sales and weighted average weekly sales for franchise Applebee's restaurants decreased by 0.1% and 1.1%, respectively, in 1998. Cost of Company Restaurant Sales. Food and beverage costs decreased from 27.5% in 1997 to 27.4% in 1998 due primarily to operational improvements, purchasing efficiencies resulting from the Company's growth, and the menu price increase implemented in the fourth quarter of 1997. Such decreases were partially offset by an increase in dairy and poultry costs during the latter half of 1998 and revisions to Rio Bravo Cantina menu items. Beverage sales, as a percentage of Company restaurant sales, declined from 17.8% in 1997 to 16.6% in 1998 which had a negative impact on overall food and beverage costs, as a percentage of Company restaurant 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. 22 Labor costs decreased from 32.1% in 1997 to 31.9% in 1998. The decrease was due primarily to lower labor costs in the Virginia restaurants and a decrease in group medical costs due to favorable claims experience. In addition, labor costs in the latter part of 1997 were adversely impacted by the implementation of the Company's food and menu enhancement initiative in its Applebee's restaurants. These decreases were partially offset by continued pressure on both hourly labor and management costs as a result of increases in the minimum wage, as well as the highly competitive nature of the restaurant industry, and higher labor costs experienced at the Rio Bravo Cantina restaurants due to the significant decline in sales volumes in 1998. Direct and occupancy costs were 25.3% in both 1997 and 1998. Rent expense, as a percentage of sales, declined in 1998 due to a higher proportion of owned properties resulting from the Virginia Acquisition. In addition, plateware costs decreased in 1998 as a result of the Company's 1997 food and menu enhancement initiative in its Applebee's restaurants. Such decreases were offset by increased levels of advertising expenditures and depreciation expense associated with new restaurants as well as higher costs experienced at the Rio Bravo Cantina restaurants due to the significant decline in sales volumes in 1998. General and Administrative Expenses. General and administrative expenses decreased from 10.2% in 1997 to 9.0% in 1998 due primarily to the absorption of general and administrative expenses over a larger revenue base as well as the additional leverage resulting from the Virginia and St. Louis acquisitions. General and administrative expenses increased by $5,465,000 during 1998 compared to 1997 due primarily to the costs of additional personnel associated with the Company's development efforts and system-wide expansion. Amortization of Intangible Assets. Amortization of intangible assets increased in 1998 as a result of the amortization of goodwill related to the St. Louis and Virginia acquisitions. Investment Income. Investment income decreased in 1998 compared to 1997 primarily as a result of decreases in cash and cash equivalents and short-term investments due to capital expenditures and acquisitions. Interest Expense. Interest expense increased in 1998 compared to 1997 primarily as a result of interest associated with borrowings under the Company's credit facilities and capitalized leases related to the St. Louis and Virginia acquisitions. Income Taxes. The effective income tax rate, as a percentage of earnings before income taxes, was 37.0% in 1998 compared to 37.2% in 1997. The decrease in the Company's overall effective tax rate in 1998 was due primarily to an increase in credits resulting from FICA taxes on tips. Extraordinary Item. In connection with the early extinguishment of debt, the Company paid a prepayment penalty of $930,000 on March 30, 1998. The prepayment penalty plus the remaining unamortized portion of the related deferred financing costs of $91,000 is reflected as an extraordinary loss of $641,000, net of income taxes of $380,000, in the accompanying consolidated statement of earnings for 1998. 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. 23 Capital expenditures were $77,665,000 in fiscal year 1998 (excluding $101,749,000 related to the Virginia Acquisition, including acquisition costs) and $53,945,000 in 1999. The Company currently expects to open 25 to 27 Applebee's restaurants in 2000. Capital expenditures are expected to be between $55,000,000 and $60,000,000 in fiscal 2000 primarily for the development of new restaurants, refurbishments of and capital replacements for existing restaurants, and enhancements to information systems. 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. On March 30, 1998, the Company entered into a bank credit agreement that provided for $225,000,000 in senior secured credit facilities, consisting of an eight-year senior secured term loan of $125,000,000 and a five-year secured working capital facility of $100,000,000. The Company also entered into a five-year $5,000,000 letter of credit facility with another bank. In the third quarter of 1999, the Company entered into a one-year renewable $10,000,000 unsecured line of credit facility, of which $5,000,000 may only be used for letters of credit. In the fourth quarter of 1999, the Company's working capital facility was reduced from $100,000,000 to $86,500,000 as a result of the sale of the Philadelphia restaurants. Both the senior term loan and the working capital facility are secured by the common stock of each of the Company's present and future subsidiaries and all intercompany debt of the Company and such subsidiaries. In addition, both the senior term loan and the working capital facility are subject to various covenants and restrictions which, among other things, require the maintenance of stipulated fixed charge, interest coverage and leverage ratios, as defined, and limit additional indebtedness and capital expenditures in excess of specified amounts. Cash dividends were limited to $5,000,000 through fiscal year 1999. The credit agreement originally permitted up to $50,000,000 to be utilized for repurchases of the Company's common stock. In February 1999, the credit agreement was amended to permit additional repurchases of common stock of up to $100,000,000 and to allow annual cash dividends of the greater of $5,000,000 or 50% of consolidated net income beginning in fiscal year 2000. The Company is currently in compliance with the covenants contained in its credit agreement. During 1998, the Company's Board of Directors approved plans to repurchase up to $50,000,000 of the Company's common stock, subject to market conditions. During 1998, the Company repurchased 2,431,000 shares of its common stock at an aggregate cost of $49,332,000. In February 1999, the Company's Board of Directors approved plans to repurchase up to an additional $100,000,000 of the Company's common stock over a two-year period, subject to market conditions. In December 1999, the Company's Board of Directors authorized an additional program to repurchase up to $32,500,000 of its common stock through the year 2000, subject to market conditions and pursuant to applicable restrictions under the Company's credit agreement. During 1999, the Company repurchased 3,332,000 shares of its common stock at an aggregate cost of $102,959,000. As of December 26, 1999, the Company held liquid assets totaling $3,982,000, consisting of cash and cash equivalents of $1,427,000 and short-term investments of $2,555,000. The working capital deficit increased from $34,576,000 at December 27, 1998 to $43,451,000 at December 26, 1999. This increase was due primarily to increased gift certificate sales in December 1999 and an increase in accrued incentive compensation expense as a result of the Company's 1999 performance. As of December 26, 1999, $18,500,000 was outstanding under the Company's working capital and line of credit facilities, and standby letters of credit totaling $3,530,000 were outstanding under its letter of credit facilities. 24 The Company believes that its liquid assets and cash generated from operations, combined with borrowings available under its credit facilities, will provide sufficient funds for its operating, capital and other requirements for the foreseeable future. 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 been recently proposed 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. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for the Company beginning in the first quarter of fiscal year 2001. The Company believes that the adoption of the provisions of SFAS No. 133 will not have a material effect on its financial statements, based on current activities. Impact of the Year 2000 As of the filing date of this report, the impact of the Year 2000 has not had a material adverse impact on the Company's business or results of operations. The total cost of the Company's Year 2000 efforts was approximately $1,300,000. These amounts included the costs of external consultants, the purchase of software and hardware, and the compensation of internal employees working on Year 2000 projects. All costs were funded from cash flows from operations. 25 Forward-Looking Statements The statements contained herein regarding restaurant development and capital expenditures are forward-looking and based on current expectations. There are several risks and uncertainties that could cause actual results to differ materially from those described. For a discussion of the principal factors that could cause actual results to be materially different, refer to the Company's current report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2000. Item 7A. Quantitative and Qualitative Disclosures About Market Risk On March 30, 1998, the Company entered into a bank credit agreement that provided for $225,000,000 in senior secured credit facilities, consisting of an eight-year senior secured term loan of $125,000,000 and a five-year secured working capital facility of $100,000,000. In the fourth quarter of 1999, the Company's working capital facility was reduced from $100,000,000 to $86,500,000 as a result of the sale of the Philadelphia restaurants. The senior term loan bears interest at either the bank's prime rate plus 1.25% or LIBOR plus 2.25%, at the Company's option. The working capital facility bears interest at either the bank's prime rate plus 0.125% or LIBOR plus 1.125%, at the Company's option. The interest rate on the working capital facility is subject to change based upon the Company's leverage ratio. In connection with the bank credit agreement, the Company entered into interest rate swap agreements to manage its exposure to interest rate fluctuations. The agreements were effective beginning May 1, 1998, and have maturity dates ranging from four to seven years and were for an aggregate notional amount of $100,000,000. The Company terminated $25,000,000 of the swap agreements in 1999. The termination of the swap agreements did not have a material impact on the Company's results of operations. The swap agreements effectively fix the underlying three-month LIBOR interest rate on $75,000,000 of the senior credit facilities to rates ranging from 5.91% to 6.05%. As of December 26, 1999, the total amount of debt subject to interest rate fluctuations was $28,161,000 ($9,661,000 under the term loan and $18,500,000 under revolving credit and unsecured line of credit facilities). A 1% change in interest rates would result in an increase or decrease in interest expense of $282,000 per year. Item 8. Financial Statements and Supplementary Data See the Index to Consolidated Financial Statements on Page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 26 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 4, 2000, 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 4, 2000, 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 4, 2000, 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 4, 2000, is incorporated herein by reference. 27 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 September 29, 1999, announcing strong third quarter sales trends and increased network television advertising in 2000. 28 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 23, 2000 By: /s/ Lloyd L. Hill ------------------ ------------------------------ Lloyd L. Hill Chief Executive Officer POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lloyd L. Hill 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/ Lloyd L. Hill Date: March 23, 2000 ------------------------- ------------------------- Lloyd L. Hill Director and Chief Executive Officer (principal executive officer) By: /s/ George D. Shadid Date: March 23, 2000 ------------------------- ------------------------- George D. Shadid Director, Executive Vice President and Chief Financial Officer (principal financial officer) By: /s/ Mark A. Peterson Date: March 23, 2000 ------------------------- ------------------------- Mark A. Peterson Vice President and Controller (principal accounting officer) By: /s/ Abe J. Gustin, Jr. Date: March 23, 2000 ------------------------- ------------------------- Abe J. Gustin, Jr. Director, Chairman of the Board 29 By: /s/ Erline Belton Date: March 23, 2000 ------------------------- ------------------------- Erline Belton Director By: /s/ Douglas R. Conant Date: March 23, 2000 ------------------------- ------------------------- Douglas R. Conant Director By: /s/ D. Patrick Curran Date: March 23, 2000 ------------------------- ------------------------- D. Patrick Curran Director By: /s/ Eric L. Hansen Date: March 23, 2000 ------------------------- ------------------------- Eric L. Hansen Director By: /s/ Mark S. Hansen Date: March 23, 2000 ------------------------- ------------------------- Mark S. Hansen Director By: /s/ Jack P. Helms Date: March 23, 2000 ------------------------- ------------------------- Jack P. Helms Director By: /s/ Burton M. Sack Date: March 23, 2000 ------------------------- ------------------------- Burton M. Sack Director 30 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES Index to consolidated Financial Statements
Page Independent Auditors' Report............................................................................. F-2 Consolidated Balance Sheets as of December 26, 1999 and December 27, 1998 .................................................................................. F-3 Consolidated Statements of Earnings for the fiscal years ended December 26, 1999, December 27, 1998 and December 28, 1997........................................... F-4 Consolidated Statements of Stockholders' Equity for the fiscal Years Ended December 26, 1999, December 27, 1998 and December 28, 1997..................................... F-5 Consolidated Statements of Cash Flows for the fiscal years ended December 26, 1999, December 27, 1998 and December 28, 1997........................................... F-6 Notes to Consolidated Financial Statements............................................................... F-8
F-1 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 26, 1999 and December 27, 1998 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 26, 1999. 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 conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 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 26, 1999 and December 27, 1998, and the consolidated results of their operations and cash flows for each of the three fiscal years in the period ended December 26, 1999 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri February 18, 2000 F-2 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
December 26, December 27, 1999 1998 -------------- ------------- ASSETS Current assets: Cash and cash equivalents.................................................... $ 1,427 $ 1,767 Short-term investments, at market value...................................... 2,555 4,879 Receivables, net of allowance................................................ 13,563 13,625 Inventories.................................................................. 11,247 6,709 Prepaid and other current assets............................................. 5,419 4,395 -------------- ------------- Total current assets...................................................... 34,211 31,375 Property and equipment, net....................................................... 300,140 364,058 Goodwill, net..................................................................... 88,667 99,599 Franchise interest and rights, net................................................ 3,449 3,959 Other assets...................................................................... 15,749 11,913 -------------- ------------- $ 442,216 $ 510,904 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............................................ $ 1,807 $ 1,666 Accounts payable............................................................. 16,966 17,427 Accrued expenses and other current liabilities............................... 54,962 44,114 Accrued dividends............................................................ 2,660 2,659 Accrued income taxes......................................................... 1,267 85 -------------- ------------- Total current liabilities................................................. 77,662 65,951 -------------- ------------- Non-current liabilities: Long-term debt - less current portion........................................ 106,293 145,522 Franchise deposits........................................................... 1,765 2,139 Deferred income taxes........................................................ 2,623 1,239 -------------- ------------- Total non-current liabilities............................................. 110,681 148,900 -------------- ------------- Total liabilities......................................................... 188,343 214,851 -------------- ------------- Commitments and contingencies (Notes 7, 8 and 11) 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 - 32,150,360 shares in 1999 and 32,150,360 shares in 1998.......... 321 321 Additional paid-in capital................................................... 168,584 163,651 Retained earnings............................................................ 233,548 182,010 Unrealized gain on short-term investments, net of income taxes............... 50 113 -------------- ------------- 402,503 346,095 Treasury stock-5,553,213 shares in 1999 and 2,610,133 shares in 1998,at cost. (148,630) (50,042) -------------- ------------- Total stockholders' equity................................................ 253,873 296,053 -------------- ------------- $ 442,216 $ 510,904 ============== =============
See notes to consolidated financial statements. F-3 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts)
Fiscal Year Ended -------------------------------------------------- December 26, December 27, December 28, 1999 1998 1997 -------------- ------------- ------------- Revenues: Company restaurant sales................................ $ 596,754 $ 580,840 $ 452,173 Franchise income........................................ 72,830 66,722 63,647 -------------- ------------- ------------- Total operating revenues............................. 669,584 647,562 515,820 -------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage....................................... 163,865 159,420 124,469 Labor................................................... 188,538 185,260 145,165 Direct and occupancy.................................... 145,747 146,693 114,196 Pre-opening expense..................................... 1,582 3,093 3,661 -------------- ------------- ------------- Total cost of Company restaurant sales............... 499,732 494,466 387,491 -------------- ------------- ------------- General and administrative expenses.......................... 63,338 58,044 52,579 Amortization of intangible assets............................ 5,997 5,538 3,258 Loss on disposition of restaurants and equipment............. 5,607 952 1,209 -------------- ------------- ------------- Operating earnings........................................... 94,910 88,562 71,283 -------------- ------------- ------------- Other income (expense): Investment income....................................... 1,195 1,131 1,834 Interest expense........................................ (10,814) (9,922) (1,705) Other income............................................ 444 638 389 -------------- ------------- ------------- Total other income (expense)......................... (9,175) (8,153) 518 -------------- ------------- ------------- Earnings before income taxes and extraordinary item.......... 85,735 80,409 71,801 Income taxes................................................. 31,537 29,753 26,710 -------------- ------------- ------------- Earnings before extraordinary item........................... 54,198 50,656 45,091 Extraordinary loss from early extinguishment of debt, net of income taxes (Note 8)................... -- (641) -- -------------- ------------- ------------- Net earnings................................................. $ 54,198 $ 50,015 $ 45,091 ============== ============= ============= Basic earnings per common share: Basic earnings before extraordinary item................ $ 1.91 $ 1.67 $ 1.44 Extraordinary item...................................... -- (0.02) -- -------------- ------------- ------------- Basic net earnings per common share.......................... $ 1.91 $ 1.65 $ 1.44 ============== ============= ============= Diluted earnings per common share: Diluted earnings before extraordinary item.............. $ 1.89 $ 1.67 $ 1.43 Extraordinary item...................................... -- (0.02) -- -------------- ------------- ------------- Diluted net earnings per common share........................ $ 1.89 $ 1.65 $ 1.43 ============== ============= ============= Basic weighted average shares outstanding.................... 28,403 30,272 31,401 ============== ============= ============= Diluted weighted average shares outstanding.................. 28,601 30,385 31,640 ============== ============= =============
See notes to consolidated financial statements. F-4 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share amounts)
Unrealized Gain(Loss) Common Stock Additional on Total ------------------------ Paid-In Retained Short-Term Treasury Stockholders' Shares Amount Capital Earnings Investments Stock Equity ------------ ----------- ------------ ---------- ------------- ---------- --------------- Balance, December 29, 1996.......... 31,580,955 $ 316 $ 153,028 $ 92,081 $ 188 $ (849) $ 244,764 Dividends on common stock, $0.08 per share................ -- -- -- (2,518) -- -- (2,518) Stock options exercised and related tax benefit.................... 163,054 1 2,741 -- -- -- 2,742 Shares sold under employee stock purchase plan............ -- -- 396 -- -- 61 457 Change in unrealized gain on short-term investments, net of income taxes................... -- -- -- -- (93) -- (93) Net earnings..................... -- -- -- 45,091 -- -- 45,091 ------------ ----------- ------------ ---------- ------------- ---------- ---------------- Balance, December 28, 1997.......... 31,744,009 317 156,165 134,654 95 (788) 290,443 Purchases of treasury stock...... -- -- -- -- -- (49,332) (49,332) Dividends on common stock, $0.09 per share................ -- -- -- (2,659) -- -- (2,659) Stock options exercised and related tax benefit.................... 336,351 3 5,741 -- -- (184) 5,560 Shares issued under employee stock purchase, stock ownership and 401(k) plans................... -- -- 1,465 -- -- 262 1,727 Restricted shares awarded under equity incentive plan, net of cancellations.................. 70,000 1 1,514 -- -- -- 1,515 Unearned compensation relating to restricted shares........... -- -- (1,234) -- -- -- (1,234) Change in unrealized gain on short-term investments, net of income taxes................... -- -- -- -- 18 -- 18 Net earnings..................... -- -- -- 50,015 -- -- 50,015 ------------ ----------- ------------ ---------- ------------- ---------- ---------------- Balance, December 27, 1998.......... 32,150,360 321 163,651 182,010 113 (50,042) 296,053 Purchases of treasury stock...... -- -- -- -- -- (102,959) (102,959) Dividends on common stock, $0.10 per share................ -- -- -- (2,660) -- -- (2,660) Stock options exercised and related tax benefit.................... -- -- 3,773 -- -- 3,252 7,025 Shares issued under employee stock purchase, stock ownership and 401(k) plans................... -- -- 1,063 -- -- 1,113 2,176 Restricted shares awarded under equity incentive plan, net of cancellations.................. -- -- 121 -- -- 6 127 Unearned compensation relating to restricted shares........... -- -- 431 -- -- -- 431 Notes receivable from officers for stock sales.................... -- -- (455) -- -- -- (455) Change in unrealized gain on short-term investments, net of income taxes................... -- -- -- -- (63) -- (63) Net earnings..................... -- -- -- 54,198 -- -- 54,198 ------------ ----------- ------------ ---------- ------------- ---------- ---------------- Balance, December 26, 1999.......... 32,150,360 $ 321 $ 168,584 $233,548 $ 50 $(148,630) $ 253,873 ============ =========== ============ ========== ============= ========== ================
See notes to consolidated financial statements. F-5 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Fiscal Year Ended ---------------------------------------------- December 26, December 27, December 28, 1999 1998 1997 -------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.................................................. $ 54,198 $ 50,015 $ 45,091 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization.............................. 28,930 29,135 20,877 Amortization of intangible assets.......................... 5,997 5,538 3,258 Amortization of deferred financing costs................... 678 477 50 (Gain) loss on sale of investments......................... -- (13) 20 Deferred income tax provision (benefit).................... (244) (492) 1,001 Loss on disposition of restaurants and equipment........... 5,607 952 1,209 Changes in assets and liabilities (exclusive of effects of acquisitions): Receivables................................................ (108) 2,229 2,451 Inventories................................................ (5,781) (1,432) (66) Prepaid and other current assets........................... 508 (84) 671 Accounts payable........................................... (461) (2,304) 7,782 Accrued expenses and other current liabilities............. 9,937 16,317 2,400 Accrued income taxes....................................... 1,182 (5,081) 4,248 Franchise deposits......................................... (374) 607 (261) Other...................................................... 700 (3,356) (1,352) -------------- -------------- -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 100,769 92,508 87,379 -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment........................... (53,945) (77,665) (90,480) Proceeds from sale of restaurants and equipment............... 81,884 10,216 988 Purchases of short-term investments........................... -- (30,799) (19,150) Maturities and sales of short-term investments................ 2,200 36,842 48,117 Acquisitions of restaurants................................... -- (101,749) (33,650) Acquisition of minority interest in joint venture............. -- -- (1,525) -------------- -------------- -------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES........... 30,139 (163,155) (95,700) -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock................................... (102,959) (49,332) -- Dividends paid................................................ (2,659) (2,518) (2,191) Issuance of common stock upon exercise of stock options and related tax benefit........................................ 7,025 5,560 2,742 Shares sold under employee stock purchase plan................ 944 820 457 Proceeds from issuance of long-term debt...................... 44,604 175,825 -- Deferred financing costs relating to issuance of long-term debt -- (4,000) -- Payments on long-term debt.................................... (78,203) (62,849) (1,194) Minority interest in net earnings of joint venture............ -- -- 69 -------------- -------------- -------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........... (131,248) 63,506 (117) -------------- -------------- -------------- NET DECREASE IN CASH AND CASH EQUIVALENTS.......................... (340) (7,141) (8,438) CASH AND CASH EQUIVALENTS, beginning of period..................... 1,767 8,908 17,346 -------------- -------------- -------------- CASH AND CASH EQUIVALENTS, end of period........................... $ 1,427 $ 1,767 $ 8,908 ============== ============== ==============
See notes to consolidated financial statements. F-6 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (in thousands)
Fiscal Year Ended ------------------------------------------------------ December 26, December 27, December 28, 1999 1998 1997 ----------------- ----------------- ----------------- Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes.................................... $ 29,629 $ 33,935 $ 20,613 ================= ================= ================= Interest........................................ $ 10,651 $ 8,809 $ 2,573 ================= ================= =================
Supplemental disclosures of noncash investing and financing activities: Capitalized leases of $4,055,000 were recorded in April 1997 when the Company acquired the operations and assets of 11 franchise restaurants. In connection with this acquisition, the Company issued $2,500,000 of promissory notes (see Note 3). Capitalized leases of $5,052,000 were recorded in April 1998 when the Company acquired the operations and assets of 33 franchise restaurants (see Note 3). The Company received a $6,000,000 subordinated note in connection with the sale of the Rio Bravo Cantina restaurants in April 1999 (see Note 4), which is due in April 2009. 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-7 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 under the name "Applebee's Neighborhood Grill & Bar". As of December 26, 1999, there were 1,168 Applebee's restaurants, of which 906 were operated by franchisees and 262 were operated by the Company. Such restaurants were located in 49 states and eight international countries. 2. Summary of Significant Accounting Policies Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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 26, 1999, December 27, 1998 and December 28, 1997 each contained 52 weeks, and are referred to hereafter as 1999, 1998 and 1997, respectively. Short-term investments: Short-term investments are comprised of 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 26, 1999, all short-term investments have been classified as available-for-sale. Financial instruments: The Company's financial instruments at December 26, 1999 and December 27, 1998 consist of cash equivalents, short-term investments, long-term debt, excluding capitalized lease obligations, and interest rate swaps (see Note 8). Except for interest rate swaps, which are not reflected in the consolidated financial statements at fair value, the fair value of these financial instruments approximates the carrying amounts reported in the consolidated balance sheets. The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. The carrying amount of short-term investments is based on quoted market prices. The fair value of the Company's long-term debt, excluding capitalized lease obligations, is based on quotations made on similar issues. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. 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 lesser of the lease term, including renewal options, or the estimated useful life 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 $407,000, $859,000 and $755,000 were capitalized during 1999, 1998 and 1997, 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 December 26, 1999 and December 27, 1998 was $16,161,000 and $12,551,000, respectively. F-8 Impairment of long-lived assets: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company analyzes potential impairments of assets on a restaurant-by-restaurant basis. 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 26, 1999 and December 27, 1998 was $7,057,000 and $6,546,000, respectively. Franchise revenues: Franchise revenues are deferred until substantial performance of franchisor obligations is complete. Initial franchise fees, included in franchise income in the consolidated statements of earnings, totaled $2,897,000, $3,099,000 and $4,263,000 for 1999, 1998 and 1997, 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 $28,340,000, $29,097,000 and $20,752,000 for 1999, 1998 and 1997, respectively. Interest rate swap agreements: The Company has entered into interest rate swap agreements to manage its exposure to interest rate fluctuations. The differential to be paid or received is recognized over the term of the swap agreements as a component of interest expense. Although the swap agreements expose the Company to interest rate risk, fluctuations in the value of the swaps are mitigated by expected offsetting fluctuations in the variable debt. Stock-based compensation: The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The Statement encourages rather than requires companies to adopt a method that accounts for stock compensation awards based on their estimated fair value at the date they are granted. Companies are permitted, however, to account for stock compensation awards under Accounting Principles Board ("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 earnings and earnings per share, determined as if the fair value method had been applied, in Note 13. Earnings per share: Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock. Outstanding stock options and accrued performance shares represent the only dilutive effect on weighted average shares. A reconciliation between basic and diluted weighted average shares outstanding and the related earnings per share calculation is presented below (in thousands, except per share amounts):
1999 1998 1997 --------------- ---------------- ---------------- Net earnings....................................... $ 54,198 $ 50,015 $ 45,091 ============ ============ ============ Basic weighted average shares outstanding.......... 28,403 30,272 31,401 Dilutive effect of stock options................... 198 113 239 ------------ ------------ ------------ Diluted weighted average shares outstanding........ 28,601 30,385 31,640 ============ ============ ============ Basic net earnings per common share................ $ 1.91 $ 1.65 $ 1.44 ============ ============ ============ Diluted net earnings per common share.............. $ 1.89 $ 1.65 $ 1.43 ============ ============ =============
F-9 Stock options with exercise prices greater than the average market price of the Company's common stock for the applicable periods are excluded from the computation of diluted weighted average shares outstanding. Such options totaled approximately 8,000, 1,604,000 and 1,625,000 for 1999, 1998 and 1997, respectively. 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. New accounting pronouncement: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for the Company beginning in the first quarter of fiscal year 2001. The Company believes that the adoption of the provisions of SFAS No. 133 will not have a material effect on its financial statements, based on current activities. Reclassifications: Certain prior year amounts have been reclassified to conform with the 1999 presentation. 3. Acquisitions On April 14, 1997, the Company acquired the operations of 11 franchise Applebee's restaurants located in the St. Louis metropolitan area and the related furniture and fixtures, certain land and leasehold improvements, and rights to future development of restaurants for a total purchase price of $36,150,000. The purchase price was paid in a combination of $33,650,000 in cash and $2,500,000 of promissory notes, which were paid in 1998. One of the principals of the franchisee was related to a person who was a director of the Company until May 1997. The acquisition was accounted for as a purchase, and accordingly, the purchase price has been allocated to the fair value of net assets acquired and resulted in an allocation to goodwill of approximately $27,000,000 which is being amortized on a straight-line basis over 20 years. In conjunction with this acquisition, the Company also recorded capitalized leases of $4,055,000. The results of operations of such restaurants have been reflected in the consolidated financial statements subsequent to the date of acquisition. Results of operations of such restaurants prior to acquisition were not material in relation to the Company's operating results for the periods shown. In 1997, the Company exercised its option to purchase the remaining 50% interest in a joint venture arrangement with its franchisee in Nevada for $1,525,000. On March 30, 1998, the Company acquired the operations and assets of 33 restaurants in the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville, from Apple South, Inc. ("Apple South"), now Avado Brands, Inc., referred to herein as the "Virginia Acquisition." The total purchase price was $94,749,000 and was paid in cash on March 30, 1998. The acquisition was accounted for as a purchase, and the results of operations of such restaurants are reflected in the consolidated financial statements subsequent to the date of acquisition. The following summarized unaudited pro forma results of operations of the Company (in thousands, except per share amounts) for 1998 and 1997 assume the Virginia Acquisition and the Company's financing arrangements (see Note 8) occurred as of the beginning of the earliest period presented. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Virginia Acquisition been effective as of the dates indicated, or which may result in the future. F-10
Fiscal Year Ended ------------------------------------------------------ December 27, 1998 December 28, 1997 -------------------------- --------------------------- Actual Pro Forma Actual Pro Forma ---------- --------------- ------------- ------------- Food and beverage sales.............................. $ 580,840 $ 597,507 $ 452,173 $ 513,456 Franchise income..................................... 66,722 65,995 63,647 61,106 ---------- --------------- ------------- ------------- Total operating revenues............................. $ 647,562 $ 663,502 $ 515,820 $ 574,562 ========== =============== ============= ============== Earnings before extraordinary item................... $ 50,656 $ 50,381 $ 45,091 $ 44,432 Net earnings......................................... $ 50,015 $ 49,740 $ 45,091 $ 44,432 Basic net earnings per common share.................. $ 1.65 $ 1.64 $ 1.44 $ 1.41 Diluted net earnings per common share................ $ 1.65 $ 1.64 $ 1.43 $ 1.40 Basic weighted average shares outstanding............ 30,272 30,272 31,401 31,401 Diluted weighted average shares outstanding.......... 30,385 30,385 31,640 31,640
4. Divestitures On April 12, 1999, the Company completed the sale of its Rio Bravo Cantina concept, which was comprised of 65 restaurants, including 40 Company restaurants and 25 franchised restaurants. The Company received $53 million in consideration ($47 million in cash at closing and a $6 million 8% subordinated note due in ten years). On April 26, 1999, the Company also completed the sale of its four specialty restaurants for $12 million in cash. Total Company restaurant sales, franchise income and cost of Company restaurant sales for the 1999 period prior to divestiture were $33,444,000, $26,000 and $30,331,000, respectively, for both the Rio Bravo Cantina and specialty restaurants. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company recorded a loss on disposition of $9,000,000 ($5,670,000 net of income taxes) in the first quarter of 1999 to reflect the difference between the carrying value of the net assets disposed and the estimated proceeds from the sale transactions. Depreciation and amortization on the long-lived assets to be disposed was discontinued in February 1999 in anticipation of the sale of these restaurants. On December 13, 1999, the Company completed the sale of 12 Applebee's restaurants in the Philadelphia market for $23,465,000. The operations of the restaurants and future restaurant development in the market area were assumed by an existing Applebee's franchisee. The agreement also provides for additional payments if the franchisee achieves certain future sales levels in the Philadelphia market. Depreciation and amortization on the long-lived assets to be disposed was discontinued in August 1999 in anticipation of the sale of these restaurants. In connection with this transaction, the Company recognized a gain in the fourth quarter of 1999 of $4,193,000 ($2,650,000 net of income taxes). Total Company restaurant sales and cost of Company restaurant sales for these restaurants for the 1999 period prior to divestiture were $22,759,000 and $18,568,000, respectively. F-11 5. Receivables Receivables are comprised of the following (in thousands):
December 26, December 27, 1999 1998 ----------------- ----------------- Franchise royalty, advertising and trade receivables............. $ 12,935 $ 11,507 Credit card receivables.......................................... 2,473 2,587 Franchise fee receivables........................................ 431 498 Interest and dividends receivable................................ 39 105 Other............................................................ 120 493 ----------------- ----------------- 15,998 15,190 Less allowance for bad debts..................................... 2,435 1,565 ----------------- ----------------- $ 13,563 $ 13,625 ================= =================
The provision for bad debts totaled $981,000, $1,000,000 and $635,000 for 1999, 1998 and 1997, respectively. Write-offs against the allowance for bad debts totaled $111,000, $272,000 and $68,000 during 1999, 1998 and 1997, respectively. 6. Other Assets Other assets are comprised of the following (in thousands):
December 26, December 27, 1999 1998 ----------------- ----------------- Notes receivable................................................. $ 8,654 $ 3,534 Deferred financing costs, net.................................... 3,211 3,535 Liquor licenses.................................................. 2,800 3,824 Other............................................................ 1,084 1,020 ----------------- ----------------- $ 15,749 $ 11,913 ================= =================
7. Property and Equipment Property and equipment, net is comprised of the following (in thousands):
December 26, December 27, 1999 1998 ----------------- ------------------ Land............................................................. $ 63,922 $ 77,121 Buildings and leasehold improvements............................. 205,625 239,047 Furniture and equipment.......................................... 118,795 134,810 Construction in progress......................................... 4,786 6,351 ----------------- ------------------ 393,128 457,329 Less accumulated depreciation and capitalized lease amortization............................................ 92,988 93,271 ----------------- ------------------ $ 300,140 $ 364,058 ================= ==================
Property under capitalized leases in the amount of $4,055,000 and $9,592,000 at December 26, 1999 and December 27, 1998, respectively, is included in buildings and leasehold improvements. Accumulated amortization of such property amounted to $647,000 and $711,000 at December 26, 1999 and December 27, 1998, 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 $28,930,000, $29,135,000 and $20,877,000 for 1999, 1998 and 1997, respectively. Of these amounts, $300,000, $476,000 and $210,000 related to capitalized lease amortization during 1999, 1998 and 1997, respectively. F-12 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 comprised of the following (in thousands):
1999 1998 1997 ------------------ ------------------ ----------------- Minimum rent................................. $ 11,780 $ 12,432 $ 10,452 Contingent rent.............................. 1,070 1,294 1,298 ------------------ ------------------ ----------------- $ 12,850 $ 13,726 $ 11,750 ================== ================== =================
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 2000) as of December 26, 1999 are as follows (in thousands):
Capitalized Operating Leases Leases ------------------ ----------------- 2000............................................................. $ 644 $ 10,962 2001............................................................. 667 10,912 2002............................................................. 691 10,829 2003............................................................. 716 10,409 2004............................................................. 741 9,520 Thereafter....................................................... 9,097 80,040 ------------------ ------------------ Total minimum lease payments..................................... 12,556 $ 132,672 ================== Less amounts representing interest............................... 8,359 ------------------ Present value of minimum lease payments.......................... $ 4,197 ==================
8. Long-Term Debt Long-term debt, including capitalized lease obligations, is comprised of the following (in thousands):
December 26, December 27, 1999 1998 ---------------- ---------------- Unsecured senior term loan; interest at LIBOR plus 2.25% or prime rate plus 1.25%, with semi-annual principal payments; due March 2006................................................. $ 84,661 $ 124,375 Unsecured revolving credit facility; interest at LIBOR plus 1.125% or prime rate plus 0.125%; due March 2003............... 18,000 12,000 Unsecured line of credit facility; interest at federal funds rate; due September 17, 2000................................... 500 -- 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.................................................. 417 802 Capitalized lease obligations...................................... 4,197 9,686 Other.............................................................. 325 325 ---------------- ---------------- Total long-term debt............................................. 108,100 147,188 Less current portion of long-term debt........................... 1,807 1,666 ---------------- ---------------- Long-term debt - less current portion............................ $ 106,293 $ 145,522 ================ ================
F-13 On March 30, 1998, the Company entered into a bank credit agreement that provided for $225,000,000 in senior secured credit facilities, consisting of an eight-year senior secured term loan of $125,000,000 and a five-year secured working capital facility of $100,000,000. The Company also entered into a five-year $5,000,000 letter of credit facility with another bank. In the third quarter of 1999, the Company entered into a one-year renewable $10,000,000 unsecured line of credit facility, of which $5,000,000 may only be used for letters of credit. In connection with the sale of the Rio Bravo Cantina and specialty restaurants, the Company repaid $31,000,000 of the senior term loan during the second quarter of 1999. In the fourth quarter of 1999, the Company also repaid $7,600,000 of the senior term loan and $13,500,000 of borrowings under the working capital facility in connection with the sale of the Philadelphia market. The Company's working capital facility was reduced from $100,000,000 to $86,500,000 as a result of this transaction. In connection with the early extinguishment of debt in 1998, the Company paid a prepayment penalty of $930,000. The prepayment penalty plus the remaining unamortized portion of the related deferred financing costs of $91,000 is reflected as an extraordinary loss of $641,000, net of income taxes of $380,000, in the accompanying consolidated statement of earnings for 1998. In February 1999, the Company purchased the buildings and related land and equipment underlying three capital leases for a total of $4,725,000 from Apple South. As a result, $5,052,000 of the capitalized lease obligations were retired in 1999. In addition, as a result of the sale of the Philadelphia market in December 1999, capitalized lease obligations decreased by $480,000. As of December 26, 1999, $18,000,000 was outstanding under the $86,500,000 working capital facility, $500,000 was outstanding under the $10,000,000 unsecured line of credit facility, and standby letters of credit totaling $3,530,000 were outstanding under the letter of credit facilities. The senior term loan bears interest at either the bank's prime rate plus 1.25% or LIBOR plus 2.25%, at the Company's option, and requires semi-annual principal payments aggregating $860,000 per year for each year through March 31, 2005, with the remaining $79,934,000 due in two equal amounts through March 31, 2006. The working capital facility bears interest at either the bank's prime rate plus 0.125% or LIBOR plus 1.125%, at the Company's option. A commitment fee of 0.25% is payable on any unused portion of the working capital facility. The interest rate on the working capital facility and the commitment fee are subject to change based upon the Company's leverage ratio. In connection with the bank credit agreement, the Company has entered into interest rate swap agreements to manage its exposure to interest rate fluctuations. The agreements were effective beginning May 1, 1998, and have maturity dates ranging from four to seven years and were for an aggregate notional amount of $100,000,000. The Company terminated $25,000,000 of the swap agreements in 1999. The termination of the swap agreements did not have a material impact on the Company's results of operations. The swap agreements effectively fix the underlying three-month LIBOR interest rate on $75,000,000 of the senior credit facilities to rates ranging from 5.91% to 6.05%. As of December 26, 1999, the fair value of these swaps was a net receivable of $2,076,000. The fair value represents the estimated amount that the Company would receive or pay to terminate the agreements taking into account current interest rates. Both the senior term loan and the working capital facility are secured by the common stock of each of the Company's present and future subsidiaries and all intercompany debt of the Company and such subsidiaries. In addition, both the senior term loan and the working capital facility are subject to various covenants and restrictions which, among other things, require the maintenance of stipulated fixed charge, interest coverage and leverage ratios, as defined, and limit additional indebtedness and capital expenditures in excess of specified amounts. Cash dividends were limited to $5,000,000 through fiscal year 1999. The credit agreement originally permitted up to $50,000,000 to be utilized for repurchases of the Company's common stock. In February 1999, the credit agreement was amended to permit additional repurchases of common stock of up to $100,000,000 and to allow annual cash dividends of the greater of $5,000,000 or 50% of consolidated net income beginning in fiscal year 2000. The Company is currently in compliance with the covenants contained in its credit agreement. F-14 Maturities of long-term debt, including capitalized lease obligations, for each of the five fiscal years subsequent to December 26, 1999, ending during the years indicated, are as follows (in thousands): 2000.................................................... $ 1,807 2001.................................................... 893 2002.................................................... 902 2003.................................................... 19,237 2004.................................................... 929 9. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities are comprised of the following (in thousands):
December 26, December 27, 1999 1998 ------------------ ----------------- Compensation and related taxes.................................... $ 16,647 $ 12,551 Gift certificates................................................. 12,714 7,803 Sales and use taxes............................................... 3,109 3,571 Insurance......................................................... 7,675 6,816 Rent.............................................................. 3,019 3,559 Other............................................................. 11,798 9,814 ------------------ ----------------- $ 54,962 $ 44,114 ================== =================
10. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. The income tax provision consists of the following (in thousands):
1999 1998 1997 --------------- --------------- ---------------- Current provision: Federal............................................ $ 27,019 $ 25,803 $ 22,016 State.............................................. 4,762 4,442 3,693 Deferred provision (benefit)........................... (244) (492) 1,001 --------------- --------------- ---------------- Income taxes........................................... $ 31,537 $ 29,753 $ 26,710 =============== =============== ================
The deferred income tax provision is comprised of the following (in thousands):
1999 1998 1997 --------------- --------------- ---------------- Depreciation........................................... $ 1,635 $ 793 $ 2,270 Other.................................................. (1,879) (1,285) (1,269) --------------- --------------- ---------------- Deferred income tax provision (benefit)................ (244) (492) 1,001 Deferred income taxes related to change in unrealized gain (loss) on investments.............. (38) 10 57 --------------- --------------- ---------------- Net change in deferred income taxes.................... $ (282) $ (482) $ 1,058 =============== =============== ================
F-15 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):
1999 1998 1997 --------------- --------------- ---------------- Federal income tax at statutory rates.................. $ 30,007 $ 28,143 $ 25,130 Increase (decrease) to income tax expense: State income taxes, net of federal benefit......... 3,043 2,951 2,625 FICA tip tax credit................................ (2,195) (2,124) (1,598) Other.............................................. 682 783 553 --------------- --------------- ---------------- Income taxes........................................... $ 31,537 $ 29,753 $ 26,710 =============== =============== ================
The net current deferred income tax asset amounts are included in "prepaid and other current assets" in the accompanying consolidated balance sheets. The significant components of deferred income tax assets and liabilities and the related balance sheet classifications are as follows (in thousands):
December 26, December 27, 1999 1998 ----------------- ------------------ Classified as current: Allowance for bad debts..................................... $ 896 $ 546 Accrued expenses............................................ 1,171 1,003 Other, net.................................................. 1,393 245 ----------------- ------------------ Net deferred income tax asset............................... $ 3,460 $ 1,794 ================= ================== Classified as non-current: Depreciation................................................ $ (4,214) $ (2,579) Franchise deposits.......................................... 649 753 Other, net.................................................. 942 587 ----------------- ------------------ Net deferred income tax liability........................... $ (2,623) $ (1,239) ================= ==================
11. Commitments and Contingencies Litigation, claims and disputes: As of December 26, 1999, the Company was using assets owned by a former franchisee in the operation of one restaurant which remains under a purchase rights agreement that 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 under that agreement and as to whether the Company had agreed to guarantee the franchisee's debt. Based upon a then-current independent appraisal, the Company offered to settle the dispute and purchase the assets of the three then-existing restaurants for $1,000,000 in 1991. In November 1992, the lender was declared insolvent by the FDIC and has since been liquidated. The Company closed one of the three restaurants in 1994 and one of the two remaining restaurants in February 1996. 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. In June 1997, the third party filed a lawsuit against the Company seeking approximately $3,800,000. In April 1999, a summary judgment of $3,833,000 was awarded to the third party. The Company has filed an appeal and believes it has meritorious defenses. As of December 26, 1999, the Company believes it has recorded adequate reserves for this matter. The Company has reached an agreement in principle to settle a dispute with the Company's franchisee for Germany regarding disclosures allegedly made or omitted by the Company. In addition, the Company is involved in various legal actions arising in the normal course of business. While the resolution of the matters described above may have an impact on the financial results for the period in which they are 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. F-16 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. Approximately $49,000,000 was funded through this financing source, of which $12,000,000 was outstanding at December 26, 1999. 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. Lease guaranties: In connection with the sale of restaurants to franchisees and other parties, the Company has, in certain cases, remained contingently liable for the remaining lease payments. As of December 26, 1999, the aggregate amount of these lease payments totaled approximately $32,900,000. The Company has been indemnified by the buyers from any losses related to such guaranties. Philadelphia divestiture: In connection with the sale of the Philadelphia restaurants, the Company has provided a guarantee to a franchise group totaling $1,250,000. 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 26, 1999, the Company would have been required to make payments aggregating approximately $6,300,000. 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 $4,200,000 if such officers had been terminated as of December 26, 1999. 12. Stockholders' Equity 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. During 1998, the Company's Board of Directors approved plans to repurchase up to $50,000,000 of the Company's common stock, subject to market conditions. During 1998, the Company repurchased 2,431,000 shares of its common stock at an aggregate cost of $49,332,000. In February 1999, the Company's Board of Directors approved plans to repurchase up to an additional $100,000,000 of the Company's common stock over a two-year period, subject to market conditions. In December 1999, the Company's Board of Directors authorized an additional program to repurchase up to $32,500,000 of its common stock through the year 2000, subject to market conditions and pursuant to applicable restrictions under the Company's credit agreement. During 1999, the Company repurchased 3,332,000 shares of its common stock at an aggregate cost of $102,959,000. 13. Employee Benefit Plans Employee stock option plans: 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. F-17 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 3,600,000. 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 years subsequent to 1995 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. During 1999, the Company's Board of Directors approved the 1999 Employee Incentive Plan (the "1999 Plan") which provides for the granting of nonqualified stock options, stock appreciation rights, restricted stock, performance units and performance shares to eligible participants. The number of shares authorized to be issued pursuant to the 1999 Plan is 333,000. Options granted under the 1999 Plan have a term of ten years and are generally exercisable three years from the date of grant. Under all three 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. All three plans permit the granting of performance shares, representing rights to receive the Company's common stock based upon certain performance criteria. Performance shares were granted in 1999 which have a one-year and a three-year performance period. Compensation expense of $2,048,000 related to these grants was recorded in 1999 and was based on the market price of the Company's common stock at the end of the fiscal year. The Company accounts for all three 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 No. 123 (see Note 2), the Company's net earnings and net earnings per common share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
1999 1998 1997 --------------- --------------- -------------- Net earnings, as reported................................ $ 54,198 $ 50,015 $ 45,091 Net earnings, pro forma.................................. $ 50,880 $ 48,205 $ 41,119 Basic net earnings per common share, as reported......... $ 1.91 $ 1.65 $ 1.44 Basic net earnings per common share, pro forma........... $ 1.79 $ 1.59 $ 1.31 Diluted net earnings per common share, as reported....... $ 1.89 $ 1.65 $ 1.43 Diluted net earnings per common share, pro forma......... $ 1.78 $ 1.59 $ 1.30
The weighted average fair value at date of grant for options granted during 1999, 1998 and 1997 was $13.69, $10.68 and $12.76 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 1999, 1998 and 1997: dividend yield of 0.3% for all years; expected volatility of 48.4%, 51.7% and 56.0%, respectively; risk-free interest rate of 6.4%, 4.7% and 5.7%, respectively; and expected lives of 4.9, 5.5 and 4.6 years, respectively. F-18
Transactions relative to all three plans are as follows: 1999 Plan 1995 Plan 1989 Plan ----------------------------- ----------------------------- --------------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Options Price Options Price Options Price -------------- -------------- -------------- -------------- ------------- ------------- Options outstanding at December 29, 1996............ -- -- 1,829,343 $ 27.97 811,703 $14.09 Granted................... -- -- 142,825 $ 24.98 -- -- Exercised................. -- -- (2,167) $ 25.88 (160,887) $13.29 Canceled.................. -- -- (228,902) $ 28.03 (10,804) $20.52 -------------- -------------- ------------- Options outstanding at December 28, 1997............ -- -- 1,741,099 $ 27.72 640,012 $14.17 Granted................... -- -- 466,498 $ 21.38 -- -- Exercised................. -- -- -- -- (340,351) $13.94 Canceled.................. -- -- (382,999) $ 27.45 (15,249) $20.53 -------------- -------------- ------------- Options outstanding at December 27, 1998............ -- -- 1,824,598 $ 26.15 284,412 $14.11 Granted................... 83,000 $28.85 379,400 $ 28.24 -- -- Exercised................. -- -- (154,639) $ 26.14 (150,685) $13.15 Canceled.................. -- -- (31,142) $ 24.71 (227) $ 7.48 -------------- -------------- ------------- Options outstanding at December 26, 1999............ 83,000 $28.85 2,018,217 $ 26.58 133,500 $15.20 ============== ============== ============= Options exercisable at December 26, 1999............ -- -- 937,435 $ 27.65 133,500 $15.20 ============= ============== ============= Options available for grant at December 26, 1999............ 250,000 1,379,355 --
The following table summarizes information relating to fixed-priced stock options outstanding for all three plans at December 26, 1999:
Options Outstanding Options Exercisable ------------------------------------------------ -------------------------------- Weighted Average Weighted Remaining Average Weighted Range of Exercise Prices Number Contractual Exercise Number Average Outstanding Life Price Exercisable Exercise Price --------------------------- --------------- --------------- -------------- --------------- --------------- 1989 Plan: $ 3.02 to $ 3.03 2,500 1.6 years $ 3.02 2,500 $ 3.02 $ 13.82 to $ 14.38 98,000 4.3 years $ 13.88 98,000 $ 13.88 $ 19.25 to $ 21.88 33,000 1.8 years $ 20.05 33,000 $ 20.05 --------------- --------------- $ 3.02 to $ 21.88 133,500 3.6 years $ 15.20 133,500 $ 15.20 =============== =============== 1995 Plan: $ 18.81 to $ 22.75 324,000 8.5 years $ 20.62 5,000 $ 22.75 $ 24.00 to $ 26.69 298,360 5.8 years $ 25.12 165,450 $ 25.05 $ 28.00 to $ 33.00 1,395,857 6.9 years $ 28.27 766,985 $ 28.24 --------------- --------------- $ 18.81 to $ 33.00 2,018,217 7.0 years $ 26.58 937,435 $ 27.65 =============== =============== 1999 Plan: $ 28.50 to $ 33.00 83,000 9.4 years $ 28.85 -- -- =============== ===============
F-19 Restricted stock awards: During 1998 and 1999, restricted stock awards were granted to certain officers and key employees of the Company. These awards vest evenly over a three-year period. Unearned compensation was recorded for the market value of the stock at the date of grant and is shown as a reduction to stockholders' equity in the accompanying consolidated balance sheet. Unearned compensation is being amortized ratably to expense over the vesting period and accordingly, the Company recognized compensation expense of $281,000 in 1998 and $388,000 in 1999. 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. Prior to 1997, the Company matched 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. The Company adopted amendments to the 401(k) plan which were effective beginning in 1997. The Company's matching contributions were increased to 35% and 50% of employee contributions in 1997 and subsequent years, respectively, not to exceed 2.8% and 4.0%, respectively, of the employee's total annual compensation, and were made in shares of the Company's common stock. The Company's contributions 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. During 1994, the Company established a non-qualified defined contribution retirement plan for key employees. The Company's contributions under both plans in 1999, 1998 and 1997 were $939,000, $945,000 and $702,000, respectively. Employee stock purchase plan: During 1996, the Company established an employee stock purchase plan in accordance with Section 423 of the Internal Revenue Code, and the plan was approved at the 1997 Annual Meeting of Stockholders. The plan allows employees to purchase shares of the Company's common stock at a 10% discount through payroll deductions. The number of common shares authorized pursuant to the plan is 200,000. During 1999, 1998 and 1997, employees purchased 44,299, 46,204 and 20,143 shares, respectively, under this plan. Employee stock ownership plan: The Company's Board of Directors approved an employee stock ownership plan in January 1997. The Company's contributions to this plan are completely discretionary and are made in shares of the Company's common stock. The Company's contributions to the plan were $400,000 for 1999 and 1998 and $500,000 for 1997. 14. Related Party Transactions 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 $158,000, $148,000 and $166,000 for 1999, 1998 and 1997, respectively, and are included in direct and occupancy costs in the consolidated statements of earnings. In March 1998, the Company entered into an agreement to purchase a tract of land for future restaurant development for $290,000 from an entity in which the Chairman of the Company has a one-third ownership interest. The purchase price was less than current appraised value. In February 1999, the Company entered into an agreement to sell its four specialty restaurants to an entity owned by the Company's Chairman and certain members of his family (see Note 4). In addition, the same entity became a franchisee of the Company by purchasing seven existing Applebee's restaurants from another franchisee. F-20 Pursuant to its policy to loan executives amounts used by the executive to invest in the Company's stock, and in keeping with the Company's executive stock ownership guidelines, the Company had loans of $455,000 outstanding to three officers at December 26, 1999 at interest rates ranging from 4.7% to 6.2% which are collateralized by the stock. These loans are reflected as a reduction to additional paid-in capital in the Company's consolidated 1999 balance sheet. 15. Quarterly Results of Operations (Unaudited) The following presents the unaudited consolidated quarterly results of operations for 1999 and 1998 (in thousands, except per share amounts). During the first quarter of 1999, the Company recognized a loss of $9,000,000 relating to the sale of the Rio Bravo Cantina and specialty restaurants. During the fourth quarter of 1999, the Company recognized a gain of $4,193,000 relating to the sale of the Philadelphia restaurants.
1999 --------------------------------------------------------------- Fiscal Quarter Ended --------------------------------------------------------------- March 28, June 27, September 26, December 26, 1999 1999 1999 1999 ------------- ------------- ------------- ------------- Revenues: Company restaurant sales....................... $161,760 $145,832 $145,434 $143,728 Franchise income............................... 17,540 18,151 18,259 18,880 ------------- ------------- ------------- ------------- Total operating revenues.................... 179,300 163,983 163,693 162,608 ------------- ------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage.............................. 44,765 39,776 39,633 39,691 Labor.......................................... 51,786 45,773 45,753 45,226 Direct and occupancy........................... 41,004 36,124 34,312 34,307 Pre-opening expense............................ 378 240 645 319 ------------- ------------- ------------- ------------- Total cost of Company restaurant sales...... 137,933 121,913 120,343 119,543 ------------- ------------- ------------- ------------- General and administrative expenses................. 16,133 14,484 15,568 17,153 Amortization of intangible assets................... 1,533 1,518 1,490 1,456 (Gain) loss on disposition of restaurants and equipment........................................... 9,288 215 213 (4,109) ------------- ------------- ------------- ------------- Operating earnings.................................. 14,413 25,853 26,079 28,565 ------------- ------------- ------------- ------------- Other income (expense): Investment income.............................. 180 430 293 292 Interest expense............................... (3,055) (2,522) (2,444) (2,793) Other income (expense)......................... 168 (164) 170 270 ------------- ------------- ------------- ------------- Total other expense......................... (2,707) (2,256) (1,981) (2,231) ------------- ------------- ------------- ------------- Earnings before income taxes........................ 11,706 23,597 24,098 26,334 Income taxes........................................ 4,331 8,731 8,916 9,559 ------------- ------------- ------------- ------------- Net earnings........................................ $ 7,375 $ 14,866 $ 15,182 $ 16,775 ============= ============= ============= ============= Basic net earnings per common share................. $ 0.25 $ 0.51 $ 0.54 $ 0.62 ============= ============= ============= ============= Diluted net earnings per common share............... $ 0.25 $ 0.51 $ 0.53 $ 0.62 ============= ============= ============= ============= Basic weighted average shares outstanding........... 29,526 29,070 28,100 26,919 ============= ============= ============= ============= Diluted weighted average shares outstanding......... 29,648 29,245 28,454 27,233 ============= ============= ============= =============
F-21
1998 --------------------------------------------------------------- Fiscal Quarter Ended --------------------------------------------------------------- March 29, June 28, September 27, December 27, 1998 1998 1998 1998 ------------- ------------- ------------- ------------- Revenues: Company restaurant sales....................... $129,758 $149,829 $151,648 $149,605 Franchise income............................... 16,845 16,580 17,002 16,295 ------------- ------------- ------------- ------------- Total operating revenues.................... 146,603 166,409 168,650 165,900 ------------- ------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage.............................. 35,368 40,917 41,680 41,455 Labor.......................................... 42,323 47,291 47,589 48,057 Direct and occupancy........................... 33,219 37,191 38,301 37,982 Pre-opening expense............................ 481 527 912 1,173 ------------- ------------- ------------- ------------- Total cost of Company restaurant sales...... 111,391 125,926 128,482 128,667 ------------- ------------- ------------- ------------- General and administrative expenses................. 14,454 14,564 14,398 14,628 Amortization of intangible assets................... 875 1,546 1,546 1,571 Loss on disposition of restaurants and equipment.... 458 213 187 94 ------------- ------------- ------------- ------------- Operating earnings.................................. 19,425 24,160 24,037 20,940 ------------- ------------- ------------- ------------- Other income (expense): Investment income.............................. 220 394 249 268 Interest expense............................... (751) (3,298) (2,853) (3,020) Other income................................... 167 108 135 228 ------------- ------------- ------------- ------------- Total other expense......................... (364) (2,796) (2,469) (2,524) ------------- ------------- ------------- ------------- Earnings before income taxes and extraordinary item............................. 19,061 21,364 21,568 18,416 Income taxes........................................ 7,091 7,947 8,024 6,691 ------------- ------------- ------------- ------------- Earnings before extraordinary item.................. 11,970 13,417 13,544 11,725 Extraordinary loss from early extinguishment of debt, net of income taxes................... -- (641) -- -- ------------- ------------- ------------- ------------- Net earnings........................................ $ 11,970 $ 12,776 $ 13,544 $ 11,725 ============= ============= ============= ============= Basic net earnings per common share: Basic earnings before extraordinary item....... $ 0.39 $ 0.44 $ 0.45 $ 0.39 Extraordinary item............................. -- (0.02) -- -- ------------- ------------- ------------- ------------- Basic net earnings per common share................. $ 0.39 $ 0.42 $ 0.45 $ 0.39 ============= ============= ============= ============= Diluted net earnings per common share: Diluted earnings before extraordinary item..... $ 0.39 $ 0.44 $ 0.45 $ 0.39 Extraordinary item............................. -- (0.02) -- -- ------------- ------------- ------------- ------------- Diluted net earnings per common share............... $ 0.39 $ 0.42 $ 0.45 $ 0.39 ============= ============= ============= ============= Basic weighted average shares outstanding........... 30,611 30,381 30,184 29,911 ============= ============= ============= ============= Diluted weighted average shares outstanding......... 30,734 30,522 30,278 29,976 ============= ============= ============= =============
F-22 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 (incorporated by reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1996). 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 Amendment dated May 13, 1999 to 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 Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 1999). 4.3 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). 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. 10.5 Form of Applebee's Franchise Agreement. 10.6 Schedule of Applebee's Development and Franchise Agreements as of December 26, 1999. E-1 Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 10.7 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). 10.8 Credit Agreement dated as of March 30, 1998 (incorporated by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 1998). 10.9 Asset Purchase Agreement dated February 10, 1999 by and among Applebee's International, Inc., Rio Bravo International, Inc., Innovative Restaurant Concepts, Inc., IRC Kansas, Inc., Applebee's of Michigan, Inc., Rio Bravo Services, Inc., Chevys Holdings, Inc., Chevys, Inc. and Rio Bravo Acquisitions, Inc. (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 1999). 10.10 Asset Purchase Agreement dated February 8, 1999 by and among Rio Bravo International, Inc., Innovative Restaurant Concepts, Inc., Summit Restaurants, Inc. and Specialty Restaurant Development, L.L.C. (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated March 28, 1999). Management Contracts and Compensatory Plans or Arrangements 10.11 1995 Equity Incentive Plan, as amended. 10.12 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.14 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1997). 10.13 1999 Management and Executive Incentive Plan. 10.14 1999 Employee Incentive Plan. 10.15 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). 10.16 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). 10.17 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). 10.18 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). 10.19 Schedule of parties to Indemnification Agreement. E-2 Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 10.20 Previous Form of Change in Control Agreement (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 1998) and schedule of parties thereto. 10.21 New Form of Change in Control Agreement (incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 27, 1998) and schedule of parties thereto. 21 Subsidiaries of Applebee's International, Inc. 23.1 Consent of Deloitte & Touche LLP. 24 Power of Attorney (see page 29 of the Form 10-K). 27 Financial Data Schedule. E-3 EX-10.4 2 FORM OF APPLEBEE'S DEVELOPMENT AGREEMENT STANDARD FORM APPLEBEE'S NEIGHBORHOOD GRILL & BAR DEVELOPMENT AGREEMENT ----------------------------------- (Name of Developer) ----------------------------------- (Date) ----------------------------------- (General Description of Territory) 1
TABLE OF CONTENTS RECITALS .................................................................................... E-3 1. GRANT OF DEVELOPMENT RIGHTS.............................................................. E-4 2. INITIAL DEVELOPMENT SCHEDULE............................................................. E-5 3. SUBSEQUENT DEVELOPMENT SCHEDULE; DEVELOPMENT OBLIGATIONS GENERALLY........................................................ E-6 4. FRANCHISE FEE AND ROYALTY RATE........................................................... E-7 5. SITE APPROVALS: PLANS AND SPECIFICATIONS................................................ E-9 6. FEES AND FRANCHISE AGREEMENTS............................................................ E-10 7. DEVELOPER ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS..................................................... E-10 8. TRANSFER................................................................................. E-12 9. TERMINATION.............................................................................. E-16 10. PREREQUISITES TO OBTAINING FRANCHISES FOR INDIVIDUAL RESTAURANT UNITS.......................................................... E-17 11. RESTRICTIONS............................................................................. E-19 12. DEVELOPMENT PROCEDURES................................................................... E-20 13. NO WAIVER OF DEFAULT..................................................................... E-22 14. FORCE MAJEURE............................................................................ E-22 15. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION..................................................................... E-22 16. MISCELLANEOUS............................................................................ E-24 APPENDIX A: TERRITORY.................................................................... E-27 APPENDIX B: FORM OF FRANCHISE AGREEMENT.................................................. E-28 APPENDIX C: STATEMENT OF OWNERSHIP INTERESTS............................................. E-29 APPENDIX D: REVIEW AND CONSENT WITH RESPECT TO TRANSFERS................................................................. E-30 APPENDIX E: CONFIDENTIALITY AGREEMENT AND COVENANT NOT TO COMPETE...................................................... E-31 APPENDIX F: CONFIDENTIALITY AGREEMENT.................................................... E-34
2 APPLEBEE'S NEIGHBORHOOD GRILL & BAR DEVELOPMENT AGREEMENT This Agreement is made this ________ day of _____________________, 19______, by and between APPLEBEE'S INTERNATIONAL, INC., a Delaware corporation ("FRANCHISOR"), _____________________________________________, a (_______________ corporation, sole proprietorship, _______________ partnership, _______________ limited partnership [strike inappropriate language]) ("DEVELOPER") and ______________________________________ ______________________________ (collectively, the "PRINCIPAL SHAREHOLDERS" and, individually, a "PRINCIPAL SHAREHOLDER" of Developer if a corporation or general partner of Developer is a limited partnership having as its general partner a corporation) and - -------------------------------------------------------------------------------- ("GENERAL PARTNER" of Developer if Developer is a limited partnership).* * (If Developer is not a corporation or a sole proprietorship, or if Developer is a limited liability company, the parties hereto hereby agree that an Addendum shall be attached to this Agreement so as properly to reflect the responsibilities of the partners of any general partnership, the general partner of any limited partnership and the shareholders of any corporate general partner of any partnership, or the members of any limited liability company.) WITNESSETH: RECITALS A. Franchisor owns the rights to develop and operate a unique system of restaurants which specialize in the sale of high quality, moderately priced food and alcoholic beverages in an attractive, casual setting, which include proprietary rights in certain valuable trade names, service marks and trademarks, including the service mark Applebee's Neighborhood Grill & Bar and variations of such mark, designs, decor and color schemes for restaurant premises, signs, equipment, procedures and formulae for preparing food and beverage products, specifications for certain food and beverage products, inventory methods, operating methods, financial control concepts, training facilities and teaching techniques (the "System"). B. Franchisor has established, through its own development and operation, and through the granting of franchises, a chain of Applebee's Neighborhood Grill & Bar restaurants which are distinctive; which are similar in appearance, design and decor; and which are uniform in operation and product consistency. 3 C. The value of Franchisor's trade names, service marks and trademarks is based upon: (1) the maintenance of uniform high quality standards in connection with the preparation and sale of Franchisor-approved food and beverage products, (2) the uniform high standards of appearance of the individual restaurant units in the System, (3) the use of distinctive trademarks, service marks, building designs and advertising signs representing a uniformly high quality of product and services, and (4) the assumption by Franchisor and its franchisees of the obligation to maintain and enhance the goodwill and public acceptance of the System (and of Franchisor's trade names, service marks and trademarks) by strict adherence to the high standards required by Franchisor. D. Developer desires to obtain the exclusive right to develop restaurant units franchised by Franchisor within the geographic area specified in Appendix A hereto ("Territory"), for the period specified in Subsection 1.1, pursuant to the terms, conditions and provisions which are set forth in this Agreement. NOW, THEREFORE, in consideration of Franchisor granting to Developer the exclusive right to develop restaurant units franchised by Franchisor which employ the System ("Restaurants") in the Territory for such period, and in consideration of the mutual obligations which are provided for herein, it is hereby agreed as follows: 1. GRANT OF DEVELOPMENT RIGHTS 1.1 Franchisor grants Developer the exclusive right to develop Restaurants only in the Territory for a period commencing on the date hereof and expiring on _____________________, ________, unless sooner terminated as hereinafter provided. Developer has no rights under this Agreement to develop Restaurants outside of the Territory or to develop restaurants which do not employ the System, including the Applebee's Neighborhood Grill & Bar service mark. 1.2 During the term of this Agreement, Franchisor shall not operate a restaurant utilizing the System or license any other person to operate a restaurant utilizing the System in the Territory. However, nothing in this Agreement shall prohibit or infringe upon Franchisor's right to operate a restaurant or license any other person to operate a restaurant in the Territory which does not utilize the System or use the Applebee's Neighborhood Grill & Bar service mark. In addition, Franchisor specifically reserves the right to operate or license any other person to operate restaurants in any location within an airport (serviced by one or more public or charter carrier), arena, stadium, state or national park, or military fort, post or base which may be within the boundaries of the Territory otherwise granted to Developer. Further, Developer acknowledges and agrees that Franchisor or any one (1) or more of its subsidiary or affiliated companies or divisions shall have the right to operate or license any other person to operate such other restaurants which may or will compete with the Restaurants, under a system and service mark other than Applebee's Neighborhood Grill & Bar. 1.3 After this Agreement expires or is terminated, Franchisor shall have the complete and unrestricted right to operate or license other persons to operate a restaurant utilizing the System in the Territory. 4 2. INITIAL DEVELOPMENT SCHEDULE 2.1 Developer shall develop a total of ___________ (____) Restaurants franchised by Franchisor in the Territory during the period commencing on the date hereof and expiring on ______________, ________, in accordance with the following development schedule: (a)1 During the first Initial Development Period under this Agreement, Developer shall develop at least _________ (____) Restaurants within the Territory, each of which shall be open for operation and doing business on __________________, ________ (the end of the first Initial Development Period under this Agreement). (b) During the second Initial Development Period under this Agreement, Developer shall develop the number of Restaurants within the Territory necessary to result in the existence of ___________ (____) such Restaurants developed by Developer which are open for operation and doing business on _____________, ________ (the end of the second Initial Development Period under this Agreement). (c) During the third Initial Development Period under this Agreement, Developer shall develop the number of Restaurants within the Territory necessary to result in the existence of ___________ (____) such Restaurants developed by Developer which are open for operation and doing business on ______________, ________ (the end of the third Initial Development Period under this Agreement). Each of the periods specified in Subparagraphs (a) through (____) hereof is sometimes referred to hereinafter as an "Initial Development Period." 2.2 During any Initial Development Period, subject to the provisions of this Agreement, Developer is free to develop more than the total minimum number of Restaurants which Developer is required to develop during that Initial Development Period. Any such Restaurants developed, open for operation and doing business during an Initial Development Period in excess of the minimum number required to be developed during that Initial Development Period shall be applied to satisfy Developer's development obligation during the next succeeding Initial Development Period or next succeeding Subsequent Development Period (as defined in Section 3 hereof), if any, as the case may be. Notwithstanding the above, Developer shall not develop more than the total number Restaurants approved by Franchisor for development under this Agreement. 1The periods specified in Subsection 2.1(a)-(c) may be revised, deleted or added to in order to reflect the number of Restaurants Developer is obligated to develop and the time in which the Developer is obligated to open such Restaurants. 5 2.3 Strict compliance with the development schedule specified in Subsection 2.1 hereof is of the essence of this Agreement. If Developer fails to fulfill its specified development obligation with respect to any of the Initial Development Periods specified in Subsection 2.1 hereof, this Agreement shall terminate sixty (60) days after the end of the Initial Development Period in question, unless by the end of such sixty (60) day period Developer has fulfilled the development obligation relating to such Initial Development Period. 3. SUBSEQUENT DEVELOPMENT SCHEDULE; DEVELOPMENT OBLIGATIONS GENERALLY 3.1 During the period commencing on _________________, ________ and expiring on _________________, ________, Developer shall develop and open for business in the Territory, from time to time in accordance with the development schedule established under Subsection 3.2, that number of additional Restaurants as is required to achieve at the end of such period a total number of Restaurants open for business within the Territory which, after including the Restaurants developed during the Initial Development Periods, would be equal to (a) one (1) Restaurant for every twenty-five thousand (25,000) households within the Territory having an income of twenty-five thousand dollars ($25,000) or more, or (b) one (1) Restaurant for every seventy-five thousand (75,000) individuals within the Territory who are between the ages of twenty (20) and fifty-four (54) years old, whichever computation results in a lesser number of Restaurants. 3.2 (a) Each consecutive twelve (12) month period, commencing with the period beginning on _______________, ________, is hereafter referred to as a "Subsequent Development Period." Each period consisting of two (2) consecutive Subsequent Development Periods, commencing with the period beginning on ________________, ________, is hereinafter referred to as a "Calculation Period." 6 (b) Franchisor and Developer shall agree in writing on or before the commencement of each Calculation Period on the number of Restaurants which Developer must develop, each of which shall be open for operation and doing business, during each of the two (2) Subsequent Development Periods included in such Calculation Period; provided that such agreement is subject to the following minimum and maximum development requirements: (i) Minimum development requirements: Developer hereby agrees to develop during each Subsequent Development Period at least that number of Restaurants, each of which shall be open for operation and doing business, which will be equal to one-third (1/3) of the total number of Restaurants (rounded to the nearest whole number) which were required to be developed by Developer during all prior Initial Development and Calculation Periods; and (ii) Maximum development requirements: Notwithstanding the minimum development requirements, Developer shall not be required to develop during any Subsequent Development Period more than that number of Restaurants which, when added to the number of Restaurants which were required to be developed by Developer during all prior Initial Development and Calculation Periods, would exceed the number of Restaurants prescribed by the formula set forth in Subsection 3.1, if such formula had been applied to determine the total number of Restaurants required to service the Territory immediately prior to the Calculation Period in question. No later than sixty (60) days prior to the commencement of each Calculation Period, Franchisor shall provide Developer with census data necessary for Developer to ascertain, for purposes of the maximum development requirements, the number of Restaurants which would be required in the Territory by application of the formula. Franchisor shall use census figures provided by National Decision Systems, or such other generally recognized demographic service as Developer and Franchisor shall reasonably designate. 3.3 Strict compliance with the development schedule established in accordance with Subsection 3.2 hereof is of the essence of this Agreement. If Developer shall fail to fulfill its specified development obligation with respect to any Subsequent Development Period, this Agreement shall automatically terminate sixty (60) days after the end of the Subsequent Development Period in question, unless by the end of such sixty (60) day period Developer has fulfilled the development obligation relating to such Subsequent Development Period. 3.4 If, during the term of this Agreement, (a) Developer transfers or disposes of any Restaurant developed hereunder in accordance with the provisions hereof, or for any other reason ceases to operate any Restaurant developed hereunder, and (b) after such transfer or other cessation of operation the premises no longer are utilized for the operation of a Restaurant, Developer's development obligation in the Initial or Subsequent Development Period in which such transfer or other cessation of operations occurred shall increase, subject to the general limitations on Developer's development obligations set forth in Section 2 and Section 3, by the number of Restaurants which Developer so transferred, disposed of or which otherwise ceased to operate. 3.5 Franchisor represents that it is the sole owner of the service mark Applebee's Neighborhood Grill & Bar. If Franchisor determines that a third person has rights under the law of any state with respect to such mark which precludes Developer from fulfilling any portion of its development obligations pursuant to this Agreement, Franchisor and Developer shall negotiate in good faith for a revision of those development obligations, a redefinition of the Territory, or such other modifications of this Agreement as may be reasonable in the circumstances. 4. FRANCHISE FEE AND ROYALTY RATE 4.1 Developer shall pay Franchisor a franchise fee of $_____________ with respect to each Restaurant which is developed pursuant to this Agreement during the Initial Development Periods. Thereafter, Developer shall pay Franchisor a franchise fee in an amount which is equal to the amount of the franchise fee then in effect at the time of the issuance of the franchise agreement for each additional restaurant to be opened during any Subsequent Development Period. The amount of the franchise fee shall be set forth in the franchise offering circular received by the Developer from Franchisor immediately preceding the issuance of such franchise agreement. Simultaneously with the execution of this Agreement, Developer shall pay to Franchisor, by certified check, the amount of $______________ ("Franchise Fee Deposit"). Said Franchise Fee Deposit shall be equal to the greater of (a) the franchise fee for one of the Restaurants to be developed during the Initial Development Periods, or (b) ten percent (10%) of the entire franchise fees covering the _______________ (____) Restaurants to be developed during the first three2 (3) Initial Development Periods pursuant to 2In the event there are more or less than three (3) Initial Development Periods, these fees are payable for each of the Restaurants provided for in the applicable total number of Initial Development Periods. 7 this Agreement (as reduced by a credit of $6,000 based on Developer's prior payment, if so paid, of a non-refundable $6,000 application fee). The remaining balance of the franchise fees for each of the Restaurants to be developed during the three (3) Initial Development Periods shall be paid by certified check as follows: one-half (1/2) of the balance shall be paid upon signing a franchise agreement for that Restaurant and the remaining balance shall be paid fourteen (14) days prior to the scheduled opening of the Restaurant. The Franchise Fee Deposit shall be proportionately allocated to the franchise fee due with respect to each Restaurant to which it applies. The franchise fee with respect to each Restaurant to be developed during a Subsequent Development Period or with respect to any additional Restaurants developed during the Initial Development Periods shall be paid by certified check in the same manner. 4.2 Except as provided in this Subsection 4.2 and in Subsection 19.1 of the form of franchise agreement which is attached hereto as Appendix B, Developer shall have no right to recover from Franchisor, directly or indirectly, any of the franchise fees which are prepaid pursuant to Subsection 4.1 hereof. If Developer's failure to develop the total number of Restaurants specified in Subsection 2.1 of this Agreement is the result of the assertion of rights by a third party as described in Subsection 3.5 hereof, those prepaid franchise fees which relate to the Restaurants which cannot be so developed shall be refunded to Developer in cash. 4.3 As partial consideration for the rights granted to Developer pursuant to the franchise agreements covering the Restaurants which Developer develops hereunder, Developer (as franchisee under each such franchise agreement) shall pay Franchisor a monthly royalty fee as determined by Franchisor, not to exceed five percent (5%) of each calendar month's gross sales (as that term is defined in the form of franchise agreement which is attached hereto as Appendix B). 4.4 Pursuant to its obligations hereunder and under the applicable franchise agreements, Franchisor will make various expenditures in connection with the development of prospective Restaurant sites by Developer, including expenditures for travel, lodging, meals, obtaining of information about prospective sites, demographic information, traffic counts, and inquiries into local laws and ordinances. Developer shall promptly notify Franchisor of a decision to cease development of a prospective Restaurant site. In the event that Developer fails to open a restaurant at any such site, in lieu of the payment of the franchise fee therefor, Franchisor in its sole discretion may require Developer to reimburse Franchisor for Franchisor's expenditures with respect to that site. In such event, Franchisor shall provide Developer with an itemized list of Franchisor's expenditures with respect to that site within thirty (30) business days after Franchisor receives notice that Developer no longer intends to develop a Restaurant at that site, and Developer shall reimburse Franchisor for such costs within thirty (30) days after receiving such list. 8 5. SITE APPROVALS: PLANS AND SPECIFICATIONS 5.1 Developer assumes all cost, liability, expense and responsibility for locating, obtaining, financing and developing sites for Restaurants, and for constructing and equipping Restaurants at such sites. To assist Developer in the site selection process, Franchisor will provide Developer with certain demographic information regarding the site, will conduct an on-site inspection and will review any lease or contract under negotiation for the prospective site, such services to be provided to Developer at no additional cost. The development of a Restaurant at any site must be approved by Franchisor in accordance with its then-existing site approval procedure. In connection with a request for approval of a proposed site for a Restaurant, Developer shall provide a related contract of sale or lease agreement and such other information and material as the Franchisor may reasonably require. Franchisor's approval of a prospective Restaurant site shall not be unreasonably withheld. Franchisor shall notify Developer whether it approves a proposed site and the related contract of sale or lease agreement within thirty (30) business days of receiving Developer's request for approval. Failure of Franchisor to so notify Developer within such thirty (30) business day period shall be deemed to be an approval of such site and the related contract of sale or lease agreement. Developer acknowledges that Franchisor's approval of a prospective site for a Restaurant does not constitute a representation, promise or guarantee by Franchisor that a Restaurant operated at that site will be profitable or otherwise successful. Developer shall not make any binding commitment to a prospective vendor or lessor of real estate with respect to a site for a Restaurant unless Franchisor has approved that site in accordance with Franchisor's then-existing site approval procedure. After Franchisor has approved a site for a Restaurant, Developer shall provide Franchisor with a copy of the executed contract of sale or lease, as applicable, relating to the site within a reasonable period of time. 5.2 For each Restaurant which Developer develops pursuant to this Agreement, Franchisor will make available to Developer Franchisor's specifications for a typical Restaurant. Developer will obtain architectural and engineering services independently and at its own expense. Franchisor shall have the right to review all such architectural and/or engineering plans which Developer obtains and to prohibit the implementation of any plan, or part thereof, which Franchisor, in its sole and absolute discretion, believes is not consistent with the best interests of the System. In the event that Franchisor desires to prohibit the implementation of any such plan, or part thereof, Franchisor shall so notify Developer within thirty (30) business days of receiving such architectural and/or engineering plans for review. Failure of Franchisor to so notify Developer within such thirty (30) business day period shall be deemed to be an approval of such plans. In the event Franchisor does object to any such plan, Franchisor shall provide Developer with a reasonable detailed list of changes necessary to make such plans acceptable to Franchisor. Franchisor shall, upon resubmission of such plans, with such changes as Developer has prepared, notify Developer within fifteen (15) business days of receiving such plans whether they are acceptable. Failure to so notify Developer within such fifteen (15) business day period shall be deemed to be an approval of such amended plans. 9 5.3 If Developer acquires a leasehold interest in a site, that leasehold interest shall be for a term which is at least as long as the term of the form of franchise agreement which is attached hereto as Appendix B, and the lease shall provide that if the applicable franchise agreement is terminated prior to the expiration of that term for whatever reason, Developer may assign the lease to Franchisor without the lessor having any right to impose conditions on such assignment or to obtain any payment in connection therewith. 6. FEES AND FRANCHISE AGREEMENTS Not later than ninety (90) days prior to the scheduled opening of any Restaurant which has been developed pursuant to this Agreement, Developer shall deliver to Franchisor an executed franchise agreement substantially in the form which is attached hereto as Appendix B, provided however, that the franchise agreement which Developer executes shall require the payment of a franchise fee in the amount described in Subsection 4.1, royalty fees as described in Subsection 4.3, and advertising payments at the rates then established by Franchisor with respect to new Restaurants, except that in no event shall such rates exceed five percent (5%) of a Restaurant's gross sales (as defined in Subsection 9.3 of the form of a franchise agreement which is attached hereto as Appendix B). 7. DEVELOPER ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS 7.1 Developer and each Principal Shareholder represent and warrant that: (a) Developer is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation; (b) Developer is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (c) the execution and delivery of this Agreement and the transactions contemplated hereby are within Developer's corporate power; (d) the execution and delivery of this Agreement have been duly authorized by the Developer; (e) the articles of incorporation and by-laws of Developer delivered to Franchisor are true, complete and correct, and there have been no changes therein since the date thereof; (f) the certified copies of the minutes electing the officers of Developer and authorizing the execution and delivery of this Agreement are true, correct and complete, and there have been no changes therein since the date(s) thereof; (g) the specimen stock certificate delivered to Franchisor is a true specimen of Developer's stock certificate; (h) the financial statement of Developer and financial statements of its Principal Shareholders, heretofore delivered to Franchisor, are true, complete and correct, and fairly present the financial positions of Developer and each Principal Shareholder, respectively, as of the date thereof; (i) such financial statements have been prepared in accordance with generally accepted accounting principles; and (j) there have been no materially adverse changes in the condition, assets or liabilities of Developer or Principal Shareholders since the date or dates thereof. 10 7.2 Developer and each Principal Shareholder covenant that during the term of this Agreement: (a) Developer shall do or cause to be done all things necessary to preserve and keep in full force its corporate existence and shall be in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (b) Developer shall have the corporate authority to carry out the terms of this Agreement; and (c) Developer shall print, in a conspicuous fashion on all certificates representing shares of its stock when issued, a legend referring to this Agreement and the restrictions on and obligations of Developer and Principal Shareholders hereunder, including the restrictions on transfer of Developer's shares. 7.3 Prior to development of the first Restaurant pursuant to this Agreement, Developer shall maintain an average monthly balance of five hundred thousand dollars ($500,000) in liquid assets. For purposes of this Agreement, "liquid assets" shall consist of cash, cash available to Developer pursuant to an irrevocable line of credit issued by a commercial bank in favor of Developer, marketable securities, or any other similar asset which Franchisor's Chief Financial Officer designates in writing as a liquid asset. After development of the first Restaurant pursuant to this Agreement, and at any time thereafter in which Developer is operating one (1) Restaurant in the Territory, Developer shall maintain an average monthly balance of three hundred twenty-five thousand dollars ($325,000) in liquid assets. After development of the second Restaurant pursuant to this Agreement, and thereafter, so long as Developer is operating at least two (2) Restaurants in the Territory, Developer shall maintain an average monthly balance of one hundred fifty thousand dollars ($150,000) in liquid assets. At all times Developer shall maintain the necessary financial resources to satisfy its development obligations hereunder. 7.4 In addition to its obligations pursuant to Subsections 7.1 and 7.3 hereof, Developer and Principal Shareholders shall provide Franchisor with such financial information as Franchisor may reasonably request from time to time, including, on an annual basis, copies of the then-most current financial statements of Developer and each Principal Shareholder, dated as of the end of the last preceding fiscal year of the Developer or Principal Shareholder, said statements to be delivered to Franchisor no later than April 15 of each year, which financial statements shall conform to the standards set forth in Subsection 7.1 hereof. 7.5 Developer and each Principal Shareholder represent, warrant and covenant that all Interests (as defined in Subsection 8.4 hereto) in Developer are owned as set forth on Appendix C hereto, that no Interest has been pledged or hypothecated (except in accordance with Section 8 of this Agreement), and that no change will be made in the ownership of any such Interest other than as permitted by this Agreement, or otherwise consented to in writing by Franchisor. Developer and Principal Shareholders agree to furnish Franchisor with such evidence as Franchisor may request, from time to time, for the purpose of assuring Franchisor that the Interests of Developer and Principal Shareholders remain as represented herein. 11 7.6 Each Principal Shareholder, jointly and severally, hereby personally and unconditionally guarantees each of Developer's financial obligations to Franchisor (including, but not limited to, all obligations relating to the payment of fees by Developer to Franchisor). Each Principal Shareholder agrees that Franchisor may resort to such Principal Shareholder (or any of them) for payment of any such financial obligation, whether or not Franchisor shall have proceeded against Developer, any other Principal Shareholder or any other obligor primarily or secondarily obligated to Franchisor with respect to such financial obligation. Each Principal Shareholder hereby expressly waives presentment, demand, notice of dishonor, protest, and all other notices whatsoever with respect to Franchisor's enforcement of this guaranty. In addition, each Principal Shareholder agrees that if the performance or observance by Developer of any term or provision hereof is waived or the time of performance thereof extended by Franchisor, or payment of any such financial obligation is accelerated in accordance with any agreement between Franchisor and any party liable in respect thereto or extended or renewed, in whole or in part, all as Franchisor may determine, whether or not notice to or consent by any Principal Shareholder or any other party liable in respect to such financial obligations is given or obtained, such actions shall not affect or alter the guaranty of each Principal Shareholder described in this Subsection. 8. TRANSFER 8.1 There shall be no Transfer of any Interest of Developer, or of a Principal Shareholder in Developer, in whole or in part (whether voluntarily or by operation of law), directly, indirectly or contingently, except in accordance with the provisions of this Section 8. "Transfer" and "Interest" are defined in Subsections 8.2, 8.3 and 8.4. 8.2 Except as provided in Subsection 8.3, "Transfer" shall mean any assignment, sale, pledge, hypothecation, gift or any other such event which would change ownership of or create a new Interest, including, but not limited to: (a) any change in the ownership of or rights in or to any shares of stock or other equity interest in Developer which would result from the act of any shareholder of Developer ("Shareholder"), such as a sale, exchange, pledge or hypothecation of shares, or any interest in or rights to any of Developer's profits, revenues or assets, or any such change which would result by operation of law; and (b) any change in the percentage interest owned by any Shareholder in the shares of stock of Developer, or interests in its profits, revenues or assets which would result from any act of Developer such as a sale, pledge or hypothecation of any Restaurant assets (other than a pledge of assets to secure bona fide loans made or credit extended in connection with acquisition of the assets pledged, provided that immediately before and after such transaction Developer satisfies the applicable liquid asset requirement described in Subsection 7.3 of this Agreement); any sale or issuance of any shares of Developer's stock; the retirement or redemption of any shares of Developer's stock; or any sale or grant to any person of any right to participate in or otherwise to share or become entitled to any part of Developer's profits, revenues, assets or equity. 12 8.3 "Transfer" shall not include (a) a change in the ownership of or rights to any shares or other equity interest in Developer pursuant to a public offering of Developer's securities registered under the Securities Act of 1933, or (b) a change in the ownership of or rights to any securities or other equity interest in Developer pursuant to a private offering of Developer's securities exempted from registration under such Act, provided that Developer provides Franchisor with a copy of its prospectus and/or offering memorandum ten (10) days prior to its filing with the Securities and Exchange Commission or circulation to third parties so that Franchisor may comment and, if necessary, correct any information concerning Franchisor and/or the System, and further provided that after giving effect to any such public or private offering, the Principal Shareholders, or any of them, "control" Developer. For purposes of this Section 8, "control" means either (1) owning legal and equitable title to fifty-one percent (51%) or more of the outstanding voting securities of Developer, which are not subject to a proxy granted to or contract with any other person or party granting that party the right to vote part or all of such securities, or (2) having and continually exercising the contractual power presently to designate a majority of the directors of Developer. 8.4 "Interest" shall mean: when referring to interests or rights in Developer, any shares of Developer's stock, and any other equitable or legal right in or to any of Developer's stock, revenues, profits or assets; when referring to rights or assets of Developer, Developer's rights under and interest in this Agreement, any Restaurant and its revenues, profits and assets. 8.5 (a) The Interest of a Principal Shareholder may be transferred to such Principal Shareholder's spouse or children or to a person designated in such Principal Shareholder's will or trust (individually and collectively referred to as "Successor"), upon such Principal Shareholder's death or permanent incapacity, without Franchisor's approval, provided that such Successor shall agree to be bound by the restrictions contained in this Section 8, and the other agreements and covenants of the Principal Shareholders contained in this Agreement. (b) The Interest of a Principal Shareholder may not be transferred to another Principal Shareholder without Franchisor's approval, which approval will not be unreasonably withheld. (c) The Interest of a Successor may only be transferred in accordance with Subsection 8.5(b) or 8.8, regardless of whether such Transfer is for consideration or by gift or will or other device. 8.6 Until such date as Developer has developed and opened for operation forty percent (40%) of the number of Restaurants required by Subsection 2.1 hereof and the number of Restaurants required by Subsection 3.1 hereof as said total aggregate number is set forth on Appendix A, Developer shall have no right to Transfer this Agreement or any rights or obligations under this Agreement, and any franchise agreements to be issued pursuant hereto shall be issued solely to the Developer, which as of the date of issuance of each such franchise agreement shall be owned by the Principal Shareholders to the extent hereinbefore provided. Any transfer or attempted transfer in contravention of this provision shall be void and of no effect. If, after the date Developer has developed and opened for continuous operation the number of Restaurants required by this Subsection 8.6, the Principal Shareholders desire to dispose of all or substantially all of the Interests of the Principal Shareholders in Developer, or the Principal Shareholders (or Developer) desire to dispose of all or substantially all of Developer's Interest in this Agreement or in the assets which Developer has acquired pursuant to this Agreement, the Principal Shareholders or Developer, as the case may be, shall notify Franchisor of that desire, in writing, thirty (30) days before announcing that fact publicly or engaging the services of a broker or sales agent. 13 8.7 (a) If at any time any of the Principal Shareholders or Developer, as the case may be, obtains from a third party or third parties a bona fide offer (the "Offer") in writing for the purchase of all or substantially all of the Interests of the Principal Shareholders in Developer or in the Restaurant assets which Developer has acquired as a result of this Agreement, the Principal Shareholders or Developer shall give notice (the "Selling Notice") to Franchisor stating that the Principal Shareholders or Developer, as the case may be, have received the Offer, identifying the prospective purchaser by name and address, specifying the proposed purchase price and attaching a true and complete copy of the Offer. Notwithstanding the foregoing, however, Developer and Principal Shareholders understand and agree that, as provided in Subsection 8.6 hereof, until such time as Developer has developed and opened for operation the number of Restaurants required by said Subsection 8.6. hereof, any portion of any Offer regarding the right to develop Restaurants or Developer's Interest in this Agreement shall be invalid and of no force or effect, it being expressly understood and agreed that such rights may not be transferred, and any franchise agreements to be granted hereunder shall be issued solely to Developer, which shall be owned by the Principal Shareholders as hereinbefore set forth. At such time as Developer has developed and opened for operation the number of Restaurants required by Subsection 8.6, any portion of such an Offer regarding Developer's Interest in this Agreement shall be effective in accordance with its terms. (b) Franchisor shall have an option to purchase (the "Option"), exercisable within a period of forty-five (45) days after receipt of the Selling Notice (the "Option Period"), such Interests at the price and on the conditions set forth in the Offer, except that Franchisor shall not be obligated to pay any finder's or broker's fee, and if the Offer provides for payment of consideration other than cash, or if the Offer involves certain intangible benefits, Franchisor may elect to purchase such Interests by offering a reasonable dollar value substitute including, at Franchisor's option, cash or the common stock or other securities of the Franchisor or any combination thereof for the non-cash/intangible benefits part of the Offer. (c) The Option shall be exercisable by Franchisor delivering to the Principal Shareholders or Developer, as the case may be, within the Option Period, a notice (i) stating that the Option is being exercised, and (ii) specifying the time, date and place at which such purchase and sale will take place, which date shall be within forty-five (45) days after Franchisor delivers such notice. Developer shall provide Franchisor access to and copies of such information and documentation Franchisor shall request regarding the purchase. The forty-five (45) day limitation described at the end of the preceding sentence shall not apply if at the end of said forty-five (45) day period the only issue which prevents completion of the purchase and sale is the need to effect transfers of the applicable liquor licenses. In the event of such a delay, the purchase and sale shall take place within seven (7) business days after those liquor licenses have been transferred. (d) If the Option is not exercised, the Principal Shareholders or Developer, as the case may be, may sell the Interests in or of Developer to the third party which made the Offer, on conditions no more favorable to the third-party offerer than those set forth in the Offer, provided that Franchisor approves the proposed transferee in accordance with the criteria set forth in Appendix D and provided further that such sale takes place within ninety (90) days after the expiration of the Option Period. The ninety (90) day limitation described in the preceding sentence shall not apply if at the end of said ninety (90) day period the issue which prevents completion of the purchase and sale is either the need to effect transfers of the applicable liquor licenses or consent or approval of the transaction by a state or federal regulatory agency. In the event of such a delay, the purchase and sale shall take place within seven (7) business days after those issues have been resolved or waived by Franchisor. In the event of such a transfer, Franchisor may, in its discretion, require an amendment to Subsection 2.1 of this Agreement in order to increase or decrease the number of restaurants required thereby and the dates of the Initial Development Periods referred to therein. 14 (e) If the Option is not exercised, the Principal Shareholders or Developer, as the case may be, shall immediately notify Franchisor in writing of any change in the terms of an Offer. Any change in the terms of an Offer shall cause it to be deemed a new Offer, conferring upon Franchisor a new Option pursuant to this Subsection 8.7; the Option Period with respect to the new Option shall be deemed to commence on the day on which Franchisor receives written notice of a change in the terms of the original Offer. Provided however, in such an instance, Franchisor shall provide Franchisee its response within fifteen (15) days after Franchisor's receipt of all of the modified terms, unless such changes are deemed material by Franchisor and in such an event, Franchisor shall have a forty-five (45) day period within which to review said changes. 8.8 (a) Developer understands and acknowledges that the rights and duties set forth in this Agreement are personal to Developer and that Franchisor has entered into this Agreement in reliance on the business skill and financial capacity of Developer, and the business skill, financial capability and personal character of each Principal Shareholder. Any transfer of Principal Shareholders' Interest in Developer or in Developer's Interest in this Agreement in contravention of this Section 8 shall cause the immediate termination of all development rights granted herein with respect to Restaurants not otherwise open for operation. Except as otherwise set forth in this Section 8, the Principal Shareholders shall at all times retain control of Developer. Except as otherwise provided in this Section 8, no Transfer of any part of Developer's Interest in this Agreement, and no Transfer of any Interest of any Principal Shareholder shall be completed except in accordance with this Subsection 8.8. In the event of such a proposed Transfer of any part of Developer's Interest in this Agreement, or of any Interest of any Principal Shareholder, the party or parties desiring to effect such Transfer shall give Franchisor notice in writing of the proposed Transfer, which notice shall set forth the name and address of the proposed transferee, its financial condition, including a copy of its financial statement dated not more than ninety (90) days prior to the date of said notice, and all the terms and conditions of the proposed Transfer. Upon receiving such notice, Franchisor may (i) approve the Transfer, or (ii) withhold its consent to the Transfer. Franchisor shall, within forty-five (45) days of receiving such notice and all the information required therein, advise the party or parties desiring to effect the Transfer whether it (1) approves the Transfer, or (2) withholds its consent to the Transfer, giving the reasons for such disapproval. Failure of Franchisor to so advise said party or parties within that forty-five (45) day period shall be deemed to be approval of the proposed Transfer. Appendix D sets forth the criteria for obtaining Franchisor's consent to a proposed Transfer. (b) In the event that Franchisor approves the Transfer, and the Transfer is not completed within ninety (90) days of the later of (i) expiration of the forty-five (45) day notice period, or (ii) delivery of notice of Franchisor's approval of the proposed Transfer, Franchisor's approval of the proposed Transfer shall automatically be revoked. The ninety (90) day limitation described in the preceding sentence shall not apply if at the end of said ninety (90) day period the only issue which prevents completion of the Transfer is the need to effect transfers of the applicable liquor licenses. In the event of such a delay, the Transfer shall take place within seven (7) business days after those liquor licenses have been transferred. Any subsequent proposal to complete the proposed Transfer shall be subject to Franchisor's right of approval as provided herein. The party which desires to effect the proposed Transfer shall immediately notify Franchisor in writing of any change in the terms of a Transfer. Any change in terms of a Transfer prior to closing shall cause it to be deemed a new Transfer, revoking any approval previously given by Franchisor and conferring upon Franchisor a new right to approve such Transfer, which shall be deemed to commence on the day on which Franchisor receives written notice of such change in terms. 15 8.9 In connection with any request for Franchisor's approval of a proposed Transfer to this Section 8, the parties to the proposed Transfer shall pay Franchisor a nonaccountable fee to defray the actual cost of review and the administrative and professional expenses related to the proposed Transfer and the preparation and execution of documents and agreements, up to a maximum of two thousand five hundred dollars ($2,500). 9. TERMINATION 9.1 This Agreement shall expire on _______________, _______, unless sooner terminated pursuant to the terms hereof. 9.2 Franchisor shall have the right to terminate this Agreement immediately upon written notice to Developer stating the reason for such termination, and Developer shall no longer have any of the rights created by this Agreement, in the event of: (a) development by Developer of a Restaurant without first obtaining approval from Franchisor of the Restaurant site or of Developer's architectural and/or engineering plans in accordance with Section 5 hereof; (b) any breach or default of any of the provisions of Sections 8 and 11 of this Agreement and Subsection 14.1 of any franchise agreement entered into pursuant to this Agreement; (c) the filing by Developer of a petition in bankruptcy, an arrangement for the benefit of creditors, or a petition for reorganization; the filing against Developer of a petition in bankruptcy, an arrangement for the benefit of creditors, or petition for reorganization, not dismissed within ninety (90) days of the filing thereof; the making of an assignment by Developer for the benefit of creditors; or the appointment of a receiver or trustee for Developer, which receiver or trustee shall not have been dismissed within ninety (90) days of such appointment; (d) the discovery by Franchisor that Developer made any material misrepresentation or omitted any material fact in the information which was furnished to Franchisor in connection with this Agreement; 16 (e) failure by Developer to locate and employ a Director of Operations who is approved by Franchisor in accordance with Subsection 12.2 within ninety (90) days of the date of this Agreement or, with respect to a replacement Director of Operations, failure by Developer to locate such a replacement who is approved by Franchisor in accordance with Subsection 12.2 within one hundred eighty (180) days of the date on which the last Director of Operations who was approved by Franchisor ceased to be employed by Developer in that capacity; (f) any part of this Agreement relating to the payment of fees to Franchisor, or the preservation of any of Franchisor's trade names, service marks, trademarks, trade secrets or secret formulae licensed or disclosed hereunder or under any franchise agreement between Franchisor and Developer, for any reason being declared invalid or unenforceable; (g) Developer or any Principal Shareholder being convicted of or pleading nolo contendere to a felony or any crime involving moral turpitude; or (h) the franchisee under any franchise agreement executed pursuant to this Agreement committing a default subject to immediate termination under the franchise agreement. 9.3 Except as provided above in Subsection 9.2, if Developer defaults in the performance or observance of any of its other obligations hereunder or under any franchise agreement between Developer and Franchisor, and any such default continues for a period of thirty (30) days after written notice to Developer specifying such default, Franchisor shall have the right to terminate this Agreement upon written notice to Developer. If Developer defaults in the performance or observance of the same obligation two (2) or more times within a twelve (12) month period, Franchisor shall have the right to terminate this Agreement immediately upon commission of the second act of default, upon written notice to Developer stating the reason for such termination, without allowance for any curative period. 9.4 This Agreement shall automatically terminate under the conditions and at the times specified in Subsection 2.3 and 3.3. 10. PREREQUISITES TO OBTAINING FRANCHISES FOR INDIVIDUAL RESTAURANT UNITS 10.1 Developer understands and agrees that this Agreement does not confer upon Developer a right to obtain a franchise for any Restaurant, but is intended by the parties to set forth the terms and conditions which, if fully satisfied, shall entitle Developer to obtain such a franchise, located within the Territory. Developer further understands that until the date Developer opens for operation all those Restaurants required under Subsection 8.6 of this Agreement, such aforesaid terms and conditions may only be satisfied by Developer (and not an assignee or transferee thereof), who shall remain at all times owned and controlled by the Principal Shareholders as herein set forth. 10.2 In the event that Developer shall have obtained Franchisor's approval of a particular proposed site for a Restaurant, and if Franchisor, in the exercise of its sole discretion, has granted Developer operational, financial and legal approval, then Franchisor will grant Developer a franchise for a Restaurant at the site in question. As used herein, Franchisor will give Developer "operational", "financial" and "legal" approval under the following circumstances: 17 "Operational" approval will be granted if Franchisor has determined, in the exercise of its sole discretion, that Developer is conducting the operation of each of its Restaurants, and is capable of conducting the operation of the proposed Restaurant, including physical aspects thereof, (a) in accordance with the terms and conditions of this Agreement, (b) in accordance with the provisions of the respective franchise agreements, and (c) in accordance with the standards, specifications and procedures set forth and described in the Franchise Operations Manual and in any other materials or manuals provided or made available to Developer by Franchisor (collectively, the "Manuals"), as such may be amended from time to time. Developer understands that changes in said standards, specifications and procedures may become necessary from time to time. Developer agrees to accept said changes, and Developer further agrees that it is within the sole discretion of Franchisor to make said changes. "Financial" approval will be granted if (a) Developer is not in breach of its obligations under Subsection 7.3 hereof and has been and is faithfully performing all terms and conditions under each of its existing franchise agreements with Franchisor, (b) Developer or its affiliates is not in default of any money obligations owed to Franchisor, and (c) Developer is not in default of any financial obligation to any of its suppliers, unless any such obligation is being disputed in good faith by the Developer. Developer acknowledges and agrees that it is vital to Franchisor's interest that each of its franchisees be financially sound to avoid failure of a franchised business (which would adversely affect the reputation and good name of Franchisor and the System). Developer acknowledges and agrees that it is vital to Franchisor's interest and to the interests of the System that Developer (in its capacity as franchisee) remain current in satisfying its financial obligations to it suppliers. "Legal" approval will be granted if Franchisor has determined, in the exercise of its sole discretion, that Developer has submitted to Franchisor, in a timely manner as requested, all information and documents requested by Franchisor prior to and as a basis for the issuance of individual franchises or pursuant to any right granted to Franchisor by this Agreement or by any franchise agreement between Developer and Franchisor, and has taken such additional actions in connection therewith as may be requested from time to time. 10.3 It is understood and agreed that the foregoing criteria apply to the operational, financial and legal aspects of any Restaurant franchised by Franchisor in which Developer or any Principal Shareholder has any legal or equitable interest. It is further understood and agreed that Developer and Principal Shareholders have an ongoing responsibility to operate each Restaurant in which Developer or any Principal Shareholder has any legal or equitable interest in a manner which satisfies the foregoing requirements for operational, financial and legal approval. 18 11. RESTRICTIONS 11.1 Developer and its Principal Shareholders acknowledge that over the term of this Agreement they are to receive proprietary information which Franchisor has developed over time at great expense, including, but not limited to, methods of site selection, marketing methods, product analysis and selection, and service methods and skills relating to the development and operation of Restaurants. They further acknowledge that this information, which includes, but is not necessarily limited to, that contained in the Manuals, is not generally known in the industry and is beyond their own present skills and experience, and that to develop it themselves would be expensive, time-consuming and difficult. Developer and Principal Shareholders further acknowledge that the Franchisor's information provides a competitive advantage and will be valuable to them in the development of their business, and that gaining access to it is therefore a primary reason why they are entering into this Agreement. Accordingly, Developer and its Principal Shareholders agree that Franchisor's information, as described above, which may or may not be "trade secrets" under prevailing judicial interpretations or statutes, is private and valuable, and constitutes trade secrets belonging to Franchisor; and in consideration of Franchisor's confidential disclosure to them of these trade secrets, Developer and Principal Shareholders agree as follows: (a) During the term of this Agreement, neither Developer nor any Principal Shareholder, for so long as such Principal Shareholder owns an Interest in Developer, may, without the prior written consent of Franchisor, directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System which is either (i) located in the Territory, (ii) located in the Area of Dominant Influence (as defined and established from time to time by Arbitron Ratings Company) of any Restaurant developed pursuant to this Agreement, (iii) located within a five (5) mile radius of any restaurant unit within the System, or (iv) determined by Franchisor, exercising reasonable good faith judgment, to be a direct competitor of the System. (b) Neither Developer, for two (2) years following the termination of this Agreement, nor any Principal Shareholder, for two (2) years following the termination of all of his or her Interest in Developer or the termination of this Agreement, whichever occurs first, may directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System which is located either (i) in the Territory, (ii) in the Area of Dominant Influence (as defined and established from time to time by Arbitron Ratings Company) of any Restaurant developed pursuant to this Agreement, (iii) within a five (5) mile radius of any restaurant unit within the System, or (iv) within any area for which an active, currently binding development agreement has been granted by Franchisor to another franchisee as of the date of termination. 19 11.2 Neither Developer nor any Shareholder shall at any time (a) appropriate or use the trade secrets incorporated in the System, or any portion thereof, in any other restaurant business which is not within the System, (b) disclose or reveal any portion of the System to any person other than to Developer's employees as an incident of their training, (c) acquire any right to use any name, mark or other intellectual property right which may be granted pursuant to any agreement between Franchisor and Developer, except in connection with the operation of a Restaurant, or (d) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of a restaurant utilizing the System, which may be communicated by Franchisor in connection with the Restaurants to be developed hereunder. 11.3 Developer and Principal Shareholders agree that the provisions of this Section 11 are and have been a primary inducement to Franchisor to enter into this Agreement, and that in the event of breach thereof Franchisor would be irreparably injured and would be without an adequate remedy at law. Therefore, in the event of a breach, or a threatened or attempted breach, of any of such provisions Franchisor shall be entitled, in addition to any other remedies which it may have hereunder or in law or in equity (including the right to terminate this Agreement), to a preliminary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security. 11.4 The restrictions contained in Subsection 11.1 above shall not apply to ownership of less than two percent (2%) of the shares of a company whose shares are listed and traded on a national securities exchange if such shares are owned for investment only, and are not owned by an officer, director, employee or consultant of such publicly traded company. 11.5 If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Section 11 determines that it would be invalid or unenforceable as written, then the provisions hereof shall be deemed to be modified or limited to such extent or in such manner as necessary for such provisions to be valid and enforceable to the greatest extent possible. 12. DEVELOPMENT PROCEDURES 12.1 Franchisor will use its reasonable efforts to furnish Developer with advice in developing Restaurants and in selecting sites therefor. 12.2 Developer shall designate an individual employee who shall be personally responsible for Developer's activities during the term of this Agreement, and who shall devote his or her full-time, best efforts and constant personal attention, on a day-to-day basis, to Developer's activities in the Territory (the "Director of Operations"). Developer shall require that the Director of Operations maintain his or her principal personal residence in the Territory. Franchisor reserves the right to require that, as a condition of his or her employment with Developer, the Director of Operations, as well as each supervisory employee referred to in Subsection 12.3, must successfully complete Franchisor's interview process and a psychological profile test in a manner which satisfies a uniform standard established by Franchisor. The test shall be administered by Franchisor, or by a testing agency designated by Franchisor, at Developer's expense. Developer's designation of the first Director of Operations, and any subsequent Director of Operations, shall be subject to the written approval of Franchisor, which approval shall not be arbitrarily withheld, and shall also be subject to the time limitations described in Subsection 9.2(e) hereof. Franchisor shall notify Developer in writing within fourteen (14) business days of receipt of Developer's request whether Franchisor disapproves such person. Failure by Franchisor to so notify Developer within that period shall be deemed to constitute Franchisor's approval of such person. 20 12.3 In the event that Developer desires to designate an employee (in addition to the Director of Operations) who will have supervisory authority over the development of operation of more than one (1) Restaurant within the Territory, Developer's designation of such a supervisory employee shall be subject to the written approval of Franchisor, which approval shall not be arbitrarily withheld. Franchisor shall notify Developer in writing within fourteen (14) business days of receipt of Developer's request whether Franchisor disapproves such person. Failure by Franchisor to so notify Developer within that period shall be deemed to constitute Franchisor's approval of such person. Developer shall require that any such supervisory employee maintain his or her principal personal residence in the Territory. 12.4 Developer shall require the Director of Operations to execute a confidentiality agreement and covenant not to compete in the form attached hereto as Appendix E. In addition, at Franchisor's request, Developer shall obtain from the Director of Operations an agreement verifying his or her employment status. Developer shall require that each other employee of Developer who will have supervisory authority over the development or operation of more than one (1) Restaurant execute a confidentiality agreement in the form attached hereto as Appendix F. Developer shall be responsible for compliance of its employees with the agreements identified in this Subsection, including the payment of any costs needed to enforce the obligations. 12.5 (a) Developer shall require its Director of Operations and any other supervisory employee designated pursuant to Subsection 12.3 to attend and to successfully complete to Franchisor's reasonable satisfaction an operations training course provided by Franchisor. If the Director of Operations or any such supervisory employee fails to successfully complete Franchisor's operations training course, Franchisor may require designation of a new Director of Operations or replacement supervisory employee, as the case may be, and Developer shall designate a new Director of Operations or replacement supervisory employee who shall be required to successfully complete such training course. (b) The Director of Operations and supervisory employees designated pursuant to Subsection 12.3 shall, from time to time as reasonably requested by Franchisor, attend and successfully complete to Franchisor's reasonable satisfaction a Franchisor-provided refresher course in restaurant operations. 12.6 With respect to each Restaurant within the Territory developed by Developer, Developer's employees must satisfy the training requirements described in Section 6 of Appendix B hereto. After Developer opens it first Restaurant pursuant to this Agreement, Franchisor may at its option, and subject to such conditions as Franchisor deems necessary, permit Developer (at Developer's own expense) to conduct a portion of the required training at one of Developer's existing Restaurants. In that event, Developer will be required to provide qualified personnel to administer training tests and to maintain records relating to the training and performance of employees. 21 13. NO WAIVER OF DEFAULT 13.1 The waiver by any party to this Agreement of any breach or default, or series of breaches or defaults, of any term, covenant or condition herein, or of any same or similar term, covenant or condition contained in any other agreement between Franchisor and any other person, shall not be deemed a waiver of any subsequent or continuing breach or default of the same or any other term, covenant or condition in this Agreement, or in any other agreement between Franchisor and any other person. 13.2 All rights and remedies of Franchisor shall be cumulative and not alternative, in addition to and not exclusive of any other rights or remedies which are provided for herein or which may be available at law or in equity in case of any breach, failure or default or threatened breach, failure or default of any term, provision or condition of this Agreement. Franchisor's rights and remedies shall be continuing and shall not be exhausted by any one (1) or more uses thereof, and may be exercised at any time or from time to time as often as may be expedient; and any option or election to enforce any such right or remedy may be exercised or taken at any time and from time to time. The expiration or earlier termination of this Agreement shall not discharge or release Developer or any Principal Shareholder from any liability or obligation then accrued, or any liability or obligation continuing beyond, or arising out of, the expiration or earlier termination of this Agreement. 14. FORCE MAJEURE 14.1 As used in this Agreement, the term "Force Majeure" shall mean any act of God, strike, lock-out or other industrial disturbance, war (declared or undeclared), riot, epidemic, fire or other catastrophe, act of any government and any other similar cause not within the control of the party affected thereby. 14.2 If the performance of any obligation by any party under this Agreement is prevented or delayed by reason of Force Majeure, which cannot be overcome by use of normal commercial measures, the parties shall be relieved of their respective obligations to the extent the parties are respectively necessarily prevented or delayed in such performance during the period of such Force Majeure. The party whose performance is affected by an event of Force Majeure shall give prompt notice of such Force Majeure event to the other party by facsimile, telephone or telegram (in each case to be confirmed in writing), setting forth the nature thereof and an estimate as to its duration, and shall be liable for failure to give such timely notice only to the extent of damage actually caused. 15. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION 15.1 If any part of this Agreement shall for any reason be declared invalid, unenforceable or impaired in any way, the validity of the remaining portions shall remain in full force and effect as if this Agreement had been executed with such invalid portion eliminated, and it is hereby declared the intention of the parties that they would have executed the remaining portion of this Agreement without including therein any such portions which might be declared invalid; provided however, that in the event any part hereof relating to the payment of fees to Franchisor, or the preservation of any of Franchisor's trade names, service marks, trademarks, trade secrets or secret formulae licensed or disclosed hereunder or pursuant to any franchise agreement between Franchisor and Developer is for any reason declared invalid or unenforceable, then Franchisor shall have the option of terminating this Agreement upon written notice to Developer. If any clause or provision herein would be deemed invalid or unenforceable as written, it shall be deemed to be modified or limited to such extent or in such manner as may be necessary to render the clause or provision valid and enforceable to the greatest extent possible in light of the interest of the parties expressed in that clause or provision, subject to the provisions of the preceding sentence. 22 15.2 DEVELOPER AND PRINCIPAL SHAREHOLDERS ACKNOWLEDGE THAT FRANCHISOR MAY ENTER INTO OTHER DEVELOPMENT AGREEMENTS THROUGHOUT THE UNITED STATES ON TERMS AND CONDITIONS SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT IS OF MUTUAL BENEFIT TO DEVELOPER AND PRINCIPAL SHAREHOLDERS AND TO FRANCHISOR THAT THESE TERMS AND CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES AGREE THAT TO THE EXTENT THAT THE LAW OF THE STATE OF KANSAS DOES NOT CONFLICT WITH LOCAL FRANCHISE STATUTES, RULES AND REGULATIONS, KANSAS LAW SHALL APPLY TO THE CONSTRUCTION OF THIS AGREEMENT AND SHALL GOVERN ALL QUESTIONS WHICH ARISE WITH REFERENCE HERETO; PROVIDED HOWEVER, THAT PROVISIONS OF KANSAS LAW REGARDING CONFLICTS OF LAW SHALL NOT APPLY HERETO. 15.3 THE PARTIES AGREE THAT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE THEREOF WHICH CANNOT BE AMICABLY SETTLED, EXCEPT AS OTHERWISE PROVIDED HEREIN, MAY, AT THE OPTION OF THE CLAIMANT, BE RESOLVED BY A PROCEEDING IN A COURT IN JOHNSON COUNTY, KANSAS, AND DEVELOPER AND THE PRINCIPAL SHAREHOLDERS EACH IRREVOCABLY ACCEPT THE JURISDICTION OF THE COURTS OF THE STATE OF KANSAS AND THE FEDERAL COURTS SERVING JOHNSON COUNTY, KANSAS FOR SUCH CLAIMS, CONTROVERSIES OR DISPUTES. The parties agree that service of process in any proceeding arising out of or relating to this Agreement or the performance thereof may be made as to Developer and any Principal Shareholder by serving a person of suitable age and discretion (such as the person in charge of the office) at the address of Developer specified in this Agreement and as to Franchisor by serving the president or a vice-president of Franchisor at the address of Franchisor or by serving Franchisor's registered agent. 23 16. MISCELLANEOUS 16.1 All notices and other communications required or permitted to be given hereunder shall be deemed given when delivered in person, by overnight courier service, facsimile transmission or mailed by registered or certified mail addressed to the recipient at the address set forth below, unless that party shall have given written notice of change of address to the sending party, in which event the new address so specified shall be used. FRANCHISOR: Applebee's International, Inc. 4551 W. 107th Street, Suite 100 Overland Park, Kansas 66207 Attention: President DEVELOPER: PRINCIPAL SHAREHOLDERS: 16.2 All terms used in this Agreement, regardless of the number and gender in which they are used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context or sense of this Agreement may require, the same as if such words had been written in this Agreement themselves. The headings inserted in this Agreement are for reference purposes only and shall not affect the construction of this Agreement or limit the generality of any of its provisions. The term "business day" means any day other than Saturday, Sunday, or the following national holidays: New Year's Day, Martin Luther King Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas. 16.3 This Agreement, the Uniform Franchise Offering Circular currently in effect and the documents referred to herein constitute the entire agreement between parties, superseding and canceling any and all prior and contemporaneous agreements, understandings, representations, inducements and statements, oral or written, of the parties in connection with the subject matter hereof. 16.4 Except as expressly authorized herein, no amendment or modification of this Agreement shall be binding unless executed in writing both by Franchisor and by Developer and Principal Shareholders. 24 16.5 In the event that any party to this Agreement initiates any legal proceeding to construe or enforce any of the terms, conditions and/or provisions of this Agreement, including, but not limited to, its termination provisions, or to obtain damages or other relief to which any party may be entitled by virtue of this Agreement, the prevailing party or parties shall be paid its reasonable attorneys' fees and expenses by other party or parties. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first above written. 25 FRANCHISOR: ATTEST: APPLEBEE'S INTERNATIONAL, INC. By: Name: Name: ------------------------- Title: Title: ------------------------ DEVELOPER: ATTEST: By: Name: Name: ------------------------- Title: Title: ------------------------ PRINCIPAL SHAREHOLDER(S): Witness Name: Witness Name: Witness Name: Witness Name: 26 APPENDIX A TO DEVELOPMENT AGREEMENT TERRITORY Franchisor specifically excludes from the Territory, and reserves the right to operate or license any other person to operate restaurants in, any location within an airport (serviced by one or more public or charter carrier), arena, stadium, state or national park, or military fort, post or base which may be within the boundaries of the Territory otherwise granted to Developer. One hundred percent (100%) of the number of Restaurants required by Subsections 2.1 and 3.1 is ---------- (-----). 27 APPENDIX B TO DEVELOPMENT AGREEMENT FORM FRANCHISE AGREEMENT (See Exhibit F to this Offering Circular) 28 APPENDIX C TO DEVELOPMENT AGREEMENT STATEMENT OF OWNERSHIP INTERESTS Percent of Issued and Outstanding Shareholder Shares of Developer 29 APPENDIX D TO DEVELOPMENT AGREEMENT REVIEW AND CONSENT WITH RESPECT TO TRANSFERS In determining whether to grant or to withhold consent to a proposed Transfer, Franchisor shall consider all of the facts and circumstances which it views as relevant in the particular instance, including, but not limited to, any of the following: (i) work experience and aptitude of Proposed New Owner and/or proposed new management (a proposed transferee of a Principal Shareholder's Interest and/or a proposed transferee of this Agreement is referred to as "Proposed New Owner"); (ii) financial background and condition of Proposed New Owner, and actual and pro forma financial condition of Developer; (iii) character and reputation of Proposed New Owner; (iv) conflicting interests of Proposed New Owner; (v) the terms and conditions of Proposed New Owner's rights, if the proposed Transfer is a pledge or hypothecation; (vi) the adequacy of Developer's operation (as Franchisee) of any Restaurant and compliance with the System and this Agreement; and (vii) such other criteria and conditions as Franchisor shall then consider relevant in the case of an application for a new franchise to operate a restaurant unit within the System by an applicant that is not then currently doing so. Franchisor's consent also may be conditioned upon execution by Proposed New Owner of an agreement whereby Proposed New Owner assumes full, unconditional, joint and several liability for, and agrees to perform from the date of such Transfer, all obligations, covenants and agreements contained herein to the same extent as if it had been an original party to this Agreement and may also require Developer and Principal Shareholders, including the proposed Transferor(s), to execute a general release which releases Franchisor from any claims they may have had or then have against Franchisor. In the event Proposed New Owner is a partnership (including, but not limited to, a limited partnership), Proposed New Owner will also be required to execute an addendum to the Agreement which amends the references to Developer and its Principal Shareholders to include the partnership approved by Franchisor and Proposed New Owner's general partner(s) and the principal shareholders of the general partner(s), if the general partner(s) is a corporation. This addendum will contain a provision including in the definition of "Transfer" the withdrawal, removal or voluntary/involuntary dissolution (if applicable) of the general partner(s) or the substitution or addition of a new general partner. Developer or Principal Shareholders, as the case may be, shall provide Franchisor with such information as it may require in connection with a request for approval of a proposed Transfer. 30 APPENDIX E TO DEVELOPMENT AGREEMENT CONFIDENTIALITY AGREEMENT AND COVENANT NOT TO COMPETE THIS AGREEMENT is made this ________ day of ________________, 19______, by and between _______________________________________, a _____________ corporation ("Developer"), and __________________________, an individual employed by Developer ("Employee"). WITNESSETH: WHEREAS, APPLEBEE'S INTERNATIONAL, INC. ("Applebee's") is the owner of all rights in and to a unique system for the development and operation of restaurants (the "System"), which includes proprietary rights in valuable trade names, service marks and trademarks, including the service mark Applebee's Neighborhood Grill & Bar and variations of such mark, designs and color schemes for restaurant premises, signs, equipment, procedures and formulae for preparing food and beverage products, specifications for certain food and beverage products, inventory methods, operating methods, financial control concepts, a training facility and teaching techniques; WHEREAS, Developer is the owner of the exclusive right to develop restaurants franchised by Applebee's which utilize the System ("Restaurants") for the period and in the territory described in the Development Agreement between Applebee's and Developer (the "Development Agreement"); WHEREAS, Developer and Employee acknowledge that Applebee's information as described above was developed over time at great expense, is not generally known in the industry and is beyond Developer's own present skills and experience, and that to develop it itself would be expensive, time-consuming and difficult, that it provides a competitive advantage and will be valuable to Developer in the development of its business, and that gaining access to it was therefore a primary reason why Developer entered into the Development Agreement; and WHEREAS, in consideration of Applebee's confidential disclosure to Developer of these trade secrets, Developer has agreed to be obligated by the terms of Development Agreement to execute, with its Director of Operations, a written agreement protecting Applebee's trade secrets and confidential information entrusted to Employee, and protecting against unfair competition; NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the parties agree as follows: 31 (1) The parties acknowledge and agree that Employee is or will be employed in a supervisory or managerial capacity and in such capacity will have access to information and materials which constitute trade secrets and confidential and proprietary information. The parties further acknowledge and agree that any actual or potential direct or indirect competitor of Applebee's or of any of its franchisees shall not have access to such trade secrets and confidential information. (2) The parties acknowledge and agree that the System includes trade secrets and confidential information which Applebee's has revealed or will reveal to Developer in confidence, and that protection of said trade secrets and confidential information and protection of Applebee's against unfair competition from others who enjoy or who have had access to said trade secrets and confidential information are essential for the maintenance of goodwill and special value of the System. (3) Employee agrees that he or she shall not at any time (i) appropriate or use the trade secrets incorporated in the System, or any portion thereof, for use in any business which is not within the System; (ii) disclose or reveal any portion of the System to any person other than to Developer's employees as an incident of their training; (iii) acquire any right to use, or to license or franchise the use of any name, mark or other intellectual property right which is or may be granted by any franchise agreement between Applebee's and Developer; or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of a Restaurant which may be communicated to Employee or of which Employee may be apprised by virtue of Employee's employment by Developer. Employee shall divulge such confidential information only to such of Developer's other employees as must have access to that information in order to operate a Restaurant or to develop a prospective site for a Restaurant. Any and all information, knowledge and know-how, including, without limitation, drawings, materials, equipment, specifications, techniques and other data, which Applebee's designates as confidential, shall be deemed confidential for purposes of this Agreement. (4) Employee agrees that for the duration of his or her employment by Developer, and for two (2) years following termination thereof, Employee may not, without the prior written consent of Applebee's, directly or indirectly, for himself or through, on behalf of or in conjunction with any person, partnership or corporation, engage in or acquire any financial or beneficial interest (including any interest in corporations, partnerships, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is the same as or similar to that employed by restaurant units within the System which is located either (a) in the Territory, as defined in the Development Agreement, or (b) in the Area of Dominant Influence (as defined and established from time to time by Arbitron Ratings Company) of any Restaurant developed pursuant to the Development Agreement. 32 (5) Employee further acknowledges and agrees that the Franchise Operations Manual and any other materials and manuals provided or made available to Developer by Applebee's (collectively, the "Manuals"), described in Section 5 of the form of franchise agreement which is attached as Appendix B to the Development Agreement are loaned by Applebee's to Developer for limited purposes only, remain the property of Applebee's, and may not be reproduced, in whole or in part, without the written consent of Applebee's. (6) Employee agrees to surrender to Developer or to Applebee's each and every copy of the Manuals and any other information or material in his or her possession or control upon request, upon termination of employment, or upon completion of the use for which said Manuals or other information or material may have been furnished to Employee. (7) The parties agree that in the event of a breach of this Agreement, Applebee's would be irreparably injured and would be without an adequate remedy at law. Therefore, in the event of a breach or a threatened or attempted breach of any of the provisions hereof, Applebee's shall be entitled to enforce the provisions of this agreement as a third-party beneficiary hereof and shall be entitled, in addition to any other remedies which it may have hereunder at law or in equity (including the right to terminate the Development Agreement), to a temporary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security. (8) The restrictions in Subsection (4) hereof shall not apply to ownership of less than two percent (2%) of the shares of a company whose shares are traded on a national securities exchange if such shares are owned for investment only, and are not owned by an officer, director, employee or consultant of such publicly traded company. (9) If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Agreement determines that it would be invalid or unenforceable as written, the provisions hereof shall be deemed to be modified or limited to such extent or in such manner necessary for such provisions to be valid and enforceable to the greatest extent possible. (10) In the event that any party to this Agreement or Applebee's initiates any legal proceeding to construe or enforce any of the terms, conditions and/or provisions of this Agreement, or to obtain damages or other relief to which any party may be entitled by virtue of this Agreement, the prevailing party or parties shall be paid its/their reasonable attorneys' fees and expenses by other party or parties. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first above written. DEVELOPER: EMPLOYEE: By: By: -------------------------------------------------- Name: Name: ------------------------------------------------ Title: 33 APPENDIX F TO DEVELOPMENT AGREEMENT CONFIDENTIALITY AGREEMENT THIS AGREEMENT is made this ________ day of ________________, 19_______, by and between ________________________________________, a _____________ corporation ("Developer"), and __________________________, an individual employed by Developer ("Employee"). WITNESSETH: WHEREAS, APPLEBEE'S INTERNATIONAL, INC. ("Applebee's") is the owner of all rights in and to a unique system for the development and operation of restaurants (the "System"), which includes proprietary rights in valuable trade names, service marks and trademarks, including the service mark Applebee's Neighborhood Grill & Bar and variations of such mark, designs and color schemes for restaurant premises, signs, equipment, procedures and formulae for preparing food and beverage products, specifications for certain food and beverage products, inventory methods, operating methods, financial control concepts, a training facility and teaching techniques; WHEREAS, Developer is the owner of the exclusive right to develop restaurants franchised by Applebee's which utilize the System ("Restaurants") for the period and in the territory described in the Development Agreement between Applebee's and Developer (the "Development Agreement"); and WHEREAS, Developer acknowledges that Applebee's information as described above was developed over time at great expense, is not generally known in the industry and is beyond Developer's own present skills and experience, and that to develop it itself would be expensive, time-consuming and difficult, that it provides a competitive advantage and will be valuable to Developer in the development of its business, and that gaining access to it was therefore a primary reason why Developer entered into the Development Agreement; and WHEREAS, in consideration of Applebee's confidential disclosure to Developer of these trade secrets, Developer has agreed to be obligated by the terms of Development Agreement to execute, with each employee of Developer who will have supervisory authority over the development or operation of more than one Restaurant in the Territory described in the Development Agreement, a written agreement protecting Applebee's trade secrets and confidential information entrusted to Employee; NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the parties agree as follows: 34 (1) The parties acknowledge and agree that Employee is or will be employed in a supervisory or managerial capacity and in such capacity will have access to information and materials which constitute trade secrets and confidential and proprietary information. The parties further acknowledge and agree that any actual or potential direct or indirect competitor of Applebee's, or of any of its franchisees, shall not have access to such trade secrets and confidential information. (2) The parties acknowledge and agree that the System includes trade secrets and confidential information which Applebee's has revealed to Developer in confidence, and that protection of said trade secrets and confidential information and protection of Applebee's against unfair competition from others who enjoy or who have had access to said trade secrets and confidential information are essential for the maintenance of goodwill and special value of the System. (3) Employee agrees that he or she shall not at any time (i) appropriate or use the trade secrets incorporated in the System, or any portion thereof, for use in any business which is not within the System; (ii) disclose or reveal any portion of the System to any person other than to Developer's employees as an incident of their training; (iii) acquire any right to use, or to license or franchise the use of any name, mark or other intellectual property right which is or may be granted by any franchise agreement between Applebee's and Developer; or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of a Restaurant which may be communicated to Employee or of which Employee may be apprised by virtue of Employee's employment by Developer. Employee shall divulge such confidential information only to such of Developer's other employees as must have access to that information in order to operate a Restaurant or to develop a prospective site for a Restaurant. Any and information, knowledge and know-how, including, without limitation, drawings, materials, equipment, specifications, techniques and other data, which Applebee's designates as confidential, shall be deemed confidential for purposes of this Agreement. (4) Employee further acknowledges and agrees that the Franchise Operations Manual and any other materials or manuals provided or made available to Developer by Applebee's (collectively, the "Manuals"), described in Section 5 of the applicable franchise agreement between Applebee's and Developer, are loaned by Applebee's to Developer for limited purposes only, remain the property of Applebee's, and may not be reproduced, in whole or in part, without the written consent of Applebee's. (5) Employee agrees to surrender to Developer or to Applebee's each and every copy of the Manuals and any other information or material in his or her possession or control upon request, upon termination of employment or upon completion of the use for which said Manuals or other information or material may have been furnished to Employee. 35 (6) The parties agree that in the event of a breach of this Agreement, Applebee's would be irreparably injured and would be without an adequate remedy at law. Therefore, in the event of a breach or a threatened or attempted breach of any of the provisions hereof, Applebee's shall be entitled to enforce the provisions of this Agreement as a third-party beneficiary hereof and shall be entitled, in addition to any other remedies which it may have hereunder at law or in equity (including the right to terminate the Development Agreement), to a temporary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security. (7) If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Agreement determines that it would be invalid or unenforceable as written, the provisions hereof shall be deemed to be modified or limited to such extent or in such manner necessary for such provisions to be valid and enforceable to the greatest extent possible. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first above written. DEVELOPER EMPLOYEE By: By: -------------------------------------------------- Name: Name: ------------------------------------------------ Title: 36 EX-10.5 3 FORM OF APPLEBEE'S FRANCHISE AGREEMENT STANDARD FORM APPLEBEE'S NEIGHBORHOOD GRILL & BAR FRANCHISE AGREEMENT ----------------------------------- (Location Address) ----------------------------------- (Franchisee Name) ----------------------------------- (Date) 1
TABLE OF CONTENTS RECITALS ........................................................................................ F-3 1. FRANCHISE GRANT AND TERM................................................................ F-4 2. UNIFORM STANDARDS....................................................................... F-5 3. COMPLIANCE WITH THE SYSTEM.............................................................. F-6 4. GENERAL SERVICES OF FRANCHISOR.......................................................... F-6 5. RESTAURANT SYSTEM AND PROCEDURES........................................................ F-7 6. TRAINING................................................................................ F-9 7. RESTAURANT MAINTENANCE.................................................................. F-10 8. ADVERTISING............................................................................. F-11 9. FEES.................................................................................... F-13 10. RECORD KEEPING.......................................................................... F-14 11. FRANCHISEE ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS.................................................... F-15 12. TRANSFER................................................................................ F-17 13. CONFIDENTIALITY; RESTRICTIONS........................................................... F-20 14. INSPECTIONS............................................................................. F-22 15. RELATIONSHIP OF PARTIES AND INDEMNIFICATION............................................. F-23 16. INSURANCE............................................................................... F-25 17. DEBTS AND TAXES......................................................................... F-26 18. TRADE NAMES, SERVICE MARKS AND TRADEMARKS............................................... F-26 19. EXPIRATION AND TERMINATION; OPTION TO PURCHASE RESTAURANT; ATTORNEYS' FEES.................................................... F-28 20. NO WAIVER OF DEFAULT.................................................................... F-32 21. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION.......................................................... F-33 22. INTERFERENCE WITH EMPLOYMENT RELATIONS.................................................. F-34 23. LIQUOR LICENSE.......................................................................... F-34 24. FORCE MAJEURE........................................................................... F-34 25. MISCELLANEOUS........................................................................... F-35 26. ACKNOWLEDGMENTS......................................................................... F-37 EXHIBIT 1: ROYALTY FEE.................................................................. F-39 APPENDIX A: STATEMENT OF OWNERSHIP INTERESTS............................................. F-40 APPENDIX B: REVIEW AND CONSENT WITH RESPECT TO TRANSFERS......................................................... F-41 APPENDIX C: CONFIDENTIALITY AGREEMENT.................................................... F-42
2 APPLEBEE'S NEIGHBORHOOD GRILL & BAR FRANCHISE AGREEMENT This Agreement is made this ________ day of _____________________, 19______, by and between APPLEBEE'S INTERNATIONAL, INC., a Delaware corporation ("FRANCHISOR"), _____________________________________________, a (_______________ corporation, sole proprietorship, _______________ partnership, _______________ limited partnership [strike inappropriate language]) ("FRANCHISEE") and ______________________________________ ______________________________ (collectively, the "PRINCIPAL SHAREHOLDERS" and, individually, a "PRINCIPAL SHAREHOLDER" of Franchisee if a corporation or general partner if Franchisee is a limited partnership having as its general partner a corporation) and ________________________________________________________________________________ ("GENERAL PARTNER" of Franchisee if Franchisee is a limited partnership).* * (If Franchisee is not a corporation or a sole proprietorship, or if Franchisee is a limited liability company, the parties hereto hereby agree that an Addendum shall be attached to this Agreement so as properly to reflect the responsibilities of the partners of any general partnership, the general partner of any limited partnership and the shareholders of any corporate general partner of any partnership, or the members of any limited liability company.) WITNESSETH: RECITALS A. Franchisor owns the rights to develop and operate a unique system of restaurants which specialize in the sale of high quality, moderately priced food and alcoholic beverages in an attractive, casual setting, which includes proprietary rights in certain valuable trade names, service marks and trademarks, including the service mark Applebee's Neighborhood Grill & Bar and variations of such mark, designs, decor and color schemes for restaurant premises, signs, equipment, procedures and formulae for preparing food and beverage products, specifications for certain food and beverage products, inventory methods, operating methods, financial control concepts, training facilities and teaching techniques ("the System"). B. Franchisor established, through its own development and operation, and through the granting of franchises, a chain of Applebee's Neighborhood Grill & Bar restaurants which are distinctive; which are similar in appearance, design and decor; and which are uniform in operation and product consistency. C. The value of Franchisor's trade names, service marks and trademarks is based upon: (1) the maintenance of uniform high quality standards in connection with the preparation and sale of Franchisor-approved food and beverage products, (2) the uniform high standards of appearance of the individual restaurant units in the System, (3) the use of distinctive trademarks, service marks, building designs and advertising signs representing a uniformly high quality of product and services, and (4) the assumption by Franchisor and its franchisees of the obligation to maintain and enhance the goodwill and public acceptance of the System (and of Franchisor's trade names, service marks and trademarks) by strict adherence to the high standards required by Franchisor. 3 D. Franchisor, Franchisee and the Principal Shareholders have entered into a Development Agreement dated __________________, 19______ ("Development Agreement"), relating to the development by Franchisee of Applebee's Neighborhood Grill & Bar restaurants. E. Franchisee desires to use the System in connection with the operation of an Applebee's Neighborhood Grill & Bar restaurant at the location which is specified in Subsection 1.1 of this Agreement, pursuant to the terms, conditions and provisions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed as follows: 1. FRANCHISE GRANT AND TERM 1.1 Franchisor grants Franchisee, for the term stated below, the right, license and privilege: (a) to use the System incident to the operation of an Applebee's Neighborhood Grill & Bar restaurant at _____________________________________________________ (the "Restaurant"); (b) to use the trade names, service marks and trademarks which Franchisor shall from time to time designate as part of the System, but only in connection with the sale at the Restaurant of those products which Franchisor has designated and approved; and (c) to hold itself out to the public as a Franchisee of Franchisor. 1.2 The term of the franchise shall commence as of the Commencement Date, as hereinafter defined, and shall end twenty (20) years thereafter, unless this Agreement is terminated prior to that date in accordance with its provisions. "Commencement Date," as used herein, shall mean the date upon which the Restaurant opens for business. The parties agree to affix to this Agreement an addendum expressly setting forth the Commencement Date, which, when so affixed, shall become a part of this Agreement. 1.3 At the expiration of the term hereof, Franchisee shall have an option to operate the Restaurant for four (4) successive terms of five (5) years (unless the franchise agreement with respect to that additional term is sooner terminated in accordance with its provisions), provided that immediately prior to each such five (5) year term (a) Franchisee satisfies the requirements which Franchisor then-imposes on its new franchisees, (b) all other restaurant units within the System which Franchisee then-operates substantially comply, in the opinion of Franchisor, with Franchisor's then-current standards, specifications, requirements and instructions, and (c) Franchisee executes the form of franchise agreement which Franchisor is then using with respect to new restaurants within the System, with the amount of royalty and advertising fees payable at the rates then-prevailing under the franchise agreements which Franchisor is then using for new restaurants within the System, and Franchisee pays to Franchisor for each of said five (5) year periods a franchise fee equal to ten percent (10%) of the prevailing franchise fee paid by new franchisees at that time. Any franchise agreement which Franchisee executes for such additional term will also contain options to obtain an assignment of Franchisee's lease with a third party and/or 4 to purchase certain property or to purchase or lease the Restaurant premises exercisable by Franchisor upon termination thereof and an option to purchase or lease the Restaurant premises exercisable by Franchisor upon expiration of the renewal term (subject to any then-existing renewal rights of Franchisee). Such options will contain provisions substantially similar to the provisions of Franchisor's options described in Subsection 19.4 hereof. Franchisee shall give Franchisor written notice of its desire to exercise its option to operate the Restaurant for an additional term no earlier than twelve (12) months, and no later than seven (7) months, prior to expiration of the initial term. If Franchisee gives that notice, Franchisor, in its sole discretion, reasonably exercised, shall determine whether Franchisee has satisfied the foregoing requirements. Within forty-five (45) days of receiving the notice described above, Franchisor shall notify Franchisee in writing whether or not Franchisee is eligible to exercise the option described in this Subsection. 1.4 During the period from the date of this Agreement to the expiration or earlier termination of this Agreement, Franchisor shall not establish a restaurant unit utilizing the System, or license another franchisee to establish a restaurant unit utilizing the System, at any location within the lesser of a three (3) mile radius of the Restaurant or a radius from the Restaurant which includes either a daytime or residential population of forty thousand (40,000) or more people. Notwithstanding the foregoing, Franchisor may establish a restaurant unit or may license a restaurant unit to a third party within the geographic area set forth in the preceding sentence, provided that (i) such restaurant is located within an airport (serviced by one or more public or charter carrier), arena, stadium, state or national park, or military fort, post or base, or (ii) does not utilize the System or utilize the Applebee's Neighborhood Grill & Bar service mark. 1.5 Franchisee, in consideration of the benefits and privileges provided to it by this Agreement, agrees to operate the Restaurant and perform as required hereunder for the full term of this Agreement. 1.6 This Agreement is entered into pursuant to and subject to the terms and conditions which are set forth in the Development Agreement. 2. UNIFORM STANDARDS 2.1 The System is a comprehensive restaurant system for the retailing of certain uniform and quality food and beverage products (including alcoholic beverages), emphasizing a varied menu of high quality, moderately priced food products (including appetizers, creative sandwiches, dinner entrees and desserts), a selection of alcoholic and other beverages, and prompt and courteous service in a clean, wholesome, casual atmosphere. The foundation of the System is the establishment and maintenance of a reputation among the public for the operation of high quality restaurant units. A fundamental requirement of the System, this Franchise Agreement and franchises which Franchisor will grant to others is adherence by all franchisees to Franchisor's standards and policies providing for the uniform operation of all restaurant units within the System, including, but not limited to, (a) selling only those products which Franchisor has designated and approved, (b) using only Franchisor's prescribed building layout and designs, equipment, signs, interior and exterior decor items, fixtures and furnishings, (c) adhering strictly to Franchisor's standards and specifications relating to the selection, purchase, storage, preparation, packaging, service and sale of all food and beverage products being sold at the Restaurant, and (d) satisfying all of Franchisor's prescribed standards of quality, service and cleanliness. Compliance by all franchisees with the foregoing standards and policies in conjunction with the use of Franchisor's trade names, service marks and trademarks provides the basis for the wide public acceptance of the System and its valuable goodwill. Accordingly, strict adherence by all franchisees to all aspects of the System is required at all times. 5 2.2 The provisions of the Agreement shall be interpreted to give effect to the intent of the parties stated in this Section 2 to assure that Franchisee shall operate the Restaurant in conformity with the System, through strict adherence to Franchisor's standards and policies as they now exist and as they may be modified from time to time. 3. COMPLIANCE WITH THE SYSTEM Franchisee acknowledges that every component of the System is important to Franchisor, to all franchisees and to the operation of the Restaurant, including the requirements (a) that only those products designated and approved by the Franchisor are sold at the Restaurant, and (b) that there is uniformity of food and beverage specifications, preparation methods, quality, appearance, building and interior design, color and decor, landscaping, facilities and service among all restaurant units in the System. Accordingly, Franchisee agrees to and shall comply with all aspects of the System (as it now exists and as it may be modified from time to time). Franchisee recognizes and agrees that Franchisor may prohibit the use of the System and its trade names, notwithstanding the granting of this Agreement, if Franchisee fails to design, construct, equip or furnish its Restaurant in compliance with the specifications designated by Franchisor, unless prior written approval has been received from Franchisor. 4. GENERAL SERVICES OF FRANCHISOR 4.1 Franchisor shall advise and consult with Franchisee periodically in connection with the operation of the Restaurant, and at other reasonable times upon Franchisee's request. Franchisor will provide to Franchisee such of its know-how, new developments, techniques and improvements in areas of restaurant design, management, food and beverage preparation, sales promotion and service concepts as may be pertinent to the construction and operation of the Restaurant under the System. Franchisor may provide the foregoing information (a) by sending representatives to visit the Restaurant, (b) by providing written or other material, (c) at meetings or seminars, and (d) at training sessions at Franchisor's training facility and/or such other locations as may be selected by Franchisor from time to time. Franchisor also shall make available to Franchisee all additional services, facilities, rights and privileges which Franchisor makes available from time to time to its franchisees of the System generally. 4.2 For approximately eight (8) days prior to the opening of the Restaurant and the first six (6) days that the Restaurant is open for business, Franchisor shall provide Franchisee, at Franchisor's expense, with the services of up to a maximum of six (6) of Franchisor's training personnel to facilitate proper operation of the kitchen, bar and dining room areas during that period and to assist in correcting any operational problems which may arise. 6 4.3 From time to time during the term of this Agreement, Franchisor will develop and test new menu items. The menu consists of approved national food and beverage selections. Franchisee shall comply with all menu changes which generally occur every six (6) months. The menu may be modified to reflect food and beverage items peculiar to Franchisee's local area, subject to Franchisor's testing and approval. 5. RESTAURANT SYSTEM AND PROCEDURES 5.1 Franchisor shall furnish Franchisee with advice and assistance in managing and operating the Restaurant, and Franchisor's representatives will visit the Restaurant periodically. Franchisor will assist Franchisee in coordinating the Restaurant's pre-opening activities, and as noted more particularly in Subsection 4.2 hereof, shall provide Franchisee with the services of certain of Franchisor's personnel to facilitate proper operation of the Restaurant when it opens for business. 5.2 Franchisee shall designate an employee who will supervise the Restaurant, and devote his or her full time, best efforts and constant personal attention to the day-to-day operation of the Restaurant (the "General Manager"). Franchisee also shall designate an employee who will supervise the Restaurant kitchen, and devote his or her full time, best efforts and constant personal attention to the day-to-day operation of the Restaurant kitchen (the "Kitchen Manager"). 5.3 Franchisee shall require that the General Manager, the Kitchen Manager and each of Franchisee's employees who serve as Restaurant managers to maintain his or her principal personal residence within a usual driving time of not more than approximately one (1) hour from the Restaurant. Franchisor reserves the right to require that, as a condition of his or her employment, the General Manager must successfully complete Franchisor's interview process and a psychological profile test in a manner which satisfies a uniform standard established by Franchisor. The test shall be administered by Franchisor, or by a testing agency designated by Franchisor, at Franchisee's expense. 5.4 Unless Franchisor shall have given its prior written approval, Franchisee shall keep the Restaurant open for business only during the hours which are specified by Franchisor in the Franchise Operations Manual or in such other materials or manuals provided or made available by Franchisor to Franchisee (collectively the "Manuals"), provided that such hours do not conflict with state laws or local ordinances relating to the sale of alcoholic beverages or governing the hours during which restaurant establishments may be open for business. In addition, Franchisee expressly agrees to: (a) operate the Restaurant in a clean, safe and orderly manner, providing courteous, first-class service to the public; (b) diligently promote and make every reasonable effort to increase the business of the Restaurant; 7 (c) advertise the business of the Restaurant by the use of the Franchisor's trade names, service marks and trademarks and such other insignia, slogans, emblems, symbols, designs and other identifying characteristics as may be developed or established from time to time by Franchisor and included in the Manuals, subject to the limitations of Subsections 8.4 and 8.5 hereof; (d) prohibit and, to the best of Franchisee's ability, prevent the use of the Restaurant for any immoral or illegal purpose, or for any other purpose, business activity, use of function which is not expressly authorized hereunder or in the Manuals; and (e) comply fully with all applicable laws and regulations, including, but not limited to, those relating to building construction, maintenance and safety, environmental, fire prevention, food safety, public access and the sale of alcoholic beverages. 5.5 Franchisee hereby acknowledges receipt and loan of a copy of the Manuals heretofore or hereinafter furnished to Franchisee, and agrees to faithfully, completely and continuously perform, fulfill, observe and follow all instructions, requirements, standards, specifications, systems and procedures contained therein, including (a) those relating to the construction, design, decor, building and equipping of the Restaurant, (b) those relating to the selection, purchase, storage, preparation, packaging, service and sale of all products being sold at the Restaurant, (c) those relating to the maintenance and repair of Restaurant building, grounds, equipment, signs, interior and exterior decor items, fixtures and furnishings, and (d) those relating to employee uniforms and dress, accounting, bookkeeping, record retention, and other business systems, procedures and operations. The Manuals are incorporated herein by reference and hereby made part of this Agreement. Franchisee acknowledges and agrees that the materials contained in the Manuals are integral, necessary and material elements of the System. 5.6 Franchisee understands, acknowledges and agrees that strict conformity with the System, including the standards, specifications, systems, procedures, requirements and instructions contained in this Agreement and in the Manuals, is vitally important, not only to the success of Franchisor, but to the collective success of all of Franchisor's other franchisees, by reason of the benefits which Franchisor and all of its franchisees will derive from uniformity in products sold, identity, quality, appearance, facilities and service among all restaurant units which are part of the System. Without limiting the generality of the foregoing provisions, Franchisee agrees to adhere strictly to the requirements in the Manuals relating (a) to the construction, design, decor, building and equipping of the Restaurant, (b) to the maximum permissible ratio of sales of alcoholic beverages to sales of food at the Restaurant, and (c) to the limitations on the number of video games or similar devices which may be placed on the Restaurant premises. Any failure to adhere to the standards, specifications, systems, requirements or instructions contained in this Agreement or in the Manuals shall constitute a material breach of this Agreement. 5.7 Franchisor shall have the right, at any time and from time to time, in the good faith exercise of its reasonable business judgment, consistent with the overall best interests of the System generally, having due regard for the financial burden which may be placed upon its franchisees, to revise, amend, delete from and add to the System and the material contained in the Manuals. Franchisee expressly agrees to comply with all such revisions, amendments, deletions and additions. 8 5.8 Franchisee shall offer for sale from the Restaurant, at all times when the Restaurant is open for business, only the products which are expressly designated in the Manuals, except, as noted more particularly in Subsection 4.3, to the extent that Franchisee has obtained Franchisor's prior written consent to a modification of that requirement. No product shall be offered or sold at or from the Restaurant under, or in connection with, any trademark or service mark other than Franchisor's designated trademarks and service marks without Franchisor's prior written consent. 5.9 Franchisee shall obtain all food and beverage products, equipments, signs, interior and exterior decor items, fixtures, furnishings, supplies, and other products and materials required for the operation of or sold at the Restaurant solely from suppliers (including manufacturers, distributors and other sources) who demonstrate, to Franchisor's continuing reasonable satisfaction, the ability to meet Franchisor's then-current standards and specifications for such items; who possess adequate quality controls and capacity to supply Franchisee's needs promptly and reliably; and who have been approved in writing by Franchisor and not thereafter disapproved. The Manuals contain a list of approved suppliers. If Franchisee desires to purchase any items from an unapproved supplier, Franchisee shall submit to Franchisor a written request for such approval, which approval shall not be unreasonably withheld, or shall request the supplier itself to do so. Franchisor shall have the right to inspect the supplier's facilities, and to require that samples from the supplier be delivered, at Franchisor's option, either to Franchisor or to an independent, certified laboratory designated by Franchisor for testing. Franchisee or the supplier shall pay the costs of any such test. Franchisor shall notify Franchisee in writing within forty-five (45) days of receiving any such request whether it disapproves the supplier. Failure by Franchisor to so notify Franchisee within that period shall be deemed to constitute Franchisor's approval of such supplier. Franchisor reserves the right, at its option, to reinspect the facilities and retest products of any such approved supplier at any time and to revoke its approval upon the supplier's failure to continue to meet any of Franchisor's criteria. Notwithstanding the foregoing, any supplier of goods having any trademark, trade name, service mark, logo or symbol owned by Franchisor shall not be approved to supply Franchisee such goods until such supplier has entered a written agreement with Franchisor regarding the production, use and sale of such goods. 5.10 No food or beverage product, interior or exterior decor item, sign, item of equipment, fixtures, furnishings or supplies, or other product or material required for the operation of the Restaurant, which bears any of Franchisor's trade names, service marks or trademarks, shall be used or sold in or upon the Restaurant premises unless the same shall have been first submitted to and approved in writing by Franchisor. 5.11 The Manuals and all related material furnished to Franchisee hereunder are and shall remain the property of Franchisor, and must be returned to Franchisor, along with any copies made thereof, immediately upon request or upon the expiration or earlier termination of this Agreement. 6. TRAINING 6.1 Franchisor shall make its operations training course available to the General Manager, the Kitchen Manager, and Franchisee's Assistant Managers and other Restaurant managers. 9 6.2 Before the Restaurant opens for business, and thereafter as replacement personnel are employed by Franchisee, the General Manager, the Kitchen Manager and each Assistant Manager shall attend Franchisor's operations training facility for such period of time as Franchisor shall deem reasonably necessary, and shall successfully complete that course to Franchisor's reasonable satisfaction. If the General Manager, Kitchen Manager or an Assistant Manager fails to successfully complete Franchisor's operations training course, Franchisor may require designation of a new General Manager, Kitchen Manager or Assistant Manager, as the case may be, and Franchisee shall designate a new General Manager, Kitchen Manager or Assistant Manager, who shall be required to successfully complete such training course. 6.3 The General Manager, the Kitchen Manager and each Assistant Manager shall, from time to time as reasonably required by Franchisor, attend and successfully complete to Franchisor's reasonable satisfaction a Franchisor-provided refresher course in restaurant operations. 6.4 Franchisee shall be responsible for the Restaurant's compliance with the operating standards, methods, techniques and material taught at Franchisor's operations training course, and shall cause the employees of the Restaurant to be trained in such standards, methods and techniques as are relevant to the performance of their respective duties. 6.5 Attendance of the General Manager, the Kitchen Manager and each Assistant Manager at any of Franchisor's training courses shall be tuition-free. Franchisee shall pay all other costs and expenses relating to the attendance of Franchisee's personnel at any of Franchisor's training courses, including, without limitation, the cost of travel, lodging, meals, and other related and incidental expenses. 7. RESTAURANT MAINTENANCE 7.1 Franchisee shall, at Franchisee's sole cost and expense, maintain the Restaurant in conformity with the standards, specifications and requirements of the System, as the same may be designated by Franchisor from time to time. Franchisee specifically agrees to repair or replace, at Franchisee's cost and expense, equipment, signs, interior and exterior decor items, fixtures, furnishings, supplies, and other products and materials required for the operation of the Restaurant as necessary or desirable, and to obtain, at Franchisee's cost and expense, any new or additional equipment, signs, interior and exterior decor items, fixtures, furnishings, supplies, and other products and materials which may be reasonably required by Franchisor for new products or procedures. Except as may be expressly provided in the Manuals, no alterations or improvements, or changes of any kind in design, equipment, signs, interior or exterior decor items, fixtures or furnishings shall be made in or about the Restaurant or Restaurant premises without the prior written approval of Franchisor in each instance. 7.2 In order to assure the continued success of the Restaurant, Franchisee shall, at any time from time to time after ________________, _________, (i.e., six [6] years after the date of this Agreement) as reasonably required by Franchisor (taking into consideration the cost and then-remaining term of this Agreement), modernize the Restaurant premises, equipment, signs, interior and exterior decor items, fixtures, furnishings, supplies, and other products and materials required for the operation of the Restaurant, to Franchisor's then-current standards and specifications, provided that at the time Franchisor requires Franchisee to so modernize the Restaurant premises at least twenty-five percent (25%) of Franchisor-owned and operated Restaurants meet such standards and specifications. Franchisee's obligations under this Subsection are in addition to, and shall not relieve Franchisee from, any of its other obligations under this Agreement, including those contained in the Manuals. 10 7.3 If Franchisee is or becomes a lessee of the Restaurant premises, Franchisee shall have included in the lease provisions expressly permitting both Franchisee and Franchisor to take all actions and make all alterations referred to under Subsections 7.1 and 7.2 hereof, requiring the lessor thereunder to give Franchisor reasonable notice of any contemplated termination, and providing that Franchisee has the unrestricted right to assign the lease to Franchisor without the lessor having any right to impose conditions on such assignment or to obtain any payment in connection therewith. Franchisee shall not, without the prior written consent of Franchisor, execute any lease or other agreement which imposes, or purports to impose, any limitations on the ability of Franchisee and/or of Franchisor to operate additional restaurants at any particular location beyond the geographic limitation set forth in Section 1.4 hereof, or any lease the term of which is shorter than the term of this Agreement. 8. ADVERTISING 8.1 Franchisor shall develop and administer advertising, public relations and sales promotion programs designed to promote and enhance the collective success of all restaurant units in the System. It is expressly understood, acknowledged and agreed that in all phases of such advertising and promotion, including, without limitation, type, quantity, timing, placement and choice of media and medium, market areas, advertising agencies and public relations firms, Franchisor's decisions shall be final and binding. Franchisee shall have the right to participate actively in all such advertising, public relations and sales promotion programs, but only in full and complete accordance with such terms and conditions as may be established by Franchisor for each such program. 8.2 Franchisee shall pay Franchisor, in the manner described in Section 9 hereof, a minimum dollar amount equal to one and one-half percent (1.5%) of Franchisee's gross sales, as defined in Subsection 9.3 hereof. Such funds shall become the sole and absolute property of Franchisor, to be allocated to a separate "advertising account" established by Franchisor. Franchisor shall use such funds for market studies, advertising and marketing studies or services, production of commercials, advertising copy and layouts, traffic costs, agency fees, marketing personnel, or any other costs associated with the development, marketing and testing of advertising, and for the purchase of advertising time, space or materials in national, regional or other advertising media, in a manner determined by Franchisor in its sole discretion. Within six (6) months following the end of Franchisor's fiscal year, Franchisor shall provide all franchisees with an accounting of all amounts received from them and expended by Franchisor for the matters set forth above. In addition, Franchisee shall expend a minimum dollar amount equal to one and one-half percent (1.5%) of Franchisee's gross sales, for local promotional activities, subject to the provisions of Subsections 8.4 and 8.5 hereof. Franchisor shall have the right at all times to review Franchisee's books and records, and to require Franchisee to produce evidence of its gross sales and local promotional activities, to ensure Franchisee's compliance with this Section. Any amount determined by said audit to be due Franchisor as part of the advertising fee will be paid to Franchisor by Franchisee within ten (10) days thereafter. At any time after execution of this Agreement, Franchisor may in its sole discretion increase, to a maximum of four percent (4%) of gross sales, the percentage of gross sales which Franchisee shall be required to pay to Franchisor for allocation to a separate advertising account pursuant to this Subsection 8.2. Franchisor shall use the funds paid pursuant to that increased percentage requirement solely for the purchase of advertising time, space or materials in national, regional or other advertising media, in a manner determined by Franchisor in its sole discretion, provided that in each calendar year (or other twelve [12] month period established by Franchisor) in which Franchisor makes expenditures for advertising from such an advertising account, so long as Franchisee is in compliance with its obligations hereunder, Franchisor's expenditures for advertising in the Territory encompassed by the Development Agreement (including expenditures for national or 11 regional advertising in media which reach that Territory) shall be on a basis which is roughly proportional to Franchisee's contribution to that advertising account during that calendar year or other twelve (12) month period. Franchisor also may increase the percentage of gross sales which Franchisee shall be required to spend for local promotional activities, provided however, that in no event shall Franchisee be required to make payments pursuant to this Subsection 8.2 in a dollar amount in excess of five percent (5%) of gross sales. 8.3 Franchisee shall submit to Franchisor, for Franchisor's approval, an advertising campaign plan relating to the promotion of the opening of the Restaurant which is sufficient to meet the needs of the market. The Manuals contain a Press Release kit to assist Franchisee in this regard. Franchisee shall conduct the approved advertising campaign and make all expenditures for advertising to promote the opening of the Restaurant no later than sixty (60) days after the Restaurant opens for business. Franchisor will reimburse fifty percent (50%) of Franchisee's out-of-pocket opening advertising expenditures up to a maximum of two thousand five hundred dollars ($2,500), if Franchisee meets the following criteria: (a) Franchisee's opening advertising expenditures are made within sixty (60) days after the opening of the Restaurant; (b) Franchisee submits to Franchisor within one hundred twenty (120) days after the opening of the Restaurant documentation for the opening advertising expenditures, such as paid invoices from suppliers of goods or services evidencing expenditure on the opening advertising promotion; and (c) Franchisee's opening advertising expenditures are made pursuant to the approved advertising campaign plan and in accordance with the Grand Opening Reimbursement Program Policy Guidelines set forth in the Manuals. 8.4 Nothing in the foregoing Subsections shall be deemed to prohibit Franchisee from making additional expenditures for local promotional activities. All of the Franchisee's local promotional activities shall utilize approved advertising media. "Approved advertising media" are limited to the following: (a) Newspapers, magazines and other such periodicals; (b) Radio and television; (c) Outdoor advertising by signs displayed on billboards or buildings; and (d) Handbills, flyers, door-hangers and direct mail. 12 In the event Franchisee wants to use a form of advertising medium not set forth above, Franchisee shall submit a description of such medium and advertising to Franchisor. Franchisor shall notify Franchisee whether it approves the use of such medium within thirty (30) days of Franchisee's request. Failure by Franchisor to so notify Franchisee within that period shall be deemed to constitute Franchisor's approval of such request. Guidelines for local promotional activities are contained in the Manuals. 8.5 All advertising copy and other materials employed by Franchisee in local promotional activities shall be in strict accordance and conformity with the standards, formats and specimens contained in the Manuals and shall receive the prior approval of Franchisor. In the event Franchisee wishes to deviate from the materials contained in the Manuals, Franchisee shall submit, in each instance, the proposed advertising copy and materials to Franchisor for approval in advance of publication. Franchisor shall notify Franchisee in writing, within fifteen (15) days of such submission, whether Franchisor disapproves such advertising copy and materials. Failure by Franchisor to so notify Franchisee within that period shall be deemed to constitute Franchisor's approval of such advertising copy and materials. In no event shall Franchisee's advertising contain any statement or material which may be considered (a) in bad taste or offensive to the public or to any group of persons, (b) defamatory of any person or an attack on any competitor, (c) to infringe upon the use, without permission, of any other persons' trade name, trademark, service mark or identification, or (d) inconsistent with the public image of Franchisor or of the System. 9. FEES 9.1 As partial consideration for the rights granted hereunder, Franchisee shall pay Franchisor: (a) an initial franchise fee of _____________________ dollars ($__________), to be paid in the manner prescribed in Subsection 4.l of the Development Agreement as payment for the grant of the franchise; (b) a monthly royalty fee as determined by Franchisor, not to exceed five percent (5%) of each calendar month's gross sales, as provided in Subsection 4.3 of the Development Agreement, as payment for Franchisee's continuing right to operate the Restaurant as part of the System (see Exhibit 1); and (c) a monthly advertising fee equal to such percentage of each calendar month's gross sales as Franchisor may require pursuant to Subsection 8.2 hereof. Notwithstanding anything contained herein to the contrary, if the royalty fee set forth in Subsection 9.1(b) is equal to five percent (5%) of monthly gross sales, then in such an event, the advertising fee described in Subsection 9.1(c) shall not exceed four percent (4%) of monthly gross sales. 9.2 The fees referred to in Subsections 9.l(b) and (c) (the "Fees") shall be paid by check mailed and postmarked on or before the twelfth day of the next full month immediately following the month to which the Fees relate. Any Fees, including the initial franchise fee, which are not paid when due shall bear interest from and after the due dates thereof at the rate of eighteen percent (18%) per annum or the highest rate permitted by applicable law, whichever is less. 13 9.3 (a) Except as provided in Subsection 9.3(b) hereof, the term "gross sales," as used in this Agreement, shall mean all receipts (cash, cash equivalents or credit) or revenues from sales from all business conducted upon or from the Restaurant premises, whether evidenced by check, cash, credit, charge account, exchange or otherwise, including, but not limited to, amounts received from the sale of goods, wares and merchandise (including sales of food, beverages and tangible property of every kind and nature, promotional or otherwise), from all services performed from or at the Restaurant premises, and from all orders taken or received at the Restaurant premises, regardless of where such orders are filled. Gross sales shall not be reduced by any deductions for cash shortages incurred in connection with the transaction of business with customers, credit card company charges or theft which is reimbursed by insurance or is not reported to the appropriate police authorities. Each charge or sale upon installment or credit shall be treated as a sale for the full price in the month during which such charge or sale shall be first made, irrespective of the time when Franchisee shall receive payment (whether full or partial) therefor. (b) Gross sales shall not include: (i) the sale of merchandise for which cash has been refunded or, except as provided in the second sentence of Subsection 9.3(a), not received, or allowances made for merchandise, if the sales of any such returned or exchanged merchandise shall have been previously included in gross sales, (ii) the amount of any sales tax imposed by any federal, state, municipal or other governmental authority directly on sales and intended to be collected from customers, provided that the amount thereof is added to the selling price and actually paid by the Franchisee to such governmental authority, (iii) the sale of merchandise for which a gift certificate is redeemed, provided that the initial sale of said gift certificate shall have been previously included in gross sales, (iv) the sale of waste products of the Restaurant, (v) telephone, game and vending machine revenues, (vi) the sale of non-food items or beverages at a discount in connection with a promotional campaign, (vii) one-time sale of furniture, fixtures or equipment, and (viii) theft which is not covered by insurance and is reported to the appropriate police authorities. In addition, Franchisor may, from time to time, in writing, permit or allow certain other items to be excluded from gross sales. Any such permission or allowance may be revoked or withdrawn at Franchisor's discretion. 10. RECORD KEEPING 10.1 Franchisee shall employ a point of sale system approved by Franchisor, without modification, in connection with the business of the Restaurant. Franchisee shall use such bookkeeping and record keeping forms as shall be prescribed in the Manuals. 10.2 Franchisee shall complete and submit to Franchisor, on a regular, continuous basis, each of the following reports, in the form specified in the Manuals: (a) monthly Restaurant reports, on or before the twelfth day of each calendar month following the month to which the report relates; 14 (b) annual Restaurant reports, on or before the fifteenth day of April of each year; and (c) weekly gross sales reports, on or before the Tuesday following the calendar week to which the report relates. 10.3 The annual Restaurant reports referred to above shall include a balance sheet dated as of the end of Franchisee's fiscal year or calendar year and a profit and loss statement for such year, together with such additional financial information as Franchisor may reasonably request. Such balance sheet and profit and loss statement shall be prepared in accordance with generally accepted accounting principles, certified as correct and complete by Franchisee's chief executive officer, president, chief financial officer or controller and reported on and reviewed by an independent state-licensed certified public accountant. If Franchisee fails to provide Franchisor with such balance sheet and profit and loss statement, Franchisor shall have the right to have an independent audit made of Franchisee's books and records, and Franchisee shall promptly reimburse Franchisor for the cost thereof. 10.4 Each of the reports referred to in this Section 10 shall be completed by Franchisee or its accountant in the respective specimen forms, and in accordance with the instructions, contained in the Manuals. Subsection 10.3 notwithstanding, time is of the essence with respect to the completion and submission of each such report. 11. FRANCHISEE ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS 11.1 Franchisee and each Principal Shareholder represent and warrant that: (a) Franchisee is a corporation duly incorporated, validly existing and in good standing under the laws of the State of its incorporation; (b) Franchisee is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (c) the execution and delivery of this Agreement and the transaction contemplated hereby are within Franchisee's corporate power; (d) the execution and delivery of this Agreement has been duly authorized by the Franchisee; (e) the articles of incorporation and by-laws of Franchisee delivered to Franchisor are true, complete and correct, and there have been no changes therein since the date thereof; (f) the certified copies of the minutes electing the officers of Franchisee and authorizing the execution and delivery of this Agreement are true, correct and complete, and there have been no changes therein since the date(s) thereof; (g) the specimen stock certificate delivered to Franchisor is a true specimen of Franchisee's stock certificate; (h) the balance sheet of Franchisee as of ____________________, ________ ("Balance Sheet") and the balance sheets of its Principal Shareholders as of ____________________, ________, heretofore delivered to Franchisor, are true, complete and correct, and fairly present the financial positions of Franchisee and each Principal Shareholder, respectively, as of the dates thereof; (i) the Balance Sheet and each such balance sheet have been prepared in accordance with generally accepted accounting principles; and (j) there have been no materially adverse changes in the condition, assets or liabilities of Franchisee or Principal Shareholders since the date or dates thereof. 15 11.2 Franchisee and each Principal Shareholder covenant that during the term of this Agreement: (a) Franchisee shall do or cause to be done all things necessary to preserve and keep in full force its corporate existence and shall be in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (b) Franchisee shall have the corporate authority to carry out the terms of this Agreement; and (c) Franchisee shall print, in a conspicuous fashion on all certificates representing shares of its stock when issued, a legend referring to this Agreement and the restrictions on and obligations of Franchisee and Principal Shareholders hereunder, including the restrictions on transfer of Franchisee's shares. 11.3 In addition to the financial information which Franchisee is required to provide to Franchisor under Subsections 10.2 and 11.1 hereof, Franchisee and Principal Shareholders shall provide Franchisor with such other financial information as Franchisor may reasonably request from time to time, including, on an annual basis, copies of the then-most current financial statements of Franchisee and each Principal Shareholder, dated as of the end of the last preceding fiscal year of the Franchisee or Principal Shareholder, said statements to be delivered to Franchisor no later than April 15 of each year, which financial statements shall conform to the standards set forth in Subsection 11.1 hereof. 11.4 Franchisee and each Principal Shareholder represent, warrant and covenant that all Interests (as defined in Subsection 12.4 hereto) in Franchisee are owned as set forth on Appendix A hereto, that no Interest has been pledged or hypothecated (except in accordance with Section 12 of this Agreement), and that no change will be made in the ownership of any such Interest other than as permitted by this Agreement, or otherwise consented to in writing by Franchisor. Franchisee and Principal Shareholders agree to furnish Franchisor with such evidence as Franchisor may request, from time to time, for the purpose of assuring Franchisor that the Interests of Franchisee and Principal Shareholders remain as represented herein. 11.5 Each Principal Shareholder, jointly and severally, hereby personally and unconditionally guarantees each of Franchisee's financial obligations to Franchisor (including, but not limited to, all obligations relating to the payment of fees by Franchisee to Franchisor). Each Principal Shareholder agrees that Franchisor may resort to such Principal Shareholder (or any of them) for payment of any such financial obligation, whether or not Franchisor shall have proceeded against Franchisee, any other Principal Shareholder or any other obligor primarily or secondarily obligated to Franchisor with respect to such financial obligation. Each Principal Shareholder hereby expressly waives presentment, demand, notice of dishonor, protest, and all other notices whatsoever with respect to Franchisor's enforcement of this guaranty. In addition, each Principal Shareholder agrees that if the performance or observance by Franchisee of any term or provision hereof is waived or the time of performance thereof extended by Franchisor, or payment of any such financial obligation is accelerated in accordance with any agreement between Franchisor and any party liable in respect thereto or extended or renewed, in whole or in part, all as Franchisor may determine, whether or not notice to or consent by any Principal Shareholder or any other party liable in respect to such financial obligations is given or obtained, such actions shall not affect or alter the guaranty of each Principal Shareholder described in this Subsection. 16 12. TRANSFER 12.1 There shall be no Transfer of any Interest of Franchisee, or of a Principal Shareholder in Franchisee, in whole or in part (whether voluntarily or by operation of law), directly, indirectly or contingently, except in accordance with the provisions of this Section 12. "Transfer" and "Interest" are defined in Subsections 12.2, 12.3 and 12.4. Any proposed Transfer also shall be subject to the provisions of the Development Agreement, which are incorporated herein by reference. 12.2 Except as provided in Subsection 12.3, "Transfer" shall mean any assignment, sale, pledge, hypothecation, gift or any other event which would change ownership of or change or create a new Interest, including, but not limited to: (a) any change in the ownership of or rights in or to any shares of stock or other equity interest in Franchisee which would result from the act of any shareholder of Franchisee ("Shareholder"), such as a sale, exchange, pledge or hypothecation of shares, or any interest in or rights to any of Franchisee's profits, revenues or assets, or any such change which would result by operation of law; and (b) any change in the percentage interest owned by any Shareholder in the shares of stock of Franchisee, or interests in its profits, revenues or assets which would result from any act of Franchisee such as a sale, pledge or hypothecation of any Restaurant assets (other than a pledge of assets to secure bona fide loans made or credit extended in connection with acquisition of the assets pledged, provided that immediately before and after such transaction the net worth of Franchisee shall not be less than the amount which is reflected on the Balance Sheet referred to in Subsection 11.1 of this Agreement); any sale or issuance of any shares of Franchisee's stock; the retirement or redemption of any shares of Franchisee's stock; or any sale or grant to any person of any right to participate in or otherwise to share or become entitled to any part of Franchisee's profits, revenues, assets or equity. 12.3 "Transfer" shall not include (a) a change in the ownership of or rights to any shares or other equity interest in Franchisee pursuant to a public offering of Franchisee's securities registered under the Securities Act of 1933, or (b) a change in the ownership of or rights to any securities or other equity interest in Franchisee pursuant to a private offering of Franchisee's securities exempted from registration under such Act, provided that Franchisee provides Franchisor with a copy of its prospectus and/or offering memorandum ten (10) days prior to its filing with the Securities and Exchange Commission or circulation to third parties so that Franchisor may comment and, if necessary, correct any information concerning Franchisor and/or the System, and further provided that after giving effect to such public or private offering, the Principal Shareholders, or any of them, "control" Franchisee. For purposes of this Section 12, "control" means either (1) owning legal and equitable title to fifty-one percent (51%) or more of the outstanding voting securities of Franchisee, which are not subject to a proxy granted to or contract with any other person or party granting that party the right to vote part or all of such securities, or (2) having and continually exercising the contractual power presently to designate a majority of the directors of Franchisee. 17 12.4 "Interest" shall mean: when referring to interests or rights in Franchisee, any shares of Franchisee's stock and any other equitable or legal right in or to any of Franchisee's stock, revenues, profits or assets; when referring to rights or assets of Franchisee, Franchisee's rights under and interest in this Agreement, the Restaurant and its revenues, profits and assets. 12.5 (a) The Interest of a Principal Shareholder may be transferred to such Principal Shareholder's spouse or children or to a person designated in such Principal Shareholder's will or trust (individually and collectively referred to as a "Successor"), upon such Principal Shareholder's death or permanent incapacity, without Franchisor's approval, provided that such Successor shall agree to be bound by the restrictions contained in this Section 12, and the other agreements and covenants of the Principal Shareholders contained in this Agreement. (b) The Interest of a Principal Shareholder may not be transferred to another Principal Shareholder without Franchisor's approval, which approval shall not be unreasonably withheld. (c) The Interest of a Successor may only be transferred in accordance with Subsection 12.5(b), 12.6, 12.7 or 12.8, regardless of whether such Transfer is for consideration or by gift or will or other device. 12.6 If at any time the Principal Shareholders desire to dispose of all or substantially all of the Interests of the Principal Shareholders in Franchisee, or the Principal Shareholders (or Franchisee) desire to dispose of all or substantially all of Franchisee's Interest in this Agreement or in the assets which Franchisee has acquired as a result of this Agreement, the Principal Shareholders or Franchisee, as the case may be, shall notify Franchisor of that desire, in writing, thirty (30) days before announcing that fact publicly or engaging the services of a broker or sales agent. 12.7 (a) If at any time any of the Principal Shareholders or Franchisee, as the case may be, obtains from a third party or third parties a bona fide offer (the "Offer") in writing for the purchase of all or substantially all of the Interests of the Principal Shareholders in Franchisee, or of Franchisee's Interest in this Agreement or in the assets which Franchisee has acquired as a result of this Agreement, the Principal Shareholders or Franchisee shall give notice (the "Selling Notice") to Franchisor stating that the Principal Shareholders or Franchisee, as the case may be, have received the Offer, identifying the prospective purchaser by name and address, specifying the proposed purchase price and attaching a true and complete copy of the Offer. (b) Franchisor shall have an option to purchase (the "Option"), exercisable within a period of forty-five (45) days after receipt of the Selling Notice (the "Option Period"), such Interests at the price and on the conditions set forth in the Offer, except that Franchisor shall not be obligated to pay any finder's or broker's fee, and if the Offer provides for payment of consideration other than cash, or if the Offer involves certain intangible benefits, Franchisor may elect to purchase such Interests by offering a reasonable dollar value substitute including, at Franchisor's option, cash or the common stock or other securities of the Franchisor or any combination thereof for the non-cash/intangible benefits part of the Offer. (c) The Option shall be exercisable by Franchisor delivering to the Principal Shareholders or Franchisee, as the case may be, within the Option Period, a notice (i) stating that the Option is being exercised, and (ii) specifying the time, date and place at which such purchase and sale will take place, which date shall be within forty-five (45) days after Franchisor delivers 18 such notice. Franchisee shall provide Franchisor access to and copies of such information and documentation Franchisor shall request regarding the purchase. The forty-five (45) day limitation described at the end of the preceding sentence shall not apply if at the end of said forty-five (45) day period the only issue which prevents completion of the purchase and sale is the need to effect transfers of the applicable liquor licenses. In the event of such a delay, the purchase and sale shall take place within seven (7) business days after those liquor licenses have been transferred. (d) If the Option is not exercised, the Principal Shareholders or Franchisee, as the case may be, may sell the Interests in or of Franchisee to the third party which made the Offer, on conditions no more favorable to the third-party offerer than those set forth in the Offer, provided that Franchisor approves the proposed transferee in accordance with the criteria set forth in Appendix B and provided further that such sale takes place within ninety (90) days after the expiration of the Option Period. The ninety (90) day limitation described in the preceding sentence shall not apply if at the end of said ninety (90) day period the issue which prevents completion of the purchase and sale is either the need to effect transfers of the applicable liquor licenses or consent or approval of the transaction by a state or federal regulatory agency. In the event of such a delay, the purchase and sale shall take place within seven (7) business days after those issues have been resolved or waived by Franchisor. (e) If the Option is not exercised, the Principal Shareholders or Franchisee, as the case may be, shall immediately notify Franchisor in writing of any change in the terms of an Offer. Any change in the terms of an Offer shall cause it to be deemed a new Offer, conferring upon Franchisor a new Option pursuant to this Subsection 12.7; the Option Period with respect to the new Option shall be deemed to commence on the day on which Franchisor receives written notice of a change in the terms of the original Offer. Provided however, in such an instance, Franchisor shall provide Franchisee its response within fifteen (15) days after Franchisor's receipt of all of the modified terms, unless such changes are deemed material by Franchisor and in such an event, Franchisor shall have a forty-five (45) day period within which to review said changes. 12.8 (a) Franchisee understands and acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and that Franchisor has entered into this Agreement in reliance on the business skill and financial capability of Franchisee, and the business skill, financial capability and personal character of each Principal Shareholder. Except as otherwise provided in this Section 12, the Principal Shareholders shall at all times retain control of Franchisee. Except as otherwise provided in this Section 12, no Transfer of any part of Franchisee's Interest in this Agreement or in the Restaurant, and no Transfer of any Interest of any Principal Shareholder, shall be completed except in accordance with this Subsection 12.8. In the event of such a proposed Transfer of any part of Franchisee's Interest in this Agreement or in the Restaurant, or of any Interest of any Principal Shareholder, the party or parties desiring to effect such Transfer shall give Franchisor notice in writing of the proposed Transfer, which notice shall set forth the name and address of the proposed transferee, its financial condition, including a copy of its financial statement dated not more than ninety (90) days prior to the date of said notice, and all the terms and conditions of the proposed Transfer. Upon receiving such notice, Franchisor may (i) approve the Transfer, or (ii) withhold its consent to the Transfer. Franchisor shall, within forty-five (45) days of receiving such notice and all of the information required therein, advise the party or parties desiring to effect the Transfer whether it (1) approves the Transfer, or (2) withholds its consent to the Transfer, giving the reasons for such disapproval. Failure of Franchisor to so advise said party or parties within that forty-five (45) day period shall be deemed to be an approval of the proposed Transfer. Appendix B sets forth the criteria for obtaining Franchisor's consent to a proposed Transfer. 19 (b) In the event that Franchisor approves the Transfer, and the Transfer is not completed within ninety (90) days of the later of (i) expiration of the forty-five (45) day notice period, or (ii) delivery of notice of Franchisor's approval of the proposed Transfer, Franchisor's approval of the proposed Transfer shall automatically be revoked. The ninety (90) day limitation described in the preceding sentence shall not apply if at the end of said ninety (90) day period the only issue which prevents completion of the Transfer is the need to effect transfers of the applicable liquor licenses. In the event of such a delay, the Transfer shall take place within seven (7) business days after those liquor licenses have been transferred. Any subsequent proposal to complete the proposed Transfer shall be subject to Franchisor's right of approval as provided herein. The party which desires to effect the proposed Transfer shall immediately notify Franchisor in writing of any change in the terms of a Transfer. Any change in the terms of a Transfer prior to closing shall cause it to be deemed a new Transfer, revoking any approval previously given by Franchisor and conferring upon Franchisor a new right to approve such Transfer, which shall be deemed to commence on the day on which Franchisor receives written notice of such changes in terms. 12.9 In connection with any request for Franchisor's approval of a proposed Transfer pursuant to this Section 12, the parties to the proposed Transfer shall pay Franchisor a nonaccountable fee to defray the actual cost of review and the administrative and professional expenses related to the proposed Transfer and the preparation and execution of documents and agreements, up to a maximum of two thousand five hundred dollars ($2,500). 13. CONFIDENTIALITY; RESTRICTIONS 13.1 Franchisee and its Principal Shareholders acknowledge that over the term of this Agreement they are to receive proprietary information which Franchisor has developed over time at great expense, including, but not limited to, information regarding the System, methods of site selection, marketing and public relations methods, product analysis and selection, and service methods and skills relating to the development and operation of restaurants. They further acknowledge that this information, which includes, but is not necessarily limited to, that contained in the Manuals, is not generally known in the industry and is beyond their own present skills and experience, and that to develop it themselves would be expensive, time consuming and difficult. Franchisee and its Principal Shareholders further acknowledge that the Franchisor's information provides a competitive advantage and will be valuable to them in the development of their business, and that gaining access to it is therefore a primary reason why they are entering into this Agreement. Accordingly, Franchisee and its Principal Shareholders agree that Franchisor's information, as described above, which may or may not be "trade secrets" under prevailing judicial interpretations or statutes, is private and valuable, and constitutes trade secrets belonging to Franchisor. Accordingly, in consideration of Franchisor's confidential disclosure to them of these trade secrets, Franchisee and Principal Shareholders agree as follows (subject to the provisions of the Development Agreement and any other franchise agreement between Franchisor and Franchisee): 20 (a) During the term of this Agreement, neither Franchisee nor any Principal Shareholder, for so long as such Principal Shareholder owns an Interest in Franchisee, may, without the prior written consent of Franchisor, directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System which is either (i) located in the Territory, as defined in the Development Agreement, (ii) located in the Area of Dominant Influence (as defined and established from time to time by Arbitron Ratings Company) of any restaurant developed pursuant to the Development Agreement, (iii) located within a five (5) mile radius of any restaurant unit within the System, or (iv) determined by Franchisor, exercising reasonable good faith judgment, to be a direct competitor of the System. (b) Neither Franchisee, for two (2) years following the termination of this Agreement, nor any Principal Shareholder, for two (2) years following the termination of all of his or her Interest in Franchisee or the termination of this Agreement, whichever occurs first, may directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System which is located either (i) in the Territory, as defined in the Development Agreement, (ii) in the Area of Dominant Influence (as defined and established from time to time by Arbitron Ratings Company) of any restaurant developed pursuant to the Development Agreement, (iii) within a five (5) mile radius of any restaurant unit within the System, or (iv) within any area for which an active, currently binding development agreement has been granted by Franchisor to another franchisee as of the date of the termination. (c) Neither Franchisee nor any Shareholder shall at any time (i) appropriate or use the trade secrets incorporated in the System, or any portion thereof, in any restaurant business which is not within the System, (ii) disclose or reveal any portion of the System to any person, other than to Franchisee's Restaurant employees as an incident of their training, (iii) acquire any right to use any name, mark or other intellectual property right which is or may be granted by this Agreement, except in connection with the operation of the Restaurant, or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of a restaurant utilizing the System, which may be communicated by Franchisor in connection with the franchise granted hereunder. 13.2 Franchisee and Principal Shareholders agree that the provisions of this Section 13 are and have been a primary inducement to Franchisor to enter into this Agreement, and that in the event of breach thereof Franchisor would be irreparably injured and would be without adequate remedy at law. Therefore, in the event of a breach, or a threatened or attempted breach, of any of such provisions Franchisor shall be entitled, in addition to any other remedies which it may have hereunder or at law or in equity (including the right to terminate this Agreement), to a preliminary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security. 21 13.3 The restrictions contained in Subsection 13.1(a) and (b) above shall not apply to ownership of less than two percent (2%) of the shares of a company whose shares are listed and traded on a national securities exchange if such shares are owned for investment only, and are not owned by an officer, director, employee, or consultant of such publicly traded company. 13.4 If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Section 13 determines that it would be invalid or unenforceable as written, then the provisions hereof shall be deemed to be modified or limited to such extent or in such manner as necessary for such provisions to be valid and enforceable to the greatest extent possible. 13.5 Franchisee shall require the General Manager, the Kitchen Manager and each of its Restaurant managers to execute a confidentiality agreement in the form attached hereto as Appendix C. Franchisee shall be responsible for compliance of its employees with the agreements identified in this Subsection. 14. INSPECTIONS 14.1 Franchisor shall have the right at any time, and from time to time, to have its representatives enter the Restaurant premises without notice for the purpose of inspecting the condition thereof and the operation of the Restaurant in order to determine whether Franchisee is in compliance with the standards, specifications, requirements and instructions contained in this Agreement and in the Manuals, and for any other reasonable purpose connected with the operation of the Restaurant. 14.2 Without limiting the generality of Subsection 14.1, a representative of Franchisor shall be present in the Restaurant to consult with Franchisee or its General Manager once each calendar quarter and, at least semi-annually, a representative shall conduct an inspection/ consultation at the Restaurant (which may be conducted with or without notice). During such inspection, Franchisor's representative will inspect the condition of the Restaurant and observe procedures and operations at the Restaurant. Also during the inspection/consultation, Franchisor's representative will meet with the General Manager and such other Restaurant employees as Franchisor's representative may designate, for the purpose of evaluating the condition and operation of the Restaurant and seeking to maintain or achieve compliance with the standards, specifications, requirements and instructions contained in this Agreement and in the Manuals. 14.3 Without limiting the generality of Subsection 14.1, Franchisor's representatives shall have the right at all times during normal business hours to confer with Restaurant employees and customers, and to inspect Franchisee's books, records and tax returns, or such portions thereof as pertain to the operation of the Restaurant. All such books, records and tax returns shall be kept and maintained at the principal executive offices of Franchisee or such other place as may be agreed upon by the parties in writing. If any inspection reveals that the gross sales reported in any report or statement are less than the actual gross sales ascertained by such inspection, then the Franchisee shall immediately pay Franchisor the additional amount of fees owing by reason of the understatement of gross sales previously reported, together with interest as provided in Subsection 9.2. In the event that any report or statement understates gross sales by more than three percent (3%) of the actual gross sales ascertained by Franchisor's inspection, Franchisee shall, in addition to making the payment provided for in the immediately preceding sentence, pay and reimburse Franchisor for any and all expenses incurred in connection with its inspection, including, but not limited to, reasonable accounting and legal fees. Such payments shall be without prejudice to any other rights or remedies which Franchisor may have under this Agreement or otherwise. If any inspection reveals that the gross sales reported in any report or statement are greater than the actual gross sales ascertained by such inspection, and that Franchisee thereby has made an overpayment of fees, the amount of the overpayment (without interest) shall be offset against future fees owing by Franchisee to Franchisor. 22 14.4 Franchisee shall maintain an accurate stock register. In the event that the beneficial ownership of Franchisee's stock differs in any respect from record ownership, Franchisee also shall maintain a list of the names, addresses and interests of all beneficial owners of its stock. Franchisee shall produce its stock register, and any list of beneficial owners certified by the corporation's secretary to be correct, at its principal executive offices upon ten (10) days prior written request by Franchisor. Franchisor's representatives shall have the right to examine the stock register and any list of beneficial owners, and to reproduce all or any part thereof. Further, upon ten (10) days written notice, Franchisor may request a copy of the list of stockholders and owners of beneficial interests to be forwarded to it at Franchisor's principal office. 15. RELATIONSHIP OF PARTIES AND INDEMNIFICATION 15.1 Franchisee is not, and shall not represent or hold itself out as, an agent, legal representative, joint venturer, partner, employee or servant of Franchisor for any purpose whatsoever and, where permitted by law to do so, shall file a business certificate to such effect with the proper recording authorities. Franchisee is an independent contractor and is not authorized to make any contract, agreement, warranty or representation on behalf of Franchisor, or to create any obligation, express or implied, on behalf of Franchisor. Franchisee agrees that Franchisor does not have any fiduciary obligation to Franchisee. Franchisee shall not use the name Applebee's Neighborhood Grill & Bar (other than in connection with the operation of the Restaurant), or Applebee's International, Inc., or any similar words as part of or in association with any trade name of any business entity which is, directly or indirectly, associated with Franchisee. 15.2 Franchisee shall indemnify and hold harmless Franchisor and its officers, directors, employees, agents, affiliates, successors and assigns from and against (a) any and all claims based upon, arising out of, or in any way related to the operation or condition of any part of the Restaurant or Restaurant premises, the conduct of business thereat, the ownership or possession of real or personal property, and any negligent act, misfeasance or nonfeasance by Franchisee or any of its agents, contractors, servants, employees or licensees (including, without limitation, the performance by Franchisee of any act required by, or performed pursuant to, any provision of this Agreement), and (b) any and all fees (including reasonable attorneys' fees), costs and other expenses incurred by or on behalf of Franchisor in the investigation of or defense against any and all such claims. 15.3 In addition to, and not in limitation of, any subsection hereof, Franchisee specifically covenants, represents and warrants that Franchisee is in compliance in all material respects with all federal, state, municipal and local laws governing the generation, use or disposal of hazardous waste or hazardous materials, and any and all other laws designed to protect the environment and that: (a) There have been no past, and there are no current or anticipated, releases or substantial threats of a release of a hazardous substance, pollutant or contaminant from or onto the Restaurant or real property upon which the Restaurant is located and referred to in this Agreement ("Premises") which is or may be subject to regulation under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601, et seq.) or other laws designed to protect the environment; 23 (b) The Premises have not previously been used, are not now being used and are not contemplated to be used for the treatment, collection, storage or disposal of any refuse or objectionable waste so as to require a permit or approval from the Environmental Protection Agency pursuant to the Hazardous and Solid Waste Amendments of 1984 (96 Stat. 3221) or any other federal, state, county or municipal agency charged with the responsibility of protecting the environment; (c) The Premises have not previously been used, are not now being used, and are not contemplated to be used, for the generation, transportation, treatment, storage or disposal of any hazardous waste; (d) No portion of the Premises are located on or over a "sanitary landfill" or an "open dump" within the meaning of the Resource Conservation and Recovery Act (42 U.S.C. 6941 et seq.), as amended by the Hazardous and Solid Waste Amendments of 1984 (96 Stat. 3221); (e) No asbestos fibers or materials or polychlorinated biphenyls (PCB's) are on or in the Premises; (f) There have not been, nor are there presently pending, any federal or state enforcement actions against the Premises, nor is the Franchisee or its Landlord, if any, subject to any outstanding administrative orders which require ongoing compliance efforts in connection with compliance with laws designed to protect the environment; (g) The Franchisee has not entered into any consent decrees or administrative consent orders with any agency charged with the responsibility of protecting the environment; (h) There have not been any notices of violation sent to the Franchisee under the Citizens Suit Provisions of any statute; (i) The Franchisee has not received any request for information, notice or demand letters for administrative inquiries from any governmental entity with regard to its environmental practices; (j) The Franchisee has maintained all required records under each and every applicable environmental statute and is in full compliance with all environmental permits issued to it by any governmental or regulatory agency; (k) The Franchisee maintains all insurance policies as may be required by any applicable law governing the environment; (l) The Franchisee has no reason to believe that any operation of equipment on or at the Premises may be the cause of a future spill or release of a pollutant; (m) The Franchisee has not in the past, nor is it presently, generating, transporting or disposing of a hazardous substance as defined by Section 9601(12) of CERCLA; and (n) The Franchisor shall have the right, at Franchisee's expense, to require an environmental audit of the Premises from a company or companies satisfactory to Franchisor. 24 16. INSURANCE 16.1 Franchisee shall procure before the commencement of Restaurant operations, and shall maintain in full force and effect during the entire term of this Agreement, at its sole cost and expense, an insurance policy or policies protecting Franchisee and Franchisor and their respective officers, directors and employees against any and all claims, loss, liability or expense whatsoever, arising out of or in connection with the condition, operation, use or occupancy of the Restaurant or Restaurant Premises. Franchisee shall procure workers' compensation coverage for each of its employees no later than the first date of such employee's employment. Franchisee shall also insure the Restaurant building and other improvements, equipment, signs, interior and exterior decor items, furnishings and fixtures, and any additions thereto, in accordance with standard fire and extended coverage insurance policies then in effect for similar businesses. Franchisor shall be named as an additional insured in all such policies, workers' compensation excepted, and the certificate or certificates of insurance shall state that the policy or policies shall not be subject to cancellation or alteration without at least thirty (30) days prior written notice to Franchisor. Such policy or policies shall be written by a responsible insurance company or companies satisfactory to Franchisor, and shall be in such form and contain such limits of liability as shall be satisfactory to Franchisor from time to time. In any event, such policy or policies shall include at least the following: KIND OF INSURANCE MINIMUM LIMITS OF LIABILITY Workers' Compensation Statutory Employer's Liability $500,000 bodily injury by accident $500,000 bodily injury by disease General Public Liability, $1,000,000 each person, including Product Liability, $1,000,000 each incident Injury and Liquor Liability $2,000,000 aggregate Fire and Extended Coverage Full replacement value Umbrella Liability Insurance $10,000,000 Franchisee shall, upon request, exhibit certificates of such insurance to Franchisor. The insurance afforded by the policy or policies respecting public liability shall not be limited in any way by reason of any insurance which may be maintained by Franchisor. 16.2 Within sixty (60) days after the execution of this Agreement, but in no event later than the day before the Restaurant opens for business, Franchisee shall submit to Franchisor for approval certificates of insurance showing compliance with the requirements of Subsection 16.1. Notwithstanding the foregoing, Franchisee shall submit to Franchisor for approval certificates of insurance showing compliance with the worker's compensation requirements set forth in Subsection 16.1 prior to the training of any Franchisee employee at a Restaurant operated by Franchisor. Maintenance of such insurance and the performance by Franchisee of its obligations under this Section 16 shall not relieve Franchisee of liability under the indemnity provisions of this Agreement, and shall not limit such liability. 25 16.3 Should Franchisee, for any reason, fail to procure or maintain the insurance coverage required by this Section, then Franchisor shall have the right and authority to immediately procure such insurance coverage and to charge the cost thereof to Franchisee, which amounts shall be paid immediately upon notice and shall be subject to charges for late payments in the manner set forth in Subsection 9.2. 16.4 No later than thirty (30) days following Franchisee's receipt of same, Franchisee shall submit to Franchisor a copy of any written report relating to the condition of the Restaurant premises, or any aspect thereof, prepared by an insurer or prospective insurer or by a representative of a federal, state or local government agency, provided that if any such report contains comments or information which could materially and detrimentally affect the Restaurant, such report shall be submitted to Franchisor within three (3) days following Franchisee's receipt thereof. 17. DEBTS AND TAXES Franchisee shall pay or cause to be paid promptly when due all obligations incurred, directly or indirectly, in connection with the Restaurant and its operation, including, without limitation, (a) all taxes and assessments that may be assessed against the Restaurant land, building and other improvements, equipment, fixtures, signs, furnishings, and other property; (b) all liens and encumbrances of every kind and character created or placed upon or against any of said property, and; (c) all accounts and other indebtedness of every kind and character incurred by or on behalf of Franchisee in the conduct of the Restaurant business. Notwithstanding the foregoing, Franchisee will not be in default of this Agreement as a result of a non-payment or non-performance of the foregoing so long as it disputes said debt or lien and is, in the sole opinion of Franchisor, validly and in good faith pursuing a resolution of said claim or lien and has reserved sufficient sums to pay the debt/claim as is agreed to by Franchisor. 18. TRADE NAMES, SERVICE MARKS AND TRADEMARKS 18.1 Franchisee acknowledges the sole and exclusive right of Franchisor (except for rights granted under existing and future franchise agreements) to use Franchisor's trade names, service marks and trademarks in connection with the products and services to which they are or may be applied by Franchisor, and represents, warrants and agrees that Franchisee shall not, either during the term of this Agreement, or after the expiration or other termination hereof, directly or indirectly, contest or aid in contesting the validity, ownership or use thereof by Franchisor, or take any action whatsoever in derogation of the rights claimed herein by Franchisor. 18.2 The right granted to Franchisee under this Agreement to use Franchisor's trade names, service marks and trademarks is nonexclusive, and Franchisor, in its sole discretion, subject only to the limitations contained in Subsection 1.4 of this Agreement, has the right to grant other rights in, to and under those names and marks in addition to those rights already granted, and to develop and grant rights in other names and marks on any such terms and conditions as Franchisor deems appropriate. The rights granted under this Agreement do not include any right or authority of any kind whatsoever to pre-package or sell pre-packaged food products, under any of Franchisor's names or marks, or any menu items approved for sale at the Restaurant, whether at the Restaurant or at any other location. 26 18.3 Franchisee understands and acknowledges and agrees that Franchisor has the unrestricted right, subject only to the limitations contained in Subsection 1.4 of this Agreement, to engage, directly and indirectly, through its employees, representatives, licenses, assigns, agents, affiliates, subsidiaries and others, at wholesale, retail, and otherwise, in (a) the production, distribution and sale of products under the names and marks licensed hereunder or other names or marks, (b) the use, in connection with such production, distribution and sale, of 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 with respect to the System or otherwise, and (c) the production, distribution and sale of products through another restaurant or restaurants which do not utilize the System or the Applebee's Neighborhood Grill & Bar service mark and which otherwise compete or might compete with the Restaurant. 18.4 Nothing contained in this Agreement shall be construed to vest in Franchisee any right, title or interest in or to any of Franchisor's names or marks, the goodwill now or hereafter associated therewith, or any right in the design of any restaurant building or premises, or the decor or trade-dress of the Restaurant, other than the rights and license expressly granted herein for the term hereof. Any and all goodwill associated with or identified by any of Franchisor's names or marks shall inure directly and exclusively to the benefit of Franchisor, including, without limitation, any goodwill resulting from operation and promotion of the Restaurant, provided that this Subsection shall not be construed to entitle Franchisor to receive any portion of the consideration paid to Franchisee and/or any Principal Shareholder as a result of a Transfer of an Interest pursuant to Section 12 hereof. 18.5 Franchisee shall adopt and use Franchisor's names and marks only in a manner expressly approved by Franchisor, and shall not use any of Franchisor's names or marks in connection with any statement or material which may, in the judgment of Franchisor, be in bad taste or inconsistent with Franchisor's public image, or tend to bring disparagement, ridicule or scorn upon Franchisor, any of Franchisor's names or marks, or the goodwill associated therewith. Franchisee shall not adopt, use or register as its corporate name (by filling a certificate or articles of incorporation or otherwise) any trade or business name, style or design which includes, or is similar to, any of Franchisor's trademarks, service marks, trade names, logos, insignia, slogans, emblems, symbols, designs or other identifying characteristics. 18.6 Franchisor shall have the right, at any time and from time to time, upon notice to Franchisee, to make additions to, deletions from and changes in any of Franchisor's names or marks, or all of them, all of which additions, deletions and changes shall be made in good faith, on a reasonable basis and with a view toward the overall best interests of the System. Franchisor will use its best efforts to protect and preserve the integrity and validity of Franchisor's names and marks, including the taking of actions deemed by Franchisor to be appropriate in the event of any apparent infringement of any of Franchisor's names or marks. 18.7 (a) Franchisor shall hold Franchisee harmless from any liability or expense (but excluding consequential damages) resulting from infringement of a third party's service mark, trade name or trademark by Franchisor's service mark, Applebee's Neighborhood Grill & Bar, or by any other service mark, trademark or trade name of Franchisor which Franchisor shall designate as part of the System. This hold-harmless indemnity shall not apply to any unauthorized use by Franchisee of any such service mark, trade name or trademark. (b) Franchisee agrees to notify Franchisor promptly in writing of any suit or claim for infringement which is within the scope of the hold-harmless indemnity set forth in this Subsection 18.7. Subject to the terms and conditions of this Subsection 18.7, Franchisor shall have the sole right to defend or settle any such suit or claim of infringement at Franchisor's expense. Franchisee, at Franchisee's expense, shall have the right to be represented by counsel. Franchisor shall, however, retain control of any negotiations with respect to such claim or of any litigation involving such suit. Franchisee agrees to cooperate with Franchisor and to assist Franchisor whenever reasonably requested by Franchisor, at Franchisor's expense, in the defense of any such infringement suit or claim. Franchisee shall not enter into any settlement of any such claim or suit or conduct any settlement negotiations relative thereto without the prior approval of Franchisor in writing and, if Franchisee does so, the hold-harmless indemnity set forth in this Subsection 18.7 shall be deemed to have been waived and released in all respects. 27 18.8 Franchisor represents that it is the sole owner of the service mark Applebee's Neighborhood Grill & Bar. In the event that Franchisee is precluded from operating the Restaurant because Franchisor determines that a third person has acquired rights under the law of any state in such mark, which so precludes Franchisee, Franchisor agrees (a) to repay to Franchisee the initial franchise fee paid by Franchisee with respect to the Restaurant, and (b) to assist Franchisee, at Franchisee's request, in locating an alternative site for the Restaurant. 19. EXPIRATION AND TERMINATION; OPTION TO PURCHASE RESTAURANT; ATTORNEYS' FEES 19.1 Franchisor shall have the right to terminate this Agreement immediately upon written notice to Franchisee stating the reason for such termination: (a) in the event of any breach or default of any of the provisions of Subsection 9.1, Sections 12 or 13, Subsection 14.1 or Section 23; (b) if a petition in bankruptcy, an arrangement for the benefit of creditors, or a petition for reorganization is filed by Franchisee, or is filed against Franchisee and not dismissed within ninety (90) days from the filing thereof, or if Franchisee shall make any assignment for the benefit of creditors, or if a receiver or trustee is appointed for Franchisee and is not dismissed within ninety (90) days of such appointment; (c) if Franchisee ceases to operate the Restaurant without the prior written consent of Franchisor or loses its right to possession of the Restaurant premises; provided however, this provision will not apply if Franchisee ceases to operate the Restaurant or loses its right to possession of the Restaurant premises by reason of Force Majeure and Franchisee complies with the requirements of Section 24 of this Agreement; (d) if Franchisor discovers that Franchisee has made any material misrepresentation or omitted any material fact in the information which was furnished to Franchisor in connection with this Agreement; (e) if any part of this Agreement relating to the payment of fees to Franchisor, or the preservation of any of Franchisor's trade names, service marks, trademarks, trade secrets or secret formulae licensed or disclosed hereunder is, for any reason, declared invalid or unenforceable; or (f) if Franchisee or any Principal Shareholder is convicted of or pleads nolo contendere to a felony or any crime involving moral turpitude. If Franchisee defaults in the performance or observance of any of its other obligations hereunder, and such default continues for a period of sixty (60) days after written notice to Franchisee specifying such default, Franchisor shall have the right to terminate this Agreement upon thirty (30) days written notice to Franchisee. If Franchisee defaults in the performance or observance of the same obligation two (2) or more times within a twelve (12) month period, Franchisor shall have the right to terminate this Agreement immediately upon commission of the second act of default, upon thirty (30) days written notice to Franchisee stating the reason for such termination, without allowance for any curative period. The foregoing provisions of this Subsection 19.1 are subject to the provisions of any local statutes or regulations which limit the grounds upon which Franchisor may terminate this Agreement, or which require that Franchisor give Franchisee additional prior written notice of termination and opportunity to cure any default. 28 In the event of termination by reason of Franchisee's failure after a good faith effort to obtain the necessary state or local liquor licenses (as required in Section 23), Franchisor shall refund to Franchisee, without interest, the franchise fee payment referred to in Subsection 9.1(a), less any expenses incurred and damages sustained by Franchisor in connection with its performance hereunder prior to the date of such termination. Franchisor shall also repay the initial franchise fee in the circumstances described in Subsection 18.8 hereof. In the event of termination for any other reason, Franchisor shall have no obligation to refund any amount previously paid by Franchisee, and Franchisee shall be obligated to promptly pay all sums which are then due Franchisor. 19.2 Upon the termination of this Agreement by Franchisor, Franchisee may not remove any property from the Restaurant premises for thirty (30) days after the termination. Upon the expiration or earlier termination of this Agreement for any reason: (a) Franchisee shall immediately discontinue its use of the System and its use of Franchisor's trade names, service marks, trademarks, logos, insignia, slogans, emblems, symbols, designs and other identifying characteristics; (b) if the Restaurant premises are owned by Franchisee or leased from a third party, Franchisee shall, upon demand by Franchisor, remove (at Franchisee's expense) Franchisor's trade names, service marks, trademarks, logos, insignia, slogans, sign facia, emblems, symbols, designs and other identifying characteristics from all premises, and paint all premises and other improvements maintained pursuant to this Agreement a design and color which is basically different from Franchisor's authorized design and color. If Franchisee shall fail to make or cause to be made any such removal or repainting within thirty (30) days after written notice, then Franchisor shall have the right to enter upon the Restaurant premises, without being deemed guilty of trespass or any tort (or Franchisee shall cause Franchisor to be permitted on the premises as necessary), and make or cause to be made such removal, alterations and repainting at the reasonable expense of Franchisee, which expense Franchisee shall pay to Franchisor immediately upon demand; and (c) Franchisee shall not thereafter use any trademark, trade name, service mark, logo, insignia, slogan, emblem, symbol, design or other identifying characteristic that is in any way associated with Franchisor or similar to those associated with Franchisor, or use any food or proprietary menu item, recipe or method of food preparation or operate or do business under any name or in any manner that might tend to give the public the impression that Franchisee is or was a licensee or franchisee of, or otherwise associated with, Franchisor. 19.3 In the event that any party to this Agreement initiates any legal proceeding to construe or enforce any of the terms, conditions and/or provisions of this Agreement, including, but not limited to, its termination provisions and its provisions requiring Franchisee to make certain payments to Franchisor incident to the operation of the Restaurant, or to obtain damages or other relief to which any such party may be entitled by virtue of this Agreement, the prevailing party or parties shall be paid its reasonable attorneys' fees and expenses by the other party or parties. If Franchisee fails to comply with a written notice of termination sent by Franchisor and a court later upholds such termination of this Agreement, Franchisee's operation of the Restaurant, from and after the date of termination stated in such notice, shall constitute willful trademark infringement and unfair competition by Franchisee, and Franchisee shall be liable to Franchisor for damages resulting from such infringement in addition to any fees paid or payable hereunder, including, without limitation, any profits which Franchisee derived from such post-termination operation of the Restaurant. 29 19.4 (a) With respect to Restaurant premises owned by Franchisee, in the event of termination of this Agreement, Franchisor shall have, for thirty (30) days after the termination is effective, an option, exercisable upon written notice to Franchisee within such thirty (30) day period, to elect to purchase the Restaurant premises from Franchisee for the fair market value of the land and buildings, furnishings and equipment located therein. (b) In addition to the option described above, Franchisor shall have an option, exercisable upon written notice to Franchisee, to elect to purchase the Restaurant premises from Franchisee upon expiration of this Agreement for the fair market value of the land and buildings, furnishings, and equipment located therein subject to Franchisee's option to operate the Restaurant for an additional term under Subsection 1.3 hereof. If Franchisee does not notify Franchisor, pursuant to Subsection 1.3 hereof, of a desire to operate the Restaurant for an additional term, then Franchisor shall provide the written notice described in the preceding sentence within thirty (30) days after the latest date by which Franchisee is required by Subsection 1.3 to advise Franchisor of such a desire; if Franchisee does notify Franchisor of a desire to operate the Restaurant for an additional term and Franchisor determines that Franchisee is not eligible to do so, Franchisor shall provide the written notice described in the preceding sentence within thirty (30) days of its written notice to Franchisee that Franchisee is not eligible to operate the Restaurant for such additional term. With respect to the option to purchase upon expiration of this Agreement, this option shall not apply if prior to thirty (30) days before said expiration, Franchisee enters into an agreement to sell such Restaurant premises to a third party upon the expiration of the Franchise Agreement, provided that Franchisee's agreement with the purchaser includes a covenant by the purchaser, which is expressly enforceable by Franchisor as a third-party beneficiary thereof, pursuant to which the purchaser agrees that, for a period of twelve (12) months after the expiration of this Agreement, the purchaser shall not use such premises for the operation of a restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System. (c) If Franchisee receives approval to operate the Restaurant premises for an additional term in accordance with Subsection 1.3 hereof, Franchisee will be required to execute the then-existing form of franchise agreement, which shall contain an option to obtain assignment of Franchisee's lease with a third party and/or to purchase certain property, exercisable by Franchisor upon termination thereof, and an option to purchase the Restaurant premises, exercisable by Franchisor upon expiration of the additional term (subject to any then-existing rights to renew of Franchisee). Such options shall be substantially similar to the provisions described in this Subsection 19.4. (d) If the parties cannot agree on the purchase price or other terms of purchase within thirty (30) days following Franchisor's exercise of its option pursuant to Subsection 19.4(a) and (b), the price or disputed terms of purchase shall be determined by three (3) appraisers, with each party selecting one (1) appraiser and the two (2) appraisers, so chosen, selecting the third appraiser. In the event of such an appraisal, each party shall bear its own legal and other costs and shall split equally the appraisal fees. The appraisers' determination of the price and other disputed terms of purchase shall be final and binding. (e) If Franchisor elects to exercise its option to purchase upon termination of this Agreement, the purchase price shall be paid within thirty (30) days of the determination of the purchase price and other terms of purchase. If Franchisor elects to exercise its option to purchase upon expiration of this Agreement, the purchase price shall be paid within thirty (30) days of the later of (a) the determination of the purchase price and other terms of purchase, or (b) expiration of this Agreement. If the Franchisor does not elect to exercise its option to purchase the Restaurant premises, the Franchisee may sell such premises to a third party, provided that Franchisee's agreement with the purchaser includes a covenant by the purchaser, which is expressly enforceable by Franchisor as a third-party beneficiary thereof, pursuant to which the purchaser agrees that it shall not use such premises for the operation of a restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System for a period of twelve (12) months after the termination or expiration of this Agreement. 30 (f) If the Restaurant premises are leased by Franchisee from a third party, such lease must allow Franchisee to assign the lease to Franchisor. Upon termination of this Agreement for any reason, Franchisor has the right, exercisable upon written notice to Franchisee within thirty (30) days after termination is effective, to require Franchisee to assign all Franchisee's rights and obligations under the lease to Franchisor and to immediately surrender possession of the premises, including all fixtures and leasehold improvements, to Franchisor. The lessor may not impose any assignment fee or other similar charge on Franchisor in connection with such assignment. If Franchisor exercises that right, it has an additional right, to be exercised within thirty (30) days after taking possession of the premises, to purchase all of Franchisee's equipment, signs, decor items, furnishings, supplies and other products and materials at their then-fair market value. If the parties cannot agree on the price, the price will be determined in the manner set forth in connection with Franchisee-owned Restaurant premises. If Franchisor elects not to purchase the items mentioned above, Franchisee shall, at Franchisee's own expense and under Franchisor's supervision remove those items from the premises within ten (10) days after such final election, or ten (10) days after expiration of the option period, whichever is earlier. If Franchisee fails to remove all such property from the premises within such period, Franchisor shall be entitled to do so, or to authorize a third party to do so, all at Franchisee's expense. 19.5 In addition to the provisions contained in Subsection 19.4 hereof: (a) With respect to Restaurant premises owned by Franchisee, in the event of termination of this Agreement and Franchisor's exercise of its option to purchase the Restaurant premises pursuant to Subsection 19.4(a) hereof, Franchisee shall have, for ten (10) days after its receipt of written notice of Franchisor's election to purchase, an option, exercisable upon written notice to Franchisor, to lease said premises to Franchisor, pursuant to a lease which provides for rental at a rate not in excess of six percent (6%) of gross sales and triple net terms. Said lease shall provide for a lease term of at least ten (10) years with two (2) five (5)-year options to renew, and for primary annual rent of not in excess of the number derived from multiplying six percent (6%) times the gross sales reported by Franchisee to Franchisor for which Franchisee has paid a royalty fee for the next preceding calendar year times eighty percent (80%). (b) In addition to the option described above, Franchisee shall have an option, exercisable upon written notice to Franchisor, to elect to lease the Restaurant premises to Franchisor upon expiration of this Agreement and Franchisor's exercise of its option to purchase the Restaurant premises pursuant to Subsection 19.4(b) hereof, pursuant to the same terms set forth in Subsection 19.5(a) above, subject to Franchisee's option to operate the Restaurant for an additional term under Subsection 1.3 hereof. If (i) Franchisee does not notify Franchisor, pursuant to Subsection 1.3 hereof, of a desire to operate the Restaurant for an additional term, or (ii) Franchisee does notify Franchisor of a desire to operate the Restaurant for an additional term and Franchisor determines that Franchisee is not eligible to do so, and Franchisor exercises its option to purchase the Restaurant premises, then Franchisee shall provide the written notice described in the preceding sentence within ten (10) days after its receipt of written notice of Franchisor's election to purchase. With respect to the option to lease upon expiration of this Agreement, this option shall not apply if prior to thirty (30) days before said expiration, Franchisee enters into an agreement to sell such Restaurant premises to a third party upon the 31 expiration of the Franchise Agreement, provided that Franchisee's agreement with the purchaser includes a covenant by the purchaser, which is expressly enforceable by Franchisor as a third-party beneficiary thereof, pursuant to which the purchaser agrees, at Franchisor's option, either to lease said premises to Franchisor upon the terms set forth in Subsection 19.5(a), or that for a period of twelve (12) months after the expiration of this Agreement, the purchaser shall not use such premises for the operation of a restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System. (c) If Franchisee receives approval to operate the Restaurant premises for an additional term in accordance with Subsection 1.3 hereof, Franchisee will be required to execute the then-existing form of franchise agreement which shall contain an option to obtain assignment of Franchisee's lease with a third party and/or to lease certain property, exercisable by Franchisor upon termination thereof, and an option to lease the Restaurant premises, exercisable by Franchisor upon expiration of the additional term (subject to any then-existing rights to renew of Franchisee). Such options shall be substantially similar to the provisions described in this Subsection 19.5. 20. NO WAIVER OF DEFAULT 20.1 The waiver by any party to this Agreement of any breach or default, or series of breaches or defaults, of any term, covenant or condition herein, or of any same or similar term, covenant or condition contained in any other agreement between Franchisor and any franchisee, shall not be deemed a waiver of any subsequent or continuing breach or default of the same or any other term, covenant or condition contained in this Agreement, or in any other agreement between Franchisor and any franchisee. 20.2 All rights and remedies of the parties hereto 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. The rights and remedies of the parties hereto shall be continuing and shall not be exhausted by any one (1) or more uses thereof, and may be exercised at any time or from time to time as often as may be expedient; and any option or election to enforce any such right or remedy may be exercised or taken at any time and from time to time. The expiration or earlier termination of this Agreement shall not discharge or release Franchisee or any Principal Shareholder from any liability or obligation then accrued, or any liability or obligation continuing beyond, or arising out of, the expiration or earlier termination of the Agreement. 32 21. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION 21.1 If any part of this Agreement shall for any reason be declared invalid, unenforceable or impaired in any way, the validity of the remaining portions shall remain in full force and effect as if the Agreement had been executed with such invalid portion eliminated, and it is hereby declared the intention of the parties that they would have executed the remaining portion of this Agreement without including therein any such portions which might be declared invalid; provided however, that in the event any part hereof relating to the payment of fees to Franchisor, or the preservation of any of Franchisor's trade names, service marks, trademarks, trade secrets or secret formulae licensed or disclosed hereunder is for any reason declared invalid or unenforceable, then Franchisor shall have the right to terminate this Agreement upon written notice to Franchisee. If any clause or provision herein would be deemed invalid or unenforceable as written, it shall be deemed modified or limited to such extent or in such manner as may be necessary to render the clause or provision valid and enforceable to the greatest extent possible in light of the interest of the parties expressed in that clause or provision, subject to the provisions of the preceding sentence. 21.2 FRANCHISEE AND PRINCIPAL SHAREHOLDERS ACKNOWLEDGE THAT FRANCHISOR MAY GRANT NUMEROUS FRANCHISES THROUGHOUT THE UNITED STATES ON TERMS AND CONDITIONS SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT IS OF MUTUAL BENEFIT TO FRANCHISEE AND PRINCIPAL SHAREHOLDERS AND TO FRANCHISOR THAT THESE TERMS AND CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES AGREE THAT TO THE EXTENT THAT THE LAW OF THE STATE OF KANSAS DOES NOT CONFLICT WITH LOCAL FRANCHISE STATUTES, RULES AND REGULATIONS, KANSAS LAW SHALL APPLY TO THE CONSTRUCTION OF THIS AGREEMENT AND SHALL GOVERN ALL QUESTIONS WHICH ARISE WITH REFERENCE HERETO; PROVIDED HOWEVER, THAT PROVISIONS OF KANSAS LAW REGARDING CONFLICTS OF LAW SHALL NOT APPLY HERETO. 21.3 THE PARTIES AGREE THAT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE THEREOF WHICH CANNOT BE AMICABLY SETTLED, EXCEPT AS OTHERWISE PROVIDED HEREIN, MAY, AT THE OPTION OF THE CLAIMANT, BE RESOLVED BY A PROCEEDING IN A COURT IN JOHNSON COUNTY, KANSAS, AND FRANCHISEE AND PRINCIPAL SHAREHOLDERS EACH IRREVOCABLY ACCEPT THE JURISDICTION OF THE COURTS OF THE STATE OF KANSAS AND THE FEDERAL COURTS SERVING JOHNSON COUNTY, KANSAS FOR SUCH CLAIMS, CONTROVERSIES OR DISPUTES. The parties agree that service of process in any proceeding arising out of or relating to this Agreement or the performance thereof may be made as to Franchisee and any Principal Shareholder by serving a person of suitable age and discretion (such as the person in charge of the office) at the address of Franchisee specified in this Agreement and as to Franchisor by serving the president or a vice-president of Franchisor at the address of Franchisor or by serving Franchisor's registered agent. 33 22. INTERFERENCE WITH EMPLOYMENT RELATIONS During the term of this Agreement, neither Franchisor nor Franchisee shall employ or seek to employ in a managerial position (i.e., in a position at a pay grade at or above that of Assistant Restaurant Manager or Kitchen Manager), directly or indirectly, any person who is at the time or was at any time during the prior six (6) months employed by the other party or any of its subsidiaries or affiliates, or by any franchisee in the System. This section shall not be violated if, at the time Franchisor or Franchisee employs or seeks to employ such person, such former employer has given its written consent. Notwithstanding any other provision of this Agreement, the parties hereto acknowledge that if this Section is violated, such former employer shall be entitled to liquidated damages equal to three (3) times the annual salary of the employee involved, plus reimbursement of all costs and attorneys' fees incurred. In addition to the rights granted to the parties hereto, the parties acknowledge and agree that any franchisee from which an employee was hired by either party to this Agreement in violation of the terms of this Section shall be deemed to be a third-party beneficiary of this provision and may sue and recover against the offending party the liquidated damages herein set forth; provided however, the failure by Franchisee to enforce this Section shall not be deemed to be a violation of this Section. 23. LIQUOR LICENSE The grant of the rights which are the subject of this Agreement is expressly conditioned upon the ability of the Franchisee to obtain and maintain any and all required state and/or local licenses permitting the sale of liquor by the drink on the Restaurant premises, and Franchisee agrees to use its best efforts to obtain such licenses. In the event Franchisee fails, after a good faith effort, to obtain any and all such required liquor licenses prior to the date on which the Restaurant is otherwise ready to open for business, then, at the option of the Franchisor, this Agreement may be terminated forthwith by Franchisor upon written notice to Franchisee, in which event, Franchisor shall refund to Franchisee, without interest, the initial franchise fee payment referred to in Subsection 9.1, less any expenses incurred and damages sustained by Franchisor in connection with its performance hereunder prior to the date of such termination. After obtaining the necessary state or local liquor licenses, Franchisee shall thereafter comply with all applicable laws and regulations relating to the sale of liquor on the Restaurant premises. If, during any twelve (12) month period during the term of this Agreement, Franchisee is prohibited for any reason from selling liquor on the Restaurant premises for more than thirty (30) days because of a violation or violations of state or local liquor laws, then at the option of Franchisor this Agreement may be terminated forthwith by Franchisor upon written notice to Franchisee. 24. FORCE MAJEURE 24.1 As used in this Agreement, the term "Force Majeure" shall mean any act of God, strike, lock-out or other industrial disturbance, war (declared or undeclared), riot, epidemic, fire or other catastrophe, act of any government and any other similar cause not within the control of the party affected thereby. 34 24.2 If the performance of any obligation by any party under this Agreement is prevented or delayed by reason of Force Majeure, which cannot be overcome by use of normal commercial measures, the parties shall be relieved of their respective obligations to the extent the parties are respectively necessarily prevented or delayed in such performance during the period of such Force Majeure. The party whose performance is affected by an event of Force Majeure shall give prompt notice of such Force Majeure event to the other party by facsimile, telephone or telegram (in each case to be confirmed in writing), setting forth the nature thereof and an estimate as to its duration, and shall be liable for failure to give such timely notice only to the extent of damage actually caused. 24.3 Notwithstanding the provisions of this Section 24, if, as a result of an event of Force Majeure (including condemnation proceedings), the Franchisee ceases to operate the Restaurant or loses the right to possession of the Restaurant premises, Franchisee shall apply within thirty (30) days after the event of Force Majeure for Franchisor's approval to relocate and/or reconstruct the Restaurant. If relocation is necessary, Franchisor agrees to use its reasonable efforts to assist Franchisee in locating an alternative site in the same general area where Franchisee can operate a Restaurant within the System for the balance of the term of the Franchise Agreement. If Franchisor so assists Franchisee, Franchisee shall reimburse Franchisor for its reasonable out-of-pocket expenses incurred as a result thereof. (This provision shall not be construed to prevent Franchisee from receiving the full amount of any condemnation award of damages relating to the closing of the Restaurant; provided however, that if Franchisor or an affiliate is the lessor of the Restaurant premises, Franchisee specifically waives and releases any claim it may have for the value of any building, fixtures and other improvements on the premises, whether or not installed or paid for by the Franchisee, and Franchisee agrees to subordinate any claim it may have to Franchisor's claim for such improvements.) Selection of an alternative location will be subject to the site approval procedures set forth in Section 5 of the Development Agreement. Once Franchisee has obtained Franchisor's approval to relocate and/or reconstruct the Restaurant, Franchisee must diligently pursue relocation and/or reconstruction until the Restaurant is reopened for business. 25. MISCELLANEOUS 25.1 All notices and other communications required or permitted to be given hereunder shall be deemed given when delivered in person, by overnight courier service, facsimile transmission or mailed by registered or certified mail addressed to the recipient at the address set forth below, unless that party shall have given written notice of change of address to the sending party, in which event the new address so specified shall be used. FRANCHISOR: Applebee's International, Inc. 4551 W. 107th Street, Suite 100 Overland Park, Kansas 66207 Attention: President FRANCHISEE: 35 PRINCIPAL SHAREHOLDERS: 25.2 All terms used in this Agreement, regardless of the number and gender in which they are used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context or sense of this Agreement may require, the same as if such words had been written in this Agreement themselves. The headings inserted in this Agreement are for reference purposes only and shall not affect the construction of this Agreement or limit the generality of any of its provisions. The term "business day" means any day other than Saturday, Sunday, or the following national holidays: New Year's Day, Martin Luther King Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas. 25.3 Franchisee shall, at its own cost and expense, promptly comply with all laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and offices thereof. Without limiting the generality of the foregoing, Franchisee shall abide by all applicable rules and regulations of any public health department. 25.4 In the event that Franchisor has leased the Restaurant premises to Franchisee pursuant to a written lease agreement (the "Lease"), the Lease is hereby incorporated in this Agreement by reference, and any failure on the part of Franchisee (Lessee therein) to perform, fulfill or observe any of the covenants, conditions or agreements contained in the Lease shall constitute a material breach of this Agreement. It is expressly understood, acknowledged and agreed by Franchisee that any termination of the Lease shall result in automatic and immediate termination of this Agreement without additional notice to Franchisee. 25.5 This Agreement and the documents referred to herein constitute the entire agreement between the parties, superseding and canceling any and all prior and contemporaneous agreements, understandings, representations, inducements and statements, oral or written, of the parties in connection with the subject matter hereof. FRANCHISEE EXPRESSLY ACKNOWLEDGES THAT IT HAS ENTERED INTO THIS FRANCHISE AGREEMENT AS A RESULT OF ITS OWN INDEPENDENT INVESTIGATION AND AFTER CONSULTATION WITH ITS OWN ATTORNEY, AND NOT AS A RESULT OF ANY REPRESENTATIONS OF FRANCHISOR, ITS AGENTS, OFFICERS OR EMPLOYEES, EXCEPT AS CONTAINED HEREIN AND IN FRANCHISOR'S FRANCHISE OFFERING CIRCULAR, HERETOFORE MADE AVAILABLE TO FRANCHISEE. 25.6 Except as expressly authorized herein, no amendment or modification of this Agreement shall be binding unless executed in writing both by Franchisor and by Franchisee and Principal Shareholders. 36 26. ACKNOWLEDGMENTS Franchisee and Principal Shareholders acknowledge that: (a) Franchisee has received a copy of this Agreement and has had an opportunity to consult with its attorney with respect thereto at least five (5) business days prior to execution of this Agreement; (b) No representation has been made by Franchisor as to the future profitability of the Restaurant; (c) Prior to the execution of this Agreement, Franchisee has had ample opportunity to contact Franchisor's existing franchisees, if any, and to investigate all statements made by Franchisor relating to the System; (d) This Agreement establishes the right to construct and operate a Restaurant only at the location specified in Subsection 1.1 hereof; and (e) Franchisor is the sole owner of the service marks identified in this Agreement, and of the goodwill associated therewith, and Franchisee acquires no right, title or interest in those names and marks other than the right to use them only in the manner and to the extent prescribed and approved by Franchisor. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first above written. FRANCHISOR: ATTEST: APPLEBEE'S INTERNATIONAL, INC. By: - ------------------------------------------- Name: Name: ------------------------------------- Title: Title: ------------------------------------ FRANCHISEE: ATTEST: By: - ------------------------------------------- Name: Name: ------------------------------------- Title: Title: ------------------------------------ 37 PRINCIPAL SHAREHOLDER(S): Witness Name: Witness Name: Witness Name: 38 EXHIBIT 1 TO FRANCHISE AGREEMENT ROYALTY FEE The monthly royalty fee to be paid by Franchisee shall be four percent (4%) of each calendar month's gross sales; provided however, on and after January 1, 2003, Franchisor may, in its sole discretion, increase the monthly royalty fee to five percent (5%) of each calendar month's gross sales. 39 APPENDIX A TO FRANCHISE AGREEMENT STATEMENT OF OWNERSHIP INTERESTS Percent of Issued and Outstanding Shareholder Shares of Franchisee 40 APPENDIX B TO FRANCHISE AGREEMENT REVIEW AND CONSENT WITH RESPECT TO TRANSFERS In determining whether to grant or to withhold consent to a proposed Transfer, Franchisor shall consider all of the facts and circumstances which it views as relevant in the particular instance, including, but not limited to, any of the following: (i) work experience and aptitude of Proposed New Owner and/or proposed new management (a proposed transferee of a Principal Shareholder's Interest and/or a proposed transferee of this Agreement is referred to as "Proposed New Owner"); (ii) financial background and condition of Proposed New Owner, and actual and pro forma financial condition of Franchisee; (iii) character and reputation of Proposed New Owner; (iv) conflicting interests of Proposed New Owner; (v) the terms and conditions of Proposed New Owner's rights, if the proposed Transfer is a pledge or hypothecation; (vi) the adequacy of Franchisee's operation of any Restaurant and compliance with the System and this Agreement; and (vii) such other criteria and conditions as Franchisor shall then consider relevant in the case of an application for a new franchise to operate a restaurant unit within the System by an applicant that is not then currently doing so. Franchisor's consent also may be conditioned upon execution by Proposed New Owner of an agreement whereby Proposed New Owner assumes full, unconditional, joint and several liability for, and agrees to perform from the date of such Transfer, all obligations, covenants and agreements contained herein to the same extent as if it had been an original party to this Agreement and may also require Franchisee and Principal Shareholders, including the proposed Transferor(s), to execute a general release which releases Franchisor from any claims they may have had or then have against Franchisor. In the event Proposed New Owner is a partnership (including, but not limited to, a limited partnership), Proposed New Owner will also be required to execute an addendum to the Agreement which amends the references to Franchisee and its Principal Shareholders to include the partnership approved by Franchisor and Proposed New Owner's general partner(s) and the principal shareholders of the general partner(s), if the general partner(s) is a corporation. This addendum will contain a provision including in the definition of "Transfer" the withdrawal, removal or voluntary/involuntary dissolution (if applicable) of the general partner(s) or the substitution or addition of a new general partner. Franchisee or Principal Shareholders, as the case may be, shall provide Franchisor with such information as it may require in connection with a request for approval of a proposed Transfer. 41 APPENDIX C TO FRANCHISE AGREEMENT CONFIDENTIALITY AGREEMENT THIS AGREEMENT is made this ________ day of ________________, 19_______, by and between _______________________________________, a _____________ corporation ("Developer"), and __________________________, an individual employed by Developer ("Employee"). WITNESSETH: WHEREAS, APPLEBEE'S INTERNATIONAL, INC. ("Applebee's") is the owner of all rights in and to a unique system for the development and operation of restaurants (the "System"), which includes proprietary rights in valuable trade names, service marks and trademarks, including the service mark Applebee's Neighborhood Grill & Bar and variations of such mark, designs and color schemes for restaurant premises, signs, equipment, procedures and formulae for preparing food and beverage products, specifications for certain food and beverage products, inventory methods, operating methods, financial control concepts, a training facility and teaching techniques; WHEREAS, Developer is the owner of the exclusive right to develop restaurants franchised by Applebee's which utilize the System ("Restaurants") for the period and in the territory described in the Development Agreement between Applebee's and Developer (the "Development Agreement"); and WHEREAS, Developer acknowledges that Applebee's information as described above was developed over time at great expense, is not generally known in the industry and is beyond Developer's own present skills and experience, and that to develop it itself would be expensive, time-consuming and difficult, that it provides a competitive advantage and will be valuable to Developer in the development of its business, and that gaining access to it was therefore a primary reason why Developer entered into the Development Agreement; and WHEREAS, in consideration of Applebee's confidential disclosure to Developer of these trade secrets, Developer has agreed to be obligated by the terms of Development Agreement to execute, with each employee of Developer who will have supervisory authority over the development or operation of more than one Restaurant in the Territory described in the Development Agreement, a written agreement protecting Applebee's trade secrets and confidential information entrusted to Employee; NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the parties agree as follows: (1) The parties acknowledge and agree that Employee is or will be employed in a supervisory or managerial capacity and in such capacity will have access to information and materials which constitute trade secrets and confidential and proprietary information. The parties further acknowledge and agree that any actual or potential direct or indirect competitor of Applebee's, or of any of its franchisees, shall not have access to such trade secrets and confidential information. 42 (2) The parties acknowledge and agree that the System includes trade secrets and confidential information which Applebee's has revealed to Developer in confidence, and that protection of said trade secrets and confidential information and protection of Applebee's against unfair competition from others who enjoy or who have had access to said trade secrets and confidential information are essential for the maintenance of goodwill and special value of the System. (3) Employee agrees that he or she shall not at any time (i) appropriate or use the trade secrets incorporated in the System, or any portion thereof, for use in any business which is not within the System; (ii) disclose or reveal any portion of the System to any person, other than to Developer's employees as an incident of their training; (iii) acquire any right to use, or to license or franchise the use of any name, mark or other intellectual property right which is or may be granted by any franchise agreement between Applebee's and Developer; or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of a Restaurant which may be communicated to Employee or of which Employee may be apprised by virtue of Employee's employment by Developer. Employee shall divulge such confidential information only to such of Developer's other employees as must have access to that information in order to operate a Restaurant or to develop a prospective site for a Restaurant. Any and information, knowledge and know-how, including, without limitation, drawings, materials, equipment, specifications, techniques and other data, which Applebee's designates as confidential, shall be deemed confidential for purposes of this Agreement. (4) Employee further acknowledges and agrees that the Franchise Operations Manual and any other materials or manuals provided or made available to Developer by Applebee's (collectively, the "Manuals"), described in Section 5 of the applicable franchise agreement between Applebee's and Developer, are loaned by Applebee's to Developer for limited purposes only, remain the property of Applebee's, and may not be reproduced, in whole or in part, without the written consent of Applebee's. (5) Employee agrees to surrender to Developer or to Applebee's each and every copy of the Manuals and any other information or material in his or her possession or control upon request, upon termination of employment or upon completion of the use for which said Manuals or other information or material may have been furnished to Employee. (6) The parties agree that in the event of a breach of this Agreement, Applebee's would be irreparably injured and would be without an adequate remedy at law. Therefore, in the event of a breach or a threatened or attempted breach of any of the provisions hereof, Applebee's shall be entitled to enforce the provisions of this Agreement as a third-party beneficiary hereof and shall be entitled, in addition to any other remedies which it may have hereunder at law or in equity (including the right to terminate the Development Agreement), to a temporary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security. 43 (7) If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Agreement determines that it would be invalid or unenforceable as written, the provisions hereof shall be deemed to be modified or limited to such extent or in such manner necessary for such provisions to be valid and enforceable to the greatest extent possible. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first above written. DEVELOPER EMPLOYEE By: By: -------------------------------------------------- Name: Name: ------------------------------------------------ Title: 44 EX-10.6 4 SCHEDULE OF DEVELOPMENT AND FRANCHISE AGREEMENTS APPLEBEE'S INTERNATIONAL, INC. DEVELOPMENT AND FRANCHISE AGREEMENT SCHEDULE AS OF DECEMBER 26, 1999
(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) - --------------------------- ------------------------ ---------------------- ------------------------------ --------------- AB ENTERPRISES Joseph K. Wong CA, OR 804 E. Cypress Anna Wong Suite B Redding, CA 96002 (FA.A1) 09-20-94 1801 Hilltop Drive Redding, CA (FA.A2) 04-30-96 2030 Business Lane Chico, CA (FA.A3) 11-26-96 1388 Biddle Road Medford, OR (FA.A4) 09-28-98 2750 Campus Drive Klamath Falls, OR (FA.A5) 02-09-99 3197C Highway 97 Bend, OR A.N.A., INC. Glenn D. Durham (DA.A) 10-10-91 AL, TN 13/04-30-99 601 Vestavia Parkway Fred W. Gustin Amended: 06-01-93 Suite 1000 06-06-95 Birmingham, AL 35216 05-01-97 (FA.A1) 02-14-89 601 Brookwood Village Mall Homewood, AL (FA.A2) 10-09-90 1240 East Dale Mall Montgomery, AL (FA.A3) 02-26-92 3028 S. Memorial Parkway Huntsville, AL (FA.A4) 11-19-92 100 Century Plaza 7520 Crestwood Boulevard Birmingham, AL (FA.A5) 10-12-93 1700 Rainbow Drive Gadsden, AL (FA.A6) 05-03-94 62 McFarland Boulevard Northport, AL (FA.A7) 10-31-94 2041-A Beltline Road, S.W. Decatur, AL 1 (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) - --------------------------- ------------------------ ---------------------- ------------------------------ --------------- (FA.A8) 01-24-95 302 Hughes Road Madison, AL (FA.A9) 02-28-95 3001 Carter Hill Road Montgomery, AL (FA.A10) 10-04-95 360 Cahaba Valley Pelham, AL (FA.A11) 05-27-98 1917 Cobbs Ford Rd. Prattville, AL (FA.A12) 09-29-98 3195 Taylor Road Montgomery, AL (FA.A13) 11-17-98 2271 Florence Blvd. Florence, AL (FA.A14) 05-31-99 550 Academy Drive Bessemer, AL (FA.A15) 06-28-99 4711 Norell Drive Trussville, AL APPLE ALASKA, LLC William P. Pargeter (DA.A) 02-9-99 Anchorage, AL 3/12/31/01 P.O. Box 190337 Barbara L. Pargeter Anchorage, AK 99519 James E. Larson (FA.A1) 10-25-99 4331 Credit Union Drive Robin A. Figueroa Anchorage, AK Dale S. Martens APPLE AMERICAN Donald W. Strang, Jr. (DA.A) 04-10-96 DE 4/06-01-99 OF DELAWARE Allen S. Musikantow Amended: 03-01-97 8905 Lake Avenue 01-01-98 Cleveland, OH 44102 (FA.A1) 04-22-97 909 N. DuPont Highway Dover, DE (FA.A2) 05-17-99 900 Churchman Road Christiana, DE APPLE AMERICAN Donald W. Strang, Jr. (DA.A) 06-25-89 IN 22/12-31-98 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 01-01-97 (FA.A1) 10-16-89 5046 W. Pike Plaza Indianapolis, IN 2 (FA.A2) 06-18-90 4040 E. 82nd Street Indianapolis, IN (FA.A3) 12-18-90 1436 W. 86th Street Indianapolis, IN (FA.A4) 05-12-92 1050 Broad Ripple Avenue Indianapolis, IN (FA.A5) 08-08-92 2415 Sagamore Pkwy., South Lafayette, IN (FA.A6) 11-10-92 1241 U.S. 31 North, #L-5 Greenwood, IN (FA.A7) 12-14-93 1900 25th Street Columbus, IN (FA.A8) 06-08-94 14711 U.S. 31 North Carmel, IN (FA.A9) 11-03-94 1423 W. McGalliard Road Muncie, IN (FA.A10) 05-02-95 119 N. Baldwin Marion, IN (FA.A11) 05-09-95 1922 E. 53rd Street Anderson, IN (FA.A12) 05-31-95 3720 S. Reed Road Kokomo, IN (FA.A13) 06-12-95 2894 E. 3rd Street Bloomington, IN (FA.A14) 11-21-95 5664 Crawfordsville Road Indianapolis, IN (FA.A15) 02-13-96 700 N. Morton Street Franklin, IN (FA.A16) 02-27-96 8310 East 96th Fishers, IN (FA.A17) 08-13-96 109 S. Memorial Drive New Castle, IN (FA.A18) 10-15-96 2659 E. Main Street Plainfield, IN (FA.A19) 12-12-96 1516 S. Washington Street Crawfordsville, IN 3 (FA.A20) 01-28-97 7345 E. Washington Street Indianapolis, IN (FA.A21) 12-16-97 3009 Northwestern Avenue West Lafayette, IN (FA.A22) 11-23-98 17801 Foundation Drive Noblesville, IN (FA.A23) 12-08-98 101 Lee Blvd. Shelbyville, IN APPLE AMERICAN Donald W. Strang, Jr. (DA.A) 04-10-96 NJ 8/12-31-99 LIMITED Allen S. Musikantow Amended: 01-01-98 PARTNERSHIP OF NEW JERSEY (FA.A1) 02-04-97 880 Berlin Road 8905 Lake Avenue Voorhees, NJ Cleveland, OH 44102 (FA.A2) 03-02-98 700 Consumer Square Mays Landing, NJ (FA.A3) 09-21-98 3849 Delsea Drive Vineland, NJ (FA.A4) 06-07-99 1850 Deptford Center Drive Deptford, NJ 08096 APPLE AMERICAN Donald W. Strang, Jr. (DA.A) 11-11-92 OH 23/12-31-98 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 01-01-97 (FA.A1) 04-02-90 5658 Mayfield Road Lyndhurst, OH (FA.A2) 06-26-90 5010 Great Northern Plaza South North Olmstead, OH (FA.A3) 11-20-91 3000 Westgate Mall Fairview Park, OH (FA.A4) 01-19-93 4981 Dressler Road N. Canton, OH (FA.A5) 08-31-93 508 Howe Avenue Cuyahoga Falls, OH 4 (FA.A6) 09-24-93 6871 Pearl Road Middlesburg Heights, OH (FA.A7) 12-07-93 3989 Burbank Road Wooster, OH (FA.A8) 12-06-94 8174 Mentor Avenue Mentor, OH (FA.A9) 12-13-94 1023 N. Lexington-Springmill Rd. Ontario, OH (FA.A10) 12-15-94 6140 S.O.M. Center Road Solon, OH (FA.A11) 01-24-95 7159 Macedonia Commons Blvd. Macedonia, OH (FA.A12) 05-23-95 4800 Ridge Road Brooklyn, OH (FA.A13) 06-06-95 5503 Milan Road Sandusky, OH (FA.A14) 10-31-95 1540 W. River Road Elyria, OH (FA.A15) 02-20-96 4115 Pearl Street Medina, OH (FA.A16) 03-05-96 411 Northfield Road Bedford Heights, OH (FA.A17) 08-07-96 233 Graff Road, S.E. New Philadelphia, OH (FA.A18) 09-04-96 17771 S. Park Center Strongsville, OH (FA.A19) 11-18-96 4296 Kent Road Stow, OH (FA.A20) 04-22-97 3938 W. Market Street Copley Township, OH (FA.A21) 11-11-97 1020 High Street Wadsworth, OH (FA.A22) 08-24-99 2033 Crocker Road Westlake, OH 44145 5 APPLE Joe S. Thomson AR, LA, OK, TX ARKANSAS, INC. El Chico Restaurants P.O. Box 1867 of Arkansas Texarkana, TX 75504 (FA.A1) 06-15-93 5110 Summerhill Road Texarkana, TX (FA.A2) 10-19-93 9088 Mansfield Road Shreveport, LA (FA.A3) 03-08-94 6818 Rogers Avenue Ft. Smith, AR (FA.A4) 04-09-96 2126 Airline Drive Bossier City, LA (FA.A5) 05-29-96 4078 N. College Fayetteville, AR (FA.A6) 10-07-97 1517 Bert Kouns Shreveport, LA (FA.A7) 02-23-99 2305 East End Boulevard South Marshall, TX 75670 APPLE BY Ronald A. Caselli (DA.A) 08-01-98 CA 6/12-31-00 THE BAY, INC. c/o Grubb & Ellis Co. 1732 N. First Street (FA.A1) 05-05-94 8200 Arroyo Circle Suite 1000 Gilroy, CA San Jose, CA 95112 (FA.A2) 08-22-95 84 Ranch Drive Milpitas, CA (FA.A3) 03-05-96 3900 Sisk Road Modesto, CA (FA.A4) 09-21-99 2501 Fulkerth Road Turlock, CA 95380 APPLE CAPITOL Bruce Frazey (DA.A) 05-03-99 Washington, DC; Hagerstown, MD; 12/12-31-03 GROUP, LLC Jason Kirschner Portion of Salisbury, MD 490 Sawgrass Corp. Pkwy. Andreas Typaldos Suite 330 Vince Wiley (FA.A1) 05-03-99 14441 Brookfield Tower Dr. Sunrise, FL 33325 Chantilly, VA (FA.A2) 05-03-99 12970 Fair Lakes Shopping Ctr. Fairfax, VA 6 (FA.A3) 05-03-99 6310 Richmond Highway Alexandria, VA (FA.A4) 05-03-99 4100 N.W. Crain Highway Bowie, MD (FA.A5) 05-03-99 3610 Crain Highway Waldorf, MD (FA.A6) 05-03-99 755 Foxcroft Drive Martinsburg, WV (FA.A7) 05-03-99 13850 Noblewood Plaza Woodbridge, VA (FA.A8) 05-03-99 45480 Miramar Way California, MD (FA.A9) 05-03-99 933 Edwards Ferry Road Leesburg, VA (FA.A10) 05-03-99 1050 Wayne Avenue Chambersburg, PA (FA.A11) 05-03-99 1481 Wesel Boulevard Hagerstown, MD (FA.A12) 05-03-99 5613 Spectrum Drive Frederick, MD (FA.A13) 05-03-99 7272 Baltimore Avenue College Park, MD (FA.A14) 05-03-99 2851 Plank Road Fredericksburg, VA (FA.A15) 05-03-99 1000 Largo Center Drive Largo, MD (FA.A16) 05-03-99 127 E. Broad Street Falls Church, VA (FA.A17) 05-03-99 21048 Frederick Road Germantown, MD (FA.A18) 05-03-99 45979 Denizen Plaza Sterling, VA (FA.A19) 05-03-99 791 N. Dual Highway Seaford, DE (FA.A20) 05-03-99 105 West Lee Highway Warrenton, VA 7 (FA.A21) 05-03-99 555 N. Solomons Island Road Prince Frederick, MD (FA.A22) 05-03-99 1270 Ocean Outlet Rehoboth Beach, DE (FA.A23) 05-03-99 3447 Donnell Drive Forestville, MD APPLE CENTRAL INVESTMENTS, LTD. Donald Flynn (DA.A) 04-08-98 British Columbia, 9/12-15-03 c/o Mr. Athos Chrysanthou Canada Chrysanthou & Chrisoforo Th. Dernis & Florinis Street (FA.A1) 04-08-98 2325 Ottawa Street Cy-1502 Nicosia CYPRUS Port Coquitlam, British Columbia APPLE CORE Myron Thompson (DA.A) 08-20-98 MN, ND 5/10-31-98 ENTERPRISES, INC.* 1225 S. Broadway Minot, ND 58701 (FA.A1) 11-13-90 2302 15th Street, S.W. Minot, ND (FA.A2) 04-14-92 434 S. 3rd Bismarck, ND (FA.A3) 12-07-93 2351 S. Columbia Road Grand Forks, ND (FA.A4) 11-08-94 2800 13th Avenue, Southwest Fargo, ND (FA.A5) 12-19-95 289 15th Street, West Dickinson, ND (FA.A6) 12-26-99 6 26th Street West Williston, ND (DA.B) 10-26-98 AZ, CA 3/06-30-00 (FA.B1) 04-16-96 3101 S. Fourth Avenue Yuma, AZ (FA.B2) 08-12-97 32400 Date Palm Drive Cathedral City, CA * Name change from EJM Enterprises. APPLE CORPS, L.P. David K. Rolph (DA.A) 08-03-98 IL, WI, IA, MO 18/06-30-01 1877 North Rock Road Darrell L. Rolph Wichita, KS 67206 8 (FA.A1) 08-03-98 6301 University Ave. Cedar Falls, IA (FA.A2) 08-03-98 105 Chestnut Ames, IA (FA.A3) 08-03-98 3838 Elmore Ave. Davenport, IA (FA.A4) 08-03-98 11410 Forest Clive, IA (FA.A5) 08-03-98 6301 S.E. 14th Street West Des Moines, IA (FA.A6) 08-03-98 303 Collins Road Cedar Rapids, IA (FA.A7) 08-03-98 3900 Merle Hay Rd. Des Moines, IA (FA.A8) 08-03-98 1001 E. First Street Ankeny, IA (FA.A9) 08-03-98 3805 41st Ave. Moline, IL (FA.A10) 08-03-98 3920 E. Lincoln Way Sterling, IL (FA.A11) 08-03-98 306 Cleveland Muscatine, IA (FA.A12) 08-03-98 3101 S. Center Street Marshalltown, IA (FA.A13) 08-03-98 2810 5th Avenue South Fort Dodge, IA (FA.A14) 08-03-98 2414 Lincoln Way Clinton, IA (FA.A15) 08-03-98 3006 Fourth Street S.W. Mason City, IA (FA.A16) 08-03-98 200 12th Avenue Center Coralville, IA (FA.A17) 08-23-99 1355 Associates Drive Dubuque, IA 9 APPLE del NORESTE, Ricardo Garza (DA.A) 08-04-98 Nuevo Leon, Coahuila 4/12-31-01 S.A. de C.V. Jorge Garza Trevino and Tamaulipas, Mexico Ave. Vasconcelos #210 Ote. Residencial San Agustin Garza Garcia, Nuevo Leon C.P. 66260 Mexico (FA.A1) 08-04-98 Vasconcelos #158 Santa Engracia Ote. Garza Garcia, Nuevo Leon 66260 Mexico (FA.A2) 10-11-99 Ave. Eugenio Garza Sada #3680-A/ Col. Contry Monterrey, Nuevo Leon Mexico APPLE EAST, INC. Edwin F. Scheibel CT 89 Taunton Hill Road Cynthia H. Scheibel Newtown, CT 06470 (FA.A1) 10-21-97 57 Federal Road Danbury, CT APPLE FOOD SERVICE Edward W. Doherty (DA.A) 05-04-98 NY 16/12-31-02 OF NEW YORK, LLC William A. Johnsen 7 Pearl Court Allendale, NJ 07401 (FA.A1) 05-04-98 938 S. Broadway Hicksville, NY (FA.A2) 05-04-98 Veterans Hwy. & Smithtown Ave. Bohemia, NY (FA.A3) 05-04-98 2660 Sunrise Highway Bellmore, NY (FA.A4) 05-04-98 1985 Jericho Turnpike New Hyde Park, NY (FA.A5) 05-04-98 2550 Sunrise Hwy. East Islip, NY (FA.A6) 05-04-98 1935 N. Ocean Avenue Farmingville, NY (FA.A7) 05-04-98 3145 Middle Country Rd. Lake Grove, NY (FA.A8) 11-24-98 360 Walt Whitman Rd. Huntington Station, NY 10 (FA.A9) 03-02-99 200 Airport Plaza Farmingdale, NY APPLE GOLD, INC. Michael D. Olander (DA.A) 07-01-94 NC, VA 29/01-31-98 170 Windchime Court Amended: 02-01-96 Raleigh, NC 27615 (FA.A1) 06-10-85 1389 Kildair Farm Road Cary, NC (FA.A2) 06-28-85 7471 Six Forks Road Raleigh, NC (FA.A3) 01-28-87 4004 Capital Boulevard Raleigh, NC (FA.A4) 01-28-87 1508 E. Franklin Road Chapel Hill, NC (FA.A5) 08-21-87 3400 Westgate Drive Durham, NC (FA.A6) 09-10-87 2001 N. Main High Point, NC (FA.A7) 06-13-88 476 Western Boulevard Jacksonville, NC (FA.A8) 02-01-89 1120 N. Wesleyan Boulevard Rocky Mount, NC (FA.A9) 01-22-90 3103 Garden Road Burlington, NC (FA.A10) 07-31-90 202 S.W. Greenville Blvd. Greenville, NC (FA.A11) 12-18-90 9616 E. Independence Blvd. Matthews, NC (FA.A12) 01-03-91 3625 Hillsborough Street Raleigh, NC (FA.A13) 07-01-91 10921 Carolina Place Pkwy. Pineville, NC (FA.A14) 03-24-92 4406 W. Wendover Avenue Greensboro, NC (FA.A15) 05-18-93 2180 Highway 70, Southeast Hickory, NC 11 (FA.A16) 09-29-93 1115 Glenway Drive Statesville, NC (FA.A17) 07-19-94 901 N. Spence Avenue Goldsboro, NC (FA.A18) 10-18-94 8700 J.W. Clay Charlotte, NC (FA.A19) 01-10-95 3200 Battleground Avenue Greensboro, NC (FA.A20) 05-16-95 2239 W. Roosevelt Boulevard Monroe, NC (FA.A21) 09-19-95 5120 New Center Drive Wilmington, NC (FA.A22) 11-07-95 1990 Griffin Road Winston-Salem, NC (FA.A23) 12-19-95 1403 N. Sand Hills Blvd. Aberdeen, NC (FA.A24) 03-05-96 1240 U.S. Highway 29 North Concord, NC (FA.A25) 04-29-96 3400 Clairndon Blvd. New Bern, NC (FA.A26) 11-12-96 2300 Forest Hills Road Wilson, NC (FA.A27) 02-11-97 501 E. Six Forks Road Raleigh, NC (FA.A28) 04-22-97 2702 Raeford Road Fayetteville, NC (FA.A29) 10-07-97 1165 Highway 70 Garner, NC (FA.A30) 12-16-97 205 Faith Road Salisbury, NC (FA.A31) 02-03-98 5110 Piper Station Dr. Charlotte, NC (FA.A32) 06-02-98 1961 Skibo Road Fayetteville, NC (FA.A33) 11-03-98 3628 E. Franklin Blvd. Gastonia, NC 12 (FA.A34) 02-02-99 4690 N. Patterson Avenue Winston-Salem, NC (FA.A35) 07-20-99 5184 Highway 70 West Morehead, NC (FA.A36) 11-09-99 1260 N. Brightleaf Blvd. Smithfield, NC APPLE J, L.P. Pat Williamson (DA.A) 09-14-98 GA, NC, SC 32/12-31-02 31 Rushmore Dr. William A. Klepper Greenville, SC 29615 Allan S. Huston (FA.A1) 09-14-98 430 Congaree Rd. Greenville, SC (FA.A2) 09-14-98 2344 Broad River Rd. @I20 Columbia, SC (FA.A3) 09-24-98 3441 Clemson Blvd. Anderson, SC (FA.A4) 09-14-98 9 Park Lane Closed: 11-14-99 Hilton Head, SC (FA.A5) 09-14-98 4505 Devine Street Columbia, SC (FA.A6) 09-14-98 7602 Greenville Hwy. Spartanburg, SC (FA.A7) 09-14-98 841 Broad Street Sumter, SC (FA.A8) 09-14-98 1635 Four Seasons Blvd. Hendersonville, NC (FA.A9) 09-14-98 1922 Augusta Street Greenville, SC (FA.A10) 09-14-98 1360 Whiskey Road Aiken, SC (FA.A11) 09-14-98 5055 Calhoun Memorial Blvd. Easley, SC (FA.A12) 09-14-98 115 Tunnel Road Asheville, NC (FA.A13) 09-14-98 245 O'Neil Court Columbia, SC 13 (FA.A14) 09-14-98 704 Wade Hampton Blvd. Greer, SC (FA.A15) 09-14-98 696 Bypass 123 Seneca, SC (FA.A16) 09-14-98 1617 Bypass 72 N.E. Greenwood, SC (FA.A17) 09-14-98 2227 Dave Lyle Blvd. Rock Hill, SC (FA.A18) 09-14-98 3944 Grandview Dr. Simpsonville, SC (FA.A19) 09-14-98 64 Beacon Drive Greenville, SC (FA.A20) 09-14-98 1512 W. Floyd Baker Ave. Gaffney, SC (FA.A21) 09-14-98 1268 Hwy. 9 Bypass Lancaster, SC (FA.A22) 09-14-98 5185 Fernadina Rd. Columbia, SC (FA.A23) 09-14-98 605 Columbia Ave. Lexington, SC (FA.A24) 09-14-98 1655 Hendersonville Rd. Asheville, NC (FA.A25) 09-14-98 1065 S. Big A Road Toccoa, GA (FA.A26) 09-14-98 2360 Chestnut Street Orangeburg, SC (FA.A27) 09-14-98 2338 Boundary Street Beaufort, SC (FA.A28) 09-14-98 1221 Woodruff Rd. Greenville, SC (FA.A29) 09-14-98 1985 E. Main Street Spartanburg, SC 14 APPLE MIDDLE EAST Abdel Mohsen Al Homaizi (DA.A) 09-28-96 Bahrain, Egypt, Kuwait, 12/08-01-01 RESTAURANT Apple Middle East LLC Lebanon, United Arab COMPANY, LLC Emirates P.O. Box 209 Safat 13070 KUWAIT (FA.A1) 09-28-96 Gulf Street Kuwait City, Kuwait APPLE NORTE, Eduardo Orozco (DA.A) 05-26-98 Chihuahua, Mexico 4/12-31-00 S.A. de C.V. Joaquin Martinez Av. Technologico 1335 Altos Fracc. Almos Technologico Cd. Juarez, Chihuahua C.P. 32500 Mexico (FA.A1) 05-26-98 Avenida Tecnologico 1585 Colonia Partido Doblado Cd. Juarez, Chihuahua Mexico APPLE NORTH, INC. Martin Hittinger 99 New Unionville Rd. Eddie G. Hittinger Wallkill, NY 12589 (FA.A1) 03-11-92 Wappinger Plaza 1271 Route 9 Wappinger Falls, NY (FA.A2) 08-10-93 194 Colonie Center Mall Albany, NY (FA.A3) 11-21-95 18 Park Avenue Clifton Park, NY APPLE NORTHWEST Don Flynn (DA.A) 03-03-99 WA 15/12-31-03 LLC * 219 9th Avenue N. Suite 200 Seattle, WA 98109 (FA.A1) 12-03-92 1842 S. SeaTac Mall Federal Way, WA (FA.A2) 03-11-93 4626 196th Street, Southwest Lynnwood, WA (FA.A3) 06-08-94 806 S.E. Everett Mall Way Everett, WA (FA.A4) 11-30-94 3510 S. Meridian Puyallup, WA (FA.A5) 07-18-95 17790 Southcenter Parkway Tukwila, WA 15 (FA.A6) 01-02-96 1919 S. 72nd Street Tacoma, WA (FA.A7) 12-08-97 1300A N. Miller Street Wenatchee, WA (FA.A8) 03-30-98 3138 NW Randall Way Silverdale, WA * Acquired 8 restaurants from Apple American Limited Partnership of Washington 03/03/99. APPLE William F. Palmer (DA.A) 02-01-89 GA 17/12-31-98 RESTAURANTS, INC. Amended: 04-08-92 6620 McGinnis Ferry Rd. 07-31-92 Suite B, Building 12D 03-25-93 Duluth, GA 30097 04-05-94 (FA.A1) 02-01-89 655 Georgia Highway 120 Lawrenceville, GA (FA.A2) 10-01-89 2445 Mall Boulevard Kennesaw, GA (FA.A3) 10-15-90 1152 Old Salem Road Conyers, GA (FA.A4) 03-11-91 Perimeter Mall, Suite 2054 Closed: 03-31-99 4400 Ashford-Dunwoody Rd. Atlanta, GA (FA.A5) 11-25-91 826 Turner McCall Boulevard Rome, GA (FA.A6) 08-10-92 1705 Browns Bridge Road Gainesville, GA (FA.A7) 05-03-93 504 Lakeland Plaza Cumming, GA (FA.A8) 02-21-94 2728 Spring Road Smyrna, GA (FA.A9) 12-19-94 3676 Highway 138 Stockbridge, GA (FA.A10) 03-21-95 226 W. Broad Street Athens, GA (FA.A11) 05-08-95 1925 Highway 124 Snellville, GA 16 (FA.A12) 02-05-96 185 Cherokee Place Cartersville, GA (FA.A13) 06-17-96 971 Bullsboro Drive Newnan, GA (FA.A14) 02-24-97 1105 S. Park Street Carrollton, GA (FA.A15) 03-16-98 1421 Riverstone Pkwy. Canton, GA (FA.A16) 06-15-98 4210 Johns Creek Pkwy. Suwanee, GA (FA.A17) 08-10-98 125 Gwinco Blvd. Suwanee, GA (FA.A18) 02-08-99 1647 North Expressway Griffin, GA (FA.A19) 07-05-99 815 Industrial Boulevard McDonough, GA APPLE RESTAURANTS Benoit Wesley The Netherlands, Belgium, EUROPE, B.V. Roger L. Cohen Luxembourg One Main Plaza Suite 1000 Kansas City, MO 64111 (FA.A1) 07-04-94 In De Cramer 169 6412 PM Heerlen The Netherlands (FA.A2) 05-17-96 Gevers Deynootplein 32 2586CK Scheveningen HOLLAND (FA.A3) 09-03-96 Wychenseweg 174 6538SX Nijmegen HOLLAND (FA.A4) 06-30-97 Pierre de Coubertinweg 1 6225 XT Maastricht HOLLAND (FA.A5) 08-17-98 Rijksweg Zuid #250 6161 BZ Geleen HOLLAND 17 APPLE SAUCE, INC. W. Curtis Smith (DA.A) 02-11-92 IN, OH 19/03-01-99 741 Centre View Blvd. James Paul Borke Amended: 10-20-92 Suite 100 08-25-94 Crestview Hills, KY 41017 10-05-94 03-02-97 (FA.A1) 11-03-92 650 W. Lincoln Highway Schererville, IN (FA.A2) 08-24-93 5788 Coventry Lane Ft. Wayne, IN (FA.A3) 12-21-93 4510 N. Clinton Street Ft. Wayne, IN (FA.A4) 11-15-94 4057 S. Franklin Street Michigan City, IN (FA.A5) 04-25-95 670 Morthland Valparaiso, IN (FA.A6) 07-04-95 6615 N. Main Street Granger, IN (FA.A7) 09-19-95 266 E. Alexis Road Toledo, OH (FA.A8) 11-07-95 3241 Interchange Drive Elkhart, IN (FA.A9) 12-05-95 531 Dussel Road Maumee, OH (FA.A10) 06-11-96 4702 Monroe Street Toledo, OH (FA.A11) 06-17-96 8425 Broadway Merrillville, IN (FA.A12) 07-30-96 3296 Elida Road Lima, OH (FA.A13) 09-10-97 6525 Lima Road Ft. Wayne, IN (FA.A14) 10-28-97 2531 Tiffan Avenue Findlay, OH (FA.A15) 11-25-97 1150 Ireland Road South Bend, IN (FA.A16) 12-09-97 330 Ridge Road Munster, IN 18 (FA.A17) 07-14-98 2621 E. Center St. Warsaw, IN (FA.A18) 10-20-98 1807 Reith Blvd. Goshen, IN (FA.A19) 08-03-99 346 Hauenstein Road Huntington, IN (FA.A20) 10-26-99 3703 Portage Road South Bend, IN (FA.A21) 12-07-99 2225 N. Oak Road Plymouth, IN (FA.A22) 12-14-99 6211 US Hwy. 6 Portage, IN (DA.B) 09-09-92 FL 8/12-31-00 Amended: 09-30-93 10-05-94 03-28-95 (FA.B1) 04-12-94 10135 Pines Boulevard Pembroke Pines, FL (FA.B2) 07-12-94 12719 W. Sunrise Boulevard Sunrise, FL (FA.B3) 02-15-95 1179 S. University Drive Plantation, FL (FA.B4) 09-12-95 2729 University Drive Coral Springs, FL (FA.B5) 10-10-96 9815 N.W. 41st Street Miami, FL APPLE SEED VENTURES Steven L. Millard (DA.A) 11-09-98 Alberta, Canada 10/12-31-03 160 Mount Laurel Crescent Tad A. Fugate Winnipeg, Manitoba, (FA.A1) 11-09-98 13006 50th Street R2J 4C4 CANADA Edmonton, Alberta Canada (FA.A2) 09-11-99 50-D 5250 22nd Street Red Deer, Alberta Canada APPLE SEED II Steven L. Millard Manitoba, Canada INVESTMENTS LTD. Tad A. Fugate 160 Mount Laurel Cres. Winnipeg, MB R2J 4C4 CANADA 19 (FA.A1) 08-23-99 2065 Pembina Highway Winnipeg, Manitoba CANADA (FA.A2) 08-23-99 1150 Grant Avenue Winnipeg, Manitoba CANADA (FA.A3) 08-23-99 1598 Regent Avenue Winnipeg, Manitoba CANADA (FA.A4) 08-23-99 1204 18th Street Brandon, Manitoba CANADA APPLE-BAY EAST, INC. Richard L. Winders (DA.A) 12-18-92 CA 8/09-30-98 1811 Santa Rita Rd. Amended: 02-19-94 Suite 215 03-01-97 Pleasanton, CA 94566 02-05-98 (FA.A1) 06-14-94 2263 South Shore Center Alameda, CA (FA.A2) 09-27-94 4301 N. 1st Street Livermore, CA (FA.A3) 01-08-96 24041 Southland Drive Hayward, CA (FA.A4) 12-17-96 2819 Ygnacio Valley Road Walnut Creek, CA (FA.A5) 07-28-97 1369 Fitzgerald Drive Pinole, CA (FA.A6) 08-05-98 2737 Hillcrest Ave. Antioch, CA (FA.A7) 01-06-99 17900 San Ramon Valley Road San Ramon, CA (FA.A8) 03-01-99 39139 Farwell Drive Fremont, CA APPLE-METRO, INC. Roy Raeburn (DA.A) 03-23-94 NY 8/11-10-99 550 Mamaroneck Ave. Zane Tankel Amended: 04-01-95 Suite 301 Harrison, NY 10528 (FA.A1) 10-25-94 Staten Island Mall 2655 Richmond Avenue Staten Island, NY 20 (FA.A2) 06-06-95 640 E. Boston Post Road Mamaroneck, NY (FA.A3) 11-07-95 430 New Dorp Lane Staten Island, NY (FA.A4) 04-29-97 185 Bedford Road Mt. Kisco, NY (FA.A5) 11-18-97 1 Mall Walk West Yonkers, NY (FA.A6) 04-21-98 1451 Richmond Ave. Staten Island, NY (FA.A7) 11-17-98 3127 E. Main St. Mohegan Lake, NY (FA.A8) 04-13-99 221 Route 59 Airmont, NY (FA.A9) 07-27-99 35 Lecount Place New Rochelle, NY (FA.A10) 12-07-99 2276 Bartow Avenue Bronx, NY APPLEBAY Leonard E. Rhode (DA.A) 03-18-93 CA 7/03-31-98 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 (FA.A1) 12-19-95 2250 Santa Rosa Avenue Santa Rosa, CA (FA.A2) 06-07-96 5301 Old Redwood Hwy. Petaluma, CA APPLEILLINOIS, L.L.C. J. Timothy Brugh (DA.A) 11-18-98 IL 36/12-31-03 741 Centre View Blvd. James P. Borke Suite 100 Curtis J. Smith Crestview Hills, KY 41017 (FA.A1) 11-18-98 354 W. Army Trail Rd. Bloomingdale, IL (FA.A2) 11-18-98 60 Waukegan Road Deerfield, IL (FA.A3) 11-18-98 999 Elmhurst Road Mt. Prospect, IL 21 (FA.A4) 11-18-98 880 S. Barrington Rd. Steamwood, IL (FA.A5) 11-18-98 9380 Joliet Road Hodgkins, IL (FA.A6) 11-18-98 5690 Northwest Hwy. Crystal Lake, IL (FA.A7) 11-18-98 4937 W. Cal-Sag Road Crestwood, IL (FA.A8) 11-18-98 1040 N. Kenzie Bradley, IL (FA.A9) 11-18-98 2411 Sycamore Road DeKalb, IL (FA.A10) 11-18-98 1296 W. Boughton Rd. Bolingbrook, IL (FA.A11) 11-18-98 125 S. Randall Road Elgin, IL (FA.A12) 11-18-98 2795 Plainfield Road Joliet, IL (FA.A13) 11-18-98 1690 S. Randall Road Geneva, IL (FA.A14) 11-18-98 6447 Grand Avenue Gurnee, IL (FA.A15) 11-18-98 1700 N. Richmond Rd. McHenry, IL (FA.A16) 11-18-98 251 N. Randall Rd. Lake in the Hills, IL (FA.A17) 11-18-98 16200 S. Harlem Ave. Tinley Park, IL (FA.A18) 11-18-98 17575 Halsted Avenue Homewood, IL (FA.A19) 11-18-98 741 E. Dundee Palatine, IL (FA.A20) 11-18-98 400 Town Center Matteson, IL (FA.A21) 11-18-98 449 S. Route 59 Aurora, IL 22 (FA.A22) 11-18-98 6656 W. Grand Ave. Chicago, IL (FA.A23) 11-18-98 418 E. Rollins Rd. Round Lake Beach, IL APPLEJAM, INC. Frank DeAngelo (DA.A) 08-01-88 AL, FL, GA 8/10-01-98 P.O. Box 956308 Amended: 11-18-91 Duluth, GA 30096 08-20-93 03-10-94 10-12-94 10-01-96 11-20-97 (FA.A1) 12-01-88 1170 Appalachee Parkway Tallahassee, FL (FA.A2) 02-14-89 1400 Village Square Blvd. Tallahassee, FL (FA.A3) 04-17-90 637 Westover Boulevard Albany, GA (FA.A4) 06-25-91 678 W. 23rd Street Panama City, FL (FA.A5) 12-08-92 3050 Ross Clark Circle, S.W. Dothan, AL (FA.A6) 05-10-94 1301 S. Augustine Road Valdosta, GA (FA.A7) 08-23-94 1005 N.W. 13th Street Gainesville, FL (FA.A8) 05-21-96 1401 Capital Circle, N.W. Tallahassee, FL (FA.A9) 09-21-98 808 West 7th Street Tifton, GA (FA.A10) 02-09-99 600 N. Tyndall Parkway Callaway, FL (FA.A11) 03-07-99 10071 Middle Beach Road Panama City Beach, FL (FA.A12) 12-14-99 421 East By-Pass NE Moultrie, GA (DA.B) 01-15-92 TX 6/12-31-98 Amended: 06-24-93 23 02-28-95 02-12-96 (FA.B1) 07-19-93 5809 Loop 410 Northwest San Antonio, TX (FA.B2) 04-12-94 97 Loop 410 Northeast San Antonio, TX (FA.B3) 09-19-95 995 I-35 New Braunfels, TX (FA.B4) 03-18-97 7880 Interstate Hwy. 35 N. San Antonio, TX (FA.B5) 11-24-97 8224 Fredericksburg San Antonio, TX (FA.B6) 08-26-99 1511 S.W. Military Drive San Antonio, TX APPLEROCKET Cees Toor Kingdom of Sweden FRANCHISING AB Gerard Toor Hotel Restaurant Toor (FA.A1) 01-22-96 Infra City Stationsplein 2 Uplands-Vasby 2405 Bk Alphen a/d Rijn SWEDEN HOLLAND (FA.A2) 03-18-98 Majorsvagen 2-4 1777 10 Jarfalla Stockholm Quality Outlet Barkaby, Sweden B.T. WOODLIPP, INC. Larry Brown PA, WV 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 (FA.A1) 06-11-90 Scott Towne Center 2101 Greentree Road Pittsburgh, PA (FA.A2) 05-28-91 North Hills Village Mall 4801 McKnight Road Pittsburgh, PA (FA.A3) 11-12-91 Edgewood Towne Centre 1601 S. Braddock Avenue Pittsburgh, PA 24 (FA.A4) 08-09-93 2045 Lebanon Church Road West Mifflin, PA (FA.A5) 01-10-94 4039 Washington Road McMurray, PA (FA.A6) 10-21-96 425 Galleria Drive Johnstown, PA (FA.A7) 01-13-97 3440 William Penn Highway Pittsburg, PA (FA.A8) 12-08-97 1065 Van Voorhis Road Morgantown, WV (FA.A9) 01-12-98 110 Logan Valley Road Altoona, PA BRUNSWICK, GMbH Warren Hardie Berlin, Sachsen and Brunswick Recreation Bart Burger Sachsen-Anhalt in Centers Federal Republic of 1 North Field Court Germany Lake Forest, IL 60045 (FA.A1) 03-11-96 lm US-Play im Elebe Park Peschel Strasse 31 Dresden, GERMANY (FA.A2) 08-26-96 AM Pfalberg 3 Magdeberg, GERMANY (FA.A3) 09-02-96 Handelsstrasse 4 Closed: 12-31-97 Leipzig, GERMANY CA ONE SERVICES, INC. Jack Onyett (FA.A1) 08-07-98 2500 Airport Drive No Development 6033 W. Century Blvd. Ontario, CA Rights Suite 418 Los Angeles, CA 09945 CAFE VENTURES, INC. William F. Palmer 04-11-83 No Additional 6620 McGinnis Ferry Road (Employment Development Suite B, Building 12D Agreement) Rights Duluth, GA 30097 (FA.A1) 10-01-85 475 Franklin Road Marietta, GA (FA.A2) 05-12-86 2095 Pleasant Hill Duluth, GA 25 (FA.A3) 07-18-87 11070 Alpharetta Roswell, GA (FA.A4) 05-26-88 5200 Highway 78 Stone Mountain, GA CALABEE'S, INC. John R. Bifone (DA.A) 08-27-92 CA 2/09-01-94 500 W. Bonita Ave., #3 Amended: 09-29-92 San Dimas, CA 91773 09-30-93 08-01-94 05-01-95 (FA.A1) 08-10-93 674 W. Arrow Highway San Dimas, CA (FA.A2) 10-31-94 300 S. California West Covina, CA (FA.A3) 09-17-96 502 W. Huntington Drive Monrovia, CA (FA.A4) 12-16-96 9241 Monte Vista Avenue Montclair, CA CASUAL RESTAURANT Franklin W. Carson FL CONCEPTS, INC. Tampa Bay Marina Center 205 S. Hoover St., #305 Tampa, FL 33609 (FA.A1) 01-23-90 5110 East Bay Drive Clearwater, FL (FA.A2) 05-15-90 30180 U.S. Highway 19 N. Clearwater, FL (DA.B) 08-11-92 FL 12/06-30-99 Amended: 05-14-93 11-15-93 02-02-94 08-03-94 02-28-95 03-01-97 07-30-97 (FA.B1) 06-07-93 5779 E. Fowler Avenue Temple Terrace, FL (FA.B2) 02-02-94 4301 Cortez Road Bradenton, FL (FA.B3) 01-16-95 4700 4th Street, North St. Petersburg, FL 26 (FA.B4) 07-03-95 10911 Starkey Road Largo, FL (FA.B5) 06-18-96 3255 University Pkwy. Bradenton, FL (FA.B6) 06-18-96 3702 W. McKay Avenue, S. Closed: 08-23-99 Tampa, FL (FA.B7) 04-14-97 829 Providence Road Brandon, FL (FA.B8) 07-21-97 4835 S. Florida Avenue Lakeland, FL (FA.B9) 09-29-97 1465 McMullen Booth Road Clearwater, FL (FA.B10) 03-16-98 8537 Little Road New Port Richey, FL (FA.B11) 07-20-98 4651 Commercial Way Spring Hill, FL (FA.B12) 10-19-98 15090 N. Dale Mabry Hwy. Carrollwood, FL (FA.B13) 02-15-99 201 Cypress Garden Boulevard Winter Haven, FL (FA.B14) 04-19-99 10606 Sheldon Road Tampa, FL (FA.B15) 12-13-99 4000 Park Boulevard Pinellas Park, FL CHRISTIAN J. KNOX Christian J. Knox (DA.A) 08-01-98 CA 12/12-31-00 & ASSOCIATES, INC. 633 E. Victor Road Suite E Lodi, CA 95240 (FA.A1) 12-19-94 311 Lake Merced Closed: 11-04-98 Daly City, CA (FA.A2) 03-15-94 1041 Admiral Callaghan Lane Vallejo, CA (FA.A3) 07-26-94 9105 E. Stockton Boulevard Elk Grove, CA (FA.A4) 11-08-94 2170 Golden Centre Lane Gold River, CA 27 (FA.A5) 04-04-95 160 Nut Tree Parkway Vacaville, CA (FA.A6) 10-02-95 2442 N. Kettleman Lane Lodi, CA (FA.A7) 08-18-97 6700 Stanford Ranch Road Roseville, CA (FA.A8) 12-08-97 2659 W. March Lane Stockton, CA (FA.A9) 08-24-98 400 Iron Point Road Folsom, CA (FA.A10) 11-16-98 3601 Truxel Sacramento, CA (FA.A11) 11-09-99 2024 Arden Way Sacramento, CA CONCORD Lawrence S. Bird (DA.A) 07-01-91 KS, MO, NE 8/08-31-99 HOSPITALITY, INC. Amended: 07-05-91 1701 Windhoek Drive 11-27-94 P.O. Box 6212 01-31-95 Lincoln, NE 68516 09-01-95 09-01-97 (FA.A1) 04-07-92 100 Manhattan Town Center 3rd & Poyntz, Suite P-5 Manhattan, KS (FA.A2) 06-03-92 5928 S.W. 17th Street Topeka, KS (FA.A3) 04-20-93 3730 Village Drive Lincoln, NE (FA.A4) 08-09-94 4004 Frederick Boulevard St. Joseph, MO (FA.A5) 08-15-95 102 Platte Oasis Parkway North Platte, NE (FA.A6) 07-30-96 6100 O Street Lincoln, NE (FA.A7) 09-22-98 2901 Eaglecrest Dr. Emporia, KS (FA.A8) 08-02-99 3951 North 27th Lincoln, NE 28 (FA.A9) 12-14-99 721 Diers Avenue Grand Island, NE (DA.B) 09-07-93 OK, NM, TX 5/09-30-98 Amended: 09-01-94 11-27-94 11-29-95 09-30-96 10-01-96 (FA.B1) 04-22-94 2714 Soncy Road Amarillo, TX (FA.B2) 05-27-94 4025 S. Loop 289 Lubbock, TX (FA.B3) 10-16-95 2911 Kemp Boulevard Wichita Falls, TX (FA.B4) 09-16-96 6211 N.W Cache Road Lawton, OK (FA.B5) 11-10-98 2680 W. Broadway Ardmore, OK (DA.C) 10-25-95 NE, WY 3/12-31-98 Amended: 07-01-97 (FA.C1) 08-03-94 2621 5th Avenue Scottsbluff, NE (FA.C2) 10-22-96 3209 Grand Avenue Laramie, WY (FA.C3) 08-16-99 359 Miracle Evansville, WY Delaware Valley Rose, L.P. Harry T. Rose (DA.A) 12-13-99 Philadelphia, PA 14/8-31-04 826 Newton Yardley Road Suite 200 (FA.A1) 12-13-99 Catasaqua Road & Route 22 Newtown, PA 18940 Bethlehem, PA (FA.A2) 12-13-99 470 West Lincoln Highway Exton, PA (FA.A3) 12-13-99 9142 Roosevelt Blvd. Philadelphia, PA (FA.A4) 12-13-99 1905 Ridgewood Wyomissing, PA 29 (FA.A5) 12-13-99 1063 East Street Road Upper Southampton, PA (FA.A6) 12-13-99 555 S. Trooper Road Norristown, PA (FA.A7) 12-13-99 323 Old York Road Jenkintown, PA (FA.A8) 12-13-99 2700 DeKalb Pike East Norriton, PA (FA.A9) 12-13-99 145 Northwest End Boulevard Quakertown, PA (FA.A10) 12-13-99 7650 City Line Philadelphia, PA (FA.A11) 12-13-99 2333 W. Main Street Lansdale, PA (FA.A12) 12-13-99 833 N. State Street Pottstown, PA DELTA BLUFF, LLC Harold Jordan (DA.A) 10-26-98 MO, TN, AR, MS 15/12-31-01 35 Union Avenue Elmer Jordan Suite 301 James L. Hudson Memphis, TN 38103 Anton Van Vincent Bridget Chisholm (FA.A1) 10-26-98 2114 Union Ave. Memphis, TN (FA.A2) 10-26-98 6025 Winchester Rd. Memphis, TN (FA.A3) 10-26-98 4835 American Way Memphis, TN (FA.A4) 10-26-98 2890 Bartlett Road Bartlett, TN (FA.A5) 10-26-98 3448 Poplar Ave. Memphis, TN (FA.A6) 10-26-98 584 Carriage House Dr. Jackson, TN (FA.A7) 10-26-98 1106 Germantown Pkwy. Cordova, TN (FA.A8) 10-26-98 6482 Poplar Avenue Memphis, TN 30 (FA.A9) 10-26-98 710 DeSoto Cove Horn Lake, MS (FA.A10) 10-26-98 929 Poplar Collierville, TN (FA.A11) 10-26-98 3954 Austin Peay Hwy. Memphis, TN (FA.A12) 10-26-98 2700 Lake Road Dyersburg, TN (FA.A13) 10-26-98 7515 Goodman Road Olive Branch, MS EHI REALTY, INC. Edward W. Doherty (DA.A) 08-30-91 NJ 11/06-30-99 7 Pearl Court William A. Johnson Amended: 12-10-92 Allendale, NJ 07401 07-31-93 08-03-94 07-01-97 (FA.A1) 10-26-93 1282 Centennial Avenue Piscataway, NJ (FA.A2) 12-07-93 14 Park Road Tinton Falls, NJ (FA.A3) 11-09-94 Fashion Center Mall 17 North & Ridgewood East Paramus, NJ (FA.A4) 06-13-95 1599 Route 22, West Watchung, NJ (FA.A5) 11-21-95 52 Brick Plaza Brick, NJ (FA.A6) 04-16-96 Rt. 46 @ Riverview Drive Totowa, NJ (FA.A7) 11-12-96 251 Woodbridge Ctr. Drive Woodbridge, NJ (FA.A8) 08-19-97 112 Eisenhower Parkway Livingston, NJ (FA.A9) 08-09-96 1057 Route 46 East Parsippany, NJ (FA.A10) 02-16-99 Ocean County Mall 1201 Hooper Avenue Tom's River, NJ 31 (FA.A11) 04-14-99 375 Route 3 East Clifton, NJ (FA.A12) 06-29-99 Manalapan Epicentre Route 9 & Symmes Road Manalapan, NJ (FA.A13) 08-27-99 640 Promenade Blvd. Bridgewater, NJ (FA.A14) 11-16-99 1045 Rt. 1 South Edison, NJ (DA.B) 11-06-96 NJ 3/08-31-00 EL APPLE, INC. John M. Verlander (DA.A) 05-23-94 NM, TX 7/05-31-98 5835 Onix, Suite 300 James J. Gore Amended: 03-07-95 El Paso, TX 79912 07-31-97 (FA.A1) 05-27-94 5800 N. Mesa El Paso, TX (FA.A2) 03-13-95 1766 Airway Boulevard El Paso, TX (FA.A3) 11-01-95 7956 Gateway East El Paso, TX (FA.A4) 06-27-96 2501 E. Lohman Las Cruces, NM (FA.A5) 08-29-96 4700 Woodrow Bean El Paso, TX (FA.A6) 03-25-97 1985 George Dieter El Paso, TX (FA.A7) 12-31-97 4333 Sherwood Way San Angelo, TX FLORIDA APPLE Laura Georgas (DA.A) 08-03-98 FL 12/12-31-00 EAST, L.L.C. William Georgas 250 S. Australian Ave. Gregory Georgas Suite 1110 West Palm Beach, FL 33401 (FA.A1) 08-03-98 10501 S. U.S. Highway 1 Port St. Lucie, FL (FA.A2) 08-03-98 6775 W. Indiantown Road Jupiter, FL 32 (FA.A3) 08-03-98 6706 Forrest Hill Boulevard Green Acres, FL (FA.A4) 08-03-98 4890 Okeechobee Road Ft. Pierce, FL (FA.A5) 08-03-98 1975 Military Trail W. Palm Beach, FL (FA.A6) 08-03-98 3373 S.E. Federal Highway Stuart, FL (FA.A7) 08-03-98 5335 20th Street Vero Beach, FL (FA.A8) 08-03-98 1720 S. Federal Highway Delray Beach, FL (FA.A9) 08-03-98 100 U.S. Highway 441 Royal Palm Beach, FL (FA.A10) 08-03-98 3167 N. Lake Blvd. Lake Park, FL (FA.A11) 08-03-98 701 N. Congress Blvd. Closed: 09-27-98 Boynton Beach, FL FLORIDA APPLE Laura Georgas (DA.A) 08-03-98 FL, GA 16/12-31-01 NORTH, L.L.C. William Georgas 250 S. Australian Ave. Gregory Georgas Suite 1110 West Palm Beach, FL 33401 (FA.A1) 08-03-98 10502 San Jose Boulevard Jacksonville, FL (FA.A2) 08-03-98 492 Blanding Boulevard Orange Park, FL (FA.A3) 08-03-98 4194 S. 3rd Street Jacksonville Beach, FL (FA.A4) 08-03-98 9498 Atlantic Boulevard Jacksonville, FL (FA.A5) 08-03-98 9485 Bay Meadows Road Jacksonville, FL (FA.A6) 08-03-98 225 State Road 312 St. Augustine, FL (FA.A7) 08-03-98 177 Altama Connector Brunswick, GA 33 (FA.A8) 08-03-98 1901 Memorial Drive Waycross, GA (FA.A9) 08-03-98 574 Busch Drive Jacksonville, FL (FA.A10) 08-03-98 113 The Lake Boulevard Kingsland, GA (FA.A11) 08-03-98 Route 17, Box 2219 Lake City, FL (FA.A12) 08-03-98 6251 103rd Street Jacksonville, FL (FA.A13) 08-03-98 13201 Atlantic Blvd. Jacksonville, FL (FA.A14) 08-03-98 5055 J. Turner Butler Blvd. Jacksonville, FL FLORIDA APPLE Laura Georgas (DA.A) 08-03-98 FL 12/12-31-01 WEST, L.L.C. William Georgas 250 S. Australian Ave. Gregory Georgas Suite 1110 West Palm Beach, FL 33401 (FA.A1) 08-03-98 13550 S. Tamiami Trail Ft. Myers, FL (FA.A2) 08-03-98 3971 S. Tamiami Trail Sarasota, FL (FA.A3) 08-03-98 15151 N. Cleveland Avenue N. Ft. Myers, FL (FA.A4) 08-03-98 20 Electric Drive Sarasota, FL (FA.A5) 08-03-98 4329 S. Tamiami Trail Venice, FL (FA.A6) 08-03-98 5082 Airport Pulling Rd., N. Naples, FL (FA.A7) 08-03-98 19010 Murdock Circle Port Charlotte, FL (FA.A8) 08-03-98 2228 Del Prado Blvd. South Cape Coral, FL (FA.A9) 08-03-98 26801 S. Tamiami Trail Bonita Springs, FL 34 (FA.A10) 08-03-98 1991 Main Street Sarasota, FL GOLDEN WEST Anand D. Gala (DA.A) 02-13-98 CA 10/02-15-01 RESTAURANTS, INC. 555 W. Redondo Beach Blvd. Suite 211 Gardena, CA 90248 (FA.A1) 06-23-92 Fig Garden Village 5126 N. Palm Avenue Fresno, CA (FA.A2) 08-31-93 98 Shaw Avenue Clovis, CA (FA.A3) 12-12-94 1665 W. Lacey Boulevard Hanford, CA (FA.A4) 06-20-95 7007 N. Cedar Fresno, CA (FA.A5) 03-05-96 3604 West Shaw Fresno, CA (FA.A6) 06-10-97 5325 Avenida De Los Robles Visalia, CA (FA.A7) 08-12-97 9000 Ming Avenue, Suite M Bakersfield, CA GULF COAST Thomas G. Kellogg (DA.A) 04-30-96 LA, MS 7/03-31-99 RESTAURANTS, INC. Kathryn G. Kellogg Amended: 02-19-97 2386 Clower Street 04-01-97 Building G, Suite 202 Snellville, GA 30078 (FA.A1) 08-14-89 1000 W. Esplanada Avenue Kenner, LA (FA.A2) 06-18-90 3701 Veterans Memorial Boulevard Metarie, LA (FA.A3) 04-07-92 850 I-10 Service Road Slidell, LA (FA.A4) 03-02-93 315 N. Highway 190 Covington, LA (FA.A5) 12-21-93 5630 Johnston Street Lafayette, LA (FA.A6) 11-14-95 4005 General DeGaulle New Orleans, LA 35 (FA.A7) 01-14-97 1220 Clearview Pkwy. Harahan, LA (FA.A8) 05-12-98 1039 W. Tunnel Blvd. Houma, LA (FA.A9) 07-13-98 3142 Highway 190 Hammond, LA LA, MS (FA.B1) 07-18-94 3006 College Drive Baton Rouge, LA (FA.B2) 05-09-95 4808 S. Sherwood Forest Baton Rouge, LA (FA.B3) 01-30-96 9702 Airline Highway Baton Rouge, LA (FA.B4) 06-04-96 1500 MacArthur Drive Alexandria, LA (FA.B5) 07-29-97 3624 Ryan Lake Charles, LA J.S. VENTURES, INC. James H. Stevens (DA.A) 10-10-92 IA, KS, MO, NE 12/12-31-98 2400 N. Woodlawn Amended: 05-14-93 Suite 140 10-20-93 Wichita, KS 67220 02-28-95 01-01-97 (FA.A1) 08-07-89 6730 W. Central Wichita, KS (FA.A2) 01-15-91 2035 N. Rock Road, Ste. 101 Wichita, KS (FA.A3) 09-22-92 3350 S. 143rd Place Omaha, NE (FA.A4) 12-14-93 2875 S. 9th Salina, KS (FA.A5) 07-05-94 4760 S. Broadway Wichita, KS (FA.A6) 11-08-94 7450 W. Dodge Street Omaha, NE (FA.A7) 02-28-95 1609 E. 17th Street Hutchinson, KS 36 (FA.A8) 06-04-96 13208 W. Maple Road Omaha, NE (FA.A9) 01-21-97 4101 N. Vine Hays, KS (FA.A10) 08-11-97 1202 N. Washington Omaha, NE (FA.A11) 10-20-98 601 Manchester Lane Newton, KS (FA.A12) 01-19-99 3000 Dial Drive Council Bluffs, IA (FA.A13) 04-20-99 436 S. Andover Road Andover, KS (FA.A14) 10-12-99 3209 10th Street Great Bend, KS KEYSTONE Stephen H. Davenport (DA.A) 05-14-93 PA 6/12-31-99 APPLE, INC. Amended: 03-28-95 1205 Manor Drive 02-01-96 Suite 201 P.O. Box 2055 (FA.A1) 05-04-94 4401 Jonestown Road Mechanicsburg, PA 17055 Harrisburg, PA (FA.A2) 05-16-95 1181 Mae Street Hummelstown, PA (FA.A3) 06-17-97 2321 Lincoln Highway Lancaster, PA (FA.A4) 08-19-97 6055 Carlisle Pike Mechanicsburg, PA KS APPLE, INC. Nicholas Katos NY 4240 Bell Blvd. Michael S. Shaevitz Suite 303 Bayside, NY 11361 (FA.A1) 04-30-97 213-29 26th Avenue Bayside, NY (FA.A2) 03-09-99 61-48 188th Street Fresh Meadows, NY 37 MARANO Leon J. Marano (DA.A) 06-25-91 ENTERPRISES, INC. Amended: 03-01-93 96 Shaw Avenue 06-30-94 Suite 232 Terminated: 02-13-98 Clovis, CA 93612 * Restaurants acquired by Golden West Restaurants, Inc. 02/13/98. MILLER APPLE William M. Wentworth (DA.A) 07-20-92 MI, WI 9/12-31-98 LIMITED Elizabeth Wentworth Amended: 11-04-92 PARTNERSHIP 09-28-93 G-4488 Bristol Road 07-18-94 Flint, MI 48507 02-28-95 05-15-97 (FA.A1) 11-16-93 G3131 Miller Road Flint, MI (FA.A2) 12-15-94 2260 Tittabawassee Saginaw, MI (FA.A3) 11-28-95 4135 N. Court Street Burton, MI (FA.A4) 06-04-96 2384 U.S. 31 South Traverse City, MI (FA.A5) 07-01-97 3500 Wilder Bay City, MI (FA.A6) 10-28-97 8800 Main Street Birch Run, MI (FA.A7) 07-19-99 1400 East Hill Grand Blanc, MI (FA.A8) 12-20-99 5940 State Street Saginaw, MI MILOMEL (DA.A) 10-27-96 Bulgaria, Serbia & 9/12-31-02 THESSALONIKI, LTD. Scopia, Romania 1050 Crown Pointe Pkwy. Nikos Koubatis Hellenic Rep. of Greece Crown Pointe Tower 2000 Mihalis Papaloupulos Greece controlled Island Suite 310 Alec Papadakis Island of Cyprus Atlanta, GA 30338 (FA.A1) 10-27-96 11th Kilometer National Rd. Thessaloniki National Airport Thessaloniki, 57001 GREECE 38 NEIGHBORHOOD Theresa Johnson (DA.A) 02-19-99 WV; Portion of PA 3/12-31-01 HOSPITALITY, LLC L. Martin Johnson 625 Memorial Drive Suite 301 Hazard, KY 41701 (FA.A1) 02-19-99 19 Mall Road Barboursville, WV (FA.A2) 02-19-99 389 S. John Scott Avenue Steubenville, OH (FA.A3) 02-19-99 3 Dudley Farms Lane Charleston, WV (FA.A4) 02-19-99 50655 Valley Frontage Road St. Clairsville, OH (FA.A5) 02-19-99 802 Grand Central Avenue Vienna, WV (FA.A6) 02-19-99 100 Hylton Lane Beckley, WV (FA.A7) 02-19-99 60 Liberty Square Hurricane, WV (FA.A8) 02-19-99 123 Meadowfield Lane Princeton, WV (FA.A9) 02-19-99 1135 Third Avenue Huntington, WV (FA.A10) 02-19-99 531 Emily Drive Clarksburg, WV (FA.A11) 02-19-99 482 Pike Street Marietta, OH (FA.A12) 02-19-99 202 Kanawha Mall Charleston, WV (FA.A13) 02-19-99 505 Armco Road Ashland, KY O.K. APPLE, INC. Michael D. Olander (DA.A) 03-01-96 KS, OK 10/12-31-98 170 Windchime Court Amended: 07-19-96 Raleigh, NC 27615 (FA.A1) 01-26-93 3900 S. Elm Place Broken Arrow, OK (FA.A2) 06-15-93 4733 S. Yale Avenue Tulsa, OK 39 (FA.A3) 09-21-93 9409 E. 71st Street Tulsa, OK (FA.A4) 06-20-95 3521 S. Broadway Edmond, OK (FA.A5) 05-01-96 317 N. Perkins Stillwater, OK (FA.A6) 07-30-96 500 Ed Noble Pkwy. Norman, OK (FA.A7) 03-04-97 415 W. Shawnee Muskogee, OK (FA.A8) 05-13-97 3616 W. Garriot Enid, OK (FA.A9) 04-21-98 4825 Northwest Expressway Oklahoma City, OK (FA.A10) 05-18-99 608 N. Air Depot Midwest City, OK (FA.A11) 11-23-99 6020 SW 3rd Street Oklahoma City, OK (DA.B) 10-29-96 AR, MO 6/12-31-99 (FA.B1) 09-13-93 4333 Warden Road North Little Rock, AR (FA.B2) 11-09-94 4426 Central Avenue Hot Springs, AR (FA.B3) 06-19-95 12110 Chenal Parkway Little Rock, AR PACIFIC GOLD, INC. Michael Olander (DA.A) 04-03-96 CA 10/06-30-01 170 Windchime Court Raleigh, NC 27615 (FA.A1) 11-15-94 18279 Brookhurst Street Fountain Valley, CA (FA.A2) 04-03-96 1238 W. Imperial Highway La Habra, CA (DA.B) 10-14-96 CA 11/12-31-99 (FA.B1) 01-01-96 4070 E. Highland Avenue Highland, CA 40 (FA.B2) 01-01-96 2046 Redlands Blvd. Redlands, CA (FA.B3) 01-01-96 3820 Mulberry Riverside, CA (FA.B4) 01-01-96 521 N. McKinley Corona, CA (FA.B5) 01-01-96 3956 Grand Avenue Chino, CA (FA.B6) 01-01-96 10709 Foothill Blvd. Rancho Cucamonga, CA (FA.B7) 10-07-97 26531 Aliso Creek Road Aliso Viejo, CA PORTER Todd G. Porter (DA.A) 10-09-92 IA, MN, MT, NE, SD, WY 5/09-30-99 APPLE COMPANY Amended: 03-28-94 4305 S. Louise Avenue 10-01-95 Suite 101-B 10-01-97 Sioux Falls, SD 57106 (FA.A1) 06-05-91 3800 S. Louise Avenue Sioux Falls, SD (FA.A2) 08-17-93 1700 Hamilton Boulevard Sioux City, IA (FA.A3) 08-09-94 4555 Southern Hills Dr., #106 Sioux City, IA (FA.A4) 12-05-95 2160 Haines Avenue Rapid City, SD QUALITY RESTAURANT Fred Gustin (DA.A) 06-29-98 KY, TN, VA, AL, 19/12-31-00 CONCEPTS, L.L.C. Glenn D. Durham GA, NC 601 Vestavia Pkwy. John Jones Suite 1000 Birmingham, AL 35216 (FA.A1) 06-29-98 261 N. Peters Road Knoxville, TN (FA.A2) 06-29-98 6928 Kingston Pike Knoxville, TN (FA.A3) 06-29-98 1213 Oak Ridge Turnpike Oak Ridge, TN (FA.A4) 06-29-98 1661 E. Stone Drive Kingsport, TN 41 (FA.A5) 06-29-98 1322 W. Walnut Avenue Dalton, GA (FA.A6) 06-29-98 2342 Shallowford Village Rd. Chattanooga, TN (FA.A7) 06-29-98 2100 North Roane St. Johnson City, TN (FA.A8) 06-29-98 358 Northgate Mall Chattanooga, TN (FA.A9) 06-29-98 2564 Alcoa Highway Alcoa, TN (FA.A10) 06-29-98 5316 Central Ave. Pike Knoxville, TN (FA.A11) 06-29-98 168 Paul Huff Pkwy. Cleveland, TN (FA.A12) 06-29-98 3216 East Towne Mall Circle Knoxville, TN (FA.A13) 06-29-98 5536 Decatur Pike Athens, TN (FA.A14) 06-29-98 2771 E. Andrew Johnson Hwy. Greeneville, TN (FA.A15) 06-29-98 437 Parkway Gatlinburg, TN (FA.A16) 06-29-98 2328 W. Andrew Jackson Morristown, TN (FA.A17) 06-29-98 425 Volunteer Pkwy. Bristol, TN (DA.B) 06-29-98 MS, AL 13/12-31-00 (FA.B1) 06-29-98 900 E. County Line Rd. Ridgeland, MS (FA.B2) 06-29-98 3703 Hardy Street Hattiesburg, MS (FA.B3) 06-29-98 885 Barnes Crossing Rd. Tupelo, MS (FA.B4) 06-29-98 2332 Highway 45 North Columbus, MS 42 (FA.B5) 06-29-98 814 Highway 12 West Starkville, MS (FA.B6) 06-29-98 9319 Highway 49 Gulfport, MS (FA.B7) 06-29-98 2389 Lakeland Dr. Flowood, MS (FA.B8) 06-29-98 106 Highway 11 & 80 Meridian, MS (FA.B9) 06-29-98 2019 Highway 15 North Laurel, MS (FA.B10) 12-20-99 111 Clinton Center Drive Clinton, MS RCI IDAHO, LLC Stephen A. Grove (DA.A) 08-29-96 ID, OR 4/06-30-99 400 Interstate N. Parkway Suite 1200 (FA.A1) 06-02-97 635 N. Utah Avenue Atlanta, GA 30339 Idaho Falls, ID (FA.A2) 07-28-97 1587 Blue Lake Blvd. Twin Falls, ID (FA.A3) 04-20-98 1441 Bench Road Pocatello, ID (FA.A4) 07-20-98 7845 West Emerald Boise, ID RCI NEW Stephen A. Grove (DA.A) 08-10-96 NM 6/07-31-99 MEXICO, LLC 400 Interstate N. Parkway Suite 1200 Atlanta, GA 30339 (FA.A1) 12-16-96 2212 North Main Roswell, NM 88201 (FA.A2) 09-22-97 4246 Cerrillos Road Santa Fe, NM (FA.A3) 10-27-97 4601D E. Main St. Farmington, NM R.C.I. WEST, INC. Stephen A. Grove (DA.A) 12-21-88 CO 19/12-31-98 400 Interstate N. Pkwy. Amended: 03-18-91 Suite 1200 01-02-92 Atlanta, GA 30339 12-04-92 01-01-95 01-01-97 43 (FA.A1) 10-02-89 3301 Tamarac Drive Denver, CO (FA.A2) 10-23-90 5250 S. Wadsworth Boulevard Littleton, CO (FA.A3) 06-08-92 4306 S. College Avenue Ft. Collins, CO (FA.A4) 09-07-92 14091 E. Iliff Avenue Aurora, CO (FA.A5) 10-05-92 8292 S. University Boulevard Littleton, CO (FA.A6) 04-12-93 410 S. Colorado Boulevard Glendale, CO (FA.A7) 11-15-93 100 W. 104th Avenue Northglenn, CO (FA.A8) 01-24-94 9010 N. Wadsworth Parkway Westminster, CO (FA.A9) 03-21-94 6405 W. 120th Avenue Broomfield, CO (FA.A10) 05-30-94 1250 S. Hover Road Building 10-A Longmont, CO (FA.A11) 08-29-94 1906 28th Street Boulder, CO (FA.A12) 10-31-94 10625 W. Colfax Avenue Lakewood, CO (FA.A13) 12-19-94 297 E. 120th Avenue Thornton, CO (FA.A14) 03-13-95 592 S. McCaslin Boulevard Louisville, CO (FA.A15) 06-26-95 10440 E. Arapahoe Road Englewood, CO (FA.A16) 10-23-95 5265 Wadsworth Boulevard Arvada, CO (FA.A17) 05-06-96 4100 West 10th Street Greeley, CO 44 (FA.A18) 12-08-97 213 E. 29th Loveland, CO (FA.A19) 06-08-98 6482 S. Parker Rd. Aurora, CO (FA.A20) 11-02-98 16485 E. 40th Circle Aurora, CO (DA.B) 12-22-92 CO 6/06-02-98 Amended: 03-19-93 07-19-94 03-07-95 09-01-95 10-31-97 (FA.B1) 10-03-94 7625 Goddard Street Colorado Springs, CO (FA.B2) 04-03-95 3428 N. Elizabeth Pueblo, CO (FA.B3) 07-10-95 3708 East Galley Colorado Springs, CO (FA.B4) 11-27-95 711 Horizon Drive Grand Junction, CO (FA.B5) 05-18-98 495 Garden of The Gods Rd. Colorado Springs, CO RENAISSANT Anthony R. Alvarez (DA.A) 08-27-92 TX 3/03-31-95 DEVELOPMENT Amended: 10-20-93 CORPORATION 05-01-95 8000 I-10 West Suite 1150 San Antonio, TX 78230 (FA.A1) 12-07-93 514 E. Expressway 83 McAllen, TX (FA.A2) 08-25-94 4601 N. 10th Street N. McAllen, TX (FA.A3) 10-18-94 7601 Sandrio Laredo, TX (FA.A4) 07-25-95 2960 Boca Chica Boulevard Brownsville, TX (FA.A5) 10-23-95 1519 W. Harrison Harlingen, TX 45 TX (FA.B1) 12-19-95 6490 N. Navarro Victoria, TX RESTAURANT Stephen A. Grove (DA.A) 11-02-90 AL, GA 14/06-30-98 CONCEPTS, INC. Amended: 10-10-93 400 Interstate N. Pkwy. 07-01-94 Suite 1200 06-30-96 Atlanta, GA 30339 (FA.A1) 06-17-85 2301 Airport Thruway, #F-1 Columbus, GA (FA.A2) 06-17-85 3150 Wrightsboro Road Augusta, GA (FA.A3) 01-28-87 3117 Washington Road Augusta, GA (FA.A4) 08-21-87 480 Mall Boulevard Savannah, GA (FA.A5) 04-01-91 595 Bobby Jones Expressway Augusta, GA (FA.A6) 06-28-92 165 Tom Hill, Sr. Boulevard Macon, GA (FA.A7) 05-17-93 3229 Gentian Boulevard Columbus, GA (FA.A8) 07-26-93 1627-34 Opelika Road Auburn, AL (FA.A9) 10-25-93 11120 Abercorn Savannah, GA (FA.A10) 04-04-94 314 Russell Parkway Warner Robbins, GA (FA.A11) 09-05-94 4705 Highway 80 Savannah Island, GA (FA.A12) 12-05-94 612 E. Hamric Avenue Oxford, AL (FA.A13) 06-05-95 2574 Riverside Drive Macon, GA (FA.A14) 10-30-95 3652 Eisenhower Macon, GA 46 (FA.A15) 05-11-98 2004 Veterans Blvd. Dublin, GA (FA.A16) 06-22-98 804 U.S. Highway 80 East Statesboro, GA (FA.A17) 07-27-98 5460 Augusta Road Garden City, GA (FA.A18) 08-17-98 100 Valley Drive Perry, GA (FA.A19) 02-08-99 106 Roberson Mill Road Milledgeville, GA (FA.A20) 05-31-99 2090 Highway 280/431 Phenix City, AL ROSE CASUAL Harold T. Rose (DA.A) 08-04-93 MD 10/06-30-00 DINING, L.P. Amended: 09-09-94 826 Newton Yardley Rd. 02-28-95 Suite 200 02-15-96 Newtown, PA 18940 06-30-97 (FA.A1) 01-17-95 2141 Generals Highway Annapolis, MD (FA.A2) 10-31-95 2703 N. Salisbury Boulevard Salisbury, MD (FA.A3) 05-13-96 6505 Baltimore National Pike Catonsville, MD (FA.A4) 12-10-96 8610 LaSalle Road Towson, MD (FA.A5) 11-11-97 634 Baltimore Blvd. Westminster, MD (FA.A6) 11-17-98 7760 Eastpoint Mall Essex, MD (FA.A7) 12-07-99 2450 Broad Avenue Timonium, MD (FA.A8) 12-20-99 8335 Benson Drive Columbia, MD (DA.B) 02-01-96 PA 3/12-31-98 Amended: 03-01-97 47 (FA.B1) 06-02-97 939 New Berwick Highway Bloomsburg, PA (FA.B2) 07-07-98 2 Weis Lane West Hazelton, PA (FA.B3) 08-26-98 253 Wilkes-Barre Township Blvd. Wilkes-Barre Township, PA (FA.B4) 10-27-98 74 Viewmont Mall Route 6; Scranton-Carbondale Hwy. Dickson City, PA (FA.B5) 12-08-98 1115 Susquehanna Valley Mall Selinsgrove, PA (DA.C) 02-01-96 NJ 3/08-31-99 Amended: 09-01-97 (FA.C1) 01-21-97 3330 Brunswick Pike Lawrenceville, NJ (FA.C2) 03-04-97 333 State Route 33 Trenton, NJ (FA.C3) 05-20-98 1745 Easton Road Doylestown, PA RYAN RESTAURANT William O. Ryan (DA.A) 03-05-96 MT 7/12-31-99 CORPORATION Beverly R. Ryan Amended: 01-01-98 2038 Overland Avenue Billings, MT 59102 (FA.A1) 11-23-93 740 24th Street, West Billings, MT (FA.A2) 03-05-96 1108 North 7th Avenue Bozeman, MT (FA.A3) 07-24-96 4041 Highway 93 South Missoula, MT (FA.A4) 12-10-96 1200 E. Idaho Kalispell, MT (FA.A5) 09-02-97 1212 Custer Helena, MT (FA.A6) 12-31-98 204 Main Billings, MT 48 SCOTT'S APPLE, INC. Nicholas C. Scott (DA.A) 08-26-92 PA 2/10-31-94 4045 W. 12th Street Amended: 10-30-93 Erie, PA 16505 (FA.A1) 01-24-94 7790 Peach Street Erie, PA (FA.A2) 03-21-95 2911 W. 12th Street Erie, PA (FA.A3) 12-12-97 11227 Shaw Avenue Meadville, PA SPECIALTY Abe Gustin (DA.A) 02-10-99 FL 9/12-31-02 RESTAURANT Gregory Gustin DEVELOPMENT, L.L.C. Guy Taylor (FA.A1) 02-11-99 1545 Palm Bay Road 1001 North Lake Destiny Rd. Melbourne, FL Suite 100 Maitland, FL 32751 (FA.A2) 02-11-99 100 Sykes Creek Parkway N. Merritt Island, FL (FA.A3) 02-11-99 12103 Collegiate Way Orlando, FL (FA.A4) 02-11-99 2599 Enterprise Road Orange City, FL (FA.A5) 02-11-99 3001 W. Eaugallie Blvd. Melbourne, FL (FA.A6) 02-11-99 150 Williamson Blvd. Ormond Beach, FL (FA.A7) 02-11-99 1390 Dunlawton Avenue Port Orange, FL SPECTRUM APPLE, L.P. John D. Gantes (DA.A) 08-11-94 CA 10/11-30-00 P.O. Box 80340 Linda B. Gantes Amended: 03-28-95 Rancho Santa Margarita, CA 92688 (FA.A1) 09-05-95 23626 Valencia Boulevard Santa Clarita, CA (FA.A2) 04-16-96 39720 N. 10th Street West Palmdale, CA (FA.A3) 07-30-96 291 Ventura Blvd. Camarillo, CA 49 (FA.A4) 08-26-97 3980 Thousand Oaks Blvd. Thousand Oaks, CA (FA.A5) 12-17-99 109 Cochran Street Simi Valley, CA TLC CENTRAL, LLC Matthew J. Fairbairn (DA.A) 08-31-98 NY, PA 11/12-31-00 201 ATP Tour Blvd. David Stein Suite 120 Ponte Vedra Beach, FL 32082 (FA.A1) 01-10-96 877 Country Route 64 Elmira, NY (FA.A2) 09-09-97 3701 Vestal Parkway East Vestal, NY (FA.A3) 02-03-98 1205 Union Avenue Newburg, NY (FA.A4) 11-10-98 Woodbury Common #488 Evergreen Court Central Valley, NY (FA.A5) 01-12-99 255 Quaker Road Queensbury, NY (FA.A6) 03-30-99 600 Troy Road Rensselaer, NY TLC WEST, LLC Matthew J. Fairbairn (DA.A) 08-31-98 NY, PA 18/06-30-99 201 ATP Tour Blvd. David Stein Suite 120 Ponte Vedra Beach, FL 32082 (FA.A1) 03-12-91 3050 Winton Road South Rochester, NY (FA.A2) 09-30-91 5017 Transit Road Williamsville, NY (FA.A3) 06-23-92 4405 Milestrip Road Blasdell, NY (FA.A4) 07-21-92 585 Moseley Road Fairport, NY (FA.A5) 08-24-93 200 Paddy Creek Circle Rochester, NY (FA.A6) 09-28-93 3189 Erie Boulevard, East De Witt, NY (FA.A7) 07-06-94 628 S. Main Street N. Syracuse, NY 50 (FA.A8) 08-23-94 1683 E. Ridge Road Rochester, NY (FA.A9) 10-04-94 1900 Military Road Niagara Falls, NY (FA.A10) 11-22-94 1641 Niagara Falls Boulevard Buffalo, NY (FA.A11) 02-13-95 3975 Route 31 Liverpool, NY (FA.A12) 06-20-95 1955 Empire Boulevard Webster, NY (FA.A13) 08-29-95 5822 S. Transit Road Lockport, NY (FA.A14) 04-02-96 340 E. Fairmount Avenue Lakewood, NY (FA.A15) 07-30-96 2656 Delaware Avenue Buffalo, NY (FA.A16) 04-22-97 3637 Union Road Checktowaga, NY (FA.A17) 11-17-98 1283 Arsenal Street Watertown, NY (FA.A18) 02-08-99 3908 Vineyard Drive Dunkirk, NY (FA.A19) 11-16-99 217 Grant Street Auburn, NY TLC EAST, INC. Matthew J. Fairbairn (DA.A) 02-24-98 CT 5/12-31-00 220 Ponte Vedra Park Dr. David A. Stein Amended: 01-15-99 Suite 100 Ponte Vedra Beach, FL 32082 (FA.A1) 09-15-99 2400 Dixwell Avenue Hamden, CT (FA.A2) 11-09-99 270 New Britian Avenue Plainville, CT (FA.A3) 12-20-99 350 Long Hill Road Groton, CT 51 T.S.S.O., INC. Lois J. Sedowicz (DA.A) 01-15-92 AL, FL, MS 7/06-30-99 5555 Oakbrook Parkway Amended: 08-30-93 Suite 355 03-28-95 Norcross, GA 30093 08-01-95 07-01-97 (FA.A1) 04-30-85 5760 Airport Boulevard Mobile, AL (FA.A2) 03-31-86 5091 Bayou Boulevard Pensacola, FL (FA.A3) 08-15-88 330 Mary Esther Cutoff Mary Esther, FL (FA.A4) 01-24-91 8670 Hwy. 98 West Destin, FL (FA.A5) 12-06-93 4940 Government Boulevard Mobile, AL (FA.A6) 07-10-95 165 E. Nine Mile Road Pensacola, FL (FA.A7) 11-15-99 2409 S. McKenzie Street Farley, AL 36535 (DA.B) 11-20-91 IA, IL, MO 6/12-31-97 Amended: 04-07-93 08-16-93 06-15-98 (FA.B1) 11-02-92 3335 Veterans Parkway Springfield, IL (FA.B2) 08-16-93 1966 N. Henderson Street Galesburg, IL (FA.B3) 08-29-94 405 N. Main E. Peoria, IL (FA.B4) 10-17-94 1275 S. Route 51 Forsyth, IL (FA.B5) 11-07-94 502 N. Veterans Parkway Bloomington, IL (FA.B6) 08-28-95 116 S. Roosevelt Burlington, IA (FA.B7) 02-26-96 3827 Broadway Quincy, IL 52 (FA.B8) 06-09-97 3540 Vermilion Street Danville, IL (FA.B9) 10-27-97 3540 Court Street Pekin, IL (FA.B10) 08-10-98 2121 N. Prospect Champaign, IL (FA.B11) 06-15-98 6844 N. War Memorial Peoria, IL THE BLOOMIN' APPLE, Mariann B. Allardice (DA.A) 08-24-98 IL, WI 5/12-31-00 L.L.C. Kevin P. Allardice 1470 Ben Sawyer Blvd. Ronald C. Williams Suite 4 Andrew C. Robertson Mt. Pleasant, SC 29464 (FA.A1) 08-24-98 6845 E. State St. Rockford, IL (FA.A2) 08-24-98 3024 Milton Ave. Janesville, WI (FA.A3) 08-24-98 1675 E. Riverside Rd. Rockford, IL (FA.A4) 08-24-98 1802 S. West St. Freeport, IL THE OZARK Gregory R. Walton (DA.A) 05-21-92 AR, MO 5/12-31-98 APPLES, INC. Amended: 04-21-93 3252 Roanoke 07-01-93 Kansas City, MO 64111 11-15-93 01-29-96 01-01-97 (FA.A1) 06-15-93 1855 E. Primrose Springfield, MO (FA.A2) 01-03-94 2010 I-70 Drive, Southwest Columbia, MO (FA.A3) 06-01-94 1836 W. Highway 76 Branson, MO (FA.A4) 06-27-95 2319 Missouri Boulevard Jefferson City, MO (FA.A5) 01-12-99 2430 N. Glenstone Springfield, MO (DA.B) 01-29-96 AR, KS, MO, OK 3/12-31-97 53 (FA.B1) 07-19-94 2825 E. 32nd Street Joplin, MO (FA.B2) 06-19-96 528 N. 47th Street Rogers, AR (FA.B3) 12-20-99 2802 N. Broadway Pittsburg, KS THOMAS & KING, INC. Michael J. Scanlon (DA.A) 05-31-88 IN, KY, OH 35/05-30-99 249 E. Main St. Ronald T. Reynolds Amended: 05-31-91 Suite 101 Douglas M. Wilson 08-06-93 Lexington, KY 40507 06-07-95 07-30-96 05-30-97 (FA.A1) 08-01-88 2573 Richmond Road Lexington, KY (FA.A2) 11-14-88 7383 Turfway Road Florence, KY (FA.A3) 02-24-89 105 N. Springsboro Pike W. Carrollton, OH (FA.A4) 05-11-89 340 Glensprings Drive Springdale, OH (FA.A5) 10-09-89 4009 Nicholasville Road Block B Lexington, KY (FA.A6) 04-11-89 10635 Techwood Circle Blue Ash, OH (FA.A7) 03-12-90 9660 Mason-Montgomery Road Mason, OH (FA.A8) 05-11-90 2755 Brice Road Reynoldsburg, OH (FA.A9) 08-20-90 2555 Shiloh Springs Road Trotwood, OH (FA.A10) 12-11-90 6669 Dublin Center Drive Dublin, OH (FA.A11) 07-15-91 967 Hebron Road Heath, OH 54 (FA.A12) 12-16-91 5050 Crookshank Cincinnati, OH (FA.A13) 08-17-92 4440 Glen Este- Withamsville Road Batavia, OH (FA.A14) 11-09-92 4600 East Broad Street White Hall, OH (FA.A15) 03-01-93 1389 U.S. 127 South Frankfort, KY (FA.A16) 04-05-93 30 Crestview Hills Mall Road Crestview Hills, KY (FA.A17) 06-21-93 480 Ackerman Road Columbus, OH (FA.A18) 09-06-93 700 Washington Blvd., N.W. Hamilton, OH (FA.A19) 10-04-93 853 Eastern Bypass Richmond, KY (FA.A20) 01-17-94 Northgate Mall 9595 Colrain Avenue Cincinnati, OH (FA.A21) 04-11-94 910 Beaumont Center Pkwy. Lexington, KY (FA.A22) 06-13-94 3240 Towne Boulevard Middletown, OH (FA.A23) 10-03-94 8331 Old Troy Pike Huber Heights, OH (FA.A24) 12-02-94 1800 W. 1st Street Springfield, OH (FA.A.25) 05-29-95 4425 National Road East Richmond, IN (FA.A26) 08-07-95 1615 Rivervalley Circle North Lancaster, OH (FA.A27) 01-29-96 1525 N. Lexington Avenue Winchester, KY (FA.A28) 01-30-96 1 Madison Avenue Covington, KY 55 (FA.A29) 05-20-96 3894 Morse Road Columbus, OH (FA.A30) 07-25-96 1759 W. Main Street Troy, OH (FA.A31) 09-23-96 1514 Mt. Vernon Avenue Marion, OH (FA.A32) 03-24-98 5561 Westchester Woods Blvd. Columbus, OH (FA.A33) 06-30-98 1836 Alesheba Way Lexington, KY (FA.A34) 12-15-98 6242 Wilmington Pike Dayton, OH (FA.A35) 01-26-99 5980 Meijer Drive Milford, OH (FA.A36) 11-16-99 8565 Winton Road Cincinnati, OH (FA.A37) 12-20-99 1161 Polaris Parkway Columbus, OH (DA.B) 02-24-94 OH, PA 3/12-31-98 Amended: 02-28-95 05-01-95 (FA.B1) 08-28-95 904 Great East Plaza Niles, OH (FA.B2) 02-25-97 201 S. Hermitage Road Hermitage, PA (FA.B3) 11-17-98 6691 South Avenue Boardman, OH (DA.C) 10-23-90 AZ 17/08-15-98 Amended: 10-21-94 06-01-95 09-16-96 01-08-98 (FA.C1) 03-31-93 2053 S. Alma School Road Mesa, AZ (FA.C2) 12-18-90 2720 W. Bell Road Phoenix, AZ 56 (FA.C3) 07-08-91 565 E. Wetmore Tucson, AZ (FA.C4) 12-08-92 6259 E. Southern Avenue Mesa, AZ (FA.C5) 05-17-93 Park Mall, Building E 5870 East Broadway Tucson, AZ (FA.C6) 06-14-93 2032 E. Baseline Road Mesa, AZ (FA.C7) 09-27-93 8001 W. Bell Road Peoria, AZ (FA.C8) 06-26-94 1655 W. Elliott Tempe, AZ (FA.C9) 12-12-94 10460 N. 90th Street Scottsdale, AZ (FA.C10) 05-22-95 2547 N. 44th Street Phoenix, AZ (FA.C11) 10-09-95 2 East Camelback Phoenix, AZ (FA.C12) 11-20-95 4924 E. Shea Boulevard Closed: 11-17-97 Phoenix, AZ (FA.C13) 02-26-96 1881 West Highway 69 Prescott, AZ (FA.C14) 08-19-96 5880 W. Peoria Glendale, AZ (FA.C15) 03-24-97 2230 W. Ina Road Tucson, AZ (FA.C16) 04-22-97 909 E. Broadway Tempe, AZ (FA.C17) 11-18-97 1245 W. Chandler Blvd. Chandler, AZ (FA.C18) 10-20-98 1143 N. Higley Rd. Mesa, AZ (DA.D) 11-14-94 IL, IN, KY, MO, TN 8/09-30-98 Amended: 10-01-95 03-25-96 09-30-97 57 (FA.D1) 09-26-91 202 S. Broadview Cape Girardeau, MO (FA.D2) 10-27-92 3990 Hinkleville Roady Paducah, KY (FA.D3) 07-06-93 5120 Frederica Owensboro, KY (FA.D4) 12-13-94 2506 S. 3rd Street Terre Haute, IN (FA.D5) 04-04-95 1125 E. Main Carbondale, IL (FA.D6) 08-01-95 5100 E. Morgan Evansville, IN (FA.D7) 07-22-97 1475 Chelsa Drive Madisonville, KY (FA.D8) 06-30-98 2712 W. DeYoung St. Marion, IL THUNDER APPLE Robert A. Syroid (DA.A) 08-08-94 City of Thunder Bay, 1/06-29-97 NORTH, INC. Brenda Syroid Amended: 09-20-95 Ontario, Canada 920 Tungsten Street 08-29-96 Thunder Bay, ON P7B 5Z6 CANADA (FA.A1) 08-08-94 1155 Alloy Drive Thunder Bay, Ontario CANADA P7B 6M8 TRUE NORTH Ian A. Mackay (DA.A) 09-16-99 Ontario, Canada 14/12-31-03 RESTAURANTS, INC. Michael J. Lewis 46 Dawlish Avenue (FA.A1) 04-14-98 155 Kingston Road Toronto, Ontario M4N 1H1 East Ajax, Ontario Canada Canada L1S 7J4 (FA.A2) 03-16-99 355 Hespeler Road Cambridge, Ontario Canada N1R6B3 (FA.A3) 09-16-99 5700 Mavis Road Mississauga, Ontario Canada L5V2N6 58 WEST COAST Stephen A. Grove (DA.A) 10-31-98 WA, OR, ID, CA 29/12-31-02 MANAGEMENT, LLC 400 Interstate N. Parkway Suite 1200 (FA.A1) 10-31-98 1220 N.W. 185th Avenue Atlanta, GA 30339 Beaverton, OR (FA.A2) 10-31-98 6325 S.W. Meadows Road Lake Oswego, OR (FA.A3) 10-31-98 1415 S. Bradley Santa Maria, CA (FA.A4) 10-31-98 280 Hanley Coeur D'Alene, ID (FA.A5) 10-31-98 305 Madonna Road San Luis Obispo, CA (FA.A6) 10-31-98 12217 E. Mission Avenue Spokane, WA (FA.A7) 10-31-98 Lancaster Mall 747 Lancaster Drive, N.E. Salem, OR (FA.A8) 10-31-98 606 N. Columbia Ctr. Blvd. Kennewick, WA (FA.A9) 10-31-98 12717 S.E. 2nd Circle Vancouver, MA (FA.A10) 10-31-98 4007 29th Street Spokane, WA (FA.A11) 10-31-98 1439 N.E. Halsey Portland, OR (FA.A12) 10-31-98 1301 N. Davis Rd. Salinas, CA (FA.A13) 10-31-98 10004 NE Halsey Portland, OR (FA.A14) 10-31-98 10172 SE 82nd Street Clakamas, OR (FA.A15) 08-23-99 105 WarBonnet Drive Moscow, ID (FA.A16) 10-11-99 2625 Liberty Street N.E. Salem, OR 59 WHG REAL ESTATE Mark L. Dillon (DA.A) 12-07-98 MN, WI 5/12-31-00 NORTH, LLC James T. Query 2500 N. Mayfair Road David S. Israel Suite G117 Wauwatosa, WI 43226 (FA.A1) 12-07-98 4745 Golf Road Eau Clarie, WI (FA.A2) 12-07-98 2221 W. Stewart Ave. Wausau, WI (FA.A3) 12-07-98 5609 Hwy. 10 East Stevens Point, WI (FA.A4) 12-07-98 9364 Hwy. 16 Onalaska, WI WHIT-MART, INC. Gary P. Whitman (DA.A) 06-29-98 SC, NC 15/06-30-02 609 Pecan Lane Whiteville, NC 28472 (FA.A1) 06-29-98 7818 Rivers Ave. N. Charleston, SC (FA.A2) 06-29-98 1859 Sam Rittenburg Charleston, SC (FA.A3) 06-29-98 811 S. Irby Street Florence, SC (FA.A4) 06-29-98 24 N. Market Street Charleston, SC (FA.A5) 06-29-98 88 Old Trolley Road Summerville, SC (FA.A6) 06-29-98 1486 Stuart Engles Blvd. Mt. Pleasant, SC (FA.A7) 06-29-98 7915 N. Kings Highway Myrtle Beach, SC (FA.A8) 06-29-98 1271 Folly Road Charleston, SC (FA.A9) 06-29-98 4910 Ashely Phosphate Rd. North Charleston, SC (FA.A10) 06-29-98 1647 Church Street Conway, SC (FA.A11) 06-29-98 203 S. Fifth Street Hartsville, SC 60 (FA.A12) 06-29-98 3256 Highway 17 South Murrells Inlet, SC (DA.B) 03-29-99 KY 3/12-31-02 (FA.B1) 03-29-99 4535 Outer Loop Louisville, KY (FA.B2) 03-29-99 9201 Hurstbourne Lane Louisville, KY (FA.B3) 03-29-99 2225 Taylorsville Road Louisville, KY (FA.B4) 03-29-99 Hwy. 131 & Greentree Blvd. Greenville Mall Clarksville, IN 47130 (FA.B5) 03-29-99 4717 Dixie Highway Louisville, KY (FA.B6) 03-29-99 12913 Shelbyville Road Louisville, KY (FA.B7) 03-29-99 10600 Dixie Highway Louisville, KY (FA.B8) 03-29-99 5000 Shelbyville Road Louisville, KY WILD WEST APPLE Calvin E. Keller VENTURES, A Linda A. Keller LIMITED LIABILITY COMPANY 2220 Dell Range Blvd. Suite 102 Cheyenne, WY 82009 (FA.A1) 07-07-92 1401 Dell Range Boulevard Cheyenne, WY WILLIAM TELL, INC. John B. Prince (DA.A) 05-14-93 ID, NV, UT 7/06-30-98 136 E. South Temple Amended: 03-01-95 Suite 1740 12-01-96 Salt Lake City, UT 84111 (FA.A1) 04-12-94 6123 S. State Street Murray, UT (FA.A2) 12-19-94 5678 S. Redwood Road Taylorsville, UT 61 (FA.A3) 01-22-96 1622 N. 1000 West Layton, UT (FA.A4) 04-29-96 1125 W. Riverdale Road Riverdale, UT (FA.A5) 08-19-96 680 West 1300 South Orem, UT (FA.A6) 11-11-96 7047 S. 1300 East Midvale, UT (FA.A7) 04-13-98 2715 West City Center Court West Valley, UT WISCONSIN HOSPITALITY David S. Israel (DA.A) 08-24-98 WI, MI 24/05-31-04 GROUP, LLC James T. Query 2500 N. Mayfair Rd. Mark L. Dillon Suite G117 (FA.A1) 08-24-98 2500 N. Mayfair Road Wauwatosa, WI 53226 Wauwatosa, WI (FA.A2) 08-24-98 20101 W. Bluemound Road Waukesha, WI (FA.A3) 08-24-98 5100 S. 76th Street Greendale, WI (FA.A4) 08-24-98 5900 N. Port Washington Rd. Glendale, WI (FA.A5) 08-24-98 660 S. Whitney Way Madison, WI (FA.A6) 08-24-98 4710 E. Towne Boulevard Madison, WI (FA.A7) 08-24-98 3730 W. College Avenue Appleton, WI (FA.A8) 08-24-98 900 Hansen Road Ashwaubenon, WI (FA.A9) 08-24-98 2521 S. Greenbay Road Racine, WI (FA.A10) 08-24-98 6950 75th Street Kenosha, WI (FA.A11) 08-24-98 1700 S. Koeller Road Oshkosh, WI 62 (FA.A12) 08-24-98 2420 W. Mason Street Greenbay, WI (FA.A13) 08-24-98 4435 Calumet Avenue Manitowoc, WI (FA.A14) 08-24-98 841 W. Johnson Street Fond Du Lac, WI (FA.A15) 08-24-98 2510 W. Washington West Bend, WI (FA.A16) 08-24-98 3040 E. College Avenue East Appleton, WI (FA.A17) 08-24-98 526 S. Taylor Drive Sheboygan, WI (FA.A18) 08-24-98 W 180 N 9469 Premier Lane Menomonee Falls, WI (FA.A19) 08-24-98 1267 Capital Drive Pewaukee, WI WOODLAND GROUP, Walter J. Horin, Sr. (DA.A) 08-24-98 KY, TN 17/12-31-01 INC. Sanford R. Penn, Jr. 105 Westwood Place Walter J. Horin, Jr. Suite 125 Brentwood, TN 37027 (FA.A1) 08-24-98 335 Harding Place Nashville, TN (FA.A2) 08-24-98 718 Thompson Lane Nashville, TN (FA.A3) 08-24-98 7645 U.S. Hwy. 70 South Nashville, TN (FA.A4) 08-24-98 5270 Hickory Hollow Pkwy. Antioch, TN (FA.A5) 08-24-98 170 Old Fort Parkway Murfreesboro, TN (FA.A6) 08-24-98 5055 Old Hickory Blvd. Hermitage, TN (FA.A7) 08-24-98 1420 Interstate Drive Cookeville, TN (FA.A8) 08-24-98 2545 Scottsville Road Bowling Green, KY 63 (FA.A9) 08-24-98 230 E. Main Street Hendersonville, TN (FA.A10) 08-24-98 1957 N. Jackson Street Tullahoma, TN (FA.A11) 08-24-98 3066 Wilma Rudolph Blvd. Clarksville, TN (FA.A12) 08-24-98 1557 N. Gallatin Pike Madison, TN (FA.A13) 08-24-98 705 S. James Campbell Blvd. Columbia, TN (FA.A14) 08-24-98 4089 Fort Campbell Blvd. Hopkinsville, KY (FA.A15) 08-24-98 609 N. Cumberland Lebanon, TN
64 EX-10.11 5 1995 EQUITY INCENTIVE PLAN, AS AMENDED 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 "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 "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 "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 "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 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 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 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 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 9 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. 10 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. 11 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 12 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. 13 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, 14 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. 15 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. 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. 16 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 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. 17 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; 18 (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. 19 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. 20 AMENDMENT NO. 3 1995 EQUITY INCENTIVE PLAN The following amendment to the 1995 Equity Incentive Plan was approved by the Stockholders of Applebee's International, Inc. at their Annual Meeting of Stockholders held on May 14, 1997: "That Section 4.1 of the Plan be amended so that the number of shares authorized under the Plan is increased to 2,300,000 shares." IN WITNESS WHEREOF, I, as Secretary of Applebee's International, Inc. and as Secretary of the aforesaid Annual Meeting of Stockholders, have executed this amendment this 14th day of May, 1997. Robert T. Steinkamp Secretary AMENDMENT NO. 4 1995 EQUITY INCENTIVE PLAN THE FOLLOWING AMENDMENT to the 1995 Equity Incentive Plan (the "Plan") was adopted by the Executive Compensation Committee on December 16, 1998 and by the Board of Directors on December 17, 1998 at their regular meetings held on those dates, to be effective as to all grants made pursuant to the Plan on or after said December 17, 1998: "The Amendment to Section 2 of the Plan adopted by the Board of Directors as of March 14, 1996 be, and the same hereby is, deleted and canceled, so that the definition of the term "Retirement" shall be as set forth in the Plan as originally adopted." IN WITNESS WHEREOF, the Plan has been amended as of this 17th day of December, 1998. APPLEBEE'S INTERNATIONAL, INC. By: /s/ Lloyd L. Hill Lloyd L. Hill, President/CEO Amendments to 1995 Equity Incentive Plan Section 4.1 of the Plan shall be amended so that the number of shares authorized under the Plan is increased to 3,600,000 shares. Note: The following amendments will be effective for options granted in 1999, so that the first Measurement Year will be 1998 and the first base year will be 1997. Section 9 of the Plan shall be amended as follows: 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 would automatically increase if Earnings Per Share for the Fiscal Year immediately preceding the year in which the director option is granted (the "Measurement Year") exceeded the Earnings Per Share for the Fiscal Year immediately preceding the Measurement Year by more than 15%. The Board of Directors will determine the formula by which the base grant would increase each year. In no event shall the number of Director Options granted to each Nonemployee Director 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. 1 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. 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. * * * * * The definition of "Earnings Per Share" under the Plan shall be amended to read as follows: "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 the weighted average number of Shares outstanding for such Fiscal Year (basic Earnings Per Share as opposed to diluted Earnings Per Share), rounded to the nearest cent ($0.01). The weighted average number of shares outstanding for any Fiscal Year will be determined by disregarding any stock repurchases by the Company and the Net Income or Pro Forma Net Income will be adjusted to reflect the net impact of any debt service attributable to funds borrowed to effect any stock repurchases. For these purposes, all funds used to effect stock repurchases will be deemed to have been borrowed, and at an interest rate equal to the lowest cost of the Company's then existing borrowed funds." EX-10.13 6 1999 MANAGEMENT AND EXECUTIVE INCENTIVE PLAN APPLEBEE'S INTERNATIONAL, INC. 1999 MANAGEMENT AND EXECUTIVE INCENTIVE PLAN PREAMBLE This Applebee's International, Inc. Management and Executive Incentive Plan (the "Plan") is an unfunded bonus and deferred compensation arrangement for a select group of management or highly compensated personnel, effective as of January 1, 1999. ARTICLE I DEFINITIONS "Base Salary" means the weighted average base salary for the Participant for the year in question as approved by the Committee. "Beneficiary" means the person or entity designated by a Participant on the most recently dated Beneficiary Designation Form signed by such Participant and delivered to the Committee. "Beneficiary Designation Form" means the form designated by the Committee from time to time as the document to be used by Participants to select a person or entity to receive any payments due such Participant in the event of such Participant's death prior to the date of such payment. "Board" means the Board of Directors of the Company. "Bonus" means each Participant's individual bonus for any specified period of time calculated pursuant to Section 2.02. "Bonus Percentage" means the percentage of Base Salary of a Participant used to determine a Bonus payment. "Change in Control" means an event constituting a Change in Control under the Equity Incentive Plan. "Committee" means the Committee that administers the Equity Incentive Plan. "Company" means Applebee's International, Inc., a Delaware corporation and its corporate successors. "Disability" means mental or physical disability (i) of at least six months which in the determination of a physician selected by the Company, prevents a Participant from engaging in the principal duties of his employment or (ii) has qualified the individual for coverage under the Company's long-term disability insurance. 1 "Employee in Good Standing" means a full-time employee of the Company or a Subsidiary who: (i) has not been on probation, received a written warning of performance or disciplinary deficiencies, or been suspended, at any time during the preceding 12 months; or (ii) has not failed to perform adequately any duty or responsibility during the period in question. "Equity Incentive Plan" means the Applebee's International, Inc. 1995 Equity Incentive Plan, as amended from time to time. "Fiscal year" or "year" (unless otherwise specified) means the Fiscal year of the Company as now constituted or as it may be changed hereafter from time to time. "GAAP" means generally accepted accounting principles used in the United States. "Participant" means an employee of the Company, or of a Subsidiary, designated by the Committee for participation in the benefits of the Plan. "Plan" means this 1999 Management and Executive Incentive Plan as it may be amended from time to time. "Retirement" means retirement at or after attaining age 65. "Satisfactory Separation" means the termination of employment with the Company and its Subsidiaries in instances where: (i) the termination results from the death, Disability or Retirement of the Participant; or (ii) as otherwise determined by the Committee in its sole discretion. "Subsidiary" 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. "Target" means the measurement of financial performance of the Company selected by the Committee to be used to determine the applicable Bonus Percentage. "Threshold Level" is the level of achievement of the Target at which Bonus Percentages begin and below which no Bonus is paid. 2 ARTICLE II DESIGNATION OF PARTICIPANTS AND CALCULATION OF BONUS AMOUNTS Section 2.01 Committee Designations. The Committee shall determine for each Fiscal year: (a) The name, employee level, and Bonus Percentages of each Participant for such Fiscal year; (b) The Target and Threshold Level for such Fiscal year; and (c) The percentage of the Bonus, if any, that will be payable at the discretion of the Chief Executive Officer based upon the achievement of departmental or individual goals or objectives and the individuals or employee levels to which such discretionary bonus percentage shall be applicable. Section 2.02 Calculation of Bonus. Bonuses shall be calculated by multiplying the Participant's Base Salary times the applicable Bonus Percentage determined by reference to the achievement of the Target, all as determined with respect to the period in question. Section 2.03 Payment of Bonus. (a) At the end of each Fiscal year, the Target and Bonus calculations shall be made on a full Fiscal year basis. Each Participant will then receive the amount of such Participant's Bonus calculated on a full Fiscal year basis and reflecting the application of the discretion of the Chief Executive Officer assigned by the Committee under Section 2.01(c), above, if any. (b) Bonuses will be paid as soon as practicable after the end of the year. (c) Upon a Participant's election in accordance with policies and procedures established by the Committee from time to time, up to fifty percent (50%) of the amount of such Participant's Bonus may be paid pursuant to the Equity Incentive Plan in Shares (as defined in the Equity Incentive Plan), as an Award of Restricted Stock under Section 7 of the Equity Incentive Plan in lieu of the payment of such percentage of such Bonus pursuant to this Plan. The restrictions are determined in the discretion of the Committee. The number of Shares payable to the Participant shall be subject to the maximum aggregate number of Shares permitted under Section 7 of the Equity Incentive Plan and shall be determined, in the discretion of the Committee as announced to Participants from time to time, by dividing the cash value of that part of the Bonus to be paid in Shares by a percentage (whether equal to, lesser or greater than 100 percent (100%)) of Fair Market Value (as defined in the Equity Incentive Plan) on the date such Bonus is payable to the Participant or pursuant to a formula based on the closing price, or a percentage of the closing price, of Shares on one or more days preceding such date. 3 ARTICLE III QUALIFICATION; EMPLOYMENT STATUS Section 3.01 Qualification. In order for a Participant to be qualified to receive a Bonus payment hereunder, the Participant must meet the following qualifications: (a) Be an Employee in Good Standing on the date the Bonus payment is to be paid; or (b) Have been an Employee in Good Standing as of the end of the fiscal year in question but have terminated employment with the Company through a Satisfactory Separation between the end of such fiscal year and the date the Bonus payment is to be paid for such fiscal year. (c) A Participant having terminated employment with the Company through a Satisfactory Separation shall be entitled only to receive the Bonus calculated through the end of the fiscal year at which the Participant was an Employee in Good Standing. Section 3.02 Employment Status Changes. Unless specifically determined otherwise by the Committee: (a) In the event that a person first becomes an employee of the Company at an employment level eligible for participation in the Plan at any time other than the first day of a year, such person's bonus shall be prorated based on the weeks worked during the year; and (b) In the event a Participant changes from one employment level within the Plan to another employment level within or outside of the Plan, such change shall be deemed effective as of the first day of the first week beginning after the effective date of such change, and any Bonus for an employment level shall be prorated according to the number of weeks the Participant was employed in such employment level. ARTICLE IV ADMINISTRATION; MISCELLANEOUS Section 4.01 Books and Records: Expenses. The books and records to be maintained for the purpose of the Plan shall be maintained by the officers and employees of the Company at its expense and subject to the supervision and control of the Committee. All calculations and financial accounting matters relevant to this Plan shall, except as otherwise directed by the Committee, be determined in accordance with GAAP. All expenses of administering the Plan shall be paid by the Company from the general funds of the Company and shall not be charged against any Participant account. 4 Section 4.02 Attachment. To the extent permitted by law, the right of any Participant or any Beneficiary in any benefit or to any payment hereunder shall not be subject in any manner to attachment or other legal process for the debts of such Participant or Beneficiary; and any such benefit or payment shall not be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. Section 4.03 No Liability. No member of the Board or of the Committee and no officer or employee of the Company shall be liable to any person for any action taken or omitted in connection with the administration of this Plan unless attributable to his own fraud or willful misconduct; nor shall the Company be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director, officer or employee of the Company. Section 4.04 No Fiduciary Relationship. Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. Section 4.05 Beneficiaries. Each Participant shall have the right to designate Beneficiaries who are to succeed to his/her contingent right to receive payments hereunder in the event of his/her death. In case of a failure of designation or the death of a designated Beneficiary without a designated successor, payments shall be made to the Participant's estate. Beneficiaries may be changed without the consent of any prior Beneficiaries. Section 4.06 Amendment. The Plan may be amended in whole or in part from time to time by the Board of Directors of the Company. Section 4.07 Notice. Notice of every such amendment shall be given in writing to each Participant and Beneficiary. Section 4.08 No Guarantee of Employment. Nothing contained in this Plan shall be deemed to give any Participant the right to be retained in the service of the Company or to interfere with the right of the Company to discharge any Participant, for or without cause, at any time, regardless of the effect which such discharge shall have upon such individual as a Participant in the Plan. Section 4.09 Governing Law. This Plan shall be construed in accordance with the laws of the State of Kansas. Section 4.10 Interpretation of Plan. The Committee shall have sole and absolute discretion and authority to interpret all provisions of this Plan and to resolve all questions arising under this Plan; including, but not limited to, determining whether any person is eligible under this Plan, whether any person shall receive any payments pursuant to this Plan, and the amount of any payments to be made pursuant to this Plan. Any interpretation, resolution or determination of the Committee shall be final and binding upon all concerned and shall not be subject to review. 5 Section 4.11 Rights Non-transferable. Any right to receive payments in the future pursuant to this Plan shall not be transferable by the Participant other than pursuant to a Beneficiary Designation Form. Section 4.12 Change in Control. In the event there is a Change in Control, Bonuses shall be determined and paid hereunder for the Fiscal year in which such Change in Control occurs by calculating as nearly as practical the achievement of the Target as if the Change in Control had not occurred. Section 4.13 Withholding. Prior to the delivery of any Shares or cash pursuant to this Plan, 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 delivery. 6 EX-10.14 7 1999 EMPLOYEE INCENTIVE PLAN APPLEBEE'S INTERNATIONAL, INC. 1999 EMPLOYEE INCENTIVE PLAN SECTION 1 PURPOSE AND DURATION 1.1 Effective Date. This Plan shall become effective on May 13, 1999. 1.2 Purpose of this Plan. This Plan permits the grant of Nonqualified Stock Options, SARs, Restricted Stock, Performance Units and Performance Shares. This Plan is intended to attract, motivate, and retain employees of the Company and its Affiliates. 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. "Award" means, individually or collectively, a grant under this Plan of Nonqualified 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 12.2. "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. 1 "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. "Director" means any individual who is a member of the Board of Directors of the Company. "Disability" means a permanent and total disability, provided that 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. "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, provided, however, that no employee of the Company or of an Affiliate with the title of Vice-President or higher shall be considered an employee for purposes of this Plan. "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. "Nonqualified Stock Option" means an Option to purchase Shares which is not an incentive stock option under Section 422 of the Code. "Option" means a Nonqualified Stock Option. "Participant" means an Employee who has an outstanding 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. 2 "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. 1999 Employee Incentive Plan, as set forth in this instrument and as hereafter amended from time to time. "Restricted Stock" means an Award granted to a Participant pursuant to Section 7. "Retirement" means a Termination of Service by reason of the Employee's retirement if (a) the Employee has been a full time Employee of the Company or of any Affiliate for at least five (5) consecutive years immediately prior to the date of such retirement, and (b) the age of the Employee on the date of such retirement when added to the total number of years for which the Employee was a full time Employee of the Company or of any Affiliate equals 60. For these purposes, employment by a company or business acquired by the Company or an Affiliate prior to such acquisition shall be counted as full time employment by the Company or an Affiliate. "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 6. "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 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. SECTION 3 ADMINISTRATION 3.1 The Committee. This Plan shall be administered by the Committee that administers the Applebee's International, Inc., 1995 Equity Incentive Plan. 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 shall be granted Awards, (b) prescribe the terms and conditions of the Awards, (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 3.3 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. 3.4 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 333,000. 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 canceled, 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 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. 4.4 Adjustments upon Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, the Board of Directors, in its discretion, may require the successor corporation to either (i) assume each outstanding Award or (ii) substitute an equivalent award by the successor corporation or a Parent or Subsidiary of the successor corporation. If an Award is not assumed or substituted in the event of a merger or sale of assets, the Award shall become immediately exercisable and the Committee shall notify the Participant that the Award shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Award shall terminate upon the expiration of such period unless exercised. For the purposes of this paragraph, the Award shall be considered assumed if, following the merger or sale of assets, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or sale of assets, equal consideration (whether stock, cash, or other securities or property) as received in the merger or sale of assets by holders of each Share of common stock held on the effective date of the transaction (and if holders of Shares were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each Share subject to the award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of common stock in the merger or sale of assets. 4 SECTION 5 STOCK OPTIONS 5.1 Grant of Options. Subject to the terms and provisions of this Plan, Options may be granted to Employees 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 50,000 Shares. 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. 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. 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 Substitute Options. Notwithstanding the provisions of Sections 5.3.1, in the event that the Company or an Affiliate consummates a transaction in which persons may become Employees on account of such transaction, such persons 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, 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 5 (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; or (d) The expiration of three (3) years from the date of the Optionee's Termination of Service by reason of Disability or death; or (e) The expiration of three (3) years from the date of the Optionee's Retirement. 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. 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. 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. 6 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 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 50,000 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. 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. 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. 7 At the sole discretion of the Committee, the payment upon an 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 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 50,000 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. 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 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. 1999 EMPLOYEE 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." 8 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 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. After the end of the applicable Period of Restriction, the Participant shall be entitled to have any legend or legends under Section 7.4.2 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 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 50,000 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. 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." 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. 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. 9 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. 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, 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 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 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 MISCELLANEOUS 9.1 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. 9.2 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 9.3 Participation. No Employee 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. 9.4 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. 9.5 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. 9.6 Beneficiary Designations. If permitted by the Committee, a Participant under this Plan may name a beneficiary or beneficiaries to whom any vested but 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. 9.7 Nontransferability of Awards. 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 9.6. All rights with respect to an Award granted to a Participant shall be available during his or her lifetime only to the Participant. 9.8 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). 11 SECTION 10 AMENDMENT, TERMINATION, AND DURATION 10.1 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. 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. 10.2 Duration of this Plan. This Plan shall become effective on the date specified herein and, subject to Section 10.1 (regarding the Board's right to amend or terminate this Plan), shall remain in effect thereafter. SECTION 11 TAX WITHHOLDING 11.1 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). 11.2 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 12 CHANGE IN CONTROL 12.1 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. 12 12.2 Definition. For purposes of Section 12.1 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 12.1 shall not apply thereto: 12.2.1 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; 12.2.2 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 Section 12.2.1, 12.2.2 or 12.2.3) 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 12.2.3 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 12.2.1) 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). 13 SECTION 13 LEGAL CONSTRUCTION 13.1 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. 13.2 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. 13.3 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. 13.4 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). 13.5 Captions. Captions are provided herein for convenience of reference only, and shall not serve as a basis for interpretation or construction of this Plan. 14 EX-10.19 8 SCHEDULE OF PARTIES TO INDEMNIFICATION AGREEMENT SCHEDULE OF PARTIES RECEIVING INDEMNIFICATION AGREEMENTS Erline Belton W. Matthew Carpenter Larry A. Cates D. Patrick Curran R.J. Dourney Karen B. Eadon Edward J. Gleich Abe J. Gustin, Jr. Eric L. Hansen Mark S. Hansen Jack P. Helms Lloyd L. Hill James W. Kirkpatrick John F. Koch Steven K. Lumpkin Mark A. Peterson Burton M. Sack George D. Shadid Robert T. Steinkamp Julia A. Stewart Harry B. Stroup Carin L. Stutz Douglas D. Waltman John A. Weber EX-10.20 9 PARTIES TO FORM OF CHANGE IN CONTROL AGREEMENT PARTIES TO PREVIOUS FORM OF CHANGE IN CONTROL AGREEMENT Steven K. Lumpkin Robert A. Martin Robert T. Steinkamp Harry B. Stroup John A. Weber EX-10.21 10 PARTIES TO NEW FORM OF CHANGE IN CONTROL AGREEMENT PARTIES TO CHANGE IN CONTROL AGREEMENT Larry A. Cates W. Matthew Carpenter R.J. Dourney Mark A. Peterson Edward J. Gleich James W. Kirkpatrick John F. Koch Julia A. Stewart Carin L. Stutz Douglas D. Waltman EX-21 11 SUBSIDIARIES OF APPLEBEE'S INTERNATIONAL, INC. APPLEBEE'S INTERNATIONAL, INC. SUBSIDIARY CORPORATIONS (100% owned unless indicated) A.I.I. Euro Services (Holland) B.V. AII Services - Europe, Limited AII Services, Inc. 1 Apple American Limited Partnership of Minnesota 2 Apple Vermont Restaurants, Inc. 3 Applebee's Beverage, Inc. Applebee's Neighborhood Grill & Bar of Georgia, Inc. Applebee's Northeast, Inc. (formerly known as Pub Ventures of New England, Inc.) Applebee's of Michigan, Inc. Applebee's of Minnesota, Inc. Applebee's of Nevada, Inc. Applebee's of New Mexico, Inc. Applebee's of New York, Inc. Applebee's of Pennsylvania, Inc. Applebee's of Texas, Inc. Applebee's of Virginia, Inc. Gourmet Systems, Inc. Gourmet Systems of Arizona, Inc. Gourmet Systems of California, Inc. Gourmet Systems of Georgia, Inc. Gourmet Systems of Kansas, Inc. Gourmet Systems of Minnesota, Inc. Gourmet Systems of Nevada, Inc. Gourmet Systems of Tennessee, Inc. (formerly known as Applebee's of Tennessee, Inc.) 4 GourmetWest of Nevada, Limited-Liability Company 5 Innovative Restaurant Concepts, Inc. 6 IRC Kansas, Inc. Rio Bravo International, Inc. 7 Rio Bravo Restaurant, Inc. 8 Rio Bravo Services, Inc. 9 Summit Restaurants, Inc. 1 A Limited Partnership in which Gourmet Systems of Minnesota, Inc. is a general partner and Applebee's of Minnesota, Inc. is a limited partner. 2 This company is a wholly-owned subsidiary of Applebee's Northeast, Inc. 3 49% owned by Applebee's International, Inc. 4 50% owned by Gourmet Systems of Nevada, Inc./50% owned by Applebee's of Nevada, Inc. 5 This company is a wholly-owned subsidiary of Rio Bravo International, Inc. 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 Rio Bravo International, Inc. 9 This company is a wholly-owned subsidiary of Innovative Restaurant Concepts, Inc. EX-23.1 12 CONSENT OF DELOITTE & TOUCHE 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 18, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 26, 1999, and to the reference to us under the heading "Experts" in such Registration Statement. We 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 18, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 26, 1999, and to the reference to us under the heading "Experts" in such Registration Statement. We 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 18, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 26, 1999, and to the reference to us under the heading "Experts" in such Registration Statement. We consent to the incorporation by reference in Registration Statement No. 333-01969 of Applebee's International, Inc. on Form S-8 of our report dated February 18, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 26, 1999, and to the reference to us under the heading "Experts" in such Registration Statement. We consent to the incorporation by reference in Registration Statement No. 333-17823 of Applebee's International, Inc. on Form S-8 of our report dated February 18, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 26, 1999, 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 18, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 26, 1999, 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. 333-95705 of Applebee's International, Inc. on Form S-8 of our report dated February 18, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 26, 1999, and to the reference to us under the heading "Experts" in such Registration Statement. Kansas City, Missouri March 24, 2000 EX-27 13 FINANCIAL DATA SCHEDULE
5 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. 1,000 12-MOS 12-MOS DEC-26-1999 DEC-27-1998 DEC-26-1999 DEC-27-1998 1,427 1,767 2,555 4,879 15,998 15,190 2,435 1,565 11,247 6,709 34,211 31,375 393,128 457,329 92,988 93,271 442,216 510,904 77,662 65,951 106,293 145,522 0 0 0 0 321 321 253,552 295,732 442,216 510,904 596,754 580,840 669,584 647,562 499,732 494,466 563,070 552,510 11,604 6,490 0 0 10,814 9,922 85,735 80,409 31,537 29,753 54,198 50,656 0 0 0 (641) 0 0 54,198 50,015 1.91 1.65 1.89 1.65
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