-----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, M/e8luQO98xcoGSU2tNUDQAevb29FQS2TVTPB4e2HOnaZtZwqebw3tH/7IH1yGvU XdPBTWzssorcOj0YMiOlcQ== 0000853665-96-000006.txt : 19960318 0000853665-96-000006.hdr.sgml : 19960318 ACCESSION NUMBER: 0000853665-96-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960315 SROS: NASD 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: 1225 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17962 FILM NUMBER: 96535253 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 31, 1995 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 [FEE REQUIRED] For the fiscal year ended December 31, 1995 ----------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] 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 (I.R.S. Employer Identification No.) of 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 1, 1996 was $667,170,456 based upon the closing sale price on March 1, 1996. The number of shares of the registrant's common stock outstanding as of March 1, 1996 was 31,031,184. 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. Certain Exhibits in Part IV hereof are incorporated from the Registration Statement filed with the Securities and Exchange Commission on February 13, 1992, as amended, and the Registration Statement filed with the Securities and Exchange Commission on December 20, 1994, as amended. 1 APPLEBEE'S INTERNATIONAL, INC. FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 1995 INDEX
Page PART I Item 1. Business................................................................................ 3 Item 2. Properties.............................................................................. 15 Item 3. Legal Proceedings....................................................................... 17 Item 4. Submission of Matters to a Vote of Security Holders..................................... 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 18 Item 6. Selected Financial Data................................................................. 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 20 Item 8. Financial Statements and Supplementary Data............................................. 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 28 PART III Item 10. Directors and Executive Officers of the Registrant...................................... 28 Item 11. Executive Compensation.................................................................. 28 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 28 Item 13. Certain Relationships and Related Transactions.......................................... 28 PART IV Item 14. Exhibits and Reports on Form 8-K........................................................ 29 Signatures.............................................................................................. 30
2 PART I Item 1. Business General Applebee's International, Inc. and its subsidiaries (the "Company") develops, franchises and operates casual dining restaurants principally under the names "Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina." The Company opened its first restaurant in 1986 and initially developed and operated six restaurants as a franchisee of the Applebee's Division. In March 1988, the Company acquired substantially all the assets of its franchisor, the Applebee's Neighborhood Grill & Bar Division (the "Applebee's Division") of Creative Food 'N Fun Company (an indirect subsidiary of W.R. Grace & Co.). 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 31, 1995, there were 666 Applebee's restaurants, of which 538 were operated by franchisees and 128 were owned or operated by the Company. The restaurants were located in 45 states, Canada, the Netherlands, and the Caribbean. During 1995, 162 new restaurants were opened and one restaurant was closed system-wide. The new restaurants were comprised of 135 restaurants opened by franchisees and 27 restaurants opened by the Company. As part of its long-term growth strategy, the Company acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants in March 1995. As of December 31, 1995, the Company operated 16 Rio Bravo Cantina restaurants in Florida, Georgia and Tennessee and four other specialty restaurants. The Company has begun franchising of the Rio Bravo Cantina concept and expects six to eight franchise restaurants to open in 1996. 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 31, December 25, December 26, 1995 1994 1993 ----------------- ---------------- ----------------- Number of restaurant openings: Applebee's: Company owned or operated.................... 27 23 17 Franchise.................................... 135 122 96 ----------------- ---------------- ----------------- Total Applebee's............................. 162 145 113 Rio Bravo Cantinas.............................. 4 3 2 Restaurants open (end of period): Applebee's: Company owned or operated(1) ................ 128 97 75 Franchise.................................... 538 408 286 ----------------- ---------------- ----------------- Total Applebee's............................. 666 505 361 Rio Bravo Cantinas.............................. 16 12 9 Specialty restaurants(2) ....................... 4 4 6 ----------------- ---------------- ----------------- Total........................................... 686 521 376 ================= ================ ================= Weighted average weekly sales per restaurant: Applebee's: Company owned or operated(1)................. $ 39,977 $ 39,924 $ 40,146 Franchise.................................... $ 40,922 $ 41,010 $ 39,852 Total Applebee's............................. $ 40,737 $ 40,789 $ 39,904 Rio Bravo Cantinas(3) .......................... $ 66,158 $ 68,637 $ 65,346 Change in comparable restaurant sales(4): Applebee's: Company owned or operated(1)................. 0.3% 3.7% 12.1% Franchise.................................... 0.5% 3.1% 7.6% Total Applebee's............................. 0.5% 3.2% 8.5% Rio Bravo Cantinas.............................. 0.9% 9.5% 7.6% Total system sales (in thousands): Applebee's...................................... $ 1,248,383 $ 882,515 $ 604,813 Rio Bravo Cantinas.............................. 48,135 36,679 24,962 Specialty restaurants........................... 14,339 14,833 15,652 ----------------- ---------------- ----------------- Total........................................ $ 1,310,857 $ 934,027 $ 645,427 ================= ================ =================
- -------- (1) Company owned or operated data includes certain Texas restaurants operated by the Company under a management agreement since July 1990 (three at the end of 1993 and two at the end of 1994 and 1995). (2) Specialty restaurants as of December 26, 1993 included two restaurants which were subsequently converted to Rio Bravo Cantina restaurants. (3) Excludes one restaurant which is open for dinner only. (4) When computing comparable restaurant sales, restaurants open for at least 18 months are compared from period to period. 4 The Applebee's System Concept. Each Applebee's restaurant is designed as an attractive, friendly, neighborhood establishment featuring moderately priced, high quality food and beverage items, table service and a comfortable atmosphere. Applebee's restaurants appeal to a wide range of customers including families with children, young adults and senior citizens. Applebee's restaurants are designed according to Company specifications and are located in free-standing buildings, end caps of strip shopping centers, and shopping malls. The Company's two current free-standing restaurant prototypes are approximately 5,000 and 5,400 square feet and seat approximately 175 and 200 patrons, respectively. Each Applebee's restaurant has a centrally located bar and many restaurants offer patio seating. The decor of each restaurant incorporates artifacts and memorabilia such as old movie posters, musical instruments and sports equipment along with photographs and magazine and newspaper articles highlighting local history and personalities, giving each restaurant an individual, neighborhood identity. Menu. Each Applebee's restaurant offers a diverse menu of high quality, moderately priced food and beverage items consisting of traditional favorites and innovative dishes. The restaurants feature a broad selection of entrees, including beef, chicken, seafood and pasta items prepared in a variety of cuisines, as well as appetizers, salads, sandwiches, specialty drinks and desserts. The Company's core menu is supplemented by four food-specific promotions each year. Most restaurants offer beer, wine, liquor and premium specialty drinks. During 1995, alcoholic beverages accounted for 16.4% of Company owned Applebee's restaurant sales. The Company continuously develops and tests new menu items through regional consumer tastings and additional tests in selected Company and franchise restaurants. Franchisees are required to present a menu consisting of approximately 65% of selections from the Company approved list of national core items and approximately 35% of additional items selected from the Company approved list of optional items. Restaurant Operations. All restaurants are operated in accordance with uniform operating standards and specifications relating to the quality and preparation of menu items, selection of menu items, maintenance and cleanliness of premises, and employee conduct. The Company's operational standards are based upon "QSCVC" quality, service, cleanliness, value and courtesy. All standards and specifications are developed by the Company, with input from franchisees, and applied on a system-wide basis. Training. The Company has an extensive 10 to 12 week restaurant operations training course for general managers, kitchen managers and other restaurant managers with development or supervisory responsibility over more than one restaurant. The operations training course consists of in-store task-oriented training and formal administrative, customer service, and financial training. A team of Company employed trainers conducts hands-on training for all restaurant employees to ensure compliance with Company standards. The Company also operates Applebee University, which offers restaurant managers specialized training programs, and conducts regular meetings that emphasize leadership, quality of food preparation, and service. In 1995, the Company conducted 12 Applebee University sessions consisting of approximately four days of continuing education in a classroom setting. The Company, generally through in-restaurant seminars and video presentations, provides periodic training for its restaurant employees regarding topics such as the responsible service of alcohol and food sanitation and storage. 5 Advertising. The Company has historically concentrated its advertising and marketing efforts primarily on four food-specific promotions each year, with each promotion featuring a specific theme or ethnic cuisine. The Company advertises on a national, regional and local basis, utilizing primarily television, radio and print media. In 1995, the Company spent approximately 3.6% of sales on advertising, including 1.5% contributed to the national advertising pool which develops and funds the specific national promotions. All franchisees are also required to contribute 1.5% to the national advertising account. 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 food items 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 market penetration through the opening of multiple restaurants within a particular market results in increased average restaurant sales in that market. 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 128 as of December 31, 1995 through the opening of 64 new restaurants and the acquisition of 37 franchise restaurants over the last three years. The Company anticipates opening at least 30 new Applebee's restaurants in 1996, although it may open more restaurants depending upon the availability of new sites, the rate at which the concept is accepted in new markets, and available capital. The areas in which the Company's restaurants are located and the areas where the Company opened new restaurants or acquired restaurants from franchisees during 1995 are set forth in the following table. The Company currently intends to continue developing restaurants in all of the following areas, with the exception of Atlanta, Georgia. 6
Company Company Restaurants Restaurants Opened and as of Acquired in December 31, Area 1995 1995 ------------------------------------------------------------- ------------------ ------------------ North/Central Texas......................................... 4 21 Minneapolis/St. Paul, Minnesota............................. 4 20 Detroit/Southern Michigan................................... 5 18 New England (includes Massachusetts, Vermont, New Hampshire, Rhode Island, Maine and parts of Connecticut)..................................... 3 18 Kansas City, Missouri/Kansas................................ 3 16 San Diego/Southern California............................... 5 13 Atlanta, Georgia............................................ -- 8 Philadelphia, Pennsylvania.................................. 5 5 Las Vegas/Reno, Nevada...................................... 1 5 Albuquerque, New Mexico..................................... 2 3 Long Island, New York....................................... -- 1 ------------------ ------------------ 32 128 ================== ==================
Restaurant Operations. The staff for a typical Applebee's restaurant consists of one general manager, one kitchen manager, three assistant managers and approximately 85 hourly employees. All managers of Company owned restaurants receive a salary, performance bonus based on restaurant sales, profits and adherence to Company standards, and, historically, an annual stock option grant. As of December 31, 1995, the Company employed five Regional Vice Presidents of Operations/Directors of Operations and 23 District Managers, whose duties include regular restaurant visits and inspections and the ongoing maintenance of the Company standards of quality, service, cleanliness, value, and courtesy. In addition to providing a significant contribution to revenues and operating earnings, Company restaurants are used for many purposes which are integral to the development of the entire system, including testing of new menu items and training of franchise restaurant managers and operating personnel. In addition, the operation of Company restaurants enables the Company to develop and refine its operating standards and specifications further and to understand and better respond to day-to-day management and operating concerns of franchisees. The Applebee's Franchise System Franchise Territory and Restaurant Openings. The Company currently has exclusive franchise arrangements with approximately 60 franchisees, including four international franchisees. The Company has generally selected franchisees that are experienced multi-unit restaurants operators who have been involved with other restaurant concepts. The Company's franchisees operate Applebee's restaurants in 38 states, Canada, the Netherlands, and the Caribbean. Virtually all territories in the contiguous 48 states have been granted to franchisees or designated for Company development. As of December 31, 1995, there were 538 franchise restaurants. Franchisees opened 96 restaurants in 1993, 122 restaurants in 1994, and 135 restaurants in 1995. The Company anticipates more than 100 franchise restaurant openings in 1996. 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 7 the Company, is responsible for selecting the site for each restaurant within its territory, subject to Company approval. The Company conducts a physical inspection, reviews any proposed lease or purchase agreement, and makes available demographic studies. Domestic Franchise Arrangements. Each Applebee's franchise arrangement consists of a development agreement and separate franchise agreements. Development agreements grant the exclusive right to develop a number of restaurants in a designated geographical area. The term of a domestic development agreement is generally 20 years. A separate franchise agreement is entered into by the franchisee relating to the operation of each restaurant which has a term of 20 years and permits renewal for up to an additional 20 years in accordance with the terms contained in the then current franchise agreement (including the then current royalty rates and advertising fees) and upon payment of an additional franchise fee. For each restaurant developed, a franchisee is currently obligated to pay to the Company a royalty fee equal to 4% of the restaurant's monthly gross sales. The Company's current form of development agreement requires an initial franchise fee of $35,000 for each restaurant developed during its term. The terms, royalties and advertising fees under a limited number of franchise agreements and the franchise fees under older development agreements vary from the currently offered arrangements. Advertising. Domestic franchisees are required to spend at least 1.5% of annual gross sales on local advertising and promotional activities, in addition to their 1.5% annual contribution to the national advertising account. Franchisees also promote the opening of each restaurant and the Company, subject to certain conditions, reimburses the franchisee for 50% of the out-of-pocket opening advertising expenditures, up to a maximum of $2,500. The Company can increase the combined amount of the monthly 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. Quality Control. The Company continuously monitors franchisee operations and inspects restaurants, principally through its full-time franchise consultants (22 at December 31, 1995) who report to the Company's Executive Director of Franchise Operations. The Company makes both scheduled and unannounced inspections of restaurants to ensure that only approved products are in use and that Company prescribed practices and procedures are being followed. A minimum of three planned visits are made each year, during which a representative of the Company conducts an inspection and consultation at each restaurant. Franchisees must comply with the Company's high standards of quality, service, cleanliness, value, and courtesy. 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 31, 1995, the Franchise Business Council consisted of seven franchisee representatives and two members of the Company's management. One of the franchisee representatives is a permanent 8 member and any franchisee who operates at least 10% of the total number of system restaurants is reserved a seat (currently one franchisee). The remaining franchisee representatives are elected prior to and announced at the annual franchise convention. In early 1996, the Franchise Business Council was increased to eight franchisee representatives (including one from a franchisee with five or less restaurants) and three members of the Company's management. International Franchise Agreements. The Company has begun pursuing international franchising of the Applebee's concept under a long-term strategy of controlled expansion. This strategy includes seeking highly qualified franchisees with the resources to open multiple restaurants in each territory and the familiarity with the specific local business environment. The Company is currently focusing on international franchising in Canada, Europe and the Mediterranean region. In this regard, the Company currently has three development agreements with European franchisees. The agreements involve the potential development of more than 35 Applebee's restaurants over several years in the Benelux region of Northern Europe, Germany and Sweden. One restaurant was opened during 1995 in the Netherlands, and franchisees opened restaurants in Canada and the Caribbean in both 1994 and 1995. In addition, the Company is in negotiations with potential franchisees for several other countries. In early 1996, the Company became aware that its Caribbean franchisee was experiencing financial difficulties unrelated to the operations of its restaurants, and as a result, may sell two of its three leased properties and close such restaurants. The success of further international expansion will be dependent upon, among other things, foreign 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 foreign jurisdictions, and to supervise international franchisee operations effectively. Franchise Financing. Although financing is the sole responsibility of the franchisee, the Company makes available to franchisees the names and addresses of financial institutions interested in financing the costs of restaurant development for qualified franchisees. None of these financial institutions is an affiliate or agent of the Company, and the Company has no control over the terms or conditions of any financing arrangement offered by these financial institutions. Under a previous franchise financing program, the Company provided a limited guaranty of loans made to certain franchisees. See Notes to Consolidated Financial Statements of the Company included elsewhere herein. On infrequent occasions, when the Company believes it is necessary to support franchise development in a strategic territory, the Company has made secured loans to franchisees, agreed to defer collection of royalties, or guaranteed equipment leases. Rio Bravo Cantina Restaurants General. In March 1995, a wholly-owned subsidiary of the Company merged with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the "IRC Merger," through which the Company acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants. As a result of the IRC Merger, IRC became a wholly-owned subsidiary of the Company. At the time of the IRC Merger, IRC operated 17 restaurants, including 13 Rio Bravo Cantina restaurants, and four other specialty restaurants. As of December 31, 1995, the Company operated 16 Rio Bravo Cantina restaurants (eight in Florida, seven in Georgia, and one in Tennessee). Expansion. The Company will continue developing Rio Bravo Cantina restaurants in the market areas where it currently has Rio Bravo Cantinas and will begin in 1996 to open restaurants in other selected markets. The Company opened four Company owned Rio Bravo Cantina restaurants in 1995, and expects to open five 9 Company owned Rio Bravo Cantina restaurants in 1996. In addition, in late 1995, the Company appointed the first nine Rio Bravo Cantina franchisees, all of whom are successful, experienced Applebee's franchisees. The first group of franchisees has commitments to build more than 50 restaurants over the next several years, and the Company expects that those franchisees will open six to eight restaurants in the second half of 1996. In addition, the Company expects to appoint a second group of franchisees in mid-1996. Concept. Rio Bravo Cantina restaurants offer generous portions of fresh Tex-Mex and Mexican cuisine at attractive prices. The restaurants feature tortillas made on the premises, fresh daily specials, a variety of signature margaritas and distinctive Mexican architecture and interior decor which create a festive atmosphere reminiscent of an authentic Mexican cantina. The design of the restaurants incorporates materials such as exposed brick, barn wood, Mexican tile floors and stucco walls embellished with various signs, inscriptions and other items depicting a rustic border motif. Rio Bravo Cantina restaurants can be located in either free-standing buildings or strip shopping centers and are adaptable to conversions of pre-existing restaurant sites. Existing locations, many of which are conversions of other restaurants, range in size from 6,600 to 10,300 square feet and seat between 225 and 450 customers. Most of the restaurants have a patio area providing additional seating during much of the year. The current free-standing prototype is approximately 6,900 square feet, and seats approximately 240 people with an optional outdoor patio area that seats approximately 45 patrons. Menu. Most Rio Bravo Cantina restaurants are open for lunch and dinner seven days a week. The menu includes traditional Mexican food items such as burritos, enchiladas, tamales and tacos. In addition, the menu offers a wide variety of other favorites such as beef, chicken and shrimp fajitas, quesadillas, shrimp dishes, and a variety of salads and desserts. A large variety of Mexican and domestic beers, Sangria, and signature margaritas are also featured. The lunch menu offers entrees priced from $4.55 to $7.75 and dinner entrees priced from $5.50 to $12.99. Rio Bravo Cantina restaurants currently have an average guest check, including alcoholic beverages, of between $11.75 and $12.75. During 1995, alcoholic beverages accounted for approximately 32% of total restaurant sales. The Rio Bravo Franchise System Franchise Arrangements. The Company has prepared its Uniform Franchise Offering Circular which allows it to offer Rio Bravo Cantina franchises in all but the limited number of states that require registration; with respect to those states, the Company has prepared and is in the process of qualifying its franchise disclosure documents. Each Rio Bravo Cantina franchise arrangement consists of a development agreement and separate franchise agreements. Development agreements grant the exclusive right to develop a number of restaurants in a designated geographical area. The term of a domestic development agreement is generally 15 years. A separate franchise agreement is entered into by the franchisee relating to the operation of each restaurant which has a term of 15 years and permits renewal for up to an additional 15 years in accordance with the terms contained in the then current franchise agreement (including the then current royalty rates and advertising fees) and upon payment of an additional franchise fee. For each restaurant developed, a franchisee is obligated to pay to the Company a royalty fee equal to 4% of the restaurant's monthly gross sales through 1999 and 4.25% thereafter. The development agreement requires an initial franchise fee of $40,000 for each restaurant developed during its term. Franchisees are currently required to spend at least 1.5% of annual gross sales on local advertising and promotional activities, in addition to a 2.0% annual contribution to the national advertising account. 10 Specialty Restaurants In connection with the acquisition of the Rio Bravo Cantina concept, the Company also acquired four specialty restaurants, comprised of two Green Hills Grille restaurants in Nashville, Tennessee and Huntsville, Alabama, an upscale Rio Bravo Cantina called the Rio Bravo Grill in Atlanta, Georgia and Ray's on the River, in Atlanta, Georgia. The Company currently does not intend to expand any of the specialty restaurant concepts. Competition The restaurant industry is highly competitive with respect to price, service, location, concept and food type and quality, and competition is expected to intensify. There are a number of well-established competitors with substantially greater financial and other resources than the Company. Some of the Company's competitors have been in existence for a substantially longer period than the Company and may be better established in the markets where the Company's restaurants are or may be located. The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns, the availability and cost of suitable locations, and the type, number, and location of competing restaurants. The Company has begun to experience increased competition in attracting and retaining qualified management level operating personnel. In addition, factors such as inflation, increased food, labor and benefits costs, and the availability of and competition for hourly employees may adversely affect the restaurant industry in general and the Company's restaurants in particular. Service Marks The Company owns the rights to the "Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina" service marks and certain variations thereof in the United States and, with respect to the Applebee's mark, in various foreign countries. The Company is aware of names and marks similar to the service marks of the Company used by third parties in certain limited geographical areas. The Company does not know of any infringing uses that it believes would materially affect its business. 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 assure compliance with all applicable codes and 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 11 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 problems may be encountered in the future; however, the Company does not believe any such compliance problems 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 31, 1995, the Company employed approximately 14,400 full and part-time employees, of whom approximately 300 were corporate personnel, 850 were restaurant managers or manager trainees and 13,250 were employed in non-management full and part-time restaurant positions. Of the 300 corporate employees, 85 were in management positions and 215 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. 12 Executive Officers of the Registrant The executive officers of the Company as of December 31, 1995 are shown below.
Name Age Position Abe J. Gustin, Jr................61 Chairman of the Board of Directors and Chief Executive Officer Lloyd L. Hill....................51 President, Chief Operating Officer and Member of the Board of Directors Ronald B. Reck...................47 Executive Vice President and Chief Administrative Officer (resigned as an officer effective January 31, 1996) Burton M. Sack...................58 Executive Vice President of New Business Development and Member of the Board of Directors George D. Shadid.................41 Executive Vice President, Chief Financial Officer and Treasurer Robert A. Martin.................65 Senior Vice President of Marketing and Member of the Board of Directors (promoted to Executive Vice President of Marketing effective January 1, 1996) Stuart F. Waggoner...............50 Senior Vice President of Operations Philip J. Hickey, Jr.............41 President and Chief Operating Officer of Rio Bravo International, Inc. (a wholly-owned subsidiary of Applebee's International, Inc.) Steven K. Lumpkin................41 Vice President of Administration (promoted to Senior Vice President of Administration effective January 1, 1996)
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 continues to serve as Chief Executive Officer of the Company. From 1983 to 1990, he also served as Chairman of Juneau Holding Co., a Kansas City, Missouri-based franchisee which operated Taco Bell restaurants. Lloyd L. Hill was elected a director of the Company in August 1989 and was appointed Executive Vice President and Chief Operating Officer of the Company in January 1994. In December 1994, he assumed the role of President in addition to his role as Chief Operating Officer. From 1980 to 1994, he served as President and a director of Kimberly Quality Care, a home health care and nurse personnel staffing company. Ronald B. Reck was employed by the Company in March 1991. He served as Executive Vice President of Human Resources and Training until January 1993 when he was named Executive Vice President and Chief Administrative Officer. From 1987 until March 1991, he was a self-employed consultant to the Company in the personnel, human resources and corporate development areas. During the period from 1984 through 1990, he was President of Aero-Mark Services, Inc., a temporary health care personnel leasing service company located in Kansas City, Missouri. Mr. Reck is the husband of Johyne Reck, a director of the Company. Effective January 31, 1996, Mr. Reck resigned as an officer of the Company but will continue as an employee until December 31, 1996. Burton M. Sack was elected a director and appointed an Executive Vice President of the Company effective October 24, 1994. In January 1996, Mr. Sack was appointed Executive Vice President of New Business Development with 13 responsibility for international franchising. Mr. Sack was the principal shareholder, a director and the President of Pub Ventures of New England, Inc., a former franchisee of the Company which was acquired by the Company in October 1994. Mr. Sack is on the board of advisors of Restaurant Associates, Inc. George D. Shadid was employed by the Company in August 1992, and served as Senior Vice President and Chief Financial Officer until January 1994 when he was promoted to Executive Vice President and Chief Financial Officer. He also became Treasurer in March 1995. From 1985 to 1987, he served as Corporate Controller of Gilbert/Robinson, Inc., at which time he was promoted to Vice President, and in 1988 assumed the position of Vice President and Chief Financial Officer, which he held until joining the Company. In November 1991, Gilbert/Robinson, Inc. filed a petition for bankruptcy, which was discharged in December 1992. From 1976 until 1985, Mr. Shadid was employed by Deloitte & Touche LLP. Robert A. Martin was elected a director of the Company in August 1989. In April 1991, he became Vice President of Marketing, and in January 1994, he was promoted to Senior Vice President of Marketing. In January 1996, Mr. Martin was promoted to Executive Vice President of Marketing. From January 1990 to April 1991, he served as President of Kayemar Enterprises, a Kansas City-based marketing consulting firm. From 1983 to January 1990, he served as the President, Chief Operating Officer and a director of Juneau Holding Co., of which Mr. Gustin, Chief Executive Officer of the Company, was Chairman. From July 1977 to June 1981, he served as President of United Vintners Winery and prior to that time was employed for 25 years by Schlitz Brewing Company, most recently in the position of Senior Vice President of Sales and Marketing. Stuart F. Waggoner has been an employee of the Company since December 1988 and served as the Executive Director of Franchise Operations until March 1991, when he became Vice President of Franchise Operations. In December 1994, Mr. Waggoner assumed the newly created position of Senior Vice President of Operations, and has overall responsibility for franchise and Company owned Applebee's restaurant operations. From October 1987 to December 1988, Mr. Waggoner was a Vice President of Operations for Eateries', Inc., a restaurant company based in Oklahoma City, Oklahoma. From 1985 to July 1987, Mr. Waggoner was President of Pendleton's Bar & Grill in Dallas, Texas. From October 1974 to March 1985, Mr. Waggoner was Vice President of Restaurant Administration for TGI Friday's, Inc., in Dallas, Texas. Philip J. Hickey, Jr. joined the Company in connection with the merger with Innovative Restaurant Concepts, Inc. ("IRC") in March 1995 where he had been President and Chief Operating Officer since 1992. He currently serves as President and Chief Operating Officer of Rio Bravo International, Inc., a wholly-owned subsidiary of Applebee's International, Inc. He co-founded the Green Hills Grille concept in 1990 in Nashville, Tennessee, which was acquired by IRC in 1992. Mr. Hickey was the co-creator of the Cooker Restaurant concept, founded in 1984, and was President and Chief Operating Officer of the Cooker Restaurant Corporation from 1984 to 1989. From 1976 to 1983, Mr. Hickey was employed by Gilbert/Robinson, Inc., operators of the Houlihan's restaurant chain. Steven K. Lumpkin was employed by the Company in May 1995 as Vice President of Administration. In January 1996, he was promoted to Senior Vice President of Administration. From July 1993 until January 1995, Mr. Lumpkin was a Senior Vice President with a division of the Olsten Corporation, Olsten Kimberly Quality Care. From June 1990 until July 1993, Mr. Lumpkin was an Executive Vice President and a member of the board of directors of Kimberly Quality Care. From January 1978 until June 1990, Mr. Lumpkin was employed by Price Waterhouse LLP, where he served as a management consulting partner and certified public accountant. 14 Item 2. Properties At December 31, 1995, the Company owned or operated 148 restaurants, of which it leased the land and building for 62 sites, owned the building and leased the land for 31 sites, and owned the land and building for 55 sites. In addition, as of December 31, 1995, the Company owned four sites for future development of restaurants and had entered into 13 lease agreements for restaurant sites the Company plans to open during 1996. The Company's leases generally have an initial term of 10 to 25 years, with renewal terms of 5 to 20 years, and provide for a fixed rental plus, in certain instances, percentage rentals based on gross sales. The Company owns an 80,000 square foot office building in which its corporate offices are headquartered in Overland Park, Kansas, located in the metropolitan Kansas City area. As of December 31, 1995, approximately 40% of the building was leased to third parties until such time as the Company may need additional office space. The Company also leases office space in certain of the regions in which it operates restaurants. 15 The following table sets forth the 45 states and the four international areas in which Applebee's restaurants are located and the number of restaurants operating in each state or area as of December 31, 1995:
Number of Restaurants ----------------------------------------------------- State Company or Owned or Area Franchise Operated Total System -------------------------------- -------------- -------------- -------------- Domestic: Alabama........................ 15 -- 15 Arizona........................ 12 -- 12 Arkansas....................... 4 -- 4 California..................... 23 13 36 Colorado....................... 20 -- 20 Florida........................ 47 -- 47 Georgia........................ 34 8 42 Idaho.......................... 1 -- 1 Illinois....................... 19 -- 19 Indiana........................ 25 -- 25 Iowa........................... 10 -- 10 Kansas......................... 7 6 13 Kentucky....................... 17 -- 17 Louisiana...................... 9 -- 9 Maryland....................... 5 -- 5 Massachusetts.................. -- 7 7 Michigan....................... 3 18 21 Minnesota...................... -- 20 20 Mississippi.................... 8 -- 8 Missouri....................... 14 10 24 Montana........................ 1 -- 1 Nebraska....................... 5 -- 5 Nevada......................... -- 5 5 New Hampshire.................. -- 7 7 New Jersey..................... 5 -- 5 New Mexico..................... -- 3 3 New York....................... 19 1 20 North Carolina................. 25 -- 25 North Dakota................... 5 -- 5 Ohio........................... 35 -- 35 Oklahoma....................... 4 -- 4 Oregon......................... 3 -- 3 Pennsylvania................... 10 5 15 Rhode Island................... -- 3 3 South Carolina................. 32 -- 32 South Dakota................... 2 -- 2 Tennessee...................... 38 -- 38 Texas.......................... 19 21 40 Utah........................... 2 -- 2 Vermont........................ -- 1 1 Virginia....................... 34 -- 34 Washington..................... 6 -- 6 West Virginia.................. 1 -- 1 Wisconsin...................... 12 -- 12 Wyoming........................ 1 -- 1 International: Canada......................... 2 -- 2 The Netherlands................ 1 -- 1 The Caribbean.................. 3 -- 3 -------------- -------------- -------------- 538 128 666 ============== ============== ==============
16 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. Item 3. Legal Proceedings As of December 31, 1995, the Company was using assets owned by a former franchisee in the operation of two restaurants under a purchase rights agreement which required the Company to make certain payments to the franchisee's lender. In 1991, a dispute arose between the lender and the Company over the amount of the payments due the lender. Based upon a then current independent appraisal, the Company offered to settle the dispute and purchase the assets for $1,000,000 in 1991. The lender rejected the Company's offer and claimed that the Company had guaranteed the entire $2,400,000 debt of the franchisee. In November 1992, the lender was declared insolvent by the FDIC and has since been liquidated. The Company was contacted by the FDIC, and in 1993, the Company offered to settle the issue and purchase the assets at the three restaurants then being operated for $182,000. The Company closed one of the three restaurants in 1994 and lowered its offer to $120,000 to settle the issue and purchase the assets at the two then remaining restaurants. The FDIC has declined to accept the Company's offer, indicating instead its preliminary position that the Company should pay the entire debt of the franchisee. The Company closed one of the two remaining restaurants in February 1996, and does not currently intend to make an additional settlement offer to the FDIC. In the event that the Company were to pay an amount determined to be in excess of the fair market value of the assets, the Company will recognize a loss at the time of such payment. In addition, the Company is involved in various legal actions arising in the normal course of business. While the resolution of any of such actions or the matter described above may have an impact on the financial results for the period in which it is resolved, the Company believes that the ultimate disposition of these matters will not, in the aggregate, have a material adverse effect upon its business or consolidated financial position. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 1. The common stock of the Company is traded on The Nasdaq Stock Market under the symbol APPB. The table below sets forth for the fiscal quarters indicated the reported high and low last sale prices of the Company's common stock, as reported on The Nasdaq Stock Market.
1995 1994 ------------------------------- ------------------------------- High Low High Low --------------- --------------- --------------- --------------- First Quarter $ 22.00 $ 13.38 $ 25.00 $ 18.75 Second Quarter $ 26.50 $ 20.50 $ 25.25 $ 11.00 Third Quarter $ 31.50 $ 23.50 $ 19.75 $ 11.25 Fourth Quarter $ 29.75 $ 21.63 $ 20.25 $ 12.75
2. Number of stockholders of record at December 31, 1995: 1,296 3. An annual dividend of $0.05 per common share was declared on December 8, 1994 for stockholders of record on December 20, 1994, and the dividend was payable on January 27, 1995. An annual dividend of $0.06 per common share was declared on November 21, 1995 for stockholders of record on December 6, 1995, and the dividend was payable on January 12, 1996. The Company presently anticipates continuing the payment of cash dividends based upon its expected 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 1996 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. 18 Item 6. Selected Financial Data The following table sets forth for the periods and the dates indicated selected financial data of the Company. All amounts reflect the mergers with Pub Ventures of New England, Inc. and Innovative Restaurant Concepts, Inc., which were accounted for as poolings of interests. The fiscal year ended December 31, 1995 contained 53 weeks, and all other periods presented contained 52 weeks. The following should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Form 10-K.
Fiscal Year Ended -------------------------------------------------------------------------------- December 31, December 25, December 26, December 27, December 29, 1995 1994 1993 1992 1991 --------------- --------------- --------------- --------------- ---------------- (in thousands, except per share amounts) STATEMENT OF EARNINGS DATA: Company restaurant sales.............. $ 299,824 $ 222,445 $ 159,482 $ 85,459 $ 73,877 Franchise income...................... 43,739 31,419 21,324 14,319 9,464 --------------- --------------- --------------- --------------- ---------------- Total operating revenues........... $ 343,563 $ 253,864 $ 180,806 $ 99,778 $ 83,341 =============== =============== =============== =============== ================ Operating earnings.................... $ 45,712 $ 29,311 $ 19,677 $ 9,226 $ 7,033 Pro forma net earnings................ $ 27,420 $ 17,823 $ 12,551 $ 6,335 $ 4,245 Pro forma net earnings per common share....................... $ 0.94 $ 0.64 $ 0.46 $ 0.26 $ 0.21 Dividends per share................... $ 0.06 $ 0.05 $ 0.04 $ 0.03 $ 0.02 Weighted average shares outstanding........................ 29,319 27,970 27,543 24,755 19,763 BALANCE SHEET DATA (AT END OF FISCAL YEAR): Total assets.......................... $ 270,680 $ 180,014 $ 138,680 $ 92,383 $ 47,318 Long-term obligations, including current portion.................... $ 27,427 $ 38,697 $ 19,845 $ 10,212 $ 7,438 Stockholders' equity.................. $ 203,993 $ 108,788 $ 92,680 $ 68,561 $ 30,732
19 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 per 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. Beginning in fiscal 1995, the cost of meals provided to employees and other complimentary meals have been classified as labor costs and direct and occupancy costs, respectively. Previously, the retail price of such meals was reflected in Company restaurant sales with corresponding amounts reflected as labor costs or direct and occupancy costs. The consolidated financial statements for all periods presented have been reclassified to conform to the presentation adopted in fiscal 1995, the effects of which were not material. 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, 1993 and December 25, 1994 each contained 52 weeks, and are referred to hereafter as 1993 and 1994, respectively. The Company's fiscal year ended December 31, 1995 contained 53 weeks, and is referred to hereafter as 1995. Recent Acquisitions During 1993, the Company acquired 14 franchise restaurants in Minnesota, effective for financial reporting purposes on February 27, 1993. The Minnesota acquisition was accounted for as a purchase and, accordingly, the results of operations of such restaurants are included in the Company's consolidated statements of earnings subsequent to February 26, 1993 and are hereafter referred to as the "Minnesota operations." On October 24, 1994, a wholly-owned subsidiary of the Company merged with and into Pub Ventures of New England, Inc. ("PVNE"), the Company's franchisee for the New England area, referred to herein as the "PVNE Merger." As a result of the PVNE Merger, PVNE became a wholly-owned subsidiary of the Company. The PVNE Merger was accounted for as a pooling of interests and, accordingly, the accompanying consolidated financial statements include the accounts and operations of the merged entities for all periods presented. At the time of the PVNE Merger, PVNE operated 14 Applebee's restaurants. On March 23, 1995, a wholly-owned subsidiary of the Company merged with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the "IRC Merger." As a result of the IRC Merger, IRC became a wholly-owned subsidiary of the Company. The IRC Merger was accounted for as a pooling of interests and, accordingly, the accompanying consolidated financial statements include the accounts and operations of the merged entities for all periods presented. At the time of the IRC Merger, IRC operated 17 restaurants, including 13 Rio Bravo Cantina restaurants, and four other specialty restaurants, comprised of Ray's on the River, two Green Hills Grille restaurants, and the Rio Bravo Grill. During 1993, IRC acquired six Casa Gallardo restaurant sites which have been 20 subsequently converted to Rio Bravo Cantina restaurants. The four specialty restaurants and the Casa Gallardo restaurants prior to their conversion to Rio Bravo Cantina restaurants are included in "specialty restaurants." On April 3, 1995, the Company acquired the operations and assets of five franchise restaurants in the Philadelphia metropolitan area, referred to herein as the "Philadelphia Acquisition." The Philadelphia Acquisition was accounted for as a purchase and, accordingly, the results of operations of such restaurants have been reflected in the 1995 financial statements subsequent to the date of acquisition. Prior to September 7, 1994, PVNE was classified as an S Corporation and accordingly, stockholders were responsible for paying their proportionate share of federal and certain state income taxes. In addition, the combined earnings of IRC included earnings of limited partnerships which were not taxable entities for federal and state income tax purposes. The accompanying consolidated statements of earnings reflect provisions for income taxes on a pro forma basis as if the Company had been liable for federal and state income taxes on PVNE's earnings prior to September 7, 1994 and the earnings of IRC's limited partnerships at statutory rates. Results of Operations The following table sets forth, for the periods indicated, information derived from the Company's consolidated statements of earnings expressed as a percentage of total operating revenues, except where otherwise noted. Percentages may not add due to rounding.
Fiscal Year Ended ------------------------------------------------ December 31, December 25, December 26, 1995 1994 1993 --------------- ---------------- --------------- Revenues: Company restaurant sales........................... 87.3% 87.6% 88.2% Franchise income................................... 12.7 12.4 11.8 --------------- ---------------- --------------- Total operating revenues........................ 100.0% 100.0% 100.0% =============== ================ =============== Cost of sales (as a percentage of Company restaurant sales): Food and beverage.................................. 28.3% 29.2% 29.3% Labor.............................................. 31.7 31.8 31.9 Direct and occupancy............................... 24.1 24.2 23.4 Pre-opening expense................................ 0.8 0.9 1.0 --------------- ---------------- --------------- Total cost of sales............................. 84.8% 86.1% 85.6% =============== ================ =============== General and administrative expenses................... 11.3% 11.5% 12.5% Merger costs.......................................... 0.5 0.4 -- Amortization of intangible assets..................... 0.7 0.8 1.1 Loss on disposition of restaurants and equipment...... 0.2 0.3 0.1 --------------- ---------------- --------------- Operating earnings.................................... 13.3 11.6 10.9 --------------- ---------------- --------------- Other income (expense): Investment income................................. 0.5 0.4 0.9 Interest expense.................................. (0.7) (0.8) (0.6) Other income...................................... 0.1 0.1 0.1 --------------- ---------------- --------------- Total other income (expense)................... (0.1) (0.3) 0.4 --------------- ---------------- --------------- Earnings before income taxes.......................... 13.2 11.3 11.3 Income taxes (including pro forma provision for income taxes)...................................... 5.2 4.3 4.4 --------------- ---------------- --------------- Pro forma net earnings................................ 8.0% 7.0% 6.9% =============== ================ ===============
21 Fiscal Year Ended December 31, 1995 Compared With Fiscal Year Ended December 25, 1994 Company Restaurant Sales. Overall Company restaurant sales increased $77,379,000 (35%) from $222,445,000 in 1994 to $299,824,000 in 1995. Sales for Company owned Applebee's restaurants increased $66,417,000 (39%) from $170,933,000 in 1994 to $237,350,000 in 1995, due primarily to Company restaurant openings and sales from the five Philadelphia restaurants acquired in April 1995. Sales for the Rio Bravo Cantina restaurants were $36,679,000 and $48,135,000 in 1994 and 1995, respectively, and sales for the specialty restaurants were $14,833,000 and $14,339,000 in 1994 and 1995, respectively. The increase in sales for the Rio Bravo Cantina restaurants resulted primarily from Company restaurant openings. The decrease in sales for the specialty restaurants was due to the conversion of two Casa Gallardo restaurants to Rio Bravo Cantina restaurants during 1994. Comparable restaurant sales at Company owned or operated Applebee's restaurants increased by 0.3% in 1995. The Company does not expect significant comparable restaurant sales increases and may experience comparable restaurant sales decreases during the 1996 fiscal year for Company owned Applebee's restaurants, as many of its restaurants are operating near sales capacity and are experiencing increased competition in certain markets. Weighted average weekly sales at Company owned or operated Applebee's restaurants increased slightly from $39,924 in 1994 to $39,977 in 1995. Comparable restaurant sales for the Rio Bravo Cantina restaurants increased by 0.9% in 1995, although weighted average weekly sales (excluding one restaurant that is open for dinner only) declined from $68,637 in 1994 to $66,158 in 1995. The decrease in weighted average weekly sales was due primarily to the lower than average sales volumes of two new restaurants opened during 1994 which were opened in a market where there was already an existing Rio Bravo Cantina restaurant. Weighted average weekly sales at Company owned Applebee's restaurants continue to be adversely affected by the southern California and Texas territories. Weighted average weekly sales in the Texas market improved steadily throughout 1995, increasing from $31,000 in 1994 to $33,000 in 1995, and operating margins improved accordingly. However, the California market has not yet shown improvements in either weighted average weekly sales, which decreased from $28,000 in 1994 to $26,000 in 1995, or operating margins. When entering highly competitive new markets, or territories where the Company has not yet established a market presence, early sales levels and profit margins are expected to be lower than in markets where the Company has a concentration of restaurants or has established customer awareness. Franchise Income. Franchise income increased $12,320,000 (39%) from $31,419,000 in 1994 to $43,739,000 in 1995. This increase was due primarily to the increased number of franchise restaurants operating during 1995 as compared to 1994. Franchise restaurant weighted average weekly sales decreased 0.2%, and comparable franchise restaurant sales increased 0.5% in 1995. The remaining increase in franchise income was due to an increase in franchise fees of $409,000 in 1995 resulting from an increase in the number of franchise restaurant openings from 122 in 1994 to 135 in 1995. Cost of Company Restaurant Sales. Food and beverage costs decreased from 29.2% in 1994 to 28.3% in 1995, primarily as a result of the menu price increase implemented in mid-July 1994 at Applebee's restaurants, operational improvements, purchasing efficiencies resulting from the Company's rapid growth and early payment discounts. These items were partially offset by an increase in food costs in the second quarter of 1995 as a result of the winter flooding in California which caused shortages of certain produce items and a significant increase in related costs. The Company did not increase its menu prices to offset the effects of such increased costs. In addition, food and beverage costs 22 were negatively impacted by the effect of the continued decline in beverage sales, as a percentage of overall Company restaurant sales, from 20.5% in 1994 to 18.9% in 1995, as margins on alcoholic beverage sales are higher than those for food sales. Management believes that the reduction in beverage sales is due in part to the continuation of the overall trend toward increased awareness of responsible alcohol consumption. Labor costs decreased slightly from 31.8% in 1994 to 31.7% in 1995. Labor costs, as a percentage of sales, were positively impacted by an overall reduction in workers' compensation insurance costs due to favorable historical claims experience, but were adversely affected by an increase in management costs and the lower sales volumes in the southern California market. Direct and occupancy costs decreased slightly from 24.2% in 1994 to 24.1% in 1995. The decrease was due primarily to a decrease in rent expense resulting from an increase in the proportion of owned versus leased properties. The southern California and Texas markets continue to have a negative impact on overall direct and occupancy costs due to the absorption of such expenses, which are primarily fixed in nature, over a lower sales base in those markets. General and Administrative Expenses. General and administrative expenses decreased in 1995 to 11.3% from 11.5% in 1994, due primarily to the absorption of general and administrative expenses over a larger revenue base. General and administrative expenses increased by $9,586,000 during 1995 compared to 1994 due primarily to the costs of additional personnel associated with the Company's development efforts and system-wide expansion, and higher incentive compensation expense. A portion of the increase was due to an increase in the Company's training costs relating to new Company and franchise restaurant openings and the training of restaurant managers. Merger Costs. The Company incurred merger costs of $1,770,000 in 1995 relating to the IRC Merger. The impact of these costs on pro forma net earnings per common share was approximately $0.06 in 1995. The Company also incurred merger costs of $920,000 in 1994 relating to the PVNE Merger. The impact of these costs on pro forma net earnings per common share was approximately $0.03 in 1994. Loss on Disposition of Restaurants and Equipment. During 1995, the Company recognized a loss of $615,000 relating to the planned disposition of two restaurants in early 1996, including $275,000 relating to one restaurant managed under a purchase rights agreement. The Company continues to operate one restaurant under this agreement. During 1994, the Company recognized a loss of $223,000 resulting from the closure and termination of the lease agreement of one restaurant managed under the purchase rights agreement. This loss was partially offset by a gain of $54,000 resulting from the sale of one restaurant to a new franchisee. In addition, during 1994 the Company replaced a majority of its restaurant point-of-sale systems with upgraded systems technology which resulted in a write-off of approximately $552,000 for the costs of the existing equipment in 1994. Investment Income. Investment income increased in 1995 compared to 1994 primarily as a result of increases in cash and cash equivalents and short-term investments resulting from the proceeds of the Company's stock offering in July 1995. Interest Expense. Interest expense increased in 1995 compared to 1994 primarily as a result of interest related to the $20,000,000 of senior unsecured notes issued in the second quarter of 1994 and borrowings under the revolving credit facility prior to the Company's stock offering in July 1995. This increase was partially offset by a decrease in long-term debt resulting from the payoff of the debt assumed in connection with the IRC Merger. 23 Income Taxes. The effective income tax rate, as a percentage of earnings before income taxes, was 39.5% in 1995 compared to 37.7% in 1994. Excluding non-deductible merger costs, the effective income tax rate would have been 38.0% in 1995 compared to 36.7% in 1994. The increase in the Company's overall effective tax rate in 1995 was due to an increase in state income taxes, the elimination of the Targeted Jobs Tax Credit in 1995, and a reduction in tax-exempt interest. Fiscal Year Ended December 25, 1994 Compared With Fiscal Year Ended December 26, 1993 Company Restaurant Sales. Company restaurant sales increased $62,963,000 (39%) from $159,482,000 in 1993 to $222,445,000 in 1994. Company restaurant sales for Applebee's restaurants increased $52,065,000 (44%) from $118,868,000 in 1993 to $170,933,000 in 1994. Sales from the Minnesota operations accounted for $8,317,000 of the increase, due primarily to the inclusion of such operations for the entire 1994 fiscal year while the 1993 fiscal year included only 43 weeks of sales from the Minnesota operations. The remaining increase in sales resulted primarily from Company restaurant openings, other acquisitions in 1993 and 1994, and increases in comparable restaurant sales. Sales for the Rio Bravo Cantina restaurants were $24,962,000 and $36,679,000 in 1993 and 1994, respectively, and sales for the specialty restaurants were $15,652,000 and $14,833,000 in 1993 and 1994, respectively. Comparable restaurant sales at Company owned or operated Applebee's restaurants increased by 3.7% in 1994. The increase in comparable restaurant sales was due in part to a menu price increase implemented in mid-July 1994 in selected markets for certain menu items. Such increase was partially offset by lower guest check averages resulting from the "triple choice" special offered as part of the Company's 1994 "Summerfare" promotion. The "triple choice" special was a combination of an appetizer, salad, and dessert for one relatively low price. Weighted average weekly sales at Company owned or operated Applebee's restaurants decreased from $40,146 in 1993 to $39,924 in 1994. Excluding the California and Texas markets, weighted average weekly sales at Company owned Applebee's restaurants increased 4.2% from $41,668 in 1993 to $43,428 in 1994. The increase in sales for the Rio Bravo Cantina restaurants of $11,717,000 resulted primarily from increases in sales volumes of existing restaurants, the full year impact of two Casa Gallardo restaurants which were converted to Rio Bravo Cantina restaurants during 1993, and the conversion of three additional Casa Gallardo restaurants to Rio Bravo Cantina restaurants during 1994. Comparable restaurant sales for the Rio Bravo Cantina restaurants increased by 9.5% in 1994 and weighted average weekly sales (excluding one restaurant that is open for dinner only) increased 5.0% from $65,346 in 1993 to $68,637 in 1994. Overall weighted average weekly sales for Applebee's restaurants were adversely affected by the southern California and Texas territories where the weighted average weekly sales of Company owned restaurants were approximately $28,000 and $31,000, respectively, in 1994. Profitability in the southern California and Texas markets was adversely affected by the lower sales volumes and operating inefficiencies at recently opened restaurants. The operations of the Company owned restaurants in these markets increased overall cost of sales excluding pre-opening expense (as a percentage of Company restaurant sales) by approximately 2.1% during 1994. As of December 25, 1994, the Company had eight restaurants open in southern California, of which six opened in 1994. In addition, the Company owned 15 restaurants in the Texas area, of which seven were opened or acquired in 1994. 24 Franchise Income. Franchise income increased $10,095,000 (47%) from $21,324,000 in 1993 to $31,419,000 in 1994. This increase was due primarily to the increased number of franchise restaurants operating during 1994 as compared to 1993. Weighted average weekly sales and comparable restaurant sales at franchise restaurants increased 2.9% and 3.1%, respectively, in 1994, but were adversely affected by lower guest check averages resulting from the "triple choice" special offered as part of the Company's 1994 "Summerfare" promotion. Cost of Company Restaurant Sales. Food and beverage costs decreased from 29.3% in 1993 to 29.2% in 1994 as a result of the menu price increase implemented in mid-July 1994 at Applebee's restaurants and operational efficiencies. Such decreases were partially offset by the effect of the continued decline in beverage sales, as a percentage of overall Company restaurant sales, from 21.9% in 1993 to 20.5% in 1994. Labor costs decreased slightly from 31.9% in 1993 to 31.8% in 1994. Labor costs were positively impacted by an overall reduction in workers' compensation and medical insurance costs due to favorable claims experience, but these decreases were offset, in part, by the effect of the lower sales volumes in the southern California and Texas markets. Direct and occupancy costs increased from 23.4% in 1993 to 24.2% in 1994. The increase was due primarily to increased levels of advertising expenditures, higher utility costs in certain newer markets and higher depreciation expense relating to new restaurants during 1994. In addition, the full year effect of the Minnesota operations resulted in an increase in overall rent expense as the Minnesota region has both a higher percentage of leased properties and higher rental rates than the Company restaurants as a whole. The increase in direct and occupancy costs, as a percentage of Company restaurant sales, was also due, in part, to the absorption of such expenses, which are primarily fixed in nature, over a lower sales base in the southern California and Texas markets. Such increases were offset, in part, by a decrease in rent expense for the IRC restaurants due to an increase in the proportion of its owned versus leased properties. General and Administrative Expenses. General and administrative expenses decreased in 1994 to 11.5% from 12.5% in 1993, due primarily to the absorption of general and administrative expenses over a larger revenue base. General and administrative expenses increased by $6,641,000 during 1994 compared to 1993 due primarily to the costs of additional personnel associated with the Company's development efforts and system-wide expansion, and related fringe benefit costs. A portion of the increase was also due to an increase in the Company's training costs relating to new Company and franchise restaurant openings and the training of restaurant managers. Such increases in general and administrative expenses were partially offset by a decrease resulting from management fees associated with the Minnesota operations of $1,117,000 incurred in 1993. The Company realized operating losses of $284,000 and $326,000 during 1994 and 1993, respectively, for the Texas restaurants it operates under an agreement with a former franchisee. The Company closed one of the three restaurants during the second quarter of 1994 and recognized a loss of $223,000, due primarily to the termination of the related lease agreement. The operating results of this restaurant had deteriorated, and by closing this restaurant and incurring the one-time costs of disposition, the Company avoided potentially significant losses in the future. Merger Costs. The Company incurred merger costs of $920,000 in the fourth quarter of 1994 relating to the PVNE Merger. The impact of these costs on pro forma net earnings per common share was approximately $0.03 in 1994. 25 Loss on Disposition of Restaurants and Equipment. As discussed above, during the second quarter of 1994, the Company recognized a loss of $223,000 resulting from the closure and termination of the lease agreement of one of the Texas restaurants. This loss was partially offset by a gain of $54,000 resulting from the sale of one restaurant to a new franchisee. In addition, during 1994 the Company replaced a majority of its restaurant point-of-sale systems with upgraded systems technology which resulted in a write-off of approximately $552,000 for the costs of the existing equipment in 1994. Investment Income. Investment income decreased in 1994 compared to 1993 primarily as a result of decreases in cash and cash equivalents, short-term investments and marketable securities resulting from the Company's utilization of such funds for capital expenditures and for acquisitions in 1993 and 1994. In addition, a gain of $312,000 was realized on the sale of investments in 1993, while a gain of only $112,000 was realized on the sale of investments in 1994. Interest Expense. Interest expense increased in 1994 compared to 1993 primarily as a result of interest on the senior unsecured notes issued in the second quarter of 1994 and borrowings under a line of credit. Income Taxes. The effective income tax rate, as a percentage of earnings before income taxes, was 37.7% in 1994 compared to 38.6% in 1993. The decrease in the Company's overall effective tax rate in 1994 was due primarily to the effect of tax benefits allowed by the Omnibus Budget Reconciliation Act of 1993 beginning in 1994 for FICA taxes paid by the Company on employee tip income. In addition, the Company also earned increased tax credits in 1994 relating to the Targeted Jobs Tax Credit. The effect of these items on the income tax rate was partially offset by the non-deductibility of a majority of the merger costs incurred relating to PVNE. 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 the Minnesota acquisition and the PVNE and IRC Mergers. Capital expenditures were $48,734,000 in 1994 (which includes the acquisition of two franchise restaurants) and $61,581,000 in 1995 (which includes $9,682,000 related to the Philadelphia Acquisition). The Company presently anticipates capital expenditures of between $75,000,000 and $80,000,000 in 1996 primarily for the development of new restaurants, refurbishments of and capital replacements for existing restaurants, and enhancements to information systems for the Company's restaurants and corporate office. The Company currently expects to open approximately 30 Applebee's restaurants and five Rio Bravo Cantina restaurants in 1996. In addition, during 1996 the Company will increase capital spending for refurbishing and remodeling of certain restaurants and for further enhancements to the Company's information systems and related technology. 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 significant 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. 26 In June 1994, the Company completed a $20,000,000 senior unsecured private debt placement with institutional lenders unaffiliated with the Company. In addition, in February 1995, the Company obtained additional long-term debt financing in the form of a $20,000,000 unsecured bank revolving credit facility which expires on December 31, 1997. The debt agreements contain various covenants and restrictions which, among other things, require the maintenance of a stipulated fixed charge coverage ratio and minimum consolidated net worth, as defined, and also limit additional indebtedness in excess of specified amounts. The debt agreements also restrict the amount of retained earnings available for the payment of cash dividends. At December 31, 1995, retained earnings were not restricted for the payment of cash dividends. The Company has been and is currently in compliance with the covenants of all of its debt agreements. On July 28, 1995, the Company completed a public offering of its common stock consisting of 2,100,000 shares sold by the Company and 300,000 shares sold by certain stockholders of the Company. In addition, the Company and the selling stockholders granted the underwriters an option to purchase 315,000 and 45,000 shares, respectively, to cover over-allotments, which was exercised on August 9, 1995. Net proceeds of $60,434,000, after expenses, were received from the offering. A portion of the net proceeds of the offering was used to retire approximately $12,500,000 of debt assumed in connection with the PVNE and IRC Mergers, and to repay the outstanding balance of the Company's revolving credit facility of $5,000,000. The Company believes that the proceeds of the 1995 stock offering, liquid assets, and cash generated from operations, combined with borrowings available under the $20,000,000 revolving credit facility, will provide sufficient funds for its capital requirements for the foreseeable future. As of December 31, 1995, the Company held liquid assets totaling $52,024,000, consisting of cash and cash equivalents ($30,188,000) and short-term investments ($21,836,000). No amounts were outstanding under the revolving credit facility; however, standby letters of credit issued under the facility totaling $213,000 were outstanding as of December 31, 1995. 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. 27 Item 8. Financial Statements and Supplementary Data See the Index to Financial Statements on Page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 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 13, 1996, 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 13, 1996, 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 13, 1996, 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 13, 1996, is incorporated herein by reference. 28 PART IV Item 14. Exhibits and Reports on Form 8-K (a) List of documents filed as part of this report: 1. Financial Statements: The financial statements are listed in the accompanying "Index to Financial Statements" on Page F-1. 2. Exhibits: The exhibits filed with or incorporated by reference in this report are listed on the Exhibit Index beginning on page E-1. (b) Reports on Form 8-K: The Company filed a report on Form 8-K on November 27, 1995, announcing the declaration of a dividend on its common stock to stockholders of record as of December 6, 1995, payable on January 12, 1996. 29 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. By: /s/ Abe J. Gustin, Jr. ------------------------ Abe J. Gustin, Jr. Chairman and Chief Executive Officer Date: March 13, 1996 --------------------- POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Abe J. Gustin, Jr. and Robert T. Steinkamp, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Abe J. Gustin, Jr. Date: March 13, 1996 ---------------------------------------------- ---------------- Abe J. Gustin, Jr. Director, Chairman and Chief Executive Officer (principal executive officer) By: /s/ George D. Shadid Date: March 13, 1996 ---------------------------------------------- ---------------- George D. Shadid Executive Vice President and Chief Financial Officer (principal financial officer) By: /s/ David R. Smith Date: March 13, 1996 ---------------------------------------------- ---------------- David R. Smith Vice President and Controller (principal accounting officer) 30 By: /s/ D. Patrick Curran Date: March 12, 1996 ---------------------------------------------- ---------------- D. Patrick Curran Director By: /s/ Eric L. Hansen Date: March 13, 1996 ---------------------------------------------- ---------------- Eric L. Hansen Director By: /s/ Jack P. Helms Date: March 11, 1996 ---------------------------------------------- ---------------- Jack P. Helms Director By: /s/ Kenneth D. Hill Date: March 8, 1996 ---------------------------------------------- ---------------- Kenneth D. Hill Director By: /s/ Lloyd L. Hill Date: March 13, 1996 ---------------------------------------------- ---------------- Lloyd L. Hill Director By: /s/ Robert A. Martin Date: March 13, 1996 ---------------------------------------------- ---------------- Robert A. Martin Director By: /s/ Johyne H. Reck Date: March 13, 1996 ---------------------------------------------- ---------------- Johyne H. Reck Director By: /s/ Burton M. Sack Date: March 11, 1996 ---------------------------------------------- ---------------- Burton M. Sack Director By: /s/ Raymond D. Schoenbaum Date: March 13, 1996 ---------------------------------------------- ---------------- Raymond D. Schoenbaum Director 31 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
Page Independent Auditors' Reports.........................................................................F-2 Consolidated Balance Sheets as of December 31, 1995 and December 25, 1994.................................................................................F-5 Consolidated Statements of Earnings for the Fiscal Years Ended December 31, 1995, December 25, 1994 and December 26, 1993....................................... F-6 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 31, 1995, December 25, 1994 and December 26, 1993................................ F-7 Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1995, December 25, 1994 and December 26, 1993....................................... F-8 Notes to Consolidated Financial Statements.......................................................... F-10
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 31, 1995 and December 25, 1994 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 31, 1995. The consolidated financial statements give effect to the merger on March 23, 1995 of a wholly-owned subsidiary of Applebee's International, Inc. with and into Innovative Restaurant Concepts, Inc., which has been accounted for using the pooling of interests method as described in Note 4 to the consolidated financial statements. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Pub Ventures of New England, Inc. for the fiscal year ended December 31, 1993, which financial statements reflect total operating revenues constituting approximately 15% of the related consolidated financial statement total for the fiscal year ended December 26, 1993. We also did not audit the combined financial statements of Innovative Restaurant Concepts, Inc. for the fiscal years ended December 25, 1994 and December 26, 1993, which financial statements reflect total assets constituting approximately 16% of the related consolidated financial statement total for 1994 and which reflect total operating revenues constituting approximately 20% and 22% of the related consolidated financial statement totals for each of the fiscal years ended December 25, 1994 and December 26, 1993, respectively. The financial statements of Pub Ventures of New England, Inc. and the combined financial statements of Innovative Restaurant Concepts, Inc. and subsidiaries, Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P., and CG Restaurant Partners, Ltd. (collectively referred to as "IRC") were audited by other auditors, whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts indicated for Pub Ventures of New England, Inc. and IRC in the consolidated financial statements, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the aforementioned reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Applebee's International, Inc. and subsidiaries at December 31, 1995 and December 25, 1994, and the consolidated results of their operations and cash flows for each of the three fiscal years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Kansas City, Missouri February 23, 1996 F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Innovative Restaurant Concepts, Inc. and the Partners of Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P., and CG Restaurant Partners, Ltd.: We have audited the combined balance sheet of INNOVATIVE RESTAURANT CONCEPTS, INC. (a Georgia corporation) AND SUBSIDIARIES, COBB/GWINNETT RIO, LTD. (a Georgia limited partnership), RIO REAL ESTATE, L.P. (a Georgia limited partnership), AND CG RESTAURANT PARTNERS, LTD. (a Georgia limited partnership) as of December 25, 1994 and the related combined statements of operations, stockholders' equity and partners' capital, and cash flows for each of the two years in the period ended December 25, 1994 (not separately presented herein). These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Innovative Restaurant Concepts, Inc. and subsidiaries, Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P., and CG Restaurant Partners, Ltd., as of December 25, 1994 and the results of their operations and their cash flows for each of the two years in the period ended December 25, 1994 in conformity with generally accepted accounting principles. As discussed in Note 9 to the financial statements (not separately presented herein), the stockholders and partners of the Companies entered into an agreement on October 14, 1994 to exchange 100% of the outstanding common stock and partnership units of the Companies for common stock of an unrelated entity. ARTHUR ANDERSEN LLP Atlanta, Georgia March 22, 1995 F-3 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Pub Ventures of New England, Inc.: We have audited the statements of income, retained earnings and cash flows of Pub Ventures of New England, Inc. for the year ended December 31, 1993 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Pub Ventures of New England, Inc. for the year ended December 31, 1993 in conformity with generally accepted accounting principles. COOPERS & LYBRAND Boston, Massachusetts January 29, 1994 F-4 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share amounts)
December 31, December 25, 1995 1994 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.................................................... $ 30,188 $ 9,634 Short-term investments, at market value (amortized cost of $21,530 in 1995 and $9,046 in 1994)............................................... 21,836 8,893 Receivables (less allowance for bad debts of $723 in 1995 and $740 in 1994).. 9,843 7,396 Inventories.................................................................. 10,036 5,159 Prepaid and other current assets............................................. 2,654 2,887 ------------ ------------ Total current assets...................................................... 74,557 33,969 Property and equipment, net..................................................... 159,832 114,729 Goodwill, net................................................................... 25,780 21,113 Franchise interest and rights, net.............................................. 5,805 6,401 Deferred income taxes........................................................... 719 -- Other assets.................................................................... 3,987 3,802 ------------ ------------ $ 270,680 $ 180,014 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............................................ $ 935 $ 3,505 Current portion of obligations under noncompetition and consulting agreement. 220 220 Accounts payable............................................................. 11,183 10,750 Accrued expenses and other current liabilities............................... 22,635 16,713 Accrued dividends............................................................ 1,861 1,269 Accrued income taxes......................................................... 1,641 1,169 ------------ ------------ Total current liabilities................................................. 38,475 33,626 ------------ ------------ Non-current liabilities: Long-term debt - less current portion........................................ 25,832 34,312 Franchise deposits........................................................... 1,168 1,355 Obligations under noncompetition and consulting agreement - less current 440 660 portion................................................................... Deferred income taxes........................................................ -- 715 ------------ ------------ Total non-current liabilities............................................. 27,440 37,042 ------------ ------------ Total liabilities......................................................... 65,915 70,668 Minority interest in joint venture.............................................. 772 558 Commitments and contingencies (Notes 7, 8 and 12) Stockholders' equity: Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares; no shares issued.......................................................... -- -- Common stock - par value $0.01 per share: authorized - 125,000,000 shares; issued - 31,298,517 shares in 1995 and 28,295,479 shares in 1994.......... 313 283 Additional paid-in capital................................................... 148,081 78,675 Retained earnings............................................................ 56,258 30,775 Unrealized gain (loss) on short-term investments, net of income taxes........ 190 (96) ------------ ------------ 204,842 109,637 Treasury stock - 281,772 shares in 1995 and 1994, at cost.................... (849) (849) ------------ ------------ Total stockholders' equity................................................ 203,993 108,788 ------------ ------------ $ 270,680 $ 180,014 ============ ============
See notes to consolidated financial statements. F-5 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts)
Fiscal Year Ended ---------------------------------------------------- December 31, December 25, December 26, 1995 1994 1993 ------------- ------------- -------------- Revenues: Company restaurant sales................................ $ 299,824 $ 222,445 $ 159,482 Franchise income........................................ 43,739 31,419 21,324 ------------- ------------- -------------- Total operating revenues............................. 343,563 253,864 180,806 ------------- ------------- -------------- Cost of Company restaurant sales: Food and beverage....................................... 84,776 64,819 46,757 Labor................................................... 94,935 70,777 50,950 Direct and occupancy.................................... 72,228 53,883 37,283 Pre-opening expense..................................... 2,234 2,093 1,588 ------------- ------------- -------------- Total cost of Company restaurant sales............... 254,173 191,572 136,578 ------------- ------------- -------------- General and administrative expenses........................ 38,753 29,167 22,526 Merger costs............................................... 1,770 920 -- Amortization of intangible assets.......................... 2,305 2,033 1,934 Loss on disposition of restaurants and equipment........... 850 861 91 ------------- ------------- -------------- Operating earnings......................................... 45,712 29,311 19,677 ------------- ------------- -------------- Other income (expense): Investment income....................................... 1,764 1,065 1,675 Interest expense........................................ (2,507) (2,029) (1,075) Other income............................................ 357 253 179 ------------- ------------- -------------- Total other income (expense)......................... (386) (711) 779 ------------- ------------- -------------- Earnings before income taxes............................... 45,326 28,600 20,456 Income taxes............................................... 17,833 9,453 6,693 ------------- ------------- -------------- Net earnings............................................... 27,493 19,147 13,763 Pro forma provision for income taxes of pooled companies... 73 1,324 1,212 ------------- ------------- -------------- Pro forma net earnings..................................... $ 27,420 $ 17,823 $ 12,551 ============= ============= ============== Pro forma net earnings per common share.................... $ 0.94 $ 0.64 $ 0.46 ============= ============= ============== Weighted average shares outstanding........................ 29,319 27,970 27,543
See notes to consolidated financial statements. F-6 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands, except per 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 27, 1992.......... 8,877,475 $ 89 $ 60,791 $ 8,530 $ -- $ (849) $ 68,561 Effect of stock splits........... 17,754,950 187 -- (187) -- -- -- Issuance of common stock in connection with acquisition of restaurants................... 1,276,596 4 9,996 -- -- -- 10,000 Dividends on common stock, at a rate of $0.04 per share.. -- -- -- (879) -- -- (879) Stock options exercised.......... 276,699 2 1,230 -- -- -- 1,232 Income tax benefit upon exercise of stock options.............. -- -- 801 -- -- -- 801 Transactions of pooled companies prior to acquisition, net..... -- -- 579 (1,377) -- -- (798) Pro forma provision for income taxes of pooled companies..... -- -- -- 1,212 -- -- 1,212 Pro forma net earnings........... -- -- -- 12,551 -- -- 12,551 -------------- ---------- ------------ ----------- ----------- ---------- ------------- Balance, December 26, 1993.......... 28,185,720 282 73,397 19,850 -- (849) 92,680 Dividends on common stock, at a rate of $0.05 per share.. -- -- -- (1,269) -- -- (1,269) Stock options exercised.......... 109,759 1 661 -- -- -- 662 Income tax benefit upon exercise of stock options.............. -- -- 215 -- -- -- 215 Unrealized loss on short-term investments, net of income taxes......................... -- -- -- -- (96) -- (96) Transactions of pooled companies prior to acquisition, net..... -- -- 4,402 (6,953) -- -- (2,551) Pro forma provision for income taxes of pooled companies..... -- -- -- 1,324 -- -- 1,324 Pro forma net earnings........... -- -- -- 17,823 -- -- 17,823 -------------- ---------- ------------ ----------- ----------- ---------- ------------- Balance, December 25, 1994.......... 28,295,479 283 78,675 30,775 (96) (849) 108,788 Issuance of common stock from public offering............... 2,415,000 24 60,410 -- -- -- 60,434 Dividends on common stock, $0.06 per share............... -- -- -- (1,861) -- -- (1,861) Stock options exercised: Company....................... 588,038 6 4,649 -- -- -- 4,655 IRC........................... -- -- 1,333 -- -- -- 1,333 Income tax benefit upon exercise of stock options.............. -- -- 2,615 -- -- -- 2,615 Unrealized gain on short-term investments, net of income taxes......................... -- -- -- -- 286 -- 286 Adjustment related to tax basis of pooled entities............ -- -- 250 -- -- -- 250 Pro forma provision for income taxes of pooled company....... -- -- -- 73 -- -- 73 Reclassification of net income of IRC partnerships........... -- -- 149 (149) -- -- -- Pro forma net earnings........... -- -- -- 27,420 -- -- 27,420 -------------- ---------- ------------ ----------- ----------- ---------- -------------- Balance, December 31, 1995.......... 31,298,517 $ 313 $ 148,081 $ 56,258 $ 190 $ (849) $ 203,993 ============== ========== ============ =========== =========== ========== ==============
See notes to consolidated financial statements. F-7 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Fiscal Year Ended ----------------------------------------------- December 31, December 25, December 26, 1995 1994 1993 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Pro forma net earnings........................................ $ 27,420 $ 17,823 $ 12,551 Adjustments to reconcile pro forma net earnings to net cash provided by operating activities: Depreciation and amortization.............................. 11,964 8,997 6,159 Amortization of intangible assets.......................... 2,305 2,033 1,934 Gain on sale of investments................................ (67) (112) (312) Deferred income tax provision (benefit).................... (179) 100 (271) Loss on disposition of restaurants and equipment........... 850 661 91 Pro forma provision for income taxes of pooled companies... 73 1,324 1,212 Changes in assets and liabilities (exclusive of effects of acquisitions other than pooled companies): Receivables................................................ (2,447) (1,101) (1,699) Inventories................................................ (4,877) (2,879) (1,008) Prepaid and other current assets........................... 155 (802) (509) Assets held for resale..................................... -- -- 725 Accounts payable........................................... 433 1,293 5,068 Accrued expenses and other current liabilities............. 5,307 5,269 4,268 Accrued income taxes....................................... (328) (672) 1,631 Franchise deposits......................................... (187) 92 189 Other...................................................... 356 (1,198) (2,325) --------------- --------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 40,778 30,828 27,704 --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments........................... (16,809) (8,306) (5,460) Maturities and sales of short-term investments................ 4,392 9,942 30,717 Purchases of property and equipment........................... (51,899) (45,419) (45,664) Acquisitions of restaurants................................... (9,682) (3,315) (12,800) Proceeds from sale of restaurants and equipment............... 104 1,474 3,078 --------------- --------------- --------------- NET CASH USED BY INVESTING ACTIVITIES...................... (73,894) (45,624) (30,129) --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock........................ 60,434 -- -- Dividends paid................................................ (1,269) (879) (613) Cash transactions of pooled companies prior to acquisition, net -- (2,543) (1,018) Issuance of common stock upon exercise of stock options....... 5,988 662 1,232 Income tax benefit upon exercise of stock options............. 2,615 215 801 Proceeds from issuance of long-term debt...................... 8,087 27,116 13,709 Payments on long-term debt.................................... (22,179) (8,020) (7,675) Payments under noncompetition and consulting agreement........ (220) (244) -- Minority interest in net earnings of joint venture............ 214 69 54 --------------- --------------- --------------- NET CASH PROVIDED BY FINANCING ACTIVITIES.................. 53,670 16,376 6,490 --------------- --------------- --------------- NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 20,554 1,580 4,065 CASH AND CASH EQUIVALENTS, beginning of period................... 9,634 8,054 3,989 --------------- --------------- --------------- CASH AND CASH EQUIVALENTS, end of period......................... $ 30,188 $ 9,634 $ 8,054 =============== =============== ===============
See notes to consolidated financial statements. F-8 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (dollars in thousands)
Fiscal Year Ended ----------------------------------------------------- December 31, December 25, December 26, 1995 1994 1993 ----------------- ----------------- ----------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Income taxes.................................... $ 15,537 $ 9,806 $ 5,114 ================= ================= ================= Interest........................................ $ 3,060 $ 1,927 $ 849 ================= ================= =================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: In connection with the acquisition of 14 restaurants during 1993, the Company issued or assumed notes payable aggregating $2,463,000, entered into a noncompetition and consulting agreement in the amount of $1,124,000 and issued additional common stock aggregating $10,000,000 (see Note 4). Capitalized leases of $2,608,000 were recorded in April 1995 when the Company acquired the operations and assets of five franchise restaurants. A capitalized lease of $424,000 was recorded in July 1995 when the Company entered into a lease for a new restaurant. 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-9 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Applebee's International, Inc. and its subsidiaries (the "Company") develops, franchises and operates casual dining restaurants principally under the names "Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina." As of December 31, 1995, there were 666 Applebee's restaurants, of which 538 were operated by franchisees and 128 were owned or operated by the Company, and the Company also operated 16 Rio Bravo Cantina restaurants and four other specialty restaurants. Such restaurants were located in 45 states, Canada, the Netherlands and the Caribbean. 2. Summary of Significant Accounting Policies Basis of presentation: The consolidated financial statements have been prepared to give retroactive effect to the merger with Innovative Restaurant Concepts, Inc. ("IRC") on March 23, 1995 (see Note 4). Beginning in fiscal 1995, the cost of meals provided to employees and other complimentary meals have been classified as labor costs and direct and occupancy costs, respectively. Previously, the retail price of such meals was reflected in Company restaurant sales with corresponding amounts reflected as labor costs or direct and occupancy costs. The consolidated financial statements for fiscal years 1994 and 1993 have been reclassified to conform to the presentation adopted in fiscal 1995, the effects of which were not material. Principles of consolidation: The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its controlled-interest joint venture. All material intercompany profits, transactions and balances have been eliminated. Fiscal year: The Company's fiscal year ends on the last Sunday of the calendar year. The fiscal year ended December 31, 1995 contained 53 weeks, and the fiscal years ended December 25, 1994 and December 26, 1993 each contained 52 weeks, and are referred to hereafter as 1995, 1994 and 1993, respectively. Short-term investments: Short-term investments are comprised of U.S. government and agency securities, certificates of deposit, state and municipal bonds and preferred stocks. Gains and losses from sales are determined using the specific identification method. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of the beginning of its 1994 fiscal year, the cumulative effect of which was not material. SFAS No. 115 addresses the accounting and reporting for certain investments in debt and equity securities by requiring such investments to be classified in hold-to-maturity, available-for-sale, or trading categories. In accordance with SFAS No. 115, prior years' financial statements have not been restated to reflect the change in accounting method. As of December 31, 1995, all short-term investments have been classified as available-for-sale. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. At December 31, 1995 and December 25, 1994, $7,132,000 and $2,821,000, respectively of "Riblets" were included in inventories in the accompanying consolidated balance sheets. The Company purchases large quantities of Riblets, a specialty menu item on the Applebee's menu, to use in Company owned or operated restaurants as well as to make them available to franchisees generally at its cost. Pre-opening costs: The Company expenses direct training and other costs related to opening new or relocated restaurants in the month of opening. F-10 Property and equipment: Property and equipment are stated at cost. Depreciation is provided primarily on a straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The general ranges of original depreciable lives are as follows: Years Buildings................................................... 20 Leasehold improvements...................................... 5-20 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 $624,000, $201,000 and $43,000 were capitalized during 1995, 1994 and 1993, 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 31, 1995 and December 25, 1994 was $3,739,000 and $2,275,000, respectively. 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 31, 1995 and December 25, 1994 was $5,126,000 and $4,549,000, respectively. Franchise revenues: Franchise revenues are recognized in accordance with SFAS No. 45 which requires deferral until substantial performance of franchisor obligations is complete. Initial franchise fees, included in franchise income in the consolidated statements of earnings, totaled $4,162,000, $3,753,000, and $2,893,000 for 1995, 1994 and 1993, 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 owned restaurants was $12,749,000, $8,793,000 and $6,367,000 for 1995, 1994 and 1993, respectively. Earnings per share: Earnings per share are computed based on the weighted average number of common shares outstanding. The shares issuable under the 1989 Employee Stock Option Plan or the 1995 Equity Incentive Plan (see Note 14) are excluded from the computations, because their dilutive effect is not material. All references to the number of shares and per share amounts have been restated to reflect all stock splits declared by the Company. New Accounting Standards: Effective for fiscal years beginning after December 15, 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets," establishes accounting standards for the impairment of long-lived assets, certain intangibles, and goodwill related to those assets. The Company does not currently expect the adoption of this Statement to have a material effect on its consolidated financial statements. Effective January 1, 1996, SFAS No. 123, "Accounting for Stock-Based Compensation," will require increased disclosure of compensation expense arising from stock compensation plans. The Statement encourages rather than requires companies to adopt a new method that accounts for stock compensation awards based on their estimated fair value at the date they are granted. Companies will be permitted, however, to continue accounting under APB Opinion No. 25 which requires compensation cost 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 will continue to apply APB F-11 Opinion No. 25 in its consolidated financial statements and will disclose pro forma net income and earnings per share in a footnote to its consolidated financial statements, determined as if the new method were applied. Pervasiveness of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Disclosures about Fair Value of Financial Instruments In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," the following methods were used in estimating fair value disclosures for significant financial instruments of the Company. The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The carrying amount of short-term investments is based on quoted market prices. The fair value of the Company's long-term debt, excluding capitalized lease obligations is estimated based on quotations made on similar issues. The estimated fair values of the Company's financial instruments are as follows (in thousands):
December 31, 1995 December 25, 1994 ----------------------------------- ---------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------------- ----------------- ----------------- ---------------- Cash and cash equivalents.............. $ 30,188 $ 30,188 $ 9,634 $ 9,634 Short-term investments................. $ 21,836 $ 21,836 $ 8,893 $ 8,893 Long-term debt, excluding capitalized lease obligations....... $ 23,725 $ 24,811 $ 37,817 $ 36,567
4. Acquisitions IRC Merger: On March 23, 1995, a wholly-owned subsidiary of the Company merged with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the "IRC Merger." Immediately prior to the IRC Merger, IRC's affiliated limited partnerships, Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P. and CG Restaurant Partners, Ltd., were liquidated, and contemporaneously with the IRC Merger, the Company acquired the interests of the limited partners in the distributed assets of these partnerships. As a result of the IRC Merger, IRC became a wholly-owned subsidiary of the Company. A total of approximately 2,630,000 shares of the Company's newly-issued common stock was issued to the shareholders and limited partners of IRC, including IRC shares issued in 1995 upon the exercise of IRC stock options prior to the IRC Merger. IRC employees also exchanged pre-existing stock options for options to purchase approximately 147,000 shares of the Company's common stock. In addition, the Company assumed approximately $13,700,000 of IRC indebtedness, of which $1,270,000 was repaid at closing and the remainder was repaid during 1995. At the time of the IRC Merger, IRC operated 17 restaurants, 13 of which were Rio Bravo Cantinas, a Mexican restaurant concept, and four were other specialty restaurants. F-12 The IRC Merger was accounted for as a pooling of interests and accordingly, the accompanying consolidated financial statements have been restated to include the accounts and operations of the merged entities for all periods presented. All share amounts have been restated to reflect the total number of shares issued in the IRC Merger for all periods presented. Combined and separate results of the Company and IRC during the periods preceding the IRC Merger were as follows (amounts in thousands):
Pro Forma Pro Forma Company IRC Adjustments Combined ----------------- ------------------ ------------------ ------------------ 13 Weeks Ended March 26, 1995: Net sales.......... $ 52,199 $ 13,822 $ -- $ 66,021 Net earnings....... $ 5,519 $ 577 $ (1,843) $ 4,253 1994: Net sales.......... $ 170,933 $ 51,512 $ -- $ 222,445 Net earnings....... $ 15,780 $ 2,242 $ (199) $ 17,823 1993: Net sales.......... $ 118,868 $ 40,614 $ -- $ 159,482 Net earnings....... $ 11,375 $ 1,222 $ (46) $ 12,551
Adjustments have been made to eliminate the impact of intercompany balances and to record provisions for pro forma income taxes for certain affiliates of IRC. Merger costs of $1,770,000 relating to the IRC Merger were expensed in the first quarter of 1995. Merger costs include investment banking fees, legal and accounting fees, and other merger related expenses. The impact of these costs on pro forma net earnings per common share was approximately $0.06 in 1995. PVNE Merger: On October 24, 1994, a wholly-owned subsidiary of the Company merged with and into Pub Ventures of New England, Inc. ("PVNE"), referred to herein as the "PVNE Merger." As a result of the PVNE Merger, PVNE became a wholly-owned subsidiary of the Company. The shareholders of PVNE received an aggregate of 3,300,000 shares of the Company's newly-issued common stock. At the time of the PVNE Merger, PVNE operated 14 Applebee's restaurants, and several restaurant sites were under development. The PVNE Merger was accounted for as a pooling of interests. Merger costs of $920,000 relating to the PVNE Merger were expensed in the fourth quarter of 1994. Merger costs include investment banking fees, legal and accounting fees, and severance and benefits-related costs. The impact of these costs on pro forma net earnings per common share was approximately $0.03 in 1994. Minnesota restaurant acquisition: Effective February 26, 1993, the Company acquired 14 franchise restaurants and certain restaurant sites under development in Minnesota, referred to herein as the "Minnesota Acquisition." The Minnesota Acquisition has been recorded under the purchase method of accounting and, accordingly, the 1993 financial statements reflect the results of operations of the acquired restaurants subsequent to the date of acquisition. The purchase price, including related transaction costs, aggregated $23,548,000, composed of (i) cash payments of $10,741,000, (ii) newly issued promissory notes totaling $1,664,000, (iii) a promissory note in the amount of $799,000 which was assumed by the Company, and (iv) $10,000,000 of aggregate value of the Company's common stock (1,276,596 shares). The Company also entered into a noncompetition and consulting agreement with certain affiliates of the Partnership. This agreement provides for annual payments over a five year term aggregating $1,124,000. The purchase price has been allocated to the fair value of net assets acquired, and resulted in an allocation to goodwill totaling $17,959,000, which is being amortized over 20 years on a straight-line basis. The following summarized unaudited pro forma results of operations of the Company (in thousands, except per share amounts) for 1993 assume the Minnesota Acquisition occurred as of the beginning of the 1993 fiscal year. The pro forma results have been prepared for comparative purposes only and do not purport to F-13 be indicative of the results of operations which would actually have resulted had the Minnesota Acquisition been effected as of the date indicated, or which may result in the future.
1993 --------------------------------- As Reported Pro Forma --------------------------------- Company restaurant sales.................................................. $ 159,482 $ 164,322 Earnings before income taxes.............................................. $ 20,456 $ 21,545 Pro forma net earnings.................................................... $ 12,551 $ 13,147 Pro forma net earnings per common share................................... $ 0.46 $ 0.47 Weighted average shares outstanding....................................... 27,543 27,753
Other restaurant acquisitions: During 1993, the Company acquired the operations of two franchise restaurants and the related leasehold improvements, furniture and fixtures and rights to future development of restaurants in the franchise territories. The Company also acquired the land and building related to one of the restaurants. The total purchase price, for financial reporting purposes, was approximately $1,903,000 (including cash payments to the seller of $1,800,000). The purchase price has been allocated to the fair value of net assets acquired, and resulted in an allocation to goodwill of approximately $612,000. The 1993 financial statements reflect the results of operations of such restaurants subsequent to the date of acquisition. During 1994, the Company acquired the operations of two franchise restaurants and the related land, furniture and fixtures. The total purchase price was approximately $3,315,000 and has been allocated to the fair value of net assets acquired, and resulted in an allocation to goodwill of $515,000. The 1994 financial statements reflect the results of operations of such restaurants subsequent to the date of acquisition. On April 3, 1995, the Company acquired the operations of five franchise restaurants and the related furniture and fixtures, certain land and leasehold improvements and rights to future development of restaurants for a total purchase price of $9,682,000. The acquisition was accounted for as a purchase, and accordingly, the purchase price has been allocated to the fair value of net assets acquired and resulted in an allocation to goodwill of $6,432,000. In connection with this acquisition, the Company also recorded capitalized leases of $2,608,000. The 1995 financial statements reflect the results of operations of such restaurants subsequent to the date of acquisition. Results of operations of such restaurants prior to acquisition were not material in relation to the Company's operating results for the periods shown. 5. Short-Term Investments The amortized cost, estimated market value and unrealized gains or losses on short-term investments are as follows (in thousands):
December 31, 1995 December 25, 1994 ------------------------------------------ ------------------------------------------ Amortized Unrealized Market Amortized Unrealized Market Cost Gain (Loss) Value Cost Gain (Loss) Value ------------- -------------- ------------- ------------ -------------- -------------- Certificates of deposit........ $ 19 $ -- $ 19 $ 19 $ -- $ 19 Preferred stocks............... 1,832 115 1,947 2,041 (139) 1,902 U.S. government and agency securities........... 16,809 67 16,876 -- -- -- State and local municipal securities........ 2,870 124 2,994 6,986 (14) 6,972 ------------- -------------- ------------- ------------ -------------- -------------- $ 21,530 $ 306 $ 21,836 $ 9,046 $ (153) $ 8,893 ============= ============== ============= ============ ============== ==============
F-14 The amortized cost and estimated market value of debt securities as of December 31, 1995, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Market Cost Value ------------------ ----------------- Due within one year or less..................................... $ 14,288 $ 14,364 Due after one year through five years........................... 4,663 4,732 Due after five years through ten years.......................... 728 774 ------------------ ----------------- $ 19,679 $ 19,870 ================== =================
6. Receivables Receivables are comprised of the following (in thousands):
December 31, December 25, 1995 1994 ----------------- ----------------- Franchise royalty, advertising and trade receivables............. $ 7,615 $ 5,598 Franchise fee receivables........................................ 589 536 Credit card receivables.......................................... 1,578 1,102 Interest and dividends receivable................................ 337 143 Other............................................................ 447 757 ----------------- ----------------- 10,566 8,136 Less allowance for bad debts..................................... 723 740 ----------------- ----------------- $ 9,843 $ 7,396 ================= =================
The provision for bad debts totaled $250,000, $418,000 and $100,000 for 1995, 1994 and 1993, respectively. Write-offs against the allowance for bad debts totaled $267,000 during 1995. No amounts were written off during 1994 or 1993. F-15 7. Property and Equipment Property and equipment, net is comprised of the following (in thousands):
December 31, December 25, 1995 1994 ----------------- ------------------ Land............................................................. $ 34,527 $ 25,492 Buildings and leasehold improvements............................. 95,933 65,735 Furniture and equipment.......................................... 59,430 45,081 Construction in progress......................................... 7,564 5,763 ----------------- ------------------ 197,454 142,071 Less accumulated depreciation and capitalized lease amortization............................................ 37,622 27,342 ----------------- ------------------ $ 159,832 $ 114,729 ================= ==================
Property under capitalized leases in the amount of $3,032,000 at December 31, 1995 is included in buildings and leasehold improvements. Accumulated amortization of such property amounted to $105,000 at December 31, 1995. 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 $11,964,000, $8,997,000 and $6,159,000 for 1995, 1994 and 1993, respectively. Of these amounts, $105,000 related to capitalized lease amortization during 1995. The Company leases certain of its restaurants. The leases generally provide for payment of minimum annual rent, real estate taxes, insurance and maintenance and, in some cases, contingent rent (calculated as a percentage of sales) in excess of minimum rent. Total rental expense for all operating leases is composed of the following (in thousands):
1995 1994 1993 ------------------ ------------------ ----------------- Minimum rent................................. $ 7,300 $ 5,797 $ 5,339 Contingent rent.............................. 1,520 1,532 1,139 ------------------ ------------------ ----------------- $ 8,820 $ 7,329 $ 6,478 ================== ================== =================
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 1996) as of December 31, 1995 are as follows (in thousands):
Capitalized Operating Leases Leases ------------------ ----------------- 1996............................................................. $ 288 $ 8,033 1997............................................................. 291 8,338 1998............................................................. 296 7,890 1999............................................................. 296 7,520 2000............................................................. 332 7,109 Thereafter....................................................... 6,049 55,048 ------------------ ----------------- Total minimum lease payments..................................... 7,552 $ 93,938 ================= Less amounts representing interest............................... 4,510 ------------------ Present value of minimum lease payments.......................... $ 3,042 ==================
F-16 8. Long-Term Debt Long-term debt, including capitalized lease obligations, is comprised of the following (in thousands):
December 31, December 25, 1995 1994 ---------------- ----------------- Unsecured notes payable; 7.70% interest per annum, with principal payments beginning in 1998; due May 2004............... $ 20,000 $ 20,000 Secured debt assumed in connection with the IRC Merger which was repaid during 1995..................................... -- 12,255 Secured bank note; 6.69% interest per annum; due in quarterly installments of principal and interest through October 1998..................................................... 1,800 2,400 Secured revolving credit facility; interest at the prime rate; due October 1995................................................. -- 800 Unsecured promissory notes issued in connection with the acquisition of restaurants; 8.00% interest per annum; due in annual installments of principal and interest through February 2000............................................................. 1,874 2,180 Unsecured promissory note to stockholder; 8.00% interest per annum; due in equal monthly installments of principal and interest through October 1995.................................... -- 112 Capitalized lease obligations.................................... 3,042 -- Other............................................................ 51 70 ---------------- ----------------- Total long-term debt............................................. 26,767 37,817 Less current portion of long-term debt........................... 935 3,505 ---------------- ----------------- Long-term debt - less current portion............................ $ 25,832 $ 34,312 ================ =================
During 1995, the Company obtained a $20,000,000 unsecured bank revolving credit facility which expires on December 31, 1997. Of this amount, $5,000,000 can be utilized for standby letters of credit. The revolving credit facility bears interest at LIBOR plus 0.60% or the prime rate, at the Company's option, and requires the Company to pay a commitment fee of 0.15% on any unused portion of the facility. As of December 31, 1995, no amounts were outstanding under the facility. Standby letters of credit issued under the facility totaling $213,000 were outstanding as of December 31, 1995. In addition, during 1994, the Company completed a $20,000,000 senior unsecured private debt placement with institutional lenders unaffiliated with the Company. The notes bear interest at 7.70% annually with principal payments beginning in 1998 through 2004. The debt agreements contain various covenants and restrictions which, among other things, require the maintenance of a stipulated fixed charge coverage ratio and minimum consolidated net worth, as defined, and limit additional indebtedness in excess of specified amounts. The debt agreements also restrict the amount available for the payment of cash dividends. At December 31, 1995, retained earnings were not restricted for the payment of cash dividends. The Company has been and is currently in compliance with the covenants of all of its debt agreements. F-17 Maturities of long-term debt, including capitalized lease obligations, for each of the five fiscal years subsequent to December 31, 1995, ending during the years indicated, are as follows (in thousands): 1996.................................................... $ 935 1997.................................................... 961 1998.................................................... 3,851 1999.................................................... 3,231 2000.................................................... 3,297 9. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities are comprised of the following (in thousands):
December 31, December 25, 1995 1994 ------------------ ----------------- Compensation and related taxes.................................... $ 8,962 $ 6,240 Gift certificates................................................. 2,382 1,690 Sales and use taxes............................................... 2,521 1,631 Insurance......................................................... 1,866 1,237 Rent.............................................................. 1,761 1,355 Other............................................................. 5,143 4,560 ------------------ ----------------- $ 22,635 $ 16,713 ================== =================
10. Joint Venture In 1992, the Company entered into a joint venture arrangement with its franchisee in Nevada. Based on its control over operating policies of the joint venture, the Company has consolidated the joint venture for financial statement purposes. The Company has an option to purchase the remaining 50% interest for $1,275,000, which became exercisable in October 1995 and expires in October 1997. 11. Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return for periods subsequent to the IRC Merger and the PVNE Merger. Prior to September 7, 1994, PVNE, a pooled company, was classified as an S Corporation and accordingly, stockholders were responsible for paying their proportionate share of federal and certain state income taxes. In addition, the combined earnings of IRC, a pooled company, included earnings of limited partnerships which were not taxable entities for federal and state income tax purposes. The accompanying consolidated statements of earnings reflect provisions for income taxes on a pro forma basis as if the Company were liable for federal and state income taxes on PVNE's earnings prior to September 7, 1994 and the earnings of IRC's limited partnerships for periods prior to the IRC Merger at a statutory rate of 39%. The income tax provision (benefit) consists of the following (in thousands):
1995 1994 1993 --------------- --------------- ---------------- Current provision: Federal............................................ $ 15,163 $ 7,934 $ 5,810 State.............................................. 2,849 1,419 1,154 Deferred provision (benefit)........................... (179) 100 (271) Pro forma provision for income taxes of pooled companies................................ 73 1,324 1,212 --------------- --------------- ---------------- Income taxes........................................... $ 17,906 $ 10,777 $ 7,905 =============== =============== ================
F-18 The deferred income tax provision (benefit) is comprised of the following (in thousands):
1995 1994 1993 --------------- --------------- ---------------- Franchise deposits..................................... $ 85 $ (36) $ (74) Depreciation........................................... 13 109 (4) Allowance for bad debts................................ (72) (163) (39) Accrued expenses....................................... (125) (99) (128) Other.................................................. (80) 289 (26) --------------- --------------- ---------------- Deferred income tax provision (benefit)................ (179) 100 (271) Adjustment to tax basis of pooled companies............ (1,350) -- -- Deferred income taxes related to change in unrealized gain (loss) on investments.............. 173 (57) -- --------------- --------------- ---------------- Net change in deferred income taxes.................... $ (1,356) $ 43 $ (271) =============== =============== ================
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):
1995 1994 1993 --------------- ---------------- ---------------- Federal income tax at statutory rates.................. $ 15,864 $ 9,916 $ 7,022 Increase (decrease) to income tax expense: Amortization of goodwill .......................... 281 267 209 State income taxes, net of federal benefit......... 1,852 1,039 748 Merger costs....................................... 625 271 -- Tax exempt investment income....................... (169) (207) (377) Meals and entertainment disallowance............... 258 186 60 FICA tip tax credit................................ (985) (641) -- Other.............................................. 180 (54) 243 --------------- ---------------- ---------------- Income taxes........................................... $ 17,906 $ 10,777 $ 7,905 =============== ================ ================
The net current deferred tax asset amounts are included in "prepaid and other current assets" in the accompanying consolidated balance sheets. The significant components of deferred tax assets and liabilities and the related balance sheet classifications are as follows (in thousands):
December 31, December 25, 1995 1994 ----------------- ------------------ Classified as current: Allowance for bad debts..................................... $ 361 $ 289 Accrued expenses............................................ 510 238 Other, net.................................................. (334) 88 ----------------- ------------------ Net deferred tax asset...................................... $ 537 $ 615 ================= ================== Classified as non-current: Depreciation differences.................................... $ 166 $ (1,171) Franchise deposits.......................................... 444 529 Other, net.................................................. 109 (73) ----------------- ------------------ Net deferred tax asset (liability).......................... $ 719 $ (715) ================= ==================
F-19 12. Commitments and Contingencies Litigation, claims and disputes: As of December 31, 1995, the Company was using assets owned by a former franchisee in the operation of two restaurants under a purchase rights agreement which required the Company to make certain payments to the franchisee's lender. In 1991, a dispute arose between the lender and the Company over the amount of the payments due the lender. Based upon a then current independent appraisal, the Company offered to settle the dispute and purchase the assets for $1,000,000 in 1991. The lender rejected the Company's offer and claimed that the Company had guaranteed the entire $2,400,000 debt of the franchisee. In November 1992, the lender was declared insolvent by the FDIC and has since been liquidated. The Company was contacted by the FDIC, and in 1993, the Company offered to settle the issue and purchase the assets at the three restaurants then being operated for $182,000. The Company closed one of the three restaurants in 1994 and lowered its offer to $120,000 to settle the issue and purchase the assets at the two then remaining restaurants. The FDIC has declined to accept the Company's offer, indicating instead its preliminary position that the Company should pay the entire debt of the franchisee. The Company closed one of the two remaining restaurants in February 1996, and does not currently intend to make an additional settlement offer to the FDIC. In the event that the Company were to pay an amount determined to be in excess of the fair market value of the assets, the Company will recognize a loss at the time of such payment. In addition, the Company is involved in various legal actions arising in the normal course of business. While the resolution of any of such actions or the matter described above may have an impact on the financial results for the period in which it is resolved, the Company believes that the ultimate disposition of these matters will not, in the aggregate, have a material adverse effect upon its business or consolidated financial position. Franchise financing: The Company entered into an agreement in 1992 with a financing source to provide up to $75,000,000 of financing to Company franchisees to fund development of new franchise restaurants. The Company provided a limited guaranty of loans made under the agreement. The Company's maximum recourse obligation of 10% of the amount funded is reduced beginning in the second year of each long-term loan and thereafter decreases ratably to zero after the seventh year of each loan. At December 31, 1995, approximately $45,522,000 had been funded through this financing source. The Company has not been apprised of any defaults under this agreement by franchisees. This agreement expired on December 31, 1994 and was not renewed, although some loan commitments as of the termination date were thereafter funded through December 31, 1995. Severance agreements: The Company has severance and employment agreements with certain officers providing for severance payments to be made in the event the employee resigns or is terminated related to a change in control (as defined in the agreements). If the severance payments had been due as of December 31, 1995, the Company would have been required to make payments aggregating approximately $5,500,000. In addition, the Company has severance and employment agreements with certain officers which contain severance provisions not related to a change in control, and such provisions would have required aggregate payments of approximately $3,000,000 if such officers had been terminated as of December 31, 1995. 13. Stockholders' Equity On July 28, 1995, the Company completed a public offering of its common stock consisting of 2,100,000 shares sold by the Company and 300,000 shares sold by certain stockholders of the Company. In addition, the Company and the selling stockholders granted the underwriters an option to purchase 315,000 and 45,000 shares, respectively, to cover over-allotments, which was exercised on August 9, 1995. Net proceeds of $60,434,000, after expenses, were received from the offering. A portion of the net proceeds of the offering was used to retire approximately $12,500,000 of secured debt assumed in certain recent acquisitions and to repay the outstanding balance of the Company's revolving credit facility of $5,000,000. F-20 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. 14. Employee Benefit Plans Employee stock option plan: During 1989, the Company's Board of Directors approved the 1989 Employee Stock Option Plan (the "1989 Plan") which provided for the grant of both qualified and nonqualified options as determined by a committee appointed by the Board of Directors. At the Annual Meeting of Stockholders on May 26, 1995, the 1989 Employee Stock Option Plan was terminated, and the 1995 Equity Incentive Plan (the "1995 Plan") was approved. Stock options outstanding under the existing 1989 Stock Option Plan were not affected by the termination of that plan. Options outstanding at December 31, 1995 under the 1989 Plan were at prices ranging from $3.02 to $21.75 per share and had an average exercise price of $13.92 per share. The options were granted for a term of three to ten years and were generally exercisable one year from date of grant. The 1995 Plan allows the granting of stock options, stock appreciation rights, restricted stock awards, performance unit awards and performance share awards (collectively, "Awards") to eligible participants. The number of shares authorized to be issued pursuant to the 1995 Plan is 2,000,000. Options outstanding at December 31, 1995 under the 1995 Plan were at prices ranging from $25.00 to $28.50 per share and had an average exercise price of $28.00 per share. The options are granted for a term of five to ten years and are generally exercisable three years from date of grant. Subject to the terms of the 1995 Plan, the Committee has the sole discretion to determine the employees and consultants who shall be granted Awards, the size and types of such Awards, and the terms and conditions of such Awards. Under both plans, the option price for both qualified and nonqualified options as of the date granted cannot be less than the fair market value of the Company's common stock. Transactions relative to both plans are as follows:
1995 Plan 1989 Plan --------------- ----------------------------------------------- 1995 1995 1994 1993 --------------- -------------- -------------- --------------- Options outstanding at beginning of period........... -- 1,594,679 1,149,388 916,573 Granted.......................................... 891,300 163,000 603,500 520,464 Exercised........................................ -- (588,038) (109,759) (276,699) Canceled......................................... (15,000) (71,100) (48,450) (10,950) -------------- -------------- --------------- --------------- Options outstanding at end of period................. 876,300 1,098,541 1,594,679 1,149,388 ============== ============== =============== =============== Options exercisable at end of period................. -- 1,061,041 928,607 595,294 Options available for grant at end of period......... 1,123,700 -- 684,780 1,239,830
Employee retirement plans: During 1992, the Company established a profit sharing plan and trust in accordance with Section 401(k) of the Internal Revenue code. The Company matches 25% of employee contributions, not to exceed 2% of the employee's total annual compensation, with the Company contributions vesting at the rate of 20% each year beginning after the employee's second year of service. F-21 During 1994, the Company established a non-qualified defined contribution retirement plan for key employees. The Company's contributions under both plans in 1995, 1994 and 1993 were $312,000, $127,000 and $175,000, respectively. 15. Related Party Transactions The Company and certain franchisees have obtained restaurant equipment from a company owned by an individual who is related to a director of the Company and who is also related to an officer and stockholder of the Company. During 1995, 1994 and 1993, the Company paid $3,128,000, $3,869,000 and $369,000, respectively, for equipment and services purchased from this company. In addition, the Company had $194,000 in accounts payable to this company at December 25, 1994. 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 $186,000, $173,000 and $152,000 for 1995, 1994 and 1993, respectively, and are included in direct and occupancy costs in the consolidated statements of earnings. The Company leases a restaurant site from a partnership in which a former director who is related to a director of the Company and who is also related to an officer and stockholder of the Company holds a 50% interest. The lease has a term of 20 years with two options to renew. The lease provides for rentals in an amount equal to approximately 7% of gross sales of the restaurant. Rents incurred under the lease were $113,000 for each of 1995, 1994 and 1993, respectively, and are included in direct and occupancy costs in the consolidated statements of earnings. The Company leases certain office space under an operating lease from a partnership in which a director of the Company holds a 37.5% interest. The lease expires in April 1998; however, the Company has the option to terminate the lease with 30 days notice. Rents incurred under the lease were $84,000, $74,000 and $55,000 for 1995, 1994 and 1993, respectively, and are included in general and administrative expenses in the consolidated statements of earnings. F-22 16. Quarterly Results of Operations (Unaudited) The following presents the unaudited consolidated quarterly results of operations for 1995 and 1994 (in thousands, except per share amounts). Merger costs of $1,770,000 related to the IRC Merger were expensed in the first quarter of 1995, while merger costs of $920,000 related to the PVNE Merger were expensed in the fourth quarter of 1994.
1995 --------------------------------------------------------------- Fiscal Quarter Ended --------------------------------------------------------------- March 26, June 25, September 24, December 31, 1995 1995 1995 1995 ------------- -------------- ------------- ------------- Revenues: Company restaurant sales....................... $ 66,021 $ 73,120 $ 76,965 $ 83,718 Franchise income............................... 9,418 10,681 11,116 12,524 ------------- -------------- ------------- ------------- Total operating revenues.................... 75,439 83,801 88,081 96,242 ------------- -------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage.............................. 18,908 20,953 21,375 23,540 Labor.......................................... 21,068 23,061 24,284 26,522 Direct and occupancy........................... 15,378 17,807 18,708 20,335 Pre-opening expense............................ 633 423 326 852 ------------- -------------- ------------- ------------- Total cost of Company restaurant sales...... 55,987 62,244 64,693 71,249 ------------- -------------- ------------- ------------- General and administrative expenses............... 8,909 9,480 9,292 11,072 Merger costs...................................... 1,770 -- -- -- Amortization of intangible assets................. 515 595 588 607 Loss on disposition of restaurants and equipment.. 26 80 60 684 ------------- -------------- ------------- ------------- Operating earnings................................ 8,232 11,402 13,448 12,630 ------------- -------------- ------------- ------------- Other income (expense): Investment income.............................. 237 210 563 754 Interest expense............................... (614) (679) (833) (381) Other income................................... 82 71 111 93 ------------- -------------- ------------- ------------- Total other income (expense)................ (295) (398) (159) 466 ------------- -------------- ------------- ------------- Earnings before income taxes...................... 7,937 11,004 13,289 13,096 Income taxes...................................... 3,611 4,193 5,050 4,979 ------------- -------------- ------------- ------------- Net earnings...................................... 4,326 6,811 8,239 8,117 Pro forma provision for income taxes of pooled companies............................ 73 -- -- -- ------------- -------------- ------------- ------------- Pro forma net earnings............................ $ 4,253 $ 6,811 $ 8,239 $ 8,117 ============= ============== ============= ============= Pro forma net earnings per common share........... $ 0.15 $ 0.24 $ 0.28 $ 0.26 ============= ============== ============= ============= Weighted average shares outstanding............... 28,078 28,244 29,821 31,000
F-23
1994 --------------------------------------------------------------- Fiscal Quarter Ended --------------------------------------------------------------- March 27, June 26, September 25 December 25, 1994 1994 1994 1994 ------------- -------------- ------------- ------------- Revenues: Company restaurant sales....................... $ 49,847 $ 54,859 $ 58,457 $ 59,282 Franchise income............................... 6,658 7,358 8,046 9,357 ------------- -------------- ------------- ------------- Total operating revenues.................... 56,505 62,217 66,503 68,639 ------------- -------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage.............................. 14,821 16,056 16,768 17,174 Labor.......................................... 16,237 17,426 18,585 18,529 Direct and occupancy........................... 12,319 13,152 14,088 14,324 Pre-opening expense............................ 136 631 559 767 ------------- -------------- ------------- ------------- Total cost of Company restaurant sales...... 43,513 47,265 50,000 50,794 ------------- -------------- ------------- ------------- General and administrative expenses............... 6,874 7,040 6,923 8,330 Merger costs...................................... -- -- -- 920 Amortization of intangible assets................. 547 518 517 451 Loss on disposition of restaurants and equipment.. 50 461 222 128 ------------- -------------- ------------- ------------- Operating earnings................................ 5,521 6,933 8,841 8,016 ------------- -------------- ------------- ------------- Other income (expense): Investment income.............................. 306 185 302 272 Interest expense............................... (299) (385) (673) (672) Other income................................... 60 53 55 85 ------------- -------------- ------------- ------------- Total other income (expense)................ 67 (147) (316) (315) ------------- -------------- ------------- ------------- Earnings before income taxes...................... 5,588 6,786 8,525 7,701 Income taxes...................................... 1,904 2,192 2,431 2,926 ------------- -------------- ------------- ------------- Net earnings...................................... 3,684 4,594 6,094 4,775 Pro forma provision for income taxes of pooled companies............................ 283 337 678 26 ------------- -------------- ------------- ------------- Pro forma net earnings............................ $ 3,401 $ 4,257 $ 5,416 $ 4,749 ============= ============== ============= ============= Pro forma net earnings per common share........... $ 0.12 $ 0.15 $ 0.20 $ 0.17 ============= ============== ============= ============= Weighted average shares outstanding............... 27,910 27,974 27,988 28,007
----------------------------- F-24 APPLEBEE'S INTERNATIONAL, INC. EXHIBIT INDEX Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 3.1 Certificate of Incorporation, as amended, of Registrant. 3.2 Restated and Amended By-laws of the Registrant. 4.1 Shareholder Rights Plan contained in Rights Agreement dated as of September 7, 1994, between Applebee's International, Inc. and Chemical Bank, as Rights Agent (incorporated by reference to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 4.2 Certificate of the Voting Powers, Designations, Preferences and Relative Participating, Optional and Other Special Rights and Qualifications of Series A Participating Cumulative Preferred Stock of Applebee's International, Inc. (incorporated by reference to Exhibit 4.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 9.1 Voting Agreement, dated as of July 15, 1989, among John Hamra, Abe J. Gustin, Jr. and Johyne Hamra Reck, as amended by Acknowledgment and Amendment to Stockholders' Voting Agreement dated February 11, 1992 (incorporated by reference to Exhibit 9.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 9.2 Amendment to Stockholder's Voting Agreement dated March 17, 1995 (incorporated by reference to Exhibit 9.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 1995). 10.1 Indemnification Agreement, dated March 16, 1988, between John Hamra and Applebee's International, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.2 Indemnification Agreement, dated March 16, 1988, between Abe J. Gustin, Jr. and Applebee's International, Inc. (incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.3 Indemnification Agreement, dated March 16, 1988, between Johyne Reck and Applebee's International, Inc. (incorporated by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.4 Form of Development Agreement in effect during the fiscal year ended December 31, 1995. 10.5 Form of Franchise Agreement in effect during the fiscal year ended December 31, 1995. E-1 Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 10.6 Schedule of Development and Franchise Agreements as of December 31, 1995. 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 Note Purchase Agreement, dated as of June 1, 1994, for $20,000,000 7.70% Senior Notes due May 31, 2004 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 1994). 10.9 Agreement and Plan of Merger dated October 14, 1994 among Applebee's International, Inc., IRC Acquisition Corp., Innovative Restaurant Concepts, Inc., and certain other parties thereto (incorporated by reference to Exhibit 2.1 of the Registrant's Registration Statement on Form S-4, Registration No. 33-87590, as amended, initially filed with the Securities and Exchange Commission on December 20, 1994). 10.10 Acquisition Agreement dated October 14, 1994 among Applebee's International, Inc., IRC Acquisition Corp., Innovative Restaurant Concepts, Inc., and Rio Real Estate, L.P. (incorporated by reference to Exhibit 2.2 of the Registrant's Registration Statement on Form S-4, Registration No. 33-87590, as amended, initially filed with the Securities and Exchange Commission on December 20, 1994). 10.11 Acquisition Agreement dated October 14, 1994 among Applebee's International, Inc., IRC Acquisition Corp., Innovative Restaurant Concepts, Inc., and Cobb/Gwinnett Rio, Ltd. (incorporated by reference to Exhibit 2.3 of the Registrant's Registration Statement on Form S-4, Registration No. 33-87590, as amended, initially filed with the Securities and Exchange Commission on December 20, 1994). Management Contracts and Compensatory Plans or Arrangements 10.12 1995 Equity Incentive Plan. 10.13 Employment Agreement, dated March 1, 1992, with Abe J. Gustin, Jr. (incorporated by reference from the Registrant's Registration Statement on Form S-1, Registration No. 33-45701, as amended, initially filed with the Securities and Exchange Commission on February 13, 1992), as amended March 1, 1995 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 1995) and June 1, 1995 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 1995). E-2 Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 10.14 Employment Agreement, dated January 27, 1994, with Lloyd L. Hill (incorporated by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 27, 1994). 10.15 Severance and Noncompetition Agreement, dated January 27, 1994, with Lloyd L. Hill (incorporated by reference to Exhibit 10.5 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 27, 1994). 10.16 Employment Agreement, dated March 1, 1992, with Ronald B. Reck, as amended February 28, 1994 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 27, 1994), March 1, 1995 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 1995) and June 1, 1995 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 1995). 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 Employment Agreement dated October 24, 1994 by and between Applebee's International, Inc. and Burton M. Sack (incorporated by reference from the Registrant's Current Report on Form 8-K dated October 24, 1994). 10.19 Consulting Agreement, dated as of March 1, 1995, between Applebee's International, Inc. and Kenneth D. Hill (incorporated by reference to Exhibit 10.20 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.20 Consulting Agreement between Applebee's International, Inc. and Raymond D. Schoenbaum. 10.21 Employment Agreement between Applebee's International, Inc. and Philip J. Hickey. 10.22 1994 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 1994). 10.23 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). 10.24 Schedule of parties to Indemnification Agreement. 10.25 Form of Severance Agreement (incorporated by reference to Exhibit 10.30 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.26 Schedule of parties to Severance Agreement. E-3 Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 21 Subsidiaries of Applebee's International, Inc. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Coopers & Lybrand L.L.P. 24 Power of Attorney (see page 30 of the Form 10-K). 27 Financial Data Schedule. E-4 EX-3.(I) 2 ARTICLES OF INCORPORATION Filed with the Office of the Secretary of State of Delaware on October 30, 1987 at 10:00 a.m. CERTIFICATE OF INCORPORATION OF APPLEBEE'S INTERNATIONAL, INC. * * * * * 1. The name of the corporation is: APPLEBEE'S INTERNATIONAL, INC. 2. The address of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporation may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the corporation shall have authority to issue is five million (5,000,000) and the par value of each of such shares is One Cent ($.01) amounting in the aggregate to Fifty Thousand Dollars ($50,000.00). 5A. The name and mailing address of each incorporator is as follows: NAME MAILING ADDRESS L.J. Vitalo 1209 Orange Street Wilmington, Delaware 19801 J.A. Grodzicki 1209 Orange Street Wilmington, Delaware 19801 S.J. Queppet 1209 Orange Street Wilmington, Delaware 19801 5B. The name and mailing address of each person, who is to serve as director until the first annual meeting of the stockholders or until a successor is elected and qualified, is as follows: NAME MAILING ADDRESS John Hamra 3929 Broadway Kansas City, Missouri 64111 Nad Fardeece 4748 Mill Run Road Dallas, Texas 75244 Abe J. Gustin, Jr. 3929 Broadway Kansas City, Missouri 64111 6. The corporation is to have perpetual existence. 7. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to make, alter or repeal the by-laws of the corporation. 8. Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. Meetings of the stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. 9. The corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set our hands this 30th day of October, 1987. /s/ L.J. Vitalo L.J. Vitalo /s/ J.A. Grodzicki J.A. Grodzicki /s/ S.J. Queppet S. J. Queppet Filed with the Office of the Secretary of State of Delaware on March 7, 1988 at 10:00 a.m. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Applebee's International, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Applebee's International, Inc. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this Corporation be amended by changing the article thereof numbered "4" so that, as amended said Article 4 shall be and read as follows: "4. The total number of shares of stock which the corporation shall have authority to issue is ten million (10,000,000) shares which shall be divided into two classes as follows: 5,000,000 shares of Preferred Stock with a par value of One Cent ($0.01) per share and 5,000,000 shares of Common Stock with a par value of One Cent ($0.01) per share which amounts in the aggregate to One Hundred Thousand Dollars ($100,000.00). The designations, voting powers, preferences and relative, participating, optional or other special rights, and qualification, limitations or restrictions of the above classes of stock are as follows: I. Preferred Stock A. Issuance in Series. Shares of Preferred Stock may be issued in one or more series at such time or times, and for such consideration or considerations as the Board of Directors may determine. All shares of any one series of Preferred Stock will be identical with each other in all respects, except that shares of one series issued at different times may differ as to dates from which dividends thereon may be cumulative. B. Authority of the Board with Respect to Series. The Board of Directors is authorized, at any time and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series with such designations, voting powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in the Certificate of Incorporation or any amendment thereto including, but not limited to, determination of any of the following: (a) the distinctive serial designation and the number of shares constituting a series; (b) the dividend rate or rates, whether dividends are cumulative and , if so, from which date, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends, including any preference as to the dividend payments granted to one or more series which may be superior in right to any other series; (c) the voting powers, full or limited, if any, of the shares of the series; (d) whether the shares are redeemable and, if so, the price or prices at which, and the terms and conditions on which, the shares may be redeemed; (e) the amount or amounts payable upon the shares in the event of voluntary or involuntary liquidation, dissolutions, distributions of assets or winding up of the Corporation prior to any payment or distribution of the assets of the Corporation to any class or classes of stock of the Corporation ranking junior to the Preferred Stock; (f) whether the shares are entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of shares of a series and, if so entitled, the amount of the fund and the manner of its application, including the price or prices at which the shares may be redeemed or purchased through the application of the fund; (g) whether the shares are convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and the adjustments thereof, if any, at which the conversion or exchange may be made, and any other terms and conditions of the conversion or exchange; and (h) any other preferences, privileges and powers, and relative participating, optional or other special rights, and qualifications, limitations or restrictions of a series, as the Board of Directors may deem advisable and as are not inconsistent with the provisions of the Certificate of Incorporation or any amendment thereto. C. Dividend. Before any dividends on any class or classes of stock of the Corporation ranking junior to the Preferred Stock (other than dividends payable in shares of any class or classes of stock of the corporation ranking junior to the Preferred Stock) may be declared or paid or set apart for payment, the holders of shares of Preferred Stock of each series are entitled to such cash dividends, but only when and as declared by the Boards of Directors out of funds legally available therefor, as they may be entitled to in accordance with the resolution or resolutions adopted by the Board of Directors providing for issue of the series, payable on such dates in each year as may be fixed in the resolution or resolutions. The term "class or classes of stock of the Corporation ranking junior to the Preferred Stock" means the Common Stock and any other class or classes of stock of the Corporation hereafter authorized which rank junior to the Preferred Stock as to dividends or upon liquidation. D. Required Shares. Shares of Preferred Stock which have been issued and reacquired in any manner by the Corporation (excluding, until the corporation elects to retire them, shares which are held as treasury shares but including shares redeemed, shares purchased and retired and shares which have been converted into shares of Commons Stock) will have the status of authorized and unissued shares of Preferred Stock and may be reissued. II. Common Stock A. Dividends. Subject to the preferential rights of the Preferred Stock, the holders of the Common Stock are entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors. B. Liquidation. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holder of shares of Preferred Stock, holders of Common Stock shall be entitled to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the Corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other entity and receive payment therefore in cash, stock or obligations of such other corporation, trust or other entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of Common Stock. The merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the Corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of the Corporation for the purposes of this paragraph. C. Voting Rights. Except as may be otherwise required by law or the Certificate of Incorporation or any amendment thereto, each holder of Common Stock has one vote in respect to each share of Common Stock held by him of record on the books of the corporation on all matters voted on by the stockholders. III. Other Provisions. A. Preemptive Rights. No stockholder shall have any preemptive right to subscribe to an additional issue of stock of any class or series or to any securities of the Corporation convertible into such stock. SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said Corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting a necessary number of shares as required by the statute were present and voted in favor of said amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said Applebee's International, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by John Hamra, its President, and attested to by Johyne Reck, its Secretary, this 2nd day of March, 1988. APPLEBEE'S INTERNATIONAL, INC. By: /s/ John Hamra John Hamra, President (CORPORATE SEAL) ATTEST: /s/ Johyne Reck Johyne Reck, Secretary STATE OF MISSOURI ) ) SS. COUNTY OF JACKSON ) On this 2nd day of March , 1988, before me, Patricia A. Kerr, a Notary Public in and for said State, personally appeared John Hamra, the President of Applebee's International, Inc., known to me to be the person who executed the within Certificate of Amendment of Certificate of Incorporation in behalf of said corporation and acknowledged to me that he executed said Amendment for the purpose therein stated. /s/ Patricia A. Kerr Notary Public My Commission Expires: - ------------------------ Filed with the Office of the Secretary of State of Delaware on 3/15/88 at 10:00 A.M. CERTIFICATE OF DESIGNATIONS Applebee's International, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of Applebee's International, Inc. duly adopted the resolution set forth on the attached Certified Copy of Resolution on the 14th day of March, 1988. SECOND: That the resolution is a true copy of a resolution adopted by the Board of Directors pursuant to Article 4, Paragraph I of the Certificate of Incorporation, as amended, and Section 151 of the General Corporation Law of the State of Delaware, whereby the Board of Directors has set forth the voting powers, designations, preferences, rights and qualifications, limitations or restrictions for Four Hundred Fifty Thousand (450,000) shares of Series "A" Cumulative Convertible Preferred Stock and Five Hundred Thousand (500,000) shares of Series "B" Cumulative Convertible Preferred Stock. THIRD: That the capital of said corporation is not reduced or increased under or by reason of this designation. IN WITNESS WHEREOF, said Applebee's International, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by Abe J. Gustin, Jr., its President, and attested to be Johyne Reck, its Secretary, this 14th day of March, 1988. APPLEBEE'S INTERNATIONAL, INC. By: /s/ Abe J. Gustin, Jr. (CORPORATE SEAL) ATTEST: /s/ Johyne Reck Johyne Reck, Secretary STATE OF MISSOURI ) ) SS. COUNTY OF JACKSON ) On this 14th day of March, 1988, before me, Guadalupe Guhl, a Notary Public in and for said State, personally appeared Abe J. Gustin, the President of Applebee's International, Inc., known to me to be the person who executed the within Certificate of Designations in behalf of said corporation and acknowledged to me that he executed said Certificate for the purposes therein stated. /s/ Guadalupe Guhl Notary Public My Commission Expires: September 23, 1990 CERTIFIED COPY OF RESOLUTION I, Johyne Reck, hereby certify that I am the duly elected Secretary of Applebee's International, Inc., a Delaware corporation, and that the following Resolutions were adopted by the Board of Directors of said corporation and were enacted in accordance with the laws of the State of its incorporation and the Bylaws of the corporation by a unanimous consent in writing dated March 14, 1988: RESOLVED, that pursuant to Article 4, Paragraph I of the Certificate of Incorporation, as amended, whereby the Board of Directors may designate by resolution the various powers, preferences and other rights regarding the 5,000,000 authorized shares of Preferred Stock, the officers of this corporation are hereby authorized and directed to make an issue of the following series of Preferred Stock up to the amounts hereinafter set forth: 1. Four hundred fifty thousand (450,000) shares of Series "A" Cumulative Convertible Preferred Stock, which stock shall be entitled to annual dividends in the amount of $0.16 per share payable monthly on the 1st day of each month; shall be convertible into one share of common stock for each share of preferred stock; shall be cumulative as to dividends, without restrictions, from and after the dividend payment dates set forth above; are entitled to preference in the declaration or payment of dividends to any other preferred series or common stock; are redeemable upon the terms and conditions provided in that certain Securities Purchase Agreement entered into between the Corporation and MBI Venture Capital Investors, Inc. dated the date hereof, a copy of which is on file at the offices of the Corporation; and are entitled in the event of voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, to receive, before any payment is made with respect to any other preferred series or common stock, an amount equal to approximately $1.33 per share (the exact amount being the amount per share paid by such holder), plus all unpaid dividends on such shares, whether declared or undeclared to the date of distribution. The holders of these shares are entitled to one vote in respect to each share held by the holder on all matters voted upon by the stockholders. 2. Five hundred thousand (500,000) shares of Series "B" Cumulative Convertible Preferred Stock, which stock shall be entitled to annual dividends of $0.754286 per share payable monthly on the 1st day of each month; shall be convertible into one share of common stock for each share of preferred stock; shall be cumulative as to dividends, without restrictions, from and after the dividend payment dates; are entitled to preference in the declaration or payment of dividends to common stock; and are entitled in the event of voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, to receive, before any payment is made with respect to any common stock, in amount equal to $6.8571428 per share, plus all unpaid dividends on such shares whether declared or undeclared to the date of distribution. If, however, upon such liquidation, dissolution, distribution of assets or winding up of affairs the assets available for distribution to all preferred series (other than Series "A" Cumulative Convertible Preferred) shall be insufficient to pay the holders thereof the full amounts to which they are entitled, those holders shall share ratably in any distribution of assets in proportion to the full amounts to which they would be entitled if all amounts were paid in full. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of the corporation this 14th day of March, 1988. /s/ Johyne Reck Johyne Reck, Secretary (SEAL) Filed with the Office of the Secretary of State of Delaware on October 11, 1989 at 10:00 a.m. CERTIFICATE OF APPLEBEE'S INTERNATIONAL, INC. ELIMINATING CERTIFICATE OF STOCK DESIGNATIONS WITH RESPECT TO SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK Applebee's International, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: FIRST: The Board of Directors previously adopted a Certificate of Designations creating two series of Preferred Stock consisting of 450,000 shares of Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") and 500,000 shares of Series B Preferred Stock (the " Series B Preferred Stock"). Thereafter, 450,000 shares of Series A Preferred Stock and 350,000 shares of Series B Preferred Stock were issued. All of the issued and outstanding shares in Series A Preferred Stock and Series B Preferred Stock have been converted into Common Stock of the Corporation and, accordingly, there are presently no shares o Series A Preferred Stock or Series B Preferred Stock outstanding. The Board of Directors of the Corporation duly adopted on July 21, 1989 resolutions directing that thereafter none of the Series A Preferred Stock or the Series B Preferred Stock designated by the Certificate of Designations will be issued and directing that a certificate as to such resolutions be filed thereby eliminating from the Certificate of Incorporation all matters set forth in the Certificate of Designations with respect to such series of Preferred Stock and thereby causing the number of shares in such series of Preferred Stock specified by the Certificate of Designations to resume the status held before the adopting of the resolutions set forth in the Certificate of Designations. The resolutions of the Board of Directors being as follows: WHEREAS, Article 4, Paragraph I of the Certificate of Incorporation, as amended, of the Company provides that the Board of Directors of the Company is authorized, at any time and from time to time, to provide for the issuance of shares of Preferred Stock of the Company in one or more series with such designations, voting powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors; and WHEREAS, pursuant to the authority vested in it by Article 4, Paragraph I of the the Certificate of Incorporation, as amended, of the Company, the Board of Directors of the Company, by resolutions adopted March 14, 1988, designated the various powers, preferences and other rights of, and directed the issuance of, (i) Four Hundred Fifty Thousand (450,000) shares of Series "A" Cumulative Convertible Preferred Stock $.01 par value per share, of the Company (the "Series A Preferred Stock"), and (ii) Five Hundred Thousand (500,000) shares of Series "B" Cumulative Convertible Prefered Stock, $.01 par value per share, of the Company (the "Series B Preferred Stock"); and WHEREAS, pursuant to Section 151(g) of the General Company Law of the State of Delaware, on March 15, 1988 the Company filed with the Secretary of State of Delaware that certain Certificate of Designations dated March 14, 1988 (the "Certificate of Designations") setting forth the resolutions referred to above of the Board of Directors formally designating the various powers, preferences and other rights Series A Preferred Stock and the Series B Preferred Stock, and thereafter shares of the Series A Preferred Stock and Series B Preferred Stock were issued by the Company; and WHEREAS, all shares of the Series A Preferred Stock and Series B Preferred Stock heretofore issued by the Company have, pursuant to exercise of the rights and privileges of such shares set forth in the Certificate of Designations, been converted into shares of Common Stock, $.01 par value per share, of the Company, and as a result at the date hereof there are no shares of Series A Preferred Stock or Series B Preferred Stock outstanding; and WHEREAS, it is the intention of the Board of Directors of the Company that no shares of Series A Preferred Stock or Series B Preferred Stock subject to the Certificate of Designations shall be issued in the future; NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the Company has determined that none of the authorized shares of Series A Preferred Stock or Series B Preferred Stock are outstanding at the date hereof and none of such shares subject to the Certificate of Designations will be hereafter issued in the future; and RESOLVED FURTHER, that, pursuant to Section 151(g) of the General Company Law of the State of Delaware, the Chairman of the Board and the President of the Company, or either of them, and any one or more officers of the Company, if any, hereafter designated by the Chairman of the Board or the President of the Company, are hereby authorized to execute, acknowledge, attest, file and record in accordance with Section 103 of the General Company Law of the State of Delaware, a certificate eliminating from the Certificate of Incorporation, as amended, of the Company all matters set forth in the Certificate of Designations; it being the intent of this Board of Directors to eliminate the various powers, preferences and other rights of the Series A Preferred Stock and Series B Preferred Stock as designated in the Certificate of Designations and to return all of such authorized Series A Preferred Stock and Series B Preferred Stock to the status of "Preferred Stock" as defined in Article 4, Paragraph I of the Certificate of Incorporation, as amended, of the Company which such shares held prior to adoption of the resolutions set forth in the Certificate of Designations, subject to the authority granted to the Board of Directors in the Certificate of Incorporation hereafter from time to time to designate and provide for the issuance of shares of Preferred Stock in one or more series with such designations, voting powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed in a resolution or resolutions hereafter adopted by the Board of Directors providing for the issue thereof; and RESOLVED FURTHER, that the aforesaid officers of the Company, acting either alone or together with one or more other officers of the Company, are each hereby authorized and directed to execute, attest and file such documents and to take such other actions as such officer or officers may deem to be necessary or appropriate to carry out the intent of the foregoing resolutions. SECOND: This Certificate is filed by the Corporation pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, for the purposes stated in the resolutions adopted by the Board of Directors of the Corporation set forth above. IN WITNESS WHEREOF, Applebee's International, Inc. has caused this Certificate to be signed by Abe J. Gustin, Jr., its President, and attested to be Johyne Reck, its Secretary, this 27 day of September , 1989. APPLEBEE'S INTERNATIONAL, INC. (CORPORATE SEAL) By: /s/ Abe J. Gustin, Jr. Its: President ATTEST: /s/ Johyne Reck Johyne Reck, Secretary STATE OF MISSOURI ) ) ss. COUNTY OF JACKSON ) On this 27th day of September, 1989, before me, Janice F. Haas, a Notary Public in and for said State, personally appeared Abe J. Gustin, Jr., the President of Applebee's International, Inc., known to me to be the person who executed the within the Certificate on behalf of said Corporation and acknowledged to me that he executed the same as the act and deed of said Corporation for the purposes and in the capacity therein stated and that the facts stated therein are true. /s/ Janice F. Haas Notary Public My Commission Expires: June 13, 1993 Filed with the Office of the Secretary of State of Delaware on August 14, 1989 at 9:00 a.m. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF APPLEBEE'S INTERNATIONAL, INC. Applebee's International, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT: FIRST: The Board of Directors of the Corporation duly adopted resolutions setting forth proposed amendments to the Certificate of Incorporation of the Corporation which amend Article 4 thereof to increase the number of shares of authorized Common Stock and decrease the number of authorized Preferred Stock, and which add a new Article 10 to such Certificate of Incorporation as set forth below, declaring said amendments to be advisable and calling for the same to be submitted to the stockholders of the Corporation for consideration. The resolutions setting forth the proposed amendments are as follows: (a) RESOLVED, that the Certificate of Incorporation of the Corporation, as amended, be amended by changing Article 4 thereof so that, as hereby amended, said Article 4 shall be and read in its entirety as follows: "4. The total number of shares of capital stock which the Corporation shall have authority to issue is twenty-six million (26,000,000) shares, which shall be divided into two classes as follows: One million (1,000,000) shares of Preferred Stock with a par value of one cent ($.01) per share (the "Preferred Stock"); and Twenty-five million (25,000,000) shares of Common Stock with a par value of one cent ($.01) per share (the "Preferred Stock"). Four hundred fifty thousand (450,000) shares of the Preferred Stock shall be Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") and five hundred thousand (500,000) shares of the Preferred Stock shall be Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"), each having the respective powers, preferences and other rights, qualifications, limitations and restrictions set forth in the Certificate of Designations dated March 14, 1988 filed by the Corporation with the Secretary of State of Delaware on March 15, 1988 (the "Certificate of Designations"); provided, however, that nothing herein shall prohibit the Corporation or its Board of Directors, acting in accordance with the General Corporation Law of the State of Delaware (including but not limited to Section 151(g) thereof) or this Certificate of Incorporation, from hereafter amending or eliminating all or any of the powers, designations, preferences, or relative, participating, optional or other rights, or the qualifications, limitations or restrictions, of the Series A Preferred Stock and the Series B Preferred Stock, or any portion thereof, as the same are presently stated in the Certificate of Designations or are hereafter stated in any subsequent certificate of designations filed by the Corporation pursuant to Section 151(g) of the General Corporation Law of the State of Delaware or in any other subsequent amendment to this Certificate of Incorporation, or returning the Series A Preferred Stock and the Series B Preferred Stock, or any portion thereof, to the status of "Preferred Stock" with rights and powers to be designated thereafter by the Board of Directors pursuant to this Article 4. Subject to the foregoing, the designations, voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions, of the Preferred Stock and Common Stock are as follows: I. Preferred Stock A. Issuance in Series. Shares of Preferred Stock may be issued in one or more series at such time or times, and for such consideration or considerations, as the Board of Directors may determine. All shares of any one series of Preferred Stock will be identical with each other share of stock of such series in all respects, except that shares of one series issued at different times may differ as to dates from which dividends thereon may be cumulative. B. Authority of the Board with Respect to Series. Subject to restrictions, if any, stated in the Certificate of Incorporation, as amended and in effect from time to time, of the Corporation or under the general corporation law of the State of Delaware, the Board of Directors is authorized, at any time and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series with such designations, voting powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in the Certificate of Incorporation of the Corporation or any amendment thereto then in effect including, but not limited to, determination of any of the following: (a) the distinctive serial designation and the number of shares constituting a series; (b) the dividend rate or rates, whether dividends are cumulative and, if so, from which date, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends, including any preference as to dividend payments granted to one or more series which may be superior in right to any other series; (c) the voting powers, full or limited, if any, of the shares of the series; (d) whether the shares are redeemable and, if so, the price or prices at which, and the terms and conditions on which, the shares may be redeemed; (e) the amount or amounts payable upon the shares in the event of voluntary or involuntary liquidation, dissolutions, distributions of assets or winding up of the corporation prior to any payment or distribution of the assets of the Corporation to any class or classes of capital stock of the Corporation ranking junior to the shares of such series; (f) whether the shares are entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of shares of a series and, if so entitled, the amount of the fund and the manner of its application, including the price or prices at which the shares may be redeemed or purchased through the application of the fund; (g) whether the shares are convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of capital stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and the adjustments thereof, if any, at which the conversion or exchange may be made, and any other terms and conditions of the conversion or exchange; and (h) any other preferences, privileges and powers, and relative participating, optional or other special rights, and qualifications, limitations or restrictions of a series, as the Board of Directors may deem advisable and as are not inconsistent with the provisions of the Certificate of Incorporation or any amendment thereto in effect at the time of determination. C. Dividends. Before any dividends on any class or classes of capital stock of the Corporation ranking junior to the Preferred Stock (other than dividends payable in shares of any class or classes of capital stock of the corporation ranking junior to the Preferred Stock) may be declared or paid or set apart for payment, the holders of shares of Preferred Stock of each series then outstanding are entitled to such dividends, but only when and as declared by the Board of Directors out of funds legally available therefor, as they may be entitled to in accordance with the resolution or resolutions adopted by the Board of Directors providing for the issue of such series, payable on such dates in each year as may be fixed in such resolution or resolutions. The term "class or classes of capital stock of the Corporation ranking junior to the Preferred Stock" means the Common Stock and any other class or classes of capital stock of the Corporation hereafter authorized which rank junior to the Preferred Stock as to dividends or upon liquidation. D. Reacquired Shares. Shares of Preferred Stock which have been issued and reacquired in any manner by the Corporation (excluding, until the corporation elects to retire them, shares which are held as treasury shares but including shares redeemed, shares purchased and retired and shares which have been converted into shares of Commons Stock) will have the status of authorized and unissued shares of Preferred Stock and may be reissued. II. Common Stock A. Dividends. Subject to the preferential rights of the Preferred Stock with respect to dividends, the holders of the Common Stock are entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors. B. Liquidation. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders of the Corporation ratably in proportion to the number of shares of Common Stock held by each of them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the Corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other person or entity and receive payment therefore in cash, stock or obligations of such other corporation, trust or other person or entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute the proceeds thereof, any balance thereof in kind, to the holders of Common Stock ratably as provided above. The merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into the Corporation, or any purchase or redemption of shares of capital stock of the Corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of the Corporation for the purposes of this paragraph. C. Voting Rights. Except as may be otherwise required by law or the Certificate of Incorporation or any amendment thereto in effect at the time of determination, each holder of Common Stock has one vote in respect to each share of Common Stock held by him of record on the books of the corporation on all matters voted upon by the stockholders. III. Other Provisions. A. Preemptive Rights. No stockholder shall have any preemptive right to subscribe to an additional issue of stock of any class or series or to any securities of the Corporation convertible into such stock." (b) RESOLVED FURTHER, that the Certificate of Incorporation, as amended, of the Corporation be amended by adding a new Article 10 thereto, said new Article 10 to be and read in its entirety as follows: "10. To the full extent permitted by Delaware Law, no director of the Corporation shall have personal liability to the Corporation or its stockholders for monetary damages for an act or omission in such director's capacity as a director of the Corporation. The foregoing elimination of certain liability of directors shall not be deemed exclusive of any other rights or limitation of liability to which a director may be entitled under any bylaw provision, agreement, vote of stockholders and/or disinterested directors, or otherwise." SECOND: Thereafter, pursuant to Section 228 of the General Corporation Law of the State of Delaware, the holders of all outstanding shares of capital stock of all classes of the Corporation executed a written consent adopting and approving the aforesaid amendments. THIRD: Said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: The capital of said Corporation shall not be reduced or increased under or by reason of said amendments. IN WITNESS WHEREOF, said Applebee's International, Inc. has caused this Certificate to be signed by Abe J. Gustin, Jr., its President, and attested to by Johyne Reck, its Secretary, this 21st day of July , 1989. APPLEBEE'S INTERNATIONAL, INC. By: /s/ Abe J. Gustin, Jr. Its President ATTEST: /s/ Johyne Reck Johyne Reck, Secretary STATE OF MISSOURI ) ) SS. COUNTY OF JACKSON ) On this 21st day of July , 1989, before me, Frances L. Hillman, a Notary Public in and for said State, personally appeared Abe J. Gustin, Jr., the President of Applebee's International, Inc., known to me to be the person who executed the within Certificate of Amendment to the Certificate of Incorporation of Applebee's International, Inc. on behalf of said corporation and acknowledged to me that he executed said Certificate of Amendment as the act and deed of said Corporation for the purposes and in the capacity therein stated and that the facts stated therein are true. /s/ Frances L. Hillman Notary Public My Commission Expires: September 7, 1991 Filed with the Office of the Secretary of State of Delaware on June 8, 1992 at 3:30 p.m. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF APPLEBEE'S INTERNATIONAL, INC. Applebee's International, Inc., a corporation organized and existing under and by virtue of the General Corporation Law and State of Delaware DOES HEREBY CERTIFY: FIRST: That the Board of Directors of Applebee's International, Inc. (the "Corporation") adopted a resolution setting forth a proposed amendment to the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation be amended by adding a new Article 11 thereto, said new Article 11 to be and read in its entirety as follows: "11. Upon the effectiveness of this amendment to the Certificate of Incorporation pursuant to the Delaware General Corporation Law, the Board of Directors of the Corporation shall be divided into three classes, designated Class I, Class II and Class III, which at all times shall be as nearly equal in number as possible, as determined by the Board of Directors. The term of office of the initial Class I Directors shall expire at the Annual Meeting of Stockholders next succeeding the date on which this amendment to the Certificate of Incorporation becomes effective as provided above, the term of office of the initial Class II Directors shall expire at the Annual Meeting of Stockholders next succeeding the Annual Meeting at which the term of office of the initial Class I Directors expires, and the term of office of the initial Class III Directors shall expire at the Annual Meeting of Stockholders next succeeding the Annual Meeting at which the term of office of the initial Class II Directors expires. The appointment of incumbent Directors to the Board of Directors Classes I, II and III at the time of the effectiveness of this amendment to the Certificate of Incorporation pursuant to the Delaware General Corporation Law shall be by a resolution adopted by a majority of the Stockholders entitled to vote in an election of directors. At each Annual Meeting of Stockholders following such initial classification and election, Directors elected to succeed those whose terms expire at the time of such meeting shall be elected to hold office until the third succeeding Annual Meeting of Stockholders after their election. In the event of any increase in the number of Directors of the corporation, the additional Directors shall be classified so that all classes of Directors shall be increased equally as nearly as possible. Each Director shall hold office until his or her successor is elected and qualified, or until his or her earlier resignation or removal. Directors need not be Stockholders." SECOND: That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of the stockholders of the Corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment to the Certificate of Incorporation of said Corporation as stated above in its entirety. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of the Corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Abe J. Gustin, Jr. its President and Robert T. Steinkamp, its Secretary, this 26th day of May, 1992. APPLEBEE'S INTERNATIONAL, INC. By: /s/ Abe J. Gustin President ATTEST: /s/ Robert T. Steinkamp Secretary STATE OF MISSOURI ) ) ss. COUNTY OF JACKSON ) On this day 26th day of May, 1992, before me, /s/ Janice F. Haas, a Notary Public in and for said State, personally appeared Abe J. Gustin, Jr., the President of Applebee's International, Inc., known to me to be the person who executed the within the Certificate of Amendment to Certificate of Incorporation of Applebee's International, Inc. on behalf of the Corporation and acknowledged to me that he executed said Certificate of Amendment as the act and deed of the Corporation for the purposes and in the capacity therein stated and that the facts stated therein are true. /s/ Janice F. Haas Notary Public My commission expires: June 13, 1993 Filed with the Office of the Secretary of State of Delaware on 6/6/94 at 4:30 P.M. FOURTH CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF APPLEBEE'S INTERNATIONAL, INC. Applebee's International, Inc. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation duly adopted the resolution setting forth the proposed amendment to the Certificate of Incorporation of the Corporation in the form set forth below, declaring said amendment to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof. SECOND: That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of stockholders of the Corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment to the Certificate of Incorporation of the corporation stated as follows: "RESOLVED, that the first sentence of Article 4 of the Certificate of Incorporation of the Corporation be, and it hereby is, deleted in its entirety and replaced by the following: 4. The total number of shares of capital stock which the corporation shall have authority to issue is one hundred and twenty-six million (126,000,000) shares, which shall be divided into two classes as follows: One million (1,000,000) shares of Preferred Stock with a par value of one cent ($.01) per share (the "Preferred Stock"); and One hundred twenty-five million (125,000,000) shares of common stock with a par value of one cent ($.01) per share (the "Common Stock")." THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of the Corporation shall not be reduced or increased under or by reason of said amendment. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Abe J. Gustin, Jr., its President, and attested to by Robert T. Steinkamp, its Secretary, this 2nd day of June, 1994. APPLEBEE'S INTERNATIONAL, INC. By: /s/ Abe J. Gustin, Jr. Abe J. Gustin, Jr., President ATTEST: /s/ Robert T. Steinkamp Robert T. Steinkamp, Secretary [CORPORATE SEAL] STATE OF KANSAS ) ) ss. COUNTY OF JOHNSON ) Be it remembered, that before me Debra Nieuwenhuis, a notary public in and for the county and state aforesaid, came Abe J. Gustin, Jr., President, and Robert T. Steinkamp, Secretary, of Applebee's International, Inc., a corporation, personally known to me to be the person who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 2nd day of June, 1994. /s/ Debra K. Nieuwenhuis My commission expires: June 15, 1997 Filed with the Office of the Secretary of State of Delaware on 9/19/94 at 10:00 A.M. CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK OF APPLEBEE'S INTERNATIONAL, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware, Applebee's International, Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That, pursuant to the authority conferred upon the Board of Directors of the Corporation by Article Fourth of the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), the Board of Directors of the Corporation on September 7, 1994, adopted the following resolution creating a series of Preferred Stock designated as Series A Participating Cumulative Preferred Stock: RESOLVED, that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Certificate of Incorporation of the Corporation, a series of Preferred Stock of the Corporation is hereby created and that the designation and number of shares thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: SECTION 1. Designation and Number of Shares. The shares of such series shall be designated as "Series A Participating Cumulative Preferred Stock" (the "Series A Preferred Stock"), par value $0.01 per share. The number of shares initially constituting the Series A Preferred Stock shall be 500,000; provided, however, that, if more than a total of 50,000 shares of Series A Preferred Stock shall be issuable upon the exercise of Rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 7, 1994, between the Corporation and Chemical Bank, a New York banking corporation, as Rights Agent (the "Rights Agreement"), the Board of Directors of the Corporation, pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, shall direct by resolution or resolutions that a certificate be properly executed, acknowledged, filed and recorded, in accordance with the provisions of Section 103 thereof, providing for the total number of shares of Series A Preferred Stock authorized to be issued to be increased (to the extent that the Certificate of Incorporation then permits) to the largest number of whole shares (rounded up to the nearest whole number) issuable upon exercise of such Rights. SECTION 2. Dividends or Distributions. (a) Subject to the prior and superior rights of the holders of shares of any other series of Preferred Stock or other class of capital stock of the Corporation ranking prior or superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of the Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of the assets of the Corporation legally available therefor, (1) quarterly dividends payable in cash on the last day of each fiscal quarter in each year, or such other dates as the Board of Directors of the Corporation shall approve (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or a fraction of a share of Series A Preferred Stock, in the amount of $.01 per whole share (rounded to the nearest cent) less the amount of all cash dividends declared on the Series A Preferred Stock pursuant to the following clause (2) since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock (the total of which shall not, in any event, be less than zero) and (2) dividends payable in cash on the payment date for each cash dividend declared on the Common Stock in an amount per whole share (rounded to the nearest cent) equal to the Formula Number (as hereinafter defined) then in effect times the cash dividends then to be paid on each share of Common Stock. In addition, if the Corporation shall pay any dividend or make any distribution on the Common Stock payable in assets, securities or other forms of noncash consideration (other than dividends or distributions solely in shares of Common Stock), then, in each such case, the Corporation shall simultaneously pay or make on each outstanding whole share of Series A Preferred Stock a dividend or distribution in like kind equal to the Formula Number then in effect times such dividend or distribution on each share of the Common Stock. As used herein, the "Formula Number" shall be 1,000; provided, however, that, if at any time after September 19, 1994, the Corporation shall (i) declare or pay any dividend on the Common Stock payable in shares of Common Stock or make any distribution on the Common Stock in shares of Common Stock, (ii) subdivide (by a stock split or otherwise) the outstanding shares of Common Stock into a larger number of shares of Common Stock or (iii) combine (by a reverse stock split or otherwise) the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then in each such event the Formula Number shall be adjusted to a number determined by multiplying the Formula Number in effect immediately prior to such event by a fraction, the numerator of which is the number of shares of Common Stock that are outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event (and rounding the result to the nearest whole number); and provided further, that, if at any time after September 19, 1994, the Corporation shall issue any shares of its capital stock in a merger, reclassification, or change of the outstanding shares of Common Stock, then in each such event the Formula Number shall be appropriately adjusted to reflect such merger, reclassification or change so that each share of Preferred Stock continues to be the economic equivalent of a Formula Number of shares of Common Stock prior to such merger, reclassification or change. (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in Section 2(a) immediately prior to or at the same time it declares a dividend or distribution on the Common Stock (other than a dividend or distribution solely in shares of Common Stock); provided, however, that, in the event no dividend or distribution (other than a dividend or distribution in shares of Common Stock) shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.01 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a dividend or distribution declared thereon, which record date shall be the same as the record date for any corresponding dividend or distribution on the Common Stock. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from and after the Quarterly Dividend Payment Date next preceding the date of original issue of such shares of Series A Preferred Stock; provided, however, that, dividends on such shares which are originally issued after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and on or prior to the next succeeding Quarterly Dividend Payment Date shall begin to accrue and be cumulative from and after such Quarterly Dividend Payment Date. Notwithstanding the foregoing, dividends on shares of Series A Preferred Stock which are originally issued prior to the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend on the first Quarterly Dividend Payment Date shall be calculated as if cumulative from and after the last day of the fiscal quarter next preceding the date of original issuance of such shares. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. (d) So long as any shares of the Series A Preferred Stock are outstanding, no dividends or other distributions shall be declared, paid or distributed, or set aside for payment or distribution, on the Common Stock unless, in each case, the dividend required by this Section 2 to be declared on the Series A Preferred Stock shall have been declared. (e) The holders of the shares of Series A Preferred Stock shall not be entitled to receive any dividends or other distributions except as provided herein. SECTION 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Each holder of Series A Preferred Stock shall be entitled to a number of voters equal to the Formula Number then in effect, for each share of Series A Preferred Stock held of record on each matter on which holders of the Common Stock or stockholders generally are entitled to vote, multiplied by the maximum number of votes per share which any holer of the Common Stock or stockholders generally then have with respect to such matter (assuming any holding period or other requirement to vote a greater number of shares is satisfied). (b) Except as otherwise provided herein or by applicable law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class for the election of directors of the Corporation and on all other matters submitted to a vote of the stockholders of the Corporation. (c) If, at the time of any annual meeting of stockholders for the election of directors, the equivalent of six quarterly dividends (whether or not consecutive) payable on any share or shares of Series A Preferred Stock are in default, the number of directors constituting the Board of Directors of the Corporation shall be increased by two. In addition to voting together with the holders of Common Stock for the election of other directors of the Corporation, the holders of record of the Series A Preferred Stock, voting separately as a class to the exclusion of the holders of the Common Stock, shall be entitled as said meeting of stockholders (and at each such subsequent annual meeting of stockholders), unless all dividends in arrears have been paid or declared and set apart for payment prior thereto, to vote for the election of two directors of the Corporation, the holders of any Series A Preferred Stock being entitled to cast a number of votes per share of Series A Preferred Stock equal to the Formula Number. Until the default in payments of all dividends which permitted the election of said directors shall cease to exist, any director who shall have been so elected pursuant to the next preceding sentence may be removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares of Series A Preferred Stock at the time entitled to cast a majority of the votes entitled to be cast for the election of any such director at a special meeting of such holders called for such purpose, and any vacancy thereby created may be filled by the vote of such holders. If and when such default shall cease to exist, the holders of Series A Preferred Stock shall be divested of the foregoing special voting rights, subject to revesting in the event of each and every subsequent like default in payments of dividends. Upon the termination of the foregoing special voting rights, the terms of office of all persons who may have been elected directors pursuant to said special voting rights shall forthwith terminate, and the number of directors constituting the Board of Directors shall be reduced by two. The voting rights granted by this Section 3(c) shall be in addition to any other voting rights granted to the holders of the Series A Preferred Stock in this Section 3. (d) Except as provided herein, in Section 11 or by applicable law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for authorizing or taking any corporate action. SECTION 4. Certain Restrictions. (a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock; provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received an amount equal to the accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus an amount equal to the greater of (x) $.01 per whole share or (y) an aggregate amount per share equal to the Formula Number then in effect times the aggregate amount to be distributed per share to the holders of Common Stock or (2) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, exception distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 6. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, then in any such case the then outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share equal to the Formula Number then in effect times the aggregate amount of stock, securities, cash or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is exchanged or changed. In the event both this Section 6 and Section 2 appear to apply to a transaction, this Section 6 will control. SECTION 7. No Redemption; No Sinking Fund. (a) The shares of Series A Preferred Stock shall not be subject to redemption by the Corporation or at the option of any holder of Series A Preferred Stock except as set forth in Section 5 of Article IV of the Restated Certificate of Incorporation of the Corporation; provided, however, that the Corporation may purchase or otherwise acquire outstanding shares of Series A Preferred Stock in the open market or by offer to any holder or holders of shares of Series A Preferred Stock. (b) The shares of Series A Preferred Stock shall not be subject to or entitled to the operation of a retirement or sinking fund. SECTION 8. Ranking. The Series A Preferred Stock shall rank junior to all other series of Preferred Stock of the Corporation, unless the Board of Directors shall specifically determine otherwise in fixing the powers, preferences and relative, participating, optional and other special rights of the shares of such series and the qualifications, limitations and restrictions thereof. SECTION 9. Fractional Shares. The Series A Preferred Stock shall be issuable upon exercise of the Rights issued pursuant to the Rights Agreement in whole shares or in any fraction of a share that is one one-thousandths (1/1,000ths) of a share or any integral multiple of such fraction which shall entitle the holder, in proportion of such holder's fractional shares, to receive dividends, exercise voting rights, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. In lieu of fractional shares, the Corporation, prior to the first issuance of a share or a fraction of a share of Series A Preferred Stock, may elect (1) to make a cash payment as provided in the Rights Agreement for fractions of a share other than one one-thousandths (1/1,000ths) of a share or any integral multiple thereof or (2) to issue depository receipts evidencing such authorized fraction of a share of Series A Preferred Stock pursuant to an appropriate agreement between the Corporation and a depository selected by the Corporation; provided that such agreement shall provide that the holders of such depository receipts shall have all the rights, privileges and preferences to which they are entitled as holders of the Series A Preferred Stock. SECTION 10. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancelation become authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors pursuant to the provisions of Section 2 of Article IV of the Certificate of Incorporation. SECTION 11. Amendment. None of the powers, preferences and relative, participating, optional and other special rights of the Series A Preferred Stock as provided herein or in the Certificate of Incorporation shall be amended in any manner which would alter or change the powers, preferences, rights or privileges of the holders of Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least 66-2/3% of the outstanding shares of Series A Preferred Stock, voting as a separate class; provided, however, that no such amendment approved by the holders of at least 66-2/3% of the outstanding shares of Series A Preferred Stock shall be deemed to apply to the powers, preferences, rights or privileges of any holder of shares of Series A Preferred Stock originally issued upon exercise of a Right after the time of such approval without the approval of such holder. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed in its corporate name on this 7th day of September 1994. APPLEBEE'S INTERNATIONAL, INC. by: /s/ George D. Shadid Name: George D. Shadid Title: Executive Vice President/CFO Attest: /s/ Robert T. Steinkamp Name: Robert T. Steinkamp Title: Secretary Filed with the Office of the Secretary of State of Delaware on June 13, 1995 at 3:30 p.m. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF APPLEBEE'S INTERNATIONAL, INC. Applebee's International, Inc., a corporation organized and existing under and by virtue of the General Corporation Law and State of Delaware DOES HEREBY CERTIFY: FIRST: That the Board of Directors of Applebee's International, Inc. (the "Corporation") adopted a resolution setting forth a proposed amendment to the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of the corporation for consideration thereof. The resolution setting forth the proposed amendment as follows: RESOLVED, that the Certificate of Incorporation be amended by adding a new Article 11 thereto, said new Article 11 to be and read in its entirety as follows: "11. Upon the effectiveness of this amendment to the Certificate of Incorporation pursuant to the Delaware General Corporation Law, the Board of Directors of the Corporation shall be divided into three classes, designated Class I, Class II and Class III, which at all times shall be as nearly equal in number as possible, as determined by the Board of Directors. The term of office of the initial Class I Directors shall expire at the Annual Meeting of Stockholders next succeeding the date on which this amendment to the Certificate of Incorporation becomes effective as provided above, the term of office of the initial Class II Directors shall expire at the Annual Meeting of Stockholders next succeeding the Annual Meeting at which the term of office of the initial Class I Director expires, and the term of office of the initial Class III Directors shall expire at the Annual Meeting of Stockholders next succeeding the Annual Meeting at which the term of office of the initial Class II Directors expires. The appointment of incumbent Directors to the Board of Directors Classes, I, II and III at the time of the effectiveness of this amendment to the Certificate of Incorporation pursuant to the Delaware General Corporation Law shall be by a resolution adopted by a majority of the Stockholders entitled to vote in an election of directors. At each Annual Meeting of Stockholders following such initial classification and election, Directors elected to succeed those whose terms expire at the time of such meeting shall be elected to hold office until the third succeeding Annual Meting of Stockholders after their election. In the event of any increase in the number of Directors of the corporation, the additional Directors shall be classified so that all classes of Directors shall be increased equally as nearly as possible. Each Director shall hold office until his or her successor is elected and qualified, or until his or her earlier resignation or removal. Directors need not be Stockholders." SECOND: That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of the stockholders of the Corporation was duly called and held on May 26, 1995, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment to the Certificate of Incorporation of said Corporation as stated above in its entirety. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of the Corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Lloyd L. Hill, its President and Robert T. Steinkamp, its Secretary, this 12th day of June, 1995. APPLEBEE'S INTERNATIONAL, INC. By: /s/ Lloyd L. Hill President ATTEST: /s/ Robert T. Steinkamp Secretary EX-3.(II) 3 BY-LAWS Bylaws Approved: August 10, 1992 APPLEBEE'S INTERNATIONAL, INC. * * * * * FIRST RESTATEMENT OF B Y - L A W S * * * * * ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in Kansas City, State of Missouri, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the state of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year 1988, shall be held on the fifteenth day of July if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. 1 Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. 2 Section 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III - Amended January 26, 1994 Amended March 8, 1995 DIRECTORS Section 1. Number; Election; Terms. The business and affairs of the corporation shall be managed by the board of directors. The number of directors which shall constitute the whole board of directors of the corporation shall be not less than six nor more than nine. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the board of directors pursuant to a resolution adopted by the affirmative vote of at least all but one of the entire board of directors. Upon the effectiveness of the amendment to the certificate of incorporation of the corporation pursuant to the Delaware General Corporation Law, the board of directors of the corporation shall be divided into three classes, designated Class I, Class II, and Class III, which at all times shall be as nearly equal in number as possible, as determined by the board of directors. If the board of directors shall by resolution increase the number of directors which shall constitute the entire board, such additional directors shall be designated to serve in either Class I, Class II, or Class III, at the discretion of the board of directors, so long as each class is maintained as nearly equal in number as possible. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders next succeeding the date which these by-laws are adopted, the term of office of the initial Class II directors shall expire at the annual meeting of stockholders next succeeding the annual meeting at which the term of office of the initial Class I directors expires, and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders next succeeding the annual meeting at which the term of office of the initial Class II directors expires. The appointment of incumbent directors to board of director Classes I, II and III at the time of said effectiveness of the amendment to the certificate of incorporation shall be by a resolution adopted by a majority of the stockholders entitled to vote in an election of directors. 3 At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those terms expired at the time of such meeting shall be elected to hold office until the third succeeding annual meeting of stockholders of their election. In the event of any increase in the number of directors of the corporation, the additional directors shall be so classified that all classes of directors shall be increased equally as nearly as possible. Election of directors of the corporation need not be by written ballot. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 4 Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the president on seven days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 8. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 11. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 5 In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same of any other class or classes of stock of the corporation) adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 13. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 6 ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a chairman of the board, a president, a secretary and a treasurer. The board of directors may also choose one or more vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a chairman of the board, a president, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE CHAIRMAN OF THE BOARD Section 6. The chairman of the board of directors shall preside at all meetings of the stockholders and the board of directors, and shall have supervision of such matters as may be designated to him by the board of directors. Section 7. He may also sign all notes, agreements or other instruments in writing made and entered into for or on behalf of the corporation. 7 THE PRESIDENT Section 8. The president, in the absence of the chairman of the board, shall preside at all meetings of the stockholders and the board of directors. He shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 9. He shall execute stock certificates, bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 10. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 11. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 12. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 8 THE TREASURER AND ASSISTANT TREASURERS Section 13. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 14. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 15. If required by the board of directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 16. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has singed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 9 LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation. FIXING RECORD DATE - Amended August 15, 1994 Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty day prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 10 ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 11 ARTICLE VIII AMENDMENTS Section 1. Subject to any requirements set forth in these by-laws, these by-laws may be amended or repealed, and any new by-laws may be adopted, by a majority of the stockholders entitled to vote or by a majority of the board of directors, except that the provisions of Article III may be amended only by the affirmative vote of at least all but one of the board of directors or by the vote of eighty percent of the stockholders entitled to vote. ARTICLE IX INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. The corporation shall indemnify each person who has been or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate (other than an action by or in the right of the corporation) by reason of the fact that such person is or was an officer or director of the corporation or is or was serving at the corporation's request as a director or officer of any Other Enterprise against all liabilities and expenses, including, without limitation, judgments, amounts paid in settlement (provided that such settlement and all amounts paid in connection therewith are approved in advance by the corporation in accordance with Section 4 of this Article IX, which approval shall not be unreasonably withheld), attorneys' fees, ERISA excise taxes or penalties, fines and other expenses actually and reasonably incurred by such person in connection with such action, suit or proceeding (including without limitation the investigation, defense, settlement or appeal of such action, suit or proceeding) if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; provided, however, that the corporation shall not be required to indemnify or advance expenses to any such person or persons seeking indemnification or advancement of expenses in connection with an action, suit or proceeding initiated by such person unless the initiation of such action, suit or proceeding was authorized by the board of directors of the corporation. The termination of any such action, suit or proceeding by judgment, order, settlement, conviction or under a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding that he had reasonable cause to believe that his conduct was unlawful. 12 Section 2. The corporation shall indemnify each person who has been or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an officer or director of the corporation or is or was serving at the corporation's request as a director or officer of any Other Enterprise against amounts paid in settlement thereof (provided that such settlement and all amounts paid in connection therewith are approved in advance by the corporation in accordance with Section 4 of this Article IX, which approval shall not be unreasonably withheld) and all expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action, suit or proceeding (including without limitation the investigation, defense, settlement or appeal of such action, suit or proceeding) if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification under this Section 2 shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged liable to the corporation unless and only to the extent that the court in which the action, suit or proceeding is brought determines upon application that, despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to such indemnification. Section 3. Notwithstanding the other provisions of this Article IX, to the extent that a person who is or was serving as a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any Other Enterprise, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article IX (including the dismissal of any such action, suit or proceeding without prejudice), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Prior to indemnifying a person pursuant to the provisions of Sections 1 and 2 of this Article IX, unless ordered by a court and except as otherwise provided by Section 3 of this Article IX, the corporation shall determine that such person has met the specified standard of conduct entitling such person to indemnification as set forth under Sections 1 and 2 of this Article IX. Any determination that a person shall or shall not be indemnified under the provisions of Sections 1 and 2 of this Article IX shall be made by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, or if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or by the stockholders, and such determination shall be final and binding upon the corporation; provided, however, that in the event such determination is adverse to the person or persons to be indemnified hereunder, such person or persons shall have the right to maintain an action in any court of competent jurisdiction against the corporation to determine whether or not such person has met the requisite standard of conduct and is entitled to such indemnification hereunder. If such court action is successful and the person or persons is determined to be entitled to such indemnification, such person or persons shall be reimbursed by the corporation for all fees and expenses (including attorneys' fees) actually and reasonably incurred in connection with any such action (including without limitation the investigation, defense, settlement or appeal of such action). 13 Section 5. Expenses (including attorneys' fees) actually and reasonably incurred by a person who may be entitled to indemnification hereunder in defending an action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to indemnification by the corporation. Notwithstanding the foregoing, no advance shall be made by the corporation if a determination is reasonably and promptly made by (i) the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding for which the advancement is requested, (ii) if a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders, that, based upon the facts known to the board, counsel or stockholders at the time such determination is made, such person acted in bad faith and in a manner that such person did not believe to be in or not opposed to the best interest of the corporation, or, with respect to any criminal proceeding, that such person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the board, stockholders or independent legal counsel reasonably determines that such person deliberately breached his duty to the corporation or its stockholders. Section 6. The indemnification and advancement of expenses provided by this Article IX shall not be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, under the certificate of incorporation, by-laws, agreement, vote of stockholders or disinterested directors, policy of insurance or otherwise, both as to action in their official capacity and as to action in another capacity while holding their respective offices, and shall not limit in any way any right which the corporation may have to make additional indemnifications with respect to the same or different persons or classes of persons. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article IX shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, administrators and estate of such a person. Section 7. Upon resolution passed by the board of directors, the corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any Other Enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article IX. Section 8. The rights granted by this Article IX shall be vested in each person entitled to indemnification hereunder as a bargained-for, contractual condition of such person's acceptance of his election or appointment as a director or officer of the corporation or serving at the request of the corporation as a director or officer of any Other Enterprise and while this Article IX may be amended or repealed, no such amendment or repeal shall release, terminate or adversely affect the rights of such person under this Article IX with respect to any act taken or the failure to take any act by such person prior to such amendment or repeal or with respect to any action, suit or proceeding with respect to such act or failure to act filed after such amendment or repeal. 14 Section 9. For purposes of this Article IX, references to "the corporation" shall, if and only if the board of directors shall determine, include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers or persons serving at the request of such constituent corporation as a director or officer of any Other Enterprise, so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of any Other Enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. Section 10. For the purpose of this Article IX, references to "Other Enterprises" or "Other Enterprise" shall include without limitation any other corporation, partnership, joint venture, trust or employee benefit plan; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; references to "defense" shall include investigations of any threatened, pending or completed action, suit or proceeding as well as appeals thereof and shall also include any defensive assertion of a cross claim or counterclaim; and references to "serving at the request of the corporation" shall include any service as a director or officer of a corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of any employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article IX. For the purpose of this Article IX, unless the board of directors of the corporation shall determine otherwise, any director or officer of the corporation who shall serve as an officer or director of any Other Enterprise of which the corporation, directly or indirectly, is a stockholder or creditor, or in which the corporation is in any way interested, shall be presumed to be serving as such director or officer at the request of the corporation. In all other instances where any person shall serve as a director or officer of an Other Enterprise, if it is not otherwise established that such person is or was serving as such director or officer at the request of the corporation, the board of directors of the corporation shall determine whether such person is or was serving at the request of the corporation, and it shall not be necessary to show any actual or prior request for such service, which determination shall be final and binding on the corporation and the person seeking indemnification. Section 11. If any provision of this Article IX or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable for any reason whatsoever, the remaining provisions of this Article IX and the application of such provisions to other persons or circumstances shall not be affected thereby and to the fullest extent possible the court finding such provision invalid, illegal or unenforceable shall modify and construe the provisions so as to render it valid and enforceable as against all persons or entities and to give the maximum possible protection to persons subject to indemnification hereby within the bounds of validity, legality and enforceability. Without limiting the generality of the foregoing, if any officer or director of the corporation or any person who is or was serving at the request of the corporation as a director or officer of any Other Enterprise, is entitled under any provision of this Article IX, to indemnification by the corporation for some or a portion of the judgments, amounts paid in settlement, attorneys' fees, ERISA excise taxes or penalties, fines or other expenses actually and reasonably incurred by any such person in connection with any threatened, pending or completed action, suit or proceeding (including without limitation, the investigation, defense, settlement or appeal of such action, suit or proceeding), whether civil, criminal, administrative, investigative or appellate, but not, however, for all of the total amount thereof, the corporation shall nevertheless indemnify such person for the portion thereof to which such person is entitled. 15 AMENDMENT TO THE BY-LAWS OF APPLEBEE'S INTERNATIONAL, INC. Section 1 of Article III is amended by adding at the end of the Present Section 1 the following paragraph: "Nominations of persons for election to the board of directors of the corporation may be made by or at the direction of the board of directors, by any nominating committee or person appointed by the board of directors, or by any shareholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 1 of Article III. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to written notice to the secretary of the corporation complying with the requirements of this Section. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 60 days nor more than 75 days prior to the meeting; provided, however, that in the event first notice or first public disclosure of the date of the meeting is given or made to shareholders during the 60 day period prior to the meeting, notice by the shareholder to be timely must be so delivered or received not later than the close of business of the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice to the secretary shall include: (a) as to each whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person; (ii) the principal occupation or employment of the person; (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person; (iv) any other information relating to the person as would be required to be disclosed in solicitation of proxies for election of directors pursuant to the proxy rules of the Securities and Exchange Commission had such person be nominated, or intended to be nominated, by the board of directors of the corporation; and (v) the written consent of such person to serve as director of the corporation if so elected; and (b) As to the shareholder giving the notice, (i) the name and record address of the shareholder; (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the shareholder; (iii) a representation that the shareholder is holder of record of capital stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; and (iv) a description of all arrangements or understandings between the shareholder and each nominee and any person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation, and the chairman of the meeting may refuse to acknowledge the nomination of any person, unless such person nominated in compliance with the foregoing procedure." Applebee's International, Inc. Amendment to Bylaws - August 15, 1994 FIXING OF RECORD DATE Section 5. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payments of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action other than stockholder action by written consent, the Board of Directors may fix a record date, which shall not precede the date such record date is fixed and shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any such other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given. The record date for any other purpose other than stockholder action by written consent shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, provide a copy of the corporate action proposed to be authorized or taken and request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a copy of the proposed corporate action and request are received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the corporation having custody of the book in which proceedings of meeting of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Applebee's International, Inc. Amendment to Bylaws - March 8, 1995 Section 1 of Article 3 is amended by deleting the first paragraph of Section 1 of Article III and inserting in its place and stead the following: "Section 1. Number; Election, Terms. The business and affairs of the corporation shall be managed by the board of directors. The number of directors which shall constitute the whole board of directors of the corporation shall not be less than six nor more than ten. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the board of directors pursuant to a resolution adopted by the affirmative votes of at least all but one of the entire board of directors." EX-10.4 4 FORM OF DEVELOPMENT AGREEMENT STANDARD FORM APPLEBEE'S NEIGHBORHOOD GRILL & BAR DEVELOPMENT AGREEMENT ----------------------------------- (Name of Developer) ----------------------------------- (Date) ----------------------------------- (General Description of Territory) TABLE OF CONTENTS RECITALS ................................................... 1 1. GRANT OF DEVELOPMENT RIGHTS........................ 2 2. INITIAL DEVELOPMENT SCHEDULE....................... 2 3. SUBSEQUENT DEVELOPMENT SCHEDULE; DEVELOPMENT OBLIGATIONS GENERALLY.................. 3 4. FRANCHISE FEE AND ROYALTY RATE..................... 5 5. SITE APPROVALS: PLANS AND SPECIFICATIONS.......... 6 6. FEES AND FRANCHISE AGREEMENTS...................... 7 7. DEVELOPER ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS............... 7 8. TRANSFER........................................... 9 9. TERMINATION........................................ 13 10. PREREQUISITES TO OBTAINING FRANCHISES FOR INDIVIDUAL RESTAURANT UNITS.................... 15 11. RESTRICTIONS....................................... 16 12. DEVELOPMENT PROCEDURES............................. 18 13. NO WAIVER OF DEFAULT............................... 19 14. FORCE MAJEURE...................................... 20 15. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION............................... 20 16. MISCELLANEOUS...................................... 21 APPENDIX A: TERRITORY APPENDIX B: FORM OF FRANCHISE AGREEMENT APPENDIX C: STATEMENT OF OWNERSHIP INTERESTS APPENDIX D: REVIEW AND CONSENT WITH RESPECT TO TRANSFERS APPENDIX E: CONFIDENTIALITY AGREEMENT AND COVENANT NOT TO COMPETE APPENDIX F: CONFIDENTIALITY AGREEMENT 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 if Developer is a limited partnership having as its general partner a corporation) and - -------------------------------------------------------------------------------- ("GENERAL PARTNER" of Developer if Developer is a limited partnership). 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. 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. 1 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. 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, so long as such other restaurants do not utilize the System or the Applebee's Neighborhood Grill & Bar service mark. 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. 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) 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 2.2 During any Initial Development Period, subject to the provisions of this Agreement, Developer is free to develop more than the total minimum number of Restaurants which Developer is required to develop during that Initial Development Period. Any such Restaurants developed, open for operation and doing business during an Initial Development Period in excess of the minimum number required to be developed during that Initial Development Period shall be applied to satisfy Developer's development obligation during the next succeeding Initial Development Period or next succeeding Subsequent Development Period (as defined in Section 3 hereof), if any, as the case may be. Notwithstanding the above, Developer shall not develop more than the total number Restaurants approved by Franchisor for development under this Agreement. 2.3 Strict compliance with the development schedule specified in Subsection 2.1 hereof is of the essence of this Agreement. If Developer fails to fulfill its specified development obligation with respect to any of the Initial Development Periods specified in Subsection 2.1 hereof, this Agreement shall terminate sixty (60) days after the end of the Initial Development Period in question, unless by the end of such sixty (60) day period Developer has fulfilled the development obligation relating to such Initial Development Period. 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 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." (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 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 three (3) Initial Development Periods pursuant to this Agreement (as reduced by a credit of $6,000 based on Developer's prior payment, if so paid, of a non-refundable $6,000 application fee). The remaining balance of the franchise fees for each of the Restaurants to be developed during the three (3) Initial Development Periods shall be paid by certified check as follows: one-half (1/2) of the balance shall be paid upon signing a franchise agreement for that Restaurant and the remaining balance shall be paid fourteen (14) days prior to the scheduled opening of the Restaurant. The Franchise Fee Deposit shall be proportionately allocated to the franchise fee due with respect to each Restaurant to which it applies. The franchise fee with respect to each Restaurant to be developed during a Subsequent Development Period or with respect to any additional Restaurants developed during the Initial Development Periods shall be paid by certified check in the same manner. 4.2 Except as provided in this Subsection 4.2 and in Subsection 19.1 of the form of franchise agreement which is attached hereto as Appendix B, Developer shall have no right to recover from Franchisor, directly or indirectly, any of the franchise fees which are prepaid pursuant to Subsection 4.1 hereof. If Developer's failure to develop the total number of Restaurants specified in Subsection 2.1 of this Agreement is the result of the assertion of rights by a third party as described in Subsection 3.5 hereof, those prepaid franchise fees which relate to the Restaurants which cannot be so developed shall be refunded to Developer in cash. 5 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. 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. 6 5.2 For each Restaurant which Developer develops pursuant to this Agreement, Franchisor will make available to Developer Franchisor's specifications for a typical Restaurant. Developer will obtain architectural and engineering services independently and at its own expense. Franchisor shall have the right to review all such architectural and/or engineering plans which Developer obtains and to prohibit the implementation of any plan, or part thereof, which Franchisor, in its sole and absolute discretion, believes is not consistent with the best interests of the System. In the event that Franchisor desires to prohibit the implementation of any such plan, or part thereof, Franchisor shall so notify Developer within thirty (30) business days of receiving such architectural and/or engineering plans for review. Failure of Franchisor to so notify Developer within such thirty (30) business day period shall be deemed to be an approval of such plans. In the event Franchisor does object to any such plan, Franchisor shall provide Developer with a reasonable detailed list of changes necessary to make such plans acceptable to Franchisor. Franchisor shall, upon resubmission of such plans, with such changes as Developer has prepared, notify Developer within fifteen (15) business days of receiving such plans whether they are acceptable. Failure to so notify Developer within such fifteen (15) business day period shall be deemed to be an approval of such amended plans. 5.3 If Developer acquires a leasehold interest in a site, that leasehold interest shall be for a term which is at least as long as the term of the form of franchise agreement which is attached hereto as Appendix B, and the lease shall provide that if the applicable franchise agreement is terminated prior to the expiration of that term for whatever reason, Developer may assign the lease to Franchisor without the lessor having any right to impose conditions on such assignment or to obtain any payment in connection therewith. 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 7. DEVELOPER ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS 7.1 Developer and each Principal Shareholder represent and warrant that: (a) Developer is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation; (b) Developer is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (c) the execution and delivery of this Agreement and the transactions contemplated hereby are within Developer's corporate power; (d) the execution and delivery of this Agreement have been duly authorized by the Developer; (e) the articles of incorporation and by-laws of Developer delivered to Franchisor are true, complete and correct, and there have been no changes therein since the date thereof; (f) the certified copies of the minutes electing the officers of Developer and authorizing the execution and delivery of this Agreement are true, correct and complete, and there have been no changes therein since the date(s) thereof; (g) the specimen stock certificate delivered to Franchisor is a true specimen of Developer's stock certificate; (h) the financial statement of Developer and financial statements of its Principal Shareholders, heretofore delivered to Franchisor, are true, complete and correct, and fairly present the financial positions of Developer and each Principal Shareholder, respectively, as of the date thereof; (i) such financial statements have been prepared in accordance with generally accepted accounting principles; and (j) there have been no materially adverse changes in the condition, assets or liabilities of Developer or Principal Shareholders since the date or dates thereof. 7.2 Developer and each Principal Shareholder covenant that during the term of this Agreement: (a) Developer shall do or cause to be done all things necessary to preserve and keep in full force its corporate existence and shall be in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (b) Developer shall have the corporate authority to carry out the terms of this Agreement; and (c) Developer shall print, in a conspicuous fashion on all certificates representing shares of its stock when issued, a legend referring to this Agreement and the restrictions on and obligations of Developer and Principal Shareholders hereunder, including the restrictions on transfer of Developer's shares. 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. 8 7.5 Developer and each Principal Shareholder represent, warrant and covenant that all Interests (as defined in Subsection 8.4 hereto) in Developer are owned as set forth on Appendix C hereto, that no Interest has been pledged or hypothecated (except in accordance with Section 8 of this Agreement), and that no change will be made in the ownership of any such Interest other than as permitted by this Agreement, or otherwise consented to in writing by Franchisor. Developer and Principal Shareholders agree to furnish Franchisor with such evidence as Franchisor may request, from time to time, for the purpose of assuring Franchisor that the Interests of Developer and Principal Shareholders remain as represented herein. 7.6 Each Principal Shareholder, jointly and severally, hereby personally and unconditionally guarantees each of Developer's financial obligations to Franchisor (including, but not limited to, all obligations relating to the payment of fees by Developer to Franchisor). Each Principal Shareholder agrees that Franchisor may resort to such Principal Shareholder (or any of them) for payment of any such financial obligation, whether or not Franchisor shall have proceeded against Developer, any other Principal Shareholder or any other obligor primarily or secondarily obligated to Franchisor with respect to such financial obligation. Each Principal Shareholder hereby expressly waives presentment, demand, notice of dishonor, protest, and all other notices whatsoever with respect to Franchisor's enforcement of this guaranty. In addition, each Principal Shareholder agrees that if the performance or observance by Developer of any term or provision hereof is waived or the time of performance thereof extended by Franchisor, or payment of any such financial obligation is accelerated in accordance with any agreement between Franchisor and any party liable in respect thereto or extended or renewed, in whole or in part, all as Franchisor may determine, whether or not notice to or consent by any Principal Shareholder or any other party liable in respect to such financial obligations is given or obtained, such actions shall not affect or alter the guaranty of each Principal Shareholder described in this Subsection. 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 9 (b) any change in the percentage interest owned by any Shareholder in the shares of stock of Developer, or interests in its profits, revenues or assets which would result from any act of Developer such as a sale, pledge or hypothecation of any Restaurant assets (other than a pledge of assets to secure bona fide loans made or credit extended in connection with acquisition of the assets pledged, provided that immediately before and after such transaction Developer satisfies the applicable liquid asset requirement described in Subsection 7.3 of this Agreement); any sale or issuance of any shares of Developer's stock; the retirement or redemption of any shares of Developer's stock; or any sale or grant to any person of any right to participate in or otherwise to share or become entitled to any part of Developer's profits, revenues, assets or equity. 8.3 "Transfer" shall not include (a) a change in the ownership of or rights to any shares or other equity interest in Developer pursuant to a public offering of Developer's securities registered under the Securities Act of 1933, or (b) a change in the ownership of or rights to any securities or other equity interest in Developer pursuant to a private offering of Developer's securities exempted from registration under such Act, provided that Developer provides Franchisor with a copy of its prospectus and/or offering memorandum ten (10) days prior to its filing with the Securities and Exchange Commission or circulation to third parties so that Franchisor may comment and, if necessary, correct any information concerning Franchisor and/or the System, and further provided that after giving effect to any such public or private offering, the Principal Shareholders, or any of them, "control" Developer. For purposes of this Section 8, "control" means either (1) owning legal and equitable title to fifty-one percent (51%) or more of the outstanding voting securities of Developer, which are not subject to a proxy granted to or contract with any other person or party granting that party the right to vote part or all of such securities, or (2) having and continually exercising the contractual power presently to designate a majority of the directors of Developer. 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. 10 (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 the number of Restaurants required by Subsection 2.1 hereof and the number of Restaurants required by Subsection 3.1 hereof, 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 operation the number of Restaurants required by Subsection 2.1 and Subsection 3.1 hereof, the Principal Shareholders desire to dispose of all or substantially all of the Interests of the Principal Shareholders in Developer, or the Principal Shareholders (or Developer) desire to dispose of all or substantially all of Developer's Interest in this Agreement or in the assets which Developer has acquired pursuant to this Agreement, the Principal Shareholders or Developer, as the case may be, shall notify Franchisor of that desire, in writing, thirty (30) days before announcing that fact publicly or engaging the services of a broker or sales agent. 8.7 (a) If at any time any of the Principal Shareholders or Developer, as the case may be, obtains from a third party or third parties a bona fide offer (the "Offer") in writing for the purchase of all or substantially all of the Interests of the Principal Shareholders in Developer or in the Restaurant assets which Developer has acquired as a result of this Agreement, the Principal Shareholders or Developer shall give notice (the "Selling Notice") to Franchisor stating that the Principal Shareholders or Developer, as the case may be, have received the Offer, identifying the prospective purchaser by name and address, specifying the proposed purchase price and attaching a true and complete copy of the Offer. Notwithstanding the foregoing, however, Developer and Principal Shareholders understand and agree that, as provided in Subsection 8.6 hereof, until such time as Developer has developed and opened for operation the number of Restaurants required by Subsection 2.1 and Subsection 3.1 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 2.1 and Subsection 3.1, 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. 11 (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. (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. 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. 12 (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. 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: 13 (a) development by Developer of a Restaurant without first obtaining approval from Franchisor of the Restaurant site or of Developer's architectural and/or engineering plans in accordance with Section 5 hereof; (b) any breach or default of any of the provisions of Sections 8 and 11 of this Agreement and Subsection 14.1 of any franchise agreement entered into pursuant to this Agreement; (c) the filing by Developer of a petition in bankruptcy, an arrangement for the benefit of creditors, or a petition for reorganization; the filing against Developer of a petition in bankruptcy, an arrangement for the benefit of creditors, or petition for reorganization, not dismissed within ninety (90) days of the filing thereof; the making of an assignment by Developer for the benefit of creditors; or the appointment of a receiver or trustee for Developer, which receiver or trustee shall not have been dismissed within ninety (90) days of such appointment; (d) the discovery by Franchisor that Developer made any material misrepresentation or omitted any material fact in the information which was furnished to Franchisor in connection with this Agreement; (e) failure by Developer to locate and employ a Director of Operations who is approved by Franchisor in accordance with Subsection 12.2 within ninety (90) days of the date of this Agreement or, with respect to a replacement Director of Operations, failure by Developer to locate such a replacement who is approved by Franchisor in accordance with Subsection 12.2 within one hundred eighty (180) days of the date on which the last Director of Operations who was approved by Franchisor ceased to be employed by Developer in that capacity; (f) any part of this Agreement relating to the payment of fees to Franchisor, or the preservation of any of Franchisor's trade names, service marks, trademarks, trade secrets or secret formulae licensed or disclosed hereunder or under any franchise agreement between Franchisor and Developer, for any reason being declared invalid or unenforceable; (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. 14 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 2.1 and Subsection 3.1 of this Agreement, such aforesaid terms and conditions may only be satisfied by Developer (and not an assignee or transferee thereof), who shall remain at all times owned and controlled by the Principal Shareholders as herein set forth. 10.2 In the event that Developer shall have obtained Franchisor's approval of a particular proposed site for a Restaurant, and if Franchisor, in the exercise of its sole discretion, has granted Developer operational, financial and legal approval, then Franchisor will grant Developer a franchise for a Restaurant at the site in question. As used herein, Franchisor will give Developer "operational", "financial" and "legal" approval under the following circumstances: "Operational" approval will be granted if Franchisor has determined, in the exercise of its sole discretion, that Developer is conducting the operation of each of its Restaurants, and is capable of conducting the operation of the proposed Restaurant, including physical aspects thereof, (a) in accordance with the terms and conditions of this Agreement, (b) in accordance with the provisions of the respective franchise agreements, and (c) in accordance with the standards, specifications and procedures set forth and described in the Franchise Operations Manual and in any other materials or manuals provided or made available to Developer by Franchisor (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. 15 "Legal" approval will be granted if Franchisor has determined, in the exercise of its sole discretion, that Developer has submitted to Franchisor, in a timely manner as requested, all information and documents requested by Franchisor prior to and as a basis for the issuance of individual franchises or pursuant to any right granted to Franchisor by this Agreement or by any franchise agreement between Developer and Franchisor, and has taken such additional actions in connection therewith as may be requested from time to time. 10.3 It is understood and agreed that the foregoing criteria apply to the operational, financial and legal aspects of any Restaurant franchised by Franchisor in which Developer or any Principal Shareholder has any legal or equitable interest. It is further understood and agreed that Developer and Principal Shareholders have an ongoing responsibility to operate each Restaurant in which Developer or any Principal Shareholder has any legal or equitable interest in a manner which satisfies the foregoing requirements for operational, financial and legal approval. 11. RESTRICTIONS 11.1 Developer and its Principal Shareholders acknowledge that over the term of this Agreement they are to receive proprietary information which Franchisor has developed over time at great expense, including, but not limited to, methods of site selection, marketing methods, product analysis and selection, and service methods and skills relating to the development and operation of Restaurants. They further acknowledge that this information, which includes, but is not necessarily limited to, that contained in the Manuals, is not generally known in the industry and is beyond their own present skills and experience, and that to develop it themselves would be expensive, time-consuming and difficult. Developer and Principal Shareholders further acknowledge that the Franchisor's information provides a competitive advantage and will be valuable to them in the development of their business, and that gaining access to it is therefore a primary reason why they are entering into this Agreement. Accordingly, Developer and its Principal Shareholders agree that Franchisor's information, as described 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. 16 (b) Neither Developer, for two (2) years following the termination of this Agreement, nor any Principal Shareholder, for two (2) years following the termination of all of his or her Interest in Developer or the termination of this Agreement, whichever occurs first, may directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar to that employed by restaurant units within the System which is located either (i) in the Territory, (ii) in the Area of Dominant Influence (as defined and established from time to time by Arbitron Ratings Company) of any Restaurant developed pursuant to this Agreement, (iii) within a five (5) mile radius of any restaurant unit within the System, or (iv) within any area for which an active, currently binding development agreement has been granted by Franchisor to another franchisee as of the date of termination. 11.2 Neither Developer nor any Shareholder shall at any time (a) appropriate or use the trade secrets incorporated in the System, or any portion thereof, in any other restaurant business which is not within the System, (b) disclose or reveal any portion of the System to any person other than to Developer's employees as an incident of their training, (c) acquire any right to use any name, 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. 17 11.5 If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Section 11 determines that it would be invalid or unenforceable as written, then the provisions hereof shall be deemed to be modified or limited to such extent or in such manner as necessary for such provisions to be valid and enforceable to the greatest extent possible. 12. DEVELOPMENT PROCEDURES 12.1 Franchisor will use its reasonable efforts to furnish Developer with advice in developing Restaurants and in selecting sites therefor. 12.2 Developer shall designate an individual employee who shall be personally responsible for Developer's activities during the term of this Agreement, and who shall devote his or her full-time, best efforts and constant personal attention, on a day-to-day basis, to Developer's activities in the Territory (the "Director of Operations"). Developer shall require that the Director of Operations maintain his or her principal personal residence in the Territory. Franchisor reserves the right to require that, as a condition of his or her employment with Developer, the Director of Operations, as well as each supervisory employee referred to in Subsection 12.3, must successfully complete Franchisor's interview process and a psychological profile test in a manner which satisfies a uniform standard established by Franchisor. The test shall be administered by Franchisor, or by a testing agency designated by Franchisor, at Developer's expense. Developer's designation of the first Director of Operations, and any subsequent Director of Operations, shall be subject to the written approval of Franchisor, which approval shall not be arbitrarily withheld, and shall also be subject to the time limitations described in Subsection 9.2(e) hereof. Franchisor shall notify Developer in writing within fourteen (14) business days of receipt of Developer's request whether Franchisor disapproves such person. Failure by Franchisor to so notify Developer within that period shall be deemed to constitute Franchisor's approval of such person. 12.3 In the event that Developer desires to designate an employee (in addition to the Director of Operations) who will have supervisory authority over the development of operation of more than one (1) Restaurant within the Territory, Developer's designation of such a supervisory employee shall be subject to the written approval of Franchisor, which approval shall not be arbitrarily withheld. Franchisor shall notify Developer in writing within fourteen (14) business days of receipt of Developer's request whether Franchisor 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. 18 12.5 (a) Developer shall require its Director of Operations and any other supervisory employee designated pursuant to Subsection 12.3 to attend and to successfully complete to Franchisor's reasonable satisfaction an operations training course provided by Franchisor. If the Director of Operations or any such supervisory employee fails to successfully complete Franchisor's operations training course, Franchisor may require designation of a new Director of Operations or replacement supervisory employee, as the case may be, and Developer shall designate a new Director of Operations or replacement supervisory employee who shall be required to successfully complete such training course. (b) The Director of Operations and supervisory employees designated pursuant to Subsection 12.3 shall, from time to time as reasonably requested by Franchisor, attend and successfully complete to Franchisor's reasonable satisfaction a Franchisor-provided refresher course in restaurant operations. 12.6 With respect to each Restaurant within the Territory developed by Developer, Developer's employees must satisfy the training requirements described in Section 6 of Appendix B hereto. After Developer opens it first Restaurant pursuant to this Agreement, Franchisor may at its option, and subject to such conditions as Franchisor deems necessary, permit Developer (at Developer's own expense) to conduct a portion of the required training at one of Developer's existing Restaurants. In that event, Developer will be required to provide qualified personnel to administer training tests and to maintain records relating to the training and performance of employees. 13. NO WAIVER OF DEFAULT 13.1 The waiver by any party to this Agreement of any breach or default, or series of breaches or defaults, of any term, covenant or condition herein, or of any same or similar term, covenant or condition contained in any other agreement between Franchisor and any other person, shall not be deemed a waiver of any subsequent or continuing breach or default of the same or any other term, covenant or condition in this Agreement, or in any other agreement between Franchisor and any other person. 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. 19 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. 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. 20 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. 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: 21 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. 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. FRANCHISOR: ATTEST: APPLEBEE'S INTERNATIONAL, INC. By: Name: Name: Title: Title: 22 DEVELOPER: ATTEST: By: Name: Name: Title: Title: PRINCIPAL SHAREHOLDER(S): Witness Name: Witness Name: Witness Name: Witness Name: 23 APPENDIX A TO DEVELOPMENT AGREEMENT TERRITORY APPENDIX B TO DEVELOPMENT AGREEMENT FORM FRANCHISE AGREEMENT APPENDIX C TO DEVELOPMENT AGREEMENT STATEMENT OF OWNERSHIP INTERESTS Percent of Issued and Outstanding Shareholder Shares of Developer 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. 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: (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. (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: 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: (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. (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: EX-10.5 5 FORM OF FRANCHISE AGREEMENT STANDARD FORM APPLEBEE'S NEIGHBORHOOD GRILL & BAR FRANCHISE AGREEMENT ----------------------------------- (Location Address) ----------------------------------- (Franchisee Name) ----------------------------------- (Date) TABLE OF CONTENTS RECITALS .................................................... 1 1. FRANCHISE GRANT AND TERM............................ 2 2. UNIFORM STANDARDS................................... 3 3. COMPLIANCE WITH THE SYSTEM.......................... 4 4. GENERAL SERVICES OF FRANCHISOR...................... 4 5. RESTAURANT SYSTEM AND PROCEDURES.................... 5 6. TRAINING............................................ 8 7. RESTAURANT MAINTENANCE.............................. 9 8. ADVERTISING......................................... 9 9. FEES................................................ 12 10. RECORD KEEPING...................................... 13 11. FRANCHISEE ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS................ 14 12. TRANSFER............................................ 15 13. CONFIDENTIALITY; RESTRICTIONS....................... 19 14. INSPECTIONS......................................... 21 15. RELATIONSHIP OF PARTIES AND INDEMNIFICATION......... 22 16. INSURANCE........................................... 24 17. DEBTS AND TAXES..................................... 26 18. TRADE NAMES, SERVICE MARKS AND TRADEMARKS........... 26 19. EXPIRATION AND TERMINATION; OPTION TO PURCHASE RESTAURANT; ATTORNEYS' FEES................ 28 20. NO WAIVER OF DEFAULT................................ 33 21. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION...................... 33 22. INTERFERENCE WITH EMPLOYMENT RELATIONS.............. 34 23. LIQUOR LICENSE...................................... 35 24. FORCE MAJEURE....................................... 35 25. MISCELLANEOUS....................................... 36 26. ACKNOWLEDGMENTS..................................... 38 EXHIBIT 1: ROYALTY FEE APPENDIX A: STATEMENT OF OWNERSHIP INTERESTS APPENDIX B: REVIEW AND CONSENT WITH RESPECT TO TRANSFERS APPENDIX C: CONFIDENTIALITY AGREEMENT 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. 1 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 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. 2 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 such restaurant unit 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. 3 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 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. 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. 5 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; (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. 6 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. 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. 7 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. 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. 8 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. 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. 9 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 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. 10 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. 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. 11 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. 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. 12 (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) the sale of meals to employees, (vi) telephone, game and vending machine revenues, (vii) the sale of non-food items or beverages at a discount in connection with a promotional campaign, (viii) one-time sale of furniture, fixtures or equipment, and (ix) 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 Franchisor shall provide Franchisee with a choice of two (2) or more approved point of sales systems, and Franchisee shall employ one (1) of such approved systems, 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; (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. 13 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. 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. 14 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. 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. 15 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. 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. 16 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 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. 17 (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. 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. 18 (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): 19 (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. 20 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. 21 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. 22 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; (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; 23 (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. 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: 24 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. 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. 25 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. 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. 26 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 28 (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. 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 29 (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. 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. 30 (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. (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. 31 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 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. 32 (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. 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. 33 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. 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. 34 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. 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. 35 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: PRINCIPAL SHAREHOLDERS 36 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. 37 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: PRINCIPAL SHAREHOLDER(S): Witness Name: 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, 2000, Franchisor may, in its sole discretion, increase the monthly royalty fee to five percent (5%) of each calendar month's gross sales. APPENDIX A TO FRANCHISE AGREEMENT STATEMENT OF OWNERSHIP INTERESTS Percent of Issued and Outstanding Shareholder Shares of Franchisee 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. 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. (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. (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: EX-10.6 6 SCHEDULE OF DEVELOPMENT AND FRANCHISE AGREEMENTS Revision Date: 01-01-96 APPLEBEE'S INTERNATIONAL, INC. DEVELOPMENT AND FRANCHISE AGREEMENT SCHEDULE
(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 09-24-93 CA, OR 5/09-30-96 804 E. Cypress Anna Wong Amended: 03-10-95 Suite B Redding, CA 96002 A. 09-20-94 1801 Hilltop Drive Redding, CA 96002 A.N.A., INC. Glenn D. Durham 10-10-91 AL, TN 10/04-30-97 822 Columbiana Road Fred W. Gustin Amended: 06-01-93 Birmingham, AL 35209 06-06-95 A. 02-14-89 601 Brookwood Village Mall Homewood, AL B. 10-09-90 1240 Eastdale Mall Montgomery, AL C. 02-26-92 3028 S. Memorial Parkway Huntsville, AL D. 11-19-92 100 Century Plaza 7520 Crestwood Boulevard Birmingham, AL E. 10-12-93 1700 Rainbow Drive Gadsden, AL F. 05-03-94 62 McFarland Boulevard Northport, AL G. 10-31-94 2041-A Beltline Road, S.W. Decatur, AL H. 01-24-95 302 Hughes Road Madison, AL I. 02-28-95 3001 Carter Hill Road Montgomery, AL J. 10-04-95 360 Cahaba Valley Pelham, AL 1 APPLE AMERICAN Donald W. Strang, Jr. 06-25-89 13/12-31-96 LIMITED Allen S. Musikantow Amended: 01-15-90 PARTNERSHIP OF 04-24-91 INDIANA 06-24-92 8905 Lake Avenue 07-19-93 Cleveland, OH 44102 01-01-95 A. 10-16-89 5046 W. Pike Plaza Indianapolis, IN B. 06-18-90 4040 E. 82nd Street Indianapolis, IN C. 12-18-90 1436 W. 86th Street Indianapolis, IN D. 05-12-92 1050 Broad Ripple Avenue Indianapolis, IN E. 08-08-92 2415 Sagamore Pkwy., South Lafayette, IN F. 11-10-92 1241 U.S. 31 North, #L-5 Greenwood, IN G. 12-14-93 1900 25th Street Columbus, IN H. 06-08-94 14711 U.S. 31 North Carmel, IN I. 11-03-94 1423 W. McGalliard Road Muncie, IN J. 05-02-95 119 N. Baldwin Marion, IN K. 05-09-95 1922 E. 53rd Street Anderson, IN L. 05-31-95 3720 S. Reed Road Kokomo, IN M. 06-12-95 2894 E. 3rd Street Bloomington, IN N.in normal 5664 Crawfordsville Road process Indianapolis, IN 2 APPLE AMERICAN Donald W. Strang, Jr. 11-11-92 OH 14/12-31-96 LIMITED Allen S. Musikantow Amended: 07-19-93 PARTNERSHIP OF 12-01-94 OHIO 03-10-95 8905 Lake Avenue 07-31-95 Cleveland, OH 44102 A. 04-02-90 5658 Mayfield Road Lyndhurst, OH B. 06-26-90 5010 Great Northern Plaza South North Olmstead, OH C. 11-20-91 3000 Westgate Mall Fairview Park, OH D. 01-19-93 4981 Dressler Road N. Canton, OH E. 08-31-93 508 Howe Avenue Cuyahoga Falls, OH F. 09-24-93 6871 Pearl Road Middlesburg Heights, OH G. 12-07-93 3989 Burbank Road Wooster, OH H. 12-06-94 8174 Mentor Avenue Mentor, OH I. 12-13-94 1023 N. Lexington-Springmill Rd. Ontario, OH J. 12-15-94 6140 S.O.M. Center Road Solon, OH K. 01-24-95 7159 Macedonia Commons Blvd. Macedonia, OH L. 05-23-95 4800 Ridge Road Brooklyn, OH M. 06-06-95 5503 Milan Road Sandusky, OH N. 10-31-95 1540 W. River Road Elyria, OH 3 APPLE AMERICAN Donald W. Strang, Jr. 05-07-91 WA 11/12-31-96 LIMITED Allen S. Musikantow Amended: 03-01-92 PARTNERSHIP OF 07-19-93 WASHINGTON 12-01-94 8905 Lake Avenue Cleveland, OH 44102 A. 12-03-92 1842 S. SeaTac Mall Federal Way, WA B. 03-11-93 4626 196th Street, Southwest Lynnwood, WA C. 06-08-94 806 S.E. Everett Mall Way Everett, WA D. 11-30-94 3510 S. Meridian Puyallup, WA E. 07-18-95 17790 Southcenter Parkway Tukwila, WA APPLE Joe S. Thomson 09-02-92 AR, LA, OK, TX 8/12-31-96 ARKANSAS, INC. Amended: 02-01-94 P.O. Box 1867 02-02-94 Texarkana, TX 75504 10-21-94 11-30-94 05-09-95 A. 06-15-93 5110 Summerhill Road Texarkana, TX B. 10-19-93 9088 Mansfield Road Shreveport, LA C. 03-08-94 6818 Rogers Avenue Ft. Smith, AR APPLE-BAY EAST, INC. Richard L. Winders 12-18-92 CA 8/04-30-97 2263 South Shore Center Howard L. Hatfield Amended: 02-19-94 Alameda, CA 94501 A. 06-14-94 2263 South Shore Center Alameda, CA B. 09-27-94 4301 N. 1st Street Livermore, CA 4 APPLE BY Ronald A. Caselli 12-24-92 CA 12/12-31-97 THE BAY, INC. Christian J. Knox Amended: 06-30-94 2200 Laurelwood Road 05-01-95 Santa Clara, CA 95054 A. 03-15-94 1041 Admiral Callaghan Lane Vallejo, CA B. 07-26-94 9105 E. Stockton Boulevard Elk Grove, CA C. 11-08-94 2170 Golden Centre Lane Gold River, CA D.in normal 160 Nut Tree Parkway process Vacaville, CA E.in normal 2442 N. Kettleman Lane process Lodi, CA APPLE BY Ronald A. Caselli 12-24-92 CA 9/12-31-98 THE BAY, INC. Christian J. Knox Amended: 02-28-94 2200 Laurelwood Road 05-01-95 Santa Clara, CA 95054 A. 05-05-94 8200 Arroyo Circle Gilroy, CA B.in normal 84 Ranch Drive process Milpitas, CA APPLE DESERT, L.C. Louis J. Burnett 12-07-94 AZ, CA 4/07-31-97 255 E. Brown Street Susan Burnett Amended: 05-01-95 Suite 210 David B. Pisaneschi Birmingham, MI 48009 Glenn W. Gray Robert L. Gray APPLE DEVELOPMENT Peter W. Feldman 06-08-92 Aruba, Curacao, St. Maarten 3/10-01-97 ASSOCIATES I Henry DeRooy Amended: 01-24-94 777 Yamato Road 08-25-94 Suite 135 12-15-94 Boca Raton, FL 33431 A. 10-18-94 Oude Caracasbaaiweg NST 93 Curacao, Netherlands Antilles 5 APPLE DEVELOPMENT Peter W. Feldman 06-08-92 Puerto Rico, St. Thomas 5/03-01-99 ASSOCIATES II Henry DeRooy Amended: 08-25-94 777 Yamato Road Suite 135 Boca Raton, FL 33431 A.in normal Plaza Las Americas process La Terraza, Local #324 Hato Rey, PR B.in normal Plaza del Caribe Mall process Store #230, El Carrusel Ponce by Pass, Ponce, PR APPLE EAST, INC. Edwin F. Scheibel, Jr. 08-05-94 CT 4/07-31-97 89 Taunton Hill Road Cynthia H. Scheibel Amended: 02-28-95 Newtown, CT 06470 APPLE GOLD, INC. Michael D. Olander 07-01-94 NC, VA 4/01-31-96 170 Windchime Court Raleigh, NC 27615 A. 06-10-85 1389 Kildair Farm Road Cary, NC B. 06-28-85 7471 Six Forks Road Raleigh, NC C. 01-28-87 4004 Capital Boulevard Raleigh, NC D. 01-28-87 1508 E. Franklin Road Chapel Hill, NC E. 08-21-87 3400 Westgate Drive Durham, NC F. 09-10-87 2001 N. Main High Point, NC G. 06-13-88 476 Western Boulevard Jacksonville, NC H. 02-01-89 1120 N. Wesleyan Boulevard Rocky Mount, NC I. 01-22-90 3103 Garden Road Burlington, NC J. 07-31-90 202 S.W. Greenville Blvd. Greenville, NC 6 K. 12-18-90 9616 E. Independence Blvd. Matthews, NC L. 01-03-91 3625 Hillsborough Street Raleigh, NC M. 07-01-91 10921 Carolina Place Pkwy. Pineville, NC N. 03-24-92 4406 W. Wendover Avenue Greensboro, NC O. 05-18-93 2180 Highway 70, Southeast Hickory, NC P. 09-29-93 1115 Glenway Drive Statesville, NC Q. 07-19-94 901 N. Spence Avenue Goldsboro, NC R. 10-18-94 8700 J.W. Clay Charlotte, NC S. 01-10-95 3200 Battleground Avenue Greensboro, NC T. 05-16-95 2239 W. Roosevelt Boulevard Monroe, NC U. 09-19-95 5120 New Center Drive Wilmington, NC V. 11-07-95 1990 Griffin Road Winston-Salem, NC APPLE-METRO, INC. Roy Raeburn 03-23-94 NY 8/11-01-99 640 E. Boston Post Road Zane Tankel Amended: 04-01-95 Mamaroneck, NY 10543 A. 10-25-94 Staten Island Mall 2655 Richmond Avenue Staten Island, NY B. 06-06-95 640 E. Boston Post Road Mamaroneck, NY C.in normal 430 New Dorp Lane process Staten Island, NY 7 APPLE NORTH, INC. Martin Hittinger 08-30-91 NY 6/04-01-95 80 Palisade Avenue Eddie G. Hittinger Amended: 11-27-92 Cliffside Park, NJ 07010 Kenneth Brolin (Terminated) A. 03-11-92 Wappinger Plaza 1271 Route 9 Wappinger Falls, NY B. 08-10-93 194 Colonie Center Mall Albany, NY C. 11-21-95 18 Park Avenue Clifton Park, NY APPLE PARTNERS Thomas K. DeNomme 03-15-91 IL, MO 10/03-15-95 LIMITED Richard H. Adler Amended: 01-26-93 PARTNERSHIP 10-21-94 Corporate Plaza II 6480 Rockside Woods Boulevard, South Suite 380 Cleveland, OH 44131 A. 03-15-91 Orchard Bend 11977 St. Charles Rock Road Bridgeton, MO B. 03-15-91 2921 S. Service Road St. Charles, MO C. 06-17-91 11077 New Halls Ferry Road Florissant, MO D. 03-17-92 Fairview Heights Plaza Shopping Center #47 Ludwig Drive Fairview Heights, IL E. 06-02-92 9031 Watson Road St. Louis, MO F. 09-22-92 6734 Clayton Road Richmond Heights, MO G. 04-06-93 1110 Big Bill Road Arnold, MO H. 12-14-93 13560 N. Barrett Pkwy. Dr. Des Peres, MO I. 08-23-94 105 Potomac Boulevard Mt. Vernon, IL 8 APPLE PARTNERS Thomas K. DeNomme 01-26-93 OR, WA 10/12-01-97 LIMITED Richard H. Adler Amended: 06-17-93 PARTNERSHIP 10-21-94 Corporate Plaza II 03-10-95 6480 Rockside Woods Boulevard, South Suite 380 Cleveland, OH 44131 A. 07-13-93 1220 N.W. 185th Avenue Beaverton, OR B. 11-09-93 6325 S.W. Meadows Road Lake Oswego, OR C. 12-22-95 Lancaster Mall 747 Lancaster Drive, N.E. Salem, OR APPLE William F. Palmer 02-01-89 GA 10/08-01-94 RESTAURANTS, INC. Theresa J. Palmer Amended: 04-08-92 4219 Pleasant Hill Road 07-31-92 Building 12-D, Suite B 03-25-93 Duluth, GA 30136 04-05-94 A. 02-01-89 655 Georgia Highway 120 Lawrenceville, GA B. 10-01-89 2445 Mall Boulevard Kennesaw, GA C. 10-15-90 1152 Old Salem Road Conyers, GA D. 03-11-91 Perimeter Mall, Suite 2054 4400 Ashford-Dunwoody Rd. Atlanta, GA E. 11-25-91 826 Turner McCall Boulevard Rome, GA F. 08-10-92 1705 Browns Bridge Road Gainesville, GA G. 05-03-93 504 Lakeland Plaza Cumming, GA H. 02-21-94 2728 Spring Road Smyrna, GA I. 12-19-94 3676 Highway 138 Stockbridge, GA 9 J. 03-21-95 226 W. Broad Street Athens, GA K. 05-08-95 1925 Highway 124 Snellville, GA APPLE RESTAURANTS Benoit Wesley 07-01-94 The Netherlands, Belgium, 24/07-31-04 EUROPE, B.V. Roger L. Cohen Amended: 05-04-95 Luxembourg One Main Plaza 12-28-95 Suite 1000 Kansas City, MO 64111 A. 07-04-94 In De Cramer 169 6412 PM Heerlen The Netherlands APPLE RESTAURANTS William F. Palmer 03-25-93 FL 10/08-31-97 OF CENTRAL Theresa J. Palmer Amended: 04-22-93 FLORIDA, L.P., LTD. 05-01-95 4219 Pleasant Hill Road Building 12-D, Suite B Duluth, GA 30136 A. 07-26-93 1545 Palm Bay Road Melbourne, FL B. 11-22-93 100 Sykes Creek Pkwy. North Merritt Island, FL C. 04-18-94 12103 Collegiate Way Orlando, FL D. 06-26-95 2599 Enterprise Road Orange City, FL E. 10-23-95 3001 W. Eau Gellie Blvd. Melbourne, FL APPLE SAUCE, INC. W. Curtis Smith 02-11-92 IN, OH 10/03-01-97 207 Grandview Drive James Paul Borke Amended: 10-20-92 Suite 125 08-25-94 Ft. Mitchell, KY 41017 10-05-94 A. 11-03-92 650 W. Lincoln Highway Schererville, IN B. 08-24-93 5788 Coventry Lane Ft. Wayne, IN 10 C. 12-21-93 4510 N. Clinton Street Ft. Wayne, IN D. 11-15-94 4057 S. Franklin Street Michigan City, IN E. 04-25-95 670 Morthland Valparaiso, IN F. 07-04-95 6615 N. Main Street Granger, IN G. 09-19-95 266 E. Alexis Road Toledo, OH H. 11-07-95 3241 Interchange Drive Elkhart, IN I. 12-05-95 531 Dussel Road Maumee, OH APPLE SAUCE, INC. W. Curtis Smith 09-09-92 FL 13/12-31-98 207 Grandview Drive James Paul Borke Amended: 09-30-93 Suite 125 10-05-94 Ft. Mitchell, KY 41017 03-28-95 A. 04-12-94 10135 Pines Boulevard Pembroke Pines, FL B. 07-12-94 12719 W. Sunrise Boulevard Sunrise, FL C. 02-15-95 1179 S. University Drive Plantation, FL D. 09-12-95 2729 University Drive Coral Springs, FL APPLE SOUTH, INC. Tom E. DuPree, Jr. 01-06-85 GA, NC, SC */12-31-00 Hancock @ Washington Amended: 03-04-91 Madison, GA 30650 01-10-92 05-14-93 01-26-94 06-22-94 02-24-95 *In the Spring of 1995, Apple South, Inc. acquired from Marcus Restaurants, Inc. territories previously held by it. As a part of the approval of that transaction, the development obligations under the Development Agreements granted to Apple South, Inc. have been generally combined for all territories. Apple South, Inc. is to have open for operation a total of 361 restaurants by 12/31/00. 11 A. 01-13-86 430 Congaree Road Greenville, SC B. 07-31-86 2344 Broad River Rd. @ I-20 Columbia, SC C. 01-28-87 7818 Rivers Avenue N. Charleston, SC D. 01-28-87 3441 Clemson Boulevard Anderson, SC E. 01-28-87 9 Park Lane Hilton Head, SC F. 06-01-87 1859 Sam Rittenburg Charleston, SC G. 10-19-87 811 S. Irby Street Florence, SC H. 10-18-87 4505 Devine Street Columbia, SC I. 10-19-87 7602 Greenville Highway Spartanburg, SC J. 01-15-88 841 Broad Street Sumter, SC K. 06-01-89 24 N. Market Street Charleston, SC L. 04-11-89 1635 Four Seasons Boulevard Hendersonville, NC M. 01-08-90 1922 Augusta Street Greenville, SC N. 05-21-90 1360 Whiskey Road Aiken, SC O. 06-25-90 88 Old Trolley Road Summerville, SC P. 11-17-90 5055 Calhoun Memorial Blvd. Easley, SC Q. 12-30-90 115 Tunnel Road Asheville, NC R. 11-23-91 245 O'Neil Court Columbia, SC 12 > S. 06-27-92 704 Wade Hampton Blvd. Greer, SC T. 11-25-92 696 Bypass 123 Seneca, SC U. 06-27-93 1617 Bypass 72 Northeast Greenwood, SC V. 07-28-93 227 Dave Lyle Boulevard Rock Hill, SC W. 09-24-93 3944 Grandview Drive Simpsonville, SC X. 11-22-93 1486 Stuart Engles Boulevard Mt. Pleasant, SC Y. 05-23-94 7915 N. Kings Highway Myrtle Beach, SC Z. 05-30-94 64 Beacon Drive Greenville, SC a. 07-25-94 1512 W. Floyd Baker Avenue Gaffney, SC b. 09-12-94 1268 Highway 9 Bypass Lancaster, SC c. 09-26-94 5185 Fernadina Road Columbia, SC d. 10-31-94 605 Columbia Avenue Lexington, SC e. 11-07-94 1655 Hendersonville Road Asheville, NC f. 12-05-94 1065 S. Big A Road Toccoa, GA g. 01-30-95 2360 Chestnut Street Orangeburg, SC h. 06-19-95 2338 Boundary Street Beaufort, SC i. 06-26-95 1271 Folly Road Charleston, SC j. 08-07-95 1221 Woodruff Road Greenville, SC 13 APPLE SOUTH, INC. Tom E. DuPree, Jr. 09-24-86 FL */12-31-00 Hancock @ Washington Amended: 05-31-90 Madison, GA 30650 03-04-91 01-10-92 01-26-94 See Footnote, Page 11 A. 02-09-87 13550 S. Tamiami Trail Ft. Myers, FL B. 05-16-88 10501 S. U.S. Highway 1 Port St. Lucie, FL C. 04-17-89 701 N. Congress Avenue Boynton Beach, FL D. 05-10-90 3971 S. Tamiami Trail Sarasota, FL E. 01-18-93 6775 W. Indiantown Road Jupiter, FL F. 10-12-93 6706 Forrest Hill Boulevard Green Acres, FL G. 01-31-94 4890 Okeechobee Road Ft. Pierce, FL H. 03-21-94 15151 N. Cleveland Avenue N. Ft. Myers, FL I. 03-28-94 20 Electric Drive Sarasota, FL J. 10-31-94 4329 S. Tamiami Trail Venice, FL K. 12-12-94 1975 Military Trail W. Palm Beach, FL L. 03-28-95 5082 Airport Pulling Rd., N. Naples, FL M. 05-01-95 3373 S.E. Federal Highway Stuart, FL N. 12-04-95 19010 Murdock Circle Port Charlotte, FL *See Footnote, Page 11. 14 APPLE SOUTH, INC. Tom E. DuPree, Jr. 06-06-88 AL, AR, MO, MS, TN */12-31-00 Hancock @ Washington Amended: 03-04-91 Madison, GA 30650 01-10-92 01-01-94 01-26-94 See Footnote, Page 11 A. 05-26-88 2114 Union Avenue Memphis, TN B. 08-15-88 6025 Winchester Road Memphis, TN C. 12-19-88 900 E. County Line Road Ridgeland, MS D. 04-15-89 4835 American Way Memphis, TN E. 01-02-90 3703 Hardy Street Hattiesburg, MS F. 06-11-90 2890 Bartlett Road Bartlett, TN G. 05-25-92 3448 Poplar Avenue Memphis, TN H. 10-19-92 584 Carriage House Drive Jackson, TN I. 11-16-92 1106 Germantown Parkway Cordova, TN J. 03-28-93 885 Barnes Crossing Road Tupelo, MS K. 09-10-93 2332 Highway 45 North Columbus, MS L. 09-24-93 6482 Poplar Avenue Memphis, TN M. 08-15-94 710 DeSoto Cove Horn Lake, MS O. 03-20-95 814 Highway 12 West Starkville, MS *See Footnote, Page 11. 15 P. 04-29-95 9319 Highway 49 Gulfport, MS Q. 05-23-95 929 Poplar Collierville, TN R. 08-07-95 3954 Austin Peay Highway Memphis, TN S. 11-06-95 2389 Lakeland Drive Flowood, MS APPLE SOUTH, INC. Tom E. DuPree, Jr. 06-19-88 IN, KY, MD, NC, OH, PA, */12-31-00 Hancock @ Washington Amended: 03-04-91 VA, WV, District of Madison, GA 30650 01-10-92 Columbia 01-26-94 12-23-94 02-24-95 See Footnote, Page 11 A. 06-19-88 2159 Coliseum Drive Hampton, VA B. 08-15-88 900 Moorefield Park Drive Richmond, VA C. 08-22-88 808 Lynnhaven Parkway Virginia Beach, VA D. 05-01-89 12235 Jefferson Avenue Newport News, VA E. 04-14-89 9601 W. Broad Street Glen Allen, VA F. 05-01-89 4535 Outer Loop Louisville, KY G. 04-11-89 9201 Hurstbourne Lane Louisville, KY H. 09-24-90 2225 Taylorsville Road Louisville, KY I. 07-15-91 Greentree Mall Hwy. 131 & Greentree Blvd. Clarksville, IN *See Footnote, Page 11. 16 J. 12-14-91 3624 Candlers Mountain Road Lynchburg, VA K. 03-27-92 4717 Dixie Highway Louisville, KY L. 03-29-92 5400 W. Broad Street Richmond, VA M. 06-27-92 4942 Valley View Boulevard, North/Northwest Roanoke, VA N. 09-21-92 2611 Hundred Road West Chester, VA O. 09-26-92 10823 Hull Street Richmond, VA P. 12-21-92 449 S. Park Circle Colonial Heights, VA Q. 01-29-93 12913 Shelbyville Road Louisville, KY R. 04-09-93 Regency Square Mall 1404 Parham Road Richmond, VA S. 06-27-93 2790 Market Street, Northeast Christianburg, VA T. 08-16-93 4132 Portsmouth Boulevard Chesapeake, VA U. 09-07-93 14441 Brookfield Tower Dr. Chantilly, VA V. 09-20-93 12970 Fair Lakes Shopping Center Fairfax, VA W. 11-29-93 4340 Electric Road Roanoke, VA X. 12-13-93 5750 Virginia Beach Blvd. Norfolk, VA Y. 02-08-94 10600 Dixie Highway Louisville, KY Z. 02-28-94 1520 Sam's Circle Chesapeake, VA 17 a. 02-28-94 410 Old Mountain Crossroad Danville, VA b. 04-18-94 281 W. Commonwealth Martinsville, VA c. 06-13-94 9625 Lee Highway Fairfax, VA d. 06-26-94 6310 Richmond Highway Alexandria, VA e. 07-11-94 7913 Sudley Road Manassas, VA f. 08-29-94 10151 Brook Road Glen Allen, VA g. 12-05-94 4040 Virginia Beach Blvd. Virginia Beach, VA h. 12-19-94 4100 N.W. Crain Highway Bowie, MD i. 02-06-95 3610 Crain Highway Waldorf, MD j. 02-06-95 1426 Kempsville Road Virginia Beach, VA k. 05-22-95 571 Branchlands Boulevard Charlottesville, VA l. 05-29-95 5000 Shelbyville Road Louisville, KY m. 07-24-95 1496 Greenville Avenue Staunton, VA n. 07-31-95 755 Foxcroft Drive Martinsburg, WV o. 09-18-95 1206 N. Main Street Suffolk, VA p. 10-16-95 13850 Noblewood Plaza Woodbridge, VA q. 10-26-95 45480 Miramar Way California, MD r. 11-06-95 1756 General Booth Boulevard Virginia Beach, VA 18 s. 11-13-95 4306 S. Lauburnum Avenue Richmond, VA t. 11-27-95 955 Edwards Ferry Road Leesburg, VA u. 12-04-95 1050 Wayne Avenue Chambersburg, PA APPLE SOUTH, INC. Tom E. DuPree, Jr. 04-24-91 KY, TN */12-31-00 Hancock @ Washington Amended: 01-10-92 Madison, GA 30650 01-26-94 07-27-94 See Footnote, Page 11 A. 04-24-91 335 Harding Place Nashville, TN B. 04-24-91 718 Thompson Lane Nashville, TN C. 04-24-91 7645 U.S. Highway 70 South Nashville, TN D. 04-24-91 5270 Hickory Hollow Pkwy. Antioch, TN E. 12-31-91 2400 Elliston Place (Management Nashville, TN Agreement-- effective 01-23-92) F. 09-14-92 1720 Old Fort Parkway Suites C170 & C180 Murfreesboro, TN G. 11-25-92 5055 Old Hickory Boulevard Hermitage, TN H. 06-07-93 1420 Interstate Drive Cookeville, TN I. 11-22-93 2545 Scottsville Road Bowling Green, KY J. 05-30-94 230 E. Main Street Hendersonville, TN *See Footnote, Page 11. 19 K. 12-19-94 1915 N. Jackson Street Tullahoma, TN L. 03-27-95 3066 Wilma Rudolph Blvd. Clarksville, TN M. 06-19-95 1557 N. Gallatin Pike Madison, TN N. 09-26-95 1656 Westgate Circle Brentwood, TN APPLE SOUTH, INC. Tom E. DuPree, Jr. 05-12-92 FL, GA */12-31-00 Hancock @ Washington Amended: 01-26-94 Madison, GA 30650 07-27-94 See Footnote, Page 11 A. 05-12-92 10502 San Jose Boulevard Jacksonville, FL B. 05-12-92 492 Blanding Boulevard Orange Park, FL C. 05-12-92 4194 S. 3rd Street Jacksonville Beach, FL D. 05-12-92 9498 Atlantic Boulevard Jacksonville, FL E. 05-12-92 9485 Bay Meadows Road Jacksonville, FL F. 06-07-93 225 State Road 312 St. Augustine, FL G. 03-31-94 177 Altama Connector Brunswick, GA H. 09-26-94 1901 Memorial Drive Waycross, GA I. 03-13-95 574 Busch Drive Jacksonville, FL J. 05-22-95 113 The Lake Boulevard Kingsland, GA K. 08-16-95 Route 17, Box 2219 Lake City, FL *See Footnote, Page 11. 20 L. 08-16-95 6251 103rd Street Jacksonville, FL APPLE SOUTH, INC. Tom E. DuPree, Jr. 11-28-89 GA, KY, NC, TN, VA */12-31-00 Hancock @ Washington Amended: 08-23-91 Madison, GA 30650 04-15-92 04-12-94 07-27-94 See Footnote, Page 11 A. 05-17-88 261 N. Peters Road Knoxville, TN B. 10-01-88 6928 Kingston Pike Knoxville, TN C. 02-14-89 1213 Oak Ridge Turnpike Oak Ridge, TN D. 07-24-90 1661 E. Stone Drive Kingsport, TN E. 09-11-90 1322 W. Walnut Avenue Dalton, GA F. 02-12-91 2342 Shallowford Village Rd. Chattanooga, TN G. 04-14-92 2100 N. Roane Street Johnson City, TN H. 01-12-93 358 Northgate Mall Chattanooga, TN I. 08-10-93 2564 Alcoa Highway Alcoa, TN J. 05-23-94 5316 Central Avenue Pike Knoxville, TN K. 08-29-94 168 Paul Huff Parkway Cleveland, TN L. 02-27-95 3216 E. Towne Circle Mall Knoxville, TN M. 03-21-95 5536 Decatur Pike Athens, TN *See Footnote, Page 11. 21 N. 03-27-95 2771 E. Andrew Johnson Hwy. Greeneville, TN O. 09-26-95 437 Parkway Gatlinburg, TN P. 10-23-95 2328 W. Andrew Jackson Morristown, TN APPLE SOUTH, INC. Tom E. DuPree, Jr. 04-25-95 IA, IL, MO, WI */12-31-00 Hancock @ Washington Amended: See Footnote, Madison, GA 30650 Page 11 A. 12-27-90 6845 E. State Street Rockford, IL B. 03-29-92 3024 Milton Avenue Janesville, WI C. 01-19-93 6301 University Avenue Cedar Falls, IA D. 08-24-93 105 Chestnut Ames, IA E. 12-14-93 3838 Elmore Avenue Davenport, IA F. 02-08-94 11410 Forest Clive, IA G. 07-26-94 6301 S.E. 14th Street W. Des Moines, IA H. 11-01-94 303 Collins Road Cedar Rapids, IA I. 09-18-95 3900 Merle Hay Road Des Moines, IA APPLE SOUTH, INC. Tom E. DuPree, Jr. 07-11-90 MI, MN, WI */12-31-00 Hancock @ Washington Amended: 04-08-93 Madison, GA 30650 08-03-94 See Footnote, Page 11 A. 09-19-90 2500 N. Mayfair Road Wauwatosa, WI *See Footnote, Page 11. 22 B. 05-06-91 20101 W. Bluemound Road Waukesha, WI C. 09-06-91 5100 S. 76th Street Greenfield, WI D. 08-04-92 5900 N. Port Washington Rd. Glendale, WI E. 04-13-93 660 S. Whitney Way Madison, WI F. 05-18-93 4710 E. Towne Boulevard Madison, WI G. 08-16-93 3730 W. College Avenue Appleton, WI H. 05-30-94 900 Hansen Road Ashwaubenon, WI I. 11-28-94 4745 Golf Road Eau Claire, WI J. 01-23-95 2521 S. Greenbay Road Racine, WI K. 06-30-95 2221 W. Stewart Avenue Wausau, WI APPLE SOUTH, INC. Tom E. DuPree, Jr. See Footnote, Page 11 IL, WI */12-31-00 Hancock @ Washington Madison, GA 30650 A. 11-22-91 One Schaumburg Place 601 Martingale Road Schaumburg, IL B. 09-09-92 354 W. Army Trail Road Bloomingdale, IL C. 02-16-93 60 Waukegan Road Deerfield, IL D. 03-23-93 Randhurst Shopping Center 999 Elmhurst Road Mt. Prospect, IL *See Footnote, Page 11. 23 E. 11-15-93 880 S. Barringon Road Streamwood, IL F. 12-16-93 9380 Joliet Road Hodgkins, IL G. 04-08-94 5690 Northwest Highway Crystal Lake, IL H. 04-08-94 1191 E. Ogden Avenue Naperville, IL I. 06-30-95 4937 W. Cal-Sag Road Crestwood, IL J. 10-30-95 1040 N. Kenzie Bradley, IL APPLE David A. McHam 08-31-92 TX 12/02-01-98 VENTURES, INC. Joseph A. King Amended: 09-30-93 2500 Tanglewilde, #300 William A. McDaniel (Terminated) Houston, TX 77063 Walter G. Ackermann A. 08-31-92 938 E. Nasa Road Houston, TX B. 08-31-92 3375 Highway 6 South Sugarland, TX C. 08-31-92 7092 Highway 6 North Houston, TX D. 05-27-94 529 Sharpstown Center, #539 Houston, TX APPLEBAY Leonard E. Rhode 03-18-93 CA 8/9-30-98 FOODS, INC. Beverly A. Rhode Amended: 05-27-94 100 W. El Camino Real 07-27-94 Suite 76 03-07-95 Mountain View, CA 94040 A. 12-19-95 2250 Santa Rosa Avenue Santa Rosa, CA APPLEJAM, INC. Joel S. Marks 08-01-88 AL, FL, GA 8/09-01-96 P.O. Box 956308 Milton A. Stahl Amended: 11-18-91 Duluth, GA 30136-9506 08-20-93 03-10-94 10-12-94 24 A. 12-01-88 1170 Appalachee Parkway Tallahassee, FL B. 02-14-89 1400 Village Square Blvd. Tallahassee, FL C. 04-17-90 637 Westover Boulevard Albany, GA D. 06-25-91 678 W. 23rd Street Panama City, FL E. 12-08-92 3050 Ross Clark Circle, S.W. Dothan, AL F. 05-10-94 1301 S. Augustine Road Valdosta, GA G. 08-23-94 1005 N.W. 13th Street Gainesville, FL APPLEJAM, INC. Joel S. Marks 01-15-92 TX 5/07-01-96 P.O. Box 956308 Milton A. Stahl Amended: 06-24-93 Duluth, GA 30136-9506 02-28-95 A. 07-19-93 5809 Loop 410 Northwest San Antonio, TX B. 04-12-94 97 Loop 410 Northeast San Antonio, TX C. 09-19-95 995 I-35 New Braunfels, TX APPLERAY, INC. E. Ray Morris 04-03-85 FL 10/04-03-90 5660 Peachtree Bruce W. German Amended: 08-05-86 Industrial Boulevard Alvin G. Kruse (Terminated) Venture Park, Bldg. #3 Norcross, GA 30071 A. 10-18-85 220 Wekiva Springs Road Longwood, FL APPLEROCK, INC. Gene Cain 05-21-92 AR, MO 4/11-01-95 11711 Hermitage Road Charles M. Cain Amended: 01-01-94 Suite 4 Andria D. Cain 08-25-94 Little Rock, AR 72211 A. 09-13-93 4333 Warden Road Little Rock, AR 25 B. 11-09-94 4426 Central Avenue Hot Springs, AR C. 06-19-95 12110 Chenal Parkway Little Rock, AR BROOKLYN- Nicholas Katos 12-07-94 NY 4/06-30-98 APPLE, LTD. Michael Katos 164-17 Union Turnpike Stephen Katos Flushing, NY 11367 B.T. WOODLIPP, INC. Larry Brown 11-15-95 PA, WV 8/03-20-93 Towne Centre Offices James T. Thomas 1789 S. Braddock Avenue Apple-Penn, Inc. Suite 340 John L. Turley Pittsburgh, PA 15218 Dan B. Turley, Jr. Larry Graves A. 06-11-90 The Bourse Shops 2101 Greentree Road Pittsburgh, PA B. 05-28-91 North Hills Village Mall 4801 McKnight Road Pittsburgh, PA C. 11-12-91 Edgewood Towne Centre 1601 S. Braddock Avenue Pittsburgh, PA D. 08-09-93 2045 Lebanon Church Road West Mifflin, PA E. 01-10-94 4039 Washington Road McMurray, PA CAFE VENTURES, INC. William F. Palmer 04-11-83 (No exclusive territory 5/04-11-93 4219 Pleasant Hill Road Mickey Munir (Employment granted) Building 12-D, Suite B Lovay Sharif Agreement) Duluth, GA 30136 A. 10-01-85 490 Franklin Road Marietta, GA B. 05-12-86 2095 Pleasant Hill Duluth, GA C. 07-18-87 11070 Alpharetta Roswell, GA 26 D. 05-26-88 5200 Highway 78 Stone Mountain, GA CALABEE'S, INC. John R. Bifone 08-27-92 CA 2/09-01-94 444 N. Amelia Ave., #3C Amended: 09-29-92 San Dimas, CA 91773 09-30-93 08-01-94 05-01-95 A. 08-10-93 674 W. Arrow Highway San Dimas, CA B. 10-31-94 300 S. California West Covina, CA CAN-APPLE Joseph Mandolfo 05-19-93 Manitoba, Canada 5/12-31-96 INVESTMENTS INC. Nancy Mandolfo Amended: 03-24-94 P.O. Box 280 10-24-94 Plattsmouth, NE 68048 12-30-94 02-28-95 A. 06-24-94 2065 Pembina Highway Winnipeg, MB CAN B. 11-03-95 1150 Grant Avenue Winnipeg, MB CAN CAN-APPLE Joseph Mandolfo 03-01-95 Alberta, Canada 12/06-30-01 INVESTMENTS INC. Nancy Mandolfo P.O. Box 280 Plattsmouth, NE 68048 A. 03-01-95 10338 109th Street Edmonton, AB CAN CASUAL RESTAURANT Franklin W. Carson 06-23-89 FL 6/06-22-92 CONCEPTS, INC. (Terminated) Tampa Bay Marina Center 205 S. Hoover St., #402 Tampa, FL 33609 A. 01-23-90 5110 East Bay Drive Clearwater, FL B. 05-15-90 30180 U.S. Highway 19 N. Clearwater, FL 27 CASUAL RESTAURANT Franklin W. Carson 08-11-92 FL 8/06-30-97 CONCEPTS II, INC. Amended: 05-14-93 Tampa Bay Marina Center 11-15-93 205 S. Hoover St., #402 02-02-94 Tampa, FL 33609 08-03-94 02-28-95 A. 06-07-93 5779 E. Fowler Avenue Temple Terrace, FL B. 02-02-94 4301 Cortez Road Bradenton, FL C. 01-16-95 4700 4th Street, North St. Petersburg, FL D. 07-03-95 10911 Starkey Road Largo, FL CONCORD Lawrence S. Bird 07-01-91 KS, MO, NE 5/08-31-95 HOSPITALITY, INC. Amended: 07-05-91 P.O. Box 6212 11-27-94 Lincoln, NE 68516 01-31-95 A. 04-07-92 100 Manhattan Town Center 3rd & Poyntz, Suite P-5 Manhattan, KS B. 06-03-92 5928 S.W. 17th Street Topeka, KS C. 04-20-93 3730 Village Drive Lincoln, NE D. 08-09-94 4004 Frederick Boulevard St. Joseph, MO E. 08-15-95 102 Platte Oasis Parkway North Platte, NE CONCORD Lawrence S. Bird 09-07-93 OK, NM, TX 5/09-30-96 HOSPITALITY, INC. Amended: 09-01-94 P.O. Box 6212 11-27-94 Lincoln, NE 68516 A. 04-22-94 2714 Soncy Road Amarillo, TX B. 05-27-94 4025 S. Loop 289 Lubbock, TX 28 C. 10-16-95 2911 Kemp Boulevard Wichita Falls, TX CONCORD Lawrence S. Bird 10-25-95 NE, WY 2/04-30-97 HOSPITALITY, INC. P.O. Box 6212 Lincoln, NE 68516 A. 08-03-94 2621 5th Avenue Scottsbluff, NE EHI REALTY, INC. Edward W. Doherty 08-30-91 NJ 8/06-30-97 7 Pearl Court William A. Johnson Amended: 12-10-92 Allendale, NJ 07401 07-31-93 08-03-94 A. 10-26-93 1282 Centennial Avenue Piscataway, NJ B. 12-07-93 14 Park Road Tinton Falls, NJ C. 11-09-94 Fashion Center Mall 17 North & Ridgewood East Paramus, NJ D. 06-13-95 1599 Route 22, West Watchung, NJ E. 11-21-95 52 Brick Plaza Brick, NJ EJM Myron Thompson 06-29-90 MN, ND 4/06-15-93 ENTERPRISES, INC. Joseph J. Deck Amended: 09-03-90 P.O. Box 0969 Engen Eckmann (Terminated) Minot, ND 58702-0969 A. 11-13-90 2302 15th Street, S.W. Minot, ND B.in normal 434 S. 3rd process Bismarck, ND EL APPLE, INC. John M. Verlander 05-23-94 NM, TX 6/05-31-97 5835 Onix, Suite 300 James J. Gore Amended: 03-07-95 El Paso, TX 79912 A. 05-27-94 5800 N. Mesa El Paso, TX 29 B. 03-13-95 1766 Airway Boulevard El Paso, TX C. 11-01-95 7956 Gateway East El Paso, TX GRANDAPPLE, L.L.C. Myron Thompson 12-07-93 MN, ND 2/10-31-94 P.O. Box 0969 Engen Eckmann Amended: 03-27-95 Minot, ND 58702-0969 03-28-95 A. 12-07-93 2351 S. Columbia Road Grand Forks, ND B. 11-08-94 2800 13th Avenue, Southwest Fargo, ND C.in normal 289 15th Street, West process Dickinson, ND GULF COAST Thomas G. Kellogg 11-01-88 LA, MS 9/06-30-96 RESTAURANTS, INC. Kathryn G. Kellogg Amended: 11-19-90 2320 Oak Road 02-07-92 Building G, Suite 202 11-05-92 Snellville, GA 30278 10-11-93 07-19-94 A. 08-14-89 1000 W. Esplanada Avenue Kenner, LA B. 06-18-90 3701 Veterans Memorial Boulevard Metarie, LA C. 04-07-92 850 I-10 Service Road Slidell, LA D. 03-02-93 315 N. Highway 190 Covington, LA E. 12-21-93 5630 Johnston Street Lafayette, LA F. 11-14-95 4005 General DeGaulle New Orleans, LA GULF COAST Thomas G. Kellogg 07-14-93 LA, MS 5/06-30-96 RESTAURANTS, INC. Kathryn G. Kellogg Amended: 03-10-95 2320 Oak Road Building G, Suite 202 Snellville, GA 30278 30 A. 07-18-94 3006 College Drive Baton Rouge, LA B. 05-09-95 4808 S. Sherwood Forest Baton Rouge, LA J.S. VENTURES, INC. James H. Stevens 10-10-92 IA, KS, MO, NE 5/12-31-96 1130 Haskell Amended: 05-14-93 Wichita, KS 67213 10-20-93 02-28-95 A. 08-07-89 6730 W. Central Wichita, KS B. 01-15-91 2035 N. Rock Road, Ste. 101 Wichita, KS C. 09-22-92 3350 S. 143rd Place Omaha, NE D. 12-14-93 2875 S. 9th Salina, KS E. 07-05-94 4760 S. Broadway Wichita, KS F. 11-08-94 7450 W. Dodge Street Omaha, NE G. 02-28-95 1609 E. 17th Street Hutchinson, KS KEYSTONE Stephen H. Davenport 05-14-93 PA 6/05-31-97 APPLE, INC. Amended: 03-28-95 P.O. Box 616 Lemoyne, PA 17043-0616 A. 05-04-94 4401 Jonestown Road Harrisburg, PA B. 05-16-95 1181 Mae Street Hummelstown, PA K.S. APPLE, INC. Nicholas Katos 12-07-94 NY 6/06-30-99 164-17 Union Turnpike Michael S. Shaevitz Amended: 03-07-95 Flushing, NY 11367 31 MARANO Leon J. Marano 06-25-91 CA 5/12-31-95 ENTERPRISES, INC. Amended: 03-01-93 96 Shaw Avenue 06-30-94 Suite 232 Clovis, CA 93612 A. 06-23-92 Fig Garden Village 5126 N. Palm Avenue Fresno, CA B. 08-31-93 98 Shaw Avenue Clovis, CA C. 12-12-94 1665 W. Lacey Boulevard Hanford, CA D. 06-20-95 7007 N. Cedar Fresno, CA MILLER APPLE William M. Wentworth 07-20-92 MI, WI 6/11-30-96 LIMITED Elizabeth Wentworth Amended: 11-04-92 PARTNERSHIP 09-28-93 G-4488 Bristol Road 07-18-94 Flint, MI 48507 02-28-95 A. 11-16-93 G3131 Miller Road Flint, MI B. 12-15-94 2260 Tittabawassee Saginaw, MI C. 11-28-95 4135 N. Court Street Burton, MI O.K. APPLE, INC. Michael D. Olander 11-18-91 KS, OK 10/12-01-98 P.O. Box 1291 Clifford E. Bullard, Jr. Amended: 12-22-94 Lumberton, NC 28359 12-23-94 03-15-95 A. 01-26-93 3900 S. Elm Place Broken Arrow, OK B. 06-15-93 4733 S. Yale Avenue Tulsa, OK C. 09-21-93 9409 E. 71st Street Tulsa, OK D. 06-20-95 3521 S. Broadway Edmond, OK 32 PACIFIC APPLE FOODS Joseph J. Lal 09-24-93 ID, OR, WA 4/04-30-96 CORPORATION Renu Lal Amended: 10-11-93 7311 Greenhaven Drive 02-28-95 Suite 270 Sacramento, CA 95831 A. 10-03-95 280 Hanley Coeur D'Alene, ID B. 11-10-95 12217 E. Mission Avenue Spokane, WA PACIFIC WEST David A. Selph 08-11-94 CA 10/05-01-01 RESTAURANT Brian F. Caine Amended: 11-15-94 GROUP, INC. Yousef D. Abbasi 05-01-95 7300 W. 110th Street Suite 290 Overland Park, KS 66210 A. 11-15-94 18279 Brookhurst Street Fountain Valley, CA B. 11-14-94 1238 W. Imperial Highway (Management La Habra, CA Agreement-- effective 12-15-94) PORTER Todd G. Porter 10-09-92 IA, MN, MT, NE, SD, WY 3/09-30-95 APPLE COMPANY Amended: 03-28-94 4305 S. Louise Avenue Suite 101-B Sioux Falls, SD 57106 A. 06-05-91 3800 S. Louise Avenue Sioux Falls, SD B. 08-17-93 1700 Hamilton Boulevard Sioux City, IA C.in normal 4555 Southern Hills Dr., #106 process Sioux City, IA D.in normal 2160 Haines Avenue process Rapid City, SD 33 R.C.I. WEST, INC. Stephen A. Grove 12-21-88 CO 17/12-31-96 400 Interstate N. Pkwy. Amended: 03-18-91 Suite 970 01-02-92 Atlanta, GA 30339 12-04-92 01-01-95 A. 10-02-89 3301 Tamarac Drive Denver, CO B. 10-23-90 5250 S. Wadsworth Boulevard Lakewood, CO C. 06-08-92 4306 S. College Avenue Ft. Collins, CO D. 09-07-92 14091 E. Iliff Avenue Aurora, CO E. 10-05-92 8292 S. University Boulevard Littleton, CO F. 04-12-93 410 S. Colorado Boulevard Glendale, CO G. 11-15-93 100 W. 104th Avenue Northglenn, CO H. 01-24-94 9010 N. Wadsworth Parkway Westminster, CO I. 03-21-94 6405 W. 120th Avenue Broomfield, CO J. 05-30-94 1250 S. Hover Road Building 10-A Longmont, CO K. 08-29-94 1906 28th Street Boulder, CO L. 10-31-94 10625 W. Colfax Avenue Lakewood, CO M. 12-19-94 297 E. 120th Avenue Thornton, CO N. 03-13-95 592 S. McCaslin Boulevard Louisville, CO O. 06-26-95 10440 E. Arapahoe Road Englewood, CO 34 P. 10-23-95 5265 Wadsworth Boulevard Arvada, CO R.C.I. WEST, INC. Stephen A. Grove 12-22-92 CO 3/08-31-95 400 Interstate N. Pkwy. Amended: 03-19-93 Suite 970 07-19-94 Atlanta, GA 30339 03-07-95 A. 10-03-94 1360 Cragin Road Colorado Springs, CO B. 04-03-95 3428 N. Elizabeth Pueblo, CO C. 07-10-95 3708 E. Galley Colorado Springs, CO D. 11-27-95 711 Horizon Drive Grand Junction, CO RENAISSANT Anthony R. Alvarez 08-27-92 TX 3/03-31-95 DEVELOPMENT Estella M. Alvarez Amended: 10-20-93 CORPORATION 05-01-95 5101 N. 10th Street McAllen, TX 78503 A. 12-07-93 514 E. Expressway 83 McAllen, TX B. 08-25-94 4601 N. 10th Street N. McAllen, TX C. 10-18-94 7601 San Dario Laredo, TX D. 07-25-95 2960 Boca Chica Boulevard Brownsville, TX E. 10-23-95 1519 W. Harrison Harlingen, TX RESTAURANT Stephen A. Grove 11-02-90 AL, GA 9/06-30-96 CONCEPTS, INC. Amended: 10-10-93 400 Interstate N. Pkwy. 07-01-94 Suite 970 Atlanta, GA 30339 A. 06-17-85 2301 Airport Thruway, #F-1 Columbus, GA 35 B. 06-17-85 3150 Wrightsboro Road Augusta, GA C. 01-28-87 3117 Washington Road Augusta, GA D. 08-21-87 480 Mall Boulevard Savannah, GA E. 04-01-91 595 Bobby Jones Expressway Augusta, GA F. 06-28-92 165 Tom Hill, Sr. Boulevard Macon, GA G. 05-17-93 3229 Gentian Boulevard Columbus, GA H. 07-26-93 1627-34 Opelika Road Auburn, AL I. 10-25-93 11120 Abercorn Savannah, GA J. 04-04-94 314 Russell Parkway Warner Robbins, GA K. 09-05-94 4705 Highway 80 Savannah Island, GA L. 12-05-94 612 E. Hamric Avenue Oxford, AL M. 06-05-95 2574 Riverside Drive Macon, GA N. 10-30-95 3652 Eisenhower Macon, GA ROSE CASUAL Harold T. Rose 08-04-93 MD 10/06-30-99 DINING, INC. Amended: 09-09-94 127 S. State Street 02-28-95 Newtown, PA 18940 A. 01-17-95 2141 Generals Highway Annapolis, MD B. 10-31-95 2703 N. Salisbury Boulevard Salisbury, MD 36 RYAN RESTAURANT William O. Ryan 12-17-92 MT 5/06-30-96 CORPORATION Beverly R. Ryan Amended: 01-15-93 790 King Park Drive 12-16-94 Billings, MT 59102 03-28-95 A. 11-23-93 740 24th Street, West Billings, MT SCOTT'S APPLE, INC. Nicholas C. Scott 08-26-92 PA 2/10-31-94 4045 W. 12th Street Amended: 10-30-93 Erie, PA 16505 A. 01-24-94 7790 Peach Street Erie, PA B.in normal 2911 W. 12th Street process Erie, PA SPECTRUM APPLE, L.P. John D. Gantes 08-11-94 CA 10/11-30-00 P.O. Box 80340 Linda B. Gantes Amended: 03-28-95 Rancho Santa George J. Gantes Margarita, CA 92688 A. 09-05-95 23626 Valencia Boulevard Santa Clarita, CA DENNIS STOCKARD Dennis Stockard 11-14-94 IL, IN, KY, MO, TN 3/09-30-95 P.O. Box 1399 Cape Girardeau, MO 63702 A. 09-26-91 202 S. Broadview Cape Girardeau, MO B. 10-27-92 3990 Hinkleville Road Paducah, KY C. 07-06-93 5120 Frederica Owensboro, KY D. 12-13-94 2506 S. 3rd Street Terre Haute, IN E.in normal 1125 E. Main process Carbondale, IL F.in normal 5100 E. Morgan process Evansville, IN 37 T.L. CANNON Matthew J. Fairbairn 06-22-90 NY, PA 8/06-30-96 CORPORATION David Stein Amended: 01-17-92 585 Moseley Road 03-01-94 Fairport, NY 14450 10-03-94 A. 03-12-91 3050 Winton Road South Rochester, NY B. 09-30-91 5017 Transit Road Williamsville, NY C. 06-23-92 3 Builders Square 4405 Milestrip Road Hamburg, NY D. 07-21-92 585 Moseley Road Fairport, NY E. 08-24-93 200 Paddy Creek Circle Rochester, NY F. 08-23-94 1683 E. Ridge Road Rochester, NY G. 10-04-94 1900 Military Road Niagara Falls, NY H. 11-22-94 1641 Niagara Falls Boulevard Amherst, NY I. 06-20-95 1955 Empire Boulevard Webster, NY J.in normal 5822 S. Transit Road process Lockport, NY T.L. CANNON Matthew J. Fairbairn 12-22-92 NY, PA 6/06-30-96 CORPORATION David Stein Amended: 02-03-93 585 Moseley Road 04-08-94 Fairport, NY 14450 05-01-95 A. 09-28-93 3189 Erie Boulevard, East De Witt, NY B. 07-06-94 628 S. Main Street N. Syracuse, NY C. 02-13-95 3975 Route 31 Liverpool, NY 38 T.S.S.O., INC. Frank C. Sedowicz 01-15-92 AL, FL, MS 2/06-30-95 5555 Oakbrook Parkway Lois J. Sedowicz Amended: 08-30-93 Suite 320 03-28-95 Norcross, GA 30093 A. 04-30-85 5760 Airport Boulevard Mobile, AL B. 03-31-86 5091 Bayou Boulevard Pensacola, FL C. 08-15-88 330 Mary Esther Cutoff Mary Esther, FL D. 01-24-91 5701 Emerald Coast Parkway - Sandestin Destin, FL E. 12-06-93 4940 Government Boulevard Mobile, AL F. 07-10-95 165 E. Nine Mile Road Pensacola, FL T.S.S.O., INC. Frank C. Sedowicz 11-20-91 IA, IL, MO 6/12-31-95 5555 Oakbrook Parkway Lois J. Sedowicz Amended: 04-07-93 Suite 320 08-16-93 Snellville, GA 30278 A. 11-02-92 3335 Veterans Parkway Springfield, IL B. 08-16-93 1966 N. Henderson Street Galesburg, IL C. 08-29-94 405 N. Main E. Peoria, IL D. 10-17-94 1275 S. Route 51 Forsyth, IL E. 11-07-94 502 N. Veterans Parkway Bloomington, IL F. 08-28-95 116 S. Roosevelt Burlington, IA THE OZARK Gregory R. Walton 05-21-92 AR, MO 5/08-31-95 APPLES, INC. Amended: 04-21-93 3252 Roanoke 07-01-93 Kansas City, MO 64111 11-15-93 39 A. 06-15-93 1855 E. Primrose Springfield, MO B. 01-03-94 2010 I-70 Drive, Southwest Columbia, MO C. 06-01-94 1836 W. Highway 76 Branson, MO D. 06-27-95 2319 Missouri Boulevard Jefferson City, MO THE OZARK Gregory R. Walton 12-01-93 AR, KS, MO, OK 3/10-31-95 APPLES, INC. Amended: 03-10-95 3252 Roanoke Kansas City, MO 64111 A. 07-19-94 2825 E. 32nd Street Joplin, MO THOMAS & KING, INC. Michael J. Scanlon 05-31-88 IN, KY, OH 26/05-30-97 1065 Newtown Pike Ronald T. Reynolds Amended: 05-31-91 Lexington, KY 40511 Douglas M. Wilson 08-06-93 06-07-95 A. 08-01-88 2573 Richmond Road Lexington, KY B. 11-14-88 7383 Turfway Road Florence, KY C. 02-24-89 105 N. Springsboro Pike W. Carrollton, OH D. 05-11-89 340 Glensprings Drive Springdale, OH E. 10-09-89 4009 Nicholasville Road Block B Lexington, KY F. 04-11-89 10635 Techwood Circle Blue Ash, OH G. 03-12-90 9998 King's Auto Mall Road Deerfield Township, OH H. 05-11-90 2755 Brice Road Reynoldsburg, OH 40 I. 08-20-90 2555 Shiloh Springs Road Trotwood, OH J. 12-11-90 6669 Dublin Center Drive Dublin, OH K. 07-15-91 967 Hebron Road Heath, OH L. 12-16-91 5050 Crookshank Cincinnati, OH M. 08-17-92 4440 Glen Este- Withamsville Road Batavia, OH N. 11-09-92 4600 East Broad Street White Hall, OH O. 03-01-93 1389 U.S. 127 South Frankfort, KY P. 04-05-93 30 Crestview Hills Mall Road Crestview Hills, KY Q. 06-21-93 480 Ackerman Road Columbus, OH R. 09-06-93 700 Washington Blvd., N.W. Hamilton, OH S. 10-04-93 853 Eastern Bypass Richmond, KY T. 01-17-94 Northgate Mall 9595 Colrain Avenue Cincinnati, OH U. 04-11-94 910 Beaumont Center Pkwy. Lexington, KY V. 06-13-94 3240 Towne Boulevard Middletown, OH W. 10-03-94 8331 Old Troy Pike Huber Heights, OH X. 12-02-94 1800 W. 1st Street Springfield, OH Y. 05-29-95 4425 National Road East Richmond, IN 41 Z. 08-07-95 1615 Rivervalley Circle North Lancaster, OH THOMAS & KING, INC. Michael J. Scanlon 02-24-94 OH, PA 4/10-31-96 1065 Newtown Pike Ronald T. Reynolds Amended: 02-28-95 Lexington, KY 40511 Douglas M. Wilson A. 08-28-95 904 Great East Plaza Niles, OH THOMAS & KING Michael J. Scanlon 10-23-90 AZ 11/08-15-96 1065 Newtown Pike Ronald T. Reynolds Amended: 10-21-94 Lexington, KY 40511 Douglas M. Wilson 06-01-95 A. 03-31-93 2053 S. Alma School Road Mesa, AZ B. 12-18-90 2720 W. Bell Road Phoenix, AZ C. 07-08-91 565 E. Wetmore Tucson, AZ D. 12-08-92 6259 E. Southern Avenue Mesa, AZ E. 05-17-93 Park Mall, Building E 5870 East Broadway Tucson, AZ F. 06-14-93 2032 E. Baseline Road Mesa, AZ G. 09-27-93 8001 W. Bell Road Peoria, AZ H. 06-26-94 1655 W. Elliott Tempe, AZ I. 12-12-94 10460 N. 90th Street Scottsdale, AZ J. 05-22-95 2547 N. 44th Street Phoenix, AZ K. 10-09-95 2 East Camelback Phoenix, AZ L. 11-20-95 4924 E. Shea Boulevard Phoenix, AZ 42 WILD WEST APPLE Calvin E. Keller 10-21-94 ID, NE, OR, WY 3/03-01-96 VENTURES, A Linda A. Keller Amended: 02-28-95 LIMITED LIABILITY (Terminated) COMPANY 2220 Dell Range Blvd. Suite 102 Cheyenne, WY 82009 A. 07-07-92 1401 Dell Range Boulevard Cheyenne, WY WILLIAM TELL, INC. John B. Prince 05-14-93 ID, NV, UT 8/11-30-97 71 W. Apricot Avenue Amended: 03-01-95 Salt Lake City, UT 84103 A.in normal 6123 S. State Street process Murray, UT B.in normal 5678 S. Redwood Road process Taylorsville, UT YOUR WAY Joseph M. Chong 01-25-93 CA 11/07-31-98 ENTERPRISES, INC. Chlara Chong Amended: 02-22-93 OF CALIFORNIA 09-21-93 6740 E. Hampden Ave. 07-19-94 Suite 302 02-27-95 Denver, CO 80224 (Terminated) A. 03-18-94 1415 S. Bradley* Santa Maria, CA B. 12-19-94 311 Lake Merced Boulevard* Daly City, CA C.in normal 305 Madonna Road* process San Luis Obispo, CA 539279 ONTARIO Robert A. Syroid 08-08-94 City of Thunder Bay, Ontario, 1/12-22-95 LIMITED Brenda Syroid Amended: 09-20-95 Canada 920 Tungsten Street Thunder Bay, ON CAN P7B 5Z6
*Sold by franchisee to two (2) other franchisees in Fall, 1995. 43 EX-10.12 7 1995 EQUITY INCENTIVE PLAN 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) "disinterested persons" 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. However, in no event may any Option granted to a Section 16 Person be exercisable until at least six (6) months following the Grant Date (or such shorter period as may be permissible while maintaining compliance with Rule 16b-3). 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. In no event shall an SAR granted to a Section 16 Person become exercisable 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). 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; provided, however, that no SAR granted to a Section 16 Person shall be exercisable 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). 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; provided, however, that in no event may the restrictions on Restricted Stock granted to a Section 16 Person lapse prior to six (6) months following the Grant Date (or such shorter period as may be permissible while maintaining compliance with Rule 16b-3). 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. With respect to Restricted Stock granted to a Section 16 Person, any dividend or distribution that constitutes a "derivative security" or an "equity security" under section 16 of the 1934 Act shall be subject to a Period of Restriction equal to the longer of (a) the remaining Period of Restriction on the Shares of Restricted Stock with respect to which the dividend or distribution is paid, or (b) six (6) months. 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 and to Directors who are also Employees to the extent Options are granted to them in their capacity as Directors. The provisions of Section 5 are applicable to Options granted to Employees and Consultants (and to the extent provided in Section 9.2.7, 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 12,000 shares of Stock. Such amount shall automatically increase or decrease by 1,500 shares for each increment of 5% by which the actual earnings before income taxes of the Corporation for a particular year exceed or are less than the earnings before income taxes for the previous year. The maximum increase shall be 6,000 shares and the maximum decrease shall be 6,000 shares. 9.1.2 Employee Director Grants. Employee Directors shall receive an annual grant of Director Options to purchase 6,000 shares of Stock. Such amount shall automatically increase or decrease by 750 shares for each increment of 5% by which the actual earnings before income taxes of the Corporation for a particular year exceed or are less than the earnings before income taxes for the previous year. The maximum increase shall be 3,000 shares and the maximum decrease shall be 3,000 shares. 9.1.3 Date of Grant. All Director Options shall be granted at the annual meeting of the Board. 15 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. 9.2.4 Expiration of Options. Each Option shall terminate upon the first to occur of the following events: (a) The expiration of five (5) 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 other than the Optionee's death, Disability or Retirement; or (c) The expiration of one (1) year from the date of the Optionee's termination of service by reason of Disability or Retirement. 9.2.5 Death of Director. Notwithstanding Section 9.2.4, if a Director dies prior to the expiration of his or her Options in accordance with Section 9.2.4, his or her Options shall terminate one (1) year after the date of his or her death. 9.2.6 Not Incentive Stock Options. Options granted pursuant to this Section 9 shall not be designated as Incentive Stock Options. 9.2.7 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. 16 SECTION 10 MISCELLANEOUS 10.1 Deferrals. The Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award. Any such deferral election shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion. 10.2 No Effect on Employment or Service. Nothing in this Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or service at any time, with or without cause. For purposes of this Plan, transfer of employment of a Participant between the Company and any of its Affiliates (or between Affiliates) shall not be deemed a Termination of Service. Employment with the Company and its Affiliates is on an at-will basis only, unless otherwise provided by an applicable employment agreement between the Participant and the Company or its Affiliate, as the case may be. 10.3 Participation. No Employee or Consultant shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. 10.4 Indemnification. Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (a) any loss, cost, liability or expense (including attorneys' fees) that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan or any Award Agreement, and (b) from any and all amounts paid by him or her in settlement thereof, with the Company's prior written approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against him or her; provided, however, that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law or otherwise, or under any power that the Company may have to indemnify them or hold them harmless. 10.5 Successors. All obligations of the Company under this Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company. 10.6 Beneficiary Designations. If permitted by the Committee, a Participant under this Plan may name a beneficiary or beneficiaries to whom any vested but 17 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 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 10.6. All rights with respect to an Award granted to a Participant shall be available during his or her lifetime only to the Participant. 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. 18 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; 19 (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. 20 14.3 Requirements of Law. The grant of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required from time to time. 14.4 Securities Law Compliance. With respect to Section 16 Persons, Awards under this Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of this Plan, Award Agreement or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable or appropriate by the Committee in its sole discretion. 14.5 Governing Law. This Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Kansas (excluding its conflict of laws provisions). 14.6 Captions. Captions are provided herein for convenience of reference only, and shall not serve as a basis for interpretation or construction of this Plan. 21 EX-10.20 8 CONSULTING AGREEMENT WITH RAYMOND D. SCHOENBAUM RAYMOND D. SCHOENBAUM CONSULTING AGREEMENT This Consulting Agreement is made as of the Effective Date of the merger described in that certain Agreement and Plan of Merger dated October 14, 1994, involving Applebee's International, Inc. and IRC Acquisition Corp. and Innovative Restaurant Concepts, Inc. and certain shareholders of Innovative Restaurant Concepts, Inc. (the "Merger Agreement"), by and between APPLEBEE'S INTERNATIONAL, INC., a Delaware corporation (the "Company") and RAYMOND D. SCHOENBAUM (the "Consultant"). WHEREAS, Consultant is knowledgeable in the industry of casual dining restaurants, and Company wishes to contract with Consultant for the performance of services on its behalf subject to the terms of this Agreement; WHEREAS, Consultant is willing to render his services to the Company on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual terms and conditions hereof, the Company and the Consultant hereby agrees as follows: 1. Scope of Work. The Company hereby hires Consultant and the Consultant hereby agrees to perform services for the Company upon the terms and conditions of this Agreement. 2. Services. a. The Consultant shall provide consultation with respect to: (i) creating and developing new restaurant concepts, as requested in writing by and under the direction of the Company's Chief Operating Officer and Chief Executive Officer; and (ii) the operations of the Company's existing restaurant concepts to the extent specifically requested by the Company executive responsible for such concept (e.g. Applebee's Grill & Bar, Ray's on the River, Rio Bravo Cantina, Rio Bravo Grill or Green Hills Grille). b. In addition to the foregoing duties, the Consultant agrees to serve as a member of Company's Board of Directors. Consultant shall carry out those duties traditionally performed by a member of the board of directors of a public company. These duties shall include, without limitation, a duty to act as a fiduciary, a duty to act in good faith, a duty to deal fairly with the Company and to avoid self dealing, and a duty to keep all Company matters confidential. Consulting services performed by Consultant hereunder are independent of Consultant's service to the Company as a member of its Board of Directors (i.e. Consultant may serve as a member of the Company's Board of Directors whether or not he is a consultant to the Company). Every consideration will be given to the Consultant by the Board of Directors and its nominating committee to place his name in nomination for membership on the Board at the Company's 1995 Annual Meeting of Shareholders. 1 3. Term. This Agreement shall have an initial term of one year commencing on the date hereof, subject to earlier termination as provided in Paragraph 11, below, and shall be renewable by mutual agreement for additional one year terms. 4. Fee. As payment for his services rendered under this Agreement, the Consultant shall receive the following: a. The Consultant shall be paid a fee of $165,000 per year, payable in equal monthly installments during the term of this Agreement, prorated for any partial month. Consultant understands that he is not eligible for any benefits from the Company other than his consulting fee and that he is responsible for all tax payments related thereto. b. So long as the Consultant serves as a member of the Company's Board of Directors, he shall be entitled to participate as if he were an employee director in the Company's Board of Director stock option plan, and so long as he is receiving consulting fees under any Consulting Agreement, he shall receive no other compensation as a member of the Board of Directors. 5. Reimbursement of Expenses. a. Subject to such rules and procedures as from time to time are specified by the Company, the Company shall reimburse the Consultant for travel, lodging, meal and miscellaneous expenses, preapproved by the Chief Operating or Chief Financial Officer of the Company, necessarily incurred in the performance of his duties on specific projects including attendance at industry trade shows and meetings and meals at Company restaurants as reasonably needed to assess from time to time the Company's level of restaurant operations. Consultant shall submit expense reports to the Chief Operating Officer or Chief Financial Officer, in the Company's standard form, for such reimbursable expenses at least monthly. b. The Company will provide the Consultant with available office space and clerical assistance as needed in conjunction with his services hereunder when it is necessary or appropriate for Consultant to visit the Company's offices in Overland Park, Kansas. c. The Company will rent to Consultant an office in Marietta, Georgia for $500.00 per month, at the election of the Consultant. Such space shall be made available so long as both the Company maintains office space in its current location in Marietta and this Agreement is in effect. In addition, the Company will provide clerical services at its Marietta office as reasonably required by the Consultant in the performance of his services hereunder. 2 6. Confidentiality/Trade Secrets. The Consultant acknowledges that his position with the Company is one of the highest trust and confidence by reason of his access to and contact with the trade secrets and confidential and proprietary business information of the Company. Both during the term of this Agreement and thereafter, the Consultant covenants and agrees as follows: a. he shall use his best efforts and exercise utmost diligence to protect and safeguard the trade secrets and confidential and proprietary information of the Company including but not limited to the identity of its customers and suppliers, its arrangements with customers and suppliers, and its technical and financial data, records, compilations of information, processes, recipes and specifications relating to its customers, suppliers, products and services; b. he shall not disclose any of such trade secrets and confidential and proprietary information, except as may be required in the course of performing services for the Company under this Agreement or by law; and c. he shall not use, directly or indirectly, for his own benefit or for the benefit of another, any of such trade secrets and confidential and proprietary information. All files, records, documents, drawings, specifications, memoranda, notes, or other documents relating to the business of the Company, whether prepared by the Consultant or otherwise coming into his possession, shall be the exclusive property of the Company and shall be delivered to the Company and not retained by the Consultant upon termination of this Agreement for any reason whatsoever or any other time upon request of the Company. 7. Discoveries. The Consultant covenants and agrees that he will fully inform the Company of and disclose to the Company all inventions, concepts, designs, improvements, discoveries and processes ("Discoveries") which he may have during the term of this Agreement and which pertain or relate to the business of the Company or to any experimental work, products, services or processes of the Company in progress or planned for the future, whether conceived by the Consultant alone or with others, and whether or not conceived in conjunction with the use of any Company assets. All such Discoveries shall be the exclusive property of the Company whether or not patent or trademark applications are filed thereon. The Consultant shall assist the Company, at any time during or after the term hereof, in obtaining patents on all such Discoveries deemed patentable by the Company and shall execute all documents and do all things necessary to obtain letters patent, vest the Company with full and exclusive title thereto, and protect the same against infringement by others. Notwithstanding this Paragraph 7, so long as the Discovery does involve the casual dining restaurant industry, the Consultant may retain ownership thereof after having fully informed the Company thereof in writing, the Company acknowledges in writing that Paragraph 7 shall not apply to such Discovery. For purposes of this Agreement, "casual dining restaurant industry" consists of "sit down" restaurants serving alcoholic beverages with a per guest average guest check of under $15.00. 3 8. Noncompetition. Taking into consideration the nature, scope and volume of the Company's operations, the Consultant agrees that during the term of this Agreement, and for a period of one year immediately following any termination of this Agreement, whether voluntary or involuntary, he will not, within the United States or any other country in which the Company, directly or indirectly, owns, operates or franchises restaurants, directly or indirectly, own, manage, operate, control, or be employed by, participate in, or be connected in any matter with the ownership (other than Consultant's current ownership interest in the Cuco's restaurant business and ownership of securities of other publicly held corporations of which Consultant owns less than 2% of any class of outstanding securities), management, operation, or control of any business engaged in the casual dining restaurant industry, or in any other segment of the restaurant industry in which the Company may become involved after the date hereof and prior to the date of any termination of this Agreement. 9. Nonsolicitation. The Consultant agrees that during the term of this Agreement and for a period of one year immediately following the later of (i) any termination of this Agreement, whether voluntary or involuntary, or (ii) the date he ceases to be a member of the Board of Directors, he will not, either directly or indirectly, for himself or for any third party, solicit, induce, recruit, or cause another person in the employ of the Company to terminate his/her employment for the purpose of joining, associating or becoming employed with any business or activity which is engaged in the casual dining restaurant industry or any other segment of the restaurant industry in which the Company may become involved after the date hereof and prior to the date of any termination of this Agreement or removal or resignation from the Board. The Company and the Consultant specifically acknowledge and agree that the foregoing covenants of the Consultant in Paragraphs 8 and 9 are reasonable in content and scope and are given by the Consultant for adequate consideration. 10. Remedies for Breach of Covenants of the Consultant. The covenants set forth in Paragraphs 6, 7, 8, and 9 of this Agreement shall continue to be binding upon the Consultant, notwithstanding the termination of this Agreement for any reason whatsoever. Such covenants shall be deemed and construed as separate agreements independent of any other provisions of this Agreement and any other agreement between the Company and the Consultant. The existence of any claim or cause of action by the Consultant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any or all of such covenants. It is expressly agreed that the remedy at law for the breach of any such covenant is inadequate and injunctive relief shall be available to prevent the breach or any threatened breach thereof. 4 11. Termination. a. Consultant may terminate this Agreement (a "Termination") at any time, with or without cause or reason. The Company may terminate this Agreement at any time upon notice to the Consultant, but only for cause. In the event of any Termination, the Consultant shall receive his fee only through the date of the Termination. b. "Cause" shall be limited to gross misconduct by Consultant in performing the services hereunder, material breach of any covenant hereunder by the Consultant and failure of Consultant to cure such breach on or before 15 days after receipt of written notice of such alleged breach from the Company, Consultant being charged with the commission of a criminal offense constituting a felony or involving dishonesty, deceit, or moral turpitude and the charge is not dismissed within 30 business days, or the Consultant's death or permanent disability. c. The provisions of Paragraphs 6, 7, 8, 9, 10, and 12 shall survive any Termination. 12. Arbitration of Disputes. Any dispute or claim arising out of or relating to this Agreement shall be settled by arbitration in the greater Kansas City metropolitan area in accordance with the then current rules of the American Arbitration Association, and judgment upon any award rendered therein may be entered in any court having proper jurisdiction. Each party shall bear its full cost of any arbitration, including the expenses and attorneys' fees incurred by it related thereto and including any actions taken by it to appeal or enforce the judgment rendered therein, unless the Consultant is the prevailing party, in which case the Company will reimburse the Consultant for his reasonable legal fees and expenses. 13. Notices. Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid, with return receipt requested. Mailed notices shall be addressed as follows: a. If to the Company: Applebee's International, Inc. 4551 West 107th Suite 100 Overland Park, Kansas 66207 Attn: General Counsel b. If to the Consultant: Raymond D. Schoenbaum Either party may change its address for notice by giving notice in accordance with the terms of this Paragraph 13. 5 14. General Provisions. a. Independent Contractor. Consultant shall be an independent contractor with respect to services performed under this Agreement and shall not be deemed to be an agent, employee or partner of Company. Nevertheless, the Consultant acknowledges that he has received a copy of the Company's policy regarding transactions in its securities and the Company's policy regarding contact with stock analysts and media representatives and agrees to be bound thereby and to comply therewith. b. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas. c. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and still be legal, valid or enforceable. d. Entire Agreement. This Agreement sets forth the entire understanding of the parties and supersedes all prior agreements or understandings, whether written or oral, with respect to the subject matter hereof. No terms, conditions, warranties, other than those contained herein, and no amendments or modifications hereto shall be binding unless made in writing and signed by the parties hereto. e. Binding Effect. This Agreement shall extend to and be binding upon and inure to the benefit of the parties hereto, their respective heirs, representatives, successors and assigns. This Agreement may not be assigned by the Consultant. f. Waiver. The waiver by either party hereto of a breach of any term or provision of this Agreement shall not operate or be construed as a waiver of a subsequent breach of the same provision by any party or of the breach of any other term or provision of this Agreement. g. Titles. Titles of the paragraphs herein are used solely for convenience and shall not be used for interpretation or construing any word, clause, paragraph, or provision of this Agreement. h. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument. i. Failure to Consummate Merger. If the Merger described in the Merger Agreement shall fail to become effective on or before March 24, 1995, this Agreement shall be null and void with neither party having any obligation under any of the foregoing terms and provisions. IN WITNESS WHEREOF, the Company and the Consultant have executed this Agreement as of the date and year first above written. CONSULTANT: APPLEBEE'S INTERNATIONAL, INC. By: Raymond D. Schoenbaum Abe J. Gustin, Jr. Chairman and C.E.O. 6 EX-10.21 9 EMPLOYMENT AGREEMENT WITH PHILIP J. HICKEY PHILIP J. HICKEY EMPLOYMENT AGREEMENT This Employment Agreement is made as of the Effective Date of the Merger described in that certain Agreement and Plan of Merger dated October 14, 1994, involving Applebee's International, Inc. and IRC Acquisition Corp. and Innovative Restaurant Concepts, Inc. and certain shareholders of Innovative Restaurant Concepts, Inc. (the "Merger Agreement") by and between Applebee's International, Inc., a Delaware corporation (the "Company") and Philip J. Hickey (the "Executive"). WHEREAS, the Company believes it to be in its best interest to provide for continuity of management and to provide protection for its valuable trade secrets and confidential information; and WHEREAS, the Company desires to employ the Executive and the Executive is willing to render his services to the Company on the terms and conditions with respect to such employment hereinafter set forth. NOW, THEREFORE, in consideration of premises and the mutual terms and conditions hereof, the Company and the Executive hereby agree as follows: 1. Employment. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, as the President of its Rio Bravo operating subsidiary, upon the terms and conditions hereinafter set forth. Addendum A, hereto, further describes the principal duties and responsibilities of the Executive. 2. Exclusive Services. The Executive shall devote all necessary working time, ability and attention to the business of the Company during the term of this Agreement and shall not, directly or indirectly, render any material services to any business, corporation, or organization whether for compensation or otherwise, without the prior written consent of the Chief Executive Officer of the Company. 3. Duties. The Executive is hereby employed by the Company and shall render his services at the offices of the Company in Marietta, Georgia, unless otherwise agreed by the Executive. The Executive shall have such authority and shall perform such duties as are assigned by the Chief Operating Officer of the Company (the "COO") . 4. Term. This Agreement shall have a term commencing on the date hereof and ending January 1, 1997, subject to earlier termination as provided in Paragraph 13, below. 5. Compensation. As compensation for his services rendered under this Agreement, the Executive shall be entitled to receive the following: 1 a. Base Salary. The Executive shall initially be paid a base salary of $154,800 per year, payable in equal bi-weekly installments during the term of this Agreement, prorated for any partial employment month. Such salary ("Base Salary") shall be reviewed by the Board of Directors of the Company (the "Board") on January 1 of each year in accordance with the Company's established criteria. b. Additional Compensation. The Executive shall be paid such additional compensation and bonuses as determined each year by the Rio Bravo Management Bonus Plan as described on Addendum B to this Agreement to be prepared by the Executive, the COO and the Chief Executive Officer of the Company prior to the effective date of this Agreement. 6. Benefits. In addition to the compensation to be paid to the Executive pursuant to Paragraph 5 hereof, the Executive shall further be entitled to receive the following: a. Participation in Employee Plans. The Executive shall be entitled to participate in any health, disability group term life insurance plan, any pension, retirement or profit sharing plan, or any other fringe benefits which may be extended generally from time to time to employees of the Company. Such benefits, in the aggregate, will be of equal or greater value to the benefits provided to the Executive as an employee of Innovative Restaurants Concepts, Inc. The Executive shall not be entitled to participate in any bonus plan other than as set forth in Paragraph 5(b), above. b. Disability Salary Continuation. If the Executive becomes disabled during the term of this Agreement, the Company shall continue to pay the Executive his Base Salary during the first ninety (90) day period of such disability and shall continue to pay the Executive, but at the rate of fifty percent (50%) of his Base Salary, for second ninety (90) day period of such disability. "Disability" as used herein shall mean any physical, emotional or mental, injury, illness or incapacity, other than death, which renders the Executive unable to perform the duties required of him under this Agreement. The existence of any disability shall be determined to exist in the sole discretion of the Board which shall not be unreasonably exercised. c. Vacation. The Executive shall be entitled to four weeks vacation with full salary and benefits each year. No cash or other payment will be due, however, for unused vacation and vacation may not be carried over from one year to the next. d. Stock Option. Upon the effective date of this Agreement, the Executive shall be granted an incentive stock option to purchase 10,000 shares of Common Stock of the Company at a per share price equal to the closing price of said stock on the Nasdaq Stock Market on the date of grant. Said option shall have a ten year term and shall be fully vested on its first anniversary or as otherwise required for incentive stock option treatment pursuant to the Internal Revenue Code. Employee shall have the option of substituting a nonqualified stock option for any portion of the incentive stock option which can not vest on the said first anniversary date. 2 7. Reimbursement of Expenses. Subject to such rules and procedures as from time to time are specified by the Company, the Company shall reimburse the Executive on a monthly basis for reasonable business expenses necessarily incurred in the performance of his duties under this Agreement. 8. Confidentiality/Trade Secrets. The Executive acknowledges that his position with the Company is one of the highest trust and confidence both by reason of his position and by reason of his access to and contact with the trade secrets and confidential and proprietary business information of the Company. Both during the term of this Agreement and thereafter, the Executive covenants and agrees as follows: a. he Shall use his best efforts and exercise utmost diligence to protect and safeguard the trade secrets and confidential and proprietary information of the Company including but not limited to the identity of its customers and suppliers, its arrangements with customers and suppliers, and its technical and financial data, records, compilations of information, processes, recipes and specifications relating to its customers, suppliers, products and services; b. he shall not disclose any of such trade secrets and confidential and proprietary information, except as may be required in the course of his employment with the Company or by law; and c. he shall not use, directly or indirectly, for his own benefit or for the benefit of another, any of such trade secrets and confidential and proprietary information. All files, records, documents, drawings, specifications, memoranda, notes, or other documents relating to the business of the Company, whether prepared by the Executive or otherwise coming into his possession, shall be the exclusive property of the Company and shall be delivered to the Company and not retained by the Executive upon termination of his employment for any reason whatsoever or any other time upon request of the COO. 9. Discoveries. The Executive covenants and agrees that he will fully inform the Company of and disclose to the Company all inventions, designs, improvements, discoveries and processes ("Discoveries") which he has now or may hereafter have during his employment with the Company and which pertain or relate to the business of the Company or to any experimental work, products, services or processes of the Company in progress or planned for the future, whether conceived by the Executive alone or with others, and whether or not conceived during regular working hours or in conjunction with the use of any Company assets. All such Discoveries shall be the exclusive property of the Company whether or not patent or trademark applications are filed thereon. The Executive shall assist the Company, at any time during or after his employment, in obtaining patents on all such Discoveries deemed patentable by the Company and shall execute all documents and do all things necessary to obtain letters patent, vest the Company with full and exclusive title thereto, and protect the same against infringement by others. If such assistance takes place after his employment is terminated the Executive shall be paid by the Company at a reasonable rate for any time actually spent in rendering such assistance at the request of the Company. 3 10. Noncompetition. Taking into consideration the nature, scope and volume of the Company's operations, the Executive agrees that during the period of his employment, and for a period of one (1) year immediately following any termination of his employment, whether voluntary or involuntary, he will not, within the United States or any other country in which the Company, directly or indirectly, owns, operates or franchises restaurants, directly or indirectly, own, manage, operate, control, or be employed by, participate in, or be connected in any matter with the ownership (other than ownership of securities of publicly held corporations of which Executive owns less than 2% of any class of outstanding securities), management, operation, or control of any business engaged in the casual dining restaurant industry (meaning restaurants with a per guest average guest check of under $15.00), or in any other segment of the restaurant industry in which the Company may become involved after the date hereof and prior to the date of any termination of employment. 11. Nonsolicitation. The Executive agrees that during the period of his employment and for a period of two (2) years immediately following any termination of his employment, whether voluntary or involuntary, he will not, either directly or indirectly, for himself or for any third party, solicit, induce, recruit, or cause another person in the employ of the Company to terminate his/her employment for the purpose of joining, associating or becoming employed with any business or activity which is engaged in the casual dining restaurant industry or any other segment of the restaurant industry in which the Company may become involved after the date hereof and prior to the date of any termination of employment. The Company and the Executive specifically acknowledge and agree that the foregoing covenants of the Executive in Sections 10 and 11 are reasonable in content and scope and are given by the Executive for adequate consideration. 12. Remedies for Breach of Covenants of the Executive. The covenants set forth in Paragraphs 8, 9, 10 and 11 of this Agreement shall be deemed and construed as separate agreements independent of any other provisions of this Agreement and any other agreement between the Company and the Executive. The existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any or all of such covenants. It is expressly agreed that the remedy at law for the breach of any such covenant is inadequate and injunctive relief shall be available to prevent the breach or any threatened breach thereof. 4 13. Termination. a. The Company may terminate this Agreement and the Executive's employment hereunder (a "Termination") at any time, with or without cause. The Executive may resign upon 30 days written notice to the Company and may terminate this Agreement and his employment hereunder for cause at any time. In the event of Termination by the Company, the effective date thereof shall be stated in a written notice to the Executive, which shall not be earlier than 10 days from the date such notice is delivered to the Executive. b. In the event the Company effects a Termination without cause, the Executive shall be entitled to receive any bonus amounts as may be payable pursuant to the terms of any written plans in which the Executive was a participant prior to the effective date of the Termination, accrued but unpaid salary, and shall additionally continue to receive his base salary hereunder for a 12 month period following the effective date of such termination, and only the provisions of Paragraphs 8, 9, 11, 12, 14, 15, 16 and 17 shall survive the Termination. c. The following shall constitute "cause": (i) The Employee is charged with the commission of a criminal offense constituting a felony or involving dishonesty, deceit or moral turpitude, and the charge is not dismissed within 30 business days; or (ii) The Employee breaches any material provision of this Agreement or any duty owed by him to the Company after receipt of written notice and a failure by the Executive to cure such breach within 10 days; or (iii) The Employee dies or becomes permanently disabled from continuing to provide the level of service required under this Agreement. d. The provisions of Paragraphs 8, 9, 10, 11, 12, 14, 15, 16 and 17 shall survive any Termination by the Company for cause. e. The Executive shall have cause to effect a Termination in the event the Company breaches its obligations to pay any salary, benefit or bonus due hereunder, and upon any such Termination, the Executive shall be entitled to a lump sum payment equal to his then current base salary and the provisions of Paragraphs 8, 9, 11, 12, 14, 15, 16 and 17 shall survive the Termination. No Termination may be effected by the Executive for cause unless he shall be delivered written notice to the Company of the breach and the Company shall not have cured such breach within 10 days thereafter. f. Upon the effective date of any Termination by the Company for cause, or upon the resignation of the Executive, the Executive shall only be entitled to receive his salary through such date and any bonus amounts as may be payable pursuant to the terms of any written plans in which the Executive was a participant immediately prior to the effective date of the Termination. 5 14. Termination After Change in Control. In the event of a Change in Control, as defined below, any Termination of Executive's employment with the Company within the 12 month period following such Change in Control, whether by Executive or by the Company and whether with or without cause, the following shall occur: a. The provisions of Paragraph 10 and 11 shall not apply and shall be void; b. The Executive shall continue to receive his salary under Section 5.a. above through the end of the eighteenth month following the month in which such Change in Control occurred; c. The Executive shall be entitled to continuation of coverage for eighteen (18) months (beginning with the month subsequent to the effective date of the Change in Control) under all Company paid or partially paid health, disability, or group life insurance plans or any retirement, pension, or profit sharing plans, in each case at such level as had been available to the Executive immediately prior to the Change in Control; and d. Any unvested portion of all stock options held by the Executive as of the day immediately preceding the effective date of such Termination under this Section 14 shall immediately vest and become exercisable and, for purposes of such options, such Termination shall be deemed to be a Termination by the Company not for cause. 15. Definitions Related to Change of Control. a. "Change of Control" means any one of the following: (i) Continuing Directors no longer constitute at least 2/3 of the Board of Directors; (ii) any person or group of persons (as defined in Rule 13d-5 under the Securities Exchange Act of 1934), together with its affiliates, become the beneficial owner, directly or indirectly, of 30% or more of the Company's then outstanding Common Stock or 30% or more of the voting power of the Company's then outstanding securities entitled generally to vote for the election of the Company's Directors; (iii) the approval by the Company's stockholders of the merger or consolidation of the Company with any other corporation, the sale of substantially all of the assets of the Company or the liquidation or dissolution of the Company, unless, in the case of a merger or consolidation, the then Continuing Directors in office immediately prior to such merger or consolidation will constitute at least 2/3 of the Board of Directors of the surviving corporation of such merger or consolidation and any parent (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of such corporation; or (iv) at least 2/3 of the then Continuing Directors in office immediately prior to any other action proposed to be taken by the Company's stockholders or by the Company's Board of Directors determine that such proposed action, if taken, would constitute a change of control of the Company and such action is taken. 6 b. "Continuing Director" means any individual who either (i) was a member of the Company's Board of Directors on the date hereof, or (ii) was designated (before initial election as a Director) as a Continuing Director by a majority of the then Continuing Directors. 16. Arbitration of Disputes. Any dispute or claim arising out of or relating to this Agreement or any termination of the Executive's employment shall be settled by arbitration in the greater Kansas City metropolitan area in accordance with the then current rules of the American Arbitration Association, and judgment upon any award rendered therein may be entered in any court having proper jurisdiction. Each party shall bear its costs of any arbitration, including the expenses and attorneys' fees incurred by it related thereto, including any actions taken to appeal or enforce the judgment rendered therein, unless the Employee is the prevailing party, in which case the Company will reimburse the Employee for his reasonable legal fees and expenses. 17. Mitigation. The Executive shall have no duty to attempt to mitigate the level of benefits payable by the Company to him hereunder and the Company shall not be entitled to set off against the amounts payable hereunder any amounts received by the Executive from any other source, including any subsequent employer. 18. Notices. Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid, with return receipt requested. Mailed notices shall be addressed as follows: a. If to the Company: Applebee's International, Inc. 4551 West 107th Suite 100 Overland Park, Kansas 66207 Attn: General Counsel b. If to the Executive: Philip J. Hickey 867 Waterford Green Marietta, GA 30068 Either party may change its address for notice by giving notice in accordance with the terms of this Paragraph 18. 7 19. General Provisions. a. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas. b. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and still be legal, valid or enforceable. c. Entire Agreement. This Agreement sets forth the entire understanding of the parties and supersedes all prior agreements or understandings, whether written or oral, with respect to the subject matter hereof. No terms, conditions, warranties, other than those contained herein, and no amendments or modifications hereto shall be binding unless made in writing and signed by the parties hereto. d. Binding Effect. This Agreement shall extend to and be binding upon and inure to the benefit to the parties hereto, their respective heirs, representatives, successors and assigns. This Agreement may not be assigned by the Executive. e. Waiver. The waiver by either party hereto of a breach of any term or provision of this Agreement shall not operate or be construed as a waiver of a subsequent breach of the same provision by any party or of the breach of any other term or provision of this Agreement. f. Titles. Titles of the paragraphs herein are used solely for convenience and shall not be used for interpretation or construing any provision of this Agreement. g. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument. h. Failure to Consummate Merger. If the Merger described in the Merger Agreement shall fail to become effective on or before March 24, 1995, this Agreement shall be null and void with neither party having any obligation under any of the foregoing terms and provisions. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date and year first above written above. EXECUTIVE: APPLEBEE'S INTERNATIONAL, INC. By: Philip J. Hickey Abe J. Gustin, Jr. Title: Chairman and C.E.O. 8 EX-10.24 10 SCHEDULE OF PARTIES TO INDEMNIFICATION AGREEMENT SCHEDULE OF PARTIES RECEIVING INDEMNIFICATION AGREEMENTS D. Patrick Curran Eric L. Hansen Jack P. Helms Kenneth D. Hill Lloyd L. Hill Rosalyn T. Mallet Ronald J. Marks Robert A. Martin Steven K. Lumpkin Ronald B. Reck George D. Shadid David R. Smith Robert T. Steinkamp Stuart F. Waggoner John A. Weber EX-10.26 11 SCHEDULE OF PARTIES TO SEVERANCE AGREEMENT SCHEDULE OF OFFICERS RECEIVING SEVERANCE AGREEMENTS Rosalyn T. Mallet Robert A. Martin Ronald J. Marks Steven K. Lumpkin David R. Smith Robert T. Steinkamp Stuart F. Waggoner John A. Weber EX-21 12 SUBSIDIARIES OF APPLEBEE'S INTERNATIONAL, INC. APPLEBEE'S INTERNATIONAL, INC. SUBSIDIARY CORPORATIONS (100% owned unless indicated) Applebee's of Michigan, Inc. Applebee's of Minnesota, Inc. Applebee's of New Mexico, Inc. Applebee's of New York, Inc. Applebee's Neighborhood Grill & Bar of Georgia, Inc. Applebee's of Nevada, Inc. Applebee's of Pennsylvania, Inc. Applebee's of Texas, Inc. AII Services, Inc. Gourmet Systems, Inc. Gourmet Systems of Arizona, Inc. Gourmet Systems of California, Inc. Gourmet Systems of Kansas, Inc. Gourmet Systems of Georgia, Inc. Gourmet Systems of Minnesota, Inc. Gourmet Systems of Nevada, Inc. Gourmet Systems of Tennessee, Inc. (formerly known as Applebee's of Tennessee, Inc.) 1 GourmetWest of Nevada, Limited-Liability Company 2 Apple American Limited Partnership of Minnesota 3 Applebee's Northeast, Inc. (formerly known as Pub Ventures of New England, Inc.) 4 Apple Vermont Restaurants, Inc. 5 Innovative Restaurant Concepts, Inc. 6 IRC Kansas, Inc. Rio Bravo International, Inc. Rio Bravo Restaurants, Inc. 7 Rio Bravo Services, Inc. 8 Summit Restaurants, Inc. 1 50% owned by Gourmet Systems of Nevada, Inc. 2 A Limited Partnership in which Gourmet Systems of Minnesota is as general partner and Applebee's of Minnesota is a limited partner. 3 This company was acquired by way of merger as of October 24, 1994 and is now a wholly-owned subsidiary of Applebee's International, Inc. 4 This company is a wholly-owned subsidiary of Pub Ventures of New England, Inc. and as a result of Pub Ventures of New England, Inc. now being a wholly-owned subsidiary of Applebee's International, Inc., this company is in effect a wholly-owned subsidiary of that wholly-owned subsidiary. 5 This company is a wholly-owned subsidiary of Rio Bravo International, Inc. and as a result of Rio Bravo International, Inc. now being a wholly-owned subsidiary of Applebee's International, Inc., this company is in effect a wholly-owned subsidiary of that wholly-owned subsidiary. 6 This company is a wholly-owned subsidiary of Innovative Restaurant Concepts, Inc. 7 This company is a wholly-owned subsidiary of Rio Bravo International, Inc. 8 This company is a wholly-owned subsidiary of Innovative Restaurant Concepts, Inc. EX-23.1 13 CONSENT OF DELOITTE & TOUCHE LLP 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 23, 1996, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 31, 1995, and to the reference to us under the heading "Experts" in such Registration Statement. We also consent to the incorporation by reference in Registration Statement No. 33-59421 of Applebee's International, Inc. on Form S-3 of our report dated February 23, 1996, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 31, 1995, and to the reference to us under the heading "Experts" in such Registration Statement. We also consent to the incorporation by reference in Registration Statement No. 33-62419 of Applebee's International, Inc. on Form S-3 of our report dated February 23, 1996, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 31, 1995, and to the reference to us under the heading "Experts" in such Registration Statement. DELOITTE & TOUCHE LLP Kansas City, Missouri March 14, 1996 EX-23.2 14 CONSENT OF ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated March 22, 1995, included in this Form 10-K into the Company's previously filed Registration Statement File No. 33-72282 of Applebee's International, Inc. ARTHUR ANDERSEN LLP Atlanta, Georgia March 14, 1996 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated March 22, 1995, included in this Form 10-K into the Company's previously filed Registration Statement File No. 33-59421 of Applebee's International, Inc. ARTHUR ANDERSEN LLP Atlanta, Georgia March 14, 1996 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated March 22, 1995, included in this Form 10-K into the previously filed Registration Statement File No. 33-62419 of Applebee's International, Inc. ARTHUR ANDERSEN LLP Atlanta, Georgia March 14, 1996 EX-23.3 15 CONSENT OF COOPERS & LYBRAND L.L.P. CONSENT OF INDEPENDENT ACCOUNTANTS 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 January 29, 1994, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 31, 1995 (related to the financial statements of Pub Ventures of New England, Inc. for the year ended December 31, 1993, not presented separately therein). We also consent to the incorporation by reference in Registration Statement No. 33-59421 and No. 33-62419 of Applebee's International, Inc. on Forms S-3 of our report dated January 29, 1994, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 31, 1995 (related to the financial statements of Pub Ventures of New England, Inc. for the year ended December 31, 1993, not presented separately therein). We also consent to the reference to our Firm under the caption "Experts" in such Registration Statement. COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 13, 1996 EX-27 16 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 YEAR YEAR YEAR DEC-31-1995 DEC-25-1994 DEC-26-1993 DEC-26-1994 DEC-27-1993 DEC-28-1992 DEC-31-1995 DEC-25-1994 DEC-26-1993 30,188 9,634 0 21,836 8,893 0 10,566 8,136 0 723 740 0 10,036 5,159 0 74,557 33,969 0 197,454 142,071 0 37,622 27,342 0 270,680 180,014 0 38,475 33,626 0 25,832 34,312 0 0 0 0 0 0 0 313 283 0 203,680 108,505 0 270,680 180,014 0 299,824 222,445 159,482 343,563 253,864 180,806 254,173 191,572 136,578 292,676 220,321 159,004 4,925 3,814 2,025 250 418 100 2,507 2,029 1,075 45,326 28,600 20,456 17,906 10,777 7,905 27,420 17,823 12,551 0 0 0 0 0 0 0 0 0 27,420 17,823 12,551 .94 .64 .46 .94 .64 .46
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