FRANCHISE AGREEMENT TABLE OF CONTENTS 1. INTRODUCTION AND DEFINITIONS.......................................1 1.A. INTRODUCTION..............................................1 1.B. DEFINITIONS...............................................3 2. GRANT OF FRANCHISE RIGHTS..........................................7 2.A. GRANT OF FRANCHISE........................................7 2.B. PRINCIPAL OWNERS' GUARANTY................................7 2.C. TERRITORIAL RIGHTS........................................8 2.D. RESERVATION OF RIGHTS.....................................8 2.E. OPTION TO DEVELOP OTHER SITES WITHIN THE TERRITORY........9 2.F. TERM OF FRANCHISE.........................................9 3. OTHER DISTRIBUTION METHODS........................................10 3.A. SPECIAL DISTRIBUTION ARRANGEMENTS........................10 4. FRANCHISE AND OTHER FEES..........................................10 4.A. INITIAL FRANCHISE FEE....................................10 4.B. DEFERRAL OF FRANCHISE FEE................................10 4.C. ROYALTY FEE..............................................10 4.D. ADVERTISING FUND FEE.....................................11 4.E. TRANSFER FEE.............................................11 4.F. FEES FOR ADDITIONAL FRANCHISES...........................11 4.G. FEES FOR RENEWAL OF FRANCHISE............................12 4.H. PAYMENT BY ELECTRONIC FUNDS TRANSFER.....................12 4.I. LATE CHARGE AND INTEREST. ...............................12 5. RENEWAL OF FRANCHISE TERM.........................................13 5.A. FRANCHISEE'S RIGHT TO A SUCCESSOR FRANCHISE..............13 5.B. RELEASES.................................................14 5.C. NOTICES..................................................15 6. TRADEMARKS AND LIMITATIONS........................................15 6.A. OWNERSHIP OF MARKS.......................................15 6.B. DISCONTINUANCE OF USE OF MARKS...........................16 6.C. CORPORATE NAME...........................................16 6.D. TERMINATION..............................................17 6.E. TRADEMARK ENFORCEMENT....................................17 6.F. USE OF SERVICE MARK......................................17 7. SELECTION OF FRANCHISE LOCATION...................................18 7.A. SITE SELECTION...........................................18 7.B. LEASE....................................................18 7.C. RELOCATION...............................................20 8. DEVELOPMENT OF UNIT...............................................21 8.A. UNIT DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS........21 8.B. DEVELOPMENT OF THE UNIT..................................21 8.C. EQUIPMENT, FIXTURES, FURNISHINGS, AND SIGNS..............22 8.D. EXCEPTIONS TO EQUIPMENT OR FURNISHINGS...................22 8.E. CONSTRUCTION ASSISTANCE..................................23 8.F. LIMITATION ON LIABILITY..................................23 9. UNIT OPENING......................................................24 9.A. COMMENCEMENT OF OPERATIONS...............................24 10. FRANCHISEE TRAINING...............................................24 10.A. INITIAL TRAINING.........................................24 10.B. EMPLOYEE TRAINING........................................25 10.C. ON-SITE TRAINING...........................................26 10.D. COMPANY GROWTH...........................................26 10.E. RETRAINING PROGRAMS......................................26 10.F. OTHER GUIDANCE...........................................26 11. ADVERTISING AND OTHER PROMOTIONS..................................27 11.A. PROVIDING OF ADVERTISING MATERIALS.......................27 11.B. CONTROL OF ADVERTISING PROGRAMS AND CONCEPTS.............27 11.C. SEGREGATION OF ADVERTISING FUND..........................28 11.D. SUSPENSION OF ADVERTISING FUND FEES......................29 11.E. FRANCHISEE'S REQUIRED ADVERTISING EXPENDITURES...........29 11.F. USE OF TRADEMARK REFERENCES AND APPROVAL............... OF FRANCHISEE'S MARKETING..............29 12. ADHERENCE TO UNIFORM STANDARDS....................................30 12.A. STANDARDS AND OPERATIONS MANUAL..........................30 12.B. CONFIDENTIALITY OF OPERATIONS MANUAL.....................32 12.C. INCORPORATION OF OPERATIONS MANUAL INTO AGREEMENT........32 12.D. MODIFICATIONS/UPDATES OF OPERATIONS MANUAL...............33 13. UNIT IMAGE AND OPERATION..........................................33 13.A. CONDITION AND APPEARANCE OF UNIT.........................33