Sample Franchise Agreement




                                Franchise Agreement
                                         
                                         
                                      BETWEEN
                                         
                                         
                       FRIENDLY'S RESTAURANTS FRANCHISE, INC.
                                  1855 Boston Road
                                Wilbraham, MA  01095
                                         
                                        AND
                                         
                             FRIENDCO RESTAURANTS, INC.
                               1657 Crofton Boulevard
                              Crofton, Maryland  21114
                                         
                                         
                                       DATED
                                         
                                 July _____ , 1997
                                         
                                         
                                         
                                         
                                        FOR
                                         
                            [RESTAURANT STREET ADDRESS]
                                         
                                   [STATE, CITY]
 
 
 
 
 
 
 
                                  TABLE OF CONTENTS
 
Section                                                   Page
-------                                                   ----
1.  INTRODUCTION AND GRANT OF FRANCHISE                      
    A.   Introduction                                       
    B.   Grant of Franchise               
    C.   Rights Reserved by Company                       
 
2.  TRAINING        
 
3.  GUIDANCE          
    A.   Guidance and Assistance      
    B.   Operations Manual           
 
4.  MARKS                              
    A.   Goodwill and Ownership of Marks                     
    B.   Limitations  on Licensee's Use of Marks            
    C.   Notification of Infringements and Claims          
    D.   Discontinuance of Use of Marks         
    E.   Indemnification of Franchisee          
 
5.  RELATIONSHIP OF THE PARTIES/INDEMNIFICATION   
    A.   Independent Contractors    
    B.   No Liability for Acts of Other Party  
    C.   Taxes    
    D.   Indemnification  
 
6.  CONFIDENTIAL INFORMATION   
 
7.  FEES    
    A.   Initial Franchise Fee                 
    B.   Royalty Fee    
    C.   Definition of Gross Sales    
    D.   Interest on Late Payments 
    E.   Application of Payments 
 
8.  RESTAURANT OPERATING STANDARDS   
    A.   Condition, Appearance and Operation of the
           Restaurant     
    B.   Restaurant Menu      
    C.   Approved Products, Distributors and Suppliers   
    D.   Specifications, Standards and Procedures          
    E.   Compliance with Laws and Good Business Practices  
    F.   Management and Personnel of the Restaurant       
    G.   Insurance                        
 
9.  MARKETING      
    A.   By Company                 
    B.   By Licensee                    
    C.   By Cooperative               
 
10.REPORTS, FINANCIAL STATEMENTS AND FINANCIAL CONDITION 
 
11. INSPECTIONS AND AUDITS     
    A.   Company's Right to Inspect the Restaurant    
    B.   Company's Right to Audit  
  
12. TRANSFER OF FRANCHISE             
    A.   By Company                              
    B.  Franchisee May Not Transfer Without Approval of  Company    
    C.   Right of First Refusal    
    D.   Conditions for Approval of Transfer   
    E.   Transfer to a Wholly-Owned Entity   
    F.  Effect of Consent to Transfer   
 
13. CONDEMNATION AND CASUALTY   
 
14. TERMINATION OF THE FRANCHISE  
 
15. DAMAGES
 
16. COVENANT NOT TO COMPETE; RIGHTS AND OBLIGATIONS OF  COMPANY AND FRANCHISEE UPON  TERMINATION OR EXPIRATION OF  THE FRANCHISE 
    A.   Covenant Not to Compete      
    B.   Payment of Amounts Owed to Company    
    C.   Marks and System            
    D.   Confidential Information              
    E.   Continuing Obligations     
 
17. RENEWAL OF FRANCHISE   
 
18. ENFORCEMENT    
    A.   Severability and Substitution of Valid PROVISIONS 
    B.   Waiver of Obligations      
    C.   Force Majeure    
    D.   Injunctive Relief   
    E.   Rights of Parties Are Cumulative   
    F.   Costs and Attorneys' Fees   
    G.   Governing Law           
    H.   Waiver of Punitive/Exemplary Damages;
         Limitation of Actions       
    I.   Venue and Jurisdiction    
    J.   Waiver of Jury Trial    
    K.   Binding Effect   
    L.   Interpretation      
    M.   Time    
 
19. NOTICES AND PAYMENTS   
 
20. ACKNOWLEDGEMENTS
 
EXHIBITS:
 
Exhibit A:    Disclosure Acknowledgment Statement......   A-1 


 
 
                                FRANCHISE    AGREEMENT
 
 
    THIS FRANCHISE (the "Agreement") is made and entered into as of _____,  19___  (the "Agreement Date"), by and between FRIENDLY'S RESTAURANTS,  FRANCHISE, INC., a Delaware corporation, whose principal address is 1855  Boston Road, Wilbraham, MA  01095 and FRIENDCO RESTAURANTS, INC. whose principal address is 1657 Crofton Boulevard, Crofton, Maryland  21114.  For purposes of simplicity, we will sometimes refer to Friendly's as "us", "we" or the "Company," and we will sometimes refer to you as "you" or "Franchisee."
 
1.  INTRODUCTION AND GRANT OF FRANCHISE
 
    A.   Introduction
 
    Through expenditure of considerable time, skill, effort and money, we have developed a system for establishing, operating and franchising distinctive, high quality restaurants ("Friendly's Restaurants") serving the public under the name "Friendly's."  A Friendly's Restaurant consists of all structures, facilities, appurtenances, grounds, landscaping, signs, furniture, fixtures, equipment and entry, exit, parking and other areas commonly associated with such a restaurant.  The approved food, beverage and other products served and sold by Friendly's Restaurants (the "Products") for consumer consumption and not for resale are prepared in accordance with our standards, specifications and secret recipes.  Friendly's Restaurants are established pursuant to our plans and specifications for construction, conversion, remodeling, decorating, equipment and layout, and are operated in accordance with our distinctive business formats, construction plans, inspection and consultation programs, signs, equipment, layouts, methods, specifications, standards, recipes (including ice cream and other frozen dessert and related toppings recipes), confidential information, trade secrets, operating procedures, training programs and materials, guidance, policy statements and related materials, designs, advertising, publicity, and marketing programs and other materials (which we may modify from time to time) (collectively, the "System").  We own, use, promote and license certain trade names, trademarks, service marks and other commercial symbols, and applications related thereto, including but not limited to "Friendly's" and "Friendly's Restaurants" (collectively, the "Marks"), and the confidential information, copyrights, and business format and related property rights which comprise the System.  We may change, modify or improve the System from time to time to enhance the operations of Friendly's Restaurants.  All improvements and additions you, we  or anyone else makes to the System, whenever made or used in connection with the system, will inure to us and become our sole property. We grant, to qualified persons, franchises to own and operate Friendly's Restaurants pursuant to the System selling the Products and services we authorize and approve.
 
    B.   Grant of Franchise
 
         (1)  Grant.  You have applied for a franchise to own and operate a Friendly's Restaurant (the "Restaurant") at, and only at, the location known as: (the "Premises") and we have approved your application in reliance upon all of the representations and warranties you have made to us in connection with this Agreement, including but not limited to the information contained in your application for a franchise and, if the Restaurant is newly constructed and equipped, the representations and warranties you made to us in the Commitment Agreement between you and us dated ____________, 19 __ .  Subject to the provisions of the Agreement, and in reliance on such representations and warranties, we hereby grant to you, effective upon the execution of this Agreement, a franchise (the "Franchise") to operate a Friendly's Restaurant at the Premises, and to use the System and the Marks in operating the Restaurant, for a term of twenty (20) years, beginning on the date of completion, expiration or termination of the Development Agreement between you and us dated July 10, 1997, unless this Agreement is sooner terminated as provided in Section 14 of this Agreement.  Termination or expiration of this Agreement will constitute a termination or expiration of the Franchise.  Except as otherwise provided in the Development Agreement, you may not conduct your business pursuant to this Agreement from any location other than the Premises except upon our approval of your application for change of location, and the payment of the then current change of location fee.
 
    (2)  Best Efforts.  You agree that you will at all times faithfully, honestly and diligently perform your obligations under this Agreement and that you will continuously exert, during the full term of this Agreement, your best reasonable efforts     to promote and enhance the business of the Restaurant and the goodwill of the Marks and the System.
 
    (3)  Operation.  You agree that you will continuously, from the date you open the Restaurant for business to the public, operate, occupy and do business in the Restaurant, 7 days a week, 365 days a year during the hours of 6:00 a.m. to 11:00 p.m. weekdays, and to 12:00 midnight on weekends (it being understood that the Restaurant may be closed for business while any repairs or refurbishments are being undertaken and that different hours of operation may be approved by the Vice President of Operations of the Company) and to operate the Restaurant in a manner reasonably calculated to produce the maximum volume of gross sales (as defined in Section 7C of this Agreement) and to help establish and maintain a high reputation for the Restaurant, unless the Restaurant is in the process of being replaced pursuant to the provisions of any applicable Development Agreement.
 
    C.   Rights  Reserved by Company
 
    We retain the right, subject to the exercise of good faith, in our sole and absolute discretion, to: (1) operate and grant to others the right to operate, Friendly's Restaurants or other restaurants using the System or the Marks at such locations which may include locations within the Trade Area (as defined in Section 16A, unless an exclusive territory has been granted pursuant to a Development Agreement, in which case the terms of the     Development Agreement will apply) and on such terms and conditions as we deem appropriate; (2)  operate, and grant to others the right to operate restaurants under other trade names, trademarks, service marks and commercial symbols different from the Marks, notwithstanding the fact that such restaurants may be the same as or similar to a Friendly's Restaurant; and (3) sell the Products or other products identified by the Marks or by other trademarks in any channel of distribution.
 
2.  TRAINING
 
    Prior to the execution of this Agreement, we have furnished you and your Restaurant Managers (each as hereinafter defined) training in the operation of a Friendly's Restaurant.  We will require similar training for all successors to such persons.  No person shall be permitted to supervise the Restaurant until the training has been completed.  The training program will include classroom instruction and field training and will be furnished at our training facility and/or at a Friendly's Restaurant, and will last for such duration as we determine to be necessary.
 
    Your Restaurant Managers must complete the training program to our reasonable satisfaction.  If we, in our sole discretion, determine that any of such persons are unable to complete the training program satisfactorily, upon our request you agree to hire, as soon as practicable, a replacement who must complete our training program to our reasonable satisfaction.  We may also offer such refresher or supplemental training programs to you and such persons as we, from time to time, deem appropriate at such places as we designate.     By giving you prior written notice, we will have the right to require attendance at any refresher or supplemental training program by you or any of such persons.
 
    No tuition charge will be made for required initial training programs.  You will be responsible for the travel, local transportation, lodging and meal expenses, and compensation of yourself and your Restaurant Managers incurred while attending the training program and any refresher or supplemental training programs we offer to you or require you or such persons to attend.  Reasonable charges may be made by us for training materials and we may require you to purchase certain equipment to be used in such training.
 
3.  GUIDANCE
 
    A.   Guidance and Assistance
 
    We will furnish guidance to you with respect to:
 
    (1)preparation, packaging, sale and delivery of Products authorized for sale at Friendly's Restaurants;
 
    (2)development, preparation and packaging of new Products we develop for sale at Friendly's Restaurants;
 
    (3)specifications, standards and operating procedures utilized by Friendly's Restaurants, and any modification thereof;
 
    (4)approved equipment, furniture, furnishings, signs, food products, operating materials and supplies;
 
    (5)development and implementation of local advertising and promotional programs; and
     
    (6)general operating and management procedures of Friendly's Restaurants.
 
In our discretion, we will furnish this guidance and assistance to you in the form of our confidential operations manual, bulletins, written reports and recommendations, electronic mail or other written or electronic materials (all of which are hereinafter referred to as the "Operations Manual"), inspection reports for the Restaurant, refresher training programs and/or telephonic consultations at our offices or at the Restaurant.  If you request, we will furnish additional guidance and assistance relative to the operation of the Restaurant at per diem fees and  charges we establish from time to time.  If special training of Restaurant personnel or other assistance in operating the Restaurant is requested by you, and must take place at the Restaurant, all our expenses for such training, including a per diem charge and travel, local transportation, lodging and meal expenses for our personnel, must be paid by you.
 
    B.   Operations Manual
 
    We will loan to you during the term of the Franchise one (1) copy of the Operations Manual which may consist of multiple parts and/or volumes.  The Operations Manual will contain mandatory and suggested specifications, standards and operating procedures that we prescribe from time to time for Friendly's Restaurants and information relative to your obligations under this Agreement and in the operation of a Friendly's Restaurant.  We may modify the Operations Manual from time to time to reflect changes in the specifications, standards and operating procedures of Friendly's Restaurants, to disclose information concerning new Products and services which we may develop for sale at Friendly's Restaurants, to specify types, brands and models of equipment which you must utilize to produce and sell such new Products and services, and to specify changes in the decor, format, image, Products, services and operation of a Friendly's Restaurant.  You must keep your copy of the Operations Manual current by immediately inserting all modified pages we furnish to you and destroying the then obsolete pages.  In the event of a dispute relative to the contents of the Operations Manual, the master copies we maintain at our principal office will be controlling.  You may not at any time copy any part of the Operations Manual, disclose any part of it to employees or others not having a need to know its contents for purposes of operating the Restaurant, or permit its removal from the Restaurant without our prior approval.  In the event a new version of the Operations Manual is provided to you, you must immediately return the then obsolete version to us.  To the extent the Operations Manual contains any specification, standard or operating procedure concerning the operation of the Restaurant, such provision shall be deemed to be incorporated into this Agreement, unless such provision conflicts with applicable laws or ordinances.
 
4.  MARKS
 
    A.   Goodwill and Ownership of Marks
 
    You acknowledge that we have the right to license the Marks, that the Marks are represented to be valid, and that your right to use the Marks is derived solely from this Agreement (and the Trademark License Agreement if applicable) and is limited to your operation of the Restaurant pursuant to and in compliance with this Agreement and all      applicable standards, specifications and operating procedures we prescribe from time to time during the term of the Franchise.  Any unauthorized use of the Marks by you will constitute a breach of this Agreement and may constitute an infringement of our rights in and to the Marks.  You acknowledge and agree that all of your usage of the Marks and any goodwill established by your use of the Marks will inure to our exclusive benefit, and that this Agreement does not confer any goodwill or other interests in the Marks upon you (other than the right to operate a Friendly's Restaurant in compliance with this Agreement). All provisions of this Agreement applicable to the Marks will apply to any other trademarks, service marks and commercial symbols we later develop, authorize and license you to use.
 
    B.   Limitations on Franchisee's Use of Marks
 
    You agree to use the Marks as the sole trade identification of the Restaurant.  You must also identify yourself as the independent owner of the Restaurant in the manner we reasonably prescribe.  You must not use any Mark as part of any corporate or trade name or with any prefix, suffix or other modifying words, terms, designs or symbols (other than logos and additional trade and service marks we license to you under this Agreement), or in any modified form, nor may you use any Mark in connection with the performance or sale of any unauthorized services or products or in any other manner we have not expressly authorized in writing.  You must prominently display the Marks in the manner we reasonably prescribe at the Restaurant, on menus and in connection with advertising and marketing materials.  You must not employ any of the Marks in signing contracts, applications for licenses or permits, or in any manner that may imply our responsibility for,      or result in our liability for, any of your indebtedness or obligations, nor may you use the Marks in any way not authorized herein.  You further agree to give such notices of trade and service mark registrations as we specify, and you must obtain such fictitious or assumed name registrations as may be required under applicable law.
 
    C.   Notification  or Infringements and Claims
 
    You agree to immediately notify us of any apparent infringement of or challenge to your use of any Mark, or claim by any person of any rights in any mark.  You agree not to communicate with any person other than us, your counsel and our counsel in connection with any such infringement, challenge or claim. We will have sole discretion to take such action as we deem appropriate in connection with any infringement, challenge or claim, and the right to exclusively control any settlement, litigation or U.S. Patent and Trademark Office or other proceeding arising out of the alleged infringement, challenge or claim or otherwise relating to any Mark.  You agree to execute any and all instruments and documents, render such assistance and do such acts and things as may, in the opinion of our counsel, be necessary or advisable to protect and maintain our interest in any litigation or other proceeding or to otherwise protect and maintain our interest in the Marks.
 
    D.   Discontinuance of Use of Marks
 
    If it becomes advisable at any time in our reasonable judgment to modify or discontinue use of any Mark and/or for the Restaurant to use one (1) or more additional or substitute trade or service marks, you agree, at your expense, to comply with our directions      to modify or otherwise discontinue the use of such Mark, and/or use one (1) or more additional or substitute trade or service marks, within a reasonable time after we give you notice.
 
    E.   Indemnification of Franchisee
 
    We agree to indemnify you against, and to reimburse you for, and to our option, to defend you against, all damages for which you are held liable in any proceeding arising out of your use of the marks "Friendly's" and "Friendly's Restaurant", pursuant to and in compliance with this Agreement, and for all costs you reasonably incur in the defense of any such claim brought against you or in any such proceeding in which you are named as a party, including reasonable attorney's fees, provided that you have timely notified us of such claim or proceeding and you have otherwise substantially complied with this Agreement.  We have the right to approve any counsel employed by you in the defense of any such claim, and in the event we elect to defend any such claim, the fees and expenses of any separate counsel employed by you shall not be reimbursable.
 
5.  RELATIONSHIP OF PARTIES/INDEMNIFICATION
 
    A.   Independent Contractors
 
    It is understood and agreed that this Agreement does not create a fiduciary relationship between you and us, that we and you are and shall be independent contractors, and that nothing in this Agreement is intended to make either you or us a general or special agent,  legal representative, joint venturer, partner or employee of the other for any purpose      or to grant either you or us the right to direct or supervise the daily affairs of the other.  You agree to identify yourself conspicuously in all dealings with customers, suppliers, public officials, Restaurant personnel and others as the owner of the Restaurant under a franchise granted by us.  You also agree to place such other notices of independent ownership on forms, business cards, stationery, advertising and other materials as we may require from time to time. You acknowledge that no agreement we make with any third party is for your benefit.  Neither we nor you will interfere with each other's contractual relations. 
 
    B.   No Liability for Acts of Other Party
 
    You agree that you will not employ any of the Marks in signing any contract, check, legal obligation, application for any license or permit, or in a manner that may imply that we are responsible, or which may result in liability to us for, any of your indebtedness or obligations.  You further agree not to use the Marks in any way not expressly authorized by this Agreement. Except as expressly authorized in writing, neither we nor you may make any express or implied agreements, warranties, guarantees or representations, or incur any debt in the name of or on behalf of the other, or represent that our relationship is other than franchisor and franchisee, and neither we nor you will be obligated by or have any liability under any agreement or representations made by the other that are not expressly authorized in writing. We will not be obligated for any damages to any person or property directly or indirectly arising out of the operation of the Restaurant or your business.    
 
    C.   Taxes
 
    You agree that except for taxes which we are required to collect from you in connection with items you purchase  from us, we will have no liability for any sales, use, service, occupation, excise, gross receipts, income, property or other taxes, whether levied upon you, the Restaurant, your property, use or the royalty fees which you pay to us, in connection with the sales made or business conducted by you.  Payment of all such taxes will be your responsibility.
 
    D.   Indemnification
 
    You agree, during and after the term of the Agreement, to indemnify, defend and hold us, our affiliated entities, and their and our shareholders, directors, partners, officers, employees, agents, representatives, successors and assignees harmless against and reimburse the Indemnities for all claims, obligations and damages descried in Section 5B, any and all claims arising out of the use of the Marks in any manner not in accordance with this Agreement and all losses, liabilities, claims, taxes, demands, damages, causes of action, governmental inquiries and investigations, costs and expenses, including reasonable attorneys' and accountants' fees, consequently, directly and indirectly incurred, arising from, as a result of, or in connection with the operation of the Restaurant or any of your actions, errors, omissions, breaches or defaults under this Agreement or any acts or omissions alleged or proven to be a result of your negligence or willful misconduct.  Except as provided above, Friendly's and you shall indemnify, defend and hold each other harmless from laims, demands and causes of action asserted against the indemnitee by any person for personal     injury or death or for loss of or damage to property and resulting from the indemnitor's active or passive negligence or willful misconduct.  Where such injury, death, loss or damage is the result of joint active or passive negligence or willful misconduct, the duty of indemnification shall be in proportion to the allocable share of the joint active or passive negligence or willful misconduct.  For purposes of this indemnification, "claims" shall mean and include all obligations, actual and consequential damages, expenses, losses, costs and other liabilities reasonably incurred in the defense of any claim against the Indemnities, including without limitation reasonable accountants', attorneys' and expert witness fees, costs of investigation and proof of facts, court costs, other litigation expenses and travel, lodging and meal expenses incurred in litigation or preparation for litigation, whether or not litigation is filed.  If the indemnities reasonably conclude that their interests are not being adequately represented by your counsel, the indemnities will have the right to employ their own attorneys to defend any claim against them in the manner they deem appropriate or desirable in their sole discretion, and the indemnification hereunder shall apply to and include the costs incurred in any such defense.  The obligation to indemnify the indemnities will continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement. 

6.  CONFIDENTIAL INFORMATION
 
    We possess certain confidential and proprietary information and trade secrets consisting of, but not limited to, the following categories of information, methods,     techniques, procedures and knowledge we have developed (collectively, the "Confidential Information"):
 
    (1)methods and procedures related to the development and operation of Friendly's Restaurants, whether contained in the Operations Manual or otherwise;
 
    (2)secret recipes of ice cream and other frozen desserts and related toppings, menu analysis and methods of preparation of Products and services offered in Friendly's Restaurants;
 
    (3)methods, procedures and techniques for preparing, packaging, marketing, selling and delivering Products and services offered in Friendly's Restaurants;
 
    (4)knowledge of test programs, concepts and results relating to the planning, development and testing of the System and Products and services offered in Friendly's Restaurants;
 
    (5)sources of purchase of food, beverages and other ingredients used by Friendly's Restaurants;
 
    (6)  marketing programs and image; and
 
    (7)methods, techniques, specifications, procedures, information, systems and knowledge of and experience in the development, licensing and operation of Friendly's Restaurants.
 
 
    We will disclose the Confidential Information to you during training, in the Operations Manual and training manuals, and in guidance and assistance furnished to you during the term of this Agreement.  You may also learn additional Confidential Information and trade secrets of ours during the term of this Agreement.  You acknowledge and agree that you will not acquire any interest in the Confidential Information, other than the right to utilize it in the operation of the Restaurant, and that the use of the Confidential Information in any other business, or the disclosure of the Confidential Information to any      other person or entity, would constitute an unfair method of competition with us and other Friendly's Restaurant licensees.      We claim that the Confidential Information, which we have invested a substantial amount of money and time in developing, is a valuable asset of ours, includes trade secrets of ours, and will be disclosed to you solely on the condition that you agree, and you do hereby agree, that you:
 
    (1)will not use the Confidential Information in any other business or capacity;
 
    (2)will maintain the absolute secrecy and confidentiality of the Confidential Information during and after the term of this Agreement (except as authorized by this Agreement);
 
    (3)will not make unauthorized copies of any portion of the Confidential Information which is in written, audio, video or other reproducible form; and
 
    (4)will adopt and implement all reasonable procedures we prescribe from time to time to prevent unauthorized use or disclosure of the Confidential Information, including requiring your Restaurant Manages and other employees who have access to the Confidential Information to execute confidential agreements in the form we approve or prescribe prior to or during their employment.  Furthermore, other than for consumption in the Restaurant or approved carry-out or retail sales programs, you agree not to sell or provide to any person or entity other than us or our designee, for use, testing or any other purpose, any mixes or formulations for preparation of Products you purchase from us or our designees.
 
    Notwithstanding anything to the contrary contained in this Agreement, the restrictions on your disclosure and use of Confidential Information will not apply to the following: (i)      information, processes or techniques which are or become generally known in the restaurant industry, other than through disclosure (whether deliberate or inadvertent) by you; and (ii) disclosure of Confidential Information in judicial or administrative proceedings to the extent that you are legally compelled to disclose such information, provided that you have used your best reasonable efforts, and have afforded us the opportunity, to obtain an appropriate protective order or other assurance satisfactory to us of confidential treatment of the information required to be so disclosed.
 
    You will fully and promptly disclose to us, all ideas, concepts, formulas, recipes methods and techniques relating to the development and/or operation of the Restaurant, conceived or developed by you and/or your employees during the term of this Agreement.  You acknowledge that such ideas, concepts, formulas, recipes, methods and techniques shall be our sole property, and you shall not be entitled to any compensation whatsoever for the same.
 
7.  FEES
 
    A.   Initial Franchise Fee
 
    The initial franchise fee for your first franchise  and second franchise is thirty thousand dollars ($30,000.00) each and the franchise fee for any additional franchises is twenty-five thousand dollars ($25,000.00) (collectively referred to as the "Fee").  The Fee is paid as follows:   
 
Five thousand dollars ($5,000.00) upon submissions of an application for a franchise.  If the application is approved,  that portion of the Fee becomes non-refundable.  If the application is withdrawn prior to a decision by Friendly's, or if the application is denied, the Fee (less Friendly's costs and expenses in processing the application) is refunded without interest.
 
Twenty-five thousand dollars ($25,000.00) (or twenty thousand dollars ($20,000.00) in the case of the third or additional franchises) upon your execution of a Commitment Agreement ("Commitment Agreement").
 
    B.   Royalty Fee
 
    You agree to pay to us a royalty fee equal to four percent (4%) of the Gross Sales (as defined in Subsection C of this Section) of the Restaurant. The royalty fee shall be payable by electronic funds transfer not later than the 21st day after the end of each calendar month, based on Gross Sales for the prior month.  Upon the installation of an upgraded processing system by Franchisee, we may require that the royalty fee be payable by electronic funds transfer not later than the 14th day after the end of each calendar month.  In any event, no default may be declared for late payment of the royalty or marketing fees unless and until seven (7) days have elapsed from the date the payment was due.
 
    C.   Definition of Gross Sales
 
    As used in this Agreement, the term "Gross Sales" shall mean gross sales of all food, beverage, other menu items, merchandise, and goods and other services sold or performed by or for you or the Restaurant, in, upon, or from the Premises, or through or by means of the business conducted at the Restaurant or the Premises, whether for cash or credit.  Sales and service taxes collected from customers and paid to the appropriate taxing authority, all      management or employee meals, and sale of cigars, cigarettes and newspapers as well as income from pay telephones shall not be included in Gross Sales.  The discounted portion of menu prices whether by way of coupons, promotions or otherwise shall not be included in Gross Sales.
 
    D.   Interest on Late Payments
 
    All royalty fees, Marketing Fund contributions (as described in Section 9 of this Agreement), amounts due for your purchases from us or our subsidiaries or affiliates, and other amounts which you owe to us or our subsidiaries or affiliates will bear interest beginning on the date due at the highest applicable legal rate for open account business credit, not to exceed one and one-half percent (1.5%) per month.  This Section 7D does not constitute an agreement on our part to accept payments from you after the payments are due or our commitment to extend credit to, or otherwise finance your operation of, the Restaurant.  Further, you acknowledge that your failure to pay all amounts when due may constitute grounds for termination of this Agreement, as provided in Section 14 of this Agreement, notwithstanding the provisions of this Section 7D.
 
    E.   Application of Payments
 
    Notwithstanding your designation, we will have sole discretion to apply any of your payments to any of your past due indebtedness for initial or royalty fees, Marketing Fund contributions, purchases from us or our subsidiaries or affiliates, interest or any other outstanding indebtedness in such order and amounts as we may elect.  The acceptance of     a partial or late payment will not constitute a waiver of any of our rights or remedies contained in this Agreement.
 
8.  RESTAURANT OPERATING STANDARDS
 
    A.   Condition, Appearance and Operation
         Of the Restaurant                          
 
    You agree that :
 
    (1)neither the Restaurant nor the Premises will be used for any purpose other than the operation of a Friendly's Restaurant in compliance with this Agreement, unless and until restaurant operations are appropriately discontinued on the site (pursuant to this Agreement or the terms of a Development Agreement);
 
    (2)you  will maintain the condition and appearance of the Restaurant, its equipment, furniture, furnishings, signs and the Premises in accordance with our specifications and standards as in effect from time to time and consistent with the image of a Friendly's Restaurant as an efficiently operated business offering high quality food service and observing the highest standards of cleanliness and sanitation; and will, upon our reasonable request, add or alter such equipment in the Restaurant so as to efficiently and hygienically prepare and serve any new menu items approved for sale throughout the Friendly's Restaurant system;
 
    (3)you will perform all periodic maintenance with respect to the decor, equipment, furniture, furnishings and signs of the Restaurant and thePremises that is required from time to time to maintain such condition, appearance and efficient operation, including, without limitation:
 
         (a)thorough cleaning, repainting and redecorating of the interior and exterior of the Premises at reasonable intervals;
 
         (b)  interior and exterior repair of the Premises; and
 
         (c)repair or replacement of damaged, worn out or obsolete equipment, furniture, furnishings and signs.    
 
 
    (4)you will not make any material alterations to the Premises, or to the appearance of the Restaurant as originally developed, except as required by applicable real estate codes, local authorities or landlords, without our prior written approval, which approval shall not be unreasonably withheld;
 
    (5)we have the right to require that you remodel, redecorate, re-equip, modernize and refurnish in a non-structural manner the Premises and the Restaurant not more than once in any five (5) year period and only after fifty percent (50%) of the Company-operated restaurants in the Friendly's Restaurant system have been so remodeled, redecorated, re-equipped or modernized, to reflect any changes in Friendly's Restaurants that we prescribe as our then-current standards and specifications.  You understand that such remodeling, redecorating, re-equipping, modernization or refurnishing may require a substantial investment on your part and that we cannot make any guarantee of any particular return on that investment.  We have the right to approve the layouts, designs, and new equipment, furniture and furnishings you use in any remodeling, redecorating and re-equipping, such approval not to be unreasonably withheld; and
 
    (6)you will place or display at the Premises (interior and exterior) only such signs, emblems, lettering, logos and display and advertising materials that we from time to time approve, such approval not to be unreasonably withheld.
 
 
    B.   Restaurant Menu
 
    You agree that the Restaurant will offer for sale all food and beverage products and services that we from time to time require.  You agree that the Restaurant will sell only products that we have approved.  You agree that the Restaurant will not sell any Products to any person for resale to any third person.  The Restaurant must not offer for sale or sell at the Premises or any other location any unapproved products, or use the Premises for any purpose other than the operation of the Restaurant.
 
    We have the right to approve the Restaurant's offering of Products or services on a test basis, which approval we may condition in any reasonable manner.  We will have the right to stop the test at any time after its commencement, upon reasonable notice.
 
    C.   Approved Products, Distributors and Suppliers
    The reputation and goodwill of Friendly's Restaurants is based upon, and can be maintained only by, the sale of distinctive, high quality food products and beverages and the presentation, packaging, service and delivery of such products in an efficient and appealing manner.  We have developed various proprietary products which are prepared by or for us according to our proprietary and secret recipes and formulas.  We have developed standards and specifications for food products, ingredients, seasonings, mixes, beverages, materials and supplies  incorporated in or used in the preparation, cooking, serving, packaging and delivery of prepared food products authorized for sale at Friendly's Restaurants.  We have and will periodically approve suppliers and distributors of the foregoing products that meet our standards and requirements, including, without limitation, standards and requirements relating to product quality, prices, consistency, reliability, financial capability, labor relations and customer relations.  You agree that for use in the Restaurant you will:
 
    (1)purchase our proprietary ice cream, frozen yogurt and other frozen desserts and related toppings, muffin and other mixes and batters, and other products developed by us from time to time pursuant to secret recipes or formulas, only from us or a third party licensed by us to prepare and sell such products; and
 
    (2)purchase all other food products, ingredients, seasonings, mixes, beverages, materials and supplies used in the preparation of Products; menus, paper, glassware, china and plastic products; packaging or other materials, utensils and uniforms that meet our standards and specifications from suppliers we have approved.
 
    You must at all times maintain an inventory of approved food products, beverages, ingredients and other products sufficient in quantity and variety to realize the full potential of the Restaurant.
 
    We may approve a single distributor or other supplier for any Product and may approve a distributor or other supplier only as to certain of the Products. We may concentrate purchases with one (1) or more distributors or suppliers to obtain lower prices and/or the best advertising support and/or services for any group of Friendly's Restaurants we license and/or operate.  Approval of a distributor or other supplier may be conditioned on requirements relating to the frequency and delivery, standards of service, including prompt attention to complaints or other criteria, and concentration of purchases, as set forth above, and may be temporary, pending our further evaluation of such distributor or other supplier.
 
    Notwithstanding the above, you have the right to request our approval of alternative suppliers or distributors and we will consider alternative suppliers and distributors.  Our evaluation of prospective suppliers and/or distributors will be conditioned upon payment of our reasonable evaluation costs of their products and/or services.  You agree to notify us and submit to us all information, specifications and samples that we request if you propose  to purchase any food products, mixes, seasonings, beverages, menus, paper, glassware, china or plastic products, packaging, uniforms or other materials or utensils from a distributor or other supplier who has not been previously approved by us.  We will notify you within a reasonable time whether you are authorized to purchase such products from such distributor or other supplier.
 
    We may, from time to time, conduct market research and testing to determine consumer trends and the marketability of new food products and services.  You agree to cooperate and assist us by participating in our consumer surveys and market research programs, test marketing new food products and services in the Restaurant and providing us with timely reports and other relevant information regarding such customer surveys and market research.
 
    You may from time to time conduct your own market research and testing to determine consumer trends and the marketability in your Trade Area of new food products or services.  Prior to undertaking such market research or testing, you agree to provide us with written notice no less than thirty (30) days prior to the commencement of such research or testing for our approval of such research or testing, which approval shall not be unreasonably withheld.
 
    D.   Specifications, Standards and Procedures
 
    You acknowledge that the operation of the Restaurant in compliance with our high standards is important to us and all other Friendly's Restaurant licensees. You agree to cooperate with us by maintaining our high standards in the operation of the Restaurant.  You further agree to comply with all mandatory specifications, standards and operating procedures relating to appearance, function, cleanliness, sanitation, safety, business hours, delivery services, new Products, purchasing or leasing new or different equipment for preparation and sale of new Products, compliance with the decor, format and image, including equipment, furniture, fixtures and signage,  of a Friendly's Restaurant. Mandatory specifications, standards and operating procedures we prescribe from time to time in the Operations Manual, or otherwise communicate to you in writing, will constitute provisions of this Agreement as if fully set forth in this Agreement unless such provisions conflict with applicable laws or local ordinances. All references to this Agreement include all such mandatory specifications, standards and operating procedures.  You agree that the Restaurant will conduct business in the ordinary course seven days a week (excluding holidays we specify if any) and 17 hours a day, except as we may otherwise authorize in writing.  You acknowledge that approved restaurant hours may vary from one location to another depending on conditions in the market where the restaurant is located.
 
    E.   Compliance with Laws and Good Business Practices
 
    You agree to secure and maintain in force in your name all required licenses, permits and certificates relating to the operation of the Restaurant. You further agree to operate the Restaurant in full compliance with all applicable laws, ordinances and regulations, including, without limitation, all government regulations relating to health and sanitation, workers' compensation insurance, unemployment insurance and withholding and payment of federal, state and local income taxes, social security taxes and sales taxes.  All of your advertising must conform to applicable legal standards, be in good taste in our reasonable judgment and conform to the highest standards of ethical advertising. You agree that in all dealings with us, your customers, suppliers and public officials, you will adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct.  You agree to refrain from any business or advertising practice which may be injurious to our business or to the goodwill associated with the Marks and other Friendly's Restaurants.
 
    You agree to notify us, by telephone within seventy-two (72) hours followed within five (5) days by written notification, including copies of any pleadings or process received of: (i) the commencement of any action, suit or proceeding relative to the Restaurant; (ii) the issuance of any order, writ, injunction, award or decree of any court, agency or other governmental instrumentality which may adversely affect the operation or financial condition of the Restaurant; and (iii) any notice of violation of any law, ordinance or regulation relating to health or safety.  You agree that you will not accept service of process for us and on our behalf.
 
    F.   Management and Personnel of the Restaurant
 
    You agree that at all times you will (i) employ on terms reasonably satisfactory to us a General Manager who shall have principal operational responsibility for the Restaurant and who shall have such qualifications and experience as we shall reasonably require and who shall have completed our training program and (ii) employ on a full-time basis a Manager and an Assistant Manager, each of whom has completed our training program (collectively, the General Manager and Manager and Assistant Manager are referred to as "Restaurant Managers").  The Restaurant shall during all business hours be under the direct on-premises supervision of a Restaurant Manager.  You agree to hire all employees to maintain a neat and clean appearance and to conform to the standards of dress and/or uniforms that we specify from time to time for Friendly's Restaurants.  You shall not recruit or hire any of our employees or any employees of any Friendly's Restaurant operated by us or by a Friendly Restaurant licensee without obtaining our prior written permission or the prior written permission of the other licensee unless six months have expired since such employee's termination of employment with us or the licensee.
 
    G.   Insurance
 
    During the term of the Franchise, you agree to comply with all insurance requirements related to the Restaurant's lease or mortgage and to maintain in force at all times, under policies of insurance issued by carriers we have approved:
 
    (1)employer's liability and workers' compensation insurance as prescribed by applicable law;
 
    (2)comprehensive general liability insurance (with products, completed operations and contractual liability and independent contractors and escalators coverage)  and comprehensive motor vehicle liability insurance (for owned and non-owned vehicles) against claims for bodily and personal injury, death and property damage caused by or occurring in conjunction with the operation of the Restaurant (or otherwise in conjunction with your conduct of business pursuant to this Franchise)  under one (1) or more policies of insurance, each on an occurrence basis, with single-limit coverage for personal and bodily injury, death and property damage of at least one million dollars ($1,000,000.00) (or such other amount as we may reasonably require), with no less than  a five million dollar ($5,000,000.00) umbrella liability policy in force;
 
    (3)All-risk building and contents insurance including flood and earthquake, vandalism and theft insurance for the replacement value of the Restaurant and its contents;
 
    (4)business interruption insurance for a period adequate to reestablish normal business operations; and
 
    (5)builders' risk insurance on a completed value non-reporting basis during the period of any remodeling of the Restaurant.
 
    We may periodically increase the amounts of insurance you will be required to maintain, and we may require different or additional kinds of insurance at any time, including excess liability insurance, to reflect inflation, identification of new risks, changes in law or standards of liability, higher damage awards, or other relevant changes in circumstances.  Each insurance policy must name us as an additional insured and must provide for thirty (30) days' prior written notice to us of any material modification, cancellation, termination or expiration of such policy.
 
    Prior to the expiration of the term of each insurance policy, you agree to furnish us with a certificate of insurance or with a certified copy of each renewal or replacement insurance policy you will maintain for the immediately following term and evidence of the payment of the premium for the insurance policy.  If you fail or refuse to maintain required insurance coverage, or to furnish satisfactory evidence of required insurance coverage and payment of the premiums we, at our option and in addition to our other rights and remedies under this Agreement, may obtain the required insurance coverage on your behalf. You must cooperate fully with us in our effort to obtain such insurance policies, promptly execute all forms or instruments required to obtain or maintain such insurance and pay to us, on demand any costs and premiums we incur.
 
    Your obligations to maintain insurance coverage as described above will not be affected in any manner by reason of any separate insurance we maintain, nor will the maintenance of insurance relieve you of any obligation under Section 5 of this Agreement.
 
9.  MARKETING
 
    A.   By Company
 
    You agree that because of the value of advertising to the goodwill and public image of Friendly's Restaurants, we may maintain and administer a marketing fund (the "Marketing Fund") for the marketing program that we deem necessary or appropriate, in our sole discretion.  You agree to contribute to the Marketing Fund three percent (3%) of Gross Sales  of the Restaurant calculated in the same manner as, and payable monthly together with, the royalty fees due under this Agreement.
 
    You agree that we will direct all marketing programs financed by the Marketing Fund, and we will have sole discretion over the creative concepts, materials and endorsements used in the programs, and the geographic, market and media placement and allocation of the programs.  You agree that the Marketing Fund may be used to pay the costs of preparing and producing video, audio and written advertising materials; administering multi-regional advertising programs, including, without limitation, purchasing direct mail and other media advertising, and employing advertising agencies to assist therewith; supporting public relations, market research, and menu development; and other advertising and marketing activities that we, in our sole discretion, deem appropriate.
 
    The Marketing Fund will be accounted for separately from our other funds and will not be used to defray any of our general operating expenses, except for such reasonable salaries, administrative costs and overhead as we may incur in activities reasonably related to the administration of the Marketing Fund and its marketing programs including, without limitations, conducting market research and menu development, preparing advertising and marketing materials, and collecting and accounting for contributions to the Marketing Fund (including,  but not limited to, attorneys' and accountants' fees and other expenses of litigation).  You agree that we may spend in any fiscal year an amount greater or less than the aggregate contribution of all Friendly's Restaurants to the Marketing Fund in that year  and the Marketing Fund may borrow from us or from other lenders to cover deficits of the Marketing Fund or cause the Marketing Fund to invest any surplus for future use by the Marketing Fund. You authorize us to collect for the Marketing Fund any advertising or promotional monies or credits offered by any supplier based upon your purchases.  All interest earned on monies contributed to the Marketing Fund will be used to pay the expenses of the Marketing Fund incurred in advertising and promotion, including the reasonable administrative expenses related thereto before other assets of the Marketing Fund are expended. We will prepare an annual statement of monies collected and costs incurred by the Marketing Fund within one hundred twenty (120) days after the end of our fiscal year and will furnish this statement to you upon your written request. We have the right to cause the Marketing Fund to be incorporated or operated through a separate entity at such time as we deem appropriate, and if we do so, that entity will have all of our rights and duties pursuant to this Section 9A.
 
    You understand and acknowledge that the Marketing Fund is intended to enhance recognition of the Marks and patronage of Friendly's Restaurants and Friendly's proprietary branded products.  Although we will endeavor to utilize the Marketing Fund to develop advertising and marketing materials and programs, and to place advertising that will benefit all Friendly's Restaurants, we undertake no obligation to ensure that expenditures by the Marketing Fund in or affecting any geographic area are proportionate or equivalent to the contributions to the Marketing Fund by Friendly's Restaurants operating in that geographic area or that any Friendly's Restaurant will benefit directly or in proportion to the  contributions to the Marketing Fund from the development of advertising and marketing materials or the placement of advertising.  Except as expressly provided in this Section 9A, we assume no direct or indirect liability or obligation to you with respect to our maintenance, direction or administration of the Marketing Fund.  You acknowledge that we have the right, and you hereby authorize us, to settle or otherwise compromise all disputes with regard to the Marketing Fund.
 
    B.   By Franchisee
 
    Until such time as a Cooperative Marketing Fund is established and funded, you agree we may expend the marketing contribution less administrative expenses not to exceed one-half percent (1/2%) required in Section 9A in your DMA in accordance with marketing plans reviewed and approved by Friendly's.  Samples of any advertising and promotional material we have not prepared or previously approved must be submitted to us for approval prior to your use.  You may not use any advertising or promotional materials that we have not approved or which we have disapproved.  You agree to cooperate in the development of a Cooperative Marketing Fund and to coordinate any local or DMA advertising with Friendly's. Local advertising programs approved by Friendly's will be paid for or credited against the three percent (3%) marketing expenditure required hereunder at the option of Friendly's.
 
    C.   By Cooperative
 
    Unless your franchise is granted pursuant to a Development Agreement for an exclusive territory covering an entire DMA, Friendly's reserves the right to form and you agree to join a cooperative marketing fund organized on a regional basis.  Each franchisee within the affected region may contribute up to two percent (2%) of its Gross Sales to the cooperative marketing fund in addition to the marketing and advertising expense obligations under Section 9A and 9B of this Agreement.  Each company operated restaurant within the region of the cooperative marketing fund shall likewise be required to contribute to the cooperative fund on a per restaurant basis equal to the franchisee's percentage of the Gross Sales contribution.  Each franchised and company operated restaurant contributing to the cooperative shall have one (1) vote per restaurant in determining how the cooperative will apply the funds of such cooperative.
 
10. REPORTS, FINANCIAL STATEMENTS AND FINANCIAL CONDITION
 
    Unless otherwise agreed to by us in writing, you agree to adopt the Company's financial and operational reporting chart of accounts format, as set forth in the Operations Manual or otherwise furnished to you, which may be amended from time to time.  You also agree to maintain accurate books of account, governmental reports, register  tapes, guest checks, daily reports and complete copies of all federal and state income tax returns, property and sales and use tax returns.  Such records, reports and returns must be preserved  for such periods of time as are reasonably specified by us from time to time in the Operations Manual or otherwise but not less than the minimum time prescribed by applicable law.
 
    With respect to the operation and financial condition of the Restaurant, you agree to furnish us, in the form we from time to time prescribe:
 
    (1)by the tenth (10th) day of each month for the preceding calendar month, a report of the Gross Sales of the Restaurant, other revenues generated at the Restaurant and other information which we may reasonably request that may be useful in connection with our marketing and other legitimate functions.  This report must also include a statement computing amounts then due for royalty fees and Marketing Fund contributions and be certified by you or by your chief executive or financial officer;
 
    (2)by the twentieth (20th) day of each month for the preceding calendar month, a profit and loss statement for the Restaurant and be certified by you or by your chief executive or financial officer;
 
    (3)upon our request, such other data, information and supporting records for such periods as we from time to time reasonably require; and
 
    (4)within one hundred twenty (120) days after the end of your fiscal year, a fiscal year-end balance sheet, income statement and statement of changes in financial position (cash flow) of the Restaurant for such fiscal year, reflecting all year-end adjustments (audited if available) and a statement of annual Gross Sales certifying that your Gross Sales for the immediately preceding fiscal year have been calculated and reported in compliance with the terms of this Agreement, each of which shall be certified by you or by your chief executive or financial officer.
 
    If at any time you are delinquent in the payment of any amount owed to us or our affiliates, you agree: (1) upon our request, to furnish us income statements and balance sheets for such periods and as of such dates and all in such detail as we may request, for  you and each entity affiliated with you, whether or not such entity conducts any business with the Restaurant, (2) that we may directly contact any lender, lessor, supplier or vendor for the purpose of obtaining information relating to the Restaurant and any lease or financial arrangements and you hereby authorize such persons to disclose all such information to us and, if you are an entity, you agree that we may contact any of your officers, directors, shareholders or partners for any purpose reasonably related to your undertakings contained in this Agreement and (3) to furnish, at our request, books of account, governmental reports, register tapes, guest checks, daily reports and complete copies of federal and state income tax returns, property and sales and use tax returns.
 
11. INSPECTIONS AND AUDITS
 
    A.   Company's Rights to Inspect the Restaurant
 
    To determine whether you and the Restaurant are complying with this Agreement, and with specifications, standards and operating procedures we prescribe for the operation of Friendly's Restaurants, we or our agents will have the right, at any reasonable time, to:
 
    (1)inspect the Restaurant and the Premises;
 
    (2)observe and video tape the operations of the Restaurant for such consecutive or intermittent periods as we deem necessary;
 
    (3)remove, in reasonable quantities, samples of any food and beverage product, material or other products for testing and analysis;
 
    (4)interview  personnel of the Restaurant;
 
    (5)  interview customers of the Restaurant; and
 
    (6)inspect and copy any books, records and documents relating to the operation of the Restaurant.
 
    You agree to fully cooperate with us in connection with any such inspections, observations, video taping, product removal and interviews.  You agree to present to your customers any evaluation forms we periodically prescribe and to participate and/or request your customers to participate in any surveys performed by us or on our behalf.
 
    B.   Company's Right to Audit
 
    We have the right at any time during the business hours, and without prior notice to you, to inspect and audit, or cause to be inspected and audited, the business records of the Restaurant and the books and records and tax returns of any entity which holds the Franchise granted under this Agreement.  You must fully cooperate with our representatives and any independent accountants that we hire to conduct any such inspection or audit.  If any such inspection or audit discloses an understatement of the Gross Sales of the Restaurant, you agree to pay to us, within fifteen (15) days after receipt of the inspection or audit report, the royalty fees and Marketing Fund contributions due on the amount of such understatement, plus interest (at the rate and on the terms provided in Section 7D of this Agreement) from the date originally due until the date of payment.  Further, in the event such inspection or audit is made necessary due to your failure to furnish us with reports, supporting records, other information or financial statements, as required by this Agreement, or to furnish such reports, records, information or financial statements on a timely basis, or if an understatement of Gross Sales for the period of any audit is determined by any such audit or inspection to be greater that two percent (2%), you agree to reimburse us promptly upon notice for the cost of the inspection or audit, including, without limitation, the charges  of attorneys and independent accountants, and the reasonable travel, lodging and meal expenses and applicable per diem charges for our employees.  The forgoing rights will be in addition to all other remedies and rights that we may have under this Agreement or under applicable law.
 
12. TRANSFER OF FRANCHISE
 
    A.   By Company
 
    This Agreement is fully transferable by us and will inure to the benefit of any transferee or other legal successor to our interests in this Agreement.
 
    B.   Franchisee May Not Transfer Without Approval of Company               
    
    The rights and duties created by this Agreement are personal to you.  We have granted the Franchise to you in reliance upon the individual and collective character, skill, aptitude, attitude, and business ability of the persons who will be engaged in the ownership and management of the Restaurant, your financial capacity and the representations and warranties made to us in the application and the Commitment Agreement, if applicable, and the representations, warranties and covenants contained in this Agreement. Accordingly, neither this Agreement nor the Franchise (or any interest therein), nor any part or all of the ownership of Franchisee (if an entity) or the Restaurant (or any interest therein), may be transferred, directly or indirectly, except by operation of legal merger with your corporate parent or other affiliate (subject to the successor merged entity having a net worth equal to the net worth of the Franchisee and corporate parent on the effective date hereof) without  our prior written approval, and any attempted transfer without our prior written approval will constitute a breach of this Agreement and convey no rights to or interests in this Agreement  or the Franchise.  As used in this Agreement the term "transfer" means and includes the voluntary, involuntary, direct or indirect assignment, sale,  gift, pledge, grant of security interest or other transfer by you of any interest in:  (i) this Agreement or any related agreement between you and us; (ii) the Franchise; (iii) the Franchisee; (iv) the Restaurant or (v) the Premises.  This Section 12B shall not apply to any interest in the Restaurant or the Premises conditionally transferred to any bona fide lender as collateral security for any loans to you or to any financing or refinancing structured as a sale-leaseback, provided that upon the sale of the Restaurant, it is simultaneously leased back pursuant to a Lease Agreement which is subject to our rights under this Agreement.
 
    C.   Right of First Refusal
 
    If at any time during the term of this Agreement and for a period of one (1) year thereafter, any interest in this Agreement or the Franchise is proposed to be sold, the seller shall obtain a bona fide, executed, written offer from a responsible and fully disclosed purchaser and shall submit an exact copy of such offer to us along with any other information that we may reasonably request to evaluate the offer and the identity of the proposed purchaser shall be disclosed to us.  We shall have the right, exercisable by written notice delivered to you within thirty (30) days after the date of delivery of an exact copy of such offer and all requested information to us, to purchase such interest for the price and on the terms and conditions contained in such offer.  Regardless of the terms of the offer,  we may, in our discretion, structure the transaction as an asset purchase, rather than a stock purchase and to substitute cash for securities or other property as consideration.  If less than the entire interest in this Agreement or the Franchise is proposed to be sold, we shall have the right to purchase the entire interest for a price equal to the proposed price plus a pro-rata increase based on the value of the interest to be purchased.  Our credit shall be deemed equal to the credit of any proposed purchaser and we shall have not less than ninety (90) days to prepare for closing.  We shall be entitled to all representations and warranties given by the seller to the proposed buyer.  We shall not be obligated to pay any finder's or broker's fee or commission.
 
    If we do not exercise our right of first refusal, the sale or other transfer may be completed pursuant to and on the terms of such offer, subject to our approval of the transfer as otherwise provided in this Agreement; provided, however, that if the proposed sale or other transfer is not completed within one hundred eighty (180) days after delivery of such offer to us, or if there is any change in the terms of the proposed transaction, we shall have an additional right of first refusal for an additional thirty (30) days.
 
    Our right of first refusal shall not apply to the sale or transfer of an interest in this Agreement or the Franchise, to a member of Franchisee's immediate family or, if Franchisee is an entity, between or among the owners of Franchisee or their affiliates provided that such transfer is otherwise permissible under this Agreement.
 
    D.   Conditions for Approval of Transfer
 
    The proposed transferee and its owners (if the proposed transferee is an entity) must meet our then applicable standards for Friendly's Restaurant licensees.  In addition, if the transfer is one of a series of transfers which in the aggregate constitute the transfer of the Franchise, all of the following conditions must also be met prior to, or concurrently with, the effective date of the transfer:
 
    (1)the transferee must have sufficient business experience, aptitude and financial resources to operate the Restaurant;
 
    (2)prior to the effective date of the transfer, you or the transferee must pay all royalty fees, Marketing Fund contributions and all other amounts owed to us or our subsidiaries and affiliates, which are then due and unpaid, and cure all defaults under this Agreement or any other agreement  between you and us to our satisfaction (or make provision for their cure satisfactory to us);
 
    (3)the transferee and its management personnel must have completed our training program to our satisfaction;
 
    (4)the transferee must apply for a new license agreement in accordance with our then current standards for a term equal to the remaining term of this Agreement or for a full term.  If the application is approved, we and the transferee will enter into a commitment agreement to govern the operation of the Restaurant until commencement of the new license agreement, provided that the transferee upgrades and modernizes the Restaurant to our then-current standards and meets the other requirements of the commitment agreement;
 
    (5)you or the transferee must pay us the then current transfer fee to defray expenses incurred by us in connection with the transfer;
 
    (6)you, and if you are an entity (and have signed the Entity Addendum (the "Entity Addendum")), your owners, officers and directors must execute a general release, in a form satisfactory to us, of any and all existing claims against us, our subsidiaries and affiliates, and our and their officers, directors, partners, employees and agents;
 
    (7)we must approve the material terms and conditions of such transfer, including, without limitation, our determination that the price and terms of payment are not so burdensome as to adversely affect the subsequent operation or financial results of the Restaurant;
 
    (8)you and any guarantors must execute a non-competition covenant in favor of us and the transferee, containing the terms contained in Section 16A;
 
    (9)the lessor and lender, if any, of the Premises must give you its or their advance written consent to the transfer of the Premises, if required, and you must provide us with a copy of such consent; and
 
    (10)you and any guarantors must guarantee the transferee's financial obligations to us in its commitment agreement and license agreement for two years from the date of transfer.
 
     If the proposed transfer is to or among owners of  you, subsection (5) of the above requirements shall not apply.
 
    E.   Transfer to a Wholly-owned Entity
 
    If you are in full compliance with this Agreement, we will not unreasonably withhold our approval of a transfer to an entity which conducts no business other than the Restaurant (or other Friendly's Restaurants), which is actually managed by you and in which you maintain management control and own and control one hundred percent (100%) of the equity and voting power of all issued and outstanding securities, provided that you (i) guarantee, in accordance with our then current form, the performance of such transferee's obligations under this Agreement, and (ii) execute our current form of Entity Addendum.  Transfers of interests in such entity will be subject to the other provisions of this Section 12.
 
    F.   Effect of Consent to Transfer
 
    Our consent to a transfer of this Agreement, the Franchise, the Restaurant or an interest in you will not constitute a waiver of any claims we may have against you (or your owners if you are an entity), nor shall it be deemed a waiver of our right to demand exact compliance with any of the terms or conditions of this Agreement by the transferee.
 
13. CONDEMNATION  AND CASUALTY
 
    You must give us immediate notice in writing of any proposed taking of the Restaurant or the Premises by eminent domain.  If we agree that the Restaurant or the Premises (or substantial parts thereof) will be taken, we will give due and prompt consideration to transferring the License to a nearby location which you select within two (2) months of the taking.  If we approve the location and authorize the transfer, and if you open a new restaurant at such location in accordance with our specifications within eighteen (18) months if the new restaurant does not have a drive-thru, or if the new restaurant does have a drive-thru, within two (2) years of the closing of the Restaurant, the new restaurant will henceforth be deemed to be the Restaurant under this Agreement. If a condemnation takes place and the new restaurant does not, for whatever reason, become the Restaurant under this Agreement in strict accordance with this Section 13 (or if it is reasonably evident that such will be the case), the Franchise and this Agreement will terminate as provided for in Section 14.
 
    If the Restaurant is damaged by fire or other casualty, you will expeditiously repair the damage.  If the damage or repair requires closing the Restaurant, you will immediately notify us, will repair or rebuild the Restaurant in accordance with our standards, will commence reconstruction within four (4) months after closing, and will reopen the Restaurant for continuous business operations as soon as practicable but in no event later than twelve (12) months after closing of the Restaurant, giving us ample advance written notice of the date of reopening.  If the Restaurant is not reopened in accordance with this Section 13, the Franchise and this Agreement will terminate as prescribed in Section 14.
 
    Nothing in this Section 13 will extend the term of this Agreement but you will not be required to pay us any royalty fee or Marketing Fund contribution payments for periods during which the Restaurant is closed by reason of condemnation or casualty.