What is the purpose of the National Production Fund (NPF) for Checkersrallys?

for products and services (Franchise Agreement Section 9.11).

Advertising

National Production Fund

We have established and administer the NPF for the creation and production of marketing materials and preparation of advertising campaigns. The NPF is currently incorporated and operated through NPF Inc. NPF Inc. has all of the rights and duties described here. In addition to the Initial Advertising Deposit described in Item 5, you must contribute to the NPF amounts that are established by us from time to time, not to exceed 3% of Net Sales, which are payable semi-monthly at the same time as the royalty fees due under the Franchise Agreement. As of the issuance date of this Franchise Disclosure Document, you must contribute a monthly advertising fee (currently, 2.65%, but can be increased up to 3.0% of your Net Sales) to the NPF depending on the geographical area where your Franchised Restaurant is located (See Note 5 in Item 6). Other domestic franchisees contribute on the same basis to the NPF, except for certain operators of Rally's Restaurants operating under older forms of agreement. The NPF receives and administers monies from operators of Restaurants. All company-owned Checkers Restaurants and Rally's Restaurants also currently contribute on the same basis as franchisees to the NPF, but we and our affiliates are not obligated to do so (or to continue doing so throughout your franchise term). Some third party vendors also contribute to the NPF. The NPF does not spend any money on advertising that is principally a solicitation for the sale of new franchises. Neither we nor NPF, Inc. are required to spend any amount on advertising in your market area.

Neither we nor NPF, Inc. have created an advisory council and we and NPF, Inc. are not obligated to seek the advice of owners of Restaurants, including franchisees, by formal (e.g., advisory council or other representative body) or informal means with respect to the creative concepts and media used for programs financed by the NPF. However, because we value input from the franchise network, we (and/or NPF, Inc.) may choose to seek such advice from operators of Restaurants, and so have established a Franchisee Advisory Council that includes a marketing subcommittee. We appoint the members of the Franchisee Advisory Council, which includes both "Checkers" and "Rally's" franchisees. We have the right to change or dissolve these groups.

Currently, NPF, Inc. directs all programs that the NPF finances, including the creative concepts, materials, and endorsements used and their geographic, market, and media placement and allocation. The NPF may pay for preparing and producing video, audio, and written materials and electronic media; developing, implementing, and maintaining an electronic commerce website and/or related strategies; administering regional and multi-regional marketing and advertising programs, including, purchasing trade journal, direct mail, and other media advertising and using advertising, promotion, and marketing agencies and other advisors to provide assistance; and supporting public relations, market research, and other advertising, promotion, and marketing activities.

Although the NPF is intended to maximize general recognition and patronage of the Marks for the benefit of all Restaurants, neither we nor NPF, Inc. can assure you that any particular Restaurant will benefit directly or pro-rata from the placement of advertising. The NPF may be used to pay for the cost of preparing and producing materials and programs we provide, including video, audio and written advertising and POP materials, and for the cost of employing advertising agencies and in house staff and supporting market research activities. Some of the same advertising materials created for or used by Checkers Restaurants may also be used by Rally's Restaurants. The NPF may furnish you with marketing, advertising and promotional materials (including POP materials) at cost, plus any related taxes and administrative, shipping, handling and storage charges.

The NPF for Restaurants will be accounted for separately from our other funds and will not be used to defray any of our general operating expenses, except for reasonable salaries, administrative costs and overhead we or NPF, Inc. may incur in activities related to the administration of the NPF and its programs (which includes system wide incentive programs), including conducting market research, preparing marketing materials and advertising campaigns and collecting and accounting for contributions to the NPF. NPF, Inc. will use all interest earned on NPF contributions to pay costs before using the NPF's other assets. NPF, Inc. may spend in any fiscal year an amount greater or less than the aggregate contributions of all Restaurants to the NPF in that year, and the NPF may borrow from us or other lenders (paying reasonable interest) to cover deficits in the NPF, or invest any surplus for future use by the NPF. NPF, Inc. (with our assistance) will prepare annually an unaudited statement of monies collected and costs incurred by the NPF and furnish you a copy upon your written request.

NPF contributions may be used to pay for collection agents and institute legal proceedings to collect NPF contributions payable under the Franchise Agreement.

Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING (FDD pages 46–57)