What is the purpose of the Area Development Agreement for Lees Famous Recipe?

[Item 23: RECEIPTS]

You recognize the benefits from receiving the right to operate a Lee's Famous Recipe Restaurant utilizing the System and desire to: (i) become a multi-unit operator subject to the terms of this Agreement; and (ii) receive the benefits provided by us under this Agreement.

• F.

You have applied for the right to open and operate a certain number of Lee's Famous Recipe Restaurants within the Development Area as set forth in this Agreement (each, a Restaurant), and we have approved such application in reliance on Developer's representations made therein.

• G.

You hereby acknowledge that adherence to the terms of this Agreement, including our Operations Manual and other System standards and specifications, are essential to the operation of all Lee's Famous Recipe Restaurants and the System as a whole.

You further acknowledge that time is of the essence in all actions required under this Agreement.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

AGREEMENT

1. DEFINITIONS

• A. "Confidential Information" means the methods, techniques, formats, marketing and promotional techniques and procedures, specifications, information, recipes, Operations Manual (as defined in Section 7(E)), systems, and knowledge of and experience in the operation and franchising of Lee's Famous Recipe Restaurants that we communicate to you or that you otherwise acquire in operating the Restaurant under the System.

Any and all information, knowledge and know-how not publicly known about the Lee's Famous Recipe System and the Products, and the services, standards, procedures, techniques and such other information or material as we may designate as Confidential Information will be deemed confidential for purposes of this Agreement.

Confidential Information does not include information, processes or techniques that are generally known to the public, other than through disclosure (whether deliberate or inadvertent) by you.

• B. "Competing Business" means any business similar to a Lee's Famous Recipe Restaurant, including any restaurant that offers chicken and biscuits, other items similar to the Products, or any other business that may be confusingly similar to a Lee's Famous Recipe Restaurant.

• C. "Development Area" means the geographic area, identified in Exhibit A to this Agreement, where we grant you the right to develop a certain number of Lee's Famous Recipe Restaurants.

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• B.

You also understand and agree that the Development Area does not include, and we reserve all franchise and development rights respecting any Non-Traditional Venues located within the geographic boundaries of the Development Area.

• C.

If you are in compliance with your obligations under this Agreement and all of the Franchise Agreements between you (including any affiliate of yours) and us, then we shall not establish, nor license anyone other than you to establish, a Restaurant in the Development Area until the earlier of (i) the termination or expiration of this Agreement, (ii) the opening of the last required Restaurant under the Development Schedule, or (iii) the last date specified in the Development Schedule, except as otherwise provided under Sections 1(D) below.

• D.

Notwithstanding Section 1(C) of this Agreement, we (for ourselves and our affiliates) retain the right to:

Directly operate, or to grant other persons the right to operate, Lee's Famous Recipe Restaurants at locations outside the Development Area;

Directly operate, or to grant other persons the right to operate, Lee's Famous Recipe Restaurants at Non-Traditional Venues within and outside the Development Area;

Promote, sell and distribute anywhere, including through restaurants and other establishments, products and services authorized for sale at Lee's Famous Recipe Restaurants under trademarks and service marks other than the Marks through similar or dissimilar channels of distribution;

Promote, sell, distribute and license products and services authorized for sale at Lee's Famous Recipe Restaurants as well as ancillary products and services such as its sauces and other food products, beverages, clothing, glassware and memorabilia under the Marks through dissimilar channels of distribution (i.e., other than the operation of full-service Lee's Famous Recipe Restaurants), including direct mail, wholesale activities, grocery stores, convenience stores, retail stores, and by electronic means such as the Internet, and other permanent, temporary, or seasonal food service facilities, carts, kiosks, or other mobile food vehicles, such as food trucks, and pursuant to conditions we deem appropriate within and outside the Development Area;

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INTRODUCTION

• A.

We and our affiliates have developed and own a distinctive format and system relating to the development and operation of Lee's Famous Recipe Restaurants featuring chicken, biscuits and other approved food and beverage items, all of which are prepared, stored and served in accordance with our System, which includes the sale of approved products and services using certain distinctive types of décor, products, equipment, supplies, confidential information, business techniques, methods and procedures, sales promotion programs, and the Marks, as we periodically may modify and further improve/

• B.

The parties agree and acknowledge that we may change, improve, further develop, or otherwise modify the System from time to time as we deem appropriate in our discretion.

Developer hereby acknowledges and agrees that: (i) the System and our related materials contain significant proprietary and confidential information that makes the System unique as a whole; and (ii) the combined methods, information, procedures, and theories that make up the total System or are contained in the relevant manuals are proprietary and confidential.

• C.

The System and Lee's Famous Recipe Restaurants are identified by the "Lee's Famous Recipe®," "Famous Recipe®," and "Lee's: Famous for Chicken®" service marks, and other related trademarks and service marks as we periodically may modify (the "Marks") used in operating the System.

The parties agree and acknowledge that we have established substantial goodwill and business value in its Marks, expertise, and System.

• D.

We grant qualified third parties the right to develop a certain number of Lee's Famous Recipe Restaurants within a Development Area in accordance with the terms of this Agreement to which Developer must strictly adhere, with each Lee's Famous Recipe Restaurant within the Development Area being opened and operating utilizing the Marks and System pursuant to the terms and conditions set forth in our separate and then-current form of franchise agreement (each, a "Franchise Agreement").

• E.

You recognize the benefits from receiving the right to operate a Lee's Famous Recipe Restaurant utilizing the System and desire to: (i) become a multi-unit operator subject to the terms of this Agreement; and (ii) receive the benefits provided by us under this Agreement.

• F.

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Additionally, if you fail to comply with the Development Schedule, or otherwise materially default under this Agreement, then we may (in addition to our other remedies available to us under this Agreement, the Franchise Agreement(s), and applicable law) terminate or modify your territorial rights in or to the Development Area, reduce or modify the size of the Development Area, or reduce the number of Restaurants that you are granted the right to develop under this Agreement.

• B.

For each Restaurant to be developed hereunder, you will submit to us such site approval forms and data that we may specify, which may include a copy of the site plan, financial information, and such other information or materials as we may reasonably require, together with an option contract, letter of intent, term sheet, or other evidence satisfactory to us which describes your favorable prospects for obtaining such site, pursuant to and in accordance with the terms of the applicable Franchise Agreement.

You hereby acknowledge and agree that our consent of a site does not constitute an assurance, representation, or warranty of any kind, express or implied, as to the suitability of the site for the Restaurant or for any other purpose.

Our consent of the site indicates only that we believe the site complies with acceptable minimum criteria established by us solely for its purposes as of the time of the evaluation.

Both you and we acknowledge that application of criteria that may have been effective with respect to other sites and premises may not be predictive of potential for all sites and that, subsequent to approval by us of a site, certain demographic factors, such as competition from other similar businesses, included in or excluded from criteria used by us could change, thereby altering the potential of a site.

Such factors are unpredictable and are beyond our control.

We will not be responsible for the failure of a site that we approved to meet your expectations as to revenue or operational criteria.

You further acknowledge and agree that your acceptance of a franchise for the operation of a Restaurant at a site is based on your own independent investigation of the suitability of the site.

• C.

If you desire to execute a Franchise Agreement to operate a Lee's Famous Recipe Restaurant under the terms of this Agreement using a different entity, and that entity's direct and indirect ownership is not identical to your ownership, then you must seek our approval for that entity to sign the Franchise Agreement and develop and operate the proposed Restaurant.

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Acquire businesses that are the same as or similar to the Restaurant or other Lee's Famous Recipe Restaurants and operate such businesses regardless of whether such businesses are located within or outside the Development Area, and to be acquired by any third party which operates businesses that are the same as or similar to the Restaurant or other Lee's Famous Recipe

Restaurants regardless of whether such businesses are located within or outside the Development Area; and

• 1. Promote the System and the Restaurants generally, including on the Internet (or any other existing or future form of electronic commerce) and to create, operate, maintain and modify, or discontinue the use of websites using the Marks; and
  • 1. All other rights not explicitly granted to you under this Agreement.

3. DEVELOPMENT FEE; INITIAL FRANCHISE FEES.

• A. You shall pay us a nonrefundable development fee contemporaneously with the execution of the Area Development Agreement. The development fee is equal to the sum of fifty percent (50%) of the initial franchise fees due under the franchise agreements for each additional Restaurant (beyond your first Restaurant) that you agree to develop under the Development Schedule (the "Development Fee") as set forth in Exhibit B. With respect to each Lee's Famous Recipe Restaurant that you must develop under this Agreement, we will apply a portion of the Development Fee toward the Initial Franchise Fee owed under the applicable franchise agreement, as described in Section 3(B) below. The Development Fee is fully earned when paid. You shall not be entitled to any refund of any portion of the Development Fee under any circumstances, including your failure to open Restaurants in the Development Area according to the Development Schedule.
• B. You shall also pay us the initial franchise fee set forth in our then-current form of Franchise Agreement (the "Initial Franchise Fee") for each Restaurant to be developed under the Development Schedule, payable upon execution of the Franchise Agreement for each Restaurant in accordance with the Development Schedule. Except for the Initial Franchise Fee that is due under your initial Franchise Agreement that you are signing contemporaneously with the execution of this Agreement, you shall receive a credit of $17,500 against the payment of the Initial Franchise Fee due for the second and each subsequent Restaurant developed according to the Development Schedule.

4. INITIAL FRANCHISE AGREEMENT.

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11. CONDITIONS TO FUTURE DEVELOPMENT.

You recognize and acknowledge that this Agreement requires you to open Lee's Famous Recipe Restaurants in the future pursuant to the Development Schedule. You further acknowledge that the estimated expenses and investment requirements set forth in Items 6 and 7 of our Franchise Disclosure Document are subject to increase over time, and that future Lee's Famous Recipe Restaurants likely will involve greater initial investment and operating capital requirements than those stated in the Franchise Disclosure Document provided to you prior to the execution of this Agreement. You must execute all the Franchise Agreements and open all of the Lee's Famous Recipe Restaurants in accordance with the dates set forth on the Development Schedule, regardless of (i) the requirement of a greater investment, (ii) your financial condition or the performance of prior Lee's Famous Recipe Restaurants, or (iii) any other circumstances, financial or otherwise. The foregoing will not be interpreted as imposing any obligation upon us to execute the Franchise Agreements under this Agreement if you have not complied with each and every required condition to obtain such Franchise Agreements including, but not limited to, your satisfaction of our then-current requirements for franchisees. We have entered into this Agreement based, in part, on your current financial condition and our assessment of your ability to meet Franchisor's financial requirements. You further acknowledge that operating Lee's Famous Recipe Restaurants and meeting our re-equipment, remodeling and other obligations will require significant capital. You and your affiliates must at all times maintain reasonably adequate financial resources, taking into account current resources, reasonably projected future cash flows, and reasonable assumptions related to financing, to meet our required capital and operational expenses under this Agreement and the Franchise Agreements. You must promptly provide such financial information related to you and your

Source: Item 23 — RECEIPTS (FDD pages 70–287)