Franchise Agreement 2


Sample Franchise Agreement


part) to the Website; and (vi) disable or terminate the Website without Franchisor having any liability to Franchisee.

b.    The Website may include one or more interior pages that identifies restaurants operated under the El Pollo Loco Marks, including the Restaurant, by among other things, geographic region, address, telephone number(s), and menu items. The Website may also include one or more interior pages dedicated to franchise sales by Franchisor and/or relations with Franchisors investors.

c.    Franchisor may, from time to time, establish the Franchisee Page. As used herein, the term Franchisee Page shall mean one or more interior pages of the Website dedicated in whole or in part to Franchisees Restaurant. Franchisor may permit Franchisee to customize or post certain information to the Franchisee Page, subject to Franchisees execution of Franchisors then-current participation agreement, and Franchisees compliance with the procedures, policies, standards and specifications that Franchisor may establish from time to time. Such participation agreement may require the Franchisee to pay a reasonable fee (not to exceed $1,000.00 per year, which maximum shall increase at a rate of 3% per year for the term of this Agreement) for the privilege of having a Franchisee Page, and may include, without limitation, specifications and limitations for the data or information to be posted to the Franchisee Page, customization specifications, the basic template for design of the Franchisee Page, parameters and deadlines specified by Franchisor, disclaimers, and such other standards and specifications and rights and obligations of the parties as Franchisor may establish from time to time. Any modifications (including customizations, alterations, submissions or updates) to the Content made by Franchisee for any purpose will be deemed to be a work made for hire under the copyright laws, and therefore, Franchisor shall own the intellectual property rights in and to such modifications. To the extent any modification does not qualify as a work made for hire as outlined above, Franchisee hereby assigns those modifications to Franchisor for no additional consideration and with no further action required and shall execute such further assignment(s) as Franchisor may request.

d.    Without limiting Franchisors general unrestricted right to permit, deny and regulate Franchisees participation on the Website in Franchisors sole discretion, if Franchisee shall breach this Agreement, or any other agreement with Franchisor or its Affiliates, Franchisor may disable or terminate the Franchisee Page and remove all references to the Restaurant on the Website until said breach is cured.

21.6    Franchisee acknowledges that, in connection with the operation of the franchise business, the Company will be disclosing confidential information and trade secrets to Franchisee. Franchisee further acknowledges that its knowledge of, and access to, the Companys formulae, recipes, processes, products, techniques, know-how and other proprietary information, including without limitation the Manual and the El Pollo Loco System (collectively referred to as the Confidential Information), are derived entirely from the material disclosed to Franchisee by the Company. Franchisee acknowledges and agrees that at all times and in all respects, the Confidential Information is a trade secret of the Company and that Franchisee has only a license to use the Confidential Information according to the provisions of this Agreement.

a.    Franchisee, and each officer, director, shareholder, member, manager, partner, and other equity owner, as applicable, of Franchisee, if Franchisee is an Entity, agrees to maintain fully and strictly the secrecy of all the Confidential

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Information and to exercise the highest degree of diligence in safeguarding the Confidential Information during and after the term of this Agreement. Franchisee shall divulge the Confidential Information only to Franchisees employees and only to the extent necessary to permit the efficient operation of the Restaurant during the effective term of this Agreement. After the expiration or termination of this Agreement, Franchisee shall not divulge the Confidential Information to any person or entity, nor shall Franchisee use the Confidential Information in any manner.

b.    It is expressly agreed that the ownership of all of the El Pollo Loco Marks and the Confidential Information is and shall remain vested solely in the Company. Nothing contained in this Agreement shall be construed to require the Company to divulge to Franchisee any secret processes, formulae, ingredients or other information, except the material contained in the Companys Manual and training materials.

21.7    To further protect the El Pollo Loco System while this Agreement is in effect, Franchisee and each officer, director, shareholder, member, manager, partner, and other equity owner, as applicable, of Franchisee, if Franchisee is an Entity, shall neither directly nor indirectly own, operate, control or have any financial interest in any other business which would constitute a Competitive Business (as hereinafter defined) without the prior written consent of the Company; provided further, that the Company may, in its sole discretion, consent to the Franchisees continued operation of any business already in existence and operating at the time of execution of this Agreement. In addition, Franchisee covenants that, except as otherwise approved in writing by the Company, Franchisee shall not, for a continuous, uninterrupted period commencing upon the expiration, termination or assignment of this Agreement, regardless of the cause for termination, and continuing for two (2) years thereafter, either directly or indirectly, for itself, or through or on behalf of, or in conjunction with any person, partnership, corporation or other entity, own, operate, control or have any financial interest in any Competitive Business which is located or has outlets or restaurant units within a radius of five (5) miles of the location of the Restaurant. The foregoing shall not apply to operation of an El Pollo Loco restaurant by Franchisee pursuant to another franchise agreement with the Company or the ownership by Franchisee of less than five percent (5%) of the issued or outstanding stock of any company whose shares are listed for trading on any public exchange or on the over-the-counter market, provided that Franchisee does not control or become involved in the operations of any such company. For purposes of this Section 21.5, a Competitive Business shall mean a restaurant or fast-food business which sells chicken or Mexican food products, which products individually or collectively represent more than twenty-five percent (25%) of the revenues from such restaurant or fast-food business operated at any one location during any calendar quarter.

21.8     In the event that any provision of this Section 21 shall be determined by a court of competent jurisdiction to be invalid or unenforceable, this Agreement shall not be void, but such provision shall be limited to the extent necessary to make it valid and enforceable.

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22.

FRANCHISEE ASSOCIATION

The Company shall, on a periodic basis, consult with representatives of an independent franchisee association whose membership is comprised of at least fifty-one percent (51%) of all El Pollo Loco franchisees whose restaurants are located in the United States (the Franchisee Association) with respect to matters relating to marketing, training, operations and technology and the current El Pollo Loco image for remodels and new restaurants. While the recommendations of such representatives will be considered by the Company in making its decisions, such recommendations shall not be binding upon the Company and the Company shall have the final authority with respect to all such matters. The representatives of the Franchisee Association shall be referred to herein as the Franchisee Association Representatives. Each Franchisee Association Representative must be an El Pollo Loco franchisee who is in good standing under its franchise agreement or other agreement between franchisee and Company. The Franchisee Association may operate through one or more committees which committees may consult directly with the Company. Membership by a Franchisee in the Franchisee Association shall be voluntary.

For purposes of this Franchise Agreement, to qualify as the Franchisee Association, the association must have been formed for the primary purpose of representing the rights of franchisees, and membership in such association must be limited solely to El Pollo Loco franchisees, or officers, directors, partners or shareholders of El Pollo Loco franchisees, who in either case are not owned or controlled by El Pollo Loco or its parent, or any subsidiary or affiliate of El Pollo Loco.

The Company shall not prohibit nor restrict Franchisee from associating with other franchisees nor from forming, joining or participating in any franchisee trade association. The Company shall not retaliate against Franchisee because Franchisee engages in such activities. The Companys exercise and enforcement of its rights under any franchise agreement or the law shall not, by itself, constitute a breach of the Companys responsibilities under the preceding sentence.

23.

RESOLUTION OF DEVELOPMENT DISPUTES

Franchisee agrees that any dispute that arises out of a decision by the Company to develop or authorize development of a new restaurant shall be resolved solely in the manner contemplated by the Companys Procedures for Resolving Disputes Relating to the Development of New Restaurants, a copy of which is attached as Exhibit A and which is incorporated into this Agreement. Franchisee acknowledges that it shall have no claim or right under such process with respect to the development of a new restaurant unless such new restaurant would be located within Franchisees Notification Radius (as that term is defined in Exhibit A).

24.

MISCELLANEOUS PROVISIONS

24.1    In the event that Franchisee is comprised of more than one person, firm, corporation or other entity, Franchisees rights, privileges, interests, obligations and liabilities under this Agreement shall be joint and several with respect to such persons, firms, corporations or other entities.

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24.2    If Franchisee is an Entity, Company will require, as a condition to the effectiveness hereof, the written guarantee and assumption of Franchisees obligations hereunder by any or all of the shareholders, members, partners, other equity owners, as applicable, of an Entity and or some other natural persons associated with Franchisee, the form of which is attached hereto as Exhibit C. The Company may also require that Franchisee maintain transfer instructions restricting a transfer on its records of any securities, partnership interests or other ownership interests in violation of the restrictions set forth in Section 17 and that each stock, partnership or other ownership certificate of Franchisee shall have conspicuously endorsed upon its face a statement in form satisfactory to the Company that further assignment or transfer thereof is subject to each of the restrictions imposed upon assignments by this Agreement.

24.3    All notices required under this Agreement shall be in writing and shall be either (i) served personally; (ii) sent by certified or registered United States mail to, the party to be charged with receipt thereof; or (iii) by reputable overnight delivery service (FedEx and Airborne Express being deemed acceptable). Notices served personally are effective immediately on delivery, and those served by mail shall be deemed given forty-eight (48) hours after deposit of such notice in a United States post office with postage prepaid and duly addressed to the party to whom such notice or communication is directed. Notices served by overnight delivery shall be deemed to have been given the day after deposit of such notice with such service. The address for the Company shall be: Attention: General Counsel, El Pollo Loco, Inc., 3333 Michelson Drive, Suite 550, Irvine, California 92612, and the address for the Franchisee shall be:                                                                              . The Company or Franchisee may from time to time change its address for notice pursuant to this Section by giving a written notice of such change to the other party in the manner provided herein. Notwithstanding anything to the contrary contained herein, the Company may deliver bulletins and updates to the Manual by electronic means, such as by the internet (e-mail) or an intranet, if any, established by Company.

24.4    The receipt and acceptance by either party of any delinquent payment due hereunder shall not constitute a waiver of any other default. Except as provided by the foregoing, no delay or omission in the exercise of any right or remedy of either party upon any default by the other hereunder shall impair such right or remedy or be construed as a waiver of any term, covenant or condition of this Agreement to be performed by the other party. Any waiver of any other default must be in writing and shall not constitute a waiver of any other default concerning the same or any other term, covenant or condition of this Agreement.

24.5    The Companys consent to or approval of any act or conduct of Franchisee requiring such consent or approval shall not be deemed to waive or render unnecessary the Companys consent to or approval of any subsequent act or conduct hereunder.

24.6    The provisions of this Agreement are intended by the parties to be a complete and exclusive expression of their agreement. No other agreements, representations, promises, commitments or the like, of any nature, exist between the parties except as set forth or referenced herein. The provisions of this Agreement may not be contradicted by any other statement concerning the subject matter herein. Furthermore, this Agreement may not be amended or modified except by a written agreement signed by the parties hereto.

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24.7    In the event of the bringing of any action by either party against the other arising out of or in connection with this Agreement or the enforcement thereof, or by reason of the breach of any term, covenant or condition of this Agreement on the part of either party, the party in whose favor final judgment is entered shall be entitled to have and recover from the other party reasonable attorneys fees to be fixed by the court rendering such judgment.

24.8    This Agreement shall be governed by and construed in accordance with the laws of the State of California, except for the provisions in Section 21.5 covering competition following the expiration, termination or assignment of this agreement which shall be governed by the laws of the state in which the breach occurs. Except as provided in Section 23, the parties agree that any action brought by either party against the other in any court, whether federal or state, will be brought within the State of California. The parties hereby waive any right to demand or have trial by jury in any action relating to this Agreement in which the Company is a party. The parties consent to the exercise of personal jurisdiction over them by such courts and to the propriety of venue of such courts for the purpose of carrying out this provision, and they waive any objection that they would otherwise have to the same.

24.9    Except with respect to Franchisees obligation to indemnify the Company pursuant to Section 9.3 of this Agreement, the parties waive to the fullest extent permitted by the law any right to or claim for any punitive or exemplary damages against the other and agree that, in the event of a dispute between them, the party making a claim shall be limited to recovery of any actual damages it sustains.

24.10    Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions of this Agreement. Any prohibition against or unenforceability of any provision of this Agreement in any jurisdiction, including the state whose law governs this Agreement, shall not invalidate the provision or render it unenforceable in any other jurisdiction. To the extent permitted by applicable law, Franchisee waives any provision of law which renders any provision of this Agreement prohibited or unenforceable in any respect.

24.11    Franchisee recognizes the unique value and secondary meaning attached to the El Pollo Loco System, the El Pollo Loco Marks, the Confidential Information and the associated standards of operation and trade practices, and Franchisee agrees that any noncompliance with the terms of this agreement or any unauthorized or improper use will cause irreparable damage to the Company and its franchisees. Franchisee therefore agrees that if it should engage in any such unauthorized or improper use, during or after the term of this Agreement, the Company shall be entitled to both permanent and temporary injunctive relief from any court of competent jurisdiction in addition to any other remedies prescribed by law.

24.12    Franchisee shall grant no security interest in the franchise business or any of its assets, including the furniture, fixtures and equipment located in the Restaurant, unless the secured party agrees in writing with the Company that, in the event of any default by Franchisee under any documents relating to such security interest, the Company shall have the right and option to purchase the rights of the secured party in any such business, furniture, fixtures, equipment or assets upon the payment of the sums secured by such security interest and which are then due to such secured party.

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24.13    Except for the express rights set forth at Section 23, nothing contained in this Agreement, whether express or implied, shall be deemed in any way to prevent or limit the Company and its subsidiaries and affiliates from opening and/or operating, or granting the right to any person to open and/or operate, restaurants in the immediate vicinity of or adjacent to the Restaurant. Franchisee understands and agrees that the Company or its subsidiaries or affiliates, in their sole discretion, may open and/or operate restaurants in any area they choose, or may authorize or license others to do the same, whether it is in competition with or in any other way affects the sales of Franchisee at the Restaurant.

24.14    This Agreement shall be binding upon and inure to the benefit of the parties hereto, their permitted heirs, successors and assigns.

24.15    This Agreement shall not be binding upon the Company unless and until it shall have been accepted and signed by authorized officers of the Company.

24.16    The parties intend to confer no benefit or right on any person or entity not a party to this Agreement, and no third party shall have the right to claim the benefit of any provision hereof as a third party beneficiary of any such provision.

24.17    (a) If following commencement of business at the Restaurant the Restaurant is damaged or destroyed to the extent that the Company determines that the Restaurant must be closed for repairs for more than sixty (60) days, or if the Location is taken by condemnation proceedings or Franchisees lease is terminated through no act or failure to act on its part (except the failure to utilize any available options to extend such lease, or Franchisees willful truncation of such lease), Franchisee may elect to relocate the Restaurant, terminate this Agreement, or in the case of a casualty, rebuild the Restaurant. Franchisee shall give notice of its intent to relocate, rebuild or terminate not later than forty-five (45) days following the date such casualty, condemnation or loss of lease occurs. If Lessee fails to give such written notification within such forty-five (45) day period, Franchisee shall be deemed to have elected to terminate this Agreement, and such termination shall be deemed effective within thirty (30) days following the date of such casualty, condemnation or loss of lease. In the event of such termination, Franchisee shall promptly comply with the requirements set forth at Sections 19.1 and 19.2.

(b) If Franchisee elects to rebuild, Franchisee shall, at its own expense, repair or reconstruct the Restaurant, and such construction shall be completed and the Restaurant shall reopen for business not later than twelve (12) months following the date the casualty occurred. The minimum acceptable appearance for the reconstructed Restaurant will be that which existed just prior to the casualty; however, every effort shall be made to have the reconstructed Restaurant reflect the then current image, design and specifications of new El Pollo Loco restaurants.

(c) If Franchisee elects to relocate the Restaurant, it must execute Companys current form of Franchise Agreement within thirty (30) days following the occurrence of the casualty or its loss of possession of the original Location; provided, however, that the term of such new agreement shall be equal to the remaining term of this Agreement and Franchisee shall not be required to pay a new initial franchise fee. Franchisee will submit a replacement site for the new Restaurant, in accordance with the time frames indicated in the then-current form of Franchise Agreement, and shall be

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located in an area defined as a radius surrounding the existing site of the Restaurant, the exact dimensions of which shall be reasonably negotiated between Franchisee and the Company taking into consideration the rights of other existing and potential franchisees. If the Company approves the new site, Franchisee shall either acquire or lease the site and design, construct and furnish the Restaurant in conformance with the design and construction requirements imposed by the Company for new El Pollo Loco restaurants. The new Restaurant must be open for business not later than twelve (12) months following the date of the casualty or loss of possession of the original Location.

25.

EFFECTIVE DATE

25.1    This Agreement shall be effective as of the date it is executed by the Company.

26.

ACKNOWLEDGMENTS

26.1    Franchisee acknowledges that it has received a copy of the complete El Pollo Loco Uniform Franchise Offering Circular at least ten (10) business days prior to the date on which this Agreement was executed by Franchisee or payment of any monies to the Company and that Franchisee received this Agreement in the form actually executed at least five (5) business days prior to the date on which this Agreement was executed by Franchisee.

26.2    Franchisee acknowledges that it has read and understood this Agreement, the attachments hereto and the agreements relating thereto, if any, and that the Company has accorded Franchisee ample opportunity and has encouraged Franchisee to consult with advisors of Franchisees own choosing about the potential benefits and risks of entering into this Agreement.

27.

SIGNATURES

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first set forth above.

                 

THE COMPANY:

     

FRANCHISEE:

     

EL POLLO LOCO, INC.,

a Delaware Corporation

       
         

By:

         

By:

   
   

         

         

By:

         

By:

   
   

         

         

Date:

         

Date:

   
   

         

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EL POLLO LOCO FRANCHISE AGREEMENT

EXHIBIT A

Procedures for Resolving Disputes

Relating to the Development of New Restaurants


PROCEDURES FOR RESOLVING DISPUTES RELATING TO

THE DEVELOPMENT OF NEW RESTAURANTS

(June 1996)


TABLE OF CONTENTS

     
   

Page


ARTICLE I STATEMENT OF PURPOSE, NATURE OF PROCEDURES

 

1

   

SECTION 1.1. Statement of Purpose

 

1

SECTION 1.2. Nature of Procedures

 

1

   

ARTICLE II DEFINITIONS

 

1

   

ARTICLE III PRE-DEVELOPMENT COMMUNICATION

 

4

   

SECTION 3.1. Procedures Prior to Development of New Restaurant

 

4

SECTION 3.2. New Restaurant Site in Jeopardy

 

7

   

ARTICLE IV FINANCIAL SUPPORT DURING ADR PROCEDURES

 

7

   

SECTION 4.1. Conditions Precedent

 

7

SECTION 4.2. Royalty Deferral

 

8

SECTION 4.3. Quarterly

 

8

   

ARTICLE V INITIATION OF ADR PROCEDURES

 

9

   

SECTION 5.1. Initiation of ADR Procedures

 

9

SECTION 5.2. Monitoring Period

 

9

SECTION 5.3. Withdrawal from ADR Procedures

 

9

   

ARTICLE VI NEGOTIATION/MEDIATION PROCEDURES

 

10

   

SECTION 6.1. Pre-Mediation Negotiations

 

10

SECTION 6.2. Mediation Commencement

 

10

SECTION 6.3. Mediator Selection

 

10

SECTION 6.4. Mediation Meeting

 

10

SECTION 6.5. Privileges of the Mediator

 

11

SECTION 6.6. Information Requested by Mediator

 

11

SECTION 6.7. Settlement through Mediation

 

11

SECTION 6.8. Conclusion of Mediation

 

12

   

ARTICLE VII ARBITRATION

 

12

   

SECTION 7.1. Initiating Arbitration

 

12

SECTION 7.2. Arbitrator Selection and Duties

 

12

SECTION 7.3. Disclosures

 

13

SECTION 7.4. Arbitration Session

 

14

SECTION 7.5. Management Negotiations

 

15

i


     

SECTION 7.6. Arbitration Award

 

15

   

ARTICLE VIII GENERAL MATTERS RELATING TO MEDIATION AND ARBITRATION

 

18

   

SECTION 8.1. Mediators and Arbitrators

 

18

SECTION 8.2. Fees and Expenses of Mediation and Arbitration

 

18

SECTION 8.3. Confidentiality

 

19

   

ARTICLE IX MISCELLANEOUS

 

19

   

SECTION 9.1. Time

 

19

SECTION 9.2. Miscellaneous Matters

 

19

ii


PROCEDURES FOR RESOLVING DISPUTES

RELATING TO THE DEVELOPMENT OF NEW RESTAURANTS

ARTICLE I

STATEMENT OF PURPOSE; NATURE OF PROCEDURES

SECTION 1.1. Statement of Purpose. Disputes may arise between EPL and its franchisees concerning the development of new restaurants near existing restaurants. The objectives of the alternative dispute resolution procedures described in this document are first, to initiate open communication between EPL and its franchisees in order to avoid disputes concerning the development of new restaurants, and second, to resolve disputes concerning the development of new restaurants without resorting to litigation.

SECTION 1.2. Nature of Procedures. The alternative dispute resolution procedures described in this document are private and consensual proceedings and constitute the sole and exclusive rights and remedies for EPL franchisees with respect to New Restaurant Disputes (as that term is defined below). Neither such alternative dispute resolution procedures nor any notice request or other communication delivered in connection with alternative dispute resolution procedures constitutes an admission of encroachment.

ARTICLE II

DEFINITIONS

ADR Deposit means a deposit in the amount of two thousand five hundred ($2,500) United States Dollars.

ADR Procedures means, collectively, the alternative dispute resolution procedures described herein, as they may be modified from time to time, including negotiation, Mediation and the Arbitration Procedures.

Allowable Transfer Factor has the meaning specified in Section 7.6.2.

Arbitration Agreement means an agreement, substantially in the form of Exhibit B, whereby all parties thereto agree to resolve the New Restaurant Dispute through the ADR Procedures set forth in Article VI and VII.

Arbitration Procedures means the arbitration procedures described in Article VII.

Arbitration Proceedings has the meaning specified in Section 7.1.

Arbitration Session means an informal arbitration session conducted by the Arbitrator.

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Arbitrator means an arbitrator selected pursuant to, Section 7.2.1.

Designated Representative means an employee of EPL designated by EPL to participate in the meetings required herein.

Developer means either EPL or a new or proposed franchisee that desires to develop a New Restaurant at a Target Site.

Dispute Resolution Entity means JAMS or another third party dispute resolution organization designated by EPL and consented to by Objecting Franchisee, which consent shall not be unreasonably withheld, which is qualified to create a panel of mediators and arbitrators.

EPL means El Pollo, Loco, Inc., a Delaware corporation.

Existing Site means the specific site approved by EPL for the operation of an Objecting Franchisees El Pollo Loco restaurant and which is described in a franchise agreement between the Objecting Franchisee and EPL.

Gross Percentage has the meaning specified in Section 7.6.4.

Independent Consultant means one of several independent vendors identified by EPL who are experienced in analyzing demographics and predicting the transfer of sales from an existing restaurant to a new restaurant.

JAMS means J.A.M.S./Endispute, a California corporation, organized to resolve business disputes without resorting to litigation.

Mediation means the procedure of mediation described in Article VI.

Mediation Meeting means an informal mediation session held before the Mediator pursuant to Section 6.4.

Mediator means a mediator selected pursuant to Section 6.3.

New Restaurant means a proposed restaurant to be developed at a Target Site.

New Restaurant Dispute means a dispute among any Objecting Franchisee, EPL and any Developer concerning the development of a New Restaurant at a Target Site, including any claims asserted by such Objecting Franchisee relating to encroachment or an unreasonable impact on sales.

New Restaurant Rights means that right of an Objecting Franchisee to locate a Target Site for a New Restaurant within the Target Area.

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Notification Radius means, with respect to each Existing Site, the area within a successively larger ring radiating from the location of such Existing Site which contains, by U.S. Government Bureau of Census survey, a population of at least 50,000 people determined as follows:

(i) if a ring with a radius of one mile radiating from the location of such Existing Site contains a population of at least 50,000 people, then such one-mile ring, and

(ii) if a ring with a radius of one mile radiating from the location of such Existing Site contains a population of less than 50,000 people, then a ring with the radius increased by successive one-half mile increments until such ring includes a population of at least 50,000 people.

Notification Radius Franchisees means all EPL franchisees who own or lease an Existing Site for which a Target Site falls within such franchise restaurants Notification Radius and who have entered into a franchise agreement with EPL for such Existing Site which contains the ADR Procedures.

Objecting Franchisee means any Notification Radius Franchisee that submits an objection Notice pursuant to Section 3.1.2.

Objection Notice means a notice submitted by a Notification Radius Franchisee to EPL of its objection to the development of a New Restaurant on the grounds of unreasonable impact and which conforms to the requirements set forth at Section 3.1.2.

Preliminary Meeting has the meaning specified in Section 3.1.2 (a).

Pre-Mediation Negotiations means good faith negotiations between EPL and an Objecting Franchisee occurring prior to Mediation.

Reduced Profit has the meaning specified in Section 7.6.4.

Royalty Deferral means the conditional deferral of payment of EPL royalty fees (but not advertising fees, such advertising fees to remain payable during such period of conditional deferral) payable under the Franchise Agreement for the Objecting Franchisees restaurant pursuant to Section 4.2.

Study means a trade area study prepared by an Independent Consultant analyzing the impact, if any, that a New Restaurant may have on an Objecting Franchisee.

Study Deposit means a deposit in the amount of five thousand ($5,000) United States Dollars.

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Target Area means an area with distinct geographic boundaries as agreed upon by EPL and Franchisee, such boundaries to be no greater than a two mile radius.

Target Site means a specific site for the development of a New Restaurant.

Transferred Sales has the meaning specified in Section 7.6.4.

Year Factor means a factor selected by the Arbitrator which will not be (a) less than one (1) or (b) greater than eight (8).

ARTICLE III

PRE-DEVELOPMENT COMMUNICATION

SECTION 3.1. Procedures Prior to Development of New Restaurant.

3.1.1 When a Target Site for a New Restaurant is identified by EPL, EPL will notify all Notification Radius Franchisees.

3.1.2. If any Notification Radius Franchisee wishes to object to the New Restaurant on the grounds of unreasonable impact, it will submit to EPL an Objection Notice within fifteen (15) days of its receipt of the notice given by EPL pursuant to Section 3.1.1 above. The Objection Notice must be in writing and specifically identify the Existing Site and state the reasons why the New Restaurant will unreasonably impact the Objecting Franchisees franchise restaurant at the Existing Site. The Objection Notice must also include a summary report, in the form attached hereto as Exhibit A, which sets forth such information as the Objecting Franchisee believes is relevant to EPLs decision on whether a New Restaurant should be developed at a Target Site. Notwithstanding the foregoing, a Notification Radius Franchisee shall not be entitled to submit an Objection Notice or otherwise proceed hereunder if such franchisee or its affiliate will own directly or indirectly any interest in the New Restaurant or the entity owning the New Restaurant. In addition, an Objecting Franchisees rights hereunder shall automatically terminate with respect to any franchise restaurant located within a Notification Radius if the franchise agreement for such restaurant is terminated by EPL or such Objecting Franchisee for any reason.

(a)

Within fifteen (15) days after receipt by EPL of an Objecting Franchisees Objection Notice, such Objecting Franchisee and a representative of EPL will meet at the Objecting Franchisees offices or at such other location as is mutually agreed upon by the Objecting Franchisee and EPL (the Preliminary Meeting). At such Preliminary Meeting the participants will review the objections of the Objecting Franchisee and attempt to resolve any New Restaurant Dispute.

(b)

(i) It, at or after the Preliminary Meeting between EPL and the Objecting Franchisee, EPL elects to continue with the New Restaurant, it shall give to the

54


Objecting Franchisee following such Preliminary Meeting a written notification of its desire to proceed. Thereafter, the Objecting Franchisee may request a Study for each of its franchise restaurants located at Existing Sites within the Notification Radius and that the results of each such Study be considered by EPL prior to making a final decision with regard to the New Restaurant. The Objecting Franchisee will cooperate with all reasonable requests for information by EPL and the Independent Consultant in the preparation of each Study.

(ii) If an Objecting Franchisee requests a Study, such Objecting Franchisee will bear the cost of such Study subject to its right to a refund of such amounts or a portion thereof pursuant to Section 3.1.2(b)(iv) below. Such Objecting Franchisee will deposit with EPL, within five (5) business days of its receipt of the notification from EPL described at Section 3.1.2 (b)(i) above, a Study Deposit for each of such Objecting Franchisees restaurants for which a Study is requested to be held in escrow by EPL. EPL will, upon receipt of the Study Deposit for an existing franchise restaurant of an Objecting Franchisee, order a Study from the Independent Consultant for such franchise restaurant. A copy of the results of such Study will be forwarded directly to the Objecting Franchisee and EPL by the Independent Consultant. The failure by the Objecting Franchisee to deposit with EPL the Study Deposit for any existing franchise restaurant of such Objecting Franchisee within the allotted time frame will relieve EPL of any obligation to order the study for such franchise restaurant or to delay its decision with regard to the New Restaurant as provided below.

(iii) Upon receipt of a Study Deposit from the Objecting Franchisee for an existing franchise restaurant, EPL will delay announcing any final decision to proceed with the New Restaurant until the fifth business day after the results of the Study relating to such franchise restaurant have been submitted to EPL and the Objecting Franchisee. During such five business day period, EPL and the Objecting Franchisee will consider the results of the Study in determining whether to continue developing the New Restaurant, in the case of EPL, or pursuing its objection, in the case of the Objecting Franchisee.

(iv) If the Study relating to an existing franchise restaurant of the Objecting Franchisee projects a transfer of sales from the Objecting Franchisees restaurant to the New Restaurant of twelve (12%) percent or more, EPL will refund the Study Deposit relating to such restaurant to the Objecting Franchisee and EPL will bear the cost of such Study. If such projected transfer of sales is less than twelve percent (12%), such Study Deposit will be applied against the cost of such Study, and either (A) any shortfall between such Study Deposit and the actual cost of such Study will be paid by the Objecting Franchisee or (B) any balance in such Study Deposit after payment of the cost of such Study will be returned to the Objecting Franchisee.

(v) The Objecting Franchisee and EPL agree that the results of any Study and the twelve percent (12%) threshold specified in Section 3.1.2 (b)(iv) above

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are not determinative of any matter other than for the determination of which participant bears the cost of such Study and whether the objecting Franchisee qualifies for Royalty Deferral and interim financial support as set forth in Sections 4.2 and 4.3.2 below and may not be used for any other purposes in connection with the New Restaurant Dispute, including Mediation or the Arbitration Procedures.

3.1.3. After consideration of the information obtained by and/or provided to EPL concerning the New Restaurant and its projected impact, if any, on the Objecting Franchisees restaurant, including the Study, if applicable, and before EPL approves a Target Site for development, EPL will notify in writing all Objecting Franchisees and the Developer that EPL will either:

(a) not approve the Target Site; or

(b) grant to an Objecting Franchisee the New Restaurant Rights; or

(c) approve the development of a New Restaurant at the Target Site by the Developer as proposed.

Notwithstanding anything contained herein to the contrary, including the right of a Notification Radius Franchisee to submit an Objection Notice, EPL at all times retains the absolute and unilateral right to elect any of the options specified in Clause (a), (b) and (c) above, including, specifically, the right to approve the development of a New Restaurant.

3.1.5. If EPL grants to an Objecting Franchisee the New Restaurant Rights, such Objecting Franchisee will have fifteen (15) days after receipt of the notice given under Section 3.1.3 to accept the New Restaurant Rights by executing and delivering to EPL an Agreement identifying the Target Area for the New Restaurant and such other terms as may reasonably be agreed upon by the parties. Such Objecting Franchisee will have the right, but not the obligation, to accept the New Restaurant Rights. If such Objecting Franchisee declines to accept the New Restaurant Rights, such Objecting Franchisee will not be deemed to have waived any rights to participate in the ADR Procedures.

3.1.6. Following the execution by Objecting Franchisee of a the Agreement referenced in Section 3.1.4 above, the Developer will be treated as a Notification Radius Franchisee if it operates a restaurant at an Existing Site and has executed a franchise agreement for that site containing the ADR Procedures meeting the criteria specified in the definition thereof; however, while the Developer generally has the right to participate in the ADR Procedures, it will not have the right to call for a Preliminary Meeting.

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SECTION 3.2. New Restaurant Site in Jeopardy.

3.2.1. On occasion, the Developer must commit to acquire a Target Site for a New Restaurant prior to the results of the Study becoming available. In such cases, the Target Site for such New Restaurant may be considered by EPL to be in jeopardy.

3.2.2. A Target Site may be considered in jeopardy by EPL if, in the reasonable judgment of EPL:

(a)

the Site for the New Restaurant identified by the Developer is available for development by others for uses other than as an El Pollo Loco Restaurant;

(b)

the Site for the New Restaurant identified by the Developer is likely to become unavailable for development as an El Pollo Loco Restaurant due to any delay caused by the preparation of the Study; or

(c)

there is not an economically comparable alternative site available within the geographic area surrounding the Target Site.

EPL may also consider any other relevant information in making its determination.

3.2.3. If EPL determines that a Target Site is in jeopardy, EPL may develop or permit development of such site without waiting for the results of the Study. If EPL so elects, each Objecting Franchisee who has satisfied the requirements at Section 4.1.1 and Sections 4.1.3 through 4.1.5 below will be treated as if a Study had been conducted showing results in excess of twelve (12%) percent, and such Objecting Franchisee will be entitled to (a) Royalty Deferral, as defined in Section 4.2 below, and (b) quarterly meetings together with, if applicable, financial support, as described in Section 4.3 below.

ARTICLE IV

FINANCIAL SUPPORT DURING ADR PROCEDURES

SECTION 4.1. Conditions Precedent. The provisions of Sections 4.2 and 4.3 will apply with respect to an Objecting Franchisee if all of the following conditions are met:

4.1.1. Such Objecting Franchisee requests a Study and timely delivers the Study Deposit.

4.1.2. The Study projects a transfer of sales from such Objecting Franchisees restaurant to the New Restaurant of twelve (12%) percent or more of the Objecting Franchisees sales or, if a Target Site is in jeopardy, EPL makes an election pursuant to Section 3.2.3.

4.1.3. Such Objecting Franchisee is not granted the New Restaurant Rights.

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4.1.4. Such Objecting Franchisee elects to pursue the ADR Procedures.

4.1.5. The New Restaurant opens for business.

SECTION 4.2. Royalty Deferral. If each of the conditions listed in Section 4.1 above have been met with respect to an Objecting Franchisee and if the Objecting Franchisee requests in writing, then commencing on the tenth (10th) day of the first (1st) calendar month following the opening of the New Restaurant, such Objecting Franchisee will be entitled to Royalty Deferral. The Royalty Deferral will apply to the royalty fees payable in respect of any month for which a decrease in sales, as compared to the same calendar month in the preceding calendar year, has occurred and will remain in effect until the conclusion of the ADR Procedures concerning the New Restaurant. The Royalty Deferral will be discontinued if Franchisee does not comply with each of the requirements of or otherwise discontinues its participation in the ADR Procedures. The granting of such Royalty Deferral or the making of a loan described in Section 4.3. below shall not be admissible as evidence or otherwise brought before the Mediator or the Arbitrator in any mediation or arbitration nor be deemed proof of an unreasonable impact.

SECTION 4.3. Quarterly Meetings.

4.3.1. As a further condition to an objecting Franchisees right to continue to receive Royalty Deferral pursuant to Section 4.2, each Objecting Franchisee and a Designated Representative will engage in quarterly meetings. In addition, the Objecting Franchisees right to continue to receive such Royalty Deferral, at least five (5) business days prior to each such meeting, such Objecting Franchisee will submit in writing to the Designated Representative (i) an up-to-date profit and loss statement, balance sheet and gross sales report for the trailing 12-month period and (ii) all other information and data relevant to the operation, sales and/or profits of such Objecting Franchisees restaurant, including any sales promotion activities.

4.3.2. If it is determined by both the Objecting Franchisee and the Designated Representative that additional financial support is necessary to enable the Objecting Franchisee to generate additional net cash flow in the current year from the operation of such Objecting Franchisees restaurant, EPL will loan to such Objecting Franchisee, with no interest, amounts to be determined by EPL to be sufficient to assist such Objecting Franchisee to achieve such additional net cash flow but not to exceed the net cash flow level obtained in the preceding year for the comparable period. Such Objecting Franchisee will execute one or more demand promissory notes, in the form of Exhibit C, evidencing such loan amounts.

4.3.3. If such Objecting Franchisee receives an award pursuant to Section 7.6.3 below or if the participants reach an agreement as set forth in Section 6.1.1, 6.7.2 or 7.5.3 below, the amount to be paid to such Objecting Franchisee pursuant to such Sections will be decreased by (a) the aggregate amount deferred as Royalty Deferrals pursuant

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to Section 4.2 above plus (b) the aggregate unpaid principal amount of all loans made pursuant to Section 4.3.2 above.

ARTICLE V

INITIATION OF ADR PROCEDURES

SECTION 5.1. Initiation of ADR Procedures.

5.1.1. If EPL elects to approve the New Restaurant, then any Objecting Franchisee, EPL and the Developer shall proceed with premediation negotiations and, if necessary, mediation described in Article VI.

5.1.2. Upon conclusion of mediation as set forth in Section 6.8.1, such Objecting Franchisee may elect to proceed with the Arbitration Procedures. If such Objecting Franchisee elects not to proceed under the Arbitration Procedures, it shall withdraw from the ADR Procedures in the manner provided for at Section 5.3. If such Objecting Franchisee elects to proceed with the Arbitration Procedures, such Objecting Franchisee, EPL, and the Developer (if other than EPL) shall sign an Arbitration Agreement. At the time of signing the Arbitration Agreement by such Objecting Franchisee, such Objecting Franchisee will deposit with EPL the ADR Deposit to be held in escrow by EPL. The ADR Deposit will either be (a) applied against the costs and expenses of the Arbitration Sessions, (b) returned to such Objecting Franchisee pursuant to the Arbitrators decision, or (c) applied pursuant to the agreement of the participants. If such Objecting Franchisee elects to withdraw from the ADR Procedures and release EPL as to the claims relating to or arising out of the New Restaurant Dispute at any time prior to the appointment of the Arbitrator, the ADR Deposit (less any sums expended or committed to be expended by EPL in connection with the ADR Procedures) will be returned to such Objecting Franchisee. The failure of such Objecting Franchisee to execute the Arbitration Agreement or to deposit with EPL the ADR Deposit in a timely manner will relieve EPL, at EPLs sole discretion, of any obligation to resolve the New Restaurant Dispute through the ADR Procedures and will be deemed a waiver by an Objecting Franchisee of its rights hereunder.

SECTION 5.2. Monitoring Period. After the New Restaurant is opened for business, each of EPL and the Objecting Franchisee, at its own cost, will independently monitor the performance of such Objecting Franchisees restaurant for a period not to exceed twelve (12) months.

SECTION 5.3 Withdrawal from ADR Procedures. An Objecting Franchisee may, at any time, withdraw from the ADR Procedures upon delivery of a withdrawal notice to EPL and upon such withdrawal, an Objecting Franchisee will be deemed to release EPL as to the claims relating to or arising out of the New Restaurant Dispute.

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ARTICLE VI

NEGOTIATION/MEDIATION PROCEDURES

SECTION 6.1. Pre-Mediation Negotiations.

6.1.1. EPL and the Objecting Franchisee will attempt, in good faith, to resolve any New Restaurant Dispute by Pre-Mediation Negotiation.

6.1.2. If the New Restaurant Dispute has not been resolved by negotiation prior to commencement of Mediation as set forth below, the participants will submit the New Restaurant Dispute to Mediation.

SECTION 6.2. Mediation Commencement.

6.2.1. Mediation will be mandatory and non-binding.

6.2.2. If the New Restaurant Dispute is resolved at the Preliminary Meeting, in the Pre-mediation Negotiations or otherwise, Mediation will be unnecessary. If, however, the New Restaurant Dispute remains unresolved, Mediation will commence following the opening of the New Restaurant within the time period set forth at Section 6.4.2.

SECTION 6.3. Mediator Selection. Subject to the provisions relating to mediators in Section 8.1, a mediator will be selected by the participants not later than one hundred eighty (180) days after the opening of the New Restaurant from a panel of three (3) candidates selected by the Dispute Resolution Entity from the region where the Target Site is located. If the participants cannot agree on the selection of a mediator from such panel, then the Dispute Resolution Entity will select a mediator from its other panel members (but not from such panel of three candidates) residing in the region where the Target Site is located.

SECTION 6.4. Mediation Meeting.

6.4.1. A Mediation Meeting will be held at a place and at a time agreeable to EPL, such Objecting Franchisee and the Mediator. The Mediator will determine and control the format and procedural aspects of the Mediation Meeting which will be designed to ensure that both the Mediator and the participants have an opportunity to hear an oral presentation of the other participants views on the New Restaurant Dispute. EPL and such Objecting Franchisee agree to cooperate in all respects with the Mediator. The participants will attempt to resolve the New Restaurant Dispute with the assistance of the Mediator.

6.4.2. The Mediation Meeting will be conducted not less than sixty (60) days nor more than one hundred twenty (120) days following the first anniversary of the opening of the New Restaurant.

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6.4.3. The Mediator will be free to meet and communicate separately with each participant.

6.4.4. In the event that either participant requires a substantial amount of information in the possession of the other participant in order to adequately prepare for the Mediation Meeting, the participants will attempt, in good faith, to agree on procedures for the expeditious exchange of such information. If the participants fail to agree on such procedures, the Mediator will determine such procedures and which documents and information will be exchanged.

6.4.5. Each participant may be represented by one or more other persons, including its counsel, one or more of its business persons, an accountant and a financial consultant. At least one representative of each participant must have the authority to negotiate a settlement of the New Restaurant Dispute.

SECTION 6.5. Privileges of the Mediator.

6.5.1. The Mediator may freely express his views to the participants on the legal issues unless a participant objects to his doing so.

6.5.2. The Mediator may obtain assistance and independent expert advice with the agreement of the participants and at the participants expense.

6.5.3. The Mediator will not be liable for any act or omission in connection with the role of mediator, other than for his or her gross negligence or willful misconduct.

SECTION 6.6. Information Requested by Mediator.

6.6.1. The Mediator may request that the participants present, and each participant may elect to submit, a written summary of the New Restaurant Dispute to the Mediator with such additional information as the Mediator deems necessary to become familiar with the New Restaurant Dispute.

6.6.2 The Mediator may raise legal questions and arguments.

SECTION

6.7. Settlement through Mediation.

6.7.1. If the participants have failed to reach an acceptable settlement prior to the end of the Mediation Meeting, the Mediator, before concluding the Mediation Meeting, may submit to the participants a settlement proposal based on the same considerations to be used by an Arbitrator as set forth in Article VII which the Mediator deems to be equitable to both participants. Each of the participants will, in good faith, evaluate the proposal and discuss it with the Mediator. In the event that a settlement is not reached, neither the terms of the proposed settlement nor either partys refusal to agree thereto

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shall be admissible in the Arbitration Proceedings nor brought before the Arbitrator in any way.

6.7.2. If a settlement is reached, the Mediator, or one of the participants at the request of the Mediator, will prepare a settlement agreement for execution by the participants. Such settlement agreement will be edited as necessary by all participants until it is mutually acceptable. When a mutually acceptable settlement agreement is completed, each participant will execute and deliver such settlement agreement.

SECTION 6.8. Conclusion of Mediation.

6.8.1. The participants will cooperate and continue to mediate until the Mediator terminates the Mediation. The Mediator will terminate the Mediation upon the earlier of (i) execution of a settlement agreement, (ii) a declaration by the Mediator that the Mediation is terminated, or (iii) completion of a full day Mediation Meeting unless extended by agreement of the participants.

6.8.2. If an Objecting Franchisee has elected to proceed to arbitration, the participants will proceed according to the Arbitration Procedures. If an Objecting Franchisee does not elect to proceed to arbitration, it shall withdraw from the ADR Procedures in the manner provided for at Section 5.3.

ARTICLE VII

ARBITRATION

SECTION 7. 1. Initiating Arbitration. The arbitration proceedings (the Arbitration Proceedings ) will be formally initiated by the execution of the Arbitration Agreement as provided in Section 5.1.2. Such Arbitration Agreement must be executed by the Objecting Franchisee and delivered to EPL within 30 days following the conclusion of the Mediation. Each Objecting Franchisee whose claim relates to the same Target Site is entitled to a separate Arbitration Session although the Arbitrator for each Arbitration Session will be the same.

SECTION 7.2. Arbitrator Selection and Duties.

7.2.1. A panel of three (3) arbitrator candidates from the general geographic area where the Target Site is located will be submitted to the participants not later than ten (10) days after the conclusion of the Mediation by the Dispute Resolution Entity. An arbitrator will be selected by the participants from the panel not later than thirty (30) business days after the execution of the Arbitration Agreement. If the participants cannot agree on an arbitrator from such three member panel, then the Dispute Resolution Entity will select the arbitrator from its other panel members (but not from such panel of three candidates) residing in the region where the Target Site is located. It the New Restaurant Dispute includes more than one Objecting Franchisee and such Objecting Franchisees cannot mutually agree on an arbitrator, each Objecting

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Franchisee will select one arbitrator from the panel of three candidates and the Dispute Resolution Entity will make a random selection from those arbitrator candidates selected by the Objecting Franchisees as to which arbitrator candidate will serve as such Objecting Franchisees selection.

7.2.2. The Arbitrator will assume the duties and functions described in this Article VII and perform them in accordance with the procedures set forth herein. The Arbitrator will also perform any additional duties and functions on which the participants and the Arbitrator hereafter agree. The Arbitrator will execute an Arbitrator Retention Agreement, substantially the form of Exhibit D.

7.2.3. Except as specifically provided for in this Article VII or as agreed upon by the participants, no participant, nor anyone acting on its behalf, will separately communicate with the Arbitrator on any matter of substance.

7.2.4. The Arbitrator will promptly notify the participants to the Arbitration Agreement and the Dispute Resolution Entity of his/her unavailability to conduct the Arbitration Session, in which case a replacement Arbitrator will be selected by the participants. If the participants cannot agree on a replacement Arbitrator within the time specified by the Dispute Resolution Entity, then the Dispute Resolution Entity will select the replacement Arbitrator from its other members (but not from the original panel of three candidates) residing in the region where the Target Site is located.

SECTION 7.3. Disclosures.

7.3.1. Not later than forty-five (45) days after the objecting Franchisees execution and delivery of the Arbitration Agreement, each participant will send a summary of its position to the Arbitrator for the purpose of familiarizing the Arbitrator with the facts and issues in the New Restaurant Dispute with a copy being provided simultaneously to the other participants. The participants will comply promptly with any requests by the Arbitrator for additional documents or information relevant to the New Restaurant Dispute.

7.3.2. The participants will attempt, in good faith, to agree on a plan for reasonably necessary, expeditious discovery, including the deposition of any expert or other witness of any other participant. If they fail to agree, any participant may request a joint meeting (by telephone) with the Arbitrator, who will assist the participants in agreeing on a discovery plan. In the absence of an agreement by the participants, a discovery plan will be implemented by the Arbitrator.

7.3.3. Before the Arbitration Session, at a time mutually agreed upon by the participants but not later than thirty (30) days prior to the date set for the Arbitration Session, all participants will exchange, and submit to the Arbitrator, all documents and exhibits on which the participants intend to rely during the Arbitration Session. In addition, the participants will exchange, and submit to the Arbitrator, a brief that will include the following: (a) a summary of all expert witness opinions to be expressed and

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the basis for such opinions, including the data or other information relied upon in forming such opinions; (b) the qualifications of any expert witness, including education and employment history and a listing of other matters in which the expert witness has testified as an expert; and (c) a summary of the statements to be made by such participant during the Arbitration Session. The brief will not exceed fifteen (15) pages, single-spaced or thirty (30) pages, double-spaced.

7.3.4. Each participant is under a duty to reasonably supplement or correct its disclosures and submissions if such participant obtains information on the basis of which it knows that the information previously disclosed was either incomplete or incorrect when made or is no longer complete or true. The Arbitrator will, upon request of an aggrieved participant, grant such appropriate non-monetary relief to assure that these disclosure procedures are followed and that adequate pre-Arbitration Session disclosure and submissions are made as required by Section 7.3.2 and 7.3.3.

SECTION 7.4. Arbitration Session.

7.4.1. Not later than forty-five (45) days after execution of the Arbitration Agreement, the participants and the Arbitrator will establish the date, which will not be later than ninety (90) days after execution of the Arbitration Agreement, and time of the Arbitration Session during which each participant will make an oral presentation to the Arbitrator concerning the New Restaurant Dispute. The Arbitration Session will be held before the Arbitrator at such location as is agreed to by the participants, or failing such agreement on such location, as specified by the Arbitrator.

7.4.2. During the Arbitration Session, each participant will make an oral presentation of its case and each other participant will be entitled to a rebuttal.

7.4.3. The order of oral presentations and rebuttals will be determined by agreement between the participants, or failing such agreement, by the Arbitrator. in order to allow each participant reasonable opportunity to present his position, but with the express objective of reasonable brevity in mind, unless otherwise agreed to by the participants: (a) each participants oral presentation will not exceed two (2) hours, (b) each participant will have no more than one (1) hour within which to question the other participant and its witnesses, and (c) each participants rebuttal will not exceed one (1) hour. As long as each participant is treated equally, the Arbitrator may extend or shorten such time periods, provided that the Arbitration Session will not exceed two (2) full days unless otherwise agreed to by the participants. The oral presentation, questioning of participants and their witnesses and rebuttal of any participant will not be interrupted by any other participant except the Arbitrator.

7.4.4. The Arbitrator will conduct and moderate the Arbitration Session. The oral presentations and rebuttals of each participant may be made in any form, and by any individual, as desired by such participant. Presentations by fact witnesses and expert witnesses will be permitted. No rules of evidence, including rules of relevance, will apply at the Arbitration Session, except that no witness or participant will be required to

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disclose privileged communications or the advice and/or work product of an attorney. Witnesses will be required to testify under oath or affirmance.

7.4.5. Following each oral presentation by a participant, the Arbitrator may ask questions of such participant, its counsel or any other persons appearing on its behalf. Following the Arbitrator having the opportunity to ask questions, any other participant or its representatives, including counsel, may ask questions of such participant, its counsel and any other persons appearing on its behalf.

7.4.6. Each participant will be represented by at least one (1) member of its management at the Arbitration Session who has authority to settle the Dispute. In addition to legal counsel, each participant may have other advisors in attendance at the Arbitration Session, provided that notice is given to all participants and the Arbitrator of the identity of such advisors at least five (5) days before commencement of the Arbitration Session.

SECTION 7.5. Management Negotiations.

7.5.1. At the conclusion of the rebuttals, the management representatives of each participant will meet one or more times to try to agree on a resolution of the New Restaurant Dispute.

7.5.2. The Arbitrator will control these negotiations. At the discretion of the Arbitrator and with the agreement of the participants, negotiations may proceed in the absence of counsel.

7.5.3. If a settlement is reached, the Arbitrator, or one of the participants at the request of the Arbitrator, will prepare a settlement agreement for execution by the participants. Such settlement agreement will be edited as necessary by all participants until it is mutually acceptable. When a mutually acceptable settlement agreement is completed, each participant will execute and deliver such settlement agreement. Upon the execution and delivery of a settlement agreement, such settlement agreement will be legally binding on the participants and specifically enforceable by any court of competent jurisdiction.

SECTION 7.6. Arbitration Award.

7.6.1. If the participants do not resolve the New Restaurant Dispute as a result of the negotiations between management representatives as facilitated by the Arbitrator, then the Arbitrator will declare an impasse and render a decision or an award as provided below. The declaring of an impasse is within the sole discretion of the Arbitrator. The decision or award of the Arbitrator will be in writing, dated and signed by the Arbitrator and will identify the prevailing participant and the amount of the award, if any, due to the Objecting Franchisee. The Arbitrator will deliver a copy of the decision or award to each participant either personally or by registered or certified mail not later than thirty (30) days after the conclusion of the Arbitration Session.

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7.6.2. In rendering its decision or award, the Arbitrator will consider evidence from the participants as to what percentage decrease, if any, in the annual gross sales and profits of the Objecting Franchisees restaurant was reasonable under the circumstances (the Allowable Transfer Factor). The participants may agree on an Allowable Transfer Factor to be applied by the Arbitrator in determining an award, if any, below.

7.6.3. The decision or award of the Arbitrator will be one of the following:

(a)

A decision that the New Restaurant has not directly or proximately caused a reduction in the annual gross sales of the Objecting Franchisees restaurant; or

(b)

A decision that no compensation is due an Objecting Franchisee based on a finding that the Objecting Franchisee has failed to prove that the New Restaurant has directly or proximately caused a reduction in the annual gross sales of the Objecting Franchisees restaurant in an amount in excess of the Allowable Transfer Factor, if any; or

(c)

A decision that compensation is due the Objecting Franchisee based on a finding that the Objecting Franchisee has proven that the New Restaurant has directly or proximately caused a percentage reduction in the gross sales of the Objecting Franchisees restaurant in excess of the Allowable Transfer Factor, if any.

7.6.4. If compensation is due the Objecting Franchisee pursuant to Section 7.6.3(c), such compensation will be calculated in the following manner:

STEP 1:

The Arbitrator makes a finding that the New Restaurant directly or proximately caused a decrease in the gross sales of the Objecting Franchisees restaurant by a certain percentage. Such percentage will relate to operations for the first 12-month period following the opening of the New Restaurant.

STEP 2:

The Arbitrator will subtract the Allowable Transfer Factor, if any, from the percentage determined by the Arbitrator in Step 1 (the Gross Percentage).

STEP 3:

The Arbitrator will multiply the gross sales of the Objecting Franchisees restaurant for the 12-month period immediately preceding the opening of the New Restaurant by the Gross Percentage calculated in Step 2 (the Transferred Sales).

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STEP 4:

The Arbitrator will multiply the Transferred Sales calculated in Step 3 by twenty-eight percent (28%) (the Reduced Profit).

STEP 5:

The Arbitrator will multiply the Reduced Profit calculated in Step 4 by the Year Factor.

7.6.5. The award calculated pursuant to Section 7.6.4 will be paid to the Objecting Franchisee as follows:

(a)

In those instances where the Arbitrator selects a Year Factor equal to one (1), the award will be paid by EPL to the Objecting Franchisee within ten (10) business days following the date of the Arbitrators award.

(b)

In those instances where the Arbitrator selects a Year Factor that is greater than one (1), EPL may elect to pay the award to the Objecting Franchisee within the time period set forth in Section 7.6.5(a) above or in installments, each installment equal to the amount of the award divided by the Year Factor, the Year Factor to represent the number of years over which such award is to be paid. The first installment of the award will be paid within ten (10) business days following the date of the Arbitrators award. Each subsequent installment will be paid annually within ten (10) business days of the anniversary of the date of the Arbitrators award. If EPL elects to pay the award in installments as provided for in this Section 7.6.5(b), EPL shall deliver to Objecting Franchisee a promissory note in the form of Exhibit E. The outstanding balance of such promissory note shall bear interest at an interest rate equal to the prime rate published in the Wall Street Journal on the date the award is granted.

7.6.6. The Arbitrator will provide an explanation for the decision or award and will file the same with EPL. Copies of such decisions or awards will be provided to all franchisees upon reasonable request.

7.6.7. Subject only to the provisions of Section 9 of the Federal Arbitration Act specifying the standards for challenging the decision or award of an arbitrator, the decision or award of the Arbitrator will be binding. The decision or award of the Arbitrator will be confirmed and enforced as an arbitration award in accordance with the law of the appropriate court of competent jurisdiction.

7.6.8. Unless otherwise agreed to by each of the participants to the ADR Procedures, if the Developer is not EPL, the Developer will not be liable directly to an Objecting Franchisee for any compensation due to an Objecting Franchisee.

7.6.9. In determining the Gross Percentage Factor and the Year Factor, and in carrying out its analysis as to whether there has been an unreasonable impact resulting from the New Restaurant, the Arbitrator will consider, among other things, the factors, examples and analyses described in Exhibit F. The parties understand and

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acknowledge that such factors, examples and analyses are not exclusive and are incorporated to assist the Arbitrator in its determination of the type of factors to be used in establishing the Gross Percentage and the Year Factor.

ARTICLE VIII

GENERAL MATTERS RELATING TO MEDIATION AND ARBITRATION

SECTION 8.1. Mediators and Arbitrators.

8.1.1. A panel of mediators and arbitrators will be created by the Dispute Resolution Entity.

Unless otherwise agreed to by the participants to the Mediation or Arbitration Proceedings, no person selected as a mediator or arbitrator will:

(a)

have been an EPL franchisee or a franchisee of any other franchise system;

(b)

have been an officer, director or employee of EPL, any EPL franchisee, the Developer, the Objecting Franchisee, the franchisee or the franchisor or another franchise system or of any affiliate of the foregoing; or

(c)

have performed significant professional services for EPL or for one or more EPL franchisees or any such franchisees affiliates.

8.1.2. If mutually agreeable to the participants, the Arbitrator may be the same individual as the Mediator.

SECTION 8.2. Fees and Expenses of Mediation and Arbitration.

8.2.1. The Mediators and Arbitrators fees and other charges will be established at the time of selection.

8.2.2. Unless the participants otherwise agree, or except as provided in the following sentences, fees and expenses of the Mediator and any other expenses of Mediation will be shared equally by the participants. Each participant will bear its own costs, expenses and attorneys fees in preparing for and participating in Mediation. If a Study is conducted that projects that twelve (12%) percent or more of sales will transfer to the New Restaurant from an Objecting Franchisees restaurant, and EPL elects to approve the development of the New Restaurant, EPL will pay all fees and charges of the Mediator and any other expenses of conducting the Mediation, excluding, however, such Objecting Franchisees expenses and attorneys fees.

8.2.3. Unless the participants otherwise agree, or except as provided in the following sentences, fees and expenses of the Arbitrator and any other expenses of the

68


Arbitration Proceedings will be shared equally by the participants. Each participant will bear its own costs, expenses and attorneys fees in preparing for and participating in the Arbitration. Notwithstanding the foregoing, the Arbitrator may, at the Arbitrators discretion, order the participant deemed by the Arbitrator to be the non-prevailing party to pay all (or a portion of) the costs, attorneys fees and expenses incurred by the prevailing party in connection with the Arbitration Proceedings.

SECTION 8.3. Confidentiality.

8.3.1. The entire Mediation and Arbitration Proceeding will be considered settlement negotiations. Except as otherwise provided in Section 8.3.3 below, all offers, promises, conduct and statements, whether oral or written, made in the course of the Mediation or Arbitration Proceedings by the participants, their agents, employees, experts and attorneys, and by the Mediator or Arbitrator, will be and remain confidential. Such offers, promises, conduct and statements are privileged under any applicable mediation privilege, and will be inadmissible and not discoverable for any purpose, or in any other dispute between the parties or between one of the parties and any other person, including impeachment.

8.3.2. Each of the Mediator and Arbitrator will be disqualified as a witness, consultant, or expert for any participant, and in rendering a decision or award as is hereinafter provided, the Arbitrators oral and written opinions will be inadmissible for all purposes in this or any other dispute involving the participants or any other person.

8.3.3. Notwithstanding the provisions of Section 8.3.1 and 8.3.2, these ADR Procedures will not be deemed to preclude the disclosure of the terms of any settlement arrived at through Mediation, or the decision or award of the Arbitrator rendered as a result of the Arbitration Session.

ARTICLE IX

MISCELLANEOUS

SECTION 9.1. Time. Unless otherwise provided in the ADR Procedures, the time periods provided in the ADR Procedures may be shortened or extended only by mutual written agreement of the participants.

SECTION 9.2. Miscellaneous Matters.

9.2.1. These ADR Procedures will become effective on the date set forth on the cover page to these procedures.

9.2.2. These ADR Procedures do not amend any franchise or other agreement to which EPL is a participant, except to the extent that they are incorporated by specific reference into a Franchise Agreement. These ADR Procedures may only be modified in the manner described in such Franchise Agreement. These ADR Procedures will not create any third party beneficiary rights. These ADR Procedures represent the sole

69


procedure and remedy for an Objecting Franchisee with respect to any matter relating to a New Restaurant Dispute.

9.2.3. A franchisee that has submitted an Objection Notice will not be denied expansion approval solely because of its objection provided that such franchisee is otherwise fully approved to expand to new EPL locations and such franchisee has formally entered into and remains in compliance with the ADR Procedures, including execution of an Arbitration Agreement and depositing the ADR Deposit with EPL.

9.2.4. These ADR procedures will be governed by and construed in accordance with the laws of the State of California and the Federal Arbitration Act. All notifications and communications required under these ADR procedures shall be in writing and be given pursuant to the notification requirements set forth in the Objecting Franchisees franchise agreement.

[REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY]

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EXHIBIT A

SUMMARY REPORT TO OBJECTION NOTICE

General Instructions

A. Complete a separate form for each existing El Pollo Loco restaurant (an Existing Restaurant) within the Notification Radius you believe may be unreasonably encroached upon and impacted by the proposed new restaurant site (the Target Site). Notification Radius has the meaning specified in Article II of the Procedures for Resolving Disputes Relating to the Development of New Restaurants promulgated by EPL.

B. Attach a street map of the area surrounding the Existing Restaurant and the proposed Target Site (scale of the map should be approximately 1-10 mile or larger).

Specific Information

A. Answer each of the following questions. Answers must be specific and not contain any general or conclusory statements.

1.

EXISTING RESTAURANT

             

El Pollo Loco #

           
   

       

Cross Streets

     

and

   
   

     

Address

           
   

     

2.

PROPOSED SITE

             

Cross Streets

     

and

   
   

     

Address

           
   

     

3.

Shortest driving distance and travel time between Existing Restaurant and proposed Target Site

                 

Distance

               
   

Time of Day

     

Minutes

     

Breakfast

   

     

   

Time of Day

     

Minutes

     

Lunch

   

     

   

Time of Day

     

Minutes

     

Dinner

   

     

   

Describe roads driven to obtain above distance and time

 
 

 

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Shortest distance between Existing Restaurant and proposed Target Site as the crow flies (straight line)

     

Distance

   
   

4.

From what geographic area do you think the Existing Restaurant currently is drawing customers? Define the trade area and be specificinclude street names, radius, distance and traffic generators (i.e., a mall or schools).

 
 

 

5.

What areas described in #4 do you think the proposed Target Sites trade area will encroach upon? Be specific.

 
 

 

6.

In your opinion, what is the trade area of the proposed Target Site? Be specificinclude street names, radius, distance and traffic generators.

 
 

 

7.

Which traffic arteries provide the main flow of traffic to the Existing Restaurant? Include street names and directional flow.

 
 

 

8.

Which main arteries do you think will be providing traffic flow to the proposed Target Site? Include street names and directional flow.

 
 

 

9.

Are there any natural or man made barriers which separate the Existing Restaurant from the proposed Target Site? If yes, please describe.

 
 

 

10.

How would you rate the physical appearance of the Existing Restaurant compared to a new El Pollo Loco Restaurant? Better than, equal to, or not as good as a new facility (choose one). Give reasons for your opinion.

 
 

 

11.

What is the date of the last remodel at the Existing Restaurant and what was the scope of work? Be specific.

 
 

 

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12.

Does the franchisee currently have any plans to upgrade the Existing Restaurant? If so, what are the proposed upgrades? Be specific, include scope of work and dates.

 
 

 

13.

What percentage of the Existing Restaurants sales do you think the proposed Target Site will capture if it is built?

 
 

 

14.

Would lunch or dinner be most affected? Why?

 
 

 

15.

What marketing activities have taken place at the Existing Restaurant in the past six months other than national promotions? Please be specific. How successful were they?

 
 

 

16.

Do you believe the market can support an El Pollo Loco Restaurant at the proposed Target Site if it is owned by the operator of the Existing Restaurant? If so, please explain your reasons.

 
 

 

                     

BY:

     

DATE:

     

, 200

   
   

     

     

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EXHIBIT B

ARBITRATION AGREEMENT

For valuable considerations, the receipt of which each party to this agreement acknowledges, the undersigned agree to resolve the following described dispute by using the Procedures for Resolving Disputes Relating to the Development of New Restaurants (the ADR Procedure) promulgated by El Pollo Loco, Inc.

Nature of Dispute:

The parties agree to forego the filing of any lawsuit or legal action relating to the dispute and agree to be bound by the decision or award of the Dispute Resolution Entity (as defined in the ADR Procedures) under the ADR Procedures.

The rules and provisions of the ADR Procedures are incorporated herein by reference and the parties agree to be bound by same.

                     

DATED this

     

day of

     

, 200

   
   

     

     

     

EL POLLO LOCO, INC.

   

By:

   
   

 

[OBJECTING FRANCHISEE]

   

By:

   
   

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EXHIBIT C

DEMAND PROMISSORY NOTE

             

$

 

     

FOR VALUE RECEIVED, we, the undersigned (Makers) jointly and severally, promise to pay to the order of EL POLLO LOCO, INC. (EPL), a Delaware corporation, [INSERT ADDRESS], ON DEMAND, the principal sum of                      Dollars ($            ). Until demand for payment is made, this Note shall not accrue interest. Terms not otherwise defined in this Note shall have the meanings specified in the Procedures for Resolving Disputes Relating to the Development of New Restaurants (the ADR Procedures) promulgated by EPL.

The Makers hereby waive presentment, notice, protest and all other notices required or permitted hereunder and by law in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assent to any extension or postponement of the time of payment or of any other indulgence, substitution, exchange or release of collateral, and/or to the addition or release of any other party or person primarily or secondarily liable on this Note.

This Note is being given to evidence the loan by EPL to the Objecting Franchisee pursuant to the ADR Procedures, the terms of which are expressly made a part of this instrument. The Makers hereof acknowledge that payment may be demanded by EPL upon the earlier to occur of: (i) settlement of the New Restaurant Dispute through Mediation or otherwise, (ii) conclusion of the Arbitration Proceedings, or (iii) any default by the Makers of the terms of any Franchise Agreement, or the occurrence of an event of default by which there is a violation of the terms and covenants of any other contractual obligation by the Makers hereof to EPL. The terms, covenants and conditions of agreements between the Makers and EPL are expressly made a part of this instrument.

This Note is payable by mail or in person at the office of EPL or such other place as EPL may designate.

In the event of delinquency in the payment of any principal or interest due on this Note or in the event of any other default under this Note it becomes necessary to retain an attorney for collection or to enforce the terms and conditions hereof, the Makers agree to pay reasonable attorneys fees, whether suit is brought or not.

The enforceability of the terms of this Note and the legality of the interest rate specified herein shall be interpreted in accordance with and governed by the laws of the State of California. In the event of litigation involving this Note, Makers agree that this Note shall be construed in accordance with California law or the law of any other jurisdiction which has any relationship to the transaction and under whose laws this Note would be enforceable.

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In the event payment in full is not made within thirty (30) days of demand, interest on the unpaid balance shall accrue at the maximum rate allowed by California law, or if no maximum rate relating to this Note is in effect in the State of California, ten (10%) percent per annum.

During the term of this Note, and upon ten (10) days written request by EPL or any other holder of this Note, each Maker agrees to give EPL or such holder adequate assurances as to such Makers ability to comply with the terms of this Note. Such assurances shall include, but not be limited to, such Makers then current financial statement, which EPL or such holder may require be certified by a Certified Public Accountant. Each Maker agrees that EPL or such holder may disclose such financial statements, or any other financial information pertaining to such Maker which EPL or such holder may possess, to any potential buyer, assignee or holder in due course of this Note.

This Note is personal to the Makers and is not assignable. In the event any Maker sells, assigns or transfers its interest in the Franchise Agreement for El Pollo Loco Restaurant #            , the entire principal amount then outstanding on this Note shall immediately become due and payable. This Note is assignable by EPL.

The Makers acknowledge that a default under the terms of this Note shall constitute a default under the terms of the Franchise Agreement between Makers and EPL for Restaurant #            .

     

[OBJECTING FRANCHISEE]

   

By:

   
   

 

[MAKER]

   

By:

   
   

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EXHIBIT D

ARBITRATOR RETENTION AGREEMENT

This Arbitrator Retention Agreement is made this              day of                     , 200    .

A dispute involving the development of a new restaurant by El Pollo Loco, Inc. has arisen between El Pollo Loco, Inc. (EPL) and                                      (Objecting Franchisee). EPL and Objecting Franchisee have agreed to participate in an alternative dispute resolution procedure pursuant to the Procedures For Resolving Disputes Relating to the Development of New Restaurants, (the ADR Procedures) a copy of which is annexed hereto.                                      (Arbitrator) has been chosen as a neutral arbitrator for the alternative dispute resolution procedures. EPL, Objecting Franchisee and the Arbitrator accordingly agree as follows:

1. The Arbitrator agrees to be bound by and to use his best efforts to comply faithfully with the ADR Procedures, including without limitation, the provisions regarding confidentiality.

2. The Arbitrator and the Arbitrators employees, agents, partners and shareholders, if applicable, shall not be liable for any respective act or omission in connection with the ADR Procedures other than as a result of fraud or an intentional and willful failure to comply with the material provisions of the ADR Procedures after having received written notice of such failure and refusal by the Arbitrator to correct such failure. Exercise of discretion shall not, by itself, result in any liability.

3. The Arbitrator has made a reasonable effort to learn and has disclosed to the parties in writing:

(a)

All business or professional relationships the Arbitrator has had with the parties or the parties law firms within the past five (5) years, including all instances in which the Arbitrator has served as an attorney for any party or adverse to any party;

(b)

Any financial interests the Arbitrator has in any party;

(c)

Any significant social, business or professional relationship the Arbitrator has had with an officer or employee of any party or with an individual representing any party; and

(d)

Any other circumstances that may create doubt regarding the Arbitrators impartiality.

4. Neither the Arbitrator nor the Arbitrators firm shall undertake any work for or against a party regarding the subject matter of the dispute.

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5. Neither the Arbitrator nor any person assisting the Arbitrator with the ADR Procedures shall personally work on any matter for or against any party or its affiliates regardless of the subject matter, prior to one (1) year following cessation of the Arbitrators services in this proceeding other than as an arbitrator in this or another proceeding.

6. The Arbitrators firm may work on matters for or against a party during the pendency of the ADR Procedures if such matters are unrelated to the subject matter of the ADR Procedures, have been disclosed in advance to all parties hereto, are discussed with all of the parties hereto, and are expressly consented to in writing by such parties (Unrelated Approved Activities). The Arbitrator shall establish appropriate safeguards to ensure that other members or employees of the Arbitrators firm not working on the ADR Procedures do not have access to any confidential information obtained by the Arbitrator during the course of the ADR Procedures. The Arbitrator hereby represents that there are no Unrelated Approved Activities as of the date hereof.

7. The Arbitrator shall be compensated for services performed in connection with the ADR Procedures in accordance with paragraph 8.2.1 of the ADR Procedures. The Arbitrators fee shall be taxed as costs and paid as determined by the Arbitrator.

8. Counsel representing each party is as follows:

     

Counsel for Objecting Franchisee:

   
     

   
     

   
     

   

Counsel for EPL:

   
     

   
     

   
     

   
     

EL POLLO LOCO, INC.

   

By:

   
   

   

Vice President

 

[ARBITRATOR]

   

By:

   
   

     
 

[OBJECTING FRANCHISEE]

   

By:

   
   

Name:

   
   

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EXHIBIT E

PROMISSORY NOTE

             

$

 

     

FOR VALUE RECEIVED, the undersigned, EL POLLO LOCO, INC. (EPL), a Delaware corporation, [INSERT ADDRESS], promises to pay to the order of                                     , (Franchisee) the principal sum of                                      Dollars ($ ) together with interest on the unpaid principal balance hereof. Terms not otherwise defined in this Note shall have the meanings specified in the Procedures for Resolving Disputes Relating to the Development of New Restaurants (the ADR Procedures) promulgated by EPL.

Interest at the rate of             % simple interest per annum shall be payable annually concurrently with the payment of principal required herein.

EPL hereby waives presentment, notice, protest and all other notices required or permitted hereunder and by law in connection with the delivery, acceptance, performance, default or enforcement of this Note and assents to any extension or postponement of the time of payment or of any other indulgence, substitution, exchange or release of collateral, and/or to the addition or release of any other party or person primarily or secondarily liable on this Note.

This Note is being given to evidence EPLs obligation to Franchisee pursuant to the Arbitrators award granted under the ADR Procedures. The terms, covenants and conditions of the ADR Procedures and other agreements between Franchisee and EPL are expressly made a part of this instrument.

The principal of this Note shall be repaid in annual installments in accordance with the Principal Repayment Schedule attached hereto as Schedule 1.

This Note may be prepaid in whole or in part by the undersigned at any time, or from time to time, without premium or penalty.


The fixed interest rate will be equal to the prime rate published in the Wall Street Journal for the day on which the award is granted.

79


The enforceability of the terms of this Note and the legality of the interest rate specified herein shall be interpreted in accordance with and governed by the laws of the State of California

EL POLLO LOCO, INC., a Delaware corporation

                 
         

BY:

         

Name:

   
   

         

           

Title:

   
               

80


Schedule 1

     

Date of Principal Repayment

 

Amount

81


EXHIBIT F

FACTORS, EXAMPLES AND ANALYSES

FOR DETERMINING GROSS PERCENTAGE AND YEAR FACTOR

OVERVIEW:

There are numerous factors that influence the sales of any EPL restaurant. It is the Arbitrators responsibility under these ADR Procedures to consider all such factors which may be relevant to understanding the negative sales impact experienced by an Existing Site. A few examples of factors other than a new EPL restaurant which may negatively impact an Existing Sites sales and therefore must also be considered by the Arbitrator include:

- Declining sales trends at the Existing Site pre-dating the New Restaurant

- Loss of traffic flows street (closures, construction activity, etc.)

- New, non-EPL competition

- Overall economic conditions/recession

A useful hierarchy to understand the various components of the overall impact on an Existing Site, and to isolate the influence of those specific factors to be utilized in determining the award pursuant to Section 7.6.4, is as follows:

         

A.

 

Overall Impact on Objecting Franchisees Existing Site Sales

 

XX%

     

B.

 

Plus or Minus DMA-Wide Trends

 

+/-X%

     

C.

 

Impact Caused Within Existing Sites Trade Area

 

= XX%

     

D.

 

Plus or Minus Factors Other Than New Restaurant

 

+/-X%

     

E.

 

Impact on Existing Site by New Restaurant

 

= X%

     

F.

 

Less Allowable Transfer Factor

 

-  X%

     

G.

 

Gross Percentage Factor

 

= X%

Step I of the following methodology will assist in determining item C above- the impact on the Existing Sites sales that appears to be localized within that restaurants trade area.

Step II will assist in identifying how much of this localized impact appears attributable to the New Restaurant in question, rather than other factors within the Existing Sites trade

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area. This will yield item E above, which is the starting point in the award calculation described at Step 1. of Section 7.6.4.

METHODOLOGY TO ISOLATE IMPACT OF NEW RESTAURANT ON EXISTING SITES SALES:

STEP I:

Determine how much the sales of the Existing Site have been impacted overall during the first 12 months of operations of the New Restaurant (the Post Period), and then isolate that portion of the impact attributable to factors within the Existing Sites trade area, by answering the following questions:

1.

What has been the % change in the Existing Sites year-over-year sales (Y-O-Y Growth Rate) during the Post Period vs. the prior 12 months (the Pre Period)?

2.

How does this Y-O-Y Growth Rate compare to the average experience of other EPLS in the same county or demographic market area (DMA) over this same period of time?

3.

How closely did the Existing Sites Y-O-Y Growth Rate track that of the overall DMA average prior to the opening of the New Restaurant? How consistent has the variation between the two Y-O-Y Growth Rates been, historically?

Example 1: Existing Sites net sales decline 4% during the Post Period vs. the Pre Period. However, the overall average decline of all restaurants in this DMA during the same period is 6%. For the 2 years prior to the Pre Period, the Existing Sites Y-O-Y Growth Rate was 2% greater than the overall DMA average, and this trend was fairly consistent from month to month.

Inference: While not conclusive in itself, this data suggests that the sales decline experienced by the Existing Site during the Post Period is due to factors other than the New Restaurant. In fact, we might have expected the Existing Site to decrease by 4% during the Post Period based on its previous trends vs. the overall DMA.

Example 2: All facts the same as Example 1, including a 4% decline for the Existing Site, except the overall DMA Y-O-Y Growth Rate Post vs. Pre Period is a positive 6%.

Inference: Again, while not conclusive by itself, this data suggests that the Existing Site has experienced a 12% decrease vs. expectation during the Post Period due to localized factors specific to the Existing Site trade area, and not due to DMA-wide variables.

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STEP II:

If there appears to be an impact on the Existing Site that is due to factors within its trade area, rather than due to broader, DMA-wide trends (Example 2 above), identify all significant factors that may have contributed to this impact in addition to the New Restaurant. These could include but may not be limited to the following:

1.

Decline in potential customer traffic in Existing Sites trade area:

 

A.

Loss of traffic generators (closure of nearby military base, shopping center Anchor tenant or large employer in trade area).

 

B.

Loss of traffic flows (closure of streets, bridges or freeway ramps).

 

C.

Newer traffic generators developed in nearby trade areas eclipse traffic generators in Existing Sites trade area.

2.

New restaurant competition other than the new EPL in the Existing Sites trade area.

3.

Change in the Management Team or deterioration in the quality of operations of the Existing Site. It may be conversely true that new traffic generators, improvement in traffic flows or the closure of competing restaurants in an Existing Sites trade area, or an improvement in the quality of operations in an Existing Site would have resulted in a positive impact on the Existing Sites sales but for the opening of the New Restaurant.

It may be difficult to separately identify the negative or positive impact of the above factors on an Existing Sites sales from the impact of the New Restaurant. It may be that one can do so only by paying close attention to the dates that each factor became relevant, and tracking the incremental impact of each on the Existing Sites Y-O-Y Growth Rate.

Example 3: Existing Site is in an older shopping center; many of the co-tenants have never remodeled or updated their facilities. New regional Power Center with a Walmart, Toys R Us, Home Depot, a 20 Theater Cinema and several new restaurants (but no EPLs) opens 3 miles away. Existing Sites sales drop 8% within one month. Assume overall DMA sales are flat during this period, and no other new variables or any other change in the trade area.

Inference: Many of the Existing Sites customers will be drawn to the traffic generators in the new center, and allocate some of their limited eating out dollars to whatever restaurant choices are available when they are there, since it is convenient. All or a substantial portion of the 8% drop in sales can reasonably be attributed to the new center.

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Example 4: Same as Example 3, except that a new EPL Restaurant opens at the new Power Center 6 months after the last anchor tenant opens. Existing Sites sales then decline further, to a 12% overall decline vs. before the Power Center opened, as follows:

             

Existing Sites Avg. Monthly Sales:


 

Amount


 

Cumulative % Change


 

12 months prior to New Power
Center opening

 

$

83,333

 

 

First 6 months New Power
Center open

 

$

76,666

 

(8

%)

Next 12 months New
Restaurant Open

 

$

73,333

 

(12

%)

Inference: It would appear that the majority of the decline is due to the existence of the new Power Center (8%), and that only about 4% is due to the New Restaurant (= 12%- 8%).

DISCUSSION RE: YEAR FACTOR:

The intention of the Year Factor is to recognize that restaurant businesses are often valued based upon a multiple of cash flows. If an Objecting Franchisee suffers a permanent reduction in sales and cashflows in an Existing Site due to unreasonable impact by a New Restaurant, then the business value of the Existing Site has declined by some multiple of the reduction. If the sales reduction is expected to become even greater over time, based upon trends observed during the Post Period, a larger multiple should be selected by the Arbitrator. Conversely, if trends observed during the Post Period or other evidence appear to indicate that the impact of the New Restaurant upon the Existing Site will diminish over time, a relatively smaller multiple should be used.

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EL POLLO LOCO FRANCHISE AGREEMENT

EXHIBIT B

MEMORANDUM OF OPENING DATE

On                         , 2001 El Pollo Loco, Inc. (Company), and                                      (Franchisee), entered into a Franchise Agreement (the Franchise Agreement) for an El Pollo Loco Restaurant to be located at                                      (the Location).

The parties hereby agree that the Opening Date of the Restaurant at the Location was                         , 2001.

The term of the Franchise Agreement shall expire on , unless sooner terminated as provided in the Franchise Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of Opening Date to be executed as of the          day of                     , 200    .

             

THE COMPANY:

 

FRANCHISEE:

EL POLLO LOCO, INC.,

a Delaware Corporation

       
     

       

By:

     

By:

   
   

     

By:

     

By:

   
   

     

       

Date:

     

Date:

   
   

     

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EL POLLO LOCO FRANCHISE AGREEMENT

EXHIBIT C

PERSONAL GUARANTEE

The undersigned hereby unconditionally guarantees, absolutely and irrevocably the performance and payment by Franchisee (as defined below) of, and expressly agrees to adopt and be bound by, each and all of the terms, covenants and conditions of that certain Franchise Agreement dated                     , 2004 (the Agreement) between EL POLLO LOCO, INC., a Delaware corporation (Franchisor) whose address is 3333 Michelson Drive, Suite 550, Irvine, CA 92612 and                                      (Franchisee) whose address is                                     . The undersigned further agrees as follows:

1. This guarantee will continue unchanged by any bankruptcy, reorganization or insolvency of Franchisee or by any disaffirmance or abandonment by a trustee of Franchisee.

2. This covenant and agreement on the part of the undersigned shall continue in favor of Franchisor notwithstanding any extension, modification or alteration of the Agreement entered into by and between the parties thereto, or their successors or assigns, and no extension, modification, alteration or assignment of the Agreement shall in any manner release or discharge the undersigned and the undersigned does hereby consent thereto.

3. The liability of the undersigned under this guarantee shall be primary and in any right of action which shall accrue to Franchisor under the Agreement, Franchisor may, at its option, proceed against the undersigned without having commenced any action or having obtained any judgment against Franchisee.

4. The undersigned shall pay Franchisors reasonable attorneys fees and all costs and other expenses incurred in any collection or attempted collection or in any negotiations relative to the obligations hereby guaranteed or enforcing this guarantee against the undersigned, individually and jointly only if final judgment is entered in favor of Franchisor.

5. The undersigned hereby waives notice of any demand by Franchisor as well as any notice of default in the payment of any and all amounts contained or reserved in the Agreement.

6. All sums due under this guarantee shall bear interest from the date due until the date paid at the maximum contract rate permitted by law. The obligations under this guarantee include, without limitation, payment when due of any and all sums due under the Agreement and all damages to which Franchisor is or may be entitled whether under applicable law, indemnification payments and payment of any and all legal fees,

87


courts costs and litigation expenses incurred by Franchisor in endeavoring to collect or enforce any of the foregoing against Franchisee, the undersigned, or in connection with any property securing any or all of the foregoing or this guarantee.

7. The undersigned agrees that one or more successive or concurrent actions may be brought on this guarantee, in the same action in which Franchisee may be sued or in separate actions, as often as deemed advisable by Franchisor. The obligations under this guarantee are joint and several, and independent of the obligations of Franchisee.

8. No election in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Franchisors right to proceed in any other form of action or proceeding or against any other party. The failure of Franchisor to enforce any of the provisions of this guarantee at any time or for a period of time shall not be construed to be a waiver of any such provision or the right thereafter to enforce the same. All remedies under this guarantee shall be cumulative and shall be in addition to all rights, powers and remedies given to Franchisor by law or under any other instrument or agreement.

9. All rights, benefits and privileges under this guarantee shall inure to the benefit of and be enforceable by Franchisor and its successors and assigns and shall be binding upon the undersigned and his heirs, representatives, successors and assigns. Neither the death of the undersigned nor notice thereof to Franchisor shall terminate this guarantee as to his estate, and, notwithstanding the death of the undersigned or notice thereof to Franchisor, this guarantee shall continue in full force and effect. The provisions of this guarantee may not be waived or amended except in writing executed by the undersigned and a duly authorized representative of Franchisor.

10. The undersigned represents and warrants that (i) it is in the undersigneds direct interest to assist Franchisee in procuring the Agreement, because Franchisee has a direct or indirect corporate or business relationship with the undersigned, (ii) this guarantee has been duly and validly authorized executed and delivered and constitutes the binding obligation of the undersigned, enforceable in accordance with its terms, and (iii) the execution and delivery of this guarantee does not violate (with or without the giving of notice, the passage of time, or both) any order, judgment, decree, instrument or agreement to which the undersigned is a party or by which it or its assets are affected or bound.

11. If any provision of this guarantee or the application thereof to any party or circumstance is held invalid, void, inoperative, or unenforceable, the remainder of this guarantee and the application of such provision to other parties or circumstances shall not be affected thereby, the provisions of this guarantee being severable in any such instance. This guarantee is the entire and only agreement between the undersigned and Franchisor respecting the guaranty of the Agreement, and all representations, warranties, agreements, or undertakings heretofore or contemporaneously made, which are not set forth in this guarantee, are superseded.

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12. Any notice which a party shall be requested or shall desire to give to the other under this guarantee shall be given by personal delivery or by depositing the same in the United States mail, first class postage pre-paid, addressed to Franchisor at its address set forth above and to the undersigned at its address set forth above, and such notices shall be deemed duly given on the date of personal delivery or three (3) days after the date of mailing as aforesaid. Either party may change their address for purposes of receiving notices under this guarantee by giving written notice thereof to the other party in accordance with this section.

13. This guarantee is governed by and construed according to the laws of the State of California applicable to contracts made and to be performed in such state. In order to induce Franchisor to accept this guarantee, and as a material part of the consideration therefore, the undersigned (i) agrees that all actions or proceedings relating directly or indirectly to this guarantee shall, at the option of the Franchisor, be litigated in courts located within the State of California, and (ii) consents to the jurisdiction of any such court and consents to the service of process in any such action or proceeding by personal delivery or any other method permitted by law.

The undersigned waives and relinquishes any rights it may have under California Civil Code 2845, 2849 and 2850 or otherwise to require Franchisor to (a) proceed against Franchisee or any other guarantor, pledgor or person liable under the Agreement; (b) proceed against or exhaust any security for the Franchisee or this guarantee; or (c) pursue any other remedy in Franchisors power whatsoever. In other words, Franchisor may proceed against the undersigned for the obligations guaranteed without first taking any action against Franchisee or any other guarantor, pledgor or person liable under the Agreement and without proceeding against any security. The undersigned shall not have, and herby waives (a) any right of subrogation, contribution, indemnity and any similar right that the undersigned may otherwise have, (b) any right to any remedy which Franchisor now has or may hereafter have against Franchisee, and (c) any benefit of any security now or hereafter held by Franchisor. The undersigned waives (a) all presentments, demands for performance, notices of non-performance, protests, notices of protests and notices of dishonor; (b) all other notices and demands to which the undersigned might be entitled, including without limitation notice of all the following: the acceptance hereof; any adverse change in Franchisees financial position; any other fact which might increase the undersigneds risk; any default, partial payment or non-payment under the Franchisee and any changes, modifications, or extensions thereof; and any revocation, modification or release of any guaranty of any or all of the Agreement by any person (including without limitation any other person signing this guarantee): (c) any defense arising by reason of any failure of Franchisor to obtain, perfect, maintain or keep in force any security interest in any property of Franchisee or any other person; (d) any defense based upon or arising out of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against Franchisee or any other guarantor or any person liable under the Agreement.

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Without limiting the generality of the foregoing or any other provision of this guarantee, the undersigned expressly waives any and all benefits which might otherwise be available to it under California Civil Code 2839 (which provides that a surety is exonerated by the performance or the offer of performance of the principal obligation), 2899 (which provides for the order of resort to different funds held by the creditor) and 3433 (which provides for the right of a creditor to require that another creditor entitled to resort to several sources of payments first resort to sources not available to the first creditor). The undersigned waives the rights and benefits under California Civil Code 2819 and agrees that by doing so its liability shall continue even if Franchisor alters any obligations under the Agreement in any respect or Franchisors rights or remedies against Franchisee are in any way impaired or suspended without the undersigneds consent. Franchisor may without notice assign this guarantee in whole or in part.

14. The undersigned has had the opportunity to review this guarantee with its counsel and such counsel has explained to it the meaning and significance of the provisions of this guarantee, including but not limited to the waivers and consents contained in this guarantee, and answered any questions that it had regarding the meaning, significance and effect of the provisions of this guarantee.

The use of the singular herein shall include the plural. The obligations of two or more parties shall be joint and several. The terms and provisions of this guarantee shall be binding upon and inure to the benefit of the respective successors and assigns of the parties herein named.

IN WITNESS WHEREOF, the undersigned executed this guarantee on this          day of                     , 200    .

         
         

     

NAME

     

NAME

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EL POLLO LOCO FRANCHISE AGREEMENT

EXHIBIT D

AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS

(DIRECT DEBITS)

The undersigned depositor (Depositor) hereby authorizes El Pollo Loco, Inc. (El Pollo Loco) to initiate debit entries and/or credit correction entries to the Depositors checking and/or savings account(s) indicated below and the depository (Depository) to debit such account pursuant to El Pollo Locos instructions.

         
         

     

Depository

     

Branch

     
         

       

Street Address, City, State, Zip Code

       
     
         

     

Bank Transit/ABA Number

     

Account Number

This authority is to remain in full force and effect until Depository has received joint written notification from El Pollo Loco and Depositor of the Depositors termination of such authority in such time and in such manner as to afford Depository a reasonable opportunity to act on it. Notwithstanding the foregoing, Depository shall provide El Pollo Loco and Depositor with thirty (30) days prior written notice of the termination of this authority. If an erroneous debit entry is initiated to Depositors account, Depositor shall have the right to have the amount of such entry credited to such account by Depository, if within fifteen (15) calendar days following the date on which Depository sent to Depositor a statement of account or a written notice pertaining to such entry or forty five (45) days after posting, whichever occurs first, Depositor shall have sent to Depository a written notice identifying such entry, stating that such entry was in error and requesting Depository to credit the amount thereof to such account. These rights are in addition to any rights Depositor may have under federal and state banking laws.

                 
                 

     

Depositor

     

Depository

         

By:

         

By:

   
   

         

Title:

         

Title:

   
   

         

Date:

         

Date: