Exhibit 10.10
January 1, 2003
PIZZA HUT, INC.
TERRITORY FRANCHISE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I. FRANCHISE RIGHT GRANTED.........................2
ARTICLE II. DUTIES OF COMPANY AND TRAINING..................5
ARTICLE III. MANUAL AND STANDARDS OF OPERATION, QUALITY,
CLEANLINESS, AND SERVICE........................7
ARTICLE IV. DUTIES OF OPERATOR, PRETESTING,UNIFORMS,
INSPECTIONS.....................................8
ARTICLE V. ERECTION OF BUILDING AND COMMENCEMENT
OF BUSINESS....................................11
ARTICLE VI. ADVERTISING AND CO-OPS.........................11
ARTICLE VII. COMPANY'S MARKS................................15
ARTICLE VIII. PURCHASE OF EQUIPMENT, SUPPLIES, AND OTHER
PRODUCTS.......................................16
ARTICLE IX. FRANCHISE FEES; DEVELOPMENT SCHEDULE...........16
ARTICLE X. BOOKS, RECORDS, GROSS SALES....................20
ARTICLE XI. COVENANT REGARDING OTHER BUSINESS INTERESTS....21
ARTICLE XII. INTERFERENCE WITH EMPLOYMENT RELATIONS.........22
ARTICLE XIII. USE OF PREMISES................................23
ARTICLE XIV. SECRET RECIPES AND OTHER SECRET INFORMATION....23
ARTICLE XV. LEASE APPROVAL.................................23
ARTICLE XVI. TRANSFER OF INTEREST...........................23
ARTICLE XVII. PARTNERSHIP AND CORPORATE OPERATORS............26
ARTICLE XVIII. PERMITTED ASSIGNMENTS..........................27
ARTICLE XIX. DEFAULT AND TERMINATION........................28
ARTICLE XX. RIGHTS AND OBLIGATIONS UPON TERMINATION OR
NONRENEWAL.....................................31
ARTICLE XXI. RENEWAL........................................32
ARTICLE XXII. REPAIR AND MAINTENANCE.........................35
ARTICLE XXIII. ADDITIONAL TRADEMARKS..........................35
ARTICLE XXIV. INSURANCE......................................35
ARTICLE XXV. INDEMNIFICATION................................36
ARTICLE XXVI. RELATIONSHIP OF PARTIES........................36
ARTICLE XXVII. EXECUTION, INTERPRETATION, NOTICES.............37
ARTICLE XXVIII. REQUESTS FOR WAIVERS AND CONSENTS..............39
ARTICLE XXIX. RELEASE........................................39
2003
PIZZA HUT, INC.
FRANCHISE AGREEMENT
(1990 REPLACEMENT)
THIS AGREEMENT made as of this 1st day of January, 2003, by and
between PIZZA HUT, INC., a California corporation, with its principal
place of business at Dallas, Texas (hereinafter called "Company"), and
American Pizza Partners, L.P. (hereinafter called "Operator" and
defined in Article XXVII.C.):
WITNESSETH:
WHEREAS, Company is the owner of a pizza distribution business
operated by it and by its licensees throughout the United States and
in certain foreign countries under the name and mark "Pizza Hut";
WHEREAS, Company has developed and continues to develop and owns
a system for merchandising pizza and certain related foods, which
system includes distinctive signs, food recipes, uniforms, and various
trade secrets and other confidential information, and in some cases
also includes architectural designs, equipment specifications, layout
plans, inventory and record-keeping techniques, and marketing
techniques (hereinafter called "System");
WHEREAS, Company developed the System through the expenditure of
time, money, and effort and has maintained high standards of quality
and service for operations in the System, as a result of which the
System has acquired valuable goodwill and a favorable reputation;
WHEREAS, Company identifies the System by certain trademarks,
trade names, service marks, symbols, slogans, emblems, logos, designs,
and other indicia of origin (hereinafter called "Company's Marks"),
including the trademark, trade name, and service mark "Pizza Hut" and
such other marks as may be designated by Company in writing as being
authorized for use in the System, all of Company's Marks being owned
by Company and used by Company and its licensees to identify for the
public the source of the services rendered in accordance with the
System and the high standards of quality attendant thereto;
WHEREAS, the parties hereto have previously been parties to a
1990 Pizza Hut, Inc. Franchise Agreement (the "1990 Franchise
Agreement") governing the System business conducted by Operator within
the same geographical territory as hereafter specified;
WHEREAS, the parties hereto mutually desire to supersede the 1990
Franchise Agreement and any amendments thereto, with this Franchise
Agreement in order to satisfactorily redefine their respective rights
and obligations;
WHEREAS, Operator desires to continue to enjoy the benefits of
operating under the System and using Company's Marks, and to continue
to be licensed to operate one or more facilities within the System in
strict accordance with the standards and specifications established by
Company; and
WHEREAS, Company is willing to grant Operator a license under
Company's Marks and the System, subject to Operator's strict
compliance with the terms and conditions of this Agreement;
NOW, THEREFORE, the parties hereto, in consideration of the
mutual agreements herein contained and promises herein expressed and
for other good and valuable consideration, receipt of which is hereby
acknowledged, do hereby agree as follows:
ARTICLE I.
FRANCHISE RIGHT GRANTED
A. 1. Company hereby grants to Operator, for a period of
thirty (30) years beginning on January 1, 2003, subject to renewal as
provided in Article XXI., the right and license, and Operator hereby
undertakes the obligation, to operate the business described below
under the mark "Pizza Hut" and such other of Company's Marks as may be
designated by Company, and to operate such business solely in
accordance with Company's System, and only at locations in the
following geographical territory (hereinafter called the "Territory"):
Counties of Big Horn, Carbon, Dawson, Fallon, Richland,
Roosevelt, Sheridan and Valley, Montana
The business in which Operator is licensed to engage within the
Territory consists of the operation of "System Restaurants." For
purposes of this Agreement, "System Restaurants" comprise only the
following concepts within the System: (a) Pizza Hut Restaurants
("Pizza Hut Restaurants") - (Company's original concept) from which
Pizza Hut pizza (and other System-authorized food and beverage items)
are sold for dine in (on-premises) and carryout (off-premises)
consumption; and may be delivered for off-premises consumption; in
order to be a Pizza Hut Restaurant, a restaurant must have either at
least 30 seats or at least 15% of its sales attributable to dine-in
service; (b) Delivery Restaurants ("Delivery Restaurants") - from
which Pizza Hut pizza (and other System-authorized food and beverage
items) are delivered for off-premises consumption; (c)
Delivery/Carryout restaurants ("Delco Restaurants") - from which Pizza
Hut pizza (and other System-authorized food and beverage items) are
sold for carryout and/or delivered, all for off-premises consumption;
and (d) Express Restaurants ("Express Restaurants") - from which a
limited menu of Pizza Hut pizza (and other System-authorized food and
beverage items) are sold for immediate on- or off-premises consumption
(throughout this Agreement, the phrase "System Restaurant Concepts"
refers to the four (4) concepts, described above, that jointly
constitute "System Restaurants"). Company reserves the right (in its
reasonable discretion and consistent with the foregoing definitions
and limitations) to clarify the portions of the entire System that
fall within the term "System Restaurants," and to distinguish (and set
differing standards for) the various System Restaurant Concepts.
2. With respect to any System Restaurants within the Territory
which (i) are subject to the 1990 Franchise Agreement as of the date
hereof, or (ii) were at any time subject to the 1990 Franchise
Agreement and subsequently became subject to a Pizza Hut New
Construction Franchise Agreement ("NCFA") between Company and
Operator, such System Restaurants shall, effective as of January 1,
2003, be subject to the provisions of this Agreement. The 1990
Franchise Agreement and the NCFAs relating to System Restaurants as
described in clause (ii) of the preceding sentence shall be superseded
in all respects by this Agreement. The foregoing shall not release
Operator or Company from the following ("Surviving Claims"): (i) any
liability for monetary obligations existing prior to January 1, 2003,
including obligations arising pursuant to Article VI or Article IX of
the 1990 Franchise Agreement or (ii) any indemnification liability
under Article XXV of the 1990 Franchise Agreement based upon facts or
circumstances existing prior to January 1, 2003.
3. Company and Operator may have entered into certain
amendments, supplements or side agreements relating to the 1990
Franchise Agreement or one or more NCFAs which have been merged into
this Agreement (collectively, the "Side Agreements"). Company and
Operator intend that certain or all of the Side Agreements shall
continue in full force and effect after the execution and delivery of
this Agreement. To the extent that the provisions of the Side
Agreements are in direct conflict with the provisions of this
Agreement, the provisions of the Side Agreements shall control. All
of the Side Agreements which Company and Operator intend to remain in
full force and effect are identified on Schedule D.
B. During the term of this Agreement, Company shall not
establish nor license another to establish within the Territory,
except under the conditions set forth in Articles I.D. or IX., a
System Restaurant. Operator acknowledges and agrees that, subject only
to the preceding sentence and to Article I.D., Company retains, among
others, the right to sell any product under the Company's Marks or any
other name or mark to any purchaser within the Territory.
C. Operator shall conduct its System Restaurant business only
at locations within the Territory. The establishment of Operator's
System Restaurants shall be in accordance with this Agreement and the
terms and conditions of this Agreement shall automatically extend to
and govern the respective rights, duties, and obligations of Company
and Operator as to each such location, including the payment to
Company by Operator of an initial franchise fee and monthly service
fee for each System Restaurant as provided in Article IX.A., the same
as if a separate franchise agreement had been executed for each such
System Restaurant. No System Restaurant of Operator shall be
established at a location within a two (2) mile radius of any then-
existing Pizza Hut Restaurant without the Company's prior written
consent.
D. 1. During the term of this Agreement, Company may develop
one or more new methods of distributing pizza, pasta, or other Italian
food items similar to Italian food items approved by Company for sale
in System Restaurants using Company's Marks (hereinafter called "New
Concepts"), which may or may not involve restaurants. Company may, at
its sole discretion, permit Operator to participate in testing a New
Concept. If the New Concept cannot (in Company's reasonable judgment)
be exploited by a majority of Company's franchisees in the United
States due to legal or institutional barriers, Company may
nevertheless implement (or license others to implement) the New
Concept, provided that, if Operator is in "good standing" (as defined
below), Company must pay Operator an amount equal to two and one-half
percent (2.5%) of the gross sales of the New Concept within the
Territory. In all other circumstances, the Company may implement the
New Concept only pursuant to Article I. D. 2.
2. If the New Concept can (in Company's reasonable judgment)
be exploited by a majority of Company's franchisees in the United
States, and if the testing demonstrates an acceptable unit return
(which is defined to be a fifteen percent (15%) cash-on-cash return on
the capital investment including the initial fee for the New Concept,
and treating the ongoing royalty for the New Concept as an expense,
but excluding the cost of financing), and if Operator is in "good
standing" (as defined in Article I. D. 3.), the New Concept will be
released to Operator (whether or not Operator participated in the
test) subject to payment of a $25,000 initial fee and ongoing royalty
for the New Concept (the ongoing royalty shall not exceed the fee
provided in this Agreement). The New Concept when released becomes a
System Restaurant for purposes of this Agreement and will be governed
by this Agreement.
a. Following the release of a New Concept to Operator and
other franchisees within the System, Company shall publish to the
System an evaluation of the total development potential for the New
Concept. Once the System has developed five percent (5%) of the
potential total, Company can at any time mandate to Operator and other
franchisees within the System development of the New Concept. At the
time of the mandate, Company will notify Operator of Company's
projection of the total development potential of the New Concept
within the Territory. If Operator desires to implement the New
Concept, Operator must submit to Company within thirty (30) days after
Company's mandate, Operator's proposed five (5)-year schedule for
development of the New Concept in the Territory. Within thirty (30)
days thereafter, Company shall either accept Operator's proposed
development schedule, or counterpropose a different five (5)-year
development schedule. Operator shall have fifteen (15) days from the
date Company accepts Operator's proposed development schedule or
counterproposes its own development schedule within which to elect in
writing to undertake to establish the New Concept according to the
terms of the development schedule.
b. If Operator fails to make that election or fails to meet
the development schedule, then Company, to the exclusion of Operator,
may at any time itself develop the New Concept within the Territory,
but may not license the New Concept or a facility in which it is
implemented until the third anniversary of the opening of each such
outlet featuring the New Concept. After the third anniversary, Company
may license the outlet to another but only if Company first offers to
Operator (if Operator is then in good standing as defined in Paragraph
I. D. 3.) the right of first refusal, for thirty (30) days, to acquire
the assets of the outlet at the price and terms offered by the third
party (or the cash equivalent of noncash consideration offered by the
third party), together with the franchise of the right to operate it
pursuant to this Agreement.
c. In establishing a development schedule for a New Concept,
Company shall take into account criteria including potential sales
volume, market demographics, saturation analysis, diversion of sales
from Operator's other System Restaurants, and physical and geographic
characteristics of areas in the Territory.
3. Operator is in "good standing" if there is no outstanding
notice of Operator's default under this Agreement that has not been
cured. If Operator is not in good standing, Company will notify
Operator to that effect, and will tell Operator how to return to good
standing; upon Operator's return to good standing, Company will (as
appropriate) begin paying the passover royalty to Operator or release
the New Concept to Operator.
4. Company may periodically develop or offer concepts
primarily for use in connection with and integration within a System
Restaurant (a "Multi-Brand Concept") and prepare license agreements
("YUM! Brands Multi-Brand License Agreements") for use in connection
therewith. If any Multi-Brand Concept qualifies as a New Concept,
then until January 1, 2011: (i) the service fee rate for such New
Concept shall not exceed the applicable Service Fee rate, and (ii) the
advertising fee rates shall not exceed the advertising fee rates
required under Articles VI.A.9 and VI.C below. Effective January 2,
2011, such rates for a New Concept subject to the preceding sentence
shall be as described in the applicable then-current YUM! Brands
Multi-Brand License Agreement, except that with respect to pizza items
sold in connection with the New Concept which is a Multi-Brand
Concept, any service fee rate shall in no event exceed the applicable
Service Fee rate and any advertising fee rates shall not exceed the
advertising fee rates required under Articles VI.A.9 and VI.C below.
Nothing contained in this Article I.D.4 shall relieve or discharge PHI
from its obligations pursuant to Article I.B, Article I.D.1 and
Article I.D.2 above, including without limitation PHI's obligation to
release a New Concept to Operator as therein provided, even if the
Multi-Brand Concept is licensed under a separate agreement.
ARTICLE II.
DUTIES OF COMPANY AND TRAINING
Company will assist Operator in the proper operation of the
System Restaurant business in the following manner:
A. At the request of Operator, Company will help Operator
select suitable locations by furnishing established criteria for use
by Operator in evaluating and selecting locations, including location
inspections as reasonably determined by Company. Final approval of
locations must be obtained in writing from Company, if Company so
advises or has so advised Operator. If Operator intends to develop a
System Restaurant within the Territory at a location within two (2)
miles of the border of the Territory, Operator shall not proceed with
such development without first having obtained the written consent of
Company. Prior to developing a Company-owned System Restaurant at a
location outside of the Territory but within two (2) miles of the
border of the Territory, Company shall take into account criteria
including potential sales volume, market demographics, saturation
analysis, diversion of sales from Operator's other System Restaurants,
and physical and geographical characteristics; provided, however, that
no notice to or consent of Operator shall be required for such
development.
B. 1. Company will offer training programs for employees of
each of Operator's System Restaurant Concepts at locations and at
times selected by Company. Company will bear the costs of providing
training programs, including the overhead costs of training, staff
salaries, materials, and all technical training tools. Operator shall
pay all traveling, living, compensation, and other expenses incurred
by Operator and/or Operator's employees in connection with attendance
at training programs. The operation and manner of conducting such
programs shall be in the sole control of Company.
2. Operator will not allow any System Restaurant operated
pursuant to this Agreement to be managed by any person who has not
either 1) attended and successfully completed the management training
course designated by Company for the System Restaurant Concept at
issue, or 2) recently had a minimum of three (3) months experience
managing a System Restaurant operating within the same System
Restaurant Concept. In the event a restaurant manager resigns or is
terminated, Operator will not be in default of such requirement if the
successor restaurant manager commences the required training course
within ninety (90) days of first assuming the duties of a restaurant
manager and successfully completes said course. The required training
course conducted at Company's facilities will not extend beyond two
(2) weeks and will be structured so as to provide practical training
in the implementation and operation of the applicable System
Restaurant Concept(s).
3. If Operator has or implements a management training program
and has utilized Company's management training program for one (1)
year, Operator may request in writing that Company approve Operator's
management training program as an alternate method of complying with
the requirement of Article II.B.2. In such event, if Operator
satisfies Company that Operator's program is at least the equivalent of
Company's program, Company will certify such program. Company shall
have the right to continually review Operator's management training
program and to revoke the certification of such program whenever it
fails (in Company's sole discretion) to satisfy the equivalency
standard set forth above, as it may change from time to time.
C. Company will provide at no cost to Operator, upon
Operator's thirty (30) day advance request or as Company may deem
appropriate, a qualified Company representative at Operator's initial
location within each System Restaurant Concept for the first three (3)
days of operation to train personnel and otherwise assist in the
opening of the establishment.
D. Company will make available to Operator from time to time
Company's advice and assistance in the proper operation of System
Restaurants as Operator may reasonably request.
E. Company will provide on loan, at no cost to Operator, one
(1) set of the appropriate portion(s) of Company's detailed Manual
(which is more fully described in Article III.) for each System
Restaurant of Operator. The portion(s) of the Manual to be provided to
Operator may vary, depending upon the System Restaurant Concept
involved. Additional sets may be obtained on loan from Company for a
reasonable fee to be set by Company.
ARTICLE III.
MANUAL AND STANDARDS OF OPERATION,
QUALITY, CLEANLINESS, AND SERVICE
A. The Manual, and all portions of and all copies of the
Manual, shall remain the property of Company and shall be returned to
Company upon termination or nonrenewal of this Agreement.
B. 1. In the Manual, among other publications, Company will
promulgate standards of operation for each of the System Restaurant
Concepts, and standards of quality, cleanliness, and service for all
food, beverages, furnishings, interior and exterior decor, supplies,
fixtures, and equipment used in connection with each System Restaurant
Concept. Operator shall at all times conform to such standards.
Company may, from time to time, change the standards, in which case
Operator shall comply with any new or changed standard.
2. No new or changed standard calling for expenditures by
Operator which Company considers to be substantial will be required by
Company unless the proposed standard is pretested in a reasonably
representative sample of System Restaurants, constituting at least
five percent (5%) of the System Restaurants in the United States
operating within the same System Restaurant Concept(s), and the
results of such pretesting demonstrate customer acceptance and
operational feasibility. Company will also consider the financial
implications in connection with such proposed standard. The System
Restaurants selected to participate in the pretest program will be
reasonably representative of the entire System Restaurant Concept with
respect to sales volume, market demographics, and physical and
geographical characteristics, and may consist of a combination of
Company-owned and franchisee-owned System Restaurants, or all Company-
owned or all franchisee-owned System Restaurants. Operator may be
requested to participate, but such participation will be voluntary.
Operator shall have a minimum of ninety (90) days after receipt of
written notice in which to fully implement such new standard or
changed standard, but in no event will Operator be required to
implement any such new standard or changed standard at a faster
percentage rate than being accomplished by Company-owned System
Restaurants in the United States.
C. Operator shall Remodel, Rebuild, Relocate, Reimage and
Refurbish (as such terms are defined on Schedule B hereto) its Pizza
Hut Restaurants in accordance with the provisions of Schedule B.
D. The Manual is a highly confidential document which contains
certain of Company's trade secrets, and Operator shall never reveal,
and shall take all reasonable precautions to assure that its employees
shall never reveal, any of the contents of the Manual or any other
publication provided by Company, except as is necessary to the
operation of Operator's System Restaurants.
ARTICLE IV.
DUTIES OF OPERATOR, PRETESTING, UNIFORMS, INSPECTIONS
A. In order to preserve and promote the value and goodwill of
Company's Marks and the System:
1. Operator shall conduct its business consistent with the
standards promulgated by Company in the Manual and other publications
and in strict compliance with the terms of this Agreement.
2. Operator shall not manufacture, advertise for sale, sell,
or give away any product unless such product has been approved and not
thereafter disapproved in writing by Company. All approved products
shall be distributed under the specific name designated by Company.
Operator shall establish all menu prices in its sole discretion. If
Operator has a suggestion for a new product, or for a change to
existing product specifications, or desires to participate in a test
market program, Operator shall so advise Company in writing. Company
will consider Operator's suggestions and/or requests, and advise
Operator of its response within a reasonable time.
3. a. Operator shall offer for sale in its System
Restaurants only those food products which Company designates as
"standard" or which Company has made available as a "regionalized"
menu item or has specifically approved pursuant to Article IV.A.2. No
standard product will be removed from the menu unless Operator is so
instructed by Company.
Operator shall, upon receipt of notice from Company, add a
standard product to its menu according to the instructions contained
in the notice. Operator shall have a minimum of ninety (90) days after
receipt of written notice in which to fully implement any such change
and in no event shall Operator be required to implement any such
change at a faster percentage rate than that being accomplished by
comparable Company-owned System Restaurants within the same general
geographic market area, if any. Operator shall cease selling any
previously approved product within thirty (30) days after receipt of
notice that the product is no longer approved.
b. Operator will not be required to implement any new standard
product unless the proposed standard product is pretested in a
reasonably representative sample of System Restaurants, constituting
at least five percent (5%) of the System Restaurants in the United
States in the same System Restaurant Concept(s), and the results of
such pretesting demonstrate customer acceptance and operational
feasibility. For those proposed standard products which require a
capital investment in equipment, the pretest results must also
demonstrate that a majority of System Restaurants participating in the
pretest realized an acceptable unit return (which is defined to be at
least a ten percent (10%) cash-on-cash return on the capital
investment and ongoing royalty, but excluding the cost of financing).
The System Restaurants selected to participate in the pretest program
will be reasonably representative of the entire System Restaurant
Concept with respect to sales volume, market demographics, and
physical and geographical characteristics. Operator may be requested
to participate, but such participation shall be voluntary. The
restaurants selected to participate may consist of a combination of
Company-owned and franchisee-owned System Restaurants, or all Company-
owned or all franchisee-owned System Restaurants.
c. Any food products approved for System Restaurants as of
January 1, 2003 shall not be subject to the requirements of Article
IV.A.3.b.
4. Company shall have the right, in the Manual or in other
publications, to prescribe one or more menu formats to be utilized in
each System Restaurant Concept. The menu format(s) may include, in
Company's discretion, requirements concerning organization, graphics,
product descriptions, illustrations, and any other matters (except
prices) related to the menu, whether or not similar to those listed.
In Company's discretion, the menu format(s) may vary depending upon
region, market size, or other factors. Company may change the menu
format(s) from time to time, in which case Operator will be given a
reasonable time (not longer than six (6) months) to discontinue use of
the old menu format(s) and implement use of the new menu format(s).
The content, as opposed to the format, of menus shall be determined in
accordance with Articles IV.A.2. and IV.A.3.
5. The food products sold by Operator shall be of the highest
quality, and the ingredients, composition, specifications, and
preparation of such food products shall comply with the instructions
and recipes provided by Company or contained in Company's Manual, and
with the further requirements of Company as they are communicated to
Operator from time to time.
6. Operator shall not sell or distribute any food product or
ingredient except as a complete and fully processed food product, or
as otherwise approved in writing by Company.
7. Operator shall operate each of its System Restaurants as a
clean, orderly, legal, and respectable place of business in accordance
with Company's business standards and merchandising policies and shall
comply with all applicable ordinances, laws, and statutes governing
the operation of such premises, including all food and drug laws and
regulations.
8. Operator shall maintain a suitable sign at, on, or near the
front of the premises from which each of its System Restaurants is
operated, identifying the premises only as "Pizza Hut." Such sign
shall conform in all respects to Company's requirements except to the
extent prohibited by local legal restrictions.
9. Operator shall cause all employees, while working in System
Restaurants, to: (i) wear uniforms of such color, design, and other
specifications as Company may designate from time to time, and (ii)
present a neat and clean appearance. In the event the type of uniform
utilized by Operator is deleted from the list of approved uniforms,
Operator shall have six (6) months from receipt of written notice of
such deletion to discontinue use of its existing inventory of uniforms
and implement an approved type of uniform.
10. Operator shall not permit any vending or game machines or
any other items to be installed or maintained on the premises without
Company's prior written approval, except that Company hereby consents
to the installation of cigarette and newspaper vending machines, coin
telephones, and non-video jukeboxes.
11. Operator shall implement not later than January 1, 2006,
and thereafter shall utilize, resident point-of-sales and backoffice
systems ("Technology Systems") which shall be compatible with the data
reporting systems used by Company. Such Technology Systems shall have
functionality which will permit the performance of the tasks set
forth on Schedule C hereto.
B. Company may require the operation of one or more System
Restaurant Concepts for a specified minimum number of hours per week,
by a statement to that effect in the Manual. If Operator seeks (in
writing) Company's consent to operate one or more specific System
Restaurants a lesser number of hours per week, Company will consider
such factors as the System Restaurant's sales volume, profitability,
location, exposure to criminal activity, the nature of the concept
involved, and competitive activity in the vicinity. Nothing herein
shall prevent Operator from temporarily closing one or more System
Restaurant(s) without Company's consent on any five (5) holidays of
Operator's choosing per year or in the event of natural disaster,
severe and unusual weather conditions, or grave emergency beyond
Operator's control.
C. Company's authorized representatives shall have the right
to enter upon the premises of Operator's System Restaurants at any
reasonable time for the purpose of examining same, conferring with
Operator's employees, inspecting and checking operations, food,
beverages, furnishings, interior and exterior decor, supplies,
fixtures, and equipment, and determining whether the business is being
conducted in accordance with Company's standards and the terms of this
Agreement. Operator will receive after each inspection a written
inspection report. In the event any such inspection report indicates
any deficiency or unsatisfactory condition with respect to any matter
on said inspection report, Operator shall, within forty-eight (48)
hours of Operator's receipt of the report or such other time period as
Company in its sole discretion may provide, correct or repair such
deficiency or unsatisfactory condition if it is correctable or
repairable within such period of time, and, if not, shall within such
period of time commence such correction or repair and thereafter
diligently pursue the same to completion. In the event of failure of
Operator to comply with the foregoing obligations to correct and
repair, Company shall have the right, without being guilty of trespass
or other tort, to forthwith make or cause to be made such corrections
or repairs, and the expenses thereof, including board, lodging, wages,
and transportation of Company personnel, if utilized in Company's sole
discretion, shall be paid by Operator upon billing by Company. The
foregoing shall be in addition to any other rights or remedies Company
may have.
ARTICLE V.
ERECTION OF BUILDING AND COMMENCEMENT OF BUSINESS
A. If required by applicable law, Operator shall promptly file
and publish a certificate of doing business under an assumed or
fictitious name and shall furnish a certified copy of said certificate
to Company promptly thereafter.
B. Operator shall obtain all necessary governmental permits
and licenses prior to beginning the erection of any System Restaurant
building or buildings. Operator shall fully complete said construction
within a reasonable time thereafter. Operator shall commence operation
of each System Restaurant no later than thirty (30) days following
completion of the building and improvements and shall give Company ten
(10) days written notice prior to commencing operations. In no event
shall Operator construct or remodel the interior or exterior of any
System Restaurant or make any improvements which vary from the then-
current standards, plans, and specifications approved by Company,
without first obtaining the prior written approval of Company.
C. Operator shall obtain all municipal and state licenses
necessary to operate each of Operator's System Restaurants prior to
commencement of business at the System Restaurant and shall maintain
all licenses during the term of this Agreement.
ARTICLE VI.
ADVERTISING AND CO-OPS
A. 1. Company has and will continue to define certain
marketing areas in which Co-operative Advertising Associations of
System Restaurants ("Co-ops") are to be established. Each Co-op shall
function for the purpose of maximizing the efficient utilization of
local advertising media. On the basis of established advertising
criteria such as Arbitron, A. C. Nielsen, or other comparable
standard, Company has or will, for each System Restaurant operated by
Operator under this Agreement, specify which Co-op, or in some
instances more than one Co-op, each System Restaurant shall join. Each
System Restaurant operated by Operator shall participate in the Co-op
or Co-ops designated by Company. On the basis of established
advertising criteria such as Arbitron, A. C. Nielsen, or other
comparable standard, Company may subsequently change such designation
for one or more of Operator's System Restaurants and require such
System Restaurants to participate in a new and/or different Co-op or
Co-ops. If requested, Company will assist in the establishment of such
Co-op or otherwise assist in fulfilling the intent of this Article
VI.A.1. In the event an impasse occurs owing to the inability or
failure of the Co-op members to resolve within forty-five (45) days
any issue affecting the establishment or effective functioning of an
individual Co-op, any such issue shall, upon request of a member of
said Co-op or the Advertising Committee of Company and I.P.H.F.H.A.,
Inc. (hereinafter called the "Advertising Committee"), be submitted to
the Advertising Committee for consideration, and its resolution of
such issue shall be final and binding on all members of the Co-op.
2. For each of Operator's System Restaurants, Operator shall
make monthly contributions to the Treasurer of each Co-op of which the
Restaurant is a member, in accordance with this provision.
Except as provided in Article VI.A.9., Company will require every
Operator of System Restaurants to belong, and contribute, to a local
co-op.
a. For those System Restaurants which are members of only one
Co-op, Operator shall contribute an amount equal to one and three-
fourths percent (1-3/4%) of the prior monthly gross sales (as defined
in Article X.B.) of each such System Restaurant. The contribution
rate for any Co-op may be increased at any time, but only upon
approval of the members of the Co-op in accordance with its bylaws or
operating procedures.
b. For those System Restaurants which are members of more than
one Co-op, Operator shall make a total contribution for each such
restaurant pursuant to Article VI.A.2.a. Company will advise Operator
as to what portion of each such System Restaurant's total contribution
shall be made to each Co-op; the apportionment shall be based upon the
percentage of broadcast signals received in the trade area of the
System Restaurant from the stations in each Co-op's market area. Upon
notice to Operator, Company may subsequently alter its apportionment
instructions. If Operator's System Restaurants have been assigned to
more than one Co-op and the Co-ops have different contribution rates,
the contributions to each Co-op shall be adjusted proportionately to
reflect the different contribution rates.
3. If Company owns a System Restaurant within a defined
marketing area of any such Co-op or Co-ops, it will be a participating
member and contribute to said Co-op or Co-ops for each such Company-
owned System Restaurant under the same terms as specified in Article
VI.A.2.a. and b. (subject, however, to the limitations set forth in
Article VI.F.).
4. The amount so contributed to the Co-op under Article
VI.A.2. and 3. shall be used only to purchase broadcast media
advertising; provided, however, that a Co-op may, upon consent of the
members of the Co-op owning seventy-five percent (75%) of the System
Restaurants within the Co-op, seek consent of the Advertising
Committee to spend any part of such funds for other types of
externally measurable advertising by demonstrating that a more
efficient method of accomplishing the purposes for which the Co-op was
established is available in the Co-op's marketing area. Each Co-op
shall retain the services of a professional advertising agency and
shall utilize said agency in purchasing its broadcast media
advertising.
5. In those instances where expenditure of all required Co-op
contributions would cause the advertising level to exceed the
reasonable level of effective advertising, the contributions required
by Article VI.A.2. and 3. may be reduced to a lesser amount upon
unanimous approval of all members of the Co-op and unanimous consent
of the Advertising Committee.
6. Company shall have the right, at reasonable times, to have
its authorized representatives review the business records of a Co-op
and, at Company's discretion, to conduct an audit of the Co-op's
books, records, and accounts.
7. All Co-op advertising shall be prepared, reviewed, and used
in accordance with the requirements of Article VI.E. and such
provision shall apply to all Co-op advertising and promotion.
8. Company reserves the right to establish general standards
concerning the operation of all Co-ops, advertising agencies retained
by Co-ops, and advertising programs conducted by Co-ops. No such
standards shall be promulgated without the approval of the Advertising
Committee, and all standards shall be uniformly applied. In no event
shall Operator's contribution, required in Article VI.A.2., be
increased as a result of such standards without Operator's consent. If
Company establishes a one store-one vote majority rules standard for
voting on all matters other than those (a) increasing, redirecting or
decreasing Co-op dues or contributions or (b) implementing any further
bylaw amendments, Operator shall exercise Operator's voting power in
each Co-op of which Operator is a member to implement that standard.
Any inconsistent provisions of this Agreement shall be deemed amended
to reflect the implementation of the one-store one-vote majority rules
standard in respect to each Co-op so acting.
9. For each of Operator's System Restaurants for which Company
does not designate a Co-op pursuant to Article VI.A.1., or whenever a
Co-op is not functioning, Operator shall nevertheless spend monthly
one and three-fourths percent (1-3/4%) of the prior monthly gross
sales of each such System Restaurant for broadcast media advertising
within each such System Restaurant's marketing area. Operator may seek
consent of the Advertising Committee to spend any part of such funds
for other types of externally measurable advertising by demonstrating
that a more efficient method is available within such System
Restaurant's marketing area.
10. The monthly contributions and/or expenditures required by
Article VI.A.2., 3., and 9 shall be made on or before the twentieth
(20) day of each month based upon the prior monthly gross sales of
each System Restaurant.
B. Operator shall be a member of I.P.H.F.H.A., Inc. (sometimes
known informally as the International Pizza Hut Franchise Holders
Association but hereinafter referred to as "IPHFHA") during the term
of this Agreement. Operator hereby agrees to abide by the
Constitution, Bylaws, Rules, and Regulations of IPHFHA as the same
may, from time to time, be amended, and specifically agrees to pay all
charges and assessments appropriately made by IPHFHA upon Operator. At
any time that IPHFHA holds a vote concerning the dues and assessments
to be paid by its members, Operator shall exercise all of Operator's
voting power in IPHFHA to implement a dues rate not less than two and
one-half percent (2-1/2%) of the prior month's gross sales from each
System Restaurant for contribution to the national advertising fund
administered by the Advertising Committee.
C. During the period the Advertising Committee Agreement
between Company and IPHFHA is in force, Operator shall pay an amount
equal to two and one-half percent (2-1/2%) of the prior monthly gross
sales (as defined in Article X.B.) of each of Operator's System
Restaurants to IPHFHA, and Company shall require every new Operator or
Operator of a newly franchised territory for System Restaurants to pay
two and one-half percent (2-1/2%) of that Operator's System
Restaurant's prior monthly gross sales, for contribution to the
national advertising fund administered by the Advertising Committee.
The two and one-half percent (2-1/2%) payment incorporates, and is not
intended to be in addition to, IPHFHA dues described in Article VI.B.
above. However, Operator shall be obligated to pay the two and one-
half percent (2-1/2%) to IPHFHA for contribution to the national
advertising fund administered by the Advertising Committee even if the
dues rate actually imposed by IPHFHA is less than two and one-half
percent (2-1/2%). If, at any time and for any reason, the Advertising
Committee Agreement is no longer in force, Operator shall pay that
amount directly to Company for purposes of national advertising of the
System.
D. Notwithstanding anything contained in this Article VI to
the contrary, in no event shall Operator's aggregate advertising fee
rates for national and cooperative advertising be required to exceed
four and one-fourth percent (4-1/4%). The first two and one-half
percentage points of such aggregate advertising fees shall be applied
toward payment of Operator's national advertising obligations
(including IPHFHA dues, as referred to in Article VI.C), and the
balance of such advertising fees shall be applied toward payment of
Operator's cooperative advertising obligations.
E. No design, advertisement, sign, or form of publicity,
including form, color, number, location, and size, shall be used by
Operator unless the same shall have been first submitted to Company
and approved in writing (except with respect to prices). Any request
by Operator for such approval shall be addressed to Company's
Advertising Department and Company shall respond within thirty (30)
days. Whenever Operator elects to utilize, in the form supplied,
advertising supplied by Company or a promotional item specifically
approved by Company, no further approval for use of such material is
required. Upon written notice from Company, Operator shall discontinue
and/or remove any objectionable advertising materials. If said
materials are not discontinued and/or removed within five (5) days
after notice, Company, or its authorized agents, may, at any time,
enter upon Operator's premises, or elsewhere, and remove any
objectionable signs or advertising media and may keep or destroy such
signs or other media without paying therefor, and without being guilty
of trespass or other tort.
F. Company is not, under any circumstances (notwithstanding
any other provision of this Agreement or of the Advertising Committee
Agreement), obligated to contribute to any national or local
advertising fund, program, co-op, or other organization any
advertising fees or contributions for Company-operated System
Restaurants at a net effective rate higher than the aggregate net
effective rate at which Operator and all other members of IPHFHA
contribute to that fund, program, co-op, or other organization,
measured as a percentage of gross sales of the involved restaurants.
ARTICLE VII.
COMPANY'S MARKS
A. The license herein granted Operator to use Company's Marks
and the privileges herein granted are applicable with respect to
Operator's System Restaurants located in the Territory and not
elsewhere.
B. Operator shall not license or attempt to license any other
person or firm to use Company's Marks. Operator may use Company's
Marks only to identify Operator's licensed System Restaurants and
products specifically designated by Company in writing. Operator may
not sell any products using Company's Marks outside the Territory.
C. Operator shall not interfere in any manner with, or attempt
to prohibit, the use of Company's Marks by any other franchisee of
Company.
D. Operator shall immediately notify Company in writing of any
third party infringing upon Company's Marks or challenging Operator's
use of any marks licensed herein, and Company will diligently protect
such marks.
E. It is specifically agreed that all goodwill arising from
Operator's use of Company's Marks and System inures to Company.
F. All materials, including, without limitation, place mats,
menus, matchbook covers, and order books, used in Operator's System
Restaurants shall bear Company's Marks as prescribed by Company, and
such use shall indicate that Company's Marks are registered marks.
G. Operator shall exercise caution when utilizing Company's
Marks to ensure that said Marks are not jeopardized in any manner, and
Operator agrees to indemnify Company for any damage or expense
occasioned by Operator's improper use of said Marks.
H. Any location lease signed by Operator shall expressly
provide Operator, or Company as Operator's agent, with the right, upon
the termination or nonrenewal of either this Agreement or such lease,
to remove all identifying architectural superstructure and
characteristics from the building as Company may direct in order to
effectively distinguish the same from Company's proprietary building
design.
ARTICLE VIII.
PURCHASE OF EQUIPMENT, SUPPLIES, AND OTHER PRODUCTS
A. 1. Operator shall obtain all equipment, supplies, and
other products and materials required for the operation of its System
Restaurants solely from suppliers (including manufacturers,
distributors, and other sources) who demonstrate, to the continuing
reasonable satisfaction of Company, the ability to meet Company's
then-current reasonable standards and specifications for such items;
who possess adequate quality controls and capacity to supply
Operator's needs promptly and reliably; and who have been approved in
writing by Company and not thereafter disapproved. If Operator desires
to purchase any items from an unapproved supplier, Operator shall
submit to Company a written request for such approval, or shall
request the supplier itself to do so. Company shall have the right to
require that its representatives be permitted to inspect the
supplier's facilities, and that samples from the supplier be
delivered, at Company's option, either to Company or to an
independent, certified laboratory designated by Company for testing.
Company reserves the right, at its option, to reinspect the facilities
and products of any such approved supplier at any time and to revoke
its approval upon the supplier's failure to continue to meet any of
Company's criteria. Nothing in the foregoing shall require Company to
approve any supplier.
2. No item of merchandise, furnishings, interior and exterior
decor items, supplies, fixtures, equipment, or utensils bearing any of
Company's Marks shall be used or sold in or upon the premises of any
System Restaurant unless the same shall have been first submitted to
and approved in writing by Company.
B. So long as this Agreement is in effect, Operator shall
become and remain a member of the Pizza Hut National Purchasing Coop,
Inc. or its successors (the "Purchasing Coop"), and abide by its
Certificate of Incorporation and Bylaws as in effect from time to
time, including without limitation the provisions of Section 2.6 of
the Bylaws concerning purchase commitments. A copy of the current
Section 2.6 of the Bylaws is attached hereto as Schedule A.
Operator's obligation to become and remain a member of the Purchasing
Coop shall terminate upon dissolution of the Purchasing Coop, or if an
agreement is reached between Company and IPHFHA to delete from this
Agreement the requirement that Operator become and remain a member of
the Purchasing Coop.
ARTICLE IX.
FRANCHISE FEES; DEVELOPMENT SCHEDULE
A. In consideration of the issuance of the franchise granted
herein, Operator shall pay to Company:
1. Prior to the opening of each System Restaurant (other than
a New Concept as set forth in Article I.D.2. an initial franchise fee
in the amount of Fifteen Thousand Dollars ($15,000); provided,
however, that the initial franchise fee for a New Concept which is
also a Multi-Brand Concept shall be as set forth in the applicable
YUM! Brands Multi-Brands License Agreement. For purposes of this
Article IX.A.1., a rebuild of an existing System Restaurant at the
same location, or a relocation of an existing System Restaurant to a
location that serves substantially the same trade area, shall not
create an obligation by Operator to pay an initial franchise fee
pursuant to this Article IX.A.1.; and
2. A monthly service fee ("Service Fee") of four percent (4%)
per month of the previous month's gross sales (as defined in Article
X.) for each of Operator's System Restaurants, except that with
respect to Delivery Restaurants and Delco Restaurants, the Service Fee
rate shall be (i) four and one-half percent (4-1/2%) as of January 1,
2010, with respect to gross sales accruing on or after that date, (ii)
four and three-fourths percent (4-3/4%) as of January 1, 2020, with
respect to gross sales accruing on or after that date, and (iii) five
percent (5%) as of January 1, 2030, with respect to gross sales
accruing on or after that date. If by reason of state law Company is
prohibited from receiving a percentage of alcoholic beverage sales,
Operator shall pay Company an equivalent amount not to exceed one-half
percentage point more than the applicable Service Fee rate for gross
food and nonalcoholic beverage sales.
3. The monthly Service Fee shall be payable within twenty (20)
days after the end of each and every month. In addition to any other
remedies Company may have, Operator shall pay to Company a late charge
at a rate established by Company, not to exceed the maximum rate
permitted by law, on all delinquent fees required to be paid Company
by Operator pursuant to this Agreement. Such late charge shall
commence on the first day of the month following the month in which
such fees are due.
B. Operator shall provide "adequate delivery service", as
defined below. As used in this Article IX.B., "adequate delivery
service" means in accordance with Company's then-current standards for
delivery. In making a determination of the adequacy of Operator's
delivery services, Company shall take into account criteria including
potential sales volume, market demographics, saturation analysis,
diversion of sales from Operator's other System Restaurants, and
physical and geographic characteristics of areas in the Territory. If
Company preliminarily determines that Operator is failing to provide
adequate delivery service in all or part of the Territory, Company
shall first notify Operator in writing setting forth the specific
household area where the failure of adequate delivery service is
occurring and the suggested remedial action (a "Delivery Service
Development Plan"). Operator may, within 90 days, submit a written
protest to Company that identifies the geographic boundaries of the
area to which Operator contends it is providing adequate delivery
service. If Operator fails to timely submit a written protest,
Company's preliminary determination shall become effective
immediately. Company will consider any written protest timely
submitted by Operator, but Company shall in its sole discretion make
the final determination of whether Operator is providing adequate
delivery service and, if not, the area in which adequate delivery
service is not being provided. Unless Company determines that its
proposed Delivery Service Development Plan should be modified,
Operator shall implement the Delivery Service Development Plan in
accordance with the provisions of a Development Plan, reference below;
provided, however, Operator must at a minimum develop no less than one
(1) Delco Restaurant or one (1) Delivery Restaurant per year or 20% of
the Delivery Service Development Plan per year, whichever is greater.
Failure to adhere to the Delivery Service Development Plan shall be
deemed a Development Default, but only in the market in which
Operator's failure to provide adequate delivery service occurred, and
Operator shall not lose or otherwise forfeit its development rights in
any other market as a result of such Development Default.
Notwithstanding the foregoing, Operator shall cure any failure to
provide adequate delivery service where an existing System Restaurant
is capable of curing the deficiency within twelve (12) months of
receipt of the Delivery Service Development Plan.
C. 1. Company may mandate the implementation of Express
Restaurants within the Territory. At the time of the mandate, Company
will notify Operator of Company's projection of the potential number
of Express Restaurants within the Territory. If Operator desires to
implement the Express concept, Operator must submit to Company, within
thirty (30) days after Company's mandate, Operator's proposed five
(5)-year schedule for development of Express Restaurants in the
Territory (the "Express Development Schedule"). In producing the
Express Development Schedule, Operator shall take into account
criteria including potential sales volume, market demographics,
saturation analysis, diversion of sales from Operator's other System
Restaurants, and physical and geographical characteristics of the
Territory. Within thirty (30) days thereafter, Company shall either
accept the Express Development Schedule proposed by Operator, or
reject it and counterpropose a different Express Development Schedule
(taking into account the factors listed above). Operator shall have
fifteen (15) days from the date Company counterproposes its own
Express Development Schedule within which to elect in writing to
undertake development of Express Restaurants according to the terms of
Company's counterproposal Express Development Schedule. If Operator
fails to make that election or fails to meet the Express Development
Schedule, Company shall have the right to establish and operate, or to
license others to establish and operate, Express Restaurants anywhere
within the Territory, including within a two (2)-mile radius of any of
Operator's then-existing System Restaurants.
2. If at any time Company deems it practicable to establish
within the Territory additional locations for System Restaurants in
the same System Restaurant Concept (including, for this purpose, a New
Concept released to the System pursuant to Article I.D.), Company will
notify Operator in writing and will invite Operator to propose a
development schedule. If Operator desires to continue to develop that
System Restaurant Concept within the Territory, Operator must submit
to Company, within thirty (30) days after Company's notice, Operator's
proposed five (5)-year development schedule. Within thirty (30) days
thereafter, Company shall either accept the development schedule
proposed by Operator, or counterpropose a different five (5)-year
development schedule. Operator shall have fifteen (15) days from the
date Company accepts Operator's proposed development schedule or
counterproposes its own development schedule within which to elect in
writing to undertake development of additional restaurants according
to the terms of the development schedule. In the event Operator fails
to make that election or fails to comply with the development
schedule, then Company shall have the right, notwithstanding any other
provision of this Agreement, to operate and/or license others to
operate System Restaurants within the System Restaurant Concept with
respect to which the failure occurred within the Territory. Company
will not establish nor will it permit any licensee to establish a
Pizza Hut Restaurant within a two (2)-mile radius of any then-existing
Pizza Hut Restaurant of Operator. Company or its licensee may,
however, establish and operate Delivery and Express Restaurants
anywhere within the Territory, and Company (but not its licensee) may
establish and operate Delco Restaurants outside a five hundred (500)-
yard radius of any of Operator's then-existing Pizza Hut Restaurants,
including (in each case) within a two (2)-mile radius of any of
Operator's then-existing System Restaurants. If Company establishes a
Delco Restaurant less than two (2) miles from one of Operator's then-
existing Pizza Hut Restaurants, Company may not transfer that Delco
Restaurant to a third person within thirty-six (36) months after the
opening of the Delco Restaurant. After thirty-six (36) months, Company
may license the Delco Restaurant to another only if Company first
offers to Operator (if Operator is in good standing as defined in
Article I.D.3) the right of first refusal, for thirty (30) days, to
acquire the assets of the outlet at the price and terms offered by the
third party (or the cash equivalent of noncash consideration offered
by the third party) together with the right to operate it pursuant to
this Agreement. These rights of Company shall be in addition to any
other rights or remedies Company may have.
3. All new System Restaurants shall be constructed and
operated pursuant to the then-current standards, plans, and
specifications referred to in Article V. B. Operator shall
continuously operate all of its System Restaurants during the term of
this Agreement.
4. Failure of Operator to comply with the development
schedules arising pursuant to, and obligations set forth in, Article
IX.C.1. or Article IX.C.2. (a "Development Default") shall constitute
a default under this Agreement. If said Development Default occurs,
any franchise rights of Operator to establish additional System
Restaurants in the Territory to operate the same System Restaurant
Concept as that in which the Development Default occurred, not under
construction at the time of default, shall terminate upon Company's
election. Said Development Default shall not, however, affect in any
way Operator's rights and obligations with respect to its System
Restaurants already operating or under construction at the time of
default, or its right to develop System Restaurants in any other
System Restaurant Concept.
5. In the event of a Development Default, Company shall have
the right, notwithstanding any other provision in this Agreement, to
operate and/or to license others to operate, within the Territory,
System Restaurants within the System Restaurant Concept with respect
to which the Development Default occurred. Nevertheless, in the event
of such a Development Default, Company will not establish, nor will it
permit any licensee to establish, a Pizza Hut Restaurant at a location
within a two (2)-mile radius of any then-existing Pizza Hut Restaurant
of Operator, except that Company or its licensee may establish and
operate Delivery Restaurants anywhere within the Territory, and
Company (but not its licensee) may establish and operate Delco
Restaurants outside a 500-yard radius of any of Operator's then-
existing Pizza Hut Restaurants, including (in each case) within a two
(2)-mile radius of any of Operator's then-existing System Restaurants.
These rights of Company shall be in addition to any other rights or
remedies Company may have. If Company establishes a Delco Restaurant
less than two (2) miles from one of Operator's then-existing Pizza Hut
Restaurants, Company may not transfer that Delco Restaurant to a third
person within thirty-six (36) months after the opening of the Delco
Restaurant. After thirty-six (36) months, Company may license the
Delco Restaurant to a third person but only if Company first offers to
Operator (if Operator is in good standing as defined in Article
I.D.3.) the right of first refusal, for thirty (30) days, to acquire
the assets of the Delco Restaurant at the price and terms offered by
the third party (or the cash equivalent of noncash consideration
offered by the third party) together with the right to operate it
pursuant to this Agreement
6. Notwithstanding anything contained herein to the contrary,
after a Development Default has occurred, Company shall not, nor shall
it permit any licensee to, permit a Delivery or Delco Restaurant to
provide delivery service to those portions of the Territory which are,
at the time such Development Default occurred, receiving "adequate
delivery service" from a delivery distribution point being operated by
Operator.
Operator may, after receiving notice of a Development Default,
continue to provide delivery service to some or all of the Territory
until Company gives Operator thirty (30) days' written notice to cease
such services. Company may give such notice to Operator as to areas
more than two (2) miles from Operator's nearest delivery distribution
point that was in operation on the date of Company's notice that the
Development Default had occurred, at any time and for any reason.
7. For purposes of this Article IX.:
a. "Under construction" means, with respect to a free-standing
building, that the footings have been poured, and shall mean, with
respect to an in-line restaurant location, that the under-slab
improvements required to operate a System Restaurant are complete.
b. "Delivery distribution points" means Pizza Hut Restaurants
that offer delivery services, Delivery Restaurants, and Delco
Restaurants.
ARTICLE X.
BOOKS, RECORDS, GROSS SALES
A. Operator shall keep on the premises of each of its System
Restaurants or at its principal place of business, and shall preserve
for at least five (5) years from the date of their preparation
(including such period after termination or nonrenewal of this
Agreement), true and accurate records, accounts, books, and data in
such form as Company may require, which shall accurately reflect all
particulars relating to the business done and the gross sales of the
System Restaurant business operated at said premises. Operator shall
submit to Company the monthly gross sales and a quarterly Profit and
Loss Statement for each of Operator's System Restaurants. In addition,
Operator shall, within ninety (90) days of the end of Operator's
fiscal year, annually provide Company with a complete Profit and Loss
Statement and a consolidated Balance Sheet, each in such form as
Company may require, prepared in accordance with generally accepted
accounting principles. Company reserves the right to require such
further information concerning Operator's System Restaurant business
as Company may from time to time reasonably prescribe. Except as
otherwise required by applicable laws, rules, or regulations, or by
court order, Company will take reasonable precautions to maintain the
confidentiality of all financial reports provided by Operator,
provided that, if Operator executes any promissory notes to Company,
Company may disclose the financial reports provided by Operator to any
third party to whom Company sells or pledges (or attempts to sell or
pledge) the promissory notes from Operator. Company, its agents or
representatives, may examine and audit said records, accounts, and
books at all reasonable times, with or without notice. If said
inspection discloses that any financial statement delivered by
Operator is in error, Operator shall immediately pay to Company any
deficiency found to be owing, plus interest at the maximum rate
permitted by law; if said deficiency is five percent (5%) or more,
then in addition, the cost and expense of said inspection shall be
borne and paid by Operator upon billing by Company. The foregoing
shall be in addition to any other rights or remedies that Company may
have.
B. The term "gross sales," for purposes of this Agreement,
shall mean gross revenues (excluding price discounts and allowances)
received by Operator as payment, whether in cash or for credit (and,
if for credit, whether or not payment is received therefor), for the
beverages, food, and other goods, services, and supplies sold in or
from each of Operator's System Restaurants, and gross revenues
received by Operator from any other business (including, but not
limited to, vending or game machine receipts other than those received
from cigarette or newspaper vending machines, coin telephones, or non-
video jukeboxes) operated upon the premises of any of Operator's
System Restaurants, excluding sales or other tax receipts which may be
required by law to be collected from guests.
C. Operator may use the accounting services of any national or
large regional firm of certified public accountants which it may, in
its sole discretion, select, or any other accounting services
reasonably satisfactory to Company.
ARTICLE XI.
COVENANT REGARDING OTHER BUSINESS INTERESTS
A. For purposes of this Article XI., "Operator" shall mean and
include the individual Operator; Operator's spouse and minor children;
Operator's shareholders, officers, and directors, if Operator is a
corporation; and any one or more partners or participants in Operator,
if Operator is a partnership or joint venture.
B. Operator acknowledges that the food products, method of
doing business, and other elements comprising the Pizza Hut System are
unique and distinctive and have been developed by Company at great
effort, time, and expense; and that Operator has regular and
continuing access to valuable and confidential information, training,
and trade secrets regarding the Pizza Hut System. Operator recognizes
its obligation to keep confidential such secret information in
accordance with Articles III.D. and XIV., and to fully develop the
Territory in compliance with Article IX. Operator accordingly agrees
as follows:
1. During the term of this Agreement, except with the prior
written consent of Company, Operator shall not, in any capacity
whatsoever, either directly or indirectly, individually or as a member
of any business organization, engage in the production or sale at
retail of any pizza, or pasta, or any Italian food item similar to any
Italian food item now or in the future approved by Company for use in
the System, or have any employment or interest in any firm engaged in
the production or sale of such products.
2. During the term of this Agreement, except with the prior
written consent of Company, Operator shall not let or permit any part
of any premises owned or controlled by it in the Territory to be used
as a business, all or any part of which consists of the sale at retail
of any pizza, or pasta, or any Italian food item similar to any
Italian food item approved by Company for use in the System.
3. Upon the termination or nonrenewal of this Agreement, or if
Operator assigns or transfers his interest herein to any person or
business organization, or if any person identified in Article XI.A.
terminates his relationship with Operator, then for a period of
eighteen (18) months thereafter such Operator shall not, in any
capacity whatsoever, either directly or indirectly, individually or as
a member of any business organization, engage in the production or
sale at retail of any pizza, or pasta, or any Italian food item
similar to any Italian food item now or in the future approved by
Company for use in the System, or have any employment or interest in
any firm engaged in the production or sale at retail of any such
products, at a location within a radius of twenty-five (25) miles of
any premises operated under this Agreement or within ten (10) miles of
any other Pizza Hut Restaurant then existing, unless Company shall
have given its prior written consent thereto.
C. In the event any portion of the foregoing covenants is held
invalid or unenforceable in a final judgment to which Company and
Operator are parties, then the maximum legally allowable restriction
permitted by law shall control hereunder and Operator shall be bound
thereby. Company may at any time unilaterally reduce the scope of any
part of the foregoing covenants, and Operator shall comply with any
such reduced covenant upon receipt of written notice thereof.
D. The provisions of Article XI. shall not limit, restrain or
otherwise affect any right or cause of action which may accrue to
Company for any infringement of, violation of, or interference with,
Company's Marks, System, trade secrets, or other proprietary aspects
of Company's business.
E. Article XI.B. does not apply to the ownership of one
percent (1%) or less of the issued and outstanding stock in any
publicly held corporation.
ARTICLE XII.
INTERFERENCE WITH EMPLOYMENT RELATIONS
During the term of this Agreement, neither Company nor Operator
shall employ or seek to employ, directly or indirectly, any person
serving in a managerial position who is at the time or was at any time
during the prior six (6) months employed by the other party, its
subsidiaries, or by any other franchisee in the System. This paragraph
shall not be violated if, at the time Company or Operator employs or
seeks to employ such person, the current employer has given its
written consent. Request for Company's consent when required in such
instances should be addressed in writing to Company's Vice President
of Franchising. Notwithstanding Article XXVII.G., the parties hereto
acknowledge that if this paragraph is violated, the former employer
shall be entitled to liquidated damages equal to twice the annual
salary of the employee involved plus reimbursement of all costs and
attorney fees incurred. Furthermore, such former employer shall be
entitled to seek such amounts through either arbitration or litigation
in Court. For purposes of this paragraph, "managerial position"
includes restaurant manager and above.
ARTICLE XIII.
USE OF PREMISES
Operator shall, upon the premises from which each System
Restaurant is operated, engage only in the business of operating a
System Restaurant and no other, except with the prior written consent
of Company. Operator shall not allow any premises from which Operator
operates a System Restaurant or any part of those premises to be used
for any immoral or illegal purpose.
ARTICLE XIV.
SECRET RECIPES AND OTHER SECRET INFORMATION
Neither Operator nor anyone by or through it shall directly or
indirectly disclose, either during the term of this Agreement or
thereafter, any recipes or other secret information furnished by
Company, and Operator shall take all reasonable precautions to prevent
said disclosure.
ARTICLE XV.
LEASE APPROVAL
If Operator will occupy the premises from which its business
hereunder is conducted under a lease, sublease, or other contract of
tenancy, Operator shall, prior to the execution thereof, submit such
lease, sublease, or other contract to Company for its written
approval, if so requested by Company.
ARTICLE XVI.
TRANSFER OF INTEREST
A. This Agreement shall inure to the benefit of the successors
and assigns of Company.
B. The rights and duties created by this Agreement are
personal to Operator, and Company has granted this franchise in
reliance on the individual or collective character, skill, aptitude,
and business and financial capacity of Operator and its principals.
Accordingly, except as otherwise may be permitted in Article XVI. and
Article XVIII., neither Operator nor any person with an interest in
Operator shall, without Company's prior written consent, directly or
indirectly sell, assign, transfer, convey, give away, pledge,
mortgage, or otherwise encumber any direct or indirect interest in
this franchise or, if Operator is a partnership, joint venture, or
corporation, any direct or indirect interest in Operator. Any such
purported assignment occurring by operation of law or otherwise
without Company's prior written consent shall constitute a default of
this Agreement by Operator, and shall be null and void.
C. Operator shall not, without Company's prior written
consent, offer for sale or transfer at public or private auction or
advertise publicly for sale or transfer, the furnishings, interior and
exterior decor items, supplies, fixtures, equipment, and real or
personal property used in connection with Operator's System
Restaurants to the extent any of them incorporates Company's current
trade dress or proprietary information or the Marks.
D. Company will not unreasonably withhold its consent to any
transfer or assignment which is subject to the restrictions of Article
XVI.; provided, however, Company shall not be required to give its
consent unless, in addition to the requirements of Article XVII., the
following conditions are met prior to the effective date of the
assignment:
1. For all proposed transfers or assignments:
a. The Operator is not in default hereunder, and all of its
accrued monetary obligations to Company have been satisfied;
b. The assignor has executed a general release under seal, in
a form prescribed by Company, of any and all claims against Company,
its affiliates, subsidiaries, shareholders, directors, officers, and
employees;
c. The assignee has demonstrated to Company's satisfaction
that it meets all of Company's then-current requirements for new
Operators or for holders of an interest in a franchise, including,
without limitation, possession of good moral character and reputation,
satisfactory credit ratings, acceptable business qualifications, and
the ability to comply fully with the terms of this Agreement;
d. The assignee has entered into a written assignment under
seal, in a form prescribed by Company, assuming and agreeing to
discharge all of Operator's obligations;
e. The assignee, its manager, and its other employees
responsible for the operation of the restaurant have satisfactorily
completed such training as Company may then require;
f. The assignee executes such other documents as Company may
require in order to assume all of the obligations of this Agreement,
to the same extent, and with the same effect, as previously assumed by
the assignor; and
g. Operator has paid the administrative fee called for by
Article XVI.D.3.
2. For proposed transfers or assignments of rights to a
corporation or partnership:
a. The assignee's articles of incorporation or articles of
partnership and its bylaws (or similar documents, however denominated)
shall provide that the assignee's activities and the activities of the
assignee's parent, subsidiaries, and divisions shall be confined
exclusively to operating the System Restaurants licensed herein, or
other businesses licensed under other agreements with Company, its
subsidiaries or affiliates, and the assignee shall comply with those
provisions as long as the assignee is a licensee or franchisee of
Company; and
b. The assignor and assignee shall comply with the
requirements contained in Article XVI.D.1. and Article XVII.
3. Operator's required written request for transfer of either
a partial or whole interest in the franchise must be accompanied by an
administrative fee to Company of Two Thousand Five Hundred Dollars
($2,500). This administrative fee will not be due with respect to any
transfer that (together with all other related previous, simultaneous,
or proposed transfers) does not result in a transfer of control of
Operator.
E. Upon the death or permanent incapacity of any person with
an interest in this franchise or in Operator, and upon the dissolution
of an Operator that is a partnership, joint venture, or corporation,
the executor, administrator, personal representative, or trustee of
such person or entity shall transfer his or its interest to a third
party approved by Company within six (6) months. Such transfers,
including, without limitation, transfers by devise or inheritance,
shall be subject to the same conditions as any inter vivos transfer.
However, in the case of transfer by devise or inheritance, if the
heirs or devisees of any such person are unable to meet the conditions
in Article XVI. D., the personal representative of the deceased
Operator shall have a reasonable time to dispose of the decedent's
interest in the franchise, which disposition shall be subject to all
applicable terms and conditions for transfers contained in this
Agreement. In the case of permanent incapacity of a partner or a
shareholder of Operator who owns less than a controlling interest in
Operator, such partner or shareholder may, with Company's written
consent, retain his ownership interest in Operator.
F. Company's consent to a transfer of any interest subject to
the restrictions of this Article shall not be deemed a waiver of
Company's right to demand strict compliance with any of the terms of
this Agreement by the assignee.
G. If Operator or any person with an interest in Operator has
received and desires to accept any bona fide offer to purchase all or
any part of his or its interest in this franchise or in Operator and
the transfer of such interest would (1) result in a change in control
of Operator or of this franchise or (2) constitute a transfer of any
interest held by a controlling person of Operator or of this
franchise, then Operator or such person shall notify Company in
writing of the purchase price and terms of such offer. Company shall
have the right and option, exercisable within thirty (30) days after
receipt of such written notification, to send written notice to
Operator or such person that Company or its third-party designee
intends to purchase the interest which is proposed to be transferred
on the same terms and conditions offered by the third party (except
that Company or its designee shall be entitled to receive the
representations and warranties customary to the sale of a similarly
sized business and shall not be responsible for the payment of any
broker commission or other transactional fee). Any material change in
the terms of an offer prior to closing shall cause it to be deemed a
new offer, subject to the same right of first refusal by Company or
its third-party designee as in the case of the initial offer.
Company's failure to exercise such option shall not constitute a
waiver of any other provision of this Agreement, including any of the
requirements of this Article with respect to the proposed transfer.
ARTICLE XVII.
PARTNERSHIP AND CORPORATE OPERATORS
If Operator, or any successor thereof, is a partnership or
corporation:
A. Upon the execution of this Agreement and upon each transfer
of an interest in this franchise or in Operator and at any other time
upon Company's request, Operator shall furnish Company with a list of
all shareholders or partners having an interest in this franchise or
in Operator, the percentage interest of each shareholder or partner,
and a list of all officers and directors, in such form as Company may
require.
B. Upon the execution of this Agreement and upon each transfer
of an interest in this franchise or in Operator, all holders of a ten
percent (10%) or greater interest in this franchise or in Operator
shall execute a written agreement with Company personally
guaranteeing, jointly and severally with all holders of a ten percent
(10%) or greater interest in this franchise or in Operator, the full
payment and performance of Operator's obligations to Company; and all
holders of any interest whatsoever in this franchise or in Operator
shall individually undertake to be bound by all the other terms of
this Agreement, including, without limitation, the restrictions on
transfer of interest in Article XVI., and the covenants in Articles
III.D., XI., and XIV.
C. Operator's articles of partnership, partnership agreement,
articles of incorporation, bylaws, and other organizational documents
shall recite that the issuance and transfer of any interest in
Operator is restricted by the terms of Article XVI. of this Agreement.
Operator shall also submit to Company, upon the execution of this
Agreement, a partnership or shareholders agreement executed by all
partners or shareholders of Operator, and a resolution of the partners
or Board of Directors ratified by all of Operator's partners or
shareholders, which states that, except as may be permitted by
Articles XVI. and XVIII., no shares of stock or other interest in
Operator shall be issued, transferred, or assigned to any person or
legal entity without Company's prior written consent.
D. Operator, if it is a corporation, shall maintain stop
transfer instructions against the transfer on its records of any
securities with voting rights subject to the restrictions of Article
XVI., and shall issue no such securities upon the face of which the
following printed legend does not legibly and conspicuously appear:
"The transfer of this stock is subject to the
terms and conditions of one (1) or more Franchise
Agreements with Pizza Hut, Inc. Reference is made
to said Franchise Agreement(s) and to the
restrictive provisions of the Articles and Bylaws
of this corporation."
E. Operator may effect a transaction that would result in
public ownership (as that term is defined under federal and state
securities laws) in Operator provided that at least fifty-one percent
(51%) of each class of the corporation's stock is restricted, non-
registered, and non-public held by individuals that Company has
approved as Operators. The business of any Operator who has effected
such a transaction, whether through the Operator, its parent,
subsidiaries, or divisions, shall be confined exclusively to operating
the System Restaurants licensed herein. All necessary consents and
waivers required of Company will not be unreasonably withheld;
provided, Company's consent to the use of "Pizza Hut" in the name of a
publicly traded entity shall not be granted. Nothing in this Article
XVII. E. prohibits Operator from: (i) borrowing from a publicly-traded
financial institution or other lender, or from pledging the tangible
assets, real or personal (but not an interest in this Agreement), of
the business(es) conducted hereunder; or (ii) creating and operating
an employee stock ownership plan or equivalent device, subject to
other applicable requirements of Articles XVI. and XVII.
F. Operator shall cause every corporation, partnership, and
other non-individual legal person holding any interest in Operator or
in this Agreement to provide in its articles of incorporation or
articles of partnership and its bylaws (or similar documents, however
denominated) that its business activities will be confined exclusively
to operating the System Restaurants licensed herein, or other
businesses licensed under other agreements with Company, its
subsidiaries and affiliates; however, Operator may request an
exemption from this provision for cause, which request shall not be
unreasonably denied by Company. Operator shall cause every such
corporation, partnership, and other non-individual legal person to be
in compliance with those requirements, and to remain in compliance
with those provisions as long as Operator is a licensee or franchisee
of Company, unless Operator's request for an exemption has been
granted.
ARTICLE XVIII.
PERMITTED ASSIGNMENTS
Notwithstanding anything to the contrary in Articles XVI. and
XVII.:
A. Operator may assign not more than a total of twenty percent
(20%) of Operator's ownership to employees of Operator who are
actively engaged in Operator's System Restaurant operations. Any such
ownership interest will be subject to all terms and conditions of this
Agreement, including, without limitation, restrictions on transfer of
interest in Article XVI., the requirements in Article XVII. A. and B.,
and the covenants in Articles III. D., XI., and XIV.
B. Company's "Right of First Refusal Guidelines (July 21,
1986)," "Policy on Transfers to Trusts (June 1990, Revised August
1993)" and "Right of First Refusal Guidelines (November 9, 1992)"
(collectively, the "Transfer Modifications"), which have been
identified jointly by Company and IPHFHA, are hereby incorporated
herein by reference. The provisions of the Transfer Modifications
shall be deemed contractual provisions of this Agreement and not
policies. The Transfer Modifications may be amended or modified from
time to time by Company and IPHFHA, and any such amendments or
modifications shall automatically be incorporated herein. To the
extent that the provisions of the Transfer Modifications are in direct
conflict with the provisions of Articles XVI or XVII hereof, the
provisions of the Transfer Modifications shall control.
ARTICLE XIX.
DEFAULT AND TERMINATION
A. Operator shall be in default under this Agreement, and this
Agreement and all rights granted Operator hereunder shall
automatically terminate without notice to Operator, if any of the
following events occur:
1. If Operator or the business to which this Agreement relates
becomes insolvent (i.e., either has ceased to pay his debts in the
ordinary course of business or cannot pay his debts as they become due
or is insolvent within the meaning of the federal bankruptcy law) or
is dissolved; if a receiver or trustee for the business of Operator is
appointed; or if Operator files a voluntary petition in bankruptcy or
an involuntary petition is filed by any other person and is not
dismissed within ten (10) days of filing; or
2. If transfer is attempted or effected in violation of
Articles XVI. or XVII. that would cause a change in control of the
Operator or this franchise, or if Article XVII.E is violated.
B. Operator shall be in default and Company may, at its
option, upon written notice to Operator, terminate this Agreement and
all rights granted hereunder, without affording Operator any
opportunity to cure the default, upon the occurrence of any of the
following events:
1. If Operator is convicted of a felony, a crime involving
moral turpitude, or any other crime or offense that is reasonably
likely, in the sole opinion of Company, to adversely affect the Pizza
Hut System, Company's Marks, the goodwill associated therewith, or
Company's interest therein;
2. If Operator discloses or uses the contents of the Manual or
other trade secrets or confidential or proprietary information
provided to Operator by Company, contrary to Article III.D., Article
XI., or Article XIV.;
3. If Operator knowingly or through gross negligence maintains
false books or records, or knowingly or through gross negligence
submits any false report to Company;
4. If Operator conducts the business licensed pursuant to this
Agreement so contrary to this Agreement and the Manual as to
constitute an imminent danger to the public health; or
5. If Company gives Operator notice of Operator's default
under any provisions of Article XIX.C. on three (3) or more occasions
in any twelve (12) month period, or five (5) or more occasions in any
thirty-six (36) month period, even if Operator cured each such prior
default, and even if Operator would otherwise be given an opportunity
(under Article XIX.C.) to cure the current default. A termination
pursuant to this Article XIX.B.5. will affect: (a) if the defaults
relate to one or more individual System Restaurants, only those System
Restaurants as to which the defaults occurred; (b) if the defaults
relate to Operator's entire operations (which, for this purpose,
includes defaults under obligations that do not relate to specific
System Restaurants or their operations), all of Operator's rights
under this Agreement and all other franchise agreements with Company;
and (c) if the defaults relate to individual System Restaurants, but
are part of a common pattern or scheme, all of Operator's rights under
this Agreement and all other franchise agreements with Company.
C. Except as provided in Article XIX.A. and B., Operator shall
have thirty (30) days after Company's written notice of default within
which to remedy any default described in this Article XIX.C., and to
provide evidence thereof to Company. If any such default is not so
cured within that period, or such longer period as applicable law may
require, Company may, at its option, terminate this Agreement and all
rights granted hereunder upon notice to Operator. Operator shall be in
default under this Article XIX.C. for any failure to comply with any
of the requirements imposed by this Agreement. Such defaults shall
include, without limitation, the occurrence of any of the following
events:
1. Operator's failure, refusal, or neglect promptly to pay any
monies owing to Company, its subsidiaries and affiliates, when due, or
to submit the financial or other information required by Company under
this Agreement;
2. Operator's failure to maintain the standards specified by
Company in the Manual or otherwise in writing;
3. Operator's failure, refusal, or neglect to obtain Company's
prior written approval or consent as required by this Agreement;
4. Operator's misuse or unauthorized use of Company's Marks or
other material impairment of the goodwill associated therewith or
Company's rights therein;
5. Operator's commencement of or conducting any business
operation, or marketing of any product, under a name or mark which, in
Company's opinion, is confusingly similar to Company's Marks;
6. A default by Operator under any lease, sublease, mortgage,
or deed of trust covering the franchised premises;
7. Operator's failure to procure or maintain the insurance
required by Article XXIV.; or
8. If Operator, without Company's consent and except in
accordance with Articles XIX.B.4.and 5., ceases to operate or
otherwise abandons any of its System Restaurants or, upon destruction
of any System Restaurant, fails to rebuild the System Restaurant and
resume operation within a reasonable time. However, cessation of the
business from a System Restaurant shall not constitute default of this
Agreement if caused by condemnation, expiration of a location lease
pursuant to its terms at execution, or when failure to rebuild
following destruction of the System Restaurant is prohibited by law or
the location lease;
9. If a transfer is attempted or effected in a manner
inconsistent with Articles XVI. or XVII. but which does not cause a
change in control of the Operator or this franchise.
A termination pursuant to this Article XIX.C. will affect: (i) if
the default relates to one or more individual System Restaurants, only
those System Restaurants as to which the default occurred; and (ii) if
the default relates to Operator's entire operation (which, for this
purpose, includes defaults under obligations that do not relate to
specific restaurants or their operations), all of Operator's rights
under this Agreement.
D. In the event of any default under Article XIX.B., or any
default under Article XIX.C. not cured within the time therein
specified, Company may, as an alternative to termination, in its sole
discretion, redefine the Territory as Company deems appropriate under
the circumstances, and/or refuse to allow Operator to establish any
additional System Restaurants pursuant to this Agreement. Any such
action by Company shall not in any way limit Company's right to
decline renewal owing to such default by Operator, and shall be in
addition to any other right or remedy Company may have.
E. In the event any System Restaurant is closed for business
for a period totaling thirty (30) days without Company's prior written
consent, Operator acknowledges that the damages to Company from such
closing cannot be easily calculated and hereby agrees, without
limiting Company's other rights pursuant to this Agreement, to pay an
amount as liquidated damages for such default, and not as a penalty,
equal to two times the aggregate monthly service fees paid or due with
respect to such unit for the twelve (12) calendar months preceding the
closing. In the event such unit has not been open for business for a
full twelve (12)-month period, the total amount of liquidated damages
due Company shall be computed by determining the highest monthly
service fee ever paid or due on such unit and multiplying such figure
by twenty-four (24). Whenever Operator seeks Company's consent to
close a System Restaurant, Company will consider such factors as the
System Restaurant's location, sales volume, profitability, exposure to
crime, and competitive activity in the market. If Company consents to
closing a System Restaurant and Operator establishes a replacement
unit within one (1) year of such closing, Company may, in its sole
discretion, credit the unamortized portion of the initial fee for such
closed System Restaurant against the amount of initial fee required by
Article IX.A.1.
F. In the event any franchised premises is permanently closed
for business as a System Restaurant for any reason whatsoever, whether
with or without Company's consent, Operator shall, in addition to any
other rights or remedies Company may have, immediately deidentify such
franchised premises pursuant to the requirements of Article XX.A.
ARTICLE XX.
RIGHTS AND OBLIGATIONS UPON TERMINATION OR NONRENEWAL
Upon the termination or (except as specifically noted below) the
nonrenewal of the franchise granted under this Agreement:
A. Operator shall immediately discontinue use of Company's
Marks and of the System. In addition, Operator shall discontinue use
of Company's color scheme and shall make any other changes that
Company may direct, in order to effectively distinguish Operator's
former System Restaurant(s) from Company's proprietary designs. If
Operator shall fail to make such changes within seven (7) days after
written notice, then Company, in addition to any other remedy it may
have, shall have the right to enter upon the premises and to make or
cause to he made such changes at the expense of Operator (without
being deemed guilty of trespass or any other tort), which expense
Operator agrees to pay on demand.
B. Company may retain all fees paid pursuant to this
Agreement.
C. Any and all obligations of Company to Operator under this
Agreement shall immediately cease and terminate.
D. Any and all rights of Operator under this Agreement shall
immediately cease and terminate.
E. In no event shall a termination or nonrenewal of this
Agreement affect Operator's obligations to take or abstain from taking
any action in accordance with this Agreement.
F. Operator acknowledges and agrees that rights in and to
Company's Marks and the use thereof shall be and remain the property
of Company.
G. Upon any termination or nonrenewal, Operator shall sell to
Company and Company shall buy, at Operator's cost, all amounts of
trade secret items that Operator may have in stock at the time of such
termination or nonrenewal.
H. In the event Operator has registered any of Company's Marks
as part of Operator's assumed or fictitious name, Operator shall amend
such registration to delete Company's Marks therefrom.
I. Operator shall immediately pay any and all amounts owing to
Company, its subsidiaries and affiliates.
J. Company shall have the option, exercisable by written
notice within thirty (30) days after the termination (but not the
nonrenewal) of this Agreement, to take an assignment of all telephone
numbers (and associated listings) for Operator's Delivery Restaurants
and Delco Restaurants and centralized order-taking facilities (if
any). Operator is not entitled to any compensation from Company if
Company exercises this option.
The provisions of this Article XX. relating to termination apply
only to the specific System Restaurant(s) terminated, if Company
terminates (pursuant to Article XIX.) less than all of Operator's
System Restaurants.
ARTICLE XXI.
RENEWAL
A. Unless terminated as herein otherwise provided, Operator
shall have the option at the expiration of the initial or any
subsequent term of this Agreement to renew the franchise granted
hereunder for a renewal term of twenty (20) years by executing
Company's form of Franchise Agreement as described in Article XXI.B.,
provided that:
1. Operator gives Company written notice of its election to
renew not less than two (2) months nor more than nine (9) months prior
to the expiration of the initial term;
2. Operator executes a general release under seal, in a form
prescribed by Company, of any and all claims against Company, its
affiliates, subsidiaries, shareholders, directors, officers, and
employees;
3. Operator, at the time of notice of election to renew and at
the end of the initial term, is not in default of any of the terms or
conditions of this Agreement or any other agreement between Operator
and Company, its subsidiaries and affiliates, and has substantially
complied with the terms and conditions of all such agreements during
the term of this Agreement;
4. All of Operator's accrued monetary obligations to Company,
its subsidiaries and affiliates, have been satisfied prior to renewal,
and timely met throughout the term of this Agreement; and
5. Operator is in compliance with the standards set forth in
Company's then-current Manual and has made such modernization and
renovations (including, without limitation, signs, furnishings,
interior and exterior decor, fixtures, equipment, and structural
changes) and repairs and maintenance to Operator's System Restaurants
as Company may have required and may require pursuant to Article
III.B. and C. and Article XXII. However, in no event will Company
require as a condition of renewal extensive structural changes, major
remodeling and renovation, and substantial modification to existing
improvements except in accordance with Article III.C.
B. 1. The franchise agreement to be executed at renewal may
be different from this Agreement to the extent that current business
conditions warrant changes. No initial franchise fee will be due upon
renewal with respect to those of Operator's System Restaurants already
opened as to which Operator has previously paid an initial franchise
fee.
2. The renewal form of franchise agreement shall:
a. provide that the amount of the Service Fee due thereunder
for System Restaurants (other than Delco Restaurants and Delivery
Restaurants) shall be the Restaurant Competitive Rate, as hereinafter
defined, and the amount of the Service Fee due thereunder for Delco
Restaurants and Delivery Restaurants shall be the Delco/Delivery
Competitive Rate, as hereinafter defined; and
b. not include Schedule B except Section H and the definitions
of Rebuild, Relocate, Remodel, and Reimage. All other obligations
under Schedule B shall be deleted upon renewal.
3. For purposes of Article XXI.B.2:
a. the Restaurant Competitive Rate shall not exceed the
royalty rates being offered to new franchisees, for comparable
services, as of one year prior to the renewal date, by franchisors of
national full-service sit-down restaurant chains which have average
unit sales volumes and average unit net operating cash flows
comparable to those of Pizza Hut Restaurants; provided, however, that
the Restaurant Competitive Rate shall not be less than the applicable
Service Fee rate described in Article IX.A.2 as of the renewal date;
and
b. the Delco/Delivery Competitive Rate shall not exceed the
royalty rates being offered to new franchisees, for comparable
services, as of one year prior to the renewal date, by franchisors of
national pizza delivery chains which have average unit sales volumes
and average unit net operating cash flows comparable to those of
Delivery Restaurants and Delco Restaurants; provided, however, that
the Delco/Delivery Competitive Rate shall not be less than the
applicable Service Fee rate described in Article IX.A.2 as of the
renewal date.
c. The Restaurant Competitive Rate and the Delco/Delivery
Competitive Rate (the "Competitive Rates") shall be offered by Company
not later than nine (9) months prior to the expiration of the term of
this Agreement, after consideration of the factors outlined in Article
XXI.B.3.a and Article XXI.B.3.b above. Unless IPHFHA reasonably
determines that either or both of the offered rates offered by Company
exceed the Competitive Rates, as determined in accordance with Article
XXI.B.3. above and notifies Company in writing, within sixty (60) days
of Company's written notice of the offered rates, setting forth
IPHFHA's objections and reasons therefor with respect to each or both
of the rates offered by Company, then IPHFHA shall be deemed to have
accepted the rates offered by Company as being reasonable and proper,
and such rates shall be binding on Company and Operator as the
Competitive Rates. With respect to any of Company's offered rates to
which IPHFHA has objected on the basis set forth above, then
thereafter for the following sixty (60) days, Company and IPHFHA shall
meet and attempt to resolve their disagreement with respect to the
disputed rates identified by IPHFHA as exceeding the applicable
Competitive Rates determined pursuant to Article XXI.B.3. above. If,
following such sixty (60) day period, IPHFHA does not agree that one
or both of Company's offered rates comply with the criteria set forth
in Article XXI.B.3 (the "Rates Criteria"), then IPHFHA may file a
demand for arbitration with the Center of Public Resources, Inc.
("CPR"), asking the arbitrator to settle the dispute in accordance
with the following principles. First, both Company and IPHFHA shall
fully participate in the arbitration and shall have the right to
submit whatever evidence and arguments they believe support their
respective positions, including without limitation their offered rates
and the applicable market conditions. As a threshold matter, the
arbitrator, after reviewing the parties' submissions, shall rule that
either one or both of Company's offered rate(s) are or are not in
compliance with the Rates Criteria. If the arbitrator rules that one
or both of Company's offered rates are in compliance with the Rates
Criteria for either the Restaurant Competitive Rate or the
Delco/Delivery Competitive Rate, or both, as applicable, then
Company's offered rate with respect to either or both, as applicable,
shall become the Restaurant Competitive Rate or Delco/Delivery
Competitive Rate, as applicable. If the arbitrator rules against
Company on either or both of such offered rates, then the arbitrator
shall rule whether one or both of IPHFHA's offered rates are in
compliance with the Rates Criteria. The arbitrator shall be free to
accept none, either or both of Company's or IPHFHA's offered rates as
the applicable Competitive Rates. As to any offered rates for which
the arbitrator has rejected both Company's and IPHFHA's offered rates
as failing to meet the Rates Criteria, Company and IPHFHA shall
recommence the process described above for establishing such
Competitive Rates. The arbitrator shall issue his ruling(s) within
twenty (20) days after the conclusion of each hearing. The
arbitrator's ruling(s) shall be binding on Company and Operator,
unless the arbitrator has failed to follow the requirements of this
provision. For purposes of this Article XXI.B.3.c., the arbitrator's
fees and expenses and the other administrative expenses of the
arbitration shall be shared equally by Company and IPHFHA.
d. If CPR shall cease to exist or refuse to arbitrate such
dispute, Company and IPHFHA shall have the right to jointly appoint a
substitute neutral organization to arbitrate such dispute, and the
rules of such substitute organization shall govern such arbitration.
Except as provided below, the arbitration shall be conducted in
accordance with CPR's (or its substitute's) rules of commercial
arbitration. The decision of the arbitrator shall be binding upon
Company and Operator. The arbitration shall be conducted at a place
designated by the Arbitrator.
C. No later than two (2) years prior to the expiration of this
Agreement, Company will notify Operator in writing whether or not
Operator appears then to be eligible to renew the franchise granted
hereunder. If Company advises Operator that the franchise is not
eligible for renewal, it will specify the reasons for such
ineligibility. One (1) year thereafter, Company will provide a similar
notice to Operator specifying whether any deficiencies noted in the
prior notice have been cured. In no event shall the provisions of
Article XXI.C. relieve Operator from the requirements of Article
XXI.A. or in any way affect Company's rights and remedies under
Articles XIX. and XX.
ARTICLE XXII.
REPAIR AND MAINTENANCE
Operator shall repair and paint the interior and exterior of the
buildings from which it conducts its business hereunder in accordance
with Company's then-applicable facility standards, and at all times
shall maintain the interior and exterior of the buildings and
surrounding premises in a clean and orderly condition in accordance
with Company's then-applicable facility standards.
ARTICLE XXIII.
ADDITIONAL TRADEMARKS
Company may, from time to time, in Company's sole discretion,
obtain additional trademark and/or service mark rights in words and/or
designs. In the event of any of these occurrences, Company may license
Operator to use those trademarks or service marks by giving written
notification to Operator that such marks now form part of Company's
Marks. The term of such license will be coextensive with the terms
hereof and will be subject to all the restrictions with respect to the
use of those rights as set forth herein and in the notice granting
Operator the license.
ARTICLE XXIV.
INSURANCE
A. Operator shall obtain and maintain, with an insurance
company approved by Company, which approval shall not be unreasonably
withheld, windstorm, fire, and extended coverage insurance, insuring
the construction of improvements and completed System Restaurants
operated by Operator, for the full replacement value thereof. In the
event of damage to the System Restaurants covered by insurance, the
proceeds of any such insurance shall be used to restore the System
Restaurants to their original condition as soon as possible unless
such restoration is prohibited by the location lease or Company has
otherwise consented in writing.
B. Operator shall obtain and maintain, with an insurance
company approved by Company, which approval shall not be unreasonably
withheld, comprehensive general liability insurance (including
products liability), and comprehensive automobile liability insurance
(including coverage for all owned, non-owned, leased, or hired
vehicles), all in amounts equal to at least Two Million Dollars
($2,000,000.00) combined single limit for death, personal injury, and
property damage, and workers' compensation insurance (coverage B) as
required by law. Said insurance shall in each instance designate
Company as an additional named insured. Operator shall file with
Company certificates of such insurance and shall promptly pay all
premiums on said policies as and when the same become due. In
addition, said policies shall contain a provision requiring thirty
(30) days prior written notice to Company of any proposed
cancellation, modification, or termination of insurance. If Operator
fails to obtain or maintain the insurance required hereunder, Company
may, at its option, in addition to any other rights it may have,
procure such insurance for Operator without notice and Operator shall
pay the premiums and Company's cost in taking such action immediately
upon demand therefor.
C. The insurance coverage required to be kept in effect by the
terms of Article XXIV. shall be subject to continuing review by
Company. Company may, from time to time, require Operator to obtain
additional insurance beyond the aforestated requirements provided the
increased insurance thus required is commercially practicable and is
not in amounts higher than the average amounts carried by Company with
respect to Company-owned System Restaurants. In such event, Company
will advise Operator in writing as to the additional insurance
required and Operator shall, within thirty (30) days of the date of
such notification, file with Company certificates of insurance which
comply with such requirements. Operator may, in its sole discretion,
obtain additional insurance beyond that required by Article XXIV.
ARTICLE XXV.
INDEMNIFICATION
Operator agrees to protect, indemnify, and save Company, its
affiliates, subsidiaries, shareholders, directors, officers, and
employees harmless from any and all loss, damage, liability, or
attorney's fees and costs incurred by any of them owing to claims
which arise directly or indirectly from or in connection with
Operator's operations under this Agreement.
The provisions of this Article XXV. shall not bar Operator from
bringing a separate action against Company following a final judgment
against Operator arising directly out of acts or omissions of Operator
taken at, and in accordance with, specific negligent directions given
to Operator by Company in this Agreement, in the Manual, or in other
written instructions.
ARTICLE XXVI.
RELATIONSHIP OF PARTIES
A. Company and Operator are not and shall not be considered as
joint venturers, partners, or agents of each other, or anything other
than franchisor and franchisee, and neither shall have the power to
bind or obligate the other except as set forth in this Agreement.
B. Company and Operator further acknowledge and agree that the
relationship created by this Agreement is not a fiduciary
relationship.
ARTICLE XXVII.
EXECUTION, INTERPRETATION, NOTICES
A. This Agreement takes effect upon its acceptance and
execution by Company in Dallas, Texas, and shall be governed by and
construed in accordance with the laws of or applicable to the State of
Kansas, U.S.A. Operator consents to the jurisdiction of any state or
federal court of general jurisdiction in either Dallas or Dallas
County, Texas, or the county in which Company has its principal place
of business with respect to any proceedings arising out of this
Agreement. Operator agrees that mailing to its last known address by
registered mail of any process shall constitute lawful and valid
process. Operator further agrees that it will bring any legal
proceedings arising out of this Agreement only in the courts mentioned
above.
B. All terms and words used in this Agreement, regardless of
the number and gender in which they are used, shall be deemed and
construed to include any other number, singular or plural, and any
other gender, masculine, feminine, or neuter, as the context or sense
of this Agreement or any paragraph or clause herein may require, the
same as if such words had been fully and properly written in the
number and gender. Headings preceding the text, articles, and sections
hereof have been inserted solely for convenience of reference and
shall not be construed to affect the meaning, construction, or effect
of this Agreement.
C. Except as otherwise defined in Article XI.A., all
references to "Operator" shall mean and include the individual
Operator; Operator's shareholders, officers, and directors, if
Operator is a corporation; and any one or more partners and
participants in Operator, if Operator is a partnership or joint
venture.
D. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be
deemed an original, but such counterparts together shall constitute
but one and the same instrument.
E. Except for (i) that certain undated Memorandum of
Understanding, by and between Company and IPHFHA, executed as the
result of certain disputes relating to the East Side Mario's chain,
and (ii) the agreements by Company outlined in a certain memorandum
from Mike Miles, dated December 22, 1998, relating to the development
of certain Express Restaurants (the provisions of each of which shall
survive the execution and delivery of this Agreement), and (iii) that
certain Agreement, dated March 31, 1975, as subsequently amended
(including without limitation as amended by that certain letter from
IPHFHA to Company, dated January 24, 1996,) by and between Company and
IPHFHA, concerning advertising for System Restaurants, this instrument
contains the entire agreement of the parties, and no representations,
inducements, promises, or agreements, oral or otherwise, not embodied
herein, were made by Company and none shall be of any force or effect.
F. Effective January 1, 2003, except as provided in Article
I.A.3 with respect to Side Agreements, and provided this Agreement has
been executed and delivered by both Company and Operator, the 1990
Franchise Agreement and any amendments thereto previously executed by
Operator with respect to the Pizza Hut Restaurants franchised
thereunder and to the Territory shall be superseded by this Agreement
and shall have absolutely no further force or effect whatsoever. This
provision shall not, however, relieve Operator of any financial
obligations then owing to Company, its subsidiaries and affiliates.
G. Nothing in this Agreement (except for Articles VI.B., XII.,
and XXV.) is intended or shall be deemed to confer any rights or
remedies upon any person or legal entity not a party hereto.
Furthermore, the parties agree that the persons who are third-party
beneficiaries of those provisions of this Agreement can sue Operator
for failure to comply with those specific provisions of this
Agreement, but cannot compel Company to sue Operator on their behalf.
H. In case of a breach or a threatened breach of any provision
of this Agreement by Operator, Company shall, in addition to any other
remedy it may have, and notwithstanding any other provision hereof
(including Article XXVII.), be entitled to an injunction restraining
Operator from committing or continuing to commit any breach or
threatened breach of this Agreement, without showing or proving any
actual damage sustained by Company.
I. Except as otherwise specifically provided in this
Agreement, each party shall bear its own attorneys' fees, expert
witness fees, and court costs incurred incident to any violation or
alleged violation of this Agreement.
J. Each article, paragraph, subparagraph, term, and condition
of this Agreement, and any portions thereof (including any covenant
which has been reduced from its original scope pursuant to Article
XI.C.), shall be considered severable; if, for any reason, any portion
of this Agreement is determined to be invalid, contrary to, or in
conflict with, any applicable present or future law, rule, or
regulation in a final, unappealable ruling issued by any court,
agency, or tribunal with valid jurisdiction in a proceeding to which
Company is a party, that ruling shall not impair the operation of, or
have any other effect upon, such other portions of this Agreement, all
of which shall remain binding on the parties and continue to be given
full force and effect. Any invalid portion shall be deemed not to be a
part of this Agreement as of the date upon which the ruling becomes
final if Operator is a party to such proceedings, or upon Operator's
receipt of notice of nonenforcement from Company.
K. All notices to Company required by the terms of this
Agreement shall be sent by certified or registered mail or by
overnight delivery service, addressed to Company at its office at
14841 Dallas Parkway, Dallas, Texas 75254-7552, or at such other
address as Company designates in writing, marked, "Attention: Vice
President-Franchising." All notices to Operator required by the terms
of this Agreement shall be sent by certified or registered mail or by
overnight delivery service, addressed to Operator at 3020 N. Cypress
Rd., Suite 100, Wichita, Kansas 67226 or at such other address as
Operator designates in writing. Notices will be effective when
delivery is made or is first attempted during normal business hours (8
a.m. to 5 p.m. local time, Monday through Friday, except national or
state holidays), except that notices of change of address will be
effective ten (10) days after that date.
ARTICLE XXVIII.
REQUESTS FOR WAIVERS AND CONSENTS
A. Company will consider written requests by Operator for
Company's consent to a waiver of any obligation imposed by this
Agreement. Any such request will be considered on a case by case basis
and nothing shall be construed to require Company to grant any such
request for a waiver. Any waiver granted by Company shall be without
prejudice to any other rights Company may have, will be subject to
continuing review by Company, and may be revoked, in Company's sole
discretion, at any time and for any reason, effective upon ten (10)
days' prior written notice to Operator. Company makes no warranties or
guarantees upon which Operator may rely, and assumes no liability or
obligation to Operator by providing any waiver, approval, consent,
assistance, or suggestion to Operator in connection with this
Agreement, or by reason of any neglect, delay, or denial of any
request therefor.
B. Unless otherwise specifically provided herein, whenever
this Agreement requires Operator to obtain Company's prior written
consent, Operator shall timely address its written request for such
consent to Company's Vice President-Franchising or such other person
as Company may designate in writing and, thereafter, Company will
consider such request and advise Operator of its decision in writing
within forty-five (45) days of receipt of the request. Company's
failure to thus advise Operator will constitute Company's consent to
such request, however, the aforesaid forty-five (45) days does not
commence until Operator has provided Company with all relevant
information and documentation requested by Company.
C. Neither party shall be deemed to have waived or impaired
any right, power, or option reserved by this Agreement (including,
without limitation, its right to demand strict compliance with every
term, condition, and covenant herein, or to declare any breach thereof
a default and to terminate this Agreement prior to the expiration of
its term), by virtue of any custom or practice of the parties at
variance with the terms hereof; any failure to demand strict
compliance with this Agreement; any waiver, forbearance, delay,
failure, or omission to exercise any right, power, or option, whether
of the same, similar, or different nature, against Company, Operator,
or any of Company's other franchisees; or the acceptance of any
payments due after any breach of this Agreement
ARTICLE XXIX.
RELEASE
A. Each party acknowledges (conditioned upon execution and
delivery of this Agreement by each party to the other) that, except
for any Surviving Claims, as defined in Article I.A.2, the other has
fully and satisfactorily performed all its obligations pursuant to
that certain 1990 Franchise Agreement between Operator and Company
dated March 1, 1990, and any amendments thereto. Accordingly, except
for Surviving Claims, each party, for itself, its heirs, executors,
successors, and assigns, hereby releases and discharges the other, its
affiliates, subsidiaries, shareholders, directors, officers, and
employees from any and all actions, suits, proceedings, claims, and
demands whatsoever, whether presently known or unknown, which it may
have or may hereafter claim to have arising out of or related to any
and all transactions of any kind at any time prior to and including
the date hereof, including, without limitation, any and all claims
arising under any federal, state, or local law, rule, or ordinance.
B. Where Article XVI.D.1.b. or Article XXI.A.2. requires a
release from Operator, and Company in fact solicits and receives such
a release, Company will, upon the written request of Operator, execute
a release in favor of Operator provided all of Operator's accrued
monetary and development obligations to Company, its subsidiaries and
affiliates, have been satisfied. Operator hereby agrees that any such
release shall not act as a release, discharge, waiver, bar, or
estoppel upon the Company, its subsidiaries and affiliates, from
maintaining any and all actions, suits, proceedings, claims, and
demands whatsoever, whether presently known or unknown, which Company,
its subsidiaries and affiliates, may have or may thereafter claim to
have, arising out of or related to any and all transactions of any
kind at any time subsequent to the date Company executes said release
(including that portion of continuing transactions that began prior to
the date of the release but continued after the release).
WITNESS our hands and seals the day and year first above written.
WITNESS: PIZZA HUT, INC.
"COMPANY"
_____________________________ By:________________________________
, Vice President
WITNESS: AMERICAN PIZZA PARTNERS, L.P.
By: RMC American Management, Inc.,
Managing General Partner
"OPERATOR"
_____________________________ By:________________________________
Hal W. McCoy, President
SCHEDULE A
BYLAWS
OF
PIZZA HUT NATIONAL PURCHASING COOP, INC.
Article II
Stockholder Members
2.6 Purchase Commitment. Each stockholder member shall
purchase virtually all Goods and Equipment for use in the stockholder
member's retail outlets through the purchasing programs of the Unified
Coop and the Coop. "Virtually all" with respect to Goods and
Equipment means all Goods and Equipment except Goods and Equipment:
(a) Where the Unified Coop or the Coop agrees in advance
in writing that the stockholder member need not purchase the
particular item or category of Goods or Equipment through the
purchasing programs of the Unified Coop;
(b) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is
impractical, with notice given as soon as possible), with respect to a
specific item or category of Goods or Equipment for specific retail
outlets that (i) the Unified Coop is unable to meet the member's
required volume of supply of the particular Goods or Equipment, or
(ii) the Unified Coop is unable to meet previously established quality
standards with respect to particular Goods or Equipment;
(c) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is
impractical, with notice given as soon as possible), that the Unified
Coop's purchasing policies or procedures with respect to the
particular item or category of Goods or Equipment present a material
business risk to the member, which the member is unwilling to assume,
because of the Unified Coop's volume, hedging or similar commitments,
arrangements or policies; or
(d) Purchased after the termination of the stockholder
member's membership in the Coop.
SCHEDULE B
FACILITIES UPGRADE
Introduction. The parties acknowledge that it is important to
the System that Pizza Hut Restaurants be upgraded ("Upgrade") to
present an attractive and current image to the public. For purposes of
this Schedule B, references to "Pizza Hut Restaurants" in this
Schedule B shall include all Pizza Hut Restaurants subject to the
franchise agreements listed on Schedule B-1.
A. Upgrades may be accomplished through one of four means:
1. A relocation of an existing Pizza Hut Restaurant to a
new location and building within the same trade area consistent with
Company's "R2K New Build Drawings and Specifications" (3/2000), "R2K2
New Build Drawings and Specifications" (3/2001) and "Main Path New
Build Drawings and Specifications" (5/2000), or as Duly Modified (as
hereinafter defined), or in accordance with plans submitted by
Operator and approved by Company (a "Relocation"). A Relocation would
be intended to make the Pizza Hut Restaurant new, bigger (if
warranted), more convenient and more accessible, or to adapt to a
change in neighborhood necessitating a more desirable location. A
Relocation would involve a better site location, a bigger parking lot
(if warranted), a new exterior and interior image, drive-through
capability (as permitted), delivery capability and a high-volume
kitchen.
2. A complete rebuilding of an existing Pizza Hut
Restaurant at the same location consistent with Company's "R2K New
Build Drawings and Specifications" (3/2000), "R2K2 New Build Drawings
and Specifications" (3/2001) and "Main Path New Build Drawings and
Specifications" (5/2000), or as Duly Modified, or in accordance with
plans submitted by Operator and approved by Company (a "Rebuild"). A
Rebuild would be intended to make the Pizza Hut Restaurant new and
bigger (if warranted). A Rebuild would include a new building, new
exterior and interior image, drive-through capability (as permitted),
delivery capability and a high volume kitchen.
3. A substantial renovation to an existing Pizza Hut
Restaurant consistent with Company's "Remodel Drawing Templates and
Specifications (35 and 39 series)" (10/2001), or in accordance with
plans submitted by Operator and approved by Company (a "Remodel"). A
Remodel would be intended to make the Pizza Hut Restaurant look
consistent with the then-current facility requirements. A Remodel
would consist of: (i) with respect to the exterior, an image Upgrade,
including the cupola, pediments, awnings, windows and a fresh parking
lot, and (ii) with respect to the interior, dining room finishes and
materials, furniture and booth lights, artwork and counters and buffet
(which may be new or refurbished), new smallwares, and fresh and clean
restrooms.
4. A facelift for a Pizza Hut Restaurant in accordance
with Company's "Minimum Asset Standards and Reimage Specifications"
(5/2002), or as Duly Modified, or in accordance with plans submitted
by Operator and approved by Company (a "Reimage"). There shall be two
types of Reimages: a Full Reimage and a Partial Reimage. A Full
Reimage would be intended to make the Pizza Hut Restaurant appear up-
to-date, and would consist of signage, paint, dining room finishes,
dining room furniture and counters and buffet (which may be new or
refurbished), new smallwares, a fresh parking lot and clean and fresh
restrooms. A Partial Reimage would consist of maintenance of the
exterior and interior of the Pizza Hut Restaurant and new signage.
For purposes of this Schedule B, changes to plans or
specifications relating to the Relocation, Rebuilding, Remodeling or
Reimaging of a Pizza Hut Restaurant are duly modified ("Duly
Modified") if the additional costs of Relocating, Rebuilding,
Remodeling or Reimaging a Pizza Hut Restaurant are not material
(separately or in the aggregate with respect to each Pizza Hut
Restaurant) and such changes have been made after prior consultation
with the Upgrade Committee. Any change to plans or specifications
shall not be applicable to any Pizza Hut Restaurant which previously
has been, or which currently is being, Relocated, Rebuilt, Remodeled
or Reimaged, as of the date such change is announced. Any Upgrade
which does not conform to the standards for a Relocation, Rebuild,
Remodel, or Reimage, or as Duly Modified (a "non-standard Upgrade")
shall nonetheless qualify as the applicable Upgrade if Operator
submits the plans for the non-standard Upgrade to Company and receives
Company's prior written approval, which shall not be unreasonably
delayed or withheld.
B. 1. The obligations of an Operator to Relocate, Rebuild,
Remodel or Reimage a Pizza Hut Restaurant shall depend upon (i) the
weekly per restaurant average sales ("WPRA") of such Pizza Hut
Restaurant during 2002, and (ii) the number of persons within a three
(3) mile radius of the Pizza Hut Restaurant, as determined on the
basis of statistical information provided by American Clearing House
(ACH) or such other information provider as Company and IPHFHA may
jointly designate:
a. If the WPRA for a Pizza Hut Restaurant is
$14,000.00 or more (a "High Volume Restaurant"), Operator shall
either Remodel, Relocate or Rebuild such Pizza Hut Restaurant.
b. If the WPRA for a Pizza Hut Restaurant is less
than $14,000.00 but greater than $9,500.00 and there are 15,000
or more persons within a three (3) mile radius of the Pizza Hut
Restaurant (a "Middle Volume/High Population Restaurant"),
Operator shall either Remodel, Relocate or Rebuild such Pizza Hut
Restaurant.
c. If the WPRA for a Pizza Hut Restaurant is less
than $14,000.00 but greater than $9,500.00 and there are less
than 15,000 persons within a three (3) mile radius of the Pizza
Hut Restaurant (a "Middle Volume/Low Population Restaurant"),
Operator shall, at a minimum, Fully Reimage the Pizza Hut
Restaurant. Operator may also, at its option, Relocate, Rebuild
or Remodel that Pizza Hut Restaurant in order to comply with its
obligations as set forth in this Schedule B.
d. If the WPRA for a Pizza Hut Restaurant is
$9,500.00 or less and there are 15,000 or more persons within a
three (3) mile radius of the Pizza Hut Restaurant (a "Low
Volume/High Population Restaurant"), Operator shall, at a
minimum, Partially Reimage the Pizza Hut Restaurant; provided,
however, that Operator must either Remodel, Relocate or Rebuild
50% of Operator's Low Volume/High Population Restaurants.
Operator may also, at its option, Rebuild, Relocate, Remodel or
Fully Reimage one or more of its other Low Volume/High Population
Restaurants in order to comply with its obligations as set forth
in this Schedule B.
e. If the WPRA for a Pizza Hut Restaurant is
$9,500.00 or less and there are less than 15,000 persons within a
three (3) mile radius of the Pizza Hut Restaurant (a "Low
Volume/Low Population Restaurant"), Operator shall, at a minimum,
Partially Reimage the Pizza Hut Restaurant. Franchisee may also,
at its option, Rebuild, Relocate, Remodel or Fully Reimage that
Pizza Hut Restaurant in order to comply with its obligations as
set for in this Schedule B.
2. Any Pizza Hut Restaurant that is Relocated, Rebuilt or
Remodeled, regardless of whether it is a High Volume Restaurant,
Middle Volume/High Population Restaurant, Middle Volume/Low Population
Restaurant, Low Volume/High Population Restaurant or Low Volume/Low
Population Restaurant, shall be counted as being Upgraded in
determining whether Operator has met the development schedule set
forth in Section D below.
3. Regardless of whether or when a Pizza Hut Restaurant
will be Relocated, Rebuilt, Remodeled or Reimaged, all Pizza Hut
Restaurants must have the new Pizza Hut logo on pole signs not later
than September 30, 2008. In addition, with respect to any Pizza Hut
Restaurant that is scheduled to be Relocated, Rebuilt or Remodeled on
or after January 1, 2009, Operator must, on or prior to September 30,
2008, remove its roof signage and, upon demand by Company, paint the
roof, as Company may reasonably require.
4. Operator shall only be required to Relocate, Rebuild
or Remodel a number of Pizza Hut Restaurants (regardless of whether
the Pizza Hut Restaurant is a High Volume Restaurant, Middle
Volume/High Population Restaurant, Middle Volume/Low Population
Restaurant, Low Volume/High Population Restaurant or Low Volume/Low
Population Restaurant) which equals 87.5% of the sum of (A) the
aggregate number of Operator's High Volume Restaurants and Middle
Volume/High Population Restaurants as of January 1, 2003, and (B) 50%
of Operator's Low Volume/High Population Restaurants as of January 1,
2003. For purposes of this Schedule B, in determining whether
Operator is in compliance with the number of Pizza Hut Restaurants
which must be Relocated, Rebuilt, Remodeled or Reimaged by a
particular date, the results obtained by making any calculation shall
be rounded down to the nearest whole number.
5. All Relocations, Rebuilds and Remodels shall be
completed in accordance with the development schedule set forth in
Section D.1 below. High Volume Restaurants, Middle Volume/High
Population Restaurants and Low Volume/High Population Restaurants
which Operator elects not to Relocate, Rebuild or Remodel, as
permitted under Section B.4 above, shall be deemed "Excepted
Restaurants" for purposes of Section D.2 below and shall be Reimaged
in accordance with the development schedule set forth therein.
6. A Pizza Hut Restaurant which has been opened,
Relocated, Rebuilt or Remodeled on or after January 1, 1998 is deemed
to have been Upgraded; provided, that in the case of a Remodeled Pizza
Hut Restaurant, the Remodeling complied with the standards under the
NCFA in effect at the time of such Remodeling.
C. 1. Not later than ninety (90) days after the date of this
Agreement, Operator shall submit to Company a market plan which shall
include a schedule (the "Initial Upgrade Schedule"), substantially in
the form provided by Company after consultation with IPHFHA, for all
of the Pizza Hut Restaurants subject to this Agreement. With respect
to each Pizza Hut Restaurant subject to this Agreement, the Initial
Upgrade Schedule shall describe whether and when that Pizza Hut
Restaurant will be Relocated, Rebuilt, Remodeled, Fully Reimaged or
Partially Reimaged. Company shall provide available resources (such as
demographic information) that will assist Operator in completing its
Initial Upgrade Schedule (or an Adjusted Upgrade Schedule).
2. a. Company shall review the Initial Upgrade Schedule
and not later than ninety (90) days after Company's receipt of the
Initial Upgrade Schedule, Company shall notify Operator in writing
whether or not it believes that (i) the Initial Upgrade Schedule has
been prepared in accordance with the requirements set forth in Section
B above, or (ii) Operator's Pizza Hut Restaurants have been scheduled
for Upgrading in accordance with the development schedule described in
Section D below ((clauses (i) and (ii) are hereinafter referred to as
the "Upgrade Requirements"). Such notice (the "Initial Upgrade
Schedule Notice") shall specify deficiencies, if any, in Operator's
proposed Initial Upgrade Schedule. Except as otherwise provided in
Section C.2.b below, within thirty (30) days of its receipt of the
Initial Upgrade Schedule Notice, Operator shall make any required
adjustments to its Initial Upgrade Schedule so that it meets the
Upgrade Requirements.
b. If at any point the parties disagree on whether
the Initial Upgrade Schedule meets the Upgrade Requirements,
representatives of Company and Operator shall meet and confer
regarding the disagreement. If they are unable to reach
agreement as to whether the Initial Upgrade Schedule meets the
Upgrade Requirements, either party may submit the dispute to the
Upgrade Committee, as described below.
3. a. Within six months prior to the third (3rd), sixth
(6th) or eighth (8th) Anniversary Date (as hereinafter defined), if
either Company or Operator believes in good faith that market
circumstances or asset performance of Pizza Hut Restaurants within
Operator's Territory have changed materially subsequent to the date of
this Agreement, then either party may request that the Initial Upgrade
Schedule be revised (an "Adjusted Upgrade Schedule") so that the Pizza
Hut Restaurants which have not yet been Relocated, Rebuilt, Remodeled
or Reimaged can be appropriately reclassified to conform to the
requirements of Section B above, with appropriate adjustments to be
made to the applicable development schedules set forth in the Initial
Upgrade Schedule to reflect the reclassification of these Pizza Hut
Restaurants into the correct categories specified in Section B. In
determining whether Operator is in compliance with its obligations to
Upgrade as set forth in Schedule D.1, the Adjusted Upgrade Schedule
shall become applicable at the next succeeding Checkpoint Date (e.g.,
if an Adjusted Upgrade Schedule is adopted in connection with the
third Anniversary Date, Operator will not be required to meet the
Adjusted Upgrade Schedule until the sixth Anniversary Date). For
purposes of interpreting the conditions under which an Adjusted
Upgrade Schedule is warranted, a change in "market circumstances" or
"asset performance" shall not include lender financing or projected
Upgrade sales performance, but may include then-current WPRA, then-
current costs of construction and then-current real estate acquisition
or rental costs, as they relate to the categories of Upgrade
development outlined above.
b. If Company and Operator are unable to reach
agreement as to the terms of the Adjusted Upgrade Schedule,
either party may submit the dispute to the Upgrade Committee, as
described below.
4. a. The Upgrade Committee shall review each party's
proposed Initial Upgrade Schedule or Adjusted Upgrade Schedule, as
applicable, and promptly make a non-binding written recommendation to
Company and Operator regarding what the Initial Upgrade Schedule or
Adjusted Upgrade Schedule, as applicable, should be.
b. If Company and Operator are not willing to accept
the Upgrade Committee's recommendation and are not otherwise able
to reach agreement as to the matters in dispute, then, within
thirty (30) days after the Upgrade Committee's recommendation is
issued, either Company or Operator may file a demand for
arbitration with the Center for Public Resources, Inc. ("CPR"),
asking the arbitrator to determine what the Initial Upgrade
Schedule or the Revised Upgrade Schedule, as applicable, should
be. If neither party submits the matter to arbitration within
thirty (30) days after the Upgrade Committee's recommendation is
issued, the Initial Upgrade Schedule or Adjusted Upgrade
Schedule, as recommended by the Upgrade Committee, shall be the
Initial Upgrade Schedule or Adjusted Upgrade Schedule, as
applicable, for purposes of this Schedule B.
c. If either party submits a demand for arbitration,
then within twenty (20) days, each of Company and Operator shall
submit a position statement to the arbitrator, who shall have
been selected as provided below, setting forth its proposed
Initial Upgrade Schedule or Adjusted Upgrade Schedule, as
applicable, and the basis for its position. The arbitrator
shall rule that either Company's proposal or Operator's proposal
shall be the Initial Upgrade Schedule or Adjusted Upgrade
Schedule, as applicable. The arbitrator may not issue any other
ruling. The arbitrator shall issue his ruling within twenty (20)
days after the date Company and Operator were required to submit
their position statements to the arbitrator. The arbitrator's
decision shall be binding on Company and Operator, unless the
arbitrator has failed to follow the procedures set forth herein.
For purposes of this Schedule B, the arbitrator's fees and
expenses and the other administrative expenses of the arbitration
shall be paid by the non-prevailing party.
d. If CPR shall cease to exist or refuse to
arbitrate such dispute, Company and IPHFHA shall have the right
to jointly appoint a substitute neutral organization to arbitrate
disputes between Company and its franchisees, and the rules of
such substitute organization shall govern such arbitrations.
Except as otherwise provided in this Schedule B, the arbitration
shall be conducted in accordance with the CPR's (or its
substitute's) rules of commercial arbitration. All arbitrations
shall be conducted at a place designated by the arbitrator.
Copies of all arbitration awards shall be immediately sent to
IPHFHA by Company.
e. The Upgrade Committee shall be comprised of two
Pizza Hut franchisees in good standing selected by IPHFHA and two
representatives from Company who are not from the Development
Department or such other department within Company responsible
for restaurant development within the System.
5. Company and IPHFHA shall jointly appoint an arbitrator
(the "Designated Arbitrator") to hear all disputes arising with
respect to matters subject to this Schedule B. If a Designated
Arbitrator dies, becomes disabled, or is otherwise unable or unwilling
to serve in that capacity, Company and IPHFHA shall jointly appoint a
successor. Each of Company and IPHFHA shall have the right to ask for
the appointment of a successor to the Designated Arbitrator (a
"Replacement Demand") after five decisions are issued by that
Designated Arbitrator, but the replacement of a Designated Arbitrator
shall not affect the arbitrator for any arbitrations filed before the
Replacement Demand is received by Company or IPHFHA, as the case may
be. If Company and IPHFHA have been unable at any time to agree upon
the Designated Arbitrator, then an arbitrator for a dispute arising
under this Schedule B shall be appointed by CPR (or its successor) in
accordance with CPR's (or its successor's) rules of commercial
arbitration.
D. For purposes of this Schedule B, an Anniversary Date shall
be December 31 of the applicable year, except that for purposes of
Section D.2 below, the Anniversary Date for the Sixth Year shall be
September 30, 2008.
1. Operator shall Relocate, Rebuild, or Remodel High
Volume Restaurants, Middle Volume/High Population Restaurants and 50%
of Operator's Low Volume/High Population Restaurants in accordance
with the following schedule:
Percentage of High Volume Restaurants,
Middle Volume/High Population
Restaurants, and 50% of Operator's Low
Volume/High Population Restaurants
To Have Been Upgraded
Anniversary By Such Anniversary Date*
- ----------- --------------------------------------
First 0
Second 5
Third 15
Fourth 25
Fifth 35
Sixth 45
Seventh 55
Eighth 70
Ninth 85
Tenth 100
* In determining whether Operator is in compliance with his
development obligations pursuant to this Section D.1, the denominator
of the fraction used to make such determination shall exclude (i) the
number of Pizza Hut Restaurants that will be closed as set forth in
the Initial Upgrade Schedule, and (ii) the number of Excepted
Restaurants; and the numerator of such fraction shall include (i) all
Pizza Hut Restaurants which have been Upgraded as provided in Section
B.2 above, and (ii) any other Pizza Hut Restaurants which have been
opened, Relocated, Rebuilt or Remodeled, as provided in Section B.6
above. If a Pizza Hut Restaurant is reclassified pursuant to Section
C.3 above, then the denominator used in calculating this percentage
shall be adjusted appropriately.
2. Operator shall Reimage Excepted Restaurants, Middle
Volume/Low Population Restaurants and Low Volume/Low Population
Restaurants in accordance with the following schedule:
Percentage of Excepted Restaurants,
Middle Volume/Low Population
Restaurants and Low Volume/Low
Population Restaurants
To Have Been Fully Reimaged, Partially
Reimaged, Relocated, Rebuilt or
Remodeled,
Anniversary By Such Anniversary Date*
- ----------- --------------------------------------
First 20
Second 35
Third 50
Fourth 65
Fifth 80
September 30, 2003 100
* In determining whether Operator is in compliance with his
development obligations pursuant to this Section D.2, the denominator
of the fraction used to make such determination shall exclude the
number of Pizza Hut Restaurants that will be closed as set forth in
the Initial Upgrade Schedule. If a Pizza Hut Restaurant is
reclassified pursuant to Section C.3.a above, then the denominator
used in calculating this percentage shall be adjusted appropriately.
E. 1. For purposes of this Section E, a "Checkpoint Date"
shall occur upon the third, sixth, eighth and tenth Anniversary Dates.
2. If, as of the third Anniversary Date, (a) the
percentage of Pizza Hut Restaurants which Operator has Upgraded
pursuant to Section D.1 is not within 90% of the number of Pizza Hut
Restaurants which Operator was required to have Upgraded pursuant to
Section D.1 (the "Checkpoint Date Percentage"), then upon written
notice from company to Operator, such Upgrade deficiency shall
constitute a "Reversionary Event." Upon the occurrence of such a
Reversionary Event, the provisions of this Agreement shall be amended
as follows:
a. The first paragraph of Article I.A.1. will be
deemed deleted in its entirety and replaced with the following:
"Company hereby grants to Operator, for a term beginning on
January 1,2003 and ending on March 1, 2010 (the "Term"),
subject to a fifteen-year renewal as provided in Article
XXI, the right and license, and Operator hereby undertakes
the obligation, to operate the business described below
under the mark "Pizza Hut" and such other of Company's
Marks as may be designated by Company, and to operate such
business solely in accordance with Company's System, and
only at locations in the following geographical territory
(hereinafter called the "Territory"):
Counties of Big Horn, Carbon, Dawson, Fallon, Richland,
Roosevelt, Sheridan and Valley, Montana
[The Article XXI referred to above shall be to such
provision as amended by Section E.2.e. below.]
b. Article I.D.4. will be deemed deleted in its
entirety.
c. Article III.C. will be deemed deleted in its
entirety and
replaced with the following:
"Subject to the limitations set forth below, Company may
require extensive structural changes, major remodeling and
renovation, and substantial modifications to existing
improvements as necessary for Operator's System Restaurants
to conform with Company's then-current System image only if
Company follows the same pretesting requirements as in
Article III.B.1. Company may not require any such work at a
particular System Restaurant less than seven (7) years
after that System Restaurant opened, less than seven (7)
years after the System Restaurant was Rebuilt or Relocated,
or less than five (5) years after the System Restaurant was
Remodeled. Upon receipt of notice, Operator shall fully
implement such changes to its System Restaurants operating
under this Agreement, but in no event will Operator be
required to implement such changes until the year following
the date on which the changes have been implemented in a
total of at least thirty percent (30%) of the Company-owned
System Restaurants in the United States, and in no event
will Operator be required during any calendar year to
implement such changes at a faster percentage rate than
made to Company-owned System Restaurants for the prior
calendar year. Notwithstanding the foregoing, Company may
require that all of Operator's System Restaurant be
maintained consistent with Company's image and, by no later
than September 30, 2008, include only the new "Pizza Hut"
logo and signage."
d. Article IX.A.2. will be deemed deleted in its
entirety and replaced with the following:
"A monthly service fee of four percent (4%) per month of
the previous month's gross sales (as defined in Article X.)
for each of Operator's System Restaurants. If, by reason of
state law, Company is prohibited from receiving a
percentage of alcoholic beverage sales, Operator shall pay
Company an equivalent amount not to exceed four and one-
half percent (4.5%) of gross food and non-alcoholic
beverage sales instead of four percent (4%) of total gross
sales."
e. Article XXI will be deleted in its entirety and
replaced with the following:
"A. Unless terminated as herein otherwise provided,
Operator shall have the option at the expiration of the
initial term of this Agreement to renew the franchise
granted hereunder for a single renewal term of fifteen (15)
years by executing Company's then-current form of Franchise
Agreement, provided that:
1. Operator gives Company written notice of
its election to renew not less than two (2) months nor more
than nine (9) months prior to the expiration of the initial
term;
2. Operator executes a general release under
seal, in a form prescribed by Company, of any and all
claims against Company, its affiliates, subsidiaries,
shareholders, directors, officers, and employees;
3. Operator, at the time of notice of election
to renew and at the end of the initial term, is not in
default of any of the terms or conditions of this Agreement
or any other agreement between Operator and Company, its
subsidiaries and affiliates, and has substantially complied
with the terms and conditions of all such agreements during
the term of this Agreement;
4. All of Operator's accrued monetary
obligations to Company, its subsidiaries and affiliates,
have been satisfied prior to renewal, and timely met
throughout the term of this Agreement; and
5. Operator is in compliance with the
standards set forth in Company's then-current Manual and
has made such modernization and renovations (including,
without limitation, signs, furnishings, interior and
exterior decor, fixtures, equipment, and structural
changes) and repairs and maintenance to Operator's System
Restaurants as Company may have required and may require
pursuant to Article III.B. and C. and Article XXII.
However, in no event will Company require as a condition of
renewal extensive structural changes, major remodeling and
renovation, and substantial modification to existing
improvements except in accordance with Article III.C.
[The Article III.C. referred to above shall be to such
provision as amended by Article E.2.c. above.]
B. The franchise agreement to be executed at renewal
shall require Operator to pay the initial franchise fees,
the monthly service fees, and the advertising payments then
being charged by Company, which may be higher than those
contained hereunder, and which shall thereafter apply to
all of Operator's System Restaurants. No initial franchise
fee will be due upon renewal with respect to those of
Operator's System Restaurants already opened as to which
Operator has previously paid an initial franchise fee. The
terms of the franchise agreement to be executed at renewal
may be different from the terms of this Agreement.
Notwithstanding the foregoing, the service fee rate
applicable to gross sales at Pizza Hut Restaurants that
Operator has opened, Rebuilt, Relocated or Remodeled in
accordance with Company's specifications regarding such
asset actions since January 1, 1998, will not exceed 4%
during the renewal term.
C. No later than two (2) years prior to the
expiration of this Agreement, Company will notify Operator
in writing whether or not Operator appears then to be
eligible to renew the franchise granted hereunder. If
Company advises Operator that the franchise is not eligible
for renewal, it will specify the reasons for such
ineligibility. One (1) year thereafter, Company will
provide a similar notice to Operator specifying whether any
deficiencies noted in the prior notice have been cured. In
no event shall the provisions of Article XXI.C. relieve
Operator from the requirements of Article XXI.A. or in any
way affect Company's rights and remedies under Articles
XIX. and XX."
f. During the Term and any renewal term, and so long
as Operator is not in default hereunder, Company will not
develop, franchise or license another to operate a Pizza Hut
Restaurant within a circle centered on the location of those
existing Pizza Hut Restaurants that contain 15, 000 households,
but in no event will such circle of protection have a radius of
less than one mile or greater than 10 miles; provided, however
this radius protection shall only apply to those Pizza Hut
Restaurants which Operator has Rebuilt, Relocated or Remodeled,
as set forth in Schedule B between January 1, 1998 and the date
of the Reversionary Event.
g. This Schedule B will be deemed deleted in its
entirety, except for the definitions of "Rebuild", "Relocate",
and "Remodel" contained therein.
3. Unless a Reversionary Event has occurred under this
Agreement, as provided in Section E.2 above, then the following
provisions of this Section E shall be applicable:
a. If, on any Checkpoint Date, the percentage of
Pizza Hut Restaurants which Operator has Upgraded as of such date
is less than the Required Checkpoint Date Percentage, then after
such Checkpoint Date the amount of the monthly Service Fee, as
specified in Article IX, shall be increased as of the end of each
month (or if Service Fees for Operator are calculated on some
other time-period basis, at the end of the applicable accounting
period comparable to a month) (the "Additional Service Fee
Determination Date") by an amount (the "Additional Service Fee")
determined as follows:
i. Determine the number of Pizza Hut Restaurants
which should have been Relocated, Rebuilt or Remodeled
("Major Upgraded") pursuant to Section D.1 by multiplying
(X) the applicable Checkpoint Date Percentage of High
Volume Restaurants, Middle Volume/High Population
Restaurants and Low Volume/High Population Restaurants
scheduled to have been Major Upgraded by such date, by (Y)
the total number of Pizza Hut Restaurants which are
scheduled to be Major Upgraded pursuant to Section B.1.
(the "Minimum Required Major Upgrade Pizza Hut
Restaurants").
ii. Calculate the Additional Service Fee by (A)
subtracting the actual number of Pizza Hut Restaurants
which have been Major Upgraded as of the Checkpoint Date
from the Minimum Required Major Upgrade Pizza Hut
Restaurants scheduled to have been Major Upgraded as of
such date, and multiplying the result by (B) the average
unit volume ("AUV") per month (or if Service Fees for
Operator are calculated on some other time-period basis,
for the applicable accounting period comparable to a month)
for all of Operator's Pizza Hut Restaurants, which are to
be Major Upgraded, for the last 12 months and (C)
multiplying that number by one percent (1%).
b. Additional Service Fees shall be calculated and
payable at the end of each month (or if Service Fees for Operator
are calculated on some other time-period basis, at the end of the
applicable accounting period comparable to a month) until the
number of Pizza Hut Restaurants that have been Upgraded equals or
exceeds the number of Pizza Hut Restaurants that should have been
upgraded as of the last Checkpoint Date.
Example of how to calculate the Additional Service Fee
are attached hereto as Schedule B-2. The Additional Service Fees
to which Company may be entitled hereunder shall be Company's
sole and exclusive remedy with respect to Operator's breach of,
or default under, the provisions of this Schedule B.
F. Company and IPHFHA may mutually agree upon such rules as
they jointly deem appropriate to implement the provisions of this
Schedule B to the extent that such rules are not inconsistent with the
terms hereof.
G. Only disputes and controversies arising out of the
requirements of this Schedule B shall be submitted to arbitration as
described above.
H. Company may require extensive structural changes, major
remodeling and renovation, and substantial modifications to existing
improvements as necessary for Operator's System Restaurants to conform
with Company's then-current System image (a "Refurbish") subject to
the requirements in Article III.B.2 of this Franchise Agreement.
Company may not require any such work at a particular Pizza Hut
Restaurant less than seven (7) years after the Pizza Hut Restaurant
opened; less than seven years (7) years after the Restaurant was
Relocated or Rebuilt; or less than five (5) years after it was last
Remodeled, Reimaged or Refurbished or as to any other System
Restaurant, after it was last Refurbished as set forth in Article
III.B.2. In no event shall Company mandate an additional Refurbish
under Article III.B.2 with respect to Pizza Hut Restaurants Relocated,
Rebuilt or Remodeled prior to January 1, 2013 or at a rate in excess
of fifteen percent (15%) per annum of Operator's Pizza Hut Restaurants
which have been Rebuilt, Relocated or Remodeled. Upon receipt of
written notice, Operator shall fully implement such changes to each of
its System Restaurants operating under this Agreement, but in no event
will Operator be required during any calendar year to implement such
changes at a faster percentage rate than made to Company-owned System
Restaurants in the United States for the prior calendar year.
I. In making any calculations pursuant to this Schedule B, all
percentages shall be expressed in terms of decimals (e.g. "75%" shall
be ".75").
SCHEDULE B-1
LIST OF FRANCHISE AGREEMENTS WHOSE RESTAURANTS ARE SUBJECT TO THE
PROVISIONS OF SCHEDULE B
Franchise Agreement 558 - American Pizza Partners, L.P.
Franchise Agreement 559 - American Pizza Partners, L.P.
Franchise Agreement 561 - American Pizza Partners, L.P.
Franchise Agreement 562 - American Pizza Partners, L.P.
Franchise Agreement 566 - American Pizza Partners, L.P.
Franchise Agreement 567 - American Pizza Partners, L.P.
Franchise Agreement 568 - American Pizza Partners, L.P.
Franchise Agreement 570 - American Pizza Partners, L.P.
Franchise Agreement 572 - American Pizza Partners, L.P.
Franchise Agreement 841 - American Pizza Partners, L.P.
Franchise Agreement 843 - American Pizza Partners, L.P.
Franchise Agreement 851 - American Pizza Partners, L.P.
Franchise Agreement 852 - American Pizza Partners, L.P.
Franchise Agreement 1068 - American Pizza Partners, L.P.
Franchise Agreement 1076 - American Pizza Partners, L.P.
Franchise Agreement 1078 - American Pizza Partners, L.P.
Franchise Agreement 1079 - American Pizza Partners, L.P.
Franchise Agreement 858 - Oklahoma Magic, L.P.
Franchise Agreement 237 - Seaside Pizza, L.L.C.
Franchise Agreement 674 - Mountain View Pizza LLC
Franchise Agreement 806 - Mountain View Pizza LLC
SCHEDULE B-2
EXAMPLE OF ADDITIONAL SERVICE FEE CALCULATION
Assumptions:
* 103 Stores Open Today
* 3 Underperforming Stores to be Closed
* 57 Stores over $14,000 WPSA
* 6 Stores $9,500 - $14,000 WPSA and over 15,000 Population
* 30 Stores $9,500 - $14,000 WPSA and under 15,000 Population
* 4 Stores under $9,500 WPSA and over 15,000 Population
* 3 Stores under $9,500 WPSA and under 15,000 Population
- ------------------------------------------------------------------
Formula Example
A Total Number of Stores A 103
B Less Underperforming Stores to be Closed -B -3
----- -----
C Net Stores Requiring Action (A-B) C 100
===== =====
Stores to be Remodeled
- ----------------------
D Over $14,000 WPSA D 57
E Plus $9,500 to $14,000 WPSA and over 15,000
Pop. +E +6
F Plus 50% of under $9,500 WPSA and over
15,000 Pop. +F +2
----- -----
G Gross Stores In Remodel Category (D+E+F) G 65
Multiplied by "Exception %" x87.5% x87.5%
----- -----
H Net Stores to be Remodeled: G x 87.5%
(Rounded Down) H 56
===== =====
Stores to be Reimaged
- ---------------------
I $9,500 to $14,000 WPSA and under
15,000 Pop. I 30
J Plus "Excepted Stores" (G-H) +J +9
----- -----
K Total Stores to be Re-imaged K 39
===== =====
Stores to Have Partial Reimages
- -------------------------------
L 50% of under $9,500 WPSA and over
15,000 Pop. (Same as F) L 2
M Plus under $9,500 WPSA and under
15,000 Pop. +M +3
----- -----
N Total Stores to have Partial Re-Image N 5
===== =====
T Total Assets Requiring Action (H+K+N) T 100
SCHEDULE C
IT FUNCTIONAL SPECIFICATIONS
1. POS Functional Specifications
a. Complete precheck order processing for dine-in, carryout,
delivery, window/counter and drive thru (as applicable).
b. Flexible pricing and promotion support.
c. Taxation by occasion, product class or bracketed tax.
d. Automated cash out with cash control reporting.
e. Tracking and reporting of Delivery Driver Reimbursements.
f. Delivery customer database.
g. Backup and recovery; automated.
h. Database of transaction level detail for all transactions
(such warehousing of information should be discussed as to
centralized approach).
i. Electronic I/O reporting features compatible with PHI.
(Note: Any data collection should not impede Operator's
ability to collect his own data).
2. Back of House Specifications
a. Tracking and reporting of ideal usages.
b. Automated time keeping.
SCHEDULE D
SIDE AGREEMENTS
(attached)
CERTIFICATE OF PARTNERSHIP RESOLUTIONS
The undersigned certifies to Pizza Hut, Inc. ("Franchisor"), that
he is the managing partner of American Pizza Partners, L. P., a
Delaware limited partnership ("Operator"), and that at a duly convened
joint meeting of the partners of Operator, attended by all of them,
held on the day of , 2002, the following
resolutions were unanimously adopted:
WHEREAS, Operator has entered into a 2003 Territory Franchise
Agreement (the "Agreement") with Franchisor to operate Pizza Hut
Restaurants in a territory specified in Article I. A. of the
Agreement; and,
WHEREAS, Articles XVI. and XVII. of the Agreement impose certain
requirements upon Operator, restrict the issuance and transfer of any
interest in Operator, and require that Operator submit to Franchisor a
resolution of all of the partners of Operator, which states that
without Franchisor's prior written consent, no interest in Operator
shall be issued, transferred, or assigned to any person or legal
entity;
NOW, THEREFORE, be it resolved (by all of the partners of
Operator) that, except as permitted by Articles XVI., XVII., and
XVIII. of the Agreement, no interests in Operator shall be issued,
transferred, or assigned to any person or legal entity without
Franchisor's written consent.
The undersigned further certifies to Franchisor that the Articles of
Partnership and Bylaws of Operator restrict Operator's business
activities to operations licensed by Franchisor or its subsidiaries
and affiliates, and that Operator is in compliance with those
restrictions.
This certificate is executed ____________________________.
RMC AMERICAN MANAGEMENT, INC.
Managing Partner
By:___________________________
Hal W. McCoy, President
(CORPORATE SEAL)
PARTNERSHIP AGREEMENT AND GUARANTY
WHEREAS, PIZZA HUT, INC. ("Company"), a California corporation,
has granted a 2003 Territory Franchise Agreement (the "Agreement") to
American Pizza Partners, L. P. ("Operator"), a Delaware limited
partnership with its principal place of business at 3020 N. Cypress
Rd., Suite 100, Wichita, Kansas 67226; and,
WHEREAS, the undersigned are all of the individuals holding a
direct or indirect interest in the Agreement or in Operator as general
or limited partners; and,
WHEREAS, Company has placed great reliance upon the ability of
the undersigned in granting the Agreement to Operator,
NOW, THEREFORE, in consideration of Company's granting the
Agreement to Operator to operate Pizza Hut Restaurants in the
territory specified in Article I. A. of the Agreement, and pursuant to
Article XVII. of the Agreement, the undersigned, being all of the
individuals having a direct or indirect interest in the Agreement or
to Operator as general or limited partners, jointly and severally
covenant with Company as follows:
1. Except as permitted under Articles XVI., XVII., and XVIII.
of the Agreement, neither Operator nor any person with an interest in
Operator shall, without Company's prior written consent, directly or
indirectly, issue, sell, assign, transfer, convey, give away, pledge,
mortgage, or otherwise encumber any direct or indirect interest in the
Agreement or any direct or indirect interest in Operator.
2. Each of the undersigned who holds, directly or indirectly,
a ten percent (10%) or greater interest in the Agreement or in
Operator personally guarantees, jointly and severally, the full
payment and performance of each of Operator's obligations to Company.
3. Each of the undersigned individually undertakes to be bound
by all of the terms of the Agreement, including, without limitation,
the restrictions on transfers of interests in Operator and the
covenants of confidentiality and against competition.
4. This Partnership Agreement and Guaranty may be executed in
counterparts, and will bind each person who signs, even if one or more
other individual owners of an interest in Operator fails or refuses to
sign. This Partnership Agreement and Guaranty inures to the benefit of
Company and does not amend or supersede any agreement or undertaking
among the undersigned relating to internal corporate matters.
WITNESS our signatures on the dates set forth below our names.
WITNESS:
____________________________ __________________________________
Hal W. McCoy
Date:_____________________________
WITNESS:
____________________________ __________________________________
Hal W. McCoy, Jr.
Date:_____________________________
WITNESS: AMERICAN RESTAURANT PARTNERS, L.P.
By: RMC AMERICAN MANAGEMENT, INC.,
General Partner
____________________________ By:_______________________________
Hal W. McCoy, President
Date:_____________________________
WITNESS: RMC AMERICAN MANAGEMENT, INC.
_____________________________ By:_______________________________
Hal W. McCoy, President
Date:_____________________________
CERTIFICATE LISTING PARTNERS
The undersigned, who is the Managing Partner of American Pizza
Partners, L. P. ("Operator"), hereby certifies to Pizza Hut, Inc.,
that the following information is true and correct and reflects all of
the officers and directors of Operator and all of the individuals who
own (directly or indirectly) any interest in Operator:
Percentage
of
Name Interest
- --------------------------------- ----------
American Restaurant Partners, L.P. 99%
RMC Partners, L. P. .9%
RMC American Management, Inc. .1%
DATED as of the day of , 2002.
RMC AMERICAN MANAGEMENT, INC.
_____________________________________
Hal W. McCoy, Managing Partner
(CORPORATE SEAL)
SCHEDULE OF FRANCHISE AGREEMENTS
Franchise
Franchise Agreement # Holder
______________________________________________________________________
572 American Pizza Partners, L.P.
ARTICLE XXX.TERRITORY DESCRIPTION
Counties of Big Horn, Campbell, Freemont, Park, Sheridan and Washakie,
WY.
______________________________________________________________________
559 American Pizza Partners, L.P.
ARTICLE XXXI.TERRITORY DESCRIPTION
Counties of Custer, Deer Lodge, Gallatin, Park, Rosebud, Silver Bow
and Yellowstone, MT.
______________________________________________________________________
562 American Pizza Partners, L.P.
ARTICLE XXXII.TERRITORY DESCRIPTION
Counties of Bell and Coryell, TX.
______________________________________________________________________
843 American Pizza Partners, L.P.
ARTICLE XXXIII.TERRITORY DESCRIPTION
City of Round Rock, TX, as its city limits existed on October 21, 2001
______________________________________________________________________
852 American Pizza Partners, L.P.
ARTICLE XXXIV.TERRITORY DESCRIPTION
A portion of Williamson County, Texas west of State Highway 95,
excluding the Cities of Georgetown, Round Rock and Taylor, and
excluding that portion of Williamson County that lies west of West
Parmer Road and south of State Highway 620.
Monthly Service Fees shall be lowered to 0% for delivery restaurant
located at 1525 Cypress Creek Road, Cedar Park, TX for a period of 20
years from the date it opened (September 12, 2001).
______________________________________________________________________
567 American Pizza Partners, L.P.
ARTICLE XXXV.TERRITORY DESCRIPTION
City of Georgetown, TX.
______________________________________________________________________
561 American Pizza Partners, L.P.
ARTICLE XXXVI.TERRITORY DESCRIPTION
Counties of Bastrop, Polk, San Jacinto, Tyler and Trinity, TX.
______________________________________________________________________
851 American Pizza Partners, L.P.
ARTICLE XXXVII.TERRITORY DESCRIPTION
Counties of Chattanooga, Haralson, Lamar, Monroe, Peach and Polk.
______________________________________________________________________
841 American Pizza Partners, L.P.
ARTICLE XXXVIII.TERRITORY DESCRIPTION
Vernon Parish, LA
______________________________________________________________________
570 American Pizza Partners, L.P.
ARTICLE XXXIX.TERRITORY DESCRIPTION
Lee County, TX.
______________________________________________________________________
566 American Pizza Partners, L.P.
ARTICLE XL.TERRITORY DESCRIPTION
Counties of Crane, Crockett, Duval, Irion, McMullen, Reagan, Terrell,
and Upton. (Wilson County (Floresville) sold to Four-B 12/14/99)
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558 American Pizza Partners, L.P.
ARTICLE XLI.TERRITORY DESCRIPTION
Counties of Big Horn, Carbon, Dawson, Fallon, Richland, Roosevelt,
Sheridan and Valley, MT.
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1068 American Pizza Partners, L.P.
ARTICLE XLII.TERRITORY DESCRIPTION
Counties of McLennan and Wood, TX.
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1076 American Pizza Partners, L.P.
ARTICLE XLIII.TERRITORY DESCRIPTION
County of Fayette, TX.
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1078 American Pizza Partners, L.P.
ARTICLE XLIV.TERRITORY DESCRIPTION
County of Taylor, TX.
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1079 American Pizza Partners, L.P.
ARTICLE XLV.TERRITORY DESCRIPTION
A portion of Williamson County East of State Highway 95 (excluding the
City of Taylor), TX.
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568 American Pizza Partners, L.P.
ARTICLE XLVI.TERRITORY DESCRIPTION
Counties of Camp, Franklin, and Titus, TX. Sold City of Greenville
and Hopkins and Hunt counties to PHI in 10/92.
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858 Oklahoma Magic, L.P.
ARTICLE XLVII.TERRITORY DESCRIPTION
Counties of Canadian, Cleveland (excluding the town of Noble) and
Oklahoma, OK.
Monthly Service Fees shall be lowered to 0% for dine-in restaurant
located at the intersection of Northwest Expressway and Council in OKC
for a period of 20 years from the date it opens.
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674 Mountain View Pizza LLC
ARTICLE XLVIII.TERRITORY DESCRIPTION
Pitkin County, Colorado
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806 Mountain View Pizza LLC
ARTICLE XLIX.TERRITORY DESCRIPTION
Counties of Jackson, Larimer and Weld, Colorado
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