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
