Exhibit 10.9


 


 


January 1, 2003


PIZZA HUT, INC.


LOCATION FRANCHISE AGREEMENT


 

















 


Table of Contents


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS

  	
  1

  
	
   

  	
  1.1

  	
  Adequate Delivery Service

  	
  1

  
	
   

  	
  1.2

  	
  Advertising Fund

  	
  1

  
	
   

  	
  1.3

  	
  Affiliates

  	
  1

  
	
   

  	
  1.4

  	
  Agreement

  	
  1

  
	
   

  	
  1.5

  	
  Approved Products

  	
  2

  
	
   

  	
  1.6

  	
  CPR

  	
  2

  
	
   

  	
  1.7

  	
  Co-op

  	
  2

  
	
   

  	
  1.8

  	
  Delivery Area

  	
  2

  
	
   

  	
  1.9

  	
  Development Opportunity

  	
  2

  
	
   

  	
  1.10

  	
  Direct or Indirect

  	
  2

  
	
   

  	
  1.11

  	
  Franchisee

  	
  2

  
	
   

  	
  1.12

  	
  Good Standing

  	
  2

  
	
   

  	
  1.13

  	
  Gross Sales

  	
  2

  
	
   

  	
  1.14

  	
  Initial Franchise Fee

  	
  2

  
	
   

  	
  1.15

  	
  Interest

  	
  2

  
	
   

  	
  1.16

  	
  IPHFHA

  	
  2

  
	
   

  	
  1.17

  	
  Lease

  	
  2

  
	
   

  	
  1.18

  	
  Location(s)

  	
  3

  
	
   

  	
  1.19

  	
  Manual

  	
  3

  
	
   

  	
  1.20

  	
  Monthly Service Fee

  	
  3

  
	
   

  	
  1.21

  	
  Person

  	
  3

  
	
   

  	
  1.22

  	
  PHI

  	
  3

  
	
   

  	
  1.23

  	
  Pizza Hut Marks

  	
  3

  
	
   

  	
  1.24

  	
  Related Persons

  	
  3

  
	
   

  	
  1.25

  	
  Single Site Region and
  Single Site Franchisee

  	
  3

  
	
   

  	
  1.26

  	
  System Restaurants

  	
  3

  
	
   

  	
  1.27

  	
  System Restaurant Concepts

  	
  3

  
	
   

  	
  1.28

  	
  Technology Systems

  	
  4

  
	
   

  	
  1.29

  	
  Term

  	
  4

  
	
   

  	
  1.30

  	
  Transfer

  	
  4

  
	
   

  	
  1.31

  	
  Appendix I Defined Terms

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  GRANT OF FRANCHISE

  	
  4

  
	
   

  	
  2.1

  	
  Grant of Franchise

  	
  4

  
	
   

  	
  2.2

  	
  No Subfranchise Right

  	
  4

  
	
   

  	
  2.3

  	
  Delivery Service

  	
  4

  
	
   

  	
  2.4

  	
  Relocation Rights

  	
  5

  
	
   

  	
  2.5

  	
  Limitations on the Franchise

  	
  5

  
	
   

  	
  2.6

  	
  Protected Territories

  	
  5

  



 


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  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.7

  	
  Right of First Refusal On
  New System Restaurants

  	
  6

  
	
   

  	
  2.8

  	
  Renewal Rights

  	
  7

  
	
   

  	
  2.9.

  	
  Notice of Intent Not to
  Renew

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  DESIGNATION AND USE OF
  MARKS

  	
  10

  
	
   

  	
  3.1

  	
  Designation of Pizza Hut
  Marks

  	
  10

  
	
   

  	
  3.2

  	
  Use of Pizza Hut Marks

  	
  10

  
	
   

  	
  3.3

  	
  Ownership of Pizza Hut
  Marks

  	
  10

  
	
   

  	
  3.4

  	
  Protection of Pizza Hut
  Marks

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  TRAINING AND ASSISTANCE

  	
  11

  
	
   

  	
  4.1

  	
  Management Training
  Programs

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  MANUAL

  	
  11

  
	
   

  	
  5.1

  	
  Loan of Manual

  	
  11

  
	
   

  	
  5.2

  	
  Ownership of Manual

  	
  11

  
	
   

  	
  5.3

  	
  Confidentiality of Manual

  	
  12

  
	
   

  	
  5.4

  	
  Protection of Trade
  Secrets

  	
  12

  
	
   

  	
  5.5

  	
  Updates

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  STANDARDS; DUTIES OF
  FRANCHISEE

  	
  12

  
	
   

  	
  6.1

  	
  Interpretation of
  Standards

  	
  12

  
	
   

  	
  6.2

  	
  Promulgation of Standards

  	
  12

  
	
   

  	
  6.3

  	
  Limitation on Promulgation
  of Standards

  	
  12

  
	
   

  	
  6.4

  	
  Inspections

  	
  12

  
	
   

  	
  6.5

  	
  Compliance with Laws

  	
  13

  
	
   

  	
  6.6

  	
  Identification

  	
  13

  
	
   

  	
  6.7

  	
  Uniforms

  	
  13

  
	
   

  	
  6.8

  	
  Coin-Operated Machines

  	
  13

  
	
   

  	
  6.9

  	
  Assumed Name Certificate

  	
  13

  
	
   

  	
  6.10

  	
  Approved Products

  	
  14

  
	
   

  	
  6.11

  	
  Standard and Optional
  Items

  	
  14

  
	
   

  	
  6.12

  	
  Menu Modification

  	
  14

  
	
   

  	
  6.13

  	
  No Unprepared Products

  	
  14

  
	
   

  	
  6.14

  	
  Point-of Sales System

  	
  14

  
	
   

  	
  6.15

  	
  Prices

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  ADVERTISING

  	
  14

  
	
   

  	
  7.1

  	
  National Advertising

  	
  14

  
	
   

  	
  7.2

  	
  Local Advertising

  	
  15

  
	
   

  	
  7.3

  	
  Approval of Advertising

  	
  15

  
	
   

  	
  7.4

  	
  Cooperative Advertising

  	
  16

  



 


ii

















 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.5

  	
  Limitation on Aggregate Amount of Advertising
  Contributions

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  PURCHASE OF EQUIPMENT,
  SUPPLIES AND OTHER PRODUCTS

  	
  16

  
	
   

  	
  8.1

  	
  Use of Approved Supplies
  and Approved Distributors

  	
  16

  
	
   

  	
  8.2

  	
  Purchasing Co-op

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  FEES AND PAYMENT SCHEDULE

  	
  17

  
	
   

  	
  9.1

  	
  Initial Franchise Fee

  	
  17

  
	
   

  	
  9.2

  	
  Monthly Service Fees

  	
  17

  
	
   

  	
  9.3

  	
  Transfer Fees

  	
  18

  
	
   

  	
  9.4

  	
  Offset Rights

  	
  18

  
	
   

  	
  9.5

  	
  Taxes

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  BUSINESS PREMISES

  	
  18

  
	
   

  	
  10.1

  	
  Restrictions on Use

  	
  18

  
	
   

  	
  10.2

  	
  Site Selection

  	
  18

  
	
   

  	
  10.3

  	
  Construction of System
  Restaurants

  	
  18

  
	
   

  	
  10.4

  	
  Right to De-Identify

  	
  18

  
	
   

  	
  10.5

  	
  Repair and Maintenance

  	
  19

  
	
   

  	
  10.6

  	
  Proof of Compliance

  	
  19

  
	
   

  	
  10.7

  	
  System Restaurant Closure

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  BOOKS AND RECORDS;
  REPORTS; AUDITS

  	
  19

  
	
   

  	
  11.1

  	
  Maintenance of Books and
  Records

  	
  19

  
	
   

  	
  11.2

  	
  Reports

  	
  19

  
	
   

  	
  11.3

  	
  Inspection and Audit

  	
  20

  
	
   

  	
  11.4

  	
  Selection of Accountants

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  COVENANTS AGAINST
  COMPETITION

  	
  20

  
	
   

  	
  12.1

  	
  Acknowledgments

  	
  20

  
	
   

  	
  12.2

  	
  In-Term Covenants

  	
  21

  
	
   

  	
  12.3

  	
  Post-Term Covenants

  	
  21

  
	
   

  	
  12.4

  	
  Perpetual Covenant

  	
  21

  
	
   

  	
  12.5

  	
  Stock Ownership

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  EMPLOYMENT RELATIONS

  	
  22

  
	
   

  	
  13.1

  	
  Franchisee’s Employees

  	
  22

  
	
   

  	
  13.2

  	
  Interference

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  TRANSFERS

  	
  22

  
	
   

  	
  14.1

  	
  Transfers by PHI

  	
  22

  
	
   

  	
  14.2

  	
  Transfers by Franchisee

  	
  22

  



 


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  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.3

  	
  Transfer of Assets

  	
  22

  
	
   

  	
  14.4

  	
  Consent to Transfers

  	
  23

  
	
   

  	
  14.5

  	
  Death or Incapacity

  	
  23

  
	
   

  	
  14.6

  	
  Right of First Refusal

  	
  24

  
	
   

  	
  14.7

  	
  Other Permitted
  Assignments

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  NON-INDIVIDUAL FRANCHISEES

  	
  24

  
	
   

  	
  15.1

  	
  List of Individual Owners

  	
  24

  
	
   

  	
  15.2

  	
  Personal Guaranties

  	
  24

  
	
   

  	
  15.3

  	
  Organizational Documents

  	
  25

  
	
   

  	
  15.4

  	
  Transfer Restrictions

  	
  25

  
	
   

  	
  15.5

  	
  Permitted Assignments

  	
  25

  
	
   

  	
  15.6

  	
  No Publicly Traded
  Ownership Interests

  	
  25

  
	
   

  	
  15.7

  	
  Changes in Ownership or
  Organization

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  INSURANCE AND
  INDEMNIFICATION

  	
  26

  
	
   

  	
  16.1

  	
  Property Insurance

  	
  26

  
	
   

  	
  16.2

  	
  Liability Insurance

  	
  26

  
	
   

  	
  16.3

  	
  Proof of Insurance

  	
  26

  
	
   

  	
  16.4

  	
  Indemnification and Waiver

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  REQUESTS FOR WAIVERS AND
  CONSENTS

  	
  27

  
	
   

  	
  17.1

  	
  Requests for Waivers or
  Consents

  	
  27

  
	
   

  	
  17.2

  	
  Effect of Waivers and
  Consents

  	
  27

  
	
   

  	
  17.3

  	
  No Implied Waivers

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  DEFAULT AND TERMINATION

  	
  27

  
	
   

  	
  18.1

  	
  Definite Without Cure
  Right

  	
  27

  
	
   

  	
  18.2

  	
  Defaults Subject to Cure
  Rights

  	
  28

  
	
   

  	
  18.3

  	
  Non-Termination Remedies

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  POST-TERMINATION
  PROVISIONS

  	
  29

  
	
   

  	
  19. 1

  	
  Use of Pizza Hut Marks and
  Systems

  	
  29

  
	
   

  	
  19.2

  	
  Cessation of Rights

  	
  29

  
	
   

  	
  19.3

  	
  Effect on Other Duties

  	
  29

  
	
   

  	
  19.4

  	
  Trademarked Items

  	
  29

  
	
   

  	
  19.5

  	
  Telephone Numbers

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  DISPUTE RESOLUTION

  	
  30

  
	
   

  	
  20.1

  	
  Jurisdiction and Governing
  Law

  	
  30

  
	
   

  	
  20.2

  	
  Remedies Cumulative

  	
  30

  
	
   

  	
  20.3

  	
  Mediation

  	
  30

  



 


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  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  20.4

  	
  Injunctive Relief

  	
  30

  
	
   

  	
  20.5

  	
  Attorneys’ Fees

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  MISCELLANEOUS

  	
  31

  
	
   

  	
  21.1

  	
  Relation of Parties

  	
  31

  
	
   

  	
  21.2

  	
  Counterparts

  	
  31

  
	
   

  	
  21.3

  	
  Third-Party Beneficiaries

  	
  31

  
	
   

  	
  21.4

  	
  Severability

  	
  31

  
	
   

  	
  21.5

  	
  Protests, Requests and
  Notices

  	
  31

  
	
   

  	
  21.6

  	
  Time of Essence

  	
  32

  
	
   

  	
  21.7

  	
  Rules of Construction

  	
  32

  
	
   

  	
  21.8

  	
  Merger

  	
  33

  



 


v

















 


PIZZA HUT, INC.


 


LOCATION FRANCHISE AGREEMENT


 


	
  DATE:

  	
  January 1, 2003

  	
   

  
	
   

  	
   

  	
   

  
	
  PARTIES:

  	
  “PHI” —

  	
  Pizza Hut, Inc.

  
	
   

  	
   

  	
  14841 Dallas Parkway

  Dallas, Texas 75254-7552

  
	
   

  	
   

  	
   

  
	
   

  	
  “Franchisee” —

  	
  NPC Management, Inc.

  
	
   

  	
   

  	
  14400 College Blvd., Suite
  201 

  
	
   

  	
   

  	
  Lenexa, KS 66215

  



 


RECITALS: PHI franchises a system of restaurants
throughout the United States and in certain foreign countries under the name
and mark “PIZZA HUT”. PHI and Franchisee have previously entered into a
Franchise Agreement (the “Old Franchise Agreement”) pursuant to which
Franchisee was granted the right to operate one or more “PIZZA HUT” restaurants
at the site(s) specified in this Agreement. PHI and Franchisee now desire that
this Agreement supersede the Old Franchise Agreement.


 


AGREEMENT: NOW, THEREFORE, in consideration of the
mutual promises and agreements set forth in this Agreement, PHI and Franchisee
agree as follows:


 


1.  DEFINITIONS


 


In this Agreement, the following terms have
the following meanings:


 


1.1           Adequate
Delivery Service. “Adequate Delivery Service” means delivery of Approved
Products in accordance with the standards described in Section 2.3.


 


1.2           Advertising
Fund. The “Advertising Fund” is the
fund established in accordance with Section 7.1, into which PHI, Franchisee,
and other domestic franchisees of PHI (subject to the terms of Section 7.1)
make payments for national advertising, and which PHI or its designee will
spend in accordance with Section 7.1.


 


1.3           Affiliates.
A Person’s “Affiliates” are all Persons that directly or indirectly control,
are controlled by, or are under common control with, the Person.


 


1.4           Agreement.
“Agreement” means this Franchise Agreement (including all Appendices), as
amended from time to time.


 


1

















 


1.5           Approved
Products. “Approved Products”
are the food, beverages, promotional items, and other products approved by PHI
(in the Manual or another written document) for sale in, or other disposition
to the public from, System Restaurants.


 


1.6           CPR.
“CPR” refers to the Center for Public Resources, Inc., a non-profit organization
which provides, among other things, mediation and arbitration services.


 


1.7           Co-op.
“Co-op” means any cooperative advertising association established in accordance
with Section 7.4.


 


1.8           Delivery
Area. “Delivery Area” means the area(s) described in Appendix 1 or the
modified Delivery Area if Franchisee’s Delivery Area is changed pursuant to
Section 2.3.


 


1.9           Development
Opportunity. “Development Opportunity” has the meaning assigned to it in
Section 2.7.


 


1.10         Direct
or Indirect. “Direct or indirect”, when used in describing ownership or other
interests in an entity or an agreement, means that intervening levels of
ownership are disregarded.


 


1.11         Franchisee.
“Franchisee”, when capitalized, means the Person(s) identified as “Franchisee”
on the first page of this Agreement, or any approved successor.


 


1.12         Good
Standing. Franchisee is in “Good Standing” under this Agreement at all times
except when Franchisee is in default of this Agreement (regardless of whether
PHI has given Franchisee notice pursuant to Section 18.2).


 


1.13         Gross
Sales. “Gross Sales” means the total of all cash or other payments received
(including the fair value of an exchange and all payments by check, credit, or
charge account, regardless of whether the checks, credits, or charge accounts are
ultimately paid) for the sale or use of any products, goods, or services that
are sold at or from any System Restaurant. Gross Sales exclude only price
discounts and allowances, and taxes imposed directly on sales, or services by
governmental authorities, and then only if the amount of the tax is added to or
absorbed in the selling price and is actually paid to the appropriate
governmental authority.


 


1.14         Initial
Franchise Fee. “Initial Franchise Fee” refers to the payment Franchisee must
make to PHI in order to obtain the right to operate System Restaurants, as
described in Section 9.1.


 


1.15         Interest.
“Interest”, when used in the context of an interest in Franchisee or in this Agreement,
means any direct or indirect beneficial or legal ownership interest in
Franchisee or in this Agreement.


 


1.16         IPHFHA.
“IPHFHA” means I.P.H.F.H.A., Inc., a Delaware corporation, that is frequently
referred to as the International Pizza Hut Franchise Holders Association.


 


1.17         Lease.
“Lease” means any written or oral contract allowing one Person to possess or
use the property of another Person, and includes subleases and contracts for
deed.


 


2

















 


1.18         Location(s).
“Location(s)” means the specific site or sites, listed in Appendix B, at which
franchisee is authorized by this Agreement to operate System Restaurants.


 


1.19         Manual.
The “Manual” is the set of documents (in one or more volumes), as published,
supplemented and revised (from time to time), and disseminated by PHI, that
explain and define the proper operation of System Restaurants.


 


1.20         Monthly
Service Fee. “Monthly Service Fee” refers to the payments required of Franchisee,
as described in Section 9.2.


 


1.21         Person.
“Person” means both natural persons and legal entities (including corporations,
partnerships, limited liability companies, and trusts).


 


1.22         PHI. “PHI” means Pizza Hut, Inc., a
California corporation, and its successors and assigns.


 


1.23         Pizza
Hut Marks. “Pizza Hut Marks” means only those trademarks, trade names,
service marks, trade dress (including product package designs), symbols,
slogans, emblems, logos, insignia, designs, external and internal building
designs and other architectural features, and any combination of the foregoing
that Franchisee is authorized to use in connection with the System Restaurants.
Appendix A to this Agreement is a list of the Pizza Hut Marks that consist of
words or a combination of words and design that Franchisee is authorized to use
on the date of this Agreement. PHI may, from time to time, designate other
Pizza Hut Marks pursuant to Section 3.1 of this Agreement.


 


1.24         Related
Persons. Franchisee’s “Related Persons” consist of all Persons having an
Interest in Franchisee; all of Franchisee’s Affiliates; the officers, directors,
partners, trustees, and beneficiaries of Franchisee and of any Person having an
Interest in Franchisee; and the spouses and minor children of any of the
foregoing individuals.


 


1.25         Single Site Region and Single
Site Franchisee. “Single Site Region” and Single Site Franchisee” have the
meanings assigned to such terms in Section 2.7.


 


1.26         System Restaurants.
“System Restaurants” are only the following three types of Dine-in “Pizza Hut”
restaurant concepts: (a) “Pizza Hut Restaurants” - (PHI’s original concept)
from which Pizza Hut pizza (and other Approved Products) are sold for dine in
and carryout 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” - from which Pizza Hut pizza (and other Approved
Products) are delivered for off-premises consumption; and (c)
“Delivery/Carryout” (or “Del Co”) Restaurants - from which Pizza Hut pizza (and
other Approved Products) are sold for carryout and are delivered, all for
off-premises consumption.


 


1.27         System
Restaurant Concepts. The phrase “System Restaurant Concepts” refers
collectively to the three types of Systems Restaurants described in Section
1.26. “System Restaurants” and “System Restaurant Concepts” do not include any
other “Pizza Hut” restaurant concept or any other type of restaurant or
business owned by PHI or its Affiliates.


 


3

















 


1.28         Technology
Systems. “Technology Systems” refers to the hardware and software which
Franchisee may install and use in connection with its System Restaurants, as
described in Section 6.14.


 


1.29         Term.
“Term” means the period during which the rights granted by this Agreement are
in effect, which starts on January 1, 2003, and (unless terminated early as
allowed by Section 18) ends on the day before the 30th anniversary of this
Agreement, or any succeeding renewal term if this Agreement is renewed. The Term of this Agreement may be
renewed in accordance with the provision of Section 2.8.


 


1.30         Transfer.
“Transfer” includes every absolute or conditional method of transferring a
legal or equitable, record or beneficial Interest in Franchisee or in this
Agreement, whether voluntary, involuntary, or by operation of law, and includes
a change in beneficiaries or trustees of a trust:


 


1.31         Appendix
I Defined Terms. The terms “Adjusted Upgrade Schedule”, “Anniversary Date”,
“Approved Investment”, “Checkpoint Date”, “Designated Arbitrator”, “Duly
Modified”, “Excepted Restaurant”, “Full Reimage”, “High Volume Restaurant”, “Initial
Upgrade Schedule”, “Initial Upgrade Schedule Notice”, “Low Volume/High
Population Restaurant”, “Low Volume/Low Population Restaurant”, “Middle
Volume/High Population Restaurant”, “Middle Volume/Low Population Restaurant”, “Minimum
Asset Standards”, “Non-Standard Upgrade”, “Partial Reimage”, “Rebuild”, “Refurbish”,
“Reimage”, “Relocation”, “Remodel”, “Replacement Demand”, “Reversionary Event”,
“Upgrade”, “Upgrade Committee”, “Upgrade Requirements” and “WRPA” have the meanings ascribed to them
in Appendix I.


 


2.  GRANT OF
FRANCHISE


 


2.1           Grant
of Franchise. PHI grants to Franchisee, during the Term, the non-exclusive franchise
to operate System Restaurants at the Location(s), using the Pizza Hut Marks; to
promote and sell Approved Products and related services from System Restaurants
at the Location(s); and to deliver Approved Products produced at System
Restaurants throughout the Delivery Area (subject to Franchisee providing
Adequate Delivery Service as provided for in Section 2.3). Franchisee may not
operate any System Restaurant except at the Location(s), and may not deliver
products produced at the System Restaurants or using the Pizza Hut Marks except
within the Delivery Area. Franchisee covenants that it will use its best
efforts to promote sales of Approved Products from its System Restaurants and
throughout the Delivery Area.


 


2.2           No
Subfranchise Right. The franchise granted by this Agreement is personal to Franchisee.
Franchisee may not subfranchise to any other Person all or any part of the
franchise granted by this Agreement.


 


2.3           Delivery
Service. Franchisee shall provide Adequate Delivery Service to the entire
Delivery Area throughout the Term. The term “Adequate Delivery Service” means delivery
service in accordance with PHI’s then-current standards for delivery, taking
into account criteria including potential sales volume, market demographics,
saturation analysis, diversion of sales from Franchisee’s other System
Restaurants, and physical and geographic characteristics of the Delivery Area.


 


4

















At any time during the Term, PHI may consider
whether Franchisee is providing Adequate Delivery Service to the entire
Delivery Area. If PHI preliminarily determines that Franchisee is not providing
Adequate Delivery Service throughout the Delivery Area, PHI will give
Franchisee written notice of the areas within the Delivery Area that are not
receiving Adequate Delivery Service. Franchisee may, within 90 days, submit a
written protest to PHI that identifies the geographic boundaries of the area to
which Franchisee contends it is providing Adequate Delivery Service. If
Franchisee fails to timely submit a written protest, PHI’s preliminary
determination shall become immediately effective. PHI will consider any written
protest timely submitted by Franchisee but PHI shall in its sole discretion
make the final determination of the area to which Franchisee is providing
Adequate Delivery Service. PHI will give Franchisee written notice of its final
determination within 90 days after receipt of Franchisee’s written protest, at
which point it shall be effective. The Delivery Area shall be redefined to
include only the areas to which PHI finally determines Franchisee is providing
Adequate Delivery Service.


 


2.4           Relocation
Rights. If Franchisee desires to relocate any of Franchisee’s existing System
Restaurants, Franchisee will request PHI’s permission to do so. As part of its
request, Franchisee must supply PHI with justification for the relocation (such as expiration of an
existing lease or changed demographics) and any other information PHI requests.
If PHI consents to the relocation, PHI will notify Franchisee of the portion
(if any) of the Initial Franchise Fee that Franchisee may transfer from the
existing System Restaurant to the proposed replacement System Restaurant and
the date by which Franchisee must open the replacement System Restaurant to
receive the credit (if any). To receive any credit, Franchisee must open the replacement
System Restaurant for business within 12 months after closure of the existing System
Restaurant. This Agreement will govern Franchisee’s operations at any such replacement System Restaurant.


 


2.5           Limitations
on the Franchise. Franchisee (a) may not conduct any business using any
portion of the System Restaurant Concepts licensed by this Agreement at any
sites except the Location(s), and (b) may not make deliveries of products
produced at the System Restaurants to any points outside the Delivery Area.


 


2.6           Protected
Territories.


 


A.            During the Term, and so long as
Franchisee is not in default hereunder (including a breach or default under
Appendix I hereto), PHI will not develop, franchise or license another to
operate a Pizza Hut Restaurant within a circle centered on the Pizza Hut Restaurant
that contains 15,000 households, but in no event will such circle of protection
have a radius of less than 1 mile or greater than 10 miles.


 


B.            As long as Franchisee is providing
Adequate Delivery Service throughout the Delivery Area, PHI will not provide
delivery service, and will not allow another franchisee or licensee to provide
delivery service, for Approved Products using the Pizza Hut Marks to any point
within the Delivery Area.


 


C.            If Franchisee’s Old Franchise
Agreement was PHI’s form of New Construction Franchise Agreement, then, with
respect to each of the Pizza Hut Restaurants


 


5

















 


identified on Appendix L
hereto, until the expiration date of the original term of such Old Franchise
Agreement:


 


i)              PHI will not
develop nor franchise or license another to develop any other restaurant
concept that uses the Pizza Hut Marks at a “non-captive location,” as defined
below, that is within a one-mile radius of the Location; and


 


ii)             PHI will not
develop, franchise or license any such other restaurant concept that sells
medium (“12 diameter”) or larger pizzas using the Pizza Hut Marks from a “non-captive
location” that is within the circle of protection as described in subsection
2.6.A., above.


 


For
purposes of this Section, “non-captive locations” are only convenience stores,
gas stations, grocery stores, and multi-branding accounts in which a
non-traditional Pizza Hut outlet, such as a kiosk, is placed within a
restaurant that is primarily identified by another trademark.


 


Except as set form in this Section 2.6 and
Section 2.7 below, Franchisee has no exclusivity and no rights to exclude
development of concepts owned, franchised or licensed by PHI or its Affiliates.
PHI and its Affiliates may develop and operate, or may franchise and license
others to operate, any business concept except the System Restaurant Concepts
at any place, including immediately adjacent to the Location(s), and may use
the Pizza Hut Marks or any other trademarks owned or developed by PHI or its
Affiliates in connection with those concepts, even if such concepts sell
products that are the same as, or similar to, Approved Products.


 


2.7           Right
of First Refusal On New System Restaurants. Notwithstanding anything
contained in this Agreement to the contrary, PHI hereby grants to Franchisee
the following right of first refusal:


 


A.            If PHI identifies a development opportunity
(“Development Opportunity”) for a System Restaurant within a Single Site Region
(as defined below) which includes the Location(s) of Franchisee’s System
Restaurant(s), PHI will determine whether Franchisee operates the System
Restaurant that is nearest to the Development Opportunity and is otherwise
within the same general market area. If so, and unless PHI reasonably concludes
that there are geographic obstacles within the market that would make
development of the Development Opportunity by Franchisee impractical, PHI will
offer the Development Opportunity to Franchisee. If Franchisee elects to accept
the Development Opportunity, Franchisee must pay the applicable Initial
Franchise Fee for such Development Opportunity within 90 days after receipt of
PHI’s offer and must agree to use its best efforts to expeditiously develop the
Development Opportunity. If Franchisee does not accept the Development
Opportunity by timely tendering payment of the Initial Franchise Fee, PHI may
thereafter elect to develop the Development Opportunity itself or may offer the
Development Opportunity to another. If Franchisee accepts PHI’s offer as
provided above, but does not begin construction of the Development Opportunity
within 12 months after accepting PHI’s offer, or does not open the Development
Opportunity within 24 months after accepting PHI’s offer, the Initial Franchise
Fee paid by Franchisee shall be forfeited to PHI and the Development
Opportunity shall terminate, and Franchisee shall have no further rights with
respect thereto; provided, however, that if PHI


 


6

















 


or its designee has not
commenced construction of the Development Opportunity within 24 months after
Franchisee was required to accept PHI’s offer with respect to the Development
Opportunity, or within 24 months after Franchisee abandons its decision to
develop the Development Opportunity (as applicable), then PHI shall not
thereafter develop the Development Opportunity without first offering such
opportunity to Franchisee in accordance with the procedures set forth in this
Section 2.7. Any Initial Franchise Fee initially paid to obtain a Development
Opportunity and subsequently forfeited as provided above may be applied against
payment of the Initial Franchise Fee if the same Development Opportunity
becomes available to Franchisee as provided in the preceding sentence. Before
granting a second right to obtain such same Development Opportunity, PHI may require reasonable assurances from
Franchisee as to Franchisee’s operational and financial capabilities and desire
to complete the Development Opportunity. PHI shall not unreasonably reject a
request by a Franchisee with respect to a Development Opportunity.
Notwithstanding anything contained in this Section 2.7 to the contrary, in the
event a delay in commencing construction of a Development Opportunity or in
completing a Development Opportunity results from a force majeure (which may
not include the inability to secure financing to pay for the completion of the
Development Opportunity) (a “Development Opportunity Force Majeure Event”),
then the deadline to commence construction of or complete the Development
Opportunity, as applicable, shall be extended for a period of time equal to the
duration of the Development Opportunity Force Majeure Event.


 


B.            The provisions of this Section 2.7
shall not be applicable with respect to markets in which PHI operates System
Restaurants; provided, however, that if, after January 1, 2003, PHI has
developed a System Restaurant in that market as a result of Franchisee’s
failure to exercise a Development Opportunity, then as to any future
Development Opportunity as to which Franchisee may be the franchisee with the
nearest System Restaurant, PHI need not offer such Development Opportunity to
Franchisee if one of PHI’s System Restaurants is nearer to the Development
Opportunity than one of Franchisee’s System Restaurants.


 


C.            For purposes of this Section 2.7, a “Single
Site Region” shall be that portion of a Designated Market Area (as defined by
A.C. Nielsen) that is not subject to a Territory Franchise Agreement, in which
PHI has no System Restaurants, and one or more Single Site Franchisees operate
System Restaurants; and a “Single Site Franchisee” shall be a franchisee who
operates System Restaurants under a Pizza Hut Location Franchise Agreement.


 


2.8           Renewal
Rights.


 


A.            Unless terminated as herein
otherwise provided, Franchisee shall have the option at the expiration of the
initial Term to renew the franchise granted hereunder for a renewal period of
20 years by executing PHI’s form of Franchise Agreement as described in Section
2.8.B, provided that:


 


1.             Franchisee gives
PHI written notice of its election to renew not less man 2 months nor more than
9 months prior to the expiration of the initial Term;


 


2.             Franchisee executes
a general release under seal, in a form prescribed by PHI, of any and all
claims against PHI, its affiliates, subsidiaries, shareholders, directors, officers,
and employees;


 


7

















 


3.             Franchisee, 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 Franchisee and PHI and its Affiliates, and has substantially complied
with the terms and conditions of all such agreements during the Term;


 


4.             All of Franchisee’s
accrued monetary obligations to PHI, and its Affiliates, have been satisfied
prior to renewal, and timely met throughout the Term; and


 


5.             Franchisee is in
compliance with the standards set forth in PHI’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 Franchisee’s System Restaurants as PHI
may have required and may require pursuant to Section H of Appendix I.


 


B.            The franchise agreement to be
executed at renewal may be different from this Franchise Agreement, to the
extent that current business conditions warrant changes. No Initial Franchise
Fee will be due upon renewal. The renewal form of franchise agreement shall:


 


i)              provide that the
amount of the service fee due thereunder for a Pizza Hut Restaurant shall be
the Restaurant Competitive Rate, as hereinafter defined (if applicable), and
the amount of the service fee due thereunder for a Delco Restaurant or a
Delivery Restaurant shall be the Delco/Delivery Competitive Rate, as
hereinafter defined (if applicable), and


 


ii)             not include
Appendix I except Section H and the definitions of Rebuild, Relocate, Remodel,
and Reimage. All other obligations under Appendix I shall be deleted upon
renewal.


 


C.            For purposes of Section 2.8.B:


 


i)              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; and


 


ii)             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.


 


D.            The Restaurant Competitive Rate and
the Delco/Delivery Competitive Rate (the “Competitive Rates”) shall be offered
by PHI not later than nine (9) months prior to the expiration of the term of
this Agreement, after consideration of the factors outlined in Section 2.8.C
above. Unless IPHFHA reasonably determines that either or both of the offered
rates offered by PHI exceed the Competitive Rates, as determined in accordance
with Section 2.8.C. above and notifies PHI in writing, within sixty (60) days
of PHI’s written notice of the offered


 


8

















 


rates, setting forth IPHFHA’s
objections and reasons therefor with respect to each or both of the rates
offered by PHI, then IPHFHA shall be deemed to have accepted the rates offered
by PHI as being reasonable and proper, and such rates shall be binding on PHI
and Franchisee as the Competitive Rates. With respect to any of PHI’s offered
rates to which IPHFHA has objected on the basis set forth above, then
thereafter for the following sixty (60) days, PHI 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
Section 2.8.C. above. If, following such, sixty (60) day period, IPHFHA does
not agree that one or both of PHI’s offered rates comply with the criteria set
forth in Section 2.8.C. (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 PHI 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
PHI’s offered rate(s) are or are not in compliance with the Rates Criteria. If the
arbitrator rules that one or both of PHI’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 PHI’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 PHI 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 PHI’s or IPHFHA’s offered rates as the applicable
Competitive Rates. As to any offered rates for which the arbitrator has
rejected both PHI’s and IPHFHA’s offered rates as failing to meet the Rates
Criteria, PHI 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 PHI and Franchisee, unless the arbitrator has
failed to follow the requirements of this provision. For purposes of this
Section 2.8.D, the arbitrator’s
fees and expenses and the other administrative expenses of the arbitration
shall be shared equally by PHI and IPHFHA


 


E.             If CPR shall cease to exist or
refuse to arbitrate such dispute, PHI 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 PHI and Franchisee. The arbitration shall
be conducted at a place designated by the Arbitrator.


 


2.9           Notice of Intent Not to Renew.
No later than 2 years prior to the expiration of this Agreement, PHI will
notify Franchisee in writing whether or not Franchisee appears then to be
eligible to renew the franchise granted hereunder. If PHI advises Franchisee
that the franchise is not eligible for renewal, it will specify the reasons for
such ineligibility. One year thereafter, PHI will provide a similar notice to Franchisee specifying whether any
deficiencies noted in the prior notice have been cured. In no event shall the
provisions of Section 2.9 relieve Franchisee from the requirements of Section
2.8.A or in any way affect PHI’s rights and remedies under Sections 18 and 19.


 


9

















 


3.  DESIGNATION
AND USE OF MARKS


 


3.1           Designation of Pizza Hut Marks.
PHI may, from time to time, designate new Pizza Hut Marks as applicable to the
System Restaurants. In addition, PHI may, from time to time, modify or delete
existing Pizza Hut Marks. PHI will give Franchisee written notice of the addition,
modification, or deletion of Pizza Hut Marks. Franchisee will cease use of any
deleted Pizza Hut Marks within the time stated in the notice of deletion. PHI
now owns and may in the future own marks that are not Pizza Hut Marks. Franchisee
will have absolutely no right to use any mark owned or controlled by PHI except
the Pizza Hut Marks.


 


3.2           Use of Pizza Hut Marks. The
franchise granted to Franchisee to use the Pizza Hut Marks is applicable only
to Franchisee’s System Restaurants located at the Location(s), except that
Franchisee may use the Pizza Hut Marks in connection with advertisements for
the System Restaurants and may deliver products produced at the System
Restaurants throughout the Delivery Area. Franchisee will use the Pizza Hut
Marks strictly according to the terms and conditions of this Agreement.
Franchisee may not offer or sell any food, beverage, or other product (whether
or not an Authorized Product) at or from any System Restaurant under or in connection
with any trademark, service mark, trade name, or trade dress (including product
package design) other than the Pizza Hut Marks, without PHI’s prior, written
consent in each case. Franchisee will cause all point of purchase materials and
all other paper goods, all exterior/interior signage, and all promotional and
advertising materials to bear the Pizza Hut Marks as instructed by PHI.


 


3.3           Ownership of Pizza Hut Marks.
PHI is the sole and exclusive owner of the Pizza Hut Marks. Nothing contained
in this Agreement vests in Franchisee any interest in any of the Pizza Hut
Marks, other than the limited license granted by this Agreement. All goodwill
now or in the future associated with and/or identified by one or more of the
Pizza Hut Marks (including any goodwill arising out of Franchisee’s use of the
Pizza Hut Marks) belongs directly and exclusively to PHI.


 


Franchisee
may not interfere in any manner with, and will not attempt to attack, contest,
or prohibit, (a) any use of the Pizza Hut Marks by PHI or by any other
franchisee or licensee of PHI that is not directly contrary to the terms of
this Agreement, or (b) PHI’s ownership of the Pizza Hut Marks. The provisions
of this Section 3.3 will survive the termination or expiration of this
Agreement


 


3.4           Protection of Pizza Hut Marks.
Franchisee will immediately notify PHI, in writing, if (a) a third party claims
that the Pizza Hut Marks infringe trademarks owned by the third party, or
otherwise challenges Franchisee’s use of the Pizza Hut Marks, or (b) Franchisee
knows or suspects that a third party is infringing the Pizza Hut Marks.
Franchisee will provide PHI with any information available to Franchisee about
the matter.


 


PHI
will use reasonable efforts to protect the Pizza Hut Marks, including (in its
sole and absolute discretion) instituting, prosecuting, and/or settling
judicial or administrative actions or proceedings. Whenever requested to do so by
PHI, Franchisee will cooperate fully in those actions or proceedings.
Franchisee may not, however, take any action with respect to any challenges
against Franchisee’s use of the Pizza Hut Marks, or any known or suspected


 


10

















 


infringements of the Pizza
Hut Marks by other parties, without PHI’s prior, written approval (which PHI
may grant or withhold in its sole discretion). Franchisee will exercise caution
in its use of the Pizza Hut Marks to ensure that the Pizza Hut Marks (and the
goodwill associated with them) are not jeopardized in any manner. Franchisee
may not use the Pizza Hut Marks in any manner or in connection with any
statement or material that is (in PHI’s reasonable judgment) in bad taste or
inconsistent with PHI’s public image, or that could tend to involve PHI in a
matter of political or public controversy or tend to bring disparagement,
ridicule, or scorn upon PHI, the Pizza Hut Marks, or the goodwill associated
with the Pizza Hut Marks.


 


4.  TRAINING AND
ASSISTANCE


 


4.1           Management Training Programs.


 


A.            PHI Programs. PHI will offer
a training program for Franchisee and the managers of Franchisee’s System
Restaurants, at locations and at times selected by PHI. The training programs,
which may include more than one segment, will be structured to provide
practical training in the implementation of the System Restaurant Concepts, and
the operation of System Restaurants. PHI will bear the costs of providing the
actual training programs, including the overhead costs of training, staff
salaries, materials, and all technical training tools. Franchisee will pay all
traveling, living, compensation, and other expenses incurred by Franchisee or
Franchisee’s employees in connection with attendance at the training programs.
The course content, format, operation, and manner of conducting these training
programs will be in the sole control of PHI.


 


B.            Training Mandatory. Franchisee
will not allow any of Franchisee’s System Restaurants to be managed by any person
who has not successfully completed PHI’s management training course. If a
manager dies, resigns, or is terminated, Franchisee will not be in default of
this requirement if the successor manager begins the required training course
within 90 days after first assuming the duties of a manager and successfully
completes the course.


 


C.            Independent Training Programs.
Franchisee may request that PHI approve a management training program proposed
by Franchisee as an alternate method of complying with this Section 4.1. PHI
has no duty to review Franchisee’s program unless Franchisee pays all costs of
PHI’s review, PHI has no duty to approve Franchisee’s program unless Franchisee
satisfies PHI that Franchisee’s program is at least the equivalent of PHI’s
program. PHI may revoke its approval of Franchisee’s training program whenever,
in PHI’s opinion, the training program fails to satisfy this standard.


 


5.  MANUAL


 


5.1           Loan
of Manual. PHI will loan to Franchisee, at no charge, one complete set of the
applicable portions of the Manual for each System Restaurant. Franchisee may
borrow from PHI further copies of some or all portions of the Manual, upon
payment of the fee set by PHI.


 


5.2           Ownership
of Manual. All copies of the Manual will remain the exclusive property of
PHI. Franchisee may not copy, and will prevent all Persons, including
Franchisee’s employees and Related Persons, from copying, any portion of the
Manual. Franchisee will return


 


11

















 


to PHI, at the end of the
Term, all copies of the Manual in the possession of Franchisee, Franchisee’s
employees or its Related Persons.


 


5.3           Confidentiality
of Manual. The entire contents of the Manual constitute PHI’s confidential
trade secrets. Franchisee may not, and will use its best efforts to ensure that
no other Persons disclose or use (except as authorized by this Agreement), any
of the contents of the Manual or any other trade secrets of PHI, whether during
or after the Term.


 


5.4           Protection
of Trade Secrets. The information contained in the Manual is a trade secret;
disclosure of any of the information contained in the Manual would cause
irreparable harm to PHI. PHI is entitled to obtain injunctive relief against
Franchisee, without posting bond or other security, to protect the contents of
the Manual from disclosure and improper use. Franchisee waives all defenses it
might otherwise have to equitable relief for this purpose.


 


5.5           Updates.
PHI may, from time to time, update, correct or modify the Manual. Franchisee
will follow any instructions from PHI concerning those updates, corrections and
modifications, including instructions to remove and replace certain pages
contained in the Manual, and instructions to destroy or to return to PHI the
old (or removed) pages or volumes. If there is ever a disagreement about the
proper contents of the Manual, the master copy of the Manual kept by PHI at its
home office is conclusively the controlling version.


 


6.  STANDARDS;
DUTIES OF FRANCHISEE


 


6.1           Interpretation
of Standards. PHI has sole discretion to interpret the standards that it
sets forth in the Manual or elsewhere.


 


6.2           Promulgation
of Standards. In the Manual, PHI has promulgated standards of operation for
each type of System Restaurant. PHI has also promulgated standards of usage for
the Pizza Hut Marks, and other standards intended to ensure the consistency of
the System Restaurant Concepts. PHI may, from time to time, add to, delete, or
change standards. Franchisee will comply with any change in the standards
within the timeframe set by PHI. At all times throughout the Term, Franchisee
will comply with all standards then current.


 


6.3           Limitation
on Promulgation of Standards. Franchisee shall Remodel, Rebuild, Relocate,
Reimage and Refurbish its Pizza Hut Restaurants subject to this Agreement in
accordance with the provisions of Appendix I.


 


6.4           Inspections.
PHI’s authorized representatives may enter upon the premises of Franchisee’s
System Restaurants at any time during the System Restaurant’s normal business
hours, and at any other reasonable time, for the purpose of determining whether
the business is being conducted in accordance with PHI’s standards, the Manual
and the terms of this Agreement.


 


If any inspection indicates any deficiency,
Franchisee will correct or repair the deficiency within 48 hours after
Franchisee receives a written report of the deficiency from PHI. If (a) the
deficiency is one that Franchisee has a right to cure under Section 18.2 and
(b) the deficiency cannot be cured within 48 hours, Franchisee will not be in
default if Franchisee begins the necessary corrections or repairs within the
48-hour period, and diligently pursues the work to


 


12

















 


completion. If the
deficiency is one that imminently threatens the health or safety of
Franchisee’s employees or the consuming public, PHI may (instead of terminating
this Agreement as allowed by Section 18.1) require Franchisee to cease
operating the affected System Restaurant until the deficiency is corrected. If
Franchisee does not cure the deficiency within the permitted time, PHI may
make, or hire someone else to make, the corrections or repairs. Franchisee will
reimburse PHI, upon demand, for all of PHI’s repair expenses.


 


6.5           Compliance,
with Laws. Franchisee will comply with all applicable laws and regulations
governing the operation of its System Restaurants.


 


6.6           Identification.
Franchisee will maintain PHI-approved signage, identifying the System
Restaurant as a PIZZA HUT restaurant, and giving any other information that PHI
requires. In addition, Franchisee will prominently post a PHI approved sign inside each System Restaurant,
stating Franchisee’s name and stating that the System Restaurant is operated by
Franchisee under a franchise from PHI.


 


6.7           Uniforms.
Franchisee will require all employees, while working in any System Restaurant,
to: (a) wear uniforms of the color, design, and other specifications that PHI designates
from time to time, and (b) present a neat and clean appearance.


 


6.8           Coin-Operated
Machines. Franchisee may not permit any vending, game, audio, video, other
coin- or currency-operated machines, or any other service, product, or
entertainment machine of any kind (whether or not similar to those listed), to
be installed or maintained on the premises of Franchisee’s System Restaurants
without PHI’s prior written approval. Unless otherwise provided in the Manual,
PHI consents to the installation in each System Restaurant of up to the
following numbers of coin-operated machines:


 


Pizza Hut Restaurants:


Two
newspaper vending machines


Two
coin telephones


One
video game machine


One
audio jukebox


One
cigarette vending machine


 


Delivery and Delco Restaurants:


Two
newspaper vending machines


One
coin telephone


One
video game machine


 


The portion of receipts from
all coin-operated machines located on the premises of a System Restaurant that
is payable as directed by Franchisee (even if paid by the vendor directly to
the unit’s manager) is part of Gross Sales.


 


6.9           Assumed
Name Certificate. Franchisee will promptly file and publish, in all states
and counties in which Franchisee does business, a certificate of doing business
under an assumed or fictitious name. Franchisee will indicate in each
certificate that it is doing business as “Pizza Hut” under a franchise from PHI.
Franchisee will furnish a certified copy of each certificate to PHI promptly
after its filing.


 


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6.10         Approved
Products. Franchisee may not manufacture, advertise for sale, sell, or give
away from any System Restaurant any product except Approved Products. All
Approved Products will be distributed under the specific name or Mark (if any)
approved by PHI.


 


6.11         Standard
and Optional Items. Franchisee will offer for sale in each of its System Restaurants
all Approved Products that PHI designates as “standard” for the type of System Restaurant,
unless PHI agrees otherwise in writing. In addition, Franchisee may offer
Approved Products designated by. PHI as “optional” for the System Restaurant in
which offered.


 


6.12         Menu
Modification. Any time PHI notifies Franchisee that an item will become a “standard”
Approved Product, or that an item will no longer be an Approved Product (either
“standard” or “optional), PHI will include a deadline by which Franchisee must
offer the new “standard” Approved Product for sale, or must cease selling the
item that is no longer an Approved Product. The deadline will be at least 90
days after PHI gives Franchisee the notice, in the case of a new “standard”
Approved Product, and at least 30 days after PHI gives Franchisee the notice,
in the case of a product that is no longer an Approved Product.


 


6.13         No
Unprepared Products. Franchisee may not sell or distribute any food product
or ingredient except as a complete and fully prepared food product ready for
immediate consumption.


 


6.14         Point-of
Sales System. Franchisee acknowledges that it is currently using PHI Single
Unit System under a License and Support Agreement with PHI which requires
Franchisee to pay PHI standard support and maintenance fees, or another
computerized point-of-sales system that PHI may have approved. Franchisee shall
have the right to utilize other point-of-sales and back office systems (“Technology
Systems”) which shall be compatible with the data reporting systems used by
PHI. Such Technology Systems shall have functionality which will permit the
performance of tasks set forth on Appendix H. PHI may, at any time, access
Franchisee’s Technology Systems and retrieve, analyze, download and use all software,
data and files stored or used thereon.


 


6.15         Prices.
Franchisee will establish, in its sole discretion, prices for all Approved
Products sold by Franchisee.


 


7.  ADVERTISING


 


7.1           National
Advertising.


 


A.            Advertising Fund. Subject to the remainder of this
Section 7.1, Franchisee will make a monthly payment to PHI (for the
Advertising Fund) in an amount not more than 3% but in no event less than 2.5%
of Franchisee’s Gross Sales from each System Restaurant for the prior month.
PHI will use the Advertising Fund to develop and administer advertising,
promotional, and marketing programs designed to promote and enhance the
collective success of all System Restaurants, except that PHI, in its sole
discretion, may rebate some or all of the Advertising Fund to Franchisee and
other franchisees for use in local marketing. PHI need not expend payments to
the Advertising Fund in the same year that they are received, and need not
prove that Franchisee received any benefit from Franchisee’s payments to the
Advertising Fund. PHI’s good faith decisions regarding expenditure of the
Advertising Fund will be final and


 


14

















 


binding. PHI may, in its
sole discretion, seek input from Franchisee or other franchisees regarding
expenditure of the Advertising Fund.


 


B.            IPHFHA. On the date of this Agreement PHI is a
party to an agreement dated March 31, 1975 (as subsequently amended) with
IPHFHA concerning advertising for System Restaurants (the “Advertising
Committee Agreement”). During the period that the Advertising Committee
Agreement is in force, Franchisee will be a member of IPHFHA, will abide by the
constitution, bylaws, rules and regulations of IPHFHA, and will timely pay
the dues that IPHFHA assesses its members for contribution to the national
advertising fund administered by the Advertising Committee under the
Advertising Committee Agreement. The amount that Franchisee pays as dues to IPHFHA
for contribution to the national advertising fund administered by the Advertising
committee under the Advertising Committee Agreement will be credited, dollar
for dollar, toward Franchisee’s national advertising obligations set forth in Section 7.1.
A. PHI will remit all of the national advertising payments that Franchisee
makes to PHI to the Advertising Committee. At any lime that IPHFHA holds a vote
concerning the dues to be paid by its members, Franchisee will exercise all of
Franchisee’s voting power to implement a dues rate equal to 2.5% of the prior
month’s Gross Sales.


 


C.            Delegation of Authority. During the period that
the Advertising Committee Agreement is in force, PHI may delegate its authority
over, and control of, the Advertising Fund to the Advertising Committee. During
the period of this delegation, PHI will have no responsibility for the
Advertising Fund, or for the decisions made by the Advertising Committee. PHI
will nonetheless retain final control over all uses of the Pizza Hut Marks.


 


7.2           Local
Advertising. In addition to the payments required by Section 7.1,
Franchisee will expend funds on local advertising in the general marketing area
of Franchisee’s System Restaurants each month. The amount of these monthly
expenditures will be the difference between 4.25% of Franchisee’s prior month’s
Gross Sales and the amount paid by Franchisee for national advertising pursuant
to Section 7.1 above. Such local advertising shall be confined to
broadcast media, subject to PHI’s prior written consent.


 


7.3           Approval
of Advertising. All advertising copy and other materials used by Franchisee
will be in strict conformity with the standards, formats, and specimens
contained in the Manual or otherwise established by PHI. Franchisee may not use
any design, advertisement, sign, or form of publicity, unless first submitted
to PHI and approved by PHI in writing (except with respect to prices), and not
later disapproved. Any request by Franchisee for PHI’s approval will be
addressed to PHI (marked, “Attention: Advertising Department - Ad Review”) and
PHI will endeavor to respond within 30 days. Whenever Franchisee elects to use,
in the manner and time frame intended by PHI, advertising supplied by PHI or a
promotional item specifically approved by PHI, Franchisee may use that
advertising or promotional item without further approval.


 


Upon written notice from PHI, Franchisee will
immediately discontinue use of any unapproved advertising materials. If
Franchisee does not discontinue and remove the unapproved materials within 5
days after notice, PHI or its authorized agents may, at any time, enter upon the
premises of Franchisee’s System Restaurants or elsewhere and remove and destroy
the materials without paying for them and without being liable for trespass or
other tort.


 


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7.4           Cooperative
Advertising. PHI may, from time to time, establish cooperative advertising
associations (“Co-ops”) for various groups of System Restaurants. PHI may
establish or modify Co-ops based upon marketing areas, type(s) of System
Restaurants, or any other criteria chosen by PHI in its sole discretion. If PHI
elects to establish Co-ops, it may, from time to time, direct Franchisee to
join one or more Co-ops and to contribute some or all of Franchisee’s local
advertising money (otherwise required to be expended by Franchisee pursuant to Section
7.2) to one or more of the Co-ops. The monthly contributions to a Co-op (if any)
required by this Section 7.4 will be made on or before the 20th day of
each month, based on the prior month’s Gross Sales of each of Franchisee’s
System Restaurants in the Co-op. PHI reserves the right to establish bylaws,
voting rules, membership agreements, standard advertising agency agreements,
and other standards concerning the operation of Co-ops, advertising agencies
retained by Co-ops, and advertising programs conducted by Co-ops. The
contribution rate for any Co-op may be increased at any lime, but only upon
approval of the members of the Co-op in accordance with its bylaws or operating
procedures.


 


7.5           Limitation
on Aggregate Amount of Advertising Contributions. Notwithstanding anything
contained in this Section 7 to the contrary, in no event shall Franchisee’s
aggregate advertising fee rates for national and cooperative advertising be required
to exceed four and one-fourth percent (4.25%). The first two and one-half
percentage points of such aggregate advertising fees shall be applied toward
payment of Franchisee’s national advertising obligations (including IPHFHA
dues, as referred to in Section 7.1.B), and the balance of such
advertising fees shall be applied toward payment of Franchisee’s cooperative
advertising obligations.


 


8.  PURCHASE OF EQUIPMENT, SUPPLIES AND OTHER
PRODUCTS


 


8.1           Use
of Approved Supplies and Approved Distributors. PHI may, from time to time,
publish one or more listings of approved equipment, supplies, and distributors,
which listings may be specific as to manufacturer, brand name, item/model/catalog
number, preparation or manufacturing facility, or other factors considered
relevant by PHI. PHI may add to or delete from the listings at any time.
Franchisee will only purchase and use approved equipment and supplies in
connection with Franchisee’s operations under this Agreement, and will obtain
all equipment and supplies only from or through approved distributors. If
Franchisee desires to purchase any equipment or supplies that are not then
approved, or to purchase any items from or through a distributor that is not
then approved, Franchisee will submit to PHI a written request for approval.
PHI may inspect the facilities of the manufacturer, producer, or distributor,
and may require Franchisee (or the manufacturer, producer, or distributor) to
submit samples, specifications, and other information concerning any equipment
or supplies for which approval is sought. PHI is not required to inspect or
test any proposed manufacturer, producer, or distributor until PHI is satisfied
that all costs associated with inspection and testing of the proposed manufacturer,
producer, or distributor and of samples of their products (including salaries
of PHI employees, travel costs, and laboratory charges) will be borne by
Franchisee (or the manufacturer, producer, or distributor). PHI may re-inspect
the facilities and products of any approved manufacturer, producer, or
distributor from time to time, and may revoke its approval upon failure to
continue to meet any of PHI’s criteria as then in effect


 


8.2           Purchasing
Co-op. So long as this Agreement is in effect, Franchisee shall become and
remain a member of the Pizza Hut National Purchasing Coop, Inc. or its
successors


 


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(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 Appendix K. Franchisee’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 PHI
and IPHFHA to delete from this Agreement the requirement that Franchisee become
and remain a member of the Purchasing Coop.


 


9.  FEES AND PAYMENT SCHEDULE


 


9.1           Initial
Franchise Fee. No initial franchise fee (the “Initial Franchise Fee”) shall
be due with respect to any System Restaurant subject to this Agreement as of
its effective date. For any new System Restaurant at a Location that Franchisee
develops after the effective date (other than Remodels, Rebuilds and Relocations
pursuant to Appendix I) that falls under the terms of this Agreement, whether
pursuant to Section 2.7 or otherwise, Franchisee will pay PHI an Initial
Franchise Fee of $15,000 for each Pizza Hut Restaurant and $25,000 for each
Delivery Restaurant or Delivery/Carryout Restaurant. Such Initial Franchise
Fees will be earned when due, and will not be refundable, in whole or in part,
under any circumstances. The entire Initial Franchise Fee, when due, is payable
before the System Restaurant opens.


 


9.2           Monthly
Service Fees. A. Except as provided in Section 9.2.B, Franchisee will
pay PHI monthly an amount (the “Monthly Service Fee”) equal to 6.5% of
Franchisee’s Gross Sales from each System Restaurant for the prior month. If
applicable law prohibits Franchisee from paying PHI a percentage of Franchisee’s
revenues from the sale of alcoholic beverages, Franchisee will pay PHI monthly
an amount equal to 7.0% of Franchisee’s Gross Sales (excluding from those Gross
Sales, however, all revenues from the sale of alcoholic beverages) from each
System Restaurant in the affected jurisdiction for the prior month. Franchisee
will pay all Monthly Service Fees on or before the 20th day of the month. If
PHI has not received the fee by the last day of the mouth in which the payment
is due, Franchisee will pay a “late charge” equal to 1.5% of the delinquent
amount (or such lesser amount as PHI may designate) and an equal late charge
for each subsequent month that payment is delayed. PHI may apply any payments
received from Franchisee to the oldest amounts due from Franchisee, regardless
of any contrary designation by Franchisee.


 


B.            Notwithstanding the provisions of Section 9.2.A, the
Monthly Service Fee rate for any Pizza Hut Restaurant which is Relocated,
Rebuilt or Remodeled as provided in Appendix I shall be reduced by 2.5
percentage points effective upon commencement of operations at the Relocated,
Rebuilt or Remodeled Pizza Hut Restaurant; except that as to a Remodeled Pizza
Hut Restaurant, if Franchisee agrees to Remodel such Pizza Hut Restaurant, but
such Remodeling is not completed prior to July 1, 2006, then the Monthly
Service Fee rate shall be reduced by 1.5 percentage points unless the delay in
completing such Remodeling results from a force majeure (which specifically may
not include the inability to secure financing to pay for such Remodeling) (a “Remodeling
Force Majeure Event”). If a Remodeling Force Majeure Event occurs, then the
deadline to open the Remodeled Pizza Hut Restaurant in order to obtain a 2.5
percentage point reduction in the Monthly Service Fee Rate shall be extended
for a period of time equal to the duration of the Remodeling Force Majeure
Event.


 


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9.3           Transfer
Fees. As partial reimbursement of PHI’s costs of review and approval of a Transfer
of any interest in Franchisee or in this Agreement, Franchisee will pay PHI, on
or before the effective date of each Transfer, and as a condition to PHI’s
approval, a transfer fee equal to $2,500 plus an additional $250 for each
Location covered by this Agreement (whether or not Franchisee is then operating
a System Restaurant at any Location).


 


9.4           Offset
Rights. At any time that Franchisee or its Related Persons are 30 days or
more delinquent in paying any sums owed to PHI or its Affiliates, PHI may
offset any sums owing by PHI against monies owed by Franchisee or its Related
Persons.


 


9.5           Taxes.
In addition to the other payments provided for in this Agreement, Franchisee
will pay PHI, or its Affiliates, all sales taxes, personal property taxes,
excise taxes, value added taxes and similar taxes imposed upon or required to
be collected or paid by PHI, or its Affiliates, on account of services or goods
furnished to Franchisee through sale, lease or otherwise, or on account of
collection by PHI of the Initial Franchise Fees or Monthly Service Fees called
for by this Agreement. Franchisee shall pay such taxes upon demand and in the manner
designated by PHI, or its Affiliates.


 


10.  BUSINESS PREMISES


 


10.1         Restrictions
on Use. Unless Franchisee receives PHI’s prior, written consent, Franchisee
will conduct from the premises of each of Franchisee’s System Restaurants (including
any adjacent sidewalks and parking areas) only business activities licensed by
this Agreement.


 


10.2         Site
Selection. Franchisee is solely responsible for selecting sites at which to
develop System Restaurants. PHI will not be liable to Franchisee if a location
chosen by Franchisee fails to be profitable or otherwise fails to meet
Franchisee’s expectations.


 


10.3         Construction
of System Restaurants. Franchisee will obtain all necessary governmental
permits and licenses before constructing, modifying, or remodeling any System
Restaurant. Franchisee will complete any construction or other work on each
System Restaurant within a reasonable time after Franchisee begins work on that
System Restaurant. Franchisee will begin operation of each new System
Restaurant within 30 days after completion of construction, and will give PHI
at least 10 days written notice before beginning operations.


 


10.4         Right
to De-Identify. If the premises at which a System Restaurant is operated
are leased, the lease will contain an express right of de-identification, in
the following form:


 


Upon
termination or non-renewal of this Lease, Lessee/Tenant may deidentify the
leased premises. If Lessee/Tenant fails to do so, Pizza Hut, Inc. is given
the express right to deidentify. Deidentification consists of removal of all
signs; modification or remodeling of all identifying architectural features (by
removing the cupola from the roof, replacing any trapezoidal windows with
rectangular windows, and similar actions); repainting as necessary to no longer
use the color scheme used by Pizza Hut, Inc.; and any other steps
necessary (in the sole discretion of Pizza Hut, Inc.) to


 


18

















 


effectively distinguish
the formerly leased premises from Pizza Hut, Inc.’s proprietary building
design(s). All deidentification will be done without cost to Lessor/Landlord.


 


10.5         Repair
and Maintenance. Franchisee will repair and repaint the interior and exterior
of all System Restaurants as appropriate and as requested by PHI. Franchisee
will, at all times, maintain the interior and exterior of the System Restaurants
as well as the surrounding premises in a clean and orderly condition. If
Franchisee leases the locations on which the System Restaurants are located,
Franchisee will require the leases to contain an express right to undertake
this repair and maintenance.


 


10.6         Proof
of Compliance. Before opening each System Restaurant, Franchisee will
provide to PHI either a copy of a deed showing that title to the real estate on
which the System Restaurant will be located is held by Franchisee, or a letter
from the landlord of the premises in the form of Appendix C.


 


10.7         System
Restaurant Closure. Franchisee may not cease to operate any System
Restaurant without PHI’s prior consent, except upon condemnation or expiration
of a lease pursuant to its terms at execution. Franchisee acknowledges that the
damages to PHI from unauthorized closure of a System Restaurant are difficult
to calculate; therefore, if Franchisee violates this Section 10.7,
Franchisee will pay as liquidated damages, and not as a penalty, an amount equal
to 24 times the average Monthly Service Fees paid or due with respect to the
closed System Restaurant during the calendar year before the closing. If the
System Restaurant was not open for business for a full calendar year, the
liquidated damages will be 24 times the highest Monthly Service Pee during the
period the System Restaurant was open.


 


11.  BOOKS AND RECORDS; REPORTS; AUDITS


 


11.1         Maintenance
of Books and Records. Franchisee will keep on the premises of each of
Franchisee’s System Restaurants or at Franchisee’s principal place of business,
and will preserve for at least 5 years after the date of their preparation
(regardless of any intervening expiration or termination of this Agreement),
true and accurate records, ledgers, accounts, books, and data in the form that
PHI requires. Franchisee’s records will accurately reflect all details relating
to the business done at each System Restaurant.


 


11.2         Reports.
Once each week (on approximately the same day), Franchisee will report to PHI
(by telephone, by facsimile, or by another method approved by PHI) Franchisee’s
Gross Sales, on a unit-by-unit basis, for the week (seven day period) ending no
more than five days before the date of the report. With its payment of the
monthly service fees (in accordance with Section 9.2), Franchisee will
submit to PHI, in writing, a monthly statement of Gross Sales. Within 45 days
after the close of each fiscal quarter, Franchisee will submit to PHI, in
writing, a quarterly profit and loss statement on a unit-by-unit basis. The
preceding Franchisee weekly reporting obligations shall be satisfied if
Franchisee consents in writing to PHI accessing Franchisee data directly, as
provided in Section 6.14, and Franchisee’s reporting information, as
described, is reasonably accessible to PHI.


 


In addition to the reports described above, Franchisee
will, within 90 days after the end of each of Franchisee’s fiscal years,
provide PHI with a complete annual profit and loss statement


 


19

















 


and a consolidated
balance sheet prepared in accordance with generally accepted accounting
principles, consistently applied. If requested by PHI, the annual profit and
loss statement and balance sheet will be reviewed by an independent certified
public accountant in accordance with the Statements on Standards for Accounting
and Review Services, and will contain a signed opinion by the accountant to
that effect. PHI reserves the right to require any further information about
Franchisee’s business under this Agreement that PHI from time to time
reasonably prescribes. PHI will take reasonable precautions to maintain the
confidentiality of all financial reports provided by Franchisee, but if
Franchisee executes any promissory notes to PHI, PHI may disclose the financial
reports provided by Franchisee to any third party to whom PHI sells or pledges
(or attempts to sell or pledge) the promissory notes from Franchisee.


 


11.3         Inspection
and Audit. PHI and its agents or representations may examine and audit all
of Franchisee’s records, accounts, and books at all reasonable times.
Franchisee will cooperate with any examination or audit by gathering records,
accounts, and books for easy access, and by providing other assistance PHI
reasonably requests. If any inspection or audit discloses that any financial
statement delivered to PHI by Franchisee is in error, Franchisee will
immediately pay to PHI any deficiency found to be owing plus a finance charge
at the maximum rate permitted by law, accruing from the date payment was first
due. If the deficiency is 2% or more of the amount due, then in addition,
Franchisee will reimburse PHI for the cost and expense of the inspection or
audit within 5 business days after receiving a bill from PHI.


 


11.4         Selection
of Accountants. Franchisee will use the accounting services of a national
or large regional firm of certified public accountants selected by Franchisee,
or another accounting service reasonably satisfactory to Pill. Franchisee will
notify PHI of the name and qualifications of any accounting service (other than
a national or large regional firm of certified public accountants) selected by
Franchisee; that accounting service will be considered satisfactory to PHI
unless, within 30 days after PHI’s receipt of Franchisee’s notice of the name
and qualifications of the accounting serviced PHI notifies Franchisee of PHI’s
objection to the accounting service. PHI may withdraw its approval of any
accounting service (including national and large regional firms) upon
reasonable advance notice to Franchisee.


 


12.  COVENANTS AGAINST COMPETITION


 


12.1         Acknowledgments.
Franchisee acknowledges:


 


A.            Uniqueness. The food products, methods of doing
business, and other elements composing the System Restaurant Concepts
(including the information set forth in the Manual) are distinctive, and have
been developed by PHI at great effort, time, and expense.





 


B.            Secret Information. Franchisee has regular and
continuing access to valuable and confidential bide secrets regarding the
System Restaurant Concepts, and to PHI’s knowledge, know-how, and expertise
concerning the operation of a retail food business. It would be an unfair
method of competition for Franchisee to use or duplicate any of PHI’s trade secrets,
knowledge, know-how, or expertise for any use other than operations pursuant to
this Agreement.


 


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12.2         In-Term
Covenants. During the Term, Franchisee and its Related Persons may not
(without the prior, written consent of PHI), directly or indirectly,
individually or as a partner, joint venturer, shareholder, officer, creditor,
director, employee, trustee, or agent of an organization, own, operate finance,
or provide consulting services to any business (other than a System Restaurant
operated pursuant to this Agreement) engaged in the business of operating
restaurants (including the delivery and carryout aspects of restaurants) that
sell pizza, pasta or other food items similar to Approved Products.


 


Dining the Term, Franchisee and its Related Persons
may not (without the prior, written consent of PHI) lease, sublease, or
otherwise permit the use of, any portion of any premises owned, leased, or controlled
by any of than for purposes of operating a business (other than a System
Restaurant operated pursuant to this Agreement) engaged in whole or substantial
part (more than 10% of its sales), in the production or sale (at wholesale or
retail) of any pizza, pasta or other food items similar to Approved Products.


 


12.3         Post-Term
Covenants. For a period beginning on the termination or expiration of this
Agreement and ending on the date specified below, neither Franchisee nor its
Related Persons may engage, nor assist others to engage, directly or
indirectly, individually or as a partner, joint venturer, shareholder, officer,
creditor, director, employee, or agent, in the production or sale (at wholesale
or retail) of any pizza, pasta or other food items similar to Approved
Products: (a) within a 25-mile radius of any Location; (b) anywhere
within the county within which one or more Locations are situated; or (c)
anywhere within 10 miles of a location in the United States at which PHI or any
subsidiary, Affiliates or franchisee of PHI operates a System Restaurant on the
date of termination or expiration of this Agreement.


 


For a period beginning on the date any Person
Transfers all of its Interest in Franchisee or in this Agreement, and ending on
the date specified below, the transferring Person may not engage, directly or
indirectly, individually or as a partner, joint venturer, shareholder, officer,
creditor, director, employee, or agent, in the production or sale (at wholesale
or retail) of any pizza, pasta or other food items similar to Approved
Products: (a) within a 25-mile radius of any Location; (b) anywhere
within the county within which one or more Locations are situated; or (c) anywhere
within 10 miles of a location in the United States at which PHI or any
subsidiary, Affiliates or franchisee of PHI operates a System Restaurant on the
date of termination or expiration of this Agreement.


 


As to each of the covenants, and any Person bound by
the covenants, contained in this Section 12.3, the covenant will expire on
the date the Person has been in full compliance with the covenant for 18
consecutive months. Each of the covenants set forth in the foregoing paragraphs
are independent of the others, and the unenforceability of one will not affect
the others.


 


12.4         Perpetual
Covenant. In addition to the covenants of confidentiality contained in Section 5.3,
Franchisee and its Related Persons may never (whether during or after the Term)
take any actions that would have the probable effect of impairing PHI’s
ownership of or goodwill in the Pizza Hut Marks and/or in the System Restaurant
Concepts.


 


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12.5         Stock
Ownership. The limitations on being a direct or indirect owner or
shareholder of a business, as contained in this Section 12, do not apply
to ownership of 1% or less of the issued and outstanding stock in any corporation
traded on a national stock exchange.


 


13.  EMPLOYMENT RELATIONS


 


13.1         Franchisee’s
Employees. Franchise will be solely responsible for all of Franchisee’s
employment practices, including hirings, terminations, and other personnel
actions. Franchise will protect, defend, and indemnify PHI, its affiliates,
officers, and employees, from any and all proceedings claims, and causes of
action instituted by Franchisee’s employees, or by others, that arise from
Franchisee’s employment practices.


 


13.2         Interference.
During the Term, neither PHI nor Franchisee may employ, directly or indirectly,
any individual in a managerial position who is at the time, or was at any time
during the prior 6 months, employed in a managerial position by the other
party, nor may Franchisee employ, directly or indirectly, any individual in a
managerial position who is at the time, or was at any time during the prior 6
months, employed in a managerial position by any other franchisee of PHI. This
restriction will not be violated if, at the time PHI or Franchisee employs the
individual, the current or former employer has given its written consent. If
the restrictions contained in this Section 13 are violated, the amount of
actual damages will be difficult to determine; therefore, the former employer
will be entitled to liquidated damages in an amount equal to twice the total
annual compensation of the employee involved (annualized, if appropriate, to
reflect the rate of compensation for a fill year’s employment), plus
reimbursement of all costs and attorneys’ fees incurred. For purposes of this Section 13,
“managerial position” means all employees at the pay grade of restaurant
manager and above.


 


14.  TRANSFERS


 


14.1         Transfers
by PHI. PHI may Transfer its rights and obligations under this Agreement
without the consent of, or notice to, Franchisee. This Agreement will inure to
the benefit of, and be binding upon, the successors and assigns of PHI.


 


14.2         Transfers
by Franchisee. Except as otherwise permitted by this Section 14 and Section 15,
neither Franchisee nor any Person with an interest in Franchisee may, without PHI’s
prior written consent, directly or indirectly Transfer any Interest in this
Agreement or any Interest in Franchisee. Any purported Transfer without PHI’s
prior, written consent will have no effect, except to cause a default under
this Agreement.


 


14.3         Transfer
of Assets. Franchisee may not, without PHI’s prior, written consent,
Transfer or offer to Transfer any assets that bear any of the Pizza Hut Marks,
except (a) to PHI or a subsidiary or franchisee of PHI, or (b) to an
established salvage dealer, who destroys or disables the assets transferred under
Franchisee’s direct supervision.


 


In addition, Franchisee may not, without PHI’s prior,
written consent, offer to Transfer by public or private auction, or advertise
publicly for Transfer, any of the furnishings, interior and exterior decor
items, supplies, inventory fixtures, equipment, smallwares, or other personal
property used in connection with Franchisee’s System Restaurants.


 


22

















 


14.4         Consent
to Transfers. PHI may withhold its consent to any proposed Transfer unless,
in addition to the other requirements of this Section 14 and the
requirements of Section 15, the following conditions are met, to Pill’s
satisfaction, before the effective date of the proposed Transfer:


 


A.            No Default. Franchisee is not in default under
this Agreement or any other agreement with PHI, and Franchisee and its Related
Persons have satisfied all accrued monetary and other obligations to PHI and
its Affiliates.


 


B.            Release. Franchisee and the transferor have each
executed a general release, in a form prescribed by PHI, of all accrued claims
against PHI, its Affiliates, and their respective officers, directors, and
employees.


 


C.            Transfer Standards. The proposed transferee has
demonstrated to PHI’s satisfaction that the proposed transferee is, in all
respects, acceptable to PHI (including, if the proposed transferee is already a
franchisee of PHI that it is in Good Standing under its franchise agreements
with PHI), and that the proposed transferee meets all of PHI’s then current
requirements for new franchisees (or for holders of an interest in a
franchisee, as the case may be) including possession of good moral character
and reputation, work experience, aptitude, financial background and condition,
credit rating, absence of conflicting interests, and ability to comply filly
with the terms of this Agreement.


 


D.            Assumption of Obligations. The proposed transferee
has entered into a written assumption agreement, in a form prescribed by PHI
assuming and agreeing to discharge all of transferor’s obligations relating to
this Agreement and to the System Restaurants covered by this Agreement
(including all obligations owing to third parties not related to PHI).


 


E.             Training. If not previously trained, the proposed
transferee, its manager, and its other employees responsible for the operation
of all System Restaurants, have satisfactorily completed the training PHI then
requires under Section 4.1.


 


F.             Transfer Fee. The transfer fee required by Section 9.3
has been paid.


 


G.            Acknowledgement.
If Franchisee or any owner of an Interest in Franchisee is transferring all of
its Interest in this Agreement or in Franchisee, the proposed transferor has
signed an acknowledgment that the covenants contained in Section 12 will
continue to apply to the proposed transferor after the Transfer.


 


14.5         Death
or Incapacity. Upon the death or permanent incapacity of Franchisee or any
individual with an interest in Franchisee, the executor, administrator, or
personal representative of the affected individual will Transfer all of the
individual’s Interest to a third party approved by PHI within 6 months. All
Transfers pursuant to this Section 14.5, including Transfers by devise or
inheritance, will be subject to the same conditions as any other Transfer
(including the conditions set forth in Sections 14.4 and 14.6). Nevertheless,
in the case of a Transfer by devise or inheritance, if the heirs or devisees of
the deceased are unable to meet the conditions in Section 14.4, the personal
representative of the deceased will have a reasonable time (not more than 12
months after the date of death) to dispose of the decedent’s Interest in this Agreement
or in Franchisee, subject to all applicable terms and conditions for Transfers


 


23

















 


contained in this
Agreement. In the case of permanent incapacity of an individual owner of an
Interest in Franchisee or in this Agreement, the incapacitated individual may,
with PHI’s written consent, retain a non-controlling ownership Interest in
Franchisee.


 


14.6         Right
of First Refusal. If Franchisee or any owner of an Interest in Franchisee
receives and desires to accept any bona fide offer to Transfer all or any part
of his, her, or its Interest in this Agreement or in Franchisee, and the
intended Transfer is not a gift to a spouse or a direct descendant and if the
Transfer of such Interest would either (1) result in a change in control of the
Franchisee, or (2) constitute a Transfer of any Interest by a Person
holding a 10% or greater Interest in Franchisee, Franchisee or the proposed
transferor will submit to PHI an executed copy of the agreement for Transfer
(which will be conditioned on this right of first refusal). PHI may, within 30 days
after receipt of a signed copy of agreement and all necessary supporting
documentation (including financial statements), send written notice to the
transferor that PHI (or a Person designated by PHI) intends to purchase the
Interest which is proposed to be Transferred on the same terms and conditions
(or, at PHI’s election, the reasonable cash equivalent, not including the value
of any tax benefits, of any non-cash consideration) offered by the third party.
Any material change in the terms of an agreement before closing will constitute
a new agreement, subject to the same right of first refusal by PHI (or its
designee) as in the case of the initial agreement. PHI’s failure to exercise
its right of first refusal will not constitute a waiver of any other provision
of this Agreement, including any of the requirements of this Section 14
with respect to approval of the proposed transferee.


 


14.7         Other
Permitted Assignments. PHI’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 Modification”), which have been identified by PHI 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 PHI 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 other provisions of Section 14
hereof; the provisions of the Transfer Modifications shall control.


 


15.  NON-INDIVIDUAL FRANCHISEES


 


If Franchisee, any owner of an Interest in Franchisee,
or any successor thereof, is not an individual, then each of the following
provisions will apply:


 


15.1         List
of Individual Owners. Upon execution of this Agreement, upon each Transfer
of an Interest in Franchisee, and at any other time upon PHI’s request,
Franchisee will furnish PHI a list of all Persons having an Interest in
Franchisee, an indication of the voting rights and percentage Interest of each
of those Persons, and a list of all officers, directors and similar officials
of Franchisee, in the form of Appendix D. PHI may require the same information
regarding all Persons having an Interest in Franchisee.


 


15.2         Personal
Guaranties. Upon the execution of this Agreement, upon each Transfer of an
Interest in Franchisee, and at any other time upon PHI’s request, all holders
of a 10% or


 


24

















 


greater Interest in
Franchisee will execute a written agreement in the form of Appendix E,
personally guaranteeing, jointly and severally with all other holders of a 10%
or greater Interest in Franchisee, the full payment and performance of
Franchisee’s obligations to PHI and to PHI’s Affiliates. On the same occasions,
all officers, directors and similar officials of Franchisee, and all holders of
an Interest in Franchisee, will sign an agreement in the form of Appendix F,
undertaking to be bound by all the terms of this Agreement, including the
restrictions on Transfers and the covenants of confidentiality and against
competition. None of these guaranties or agreements will be released by a
Transfer of an Interest in Franchisee; all guaranties and undertakings may be
released only by a written release signed by PHI.


 


15.3         Organizational
Documents. All of Franchisee’s organizational documents (including articles
of partnership, partnership agreements, articles of incorporation, bylaws,
shareholders agreements, and trust instruments) will recite that the issuance
and Transfer of any Interest in Franchisee is restricted by the terms of this
Agreement, and that the sole purpose for which Franchisee is formed (and the
sole activity in which Franchisee is or will be engaged) is the conduct of a
retail food business pursuant to one or more franchise agreements from PHI.
Franchisee will submit to PHI, upon the execution of this Agreement, a
resolution of Franchisee (or its governing body) in the form of Appendix G.


 


15.4         Transfer
Restrictions. Franchisee will maintain stop transfer instructions against
the Transfer on its records of any securities or other ownership Interests, and
will not issue securities or other evidences of ownership without the following
legend printed legibly and conspicuously on the face of the security or other
evidence of ownership:


 


The transfer of this
certificate and the interests it represents are subject to the terms and
conditions of one or more Franchise Agreements with Pizza Hut, Inc., and to the
restrictive provisions of the organizational documents of the issuer. Please
refer to those documents for the terms of the restrictions.


 


15.5         Permitted
Assignments. Franchisee may assign not more than an aggregate total of 20%
of the Interests in Franchisee to employees of Franchisee who are actively
engaged in the operation of Franchisee’s business under this Agreement, as long
as the proposed transferee submits to PHI a franchise application in the form
prescribed by PHI from time to time. Transfers under this provision may be made
without complying with the other terms of this Section 15. Once created,
those ownership Interests will be subject to all terms and conditions of this
Agreement, including the restrictions on Transfers, the requirements of
shareholder guaranties and agreements, and the covenants of confidentiality and
against competition.


 


15.6         No
Publicly Traded Ownership Interests. Franchisee and its Related Persons may
not offer, solicit, engage in, or effect any transaction, whether financial or
otherwise, that could foreseeably result, directly or indirectly, in “public
trading” or “public ownership” (as those terms are commonly understood for
purposes of federal and state securities laws) of any securities or other
Interests in (a) Franchisee, (b) any parent company of Franchisee, (c) this
Agreement, or (d) the System Restaurants operated by Franchisee or any
assets used by Franchisee in connection with those System Restaurants.


 


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15.7         Changes
in Ownership or Organization. Franchisee and its Related Persons will not
reorganize or otherwise change the ownership or organizational structure of
Franchisee or its Related Persons in any manner that is inconsistent with the
provisions of Sections 14 and 15.


 


16.  INSURANCE AND INDEMNIFICATION


 


16.1         Property
Insurance. Franchisee will obtain and maintain throughout the Term, at its
own expense, property insurance on an all-risk basis including flood coverage
up to the limits available in the National Flood Insurance program, from financially-responsible
insurance companies, insuring Franchisee’s System Restaurants and their
respective contents (whether those System Restaurants are completed or under
construction) for the full replacement value of the System Restaurants. In the
event of damage covered by insurance, the proceeds of the insurance will be
used to restore the System Restaurants to their original condition within 120
days, unless restoration is prohibited by the appropriate lease or applicable
law, or PHI has otherwise consented in writing.


 


16.2         Liability
Insurance. Franchisee will obtain and maintain throughout the Term, at its
own expense, with a financially-responsible insurance company, comprehensive
general liability insurance (including products liability and completed operations
coverage), comprehensive automobile liability insurance (including coverage for
all owned, non-owned, leased, or hired vehicles); and liquor liability (dram
shop) insurance, all in amounts at least equal to $3,000,000 combined single
limit for death, personal injury, and property damage, as well as workers’
compensation insurance (coverage B). All liability insurance maintained by
Franchisee will designate PHI as an additional insured, as its interests may
appear, and will insure against PHI’s vicarious liability for actual and
(unless prohibited by applicable law) punitive damages assessed against
Franchisee.


 


16.3         Proof
of Insurance. Franchisee will file with PHI certificates of insurance
showing all coverages required by this Section 16, and will promptly pay
all premiums on the policies as and when those premiums become due. In
addition, all policies will contain a provision requiring 30 days’ prior,
written notice to PHI, by certified or registered mail, of any proposed
cancellation or modification of the policies. If Franchisee fails to obtain or
maintain the insurance required by this Section 16, PHI may, in addition
to any other rights it may have, procure insurance for Franchisee without
notice, and Franchisee will pay the premiums for, and PHI’s cost of acquiring
that insurance immediately upon demand for those amounts.


 


16.4         Indemnification
and Waiver. Franchisee will indemnify PHI, its Affiliates, and their
respective employees, officers, and directors against all loss, damage or
liability (including attorneys’ fees and costs) incurred by any of them owing
to claims that arise directly or indirectly from or in connection with
Franchisee’s operations under this Agreement. If Franchisee fails to maintain
the insurance required by this Section 16, or fails to name PHI as an
additional insured under that policy, then Franchisee’s obligations of
indemnity under this Section 16.4 will also extend to all liability that
would have been insured by an appropriate policy (including liability arising
from PHI’s own negligence). The insufficiency of the insurance required to be
maintained by Franchisee under the terms of this Section 16 will not be a
defense to liability under this Section 16.4.


 


26

















 


Franchisee waives all claims it may have against PHI,
its Affiliates, and their respective officers, directors, and employees (including
claims arising from training, establishment of procedures, and food and other
products distributed but not manufactured by PHI or its Affiliates), except for
claims arising from those parties’ intentional misconduct or gross negligence.


 


17.  REQUESTS FOR WAIVERS AND CONSENTS


 


17.1         Requests
for Waivers or Consents. Whenever Franchisee desires PHI’s waiver of any
obligation in this Agreement, and whenever this Agreement requires Franchisee
to obtain PHI’s prior, written consent, Franchisee will address its written
request for the waiver or consent to PHI’s Vice President-Franchising (unless
PHI specifies another individual or department in writing). The request will
specify the provision of this Agreement for which a waiver or consent is
sought, and will set forth the basis for the request. PHI’s failure to advise
Franchisee within 45 days after receipt of the request that a request is denied
constitutes PHI’s consent to the request (except that, if PHI gives Franchisee
written notice within the 45-day period that PHI requires additional
information or documentation from Franchisee, the 45 days will not begin until
Franchisee has provided PHI with all relevant information and documentation
requested).


 


17.2         Effect
of Waivers and Consents. All requests for waivers and consents will be
considered on a case-by-case basis, and nothing requires PHI to grant any
waiver or consent. PHI may condition the grant of a waiver or consent as PHI
considers appropriate.


 


17.3         No
Implied Waivers. Except as provided in Section 17.1, no other action
or inaction by PHI will constitute a waiver, or impair any right, power, or
option reserved to PHI by this Agreement. No waivers can be inferred from PHI’s
failure to respond to a situation with respect to which Franchisee has not
requested a waiver in accordance with Section 17.1.


 


18.  DEFAULT AND TERMINATION


 


18.1         Defaults
Without Cure Right. Franchisee will be in default and, in addition to all
other remedies PHI has at law or in equity, including money damages, injunctive
relief, and attorney’s fees, PHI may, upon written notice to Franchisee,
terminate this Agreement without affording Franchisee any opportunity to cure
the default upon the occurrence of any of the following events or conditions:


 


A.            Financial Performance. If the total of Franchisee’s
debts is greater than the fair value of Franchisee’s assets, or if Franchisee
is generally not paying its debts as those debts, become due, or if Franchisee
admits in writing its inability to pay its debts, or if Franchisee makes a
general assignment for the benefit of its creditors, or if Franchisee ceases
doing business as a going concern, or if Franchisee files a petition commencing
a voluntary case under any chapter of the Bankruptcy Code (11 U.S.C. §101, et
seq.), as amended.


 


B.            Improper Transfer. If, without the prior, written consent
of PHI, or in any other manner inconsistent with the terms of this Agreement, (i)
Franchisee Transfers or attempts to Transfer an Interest in this Agreement, (ii) any
owner of an Interest in Franchisee Transfers or attempts to Transfer any
portion of that Interest, (iii) Franchisee or any of its Related Persons
violates Section 15.6, or (iv) Franchisee dissolves or liquidates.


 


27

















 


C.            Failure to Allow Inspection. If Franchisee does
not allow PHI or its employees or agents access to any System Restaurant or to
any of Franchisee’s records, or if Franchisee otherwise impairs PHI’s rights of
inspection and audit under this Agreement.


 


D.            Criminal Conviction. If Franchisee (or any of its
Related Persons actively involved in the operation, supervision, or management
of any System Restaurant) is convicted of a felony or other crime involving
moral turpitude.


 


E.             Disclosure of Secrets. If Franchisee or any of
its Related Persons discloses, permits the disclosure of, or uses, the contents
of the Manuals or any other trade secrets or confidential or proprietary
information provided to Franchisee by PHI, contrary to the provisions of this
Agreement or otherwise to the detriment of PHI.


 


F.             Falsification of Records. If Franchisee knowingly
or through gross negligence maintains false books or records, or knowingly or
through gross negligence submits any false report to PHI.


 


G.            Habitual Default. If Franchisee defaults under Section 18.2
on 3 or more occasions in any 12-month period, or on 5 or more occasions in any
36-month period, even if Franchisee would otherwise be given an opportunity
under Section 18.2 to cure the particular default involved.


 


H.            Endangerment. If Franchisee conducts the business
licensed by this Agreement so contrary to this Agreement and the Manual as to
constitute an imminent danger to the public health.


 


I.              Material Misrepresentation. If Franchisee (or
any Person having a 10% or greater Interest in Franchisee) made a material
misrepresentation about any material fact in a franchise application given to PHI.


 


J.             Unauthorized Closure or Loss of Occupancy Right.
If any System Restaurant is closed for business for more than 15 consecutive
days, for reasons other than a casualty loss, without PHI’s prior written
consent, or Franchisee permanently loses its right to occupy a Location.


 


18.2         Defaults
Subject to Cure Rights. Franchisee will be in default and, in addition to
all other remedies PHI has at law or in equity, including damages, injunctive
relief; and attorney’s fees, PHI may, subject to the notice and cure provisions
described below, terminate this Agreement if: 1) Franchisee does not promptly
pay when due any moneys owing to PHI or its Affiliates, or 2) Franchisee
breaches any term, covenant, duty, or condition of this Agreement not listed in
Section 18.1.


 


PHI will not terminate this Agreement for any default
under this Section 18.2 until PHI first gives Franchisee written notice of,
and an opportunity to cure, the default. Except as provided below, PHI will
give Franchisee 30 days after the effective date of notice to cure any such default.
If Franchisee’s current default involves a failure to timely pay amounts owing
PHI or its Affiliates, and if Franchisee has previously been in default for
failure to timely pay under this Agreement in the 12 months immediately before
the date on which PHI gives Franchisee


 


28

















 


notice of Franchisee’s
current default, PHI will only be required to give Franchisee 10 days to cure
Franchisee’s current default


 


18.3         Non-Termination
Remedies. If Franchisee defaults under Section 18.1, or does not
timely cure a default under Section 18.2, PHI may, in its sole discretion,
and in lieu of terminating this Agreement, refuse to allow Franchisee to
relocate any existing System Restaurants or to develop any additional System
Restaurants. PHI will give Franchisee written notice if PHI elects this option.
Any action taken by PHI in accordance with this Section will be in
addition to any other right or remedy PHI may have, including a civil action
for legal or equitable relief.


 


19.  POST-TERMINATION PROVISIONS


 


19.1         Use
of Pizza Hut Marks and Systems. Upon expiration or termination of this
Agreement, Franchisee will immediately discontinue use of the Pizza Hut Marks
and of the System Restaurant Concepts. In addition, upon notice from PHI,
Franchisee will immediately discontinue use of PHI’s color scheme (by
repainting, if necessary) and will immediately remove all identifying
architectural superstructure (as set forth in the plans and specifications) and
other distinguishing structures, decor items, furniture, and equipment from all
former System Restaurants and other facilities as PHI may direct, in order to
effectively distinguish Franchisee’s former System Restaurants and other
facilities from PHI’s proprietary design(s) and trade dress. If Franchisee does
not make all required changes within 7 days after written notice, then PHI, in
addition to any other remedy it has, may enter upon the premises of any former
System Restaurant owned or leased by Franchisee, and make or cause to be made
all necessary changes at the expense of Franchisee (without being liable for
trespass or any other tort), which expense Franchisee will pay upon demand.


 


19.2         Cessation
of Rights. All obligations of PHI to Franchisee under this Agreement, and
all rights of Franchisee under this Agreement, will immediately terminate upon
termination of this Agreement.


 


19.3         Effect
on Other Duties. In no event will a termination of this Agreement affect
the obligations of Franchisee and its Related Persons to pay their accrued
monetary obligations to PHI and to comply with their various post-term
obligations, including the covenants in Section 12.


 


19.4         Trademarked
Items. PHI may, by written notice within 30 days after expiration or other
termination of this Agreement, purchase from Franchisee all items bearing any
of the Pizza Hut Marks. If PHI exercises this option, the purchase price for
the items will be the lowest of the fair market value of the items, Franchisee’s
purchase price for the items, or Franchisee’s book value for the items.


 


19.5         Telephone
Numbers. PHI may, upon written notice within 30 days after expiration or
other termination of this Agreement, take an assignment of all telephone
numbers (and associated listings) for Franchisee’s System Restaurants and
centralized order-taking facilities (if any).


 


29

















 


20.  DISPUTE RESOLUTION


 


20.1         Jurisdiction
and Governing Law. This Agreement takes effect upon its acceptance and
execution by PHI. This Agreement is governed by, and should be construed in
accordance with, the internal laws of the State of Texas (without giving effect
to Texas choice of law rules). Franchisee acknowledges the importance to the
System Restaurant Concepts of uniformity of interpretation, and therefore
consents and waives any objections Franchisee might otherwise have to the
jurisdiction and venue of any state or federal court of general jurisdiction in
Dallas County, Texas, or any other county or district in which PHI then has its
principal place of business, with respect to any proceedings arising out of
this Agreement or the relationship between the parties. Franchisee further
agrees that it will bring any legal proceedings arising out of this Agreement
or the relationship between the parties only in such courts. Franchisee agrees
that mailing of any process to Franchisee’s appropriate address pursuant to Section 21.5,
by registered or certified mail or reputable private delivery service, will
constitute lawful and valid process.


 


20.2         Remedies
Cumulative. All remedies provided in this Agreement are cumulative and non-exclusive.
PHI may simultaneously seek relief specifically provided for by this Agreement
and relief not so provided, and may also seek two or more forms of relief
otherwise inconsistent and that could not be granted simultaneously. A request
by PHI for interim damages for a particular violation will not constitute an
admission that the continuation of the violation would not cause irreparable
harm to PHI.


 


20.3         Mediation.
All disputes between PHI and Franchisee relating to this Agreement will be
submitted to mediation under the National Franchise Mediation Program
administered CPR (or, if that program is discontinued, any successor program or
the nearest available substitute). This Section 20.3 applies only to
disputes that are specific to Franchisee and not to issues that affect PHI’s
franchisees generally.


 


20.4         Injunctive
Relief. In case of a breach or a threatened breach of any provision of this
Agreement by Franchisee, PHI will, in addition to any other remedy it has, and
notwithstanding any other provision of this Agreement (including Section 20.3),
be entitled to an injunction restraining Franchisee from committing or
continuing to commit any breach or threatened breach of this Agreement, without
showing or proving any actual damage sustained by PHI, and without posting bond
or other security. No action for a preliminary or temporary injunction by PHI
may be stayed pending mediation, but once a temporary injunction (pending
outcome of the dispute) is granted, the issues underlying the dispute will be
submitted to mediation in accordance with Section 20.3.


 


20.5         Attorneys’
Fees. If PHI and Franchisee become involved in litigation, the losing party
will reimburse the prevailing party’s outside attorneys’ fees and all expenses.
This provision will not apply to attorneys’ fees incurred by the parties in
connection with mediation conducted pursuant to Section 20.3.


 


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21.  MISCELLANEOUS


 


21.1         Relation
of Parties. PHI and Franchisee are not and will not be considered as joint
venturers, partners, or agents of each other. Neither Franchisee nor PHI will
have the power to bind or obligate the other except as set forth in this
Agreement.


 


Franchisee specifically acknowledges that the
relationship fled by this Agreement is not a fiduciary, special, or any other
similar relationship, but rather is an arm’s-length business relationship.


 


PHI owes Franchisee no duties except as expressly
provided in this Agreement.


 


21.2         Counterparts.
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, will be deemed an original, but all counterparts
together will constitute but one and the same instrument.


 


21.3         Third-Party
Beneficiaries. The other franchisees of PHI are intended beneficiaries of Section 13
of this Agreement; the Affiliates of PHI, and the employees, officers, and
directors of PHI and its Affiliates are intended third-party beneficiaries of Section 16.4
of this Agreement. Nothing else in this Agreement is intended to confer any
rights or remedies upon any Person or legal entity not a party to this
Agreement.


 


21.4         Severability.
The portions of this Agreement relating to the payment of fees to PHI, and the
portions relating to the protection and preservation of the Pizza Hut Marks,
the System Restaurant Concepts, and PHI’s trade secrets are critical to this
Agreement; if any portion of them is declared invalid or unenforceable for any
reason, PHI will have the option to terminate this Agreement immediately, upon
written notice to Franchisee. All other terms and conditions of this Agreement,
and every portion of those other terms and conditions, will be considered
severable. If, for any reason, any portion of this Agreement (other than the nonseverable
portions, as defined in the first sentence of this Section 21.4) is
determined to be invalid or 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 PHI is a party, that ruling will not impair the operation of,
or have any other effect upon, any other portion of this Agreement, each of
which will remain binding upon the parties and continue to be given full force
and effect. Any invalid portion will be deemed removed from this Agreement as
of the date upon which the ruling becomes final (if Franchisee is a party to
such proceedings) or upon Franchisee’s receipt of notice of non-enforcement
from PHI, and will further be deemed replaced by the closest enforceable
provision.


 


21.5         Protests
Requests and Notices. All protests, requests and notices required or
permitted by the terms of this Agreement will be in writing and sent either by
certified or registered mail (return receipt requested), by reputable private
delivery service, or by hand delivery. All notices will be sent to the
respective address of PHI (marked, except as otherwise required by this
Agreement, “Attention: Vice President-Franchising”) or Franchisee shown on page 1
of this Agreement, until PHI or Franchisee (as the case may be) gives notices,
in writing, of a new address. Neither PHI nor Franchisee must send multiple notices;
a single notice to the specified address will suffice, and if multiple
addresses are specified by either party, the sending


 


31

















 


party may send notices to
any single address chosen in good faith. Notices will be effective on the day
delivery is made or first attempted at the specified address during normal
business hours (8 a.m. to 5 p.m., Monday through Friday, except
national or state holidays), except that notices of change of address will be
effective 10 days after that date.


 


21.6         Time
of Essence. Time is of the essence of this Agreement and of each provision
of this Agreement


 


21.7         Rules
of Construction. The following rules were used in drafting this Agreement,
and should be used in construing it:


 


A.            Auxiliary Verbs. The auxiliary verb “will” is used
in a mandatory fashion. Any time this Agreement provides that a party will do
something, the statement is obligatory, and is intended to apply throughout the
life of this Agreement. By contrast, the auxiliary verb “may” is permissive
when stated affirmatively (“a party may do something” means that the party is
permitted, but not required, to take the action), and by extension, prohibitive
when stated negatively (that is, the statement that “a party may not do
something” is a denial of permission, and therefore means not only that the
action is not required, but also that it is not permitted).


 


B.            Includes. The word “includes” (in all its tenses
and variations) is always used in the non-exclusive sense. As a result, the
words “including” or “includes” can always be read as if followed by the
phrase, “but [is] not limited to” or the phrase, “without limitation”.


 


C.            Accounting Periods. Any time that this Agreement
calls for a party to take an action “monthly”, the party may instead use
regular accounting periods that are no longer than 35 days long. For example, a
party may use 13 accounting periods of 4 weeks each (a “52/53 week fiscal year”)
or may use 12 accounting periods arranged so that there are two 4-week and one
5-week accounting period each fiscal quarter. PHI currently uses a 52/53 week
fiscal year, divided into 13 4-week periods, ending on the Wednesday before the
last Saturday in December of each year; PHI may change its accounting
cycle on 30 days’ written notice to Franchisee. If Franchisee chooses to use
one of these methods of accounting, Franchisee will notify PHI of the method
chosen and the fiscal year-end used, and may not switch accounting years
without consent from PHI.


 


D.            Locations Boundaries and Measurements. The sites
of the Locations and the boundaries of the Delivery Area are based on the
physical location of the references used to describe the Locations or the boundaries
on the date of this Agreement. If a street address is used to describe a
Location, the renumbering of the addresses will not serve to move the Location.
If a specified boundary of the Delivery Area is described as a street, the
center line of the street is intended; if the boundary is described as a political
dividing line (such as a city limit), the line utilized by the appropriate
political jurisdiction is intended. The area and physical location of any
Location or of the Delivery Area will not be altered by a subsequent movement
of the references originally used to describe the Location or the Delivery
Area. Furthermore, it is only those points to the “inside” of the boundary that
form a part of the Delivery Area (for example, if a Delivery Area is bounded on
the north by Main Street, only the area south of the center line of Main Street
is within the Delivery Area).


 


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For all calculations based upon a distance, the measurement
will be made in a straight line between the nearest points; if any portion of
an object is within the prescribed distance from a point, the entire object is
considered to be within that distance.


 


21.8         Merger.
Effective January 1, 2003, the Old Franchise Agreement shall be merged into
this Agreement, and, except for the side agreements listed on Appendix J, the
Old Franchise Agreement and any amendments thereto previously executed by Franchisee
with respect to the Location(s) franchised under this Agreement shall be of no
further force or effect whatsoever. The foregoing shall not release Franchisee
or PHI from the following: (i) any liability for monetary obligations
existing prior to January 1, 2003, including obligations arising pursuant
to Sections 7 or 9 of the Old Franchise Agreement, or (ii) indemnification
liability under Section 16.4 of the Old Franchise Agreement based upon facts or
circumstances existing prior to January 1, 2003.


 


PHI and Franchisee may have entered into certain
amendments, supplements or side agreements relating to the Old Franchise
Agreement (collectively, the “Side Agreements”). PHI and Franchisee 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 PHI and Franchisee intend to remain in full force and
effect are identified on Schedule J.


 


Except as provided above, except as provided in the
Side Letters listed on Schedule J hereto, and except as provided in the
Advertising Committee Agreement, all prior discussions or negotiations (written
or oral), including those included in PHI’s offering circular, are merged
into this Agreement, and no representations, inducements, promises, or
agreements not embodied in this Agreement will survive the execution of this
Agreement. This Agreement may not be modified or amended except (i) pursuant to
Section 17, (ii) by a modification, supplement, or revision to the
Manual issued by PHI in accordance with the terms of this Agreement, or (iii) by
a written document, signed by both parties, specifically referring to the
portion of this Agreement being modified or amended.


 


	
  WITNESS:

  	
  PIZZA HUT, INC.

  
	
   

  	
  “PHI”

  
	
   

  	
   

  
	
  /s/
  Julie L. Schultz

  	
   

  	
  By:

  	
  /s/

  	
   

  
	
   

  	
  , Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  WITNESS:

  	
  NPC MANAGEMENT, INC.

  
	
   

  	
  “FRANCHISEE”

  
	
   

  	
   

  	
   

  
	
  /s/
  Troy D. Cook

  	
   

  	
  By:

  	
    /s/
  James K. Schwartz

  	
   

  
	
   

  	
   

  	
   

  	
  James
  K. Schwartz, President

  	
   

  
						



 


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