Exhibit 10.10


 


January 1, 2003


PIZZA HUT, INC


TERRITORY FRANCHISE AGREEMENT


 

















 


January 1, 2003


 


PIZZA HUT, INC.


 


TERRITORY FRANCHISE AGREEMENT


 


TABLE OF CONTENTS


 


	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I.

  	
   

  	
  FRANCHISE RIGHT GRANTED

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II.

  	
   

  	
  DUTIES OF COMPANY AND
  TRAINING

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III.

  	
   

  	
  MANUAL AND STANDARDS OF
  OPERATION, QUALITY, CLEANLINESS, AND SERVICE

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV.

  	
   

  	
  DUTIES OF OPERATOR,
  PRETESTING, UNIFORMS, INSPECTIONS

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V.

  	
   

  	
  ERECTION OF BUILDING AND
  COMMENCEMENT OF BUSINESS

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI.

  	
   

  	
  ADVERTISING AND CO-OPS

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII.

  	
   

  	
  COMPANY’S MARKS

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII.

  	
   

  	
  PURCHASE OF EQUIPMENT,
  SUPPLIES, AND OTHER PRODUCTS

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX.

  	
   

  	
  FRANCHISE FEES;
  DEVELOPMENT SCHEDULE

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X.

  	
   

  	
  BOOKS, RECORDS, GROSS
  SALES

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XI.

  	
   

  	
  COVENANT REGARDING OTHER
  BUSINESS INTERESTS

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XII.

  	
   

  	
  INTERFERENCE WITH
  EMPLOYMENT RELATIONS

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIII.

  	
   

  	
  USE OF PREMISES

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIV.

  	
   

  	
  SECRET RECIPES AND OTHER
  SECRET INFORMATION

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XV.

  	
   

  	
  LEASE APPROVAL

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XVI.

  	
   

  	
  TRANSFER OF INTEREST

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XVII.

  	
   

  	
  PARTNERSHIP AND CORPORATE
  OPERATORS

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XVIII.

  	
   

  	
  PERMITTED ASSIGNMENTS

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIX.

  	
   

  	
  DEFAULT AND TERMINATION

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XX.

  	
   

  	
  RIGHTS AND OBLIGATIONS
  UPON TERMINATION OR NONRENEWAL

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXI.

  	
   

  	
  RENEWAL

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXII.

  	
   

  	
  REPAIR AND MAINTENANCE

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXIII.

  	
   

  	
  ADDITIONAL TRADEMARKS

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXIV.

  	
   

  	
  INSURANCE

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXV.

  	
   

  	
  INDEMNIFICATION

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXVI.

  	
   

  	
  RELATIONSHIP OF PARTIES

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXVII.

  	
   

  	
  EXECUTION, INTERPRETATION,
  NOTICES

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXVIII.

  	
   

  	
  REQUESTS FOR WAIVERS AND
  CONSENTS

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XXIX.

  	
   

  	
  RELEASE

  	
   

  	
  39

  



 

















 


2003


PIZZA HUT, INC.


FRANCHISE AGREEMENT


(1990 REPLACEMENT)


 


THIS
AGREEMENT made as of this 1st day of January, 2003, by and between PIZZA HUT,
INC., a California corporation, wife its principal place of business at Dallas,
Texas (hereinafter called “Company”), and NPC Management, Inc. (hereinafter
called “Operator” and defined in Article XXVIIC.):


 


WITNESSETH:


 


WHEREAS, Company is the owner of a pizza
distribution business operated by it and by its licensees throughout the United
States and in certain foreign countries under the name and mark “Pizza Hut”;


 


WHEREAS,
Company has developed and continues to develop and owns a system for
merchandising pizza and certain related foods, which system includes
distinctive signs, food recipes, uniforms, and various trade secrets and other
confidential information, and in some cases also includes architectural
designs, equipment specifications, layout plans, inventory and record-keeping
techniques, and marketing techniques (hereinafter called “System”);


 


WHEREAS,
Company developed the System through the expenditure of time, money, and effort
and has maintained high standards of quality and service for operations in the System,
as a result of which the System has acquired valuable goodwill and a favorable
reputation;


 


WHEREAS,
Company identifies the System by certain trademarks, trade names, service
marks, symbols, slogans, emblems, logos, designs, and other indicia of origin
(hereinafter called “Company’s Marks”), including the trademark, trade name,
and service mark “Pizza Hut” and such other marks as may be designated by
Company in writing as being authorized for use in the System, all of Company’s
Marks being owned by Company and used by Company and its licensees to identify
for the public the source of the services rendered in accordance with the
System and the high standards of quality attendant thereto;


 


WHEREAS,
the parties hereto have previously been parties to a 1990 Pizza Hut, Inc.
Franchise Agreement (the “1990 Franchise Agreement”) governing the System
business conducted by Operator within the same geographical territory as
hereafter specified;


 


WHEREAS,
the parties hereto mutually desire to supersede the 1990 Franchise Agreement
and any amendments thereto, with this Franchise Agreement in order to
satisfactorily redefine their respective rights and obligations;


 


WHEREAS,
Operator desires to continue to enjoy the benefits of operating under the
System and using Company’s Marks, and to continue to be licensed to operate one
or more


 

















 


facilities within the System
in strict accordance with the standards and specifications established by
Company; and


 


WHEREAS,
Company is willing to grant Operator a license under Company’s Marks and the
System, subject to Operator’s strict compliance with the terms and conditions
of this Agreement;


 


NOW,
THEREFORE, the parties hereto, in consideration of the mutual agreements herein
contained and promises herein expressed and for other good and valuable
consideration, receipt of which is hereby acknowledged, do hereby agree as
follows:


 


ARTICLE I.


 


FRANCHISE RIGHT GRANTED


 


A.            1.             Company
hereby grants to Operator, for a period of thirty (30) years beginning on
January 1, 2003, subject to renewal as provided in Article XXI., the right and
license, and Operator hereby undertakes the obligation, to operate the business
described below under the mark “Pizza Hut” and such other of Company’s Marks as
may be designated by Company, and to operate such business solely in accordance
with Company’s System, and only at locations in the following geographical territory
(hereinafter called the “Territory”):


 


The
business in which Operator is licensed to engage within the Territory consists
of the operation of “System Restaurants.” For purposes of this Agreement, “System
Restaurants” comprise only the following concepts within the System: (a) Pizza
Hut Restaurants (“Pizza Hut Restaurants”) - (Company’s original concept) from
which Pizza Hut pizza (and other System-authorized food and beverage items) are
sold for dine in (on-premises) and carryout (off-premises) consumption; and may
be delivered for off-premises consumption; in order to be a Pizza Hut
Restaurant, a restaurant must have either at least 30 seats or at least 15% of
its sales attributable to dine-in service; (b) Delivery Restaurants (“Delivery
Restaurants”) - from which Pizza Hut pizza (and other System-authorized food
and beverage items) are delivered for off-premises consumption; (c)
Delivery/Carryout restaurants (“Delco Restaurants”) - from which Pizza Hut
pizza (and other System-authorized food and beverage items) are sold for
carryout and/or delivered, all for off-premises consumption; and (d) Express
Restaurants (“Express Restaurants”) - from which a limited menu of Pizza Hut
pizza (and other System-authorized food and beverage items) are sold for immediate
on- or off-premises consumption (throughout this Agreement, the phrase “System
Restaurant Concepts” refers to the four (4) concepts, described above, that
jointly constitute “System Restaurants”). Company reserves the right (in its
reasonable discretion and consistent with the foregoing definitions and
limitations) to clarify the portions of the entire System that fall within the
term “System Restaurants,” and to distinguish (and set differing standards for)
various System Restaurant Concepts.


 


2

















 


2.             With respect to any System
Restaurants within the Territory which (i) are subject to the 1990 Franchise
Agreement as of the date hereof, or (ii) were at any time subject to the 1990
Franchise Agreement and subsequently became subject to a Pizza Hut New
Construction Franchise Agreement (“NCFA”) between Company and Operator, such System
Restaurants shall, effective as of January 1, 2003, be subject to the
provisions of this Agreement. The 1990 Franchise Agreement and the NCFAs
relating to System Restaurants as described in clause (ii) of the preceding
sentence shall be superseded in all respects by this Agreement. The foregoing
shall not release Operator or Company from the following (“Surviving Claims”):
(i) any liability for monetary obligations existing prior to January 1, 2003,
including obligations arising pursuant to Article VI or Article IX of the 1990
Franchise Agreement or (ii) any indemnification liability under Article XXV of
the 1990 Franchise Agreement based upon facts or circumstances existing prior
to January 1, 2003.


 


3.             Company and Operator may have entered
into certain amendments, supplements or side agreements relating to the 1990
Franchise Agreement or one or more NCFAs which have been merged into this
Agreement (collectively, the “Side Agreements”), Company and Operator intend
that certain or all of the Side Agreements shall continue in full force and
effect after the execution and delivery of this Agreement. To the extent that
the provisions of the Side Agreements are in direct conflict with the
provisions of this Agreement, the provisions of the Side Agreements shall
control. All of the Side Agreements which Company and Operator intend to remain
in full force and effect are identified on Schedule D.


 


B.            During the term of this Agreement,
Company shall not establish nor license another to establish within the
Territory, except under the conditions set forth in Articles I.D. or IX., a
System Restaurant Operator acknowledges and agrees that, subject only to the preceding
sentence and to Article I.D., Company retains, among others, the right to sell
any product under the Company’s Marks or any other name or mark to any
purchaser within the Territory.


 


C.            Operator shall conduct its System
Restaurant business only at locations within the Territory. The establishment
of Operator’s System Restaurants shall be in accordance with this Agreement and
the terms and conditions of this Agreement shall automatically extend to and
govern the respective rights, duties, and obligations of Company and Operator as
to each such location, including
the payment to Company by Operator of an initial franchise fee and monthly
service fee for each System Restaurant as provided in Article IX.A., the same
as if a separate franchise agreement had been executed for each such System Restaurant.
No System Restaurant of Operator shall be established at a location within a
two (2) mile radius of any then-existing Pizza Hut Restaurant without the Company’s
prior written consent.


 


D.            I.              During
the term of this Agreement, Company may develop one or more new methods of
distributing pizza, pasta, or other Italian food items similar to Italian food items
approved by Company for sale in System Restaurants using Company’s Marks (hereinafter
called “New Concepts”), which may or may not involve restaurants. Company


 


3

















 


may, at its sole discretion,
permit Operator to participate in testing a New Concept. If the New Concept
cannot (in Company’s reasonable judgment) be exploited by a majority of Company’s
franchisees in the United States due to legal or institutional barriers,
Company may nevertheless implement (or license others to implement) the New
Concept, provided that, if Operator is in “good standing” (as defined below),
Company must pay Operator an amount equal to two and one-half percent (2.5%) of
the gross sales of the New Concept within the Territory. In all other
circumstances, the Company may implement the New Concept only pursuant to
Article I. D. 2.


 


2.             If the New Concept can (in Company’s
reasonable judgment) be exploited by a majority of Company’s franchisees in the
United States, and if the testing demonstrates an acceptable unit return (which
is defined to be a fifteen percent (15%) cash-on-cash return on the capital
investment including the initial fee for the New Concept, and treating the
ongoing royalty for the New Concept as an expense, but excluding the cost of
financing), and if Operator is in “good standing” (as defined in Article I. D.
3.), the New Concept will be released to Operator (whether or not Operator
participated in the test) subject to payment of a $25,000 initial fee and
ongoing royalty for the New Concept (the ongoing royalty shall not exceed the
fee provided in this Agreement). The New Concept when released becomes a System
Restaurant for purposes of this Agreement and will be governed by this
Agreement.


 


a.             Following the release of a New
Concept to Operator and other franchisees within the System, Company shall
publish to the System an evaluation of the total development potential for the
New Concept. Once the System has developed five percent (5%) of the potential
total, Company can at any time mandate to Operator and other franchisees within
the System development of the New Concept. At the time of the mandate, Company
will notify Operator of Company’s projection of the total development potential
of the New Concept within the Territory. If Operator desires to implement the
New Concept, Operator must submit to Company within thirty (30) days after
Company’s mandate, Operator’s proposed five (5)-year schedule for development
of the New Concept in the Territory. Within thirty (30) days thereafter,
Company shall either accept Operator’s proposed development schedule, or
counterpropose a different five (5)-year development schedule. Operator shall
have fifteen (15) days from the date Company accepts Operator’s proposed
development schedule or counterproposes its own development schedule within which
to elect in writing to undertake to establish the New Concept according to the
terms of the development schedule.


 


b.             If Operator fails to make that
election or fails to meet the development schedule, then Company, to the
exclusion of Operator, may at any time itself develop the New Concept within
the Territory, but may not license the New Concept or a facility in which it is
implemented until the third anniversary of the opening of each such outlet featuring
the New Concept. After the third anniversary, Company may license the outlet to
another but only if Company first offers to Operator (if Operator is then in
good standing as defined in Paragraph I. D. 3.) the right of first refusal, for
thirty (30) days, to acquire the assets of the outlet at the price and terms
offered by the third party (or the cash equivalent of


 


4

















 


noncash consideration
offered by the third party), together with the franchise of the right to
operate it pursuant to this Agreement.


 


c.             In establishing a development
schedule for a New Concept, Company shall take into account criteria including
potential sales volume, market demographics, saturation analysis, diversion of
sales from Operator’s other System Restaurants, and physical and geographic
characteristics of areas in the Territory.


 


3.             Operator is in “good standing” if
there is no outstanding notice of Operator’s default under this Agreement that
has not been cured. If Operator is not in good standing, Company will notify
Operator to that effect, and will tell Operator how to return to good standing;
upon Operator’s return to good standing, Company will (as appropriate) begin paying
the passover royalty to Operator or release the New Concept to Operator.


 


4.             Company may periodically develop or
offer concepts primarily for use in connection with and integration within a
System Restaurant (a “Multi-Brand Concept”) and prepare license agreements (“YUM!
Brands Multi-Brand License Agreements”) for use in connection therewith. If any
Multi-Brand Concept qualifies as a New Concept, then until January 1, 2011: (i)
the service fee rate for such New Concept shall not exceed the applicable
Service Fee rate, and (ii) the advertising fee rates shall not exceed the
advertising fee rates required under Articles VI.A.9 and VI.C below. Effective January
2, 2011, such rates for a New
Concept subject to the preceding sentence shall be as described in the applicable
then-current YUM! Brands Multi-Brand License Agreement, except that with respect
to pizza items sold in connection with the New Concept which is a Multi-Brand Concept,
any service fee rate shall in no event exceed the applicable Service Fee rate
and any advertising fee rates shall not exceed the advertising fee rates
required under Articles VI.A.9 and VI.C below. Nothing contained in this
Article I.D.4 shall relieve or discharge PHI from its obligations pursuant to
Article I.B, Article I.D.1 and Article I.D.2 above, including without
limitation PHI’s obligation to release a New Concept to Operator as therein provided,
even if the Multi-Brand Concept is licensed under a separate
agreement.


 


ARTICLE II.


 


DUTIES OF COMPANY AND TRAINING


 


Company
will assist Operator in the proper operation of the System Restaurant business
in the following manner:


 


A.            At the request of Operator, Company
will help Operator select suitable locations by furnishing established criteria
for use by Operator in evaluating and selecting locations, including location
inspections as reasonably determined by Company. Final approval of locations must
be obtained in writing from Company, if Company so advises or has so advised
Operator. If Operator intends to develop a System Restaurant within the
Territory at a location within two (2) miles of the border of the Territory,
Operator shall not proceed with such development without first having obtained
the written consent of Company. Prior to developing a Company-owned System
Restaurant at a location outside of


 


5

















 


the Territory but within two
(2) miles of the border of the Territory, Company shall take into account
criteria including potential sales volume, market demographics, saturation
analysis, diversion of sales from Operator’s other System Restaurants, and
physical and geographical characteristics; provided, however, that no notice to
or consent of Operator shall be required for such development.


 


B.            1.             Company
will offer training programs for employees of each of Operator’s System
Restaurant Concepts at locations and at times selected by Company. Company will
bear the costs of providing training programs, including the overhead costs of training,
staff salaries, materials, and all technical training tools. Operator shall pay
all traveling, living, compensation, and other expenses incurred by Operator and/or
Operator’s employees in connection with attendance at training programs. The
operation and manner of conducting such programs shall be in the sole control
of Company.


 


2.             Operator will not allow any System
Restaurant operated pursuant to this Agreement to be managed by any person who
has not either 1) attended and successfully completed the management training
course designated by Company for the System Restaurant Concept at issue, or 2)
recently had a minimum of three (3) months experience managing a System
Restaurant operating within the same System Restaurant Concept. In the event a
restaurant manager resigns or is terminated, Operator will not be in default of
such requirement if the successor restaurant manager commences the required
training course within ninety (90) days of first assuming the duties of a restaurant
manager and successfully completes said course. The required training course
conducted at Company’s facilities will not extend beyond two (2) weeks and will
be structured so as to provide practical training in the implementation and
operation of applicable System Restaurant Concept(s).


 


3.             If Operator has or implements a
management training program and has utilized Company’s management training
program for one (1) year, Operator may request in writing that Company approve
Operator’s management training program as an alternate method of complying with
the requirement of Article II.B.2. In such event, if Operator satisfies Company
that Operator’s program is at least the equivalent of Company’s program, Company
will certify such program. Company shall have the right to continually review Operator’s
management training program and to revoke the certification of such program whenever
it fails (in Company’s sole discretion) to satisfy the equivalency standard set
forth above, as it may change from time to time.


 


C.            Company will provide at no cost to
Operator, upon Operator’s thirty (30) day advance request or as Company may
deem appropriate, a qualified Company representative at Operator’s initial
location within each System Restaurant Concept for the first three (3) days of
operation to train personnel and otherwise assist in the opening of the
establishment.


 


D.            Company will make available to
Operator from time to time Company’s advice and assistance in the proper
operation of System Restaurants as Operator may reasonably request.


 


6

















 


E.             Company will provide on loan, at no
cost to Operator, one (1) set of the appropriate portion(s) of Company’s detailed
Manual (which is more fully described in Article III.) for each System
Restaurant of Operator. The portion(s) of the Manual to be provided to Operator
may vary, depending upon the System Restaurant Concept involved. Additional
sets may be obtained on loan from Company for a reasonable fee to be set by
Company.


 


ARTICLE III.


 


MANUAL AND STANDARDS OF OPERATION,


QUALITY, CLEANLINESS, AND SERVICE


 


A.            The Manual, and all portions of and
all copies of the Manual, shall remain the property of Company and shall be
returned to Company upon termination or nonrenewal of this Agreement.


 


B.            1.             In
the Manual, among other publications, Company will promulgate standards of
operation for each of the System Restaurant Concepts, and standards of quality,
cleanliness, and service for all food, beverages, furnishings, interior and
exterior decor, supplies, fixtures, and equipment used in connection with each
System Restaurant Concept. Operator shall at all times conform to such
standards. Company may, from time to time, change the standards, in which case
Operator shall comply with any new or changed standard.


 


2.             No new or changed standard calling
for expenditures by Operator which Company considers to be substantial will be
required by Company unless the proposed standard is pretested in a reasonably
representative sample of System Restaurants, constituting at least five percent
(5%) of the System Restaurants in the United States operating within the same
System Restaurant Concept(s), and the results of such pretesting demonstrate
customer acceptance and operational feasibility. Company will also consider the
financial implications in connection with such proposed standard. The System
Restaurants selected to participate in the pretest program will be reasonably
representative of the entire System Restaurant Concept with respect to sales
volume, market demographics, and physical and geographical characteristics, and
may consist of a combination of Company-owned and franchisee-owned System
Restaurants, or all Company-owned or all franchisee-owned System Restaurants.
Operator may be requested to participate, but such participation will be
voluntary. Operator shall have a minimum of ninety (90) days after receipt of
written notice in which to fully implement such new standard or changed
standard, but in no event will Operator be required to implement any such new
standard or changed standard at a faster percentage rate than being
accomplished by Company-owned System Restaurants in the United States.


 


C.            Operator shall Remodel, Rebuild,
Relocate, Reimage and Refurbish (as such terms are defined on Schedule B
hereto) its Pizza Hut Restaurants in accordance with the provisions of Schedule
B.


 


7

















 


D.            The
Manual is a highly confidential document which contains certain of Company’s
trade secrets, and Operator shall never reveal, and shall take all reasonable
precautions to assure that its employees shall never reveal, any of the contents
of the Manual or any other publication provided by Company, except as is
necessary to the operation of Operator’s System Restaurants.


 


ARTICLE IV.


 


DUTIES OF OPERATOR, PRETESTING, UNIFORMS, INSPECTIONS


 


A.            In order to preserve
and promote the value and goodwill of Company’s Marks and the System:


 


1.             Operator shall conduct its business
consistent with the standards promulgated by Company in the Manual and other
publications and in strict compliance with the terms of this Agreement.


 


2.             Operator shall not manufacture,
advertise for sale, sell, or give away any product unless such product has been
approved and not thereafter disapproved in writing by Company. All approved
products shall be distributed under the specific name designated by Company. Operator
shall establish all menu prices in its sole discretion. If Operator has a suggestion
for a new product, or for a change to existing product specifications, or
desires to participate in a test market program, Operator shall so advise
Company in writing. Company will consider Operator’s suggestions and/or
requests, and advise Operator of its response within a reasonable time.


 


3.             a.             Operator shall offer for sale in its System
Restaurants only those food products which Company designates as “standard” or
which Company has made available as a “regionalized” menu item or has
specifically approved pursuant to Article IV.A.2. No standard product will be
removed from the menu unless Operator is so instructed by Company.


 


Operator
shall, upon receipt of notice from Company, add a standard product to its menu
according to the instructions contained in the notice. Operator shall have a
minimum of ninety (90) days after receipt of written notice in which to fully
implement any such change and in no event shall Operator be required to
implement any such change at a faster percentage rate than that being
accomplished by comparable Company-owned System Restaurants within the same
general geographic market area, if any. Operator shall cease setting any
previously approved product within thirty (30) days after receipt of notice that
the product is no longer approved.


 


b.             Operator will not be required to
implement any new standard product unless the proposed standard product is
pretested in a reasonably representative sample of System Restaurants,
constituting at least five percent (5%) of the System Restaurants in the United
States in the same System Restaurant Concept(s), and the results of such
pretesting demonstrate customer acceptance and operational feasibility. For
those proposed standard


 


8

















 


products which require a capital investment in equipment, the pretest
results must also demonstrate that a majority of System Restaurants
participating in the pretest realized an acceptable unit return (which is
defined to be at least a ten percent (10%) cash-on-cash return on the capital
investment and ongoing royalty, but excluding the cost of financing). The
System Restaurants selected to participate in the pretest program will be
reasonably representative of the entire System Restaurant Concept with respect
to sales volume, market demographics, and physical and geographical
characteristics. Operator may be requested to participate, but such
participation shall be voluntary. The restaurants selected to participate may
consist of a combination of Company-owned and franchisee-owned System
Restaurants, or all Company-owned or all franchisee-owned System Restaurants.


 


c.             Any
food products approved for System Restaurants as of January
1, 2003 shall not be subject to the requirements of Article IV.A.3.b.


 


4.             Company shall have the right, in the Manual
or in other publications, to prescribe one or more menu formats to be utilized
in each System Restaurant Concept. The menu format(s) may include, in Company’s
discretion, requirements concerning organization, graphics, product
descriptions, illustrations, and any other matters (except prices) related to
the menu, whether or not similar to those listed. In Company’s discretion, the
menu format(s) may vary depending upon region, market size, or other factors.
Company may change the menu format(s) from time to time, in which case Operator
will be given a reasonable time (not longer than six (6) months) to discontinue
use of the old menu format(s) and implement use of the new menu format(s). The
content, as opposed to the format, of menus shall be determined in accordance
with Articles IV.A.2. and IV.A.3.


 


5.             The
food products sold by Operator shall be of the highest quality, and the ingredients,
composition, specifications, and preparation of such food products shall comply
with the instructions and recipes provided by Company or contained in Company’s
Manual, and with the further requirements of Company as they are communicated
to Operator from time to time.


 


6.             Operator
shall not sell or distribute any food product or ingredient except as a complete
and fully processed food product, or as otherwise approved in writing by
Company.


 


7.             Operator
shall operate each of its System Restaurants as a clean, orderly, legal, and
respectable place of business in accordance with Company’s business standards
and merchandising policies and shall comply with all applicable ordinances,
laws, and statutes governing the operation of such premises, including all food
and drug laws and regulations.


 


8.             Operator
shall maintain a suitable sign at, on, or near the front of the premises from
which each of its System Restaurants is operated, identifying the premises only
as “Pizza Hut.” Such sign shall conform in all respects to Company’s
requirements except to the extent prohibited by local legal restrictions.


 


9.             Operator
shall cause all employees, while working in System Restaurants, to: (i) wear
uniforms of such color, design, and other specifications as Company may
designate


 


9

















 


from time to time, and (ii) present a neat and clean appearance. In the
event the type of uniform utilized by Operator is deleted from the list of
approved uniforms, Operator shall have six (6) months from receipt of written
notice of such deletion to discontinue use of its existing inventory of
uniforms and implement an approved type of uniform.


 


10.           Operator
shall not permit any vending or game machines or any other items to be
installed or maintained on the premises without Company’s prior written
approval, except that Company hereby consents to the installation of cigarette
and newspaper vending machines, coin telephones, and non-video jukeboxes.


 


11.           Operator
shall implement not later than January 1, 2006, and thereafter shall utilize,
resident point-of-sales and backoffice systems (“Technology Systems”) which
shall be compatible with the data reporting systems used by Company. Such
Technology Systems shall haves functionality which will permit the performance
of the tasks set forth on Schedule C hereto.


 


B.            Company
may require the operation of one or more System Restaurant Concepts for a
specified minimum number of hours per week, by a statement to that effect in the
Manual. If Operator seeks (in writing) Company’s consent to operate one or more
specific System Restaurants a lesser number of hours per week, Company will
consider such factors as the System Restaurant’s sales volume, profitability,
location, exposure to criminal activity, the nature of the concept involved,
and competitive activity in the vicinity. Nothing herein shall prevent Operator
from temporarily closing one or more System Restaurant(s) without Company’s
consent on any five (5) holidays of Operator’s choosing per year or in the
event of natural disaster, severe and unusual weather conditions, or grave
emergency beyond Operator’s control.


 


C.            Company’s
authorized representatives shall have the right to enter upon the premises of
Operator’s System Restaurants at any reasonable time for the purpose of examining
same, conferring with Operator’s employees, inspecting and checking operations,
food, beverages, furnishings, interior and exterior decor, supplies, fixtures,
and equipment, and determining whether the business is being conducted in
accordance with Company’s standards and the terms of this Agreement. Operator
will receive after each inspection a written inspection report. In the event
any such inspection report indicates any deficiency or unsatisfactory condition
with respect to any matter on said inspection report, Operator shall, within forty-eight
(48) hours of Operator’s receipt of the report or such other time period as Company
in its sole discretion may provide, correct or repair such deficiency or unsatisfactory
condition if it is correctable or repairable within such period of time, and,
if not, shall within such period of time commence such correction or repair and
thereafter diligently pursue the same to completion. In the event of failure of
Operator to comply with the foregoing obligations to correct and repair,
Company shall have the right, without being guilty of trespass or other tort,
to forthwith make or cause to be made such collections or repairs, and the
expenses thereof, including board, lodging, wages, and transportation of Company
personnel, if utilized in Company’s sole discretion, shall be paid by Operator
upon


 


10

















 


billing by Company. The foregoing shall be in addition to any other rights or remedies Company may have.


 


ARTICLE V.


 


ERECTION OF BUILDING AND
COMMENCEMENT OF BUSINESS


 


A.            If
required by applicable law, Operator shall promptly file and publish a certificate
of doing business under an assumed or fictitious name and shall furnish a
certified copy of said certificate to Company promptly thereafter.


 


B.            Operator
shall obtain all necessary governmental permits and licenses prior to beginning
the erection of any System Restaurant building or buildings. Operator shall
fully complete said construction within a reasonable time thereafter. Operator
shall commence operation of each System Restaurant no later than thirty (30)
days following completion of the building and improvements and shall give
Company ten (10) days written notice prior to commencing operations. In no
event shall Operator construct or remodel the interior or exterior of any
System Restaurant or make any improvements which vary from the then-current
standards, plans, and specifications approved by Company, without first
obtaining the prior written approval of Company.


 


C.            Operator
shall obtain all municipal and state licenses necessary to operate each of
Operator’s System Restaurants prior to commencement of business at the System Restaurant
and shall maintain all licenses during the term of this Agreement.


 


ARTICLE VI.


 


ADVERTISING
AND CO-OPS


 


A.            1.  Company
has and will continue to define certain marketing areas in which Co-operative
Advertising Associations of System Restaurants (“Co-ops”) are to be
established. Each Co-op shall function for the purpose of maximizing the
efficient utilization of local advertising media. On the basis of established
advertising criteria such as Arbitron, A. C. Nielsen, or other comparable
standard, Company has or will, for each System Restaurant operated by Operator
under this Agreement, specify which Co-op, or in some instances more than one
Co-op, each System Restaurant shall join. Each System Restaurant operated by
Operator shall participate in the Co-op or Co-ops designated by Company. On the
basis of established advertising criteria such as Arbitron, A. C. Nielsen, or
other comparable standard, Company may subsequently change such designation for
one or more of Operator’s System Restaurants and require such System
Restaurants to participate in a new and/or different Co-op or Co-ops. If
requested, Company will assist in the establishment of such Co-op or otherwise
assist in fulfilling the intent of this Article VI.A.1. In the event an impasse
occurs owing to the inability or failure of the Co-op members to resolve within
forty-five (45) days any issue affecting me establishment or effective
functioning of an individual Co-op, any such issue shall, upon request of a
member of said Co-op or the Advertising Committee of Company and I.P.H.F.H.A.,
Inc. (hereinafter called the


 


11

















 


“Advertising Committee”), be submitted to the Advertising Committee for
consideration, and its resolution of such issue shall be final and binding on
all members of the Co-op.


 


2.             For
each of Operator’s System Restaurants, Operator shall make monthly contributions
to the Treasurer of each Co-op of which the Restaurant is a member, in accordance
with this provision.


 


Except as provided in Article VI.A.9, Company
will require every Operator of System Restaurants to belong, and contribute, to
a local co-op.


 


a.             For
those System Restaurants which are members of only one Co-op, Operator shall
contribute an amount equal to one and three-fourths percent (1-3/4%) of the
prior monthly gross sales (as defined in Article X.B.) of each such System
Restaurant. The contribution rate for any Co-op may be increased at any time,
but only upon approval of the members of the Co-op in accordance with its
bylaws or operating procedures.


 


b.             For
those System Restaurants which are members of more than one Co-op, Operator
shall make a total contribution for each such restaurant pursuant to Article
VI.A.2.a. Company will advise Operator as to what portion of each such System
Restaurant’s total contribution shall be made to each Co-op; the apportionment
shall be based upon the percentage of broadcast signals received in the trade
area of the System Restaurant from the stations in each Co-op’s market area.
Upon notice to Operator, Company may subsequently alter its apportionment
instructions. If Operator’s System Restaurants have been assigned to more than
one Co-op and the Co-ops have different contribution rates, the contributions
to each Co-op shall be adjusted proportionately to reflect the different
contribution rates.


 


3.             If Company owns a System Restaurant within a
defined marketing area of any such Co-op or Co-ops, it will be a participating
member and contribute to said Co-op or Co-ops for each such Company-owned
System Restaurant under the same terms as specified in Article VI.A.2.a. and b.
(subject, however, to the limitations set forth in Article VI.F.).


 


4.             The
amount so contributed to the Co-op under Article VI.A.2. and 3. shall be used
only to purchase broadcast media advertising; provided, however, that a Co-op
may, upon consent of the members of the Co-op owning seventy-five percent (75%)
of the System Restaurants within the Co-op, seek consent of the Advertising
Committee to spend any part of such funds for other types of externally
measurable advertising by demonstrating that a more efficient method of
accomplishing the purposes for which the Co-op was established is available in
the Co-op’s marketing area. Each Co-op shall retain the services of a professional
advertising agency and shall utilize said agency in purchasing its broadcast media
advertising.


 


5.             In
those instances where expenditure of all required Co-op contributions would
cause the advertising level to exceed the reasonable level of effective
advertising, the contributions required by Article V.I.A.2. and 3. may be
reduced to a lesser amount upon unanimous approval of all members of the Co-op
and unanimous consent of the Advertising Committee.


 


12

















 


6.             Company
shall have the right, at reasonable times, to have its authorized representatives
review the business records of a Co-op and, at Company’s discretion, to conduct
an audit of the Co-op’s books, records, and accounts.


 


7.             All
Co-op advertising shall be prepared, reviewed, and used in accordance with the
requirements of Article VI.E. and such provision shall apply to all Co-op
advertising and promotion.


 


8.             Company
reserves the right to establish general standards concerning the operation of
all Co-ops, advertising agencies retained by Co-ops, and advertising programs
conducted by Co-ops. No such standards shall be promulgated without the
approval of the Advertising Committee, and all standards shall be uniformly
applied, In no event shall Operator’s contribution, required in Article
VI.A.2., be increased as a result of such standards without Operator’s consent.
If Company establishes a one store-one vote majority rules standard for voting
on all matters other than those (a) increasing, redirecting or decreasing Co-op
dues or contributions or (b) implementing any further bylaw amendments,
Operator shall exercise Operator’s voting power in each Co-op of which Operator
is a member to implement that standard. Any inconsistent provisions of this
Agreement shall be deemed amended to reflect the implementation of the
one-store one-vote majority rules standard in respect to each Co-op so acting.


 


9.             For
each of Operator’s System Restaurants for which Company does not designate a
Co-op pursuant to Article VI.A.1., or whenever a Co-op is not functioning,
Operator shall nevertheless spend monthly one and three-fourths percent (1-3/4%)
of the prior monthly gross sales of each such System Restaurant for broadcast
media advertising within each such System Restaurant’s marketing area. Operator
may seek consent of the Advertising Committee to spend any part of such funds
for other types of externally measurable advertising by demonstrating that a
more efficient method is available within such System Restaurant’s marketing
area.


 


10.           The
monthly contributions and/of expenditures required by Article VI.A.2., 3., and 9 shall
be made on or before the twentieth (20) day of each month based upon the prior
monthly gross sales of each System Restaurant.


 


B.            Operator
shall be a member of I.P.H.F.H.A., Inc. (sometimes known informally as the
International Pizza Hut Franchise Holders Association but hereinafter referred
to as “IPHFHA”) during the term of this Agreement Operator hereby agrees to
abide by the Constitution, Bylaws, Rules, and Regulations of IPHFHA as the same
may, from time to time, be amended, and specifically agrees to pay all charges
and assessments appropriately made by IPHFHA upon Operator. At any time that
IPHFHA holds a vote concerning the dues and assessments to be paid by its
members, Operator shall exercise all of Operator’s voting power in IPHFHA to
implement a dues rate not less man two and one-half percent (2-1/2%) of the
prior month’s gross sales from each System Restaurant for contribution to the
national advertising fund administered by the Advertising Committee.


 


13

















 


C.            During
the period the Advertising Committee Agreement between Company and IPHFHA is in
force, Operator shall pay an amount equal to two and one-half percent (2-1/2%)
of the prior monthly gross sales (as defined in Article X.B.) of each of
Operator’s System Restaurants to IPHFHA, and Company shall require every new
Operator or Operator of a newly franchised territory for System Restaurants to
pay two and one-half percent (2-1/2%) of that Operator’s System Restaurant’s
prior monthly gross sales, for contribution to the national advertising fund
administered by the Advertising Committee. The two and one-half percent
(2-1/2%) payment incorporates, and is not intended to be in addition to, IPHFHA
dues described in Article VI.B. above. However, Operator shall be obligated to
pay the two and one-half percent (2-1/2%) to IPHFHA for contribution to the
national advertising fund administered by the Advertising Committee even if the
dues rate actually imposed by IPHFHA is less than two and one-half percent
(2-1/2%). If, at any time and for any reason, the Advertising Committee
Agreement is no longer in force, Operator shall pay that amount directly to
Company for purposes of national advertising of the System.


 


D.            Notwithstanding
anything contained in this Article VI to the contrary, in no event shall
Operator’s aggregate advertising fee rates for national and cooperative advertising
be required to exceed four and one-fourth percent (4-1/4%). The first two and one-half
percentage points of such aggregate advertising fees shall be applied toward payment
of Operator’s national advertising obligations (including IPHFHA dues, as
referred to in Article VI.C), and the balance of such advertising fees shall be
applied toward payment of Operator’s cooperative advertising obligations.


 


E.             No
design, advertisement, sign, or form of publicity, including form, color, number,
location, and size, shall be used by Operator unless the same shall have been
first submitted to Company and approved in writing (except with respect to
prices). Any request by Operator for such approval shall be addressed to
Company’s Advertising Department and Company shall respond within thirty (30)
days. Whenever Operator elects to utilize, in the form supplied, advertising
supplied by Company or a promotional item specifically approved by Company, no
further approval for use of such material is required. Upon written notice from
Company, Operator shall discontinue and/or remove any objectionable advertising
materials. If said materials are not discontinued and/or removed within five
(5) days after notice, Company, or its authorized agents, may, at any time,
enter upon Operator’s premises, or elsewhere, and remove any objectionable
signs or advertising media and may keep or destroy such signs or other media
without paying therefor, and without being guilty of trespass or other tort.


 


F.             Company
is not, under any circumstances (notwithstanding any other provision of this
Agreement or of the Advertising Committee Agreement), obligated to contribute
to any national or local advertising fund, program, co-op, or other
organization any advertising fees or contributions for Company-operated System
Restaurants at a net effective rate higher than the aggregate net effective
rate at which Operator and all other members of IPHFHA contribute to that fund,
program, co-op, or other organization, measured as a percentage of gross sales
of the involved restaurants.


 


14

















 


ARTICLE VII.


 


COMPANY’S
MARKS


 


A.            The
license herein granted Operator to use Company’s Marks and the privileges
herein granted are applicable with respect to Operator’s System Restaurants located
in the Territory and not elsewhere.


 


B.            Operator
shall not license or attempt to license any other person or firm to use Company’s
Marks. Operator may use Company’s Marks only to identify Operator’s licensed System
Restaurants and products specifically designated by Company in writing.
Operator may not sell any products using Company’s Marks outside the Territory.


 


C.            Operator
shall not interfere in any manner with, or attempt to prohibit, the use of
Company’s Marks by any other franchisee of Company.


 


D.            Operator
shall immediately notify Company in writing of any third party infringing upon
Company’s Marks or challenging Operator’s use of any marks licensed herein, and
Company will diligently protect such marks.


 


E.             It
is specifically agreed that all goodwill arising from Operator’s use of Company’s Marks and System
inures to Company.


 


F.             All
materials, including, without limitation, place mats, menus, matchbook covers,
and order books, used in Operator’s System Restaurants shall bear Company’s
Marks as prescribed by Company, and such use shall indicate that Company’s
Marks are registered marks.


 


G.            Operator
shall exercise caution when utilizing Company’s Marks to ensure that said Marks
are not jeopardized in any manner, and Operator agrees to indemnify Company for
any damage or expense occasioned by Operator’s improper use of said Marks.


 


H.            Any
location lease signed by Operator shall expressly provide Operator, or Company
as Operator’s agent, with the right, upon the termination or nonrenewal of
either this Agreement or such lease, to remove all identifying architectural
superstructure and characteristics from the building as Company may direct in
order to effectively distinguish the same from Company’s proprietary building
design.


 


ARTICLE
VIII.


 


PURCHASE OF
EQUIPMENT, SUPPLIES, AND OTHER PRODUCTS


 


A.            1.  Operator
shall obtain all equipment, supplies, and other products and materials required
for the operation of its System Restaurants solely from suppliers (including
manufacturers, distributors, and other sources) who demonstrate, to the
continuing reasonable satisfaction of Company, the ability to meet Company’s then-current
reasonable


 


15

















 


standards and specifications for such items; who possess adequate
quality controls and capacity to supply Operator’s needs promptly and reliably;
and who have been approved in writing by Company and not thereafter disapproved.
If Operator desires to purchase any items from an unapproved supplier, Operator
shall submit to Company a written request for such approval, or shall request
the supplier itself to do so. Company shall have the right to require that its
representatives be permitted to inspect the supplier’s facilities, and that
samples from the supplier be delivered, at Company’s option, either to Company
or to an independent, certified laboratory designated by Company for testing.
Company reserves the right, at its option, to reinspect the facilities and
products of any such approved supplier at any time and to revoke its approval
upon the supplier’s failure to continue to meet any of Company’s criteria.
Nothing in the foregoing shall require Company to approve any supplier.


 


2.             No
item of merchandise, furnishings, interior and exterior decor items, supplies,
fixtures, equipment or utensils bearing any of Company’s Marks shall be used or
sold in or upon the premises of any System Restaurant unless the same shall
have been first submitted to and approved in writing by Company.


 


B.            So
long as this Agreement is in effect, Operator shall become and remain a member
of the Pizza Hut National Purchasing Coop, Inc. or its successors (the
“Purchasing Coop”), and abide by its Certificate of Incorporation and Bylaws as
in effect from time to time, including without limitation the provisions of
Section 2.6 of the Bylaws concerning purchase commitments. A copy of the
current Section 2.6 of the Bylaws is attached hereto as Schedule A. Operator’s
obligation to become and remain a member of the Purchasing Coop shall terminate
upon dissolution of the Purchasing Coop, or if an agreement is reached between
Company and IPHFHA to delete from this Agreement the requirement that Operator
become and remain a member of the Purchasing Coop.


 


ARTICLE IX.


 


FRANCHISE
FEES; DEVELOPMENT SCHEDULE


 


A.            In
consideration of the issuance of the franchise granted herein, Operator shall
pay to Company:


 


1.             Prior
to the opening of each System Restaurant (other than a New Concept as set forth
in Article I.D.2. an initial franchise fee in the amount of Fifteen Thousand
Dollars ($15,000); provided, however, that the initial franchise fee for a New
Concept which is also a Multi-Brand Concept shall be as set forth in the
applicable YUM! Brands Multi-Brands License Agreement. For purposes of this
Article IX.A.1., a rebuild of an existing System Restaurant at the same
location, or a relocation of an existing System Restaurant to a location that
serves substantially the same trade area, shall not create an obligation by
Operator to pay an initial franchise fee pursuant to this Article IX.A.1.; and


 


2.             A
monthly service fee (“Service Fee”) of four percent (4%) per month of the previous
month’s gross sales (as defined in Article X.) for each of Operator’s System Restaurants,
except that with respect to Delivery Restaurants and Delco Restaurants, the


 


16

















 


Service Fee rate shall be (i) four and one-half percent (4-1/2%) as of
January 1, 2010, with respect to gross sales accruing on or after that date,
(ii) four and three-fourths percent (4-3/4%) as of January 1, 2020, with
respect to gross sales accruing on or after that date, and (iii) five percent
(5%) as of January 1, 2030, with respect to gross sales accruing on or after
that date. If by reason of state law Company is prohibited from receiving a
percentage of alcoholic beverage sales, Operator shall pay Company an
equivalent amount not to exceed one-half percentage point more than the
applicable Service Fee rate for gross food and nonalcoholic beverage sales.


 


3.             The
monthly Service Fee shall be payable within twenty (20) days after the end of
each and every month. In addition to any other remedies Company may have,
Operator shall pay to Company a late charge at a rate established by Company,
not to exceed the maximum rate permitted by law, on all delinquent fees
required to be paid Company by Operator pursuant to this Agreement. Such late
charge shall commence on the first day of the month following the month in
which such fees are due.


 


B.            Operator
shall provide “adequate delivery service”, as defined below. As used in this
Article IX.B., “adequate delivery service” means in accordance with Company’s
then-current standards for delivery, In making a determination of the adequacy
of Operator’s delivery services, Company shall take into account criteria
including potential sales volume, market demographics, saturation analysis,
diversion of sales from Operator’s other System Restaurants, and physical and
geographic characteristics of areas in the Territory. If Company preliminarily
determines that Operator is failing to provide adequate delivery service in all
or part of the Territory, Company shall first notify Operator in writing
setting forth the specific household area where the failure of adequate
delivery service is occurring and the suggested remedial action (a “Delivery
Service Development Plan”). Operator may, within 90 days, submit a written
protest to Company that identifies the geographic boundaries of the area to
which Operator contends it is providing adequate delivery service. If Operator
fails to timely submit a written protest, Company’s preliminary determination
shall become effective immediately. Company will consider any written protest timely
submitted by Operator, but Company shall in its sole discretion make the final
determination of whether Operator is providing adequate delivery service and,
if not, the area in which adequate delivery service is not being provided.
Unless Company determines that its proposed Delivery Service Development Plan
should be modified, Operator shall implement the Delivery Service Development
Plan in accordance with the provisions of a Development Plan, reference below;
provided, however, Operator must at a minimum develop no less than one (1)
Delco Restaurant or one (1) Delivery Restaurant per year or 20% of the Delivery
Service Development Plan per year, whichever is greater. Failure to adhere to
the Delivery Service Development Plan shall be deemed a Development Default,
but only in the market in which Operator’s failure to provide adequate delivery
service occurred, and Operator shall not lose or otherwise forfeit its
development rights in any other market as a result of such Development Default.
Notwithstanding the foregoing, Operator shall cure any failure to provide
adequate delivery service where an existing System Restaurant is capable of
curing the deficiency within twelve (12) months of receipt of the Delivery
Service Development Plan.


 


17

















 


C.            1.  Company
may mandate the implementation of Express Restaurants within the Territory. At
the time of the mandate, Company will notify Operator of Company’s projection
of the potential number of Express Restaurants within the Territory. If
Operator desires to implement the Express concept, Operator must submit to
Company, within thirty (30) days after Company’s mandate, Operator’s proposed
five (5)-year schedule for development of Express Restaurants in the Territory
(the “Express Development Schedule”). In producing the Express Development
Schedule, Operator shall take into account criteria including potential sales
volume, market demographics, saturation analysis, diversion of sales from
Operator’s other System Restaurants, and physical and geographical
characteristics of the Territory. Within thirty (30) days thereafter, Company
shall either accept the Express Development Schedule proposed by Operator, or
reject it and counterpropose a different Express Development Schedule (taking
into account the factors listed above). Operator shall have fifteen (15) days
from the date Company counterproposes its own Express Development Schedule
within which to elect in writing to undertake development of Express
Restaurants according to the terms of Company’s counterproposal Express
Development Schedule. If Operator fails to make that election or fails to meet
the Express Development Schedule, Company shall have the right to establish and
operate, or to license others to establish and operate, Express Restaurants
anywhere within the Territory, including within a two (2)-mile radius of any of
Operator’s then-existing System Restaurants.


 


2.             If
at any time Company deems it practicable to establish within the Territory
additional locations for System Restaurants in the same System Restaurant
Concept (including, for this purpose, a New Concept released to the System
pursuant to Article I.D.), Company will notify Operator in writing and will invite
Operator to propose a development schedule. If Operator desires to continue to
develop that System Restaurant Concept within the Territory, Operator must
submit to Company, within thirty (30) days after Company’s notice, Operator’s
proposed five (5)-year development schedule. Within thirty (30) days
thereafter, Company shall either accept the development schedule proposed by
Operator, or counterpropose a different five (5)-year development schedule.
Operator shall have fifteen (15) days from the date Company accepts Operator’s
proposed development schedule or counterproposes its own development schedule
within which to elect in writing to undertake development of additional
restaurants according to the terms of the development schedule. In the event Operator
fails to make that election or fails to comply with the development schedule,
then Company shall have the right, notwithstanding any other provision of this
Agreement, to operate and/or license others to operate System Restaurants
within the System Restaurant Concept with respect to which the failure occurred
within the Territory. Company will not establish nor will it permit any
licensee to establish a Pizza Hut Restaurant within a two (2)-mile radius of
any then-existing Pizza Hut Restaurant of Operator. Company or its licensee
may, however, establish and operate Delivery and Express Restaurants anywhere
within the Territory, and Company (but not its licensee) may establish and
operate Delco Restaurants outside a five hundred (500)-yard radius of any of
Operator’s then-existing Pizza Hut Restaurants, including (in each case) within
a two (2)-mile radius of any of Operator’s then-existing System Restaurants. If
Company establishes a Delco Restaurant less than two (2) miles from one of
Operator’s then-existing Pizza Hut Restaurants, Company may not


 


18














 


transfer that Delco Restaurant to a third person within thirty-six (36)
months after the opening of the Delco Restaurant. After thirty-six (36) months,
Company may license the Delco Restaurant to another only if Company first
offers to Operator (if Operator is in good standing as defined in Article T.D.3)
the right of first refusal, for thirty (30) days, to acquire the assets of the
outlet at the price and terms offered by the third party (or the cash
equivalent of noncash consideration offered by the third party) together with
the right to operate it pursuant to this Agreement. These rights of Company
shall be in addition to any other rights or remedies Company may have.


 


3.             All new System Restaurants shall be
constructed and operated pursuant to the then-current standards, plans, and
specifications referred to in Article V. B. Operator shall continuously operate
all of its System Restaurants during the term of this Agreement.


 


4.              Failure of Operator to comply with
the development schedules arising pursuant to, and obligations set forth in,
Article IX.C.l. or Article IX.C.2. (a “Development Default”) shall constitute a
default under this Agreement. If said Development Default occurs, any franchise
rights of Operator to establish additional System Restaurants in the Territory
to operate the same System Restaurant Concept as that in which the Development
Default occurred, not under construction at the time of default, shall
terminate upon Company’s election. Said Development Default shall not, however,
affect in any way Operator’s rights and obligations with respect to its System
Restaurants already operating or under construction at the time of default, or
its right to develop System Restaurants in any other System Restaurant Concept.


 


5.             In the event of a Development
Default, Company shall have the right, notwithstanding any other provision in
this Agreement, to operate and/or license others to operate, within the Territory,
System Restaurants within the System Restaurant Concept with respect to which
the Development Default occurred. Nevertheless, in the event of such a
Development Default, Company will not establish, nor will it permit any
licensee to establish, a Pizza Hut Restaurant at a location within a two
(2)-mile radius of any then existing Pizza Hut Restaurant of Operator, except
that Company or its licensee may establish and operate Delivery Restaurants
anywhere within the Territory, and Company (but not its license) may establish
and operate Delco Restaurants outside a 500-yard radius of any of Operator’s
then-existing Pizza Hut Restaurants, including (in each case) within a two (2)-mile
radius of any of Operator’s then-existing System Restaurants. These rights of
Company shall be in addition to any other rights or remedies Company may have.
If Company establishes a Delco Restaurant less than two (2) miles from one of
Operator’s then-existing Pizza Hut Restaurants, Company may not transfer that
Delco Restaurant to a third person within thirty-six (36) months after the
opening of the Delco Restaurant. After thirty-six (36) months, Company may
license the Delco Restaurant to a third person but only if Company first offers
to Operator (if Operator is in good standing as defined in Article I.D.3.) the
right of first refusal, for thirty (30) days, to acquire the assets of the
Delco Restaurant at the price and terms offered by the third party (or the cash
equivalent of noncash consideration offered by the third party) together with
the right to operate it pursuant to this Agreement


 


19

















 


6.             Notwithstanding anything contained
herein to the contrary, after a Development Default has occurred, Company shall
not, nor shall it permit any licensee to, permit a Delivery or Delco Restaurant
to provide delivery service to those portions of the Territory which are, at
the time such Development Default occurred, receiving “adequate delivery
service” from a delivery distribution point being operated by Operator.


 


Operator may, after
receiving notice of a Development Default, continue to provide delivery service
to some or all of the Territory until Company gives Operator thirty (30) days’
written notice to cease such services. Company may give such notice to Operator
as to areas more than two (2) miles from Operator’s nearest delivery
distribution point that was in operation on the date of Company’s notice that
the Development Default had occurred, at any time and for any reason.


 


7.             For purposes of this Article IX.:


 


a.             “Under construction” means, with
respect to a free-standing building, that the footings have been poured, and
shall mean, with respect to an in-line restaurant location, that the under-slab
improvements required to operate System Restaurant are complete.


 


b.             “Delivery distribution points”
means Pizza Hut Restaurants that offer delivery services, Delivery Restaurants,
and Delco Restaurants.


 


ARTICLE X.


 


BOOKS, RECORDS, GROSS SALES


 


A.            Operator shall keep on the premises
of each of its System Restaurants or at its principal place of business, and
shall preserve for at least five (5) years from the date of their preparation (including
such period after termination or nonrenewal of this Agreement), true and accurate
records, accounts, books, and data in such form as Company may require, which
shall accurately reflect all particulars relating to the business done and the gross
sales of the System Restaurant business operated at said premises. Operator
shall submit to Company the monthly gross sales and a quarterly Profit and Loss
Statement for each of Operator’s System Restaurants. In addition, Operator shall,
within ninety (90) days of the end of Operator’s fiscal year, annually provide
Company with a complete Profit and Loss Statement and a consolidated Balance
Sheet, each in such form as Company may require, prepared in accordance with
generally accepted accounting principles. Company reserves the right to require
such further information concerning Operator’s System Restaurant business as
Company may from time to time reasonably prescribe. Except as otherwise required
by applicable laws, rules, or regulations, or by court order, Company will take
reasonable precautions to maintain the confidentiality of all financial reports
provided by Operator, provided that, if Operator executes any promissory notes
to Company, Company may disclose the financial reports provided by Operator to
any third party to whom Company sells or pledges (or attempts to sell or
pledge) the promissory notes from Operator. Company, its agents or
representatives, may examine and audit said records, accounts, and books at all
reasonable times, with or without notice If said inspection discloses that any
financial


 


20

















 


statement delivered by Operator is in error, Operator shall immediately
pay to Company any deficiency found to be owing, plus interest at the maximum
rate permitted by law; if said deficiency is five percent (5%) or more, then in
addition, the cost and expense of said inspection shall be borne and paid by
Operator upon billing by Company. The foregoing shall be in addition to any
other rights or remedies that Company may have.


 


B.            The term “gross sales,” for purposes
of this Agreement, shall mean gross revenues (excluding price discounts and
allowances) received by Operator as payment, whether in cash or for credit
(and, if for credit, whether or not payment is received therefor), for the
beverages, food, and other goods, services, and supplies sold in or from each
of Operator’s System Restaurants, and gross revenues received by Operator from
any other business (including, but not limited to, vending or game machine
receipts other than those received from cigarette or newspaper vending
machines, coin telephones, or non-video jukeboxes) operated upon the premises
of any of Operator’s System Restaurants, excluding sales or other tax receipts
which may be required by law to be collected from guests.


 


C.            Operator may use the accounting
services of any national or large regional firm of certified public accountants
which it may, in its sole discretion, select, or any other accounting services
reasonably satisfactory to Company.


 


ARTICLE XI.


 


COVENANT REGARDING OTHER BUSINESS INTERESTS


 


A.            For purposes of this Article XI.,
“Operator” shall mean and include the individual Operator; Operator’s spouse and
minor children; Operator’s shareholders, officers, and directors, if Operator
is a corporation; and any one or more partners or participants in Operator, if
Operator is a partnership or joint venture.


 


B.            Operator acknowledges that the food
products, method of doing business, and other elements comprising the Pizza Hut
System are unique and distinctive and have been developed by Company at great
effort, time, and expense; and that Operator has regular and continuing access
to valuable and confidential information, training, and trade secrets regarding
the Pizza Hut System. Operator recognizes its obligation to keep confidential
such secret information in accordance with Articles III.D. and XIV., and to fully
develop the Territory in compliance with Article IX. Operator accordingly
agrees as follows:


 


1.             During the term of this Agreement,
except with the prior written consent of Company, Operator shall not, in any
capacity whatsoever, either directly or indirectly, individually or as a member
of any business organization, engage in the production or sale at retail of any
pizza, or pasta, or any Italian food item similar to any Italian food item now
or in the future approved by Company for use in the System, or have any
employment or interest in any firm engaged in the production or sale of such
products.


 


2.             During the term of this Agreement,
except with the prior written consent of Company, Operator shall not let or
permit any part of any premises owned or controlled by it


 


21

















 


in the Territory to be used as a business, all or any part of which
consists of the sale at retail of any pizza, or pasta, or any Italian food item
similar to any Italian food item approved by Company for use in the System.


 


3.             Upon the termination or nonrenewal
of this Agreement, or if Operator assigns or transfers his interest herein to
any person or business organization, or if any person identified in Articles XI.A.
terminates his relationship with Operator, then for a period of eighteen (18)
months thereafter such Operator shall not, in any capacity whatsoever, either
directly or indirectly, individually or as a member of any business
organization, engage in the production or sale at retail of any pizza, or
pasta, or any Italian food item similar to any Italian food item now or in the future
approved by Company for use in the System, or have any employment or interest
in any firm engaged in the production or sale at retail of any such products,
at a location within a radius of twenty-five (25) miles of any premises operated
under this Agreement or within ten (10) miles of any other Pizza Hut Restaurant
then existing, unless Company shall have given its prior written consent
thereto.


 


C.            In the event any portion of the
foregoing covenants is held invalid or unenforceable in a final judgment to
which Company and Operator are parties, then the maximum legally allowable
restriction permitted by law shall control hereunder and Operator shall be
bound thereby. Company may at any time unilaterally reduce the scope of any
part of the foregoing covenants, and Operator shall comply with any such reduced
covenant upon receipt of written notice thereof.


 


D.            The provisions of Article XI. shall
not limit, restrain or otherwise affect any right cause of action which may accrue
to Company for any infringement of, violation of, or interference with,
Company’s Marks, System, trade secrets, or other proprietary aspects of Company’s
business. 


 


E.             Article XI.B. does not apply to the
ownership of one percent (1%) or less of the issued and outstanding stock in
any publicly held corporation.


 


ARTICLE XII.


 


INTERFERENCE WITH EMPLOYMENT RELATIONS


 


During the
term of this Agreement, neither Company nor Operator shall employ or seek to
employ, directly or indirectly, any person serving in a managerial position who
is at the time or was at any time during the prior six (6) months employed by
the other party, its subsidiaries, or by any other franchisee in the System.
This paragraph shall not be violated if, at the time Company or Operator
employs or seeks to employ such person, the current employer has given its
written consent. Request for Company’s consent when required in such instances
should be addressed in writing to Company’s Vice President of Franchising.
Notwithstanding Article XXVII.G., the parties hereto acknowledge that if this
paragraph is violated, the former employer shall be entitled to liquidated damages
equal to twice the annual salary of the employee involved plus reimbursement of
all costs and attorney fees incurred. Furthermore, such former employer shall
be entitled to seek such amounts through


 


22

















 


either arbiiration or litigation in Court. For purposes of this
paragraph, “managerial position” includes restaurant manager and above.


 


ARTICLE XIII.


 


USE OF PREMISES


 


Operator shall,
upon the premises from which each System Restaurant is operated, engage only in
the business of operating a System Restaurant and no other, except with the
prior written consent of Company. Operator shall not allow any premises from
which Operator operates a System Restaurant or any part of those premises to be
used for any immoral or illegal purpose.


 


ARTICLE XIV.


 


SECRET RECIPES AND OTHER SECRET INFORMATION


 


Neither
Operator nor anyone by or through it shall directly or indirectly disclose,
either during the term of this Agreement or thereafter, any recipes or other secret
information furnished by Company, and Operator shall take all reasonable precautions
to prevent said disclosure.


 


ARTICLE XV.


 


LEASE APPROVAL


 


If Operator
will occupy the premises from which its business hereunder is conducted under a
lease, sublease, or other contract of tenancy, Operator shall, prior to the
execution thereof, submit such lease, sublease, or other contract to Company
for its written approval, if so requested by Company.


 


ARTICLE XVI.


 


TRANSFER OF INTEREST


 


A.            This Agreement shall inure to the
benefit of the successors and assigns of Company.


 


B.            The rights and duties created by
this Agreement are personal to Operator, and Company has granted this franchise
in reliance on the individual or collective character, skill, aptitude, and business
and financial capacity of Operator and its principals. Accordingly, except as
otherwise may be permitted in Article XVI. and Article XVIII., neither Operator
nor any person with an interest in Operator shall, without Company’s prior
written consent, directly or indirectly sell, assign, transfer, convey, give
away, pledge, mortgage, or otherwise encumber any direct or indirect interest
in this franchise or, if Operator is a partnership, joint venture, or
corporation, any direct or indirect interest in Operator. Any such purported


 


23

















 


assignment occurring by operation of law or otherwise without Company’s
prior written consent shall constitute a default of this Agreement by Operator,
and shall be null and void.


 


C.            Operator shall not, without
Company’s prior written consent, offer for sale or transfer at public or private
auction or advertise publicly for sale or transfer, the furnishings, interior
and exterior decor items, supplies, fixtures, equipment, and real or personal property
used in connection with Operator’s System Restaurants to the extent any of them
incorporates Company’s current trade dress proprietary information or the
Marks.


 


D.            Company will not unreasonably withhold
its consent to any transfer or assignment which is subject to the restrictions
of Article XVI.; provided, however, Company shall not be required to give its
consent unless, in addition to the requirements of Article XVII., the following
conditions are met prior to the effective date of the assignment:


 


1.             For all proposed transfers or
assignments:


 


a.             The Operator is not in default hereunder,
and all of its accrued monetary obligations to Company have been satisfied;


 


b.             The assignor has executed a general
release under seal, in a form prescribed by Company, of any and all claims against
Company, its affiliates, subsidiaries, shareholders, directors, officers, and
employees;


 


c.             The assignee has demonstrated to Company’s
satisfaction that it meets all of Company’s then-current requirements for new
Operators or for holders of an interest in a franchise, including, without
limitation, possession of good moral character and reputation, satisfactory
credit ratings, acceptable business qualifications, and the ability to comply fully
with the terms of this Agreement;


 


d.             The assignee has entered into a
written assignment under seal, in a form prescribed by Company, assuming and
agreeing to discharge all of Operator’s obligations;


 


e.             The assignee, its manager, and its
other employees responsible for the operation of the restaurant have satisfactorily
completed such training as Company may then require;


 


f.              The assignee executes such other
documents as Company may require in order to assume all of the obligations of
this Agreement, to the same extent, and with the same effect, as previously
assumed by the assignor; and


 


g.             Operator has paid the administrative
fee called for by Article XVI.D.3.


 


2.             For proposed transfers or
assignments of rights to a corporation or partnership:


 


a.             The assignee’s articles of
incorporation or articles of partnership and its bylaws (or similar documents,
however denominated) shall provide that the assignee’s activities and the
activities of the assignee’s parent, subsidiaries, and divisions shall be


 


24

















 


confined exclusively to operating the System Restaurants licensed
herein, or other businesses licensed under other agreements with Company, its
subsidiaries or affiliates, and the assignee shall comply with those provisions
as long as the assignee is a licensee or franchisee of Company; and


 


b.             The assignor and assignee shall comply
with the requirements contained in Article XVI.D.1. and Article XVII.


 


3.             Operator’s required written request
for transfer of either a partial or whole interest in the franchise must be
accompanied by an administrative fee to Company of Two Thousand Five Hundred
Dollars ($2,500). This administrative fee will not be due with respect to any
transfer that (together with all other related previous, simultaneous, or
proposed transfers) does not result in a transfer of control of Operator.


 


E.             Upon the death or permanent incapacity
of any person with an interest in this franchise or in Operator, and upon the
dissolution of an Operator that is a partnership, joint venture, or
corporation, the executor, administrator, personal representative, or trustee
of such person or entity shall transfer his or its interest to a third party
approved by Company within six (6) months. Such transfers, including, without limitation,
transfers by devise or inheritance, shall be subject to the same conditions as
any inter  vivos transfer. However, in the case of transfer by
devise or inheritance, if the heirs or devisees of any such person are unable
to meet the conditions in Article XVI.D., the personal representative of the
deceased Operator shall have a reasonable time to dispose of the decedent’s
interest in the franchise, which disposition shall be subject to all applicable
terms and conditions for transfers contained in this Agreement. In the case of
permanent incapacity of a partner or a shareholder of Operator who owns less than
a controlling interest in Operator, such partner or shareholder may, with
Company’s written consent, retain his ownership interest in Operator.


 


F.             Company’s consent to a transfer of
any interest subject to the restrictions of this Article shall not be deemed a
waiver of Company’s right to demand strict compliance with any of the terms of
this Agreement by the assignee.


 


G.            If Operator or any person with an interest
in Operator has received and desires to accept any bona  fide
offer to purchase all or any part of his or its interest in this franchise or
in Operator and the transfer of such interest would (1) result in a change in
control of Operator or of this franchise or (2) constitute a transfer of any
interest held by a controlling person of Operator or of this franchise, then
Operator or such person shall notify Company in writing of the purchase price
and terms of such offer. Company shall have the right and option, exercisable
within thirty (30) days after receipt of such written notification, to send
written notice to Operator or such person that Company or its third-party
designee intends to purchase the interest which is proposed to be transferred
on the same terms and conditions offered by the third party (except that
Company or its designee shall be entitled to receive the representations and
warranties customary to the sale of a similarly sized business and shall not be
responsible for the payment of any broker commission or other transactional
fee). Any


 


25

















 


material change in the terms of an offer prior to closing shall cause
it to be deemed a new offer, subject to the same right of first refusal by
Company or its third-party designee as in the case of the initial offer.
Company’s failure to exercise such option shall not constitute a waiver of any
other provision of this Agreement, including any of the requirements of this
Article with respect to the proposed transfer.


 


ARTICLE XVII.


 


PARTNERSHIP AND CORPORATE OPERATORS


 


If Operator,
or any successor thereof, is a partnership or corporation:


 


A.            Upon the execution of this Agreement
and upon each transfer of an interest in this franchise or in Operator and at
any other time upon Company’s request, Operator shall furnish Company with a
list of all shareholders or partners having an interest in this franchise or in
Operator, the percentage interest of each shareholder or partner, and a list of
all officers and directors, in such form as Company may require.


 


B.            Upon the execution of this Agreement
and upon each transfer of an interest in this franchise or in Operator, all
holders of a ten percent (10%) or greater interest in this franchise or in
Operator shall execute a written agreement with Company personally
guaranteeing, jointly and severally with all holders of a ten percent (10%) or
greater interest in this franchise or in Operator, the full payment and
performance of Operator’s obligations to Company; and all holders of any
interest whatsoever in this franchise or in Operator shall individually undertake
to be bound by all the other terms of this Agreement, including, without
limitation, the restrictions on transfer of interest in Article XVI., and the
covenants in Articles III.D., XI., and XIV.


 


C.            Operator’s articles of partnership,
partnership agreement, articles of incorporation, bylaws, and other
organizational documents shall recite that the issuance and transfer of any
interest in Operator is restricted by the terms of Article XVI. of this
Agreement. Operator shall also submit to Company, upon the execution of this
Agreement, a partnership or shareholders agreement executed by all partners or
shareholders of Operator, and a resolution of the partners or Board of
Directors ratified by all of Operator’s partners or shareholders, which states
that, except as may be permitted by Articles XVI. and XVIII., no shares of
stock or other interest in Operator shall be issued, transferred, or assigned
to any person or legal entity without Company’s prior written consent


 


D.            Operator, if it is a corporation,
shall maintain stop transfer instructions against the transfer on its records
of any securities with voting rights subject to the restrictions of Article
XVI., and shall issue no such securities upon the face of which the following
printed legend does not legibly and conspicuously appear:


 


“The transfer of this stock is subject to the terms and conditions of
one (1) or more Franchise Agreements with Pizza Hut, Inc. Reference is made to
said Franchise Agreement(s) and to the


 


26

















 


restrictive provisions of the Articles and Bylaws of this corporation.”


 


E.             Operator may effect a transaction
that would result in public ownership (as that term is defined under federal
and state securities laws) in Operator provided that at least fifty-one percent
(51%) of each class of the corporation’s stock is restricted, non-registered,
and non-public held by individuals that Company has approved as Operators. The
business of any Operator who has effected such a transaction, whether through
the Operator, its parent, subsidiaries, or divisions, shall be confined
exclusively to operating the System Restaurants licensed herein. All necessary consents
and waivers required of Company will not be unreasonably withheld; provided, Company’s
consent to the use of “Pizza Hut” in the name of a publicly traded entity shall
not be granted. Nothing in this Article XVII.E. prohibits Operator from: (i)
borrowing from a publicly-traded financial institution or other lender, or from
pledging the tangible assets, real or personal (but not an interest in this
Agreement), of the business(es) conducted hereunder; or (ii) creating and
operating an employee stock ownership plan or equivalent device, subject to
other applicable requirements of Articles XVI. and XVII.


 


F.             Operator shall cause every
corporation, partnership, and other non-individual legal person holding any
interest in Operator or in this Agreement to provide in its articles of
incorporation or articles of partnership and its bylaws (or similar documents,
however denominated) that its business activities will be confined exclusively
to operating the System Restaurants licensed herein, or other businesses
licensed under other agreements with Company, its subsidiaries and affiliates;
however, Operator may request an exemption from this provision for cause, which
request shall not be unreasonably denied by Company. Operator shall cause every
such corporation, partnership, and other non-individual legal person to be in
compliance with those requirements, and to remain in compliance with those
provisions as long as Operator is a licensee or franchisee of Company, unless
Operator’s request for an exemption ha been granted.


 


ARI1CLE XVIII.


 


PERMITTED ASSIGNMENTS


 


Notwithstanding
anything to the contrary in Articles XVI. and XVII.:


 


A.            Operator may assign not more than a
total of twenty percent (20%) of Operator’s ownership to employees of Operator
who are actively engaged in Operator’s System Restaurant operations. Any such
ownership interest will be subject to all terms and conditions of this Agreement,
including, without limitation, restrictions on transfer of interest in Article
XVI., the requirements in Article XVII. A. and B., and the covenants in
Articles III.D., XI., and XIV.


 


B.            Company’s “Right of First Refusal Guidelines
(July 21, 1986), “Policy on Transfers to Trusts (June 1990, Revised August
1993)” and “Right of First Refusal Guidelines (November 9, 1992)”
(collectively, the “Transfer Modifications”), which have


 


27

















 


been identified jointly by Company and IPHFHA, are hereby incorporated
herein by reference. The provisions of the Transfer Modifications shall be
deemed contractual provisions of this Agreement and not policies. The Transfer
Modifications may be amended or modified from time to time by Company and IPHFHA,
and any such amendments or modifications shall automatically be incorporated
herein. To the extent that the provisions of the Transfer Modifications are in
direct conflict with the provisions of Articles XVI or XVII hereof, the
provisions of the Transfer Modifications shall control.


 


ARTICLE XIX.


 


DEFAULT AND TERMINATION


 


A.            Operator shall be in default under this
Agreement, and this Agreement and all rights granted Operator hereunder shall
automatically terminate without notice to Operator, if any of the following
events occur:


 


1.             If Operator or the business to
which this Agreement relates becomes insolvent (i.e., either has ceased
to pay his debts in the ordinary course of business or cannot pay his debts as
they become due or is insolvent within the meaning of the federal bankruptcy law)
or is dissolved; if a receiver or trustee for the business of Operator is
appointed; or if Operator files a voluntary petition in bankruptcy or an involuntary
petition is filed by any other person and is not dismissed within ten (l0) days
of filing; or


 


2.             If transfer is attempted or
effected in violation of Articles XVI. or XVII. that would cause a change in
control of the Operator or this franchise, or if Article XVII.E is violated.


 


B.            Operator shall be in default and
Company may, at its option, upon written notice to Operator, terminate this
Agreement and all rights granted hereunder, without affording Operator any
opportunity to cure the default, upon the occurrence of any of the following
events:


 


1.             If Operator is convicted of a
felony, a crime involving moral turpitude, or any other crime or offense that
is reasonably likely, in the sole opinion of Company, to adversely affect the
Pizza Hut System, Company’s Marks, the goodwill associated therewith, or
Company’s interest therein;


 


2.             If Operator discloses or uses the
contents of the Manual or other trade secrets or confidential or proprietary
information provided to Operator by Company, contrary to Article III.D.,
Article XI., or Article XIV.;


 


3.             If Operator knowingly or through
gross negligence maintains false books or records, or knowingly or through
gross negligence submits any false report to Company;


 


28

















 


4.             If Operator conducts the business
licensed pursuant to this Agreement so contrary to this Agreement and the
Manual as to constitute an imminent danger to the public health; or


 


5.             If Company gives Operator notice of
Operator’s default under any provisions of Article XIX.C. on three (3) or more
occasions in any twelve (12) month period, or five (5) or more occasions in any
thirty-six (36) month period, even if Operator cured each such price default,
and even if Operator would otherwise be given an opportunity (under Article XIX.C.)
to cure the current default. A termination pursuant to this Article XIX.B.5
will affect; (a) if the defaults relate to one or more individual System Restaurants,
only those System Restaurants as to which the defaults occurred: (b) if the
defaults relate to Operator’s entire operations (which, for this purpose,
includes defaults under obligations that do not relate to specific System Restaurants
or their operations), all of Operator’s rights under this Agreement and all
other franchise agreements with Company; and (c) if the defaults relate to
individual System Restaurants, but are part of a common pattern or scheme, all
of Operator’s rights under this Agreement and all other franchise agreements
with Company.


 


C.            Except as provided in Article XIX.A.
and B., Operator shall have thirty (30) days after Company’s written notice of default
within which to remedy any default described in this Article XIX.C., and to
provide evidence thereof to Company. If any such default is not so cured within
that period, or such longer period as applicable law may require; Company may,
at its option, terminate this Agreement and all rights granted hereunder upon notice
to Operator. Operator shall be in default under this Article XIX.C. for any failure
to comply with any of the requirements imposed by this Agreement. Such defaults
shall include, without limitation, the occurrence of any of the following
events:


 


1.             Operator’s failure, refusal, or
neglect promptly to pay any monies owing to Company, its subsidiaries and
affiliates, when due, or to submit the financial or other information required
by Company under this Agreement;


 


2.             Operator’s failure to maintain the
standards specified by Company in the Manual or otherwise in writing;


 


3.             Operator’s failure, refusal, or
neglect to obtain Company’s prior written approval or consent as required by
this Agreement


 


4.             Operator’s misuse or unauthorized
use of Company’s Marks or other material impairment of the goodwill associated
therewith or Company’s rights therein;


 


5.             Operator’s commencement of or
conducting any business operation, or marketing of any product, under a name or
mark which, in Company’s opinion, is confusingly similar to Company’s Marks;


 


6.             A default by Operator under any
lease, sublease, mortgage, or deed of trust covering the franchised premises;


 


29

















 


7.             Operator’s failure to procure or
maintain the insurance required by Article XXIV.; or


 


8.             If Operator, without Company’s
consent and except in accordance with Articles X1XB.4.and 5., ceases to operate
or otherwise abandons any of its System Restaurants or, upon destruction of any
System Restaurant, fails to rebuild the System Restaurant and resume operation
within a reasonable time. However, cessation of the business from a System
Restaurant shall not constitute default of this Agreement if caused by condemnation,
expiration of a location lease pursuant to its terms at execution, or when
failure to rebuild following destruction of the System Restaurant is prohibited
by law or the location lease;


 


9.             If a transfer is attempted or
effected in a manner inconsistent with Articles XVI. or XVII. but which does
not cause a change in control of the Operator or this franchise.


 


A termination
pursuant to this Article XIX.C. will affect (i) if the default relates to one
or more individual System Restaurants, only those System Restaurants as to
which the default occurred; and (ii) if the default relates to Operator’s
entire operation (which, for this purpose, includes defaults under obligations
that do not relate to specific restaurants or their operations), all of
Operator’s rights under this Agreement


 


D.            In the event of any default under Article
XIX.B., or any default under Article XIX.C. not cured within the time therein
specified, Company may, as an alternative to termination, in its sole
discretion, redefine the Territory as Company deems appropriate under the
circumstances, and/or refuse to allow Operator to establish any additional
System Restaurants pursuant to this Agreement. Any such action by Company shall
not in any way limit Company’s right to decline renewal owing to such default
by Operator, and shall be in addition to any other right or remedy Company may
have.


 


E.             In the event any System Restaurant
is closed for business for a period totaling thirty (30)) days without
Company’s prior written consent, Operator acknowledges that the damages to
Company from such closing cannot be easily calculated and hereby agrees, without
limiting Company’s other rights pursuant to this Agreement, to pay an amount as
liquidated damages for such default, and not as penalty, equal to two times the
aggregate monthly service fees paid or due with respect to such unit for the
twelve (12) calendar months preceding the closing. In the event such unit has
not been open for business for a full twelve (12)-month period, the total
amount of liquidated damages due Company shall be computed by determining the
highest monthly service fee ever paid or due on such unit and multiplying such
figure by twenty-four (24). Whenever Operator seeks Company’s consent to close
as System Restaurant, Company will consider such factors as the System
Restaurant’s location, sales volume, profitability, exposure to crime, and
competitive activity in the market. If the Company consents to closing a System
Restaurant and Operator establishes a replacement unit within one (1) year of
such closing Company may, in its sole discretion, credit the unamortized
portion of the initial fee for such closed System Restaurant against the amount
of initial fee required by Article IX.A.1.


 


30

















 


F.             In the event any franchised
premises is permanently closed for business as a System Restaurant for any
reason whatsoever, whether with or without Company’s consent, Operator shall,
in addition to any other rights or remedies Company may have, immediately deidentify
such franchised premises pursuant to the requirements of Article XX.A.


 


ARTICLE XX.


 


RIGHTS AND OBLIGATIONS UPON TERMINATION OR NONRENEWAL


 


Upon the
termination or (except as specifically noted below) the nonrenewal of the franchise
granted under this Agreement:


 


A.            Operator shall immediately
discontinue use of Company’s Marks and of the System. In addition, Operator
shall discontinue use of Company’s color scheme and shall make any other
changes that Company may direct, in order to effectively distinguish Operator’s
former System Restaurant(s) from Company’s proprietary designs. If Operator
shall fail to make such changes within seven (7) days after written notice, then
Company, in addition to any other remedy it may have, shall have the right to
enter upon the premises and to make or cause to be made such changes at the
expense of Operator (without being deemed guilty of trespass or any other tort),
which expense Operator agrees to pay on demand.


 


B.            Company may retain all fees paid
pursuant to this Agreement.


 


C.            Any and all obligations of Company
to Operator under this Agreement shall immediately cease and terminate.


 


D.            Any and all rights of Operator under
this Agreement shall immediately cease and terminate.


 


E.             In no event shall a termination or
nonrenewal of this Agreement affect Operator’s obligations to take or abstain
from taking any action in accordance with this Agreement.


 


F.             Operator acknowledges and agrees
that rights in and to Company’s Marks and the use thereof shall be and remain
the property of Company.


 


G.            Upon any termination or nonrenewal,
Operator shall sell to Company and Company shall buy, at Operator’s cost, all
amounts of trade secret items that Operator may have in stock at the time of
such termination or nonrenewal.


 


H.            In the event Operator has registered
any of Company’s Marks as part of Operator’s assumed or fictitious name, Operator
shall amend such registration to delete Company’s Marks therefrom.


 


I.              Operator shall immediately pay any
and all amounts owing to Company, its subsidiaries and affiliates.


 


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J.             Company shall have the option,
exercisable by written notice within thirty (30) days after the termination
(but not the nonrenewal) of this Agreement, to take an assignment of all
telephone numbers (and associated listings) for Operator’s Delivery Restaurants
and Delco Restaurants and centralized order-taking facilities (if any).
Operator is not entitled to any compensation from Company if Company exercises
this option.


 


The provisions
of this Article XX. relating to termination apply only to the specific
System Restaurant(s) terminated, if Company terminates (pursuant to Article XIX.)
less than all of Operator’s System Restaurants.


 


ARTICLE XXI.


 


RENEWAL


 


A             Unless terminated as herein
otherwise provided, Operator shall have the option at the expiration of the
initial or any subsequent term of this Agreement to renew the franchise granted
hereunder for a renewal term of twenty (20) years by executing Company’s form
of Franchise Agreement as described in Article XXI.B., provided that:


 


1.             Operator gives Company written notice
of its election to renew not less than two (2) months nor more than nine (9) months
prior to the expiration of the initial term;


 


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


 


3.             Operator, at the time of notice of
election to renew and at the end of the initial term, is not in default of any
of the terms or conditions of this Agreement or any other agreement between
Operator and Company, its subsidiaries and affiliates, and has substantially
complied with the terms and conditions of all such agreements during the term
of this Agreement;


 


4.             All of Operator’s accrued monetary
obligations to Company, its subsidiaries and affiliates, have been satisfied
prior to renewal, and timely met throughout the term of this Agreement; and


 


5.             Operator is in compliance with the
standards set forth in Company’s then-current Manual and has made such
modernization and renovations (including, without limitation, signs, furnishings,
interior and exterior decor, fixtures, equipment and structural changes) and
repairs and maintenance to Operator’s System Restaurants as Company may have
required and may require pursuant to Article III.B. and C and Article XXII.
However, in no event will Company require as a condition of renewal extensive structural
changes, major remodeling and renovation, and substantial modification to
existing improvements except in accordance with Article III. C.


 


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B.            1.             The
franchise agreement to be executed at renewal may be different from this
Agreement to the extent that current business conditions warrant changes. No
initial franchise fee will be due upon renewal with respect to those of
Operator’s System Restaurants already opened as to which Operator has
previously paid an initial franchise fee.


 


2.             The renewal form of franchise
agreement shall:


 


a.             provide that the amount of the
Service Fee due thereunder for System Restaurants (other than Delco Restaurants
and Delivery Restaurants) shall be the Restaurant Competitive Rate, as
hereinafter defined, and the amount of the Service Fee due thereunder for Delco
Restaurants and Delivery Restaurants shall be the Delco/Delivery Competitive Rate,
as hereinafter defined; and


 


b.             not include Schedule B except Section H
and the definitions of Rebuild, Relocate, Remodel, and Reimage. All other
obligations under Schedule B shall be deleted upon renewal.


 


3.             For purposes of Article XXI.B.2:


 


a.             the Restaurant Competitive Rate shall
not exceed the royalty rates being offered to new franchisees, for comparable
services, as of one year prior to the renewal date, by franchisors of national
full-service sit-down restaurant chains which have average unit sales volumes
and average unit net operating cash flows comparable to those of Pizza Hut
Restaurants; provided, however, that the Restaurant Competitive Rate shall not
be less than the applicable Service Fee rate described in Article IX.A.2
as of the renewal date; and


 


b.             the Delco/Delivery Competitive Rate
shall not exceed the royalty rates being offered to new franchisees, for
comparable services, as of one year prior to the renewal date, by franchisors
of national pizza delivery chains which have average unit sales volumes and
average unit net operating cash flows comparable to those of Delivery
Restaurants and Delco Restaurants; provided, however, that, the Delco/Delivery
Competitive Rate shall not be less than the applicable Service Fee rate
described in Article IX.A.2 as of the renewal date.


 


c.             The Restaurant Competitive Rate and
the Delco/Delivery Competitive Rate (the “Competitive Rates”) shall be offered
by Company not later than nine (9) months prior to the expiration of the
term of this Agreement, after consideration of the factors outlined in Article XXI.B.3.a
and Article XXI.B.3.b above. Unless IPHFHA reasonably determines that
either or both of the offered rates offered by Company exceed the Competitive
Rates, as determined in accordance with Article XXI.B.3. above and
notifies Company in writing, within sixty (60) days of Company’s written notice
of the offered rates, setting forth IPHFHA’s objections and reasons therefor
with respect to each or both of the rates offered by Company, then IPHFHA shall
be deemed to have accepted the rates offered by Company as being reasonable and
proper, and such rates shall be binding on Company and Operator as the
Competitive Rates. With respect to any of Company’s offered rates to which IPHFHA
has objected on the basis set forth above, then thereafter for the following
sixty (60) days, Company and IPHFHA shall meet and attempt to resolve their
disagreement with respect to


 


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the disputed rates identified
by IPHFHA as exceeding the applicable Competitive Rates determined pursuant to Article
XXI.B.3. above. If, following such sixty (60) day period, IPHFHA does not agree
that one or both of Company’s offered rates comply with the criteria set forth
in Article XXI.B.3 (the “Rates Criteria”), then IPHFHA may file a demand for
arbitration with the Center of Public Resources, Inc. (“CPR”), asking the
arbitrator to settle the dispute in accordance with the following principles. First,
both Company and IPHFHA shall fully participate in the arbitration and shall
have the right to submit whatever evidence and arguments they believe support
their respective positions, including without limitation their offered rates
and the applicable market conditions. As a threshold matter, the arbitrator, after
reviewing the parties’ submissions, shall rule that either one or both of Company’s
offered rate(s) are or are not in compliance with the Rates Criteria. If the
arbitrator rules that one or both of Company’s offered rates are in
compliance with the Rates Criteria for either the Restaurant Competitive Rate
or the Delco/Delivery Competitive Rate, or both, as applicable, then Company’s
offered rate with respect to either or both, as applicable, shall become the Restaurant
Competitive Rate or Delco/Delivery Competitive Rate, as applicable. If the
arbitrator rules against Company on either or both of such offered rates,
then the arbitrator shall rule whether one or both of IPHFHA’s offered rates
are in compliance with the Rates Criteria. The arbitrator shall be free to
accept none, either or both of Company’s or IPHFHA’s offered rates as the
applicable Competitive Rates. As to any offered rates for which the arbitrator
has rejected both Company’s and IPHFHA’s offered rates as failing to meet the
Rates Criteria, Company and IPHFHA shall recommence the process described above
for establishing such Competitive Rates. The arbitrator shall issue his rulings(s)
within twenty (20) days after the conclusion of each hearing. The arbitrator’s
ruling(s) shall be binding on Company and Operator, unless the arbitrator has
failed to follow the requirements of this provision. For purposes of this Article XXI.B.3.c.,
the arbitrator’s fees and expenses and the other administrative expenses of the
arbitration shall be shared equally by Company and IPHFHA.


 


d.             If CPR shall cease to exist or
refuse to arbitrate such dispute, Company and IPHFHA shall have the right to jointly
appoint a substitute neutral organization to arbitrate such dispute, and the
rules of such substitute organization shall govern such arbitration. Except as
provided below, the arbitration shall be conducted in accordance with CPR’s (or
its substitute’s) rules of commercial arbitration. The decision of the
arbitrator shall be binding upon Company and Operator. The arbitration shall be
conducted at a place designated by the Arbitrator.


 


C.            No later than two (2) years
prior to the expiration of this Agreement, Company will notify Operator in writing
whether or not Operator appears then to be eligible to renew the franchise
granted hereunder. If Company advises Operator that the franchise is not
eligible for renewal, it will specify the reasons for such ineligibility. One (1) year
thereafter, Company will provide a similar notice to Operator specifying
whether any deficiencies noted in the prior notice have been cured. In no event
shall the provisions of Article XXI.C. relieve Operator from the requirements
of Article XXI.A. or in any way affect Company’s rights and remedies under
Articles XIX. and XX.


 


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ARTICLE XXII.


 


REPAIR AND MAINTENANCE


 


Operator shall
repair and paint the interior and exterior of the buildings from which it
conducts its business hereunder in accordance with Company’s then-applicable
facility standards, and at all times shall maintain the interior and exterior
of the buildings and surrounding premises in a clean and orderly condition in
accordance with Company’s then-applicable facility standards.


 


ARTICLE XXIII.


 


ADDITIONAL TRADEMARKS


 


Company may,
from time to time, in Company’s sole discretion, obtain additional trademark and/or
service mark rights in words and/or designs. In the event of any of these occurrences,
Company may license Operator to use those trademarks or service marks by giving
written notification to Operator that such marks now form part of Company’s
Marks. The term of such license will be coextensive with the terms hereof and
will be subject to all the restrictions with respect to the use of those rights
as set forth herein and in the notice granting Operator the license.


 


ARTICLE XXIV.


 


INSURANCE


 


A.            Operator shall obtain and maintain,
with an insurance company approved by Company which approval shall not be
unreasonably withheld, windstorm, fire, and extended coverage insurance,
insuring the construction of improvements and completed System Restaurants
operated by Operator, for the full replacement value thereof. In the event of damage
to the System Restaurants covered by insurance, the proceeds of any such insurance
shall be used to restore the System Restaurants to their original condition as
soon as possible unless such restoration is prohibited by the location lease or
Company has otherwise consented in writing.


 


B.            Operator shall obtain and maintain,
with an insurance company approved by Company, which approval shall not be unreasonably
withheld, comprehensive general liability insurance (including products
liability), and comprehensive automobile liability insurance (including coverage
for all owned, non-owned, leased, or hired vehicles), all in amount equal to at
least Two Million Dollars ($2,000,000.00) combined single limit for death,
personal injury, and property damage, and workers’ compensation insurance
(coverage B) as required by law. Said insurance shall in each instance
designate Company as an additional named insured. Operator shall file with
Company certificates of such insurance and shall promptly pay all premiums on
said policies as and when the same become due. In addition, said policies shall
contain a provision requiring thirty (30) days prior written notice to Company
of any proposed cancellation, modification, or termination of insurance. If


 


35

















 


Operator fails to obtain or
maintain the insurance required hereunder, Company may, at its option, in
addition to any other rights it may have, procure such insurance for Operator
without notice and Operator shall pay the premiums and Company’s cost in taking
such action immediately upon demand therefor.


 


C.            The insurance coverage required to
be kept in effect by the terms of Article XXIV. shall be subject to
continuing review by Company. Company may, from time to time, require Operator
to obtain additional insurance beyond the aforestated requirements provided the
increased insurance thus required is commercially practicable and is not in
amounts higher than the average amounts carried by Company with respect to
Company-owned System Restaurants. In such event, Company will advise Operator
in writing as to the additional insurance required and Operator shall, within
thirty (30) days of the date of such notification, file with Company certificates
of insurance which comply with such requirements. Operator may, in its sole
discretion, obtain additional insurance beyond that required by Article XXIV.


 


ARTICLE XXV.


 


INDEMNIFICATION


 


Operator
agrees to protect, indemnify, and save Company, its affiliates, subsidiaries,
shareholders, directors, officers, and employees harmless from any and all
loss, damage, liability, or attorney’s fees and costs incurred by any of them
owing to claims which arise directly or indirectly from or in connection with
Operator’s operations under this Agreement.


 


The provisions
of this Article XXV. shall not bar Operator from bringing a separate action
against Company following a final judgment against Operator arising directly
out of acts or omissions of Operator taken at, and in accordance with, specific
negligent directions given to Operator by Company in this Agreement, in the
Manual, or in other written instructions.


 


ARTICLE XXVI.


 


RELATIONSHIP OF PARTIES


 


A.            Company and Operator are not and
shall not be considered as joint venturers, partners, or agents of each other, or
anything other than franchisor and franchisee, and neither shall have the power
to bind or obligate the other except as set forth in this Agreement.


 


B.            Company and Operator further
acknowledge and agree that the relationship created by this Agreement is not a fiduciary
relationship.


 


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ARTICLE XXVII.


 


EXECUTION, INTERPRETATION, NOTICES


 


A.            This Agreement takes effect upon its
acceptance and execution by Company in Dallas, Texas, and shall be governed by
and construed in accordance with the laws of or applicable to the State of
Kansas, U.S.A. Operator consents to the jurisdiction of any state or federal
court of general jurisdiction in either Dallas or Dallas County, Texas, or the
county in which Company has its principal place of business with respect to any
proceedings arising out of this Agreement. Operator agrees that mailing to its
last known address by registered mail of any process shall constitute lawful
and valid process. Operator further agrees that it will bring any legal
proceedings arising out of this Agreement only in the courts mentioned above.


 


B.            All terms and words used in this
Agreement, regardless of the number and gender in which they are used, shall be
deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine, or neuter, as the context or sense of this
Agreement or any paragraph or clause herein may require, the same as if such
words had been fully and properly written in the number and gender. Headings
preceding the text, articles, and sections hereof have been inserted solely for
convenience of reference and shall not be construed to affect the meaning,
construction, or effect of this Agreement.


 


C.            Except as otherwise defined in Article XI.A.,
all references to “Operator” shall mean and include the individual Operator;
Operator’s shareholders, officers, and directors, if Operator is a corporation;
and any one or more partners and participants in Operator, if Operator is a
partnership or joint venture.


 


D.            This Agreement may be executed in
any number of counterparts, each of which, when so executed and delivered,
shall be deemed an original, but such counterparts together shall constitute
but one and the same instrument.


 


E.             Except for (i) that certain undated
Memorandum of Understanding, by and between Company and IPHFHA, executed as the
result of certain disputes relating to the East Side Mario’s chain, and (ii) the
agreements by Company outlined in a certain memorandum from Mike Miles, dated December 22,
1998, relating to the development of certain Express Restaurants (the
provisions of each of which shall survive the execution and delivery of this
Agreement), and (iii) that certain Agreement, dated March 31, 1975,
as subsequently amended (including without limitation as amended by that
certain letter from IPHFHA to Company, dated January 24, 1996,) by and
between Company and IPHFHA, concerning advertising for System Restaurants, this
instrument contains the entire agreement of the parties, and no
representations, inducements, promises, or agreements, oral or otherwise, not
embodied herein, were made by Company and none shall be of any force or effect.


 


F.             Effective January 1, 2003,
except as provided in Article I.A.3 with respect to Side Agreements, and
provided this Agreement has been executed and delivered by both


 


37

















 


Company and Operator, the 1990
Franchise Agreement and any amendments thereto previously executed by Operator
with respect to the Pizza Hut Restaurants franchised thereunder and to the
Territory shall be superseded by this Agreement and shall have absolutely no
further force or effect whatsoever. This provision shall not, however, relieve
Operator of any financial obligations then owing to Company, its subsidiaries
and affiliates.


 


G.            Nothing in this Agreement (except
for Articles VI.B., XII., and XXV.) is intended or shall be deemed to confer
any rights or remedies upon any person or legal entity not a party hereto.
Furthermore, the parties agree that the persons who are third-party
beneficiaries of those provisions of this Agreement can sue Operator for
failure to comply with those specific provisions of this Agreement, but cannot
compel Company to sue Operator on their behalf. 


 


H.             In case of a breach or a threatened
breach of any provision of this Agreement by Operator, Company shall, in
addition to any other remedy it may have, and notwithstanding any other
provision hereof (including Article XXVII.), be entitled to an injunction restraining
Operator from committing or continuing to commit any breach or threatened
breach of this Agreement, without showing or proving any actual damage
sustained by Company.


 


I.              Except as otherwise specifically
provided in this Agreement, each party shall bear its own attorneys’ fees,
expert witness fees, and court costs incurred incident to any violation or
alleged violation of this Agreement.


 


J.             Each article, paragraph,
subparagraph, term, and condition of this Agreement, and any portions thereof
(including any covenant which has been reduced from its original scope pursuant
to Article XI.C.), shall be considered severable; if, for any reason, any
portion of this Agreement is determined to be invalid, contrary to, or in
conflict with, any applicable present or future law, rule, or regulation in a
final, unappealable ruling issued by any court, agency, or tribunal with valid
jurisdiction in a proceeding to which Company is a party, that ruling shall not
impair the operation of, or have any other effect upon, such other portions of this
Agreement, all of which shall remain binding on the parties and continue to be
given full force and effect. Any invalid portion shall be deemed not to be a
part of this Agreement as of the date upon which the ruling becomes final if
Operator is a party to such proceedings, or upon Operator’s receipt of notice
of nonenforcement from Company.


 


K.            All notices to Company required by
the terms of this Agreement shall be sent by certified or registered mail or by
overnight delivery service, addressed to Company at its office at 14841 Dallas
Parkway, Dallas, Texas 75254-7552, or at such other address as Company
designates in writing, marked, “Attention: Vice President-Franchising.” All
notices to Operator required by the terms of this Agreement shall be sent by
certified or registered mail or by overnight delivery service, addressed to
Operator at 14400 College Blvd., #201, Lenexa, Kansas 66215 or at such other
address as Operator designates in writing. Notices will be effective when
delivery is made or is first attempted during normal business hours (8


 


38

















 


am. to 5 p.m. local time,
Monday through Friday, except national or state holidays), except that notices
of change of address will be effective ten (10) days after that date.


 


ARTICLE XXVIII.


 


REQUESTS FOR WAIVERS AND CONSENTS


 


A.            Company will consider written
requests by Operator for Company’s consent to a waiver of any obligation
imposed by this Agreement. Any such request will be considered on a case by
case basis and nothing shall be construed to require Company to grant any such
request for a waiver. Any waiver granted by Company shall be without prejudice
to any other rights Company may have, will be subject to continuing review by
Company, and may be revoked, in Company’s sole discretion, at any time and for
any reason, effective upon ten (10) days’ prior written notice to
Operator. Company makes no warranties or guarantees upon which Operator may
rely, and assumes no liability or obligation to Operator by providing any
waiver, approval, consent, assistance, or suggestion to Operator in connection
with this Agreement, or by reason of any neglect, delay, or denial of any
request therefor.


 


B.            Unless otherwise specifically
provided herein, whenever this Agreement requires Operator to obtain Company’s
prior written consent, Operator shall timely address its written request for
such consent to Company’s Vice President-Franchising or such other person as
Company may designate in writing and, thereafter, Company will consider such
request and advise Operator of its decision in writing within forty-five (45)
days of receipt of the request. Company’s failure to thus advise Operator will
constitute Company’s consent to such request, however, the aforesaid forty-five
(45) days does not commence until Operator has provided Company with all
relevant information and documentation requested by Company.


 


C.            Neither party shall be deemed to
have waived or impaired any right, power, or option reserved by this Agreement
(including, without limitation, its right to demand strict compliance with
every term, condition, and covenant herein, or to declare any breach thereof a
default and to terminate this Agreement prior to the expiration of its term),
by virtue of any custom or practice of the parties at variance with the terms
hereof; any failure to demand strict compliance with this Agreement; any
waiver, forbearance, delay, failure, or omission to exercise any right, power,
or option, whether of the same, similar, or different nature, against Company,
Operator, or any of Company’s other franchisees; or the acceptance of any
payments due after any breach of this Agreement.


 


ARTICLE XXIX.


 


RELEASE


 


A.            Each party acknowledges (conditioned
upon execution and delivery of this Agreement by each party to the other) that,
except for any Surviving Claims, as defined in Article I.A.2, the other has fully
and satisfactorily performed all its obligations pursuant to that certain 1990
Franchise Agreement between Operator and Company dated March 1,


 


39

















 


1990, and any amendments
thereto. Accordingly, except for Surviving Claims, each party, for itself, its
heirs, executors, successors, and assigns, hereby releases and discharges the
other, its affiliates, subsidiaries, shareholders, directors, officers, and
employees from any and all actions, suits, proceedings, claims, and demands
whatsoever, whether presently known or unknown, which it may have or may
hereafter claim to have arising out of or related to any and all transactions
of any kind at any time prior to and including the date hereof, including,
without limitation, any and all claims arising under any federal, state, or
local law, rule, or ordinance.


 


B.            Where Article XVI.D.1.b. or Article XXI.A.2.
requires a release from Operator, and Company in fact solicits and receives
such a release, Company will, upon the written request of Operator, execute a
release in favor of Operator provided all of Operator’s accrued monetary and
development obligations to Company, its subsidiaries and affiliates, have been satisfied.
Operator hereby agrees that any such release shall not act as a release, discharge,
waiver, bar, or estoppel upon the Company, its subsidiaries and affiliates, from
maintaining any and all actions, suits, proceedings, claims, and demands
whatsoever, whether presently known or unknown, which Company, its subsidiaries
and affiliates, may have or may thereafter claim to have, arising out of or
related to any and all transactions of any kind at any time subsequent to the
date Company executes said release (including that portion of continuing transactions
that began prior to the date of the release but continued after the release).


 


WITNESS our hands
and seals the day and year first above written.


 


	
  WITNESS:

  	
  PIZZA HUT, INC.

  
	
   

  	
  “COMPANY”

  
	
   

  	
   

  
	
  /s/ Julie L. Schultz

  	
   

  	
  By:

  	
  /s/

  	
   

  
	
   

  	
  , Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  WITNESS:

  	
  NPC MANAGEMENT, INC.

  
	
   

  	
  “OPERATOR”

  
	
   

  	
   

  	
   

  
	
  /s/ Troy D. Cook

  	
   

  	
  By:

  	
    /s/ James K. Schwartz

  	
   

  
	
   

  	
   

  	
   

  	
  James K. Schwartz, President

  	
   

  
						



 


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