Sample Franchise Agreement

EXHIBIT 10.01 - SAMPLE DOCUMENT


1990


PIZZA HUT INC.


FRANCHISE AGREEMENT


TABLE OF CONTENTS


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 12


ARTICLE VII. COMPANY'S MARKS 16


ARTICLE VIII. PURCHASE OF EQUIPMENT, SUPPLIES, AND OTHER
PRODUCTS 17


ARTICLE IX. FRANCHISE FEES AND DEVELOPMENT SCHEDULE 19


ARTICLE X. BOOKS, RECORDS, GROSS SALES 23


ARTICLE XI. COVENANT REGARDING OTHER BUSINESS INTERESTS 24


ARTICLE XII. INTERFERENCE WITH EMPLOYMENT RELATIONS 26


ARTICLE XIII. USE OF PREMISES 26


ARTICLE XIV. SECRET RECIPES AND OTHER SECRET INFORMATION 26


ARTICLE XV. LEASE APPROVAL 27


ARTICLE XVI. TRANSFER OF INTEREST 27


ARTICLE XVII. PARTNERSHIP AND CORPORATE OPERATORS 30


ARTICLE XVIII. PERMITTED ASSIGNMENTS 32


ARTICLE XIX. DEFAULT AND TERMINATION 32


ARTICLE XX. RIGHTS AND OBLIGATIONS UPON TERMINATION OR
NONRENEWAL 36


ARTICLE XXI. RENEWAL 37


ARTICLE XXII. REPAIR AND MAINTENANCE 38


ARTICLE XXIII. ADDITIONAL TRADEMARKS 38


ARTICLE XXIV. INSURANCE 39


ARTICLE XXV. INDEMNIFICATION 40


ARTICLE XXVI. RELATIONSHIP OF PARTIES 40


ARTICLE XXVII. ARBITRATION 40


ARTICLE XXVIII. EXECUTION, INTERPRETATION, NOTICES 41


ARTICLE XXIX. REQUESTS FOR WAIVERS AND CONSENTS 43


Copyright (c)1981, 1989 by Pizza Hut, Inc. All rights reserved.


1990


PIZZA HUT, INC.


FRANCHISE AGREEMENT


THIS AGREEMENT made this _________ day of _______________, 1994, effective, however, as of March 30, 1994, by and between PIZZA HUT, INC., a Delaware corporation, with its principal place of business at Wichita, Kansas (hereinafter called "Company"), and NATIONAL PIZZA COMPANY (hereinafter called " Operator" and defined in Article XXVIII. C.):


WITNESSETH:


WHEREAS, Company is 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 1981 Pizza Hut, Inc., Superseding 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 1981 Superseding Franchise Agreement and amendments thereto (including, without limitation, the Delivery Release Letter dated June 1, 1987), 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 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;


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:


I. FRANCHISE RIGHT GRANTED


A. Company hereby grants to Operator, for a period ending on February 28, 2010, 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) "Red Roof" 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; (b) Delivery restaurants - from which Pizza Hut pizza (and other System-authorized food and beverage items) are delivered for off- premises consumption; (c) Delivery/Carryout (or "Delco") restaurants - from which Pizza Hut pizza (and other System- authorized food and beverage items) are sold for carryout and delivered, all for off-premises consumption; and (d) Express restaurants - from which a limited menu of Pizza Hut pizza (and other System-authorized food and beverage items) are sold for immediate on - or off-premises consumption (throughout this Agreement, the phrase "System Restaurant Concepts" refers to the four (4) concepts, described above, that jointly constitute "System Restaurants"). Company reserves the right (in its reasonable discretion and consistent with the foregoing definitions and limitations) to clarify the portions of the entire System that fall within the term "System Restaurants," and to distinguish (and set differing standards for) the various System Restaurant Concepts.


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 Red Roof restaurant without Company's prior written consent.


D. 1. During the term of this Agreement, Company may develop one or more new methods of distributing pizza, pasta, or other Italian food items similar to Italian food items approved by Company for sale in System Restaurants using Company's Marks (hereinafter called "New Concepts"), which may or may not involve restaurants. Company may, at its sole discretion, permit Operator to participate in testing a New Concept. If the New Concept cannot (in Company's reasonable judgment) be exploited by a majority of Company's franchisees in the United States due to legal or institutional barriers, Company may nevertheless implement (or license others to implement) the New Concept, provided that, if Operator is in "good standing" (as defined below), Company must pay Operator an amount equal to two and one- half percent (2.5%) of the gross sales of the New Concept within the Territory. In all other circumstances, the Company may implement the New Concept only pursuant to Article I. D. 2.


1. a. 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 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 franchises 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 establish the New Concept according
to the terms of the development schedule.


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


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


2. 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.


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


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


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


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


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


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


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


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. Operation 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. Subject to the limitations set forth below, Company may require extensive structural changes, major remodeling and renovation, and substantial modifications to existing improvements as necessary for Operator's System Restaurants to conform with Company's then-current System image only if Company follows the same pretesting requirements as in Article III. B. 2. Company may not require any such work at a particular System Restaurant less than seven (7) years after the System Restaurant opened, less than seven (7) years after the first major renovation made subsequent to the date of this Agreement, or less than five (5) years after any other major renovation. Upon receipt of written notice, Operator shall fully implement such changes to each of its System Restaurants operating under this Agreement, but in no event will Operator be required during any calendar year to implement such changes at a faster percentage rate than made to Company-owned System Restaurants in the United States for the prior calendar year.


D. The Manual is a highly confidential document which contains certain 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.


IV. DUTIES OF OPERATOR, PRETESTING, UNIFORMS, INSPECTIONS


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


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


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


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


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


a. Operator will not be required to implement any new
standard product unless the proposed standard product is
pretested in a reasonably representative sample of System
Restaurants, constituting at least five percent (5%) of the
System Restaurants in the United States in the same System
Restaurant Concept(s), and the results of such pretesting
demonstrate customer acceptance and operational feasibility. For
those proposed standard products which require a capital
investment in equipment, the pretest results must also
demonstrate that a majority of System Restaurants participating
in the pretest realized an acceptable unit return (which is
defined to be at least a ten percent (10%) cash-on-cash return on
the capital investment and ongoing royalty, but excluding the
cost of financing). The System Restaurants selected to
participate in the pretest program will be reasonably
representative of the entire System Restaurant Concept with
respect to sales volume, market demographics, and physical and
geographical characteristics. Operator may be requested to
participate, but such participation shall be voluntary. The
restaurants selected to participate may consist of a combination
of Company-owned and franchisee-owned System Restaurants, or all
Company-owned or all franchisee-owned System Restaurants.


b. Any food products approved for System Restaurants as of
March 1, 1990, 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, graphi ...