Form of Franchise Agreement

EXHIBIT 10.8


FORM OF FRANCHISE AGREEMENT


BETWEEN


PIZZA WORLD SUPREME, INC.


AND


-----------------------------------


PIZZA WORLD SUPREME, INC.


FRANCHISE AGREEMENT
TABLE OF CONTENTS


PARAGRAPH PAGE NO.


1. GRANT OF FRANCHISE..................................................1


2. RELOCATION..........................................................2


3. PROTECTED TERRITORY.................................................2


4. OFF-SITE DELIVERY...................................................2


5. TERM OF AGREEMENT...................................................5


6. RENEWAL OF FRANCHISE................................................5


7. FEES................................................................6


8. DUTIES OF FRANCHISOR................................................7


9. DUTIES OF FRANCHISEE...............................................10


10. NON-COMPETITION....................................................18


11. RIGHT OF FIRST REFUSAL.............................................19


12. TRANSFER AND ASSIGNMENT............................................19


13. OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH.............22


14. DEFAULT AND TERMINATION............................................23


i


15. UNAVOIDABLE DELAYS.................................................25


16. SEVERABILITY AND CONSTRUCTION......................................25


17. RELATIONSHIP BETWEEN PARTIES.......................................26


18. WAIVER.............................................................26


19. NOTICES............................................................26


20. APPLICABLE LAW AND JURISDICTION....................................27


21. TERMINOLOGY........................................................27


22. STATUS OF AGREEMENT................................................27


23. AMENDMENT OF AGREEMENT.............................................27


24. COSTS AND EXPENSES OF ENFORCEMENT..................................27


25. CAPTIONS...........................................................28


26. CONSENT AND APPROVAL...............................................28


27. REPRESENTATIONS....................................................28


28. EFFECTIVE DATE.....................................................29


ii


ME-N-ED'S PIZZERIA


FRANCHISE AGREEMENT


THIS AGREEMENT is entered into at Fresno, California, by and between PIZZA WORLD SUPREME, INC. ("PWS"), a Nevada corporation with headquarters located at 5701 North West Avenue, Fresno, California 93711, and ______________________________________________________________________________ (the "Franchisee"), whose address is: ________________________________________ _____________________________________________________________________________.


This Agreement is for the establishment of one Me-N-Ed's Pizzeria or Slices Pizza Bar (the "Me-N-Ed's Pizzeria" or the "Pizzeria") to be located at:___________________________________________________________________, with the specific opening date to be determined in accordance with the terms of this Agreement.


RECITALS


A. PWS has established a method and system (the "System") for the development and operation of Me-N-Ed's Pizzerias and Me-N-Ed's Slices Pizza Bars (collectively "Me-N-Ed's Pizzerias" or "Pizzerias") which includes, without limitation: The marks "Me-N-Ed's," "Me-N-Ed's Pizza Parlor & Pizza Design," "Me-N-Ed's Guys With Pizza Design," "Me-N-Ed's Slices," "Me-N-Ed's Pizzeria," and all related names, trademarks, service marks, logos, copyrights and associated goodwill (the "Proprietary Marks"); distinctive building designs, decor, color schemes and trade dress and signage; an operating manual incorporating required standards, procedures, policies, and techniques; secret food formulae; and advertising, marketing and promotional programs.


B. Pursuant to PWS's continuing efforts to develop its chain of pizzerias, PWS desires to grant to the Franchisee, and the Franchisee desires to obtain from PWS, the right to establish and operate the Pizzeria in accordance with and under the System.


C. This Agreement is for the establishment of a single Me-N-Ed's Pizzeria at a specific location. It does not grant to the Franchisee any rights to develop or operate any other Me-N-Ed's Pizzeria at any other locations other than the single location designated on page 1 of this Agreement.


IN CONSIDERATION OF THE COVENANTS CONTAINED HEREIN, IT IS AGREED AS FOLLOWS:


1. GRANT OF FRANCHISE


Subject to all the terms and conditions of this Agreement, PWS grants to the Franchisee the nonexclusive right to use the System to establish and operate the Pizzeria. The Franchisee acknowledges that adherence to the standards and policies of the System, as changed


1 from time to time, is absolutely essential for the continued operation of the franchise granted by this Agreement.


2. RELOCATION


The Franchisee shall have the right to establish and operate the Pizzeria only at the single location designated above. Any relocation of the Pizzeria shall require PWS's prior written consent. Such consent may be withheld in PWS's sole discretion unless the lease for the site of its Pizzeria expires or terminates without fault of the Franchisee, or if the site is destroyed, condemned or otherwise rendered unusable, in which case PWS will grant permission for relocation of the Pizzeria to a location and site meeting PWS's then-current standards. PWS has the right, but is not required, to charge the Franchisee a Relocation Fee to cover PWS's costs in approving and processing the request for relocation. Such fee is payable upon approval by PWS at such location. Any relocation will be at the Franchisee's sole expense.


3. PROTECTED TERRITORY


(a) Trade Area: While this Agreement is in force, the Franchisee shall have the exclusive right to operate the Pizzeria within a two mile radius of the location of the Pizzeria, except that if the Franchisee's Pizzeria is located in a mall or within certain areas as may be designated from time to time by PWS, no such exclusive right shall be granted. The radius around the location of each Pizzeria in which PWS agrees not to grant any other franchises is referred to as the "trade area" of the applicable Pizzeria. Neither PWS nor an affiliate will operate or grant a franchise for the operation of a sit down, carry-out or delivery pizza restaurant business whose trade area overlaps the Pizzeria's trade area; except nothing in this Agreement shall prohibit PWS from operating or franchising a Pizzeria in a mall that overlaps trade areas with the trade area of the Pizzeria.


(b) Alteration of Trade Area: From time to time, PWS may designate certain areas within which PWS will not grant exclusive rights, but the Franchisee's trade area may not be altered except by the mutual written agreement of the Franchisee and PWS.


(c) Shopping Center: For purposes of this Agreement, a mall means a shopping center of not less than 250,000 square feet of gross leasable area where stores front on both sides of a pedestrian walkway which may be enclosed or open. Any trade area granted to the Franchisee herein is with respect to the establishment of other Pizzeria locations only, and shall not be deemed to grant to the Franchisee any exclusive market area or territory.


4. OFF-SITE DELIVERY


The Franchisee must offer delivery services a minimum of six hours each day, from 4:00 p.m. to 10:00 p.m. and may offer such services during lunch hours, subject to PWS's approval, except that the Franchisee will not have any delivery obligations whatsoever if its Pizzeria is located in a mall, although the Franchisee may offer delivery services in accordance with this Agreement if its Pizzeria is located in a mall. The scope of the delivery area will be congruent with the scope of the trade area (as discussed in Paragraph 3(a) of this Agreement).


2


Due to fluctuations in population density and vehicular traffic patterns over time, PWS may, in its sole discretion, extend the radius in which the Pizzeria must offer delivery services. PWS may subsequently reduce this delivery area due to further changes in population density, vehicular traffic patterns or the opening of another Pizzeria in a proximate location, although such delivery area may not be reduced to less than an area having a two mile radius. The Franchisee acknowledges that the size of the delivery area is based on quality control and related operational considerations and is not related to any protected territory granted the Franchisee with respect to the establishment of Pizzeria locations.


(a) Certain Standards and Requirements:


(i) The Franchisee shall ensure that any and all vehicles utilized for off-site delivery: (a) are maintained in good condition and repair and comply with all requirements for the safe and lawful operation of such vehicles on the streets and highways of all applicable localities; and (b) are operated, at all times, by employees of the Franchisee, who shall be duly qualified, authorized and licensed to operate such vehicles and who shall maintain insurance covering liability as a driver as required by this Paragraph of this Agreement. The Franchisee shall further undertake all necessary action to assure that employees operate delivery vehicles safely and lawfully. Subcontracting of or for off-site delivery services is prohibited.


(ii) In the discretion of the Franchisee, vehicles used for off-site delivery services may bear signage indicating that the vehicle is delivering Me-N-Ed's pizza products; provided, however, such signage must be professionally manufactured or produced and shall be subject to approval by PWS prior to any public display or use by the Franchisee. If requested by PWS, the Franchisee shall exhibit on all delivery vehicles (or on car top signs on all delivery vehicles) signs of sufficient prominence and wording as PWS may prescribe from time to time so as to advise the public that the Pizzeria is owned, operated and maintained by the Franchisee and that each such delivery vehicle is owned, operated and maintained by the Franchisee or the driver of the vehicle, as the case may be. The Franchisee shall at all times carry insurance, in accordance with Paragraph 4(b) of this Agreement, covering any and all vehicles used for off-site delivery services.


(iii) PWS reserves the right, in its discretion, to designate those food and beverage products which may be offered by the Franchisee for off-site delivery. UNDER NO CIRCUMSTANCES MAY ALCOHOLIC BEVERAGES BE OFFERED FOR OFF-SITE DELIVERY. Moreover, the Franchisee will take all steps necessary to ensure that alcoholic beverages are not available to employees operating delivery vehicles.


(iv) All pizza and other food and beverage products approved for off-site delivery sales shall be prepared at the Pizzeria, in full compliance with all specifications, standards, operating procedures and rules relating to the quality, taste, ingredients and uniformity, and manner of preparation, of pizza, food and beverage items sold at the Pizzeria.


(v) The Franchisee shall employ all efforts necessary to assure that pizza and other food products offered for sale and sold by off-site delivery are delivered to


3 customers fresh and hot, and are of uniform high quality. Such efforts shall include, but are not limited to, the use of PWS-approved packaging and containers for all off-site delivery sales.


(vi) PWS has the right in its sole discretion, to approve or disapprove any and all advertising in any way related to off-site delivery sales.


(b) Indemnification and Insurance: The Franchisee shall indemnify, defend and hold PWS and its affiliates and successors, and their respective officers, directors, shareholders, employees and agents, harmless from and against any and all claims, costs, damages or liability of any nature whatsoever, arising out of or in any way related to off-site delivery services by the Franchisee. At all times that the Franchisee conducts off-site delivery services, it shall maintain in full force and effect, in addition to all insurance coverage required by this Agreement, automobile liability insurance including, but not limited to, contractual liability coverage, liability coverage for vehicles owned, hired or borrowed by the Franchisee ("owned auto" and "hired auto" coverage, respectively), and liability coverage for vehicles owned by others ("non-owned auto" coverage), with limits of not less than $1,000,000 per occurrence of bodily injury and property damage combined, together with an umbrella liability policy with minimum limits of $3,000,000, and together with any other or increased amounts of insurance which PWS may from time to time require.


(c) Insurance: The Franchisee shall provide PWS with certificates of insurance evidencing the required coverage, which certificates shall be renewed and provided annually and shall contain such detailed information as PWS may from time to time request, and the Franchisee shall also provide PWS with full and complete copies of any and all of the above policies, including copies of any renewals or modifications thereto upon request by PWS. All insurance policies must be (i) issued by an insurance company licensed to do business in the state where the Pizzeria is located and (ii) rated A or better by A.M. Best & Company, Inc. or approved in writing by PWS, in PWS's sole discretion. The Franchisee shall also cause the companies to agree by endorsement or separate written document that PWS shall be given at least 30 days prior written notice of termination, expiration, cancellation, modification or reduction in coverage limits of any such policy. Upon failure of the Franchisee to maintain in effect any of the insurance required, or to furnish to PWS satisfactory evidence of such insurance, PWS may, in its discretion, obtain insurance coverage on behalf of the Franchisee, and the Franchisee agrees to promptly execute any applications or instruments required to obtain any such insurance and to pay to PWS, on demand, any costs and premiums incurred by PWS. The Franchisee shall additionally require each of its employees who at any time operates a vehicle in connection with off-site delivery services which is owned by a person other than the Franchisee to maintain insurance covering the employee's liability as driver of the vehicle in an amount no less than the minimum amount required by law, and the Franchisee shall require and maintain at the Pizzeria evidence of such insurance coverage, which evidence the Franchisee shall provide to PWS upon request. The Franchisee expressly waives and releases PWS and its affiliates and successors, and the respective officers, directors, shareholders, employees and agents, from any obligation or responsibility with respect to any claim asserted, or which may be asserted, by a third party or parties, arising out of or relating to the Franchisee's conduct of off-site delivery services.


4


(d) Fees and Reports: All receipts of any kind or nature derived from off-site delivery sales shall be included for purposes of computing all fees payable to PWS under this Agreement; specifically, but without limitation, any additional charges to customers the Franchisee may choose to make for off-site delivery services are included within the definition of "Adjusted Gross Sales" (see Paragraph 7(e) of this Agreement) without limitation or offset for cost incurred by the Franchisee in connection with providing such services to the customer. Off-site delivery sales shall be recorded by the Franchisee and reported to PWS at the same time or times, and in the same manner, as all other sales from the Franchisee's Pizzeria operation, provided, further, the Franchisee shall report off-site delivery sales as a separate subtotal of total reported sales for each reporting period. In addition, the Franchisee shall provide PWS with such further information relating to off-site delivery sales as PWS may from time to time request, including separate reports of costs of operation for off-site delivery services and the like.


5. TERM OF AGREEMENT


(a) Term: The term of this Agreement shall commence on the date of execution of this Agreement by PWS, and shall expire 10 years after the date the Pizzeria opens for business or the length of the lease, whichever occurs first. The Franchisee may request that the term of this Agreement be lengthened to be congruent with the term of the lease for the Pizzeria premises. PWS may grant or withhold consent to such request, in PWS's sole discretion. Once the Pizzeria opens for business, PWS shall insert the exact opening or transfer date in Exhibit "A" attached hereto and incorporated herein by reference.


(b) Termination: In the event that (i) the Franchisee fails to obtain an on-sale beer and wine license for the Pizzeria prior to the date the Franchisee opens the Pizzeria for business, unless otherwise agreed to in writing by PWS, (ii) the Franchisee fails to open the Pizzeria within 12 months after PWS's execution of this Agreement, or (iii) the Franchisee fails to complete or achieve a passing grade in the customary training course concerning the operation of the Pizzeria by the earlier of (a) three months prior to the opening of the Pizzeria or (b) 180 days after the date a final location of the Pizzeria is obtained, then this Agreement shall terminate, and PWS shall refund to the Franchisee the Initial Franchise Fee paid by the Franchisee to PWS, less expenses incurred by PWS in connection with this Agreement, as determined in PWS's sole discretion.


6. RENEWAL OF FRANCHISE


(a) Renewal Conditions: The Franchisee, at its option, shall have the right to renew the franchise granted herein for the term and upon conditions contained in the then-current standard Franchise Agreement in use by PWS on the date of renewal, provided that:


(i) The Franchisee is not in default of any provision of this Agreement or any other agreement with PWS or its subsidiaries or affiliates or any other creditor or supplier of the Pizzeria, and has substantially complied with all the terms and conditions of these agreements substantially in accordance with their terms and has satisfied all monetary obligations owed to these parties;


5


(ii) The Franchisee is able to maintain possession of the site of its Pizzeria or to secure and develop a suitable alternative site approved by PWS;


(iii) The Franchisee agrees to refurbish the site in accordance with Paragraph 9 of this Agreement;


(iv) The Franchisee executes a general release, in a form satisfactory to PWS, of any and all claims it may have against PWS and its officers, directors, shareholders, agents, and employees, in their corporate and individual capacities; and


(v) The Franchisee, or a representative approved by PWS, attends and satisfactorily completes any retraining or refresher training program that PWS may require, in its sole discretion.


(b) Renewal Fee: In connection with this renewal, the Franchisee must execute PWS's then-current standard Franchise Agreement and all other agreements customarily used by PWS in the renewal of franchises, which may provide for higher Royalty Fees and for greater expenditures for advertising and promotion than were provided for under this Agreement, and may contain other fees and terms materially different from the terms of this Agreement. The trade area of the Pizzeria will not be modified unless such modification is consistent with criteria then in effect for comparable market areas. There will be no Initial Franchise Fee upon the renewal of the franchise, but the Franchisee shall pay PWS the sum of $1,500 to offset expenses incurred in connection with the renewal.


(c) Other Obligations: PWS will send all agreements relating to renewal of the franchise for the Franchisee's review and execution not less than 12 months prior to the expiration of this Agreement along with a notification of the expiration of this Agreement. PWS's notice will also state what actions, if any, the Franchisee must take to correct the deficiencies in the operation of the Pizzeria and will specify the time period in which these deficiencies must be corrected. Renewal of the franchise will be conditioned upon the Franchisee's continued compliance with all the terms and conditions of this Agreement and all other agreements with PWS and its affiliates and subsidiaries and all other creditors and suppliers of the Pizzeria up to the date of expiration. Failure by the Franchisee to return these agreements to PWS within 30 days after receipt will be deemed an election not to renew the franchise. The Franchisee will have no right to renew the franchise upon the expiration of the first additional term.


7. FEES


(a) Initial Franchise Fee: In consideration of the franchise granted herein, the Franchisee opening a new Pizzeria at its first franchise location shall pay to PWS an Initial Franchise Fee of $______, payable upon the execution of this Agreement. For each subsequent franchise which may be granted, the Franchisee shall pay one-half of the Initial Franchise Fee then required by PWS for new the Franchisees.


(b) Initial Advertising Fee: Upon execution of this Agreement, the Franchisee shall pay to PWS's advertising fund (the "Advertising Fund") a nonrefundable Initial


6 Advertising Fee of $_____, which shall be disbursed by the Advertising Fund at PWS's sole discretion (see Paragraph 8(h) of this Agreement).


(c) Royalty Fee: In consideration of the franchise granted herein and the continuing right to use the System, the Franchisee agrees to pay to PWS, commencing from the date the Pizzeria opens, a Royalty Fee of 5% of the Adjusted Gross Sales generated monthly by the Pizzeria, or the sum of $_____, whichever is greater. Payment of the Royalty Fee shall be made on or before the fifth day of each month for the preceding calendar month.


(d) Periodic Advertising Fee: Commencing from the date the Pizzeria opens, the Franchisee shall pay to the Advertising Fund an Advertising Fee of 4% of the Adjusted Gross Sales generated monthly by the Pizzeria. Such fee shall be paid at the same time as the Royalty Fee with a late charge computed and assessed in the same manner as may be imposed for any late payment of a Royalty Fee. The Advertising Fund shall be administered by PWS in accordance with Paragraph 8(h) below. PWS may, in its sole discretion, from time to time credit against the obligation of the Franchisee to contribute to the Advertising Fund up to an amount equal to the Franchisee's obligation to contribute to the Advertising Fund for amounts expended by the Franchisee in the applicable period on local advertising and promotional campaigns. Such local advertising and promotions shall be subject to PWS's prior written consent.


(e) Adjusted Gross Sales: The term "Adjusted Gross Sales" as used herein means the total gross receipts from all sales by the Pizzeria of all pizza and other food, beverages, coin operated games, juke boxes, and vending machines and other products or services authorized for sale at the Pizzeria, including off-site delivery, without reserve or deduction for inability or failure to collect, and exclusive of sales and equivalent taxes and coupon and similar discounts approved by PWS (but in no event will coupons and similar discounts reduce Adjusted Gross Sales by more than ___%).


(f) Late Payment Charges: If the Franchisee is late in paying the Royalty Fee, periodic Advertising Fee, or the amount owed for the special spice blend, the special flour blend and related food products delivered pursuant to this Agreement, a late charge at the maximum rate permitted by state law shall be payable on the unpaid fees from the date such payments were due, and PWS may require the Franchisee to pay both the Royalty Fee and periodic Advertising Fee on a weekly basis. If PWS requires the Franchisee to make weekly payments, such payments shall be based on the Adjusted Gross Sales generated weekly by the Pizzeria and shall be made on or before Wednesday of each week for the preceding week.


8. DUTIES OF FRANCHISOR


(a) Location: Unless noted otherwise in writing by PWS, the Franchisee shall have received PWS's evaluation of a site for the Pizzeria prior to PWS's execution of this Agreement. The Franchisee may not execute a lease or a purchase agreement for the Pizzeria which has not been reviewed by PWS. The Franchisee shall provide PWS with any and all documents relating to a site under consideration and the lease or purchase agreement for such site when seeking PWS's review of such site. While it is the Franchisee's obligation to find a suitable location for the Pizzeria which meets PWS's criteria, PWS may have assisted the


7 Franchisee with the search for a suitable location by advising and consulting with the Franchisee, if requested to do so by the Franchisee. The Franchisee acknowledges that PWS's review of a location does not constitute a representation or guaranty by PWS that the location will be a successful location for the Pizzeria.


(b) Training: Prior to the public opening of the Pizzeria, PWS will make available to the Franchisee and two designated persons approved by PWS, PWS's customary training and indoctrination course concerning the operation of the Pizzeria, as described in Paragraph 9(h) of this Agreement. At its discretion, PWS may also offer additional training programs and refresher courses to the Franchisee during the term of this Agreement, at the Franchisee's expense.


(c) Operating Manual and Other Manuals: PWS shall loan to the Franchisee during the term of the franchise one or more copies of an operating manual or operational bulletins or similar materials containing mandatory and suggested specifications, standards and operating procedures and rules prescribed from time to time by PWS and information relative to other obligations of the Franchisee under this Agreement and the operation of its Pizzeria and copies of other manuals that may be developed by PWS (collectively, the "Manuals"). PWS has the right to add to and otherwise modify the Manuals from time to time, if deemed necessary to improve the standa ...