Territory Franchise Agreement

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.


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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


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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


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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


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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.


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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.


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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


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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 Restaur ...