UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended June 28, 1994
Commission File Number 0-13007
NPC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0817298
(State of Incorporation) (I.R.S. Employer Identification Number)
720 W. 20th Street, Pittsburg, KS 66762
(Address of principal executive offices)
Registrant's telephone number, including area code (316) 231-3390
NATIONAL PIZZA COMPANY
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
The number of shares outstanding of each of the registrant's
classes of common stock as of July 22, 1994:
Class A Common Stock, $0.01 par value - 12,582,321
Class B Common Stock, $0.01 par value - 12,421,802
<PAGE>
NPC INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets --
June 28, 1994 and March 29, 1994 3
Condensed Consolidated Statements of Income --
For the Thirteen Weeks Ended
June 28, 1994 and June 29, 1993 4
Condensed Consolidated Statements of Cash Flows --
For the Thirteen Weeks Ended
June 28, 1994 and June 29, 1993 5
Notes to Condensed
Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a
Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
<TABLE>
PART I - FINANCIAL INFORMATION
NPC International, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 28, 1994 March 29, 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,841,000 $ 8,119,000
Accounts receivable and other, net 2,992,000 3,105,000
Notes receivable, net 569,000 641,000
Inventories of food and supplies 3,004,000 3,297,000
Prepaid expenses and other current assets 1,933,000 2,048,000
Total current assets 14,339,000 17,210,000
Facilities and equipment, net 138,848,000 148,760,000
Franchise rights 28,132,000 21,047,000
Goodwill, less accumulated amortization 33,029,000 33,327,000
Other assets 8,304,000 8,768,000
$222,652,000 $229,112,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,178,000 $ 16,200,000
Payroll taxes 1,856,000 1,283,000
Accrued interest 1,153,000 1,788,000
Accrued payroll 4,665,000 3,303,000
Other accrued liabilities 15,036,000 12,866,000
Current portion of long-term debt 1,300,000 1,390,000
Total current liabilities 38,188,000 36,830,000
Long-term debt and
obligations under capital leases 75,118,000 86,734,000
Deferred income taxes and other 6,652,000 6,561,000
Stockholders' equity:
Class A Common Stock 139,000 139,000
Class B Common Stock 137,000 137,000
Paid-in capital 22,316,000 22,322,000
Retained earnings 99,455,000 95,700,000
122,047,000 118,298,000
Less treasury stock (19,353,000) (19,311,000)
Total stockholders' equity 102,694,000 98,987,000
$222,652,000 $229,112,000
</TABLE>
[FN]
See notes to condensed consolidated financial statements.
<TABLE>
NPC International, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
For the Thirteen Weeks Ended
June 28, 1994 June 29, 1993
<S> <C> <C>
Net sales $83,179,000 $78,430,000
Net franchise revenues 1,278,000 349,000
Total revenues 84,457,000 78,779,000
Cost of sales 24,367,000 23,549,000
60,090,000 55,230,000
Direct labor costs 24,110,000 22,980,000
Operating expenses 22,428,000 20,199,000
General and administrative expenses 5,941,000 6,043,000
52,479,000 49,222,000
Operating income 7,611,000 6,008,000
Interest expense (1,552,000) (1,621,000)
Other income (expense) 67,000 (39,000)
Income before income taxes 6,126,000 4,348,000
Provision for income taxes 2,371,000 1,674,000
Net income $ 3,755,000 $ 2,674,000
Earnings per share $ 0.15 $ 0.11
Weighted average shares outstanding 25,028,287 25,344,008
</TABLE>
[FN]
See notes to condensed consolidated financial statements.
<TABLE>
NPC International, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
For the Thirteen Weeks Ended
June 28, 1994 June 29, 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,755,000 $ 2,674,000
Non-cash items included in net income:
Depreciation and amortization 5,428,000 4,921,000
Deferred income taxes and other 91,000 129,000
Change in assets and liabilities,
net of acquisitions:
Accounts receivable and other, net 112,000 558,000
Notes receivable, net 73,000 (49,000)
Inventories of food and supplies 292,000 71,000
Prepaid expenses and other current assets 114,000 (981,000)
Accounts payable (2,022,000) 158,000
Payroll taxes 573,000 1,243,000
Accrued interest (635,000) (17,000)
Accrued payroll 1,362,000 1,297,000
Other accrued liabilities 2,170,000 2,073,000
Net cash flows from operating activities 11,313,000 12,077,000
CASH FLOWS USED BY INVESTING ACTIVITIES:
Acquisition of NRH Corporation, net of cash - - - (19,370,000)
Capital expenditures, net (2,314,000) (2,324,000)
Changes in other assets, net 465,000 143,000
Proceeds from sale of capital assets 12,000 317,000
Net cash flows used
by investing activities (1,837,000) (21,234,000)
CASH FLOWS FROM (USED BY)
FINANCING ACTIVITIES:
Purchase of treasury stock (52,000) (237,000)
Net change in revolving credit agreements 3,030,000 23,310,000
Payment of long-term debt (14,735,000) (12,751,000)
Exercise of stock options 3,000 3,000
Net cash flows from
(used by) financing activities (11,754,000) 10,325,000
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,278,000) 1,168,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 8,119,000 6,195,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,841,000 $ 7,363,000
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
NPC International, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1
On July 12, 1994, the stockholders of National Pizza Company
approved and adopted an amendment to the Company's Amended and
Restated Articles of Incorporation to change the Company's name
to NPC International, Inc. The Company's Class A voting and
Class B non-voting common stock continues to trade on the NASDAQ
under the new ticker symbols "NPCIA" and "NPCIB," respectfully.
Note 2
In the opinion of Management of the Company, the accompanying
unaudited condensed consolidated financial statements contain all
normal recurring adjustments necessary to present fairly the
financial position of the Company as of June 28, 1994 and March
29, 1994, the results of operations for the fiscal quarters ended
June 28, 1994 and June 29, 1993 and the statements of cash flows
for the fiscal quarters ended June 28, 1994 and June 29, 1993.
NRH Corporation, acquired on June 8, 1993, is included in the
fiscal quarter ended June 29, 1993 for only 19 days.
On June 7, 1994, the Company executed a new franchise agreement
and a definitive agreement to exchange certain assets. Under the
agreement, NPC will exchange all of its Pizza Hut restaurants in
California, Kentucky, Maryland, Virginia and West Virginia and
five restaurants in Arkansas, two in Missouri, three in Tennessee
and one each in Oklahoma and Mississippi (a total of 84
restaurants) for 50 Pizza Hut restaurants currently operated by
the franchisor Pizza Hut Inc. (PHI) and certain additional rights
under the 1990 Franchise Agreement. As of June 28, 1994, the
Company had transferred 40 units (37 in California, two in
Missouri and one in Oklahoma) to PHI. The remaining phases of
the transaction are expected to close August, 1994.
These statements should be read in conjunction with the financial
statements and notes contained in the Company's annual report on
Form 10-K for the fiscal year ended March 29, 1994.
Note 3
There were cash payments for income taxes of $675,000 in the
thirteen weeks ended June 28, 1994 and no taxes paid in the
thirteen weeks ended June 29, 1993. Cash paid for interest for
the thirteen weeks ended June 28, 1994 and June 29, 1993 was $2.2
million and $1.6 million, respectively.
As part of the asset exchange agreement with Pizza Hut, Inc., the
Company will exchange 84 of its operating entities with 50 Pizza
Hut restaurants operated by PHI and certain additional rights.
No gain or loss will be recognized as a result of this exchange
in properties. As of June 28, 1994, approximately $9.8 million
of book basis in the exchanged assets had been re-capitalized as
franchise rights in connection with the transaction, which will
be amortized beginning in July, 1996 over the remaining life of
the franchise agreement.
NPC International, Inc.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
At June 28, 1994, NPC International, Inc. (formerly National
Pizza Company) owned and operated 235 Pizza Hut restaurants and
87 delivery kitchens in 11 states. The reduced unit count is due
to the partial completion of the asset exchange agreement with
the Company's franchisor, Pizza Hut Inc. The Company's pizza
restaurants are generally free standing, full table service
restaurants which offer high quality and moderately priced pizza,
pasta, sandwiches and a salad bar. Beverage service includes
soft drinks and, in most restaurants, beer. Delivery kitchens
provide home delivery and carry out of pizza products, but they
do not have dining facilities, salad bars or beer.
On the same date, the Company owned and operated 186 and
franchised 16 quick service seafood Skipper's restaurants in ten
western states and British Columbia. Skipper's offers a limited
menu including fish, shrimp and clams. Each restaurant features
a casual atmosphere and beer is served in most locations.
On June 8, 1993, the Company purchased the stock of NRH
Corporation. NRH is the owner and operator of 26 Tony Roma's
restaurants in four states, and franchisor of 107 restaurants in
19 states and 32 foreign locations at June 28, 1994. Tony Roma's
is a casual theme restaurant chain "Famous for Ribs", but also
offers a variety of menu choices including chicken, steaks and
salads. All Tony Roma's restaurants serve alcohol.
<TABLE>
Pizza Hut Operations
<CAPTION>
For the Thirteen Weeks Ended
June 28, 1994 June 29, 1993
Restaurants Delivery Restaurants Delivery
<S> <C> <C> <C> <C>
Net sales $39,544,000 $13,076,000 $40,976,000 $13,552,000
Percentage of net sales:
Cost of sales 25.8% 24.9% 27.2% 26.1%
Direct labor costs 26.0% 32.2% 27.2% 33.9%
Operating expenses 24.6% 24.7% 23.7% 23.8%
76.4% 81.8% 78.1% 83.8%
Operating profit 23.6% 18.2% 21.9% 16.2%
Number of Company units 235 87 262 96
</TABLE>
Comparison of Pizza Hut Operating Results for the Thirteen Weeks
Ended June 28, 1994 with the Thirteen Weeks Ended June 29, 1993
Net sales from Pizza Hut operations for the thirteen weeks ended
June 28, 1994, were $52.6 million, down 3.5% from the same period
in the prior fiscal year. Sales in comparable restaurants and
delivery kitchens open in excess of twelve months decreased 1.4%
on a real basis from the same quarter in the prior year.
Contributing to this slight decline was the positive sales gains
a year ago after the introduction of the BIGFOOT pizza. Part of
this decline is also due to the transfer of 40 of 84 restaurants
to Pizza Hut, Inc. in June 1994 as part of a definitive asset
exchange agreement signed June 7, 1994. NPC does not expect the
exchange to affect annual earnings materially, inclusive of the
effect of the purchase of 17 units from another Pizza Hut
franchisee.
The Company sold its catering operations on November 18, 1993,
which primarily served as the concessionaire for a multi-purpose
arena in Memphis, Tennessee. The Company recorded $305,000 in
sales from its concession and catering division for the thirteen
weeks ended June 29, 1993.
Management anticipates, based on the economic environment and
competitive conditions, as well as strong sales gains recorded a
year ago, comparable unit sales in real dollars will remain flat
to slightly positive.
Cost of sales in the Pizza Hut operations--as a percentage of net
sales--for the thirteen weeks ended June 28, 1994 (25.6%)
decreased when compared with the cost of sales percentage for the
thirteen weeks ended June 29, 1993 (26.9%). The reduction in
cost is due to higher than normal costs associated with the
introduction of BIGFOOT pizza last fiscal year. Cost of sales
includes food and beverage costs and the expense of paper takeout
supplies.
Direct labor in the Pizza Hut operations decreased to 27.5% of
net sales for the most recent quarter, compared with 28.9% for
the comparable quarter a year ago. The Company experience
higher labor costs last year due to training for BIGFOOT and the
luncheon buffet.
Overall operating expenses increased slightly as a percentage of
sales, to 24.6% for the quarter ended June 28, 1994 from 23.7%
for the quarter ended June 29, 1993. The increase is primarily
attributable to the timing of payment of certain insurance costs.
Major operating expenses in the Pizza Hut division include
advertising, depreciation and amortization, and rent.
<TABLE>
Skipper's Operations
<CAPTION>
For the Thirteen Weeks Ended
June 28, 1994 June 29, 1993
<S> <C> <C>
Net restaurant sales $20,013,000 $21,357,000
Net franchise revenue 73,000 78,000
Total revenues $20,086,000 $21,435,000
Percentage of revenue:
Cost of sales 36.8% 37.6%
Direct labor costs 31.0% 30.1%
Operating expenses 29.8% 29.4%
97.5% 97.1%
Operating profit 2.5% 2.9%
Number of Company units 186 188
Number of franchised units 16 18
</TABLE>
Comparison of Skipper's Operating Results for the Thirteen Weeks
Ended June 28, 1994 with the Thirteen Weeks Ended June 29, 1993
The Company returned to its value-pricing strategy in October
1993 and continues to test new products and menu combinations in
an attempt to increase guest counts and sales. Skipper's
completed the food delivery system retrofits of all Company
stores in April 1994, which reduced serving time to approximately
two minutes from the previous "cooked-to-order" eight minutes.
Introduction of Skipper's beer-battered fish has also had
favorable results in test markets. Despite these innovations,
same store sales were down 5.9% for the fiscal quarter ended June
28, 1994 when compared with the same quarter last year.
Operating costs for the fiscal quarter ended June 28, 1994 did
not materially change when compared with the same quarter in the
prior year. Cost of sales--as a percentage of net revenues--
decreased 0.8% of revenue in the thirteen weeks ended June 28,
1994 when compared with the thirteen weeks ended June 29, 1993
due to improved pricing from product suppliers. Direct labor
costs, consisting of wages, taxes and related fringe benefits,
increased 0.9% of net revenues due to lower sales volume.
Restaurant operating expenses approximately equaled the prior
year as a percentage of revenues.
Management anticipates comparable unit sales in real dollars will
remain flat to slightly down in fiscal 1995, with improved
results through food and labor costs reductions.
<TABLE>
Tony Roma's Operations
<CAPTION>
For the Thirteen Weeks Ended
June 28, 1994
<S> <C>
Net restaurant sales $10,545,000
Net franchise revenues 1,205,000
Total revenues $11,750,000
Percentage of revenue:
Cost of sales 29.9%
Direct labor costs 28.9%
Operating expenses 29.7%
88.5%
Operating profit 11.5%
Number of Company units 26
Number of franchised units 139
</TABLE>
Analysis of Tony Roma's Operating Results for the Thirteen Weeks
ended June 28, 1994
On June 8, 1993, NPC International, Inc. completed its
acquisition of NRH Corporation, owner and franchisor of Tony
Roma's A Place for Ribs. For the 19 days ended June 29, 1993,
Tony Roma's reported revenues from 26 Company units and 127
franchised restaurants of $2.5 million, including $271,000 in net
franchise revenues.
Comparable sales for the thirteen weeks ended June 28, 1994, were
down 2.5% when compared with the similar period in the prior
year. Roma's sales trends continue to be positive except for the
Company's Florida market. Franchise operations contributed
approximately $1.9 million gross franchise income for the fiscal
quarter ended June 28, 1994.
Management currently anticipates opening six company-owned
restaurants and 15 new franchise restaurants in the current
fiscal year. NRH was merged into its subsidiary Romacorp, Inc.
on March 29, 1994, as part of a restructuring of the operating
group. On June 20, Mr. Robert Page became President of
Romacorp; Mr. Jerry Brunotts will remain with the Company on a
part-time basis specializing in real estate and franchisee
relations.
Consolidated Results
Comparison of Operating Results for the Thirteen Weeks Ended June
28, 1994 with the Thirteen Weeks Ended June 29, 1993
Overall revenues for the thirteen weeks ended June 28, 1994 were
$84.5 million, an increase of $5.7 million, or 7.2% when compared
with $78.8 million for the thirteen weeks ended June 29, 1993.
Of this increase, approximately $9.2 million is attributable to
new sales and franchise revenues from the Tony Roma's acquisition
that were not present in the quarter ended June 29, 1993.
General and administrative expenses--as a percentage of net
revenues--declined in the thirteen weeks ended June 28, 1994
(7.0%), when compared with the thirteen weeks ended June 29, 1993
(7.7%). Part of this decrease is due to the spread of operating
expenditures over a larger revenue base and the completion of
amortizing certain start-up costs. Major expenses in these costs
principally include corporate salaries, amortization of
intangible assets, and bank service charges.
Net income for the thirteen weeks ended June 28, 1994, was $3.8
million, a 40.4% increase over the $2.7 million reported for the
thirteen weeks ended June 29, 1993. The Company's effective
tax rate fell to 38.7% for the fiscal quarter ended June 28, 1994
from approximately 39.0% for the fiscal year ended March 29,
1994.
Liquidity, Capital Resources and Cash Flows
On June 28, 1994, the Company had a working capital deficit of
$23.8 million ($22.8 million deficit at June 29, 1993). Like
most restaurant businesses, the Company is able to operate with a
working capital deficit because substantially all of its sales
are for cash, while it generally receives credit from trade
suppliers. Further, receivables are not a significant asset in
the restaurant business and inventory turnover is rapid.
Therefore, the Company uses all available liquid assets to reduce
borrowings under its line of credit.
Net cash flows from operating activities decreased slightly
($764,000) when comparing the thirteen weeks ended June 28, 1994
with the comparable quarter a year earlier.
The Company completed the acquisition of NRH Corporation on June
8, 1993, for an aggregate cash consideration of $20.4 million
plus operating cash flow subsequent to the date of the
preliminary agreement. The Company increased its line of credit
to $45.0 million on June 11, 1993 and funded the transaction
through borrowings available under the line.
The Company anticipates cash flow from operations will provide
sufficient capital to fund continuing expansion and improvements,
to service debt obligations and to develop new restaurants in
existing territories. Future acquisitions may require additional
debt or capital resources.
On June 16, 1994, the Company announced continuation of its stock
repurchase program, allowing for the additional purchase of
500,000 shares of the Company's Class A or Class B Common stock.
The Company has previously repurchased approximately 2,500,000
shares under the current program.
Seasonality and Effects of Inflation
As a result of continued concept diversification, the Company has
not experienced significant seasonality of its sales.
Inflationary factors such as increases in food and labor costs
directly affect the Company's operations. Because most of the
Company's employees are paid hourly rates related to federal and
state minimum wage and tip credit laws, changes in these laws
will result in increases in the Company's labor costs.
Legislation mandating health coverage for employees, if passed,
will increase benefit costs since most hourly restaurant
employees are not currently covered under Company plans. The
Company cannot always effect immediate price increases to offset
higher costs, and no assurance can be given that the Company will
be able to do so in the future.
Increases in interest rates could directly affect the Company's
operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on July 12,
1994.
(b) Proxies were solicited by the Company pursuant to
Regulation 14 under the Securities Exchange Act of
1934, there was no solicitation in opposition of the
nominees as listed in the proxy statement, and all such
nominees were elected pursuant to the vote of the
stockholders.
(c) Class A stockholders approved and adopted the 1994
Stock Option Plan. The vote on this proposal was
10,868,409 shares "FOR" and 560,890 shares "AGAINST",
with 21,077 shares abstaining and 465,680 shares not
voting. Stockholders also approved and adopted an
amendment to the Company's Restated Articles of
Incorporation to change the Company's name to NPC
International, Inc. The vote on this proposal was
11,889,071 shares "FOR" and 13,627 shares "AGAINST",
with 13,358 shares abstaining.
Item 6. Exhibits filed as part of this Report and Reports on Form 8-K
(a) Exhibits
The following Exhibit is filed as part of this Report:
Exhibit 4.1 - Specimen Stock Certificate for Class A
Common Stock
Exhibit 4.2 - Specimen Stock Certificate for Class B
Common Stock
Exhibit 10.01 - Sample franchise agreement between
Pizza Hut, Inc. and National Pizza Company
effective March 30, 1994.
Exhibit 10.33 - Third amendment to the National
Pizza Company Profit Sharing Plan, effective
January 1, 1993.
Exhibit 11 - Statement Regarding Computation of
Per Share Earnings - Page 13
(b) Reports on Forms 8-K
No reports on Forms 8-K were filed during the quarter
ended June 28, 1994.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NPC INTERNATIONAL, INC.
(Registrant)
DATE: July 28, 1994 James K. Schwartz
Vice President, Chief Financial Officer
Principal Financial Officer
DATE: July 28, 1994 Douglas K. Stuckey
Corporate Controller,
Chief Accounting Officer
Principal Accounting Officer
Exhibit 4.1 - Class A Voting Stock Specimen - Facing page (Electronic version)
NPC INTERNATIONAL
GRAPHICAL LOGO
NUMBER NPA SHARES
NPC INTERNATIONAL, INC.
CLASS A COMMON STOCK INCORPORATED IN THE STATE CUSIP 629360 10 8
(VOTING) OF KANSAS SEE REVERSE
FOR CERTAIN
DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A
COMMON STOCK (VOTING) OF THE PAR VALUE OF $0.01 EACH OF
NPC INTERNATIONAL, INC.
transferable on the books of the Corporation in person or by duly
authorized attorney, upon surrender of the Certificate, properly
endorsed. This certificate is not valid until countersigned by
the Transfer Agent and registered with the Registrar.
WITNESS the seal of the Corporation and the signatures of
its duly authorized officers.
Dated
NPC INTERNATIONAL, INC.
CORPORATE SEAL
KANSAS
Gene Bicknell David G. Short
Chairman of the Board Secretary
Countersigned and Registered
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
(New York, New York)
Transfer Agent and Registrar
By
Authorized Signature
<PAGE>
Class A Voting Stock Specimen - reversing page (Electronic version)
NPC INTERNATIONAL, INC.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entities
JT TEN -- as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -- (Custodian) Custodian (Minor) under
Uniform Gifts to Minors Act (State)
Additional abbreviations may also be used though not in the
above list.
For value received, ________________ hereby sell, assign and transfer unto
Please insert social security or other identifying number of assignee__________
Please print or typewrite name and address including postal zip code of
assignee____________________________________________________________________
________________________________________________________________Shares
of the capital stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint ___
_____________________________________________________________________________
Attorney to transfer the said stock on the books of the within-
named Corporation with full power of substitution in the
premises.
Dated, __________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature X_______________________
Signature X_______________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN "ELIGIBLE GUARANTOR
INSTITUTION" AS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES AND
EXCHANGE ACT OF 1934, AS AMENDED. SIGNATURE(S) GUARANTEED BY:
Exhibit 4.2 - Class B Voting Stock Specimen - Facing page (Electronic version)
NPC INTERNATIONAL
GRAPHICAL LOGO
NUMBER NPB SHARES
NPC INTERNATIONAL, INC.
CLASS B COMMON STOCK INCORPORATED IN THE STATE CUSIP 629360 20 7
(NON-VOTING) OF KANSAS SEE REVERSE
FOR CERTAIN
DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS B
COMMON STOCK (NON-VOTING) OF THE PAR VALUE OF $0.01 EACH OF
NPC INTERNATIONAL, INC.
transferable on the books of the Corporation in person or by duly
authorized attorney, upon surrender of the Certificate, properly
endorsed. This certificate is not valid until countersigned by
the Transfer Agent and registered with the Registrar.
WITNESS the seal of the Corporation and the signatures of
its duly authorized officers.
Dated
NPC INTERNATIONAL, INC.
CORPORATE SEAL
KANSAS
Gene Bicknell David G. Short
Chairman of the Board Secretary
Countersigned and Registered
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
(New York, New York)
Transfer Agent and Registrar
By
Authorized Signature
<PAGE>
Class B Voting Stock Specimen - Reversing page (Electronic version)
NPC INTERNATIONAL, INC.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entities
JT TEN -- as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -- (Custodian) Custodian (Minor) under
Uniform Gifts to Minors Act (State)
Additional abbreviations may also be used though not in the
above list.
For value received, ________________ hereby sell, assign and transfer unto
Please insert social security or other identifying number of assignee__________
Please print or typewrite name and address including postal zip
code of assignee____
________________________________________________________________
________________________________________________________________Shares
of the capital stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint ___
_____________________________________________________________________________
Attorney to transfer the said stock on the books of the within-
named Corporation with full power of substitution in the premises.
Dated, __________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature X_______________________
Signature X_______________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN "ELIGIBLE GUARANTOR
INSTITUTION" AS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES AND
EXCHANGE ACT OF 1934, AS AMENDED. SIGNATURE(S) GUARANTEED BY:
Exhibit 10.33
THIRD AMENDMENT TO
NATIONAL PIZZA COMPANY PROFIT SHARING PLAN
Except as noted otherwise, this Amendment is entered into and is
effective as of the first day of January, 1993 by as above (the
"Employer") and Boatmen's Trust Company (the "Trustee").
WITNESSETH, WHEREAS:
The Employer maintains a profit-sharing plan intended to meet the
requirements of Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"), for the benefit of its employees; and
The Employer is empowered to amend the Plan pursuant to Section
11.1 thereof; and
The Employer wishes to amend the Plan to the extent necessary and
permitted under Revenue Procedure 93-47 to ensure its compliance
with Section 401(a)(31) and any other applicable sections of the
Code by adopting an amendment as provided under Revenue Procedure
93-47; and
The Employer also wishes to amend the Plan to the extent
necessary and permitted under Revenue Procedure 94-13 to ensure
its compliance with Section 401(a)(17) as amended by the Omnibus
Budget Reconciliation Act of 1993, Pub. L. No. 103-66 and other
applicable sections of the Code by adopting a model amendment as
provided under Revenue Procedure 94-13;
NOW THEREFORE, the Employer has determined with the concurrence
of the Trustee that the Plan shall be amended, effective as of
the date set forth above, as follows:
1. Effective January 1, 1994, Section 1.9 of the Plan is hereby
amended by adding the following paragraphs to the definition
of "Earnings":
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to
the contrary, for Plan Years beginning on or after January
1, 1994, the annual Earnings of each employee taken into
account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit
is $150,000, as adjusted by the Commissioner for increases
in the cost of living in accordance with section
401(a)(17)(B) of the Internal Revenue Code. The cost-of-
living adjustment in effect for a calendar year applies to
any period, not exceeding 12 months, over which Earnings is
determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be
multiplied by a fraction, the numerator of which is the
number of months in the determination period, and the
denominator of which is 12.
For plan years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under section
401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this provision.
If Compensation for any prior determination period is taken
into account in determining an employee's benefits accruing
in the current Plan Year, the Compensation for that prior
determination period is subject to the OBRA '93 annual
compensation limit in effect for that prior determination
period. For this purpose, for the determination periods
beginning before the first day of the first Plan Year
beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
2. Effective January 1, 1994, Section 1 of the Plan is
hereby amended by adding the following definition.
1.31 OBRA'93. "OBRA '93 means that Omnibus Budget Reconciliation
Act of 1993, Pub. L. No. 103-66."
3. Section 6 of the Plan is hereby amended adding Section
6.6 to read as follows:
6.6 Rollovers to Other Plans or IRAs
This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Administrator, to
have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
If a distribution is one to which sections 401(a)(11) and
417 of the Internal Revenue Code do not apply, such
distribution may commence less than 30 days after the notice
required under section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) The Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular
distribution
option), and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution.
Definitions:
(1) Eligible rollover distribution. An eligible rollover
distribution is any
distribution of all or any portion of the balance to
the credit of the distributee, except that an eligible
rollover distribution does not include:
(a) any distribution that is one of a series of
substantially equal
periodic payments (not less frequently than
annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint
life expectancies) of the distributee and the
distributee's beneficiary, or for a specified
period of ten years or more;
(b) any distribution to the extent such distribution
is required
under section 401(a)(9) of the Code; and
(c) the portion of any distribution that is not
includable in gross
income (determined without regard to the exclusion
for net unrealized appreciation with respect to
employer securities).
(2) Eligible retirement plan. An eligible retirement plan
is an individual
retirement account described in section 408(a) of the Code,
an individual retirement annuity described in section
408(b) of the
Code, an annuity plan described in 403(a) of the Code,
or a qualified trust described in section 401(a) of the
Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse,
an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) Distributee. A distributee includes an employee or former
employee. In addition, the employee's or former
employee's surviving spouse and the employee's or
former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations
orders as defined in section 414(p) of the Code, are
distributees with regard to the interest of the spouse
or former spouse.
(4) Direct rollover. A direct rollover is a payment by the
plan to the eligible retirement plan specified by the
distributee.
Except as amended hereby, the Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, the Plan is amended this_____day of________________,1994.
National Pizza Company
WITNESS AS TO EMPLOYER:
By____________________
______________________________________________
Print Name
TRUSTEE:
Boatmen's Trust Company
By_________________________________________
Print Name
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, 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 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.
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 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 corrections 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 billing by Company. The foregoing
shall be in addition to any other rights or remedies Company may
have.
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 al licenses during the term of this Agreement.
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 the 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 "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.
1. 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 two
percent (2%) of the prior monthly gross sales (as defined in
Article X. B.) of each such System Restaurant.
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.
2. 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. 2. a. and b. (subject, however, to the
limitations set forth in Article VI. E.).
3. 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.
4. 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 VI. 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.
5. 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.
6. All Co-op advertising shall be prepared, reviewed, and
used in accordance with the requirements of Article VI. D. and
such provision shall apply to all Co-op advertising and
promotion.
7. 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.
8. 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 two percent (2%) 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.
9. The monthly contributions and/or 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 than two percent (2%) of the prior month's gross sales from
each System Restaurant for contribution to the national
advertising fund administered by the Advertising Committee.
C. During the period the Advertising Committee Agreement
between Company and IPHFHA is in force, Operator shall pay an
amount equal to two percent (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 percent (2%) of that Operator's System
Restaurant's monthly gross sales, for contribution to the
national advertising fund administered by the Advertising
Committee. The two percent (2%) payment incorporates, and is not
intended to be in addition to, IPHFHA dues described in Article
VI. B. above. 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. 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 amy keep or destroy such signs or
other media without paying therefor, and without being guilty of
trespass or other tort.
E. 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.
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.
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 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.
1. 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. 1. The parties agree that Company's spice blends are
highly confidential secret recipes and are trade secrets of
Company. Because of the importance of quality and uniformity of
product and the significance of the spice blends in the
preparation of products to achieve and maintain such quality and
uniformity, it is to the mutual benefit of the parties that
Company closely control the production and distribution of the
spice blends. Similar considerations may also apply to other
trade secret items which Company may develop in the future.
Accordingly, Operator agrees to use only Company's secret spice
blends in the preparation of products approved by Company and to
buy from Company, or a source designated by Company, its full
requirements of Company's spice blends as well as (at Company's
direction) any other trade secret items which Company may develop
in the future.
1. a. For the purpose of this Article VIII. B. 2., the
term "Company" includes any business entity controlling,
controlled by, or under common control with, Pizza Hut, Inc.
a. Operator shall have the option to purchase from
Company, upon such terms as Company shall determine, such items
as Company may offer for sale to Operator.
b. Within four (4) months after the end of each fiscal
year of Company, Company will determine its rate of gross profit
and its rate of net pre-tax profit attributable to sales by
Company to all its Pizza Hut franchisees of only food, paper
products, and similar restaurant supplies (but not of any other
items, including, without limitation, nonfood items manufactured
by Company and other items such as, furnishings, interior and
exterior decor items, and equipment) for said fiscal year.
In making such determination, the sales, gross
profit, and net pre-tax profit for all entities will be
combined (without considering accounting eliminations) into
one financial statement, and Company's cost shall be reduced
by any cash discounts which Company may receive from its
vendors.
c. If --
i) the rate of gross profit as so
determined by Company exceeds fourteen (14%), or
ii) the rate of net pre-tax profit as so
determined by Company exceeds two and one-half percent
(2.5%),
then in either event Company will, within thirty (30) days
thereafter, pay to Pizza Hut franchisees entitled thereto,
in the manner provided in e. below, an amount equal to the
excess as determined under either i) or ii) above, whichever
is greater; provided, however, that the aggregate payment
called for herein shall in no event exceed an amount equal
to Company's net pre-tax profit attributable to sales of
food, paper products, and similar restaurant supplies by
Company to all its Pizza Hut franchisees for said fiscal
year.
d. Company will pay to each Pizza Hut franchisee its share
of the amount determined to be payable by Company under c. and d.
above, in the form of a cash payment or a credit, at the option
of the franchisee, pursuant to procedures established by Company.
The said share of each Pizza Hut franchisee shall be in an amount
which bears the same relationship to the total amount determined
to be payable by Company under c. and d. above as such
franchisee's gross purchases from Company of food, paper
products, and similar restaurant supplies bear to gross purchases
of such items from Company by all franchisees; the parties
expressly agree that such share shall be determined without
regard to any other factors, including, without limitation,
product mix variations, delivery and service charges, regional
price variations, or other price variations.
IX. FRANCHISE FEES AND 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. a.), an
initial franchise fee in the amount of Fifteen Thousand Dollars
($15,000); and
2. A monthly 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. 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 four and one-half percent (4.5%) of gross food and
nonalcoholic beverage sales instead of four percent (4%) of total
gross 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. 1. Within the Territory, Operator shall have under
construction and/or operating, by the respective deadlines set
forth in Schedule A, at least the number of new Red Rood
restaurants called for by Schedule A. By the respective
deadlines set forth in Schedule B, Operator shall have presented
to Company schedules for the development of delivery distribution
points sufficient to provided adequate delivery service to the
respective areas in the Territory identified in Schedule B;
furthermore, Operator shall have under construction and/or
operating, by the respective deadlines set forth in Schedule B, a
sufficient number of delivery distribution points to provide
adequate delivery service (in Company's sole discretion, but in
accordance with the procedures set forth below) to all locations
in each of the areas in the Territory set forth in Schedule B.
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.
The words "under construction" as used herein shall mean, 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 a
System Restaurant are complete.
Failure of Operator to comply with the schedules and
obligations set forth in this Article IX. B. 1. and in
Schedules A and B shall constitute a default under this
Agreement. If said default occurs, any franchise rights of
Operator to establish in the Territory additional System
Restaurants to operate in 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 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.
a. For purposes of this Article IX. B., "delivery
distribution points" means Red Roof restaurants that offer
delivery services, Delivery restaurants, and Delco restaurants.
b. As used in this Article IX. B., "adequately" means in
accordance with Company's then-current standards for delivery.
In making a determination of the adequacy of Operator's delivery
services, the 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. In the event Operator defaults on these development
obligations, Company shall have the right, notwithstanding any
other provision in this Agreement, to operate and/or to license
others to operate System Restaurants within the System Restaurant
Concept with respect to which the default occurred within the
Territory. Company will not establish nor will it permit any
licensee to establish a Red Roof restaurant at a location within
a two (2)-mile radius of any then-existing Red Roof restaurant of
Operator. Company or its licensee may, however, establish and
operate Delivery restaurants anywhere within the Territory, and
Company (but not its licensee) may establish and operate Delco
restaurants outside a 500-yard radius of any of Operator's then-
existing Red Roof 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 Red Roof 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 another but only if Company first offers to Operator (if
Operator is in good standing as defined in Paragraph 1. 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.
3. Company may mandate the implementation of Express
restaurants. 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 counterpropsal 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.
4. If at any time after the expiration of any prior
development schedule for a particular System Restaurant Concept
(including, for this purpose, a New Concept released to System
pursuant to Article I.D.), Company deems it practicable to
establish within the Territory additional locations for System
Restaurants in the same System Restaurant Concept, and if
Operator did not default on its obligations under any prior
development schedule for the same System Restaurant Concept,
Company will notify Operator in writing and will invite Operator
to propose a secondary 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
secondary development schedule. Within thirty (30) days
thereafter, Company shall either accept the secondary development
schedule proposed by Operator, or counterpropose a different five
(5)-year secondary development schedule. Operator shall have
fifteen (15) days from the date Company accepts Operator's
proposed secondary development schedule or counterproposes its
own secondary development schedule within which to elect in
writing to undertake development of additional restaurants
according to the terms of the secondary development schedule. In
the event Operator fails to make that election or fails to comply
with the secondary 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 Red Roof
restaurant within a two (2)-mile radius of any then-existing Red
Roof restaurant of Operator. Company or its licensee may,
however, established 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 Red
Roof 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 Red Rood 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 another only if Company first offers to
Operator (if Operator is 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 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.
5. Any Delivery restaurants and Delco restaurants
established by Company or its licensees within the Territory
after a development default by Operator (pursuant to this Article
IX. B.) will not provide delivery service to those portions of
the Territory which are within two (2) miles of a delivery
distribution point continuously operated by Operator since the
date of Operator's development default.
Operator may, after receiving notice of loss of development
rights for Delivery restaurants and Delco restaurants for
failure to develop, 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 Operator had defaulted on its
development obligations, at any time and for any reason.
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 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 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.
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 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
Article 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 or 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.
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 XXVIII. G., the parties hereto
acknowledge that if this paragraph is violated, the former
employer shall been 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 either
arbitration or litigation in Court. For purposes of this
paragraph, "managerial position" includes all employees at the
pay grade of restaurant manager and above.
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.
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 by
Company, and Operator shall take all reasonable precautions to
prevent said disclosure.
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.
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 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 Operators'
System Restaurants.
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 creditor 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 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 representation 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 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.
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 restriction 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 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 application 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.
By that same deadline, 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.
XVIII. PERMITTED ASSIGNMENTS
Notwithstanding anything to the contrary in Articles XVI.
and XVII., 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.
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 10 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 the 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 an false report to Company;
4. If Operator conducts the business licensed pursuant to
this Agreement so contrary to this Agreement and the Manual as to
constitute in 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 prior 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;
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 XIX. B. 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.
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 a 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 a 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 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. B. 1.
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.
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
quantities of the secret spices and other 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.
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 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.
XXI. RENEWAL
A. Unless terminated as herein otherwise provided,
Operator shall have the option at the expiration of the initial
term of this Agreement to renew the franchise granted hereunder
for a single renewal term of fifteen (15) years by executing
Company's then-current form of Franchise Agreement, 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, is
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.
B. The franchise agreement to be executed at renewal shall
require Operator to pay the initial franchise fees, the monthly
service fees, and the advertising payments then being charged by
Company, which may be higher than those contained hereunder, and
which shall thereafter apply to all of Operator's System
Restaurants. 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. The terms of the franchise agreement to be
executed at renewal may be different from the terms of this
Agreement.
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. relive Operator
from the requirements of Articles XXI. A. or in any way affect
Company's rights and remedies under Articles XIX. and XX.
XXII. REPAIR AND MAINTENANCE
Operator shall repair and paint the interior and exterior of
the buildings from which it conducts its business hereunder as
necessary and/or as requested by Company, and at all times shall
maintain the interior and exterior of the buildings and
surrounding premises in a clean and orderly condition
satisfactory to Company.
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 end 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.
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 amounts 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 Operator fails to obtain or
maintain the insurance required hereunder, Company may, as 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.
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 rising 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.
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.
XXVII. ARBITRATION
Except as otherwise provided in this Agreement, in the event
of a dispute between Company and Operator with respect to any
issue arising out of or relating to this Agreement or the breach
thereof, such dispute shall, on request of Company or Operator,
be determined by arbitration. Such arbitration shall be
conducted before three arbitrators (unless Company and Operator
agree to one arbitrator) chosen as follows: Company shall select
one representative and Operator shall select one representative.
These two arbitrators shall choose one other person of their
choice to act as an additional arbitrator. The three arbitrators
shall then arbitrate and their decision shall be final and
binding upon all parties concerned. Such decision shall be
rendered within thirty (30) days of the close of the hearing
record. The arbitration proceedings conducted hereunder shall be
conducted in the City of Wichita, Kansas, and each party shall
bear its own costs. The arbitration shall be conducted in
accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction
thereof, except that no award of punitive damages by the
arbitrator(s) may be enforced in any court.
XXVIII. EXECUTION, INTERPRETATION,
NOTICES
A. This Agreement takes effect upon its acceptance and
execution by Company in Wichita, Kansas, 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
Sedgwick County, Kansas, 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. 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 on the date this Agreement has been executed
and delivered by both Company and Operator, the 1981 Pizza Hut,
Inc. Superseding Franchise Agreement and amendments thereto
(including, without limitation, the Delivery Release Letter dated
June 1, 1987) 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 Amendment (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 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
9111 East Douglas; P. 0. Box 428, Wichita, Kansas, 67201, 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 100 North Pine Street, Pittsburgh,
Kansas 66762, Attention: President 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 a.m. 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.
XXIX. 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 of
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.
WITNESS our hands and seals the day and year first above
written.
ATTEST: PIZZA HUT, INC.
______________________________
By______________________________
Clay G. Small, Secretary C. Scott Mackey, Vice
President-Franchise
"COMPANY"
WITNESS/ATTEST: NATIONAL PIZZA COMPANY
______________________________ ______________________________
, Secretary
"OPERATOR"
SCHEDULE A
Deadline Minimum New Red Roof Restaurants
_______________, 1994
_______________, 1995
_______________, 1996
_______________, 1997
_______________, 1998
Total New Red
Roof Restaurants:
All figures (except the final total) are non-cumulative, and
refer to Red Roof restaurants in addition to those existing in
the Territory on the date of this Agreement or on any prior
deadline.
SCHEDULE B
Deadlines
Area Schedule* Construction
______________________________ __________ __________
______________________________ __________ __________
______________________________ __________ __________
______________________________ __________ __________
______________________________ __________ __________
*By the specified deadline, Operator must have submitted to
Company for its approval a plan that shows the division of the
specified area into delivery districts and the manner in which
Operator plans to provide adequate delivery service to each
delivery district.
Exhibit 11
<TABLE>
NPC International, Inc.
Statement Regarding Computation of Per Share Earnings
<CAPTION>
Thirteen Weeks Ending
June 28, 1994 June 29, 1993
<S> <C> <C>
PRIMARY
Shares outstanding
at beginning of period 25,011,493 25,284,622
Weighted average of shares
issued and
(re-acquired) during period (25) (32,154)
Assuming exercise of options and
warrants reduced by the number
of shares which could have been
purchased with the proceeds from exercise 16,819 81,540
Shares outstanding for
computation of per share earnings 25,028,287 25,334,008
Net income $3,755,000 $2,674,000
Earnings per share $ 0.15 $ 0.11
FULLY DILUTED
Shares outstanding
at beginning of period 25,011,493 25,284,622
Weighted average of shares
issued and
(re-acquired) during period (25) (32,154)
Assuming exercise of options and
warrants reduced by the number
of shares which could have been
purchased with the
proceeds from exercise 16,819 81,540
Shares outstanding for
computation of per share earnings 25,028,287 25,334,008
Net income $3,755,000 $2,674,000
Earnings per share $ 0.15 $ 0.11
</TABLE>
