Professional Documents
Culture Documents
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The franchisee will operate a dine-in, delivery or delivery and carryout restaurant, offering
primarily pizza, pasta and other Italian-style food items, under the name Pizza Hut (each, a
"Restaurant"). The franchisee may acquire one or more existing Restaurants from Pizza Hut, Inc.
("PHI") or one or more of its subsidiaries, or may construct a new Restaurant.
The total investment necessary to begin operation of an existing Pizza Hut restaurant ranges from
$225,000 to $1,025,000 or more, of a new Pizza Hut "Red Roof dine-in restaurant (with or without
delivery) ranges from $852,000 to $2,109,000, of a new Pizza Hut Freestanding "Delco"
Delivery/Carryout restaurant ranges from $545,000 to $882,000, of a new Pizza Hut
Inline/Endcap "Delco" Delivery/Carryout restaurant ranges from $379,000 to $528,000 and of a
new Pizza Hut Inline/Endcap "Delco Lite" Delivery/Carryout restaurant ranges from $297,000 to
$434,000, in each case excluding real property and including $25,000 that must be paid to the
franchisor. If you sign one or more Development Agreements to develop new Restaurants, you
must pay $25,000 to $50,000 for each additional Restaurant you agree to develop, which will, if
you timely open the Restaurant, be applied to the $25,000 initial franchise fee that you must pay
to the franchisor for the operation of a Restaurant (see above). If you do not do this, the franchisor
keeps the fee.
This disclosure document summarizes certain provisions of your franchise agreement and other
information in plain English. Read this disclosure document and all accompanying agreements
carefully. You must receive this disclosure document at least 14 calendar days before you sign a
binding agreement with, or make any payment to, the franchisor or an affiliate in connection with
the proposed franchise sale. Note, however, that no government agency has verified the
information contained in this document.
You may wish to receive your disclosure document in another format that is more convenient for
you. To discuss the availability of disclosures in different formats, contact the PHI Law
Department at 7100 Corporate Drive, Piano, Texas 75024-4100 at 972-338-7700.
The terms of your contract will govern your franchise relationship. Don't rely on the disclosure
document alone to understand your contract. Read all of your contract carefully. Show your
contract and this disclosure document to an advisor, like a lawyer or accountant.
Buying a franchise is a complex investment. The information in this disclosure document can help
you make up your mind. More information on franchising, such as "A Consumer's Guide to Buying
a Franchise," which can help you understand how to use this disclosure document is available
from the Federal Trade Commission. You can contact the FTC at 1-877-FTC-HELP or by writing
to the FTC at 600 Pennsylvania Avenue, NW, Washington, DC 20580. You can also visit the
There may also be laws on franchising in your state. Ask your state agencies about them.
Yours^emayhavea^anchise^wtha^
^anohise a d m ^ i s ^ o r before offering or selling in your sfate. REGISTRATION OF A
FRANCHISE S Y A S T A T E O O E S NOT MEAN T H A T T H E STATE R E C O M M E N D S THE
FRANCHISE OR HAS VERIFIED THE INFORMATION IN THIS OISCLOSORE OOCUMENT
Effective Dafe: See fhe next page for state effective dates.
P^FOO^O^O^
S T A T E EFFECTIVE DATES
The following states require that the Franchise Disclosure Document be registered or filed with
the state, or be exempt from registration: California, Hawaii, Illinois, Indiana, Maryland, Michigan,
Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and
Wisconsin.
This Franchise Disclosure Document is registered, on file or exempt from registration in the
following states having franchise registration and disclosure laws, with the following effective
dates:
In all the other states, the effective date of this Franchise Disclosure Document is the issuance
date of March 22. 2013.25. 2014.
ITEM PAGE
2 BUSINESS EXPERIENCE 5
3 LITIGATION 7
4 BANKRUPTCY 89
5 INITIAL FEES 89
10 FINANCING 2526
12 TERRITORY 4042
13 TRADEMARKS 4244
22 CONTRACTS 7GZ2
23 RECEIPTS Z4Z3
PHIFOO 2 ^ 2 0 1 4
Item 1
THE F R A N C H I S O R A N D A N Y P A R E N T S . P R E D E C E S S O R S A N D AFFILIATES
Pizza Hut, Inc., a California corporation, is the franchisor, and will be referred to as "PHI".
"You" means the individual, corporation, limited liability company, partnership or other entity that
buys the franchise. If the franchisee will operate through a corporation, limited liability company,
partnership or other business entity, "you" also includes the franchisee's owners or partners. If
you are not an individual, many provisions of the franchise agreement will also apply to your
owners.
Disclosure laws require all disclosure documents to be written in "plain English". The use
of different words in this disclosure document from the words used in the agreements themselves
to describe the parties' rights and obligations is not intended to diminish or modify in any way the
rights and obligations in the agreements themselves.
PHI was originally incorporated as "Pizza Hut of San Diego, Inc." in 1967, and changed its
name on September 25, 1997, in anticipation of acquiring the assets of Pizza Hut, Inc., a
Delaware corporation ("old PHI"). PHI does not currently do business under any trade name other
than "Pizza Hut." PHI's principal business address is 7100 Corporate Drive, Piano, Texas
75024-4100.
PHI's corporate parent is Y U M ! Brands, Inc. ("YUM") f/k/a TRICON Global Restaurants,
Inc. ("TRICON"). PHI is a wholly-owned subsidiary of Y U M . On May 7, 2002, Y U M acquired
Yorkshire Global Restaurants, Inc., the owner of the Long John Silver's and A&W Restaurants
brands. Y U M adopted its new name on May 17, 2002. Yum sold the Long John Silver's and A&W
Restaurants brands to two separate buyers in December 2011.
PHI is the successor to old PHI, having acquired substantially all of its assets on
September 30, 1997. Before that acquisition, old PHI was the corporate parent of PHI. PHI's
agents for service of process are listed in Exhibit B to this disclosure document.
PHI's Affiliates
The following are PHI's affiliates, which either offer franchises within the United States or
provide products or services to PHI's franchisees and licensees located in the United States. The
number of restaurants that an affiliate operates or franchises, as described in the table below,
includes multibrand restaurants at which more than one brand is operated.
PHI's former affiliate WingStreet, LLC was a franchisor of a quick-service fried chicken
wing concept between 2003 and December 25, 2007. Effective December 25, 2007, the
WingStreet concept was folded into the Pizza Hut System in the United States (excluding Hawaii).
On March 18, 2008, WingStreet LLC was merged into PHI. As of December 31, 2042,2013.
approximately 3r7554866 Restaurants in the United States included the WingStreet concept (see
below).
PHI has a number of additional affiliates that offer franchises, including "Pizza Hut"
franchises, in foreign countries, and affiliates that provide certain products and services to
franchisees who are located and do business in those foreign countries. Unless otherwise stated,
the information in this disclosure document does not concern PHI's international operations or
franchising.
PHI operates and franchises pizza restaurants. PHI offers franchises to operate three
types of Pizza Hut-branded units at specific locations (collectively "Restaurants"). The
Restaurants are: (a) "Red Roof restaurants, from which "Pizza Hut" pizza and other products
approved by PHI ("Approved Products") are sold for dine-in and carryout consumption, and may
be delivered for off-premises consumption (a "Red Roof restaurant that offers delivery is referred
PHI has operated Pizza Hut "Red R o o f restaurants since 1958, when it opened its first
restaurant. PHI has granted franchises for Pizza Hut "Red R o o f restaurants since1959. PHI has
operated Pizza Hut "Delivery" and "Delco" restaurants and PHI has allowed its franchisees to
deliver pizzas s i n c e t 9 8 4 . PHI has operated Pizza Hut "Express" restaurants (a concept not
offered underthis disclosure document) since 1987.
For several years, PHI and many of its franchisees have been remodeling, rebuilding and
re imaging their Restaurants. PHI and its franchisees recognize that it is important to the Pizza
Hut System and its members that Restaurants be upgraded to the same level to present an
attractive and current image to the public. There are four levels or categories of upgrades that
relate to "Red R o o f dineinRestaurants(described in more detail in Item8):
^ Reimage^a"facelifftoaRestaurant
It you buy existing Restaurants from PHI or its subsidiaries, within six years after you sign
the Location Franchise Agreement, you must Reimage all Restaurants that you operate underthe
Location Franchise Agreement that do not already comply with PHI's reimage standards.
Furthermore, within ten years after you sign the Location FranchiseAgreement, you must
P^FOO^O^O^
Remodel, Relocate or Rebuild at least 70% of your "Red Roof dine-in Restaurants. Any "Red
Roof dine-in Restaurant that has been Remodeled, Rebuilt or Relocated on or after January 1,
200^2009, will be considered to have been Remodeled, Rebuilt or Relocated underthe Location
Franchise Agreement.
Based on PHI's experience, we estimate that the range of costs to fulfill your upgrading
responsibilities for a "Red Roof dine-in Restaurant will be as follows:
Since 1989, PHI has also licensed third parties to sell pizza prepared according to its
recipes from kiosks, concession stands, and other non-traditional facilities. PHI's affiliates have
also operated a limited number of these non-traditional sites (primarily concession stands). PHI
distinguishes between its "franchisees", persons who are granted rights to operate traditional
"Red Roof, "Delivery", "Delco" and "Delco Lite" Restaurants under the franchising program
described in this disclosure document, and its "licensees", persons who are granted rights to sell
pizza and related products prepared according to its recipes at non-traditional locations under the
"Pizza Hut Express" licensing program. This disclosure document does not describe the Pizza
Hut Express licensing program.
All new franchisees must sign the WingStreet Development Authorization Agreement. The
WingStreet Development Authorization Agreement provides that WingStreet is a product line or
menu extension under the Location Franchise Agreement and is subject to all of the terms and
provisions of the Location Franchise Agreement. As noted above, if you acquire Restaurants from
PHI or its subsidiaries, some of these Restaurants may also carry the WingStreet product line. In
addition, you may be required to develop additional Restaurants that include WingStreet or to add
WingStreet to one or more of the Restaurants that you acquire (see Item 5). You will be required to
sign a WingStreet Development Authorization Agreement at the time of closing. Similarly, if you sign
a Development Agreement to develop a new Restaurant, not in connection with an acquisition of
existing Restaurants from PHI or its subsidiaries, you will be required to sign a WingStreet
Development Authorization Agreement if you have not previously done so. In all these cases, your
Pizza Hut Location Franchise Agreement will govern the operation of all aspects ofany Restaurant
that you acquire or develop.
During the past 10 years, PHI has not directly offered franchises in any other line of
business. Various current and former affiliates of PHI have offered franchises for a variety of
other quick-service and casual dining restaurants (see above). Except for old PHI, none of PHI's
affiliates have offered franchises to operate Pizza Hut Restaurants in the United States. PHI
currently operates Pizza Hut Restaurants in the United States (directly or through subsidiaries).
Pizza Hut Restaurants compete with a wide variety of national and local businesses,
including other national and local pizza parlors, pizza delivery businesses, other quick service
restaurants, and (in a broad sense) all restaurant businesses. Competition in the restaurant
business is generally intense. The market for Pizza Hut "Red R o o f Restaurants is generally
developed; the market for Pizza Hut "Delivery" and "Delco" or "Delco Lite" Restaurants is
developed in some locations and is developing in other locations.
Item 2
BUSINESS EXPERIENCE
PHI
President, Director and Chief Executive Officer and Director of PHI: Scott Berqren
In January 2014, Mr. Berg re n was appointednamed as Chief Executive Officer gTPH I U . ^
and-YUM-lRnevatioR in February 2011. Mr. Borgron. He has served as President of PHI since
January 2007 and as a E M ^ Director of PHI since March 2009. PromHe served as PHI's
President from January 20042007 to December 2006, 2013. Mr. Bergren served as Chief
Marketing Officer for K F C and YUMwas Chief Executive Officer of Pizza Hut. U.S. and YUM.
Innovation from February 2011 until Decemb_e_L.2013. From January 2007 u n t i l T e h n j a r ^ d f l !
Mr. Berqren served as President and Chief Concept Officer of PHI.
In December 2013. Mr. Gibbs was named President of PHI. U.S. in Dallas. Texas. From
May 2012 until his appointment as President of PHI. U.S.. Mr. Gibbs served as PresidenLand
Chief Financial Officer for Yum Restaurants International f"YRI"1 in Dallas. Texas. From January
2011 until his appointment as President and Chief Financial Officer for YRI. Mr. Gibbs was Chief
Financial Officer of YRI in Dallas. Texas. From January 2006 until December 2010. Mr. Gibbs
served as Chief Financial Officer for PHI in Dallas. Texas.
Chief People C t t i c e r : P r a c v S ^ e a o 8 A r o v ^ e s s e r s m i t h
Ms. Skeans has worked with PHI since 2090, most rooontly having hoon appointed Chiot
PoopleCtficorinCctohor,20tt. From July 2 0 1 0 t o G c t o h e 4 2 0 t t , s h e served as Senior Dirootor
o t C n e - S y s t e m H R . From June 2009 to July 2010, she served osdiroctorot Human Resources.
From January 2008 to June 2009 Ms. Skeans was Director ot Finance From January 2008 to
January 2008 Ms Skeans served as S r M a n a g o r . F i n a n c o . In January 2014,Mrs.Messersmith
was named Chief People Gtficerot PHI O S From Auoust2018until her appointment as Chiet
P e o p l e G f f i c e r f o r P H I D S Mrs Messersmith was Senior Director H P for Cperations Total
Rewards andTalentAcouisition From Januarv2013throuoh Julv 2 0 1 8 M r s M e s s e r s m i t h was
HR Directorforthe PHI CenterofRestaurant Excellence From January 2008 until January 2018
Mrs ^ e s s e ^
Sirminqham Illinois until 2010and has heen hased in DallasTexas since
In Fehruary 2011, Mr Kono was appointed Chief Marketing Officer of PHI From
Deoomher2010to Fehruary 2 0 1 1 , M r . K a n e ^ r v e d as Vice President of National Marketing and
Communications for PHI. From June 2008 until Decemher 2010, Mr Kane was Vice President of
National Marketing for PHL. Prior to joining P H L , M r . K a n e was Marketing Direotor,Flat Parth at
Frito Lay in Piano, Texas
In Novemher 2018. Ms. Walsh was named Chief Marketing Officer of PHI. O.S. in Dallas.
Texas From April 2012until her a p p o i n t m e n t a s C h i e f M a r k e t i n o O f f i c e r o f P H I O S M s W a l s h
was Vice President.Marketing for PHI in Dallas.Texas. FromJune2010to Fehruary 2012.she
wasSeniorDirectorofMarketino EeveraoesforPepsiCoinPurchase N Y FromAuoust2009to
May 2010, she was Senior Director of Marketing. SunChips for PepsiCo in Purchase. N.Y. From
Novemher 2007 to Julv 2009 she was Brand Manaoer/Director SunChios for PepsiCo in
Purchase,NY
PHIFOO 30432014
Chief Financial Officen-Emfique Ramirez and Treasurer: Artie Starrs
In February 2013,Januarv 2014, Mr. Kim was named Chief Operating Officer of PHI, U.S.
in Dallas. Texas. From Februarv 2013 to January 2014. Mr. Kim served as Chief Operating
Officer of PHI in Dallas. Texas. From 1998 until January 2013, Mr. Kim held various positions with
Valero Energy Corporation in San Antonio, Texas, serving as Senior Vice President — Retail
Strategy and Growth from December 2012 to January 2013 and as Regional Vice President
Operations — Central Region from September 2007 to December 2012.
YUM
In March-ef 2010, Mr. Gathof was appointed as YUM's Vice President and Treasurer.
From July 2005 to March 2010, Mr. Gathof served as Vice President Financial Planning for Y U M .
From 2003 until his appointment as Vice President Financial Planning, Mr. Gathof served as
Senior Director Strategic Planning for K F C C .
Mr. Schmitt has been employed by Y U M since 2006, serving since January 2014 as Vice
President of Investor Relations and Corporate Strategy: from February 2013 as its Vice
President—Investor Relations; from August 2012 to January 2013 as Sr. Director for Investor
Relations; from June 2010 to July 2012 as Director Investor Relations; from December 2008 to
May 2010 as Territory General Manager for K F C U.S.; and from January 2008 to November 2008
as Strategic Planning Director for K F C U.S.
Item 3
LITIGATION
-Pizza Hut, Inc. v. Lundv Enterprises, LLC, Marilyn Lundv, and Larry Lundv, (U.S. Dist. Ct.,
Tox. Caso No. 3:11 cv 00011-N, filed January 3, 2011). On July 29, 2010, PHI and Lundy
Enterprises, LLC ("Lundy Enterprises"), a former franchisee, conducted mediation to resolve
certain disputes between the parties. At the conclusion of tho mediation, PHI, Lundy Entorpricos
and Larry Lundy, one of Lundy Enterprises' guarantorc, signed a Settlement Agreement.—in
furtherance ofthe Settlement Agreement, Lundy Enterprises, PHI and Pizza Hut of America, Inc.
("PHA") signed an Asset Purchase Agreement ("APA") sotting forth the terms and oonditions
pursuant to which PHI and PHA would purchase Lundy Enterprises' assets. In conjunction with
On January 31, 2011, the defendants filed a counterclaim claiming breaches of the
Settlement Agreement and APA, a broach of the implied covenant of good faith and fair dealing by
virtue of alleged deceptive practices in performing undor tho Sottlomont Agreement and tortious
interference with contractual relations and prospective economic advantage. Tho defendants
later filod an Amended Complaint in which they did not allege a claim for tortious interference.
The defendants seek compensatory and consequential damages, attorneys' fees and costs of
suit and any other relief the court deems just and equitable. Trial is scheduled to commence on
April 29, 2013. PHI denies any wrongdoing and will vigorously defend against these claims.None.
B.e.ainnjn,q_QD_ January 24, 2013 the following four class actions were filed in the United States
DistnctjQmiA.^
its._e.x.ecutive officers: (1) Arun Bondali v. Yum! Brands, Inc., ef a/. (U.S. Dist. Ct., Central District
T
of California, Case No. SACV13-00117 JST(JPRx), filed January 24, 2013); {2} William A. Shader
=
v. Yum! Brands, Inc., etal. (U.S. Dist. Ct., Central District of California, Case No. SACV13-00140
JST(RNBx), filed January 28, 2 0 1 3 ) ; ^ ^ s o n Yun v. Yum! Brands, Inc., et al. (U.S. Dist. Ct.,
Central District of California, Case No. SACV13-00147-CJC-MLG, filed January 29, 2013)_gad
(41 Corey Glaser v. Yum! Brands, Inc., et al. (U.S. Dist. Ct., Central District of California, Case No.
SACV13-173-AG(ANx), filed February 1, 2043120131 The complaints all alleged claims_unde.r
sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The four complaints were
subsequently consolidated and transferred to the U.S. District Court for the Western District of
Kentucky and captioned In re Y U M ! Brands. Inc. Sec. Litia. On August 5. 2013. lead plaintiff.
Frankfurt Trust Investment GmbH, filed the Consolidated Class Action Complaint ("Amended
CmnDlmna_onJmhalLof a putative class of all persons who purchased YUM's stock_between
Februarv 6. 2012 and Februarv 4. 2013 (the "Class Period"). The Amended Complaint alleoes
that, during the Class Period, defendants purportedly omitted information about YUM's supply
chain in China, thereby.inflating ihe.Drices_at which, YUM's securities traded. The Amended
Complaint seeks damaq.e..$.,Ln_an undMnWlamount. On October 4. 2013? YUM and individual
defendants filed a motion "to dismiss the Amended Complaint. Briefing on the motion to dismiss is
now complete. Y U M denies liability and intends to vigorously defend against all claims in the
Amended Complaint.
Beginning on January 24, 2013 the above four purported class actions were filed in the
United States District Court for the Central District of California against Yum! Brands, Inc. ("YUM")
and-eertain of its executive officers. The complaints allege-elaims un d e f e c t i o n s 10(b) and 20(a)
ef-the Securities-Exehange Act of-1934 against defendants on behalf of a purportod-class-of-aM
per-SQn&-whQ-pufGhased-or othorwiso acquired YUM's publicly traded securities hetwoon Octobor
Bauman. derivatively on behalf of Y U M ! Brands. Inc. v. Novak, et al. and Y U M ! Brands. Inc.
(Jefferson Cir. Ct.. Kentucky. NO. 13-CI-002417. filed Mav 9. 2013V
On January 24. 2013. Bert Bauman. a purported Y U M shareholder, submitted a letter demanding
thaLYUM's.^ breaches of fiduciary duties by
directors, officers a n d ^ fiduciary d u t i e s
arisen primarily as a result of the failure to implement proper controls in connection with YUJVVs
purchases of poultry from suppliers to YUM's China operations. Subseguently. similar demand
letters by other purported shareholders were submitted. Those letters were referred to a special
committee of the Board of Directors (the "Special Committee") for consideration. The Special
Committee, u p o n _ c o M u s i m _ Q L m J n d ^ e n d e n t inquiry_of the matters described jn_the_letters,
unanimously determined that it is not in YUM's best interests to pursue the claims described in the
letters and, accordingly, rejected each shareholder's demand.
On Mav 9. 2013, Mr. Bauman filed 9 putative derivative action against certairicurrent and former
Qfficers_and_directors of Y U M a s ^ i t i g g J i r e a c h ^ H i d j ^ ^
unjust enrichment in connection with an alleged failure to implement proper controls in YUM's
purchases of poultry from suppliers to YUM's China operations and with an alleged scheme to
mislead investors about YUM's growth prospects in China. By agreement of the parties, the
matter is temporarily staved pending the outcome ofthe motion to dismiss the In re YUM! Brands.
Inc^^Sec^Litig class action disclosed directly, above. Y U l V U ^ i e i L ^
vigorously d ^ in this.complaint.
In re Y U M ! Brands. Inc. Derivative Litigation (U.S. Dist. Ct.. Western District of Kentucky. Civ.
Action No. 3:13-cv~00506-CRS. consolidated January 28. 2014).
On May 17. 2013. Sandra Wollman. another purported Y U M shareholder, submitted a demand
letter similar to the demand letters described above. After the Special Committee rejected the
demand, on December 9. 2013. Ms. Wollman filed a putative derivative action against certain
current and former officers and directors of Y U M asserting violation of federal securities laws,
breach of fiduciary duty anduniust enrichment in connection with aaaHeoed failurejo implement
mtrols in YUM's purchases of poultry from suppliers to YUM's China operations and with
On^nu^282014^^
eonselid^edondereaptiem^^Y^^^^^^^
censelid^eda^ien was temoe^iiv staved pending the oo^^
^ Y U ^ B ^ d s ^ ^ e c ^ g e i a s s aetion d ^
viooroosiv defend aoainst aii oiaims
AotionsAgainst Franohisees or ^ o e n s e e s B r o u g h t m ^ O ^ ^ ^
Item^
BANKROFFCY
^em5
IN^ALFEES
You must pay FHI an initial tranchise tee ot $25,000 tor each Restaurant when you sign
the Location Franchise Agreement It you acguire existing Restaurants trom FHI or its
subsidiaries, this initial tranchise tee will be included in the purchase price. Forany new
Restaurant that you develop, you must pay the initial tranchise tee in tull before you open the
Restaurant RFII earns this initial franchise tee when paid and it is not refundable under any
circumstances.
p ^ Foo 2 0 ^ 0 ^ to
20432^4 Oev^opmeot ^ceohve Program. From Oooombor 25. 201224 2013
trough Oeoombor 23, 2 0 1 3 2 2 ^ 2 ^ ^ o " T o r m ^ wo w^o^orn^
togoa^ying ox^ing Pizza H^franohisoos T o g u a ^
staring undor ^ franohiso a g ^
GrowfhBaohiovodhy oponing moronowiydovoiopod units (for whioh i^^^^
paid)(oaoha"NowUnif) during fhoTorm than fho franohisoo oiososand/or(ii)oponaNowUn^
duringfhoTormfhafropiaoosan existing unit, sorvosthofunofionaiiyoguivaionffradoaroa and
tho oase otaroiooation,is opened within 60 days afferthe existing unit oiososor^in tho oase ofa
sorape and rehuiid at the same iooation, is opened within 00 days after the existing restaurant
oioses (an "Off set Unit") Ouaiitying franohisees wiii he entitled to the foiiowing inoentives for
eaoh New Unitand/orOffset Unit (hut oniytotheextentand suhjeotto the limit ofthe franohi^^
Net Positive Unit Growth), as appiioahie: (i) an advedising oredit eguai to $ 4 0 , 0 0 0 ^
taken against amounts payahle for iPHFHA dues); and (ii)aoashinoentive payment of $40,000
from PHI
Ifyou acguire existing Restaurants from PHI oritssuhsidiaries, you will also he reguired to
sign the WingStreet Development Authorization Agreement (Pxhihit M) The WingStreet
DevelopmentAuthorizationAgreementwillgiveyou the right hut not the ohligation to add
WingStreet to the Restaurant. You may also he reguired to sign Development Agreements that
would ohligate you to develop new Restaurants with WingStreet or add WingStreet to some or all
of the Restaurants If you are reguired to develop new Restaurants with WingStreet, you will he
reguired to pay PHI $50,000 in development fees for each Restaurant at the time you purchase
the Restaurants. If you openanew Restaurant hythe scheduled time,PHI will apply $25,000 of
the development fee to the initial franchise fee that would othen^ise he due to PHI and PHI will
refund to you the remaining $25,000 of the development fee If you fail to open the new
Restaurant hythe scheduled time, PHI will retain the entire $50,000 development fee and will he
freetodevelopthearea or to franchise it toathird party Please refer to the Development
Agreement attached as Exhihitiyi to the ASA (PxhihitP)
If you acguire existing Restaurants from PHI oritssuhsidiaries,you will pay the purchase
price hetore transfer and generally at the time you sign the franchise documents. The Restaurant
eguipment,inventory,andsignsaregenerallysoldin"AS IS" condition. The total purchase price
you will pay in this type of transaction will vary depending onanumherot factors, includingthe
historical tinancial performance of the Restaurants, their age, and location In past transactions,
the purchase priceforRestaurantshasgenerallyrangedfromalowot$265,000,plus the net
P^FOO^O^O^ 1t
book valoe of the equipment Your payments in
oonneotion with this type of transaction are not refundable.
The Real Pstate Servioes currently available through YRSG are the following:
The Gonstruction Services currently available through YRSG are the following:
P^FOO^O^O^ 12
out-of-town travel, long distance calls and faxes, filing and administration fees, data processing
and photographic reproduction techniques and, if you authorize overtime, overtime work rates.
Item 6
OTHER FEES
(41
m (21
AMOUNT
(31
D U E DATE REMARKS 1
TYPE OF FEE
Monthly Service Fee** 6.0% of "Gross Sales" Payable monthly by the "Gross Sales" means all revenue
(6.5% of Gross Sales 20th day of the next received at franchised Restaurants,
under certain month excluding only sales taxes.
2
circumstances)
Taxes As levied by tax A s incurred and upon Includes all sales taxes, personal
authorities demand property taxes, excise taxes, value
added taxes and similar taxes on
account of services or goods provided
by PHI. Among other things, this
includes taxes related to collection by
PHI of Initial Franchise Fees, Monthly
Service Fees, or other fees.
National Advertising 7 2.5% to 3% of Gross Same as monthly service You must contribute 2.5-3% of your
Sales fees Gross Sales for National Advertising.
While the Advertising Committee
Agreement is in effect, PHI will credit
the dues you pay to the International
Pizza Hut Franchise Holders
Association ("IPHFHA") against your
National Advertising obligation (if the
dues IPHFHA assesses are at least
2% of Gross Sales).
IPHFHA D u e s 7 2-3% of Gross Sales Established by You must belong to IPHFHA and pay
(set by franchisees) franchisees the dues it assesses its members while
Currently 2.5% the Advertising Committee Agreement
is in effect. PHI will credit the dues you
pay to IPHFHA toward your National
Advertising obligation.
Local Advertising 7 The difference between Must be expended Can be redirected by PHI to local
4.25% of your Monthly monthly, based on advertising cooperative.
Gross Sales and the previous month's sales
required National and confined to
Advertising Contribution broadcast media
rate.
Cooperative Advertising 7 The difference between Same as monthly service If required, supersedes local
4.25% of your Monthly fees advertising e x p e n d i t u r e s . ^
Gross Sales and the
required National
Advertising contribution
rate.
Software Training F e e ^ $1,500 plus A s incurred Training at your location will cost
Travel and living $1,500 for up to 4 days.
expenses
Software Maiotenaoo^ Currently ^ 6 0 0 per Twelve Monthly ^ills For software support, ongoing menu
Sopport F e e ^ year per unit for all maintenance,helpdesk
services listed in the far enhancements and research and
right column (PHI may development which PHI reguires or
increase this fee as provides
needed)
Training Reasonahle publication, As incurred PHI provides one set ofthe mandatory
preparation and paper based training materials per
administrative fees(set Restaurant (which do not include
byPHI) e learning or the blended approach)^
you must pay for replacement copies,
all optional training materials and other
incidental costs, including hardware
and licensing costs, if applicable, for
on line or computer training
Additional Materiais Reasonable publication, As obtained PHI provides one copy of the Manual
preparation and per Restaurant free^ you must pay
administrative fees (set PHI^s uniform fee for extra copies
by PHI)
inspection andTesting $0to$50,000, When PHI reguests PHI need not inspect or testasupplier
Costs (if paid by you) depending on the you propose until PHI is satisfied that
product(costs include you or the supplier will pay all costs
salaries of PHI^s associated with the inspection and
employees, travel costs, testing of the proposed supplier and of
and laboratory charges) samples of their products(see Item 8)
Audit Costs of audit 5business days after You must reimburse costs only if
Interest on billing underpayment is 2% or more of
underpayment, not amount due You must pay interest on
greater than maximum all underpayments
legal rate
Employee Piracy Oouble the annual Upon hiring Applies to employees of PHI, you and
compensation of otherfranchisees
employee involved, pius
costs and attorneys'
fees
Late Charges As set by PHI (currently As incurred Oue if you do not pay PHI any amount
per month), but you owe within the time allowed.
not greater than
maximum le^al rate
Unauthorized Closure Oouble the past year's A t t h e t i m e a franchised Charged when the Restaurant closes
monthly service fee Restaurant is closed without PHI consent
without PHI's consent
Relocation Maximum $25,000 At time replacement unit PHI may waiveaportion of the initial
opens franchise fee if replacement unit is
openwithint2 months after existing
restaurant closes
Transferee $2,500 plus an Attimearequestfor Charged when there isatransfer of
additional $250 per unit transfer is made agreement or transfer of your
transferred ownership
4 See Item 11 for a complete description of the Computer System and your obligations
concerning it.
7 PHI and its franchisees have agreed to restructure the allocation of advertising
contributions and expenditures during calendar years 2012, 2013 and 2014. During 2012, 2013
and 2014, the National Advertising Contribution rate described above will be 4% and the required
local advertising expenditure rate will be .25%.
All of the above fees, except for IPHFHA Dues paid to IPHFHA and Cooperative
Advertising paid to local co-ops, are payable to PHI or its affiliates and are all collected for the
benefit of PHI.
Item 7
If you acquire existing Restaurants from PHI or its subsidiaries, the purchase price you
pay for each Restaurant will be a negotiated amount and will include the $25,000 per Restaurant
initial fee, as well as the price for the Restaurant's equipment, signs and inventory, which will vary
based on the Restaurant. The price of any leasehold or other real property interests will typically
$ 450,000 Acquired2
$ 8,000 Acquired2
$ 50,000 Acquired2
$ 200,000 Acquired 2
$ 8,000 Acquired 2
S 22,000 Acquired 2
$ 175,000 Acquired2
$ 8,000 Acquired2
$ 18,000 Acquired2
$ 125,000 Acquired2
$ 8,000 Acquired2
$ 14,000 Acquired2
1
If you use YRSG's services, you will pay YRSG a fee that varies depending on the number
and type of services provided and includes any reimbursable fees, costs and other expenses as
provided in the Pizza Hut Development Services Agreement. These amounts are based on
I^and, biding, and site improvement oosts vary doponding upon location
and building, and on whether the iand and huiiding are owned or leased. The typioal numher of
sguare feet reguired for Restaurants is 2,000-4,000 f o r a ^Red Roof^ Oineln Restaurant,
1,4001,^00 fora^Oeloo^Oelivery/Oarryout Restaurant and 1,000 1,200 fora^OelooOte^
Oelivery/Carryout Restaurant.
^
Restaurants offering delivery are not reguired to provide delivery vehicles (they may rely
on employee owned vehicles^ If you aoguire your own vehicles, oosts will vary depending upon
the type of vehicle and whether it is owned or leased.
lyiiscellaneous costs consist of pre opening and grand opening expenses, such as
training, utility deposits, restaurant set up, etc.
^
RHI recommends ant^weel^ advertising campaign to drive sales from new ^Oelivery^
and^Delco^ restaurants. Theadvertisingcampaign isnot reguired, hutRHI helieves that it
effectively increases sales. This figure excludes national and co op dues.
^
Start-up^Cther^costsconsistofnewunitofficesupplypacl^age,banners,forms,and
uniforms.
10
Cn those costs that are not fixed, PHI does not expect your costs to increase heyond
inflation in the relevant industry segment unless the suppliers costs increase due to shortages,
catastrophes, strides, Acts of Cod, or other causes heyond the suppliers control
^ If you sign one or more Oevelopment Agreements for new Restaurants, not in connection
with an acguisition of existingRestaurantsfromRHIor its subsidiaries,youmust pay PHIa
development fee of ^25,000 for each Restaurant The Oevelopment Agreement will specify the
date by which the Restaurant must be open for business. If you open the Restaurant hythe
scheduled time,PHI will applythedevelopmentfee to the Initial Franchise Fee forthe Restaurant
Ifyou do not open on time,PHIwill retain the development fee and will be free to develop the area
PHI relies on Its 50 plus years of experience to compile these estimates. You should
review these figures carefully with a husiness advisor hefore you decide to purchase the
franchise. Asamatter of pollcy,PHI does not offer financing directly or Indirectly for any part of
the Initial Investment Your ahlllty to ohtain financing will depend onanumherot factors,such as
the general avaiiahility of financing, your credit worthiness, collateral you may have, and lending
policies of Individual financial Institutions. These estimates do not Include any finance charges,
Interest, or deht service payments
Item^
RESTR^P^NSCNSCOROES
Reouired Purchases
Phe location Franchise Agreement reguires that you ^oln the Pizza Hut National
Purchasing Co-op, Inc. (the T^izza Hut Oo-op^
Purchasing Co^opR^urantSuoolv Chain Solutlons ^ C ^ ^ P P C R S C S ^ ^ ^ ^
the PizzaHut Coop,you must purchase virtuallyall goods andegulpment you use inyour
Restaurants, with some exceptions, through the purchasing programs of t^PPCRSCS and the
PizzaHutCoop Seehelowinthis Item^under the heading unified Foodservice Purchasing
Co^pRestaurant Supply Chain Solutions LLC^ for more information
Cther Products
You must huy all food supplies, ingredients, packaging, and eguipment, as well as any
other item used in the construction and operation ofaRestaurant, from suppliers approvedhy
PHI. I^lany otthe ingredients and food supplies usedin the operation ofaRestaurant were
developed specifically tor PHI and are proprietary and availahle only from PHI s approved
suppliers Although PHI generally tries to have more than one approved supplier tor every item,
that is not currently possible for some items. You may not use any item hearing the trademark
PHIFOO^O^O^ 2t
^zaH^oranyofPH^o^erm^
50pp^5 CO^Orm^PH^5t80da^5
Approva^O^approv^ of S o p o r s
Aoorovai/OisaoorovaiofOistributors
No officer of PHI owns an interest in any approved supplier. PHI provides you with no
material benefits (such as granting additional franchises^ based on your use of designated or
approved sources.
McLane
PHI is party to an agreement with McLane, which authorizes lyicLane to be the distributor
of substantially all otthe products used or sold by PHI and its subsidiaries and affiliates in their
retail outlets through Oecemher 3t,20t^. l^cLane is the principal distributor tor the Pizza Hut
system, ^ h e n you purchase an existing Pestaurant from PHI, you may elect to purchase from
McLane,by signingadistribution agreement with lyicl^ane. underthis agreement,you would
purchase from lyicl^ane most of the proprietary and non-proprietary food and restaurant supplies
needed foroperation o f a Pestaurant. Ouringthe term of PHIs agreementwith McLane,
^ P P C ^ ^ (which is descrihed in more detail below^, negotiates the price and other purchase
termsof mostoftheproprietary and non-proprietary food, eguipment, supplies, smallwares,
P^FOO20^O^ 22
uniforms beverages p r o m ^
and sold by McLane.
P e p ^ - C o l a Company
It yoo are a new tranchisee or yoo porchase an existing Pestaorant trom PHI, Its
sohsidiaries or atflllates, yoo most sign a Sobscrlber Agreement tor 2 ^ a y broadband
CommonlcatlonsServices with HoghesNetworl^Systems, Inc.,that provides commonication
services to the Restaorants (See ExhibitPto the A S A , which Is attached as Exhibit P^.
^ui^Crder^nc^
Ityoo are a new tranchisee or yoo porchase an existing Pestaorant trom PHI, Its
sohsidiaries or atfiliates,yoo most sign an agreement with ^ o l ^ C r d e r , l n c . ( S e e PxhibltCto the
A S A , w h i c h Is attached as Exhibit P^ tor certain services related to internet ordering trom the
Restaorants
8ene^stoPHi
PHI does not directly derive any revenoe trom approved soppliers a s a r e s o l t ot sales to
yoo. PHI does not receive lower prices, rebates, discounts or any other material consideration
trom soppliers becaoseotporchases by yoo. I^PPCRSCS negotiates porchase arrangements
with soppliers ot most prodocts periodically tor the motoal benetit ot PHI, Its affiliates, and all
franchisees and licensees who boy throogh ^ P P C R S C S (see below for more detail)
Yoor regoired porchases from PHI approved soppliers are estimated to be approximately
30% otthe total expenses yoo will Incor to establish and operate yoor Restaorant.
Porchasing activities fortood, packaging and egoipment osed In the Pizza Hot system are
condoctedorlmarllvthrooob^PPCRSCS P h e m e m b e r s o f ^ P P C R S C S a r e t h e Pizza HotCo oo
which Is described in more detail below, and similar co-ops of PHI^s sister companies and their
franchisees ( ^ E C N a t i o n a l P o r c h a s i n g C o o p , Inc a n d P a c o Sell National Porchasing C o o p ,
Inc.^ Ey contract, I ^ P P C R S C S also provides porchasing programs and program management
services t o r A ^ National Porchasing Co op, Inc and l^ong^ohn Silvers National Porchasing
Co op, Inc (which are, together with the Pizza Hot Co op, i^EC National Porchasing Co op, Inc
a n d T a c o E e l l National Porchasing C o o p , Inc,collectivelyreferredto below as the ^Concept
C o o p s ^ . E e c a o s e ^ P P C R S C S i s a s h a r e d resoorce organization,allocation costs and soorcing
^^002^320^ 23
^esa^ho^eto^eP^
Nations Porohasing Co o ^
^ohn Sixer s National Porohasing Co op^no.ohooso to tor^^
w i t h ^ P P C ^ C ^ ^ P P C ^ ^ and tho Oonoopt Co ops aro o r g a n i c in aooordanoo with
fodoral tax laws relating to ontitios operating onaoooporativo hasis. In aooordanoe with those
laws, eaoh ConoeptCoop has historioally distrihoted sohstantially all of itsnet inoome not
regolredforwori^ingoapitalorreservesto its mernhers eaoh year asa^patronagedividendB
^PPCPSCSaotsasaporohasing agent for the Conoept Coops and is the explosive porohasing
agent for the Pizza Hot oorporate and franohised Restaorants in the united States.
The Pizza Hot Coop was formed to allow PHI and its franohisees to oondootaporohasing
program throogh t ^ P P C ^ ^ The Pizza Hot Coop isamemher of ^ P P C P S C ^ and operates
asaoooperativeonderSohohapterTofthe Internal Revenoe Code. I^PPCRSCS and the Pizza
Hot Co-op are not affiliated with PHI and hoth are organized and operated independently from
PHI. However^PHIisastool^holder memher ofthe Pizza Hot Coop and is entitled to eleottwo^
memhers of the Pizza Hot Co op Poard of Oireotors.
The Location Franchise Agreement regoires that yoo ^oin the Pizza Hot Coop Yoomost
hoyfrom the Pizza Hot Co op one share of^ iyiemhership Common Stoc^(corrently priced at
^10^, plos one share of ^Store Common Stoc^ for each traditional and two non-traditional Pizza
Hot restaorants that yoo own and operate (corrently priced at ^400 per shared. If yoo later sell
some or all of yoor Restaorants^or otherwise hecome ineligihle for memhership^yoo may not sell
ortransfer yoor shares to third parties,althoogh the Pizza Hot Coop may redeem yoor shares of
Store Common Stools at yoor original porchase price and, if yoo hecome ineligihle for
memhership, will redeem yoorshare of memhership Common Stoc^for^lO.
Yoor memhership in the Pizza Hot Co-op maizes yoo eligihie to participate in
^PPCR^C^^sporchasing programs Onder the bylaws of the Pizza Hot Coop, while voo area
memher,yoo most porchasevirtoally all goods andegoipmentyoooseinyoor Restaorants
throogh the porchasing programs of I^PPCRSCS and the Pizza Hot Coop except forthe
following^
^ yyheret^PPCRSCS or the Pizza Hot Co-op agrees in advance in writing that yoo
need not porchase the particolar item or category throogh ^PPCRSC^^
D ^here yoo determine in good faith, after giving written notice to I^PPCRSCS (or it
advance notice is impractical, hy giving notice to OFPCRSCS as soon as
possihle^, thatl^PPCRSCScannot meet yoor regoired volomeof soppiy o t a
specific item or category tor particolarRestaorant(s) or that ^ P P C R S C S cannot
^^0030432^ 24
meet previously established quality standards for particular goods or equipment;
or
. Where you determine in good faith, after giving written notice to UPRGRSCS (or if
advance notice is impractical, by giving notice to UFPCRSCS as soon as
possible), that WPPGRSCS's purchasing policies or procedures for the particular
item or category present a material business risk to you (because of UFPCRSCS's
volume, hedging or similar commitments, arrangements or policies) which you are
unwilling to assume.
In addition, UFPCRSCS and the Pizza Hut Co-op may collect sourcing fees directly or
indirectly (from distributors or suppliers) from each stockholder member to fund the purchasing
programs and services of UFPCRSCS and the Pizza Hut Co-op.
For additional information about WPPGRSCS and the Pizza Hut Co-op, contact Ron
Burks UFPCRSCS's Senior Vice President and General Manager of the Pizza Hut Co-op, 7100
Corporate Drive, Piano, Texas 75024 at 972/338-7700, and request a copy of the "Membership
Information Packet" for the Pizza Hut Co-op.
Computer Svstem
You must acquire and use the Computer System or another computerized point-of-sale
system and accounting software approved by PHI in the operation of your Restaurants. See Item
11.
Upgrading Requirements
If you acquire existing Restaurants from PHI or its subsidiaries, then under the terms of
the Location Franchise Agreement, you must upgrade your Restaurants in accordance with a
specific schedule. See Item 1 for a brief description ofthe four upgrade categories, the conditions
under which each type of upgrade may apply and an estimate of their costs. The following is a
fuller description of the four types of upgrades:
. Relocation - relocation of a "Red Roof dine-in Restaurant to a new location and building
within the same trade area consistent with PHI's then-current standards and specifications
or in accordance with plans you submit and PHI approves. A Relocation is intended to
make the "Red Roof dine-in Restaurant new, bigger (if warranted), more convenient and
more accessible, or to adapt to a change in neighborhood necessitating a more desirable
location. A Relocation involves a better site location, a bigger parking lot (if warranted), a
new exterior and interior image, drive-through capacity (as permitted), delivery capacity
and a high-volume kitchen.
• Rebuild - complete rebuilding of an existing "Red Roof dine-in Restaurant at the same
location consistent with PHI's then-current standards and specifications or in accordance
with plans you submit and PHI approves. A Rebuild is intended to make the "Red Roof
dine-in Restaurant new and bigger (if warranted). A Rebuild includes a new building, new
exterior and interior image, drive-through capacity (as permitted), delivery capacity and a
high volume kitchen.
All reguired upgrades must be finished according toaschedule There are two separate
upgrade schedules, one for Re-images and one for Relocations, Rebuilds and Remodels ("Ma^or
AssetActions^). You must Re imageall of your Restaurants within six years after you acguire
them if they do not already comply with RHIs re-image standards.You must performaMa^or
AssetActiononatleast70%ofyour"Red Roof dine in Restaurants within ten years after you
acguirethem.^Red Roof dine-in Restaurants that have undergoneaMa^or Asset Action since
^anuaryl,2008 will be considered to have undergoneaiyia^or Asset Action under tbe Location
FranchiseAgreement.
Cnce you complete the reguired Reimages and lyia^orAssetActions,PHI will not impose
anynewormodified standard that reguires structural changes,remodeling,or renovation witha
cost estimated by PHI ofover^0,000.00 per Restaurant (a "Refurbish") more often than once
every^years.
insurance
P^FOO30^O^ 2^
Item9
FRANCHISEE'S OBLIGATIONS
This table lists your principal obligations under the Location Franchise Agreement,
Pizza Hut Development Services Agreement, and Development Agreements. It will help
you find more detailed information about your obligations in those agreements and in
other Items in this disclosure document. (FA = Franchise Agreement; DSA = Pizza Hut
Development Services Agreement; DA = Development Agreements)
(g) Compliance with standards and FA - 5.1, 5.2, 5.5, 6.2, 6.4, 11, 14
policies/Operations Manual 6.5, 6.10
(h) Trademarks and proprietary FA - 3, 6.3, 7.3, 12, 15.2, 8, 13, 14, 17
information 18.1, 19.4, 19.5,21.4
Item 10
FINANCING
Except as set forth below, PHI does not offer, directly or indirectly, any arrangements for
financing your initial investment or the continuing operation of your PHI business. PHI is unable to
predict whether you will be able to obtain financing for any part or all of your investment and, if you
are able to obtain financing, PHI cannot predict the terms of the financing. Except as described
under the headings Y U M FundingCapital Financing Program and the-YUM Minority Lending
Assistance Program described below, neither PHI nor Y U M guarantees your note, lease or
obligation.
Y U M ! Capital LLC ("YUM Capital") is a special purpose limited liability company organized
undor Dolawaro law, tho sole mombor of which is Y U M Capital Funding Corp. ("YUM
FundingCapital") _is a Delaware non-stock corporation that provides loans to eligible franchisees
7
of YUM's restaurant brands. Y U M Capital is funded by JPMoroan Chase Bank. N.A. ("JPM") and
otheLparticipating banks, (if any) and that funding is secured by loans made by Y U M
FundingCapital to franchisees of Y U M ' s restaurant brands. JPMorgan Chase Bank, National
AssociationJPM serves as administrator for Y U M Capital and Y U M Funding and as master
servicer of the loan portfolio.
Loans are funded by J P M and participating banks and aro supported by letters of credit
and other credit enhancements(jLany). Y U M has provided a limited guaranty of the
roimbursomont obligations of Y U M Capital with respect to tho I otter of croditamounts funded by
J P M and oarticioatino banks (if any) in an amount not to exceed 20% of the aggregate principal
balance of all outstanding franchisee loans. The form of Credit Agreement used for loans relating
to leasehold interests is attached as Exhibit J-1 to this Disclosure Document and the form of
Credit Agreement used for loans relating to fee-simple interests is attached as Exhibit J-2 to this
Disclosure Document, and the agreements set forth the terms of the loans.
In order to gualify for Y U M FundingCagital's financing program, you must have a minimum
of threetwo years operating experience as a Y U M franchisee; you must own threetwo or more
restaurant locations; you must meet a Fixed Charge Coverage Ratio of 1.2x on subject site and
entity basis; you must be in good standing and not past due with royalties within the past year; and
you must not have any defaulted or forgiven debt in the past 5 years. The general terms of Y U M
FundingCapital's financing program are summarized as follows:
PHIFOO 2 6 ^ 2 0 ^ 29
N o t e L Loans are funded by p a r t i o i p a ^
eredifenbaneemenf^ Y U M bas previdedalimifed guaranty ef fbe reimbursement e ^
Y U M Caoitai witb resoeot to tbe ietter eferediL Tbe ferms ef Credit Aoreementsameunts funded
bytbepartioi^ti^banksinanamountnottoe^ood20%oftbeaggreg^pr^
aii outstanding franobiseeioans Tbe form of Credit Aoreement used for the^ioansa^ereiating to
ieaseboid interests is a t t a o b o d a s E x b i b i t s J t a n d E x b i b i t J ^ to tbis OisoiosureOooument and tbe
form of CreditAoreement used for i o a n s r e ^
to tbis OisoiosureOooument? and tbe agreoments^et fortb tbe terms of tbe ioans.
N o t e ^ Tbe programwiii provide for ioans witb maturities of upto^years. However^tbe maturity
date wiii be eariier if eitber (a)tbeappiioabiefranobise agreement or (b)tbe iease agreement for
ieaseboidooiiaterai sites expires before t b e ^ y e a r maturity date. Tbe amortization period fora
ieaseboid site is 12years and tbe amortization period f o r a f e e simple site i s t ^ y e a r s .
N o t e 3 Tbe loans are floating rate loans witbaminimum interest rate of Cost of Funds plus
3^^^%onfeesimpleoollateralandCostofFundsplus3^^^%onleaseboldoollateral
Ouring tbe nine montb oonstruotion period, ioans are obarged an additional 0.50% interest. Cost
of Funds is defined as 3 0 d a v L i 8 C R o i u s 1 7 5 % As of F e b r u a r y s 2 0 ^ 7 2 0 ^ t b e Cos
Funds w a s ^ ^ L ^ % . As a resuit, a s o f tbat date, intereston fee simpieooiiaterai was
^ 0 ^ ^ ^ % per year and interest on ieaseboidooiiaterai was ^ ^ ^ % per year. Tbis is oniy an
example of w b a t t b e r a t e s w e r e o n a reoentdate. Tbeaotuairate wiii vary. A n i n e m o n t b
oonstruotion period wiii be aiiowed during wbiob an additionadditionai 0.50% per year interest is
obarged.in addition to paying interest,you must p a y a t . 0 0 % ioan origination fee as weii as iegai,
filing and recording, titie insurance and survey fees.
N o t e ^ . You must make eguai montbiy payments tbat reset eacb 12 montbs depending on tbe
term and amount financed andfunding c o s t s o f Y U M Capital. Fayments areautomaticaliy
debited on tbetOtb of eacb montb.Tbe montbiy payment is set annually based on tbe tben
current interest rate.
Note 5. Prepayments during tbe first18montbs of tbe loan will be subject toaprepayment
premium. You may prepay witbout premium or penalty after 18 montbs Pacb prepayment may
only be made concurrently witb and in addition toaregularly scheduled payment, on tbe 10tb day
ofacalendar month.
Note 8. The security varies depending on the type ofloan. Forfee properties,afirstpriority lien is
reguired. Forleaseholdsites,aleasehold mortgage is reguired. All loans made to,or guaranteed
b y y o u , must becrosscollateralized and crossdefaulted t o y o u r o t h e r d e b t a n d f r a n c h i s e
agreement. You must pay off any l o a n r e l a t i n g t o a P e s t a u r a n t that is closed. Apersonal
guaranty from all individuals that own more than 20% otthe borrower is reguired.
PHI does not own or control Y U M Capital or Y U M Funding. Y U M Capital has represented that
they may sell, assign, or discount to third parties all or part of the financing arrangement.
NeitherPFIInoritsatfiliatesreceivesafeetromYUMCapitalorYUMFundingforthe placement of
financing for loans.
pHiFoo 2 0 ^ 2 0 ^ 30
Y O M M m o ^ y L e n d m g A s k a n c e Program
Y O M o ^ e r s an optional l e o d ^
Minority bonding Assistanoo Programs Tho torm "minoritios" is dofinod hy tho Onitod Statos
Small Susinoss Administrationforits hosinoss dovolopment programs at 1 5 U . S ^ Sootion
^^^anditinolodosAfrioanAmorioans^HispanioAmorioans,^
trihos, Asian PaoifioAmorioans and othor minoritios.
^ You must possess liguid assets exceeding ^250,000 or 20% of the purchase price (or
initial investment) whichever is greater.
^ You mustagreeto make an initial down payment of at least 20% (eguity or cash)ot the
total initial investment at the time of closing and immediately following closing, you will
possess initial working capital cash at least in the amount of ^% otthe total purchase
price.
^ The proposed transaction and deht structure must meet YUM's (or its designee's)
then-current internal guidelines.
D Ifyou are purchasing an existing Pizza Hut Restaurant, you must have sufficient capital to
R e M o d e l and R e i m a g e the Restaurant on or hefore t h e ^ a n n i v e r s a r y ofthe closing
Operational Requirements
^ You must maintain or introduce all menu items and menu hoards or other eguipment that
aroused in one or more of PHI'scompany owned restaurants
^ Upon reasonahle reguestfromYUM(oritsdesignee), you mustagree to participate in test
market projects and you must sign PHI's then currentTest Market Agreement (attached
asPxhihitC)
^ You must notify Y U M (or its designee)immediately ofany event of default underthe loan.
PHIFOO 2 6 ^ 2 0 ^ 31
Re^redTermsoftheLoan
D The term of the loan most not exceed 12 years for leaseho^ 5^05
simple sites.
^ For tee simple sites-yoo most signanote and mortgage giving the ienderafirst iien
priority or seoority interest on eaoh of yoor tee simple sites on whioh yoo will operatea
Pizza Hot Restaorant
^ For leasehold sites yoo most signanote and leasehold mortgage giving the lendera
seoority interest on eaoh ofyoor leasehold sites on whioh yoo will operateaPizza Hot
Pestaorant.
^ If, heforethenatoralexpirationofeitherafeesimple mortgage or leasehold mortgagees
applioahle),any fee simple site or leasehold site (as applioahle)that acts as oollateral tor
that mortgage is sold or permanently closed, yoo most pay the lender the principal still
owed onder the mortgage for those sold or closed sites plos any applicahle interest
D Adefaoltonderthe loan madetoyoowill hedeemed to headetaolt onder yoor Location
FranchiseAgreement
D Yoor owners will he regoired to personally goaranty the loan
^ YUM mosthenotifiedifaloan is more than 30 days past doe.
D In the event otadefaolt onderthe loan,YUM(or its designee)will have the right hot not the
ohligation to hoy oot any franchisee loan at any time for the then ootstanding principal
halance otthe loan, plos the accroed interest.
Pven if yoo meet all of the regoirements set forth ahove, YUM may decide to not permit
yoo to participate in theYUM Minority Lending Assistance Program In addition, YUM can
discontinoe the YUM Minority Lending Assistance Program at any time
ItemU
FRANCHISORS A S S ^ P A N C ^ A O ^ ^
Except as listed heiow, PHi is not required to provide yoo with any assistance
Pre^OoeninoOhlioations
Before yoo open yoor Restaorant(s), PHI will provide yoo with the following assistance
andservices:
(2) Will not operate,or license another to operate,aRestaorant within 500 yards of
yoorRestaorant(s). (Location Franchise Agreement Section 2.0)
(3) Will not provide delivery service, or license another to provide delivery service, for
Approved Prodocts within yoor Delivery Area except that PHI may provide delivery service, or
license anotherto provide delivery service,onanonexclosive hasis,for Approved Prodocts opon
and withinmilitary hases, resorts, and timeshare developments that arelocated withinyoor
DeliveryArea.(Location FranchiseAgreement Section20)
^FOO3^20^ 32
(^ W ^ develop mandator and PHI
will provide you with one set efthe mandated gaining matehals per P Yoo will pay for
roplaoement oopiesof the mandatory training materials,all optional t r a i n s
Incidental oosts to have yoor employees reoeive the tralnlng^management and employees oosts,
Inoloding travel, lodging and other expenses, If applioahle), and neoessary hardware and
licensing oosts,If applioahle,for online or compoter training (Location FranchiseAgreement^
Sections)
(8) Wllllssoe standards and willprovide yoo with specifications and the names of
approved soppliers for the following Restaorant Items: design and decor; signage; food,
heverages, sopplies and other Inventory; fornltore, fixtores and egoipment; mono format;
compoter hardware; and other matters relevant to the constroction and operation of Restaorants.
(Location FranchiseAgreement Sections 5,8and 8)
ConhnumgQ^gahons
Oorlng the term of the Location Franchise Agreement, PHI or Its aothorlzed
representatives, will provide yoo with the following assistance and services:
(t) WIII he available to provide yoo with general advlceand assistance, at yoor
regoest,periodically. PHI may charge yooafee for certain services It provides.
(2) WIII advise yoo of any addition to or deletion from the list of PIzzaHot Marks.
(Location Franchise Agreement Sectional)
(3) Will advise yoo ofany changes to the Manoal and will provide yoo with sohstltote
pages or volomes of the Manoal as necessary. (Location Franchise Agreement-Section 5.5)
(5) May make perlodlclnspectlonsof yoor Restaorants, and review wlthyoo the
resolts ofthe Inspections. (Location Franchise Agreement S e c t i o n s )
(8) May, trom timeto time, designate new Approved Prodocts, delete Approved
Prodocts,or regoire thataglvenprodoct he standardized. (Location Franchise Agreement
Section 8.10). Foradlscosslonofthesemenochanges,seeltem 18,helow.
(7) While PHI or Its sohsidiaries operate Pizza Hot restaorants, PHI will contrihote to
the Advertising Fond, or to the Advertising Committee while the Advertising Committee
Agreement Islneffect, at the samerateof sales from thoserestaorantsasyoocontrlhote.
(Location FranchiseAgreement Sections.1). Amore complete dlscosslon of yoor and PHI^s
obligations tor advertising costs appears helow.
^ ^ 0 0 2 0 ^ 0 ^ 33
(8) PHI orits s u b s i d i e s may a^o
cooperatives in deslgoatodma^
Restaurants. (Location Franohise Agreement S e o t i o n ^ )
(9) PHI will not hire any otyour managers, oranyone who you employed a s a
manager within the previous six months, without your oonsent. It PHI does pirate away one ot
your managers, PHI will pay youapenalty (Location Franohise Agreement S e c t i o n s
(tO) PHI will otfer to tranehisees who sign the Pizza Hut Hiring Management System
and Learning Management System Services and SupportAgreement (PxhihitH) the rightto usea
wehhased hiring management systemBHirlng^one,"which is designed to improve the recruiting
and selection ot restaurant employees. Thesystemisoptionalandwill he offered in 20t3tora
fee of^t^.OO per restaurant per month (plus sales tax).
Manuai
You will he given the opportunityto view the Manual hetore you sign the Location
FranchiseAgreement.
Location Seiection
PHI does not lease or sublease the premises to you. It you acguire one or more existing
Restaurants,no location selection is necessary.lf you open and operateanew Restaurant, then
you will he solely responsihle tor selecting the site at which to develop the Restaurant, unless you
signaOevelopmentAgreementforaRestaurantataspecificlocation.However,you may ohtain
site selection assistance and related Real Pstate Services trom PHI'satfiliateYRSC forafee hy
signingaPizza Hut Oevelopment Services Agreement with YRSC See Item^andPxhihitF.
Ifyou will he opening and operating a new Restaurant, you must complete a site
registration reguest and PHI will have up to thirty days after receipt otthe site registration form to
accept or reject the proposed location. In PHI's review, PHI will consider primarily whether the
proposed location is in an area open tordevelopmentto ensure protectionof existing franchisees'
rights. PHI may also consider whether the proposed location isasuitahle site hased upon the
location of competitors, traffic patterns, household count, population growth and other criteria. If
PHI does not agree with the proposed site, PHI will not allow you to develop there and you and
PHI will not signaLocation Franchise Agreement. Phe geographic location(s)and delivery areas
P^FOO 26^20^ 34
to bo oovorod by tbo Location Pranobiso Agroomont issuod a s a rosuitottbisotfonng aro
dosoribod in tbo agroomont itsoiL PHi doos not assure suooossot any sito.
Time to Opon
Tbo iongtbot time between approval by PHi otatranobisoo and oponing otaPostaurant
varies, it oouid be as soon as tbe signing otaLooation Pranebise Agreement in the oase ot tbe
existing Pestaurants(s)soidtoyou by PHi,its subsidiaries or attiiiates,eras m ^
you d e v e i o p a n e w Pestaurant Many taotors may atfeot tbis iengtbot time,suob as obtaining
neoessary government permits and approvals, weatber oonditions and iaborditfiouities during
iand development and building oonstruotion,financing arrangements,and abiiitytoobtainaiease,
among otber things.
TrainingPrograms
PHI pays tor the cost ot developing both mandatory and optional training programs. PHI
will provide you, at no cost, one complete set otall mandatory paper based training materials
(which will not includeelearning orthe blended approach)tor each ot your Restaurants You will
pay tor any replacement copies ot mandatory training materials, all optional materials (including
LEAD materials) and all incidental costs to have your employees receive the training
(management and employee costs, including travel, lodging and other expenses, it applicable)
and necessaryhardwareand licensing costs, it applicable, tor on line or computer training. All
non-management training must be completed during approved work hours and trom approved
locations.
The following describes PHI's current mandatory training which all employees must
complete (with the exception otthose subjects marked with an^which,depending on yourtypeot
restaurant,may not he mandatory tor all employees)theSecomingaCustomerManiacTraining
Program. PHI considers tbis mandatory training completed to its satisfaction when the
tranchisee'semployeehascompleted the mandatory training materials.
^ FOO 2 0 ^ 0 ^ 35
TRAINING P R O G R A M
B e c o m i n g a C u s t o m e r Maniac Training
Hours of Hours of
Subject Online Training On the J o b Traininq Location
Orientation 20 min 4 Restaurant
Restaurant Basics 22 min 8.4 Restaurant
Food Safety for Team 30 min 2 Restaurant
Members
Buffet & Salad Bar* 41 min 8 Restaurant
Carryout Hospitality 20 min 3 Restaurant
Driver Hospitality* 40 min 6.30 Restaurant
Greeting & Seating* 30 min 7.50 Restaurant
Table Service* 31 min 15.40 Restaurant
Telephone Hospitality 20 min 8 Restaurant
Working the Kitchen 25 min 10.15 Restaurant
Prepping 22 min 5.40 Restaurant
Working the Maketable 29 min 9.25 Restaurant
WingStreet Cooking* 19 min 9 Restaurant
O n l i n e Assessments • 2 hours 1 Restaurant
• Each Subject Above • 10 min
• Menu • 10 min
• Production • 10 min
• WingStreet Menu • 10 min
• WingStreet Product
Hours of Hours of
Subject Online Training On the J o b Training Location
Optional Team Member
Training Courses
Team Member Trainer 30 min 6 Restaurant
Booklt! 20 min 1 Restaurant
World Hunger Relief 30 min 1 Restaurant
Heart of the Hut 20 min 1 Restaurant
PHI also offers certain training for various management-level employees. PHI has paid to
develop these training programs but, if you wish to undergo or provide this training to your
employees, you must pay for all the training materials and any incidental costs to providing the
training. The following describes these training programs.
L E A D : Shift Leader*
Hours of C l a s s r o o m Hours of
Subject Traininq On-The-Job Traininq Location
Day in the Life - Shift Online training: 30 min 0 Restaurant
Leader Other classroom
training: 0
* The LEAD: Shift Leader training program may include the option of Food Service Certification,
with the costs varying depending on the options chosen. The course may be conducted online or
as an instructor-led course. The Food Service Certification Examination for Restaurant General
Managers may be proctored in person or online by an approved Proctor. You may also arrange
for a food safety certification course sponsored by your state, at the cost determined by the state.
Or, you could certify a trainer to teach a food safety certification course to your employees via a
state certification program.
Hours of Hours of
Subject Classroom Training On-The-Job Training Location
Day in the Life-RGM Online training: 30 min 0 Restaurant
Other classroom
traininq: 0
Labor Management Online training: 30 min 0 Restaurant
Other classroom
training: 0
Food Cost Management Online training: 30 min 0 Restaurant
Other classroom
training: 0
Advanced Finances Online training: 30 min 0 Restaurant
Other classroom
training: 4 hours
Managing Conflict Online training: 30 min 0 Restaurant
Other classroom
training: 2.75 hours
Productive Meetings Online training: 30 min 0 Restaurant
Other classroom
training: 3 hours
Drive Results Online training: 30 min 0 Restaurant
Other classroom
training: 0
Restaurant Online training: 60 min 0 Restaurant
Management Other classroom
training: 0
Online Assessments Online training: 10 min 0 Restaurant
each topic above each
Other classroom
training: 0
Hours of Hours of
Subject Classroom Traininq On-The-Job Traininq Location
Build an A Team Online training: 0 0 Restaurant
Other classroom
training: 3 hours
Coaching for Results Online training: 30 min 0 Restaurant
202 Other classroom
training: Q3_hours.
Drive Results Online training: 30 min 0 Restaurant
Other classroom
training: 0
Managing Restaurant Online training: 30 min 0 Restaurant
Training Other classroom
training: 0
Manage Multiple Online training: 30 min 0 Restaurant
Priorities Other classroom
training: 0
Union Awareness Online training: 20 min 0 Restaurant
Other classroom
training: 0
Living the Life Online training: 60 min 0 Restaurant
Other classroom
training: 0
L E A D : Area C o a c h
Hours of Hours of
Subject Classroom Traininq On-The-Job Traininq Location
Day in the Life-AC Online training: 30 min 0 Restaurant
Other classroom
training: 0
Effective Online training: 30 min 0 Restaurant
Communication Other classroom
training: 2 hours
Drive Excellence Online training: 30 min 0 Restaurant
Other classroom
training: 0
Time Management Online training: 30 min 0 Restaurant
Other classroom
training: 0
Influencing & Motivating Online training: 30 min 0 Restaurant
Other classroom
training: 2 hours
Building High Trust Online training: 30 min 0 Restaurant/Office
Teams Other classroom
training: 2 hours
If you are currently a Pizza Hut franchisee and have, or implement, a management
training program and have used PHI's management training program for one year, you may
request PHI to approve your management training program as an alternate to the above
programs. You must satisfy PHI that your program is at least the equivalent of PHI's program.
PHI will need to certify your program. There may be costs associated with certification, including
development of participants guide, use of PHI's copyrighted material, and PHI training managers'
travel and other expenses.
Periodically, PHI's Training Department may also develop and present other programs or
seminars for your supervisory personnel and employees. Attendance at these additional training
Advertising
You must also spendareguired amount on local advertising each month. The amount of
the reguired local advertising is the difference between^.25% of your previous month's Cross
Sales and the amount of your National Advertising contribution described above. These funds
must be spent on broadcast media to promote your Restaurants in their general marketing area
PHi may also establish local cooperative advertising associations (^Co-ops") forvarious groups of
Restaurants. ItPHIestablishesaCo-opthatencompassesyourRestaurants,PHI may reguire
thatyou redirectsomeorallofyourreguired local advertising expenditures asacontribution to
the Coop (Location FranchiseAgreement S e c t i o n s 7 2 a n d ^ )
PHI and its franchisees have agreed to restructure the allocation ot advertising
contributions and expenditures during calendar years 2012, 20t3and20t^ Ouring 2012,2013
P ^ F 0 0 2 ^ ^ 4 41
and 201^ the N a t i o n A d v e ^
looal advertising expenditure rate w^ he 25% ^ Neither PHI, AdCom northe Co ops (it any)
undertake any duty to ensure either that expenditures ot advertising tunds thatyou must
oontrihute will henetit you or your Restaurants direotly,orthat you will reoeive any henetit^^
proportionate to your oontrihutions. No advertising tunds are expended tor advertising the sale ot
tranohises or lioenses.
You must suhmit all proposed advertising to PHI tor approval hetore using it. All
advertising must oompiy with standards set hy PHI. PHI must approve any proposed advertising
inwriting PHI will try to respond within 30 days Phe suhmitted item is oonsidered unapproved
until notitioation hy PHI. For additional intormation regarding your ohligations regarding
advertisingtees,see ItemsO,3and9ot this disolosuro dooument and the Looation Franohise
Agreement.
Computer Systems
PHI has developed oomputer software that is usetul in operating Restaurants. The Point ot
Sale System is oalled the "Single Unit System" or"SOS",and is usod to process oustomer orders
Phe Oaokot House Management System is referred to as "FMS", whioh is used to torooast sales
(inoiuding related food and lahor needs), to track employee hours, and to fulfill other internal
functions. Together,these proprietary computer programs and related programs developed hy or
for PHI, along with the hardware and software necessary to run the proprietary software, are
referred to as the "Computer SystemBThecost otthe Computer System ranges trom ^0 ifyou are
acguiringaRestaurant from PHI oritssuhsidiaries to an estimated maximum of ^30,000 for new
Restaurants.
You must acguire and use the Computer System in the operation ofyour Restaurants.
You must sign thePointotSaleSystem Master SOS/FMSLicenseandSupport Agreement
("Computer System Agreement") granting you rights to the Computer Systom. The Computer
System Agreement is AppendixHto the Location Franchise Agreement, which is attached as
PxhihitC
PHI has used the Computer System (or its predecessors) in company operated
Restaurants since 1030, and has made them availahle to franchisees since tOOt. It PHI or its
affiliates develops enhancements, upgrades, modifications, or additions to the Computer System,
you must acguire and use them on the schedule announced hy PHI (Computer System
Agreement, SectionC).
In accordance with the Computer System Agreement, PHI or its affiliates will provide and
supportthefunctionality,asdescrihed in AddendumAotthe Computer System Agreement,ofthe
Computer System software in new Restaurants tor two years trom the time of acceptance. This
applies only it the current release otthe Computer System software was installed at the time of
opening ofthe now Restaurant. This two year support period will not apply to software that was
installed hetore you purchased the Restaurant(s).
^FOO2O^0^ 42
PHI or its a b a t e s p r o v i d e d
noodod, to support business roquiromoo^ Youmustinstaiiandusoanyupdatos/upgradosas
publisbodby PHL No hardware upgrades aro roguirod, uniess neoessary tor support otthe
software You wiii deal direotiy with vendors ot Approved Pguipment (see definition heiow) tor
Computersystem upgrades. You m u s t a o g u i r e a n d purohase or ioasethese upgrades as
neoessary. PHi wiii make every attempt to seoure system pricing trom approved vendors.
in order to operate the Computer System software, whioh you license trom PHi or its
affiliates, you must acguire a variety ofhardware components (such as control processor,
memoryandstoragedevices,modems,displayunits,and printers) inaconfiguration and o t a
type approved h y P H I ("Approved Pguipment") PHI inits sole discretionmay change the
Approved Pguipmentcontiguration(s) at any time (Computer System Agreement,Sectioned).
All otthe hardware used with the Computer System must he dedicated solely to the operation of
the Computer System PHI attempts to secure commitments for maintenance otthe hardware
used with the Computer System trom PHI'svendors,affording the same pricing and service levels
to franchisees as provided to PHI. If you choose not to ohtain maintenance services trom PHI's
vendors, you must use other maintenance vendors that PHI has approved to provide preventive
and remedial maintenance to support the Approved Pguipment PHI receives no payment trom
vendors ot Approved Pguipment or maintonance suppliers (Computer Systom Agreement,
Section C t )
item^
PERRiTCRY
PHI will not develop or operate, or allow any other licensee or tranchisee to develop or
operate,aPestaurant at any pointwithin 500 yards ofany ofyour Pestaurant(s) Continuation of
theselimitedterritorial rights withina500 yard radius ofany ofyour Restaurants does not depend
on your achieving any particular sales volume, market penetration, or other similar contingency
There are no other circumstances which permit PHI to modity these limited territorial r ^
Furthermore, as long as you are providing Adeguate Celivery Service throughout your Celivery
Area,PHI will not offer delivery service,and will not allow any othorlicenseeortranchisee to offer
delivery service, tor Approved Products to any point within your Celivery Area, except that PHI
may provide delivery service,or license anotherto provide delivery service tor Approved Products
upon and within military hases, resorts, and time share developments that are located within your
OeliveryArea.Your CeliveryArea will normally e n c o m p a s s a m i n i m u m o t 500 households A
Oelivery Area is the area(s)descrihed in AppendixBto the Location Franchise Agreement, orthe
modified Celivery Area ifyour Celivery Area ischanged under Section 2 . 3 o t t h e Location
Franchise Agreement as turther descrihed helow in this Item
P^POO^O^^ 43
neighborhood or trado aroa dosignatod in tho Oovolopmont Agroomont. Pioaso rotor totho
OovoiopmontAgroomontattaohod as ExhihitKtothisOisolosuro Oooumont. Soo item 5.
Aii the territorial proteotionsdesorihed ahove are limited You wiii not reoeive an exoiusiv^
territory.You may taoeoompetition trom other tranehisees,trom outlets that PHI owns,or trom
other channels otdistrihution or oompetitive hrands that PHI controls Pxoept as desorihed ahove
you will not have any right to exclude development ot concepts owned or licensed hy PHI or its
atfiliates. PHI and its atfiliates may develop and operate, or may tranchise or license others to
operate, any other husiness concepts(i.e., any conceptexcepta Restaurant) at any place,
including immediately adjacent to your Restaurant(s), and may use the Pizza Hut Marks or any
other trademarks owned or developed hy PHI or its atfiliates in connection with those concepts,
even it those other concepts sell products that are the same as,or similarto,Approved Products.
You have no right to acguire additional tranchises.
PHI's attiliates,Paco Bell Oorp. and KFOO, currently are engaged in operating, tranchising
and licensing restaurants ot various concepts underditferent trademarks. Phese competing
restaurantconceptsmayalready he estahlished within 500yardsotyourRestaurants(s)orwithin
your Oelivery Area, or may he estahlished there in the tuture Although these restaurant concepts
are competitive, to some extent, with Restaurants, some otthem may compete more directly with
your Restaurant(s)than others. Forexample,theoperatorotaPacoBell or KFO restaurant may
he grantedalicense to operateanontraditional Pizza Hut Kiosk within their restaurant,suhjeotto
the limitations in the tirst paragraph otthis Item t2. For more intormation on thoso atfiliates and
tor their addresses,see Itemt.
You may sell Approved Products only at the Restaurants, and you may deliver Approved
Products only within your Oelivery Area. You may not sell Approved Products using alternative
channels ot distrihution, such as the internet^worldwide web and other torms otelectronic
commerce (although you may accept orders via PHI's web site tor carryout and delivery within
your Oelivery Area.); "800" or similartolltree telephone numbers; catalogs,telemarke^^
direct marketing sales; or, any other channel ot distribution other than sales trom your
Restaurants and delivery trom your Restaurants.
^FOO2^20^ 44
l o t h e t o t u ^ PHIaod ^ a ^ a t e s m a y a ^ o acquire or de^
busioossos that usod^ororit trademarks arid thoso rostau^^
yards ot your Restaura^s)or within your Oe^ery Area.
PHlhasrioothersystemormethodtorreso^
iioe^sees otthese other e x i s t s (or poteritia^oompet^goo^oe^^ Toresolve potential oo^iots
hetweeriyouandPH^ PHI has committed to padioipatei^the Center
traochise alternative dispute resolution procedures Finally, underthe Location Franchise
Agreement, you and PHI will hoth agree to mediate any dispute that is specitic to you and that
does not involve an issue common to all "Pizza Huf tranehisees
You must provide Adeguate Oelivery Service to your entire Oelivery Area Adeguate
Oelivery Service means delivery service in accordance with PHI's standards tor delivery Among
other tactors, PHI's standards tor delivery service include customer satistaction, potential sales
volume, market demographics, saturation analysis, diversion ot sales trom your other
Restaurants (itany), and the physical and geographical characteristics otthe OeliveryArea
Phere is no minimum sales guota. You maintain rights to your area as long as you comply with
PHI'scurrentstandardstordeliveryasdescrihed inthe Location FranchiseAgreement
Periodically, PHI may consider whether you are providing Adeguate Oelivery Service to
your entire Oelivery Area. It PHI preliminarily determines that you are not providing Adeguate
Oelivery Service throughout your Oelivery Area, PHI will give you written notico You will have 90
days to protest PHI's preliminary determination. Whetherornotyou suhmitawritten protest,the
Oelivery Area will he redetined to include only the areas to which PHI tinally determines that you
are providing Adeguate Oelivery Service.
Ityou want to relocate any ot your existingPestaurants, youmust apply to PHI tor
permission to do so. You must supply PHI with justitication tor the relocation (such as expiration
ot an existing lease or changed demographics), intormation concerning the location and
demographics otthe existing and proposed Restaurants, and any other intormation PHI reguests.
ItPHIconsentsto the relocation,PHI will notityyou otthe portion (it any)otthe initial tranche
thatyou maytranstertromtheexistingRestauranttotheproposed replacement Restaurant The
amount ot initial tranchise tee to ho transterredmay depend upon,among other matters,the
proximity otthe existing and replacement Restaurants, the nature otthe Restaurant concept
involved, andthe similarity ottradeareas Itapproved, you mustopon the replacement
Restaurant tor husiness within t^monthsatter closure otthe existing Restaurant to receive the
credit.
Item^
PRAOEMAR^S
Under the Location Franchise Agreement, PHI grants you the nonexclusive right to use
the Pizza Hut Marks to operate your Restaurant.
Phe principal Pizza Hut Marks tor operation otaRestaurant include the toiiowing which
haveheen registered onthePrincipalRegisterotthe United Statos PatentandPrademarkOtfice:
You will have the right under the WingStreet Development Authorization Agreement to
develop WingStreet and sell WingStreet products using the trademarks, service marks and trade
names listed in the Manual ("Proprietary Marks" or "Marks"). (See Exhibit M.) If PHI requires you to
modify or discontinue use of a Mark for any reason, PHI does not have to compensate you. You may
use the Marks only as provided for in the Manual and the PHI Location Franchise Agreement. PHI
All required affidavits of use havo heen filed. There are no currently effeotive
determinations of the Onited StatesPaten^
Appeal Soard, the trademark administrator of any state, or any oourt, nor Is there any pending
Intederenoe,opposition,or oanoellation proceeding,nor any ponding material litigations
the principal Pizza Hut Marks which may he relevanttoyouruseofthe Pizza Hut ^
ownsanumher of other related trademarks,trade names,service marks,trade dress,symhois,
logos, emhlems, Insignias, designs, external and Internal huiiding designs and other architectural
features that are Included In the Pizza Hut Marks and that are Identified In the Manual and In the
Location FranchiseAgreement l^o agreements limit PHI'srlghtto use orlicense the use ofPHI^s
trademarks
You may use the Pizza Hut Marks only for your Pestaurant(s)and the sale of Approved
Products You may not use any ofthe Pizza Hut Marks exceptatyourPestaurant(s^except that
you may use the Pizza Hut Marks In connection with advertisements for your Restaurants, and
you may deliver products produced at your Restaurants throughout your OellveryArea). You
must usethePlzzaHut Marks strictly according to the terms andconditions of theLocation
FranchiseAgreement. You may not use any trademarks,service marks,trade names,trade
dress (Including product package designs), symhois, slogans, emhlems, logos, Insignias,
designs, external and/or internal huiiding designs and other architectural features, that are similar
to the Pizza Hut Marks.
You may not offerorsell anytood, hoverage, orother product (whetheror not an
Authorized Product) at orfrom any ofyour Restaurant(s) under or in connection with any
trademark, service mark, trade name,tradedress (including product package design), or external
or internal huiiding design or other architectural feature, other than the Pizza Hut Marks, w ^ ^
PHI's advance written consent in each case.
P H l i s the sole and exclusive owner otthe Pizza Hut Marks. The Location Franchise
Agreement does not give you right to any otthe Pizza Hut Marks, other than the limited license
granted All goodwill now or in the future associated with and/or identified hy one or more otthe
Pizza Hut Marks (including any goodwill arising out ofyour use otthe Pizza Hut Marks) belongs
directly and exclusively to PHI
Your use ofthe Pizza Hut Marks is nonexclusive. Pxeept as provided in Item t2,Territory,
PHI maygrantanyotherperson(s)the license,in addition to any license(s)previously granted,to
use all or any part otthe Pizza Hut Marks,including within your Oelivery Area (it any)or otherwise
within the natural trade area of your Restaurant(s).
You may not interfere inany manner with, and will not attempt to attack, contest, or
prohihit, (a)any use otthe Pizza Hut Marks hy PHI orhy any other franchisee or licensee of PHI
thatis notdlrectly contrary tothetermsof the Location FranchiseAgreement, or(h) PHIs
^FOO38^0^ 48
ownership otthe Pizza Hut Marks. You may not oh^eot to,attaok, or oontest,PHi's ownership ot
and/or rightto register any or ail otthe Pizza Hut Marks in oonneotion with any service or prod^^
You must immediateiy notity PHi,in writing,it (a)athird party oiaims that the Pizza Hut
Marks infringe trademarks owned hythe third party,or otherwise ohaiienges your use otthe Pizza
HutMarks, and (h)youknoworsuspeotthatathirdpartyisintringingtho Pizza Hut Marks As
partotthisnotioe,you must provide PHi withacopy ot any written intormation avaiiahie to you
concerning the matter and any intormation you know ahout the other party involved.
PHI has the right to control any administrative proceedings orlitigation involving any otthe
Pizza Hut Marks licensed hy PHI to you. PHI must use reasonahle ettorts to protect the Pizza Hut
Marks, including instituting, prosecuting, and/or settling ^udicialoradministrativeactionsor
proceedings. Whenever reguested to do sohy PHI,you must cooperate tully in those actions or
proceedings You maynot,however,take any action with respect to any challenges against your
use otthe Pizza Hut Marks,or any known or suspected intringements otthe Pizza Hut Marks hy
other parties, without PHI's advance written approval.
You must exercise caution in your use otthe Pizza Hut Marks to ensure that the Pizza Hut
Marks (and any associated goodwill) are not jeopardized in any manner. You may not use the
Pizza Hut Marks in any manner or in connection with any statement or material that is (in PHI's
reasonahle judgment) in had taste or inconsistent with PHI's puhlic image, or that could tend to
involvePHIinamatterot political or puhlic controversy,or tend to hring disparagement,ridicule,
or scorn upon PHI, the Pizza Hut Marks, or the goodwill associated with the Pizza Hut Marks.
You must indemnity PHI against any damage or expense (including reasonahle attorneys'
teesandallassociatedexpenses)ityoudamageorimpairthe Pizza Hut Marks
PHI may designate new Pizza Hut Marks as applicahle to the Restaurants Inaddition,
PHImay modity or delete existingPizza Hut Marks. PHI must give you written notice otthe
addition, moditication, or deletion ot Pizza Hut Marks. Any additional or moditied Pizza Hut Marks
designated as applicahle to the Restaurants will he suhjeotto the terms otthe Location Franchise
Agreement You must cease use ot any deleted Pizza Hut Marks within the time stated in the
notice ot deletion
^tem^
P A T ^ T ^ C C P Y R i C H ^ A ^ O PROPRIETARY i ^ F C R ^ A T ^
There are no patents or pending patent applications that are material to the tranchise
offered. PHI claims copyright protection of its Manual and related materials, including all print,
radio and television commercials that include any of PHI's trademarks You do not receive the
right to use an item covered hyapatent or copyright,hut you can use the proprietary information
in PHI's Manual. The Manual is descrihed in Itemtt.
PHI does ownanumherot patents relating to the franchised husiness that are primarily
improvements to eguipment used in preparing Approved Products. These patents are generally
licensed to manutacturers that produce the eguipment and you will receive the henefit of these
patents it you huy that eguipment.
PHI has certain trade secrets and proprietary intormation. Among the items for which PHI
claims trade secret status are PHI's Manual, its spice hlends and secret recipes, the Computer
^F002^20^ 49
System s o ^ w a r e a o d ^ e n h a n ^ You
may oot use any otPH^s trade seorets or ^
operationof the Restaurant(s) You may not disoiose any of PHi's trade seorets or proprietary
information to any other person, either d u r ^
Franohise Agreement.
There are no presently effeotive determinations of the Patent Offioe, Copyright Offioe
(Lihrar^otOongress)oranyoourt, no pending interterenoes, oppositions, oroanoeiiation
prooeedings, and no pending materiai litigation involving PHi's patents, oopyrights, or trade
seorets that are relevant to thoir use in any state.
jtem^
O8^CAT^TCPAR^0iPATE^THEA0P0AL
O P E R A T E CF THE F R A ^ O H i S E ^ S ^ E S S
PHI reoommends, hut does not require, that you, or your prinoipal owners, partieipate in
the daytoday operation otthe Pestaurant(s). Eaoh Pestaurant must he direotly supervised hy
an on site manager who has suooesstully oompleted PHI's mandatory training program, neither
you nor any on-site manager oan have any interest in or husiness relationship with anyof PHI's
oompotitors. You and your prinoipals must signawritten agreement to maintain the oonfidontiality
ot PHI's trade seorets and proprietary intormation (see ExhihitCtto this OisolosureOooument,
for new Restaurants,and ExhihitC2to this Oisolosure Oooumont, tor existing Restaurants). PHI
exeroisesnooontrol over the identity ofany ofyour onsite managers.There is no requirement
that any ofyour onsite managers have any equity ownership in you Exoept as desorihed ahove,
PHI does not require you to plaoe any restriotions on any ofyour on-site managers.
You must assure that your operationof the Restaurant(s) is in striot aooordanoe with the
standards, plansand speoitioationsestahlished hy PHI You must perform all ohligations
imposed hy the Looation Franohise Agreement, inoiuding the restriotions on transfer, and
covenants regarding oompetition and maintaining the oonfidontiality ot PHI's proprietary
intormation. Ityou are not an individual,all ofyour owners holdingatO^ or greaterinterest in you
must personally guarantee your performanoo otall financial and other ohligations imposed hythe
Location Franchise Agreement It you are not an individual,all ofyour owners must comply with
certain other provisions otthe Location Franchise Agreement, including the covenants regarding
transfers ot interest and against competition.
^tem^
RESTR^CTiC^SC^^HATTHEFRA^CHiSEE^AYSELL
You must sell only pizza and other items that PHI has approved for sale in Restaurants
(the "Approved Products"). IfPHIdesignatesahrandnametoranApproved Product, you must
sell thatApprovedProductunderthe hrand name designated You may not sell or distrihute any
food productoringredientexceptasacomplete,tully^processed Approved Product.
P^FOO2^20^ 50
from PHI to stop offering for sale any product that PHI designates as being no longer an Approved
Product.
PHI imposes no restrictions on the customers to whom you may sell Approved Products,
except that you may sell Approved Products only at the Restaurants, and may deliver Approved
Products only within your Delivery Area. PHI has no right to change the type of products, unless
such products cease to be authorized products under the PHI manual.
If you purchase an existing Restaurant(s) from PHI during the term of the Location
Franchise Agreement, you may not change the non-alcoholic beverage products sold in the
Restaurants you purchase from PHI or its affiliates from those sold in the Restaurants on the date
you acquire them, without the express advance written consent of PHI, in PHI's sole discretion.
This requirement relates to PHI's ability to obtain favorable terms from certain vendors for the sale
of non-alcoholic beverage products in Restaurants. Furthermore, as described in Item 8 above,
you must sign a Pepsi-Cola Beverage Supply and Marketing Agreement and Amendment if you
are a new franchisee or purchase any existing Restaurant(s) from PHI or its affiliates.
Item 17
RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION
Section in
Location F r a n c h i s e
Provision Agreement Summary
a. Length of the Sections 1.23, 2.1 Twenty years
franchise term
b. Renewal or extension Section 1.23 No renewal is offered
of the term
c. Requirements for you Section 1.23 No renewal is offered.
to renew or extend
d. Termination by Not Applicable You have no right to terminate
you
e. Termination by PHI Not Applicable PHI can terminate only if you default
without Cause
f. Termination by Section 18 PHI can terminate only if you commit an incurable default,
PHI with cause or you fail to timely cure a curable default
g. "Cause" defined - Section 18.2 Any failure to timely pay monies owed to PHI or its affiliates,
defaults which and any other breach of the franchise agreement that is not
can be cured an incurable default
h. "Cause" defined- Section 18.1 Financial failure, improper transfer, failure to allow
non-curable defaults inspection, certain criminal convictions, disclosure of
secrets, falsification of records, habitual default, public
endangerment, material misrepresentation, unauthorized
closure or loss of occupancy right
^POO2^20^ 52
Pizza Hut Development Services Agreement:
S e c t i o n in Pizza
Hut Development
Services
Provision Agreement Summary
(a) Length of the agreement term 2,3 As needed for the conduct of services for each phase.
(b) Renewal or extension of the term Not Applicable Not Applicable
(c) Requirements for you to renew Not Applicable Not Applicable
or extend
(d) Termination by you 8.1 You may terminate the agreement upon 7 days
advance written notice if Y R S G fails to perform its
obligations through no fault of yours.
(e) Termination by Y R S G without Not Applicable Not Applicable
cause
(f) Termination by Y R S G with 8.1, 8.2, 8.3, 8.4 Y R S G may terminate the Agreement upon 7 days
cause advance written notice if you fail to perform your
obligations through no fault of Y R S G ' s or if you fail to
make payments as required.
(g) "Cause" defined -defaults which Not Applicable Not Applicable
can be cured
(h) "Cause" defined -non-curable Not Applicable Not Applicable
defaults
(i) Your obligations on 8.4 You must pay Y R S G for all services performed before
termination/nonrenewal the date of termination.
(j) Assignment of contract by Y R S G 9.2 Y R S G may assign to one of its affiliates or designate
one or more of its affiliates to provide services under the
agreement.
(k) "Transfer" by you 9.2 You may not assign without the written consent of
YRSG.
(1) Y R S G ' s approval of transfer by Not Applicable Not Applicable
you
(m) Condition for Y R S G ' s approval Not Applicable Not Applicable
of transfer
(n) Y R S G ' s right of first refusal to Not Applicable Not Applicable
acquire your business
(o) Y R S G ' s option to purchase your Not Applicable Not Applicable
business
(p) Your death or disability Not Applicable Not Applicable
(q) Non-competition covenants Not Applicable Not Applicable
during the term of the license
(r) Non-competition covenants after Not Applicable Not Applicable
the license is terminated or
expires
(s) Modification of the Agreement 9.3 May be amended only by written instrument signed by
you and Y R S G .
(t) Integration/merger clause 9.3 Only the terms of agreement are binding.
(u) Dispute resolution by arbitration 9.19 All disputes will be settled by arbitration
or mediation
(v) Choice of forum 9.19 Arbitration shall be in the County of Jefferson,
Commonwealth of Kentucky
(w) Choice of law 9.1 Law of the place where the project is located applies
(subject to state law).
S e c t i o n in
Development
Provision Agreements Summary
(a) Length of the agreement term 1 A s mandated by PHI.
(b) Renewal or extension of the term Not Applicable Not Applicable
(c) Requirements for you to renew Not Applicable Not Applicable
or extend
(d) Termination by you Not Applicable You have no right to terminate.
(e) Termination by PHI without Not Applicable Not Applicable
cause
(f) Termination by PHI with cause Exhibit N to A S A : 5 PHI can terminate if PHI issues a notice of default to
Exhibit M to A S A : franchisee, FA is terminated, if franchisee attempts to
8, 9 transfer the DA or FA without PHI's advance consent,
Exhibit K:, 8, 9 expiration of term, a material breach of DA, or failure to
develop.
(g) "Cause" defined -defaults which Not Applicable Not Applicable
can be cured
(h) "Cause" defined -non-curable Not Applicable Not Applicable
defaults
(i) Your obligations on Not Applicable Not Applicable
termination/nonrenewal
(j) Assignment of agreement by Not Applicable Not Applicable
PHI
(k) "Transfer" by you Not Applicable Not Applicable
(1) PHI's approval of transfer by you Not Applicable Not Applicable
(m) Condition for PHI's approval of Not Applicable Not Applicable
transfer
(n) PHI's right offirst refusal to Not Applicable Not Applicable
acquire your business
(o) PHI's option to purchase your Not Applicable Not Applicable
business
(p) Your death or disability Not Applicable Not Applicable
(q) Non-competition covenants Not Applicable Not Applicable
during the term of the agreement
(r) Non-competition covenants after Not Applicable Not Applicable
the agreement is terminated or
expires
(s) Modification of the Agreement Exhibit N to A S A : 8 May be amended only by written instrument signed by
Exhibit M to A S A : you and PHI.
14
Exhibit K:14
(t) Integration/merger clause Not Applicable Not Applicable. PHI's integration/merger clause does
not disclaim the representations made in this disclosure
document.
(u) Dispute resolution by arbitration Not Applicable Not Applicable
or mediation
(v) Choice of forum Exhibit N to Litigation must be in Collin County, Texas, subject to
A S A : 11 state law.
Exhibit M to A S A :
17
Exhibit K:17
(w) Choice of law Exhibit N to A S A : Texas law applies, subject to state law.
10
Exhibit M to A S A :
16
Exhibit K: 16
See the state addenda to the Franchise Agreement and Disclosure Document for special state
disclosures.
Item 18
PUBLIC FIGURES
PHI does not use any public figure in the name or symbol of the franchised business, nor
does any public figure endorse or recommend the franchise offered.
Item 19
The FTC's Franchise Rule permits a franchisor to provide information about the actual or
potential financial performance of its franchised and/or franchisor-owned outlets, if there is a
reasonable basis for the information, and ifthe information is included in the disclosure document.
Financial performance information that differs from that included in Item 19 may be given only if:
(1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2)
a franchisor supplements the information provided in this Item 19, for example, by providing
information about possible performance at a particular location or under particular circumstances.
Dine-In and RBD Pizza Hut Restaurants open for at least one year as of December 31, 20422013
Percent
of Gross
Sales
AVERAGE GROSS SALES
(note 4) $1,008,000mflQn
A further subset ofthis information for Dine-In and RBD Pizza Hut Restaurants is as follows:
A V E R A G E COST OF LABOR
(note 6) $214,8632^42% 33^28%
A V E R A G E COST OF ADVERTISING
(note 7) $32,48933*895 4^5,2%
A V E R A G E SEMI-VARIABLE C O S T S
(note 8) $59752960232 &Ag2%
A V E R A G E O T H E R SEMI-VARIABLE
COSTS
(note 9) $20,44225*121 3:4M%
A V E R A G E FIXED C O S T S - O T H E R
(note 10) $18.83019,739 2^M%
A V E R A G E COST OF RENT
(note 11) £34^2636.415
A V E R A G E EBITDA
(note 12) $89 05925Jfi3
T
43^11^%
A V E R A G E COST OF SALES
(note 5) $257,574258,558 22428.7%
A V E R A G E COST OF LABOR
(note 6) $288^55280142 3472311%
A V E R A G E COST OF ADVERTISING
(note 7) $45,67040425 4452%
PHI FDD2O452014 56
(note 8)
A V E R A G E O T H E R SEMI-VARIABLE
COSTS
(note 9) $2&6523CU63 2^3%
A V E R A G E FIXED C O S T S - O T H E R
(note 10) $22,21122.043 2.4%
A V E R A G E COST OF RENT
(note 11) $37,41042J2a 4mJ%
A V E R A G E EBITDA
(note 12) S4S&3A6143,11A
A V E R A G E COST OF ADVERTISING
(note 7) $64J336L20a 445,1%
A V E R A G E SEMI-VARIABLE C O S T S
(note 8) £94^496.383 6414:%
A V E R A G E OTHER SEMI-VARIABLE
COSTS
(note 9) $32^2439.956 243J.%
A V E R A G E FIXED C O S T S - O T H E R
(note 10) $27,67126.736 2AZQ%
A V E R A G E EBITDA
(note 12) $322-,-2-37-29-8J7_2 24^22.8%
Percent of
Gross
Sales
AVERAGE GROSS SALES $992^l£M£GQ
(note 4)
A V E R A G E COST OF SALES
(note 5) $263400282400 27%
A further subset of this information for " D e l c o " Delivery/Carry-Out Pizza Hut Restaurants is as follows:
A V E R A G E COST OF SALES
(note 5) $169,868110450 254222%
A V E R A G E COST OF LABOR
(note 6) $244^808200053 334-322%
A V E R A G E C O S T O F ADVERTISING
(note 7) $34:50633.796 4452%
A V E R A G E SEMI-VARIABLE C O S T S
(note 8) $594^463,291 9:403%
A V E R A G E O T H E R SEMI-VARIABLE
COSTS
(note 9) $20,60126.633 324A%
A V E R A G E FIXED C O S T S - O T H E R
(note 10) $42^-5312203 1.9%
A V E R A G E COST OF RENT
(note 11) $25^75528.421 4444%
A V E R A G E EBITDA
(note 12) $107:28192.099 16415.1%
Number of Restaurants =
Percentage
Number of of
Restaurants Restaurants
Attaining or Attaining or
Percent of Exceeding Exceeding
Gross Average Average
Sales Gross Sales Gross Sales
AVERAGE GROSS SALES
(note 4) $893,480904.933 47-15 4554%
A V E R A G E COST OF LABOR
(note 6) $26.&7-242Z2J49
r
30:2304.%
A V E R A G E C O S T OF ADVERTISING
(note 7) $4/1,2904728.6 5452%
A V E R A G E SEMI-VARIABLE C O S T S
(note 8) $7244882.555 &7-9J_%
A V E R A G E O T H E R SEMI-VARIABLE
COSTS
(note 9) $27,72234.583 34-3.5%
A V E R A G E FIXED C O S T S - O T H E R
(note 10) $4449216,769 44.1,9%
A V E R A G E C O S T OF RENT
(note 11) $274452zaaa 34%
A V E R A G E EBITDA
(note 12) $490^1706.56 21419.5%
A V E R A G E SEMI-VARIABLE C O S T S
(note 8) $94477103.862 74&Q%
A V E R A G E O T H E R SEMI-VARIABLE
COSTS
(note 9) $39.20313 176 3432%
A V E R A G E FIXED C O S T S - O T H E R
(note 10) $17,70810471 1.4%
A V E R A G E COST OF RENT
(note 11) $2644329,055. 2^2.2%
A V E R A G E EBITDA
(note 12) $34 3,742320953 27^4252%
" D e l c o Lites" Delivery/Carry-Out Pizza Hut Restaurants open for at least one year as of December 31,
20422013
A V E R A G E COST OF LABOR
(note 6) $261,103220440 344324%
A V E R A G E COST OF ADVERTISING
(note 7) $30^753036.6. 445,2%
A V E R A G E SEMI-VARIABLE C O S T S
(note 8) $65.86059,485 8404%
A V E R A G E O T H E R SEMI-VARIABLE
COSTS
(note 9) $24,02024245 &OM%
A V E R A G E FIXED C O S T S - O T H E R
(note 10) $-1442213443 -1--74J%
:
A V E R A G E COST OF RENT
(note 11) $4740510483 24-22%
A V E R A G E EBITDA
(note 12) £174415128.725 24^132%
1. T h i s ^ a o o ^ p e ^ m a n c e r e p r e s e n ^ o n representee averages f o r a s u b s o t o f ^
PizzaHutRestauraotsmtheeo^oeotal UnitedStates aod Alaska during the calendar year
204^2013 The subset consists efPHICwned PIzzaHut Restaurants as of Oecemher 31,
2 0 4 ^ ^ ^ and excludes all Rlzza Hut restaurants thatwere owned or operated hyfranchlsees of
PHI as of O e c e m h e r 3 1 , 2 0 ^ ^ ^ ^ T h e financial performance representation also excludes any
restaurants acquired hy PHI during 2 0 4 2 ^ ^ ^ T h e financial performance represent
not Include non traditional, Express, seasonal or any type of Pizza Hut restaurant other than
traditional Olneln, PEO, Oelivery and Oellvery-Carryout PIzzaHut restaurants AIIPIzzaHut
restaurants Included had heen openamlnlmum of one year as of Oecemher 31,204^2013^
3. Characteristics of the Included Restaurants may differ materially from the characteristics
ofRestaurant(s)thatyoumayacgulreordovelopdependlng on yourexperlence, competition In
your trade area, the physical condition ofthe Included Restaurants as compared to your
Restaurant(s),employment and lahor conditions In yourtrade area,and the length oftime thatthe
Included Restaurants have operated as compared to your Restaurant(s) ^our Individual financial
results may differ suhstantially from the results stated In this financial performance
representation, written substantiation for this financial pedormance representation
upon reasonable request
4. ^Average Cross Sales'Is themathematlcal average of the total annual cash or other
payments received for the sale or use of any products, goods, or services that were sold from the
Pizza Hut Restaurants Included within the group, less applicable discounts, allowances and sales
taxes.
5 ^Average Cost of Sales'ls the mathematical average of the total annual delivered cost of
food, beverages, paper and promotional Items to the Pizza Hut Restaurants Included within the
group,expressed asapercentage of Average Cross Sales.
6. ^Average Cost of labor' ls the mathematical average of the total annual hourly labor costs,
the salaries and related costs ofmanagement, payroll taxes, health Insurance, vacation,sick pay,
bonusesandworkers'compensatlonlnsuranceforallemployeesatthe Pizza Hut Restaurants
Included within the group,expressed asapercentage of Average Cross Sales.
^FOO3^20^ 61
S. borage S e m ^ a n a ^ e C o s t ^
p^mbin^ ^ndsoapin^^ash remove and ^ n g e r a t i o n r e p a i r o o s ^ g a ^ elootno and water
e o s ^ telephone costs, dnver reimbursements tor deliv^^^
unitorms,customer reimbursement,restaurant torms and oheok,oredit oard and cashless at th^
Pizza Hut Restaurant Included within the group,expressed asapercentage ot Average Cross
Sales
g. average Cther Seml ^ariableCosts^s the mathematical average otthe total prevents
maintenance costs ot equipment and parking lots, order entry terminal related expenses, security
eguipment and alarm, property, liability and auto Insurance premiums and credit card tees and
bank charges at the Pizza Hut Restaurants included within the group,expressed asapercentage
otAverage Cross Sales.
tO. ^Average Cther Fixed costs" is the mathematical average otthe total equipment rentals,
satellite tees, real estate taxes and license, and other related tees at the Pizza Hut Restaurants
included within the group,expressed asapercentage ot Average Cross Sales.
^Average Rent Costs" is the mathematical average otthe rent and common area
maintenance expenses onleased properties at thePizzaHut Restaurant included within the
group,expressed asapercentage ot Average Cross Sales.
t2. "Average PSIPOA" is the mathematical average otall exponsos, not including any
depreciation and amortization, or any income taxes, subtracted trom Average Cross Sales at the
Pizza Hut Restaurants included witbin the group,expressed asapercentage ot Average Cross
Sales
Phe PHICwned Pizza Hut Restaurants represented in the charts above representalarge
sample ot traditional Pizza Hut Restaurants tor which reliable intormation tor at least one year's
operationwasavailable As PHI Cwned Pizza Hut Restaurants, the Restaurants represented in
the charts above do not have certain expenses that yourtranchisedRestaurantwill have,such as
payment ot monthly Service Fees and sottware related tees. PHI Cwned Pizza Hut Restaurants
also benetit trom economies ot scale that are not available to Restaurants that are owned singly
or in small groups byatranchiseePHI-Cwned Pizza Hut Restaurants aro othen^ise reasonably
similarto the tranehised Pizza Hut Restaurants otfered by this disclosure document. The
Restaurants represented above hadbeen openaminimumot one year as ot Oecemher 31,
2 0 ^ ^ ^ A n e w t r a n c h i s e e ' s r e s u l t s a r e l i k e l y t o be ditterent trom the results stated
tinancial pertormance representation.
PHI recommends that you make your own independent investigation to determine
whether or not the tranchise may be protitable, and consult with an attorney and other advisors
hetore signing the Location Franchise Agreement.
Cther than the preceding tinancial pertormance representation, PHI does not make any
tinancial pertormance representations. PHI also does not authorize its employees or
representatives to make any such representations either orally or in writing. It you are purchasing
an existing outlet, however,PHI may provide you with the actual records otthatoutlet.lt you
receive any other tinancial pertormance intormation or projections ot your tuture income, you
should report it to the tranchisor's management by contacting ^ohn^.iyiurphy, 7100 Corporate
Orive, Piano, Pexas 75024 and 972 33S 7700, the Federal Trade Commission, and the
appropriate state regulatory agenoies.
^F0O2O^0^ 62
Item 20
See Exhibit I for the names, addresses, telephone numbers and Restaurants owned by all
our franchisees as of December 31, 2012.2013.
Table No. 1
Outlet Type Year Outlets at the Start of Outlets at the End of Net Change
the Year the Year
Franchised 20402011 5402-5553 #6635585 +46432
2044- 5553 5535 +32
2012 5585 5763 + 178
2013 5763 5841 ±73
Company-Owned* 20402011 554460 460480 -404+20
2044- 460 430 +20
2012 480 45445.3 -2627-
20402013 6056453 6043491 ^3+33
Total 2011 6013 6065 +52
2012 6065 62476216 +462151
2013 6216 6332 +116
* Company-Owned Outlets" are Restaurants owned and operated by PHI or its subsidiaries.
Table No. 2
1
Restaurants transferred (not franchise agreements) between franchisees. These figures do not include a transfer
when the beneficial ownership of the franchise does not change; or transfers from PHI to a franchisee.
Table No. 3
NOTE: Many of our franchisees have the right to close and/or relocate their Restaurants for various reasons, including
lease expirations. Such voluntary closures are not included in this list unless the franchisee has left the system.
(1*) - This column includes new, relocated locations and locations acquired by franchisee from franchisor.
(2*) - This column includes closures due to low volume, lease expiration, etc.
Georgia
2013 0 0
5
Q 0 Q n
20402011 2323 0 0 0 2833
2044 28 5 0 0 0 33
2012 33 6 0 2 1 36
2013 36 2 0 2 Q 36
Hawaii 20402011 0 0 0 0 0 0
2044 0 0 6 0 6 0
2012 0 0 0 0 0 0
2013 0 n/a n/a n/a n/a n/a
Idaho 20402011 67 40 0 0 97 70
2044 ? 0 0 0 7 0
2012 0 0 0 0 0 0
2013 0 0 0 0 0 0
Illinois 20402011 9759 42 0 71 3624 5936.
2044 59 2 0 4 24 36
2012 36 6 0 5 0 37
2013 37 5 0 4 0 33
Indiana 20402011 38 23 03 21 015 3328
2044 38 3 3 4 45 28
2012 28 3 0 2 0 29
20402013 02.9 03 0 01 0 031
Iowa 2011 0 0 0 0 0 0
2012 0 0 0 0 0 0
2013 0 0 0 0 Q 0
Kansas 20402011 0 0 0 0 0 0
2044 0 0 0 0 0 0
* Company-Owned Outlets" are Restaurants owned and operated by PHI or its subsidiaries.
Table No. 5
A list containing the names, addresses, telephone numbers and locations owned by all
PHI franchisees as of December 31, 20122013 is attached to this disclosure document as Exhibit
1-1. A list of the names, cities, states, business telephone numbers or, if unavailable, the last
known home telephone numbers of all franchisees who have had their franchise terminated,
cancelled or not renewed, or who otherwise voluntarily or involuntarily ceased to do business
under their franchise agreement during the fiscal year 2012.2013. is attached as Exhibit I-2. The
franchisees that have not communicated with us within ten weeks of the date of issuance of this
disclosure document are also listed in Exhibit I-2.
If you buy this franchise, your contact information may be disclosed to other buyers when
you leave the franchise system.
The following, lists the name, address (to the extent the franchisee organization has
informed us of it), telephone number, e-mail address and Web address of the only
trademark-specific franchisee organization associated with the franchise system being offered
which is incorporated or otherwise organized under state law and has asked us to be included in
our disclosure document during the next fiscal year:
During the last three fiscal years, we have not signed any confidentiality clauses with a
current or former franchisee in a Franchise Agreement, settlement agreement or any other
contract restricting their ability to speak to you openly about their experience with the Pizza Hut
franchise.
Item 21
FINANCIAL STATEMENTS
Exhibit L contains the audited consolidated financial statements of YUM for fiscal years
ended December 28. 2013. December 29.2042,2012 and December 31, 2011 and Docomber 25,
2010,2011, along with YUM's Guaranty of Performance. YUM absolutely and unconditionally
guarantees to assume the duties and obligations of PHI under the Location Franchise Agreement
should PHI become unable to perform its duties and obligations.
Item 22
CONTRACTS
Item 23
RECEIPTS