Franchise Agreement

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Sample Franchise Agreement

Pizza Factory Logo

"WeToss'em, TheyVe Awesome"

PIZZA $&C•OKY®

®

FRANCHISE AGREEMENT FOR PIZZA FACTORY FRANCHISE

(FOR USE IN CALIFORNIA ONLY) EXHIBIT "D"


TABLE OF CONTENTS

ITEM

1.         RECITALS

2.         THE PROGRAM

3.         PROPRIETARY RIGHTS

4.         PROMOTION AND DEVELOPMENT

5.         FRANCHISEES ACKNOWLEDGMENT

6.         ARTICLE 1

Section 1.01 Section 1.02 Section 1.03 Section 1.04 Section 1.05

7.         ARTICLE 2

Section 2.01 Section 2.02

8.         ARTICLE 3

Section 3.01 Section 3.02 Section 3.03 Section 3.04 Section 3.05 Section 3.06 Section 3.07 Section 3.08

GRANT AND USE OF FRANCHISE

Grant of Franchise

Initial Term of Franchise

Renewal Terms

Location, Size and Relocation

Exclusive Area

FRANCHISE PAYMENTS

Initial Franchise and Training Fee Royalty Based on Gross Receipts

FRANCHISOR'S CONTINUING OBLIGATION

Knowledge and Experience

Building Plans and Specifications

Operations Manual

Advisory Services

Supplies

Advertising and Public Relations

Field Consultation

Training

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ARTICLE 4. OBLIGATIONS OF FRANCHISEE

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Section 4.01 Section 4.02 Section 4.03 Section 4.04 Section 4.05 Section 4.06 Section 4.07 Section 4.08 Section 4.09 Section 4.10 Section 4.11 Section 4.12 Section 4.13 Section 4.14 Section 4.15 Section 4.16 Section 4.17 Section 4.18 Section 4.19

Franchised Business Premises

Operation of Premises

Business Hours

Operating Standards

Inspection of Premises and Products

Products, Services and Supplies

Adherence to Manual and Standards

Refurbishments

Nondisclosure of Information

Right to Discoveries and Ideas

Consent and Compliance

Contributions to Advertising

Promotion of Business

Compliance with Laws

Interference with Employment Relations

Noncompetition by Franchisee

Disclosure of Income and Expense Information

Attendance at Company Wide Conferences

Security Interest

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15

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ARTICLE 5. USE OF SYSTEM

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Section 5.01 Section 5.02 Section 5.03 Section 5.04 Section 5.05

Use or Duplication of System                                            20

Trade Secrets                                                                   21

Ownership of Names, Marks, Goodwill                              21

Violation as Breach                                                          21

Obligations and Defense of Names, Marks, Goodwill          22

ARTICLE 6. RELATIONSHIP OF PARTIES

22

Section 6.01 Section 6.02

Franchisor's Control Scope of Authority

22 23

ARTICLE 7. LIABILITY INSURANCE AND INDEMNITY Section 7.01               Insurance Coverage

Section 7;02               Indemnity

23 23 23

ARTICLE 8. ASSIGNMENT

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ARTICLE 9. DEFAULT AND TERMINATION

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Section 9.01               Termination Upon Events of Default                                 26

Section 9.02              Notice and Cure of Default and Liquidated

Damage Provision                                                           27

Section 9.03

Option to Purchase

28

Section 9.04

Effect of Termination

29

Section 9.05

Attorney's Fees

30

ARTICLE 10.

MISCELLANEOUS PROVISIONS

30

Section 10.01

Nonwaiver

30

Section 10.02

Governing Law

30

Section 10.03

Construction

30

Section 10.04

Execution of Documents

30

Section 10.05

Successors and Assigns

31

Section 10.06

Severability of Provisions

31

Section 10.07

Extent of Agreement

31

Section 10.08

Notices

31

Section 10.09

Modification of Agreement

31

Section 10.10

Venue

32

Section 10.11

Designation of Size of Franchise

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FRANCHISE AGREEMENT

AGREEMENT made this_____day of______________, 20___, by and between PIZZA

FACTORY, INC., a California corporation, with its principal place of business located at 49430 Road 426, P.O. Box 989, Oakhurst, California, 93644, hereinafter referred to as FRANCHISOR, and

hereinafter referred to as FRANCHISEE.

RECITALS

Franchisor and Franchisee mutually acknowledge the following:

THE PROGRAM

Franchisor is the owner of PRODUCT DEVELOPMENT AND SALES PROGRAM, hereinafter referred to as the "Program", which Program includes a special design and color scheme of building, equipment, layout, food formulae and specifications for designated food products, methods of inventory and operation control, bookkeeping and accounting procedures, and a manual of business practices and policies, which Program is being used in several states throughout the United States, including California, Colorado, Washington, Nevada, Arizona, Minnesota, and Idaho.

PROPRIETARY RIGHTS

Franchisor is the sole and exclusive owner of all proprietary and other property rights and interests in and to the trade names and/or trademarks "PIZZA FACTORY", "We Toss 'Em - They're Awesome", "Think Pizza", the Pizza Tosser, a picture of which appears on the cover page, and all other trademarks and service marks used in connection with said Program, including but not limited to all those trademarks, service marks, and rights residing in the appearance of buildings, signs, and portions thereof by which establishments franchised to adopt to use said names and marks and the products therefrom are known and identified.

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PROMOTION AND DEVELOPMENT

Franchisor has promoted and developed said Program and is entitled to franchise its use by others.

FRANCHISEE'S ACKNOWLEDGMENT

Franchisee acknowledges Franchisor's rights in the said Program and desires to acquire the right to adopt and use the said Program and names and marks at the location referred to below. For and in consideration of the mutual covenants and agreements hereinafter set forth, it is mutually agreed and covenanted as follows:

ARTICLE 1. GRANT AND USE OF FRANCHISE Grant of Franchise Section 1.01. Subject to the terms and conditions contained herein, Franchisor hereby grants to Franchisee and Franchisee hereby accepts from Franchisor, the right, franchise, and license:

(a)        To use Franchisor's name in the operation of a food service business ("the franchised business") at the location designated in Section 1.04, below.

(b)        To use Franchisor's system of operation and method of doing business at such locations.

(c)        To use the menus and recipes provided and developed by Franchisor in the conduct of the franchised business at such location.

Initial Term of Franchise Section 1.02. Unless earlier terminated for good cause as hereinafter provided, the franchise granted under and pursuant to the terms of this Agreement shall continue in full force and effect for a period of twenty (20) years from the date hereof.

Renewal Terms Section 1.03. Provided that Franchisee shall fully, faithfully, and timely carry out and perform all of its obligations under this agreement, Franchisee may renew the franchise granted hereunder for

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two (2) successive terms often (10) years each upon the expiration of the then current term. A $5,000.00 renewal fee is required for each renewal. Any failure by Franchisee to perform its obligations under this agreement which does not constitute grounds for nonrenewal under Sections 20025,20020, and 20021 of the California Business and Professions Code or as set forth below shall not affect Franchisee's right to renew. Regardless of any nonperformance under this agreement, Franchisee may renew the franchise if he has not received, within 180 days prior to the expiration of this agreement, Franchisor's written notice of intention not to renew. Such notice must state the reasons for nonrenewal and the effective date of nonrenewal or expiration, and it must be delivered personally to Franchisee or sent by registered or certified mail. The Franchisor may refuse to renew or extend the term of the franchise if:

(a)        The Franchisee is in default under any provision of the franchise agreement, or under his or her lease of the franchise premises; or,

(b)        The Franchisee's lease or right to possession of the franchise premises has terminated, or will terminate, prior to the expiration of the proposed optional term of the franchise, and the Franchisee has no right to renew the lease or fails or refuses to exercise any right to renew it; or,

(c)        The Franchisor is the sublessor of the franchise premises and can not renew its lease on reasonable terms prevailing in the area at the time. Renewal of the franchise shall be effected by the execution by Franchisor and Franchisee of Franchisor's then current form of franchise agreement and all other documents then customarily used by Franchisor in the grant of renewal franchises; or,

(d)        The Franchisee has failed to pay, within thirty days of the date due, any expense incurred related to the operation of the franchise business.

(e)        The Franchisee refuses to execute a renewal franchise agreement which shall include all provisions, except as to term of franchise and renewal thereof, as contained in the franchise agreement then being utilized by Franchisor.

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Location Size and Relocation

Section 1.04. The franchised business shall be located at_________________________________

and shall be of the size designated in Section 10.11 hereof. In the event the franchised business premises at such location are rendered unusable by fire or other casualty or by the proper exercise of the power of eminent domain, or in the event that Franchisee's possession thereof is lost without Franchisee's fault, or in the event that, in Franchisor's judgment, there is a change in character of the location sufficiently detrimental to its business potential to warrant relocation, Franchisor will grant permission for the relocation of the franchised business to a site acceptable to Franchisor. Any such relocation shall be at Franchisee's sole expense and shall be consistent in size to that designated in Section 10.11 hereof and, if the relocation results in the unit operating within a larger size category, then Franchisee shall pay to Franchisor prior to opening the relocated unit a supplemental initial franchise fee of the difference between the fee paid by Franchisee and the fee for the size of the replacement location unless waived by Franchisor at its sole discretion. Upon relocation outside the exclusive area designated in Section 1.05, below, Franchisee shall be accorded a new exclusive area as determined by Franchisor in its sole discretion.

Exclusive Area Section 1.05. In order to facilitate the successful development of the franchised business and to protect Franchisee's investment therein, Franchisor hereby grants to Franchisee the exclusive right to operate a PIZZA FACTORY restaurant within a three mile radius of the location set forth in Section 1.04. During the term of this Agreement, neither Franchisor nor any other of its franchisees shall be authorized to establish a PIZZA FACTORY restaurant within said exclusive area; however, this does not restrict Franchisor or any of its franchisees from delivering within or soliciting customers located within said three mile limit.

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ARTICLE 2. FRANCHISE PAYMENTS Initial Franchise and Training Fee Section 2.01. In consideration of the right, franchise, and license granted by Franchisor to Franchisee and the services to be rendered to Franchisee by Franchisor under this agreement, Franchisee hereby agrees to pay to Franchisor an initial franchise fee of $20,000 for a Pizza Factory -Full-Size (over 1500 sq.ft.), $10,000 for a Pizza Factory - Mid-Size (1000-1500 sq.ft), or $5,000 for a Pizza Factory Express (under 1000 sq.ft. - take out and delivery only), and a training fee of $2,500 for the principal person, plus $500 for each additional person to be sent to the training program.

If, within thirty (30) days after signing the franchise agreement, the Franchisee desires to withdraw from the agreement, the Franchisor will refund to the Franchisee all but $10,000 of said franchise fee for a Pizza Factory - Full-Size, or $7,500 for a Pizza Factory - Mid-Size to the prospective Franchisee, but Pizza Factory Express Franchisees will receive no refund.

If the size of the unit increases upon relocation or expansion, then a supplemental franchise fee will be charged as provided in Sections 1.04 and 4.07(a).

Royalty Based on Gross Receipts Section 2.02. In consideration of the right, franchise, and license granted by Franchisor to Franchisee and the services to be rendered to Franchisee by Franchisor under this agreement, Franchisee hereby agrees to pay to Franchisor a royalty equal to five percent (5%) of the gross receipts of the franchise business, excluding therefrom sales tax collected. Franchisee shall pay said royalty by electronic transfer for each month on or before the last day of the month following the month for which payment is due and provide Franchisor by that same date a written statement certified to be true and correct by Franchisee, showing the gross receipts received during the month for which payment is due. A service fee of $75.00 or 10% of the royalty due, whichever is greater, will be added if Franchisee fails to make the payment as provided for herein for each month that said monthly royalty charge remains unpaid. The bank information necessary to allow for electronic transfer shall be

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provided to Franchisor no less than thirty (30) days prior the opening date of the franchise business and within 48 hours of any change of that bank information.

ARTICLE 3. FRANCHISOR'S CONTINUING OBLIGATIONS

Knowledge and Experience Section 3.01. Franchisor agrees to make available to Franchisee the benefit of its knowledge and experience in the installation of a PIZZA FACTORY restaurant.

Building Plans and Specifications Section 3.02. Franchisor agrees to assist Franchisee in obtaining all initially required plans and specifications for the building, equipment, furnishings, decor, layout, menu and menu display, and all signs for or identified with PIZZA FACTORY restaurants, together with advice and consultation concerning them.

Operations Manual Section 3.03. Franchisor agrees to provide Franchisee with a copy of the Manual of Standard Operating Procedures, hereinafter referred to as "the manual," upon execution of this agreement, the receipt of which Franchisee acknowledges by the execution of this agreement. The manual is designed to insure uniform and high standards of quality, service, and appearance among all PIZZA FACTORY restaurants in order to create and maintain goodwill and widespread consumer acceptance; therefore, said manual and all amendments thereto, as made from time to time, are incorporated into and made a part of this agreement, as if fully set forth herein. Franchisee agrees that upon termination of this agreement, Franchisee will immediately return the manual and all amendments thereto, to Franchisor.

Advisory Services Section 3.04. Franchisor agrees to render advisory services regarding the operation of the franchise business. Such services include, but are not limited to, advice with respect to the following: Preparation of food products in accordance with the manual, management of food supplies, styles

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and type of service, operation of the restaurant, the development of a personnel policy, and the training of Franchisee and Franchisee's employees in the operation of the franchise business. All training is to be given at the restaurant which at that time is being used for such purpose by Franchisor, or such other location as may be designated by Franchisor.

Supplies Section 3.05. Franchisee is required to purchase all the requirements of dough mix, spaghetti sauce spice, pizza sauce spice, fiesta seasoning and meatball seasoning, and any other ingredient for authorized menu items as may be designated by Franchisor at any time from only that supplier(s) designated by Franchisor. Franchisee is also required to purchase all other requirements of food, beverages (other than alcoholic beverages), materials and supplies from suppliers designated by Franchisor and, if not designated, from any other supplier meeting the standards and requirements set by Franchisor. Franchisor agrees to assist Franchisee in selecting suppliers of food ingredients, paper products, other supplies, as well as equipment, decor items, etc.

Advertising and Public Relations Section 3.06. Franchisor maintains an advertising fund which is comprised of contributions from all Franchisees. (See Section 4.12.) Franchisor shall utilize said sums only for advertising purposes and none of said sums shall be utilized for advertising the sale of franchises. Franchisor shall provide advertising materials to Franchisee and shall otherwise provide advertising services through the utilization of advertising agencies and the placement of advertising on behalf of the entire Pizza Factory system. Franchisor may compensate itself from the fund for related services, such as the preparation of advertising information and materials and the distribution of such to the Franchisees. Although the Franchisee may develop advertising materials at Franchisee's own cost, Franchisor must approve the advertising prior to the use of said materials in advance and in writing.

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Field Consultation Section 3.07. Franchisor agrees to provide consultation and advice by Franchisor's field representatives. Such consultation may be made either through personal visits from such field representatives or by telephone, mail, or otherwise, as may from time to time be reasonably required.

Training Section 3.08. Franchisor agrees to provide a training program to Franchisee which will consist of the following:

(a)        The Franchisor will provide an initial training program of at least 325 hours of training over a 90 day period for the Franchisee and/or persons to be designated by the Franchisee. The training will take place at the Franchisor's main office in Oakhurst, California, or such other location as may be designated by the Franchisor. The training program will cover subjects which are relevant to the operation and management of a Pizza Factory Restaurant, such as accounting, bookkeeping, employment practices, customer relations, etc. At least one of the Franchisee's major principals must attend the initial training program. At the option of the Franchisor, the Franchisor will arrange for an additional training period, the length to be determined by the Franchisor, at an existing and operating Pizza Factory Restaurant in California, or such other location as designated by the Franchisor. The training will consist of observation of, and participation in, the day-to-day operation of a Pizza Factory Restaurant with the guidance and assistance of trained Pizza Factory personnel.

(b)        The training program is to be conducted at a time designated by the Franchisor, within ninety (90) days of the scheduled opening of the Franchisee's business.

(c)        The charge to the Franchisee for the training program is $2,500, and is not included in the initial franchise fee. Said fee is for the principal person sent to the training program by the Franchisee, and Franchisee shall pay to Franchisor $500.00 for each additional person sent to the training program. Said training fee is due at the same time that the initial franchise fee is due. The Franchisee shall pay to Franchisor $500.00 for each person who attends the optional training period.

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The Franchisee is responsible for the travel and living expenses of the person(s) who attend the training program. If, within thirty (30) days of signing this Agreement, the Franchisee desires to withdraw from this Agreement, Franchisor will refund to Franchisee that portion of the training fee remaining based upon a calculation of $25.00 per hour for the training already provided.

(d)        The initial training program which is conducted at the Franchisor's main office in Oakhurst, or at such other location as may be designated by the Franchisor, is mandatory for the Franchisee or at least one of the Franchisee's main principals, unless the Franchisee is already a Franchisee of an existing and operating Pizza Factory Restaurant.

(e)        If after completion of the initial training program and any time during the franchise period it is determined by the Franchisor that the Franchisee lacks sufficient knowledge, understanding or ability with respect to any aspect of the franchise business, the Franchisor may require, upon reasonable notice, that the Franchisee complete additional training. The costs of training will be the amount then charged by the Franchisor for such training and the Franchisee shall be responsible for all costs of travel, lodging and meals. Failure to successfully complete such additional training shall constitute a default of Franchisee's obligations under this agreement.

ARTICLE 4. OBLIGATIONS OF FRANCHISEE

Franchisee! Business Premises Section 4.01. Franchisee agrees that the premises from which Franchisee will conduct the franchised business will be constructed or improved by Franchisee at Franchisee's expense at the location designated in Section 1.01 hereof in strict accordance with the plans and specifications made available to Franchisee pursuant to Section 3.02 hereof and that said premises shall be decorated, furnished, equipped, and maintained in strict accordance with said plans and specifications and any applicable provisions of the manual made available to Franchisee pursuant to Section 3.03 hereof. If the business premises are to be leased, Franchisee must secure and maintain a lease with an initial term of no less than five years which provides for option(s) to renew the term for a total of an

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additional ten years. Subsequent renewals or leases must be for a term of no less than five years or the remaining term of the franchise, whichever is less. Franchisee may not enter into or operate the Pizza Factory franchise business on premises leased on a month-to-month basis without the express, written consent of Franchisor. Franchisee must provide Franchisor a copy of all leases, modifications and renewals within 10 days of signing such by Franchisee.

Operation of Premises Section 4.02. Franchisee agrees to commence operation of the franchised business using the franchised business trademarks, trade name, and other indicia, immediately after the premises in which the franchised business is located are ready for occupancy and operation of the franchised business shall be according to the terms and provisions of this Agreement and to continue to operate the same on days and during the business hours specified herein (except when the premises are untenantable as a result of fire or casualty or similar circumstances beyond Franchisee's control). Franchisee further agrees to commence operation of and thereafter operate the said premises in a quiet, dignified, and respectable manner, in strict accordance with the business standards and practices set forth in the manual as it presently exists or as it may be amended from time to time in the future. Franchisee also agrees to maintain sufficient supplies and employ sufficient help at such premises to operate the same at maximum capacity and with maximum efficiency so as to maximize the revenues and profits therefrom. Although one of the principals of Franchisee is not required to personally supervise the franchise business, the Franchisee of the franchise business will be required to train the onsite manager according to the franchise training guidelines as may be established by Pizza Factory from time to time and must submit to Franchisor a written, signed training checklist confirming that the onsite manager has completed the required training. Failure to comply with any demand of the Franchisor with respect to any of the obligations set forth in this paragraph within thirty (30) days after being notified thereof shall constitute grounds for termination of the Franchise Agreement.

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(a) Prior to opening the restaurant Franchisee must satisfy all requirements necessary for opening as set forth on the Opening Checklist attached hereto as Exhibit 3, and obtain the approval of Franchisor. Franchisor will promptly review compliance with all the terms and provisions of the Agreement and shall issue its approval if it determines that Franchisee is in compliance.

Business Hours Section 4.03. Franchisee agrees to operate the franchised business seven (7) days per week throughout the year and at least during the hours from 11:00 A.M. to 10:00 P.M., Monday through Saturday, and no less than six (6) hours on Sundays, or such other hours as may from time to time be specified by Franchisor. The franchised business may be closed on the following holidays: Easter, July 4th, Thanksgiving and Christmas, unless otherwise expressly permitted in writing by the Franchisor.

Operating Standards Section 4.04. Franchisee agrees to maintain a high and uniform standard of cleanliness and sanitation in the operation of said premises and to conduct the franchised business in accordance with the standards, procedures, and methods established and prescribed by Franchisor from time to time and to comply with all laws, ordinances, and regulations relating to the operation of the franchised business, in order to insure the highest quality of food products and services to the consuming public.

Inspection of Premises and Products Section 4.05. Franchisee agrees to permit Franchisor to inspect Franchisee's entire premises at any time during regular business hours, without notice, and to obtain and test specimen food items and ingredients and to observe all aspects of the conduct of the franchised business by Franchisee. Franchisee further agrees to correct any deficiencies within thirty (30) days of receipt of notice of a violation, and that failure to do so shall be grounds for termination of the Franchise Agreement.

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Products, Services, and Supplies Section 4.06. Franchisee acknowledges that uniform and high standards of quality, service, and appearance among all PIZZA FACTORY restaurants are necessary in order to create and maintain the goodwill and widespread consumer acceptance. Therefore, Franchisee agrees that it shall always prepare, sell, and dispense all food products and beverages in compliance with the specifications as to contents and weight or size set forth in the manual. Franchisee further agrees to use only those cups, containers, napkins, uniforms, paper goods, and other packaging, supplies, or items bearing the franchised business trade name or marks which conform to the manual. Franchisee is required to purchase products, services and supplies in conformance with Section 3.05 hereof.

Adherence to Manual and Standards Section 4.07. Franchisee agrees that adherence to the manual and to Franchisor's standardized design and specifications for decor of the franchised business premises and uniformity of equipment, layout, signs, menus, and other incidents of the franchised business are essential to the image and goodwill thereof. In recognition of the mutual benefits accruing from the maintenance of uniformity of appearance, service, products, and marketing procedures, and in recognition of unanticipated changes in technology, consumer preferences, industry practices and trends, scientific discoveries and other factors affecting the industry, it is mutually agreed as follows:

(a)        Except as specifically authorized by Franchisor, Franchisee shall not alter the appearance or size of the premises or the improvements thereto. Franchisee will promptly make all repairs and alterations to the premises and improvements thereto as may be determined by Franchisor to be reasonably necessary. Any approved change in size of the premises will be conditioned upon payment of a supplement initial franchise fee if the change results in a larger category franchise (see Section 2.01 for the difference in fees for the various size units.)

(b)        Franchisee agrees to display Franchisor's trade names and trademarks at the premises in the manner authorized by Franchisor. Franchisee further agrees to maintain and display signs of

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the color, size, and design and in the locations specified by Franchisor. Franchisee shall not place additional signs or posters on the premises without the written consent of Franchisor.

(c)        Franchisee agrees to maintain all specified equipment, furnishings, signs, and other personal property in excellent working condition. As items of equipment become obsolete or in need of replacement, Franchisee will replace such items with the same or substantially similar types and kinds of equipment as are being installed in PIZZA FACTORY restaurants at the time replacement becomes necessary. All equipment used in Franchisee's restaurant shall meet Franchisor's specifications.

(d)        Pay telephones, newspaper racks, jukeboxes, gum machines, games, rides, pool tables or coin vending machines will not be installed on the premises without the prior written approval of Franchisor; however, Franchisor shall not object to the installation of one (1) pay telephone in locations which meet Franchisor's specifications therefor. No cigarette vending machines shall be installed on the premises, nor shall cigarettes be sold by the Franchisee.

(e)        Franchisee agrees to serve the menu items specified by Franchisor and to sell no other food or drink item or any other merchandise of any kind without the prior written approval of Franchisor. Pizza Factory will also assist you in selecting prices for sale of approved products. Pizza Factory will also review your requests for any changes to the menu approved for use at your location, including prices changes. However, no changes may be made to the menu, including pricing, unless first approved by Pizza Factory. Prior to opening the franchise business, Franchisor will review approved pricing for Pizza Factory products with the Franchisee and consider any requests by the Franchisee for changes to the sales price for any product set out on the menu approved for use at the time of opening. No changes may be made to the menu approved for use at the franchise business, including pricing, without the prior approval of Franchisor.

(f)        Franchisee agrees that cups, containers, napkins, paper goods, packaging, and other items imprinted with Franchisor's trade name, trademark, or other indicia shall be purchased by Franchisee through a supplier or manufacturer approved in writing by Franchisor and Franchisor

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agrees to assist Franchisee in establishing approved sources for such items. Franchisor further agrees to assist Franchisee in establishing approved sources of supply of food items or ingredients. The Franchisee agrees to utilize only those cups, containers, napkins, paper goods, packaging and other items used to dispense products sold which bear the Franchisor's trade name and/or trademark as may be approved by the Franchisor as mentioned above.

(g) Except for the Franchisee's requirements of dough mix, pizza sauce spice, spaghetti sauce spice, fiesta seasoning and meatball seasoning or any other ingredient for an authorized menu item or for other products and supplies the supplier of which has been specifically designated by Franchisor, if Franchisee gives Franchisor notice sufficiently in advance to permit Franchisor to verify adherence to Franchisor's standards and specifications, that Franchisee desires to purchase equipment, food supplies, containers, or other products from reputable, dependable sources other than those previously approved, Franchisor will not unreasonably withhold the prompt approval of such purchase, provided the items purchased conform to the appearance, quality, size or portion (and, where applicable, taste), and uniformity standards and other specifications of Franchisor. Franchisor may require that samples from such alternative suppliers be delivered to Franchisor for testing before approval and use and a charge, not to exceed the actual costs of such testing, may be made by Franchisor and shall be paid by Franchisee.

(h) From time to time the Franchisor is able to negotiate a contract with a major distributor, such as Coca Cola, which may provide a marketing incentive to all of the Franchisees of the Franchisor in the event that all Franchisees agree to purchase a certain designated product. Notwithstanding any other provision hereof, including paragraph 4.07(g), upon thirty (30) days notice to the Franchisees, Franchisor may require that each Franchisee purchase and offer for sale a certain designated product. Franchisor may retain any and all marketing incentives received as compensation for arranging for such products.

(i) Franchisee expressly agrees to comply with any modifications, changes, additions, deletions, substitutions and alterations of the Program, including any of the products, specifications,

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procedures, trademarks, interior or exterior decor packages, employee dress and/or appearance or any other aspect of the Program without limitation except as otherwise expressly set forth in this Agreement; provided, however, such changes, modifications, additions, deletions or alterations shall not materially or unreasonably increase the obligations of the Franchisee hereunder.

Refurbishments Section 4.08. Franchisee agrees to effect, within thirty (30) days after notice from Franchisor, such refurbishment of the franchised business premises as Franchisor may from time to time require to maintain or improve the appearance and efficient operation of the franchised business and/or increase its sales potential. Franchisee shall not be required to make aggregate expenditures for refurbishments in excess of five percent of the gross receipts from the date of its opening to the date of any required refurbishment, or except in connection with the renewal of the franchise, to effect any refurbishment during the last six months of the initial term or any renewal of the franchise. Failure to comply with this provision will constitute grounds for termination of the franchise agreement.

Nondisclosure of Information Section 4.09. Neither Franchisee nor any of its partners, officers, directors, agents, or employees shall, except as required in the performance of the duties contemplated by this agreement of Franchisee or any such persons (unless the express prior written consent of Franchisor is obtained to do so), disclose or use at any time, whether during the term of this agreement or thereafter, any information disclosed to or known by Franchisee or any such person as a result of or through this agreement. Such information includes, but shall not be limited to, information conceived, originated, discovered, or developed by Franchisee or by any employee of Franchisee which is not generally known in the trade or industry, about Franchisor's products, services, or licenses, including information relating to discoveries, ideas, manufacturing, purchasing, accounting, engineering, marketing, merchandising, or selling, and includes all information contained in the "Program".

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Right to Discoveries and Ideas Section 4.10. Franchisee shall promptly disclose to Franchisor all discoveries and ideas, whether patentable or not, relating to Franchisor's business, which are conceived or made by Franchisee or any partner, officer, director, agent, or employee of Franchisee, solely or jointly with others, during the term of this agreement, whether or not Franchisor's facilities, materials, or personnel are utilized in the conception or making of such discoveries or ideas. Franchisee hereby acknowledges and agrees that all such discoveries and ideas are the exclusive property of Franchisor, and that Franchisor shall have no obligation to Franchisee with respect thereto.

Consent and Compliance Section 4.11. Franchisee shall obtain, within a reasonable time after the execution of this agreement, written consents to the provisions contained in this article, signed by each of its partners, officers, and directors holding office at that time; and, thereafter, shall obtain such consents from such persons who take office after that time. In addition, Franchisee shall take all necessary action to insure compliance with the provisions of this article by such persons as well as by all other employees or agents of Franchisee.

Contributions to Advertising Section 4.12. Franchisee shall pay an amount equal to two percent (2%) of its monthly gross receipts to a special advertising account established and administered by Franchisor for the purpose of advertising for the benefit of Franchisor's Franchisees. All payments to the said account shall be made on or before the last day of the month following the month for which payment is due and shall be made by electronic transfer. The bank information necessary to allow for electronic transfer shall be provided to Franchisor no less than thirty (30) days prior to the opening date of the franchise business and within 48 hours of any change of that bank information. Franchisor hereby warrants that all such sums shall be used for advertising purposes. Franchisor shall maintain good and adequate books and records of each expenditure which shall be available for inspection by Franchisee at all reasonable times. A service charge of $75.00 or 10% of the royalty due, whichever

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is greater, shall be added if Franchisee fails to make the payment as provided for herein for each month that said monthly advertising fee remains unpaid.

Promotion of Business Section 4.13. Franchisee shall diligently and fully exploit his rights under this agreement in every manner by devoting his best efforts and adequate time to the operation of the establishment enfranchised herein, keeping free from conflicting enterprises or any other activities which would be detrimental to or interfere either with the operation enfranchised or with any similar establishment conducted by another franchisee of Franchisor.

Compliance with Laws Section 4.14. Franchisee shall comply with all federal, state, county, ^and municipal laws, ordinances, and regulations affecting, either directly or indirectly, the operation of the franchised food establishment.

Interference With Employment Relations Section 4.15. During the term of this agreement, Franchisee shall not directly seek to employ any person who is at the time employed by Franchisor, its subsidiaries, or any franchisee of Franchisor; nor shall Franchisee either directly or indirectly induce or attempt to induce such person to leave his or her employment as aforesaid.

Noncompetition By Franchisee Section 4.16. During the term of the franchise, the Franchisee shall not be involved in any way with any other business activity which will in any way compete with the business activity of any PIZZA FACTORY restaurant. The Franchisee shall not sell any item purchased from or through the Franchisor, or bearing the trademark or trade name of "PIZZA FACTORY", to any dealers or from resale, unless such sale is specifically approved in advance by the Franchisor. The Franchisee shall require his or her management personnel and each of its principals to sign an employment agreement containing a non-competition clause prohibiting individuals for a period of eighteen (18) months after the date of termination of their employment or interest in Franchisee or for a period of eighteen

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(18) months after the date of termination of the franchise to engage, either directly or indirectly, or in an advisory capacity, in any competing business located within one (1) mile of any Pizza Factory restaurant wherever located. Said provision shall specifically authorize Franchisor to enforce said provision. Upon the termination, transfer or assignment of the Franchise, unless the Franchise terminates through the default of the Franchisor, the Franchisee shall not, for a period of eighteen (18) months after the date of such termination, transfer or assignment, engage, either directly or indirectly, or in advisory capacity, in any competing business located within five (5) miles of any PIZZA FACTORY restaurant.

(a) Covenants not to compete upon termination or expiration of a franchise agreement are generally unenforceable in California, except in certain instances as provided by law.

Disclosure of Income and Expense Information Section 4.17. The Franchisee shall provide to the Franchisor the monthly income and expense data of the Franchisee's operation, in a form specified by the Franchisor, on or before twenty five (25) days after the end of any month. The bookkeeping materials necessary to compile the income and expense data shall be mailed or hand delivered to the Franchisee's CPA or bookkeeper of choice on or before fifteen (15) days after the end of any month to insure that such monthly information is available to Franchisor within the time stated above. The Franchisor may audit and review all of the financial records of the franchise business at any time during regular business hours or at any other reasonable time and Franchisee shall permit such audits and reviews and make all reasonable accommodations necessary to allow for the completion of such audits and reviews. In the event Franchisee fails to provide to Franchisor the monthly income and expense data required by this provision within the time required by this provision, a service charge shall be added to the respective royalty and advertising fee which is to be calculated from said monthly income and expense information. The service fee shall be $75.00 or 10% of the royalty/advertising fee calculated from said monthly income and expense information and said service fee shall be added for each month that said monthly income and expense data remains unreported.

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Attendance at Company Wide Conferences Section 4.18. At the sole discretion of Franchisor, Franchisor may periodically hold a company wide conference for the purpose of discussing with and/or providing to all Franchisees information pertinent to the operation of Pizza Factory restaurants. Pizza Factory will not charge a fee for the Franchisee to attend the conference but the Franchisee is responsible for paying all travel and living expenses while at these conferences. Attendance at these conferences is mandatory. Pizza Factory will provide the Franchisees with no less than thirty (30) days notice of the date and location of such conferences. The location of the conference shall be selected by Pizza Factory.

Security Interest Section 4.19. Franchisee is required to grant to Franchisor a security interest in all of the equipment and fixtures associated with the franchise business to secure any and all obligations of the Franchisee as set forth in this agreement. The security interest will be created and perfected by Franchisee executing a security agreement and a UCC-1 financing statement in the general form and style as depicted in Exhibits 1 and 2 hereto. Franchisee agrees to execute a modification of the Security Agreement to provide security in any additional equipment or fixtures acquired for use in the business and execute a UCC form 2 to perfect such modification. The security interest granted to Franchisor must be first in priority and superior to any other security interest granted by Franchisee to any third party except if Franchisee has granted a security interest in such equipment and fixtures to a lender for the purpose of financing establishment of the franchise business or purchase of fixtures such equipment for the business in a reasonable sum, and then Franchisor will accept a security interest second in priority only to that lender. The security agreement and financing statement must be executed and delivered to the Franchisor by the Franchisee prior to Franchisee opening the Pizza Factory restaurant for business. Additionally, Franchisee is required to provide to Franchisor amendments to the security agreement and financing statement to provide Franchisor a security interest in any and all new equipment and fixtures acquired by Franchisee after the opening of the restaurant. Such additional grants of security shall also be first in priority and superior to the

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security interest of any other third party except such security interest may be second in priority to the security interest of a lender or financier of such new equipment or fixtures but up to and including the amount of the purchase price of such new equipment or fixtures actually loaned or deferred. It is the obligation of the Franchisee to advise the Franchisor of any new acquisitions of equipment and fixtures within ten (10) days of the date of acquisition.

ARTICLE 5. USE OF SYSTEM Use or Duplication of System Section 5.01. Franchisee acknowledges that Franchisor is engaged in nationwide franchising of the system and that Franchisor's franchises are valuable because its Franchisees obtain the benefit of a system which provides expert and experienced organization, meticulous instruction in every detail of building, planning, equipping, purchasing, accounting, marketing, promotion, advertising, and operation of a PIZZA FACTORY establishment, including the goodwill of a nationally established name and reputation. Franchisee further acknowledges that any appropriation or duplication of said system or any part thereof for any use or purpose other than for the operation of such establishment at the location specified herein will seriously impair the value of Franchisor's national franchising business, as well as the value of the franchises granted by Franchisor to all of its Franchisees throughout the United States. Accordingly, Franchisee agrees that except as to any of Franchisor's establishments operating under bona fide franchises granted by Franchisor or any direct or beneficial ownership in a company listed on any national exchange, during the term of this agreement, or in the event of termination for a period of eighteen (18) months after such termination, Franchisee shall not, without the written consent of Franchisor first had and obtained, directly or indirectly engage in or acquire any financial or beneficial interest in any business, or otherwise directly or indirectly use or duplicate said system, or any portion thereof, at any location other than that herein specified in which food or beverages are dispensed by any establishment which is the same as or similar to the franchised business other than pursuant to this agreement.

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(a) Covenants not to compete upon termination or expiration of a franchise agreement are generally unenforceable in California, except in certain instances as provided by law.

Trade Secrets Section 5.02. Franchisee acknowledges that Franchisor is the owner of all proprietary rights in and to the said system and each and every part thereof and the material and information now and hereafter provided and/or revealed to Franchisee under this agreement relating to the system. Franchisee further acknowledges that the system, in its entirety, constitutes trade secrets of Franchisor, that they are revealed to Franchisee in confidence, and that no right is given to or acquired by Franchisee to disclose or reveal any portion thereof, and Franchisee hereby covenants and agrees to keep and respect the confidence hereunder reposed.

Ownership of Names. Marks, Goodwill Section 5.03. Franchisee acknowledges that Franchisor is the sole owner of all names and marks and goodwill associated with said system now or hereafter attached thereto and used in connection therewith, and that Franchisee, by this agreement, acquires no right, title, or interest in or to the same whatsoever, other than the right to use the same in the manner prescribed and approved by Franchisor and in accordance with this agreement. The Franchisee agrees not to contest, directly or indirectly, Franchisor's ownership, title, right or interest in any of the trade names or trademarks, trade secrets, methods, procedures and advertising techniques which are part of the Franchisor's business, or contest the Franchisor's sole right to register, use or license others to use such names and marks, trade secrets, methods, procedures and techniques. The Franchisee is required to advise the Franchisor as soon as reasonably possible after Franchisee learns about an infringement or challenge to the use of any trademarks, trade names, service marks, trade secrets, or any improper or unauthorized use of the operations manual.

Violation as Breach Section 5.04. Franchisee agrees that any violation of the provisions of Sections 5.01 through 5.03 hereof shall be deemed to be a substantial breach of this agreement and shall give Franchisor the

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right to terminate this agreement in accordance with the terms and provisions of Article 9 hereof, provided, however, that all restrictions relating to Franchisee's activities shall survive the termination of this agreement and shall be binding upon and inure to the benefit of the party, or their heirs, successors or assigns.

Obligations and Defense of Names, Marks, Goodwill Section 5.05. Franchisee must modify or discontinue the use of any trademark, service mark or other copyrighted material if Franchisor modifies or discontinues use of such mark, material or process. In the event that such modification or discontinuance is the result of or arises out of claims or actions by third party(ies), Franchisor's sole obligation is to reimburse Franchisee for the tangible costs of compliance (for example, changing signs, menus, etc.). If Franchisor decides to add, modify or discontinue the use of an item or process covered by a copyright or patent, Franchisee must also do so. Franchisor's sole obligation in the event of such addition, modification or discontinuance is to reimburse Franchisee for the tangible cost of complying with these obligations if such is the result of or arises out of claims(s) or action(s) by third party(ies). In the event of a claim or action initiated by a third party pertaining to any copyright or patent violation or infringement for Franchisee's use of any item or process which is part of the Pizza Factory Program, Franchisor is not obligated to defend Franchisee unless, at its option, it chooses to do so. However, if Franchisor does not provide a defense for such an action or claim, it will reimburse Franchisee for the reasonable costs incurred in litigation associated with such use.

ARTICLE 6. RELATIONSHIP OF PARTIES

Franchisor's Control

Section 6.01. Franchisee shall be responsible to Franchisor only for the requirements and results

specified by this agreement. Franchisee shall not be subject to Franchisor's control with respect to

the physical actions or activities of Franchisee or of Franchisee's employees or agents in connection

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with the operation of the franchised business or Franchisee's fulfillment of the requirements of this agreement, except as specifically provided in this agreement.

Scope of Authority Section 6.02. Franchisee is and, at all times during the term of this agreement, shall represent and conduct himself as an independent contractor and not as an agent of Franchisor. Franchisee shall riot have the authority, express or implied, to bind or obligate Franchisor in any way.

ARTICLE 7. LIABILITY INSURANCE AND INDEMNITY Insurance Coverage Section 7.01. Franchisee hereby agrees to carry products liability insurance and public liability insurance in amounts not less than $500,000.00 per person and $ 1,000,000.00 per incident for bodily injury, and $100,000.00 property damage covering the franchised business and its premises and products. Franchisee further agrees to name Franchisor as an additional insured in all insurance policies procured pursuant to this article. Prior to beginning a delivery service, Franchisee is also required to obtain an appropriate auto insurance policy (non-owner and/or commercial) providing benefits of no less than $ 1,000,000.00 for public liability and public damage. Prior to commencing business and prior to commencing delivery services, Franchisee shall provide to Franchisor proof of compliance with these insurance requirements. During the term of the franchise, Franchisee shall continue to provide proof of compliance on no less than an annual basis or within ten days of written request from Franchisor for such proof.

Indemnity Section 7.02. Franchisee covenants and agrees that in the event that Franchisor shall, without fault on its part, be made or become a party to any suit by reason of this agreement or by any act or omission by Franchisee hereunder, Franchisee shall pay all costs and expenses, including attorney's fees, incurred by or imposed on Franchisor by or in connection with such litigation.

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ARTICLE 8. ASSIGNMENT

Section 8.01. Neither this agreement nor any interest therein or any assets associated therewith as defined in this provision shall be assigned or transferred by Franchisee unless the written consent thereto is first had and received from Franchisor. If such consent is given, Franchisee shall continue to be obligated for the performance of Franchisee's obligations hereunder, notwithstanding the grant of such consent. Payment of a transfer fee to Franchisor is required to obtain Franchisor's consent; the fee shall be $ 12,000 for transfer of a Full-Size store, $ 10,000 for transfer of a Mid-Size store and $5,000 for transfer of a Pizza Factory Express. The Franchisor will consent to the sale or assignment of all or part of the franchise upon a finding that the proposed assignees and successors in interest meet reasonable standards of financial and ethical responsibility, considering the standards the Franchisor is then currently applying to new franchises at the time of the proposed sale/assignment, and the assignee agrees to necessary training, execution of an assignment agreement which adopts the terms and provisions of the franchise agreement then being utilized by Franchisor and execution of a release agreement by Franchisee, the form of which is attached hereto, marked "Exhibit 4" and incorporated herein by this reference. Approval may not be unreasonably withheld by the Franchisor, and shall be deemed granted by the Franchisor thirty (30) days after the date on which the Franchisor receives the normally required personal and financial data of the intended transferee, and payment of the transfer fee, unless specifically denied in writing by Franchisor and the fee is refunded within that time. The Franchisee is required to provide to the Franchisor copies of any sales agreement, escrow instructions, other escrow documents and any other document reflecting the terms and conditions of the sale, transfer or assignment not less than 15 days prior to the effective date of such sale, transfer or assignment. The Franchisee and transferee must comply with all the above-mentioned conditions even if approval is given by failure of Franchisor to specifically deny the proposed assignment.

A transfer or assignment occurs within the meaning of this contract if there is a transfer or assignment of any rights under this contract, a transfer or assignment of the majority of the assets

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of the business or, in the event the Franchisee is a corporation or other type of business entity other than a sole proprietorship, if a third party or entity which/who were not holders of an ownership interest in the Franchisee at the time the Franchisee or its predecessor executed this contract become(s) an equity owner or holder of an ownership interest in Franchisee.

Prior to any sale or assignment by a Franchisee to a third party not holding an ownership interest in the franchise business on the date of the execution of the agreement by the Franchisee or its predecessor of more than a forty-nine percent (49%) ownership interest in the business, Franchisee must first offer to sell the entire franchise business to Franchisor by giving Franchisor written notice to that effect. The notice shall specify the percentage of the franchise business proposed to be sold and shall be accompanied by a copy of the proposed contract of sale or set forth all of the material terms of the sale to the proposed transferee. The notice shall also specify that Franchisor has a right to match that proposed offer, if the same is a bona fide offer, and if less than one hundred percent (100%) of the franchise business is proposed to be sold, offer to sell to Franchisor the entire franchise business at a price consistent with the offer to sell the portion (e.g. bona fide offer to sell fifty percent (50%) to the proposed transferee, the offer to sell the entire business to the Franchisor will be double that amount.) The Franchisor shall have the thirty (30) days after receipt of such notice to exercise the option to purchase the franchise business according to the terms and provisions set forth in the notice. Nothing in this paragraph shall be construed or interpreted as excusing Franchisee's obligation to obtain Franchisor's consent for any transfer or assignment required by this Section in the event Franchisor declines the offer of first refusal.

Upon the death of the Franchisee or any principal owner thereof, the franchise may continue to operate under the supervision of any surviving principal of the Franchisee or, if none, under the supervision of a person competent to operate the business with the consent of the Franchisor. Continuation of the business beyond ten (10) days after the death of the Franchisee or any principal of the Franchisee without receiving the consent of the Franchisor as mentioned above shall constitute a noncurable default under Section 9.01 hereof. The business may continue to operate for a period of twelve (12) months under the supervision of a surviving principal of the Franchisee or a

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competent person of which the Franchisor has consented, but the estate of the deceased Franchisee or deceased principal of the Franchisee must sell or assign the interest of the deceased to a buyer approved by the Franchisor pursuant to this article within twelve (12) months of the death of the deceased Franchisee or principal of the Franchisee.

ARTICLE 9. DEFAULT AND TERMINATION Termination Upon Events of Default Section 9.01. Franchisor, at its option and without prejudice to any and all remedies which it may otherwise have, either at law or equity, or under the terms of this agreement, may forthwith terminate, without any notice and cure provisions as set forth in Section 9.02(a) hereof, the franchise granted hereunder upon the happening of any of the following events of default:

(a)        If Franchisee shall be adjudicated a bankrupt, become insolvent, or fail to pay, within thirty days of the date due, any expense incurred related to the operation of the franchise business.

(1) This provision may not be enforceable under Federal Bankruptcy Law [11 U.S.C.A. §101,etseq.]

(b)        If a receiver of Franchisee's property, or any part thereof, shall be appointed by a court of competent authority.

(c)        If a Franchisee makes a general assignment for the benefit of his creditors.

(d)        If Franchisee defaults in the payment of any indebtedness to Franchisor or to any other person as and when the same becomes due and payable.

(e)        If any judgment against Franchisee remains unsatisfied or unbonded of record for thirty (30) days or longer.

(f)        If procedures for reorganization or rearrangement of Franchisee's affairs are instituted by, for, or against Franchisee.

(1) This provision may not be enforceable under Federal Bankruptcy Law [11 U.S.C.A. §101,etseq.]

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(g) If Franchisee's right of possession, as lessee or sublessee of the premises in which Franchisee operates his franchised business, shall at any time be terminated for any cause whatsoever.

(h) Conviction by the Franchisee or any principal of Franchisee of a felony.

(i) Repeated defaults even after cure (more than two within one year).

(j) Abandonment of the business or unapproved transfer or assignment of the business.

(k) Trademark, trade name, service mark, trade secret misuse.

(1) Breach of confidentiality, including unauthorized use of operation's manual. Notice and Cure of Default and Liquidated Damage Provision Section 9.02.

(a)        If Franchisee defaults in the performance of any of the terms and conditions of this agreement or any other agreement with Franchisor pertaining to the operation of the franchised business or any lease or sublease of the premises in which Franchisee operates his franchised business, Franchisor shall, at its option, serve upon Franchisee by certified mail, a thirty (30) day notice of default. Such notice shall enumerate those acts which constitute a default of this agreement. Franchisee shall then have thirty (30) days from the receipt of said notice in which to fully cure all of said defaults and his action in doing so shall reinstate his rights under this agreement. If Franchisee shall not fully cure said default or defaults within said time period, Franchisor shall have the absolute right to fully and finally terminate and declare at an end this agreement upon thirty (30) days notice.

(b)        The parties agree that if Franchisee breaches any portion of this agreement, thereby requiring the termination of the franchise, then, in addition to any and all duties and obligations of the Franchisee upon termination, the Franchisee, at the option of Franchisor and as an alternative to any other remedy available to the Franchisor as set forth herein must pay to the Franchisor the sum equal to the average monthly royalty due based on the 24-month period prior to the default or the entire franchise period prior to default, whichever period is less, multiplied by one-half of the

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number of months remaining of the Franchise term under the Franchise Agreement at the time of default. This liquidated damage provision is necessitated as the damages resulting to the Franchisor by reason of the default and termination of the franchise would be impracticable or extremely. difficult to ascertain due, in part, that the value to the Franchisor of having a PIZZA FACTORY outlet in a particular region or area, such exposure of the business name and trade marks to the public, and marketing of prospective Franchises to potentially interested parties, would be extremely difficult to determine as would the creation of goodwill for the Franchisor and its other Franchisees, as well as lost revenue by way of future royalty payments. Because of this difficulty in determining the damages resulting from a termination of the franchise due to a breach by the Franchisee, the parties agree that, in the event of such a breach and termination, the above-mentioned damages are reasonable and such would have a reasonable relationship to the actual damages, if such could be precisely determined.

Option to Purchase Section 9.03. Upon the termination of the franchise granted herein and notwithstanding any other provision herein, Franchisor shall have an option for sixty (60) days following termination to purchase from Franchisee the franchised business including all equipment, fixtures, inventory and other assets associated therewith at the fair market value thereof. Franchisor may deduct and withhold from said purchase price all amounts then due Franchisor from Franchisee, including liens or security interests upon any of the assets so purchased, rentals due under any lease or sublease, or any other indebtedness of Franchisee with respect to the franchised business and the assets being purchased thereunder and, as applicable, pay the same to the lienor, creditor, etc. If requested by Franchisor, Franchisee shall forthwith furnish Franchisor with an affidavit and other instruments required by applicable sales tax or other statute. In addition, Franchisee shall assign and convey to Franchisor, at Franchisor's option all rights, title and interest of Franchisee in or under any lease or sublease of any real or personal property used by Franchisee in the operation of the franchised business. In addition to all other remedies provided for herein, Franchisor shall be entitled to

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specific performance of the option herein granted including the right to enter onto the premises and operate the business pending completion of the transfer in the event Franchisee fails to continue operating the unit in the normal course of business. Further, Franchisor has an option to purchase the franchise at its fair market value prior to transfer, after the death of the Franchisee or bankruptcy thereof pursuant to the procedure provided for in this Section. Fair market value shall be determined by an appraiser chosen by the Franchisor. Franchisee shall have the opportunity to object to the appraisal within fifteen (15) days after receipt of said appraisal. Thereafter, Franchisee shall have thirty (30) days to obtain another appraisal at Franchisee's expense and the fair market value shall be determined to be the average between the two appraisals. Should Franchisee fail to provide the additional appraisal within the time specified, the fair market value as determined by Franchisor's appraiser shall be deemed to be the fair market value for the purposes of this provision.

Effect of Termination Section 9.04. Upon termination of this agreement, Franchisee's right to use the system or Franchisor's trademarks, service marks, trade names, or other indicia shall terminate forthwith. Franchisee shall not thereafter, directly or indirectly, identify himself in any manner as a Pizza Factory Franchisee, or publicly identify himself as a former Pizza Factory Franchisee, or use any of Franchisor's trade secrets or materials constituting part of Franchisor's system. In the event that Franchisor shall not exercise the option to require the assignment and conveyance to Franchisor Franchisee's rights, title and interest in or under any lease or sublease of the premises, Franchisee agrees upon termination of this agreement that he shall immediately make such removals or changes in signs and colors of buildings and structures as Franchisor shall reasonably request so as to distinguish said premises from its former appearance and from any other Pizza Factory establishment. If Franchisee shall fail to make such changes forthwith, Franchisor may enter Franchisee's premises and make such changes at Franchisee's expense.

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Attorney's Fees Section 9.05. Upon the occurrence of an event of default by Franchisee or any dispute between Franchisee and Franchisor, Franchisor shall be entitled to recover from Franchisee reasonable attorney's fees and costs incurred by Franchisor as a result of such default or dispute including, but not limited to, fees and costs incurred for enforcement of any rights of Franchisor or collection of any amounts due to Franchisor whether formal court or arbitration proceedings are initiated or not.

ARTICLE 10. MISCELLANEOUS PROVISIONS

Nonwaiver

Section 10.01. No waiver of any condition or covenant contained in this agreement nor failure to

exercise a right or remedy by either of the parties hereto shall be considered to imply or constitute

a further waiver by such party of the same or any other condition, covenant, right, or remedy.

Governing Law Section 10.02. The validity and construction of this agreement shall be governed by the laws of the State of California.

Construction Section 10.03. Throughout this agreement, the use of the singular shall be construed to include the plural and vice versa. The use of any gender shall include all genders, whenever required by the context.

Execution of Documents Section 10.04. Each party to this agreement shall from time to time, upon request by the other party, execute, acknowledge, and deliver to such other party a written statement certifying that this agreement has not been modified and is in full force and effect (or, if there have been modifications, that the same are in full force and effect and stating such modifications). Each party to this

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agreement shall also, from time to time, upon request by the other party, execute any additional documents which may reasonably be required to effectuate the purposes of this agreement.

Successors and Assigns Section 10.05. The provisions of this agreement shall inure to the benefit of and be binding upon the parties and their respective representatives, successors, and assigns.

Severability of Provisions Section 10.06. If any provision of this agreement is held to be illegal or invalid by any tribunal in a final decision from which no appeal is or can be taken, such provision shall be deemed modified to eliminate the invalid element, and, as so modified, such provision shall be deemed a part of this agreement as though originally included herein. The remaining provisions of this agreement shall not be affected by such modification.

Extent of Agreement Section 10.07. This agreement represents the entire agreement between Franchisor and Franchisee, and supersedes all prior negotiations, representations, or agreements, either written or oral. This agreement may be amended only by a written instrument signed by Franchisor and Franchisee.

Notices Section 10.08. All notices under this agreement shall be in writing and may be given by personal delivery or by mailing by first class, certified mail, return receipt requested, addressed to Franchisor at Pizza Factory, Inc., 49430 Road 426, Suite D, P.O. Box 989, Oakhurst, California 93644 or to

Franchisee at_____________________________________________________, or at such other

address as either party may designate in a notice to the other party given in such manner. Any notice given by mail shall be considered given when deposited in the United States mail, postage prepaid, addressed as provided herein.

Modification of Agreement Section 10.09. The Franchisee may modify the franchise agreement only by mutual consent of the Franchisee and the Franchisor. The modification must in the form of a writing, signed by the

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Franchisee and the Franchisor, which states that the writing is an amendment or modification of the existing franchise agreement. The Franchisor may modify the franchise agreement in regard to specifications at any time, provided that it gives written notice to the Franchisee. All other modifications of the franchise agreement must be mutually consented to by the Franchisor and the Franchisee, in a writing signed by both parties which states that the writing is an amendment or modification of the existing franchise agreement.

Venue Section 10.10. The parties agree that for the purposes of jurisdiction and venue, any and all actions brought regarding the relationship between the Franchisee and the Franchisor, or any and all actions brought to enforce the provisions of this agreement, shall be brought in a California state court situated in the County of Madera, State of California, having subject matter jurisdiction over such litigation.

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Designation of Size of Franchise Section 10.11. The Franchisee designates the size of the Franchise purchased by placing his/her/its initials next to the name of the category as follows:

Pizza Factory - Full-Size: _______________ ______________

Pizza Factory - Mid-Size: _______________ ______________

Pizza Factory Express:          _______________ ______________

Executed at_________________,________________, on the day and year first above

written.

FRANCHISOR:                              FRANCHISEE:

By_______________________                             By________________

[typed name and title]                                            [typed name and title]

By________________

[typed name and title]

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GENERAL SECURITY AGREEMENT

This Security Agreement is made and entered into on____________________, 20____,

by and between____________________________("Debtor"), of________________________

_____________________,_____________________County, State of__________________

and Pizza-Factory, Inc. ("Secured Party") of 49430 Road 426, Suite D, Oakhurst, Madera County, State of California, 93644, as follows:

For value received, the Debtor grants to the Secured Party a security interest in the following described property, referred to in this Security Agreement as the Collateral: food service and preparation equipment supplies and restaurant fixtures more particularly described in Exhibit A, attached hereto and incorporated herein by this reference to secure (1) any and all obligations, covenants and promises of the Debtor to the Secured Party as contained in that certain Franchise

Agreement dated__________________or any modifications thereof; (2) all expenditures by the

Secured Party for taxes, insurance, and repairs to and maintenance of the Collateral incurred by the Secured Party in the collection and enforcement of said obligations, covenants and promises of the Debtor; and (3) all liabilities of the Debtor to the Secured Party now existing or incurred in the future, matured or unmatured, direct or contingent, and any renewals, extensions, and substitutions of those liabilities as created by that certain Franchise Agreement dated __________________by and between the Debtor and the Secured Party.

The Debtor warrants and covenants that the Collateral is to be used in that certain

business known as Pizza Factory located at____________________________.________-

__________. The collateral will remain at that location.

The Debtor warrants, covenants, and agrees as follows:

Title

1. Except for the security interest granted by this agreement or any security interest granted by the Debtor to a third party who has provided financing either for acquisition of the collateral or financing to establish Debtor's Pizza Factory franchise business in a reasonable sum, the Debtor has, or on acquisition will have, full title to the Collateral free from any lien, security interest, encumbrance, or claim, and the Debtor will, at the Debtor's cost and expense, defend any action that may affect the Secured Party's security interest in, or the Debtor's title to, the Collateral.

EXHIBIT 1


Financing Statement

2.  Debtor warrants that except for the security interest granted by this agreement or any security interest granted by the Debtor to a specified third party described in paragraph 1 hereof, no financing statement covering the Collateral or any part of it or any proceeds of it other than the financing statement executed in conjunction with this Security Agreement is on file in any public office. At the Secured Party's request, the Debtor will execute all necessary financing statements in a form satisfactory to the Secured Party and will further execute all other instruments deemed necessary by the Secured Party.

Insurance

3.  Until final termination of this Security Agreement, the Debtor will, at his/her/its own cost insure the Collateral with companies acceptable to the Secured Party against the casualties and in the amounts that the Secured Party shall reasonably require with a loss payable clause in favor of the Debtor and Secured Party and any of the specified third parties described in paragraph 1 hereof, as their interests may appear. The Secured Party is authorized to collect sums that may become due under any of the insurance policies and apply them to the obligations secured by this Security Agreement subject to the rights of said third parties, if any. A duplicate copy of each such policy shall be delivered by the Debtor to the Secured Party.

Protection of Collateral

4.  The Debtor will keep the Collateral in good order and repair and will not waste or destroy the Collateral or any part of it. The Debtor will not use the Collateral in violation of any statute or ordinance and the Secured Party will have the right to examine and inspect the Collateral at any reasonable time.

Taxes and Assessments

5.  The Debtor will pay promptly when due all taxes and assessments on the Collateral, or any part of the Collateral, or for its use and operation.

Location and Identification

6. The Debtor will keep the Collateral separate and identifiable and at the address shown above, and will not remove the Collateral from that address without the Secured Party's written consent, for as long as this Security Agreement remains in effect.

Security Interest in Proceeds and Accessions

7. The Debtor grants to the Secured Party a security interest in and to all proceeds, increases, substitutions, replacements, additions, and accessories to the Collateral and to any part of the Collateral. This provision shall not be construed to mean that the Debtor is authorized to sell, lease, or dispose of the Collateral without the prior written consent of the Secured Party.

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Reimbursement of Expenses

8.  At the option of the Secured Party, the Secured Party may discharge taxes, liens, interest, or perform or cause to be performed for and on behalf of the Debtor any actions and conditions, obligations, or covenants that the Debtor has failed or refused to perform, and may pay for the repair, maintenance, and preservation of the Collateral, and may enter the premises where the Collateral or any part of it is located and cause to be performed as agent and on the account of the Debtor any acts that the Secured Party may deem necessary for the proper repair or maintenance of the Collateral or any part of it. Any and all sums expended by the Secured Party under this paragraph, including but not limited to, attorney's fees, court costs, agent's fees, or commissions, or any other costs or expenses, shall bear interest from the date of payment at the annual rate often percent (10%) and shall be payable at the place designated in the Debtor's note and shall be secured by this Security Agreement.

Payment

9.  This Debtor will perform those conditions, covenants and obligations secured by this Security Agreement and any renewal or extension of it and any other indebtedness secured by this agreement in accordance with the terms and provisions of the indebtedness and will repay immediately all sums expended by the Secured Party in accordance with the terms and provisions of this Security Agreement. On termination of the Franchise Agreement and full payment by the Debtor of all indebtedness due thereunder and secured by this agreement in accordance with this Security Agreement, this Security Agreement shall expire.

Change of Residence or Place of Business

10.  The Debtor will promptly notify the Secured Party of any change of the Debtor's residence, chief place of business, or place where records concerning the Collateral are kept.

Attorney-in-Fact

11.  The Debtor appoints the Secured Party as the Debtor's attorney-in-fact to do any and every act that the Debtor is obligated by this Security Agreement to do, and to exercise all of the rights of the Debtor in the Collateral and to make collections to execute any and all papers and instruments and to do all other things necessary to preserve and protect the Collateral and to make collections and to protect the Secured Party's security interest in the Collateral.

Time of Performance and Waiver

12.  In performing any act under this Security Agreement and the note secured by it, time shall be of the essence. The Secured Party's acceptance of partial or delinquent payments, or the failure of the Secured Party to exercise any right or remedy, shall not constitute a waiver of any obligation of the Debtor or right of the Secured Party and shall not constitute a waiver of any other similar default that occurs later.

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Default

13.  The Debtor shall be in default under this Security Agreement on the occurrence of any of the following events or conditions:

(1) Default in the payment or performance of any condition, obligations, covenant, or liability secured by this Security Agreement which is considered a default under the Franchise Agreement.

Remedies

14.  On the occurrence of any event of default, and at any later time, the Secured Party may declare all obligations secured due and payable immediately and may proceed to enforce payment and exercise any and all of the rights and remedies provided by the California Commercial Code as well as other rights and remedies either at law or in equity possessed by the Secured Party.

The Secured Party may require the Debtor to assemble the Collateral and make it available to the Secured Party at any place designated by the Secured Party that is reasonably convenient to both parties. Unless the Collateral is perishable, threatens to decline speedily in value, or is of the type customarily sold on a recognized market, the Secured Party will give the Debtor reasonable notice of the time and place of any public sale or of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if the notice is mailed, postage prepaid, to the address.of the Debtor shown at the beginning of this Security Agreement at least five days before the time of the sale or disposition. Expenses of retaking, holding, preparing for sale, selling, or the like shall include the Secured Party's reasonable attorney's fees and legal expenses.

Miscellaneous Provisions

15. (a) California Law to Apply: This Security Agreement shall be construed in accordance with the California Commercial Code and other applicable laws of the State of California, and all obligations of the parties created under this Security Agreement are performable in Madera County, California.

(b)  Parties Bound: This Security Agreement shall be binding on and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, successors, and assigns as permitted by this Security Agreement.

(c)  Attorney's Fees: Upon any legal action based in contract law be commenced or should any dispute arise between the parties to this Security Agreement concerning the Collateral, this Security Agreement, or the rights and duties of either party in relation to them, the prevailing party shall be entitled to a reasonable sum as reimbursement for his/her/its attorneys' fees and legal expenses, including fees and costs incurred for

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enforcement of any rights of the prevailing party or collection of any amounts due the prevailing party whether formal court or arbitration proceedings are initiated or not. .

(d)  Legal Construction: In case any one or more of the provisions contained in this Security Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, the invalidity, illegality, or uneforceability of that provision shall not affect any other provision of this Security Agreement, and this Security Agreement shall be construed as if the invalid, illegal, or unenforceable provision had never been contained in it.

(e)  Prior Agreements Superseded: This Security Agreement constitutes the only agreement of the parties and supersedes any prior understandings or written or oral agreements between the parties respecting the subject matter of this Security Agreement except for those agreement which Debtor has signed as part of the purchase of a Pizza Factory franchise, and this Security Agreement shall be interpreted as providing additional and/or supplemental rights, duties and obligations of the respective parties as set forth in said other agreements.

(f)  Definitions: All terms used in this Security Agreement that area defined in the California Commercial Code shall have the same meaning in this Security Agreement as in the Code.

DEBTOR:                                                             SECURED PARTY: ______________________________ PIZZA FACTORY, INC.

By

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CHECKLIST FOR_______________________PIZZA. FACTORY

Franchisee__________________________'

Address of location_____________________________

Mailing Address before opening__________________

Phone**________________Cell#____________Fax#

DATE:

_____1. FOC signed (also back sheet signed.)

2. Market Feasibility signed. 3.-.. Franchise Agreement signed

_____4. Copy of signed lease in file

_____5. Blueprint of building

_____6. ABC contacted (beer & wine license must be issued before store opens)

_.____7. Business licenses obtained - Set up Business Checking Account.

Electronic Transfer Form Signed & filed with Corporate _ ______.__.

Fed. Tax I.D. #________E.D.D.ff              State Tax Form#________._.

Health Permit # ,,

..City License #________

_____8. DBA in newspaper                             (

____.9. Accountant selected

_____10. Insurance (Hability/workman!s comp/delivery

11. Equipment ordered, signed off by Corporate & copy of equipment list in file

____.12. Hood ordered and signed off by corporate

13. Menus' ordered & approved

'__.___[_14. Menu boards.ordered & approved & signed off by corporate .

15. Coke equipment & ice machine ordered . . : 16. Tables ordered & approved & signed off by corporate

____1"7* Awning ordered & approved: & signed off by corporate

____18. Oujdbor signed ordered &. approved & signed off by corporate

____19, PQS system or register ordered & approved (Phone lines iri place)

... 20. Bank Service obtained Visa/MC, ATM              ;

2-1. Food Distributor contacted tk given credit information                    . ■ ■

____22. Decor-of store approved & signed off by corporate

23. Food Photos/ translight/ banners up

____24. Crew Hired            ._

____25. Uniforms ordered & approved

j___26s W/W Seasonings ordered                     .             .

, 27. Video Games ordered                                      .          -

J___28. Opening flyers approved and printed

____29. Training Sheet signed & filed at corporate

30. Opening Date of Unit:_____.__________._.

____31. r Store checked by corporate for equipment in place & operating;

_.__32-. Store checked by corporate for all licenses to be approved.

____33. Store organized & ready to receive paper stock / food stock

EXHIBIT 3


GENERAL RELEASE

This General Release (the "Release") is given by__________________________________,

("Franchisee") Pizza Factory Franchisee of that certain Pizza Factory Franchise located at

_____________________________________________________("Franchise Outlet") to and for

the benefit of Pizza Factory, Inc., A California Corporation ("Pizza Factory") and is made with respect to the following facts:

A.         On or about________________________, Franchisee and Pizza Factory entered into

a Franchise Agreement whereby Franchisee was granted a license to operate the Franchise Outlet;

B.         Franchisee now wishes to transfer or assign within the meaning of Section 8 of the Franchise Agreement all or some of its interest in and to the Franchise Outlet to

C. Section 8 of the Franchise Agreement provides, among other things, that as a condition of Pizza Factory approving the assignment now desired by Franchisee, Franchisee is required to sign a General Release of claims it may have against Pizza Factory.

FOR THE PURPOSE OF SATISFYING THE CONDITIONS OF SECTION 8 OF THE FRANCHISE AGREEMENT, FRANCHISEE HEREBY PROMISES, AGREES AND COVENANTS AS FOLLOWS:

1.         Franchisee does hereby agree to fully, finally and forever release, quitclaim and discharge Pizza Factory as well as its shareholders, officers, employees, attorneys, agents, and any or all of them, from any and all claims, liabilities, demands, debts, accounts, obligations, actions and causes of action, known or unknown, at law or in equity, including any successors or assigns to such claims, liabilities, demands, debts, accounts, obligations, actions and causes of action, which Franchisee may have or claim to have or to have had, arising at any time in the unlimited past to and including the date of this Agreement, including but without limiting the generality of the foregoing, any and all matters arising out of or in any manner whatsoever connected with the Franchise Agreement or Franchise Outlet EXCEPT as prohibited by state or federal laws, rules and regulations in effect as of the date of this Release and applicable in the state in which the Franchise Outlet is located to the extent applicable to the franchisor/franchisee relationship referred to above.

2.         Except as to any matter expressly excluded from the release set out in paragraph I, hereof, Franchisee further acknowledges and agrees on behalf of himself/herself/themselves/itself that this Release shall operate as a complete bar to any and all litigation which Franchisee may initiate against Franchisor arising out of or relating to the Franchise Agreement or Franchise Outlet.

Exhibit 4

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3. Franchisee acknowledges and agrees that the release given herein applies to all claims for injuries, damages, losses or of any other nature, whether those injuries, damages, losses are known or unknown, foreseen or unforeseen, or patent or latent which Franchisee may have against Franchisor and Franchisee hereby waives the application of California Civil Code Section 1542 except to the extent prohibited by the California Franchise Investment Law and/or the California Franchise Relations Act.

Franchisee certifies that he/she/it have read the following provision of California Civil Code Section 1542:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

and indicates the fact by initialing here:

Initial:

and that Franchisee understands and acknowledges the significance and consequence of this waiver of California Civil Code Section 1542 is that even if he/she/it should eventually suffer additional damages arising out of the above-referenced Franchise Agreement and Franchise Outlet or any other matter arising out of or relating to said Franchise Outlet, he/she/it will not be able to make any claims for those damages. Furthermore, Franchisee acknowledges that he/she/it intend these consequences even as to claims for damages that may exist as of the date of this Release, but which Franchisee does not know exist, and which, if known, would materially affect Franchisees' decision to execute this Release, regardless of whether Franchisee's lack of knowledge is a result of ignorance, oversight, error negligence, or any other cause.

4.         Franchisee hereby agrees that this Agreement and all of its terms shall be binding upon, if applicable, his/hers/its/their officers, shareholders, heirs, personal representatives, executors, administrators, and as to the claims and other matter released by this instrument, assigns and successors in interest thereof.

5.         This instrument and any other instrument specifically referred to herein constitute and contain the entire agreement and understanding between the parties concerning the subject matter hereof. This instrument supersedes and replaces all prior negotiations, proposed agreements or agreements, whether written or oral. Franchisee acknowledges that no other party or any agent or attorney of any party has made any promise, representation or warranty whatsoever, expressed or implied, written or oral, not contained herein concerning the subject matter hereof to induce the execution of this instrument and the other documents herein referred to. Franchisee further acknowledges that he/she/they/it has not executed this instrument or any other document in reliance on any promise, representation or warranty not contained herein.

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6.         If any action at law, in equity, in arbitration, or otherwise is brought to enforce or interpret the provisions of this Release or any agreement referred to herein or arising out of any of them, the prevailing party will be entitled to all expenses, costs and reasonable attorneys fees incurred in such action, including, but not by way of limitation, those incurred in enforcement or collection of any judgment or award or any proceeding in bankruptcy court or probate court.

7.         Franchisee represents and acknowledges that, in entering into this Release he/she/they/it was represented by independent counsel or had the opportunity to be so represented and had full opportunity to confer with and seek the advice of said counsel and that he/she/they/it enter into this Release without any reservation whatsoever.

IN WITNESS WHEREOF, Franchisee set his/her/their/its hands on the day or days and year written below.

DATED:___________

FRANCHISEE

Print Name and Title FRANCHISEE

Print Name and Title

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The original documents were scanned as an image. The original file can be downloaded at the link above.