Commitments and Contingencies

Leases

The Company leases certain restaurant equipment and buildings under operating leases. Future minimum lease payments, including non-operating assets, at December 27, 2016 consisted of the following (in thousands):



Fiscal year
2017	$	65,344
2018	60,467
2019	50,862
2020	45,124
2021	38,619
Thereafter	294,638
Total minimum lease commitments⁽¹⁾	$	555,054

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⁽¹⁾ Minimum lease payments have been reduced by aggregate minimum non-cancelable sublease rentals of $0.6 million.

The Company’s rent expense, including contingent rent based on a percentage of sales when applicable, is comprised of the following (in thousands):



	52 Weeks Ended
	December 27, 2016		December 29, 2015		December 30, 2014
Minimum rents	$	69,177	$	67,726	$	64,273
Contingent rents	895		917		1,003
	$	70,072	$	68,643	$	65,276

Franchise Agreement Asset Upgrade and Development Requirements

The 2003 territory and location franchise agreements allow PHI to require the Company to perform a remodel on up to 15% of its assets annually beginning in 2016. On April 12, 2016, the Company entered into an Amended Franchise Agreement with PHI which sets forth the terms of the Asset Partner Plan. The Asset Partner Plan governs the future asset upgrade requirements of the Company including remodel scope and timing of such actions, and supersedes the previous agreements relating to such upgrade requirements. The scope of the remodel requirements under the Asset Partner Plan vary based upon (i) the asset type, (ii) the date of the last asset action and (iii) in some cases population density. The Asset Partner Plan requires each qualifying franchisee in the system to remodel or rebuild 10% of its asset base annually through 2025; thereafter executing a minor remodel ten years after completing a major remodel and a major remodel seven years after completing a minor remodel on a continual cycle moving forward. The Company currently expects to incur average capital expenditures of approximately $20.0 million per annum through December 2026 to meet these requirements. The Company anticipates relocating most of its Dine-in assets to the more cost efficient Delco format in lieu of the Dine-in remodel option to ensure a more contemporary store base that better meets the needs of consumers in the markets it serves. The Delco format requires significantly less annual maintenance and operating costs . All assets constructed before 1980 will be required to be sunset no later than 2036. In the event the Company does not qualify or determines at a later time not to participate in the plan, PHI could require that the Company remodel or rebuild 15% of its assets annually in accordance with its franchise agreements.

NPCQB is required to complete Image Activations (“IA’s”), (defined as a refresh, remodel or scrape and rebuild) at certain of its Wendy’s units and currently expects to incur approximately $6.0 million per annum through December 31, 2020 to meet these requirements.

Other Commitments

Certain members of management purchased common stock of NPC Holdings for $4.2 million. Under the terms of the Stockholders Agreement of NPC Holdings, the common stock is required to be repurchased by NPC Holdings upon the termination of the employment of the employee. However, the amount of this liability is determined based upon the circumstances of the termination of employment. The Company does not have a contractual obligation to fund the purchase of the mandatorily redeemable stock; however, the Company could be required to provide a distribution to NPC Holdings to fund the repurchase in the event of an employee’s termination of employment from the Company. The value of this contingent obligation is subject to a formula defined in the Stockholders Agreement. Based on the financial results for fiscal 2016, the common stock held by management has a combined value of approximately $3.4 million to $4.1 million.

Upon completion of the Transactions, the Company entered into an advisory agreement with Olympus. Under the agreement Olympus or its affiliates will continue to provide financial, investment banking, management advisory and other services on the Company’s behalf for an annual fee of $1.0 million, paid in quarterly installments in arrears on the last day of each calendar quarter. See Note 13 - Related Party Transactions.

Legal Proceedings

On December 13, 2016, the United States District Court for the Western District of Tennessee granted conditional collective action certification under the Fair Labor Standards Act (FLSA) with respect to five lawsuits previously filed against the Company. The five lawsuits were filed against the Company on January 29 and 30, 2013, in the United States District Court for the Western District of Tennessee, as follows: Penley v. NPC Int’l Inc., Case No. 1:13-cv-01031-JDB-egb, Harris v. NPC Int’l, Inc., Case No. 1:13-cv-01033-JDB-egb, Gunn v. NPC Int’l, Inc., Case No. 1:13-cv-01035-JDB-egb, Jowers v. NPC Int’l, Inc., Case No. 1:13-cv-01036-JDB-egb, and Redmond v. NPC Int’l, Inc., Case No. 1:13-cv-01037-JDB-egb. The lawsuits are brought on behalf of the named plaintiffs as well as all similarly situated current and former shift managers (Penley), cooks (Harris), servers (Gunn), delivery drivers (Jowers), and customer service representatives (Redmond) employed by NPC. Each complaint states that the lawsuit is brought as a collective action under the FLSA to recover unpaid wages, minimum wages, and overtime wages. The complaints allege that NPC did not pay the employees for mandatory meetings and training and failed to pay them for all hours worked. The Gunn complaint additionally alleges that NPC did not comply with the tip credit provisions of the FLSA. In each case, the plaintiffs seek to recover unspecified damages related to unpaid wages, minimum wages, overtime wages, liquidated damages, pre- and post-judgment interest and attorneys’ fees and costs.

In connection with the grant of the conditional collective action certification under the FLSA on December 13, 2016, the Court ordered the parties to submit a joint proposed notice for approval by the Court no later than April 14, 2017. At that time, the Court will consider approval of that notice and then set deadlines for providing the names, last known addresses and telephone numbers for the potential opt-ins and posting notice at restaurants. The Court will then set a schedule for merits based discovery, decertification, pretrial and trial settings.

At this time, the Company is not able to predict the outcome of the lawsuits, any possible loss or possible range of loss associated with the lawsuits or any potential effect on the Company’s business, results of operations or financial condition. However, the Company believes the lawsuits are wholly without merit and will defend itself from these claims vigorously.