Franchise Agreement
The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample Franchise Agreement
FRANCHISE AGREEMENT
THIS AGREEMENT is entered into by ABRAKADOODLE, INC., a Virginia corporation with its principal office at 1800 Robert Fulton Drive, Suite 250, Reston, Virginia
20191 ("we", "us" or "our"), and____________________________________________
whose address is _____________________________________________________
("you" or "your").
RECITALS
A. We have expended time, skill, money and effort to develop a system for establishing and operating ABRAKADOODLE® businesses providing arts education programs for 2-20-month-old to- 12-year-old children in schools, day care centers, community centers and other host sites, and for instructing teachers in arts education and providing curriculum materials to those teachers (the "System").
B. We also have expended time, skill, money and effort in publicizing the System and the services and products offered under the System. We have developed and will continue to develop valuable goodwill in the service mark, trademark and trade name ABRAKADOODLE, and in its trade dress; and have or may develop or acquire other service marks, trademarks, trade names and trade dresses for use underthe System, all of which marks, names and dresses are or will be our sole property (the "Marks").
C. We franchise others to use the System and the Marks, and provide to you continuing advice on the establishment and operation of ABRAKADOODLE businesses.
D. You desire to establish and operate an ABRAKADOODLE business, to use the Marks and all other elements of the System, and to derive the benefits of the System as developed by us. You acknowledge that it is essential to the maintenance of the high standards which the public has come to expect of ABRAKADOODLE services and products, and to the preservation of the integrity and goodwill of the Marks, that you adhere to the standards for the establishment and operation of ABRAKADOODLE businesses.
In consideration of the recitals above and of the terms below, we and you agree:
1. GRANT OF FRANCHISE
1.1 Subject to the terms of this Agreement, we grant to you the right, and you undertake the duty, to establish and operate an ABRAKADOODLE business ("Franchised Business") in the territory described in Section 2 ("Development Territory") for the term described in Section 3 (the "Franchise").
1.2 The Franchise includes the right and obligation to market ABRAKADOODLE arts education programs (as those programs may be modified) for 2-20-month-old to- 12-year-old children in schools, day care centers, community centers and other host sites; to instruct teachers in arts education for their students and provide
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curriculum materials to those teachers for use with their students; and also includes the right and obligation to market additional programs involving similar or dissimilar services or products for persons other than 2-20-month-old to- 12-year-old children, or involving dissimilar services or products for 2-20-month-old to- 12-year-old children ("Additional Programs"), to the extent that the marketing rights for those programs are made available to ABRAKADOODLE franchisees and you accept those rights.
1.3 If the marketing rights for an Additional Program are made available to ABRAKADOODLE franchisees, you will have a 30-day option to accept or reject those rights. Acceptance of those rights by you may be conditioned on you agreeing to incur additional expenses, participate in additional training, be subject to an increased monthly minimum for the continuing franchise fee, and/or comply with other terms which we may specify. If you are offered but reject those rights, we will have the right to market the Additional Program ourselves in the Development Territory (as defined in Section 2.1), or to make available to any other person or entity, including any other franchisee, on terms comparable to those offered to you, the marketing rights for the Additional Program in the Development Territory.
1.4 The Franchise includes the right and obligation to use the complete System, as it exists or may be supplemented or modified during the term of the Franchise, as to the ABRAKADOODLE programs which you are entitled to market, and as to any Additional Programs which you may become entitled to market. You acknowledge that the System will continue to evolve in order to reflect changing market conditions and to meet new and changing consumer demands, and that variations and additions to the System may be required in order to preserve and enhance the public image of the System and to ensure the continuing operational efficiency of ABRAKADOODLE businesses generally. Accordingly, you agree that we may, on notice and acting reasonably, add to, modify and change the System, including the adoption and use of new and modified service marks, trademarks, trade names, trade dresses, materials, technology, techniques and methodologies relating to the preparation, marketing, promotion and sale of ABRAKADOODLE services and products, but any modifications or changes may not unreasonably increase your obligations under this Agreement or place an excessive economic burden on the Franchised Business. You further agree to promptly accept, implement, use and display in the operation of the Franchised Business all of those additions, modifications and changes at your expense.
2. DEVELOPMENT TERRITORY; RESERVED RIGHTS
2.1 Development Territory. You are granted the non-exclusive right to use the Marks and the ABRAKADOODLE arts education programs (other than Additional Programs that you have elected not to market under Section 1.3) in the Development Territory defined in Attachment 1. You must use your best efforts to solicit business within the Development Territory for ABRAKADOODLE programs and to locate, train and supervise sufficient numbers of employees and independent contractors to provide requested ABRAKADOODLE services and products within the Development Territory. You must achieve the minimum annual Gross Sales Quotas specified in Attachment 1 to retain the Franchise. You may not solicit clients in territories assigned to our other franchisees.
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You must reasonably restrict your ABRAKADOODLE advertising, promotion and marketing (including direct mailings, personal visits, leaflets and signs), and any leads obtained through group advertising or pooled, centralized telephone arrangements in which you may participate with our other franchisees, to the ZIP code(s) of the Development Territory. You may advertise and promote the Franchised Business on the World Wide Web or any comparable electronic network of computers only as specified in the Operations Manual. During the term of the Franchise, we may not operate a company-owned business in the Development Territory that offers the same services and products to 2-20-month-oldto 12-year-old children that you offer; and we may not grant any other person the right (by franchise, license or otherwise) to operate a business in the Development Territory that offers the same services or products to 2-20-month-old to 12-year-old children that you offer. We may not modify the Development Territory during the term of the Franchise, but we may modify the Development Territory on renewal (as specified in Section 3.2) or transfer (as specified in Section 25.2) of the Franchise.
2.2 Requests for Service Within Another Franchisee's Territory. In accordance with Section 2.1, you will not solicit clients or promote ABRAKADOODLE programs in territories assigned to our other franchisees. You will provide services at host sites within the Development Territory. However, the students at those host sites may reside in or outside of the Development Territory. If you receive a request for service at a host site in another franchisee's development territory or from a client seeking a class location in another franchisee's development territory, you will refer that request to the other franchisee in accordance with referral procedures specified in the Operations Manual.
2.3 International. National and Regional Clients. The marketing rights granted to you in Section 2.1 do not restrict us or our affiliates from contacting international, national or regional clients with headquarters or locations within the Development Territory for any purpose, including the purpose of promoting the use or increased use of ABRAKADOODLE services and products marketed by us or our franchisees.
2.4 Our Reservations of Rights. We, on behalf of ourselves and our affiliates, reserve the rights, among others:
(a) to establish and operate, and to grant to others the right to establish and operate, ABRAKADOODLE businesses anywhere outside of the Development Territory, including in territories adjacent to the Development Territory;
(b) to offer and sell products under ABRAKADOODLE trademarks to persons in and outside of the Development Territory;
(c) to offer and sell different services, under ABRAKADOODLE trademarks or different trademarks, in or outside of the Development Territory, although we may offer you marketing rights for these services under specified terms and conditions; and
(d) to acquire or establish, directly or indirectly, businesses operating under different trademarks in or outside of the Development Territory, although
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we may offer you marketing rights as to those businesses under specified terms and conditions.
3. TERM OF FRANCHISE
3.1 Initial Term. The Franchise will begin on the date we execute this Agreement and will continue for an initial term of 10 years unless sooner terminated under Section 26.
3.2 Renewal Terms. You will have the right to renew the Franchise for successive 10-year renewal terms, if:
(a) You have given us written notice, not more that 1 year and not less than 180 days before the expiration of the prior term, of your intention to renew;
(b) You are solvent (are able to pay your debts as they come due and have assets that are greater than your debts), have not abandoned the Franchised Business, are not operating the Franchised Business in a manner that endangers public health or safety, have not repeatedly committed defaults of this Agreement during the prior term that have been noticed by us, have not repeatedly failed to submit timely reports to us during the prior term, and have not repeatedly submitted false or incomplete reports to us during the prior term;
(c) You, or any of your principal officers, partners, or members if you are a legal entity have not been convicted of a felony or a crime involving moral turpitude, consumer fraud or any other offense that is reasonably likely, in our sole judgment, to have an adverse effect on the Marks, the System, the goodwill associated with the Marks or System, or our interest in the Marks or System; and
(d) You have executed our then-current standard franchise agreement for the renewal term and paid the renewal fee specified in Section 9.7. You acknowledge that our then-current standard franchise agreement may contain terms different from those in this Agreement, including different fees, advertising contributions, training requirements and quotas. Depending on the then-current demographics of the Development Territory, and our then-current standards for territories and quotas, if the Development Territory is larger than our then-current standard territory, we may require you to: (a) accept a Renewal Territory smaller than the Development Territory, if you do not want higher quotas; (b) accept a Renewal Territory identical to the Development Territory but with higher quotas; or (c) execute multiple franchise agreements with Renewal Territories and quotas that more closely match ourthen-current standards for territories and quotas.
4. PERSONAL ATTENTION OF FRANCHISEE OR MANAGER TO BUSINESS
4.1 You, or a Manager who has successfully completed all required ABRAKADOODLE training, will personally manage the Franchised Business at all times.
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4.2 You understand and agree that the success of the Franchised Business will depend on personal, continued and full-time attention to the business by you, or your Manager. Personal, continued and full-time attention will include at least: availability during normal and peak business periods; participation in the development and implementation of management and operational policies; and involvement in the training and supervision of employees and independent contractors to ensure that the System is followed.
5. ESTABLISHMENT AND MAINTENANCE OF BUSINESS
5.1 You agree to establish the Franchised Business within 30 days after your successful completion of initial training and to maintain the Franchised Business continuously after that time; but if you are delayed in establishing the Franchised Business because of reasons beyond your control, you will provide us with a written request to delay opening. The request will state: (1) that a delay is anticipated; (2) the reasons which have caused the delay; (3) the efforts you are making to open; and (4) an anticipated opening date. In considering the request, we will not unreasonably withhold its consent to a delay, up to a maximum of 60 days, if you have been diligently pursuing the establishment of the Franchised Business.
5.2 Establishing and maintaining the Franchised Business under Section 5.1 will involve at least all of the following:
(a) Establishing a home office for the operation of the business in accordance with the Operations Manual;
(b) Securing all permits and licenses necessary for the establishment and operation of the business;
(c) Securing adequate telephone service (minimum of one direct line) for use in the business and an ABRAKADOODLE telephone information listing, all subject to the Telephone Listing Agreement attached as Attachment 4. No other business will be transacted or advertised using any telephone number assigned to the business;
(d) Operating an answering machine for the business during both business and non-business hours;
(e) Using your or your Manager's best efforts to obtain initial clients for ABRAKADOODLE programs; and
(f) Having sufficient staff, equipment, materials and supplies available to provide requested services and products within the Development Territory.
5.3 As indicated in Section 5.2(a), you are not required to establish or maintain a commercial office for the operation of the Franchised Business. If choosing to establish and maintain a commercial office, however, you must:
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(a) Locate a site for the office within the Development Territory and obtain our prior written approval of the site;
(b) Obtain our prior written approval of any lease or purchase agreement for the office;
(c) Conform the office to applicable building code requirements and to our specifications, as modified by you with our prior written consent to fit the particular site;
(d) Be responsible for securing all permits and licenses necessary for the establishment and operation of the office;
(e) Obtain our prior written approval of any plans for office construction or equipment installation, or of any deviations from the plans, to ensure that the plans or deviations conform to our specifications;
(f) Obtain our prior written approval of an outdoor sign for the business, and install the sign within 30 days after opening the office; and
(g) On written notice from us, promptly correct any variations from approved plans or deviations.
6. CONTINUOUS OPERATION OF BUSINESS
6.1 You must operate the Franchised Business on a continuous basis throughout the year, and must be open for business each week for the minimum hours and minimum days specified in the Operations Manual.
7. LIMITATIONS ON ACTIVITIES OF BUSINESS
7.1 In order to preserve the System and the identification of ABRAKADOODLE businesses operating under the Marks, you agree that the Franchised Business will not engage in activities other than those approved under the System. You further agree that you must obtain our prior written consent to offer any services or sell any products other than those approved under the System.
7.2 You may not engage in any deceptive or unfair trade practice or other activity, or offer any service or product which is harmful to the goodwill or reputation of you, us, our franchisees generally, the System or the Marks.
7.3 You may not maintain a web site for the Franchised Business on the Internet or any comparable electronic network of computers.
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8. PRICES CHARGED BY BUSINESS
8.1 You will have the right to offer services and products at any prices you may determine. If we recommend a retail price, that price is suggested only, and is in no way binding on you.
9. FEES PAYABLE TO US
9.1 Initial Franchise Fee. Ifthis Agreement is not being executed as part of a renewal or transfer of the Franchise, you must pay to us, by cashier's check, on execution, a $2&9QQ32.500 initial franchise fee for a standard territory. Ifthis Agreement is for a territory that is larger than a standard territory, at our option, we may require you to pay us, by cashier's check, on execution, an additional initial franchise fee calculated at a rate of $0.35 per household with an annual income of $60700075,000 or more within the Development Territory, above 60,000 such households. If you already operate a business similar to an ABRAKADOODLE business, or if you have been employed for a period of at least 1 year by an ABRAKADOODLE business, at our option, we may reduce the initial franchise fee by $3,000. Except as specified below, the initial franchise fee or any portion of the fee is non-refundable and fully earned by us when paid. If, before the successful completion of initial training, we, in our sole and absolute right, decide that you should not operate an ABRAKADOODLE business, we may cancel this Agreement. If we so cancel this Agreement, we will refund the initial franchise fee or any portion of the fee previously paid, less expenses incurred, if you agree to terms substantially similarto those in Sections 19.1, 19.9, 20, 21.3, 21.4(b), 21.5-21.8, 27.1-27.2, and 32.
9.2 Continuing Franchise Fee. You must pay a continuing franchise fee of 8% or 6% of Gross Sales to us (as defined in Section 9.10) in the following manner:
(a) The fee is subject to a monthly minimum of $500 for a standard territory. The fee may be subject to a higher monthly minimum if the Development Territory specified in Attachment 1 is larger than a standard territory or if you elect to market Additional Programs under Section 1.3.
(b) The fee is due and payable by the 10th day of each month for the preceding month, and begins to accrue in the month in which the Franchised Business is established.
(c) Initially each calendar year, the fee is 8% of Gross Sales. When Gross Sales exceed $200,000 in a calendar year, the fee is reduced to 6% of Gross Sales for the remainder of the calendar year.
(d) Each payment of the fee must be accompanied by a statement in the form specified in the Operations Manual.
9.3 Advertising and Promotional Contributions. See Section 16.
9.4 Training Fees. See Sections 11.2(a),(b) and (d), 11.4 and 11.5.
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9.5 Annual Conference Fee. See Section 11.2(c).
9.6 Audit Fee. See Section 13.7.
9-7 Renewal Fee. If this Agreement is being executed as part of a renewal of the Franchise, in lieu of paying the initial franchise fee specified in Section 9.1, you must pay to us on execution, a renewal fee equal to 5% of our then-current initial franchise fee for a comparable franchise territory. This fee will be non-refundable and fully earned by us when paid.
9.8 Transfer Fee. See Section 25.2(b)(viii).
9.9 Late Fees. If any sum required to be paid by you to us under this Agreement is not actually received by us by the due date, we may assess a $25 late fee, and the unpaid sum will bear interest calculated daily after the due date until paid at the lesser of a rate equal to 1.5% of the monthly balance of principal and interest, or the highest rate of interest allowed by law. If the due date for a sum is not specified in this Agreement, generally it will be the 30th day after the billing date. Any payment received toward an overdue sum will first be applied to the interest due and will be applied to the overdue sum only after all outstanding interest is paid. We may change the late fee by giving you 30 days' prior written notice. We may not change the late fee more than once every 12 months. Late fees will be in addition to any other rights or remedies that we may have under this Agreement or otherwise. Regardless of any designation by you, we, in our sole and absolute right, may apply any payments by you to any of your past due indebtedness to us or our affiliates. See also Section 13.7.
9.10 Gross Sales. For purposes of this Agreement, "Gross Sales" equal all of the collected receipts of the Franchisee! Business, including all class fees (whether for students or for teachers), registration fees, late charges, other amounts received or charged, and the value of all services or products received, for services provided or products sold, whether for cash or barter, or on a charge, credit or time basis, but excluding excise, sales and use taxes, gross receipts taxes or similar taxes paid by you based on sales, if those taxes are separately stated when the client is charged, and also excluding bona fide refunds, allowances or discounts to clients. Refunds or incentive fees paid to facilities at which ABRAKADOODLE services or products are offered, are not excluded from "Gross Sales."
9.11 Withholding of Sums Payable. You agree that you will not, on grounds of the alleged nonperformance by us of any of our obligations under this Agreement, withhold payment of any fee or other sum payable to us under this Agreement, or of any other sum payable to us or our affiliated companies.
9.12 Equipment, Supplies or Supplier Testing or Inspection, and Grant or Approval of Equipment Supplies or Suppliers. See Section 14.2.
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9.13 Replacement Copies of Operations Manual. Currently $60 (subject to change).
9.14 Accounting Software Upgrades and Support FeoClass Management Program Fees. You must pay a fee to us for upgrading and supporting the web-based class management program (or anv comparable future program or software) that we provide to you for use in operating the Franchised Business.
9.15 Reimbursements and Penalty Fees. You must reimburse us for any charges that we incur on your returned checks, declined charges or similar financial defaults. You also must pay us penalty fees for such defaults and for unpaid invoices to you for products or services, as outlined in the Operations Manual.
10. SERVICES AND PRODUCTS FURNISHED BY US
10.1 During the term of the Franchise, we will provide the following:
(a) At no charge to you beyond the initial franchise fee, within 30 days of the execution of this Agreement, our initial packet of materials for establishing an ABRAKADOODLE business (in some cases, specific materials may take up to 90 days for delivery);
(b) Training programs and assistance as described in Section 11;
(c) Operations Manual as described in Section 12;
(d) Updates to the Operations Manual as described in Section 12;
(e) Specifications for equipment, materials, supplies and services used under the System, and continued efforts to negotiate purchasing agreements with suppliers for equipment, materials, supplies and services, as described in Section 14;
(f) Samples of initial advertising and promotional materials (class schedules, ads, brochures, etc.), and assistance in implementing an initial advertising and promotional program;
(g) Periodic efforts to report improvements in the System to you as they may be developed or acquired by us in our sole and absolute right;
(h) Continuing assistance by telephone, electronic mail, voice mail, facsimile, mail, newsletters, or other methods, that we, in our sole and absolute right, deem reasonable under the circumstances; and
(i) Curriculum, manuals and related materials other than the Operations Manual which we, in our sole and absolute judgment, may select.
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10.2 If requested by you, we will furnish additional guidance and assistance relative to the operation of the business, other than continuing assistance provided at no charge, at per diem charges established by us. If special training of business personnel or other assistance in operating the business is requested by you, and must take place at the location of the Franchised Business, all expenses for training, including our then-current per diem charges and all reasonable transportation, meal and lodging expenses incurred by our personnel supplying the additional assistance, will be paid by you.
10.3 We may maintain a web site or web sites on the Internet or any comparable electronic network of computers to advertise and promote our franchise system and products and services marketed by us and our franchisees. We may permit you to establish a web site, of our design, as part of our web site(s) and/or to establish an email link to you from our web site(s). We mav maintain an Intranet for use bv our franchisees. Anv representations and warranties of any kind whatsoever, express or implied, regarding our web site(s), including representations and warranties as to the operation, functionality, lack of interruption or resources of our web site(s), are expressly excluded. Without limiting the foregoing, we disclaim any implied warranties of merchantability and fitness for a particular purpose as to our web site(s). As to any malfunctioning of our web site(s), we will not be liable to you for any consequential, incidental, indirect, economic, special, exemplary or punitive damages, such as, but not limited to, loss of revenue or anticipated profits or lost business, even if you have advised us that such damages are possible as a result of any breach of warranty or malfunction.
10.4 Our obligations under this Agreement are to you. No other person or entity, directly, indirectly or by subrogation, may rely on, enforce or obtain relief under this Agreement for any default by us.
11. TRAINING
11.1 You and your employees and independent contractors must maintain the standards of skill, efficiency and quality associated with the System.
11.2 To assist you in establishing and maintaining those standards, we will provide training as follows:
(a) We will provide you and your original Manager, if any, pre-training materials and initial training for the operation of an ABRAKADOODLE business, at a location designated by us. You must complete pre-training activities before attending initial training. Initial training will be of 5 business days' duration. You and your original Manager, if any, must successfully complete both pre-training activities and initial training to our satisfaction before opening the Franchised Business. We will bear the cost of providing pre-training materials and initial training, including the cost of basic initial training materials, but you must bear the cost of trainees' wages and benefits, and trainees' travel, lodging and meal expenses?; provided, however, that if you wish to send additional trainees. vou must also pay us our then-current training fee for each additional trainee.
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(b) If the original or any succeeding Manager leaves your employ, a replacement Manager must successfully complete pre-training activities and initial training at a location designated by us, subject to scheduling by us, within 8 weeks of the date of replacement. You must bear the cost of the succeeding Manager's wages and benefits, and travel, lodging, and meal expenses. If we must give initial training of a succeeding Manager within 2 years of initial training of a prior Manager, you must pay us our then-current training fee, as to that initial training.
(c) We will conduct an annual conference for our franchisees to discuss and review new business, marketing, technology and educational ideas and concepts. The conference may be held on a regional, national or international basis. We will provide you with notice of the time and place of the conference, which time and place will be determined by us. You (or if you are not an individual, your principal operating officer or partner) or your Manager must attend the conference. For each of your representatives attending the conference, you must pay a non-refundable per-attendee fee to us equal to the approximate out-of-pocket cost of holding the conference, and also must pay all wages and benefits, and all travel, lodging and meal expenses, of your attendees.
(d) You and your Manager, if any, must successfully complete remedial or follow-up training if, in our sole and absolute judgment, that training is necessary. As to that remedial or follow-up training, you must pay ourthen-current training fees, and must bear the cost of you and your Manager's wages and benefits, and travel, lodging and meal expenses. If remedial or follow-up training is held within the Development Territory, you also must bear the then-current per diem charges for our trainers and the actual and reasonable travel, lodging and meal expenses of those trainers.
11.3 Except as otherwise stated in this Section 11, you are responsible for training instructors, employees and independent contractors other than your Managers.
11.4 If our trainers are requested by you to give any initial, remedial or follow-up training at your location, you must pay those trainers' per diem fees, and their actual and reasonable travel, lodging and meal expenses.
11.5 We may require you to make reservations for trainees or attendees in advance of any training or conference. We may require deposits for those reservations (which may be refunded or, in our sole and absolute right, applied toward training or conference fees) and may charge cancellation fees if reservations are cancelled.
12. OPERATIONS MANUALS; ADDITIONAL MANUALS AND MATERIALS
12.1 We have developed a copyrighted Operations Manual containing mandatory and suggested specifications, standards, procedures and rules applicable to the System. The Operations Manual is and will remain our exclusive property, and is merely loaned to you for the term of the Franchise. We may also loan to you additional manuals and materials developed by us related to aspects of the System. In order to protect our reputation and goodwill, the System and the Marks, you must operate the Franchised
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Business in strict conformance with the Operations Manual and any additional manuals or materials developed by us that are loaned to you.
12.2 You acknowledge that the System may be modified by us, and that modifications to the System may require modifications to the Operations Manual and to any additional manuals or materials developed by us, as long as those modifications do not unreasonably increase your obligations under this Agreement or place excessive economic burdens on the Franchised Business. You agree to operate the Franchised Business in strict conformance with any modifications to the Operations Manual and any additional manuals or materials developed by us. Modifications will be effective on receipt by you, unless otherwise stated by us.
12.3 The provisions of the Operations Manual, including the mandatory specifications, standards, procedures and rules applicable to the System, and any modifications that are made by us, constitute provisions of this Agreement as if fully set forth in this Agreement. All references in this Agreement to the provisions of the Operations Manual mean the provisions of the Operations Manual, including all modifications and mandatory and recommended specifications, standards, procedures and rules, as of the time they are in effect.
12.4 You must at all times ensure that your copies of the Operations Manual and any additional manuals or materials developed by us are up-to-date and kept in a secure place. If there is any dispute as to their contents, the terms of the master copies of the Operations Manual, and any additional manuals or materials developed by us and maintained at our headquarters, will be controlling.
12.5 You must treat the Operations Manual, any additional manuals or materials developed by us and loaned to you that are designated as "confidential," and the information in those manuals and materials, as confidential, and must take all reasonable precautions to maintain those manuals' and materials' confidentiality. You may not, without our prior written consent, copy, duplicate, record or otherwise reproduce the Operations Manual or any additional manual or material developed by us, in whole or in part, or otherwise make the same available to any person who is not bound by the confidentiality terms of this Agreement or who has not signed a separate confidentiality agreement (see Section 20.2 and Attachment 5).
13. ACCOUNTING PROCEDURES
13.1 You must use a computerized record-keeping system as prescribed by us.
13.2 You recognize the importance of financial and statistical analysis, and agree to provide us with monthly sales reports (by the 10th of each month for the preceding month) in the forms prescribed in the Operations Manual. All financial information provided by you to us must be prepared in accordance with accounting methods acceptable to us, consistently applied.
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13.3 You must provide us annually, within 3 months after your fiscal year end, with a statement of revenues, expenses and income (or loss) for the year, and a statement of assets and liabilities as of the end of the year, which statements must be prepared in accordance with accounting methods acceptable to us, consistently applied. At our option, we may require this statement to be prepared by an independent certified public accountant in accordance with the standards for a compilation or review. Simultaneously with this statement, you must provide us with copies of all tax returns filed by you for the year as to the Franchised Business, including federal and state income tax returns, and with the business names, contact names, addresses and telephone numbers for all facilities at which ABRAKADOODLE services and products were offered by you at any time during the year.
13.4 You must submit to us any other financial or statistical reports, records, statements or information that we may reasonably deem to be required or desirable, in the forms and at the times and places reasonably specified by us, in the Operations Manual or otherwise in writing. We may specify that you use software or web-based applications that give us independent access to vour records.
13.5 All financial or statistical information provided by you to us must be accurate and correct in all material respects.
13.6 We will have the right to use any financial or statistical information provided by you, as we deem appropriate. We will not identify you as the source of that information, and will not disclose any information shown in any of your tax returns (other than information disclosed in other documents submitted to us) except: (i) with your permission; (ii) as required by law or compulsory order; or (Hi) in connection with audits or collections under this Agreement.
13.7 We or our designated agents will have the right, at all reasonable times, to examine, copy and audit your and the Franchised Business's books, records and tax returns. If an examination or audit discloses any underpayment of any fee, you must promptly pay the deficient amount plus interest calculated daily from the due date until paid at the lesser of a rate equal to 1 %% of the monthly balance of principal and interest or the highest rate of interest allowed by law. If an examination or audit discloses an underpayment or understatement of any amount due us by 3% or more for any 3-month period, or if the examination or audit is made necessary by your failure to furnish required information or documents to us in a timely manner, you must, in addition, reimburse us for the cost of having your books examined or audited. If an examination or audit discloses an underpayment or understatement of any amount due us by 5% or more for any 3-month period, we will have the right to terminate the Franchise under Section 26.2(n). These rights and remedies will be in addition to any other rights or remedies we may have under this Agreement or otherwise.
13.8 During and after the term of the Franchise, you must maintain and preserve all books, records and accounts of the Franchised Business for at least 5 years after the close of the fiscal year to which the books, records and accounts relate.
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14. EQUIPMENT, MATERIALS, SUPPLIES AND SERVICES
14.1 You may generally purchase your equipment, materials, supplies and services from whomever you decide, except that:
(a) You must subscribe to an on-line computer network as prescribed by us.
(b) You must use equipment, materials, supplies and services which meet specifications prescribed by us in the Operations Manual. These specifications may include specific brand names and products or designate an approved supplier. The purpose of these specifications is to protect and maintain the quality of ABRAKADOODLE materials and classes, and the goodwill of the System and the Marks.
(c) You must use the class management software that we provide to-vo^h-software and/or web-based and/or other programs meeting the specifications that we periodically prescribe in our Operations Manual or otherwise in writing.
(d) You must purchase equipment, materials or supplies with our trademarks from us or suppliers that we approve or designate.
14.2 We reserve the right to inspect and re-inspect the products, supplies and facilities of your suppliers, to determine their conformity with this Section 14. We will maintain and make available to you a list of certain equipment, materials, supplies and services which meet our specifications. We may modify this list. If you desire to use items or services not on the list, you will so notify us in writing before using the items or services and, if we so request, will provide us samples of the items or services and any relevant data. At your option, we will test any item or service to determine whether it meets the required specifications and will notify you accordingly within a reasonable time. You will reimburse us for our expenses relating to item or service testing or grant or approval of items or services, and for the then-current per diem charges for our personnel. If we determine that any item or service does not meet the required specifications, you agree that you will not use the item or service in the Franchised Business. The supplier of any item or service proposed for use by you under this Section 14.2 may be required to demonstrate to our reasonable satisfaction that:
(a) the supplier meets our specifications, including its quality, quantity, warranty, variety, service and safety specifications, for the item or service and for the facilities used in the production and distribution of the item or service.
(b) the supplier has the capacity to supply franchisee requirements;
(c) the supplier has a sound financial condition and business reputation; and
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(d) the supplier will supply items or services to a sufficient number of our franchisees to enable us to economically monitor compliance by the supplier with our specifications.
14.3 We or our related companies may offer to sell to you items or services used in operating an ABRAKADOODLE business, which may be purchased by you at your option. We or our related companies will endeavor, to the extent we are able to do so based on total purchases by our franchisees, to negotiate volume-purchasing arrangements for items and services, and to offer them to our franchisees at prices not otherwise generally available to the franchisees.
14.4 Unless specifically stated otherwise in writing, we do not provide any warranty or guarantee to you or any third party for any item or service which we may sell or provide to you, and you may not make any representation to the contrary to any third party. If we are able to secure from any manufacturer any warranty, guarantee or assumption of liability which we are authorized to convey to you, we will so notify you.
14.5 Security deposits or advance payments may be required by us or our related companies as to purchases of items or services by you. You agree to pay all invoices rendered by us or our related companies for items or services within 30 days after the dates of the invoices.
15. DESIGN AND APPEARANCE OF BUSINESS
15.1 You are not required to establish a commercial office for the operation of the Franchised Business. If, however, you choose to establish and maintain a commercial office, you acknowledge that the design and appearance of the office must be in conformity with the design and appearance of other offices within the System.
15.2 You may make no change to your commercial office design or appearance without our prior written consent, and must maintain and renovate periodically, at your expense, the interior and exterior of the office in the manner reasonably prescribed by us so as to maintain standards of design and appearance consistent with the image of the System. We will have the right to require remodeling changes to the office at your expense no more often than once every 5 years, but you will not be required to make any changes if the remodeling would occur within 1 year of the expiration date of any term of the Franchise.
15.3 You agree to purchase or lease, and to display at your commercial office, whether attached to a building or free-standing, only signs, emblems, logos, lettering and pictorial materials that are in accordance with specifications prescribed by us in the Operations Manual or otherwise in writing, subject to changes for which we have given our prior written consent. We have the right to revise the specifications for signs, emblems, logos, lettering and pictorial materials, and you must promptly alter your signs, etc., at your location to conform with the revised specifications. The alterations will be at your expense if revisions are required no more often than once every 3 years.
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15.4 You must maintain your commercial office and all adjacent areas in good, clean, attractive and safe condition at all times. You must, at your expense, undertake all maintenance and make all repairs, replacements, alterations and additions as may be required for that purpose, including periodic cleaning, repainting, repairs and replacement of obsolete fixtures, furnishings, equipment, materials and supplies as we may reasonably require.
15.5 You, at your or your employees' expense, will cause your instructors, employees and independent contractors to present themselves to clients and prospective clients, in terms of general appearance, dress and accessories, in accordance with written standards prescribed by us in the Operations Manual or otherwise in writing.
16. ADVERTISING AND PROMOTION
16.1 Recognizing the value of marketing and the importance of the standardization of promotions and public relations programs to the furtherance of the goodwill and public image of the System and the Marks, you agree to contribute, on a monthly basis during the term of the Franchise, 1% of Gross Sales to a system-wide advertising and promotional fund ("Fund").
16.2 The Fund will be maintained as follows:
(a) You will contribute to the Fund on or before the 10th day of each month based on Gross Sales for the preceding month.
(b) Any company-owned ABRAKADOODLE businesses will make contributions to the Fund on a basis at least equal to that described in Section 16.1.
(c) We will direct all advertising and promotional programs, with the sole and absolute right of approval over agencies, spokespersons, creative concepts, materials, and media placements and allocations used in the programs. You agree that the Fund is intended to maximize general public recognition and acceptance of the Marks for the benefit of the System, and that we and our designees undertake no obligation in administering the Fund to make expenditures for you which are equivalent or proportionate to your contributions, or to ensure that you benefit directly or pro rata from the placement of advertising.
(d) You agree that the Fund may be used to meet the costs of researching, preparing, maintaining, administering and directing advertising and promotional materials and programs (including the costs of preparing and conducting television, radio, magazine, newspaper, direct mail and coupon advertising campaigns and other public relations activities; employing advertising agencies; providing a toll-free numberfor prospective parents and site directors to call for referral purposes; and providing promotional brochures and other marketing materials to franchisees in the System). All sums contributed to the Fund will be maintained in a separate account from our general funds and will not be used to defray our general operating expenses, except for reasonable administrative costs and overhead incurred in activities related to the administration or
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direction of the Fund (up to 15%), including conducting market research, preparing and distributing advertising and promotional materials, and collecting and accounting for contributions to the Fund.
(e) If we expend less than the total of all contributions to the Fund during any fiscal year, we will have the right to retain those contributions for use in subsequent years. If we expend more than the contributions accumulated in the Fund during any fiscal year, we will have the right to receive from the Fund, reimbursement or credit during the same or subsequent years to the extent of the excess expenditure.
(f) An unaudited summary report on the operation of the Fund will be prepared annually and will be made available to you on request 90 to 120 days after fiscal year end.
(g) Although the Fund is intended to be of perpetual duration, we retain the right to terminate the Fund. The Fund will not be terminated, however, until all contributions have been used for the purposes described above or returned to contributors on a prorated basis.
16.3 If you use advertising or use promotional materials, those advertising and promotional materials must be dignified and conform to specifications in the Operations Manual. If prescribed advertising or promotional materials are available from us, you may not use any materials other than those prescribed by us, and must pay all reasonable fees and expenses associated with the provision of those materials. Otherwise, you must submit samples to us (by fax, or by receipted mail or delivery service) and obtain our prior written approval (except as to prices to be charged), of all advertising and promotional materials (including direct mailings, leaflets, brochures, signs, audios, videos and CDs) that you desire to use and that have not been prepared or previously approved by us. If written disapproval is not received by you (by fax, or by receipted mail or delivery service) within 10 days after our receipt of the materials, we will be deemed to have given the required approval. If any advertising or promotional materials previously approved by us are later disapproved, you must discontinue their use promptly on written notice from us.
17. INSURANCE
17.1 You must secure before opening the Franchised Business, and then must continuously maintain during the term of the Franchise, insurance at your expense, as follows:
(a) Worker's compensation or similar insurance as required by the law of the state or jurisdiction in which you are engaged in business. This insurance must be maintained for trainees, as well as for those employed or engaged in the operation of the Franchised Business.
(b) Automobile liability insurance with a $500,000 combined single limit or a $250,000/$500,000 split limit.
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(c) Comprehensive general liability insurance with a limit of at least $1,000,000.
(d) If maintaining a commercial office, insurance on the office, equipment (except portable equipment), materials and supplies, for loss or damage by fire, windstorm, flood and other risks usually insured against by the owners or lessors of similar property. The insurance must be for at least 90% of the replacement cost of the property. Unless a written waiver is obtained from us, any ABRAKADOODLE office sustaining loss or damage must be repaired, restored or rebuilt within 60 days of the date of the loss or damage.
17.2 If circumstances require for the protection of you and us, we, in our sole and absolute right, may increase or modify the insurance limits noted above and may require additional types of insurance. If we determine that any required insurance is not generally available to you at a cost which we, in our sole and absolute judgment, deem to be reasonable, then we may modify the insurance requirements to provide for lower limits until the insurance becomes available at a reasonable cost.
17.3 Each insurance policy maintained by you for the Franchised Business must: name you as the insured; name us, and our affiliates, successors, assigns, shareholders, partners, officers, directors, employees and agents as additional insureds (we will provide you with a list after you sign the franchise agreement); require the insurer to defend each person or entity if there is a claim; provide that any liability coverage afforded applies separately to each person or entity against which a claim is brought as though a separate policy had been issued to that person or entity; contain no provision which limits or reduces coverage if there is a claim by one or more additional insured, or by reason of any insurance which may be maintained by us; and provide coverage for your indemnification obligation under Section 24.2 of this Agreement. Coverage for the additional insureds will apply on a primary basis irrespective of any other insurance, whether collectable or not. All insurance policies must be issued by insurance companies with performance ratings of at least A+ as rated in the most recent edition of Best's Insurance Reports or comparable publication.
17.4 Within 30 days after opening the Franchised Business and then annually when annual financial statements are provided, you must furnish to us a then-current copy of each insurance policy, including all amendments and endorsements, evidencing the limits noted above or as then required, and proof of premium payments, and providing that the insurance will not be cancelled, amended or modified without 30 days' prior written notice to us, together with evidence of payment of premiums.
17.5 You may not reduce any insurance limit, restrict any insurance coverage, or cancel, alter or amend any insurance policy without our prior written consent. If you fail to obtain or maintain any required insurance, you agree that we may, but are not obligated, to obtain the insurance and that you will reimburse us for the cost of the insurance, and for any reasonable expenses incurred in procuring the insurance, within 30 days of the date of our invoice. You expressly waive any objection to our purchase of insurance under this Section.
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18. LEGAL COMPLIANCE, TAXES, LICENSES, UTILITIES AND OTHER OBLIGATIONS
18.1 You must comply with all laws applicable to the operation of the Franchised Business, including all administrative and governmental regulations relating to fictional business names, occupational hazards, health, consumer protection, and unfair or deceptive practices, securing and promptly paying for all licenses, permits and inspections, and promptly paying all withholding, unemployment, occupational, privilege, license, sales, use and income taxes and the like, including all taxes and fees levied and asserted on your business property, and all water, sewer, gas, telephone, electric, power and other utility charges assessed or charged to the Franchised Business.
18.2 You must promptly satisfy any other indebtedness that you incur in operating the Franchised Business.
18.3 You must promptly notify us of the commencement of any action, suit or proceeding, or of the issuance of any order, writ, injunction, award or decree of any court, agency or other governmental instrumentality that may adversely affect the operation of the Franchised Business.
18.4 If there is any bona fide dispute as to any liability for taxes assessed or other indebtedness, you may contest the validity of the amount of the tax or indebtedness in accordance with procedures of the taxing authority or applicable law; however, you may not permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a creditor to occur against the premises of the Franchised Business or any of its improvements.
19. PROPRIETARY MARKS
19.1 The Marks are our exclusive property. You acknowledge that your use of the Marks is a temporary authorized use underfranchise and that we retain all ownership interests in the Marks and all goodwill generated by the Marks. All uses of the Marks by you will inure to our benefit. You agree to use the Marks only in accordance with the terms of this Agreement and acknowledge that the use of the Marks outside the scope of the terms of this Agreement without our prior written consent, is an infringement of our exclusive right, title and interest in and to the Marks. You agree that during the term of the Franchise, and after the repurchase, expiration or termination of the Franchise, you will not, directly or indirectly, commit an act of infringement or contest or aid others in contesting the validity, distinctiveness, secondary meaning, ownership or enforceability of the Marks, or take any other action in derogation of the Marks, and that no monetary amount will be assigned as attributable to any goodwill associated with your use of the System or the Marks.
19.2 You must provide services and products to the public under the service mark, trademark and trade name "ABRAKADOODLE." Except as we permit in writing, you may not use any Mark, any derivation or modified version of any Mark, or any confusingly similar mark or name: as part of any corporate, partnership, firm or other business name,
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web site address, email address, domain name or other identification in any print, electronic or other medium; or with any prefix, suffix or other modifying word, term, symbol or design. You agree to execute, during or after the term of the Franchise, at our request, any consents necessary for the registration of our corporate name in the state where you conduct the Franchised Business.
19.3 You agree that when any Mark is affixed to any packaging or point of sale display, or is used in advertising or promotional materials, the Mark will be accompanied either by an appropriate notice immediately following the Mark ("TM" if on a product package and "SM" if advertising a service) or by an asterisk immediately following the Mark and the legend "*Service mark or trademark of Abrakadoodle, Inc. (or other appropriate corporate name)" printed on or in the package, display, advertisement or material. A suitably abbreviated form of the legend, approved by us, may be used where space restrictions so require. If a Certificate of Registration is received by us from the United States Patent and Trademark Office for any Mark, the symbol"®" will be substituted for the notices described above, and the word "Registered" will precede the word "service" in the legend described above, as required by written notice from us to you.
19.4 If it becomes advisable at any time, in our sole and absolute judgment, for the business to modify or discontinue use of any Mark and/or to use one or more additional or substitute service marks, trademarks, trade names or trade dresses, you agree to comply with our directions to modify or otherwise discontinue the use of the Mark, and/or to use one or more additional or substitute service marks, trademarks, trade names or trade dresses, within a reasonable time after receiving notice from us. You will be responsible for the costs of modifying or discontinuing the use of any trademark, service mark or trade name, or using one or more substitute trademarks, service marks or trade names. We will not be responsible for reimbursing you for any loss of goodwill in connection with the modification or discontinuation of any trademark, service mark or trade name.
19.5 During the term of the Franchise, in conjunction with the use of any Mark, you must identify yourself as the operator of the Franchised Business on letterhead sheets, invoices, order forms, receipts, contracts and similar documents, and, where required by us, on signs. The form and content of the identification must comply with specifications in the Operations Manual.
19.6 During the term of the Franchise, you must file and maintain requisite trade name or fictitious name registrations, and must execute any documents deemed necessary by us or our counsel to obtain protection for the Marks or maintain their continued validity and enforceability.
19.7 You must promptly notify us of any use, by any person or entity other than us or another of our franchisees, of any Mark or any name or mark confusingly similar to any Mark.
19.8 You must promptly notify us of any litigation brought or threatened by any person or entity against you, involving any Mark. If we, in our sole and absolute
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judgment, undertake the defense or settlement of that litigation or claim, we will do so at our own expense, but you agree to execute any documents, and to render any assistance (excluding financial assistance) as may, in the sole and absolute right of our counsel, be reasonably necessary to carry out the defense or settlement. If the defense does not involve issues concerning the operation of your business, we will reimburse you for all reasonable out-of-pocket costs incurred in connection with assisting in the defense or settlement.
19.9 You agree that the use of any Mark contrary to any term of this Agreement is an act of infringement, and that the use will cause irreparable injury to us and entitle us to an order of specific performance and/or a temporary, preliminary or permanent injunction, without bond, from a court or agency of competent jurisdiction, court costs, reasonable expenses of litigation, reasonable attorneys' fees, and any other appropriate relief.
20. TRADE SECRETS AND CONFIDENTIAL INFORMATION
20.1 You acknowledge that the System involves trade secrets owned by us and that, during your relationship with us, you will acquire knowledge of confidential information, including know-how, sales, organizational, operational and other information concerning the System.
20.2 You agree that, without our prior written consent, you will never either during or after the term of the Franchise, use or allow the use of any trade secret or confidential information except in connection with the operation of the Franchised Business by persons actively involved in the operation of the business. You further agree that you will not disclose the contents of any manuals, plans, records or other documents relating to the Franchised Business to any third party, except a party who is actively involved in the operation of the business and who has a valid need for disclosure. Any third party or employee to whom a trade secret or confidential information is disclosed will be informed that the trade secret or confidential information is confidential and proprietary to us and that it may not be used except under a franchise agreement with us. You must have each of your Managers, supervisory employees and independent contractors, and persons attending initial training enter into a Confidentiality and Noncompetition Agreement substantially similar to Attachment 5.
20.3 You agree to promptly reveal to us discoveries, inventions, innovations or improvements made by you, or, for any of your Managers, instructors, employees or independent contractors relating to materials, devices, methods or processes in any way connected with the System, and further agree that all proprietary interests in the information, materials, devices, methods, techniques, know-how and processes utilizing those discoveries, inventions, innovations and improvements will be our property.
20.4 You agree that use of any trade secret or confidential information contrary to any term of this Agreement is an act of infringement, and that the use will cause irreparable injury to us and entitle us to an order of specific performance and/or a temporary, preliminary or permanent injunction, without bond, from a court or agency of
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The original documents were scanned as an image. The original file can be downloaded at the link above.