Franchise Agreement
The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample Franchise Agreement
Exhibit B
BLENDZ FRANCHISE SYSTEM, INC.
FRANCHISE AGREEMENT
FRANCHISE AGREEMENT
TABLE OF CONTENTS Section Page
1. GRANT................................................................................................... B-5
2. SITE SELECTION, PLANS AND CONSTRUCTION................................................B-7
3. TERM AND SUBSEQUENT TERM................................................................. B-ll
4. FEES.......................................................................................................B-13
5. FRANCHISOR'S OBLIGATIONS...................................................................B-16
6. FRANCHISEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............B-19
7. FRANCHISED RESTAURANT OPERATIONS...................................................B-25
8. ADVERTISING AND RELATED FEES.............................................................B-30
9. MARKS...................................................................................................B-33
10. CONFIDENTIALITY AND NONCOMPETITION COVENANTS............................ B-35
11. BOOKS AND RECORDS............................................................................ B-41
12. INSURANCE........................................................................................... B-43
13. DEBTS AND TAXES.................................................................................. B-46
14. TRANSFER OF INTEREST.......................................................................... B-46
15. INDEMNIFICATION...................................................................................B-52
16. RELATIONSHIP OF THE PARTIES................................................................ B-54
17. TERMINATION AND DEFAULT REMEDIES.................................................... B-55
18. POST-TERMINATION.................................................................................B-59
19. GENERAL PROVISIONS; CHOICE OF LAW; DISPUTE RESOLUTION....................B-62
20. ACKNOWLEDGMENTS..............................................................................B-68
ATTACHMENTS:
Attachment A: Location, Authorized Territory, Area of Primary Responsibility and
Opening Date
Attachment B: Description of Marks
Attachment C: Lease Rider
Attachment D: Statement of Ownership Interests, Principals and Controlling Principals
Attachment E: Confidentiality Agreement and Ancillary Covenants Not to Compete
Attachment F: Electronic Funds Transfer Authorization
Attachment G: Guaranty
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BLENDZ FRANCHISE SYSTEM, INC.
FRANCHISE AGREEMENT
This Franchise Agreement ("Agreement") is entered into on the Effective Date specified in the signature block of this Agreement between Blendz Franchise System, Inc., a California corporation ("Franchisor"), and the individual or business entity identified as Franchisee in the signature block of this Agreement.
WITNESSETH:
WHEREAS, as the result of the expenditure of time, skill, effort and money, Blendz, L.L.C., Franchisor's affiliate and Franchisor developed a distinctive system, identified by means of certain marks that governs the establishment and operation of a quick service restaurant with a unique menu featuring tossed-to-order salads, grilled Panini sandwiches, blended smoothies, gourmet soups and specialty coffees and espresso that operate under the BLENDZ® name and in association with the Marks identified in Attachment B to this Agreement; and
WHEREAS, the distinguishing characteristics of the System include distinctive exterior and interior design, decor, color scheme and furnishings; special recipes and menu items; a prescribed beverage selection; uniform standards, specifications, and procedures for operations; quality and uniformity of products and services; procedures for inventory, management and financial control; training and assistance; and advertising and promotional programs, all of which Franchisor may change, improve and further develop from time to time; and
WHEREAS, Franchisor has a license to use and sublicense the use of the Marks and to franchise the operation of Blendz® Stores; and
WHEREAS, Franchisee has applied for a franchise to operate a Blendz® Store, and Franchisor has approved Franchisee's application; and
WHEREAS, Franchisee understands and acknowledges the importance of Franchisor's high standards of quality, cleanliness, appearance and service and the necessity of operating a Blendz® Store in conformity with Franchisor's standards and specifications.
NOW, THEREFORE, the parties, in consideration of the mutual undertakings and commitments set forth herein, the receipt and sufficiency of which are hereby acknowledged, agree as follows:
DEFINITIONS
For the purposes of this Agreement, the following are hereby defined:
(a) "Agreement" - means this agreement, attachments, and all instruments in amendment hereof.
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(b) "Affiliate" - means any person or entity that controls, is controlled by, or is in common control with, the Franchisor.
(c) "Area Development Agreement" - means an agreement between Franchisor and Franchisee or one of its Affiliates pursuant to which Franchisee or its Affiliate undertake the development of more than 1 Blendz® Store in the market in which the Blendz® Store is located.
(d) "Blendz® Store" - means the business operations conducted or to be conducted by the Franchisee consisting of a quick service restaurant with a unique menu featuring tossed-to-order salads, grilled Panini sandwiches, blended smoothies, gourmet soups and specialty coffees and espresso, and the sale of related products using the Franchisor's System and in association with the Marks.
(e) "Controlling Interest" - means (a) if Franchisee is a corporation, that the Controlling Principals, either individually or cumulatively, (i) directly or indirectly own at least 51% of the shares of each class of Franchisee's issued and outstanding capital stock and (ii) are entitled, under its governing documents or under any agreements among shareholders, to cast a sufficient number of votes to require the corporation to take or omit to take any action that such Franchisee is required to take or omit to take under this Agreement; or (b) if Franchisee is a partnership, that the Controlling Principals (i) own at least a 51% interest in the profits and losses of the partnership, as well as at least a 51% ownership interest in the partnership (and at least a 51% interest in the shares of each class of capital stock of any corporate general partner) and (ii) are entitled under its partnership agreement or applicable law to act on behalf of the partnership without the approval or consent of any other partner or are able to cast a sufficient number of votes to require the partnership to take or omit to take any action that Franchisee is required to take or omit to take under this Agreement.
(f) "Controlling Principal" - means and includes, collectively and individually, any Franchisee's Principals who has been designated by Franchisor as a Controlling Principal.
(g) "Confidential Information" - means all knowledge, know-how, standards, methods and procedures related to the establishment and operation of the System and includes all records pertaining to customers, suppliers, and other service providers of, and/or related in any way to, Franchisee's Blendz® Store including, without limitation, all recipes, databases (whether in print, electronic or other form), all names, addresses, phone numbers, e-mail addresses, customer purchase records, manuals, promotional and marketing materials, marketing strategies and any other data which the Franchisor designates as confidential.
(h) "Electronic Commerce" - means advertising and promoting merchandise and services, and accepting orders and receiving payment for merchandise and services by means of electronic communication.
(i) "Franchisor's System" or "System" - means the standards, systems, concepts, identifications, methods, and procedures developed or used by the Franchisor, or which may hereafter be developed or used by the Franchisor, for the sales and marketing of the Franchisor's Products.
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(j) "Franchise" - shall mean the business operations conducted or to be conducted using the Franchisor's System and in association therewith the Marks.
(k) "Franchisee's Principals", "Owners", "Developer" - means and includes, collectively and individually, Franchisee's spouse, if Franchisee is an individual; all officers and directors of Franchisee (including the officers and directors of any general partner of Franchisee) whom Franchisor designates as Franchisee's Principals; all holders of an ownership interest in Franchisee and in any entity directly or indirectly controlling Franchisee; and any other person or entity that controls, is controlled by, or is under common control with Franchisee. The initial Franchisee's Principals are listed on Attachment D.
(1) "Lease" - means any agreement (whether oral or written) under which the right to occupy a Training Facility has been obtained, and any amendment made thereto from time to time, including without limitation, any offer to lease or license a Franchised Location. Franchisee acknowledges and agrees that before any Lease will be accepted by Franchisor, the Lease must incorporate the terms of the Lease Rider attached to this Agreement as Attachment C.
(m) "Marks" - means the trademark "Blendz®" to the extent of the Franchisor's rights to same, together with such other trade names, trademarks, symbols, logos, distinctive names, service marks, certification marks, logo designs, insignia or otherwise which may be designated by the Franchisor from time to time as part of the System for use by Franchisees, and not thereafter withdrawn.
(n) "Opening Date" - means the date the Blendz® Store opens for business to the public in the Franchised Location.
(o) "Operations Manual" - means, but is not limited to, collectively, all directives, books, pamphlets, bulletins, memoranda, order forms, packing slips, invoices, letters, e-mail, Internet or intranet data, or other publications, documents, software programs, video tapes, transmittances or communications, in whatever form (including electronic form) prepared by or on behalf of the Franchisor for use by the franchisees generally or for the Franchisee in particular, setting forth information, advice and standards, requirements, marketing information and procedures, operating procedures, instructions or policies relating to the operation of the Blendz® Store or the operation of Franchises, as same may be added to, deleted or otherwise amended by the Franchisor from time to time. The form and content of the Operations Manual maintained by Franchisor shall prevail in the event of any dispute regarding the form of or content of the Operations Manual between Franchisor and Franchisee.
(p) "Products" - means all supplies, material and equipment sold, prepared or otherwise dealt with in connection with the Blendz® Store and associated with the Marks.
(q) "Publicly-held Corporation" - means a corporation registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or a corporation subject to the requirements of Section 15(d) of that Act.
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(r) "Sales Period" - means the period from the 20th day of a proceeding month through the 4th day of the current month ("First Sales Period") and the period from the 5th day of the current month through the 19th day of the current month ("Second Sales Period"). The First Sales Period and the Second Sales Period are collectively, the "Sales Period".
(s) "Express Unit" - means a business location, which due to a number of possible reasons, does not offer the full menu sold at a Blendz® Store.
(t) "Software" - means the software that Franchisor requires Franchisee to license to operate the Blendz® Store.
(u) "Trade Secret(s)" - means information, including a formula, pattern, compilation, program, device, method, training technique or process related to the System that both derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
1. GRANT
1.1 Grant and License. In reliance on the representations and warranties of Franchisee and its Controlling Principals, and subject to the terms and conditions of this Agreement, Franchisor grants to Franchisee the right and license, and Franchisee accepts the right and obligation, to operate 1 Blendz® Store under the Marks and in accordance with the System and the provisions of this Agreement at the location ("Franchised Location") specified in Attachment A only. Franchisee acknowledges that the rights granted in this Agreement pertain only to the operation of 1 Blendz® Store at the Franchised Location.
(a) The license does not include the right to sell products to any vendor who would in turn sell to consumers.
(b) The Franchisee recognizes that variations and additions to the System may be required from time to time in order to preserve and/or enhance the System. Therefore, the Franchisor expressly reserves the right to add to, subtract from, revise, modify or change from time to time the System or any part thereof, and the Franchisee agrees to promptly accept and comply with any such addition, subtraction, revision, modification or change and to make such reasonable expenditures as may be necessary to comply.
(c) Franchisee recognizes that the rights that are granted to the Franchisee are for the specific Authorized Territory, defined in Section 2.1 below and no other, and cannot be transferred to an alternate Authorized Territory, without the prior written approval of the Franchisor, which approval may be granted or withheld in Franchisor's sole discretion.
1.2 Grant and License Non-Exclusive. The Franchisee acknowledges that the Franchise granted hereunder is non-exclusive and that the Franchisor and its Affiliates retain the exclusive right among other:
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(i) Advertise and promote the System in the Authorized Territory (defined in Section 2.1(b)) and fill customer orders, or grant others the right to fill customer orders, by providing catering, take-out and delivery services to customers who reside or work in the Authorized Territory;
(ii) Market ancillary products, gift cards and other merchandise via the Internet, catalogues, phone solicitation and other direct-selling techniques to customers who reside in the Authorized Territory;
(iii) Offer and sell, or grant others the right to offer or sell products under the Marks, that are the same as or similar to those products sold at a Blendz® Store, through alternative channels of distribution, including without limitation, at sports and entertainment facilities, events, supermarkets, transportation facilities, kiosks, food concessions, hospitals and schools;
(iv) Offer and sell, or grant others the right to offer or sell, products and services under the Marks in the Authorized Territory through Express Units;
(v) Offer and sell any products and services, that are the same as or similar to the products and services offered at Blendz® Stores, under any names and marks other than the Marks;
(vi) Use or license others to use the Marks and System for operation of a Blendz® Store at any location outside the Authorized Territory regardless of proximity to the Authorized Territory;
(vii) Purchase, be purchased by, merge or combine with any other business, including a business that competes directly with Franchisee's Blendz® Store, wherever located; and
(viii) Establish any websites utilizing a domain name incorporating the words "Blendz" or similar derivatives thereof. The Franchisor retains the sole right to market on the Internet and use the Marks on the Internet, including all use of websites, domain names, URL's, directory addresses, metatags, linking, advertising, and co-branding and other arrangements. The Franchisee may not independently market on the Internet, or use any domain name, address, locator, link, metatag, or search technique, with words or symbols similar to the Marks or otherwise establish any presence on the Internet;
(ix) Implement multi-area marketing programs (including over the Internet and national accounts) which may allow us or others to solicit or sell to customers anywhere. Franchisor reserves the right to issue mandatory policies to coordinate such multi-area marketing programs; and
1.3 Express Unit. After Franchisee opens its Blendz® Store, Franchisee may apply in writing to Franchisor for the right to operate an Express Unit. Franchisor may approve or deny Franchisee's request in Franchisor's sole discretion. Franchisor shall have 30 days to approve or
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reject Franchisee's written request. If Franchisor fails to respond to Franchisee within 30 days, Franchisee's request shall be deemed denied. If Franchisor approves Franchisee's request to operate an Express Unit, Franchisee will construct and operate such Express Unit pursuant to the Operations Manual and Franchisor's guidelines. No Authorized Territory will apply to any Express Unit and Franchisor may own, franchise or operate Blendz® Stores or other Express Units regardless of the proximity to the Franchisee's Express Unit. If Franchisor approves Franchisee's request to operate an Express Unit, Franchisee will pay Franchisor the Express Unit Fee set out in Section 4.2 and the Initial Training, Site Selection and Architectural and Marketing Fee set out in Section 4.1 and pay for all construction, licensing, permitting and any and all other costs incurred to open and operate the Express Unit. Notwithstanding anything herein to the contrary, Franchisee must operate a Blendz® Store prior to and thereafter at all times while operating an Express Unit.
1.4 Catering Service. After operating a Blendz® Store for at least 4 months, Franchisee may apply in writing to Franchisor for the right to provide catering services. Franchisor may approve or deny Franchisee's request in Franchisor's sole discretion. Franchisor shall have 30 days to approve or reject Franchisee's written request. If Franchisor fails to respond to Franchisee within 30 days, Franchisee's request shall be deemed denied. If Franchisor approves Franchisee's request to offer catering services, Franchisor will designate a non-exclusive catering service area ("Catering Service Area") in which Franchisee may offer catering services. Franchisee will be required, at its sole cost and expense, to obtain a vehicle, insurance, catering equipment and menus, approved by Franchisor, as set forth in the Operations Manual prior to offering catering services within its Catering Service Area. Notwithstanding anything herein to the contrary, Franchisee must operate a Blendz® Store at all times while providing catering services. Franchisee must provide catering services pursuant to the Operations Manual and Franchisor's guidelines.
2. SITE SELECTION, PLANS AND CONSTRUCTION
2.1 Site Selection Area and Authorized Territory.
(a) The site selection area ("Site Selection Area") designated by Franchisor is described in Attachment A. Unless otherwise approved by the Franchisor in its sole determination, Franchisee must obtain a Franchised Location within the Site Selection Area. Franchisee will not have any exclusive rights to the Site Selection Area.
(b) Upon Franchisor's review and evaluation of the Franchised Location and Franchisee's acquisition of the Franchised Location in accordance with Section 2.2 of this Agreement, Franchisor will assign Franchisee a primary area of operation ("Authorized Territory") that will be described in Attachment A. Except as provided in this Agreement, and subject to Franchisee's full compliance with this Agreement and any other agreement between Franchisee or any of its affiliates and Franchisor or any of its Affiliates, neither Franchisor nor any of its Affiliates will establish, or authorize any person or entity other than Franchisee to establish, a Blendz® Store in the Authorized Territory during the Initial Term of this Agreement or any Interim Period. Notwithstanding anything herein to the contrary, Franchisee
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acknowledges that it will not have any exclusive rights within the Authorized Territory to provide catering, take-out or delivery services or to open and operate Express Units.
(c) Franchisee acknowledges that Franchisor's Affiliate operates a Blendz® Store and Express Units under the Marks and may at some point in the future operate restaurants under other names and marks.
2.2 Site Selection.
(a) Notwithstanding the site selection assistance provided by Franchisor (as more specifically set out in Section 5.1(b) and (c)), Franchisee assumes all cost, liability, expense and responsibility for locating, presenting for Franchisor's prior review, securing and developing a site for the Blendz® Store within the Site Selection Area and that in discharging such responsibility, Franchisee may consult with real estate and other professionals identified by the Franchisor. Franchisor's evaluation of a prospective site and the rendering of assistance in the selection of a site does not constitute a representation, promise, warranty or guarantee, express or implied, by Franchisor that a Blendz® Store operated at that site will be profitable or otherwise successful. Franchisee further assumes all cost, liability, expense and responsibility for constructing and equipping the Blendz® Store at the Franchised Location. Franchisee shall not make any binding commitment to a prospective vendor or lessor of real estate with respect to a site for the Blendz® Store until the site is reviewed and evaluated in accordance with this Section 2.
(b) Prior to securing a site for the Blendz® Store by lease or purchase, Franchisee, with Franchisor's site selection assistance set out in Section 5.1(b) and (c), shall locate a site that satisfies the site selection guidelines that Franchisor provides to Franchisee pursuant to Section 5.1(b) and shall submit to Franchisor, in the form Franchisor specifies, a description of the site, including evidence satisfactory to Franchisor that the site satisfies Franchisor's site selection guidelines, together with such other information and materials as Franchisor may reasonably require, including a letter of intent or other evidence satisfactory to Franchisor that confirms Franchisee's favorable prospects for obtaining the site and the landlord's willingness to sign the rider attached to this Agreement as Attachment C. Recognizing that time is of the essence, Franchisee agrees that it will submit such information and materials to Franchisor for its review and approval no later than 60 days after the execution of this Agreement. Franchisor shall have 10 days after receipt of this information and materials to approve or disapprove, in its sole discretion, the proposed site as the location for the Blendz® Store. No site may be used for the location of the Blendz® Store unless it is first reviewed and evaluated in writing by Franchisor, and any objections thereto contained in such writing are resolved by Franchisee to the satisfaction of Franchisor.
2.3 Timing for Franchised Location Acquisition.
(a) Within 30 days after Franchisor has evaluated the site for the Blendz® Store, Franchisee shall acquire the site by purchase or lease, at Franchisee's expense. Franchisee's failure to acquire the site within the required time and in accordance with the prescribed procedures will constitute a material event of default under this Agreement.
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(b) After a site for the Blendz® Store is approved by Franchisor and acquired by Franchisee, the site shall be described as the Franchised Location in Attachment A.
2.4 Franchisor's Approval of Lease or Purchase Agreement. If Franchisee purchases the Franchised Location, Franchisee shall submit a copy of the proposed contract of sale to Franchisor for its review prior to the contract's execution and shall furnish to Franchisor a copy of the executed contract of sale within 10 days after execution. If Franchisee leases the Franchised Location, Franchisee shall submit a copy of the proposed lease to Franchisor for its review prior to the lease's execution and shall furnish to Franchisor a copy of the executed lease within 10 days after execution. Any lease for a Franchised Location must include a rider to the lease, prepared by Franchisor and executed by Franchisor, Franchisee and the Landlord in substantially the form attached as Attachment C. Franchisor will have 10 days after receipt of the proposed lease or the proposed contract of sale to review and evaluate.
2.5 Permits and Licenses. Notwithstanding the site selection assistance and design assistance provided by the Franchisor pursuant to Sections 5.1(b), (c) and (e), Franchisee shall be responsible for obtaining all zoning classifications, permits, variances, certificates of occupancy and clearances, that may be required by state or local laws, ordinances or regulations or that may be necessary as a result of any restrictive covenants relating to the Franchised Location. Prior to beginning construction of the Blendz® Store, Franchisee shall (i) obtain all permits (including, but not limited to, heath code permits and building permits), licenses and certifications required for the lawful construction or remodeling and operation of the Blendz® Store, and (ii) certify in writing to Franchisor that the insurance coverage specified in Section 12 is in full force and effect and that all required approvals, clearances, permits and certifications have been obtained. Franchisee shall provide to Franchisor copies of Franchisee's insurance policies or certificates of insurance and copies of all such approvals, clearances, permits and certifications prior to beginning construction of the Blendz® Store. Franchisee will provide Franchisor with a copy of its certificate of occupancy prior to opening the Blendz® Store.
2.6 Design Plans for the Franchised Location. Franchisor will provide Franchisee with the design and pre-construction assistance set out in Sections 5.1(e). Franchisee must independently obtain any additional architectural, engineering and design services it deems necessary for the construction of the Blendz® Store at its own expense from an architectural design firm approved by Franchisor. Any adaptations to the design plans for the Franchised Location provided by the Franchisor shall be at Franchisee's sole expense and subject to Franchisor's approval, in its sole determination. If Franchisor determines, in its sole discretion, that any such plans do not satisfy Franchisor's architectural or design standards and specifications for a Blendz® Store or are not consistent with the best interests of the System, Franchisor may prohibit the implementation of such plans, and in this event will notify Franchisee of any objections within 15 days of receiving such plans. If Franchisor fails to notify Franchisee of an objection to the plans within this time period, Franchisee may use such plans. If Franchisor objects to any such plans, it shall provide Franchisee with a reasonably detailed list of changes necessary to make the plans acceptable. Franchisor shall, upon a resubmission of the plans with such changes, notify Franchisee within 10 days of receiving the resubmitted plans whether the plans are acceptable. If such changes are not acceptable, Franchisor shall notify Franchisee of such objections as described above, and Franchisee shall resubmit such plans in
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accordance with the procedures described above until such plans are approved by Franchisor. If Franchisor fails to notify Franchisee of any objection within such time period, Franchisee may use the resubmitted plans. Franchisee acknowledges that providing the design plans to the Franchisee and/or accepting changes to such design plans does not constitute a representation, warranty, or guarantee, express or implied, by Franchisor that such plans are free of architectural or design errors or that they comply with applicable legal requirements (including the requirements of the Americans With Disabilities Act) and Franchisor shall have no liability to Franchisee or any other party with respect thereto.
2.7 Timing for Construction. Franchisee shall commence and diligently pursue construction or remodeling (as applicable) of the Blendz® Store. Commencement of construction shall be defined as the time when any site work is initiated by or on behalf of Franchisee at the Franchised Location. Site work includes, but is not limited to, removing prior tenant improvements, demising of interior walls, and installation of tenant improvements. During the time of construction or remodeling, Franchisee shall provide Franchisor with such periodic reports regarding the progress of the construction or remodeling as may be reasonably requested by Franchisor. In addition, Franchisor shall make such on-site inspections as it may deem reasonably necessary to evaluate such progress. If during such inspections, Franchisor identifies instances where Franchisee's construction or remodeling is inconsistent with, or does not meet, Franchisor's standards, Franchisor shall notify Franchisee in writing of such deficiencies, and Franchisee shall correct such deficiencies prior to opening. Franchisee shall notify Franchisor of the scheduled date for completion of construction or remodeling no later than 30 days prior to such date. Within a reasonable time after the date of completion of construction or remodeling, Franchisor shall, at its option, conduct an inspection of the completed Blendz® Store. Franchisee acknowledges and agrees that Franchisee will not open the Blendz® Store for business without the written authorization of Franchisor and that authorization to open shall be conditioned upon Franchisee's strict compliance with this Agreement.
2.8 Timing for Opening the Blendz® Store. Franchisee acknowledges that time is of the essence. Subject to Franchisee's compliance with the conditions stated below, Franchisee shall open the Blendz® Store and commence business within 8 months after the execution of this Agreement, unless Franchisee obtains a written extension of such deadline from Franchisor, or unless this Agreement is executed pursuant to an Area Development Agreement, in which case the date for opening shall be set forth in Section 3.C. of the Area Development Agreement. The Opening Date for the Blendz® Store shall be set forth in Attachment A. Prior to opening, Franchisee shall complete all exterior and interior preparations for the Blendz® Store, including installation of equipment, fixtures, furnishings and signs, pursuant to the standards and specifications approved by Franchisor, and shall comply with all other pre-opening obligations of Franchisee, including those obligations described in Sections 6.2, 6.3 and 6.4, to Franchisor's satisfaction. If Franchisee fails to comply with any of these obligations, Franchisor shall have the right to prohibit Franchisee from opening the Blendz® Store for business. Franchisee's failure to open the Blendz® Store and commence business in accordance with this Section 2 shall be deemed a material event of default under this Agreement.
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2.9 Relocation of Franchised Location.
(a) Franchisee shall not relocate the Blendz® Store without the prior written consent of Franchisor. This Agreement does not grant Franchisee the right or license to operate the Blendz® Store from any location except the Franchised Location or to use the System or the Marks to offer or sell any products, merchandise or services through any channel of distribution except the Blendz® Store.
(b) If Franchisee is unable to continue the operation of the Blendz® Store at the Franchised Location because a force majeure event (as described in Section 19.6) casualty, or condemnation, Franchisee may request Franchisor's approval to relocate the Blendz® Store to another location in the Authorized Territory (defined in Section 2.1(b)). Any other request to relocate the Blendz® Store shall also be subject to the same procedures. If Franchisor elects to grant Franchisee the right to relocate the Blendz® Store, Franchisee shall comply with the site selection and construction procedures set forth in Section 2 with respect to the new Franchised Location. Franchisor shall be under no obligation to adjust the boundaries of the Authorized Territory, or to grant Franchisee additional territory in the Authorized Territory, in the event that Franchisor relocates its Blendz® Store.
3. TERM AND SUBSEQUENT TERM
3.1 Term. Unless sooner terminated as provided in Section 17, the initial term of this Agreement (Initial Term") shall continue from the Effective Date until the earlier of (i) 10 years from the Opening Date, or (ii) the expiration or termination of Franchisee's right to possess the Franchised Location.
3.2 Subsequent Term. Franchisee may, at its option, extend its rights to operate the Blendz® Store for 1 additional term of 10 years ("Subsequent Term"), subject to any or all of the following conditions which must, in Franchisor's discretion, be met prior to and at the time of the extension of Franchisee's rights to operate the Blendz® Store:
(a) Franchisee shall give Franchisor written notice of Franchisee's intention to extend its rights to operate the Blendz® Store not less than 7 months nor more than 12 months prior to the end of the Initial Term;
(b) Franchisee shall repair or replace, at Franchisee's expense, all equipment (including POS systems, computer hardware, or software systems, including any software licensed to Franchisee, signs, interior and exterior decor items, fixtures, furnishings, any catering vehicles, supplies and other products and materials required for the operation of the Blendz® Store as Franchisor may reasonably require and shall obtain, at Franchisee's expense, any new or additional equipment, fixtures, supplies and other products and materials that may be reasonably required by Franchisor for Franchisee to offer and sell new menu items from the Blendz® Store or to provide the Blendz® Store's Products by alternative means, such as carry-out, catering, or other manner specified by Franchisor, and shall otherwise modernize the Franchised Location, equipment (including POS systems, computer hardware and software systems), signs, interior and exterior decor items, fixtures, furnishings, supplies and other products and materials required
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for the operation of the Blendz® Store, as reasonably required by Franchisor to reflect the then-current standards and image of the System as contained in the Operations Manual;
(c) Franchisee shall not be in default of any provision of this Agreement or any other agreement between Franchisee and any of its affiliates and suppliers and Franchisor or any of its affiliates, and Franchisee shall have substantially and timely complied with all the terms and conditions of such agreements during their terms;
(d) Franchisee shall have satisfied all monetary obligations owed by Franchisee to Franchisor and its affiliates under this Agreement and under any other agreement between Franchisee and any of its affiliates and Franchisor or its affiliates and shall have substantially and timely met those obligations throughout the terms of the related agreements;
(e) Franchisee shall have met, throughout the Initial Term, the Minimum Quarterly Sales Quota as set out in Section 7.7;
(f) Franchisee shall present satisfactory evidence that Franchisee has the right to remain in possession of the Franchised Location or obtain Franchisor's approval of a new site for the operation of the Blendz® Store for the duration of the Subsequent Term of this Agreement;
(g) Franchisee shall execute Franchisor's then-current form of Franchise Agreement ("Subsequent Franchise Agreement"), which agreement shall supersede this Agreement in all respects, and the terms of which may materially differ from the terms of this Agreement, including, without limitation, a higher percentage Royalty Fee and advertising contribution or expenditure requirement, except that Franchisee shall pay to Franchisor, in lieu of an Initial Franchise Fee, a subsequent franchise fee ("Subsequent Franchise Fee") equal to $2,500;
(h) Franchisee and the Controlling Principals shall execute a general release of any and all claims against Franchisor and its affiliates, and each such entity's respective officers, directors, shareholders, partners, agents, representatives, independent contractors, servants and employees, in their corporate and individual capacities, including, without limitation, claims arising under this Agreement or under federal, state or local laws, rules, regulations or orders;
(i) Franchisee shall satisfy Franchisor's then-current qualification and training requirements; and
(j) Franchisee has not committed and received notice of 3 or more breaches of this Agreement in the 24 months prior to the end of this Agreement, even if such breaches were timely remediated.
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4. FEES
4.1 Initial Franchise Fee. Franchisee shall pay to Franchisor an Initial Franchise Fee of $25,000 and an Initial Training, Site Development and Architectural Design and Marketing Fee in the amount of $40,000 for each Blendz® Store, which shall be paid in full upon the execution of this Agreement if it pertains to the first store under the Area Development Agreement. If the Franchise Agreement pertains to the second Blendz® Store and beyond pursuant to an Area Development Agreement, the Initial Franchisee Fee and Initial Training, Site Development and Architectural Design and Marketing Fee is due at the time the Franchise Agreement is signed for each additional Blendz® Store, and shall be payable in accordance with the terms set forth in the Area Development Agreement. The Initial Franchise Fee and Initial Training, Site Development and Architectural Design and Marketing Fee when paid shall be deemed fully earned, in partial consideration of the administrative and other expenses incurred by Franchisor in granting the franchise and for its lost or deferred opportunity to grant the franchise to another party. The Initial Franchise Fee and Initial Training, Site Development and Architectural Design and Marketing Fee shall be nonrefundable.
4.2 Express Unit Fee. If Franchisee received Franchisor's approval to open an Express Unit pursuant to Section 1.5 of this Agreement, Franchisee shall pay to Franchisor an Express Unit Fee in the amount of $10,000 and the Initial Training, Site Development and Architectural Design and Marketing Fee in the amount of $25,000 for each Express Unit, which shall be paid in full within 15 days of Franchisor's approval of Franchisee's request to open an Express Unit. The Express Unit Fee and the Initial Training, Site Development and Architectural Design and Marketing Fee (as defined in Section 4.1) when paid shall be deemed fully earned, in partial consideration of the administrative and other expenses incurred by Franchisor in granting the Franchisee the right to open an Express Unit and for its lost or deferred opportunity to grant the Express Unit opportunity to another party. The Express Unit Fee and the Initial Training, Site Development and Architectural Design and Marketing Fee (as defined in Section 4.1) shall be nonrefundable.
4.3 Fees.
(a) During the Initial Term of this Agreement and any Interim Period, Franchisee shall pay to Franchisor, in consideration for the continuing right to use the System and the Marks, a continuing royalty fee ("Royalty Fee") in an amount equal to the greater of 6% of Gross Sales or $900 per month ("Minimum Royalty Fee").
(b) During the Initial Term of this Agreement and any Interim Period, Franchisee shall also pay to Franchisor a continuing marketing fund contribution ("Marketing Fund Contribution") in an amount of 1% of Gross Sales.
4.4 Payment Terms.
(a) The Royalty Fee, Marketing Fund Contribution and any other fee required by this Agreement to be calculated on the basis of Gross Sales shall be payable bi-monthly on the 5th day of each month for the First Sales Period and the 20th day of each month for the
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Second Sales Period, and will be paid, if required by Franchisor, by Franchisee to Franchisor by electronic funds transfer ("EFT") from Franchisee's designated bank account on the date due or the next following business day or any succeeding business day, if the due date is not a business day. "Business Day" means any day other than Saturdays, Sundays or national holidays on which federally chartered banks are authorized to close.
(b) Each Royalty Fee and Marketing Fund Contribution payment shall be preceded or accompanied by a report ("Gross Sales Report") that itemizes Gross Sales for the related Sales Period and by any other reports Franchisor may require.
(c) Franchisee's failure to establish and fund an EFT account accessible by Franchisor shall constitute a material event of default of this Agreement and shall entitle Franchisor to all remedies contained in this Agreement or otherwise available in law or in equity. With respect to Royalty Fees and Marketing Fund Contributions, the amount of the withdrawal shall be based on Gross Sales for the applicable Sales Period, as evidenced by the Gross Sales Report. If Franchisor has not received the relevant Gross Sales Report, the amount of the withdrawal shall be based on, in Franchisor's determination (a) information regarding Gross Sales for the applicable Sales Period that Franchisor obtains in the manner Section 7.2(j) contemplates, (b) the Minimum Royalty Fee, or (c) the most recent Gross Sales Report provided to Franchisor by Franchisee. If Franchisor subsequently receives a Gross Sales Report for the subject Sales Period and it reflects (i) that the actual amount of the Royalty Fee and Marketing Fund Contribution due was more than the amount Franchisor withdrew, Franchisor shall be entitled to withdraw from Franchisee's designated bank account additional funds representing the amount of the difference; or (ii) that the actual amount of the Royalty Fee or Marketing Fund Contribution due was less than the amount Franchisor withdrew, Franchisor shall credit the excess amount to the payment of Franchisee's next maturing Royalty Fee and/or Marketing Fund Contribution obligation. For any other monetary obligation not paid when due, Franchisor shall have the right to withdraw such amounts on the 5th or later Business Day after such amount becomes past due. Franchisee shall, upon execution of this Agreement or any time thereafter at Franchisor's request, execute such documents or forms as Franchisor determines are necessary for Franchisor to process EFTs from Franchisee's designated bank account for payments due hereunder, including Attachment G to this Agreement. Franchisee agrees that it shall be responsible for (i) any EFT transfer fee or similar charge imposed by the bank, and (ii) should any EFT not be honored by Franchisee's bank for any reason, for that payment plus any service charge applied by Franchisor and/or the bank. Franchisee further agrees that it shall at all times throughout the Initial Term of this Agreement and any Interim Period maintain a minimum balance of $5,000 in the bank account against which such EFTs are to be drawn. It shall be a material event of default if Franchisee closes the designated bank account without Franchisor's consent, or if Franchisee closes the designated bank account with Franchisor's consent and fails within a reasonable time thereafter, not to exceed 5 Business Days, to establish another account and execute all documents necessary for Franchisor to process such payments by EFT for the new designated account.
(d) Franchisee shall not be entitled to withhold payments due Franchisor under this Agreement on grounds of alleged nonperformance by Franchisor. Any payment or report not actually received by Franchisor on or before its specified due date shall be deemed
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overdue. Time is of the essence with respect to all payments to be made (and reports to be submitted) by Franchisee. If Franchisee fails to make a payment when due or submit a report or provide documentation to Franchisor when due, Franchisee shall pay Franchisor, upon demand, a late charge in the amount of $100 ("Late Fee"). All unpaid obligations under this Agreement shall also bear interest from the date due until paid at the lesser of (i) 18% per annum, or (ii) the maximum rate allowed by applicable law. Notwithstanding anything to the contrary contained herein, no provision of this Agreement shall require the payment or permit the collection of interest in excess of the maximum rate allowed by applicable law. If any excess of interest in such respect is herein provided for, or shall be adjudicated to be so provided in this Agreement, the provisions of this paragraph shall govern and prevail, and neither Franchisee nor Franchisee's Principals shall be obligated to pay the excess amount of such interest. If for any reason interest in excess of the maximum rate allowed by applicable law shall be deemed charged, required or permitted, any such excess shall be applied as a payment and reduction of any other amounts which may be due and owing hereunder, and if no such amounts are due and owing hereunder then such excess shall be repaid to the party that paid such interest. Franchisor may assess a $25.00 insufficient funds charge for the first NSF check or withdrawal by EFT and $35.00 insufficient funds charge for the second and any proceeding NSF check or withdrawal by EFT.
4.5 Gross Sales. "Gross Sales" means the total selling price of all food, beverages, services and merchandise at or from a Blendz® Store and all income of every other kind and nature related to the Blendz® Store's (including any income from an Express Unit, if any) operation (including income related to catering and delivery at the Blendz® Store or Express Unit, if any), whether for cash, credit or trade and regardless of collection in the case of credit. However, Gross Sales shall exclude:
(a) Revenues from any public telephone or vending machines located at the Blendz® Store and Express Unit, if any, except for Franchisee's share of such revenues;
(b) Sales taxes collected from customers and actually transmitted to the appropriate taxing authority;
(c) Tips or gratuities paid directly to Blendz® Store's and Express Unit's, if any, employees or paid to Franchisee and turned over to the Blendz® Store's and Express Unit's, if any, employees;
(d) Proceeds from isolated sales of used or obsolete Blendz® Store or Express Unit's, if any, fixtures and equipment;
(e) The value of meals furnished to Franchisee's employees as an incident to their employment, except that the value of any discounts extended to such employees may be credited, up to a maximum of $500 per any applicable Sales Period, against Gross Sales during the period in which the meals were furnished for the purpose of determining the amount of Gross Sales upon which the Royalty Fee and Marketing Fund Contribution is due; and
(f) That portion of the normal full menu price of any item which is not collected by the Franchisee as a result of Franchisor-approved promotions (whether local or
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system-wide, including coupons) and manager discounts (collectively, "Sales Discounts"). Sales Discounts must be fully disclosed on all reports submitted to the Franchisor by the Franchisee and Franchisor reserves the right, in its sole discretion, to disallow any Sales Discounts not meeting the requirements set forth in the Operations Manual. Sales Discounts may not exceed 5% of Gross Sales.
5. FRANCHISOR'S OBLIGATIONS
5.1 Initial and Continuing Services. The Franchisor shall offer the Franchisee initial and continuing services, as the Franchisor deems necessary or advisable in furthering the Franchisee's Blendz® Store and the business of the System as a whole and in connection with protecting the Marks and goodwill of the Franchisor. Failure by the Franchisor to provide any particular service, either initial or continuing, shall not excuse the Franchisee from any of its obligations under this Agreement.
5.2 Initial Services. Currently, initial services provided by the Franchisor prior to Franchisee opening the Blendz® Store shall include:
(a) Designating Franchisee's Site Selection Area, Authorized Territory and Local Area (defined in Sections 2.1 and 8.1);
(b) On loan, Franchisor's written site selection guidelines and criteria and such site selection assistance as Franchisor or its affiliate deems appropriate, in Franchisor's discretion. Such site selection assistance may include market and real estate analysis of the Site Selection Area, reports containing demographic information for the Site Selection Area, assistance identifying suitable sites that meet Franchisor's criteria, and designating a local broker for Franchisee to assist in site selection, negotiating LOI terms and identifying Franchisor's lease parameter requirements with potential landlords.
(c) After receipt from Franchisee of the site-specific information and materials required by Section 2, such evaluation of the proposed Blendz® Store site as Franchisor deems appropriate, in Franchisor's discretion, including 1 on-site visit by Franchisor or its affiliate for purposes of site evaluation. Franchisor reserves the right to visit the Blendz® Store site at any other time at its own expense. If Franchisee requests that Franchisor or its affiliate visit the Blendz® Store site at any time other than as set forth above, Franchisor may require Franchisee to pay or reimburse the reasonable expenses that Franchisor or its affiliate incurs in connection with such on-site visits, including the costs of travel, lodging and meals.
(d) Approving the site for the Blendz® Store and the lease or purchase agreement for the Blendz® Store site. Franchisor or its affiliate may also, at Franchisee's request and sole cost and expense, provide lease negotiation services.
(e) On loan, Franchisor's standards and specifications for the construction of the Blendz® Store site, including interior and exterior design, layout, floor plans, signs, color, decor, equipment and fixtures and such design and permit guidance as Franchisor or its affiliate deems appropriate, in Franchisor's discretion. Such design and permit guidance may include
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layout analyses, preliminary design meeting for the layout of the Blendz® Store site approved by Franchisor, layout design plans for the Blendz® Store site approved by Franchisor, and permit process guidance market. Franchisee is solely responsible for all expenses for permitting, construction, architectural and engineering requirements incurred to construct and open its Blendz® Store.
(f) On loan, a list of Franchisor's approved suppliers, vendors and contractors for the build-out of the Blendz® Store, as revised from time to time.
(g) At Franchisor's sole discretion, conducting a pre-opening inspection of Franchisee's Blendz® Store and providing pre-opening assistance of the type determined by Franchisor.
(h) On loan, 1 copy of the Operations Manual, together with updates and supplements to the Operations Manual.
(i) On loan, 1 copy of the home-study materials for the initial training program (as described in Section 6.4).
(j) Conducting an initial training program for the Franchisee or its Designated Store Manager or Operating Principal (as described in Sections 6.2, 6.3 and 6.4) and 1 additional person. Franchisor will also provide such other initial and on-going training as it considers appropriate, including the training programs contemplated by Section 6.5. Franchisor will pay for Franchisee's airfare, hotel and some meals incurred by a total of 2 people attending the initial training program on behalf of the Franchisee.
(k) At Franchisor's sole discretion, attending the Franchisee's grand opening of its Blendz® Store.
(1) On loan, a list of approved suppliers as described in Section 7.3, updated from time to time, and minimal criteria for designation of approved suppliers.
(m) Consultation regarding the selection and installation of the computer system, including the POS system, required by Franchisor for the Blendz® Store.
(n) Providing Franchisee with the initial marketing materials for advertising and promotional programs determined in Franchisor's sole discretion. Additional marketing and promotional materials will be provided to Franchisee at Franchisee's expense.
(o) Providing Franchisee with an initial set of branded supplies, which may include at Franchisor's discretion, branded paper products, menus, an event tent, signage for the event tent, uniforms and gift cards. Additional branded supplies will be provided to Franchisee at Franchisee's expense.
5.3 Ongoing Services. Currently, the services provided by the Franchisor to the Franchisee after Franchisee opens the Blendz® Store shall include:
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(a) Making a representative reasonably available to the Franchisee via the telephone or e-mail during the Franchisor's normal business hours, as the Franchisor determines is necessary to discuss Franchisee's operational and marketing issues.
(b) Copies of advertising and promotional materials and information that Franchisor develops from time to time for use by operators of Blendz® Stores in local marketing and advertising, including formats for classified directory advertising. Franchisor shall have the right to charge Franchisee a reasonable fee for such advertising and promotional materials.
(c) Providing guidance on advertising, marketing, hiring techniques and pricing and developing advertising and promotional materials for use in marketing and conducting advertising for the Blendz® Store. Franchisor shall have the right to charge Franchisee a reasonable fee for developing such advertising and promotional materials.
(d) Establishing an advertising cooperative in accordance with Section 8, if any.
(e) Maintaining the marketing fund ("Marketing Fund") (as described in Section 8.2).
(f) Information on new mandatory specifications, equipment, 'fixtures, furnishings, signs, promotions, products, materials, supplies, standards, recipes, procedures for the operation of a Blendz® Store, including new developments and improvements in equipment, food products, packaging and preparation as they are developed.
(g) Providing additional assistance or remedial training, if determined necessary by Franchisor or if requested by Franchisee. Additional assistance or remedial training will be provided at Franchisee's sole cost and expense, including Franchisor's daily training fee charged at the time and Franchisor's travel expenses and room and board.
(h) Providing continuing national, regional or location workshops at Franchisor's discretion.
5.4 Franchisor's Failure to Perform Initial Services. If Franchisee believes Franchisor has failed to adequately provide pre-opening services to Franchisee as provided in this Agreement, including Sections 5.2, Franchisee shall notify Franchisor in writing within 30 days following the opening of the Blendz® Store. Absent the timely provision of such notice to Franchisor, Franchisee shall be deemed to conclusively acknowledge that all pre-opening required to be provided by Franchisor were sufficient and satisfactory in Franchisee's judgment.
5.5 Franchisor's Manner of Performing Initial and Ongoing Services. Franchisor is not obligated to perform services set forth in this Agreement to Franchisee's particular level of satisfaction, but as a function of Franchisor's experience, knowledge and judgment. Franchisor does not represent or warrant that any other services will be provided to Franchisee, other than as set forth in this Agreement. To the extent any other services, or any specific level or quality of service is expected, Franchisee must obtain a commitment to provide such service or level of
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service in writing signed by an authorized officer of Franchisor, otherwise Franchisor shall not be obligated to provide any other services or specific level or quality of services.
6. FRANCHISEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Franchisee's Representations, Warranties and Covenants. Franchisee and each of the Owners, Developers and Controlling Principals represents, warrants and covenants that:
(a) they shall make all commercially reasonable efforts to operate the Blendz® Store so as to achieve optimum sales.
(b) If Franchisee is a business entity, Franchisee and the Owners, Developers and Controlling Principals represent, warrant and covenant that:
(i) Franchisee is duly organized and validly existing under the laws of the state of its formation;
(ii) Franchisee's charter documents (no matter how named) shall at all times provide that Franchisee's permitted purposes shall be confined exclusively to the operation of Blendz® Stores, unless otherwise consented to in writing by Franchisor;
(iii) Franchisee has provided Franchisor true and correct copies of the documents that define Franchisee's purposes and authority and that govern Franchisee's business activities (whether called articles of incorporation, articles of organization, bylaws, operating agreement, regulations or partnership agreement), together with resolutions of Franchisee's Board of Directors or other governing body that authorize Franchisee to enter into and perform this Agreement;
(iv) The ownership interests in Franchisee are accurately and completely described in Attachment D. Further, Franchisee shall maintain at all times a current list of all record and beneficial owners of equity interests in Franchisee and shall immediately provide a copy of an updated list to Franchisor upon request;
(v) Each certificate representing an equity interest in Franchisee shall have conspicuously endorsed upon it a statement in a form satisfactory to Franchisor that it is held subject to restrictions that Section 14 of this Agreement imposes;
(c) Franchisee and each of the Controlling Principals have provided Franchisor with their most recent financial statements. Such financial statements present fairly the financial position of Franchisee and each of the Controlling Principals at the dates indicated therein and, with respect to Franchisee, the results of its operations and its cash flow for the period then ended. Franchisee agrees that it shall maintain at all times during the Initial Term of this Agreement and any Interim Period sufficient working capital to fulfill its obligations under this Agreement. Each of the financial statements mentioned above shall be certified as true, complete and correct by Franchisee's treasurer or chief financial officer, and shall have been prepared in conformity with generally accepted accounting principles consistently applied during
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the periods involved. No material liabilities, adverse claims, commitments or obligations of any nature exist as of the date of this Agreement, whether accrued, unliquidated, absolute, contingent or otherwise, that are not reflected as liabilities on the financial statements of Franchisee or the Controlling Principals; and
(d) Each of Franchisee's Principals and Designated Store Managers, except those designated as Controlling Principals, shall execute and bind themselves to the confidentiality and noncompetition covenants set forth in the Confidentiality Agreement and Ancillary Covenants Not to Compete which forms Attachment E to this Agreement. The Controlling Principals shall, jointly and severally, guarantee Franchisee's performance of all of Franchisee's obligations, covenants and agreements hereunder pursuant to the terms and conditions of the guaranty contained herein, and shall otherwise bind themselves to the terms of this Agreement as stated herein.
(e) They shall comply with all requirements of federal, state and local laws, rules, regulations, and orders.
(f) They shall comply with all other requirements and perform such other obligations that this Agreement provides.
(g) They shall comply with and/or to assist Franchisor to the fullest extent possible in Franchisor's efforts to comply with Anti Terrorism Laws (as defined below). In connection with such compliance, Franchisee and each of the Owners, Developers and Controlling Principals certify, represent, and warrant that none of their property or interests is subject to being "blocked" under any of the Anti Terrorism Laws and that Franchisee and each of the Owners, Developers and Controlling Principals are not otherwise in violation of any of the Anti Terrorism Laws.
(h) Franchisee and each of the Owners, Developers and Controlling Principals certify that none of them, their respective employees, or anyone associated with Franchisee and each of the Owners, Developers and Controlling Principals is listed in the Annex to Executive
Order 13224 (which Can be accessed at , treasury, gov/offices/enforcement/ofac/sanctions/terrorism. html).
Franchisee and each of the Owners, Developers and Controlling Principals agree not to hire (or, if already employed, retain the employment of) any individual who is listed in the Annex.
(i) Franchisee and each of the Owners, Developers and Controlling Principals certifies that it has no knowledge or information that, if generally known, would result in Franchisee, its Owners, Developers and Controlling Principals, their employees, or anyone associated with Franchisee, its Owners, Developers and Controlling Principals to be listed in the Annex to Executive Order 13224.
(j) Franchisee is solely responsible for ascertaining what actions it must take to comply with the Anti Terrorism Laws, and Franchisee specifically acknowledges and agrees that its indemnification responsibilities set forth in this Agreement pertain to its obligations under this Section 6.1(g) through (1).
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(k) Any misrepresentation under this Section 6.1 or any violation of the Anti Terrorism Laws by Franchisee, its Owners, Developers and Controlling Principals, agents, or employees shall constitute grounds for immediate termination of this Agreement and any other agreement Franchisee has entered with Franchisor or any of Franchisor's affiliates.
(1) "Anti Terrorism Laws" means Executive Order 13224 issued by the President of the United States, the Terrorism Sanctions Regulations (Title 31, Part 595 of the U.S. Code of Federal Regulations), the Foreign Terrorist Organizations Sanctions Regulations (Title 31, Part 597 of the U.S. Code of Federal Regulations), the Cuban Assets Control Regulations (Title 31, Part 515 of the U.S. Code of Federal Regulations), the USA PATRIOT Act, and all other present and future federal, state and local laws, ordinances, regulations, policies, lists and any other requirements of any governmental authority (including, without limitation, the United States Department of Treasury Office of Foreign Assets Control and any government agency outside the U.S.) addressing or in any way relating to terrorist acts and/or acts of war.
(m) They have received, have had ample time to read, and have read this Agreement, and all related agreements with the Franchisor. They acknowledge that the Franchisor has advised them to obtain independent legal and accounting advice with respect to this Agreement and the transactions arising out of this Agreement. They further acknowledge that they have had an adequate opportunity to be advised by legal, accounting and other professional advisors of their own choosing regarding all pertinent aspects of the Blendz® Store, the Franchisor and this Agreement.
(n) All statements made by them in writing in connection with their application for this franchise were, to the best of their knowledge, true when made and continue to be true as of the date of this Agreement.
(o) They are not a party to or subject to any court or administrative order or action of any governmental authority which would limit or interfere in any way with the performance by the Franchisee of its obligation hereunder.
(p) They are not a party to any litigation or legal proceedings other than those which have been disclosed to the Franchisor by the Franchisee in writing.
(q) They represent that they are not a party to or subject to agreements that might conflict with the terms of this Agreement and agree not to enter into any conflicting agreements during the Initial Term or any Interim Period.
(r) They have not been induced to enter into this Agreement in reliance upon, nor as a result of, any statements, representation, warranties, conditions, covenants, promises or inducements, whatsoever, whether oral or written, and whether directly related to the contents hereof or collateral thereto, made by the Franchisor, its officers, directors, agents, employees or contractors except as provided herein. They acknowledge that the Franchise has been granted in reliance upon the information supplied to the Franchisor in the Franchisee's application for a Franchise.
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Franchisee and the Controlling Principals acknowledge and agree that the representations, warranties and covenants set forth above are continuing obligations of Franchisee and the Controlling Principals, respectively, and that any failure to comply with such representations, warranties and covenants shall constitute a material event of default under this Agreement. Franchisee will cooperate with Franchisor in any efforts made by Franchisor to verify compliance with such representations, warranties and covenants.
6.2 Operating Principal. Upon the execution of this Agreement, Franchisee shall designate and retain an individual to serve as the Operating Principal of Franchisee ("Operating Principal"). If Franchisee is an individual, Franchisee shall perform all obligations of the Operating Principal. The Operating Principal shall, during the entire period he or she serves as such, meet the following qualifications:
(a) The Operating Principal must, at Franchisee's option, either serve as the Designated Store Manager (defined in Section 6.3) or, subject to the approval of Franchisor, Franchisee must designate another individual to serve as the Designated Store Manager.
(b) The Operating Principal must maintain a direct or indirect ownership interest in Franchisee. Except as may otherwise be provided in this Agreement, the Operating Principal's interest in Franchisee shall be and shall remain free of any pledge, mortgage, hypothecation, lien, charge, encumbrance, voting agreement, proxy, security interest or purchase right or options. The Operating Principal shall execute this Agreement as one of the Controlling Principals, and shall be individually, jointly and severally, bound by all obligations of Franchisee, the Operating Principal and the Controlling Principals.
(c) The Operating Principal shall devote substantial full time and best efforts to the supervision and conduct of Franchisee's Blendz® Stores.
(d) The Operating Principal shall meet Franchisor's standards and criteria for such individual, as set forth in the Operation Manual or otherwise in writing by Franchisor, and shall satisfy the training requirements set forth in Section 6.4.
(e) If, during the Initial Term of this Agreement or any Interim Period, the Operating Principal is not able to continue to serve in the capacity of Operating Principal or no longer qualifies to act as such in accordance with this Section, Franchisee shall promptly notify Franchisor and designate a duly qualified replacement Operating Principal, subject to Franchisor's approval, within 30 days after the Operating Principal ceases to serve or be so qualified. Any failure to comply with the requirements of this Section 6.2(e) shall be deemed a material event of default under this Agreement. The newly designated Operating Principal must attend and satisfactorily complete, in Franchisor's determination, the initial training program within 45 days after being so designated, at Franchisee's sole cost and expenses, including but not limited to all travel expenses, salaries, and training fees. Franchisee will pay Franchisor a training fee in the amount of Franchisor's then-current training rate.
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6.3 Designated Store Manager. If the Franchisee (if an individual) or the Operating Principal is not responsible for the day to day operations of the Blendz® Store, the Franchisee must designate and retain at all times a designated store manager ("Designated Store Manager") and such other personnel as Franchisor deems reasonably necessary for the operation and management of the Blendz® Store. Franchisee's Designated Store Manager must be approved by the Franchisor and must complete, to Franchisor's satisfaction, Franchisor's initial training program. The Designated Store Manager shall be responsible for the daily operation of the Blendz® Store. The Designated Store Manager, during the entire period that he or she serve as such, shall meet the following qualifications:
(a) The Designated Store Manager shall satisfy Franchisor's educational and business experience criteria, as set forth in the Operations Manual or otherwise in writing by Franchisor;
(b) The Designated Store Manager shall be full-time employees who shall devote their full time and best efforts to their respective duties; and
(c) The Designated Store Manager shall complete, to Franchisor's satisfaction, the initial training program. If, during the Initial Term of this Agreement or any Interim Period, the Designated Store Manager is not able to continue to serve in such capacity or no longer qualifies to act as such, Franchisee shall promptly notify Franchisor and designate a duly qualified replacement, subject to Franchisor's approval, within 30 days after the affected individual ceases to serve. Any failure to comply with the requirements of this Section 6.3(c) shall be deemed a material event of default under this Agreement. The new Designated Store Manager must attend and satisfactorily complete the initial training program within 45 days after being so designated, at Franchisee's sole cost and expenses, including but not limited to all travel expenses, salaries, and training fees. Franchisee will pay Franchisor a training fee in the amount of Franchisor's then-current training rate.
6.4 Initial Training Program. Franchisee agrees that it is necessary for the efficient operation of the Blendz® Store that the Franchisee, Operating Principal or Designated Store Manager and 1 additional person receive such training as Franchisor may require. Accordingly Franchisee agrees:
(a) Not later than 7 weeks prior to the date that the Blendz® Store is scheduled to open, the Franchisee, Operating Principal or Designated Store Manager and 1 additional person (at Franchisee's option for a total 2 people) shall attend and complete, to Franchisor's satisfaction, Franchisor's initial training program ("Initial Training Program"). The Initial Training Program will be conducted by Franchisor or its designee at Franchisor's head quarters or such other location as the Franchisor may designate. Franchisor shall provide instructors and training materials for the initial training of such persons. Franchisee shall pay the fee set forth in Section 4.1 for the Franchisee, Operating Principal or Designated Store Manager and 1 additional person to attend the Initial Training Program. Franchisor will pay for air fare, hotel and some meals incurred by Franchisee for the Principal or Designated Store Manager and 1 additional person to attend the Initial Training Program. If Franchisee desires additional persons to attend the Initial Training Program, Franchisee will pay Franchisor a fee in the
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amount of $2,000 for each additional attendee and such person's travel, lodging and meals. In addition, Franchisor reserves the right to charge $1,300 per person for any initial training provided by Franchisor to any replacement or successor Operating Principal or Designated Store Manager. Franchisee shall also pay such replacement or successor Operating Principal or Designated Store Manager's travel, lodging and meals incurred to attend such initial training. Franchisee shall be responsible for any and all personal expenses, salaries and benefits incurred by Franchisee or Franchisee's personnel in connection with the Initial Training Program.
(b) Franchisor shall determine, in its sole discretion, whether any Franchisee, Operating Principal or Designated Store Manager has satisfactorily completed the Initial Training Program. If the Initial Training Program is not satisfactorily completed by the Franchisee, Operating Principal or Designated Store Manager, or if Franchisor in its reasonable business judgment based upon observation of any such person's performance, determines that such person cannot satisfactorily complete the Initial Training Program, Franchisee shall designate a replacement to satisfactorily complete such training. Any replacement designated by Franchisee shall also receive and complete such Initial Training Program.
6.5 Additional Training Programs. The Franchisee, Operating Principal, Designated Store Manager and such other Blendz® Store personnel as Franchisor may designate, shall attend such additional training programs and seminars as Franchisor may offer from time to time. For all such programs and seminars, Franchisor will provide the instructors and training materials. However, Franchisor reserves the right to impose a reasonable fee for such additional training programs and seminars. Franchisee shall be responsible for any and all expenses incurred by Franchisee and its Operating Principal, Designated Store Manager and other Blendz® Store personnel in connection with such additional training, including costs of travel, lodging, meals and wages.
6.6 Training for Additional Blendz® Stores. Franchisee shall pay Franchisor the then-current Initial Training, Site Development and Architectural Design and Marketing Fee for each additional Blendz® Stores Franchisee opens under any Area Development Agreement between Franchisor and Franchisee as set forth in Section 4.1.
6.7 Remedial Training. Upon the reasonable request of Franchisee or as Franchisor shall deem appropriate, Franchisor shall, subject to the availability of personnel, provide Franchisee with additional trained representatives who shall provide remedial training to Franchisee's Blendz® Store personnel. Franchisee shall pay the per diem fee then being charged to franchisees under the System for the services of such trained representatives, plus their costs of transportation, lodging and meals.
6.8 Hiring Other Franchisee's Designated Store Manager. Franchisee and the Controlling Principals understand that compliance by all franchisees operating under the System with Franchisor's training, development and operational requirements is an essential and material element of the System and that all operators of Blendz® Stores consequently expend substantial time, effort and expense in training their Designated Store Manager. Accordingly, Franchisee and the Controlling Principals agree that if Franchisee or any of the Controlling Principals shall, during the Initial Term of this Agreement or any Interim Period, designate or employ in a
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managerial position any individual who is at the time, or has been within the preceding 180 days, employed as a Designated Store Manager by Franchisor or any of its affiliates, or by any other franchisee, then the former employer of such individual shall be entitled to be compensated for the reasonable costs and expenses, of whatever nature or kind, incurred by such employer in connection with the training of such employee. The parties agree that such expenditures may be uncertain and difficult to ascertain and therefore agree that the compensation (including, salary, bonuses and benefits) specified in the following sentence reasonably represents such expenditures and is not a penalty. The employing Franchisee or Controlling Principals shall pay an amount equal to the amount charged by Franchisor to train the replacement Designated Store Manager, the travel, lodging and meal expenses incurred during the training period for the replacement Designated Store Manager and the replacement Designated Store Manager's salary and benefits during the training period. Such amount shall be paid by Franchisee or the applicable Controlling Principal prior to such individual's assuming his or her new position, unless Franchisee or the applicable Controlling Principal and the former employer otherwise agree in writing. Franchisor expressly disclaims any representations and warranties regarding the performance of any employee or former employee of Franchisor or its affiliates who is employed by Franchisee or any Controlling Principal in any capacity, and Franchisor shall not be liable for any losses, of whatever nature or kind, incurred by Franchisee or any Controlling Principal in connection therewith. In seeking any individual to serve in a managerial position, Franchisee and the Controlling Principals shall not discriminate in any manner whatsoever against any individual to whom the provisions of this Section apply, on the basis of the compensation required to be paid hereunder. The parties expressly acknowledge and agree that no current or former employee of Franchisor, any of its affiliates, Franchisee, or of any other entity operating under the System shall be a third party beneficiary of this Agreement or any provision hereof.
7. FRANCHISED RESTAURANT OPERATIONS
7.1 Compliance with Franchisor's Standards and Specifications. Franchisee understands the importance of maintaining uniformity among all of the Blendz® Stores and the importance of complying with all of Franchisor's standards and specifications relating to the operation of the Blendz® Store and agrees to comply with those standards and specifications. As such, Franchisee agrees to:
(a) Maintain the Blendz® Store in a high degree of sanitation, repair and condition, and in connection therewith shall make such additions, alterations, repairs and replacements to the Blendz® Store as may be required for sanitation purposes (but no others without Franchisor's prior written consent), including such periodic repainting or replacement of worn or obsolete signs, furnishings, equipment and decor as Franchisor may reasonably direct, at Franchisee's cost and expense. Franchisee shall also obtain, at its expense, any new or additional equipment, fixtures, supplies and other products and materials that may be reasonably required by Franchisor for Franchisee to offer and sell new menu items from the Blendz® Store or to provide the Blendz® Store's services by alternative means, such as through carry-out, catering, or such other manner specified by Franchisor. Except as may be expressly provided in the Operations Manual, no alterations or improvements or changes of any kind in design, equipment, signs, interior or exterior decor items, fixtures or furnishings shall be made in or about the Blendz® Store or its Franchised Location without the prior written approval of Franchisor.
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(b) Upon the request of Franchisor, make other improvements to modernize the Franchised Location, equipment, signs, interior and exterior decor, fixtures, and furnishings to comply with Franchisor's then-current standards and specifications. Franchisee agrees that it will make such capital improvements or modifications described in this Section 7.1(b) if so requested by Franchisor at the earlier of (i) 5 years after the Blendz® Store opens, or (ii) such time as a majority of the Blendz® Stores operated by Franchisor or its affiliates have undertaken to make such improvements or modifications. Notwithstanding anything herein to the contrary, Franchisor will not require Franchisee to make capital improvements or modifications described in this Section until Franchisee has operated its Blendz® Store for at least 5 years.
(c) Comply with all of Franchisor's standards and specifications (including brand specifications) relating to the purchase of all food and beverage inventory, ingredients, supplies, materials, fixtures, furnishings, equipment and other merchandise used or offered for sale at the Blendz® Store. Except as provided in Sections 7.2, 7.3 and 7.4, Franchisee shall obtain such items only from suppliers who continue to demonstrate the ability to meet Franchisor's then-current standards and specifications for such items, who possess adequate quality controls and capacity to supply Franchisee's needs promptly and reliably, who have been approved in writing by Franchisor, and not later disapproved by Franchisor. If Franchisee desires to purchase, lease or use any products or other items from an unapproved supplier, Franchisee shall submit to Franchisor a written request for such approval, or shall request the supplier itself to do so. Franchisee shall not purchase or lease from any supplier until and unless such supplier has been approved in writing by Franchisor. Franchisor shall have the right to require that its representatives be permitted to inspect the supplier's facilities, and that samples from the supplier be delivered either to Franchisor or to an independent laboratory designated by Franchisor for testing. A charge not to exceed the reasonable cost of the inspection and the actual cost of the test shall be paid by Franchisee or the supplier. Franchisor reserves the right, at its option, to re-inspect from time to time the facilities and products of any approved supplier and to revoke its approval upon the supplier's failure to continue to meet any of Franchisor's then-current criteria. Nothing in the foregoing shall be construed to require Franchisor to approve any particular supplier.
7.2 Compliance with Franchisor's Quality Standards. To ensure that the highest degree of quality and service is maintained, Franchisee shall operate the Blendz® Store in strict conformity with such methods, standards and specifications of Franchisor set forth in the Operations Manual and as may from time to time otherwise be prescribed in writing any other manuals, and materials created or approved for use in the operation of the Blendz® Store. In particular, Franchisee agrees:
(a) To sell or offer for sale all menu items, merchandise and services required by Franchisor and in the manner and style prescribed by Franchisor, including dine-in, carry out, catering, and delivery as expressly authorized by Franchisor in writing in the manner prescribed in the Operations Manual or otherwise, and to execute such documents or instruments that Franchisor may deem necessary to facilitate the providing of such services.
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(b) To sell and offer for sale only the menu items, merchandise and services that have been expressly approved for sale in writing by Franchisor; to refrain from deviating from Franchisor's standards and specifications without Franchisor's prior written consent; and to discontinue selling and offering for sale any menu items, merchandise or services, or providing such menu items, merchandise or services in any manner or through any method of distribution, which Franchisor may, in its sole discretion, disapprove in writing at any time. Franchisee shall have discretion regarding the prices it charges customers for menu items, products, merchandise or services. Franchisor shall have the right to set maximum resale prices for any menu items, products, merchandise or services sold from Franchisee's Blendz® Store in connection with any national, regional, or multi-area marketing or special price promotion program developed and implemented by Franchisor for the System.
(c) To maintain in sufficient supply and to use and sell at all times only such food and beverage items, ingredients, products, materials, supplies and paper goods that conform to Franchisor's standards and specifications (including products specified by name or brand); to prepare all menu items in accordance with Franchisor's recipes and procedures for preparation contained in the Operations Manual or other written directives; and to refrain from deviating from Franchisor's standards and specifications by the use or offer of non-conforming items or differing amounts of any items, without Franchisor's prior written consent.
(d) To permit Franchisor or its agents, at any reasonable time, to remove a reasonable number of samples of food or non-food items from Franchisee's inventory, or from the Blendz® Store, without payment therefor, in amounts reasonably necessary for testing by Franchisor or an independent laboratory to determine whether such samples meet Franchisor's then-current standards and specifications. In addition to any other remedies it may have under this Agreement, Franchisor may require Franchisee to bear the cost of such testing if the supplier of the item has not previously been approved by Franchisor or if the sample fails to conform to Franchisor's specifications.
(e) To purchase or lease and install, at Franchisee's expense, all fixtures, furnishings, equipment, decor items, signs, catering vehicles (if Franchisor approves Franchisee to perform catering services), and related items as Franchisor may reasonably direct from time to time in the Operations Manual or otherwise in writing; and to refrain from installing or permitting to be installed on or about the Blendz® Store premises, without Franchisor's prior written consent, any fixtures, furnishings, equipment, catering vehicles, decor items, signs, games, vending machines or other items not previously approved as meeting Franchisor's standards and specifications. If any of the property described above is leased by Franchisee from a third party, such lease shall be approved by Franchisor, in writing, prior to execution. Franchisor's approval shall be conditioned upon such lease containing a provision which permits any interest of Franchisee in the lease to be assigned to Franchisor upon the termination or expiration of this Agreement and which prohibits the lessor from imposing an assignment or related fee upon Franchisor in connection with such assignment.
(f) To grant Franchisor and its agents the right to enter upon the Blendz® Store premises at any time for the purpose of conducting inspections; to cooperate with Franchisor's representatives in such inspections by rendering such assistance as they may
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reasonably request; and, upon notice from Franchisor or its agents and without limiting Franchisor's other rights under this Agreement, to take such steps as may be necessary to correct immediately any deficiencies detected during any such inspection. Should Franchisee, for any reason, fail to correct such deficiencies within a reasonable time as determined by Franchisor, Franchisor shall have the right and authority (without, however, any obligation to do so) to correct such deficiencies and charge Franchisee a reasonable fee for Franchisor's expenses in so acting, payable by Franchisee immediately upon demand.
(g) To maintain a competent, conscientious, trained staff and to take such steps as are necessary to ensure that its employees preserve good customer relations and comply with such dress code as Franchisor may prescribe. Franchisee shall also require its employees to wear the standard seasonal attire or uniforms which have been approved by Franchisor in writing. Franchisee shall also provide uniforms to its employees for any special events or promotions designated by Franchisor.
(h) To maintain in sufficient supply and prominently display and make available such customer satisfaction forms as Franchisor may require and to forward all completed customer satisfaction forms to Franchisor or to Franchisor's designee at such times as Franchisor may direct.
(i) To play in the Blendz® Store such recorded or programmed music and television programming as Franchisor may from time to time require in the Operations Manual or otherwise in writing and to offer wireless Internet access to customers. Franchisee is responsible for obtaining and paying for any copyright licenses as may be necessary to authorize the playing of such recorded music and television programming.
(j) To install and maintain equipment in accordance with Franchisor's standards and specifications to permit Franchisor to access and retrieve by electronic means any information stored on POS systems and other computers that Franchisee is required to maintain as specified in the Operations Manual, thereby permitting Franchisor to inspect and monitor electronically information concerning Franchisee's Blendz® Store, Gross Sales and such other information as may be contained or stored in such equipment. Franchisor shall have telephone line access and at a minimum DSL access as provided herein at such times and in such manner as Franchisor shall from time to time specify. It shall be a material default under this Agreement if Franchisee fails to maintain such equipment and lines in operation and accessible to Franchisor at all times throughout the Initial Term of this Agreement and any Interim Period. Franchisor shall have the right to specify computer, information and communication systems and to require Franchisee to utilize specified Internet service providers or communications software. Franchisee acknowledges and agrees that it is solely responsible for protecting Franchisee's computer point-of-sale equipment, electronic equipment, and communications systems from viruses, computer hackers, and other computer-related and technology-related problems, and Franchisee hereby releases Franchisor from any and all claims it may have as a result of viruses, hackers, or other computer-related or technology-related problems.
7.3 Franchisor's Suppliers. Franchisee acknowledges that Franchisor has and may continue to develop for use in the System certain products, including products that are prepared
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from highly confidential secret recipes and that are trade secrets of Franchisor. Because of the importance of quality and uniformity of production and the significance of such products in the System, it is to the mutual benefit of the parties that Franchisor closely controls the production and distribution of such products. Accordingly, Franchisee agrees that Franchisee shall use Franchisor's secret recipes and other proprietary products, and shall purchase solely from Franchisor or from a source designated by Franchisor all of Franchisee's ingredients and supplies for such products. Franchisee further agrees to purchase from Franchisor for resale to Franchisee's customers certain Blendz® brand promotional merchandise as Franchisor shall require, when and if available, such as T shirts, sweatshirts and caps, in amounts sufficient to satisfy Franchisee's customer demand.
7.4 Advertising and Promotional Materials. Franchisor shall require all advertising and promotional materials, signs, decorations, paper goods (including menus and all forms and stationery used in the Blendz® Store), and other items that may be designated by Franchisor to bear the Marks in the form, color, location and manner prescribed by Franchisor.
7.5 Customer Satisfaction. Franchisee shall process and handle all consumer complaints connected with or relating to the Blendz® Store, and shall promptly notify Franchisor by telephone and in writing of all of the following complaints: (i) food related illnesses, (ii) safety or health violations, (iii) claims exceeding $1,000, (iv) dram shop violations, and (v) any other material claims against or losses suffered by Franchisee. Franchisee shall maintain for Franchisor's inspection any inspection reports affecting the Blendz® Store or equipment located in the Blendz® Store during the Initial Term of this Agreement and any Interim Period for 30 days after the expiration or earlier termination this Agreement.
7.6 Attorney-in-Fact. Upon the execution of this Agreement or at any time thereafter, Franchisee shall, at the option of Franchisor, execute such forms and documents as Franchisor deems necessary to appoint Franchisor its true and lawful attorney-in-fact with full power and authority for the sole purpose of assigning to Franchisor all rights to the telephone numbers of the Blendz® Store and any related and other business listings upon the termination or expiration of this Agreement as required under Section 18. Upon execution of this Agreement or at any time thereafter, Franchisee shall also, at the option of Franchisor, execute such forms and documents as Franchisor deems necessary to irrevocably appoint Franchisor its true and lawful attorney-in-fact with full power and authority for the sole purpose of obtaining any and all returns and reports filed by Franchisee with any state or federal taxing authority.
7.7 Minimum Quarterly Sales Quota. Beginning 6 months after the Opening Date, Franchisee must meet the Minimum Quarterly Sales Quota. The Minimum Quarterly Sales Quota is $45,000 in Gross Sales per quarter. Franchisee's failure to satisfy the Minimum Quarterly Sales Quota may result in the reduction or elimination of the Authorized Territory or the termination of this Agreement, in Franchisor's sole discretion. The parties agree that this Minimum Quarterly Sales Quota is in no way intended to imply or guarantee that Franchisee will generate Gross Sales of any particular level. For purposes of this Section 7.7 a quarter is the period from January through March, April through July, August through September and October through December.
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8. ADVERTISING AND RELATED FEES
8.1 Pre-Operating Advertising and Local Advertising.
(a) Unless Franchisor specifies a lesser amount, Franchisee agrees to spend a minimum of $1,500 on pre-opening advertising at least 30 days prior to opening the Blendz® Store and a minimum of $2,500 on the grand opening advertising and promotion of the Blendz® Store.
(b) Unless Franchisor specifies a lesser amount, Franchisee agrees to spend the local advertising expense ("Local Advertising Expense") each month equal to the greater of 3% of Gross Sales or $450 ("Minimum Local Advertising Expense") on local advertising and promotions within the appropriate boundaries of a local area, determined by the Franchisor, in its sole determination, ("Local Area") in accordance with local restaurant marketing ("LRM") guidelines set forth in the Operations Manual. Franchisee will receive dollar-for-dollar credit against this obligation for all contributions that Franchisee makes to a Local Advertising Cooperative in accordance with Section 8.3. Expenditures Franchisee incurs for any of the following shall not qualify as local advertising for purposes of this Section 8.1, unless approved in advance by Franchisor in writing:
(i) Salaries, expenses or benefits of any employees of Franchisee, including expenses for attendance at advertising meetings or activities;
(ii) In-store materials consisting of fixtures or equipment;
(iii) Seminar and educational costs and expenses of Franchisee's employees.
(c) Franchisee shall pay its pro rata share of the cost of a classified directory listings and/or Yellow Pages ad to be placed by Franchisor, or at Franchisor's option, Franchisee, on behalf of all Blendz® Stores in the Franchisee's Blendz® Store's Local Area. If Franchisee operates the only Blendz® Store in the Local Area, Franchisee shall be responsible for full payment of the classified directory advertisement.
(d) Franchisee agrees to participate in all system-wide promotions and advertising campaigns that Franchisor creates. Except for Franchisee's commitments to participate in system-wide promotions and advertising campaigns and to pay its share of the cost of a classified directory advertisement, Franchisee will initially have discretion, subject to Section 8.1(e), over the approach Franchisee, subject to Franchisor's approval, takes to local advertising and promotions. This discretion will continue until a Local Advertising Cooperative is established in the Blendz® Store's Designated Market Area ("DMA"), under Section 8.3, or until Franchisor establishes the Marketing Fund described in Section 8.2. As provided in Section 8.2(e), Franchisor reserves the right to approve in advance of use by Franchisee any graphic or electronic materials or commercials developed by Franchisee for the Blendz® Store.
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(e) All advertising and promotion by Franchisee shall be conducted in a dignified manner and shall conform to the standards and requirements set forth in the Operations Manual or otherwise. Franchisee shall obtain Franchisor's prior approval of all advertising and promotional plans and materials prior to use if such plans and materials were not been prepared by Franchisor or previously approved by Franchisor during the 6 months prior to their proposed use. Franchisee shall submit such unapproved plans and materials to Franchisor, and Franchisor shall approve or disapprove such plans and materials within 14 days of Franchisor's receipt. Franchisee shall not use unapproved plans or materials until they have been approved by Franchisor, and shall promptly discontinue use of any advertising or promotional plans or materials, whether or not previously approved, upon notice from Franchisor.
(f) Within 30 days after the end of each fiscal quarter, Franchisee shall submit a local area marketing report ("Local Marketing Report") to Franchisor on a form Franchisor provides. Each Local Marketing Report shall show the amount Franchisee spent for local advertising and promotions during the preceding month and the way Franchisee spent those funds. Upon Franchisor's request, Franchisee shall also submit documents substantiating that Franchisee incurred and paid particular expenditures during the month.
8.2 Marketing Fund.
(a) Franchisee agrees to pay Franchisor continuing marketing fees equal to 1% ("Marketing Fund Contribution") of Gross Sales at the time and in the manner Section 4.1(b) prescribes. The Marketing Fund Contribution will be posted to the marketing fund account ("Marketing Fund"). The Marketing Fund will be held in a separate account, maintained and managed by Franchisor.
(b) Franchisor will use the Marketing Fund Contribution it collects from franchisees (i) to create marketing materials relating to the System and the products Blendz® Stores sell; (ii) to pay for public relations projects intended to enhance the goodwill and public image of the System; (iii) to assist franchisees in developing local marketing programs in their respective Authorized Territory's; (iv) to undertake such other marketing efforts as Franchisor deems necessary or beneficial to the System, in Franchisor's sole discretion; and (v) to reimburse Franchisor or its affiliates (a) for salaries and other overhead expenses that are directly related to projects of a character described in clauses (i),(ii), (iii) and (iv), (b) for administrative costs, independent audits, reasonable accounting, bookkeeping, reporting and legal expenses, taxes and all other reasonable direct or indirect expenses that may be incurred by Franchisor or its affiliates and associated with the programs funded by the Marketing Fund Contributions; and (c) for part of the cost of maintaining a Blendz® website, as authorized in Section 8.4. Franchisor reserves the right to allocate the Marketing Fund Contributions to various permitted uses as it sees fit and does not guarantee that all Blendz® Stores will receive equal or any benefits or identical coverage.
(c) If the Marketing Fund operates at a deficit or requires additional funds at any time, Franchisor may loan such funds to the Marketing Fund in such amounts and on such
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terms including such repayment terms, as Franchisor deems necessary or advisable in Franchisor's sole discretion.