Franchise Agreement
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Sample Franchise Agreement
CM IT Solutions, Inc. FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (this "Agreement") is made and entered into as of this
day of____________________20____, by and between CM IT Solutions, Inc., a Texas corporation, {the
"Franchisor") with existing principal offices at 1701 Directors Boulevard, Suite 300. Austin, Texas 78744
and ______________________________________________________________________ (the
"Franchisee") whose principal address is ________________________________________________
______________________________________________. To simplify the language in this Agreement, the
terms "we," "us," "our," and the like, may be used to refer to the Franchisor, and the terms "you," "your", and the like, may be used to refer to the Franchisee.
RECITALS
This Agreement is entered into with reference to the following facts and circumstances:
A. The Franchisor, as the result of the expending of time, effort and money, has developed a distinctive system relating to the establishment, operation and promotion of computer support and training franchises ("CM IT Solutions Businesses" and "CM IT Solutions Franchises"), offering a wide variety of outsourced Information Technology services along with alliance partner product and service offerings primarily to small and medium-sized businesses (SMBs) (the "System").
B. We own or have acquired an exclusive license to use and to sublicense others to use certain trade names, trademarks and/or service marks in connection with the System, including the trademark and service mark "CM IT Solutions® " (the "Marks"), which term also shall include any additional trademarks, service marks and trade names of ours that we may from time to time designate in the confidential Operations Manuals referred to in Section 4.5 below as being available for use by franchisees in the System.
C. We are engaged in the business of licensing to independently owned businesses the right to use the Marks in connection with the operation and promotion of the System.
D. You understand the importance of our high standards of quality, appearance and service to the value of the System, and the need to operate in conformity with our standards and specifications.
E. You are aware of the distinctive and valuable significance to the public of the Marks, and you desire to acquire a non-exclusive license to use the Marks and to receive the other benefits of the System in connection with the operation of one or more CM IT Solutions Businesses, and we are willing to grant such a license to you on the terms and conditions set forth herein.
Franchise Agreement February 2006________________________________________________Page 1
Exhibit I
AGREEMENT
The parties hereby agree as follows:
ARTICLE 1. GRANT OF FRANCHISE RIGHTS
1.1 OUR BELIEFS, CORE EXPECTATIONS, AND GRANT OF LICENSE
A. OUR BELIEFS
You understand and agree that the values described below constitute "Our Beliefs" in the CM IT Solutions System, and that conducting business according to these fundamental values is key not only to CM IT Solutions' and your success, but also to the success of all other franchisees in the CM IT Solutions network. "Our Beliefs" are as follows:
WE BELIEVE:
IN A FOUNDATION BASED UPON CHARACTER AND INTEGRITY
IN A PASSIONATE COMMITMENT TO OUR CLIENTS; ALL ELSE IS SECONDARY
IN BEING DEDICATED TO CONTINUOUS TO PERSONAL GROWTH AND
PROFESSIONAL IMPROVEMENT IN BEING DEVOTED TO ONE ANOTHER, FAMILY AND COMMUNITY THAT A SPIRIT OF FUN AND SENSE OF HUMOR ARE ESSENTIAL . IN ACKNOWLEDGING THE BLESSINGS OF THIS AWESOME RESPONSIBILTY
AND PRIVILEGE
These values form the very essence, of this Agreement and form the cornerstone of the CM IT Solutions franchise program. You acknowledge that the operation of your business under this Agreement will affect directly both the IT service experiences of CM IT Solutions clients and their overall perception and acceptance of the CM IT Solutions System, CM IT Solutions trademarks, and the members of the CM IT Solutions network of businesses. Accordingly, you shall operate your business in a manner consistent with the values contained in Our Beliefs.
CM IT Solutions represents and you acknowledge and agree that (1) the CM IT Solutions Franchise Program and the CM IT Solutions services are integral parts of a highly interrelated System, and (2) the successful operation of each CM IT Solutions business is critical to CM IT Solutions' overall business objectives and plans.
B. CORE EXPECTATIONS
CM IT Solutions is committed to the success and fulfillment of the highest expectations of our franchisees. At every level our organization is driven to enhance the value of the information we provide and improve the quality of the franchisee support we offer. A healthy franchised network of owners takes a similar commitment from each of its franchisees to enhance its own performance in the operation of each franchised business. We therefore have adopted the following Core Expectations for each franchisee in the CM IT Solutions network:
(1) Each franchisee shall follow as carefully and as completely as possible the CM IT Solutions business operations guidelines that are such an important part of the franchised business granted to Franchisee;
(2) Each franchisee shall aggressively market its business, hire at least one sales associate, and implement and execute all aspects of the sales and marketing system. To that end each franchisee must formalize, document and submit an acceptable plan of marketing to us within 30 days
Franchise Agreement February 2006________________________________________________Page 2_______
Exhibit I
after on-site new owner training, submitting periodic updates to us as required; must spend sufficient sums on promotion and advertising; must use our CM IT Solutions alliance partners; and participate in our national accounts program and projects where feasible; and
(3) Each franchised business shall meet such performance goals and minimums as are adopted in the CM IT Solutions System. Monetary achievement levels are determined for the second and third years of operations, and provided to each franchisee in writing.
If, in our judgment, your business does not meet any of these Core Expectations, CM IT Solutions shall call for a Territory Review and Improvement Program. Your participation and cooperation in this program is mandatory. The process is a multi-step program by which CM IT Solutions provides intense, individually tailored counseling and assistance, additional training, and coaching in the successful operation of a CM IT Solutions business. A Territory Review and Improvement Program generally lasts for up to four months. During this period, you agree to cooperate and follow recommendations, including recommendations for the reasonable expenditure of money on advertising and promotion, and for the expense of any recommended training.
C. Grant of License
For the term specified below, and subject to your compliance with the provisions of this Agreement, we hereby grant to you the non-exclusive right and license to use the Marks and to receive the other benefits of the System as provided in this Agreement, in connection with the operation of one (1) CM IT Solutions Franchise devoted exclusively to offering a wide variety of outsourced Information Technology services along with alliance partner product and service offerings primarily to small and medium-sized businesses (SMBs) (the "Franchised Business"). The Franchisor retains all rights not expressly granted to the Franchisee herein; and expressly retains ownership of all customers and customer data generated in Franchisee's business operations.
1.2 Term of Agreement
The term of this Agreement shall commence on the date of this Agreement and shall terminate on the tenth (10th) anniversary of the date we sign this Agreement (the "Term"), unless terminated earlier in accordance with Article 14 or any other provisions of this Agreement, or renewed in accordance with Article 13 of this Agreement.
1.3 Territory
You are granted the right to operate one (1) CM IT Solutions Franchise only in the Territory described in Exhibit 1 to this Agreement by a map, or by a written description, or both (the "Territory"), and only at a location that we approve pursuant to Sections 2.1 and 2.2 below (the "Site"). In addition:
(a) Franchises awarded prior to December 31, 2000 did not receive exclusive rights to a Territory. These franchisees were awarded non-exclusive rights that permit them to sell our products or services anywhere within a specified demographic marketing area ("DMA"). All of these franchisees are located in Texas and Oklahoma. If any of these franchisees are located in or near your Territory, we cannot prohibit them from making sales in your Territory.
(b) We may authorize or establish another franchise that will be permitted to use the CM IT Solutions name and Marks at any location, anywhere, except not within your Territory.
(c) We may establish a company-owned CM IT Solutions Business using our name and Marks at any location anywhere, except not within your Territory.
(d) We may establish other company-owned Businesses or franchises selling any type of product or service, except onsite Information Technology solutions, customized training and computer support services to both the business and residential markets.
Franchise Agreement February 2006________________________________________________Page 3
Exhibit I
(e) We may sell products or services in your Territory, via electronic commerce (the Internet) or by other means, that are related to, but not the same as, the products and services that you will offer for sale in your Franchise, and we will have no obligation to compensate you in any way for the sale, if any, of these related products or services.
(f) Other CM IT Solutions franchisees may make sales within your Territory, but only through a referral, or as described in 1.3(a) above, and we have no duty to protect you from any such sales.
(g) You may make sales in another franchisee's Territory, but only through a referral. Our referral policy is described in our Manuals.
(h) You will compete with other CM IT Solutions Businesses that now are, or that in the future may be, located near or adjacent to your Territory, and such CM IT Solutions Businesses may be owned by us, by an affiliate of ours, by third parties or a combination of those mentioned.
ARTICLE 2. SITE SELECTION AND FRANCHISE DEVELOPMENT
2.1 Site Selection Procedures
You may operate your CM IT Solutions business in a home office or in a suitable leased office space. We recommend you obtain outside office space from which to operate your CM IT Solutions Business, but you are not required to do so. If you do purchase or lease office space, we have no obligation to help you locate such space or help you in negotiating the lease. We have no requirements with regard to type of space, square footage, or office layout, except as described below.
2.2 Lease and Purchase Approval
If you intend to lease the Site for your CM IT Solutions Business, the lease will be subject to our prior approval, and you must provide us with a copy of the proposed lease and details relating to square footage, rental per square foot, the term of the lease, and such other terms as we reasonably require at least ten (10) days prior to executing the lease. Each such proposed lease must contain the provisions set forth in Exhibit 3 attached to this Agreement, and must specifically state that we are a third party beneficiary of the lease. If we cure any default by you under the lease, any amounts that we pay to cure the default will be payable by you to us on demand together with interest thereon at the rate of one (1%) percent per month from the date we make such payment, or, if less, at the maximum rate that does not violate applicable state usury laws (the "Default Rate").
Although we do not recommend that you purchase the Site for your CM IT Solutions Business, if you intend to do so, the terms of such purchase shall be subject to our prior approval, and you must provide us with a copy of the purchase agreement and details relating to square footage, price per square foot and such other terms as we reasonably require at least ten (10) days prior to executing the purchase agreement.
You acknowledge and understand that our approval of any specific location, lease or purchase agreement does not in any way guarantee or ensure its success or profitability or its conformity to applicable laws, and such approvals are for our own benefit only.
2.3 Furniture, Equipment and Permits
You must, at your own cost, furnish and equip your CM IT Solutions Franchise office. We will provide you with a list of recommended and required office equipment and supplies.
You will be responsible for the cost of obtaining all necessary permits and licenses, if any, and you must, at your expense, comply with all laws, zoning ordinances, rules and regulations of any government agencies that may be applicable to opening your business.
Franchise Agreement February 2006________________________________________________Page 4_______
Exhibit I
2.4 Relocation
You may relocate your Franchise to another place within your Territory. A relocation can only occur with our prior written consent.
ARTICLE 3. OPERATIONS
3.1 Commencing Operations
You must be prepared to provide computer support and training services within sixty (60) days after you graduate from the Initial Training Program, unless we extend this time period in writing. You shall complete the Initial Training Program for your CM IT Solutions Business within three (3) months after you sign this Franchise Agreement.
You acknowledge that before starting operations you must, at your own expense, do the following (in addition to any other requirements set forth in this Agreement):
(a) Complete the Initial Training Program described in Section 4.1 of this Agreement; and
(b) Purchase, lease or otherwise acquire all the supplies, equipment, fixtures, furnishings and all other items necessary to operate the Franchised Business as described in the confidential Operations Manuals or in this Agreement; and
(c) Obtain general liability insurance, automobile liability coverage, and other insurance as we may require in accordance with the requirements described in Section 9.8 of this Agreement and provide to us evidence that such insurance has been obtained.
Prior to opening, you must notify us that you have satisfied all requirements to begin operations, and provide us with such documents as we may reasonably request that show your compliance with all such requirements. Upon receipt of our acknowledgment that such requirements have been satisfied, you will have five (5) days to begin operations of your CM IT Solutions Business. If you do not begin operations of your CM IT Solutions Business before the expiration of the three (3) month period, then we may terminate this Agreement by giving you written notice to that effect. We will have-no obligation to. refund to you all or any part of the Initial Fees in the event of such a termination.
3.2 Telephones, Internet and Electronic Mail
You must at all times maintain a separate business telephone line for the exclusive use of your Franchise.
You must install and maintain a high-speed broadband internet connection in accordance with our specifications, and permit us direct access to such information on your computer(s) as we may require to assist you in managing your Business. We must have this access at such times and in such manner as we may specify. You must regularly submit to us your client database in a form we shall prescribe in the Manuals. We shall own all such customer and Franchisee data, and may use them for any marketing or business purpose.
We may specify the use of an Internet-based telephone system (known as VoIP for "Voice Over Internet Protocol", and also known as IP Telephony, Internet telephony, and Digital Phone) during the term of this Agreement and reserve the right to require you to install such a telephone system for use in your CM IT Solutions office.
Before you open for business, you must subscribe to an Internet service provider (ISP). Your ISP account must be compatible with and interface with Microsoft Outlook.
Franchise Agreement February 2006________________________________________________Page 5
Exhibit I
ARTICLE 4. TRAINING, ASSISTANCE AND START-UP MATERIALS
4.1 Initial Training Program
We will provide you and up to one (1) of your employees (i.e., two (2) natural persons), at our sole cost, with an Initial Training Program designed to inform the participants a:> to the fundamentals of operating the Franchised Business. At least one (1) person must attend the Initial Training Program, which includes completion of our online training. If you are a corporation, a partnership or a limited liability company, one of those people must be a principal owner. If you want to have more than two (2) people attend the Initial Training Program, you must pay an Additional Training Fee for each such person.
If you or your principal owners will not be directly involved in the supervision of the Franchise, you must employ a designated manager who also has completed the Initial Training Program to our satisfaction, and has received our Certification.
You are responsible for your travel expenses, room and board during any training, and those expenses incurred by any of your employees who attend the Initial Training Program. The Initial Training Program is mandatory, and will be held on an as-needed basis and for the duration we designate. The Initial Training Program will be held in Austin, Texas, or at other certified training centers within the US that we will designate. You must complete the Program to our satisfaction before you may commence operation of your CM IT Solutions Business. You agree that adequate knowledge regarding the operation of the Franchised Business is essential to the success of your CM IT Solutions Franchise and to the promotion of the System. We will determine, at our sole discretion, whether you, or any of your employees attending the program, have successfully completed training.
4.2 Employee Hiring and Training
You agree to penetrate your market through the hiring of employees (and not independent contractors) that will assist you in providing onsite Information Technology solutions, customized training and computer support services in your Territory. Within your first 3 months of operation yoii we recommend that you plan to have a total of approximately five (5) to ten (10) employees; and we require that you hire at least one (1) sales associate. You acknowledge that the employees of your CM IT Solutions Franchise are an integral and important part of the Franchised Business, as they will have substantial contact with customers. All employees who will be providing our onsite Information Technology solutions, customized training and computer support services must satisfactorily complete the Initial Training Program for employees, and receive Certification at one of our Certified Training Centers. You are responsible for the hiring, terms of employment and compensation of your employees, for their compliance with the Operations Manuals, and for their costs in attending the training program. As new employees are hired, you agree to ensure that they attend and successfully complete any and all required training programs and receive the necessary certification. We reserve the right to assess a reasonable Certification Fee to cover our costs of providing the certification training described in this Section 4.2.
4.3 Additional Programs
We may, in the future, require you and your employees who are trainers to participate in additional Certification or Re-Certification training programs, or other programs to learn about new products or services and other appropriate subjects. Such programs may include Internet-based conferences, interactive and other computer-based programs, local and regional meetings and annual conventions. We reserve the right to charge you a nominal fee to attend these programs. These programs will be held at locations within the United States that we will specify.
You are required to pay the cost of transportation, food, lodging and other personal expenses of your attendance and those of your personnel at any of these additional programs.
Franchise Agreement February 2006________________________________________________Page 6
Exhibit I
4.4
Online and On-Site Remedial Training
Upon your reasonable request, and subject to the availability of our personnel, we will provide either online or on-site remedial training to you. You will be charged the then-current per diem fee or hourly online charge for the services of our trained representative, plus their costs of travel, lodging, meals and wages.
4.5 Confidential Operations Manuals
To protect the reputation and goodwill of the System and to maintain the consistent standards of operation under the Marks, you must conduct the Franchised Business in accordance with our Operations Manuals that, because these may be revised, amended, restated or supplemented from time to time, are incorporated herein by reference (the "Manuals"). The Manuals include all electronic and printed media not limited to communications, written directives in print, video and audio tape.
You will at ati times treat as confidential and will not at any time copy, duplicate, record, or otherwise make available to any unauthorized person any portion of the Manuals. The Manuals will at all times remain our sole property.
We will charge a fee of One Hundred ($100.00) Dollars for any replacement Manual, videotape, diskette or disk that you request.
So that you may benefit from new knowledge gained by us as to improved techniques in the operation of the System, we may from time to time revise, amend, restate or supplement the contents of the Manuals. No revision, amendment, restatement or supplementation will alter your fundamental status under this Agreement, however. All revisions amendments, restatements and supplements will be in writing and will be deemed to be received by you as provided in the notice provisions of Article 15 of this Agreement.
You will at all times ensure that your copies of the Manuals are kept up-to-date. In the event of a dispute regarding the contents of the Manuals, the master copies maintained by us at our principal office will be controlling. You agree to incorporate and implement any improvements to the System as reasonably required by us, which improvements will be reflected in amendments and supplements to the Manuals.
4.6 Start-Up Business Package
Before you open for business, you must purchase from our approved supplier a start-up package of business materials including business cards, invoices, letterhead and a marketing package that includes brochures and other marketing materials. We also will provide you with a prototypical initial marketing plan.
4.7 Computer System
Prior to the opening of your CM IT Solutions Business, you will be required to acquire and to use a computer system during the operation of the Franchised Business. The recommended and required components of this system are identified in the Franchise Manuals. You wilt be required to maintain the Computer System in good working order at all times, and to upgrade or update the Computer System during the term of this Agreement as we may require from time to time. It will be your responsibility to enter into contracts for the maintenance, support, upgrades and updates to the Computer System.
We reserve the right to develop customized software database configuration upgrades and identify third-party project management services for use in connection with the System. At our request, you must enter into a software license agreement with us or a third-party supplier in such form as we may prescribe, for the license of certain proprietary software that we may provide or designate for the operation of your Franchise. We may also make available to you any enhancements or replacements to the software that are developed. We reserve the right to charge a reasonable fee for these enhancements; and you agree to pay the subscription fees or other software charges of third-party suppliers.
Franchise Agreement February 2006________________________________________________Page 7_______
Exhibit I
ARTICLE 5. FEES AND DEPOSITS
You agree to pay us Initial Fees in the amount of $_
upon your execution of this Agreement, in accordance with the following provision:;:
5.1 Initial Fees
The Initial Fees ("Initial Fees") are as follows:
(a) The Franchise Fee is $39,500. The Franchise Fee will be due and payable by you to us, by cashier's check, wire transfer or other form of immediately avsilable funds acceptable to us, upon your signing this Agreement. You and we agree that our grant of the Franchise and your payment of the Initial Fees provided for in this Section 5.1 do not give you any rights with respect to other franchises, if any, as we in our sole discretion may elect to make available in the future.
(b) The Franchise Fee includes a geographic territory comprised of whole contiguous US Postal Zip Codes (the "Territory") with a minimum of 5000 Small Business Establishments (SBEs) which meet our then current criteria for business size. In the event that there are more than 5000 SBEs in the geographic Territory, a Territory Fee will apply.
(c) The Territory Fee is $5.00 for each SBE in excess of 5000 SBEs within the Territory. For example, a Territory containing 5501 SBEs would be $2,505.00 ($5.00multiplied by 501).
The Initial Fee will be discounted by ten percent (10%) if you sign this Franchise Agreement within 14 days after you attend a "Discovery Day" or meet with us in person. We may, at our sole discretion, return the Initial Fees (less any out-of-pocket expenses that we have incurred) to you if you do not make satisfactory progress in initial training. There wiil no refund of the Initial Fees under any other circumstances. All Initial Fees must be paid in full prior to commencement of the Initial Training Program.
5.2 Royalty Fee
You will pay us a monthly royalty fee of six percent (6%) of Gross Professional Services revenue ("GPS") or the Minimum Monthly Royalty, whichever is the greater amount.
The term "GPS" means all revenue from all professional services provided by your CM IT Solutions business, and includes consulting services, technical support, training, recurring services, services net-of-costs in conjunction with alliance partners, and other services offered by your CM IT Solutions business. "GPS" does not include commissions paid by alliance partners or profits made on the margins of hardware or software sales. Royalties will be drafted monthly from your business bank account.
Monthly Royalty Fee's are to be paid based on the following schedule:
(a) No Royalty Fee is due for the first sixty (60) days ("Months One and Two") following the date that you complete the initial CM IT Solutions Franchise training ("The Opening Date"); then
(b) Six percent (6%) of GPS or the Minimum Monthly Royalty fee of $500 per month, whichever is the greater amount, for each of the following ten (10) months, ("Months Three through Twelve"),. (As an example: Initial franchisee training is completed on January 16, the "Opening Date" occurs on January 16. February is Month One, March is Month Two, and April is Month Three. The Royalties for the calendar month of April will be collected as described in the Policies and Procedures Manual); then
(c) Six percent (6%) of GPS or the Minimum Monthly Royalty fee of $700 per month, whichever is the greater amount, for each of the following twelve (12) months, ("Months Thirteen through Twenty-Four"); then
Franchise Agreement February 2006________________________________________________Page 8_______
Exhibit I
(c) Six percent (6%) of GPS or the Minimum Monthly Royalty fee of $900 per month, whichever is the greater amount, thereafter for each month remaining in the Franchise Agreement.
We reserve the right to raise any and all of these Minimum Royalty Fee amounts, but in no event will any increase exceed increases in the Consumer's Price Index (the "CPI"). (See Section 5.5 below). We shall promptly notify you at the beginning of each year of any adjustment to the Royalty Fee levels.
The Royalty Fees shall be due and payable monthly as described in the Policies and Procedures Manual. You agree that we will have the right to withdraw funds each month by electronic funds transfer (EFT) from your designated bank account to our bank. You must sign and deliver to us such documents and authorizations as may be required by your bank and our bank to accomplish such EFT transactions. If any EFT is not honored by your bank for any reason, you will be responsible for that payment, plus a service charge applied by us and the bank, if any. You must at all times maintain a minimum balance of One Thousand Dollars ($1,000.00) in the separate, dedicated bank account against which such EFTs are to be drawn. If royalty payments are not received when due, interest may be charged as described in Section 5.4 below.
You must report your total GPS to us by such method or on such form as we may specify, on the 10th of the month for the previous month (or the Friday before the 10th of the month if the 10th falls on a weekend.)
You must provide us with a detailed written accounting and computation of your total GPS on such forms as we may require.
Timing of Monthly Fees and Reports.
You must pay to us a monthly Royalty Fee based on the following schedule:
The Reporting Month is the calendar month. The first Reporting Month will be the earlier of (a) the first calendar month in which you perform any of the services contemplated by this Agreement or (b) the calendar month in which the 60th day after the date of your graduation from training occurs. On a monthly basis, you agree to include a duplicate invoice (kept in numbered sequence) of all transactions relating to the transactions on which Royalties are payable, a copy of all voided invoices, and an accurate CM IT Solutions royalty report form, and other information pertaining to the GPS as we may reasonably require.
The Royalty Fees shall be due and payable monthly as described in the Policies and Procedures Manual. You agree that we will have the right to withdraw ftjnds each month by electronic funds transfer. (EFT) from your designated bank account to our bank. You must sign and deliver to us such documents and authorizations as may be required by your bank and our bank to accomplish such EFT transactions. If any EFT is not honored by your bank for any reason, you will be responsible for that payment, plus a service charge applied by us and the bank, if any. You must at all times maintain a minimum balance of One Thousand Dollars ($1,000.00) in the separate, dedicated bank account against which such EFTs are to be drawn. If royalty payments are not received when due, interest may be charged as described in Section 5.4 below.
5.3 Marketing Development Fund Contributions
You agree to pay us a monthly Marketing Development Fund Contribution according to the following schedule:
(a) No Fund contribution is due for the first sixty (60) days ("Months One and Two") after the date that you complete the initial CM IT Solutions Franchise training (the "Opening Date"); then
(b) Two percent (2%) of GPS, or the minimum Fund contribution of $150 per month, whichever is the greater amount, for each of the following ten (10) months ("Months
Franchise Agreement February 2006 __________________________________Page 9_______
Exhibit I
Three through Twelve"), prorated for the third calendar month following the Opening Date; then
(c) Two percent (2%) of GPS, or the minimum Fund contribution of $300 per month, whichever is the greater amount, for each of the following twelve (12) months ("Months Thirteen through Twenty-Four"); then
(d) Two percent (2%) of GPS, or the minimum Fund contribution of $450 per month, whichever is the greater amount, for each month remaining in the Franchise Agreement.
Your contributions to the Marketing Development Fund shall not exceed $10,000 for any calendar year. We reserve the right to raise any and all of these Fund Contribution minimum amounts, but in no event wifl any increase exceed increases in the Consumer's Price Index (the "CPI"). (See Section 5.5 below). We shall promptly notify you at the beginning of each year of any adjustment to the Fund Contribution levels.
We will administer all contributions to the Marketing Development Fund in accordance with Section 10.1 of this Agreement.
5.4 Late Report Fee and Default Interest
If you fail to submit to us any financial statements, forms, reports or records required to be provided under this Agreement within thirty (30) days after the due date, you must pay to us a Late Report Fee of One Hundred ($100) Dollars per report.
If any fees or assessments due under this Agreement, including Royalty Fees and Marketing Development Fund Contributions, are not paid within five (5) days of the date due, interest shall accrue on the late payment (from the date payment is due until the date it is paid) at the rate of one and one-half (11/a%) percent per month, or the maximum legal interest rate (whichever is lower) and shall be added to each late payment.
If, as a result of your failure to remit payments required under any provision of this Agreement, we retain an attorney or a collection agency to collect such payments, you must pay all collection costs, including reasonable attorneys' fees, whether or not legal proceedings are initiated.
Our rights under this Section 5.4 are in addition to any other rights or remedies that we may have as a result of your default under this Agreement.
5.5 Consumer Price Index
The Consumer Price Index will be the Metropolitan Area Consumer Index for Urban Consumers—All Items (1982 - 1984 = 100) as published by the US Department of Labor, or a comparable successor index selected by us.
5.6 Client Financing Fees
If you elect to employ the "Terms Plus" service through which you may provide certain financing arrangements for your clients, or a similar service approved for use with the CM IT Solutions System, you shall pay the related service fees.
ARTICLE 6. PROPRIETARY MARKS
6.1 Ownership and Right to Use
We warrant to you that:
(a) Except as provided in subsection (b) below, we are the owner of all right, title and interest in and to the Marks; and
(b) CM IT Solutions, Inc. is the owner of the trademark and service mark, "CM IT Solutions™", and the other Marks and grants to you the non-exclusive right to use
Franchise Agreement February 2006_______________________________________________Page 10_______
Exhibit I
the CM IT Solutions mark and the other Marks in connection with the operation of the Franchised Business; and
(c) We have taken and will take all steps reasonably necessary to preserve and protect our rights in the Marks; and
(d) We will only use and permit you and other persons to use the Marks in accordance with the System and its standards and specifications.
6.2 Covenants of Franchisee
You acknowledge the exclusive ownership of the Marks by us, and you agree that during the term of this Agreement and after its expiration or termination, you will not directly or indirectly contest or aid in contesting the validity of the Marks or the ownership of the Marks by us, nor will you take any action that might impair or prejudice the ownership of the Marks by us.
You agree that the non-exclusive license granted to you pursuant to this Agreement authorizes you to use the Marks solely in connection with the Franchised Business and for no other purpose.
Any unauthorized use of the Marks will constitute an infringement of our rights in the Marks and a material event of default. At our request, you must execute any assignments, affidavits, and other documents to convey to us all rights, title and interest in and to the Marks.
The license hereby granted includes no other Marks of ours now existing or to be developed by us that are not referred to herein or otherwise included in the Manuals. You agree that any and all goodwill associated with and identified by your use of the Marks will inure directly and exclusively to our benefit, and that, on the expiration or termination of this Agreement, no monetary amount will be payable to you as a result of any goodwill associated with your ownership or operation of the Franchised Business.
6.3 Limitations on Franchisee's Use of Marks
To develop and maintain high and uniform standards of quality and service and thereby protect our reputation and goodwill and that of the System, you agree to:
(a) operate and advertise the Franchised Business only under the Marks authorized by us ; and as specified in the Manuals; and
(b) maintain and display any required signs reflecting the current image of the System, and
(c) adopt and use the Marks licensed hereunder solely in the manner prescribed by us. .
You agree that your corporate, partnership or other entity name will not include any of the Marks or phrases similar thereto as a part thereof. You further agree that any communications, documents or writings (including advertising) sent or utilized by you in connection with the Franchised Business will state that your CM IT Solutions Business is an independently owned and operated franchise of CM IT Solutions, Inc.
You agree that we may from time to time change or modify the System, including without limitation, modifying existing Marks or adopting new Marks. You agree at your own expense to adopt, use and display any such new or modified Marks as if they were specifically identified herein as Marks at the time of the execution of this Agreement.
Upon termination or expiration of this Agreement, you agree to immediately cease to use, in any manner whatsoever, any of the Marks or any other Marks that may be confusingly similar to any of the Marks.
6.4 Non-Exclusive License of Marks
You understand and agree that your license to use the Marks is non-exclusive; that we, in our sole discretion, have the right to grant Franchises to others to use the Marks and obtain the benefits of
Franchise Agreement February 2006_______________________________________________Page 11_______
Exhibit I
the System in addition to the licenses and rights granted to you under this Agreement; and, that we may develop and license other marks in conjunction with systems other than the System, on any terms and conditions as we deem advisable. You will have no right or interest in any such other licenses, marks or systems.
6.5 Notification of Infringement and Claims
You agree that you will notify us immediately of any apparent infringement of, or challenge to your use of, any of the Marks, or any claim by any person of any rights in any of the Marks. You agree that you will not communicate with any person other than us and our legal counsel in connection with any such infringement, challenge or claim. We will have the sole discretion to take such action as we may deem appropriate to protect the Marks and the exclusive right to control any litigation, Patent and Trademark Office proceeding, or other proceeding arising out of any such infringement, challenge or claim or otherwise relating to any Marks. You agree to execute any and all instruments and documents, render such assistance, and do such acts and things as may, in the opinion of our counsel, be necessary or advisable to protect and maintain our interests in connection with any such litigation or proceeding, or to otherwise protect and maintain our interests in the Marks.
ARTICLE 7. TRADE SECRETS AND PROPRIETARY INFORMATION
7.1 Ownership and Use
In connection with the operation of the Franchised Business, you will from time to time become acquainted with certain information and materials that are proprietary to us. You and any person signing this Agreement under the heading "Acceptance of Sections 7.1, 9.11, 14.5 and 14.7" agree that you will keep confidential (except as reasonably necessary to operate the Franchised Business) and will not use for your own purposes (except in the operation of the Franchised Business), nor supply or divulge to any person, firm, association or corporation, any of our trade secrets or proprietary information as defined herein.
This requirement will remain in full force and effect during the Term of this Agreement and after its termination or expiration. Our trade secrets and proprietary information (hereinafter referred to collectively as "Proprietary Information") include the following:
(a) the confidential Operations Manuals, customer training guides, other Manuals and written materials and any amendments thereto; and
(b) information that relates in any manner to our business or the System, whether oral or reduced to writing, and that is not generally known to, or readily ascertainable by, other persons who might derive economic benefit from its disclosure or use; and
(c) any other information that may be imparted to you from time to time and designated by us as confidential.
You and any person signing this Agreement under the heading "Acceptance of Section 7.1, 9.11, 14.5 and 14.7" acknowledge and agree that the Proprietary Information and any business goodwill of the Franchised Business, is our sole and exclusive property and that you will preserve the confidentiality thereof. Upon termination or expiration of this Agreement, all items, records or documentation recording or incorporating any Proprietary Information will be immediately turned over by you to us or to our authorized representative.
7.2 Confidentiality Agreement
You agree to adopt and implement all reasonable procedures prescribed by us from time to time to prevent the unauthorized use or disclosure of any of the Proprietary Information. We require that ail of your employees, officers, agents, directors, shareholders, trustees, beneficiaries and partners who may obtain, or are likely to obtain, knowledge concerning the Proprietary Information (and who do not sign this
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Exhibit I
Agreement under the heading "Acceptance of Section 7.1, 9.11.14.5 and 14.7") execute an agreement in a form provided by us binding such person to preserve the confidentiality of the Proprietary Information ("Confidentiality Agreement") as part of the terms and conditions of such person's employment or association with you. You must obtain a Confidentiality Agreement signed by any such person prior to or at the same time of your employment of or association with that person. You agree to file a duplicate original of each Confidentiality Agreement with us.
ARTICLE 8. RELATIONSHIP OF THE PARTIES AND INDEMNIFICATION
8.1 Relationship of the Parties
You and we agree that this Agreement does not create a fiduciary relationship between you and us, that you are an independent contractor, and that nothing in this Agreement is intended to make either you or us a general or special agent, legal representative, subsidiary, joint venturer, partner, employee or servant of the other for any purpose. You do not have the authority to bind us or incur indebtedness or any other obligation on behalf of us.
8.2 Indemnification of Franchisor
You agree to indemnify and hold us and our affiliates, and our stockholders, directors, officers, employees, agents, successors and assignees harmless for, from and against any and all claims, liabilities, causes of action, demands, obligations, costs and expenses, including reasonable attorneys' fees, arising out of or relating to your ownership, management or operation of the Franchised Business ("Claims"), except for Claims successfully alleged to have resulted solely from our negligence or willful misconduct. Notwithstanding the foregoing, we will have the right, at our option, to defend any such Claim, but you must reimburse us upon demand for the costs of such defense.
8.3 Indemnification of Franchisee
We agree to indemnify and hold you and your affiliates, and their stockholders, directors, officers, employees, agents, successors and assignees harmless for, from and against any and all claims, liabilities, causes of action, demands, obligations, costs and expenses, including reasonable attorneys' fees, arising out of any claim of infringement or unfair competition in connection with your use of the Proprietary Marks, provided that such use is in accordance with the provisions of this Agreement.
8.4 Survival
The indemnities and obligations set forth in this Article 8 will continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement.
ARTICLE 9. OPERATING STANDARDS AND YOUR DUTIES
9.1 General Operating Standards and Compliance with Operations Manuals
You understand and acknowledge that every detail of the operation of the Franchised Business is important to us in order to develop and maintain high and uniform standards of quality and service, to increase the demand for the System, and to protect our reputation and goodwill and that of other CM IT Solutions Franchisees.
You also acknowledge that the actual operation of the Franchised Business will remain your sole responsibility (except as otherwise expressly provided herein) and that we have no responsibility to obtain customers for you. Mandatory services, specifications, standards and operating procedures prescribed from time to time by us in the Manuals will constitute provisions of this Agreement as if fully set forth herein. All references to this Agreement will be deemed to include all such mandatory services, specifications, standards and operating procedures.
Franchise Agreement February 2006_______________________________________________Page 13
Exhibit I
9.2 Authorized Products and Services
You agree that you will sell all services and products that we require, and only the services and products that we have approved. You must do so only in the manner and style we prescribe in writing, including the method and location of delivery. You will not, without our prior written approval, offer any products or services that are not authorized by us for CM IT Solutions Franchisees. You must discontinue selling any services or products that we may, in our sole discretion, disapprove in writing at any time.
You must sell only those services for which you have been certified in writing by us. We may, from time to time, require you and any trainers in your employ, to be Re-Certified ("Re-Certified" or "Re-Certification") with respect to certain services, and to successftjlly complete our training programs and/or seminars in order to become Certified or Re-Certified. Our Certification and Re-Certification will be based upon our assessment of your competence and abilities (and those of your trainers) with respect to such services.
9.3 Customer Training Guides
You must purchase your entire requirements of customer training guides trom us or our approved supplier, and use and distribute such guides as we require in the Manuals. The customer training guides contain proprietary information.
9.4 Guarantee, Warranty and Coupon Programs
You agree that you will offer and honor all customer warranties and guarantees, and participate in all warranty and guarantee programs that we may require. You must refund monies to customers for the purpose of honoring warranties and guarantees that you previously provided to customers; and you must pay for warranty or guarantee services provided by another CM IT Solutions Franchisee under the terms of our current warranty program.
You must participate in all of our customer coupon programs, as described in the Manuals. You will be free to determine the prices for all services and products you offer to customers, and will in no way be bound by any price that we recommend or suggest, except in the case of promotional programs in which you will be required to participate, as described below.
With respect to promotional programs, we will have the right to establish maximum prices for any given service or product that you offer. You may not exceed any maximum price that we establish, but remain free to charge any price below the maximum price that we establish.
9.5 Credit Card Merchant Account
You will be required to accept certain major credit cards as payment for our products and services, as described in the Manuals. You are responsible for acquiring a credit card merchant account to process these credit card sales. You must comply with all our reasonable requirements for such sale and processing.
9.6 Specifications and Standards for Supplies; Approved Suppliers
Except with respect to certain materials bearing our Marks, proprietary products and software configurations licensed by us, you must obtain items for which we have established standards and specifications from suppliers who we have approved in writing. Our criterion for supplier approval is not available to our Franchisees. We maintain an updated list of suppliers whose standards and specifications meet or exceed those required by us. This list is included in the Manuals.
If you desire to obtain any items from any other supplier, you must submit to us a written request for such approval. We will provide you with written notice of approval; if you do not receive such notice within 30 days, the supplier is deemed disapproved. We do not presently charge a fee for our review of suppliers or products, but we reserve the right to do so in the future. You must not purchase or lease from any supplier until and unless we have approved the supplier in writing. We are not required to approve any particular supplier.
Franchise Agreement February 2006_______________________________________________Page 14_______
Exhibit I
9.7
Compliance with Legal Requirements and Good Business Practices
You must, at your sole expense, operate your Franchised Business in full compliance with all applicable laws, ordinances and regulations.
You must pay all costs and expenses incurred by, and in the conduct of, the Franchised Business, including but not limited to, all rent, salaries, taxes, disbursements, license or permit fees, traveling expenses and any other business expenses. You must notify us in writing within five (5) days of the commencement of any action, suit or proceeding, or of the issuance of any order, writ, injunction, award or decree of any court, agency or other governmental instrumentality, that may adversely affect your ability to operate, or your financial condition or that of the Franchised Business. Any such notice must be accompanied by a copy of the complaint, order, writ, injunction, award, decree or other similar document.
You must, preserve good customer relations and comply with our dress code. In this regard, you must at all times maintain a passing customer satisfaction rating, as determined by customer surveys which we conduct in accordance with the procedures described in the Manuals. . Only you, your employees or hired representatives, are permitted to conduct any customer interaction personally. No other individual or entity may contact, communicate with, or provide services or products to customers on behalf of your Franchise.
You must, in all dealings with your customers, suppliers, us and the public, adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct. You agree to refrain from any business practice that may be injurious to the System or the goodwill associated with the Proprietary Marks.
9.8 Maintenance of Insurance
At all times during the term of this Agreement, you must maintain in force comprehensive public liability insurance against claims for bodily and personal injury, death and property damage caused by or occurring in connection with the ownership, operation or conduct of the Franchised Business or your CM IT Solutions Business.
Such insurance coverage must be written by a responsible carrier or carriers reasonably acceptable to us, and must include the types of amounts of coverage (including the amount of deductibles) that we will specify in the Manuals, including the following:
(a) Comprehensive General Liability Insurance, including broad form contractual liability, broad form property darhage, personal injury, advertising injury, completed operations, products liability, and errors and omissions.
(b) Automobile liability coverage, including coverage of owned, non-owned and hired vehicles.
(c) Such other insurance as may be required by your state or Franchise locality.
(d) Such policies must also include a waiver of subrogation in favor of us, our affiliates and partners, and the respective officers, directors, shareholders, partners, agents, representatives, independent contractors, servants and employees of each of them.
Your obligation to obtain and maintain the above policies will not be limited in any way by reason of any insurance which we may maintain, nor will your performance of that obligation relieve you of liability under the indemnity provisions set forth in Section 8.2 of this Agreement.
All public liability and property damage policies must contain a provision that we and our affiliates, their respective officers, directors, shareholders, partners, agents, representatives, independent contractors, servants and employees of each, although named as insureds, will nevertheless be entitled to recover under such policies on any loss occasioned to us or our servants, agents or employees by reason of the negligence of you or your servants, agents or employees.
You must deliver to us Certificates of Insurance evidencing the existence and continuation of proper coverage and limits, at such times as provided in the Manuals. If we request, you must deliver to
Franchise Agreement February 2006_______________________________________________Page 15_______
Exhibit I
us a copy of your required insurance policies. All required insurance policies must name us, and our affiliates, their respective partners, and the officers, directors, shareholders, partners, agents, representatives, independent contractors, servants and employees of each of them, as additional insureds, and must expressly provide that their interest will not be affected by your breach of any policy provisions. Further, all required insurance policies must expressly provide that no less than thirty (30) days' prior written notice will be given to us in the event of a material alteration to or cancellation of the policies.
If you elect to participate in a group insurance program we offer to Franchisees, you must make monthly payments of the required insurance premium. If these payments are not made for two (2) consecutive months, or you fail to make payments on three (3) occasions in any calendar year, we will provide you notice that you insurance coverage is cancelled, and you will be required immediately to obtain insurance coverage as required by the terms of this Section 9.8. Failure to procure and maintain the insurance policies required by this Section 9.8 within seven (7) days of receipt of our written notice may lead to termination under Section 14.2 of this Agreement.
9.9 Management of the Franchisee! Business
You are directly responsible for all aspects of operation of the Franchised Business, and you agree that you will at all times use your best efforts to enhance the business of your CM IT Solutions Business and the System. If you are a corporation, a partnership or a limited liability company, a principal shareholder, general partner or member of yours must attend the Initial Training Program referred to in Section 4.1 above and be the designated manager of the Franchised Business, unless we approve another manager. If you or your principal owners will not be directly involved in the supervision of the Franchised Business, you must employ a manager who has completed the Initial Training Program referred to in Section 4.1 above to our satisfaction, and such manager must devote full time and energy to the management of the Franchised Business.
If any manager leaves your employment or if your principal owner desires to later delegate control over the operation of the Franchised Business, a replacement manager must be designated by you and approved by us and must complete the Initial Training Program referred to in Section 4.1 above to our satisfaction. You must immediately notify us in writing of any change in management or supervisory personnel.
9.10 Vehicles
Any vehicle that you or your employees use to deliver goods or services in connection with your Franchise (the "Vehicle") must meet our standards with respect to appearance and ability to satisfy the requirements imposed on you under this Agreement. You must at all times keep the Vehicle clean and in good working order. You must comply with all laws, regulations and rules of the road, and use due care and caution in the operation and maintenance of the Vehicle. Except as noted above, we do not set any standards or exercise control over any Vehicle used by you or your employees.
9.11 Conflicting and Competing Interests
You agree that during the term of this Agreement, neither you, nor your officers, directors and holders of more than 10% of your stock (if you are a corporation) nor your partners (if you are a partnership) nor your managers will, directly or indirectly, maintain, engage in, have a controlling interest in, lend money to, consult with or otherwise assist any business that is engaged in customized computer training and support programs, and related products and services. If any of the persons named above do not sign the Agreement under the heading "Acceptance of Sections 7.1, 9.11, 14.5 and 14.7", then you agree to obtain the execution by such person of a written agreement setting forth the foregoing in a form acceptable to us. Your obligation to obtain the execution of such written agreements shall be a continuing one.
9.12 Inspections by Franchisor
You must make such financial and other information concerning the; Franchised Business available to us or our agents at such locations as we may reasonably request (including our office), and
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Exhibit I
you must permit us and our agents to have full and free access to such information at your CM IT Solutions Business during regular business hours. We and our agents will have the right to communicate freely with your employees, and make extracts from, and copies of, all such information. A representative of ours may make unannounced inspections of your CM IT Solutions Business to ensure compliance with all the requirements of this Agreement. You will permit our representative to inspect any part of the Franchisee! Business, including all books and financial accounts, at any time during normal business hours.
9.13 Shareholders' Guaranty
If you are a corporation or a limited liability company, each of your shareholders or members holding 10% or more of any class of your stock or interests (and their respective spouses, if married) at the same time that you sign this Franchise Agreement, and as a condition to the legitimacy of this Agreement, must execute and deliver to us a Guaranty in the form of Exhibit 2 attached hereto and incorporated herein by reference.
In the event at any time after the execution of this Agreement a person who has not previously signed a Guaranty becomes the holder of 10% or more of any class of your stock or ownership interests, you must cause that person to execute and deliver a Guaranty to us immediately.
9.14 Ownership Reports
If you are a corporation, you must, upon execution of this Agreement, provide us with acceptable evidence that all certificates evidencing shares of your issued and outstanding capital stock bear a legend as required by Section 12.4 (e) below. If you issue additional shares of your capital stock in the future, all certificates evidencing such shares must bear a like legend. If you are a partnership, a limited liability company or other entity, you must provide us with acceptable evidence that your partnership agreement or other organizational documents contain provisions acceptable to us prohibiting transfer of any partnership or other ownership interest in your entity, except in compliance with the terms of this Agreement. You must not cause or permit any such provision to be deleted or modified.
ARTICLE 10. ADVERTISING AND PROMOTION
10.1 Advertising by Franchisor
a) We, or at our election a third party that may be an affiliate of ours, wiil establish and oversee an Marketing Development Fund (the "Fund") to administer the advertising contributions that you and all other Franchisees are required to pay pursuant to the Franchise Agreement. Each of our company-owned or affiliated CM IT Solutions Businesses, if any, will make contributions to the Fund equal to the assessments required of our Franchisees.
b) We, or our designee, will direct all advertising programs to be undertaken through the use of the Fund. We will have sole discretion over all creative concepts, materials and media used in such programs and the placement and allocation of such programs. The Fund is intended to maximize general public recognition and acceptance of the Marks and enhance the collective success of all CM IT Solutions Businesses. In administering the Fund, we have no obligation to make expenditures for you that are equivalent or proportionate to your contribution, or to ensure that any particular Franchisee benefits directly or pro rata from the placement of advertising.
c) The Fund may be used to pay any and all costs of maintaining, administering, directing and preparing advertising, including the cost of preparing and conducting television, radio, magazine and newspaper advertising campaigns; direct mail and outdoor billboard advertising; public relations activities; employing advertising agencies to assist in such campaigns or other activities; and reasonable costs for our personnel and other departmental costs for advertising that we administer or prepare internally.
Franchise Agreement February 2006_______________________________________________Page 17
Exhibit I
d) We have established an elected Franchise Advisory Council (FAC) to help formulate, develop, produce and conduct the advertising and promotion programs. The Franchise Advisory Council functions as a problem-solving entity to establish positive communications between the Franchisees and the Franchisor.
e) We will maintain all sums that you pay to the Fund in a separate account, and will not use the funds to defray any of our general operating expenses, except for reasonable administrative costs and overhead, if any, as we may incur in administrating the fund. If we loan money to the Fund, we may charge a reasonable rate of interest. No portion of the Fund will be used for advertising that is primarily for the sale of Franchises.
f) If an affiliate of ours administers the Fund or places advertising in connection with the Franchise system, the affiliate may be paid a fee that will not exceed the fee that would be paid to an unrelated third party for comparable services.
g) All contributions to the Fund that are not spent during the yt:ar in which they were collected, will be carried forward to the following year.
h) We will prepare a financial statement of the operations of the Fund annually, and make it
available to you upon request within a reasonable period of time after the end of its fiscal year.
i) Although the Fund is intended to be of perpetual duration, we may terminate the Fund.
The Fund will not be terminated until all monies in the Fund have been expended for advertising or promotional purposes, or returned to the contributors, without interest, on the basis of their respective contributions.
10.2 Advertising by Franchisee
a) We may, at our sole discretion, require you to join a local advertising cooperative organized or approved by us. The amount of contribution to such local advertising cooperative will be decided by the members of the cooperative, but will not exceed $1,000 per month. Any such cooperative, if organized or approved by us, will consist of one or more other Franchisees who are located in the same geographic area, newspaper circulation area, or radio and television broadcasting area as the F ranchised Business.
b) You must maintain a local telephone listing in the primary telephone book that covers your Territory.
c) You must subscribe to the franchise locator service and the e-rnail marketing services that we designate in the Manuals.
d) You must use the 1-800-399-CMIT number (or other designated number used in conjunction with the franchise locator service) in all of your advertisements as described in the Manuals.
e) You must conduct all your advertising and promotion in a professional manner, and these must conform to our standards and requirements as set forth in the Manuals or otherwise. You must obtain our written approval before placing any telephone listing. You must advertise only through the use of the advertising and promotional materials that are provided to you by the Fund. You must not deviate from such materials, or otherwise use advertising materials not provided by the Fund or approved by us. in writing prior to their use. You must promptly discontinue use of any advertising or promotional plans or materials, upon notice from us.
f) Under no circumstances may you use the name of a public figure: in connection with the Proprietary Marks or the Franchised Business without our prior written consent. We retain the sole and exclusive right to use the name, services or likeness of any public figure or character in advertising, endorsing or recommending the System. However, with our prior written approval, you may use the name of a public figure in a bona fide
Franchise Agreement February 2006_______________________________________________Page 18
Exhibit I
endorsement or recommendation of the Franchised Business, but in such event, you will be solely responsible for the cost of such usage.
10.3 Internet Advertising and Email
You acknowledge that the Internet is a powerful, expanding medium through which business is conducted. We have established a Web site ("CM IT Web Site") listed on the Internet. We shall, at our discretion, determine the content and use of the Web site or other listing and shail establish the rules under which you and other Franchisees will participate. You agree to pay on an annual basis our then-current IT Support Fee, which is your proportionate share of the cost of our maintaining and updating the CM IT Web site and supporting the email service we provide. We shall retain all rights relating to the Web site or other listing and may alter or terminate the Web site or other listing upon 30 days notice to you. Your participation in the CM IT Web Site shall be subject to the provisions of the Franchise Agreement. You acknowledge that certain information obtained through your participation in the CM IT Web Site may be considered proprietary and confidential information, including access codes and identification codes. Your right to participate in the CM IT Web Site or other listing will terminate when the Franchise Agreement expires or terminates. You shall be prohibited from establishing your own Web site or other listing on the Internet using the name "CM IT Solutions", the Proprietary Marks and/or the System. We will provide you up to ten (10) email accounts for the use of your business, and you agree to pay on an annual basis our then-current email account fee. For additional accounts you may incur additional fees. As we continue to develop strategies for taking advantage of the benefits the Internet may offer, you will be required to also participate in such activities. You therefore agree that we, upon 60 days prior notice, will require you to participate in, and contribute a proportionate share of, such future Internet activities that we may establish.
ARTICLE 11. ACCOUNTING PROCEDURES AND REPORTS
11.1 Maintenance of Records
During the term of this Agreement, you must maintain at your principal office and preserve for at least five (5) years form the date of their preparation, or such greater period as may be required by applicable law, full, complete and accurate books, records and accounts, including coupons, purchase orders, check stubs, bank statements, sales tax records and returns, cash receipts and disbursements, journals and ledgers, and copies of such portions of your state and federal income tax returns a reflect the operation of the Franchised Business in the form and manner we prescribe, prepared in accordance with the requirements established from time to time by us. All financial statements and reports must be prepared in accordance with general accepted accounting principles, consistently applied.
11.2 Reports to Franchisor
You must furnish to us on or before the tenth (10th) day of each calendar month, in a form from time to time required by us, a report signed and verified by you (or, if you are a corporation, by your President, or, if you are a partnership, by a general partner, or, if you are a limited liability company, by a manager or managing member) accurately reflecting such data, information and supporting records as we may require. For a period of five (5) years from the close of each fiscal year, you must maintain at your principal office, readily available for inspection by us, and must furnish to us upon our request, exact copies of your federal and state income tax returns and sales or transaction privilege tax reports. In addition, you must, at your expense, furnish to us or our agents for inspection or audit, such other forms, reports, records, financial statements and information as we may require.
11.3 Financial Statements
You must prepare and furnish to us, within thirty (30) days after the end of each of your fiscal quarters, a statement of profit and loss and a balance sheet for the Franchised Business for the preceding fiscal quarter. Quarterly statements must be signed and verified as to accuracy by you (or if you are a corporation, partnership or limited liability company, by the person specified in Section 11.2 above). You must prepare and furnish to us, within ninety (90) days after the end of each of your fiscal
Franchise Agreement February 2006_______________________________________________Page 19_______
Exhibit I
years, annual statements of profit and loss, sources and application of funds, and a balance sheet pertaining to the Franchised Business for the preceding fiscal year and as of your fiscal year end. Annual financial statements must be signed and verified as to accuracy by you (or il you are a corporation, partnership or limited liability company, by the person specified in Section 11.2 above) and must be certified by an independent certified accountant. To assist you in recording and keeping accurate and detailed financial records, you agree to use a computer system and software of the type and with the functions specified in Exhibit E of the accompanying Offering Circular, and listed in the Operations Manuals.
We will have the right to use (without identifying you except as required by law) any financial statements, sales reports, profit and loss statements or balance sheets provided by you in connection with our efforts to attract additional Franchisees for the System and, in connection therewith, you authorize us to disclose any information contained on such financial reports as may be required by any federal or state registration or disclosure law.
11.4 Audit by Franchisor
We will have the right, at any time during business hours, and with not less than forty-eight (48) hours prior notice to you, to inspect and audit, or cause to be inspected and audited, the business records, cash control devices, bookkeeping and accounting records, sales and income tax records and returns and other records of the Franchised Business and your corporate, partnership or limited liability company books and records if you are a corporation, partnership or limited liability company.
You agree that we may have access to any computers utilized by you for such purposes. You will fully cooperate with our representatives and independent accountants hired by us to conduct any such inspection or audit.
In addition, in the event such inspection or audit is made necessary by your failure to furnish reports, supporting records or other information, as required herein, or to furnish such reports, records or information on a timely basis, you must reimburse us for such audit or inspection, including the charges of any independent accountants and the travel expenses, meals, lodging and compensation of such accountants and our employees.
You must immediately notify us in writing of any governmental audit of your Franchise, and must provide such additional information pertaining to the audit as we may request.
The remedies in this Section 11.4 will be in addition to all our other remedies and rights under this Agreement or under applicable law.
11.5 Ownership Information
You must provide us with the name, the address and the phone number of each officer, director, shareholder, partner (and of each officer, director and shareholder of a corporate partner) or any other person directly or indirectly holding an ownership interest in your entity. You must advise us in writing of any changes in such information within five (5) days after such change is effective.
11.6 Debts and Taxes
You must promptly pay when due all Taxes (as defined below), levied or assessed, and all accounts and other indebtedness of every kind incurred by your Franchise.
Each payment to be made to us under this Agreement must be made free and clear and without deduction for any Taxes. The term "Taxes" means any present or future taxes, levies, imposts, duties or other charges of whatsoever nature, including any interest or penalty, imposed by any government or political subdivision of such government on or relating to the operation of your Franchise, the payment of monies, or the exercise of rights granted pursuant to this Agreement, except Taxes imposed on or measured by our net income.
In the event of any bona fide dispute as to your liability for Taxes assessed or other indebtedness, you may contest the validity or the amount of the Tax or indebtedness in accordance with
Franchise Agreement February 2006_______________________________________________Page 20_______
Exhibit I
the procedures of the taxing authority or applicable law. However, in no event may you permit a tax sale or seizure by levy of execution or similar writ or warrant or attachment by a creditor, to occur against any assets of your Franchise.
You must comply with all federal, state and local laws, rules and regulations, and must obtain any and all permits, certificates or licenses necessary for the full and proper conduct of your Franchise, including licenses to do business, fictitious name registrations, and sales tax permits.
You must notify us in writing within five (5) days of the commencement of any action, suit or proceeding and of the issuance of any order, writ, injunction, award or decree of any court, agency or other governmental instrumentality, which may adversely affect the operation or financial condition of your Franchise.
ARTICLE 12. TRANSFERABILITY OF INTEREST
12.1 Assignment by Franchisor
We will have the right to assign this Agreement or any interest herein to any person, without your consent or approval, provided that the assignee agrees in writing to assume and perform our obligations hereunder. In the event of any such assignment, we (and, in the case of any subsequent assignment the then assignor) will be relieved, from and after the date of such assignment, of any further liability for the performance of any covenants or obligations on the part of the Franchisor contained in this Agreement.
We may sell our assets, our right in the Marks or the System; may offer our securities privately or publicly; may merge, acquire other corporations, or be acquired by another corporation; may undertake a refinancing, recapitalization, leveraged buyout or other economic or financial restructuring; and with regard to any or all of the above sales, assignments and dispositions, you waive any claims, demands or damages against us arising from or related to the transfer of our rights in the Marks (or any variation of them) or the System from us to any other party. Nothing contained in this Agreement will require us to offer any services or products, whether or not bearing the Marks, to you, if we assign our rights in this Agreement.
12.2 Assignment by Franchisee
Except as provided in Section 12.4 below, neither you nor any partner (if you are in a partnership), not any shareholder (if you are a corporation), nor any member (if you a limited liability company) may, by operation of law or otherwise, sell, assign, transfer, convey, give away, pledge, mortgage, encumber or otherwise dispose of, either directly or indirectly (hereinafter collectively called "Transfer"), any interest in this Agreement, your CM IT Solutions Business, the Franchised Business, or any ownership interest in a partnership, corporation or limited liability company that is the Franchisee under this Agreement, (including in the case of the transfer of an ownership interest, a transfer that, when aggregated with any previous transfers, will result in a change in identity of the person who controls the partnership, corporation or limited liability company) or offer to Transfer, or permit or undergo any Transfer thereof to any person without our prior written consent and, in any event, without first complying with the provisions of Section 12.3 below.
Any purported Transfer not having our prior written consent shall be null and void and shall constitute a default hereunder on your part. If you desire to make a Transfer, you must give us not less than thirty (30) days advance written notice setting forth all the terms and conditions of the proposed Transfer including such other information as we may reasonably request and, if applicable, you must include a copy of any written purchase offer received by you. Subject to our rights under Section 12.3 below, we will not withhold our approval of the Transfer unreasonably, provided that the proposed transferee is, in our opinion, a person or entity of good moral character who has sufficient business experience, aptitude and financial resources to own and operate the Franchised Business and otherwise meet our then applicable standards for Franchisees in the System, and further provided that the following conditions are met prior to, or concurrently with, the effective date of the Transfer.
Franchise Agreement February 2006_______________________________________________Page 21
Exhibit I
The original documents were scanned as an image. The original file can be downloaded at the link above.