The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample Franchise Agreement
ECONO LUBE N' TUNE & BRAKES
THIS FRANCHISE AGREEMENT ("Agreement") is made and entered into this
______day of__________________, 20_, by and between ECONO LUBE N* TUNE, INC., a
California corporation ("Company"), and_______________________________("Franchisee")
with reference to the following facts:
Company has developed and is continuing to develop certain unique and specialized training, management and marketing techniques and other procedures and methods of operation known as the ECONO LUBE N' TUNE & BRAKES system ("System") used in connection with the development, operation, promotion and maintenance of business establishments offering motor vehicle tune-up, lubrication and brake services to the general public and the training of individuals to conduct such business under the name "ECONO LUBE N'TUNE & BRAKES".
Company is the owner of all proprietary and other property rights and interests in and to the trademark and service mark "ECONO LUBE N' TUNE & BRAKES" and all other trademarks, tradenames, service marks, logotypes, insignias and designs which Company may from time to time authorize Franchisee to use in connection with the System ("Trademarks").
Franchisee desires to obtain a franchise to operate one (1) ECONO LUBE N* TUNE & BRAKES franchise at the Location described below, and Company desires to grant to Franchisee said franchise in accordance with the terms and conditions of this Agreement, and the Operations Manual pertaining hereto, as hereinafter set forth:
WHEREFORE IT IS AGREED
I. GRANT OF FRANCHISE AND LICENSE
1.1 Grant of Franchise
Company hereby grants to Franchisee and Franchisee hereby accepts, the right to use, during the term hereof, the System in connection with the operation of one (1) "ECONO LUBE N' TUNE & BRAKES" Business at, and only at, the Location, as herein defined, in accordance with the terms and conditions of this Agreement, any ancillary written agreement(s) related hereto, and the Operations Manual. The term "Business," as used herein, shall mean the business, operated under Company's Trademarks and pursuant to its System, of offering and selling motor vehicle tune-up and brake services, lubrication and oil changes to the general public, and such other services as Franchisee may from time to time during the term hereof be authorized and/or required by Company to render.
LOSANGELES 10570vl6 40612-00008
1.2 Grant of License
Company hereby grants to Franchisee and Franchisee hereby accepts a license to use and display Company's Trademarks only in connection with the operation of one (1) franchised Business at, and only at, the Location described below, in accordance with the terms and conditions of this Agreement, any ancillary written agreement(s) related hereto, and the Operations Manual.
1.3 Certain Definitions
"Affiliate" when used herein in connection with Company or Franchisee, includes each Business Entity which directly, or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with Company or Franchisee, as applicable. Without limiting the foregoing, the term "Franchisee-Affiliate" includes any Business Entity more than 50% of whose stock; membership interests; Partnership Rights; or other equity ownership interests (collectively "Equity") or voting control, is held by person(s) or Business Entities who, jointly or severally, hold more than 50% of the Equity or voting control of Franchisee.
"Applicable Law" shall mean and include applicable common law and all applicable statutes, rules, regulations, ordinances, orders, policies and procedures established by any Governmental Authority, as in effect on the Effective Date hereof, and as may be enacted, amended or supplemented from time to time.
"Assignment" shall have the meaning set forth in Section 10.2.
"Business Entity" shall mean any limited liability partnership, general partnership or limited partnership (each of which shall be referred to as a "Partnership"), and any trust, association, corporation, limited liability company or other entity which is not an individual.
"Designated Franchisee Representative" shall have the meaning set forth in Section 6.1(b).
The "Effective Date" of this Agreement shall be the date first above written.
"Governmental Authority" shall mean and include all Federal, state, county, municipal and local governmental and quasi-governmental agencies, commissions and authorities.
"Gross Revenues" shall have the meaning set forth in Section 4.9.
"Location" shall have the meaning set forth in Section 3.1(a).
"Partnership" shall mean any limited liability partnership, general partnership or limited partnership.
"Partnership Right" shall mean the voting power, property, profits or losses, or partnership interests of a Partnership, or any of them.
LOS ANGELES 10570v 16 40612-00008
"Territory" shall mean that certain geographic area described on the map which is attached hereto as Exhibit A and incorporated herein by reference.
II. TERM OF FRANCHISE AGREEMENT
(a) Unless sooner terminated in accordance herewith, the term of this Agreement shall commence upon the execution hereof and shall terminate: [strike inapplicable
provision] (i)____________(__) years after the date on which Franchisee opens the Business to
the public, (ii)________, 20__, provided that it shall automatically expire on the earlier
expiration or termination of Franchisee's lease, sublease, or other right to occupy the Location.
(b) Notwithstanding anything to the contrary in Section 2.1(a), if Franchisee's Location has been leased by Franchisee from Company, and if within twenty-four (24) months following the Effective Date, Company transfers its fee estate in the property of which the Location is a part, or any portion thereof, and retains and/or leases back a leasehold interest in such property ("Sale-Lease Back"), the term hereof above shall be increased by up to twenty-four (24) months, at Company's election, effective upon written notice to Franchisee, so that the initial term hereof is co-terminus with the initial term of Company's master lease for the property.
(a) If Franchisee shall have complied in all respects with the conditions set forth in Section 2.5 hereof, Franchisee shall have the right, but not the obligation, upon the expiration of the term specified in Section 2.1 of this Article, to enter into a new franchise agreement (the "Renewal Agreement") for a term of five (5) years. The term of such Renewal Agreement shall commence upon the date of expiration of the Initial Term hereof.
(b) Said Renewal Agreement shall provide that at the end of the term thereof, if Franchisee shall have the right to continue to occupy the Location, and shall have fully complied with all conditions precedent set forth in the Renewal Agreement, Franchisee shall have the right, but not the obligation, to enter into one additional Renewal Agreement for a term of five (5) years.
2.3 Form and Manner of Renewal
If Franchisee desires to exercise its right to enter into a Renewal Agreement, it shall do so by executing Company's then-current form of franchise agreement generally offered by Company to its prospective "Econo Lube N' Tune & Brakes" franchisees in the state in which the Business is located, in the following manner:
(a) Not less than eight (8) months nor more than twelve (12) months prior to the expiration of the Initial Term of this Agreement, Franchisee shall request from Company in
writing a copy of. its then-current Offering Circular (including its then-current Franchise Agreement).
(b) Following receipt of Franchisee's said written request, Company shall deliver to Franchisee a copy of its then-current Offering Circular (including its then-current Franchise Agreement) and promptly upon receipt of same Franchisee shall acknowledge receipt thereof by executing and returning to Company the form prescribed in said Offering Circular.
(c) No sooner than ten (10) business days but no more than twenty (20) business days after Franchisee receives Company's then-current Offering Circular (including Company's then-current Franchise Agreement), Franchisee shall, by written notice, notify Company as to whether or not it elects to execute Company's then-current form of Franchise Agreement (as modified pursuant to Section 2.4).
(d) Promptly upon receipt of Franchisee's said notice of election to execute Company's then-current Franchise Agreement, Company shall deliver to Franchisee two copies of said Agreement modified as hereinafter provided. No sooner than five (5) business days but no more than ten (10) business days after receipt thereof Franchisee shall execute two copies of said Franchise Agreement and shall return same to Company.
(e) If Franchisee shall fail to perform any of the acts, or deliver any of the notices required pursuant to the provisions of subsections (a), (b) (c) or (d) of this Section, in a timely fashion, such failure shall be deemed an election by Franchisee not to exercise its right and option to enter into a Renewal Agreement, and such failure shall cause Franchisee's said right and option to lapse and expire.
(f) Provided that Franchisee shall have exercised its renewal right, in the form and manner herein described, and if on the date of the expiration of the Initial Term of this Agreement Franchisee has complied with all of the conditions contained in Section'2.5 hereof, Company shall execute the Renewal Agreement executed by Franchisee and shall, promptly after expiration of the Initial Term hereof, deliver one (1) fully executed copy of said Renewal Agreement to Franchisee.
2.4 Modification of Renewal Franchise Agreement
Notwithstanding anything herein contained to the contrary, the Renewal Agreement, if executed by parties hereto, shall differ, and be modified, from Company's then-current Franchise Agreement in the following respects:
(a) Franchisee shall be required to pay a Renewal Fee of Two Thousand Five Hundred Dollars ($2,500).
(b) The term shall be modified in accordance with Section 2.2 above.
(c) All reference to a renewal term contained in the Renewal Agreement shall be modified to conform to the then remaining number of Renewal options as stated in Section 2.2(b).
2.5 Conditions Precedent to Renewal
Franchisee's right to enter into a Renewal Agreement, in accordance with the provisions of Section 2.2 hereof, is conditioned upon Franchisee's fulfillment of each and all of the following conditions precedent:
(a) At the time Franchisee notifies Company of its election to renew pursuant to Section 2.3(a) above and at all times from such notification to the time of the commencement of the term of the Renewal Agreement, Franchisee shall have fully performed all of its obligations under this Agreement and under all other agreements which may then be in effect between Franchisee and Company (or its Affiliate), including any Lease, Sublease, or Equipment Lease, and each Franchisee-Affiliate shall have fully performed all of its obligations under each agreement between such Franchisee-Affiliate and Company (or its Affiliate).
(b) At the time Franchisee notifies Company of its election to renew, and at the time of the commencement of the Renewal Agreement, Franchisee shall have not received three (3) or more notices of default during any twelve (12) month period during the Initial Term of this Agreement, whether or not such defaults were cured.
(c) Franchisee shall have completed the refurbishing and remodeling required to be completed by him prior to the expiration of the Initial Term of this Agreement pursuant to the provisions of Section 9.3.
2.6 Non-applicability of Renewal Provision Sections 2.2, 2.3, 2.4 and 2.5 shall not be applicable:
(a) if Franchisee has executed this Franchise Agreement as a renewal of a prior franchise agreement which did not expressly grant any further right to renew, in which case Franchisee shall have no further right to renew upon the expiration of the term set forth in Section 2.1., or
(b) if Franchisee has executed this Agreement in connection with its purchase of an existing franchisee's business and the existing franchisee's franchise agreement does not expressly grant the right to renew or to enter a Renewal Agreement, Franchisee shall have no right to enter into a Renewal Agreement.
2.7 Notice Required by Law
If Applicable Law requires that Company give notice to Franchisee prior to the expiration of the term, this Agreement shall remain in effect on a month to month basis until Company has given the requisite notice required by such Applicable Law. Notwithstanding anything to the contrary herein, if Company is not offering new franchises or is otherwise not lawfully able to offer Franchisee its then-current form of Franchise Agreement at the time Franchisee elects to renew, Company may, at its option, agree to renew this Agreement on its current terms, or extend the term hereof until it is lawfully able to offer its then-current form of franchise agreement.
(a) Franchisee shall conduct the franchised Business solely at the following location:___________________________________________(the "Location").
(b) If no Location has been inserted in Section 3.1(a) at the time of execution of this Agreement, Franchisee shall acquire through purchase or lease within sixty (60) days following the execution hereof a location meeting Company's then-current standards and specifications, as determined by Company; provided, that Franchisee shall not enter into any such lease or purchase agreement unless Franchisee shall have first (i) notified Company in writing of the proposed Location and provided Company with all information which Company may request concerning such proposed Location, and (ii) shall have received Company's written approval of such Location, upon the receipt of which approval such Location shall be deemed to be the "Location" as defined in Section 3.1(a) above.
If Franchisee shall fail to lease or purchase an approved Location within the aforesaid sixty (60) day period, Company shall have the right to rescind this Agreement in accordance with the procedure established in Section 12.1 below; provided, further however, that Company may agree upon an extension of said sixty (60) day period, not to exceed thirty (30) days, if in Company's judgment Franchisee's failure to locate an approved Location within the prescribed time period did not result from Franchisee's failure to exercise due diligence or use its best efforts.
3.2 Assistance in Site Location
Upon Franchisee's request, Company shall assist Franchisee to obtain a suitable Location for Franchisee's franchised Business, and may offer, without obligation of Franchisee to accept, to lease or sublease to Franchisee a Location which is owned or leased by Company or its Affiliates, provided that neither Company's said assistance nor the fact that Franchisee may lease or sublease a Location from Company shall be construed to insure or guarantee the profitable or successful operation of the Location by Franchisee, and Company hereby expressly disclaims any responsibility therefor.
During the Initial Term or any extension hereof, Company shall not open or grant a franchise or license to any other person or entity (including any Company Affiliate) to open an "ECONO LUBE N' TUNE & BRAKES" Business at any site located within the Territory. Company expressly reserves the exclusive, unrestricted right, directly and indirectly, through its Affiliates, franchisees, licensees, assigns, agents and others, to own or operate, and to franchise or license others to own or operate businesses operating under names other than "ECONO LUBE N' TUNE & BRAKES" at any location, regardless of the nature of the business or their
LOSANGELES 10570vl6 40612-00008
proximity to the Franchisee's Business developed pursuant hereto, including businesses offering motor vehicle tune-up and brake services, lubrication and oil changes.
(a) If the premises at the Location have not been constructed, equipped and improved to comply with Company's standards in effect for new "Econo Lube N' Tune & Brakes" Centers at the time of the execution of this Franchise Agreement, Franchisee shall at its sole cost and expense promptly construct, equip and improve the building to be located at the Location, or cause same to be constructed, equipped and improved, in accordance with Company's plans, specifications and designs delivered by Company to Franchisee and in strict accordance with the final plans, drawings and specifications provided by Franchisee and approved by Company in writing, pursuant to Section 3.4 hereof.
(b) Franchisee shall break ground for the construction as soon as possible but no later than six (6) months after (i) Effective Date of this Agreement if the Location was inserted in Section 3.1(a) concurrently therewith, or (ii) the date on which such Location is approved by Company, whichever is applicable.
(c) Subject only to causes beyond the reasonable control of Franchisee, which Franchisee could not by the exercise of due diligence have avoided, Franchisee shall complete construction of the Location and all fixtures, improvements, signs, machinery and equipment as soon as possible but no later than six (6) months after breaking ground. Company shall have the right to inspect and examine the premises and any fixtures, furnishings and equipment to insure compliance with Company's standards and specifications.
(d) The time periods for the commencement and completion of construction and the installation of fixtures, signs, machinery and equipment as referred to in this Section 3.4 are of the essence of this Agreement.
(e) If Franchisee fails to perform its obligations contained in this Section 3.4, Company shall have the following remedies, any one of which it may select in its sole discretion.
(i) Company may itself arrange for construction, improvement and or equipping of the Location by such builders, contractors and suppliers of its selection and the costs incurred in connection therewith shall be paid by Franchisee immediately upon demand to such party designated in such demand; or
(ii) Company may consider Franchisee's failure to so perform its obligations as aforesaid, to constitute a material breach of this Agreement, in which event Company shall notify Franchisee to such effect. The parties acknowledge that Franchisee's failure to comply with its obligations contained in this Section 3.4 will cause Company to suffer losses and damages in an amount which are not readily capable of determination, therefore Company shall be entitled to retain as liquidated damages, the initial franchise fee and all other deposits theretofore received from Franchisee.
(f) Franchisee shall, promptly upon demand by Company, deposit with a corporate escrow agent designated by Company, such irrevocable loan commitments,
LOSANGELES 10570vl6 40612-00008
performance bonds, cash or other liquid assets as may be reasonably necessary to insure Franchisee's payment of said construction costs, sign and equipment lease or purchase agreements, construction and architectural fees and other expenditures required to be made by Franchisee in order to make its "Econo Lube N' Tune & Brakes Center" fully operable.
3.5 Specification for Building. Equipment and Signs
Prior to the commencement of construction of the Location, Company will deliver to Franchisee, general initial specifications for the building, equipment, furnishings, decor, layout and signs related to the franchised Business and will consult and advise Franchisee with respect to such specifications. Franchisee will, in all respects, comply with all such specifications and criteria unless Company shall, in writing, agree to modifications thereof. Such modifications will customarily be made only if required by zoning or similar laws, landlord requirements, unique plot problems or similar matters. Company shall not be required to furnish architectural, engineering or construction drawings or designs and all such drawings and designs as well as site plans, working drawings and approvals required for the construction and development of Franchisee's application shall be acquired by Franchisee at its sole cost and expense. All such site plans, working drawings, architectural plans, site plans, equipment plans and interior and exterior designs for the Location shall be subject to Company's prior approval, which approval shall not be unreasonably withheld.
(a) If Franchisee shall sublease the Franchised Location from Company, Franchisee shall duly perform all of the terms, conditions, covenants, and obligations contained in the Sublease executed in connection herewith.
(b) Franchisee acknowledges that it has been given an opportunity to purchase .or obtain a lease of premises suitable for operation of an "Econo Lube N' Tune & Brakes" Center
other than premises owned or leased by Company with the assurance that a franchise would be granted and the lease would be approved by Company so long as it met Company's standards for franchised locations. By signing this Franchise Agreement, Franchisee acknowledges that it has been informed to this, effect and that the location of the leased premises for which this franchise is granted as described above is of Franchisee's own choosing selected by the exercise of its free will with an opportunity to conduct its own independent assessment of the location's business potential.
(c) . If Franchisee enters into a lease directly with a third party landlord for the premises to be occupied by its "Econo Lube N' Tune & Brakes" Center, or any portion thereof: (i) Company shall have the right of approval of such lease, a true and correct copy of which shall be delivered to Company at least thirty (30) days prior to the execution thereof; (ii) the term of said lease shall be for a period which is not less than the term of this Agreement, as specified in Section 2.1 unless Company shall approve, in writing, a shorter term; (iii) Franchisee shall neither create nor purport to create any obligations on behalf of Company, nor grant or purport to grant to the landlord thereunder any rights against Company, nor agree to any other term, condition, or covenant which is inconsistent with any provision of this Franchise Agreement; (iv) Franchisee shall duly and timely perform all of the terms, conditions, covenants and obligations
LOS ANGELES 10570v 16 40612-00008
imposed upon him under the lease; (v) the premises to be occupied by its "Econo Lube N' Tune & Brakes" Center shall be constructed and improved pursuant to the provisions of Section 3.4, hereof; (vi) the lease shall expressly provide that Company shall have the right (but not the obligation) to succeed to Franchisee's rights under the Lease if Franchisee fails to exercise any option to renew, and upon Franchisee's default thereunder, and that if any breach or claim of breach thereof by Franchisee, the landlord thereunder shall be obligated to notify Company in writing at least thirty (30) days prior to its termination or non-renewal and, in the case of a default, Company shall have the right, but not the obligation, to cure the breach and to succeed to Franchisee's rights under said lease by giving written notice of such election to Franchisee and such landlord; Franchisee hereby appoints Company as its attorney-in-fact to execute an assignment and all other documents and instruments which Company deems necessary or appropriate to effectuate the foregoing; (vii) a fully executed copy of said lease shall be delivered to Company promptly following the execution thereof; and (viii) the lease shall provide that it may not be assigned, subleased, modified or amended without Company's prior written consent which shall not be unreasonably withheld, and that Company shall be provided with copies of all such assignments, subleases, modifications and amendments.
IV. PAYMENTS BY FRANCHISEE
4.1 Initial Fee
As an Initial Franchise Fee, Franchisee shall pay to Company the sum of
$_______________. The full amount of said fee shall be paid by Franchisee and deemed fully
earned by Company upon the execution hereof and shall not be refundable under any circumstances, except as provided in Section 12.1 in the event of the failure of Franchisee to complete the franchisee training program in a satisfactory manner.
4.2 Continuing Royalty
(a) As a Continuing Royalty, Franchisee shall pay Company for each week during the term of the Agreement and any extension thereof, subject to adjustment as provided in Section 4.4 below, an amount equal to 5% of Gross Revenues or &A523.82, whichever is greater.
(b) The Continuing Royalty for each week during the term of this Agreement shall either be (i) mailed by Franchisee first-class, postage prepaid, properly addressed to Company, and postmarked by Tuesday of that week or (ii) hand-delivered to Company by Thursday of that week. Concurrently therewith Franchisee shall submit copies of all service invoices together with a Gross Revenue Report, in form prescribed by Company, covering the week for which such Continuing Royalty payment is being made. Franchisee shall pay a late charge of $100 for each week that any or all of the following are not received when due: Continuing Royalty payment; Gross Revenue Report; or service invoice copies. Franchisee acknowledge and agrees that Company will suffer substantial administrative, legal, accounting and other costs and expenses if Franchisee fails to comply with its obligation in timely fashion, and acknowledges that said $100 charge is a reasonable estimation of such costs and expenses.
LOSANGELES 10570v 16 40612-00008
4.3 Service Fee
Franchisee shall each week during the term of this Agreement, or any extensions hereof, pay to Company, concurrently with the submission of Franchisee's Continuing Royalty payment as described in Section 4.2 above, a Service Fee equal to $A29.10. subject to adjustment as provided in Section 4.4 below.
4.4 Cost of Living Adjustment
(a) The dollar amounts set forth in Paragraphs 4.2(a) and 4.3 above, shall be subject to adjustment, not more than once every two years, to reflect any increase in the Consumer Price Index, All Urban Consumers, All Items, All U.S. Cities (revised 1982-84:100) published by the United States Department of Labor, Bureau of Statistics (the "Adjustment") from the base period. For the purpose of the Continuing Royalty and Service Fee, the "base period" shall refer to October 2000. Company may, at its election, in order to facilitate the computation of the Adjustment, use the CPI published three months prior to the effective date of each Adjustment to determine the amount of the Adjustment. The first such Adjustment shall be made effective as of January 1, A2007. and each subsequent Adjustment shall be made effective as of each succeeding second anniversary of that date thereafter. Notwithstanding anything contained in this Agreement, if Franchisee's Gross Revenues decline in any calendar year by 25% or more of Franchisee's Gross Revenues during the preceding calendar year, Franchisee must, at Company's election, attend a compulsory one-week training class at Company's training center in the Phoenix area, Arizona (the "Training Center"), which class shall be designed to address sales and marketing issues. Franchisee shall pay Company a training fee of $500 for such training.
4.5 Advertising Fund
In addition to all other payments provided for herein, Franchisee shall each week during the term of this Agreement, or any extensions hereof, pay to Company, concurrently with the submission of Franchisee's Continuing Royalty payment as described in Section 4.2 above, an Advertising Fee in an amount equal to one-half of one percent (.5%) of Franchisee's Gross Revenues for the prior week, which shall be used by Company as an Advertising Fund, and which shall be administered in accordance with Article VII below. Franchisee shall pay a late charge of $100 for each week that Franchisee is late in delivering any advertising fee payment to Company (whether pursuant to Section 4.5 or 4.6, or both). Franchisee acknowledges and agrees that Company will suffer substantial administrative, legal, accounting and other costs and expenses if Franchisee fails to comply with its obligations in timely fashion, and acknowledges that said $100 charge is a reasonable estimation of such costs and expenses. If Franchisee defaults in making any payments to Company when and as due, Company may cease providing further advertising on behalf of Franchisee, and exclude Franchisee's Business from any or all advertising, wherever distributed.
4.6 Local Advertising Fee
(a) In addition to the advertising fees required to be paid by-Franchisee pursuant to Section 4.5 hereof, Franchisee shall pay to Company on a weekly basis concurrently
with the submission of Franchisee's Continuing Royalty payment as described in Section 4.2, a Local Advertising Fee in an amount equal to five and one-half percent (5.5%) of Franchisee's Gross Revenues for the prior week or Five Hundred Dollars ($500), whichever is greater (the "Local Advertising Fee") which shall be used in accordance with 4.6(b) below.
(b) Company shall expend Franchisee's Local Advertising Fees for such local and/or regional advertising in such manner and in such media as Company deems appropriate in its discretion, reasonably exercised, to enhance or promote the image, identity or patronage of Franchisee's Business. Without limiting the generality of the foregoing, Company may pool Franchisee's Local Advertising Fees with those of other franchisees in the general geographic area surrounding Franchisee's Franchise Location and Territory to purchase advertising on a cooperative basis. Company will administer the expenditure of Franchisee's Local Advertising Fees in such manner as Company may determine in its subjective judgement exercised in good faith. Company will be entitled to receive an administrative fee equal to 15% of the cost of advertising procured by Company on behalf of Franchisee. If Franchisee defaults in making any payments to Company when and as due, Company may cease providing further advertising on behalf of Franchisee, and exclude Franchisee's Business from any or all advertising, wherever distributed.
4.7 Pre-Paid Advertising Fee.
If Franchisee is executing this Agreement in connection with the purchase of a Company-owned "Econo Lube N' Tune & Brakes" Center, upon the execution hereof, Franchisee shall pay a $2,500 pre-paid advertising fee, to cover the estimated costs which we typically have incurred for advertising purchased by Company prior to Franchisee's opening but relating to periods after Franchisee opens. The pre-paid advertising fee shall be $2,500 even though the actual costs Company has incurred may be more or less than this amount.
4.8 Other Payments to Company
In addition to all other payments provided herein, Franchisee shall pay to Company, or Affiliates or designees, as applicable, promptly when due:
(a) The amount of all sales taxes, use taxes, personal property taxes and similar taxes, imposed upon Franchisee and required to be collected or paid by Company on account of goods or services furnished by Franchisee by sale, lease or otherwise or on account of royalties or initial franchise fees collected by Company from Franchisee.
(b) All amounts advanced by Company or which Company has paid, or for which Company has become obligated to pay on behalf of Franchisee for any reason whatsoever.
4.9 Gross Revenues
The term "Gross Revenues" shall for all purposes of this Agreement mean all sums received by Franchisee from or arising out of the operation of the Business, including revenues generated from any and all sources on account of the sale of goods or rendering of services of any kind or nature, under, or in any way related to the use of, Company's Trademarks, whether cash or credit, deducting therefrom, to the extent they have been included any sales, use
LOSANGELES !0570vl6 40612-00008
or excise taxes which are separately stated and which Franchisee collects from customers and pays to any federal, state, or local tax authority.
4.10 Application of Funds
If Franchisee shall be delinquent in the payment of any obligation to Company hereunder, or under any other agreement with Company, Company shall have the absolute right, with or without notification to Franchisee, to apply all payments from Franchisee to the oldest obligation due, whether under this Agreement or otherwise, notwithstanding any contrary designation by Franchisee as to application, whether indicated on Franchisee's check(s) or by other communication to Company verbally or in writing. Company's acceptance or negotiation of any check bearing any such purported application of funds shall not constitute a waiver of this provision, nor bind Company to apply the funds in any particular manner.
If Franchisee shall for any reason fail to pay to Company all or any portion of the Continuing Royalty, Service Fee, Advertising Fees or any other sums due to Company promptly when due, Franchisee shall pay to Company, in addition to any applicable late charges, interest on the past due amount at an annual rate equal to the prime rate established by the Bank of America on the first day of the month in which such payments were due plus two percent (2%). The calculation of this late payment fee shall be made on a daily basis. Notwithstanding the foregoing, if the amount of the late payment fee shall be greater than any such charge permitted by Applicable Law, such charge shall be reduced to an amount equal to the maximum lawful charge, it being the intention of the parties that such late payment charge shall in no event be greater than that permitted by law.
4.12 Security Deposit
Franchisee has deposited with Company the sum of Two Thousand Five Hundred Dollars ($2,500) as security for the full and faithful performance of every provision of this Agreement to be performed by Franchisee. If Franchisee breaches any provision of this Agreement, including, the payment of Continuing Royalties and Advertising Fees, Company may use all or any part of this security deposit for the payment of Continuing Royalties, Advertising Fees or any other sums in default, or to compensate Company for any other loss or damage which Company may suffer by reason of Franchisee's default. If any portion of said deposit is so used or applied, Franchisee shall, within five (5) days after written demand therefor, deposit cash with Company in an amount sufficient to restore the security deposit to its full amount. Franchisee agrees that Company shall not be required to keep the security deposit in trust, segregate it or keep it separate from Company's general funds, but Company may commingle the security deposit with its general funds and Franchisee shall not be entitled to interest on such deposit. Within 60 days after the expiration or termination of this Agreement and the Renewal Agreement if applicable, and provided there exists no default by Franchisee hereunder, the security deposit, or any balance thereof shall be returned to Franchisee, provided that subsequent to the expiration or termination of this Agreement, Company may retain from said security deposit (i) any and all amounts reasonably estimated by Company to cover the anticipated costs to be incurred by Company to make cosmetic changes to the Location and the premises so that it no longer
LOSANGELES 10570vl6 40612-00008
resembles Company's proprietary designs and trade dress and none of the Trademarks are used therein, and (ii) any other amounts which Company deems reasonably necessary to compensate it for any other loss or damage, foreseeable or unforeseeable, caused by the acts or omissions of Franchisee or any officer, employee, agent, contractor or invitee of Franchisee.
5.1 Non-Ownership of Trademarks
Nothing herein shall give Franchisee any right, title or interest in or to any of Company's Trademarks, except a mere privilege and license during the term hereof, to display and use the same according to the terms and conditions herein contained. Upon expiration or sooner termination of this Agreement, Franchisee shall forthwith deliver and surrender up to Company each and all of the Trademarks, and any physical objects bearing or containing of the Trademarks, or alternatively with respect to any items owned by Franchisee, at Franchisee's election, Franchisee shall obliterate or destroy any such Trademarks in possession, and Company may, if Franchisee does not.do so, execute in Franchisee's name and on Franchisee's behalf, any and all documents necessary in Company's judgment to end and cause the discontinuance of Franchisee's use of Company's Trademarks and Company is hereby irrevocably appointed and designated as Franchisee's attorney-in-fact so to do.
5.2 Use of Trademarks
Franchisee agrees that the Business herein licensed and franchised shall be named "ECONO LUBE N' TUNE & BRAKES" without any suffix or prefix attached thereto and that Franchisee's premises will bear signs, advertising and slogans which denote that the Business is operated under the service mark "ECONO LUBE N' TUNE & BRAKES" at such places within or about the premises and in such manner as prescribed by the Operations Manual. Franchisee shall not use the Trademarks, or the words "ECONO," "LUBE" or "TUNE" or any words or symbols which are confusingly similar to the Trademarks, as all or part of Franchisee's tradename. Franchisee shall not display the trademark, service mark, tradename, insignia or logotype of any other person, or Business Entity as all or part of its tradename, or otherwise in connection with the operation of the Business without the express prior written consent of Company.
5.3 Acts in Derogation of the Trademarks
Franchisee agrees that the Trademarks are the exclusive property of Company and Franchisee now asserts no claim and will hereafter assert no claim to any goodwill, reputation or ownership thereof by virtue of Franchisee's licensed and/or franchised use thereof, or otherwise. Franchisee agrees that it will not do or permit any act or thing to be done in derogation of any of the rights of Company in connection with the same, either during the term of this Agreement or thereafter, and that it will use the Trademarks only for the uses and in the manner licensed and/or franchised hereunder and as herein provided.
5.4 Prohibition Against Disputing Company's Rights
Franchisee shall not, during or after the term of this Agreement, in any way dispute or impugn the validity of the Trademarks licensed hereunder, or the rights of Company thereto, or the rights of Company or other franchisees of Company to use the same, both during the term of this Agreement and thereafter.
5.5 Assumed Name Registration
If Franchisee is required to do so by any statute or ordinance, Franchisee shall promptly upon the execution of this Agreement file with applicable government agencies or offices, a notice of its intent to conduct its business under the name "Econo Lube N' Tune & Brakes." Promptly upon the expiration or termination of this Agreement for any reason whatsoever Franchisee shall promptly execute and file such documents as may be necessary to revoke or terminate such assumed name registration, and if Franchisee shall fail to promptly execute and file such documents as may be necessary to effectively revoke and terminate such assumed name registration, Franchisee hereby irrevocably appoints Company as its Attorney-in-fact to do so for and on behalf of Franchisee.
5.6 Yellow Page Telephone Listing
Franchisee acknowledges that there will be substantial confusion in the mind of the public if, after the expiration or termination of this Agreement, Franchisee continues to use the telephone number listed in the yellow pages of the phone directory under the name "Econo Lube N* Tune & Brakes," or some other name confusingly similar thereto. Therefore, Franchisee agrees that the telephone number listed for the Franchised Business shall be in Company's name; however, all invoices payable for such telephone shall be billed to Franchisee.
5.7 Defense of Trademarks
If Franchisee receives notice, or is informed or learned, of any claim, suit or demand against Franchisee on account of any alleged infringement, unfair competition, or similar matter relating to its use of the Trademarks, Franchisee shall promptly notify Company of any such claim, suit or demand. Thereupon, Company shall take such action as it may deem necessary to protect and defend Franchisee against any such claim by any third party and shall indemnify Franchisee against any loss, costs or expenses incurred in connection therewith. Franchisee shall not settle or compromise any such claim by a third party without the prior written consent of Company. Company shall have the right to defend, compromise or settle any such claim, at its discretion, at Company's sole cost and expense, using attorneys of its own choosing, and Franchisee agrees to cooperate fully with Company in connection with the defense of any such claim. Franchisee hereby irrevocably grants authority and power of attorney to Company to defend or settle all such claims, demands or suits. Franchisee may participate at its own expense in such defense or settlement, but Company's decisions with regard thereto shall be final. Company shall have no obligation to defend or indemnify Franchisee pursuant to this section if the claim, suit or demand against Franchisee arises out of or relates to Franchisee's use of the Trademarks in violation of any of the terms of this Agreement, or to the extent that Franchisee's losses or costs could reasonably have been avoided had Franchisee complied with
the provisions of this Article V, other provisions of this Agreement or with Company's directives.
5.8 Prosecution of Infringers
If Franchisee shall receive notice or is informed or learns that any third party, which it believes to be unauthorized to use the Trademarks, is using the Trademarks or any variant thereof, Franchisee shall promptly notify Company of the facts relating to such alleged infringing use. Thereupon, Company shall, in its sole discretion, determine whether or not it wishes to take any action against such third person on account of such alleged infringement of Company's Trademarks. Franchisee shall have no right to make any demand against any such alleged infringer of Company's Trademarks or to prosecute or require Company to prosecute any claim of any kind or nature whatsoever against such alleged infringer of Company's Trademark for or on account of such infringement.
5.9 Modification of Trademarks
From time to time, in the Operations Manual or in directives or bulletins supplemental thereto, Company may add to, delete or modify any or all of the Trademarks. Franchisee shall accept, use, or cease using, as may be applicable, the Trademarks, including any such modified or additional trade names, trademarks, service marks, logotypes and commercial symbols, in accordance with the procedures, policies, rules and regulations contained in the Operations Manual, as though they were specifically set forth in this Agreement.
VI. INSTRUCTIONS AND OPERATING ASSISTANCE
6.1 Instruction Course
(a) Unless Franchisee is signing this Franchise Agreement in connection with the transfer of an existing Franchise Agreement from an existing Econo Lube N' Tune & Brakes franchisee, Company shall furnish to Franchisee and up to two (2) additional employees of Franchisee, without charge to Franchisee, and Franchisee and such employee(s) shall attend and complete at the time(s) and date(s) scheduled by Company, an instruction course on the management and operation of the System and the Business, which may include such topics as marketing, bookkeeping, safety, inventory control and purchasing, and customer and employer-employee relations ("Instruction Course"). Said Instruction Course shall consist of approximately ten (10) business days of training and instruction, as Company in its reasonable judgment may determine, at one or more of the following: (i) Company's training center in the Phoenix area, Arizona, (ii) at a Company-owned or franchised store, (iii) at Franchisee's Location, or (iv) at such place or places as may. be designated by Company. Company shall provide Franchisee a copy of the instruction materials prior to the date Franchisee is scheduled to commence training. Franchisee must review all instruction materials prior to attending training. Company will pay no compensation for any services performed by Franchisee or its employees in connection with and during such training, and Franchisee shall be responsible for all travel and
living expenses incurred by Franchisee and its employees arising in connection with attendance at the instruction course.
(b) If Franchisee is signing this Franchise Agreement in connection with the transfer of an existing Franchise Agreement from an existing Econo Lube N' Tune & Brakes franchisee, Company shall furnish to Franchisee and up to two (2) additional employees of Franchisee, and Franchisee and such employee(s) shall attend and complete at the time(s) and date(s) scheduled by Company, an instruction course on the management and operation of the System and the Business, which may include such topics as marketing, bookkeeping, safety, inventory control and purchasing, and customer and employer employee relations ("Instruction Course"). Said Instruction Course shall consist of five (5) business days of training and instruction, or ten (10) days of training and instruction, at Franchisee's option, at Company's training center in the Phoenix area, Arizona. At Franchisee's request, subject to the availability and scheduling requirements of our training personnel, Company will conduct the second, optional five (5) days of training at Franchisee's Location, however, Franchisee shall pay Company an additional training fee of $1,500. Company shall provide Franchisee a copy of the instruction materials prior to the date Franchisee is scheduled to commence training. Franchisee must review all instruction materials prior to attending training. Company will pay no compensation for any services performed by Franchisee or its employees in connection with and during such training, and Franchisee shall be responsible for all travel and living expenses incurred by Franchisee and its employees arising in connection with attendance at the instruction course.
(c) If Franchisee is a Business Entity, Franchisee shall designate, subject to Company approval, one (1) trainee to complete said Instruction Course, which trainee shall be a major stockholder, member, general partner, officer or other designated representative selected by Franchisee and acceptable to, and approved by Company ("Designated Franchisee Representative"). Franchisee must at all times during the Term, be or employ at least one (1) general manager for the Business, and in the case of a Franchisee which is a Business Entity, must have one (1) Designated Franchisee Representative, who shall have completed Company's initial Instruction Course to Company's satisfaction. If Franchisee or such Designated Franchisee Representative does not satisfactorily complete said Instruction Course, Company shall have the right to rescind this Agreement pursuant to the provisions of Section 12.1.
6.2 Additional Training
Company shall have the right to require Franchisee and/or its personnel from time to time to attend supplementary instruction courses held on a national or regional basis at locations selected by Company to instruct Franchisee with regard to new procedures or programs which Company deems, in its reasonable judgment, to be of major importance to the operation of the Business by its franchisees. Such supplementary training may relate to, by way of illustration and not limitation, marketing, bookkeeping, accounting and general technical operating procedures and the establishment, development and improvement of computer systems. Company's training programs do not guarantee that Franchisee's operation will be successful or profitable, and no representations or warranties are made to that effect.
LOSANGELES 10570vl6 40612-00008
VII. ADVERTISING BY COMPANY
7.1 Administration of Fund
(a) Sums contributed by franchisees to the Advertising Fund pursuant to the terms of their Franchise Agreement shall be segregated administratively on the books of Company as an advertising fund ("Advertising Fund")- Company will similarly contribute to the Advertising Fund for each Business location owned by Company, if any. Company shall deposit said Advertising Fund Contributions in Company's general operating account, commingled with Company's general operating revenues.
(b) If Company shall determine that all or any portion of the Advertising Fund should be used for advertising on a local level, Company shall have the right to expend all or a portion of said Advertising Fund for local advertising, as it shall deem appropriate. If Company shall determine that the total contributions to the Advertising Fund are insufficient to conduct the Advertising Fund effectively, Company may suspend collection of the Advertising Fund contributions; provided, however, that in the event of suspension of the collection of Advertising Fund contributions, as aforesaid, Company shall have the right, upon not less than fifteen (15) days prior written notice, at any time, in its sole discretion, to reinstate the fund and to require strict adherence to the provisions hereunder.
(c) If Company shall expend less than the total of all contributions to the Advertising Fund during any fiscal year, it shall have the right to accumulate such sums for use during subsequent years. If Company shall expend an amount greater than the amount which it is required to expend on account of Company-owned Businesses at any time, Company shall be entitled to receive a reimbursement or a credit against subsequent required contributions to the extent of such excess expenditures.
7.2 Use of Advertising Funds
Company agrees to disburse Advertising Fund revenues for national, regional, or local advertising (including local advertising to support underperforming stores), public relations or promotional campaigns or programs and expenditures designed to promote and enhance the image, identity or patronage of Econo Lube N' Tune & Brakes franchised, licensed and Company-owned businesses, as determined in Company's sole discretion. Such expenditures may include (i) conducting marketing studies, marketing campaigns and related franchisee promotions, purchasing computer software and hardware to facilitate customer and marketing analysis or advertising generally, and the production and purchase of advertising art, commercials, musical jingles, print advertisements, point of sale materials, media advertising, outdoor advertising art, and direct mail pamphlets and literature; and (ii) a payment to Company or its Affiliate equal to fifteen percent (15%) of all such Advertising Fund contributions. Company shall determine, in its total and subjective discretion, exercised in good faith, the cost, media, content, format, style, timing, allocation and all other matters relating to such advertising, public relations and promotional campaigns. Nothing herein shall be construed to require Company to allocate or expend Advertising Fund Contributions so as to benefit any particular
franchisee or group of franchisees on a pro rata or proportional basis or otherwise. Any additional advertising shall be at the sole cost and expense of Franchisee, subject to the provisions set forth herein in Article VHI hereof.
7.3 Advertising Records
Company shall, upon request, furnish to Franchisee within one hundred twenty (120) days after the end of each of Company's fiscal years, a report for the preceding year, prepared and certified correct by an officer of Company describing the amount available, or the deficit, in the Advertising Fund at the beginning of the preceding fiscal year, the aggregate contributions made to the Advertising Fund on account of franchised and Company-owned Businesses during the year, the amount actually expended during the year, and the amount remaining, if any, which shall be carried over for use during the following year(s).
7.4 Co-op Advertising
Company shall have the right to engage in cooperative local advertising from time to time with suppliers of merchandise and services to Company, Franchisee and/or other franchisees, upon such terms and conditions as Company may deem appropriate. Company agrees that it shall allocate any funds received from such suppliers on account of local cooperative advertising to participating franchisees in such manner as Company may deem equitable in its reasonable discretion. Without limiting the generality of the foregoing, Company may apply such sums to additional local advertising, pay cash rebates to participating franchisees, or credit such amounts to any outstanding obligations of participating franchisees to Company or any Company-Affiliate.
7.5 Affect of Default by Franchisee
If Franchisee defaults in making any payments to Company when and as due, Company shall have the right, in addition to all other remedies available to it, to cease providing any further advertising on behalf of Franchisee, and to exclude Franchisee's Business from any or all advertising, including advertising distributed in Franchisee's Territory.
VIII. ADVERTISING BY FRANCHISEE
No advertising material may be used by Franchisee for local advertising unless it has been expressly approved by Company in writing prior to publication or use, and shall in any event comply with such provisions with respect to format, representations and media as are from time to time contained in the Operations Manual or otherwise designated by Company.
8.2 Telephone Directory Advertising
Franchisee shall at its expense obtain a "white pages" and "yellow pages" listing for the Location, in form prescribed by the Operations Manual, in telephone directories covering
LOSANGELES 10570vl6 40612-00008
the Territory or such other areas as Company may otherwise direct, under the name of the Business as promptly as possible after the execution of this Agreement. If Franchisee is engaged in businesses other than the Franchised Business, Franchisee shall maintain separate and distinct telephone numbers and "yellow pages" advertising therefor. Franchisee shall not, without Company's prior written consent, cause or allow itself to be listed in any other directories except with Company's prior written consent. Franchisee shall at all times adhere to all rates advertised by it and shall not advertise in any deceptive or misleading manner.
8.3 Display of Trademarks
Franchisee agrees to display or not to display at all times on the premises of Franchisee's "Econo Lube N' Tune & Brakes" Center such advertising, signs, and other materials in the manner and form as shall be specified from time to time in the Operations Manual. Without limiting the foregoing, Company shall have the right to require Franchisee to install and display, and Franchisee agrees that it shall install and display, such signs, brochures, advertisements and similar promotional materials as Company may direct relating to the offer and sale of franchises by Company or its authorized sales representatives.
Franchisee agrees that at all times and in all advertising, promotion, signs and other display materials, on its letterhead, business forms, and in all of its business dealings and to the general public, it will identify itself only as a franchisee of Company, independently owned and operated by Franchisee. Franchisee further agrees that it will not identify itself as being Company, or a subsidiary, division, partner, joint venturer, agent or employee of Company, and Company-Affiliate, or of any of Company's franchisees.
IX. OPERATION OF THE BUSINESS
9.1 Equipment and Other Supplies
Company shall, prior to Franchisee's commencing the operation of the franchised Business, and from time to time during the term hereof, provide Franchisee with a list of tools, fixtures, equipment, uniforms, office supplies, forms, computers, inventory and other materials required for the operation of the franchised Business (the "Materials"). Franchisee shall purchase or lease all such required Materials prior to commencing the operation of the Business, promptly shall purchase additional materials which Company may direct from time to time, and shall maintain such Materials in such quantities and of such quality as Company may designate from time to time. All such Materials used by Franchisee in connection with the operation of the Business shall be purchased or leased and procured by Franchisee from (a) Company, if Company at its option makes same available to Franchisee (b) suppliers or manufacturers designated or approved by Company or (c) suppliers selected by Franchisee and not disapproved in writing by Company. With respect to each such supplier designated or approved by Company, such supplier shall only be those who have demonstrated to the reasonable satisfaction of Company:
(a) its ability to supply a product meeting the specifications of Company, which may include specifications as to brand name, manufacturer, contents, quality, and compliance with governmental standards and regulations,
(b) its reliability with respect to the quality of its products or services, and
(c) its willingness and agreement to permit Company to make periodic inspections, reasonable in respect to frequency, time and manner, to insure continued conformity to specifications.
If Franchisee should desire to procure any Materials from a supplier other than Company, or a supplier designated by Company, Company shall, upon request of Franchisee, furnish to Franchisee specifications for or a facsimile of all such items if such are not contained in the Operations Manual. Franchisee shall deliver written notice to Company of its desire to do so, which notice shall identify the name and address of such supplier and the items desired to be purchased from such supplier. Should Company not deliver to Franchisee, within thirty (30) days after it has received such notice, a written statement of disapproval with respect to such supplier, it shall be deemed that such supplier is approved by Company as a supplier of the goods described in such notice until such time as Company may subsequently withdraw such approval. As a further condition of such approval, Company may require such supplier to agree in writing that (i) it shall faithfully comply with Company's specifications for applicable Materials sold by it, (ii) that it shall sell any Materials bearing the Trademarks only to franchisees of Company, and (iii) that it shall implement and comply with such manufacturing and distribution procedures and specifications as Company may prescribe from time to time.
Notwithstanding anything herein to the contrary, Franchisee may purchase customer invoice forms form any source Franchisee chooses, provided such forms shall not be disapproved by Company, in Company's discretion as exercised from time to time.
9.2 Commencement of Business and Commitment of Time
Franchisee agrees to commence the operation of the Business at the Location promptly following completion of construction of the Location. During the term of this Agreement, Franchisee (or the Designated Franchisee Representative, in the case of a Franchisee that is a Business Entity) shall, except as otherwise expressly agreed by Company in writing, devote his full time, attention and best efforts exclusively to the operation of the Business and shall use best efforts to develop and expand the Business at the Location. If Franchisee operates several franchised Businesses, Franchisee (or the Designated Franchisee Representative, in the case of a Franchisee that is a Business Entity) shall devote his full time and best efforts to all such locations collectively and shall employ a full time manager for each such Location who has completed the Company's initial Instruction Program and is otherwise satisfactory to Company. It is understood and agreed by the parties hereto that the Business shall be operated at a minimum of ten (10) hours per day, seven (7) days per week, except as Company may otherwise agree in its sole discretion on a case by case basis, and excluding such religious or national holidays as Company designates in its Operations Manual, as amended or revised from time to time, which are currently New Year's Day, July 4, Thanksgiving Day and Christmas Day. Franchisee shall at all times employ a staff of trained, competent and qualified personnel who meet Company's
LOSANGELES 10570vl6 40612-00008