The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample Franchise Agreement
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KIDS ‘N’ CLAY DEVELOPMENT, LLC FRANCHISE AGREEMENT
This Franchise Agreement made this day of , 20 , is by and between KIDS ‘N’ CLAY
DEVELOPMENT, LLC, a California limited liability company, having its principal place of business at 1824 5th Street, Berkeley, California 94710 (“Franchisor”), and
, an individual/partnership/corporation/limited liability company established in the State of and whose principal address is
WHEREAS, Franchisor and its Affiliate* have developed, and are in the process of further developing, a System identified by the service mark “KIDS ‘N’ CLAY” and relating to the establishment and operation of studios teaching children the ceramic arts, including techniques such as hand building, wheel throwing, sculpting, glazing and finishing, referred to as “KIDS ‘N’ CLAY Pottery Studios;” and
WHEREAS, in addition to the service mark “KIDS ‘N’ CLAY” and certain other Marks, the distinguishing characteristics of the System include, among other things, uniform standards and procedures for efficient business operations; procedures and strategies for marketing, advertising and promotion; student service and development techniques; distinctive interior and exterior design, layout and décor; other strategies, techniques and trade secrets; and the Manual; and
WHEREAS, Franchisor grants to qualified persons and business entities the right to own and operate a single KIDS ‘N’ CLAY Pottery Studio using the System and the Marks; and
WHEREAS, Franchisee desires to operate a KIDS ‘N’ CLAY Pottery Studio, has applied for the Franchise and its application has been approved by Franchisor in reliance upon all of the representations made therein; and
WHEREAS, Franchisee understands and acknowledges the importance of Franchisor’s high and uniform standards of quality, operations and service and the necessity of operating its Franchised Business in strict conformity with Franchisor’s System.
NOW, THEREFORE, Franchisor and Franchisee, intending to be legally bound, agree as follows:
Whenever used in this Agreement, the following words and terms have the following meanings:
“Affiliate” means any business entity that controls, is controlled by, or is under common control with Franchisor;
*Capitalized terms not otherwise defined are defined in Section 1.
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“Agreement” means this agreement entitled “KIDS ‘N’ CLAY DEVELOPMENT, LLC Franchise Agreement” a nd all instruments supplemental hereto or in amendment or confirmation hereof;
“Approved Location” means the site for the operation of the Franchised Business selected by Franchisee and approved in writing by Franchisor;
“Approved Supplier” has the meaning given to such term in Section 13.1;
“Competitive Business” means any business that offers or provides (or grants franchises or licenses to others to operate a business that offers) ceramic arts instruction or facilities the same as or similar to that provided by KIDS ‘N’ CLAY Pottery Studios or in which Confidential Information could be used to the disadvantage of Franchisor, its Affiliate(s) or its other franchisees; provided, however, that the term “Competitive Business” shall not apply to (a) any business operated by Franchisee under a Franchise Agreement with Franchisor, or (b) any business operated by a publicly-held entity in which Franchisee owns less than a five percent (5%) legal or beneficial interest;
“Confidential Information” means any trade secret and any information or matter that is or may be used to gain a competitive advantage over Franchisor or its Affiliate and is not generally known by the public, whether or not in written or tangible form and regardless of the media (if any) on which it is stored, relating to the System (including know-how, knowledge of and experience in operating a KIDS ‘N’ CLAY Pottery Studio; instructional methods; techniques for the creation of ceramic art; business management and operating systems and techniques; record keeping and reporting methods; management and personnel training techniques; sales and promotion techniques; specifications and designs for signs, displays, forms, interior and exterior décor and layout for the Approved Location; the Manual; lists of franchisees and suppliers; suggested pricing and cost information; prospective and existing student data; and other specifications, policies, procedures, information or systems that Franchisor or its Affiliate have developed or may develop and introduce as part of the System) and any other information or material identified to Franchisee by Franchisor as confidential;
“Controlled Entity” has the meaning given to such term in Section 18.3;
“Cooperative Advertising” means the combined advertising program of two (2) or more franchisees established within a common market that Franchisor ma y require for KIDS ‘N’ CLAY Pottery Studios within a particular region;
“Designated Area” has the meaning given to such term in Section 2.3;
“Designated Manager” means the person designated by Franchisee who has primary responsibility for managing the day-to-day affairs of the Franchised Business, and if Franchisee is an individual and not a business entity, the Designated Manager shall be Franchisee;
“Effective Date” means the date on which this Agreement is fully executed, thereby commencing its effectiveness and term;
“Electronic Depository Transfer Account” means an account established at a national banking institution approved by Franchisor and providing Franchisor with access to electronically withdraw any funds due Franchisor;
“Franchise” means the right granted to Franchisee by Franchisor to use the System and the Marks;
“Franchise Fee” has the meaning given to such term in Section 3.1;
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“Franchised Business” means the KIDS ‘N’ CLAY Pottery Studio to be established and operated by Franchisee pursuant to this Agreement;
“Franchisee” means the individual or entity defined as “Franchisee” in the introductory paragraph of this Agreement, and if Franchisee is a business entity, such term also includes all holders of a legal or beneficial interest in the entity (each of whom is identified in Exhibit D and has executed the supplemental signature page with respect to his or her individual obligations hereunder);
“Franchisor” means Kids ‘N’ Clay Development, LLC;
“Franchisor Indemnitees” has the meaning given to such term in Section 21.2;
“Grand Opening Advertising” has the meaning given to such term in Section 11.1;
“Gross Sales” means the aggregate of all revenue from the sale of products and services from all sources in connection with the Franchised Business whether or not collected by Franchisee and whether for check, cash, credit or otherwise including, without limitation, all proceeds from any business interruption insurance, but excluding all refunds made in good faith, any sales and equivalent taxes that are collected by Franchisee for or on behalf of any governmental taxing authority and paid thereto, and the value of any allowance issued or granted to any client or student, or parent of a student, of the Franchised Business that is credited by Franchisee in full or partial satisfaction of the price of any products and services offered in connection with the Franchised Business;
“Gross Sales Reports” has the meaning given to such term in Section 12.2;
“Incapacity” means the inability of Franchisee to operate or oversee the operation of the Franchised Business on a regular basis by reason of any continuing physical, mental or emotional condition, chemical dependency or other limitation;
“Internet” means any one (1) or more local or global interactive communications media that is now available, or that may become available, including sites and domain names on the World Wide Web;
“Local Advertising” has the meaning given to such term in Section 11.2;
“Manual” means the KIDS ‘N’ CLAY Operations Manual, and any other items as may be provided, added to, changed, modified or otherwise revised by Franchisor from time to time that contain or describe the standards, methods, procedures and specifications of the System, including other operations, administration and managers’ manuals and all books, computer programs, password-protected portions of an Internet site, pamphlets, memoranda and other publications prepared by, or on behalf of, Franchisor;
“Marketing Fund” has the meaning given to such term in Section 3.3;
“Marketing Fund Contribution” has the meaning given to such term in Section 3.3;
“Marks” mean the service mark “KIDS ‘N’ CLAY” and such other trade names, trademarks, service marks, trade dress, designs, graphics, logos, emblems, insignia, fascia, slogans, copyrights, drawings and other commercial symbols as Franchisor may designate to be used in connection with KIDS ‘N’ CLAY Pottery Studios;
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“Protected Territory” means the geographic area of territorial exclusivity granted to Franchisee under this Agreement as defined by Section 2.5;
“Royalty Fee” has the meaning given to such term in Section 3.2; and
“System” means the uniform standards, methods, procedures and specifications developed by Franchisor and as may be added to, changed, modified, withdrawn or otherwise revised by Franchisor, in its sole discretion, for the operation of KIDS ‘N’ CLAY Pottery Studios.
2. GRANT OF FRANCHISE; APPROVED LOCATION
Franchisor hereby grants to Franchisee, and Franchisee undertakes and accepts, upon the terms and conditions herein contained, a revocable, limited license to operate one (1) KIDS ‘N’ CLAY Pottery Studio using the System and Marks.
2.2 Approved Location
The street address (or detailed description of the premises) of the Approved Location is:
2.3 Approved Location Not Determined
If the Approved Location of the Franchised Business is not determined as of the Effective Date, then the geographic area in which the Franchised Business is to be located shall be within the geographic area described below (“Designated Area”). When the Approved Location is determined, its address shall be inserted into Section 2.2. The failure to insert such address shall not automatically affect the enforceability of this Agreement. The Designated Area is delineated for the sole purpose of site selection and does not confer any territorial exclusivity or protection. A detailed description of the geographic area or boundaries of the Designated Area is:
Franchisee shall not sublicense the use of the System or Marks to any person or entity to perform any part of Franchisee’s rights or obligations licensed hereunder, or to grant any person or entity the right to act as Franchisee’s agent to perform any part of Franchisee’s rights or obligations hereunder.
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2.5 Territorial Protection - Protected Territory
Franchisor shall not, so long as this Agreement is in force and effect and Franchisee is not in default under any of the terms hereof, license, own or operate any other KIDS ‘N’ CLAY Pottery Studio or other substantially similar business within an area surrounding the Approved Location (“Protected Territory”) containing approximately two hundred thousand (200,000) persons, of which the percentage of the school-age population is approximately the national average. Franchisor shall have the right to redefine the boundaries of the Protected Territory based on changes in the area’s demographics. Franchisor shall not redefine the Protected Territory more than one (1) time in any five (5) year period. The Protected Territory shall initially be defined by and exist within the following physical, political or natural boundaries:
2.6 Franchisor’s Rights
Except to the extent provided in Section 2.5, Franchisor retains all of its rights and discretion with respect to the System and Marks, including the right to:
2.6.1 establish or operate, and license others to establish or operate, KIDS ‘N’ CLAY Pottery Studios outside of the Protected Territory as Franchisor deems appropriate;
2.6.2 establish or operate, and license others to establish or operate, other businesses under other systems using other trademarks at such locations and on such terms and conditions as Franchisor deems appropriate;
2.6.3 provide the services and sell any products authorized for KIDS ‘N’ CLAY Pottery Studios using the Marks or other trademarks and commercial symbols through alternate channels of distribution, such as joint marketing with partner companies, direct mail, and Internet and catalog sales, on such terms and conditions as Franchisor deems appropriate; provided, however, that no such sales shall be made to any Competitive Business within the Protected Territory; and
2.6.4 engage in any activities not expressly forbidden by this Agreement.
3.1 Franchise Fee
Upon execution of this Agreement, Franchisee shall pay a fee (“Franchise Fee”) to Franchisor of
______________________________________________________ DOLLARS ($ __________ ). The Franchise Fee
shall be deemed fully earned upon execution of this Agreement and is nonrefundable, except under certain conditions set forth under Section 8.3. The Franchise Fee is payment, in part, for expenses incurred by Franchisor in furnishing assistance and services to Franchisee as set forth in this Agreement and for costs incurred by Franchisor, including general sales and marketing expenses, training, legal, accounting and other professional fees.
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3.2 Bi-Monthly Royalty Fee
On the third (3rd) day and eighteenth (18th) day of each month, Franchisee shall pay to Franchisor without offset, credit or deduction of any nature, so long as this Agreement shall be in effect, a bi-monthly fee (“Royalty Fee”) equal to seven percent (7%) of Gross Sales for the previous bi-monthly period. The bi-monthly periods are the first (1st) day of the month through and including the fifteenth (15th) day of the month, for which Royalty Fees are due on the eighteenth (18th) day of the month, and the sixteenth (16th) day of the month through and including the last day of the month, for which Royalty Fees are due on the third (3rd) day of the following month. If the third (3rd) day or eighteenth (18th) day of the month falls on a Sunday, Franchisee shall pay the Royalty Fee and submit the Gross Sales Report on the fourth (4th) day or nineteenth (19th) day of the month. Each bi-monthly Royalty Fee payment shall accompany the Gross Sales Report for the same period, as required by Section 12.2. If Franchisor requires Franchisee to pay Royalty Fees through electronic transfer as set forth in Section 3.5, then such reports shall instead be submitted to Franchisor via facsimile or electronic transmission.
3.3 Marketing Fund Contribution
Franchisor has the right to establish and administer a System-wide marketing, advertising and promotion fund (“Marketing Fund”). If a Marketing Fund is established, Franchisee ma y be required to contribute bi-monthly to the Marketing Fund an amount specified by Franchisor (“Marketing Fund Contribution”), which shall not exceed two percent (2%) of Gross Sales for such bi-monthly period. Marketing Fund Contributions shall be made at the same time and in the same manner as Royalty Fee payments provided in Section 3.2. If established, the Marketing Fund shall be maintained and administered by Franchisor or its designee in accordance with the provisions contained in Section 11.3.
Franchisee shall pay to Franchisor an amount equal to all sales taxes, use taxes and similar taxes imposed on the fees payable by Franchisee to Franchisor hereunder and on services or goods furnished to Franchisee by Franchisor at the same time as Franchisee remits such fees to Franchisor, whether such services or goods are furnished by sale, lease or otherwise, unless the tax is an income tax assessed on Franchisor for doing business in the state where the Franchised Business is located.
3.5 Electronic Transfer
3.5.1 Franchisor has the right to require all Royalty Fees, Marketing Fund Contributions, amounts due for purchases by Franchisee from Franchisor and other amounts due to Franchisor to be paid through an Electronic Depository Transfer Account. At Franchisor’s request, Franchisee shall open and maintain an Electronic Depository Transfer Account and shall provide Franchisor with continuous access to such account for the purpose of receiving any payments due to Franchisor. Every week, Franchisee shall make deposits to the account sufficient to cover amounts owed to Franchisor prior to the date such amounts are due. Franchisee shall execute any documents Franchisor’s or Franchisee’s bank requires to establish and implement the Electronic Depository Transfer Account. Once established, Franchisee shall not close the Electronic Depository Transfer Account without Franchisor’s written consent.
3.5.2 Franchisor, in its sole discretion, may allow Royalty Fees, Marketing Fund Contributions, amounts due for purchases by Franchisee from Franchisor and other amounts due to Franchisor to be paid through electronic transfers initiated by Franchisee from Franchisee’s primary business checking account. Franchisor ma y allow Franchisee to pay, or ma y at any time revoke Franchisee’s privilege to pay, fees and other amounts due in such manner based on Franchisor’s evaluation of Franchisee’s financial condition.
3.6 Late Fees
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All Royalty Fees, Marketing Fund Contributions, amounts due for purchases by Franchisee from Franchisor and other amounts that are not received by Franchisor within five (5) days after the due date shall bear interest at the rate of eighteen percent (18%) per annum (or the highest rate allowed by law, whichever is lower) from the date payment is due to the date payment is received by Franchisor. Franchisee shall pay Franchisor for all costs incurred by Franchisor in the collection of any unpaid and past due Royalty Fees, Marketing Fund Contributions or any other amounts due Franchisor, including reasonable accounting and legal fees.
3.7 Application of Payments
Notwithstanding any designation by Franchisee, Franchisor shall have the sole discretion to apply any payments by Franchisee to any past due indebtedness of Franchisee and accrued interest thereon for Royalty Fees, Marketing Fund Contributions, purchases from Franchisor or any other amount owed to Franchisor.
4. TERM AND RENEWAL
4.1 Initial Term
This Agreement shall be effective and binding for an initial term of ten (10) years from the Effective Date, unless sooner terminated pursuant to Section 16.
4.2 Renewal Term
Subject to the conditions below, Franchisee has the right to renew the Franchise at the expiration of its term. Franchisee’s right to enter into a successor franchise agreement is limited to three (3) successive renewal terms of five (5) years each, such that the total term of the Franchise shall not exceed twenty-five (25) years. To qualify for a renewal, each of the following conditions shall have been fulfilled and remain true as of the last day of the term of this Agreement:
4.2.1 Franchisee has, during the entire term of this Agreement, substantially complied with all material provisions;
4.2.2 Franchisee has access to and, for the duration of the renewal term, the right to remain in possession of the Approved Location, or a suitable substitute location approved by Franchisor, which is in full compliance with Franchisor’s then-current specifications and standards, for the duration of the renewal term;
4.2.3 Franchisee has, at its expense, made such capital expenditures as were necessary to maintain uniformity with any Franchisor-required System modifications such that the Franchised Business reflects Franchisor’s then-current standards and specifications;
4.2.4 Franchisee has satisfied all monetary obligations owed by Franchisee to Franchisor (or any Affiliate), and has timely met these obligations throughout the term of this Agreement;
4.2.5 Franchisee is not in default of any provision of this Agreement or any other agreement between Franchisee and Franchisor;
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4.2.6 Franchisee has given written notice of renewal to Franchisor not less than nine (9) months nor more than twelve (12) months prior to the end of the term of this Agreement;
4.2.7 Franchisee has executed Franchisor’s then-current form of franchise agreement, or has executed renewal documents at Franchisor’s election (with appropriate modifications to reflect the fact that the Franchise Agreement relates to the grant of a renewal franchise), which franchise agreement shall supersede this Agreement in all respects, and the terms of which may differ from the terms of this Agreement by requiring, among other things, a different percentage Royalty Fee or Marketing Fund Contribution; provided, however, that Franchisee shall not be required to pay the then-current Franchise Fee;
4.2.8 Franchisee has complied with Franchisor’s then-current qualifications for a new franchisee and has agreed to comply with any training requirements; and
4.2.9 Franchisee has executed a general release, in a form the same as or similar to the General Release attached as Exhibit A, of any and all claims against Franchisor, its Affiliate(s) and against their officers, directors, shareholders, managers, members, partners, owners and employees, except to the extent prohibited by the laws of the state where the Franchised Business is located.
5. APPROVED LOCATION
5.1 Selection of Site
Franchisee shall promptly select a site for the Franchised Business and shall notify Franchisor of such selection. If Franchisor approves of such selection, the site will be designated as the Approved Location for purposes of this Agreement. If Franchisor does not approve of such selection, Franchisee shall continue to select new sites until Franchisor approves of a selection. Franchisor shall provide Franchisee with general guidelines to assist Franchisee in selecting a site suitable for the Approved Location. Franchisor has the right to approve or disapprove a proposed location based on such factors as it deems appropriate, including the condition of the premises, demographics of the surrounding area, proximity to other KIDS ‘N’ CLAY Pottery Studios, lease requirements, available parking or drop-off/pick-up areas and overall suitability. Franchisee shall not locate the Franchised Business on a selected site without the prior written approval of Franchisor. Franchisor does not represent that it or any of its Affiliates, owners or employees have special expertise in selecting sites. Neither Franchisor’s assistance nor approval is intended to indicate or indicates that the Franchised Business will be profitable or successful at the Approved Location. Franchisee is solely responsible for finding and selecting a site for the Franchised Business.
5.2 Lease of Approved Location
After the designation of the Approved Location (and if the site is to be leased or purchased), Franchisee shall execute a lease for, or a binding agreement to purchase, the Approved Location, the terms of which must have been previously approved by Franchisor. Franchisor shall not unreasonably withhold its approval. Franchisor’s review of a lease or purchase agreement, or any advice or recommendation offered by Franchisor, shall not constitute a representation or guarantee that Franchisee will succeed at the Approved Location nor constitute an expression of Franchisor’s opinion regarding the terms of such lease or purchase agreement. Franchisor shall be entitled to require that nothing therein contained is contradictory to, or likely to interfere with, Franchisor’s rights or Franchisee’s duties under this Agreement. Franchisee shall take all actions necessary to maintain the lease, if any, of the Approved Location while this Agreement is in effect. Any default for which the lease may be terminated shall also be deemed a default hereunder and the time to cure the same shall expire when the lease is terminated. Franchisor has the right to require that the lease for the Approved Location be collaterally assigned by Franchisee to Franchisor, pursuant to the terms of its standard collateral assignment of lease form, to secure performance by Franchisee of its obligation under this Agreement. Franchisor’s approval of a lease or
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purchase agreement shall be conditioned upon inclusion of terms in the lease acceptable to Franchisor and, at Franchisor’s option, the lease or purchase agreement shall contain such provisions as Franchisor ma y reasonably require, including:
5.2.1 a provision reserving to Franchisor the right, at Franchisor’s election, to receive an assignment of the leasehold interest upon termination or expiration of the Franchise grant;
5.2.2 a provision expressly permitting the lessor of the premises to provide Franchisor all sales and other information lessor may have obtained or received relating to the operation of the Franchised Business, as Franchisor may request;
5.2.3 a provision requiring the lessor to provide Franchisor with a copy of any written notice of deficiency sent by the lessor to Franchisee, and granting to Franchisor, in its sole discretion and sole option, the right (but not the obligation) to cure any deficiency under the lease should Franchisee fail to do so within fifteen (15) days after the expiration of the period in which Franchisee may cure the default;
5.2.4 a provision allowing Franchisee to display the Marks in accordance with the specifications required by the Manual, subject only to the provisions of applicable law;
5.2.5 a provision prohibiting the premises from being used for any purpose other than the operation of the Franchised Business;
5.2.6 a provision stating that any default under the lease (or a purchase agreement, as the case may be) shall constitute a default under this Agreement;
5.2.7 a provision stating that upon default of this Agreement, Franchisor or its nominee has the right to take possession of the Approved Location and operate the Franchised Business; and
5.2.8 a provision allowing Franchisor, upon expiration or termination of the lease, to enter the premises and remove any signs containing the Marks.
5.3 Development of Approved Location
Franchisor shall make available to Franchisee, at no charge to Franchisee, copies of standard plans and specifications for the development of a KIDS ‘N’ CLAY Pottery Studio (that will not be construction drawings or blueprints), including specifications for exterior and interior design and layout, fixtures, equipment, décor and signs. Such plans and specifications are subject to alteration as ma y be necessary in Franchisor’s sole discretion. Franchisee shall cause the Approved Location to be developed, equipped and improved in accordance with such plans and specifications within one hundred twenty (120) days after the Effective Date. In connection with the development of the Approved Location, Franchisee shall:
5.3.1 employ a competent licensed architect or engineer to prepare, for Franchisor’s approval, preliminary plans and specifications for improvement of the Approved Location adapted from the plans furnished by Franchisor;
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5.3.2 obtain all zoning classifications and clearances that may be required by state and local laws, ordinances or regulations, and submit to Franchisor, for Franchisor’s approval, final plans for construction based upon the preliminary plans and specifications;
5.3.3 obtain all building, utility, sign, health, and business permits and licenses, and any other permits and licenses required for the build-out and operation of the Franchised Business and certify in writing and provide evidence to Franchisor that all such permits and certifications have been obtained;
5.3.4 employ a qualified, licensed general contractor approved by Franchisor to complete construction of all required improvements to the Approved Location;
5.3.5 purchase any supplies necessary for the operation of the Franchised Business;
5.3.6 purchase and install all equipment, signs, furniture and fixtures, including any computer equipment, required for the operation of the Franchised Business;
5.3.7 obtain at least one (1) telephone number and one (1) facsimile number solely dedicated to the Franchised Business; and
5.3.8 establish and maintain an Internet connection with at least one (1) e-mail address dedicated to the Franchised Business.
5.4.1 Before opening the Franchised Business and commencing business, Franchisee must:
188.8.131.52 fulfill all of the obligations of Franchisee pursuant to the other provisions of this Section 5 and any pre-opening requirements contained in the Manual;
184.108.40.206 furnish Franchisor with copies of all insurance policies required by this Agreement, or by the lease, or such other evidence of insurance coverage and payment of premiums as Franchisor may reasonably request;
220.127.116.11 complete initial training to the satisfaction of Franchisor;
18.104.22.168 hire and train the personnel necessary or required for the operation of the Franchised Business;
22.214.171.124 if Franchisee is a business entity, cause each of its stock certificates or other ownership interest certificates to be conspicuously endorsed upon the face with a statement in a form satisfactory to Franchisor that such ownership interest is held subject to, and that further assignment or transfer thereof is subject to, all restrictions imposed upon transfers and assignments by this Agreement; and
126.96.36.199 pay in full all amounts due to Franchisor.
5.4.2 Franchisee shall comply with these conditions and be prepared to open and continuously operate the Franchised Business within six (6) months after the Effective Date. Time is of the essence.
5.4.3 If Franchisee is unable to commence the operation of the Franchised Business due to circumstances beyond Franchisee’s reasonable control, then Franchisee may be entitled to such additional time as may be reasonably required and as to which Franchisor ma y consent.
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5.5 Use of Approved Location
Franchisee shall not use the Approved Location for any purpose other than for the operation of a KIDS ‘N’ CLAY Pottery Studio in full compliance with this Agreement and the Manual, unless approved in writing by Franchisor.
Franchisee shall not relocate the Franchised Business without the prior written consent of Franchisor, which ma y be withheld or delayed at Franchisor’s sole discretion. If the lease for the Approved Location expires or terminates without the fault of Franchisee or if the Franchised Business’s premises is destroyed, condemned or otherwise rendered unusable, or as otherwise may be agreed upon in writing by Franchisor and Franchisee, Franchisor may, in its reasonable discretion, allow Franchisee to relocate the Franchised Business. Any such relocation shall be at Franchisee’s sole expense, and shall proceed in accordance with the requirements set forth in Sections 5.1 through 5.4. Franchisor has the right to charge Franchisee for any costs incurred by Franchisor in providing assistance to Franchisee, including legal and accounting fees. Notwithstanding the foregoing, Franchisor has no obligation to provide relocation assistance. If no relocation site meets with Franchisor’s approval, this Agreement shall terminate as provided in Section 188.8.131.52.
6. PROPRIETARY MARKS
Franchisee’s right to use the Marks is derived solely from this Agreement, is nonexclusive and is limited to the conduct of business by Franchisee pursuant to, and in compliance with, this Agreement and all applicable standards, specifications and operating procedures prescribed from time to time by Franchisor. Any unauthorized use of the Marks by Franchisee is a breach of this Agreement and an infringement of the rights of Franchisor in and to the Marks. Franchisee’s use of the Marks, and any goodwill created thereby, shall inure to the benefit of Franchisor. Franchisee shall not at any time acquire an ownership interest in the Marks by virtue of any use it may make of the Marks. This Agreement does not confer any goodwill, title or interest in the Marks to Franchisee. Franchisee shall not, at any time during the term of this Agreement or after its termination or expiration, contest the validity or ownership of any of the Marks or assist any other person in contesting the validity or ownership of any of the Marks.
6.2 Limitations on Use
Franchisee shall not use any Mark or portion of any Mark as part of any business entity name or trade name, with any prefix, suffix or other modifying words, terms, designs or symbols or in any modified form, without the prior written consent of Franchisor. Franchisee shall not use any Mark in connection with the sale of any unauthorized product or service or in any other manner not expressly authorized in writing by Franchisor. Franchisee shall give such notices of trademark and service mark registrations as Franchisor specifies and obtain such fictitious or assumed name registrations as may be required under applicable law. Franchisee shall not register or seek to register as a trademark or service mark, either with the United States Patent and Trademark Office or any state or foreign country, any of the Marks or a trademark or service mark that is confusingly similar to any Mark licensed to Franchisee. Franchisee shall include on its letterhead, forms, cards and other such identification, and shall display
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at the Approved Location, a prominent notice stating that the Franchised Business is Franchisee’s “Independently Owned and Operated KIDS ‘N’ CLAY Franchise.”
6.3 Notification of Infringements and Claims
Franchisee shall immediately notify Franchisor of any infringement of the Marks or challenge to its use of any of the Marks or claim by any person of any rights in any of the Marks. Franchisee shall not communicate with any person other than Franchisor and Franchisor’s counsel in connection with any such infringement, challenge or claim; provided, however, Franchisee may communicate with Franchisee’s counsel at Franchisee’s expense. Franchisor shall have sole discretion to take such action as deemed appropriate and the right to exclusively control any litigation or other proceeding arising out of any infringement, challenge, or claim or otherwise relating to any of the Marks. Franchisee shall execute any and all instruments and documents, render such assistance, and do such acts and things as may, in the opinion of Franchisor’s counsel, shall be necessary or advisable to protect and maintain Franchisor’s interests in any such litigation or other proceeding or to otherwise protect and maintain Franchisor’s interest in the Marks.
6.4 Indemnification for Use of Marks
Franchisor shall reimburse Franchisee for all expenses reasonably incurred by Franchisee in any trademark or similar proceeding disputing Franchisee’s authorized use of any Mark, provided that Franchisee has timely notified Franchisor of such proceeding and has complied with this Agreement and Franchisor’s directions in responding to such proceeding. At Franchisor’s option, Franchisor or its designee ma y defend and control the defense of any proceeding arising directly from Franchisee’s use of any Mark. This indemnification shall not include the expense to Franchisee of removing signage or discontinuance of the use of the Marks. This indemnification shall not apply to litigation between Franchisor and Franchisee wherein Franchisee’s use of the Marks is disputed or challenged by Franchisor. This indemnification shall not apply to any separate legal fees or costs incurred by Franchisee in seeking independent counsel separate from the counsel representing Franchisor and Franchisee in the event of litigation disputing Franchisor and Franchisee’s use of the Marks.
6.5 Discontinuance of Use
If it becomes necessary, in Franchisor’s sole discretion, for Franchisee to modify or discontinue use of any of the Marks, and/or use one (1) or more additional or substitute trade names, trademarks, service marks or other commercial symbols, Franchisee shall comply with Franchisor’s directions within a reasonable time after notice to Franchisee by Franchisor. Franchisor shall not be required to reimburse Franchisee for its expenses in modifying or discontinuing the use of a Mark or any loss of goodwill associated with any modified or discontinued Mark or for any expenditures made by Franchisee to promote a modified or substitute Mark.
6.6 Right to Inspect
To preserve the validity and integrity of the Marks and any copyrighted materials licensed hereunder, and to ensure that Franchisee is properly employing the Marks in the operation of the Franchised Business, Franchisor and its designees have the right to enter and inspect the Franchised Business and the Approved Location at all reasonable times and, additionally, have the right to observe the manner in which Franchisee renders services and conducts activities and operations, and to inspect facilities, equipment, accessories, products, supplies, reports, forms and documents and related data to ensure that Franchisee is operating the Franchised Business in accordance with the quality control provisions and performance standards established by Franchisor. Franchisor and its agents shall have the right, at any reasonable time, to remove sufficient quantities of products, supplies or other inventory items offered for retail sale, used in the preparation of products offered for retail sale or used in rendering services, to test whether such products or items meet Franchisor’s then-current
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standards. Franchisor or its designee has the right to observe Franchisee and its employees during the operation of the Franchised Business and to interview students, parents and employees and to photograph the premises.
6.7 Franchisor’s Sole Right to Domain Name
Franchisee shall not establish, create or operate an Internet site or website using a domain name or uniform resource locator containing the Marks or the words “KIDS ‘N’ CLAY” or any variation thereof. Franchisor has the exclusive right to advertise on the Internet and create websites using or containing the “KIDS ‘N’ CLAY” name and any other Mark. Franchisor is the sole owner of all right, title and interest in and to such domain names, as Franchisor shall designate in the Manual.
7. CONFIDENTIAL INFORMATION
7.1 Requirement of Confidentiality
Franchisor shall disclose Confidential Information to Franchisee during the training program, through the Manual, and as a result of guidance furnished to Franchisee during the term of this Agreement. Franchisee shall not acquire any interest in the Confidential Information, other than the right to utilize it in the development and operation of the Franchised Business and in performing its duties during the term of this Agreement. Franchisee acknowledges that the use or duplication of the Confidential Information in any other business venture would constitute an unfair method of competition. Franchisee acknowledges that the Confidential Information is proprietary, includes Franchisor’s trade secrets and is disclosed to Franchisee solely on the condition that Franchisee (and all holders of a legal or beneficial interest in Franchisee and all officers, directors, executives, managers and members of the professional staff of Franchisee): (a) shall not use the Confidential Information in any other business or capacity; (b) shall maintain the absolute confidentiality of the Confidential Information during and after the term of this Agreement; (c) shall not make any unauthorized copies of any portion of the Confidential Information disclosed in written or other tangible form; and (d) shall adopt and implement all reasonable procedures prescribed from time to time by Franchisor to prevent unauthorized use or disclosure of the Confidential Information. Franchisee shall enforce this Section as to its employees, agents and representatives and shall be liable to Franchisor for any unauthorized disclosure or use of Confidential Information by any of them.
7.2 Student/Client Information
Student or client names, addresses, contact information and other personal data, whether acquired or compiled by Franchisee or Franchisor, shall be the sole and exclusive property of Franchisor, and Franchisor grants Franchisee the right to use such information while this Agreement is in full force and effect, only upon the terms and conditions contained herein. Franchisee shall deliver all such information to Franchisor not more than five (5) days after the beginning of any multiple-session course, class or event or five (5) days after any one (1) time course, class or event.
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7.3 Additional Developments
All ideas, concepts, techniques or materials concerning the Franchised Business, whether or not protectable intellectual property and whether created by or for Franchisee or its owners or employees, must be promptly disclosed to Franchisor and will be deemed the sole and exclusive property of Franchisor and works made-for-hire for Franchisor, and no compensation will be due to Franchisee or its owners or employees therefor. At Franchisor’s discretion, such items may be incorporated into the System. To the extent any item does not qualify as a “work made-for-hire” for Franchisor, Franchisee shall assign ownership of that item, a nd all related rights to that item, to Franchisor a nd shall sign any assignment or other document as Franchisor requests to assist Franchisor in obtaining or preserving intellectual property rights in the item. Franchisor shall disclose to Franchisee concepts and developments of other franchisees that are made part of the System. As Franchisor may reasonably request, Franchisee shall take all actions to assist Franchisor’s efforts to obtain or maintain intellectual property rights in any item or process related to the System, whether developed by Franchisee or not.
7.4 Exclusive Relationship
Franchisee acknowledges that Franchisor would be unable to protect the Confidential Information against unauthorized use or disclosure and would be unable to encourage a free exchange of ideas and information among KIDS ‘N’ CLAY franchisees if owners of KIDS ‘N’ CLAY Pottery Studios and members of their immediate families and households were permitted to hold an interest in or perform services for any Competitive Business. Therefore, during the term of this Agreement, neither Franchisee nor any holder of a legal or beneficial interest in Franchisee (or any member of their immediate families and households), nor any officer, director, executive, manager or member of the professional staff of Franchisee, either directly or indirectly, for themselves, or through, on behalf of or in conjunction with any person, partnership, corporation, limited liability company or other business entity, shall:
7.4.1 Divert or attempt to divert any business or student of the Franchised Business to any Competitive Business, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks or the System; or
7.4.2 Own an interest in, manage, operate, or perform services for any Competitive Business wherever located.
7.5 Nondisclosure and Non-Competition Agreements with Certain Individuals
Franchisor has the right to require Franchisee and any holder of a legal or beneficial interest in Franchisee (and any member of their immediate families or households), and any officer, director, executive, manager or member of the professional staff of Franchisee to execute a standard form nondisclosure and noncompetition agreement, in a form the same as or similar to the Nondisclosure and Non-Competition Agreement attached as Exhibit B, upon execution of this Agreement or prior to each such person’s affiliation with Franchisee. Upon Franchisor’s request, Franchisee shall provide Franchisor with copies of all nondisclosure and non-competition agreements signed pursuant to this Section. Such agreements shall remain on file at the offices of Franchisee and are subject to audit or review as otherwise set forth herein. Franchisor shall be a third party beneficiary with the right to enforce covenants contained in such agreements.
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7.6 Reasonableness of Restrictions
Franchisee acknowledges that the restrictive covenants contained in this Section are essential elements of this Agreement and that without their inclusion, Franchisor would not have entered into this Agreement. Franchisee acknowledges that each of the terms set forth herein, including the restrictive covenants, is fair and reasonable and are reasonably required for the protection of Franchisor, the System and the Marks.
8. TRAINING AND ASSISTANCE
8.1 Initial Training
Franchisor shall ma ke an initial training program available to the Designated Manager and up to one (1) assistant. Prior to the opening of the Franchised Business, the Designated Manager must attend and successfully complete, to Franchisor’s satisfaction, an initial training program consisting of approximately two (2) weeks of classroom and on-the-job instruction pertaining to operation of the Franchised Business including, but not limited to, teaching experience in the studio; sales and marketing methods; financial controls; maintenance of quality standards; customer service techniques, record keeping and reporting procedures and other operational issues. Franchisor shall conduct the initial training program at its headquarters or at another designated location. Franchisor shall not charge tuition or similar fees for initial training, however, all expenses incurred by Franchisee in attending such program including, but not limited to, travel costs, room and board expenses and employees’ salaries, shall be the sole responsibility of Franchisee. Franchisee shall be responsible for training its management and other employees.
8.2 Opening Assistance
In conjunction with, and prior to, the beginning of operation of the Franchised Business, Franchisor shall ma ke available to Franchisee, at Franchisor’s expense, for approximately five (5) days, one (1) of Franchisor’s representatives, experienced in the System, for the purpose of providing general assistance and guidance in connection with the opening of the Franchised Business. If Franchisee requests additional assistance with respect to the opening or continued operation of the Franchised Business, and should Franchisor deem it necessary and appropriate to comply with such request, Franchisee shall pay Franchisor’s then-current standard rates, plus expenses, for such additional assistance.
8.3 Failure to Complete Initial Training Program
If Franchisor determines, in its sole discretion, that the Designated Manager is unable to satisfactorily complete the training program described above, Franchisor has the right to terminate this Agreement. If this Agreement is terminated pursuant to this Section 8.3, Franchisor shall return to Franchisee fifty percent (50%) of the Franchise Fee paid by Franchisee upon Franchisor’s receipt of a general release in a form the same as or similar to the General Release attached as Exhibit A. If Franchisee is a business entity and the Designated Manager fails to complete the initial training program to Franchisor’s reasonable satisfaction, in Franchisor’s sole discretion, Franchisee ma y be permitted to select a substitute manager and such substitute manager must complete the initial training to Franchisor’s reasonable satisfaction. Franchisee ma y be required to pay Franchisor’s then-current rates for additional training, if any, for providing the substitute manager an initial training program.
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8.4 New Designated Manager
If Franchisee is a business entity and, after beginning operations, Franchisee names a new Designated Manager, then the new Designated Manager must complete the initial training program to Franchisor’s satisfaction within thirty (30) days. Franchisee shall pay Franchisor’s standard training fees for the training of any new Designated Manager and shall be responsible for all travel costs, room and board and employees’ salaries incurred in connection with the new Designated Manager’s attendance at such training.
8.5 Ongoing Training
From time to time Franchisor may provide, and if it does, has the right to require that the Designated Manager attend, ongoing training programs or seminars during the term of this Agreement. Franchisor shall not charge a fee for any mandatory ongoing training. Franchisor shall not require the Designated Manager to attend more than two (2) sessions in any calendar year and collectively not more than four (4) days in any calendar year. Franchisee shall be responsible for all travel costs, room and board and employees’ salaries incurred in connection with the Designated Manager’s attendance at such training.
9.1 Loan by Franchisor
While this Agreement is in effect, Franchisor shall loan to Franchisee one (1) copy of the Manual. Franchisee shall conduct the Franchised Business in strict accordance with the provisions set forth in the Manual. The Manual may consist of one (1) or more separate manuals and other materials as designated by Franchisor and may be in written or electronic form. The Manual shall, at all times, remain the sole property of Franchisor and shall promptly be returned to Franchisor upon expiration or termination of this Agreement.
Franchisor has the right to add to or otherwise modify the Manual from time to time to reflect changes in the specifications, standards, operating procedures and rules prescribed by Franchisor; provided, however, that no such addition or modification shall alter Franchisee’s fundamental status and rights under this Agreement. Franchisor may make such additions or modifications without prior notice to Franchisee. Franchisee shall immediately, upon notice, adopt any such changes and shall ensure that its copy of the Manual is up-to-date at all times. If a dispute as to the contents of the Manual arises, the terms of the master copy of the Manual maintained by Franchisor at Franchisor’s headquarters shall be controlling.
The Manual contains proprietary information of Franchisor and shall be kept confidential by Franchisee both during the term of the Franchise and subsequent to the expiration or termination of this Agreement. Franchisee shall at all times ensure that its copy of the Manual is available at the Approved Location in a current and up-to-date manner. Franchisee shall maintain the Manual in a locked receptacle at the Approved Location and shall only grant authorized personnel, as defined in the Manual, access to the key or combination of such receptacle. Franchisee shall not disclose, duplicate or otherwise use any portion of the Manual in an unauthorized manner.
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10. FRANCHISE SYSTEM
Franchisee shall strictly comply, and shall cause the Franchised Business to strictly comply, with all requirements, specifications, standards, operating procedures and rules set forth in this Agreement, the Manual or other communications supplied to Franchisee by Franchisor.
10.2 Modification of the System
Franchisor has the right to change or modify the System from time to time including, without limitation, the adoption and use of new or modified Marks or copyrighted materials, and new or additional computer hardware, software, equipment, retail products, inventory, supplies or sales and marketing techniques. Franchisee shall accept and use any such changes in, or additions to, the System as if they were a part of this Agreement as of the Effective Date. Franchisee shall make such expenditures as such changes, additions or modifications in the System may reasonably require; provided, however, Franchisee shall not be required to implement or conform to any such changes, additions or modifications if the cost to do so would exceed (a) ONE DOLLAR ($1.00) during the first (1st) year of the term of this Agreement; (b) TEN THOUSAND DOLLARS ($10,000.00) during the entire term of this Agreement (which amounts ma y be increased consistent with increases to the Consumer Price Index, [U.S. City Average, all items, 1982-84=100], as published by the United States Department of Labor, Bureau of Labor Statistics); or (c) ONE DOLLAR ($1.00) during the final year of the term of this Agreement if Franchisee provides written notice of its intention not to renew the Franchise. Any required expenditure for changes or upgrades to the System shall be in addition to expenditures for repairs and maintenance as required in Section 13.2.
Franchisor has the right, at its sole discretion and as it ma y deem in the best interests of all concerned in any specific instance, to vary standards or specifications for any franchisee based upon that particular franchisee’s qualifications, the peculiarities of the particular site or circumstances, the demographics of the trade area, business potential, existing business practices or any other condition which Franchisor deems to be of importance to the successful operation of any particular KIDS ‘N’ CLAY Pottery Studio. Franchisor shall not be required to disclose or grant to Franchisee a like or similar variance hereunder.
11. ADVERTISING AND PROMOTIONAL ACTIVITIES
11.1 Grand Opening Advertising
Franchisee shall spend no less than TWO THOUSAND FIVE HUNDRED DOLLARS ($2,500.00) during the first three (3) months of operation of the Franchised Business on local advertisement and promotion of the initial opening (“Grand Opening Advertising”). Prior to their use, all materials to be used in Grand Opening Advertising must be approved by Franchisor through the process set forth in Section 11.2.2. Grand Opening Advertising expenditures shall be in addition to any Local Advertising expenditures and Marketing Fund Contributions.
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11.2 Local Advertising
11.2.1 Franchisee shall continuously promote the Franchised Business. Every month, Franchisee shall spend at least two percent (2%) of the previous month’s Gross Sales on advertising, promotions and public relations within the immediate locality surrounding the Franchised Business (“Local Advertising”). Such expenditures shall be made directly by Franchisee, subject to the approval and direction of Franchisor. Franchisor will provide general guidelines to Franchisee for conducting Local Advertising. Within thirty (30) days after the end of each month, Franchisee shall furnish to Franchisor an accurate accounting of the expenditures on Local Advertising for the preceding month.
11.2.2 Franchisee shall submit to Franchisor, for its prior approval, all advertising and promotional materials to be used by Franchisee including, but not limited to, ad copy, coupons, flyers, scripts, press releases and direct mail. Franchisor shall use reasonable efforts to provide notice of approval or disapproval within twenty (20) days from the date all requested material is received by Franchisor. If Franchisor does not approve submitted materials within twenty (20) days, such materials shall be deemed to have not received the required approval. Franchisee shall not use any marketing or promotional material prior to approval by Franchisor. The submission of advertising materials to Franchisor for approval shall not affect Franchisee’s right to determine the prices at which Franchisee sells products or provides services.
11.3 Marketing Fund
When not less than 10 Kids ‘N’ Clay Pottery Studio businesses are operating in the United States of America, franchisor has the right (but not the obligation) to establish a Marketing Fund, as defined in Section 3.3. If established, Franchisee may be required to make weekly Marketing Fund Contributions, the amount of which will be set by Franchisor and may be adjusted from time to time but shall not exceed two percent (2%) of that week’s Gross Sales. Franchisor shall notify Franchisee at least thirty (30) days before implementing or changing Marketing Fund Contribution requirements. The Marketing Fund shall be maintained and administered by Franchisor or its designee as follows:
11.3.1 Franchisor shall oversee all marketing programs, with sole discretion over the creative concepts, materials and media used in such programs, and the placement and allocation thereof. Franchisor does not warrant that any particular franchisee will benefit directly or pro rata from expenditures by the Marketing Fund. The program(s) may be local, regional or Franchise-wide.
11.3.2 Franchisee’s Marketing Fund Contributions may be used to meet the costs of producing, maintaining, administering and directing consumer advertising (including, without limitation, the cost of preparing and conducting television, radio, Internet, magazine, newspaper, and direct mail advertising campaigns and other public relations activities; developing and/or hosting an Internet web page or site and similar activities; employing advertising agencies to assist therein; and providing promotional brochures and other marketing materials to franchisees). All Marketing Fund Contributions shall be maintained in a separate account from the monies of Franchisor and shall not be used to defray any of Franchisor’s general operating expenses, except for such reasonable costs and expenses, if any, that Franchisor ma y incur in activities reasonably related to the administration of the Marketing Fund.
11.3.3 Franchisor shall endeavor to spend all Marketing Fund Contributions on marketing programs and promotions during Franchisor’s fiscal year within which such contributions are made. If excess amounts remain in any Marketing Fund at the end of such fiscal year, all expenditures in the following fiscal year(s) shall be made first out of such excess amounts, including any interest or other earnings of the Marketing Fund, and next out of prior year contributions and then out of current contributions.
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11.3.4 Although Franchisor intends the Marketing Fund, if established, to be of perpetual duration, Franchisor has the right to terminate the Marketing Fund at any time. The Marketing Fund shall not be terminated, however, until all Marketing Fund Contributions have been expended for advertising and promotional purposes or returned to Franchisee and other franchisees on a pro rata basis based on total Marketing Fund Contributions made in the aggregate by each franchisee.
11.3.5 Each KIDS ‘N’ CLAY Pottery Studio operated by Franchisor or any Affiliate shall make Marketing Fund Contributions at the same rate as KIDS ‘N’ CLAY franchisees.
11.3.6 An accounting of the operation of the Marketing Fund shall be prepared annually and shall be available to Franchisee upon request. Franchisor retains the right to have the Marketing Fund audited, at the expense of the Marketing Fund, by an independent certified public accountant selected by Franchisor.
11.3.7 Franchisee acknowledges that the Marketing Fund is not a trust and Franchisor assumes no fiduciary duty in administering the Marketing Fund.
11.3.8 When and if Franchisor establishes a Marketing Fund, Franchisor will establish an advisory board of franchisees, in such a manner and form as Franchisor deems appropriate, to provide advice and counsel regarding Franchisor’s use of Marketing Fund Contributions and the operations of Franchised Businesses. Such board shall function in an advisory capacity and shall not exercise any authority over the Marketing Fund or over Franchisor.
11.4 Cooperative Advertising
Franchisor has the right, but not the obligation, to create a Cooperative Advertising program for the benefit of KIDS ‘N’ CLAY Pottery Studios located within a particular region. Franchisor has the right to (a) allocate any portion of the Marketing Fund to a Cooperative Advertising program; and (b) collect and designate all or a portion of the Local Advertising for a Cooperative Advertising program. Franchisor has the right to determine the composition of all geographic territories and market areas for the implementation of each Cooperative Advertising program and to require that Franchisee participate in such Cooperative Advertising programs when established within Franchisee’s region. If a Cooperative Advertising program is implemented in a particular region, Franchisor has the right to establish an advertising council to self-administer the Cooperative Advertising program. Franchisee shall participate in the council according to the council’s rules and procedures and Franchisee shall abide by the council’s decisions.
11.5 Internet Advertising
Franchisee ma y not establish a presence on, or market using, the Internet in connection with the Franchised Business without Franchisor’s prior written consent. Franchisor has established and maintains an Internet website at the uniform resource locator www.kidsnclay.com that provides information about the System and the services that Franchisor and its franchisees provide. Franchisor ma y (but is not required to) include at the KIDS ‘N’ CLAY website an interior page containing information about the Franchised Business. If Franchisor includes such information on the KIDS ‘N’ CLAY website, Franchisor has the right to require Franchisee to prepare all or a portion of the page, at Franchisee’s expense, using a template that Franchisor provides. All such information shall be subject to Franchisor’s approval prior to posting. Franchisor retains the sole right to market on the Internet, including the use of websites, domain names, uniform resource locators, linking, search engines (and
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search engine optimization techniques), banner ads, meta-tags, marketing, auction sites, e-commerce and co-branding arrangements. Franchisee may be requested to provide content for Franchisor’s Internet marketing and shall be required to follow Franchisor’s intranet and Internet usage rules, policies and requirements. Franchisor retains the sole right to use the Marks on the Internet, including on websites, as domain names, directory addresses, search terms a nd meta-tags, and in connection with linking, marketing, co-branding and other arrangements. Franchisor retains the sole right to approve any linking to, or other use of, the KIDS ‘N’ CLAY website. Franchisee may not establish a presence on, or market using, the Internet in connection with the Franchised Business without Franchisor’s prior written consent.
11.6 Telephone Directory Advertising
Franchisee must list and advertise the telephone number(s) for the Franchised Business in the “white pages” telephone directory and the classified or “yellow pages” telephone directory distributed in its trade area and in such directory heading or category as specified by Franchisor. Franchisee must place the classified directory advertisement and listings together with other KIDS ‘N’ CLAY Pottery Studios operating within the distribution area of the directories. If a joint listing is obtained, all KIDS ‘N’ CLAY Pottery Studios listed together shall pay a pro rata share of the cost of the advertisements and listings. Telephone directory advertising expenditures are in addition to Franchisee’s Local Advertising obligations.
12. ACCOUNTING, RECORDS AND REPORTING OBLIGATIONS
During the term of this Agreement, Franchisee shall maintain full, complete and accurate books, records and accounts in accordance with the standard accounting system prescribed by Franchisor in the Manual or otherwise in writing. Franchisee shall retain during the term of this Agreement, and for three (3) years thereafter, all books and records related to the Franchised Business including, without limitation, purchase orders, invoices, payroll records, sales tax records, state and federal tax returns, bank statements, cancelled checks, deposit receipts, cash receipts and disbursement journals, general ledgers, and any other financial records designated by Franchisor or required by law.
12.2 Gross Sales Reports
Franchisee shall maintain an accurate record of Gross Sales and shall deliver to Franchisor a signed and verified statement of Gross Sales (“Gross Sales Report”) for the previous bi-monthly period in a form that Franchisor approves or provides in the Manual. The Gross Sales Report for the preceding period must be provided to Franchisor by the third (3rd) day or eighteenth (18th) day of the month or as otherwise provided in Section 3.2.
12.3 Financial Statements
Franchisee shall supply to Franchisor on or before the eighteenth (18th) day of each month, in a form approved by Franchisor, a balance sheet as of the end of the last day of the preceding month and an income statement for the preceding month and the fiscal year-to-date. Franchisee shall, at its expense, submit to Franchisor within ninety (90) days after the end of each fiscal year, an income statement for the fiscal year just ended and a balance sheet as of the last day of the fiscal year. Such financial statements shall be prepared in accordance with generally accepted accounting principles applied on a consistent basis. If required by Franchisor, such financial statements shall be reviewed or audited by a certified public accountant. Franchisee shall submit to Franchisor such other periodic reports in the manner and at the time specified in the Manual or otherwise in writing.
12.4 Other Reports
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Franchisee shall submit to Franchisor copies of all state sales tax returns that are required to be filed with the appropriate governmental agency and such other records as Franchisor ma y reasonably request from time to time or as specified in the Manual. Franchisor shall have the right to release financial and operational information relating to the Franchised Business to Franchisor’s lenders or prospective lenders. Franchisee shall certify as true a nd correct all reports to be submitted pursuant to this Agreement.
12.5 Computer System
Franchisee shall purchase, install and use a computer system consisting of hardware and software in accordance with Franchisor’s specifications. Franchisor shall have full access to all of Franchisee’s computer and sale data and systems and all related information by means of direct access, either in person or by telephone, modem or Internet to permit Franchisor to verify Franchisee’s compliance with its obligations under this Agreement.
12.6 Right to Inspect
Franchisor or its designee has the right, during normal business hours, to examine, copy and audit the books, records and tax returns of Franchisee. If the audit or any other inspection should reveal that any payments to Franchisor have been underpaid, then Franchisee shall immediately pay to Franchisor the amount of the underpayment plus interest from the date such amount was due until paid at the rate of eighteen percent (18%) per annum (or the highest rate allowed by law, whichever is lower). If the inspection discloses an underpayment of three percent (3%) or more of the amount due for any period covered by the audit, Franchisee shall, in addition, reimburse Franchisor for any and all costs and expenses connected with the inspection (including, without limitation, travel expenses and reasonable accounting a nd attorneys’ fees). The foregoing remedies shall be in addition to any other remedies Franchisor ma y have.
12.7 Release of Records
At Franchisor’s request, Franchisee shall authorize and direct any third parties, including accounting professionals, to release to Franchisor all accounting and financial records arising from or relating to the operation of the Franchised Business including, but not limited to, records evidencing Gross Sales, profits, losses, income, tax liabilities, tax payments, revenues, expenses, and any correspondence, notes, memoranda, audits, business records, or internal accounts within said third parties’ possession, custody or control, and to continue to release such records to Franchisor on a monthly basis for the length of the unexpired term of this Agreement or until such time as Franchisor withdraws its request. Franchisee shall execute all documents necessary to facilitate the release of records referenced herein to Franchisor.
13. STANDARDS OF OPERATION
13.1 Authorized Products, Services and Suppliers
13.1.1 Franchisee acknowledges that the reputation and goodwill of the System is based in large part on offering high quality services to its students. Accordingly, Franchisee shall provide or offer for use at the Franchised Business only those products, supplies, signs, equipment and other items and services that Franchisor from time to time approves (and which are not thereafter disapproved) and that comply with
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The original documents were scanned as an image. The original file can be downloaded at the link above.