Franchise Agreement

The original documents were scanned as an image. The original file can be downloaded at the link above.

Sample Franchise Agreement


1                                                                                ,                                           .                                            if

:           THIS LA BOXING FRANCHISE AGREEMENT is signed on               ;______, 2006 between LA

Boxing Franchise Corporation and ;                     __________. ______'                                          ;

,,          This Agreement is written in an informal style to make it easy to read and to help you become thoroughly

familiar with all of the important rights and obligations that the Agreement covers before you sign it. In this Agreement, LA Boxing Franchise Corporation is referred to as the "Franchisor," "we," "us" or "our.',x You are referred to as the "Franchisee," "you" lor "your."                                                          '                ,

BACKGROUND                         ;

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A.           We have developed and sown a membership fitness system consisting of unique boxing and

i kickboxing training regimens, and, a proprietary system featuring membership software and accounting programs, boxing equipment, operations manuals, sales manuals, training and instruction programs that include cardio boxing, cardio kick boxing, Jui Jitsu, Muay Thai boxing, utilizing a weight room, and a professional boxing ring with unique construction and design features. We have rights to and own the name "LA Boxing" and a unique system for the operation of a membership recreational boxing fitness gym utilizing skilled boxer and kick boxer instructors.

B.           You recognize the benefits from receiving an LA Boxing Franchise and desire to enter into this Agreement subject to the terms of this Agreement and to receive the benefits provided by us under this Agreement.

C.           We have reviewed your franchise application and have decided to award an LA Boxing Franchise to you on the terms stated in this Agreement and as evidenced by this Agreement.          !

"i                                           ■                                                                                                      i .


The parties agree as follows:'. ■ ;;"                                                              '


SECTION 1.1 , GRANT OF'FRANCHISE                                                       |

(■■■■■                                                                                                                                             .i

We grant to you, subject to'{the terms of this Agreement, the right and you undertake the obligation, to operate one (1) LA Boxing Franchise under the System only at the location and within the territory described in , Section 1.2.                 ,                                                                                              !

> r                                                 ,                                   ]                                                                                                                        i ■

Section 1.2 location.of Your LA Boxing Franchise                     

You agree that you will operate your LA Boxing Franchise only at the location described on the cover page or, if none is stated, the Premises will be designated by you and approved by us and delineated in Exhibit A (attached hereto and incorporated herein), and completed ninety (90) days after you select a site in accordance with 1 Section 4.1. The franchise location cannot be changed without our prior written consent and compliance with our relocation procedures. You will notisolicit business outside your Exclusive Territory through the use of an 800 number, catalog, direct mail, Internet,'Web Site or other advertising or solicitation method without our prior written consent.           .          .                     '                    \                                                    \ ,

>•• Section 1.3 Exclusive Territory                                                     j

■ >           Your Exclusive Territory is defined in Section 19.1. The written boundaries of your Exclusive Territory

will be defined by designated U. S. Postal Zip Code(s). During the Term, if you are not in default, we agree not to

open a Company-Owned Unit or franchise another LA Boxing Franchise within your Exclusive Territory. You will

be assigned an Exclusive Territory 'based upon population density, whether your Franchise Location is in a

I metropolitan or rural area, but generally we will not place another franchise within five (5) miles of the Franchise

/Location of your LA Boxing gym,-and your Exclusive Territory will have a population base of not less than 100,000

people. However, we reserve for ourselves the rights stated in Section 5.7, which are superior to your rights under

this Agreement.                                 ' " ,                                                               j                          -

All capitalized terms are defined in ARTICLE 19                                           !

. .                                       i                                                            i

Section 1.4 Relocation of Your LA Boxing Franchise                 !

(a)          Loss of Lease. If j the Premises'are leased by you and the lease expires or is terminated (' (provided termination is not due to your default) before the expiration or termination of this Agreement, you then

;' ' have 90 days to secure a new Franchise Location:'within your Exclusive Territory but not within the exclusive

- territory of a Company Unit oranother Franchise Unit of the System whether operatingtor under development. We

must approve the new Franchise Location in writing. You have 90 days from the date the new lease is signed to

, open and begin full operation, of the new LA Boxing Franchise in compliance with' this Agreement unless we

otherwise agree in writing. Your failure to secure a new Franchise Location and begin operation within the

specified times is an Event of Default on your part.                                                      j                          -

(b)          Casualty. » If the Premises is damaged or destroyed by fire or other casualty, or is required by any governmental authority, to be repaired or constructed you will, at your expense, repair or reconstruct the

. Premises within a reasonable time under the circumstances. The minimum acceptable! appearance for the restored Premises will be as existed just before the casualty. However, every reasonable effort must be made to have the restored Premises reflect the then current trade dress.of the newest LA Boxing Franchises within the System. If the . Premises is substantially destroyed by fire or other casualty, you may, with our written agreement, terminate this Agreement instead of reconstructing the Premises or relocating your LA Boxing Franchise.                        ;

(c)          Condemnation. You will, as soon as possible, give us notice of any proposed taking by eminent domain. If we agree that your LA Boxing Franchise or a substantial portion is to be taken, we will give prompt

] ' consideration to transferring your LA Boxing Franchise to a nearby location you select within your Exclusive Territory but not within the exclusive territory of a Company Unit or another Franchise Unit whether operating or

i under development as quickly as reasonably possible. You will complete this undertaking within 90 days of the taking. If the new Franchise Location is acceptable and we authorize the transfer, and ifyou open a new LA Boxing Franchise at the new Franchise Location in accordance with our specifications within 90 days after obtaining the new location, your new LA Boxing Franchise will be deemed to be your LA Boxing Franchise under this Agreement. If a condemnation takes place and a new LA Boxing Franchise does not, for any reason, open for business within 90 days after the taking, this is an Event of Default on your part.            '

Section 1.5 Your Right of First Refusal                                        !

•■                     If we want to open a Company Unit or Franchise Unit in a Zip Code area contiguous to your Exclusive

Territory, you or another existing franchisee who is closest to the proposed location of the new Company Unit or Franchise Unit has the right of first refusal for 30 days to purchase another LA Boxing franchise for the proposed location on terms substantially similar to those stated in our then-current form of Franchise Agreement being offered to new franchisees. Unless otherwise mutually agreed by the parties, the closing of the purchase of the additional LA Boxing franchise by you will be held at our principal office no later than 60 days after the right of first refusal is exercised. If you do not timely elect to exercise your right of first refusal, we may open the Company Unit, or sell ; the Franchise to another franchisee for the location without any further obligation or liability to you. Other than this right of first refusal, you will rights to open additional. Franchise Units under this Agreement.


■ ' :                                                                                                                                               ■!

We will provide you with the following initial and ongoing assistance and services, as long as you are not in default under this Agreement:         .         ,                                                               ,

Section 2.1 Site Selection Assistance                                             '■

We will supply to you our site selection criteria. We will not unreasonably withhold approval of any site that meets our standards for demographic characteristics, traffic patterns, parking, the predominant character of the neighborhood, competition from other businesses providing similar services within the area, the proximity to other businesses, the nature of other businesses in proximity to the site and other commercial characteristics, the size, appearance and other physical characteristics of the site, and any other factors that we consider relevant in approving or disapproving a site. We will review site approval submissions on a first-received basis. If we do not approve the selected site, you have:30 days to submit a new site within the Reserved Area for our written approval. WE DO

2                        .                                                                       :i


liability on us. :                  ;

Section 2.2 Plans and Specifications

(a)          We will loan to you:                                                                        :

i                                                                                          ■'

(i)         A sample set of standard building plans and specifications arid/or standard recommended

floor plans prepared by an architect;                      . !                                      I

(ii)         Specifications of our requirements for design, decoration, layout, equipment, furniture,

fixtures and signs for the LA Boxing Franchise (collectively, the "Design Specifications"); and '<

!                                                                                                       i

(iii) "f Specifications for LA Boxing uniforms for your employees,1 which are to be purchased

directly from our approved suppliers.                                                             

(b)          On or before the Opening Date, you must return to us the plans and specifications described in Subsection 2.2(a). -,                     > .          '

Section 2.3 Business Planning Assistance


Section 2.4 Accounting, Cost Control and Inventory Control Systems

We will provide you with membership accounting, cost control, and inventory control systems. Section 2.5 Lists, Forms and Schedules

We will loan to you:             \

i (a)         A list of required boxing and gym equipment, supplies, materials, | inventory and other items

necessary to open and operate your LA Boxing Franchise and a list of approved suppliers of these items;

" ■                                                                                                                                                                                                      't                                                                                                                                                                                                                                                                                    I

. '             (b)         An initial sample set of forms, including training class schedules,' daily reports, membership

agreements, standard brochures and various operational forms, standardized periodic weekly reporting forms for

reporting accounting information, cost'analysis and purchase order forms;                     ;!


(c)        .A schedule of items that must be purchased from us, or our Affiliates, including inventory,

business forms, brochures and other items; and                                                            J


(d)          A schedule of recommended equipment- and supplies that can be purchased from third-party suppliers.                                          ■ ,"                      .                                         !



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Section 2.6 ' Employee Information and assistance

We will loan to you a standardized interviewing/selection system. You are solely responsible for the hiring, disciplining, supervising, promoting, and firing of your employees and the establishment of their salaries as further provided in Section 4.8.                                                                                  i

Section 2.7 Initial Training                                                             ', •

(a)          Initial Training. We, will provide you with five (5) Business Days of Initial Training for up to three (3) Trainees at our training facilities in Costa Mesa, California. Unless otherwise! agreed in writing, at least 1 Trainee must be the Franchise Owner. If you will not be active in the day-to-day activities of your LA Boxing Franchise, you may designate another;person as your Manager who will be active in the day-to-day activities of your LA Boxing Franchise to be another Trainee: All Trainees must be acceptable to us. Initial Training includes daily

r. operations, membership selling techniques, instructor training,. instruction in administration, operations, event

, promotions, and marketing and franchisor relations. Training programs may differ in content and length for

Franchise Owners or employees depending upon their responsibilities at the LA Boxing Franchise. We will provide,

■ at our expense, (as Initial Training is included in the Initial Franchise Fee), instructors, facilities, equipment, training

" materials and technical training tools for Initial Training. You are responsible for all "expenses of the Trainees in

attending Initial Training including all travel, lodging and; meal expenses. You will pay all expenses incurred to

have your additional employees attend Initial Training, including reasonable training fees.

(b)          Failure to Complete Initial Training.         If any Trainee fails to satisfactorily complete Initial ' Training, as reasonably determined by us, we may:' (i) at your expense and direction, 're-train the Trainee or train ' another Trainee; or (n) elect to terminate this Agreement and refund the Initial Franchise Fee and other fees

collected under this Agreement to you without interest, less our out-of-pocket costs and our standard fees for the

y training provided (currently $500 per;day per person).                                                 ;


                                                                                                                                                                                                                                                                   '                                                                                                                                                                                                                                                                                                                                                                         1

Section 2.8 Loan of the Manuals (                                                   j .

We will loan to you one registered copy of each volume of the Manuals (with; revisions as required). Our practice is to deliver the Manuals to you at, or shortly before, Initial Training.                i

Section 2.9 Pre-Opening Inspection                                                ;

\           We will inspect your Franchise Location before you1 open. We will provide you with advice, as we deem

appropriate, to assist you in conforming to applicable LA BOXING Franchise standards before the Opening Date.

Section 2.10 Pre-Opening On-Site Training; Opening Supervisor \                          i

; iWe will make available to you pre-opening, on-site training for a Business Dayjby our Opening Supervisor, in most instances to be conducted at your LA Boxing Franchise Location shortly before the Opening Date. The on-site training program involves a review of all personnel, equipment, supplies, systems and operations. The Opening Supervisor will also observe boxing and fitness training classes and oversee the operation. We will pay the expenses of the Opening Supervisor.                                    :           ■■ '                                 \ '            -

Section 2.11 Continued assistance and Support                              \

Upon the opening of your LA Boxing Franchise, we will, or may provide to you the following:

(a)         Accounting Services. We will provide you with the following accounting services:

membership sales, product sales, and general and administrative.                                  j

(b)          Field Visits.        We will provide assistance to you in the development and operation of your LA Boxing Franchise by means of periodic visits by one.'of our field representatives.            \

' ■                                                        "                                                                       ! f                                                      ■ ' • ■                                                                              '!

(c)      , Telephone Assistance. We will provide informational assistance by telephone, including

, consultation on matters involving operations, advertising, promotion and business methods.

r               (d)         Advertising and Public Relations Campaigns.        We will generally promote our franchisees1

businesses through advertising and public relations campaigns.                                     ;

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(e)          Local Advertising., * We will-provide you advice on Local Advertising.

'                                      . *'

(f)           Promotional Methods and Materials.        We will provide you with promotional methods and materials that we develop: , -                                                                        !

                                                                                                                                                                                                                                                                                                                                                                                                   < f

(g)          Radio and Television Commercials.         ' We may provide at our] discretion, a pre-approved radio script, and camera-ready television commercials (not including airtime) for your use in your ADI.

(h)         Periodic Assistance.         We may provide advisory assistance in thejoperation and promotion of

" the LA Boxing Franchise, as we deem advisable. Advisory assistance may include additional training and assistance, communication of new developments, improvements in equipment and supplies, and new techniques in - advertising, service and management relevant to the operation of the LA Boxing Franchise.

;               (i)          Refresher or Additional Training.             We may provide refresher training programs,

seminars or advanced management training for your and your employees at our principal training facility in Costa Mesa, California, as may be required at our option. Training is not required more often than once per year.

' However, if you receive an unsatisfactory inspection report from us and fail to promptly; remedy the deficiencies, we may require your Manager and designated employees to attend refresher training as soon as reasonably possible.

, You are solely responsible for all expenses associated with these programs including the then prevailing standard training fee we charge for these programs and all travel, meals and lodging costs of yourjattendees.            ,

;.'                    '                   .                                                          'I

(j)          Special Assistance.;          If you request, we will furnish non-routine guidance and assistance to

' address your unusual or unique operating problems at our customary per diem rates. You will be responsible for all

direct and out-of-pocket expenses we incur.

l                                                                        :i

(k)         Research and Development. : We will continue to research arid develop new equipment,

products and services, introductions and techniques, as we deem appropriate in our sole discretion. We may conduct

market research and testing to determine consumer .trends and the salability of new products and services. If we

choose you, and if you agree, you will participate in our market research programs, in test marketing new products

and services in the LA Boxing Franchise and by providing us with timely reports and other relevant information

, regarding that market research. If you participate in any test marketing, you agree to purchase a reasonable quantity

of the products or services being tested and to effectively promote and make a good faith effort to sell them.

>                                                                                                                                                                                                                                                                                  i

Section 2.12 License of Intellectual Property

Subject to this Agreement, and only for so long as this Agreement is in effect, we sublicense to you the right to use the "LA Boxing™" trade name and the other Intellectual Property.               j

Section 2.13 Our Temporary Operation of Your Unit                    |

At our option, if:                  '.                                                                        i

'                                                                      ''■■■",                                                                                                         \ '

(a)          you fail to keep your LA Boxing Franchise open for business during normal business hours;

j                                                                                                                                                                                                                                                                  i

(b)          you are absent from.your LA Boxing Franchise more than 5 days or abandon the Premises;


':               (c)         you or the Franchise Owner dies or becomes permanently incapacitated and the Franchise or the

ownership interest in the Franchisee is not assigned promptly pursuant to Section 11.4; I

(d)      * you materially breach any of our standards and specifications for the operation of your LA Boxing ; Franchise; or , '                             1            '■'..'                                      i

(e)          your LA Boxing Franchisees terminated and we elect to purchase your business assets as provided in Section 13.4;           <                     ;                                                                        !

then, we are entitled (but have no obligation) to enter your Premises and to operate and manage your LA Boxing Franchise for your (or your estate's) account until the LA Boxing Franchise is terminated, transferred to a party I under Subsection 11.2(f), purchased by us, or until you resume control over your LA Boxing Franchise and operate it in accordance with this Agreement. Our operation and management will not continue for more than 90 days without your written consent or the consent of the representatives of your estate. If we operate your LA Boxing Franchise, we will account to you or your estate for all net income from the operation less our reasonable expenses incurred in, and a reasonable management fee for, our operation of your LA Boxing Franchise.

.""-.. .                             ; ;                         :                               i ■

Section 2.14 Duties Solely to You

All of our obligations under this Agreement are only to you. No other party is entitled to rely on, enforce,

or obtain relief for breach of the obligations either directly or by subrogation.                 <

!'■■                                                                                                                                                                            '                                                                                                                                                                                                                                                ■'

Section 2.15 Our Right to Delegate Duties                                     j

.          You agree to our right to delegate our duties under this Agreement to a Designee. You must discharge your

\ duties with the Designee to the ^extent we request, as you must do with us. We remain responsible for our i obligations under this Agreement even if delegated to the Designee.                              j


' ■                                                                                                                                                                                                                                         )

Section 3.1 Types of Fees                                                                  f

i i               In consideration of our signing this Agreement, you must pay to us the following fees, in addition to any

i others required under this Agreement, all payable in United States currency at our principal office:

. (a)         Initial Franchise Fee. You must pay to us an Initial Franchise Fee of Twenty-Five Thousand

,, Dollars ($25,000) payable at the same'time this Agreement is signed. The Initial Franchise Fee is fully earned by us '. oh receipt and, except as expressly provided otherwise in this Agreement, is non-re fundable upon signing this -I Agreement.                             . '                                                                             j

(b)          Royalty Fee. You will pay a continuing monthly non-refundable Royalty Fee during the Term . equal to Six Percent (6.0%) of monthly Franchise Gross Revenues.

(c)          Advertising Contributions.           If we institute an Advertising Contribution, you will be required to pay a continuing monthly; Advertising Contribution to the Marketing Fund from the time of notice and

■ continuing for the balance of the, Term in an amount equal to Two Percent (2.0%) of monthly Franchise Gross , Revenues. We have the sole right to institute and enforce your obligations and all other franchisees that are required 1 to., make Advertising Contributions. Neither you, nor any other franchisee obligated to make Advertising

Contributions, is a third party beneficiary of the Marketing Fund or has any right to enforce any obligation to

contribute the Marketing Fund.

Section 3.2 Payment Schedule                                                                '

,           The Royalty Fee and Advertising Contributions must be paid to us by the fifth (5,h) day of each month

' during the Term for the previous month. All other/amounts due to us from you will be paid as specified in this

' • .                              '                            '           '               '.' 6 '                                               ) ■

Sj Agreement. If no time is specified, these amounts, are due upon receipt of an invoice from us. Any payment or

report not actually received by us on or before the due date is overdue.                          f

:■                           .                                                                                                                          i _ '-                            : . ■ ■ .                                                                                     I '                                                              '

Section 3.3 , Payment System

(a)          If we institute an automatic payment system, you will be required to convert to such system with payments in accordance with such system. If the automatic payment system is instituted by us, all payments by you to us or our Affiliates, upon our request, will be effectuated by a Payment System by the use of pre-authorized transfers from your operating account through the use of special checks or electronic 'fund transfers, that we will process at the time any payment is due or through the use of any other payment system we designate. You will cooperate with us to implement the] Payment System within 15 days before the Opening Date. You, agree to cooperate with us in maintaining the efficient operation of the Payment System, including your deposit of all Franchise Gross Revenues you receive in your operating account accessed by the Payment System within one (1)

1 Business Day of receipt.                                         '. ■ ■■ .                                  f

• i

(b)          You will give your financial institution instructions in a form we provide or approve and will t obtain the financial institution's agreement to follow these, instructions. You will provide us with copies of these

instructions and agreement. The financial institution's agreement may not be withdrawn or modified without our written approval and approval is within our sole discretion. You will also sign all other forms for funds transfer as

the financial institution or we may request.               "i                                                   \         

..                                                        .          "                        ' ,                               >

(c)          We may require your financial institution to send a monthly statement of all activity in the designated account to us at the same time as it sends; these statements to you, and any other reports of the activity in

v the operating account as we reasonably determine and request.                                      I .

(d)          If you maintain any, other bank accounts for your LA Boxing Franchise, you must identify these accounts to us and provide to us copies of the monthly statements for all these accounts and the details of all

I deposits and withdrawals to them.                                                                               J

(e)          You will pay all charges imposed by your financial institution. We will pay the charges imposed by our financial institution for the Payment System. .          '                              ■ . :']

i                                                                                                                                      j

(f)           You agree that your;obligations to make payments under this Agreement and any other agreement

entered into with us or our Affiliates'for your LA Boxing Franchise, and our rights and those of our Affiliates, if any, to receive these payments, are absolute and unconditional, and are not subject to any abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged to be due to, or by reason of, any past, present or future claims that you have or may have against us, any of our Affiliates, any of our Designees; or against any other person for any reason.                                                                                                           I '

Section 3.4 Interest on Late Payments; Late Charge                   i


i           Although each failure to pay monies when due is an Event of Default, to encourage prompt payment and to

cover the costs involved in processing late payments, if any payment under this Agreement or any other agreement between us or our Affiliates and you for your LA Boxing Franchise is overdue for any reason, you must pay to us, , oh demand, in addition to the overdue amount, any insufficient funds (NSF) charges we incur and interest on the overdue amount from the date it was due until paid equal to the lesser of: (i)) eighteen percent (18%) per annum; or (ii) the maximum rate of interest permitted by law. You must also pay a late charge of Two Hundred Fifty Dollars ($250) for each payment that is overdue. If we owe you money, we will pay the same interest and late charge, if we pay you late.                                     ;                                                                        ,

i                                                                                                                                                                                                                                                                  j

Section 3.5 Application of Payments

'.         We have sole discretion to apply any payments you make to your past due {indebtedness including the

Royalty Fee, Advertising Contributions, purchases: from us or our Affiliates, interest, insufficient funds (NSF) charges, or any other indebtedness of you to us or our Affiliates in any manner we] choose regardless of your designation.                            '          :                               ,                                         '

Section 3.6 No Withholding                                                            j                          "

'                                   ; ' \ ■                           *                                               i

You agree that under no circumstances will you withhold or suspend payment jof, or reduce the amount of

the Royalty Fee and Advertising Contributions Fee; if instituted, payable under this Agreement. Notwithstanding

' the foregoing, if you dispute in good faith the amount of an individual payment due under this Agreement, you may

pay only the amount you believe, is due, provided that you give us prompt notice of the reasons you dispute the amount of the payment and proceed to make good faith efforts to resolve the dispute. >■

1 ARTICLE 4 - YOUR DUTIES                    j

Section 4.1 , Acquisition of the Site

(a)          Site Approval. You are solely responsible for selecting the site. If a site for your LA Boxing . Franchise has not been selected on the Agreement Date, you must complete the acquisition or lease arrangements for

your Premises located in the Reserved Area, at your expense within 30 days after^the Agreement Date, after obtaining our written approval under; Section 2.1. If a site has not been approved within three (3) months of the Agreement Date, we may terminate this Agreement and refund the Initial Franchise Fee [to you without interest, less r our out-of-pocket costs and our standard' fees and expenses for the assistance we have provided under this Agreement including site location assistance, and our fees for any training (currently, $500 per person per day).

' ' ■ '                            i-                                ' .                                                                                                                             ■''

(b)          Lease of the Site. '          We must approve any lease of the Premises. You must deliver a copy of the.proposed lease to us at least 15 days before it is to be signed by you.                         -

Section 4.2 Construction Plans and Permits

■ -' ■                           ■ "                           ■ "!:''.                                                              :i

For the construction of your Premises, you will do the following:                     !

ii                                                                                                                                                                                                                                                                                                                                                                                                   -■


(a)          You must employ a qualified architect or engineer with adequate errors and omissions insurance to , prepare a site plan and plans and specifications adapting our standard plans and specifications to your approved

Franchise Location and to applicable laws, lease requirements and restrictions, and market conditions. The architect or engineer must be especially mindful of all zoning, signage, seating capacity, parking requirements and storage ' requirements. Any material modification to the standard plans and specifications must be sealed and stamped by the architect or engineer and approved by us. The modified plans and approvals, once approved by us, will not be materially changed or modified without our written approval;                                       J

(b)          You will employ professional supervision satisfactory to us over preparation of the site layout and plan and over construction of your Premises; and

(c)          You must obtain all permits and certifications required for the lawful construction and operation of ■• your LA Boxing Franchise, together with certifications from all governmental authorities having jurisdiction over ; your Premises and your LA Boxing Franchise. You must provide us with evidence that all necessary permits have

; been obtained and that all requirements for construction and operation have been met, including zoning, access, sign, fire, health, environmental and safety requirements.                                              j

Section 4.3 Construction Requirements                                       

You must begin construction within sixty (60) days after a site is obtained and|provide written notice to us of the date construction of your LA Boxing Franchise is completed. You will construct the Premises in accordance to the approved plans described in Section 4.2 and the Design Specifications. You must maintain continuous construction of the Premises and must complete construction, including all exterior and interior carpentry, electrical, painting and finishing work and installation of all with the approved fixtures, equipment and signs, in accordance with the site plans and Design Specifications, at your expense, within ninety (90) days from the Agreement Date. If you fail to complete construction timely, you are in material default of this Agreement and we have the right to , terminate this Agreement. You agree !that our representatives and we have the right to inspect the construction at all reasonable times. You will within five (5) days after completion of construction obtain a certificate of occupancy,

", ■ .                                               ,                                         ■ . t

; and after obtaining our approval for opening, will open your LA Boxing Franchise within ten (10) days after the date

of the certificate of occupancy. You and we agree that time is of the essence in constructing and opening your LA

Boxing Franchise.                            ;         :                                                   ,           j

' ■ ' ' ■                                                             '                                       .,                                                                                                                   '                                                             ■-■)""''

Section 4.4 Opening                                     . , ■                                                   ■ ■

You agree not to open your LA Boxing Franchise for business until: (a) all your obligations under Sections 4.1 through 4.3 have-been fulfilled; (b) we determine that your LA Boxing Franchise has been constructed, ' furnished, equipped, and decorated in accordance with approved plans and specifications; (c) the training of the • Trainees has been completed to our reasonable satisfaction; (d) the Initial Franchise Fee and all amounts due to us and our Affiliates under this Agreement have been paid in full; (e) we have been furnished with certificates of insurance and copies of all insurance policies or all other evidence of insurance coverage as we reasonably request; (f) you have obtained a certificate of occupancy for your Premises; and (g) you have obtained all necessary licenses and permits to operate your LA Boxing Franchise. Final approval by us of the opening of your LA Boxing Franchise will be given in writing. You agree to comply with these conditions and be prepared to open your LA Boxing Franchise for business within six (6) monthsafter execution of this Agreement, j]

Section 4.5 Use of the Premises                                                       :

i                                                                                                       \ '.

You must use your Premisesjonly for the operation of your LA Boxing Franchise. You must keep your LA Boxing Franchise open for business and in normal operation for the minimum hours and days as we reasonably : require in the Manuals or otherwise in writing except as may be limited by local law or the landlord's rules and regulations.                                                                                                               i

Section 4.6 . Maintenance and Repairs

(a)          You must maintain your LA Boxing Franchise in the highest and most uniform degree of sanitation, repair, appearance, condition and security as stated in the Manuals and as a modern, clean, adequately lighted and efficiently operated LA Boxing Franchise providing high quality products! and services with efficient, courteous and friendly customer service as we require. You must make all additions, alterations, repairs and replacements to your LA Boxing Franchise (but no others without our written consent) as reasonably required for that purpose, including all periodic repainting, changes in appearance, repairs to impaired equipment and replacement of obsolete signs as we direct subject to Capital Expenditure Limitation stated in Section 4.21. You must meet and maintain the highest ;safety standards and ratings applicable to the operation of your LA Boxing Franchise, as we reasonably require. ■         "          ,.          ,                                         '

!                                                                                                                                                 i

(b)          You must maintain contracts with reputable firms for the maintenance of the Premises and the machinery and equipment and, if we determine to be appropriate or necessary, for the landscaped areas of the Premises. Contracts for maintenance of the Premises and the machinery and equipment must provide for the performance of services, including preventative maintenance services, and be with financially responsible firms, that: (i) maintain adequate insurance and bonding; (ii) have personnel who are factory trained to service equipment of the type in the Premises; and (iii) maintain an adequate supply of parts for the machinery, equipment and tools. Contracts for landscape maintenance must be with,financially responsible firms. You will provide us, upon our request, with a copy of any contract for maintenance that you enter into with any outside maintenance firm. If you fail to keep these contracts in full effect, we may do so at your expense.                        ,j

Section 4.7 Operational Requirements

You agree to:                                                                                               [

(a)         Operate your LA Boxing Franchise in conformity with all uniform methods, standards and

specifications required in the Manuals or otherwise, to ensure that the highest degree of quality and service is uniformly maintained. You agree;to:                   '                                                       ;

(b)         Comply with the procedures audi systems we reasonably institute on a System-wide basis both

now and in the future, including those on recommended salary levels, sales, good business practices, advertising and other obligations and restrictions; and'                    ;

;            (c)         Maintain in sufficient supply (as we may reasonably prescribe in the Manuals or otherwise in

writing) and use at all times, only inventory, equipment, materials, advertising methods and formats, and supplies that conform with our standards and specifications, if any, at all times sufficient to meet the anticipated volume of ., business, and to refrain from deviating from these requirements without our written consent; and

(d)         Adhere to the highest standards of honesty, integrity, fair dealing! and ethical conduct in all

, dealings with customers, suppliers, employees, independent contractors, us and the public; and                  '

1           (e)         Sell or offer for'sale only the products and services that meet our reasonable uniform standards of

quality and quantity; have been expressly approved for sale in the Manuals or otherwise in writing by us at retail to

* consumers only from your LA Boxing Franchise; not sell any items for redistribution or resale; sell or offer for sale

all approved products and services; refrain from any deviation from our standards and specifications for providing or

' selling the products and services without our written consent; and discontinue selling and offering for, sale any

: products and services that we reasonably disapprove on a System-wide basis in writing at any time; and

, .          (f)          Comply with all warranty policies and^procedures we reasonably jrequire in the Manuals or

■ otherwise under authorized warranties on LA Boxing Products; and                              ,!

(g)         Purchase and install, at your expense, all fixtures, furnishings, signs and equipment we reasonably

; specify. The equipment must be maintained in a condition that meets the operational standards specified in the

Manuals. As equipment becomes obsolete or inoperable, you will replace the equipment with equipment that is then

approved for use in the LA Boxing Franchise. If we determine that additional or replacement equipment is needed

I on a System-wide basis because of a change in d£cor, method of fitness training, a change in technology, customer

, concerns or health or safety considerations, you will install the additional equipment or replacement equipment

within the time we specify, subject to the Capital Expenditure Limitation in Section 4.2 L                          '

Section 4.8 Hiring, Training and Appearance of Employees ,

*           You will maintain a competent, conscientious staff and employ the number of employees and independent

contractors, necessary to meet the anticipated volume of business and to achieve the goals of the LA Boxing System. You will take all steps necessary to (ensure that your employees meet the employment criteria and keep a neat

''appearance and comply with any dress code weirequire. You are solely responsible for the terms of their employment and compensation and, except for training required under this Agreement, for the proper training of the

^ employees in the operation of your| LA Boxing Franchise; Subject to System-wide recommendations in the Manuals, you are solely responsible for all employment decisions and functions, including hiring, firing, establishing wage and hour requirements, disciplining, supervising and record keeping. 'You will not recruit or hire

: any employee of a LA Boxing Franchise operated by us or another franchisee within the System without obtaining

1 the employer's written permission, which will not be unreasonably withheld, subject to any covenant not to compete, the provisions of which will be respected and not challenged.                                        i

Section 4.9 Management of Your LA Boxing Franchise               j

(a)         If this Agreement is signed by 2 or more individuals or by a business entity, you agree to designate

»in writing one (1) individual as the Manager upon signing this Agreement. We have the right to rely solely on ! instructions of the Manager concerning the operation of the LA Boxing Franchise until we receive a duly signed , written notice changing the designated Manager.                                                '          !

'              (b)         The Manager must devote his or'her best full-time efforts to the management and operation of

your LA Boxing Franchise. You agree that your LA Boxing Franchise requires the day-to-day supervision of the Manager at all times your LA Boxing Franchise is open for business. The Manager, and all successive Managers, if


any, is required to complete Initial Training before managing your LA Boxing Franchise, unless we otherwise agree i to waive such requirement in writing. I          ',           Iy '                                               j ■

:           (c)         If we have permitted the Manager to be an individual other than the Franchise Owner, and the

Manager fails to satisfy his or her obligations provided in Subsection 4.9(b) due to death, disability, termination of employment or for any other reason, 'the Franchise Owner will satisfy these obligations until you designate a new ' Manager of your LA Boxing Franchise acceptable to us, who has successfully completed Initial Training.' You are , solely responsible for the expenses associated with Initial Training, including the then-prevailing standard training fee we charge (currently $500 per day).                                                                       f

:                                                                                                           '.,■''■                                                                                                                                                                                                                  !

Section 4.10 Approved Specifications and Sources of Supply i -

-          (a)         Purchases from Us or Our Affiliates. You must purchase from our Affiliates or us the LA

Boxing Products and other items that,we require as implemented on a System-wide basis. You will be charged the same prices then being charged to all franchisees and Company Units.                           j

(b)          Authorized Specifications and Suppliers. You must purchase or Hease equipment, supplies, inventory, advertising materials, construction services and other products and services used for the operation of your

, LA Boxing Franchise solely from authorized manufacturers; contractors and other suppliers who demonstrate, to our

■ continuing reasonable satisfaction: (i) the ability to meet our standards and specifications for these items; (ii) possess

\ adequate quality controls and capacity to supply your needs promptly and reliably; and (iii) have been approved in

writing by us and not later disapproved. We wilLuse our best reasonable efforts to negotiate agreements with

suppliers that, in our good faith belief, are in the best interest of all LA Boxing franchisees. We may approve a

single supplier for any brand and may!approye a supplier only as to a certain brand or brands. We retain the right to

receive compensation from such suppliers for such negotiation. In approving suppliers for the System, we may take

. into consideration factors like the price and quality of the products or services and the supplier's reliability.' We may

concentrate purchases with one (1) or more suppliers to obtain the lowest prices and/or the best advertising support

and/or services for any group of Franchise Units or Company Units within the Chain. Approval of a supplier may

be conditioned on requirements on the frequency of delivery, standards of service, warranty policies including

' prompt attention to complaints, and concentration of purchases, as stated above, and may be temporary, pending our

additional evaluation of the supplier. t                                                                        ,

(c)          Approval of New Specifications and Suppliers. If you propose ; to purchase or lease any equipment, supplies, inventory, advertising materials, construction services or other products or services from an

1 unapproved supplier, you must submit to us a written request for approval, or request the supplier to do so. We will have the right to require, as a condition of our approval, that our representatives be permitted to inspect the supplier's facilities, and that samples from the supplier be delivered, at our option, either to us or to an independent, certified laboratory designated by us for testing. We are not liable for damage to any sample that results from the testing process. You will pay a charge not to exceed the reasonable cost of the inspection and the actual cost of the

; testing. We may also require as a condition to our approval, that the supplier present satisfactory evidence of

, insurance, for example, product liability insurance, protecting us and our franchisees against all claims from the use of the item within the System. We will make the determination as to suitability within ten (10) days after receipt of all requested information, inspection and testing. We reserve the right, at our option, to reinspect the facilities and

;.. products of any approved supplier arid continue to sample the products at the supplier's expense and to revoke approval upon the supplier's failure to continue to meet our standards and specifications. You will receive

.. notification of approval or disapproval of a supplier within seven (7) days after we have investigated and inspected the supplier.                                                                                                              j

Section 4.11 LA Boxing Products                                                       !

You agree that we have already developed or have distribution rights to the LA Boxing Products and may , continue to develop for use in the System certain additional products that are all highly, confidential and constitute

trade secrets. Due to the importance of quality control and uniformity of these products and the significance of the '■■ proprietary products to the System, it]is to the mutual benefit of the parties that we closely control the production .'and distribution of the LA Boxing Products. Accordingly, you will use the LA Boxing ^Products and will purchase

from us or from an approved source we designate and license all of your supplies of the^LA Boxing Products, all in

:                                              '                                        l -

:"".'';                                                11                                                                                                                         ■!


Section 4.12 Sales of Products and Services by You to Your Affiliates.

:           All sales of products and services by you to your affiliates, if any, must be on terms regularly applicable to

your non-affiliated customers, and in all cases must be arm's-length.

Section 4.13 Telephones and Answering Service                             j

You will: ■                     1 .                                                                      ! ■

l: ' .                                                                                                                                                                                                                                         *                                                                                                                                                                             

(a)         Maintain continuously no less than four (4) operating telephone lines and telephone numbers to be

used exclusively for the operationof your LA Boxing Franchise as are reasonably required, with sufficient staff to handle telephone calls in an efficient and courteous manner at all times during normal business hours; and

i                                                                 ,                                                       \                                            ...

;           (b)         Maintain an answering machine or voice mail service after normal business hours.

i .                                                                                                                              i

Section 4.14 Professional Affiliation                                              j

You will join within thirty (30) days from written notice by us, if not already a member, any association that we require as implemented on.a System-wide basis, and maintain your membership in good standing throughout the Term.                                    ' *                     '                                                   }

Section 4.15 Compliance with Laws, Rules and Regulations j

■ ■ You will comply with all federal, state, and local laws, rules and regulations, and will timely obtain, maintain and renew when required all permits, certificates, licenses or franchises necessary for the proper conduct of your LA Boxing Franchise under this Agreement, including qualification to do business,1 fictitious, trade or assumed name registration, building and construction permits, occupational licenses, sales tax permits, health and sanitation permits and ratings, fire clearances and environmental permits.                                      |

i                                                                                                                       ■'<'■.                                                                                                                                                                                                 1

Section 4.16 Tax Payments; Contested Assessments

■'                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        if

You will promptly pay when due all taxes \ required by any federal, state or local tax authority including

unemployment taxes, withholding taxes, sales taxes, use taxes, income taxes, tangible commercial personal property

taxes, real estate taxes, intangible taxes and all other indebtedness you incur in the conduct of your LA Boxing

; Franchise. You will pay to us ah amount equal to any sales tax,' goods and services taxes, gross receipts tax, or

similar tax imposed on us for any payments to us required under this Agreement, unless the tax is measured by or

■ involves the net income or our corporate status in a state. If we pay any tax for you, youjwill promptly reimburse us

. the amount paid. If there is any bona! fide dispute as to liability for taxes assessed or other indebtedness, you may

contest the validity or the amount of the tax or indebtedness in accordance with procedures of the taxing authority or

applicable law. However, you will not permit a tax sale or seizure by levy or execution or similar writ or warrant, or

attachment by a creditor, to occur against the Premises or any assets used in your LA Boxing Franchise.

■ ; ■                          12                                               i

Section 4.17 Customer Surveys; Customer List                    * !

You will present to customers any evaluation forms we require and will participate and/or request your customers to participate in any marketing surveys performed by or for us. You will maintain a current customer list ; containing each customer's name, address, telephone number and zip code, email address and supply an updated , copy of the list to us on a quarterly basis. You must participate in any process we develop to record all customer i information. You retain ownership of your customer lists. We will not sell or use your customer list for any activity ;: adverse to, or in competition with, you. rp                                                               j

Section 4.18 Inspections                                                                     J

You will permit us and/or our representatives to enter your Premises or office at any time during normal

; business hours upon reasonable notice, for purposes1 of conducting inspections. The inspections will be performed

1 in a manner that minimizes interference with the operation of your LA Boxing Franchise. You will cooperate fully

with us and/or our representatives in inspections by rendering assistance as they may reasonably request and by

permitting them, at their option, to observe how you are selling the products and rendering the services, to monitor

: sales volume, to conduct a physical inventory, to confer with your employees and customers and to remove samples

: of any products, supplies and materials in amounts reasonably necessary to return to our office for inspection and

, record-keeping. We and/or you may videotape the inspections. Upon notice from us, and without limiting our other

] rights under this Agreement, you will take all steps necessary to correct immediately any deficiencies detected

during inspections, including immediately stopping use of any equipment, advertising, materials, products, supplies

or other items that do not conform to ;our then-current requirements. If you fail or refuse to correct any deficiency,

• we have the right, without any claim to the contrary by you,' to enter your Premises or office without being guilty of

, trespass or any other tort, for the purposes of making or causing to be made all corrections as required, at your

' expense, payable by you upon demand.                                                                       >

Section 4.19 Notices to Us                                                                 !

'.''.'■                                                                                                                                                           :'

(a)         You must notify us in writing and supply us copies of all relevant documents within five (5) days

. of any of the following events:                    „                                                               i

(i)          The start of, any action, .suit, administrative proceeding or "other action or proceeding

" '           against you, or any of your employees that may have a material adverse effect on the Franchise Business or

;,.         the System;                                                                                                  \

(ii)         Any communication by any governmental entity relating to the conduct of your LA

Boxing Franchise that indicates your material non-compliance with any applicable law, rule or regulation;

: .-              or                   . ■                               I             ' ( ■ ■ ■                                                               |

: '                        (iii) The issuance of any order^ writ, injunction, award or decree of any court, agency or other

governmental instrumentality against you or any of your employees that may have a material adverse effect '.■          on the LA BOXING Franchise or the System.                                                 '

s           (b)         You will provide us with any information we request, within five (5) days of request, about the

, progress and outcome of these events.'                               '         :'                     .          i

■■I                                                                                                                       ....                                                                                                                                                                                                                                                                                                                                               .i

Section 4.20 Operational Suggestions

You are encouraged to submit suggestions in writing to us for improving elements of the System, including products, services, equipment, service format, advertising and any other relevant matters, so that we may consider

' adopting or modifying standards, specifications and procedures for the System. You agree that any suggestions you make become our exclusive property. We have no obligation to use any suggestions. You may not use any

" suggestions inconsistent with your obligations under this Agreement without our written'consent.


t                                                                                                                                       j

Section 4.21 Renovation and Upgrading

r                       ■ '                   ■                                                                            i

You will abide by our requirements for alterations, remodeling, upgrading or any other improvements to 1 your LA Boxing Franchise to achieve the strategic marketing goals of the System. [Generally, the standards to

comply satisfactorily will not exceed those applicable to new Franchise Units and new Company Units. These

requirements will not impose an undue economic burden or occur more frequently than every two (2) years. You ■ will bear the entire cost of changes or additions, for any changes in, or additions of, equipment, furnishings, fixtures,

lighting, carpeting, painting or the taking of other actions we specify to satisfy our then-current standards for image, i positioning, marketing strategy, cleanliness or appearance but not to exceed total capital expenditures of Six

Thousand Dollars ($6,000) every two (2) years (the "Capital Expenditure Limitation") without your consent.

Section 4.22 Liquidated Damages for Sale of Prohibited               t

Products or Services.                                                                             I

. '. .                                                                                                                                                  t ■                                                                                                                                                                                                     i

You agree that the offer to sell or the sale of unauthorized or prohibited products and services will result in

: damages to us. You agree that these damages will be compensated at the rate of One Hundred Dollars ($100.00) for

each day of the prohibited offer or sale, payable to .us upon demand. These damages are in addition to our other

rights or remedies, including our right to strictly enforce or terminate this Agreement asjprovided in this Agreement

and obtain injunctive relief, except to the extent any, other rights are excluded by law in light of this Section. The

f parties agree that a precise calculation of the full extent of the damages that we will incur from the offer or sale of

. unauthorized products and services is difficult to determine and the parties desire certainty in this matter and agree

1 that the above-referenced liquidated damages are reasonable and are not a penalty:          !

Section 4.23 Financial Covenants                                                     j

During the Term, you must always maintain a net worth of at least One Hundred Fifty Thousand Dollars ($150,000).                                      !         . ■        '                 ,                                 ! '

Section 4.24 Publicity,                                                                        j

',»           You grant us the right: to freely use, without your consent, any pictures^ financial information, or

biographical material relating to you or your LA Boxing Franchise for use in promotional literature or in any other way beneficial to the LA Boxing organization as a whole. You will cooperate in securing photographs, including obtaining consents from any persons appearing in photographs. If we publish anything!!you feel reflects unfairly or inaccurately on your LA Boxing Franchise or yourself, we will take all reasonable steps in our power to retract the material.                                           '...'■■

:              Section 4.25 Minimum Performance Standard                                 '

The grant of your Exclusive Territory is expressly conditioned upon your successful penetration of the market in the Exclusive Territory. You agree to promote actively and aggressively the products and services of your LA Boxing Franchise within the Exclusive Territory. You must maintain minimum Gross Revenues every calendar

, year during the Term of at least eighty percent (80%) of the "designated average"1 of Gross Revenues of all franchisees within the System, including you, except during the first calendar year (partial or full) of the Term, when no performance standard is in effect.; The "designated average" is the average Gross Revenues of all Franchisees within the System during each calendar year of the Term, without taking into consideration those franchisees that are in the top and bottom 20th percentile of Gross Revenues during this period. Your failure to maintain the

' minimum performance standard is a material breach of this Agreement. THIS MINIMUM PERFORMANCE STANDARD DOES NOT INFER THAT YOU WILL EXPERIENCE GROSS REVENUES OF ANY PARTICULAR LEVEL.                 j                                                                        j                          [


: ■                                    ,                                                   i •

Section 5.1 , Our Representations as to the Intellectual property

We represent to you that: ;         ,


, >                           14

(a)          LA Boxing Franchise Corporation, a California corporation, is the sole owner of the Intellectual ; Property;                          .          , i                                  '                                     'J

. i                                                           ■; '■ '                                                                   *

: l .         (b)         We have not sublicensed the Intellectual Property to any others except other LA Boxing

Franchisees; and         .                               '.                       *                                       : ■              .         ,

(c)         We will take all steps necessary to preserve and protect the ownership and validity of the

Intellectual Property.                        ,

Section 5.2 r Your Use of the Intellectual Property                     J

You may use the Intellectual Property only in accordance with standards and specifications we reasonably

, determine and implement on a System-wide basis. You agree that:                               3


r \ '         (a)         You will use the Intellectual Property only for the operation of your LA Boxing Franchise at the

Premises;                                                              '                                                    '!

(b)          You agree not to employ any of the Intellectual Property in signing any contract, check, purchase > agreement, negotiable instrument or legal obligation; application for any license or permit, or in a manner that may

result in liability to us for any indebtedness or obligation of yours;                                 j

i                                                                                                                       '                                                                   j

(c)          You will use the Intellectual Property as the sole service mark identifications for your LA Boxing Franchise and will display prominently the Intellectual Property on and/or with all materials we designate and

■ authorize, and in the manner we require;                                                                      I

,. 1                                                          •                                                                            j

(d)          You will not use any of the Intellectual Property as security for any obligation or indebtedness;

'         '                                                               '

.(e)         You will comply in filing and maintaining any required fictitious, trade or assumed name

registrations for the "LA Boxing" trade name, and will sign all documents we or our counsel deem reasonably ' necessary to obtain protection for the trademarks and our interest in the trademarks, for example, John Jones d/b/a ' "LA Boxing" or ABC Athletic Club, Inc. d/b/a "LA Boxing;"                                       j

(f)         You will maintain a suitable sign or graphics package at, or near the front of the Premises, on any

pylon sign, building directory or other area identifying the Premises only as "LA Boxing." The signage must conform in all respects to our requirements excepCto the extent, prohibited by local governmental restrictions or landlord regulations;                          -         '                                                               \

''■ '           (g)         All materials including membership forms, order books, plastic or, paper products and other

supplies and promotional materials used in the System will bear our Intellectual Property^ as required by us;

(h)         Without our prior written approval, you will not use any of our Trademarks as part of any e-mail

; address, Web Site, domain name or'any other electronic media (including use with any prefix, suffix or other

modifying words, term designs, or symbols), or in any other manner connected with a Web Site, advertisements on a

Web Site, or other similar electronic media; and                                                           [


(i)          You will exercise caution when using the Intellectual Property to ensure that the Intellectual

Property is not jeopardized in any manner.

Section 5.3 Infringement by You                                                     1

You acknowledge that the use of the Intellectual Property outside the scope of this Agreement, without our

i written consent, is an infringement of our rights in the Intellectual Property. You agree that during the Term, and

after the expiration or termination of this Agreement, you will not, directly or indirectly, commit an act of

infringement or contest or aid in contesting the validity of, or our right to, the Intellectual Property, or take any other

action in derogation of our rights.                                                                                '

'                                                                                          '■                                                                                                                                                                                                                            I

Section 5.4 Claims against the Intellectual Property               f

If there is any claim of infringement, unfair competition or other challenge to your right to use any ; Intellectual Property, or if you become aware of any use of, or claims to, any Intellectual Property by persons other than us or our franchisees, you will promptly, within;seven (7) days, notify us in writing.1 You will not communicate with anyone except us and our counsel on any infringement, challenge or claim except,under judicial process. We have sole discretion as to whether we^ take any action on any infringement, challenge or claim, and the sole right to control any litigation or other proceeding arising out of any infringement of, challenge; or claim to any Intellectual I Property. You must sign all documents, render all assistance, and do all acts that our attorneys deem necessary or advisable in order to protect and maintain our interest in any litigation or proceeding involving the Intellectual Property or otherwise to protect and maintain our interests in the Intellectual Property. '

Section 5.5 Our Indemnification OF YOU.                                      1

We indemnify you against and will reimburse you for all damages you are held;liable for in any proceeding

from your use of any Intellectual Property in accordance with this Agreement, but only if you: (a) have timely

; notified us of the claim or proceeding in accordance with Section 5.4; (b) have otherwise complied with this

Agreement; (c) allow us sole control of the defense and settlement of the action in accordance with Section 5.4; and

, (d) cooperate fully with us and our counsel in the defense of the action.

1                                                                        j '

Section 5.6 Our Right to Modify the Intellectual Property j

(a)          If we deem it advisable to modify or discontinue the use of any of thejlntellectual Property and/or : the use of one (1) or more additional or substitute names or marks, due to the rejection of any pending registration or

revocation of any existing registration of any of the Intellectual Property, or due to the rights of senior users, or due ; to our negligence or due to a radical change in direction of the System unilaterally caused or mandated by us, you

are obligated to do so at your own expense within thirty (30) days of our request. : We will only be liable to

reimburse you for your reasonable direct printing and signage expenses in modifying or discontinuing the use of the i Intellectual Property and substituting different Intellectual Property (these expenses will not include any

expenditures made by you to promote the modified or substituted Intellectual Property). ■

(b)          If the modification or discontinuation of the use of any of the Intellectual Property is due to a , continuing need to modernize the System, you will be liable for all expenses in substituting the modified or new

Intellectual Property in your LA Boxing Franchise. .                                                   ^

Section 5.7 Our Reservation of Rights

(a)          You agree that the license of the Intellectual Property granted to you^has limited exclusivity and : that, in addition to our right to use and grant othersthe right to use the Intellectual Property outside the Exclusive

Territory, all rights not expressly granted in this Agreement to you, concerning the Intellectual Property or other matters, are expressly reserved for us, including the right to sell LA Boxing Products and services authorized for the ; LA Boxing Franchise using our trademarks through dissimilar channels of distribution including National Accounts and under any terms that LA Boxing deems appropriate within or outside the Exclusive Territory, without offering or providing you the right to participate. ;            .,           '                                           [

(b)          If we acquire a Competitive Business and units of the Competitive Business encroach upon your Exclusive Territory, we will have one (1) year from the expiration date of the lease for the Competitive Business to sell or consolidate the encroaching units without being in default under this Agreement. !

Section 5.8 Ownership; Inurement Solely to Us                            j

■ ,                                                                                                                                                      -                                                                                                                                                                                                                                                                         [

You agree that: (a) you have no ownership or other rights in the Intellectual Property, except as expressly granted in this Agreement; and (b) we are the owner or authorized licensor of the Intellectual Property. You agree that all good will associated with the LA Boxing Franchise inures directly and exclusively to our benefit and is our sole and exclusive property except through profit received from the operation or possible permitted sale of your LA

i '■ '                              '              ■ • i '              '                , i ■ ■                                    ;

Boxing Franchise during the Term. You will not in1 any manner prohibit, or do anything that would restrict, us or any existing or future franchisee of a business either similar ;or dissimilar to your LA BOXING Franchise from using the names or the Intellectual Property or from filing any trade name, assumed name or fictitious name registration with respect to any business to be conducted outside the Exclusive Territory or any business within the Exclusive Territory that is permitted by this Agreement. If you secure in any jurisdiction any rights to any of the Intellectual Property (or any other Intellectual Property) not expressly granted under this Agreement, you will immediately I notify us and immediately assign to us all of your right, title, and interest to the Intellectual Property.

J .


Section 6.1 In General

: i                              .                                                                       ,                                                                                                                                    ;j

To protect our reputation and good will; and to maintain uniform standards of operation under the Intellectual Property, you will conduct your LA Boxing Franchise in accordance with the Manuals. The Manuals are deemed an integral part of this Agreement with the same effect as if fully stated in this Agreement.

•' Section 6.2 Confidential Use                                                           j

*                                        '                                               : \ ■                                                                                                   I

(a)          You will treat and maintain, the Confidential Information as our confidential trade secrets. The ' Manuals will be kept in a secure area within the Premises. You will strictly limit! access to the Confidential

Information to your employees, to the extent they have a "need to know" in order to perform their jobs. You will report the theft, loss or destruction of the Manuals immediately to us. Upon the theft, loss or destruction of the Manuals, we will loan to you a replacement copy at a fee of Two Hundred Fifty Dollars^ ($250.00) for each Manual. ( A partial loss or failure to update any Manual is considered a complete loss.

■                                              •                                                                              i

(b)          You agree that, during and after the Term, you, your owners and employees will:

(i)          Not use the Confidential Information in any other business; or capacity, including any

derivative or spin-off of the LA Boxing concept;                                             )

(ii)         Maintain the absolute secrecy and confidentiality of the Confidential Information during

'               and after the Term;                                                                                       I :                      *

(iii) Not make unauthorized.copies of any portion of the Confidential Information disclosed or recorded in written or other tangible form; and                                                I

(iv) Adopt and ^implement all procedures that we prescribe to prevent unauthorized use or ;. "           disclosure of, or access to, the Confidential Information.                                  I

(c)          All persons whom you permit to have access to the Manuals or any other Confidential Information ! must first be required by you to sign our form of confidentiality agreement set forth in the Manuals.

Section 6.3 Periodic Revisions                                                         i

, ,          We may change the contents of the Manuals. You will comply with each,new or changed provision

' beginning on the thirtieth (30th) day (or any longer time as we specify) after our written notice. Revisions to the

Manuals will be based on what we, in bur sole discretion, deem is in the best interests of the System, our interest and

i                                                                                                                                                                                                                                                                                                            i

the interest of our Franchisees, including to promote quality, enhance good will, increase efficiency, decrease

administrative burdens, or improve profitability subject to the Capital Expenditure Limitation stated in Section 4.21.

You agree that because complete and detailed uniformity under many varying conditions may not be possible or

practical, we reserve the right, in our sole discretion and as we may deem in the best interests of all concerned in any

specific instance, to vary standards for any franchisee due to the peculiarities of the particular site or circumstances,

1 density of population, business potential, population1 of trade area, existing business practices or any condition that

'' we deem important to the successful operation of that franchisee's LA Boxing Franchise. You are not entitled to

i require us to grant to you a similar variation under this Agreement. You will ensure that your copy of the Manuals : contains all updates you receive from us. In any dispute as to the contents of the Manuals, the terms contained in our master copy of each of the Manuals we maintain at our home office is controlling, jj

i. i                                                          ARTICLE 7 - ADVERTISING                    !

„h_              Recognizing the value of advertising, and the importance of the standardization of advertising programs to

the good will and public image of the System, the parties agree:                                    ;j


Section 7.1 Local Advertising ■                                                   

:'           (a) ' You must spend1 during each month during the Term, beginning on the Opening Date, at least five

;: percent (5%) of your Franchise's monthly Gross Revenues for Local Advertising in your Exclusive Territory.

,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         '■ i                                                                                                                                                                                                                   '                                                                                                 ■'                                                                                                                                                                                                                                                                                                                                                                                                                     *

i                                   '■                                                                                                    ' '                                                                                                                           .I

. t           (b)         You must submit to us for our approval, all materials to be used for Local Advertising, unless they

1 have been approved before or they consist only of materials we provide. All materials containing the Intellectual Property must include the applicable designation - service mark sm, trademark ™, registered ® or copyright ©, or

'■ any other designation we specify. If you have not received the written or oral disapproval of materials submitted within ten (10) days from the date we received the materials, the materials are deemed "approved. We may require you to withdraw and/or discontinue the use of any promotional materials or advertising, even if previously

. approved, if in our judgment, the materials or advertising may injure or be harmful to the System. We must make

, this requirement in writing, and you have five (5) days after receipt of notice to withdraw and discontinue use of the materials or advertising, unless otherwise agreed in! writing. The submission of advertising to us for our approval does not affect your right to determine the prices that you sell your products or services, j

■ ■■"'.                                                                                                                                                                                                          J

(c)         You must maintain a listing or listings in The Real Yellow Pages of the telephone directories

servicing the location of the LA Boxing Franchise under the "Exercise and Physical Fitness" section, in the form and

size we specify in the Manuals or otherwise in writing.                                                 

f Section 7.2 Regional Cooperative Advertising                            )


You agree that we have the right, in our discretion, to establish a regional advertising cooperative in any , ADI. You will immediately, upon our request, become a member of the Cooperative for the ADI where some or all of the Exclusive Territory is located. Your LA Boxing Franchise is not required to be a member of more than one (1) Cooperative. The Cooperative will be governed in the manner required by us. The Cooperative has the right to require each of its members to make contributions to the Cooperative, not to exceed two percent (2%) of each Cooperative member's monthly Gross Revenues. !.We do not receive any portion of the contributions to the ■: Cooperative. The following provisions apply to each Cooperative:

(a)         The Cooperative will be organized,and governed in form and manner, and will begin operation on

. adate, approved in advance by us in writing;

1                                                                                                                           " i                                                                                                    i

" {                                                                                                                                                                                                                                               ■■

(i)          If the Cooperative is established, it will be organized for the exclusive purpose of

, administering equitable advertising programs that fairly distribute costs of developing, subject to our approval, standardized promotional materials for, use by all the members in the Cooperative's Local Advertising ADI;                 .                                         '                               ]

(ii)         The Cooperative may adopt its own rules and procedures, but the rules or procedures

must be pre-approved by us and will not restrict nor expand your rights or obligations under this Agreement. Except as otherwise provided in this Agreement, and subject to our approval, any lawful . ■, , action of the Cooperative at a meeting attended by 2/3s of the members, including assessments for Local Advertising, is binding upon you if approved by 2/3s of the members present, with each LA Boxing Franchise and Company Unit having one (1) vote; however no Franchisee (or controlled group of Franchisees) may exercise more than 25% of the vote in the Cooperative regardless of the number of LA '           Boxing Franchises a Franchisee may own; .                                                   I]

'                                                                            i                                                                                                       ;,

■;.       -             ■                               <             .                                             j

'■ .           ■■                      18'                                                   1

; (iii) No advertising or promotional plans or materials may be used by the Cooperative or ,: , furnished to its members; without our prior, written [approval. All plans and materials must be submitted to

v. ,,,!, ■ us in accordance with the^procedure stated in Section 7.1; . ..                    j        ,.,'*'          t : .

■y. ,-i. - *> ■•' ?.< : o \ , '■ i'• •>■:*. ■•:-A- , - i- .                           ■ f ;k. :. ' .'- !1 ' * - *

"*,.'■•,,.                (iv) ;j , The, Cooperative has the right to require its members to make a contribution to the

Cooperative in any amount' the Cooperative determines. This amount will be credited against your

obligation'for Local Advertising as provided by Section 7.1; but you are not required to contribute a sum to

, T ,. me Cooperative in excess of two percent (2%) of your monthly Franchise Gross Revenues;- v , '>■ .

,-..,,..                          " • ',-'.:' i j                 :.                       ,:■■-.' K "' . ■ "               i. i ■■ ■ -j ' ■ - -'.'■ . *.

■ ■> ■ " I-, ' (y) -> i Each member will submit to the Cooperative, no later than the fifth (5 ) day of each month, for the preceding calendar month, his or her contribution as provided in Subsection 7.3{a)(iv), together with all other statements or reportsTequired by us or by the Cooperative with our written approval;

v ■■       , ( . (vi) , ,If an impasse occurs owing to the inability or failure of the Cooperative members to

M ,      resolve within'forty-five!(45)days any issue affecting the establishment or effective functioning1 of the

', '.' ;    Cooperative, the issue will, upon request of.a member of the Cooperative, be submitted to*the Independent

y ']        Association of LA Boxing Franchisees (or-us, if the association does not exist) for consideration and its

resolution of the issue will be final and binding on all members of the Cooperative; and

i                                                                                                                                                                                    i

v' ,' .;■;., ■ :<?'. ;,                         > k -i- < ; •< - , - ;.-;[. ■> ■ '

, ,. "'         ,(vn) , The Cooperative will render quarterly reports to us of its advertising expenditures.

(b)         We, in our sole discretion, may grant to any franchisee an exemption for any length of time from

the requirement of membership in the Cooperative, upon written request of the franchisee stating reasons supporting the exemption. Our decision concerning the request for exemption is final. If an j exemption is granted to a franchisee, that franchisee must expend, on Local Advertising, the full amount provided in Section.7.1.

■■ .; t .<■',■•..:■(                                      ''.'•■,»;■'. ; -. i ti                               ■ *■

/ .. Section 7.3 .. Web Site Advertis]nge                t                       , ;               i-, ., L; ' *-.

*,!.'. i'                          I.                                                ■■-''■■                                 ':'''' j "■                            •                   ''■:■*'■

it| „ Any Web Site is deemed Local Advertising under this Agreement and is subject to, among other things, our

prior..written consent.; Before establishing a Web Site, you must submit to us a sample of the Web Site format and

information in the form and manner that we reasonable require. -.In addition to any other.applicable requirements,

you must comply .with our standards and specifications for Web Sites as set forth in the Manuals. If required by us,

you must establish your Web Site'as part of,any Web Site that we establish and/or establish electronic links to any

Web Site we establish. rIf you propose any material revision to your Web Site or any information contained in your

W(eb Site, you must submit each revision to us for our prior written approval., . , ; | ^              - , , >

i                              '                                                                                                                                                                                          ...                                                                          ■.

,., Section 7.4 -,:. Special Advertising Expenditures                               ; . t ,

, -: •:,,. , ■-, ■'.'.■ . 'ri. ? . "'         '■' "' - .: ■■ \r • .-. '-it |

If you fail to meet your requirements for Local Advertising during any period specified in this Agreement,

upon our request and in addition to our rights and remedies for your failure to make the proper expenditures, you

will contribute the amount that you failed to spend on'Local Advertising directly to the Marketing Fund.

.- u ■ ' ■, ( :i . ' - ■ > , ','»-_;:■ j ,f.                     -;;!,■■■'

<, .,,, ■ i ' c < ' • I ■ '. :■■;. .- i.f. ' '■■ ■ . ■ , - ■ i - • '"■ ■;

Section 7.5 Marketing Fund

( . ,■■■■.'. ', -, ■' h ■ >■• > . •;. -                                                                                                    I

(a)          If we institute a Regional Advertising Cooperative contribution requirement, we will create a

special fund called the "LA Boxing Marketing Fund" (the "Marketing Fund"), into which Cooperative Advertising Contributions are deposited for the benefit of all Franchise Units and Company Units who contribute to the Marketing Fund.                                          i                        '

(b)          The Marketing Fund is administered by the Marketing Fund Committee (the "MFC"). The Franchisees will elect or appoint two (2) members to the MFC and we will appoint two (2) members to the MFC to serve for a one-year term corresponding to the calendar year. The 4-member MFC will, by a majority vote, determine the selection and placement of regional advertising. Each MFC member has one vote. If the MFC is

i                                                                                                                                                                     I

19                                           !

..                                                                             ;

ARTICLE 8 - ACCOUNTING AND RECORDS j r" . Section8.1 Records' :                                                              j

You will maintain complete and accurate financial and sales records for, the operations of your LA Boxing ; Franchise. Records must be segregated from all other records that do not concern yourj'LA Boxing Franchise. You t must preserve these records for no less than seven (7) years from the dates of their preparation (including after the . termination, transfer or expiration of this Agreement).                                                  1

Section 8.2 Reports and Statements; Confidentiality                 | .

(a)          Monthly Reports.            You will submit to us by the fifth (5th) day of each month during the '; Term, in the form that we require, accurate records reflecting all Gross Revenues of the previous month and all other

information we require. If you must collect and remit sales or use taxes, you must alsol supply to us copies of your ■ sales tax returns.                               '                                                                        .!

(b)          Annual Financial Statements. , You must also submit to us, within ninety (90) days of the close of your fiscal year, an annual balance sheet and income statement, prepared in accordance with Generally Accepted Accounting Principles and compiled by an independent certified public !t accountant. Each annual statement must be signed by you or by your treasurer or chief financial officer attesting that the financial statements

' are true and correct and fairly present your financial position at, and for, the periods indicated. You will also supply : tous copies of your federal and state income tax returns at the time these returns are filed with the appropriate taxing authorities. The financial statements and/or other periodic reports described above must be prepared to segregate the income and related expenses of your LA Boxing Franchise from those of any other business that you may conduct.

(c)          Confidentiality. We agree to maintain the confidentiality of all financial information we obtain about your operations,, and will not disclose this financial information to any third party who is not bound to maintain the confidentiality of the information; provided however, that: (i) we may use the information in preparing any earnings claims or' other information required or permitted by federal or state franchise law; and (ii) we may prepare a composite list of financial,performances by our franchisees for dissemination among the franchisees,

; identifying your Gross Revenues and advertising expenditures., This composite list will not include your identity nor will the information be presented in such a manner that your identity can be easily ascertained.

Section 8.3 Review and Audit                                                           \

We, and our agents or representatives, have the right, at all reasonable times, to examine and copy, at our expense, your records and to inspect all cash control devices and systems, and to conduct a physical inventory. We , have the right to access your computer, system to determine, among other things, sales activity and Gross Revenues. We also have the right, at any time, to'have an independent audit made of your records but not more frequently than two (2) times a year, provided you are not in default.' If an inspection reveals that any financial information reported to us (including Gross Revenues or payments owed to us) has been understated in any report to us, you must immediately pay to us, upon demand, the amount understated in addition to interest at the maximum rate permitted by law beginning from the time the required payment was due. If any inspection discloses an understatement of two percent (2%) or more of Gross Revenues, you must, in addition, reimburse us for the expenses for the inspection (including reasonable accounting and attorneys' fees and costs). In addition, we reserve the right to require that all your future year-end financial statements be audited by an independent certified public accountant reasonably acceptable to us at your expense. These remedies are in addition to any other remedies we have under this Agreement or under applicable law. If the audit discloses an overpayment in any amount you paid to us, we will promptly pay you the amount of the overpayment or offset the overpayment against any amounts owed to us.

,. ■                                                                                                                                                                                                                             ....                                                                                                                      A

Section 8.4 Your Name, Address and Telephone Number               !

, . Under federal and state franchise laws and other applicable laws, we are required to disclose your name, laddress and telephone number (home address and telephone number if you are no longer a franchisee) and you agree to the disclosure of your name, address and telephone number. You must notify us of any change in your name, address and telephone number within, ten (10) days).of such change. You release us and our officers, directors,

. stockholders, agents and legal successors and assigns from all causes of action, suits, debts, covenants, agreements, damages, judgments, claims and demands, in law or in equity, that you ever had, nows;have, or that you later may have, from our disclosure of your name, address and.telephone number.                        ?

" ■ '                                           ■ ■ : ' ■-                                                i                         

ARTICLE 9 - INSURANCE                      i

, „                                                                                                          '                                                                        \

Section 9.1 Types and Amounts of Coverage                                  '

'■'.-:,                                        j                                                                                        •                                                                   )

, (a)         Your Insurance, You must obtain and maintain insurance, at your expense, as we require, in

addition to any other insurance that may be required by applicable law, your landlord, lender or otherwise. All ; policies must be written by an insurance company reasonably satisfactory to us with an,A.M. Best rating of "A" or ;»: better and include the types and amounts of insurance as stated in the Manuals. We ■may periodically adjust the

amounts of coverage required under the insurance policies and require different or additional kinds of insurance at 1 any time, including excess liability insurance, to reflect inflation, identification of new risks, changes in law or

standards of liability, higher damage awards, or other relevant changes in circumstances, if the changes are required

throughout the System including any Company Units.                                                  j

f \-                                                                                               l                                                                                                                                   j

(b)          Life Insurance. To provide us with cash"to purchase your LA Boxing Franchise upon your death in accordance with Section 11.4, you will, and we may at our sole option, during the Term:

..                 (i) ' Have us own and maintain in force, at our sole option, during the Term, a life insurance

,           policy on your life (the "Insured") in the face amount of up to Five Hundred Thousand Dollars ($500,000),

:           provided the Insured is insurable. The parties may increase the amount of insurance to reflect the then-fair

market value of your LA Boxing Franchise, The insurance company must be licensed to do business in the

state where your LA Boxing Franchise is located and must be rated by A.M. Best or a comparable rating

agency at "A" or better. We will not, without your written consent, revoke or change the designation of any

direct beneficiary, or exercise any loan, surrender or transfer the policy or trigger any other privilege under

the policy if that would defeat or tend to defeat the purposes for which the insurance was procured. If the

j i           Insured engages in a permitted transfer of the LA Boxing Franchise, retires, or this Agreement is not

renewed, we may surrender the insurance policy on the life of the Insured to the insurance company for the

net cash surrender value, if any, or hold, transfer or discontinue the policy in any lawful manner we deem

advisable. The Insured may, within 30 days after he or she: (i) engages in a permitted transfer of the LA

~ Boxing Franchise: (ii) retires or: (iii) the Agreement is not renewed, purchase the policy from us at the cash

1           surrender value before surrender changes,, if any, plus any unearned premium and reimburse us for all

premiums paid by us for the policy. We will, upon receipt of a cashier's check for this amount, deliver the

policy to the Insured and sign any necessary instruments of transfer and change of beneficiary as he or she

; '          requests.                             ;                                                                        i

i (ii)         If the policy is canceled or terminated before maturity and the Insured still operates the

LA Boxing Franchise, at our,sole option, we will use our best efforts to procure a replacement policy in the ■i !:           same amount on the life of the Insured, who will cooperate fully in our efforts. !;

(iii) The proceeds of the insurance policy will be payable directly to us as the beneficiary. ' ?           We will use the insurance proceeds to effectuate ,a purchase of the LA Boxing Franchise under Section

: '            11.4. Should we elect to purchase a life insurance policy on your life during the Term, we will pay the

. ['          premiums for such policy. All insurance carriers issuing any policies referred Nto above are authorized and

;"          directed to give the Insured, upon his or her request, any information concerning the status of any policy.

"                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      '                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                * ■

(c)          Our Insurance. We will maintain for our benefit, and for the benefit of our Franchisees, errors and omissions insurance and commercial general liability insurance.                             I

Section 9.2 Evidence of Your Insurance

>                                                                                       l                                                                                                                                                                                                                                                                                                         i

j                                                                                                                                                                                                                                <                                                                                                                                                                        :! '

At least: (i) thirty (30) days before your commencement of tenant improvement construction is begun; or (ii) ten (10) days from the Agreement; Date, if the Premises is constructed and presently owned or leased by you; or (iii) ten (10) days after a lease of the Premises is signed and you take occupancy, whichever is applicable, you must

N . ..                                                   '                                                                                1

1 ;- .                                                                                              j                                                                                                                                                     »

;                       ' 22                                              \

The original documents were scanned as an image. The original file can be downloaded at the link above.