The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample Franchise Agreement
This Agreement is made this_____day of___________, 20___between Pirtek USA
LLC, a Delaware limited liability company ("we" or "us"), and
_____________________________, a(n) _______________________________ ("you" or
A. Pirtek Fluid Systems Pty. Ltd., an Australian company incorporated in New South Wales ("PFS"), has expended considerable time, effort, skill and financial resources in developing an image, technique and business system for the sale, custom assembly and installation of industrial and hydraulic hoses, fixed tube assemblies, fittings and related components and other products and services utilizing certain standards and specifications, and sales and business techniques and image (herein referred to as the "System," as defined below) throughout the world.
B. PFS is the owner of the Pirtek® service mark and other trademarks or commercial symbols used in connection with the System (herein referred to as the "Marks").
C. We are the master franchisee of PFS in the United States and are authorized to enter into franchise agreements pursuant to the Master Franchise Agreement dated June 18, 1997, by and between PFS and us ("Master Franchise Agreement").
D. Our rights include the right to license others to use certain of the Marks and the System in accordance with the terms of the Master Franchise Agreement.
E. You wish to obtain the right to use the Marks and the System in the operation of a Pirtek Hose Service Business, subject to the terms and conditions of this Agreement.
In consideration of the foregoing and the covenants and consideration herein set forth, it is agreed by and between you and us as follows:
1. For purposes of this Agreement, the terms set forth below have the following definitions:
A. "Business" means your Pirtek Business developed and operated pursuant to this Agreement. The Business includes all business that you conduct from your PIRTEK Hose Service Center, its MSS Units, or otherwise in the Territory or under or associated with the Marks.
B. "Designated Manager" means the individual who you appoint to actively direct your business affairs in regard to the Pirtek Business and is responsible for the general management of the day-to-day operations of the Business. You must notify us in writing of any change to your Designated
Franchise agreement i
Manager. Each Designated Manager must complete our full training program to our satisfaction prior to beginning the duties of the Designated Manager. Unless you notify us otherwise in writing, the Designated Manager will be deemed to have authority to sign on your behalf on all contracts and commercial accounts.
C. "Franchised Location" means the actual physical location of your Pirtek Hose Service Center within the Territory, as further described in Section 2 and Appendix A.
D. "Gross Sales" means the total revenues and receipts from the sale of all products, services or benefits sold, provided or disposed of to your customers whether for cash, credit, charge account, check, exchange or other valuable consideration (whether or not you have received payment therefor), whether such orders for products or services originated from or were accepted at or from your Pirtek Service Center, the customer's place of business or at any other place and including any sales by any related persons or companies that were from the PIRTEK Service Center or deemed to be sales of the Business. "Gross Sales" is net of any applicable sales tax and any sales credits, including the sales price of any products returned by customers where cash or allowances have been refunded or made to the customer.
E. "Marks" means the PIRTEK service mark, which has been registered with the United States Patent and Trademark Office, the other trademarks, service marks, and trade names set forth on Appendix B, as we may modify and change from time to time, and the trade dress and other commercial symbols used in the Business. Trade dress includes the designs, color schemes and image we authorize you to use in the operation of the Business from time to time.
F. "MSSUs" or "MSS Units" means the Pirtek vans or mobile sales and service units that service your customers in the Territory. "MSSTs" or "MSS Technicians" means the persons who are trained and authorized to operate the
G. "Pirtek Hose Service Center" or "Pirtek Service Center" or "Center" means the hose service center operated under the PIRTEK name at the Franchised Location defined in Appendix A.
H. "Principal Owner" means the individual who owns a 51% or greater interest in an entity Franchisee.
I. "System" means the PIRTEK System that consists of the operation
of a PIRTEK hose service business specializing in the sale, custom assembly and installation of industrial and hydraulic hoses, fixed tube assemblies, fittings and related components, and includes proprietary rights in certain valuable marks, logos, business names, trade names, using distinctive products and services under the Marks and utilizing the specific image including names, marks, uniform
Franchise Agreement 9
MI ;I 39SW6.0I MIM289794.02
product ranges, specified designs and color schemes for the business premises, signs, layouts, fixtures and fittings and uniforms.
J. "Territory" means the geographic area described in Section 2 and
Appendix A, from which you conduct your Business.
GRANT OF LICENSE
2. We hereby grant to you, subject to the terms and conditions of this Agreement,
the right and license to engage in and conduct a PlRTEK Business identified by the Marks that we authorize for your use hereunder (or such other marks as may be directed by us) at the Franchised Location and for the Territory as defined in Appendix A. From time to time, we, in our sole judgment, may grant to you in writing an additional area within which you may conduct your Business on a temporary basis (the "Promotional Zone," as defined in Appendix A). You may conduct your Business in the Promotional Zone, subject to the terms and conditions of this Agreement. The Promotional Zone is not part of the Territory, however, and you must discontinue operating the Business in the Promotional Zone on 30 days notice from us with or without cause.
You hereby accept said license and undertake the obligation to operate your Business faithfully, honestly and diligently, using the System in compliance with our standards and requirements. You agree that you must maintain and operate your Business under your active and continuous supervision and management. You may not commence operations of your Business until you successfully complete our training program to our satisfaction (as more specifically provided in Section 7.B.) and we have approved the commencement date of operations. You must open your Business within 120 days of the Effective Date, as defined in Section 16.P of this Agreement.
The license granted herein is limited to the right to operate your Business only within the Territory and may not be used elsewhere or at any other location by you, except as we may authorize on a temporary basis in any Promotional Zone (as further set forth in Appendix A) or as otherwise set forth in the
Operations Manual (as defined in Section 6.C). You do not have the right to sell products or services through any other channel or method of distribution (including the Internet or any other existing or future form of electronic commerce) or to any person or entity for resale or further distribution. You also do not have the right to subfranchise, sublicense, assign or transfer your rights under this Agreement, except for an assignment or transfer as specifically provided in this Agreement. During the term of this Agreement and provided that you are in compliance with the terms and conditions of this Agreement, we will not (i) modify the Territory without your written permission, or (ii) establish either a company-owned or franchised PlRTEK Hose Service Center within the Territory, although we or another franchisee may from time to time service particular customers in the Territory in the event you are unable or unwilling for whatever reason to meet the service needs of those customers.
TRADEMARK STANDARDS AND REQUIREMENTS
3. You hereby acknowledge and agree that the Marks are the property of PFS and that your right to use the Marks is specifically conditioned upon the following terms and conditions.
A. Mark Ownership. We are the licensee of the right to use the Marks in the United States. The Marks are valuable property owned by PFS, and PFS is the exclusive owner of all right, title and interest in and to the Marks. Your use of the Marks inures to the benefit of PFS and us. You disclaim all rights, title and interest in or to the Marks and any goodwill associated with the Marks. You must not, during or after the term of this Agreement, engage in any conduct directly or indirectly that would infringe upon, harm or contest the rights of PFS or us in any of the Marks or the goodwill associated with the Marks, including any use of the Marks in a derogatory, negative or other inappropriate manner in any media, including but not limited to print or electronic media.
B. Mark Use. You may not use, or permit the use of, any trademarks, trade names or service marks in connection with your Business, except those set forth in Appendix B or except as otherwise directed in writing by us. You may use the Marks only in connection with products and services as may be specified by us and only in the form and manner prescribed by us in writing. You must comply with all trademark, trade name and service mark notice marking requirements. You may use the Marks only in association with products and services approved by us and that meet our standards or requirements with respect to quality and production, sales techniques, installation procedures, service standards and method of operation. The use of any additional words with any of the Marks must have our prior written consent. You must implement and abide by our requirements and recommendations directed to enhancing^ substantial System uniformity in the matters described in this Section.
C. Business Identification. You may not use the word Pirtek or any of the other Marks as part of your name for your legal entity. You must use the Pirtek name as a d/b/a for the trade name of the Business as designated by us as
follows: ______________________________________________, and no other
mark or words. You must hold yourself out to the public as an independent contractor operating the Business pursuant to a license from us. In addition, you may be required to post a sign in the Center identifying you as a Pirtek: franchisee in a format reasonably acceptable to us. You must clearly indicate on your business checks, stationery, purchase orders, receipts, and other written materials that you are the independent owner of the Business and a PIRTEK franchisee. You may use the Marks on various materials, such as business cards, stationery, purchase orders and checks, provided you (i) accurately depict the Marks on the materials, (ii) include a statement on the materials indicating that your Business is independently owned and operated by you, and (iii) do not use the Marks in connection with any other trademarks, trade names or service marks unless specifically approved by us in writing prior to such use.
Franchise Agreement a
12! >56%.01 M1:1289794,Q2
D. Litigation. In the event any person or entity improperly uses or infringes the Marks, PFS and/or we will control all litigation and will be the sole judge as to whether suit is instituted, prosecuted or settled, the terms of settlement, and whether any other action is taken. You must promptly notify us of any such use or infringement of which you are aware. You must promptly inform us of any claim arising out of your use of any Mark and must cooperate with any action undertaken by PFS and/or us in respect thereof. We have no obligation to defend or indemnify you if the claim, suit or demand against you arises out of or relates to your use of the Marks.
E. Changes. You may not make any changes or substitutions whatsoever in or to the use of the Marks unless directed by PFS or us in writing. We reserve the right to change the Marks at any time. Upon receiving written notice from us, you must, at your expense, immediately make such changes and use such substitutions to the Marks as PFS or we may require.
TERM OF FRANCHISE: FRANCHISEE'S RIGHT TO RENEW
4. The term of the license granted in this Agreement is for a period of 10 years from
the date of this Agreement. You have the right to renew your license for two additional 10-year terms, provided that as to each renewal the following conditions have been met:
(i) You must give written notice to us not less than 3 but no more than 6 months prior to the end of the initial 10-year term of your intent to renew the license. You must execute the then-current form of franchise agreement and all other agreements, legal instruments and documents then customarily used by us in the renewal of franchises (the form of franchise agreement will be modified to reflect that the agreement is for a renewal term and, if applicable, will provide for the second 10-year renewal term upon satisfaction of the renewal conditions).
These agreements, legal instruments and documents may vary materially from those agreements, legal instruments and documents currently in use by us, although the Territory will remain as defined in this Agreement. There will not be another initial franchise fee charged for renewal of the license; however, you must pay us a renewal fee in the amount of $5,000, adjusted annually in accordance with any annual change in the National Consumer Price Index, as that change is described in Section 16.M. Your failure or refusal to execute the agreements, instruments and documents within 30 days after their delivery to you will be deemed an election by you not to renew the license.
(ii) During the term of this Agreement, you have complied with all of the terms and conditions of this Agreement and have complied with our operating and quality standards and requirements.
(iii) All monetary obligations owed by you to us, our affiliates or your suppliers or creditors, whether pursuant to this Agreement or otherwise, have
M29S69 6.0I Ml:1289794.02
been satisfied prior to renewal, and have been paid in a timely manner throughout the term of this Agreement.
(iv) You are able to maintain possession of the premises or obtain possession of mutually agreeable alternative premises for your Business for the duration of the renewal term and have agreed, in writing, to make such capital expenditures necessary to refurbish, replace and modernize your Business so that it will conform to our then-current standards for PiRTEK Hose Service Centers.
(v) You, your Principal Owner and your Personal Guarantors sign a general release of claims in a form we prescribe.
PREMISES STANDARDS AND MAINTENANCE
5. You acknowledge and agree that we may promulgate, from time to time, quality standards regarding the business operations of PiRTEK hose service centers so as to protect the distinction, goodwill and uniformity symbolized by the Marks and the System. Accordingly, you agree to maintain and comply with our quality standards and agree to the following terms and conditions.
A. Service Center Facility. The Service Center must be constructed and equipped in accordance with our current approved specifications and standards pertaining to equipment, inventory, signage, fixtures, furnishings, location, accessory features and design and layout of the building premises. You will be furnished with lists of approved equipment, inventory, signage, fixtures and furnishings. You may not commence construction of the Service Center nor lease a location for the development of the Service Center until you have received our written consent to your building plans.
In the event you enter into a direct lease with the landlord for the Service Center premises, we must approve such lease prior to its execution. You acknowledge, however, that you have been advised to have any lease and/or sublease reviewed by your own legal counsel. Your lease must contain the Addendum to Lease attached as Appendix C. You must provide us a copy of the lease and Addendum to Lease at least 5 days prior to their execution.
We make no guarantees concerning the success of the Service Center located on any site consented to by us. You are solely responsible for selecting the site for the Service Center and obtaining all necessary permits, licenses and architectural seals, and in all other respects complying with applicable legal requirements relating to the building, signs, equipment and premises, including^ but not limited to^ the Americans With Disabilities Act. You may not use the Service Center premises or Franchised Location for any purpose other than the operation of your PiRTEK Hose Service Center.
B. Future Alteration. Any replacement, reconstruction, addition or modification in building, interior or exterior decor or image, equipment, fixtures,
FRANCHISE AGREEMENT g
MI ;I39 S6J ».(II
furnishings or signage of the Service Center to be made after our consent is granted for initial plans, whether at the request of you or us, must be made in accordance with specifications that have received our prior written consent. You may not commence such replacement, reconstruction, addition or modification until you have received our written consent to your revised plans.
C. Maintenance. The building, equipment, signage, fixtures, display areas and furnishings employed in the operation of your Service Center must be maintained in accordance with requirements established periodically by us and reasonable schedules prepared by us based upon periodic evaluations of the premises by our representatives. In addition, you must conduct routine maintenance in accordance with general schedules furnished by us. Within a period of 20 days after the receipt of any particular report prepared following such an evaluation, you must effect the items of maintenance designated therein, including^ but not limited to5 the repair of defective items and/or the replacement of irreparable or obsolete items. If 20 days is not a reasonable period of time to complete the designated items, then you must begin to take such steps as directed by us within 10 days and complete the items within 45 days from the receipt of a particular report.
D. Relocation. Should it become necessary, on account of condemnation, sale or other cause, including cancellation of your lease, to relocate the Service Center, we will grant you authority to do so at a site acceptable to us that is within the Territory, is reasonably suited for a Service Center, does not infringe on the rights of any other PlRTEK franchisee, and is reasonably distant from other PlRTEK hose service centers; provided that (i) you resume your Business at a temporary premises that meets our standards within 48 hours from the closing of the Service Center; and (ii) the new Service Center is open and operating within 120 days after your discontinuing operation of the Service Center at the Franchised Location, all in accordance with our current standards at that time.
E. Modernization or Replacement. From time to time as we require, you must effect such items of modernization, refurbishing and replacement of building, equipment, signage, fixtures, display areas, furnishings and grounds as may be necessary to permit the same to conform to our standards then prescribed for similarly situated new PlRTEK hose service centers. The maximum amount that you will be required to spend on any such modernization, refurbishing and or replacement will be a cumulative amount equal to $5,000 per year for each year that you have operated your Business under this Agreement, with the $5,000 amount adjusted annually in accordance with any annual change in the National Consumer Price Index, as that change is described in Section 16.M. For example, in year 5 of this Agreement, you may be required to spend $25,000 (plus any Consumer Price Index increase) on modernizing the premises. In year 6 after you have modernized your premises, the cumulative amount is reduced back to $5,000 with the $5,000 per year increase thereafter.
This $5,000 per year limitation docs not apply to the m ode rnization re quire me nt as a condition of franchise re ne wal
Franchise Agreement 7
under Section <\.You acknowledge and agree that the requirements of this Section 5.E are both reasonable and necessary to insure continued public acceptance and patronage of PIRTEK hose service centers and to avoid deterioration or obsolescence in connection with the operation of your Business. Each and every transfer of any interest in this Agreement or business conducted hereunder governed by Section 14 is expressly conditioned upon your compliance with the foregoing requirement. This $5,000 per year limitation does not apply to the modernization requirement as a condition of franchise renewal under Section
F- MSS Units. You, at your cost, must operate within the Territory
the number of MSS Units as we reasonably deem necessary from time to time. You must acquire and have operating a MSSU within 2 months of being notified by us in writing of the requirement to operate the MSSU. The MSS Units must be operated by your MSS Technicians, who must be employees fully trained in the operation of MSS Units. You, at your cost, must purchase or lease motor vehicles as specified by us from a dealer who sells vehicles that meet our specifications and standards. You promptly must fit out, paint and equip the motor vehicles as a PlRTEK MSSU, and thereafter maintain and properly register and insure the MSS Units, all in accordance with our standards and specifications as we may prescribe from time to time. Each MSSU must be retired from service and a new replacement motor vehicle purchased or leased by you at least once every 4 years. We, at our option, may permit you to operate such MSSU for an additional one-year period, provided the MSSU is repainted and refurbished to our standards. The MSS Units may only be used by you to assist in conducting your Business within the Territory, unless we otherwise approve in writing. Upon disposal of a MSSU, you must ensure that all Marks and other references to the Pirtek Marks or Business have been removed or obliterated from the MSSU, and if you fail to do so, we may enter upon the Business premises or elsewhere to do so at your cost.
OPERATIONS STANDARDS AND REQUIREMENTS
6. You acknowledge and agree that we have established and may revise, from time
to time, quality standards regarding the operations of Pirtek Hose Service Center businesses so as to protect the distinction, goodwill and uniformity symbolized by the Marks and the System. Accordingly, you agree to maintain and comply with our quality standards and requirements for the System and agree to the following terms and conditions.
A. Products and Services. You may sell only those products and services in connection with the Marks and Business that we have approved in writing (sometimes referred to in this Agreement as "approved products and services"). The approved products and services may be identified in the
Operations Manual, inventory lists or otherwise in writing. These' products and services meet standards and specifications prescribed by us, which we may modify from time to time.
Franchise agreement o
Ml I2'?56'>601 Ml:1289794.02
B. Purchases from Us and Other Vendors and Suppliers. You must purchase all hoses, fixed tube assemblies, fittings, adapters, components and other products for resale to customers ("Inventory Products") from us only, except for limited instances when you must satisfy a customer's immediate demand for products, as described in our
Ope ration Manual. In addition, you must purchase fixtures, equipment, and other supplies ("Non-Inventory Items"), which we determine meet our standards and specifications of quality required to protect the valuable goodwill and uniformity symbolized by and associated with the Marks and Business. You must purchase these Non-Inventory Items from us or other vendors or suppliers that sell the Non-Inventory Items meeting our standards and specifications, although we are the only available supplier for equipment necessary to outfit the MSSUs and Non-Inventory Items containing the Pirtek Marks. With respect to certain Inventory Products, we may require you to hold specified levels of inventory at the Franchised Location. We will endeavor to use our best efforts to have available for your purchase from us a full line of Inventory Products. We have the right to apportion Inventory Products and any other items due to shortages. ALTHOUGH APPROVED BY US, WE MAKE NO WARRANTY AND EXPRESSLY DISCLAIM ALL WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, WITH RESPECT TO PRODUCTS, SERVICES, EQUIPMENT, SUPPLIES, FIXTURES OR OTHER APPROVED ITEMS. WE, HOWEVER, WILL PASS THROUGH ANY APPLICABLE MANUFACTURER WARRANTIES ON PRODUCTS AND EQUIPMENT THAT YOU PURCHASE FROM US, SUBJECT TO ALL WARRANTY TERMS AND CONDITIONS IMPOSED BY THE MANUFACTURER.
C. Operations Manual. To help protect our reputation and goodwill and to maintain uniform operating standards under the Marks and Business, you must conduct your Business in accordance with the required standards and procedures contained in our Operations Manual and any other manuals created for or approved for use in the operation of your Business (collectively the "Manual"). Any required standards exist to protect our interest in the System and the Marks and not for the purpose of establishing any control, or the duty to take control, over those matters that are reserved to you.
You acknowledge having received one copy of the Manual on loan from us for the term of this Agreement. The Manual at all times is theour sole property
of us. You must at all times treat the Manual, and the information contained therein, as secret and confidential, and must use all reasonable efforts to maintain such information as secret and confidential. We may from time to time revise the contents of the Manual and you expressly agree to comply with each new or changed requirement. You must at all times insure that your copy of the Manual is kept current and up to date, and in the event of any dispute as to the contents of said Manual, the terms of the master copy of the Manual that we maintain is controlling. You acknowledge and agree that in the future the Manual and other system communications may only be available on the internet or other on-line or computer communications, as described in Section 6.K.
Franchise Agreement q
D. Operating Procedures. The Manual contains requirements, recommendations and suggestions for the operation of a Pirtek Hose Service Center Business. You must adopt and use the required standards, procedures, techniques and systems described in the Manual. We may revise the Manual and the standards, procedures, techniques and systems set forth therein periodically to meet changing conditions of operation in the best interest of all businesses operating under the Marks. You must conform to all quality and customer service standards prescribed by us in writing.
You acknowledge and agree that we may from time to time establish policies or procedures in the Manual or otherwise in writing that apply to national or regional accounts, as we designate. You agree to follow the policies and procedures for national or regional accounts. For these purposes, national or regional accounts are those customers who do business with two or more PiRTEK hose service franchisees.
If requested by us, you must provide us with customer lists for the Business in the form prescribed by us as well as copies of customer invoices for the Business. We have the right to contact the customers to ascertain vour quality of customer service and the level of customer satisfaction. As those customers are PiRTEK customers, vou mav not use the customer lists for the Business for any purpose whatsoever other than the normal conduct of vour Business.
In addition, you agree to actively and aggressively promote and market the PiRTEK. products and services within the Territory. Without limiting the generality of the foregoing, you agree to attain or exceed the minimum annual performance target for your Business (as specified annually in writing by us in good faith).
E. Confidential Information. You may not, during the term of this Agreement or thereafter, communicate, divulge or use for the benefit of any other person or entity any Confidential Information, except to such employees as must have access to it in order to operate your Business. For purposes of this Agreement, "Confidential Information" means proprietary information contained in the Manual or otherwise communicated to you in writing, verbally or through the internet or other on-line or computer communications, and any other knowledge or know-how concerning the methods of operation of your Business. Any and all Confidential Information, including, without limitation, processes, materials, methods, procedures, suggested pricing, specifications, techniques and other data, may not be used for any purpose other than conducting the Business in the Territory. We may require that you obtain nondisclosure and confidentiality agreements in a form satisfactory to us from any persons owning a minority interest in you, your Designated Manager and other key employees. These agreements also mav include noncompete covenants. Copies of the executed agreements must be provided to us upon request.
Franchise agreement Ml:1289794.02
F. Evaluations. We or our authorized representative has the right to enter your Business premises at all reasonable times during the business day for the purpose of making periodic evaluations and to ascertain if the provisions of this Agreement are being observed by you, to inspect and evaluate your premises used for your Business, to observe and accompany you on service calls and to test, inspect and evaluate your products and services. Your failure to receive a satisfactory rating on any evaluation is considered a default under Section 11 .A. Any evaluation is for the sole purpose of protecting our interest in the Marks and in no way may be construed as the assumption of any duty to control day-to-day operation and maintenance of the Business.
G. Adaptations. Complete and detailed uniformity under many varying conditions may not always be possible or practical, and we reserve the absolute and exclusive right to vary the standards for any franchisee based upon the customs or circumstances of a particular territory, density of population, existing business practices or any condition that we deem to be of importance to the operation of your business. You are not entitled to require us to grant to you a like or other variation hereunder on account of any variation from standards, specifications and practices granted to any other franchisee. You acknowledge and agree that any requirement, standard or specification prescribed by us under this Agreement is subject to our periodic modification or rescission as may be necessary in our reasonable judgment to adapt our System to changing conditions and competitive circumstances.
H. Period of Operation. Subject to any contrary requirements of local law, your Service Center must be opened to the public and operated at least 9 hours each regular business day of the year plus 3 hours each Saturday. In addition, you must have 24-hour on-call service each day of the year. We must authorize, in writing, any variance from these provisions. You acknowledge and agree that if the Service Center is closed for a period of 7 consecutive days or more without our prior written consent, such closure constitutes your voluntary abandonment of your Business and we have the right, in addition to other remedies provided for herein, to terminate this Agreement and the franchise operated hereunder. Acts of God, war, strikes, riots and other causes set forth in Section 16.L preventing you temporarily from complying with the foregoing will suspend compliance therewith for the duration of such interference.
I. Compliance with Law. You must maintain at all times your
Business premises and conduct your Business operations in compliance with all applicable laws, regulations, codes and ordinances, including, but not limited to, environmental laws regarding the storage and disposal of hazardous waste and other hazardous substances or materials. You acknowledge that you are an independent business and solely responsible for control and management of your Business, including, but not limited to, such matters as hiring and discharging your employees; and you acknowledge that we have no power, responsibility or liability in respect to such hiring, discharging or related matters. You must
Franchise agreement i i
:129 5606.01 Ml:1289794.02
promptly notify us of any claim or litigation in which you are involved that arises from the operation of your Business or Service Center.
J. Computer System. You must install in your Hose Service Center
and Business the computer network system (the "Computer System") that we have developed or selected for your Business, including all future updates, supplements and modifications. You must use the Computer System in the format and manner that we prescribe. The computer software package developed for use in your Business may include a proprietary software program developed for PFS and us by a third party. You must lease the proprietary software from us, which software will remain our confidential property. In addition, you and we will enter into our standard form of Computer Software License Agreement, a copy of which is attached as Appendix D. We reserve the right to assign our rights, title and interest in the proprietary software or the Computer Software License Agreement to a third party that we designate. In such event, you may be required to enter into a separate computer software license agreement specified by the third party supplier of the proprietary software. The computer hardware component of the Computer System must conform to specifications we develop and must be configured in a package unit as we designate. If we are requested to configure your computer hardware component to conform to the designated computer software component of the Computer System, we may provide such assistance for additional agreed upon compensation. You acknowledge and agree that we have full and complete access to information and data produced by the Computer System. You will be required to use and pay for all future updates, supplements and modifications to the Computer System.
K. Participation in Internet Web Site or Other On-line Communications. You must have internet access and an e-mail address. In addition, we may require you, at your expense, to participate in a Pirtek web site on the internet or.other on-line communications, including any intranet system we may develop in the future. You may not separately register any domain name or operate any web site containing any of the Trademarks without our written approval. We determine the content and use of a Pirtek web site and have the right to establish the rules under which franchisees may or must participate in the web site or separately use the internet or other on-line communications. We retain all rights relating to the PIRTEK web site and may alter or terminate the web site. Your general conduct on the web site or other on-line communications and specifically your use of the Marks or any advertising on the web site or other online communications (including the domain name and any other Marks we may develop as a result of participation in the web site or other on-line communications) is subject to the provisions of this Agreement. You shall not use or download anv software on vour computer unless it has been authorized bv us in writing. In the event that vou use or download anv unauthorized software. you shall be liable for all damages and problems caused bv the unauthorized software in addition to the other remedies provided under this Agreement. You acknowledge that certain information obtained through your participation in the Pirtek web site may be considered Confidential Information, including access Franchise agreement i 9
codes and identification codes. Your right to participate in the Pirtek web site or any intranet system we may develop or otherwise use the Marks or System on the internet or other on-line communications terminates when this Agreement expires or terminates.
SUPERVISION AND TRAINING STANDARDS
7. The following provisions and conditions control with respect to personnel,
training and supervision.
A. Supervision of the Business. Your Business must at all times be under the direct, on-premises supervision of the Principal Owner or the Designated Manager.
B. Training. Prior to commencement of your Business, you, your Principal Owner, your Designated Manager (if any), at least 2 MSS Technicians and your administration person must, at your expense for room, board and travel, attend and successfully complete our training program. The training program will take place at a location and for a period as we designate. There is no separate fee payable to us for this initial training, as the training is included in the Initial Franchise Fee described in Section 8.A. You understand that this Agreement will not become effective unless these individuals successfully complete the training program to our satisfaction.
In the event that you are given notice of default as set forth in Section 11.A and the default relates, in whole or in part, to your failure to meet any operational standards, we may require as a condition of curing said default that you, your Principal Owner, your Designated Manager or MSS Technicians again attend and successfully complete our training program at a place that we designate at your expense. Under no circumstances may you (i) permit management of the Service Center's operations on a regular basis by a Designated Manager who has not successfully completed our training program; or (ii) permit the operation of an MSSU by an MSST who hasvou have not-been properly trained
by you in accordance with our standards.
Any Designated Manager or MSST must participate in and satisfactorily complete such additional training programs as we may reasonably designate from time to time, which may include on-site training at another Pirtek hose service center prior to the commencement of your Business. Attendance at any additional training program is at your expense for room, board and travel.
C Staffing. You must at all times maintain a sufficient number of trained employees to service properly and efficiently your customers. You must hire and supervise efficient, competent, and courteous persons as your employees for the operation of your Business with no liability therefor on us. No employee of you is deemed to be an employee of us for any purpose whatsoever.
Franchise Agreement i 3
D. Attendance at Meetings. You and your Designated Manager, at your expense, must attend all meetings that we sponsor for PlRTEK franchisees to set forth new methods and programs for operation, training, management, sales or advertising. These meetings include one national conference for all franchisees and also may include regional seminars. If you are unable to attend any such meeting, you should so notify us prior to the meeting and attempt to cause a substitute person from your Business acceptable to us to attend and represent you at such meeting.
FEES, REPORTING AND AUDIT RIGHTS
8. You must pay the fees described below and comply with the following provisions.
A. Initial Franchise Fee; Shop Set-up Fee. You must pay to us an
Initial Franchise Fee of $_________, of which $_________has been paid on the
date of or prior to execution of this Agreement and a balance of $_________is
payable prior to you attending the initial training program described in Section 7.A. In addition, you must pay to us a Shop Set-up Fee in an amount equal to $10,000, which amount also is payable prior to you attending the initial training program.
B. Continuing License Fee. In addition to the Initial Franchise Fee and in consideration of the rights licensed hereunder, you must pay monthly to us as a Continuing License Fee an amount equal to 1-1/2% of Gross Sales during the first year from the opening of your Business and 4% of Gross Sales beginning with the second year of your Business and for the remaining term of this Agreement.
C. Computations and Remittances. All amounts due and owing hereunder, except the Initial Franchise Fee, must be computed at the end of each month's operation and remittance for the same must be made to us on or before the 10th day of the following month for which the amounts are due. The computation of said amounts must be certified by you in the manner and form specified by us, and you must supply to us such supporting or supplementary materials as we may reasonably require to verify the accuracy of such remittances.
You must sign a draft authorization, attached as Appendix E, to authorize and direct your bank or financial institution to transfer electronically directly to our account or our affiliates' and to charge to your account all amounts due to us or our affiliates. You must maintain a balance in your account sufficient to allow us and our affiliates to collect the amounts owed when due. You are responsible for any penalties, fines or other similar expenses associated with the transfer of funds described in this Section.
You waive any and all existing and future claims and offsets against any amounts due hereunder, which amounts must be paid when due. We are entitled
Franchise Agreement J4
to apply or cause to be applied against amounts due to us any amounts that may from time to time be held by us on your behalf or owed to you by us.
D. Reports and Financial Management. You agree to employ sound financial management and planning practices in connection with your Business. You must keep such books and records as we may periodically require, all of which must accurately reflect the operations and conditions of your Business.
Within 7 days after the end of each month, you must submit to us reports with respect to the preceding calendar month in the form and content as we may prescribe periodically. The reports must include,
but not be limite d to, the following i nformation for the pre ceding month: a fully completed Monthly Management Report including Gross Sales of the Business for sales made during the previous month and other information as we require from time to time. In addition, if requested by us at reasonable periodic intervals in order to monitor the financial or operational condition of your Business, you must submit to us copies of your tax returns for the Business, year to date balance sheets and statements of profit and loss, and monthly sales summaries and profit plans. Finally, if requested by us to verify your Gross Sales, you must submit to us all the books and records as we may require under our audit policies published from time to time.
You must maintain at all times your books and records for your Business at your Business premises. In addition, you must maintain all financial information on the Computer System described in Section 6.J and provide the information to us according to reporting formats, methodologies and time schedules established by us from time to time. You are required to allow us electronic and manual access to any and all records and information relating to your Business.
E- Audits. We or our authorized representative has the right at all times during the business day to enter your Business premises and to evaluate, copy and audit your books and records. In the event that any such evaluation or audit reveals an understatement of your Gross Sales, Continuing License Fee or other material financial information related to your Business of 4% or more from data reported to us, in addition to any other rights we may have (including collection of amounts owed with respect to any understatement), you must reimburse us for all audit costs including, without limitation, professional fees, travel, and room and board expenses directly related thereto. Furthermore, we may conduct such further periodic audits and evaluations of your books and records, at your sole expense, as we reasonably deem necessary for up to two years thereafter. You acknowledge and agree that if a subsequent audit or evaluation conducted within the two year period reveals any such understatement or variance of 4% or more, in addition to any other remedies provided for in this Agreement, at law or in equity, we have the right to terminate this Agreement in accordance with Section 11.B of this Agreement.
Franchise Agreement i c
Ml!l 29SW>.01 M 1:1289794.02
MARKETING FEES AND CONTROLS
9. You agree to actively promote your Business, to abide by all of our marketing and advertising requirements and to comply with the following provisions.
A. Marketing Programs and Payment to Us of Administration Expenses. We reserve the right periodically to establish, organize and prescribe sales promotion programs. You must pay monthly to us as a Marketing Fee during the term of this Agreement an amount equal to 1-1/2% to 3% of Gross Sales. You acknowledge and agree that we may establish the percentage of Gross Sales level annually at any level from 1-1/2% up to 3%, although you will not be required to pay a higher Marketing Fee than other franchisees in your designated marketing area ("DMA"), as specified by us. We will notify you annually regarding the exact percentage of Gross Sales for your Marketing Fee, except for any year in which there is no change from the previous year.
Upon request, we will annually advise you of the unaudited receipts and expenditures of the Marketing Fees. You acknowledge and agree that (i) we have the absolute and exclusive right to determine expenditures of funds collected and as to the selection of the promotional materials, items and programs for which said expenditures are made, (ii) we have no fiduciary obligation to Pirtek. franchisees with respect to the marketing programs or expenditures of funds; and (iii) we may compensate ourself for the expense of administering and promoting such marketing programs. Reasonable disbursements from the Marketing Fees may be made for the payment of expenses incurred in connection with the general promotion of the Marks and System including the cost of formulating, developing and implementing advertising and promotional programs, and the reasonable costs of administering these programs, including accounting expenses and the actual cost of salaries and fringe benefits paid to our employees or designees engaged in administration of the programs.
We have the absolute and exclusive right to determine the methods of advertising, media employed and contents, terms and conditions of the marketing programs. In addition, you acknowledge that from time to time we may loan money to the marketing programs to fund specific promotions or other similar reasons and we may be repaid out of the Marketing Fees, at our option, with interest computed at the "base" or "prime" interest rate as publicly announced by the Wall Street Journal and as further defined in Section 10.A.
B. Local Marketing. In addition to the Marketing Fee contributions, in order to promote local marketing for PIRTEK hose service centers, you must fully participate in local sales and promotional activities, including the
. introduction of new products and other marketing programs. These marketing programs, from time to time, may include local point of sale promotional materials prepared by us. You must purchase and use any local marketing materials prepared by us. You are required to spend a monthly amount between 3/4% - 1-1/2% of Gross Sales for such local marketing materials and programs.
Franchise Agreement i a"
The monthly amount will be an amount that is equal to one-half of your Marketing Fee for that month. For example, if your Marketing Fee is 2% of Gross Sales for a given year, then you must spend 1% of Gross Sales each month on local advertising. Any such local marketing must be factual, dignified and meet the highest standards of ethical marketing, and cannot be injurious to our Marks or their goodwill. Unless the local materials are prepared by us, you must submit all such proposed advertising or marketing materials to us for approval before using the materials.
C. Yellow Pages. If requested by us, you must place a separate listing, or participate in a joint listing with other Pirtek franchisees, in the Yellow Pages of your local telephone directory containing such copy as we may reasonably specify. The cost of the listing (which will be pro-rated if a joint listing is used) must be paid by you and can be included in your local marketing requirements under Section 9.B.
FRANCHISEE'S OTHER OBLIGATIONS
10. You agree to comply with the following terms and conditions.
A. Payment of Debts. You agree to pay promptly when due (i) all payments, obligations, assessments, and taxes due and payable to us, vendors, suppliers, lessors, or creditors in connection with your Business or its premises, products or services used in connection with your Business; (ii) all liens and encumbrances of every kind and character created or placed upon or against any of said property; and (iii) all accounts and other indebtedness of every kind incurred by you in the conduct of your Business. In the event you should default in making any such payment, we will be authorized, but not required, to pay the same on your behalf and you covenant promptly to reimburse us on demand for any such payment.
Any and all amounts owing to us by you, whether the same arise under the provisions of this Section 10.A or otherwise, will bear interest computed using a fluctuating interest rate equal to the interest rate per annum publicly announced by the Wall Street Journal as the "prime" rate (currently the prime rate is the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks) as effective on the last day of the prior month plus 2% per annum, or the maximum contract rate of interest permitted by governing law, whichever is less, from and after the date of accrual thereof.
We expressly reserve the right to withhold or delay the shipment of products and services to you if you are in arrears with respect to any amount owed to us.
B. Liability and Insurance. You waive all claims against us for damages to property, death or injuries to persons arising out of the management or operation of your Business and Center. You must fully protect, indemnify and
Franchise Agreement i n
hold us and our owners, directors, officers, successors and assigns and our affiliates harmless from and against any and all claims, demands, damages and liabilities of any nature whatsoever arising in any manner, directly or indirectly, out of or in connection with or incidental to the operation of your Business and Center (regardless of cause or any concurrent or contributing fault or negligence of us or our affiliates) or any breach by you or your failure to comply with the terms and conditions of this Agreement. We also reserve the right to select our own legal counsel to represent our interests, and you must reimburse us for our costs and attorneys' fees immediately upon our request as they are incurred.
You further agree to purchase and maintain in full force and effect, solely at your expense, liability insurance in an aggregate amount designated periodically by us, insuring both parties hereto and any other person designated by us by name from liability for any and all such damage or injury. As of the effective date of this Agreement, the liability insurance must be not less than $
5.000.00 03T000.000 combined single limit per occurrence. In addition, you agree to purchase and maintain in full force and effect, at your expense, insurance in amounts designated periodically by us covering operation or maintenance of any building, equipment or MSSU vehicles owned or leased by you in connection with your Business and any other insurance specified in writing by us from time to time or required by local, state or federal law. You further agree to deliver to us periodically or at our request proper certificates evidencing the existence of all such insurance coverage and your compliance with the provisions of this Section. All coverage must name us as an additional insured thereunder and provide that we will be given 30 days' prior written notice of material change in or termination or cancellation of the policy. You must promptly and in accordance with the terms of the policies report all claims or events which may give rise to claims against you or us to both the appropriate insurer and us. All insurance coverage must be submitted to us and fully effective at least 14 days prior to the earlier of your possession of the Business premises or the commencement of your Business.
If you at any time fail or refuse to maintain any insurance coverage required by us, or to furnish satisfactory evidence thereof, we will be entitled to obtain such insurance coverage on behalf of you and you must promptly execute any applications or other forms or instruments required to obtain such insurance, and you agree to pay us, on demand, any and all costs incurred and premiums that may have been paid by us in connection therewith.
C. Conflict of Interest. You (including specifically Principal Owner and also any Personal Guarantors as described in Section 16.F) may not during the term of this Agreement (i) engage as an owner, partner, director, officer, franchisee, employee, consultant, agent or in any other capacity in any business selling products and services similar to the products and services sold by your Business licensed under this Agreement without our prior written approval or (ii) employ or seek to employ any person who is at that time employed by us or any other PlRTEK franchisee or otherwise directly or indirectly induce such person to leave his or her employment. Franchise agreement i q
DEFAULT AND TERMINATION
11. The following provisions apply with respect to default and termination:
A. Defaults. You will be in default if we determine that you or any Personal Guarantor has breached any of the terms of this Agreement or any other agreement between you and us or our affiliates, which without limiting the generality of the foregoing, includes (i) voluntary abandonment of your Business, (ii) making any false report to us, (iii) failure to submit any required report, (iv) failure to pay when due any amounts required to be paid to us or any of our affiliates whether pursuant to this Agreement or otherwise or to any third party (including vendors and suppliers) as required by this Agreement, (v) conviction of you or any Personal Guarantor of (or pleading no contest to) any felony or an offense that brings or tends to bring any of the Marks into disrepute or impairs or tends to impair the goodwill of any of the Marks, (vi) failure to abide by our standards and requirements in connection with the operation of your Business, (vii) your failure to meet your minimum annual performance target, (viii) filing of any tax liens or voluntary or involuntary bankruptcy by or against you or any Personal Guarantor, (ix) your insolvency or any Personal Guarantor's insolvency, (x) making an assignment or entering into any similar arrangement for the disposition of assets for the benefit of creditors, (xi) any unauthorized assignment or transfer of your Business, this Agreement or your ownership, or (xii) failure to meet any requirements or specifications we establish with respect to service quality, customer service, sales procedures, or use of approved products and services.
B. Termination bv Us. We have the right to terminate this Agreement in accordance with the following provisions:
1. Termination After Opportunity to Cure. Except as otherwise provided in this Section 11 .B: (i) you will have 30 days from the date of a written notice of default to cure any default under this Agreement; (ii) your failure to cure a default within the 30-day period will provide us with good cause to terminate this Agreement; (iii) the termination will be accomplished by mailing or delivering to you written notice of termination that will identify the grounds for the termination; and (iv) the termination will be effective 30 days after the date of the written notice of termination.
2. Immediate Termination With No Opportunity to Cure. In the event any of the following defaults occurs, you will have no right or opportunity to cure the default and this Agreement will terminate effective immediately on our issuance of written notice of termination: voluntary abandonment of your Business; you willfully and materially falsify any report, statement or other written data furnished to us; conviction of you or any Personal Guarantor of (or pleading no contest to) any felony or offense that brings or tends to bring any of the Marks into disrepute or
Franchise Agreement i o
MM 295696.01 M1:1289794.Q2
impairs or tends to impair the goodwill of any of the Marks; your failure to meet your minimum annual performance target as noted in Section 6.D (in this case only we will give you a 60-day written warning before the end of the annual period that you are not on track to meet the annual performance target); your insolvency or any Personal Guarantor's insolvency; making an assignment or entering into any similar arrangement for the disposition of assets for the benefit of creditors; any unauthorized assignment or transfer of your Business, this Agreement or your ownership; any default that results from a subsequent audit of your Business conducted within two years of a previous audit and both audits reveal an understatement of 4% or more in financial information provided to us; or any default by you that is the third default within any 12 month consecutive period. Furthermore, we may declare this Agreement null and void if you make any material misrepresentation on the franchise application or otherwise relating to the acquisition of the franchise.
3. Immediate Termination After 24 Hours to Cure. In the event that a default under this Agreement occurs that materially impairs the goodwill associated with any of the Marks (i) you will have 24 hours after we provide written notice of the default to cure the default; and (ii) the termination will be effective immediately upon our issuance of written notice of termination.
4. Effect of Other Laws. The provisions of any valid, applicable law or regulation prescribing permissible grounds, cure rights or minimum periods of notice for termination of this franchise will supersede any provision of this Agreement that is less favorable to you than such law or regulation.
C. Termination by You. You may terminate this Agreement only for good cause and provided that you are in full compliance with all terms and conditions of this Agreement. Our failure to cure a default by us hereunder within 30 days from the date of a written notice of default will give you good cause to terminate this Agreement. You must notify us in writing that we have committed an alleged material breach of this Agreement, in which case we have 30 days after receipt of such notice to cure the alleged material breach. The notice must specify with particularity the nature of the alleged material breach and the steps you request that we take to cure the alleged material breach. You may terminate this Agreement only if we fail to cure the alleged material breach.
12. Upon the expiration or termination of this Agreement?;
A. Reversion of Rights; Discontinuation of Mark Use. All of your rights to the use of the Marks and all other rights and licenses granted herein and the right and license to conduct Business under the Marks in the Territory will
Franchise Agreement 20
Ml:13i >S6' Xi.0l Ml:1289794.02
The original documents were scanned as an image. The original file can be downloaded at the link above.