Franchise Agreement

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

Sample Franchise Agreement

PROSHRED FRANCHISING CORP.

FRANCHISE AGREEMENT

AGREEMENT dated as of____________, 200_, between PROSHRED FRANCHISING CORP., a Delaware corporation with its principal office located at 245 York-land Road, Suite 100, Toronto, Ontario M2J 4W9, Canada (the "Franchisor"), and_________________, a___________________________with its principal office located at_____________________(the "Franchisee").

Preamble

The Franchisor and its predecessors and affiliates have created and developed a unique and integrated system of material destruction and disposal carried on under the trademark PROSHRED® and other trademarks, and has developed goodwill in such name and the business activities represented thereby.

The Franchisee desires to establish and operate a Proshred franchise, and the Franchisor desires to grant to the Franchisee the right to do so.

Accordingly, the parties agree as follows:

1. DEFINITIONS

1.1 For the purposes of this Agreement, the following terms have the following meanings:

(a)       Advertising Fee-has the meaning set forth in Section 10.1.

(b)       Advisory Committee - has the meaning set forth in Section 10.1.

(c)       Affiliate of a party means a company directly or indirectly controlling, controlled by or under common control with such party. "Control" of another company means the ownership of or the power to vote, directly or indirectly through majority-owned companies, fifty-one percent or more of the voting stock or voting rights of such other company. Affiliates of the Franchisor include, among others, Professional Shredding Corporation, PSP Corporation, Heron Capital Corporation and The Heron Group Inc., all of which are corporations formed in Ontario, Canada, with offices located at 245 York-land Road, Suite 100, Toronto, Ontario M2J 4W9, Canada.

(d)       Agreement - means this agreement and all instruments supplemental hereto or in amendment hereof.

(e)       Area Factor - has the meaning set forth in Section 9.1. Franchise Agreement - Version 6/30/2006

(f)        Confidential Information - has the meaning set forth in Section 8(a).

(g)       Confidential Manual - means, collectively, all directives, books, pamphlets, bulletins, and memoranda, prepared by or on behalf of the Franchisor and provided or made available to the Franchisee in tangible form (including a paper hard copy, DVD, video tape, or electronic media, such as a secure website or by e-mail, or other media), setting forth information, advice and standards, requirements, operating procedures, instructions or policies relating to the operation of the Franchised Business or the operation of Proshred franchises generally, and information relating to the Franchisee's other obligations under this Agreement, as same may be revised by the Franchisor from time to time.

(h) Equipment - means the shredding machines, computers, telecommunications devices, handheld electronic devices, containers, consoles, bins, boxes and other hardware or machinery that the Franchisor has approved or shall have approved as meeting the Franchisor's standards for use in the Proshred System.

(i) Franchised Business - means the business of selling shredding services and selling or renting related goods through the Proshred System pursuant to the rights granted to the Franchisee in this Agreement.

(j) Fund - has the meaning set forth in Section 10.2.

(k) Gross Revenue - means the total dollar value of all goods and services sold or rented by the Franchisee, including but not limited to the sale of waste products that result from the Franchisee's shredding services, and all other income of Franchisee from all sources resulting from or arising out of the use of any of the Vehicles or any other assets of the Franchised Business, whether or not such amounts are collected and whether payment is made by way of cash, credit or otherwise. Without limiting the generality of the foregoing, Gross Revenue shall include:

(i) all sales made pursuant to telephone, internet or other similarly placed orders; and

(ii) all sales assumed to have been lost by the interruption of business that is the basis upon which an insurer has paid business interruption insurance;

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but shall not include any tax imposed by any federal, state, municipal or other governmental authority on sales and collected from customers, provided that the amount of any such tax is shown separately and in fact paid by the Franchisee to the appropriate governmental authority; and shall not include the amounts attributable to businesses acquired by the Franchisee as described in Section 9.6 (c).

No allowance whatsoever shall be made for bad debts.

(I) Guarantor and Guaranty - have the meanings set forth in Section 2.2.

(m) Information Technology Services Fee - has the meaning set forth in Section 9.4.

(n) Initial Fee - has the meaning set forth in Section 9.1.

(o) Manager - has the meaning set forth in Section 2.2.

(p) Minimum Performance Level - means the minimum annual Gross Revenue levels set forth on Schedule III. The Minimum Performance Level is equal to One Hundred Thousand Dollars ($100,000) per Territory Unit per twelve-month period commencing with the first full calendar month following the date that the Franchised Business begins operations, and is cumulative from year to year; provided, however, that if this Agreement includes more than one Territory Unit, the obligation to attain such Gross Revenues for each successive Territory Unit will begin in successive twelve-month periods following the date the Franchised Business begins operations. For example, the Minimum Performance Level of a Territory comprised of a single Territory Unit is One Hundred Thousand Dollars ($100,000) for the first twelve-month period, One Million Dollars ($1 million) for the tenth twelve-month period, and One Million Five Hundred Thousand Dollars ($1.5 million) for the fifteenth twelve-month period. If the Territory is comprised of two Territory Units, the Minimum Performance Level for the second Territory Unit begins twelve months following the date the Franchised Business begins operations. If the Territory is comprised of three Territory Units, the Minimum Performance Level for the third Territory Unit begins twenty-four months following the date the Franchised Business begins operations.

(q) Marks - means the trademark "Proshred" together with such other trade names, trademarks, service marks and logos as are listed in the Confidential Manual or which may be designated by the Franchisor from time to time as part of the Proshred System for use by franchisees. The Franchi-

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sor may create, use and license additional trademarks or substitute different trademarks in the future in conjunction with the operation of the Fran-chised Business.

(r) Premises - has the meaning set forth in Section 3.

(s) Proshred Image - has the meaning set forth in Section 6.1.

(t) Proshred System - means the business method conforming to the standards, systems, concepts, methods and procedures developed and used by the Franchisor, or which may hereafter be developed and used by the Franchisor for the sale and rental of goods and services under the Marks, as set out in the Confidential Manual. The term "Proshred System" includes, without limiting the generality of the foregoing:

(i) the distinguishing characteristics relating to the basic image, appearance, model, design and color of Vehicles and Equipment; (ii) the methods of marketing and selling the services; and (iii) the standards of quality and service.

(u)       Royalty Fee - has the meaning set forth in Section 9.2.

(v)       Site - has the meaning set forth in Section 3.1.

(w)      System Website - has the meaning set forth in Section 10.7(b).

(x)       Term - has the meaning set forth in Section 2.1 hereof.

(y) Territory - means the geographic area described in Schedule II attached hereto, delineated by postal zip codes, county boundaries or both. The Territory consists of the number of Territory Units set forth in Schedule II.

(z) Territory Unit - means a geographic area comprised of approximately 7,000 locations of businesses, nonprofit entities, governmental agencies and the like that each have ten (10) or more employees. Each Territory is comprised of one or more Territory Units.

(aa) Transfer Fee - has the meaning set forth in Section 17.2.

(bb) Vehicles - means the shredding trucks, customer service vans, autos or other vehicles that the Franchisor has approved or shall have approved as meeting the Franchisor's standards for use in the Proshred System.

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2. GRANT AND RENEWAL OF FRANCHISE 2.1 Grant of Proshred Franchise.

(a)    Subject to all the terms and conditions of this Agreement, the Franchisor hereby grants to the Franchisee, and the Franchisee accepts, a non-exclusive right and license to operate a Franchised Business in conjunction with the Marks, under the Proshred System, within the Territory, from the Premises, for an initial term of ten (10) years commencing on the date of this Agreement, as such term may be renewed. The period of time during which this Agreement remains in effect, including the renewal term, is hereinafter referred to as a "Term".

(b)   The Franchisor agrees, during the Term, that it will not operate a Proshred business or permit the operation of another Proshred franchise within the Territory provided that the Franchisee is not in material default of this Agreement or of any other agreement with the Franchisor or any Affiliate of the Franchisor and provided further that the Franchisee has met the Minimum Performance Levels.

(c)   The Franchisee shall not, either directly or indirectly, service any customers outside of the Territory. Notwithstanding the foregoing, the Franchisee may operate the Franchised Business and service customers outside the Territory to the extent that such customer location is not within the exclusive territory of another Proshred franchisee or a company-owned Proshred operation (whether such franchise or company-owned operation is that of the Franchisor or an Affiliate), provided such activity is otherwise approved by the Franchisor. In the event that the Franchisor grants to another Proshred franchisee an exclusive territory in an area containing any customer or customers of the Franchisee located outside of the Territory or opens a company or Affiliate Proshred business in such area, then, in such event, the Franchisee's rights to call upon and service such customer or customers shall immediately terminate and be assigned to the new franchisee or to the company or its Affiliate, and the Franchisee shall have no further claim or right with respect to such customers or to further service such territory outside of the Territory nor shall it have any right to claim any damage from the Franchisor for any lost business or opportunity. In such event, the Franchisee will assign or sell to the newly-appointed Proshred franchisee all consoles, containers or equipment left in place at the locations of customers of the Franchisee, and the Franchisee will be entitled to compensation for the depreciated book value of all such consoles, containers and equipment.

(d)  The Franchisor reserves the right to enter into agreements for regional or national accounts with customers that have locations within the Territory. Upon the Franchisor's request, the Franchisee agrees to service such customers at their locations within the Territory and in any nearby locations requested by the Franchisor that are not within the assigned territory of another Proshred franchisee. The Franchisee agrees to

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adhere to the terms of any commercially reasonable agreement that the Franchisor may enter into with such national or regional customers, as communicated to the Franchisee by the Franchisor.

(e) During the Term, the Franchisor or its Affiliate may acquire the shares or assets of a business competitive with the Franchised Business. In the event of such an acquisition, the Franchisor reserves the right to operate or to license to others the right to operate any such competitive business in the Territory under any trademarks or trade names other than the Marks.

2.2      Guaranty.

The Franchisor's grant of a franchise pursuant to Section 2.1 is made in reliance on the personal attributes of the owner(s) and manager(s) of the Franchisee named in Schedule I (the "Manager"or "Managers"). Such grant is made on the condition that one or more of the Managers who together own and control the right to vote a majority interest in the Franchisee (the "Guarantor" or "Guarantors") execute and deliver to the Franchisor concurrently with the execution and delivery of this Agreement a guaranty in a form attached as Schedule IV hereto (the "Guaranty").

2.3      Renewal.

(a) Subject to the provisions of this section, the Franchisee will have the right to renew the franchise for two (2) additional consecutive five (5) year terms on the same terms and conditions as those on which the Franchisor is customarily granting new franchises at the time of each renewal if at the time of each renewal all of the following conditions are fulfilled:

(i) the Franchisee delivers written notice to the Franchisor not less than six (6) months and not more than nine (9) months prior to the end of the then-current term to renew the franchise for an additional period of five (5) years;

(ii) the Franchisee shall not at the expiration of the then-current term or at any time during such term be in material default of this Agreement or any other contract between the Franchisee and the Franchisor or any of its Affiliates, and in particular, shall not have defaulted in payment of any sums owing to the Franchisor or any of its Affiliates or any suppliers designated by the Franchisor, except in a case of a bona fide dispute over a sum owing to a supplier designated by the Franchisor;

(iii) the Franchisee enters into the Franchisor's then current form of Proshred r franchise agreement and executes all other documents then used by the

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Franchisor in granting Proshred franchises (which may contain terms substantially different from those herein contained including, but not limited to higher Royalty Fees, Advertising Fees and Information Technology Service Fees and different Territory boundaries, but which will not obligate the Franchisee to pay a further Initial Fee to renew beyond that described in subsection 2.3(a)(v),) unless this requirement is waived by written notice from the Franchisor, in which case the terms hereof (except for any further option to renew beyond that provided for herein) shall remain in full force and effect for the immediately succeeding renewal term;

(iv) the Franchisee continues to operate the Franchised Business from the Premises or an alternate location which the Franchisor shall have approved in writing, which approval will not be unreasonably withheld;

(v) the Franchisee refurbishes, at the Franchisee's expense, all Vehicles and Equipment, and the Premises, to meet the Franchisor's then current standards and image for the Proshred System; and

(vi) the Franchisee pays to the Franchisor all unpaid accounts plus a renewal fee determined by the Franchisor, not to exceed 25% of the then-prevailing Franchise Fee for a new franchise.

For the purposes hereof, the Franchisee shall be deemed to have declined to renew the franchise if the Franchisee fails to pay the amounts required under subsection 2.3(a)(v) or to execute and return to the Franchisor the Franchisor's then current form of Proshred franchise agreement and all other documents required by the Franchisor for renewal of the franchise, within thirty (30) days after the Franchisor has delivered them to the Franchisee following the Franchisee's exercise of its right hereunder. In the event that this Agreement is not renewed in the manner described above, it will expire at the end of the then-current term except as otherwise provided in Section 2.3(c).

(b)   In the event that the Franchisor intends not to approve a renewal on the basis of a default pursuant to Section 2.3(a)(i), the Franchisor shall so notify the Franchisee at least one hundred eighty (180) days before the expiration of the then-current Term. In such event, the Franchisor need not give the Franchisee an opportunity to cure. If the Franchisor shall have sent such a notice of nonrenewal, the Franchisee shall have the right, until the date of expiration, to sell the Franchised Business in the manner described in Section 2.3(d).

(c)    The Franchisor shall deliver to the Franchisee the then-current form of Proshred franchise agreement at least nine (9) months before the expiration of the initial term. In the event that the Franchisee desires to renew but objects to the new form of Proshred franchise agreement, the Franchisee shall notify the Franchisor in writing of

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the Franchisee's specific objections within thirty (30) days after the Franchisee receives the then-current form of agreement. If the parties shall then be unable to resolve their differences before the expiration date, or if the Franchisee notifies the Franchisor before the expiration date that the Franchisee prefers to sell the Franchised Business, then this Agreement will be deemed to have been renewed for a period of twelve (12) months, during which time the Franchisee shall have the right to sell the Franchised Business in the manner described in Section 2.3(d).

(d)   If the Franchisee has the right to sell the Franchised Business pursuant to Sections 2.3(b) or (c), such sale shall be in accordance with the terms of Section 17.2. If the Franchisor approves such sale pursuant to Section 17.2, the Franchisor may grant a new franchise to the transferee for the full term set forth in the then-current franchise agreement, subject.to the Franchisor's right of first refusal under Section 17.3.

(e)   Notwithstanding the foregoing, the Franchisor reserves the right not to renew this Agreement by giving notice to the Franchisee at least one hundred eighty (180) days before the expiration of the initial term to the effect that (i) the Franchisor intends to withdraw from selling its products or services through franchises in the Territory and (ii) the Franchisor will not seek to enforce any post-termination covenant under Article 16 of this Agreement provided that the Franchisee does nothing to damage or diminish the goodwill inherent in the Marks as long as this Agreement remains in effect.

(f)   Notwithstanding the foregoing, the Franchisor reserves its right to terminate this Agreement pursuant to Section 14.1, subsections (b) through (m), both (i) in lieu of declining to renew pursuant to Section 2.3(b), and (ii) after notice of declining to renew, upon any new occurrence of the events described in any of the subsections (b) through (m) of Section 14.1.

2.4 Minimum Performance Levels.

(a)   The parties acknowledge and agree that the Minimum Performance Levels constitute levels of Gross Revenue that are realistic and attainable. In calculating the Minimum Performance Levels, the Franchisee's Gross Revenue will not include the amount of the Acquired Business Deduction (as defined in Section 9.6 (c)).

(b)   In the event that the Franchisee does not attain at least fifty percent (50%) of the Minimum Performance Level in any twelve-month period, the Franchisor will have the right to terminate this Agreement pursuant to Section 14.1 (o) and to collect Royalty Fees on the shortfall.

(c)   In the event that the Franchisee attains at least fifty percent (50%) but does not attain seventy-five percent (75%) of the Minimum Performance Level in any twelvemonth period, the Franchisor will have the right to reduce the number of Territory Units

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that comprise the Territory by a fraction equal to the ratio of the shortfall to the Minimum Performance Level for the twelve-month period in which the shortfall occurred, to change the boundaries of the Territory to reflect this reduction in a manner determined solely by the Franchisor, and to collect Royalty Fees on the shortfall.

(d)   In the event that the Franchisee attains at least seventy-five percent (75%) but does not attain one hundred percent (100%) of the Minimum Performance Level in any twelve-month period, the Franchisor will have the right to collect Royalty Fees on the shortfall.

(e)  The Franchisee will pay any shortfall described above in full to the Franchisor within thirty (30) days following the end of the twelve-month period in which the shortfall occurred.

3.         PREMISES

3.1       Location.

The Franchisee shall operate the Franchised Business only at the location described in Schedule II, or if such location is not described in Schedule II, then at a location approved by the Franchisor in accordance with Section 3.2 that is within the Territory. Such location of the Franchised Business is referred to in this Agreement as the "Site", and the physical office of the Franchised Business at the Site is referred to as the "Premises". The Franchisee may not relocate the Franchised Business or operate the Franchised Business from any location other than the Site without the Franchisor's prior written approval. The Franchisee may not carry out any business at the Premises other than the Franchised Business. In the event that the Franchisee's Territory is large enough to require two offices in the Franchisor's reasonable judgment to enable the Franchisee to increase market share and improve operating efficiencies in the Territory, the Franchisor shall have the right to require the Franchisee to operate from Premises at two Sites within the Territory, both of which must be approved by the Franchisor in accordance with this Article 3.

3.2      Site Selection.

(a) The Franchisee is solely responsible for selecting the Site. The Franchisor merely approves the Site if it is acceptable. If a Site is set forth in Schedule II, the Franchisee acknowledges that, before signing this Agreement, the Franchisee (with or without the Franchisor's assistance) located and the Franchisor approved the Site. If the Franchisor has not already approved a site proposed by the Franchisee when the Franchisor signs this Agreement, the Franchisee must propose to the Franchisor, within forty-five (45) days after the date of this Agreement, a site within the Territory that is acceptable to the Franchisor. The Franchisor may not unreasonably withhold approval of

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any site that meets the Franchisor's standards. If the Franchisor does not approve the site, the Franchisor may terminate this Agreement.

(b)    If the Franchisee intends to lease or sublease the Premises for the Fran-chised Business, the Franchisee must submit the Franchisee's proposed lease to the Franchisor for the Franchisor's prior written approval. At the Franchisor's request, if the Franchisee leases or subleases the Premises, (i) the lease or sublease must contain an addendum substantially in the form of Schedule V, approved by the lessor; and (ii) unless the Franchisee is prohibited by the terms of the lease from doing so, the Franchisee will collaterally assign the lease or sublease to the Franchisor as security for the Franchisee's timely performance of all obligations under this Agreement, and the Franchisee will secure the lessor's consent to the collateral assignment. If the Franchisor does not have a copy of the signed lease or sublease, the Franchisee must deliver such copy to the Franchisor within fourteen (14) days after it is signed by the Franchisee and the lessor.

(c)  Within forty-five (45) days after the Franchisor approve a site, the Franchisee must, at the Franchisee's expense, complete the acquisition or lease arrangements to acquire or lease the approved Premises. The Franchisee is solely responsible, at the Franchisee's own expense, for obtaining any necessary financing and all required building, utility, sign, health, sanitation, business and other permits and licenses required to operate the Franchised Business, construct all required improvements to the Site and the Premises.

4.         DEVELOPMENT OF THE TERRITORY

4.1 Commencement of the Business.

(a)   Except in the case of a renewal where the Franchised Business is already in operation, the Franchisee shall commence operation of the Franchised Business within thirty (30) days after completion of the training program described in Section 5.1. The Franchisor may terminate this Agreement in accordance with Section 14.1 in the event that the Franchisee fails to commence operation of the Franchised Business within such 30-day period, unless such delay results from a cause outside of the Franchisee's control, in which event the provisions of Section 20.14 will apply.

(b)   The Franchisee may not commence operation of the Franchised Business until

(i) all of the Franchisee's obligations pursuant to Sections 3.2 are fulfilled;

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(ii) the Franchisor determines that the Premises have been constructed, furnished, equipped and decorated in accordance with the Franchisor's requirements;

(iii) the Franchisee's personnel have each completed the initial training to the Franchisor's satisfaction;

(iv) the Franchisee has furnished the Franchisor with certificates of insurance and copies of all insurance policies or such other evidence of insurance coverage as the Franchisor reasonably requests, as well as with copies of all bonds that may be required under state or local law; and

(v) the Franchisee receives the Franchisor's approval of the opening in writing. The Franchisor may grant or withhold such approval in the Franchisor's sole discretion.

4.2      Vehicle Acquisition and Financing.

The Franchisee shall provide the Franchisor from time to time with such proof as the Franchisor may reasonably require to establish that the Franchisee has adequate financial resources and credit to obtain the Vehicle(s) and to meet the annual Minimum Performance Levels set forth in Schedule III. If the Franchisee is unable to afford or finance the estimated costs for purchasing or leasing the Vehicle(s) or otherwise meet its obligations under this Agreement, the Franchisor, at its sole option, may terminate this Agreement in accordance with Section 14.1.

4.3      Delays and Unavailability of Vehicles.

The Franchisor shall not be liable for any delay by a supplier authorized by the Franchisor in the manufacture or delivery of Vehicles or Equipment to the Franchisee. If any such delay extends beyond the 30-day period described in Section 4.1, or if any permit or license required for operating within the Territory is unobtainable within such 30-day period, the Franchisor shall have the right to terminate this Agreement by written notice in accordance with Section 14.1, except as provided in Section 20.14.

4.4      Franchisee's Assistance.

The Franchisee agrees to execute and deliver promptly to suppliers authorized by the Franchisor all instruments and documents necessary in the reasonable judgment of the Franchisor to facilitate the purchase of the Vehicles and other Equipment as herein provided.

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4.5      Equipment and Signage Specifications.

(a)  To ensure uniformity among all Proshred franchisees, the Franchisee agrees to use in the operation of the Franchised Business only such Vehicles, Equipment as the Franchisor shall have approved as meeting the performance, serviceability and warranty requirements of the Proshred System. All such Vehicles and Equipment shall be purchased from suppliers designated or approved by the Franchisor as meeting the Franchisor's standards. The Franchisee further agrees to place or display on all Vehicles and Equipment and at the Premises only such signs, emblems, lettering, and logos and agrees to use in the operation of the Franchised Business only such invoices, order forms, receipts and other paper goods, as are from time to time specified or approved in writing by the Franchisor. If the Franchisee proposes to use any vehicle, equipment or any other item that is not approved by the Franchisor, the Franchisee shall first notify the Franchisor and shall submit to the Franchisor sufficient specifications, photographs, drawings and other information to enable the Franchisor to determine whether such item complies with the Franchisor's specifications and standards. The Franchisor shall communicate such determination to the Franchisee in writing within a reasonable time.

(b)   The Franchisee shall install such computer and communications equipment, including without limitation facsimile, telephone, modem, e-mail, e-commerce, and such software and Internet capabilities, pursuant to such licenses or terms, as the Franchisor shall specify or approve from time to time during the Term, at the sole expense of the Franchisee. The Franchisee agrees initially to comply with the IT requirements set forth in Schedule VI and to purchase and install the hardware described in Schedule VI. The Franchisor will provide the services described in Schedule VI as those for which the Franchisor is responsible. In addition, the parties will enter into a Software License & Maintenance Agreement in the form of Schedule VII, pursuant to which the Franchisor will license to the Franchisee and provide maintenance for certain application software to facilitate the Franchisee's scheduling, billing, reporting and related operational functions.

4.6      Other Supplies.

The Franchisee agrees to use in the operation of the Franchised Business only such employee uniforms, employee security badges and signage as the Franchisor shall have prescribed or approved, from suppliers prescribed or approved by the Franchisor.

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5. TRAINING AND OPERATING ASSISTANCE

5.1       Initial Training.

Except in the case of a renewal where the Franchisee has already been operating the Franchised Business, as soon as practicable following execution of this Agreement, the Guarantor and any other persons primarily responsible for the day to day operation of the Franchised Business shall enroll in an initial training program, offered by the Franchisor, covering the operation of a Proshred franchise. Before commencing such training program, each enrollee shall have executed an agreement in the form of Schedule VIII to be bound by the provisions of Articles 8 and 16. The initial training program shall run at least ten (10) days and will take place at "Proshred University" in Toronto, Ontario, Canada. The Franchisee shall be responsible for all its expenses incurred in connection with the initial training program including, without limitation, travel, accommodation and meal expenses, but the Franchisor shall not charge a fee for such training program for up to two people for the first Territory Unit and one additional person for each additional Territory Unit in the Territory.

5.2      Completion of Training Program/Termination.

The personnel of Franchisee who enroll in the initial training program pursuant to Section 5.1 shall complete such training program to the satisfaction of the Franchisor.

5.3      Hiring and Training of Employees by the Franchisee.

The Franchisee shall hire and train, at the Franchisee's expense, all employees engaged in the Franchised Business, and the Franchisee shall be exclusively responsible for the terms of their employment and compensation. The Franchisee shall ensure that employees attend all employee training programs required by the Franchisor or employee training programs conducted by the Franchisee with the Franchisor's consent. The Franchisor shall have the right to charge a reasonable fee for conducting such staff training programs, and the Franchisee will pay such fee upon receipt of the Franchisor's bill therefor in each instance. The Franchisee shall at all times maintain a sufficient number of trained employees to service the Franchisee's customers, as may be directed by the Franchisor from time to time. The Franchisee shall not employ anyone who refuses, or fails to complete successfully such training programs or who refuses without good cause to attend the mandatory refresher courses described in Section 5.4. The Franchisee shall conduct a background review of each prospective employee's criminal, motor vehicle, medical and credit histories, and shall verify that ail employees who are responsible for driving Vehicles have valid driver's licenses and good driving records before hiring such employees. The Franchisee shall not hire any prospective employee for any position if such prospective employee's background review indicates, in the Franchisee's reasonable discretion, a propensity for dishonesty, or negligent, reckless

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or careless behavior. In addition, the Franchisee shall use reasonable means to ensure that such employees continue to meet such criteria while employed. The Franchisor shall not be liable to the Franchisee, any employee or prospective employee of the Franchisee, or any third party for any act or omission of the Franchisee or any employee or agent of the Franchisee, and the Franchisee shall indemnify, hold harmless and defend the Franchisor against and from any and all claims, demands and actions arising from any act or omission of the Franchisee or any employee or agent of the Franchisee (including, without limitation, refusal to hire or discrimination claims or claims asserted by third parties for intentional torts allegedly committed by any employee or agent of the Franchisee).

5.4      Ongoing Training.

Such key personnel of the Franchisee as the Franchisor may designate shall attend and complete such ongoing training courses at such location or locations as the Franchisor may reasonably require from time to time, provided that such key personnel shall not be obligated to attend more than a total of five (5) days of such programs during any one (1) calendar year. The Franchisee shall exclusively be responsible for the travel, accommodation and related costs of attendance at such programs. If the Franchisee has failed to meet or does not appear able to meet the Minimum Performance Level in any twelve-month period, the Franchisor may require one or more key personnel of the Franchisee, as designated by the Franchisor, to attend additional initial training or to participate in a mentor training program given by another franchisee designated by the Franchisor.

5.5      Operating Assistance.

At no additional cost to the Franchisee, the Franchisor shall furnish to the Franchisee from time to time such advice and assistance in connection with the operation of the Franchised Business as is reasonably required. Operating assistance may consist of advice and guidance with respect to:

(a)       methods and procedures for the collection, handling and shredding of customer materials, and for the storage and sale of shredded materials;

(b)       such additional services as the Franchisor may approve from time to time;

(c)       the purchase, operation, maintenance and use of Equipment, uniforms and other materials used in the Franchised Business;

(d)       formulating and implementing advertising and promotional programs;

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(e)       establishing and implementing administrative, bookkeeping, accounting and general operating procedures for the proper operation of a Proshred franchise; and

(f)        the efficient and effective operation of a Proshred franchise.

If the Franchisee requires any additional assistance, or assistance concerning specific problems related to the Franchised Business, the Franchisor shall be entitled to charge the Franchisee a reasonable fee for providing such assistance.

5.6 Confidential Manual.

The Franchisor has developed and the Franchisor will either make available online or lend to the Franchisee during the Term an operating manual for Proshred franchisees (the "Confidential Manual") containing mandatory specifications, standards, procedures and rules for the supply of Proshred services and the operation of the business prescribed from time to time by the Franchisor and containing information relative to other obligations of the Franchisee hereunder. The Franchisee shall operate the Franchised Business strictly in accordance with the Confidential Manual. The Franchisor shall have the right to add to, and otherwise modify, the Confidential Operations Manual from time to time to reflect changes in the standards of authorized services, the Proshred Image (as hereinafter defined), or the operation of the Franchised Business and to take into account regional differences; provided, however, no such addition or modification shall alter the Franchisee's fundamental status and rights under this Agreement. The Franchisee shall accept, implement and adopt all such modifications at the Franchisee's own cost. In the event that the Franchisor lends a hard copy of the Confidential Manual to the Franchisee, the Franchisee shall keep the Confidential Manual up to date with replacement pages and insertions as instructed by the Franchisor. The Confidential Manual contains proprietary information of the Franchisor. The Franchisee agrees not to make any copies of the Confidential Manual but may print out one copy of each individual page of any online version for the Franchisee's use in accordance with this Section 5.6. The Franchisee acknowledges that the Franchisee has no property or other rights or claims of any kind in or to, any element of the Proshred System, the Marks or any matters dealt with in the Confidential Manual and that all disclosures made to the Franchisee or any personnel of the Franchisee relating to the Proshred System and including, without limitation, the specifications, standards, procedures, training information and the entire contents of the Confidential Manual are communicated to them solely on a confidential basis and as trade secrets, in which the Franchisor has a substantial investment and a legitimate right to protect against unlawful disclosure. Accordingly, the Franchisee agrees to maintain the confidentiality of all such information at all times during and after the Term and shall not disclose any of the contents of the Confidential Manual or any information whatsoever with respect to the Franchisee's or Franchisor's business or the Proshred System other than as may be

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required to enable the Franchisee to conduct the Franchised Business. The Franchisee further agrees not to use any such information in any other business or in any manner not specifically approved in writing by the Franchisor. The Franchisee acknowledges that the Confidential Manual is, and shall remain, the property of the Franchisor. The Franchisee shall promptly return the Confidential Manual (or any printed pages of any electronic version) to the Franchisor upon the expiration or termination of this Agreement. All references herein to this Agreement shall include the provisions of the Confidential Manual and all such mandatory specifications, standards, procedures and rules, and such additions and modifications thereto.

5.7 Website.

The Franchisor shall maintain the System Website, including an Extranet for all Proshred franchisees that can be accessed only by means of user names and passwords and that will not be available to the general public. The Franchisor may use this website to provide support for franchisees and to allow for electronic franchise discussion groups. The Franchisee agrees both during and after the Term not to disclose the Franchisee's user name or password to any person or entity who is not under the Franchisee's direct supervision and who does not have a need to know such password. The Franchisee agrees to inform all persons under the Franchisee's supervision who may have access to such password of this obligation of confidentiality. The Franchisee further agrees to comply with all guidelines and rules the Franchisor establishes from time to time for the use of the System Website and Extranet, and to supply all information requested by the Franchisor from time to time in order to enable the Franchisor to keep the System Website current.

6. IMAGE AND OPERATING STANDARDS

6.1 Condition and Appearance of Vehicles.

The Franchisee agrees to maintain the condition and appearance of the Vehicle^) in accordance with the standards and requirements of the Franchisor (as specified in the Confidential Manual or otherwise) for the appearance of all Vehicles (the "Proshred Image"), including, without limitation, the use of the Franchisor's colors and display of all exterior Vehicle signage. The Franchisee agrees, at its expense, to effect such refurbishing of the Vehicle(s) as the Franchisor, from time to time, requires to maintain the Proshred Image, including, without limitation, the replacement of worn out or obsolete Equipment, and the repair or repainting of the exterior of the Vehicle(s). Without limiting the generality of the foregoing, the Franchisor may require that all Vehicles be repainted and that all Vehicles have new decals applied at least once every five years. If at any time in the Franchisor's reasonable judgment the general state of repair, or the appearance or cleanliness of the Equipment, does not meet the then applicable Proshred Image and standards, the Franchisor may so notify the Franchisee

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specifying the action to be taken by the Franchisee to correct such deficiency. If the Franchisee fails or refuses to initiate within thirty (30) days after receipt of such notice, and thereafter diligently continue, a bona fide program to complete any such required maintenance, repainting, replacement or repair, the Franchisor shall have the right (in addition to their other rights), but shall not be obligated, to effect such maintenance, repairs, painting, and replacements of Equipment on behalf of the Franchisee and the Franchisee shall pay the entire cost thereof on demand.

6.2      Authorized Services.

(a)   The Franchisee acknowledges that the goodwill associated with the Marks, the Proshred System and Proshred Image is dependent on strict compliance with the Franchisor's directions with respect to the delivery of services to Proshred customers. The Franchisee shall offer to its customers all services, and only those services, designated by the Franchisor from time to time, and shall provide such services strictly in accordance with the standards and specifications described by the Franchisor in the Confidential Manual and during the training program. The Franchisor shall have the right to add to, or subtract from, the range of services that may be provided by Proshred franchisees from time to time. The Franchisee shall immediately refrain from selling such services that the Franchisor advises are not, or are no longer, approved by the Franchisor.

(b)   The Franchisee acknowledges that the success of the Proshred System depends upon the adherence by the Franchisee to the Proshred System including, but not limited to purchasing the required Vehicles and Equipment, selling only designated services, and meeting the prescribed standards of quality, service and cleanliness

6.3      Volume Rebates.

The Franchisee acknowledges and agrees that the Franchisor may receive, from designated suppliers, periodic volume discounts, allowances and rebates as a result of the Franchisee's purchases; and the Franchisee further acknowledges and agrees that the Franchisor shall be entitled to keep for its own use such discounts, allowances and rebates.

6.4      Standards of Service and Operation.

The Franchisee and the Franchisee's employees shall at all times give prompt, courteous, friendly, and efficient service to all customers. The Franchisee and the Franchisee's employees shall in all dealings with all customers and the public, adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct. The Franchisee agrees not to deviate from the standards, specifications and operating proce-

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dures set for the operation of the Franchised Business as specified in the Confidential Manual including, without limitation, the:

(a)       methods and procedures for collecting, handling, shredding, transporting, storing and disposing of materials and providing other approved services;

(b)       use of all Equipment;

(c)       safety, maintenance, cleanliness, function and appearance of the Vehi-cle(s);

(d)       uniforms or clothes and badges to be worn by, and general appearance of, the employees of the Franchisee;

(e)       use of the Marks;

(f)        maintenance of adequate working capital;

(g)       limiting of security interests in, pledges of, or dealing with, the assets used in the Franchised Business;

(h) compliance with all federal, state and local laws, rules and regulations applicable to the Franchised Business, including without limitation, all laws regarding employment, wages, salaries, health or employee benefits, whether now in force or hereinafter enacted, and to make all contributions that may be required or demanded under or by virtue of such laws, rules or regulations;

(i) honoring of credit card services;

(j) identification of the Franchisee on all Vehicles and at the Premises as a Proshred franchisee and as the owner of the Franchised Business;

(k)       content, style and media of any advertising conducted by the Franchisee;

(I)        attendance by the Franchisee at all Franchisor conferences and meetings;

(m)      maintenance of the staffing levels required to serve the Territory;

(n)       hours of operation;

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(o) maintaining an adequate number of Vehicles required to serve the Territory and an adequate inventory of consoles, bins, boxes and the like, and of other items of Equipment, to serve the Territory;

(p) participation in such special promotions as the Franchisor, in its sole discretion, from time to time requires;

(q) replacement of such items of Equipment and Vehicles as may become obsolete or otherwise mechanically impaired, or the addition of any new Equipment, including without limiting the foregoing any new computer hardware or software required to comply with the Franchisor's current standards from time to time;

(r) payment of all outstanding bills, accounts, taxes and other amounts payable in connection with the Franchised Business promptly when same shall be due and payable except in cases of a bona fide dispute with a third party over such bill or amount; and

(s) strict adherence to the exclusive use of all Proshred business forms for correspondence and invoicing.

6.5 Full Time and Attention.

At least one of the persons who shall have successfully completed the initial training program pursuant to Section 5.1 or a subsequent, similar training program offered by the Franchisor, shall actively devote his or her full time, attention and effort to the Franchised Business and provide direct, on-premises, day-to-day supervision of the operation at all times. Such personnel will ensure at all times the proper management of staff, condition of Equipment and Vehicles, and proper levels of customer service in accordance with the Confidential Manual and this Agreement. The Franchisee will use its best efforts to ensure that such personnel, at all times, faithfully, honestly and diligently perform the Franchisee's obligations hereunder, continuously exert their best efforts to promote and enhance the Franchised Business and do not engage in any business or other activity that will conflict with any obligations hereunder. No personnel who complete such training and continue to be involved in the Franchised Business shall take on any other business responsibilities that would be inconsistent with the proper operational requirements and best interest of the Franchised Business, nor will they, during the Term, have any interest as an owner, shareholder, (except of publicly traded securities), director, officer, employee, consultant, lender, representative or agent, or in any other capacity, in any materials destruction or shredding business (except the operation of the Franchised Business and other Proshred franchises).

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6.6 System Changes.

The Franchisee acknowledges that the Proshred System must continue to evolve in order to reflect changing markets and to meet new and changing business demands, and that accordingly variation and additions to the Proshred System may be required from time to time in order to preserve and enhance the Proshred System. Accordingly, the Franchisee agrees that the Franchisor may from time to time hereafter, upon notice and acting reasonably and uniformly with respect to all its franchisees and company-owned Proshred operations, add to, subtract from or otherwise modify or change the system, including, without limitation, the adoption and use of new or modified Marks, services, Equipment, Vehicles, computer hardware or software and new techniques and methodologies relating to the promotion and marketing of various materials destruction and shredding services. The Franchisee agrees promptly to accept and implement all such additions, modifications and changes at the Franchisee's sole cost and expense.

7. INSURANCE

(a) The Franchisee shall procure, and maintain in full force and effect throughout the Term, at the Franchisee's sole cost, insurance policies written by insurers designated or reasonably approved by the Franchisor. The insurer shall maintain an A.M. Best rating of A- (Excellent) or better. Policies shall cover all insurance required by the Vehicle Lease(s), in addition to a minimum of the following insurance which may be adjusted from time to time by the Franchisor:

(i) Insurance of the generally accepted "all risk" form upon all personal property and assets of every description and kind used in the Franchised Business in the amount of the full insurable value thereof;

(ii) Comprehensive general liability and property damage insurance, including personal and bodily injury liability, contractual liability, owned and non-owned automobile liability with a policy limit of not less than Two Million Dollars ($2,000,000) per occurrence;

(iii) Workers' compensation coverage containing statutory limits as required by the state of domicile with employer's liability coverage limits of not less than Two Million Dollars ($2,000,000) each accident / each employee / policy limit, with respect to the Franchised Business and any employee or other person performing work on behalf of the Franchisee

(iv) Third party employee dishonesty bond with a policy limit of not less than Twenty-Five Thousand Dollars ($25,000) per occurrence; and

(v) All other insurance required by law.

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(b) All such insurance policies:

(i) shall name the Franchisor as additional named insured for comprehensive general liability (CG 20 29 11 85), automobile liability and umbrella liability policies as their interests may appear;

(ii) shall provide that the Franchisor receive thirty (30) days prior written notice of change, termination, expiration or cancellation; and

(iii) shall be the primary insurance for all losses, and shall not be limited in any way by the insurance that the Franchisor may choose to place.

(c)   The Franchisee shall promptly report all claims, or potential claims, against the Franchisee, or Franchisor to his insurer and the Franchisor. Prior to commencing business, and annually thereafter, the Franchisee shall submit to the Franchisor a copy or certificate or other acceptable proof of such insurance.

(d)   The Franchisor may, from time to time, reasonably determine and increase the minimum insurance limits and require different or additional kinds of insurance to reflect changes in insurance standards, normal business practices, higher court awards and other relevant circumstances. If the Franchisee at any time fails or refuses to maintain in effect any insurance coverage required by the Franchisor, or to furnish satisfactory evidence thereof, the Franchisor, at its option and in addition to its other rights and remedies hereunder, may, but need not, obtain such insurance coverage on behalf of the Franchisee, in which event the Franchisee shall promptly execute any applications or other forms of instruments required to obtain any such insurance. The Franchisee agrees to pay to the Franchisor, on demand, any costs incurred and premiums paid by the Franchisor in obtaining such insurance. The placement of insurance by the Franchisee shall not relieve the Franchisee of its obligations under Section 19.2.

8. TRADE SECRETS OF THE FRANCHISOR

(a) The Franchisee acknowledges that the knowledge of the operation of a Proshred franchise is derived from information disclosed to the Franchisee by the Franchisor pursuant to this Agreement during the training course and in the Confidential Manual, and that such information, along with all customer lists of the Franchisee and other franchisees of the Franchisor, and all other information collected on Proshred databases regarding customers of the Franchisee, of other franchisees and of the Franchisor, is proprietary, confidential and a trade secret of the Franchisor ("Confidential Information"). The Franchisee agrees to maintain the absolute confidentiality of all Confidential Information at all times both during the Term and after the expiration or termina-

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