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 and entered into this_____day of_________________, 20___between Sea
Tow Services International, Inc., a New York corporation with its principal office at 1560 Youngs Avenue, Southold,
New York 11971 (the "Franchisor"), and ______________________________ whose principal address is
_________________________, an individual/partnership/corporation formed or incorporated in the State of
_____________, who wi 11 act under this Agreement under the approved trade name_____________________________
WHEREAS, the Franchisor, as the result of the expenditure of time, skill, effort, and money, has developed and owns a unique, proprietary and evolving system (hereinafter the "System") with the prior assistance of its licensees ("Converting Licensees") under license agreements for, among other things, the provision and marketing of marine assistance, transportation and environmental services on a membership and non-membership basis, involving the use of the Sea Tow Proprietary Properties, Sea Tow Copyrights, Sea Tow Know How, Sea Tow Trademarks, and Sea Tow Software, all as defined in further detail below;
WHEREAS, the Franchisee desires to enter into the business of owning and operating a Sea Tow Franchised Business in accordance with the System and wishes to obtain a franchise from the Franchisor for that purpose, as well as to receive the training and other assistance provided by the Franchisor in connection therewith;
WHEREAS, the Franchisee understands and acknowledges the importance of, and benefits to be derived from the System, as well as the Franchisor's high standards of quality and service and the necessity of operating the Franchised Business in conformity with the Franchisor's standards and specifications;
WHEREAS, the Franchisee desires to obtain a Sea Tow Franchise to use the System and the Proprietary Marks at the location described in Exhibit "A," pursuant to the provisions of this Agreement, and the Franchisee has had a full and adequate opportunity to be thoroughly advised of the terms and conditions of this Franchise Agreement by counsel of his/her own choosing and represents and warrants that he/she has the business experience and financial ability to operate a "Sea Tow" Franchised Business;
WHEREAS, the Franchisee acknowledges that the Franchisee has read this Agreement and the Franchisor's Franchise Offering Circular and that the Franchisee understands and accepts the terms, conditions and covenants contained in this Agreement as being reasonably necessary to maintain uniform high standards of quality at all locations and to protect the goodwill of the Proprietary Marks;
WHEREAS, the Franchisor expressly disclaims the making of any warranty or guarantee, expressed or implied, oral or written, regarding the potential revenues, profits or success of the business venture contemplated by this Agreement;
WHEREAS, the Franchisee acknowledges that he/she has no knowledge of, nor has received nor relied upon any representations or warranties by the Franchisor, its officers, directors, shareholders or representatives about the franchise offered hereunder, about the Franchisor or its franchising programs and policies that are contrary to the statements in the Franchisor's Uniform Franchise Offering Circular or to the terms of this Agreement, or regarding the potential revenues, profits or success of the business venture contemplated hereunder; and
WHEREAS, the Franchisee acknowledges that this Agreement places detailed and substantial obligations on the Franchisee including strict adherence to the Franchisor's reasonable present and future requirements regarding facilities, equipment, suppliers, operating procedures, Coast Guard licensing requirements, management protocols and procedures, merchandising strategies, sales promotion programs and related matters. The Franchisee acknowledges that future improvements, changes and developments in the System may require additional expense to be undertaken by the Franchisee, but shall not be unreasonably imposed by the Franchisor.
BEFORE SIGNING THIS AGREEMENT, THE FRANCHISEE SHOULD READ IT CAREFULLY WITH ASSISTANCE OF LEGAL COUNSEL.
NOW, THEREFORE, for and in consideration of the mutual undertakings, covenants, premises and commitments contained above and below, and other good and valuable consideration-, the receipt and sufficiency of which are hereby acknowledged, IT IS AGREED, as follows:
ARTICLE 1 DEFINITIONS
1.1 In addition to any other terms defined in this Agreement, the following definitions shall govern this
1.1.1 "Agreement" means this document, including all exhibits hereto and documents referenced and incorporated herein, and any properly executed documents or agreements modifying the System.
1.1.2 "AOR" means "Area of Responsibility" and constitutes the territorial limits of the exclusive license granted to the Franchisee hereunder (geographically defined in Exhibit A) to use the Sea Tow Trademarks, Sea Tow Know How, Sea Tow Copyrights, Sea Tow Software and any other Sea Tow Proprietary Properties as part of the System in connection with the Sea Tow Franchised Business, in accordance with the definitions and terms of this Agreement.
1.1.3 "Sea Tow Copyrights" means all work rendered in a tangible medium of expression as defined under U.S. Copyright Law, 17 U.S.C. Sec. 101, et seq., that relates to the Sea Tow Franchised Business, whether published or unpublished, whether confidential or not, whether created by Sea Tow Services International or one (1) or more of its franchisees, assigned hereunder to and owned by Sea Tow Services International, and licensed for use by the Franchisee as part of the Sea Tow Franchised Business under this Agreement, including without limitation, the Confidential Operations Manual.
1.1.4 "Sea Tow Franchised Business" means the System as licensed to the Franchisee hereunder to use in the Franchisee's AOR.
1.1.5 "Sea Tow Know How" means Sea Tow Services International's: (a) trade secrets and know-how, whether existing now or created during the term of this Agreement by Sea Tow Services International and/or one (1) or more of its franchisees (and assigned back to the Franchisor), as conveyed to the Franchisee, that relate to, inter alia, the Franchisor's products and/or processes, marketing practices, and business methods, affairs, tools and techniques, as well as including its membership or prospective membership lists and trade relationships including pricing information, which tends to give the Franchisor and its network of franchisees a competitive edge over others who provide the same or similar products or services in the field of marine assistance; (b) inventions that may be protected by the filing of U.S. patent applications under Title 35 of the United States Code and/or foreign statutory counterparts; and (c) all unpublished or otherwise confidential work that has been rendered and "work made for hire" protected under Title 17 of the United States Code and other applicable foreign copyright statutes. Sea Tow Know How need not take the form of any particular tangible medium of expression, but may also be found or contained in the form of records, magnetic media, papers, photographs, catalogs, books, cassettes, videotapes, computer files, or stored or fixed on computer hard or soft disks or diskettes.
1.1.6 "Sea Tow Trademarks" means ail the trademarks, service marks, logos, emblems, and indicia of origin used or contemplated to be used by Sea Tow Services International and/or one (1) or more of its franchisees, including, but not limited to, the distinctive yellow and yellow/black trade dress, the word mark "SEA TOW", the "SEAWTOW" Logo, and the phrase "Your Road Service at Sea" for which SEA TOW received U.S. trademark registration on June 3, 1986, July 29, 1986, and December 28, 1993, August 23,1994 in different International Classes (Registration No. 1,396,210, in Class 42; Registration No. 1,396,112 in Class 37; Registration No. 1,403,537 in Class42; Registration No. 1,814,085 in Classes 39 and 42; and Registration No. 1,850,914 in Class 39), and other such trade names, service marks and trademarks as may be designated now or hereafter by the Franchisor.
1.1.7 "Sea Tow Proprietary Properties" means the Sea Tow Copyrights, Sea Tow Know How, Sea Tow Trademarks and Sea Tow Software.
1.1.8 "Sea Tow Software" means the computer software (including all patches, modifications and updates) provided to the Franchisee under this Agreement by which the Franchisee downloads and uploads information relevant to the Sea Tow Franchised Business.
1.1.9 "System" means the conglomerate of Sea Tow Proprietary Properties created as a result of the expenditure of time, skill, effort, and money, for the provision of marine services, consisting of all services provided in or via the water, including, without limitation, assistance, towing, transportation and environmental services on a membership and non-membership basis, and the marketing of such services.
1.1.10 "Grandfathered Activities" are those activities which the Franchisor has permitted the Franchisee to perform outside of the scope of this Agreement, without any right to associate the same with, or utilize any portion of the Sea Tow System, granted by the Franchisor in its sole and exclusive discretion, based upon its consideration of relevant factors including, without limitation, the Franchisee's involvement in those activities prior to entry into this Agreement and continued involvement in those activities fully independently of the Franchisor.
ARTICLE 2 GRANT OF FRANCHISE AND LICENSE
2.1 Subject to the provisions of this Agreement and all documents or other agreements ancillary thereto
2.1.1 The Franchisor hereby grants to the Franchisee, and the Franchisee hereby accepts, the exclusive franchise and license to operate a Sea Tow Franchised Business within the Franchisee's AOR, in accordance with the Franchisor's specifications and this Agreement, and subject to the Franchisor's approval. This license is not sublicensable, subcontractable, nor assignable, except as may be set forth in this Agreement.
2.1.2 The Franchisee agrees to use the Sea Tow Proprietary Properties solely for the Sea Tow Franchised Business in the Franchisee's AOR, and for no other purpose.
ARTICLE 3 TERRITORIAL SCOPE. FRANCHISEE RESTRICTIONS AND FRANCHISOR'S RESERVED RIGHTS
3.1 The Franchisee's right to operate the Sea Tow Franchised Business and the rightto use and display the Sea Tow Trademarks and other Sea Tow Proprietary Properties is restricted to the AOR described in Exhibit A. No use of any part or all of the Sea Tow Proprietary Properties is permitted outside of the AOR, unless in accordance with this paragraph. It is recognized that, upon occasion, it may be necessary and helpful for the Franchisee to, on a per incident basis, provide services outside of the AOR. In such circumstances, should the Franchisee need to operate any portion of the Sea Tow Franchised Business in an area outside of the AOR, then such operation shall: (a) be restricted to a per incident basis; (b) be subject to the permission of the Franchisor, which permission shall not be unreasonably withheld; and (c) require the consent, in advance of the incident, of any other Sea Tow franchisee in whose AOR the incident is to occur. No Sea Tow franchisee shall unreasonably withhold consent to such per incident operation, including the Franchisee. Disputes regarding the location of boundaries between adjacent franchisees (referred to as "Parties" for the purposes of this Section) that cannot be resolved to the satisfaction of those Parties by the Franchisor, will be resolved in binding arbitration between the Parties, and with the Franchisor as an additional party, by application of the procedures set forth in the Shortened Arbitration Procedure of the Society of Maritime Arbitrators, Inc., the contents of which are incorporated herein by reference. In making his/her determination, the Arbitrator shall rely upon the AOR guidelines set forth in the Operations Manual. Each Party shall continue to perform its obligations under this Agreement pending final resolution of any such dispute.
3.2 The Franchisee's activities are limited to offering and selling those services permitted by way of this Agreement under the System from the approved location(s) in the AOR, except for any Grandfathered Activities as
defined in Schedule B ("Grandfathered Activities"). The Franchisee has been granted no right of ownership in and/or to any part or all of the Sea Tow Proprietary Properties.
3.3 The Franchisor reserves the right: (i) of ownership in, and control over the Sea Tow Proprietary Properties; (ii) to grant additional franchises, whether similar or dissimilar to the franchise granted by this Agreement, outside of the AOR; (iii) to engage fully and freely and without limitation in each and every aspect of the business of selling related services, products and equipment; (iv) to offer to the public-at-large, separately, jointly or with others, all related services and/or products of every type and kind; and (v) to employ and exploit the Sea Tow Trademarks, Sea Tow Copyrights, Sea Tow Know How, and Sea Tow Software Proprietary Marks, in connection therewith. The Franchisor agrees to refrain from directly providing marine services, including marine assistance, towing, salvage, transportation and environmental services in the Franchisee's AOR. The foregoing notwithstanding, the Franchisor may provide such marine service, where: (i) the Franchisee is unable, unwilling or fails to perform or is otherwise in default under this Agreement; or (b) the marine service is listed as a Grandfathered Activity, and hence the Franchisor is permitted to compete in the Franchisee's AOR with respect to such Grandfathered Activities; or (c) in an emergency situation requiring disaster response in which the Franchisee is unable, unwilling or fails to respond; or (d) the Franchisee requests such assistance or services from the Franchisor and the Franchisor agrees to provide the same.
ARTICLE 4 TERM AND RENEWAL
4.1 The term of this Agreement shall be ten (10) years commencing on the date of this Agreement, unless sooner terminated in accordance with the provisions of this Agreement (the "Initial Term"), renewable for successive terms as indicated in Section 4.2 ("evergreen"). Each time this Agreement is renewed, the "Initial Term" will, as well, recommence.
4.2 If the Franchisee has complied with the conditions for renewal set forth in Section 4.3 below, the Franchisee shall have the right, but not the obligation, to enter into successive renewal Franchise Agreements, each for one (1) additional ten (10) year term (the "Renewal Term"), under the then current Franchise Agreement.
4.3 The Franchisee's right to enter into the Renewal Term is contingent upon the Franchisee's fulfillment of the following conditions:
4.3.1 Upon the Franchisee's exercise of such right and at the commencement of any Renewal Term, the Franchisee shall have fully performed all of his/her obligations under the Agreement including, without limitation, having satisfied all monetary obligations to the Franchisor, its affiliates, subsidiaries, agents, and authorized designees, if any, and having met such obligations in a timely and responsible manner throughout the Initial Term without chronic non-performance as demonstrated by due notice having been provided to Franchisee by Franchisor pursuant to Sections 16.2 and 16.3.
4.3.2 The Franchisee, at the commencement of a Renewal Term, shall satisfy: (i) Franchisor's then-current standards applicable to the System; (ii) the requirements of the then-current Sea Tow Franchise Agreement and all other agreements ancillary thereto; (iii) the Franchisor's then-current training certification requirements, including the Franchisee's demonstrable ability to perform all services which are part of the System at the time of renewal (unless waived by the Franchisor); (iv) the standards set forth in the Franchisor's then-current Confidential Operations Manual (the "Manual"); and (v) the Franchisor's requests for disclosure of, or access to information requested by the Franchisor to evaluate the Franchisee's ability to perform.
4.3.3 The Franchisee shall not be in default of any provision of this Agreement or any other agreement with the Franchisor, its affiliates, subsidiaries, agents, and authorized designees if any.
4.3.4 The Franchisee shall have executed a general release, in form and substance satisfactory to the Franchisor and/or its counsel, of any and all present claims against the Franchisor and its affiliates, subsidiaries, and designees, if any, and their respective officers, directors, shareholders, agents, contractors, and employees, in their corporate and individual capacities, arising out of or related to the Agreement; however, the release shall not be effective to waive any rights of the Franchisee under Article 33 of the New York General Business Law ("GBL") and the
regulations issued thereunder shall remain in force, it being the intent of this proviso that the non-waiver provisions of the GBL Sections 687.4 and 687.5 be satisfied. Upon written request of the Franchisee, the Franchisor shall provide to the Franchisee, simultaneously with execution of the renewal Franchise Agreement, a general release having the same scope as that provided by the Franchisee under this Subsection 4.3.4.
4.3.5 The Franchisee shall have paid the Franchisor a Renewal Fee equal to the amount of the Initial Franchise Fee due upon the execution of this Agreement.
4.4 If the Franchisee wishes to exercise his/her right to enter into a renewal Franchise Agreement, he/she shall do so by executing the Franchisor's then-current form of Franchise Agreement ("then-current Franchise Agreement" or "renewal Franchise Agreement"), which agreement shall supersede this Agreement, modified to reflect the static conditions indicated above.
4.4.1 Franchisee shall execute a new franchise agreement on the form then being used by Franchisor. The terms of any renewal Franchise Agreement may differ from the terms of this Agreement. Such differences may include, without limitation, the amount of the continuing royalty imposed upon the Franchisee for any such Renewal Term, but will otherwise conform to the conditions of Section 4.3.
4.4.2 The Franchisee will exercise his/her right to renew for a Renewal Term in the following manner:
(a) Not less than 180 days, but no more than 240 days prior to the expiration of the Initial Term, the Franchisee will, by written notice, inform the Franchisor of his/her intention to exercise his/her renewal right.
(b) Within 30 days after receipt of the Franchisee's request, if the Franchisee has complied with all conditions precedent to renewal set forth above, the Franchisor will deliver to the Franchisee a copy of its then-current Offering Circular (including its then-current Franchise Agreement), and promptly upon the receipt of same the Franchisee will, in writing, acknowledge the receipt thereof.
(c) No sooner than 14 days but no more than 20 days after the Franchisee receives the Franchisor's then-current Offering Circular (including the Franchisor's then-current Franchise Agreement modified in accordance with paragraph 4.3), the Franchisee will, by written notice, notify the Franchisor as to whether or not he/she elects to execute the Franchisor's then-current form of Franchise Agreement.
(d) Promptly upon receipt of the Franchisee's notice of his/her election to execute the Franchisor's then-current Franchise Agreement, the Franchisor will deliver to the Franchisee two copies of the then-current Franchise Agreement. Promptly upon receipt thereof, the Franchisee will execute two copies of the then-current Franchise Agreement and return them to the Franchisor.
(e) If the Franchisee fails to perform any of the acts or fail to deliver any of the notices required pursuant to the provisions of subsections (a), (b), (c) or (d) of this Subsection in a timely fashion, such failure is deemed an election by the Franchisee not to renew, and such failure causes the Franchisee's renewal right to expire without further notice or action by the Franchisor.
(f) If the Franchisee exercises his/her renewal right in the manner described above, and if on the date of expiration of the Initial Term Franchisee has complied with all of the conditions set forth in Section 4.3, the Franchisor will execute the renewal Franchise Agreement previously executed by the Franchisee and will promptly deliver one fully executed copy of the renewal Franchise Agreement to the Franchisee.
4.5 If applicable law requires that the Franchisor give notice of expiration to the Franchisee prior to the expiration of the Initial Term, this Agreement shall be deemed to remain in effect on a month-to-month basis until the Franchisor has given to the Franchisee that notice of expiration so required and the applicable period required to pass before the notice becomes effective shall have expired.
ARTICLE 5 DUTIES OF THE FRANCHISOR
5.1 The Franchisor will, in conjunction with the Franchisor's training program and in conformity with the terms and conditions of this Agreement, provide to Franchisee one copy of the Franchisor's Confidential Operations Manual (the "Manual"). Use of any part or all of the Confidential Operations Manual shall be only as permitted under this Agreement, and during its term.
5.2 In addition to any other training offered to the Franchisee, the Franchisor will from time to time furnish to the Franchisee other documents and things comprising the Sea Tow Copyrights or Sea Tow Know How, including instructions, data, materials, forms or other information to the extent developed by Franchisor in connection with the operation of the System. The Franchisor has the right to reasonably incorporate such matters in its Manual and the Franchisee is required to conduct the operations of the Sea Tow Franchised Business in accordance therewith. Any change to the Manual that is likely to cause a negative material economic impact upon the franchisees shall not be incorporated in the Manual unless and until there is a vote of at least 2/3 of the attending franchisees at the next mandatory Annual Meeting immediately following the proposed change. In order to determine whether a change is likely to cause a negative material economic impact under this provision, each propqsed change shall be submitted to FeNAC, and if FeNAC determines that the change is likely to cause a negative material economic impact upon the franchisees, it will then be submitted to the vote, as indicated above. The Franchisee National Advisory Council (herein "FeNAC") will be established and run in accordance with the chart set forth in Schedule C, and will follow Roberts Rules of Order.
5.3 With respect to new franchisees (and not Converting Licensees or renewal franchisees), within 30 days after signing this Agreement, the Franchisor will offer and the Franchisee will thereafter be required to complete a training program (the "Training Program") of such duration as the Franchisor deems necessary at the Franchisor's headquarters in Southold, New York or at such location(s) as the Franchisor designates. The Training Program will include training regarding vessel towing techniques as well as operational, management and marketing training pertaining to the Sea Tow System. If the Franchisee is a corporation or a partnership, its duty to complete the Training Program will be discharged by the completion of the Training Program by any shareholder owning at least 50% of the issued and outstanding shares of the corporation, or its chief executive officer, or, in the case of a partnership, by any holder of at least 50% of the partnership's equity.
5.3.1 The Franchisor will pay no compensation for any services performed by the Franchisee in the course of training. The Franchisee will pay all reasonable expenses incurred in connection with and during the Training Program, including, but not limited to, transportation, meals, lodging and other expenses.
5.3.2 The Franchisor reserves the right to determine and change the subject matter and content of its Training Program.
5.3.3 The Franchisor will provide such additional advisory assistance and training as the Franchisor deems advisable in the operation of the System, on such terms and conditions as the Franchisor determines and sets forth in its Manual or otherwise. The Franchisor may, in its sole and exclusive discretion, cause its representatives to telephone or visit the Franchisee from time to time for the purpose of rendering advice and consultation with respect to the operation of the Franchised Business, assessing the Franchisee's overall performance and determining whether the Franchisee is conducting the Franchised Business in compliance with the standards of the System. The Franchisee will comply with all such requests and visitations, and provide all information requested upon reasonable notice. If the Franchisor generates an inspection report as a result of any such telephone call or visit, then the Franchisor shall supply a copy of that inspection report to the Franchisee, upon reasonable written request by the Franchisee.
5.3.4 The Franchisor may, at the Franchisee's reasonable request, enroll additional individuals in Franchisor's Training Program, provided that the Franchisee pays the Franchisor its then-current training fee (as set forth in the Manual). Such requests will be honored in accordance with the availability of the Franchisor's training staff.
5.3.5 The Franchisor reserves the right to elect or decline to train any number of individuals representing any number of franchises individually, or at the same time. Every trainee must sign a Confidentiality and Non-compete Agreement in advance of receiving any such training.
5.3.6 In the event of a valid and complete assignment of the Sea Tow Franchised Business by the Franchisee to a third party (as provided for hereafter), the Franchisor will train such third party and one other person designated by it in the same manner and under the same circumstances as those described above, except that the third party must pay to the Franchisor its then-current training fee for each individual trained (in addition to any fees or other requirements attendant to the assignment).
5.3.7 In the event the Franchisee hires any personnel to perform vessel towing services, pursuant to the requirements of this Agreement and the specifications set forth in the Manual, such personnel are required to attend and successfully complete, at the Franchisee's cost and expense (including the Franchisor's then-current training fee), the Franchisor's training program before performing such services. In this context, the Franchisee will provide to the Franchisor, prior to engagement of any such personnel, a resume of the person. Based upon the resume (and an interview, if the Franchisor shall so elect), the Franchisor may waive the requirement of such training, provided the Franchisor, in its sole judgment, determines that such personnel are properly qualified. The requirement for training for current licensees who are Converting Licensees, and for their current personnel, is hereby waived. Where the Franchisee demonstrates to the satisfaction of the Franchisor that it possesses the ability in-house to provide training, this provision shall be waived for any such personnel hired by the Franchisee. In all instances in which there is a waiver, however, the Franchisee will provide to the Franchisor in writing a statement that the Franchisee's personnel meet the minimum training requirements.
5.4 On an annual basis, at the Franchisee's cost and expense, the Franchisee is required to attend the Franchisor's Annual Meeting at a location determined by the Franchisor. Attendance at this meeting is required, and a failure to attend is grounds for termination. Upon written application by the Franchisee, the Franchisor will waive attendance upon a showing of an emergency situation or event. If the Franchisee desires to have their personnel attend the Annual Meeting, the Franchisee must obtain prior written approval from the Franchisor, and each attendee will sign in advance of attendance, and be subject to a Confidentiality and Non-Compete Agreement.
5.5 In order to maintain uniformity of concept, color and quality, all proprietary materials and forms, other than those identified in, and permitted to be procured from an alternative source under Subsection 5.5.2, that are used by the Franchisee in performing under this Agreement must be purchased from the Franchisor or its affiliates in accordance with the terms and procedures set forth in the Manual. The price for these items will be the Franchisor's actual cost plus 10%, on the average. The use or sale of unapproved products or services constitutes a material and incurable breach of this Agreement unless such use or sale occurs as a consequence of an extreme situation and does not constitute a normal business activity.
5.5.1 As part of the System, the Franchisee is required to make certain services available to members of the Franchised Business (as well as non-members) as set forth in the Manual, as amended from time to time pursuant to Section 5.2.
5.5.2 Certain materials (letterhead, business cards, brochures, labels, log and job invoices, etc., but excluding other proprietary forms) bearing the Sea Tow Trademarks may be procured from a source other than the Franchisor, provided the Franchisee first seeks and obtains the written approval of the Franchisor, which approval will not be unreasonably withheld. The Franchisee is under no obligation to purchase any non-proprietary materials from the Franchisor. The Franchisee is, however, obligated to purchase from the Franchisor any proprietary materials specified for use in the System. Any non-proprietary materials that are not purchased from the Franchisor will, nonetheless, conform with the Franchisor's reasonable quality control requirements and the usage permitted under this Agreement, and approval of such shall not be unreasonably withheld.
5.5.3 The Franchisor will, at all times during the term of this Agreement, provide information pertaining to sources of supply of those proprietary and non-proprietary products and services which may be used in this System, upon reasonable written request. If the Franchisee finds a distributor or source of certain products that meet System standards, the Franchisee will inform the Franchisor of the source, and subject to review of the products, the Franchisor will allow the Franchisee to purchase from that distributor, and such approval shall not be unreasonably withheld. The Franchisee may designate the method of remittance subject to the approval of the Franchisor, which approval shall not be unreasonably withheld.
5.6 The Franchisor will license to the Franchisee Sea Tow Software as may be made available from time to time and made part of the System, in connection therewith, the Franchisee must sign the Software License Agreement annexed hereto as Exhibit C and such other license agreements which may be applicable to additional or revised software used in the System.
5.6.1 In addition to the training to be provided by the Franchisor, during the term of this Agreement, at an additional charge to the Franchisee, the Franchisor or its designee will provide to the Franchisee at the Franchisee's request such amount of technical advice on the use of the Software in addition to the Training Program as the Franchisor, in its sole discretion, determines to be reasonably necessary.
5.6.2 The Franchisor will make available to the Franchisee, at an annual maintenance fee of $ 150 (or the then current fee) ("Maintenance Fee"), any routine standard updates, modifications, revisions and enhancements to the Software generally made available at no additional charge to other franchisees of the Franchisor ("Updates"). This Agreement will apply to the Software in its initial form, as well as any form so updated, modified, revised and/or enhanced. The Franchisor will provide to the Franchisee technical documentation necessary to implement such updates, modifications, revisions and enhancements during the Initial Term. The Maintenance Fee is paid annually and is subject to annual increases or decreases based upon changes in the Consumer Price Index ("CPI").
5.6.3 The Franchisor warrants to the Franchisee that, at the time of installation, the Software will be in good working condition and will perform in accordance with the User Documentation (provided therewith) during the term of this Agreement. If the Software proves defective during the term of this Agreement, the Franchisee will notify the Franchisor in writing, and the Franchisor will use its reasonable best efforts to correct, as soon as practicable and at the Franchisor's expense, any defect in the Software. The Franchisor's sole and exclusive responsibility and liability under this ARTICLE will be to repair or replace, at its expense, the Software as necessary to correct any defects reported by written notice to the Franchisor, and validated by the Franchisor to exist. However, this warranty will not apply, and the Franchisee will be required to pay the costs of correcting such defect, if: (a) the Software is not used in accordance with the Franchisor's instructions or in the application for which it was intended; (b) any Software programs, files or databases have been (i) modified, altered or adjusted by any person other than the Franchisor's personnel, (ii) used in connection with any equipment, devices or software not supplied, distributed or approved by the Franchisor, (iii) changed by negligence or other external causes, (iv) moved from their original place of installation without the prior written consent of the Franchisor, or (v) damaged during the course of any maintenance performed by persons other than the Franchisor's personnel or the Franchisee's personnel acting under the direct supervision of the Franchisor's personnel; (c) the defect was caused by a malfunction of the computer hardware on which it was installed; or (d) the cause of the defect was within the control of the Franchisee and the Franchisee reasonably could have prevented the occurrence of such defect.
5.7 The Franchisor shall specify the particular computer hardware and peripheral equipment which the Franchisee must purchase or lease in order to effectively operate the Software.
5.8 The Franchisor may advise the Franchisee in writing as provided in Section 19.5, from time to time, concerning the maximum prices which the Franchisee should charge his/her customers for services provided or goods sold, except salvage, under the Sea Tow System. Any such advice, if given at all, will be binding on the Franchisee, since the purpose of providing such advice is to enhance interbrand competition and would provide certain economic benefits to the Franchisee's members and other customers. Nothing contained herein shall be deemed a representation by the Franchisor that if the Franchisee follows such advice he/she will, in fact, generate or optimize profits. The Franchisee is obligated to inform the Franchisor of all prices charged for services and products sold by the Franchisee and to inform the Franchisor of any modifications of the Franchisee's prices. Permission to accept membership fees and to disburse the Franchisor's proportionate share to the Franchisor shall be afforded by the Franchisor to the Franchisee pursuant to a credit worthiness determination rendered by the Franchisor, in the Franchisor's sole discretion, subject to the following: (a) the Franchisee's compliance in providing to the Franchisor such information as the Franchisor shall deem reasonably necessary to determine the Franchisee's credit worthiness; and (b) the Franchisee's prompt and full compliance with, and non-default status under, the terms and conditions of this Agreement, including the forwarding of memberships in a timely manner with correct amounts. The Franchisor's proportional amounts of membership money received by the Franchisee constitutes trust money, with no right of possession or offset held by the Franchisee.
5.9 The Franchisor will, once created, jointly administer the National Marketing Fund ("NMF") with the National Marketing Council ("NMC") created under Subsection 10.2.1, as more fully described in Section 10.2, below.
5.10 Delays in the performance by either party of any obligations that are not the fault of nor within the reasonable control of the delayed or non-performing party, including fire, flood, natural disasters, acts of God, governmental acts or orders, or civil disorders, do not give rise to a default by the other party. Rather, the other party will be required to extend the time of performance of any such obligations for the period of such delay or for such other reasonable period of time as may be appropriate in the circumstances.
5.11 The Franchisor will independently fund and participate in shows and other promotional activities directed to the "business to business" marketing and finding of potential new franchisees, in its sole discretion. The Franchisor, with the cooperation of its franchisees and the NMC, will participate in marketing programs as determined under ARTICLE 10.
5.12 The Franchisor will produce and distribute a national newsletter for all members, currently called "Lifelines." The costs for producing and distributing this newsletter will be borne by the NMF, in accordance with ARTICLE 10.
5.13 The Franchisor will maintain two dedicated, segregated and distinct bank accounts from the Franchisor's normal operating fund accounts for the exclusive purpose of depositing a portion of each Membership fee designated for the Reciprocal Towing Fund (the "RTF"), received by the Franchisor in trust under Section 8.7 of this Agreement, and over which the Franchisor acts as a fiduciary on behalf of the then current franchisees. The costs of such accounts will be born by the accounts. The Franchisor will deposit the RTF portion of each Membership fee into the bank account. The RTF remains subject to the control of the Franchisor and to the Franchisor's periodic review, audit and freezing of funds, as the Franchisor may deem appropriate to satisfy its fiduciary duty.
5.13.1 The Franchisor will maintain the first account (designated the "RTF Holding Account") with a bank or other institution in an insured, interest-bearing money market or savings account, for depositing the RTF portions. Funds are transferred to the RTF Working Account (defined in Subsection 5.13.2, below), on an as-needed basis, as determined by the Franchisor or its designated agent.
5.13.2 The Franchisor will maintain a second account (designated the "RTF Working Account") with a bank or other institution as an insured, checking account. The sole purpose of the RTF Working Account shall be to pay RTF claims, and other costs associated therewith.
5.13.3 The Franchisor or its designated agent shall administer the RTF Holding Account and RTF Working Account. Should the Franchisor designate a franchisee or other non-employee to administer the accounts, then such non-employee shall be required to bond or otherwise insure the contents of the accounts, and the costs for bonding and insuring, as well as fees for administering claims, shall be born by the accounts.
ARTICLE 6 CONFIDENTIAL OPERATIONS MANUAL
6.1 In order to protect the reputation and goodwill of the Franchisor, the System, and the Sea Tow Proprietary Properties, and to maintain requisite operating standards under the Sea Tow Trademarks, the Franchisee will conduct his or her Franchised Business in accordance with the provisions, standards, and procedures set forth in this Agreement and in the Confidential Operations Manual (the "Manual"), which governs solely operational issues.
6.2 The Franchisee will at all times treat the Manual, and any other manuals created for or approved for use in the operation of the Franchised Business, and the information contained therein as confidential Sea Tow Know How, and shall use all efforts to maintain such information as secret and confidential in accordance with the terms and conditions governing Sea Tow Know How and Sea Tow Copyrights, including the following. The Franchisee will not, at any time, without the Franchisor's prior written consent, copy, duplicate, record, or otherwise reproduce the foregoing materials, in whole or in' part, nor otherwise make the same available to any unauthorized person. The persons who are
authorized include the Franchisee s management personnel who have executed the Employee Non-competition and Nondisclosure Agreement, annexed hereto as Exhibit D.
6.3 The Manual will at all times remain the sole property of the Franchisor, and shall be returned to the Franchisor immediately upon the expiration or termination of this Agreement.
6.4 The Franchisor may, from time to time, revise the contents of the Manual when it reasonably considers such revisions to be necessary to improve or maintain the standards of the System and the Franchisee expressly agrees to comply with each new or changed standard, provided, however, that such revisions relate solely to operational matters, are made for all franchisees, are reasonable in nature, and comply with the conditions of Section 5.2, above. Any such revisions to the contents of the Manual are deemed effective 7 days after the date of certified mailing of the revisions to the Franchisee unless otherwise specified by the Franchisor.
6.5 The Franchisee acknowledges the contents of the Manual and any revisions or modifications made to the Manual in conformity with Section 5.2, constitute additional provisions of, and modifications to this Agreement as if fully set forth in this Agreement. Should any term of the Manual not be consistent with any term of this Agreement, then this Agreement will take precedence over the inconsistent term in the Manual, the inconsistent term of the Manual will not be followed, and the inconsistent term of the Manual, once brought to the attention of the Franchisor, will be promptly changed to conform with the term of this Agreement.
6.6 The Franchisee will at all times insure that his/her copy of the Manual is kept current and up to date, and in the event of any dispute as to the contents of the Manual, the terms of the master copy of the Manual maintained by the Franchisor at its home office is controlling. All changes and revisions will be dated and numbered by the Franchisor. The Franchisee will receive one copy of the Manual for operations purposes.
6.7 The Franchisor and the Franchisee acknowledge there may be circumstances that require the Franchisee to modify the implementation of the standards and guidelines set forth in the Manual. The Franchisor and the Franchisee recognize the Manual is an operational guideline for conducting the Franchisee's business operations and, although the Franchisee shall use his/her best efforts to faithfully follow the standards and guidelines set forth in the Manual, the Franchisee will be permitted to modify the operational standards and guidelines so that his/her business is best served.
6.8 To the extent that any improvements, inventions or discoveries are made by the Franchisee, or the Franchisee's employees or agents, during the course of this Agreement and relating to the Sea Tow Proprietary Properties or System ("improvements"), such improvements are deemed assigned to, and owned by the Franchisor for the purpose of improving the entirety of the franchised network, and the provision of goods and services in accordance with the System. All documents and other information concerning any such improvements will be disclosed to the Franchisor promptly after creation or invention. The Franchisor will, in its sole reasonable discretion, determine whether such improvements are worthy of inclusion in the Sea Tow System, and the best and most practical method of implementation and protection. The Franchisee will execute all documents reasonably necessary to perfect the Franchisor's ownership in and to any such improvements, and will cooperate with the Franchisor in the creation, implementation, use and protection thereof. The Grandfathered Activities are excluded from this provision.
ARTICLE 7 PROPRIETARY MARKS. TRADE NAMES AND COPYRIGHTED MATERIALS
7.1 The license granted in Section 2.1 does not grant the Franchisee any right, title or interest, at law or in
equity, in or to any of the Sea Tow Proprietary Properties, including the Sea Tow Trademarks, Sea Tow Copyrights, and Sea Tow Know How, beyond the license. Further, the license applies only to those portions of the Sea Tow Proprietary Properties which have been, or may be, designated in writing by the Franchisor for use by the Franchisee in conjunction with the operation of the Sea Tow Franchised Business. The Franchisee will not represent to others, or conduct himself/herself in any manner that might indicate to others, that he/she possesses any other legal or equitable rights in or to the Sea Tow Proprietary Properties by virtue of the license granted hereunder. The signing of this Agreement by the Franchisee further establishes the Franchisee's consent that the Sea Tow Trademarks, Sea Tow Copyrights and Sea Tow Know How are valid and enforceable (without defense or recourse), and owned by Franchisor. The Franchisee represents and warrants that it will not attack the validity or, enforceability or ownership of any of the Sea Tow
Proprietary Properties, or assist another in any such attack, during the course of this Agreement or thereafter. The terms of this Section shall survive termination or expiration of this Agreement for any reason, in addition to any of the other remedies or survival provisions otherwise contained in this Agreement.
7.2 The Franchisee will not do or permit any act in derogation of any of the rights of the Franchisor to its Proprietary Properties.
7.3 The Franchisee will not contest or dispute the Franchisor's title to any part or all of the Sea Tow Proprietary Properties.
7.4 The Franchisee shall use the Sea Tow Proprietary Properties solely in accordance with this Agreement and the Manual.
7.5 The Franchisee shall not use the Sea Tow Proprietary Properties, or any words, phrases, symbols, trade dress, colors, logos or materials which the Franchisor deems confusingly similar thereto, in his/her trade name (or for any other purpose) without the Franchisor's prior written approval. In that connection, the Franchisee will identify
himself/herself to the public as doing business as "Sea Tow________________" as designated in the opening paragraph
of this Agreement.
7.6 In addition to all post-termination provisions contained in this Agreement, the Franchisee agrees that after the expiration or termination of this Agreement, the Franchisee will discontinue the use of the telephone number(s) of the Franchised Business and will not advertise in any telephone directory under the name "Sea Tow" or any other name, phrase or logo used by the System, discontinue use of any or all of the Sea Tow Proprietary Properties, and not use any words, phrases, logos, designs, colors, trade dress or the like that in any manner may cause customer confusion, or resemble, be confusingly similar to, or be a colorable imitation of the Sea Tow Proprietary Properties. Additionally, upon demand of the Franchisor, the Franchisee will direct his/her local telephone company to transfer the telephone number(s) to the Franchisor or its designee by utilization of the Assignment of Telephone Numbers form to be signed by the Franchisee concurrently with signing this Agreement, the form of which is annexed as Exhibit "E". If the Franchisee fails promptly to direct his/her telephone company to effect such transfer, the Franchisee hereby irrevocably appoints the Franchisor as his/her attorney-in-fact to so act.
7.7 If the Franchisee receives notice of or learns of any actual or potential claim, suit or demand that has been or may be asserted against him/her or the Franchisor involving any alleged infringement, unfair competition, or similar matter relating to the use of the Sea Tow Proprietary Properties, the Franchisee will promptly notify the Franchisor of any such actual or potential claim, suit or demand (a "Claim") and provide complete disclosure of all information concerning or relating to such Claim, including, if requested, affidavit or other sworn testimony as Franchisor shall reasonably request to evaluate the Claim. Thereupon, the Franchisor will promptly take such action as it may deem necessary in its sole discretion to address the Claim. The Franchisor shall have the sole right to defend, compromise or settle the Claim, using attorneys of its own choosing and the Franchisee agrees to cooperate fully with the Franchisor in connection with the defense of the Claim. The Franchisor shall protect, defend and indemnify the Franchisee in connection with the Claim unless it arises out of or relates to the Franchisee's use of the Sea Tow Proprietary Properties in violation of this Agreement, the Manual, the Training Program or otherwise.
7.8 If the Franchisee learns of any unauthorized use of the Sea Tow Proprietary Properties, the Franchisee will promptly notify the Franchisor of the facts relating to such alleged infringing use. The Franchisor will, in its discretion, determine whether or not to take any action with respect to such information. The Franchisee has no right to take any action with respect to any unauthorized use of the Sea Tow Proprietary Properties without the prior written consent of the Franchisor. The Franchisor will exercise its discretion based upon, among other things, a cost/benefit analysis of the specific situation as well as the status of any cost sharing agreements that exist or may be arranged with the franchisees to support the subject litigation. The Franchisor has no obligation, expressed or implied, to take any action with respect to any unauthorized use of the Sea Tow Proprietary Properties when such action does not, at the Franchisor's sole discretion, satisfy the Franchisor's cost/benefit requirements.
7.8.1 The Franchisee expressly consents and agrees that representation of the Franchisee (or any other franchisee, including its principals) in any Claim by the Franchisor's legal counsel is not substantially related to any
issue that may arise between the Franchisee and the Franchisor under this Agreement, and that any conflict of interest, actual or implied, as a result of the representation of the Franchisee in any such by the Franchisor's designated legal counsel is hereby waived. The Franchisee expressly agrees that it will take no action whatsoever to attempt to create any such conflict of interest, nor shall the Franchisee seek the disqualification of Franchisor's legal counsel as a consequence of the representation of the Franchisee in any such Claim. Violation of this provision governing the status of Franchisor's designated legal counsel shall result in automatic and incurable breach of this Agreement.
7.9 The Franchisee understands and agrees that the limited license to use the Sea Tow Proprietary Properties granted by this Agreement applies only to such properties as are designated by the Franchisor, together with those which may hereafter be designated by the Franchisor in writing. The Franchisee expressly understands and agrees that he/she is bound not to represent in any manner that he/she has acquired any ownership or equitable rights in any of the Sea Tow Proprietary Properties by virtue of the limited license granted under this Agreement, or by virtue of the Franchisee's use or creation of any of the Sea Tow Proprietary Properties, or upon any other basis.
7.9.1 If it becomes advisable at any time, in the discretion of the Franchisor, to modify or discontinue use of any aspect of the Sea Tow Proprietary Properties and/or to adopt or use one or more additional or substitute items, then the Franchisee shall be obligated to comply with any such instruction by the Franchisor. The sole obligation of the Franchisor in such event shall be to reimburse the Franchisee for his/her documented, verified and reasonable expenses of compliance, such as changing signs, stationery, boat lettering, hull color, uniforms, advertising, etc. The Franchisee waives any other claim arising from or relating to any change, modification or substitution to the Sea Tow Proprietary Properties. The Franchisor will not be liable to the Franchisee for any expenses, losses or damages sustained by the Franchisee as a result of any such addition, modification, substitution or discontinuation except as provided in this Subsection. The Franchisee covenants not to commence or join in any litigation or other proceeding against the Franchisor for any of these expenses.
7.9.2 The Franchisor represents and warrants that it owns the Sea Tow Trademarks free and clear from any liens or encumbrances and subject solely to licenses granted to pre-existing licensees and/or franchisees, and to the best of the Franchisor's knowledge the license conveyed by this Agreement does not infringe any valid or enforceable trademark rights owned by any other party. The Franchisor hereby indemnifies the Franchisee from any claims, costs or fees associated with any violation of this provision, subject to the requirement that the Franchisor be immediately notified of all facts and circumstances that may give rise to liability under this Subsection, and be permitted to control the defense of the action.
7.9.3 Neither the Franchisor nor the Franchisee shall take any steps or actions that would in any manner impair, dilute or devalue the Sea Tow Trademarks, and such action shall constitute a material breach of this Agreement. For the purposes of this Subsection, dilution shall be prima facie demonstrated by a use of the Sea Tow Trademarks in connection with any other word, phrase or logo confusingly similar with, or otherwise not authorized or licensed under this Agreement.
7.10 The Franchisee shall not maintain a World Wide Website or otherwise maintain a presence or advertise on the Internet or any other public computer network in connection with the Sea Tow Franchised Business without the Franchisor's prior written approval, which the Franchisor may withhold for any reason or no reason, in its sole discretion. The Franchisee may only maintain such a site if it is a subsite of the official and primary "seatow.com" site. The Franchisee agrees to submit to the Franchisor for approval before use, true and correct printouts of all Website pages the Franchisee proposes to use in his/her Website in connection with the Franchised Business. The Franchisee understands and agrees that the Franchisor's right of approval of all such Web materials is necessitated by the fact that such Web materials will include and be inextricably linked with the Sea Tow Proprietary Properties. The Franchisee may only use material which the Franchisor has approved. The Franchisee's Website shall conform to all of the Franchisor's Website requirements, whether set forth in the Manual or otherwise. The Franchisee will provide all hyperlinks or other links that the Franchisor requires. If the Franchisor grants approval for a Website, the Franchisee will not use any of the Sea Tow Proprietary Properties in the site except as the Franchisor expressly permits. The Franchisee may not post any of the Franchisor's proprietary, confidential or copyrighted material or information on his/her Website without the Franchisor's prior written consent. If the Franchisee wishes to modify the approved site, all proposed modifications must also receive the Franchisor's prior written approval. The Franchisee explicitly understands that he/she may not post on his/her Website any material which any third party has any direct or indirect ownership interest in (including, without limitation,
video clips, photographs, sound bites, copyrighted text, trademarks or service marks, or any other text or image which any third party may claim intellectual property ownership interests in). The Franchisee agrees to list on his/her Website any Website maintained by the Franchisor, and any other information the Franchisor requires in the manner the Franchisor dictates. The Franchisee agrees to obtain the Franchisor's prior written approval for any internet domain name and/or home page address. The requirement for the Franchisor's prior written approval set forth in this Section applies to all activities on the Internet or other communications network to be conducted by the Franchisee, except that the Franchisee may maintain one or more E-mail addresses and may conduct individual E-mail communication without the Franchisor's prior approval as provided above, unless he/she proposes to send advertising to multiple addresses via E-mail, in which case the Franchisor's prior written approval is required.
ARTICLE 8 PAYMENTS TO FRANCHISOR
8.1 Upon execution of this Agreement and to initiate the Franchise rights conveyed under this Agreement,
the Franchisee shall pay to the Franchisor an Initial Franchise Fee in accordance with the following schedule:
Designation of AOR
In areas that have an existing membership base the Franchisee may be required to pay to the Franchisor, in addition to the Initial Franchise Fee, an amount up to the amount calculated as the franchise membership valuation, which is implicated when there is already a pre-existing membership base in Franchisee's AOR. Converting Franchisees will pay an Initial Franchise Fee of $5,000 regardless of the Designation of AOR. The Franchisor hereby provides the following
Designation of AOR for the instant Franchise that is subject to this Agreement:__. Designations are determined by the
Franchisor in accordance with the demographics and geography of the subject AOR, in the Franchisor's sole judgment. Upon written application by the Franchisee, and upon demonstration of a need with sufficient collateral and execution of a suitable Promissory Note for the balance, in accordance with Exhibit G, the Franchisor may, but is not required to divide the Initial Franchisee Fee into one or more paylments carrying a minimum (simple) interest rate of 12-1/2% per annum and a maximum term of 5 years. The Initial Franchise Fee is not refundable in whole or in part and is deemed fully earned by the Franchisor upon signing of this Agreement. The foregoing calculation does not in any manner impact the determination of fair market value under Article 15 and Section 17.9 of this Agreement, nor does it constitute an additional fee upon renewal of this Agreement.
In the State of Minnesota only, the Franchisor will defer the payment of the Initial Franchise Fee and any other initial payment until all of its material pre-opening obligations have been satisfied. The Initial Franchise Fee is deferred until the Franchisee opens its business and it is operating. However, the Franchisee must execute the Franchise Agreement prior to looking for a site or beginning training.
8.2 In addition to the Initial Franchise Fee and membership fee divisions, and together with the report required under Section 8.10, the Franchisee will pay to the Franchisor a monthly royalty fee from between 2.0% and 5.5% of the Franchisee's Net Gross Revenue (as defined below) ("Royalty Fee") for the prior month of operations, as determined in accordance with Schedule B. It is the desire of the Franchisor to receive l/12th of the minimum Royalty Fee (set forth in Schedule B) on a monthly basis. Accordingly, upon receipt of the July 31st report from the Franchisee, the Franchisor shall determine whether the Franchisee has met 7/12 of the minimum Royalty Fee (set forth in Schedule B) for the year. If that amount has not been met, then the Franchisor may provide a schedule of adjusted minimum Royalty Fee payments on a per month basis in order to assure that the total minimum Royalty Fee (set forth in Schedule B) is
reached by December 31st. If the Franchisor provides such a schedule of adjusted minimum Royalty Fee payments to the Franchisee then, for each month commencing August, and continuing to the year's end, the Franchisee shall pay the greater of the monthly royalty fee calculated for the month then ending based upon the percentage of the Franchisee's Net Gross Revenue or the adjusted minimum Royalty Fee payment set forth in the schedule. Under no circumstances shall the Franchisee be required to pay more than the greater of the yearly minimum Royalty Fee set forth in Schedule B, or the royalty fee calculated upon the Franchisee's Net Gross Revenue for any year.
8.3 In addition to the Initial Franchise Fee, membership fee divisions, and Royalty Fee, and together with the report required under Section 8.10, the Franchisee shall pay to the Franchisor a National Advertising Fee (to be expended as provided in Section 10.2) in an amount equal to between 114% and 4% of the Franchisee's monthly Gross Revenue, as defined below, into the NMF. The National Marketing Fee is set at 2% for calendaryear 2005. The National Marketing Fee can only be changed by a 2/3's vote of the attending franchisees at the Annual Meeting, and the change becomes effective on January 1 of the year following the Annual Meeting during which the change was made.
8.4 The Franchisee will, on a yearly basis, expend a minimum of V/%% of Gross Revenue on local advertising and promotion of the Sea Tow Franchised Business within the AOR. Proof of these advertising expenditures will be provided to the Franchisor on a monthly basis (as provided for in the System accounting program), together with the report required under Section 8.10.
8.5 In addition to all other fees to be paid hereunder, for each member who joins and for whom a membership fee is received by the Franchisee, within 10 days of such receipt, the Franchisee shall remit to the Franchisor either the entire membership fee received, or the balance of the membership fee (i.e., the Franchisor's Membership Fee as calculated in accordance with Schedule A hereto, and as defined in Section 8.7). The latter option is only afforded the Franchisee if he/she has met the requirements set forth in Section 5.8.
8.6 If the Franchisor operates the Franchisee's Franchised Business for any reason, the Franchisee will remit 7.5% of profits, plus the manager's salary and all other ancillary costs, fees, legal fees, and expenditures, to the Franchisor (the "Management Fee").
8.7 Membership fee division is determined as follows. For each membership fee (gross amount), the Franchisor shall receive the amount indicated under Schedule A hereto (defined as the "Franchisor Membership Fee"), which shall be maintained and used by the Franchisor for its business purposes. Out of the remainder, the Franchisor shall receive a portion of the gross amount which it will designate for the RTF, in accordance with Section 5.13. The remainder shall belong to the Franchisee (defined as the "Franchisee Membership Fee"). The RTF is owned, maintained and controlled by Franchisor for the purpose of paying franchisees for the performance of services within their AOR for members of other franchisees' AOR's. RTF disbursements will be the subject of dialogue and decision (as to amounts and rules and regulations governing payments to franchisees) at each Annual Meeting. The gross amount, minus the amounts indicated in Schedule A and the amount designated for the RTF, will be received by the Franchisee (provided Franchisee is in good standing and not otherwise in default under this Agreement), in the following manner. Payments will be tendered by the Franchisor to the Franchisee for the month following receipt of the report and payments required under Section 8.10. The Franchisee recognizes that membership fee divisions between the Franchisor and the franchisees render the System unique, but requires trust and honesty on the part of the franchisees. Accordingly, the Franchisor may withhold such membership fee divisions as security for performance of the Franchisee, or to pay or offset any indebtedness to the Franchisor not tendered by Franchisee with the reports required under Section 8.10, in accordance with the Franchisor's business judgment. The RTF will be governed by Rules and Regulations created and promulgated by the Franchisees, with the Franchisor having the right of veto. The current Rules and Regulations in place governing the Franchisor's licensees shall initially be followed, and modifications of such Rules and Regulations shall occur by a 2/3 vote of the attending franchisees at each Annual Meeting. The Franchisor shall manage the RTF and shall provide monthly financial statements under GAAP, unless it shall agree to a non-employee administrator who has satisfied the bonding or insurance requirements under Subsection 5.13.3. Claims approved in accordance with the then current Rules and Regulations shall be paid from the RTF within 30 days of approval.
8.8 Each franchisee who is not a Converted Licensee shall remit the sum of $5,000 upon signing this Agreement, or the sum of $400 per month for a period of 13 months, commencing the first month that this Agreement is in effect. This sum shall be deposited into an insured, non-attorney regulated, interest-bearing money market account
with a bank or other institution as a trust fund ("Escrow Fund") for the purpose of paying (if necessary) the Franchisee's business debts during the off-season. Any funds deposited on behalf of the Franchisee and remaining in the Escrow Fund three years after execution of this Agreement, provided this Agreement is not earlier terminated, will be refunded (with interest earned) to the Franchisee. Should this Agreement be earlier terminated, then the Franchisee hereby waives any right of return or refund.
8.9 The term "Gross Revenue" means all fees received by the Franchisee (including actual deposits in Franchisee's bank accounts as well as undeposited cash receipts) from, through, by or on account of the operation of his/her Sea Tow Franchised Business (including Franchisee Membership Fees), whether received in cash, in services or in kind, less: (i) the amount of all sales tax receipts or similar tax receipts which, by law, are chargeable to customers; (ii) the amount of any documented refunds, credits and allowances given in good faith to customers by the Franchisee; (iii) gross receipts from the sale of a covered asset (defined as vessels, engines and vehicles) where the covered asset was, prior to such sale, used by the Franchisee in the course of providing services to customers under this Agreement and was listed as an asset on the Franchisee's books, provided that covered asset is replaced in like kind within one year of such sale; (iv) monies received from the RTF; and (v) Franchisor Membership Fees actually received by the Franchisee and paid to the Franchisor. The term "Net Gross Revenue" means Gross Revenue minus Franchisee Membership Fees, taxes actually paid by the Franchisee, and fees paid to join professional, national and local associations.
8.10 The Franchisee will submit to the Franchisor, and Franchisor will receive, on a monthly basis by the tenth day of each month, a report of the Franchisee's Gross Revenue and Net Gross Revenue for the preceding month. Concurrently with the submission of each report, the Franchisee shall pay all fees to Franchisor including: (a) any approved payout of the Initial Franchise Fee; (b) the Royalty Fee; (c) the National Advertising Fee; (d) any remaining escrow fee; (e) any Management Fee; and (f) any other fees that may be provided under this Agreement. Such reports shall be transmitted by the Franchisee to the Franchisor in the manner specified by the Franchisor (i.e., by overnight courier, facsimile or by a computer-generated report delivered by modem). The Franchisee represents and warrants that he/she shall use his/her best efforts to provide the information, that the Franchisor is relying upon such provision, and that errors may jeopardize the franchise or other rights granted under this Agreement.
8.11 The Franchisee's obligations to pay the Royalty Fee and the National Marketing Fee accrues on the day that the Franchisee commences operation of the Franchised Business. "Commencement of the Business" is defined as the first day on which the Franchised Business receives revenues, offers services, or conducts any of the activities contemplated by this Agreement. (For Converting Licensees this will be the date of signing of this Agreement.)
8.12 All amounts due and owing under this Agreement will be computed at the end of each month, and remittance will be made by personal delivery, electronic transfer, automatic bank transfer, or if mailed, postmarked by the U.S. Postal Service (with proper first-class postage prepaid) by the tenth business day after the end of each month. The Franchisee may designate the method of remittance subject to the approval of the Franchisor, which approval shall not be unreasonably withheld. The computation of the amounts will be reported on forms prescribed by the Franchisor, and shall be certified by the Franchisee in the manner specified by the Franchisor. The Franchisee will supply to the Franchisor such supporting or supplementary materials as the Franchisor may reasonably require to verify the accuracy of the remittances.
8.13 In the event the Franchisee fails to pay any of the referenced fees, royalties or contributions, or any other amount due to the Franchisor or to any Fund in the time as specified in this Agreement, the Franchisee will pay (in addition to other rights, remedies and remunerations) a service charge of $50.00 per each failure. If such delinquent amounts have not been paid in full, including applicable service charges, additional service charges, as set forth herein, shall become due for each additional week during which such delinquency continues. It is agreed that such payments are but a reasonable estimate of the Franchisor's damages, and not a penalty or forfeiture.
8.13.1 In addition to service charges, interest on delinquent amounts shall accrue daily from the due date until paid at a non-compounded annual rate equal to the prime rate then in effect at Morgan Chase Bank (or the like) plus 2%, or the highest rate allowed by applicable law, whichever is less. All payments received will be credited first to accrued interest, and then to principal. The Franchisor shall also pay to the Franchisee interest on delinquent amounts (overdue by at least 30 days) at the same rate.
8.13.2 All late charges and interest owed by the Franchisee shall be paid to the Franchisor. Any default in the payment thereof is a default which entitles the Franchisor to terminate this Agreement for failure to pay amounts due the Franchisor, as provided by ARTICLE 16, and/or to institute proceedings to collect the delinquent amounts with applicable late charges and interest.
8.14 The Franchisee agrees to pay promptly, when due, all taxes and assessments that may be assessed or otherwise due against the Franchisee's income, premises, equipment and/or supplies used in connection with the Franchisee's business, to discharge all liens and encumbrances of every kind and character created or placed upon or against any of said property and to pay all accounts and other indebtedness of every kind incurred by the Franchisee in the conduct of his/her business. In the event the Franchisee should default in making any such payment and have failed to stay enforcement through a proper legal contest, the Franchisor shall be authorized, but not required, to pay the same on the Franchisee's behalf, and the Franchisee covenants promptly to reimburse the Franchisor for any such payment. The Franchisor shall also maintain the right of set off, to permit deductions of any such amounts from payments that may be due the Franchisee hereunder. Any such amounts advanced by the Franchisor shall be due and payable immediately on the Franchisee's receipt of written demand from the Franchisor, and if not paid within five (5) days shall be subject to late payment charges and interest as set forth in Section 8.13 of this Agreement.
8.15 Any default by the Franchisee in the timely payment of any indebtedness of the Franchisee owing to the Franchisor, or to any affiliate of the Franchisor, or the default by the Franchisee in the payment of any indebtedness of the Franchisee with respect to which the Franchisor or any of the affiliates of the Franchisor is a guarantor, co-signer, endorser or obligor, shall constitute a breach of this Franchise Agreement, rendering the same subject to termination in accordance with the provisions of ARTICLE 16.
8.16 The Franchisee waives any and all existing and future claims and set offs against any amounts due the Franchisor under this Agreement, which amounts shall be paid when due regardless of any other claims which the Franchisee may have against the Franchisor. However, the Franchisor shall be entitled to apply or cause to be applied against amounts due to it any amounts which may from time to time be held by the Franchisor on the Franchisee's behalf or be owed to the Franchisee by the Franchisor. Notwithstanding any designation by the Franchisee, the Franchisor shall use sound business adjustment and be reasonable in applying any payments received from the Franchisee, whether designated as payable to the Franchisor, Jhe NMF or otherwise, to any past due or other indebtedness of the Franchisee for fees, advertising contributions, purchases, interest or otherwise. The Franchisor may set off from any amounts that may be owed to the Franchisee any amount that the Franchisee owes to the Franchisor or with respect to any payment overdue for over 30 days. In particular, the Franchisor may retain any amounts it has received for the Franchisee's account (whether rebates or other funds and whether paid by or due from suppliers or otherwise) as a credit and payment against any amounts that the Franchisee owes or will owe to the Franchisor or with respect to any advertising contribution, should the Franchisee be then overdue in any payments due to the Franchisor for at least 30 days. The Franchisor may do so without notice at any time. However, the Franchisee does not have the right to offset or withhold payments owed to the Franchisor for amounts purportedly due the Franchisee from the Franchisor. The Franchisor may condition the Franchisee's participation in any program (including, but not limited to, any program involving payments from third party suppliers or otherwise) as the Franchisor determines in its reasonable discretion, including, but not limited to, the Franchisee being a "Sea Tow" franchisee in good standing and not in default under this or any other agreement with the Franchisor. The Franchisee agrees that he/she will not withhold any amounts otherwise due the Franchisor as a result of any dispute of any nature, but will pay such amounts to the Franchisor and only thereafter seek reimbursement.
ARTICLE 9 OBLIGATIONS OF FRANCHISEE
9.1 Each component of the System is vital to the Franchisor, to the network of other franchisees of the
System and to the operation of the Sea Tow Franchised Business, as well as to the members of the purchasing public who have come to rely upon the Franchisor and its network for safety and security. Compliance with each such component is of the essence to this Agreement. Hence, the Franchisee undertakes to conduct the Sea Tow Franchised Business at all times in full compliance with the System and each of its components. It is expressly understood and agreed that such services include providing marine services, including but not limited to marine assistance, towing, transportation, environmental services, salvage, battery jumps, soft ungroundings, disentanglement, reciprocal towing, fuel drop or
minor on-site repair services on a membership and non-membership basis and such other services as may be offered by franchisor to the system from time to time, in the franchisee's AOR, pursuant to Section 18.1.
9.1.1 The Franchisee shall operate the Franchised Business in an efficient and professional manner in accordance with the highest ethical and moral standards. The Franchisee shall, as well, comply with all recommendations and standards of quality and service prescribed from time to time by the Franchisor in the Manual or otherwise.
9.1.2 The Franchisee will own, lease, rent, arrange or receive for consideration, his/her dockage space, i.e., where his/her vessel(s) is/are docked, within his/her designated AOR. Such locations are subject to the Franchisor's prior written approval ("Approved Location") which will not be unreasonably withheld
9.1.3 Except for Converting Licensees and signed leases that they have prior to such conversion, if the Franchisee leases the location, the Franchisee will obtain a separate agreement from the lessor to the same effect as the following:
If Lessee, a franchisee of Sea Tow Services International, Inc. ("Franchisor"), shall be in default under any of the provisions of his/her Lease and Lessor desires to terminate the same; or if such Lessee is in default under any of the provisions of his/her Franchise Agreement with the Franchisor and the Franchisor desires to terminate the Franchise Agreement; or if Lessee desires to assign his/her Lease to the Franchisor, Lessor and Lessee agree that the Franchisor shall have the right, subject to applicable law, but not the obligation, to assume the obligations of the Lessee under the Lease upon the same terms and conditions, in which event, and upon the exercise of such right, the Franchisor will take immediate possession of the subject premises as if it was the tenant named in the Lease. Lessor shall notify the Franchisor of any default of Lessee at the same time notice is given to Lessee, and the Franchisor may, but is under no obligation to, cure the default.
9.1.4 Within 10 calendar days after the signing of any Lease, or separate agreement, the Franchisee will provide the Franchisor with a copy of same accompanied by a signed statement from the Franchisee that said Lease is the same Lease under which the Franchisee will operate the Franchise.
9.2 After execution of this Agreement and payment of the Initial Franchise Fee, the Franchisee must equip the Franchised Business, complete his/her training (as required by Section 5.3 of this Agreement), and commence operation of the Franchised Business no later than 30 days after the completion of training.
9.2.1 The Franchisee is excused from the timely performance of his/her obligations under this Section if the cause of delay is beyond the reasonable control of the Franchisee. Such cause includes strikes, fires and acts of God or other causes which the Franchisee could not, by the exercise of due diligence, have reasonably avoided.
9.3 The Franchisee will operate the Franchised Business in strict compliance with all applicable laws. To this end, the Franchisee and his/her on-water employees shall be Coast Guard licensed and have the required Assistance Towing and Radar endorsements (when applicable) on the license. Licensure shall be maintained in current form at all times. The Franchisee and his/her employees must meet the Department of Transportation laws and regulations regarding mandatory drug testing and drug program requirements. For the Franchisee and each of his/her on-water employees, copies of all documentation required by the rules of the United States Coast Guard including, where required, the license, the endorsement and proof of enrollment in a certified drug program, must be sent to the Franchisor upon execution of this Agreement, or, if subsequently issued, modified or renewed, or for each new on-water employee engaged, within 15 days following such subsequent act or engagement.
9.4 The Franchisee is required personally and directly to operate and exercise adequate and substantial supervision over the operation of the Franchised Business unless otherwise permitted in writing by the Franchisor. Approval will not be unreasonably withheld.
9.4.1 If the Franchisee is a corporation, any shareholder owning at least 50% of the issued and outstanding shares of the corporation, or the chief executive thereof, shall fulfill the requirement set forth in Section 9.4 above. If the Franchisee is a partnership, any partner owning at least 50% of the equity of the partnership shall fulfil! this requirement. Not more than 25% of any U.S. Maritime Corporation, Business, Company, Partnership, LLC, LP or the like, including the Franchisee, may at any time be owned by a foreign entity or non-citizen. Should such ownership occur, then this Agreement is deemed in immediate and incurable default.
9.5 The Franchisee shall be obligated to purchase or lease the towing vessels required by the Franchisor to be used in the operation of the Franchised Business, the specifications for which are set forth in the Manual. Vessel(s) previously approved for operation, in operation, and owned by Converting Licensees, meet these requirements, provided such vessel(s) are maintained and equipped in accordance with the Manual.
9.6 The Franchisee will (at his/her sole cost and expense) acquire computer hardware meeting the Franchisor's specifications. The Franchisee understands and acknowledges that such computer hardware is required to utilize the Sea Tow Software. The Franchisor will not require that the Franchisee purchase specific brands of hardware, but rather the Franchisor will provide system operational specifications. The Franchisor does not represent and warrant that the Sea Tow Software will run on all platforms, and has no duty to so provide.
9.7 Any vessel products, supplies and materials required for the operation of the Sea Tow Franchised Business must be purchased only from suppliers designated or approved in writing by the Franchisor. The procedures for the Franchisee's obtaining approval of alternate suppliers are set forth in the Manual. Products, supplies, materials and suppliers previously approved for operation by Converting Licensees meet such requirements, provided that the quality of same does not materially deteriorate and other products, supplies, materials and suppliers are not designated in the Manual.
9.8 The Franchisee shall offer and sell only those products and services, which are part of the System or have received the prior written approval of the Franchisor, which approval shall not be unreasonably withheld.
9.9 The Franchisee is required to comply with the policies and procedures for the selection of employees and independent contractors as set forth in the Manual.
9.10 The Franchisee will offer such continuing training programs to his/her personnel as are specified in the Manual, in accordance with Subsection 5.3.7.
9.11 The Franchisee will comply with all of the obligations regarding advertising set forth in ARTICLE 10.
9.12 The Franchisee will operate his/her Sea Tow Franchised Business during those hours prescribed in the Manual.
9.13 The Franchisor or any of its authorized agents or representatives may, upon reasonable notice, inspect the Sea Tow Franchised Business during normal business hours to determine whether it is in compliance with this Agreement and with the System. Unannounced spot checks will be conducted from time to time, although discretion will be used so as not to interfere or disrupt the normal course of business. All records will be kept confidential.
9.13.1 Further, the Franchisee understands and consents to the Franchisor's ability to access all files, data, accounts, reports and the like resulting from or relating to the Franchisee's transmission of any required reports to Franchisor via computer.
9.14 The Franchisee shall submit to the Franchisor such reports regarding the Sea Tow Franchised Business as the Franchisor prescribes in the Manual, in addition to those required under Section 8.10. All records will remain confidential, except as required by the franchise laws.
9.15 The Franchisee shall be obligated to provide towing and related services to a member of another franchisee's AOR whose transmission of a call for "Sea Tow" on the marine radio is audible in, or otherwise requests such services from the Franchisee while in the Franchisee's AOR. The Franchisee will be paid for such services from the RTF administered by the Franchisor or its designated representative, in accordance with the RTF's then current rules and regulations.
9.16 To afford the Franchisee and the Franchisor protection against insurable risks, the Franchisor shall prescribe in the Manual minimum standards and limits for insurance coverage which must be purchased by the Franchisee. The failure of the Franchisee to purchase such insurance coverage before commencement of business or to maintain such coverage throughout any Term is a ground for termination of this Agreement.
9.16.1 All insurance purchased by the Franchisee must name the Franchisor and its officers, directors and shareholders as additional named insureds and must provide that the Franchisor be given at least 30 days' prior written notice of any termination, amendment, cancellation, or modification.
9.16.2 The Franchisee must provide the Franchisor with Certificates of Insurance for all required insurance at least 10 days before the Commencement of the Business.
9.16.3 If the Franchisee fails or refuses to purchase or maintain the prescribed insurance coverage, or to comply with any other requirement set forth in Section 9.16, the Franchisor shall have the right, without waiver of any other remedies, to secure such insurance on the Franchisee's behalf, at the Franchisee's expense, through agents and insurance companies of the Franchisor's choosing, and to take all other action necessary to protect its interests under this Agreement.
9.16.4 The Franchisee is obligated to participate in the Franchisor's "Sea Spill" program. This program is administered by the Franchisor and requires the Franchisee to be in compliance with OSHA guidelines concerning qualification of its personnel to respond to local spills as a result of sinking, salvage or other spill conditions, or to assist in any regionally significant environmental event. The Franchisee has the option of becoming qualified and listed for participation in the Sea Spill United States Coast Guard Basic Ordering Agreement ("BOA"). There are two categories of environmental situations. The first category, which shall be administered solely by the Franchisor, consists of all situations in which a contract or other agreement is pre-arranged in advance of an environmental situation, including, by way of example, BOA, MARC (or other entities providing similar services), regional service agreements, marina agreements, and regional or large scale spills that are in or out of Franchisee's AOR. With respect to this first category, the Franchisor or its designee shall administer and, at the Franchisor's option, negotiate such contracts or agreements, collect all fees therefor and for any services provided thereunder, retain 20% of all such fees, and remit to the Franchisee its 80% portion for its services. No contracts or agreements that fall within this first category shall be administered by the Franchisee, nor negotiated or entered without the Franchisor's consent to such administration rights and duties. The second category, which shall be administered solely by the Franchisee without the Franchisor's involvement and without fees to the Franchisor under this Subsection, consist of local spills or spill work related to salvages performed by the Franchisee, where there is no pre-arranged agreement in place in advance of the environmental situation.
9.17 Each of the parties hereto will act in good faith and use his/her best efforts to comply with his/her obligations under this Agreement, and will cooperate with the other in accomplishing the purposes of this Agreement. Further, the Franchisee shall not directly or indirectly engage in any activities which would be detrimental to or interfere with the operation or reputation of the Sea Tow Franchised Business, the Franchisor, the System, or the operations of any other franchisee.
9.18 Upon execution of this Agreement, the majority owners of the Franchisee (if a corporate entity), the General or Managing Partner (if a limited partnership) or the individual partners (if a standard partnership) shall each execute the Guaranty in the form annexed hereto as Exhibit F of all obligations, including payment of money under this Agreement. The Franchisor agrees that unless the Franchisee is guilty of having misappropriated trust money or otherwise unjustifiably or willfully breached any material term of this Agreement, it will not seek enforcement of its right to money damages against the primary residence of any guarantor under this Subsection.
ARTICLE 10 ADVERTISING
10.1 The Franchisee shall use for his/her advertising and promotional activities only those materials, concepts and programs which have been furnished or approved in advance by the Franchisor by specification in the Manual or otherwise. Approval will not be unreasonably withheld.
10.2 The Franchisor shall maintain and administer a franchisee National Marketing Fund (the "NMF") for national advertising and promotional programs created in accordance with paragraph 10.2.1. The responsibility for creation and administration of the NMF shall remain with the Franchisor. Advertising and promotional activities conducted by the NMF shall be funded by National Marketing Fees paid by the franchisees in trust to the Franchisor. Funds will be held in a separate account marked "NMF." The NMF shall be used first to cover Lifelines under Section 5.12 and thereafter to approved programs in accordance with paragraph 10.2.1.
10.2.1 The Franchisor shall establish the National Marketing Council ("NMC") consisting of the Franchisor and up to twelve (12) regional franchisee representatives (expandable by the Franchisor to the extent required by expansion of its business), subject to By Laws which shall be promulgated by the NMC in cooperation with the Franchisor and in a manner consistent with this Subsection. The NMC will direct all marketing programs in its sole discretion with respect to the adoption of the concepts, materials and media used in such programs, as well as the placement and allocation of all advertisements, subject to the prior consent of the Franchisor which consent shall not be unreasonably withheld. At each Annual Meeting, representatives will be voted into the office of regional representatives based upon a majority of those attending Franchisees for each region. Thereafter, the NMC must meet at least quarterly and vote, by majority, on programs and expenditures to be made by the Franchisor from the NMF. The Franchisor shall use its best business efforts to administer the fund on a daily basis in accordance with the quarterly directives of the NMC. In the absence of prior direction by the NMC, the Franchisor shall exercise its best independent business judgment as a fiduciary of the NMF.
10.2.2 The NMF must further the general public's recognition and acceptance of the Sea Tow Trademarks, Sea Tow Know How, Sea Tow Copyrights, and all other aspects of the System. The Franchisor is not obligated in administering the NMF to make expenditures for the Franchisee which are equivalent or proportionate to the Franchisee's contributions thereto, or to insure that any particular franchisee benefits pro rata from the placement of national advertising.
10.2.3 The NMF may be used to meet any and all costs and expenses related to national promotional activities as approved by the NMC, subject to first such use applied to Lifelines under Section 5.12.
10.2.4 All sums paid by franchisees to the NMF, and any income earned thereon, shall be maintained by the Franchisor in a segregated account and shall be used only for the purposes specified herein; provided, however, that up to 10% of the NMF may be reimbursed to the Franchisor for actual, substantiated administrative costs and overhead related to the administration or direction of the NMF. Franchisor shall, within 60 days following the close of its fiscal year, prepare and distribute to all franchisees an audited statement detailing NMF income and expenses for the fiscal year then ended. An up-to-date report will be given at the Annual Meeting. The costs of the audited statement and report shall be born by the NMF.
10.3 The Franchisee acknowledges that the proper conduct of all promotion programs is not only necessary to the success of the Franchised Business, but is also likely to affect the goodwill and reputation of the Franchisor, the Sea Tow Trademarks, and that of the System. It is therefore agreed as follows:
10.3.1 To promote the value of the Franchised Business and the reputation of the Franchised Business generally, as stated under Section 8.4, the Franchisee shall spend a minimum of 12% of Gross Revenue per year on local promotions in his/her AOR, utilizing materials and programs developed by the Franchisor and such other programs as may have been approved by the Franchisor. The Franchisee shall provide proof of these expenditures, on a monthly basis, with monthly recordings in the accounting system, as set forth in ARTICLE 11.
10.3.2 The Franchisee will not use any advertising or sales promotion materials of any kind other than those approved and/or produced and distributed by the Franchisor, or conduct any print or broadcast advertising, or any promotion, without first obtaining the approval of the Franchisor. Such approval shall not be unreasonably withheld, and the Franchisor must act promptly to review the Franchisee's request for approval. After confirmation of receipt, the Franchisor will approve or disapprove within 10 days. Silence will indicate approval. All existing programs will be reviewed on an annual basis.
10.3.3 The Franchisee shall list separately or participate in an advertisement in the Yellow Pages or equivalent of the Franchisee's local telephone directories, containing such copy as may reasonably be specified by the Franchisor. The cost of such listing will be paid by the Franchisee, or by the Franchisee and other participating franchisees in the case of a joint listing. The Franchisor will not specify any unreasonably expensive listing. The Franchisee will apply the fees for this advertisement against the expenditures required for local advertising under Section 10.3.1.
ARTICLE 11 REPORTING AND FINANCIAL MANAGEMENT REQUIREMENTS
11.1 The Franchisee will keep true and accurate records, including those which may be specified by the Franchisor from time to time, from which all sums payable under this Agreement and the dates of accrual thereof may be readily determined. The Franchisee will keep sUch records on his/her business premises at all times, unless the Franchisor permits them to be kept at another location. In any event, the Franchisee shall at all times inform the Franchisor of any change in the location of the Franchisee's records. The Franchisee will make these records available to the Franchisor at the business premises during normal business hours.
11.2 The Franchisee agrees to utilize such reporting and financial control systems as the Franchisor may reasonably direct.
11.2.1 The Franchisee will maintain on forms approved or provided by the Franchisor, a monthly sales report and monthly profit and loss statement accurately reflecting the operations and condition of the Franchised Business.
11.2.2 The Franchisee will employ such methods of filing, record-keeping, bookkeeping, accounting and reporting as the Franchisor may from time to time reasonably require.
11.2.3 The Franchisee will adopt and shall strictly adhere to such methods for control and protection of cash receipts (and of records pertaining thereto) as the Franchisor may from time to time direct.
11.3 To enable the Franchisor to verify the royalties, payments and contributions due hereunder and to monitor the progress of the Franchisee and the Franchisee's compliance with this Agreement, in addition to reports otherwise required under this Agreement, the Franchisee will provide to the Franchisor quarterly written reports in such form as the Franchisor may prescribe.
11.3.1 The Franchisee will also have prepared and frirnished to the Franchisor each year the Franchisee's annual financial statements, consisting of a balance sheet, statement of earnings or loss, and statement of changes in financial position, including all notes to all such statements and any schedules of partners' or shareholders' capital. Such statements must be compiled, reviewed by a certified public accountant ("CPA") admitted to practice accountancy in the state in which the AOR is situated, and must be published on the stationery of, and signed by, the CPA. The annual statements must be furnished to the Franchisor no later than 90 days following the close of Franchisee's fiscal year. All accounting must be on a cash basis. Should the Franchisee be deemed by the Franchisor to have under-reported or improperly reported or paid (as determined under Section 11.4 or Subsections 11.4.1 or 11.4.2) by 2% or more on at least two occasions, the Franchisor may, at its sole discretion, require that all future statements provided by Franchisee be audited by the CPA.
11.3.2 If the Franchisee fails for any reason to provide any of the reports herein above required within the prescribed time, the Franchisee will pay a late reporting charge of $50.00 for each month (or week, if
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