JAVA DETOUR MASTER FRANCHISE AGREEMENT FOR THE MIDDLE EAST
JAVA
DETOUR
FOR
THE MIDDLE EAST
TABLE
OF CONTENTS
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1.
PURPOSE
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3
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2.
GRANT OF MASTER FRANCHISE; ASSIGNMENT
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3
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3.
PARTY REMUNERATION
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7
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11
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5.
MASTER FRANCHISEE'S COVENANTS
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13
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6.
TRADE SECRETS
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20
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7.
REPRESENTATIONS OF MASTER FRANCHISEE
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21
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8.
ADVERTISING
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22
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9.
SYSTEM STANDARDS
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22
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10.
MARKS AND PROPRIETARY RIGHTS
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24
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11.
REPORTS AND RECORDS
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26
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12.
ASSIGNMENT OF RIGHTS
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27
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13.
TERM AND EXPIRATION
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30
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14.
DEFAULT AND XXXXXXXXXXX
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00
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00.
RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
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34
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16.
RESTRICTIVE COVENANTS
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35
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17.
INSURANCE
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36
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18.
ENFORCEMENT
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37
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19.
MISCELLANEOUS PROVISIONS
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40
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EXHIBIT
A: TERRITORY
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EXHIBIT
C: MARKS
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EXHIBIT
D: ELECTRONIC FUND WITHDRAWAL AUTHORIZATION
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EXHIBIT
E: FRANCHISEE APPROVAL CRITERIA
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EXHIBIT
F: CONFIDENTIALITY AND NON COMPETITION AGREEMENT
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2
THIS
MASTER FRANCHISE AGREEMENT (the "Agreement") is made this 30th
day of
March, 2007 by and between Java Detour, a California corporation, with its
principal place of business located at 0000 Xxxxxx Xxxxxx, Xxxxx X-000, Xxxxx
XX, 00000 (the "Franchisor") and Java Universe, LLC, a California Limited
Liability Corporation with its principal business address at 0000 Xxxxxx Xxxx.,
Xxx Xxxxxxx XX 00000 ("Master Franchisee") who, on the basis of the mutual
covenants promises and agreements contained herein, agree as
follows:
1. PURPOSE
1.1
The
Franchisor has expended a considerable amount of time, effort, and money to
develop a proprietary business system for the retail sale of hot and cold
gourmet and specialty coffee drinks, specialty teas, cold blended beverages,
fruit smoothies and other non-alcoholic beverages, and the sale of baked goods,
coffee beans, dry tea and related merchandise through coffee shops (“Shop” or
“Store”), the distinguishing characteristics of which include special recipes
and methods of food and beverage preparation, the option of a special drive
through restaurant format, recognized designs, color schemes, copyrighted
materials, management and operational procedures, and standards and
specifications for product quality, and customer services, all of which the
Franchisor may improve from time to time (the "System").
1.2
The
System is identified by the xxxx "Java Detour" and other trademarks, service
marks, logos and other indicia of origin which Franchisor has designated or
may
in the future designate, including the marks listed in Exhibit C to this
agreement, for use in connection with the System and other copyrighted material,
such as its operations manual (collectively the "Marks"). The Franchisor has
the
exclusive right outside of the United States of America to use the Java Detour
Marks, products and its system in order to own and operate and to enter into
master license agreements and franchise agreements authorizing others to own
and
operate businesses which would operate under the Marks.
1.3
The
Franchisor grants franchises to use the Marks and System to individuals and
entities who develop and operate Java Detour gourmet coffee shops
("Franchisees").
1.4 The
Master Franchisee desires to operate Master Franchisee-owned Shops within the
area referenced in Exhibit A attached to this Agreement ("Territory") and to
license others to act as Franchisees in the Territories, under the terms and
conditions contained in this Agreement.
2.
GRANT
OF
MASTER FRANCHISE; ASSIGNMENT
2.1 Grant.
Subject
to the terms and conditions contained in this agreement and any laws or
regulations of the United States of America governing this Agreement, Franchisor
grants exclusively to Master Franchisee, and Master Franchisee accepts from
Franchisor, the right to use the Marks and the System in connection with
operating Master Franchisee-owned Shops and licensing the right to others to
own
and operate Shops within the Territory. The rights that are hereby granted
to
the Master Franchisee are for the enumerated Territory and cannot be transferred
from or used outside of such Territory, nor can the boundaries
thereof be altered or modified, without the prior written approval of the
Franchisor. The Master Franchisee acknowledges that its continued exclusivity
with respect to the licensing of Java Detour Franchises in the Territory is
dependent upon the Master Franchisee's continued, substantial compliance with
all terms and conditions of this Agreement during its initial and any renewal
terms, including compliance with the Mandatory Development Schedule and any
Additional Mandatory Development Schedules. The franchise granted pursuant
to
this Agreement shall sometimes be referred to as the "Master Franchise."
3
2.1.1 Notwithstanding
the foregoing grant, in the event that Xx. Xxx Xxxxxx (the “Prospect”) purchases
a Master Franchise for the right to use the Marks and the System within Saudi
Arabia, Kuwait, and Egypt from Franchisor within sixty (60) days of signing
this
Agreement, Master Franchisee agrees to relinquish its rights in the said
countries in exchange for the greater of $500,000 or 50% of the proceeds
received by Franchisor from the sale, net of all withholding and other taxes
(“Relinquishment Fee”). Such Relinquishment Fee is payable upon receipt of the
full purchase price from the Prospect.
2.1.2 The
parties agree that in the event the Franchisor is unable to register its
offering in the State of California within six (6) months of signing this
Agreement, that the Agreement may be terminated by either party with notice
pursuant to Section 14.2 below.
2.1.3 Master
Franchise acknowledges that Master Franchisee is a California limited liability
corporation being granted the right to operate a Master Franchise outside of
the
State of California, in the Territory delineated in Exhibit A to this Agreement.
Moreover, Master Franchisee acknowledges that all sales, leases or other
transactions between the Master Franchisee and its customers and/or franchisees
will occur in the Lebanese Republic and/or within the Territory. Master
Franchisee further acknowledges that it will manage the Master Franchise from
the Lebanese Republic.
2.1.4 In
consideration of the grant of this Master Franchise, Master Franchisee, its
officers, directors, agents, and affiliates agree to immediately assign to
Franchisor upon execution of this agreement, all rights and ownership interests
they may have in trademark registrations or registration applications filed
within or outside of the Territory in relation to Franchisor’s: (a) Marks; (b)
logos; (c) copyrighted material; and/or (d) other proprietary information.
Master Franchisee, its officers, directors, and affiliates further agree to
refrain from obtaining registrations for Franchisor’s Marks, logos, copyrighted
material, or other proprietary information without Franchisor’s prior written
consent. Any such registrations or registration applications filed or submitted
on behalf of Master Franchisee shall be immediately assigned to Franchisor,
without compensation. Franchisor agrees to use its best efforts to obtain
registration of the Marks within the Territory upon executing this Agreement.
Master Franchisee acknowledges that, as of the date of this Agreement,
Franchisor has not registered its Marks with the relevant authorities within
the
Territory. The parties agree that upon execution of this Agreement, the
Franchisor shall use its best efforts to obtain the state registrations. Master
Franchisee agrees that it has no right to terminate this agreement as a result
of Franchisor’s failure to obtain registration for its Marks within any portion
of the Territory.
2.2
Franchise
and Agreements.
For
each Java Detour franchise developed in the Territory, a separate franchise
agreement ("Franchise Agreement") will be executed between the Master Franchisee
and each Franchisee. The separate Franchise Agreements to be executed hereunder
shall include provisions obligating each Franchisee to protect and defend
Franchisor's rights in and to the Marks and the System and to protect and
enhance the quality of and goodwill associated with the Marks and the System
by
including provisions reflecting obligations comparable to those of the Master
Franchisee hereunder, as set forth in: Section 2.3 (reservation of rights by
the
Franchisor); Article 6 in its entirety (Trade and Industrial Secrets), Article
9
in its entirety (System Standards), and Article 10 in its entirety (Marks and
Proprietary Rights). In addition,
each Franchise Agreement shall contain a provision enabling the Franchisor
to
exercise its right to acquire the rights of the Master Franchisee under each
Franchise Agreement as set forth in Section 14.5 of this Agreement.
4
2.2.1. The
Master Franchisee shall be responsible for revising the provisions of Franchise
Agreements for Franchisees if necessary to comply and be consistent with (a)
the
laws and regulations applicable in the Territory, and (b) Franchisor’s
then-current form of franchise agreement. All changes to the document must
be
approved of in writing by Franchisor prior to use or registration with any
governmental authority, which approval shall not be unreasonably withheld.
2.2.2. Master
Franchisee agrees to register and thereafter maintain effective its registration
with applicable governmental authorities in the Territory, as required, for
the
term of this Agreement and any subsequent renewal periods; except that
Franchisor shall be responsible for and shall bear the cost of registering
the
Marks within the Territory. The Franchisor shall not be a party to Master
Franchisee’s individual franchise agreements except as an express third party
beneficiary. The Master Franchisee agrees to submit its proposed forms of
Franchise Agreement to the Franchisor and to obtain the Franchisor's written
approval of such forms before it registers such documents with the relevant
state authorities and before the Master Franchisee uses any such agreements
in
the Territory.
2.2.3. Master
Franchisee agrees sign a separate Franchise Agreement for each Store it wishes
to own and operate in the Territory, which form of agreement must be approved
of
in writing by Franchisor and in which Franchisor must be listed as an express
third party beneficiary with enforcement rights.
2.3
Rights
Reserved to Franchisor.
The
foregoing grant to Master Franchisee does not include: (i) any right to offer
any products or services, or franchises, via e-commerce; (ii) any right to
establish an independent website or to establish a URL incorporating the Marks
or any variation thereof; or (iii) any right to distribute, market, or implement
Franchisor’s products and services in any channel of distribution not
specifically identified in this Agreement. Notwithstanding anything herein
to
the contrary, the Franchisor and its affiliates reserve the rights, among
others: (1) to use, and to license others to use, the Marks and System in
connection with the operation of Java Detour Stores, at any location other
than
in the Territory; (2) to operate and grant others the right to operate similar
Stores (but not to sell coffee or tea) under different marks inside the
Territory; (3) to use the Marks within the Territory in alternative forms of
distribution for selling Franchisor’s products and services including, but not
limited to, the sale of its products and services through via the Internet
or
mail order catalog, without regard to location; and (4) to engage in any
activities not expressly prohibited by this Master Franchise Agreement.
2.3.1. Franchisor
agrees that it will not undersell Master Franchisee on coffee and tea products
sold within the Middle East via the above alternative forms of distribution.
2.3.2. Moreover,
Master Franchisee shall have a right of first refusal to engage in the
activities described in subsection (iii)(3) of Section 2.3, excluding e-commerce
and mail order catalog, at an exercise price to be negotiated by the parties.
5
2.4 Additional
Territories.
Master
Franchisee may purchase additional Master Franchise Territories under the
following conditions
2.4.1 Master
Franchisee is in compliance with all the terms and conditions of this and any
other agreement with Franchisor or Franchisor’s affiliates at the time of
requesting an additional Territory and Master Franchisee has substantially
complied with the terms of this Agreement and with the operating standards
and
criteria established by Franchisor through the initial term and any renewal
term
of this Agreement;
2.4.2.
Master
Franchisee has satisfied all monetary obligations owed to the Franchisor,
its affiliates, and major suppliers;
2.4.3. Master
Franchisee is in substantial compliance with all other agreements between Master
Franchisee and Franchisor or its affiliates;
2.4.4. There
are
a minimum of 2 Shops open and operating in the Territory and Master Franchisee
has met or exceeded the requirements of the of the Mandatory Development
Schedule and/or Additional Mandatory Development Schedules (as applicable)
set
forth in 5.1;
2.4.5. The
additional territory the Master Franchisee wishes to purchase is available;
2.4.6. The
Master Franchisee agrees to execute Franchisor’s then current Master Franchise
Agreement for the additional Territory and Franchisor’s then current Single Unit
Franchise Agreement for a Shop located within the additional territory;
and
2.4.7.
The Master Franchisee has demonstrated that its financial, entrepreneurial,
and
managerial capability conform to Franchisor’s then-current standards for
granting Master Franchises within the proposed new territory.
2.4.8. In
any
event, Franchisor may withhold or condition Franchisor’s consent to granting any
additional Territory as Franchisor deems appropriate.
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2.5.
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Governmental
Approvals
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2.5.1. Required
Modifications to The Agreements.
The
Master Franchisee agrees to execute any and all instruments and documents,
render such assistance, and otherwise cooperate with Franchisor in order to
obtain all governmental approvals necessary, in the opinion of Franchisor’s
counsel, to comply with the laws and regulations of the United States and the
laws of the Territory relating to the formation and performance of this
agreement and any franchise agreements Master Franchisee may execute with
franchisees within the territory. At its option, Franchisor shall have the
right
to submit, or require the Master Franchisee to submit, this Agreement,
Franchisor’s form of Franchise Agreement, Area Development Agreement, and/or
Deposit Agreement, Franchisor’s Confidential Operations Manual, and Master
Franchisee’s form of Franchise Agreement (collectively the “Agreements”) to any
governmental entity or agency (the "Agency") for registration or approval of
any
clause thereof in the event that Franchisor determines such registrations or
approvals are necessary in order to comply with the laws and regulations, local
ordinances, etc. of the United States and the Territory. If any Agency requires
that any amendments be made to the Agreements as a condition of Agency approval,
Franchisor will deliver to Master Franchisee for execution an addendum to any
or
all of the Agreements, or other appropriate documents, to reflect such
amendments.
6
2.5.2. Costs
of Compliance.
Notwithstanding any other contrary provision contained herein, Master Franchisee
shall pay all costs and expenses necessary to comply with the requirements
of
any governmental agency with authority over Franchise Agreements or License
Agreements.
2.5.3. Compliance
with Legal Requirements and Good Business Practices.
Master
Franchisee shall secure and maintain in force in its name all required licenses,
permits, and certificates relating to the conduct of the Master Franchise
pursuant to this Agreement, and shall bear all costs associated with the same;
except that Franchisor shall be responsible and shall bear the cost of
registering its Marks with the relevant governmental authorities within the
Territory. Master Franchisee shall at all times comply with any “Legal
Requirements.” “Legal Requirements” include, any and all applicable laws,
ordinances, regulations, rules, administrative orders, decrees and policies
of
any government, governmental agency or department pertaining to the formation
and performance of this Agreement, including, but not limited to, the
governments of the Territory and the United States of America.
2.5.4. Translation.
If
English is not the principal language within the Territory, Master Franchisee
agrees to translate the Agreements into the primary commercial language of
the
Territory. Master Franchisee agrees to submit a copy of any translation of
the
Agreements, and the English version upon which they were based, to the
Franchisor for its approval prior to use in the Territory or submission to
a
governmental authority, which approval shall not be unreasonably withheld.
Franchisor reserves the right to approve of any of the Agreements as modified
by
the Master Franchisee, which approval shall not be unreasonable withheld. Master
Franchisee does hereby assign to Franchisor any copyright ownership interest
the
Master Franchisee may acquire in the future to any modifications to the
Agreements, as well as any copyright ownership interest Master Franchisee may
acquire now or in the future in any translation(s) of any Agreements.
3.
PARTY
REMUNERATION
3.1
Franchisor
Remuneration
Master
Franchise Fee.
The
Master Franchisee acknowledges and agrees that in developing the System, the
Franchisor has made and continues to make substantial investments of time,
capital, and technical and commercial research. In consideration of the rights
granted under this Agreement to use the System, Marks, confidential information
and trade secrets to be provided by the Franchisor, the Master Franchisee agrees
to pay the Franchisor a Master Franchise fee of Four Hundred Thousand United
States Dollars ($400,000.00 US) at closing. In addition, Master Franchisee
shall
pay Five Hundred Thousand United States Dollars ($500,000 US) upon the
Prospect’s purchase of a Master Franchise as specified in 2.1.1 where the
proceeds to Master Franchisee will be equal to or greater than
$500,000.
Should
the Prospect decline to purchase a Master Franchise as specified in Section
2.1.1, notwithstanding any other provision of this agreement, Master Franchisee
will not be required to tender the remaining Five Hundred Thousand United States
Dollars ($500,0000 US) until and unless Franchisor has registered or licensed
its marks under this agreement, thereby allowing Master Franchisee to be able
to
conduct business in all of the Territories listed subject to this agreement,
but
no later than 6 months from the signing of this Agreement. The
Master Franchisee acknowledges and agrees that the Master Franchise fee
represents payment for the initial grant of the rights to use the Marks and
System, for the Franchisor's foregone opportunity to use or license those rights
and benefits granted to the Master Franchisee hereunder, that the Franchisor
has
earned the Master Franchise fee upon receipt thereof and that the Master
Franchise fee is under no circumstances cancelable after it is granted to the
Franchisor, regardless of whether the Master Franchisee ever receives payment
of
the full amount of any initial franchise fee from a Franchisee or whether the
franchise agreement between a Franchisee and the Master Franchisee is terminated
for any reason other than termination as a result of Franchisor’s inability to
license or register all the Territories, leaving Master Franchisee unable to
legally conduct business as specified under this Agreement in those
territories.
7
3.1.1 Stock
Option
Franchisor shall grant to persons designated by Master Franchisee, which number
of persons shall not exceed 35, six
hundred thousand (600,000) options to purchase shares
of
Java Detour, Inc. common stock at one dollar ($1.00) per share (the “Stock
Options”). Immediately upon signing this agreement, Franchisor will issue
to the persons designated by Master Franchisee Stock
Option Agreements for the purchase of six hundred thousand (600,000) shares
at
one dollar ($1.00) per share. The Stock Options will
have
a term of ten (10) years and will be subject to the terms and conditions of
the
Java Detour, Inc. 2006 Equity Incentive Plan. Each person that receives a Stock
Option shall be a human being, and not a corporation, partnership, trust, or
other legal entity, and shall provide the representations and execute the
certificate set forth in the attached Exhibit G. The exercise price shall become
immediately due upon exercise of the option and shall be payable in cash or
check made payable to the Franchisor. Master Franchisee shall have the
right to assign a portion or all of its rights under the Stock Option Plan
to
the Individual or Individuals of its choice, provided, however, that the number
of assignees shall not exceed 36 Individuals.
For purposes of this subsection 3.1.2, Individual shall refer to a human being,
and does not include a corporation, partnership, trust, or other legal
entity.
Java
Detour is a public company, subject to SEC rules and regulations, and must
conform to those regulations in issuing Stock, Options, or rights to
Individuals, and therefore there will be no dilution of Master Franchisee’s
Stock Options without prior written notice to Master Franchisee, and no
additional stock will be issued by Franchisor without Franchisor’s Directors’
approval.
3.1.2 Royalties.
On the
10th
day of
each month during the term of this Agreement, Master Franchisee shall pay to
the
Franchisor a continuing royalty fee (“Royalty”) equaling 2% of Gross Revenues
achieved by all of the Shops in the Territory, as well as retail and other
means
of distribution, whether Master Franchisee-owned or otherwise, during the prior
month. Gross Revenue is defined as the total amount of money received by any
Shop for all the goods and services rendered by those Shops of any nature
whatsoever, as well as retail and other means of distribution. Gross Revenue
does not include sales taxes or value added taxes if such taxes are collected
at
the time of the sale directly from the customer, are stated separately when
the
customer is charged, and Master Franchisee pays such amounts as and when due
to
the appropriate taxing authority. Franchisor acknowledges that Master Franchisee
retains the right to charge a royalty fee of 2% on all gross revenues achieved
by all Shops in the Territory, in addition to the 2% it collects on behalf
of
Franchisor.
8
3.1.3 Gross
Revenue Report.
On the
5th
day of
each month, Master Franchisee shall submit a signed gross revenue report
outlining the Gross Revenue achieved by each Store within the Territory during
the previous calendar month, as well as Master Franchisee’s calculation of
Royalty fees and any other payments due to Franchisor, and any other payments
due under this Agreement, as well as any other information Franchisor may
reasonably require in the form Franchisor specifies (“Gross Revenue Report”).
Franchisor reserves the right to change the form and content of the weekly
Gross
Revenue Report from time to time upon written notice to the Master Franchisee.
3.1.3 Levies
and Taxes.
All
payments by the Master Franchisee to the Franchisor shall be made without any
deduction for any taxes, except that the Master Franchisee shall deduct and
pay
to the appropriate taxing authorities, on behalf of the Franchisor, any amount
which the Master Franchisee is required to withhold under any laws in the
Territory on payments made by the Master Franchisee to the Franchisor. Master
Franchisee and Franchisor shall bear equally the cost of such withholding taxes.
The Master Franchisee shall transmit to the Franchisor official receipts for
payment of all taxes withheld. If the Master Franchisee fails to withhold or
pay
such taxes, it shall indemnify the Franchisor for the full amount of such taxes
and for any loss or liability occasioned by the Master Franchisee's failure
to
withhold as required by law, including, but not limited to, any penalties,
interest, and expenses incurred by the Franchisor.
3.2 Franchise
Fee.
Master
Franchisee shall pay Franchisor $5,000 (the “Franchise Fee”) whenever the Master
Franchisee signs a Franchise Agreement with a Franchisee in the Territory during
the term of this Agreement and Master Franchisee may retain any Franchise Fee
in
excess of such $5,000. The Franchise Fee is payable within 5 business days
after
a Franchisee signs a franchise agreement, the terms of which Franchisor has
previously approved in writing. After the 100th
Store is
open within the Territory, the Franchise Fee is waived on any subsequent
Franchisees recruited in the Territory for the remaining term
of
this Agreement,
and
Master Franchisee shall retain the remainder of the initial franchise fee it
charges to its franchisees.
3.3 Advertising
Fee.
On the
10th
day of
each month during the term of this Agreement, Master Franchisee must make a
payment equaling 1% of its Gross Revenue during the previous month, or the
monthly minimum Advertising Fee of $100, whichever is greater. Franchisor has
the right, but not the obligation, to increase or decrease the minimum
Advertising Fund contribution each year, provided that it shall not increase
the
minimum Advertising Fund Contribution by more than 20% in any given year.
Franchisor may, at its sole discretion, use Advertising Fee payments to solicit
franchisees, increase brand recognition, or engage in any other business not
expressly prohibited by this Agreement; except that Franchisor shall use 50%
of
all Advertising Fees received, net of taxes, to engage in advertising,
promotional, and public relations activities within the Territory.
3.4 Currency
Payment.
Payments
by Master Franchisee to Franchisor hereunder shall be made in United States
Dollars unless otherwise specified by Franchisor. All payments hereunder to
be
calculated in the currency of the various countries encompassed in the Territory
and converted into Dollars for payment to Franchisor shall be converted at
the
spot currency rate announced by CITIBANK as of 10:00 a.m. Eastern USA time
on
the date payment is transmitted; provided, however, that, in the event a payment
is transmitted after the date payment is due, the currency exchange rate used
shall be the rate as of the date payment was due or the rate as of the date
the
payment is transmitted, whichever rate produces the larger amount in the
currency of payment. All payments shall be submitted electronically (e.g. bank
transfer) or as otherwise directed by Franchisor to a bank of Franchisor’s
choosing located in the United States or elsewhere. Master Franchisee shall
execute all agreements and consents reasonably necessary to effectuate
electronic payment. Master Franchisee shall pay for all costs related to the
transfer of funds to Franchisor.
9
3.5 Payment
by Electronic Transfer.
Franchisor shall receive payment of Master Franchisee’s monthly Royalty fees and
any other payments due to the Franchisor, in United States Dollars (“Dollars”)
in immediately available funds acceptable to Franchisor, by electronic fund
transfer to Franchisor’s bank account at a bank designated by Franchisor in the
metropolitan area in which Franchisor’s corporate headquarters is located, or at
such other place in the United States or in the Territory, and in such other
manner as Franchisor may designate in writing to Master Franchisee. If at any
time exchange controls are imposed between the any of the countries which are
encompassed by the Territory and the United States such that Master Franchisee
is prevented from making any payment due under this Agreement or any other
agreement between Master Franchisee and Franchisor, Master Franchisee agrees
to
use its best efforts to provide alternative methods and United States sources
of
funds so that Franchisor (or its designated party, as applicable) receives
the
payments at the times and in the manner provided for in this Agreement. Master
Franchisee shall execute all agreements and consents reasonably necessary to
effectuate electronic payment. Master Franchisee shall pay for all costs related
to the transfer of funds to Franchisor. The dollar amount of any payment shall
be determined by Franchisor on the basis of Master Franchisee’s reports or on
Franchisor’s own information about Master Franchisee’s Gross Revenues and the
Gross Revenues of Stores within the Territory, and debited to Master
Franchisee’s account on the date for payment set forth above (if it is not a
business day, than on the next business day). Franchisor reserves the right
to
change the currency, time, and method of payment from time to time, upon written
notice and thirty days to conform, to Master Franchisee.
3.6
Exchange
Controls.
Master
Franchisee shall use its best efforts to obtain any consents or authorizations
that may be necessary in order to permit timely payments in Dollars of all
amounts payable hereunder. If at any time, any legal restriction is imposed
upon
the purchase of Dollars or the transfer to or credit of a non-resident company
with payments in Dollars, Master Franchisee shall notify Franchisor immediately.
While such restrictions are in effect, Franchisor may require payment in any
currency designated by Franchisor that is available to Master Franchisee or,
at
Franchisor’s option, may require Master Franchisee to deposit all amounts due
but unpaid as a result of such a restriction in any type of account, in any
bank
or institution in the Territory designated by Franchisor, or in the form of
products or services available to Master Franchisee or its affiliates at the
actual cost of such products or services to Master Franchisee or its affiliates.
Franchisor shall be entitled to all interest earned on such deposits. If payment
is made in products or services, Master Franchisee agrees to deliver such
products or services to Franchisor or its designated agent or shipper within
the
Territory. All costs incurred by Master Franchisee in complying with this
Section 3.5 is the responsibility of Master Franchisee.
3.7. Withholding
Taxes.
In the
event that any amounts payable by Master Franchisee to Franchisor hereunder
are
subject to withholding taxes that Master Franchisee is required to deduct from
such payments, the parties shall equally bear the cost of such withholding
taxes. Master Franchisee agrees to promptly notify Franchisor of the amount
due,
submit the withholding tax payments in a timely manner, and deliver to
Franchisor receipts of applicable governmental authorities for all such taxes
withheld or paid. All other taxes payable as a result of Master Franchisee’s
transfer of funds shall be Master Franchisee’s sole responsibility. Master
Franchisee shall be responsible for and shall indemnify and hold Franchisor
and
its affiliates harmless against any penalties, interest and expenses incurred
by
or assessed against Franchisor or its Affiliates as a result of Master
Franchisee’s failure to withhold such taxes or to timely remit them to the
appropriate taxing authority. Master Franchisee agrees to fully and promptly
cooperate with Franchisor to provide such information and records as Franchisor
may request in connection with any application by Franchisor to any taxing
authority with respect to tax credits, exemptions or refunds available for
any
withholding or other taxes paid or payable by Master Franchisee.
10
3.8. Liability.
Franchisor shall have no liability for any sales, value added, use, service,
stamp duty, occupation, excise, gross receipts, income, property, payroll or
other taxes, whether levied upon this Agreement, Master Franchisee, one or
more
of Master Franchisee’s properties, or upon Franchisor, in connection with the
business conducted by Master Franchisee (except any taxes that Franchisor is
required by law to collect from Master Franchisee with respect to purchases
from
Franchisor). Payment of all such taxes shall be the responsibility of Master
Franchisee.
3.9.
Interest
on Late Payments.
Any
payment not received by Franchisor when due will bear interest at eighteen
percent (12%) per year, or at the highest rate allowed by applicable law on
the
date when payment is due, which-ever is less. Interest charges on late payments
are intended to partially compensate Franchisor for loss of use of the funds,
and for internal administrative costs resulting from late payment which would
otherwise be difficult to measure precisely. Imposing the late payment charge
should not be construed as a waiver of Franchisor’s right to timely payment.
Master Franchisee acknowledges that this Section 3.7 shall not constitute
Franchisor’s agreement to accept such payments after same are due or a
commitment by Franchisor to extend credit to, or otherwise finance Master
Franchisee’s business operated pursuant to this Agreement. Master Franchisee
acknowledges that its failure to pay all such amounts when due shall constitute
grounds for termination of this Agreement notwithstanding the provisions of
this
Section.
3.10 Stamp
Duties.
If
required by laws of any of the countries encompassed by the Territory, Master
Franchisee shall within the time prescribed by applicable law, submit an
executed copy of this Agreement to each governmental agency within the Territory
responsible for the assessment of stamp duty or comparable duties or taxes
for
the purposes of assessing or obtaining an opinion as to the stamp duty payable
on or in respect of this Agreement and Master Franchisee agrees to pay all
stamp
duties and comparable duties and taxes (including any penalties for late
payment) assessed to be payable on or in respect of this Agreement.
3.11 Proof
of Amounts Due.
If
required by law of any of the countries encompassed by the Territory, a
certificate issued under the hand of the current President or Vice President
of
the Franchisor, stating the amount due at the date of the certificate as well
as
any interest due calculated in accordance with the terms of this Section 3.
shall be conclusive proof of the amount and interest calculated thereon due
at
the time of the certificate. It shall not be necessary for the Franchisor to
prove the appointment of the person signing, his/her signature, his/her
authority so to sign or the amount(s) and interest rate stated in the
certificate.
4.
FRANCHISOR'S
OBLIGATIONS The duties to be performed by the Franchisor in connection with
the
Master Franchise program will include the following:
4.1
Franchisor will provide Master Franchisee and one appointed Master Franchisee
representative with training in franchise sales, franchise operations, real
estate, franchisee schooling, and store level operations. Master Franchisee
and
its appointed representative must complete this special training to Franchisor’s
satisfaction prior to beginning operations, and within 2 months of executing
this Agreement. Training shall be conducted at the location designated by
Franchisor. In addition, Master Franchisee and its appointed representative
must
complete initial franchisee training to Franchisor’s reasonable satisfaction
prior to beginning operations.
11
4.2. The
Franchisor will provide newsletters, ad slicks and other advertising materials,
as they may be available from time to time. Master Franchisee shall be
responsible for the cost of modifying such advertisements for use in the
Territory and obtaining Franchisor’s written consent to such modifications prior
to use in the Territory, which shall not be unreasonably withheld.
4.3 Franchisor
will loan to the Master Franchisee 3 copies of its Confidential Operations
Manual, as amended from time to time, which may include specific instructions
for the use of the marks, specifications for goods that will be used in or
sold
by the Store, sample business forms, information on marketing, management,
and
administrative methods developed by the Franchisor for use in the Store, names
of approved suppliers, franchisee selection procedures, franchisee support,
budgeting and forecasting, systems and controls, management of the advertising
fund, development schedule issues, public relations,
related business systems and methods, and other information that the Franchisor
believes may be necessary or helpful to Master Franchisee and its Franchisees
in
operating their Stores. The contents of the Confidential Operations Manual
are
protected by the copyright law of the United States and may not be disclosed
to
any person or entity not affiliated with Franchisor and may not be altered
in
any way. Master Franchisee agrees that the Confidential Operations Manual is
proprietary and a confidential trade secret owned by Franchisor, and will at
all
times treat these documents and materials as such. Master Franchisee agrees
to
take all steps necessary to maintain such information as confidential, restrict
and prohibit unauthorized access to the Confidential Operations Manual, and
prohibit any copying, duplication, or recording of any information contained
therein. The Franchisor reserves the right to revise the Confidential Operations
Manual from time to time, as it deems necessary to update operating and
marketing techniques or standards and specifications..
4.4. Upon
request by the Master Franchisee, Franchisor will review the Master Franchisee’s
operations and techniques in the area of franchise sales and support services,
and may suggest methods of improvement.
4.5. Franchisor
may provide Master Franchisee, from time to time, as it deems appropriate,
such
merchandising, marketing, and other data and advice as may from time to time
be
developed by Franchisor and deemed by Franchisor to be helpful in the management
of the operation of the Master Franchise. Such operating assistance is available
via telephone or e-mail. Franchisor will be available during regular business
hours (in the United States) to answer Master Franchisee’s questions and the
questions of its franchisees within the Territory. This obligation in no way
limits Master Franchisee’s obligation to provide support services to franchisees
with in the Territory as prescribed in Section 5 of this Agreement and in its
individual franchise agreements. Should Master Franchisee request additional
on-site assistance, such assistance will be provided, subject to the
availability of Franchisor’s personnel, for a daily fee, plus Franchisor’s costs
for employee transportation and lodging.
12
4.6. Franchisor
will, from time to time, in its reasonable discretion, send Master Franchisee
an
updated list of names and addresses of suppliers of goods and services that
currently meet Franchisor’s standards and specifications. In advising of
suppliers which meets its standards and specifications, Franchisor expressly
disclaims any warranties or representations as to the condition of the goods
or
services sold by such suppliers, including, without limitation, expressed or
implied warranties as to merchantability or fitness for any intended purpose.
Master Franchisee agrees to look solely to the manufacturer of goods or the
supplier of services for the remedy of any defect and goods or
services.
4.7. Franchisor’s
obligations under this Agreement shall inure to the benefit of the Master
Franchisee only, and no other party is entitled to rely on, enforce, benefit
from, or obtain relief for breach of such obligations either directly or
indirectly.
5.
MASTER
FRANCHISEE'S COVENANTS
5.1
One
hundred eighty (180) days following the completion of the Master Franchisee
initial training and franchisee initial training programs, which time shall
not
commence to run until registration of the Marks by Franchisor in the country
at
issue has taken place, Master Franchisee will commence operations by drafting
agreements for use in the Territory and initiating a franchise sales, marketing
and development program, and will cause to be sold/opened the following
cumulative number of Businesses within the Territory:
|
Time
Period
|
NUMBER
OF SHOPS TO BE SOLD/OPENED
|
CUMULATIVE
NUMBER OF SHOPS TO BE SOLD/OPENED
|
||
|
Within
12 months of
Date
of Agreement
|
2
|
2
|
||
|
During
the next 12 months
|
3
|
5
|
||
|
During
the next 12 months
|
5
|
10
|
||
|
During
the next 12 months
|
5
|
15
|
||
|
During
the next 12 months
|
5
|
20
|
At
the
end of 5 years, Master Franchise should have a total of 20 Shops sold
/open.
5.1.1 Master
Franchisee will own and operate at least 1 Shop in the Territory, which shall
serve as the prototype Shop and which shall strictly comply with Franchisor’s
standards for Java Detour Shops. Master Franchisee further acknowledges and
agrees to sign a franchise agreement for any additional Store Master Franchisee
wishes to own and operate within the Territory, subject to Franchisor’s prior
written approval.
5.1.2. The
sale
or opening of any Shops in excess of the minimum number required in any time
period shall be credited to the subsequent time periods, where applicable.
If
Master Franchisee fails to meet the Mandatory Development Schedules, the Master
Franchisee shall have a 9-month period to cure the default.
13
5.1.3. Notwithstanding
anything herein, if Master Franchisee fails to comply with the Mandatory
Development Schedule for the Territory within the applicable time period set
forth in Section 5.1.2 of this Agreement, Master Franchisee has the option
to
pay Franchisor $2,500 per location that it is short at the end of the applicable
development year under Section 5.1.2 (the “Retention Payment”) to maintain its
exclusive rights under this Agreement for one and a half more years. The
Retention Payment is due and payable within 30 days of the end of the applicable
period in which Master Franchisee failed to meet its development obligations.
Master Franchisee must provide Franchisor with 60 days notice prior to
exercising this option. Upon payment, Master Franchisee shall retain its
exclusive rights under this Agreement for the next 1½ years. Master Franchisee
is limited to making this election once per year, and no more than 2 times
during the term of this Agreement.
5.1.4. If
Master
Franchisee fails to comply with either the Mandatory Development Schedule or
any
Additional Mandatory Development Schedule described in this Section 5, this
Agreement shall be terminated with respect to the Territory at the end of the
cure period upon notice from Franchisor to Master Franchisee,
unless
otherwise agreed to in writing by the parties.
Thereafter, Franchisor shall have the right to develop the Territory itself,
or
through others by the sale of another Master Franchise, or otherwise at its
sole
discretion.
5.1.5. The
term
of this Agreement shall be for 15 years. Within 120 days prior to the expiration
of Mandatory Development Schedule, Franchisor and Master Franchisee must agree
upon a new development schedule for the Territory acceptable to the Franchisor
to govern the next 10 years of this Agreement (“Additional Mandatory Development
Schedule”). At the end of the initial term of this Agreement, Master Franchisee
agrees to have open and operating not less than 50 Stores within the Territory.
In the event that the parties are unable to reach an agreement within the stated
time period, the parties agree that Franchisor may step in and develop the
Territory at its sole discretion and may recruit franchisees under the terms
of
Franchisor’s then-current Franchise Agreement. Thereafter, and for the remaining
term of this Agreement, Master Franchisee agrees to provide services to all
Franchisees, whether signed under Franchisor’s or Master Franchisee’s franchise
agreement, in the Territory as described herein. In addition, Master Franchisee
shall continue to the pay the Royalty fees and any other fees due under this
agreement. Master Franchisee shall not, however, be entitled to a “Franchise
Fee” for each franchisee recruited by the Franchisor in the Territory.
5.1.6 Franchisor
and Master Franchisee hereby acknowledge and agree that the Mandatory
Development Schedule and the 50 Store development requirements set forth in
Section 5.1.5 are fair and reasonable of market demand without over saturation
of Franchisor’s proprietary services offered under the System.
5.2. Master
Franchisee, at all times during the term of this Agreement and any renewal
period, shall continue to operate at least one prototype Master Franchisee-owned
Shop within the Territory in strict compliance with the standards set forth
in
the individual franchise agreement Master Franchisee must sign an agreement
for
every Master Franchisee-owned Store it wishes to operate pursuant to Section
2.2.3 above.
14
5.3 Master
Franchisee shall submit to Franchisor for prior approval all sales, promotional,
advertising, and other materials which relate to recruiting new franchisees
and
any and all marketing materials proposed for use by franchisees within the
Territory. Franchisor will notify Master Franchisee in writing of its approval
or disapproval of the proposed materials or programs within 5 days of receipt
of
such materials. If Franchisor does not approve such material within 5 days,
such
material shall be deemed disapproved. If proposed advertising materials are
disapproved, Master Franchisee shall not use such materials in any manner.
Franchisor shall use reasonable efforts to respond within the 5-day period
and
shall not unreasonably withhold or delay approval.
5.4 Concurrently
with the execution of this Agreement Master Franchisee agrees to designate
at
least one individual
who shall be a managing partner, shareholder or senior manager of Master
Franchisee, to act as the Designated Manager of Master Franchise. Master
Franchisee agrees to notify Franchisor 15 days in advance of the desired
appointment and qualifications of the proposed Designated Manager. Franchisor
reserves the right to reasonably disapprove of any such appointment; in which
case, Master Franchisee shall not appoint that particular individual. The
Designated Manager shall attend and complete to Franchisor’s satisfaction such
training programs as Franchisor shall prescribe (which may be conducted in
whole
or in part at one or more of the offices of Franchisor in the United States).
If
the relationship of the Designated Manager with Master Franchisee terminates,
or
if the proposed Designated Manager fails to satisfactorily complete such
training programs, Master Franchisee agrees to promptly designate a replacement
Designated Manager, who shall satisfactorily complete such training programs.
5.5 In
addition to the Designated Manager, Master Franchisee shall maintain one
additional Certified Employee per 10 franchisees within the Territory. Certified
Employees are those who have completed Franchisor’s initial training and Master
Franchisee training to Franchisor’s satisfaction. Franchisor shall provide
training to required Certified Employees tuition-free. However, Master
Franchisee shall be responsible for the cost of employee transportation and
lodging during training. All of Master Franchisee’s key officers, directors,
and
Certified Employees
shall
speak English, read, and write the English language fluently. This provision
may
be waived with Franchisor consent, which consent cannot be unreasonably
withheld.
5.6 Franchisor
has attached in Exhibit E hereto a list of criteria determine the approval
of
any proposed Franchisee. Such
standards are subject to change from time to time. Franchisor agrees to notify
Master Franchisee of any change in its minimum qualification standards.
Should
a
prospective Franchisee meet all the criteria in Exhibit E, no Franchisor
approval of said Franchisee will be required. Should a proposed Franchisee
not
meet substantially all of the criteria in Exhibit E,Master
Franchisee will then submit to Franchisor written and completed applications
of
all qualified prospective franchisees together with any additional information
and comments, including credit and background information, as requested by
Franchisor on items provided by Franchisor. Franchisor will notify Master
Franchisee and the prospective franchisee within 10 days of its acceptance
or
rejection of such application, which acceptance shall not be unreasonably
withheld. Franchisor will not unreasonably withhold or delay its acceptance
of a
prospective franchisee or its manager.
5.7 Within
30
days of Franchisor’s notification of approval of a prospective franchisee,
Master Franchisee and franchisee shall execute a Franchise Agreement. If such
Agreement is not executed within 30 days, or such longer period as Franchisor
may permit, or if any condition of approval specified by Franchisor is not
satisfied, Franchisor may withdraw, suspend or condition its approval of
Franchisee. A franchisee shall have 180 days to submit a site within the
Territory to Master Franchisee and Franchisor, which Franchisor must approve
in
writing. Master Franchisee shall ensure that all formal site proposal packages
submitted by Franchisees have been prepared and assembled in accordance with
Franchisor's requirements and on prescribed forms and includes any property
descriptions, lease forms, traffic pattern reports, market feasibility studies
and other specifications as Franchisor may reasonably require. Franchisor will
have 10 business days alter receipt of such information and materials from
the
Master Franchisee to approve or disapprove, in its sole discretion, the proposed
site for the Shop, which approval shall not be unreasonably
withheld.
15
5.8 In
recruiting prospective franchisees, Master Franchisee shall make every effort
to
locate persons of good standing, professional competence, experience,
reputation, ability and financial responsibility. The Master Franchisee shall
uphold the Franchisor's qualification standards in soliciting, screening,
offering and selling licenses or franchises to Franchisees. Master Franchisee
must conduct both credit and criminal background checks on prospective
franchisees before submitting their qualifications to the Franchisor or
providing a prospective franchisee with any confidential information. Master
Franchisee will make no earnings claims, promises, representations, or
commitments to any prospective franchisee other than those stated in
Franchisor’s then current Uniform Franchise Offering Circular and Franchise
Agreement, and will only make offers and representations pertaining directly
or
indirectly to the franchised business or the operation of a Shop in strict
compliance with the laws of the United States, and any other applicable laws
and
regulations.
5.9 Franchisor’s
decision shall be final with respect to when to commence or settle a claim
or as
to strategy in defending legal actions and choice of counsel regarding any
litigation with Territory Franchisees. With respect to legal proceedings against
Franchisor or its affiliates arising from or related to Master Franchisee’s
activities within the Territory, all costs and expenses of such actions shall
be
borne by the Master Franchisee. Moreover, Master Franchisee agrees to provide
testimony at any legal proceeding pertaining to Franchisor’s activities in the
Territory.
5.10 Master
Franchisee must provide Franchisees in the Territory with Initial Training,
as
prescribed by Franchisor and in accordance with their individual franchise
agreements. Master Franchisee must also perform on-site follow-up training
session within the third month of a new Shop’s operation, or as otherwise
prescribed by Franchisor in writing. Master Franchisee agrees to perform any
training required by Franchisor should the System undergo a significant change.
5.11 Franchisor
has created and developed special procedures, standards and methods for
operating and maintaining Shops, which standards are incorporated in
Franchisor's Confidential Operating Manual. Master Franchisee shall ensure
that
each Shop within the Territory is developed and operated solely in accordance
with Franchisor's requirements and specifications as set forth in the
Confidential Operating Manual, including through inspections and secret shoppers
as required by Franchisor's policies and procedures, which may be reasonably
changed from time to time.
5.12 Master
Franchisee shall distribute to Territory franchisees the Confidential Operations
Manual, any amendments or updates to the Confidential Operations Manual, and
any
other written materials Franchisor may designate. Franchisor shall provide,
at
its expense, copies of such written materials to be distributed, but Master
Franchisee will be required to reproduce and/or provide translations for such
materials at its own expense.
16
5.13 Master
Franchisee will cause all sales efforts made by it or under its direction to
be
courteous and dignified, and in a professional, ethical and responsible manner.
Master Franchisee must not violate any federal, state, or local laws of any
of
the countries encompassed by the Territory in connection with the offer or
sale
of franchises, and Master Franchisee must specifically abide by all valid and
enforceable laws, rules and regulations by appropriate regulatory bodies
regarding franchising.
5.14 Master
Franchisee, or his duly authorized representative, must provide supervision
to
all Franchisees within the Territories, as required under their individual
franchise agreements. Such supervision must include, but not be limited to,
on-site supervision prior to the opening of a Shop; general assistance, advice
and consultation to franchisees with regard to entering into negotiations and
agreements within the Territory for franchisees services; review of proposed
leases and contracts; consultation and assistance with regard to grand opening
of a Shop; supplemental training and assistance of all material aspects of
the
operation of a Shop, as needed, in accordance with Franchisor's requirements;
periodic and regular telephone calls or visits to monitor operations of Shops
within the Territory, continuous advisory services to franchisees, ongoing
training and updates for all Shops within the Territory. Master Franchisee
agrees to perform such duties pursuant to Franchisor's requirements herein
described and in accordance with the System, the Confidential Operations Manual
or otherwise in writing, all of which may be changed from time to time by
Franchisor. Master Franchisee agrees to be available during regular business
hours to answer franchisee questions or concerns.
5.15 Master
Franchisee agrees to advise all Shops within the Territory of problems arising
out of the operation of any Shop as disclosed by periodic reports submitted
to
Master Franchisee or Franchisor by a franchisee, or by inspections conducted
by
Master Franchisee or Franchisor of the Shops within the Territory. Master
Franchisee must provide each Shop within the Territory with such assistance
in
connection with the operation of such Shop as is reasonably determined to be
necessary by Franchisor. Operational assistance may consist of advice and
guidance with respect to:
a. Proper
utilization of procedures developed for a Shop with respect to operations and
management, recruitment of personnel, advertising and promotion, compliance
with
regulations and related activities as approved by Franchisor;
b. Additional
services authorized for Shops within the Territory;
c. Purchase
of equipment, products, inventory, materials, and supplies;
d. The
institution of proper administrative bookkeeping, accounting, inventory control,
supervisory and general operating procedures for the effective operation of
a
Shop;
e. Advertising
and promotional programs;
17
f. Marketing
and negotiating technique to be employed when dealing with prospective
customers, clients and vendors;
g. Maintenance
of a Shop’s premises; and
h. Proper
use of the Marks and such other trade names, trademarks, service marks, and
copyrights as may presently exist or be acquired and licensed for use by the
Franchisor, along with ancillary signs, symbols, or indicia used in connection
or in conjunction with said Marks.
5.16 Master
Franchisee must make contact with all Shops within the Territory for the
proposes of consultation, assistance and guidance of franchisees and managers
of
each Shop, and Master Franchisee or its representatives will prepare, for
benefit of both Master Franchisee and Franchisor, written reports regarding
these regular contacts outlining any suggested changes or improvement in the
operations of the Shop and detailing any defaults in such operations which
become evident as a result of any such contact, and a copy of each such written
report must be provided to both the franchisee or its manager and
Franchisor.
5.17 In
the
event Master Franchisee participates in a franchise trade show which
participation will be at the Master Franchisee's discretion, Master Franchisee
will be responsible for all expenses associated with staffing of the booth
at
the trade show. Master Franchisee will be responsible for the display booth,
including shipping the booth to and from the trade show, sales and promotional
material, and costs to exhibit in the trade show and travel expenses of any
Master Franchisee’s personnel to the trade show.
5.18 Master
Franchisee will ensure that all signs, equipment, fixtures, supplies, design,
layout and maintenance of each Shop conform to the plans and specifications
set
forth in the Operations Manual, or otherwise in writing by the Franchisor.
Master Franchisee may alter such signs, equipment, fixtures, supplies, and
Store
layout with the prior written approval of the Franchisor, which shall not be
unreasonably withheld. Master Franchisee will take all necessary steps to
enforce the terms of each individual Franchise Agreement executed for a Shop
within its Territories and the provisions of the Operations Manual, as
amended.
5.19 Master
Franchisee must keep accurate records concerning all financial transactions
and
communications between Franchisor, Master Franchisee and franchisees relating
to
the operation of any Shop in the Territory, and Franchisor’s duly authorized
representative shall have the right at all reasonable hours to examine all
such
records, and shall have full and free access thereto for said purpose and for
the purpose of making extracts therefrom. All such records, including, but
not
limited to financial records, customer and franchisee complaints, and sales
and
purchasing statistics, shall be available for at least 3 years after the
termination or expiration of this Agreement for any reason
whatsoever.
5.20 Not
less
than once every 12 months, Master Franchisee will arrange for and conduct
regional seminars within the Territory for all Franchisees within the Territory.
Such seminars shall include training and general advisory assistance for the
Shops within the Territory and Master Franchisee shall notify Franchisor in
writing at least 4 weeks prior to conducting such regional seminars. Franchisor
will provide at least one person as an instructor at each regional seminar.
The
cost of travel lodging, etc. for the Franchisor’s representative will be the
responsibility of Franchisor.
18
5.21 Master
Franchisee, or his appointed representative, must attend any Master Franchisee
seminars or training session held by Franchisor. Master Franchisee shall be
responsible for travel, meal and lodging and other related expenses relating
to
such training sessions.
5.22 Not
less
than once every 3 months, Master Franchisee must conduct management and
financial reviews with each Franchisee. As a part of these reviews an evaluation
form, which form will be mutually approved by Franchisor and Master Franchisee,
will be included to determine if Master Franchisee is satisfactorily performing
its duties and obligations under the terms of this Agreement. Master Franchisee
will remit the management and financial review form, together with the Master
Franchisee evaluations to Franchisor within 10 days after its receipt of such
reviews. In addition, Master Franchisee will perform routine inspections of
franchisee Shops in the Territory, approximately once a month to ensure strict
compliance with the standards and specifications designated by Franchisor.
5.23 All
sales
of Stores by Master Franchisee and any acts incident thereto shall be in strict
accordance all applicable federal, state, and local laws relating to the sale
of
franchises applicable in the Territory. Approval of franchise sales shall not
be
unreasonably withheld, provided prospective franchisees meet Franchisor’s
minimum standards.
5.24 In
the
event the Master Franchisee sells an option for the exclusive right to purchase
a franchise to an existing franchisee's area, all option fees paid by
franchisees purchasing such options will be paid directly to the Master
Franchisee in the event the option fees are not exercised and are forfeited,
the
option fees shall be forfeited to the Master Franchisee and not
Franchisor.
5.27. In
the
event Master Franchisee fails to perform any of these duties or any other
obligations imposed on it by the terms of this Agreement, after being given
a
120 day period of time to resolve, correct, or otherwise bring into compliance
any terms of this Agreement, Franchisor has the right but not the obligation
to
perform said duties or obligations and Master Franchisee hereby agrees to pay
Franchisor the sum of $250.00 per day for each representative of Franchisor
for
its services in connection therewith together with any reasonable expenses
incurred by Franchisor in so performing, including payroll, travel, meals and
lodging expenses. Any portion of any royalty payments or other payments owed
by
Franchisor to Master Franchisee hereunder may be offset by any amounts owed
by
Master Franchisee to Franchisor if Franchisor is required to so perform any
of
Master Franchisee's duties or obligations under the terms of this Agreement.
In
the event Franchisor performs duties for the Master Franchisee, the Master
Franchisee's share of the royalty payments will continue to accrue and be made
to the Master Franchisee.
5.28
Protection
and Promotion of Marks and System.
The
Master Franchisee shall operate the Master Franchisee business in accordance
with the System standards set by the Franchisor and in such a manner as not
to
detract from or adversely reflect upon the name and reputation of the Franchisor
and the goodwill associated with the Java Detour name and Marks. The Master
Franchisee shall make every effort to protect, maintain and promote the Marks
and the System, and to prevent imitations and infringements upon the Marks
and
System, within the Territory.
19
5.30 Capitalization
Requirement.
Master
Franchise agrees
to
maintain ongoing
working capital sufficient
to
meet
its obligations. Master Franchisee agrees to maintain ongoing working capital
of
at least $350,000
during
the initial
term of this Agreement.
6.
TRADE
SECRETS
6.2
Use
and Limitation on Use.
The
Master Franchisee acknowledges and agrees it will not acquire any interest
in
Trade and Industrial Secrets, other
than the right to utilize disclosed Trade Secrets in operating the Master
Franchise business during the term hereof and that use or duplication of any
Trade Secrets in any other business would constitute an unfair method of
competition. The Master Franchisee further acknowledges and agrees that the
Trade Secrets are proprietary, include trade secrets of the Franchisor and
are
disclosed to the Master Franchisee solely on the condition that the Master
Franchisee agrees, and the Master Franchisee does hereby agree, that the Master
Franchisee: (1) will not use Trade Secrets in any other business or capacity;
(2) will maintain the absolute confidentiality of Trade Secrets during and
after
the term of this Agreement; (3) will not make unauthorized copies of any portion
of Trade Secrets disclosed in written or other tangible forms; and (4) will
adopt and implement all reasonable procedures that Franchisor prescribes to
prevent unauthorized use or disclosure of Trade Secrets.
20
6.3
Updated
Information.
The
Master Franchisee, within 30 days of receiving any updated information regarding
the Confidential Operations Manual, shall in turn update its copy of the
Confidential Operations Manual as instructed by the Franchisor and shall conform
its operations with the updated provisions within a reasonable time thereafter.
The Master Franchisee shall ensure that each of the Franchisees in the
Territories shall, in turn, update their copy of the Confidential Operations
Manual as instructed by the Franchisor, and shall conform their operations
with
the updated provisions within a reasonable period of time thereafter. The Master
Franchisee acknowledges that a master copy of the Confidential Operations Manual
maintained by the Franchisor at its principal office, shall be controlling
in
the event of a dispute relative to the content of any Confidential Operations
Manual.
7.
REPRESENTATIONS
OF MASTER FRANCHISEE
7.1
Representations
of Master Franchisee.
The
Master Franchisee represents and warrants that it has induced the Franchisor
to
enter into this Agreement based on
the
following representations and warranties made to Franchisor. The following
representations and warranties shall survive termination of this Agreement.
a.
The
Master Franchisee understands and acknowledges that the Franchisor has made
no
promise or guarantee, express or implied, that the Master Franchisee will be
able to comply with any applicable laws and regulations concerning the sale
of
franchises in the Territory throughout the entire term hereof, but that the
Master Franchisee is obligated to use best efforts to comply with the same.
b.
The
Master Franchisee has in no manner relied upon any representations or statements
of actual, average, projected or forecasted sales, profits or earnings made
by
the Franchisor with respect to the Master Franchise business in the Master
Franchisee's decision to execute this Agreement. The Master Franchisee
understands and acknowledges that the Franchisor has no experience in developing
or operating Java Detour franchises in the Territories, so that the Master
Franchisee has conducted its own independent investigation of what operating
results may be achieved by conducting the Master Franchise business in the
Territory.
c.
The
Master Franchisee acknowledges that it has read this Agreement and understands
and accepts the terms contained in this Agreement as being reasonably necessary
to maintain the Franchisor's high standards of quality and service and the
uniformity of those standards and thereby to protect and preserve the goodwill
of the Marks and the integrity of the System. The Master Franchisee acknowledges
that it has conducted an independent investigation of the business venture
contemplated by this Agreement and recognizes that, like any other business,
the
nature of this business may evolve and change over time, that the investment
involves business risks and that the success of the venture is largely dependent
upon the Master Franchisee's business abilities and efforts. The Master
Franchisee further represents to the Franchisor, as an inducement to its entry
into this Agreement, that the Master Franchisee had made no misrepresentations
in obtaining the master franchise granted pursuant to this Agreement.
d.
The
Master Franchisee represents that it is familiar with and has the necessary
managerial and financial ability to operate, develop and maintain the Master
Franchise business and that it has sufficient staff and offices to attempt
to
sell, train and support prospective and future Franchisees pursuant to the
Franchisor's minimum standards of quality and in accordance
with the Confidential Operations Manual.
21
e. Master
franchisee warrants that it is duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation or
organization, and that it will be qualified to do business in the
jurisdiction(s) where it will operate the Master Franchise within 6 months
of
signing this Agreement, and that all of the warranties and representations
it
has set forth in Exhibit B to the Master Franchise Agreement are true.
8.
ADVERTISING
8.1
Standards.
The
Master Franchisee acknowledges that the advertising and promotion of the Master
Franchise business in accordance with the Franchisor's standards and
specifications regarding advertising is an essential aspect of the System,
and
the Master Franchisee agrees to comply with all advertising standards and
specifications.
8.2
Marketing.
Master
Franchisee agrees to establish, maintain and administer a marketing program
for
the Territory (the "Marketing Program” or “Fund"), require all Stores (including
those owned by Master Franchisee or its affiliates) to contribute to the
Marketing Fund in accordance (and/or consistent) with the terms of their
Franchise Agreements in an amount not less than 1% of their Gross Revenue,
or
our then-current requirement for Advertising Fund contributions as listed in
Franchisor’s then current United States Uniform Franchise Offering Circular.
Master Franchisee must direct the creation and implementation of advertising,
marketing and promotional programs for the Territory; adapt the marketing
materials provided to the Marketing Program by Franchisor for use in the
Territory; and furnish each franchisee with reasonable quantities of marketing,
advertising and promotional materials. Master Franchisee agrees to deliver
to
all franchisees on an annual basis a report of the receipts and expenditures
of
the Fund and of the percentage of Fund contributions spent on advertising,
promotion, public relations, market research and other marketing programs and
activities during the preceding financial year.
8.3 Accounting.
Any
advertising fees collected by the Master Franchisee from Franchisees pursuant
to
the Franchise Agreements and retained by the Master Franchisee, shall be
deposited by the Master Franchisee in separate bank accounts, commercial
accounts or savings accounts ("Advertising Account"). The Master Franchisee
will
make available to the Franchisor and to the Franchisees in the Territory on
an
annual basis a financial statement for the Advertising Account which indicates
how deposits to the Advertising Account have been spent. The Advertising Account
will be administered by the Master Franchisee, in its sole discretion, and
shall
be used by the Master Franchisee on behalf of Franchisees in the Territory
for
production and placement of media advertising, direct response literature,
direct mailings, brochures, collateral material advertising, surveys of
advertising effectiveness, or other advertising or public relations expenditures
relating to advertising.
9.
SYSTEM
STANDARDS
9.1
System
Standards.
The
Master Franchisee acknowledges and agrees that the development and operation
of
the Master Franchise and each individual franchise within the Territory in
accordance with the specifications, standards, operating procedures and rules
the Franchisor prescribes for the operation of Java Detour franchises as
periodically modified and supplemented by Franchisor in its discretion during
the term (the "System Standards") is the essence of this Agreement and essential
to preserve the goodwill of the Marks. Therefore, the Master Franchisee agrees,
at all times during the term hereof, to maintain and operate, and to require
Marketers and Franchisees to maintain and operate, Stores in accordance with
each and every System Standard. Franchisor may change the standards and
specifications from time to time when, at its sole discretion, it deems such
changes are needed for the continued success and development of the Franchise
Network. Such changes may require purchasing equipment, supplies, furnishings
or
other goods, completing additional training by Master Franchisee’s employees, or
other activities imposing costs on Master Franchise. Master Franchisee must
promptly conform its standards and those of its franchisees to the modified
standards and specifications at Master Franchisee’s own expense. Master
Franchisee must at all times keep its copy of the Confidential Operations Manual
current by inserting in it revised pages provided by Franchisor, and delete
superseded pages. If there is a dispute concerning the Manual’s contents at any
time, the terms of the master copy of the Confidential Operations Manual
maintained by Franchisor will control. The Franchisor may only make material
changes to the system standards and marks once every five years, at a cost
not
to exceed $25,000 per Shop.
22
9.2
Incorporation
of System Standards.
The
Master Franchisee hereby agrees that System Standards prescribed from time
to
time in the Confidential Operations Manual, or otherwise communicated to the
Master Franchisee in writing, shall constitute provisions of this Agreement
as
if fully set forth herein. All references to this Agreement shall include all
System Standards as periodically modified.
9.3 Authorized
Products and Services.
Master
Franchisee must offer and sell all the products and services and only the
products and services that Franchisor has authorized Master Franchisee to
provide, and ensure each franchisee in the Territory complies with the same.
Master Franchisee shall at all times maintain at its Stores sufficient levels
of
inventory, and maintain a representative inventory of ingredients, food and
beverage products and other products of the type, quantity and quality as
specified in the Operations Manual, to adequately satisfy consumer demand.
Master Franchisee must offer and sell, and require all franchisees within the
Territory to offer and sell, all private label products which Franchisor
designates for sale by System franchisees. Such items may include, without
limitation, proprietary food, dessert and beverage items. This section 9.3
is
subject to Section 9.l and Section 9.6 of this Agreement.
9.4 Designated
and Approved Suppliers.
Recognizing that preservation of the System depends upon product and service
uniformity and the maintenance of Franchisor’s trade dress, Master Franchisee
agrees to purchase certain signs, furnishings, supplies, fixtures, equipment
and
inventory from the Franchisor or from approved or designated third party
suppliers as Franchisor shall specify, from time to time, in the Operations
Manual and otherwise in writing. Master Franchisee hereby acknowledges that
Franchisor, Franchisor’s affiliate and/or a third party may be one of several,
or the only, approved supplier of any item. Master Franchisee further
acknowledges and agrees that Franchisor and/or Franchisor’s affiliates may and
have the right to realize a profit on any items that Franchisor, Franchisor’s
affiliates or Franchisor’s approved suppliers supply to Franchisee. Master
Franchisee acknowledges and agrees that the Franchisor may negotiate for and
receive payments or other benefits from authorized suppliers in consideration
of
purchases by Master Franchisee and Master Franchisee’s franchisees. If Master
Franchisee or any franchisee within the Territory wishes to use or sell any
product not yet certified by Franchisor as meeting Franchisor’s specifications,
or which is sold by a supplier not previously approved in writing by Franchisor,
Master Franchisee must advise Franchisor and, upon Franchisor’s request, give
Franchisor product specifications, sample products, and information about the
supplier. Within thirty (30) days of receiving all information Franchisor may
request, Franchisor will communicate to You either its approval, or its reasons
for withholding its approval. Silence may not be construed as consent. As a
condition of approving a supplier or product, Franchisor will require Master
Franchisee or any franchisee in the Territory who requests approval to reimburse
it for any expenses reasonably incurred by Franchisor in inspecting the
suppliers’ premises, checking the suppliers’ credentials, or testing the
product. As a condition of approving a supplier of any product that bears any
of
the Marks, Franchisor may require that the supplier sign Franchisor’s form of
License Agreement. Franchisor may with-draw approval of a supplier or product
or
both if either no longer meet Franchisor’s standards or
specifications.
23
9.5. Discontinuation
of Existing Services.
The
Franchisor agrees not to discontinue offering or selling any existing services
or products which constitute .05% of annual gross revenues for the Master
Franchisee.
9.6. Xxxx-Up.
Franchisor’s xxxx-up on any required purchases Master Franchisee shall be
required to purchase from Franchisor shall not exceed 20%.
10.
MARKS
AND
PROPRIETARY RIGHTS
10.1
Ownership
and Goodwill of Marks.
The
Master Franchisee hereby acknowledges that the Franchisor is the sole owner
of
the Marks and any goodwill established thereby and the Franchisor has the sole
right to license and control the Master Franchisee's use of the JAVA DETOUR
service xxxx and other Marks, and that the use of the Marks shall remain under
the sole and exclusive control of the Franchisor. The Master Franchisee
acknowledges that it has not acquired any right, title or interest in the Marks
except for the right to use the Marks in the operation of the Master Franchise
in the
Territory pursuant to this Agreement. Master Franchisee understands and agrees
that Franchisor shall have sole right to obtain or renew any trademark or
service xxxx registration in the Territory that consists of or includes any
of
the Java Detour Marks. The parties acknowledge and agree that Franchisor has
not
obtained registration nor applied for the registration of its Marks with the
relevant governmental authorities within the Territory. Franchisor agrees to
use
its best efforts to obtain such registration upon signing this Agreement.
Franchisor represents that it will file an application for registration of
the
Xxxx Java Detour in the Territory, that it will pursue the application
diligently and that it will make any reasonable alterations to the xxxx as
may
be advisable to obtain registration. Master Franchisee acknowledges and agrees
that the denial of Franchisor’s application will not be an event entitling
Master Franchisee to terminate this Agreement, to obtain a refund of any amount
paid or owed to Franchisor or otherwise modify Master Franchisee’s obligations
under this Agreement. Master Franchisee agrees to fully cooperate with
Franchisor in recording this Agreement and in registering Master Franchisee
and
any subfranchisee as an authorized user of the Java Detour Marks with any
governmental agency if necessary and also to cooperate in canceling any
applicable registration on termination or expiration of this Agreement and/or
any subfranchise agreement.
24
10.2
Trade
Secrets.
The
Master Franchisee hereby acknowledges that the Franchisor owns and controls
the
distinctive plan for the establishment, operation and promotion of Java Detour
franchises and all related licensed methods of doing business, previously
defined as the "System," which may include, but are not limited to, distinctive
layout, design and decoration for the Java Detour franchise structure, other
commercial symbols, written promotional materials, advertising, and accounting
systems, all of which constitute trade secrets of the Franchisor, and the Master
Franchisee acknowledges that the Franchisor has valuable rights in and to such
trade secrets. The Master Franchisee further acknowledges that it has not
acquired any right, title or interest in the System except for the right to
use
the System in the operation of the Master Franchise business as it relates
to
this Agreement or as may be granted by separate agreement with the Franchisor.
If, in the course of operating its Master Franchise, the Master Franchisee
develops or improves any aspect of the System, any and all plans, methods,
ideas
and systems related to such development or improvement shall inure to the
benefit of the Franchisor and shall be owned by the Franchisor as a part of
the
System.
10.3
No
Other Xxxx.
The
Master Franchisee further agrees that no Xxxx other than "JAVA DETOUR" or such
other Marks as may be specified by the Franchisor, shall be used in the
operation of the Master Franchise business. Franchisor
shall use its best efforts to obtain registrations for the Marks. If Franchisor
is unable to register the Marks with the appropriate governmental authorities
in
the Territory, the parties shall agree upon alternative marks for use in the
operation of the Master Franchise, which marks shall be shall remain under
the
sole and exclusive control of the Franchisor (“Alternative
Marks”). Master
Franchisee acknowledges and agrees that Franchisor shall be the sole owner
of
the Alternative
Marks and any goodwill established thereby and that Franchisor has the sole
right to license and control the Master Franchisee's use of any
Alternative Marks. Franchisor shall use best efforts to obtain registrations
for
the Alternative
Marks agreed upon by the parties.
10.4
Cessation
of Use at Termination.
In the
event this Agreement is terminated for any reason, the Master Franchisee shall
immediately cease using any of the Java Detour System, Marks, trade names,
trade
dress, trade secrets, copyrights or any other symbols used to identify the
Master Franchise business, and all rights the Master Franchisee had to the
same
shall automatically terminate. The Master Franchisee agrees to execute any
documents of assignment as may be necessary to transfer any rights the Master
Franchisee may possess in and to the Marks to the Franchisor. Nothing herein
shall affect the Master Franchisee's rights as a franchisee under any existing
franchise agreement.
10.5
Protection
of the Marks.
The
Franchisor shall have the affirmative obligation to protect and defend its
use
of the Marks and the Franchisor's proprietary interests therein, which
affirmative obligations shall include, without limitation, ascertaining on
a
periodic basis whether there is any infringing or illegal use of the Marks
by
any unauthorized parties within the Territory. The Master Franchisee shall
notify the Franchisor in writing of any possible infringement or illegal use
by
others of the Marks, or trademarks the same as or substantially similar to
the
Marks which may come to its attention. The Master Franchisee acknowledges that
the Franchisor shall have the right to determine whether action will be taken
on
account of any possible infringement or illegal use. If such action is deemed
to
be necessary, the Franchisor shall through counsel of its choosing institute
legal action. The Franchisor and Master Franchisee shall equally bear the cost
of any such action, including reasonable lawyer's fees. The Master Franchisee
agrees to cooperate with the Franchisor in any such litigation. The Master
Franchisee agrees not to institute any action on account of any possible
infringement or illegal use without first obtaining the Franchisor's prior
written consent.
25
10.6
Master
Franchisee's Trade Name.
The
Master Franchisee acknowledges that the Franchisor has a prior and superior
claim to the Marks and the Java Detour trade name. The Master Franchisee shall
not license or use any of the Java Detour Marks or trade names in the legal
name
of its company, partnership or any other business entity used in conducting
the
business provided for in this Agreement. The Master Franchisee also agrees
not
to register or attempt to register any trade name using the word "Java Detour"
in the Master Franchisee's name or in any other person or business entity name
without the prior written consent of the Franchisor. When this Agreement is
terminated, the Master Franchisee shall execute any assignment or other document
the Franchisor requires to transfer to the Franchisor any rights the Master
Franchisee may possess in a trade name utilizing the xxxx "Java Detour" or
any
other Xxxx owned by the Franchisor.
10.7
Change
of Marks.
In the
event that the Franchisor, in its sole discretion, shall determine it necessary
to modify or discontinue the use of any proprietary Marks, or to develop
additional or substitute marks, the Master Franchisee shall, within a reasonable
time after receipt of written notice of such a modification or discontinuation
from the Franchisor, take such action, at the Master Franchisee's sole expense,
as may be necessary to comply with such modification, discontinuation, addition
or substitution. Any material change to the Marks to be used in connection
with
the System shall be subject to the limitation in Section 9.1 above.
10.8. Registered
User Agreements.
Master
Franchisee shall, at the request of Franchisor, do all acts and execute all
documents necessary or desirable in Franchisor’s sole discretion for
establishing Master Franchisee as a user of the Marks hereunder and, where
required, for the registration of Master Franchisee's permitted use with
governmental agencies, subject to the limitations set forth in Section 2.1.4.
above. Following such request, Master Franchisee shall not be entitled to
exercise any of the rights granted by this Agreement until Master Franchisee
has
executed and delivered such documents to Franchisor. Any registered user
agreement shall be in form and substance acceptable to Franchisor.
11.
REPORTS
AND RECORDS
11.1
Periodic
Reports.
The
Master Franchisee shall supply to the Franchisor such reports in a manner and
form as the Franchisor may, from time to time, reasonably require, including,
but not limited to, weekly sales reports, submitted to the Franchisor no later
than Monday of the following week for all sales information from the previous
week, which sales reports will include information
on sales of franchises and revenues of each of the Java Detour franchises in
the
Territory, identified by Franchisee and by location.
11.2
Annual
Reports.
The
Master Franchisee shall, within 90 days after the end of its fiscal year,
provide to the Franchisor annual financial
statements
and tax
returns relating to the Master Franchise business, and a statement that all
sums
due and owing hereunder have been paid, along with a signed statement from
the
CFO attesting to the truth and accuracy of these statements. If the
certification shows an underpayment of any amounts owed to the Franchisor,
these
amounts shall be paid to the Franchisor concurrently with the submission of
the
statements. In addition, the Master Franchisee shall, within 45 days from the
end of each calendar quarter, provide the Franchisor with copies of quarterly
sales tax returns or other assessments. In addition, the Master Franchisee
shall, by January 1st of each calendar year, submit to the Franchisor its
business and marketing plan for the Territory for the upcoming year, together
with a copy of its current Confidential Operations Manual used in the Territory
within the preceding year, together with every Franchise Agreement executed
within the preceding year.
26
11.3
Maintenance
of Records.
The
Master Franchisee shall maintain all books and records for the Master Franchise
business in accordance with generally accepted accounting principles,
consistently applied, and preserve these records for at least three years after
the fiscal year to which they relate.
11.4
Inspection
and Audit.
The
Master Franchisee shall permit the Franchisor to inspect and audit the books
and
records of the Master Franchise business at any reasonable time, during normal
working hours, including Master Franchisee’s tax returns. If an audit discloses
an underpayment of royalty fees, franchise fees, or Advertising Fund or
cooperative fund contributions payable under this Agreement, Master Franchisee
will immediately pay these amounts to Franchisor together with accrued interest
in the amount specified according to Section 3.5 of this Agreement. In addition,
if the underpayment exceeds three percent (3%) of total amounts payable to
Franchisor for any period covered under the audit, Master Franchisee must
reimburse Franchisor for all expenses incurred by Franchisor in connection
with
the audit.
12.
ASSIGNMENT
OF RIGHTS
12.1
Assignment
by Master Franchisee.
The
Master Franchise business granted herein is personal to the Master Franchisee
and except as stated below, the Franchisor shall not allow or permit any
transfer, assignment, sublicense or conveyance of this Agreement or any interest
hereunder. The Master Franchisee shall not sell, transfer or assign its rights
under this Agreement or any interest in it, or any part or portion of the entity
that owns it, or a substantial portion of the assets used in carrying out this
Agreement (including, without limitation, its right, title and interest to
any
Franchise Agreement to which it is a party), unless the Master Franchisee
obtains the Franchisor's prior written consent and the Master Franchisee and/or
the proposed transferee comply with the following requirements:
a.
Payment
of all amounts due and owing pursuant to this Agreement by the Master Franchisee
to the Franchisor, its affiliates, its designated third party suppliers, and
third parties whose debts or obligations the Franchisor has guaranteed on behalf
of the Master Franchisee, if any;
b.
Master
Franchisee must cure all existing defaults under this Agreement, or any other
agreement between Master Franchisee and Franchisor, Franchisor’s affiliates,
Franchisor’s major suppliers and vendors, within the period permitted for cure
and have substantially complied with such agreements during their respective
terms;
c. Agreement
by the proposed transferee to satisfactorily complete the initial
Master Franchisee training program and initial franchisee training program
conducted by the Franchisor, which training may be completed by the transferee
either prior to or immediately after assignment of this Agreement;
27
d.
An
express written assumption by the proposed transferee of the Master Franchisee's
obligations pursuant to this Agreement and all Franchise Agreements executed
with Franchisees;
e.
Provision
by the Master Franchisee of 30 days' written notice prior to the proposed
effective date of the transfer, such notice to contain the material terms and
conditions of the transfer, including without limitation, the price and terms
of
payment;
f.
Execution
by the Master Franchisee and Master Franchisee’s principals, officers,
directors, and the transferee (if it has had any previous relationship with
Franchisor or Franchisor’s affiliates), of a general release of all claims
against the Franchisor and an acknowledgment of Master Franchisee’s termination
of all of its rights in connection with this Agreement;
g.
Payment
by the Master Franchisee or the proposed transferee
of
$10,000 to cover Franchisor’s legal and administrative costs in approving the
transferee;
h.
Submission
by the Master Franchisee and/or proposed transferee of a copy of the executed
purchase agreement relating to the proposed transfer with all supporting
documents and schedules, including transferee's assumption of and agreement
to
faithfully perform all of Franchisee’s obligations under this
Agreement;
i. The
proposed transferee shall have provided information to the Franchisor sufficient
for the Franchisor to assess the proposed transferee's business experience,
aptitude, creditworthiness and financial resources to operate
the Master Franchise business and the Franchisor shall have ascertained that
the
proposed transferee meets such qualifications; and
j.
Agreement
by Master Franchisee and Master Franchisee’s principals, officers, directors,
employees, and the members of their respective families to comply with the
post-termination provisions of this Agreement;
k. The
proposed transferee shall have visited the corporate headquarters of the
Franchisor and shall have been evaluated and approved by the Franchisor.
l. In
any
event, Franchisor may withhold or condition Franchisor’s consent to any transfer
as Franchisor deems appropriate based on the circumstances of the transfer
or
otherwise.
12.2
Franchisor's
Approval of Transfer.
The
Franchisor has 30 days from the date of notice from the Master Franchisee to
approve or disapprove of the Master Franchisee's proposed assignment. The Master
Franchisee acknowledges that the Franchisor may withhold approval of a proposed
assignment or proposed transferee for any justifiable business reason, including
without limitation, the transferee's financial capability or its suitability
to
act as the Franchisor's special agent in the Territory. Master Franchisee
acknowledges that the transferee shall be evaluated based on Franchisor’s then
current standards for Master Franchisees. If the Master Franchisee and its
proposed transferee comply with all conditions for assignment set forth herein
and the Franchisor has not given the Master Franchisee notice of its approval
or
disapproval within such period, approval is deemed granted.
28
12.3
Franchisor’s
Right of First Refusal.
In the
event the Master Franchisee wishes to sell, transfer or assign its rights under
this Agreement or any interest in it, or any substantial portion of the assets
used in carrying out this Agreement to a third party, the Master Franchisee
agrees to grant to the Franchisor
a 15
day
right of first refusal to purchase such rights or assets on the same terms
and
conditions as are contained in the written offer to purchase submitted to the
Master Franchisee by the proposed purchaser. The Master Franchisee shall
immediately notify the Franchisor of such offer by sending a written notice
via
courier, telegram or telefax to the Franchisor enclosing a copy of the written
offer from the proposed purchaser and receipt of such notice must be confirmed
in writing upon receipt by Franchisor. Such right of first refusal is effective
for each proposed assignment. Absence of a reply to the Master Franchisee's
notice of a proposed assignment within the 15 day period is deemed a waiver
of
such right of first refusal. The right of first refusal period will run
concurrently with the period in which the Franchisor has to approve or
disapprove the proposed transferee. If the Franchisor chooses not to exercise
its right of first refusal, the Master Franchisee shall be free to complete
the
sale, transfer or assignment, subject to compliance with all other
pre-conditions for assignment set forth herein.
12.4
Types
of Assignment.
The
Master Franchisee acknowledges that the Franchisor's right to approve or
disapprove of a proposed sale or transfer provided for herein shall only apply
to
any
proposed transfer or assignment of % or more of the stock or other ownership
interest in the Master Franchisee. With respect to a proposed transfer as
described in this paragraph, the Franchisor's right of first refusal to
purchase, as set forth above, shall not apply and the Franchisor will waive
any
transfer fee chargeable to the Master Franchisee for a transfer under these
circumstances. As long as Xxxx Xxxxxx retains an ownership interest in the
Master Franchisee, Franchisor approval shall not be required for transfers
or
proposed sales described in this section 12.4. Should Master Franchisee
determine it to be beneficial to transfer a different type of corporate entity
other than a Limited Liability Company, said new entity shall maintain a
provision that the entity cannot be dissolved solely by the removal or buy-out
of any one member.
12.5
Assignment
by Franchisor.
This
Agreement is fully assignable by the Franchisor and shall inure to the benefit
of any assignee or other legal successor in interest, provided that the assignee
agrees to assume all of Franchisor’s obligations under this Agreement. The
Franchisor shall also have the right to delegate the performance of any portion
or all of its obligations hereunder to third parties, whether the same are
agents of the Franchisor or independent contractors with whom the Franchisor
has
contracted to provide such services. The Master Franchisee agrees in advance
to
any such delegation by the Franchisor of any part or portion of its obligations
and duties hereunder.
29
13.1
Term.
The
term of this Agreement is for a period of 15 years from the date of this
Agreement, unless sooner terminated as provided herein.
13.2
Renewal.
At the
end of the initial term hereof the Master Franchisee may renew the franchise
rights granted hereunder for two consecutive 5 year terms if the Master
Franchisee:
13.2.1 Master
Franchisee is in compliance with all the terms and conditions of this Agreement
at the time of renewal, has cured any defaults within the time period specified
within this agreement, and has substantially complied with the terms of this
Agreement and with the operating standards and criteria established by
Franchisor throughout the initial term and any renewal term of this
Agreement;
13.2.2 Master
Franchisee has satisfied all monetary obligations owed to Franchisor and its
affiliates through this or any other agreement;
13.2.3 Master
Franchisee is in compliance with all other agreements between Master Franchisee
and Franchisor and/or its affiliates;
13.2.4 The
Master Franchisee may exercise its renewal option by giving notice of such
exercise to the Franchisor at least 120 days but no more than 180 days prior
to
the scheduled expiration of this Agreement and thereafter comply with other
conditions of renewal within 90 days after such notice.
13.2.5 Master
Franchisee executes Franchisor’s then-current form of Master Franchisee
agreement, which may vary materially from the terms of this Agreement, and
which, when executed, will supersede this Agreement in all
respects;
13.2.6 Master
Franchisee signs a general release in the form prescribed by Franchisor, in
favor of Franchisor and its affiliates and their respective officers, directors,
agents, and employees, for all claims arising out of or related to this
Agreement or any related agreements with Franchisor or its affiliates;
and
13.2.7 Master
Franchisee pays a Renewal fee $10,000.
30
13.2.8 The
Franchisor shall not be obligated to renew this
Agreement if the Master Franchisee fails to comply with any of the above
conditions of renewal. In such event, the Franchisor shall give notice of
nonrenewal at least 180 days prior to the expiration of the term, and such
notice shall set forth the reasons for such refusal to renew.Master Franchisee
will have 60 days from the date of their receipt of this notice to
cure.
14.
DEFAULT
AND TERMINATION
The
rights, licenses and territorial exclusivity granted to the Master Franchisee
under this Agreement have been granted in reliance on Master Franchisee's
representations and assurances, among others, that the conditions and
obligations set forth in Paragraphs 5 and 6 of this Master Franchise Agreement
will be met and performed in a timely manner. Master Franchisee may not
terminate this Agreement prior to the expiration of its term,
except
with the written consent of Franchisor, which consent Franchisor shall grant
at
its sole discretion.
14.1 Events
of Default, No Right to Cure.
The
rights, licenses and territorial exclusivity may be terminated upon the
happening of any of the following events, without opportunity to
cure:
14.1.1. If
Master
Franchisee is adjudicated bankrupt, becomes insolvent, suffers a permanent
or
temporary court-appointed receivership of substantially all of Master
Franchisee's property, makes a general assignment for the benefit of creditors
or suffers the filing of a voluntary or involuntary bankruptcy petition which
is
not dismissed within one year after filing;
14.1.3. If
Master
Franchisee is convicted of a material act of fraud, embezzlement or theft
resulting in material damage to Franchisor.
14.1.4. If
Master
Franchisee transfers any rights or obligations under this Agreement to any
party
without the prior written consent of Franchisor as required under Section 12
of
this Agreement;
14.1.5. If
Master
Franchisee, its owners, officers, or directors disclose to an unauthorized
third
party the contents of the Confidential Operations Manual or any other designated
trade secrets or confidential information provided by Franchisor;
or
14.1.6. If
Master
Franchisee receives 3 or more notices of material default of this or any other
Agreement with Franchisor or its affiliates within any consecutive 24-month
period during the term of this Agreement, whether or not such defaults are
timely cured by the Master Franchisee.
14.2.
Events
of Default with Right to Cure.
The
following events constitute grounds for termination of the rights, licenses
and
territorial exclusivity granted to the Master Franchisee under this Agreement,
with prior written notice from Franchisor and a 90-day cure opportunity to
cure:
14.2.1. If
the
Master Franchisee fails to comply with either of the Mandatory Development
Schedules;
14.2.2. If
Master
Franchisee fails, refuses, or neglects to pay as due any monies owed to the
Franchisor or its affiliates;
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14.2.3. If
Master
Franchisee fails to open and maintain throughout the term of this Agreement
a
prototype Shop as specified in Sections 5 of this Agreement.
14.2.4. If
Master
Franchisee is in default of any terms of this Agreement, any individual
franchise agreement, or any other agreement Master Franchisee may have entered
into with Franchisor or its affiliates;
14.2.5. If
Master
Franchisee fails to maintain and submit to Franchisor any financial reports
or
statements required by this Agreement;
14.2.6. If
Master
Franchisee or Master Franchisee’s employees fail to attend and successfully
complete any training programs required by Franchisor, or if the Master
Franchisee fails to maintain the appropriate number of Certified Employees
as
required under Section 5.4 of this Agreement;
14.2.7. If
Master
Franchisee fails to obtain the prior written approval of Franchisor of any
and
all advertising, marketing, or promotional plans and materials used by Master
Franchisee in connection with its promotion of the Java Detour Franchise or
if
Master Franchisee violates this Agreement or any state or federal law regarding
the sales or promotion of franchises;
14.2.8. If
Master
Franchisee fails to devote is best efforts to the development of the Territory
or attempts to promote or sell franchisees under any other System;
14.2.9.
If
there
is substantial noncompliance with Paragraph 5 herein;
14.2.10. If
Master
Franchisee misuses or makes any unauthorized use of the Marks
or any
Alternative Marks, engages in any business or markets any services or products
under a name or xxxx which is confusingly similar to the
Marks
or any Alternative Marks; or
14.2.11. If
Master
Franchisee fails to comply with the provision of Section 19.10
below.
14.2.
The
events of default and grounds for termination described in this Section 14
will
be in addition to any other grounds for termination and remedies contained
elsewhere in this Agreement or in any individual Franchise Agreement executed
between Franchisor and the Master Franchisee. No right or remedy herein
conferred upon or reserved to Franchisor is exclusive of any other right or
remedy provided or permitted by law or equity.
14.3. Upon
termination of the Master Franchise Agreement, Master Franchisee will no longer
be entitled to receiving royalty payments from franchisees within the territory,
and Franchisor is entitled to operate or assign these rights to another party
at
Franchisor's option. This release does not operate to Master Franchisee
owned stores in the teritory.
14.4 Post-Termination
Obligations of Master Franchisee.
The
Master Franchisee is obligated upon termination or nonrenewal of this Agreement
to:
14.4.1.
Pay
to
the Franchisor all fees, and any and all amounts or accounts payable then owed
the Franchisor or its affiliates pursuant to this Agreement, or pursuant to
any
other agreement, whether written or oral, between the parties, within 15 days
of
the effective date of such termination;
32
14.4.2.
Promptly
cease to identify the Master Franchise business as being, or having been,
associated with the Franchisor, and immediately cease using any of the Marks,
or
any xxxx in any way associated with the System for any purpose, except pursuant
to any other effective agreement with the Franchisor;
14.4.3.
Deliver
to the Franchisor all signs, sign-faces, advertising materials, stationery,
videotapes, forms and other materials bearing any of the Marks or otherwise
identified with the Franchisor within 60 days of termination;
14.4.4.
Deliver
to the Franchisor the Confidential Operations Manuals in its possession and
all
other information, documents and copies thereof which are proprietary to the
Franchisor within 60 days of termination;
14.4.5.
Promptly
take such action as may be required to cancel all trade names or equivalent
registrations relating to its use of any Marks of the Franchisor or, at the
option of the Franchisor, assign the same to the Franchisor;
14.5.6.
Abide
by
the provisions related to transfer of any and all of the Master Franchisee's
interest under any Franchise Agreements and Marketer Agreements, as set forth
below and offer to the Franchisor the option to take assignment of the Franchise
Agreements then in effect with Franchisees in the Territory;
14.4.7.
Deliver
to the Franchisor within
60
days of termination the names, addresses, telephone numbers and any other
information in the Master Franchisee's possession, regarding all sales leads
of
prospective Franchisees within the Territory;
14.4.8.
Promptly
notify the appropriate telephone company and all telephone directory listing
agencies of the termination or expiration of Master Franchisee's right to use
any telephone numbers and any regular, classified or other telephone directory
listings associated with any Proprietary Marks and authorize transfer of same
to
or at the direction of Franchisor. Master Franchisee agrees to execute updated
letters of direction to telephone companies and telephone directory listing
agencies directing termination and/or transfer of Master Franchisee's right
to
use telephone numbers associated with the Proprietary Marks, which Franchisor
may hold until termination or expiration hereof. Master Franchisee acknowledges
that as between Franchisor and Master Franchisee, Franchisor has the sole right
to and interest in all telephone numbers and directory listing associated with
any Proprietary Marks. Master Franchisee authorizes Franchisor, and hereby
appoints Franchisor and any officer of Franchisor as its attorney in fact,
to
direct the appropriate telephone company and all listing agencies to transfer
same to Franchisor or at is direction, should Master Franchisee fail or refuse
to do so, and the appropriate telephone company and all listing agencies may
accept such direction of this Agreement or Master Franchisee's letter of
direction held by Franchisor as conclusive of the exclusive rights of Franchisor
in such telephone number and directory listings and its authority to direct
their transfer; and
33
14.4.9. Furnish
to Franchisor, within 60 days after the effective date of termination or
expiration, evidence satisfactory to Franchisor of Master Franchisee's
compliance with the foregoing obligations.
14.4.10.
Abide
by
all restrictive covenants as set forth in Article 16 below.
14.4.11. Master
Franchisee shall promptly pay to Franchisor all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor as a result of
any
default on Master Franchisee’s part, which obligation shall give rise to and
remain, until paid in full, a lien in favor of Franchisor against any and all
of
Master Franchisee’s, furnishings, equipment, signs, fixtures and inventory
related to the operation of the Master Franchise and any individual Stores
Master Franchisee may operate.
14.5
Franchisor's
Assumption of Agreements.
If this
Agreement expires according to its terms, or is terminated or not renewed by
the
Franchisor due to any material breach in this Agreement by the Master
Franchisee, or is terminated by the Master Franchisee contrary to the terms
of
this Agreement, then the Franchisor shall have the option, but not the
obligation, to take assignment of any and all of the Master Franchisee's
interest as Master Franchisee (but not as Franchisee) under any Franchise
Agreements then in effect with Franchisees in the Territory, on its own or
its
designee's behalf. In the event the Franchisor
assumes the Master Franchisee's interest in such agreements, the Master
Franchisee shall have no further entitlement to any fees accruing after the
effective date of the assignment, and the Master Franchisee shall also transfer
all funds in the Advertising Account to the Franchisor or its
designee.
15.
RELATIONSHIP
OF THE PARTIES/INDEMNIFICATION
15.1
Independent
Businesspersons.
During
the term of this Agreement, the Master Franchisee shall be an independent
businessperson and shall in no way be considered as a general agent, partner
or
employee of the Franchisor. It is understood and agreed that no general agency
or partnership is created by this Agreement. As such, the Master Franchisee
has
no authority of any nature whatsoever to bind the Franchisor or incur any
liability for or on behalf of the Franchisor or to represent itself as anything
other than an independent contractor.
15.2
Indemnification.
The
Master Franchisee shall indemnify and hold harmless the Franchisor and its
officers, directors, employees, agents and representatives from all fines,
suits, proceedings, claims, demands or actions ("Claims") of any kind or nature,
including reasonable lawyers' fees, from any third party whomsoever, arising
or
growing out of, or otherwise connected with the Master Franchisee's operation
of
the Master Franchise business, or the Franchise Agreements as may now or
hereafter
be executed with Franchisees in the Territory, except and unless any such Claim
arises out of the authorized use of, or defense or protection of, the Marks
in
the Territory. If the Franchisor seeks indemnification hereunder with respect
to
the assertion of a Claim, it shall give notice to the Master Franchisee within
30 days of the Franchisor's becoming aware of any such Claim. The notice shall
set forth such information with respect to the Claim as is then reasonably
available to the Franchisor. The Master Franchisee will thereafter be entitled,
at any time during the defense of the Claim, if it so elects, by written notice
delivered to the Franchisor within 30 days after receiving the Franchisor's
notice, to assume the defense of the Claim with counsel satisfactory to the
Franchisor. Notwithstanding the foregoing, (i) the Franchisor shall have the
right to employ its own counsel in any such case (but the fees and expenses
of
such counsel shall be at the expense of the Franchisor as long as the Master
Franchisee continues to defend such matter), to defend such Claim, or to
compromise or settle such Claim insofar as such compromise or settlement does
not involve monetary damage or payment of money; (ii) the Franchisor shall
not
have any obligation to give any notice of a Claim by a third party unless such
Claim is in writing; and (iii) the rights of the Franchisor to be indemnified
herein shall not be deemed forfeited by its failure to give notice unless the
Master Franchisee is prejudiced by such failure. After receipt
of the aforesaid notice of a Claim, if the Master Franchisee fails to assume
the
defense of the Franchisor against such Claim, the Franchisor shall have the
right to undertake the defense and to compromise or settle such Claim on behalf
of and for the account and risk of the Master Franchisee, and at the Master
Franchisee's expense, payable to the Franchisor upon written
demand.
34
15.3
Indemnification
of Master Franchisee.
The
Franchisor shall indemnify and hold harmless the Master Franchisee and its
officers, directors, employees, agents and representatives from all fines,
suits, proceedings, claims, demands or actions ("Claims") of any kind or nature,
including reasonable lawyers' fees, from any third party whomsoever, arising
or
growing out of, or otherwise connected with the Franchisor’s policies and
procedures required of the Master Franchisee in the operation of the Master
Franchise business, or the franchise agreements as may now or hereafter be
executed with Franchisees in the Territory. If the Master Franchisee seeks
indemnification hereunder with respect to the assertion of a Claim, it shall
give notice to the Franchisor within 30 days of the Master Franchisee's becoming
aware of any such Claim. The notice shall set forth such information with
respect to the Claim as is then reasonably available to the Master Franchisee.
The Franchisor will thereafter be entitled, at any time during the defense
of
the Claim, if it so elects, by written notice delivered to the Master Franchisee
within 30 days after receiving the Master Franchisee's notice, to assume the
defense of the Claim with counsel satisfactory to the Master Franchisee.
Notwithstanding the foregoing, (i) the Master Franchisee shall have the right
to
employ its own counsel in any such case (but the fees and expenses of such
counsel shall be at the expense of the Master Franchisee as long as the
Franchisor continues to defend such matter), to defend such Claim, or to
compromise or settle such Claim insofar as such compromise or settlement does
not involve monetary damage or payment of money; (ii) the Master Franchisee
shall not have any obligation to give any notice of a Claim by a third party
unless such Claim is in writing; and (iii) the rights of the Master Franchisee
to be indemnified herein shall not be deemed forfeited by its failure to give
notice unless the Franchisor is prejudiced by such failure. After receipt of
the
aforesaid notice of a Claim, if the Franchisor fails to assume the defense
of
the Master Franchisee against such Claim, the Franchisee shall have the right
to
undertake the defense and to compromise or settle such Claim on behalf of and
for the account and risk of the Franchisor, and at the Franchisor's expense,
payable to the Master Franchisee upon written demand
16.
RESTRICTIVE
COVENANTS
16.1
Non-Competition
During Term.
While
this Agreement is in effect, the Master Franchisee and its officers, partners,
directors, agents or employees who have completed the Franchisor's initial
training program or had access to the Confidential Operations Manual, including
without limitation, the beneficial owners of a 5% or greater interest in the
Master Franchisee, where the Master Franchisee is a company, shall not, directly
or indirectly, engage in or participate, as an owner, officer, partner,
director, agent, franchise sales agent, employee or otherwise in any other
business which engages in, or licenses or franchises others to engage in, a
business which is the same or substantially similar to a Java Detour franchise
including, without limitation, any business which operates or licenses coffee
or
tea shops without having first obtained the Franchisor's written consent.
35
16.3
No
Interference.
The
Master Franchisee agrees that during the term of this
Agreement and for a period of two years thereafter, it shall in no way solicit
or attempt to solicit the employees of or the business or customers of, or
interfere with the business relationship established with employees or customers
of, the Franchisor or other Java Detour franchises.
16.4
Nondisclosure
and Noncompetition Agreement.
The
Master Franchisee shall require that any key individuals having access to
Operations Manuals or any other confidential materials execute a Nondisclosure
and that all Officers, Directors and Managers, if they are also owners, will
execute a Noncompetition Agreement containing the provisions as set forth
herein, and substantially similar to the Non Disclosure and Non Compete
Agreement attached as Exhibit F to this Agreement.
17.
INSURANCE
17.1
Insurance
Coverage.
Master
Franchisee must maintain insurance that may be required by law in connection
with its business as the Master Franchisee, and must further maintain
comprehensive general liability coverage. Master Franchisee must maintain all
insurance required under the individual franchise agreements under which it
operates Shops within the Territory.
17.2
Proof
of Insurance.
In
connection with all areas of liability coverage, Master Franchisee must submit
as proof of such insurance a fully paid insurance policy naming Franchisor
and
any other parties designated by Franchisor as additional insured parties, to
Franchisor for Franchisor's prior approval before commencing the business
contemplated hereunder. Any proposed changes in the insurance policies must
be
submitted to Franchisor for its prior approval. Master Franchisee must furnish
to Franchisor a copy of the then prevailing insurance policies with assurances
that the specified insurance is in full force and effect; that the insurance
covers Master Franchisee, Franchisor and other designated parties as their
respective interest may appear, and that said insurance policies will not be
canceled or modified by the insurer without written notice to Franchisor at
least 30 days prior to the proposed cancellation or modification including,
but
not limited to, products liability, property damage, personal injury, and
contractual liability, with a combined single limit of at least $2,000,000.00
or
such larger amount as Franchisor may reasonably require.
36
17.3. Each
insurance policy under this Agreement must contain a provision that the policy
cannot be canceled without 10 days written notice to Franchisor. All insurance
policies shall be issued by insurance companies with a financial rating of
at
least B status or better as rated in the most recent edition of Best’s Insurance
Reports. All insurance coverage must be approved of by Franchisor prior to
the
opening of Master Franchisee’s first Shop. Franchisor’s acceptance of an
insurance carrier does not constitute Franchisor’s representation or guarantee
that the insurance carrier will be capable of meeting claims during the term
of
the insurance policy. Master Franchisee must deliver a certificate of the
issuing insurance company evidencing each policy to Franchisor within 10 days
after the policy is issued or renewed.
18.
ENFORCEMENT
18.1
Applicable
Law.
This
Agreement shall be interpreted in accordance with the laws of the State of
California.
18.2
Internal
Dispute Resolution.
Master
Franchisee must first bring any claim or dispute between Master Franchisee
and
Franchisor to Franchisor’s President and/or Chief Executive Officer. Master
Franchisee must exhaust this internal dispute resolution procedure before
Franchisee may bring Franchisee’s dispute before a third party.
18.3 Mediation.
At
Franchisor’s option, all claims or disputes between Franchisor and the Master
Franchisee arising out of, or in any way relating to this Agreement, or any
of
the parties’ respective rights and obligations arising out of this Agreement,
shall be submitted first to mediation under the auspices of the International
Dispute Resolution Centre (“IDRC”) division of the American Arbitration
Association (“AAA”), in accordance with the IDRC’s commercial mediation rules
then in effect. Before commencing any legal action or arbitration against
Franchisor or its affiliates with respect to any such claim or dispute, Master
Franchisee must submit a notice to Franchisor which specifies, in detail, the
precise nature and grounds of such claims or dispute. Franchisor will have
a
period of thirty (30) days following receipt of such notice within which to
notify Master Franchisee as to whether Franchisor or its affiliates elects
to
exercise its option to submit such claim or dispute to mediation. Master
Franchisee may not commence any action against Franchisor or its affiliates
with
respect to any such claim or dispute in any forum unless Franchisor fails to
exercise its option to submit such claim or dispute to mediation, or such
mediation proceedings have been terminated either: (i) as the result of a
written declaration of the mediator(s) that further mediation efforts are not
worthwhile; or (ii) as a result of a written declaration by Franchisor.
Franchisor’s rights to mediation, as set forth herein, may be specifically
enforced by Franchisor.
37
18.4
Arbitration.
Except
as otherwise provided in this Agreement, all controversies, disputes or claims
arising between the Franchisor, its affiliates, and their respective officers,
directors, shareholders, partners, agents, employees and attorneys (in their
representative capacity) and Master Franchisee (and its owners, offices,
directors, principals, Designated Managers, and Certified Employees and the
guarantors of this Agreement) arising out of or related to the relationship
of
the parties hereto, this Agreement or any provision hereof, any Franchise
Agreement or any related agreement, the validity of this Agreement or any
provision hereof or any System Standard relating to the establishment or
operation of a Store shall be submitted for arbitration to be administered
in
accordance with the rules and procedures of arbitration of the IDCR. Such
arbitration shall be filed and litigated to conclusion in Davis, California
on
demand of either party. The following shall supplement and, in the event of
a
conflict, govern any arbitration:
18.4.1.
All
disputes shall be heard by a panel of three arbitrators who shall interpret
this
Agreement in accordance with the laws of California in accordance with the
then
current commercial arbitration rules of the IDRC for international commercial
arbitration. Each party shall appoint its own arbitrator, and the appointed
arbitrators shall appoint a "neutral" arbitrator from the AAA's list of
arbitrators. Each party shall bear their own costs of arbitration including
the
fee for their respective arbitrator; provided, however, that the parties will
share equally the neutral arbitrator's fee. The arbitrators shall have no
authority to amend or modify the terms of the Agreement. All arbitration
proceedings shall be conducted in Davis, California. All matters within the
scope of the Federal Arbitration Act of the United States (9 U.S.C. §§1 et seq.)
shall be governed by it.
18.4.2.
The
arbitrators shall have the right to award or include in their award any relief
which they deem proper in the circumstances, including without limitation,
money
damages (with interest on unpaid amounts from date due), specific performance,
injunctive relief, legal fees and costs in accordance with this Section 18,
provided that the arbitrators shall not have the authority to award exemplary,
punitive or special damages. The award and decision of the arbitrators shall
be
conclusive and binding upon all parties hereto and judgment upon the award
may
be entered in any court of competent jurisdiction. The parties further agree
to
be bound by the provisions of any applicable limitation on the period of time
in
which claims must be brought under applicable law or this Agreement, whichever
is less.
18.4.3.
Specifically
excepted from this arbitration provision are any claims for money damages
Franchisor may have against Master Franchisee. The parties agree that Franchisor
may, at its election, bring these claims in any court of competent
jurisdiction.
18.4.4. Master
Franchisee and the Franchisor agree that there shall be no class action
arbitration and that no arbitration proceeding conducted pursuant to this
Agreement shall be consolidated with any other arbitration proceeding involving
Franchisor and any other individual, corporation, partnership or
entity.
18.4.5.
The
provisions of this Section 18 are intended to benefit and bind certain third
party non-signatories and will continue in full force and effect subsequent
to,
and notwithstanding the expiration or the termination of this Agreement, and
any
subsequent renewal periods.
38
18.5
Governing
Law.
This
Agreement shall be governed by the laws of the State of California. Any action
not subject to arbitration shall be commenced and litigated to conclusion only
in a court of general jurisdiction located in California. Master Franchisee
acknowledges that this Agreement has been entered into in the State of
California and that Master Franchisee is to receive valuable and continuing
services in California, including initial and ongoing assistance and support
in
all aspects of the Master Franchise Business. In recognition of such services
and their origin, Master Franchisee hereby irrevocably consents to the personal
jurisdiction of the state and federal courts of California as set forth
above.
18.6 Notice. As
a
condition precedent to commencing an action for damages or for violation or
breach of this Agreement, Master Franchisee must notify Franchisor within thirty
(30) days after the occurrence of the violation or breach and failure to timely
give such notice shall preclude any claim for damages.
18.7 Injunctive
Relief.
Nothing
in this Agreement shall prevent Franchisor from obtaining injunctive relief
against threatened conduct that will cause it loss or damages under the usual
equity rules, including the applicable rules for obtaining restraining orders
and preliminary and permanent injunctions.
18.8 Limitation
of Action.
The
parties further agree that no cause of action arising out of or under this
Agreement may be maintained by either party against the other unless brought
before the expiration of two (2) years after the act, transaction or occurrence
upon which such action is based or the expiration of one (1) year after the
complaining party becomes aware of facts or circumstances reasonably indicating
that such party may have a claim against the other party hereunder, whichever
occurs sooner and that any action not brought within this period shall be barred
as a claim, counterclaim, defense or set-off.
18.9 Waiver
of Punitive Damages.
Master
Franchisee waives to the fullest extent permitted by law, any right to or claim
for any punitive, exemplary, incidental, indirect, special or consequential
damages (including, without limitation, lost profits) against Franchisor arising
out of any cause whatsoever (whether such cause be based in contract,
negligence, strict liability, other tort or otherwise) and agree that in the
event of a dispute, Master Franchisee's recovery is limited to actual damages.
If any other term of this Agreement is found or determined to be unconscionable
or unenforceable for any reason, the foregoing provisions shall continue in
full
force and effect, including, without limitation, the waiver of any right to
claim any consequential damages.
18.10
Jury
Trial Waiver.
The
parties hereby agree to waive trial by jury in any action, proceeding or
counterclaim, whether at law or equity, regardless of which party brings suit.
This waiver shall apply to any matter whatsoever between the parties hereto
which arises out of or is related in any way to this Agreement.
18.11. Third
Party Beneficiaries.
Franchisor’s officers, directors, shareholders, agents and/or employees are
express third party beneficiaries of the arbitration provisions set forth in
this Section 18, each having authority to specifically enforce the right to
mediate claims asserted against such person(s) by Franchisee. Moreover,
Franchisor, its officers, directors, shareholders, and agents shall be express
third party beneficiaries to any franchise agreements Master Franchisee may
enter into with franchisee’s in the Territory.
39
18.12. Cumulative
Rights.
The
rights of the Franchisor are cumulative and no exercise or enforcement by
franchisor of any right or remedy hereunder shall preclude the exercise or
enforcement by Franchisor of any other right or remedy hereunder or which
Franchisor is entitled by applicable law.
18.13. Governing
Language.
The
governing and official language of this Agreement shall be English, without
reference to any translation. All notices, requests, demands, acceptances or
other communications given under this Agreement shall be in English.
19.
MISCELLANEOUS
PROVISIONS
19.1
Modification.
Franchisor may modify this Agreement only upon the execution of a written
agreement by Franchisor and Master Franchisee. Franchisor reserves and will
have
the sole right to make changes in the Manual, the System and the Proprietary
Marks at any time and without prior notice to Master Franchisee. Master
Franchisee must promptly alter any signs, products, business materials or
related items, at its sole cost and expense, upon written receipt of notice
of
such change or modification in order to conform to Franchisor’s revised
specifications. In the event that any improvement or addition to the Manual,
the
System or the Proprietary Marks is developed by Master Franchisee, then Master
Franchisee agrees to grant to Franchisor an irrevocable, world-wide, exclusive,
royalty-free license, with the right to sublicense such improvement or
addition.
Master
Franchisee understands and agrees that due to changes in competitive
circumstances, presently unforeseen changes in the needs of customers, and/or
presently unforeseen technological innovations, Franchisor's System must not
remain static, in order that it best serve the interests of Franchisor, Master
Franchisee and the System. Accordingly, Master Franchisee expressly understands
and agrees that Franchisor may from time to time change the components of the
System, including but not limited to, altering the programs, services, methods,
standards, forms, policies and procedures of that System; adding to, deleting
from or modifying those programs, products and services which the Shop is
authorized to offer; and changing, improving or modifying the Proprietary Marks.
Subject to the other provisions of this Agreement, Master Franchisee expressly
agrees to abide by any such modifications, changes, additions, deletions and
alterations.
19.2
Delegation.
The
Master Franchisee may not delegate any of its duties under this Agreement,
unless it has received the prior written consent of the Franchisor.
40
19.4
No
Right to Set-Off.
The
Master Franchisee shall not be allowed to set off amounts owed to the Franchisor
in respect of any amounts due hereunder, against any monies owed to the Master
Franchisee, which right of set off is hereby expressly waived by the Master
Franchisee.
19.5
Fees
and Costs.
In the
event of any default on the part of either party to this Agreement, in addition
to all other remedies, the party in default will pay the aggrieved party all
amounts due and all damages, costs and expenses, including reasonable attorneys'
fees and translation costs, incurred
by the aggrieved party in any legal action, arbitration or other proceeding
as a
result of such default, plus interest at the lesser of 20% annually or the
highest rate allowable by law, accruing from the date of such default.
19.6
Severability.
If any
provision of this Agreement is held invalid in a final decision from which
no
appeal is or can be taken, such provision shall be deemed modified to eliminate
the invalid element and, as so modified, such provision shall be deemed a part
of this Agreement as though originally included. The remaining provisions of
this Agreement shall not be affected by such modification.
19.7
Notices.
All
notices required to be given under this Agreement shall be given in writing,
by
certified mail, or by hand, or by an overnight delivery service providing
documentation of receipt, at the addresses set forth in the first paragraph
of
this Agreement or at such other addresses as the Franchisor or the Master
Franchisee may designate from time to time, and shall be deemed to be received
seven days from the date of mailing registered mail, or when received via
overnight delivery, or immediately if delivered by hand, as may be applicable.
19.8
Excuse
of Performance.
Notwithstanding anything contained in this Agreement to the contrary, the
obligations of the parties hereto shall be subject to all the laws, both present
and future, of any requests of any such government
or any department, agency or corporation thereof, and to war, acts of God,
or
any cause of like or different kind beyond the control of the parties, and
the
parties shall be excused from performance of any obligation hereunder to the
extent such failure is caused by any law, order, regulation, direction, request
or contingency; provided, however, that such excuse of performance shall be
limited to the period during which such excuse of performance exists and shall
not affect the running of the term of this Agreement.
19.9
Approval
Within Territory.
Any
approval of this Agreement by the appropriate authorities in the Territory
which
is required to enable the Master Franchisee to enter into this Agreement,
perform under the terms of this Agreement, do business with the Franchisor,
or
to make payments to the Franchisor hereunder in United States dollars in the
United States of America shall be the sole responsibility of the Master
Franchisee, except as otherwise set forth herein.
19.10.
Compliance
with U.S., Middle Eastern, and other Anti-Terrorist and Related Laws and
Regulations.
Master
Franchisee acknowledges that Franchisor is an American franchisor and certifies
that neither Master Franchisee nor its owners, officers, directors, or
principals is an American franchisor and certifies that neither Master
Franchisee nor Master Franchisee’s owners, officers, directors , or employees,
affiliates, or anyone associated with Master Franchisee is listed in the Annex
to Executive Order 13224
(xxxx://xxx.xxxxxxxx.xxx/xxxxxxx/xxxxxxxxxxx/xxxx/xxxxxxxxx/xxxxxxxxx.xxxx).
41
Master
Franchisee agrees not to hire or have any dealings with a person listed in
the
Annex. Master Franchisee certifies that it has no knowledge of information
that,
if generally known, would result in Master Franchisee, its Owners, employees,
or
anyone associated with Master Franchisee being listed in the Annex to Executive
Order 132234. Master Franchisee agrees to comply with and/or assist Franchisor
to the fullest extent possible in Franchisor’s efforts to comply with the
Anti-Terrorism Laws (as defined below). In connection with such compliance,
Master Franchisee certifies, represents, and warrants that none of its property
or interests are subject to being “blocked” under any of the Anti-Terrorism Laws
and that Master Franchisee and its owners are not otherwise in violation of
any
of the Anti-Terrorism Laws. Master Franchisee is solely responsible for
ascertaining what actions must be taken by Master Franchisee to comply with
all
such Anti-Terrorism Laws, and Master Franchisee specifically acknowledges and
agrees that Master Franchisee’s indemnification responsibilities as provided in
Section 15 of this Agreement pertain to Franchisee’s obligations under this
Agreement. Any misrepresentation by Master Franchisee under this Section or
any
violation of the Anti-Terrorism Laws by Master Franchisee, its Owners, or
employees shall constitute grounds for immediate termination of this Agreement
and any other agreement Master Franchisee has entered into with Franchisor
or
one of Franchisor’s affiliates in accordance with the terms of Section 13.B of
this Agreement. As used herein, “Anti-Terrorism Laws” means Executive Order
13224 issued by the President of the United States, the Terrorism Sanctions
Regulations (Title 31, Part 595 of the U.S. Code of Federal Regulations), the
Foreign Terrorist Organizations Sanctions Regulations (Title 31, Part 597 of
the
U.S. Code of Federal Regulations), the Cuban Assets Control Regulations (Title
31, Part 515 of the U.S. Code of Federal Regulations), the USA PATRIOT Act,
and
all other present and future federal, state and local laws, ordinances,
regulations, policies, lists and any other requirements of any governmental
authority of the United States or any of the countries encompassed by the
Territory (including, without limitation, the United States Department of
Treasury Office of Foreign Assets Control) addressing or in any way relating
to
terrorist acts and acts of war.
IN
WITNESS WHEREOF, the parties have executed this Agreement effective as of the
day and year first above written. Facsimile signatures will be deemed original
for all purposes.
| JAVA UNIVERSE, LLC | JAVA DETOUR, INC. | ||
| Signature: |
|
Signature: /s/ Xxxxxxx Xxxxxxxxx | |
|
|
|
||
|
By:
|
|
By: Xxxxxxx Xxxxxxxxx | |
|
Title
|
Title: CEO |
42
EXHIBIT
A
to
JAVA
DETOUR’S
TERRITORY
The
following Countries:
Tunisia
Egypt
Morocco
Somalia
Chad
Israel
Algeria
Libya
Sudan
Republic
of Yemen
Djibouti
Mauritsen
Umm
al
Qaiwain
Ras
al
Khaimah
Bahrain
Iran
Iraq
Jordan
Kuwait
Lebanon
Omar
Qatar
Saudi
Arabia
Syria
Dubai
Abu
dhabi
Fujairah
Agman
Sharjah
EXHIBIT
B
TO
JAVA
DETOUR’S
BY
AND
BETWEEN
JAVA
DETOUR, INC.
AND
JAVA
UNIVERSE, LLC
DATED
March 30, 2007
MASTER
FRANCHISEE represents and warrants that it is duly organized and validly
existing in good standing under the laws of the jurisdiction of its
incorporation or organization, is qualified to do business in all jurisdictions
in which its business activities or the nature of properties owned by MASTER
FRANCHISEE requires such qualification, and has the corporate or other authority
to execute, deliver and carry out all of the terms of this
Agreement.
MASTER
FRANCHISEE further represents and warrants that all Owners and their interests
in MASTER FRANCHISEE are completely and accurately listed on this Exhibit B
and
that MASTER FRANCHISEE will execute such revised Exhibits C as may be necessary
during the term of this Agreement to reflect any changes in the information
contained in the original Exhibit B.
OWNERSHIP
INTERESTS
1. Ownership
Structure.
MASTER
FRANCHISEE is a corporation, limited liability company, partnership or other
entity, MASTER FRANCHISEE and its Owners represent and warrant that the
Ownership structure of MASTER FRANCHISEE is as follows:
|
Name
of Owner, Shareholder Member
or Partner |
Percentage
Of Total Ownership
Interest |
|
|
___________________________
|
___%
|
|
|
___________________________
|
___%
|
|
|
___________________________
|
___%
|
|
|
___________________________
|
___%
|
MASTER
FRANCHISEE, its Owners, shareholders, members or partners listed above (the
“Named Persons”) are not named and will not be named as “Specially Designated
Nationals” or “Blocked Persons” as designated by the United States Department of
the Treasury’s Office of Foreign Asset Control. The Named Persons are not and
will not become controlled by, or act directly or indirectly on behalf of,
the
governmental authorities of any country that is subject to a United States
embargo. No governmental entity, official of an international organization,
political party or official of any political party, or candidate for public
office has any direct or indirect ownership interest in the Named Persons or
in
the respective revenues or profits.
|
|
||
| |
|
|
| By: | ||
|
|
||
| Its: | ___________________________________ | |
EXHIBIT
C
TO
THE MASTER FRANCHISE AGREEMENT
BY
AND BETWEEN
JAVA
DETOUR, INC.
AND
JAVA
UNIVERSE, LLC
DATED
March 30, 2007
As
of the
date of this Agreement, MASTER FRANCHISEE shall be authorized to use the
following Marks in connection with the franchising of the JAVA DETOUR® business
pursuant to this Agreement. Master Franchisee acknowledges and agrees that
Master Franchisee presently has and shall acquire no ownership or proprietary
interest in the Marks. These Marks are subject to change from time to
time:
|
XXXX
|
REGISTRATION
OR
|
CLASS
|
|
APPLICATION
NO.
|
(REGISTRATIONS
AND/OR APPLICATIONS ARE IN PLACE AND WILL BE SUPPLIED BEFORE SIGNING OF THIS
AGREEMENT)
|
JAVA
DETOUR, INC.
|
|
|
 |
||
|
By:
Xxxxxxx Xxxxxxxxx
|
By:
|
|
|
|
||
|
Its:
CEO
|
Its:
|
|
EXHIBIT
D
ELECTRONIC
FUND TRANSFER AGREEMENT
DATED
March 30, 2007
BY
AND
BETWEEN
JAVA
DETOUR, INC.
AND
JAVA
UNIVERSE, LLC
|
Bank
Name
|
: | ______________________ |
|
ABA#
|
: | ______________________ |
|
Acct.
No.
|
: | ______________________ |
|
Acct.
Name
|
: | ______________________ |
Effective
as of the date of the signature below, [Master Franchisee’s Name] hereby
authorizes Java Detour (“Franchisor”) or its designee to withdraw funds from the
above-referenced bank account, electronically or otherwise, to make all payments
due to Franchisor under the Master Franchise Agreement, including, but not
limited to all Royalty Fees and all contributions to the Fund or Regional Fund.
Such withdrawals shall occur on a weekly basis, or on such other schedule,
as
Franchisor shall specify in writing. Franchisor is also authorized to deposit
funds into the above-referenced account, electronically or otherwise. This
authorization shall remain in full force and effect until terminated in writing
by Franchisor. [Master Franchisee Name] shall provide Franchisor, in conjunction
with this authorization, a voided check from the above-referenced account.
| FRANCHISEE | |
|
By:
|
|
|
|
|
|
|
|
|
Title:
|
|
EXHIBIT
E
FRANCHISEE
MINIMUM QUALIFICATION STANDARDS
DATED
March 30, 2007
BY
AND
BETWEEN
JAVA
DETOUR, INC.
AND
JAVA
UNIVERSE
Prospective
franchisees xxxxx have the following:
|
1.
|
Net
worth of $500,000 US dollars
|
|
2.
|
Good
credit standing
|
|
3.
|
3
years of business experience
|
EXHIBIT
F
to
JAVA
DETOUR, INC.’S
MASTER
FRANCHISE AGREEMENT
CONFIDENTIALITY
AND RESTRICTIVE COVENANT AGREEMENT
(for
shareholders, officers, directors,
general partners, members and managers and Key Manager of Master
Franchisee)
In
consideration of my being a ________________________________________
of _______________________
(the
"Master Franchisee"), and other good and valuable consideration, the receipt
and
sufficiency of which is acknowledged, I hereby acknowledge and agree that:
_______________,
doing
business as ___________
(the
"Master Franchisee"), has acquired the right and master franchise from Java
Detour, Inc. (the "Company") to establish and operate and license to others
the
right to establish and operate Java Detour Stores (the "Franchised Business")
and the right to use in the operation of the Stores and in the grant of
franchises the Company's trade names, trademarks and service marks (the
"Proprietary Marks") and the Company's unique and distinctive format and system
relating to the establishment and operation of Stores (the "System"), as they
may be changed, improved and further developed from time to time in the
Company's sole discretion, only in the following authorized and approved
territory(s):
____________________________________________________________________________ (the
“Territory").
1. The
Company possesses certain proprietary and confidential information relating
to
the operation of the System, which includes certain trade secrets, recipes
and
copyrighted materials, methods and other techniques and know-how (the
"Confidential Information").
2. Any
and
all information, knowledge, know-how, and techniques which the Company
specifically designates as confidential shall be deemed to be Confidential
Information for purposes of this Agreement.
3. As
___________ of
the
Master Franchisee, the Company and Master Franchisee will disclose the
Confidential Information to me in furnishing to me the training program and
subsequent ongoing training, the Java Detour, Inc. Operations Manual (the
"Manual") and other general assistance during the term of this Agreement.
4. I
will
not acquire any interest in the Confidential Information, other than the right
to utilize it in the operation of the Franchised Business during the term
hereof, and the use or duplication of the Confidential Information for any
use
outside the System would constitute an unfair method of competition.
5. The
Confidential Information is proprietary, involves trade secrets of the Company,
and is disclosed to me solely on the condition that I agree, and I do hereby
agree, that I shall hold in strict confidence all Confidential Information
and
all other information designated by the Company as confidential. Unless the
Company otherwise agrees in writing, I will disclose and/or use the Confidential
Information only in connection with my duties as ______________________
of
the
Master Franchisee, and will continue not to disclose any such information even
after I cease to be in that position and will not use any such information
even
after I cease to be in that position unless I can demonstrate that such
information has become generally known or easily accessible other than by the
breach of an obligation of Master Franchisee under the Franchise
Agreement.
6. Except
as
otherwise approved in writing by the Company, I shall not, while in my position
with the Master Franchisee, and for a two year following termination of this
Agreement for any reason, for myself, or through, on behalf of, or in
conjunction with any person, persons, partnership, corporation or limited
liability company, own, maintain, engage in, be employed by, or have any
interest in any other business which operates or licenses any other retail
Franchised Business which sells hot and cold gourmet and specialty coffee
drinks, specialty teas, cold blended beverages, fruit smoothies and other
non-alcoholic beverages, and the sale of baked goods, coffee beans, dry tea
and
related merchandise, except a Java Detour Franchised Business operating under
the System and Proprietary Marks.
7. I
agree
that each of the foregoing covenants shall be construed as independent of any
other covenant or provision of this Agreement. If all or any portion of a
covenant in this Agreement is held unreasonable or unenforceable by a court
or
agency having valid jurisdiction in an unappealed final decision to which the
Company is a party, I expressly agree to be bound by any lesser covenant
subsumed within the terms of such covenant that imposes the maximum duty
permitted by law, as if the resulting covenant were separately stated in and
made a part of this Agreement.
8. I
understand and acknowledge that the Company shall have the right, in its sole
discretion, to reduce the scope of any covenant set forth in this Agreement,
or
any portion thereof, without my consent, effective immediately upon receipt
by
me of written notice thereof; and I agree to comply forthwith with any covenant
as so modified.
9. The
Company, and its officers, directors, principals, and agents are third-party
beneficiaries of this Agreement and may enforce it, solely and/or jointly with
the Master Franchisee. I am aware that my violation of this Agreement will
cause
the Company and the Master Franchisee irreparable harm; therefore, I acknowledge
and agree that the Master Franchisee and/or the Company may apply for the
issuance of an injunction preventing me from violating this Agreement, and
I
agree to pay the Master Franchisee and the Company all the costs it/they
incur(s), including, without limitation, legal fees and expenses, if this
Agreement is enforced against me. Due to the importance of this Agreement to
the
Master Franchisee and the Company, any claim I have against the Master
Franchisee or the Company is a separate matter and does not entitle me to
violate, or justify any violation of this Agreement.
10. This
Agreement shall be construed under the laws of the State of California. The
only
way this Agreement can be changed is in writing signed by both the Master
Franchisee and me.
|
Signature:
|
|
|
Name:
|
|
|
Address:
|
|
|
Title:
|
|
ACKNOWLEDGED
BY FRANCHISEE
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
