EXHIBIT 10.10
CHANGE OF MIND LEARNING SYSTEMS
FRANCHISE AGREEMENT
TABLE OF CONTENTS
SECTION PAGE
1. APPOINTMENT AND FRANCHISE FEE.........................................2
2. TERM AND RENEWAL......................................................3
3. BUSINESS LOCATION.....................................................4
4. TRAINING AND ASSISTANCE...............................................6
5. MARKS.................................................................7
6. CONFIDENTIAL OPERATIONS MANUAL........................................8
7. CONFIDENTIAL INFORMATION..............................................9
8. MODIFICATION OF THE SYSTEM...........................................10
9. ADVERTISING..........................................................10
10. ROYALTY FEE; SOFTWARE LICENSING FEE..................................13
11. BUSINESS PLAN, ACCOUNTING AND RECORDS................................15
12. STANDARDS OF QUALITY AND PERFORMANCE.................................15
13. OPERATIONS ASSISTANCE................................................19
14. INSURANCE............................................................20
15. COVENANTS............................................................22
16. DEFAULT AND TERMINATION..............................................24
17. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION..........26
18. TRANSFERABILITY OF INTEREST..........................................28
19. DEATH OR INCAPACITY..................................................32
20. RIGHT OF FIRST REFUSAL...............................................33
21. INDEPENDENT CONTRACTOR AND INDEMNIFICATION...........................33
22. APPROVALS............................................................34
23. NON-WAIVER...........................................................34
24. NOTICES..............................................................34
25. ENFORCEMENT..........................................................35
26. ENTIRE AGREEMENT.....................................................36
27. SEVERABILITY AND CONSTRUCTION........................................36
28. APPLICABLE LAW.......................................................37
29. MEDIATION............................................................37
30. OWNER AGREEMENT......................................................38
31. CAVEAT...............................................................38
32. ACKNOWLEDGMENTS......................................................38
EXHIBITS
A. PROTECTED AREA
B. OWNER AGREEMENT
C. LEASE ADDENDUM
i
6MBB021600
7MBB022900
1QTJ020701
CHANGE OF MIND LEARNING SYSTEMS
FRANCHISE AGREEMENT
This Franchise Agreement (this "Agreement"), made this ________ day of
_______________, 20___, by and between CHANGE OF MIND LEARNING SYSTEMS, INC., a
Minnesota corporation ("we" or "us"), and ______________________________________
("you").
BACKGROUND:
A. Our predecessor and we have developed a unique System ("System"),
identified by the Xxxx CHANGE OF MIND LEARNING SYSTEMS relating to the operation
of facilities providing supplemental education services to learners of all ages
using Direct Instruction model ("Franchised Business"). We may in the future
develop and introduce into the System a line of educational materials and other
items bearing the Marks ("Trademarked Products"), and develop additional
services, specifications, standards and marketing techniques, all of which may
be changed, improved or further developed by us from time to time.
B. The distinguishing characteristics of the System include, without
limitation, personalized assessment with direct instruction in reading, writing,
spelling, math and study skills. The distinguishing characteristics of the
System also include distinctive interior and exterior design, signage, layout,
decor and color scheme; specialized educational materials and equipment; the
CHANGE OF MIND LEARNING SYSTEMS Confidential Operations Manual ("Manual"); the
Proprietary Software Package ("Software"); uniform operating methods, procedures
and techniques; other confidential operations procedures; and methods and
techniques for inventory and cost controls, record keeping and reporting,
personnel management and training, purchasing, marketing, sales promotion and
advertising, all of which may be changed, improved, further developed and
replaced in whole or in part by us from time to time.
C. We are the owner of the right, title and interest and goodwill
relating to the trade names, service marks and trademarks CHANGE OF MIND
LEARNING CENTERS and CHANGE OF MIND LEARNING CENTERS, plus the design, CHANGE OF
MIND LEARNING SYSTEMS, associated logos, commercial symbols and such other trade
names, service marks and trademarks as are now designated (and may later be
designated by us in writing) as part of the System ("Marks").
D. We grant to certain qualified persons franchises to own and operate
CHANGE OF MIND LEARNING SYSTEMS businesses providing products and services
authorized and approved by us in utilizing the System and Marks, and you desire
to operate a Franchised Business under the System and wish to obtain a franchise
from us for that purpose.
1
E. You understand and acknowledge the importance of our high standards
of quality and service and the necessity of operating the Franchised Business in
conformity with our standards and specifications.
We and you hereby agree as follows:
1. APPOINTMENT AND FRANCHISE FEE
A. We grant to you, upon the terms and conditions of this Agreement,
the personal right and franchise to conduct the Franchised Business in
accordance with the System, as it may be changed, improved and further developed
from time to time, including the use of the Marks. You undertake the obligation
to operate such Franchised Business strictly in accordance with the System as it
may be changed, improved and further developed from time to time solely by us,
at one location only, such location to be:
1. ___________________________________________________________
________________________________________________________________("Premises"); or
2. designated, as provided in Section 3 within the following
area: _________________________________________________________________________.
Provided, however, that when a location has been designated and approved by the
parties, the location shall be deemed to have been designated in Section 1.A.1.,
as if originally set forth above. You may not delegate, subfranchise or
sublicense any of your rights under this Agreement. You may not use the Premises
for any purpose other than the operation of the Franchised Business.
B. So long as this Agreement is in force and effect and you are not in
default under any of the terms of this Agreement, we will not locate or license
anyone else to locate a CHANGE OF MIND LEARNING SYSTEMS Franchised Business
within the following area: _____________________________________________________
________________________________________________________________________________
________________________________________________________________________________
("Protected Area"). The determination of the Protected Area has been made and
agreed upon between us and you. The Protected Area is described in writing on
Exhibit A. We reserve the right, in our sole discretion, to establish and/or
franchise other CHANGE OF MIND LEARNING SYSTEMS businesses outside of the
Protected Area as we, in our sole and exclusive discretion, deem appropriate.
Franchisees' and other CHANGE OF MIND locations outside of your Protected Area
may solicit customers located in your Protected Area.
1. Although we shall not operate a CHANGE OF MIND LEARNING
SYSTEMS business located inside the Protected Area, we reserve the right, both
within and outside of the Protected Area, to offer and sell at wholesale, retail
or through any other distribution system, products and services
2
which comprise, or may in the future comprise a part of the System, which
products may be resold at retail or through any other distribution channel to
the general public by such entities.
2. We reserve any and all rights not expressly granted to you
under this Agreement. We further reserve the right both within and outside the
Protected Area to sell at both wholesale and retail all products and services
which do not comprise a part of the System. We reserve all rights to promote and
advertise the System, Trademarked Products and related services by means of the
Internet and similar mediums. You shall not advertise by means of the Internet
except as specifically approved by us. We also reserve the right, both within
and outside the Protected Area, to establish learning centers under a format,
trademarks and service marks distinct from the CHANGE OF MIND LEARNING SYSTEMS.
C. You shall pay to us upon execution of this Agreement, an initial
Franchise Fee ("Franchise Fee") of _________________ Dollars ($_________). The
Franchise Fee is deemed fully earned and non-refundable upon execution of this
Agreement as consideration for expenses incurred by us in furnishing assistance
and services to you and for our lost or deferred opportunity to franchise
others.
D. You acknowledge that because complete and detailed uniformity under
many varying conditions may not be possible or practical, we specifically
reserve the right and privilege, at our sole discretion and as we may deem in
the best interests of all concerned in any specific instance, to vary standards
for any other franchisee's Franchised Business based upon the peculiarities of
the particular site or circumstance, population of trade area, density of
population, business potential, existing business practices or any other
condition or factor which we deem to be of importance to the successful
operation of such franchisee's business. You shall not be entitled to require us
to disclose or grant to you a like or similar variation.
2. TERM AND RENEWAL
A. This Agreement shall be effective and binding from the date of its
execution by us for an initial term of ten (10) years from the date of this
Agreement.
B. You have the right to renew this franchise at the expiration of the
initial term of the franchise for additional successive terms of ten (10) years
each, provided that all of the following conditions have been fulfilled:
1. You have, during the entire term of this Agreement and any
subsequent renewals, complied with all its provisions;
2. You maintain possession of the Premises and by the
expiration date of this Agreement have brought the Franchised Business and the
Premises into full compliance with the specifications and standards then
applicable for a new or renewing Franchised Businesses and present evidence
satisfactory to us that you have the right to remain in possession of the
Premises for the duration of any renewal term; and have at your sole cost and
expense (with respect to which we have not made any estimate or other
representation), furnished, stocked, equipped, remodeled, redesigned, modernized
or
3
redecorated the Premises to bring the Franchised Business into full compliance
with the then-current specifications and standards;
3. You have given notice of renewal to us as provided below;
4. You have satisfied all monetary obligations owed to us and
our affiliates and have timely met these obligations throughout the term of this
Agreement;
5. You have executed our then-current form of Franchise
Agreement (with appropriate modifications to reflect the fact that the Franchise
Agreement relates to the grant of a renewal franchise), which Franchise
Agreement shall supersede in all respects this Agreement, and the terms of which
may differ from the terms of this Agreement including, without limitation, a
different percentage Continuing Services and Royalty Fee ("Royalty Fee"),
advertising contribution or territorial grant; provided, however, you shall not
be required to pay the then-current Franchise Fee or its equivalent;
6. You have complied with our then-current qualification and
training requirements; and
7. You have executed a general release, in the then-current
form prescribed by us, of any and all claims against us and our affiliates, as
well as our officers, directors, agents, shareholders and employees.
C. You shall give us written notice of your desire to renew at least
six (6) months, but not more than twelve (12) months, prior to the expiration of
the term of this Agreement. Within ninety (90) days after our receipt of such
timely notice, we shall furnish you with written notice of: (i) reasons which
could cause us not to grant a renewal to you including any deficiencies which
require correction; and (ii) our then-current requirements relating to the
image, appearance, decor and equipment for the Franchised Business, and a
schedule for completing the upgrading or modifications in order to bring the
Franchised Business in compliance. Renewal of the franchise shall be conditioned
upon your compliance with such requirements and cure of such deficiencies not
less than 120 days prior to expiration of the initial term of this Agreement.
D. We shall give you written notice of our election not to renew the
franchise sixty (60) days prior to the expiration of the initial term of this
Agreement or any renewal term. Such notice shall specify our reasons for
non-renewal.
3. BUSINESS LOCATION
A. You must operate the Franchised Business only at the location
specified in Section 1 above. If the lease for the site of the Franchised
Business expires or terminates without fault of you, or if the site is
destroyed, condemned or otherwise rendered unusable, or as otherwise may be
agreed upon in writing by us and you, we may, in our sole discretion, grant
permission for relocation of the Franchised Business within the Protected Area
at a location and site acceptable to us. Any such relocation shall be at
4
your sole expense and we shall have the right to charge you for any costs
incurred by us including, but not limited to, legal and accounting fees for
providing such assistance.
B. You shall be solely responsible for purchasing or leasing a suitable
site for the Franchised Business. If the franchise location is not designated
above, we shall use reasonable efforts to help analyze your market area, and to
assist in the designation of the franchise location. While we shall utilize our
experience in approval of a location, nothing contained herein shall be
interpreted as a representation, assurance or guarantee of success for said
location nor shall any site recommendation or approval made by us be deemed a
representation, assurance, or guarantee that any particular site is or will be
successful for use as a Franchised Business. You shall have no claim of any kind
(whether for negligence or other tort or otherwise) against us should the site
of your Franchised Business for any reason be unsuitable.
C. Prior to the acquisition by lease or purchase of any site for the
Premises, you shall submit a description and interior and exterior photographs
of the proposed site to us, together with a letter of intent or other evidence
satisfactory to us which confirms your favorable prospects for obtaining the
proposed site. We shall approve or disapprove such proposed site in the exercise
of our sole discretion, and so advise you in writing within fifteen (15)
business days after receiving your written proposal. You shall not execute a
lease or enter into a purchase agreement for a proposed site without receiving
our approval of the site and the proposed lease or the purchase agreement.
D. After receiving our written approval of the location of the
Premises, you shall submit the proposed lease (if the Premises are to be leased)
or a binding agreement to purchase the site, for our approval. All leases
pertaining to the Premises shall contain an Addendum in form of Exhibit C
attached to this Agreement or shall contain terms and conditions substantially
the same as those contained in Exhibit C that we approve. A copy of the executed
Addendum must also be submitted to us.
E. Promptly after obtaining possession of the site for the Franchised
Business and within ninety (90) days of the date of this Agreement, you shall:
(i) cause to be prepared and submit for approval by us or our architect, at your
sole expense, a site survey and any modifications to our basic architectural
plans and specifications (not for construction) for the Franchised Business
(including requirements for dimensions, exterior design, materials, interior
design and layout, equipment, fixtures, furniture, signs and decorating)
required for the development of the Franchised Business at the site leased or
purchased therefor, provided that you may modify our basic plans and
specifications only to the extent required to comply with all applicable
ordinances, building codes and permit requirements and with prior notification
to and approval by us; (ii) obtain all required zoning changes, all required
building, utility, sign permits, licenses and any other required permits and
licenses; (iii) purchase or lease equipment, fixtures, furniture and signs as
provided herein; (iv) complete the construction and/or remodeling, equipment,
fixture, furniture and sign installation and decorating of the Franchised
Business in full and strict compliance with plans and specifications approved by
us and all applicable ordinances, building codes and permit requirements; (v)
obtain all customary contractors' sworn statements and partial and final waivers
of lien for construction, remodeling, decorating and installation services,
unless we waive
5
this requirement; and (vi) otherwise complete development of and have the
Franchised Business ready to open and commence the conduct of your business.
F. You shall be required to periodically make reasonable capital
expenditures to remodel, modernize and redecorate the Premises so that the
Franchised Business will reflect the then-current image intended to be portrayed
by the CHANGE OF MIND LEARNING SYSTEMS business. All remodeling, modernization
or redecoration of the Premises must be done in accordance with the standards
and specifications as prescribed by us from time to time and with our prior
written approval. All replacements must conform to our then-current quality
standards and specifications and must be approved by us in writing. We
recommend, but currently do not require, that you set aside funds to be used for
remodeling and updating the Franchised Business.
4. TRAINING AND ASSISTANCE
A. We shall make the initial training program available to you and/or
your designated center director of the Franchised Business. You and your
designated center director shall successfully complete the initial training
program prior to commencement of business operations. The training program shall
include a minimum of ten (10) days of training at our headquarters or other
location designated by us. We reserve the right to lengthen the training program
and provide additional training to you as we deem appropriate. At or about the
time we schedule your training, we will provide you with written materials which
you must thoroughly review prior to your attendance at the training program. The
training program shall cover material aspects of the Franchised Business
including, without limitation, instructional, administrative, operational and
sales/marketing matters. You are responsible for all expenses incurred by you
and your employees in attending such program including, without limitation,
travel costs, room and board expenses, and salaries.
B. For approximately two (2) to three (3) days we shall furnish to you,
at the Premises and at our expense, one of our representatives for the purpose
of assisting you in the opening of your Franchised Business. During this period,
such representative shall also assist you in establishing and standardizing
procedures and techniques essential to the operation of the Franchised Business
and shall assist in training personnel. If you request additional assistance
from us in order to facilitate the opening of the Franchised Business, or if we
deem it necessary to provide such assistance, you shall reimburse us for our
expenses in providing such additional assistance at the then-current rates
published in the Manual including, but not limited to, travel and lodging
expenses for our representatives.
C. If we determine, in our sole discretion, that either you or your
designated center director is unable to satisfactorily complete the training
program, we shall have the right to require that you or your designated center
director successfully complete additional training or to terminate this
Agreement.
D. If you designate new or additional managers or want additional
employees trained after the initial training program, we shall provide training
to such managers to the extent that we can reasonably accommodate such
individuals in our regularly scheduled training course. We will train such
6
additional individuals for an additional fee at our then-current rates published
in the Manual. In addition, you shall be responsible for all expenses incurred
by you or any of your employees in attending such additional training including,
without limitation, travel costs, room and board expenses and employees'
salaries.
E. We may from time to time require that previously-trained and
experienced franchisees and their managers or employees attend and successfully
complete continuing education and training programs or seminars to be conducted
at such location as we may designate. Attendance at such continuing educational
training programs or seminars shall be at your sole expense; provided, however,
that attendance shall not be required at more than one such program in any
calendar year and shall not collectively exceed three (3) business days in
duration during any calendar year.
5. MARKS
A. You acknowledge that we are the owner of the Marks and that your
right to use the Marks is derived solely from this Agreement and is limited to
the conduct of business by you under the terms of this Agreement and all
applicable standards, specifications and operating procedures prescribed by us
from time to time during the term of this Agreement. Any unauthorized use of the
Marks by you is a breach of this Agreement and an infringement of our rights in
the Marks. You acknowledge that your usage of the Marks and any goodwill
established by your use of the Marks shall inure to our exclusive benefit and
that this Agreement does not confer any goodwill or other interests in the Marks
upon you. You shall not, at any time during the term of this Agreement or after
its termination or expiration, contest or assist any other person in contesting
the validity, strength, enforceability or ownership of any of the Marks.
B. You shall not use any Xxxx or portion of any Xxxx as part of your
corporate, partnership or other company name, with any prefix, suffix or other
modifying words, terms, designs or symbols or in any modified or other
confusingly similar form. You may not use any Xxxx or any modification or other
confusingly similar form thereof in connection with the sale of any unauthorized
product or service or in any other manner not expressly authorized in writing by
us. While this Agreement is in effect, you may, however, use "CHANGE OF MIND
LEARNING SYSTEMS" as a fictitious or assumed name and shall obtain such
fictitious or assumed name registrations as may be required under applicable
law, at your expense. In no event, however, shall this right to use be
considered a specific grant of any ownership rights in the Marks. You shall not
use any of the Marks in any manner which has not been specified or approved by
us.
C. You shall promptly notify us of any claim, demand or cause of action
based upon or arising from any attempt by any other person, firm or corporation
to use the Marks or any confusingly similar form thereof. You shall also notify
us of any action, claim or demand against you relating to the Marks within ten
(10) days after you receive notice of the action, claim or demand. Upon receipt
of timely notice of any action, claim or demand against you relating to the
Marks, we shall have the sole right to defend any such action. We shall have the
exclusive right to contest or bring action against any
7
third party regarding the third party's use of any of the Marks and shall
exercise such right in its sole discretion. In any defense or prosecution of any
litigation relating to the Marks or components of the System undertaken by us,
you shall cooperate with us and execute any and all documents and take all
actions as may be desirable or necessary in the opinion of our counsel, to carry
out such defense or prosecution. Both parties shall make every effort consistent
with the foregoing to protect, maintain and promote the Marks, including the
trade name "CHANGE OF MIND LEARNING SYSTEMS" and its distinguishing
characteristics (and the other Marks associated with the System) as standing for
the System and only the System. WE MAKE NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, AS TO THE USE, EXCLUSIVE OWNERSHIP, VALIDITY OR ENFORCEABILITY OF
THE MARKS.
D. If it becomes advisable at any time in our sole discretion, for us
and/or you to modify or discontinue use of any Xxxx, and/or use one or more
additional or substitute trade names, trademarks, service marks or other
commercial symbols, you shall comply with our directions within a reasonable
time after notice to you by us, and we shall have no liability or obligation
whatsoever with respect to your modification or discontinuance of any Xxxx.
E. In order to preserve the validity and integrity of the Marks and
copyrighted materials licensed and to ensure that you are properly employing the
same in the operation of your Franchised Business, we or our agents shall have
the right of entry and inspection of the Premises at all reasonable times and,
additionally, shall have the right to observe the manner in which you are
rendering your CHANGE OF MIND LEARNING SYSTEMS services and conducting your
operations, to take photographs and use them for any purpose without
compensation to you, to confer with your employees and students, and, at your
expense, to select or request you to provide samples of learning materials,
advertising and other items, materials and supplies for inspection and
evaluation purposes to make certain that the services and these items are
satisfactory and meet the quality control provisions and performance standards
established by us.
6. CONFIDENTIAL OPERATIONS MANUAL
A. While this Agreement is in effect, we shall loan to you one (1) or
more copies of the Manual containing mandatory and suggested specifications,
standards, operating procedures and rules prescribed from time to time by us for
CHANGE OF MIND LEARNING SYSTEMS businesses and information relative to your
other obligations and the operation of your Franchised Business. We shall have
the right to add to and otherwise modify the Manual from time to time to reflect
changes in the specifications, standards, operating procedures and rules
prescribed by us for CHANGE OF MIND LEARNING SYSTEMS businesses, provided that
no such addition or modification shall alter your fundamental status and
material rights under this Agreement. You shall immediately upon notice adopt
any such changes.
8
B. The Manual shall at all times remain our sole property and shall
promptly be returned, upon the expiration or other termination of this
Agreement. You shall not make any disclosure, duplication or other unauthorized
use of any portion of the Manual.
C. The Manual contains proprietary information of ours and shall be
kept confidential by you both during the term of this Agreement and after its
expiration or termination. You shall at all times ensure that your copy of the
Manual be available at the Premises in a current and up-to-date manner. At all
times that the Manual is not in use by authorized personnel, you shall maintain
the Manual in a locked receptacle at the Premises and shall only grant
authorized personnel, as defined in the Manual, access to the key or lock
combination of such receptacle. In the event of any dispute as to the contents
of the Manual, the terms of the master copy of the Manual maintained by us at
our home office shall be controlling.
7. CONFIDENTIAL INFORMATION
A. You acknowledge that your entire knowledge of the operation of the
Franchised Business is and shall be derived from information disclosed to you by
us and that much of such information is proprietary, confidential and a trade
secret of ours. In addition, any improvements developed by you pursuant to your
operation of the Franchised Business shall constitute proprietary information of
ours. "Trade Secrets" refer to the whole or any portion of know-how, knowledge,
methods, specifications, processes, procedures and/or improvements regarding the
Franchised Business and the System that is valuable and secret in the sense that
it is not generally known to our competitors. You shall maintain the absolute
confidentiality of all such proprietary information during and after the term of
this Agreement and shall not use any such information in any other business or
in any manner not specifically authorized or approved in writing by us.
B. You may only divulge such confidential information to the extent and
only to such of your employees as must have access to it in order to operate the
Franchised Business. Any and all information, knowledge, instruction methods,
instructional materials, techniques and procedures for private educational
services shall be deemed confidential for purposes of this Agreement, except
information which you can demonstrate lawfully came to your attention in writing
prior to disclosure thereof by us, or which, at the time of disclosure by us to
you, had lawfully become a part of the public domain, through publication or
communication by others, in writing.
C. Due to the special and unique nature of our confidential
information, Marks and Manual, you acknowledge that we shall be entitled to
immediate equitable remedies including, but not limited to, restraining orders
and injunctive relief in order to safeguard our proprietary, confidential,
unique and special information and that money damages alone would be an
insufficient remedy with which to compensate us for any breach of the terms of
Sections 5, 6 and 7 of this Agreement. Furthermore, all of your employees having
access to the confidential and proprietary information shall be required to
execute confidentiality agreements in a form acceptable to us.
9
D. Both parties acknowledge and agree, as follows:
1. We may authorize you to use certain copyrighted or
copyrightable works ("Copyrighted Works");
2. The Copyrighted Works are our valuable property, and our
affiliates; and
3. Your rights to use the Copyrighted Works are granted solely
on the condition that you comply with the terms of this Section 7.
E. You acknowledge and agree that we own or are the licensee of the
owner of the Copyrighted Works and shall further create, acquire or obtain
licenses for certain copyrights in various works of authorship used in
connection with the operation of the Franchised Business including, but not
limited to, all categories of works eligible for protection under the United
States copyright law, all of which shall be deemed to be Copyrighted Works under
this Agreement. Such Copyrighted Works include, but are not limited to,
educational materials developed by us and our affiliates, the Manual,
advertisements, promotional materials, posters and signs, and may include all or
part of the Marks, Software, trade dress and other portions of the System. We
intend that all works of authorship related to the System which are created in
the future shall be owned by us or our affiliates.
F. If you develop any new educational materials, program, project, work
of art or other material in the course of operating the Franchised Business and
we approve the use and sale of this service in the Franchised Business, the
educational materials, new program, project, work of art or other material shall
automatically become our property as though we had developed the program,
project, work of art or other material.
8. MODIFICATION OF THE SYSTEM
You acknowledge that from time to time we may change or modify the
System presently identified by the Marks, including the adoption and use of new
types of educational and training services, new or modified trade names,
trademarks, service marks or copyrighted materials, new computer systems, new
educational materials, or new techniques and that you shall be required to
accept, use and display for the purpose of this Agreement any such changes in
the System as if they were part of this Agreement at the time of execution
hereof. You shall make such expenditures as are reasonably required by such
modifications in the System. You shall not change, modify or alter the System in
any way, except as we direct.
9. ADVERTISING
Recognizing the value of advertising and the importance of the
standardization of advertising and promotion to the furtherance of the goodwill
and the public image of the Franchised Business, you agree as follows:
10
A. You shall submit to us or our designated agency, for our prior
approval, all promotional materials and advertising to be used by you including,
but not limited to, newspapers, radio and television advertising, specialty and
novelty items, signs and boxes. In the event written disapproval of said
advertising and promotional material is not given by us to you within twenty
(20) days from the date such materials are received by us, said materials shall
be deemed approved. Your failure to conform with the provisions herein and
subsequent nonaction by us to require you to cure or remedy this failure and
default shall not be deemed a waiver of such default or future or additional
failures and defaults of any other provision of this Agreement. The submission
of advertising to us for approval shall not affect your right to determine the
prices at which you sell your products or services.
B. You shall present the opening of the Franchised Business to the
community ("Grand Opening") in accordance with our specifications. We require
you to spend at least FIVE THOUSAND Dollars ($5,000.00) on Grand Opening
advertising in accordance with our recommendations.
C. You will pay an Advertising Fee to be deposited in the CHANGE OF
MIND LEARNING SYSTEMS Advertising and Development Fund ("Fund"). As of the date
of this Agreement, the amount of the Advertising Fee is one percent (1%) of
Gross Revenues, as defined in Section 10.A. Your required payments to the
Advertising Fund shall be made at the same time, in the same manner as, and in
addition to the Royalty Fee provided in Section 10 herein. We reserve the right
to increase the Advertising Fee up to two percent (2%) of Gross Revenues by
giving you thirty (30) days' written notice of an increase. Such payments shall
be made in addition to and exclusive of any sums that you may be required to
spend on local advertising and promotion. The Advertising Fund shall be
maintained and administered by Franchisor or its designee, as follows:
1. We will oversee all advertising programs and have sole
discretion over creative concepts, materials and media used in such programs
including the placement and allocation. We will use the Fund to conduct
system-wide advertising, and/or, if regional Funds are developed, to conduct
regional or local advertising on your behalf. However, we cannot and do not
ensure that any particular franchisee will benefit directly or pro rata from the
placement of advertising.
2. For each of our company-owned locations offering products
and services similar to the Franchised Business we will make contributions to
the Fund or to regional Funds equivalent to the contributions required of
Franchised Businesses.
3. We will administer and control the Fund and we will have
the absolute and unilateral right to determine how, when and where the monies in
the Fund will be spent. This includes the right to use Fund monies for (1)
broadcast or print advertising, (2) the creation, development and production of
advertising and promotional materials, including, but not limited to, ad slicks,
radio, film and television commercials, videotapes, direct mail pieces, and
other print advertising; (3) any marketing or related research and development;
and (4) advertising and marketing expenses, including payment for product
research and development, services provided by advertising agencies, public
relations firms or other marketing, research or consulting firms or agencies,
customer incentive programs, sponsorships,
11
marketing meetings and sales incentives, development of the Internet, Internet
access provider costs, subscriptions to industry newsletters or magazines, and
administrative costs. All sums paid by you to the Fund will be maintained in a
separate account from our other funds and shall not be used to defray any of our
general operating expenses, except for such reasonable administrative costs and
overhead, if any, as we may incur in activities reasonably related to the
administration or direction of the Fund and advertising programs including,
without limitation, costs incurred in collecting and accounting for assessments
for the Fund and salaries for marketing support personnel.
4. It is our intent that all contributions to the Fund will be
expended for advertising and promotional purposes during our fiscal year within
which contributions are made. Any monies not expended in the fiscal year in
which they were contributed will be applied and used for Fund expenses in the
following year.
5. Although we intend the Fund to be of perpetual duration, we
have the right to terminate the Fund. We will not terminate the Fund, however,
until all monies in the Fund have been expended for advertising and promotional
purposes.
6. An unaudited accounting of Fund contributions and
expenditures will be prepared annually and will be made available to you upon
request. At our option, any such annual accounting may include an audit of the
contributions and expenditures of the Fund prepared by an independent certified
public accountant selected by us and prepared at the expense of the Fund.
D. Each calendar month, you shall spend a minimum of Three Thousand and
No/100 Dollars ($3,000.00) on local advertising and promotion. Such expenditures
shall be made directly by you, subject to our approval and direction. Such
minimum expenditure shall be adjusted (up or down) annually by the same
percentage as the change in the U.S. Bureau of Labor Statistics' All-Items
Consumer Price Index - all Cities (CPI-U) (or the closest successor index) for
January of each year versus the CPI-U for January of 2000. We will communicate
such change to you within a reasonable time after we obtain such data and will
become effective in the next calendar month after we communicate such change to
you, and remain in effect until we communicate the next year's change to you.
Within thirty (30) days of the end of each calendar month, you shall furnish to
us, in a manner approved by us, an accurate accounting of your expenditures on
local advertising and promotion for the preceding calendar month just ended. We
shall provide guidelines for local advertising and any deviation from such
guidelines requires our prior written approval. The cost of your Yellow Page
listings are not credited toward your local advertising requirements.
E. From time to time, we may designate a local, regional or national
Advertising Coverage Area in which your business and at least one (1) other
CHANGE OF MIND LEARNING SYSTEMS business is located for purposes of developing a
cooperative local, regional or national advertising or promotional program. If
directed by us, you will participate in and contribute to such cooperative
advertising and promotional programs in your Advertising Coverage Area in
addition to contributions and expenditures as required under to Sections 9.B.
and C. The Regional Advisory Council described in
12
Section 12.P. shall direct the use of such cooperative funds in accordance with
guidelines approved by us from time to time. The cost of the program shall be
allocated among locations in such area and each franchisee's share shall be in
proportion to its sales during the preceding twelve (12) month period, or
portion of said period. Contributions to cooperative advertising promotional
programs shall be credited toward the local advertising and promotional
expenditure required in Section 9.D. "Advertising Coverage Area" shall be any
area designated by us but will generally consist of an area covered by one or
more particular advertising mediums (television, radio, newspaper, or other
medium). At the time a program is submitted, we shall submit a list to you of
all your within the Advertising Coverage Area.
F. You shall also maintain a business phone and advertise continuously
in the classified or Yellow Pages of the appropriate telephone directory or
directories under the listings "Educational Services" or any such other listings
as deemed appropriate by us using mats of the type and size approved in advance
by us. When more than one CHANGE OF MIND LEARNING SYSTEMS business serves a
metropolitan area, classified advertisements shall list all CHANGE OF MIND
LEARNING SYSTEMS businesses operating within the distribution area of such
classified directories, and you shall contribute your equal share in the cost of
such advertisement. The expenditures for such advertising shall not be credited
toward the local advertising requirements under Section 9.D. of this Agreement.
G. You shall comply with all trademark, service xxxx and copyright
notice requirements in your advertising and other forms of promotion using any
of the Marks.
10. ROYALTY FEE; SOFTWARE LICENSING FEE
A. You shall pay to us without offset, credit or deduction of any
nature, a weekly Royalty Fee equal to eight percent (8%) of the Gross Revenues
derived from the Franchised Business. The Royalty Fee shall be paid weekly in
the manner specified below or as otherwise prescribed in the Manual.
1. On or before Wednesday of each week, you shall submit to us
via e-mail, facsimile transmission or U.S. Mail delivery, on a form designated
by us, a correct statement, signed by you (unless e-mailed), of your Gross
Revenues for the preceding week just ended. For purposes of this Agreement, a
week shall run from Sunday through Saturday. Each weekly statement of Gross
Revenues shall be in the format we designate and shall be accompanied by your
payment of the Royalty Fee based on the Gross Revenues reported. You shall make
available to us all original books and records that we may deem necessary to
ascertain your Gross Revenues for reasonable inspections at reasonable times.
2. The term "Gross Revenues," as used in this Agreement, shall
mean the amount of all revenue from the sale of services and products and all
other income of every kind and nature including all amounts billable for
instructional hours, tests given, any other services and merchandise, whether or
not sold or performed at or from the Franchised Business, and whether received
in cash, in services in kind, from barter and/or exchange, on credit (whether or
not payment is received therefor) or otherwise. There shall be deducted from
Gross Revenues for purposes of this computation (but only to the extent they
have been included) the amount of all sales tax receipts or similar tax receipts
which, by law, are
13
chargeable to customers, if such taxes are separately stated when the customer
is charged and if such taxes are paid to the appropriate taxing authority. There
shall be further deducted from Gross Revenues the amount of any documented
refunds, chargebacks, credits and allowances given in good faith to customers by
you. All barter and/or exchange transactions pursuant to which you furnish
services and/or products in exchange for goods or services to be provided to you
by a vendor, supplier or customer shall, for the purpose of determining Gross
Revenues, be valued at the full retail value of the goods and/or services so
provided to you.
B. We will license to you the current version of the Software for an
Initial Software Licensing Fee of Two Thousand and No/100 Dollars ($2,000.00).
You shall purchase or license from third parties at prices charged by them such
other Software as we designate from time to time. We may from time to time
designate or license new or additional Software, or upgraded or revised versions
of previously issued Software or new or replacement versions of previously
issued Software. If we do, you will be obligated to license such Software from
us or suppliers designated by us. As to purchases from us, we will charge, and
you shall pay, a reasonable fee for such new, additional upgraded, revised, or
replacement Software.
C. All Royalty Fees, advertising contributions, amounts due for
purchases by you from us, Software upgrade or enhancement fees and other amounts
which you owe to us or our affiliates shall bear interest after due date at the
highest applicable legal rate for open account business credit, not to exceed
one and one-half percent (1.5%) per month. This Section 10 shall not constitute
agreement by us to accept such payments after same are due or a commitment by us
to extend credit to the Franchised Business.
D. Notwithstanding any designation by you, we shall have the sole
discretion to apply any payments by you to any past due indebtedness of you for
Royalty Fees, advertising contributions, purchases from us, interest or any
other indebtedness, in such amounts and in such order as we shall determine.
E. In the event that you are late in the payment of any Royalty,
Advertising Fee or other amounts to us, we have the right to require you to
execute and deliver to us, our bank(s) and your bank, as necessary, all forms
and documents that we may request to permit us to debit your account, either by
check, via electronic funds transfer or other means or such alternative methods
as we may designate ("Payment Methods"). We may use the Payment Methods to
collect the amount of each week's Royalty, Advertising Fee and any other amounts
due to us or our affiliates under this Agreement or otherwise on the date such
amounts become due. You shall notify us at least twenty (20) days before closing
or changing the account against which such debits are to be made. If such
account is closed or ceases to be used, you shall immediately provide all
documents and information necessary to permit us to debit the amounts due from
an alternative account. You acknowledge that these requirements are only a
method to facilitate prompt and timely payment of amounts due and shall not
affect any obligation or liability for amounts owed.
14
11. BUSINESS PLAN, ACCOUNTING AND RECORDS
A. Each year you shall prepare, in the format designated by us, a
business plan for the Franchised Business for the upcoming calendar year. You
must submit your business plan to us for our review each year prior to November
30.
B. You shall maintain during the term of this Agreement, and shall
preserve for the time period specified in the Manual, full, complete and
accurate books, records and accounts in accordance with the standard accounting
system prescribed by us in the Manual or otherwise in writing. You shall retain
during the term of this Agreement and for three (3) years thereafter all books
and records related to the Franchised Business including, without limitation,
sales checks, purchase orders, invoices, payroll records, check stubs, sales tax
records and returns, cash receipts and disbursement journals, general ledgers
and any other financial records designated by us or required by law.
C. Upon our request, you shall supply to us in a form approved by us,
monthly and/or quarterly financial statements. Additionally you shall, at your
expense, submit to us within ninety (90) days of the end of each fiscal year
during the term of this Agreement, a profit and loss statement for such fiscal
year and a balance sheet as of the last day of such fiscal year, prepared on an
accrual basis including all adjustments necessary for fair presentation of the
financial statements. You shall certify that the financial statements are true
and correct.
D. You shall maintain your accounting records using an accounting
software package designated by us. You shall submit to us such other periodic
reports, forms and records in the manner and at the time as specified in the
Manual or as we may otherwise require in writing from time to time. We may
require you to record all sales on a computerized system designated by us. If we
require such computerized system, all Gross Revenues and all sales information
shall be recorded on such equipment. We shall have full access to all of your
data, system and related information by means of direct access whether in
person, or by telephone/modem.
E. We or our designated agents shall have the right at all reasonable
times to examine and copy, at our expense, your books, records and tax returns.
We shall also have the right, at any time, to have an independent audit made of
your books and records at our expense. If an inspection should reveal that any
payments due to us have been understated in any report to us, then you shall
immediately pay us the amount understated upon demand, in addition to interest
from the date such amount was due until paid, at the maximum rate permitted by
law. If an inspection discloses an understatement in any report of two percent
(2%) or more, you shall, in addition, reimburse us for any and all costs and
expenses connected with the inspection (including, without limitation,
reasonable accounting and attorneys' fees). The foregoing remedies shall be in
addition to any other remedies we may have.
12. STANDARDS OF QUALITY AND PERFORMANCE
15
A. You shall comply with all requirements set forth in this Agreement,
the Manual and other written policies designated by us. Mandatory
specifications, standards, operating procedures and rules prescribed from time
to time in the Manual or otherwise communicated to you in writing, shall
constitute provisions of this Agreement as if fully set forth herein and shall
be reasonably and uniformly applied to all franchisees. All references herein to
this Agreement shall include all such mandatory specifications, standards and
operating procedures and rules.
B. You shall commence operation of the Franchised Business within one
hundred twenty (120) days of execution of this Agreement, unless otherwise
agreed upon in writing by us. Prior to such opening, you shall have complied
with all our pre-opening standards and specifications. You may not commence
operations of the Franchised Business until we have approved your opening.
C. You shall maintain the condition and appearance of the Premises
consistent with our standards. You shall perform such maintenance to the
Premises as is from time to time required to maintain or improve the appearance
and efficient operation of the Franchised Business including, but not limited
to, replacement of worn out or obsolete fixtures and signs, and repair of the
exterior and interior of the Premises. If at any time, in our judgment, the
general state of repair or the appearance of the Premises or its equipment,
fixtures, signs or decor does not meet our standards, we will notify you,
specifying the action to be taken to correct such deficiency. If you fail or
refuse to initiate within thirty (30) days after receipt of such notice, and
thereafter continue, a bona fide program to complete any required maintenance,
we shall have the right, in addition to all other remedies, to enter upon the
Premises and effect such maintenance on behalf of you and you shall pay the
entire costs thereof on demand.
D. You shall make no alterations to the Premises nor replace or alter
the DIRECT INSTRUCTION stations, office, equipment, fixtures or signs of the
Franchised Business without our prior written approval.
E. You shall offer at the Franchised Business all types of services and
related products that we from time to time authorize and shall not offer for
sale or sell or provide at the Franchised Business or the Premises which it
occupies any service, curriculum or product which has not been authorized by us.
F. From time to time, we shall provide you with a list of approved
manufacturers, suppliers and distributors authorized for the Franchised Business
("Approved Suppliers List") and a list of approved materials, inventory,
products, fixtures, furniture, equipment, signs, stationery, supplies and other
items or services necessary to operate the Franchised Business ("Approved
Supplies List"). We may revise the Approved Supplies List and Approved Suppliers
List from time to time in our sole discretion. If you wish to offer for sale or
use at the Franchised Business any brand of product, or other material or supply
which is not on the Approved Supplies List or to purchase any product from a
supplier that is not on the Approved Suppliers List, you shall first notify us
and obtain our prior written approval. Upon our request you shall submit samples
and such other information as we require for examination and/or testing or to
otherwise determine whether such product, material or supply, or such proposed
supplier meets our specifications and quality standards. A charge not to exceed
the reasonable cost of the inspection and
16
evaluation and the actual cost of the test shall be paid by you or the supplier.
We reserve the right to re-inspect the facilities and products of any supplier
of an approved item and to revoke our approval of any item or supplier which
fails to continue to meet any of our criteria or which refuses to allow
re-inspection.
G. All inventory, products and materials, and other items and supplies
used in the operation of the Franchised Business which are not specifically
required to be purchased in accordance with Approved Supplies List and Approved
Suppliers List shall conform to the specifications and quality standards
established by us from time to time.
H. We may, in the future, develop certain Trademarked Products
consisting of specially developed or private labeled educational materials,
merchandise and products bearing the Marks. At such time as we introduce the
Trademarked Products into the System, you shall be required to carry a thirty
(30) day supply and maintain a representative inventory of such Trademarked
Products as required by the Manual, and you shall maintain, carry and promote
such Trademarked Products for use in servicing the general public in order to
meet customer demand as designated by us. You shall, throughout the term of this
Agreement, purchase Trademarked Products from us, our affiliate or other
designated sources which manufacture the Trademarked Products to our precise
specifications.
I. You shall utilize the Software (as the same may be supplemented,
revised or substituted by us from time to time pursuant to other provisions of
this Agreement) for use in providing testing, student information, scheduling
and attendance records, billing, administrative functions and related
activities. The Software is proprietary to and confidential information of ours.
In addition, you shall use the accounting software package designated by us. You
shall be required to upgrade any hardware component at any time during the term
of the Franchise Agreement to accommodate the Software and accounting Software
as supplemented, revised or substituted by us. Your Franchised Business must
also be connected to the Internet, have an approved Website (which we may
require you to modify from time to time) and you must notify us of your current
e-mail address at all times.
J. At your expense, you shall secure and maintain in force all required
licenses, permits and certificates relating to the operation of the Franchised
Business and shall operate the Franchised Business in full compliance with all
applicable laws, ordinances and regulations including, without limitation, all
copyright laws, all government regulations relating to occupational hazards and
health, consumer protection, trade regulation, workers' compensation,
unemployment insurance and withholding and payment of federal and state income
taxes, social security taxes and sales, use and property taxes. You shall
refrain from any merchandising, advertising or promotional practice which is
unethical or may be injurious to the System, our business and/or other
Franchised Businesses or to the goodwill associated with the Marks.
K. In order to maintain the high image and quality standards of our
programs and materials, you agree to provide sufficient and competent management
and staff personnel at the Franchised Business to provide adequate and
sufficient instruction for enrolled students. Your instructors must meet
whatever local, state and national licensing and certification requirements are
applicable to instructors in your
17
jurisdiction. Training of instructors is your sole responsibility and all
instructors must be adequately trained either by us or by you in accordance with
our training specifications. You must comply with all requirements we impose to
maintain a safe environment for your students, including performing background
checks on your instructors and similar measures.
L. You agree that only a qualified instructor may teach the prescribed
lessons and that a qualified instructor shall be on the Premises whenever
students are present and during instructional hours. You also agree that only a
qualified supervisor may administer placement testing, evaluate instructors, and
train new instructors. "Qualified instructor" shall be defined as a person who
has successfully completed the Change of Mind Instructor Program and has been
certified by us or you. "Qualified supervisor" shall be defined as a person who
has successfully completed the Change of Mind Supervisor Program and has been
certified by us.
M. You agree to maintain a high moral and ethical standard in the
operation and conduct of the Franchised Business so as to create and maintain
goodwill among the public for the Marks and supervise and evaluate the
performance of your professional and other staff to ensure that each renders
competent, efficient and quality service.
N. You shall maintain a current listing of the names and addresses of
all clients of the Franchised Business in providing CHANGE OF MIND LEARNING
SYSTEMS services. You shall supply said list to us and update the client listing
and provide updated client lists to us upon request by us. Said listing of names
and addresses of all clients of the Franchised Business is our sole and
exclusive property and shall be our confidential information. You shall maintain
the confidentiality of said information and shall not disclose, provide, sell or
otherwise disclose the client list to any person or entity other than us, in
accordance with the provisions of Section 7 of this Agreement.
O. The Franchised Business shall at all times be under your direct,
full-time on-premises supervision (or a trained and competent employee acting as
full-time manager). You shall keep us informed at all times of the identity of
any employee(s) acting as manager(s) of the Franchised Business. You shall, at
all times, faithfully, honestly and diligently perform your obligations and
shall not engage in any business or other activities that shall conflict with
your obligations hereunder.
P. At such time that more than one franchisee conducts a Franchised
Business in any given region (the boundaries of such region to be determined in
our sole and absolute discretion), we may form a CHANGE OF MIND LEARNING SYSTEMS
Regional Advisory Council ("Council"). You shall participate in all Council
programs approved by us for your particular Council. The purposes of the
Council(s) include, but are not limited to, exchanging ideas and problem-solving
methods, advising us on expenditures for regional advertising, providing back-up
support and staffing for political influence and coordinating System-wide
efforts. You shall pay all Council assessments levied by the Council, and we
have the right to enforce this obligation. Amounts and expenditures may vary
from time to time and due to variations in Council participation and costs as
determined by a particular Council and as approved by
18
us. Although You shall pay such Council assessments, such assessments shall in
no way diminish your rights under this Agreement.
Q. You shall notify us in writing within five (5) days of any written
threat or the actual commencement of any action, suit or proceeding or of the
issuance of any order, writ, injunction, award or decree of any court, agency or
other governmental instrumentality which may adversely affect the operation or
financial condition of the Franchised Business.
13. OPERATIONS ASSISTANCE
A. We will from time to time advise or offer guidance to you relative
to prices for the services and products offered for sale by the Franchised
Business that in our judgment, constitute good business practice. Such guidance
shall be based on the System's experience in operating the Franchised Business
and an analysis of the costs of such products and prices charged for competitive
products. You shall not be obligated to accept any such advice or guidance and
shall have the sole right to determine the prices to be charged by the
Franchised Business and no such advice or guidance shall be deemed or construed
to impose upon you any obligation to charge any fixed, minimum or maximum prices
for any service or product offered for sale by the Franchised Business.
B. Upon commencement of operation of the Franchised Business and during
the term of this Agreement, we will provide the following to you:
1. A comprehensive list of established sources of education
materials, equipment, supplies and goods necessary for the operation of the
Franchised Business and provide specifications for such products;
2. Oversee administration of the Advertising Fund; and
3. A non-exclusive and limited license to use our proprietary
Software. We or our authorized representatives shall provide ongoing service and
support to you regarding such Software, including without limitation, upgraded
and enhanced versions of the Software. We have the right to charge reasonable
fees for any service or support provided by our authorized representative.
C. We will furnish you with such assistance in connection with the
operation of the Franchised Business as we reasonably determine from time to
time. Operations assistance may consist of advice and guidance with respect to:
1. Your proper utilization of procedures by the Franchised
Business regarding the services to be offered from the Franchised Business as
approved by us;
2. Your purchase of equipment, materials and supplies;
19
3. Your use of proper administrative, bookkeeping, accounting,
inventory control, supervisory and general operating procedures for the
effective operation of the Franchised Business;
4. Advertising and promotional programs; and
5. On-going research and development of new procedures and
techniques, new products and materials and other enhancements to the System.
D. We will visit the Franchised Business at such times as we deem
appropriate for the purposes of consultation, assistance and guidance to you in
all aspects of the operation and management of the Franchised Business. We or
our representatives who visit at the Franchised Business may prepare, for the
benefit of both us and you, written reports with respect to such visits
outlining any suggested changes or improvements in the operations of the
Franchised Business and detailing any defaults in such operations which become
evident as a result of any such visit. A copy of each such written report shall
be provided to both us and you. We shall advise you of problems arising out of
the operation of the Franchised Business as disclosed by reports submitted to us
by you or by inspections conducted by us of the Franchised Business.
E. All of the specifications, Approved Suppliers Lists, Approved
Supplies Lists, training and operations manuals to be provided by us to you
pursuant to this Agreement shall be delivered within fifteen (15) days after
execution of this Agreement.
F. If you request assistance from us in addition to the standard
support set forth in this Section, and if we agree to render such support, you
shall pay us our then-standard support fee plus expenses including, but not
limited to our travel, lodging and meal costs. As of the date of this Agreement
the support fee is at the rate of Three Hundred Dollars ($300) per day, with a
minimum of $150.
14. INSURANCE
A. You shall procure at your expense and maintain in full force and
effect during the term of this Agreement, an insurance policy or policies
protecting you and us and our officers, directors, partners and employees,
against any loss, liability, personal injury, death, property damage or expense
whatsoever arising or occurring upon or in connection with the Franchised
Business, as we may reasonably require for our own and your protection. We shall
be named an additional insured in such policy or policies.
B. Such policy or policies shall be written by a licensed insurance
company licensed in the state in which you operate and having at least an "A"
Rating Classification as indicated in Best's Key Rating Guide in accordance with
standards and specifications set forth in the Manual or otherwise in writing,
and shall include, at a minimum (except as different coverages and policy limits
may reasonably be specified for all franchisees from time to time by us in the
Manual or otherwise in writing), the following:
20
1. All risks or special form coverage insurance on the
Franchised Business and all fixtures, equipment, supplies and other property
used in the operation of the Franchised Business (which coverage shall include
flood and/or earthquake coverage where appropriate, and theft insurance) for
full repair and replacement value of the equipment, improvements and
betterments, without any applicable co-insurance clause, except that an
appropriate deductible clause shall be permitted.
2. Workers' compensation and employer's liability insurance as
well as such other insurance as may be required by statute or rule of the state
or country in which the Franchised Business is located and operated.
3. Comprehensive general liability insurance and product
liability insurance, including a per premises aggregate with the following
coverages: broad form contractual liability, personal injury products/completed
operation, and fire legal, insuring us and you against all claims, suits,
obligations, liabilities and damages, including attorneys' fees, based upon or
arising out of actual or alleged personal injuries or property damage resulting
from, or occurring in the course of, or on or about or otherwise relating to the
Franchised Business, including General Aggregate coverage in the following
limits:
Required Coverage Minimum Limits of Coverage
----------------- --------------------------
General Aggregate $1,000,000.00
Products/Completed Operations Aggregate $1,000,000.00
Personal and Advertising Injury $1,000,000.00
Each Occurrence $1,000,000.00
Harassment and Molestation $1,000,000.00
Fire Damage (any one fire) $50,000.00
Medical Expense (any one person) $5,000.00
Accident Policy $5,000.00
4. Business interruption insurance for actual losses
sustained.
5. Automobile liability insurance, including owned, hired and
non-owned vehicle coverage, with a combined single limit of at least One Million
Dollars ($1,000,000.00).
6. Professional liability insurance, including, but not
limited to, malpractice insurance.
7. Such insurance and types of coverage as may be required by
the terms of any lease for the Franchised Business or as may be required from
time to time by us.
C. The insurance afforded by the policy or policies respecting
liability shall not be limited in any way by reason of any insurance which may
be maintained by us. Within ninety (90) days of the signing of this Agreement,
but in no event later than the date on which you acquire an interest in the real
21
property on which you shall develop and operate the Franchised Business, an
Accord Form Certificate of Insurance showing compliance with the foregoing
requirements shall be furnished by you to us for approval. Such certificate
shall state that said policy or policies shall not be canceled or altered
without at least thirty (30) days prior written notice to us and shall reflect
proof of pre-payment of premiums for the first year of operation. Maintenance of
such insurance and the performance by you of the obligations under this Section
14 shall not relieve you of liability under the indemnity provision set forth in
this Agreement. Minimum limits as required above may be modified from time to
time, as conditions require, by written notice to you.
D. If you fail, for any reason, to procure and maintain such insurance
coverage as required by this Agreement, we shall have the right and authority
(without, however, any obligation to do so) immediately to procure such
insurance coverage and to charge same to you, which charges, together with a
reasonable fee for expenses incurred by us in connection with such procurement,
shall be payable by you immediately upon notice.
15. COVENANTS
A. You covenant that during the term of this Agreement, except as
otherwise approved in writing by us, one of your owners or a full-time center
director who has completed our training program shall devote his or her
full-time energy and best efforts to the management and operation of the
Franchised Business.
B. You covenant that during the term of this Agreement and any renewal
terms, you shall not, either directly or indirectly, for yourself, or through,
on behalf of or in conjunction with any person, persons, partnership or
corporation:
1. Divert or attempt to divert any potential or existing
business or customer to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with the Marks or the System.
2. Employ or seek to employ any person who is at that time
employed by us, or by any other franchisee of ours, or otherwise directly or
indirectly induce or seek to induce such person to leave his or her employment
thereat.
3. Own, maintain, engage in or have any interest in or in any
way assist any business (including any business operated by you prior to entry
into this Agreement) specializing, in whole or in part, in offering or providing
educational services or any other business which sells or offers to sell the
same as, or similar to, those sold in the System.
C. You specifically acknowledge that, pursuant to this Agreement, you
shall receive valuable training and confidential information including, without
limitation, information regarding the promotional, operational, sales and
marketing methods and techniques of the System. Accordingly, you covenant that
you shall not, for a period of two (2) years after the expiration or termination
of this
22
Agreement, regardless of the cause of termination, either directly or
indirectly, for yourself, or through, on behalf of or in conjunction with any
person, persons, partnership, corporation or other entity, own, maintain, engage
in, consult with, assist, or have any interest in any business engaged primarily
in offering and providing educational services the same as, or similar to, the
type sold in the System:
1. Within the Metropolitan Statistical Area, as that term is
defined by the United States Census Bureau ("MSA") in which the Franchised
Business is located; or
2. Within a radius of ten (10) miles of the Franchised
Business; or
3. Within a radius of ten (10) miles of the location of any
other business using the System, whether franchised or owned by us or our
affiliate(s).
D. You will have the right, upon the expiration of the term of this
Agreement, to buy-out the post-term covenant not to compete described in Section
15C. The purchase price to buy-out the post-term covenant not to compete will be
equal to thirty-two percent (32%) of the Gross Revenues of the Franchised
Business for the twelve (12) month period immediately preceding the date of the
expiration. You will give us written notice at least one hundred eighty (180)
days prior to the expiration of the term of this Agreement if you intend to
buy-out the post-term covenant not to compete pursuant to this Section. The
purchase price will be due and payable in full prior to the expiration of the
term of this Agreement. You will have no right to buy-out the post-term covenant
not to compete if this Agreement is terminated prior to the expiration of its
term by either party. Exercise of your buy-out right shall not affect or release
any of your other post-term covenants or obligations under this Agreement.
E. 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 Section 15 is held unreasonable or unenforceable by a court or
agency having valid jurisdiction in an unappealed final decision to which we are
a party, you shall 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 Section 15.
F. You understand and acknowledge that we shall have the right, in our
sole discretion, to reduce the scope of any covenant set forth in Sections 15 B
and C in this Agreement or any portion thereof, without your consent, effective
immediately upon receipt by you of written notice thereof. You shall comply
forthwith with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 27.
G. We shall have the right to require all of your officers, directors,
shareholders, general partners, limited partners, members, managers, personnel
performing managerial or supervisory functions and all personnel receiving
training from us to execute similar covenants in a form satisfactory to us.
23
16. DEFAULT AND TERMINATION
A. If you are in substantial compliance with this Agreement and we
materially breach this Agreement and fail substantially to cure such breach
within sixty (60) days after written notice thereof is delivered to us
describing such default in reasonable detail and demanding its cure, you may
terminate this Agreement; provided, however, that if such breach cannot
reasonably be cured in sixty (60) days, Franchisor shall have such additional
cure period as may reasonably be required. Such termination shall be effective
thirty (30) days after delivery of notice to us that such breach has not been
cured and you elect to terminate this Agreement. You must provide us with
written notice of any breach or default or violation of any other legal duty by
us within ninety (90) days after you discover such breach, default or violation,
or be barred from any remedy in connection therewith.
B. This Agreement shall terminate automatically upon delivery of notice
of termination to you if you or your owner(s), officer(s) or manager(s):
1. Fail to satisfactorily complete the training program as
provided in Section 4 of this Agreement;
2. Have made any material misrepresentation or omission in
your application for the franchise;
3. Are convicted of or pleads no contest to a felony or other
crime or offense that is likely to adversely affect your reputation or the
reputation of the Franchised Business;
4. Make any unauthorized use, disclosure or duplication of any
portion of the Manual or duplicates, discloses or makes any unauthorized use of
any trade secret or confidential information provided to you by us;
5. Abandon, fail or refuse to actively operate the Franchised
Business for five (5) business days in any twelve (12) month period, unless the
Franchised Business has been closed for a purpose approved by us or due to force
majeure;
6. Surrender or transfer control of the operation of the
Franchised Business, make an unauthorized direct or indirect assignment of the
franchise or an ownership interest in you or fail or refuse to assign the
franchise or the interest in you of a deceased or disabled controlling owner
thereof as herein required;
7. Submit to us on two (2) or more separate occasions at any
time during the term of the franchise any reports or other data, information or
supporting records which understate by more than two percent (2%) the Royalty
Fees for any period of, or periods aggregating, three (3) or more weeks, and you
are unable to satisfactorily demonstrate to us that such understatements
resulted from inadvertent error;
24
8. Materially misuse or make an unauthorized use of any Marks
or commit any act which can reasonably be expected to impair the goodwill
associated with any Marks;
9. Materially misuse or make an unauthorized use of the
Software (if developed);
10. Fail on five (5) or more separate occasions within any
period of twelve (12) consecutive weeks to submit when due reports or other
information or supporting records, to pay when due the Royalty Fees, advertising
contributions, amounts due for purchases or other payments due to us or our
affiliate(s), or otherwise fails to comply with this Agreement, whether or not
such failures to comply are corrected after notice thereof is delivered to you;
or
11. If you commit any affirmative act of insolvency, or if a
receiver (permanent or temporary) of your property or any part thereof is
appointed by a court of competent authority, if you make a general assignment
for the benefit of your creditors, or if a final judgment remains unsatisfied of
record for thirty (30) days or longer (unless supersedeas bond is filed), if
execution is levied against your business or property, or if suit to foreclose
any lien or mortgage against your Premises or equipment is instituted against
you and not dismissed within thirty (30) days or is not in the process of being
dismissed; provided, however, that we reserve the right to be named as trustee
or receiver in any voluntary petition for bankruptcy or insolvency filed by you.
C. Change of Mind Learning Systems, Inc. may terminate this Agreement
if you or your owner:
1. Fail or refuse to make payments of any amounts due us or
our affiliate(s) for Royalty Fees, advertising contributions, purchases or any
other amounts due to us or our affiliate(s), and do not correct such failure or
refusal within ten (10) business days after written notice of such failure is
delivered to you; or
2. Fail or refuse to comply with any other provision of this
Agreement, or any mandatory specification, standard or operating procedure
prescribed in the Manual or otherwise in writing and does not correct such
failure within thirty (30) days (or provide proof acceptable to us that you have
made all reasonable efforts to correct such failure and shall continue to make
all reasonable efforts to cure until a cure is effected, if such failure cannot
reasonably be corrected within thirty [30] days) after written notice of such
failure to comply is delivered to you.
D. To the extent that the provisions of this Agreement provide for
periods of notice less than those required by applicable law, or provide for
termination, cancellation, non-renewal or the like other than in accordance with
applicable law, such provisions shall, to the extent such are not in accordance
with applicable law, not be effective, and we shall comply with applicable law
in connection with each of these matters.
E. In addition to our right to terminate this Agreement, and not in
lieu of such right or any other rights against you, we, in the event that you
shall not have cured a default under this Agreement
25
within the thirty (30) business days after receipt of a written notice to cure
from us, may, at our option, enter upon the Premises and exercise complete
authority with respect to the operation of said business until such time as we
determine that your default has been cured and that there is compliance with the
requirements of this Agreement. Our designated representative may take over,
control and operate said business, and you shall pay us a service fee per day as
specified in the Manual, plus all travel expenses, room and board and other
expenses reasonably incurred by such representative so long as it shall be
required by the representative to enforce compliance herewith. If, as herein
provided, we temporarily operate for you the Franchised Business, you shall
indemnify and hold us and our representatives harmless from any claims by you or
third parties arising from the acts and omissions of us and our representative,
and you agree not to assert any claims of any kind against us or our
representatives in connection therewith.
17. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION
Upon termination or expiration, this Agreement and all rights granted
hereunder to you shall terminate, and:
A. You shall immediately cease to operate the Franchised Business under
this Agreement, and shall not thereafter, directly or indirectly, represent to
the public or hold yourself out as a present or former franchisee of ours.
B. Upon our demand, and at our discretion, you shall assign to us your
interest in any lease then in effect for the Premises, and you shall furnish us
with evidence satisfactory of compliance with this obligation within fifteen
(15) days after termination or expiration of this Agreement.
C. You shall immediately and permanently cease to use, by advertising
or in any manner whatsoever, any confidential methods, procedures and techniques
associated with the System; the Software, the Marks, and any distinctive forms,
slogans, signs, symbols, logos or devices associated with the System. In
particular, you shall cease to use, without limitation, all signs, advertising
materials, stationery, forms and any other articles which display the Marks
associated with the System.
D. You shall take such action as may be necessary to cancel or assign
to us or our designee, any fictitious or assumed name rights or equivalent
registration filed with state, city or county authorities which contains the
name CHANGE OF MIND LEARNING SYSTEMS or any other service xxxx or trademark
associated with the System, and you shall furnish us with evidence satisfactory
to us of compliance with this obligation within thirty (30) days after
termination or expiration of this Agreement.
E. In the event you continue to operate or subsequently begin to
operate any other business, you shall not use any reproduction, counterfeit,
copy or colorable imitation of the Marks either in connection with such other
business or the promotion thereof, which is likely to cause confusion, mistake
or deception, or which is likely to dilute our rights in and to the Marks and
further, you shall not utilize any designation of origin or description or
representation which falsely suggests or represents an
26
association or connection with us so as to constitute unfair competition. You
shall make such modifications or alterations to the Premises operated hereunder
(including, without limitation, the changing of the telephone number)
immediately upon termination or expiration of this Agreement as may be necessary
to prevent any association with us or the System and any business thereon
subsequently operated by you or others, and shall make such specific additional
changes thereto as we may reasonably request for that purpose including, without
limitation, removal of all distinctive physical and structural features
identifying the System. In the event you fail or refuse to comply with the
requirements of this Section, we shall have the right to enter upon the Premises
where the Franchised Business was conducted, without being guilty of trespass or
any other tort, for the purpose of making or causing to be made such changes as
may be required at your expense, which expense you shall pay upon demand.
F. You shall promptly pay all sums owing to us and our affiliates. In
the event of termination for any default by you, such sums shall include all
damages (including but not limited to the discounted value of future fees which
likely would have been payable during the remaining term of this Agreement),
costs and expenses, including reasonable attorneys' fees, incurred by us as a
result of the default.
G. You shall pay to us all damages, costs and expenses, including
reasonable attorneys' fees, incurred by us subsequent to the termination or
expiration of the franchise herein granted in obtaining injunctive or other
relief for the enforcement of any provisions of this Section 17 or Section 15.
H. You shall immediately turn over to us all manuals, including the
Manual, supplier lists, records, files, instructions, brochures, agreements,
disclosure statements, the Software and any and all other materials provided to
you by us or by sources designated by us relating to the operation of the
Franchised Business (all of which are acknowledged to be our property).
I. We shall have the right, title and interest to any sign or sign
faces bearing the Marks. You hereby acknowledge our right to access the Premises
should we elect to take possession of any sign or sign faces bearing the Marks.
J. We shall have the right (but not the duty), to be exercised by
notice of intent to do so within thirty (30) days after termination or
expiration, to purchase for cash any or all signs, advertising materials and all
items bearing the Marks or any of the Franchised Business assets, at fair market
value. If we elect to exercise any option to purchase herein provided, we shall
have the right to set off all amounts due from you.
K. All telephone, facsimile numbers, email addresses, domain names and
web sites used in the operation of the Franchised Business constitute assets of
the Franchised Business; and upon termination or expiration of this Agreement,
you shall assign to us or our designee, all right, title and interest in and to
your telephone, facsimile numbers, web sites, email addresses and domain names,
and shall notify the telephone company and all email and web site or domain name
listing agencies of the termination or expiration of your right to use any
telephone and fax number, email address, domain name,
27
regular, classified or other telephone directory listing associated with the
Marks and web site and authorize a transfer of same to or at the direction of
us.
L. You shall comply with the covenants contained in Section 15 of this
Agreement.
M. All of our obligations and your obligations which expressly or by
their nature survive the expiration or termination of this Agreement shall
continue in full force and effect subsequent to and notwithstanding its
expiration or termination and until they are satisfied or by their nature
expire.
18. TRANSFERABILITY OF INTEREST
A. This Agreement and all rights hereunder can be assigned and
transferred by us and, if so, shall be binding upon and inure to the benefit of
our successors and assigns; provided, however, that with respect to any
assignment resulting in the subsequent performance by the assignee of our
functions, the assignee shall expressly assume and agree to perform our
obligations under this Agreement. Upon such assumption and without further
action or documentation we shall be released and discharged from all of our
obligations under or relating to this Agreement. Specifically, and without
limitation to the foregoing, you agree that we may (among other things) sell our
assets, Marks or System outright to a third party; may make a public offering of
securities; may engage in a private placement of some or all of our securities;
may merge, acquire other corporations or entities, or be acquired by another
corporation or other entity; may undertake a refinancing, recapitalization,
leveraged buy out or other economic or financial restructuring; and, with regard
to any or all of the above sales, assignments and dispositions (whether or not
specifically identified above), you expressly and specifically waive any claims,
demands or damages arising from or related to the loss of said Marks (or any
variation thereof). Nothing contained in this Agreement shall require us to
remain in the business in the event that we exercise our rights hereunder to
assign our rights in this Agreement.
B. This Agreement and all rights hereunder may be assigned and
transferred by you and, if so, shall be binding upon and inure to the benefit of
your successors and assigns, subject to the following conditions and
requirements, and our right of first refusal as set forth herein:
1. Neither you, nor a partner of you (if you are a
partnership), member of you (if you are a limited liability company) or
shareholder of you (if you are a corporation), or other equity holder of yours,
without our prior written consent, by operation of law or otherwise shall sell,
assign, transfer, convey, give away or encumber to any person, firm or
corporation, all or any part of its interest in this Agreement or any interest
in the franchise granted hereby or any interest in any proprietorship,
partnership or corporation, limited liability company or other entity which owns
any interest in the franchise, nor offer, permit or suffer the same to be sold,
assigned, transferred, conveyed, given away or encumbered in any way to any
person or entity. You may not, without our prior written consent, fractionalize
any of the rights of you granted pursuant to this Agreement. Any purported
assignment, division or transfer of any of your rights herein not having the
aforesaid consent shall be null and void and shall constitute a material default
hereunder.
28
2. We shall not unreasonably withhold our consent to any
assignment or transfer referenced in this Section of this Agreement when
requested; provided, however, that the following conditions and requirements
shall first be met to our full satisfaction:
a. If you are an individual or partnership and desire
to assign and transfer your rights to a corporation or limited liability
company:
(1) The proposed transferee corporation or
limited liability company shall be newly organized and its charter or other
organizational document shall provide that its activities are confined
exclusively to acting as a CHANGE OF MIND LEARNING SYSTEMS franchisee as
licensed under this Agreement;
(2) You shall be and shall remain the owner
of the majority fifty-one percent (51%) voting stock or membership interest of
the transferee corporation;
(3) The individual franchisee (or, if you
are a partnership, one of the partners) shall be and shall remain the principal
executive officer of the corporation or limited liability company;
(4) The transferee corporation or limited
liability company shall enter into a written assignment (in a form satisfactory
to us, in which the transferee corporation assumes all of your obligations
hereunder;
(5) All shareholders or members of the
transferee corporation or limited liability company shall enter into a written
agreement, in a form satisfactory to us, jointly and severally guaranteeing the
full payment and performance of the transferee corporation's obligations under
this Agreement;
(6) Each stock certificate of the transferee
corporation or evidence of membership interest and the share or membership
records of such entity shall have conspicuously endorsed upon it a statement
that it is held subject to, and that further assignment or transfer thereof is
subject to, all restrictions imposed upon assignments by this Agreement;
(7) No new shares of common or preferred
voting stock in the transferee corporation or membership interests in the
transferee limited liability company shall be issued to any person, partnership,
trust, foundation, or corporation without obtaining our prior written consent
and then only upon disclosure of the terms and conditions contained herein being
made to the prospective new holders of the stock or membership interests; and
(8) All of your accrued money obligations to
us and our affiliates shall be satisfied prior to assignment or transfer.
29
b. If the transfer, other than such transfer as is
authorized under Section 18B2a of this Agreement, if consummated alone or
together with other related previous, simultaneous, or proposed transfers, would
have the effect of transferring control of the franchise to someone other than
an original signatory of this Agreement:
(1) The transferee(s) shall be of good moral
character and reputation, shall have a good credit rating and competent business
qualifications, and shall meet all of the requirements for our new franchisees
as of the date of notice of the proposed transfer. You shall provide us with
such information as we may require to make such determination concerning each
such proposed transferee(s).
(2) The transferee(s) or such other
individual(s) as shall be the actual manager of the franchise shall have
successfully completed and passed the training course then in effect for
franchisees, or otherwise demonstrated, to our satisfaction, sufficient ability
to operate the business being transferred.
(3) The transferee(s), including all
shareholders, members, officers, directors, limited liability company managers,
and partners of the transferee(s), shall jointly and severally execute any or
all of the following, at our sole discretion and as we shall direct:
aa. A Franchise Agreement and other
standard ancillary agreements with us on the then-current standard forms being
used by us, except that an additional Franchise Fee shall not be charged; and/or
bb. A written assignment from you
in a form satisfactory to us, wherein transferee shall assume all of your
obligations hereunder.
(4) Our approval of any transfer by you of
the franchise herein granted or any of your rights under this Agreement shall in
no way be deemed a release by us of your obligations pursuant to this Agreement.
Our consent to a transfer of the franchise shall not constitute or be
interpreted as consent for any future transfer thereof.
(5) The term of said agreements required
under this Section shall be for the unexpired term of this Agreement and for any
extensions or renewals as provided herein.
(6) If transferee is a corporation or
limited liability company:
aa. Each stock certificate of the
transferee corporation and any written embodiment of a membership interest in a
limited liability company shall have conspicuously endorsed upon it a statement
that it is held subject to, and that further assignment or transfer thereof is
subject to, all restrictions imposed upon assignments by this Agreement; and
30
bb. No new shares of common or
preferred voting stock in the transferee corporation or membership interests in
the limited liability company shall be issued to any person, partnership, trust,
foundation or corporation without obtaining our prior written consent and then
only upon disclosure of the terms and conditions contained herein being made to
the prospective new holders of the stock or membership interests; and
cc. All shareholders of the
transferee corporation or members of the limited liability company shall enter
into a written agreement, in a form satisfactory to us, jointly and severally,
guaranteeing full payment and the performance of the transferee corporation of
all obligations under this Agreement.
(7) All accrued money obligations of you to
us or our affiliates, shall be satisfied prior to assignment or transfer, and
you shall not be in default under the terms of this Agreement.
(8) Prior to the transfer, you shall execute
a general release, in a form we prescribe, of any and all existing claims
against us and our respective officers, directors, agents and employees, except
such claims as are not permitted to be waived under applicable law.
3. You shall have fully paid and satisfied all of your
obligations to us, and the transferee or you shall have fully paid to us a
non-refundable transfer fee equal to fifty percent (50%) of the then-current
Franchise Fee charged by us for a franchisee's first start-up franchise. The
transfer fee is used to cover our expenses for the training, supervision,
administrative costs, overhead, counsel fees, accounting and other expenses in
connection with the transfer. This transfer fee does not apply to an assignment
of interest to a corporation under Section 18B2a of this Agreement.
4. No sale, assignment, transfer, conveyance, encumbrance or
gift of any interest in this Agreement or in the franchise granted thereby,
shall relieve you and the shareholders, members, partners or other equity
interest holders participating in any transfer, of the obligations of the
covenants contained in Section 15, except where we shall expressly authorize in
writing.
C. You must promptly ("promptly" herein defined as within thirty (30)
days of receipt of an offer to buy) give us written notice whenever you receive
an offer to buy your franchise. You must also give us written notice
simultaneously with any offer to sell the franchise made by, for or on behalf of
you.
One purpose of this Section 18 is to enable us to comply with any
applicable state or federal franchise disclosure laws or rules. You shall
indemnify us for your failure to comply with this Section 18.
D. You shall not, without our prior written consent, place in, on or
upon the location of the Franchised Business or in any communication media, any
form of advertising, or list with any business, real estate broker, agent or
attorney any information relating to the sale of the Franchised Business or the
rights granted hereunder.
31
19. DEATH OR INCAPACITY
A. In the event of the death or incapacity of a franchisee who is an
individual, or any partner (if you are a partnership) or any shareholder owning
fifty percent (50%) or more of the capital stock (if you are a corporation), or
holder of membership interests with a right to half or more of his votes, income
or distributions on liquidation of a limited liability company (if you are a
limited liability company) the heirs, beneficiaries, devisees or legal
representative of said individual, partner, shareholder or member shall, within
one hundred eighty (180) days of such event:
1. Apply to us for the right to continue to operate the
franchise for the duration of the term of this Agreement and any renewals
hereof, which right shall be granted upon the fulfillment of all of the
conditions set forth in Section 18B2b of this Agreement (except that no transfer
fee shall be required); or
2. Sell, assign, transfer or convey such decedent's interest
in compliance with the provisions of Sections 18B and 20 of this Agreement;
provided, however, in the event a proper and timely application for the right to
continue to operate has been made and rejected, the one hundred eighty (180)
days to sell, assign, transfer or convey shall be computed from the date of said
rejection. For purposes of this Section 19, our silence on an application made
pursuant to Section 19B through the one hundred and eighty (180) days following
the event of death or incapacity shall be deemed a rejection made on the last
day of such period.
B. In the event of the death or incapacity of an individual you, or any
partner, shareholder or member (if you are a partnership, corporation or limited
liability company), where the aforesaid provisions of Section 18 have not been
fulfilled within the time provided, all rights granted to you under this
Agreement shall, at our option, terminate forthwith and we shall have the option
to purchase the Franchised Business assets in accordance with Section 17J
herein.
C. For purposes of this Agreement, "incapacity" shall be defined as the
inability to operate or oversee the operation of the Franchised Business on a
regular basis by reason of any continuing physical, mental or emotional
incapacity, chemical dependency or other limitation. Any dispute as to the
existence of an incapacity as defined herein shall be resolved by majority
decision of three (3) licensed medical physicians practicing in the MSA in which
the Franchised Business is located, with each party selecting one (1) medical
physician and the two (2) medical physicians so designated selecting the third
medical physician. The determination of the majority of the three (3) medical
physicians shall be binding upon the parties and all costs of making said
determination shall be borne by the party against whom it is made.
20. RIGHT OF FIRST REFUSAL
If you or your owners propose, in a single transaction or series of
related transactions, to sell all or substantially all of the assets of the
Franchised Business or a majority of the ownership interests in the
32
Franchisee in terms of voting power or value or propose to merge the Franchisee
with an entity in which your prior owners do not have such an ownership, you or
your owners shall obtain and deliver a bona fide, executed written offer to
purchase same to us, which shall, for a period of thirty (30) days from the date
of delivery of such offer, have the right, exercisable by written notice to you
or your owners, to purchase the Franchised Business or such ownership for the
price and on the terms and conditions contained in such offer to us, provided
that we may substitute cash for any form of payment proposed in such offer. If
we do not exercise this right of first refusal, the offer may be accepted by you
or your owners, subject to our prior written approval, as provided in Section
18, provided that if such offer is not so accepted within one hundred twenty
(120) days of the date thereof, we shall again have the right of first refusal
herein described. Should a transferee-franchisee assume your rights and
obligations under this Agreement, such transferee-franchisee shall likewise be
subject to our right of first refusal under terms and conditions as set forth
herein. This right of first refusal is a continuing right of first refusal. Our
failure to exercise our right of first refusal shall not be deemed a waiver of
future rights of first refusal.
21. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. This Agreement does not constitute you as an agent, legal
representative, joint venturer, partner, employee or servant of ours for any
purpose whatsoever. You may not represent to third parties that you are our
agent, or have any other such relationship to us, and it is understood between
the parties that you shall be an independent contractor and are in no way
authorized to make any contract, agreement, warranty or representation on our
behalf, or to create any obligation, express or implied, on our behalf.
B. You shall prominently display, by posting of a sign within public
view, on or in the Premises, a statement that clearly indicates that the
Franchised Business is independently owned and operated by you as a CHANGE OF
MIND LEARNING SYSTEMS franchise of ours and not as an agent thereof.
C. You shall defend at your own cost and indemnify us, our
shareholders, directors, officers, employees and agents, from and against any
and all losses, liens, claims, costs, expenses (including attorneys' fees),
damages and liabilities, however caused, resulting directly or indirectly from
or pertaining to the use, condition or construction, equipping, decorating,
maintenance or operation of the Franchised Business, including the sale of any
service or merchandise sold from the Franchised Business. Such losses, liens,
claims, costs, expenses, damages and liabilities shall include, without
limitation, those arising from latent or other defects in the Franchised
Business, whether or not discoverable by us, and those arising from the death or
injury to any person or arising from damage to your or our property, our agents
or employees, or any third person, firm or corporation, whether or not such
losses, liens, claims, costs, expenses, damages or liabilities were actually or
allegedly caused wholly or in part through our active or passive negligence or
any of our agents or employees or resulted from any strict liability imposed on
us or any of our agents or employees.
33
D. We shall not, by virtue of any approvals, advice or services
provided to you, assume responsibility or liability to you or any third parties
to which we would not otherwise be subject.
22. APPROVALS
A. Whenever this Agreement requires our prior approval or consent, you
shall make a timely written request to us, and, except as otherwise provided
herein, any approval or consent granted must be in a signed writing to be
binding upon us.
B. We make no warranties or guarantees upon which you may rely and
assume no liability or obligation to you or any third party to which we would
not otherwise be subject, by providing any waiver, approval, advice, consent or
services to you in connection with this Agreement, or by reason of any neglect,
delay or denial of any request therefor.
23. NON-WAIVER
No failure by us to exercise any power reserved to us hereunder, or to
insist upon strict compliance by you with any obligation or condition hereunder,
and no custom or practice of the parties in variance with the terms hereof,
shall constitute a waiver of our right to demand exact compliance with the terms
hereof. Waiver by us of any particular default by you shall not be binding
unless in writing and executed by the party sought to be charged and shall not
affect or impair our right with respect to any subsequent default of the same or
of a different nature; nor shall any delay, waiver, forbearance or omission of
by us to exercise any power or rights arising out of any breach or default by
you of any of the terms, provisions or covenants hereof, affect or impair our
rights nor shall such constitute a waiver by us of any right hereunder or of the
right to declare any subsequent breach or default. Subsequent acceptance by us
of any payment(s) due to it hereunder shall not be deemed to be a waiver by us
of any preceding breach by you of any terms, covenants or conditions of this
Agreement.
24. NOTICES
Any and all notices required or permitted under this Agreement shall be
in writing from a party to this Agreement or its attorney and shall be
personally delivered or mailed by certified mail, return receipt requested, to
the respective parties at the following addresses unless and until a different
address has been designated by written notice to the other party:
Notices to Us: CHANGE OF MIND LEARNING SYSTEMS, INC.
0000 Xxxxxxx Xxxx
Xxxx Xxxxxxx, Xxxxxxxxx 00000
Courtesy Copy to: Xxxxxxx X. Xxxxxxx
Xxxxxxxxxx & Xxxxx, P.A.
1100 International Center
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
34
Notices to You:
------------------------------
------------------------------
------------------------------
Courtesy Copy to: ------------------------------
------------------------------
------------------------------
Any notice by certified mail shall be deemed to have been given at the
date and time of mailing.
25. ENFORCEMENT
A. If a claim for amounts owed by you to us is asserted in any legal
proceeding before a court of competent jurisdiction, or if we or you are
required to enforce this Agreement in a judicial proceeding, the prevailing
party shall be entitled to reimbursement of its costs, including reasonable
accounting and legal fees, in connection with such proceeding.
B. WE AND YOU WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO
OR CLAIM FOR ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT,
IN THE EVENT OF A DISPUTE BETWEEN US, THE PARTY MAKING A CLAIM WILL BE LIMITED
TO EQUITABLE RELIEF AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
C. WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER OF US.
D. ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OF
THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS AGREEMENT WILL BE BARRED UNLESS
AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM THE DATE ON WHICH THE ACT OR
EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1) YEAR FROM THE DATE ON WHICH
YOU OR WE KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE DILIGENCE, OF
THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER OCCURS FIRST.
35
26. ENTIRE AGREEMENT
This Agreement, any exhibit attached hereto, and the documents referred
to herein, shall be construed together and constitute the entire, full and
complete agreement between us and you concerning the subject matter hereof, and
supersede all prior agreements. No other representation has induced you to
execute this Agreement, and there are no representations, inducements, promises
or agreements, oral or otherwise, between the parties not embodied herein, which
are of any force or effect with reference to this Agreement or otherwise. No
amendment, change or variance from this Agreement (other than amendments to the
Manual or other matters with respect to which we have reserved the unilateral
right to amend) shall be binding on either party unless executed in writing by
both parties.
27. SEVERABILITY AND CONSTRUCTION
A. Each Section, part, term and/or provision of this Agreement shall be
considered severable, and if, for any reason, any Section, part, term and/or
provision herein is determined to be invalid and contrary to, or in conflict
with, any existing or future law or regulation, such shall not impair the
operation of or affect the remaining portions, sections, parts, terms and/or
provisions of this Agreement, and the latter shall continue to be given full
force and effect and bind the parties hereto; and said invalid sections, parts,
terms and/or provisions shall be deemed not part of this Agreement; provided,
however, that if we determine that said finding of illegality adversely affects
the basic consideration of this Agreement, we may, at our option, terminate this
Agreement.
B. Anything to the contrary herein notwithstanding, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than us or you and such of their respective successors and assigns
as may be contemplated by this Agreement, any rights or remedies under or by
reason of this Agreement.
C. You shall be bound by any promise or covenant imposing the maximum
duty permitted by law which is contained within the terms of any provision
hereof, as though it were separately stated in and made a part of this
Agreement, that may result from striking from any of the provisions hereof any
portion or portions which a court may hold to be unreasonable and unenforceable
in a final decision to which we are a party, or from reducing the scope of any
promise or covenant to the extent required to comply with such a court order.
D. All captions herein are intended solely for the convenience of the
parties, and none shall be deemed to affect the meaning or construction of any
provision hereof. The singular usage includes the plural and the masculine and
neuter usages include the other and the feminine.
E. The recitals set forth in this Agreement are specifically
incorporated into the terms of this Agreement and hereby constitute a part
thereof.
36
28. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY US
AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE LAWS OF THE STATE IN WHICH THE
PROTECTED TERRITORY IS SITUATED, WHICH LAWS SHALL PREVAIL IN THE EVENT OF ANY
CONFLICT OF LAW, EXCEPT TO THE EXTENT GOVERNED BY FEDERAL LAW INCLUDING, WITHOUT
LIMITATION, THE UNITED STATES TRADEMARK ACT OF 1946, AS AMENDED (XXXXXX ACT, 15
U.S.C. SECTIONS 1051 ET SEQ.).
B. YOU AGREE THAT ANY AND ALL ACTIONS SOUGHT TO BE BROUGHT BY EITHER
PARTY, SHALL BE BROUGHT IN THE APPROPRIATE STATE COURT SITTING IN HENNEPIN
COUNTY, MINNESOTA OR THE APPROPRIATE FEDERAL COURT SITTING IN HENNEPIN COUNTY,
MINNESOTA WITH JURISDICTION OVER THE MATTER. YOU EXPRESSLY WAIVE THE RIGHT TO
CONTEST THE JURISDICTION OF ANY MINNESOTA COURT.
C. NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO US OR YOU BY THIS
AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE OF ANY OTHER RIGHT
OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR PERMITTED, BUT EACH SHALL BE
CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.
D. NOTHING HEREIN CONTAINED SHALL BAR OUR RIGHT TO OBTAIN INJUNCTIVE
RELIEF IN ANY COURT OF COMPETENT JURISDICTION AGAINST THREATENED CONDUCT UNDER
GENERAL PRINCIPLES OF EQUITY, INCLUDING THE APPLICABLE PRINCIPLES FOR OBTAINING
RESTRAINING ORDERS AND PRELIMINARY INJUNCTIONS.
29. MEDIATION
A. We and you acknowledge that resolving disputes prior to commencing
court proceedings is in the best interest of both parties, all other System
franchisees and the System. Therefore, the parties agree that they will act in
good faith to settle any dispute or controversy between them either prior to or
during the Mediation. Except as provided below, all disputes and controversies
between us and you, without exception, arising under, as a result of or in
connection with this Agreement the Franchised Business will be subject to
mandatory nonbinding Mediation.
B. If either party alleges a dispute or controversy against the other
party for any reason whatever, then either party will have the right to demand
nonbinding Mediation after the complaining party has provided the other party
with written notice describing the dispute or controversy and the desired
action. The Mediator will be appointed in accordance with the Rules and
Regulations of the
37
American Arbitration Association unless the parties agree on a Mediator in
writing within ten (10) days after either party has provided the other party
with written notice of Mediation. All Mediation hearings will take place
exclusively in Minneapolis, Minnesota, and will be held within twenty (20) days
after the Mediator has been appointed. The Mediation hearing will be informal
and the Mediator will have the right to hear and review all testimony and
evidence presented by either party. The cost of the Mediator will be paid
equally by the parties and each party will pay the expenses it incurs in
connection with the Mediation.
C. Neither party will have the right to commence legal proceedings
against the other party until the dispute or controversy has been mediated as
provided for herein. All matters, testimony, arguments, evidence, allegations,
documents and memorandums referred to, introduced or presented during the
mediation will be held confidential in all respects and will not be disclosed to
any other person or entity by either party.
D. Disputes arising out of Section 5 and 15 shall not be subject to
mediation.
30. OWNER AGREEMENT
As used in this Agreement, the term "you" shall include all persons who
succeed to the interest of the original franchisee by permitted transfer or
operation of law and shall be deemed to include not only the individual or
entity defined in the introductory paragraph of this Agreement, but shall also
include all partners of the entity that executes this Agreement, in the event
said entity is a partnership, all members of the entity that executes this
Agreement in the event said entity is a limited liability company, and all
shareholders, officers and directors of the entity that executes this Agreement,
in the event said entity is a corporation. By their signatures hereto, all
partners, shareholders, officers and directors of the entity that signs this
Agreement as you acknowledge and accept the duties and obligations imposed upon
each of them, individually, by the terms of this Agreement. All partners of the
entity that executes this Agreement, in the event said entity is a partnership,
and all shareholders, officers and directors of the entity that executes this
Agreement, in the event said entity is a corporation, and all members of the
entity that execute this Agreement, in the event said entity is a limited
liability company, shall execute the Owner Agreement attached hereto as Exhibit
B.
31. CAVEAT
The success of the business venture contemplated to be undertaken by
you by virtue of this Agreement is speculative and depends, to a large extent,
upon your ability as an independent businessperson, and your active
participation in the daily affairs of the business as well as other factors. We
do not make any representation or warranty, express or implied, as to the
potential success of the business venture in this Agreement.
32. ACKNOWLEDGMENTS
38
A. YOU REPRESENT AND ACKNOWLEDGE THAT YOU HAVE RECEIVED, READ AND
UNDERSTOOD THIS AGREEMENT AND THE UNIFORM FRANCHISE OFFERING CIRCULAR; AND THAT
WE HAVE ACCORDED YOU AMPLE TIME AND OPPORTUNITY TO CONSULT WITH ADVISORS OF YOUR
OWN CHOOSING ABOUT THE POTENTIAL BENEFITS AND RISKS OF ENTERING INTO THIS
AGREEMENT. YOU HAVE BEEN ADVISED TO CONSULT WITH YOUR OWN ADVISORS WITH RESPECT
TO THE LEGAL, FINANCIAL AND OTHER ASPECTS OF THIS AGREEMENT, THE BUSINESS
FRANCHISED HEREBY AND THE PROSPECTS FOR THAT BUSINESS. YOU HAVE EITHER CONSULTED
WITH SUCH ADVISORS OR HAVE DELIBERATELY DECLINED TO DO SO.
B. YOU ACKNOWLEDGE THAT NEITHER YOU NOR ANY EQUITY HOLDER OF YOURS HAS
RECEIVED OR RELIED UPON ANY REPRESENTATION BY US OR ANY OF OUR OFFICERS,
DIRECTORS, SHAREHOLDERS, EMPLOYEES OR AGENTS WHICH ARE CONTRARY TO THE
STATEMENTS MADE IN OUR FRANCHISE OFFERING CIRCULAR OR THIS AGREEMENT.
C. You acknowledge that the covenants not to compete set forth in this
Agreement are fair and reasonable, and shall not impose any undue hardship on
you, since you have other considerable skills, experience and education which
afford you the opportunity to derive income from other endeavors.
D. You affirm that all information set forth in any and all
applications, financial statements and submissions to us is true, complete and
accurate in all respects, with you expressly acknowledging that we are relying
upon the truthfulness, completeness and accuracy of such information.
E. You have conducted an independent investigation of the business
contemplated by this Agreement and recognizes that, like any other business, an
investment in a CHANGE OF MIND LEARNING SYSTEMS Franchised Business involves
business risks and that the success of the venture is primarily dependent upon
your business abilities and efforts.
F. WE EXPRESSLY DISCLAIM THE MAKING OF, AND YOU ACKNOWLEDGE THAT YOU
HAVE NOT RECEIVED, ANY ESTIMATES, PROJECTIONS, REPRESENTATIONS, WARRANTIES OR
GUARANTIES, EXPRESS OR IMPLIED, AS TO POTENTIAL GROSS REVENUES, INCOME, PROFITS,
EARNINGS, EXPENSES, FINANCIAL OR BUSINESS SUCCESS, VALUE OF THE FRANCHISED
BUSINESS, OR OTHER ECONOMIC MATTERS, EXCEPT AS SET FORTH IN OUR UNIFORM
FRANCHISE OFFERING CIRCULAR, A COPY OF WHICH HAS BEEN PROVIDED TO YOU.
YOU ALSO ACKNOWLEDGE THAT WE DO NOT WARRANT OR GUARANTEE: (A) THAT YOU
WILL DERIVE INCOME FROM THE FRANCHISE BUSINESS; OR (B) THAT WE WILL REFUND ALL
OR PART OF THE PRICE PAID FOR YOUR FRANCHISE BUSINESS OR REPURCHASE ANY OF THE
SOFTWARE, GOODS, SUPPLIES OR FIXTURES
39
SUPPLIED BY US OR ANY SUPPLIER IF YOU ARE UNSATISFIED WITH THE FRANCHISED
BUSINESS.
G. You acknowledge that other franchisees of ours have or will be
granted franchises at different times and in different situations, and further
acknowledges that the provisions of such franchises may vary substantially from
those contained in this Agreement.
H. You acknowledge that you have received a copy of this Agreement with
all material blanks fully completed at least five (5) business days prior to the
date on which this Agreement was executed. You further acknowledge that you
received a uniform franchise offering circular at least ten (10) business days
prior to the date on which this Agreement was executed.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, sealed and delivered this Agreement the day and year
first above written.
ATTEST: CHANGE OF MIND LEARNING
SYSTEMS, INC., A MINNESOTA CORPORATION
By:
--------------------------------- -----------------------------------
Title:
--------------------------------
ATTEST/WITNESS: FRANCHISEE:
By:
--------------------------------- -----------------------------------
Title:
--------------------------------
By:
--------------------------------- -----------------------------------
Title:
--------------------------------
40
EXHIBIT A
PROTECTED AREA
FRANCHISOR: FRANCHISEE:
By: By:
----------------------------------- -----------------------------------
Title: Title:
-------------------------------- --------------------------------
41
