SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-21613
ECOMAT, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3865026
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
147 Palmer Avenue
Mamaroneck, New York 10543-3632
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (914) 777-3600
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $411,000.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock
as of March 14, 1997, was approximately $6,466,125.
Number of shares outstanding of the issuer's common stock, as of March 14,
1997 was 3,603,000.
Documents Incorporated By Reference: None
PART I
Item 1. BUSINESS
General
Ecomat, Inc. (the "Company" or "Ecomat") is a Delaware
corporation that has been formed to develop the Ecomat concept
nationally and internationally which, management believes, provided
the first environmentally sound solution to current dry cleaning methods
in the United States and is currently the only franchisor of this concept.
As of December 31, 1996 Ecomat had three subsidiaries (in addition to a
company-owned satellite facility):
1. 8th Street Laundromat, Inc. ("8th Street"), a company
owned store at 140 West 72 St. New York City;
2. Ecoclean Systems International, Ltd. ("Ecoclean Systems"), a
Company owned store at 147 Palmer Avenue, Mamaroneck,
New York; and
3. Ecofranchising, Inc. ("Ecofranchising"), the franchisor of the
Ecomat concept.
8th Street is a full-service Ecomat cleaners and
laundromat which opened on October 24, 1993. The facility
has served as the base for the Company's research and
development program since 1993. New methods of wet cleaning,
water recycling, and automated machine monitoring have been
advanced by the Company at this location. See "Research and
Development."
Ecoclean Systems is a full-service Ecomat cleaners and
laundromat which opened on October 14, 1995. The facility is
the flagship store of the Company and the prototype for all
Ecomat full-service franchises. A fully operational water
recycling plant is in place as well as all proprietary
hardware and software created by the Company for its own and
its franchisees' use.
Ecofranchising is the franchisor of the Ecomat concept.
The Company began offering franchises in October of 1994. As
of March 17, 1997 there were signed agreements for seven
cluster franchises, two in New Jersey, and one each on Long
Island, NY, Brooklyn, NY, Austin, TX, Westchester County,
NY and Boulder, Co. In addition, there is one Ecomat
self-serve laundromat and drop-off facility franchise in
Manhattan, NY. As of March 17, 1997 there were 2 Westchester
route franchise clusters in operation (two (2) drop sites)
and one other facility in Huntington, Long Island. No other
facilities under the cluster agreements are yet in
operation. See "Franchise Agreements."
The Company was incorporated on December 14, 1995
pursuant to the laws of the State of Delaware. The Company
is the successor to Diaber Laundromat, Inc., a New York
corporation ("Diaber"), which was incorporated pursuant to
the laws of the State of New York on September 21, 1992.
The Company was organized to enable Diaber to merge with and
into the Company in order to effectuate a reincorporation in
the State of Delaware. Diaber merged with and into the
Company on March 29, 1996. The Company's executive offices
are located at 147 Palmer Avenue, Mamaroneck, NY 10543-3632.
The Company's telephone number is (914) 777-3600. The
Company completed its initial public offering of 1,200,000
shares of Common Stock in December 1996 pursuant to a firm
commitment underwritten offering. The offering price was
$5.00 per share.
Recent Developments
On February 12, 1997 the Company simultaneously entered
into and closed on an asset purchase agreement pursuant to
which it had acquired substantially all of the assets of The
Cleaner Image, the first 100% wet-cleaning facility in New
England. The Company purchased this facility to expand its
customer service base to all of Fairfield County, CT and
Northern Westchester County, NY. The facility is used as a
satellite facility. The purchase price consisted of $65,000
and the issuance of 3,000 shares of the Company's Common
Stock. The agreement also provides for additional issuances
of up to 12,000 shares of Common Stock if revenue from this
location equals $234,000 for the first year of operation.
The Company assumed the obligations under the lease for the
facility in Ridgefield, CT. See "Item 2 - Properties."
In addition, the Company has signed master franchise
development agreements in Indonesia and Malaysia /Brunei.
The master franchisee for Indonesia is required to open
facilities pursuant to a 7 year development schedule as
follows: Year 1- 2 Clusters; Year 2- 3 Clusters; Year 3- 3
Clusters; Year 4- 3 Clusters; Year 5- 3 Clusters; Year 6- 5
Clusters; and Year 7- 6 Clusters. Each Cluster is for a
minimum of 3 locations.
The master franchisee for Malaysia/Brunei is required
to open facilities pursuant to an 8 year development
schedule as follows: Year 1- 1 Primary Facility; Year 2- 2
Primary Facilities; Year 3- 3 Primary Facilities; Year 4- 5
Primary Facilities; Year 5- 5 Primary Facilities; Year 6- 7
Primary Facilities; Year 7- 7 Primary Facilities; and Year 8-
7 Primary Facilities.
Forward Looking Statements
Certain information contained in this Annual Report on
Form 10-KSB, including, without limitation, information
appearing under Part I, Item I (Business), and Part II, Item
7 (Management's Discussion and Analysis of Financial
Condition and Results of Operations) are forward-looking
statements (within the meaning of Section 27A of the
Securities Act of 1934, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended). Factors set
forth that appear within the forward-looking statements, or
in the Company's other Securities and Exchange Commission
filings, including its Registration Statement on Form SB-2
dated December 9, 1996, could affect the Company's actual
results and could cause the Company's actual results to
differ materially from those expressed in any forward-
looking statements made by, or on behalf of, the Company in
this Annual Report on Form 10-KSB.
Industry Overview
The Commercial Laundry Industry
In the first half of this century, a thriving
commercial laundry industry conveniently picked up,
processed and delivered tons of laundry to millions of
households. It flourished because home-based laundering was
a tedious chore that involved boiling, scrubbing on a board,
draining, refilling, and rinsing, hanging on the line,
ironing, etc. With the advent of the home washer and dryer
and the coin-operated laundromat in the early 1950s and the
creation of wash-n-wear fabric in the 1960s, consumer demand
for commercial laundering declined. There are now over
30,000 coin-operated laundromats in the United States. The
newest trend of the 1980s and 1990s has been the increase in
the wash and fold valet service offered by many laundromats
that can account for as high as forty percent (40%) of a
laundromat's revenue depending upon location.
Most of these laundromats, however, do not offer
pick-up and delivery services. Measured in today's dollars,
the coin-operated laundromat industry is approximately a
$2.4 billion dollar industry. Management believes that the
high cost of water in many municipalities and the exorbitant
impact of "hook-up" fees that are charged to new laundromats
based on the number of washers installed are barriers to
entry in the commercial laundry industry.
The Dry Cleaning Industry
The dry cleaning industry is a remnant of the old
commercial laundry industry. Dry-cleaning evolved to process
the dressier types of garments that were either too
difficult or too time consuming for people to wash or press
themselves. It is a very fragmented industry with over
35,000 outlets of which 95% are individually owned and
operated and 98% consist of less than four (4) stores.
Hence, it is very much still a Mom and Pop industry. It is
characterized by a high fixed cost structure (including
labor; over 75% of the costs are fixed) and high labor
content (including management labor; approximately 45%).
Management believes that these two factors have induced
dry-cleaners to compete based on price in order to increase
volume while trying to minimize labor costs. This has led to
high labor turnover rates, a lack of differentiation in the
industry and a high level of consumer dissatisfaction.
The most detrimental factor that adversely affects the dry
cleaning industry at present is its reliance on the cleaning
solvent, perchloroethylene, known as "perc" for short. Perc has a
variety of toxic effects, which have been documented primarily in
studies of dry cleaning workers and others exposed to perc on the
job. Excessive exposure to perc can cause damage to the central
nervous system, liver, kidneys, and the reproductive system. The
International Agency for Research on Cancer recently reclassified
perc as a "probable human carcinogen" from a "possible human
carcinogen." In New York State alone, the Department of Health
has stated that about 170,000 state residents are exposed to high
perc concentrations because they live in apartments near a dry
cleaner or work in a building with a dry cleaner. In addition,
the perc cleaning process produces contaminated wastewater that
must be disposed of somewhere. Evidence strongly suggests that
some dry-cleaners are dumping this water into municipal sewers
causing Superfund issues for owners of commercial real estate and
neighboring tenants who feel the impact of contaminated sites.
Dry-cleaning is far from a "dry" process. A traditional perc
cleaner sorts clothes by color and places them by 35 or 50 pound
loads in a perc machine. There are many types of perc machines;
to a lay person they look like large front-load washing machines.
Instead of water, the clothes are soaked in perc, which is an
industrial degreaser, and go through a "wash" process. The oldest
system then requires that a person reach into the perc machine,
pull out the clothes soaked with perc and place them in an
extractor which then recaptures some of the perc to be used again
and again. The clothes are then dried in a special drier which is
vented to the outside air. The perc is therefore directly
released into the atmosphere. Newer machines known as "fourth
generation" machines do not have this "transfer process." They
are called "dry-to-dry" perc machines. The dry-cleaning industry,
spurred by strong environmental regulations in Europe, has begun
to address the issue of perc exposure to workers and consumers
alike.
However, in October of 1995, the Consumers Union of United
States, Inc. released a study which determined that even with
modern, unvented, dry-to-dry perc machines, serious perc
pollution in the apartments above dry-cleaners still poses a
clear danger to the health of the apartment dwellers. The study
states that the approach currently being pursued by New York
State, requiring all dry cleaners to install more modern dry
cleaning equipment will improve the situation from the older
equipment, but will not guarantee acceptably low perc levels in
the apartments' air. The study recommends that dry-cleaners be
prohibited from operating in residential buildings altogether,
and that people living above a dry-cleaner get their air tested
regularly. In July 1996 the Department of Environmental
Conservation of the State of New York released (for comment to
the public) revisions to the "perc" dry cleaning regulations (6
NYCR Part 232). On March 19, 1997 these regulations were
ratified. Such regulations require, among other things, perc dry
cleaners, at their own expense, to install a spill-containment
system capable of containing 125% of the largest perc tank on the
premises, upgrade outdated machinery, post notice warnings of the
dangers of "perc" that is prepared and supplied by the Department
of Environmental Protection which must be posted in a conspicuous
location to inform building tenants and/or customers of the
potential health effects associated with exposure to "perc",
construct vapor barriers that, at a minimum, enclose the dry
cleaning equipment, adhere to record keeping requirements, pay
for semi-annual inspections and attend training sessions. A bill
that will phase out "perc" dry cleaning from all residential
buildings in New York City was introduced in the New York City
Council in May 1996. A similar bill has been introduced in March
1997 in the New York State Legislature. See "Governmental
Regulation."
The Ecomat System
Management believes that the Ecomat system provided the
first environmentally sound solution to current dry cleaning
methods.
Ecomat uses a combination of cleaning techniques. These
include multi-process wet cleaning methods which were studied by
the Environmental Protection Agency ("E.P.A.") and described in
the E.P.A. report "Multi-process Wet-Cleaning--Cost and
Comparison of Conventional Dry-Cleaning and An Alternative
Process; U.S. Environmental Protection Agency EPA 744-R-93-004,
September 1993." Such study concluded that the wet cleaning
process was proven to be superior to the traditional dry cleaning
method in the 4 of 6 areas used to compare the two methods
(customer satisfaction, cleanliness, appearance and odor). It
rated equal to traditional dry-cleaning in the other 2 areas
(shrinkage and cost). The Company has also developed its own
techniques of treating particular fabrics that can be problematic
to both "dry" and "wet" cleaners alike. "Wet cleaning" as opposed
to "dry cleaning" is a method for deep cleaning fabrics using
water, steam, plant-based cleaning agents rather than toxic
solvents, and natural bleaching agents such as hydrogen peroxide
rather than chlorine-based bleaches. The special techniques that
the Company has developed include: the tumbling of garments to
loosen soil, the choice of a water-based cleaning method (which
can include steaming, steam closet, mechanical wet cleaning,
sink-washing, machine-washing), specialized drying with humidity
control and finishing of garments with robotic steam finishing
equipment. See "Research and Development."
Ecomat has achieved a significant (if not total) reduction
of hazardous waste emissions when compared to a traditional
dry-cleaner. Because of the Company's cleaning methods,
management believes an Ecomat facility can be safely located in
mixed residential and commercial housing and in close proximity
to stores that sell food. High concentrations of "perc"
contamination have been detected especially in dairy products
when a traditional dry cleaner is located next to a food store.
Instead of using a perc machine, Ecomat utilizes a wet
cleaning system that consists of a specialized washer and a heat
and humidity-sensitive dryer both of 35 or 50 pound capacity.
With the introduction of special non-toxic cleaning products, the
Ecomat cleaner washes garments in water. Water is one of the best
known cleaning solvents in the world. It can remove water-based
stains such as perspiration that perc cannot because perc is only
a degreaser. The grease-based stains are removed equally well by
the Ecomat spotting products.
Ecomat laundromats use and will continue to use
state-of-the-art, energy and water-efficient front-load washers
that are controlled by proprietary hardware and software that
have been developed by the Company for optimal energy,
productivity and cost efficiency.
Service, Quality and Customer Satisfaction
Ecomat quality service has and will continue to include:
personal attention to the specialized care needs of each
individualized garment, convenient locations, easily accessible
pick-up and delivery, hours that cater to busy schedules,
self-service and drop-off facilities, and bright attractive store
designs which meet the requirements of the Americans with
Disabilities Act.
Customers are and will be helped by a trained and courteous
staff. Research shows that while there are low switching barriers
for the customer, the majority of customers are not particularly
price sensitive. Management believes that this, coupled with the
consumer's perception of poor quality and service in the
traditional dry-cleaner, presents an opportunity for an Ecomat
facility to differentiate itself through superior customer
retention, brand name, increased revenue and decreased costs.
Each full-service facility has and will have a coffee bar,
televisions and a comfortable lounge. Depending on the market,
Ecomat provides and will provide recreational equipment such as
healthful snack vending machines and mailboxes, and in college
markets, computers and printers tied into the Internet that can
be rented by the minute. Management believes that each location
is a highly desirable environment for families with small children,
college students and young professionals.
Store Configuration
An Ecomat store or franchise offers several configurations
for the kind of facility best suited to the location chosen:
o AN ECOMAT FULL-SERVICE FACILITY that includes:
self-service coin-operated laundromat with wash and fold service,
a cleaning plant on premises and an entertainment area that may
include televisions and lounge, vending machines, mailboxes and
computers.
o AN ECOMAT CLEANERS that includes: wash and fold
service and a cleaning plant on premises.
o AN ECOMAT SATELLITE FACILITY that functions as a
convenient drop-off site for both wash and fold laundry and cleaning
where wash and fold is also done on premises.
o AN ECOMAT SELF-SERVICE LAUNDRY FACILITY that has
self-service coin-operated laundry machines and also serves as a drop-off
site for wash and fold and cleaning.
o AN ECOMAT ROUTE FRANCHISE that consists of a
franchise operating a vehicle that is affiliated with a Ecomat cleaners
or a full service facility.
o AN ECOMAT DROP SITE that consists of a drop-off site
for wash and fold and cleaning but where no wash and fold is done on
premises.
Store Operations
The goal of the Company in all its company owned and
franchised locations is to make it pleasurable for the customer
to have clothes laundered and cleaned in an environmentally sound
way, and to become the industry leader in the laundromat and
cleaning industries.
In order to achieve this goal, all stores are and will be
required to adhere to the Company's standards of cleanliness,
service and quality. The Company believes that its operating
systems, store layout and cluster program (described below)
result in lower operating cost, improved cleaning quality and
higher customer service.
Training and Development
The Company has developed operations manuals that cover all
areas of technical and operational performance. The manuals guide
the operator through garment cleaning techniques, delivery
services, merchandising and promotions.
The Company offers an extensive training program (which
includes pre-opening and post-opening training) for its staff and
its franchisees and their staffs, including education of
management in the operation of a business. The Company
continually updates all training programs and manuals to offer
the most up to date information available.
Targeted Marketing
The Company's marketing programs target the delivery area of
each store, making extensive use of direct mail promotions,
leaflets and local media advertising such as radio and cable
television. The local marketing efforts include more effective
involvement with community oriented activities with sports teams,
schools and other organizations. The Company has produced its own
CD Rom which runs in every company owned and franchised unit. The
CD Rom is interactive and allows the Company to track customer
preferences through direct feedback to the Company's corporate
headquarters. The Company can then adjust its marketing based on
these preferences.
The CD Rom includes all of the press in the television,
radio and print media that has ever appeared about Ecomat. It
also gives the viewer a 3D tour of a full-service Ecomat facility
and a demonstration of the different configurations of Ecomat
franchises available. The Company utilizes the CD ROM at industry
and franchise shows and allows the Company to bring the Ecomat
concept directly to the viewer whether it be at a meeting, large
convention, or one-on-one encounter.
The Company has received media coverage in television (CNN,
TBS, CBS News, Wall Street Weekly, WBIS, WNBC, WCBS, WABC, WWOR,
WNYW, Wall Street Journal Report and Good Morning America), radio
(National Public Radio, WABC and Bloomberg Report), and in the
press (Wall Street Journal, Chicago Tribune, USA Today, Consumer
Reports, Crains New York Business, Success Magazine and the New
York Times). In addition, the Company was named in the top 6
picks for 1996 by the Franchise Times (a publication of Crain
Communications, Inc.). The Company will continue to pursue public
relations by vigorously pursuing all media coverage.
The Company participates in extensive public relations and
advertising campaigns, and keeps abreast of industry trends and
franchisee news. The Company's corporate staff is available on a
daily basis for support and assistance in every aspect of store
operations.
The Company has established a home page on the Internet
(http://www.ecomat.com) which uses many portions of its CD ROM.
The home page is currently being remodeled and expanded to
reflect the technical advances made recently in internet
technology. Ecomat has made available, via the home page, its
Direct Clean services which offers convenient pick-up and
delivery, via UPS or other carriers to all areas of the
United States. See "Expansion of Ecomat System" below.
The Strategic Plan of Operations
The Company's objective is to develop recognition of the
Ecomat cleaners and laundromat concept and to maximize the value
of the Company for its shareholders. To accomplish these
objectives, the Company intends to pursue a strategy designed to
achieve high levels of customer satisfaction and repeat business.
The Company believes it will be successful in meeting its
objectives through the opening of more strategically located
company owned stores and through expansion via franchise unit
sales. The Company intends to open eleven satellite locations for
each of its Company owned full-service facilities in Manhattan
and Mamaroneck, New York in fiscal 1997. The two full-service
facilities will operate as central cleaning plants for these
twenty two (22) satellite units providing for increased revenue
in such full-service facilities while minimally increasing
expenses related to such expansion. The Company intends to build
name brand recognition in these two markets within a relatively
short period of time. In addition, the seven franchise cluster
developments and the Ecomat self-service laundromat and drop-off
facility franchise already sold will allow the Company to achieve
broader recognition through the entire area. The Company has
targeted 30 markets for expansion in the United States.
The Company intends to add a full service facility in
Manhattan, NY to accommodate the anticipated demand for
alternatives to perc dry-cleaning establishments due to the
passage of the recent New York dry-cleaning regulations. See
"Government Regulation." The Company will focus its marketing
and advertising towards those cleaners who will be seriously
affected by such regulations. See "Conversion Franchises" below.
New Store Locations
The Company believes that the location of an Ecomat facility
is an essential element of success. The Company intends to focus
its development of the franchise program and the expansion of
company owned facilities on store locations which are
strategically located in areas that satisfy the Company's
demographic criteria. The Company will in the near term seek
locations for Ecomat facilities (for both company owned and
franchises) in larger cities and college towns, in particular.
Cluster Development Program and Franchise System
The Company has developed a "cluster program" to maximize
the market potential of each Company and franchised location. In
the "cluster program", the right is acquired to develop one
Ecomat full-service facility or Ecomat cleaners as a primary
location. Over the first twenty four month period after the
signing of the development agreement by a franchisee, three
additional satellite facilities are opened which affords total
market saturation and economies of scale to the entire cluster. A
pick-up and delivery system is put in place that maximizes the
potential of providing rapid, efficient and convenient service to
customers.
The Company is committed to developing a strong franchise
system by attracting experienced operators and ensuring that each
franchisee strictly adheres to the Company's high standards. The
Company seeks to attract franchisees with business experience.
The Company devotes significant resources to providing its
franchisees with assistance in marketing, site selection, store
design and employee training. Franchisees are approved based on
the applicant's business background and financial resources.
Start-up Costs
A full-service facility can cost between $252,103 and
$330,767; a cleaners between $154,045 and $188,132; a satellite
between $50,111 and $90,775; a drop site between $11,250 and
$26,750; a route franchise between $23,300 and $53,550 and a
laundromat between $156,743 and $252,677.
The differences in facility cost are primarily due to the
size of the facility and the equipment requirements. A detailed
itemization of all start-up costs is presented in the Uniform
Franchise Offering Circular ("UFOC") which is filed as an exhibit
to the Company's Form 10-KSB. The UFOC is prepared according to
the format and presentation required by the Federal Trade
Commission ("FTC") and as such is the document of record
describing this "business format franchise" offered in the twenty
six (26) states which have no "state specific" requirements. The
UFOC is also prepared according to the requirements of (and the
franchise is approved for sale in) the States of New York,
California, Illinois, Connecticut, North Carolina and Washington.
Abbreviated registration has been filed in Texas and Florida.
Franchise Agreements
Each franchisee must comply strictly with the Ecomat system
and its standards, specifications and procedures. The franchise
agreement sets forth various requirements regarding signage,
equipment, service, hours of operation, cleaning techniques and
computerization.
Under the Company's current standard franchise agreement,
the franchisee is required to pay, at the time of the signing of
the agreement, a non-refundable fee of between $15,000 and
$36,500 depending on whether the franchisee is a conversion
franchisee or a new franchisee of a "cluster program". The
Company's standard franchise agreement provides for a term of ten
years (with three 5-year renewal options) and payment to the
Company of a royalty fee of 5.5% of sales. This royalty fee can
be reduced to 4.5% of sales when aggregate sales of $40,000 per
month is achieved when there are multiple satellite units within
a "cluster program". See also "Marketing and Public Relations"
below. The franchise agreements give the Company the right to
terminate a franchisee for a variety of reasons, including a
franchisee's failure to make payments when due or failure to
adhere to the Company's policies and standards.
As of March 17, 1997 there were signed franchise agreements
for seven cluster franchises, two in New Jersey, and one each in
Long Island, NY, Brooklyn, NY, Austin, Texas, Westchester County,
NY and Boulder, Co. In addition, there is one Ecomat self-service
laundromat and drop-off facility franchise in Manhattan, NY.
Currently, the Westchester route franchise cluster has opened two
(2) drop sites (sites that consist of a drop-off site for wash
and fold and cleaning but where no wash and fold is done on
premises). The route franchise consists of a franchise operating
a vehicle that utilizes the Company's full service cleaner and
laundromat facility in Mamaroneck, NY. The two (2) drop site
locations are at Diamond Corporate Park, 400 Columbus Avenue,
Valhalla, NY and 115 Stevens Avenue, Summit Corporate Services,
Valhalla, NY. The Brooklyn, NY cluster franchise has signed its
lease for its full service facility (that will include a
self-service coin-operated laundromat with wash and fold service,
a cleaning plant on premises and an entertainment area that may
include televisions and lounge, vending machines, mailboxes and
computers) at 837 Union Street, Brooklyn, NY. The Long Island, NY
cluster franchise completed construction for its full service
facility at 630 New York Avenue, Huntington, NY and opened in
April 1997. The self-service laundromat and drop-off facility
franchise in Manhattan, NY has completed construction of such
facility at 60 Avenue B, New York, NY and expects to be open in
mid-April 1997. For a discussion of Ecomat's various
store/franchise configurations, see "Store Configuration."
With respect to all franchise agreements, revenues for
initial franchise fees are recognized on a pro rata basis (based
on the anticipated number of facilities expected to be opened) as
facilities are opened and when all material obligations or
conditions relating to the agreement have been substantially
satisfied.
In addition, the Company has signed master franchise
development agreements for various parts of Europe, Indonesia
and Malaysia/Brunei. The master franchisee for Europe is required
to open facilities pursuant to a 7 year development schedule
(which includes facilities in both core and non-core countries
(as defined in the master franchise agreement)) as follows: Year
1-1; Year 2-28; Year 3-44; Year 4-50; Year 5-56; Year 6-56; and
Year 7-56. The agreement provides that the first 18 facilities in
the core countries must be opened within 18 months and must be
affiliated with the master franchisee. Revenue from the master
franchise agreement will be recognized on a pro rata basis as
each of the anticipated facilities subject to the agreement is
opened. See Part II, Item 12 - "Certain Relationships and
Related Transactions."
The master franchisee for Indonesia is required to open
facilities pursuant to a 7 year development schedule as follows:
Year 1- 2 Clusters; Year 2- 3 Clusters; Year 3- 3 Clusters; Year
4- 3 Clusters; Year 5- 3 Clusters; Year 6- 5 Clusters; and Year 7-
6 Clusters. Each Cluster is for a minimum of 3 locations.
Revenue from such master franchise agreement will be
recognized on a pro rata basis as each of the anticipated
facilities subject to the agreement is opened.
The master franchisee for Malaysia/Brunei is required to
open facilities pursuant to an 8 year development schedule as
follows: Year 1- 1 Primary Facility; Year 2- 2 Primary
Facilities; Year 3- 3 Primary Facilities; Year 4- 5 Primary
Facilities; Year 5- 5 Primary Facilities; Year 6- 7 Primary
Facilities; Year 7- 7 Primary Facilities; and Year 8- 7 Primary
Facilities. Revenue from such master franchise agreement will be
recognized on a pro rata basis as each of the anticipated
facilities subject to the agreement is opened.
Plan of Expansion
The Company intends on expanding its operations through a
program of dry-cleaner and/or laundromat conversions to the
Ecomat concept as well as direct expansion of the franchise
program and the Ecomat system (through new construction and/or
acquisitions).
Conversion Franchises
For an existing dry-cleaner or laundromat owner, conversion
to an Ecomat franchise may be the answer to the ongoing viability
of their business, particularly due to the new stringent dry
cleaning regulations (See "Government Regulation" below). The
Company addresses through its franchise system the impact that
environmental issues such as perc and water and sewage usage are
having on these businesses. Management believes that through the
Company's extensive research and development, Ecomat franchisees
and company-owned stores will be the leaders in the field of
energy conservation and water-saving technologies which will
allow for the stores to operate in a cost-effective manner unlike
their competitors. Through the Company's growth in the past two
years, the dry cleaning community is, in management's belief,
well aware of the alternative to perc. While at first skeptical,
there has been growing acceptance of wet-cleaning as a viable
alternative to perc-based methods. The Company intends to launch
a marketing campaign as part of its business plan to reach this
conversion market.
The cost for such a conversion ranges from $24,000 to
$64,000 depending upon the equipment, store configuration and
other factors. The Company will offer special financial
consideration for conversion franchisees in terms of franchise
and royalty fees. They are required to pay a royalty fee of 2.75%
of sales for the first six months and thereafter 5.5% of sales
(which is reduced to 4.5% when aggregate sales of $40,000 per
month is achieved, as in the case of a regular franchise. See
"Franchise Agreements" above). The Company is currently
targeting for conversion the 900 perc dry-cleaners in residential
buildings in New York City, by direct mail, direct contact and
media advertising.
Expansion of Ecomat System
In addition to the three Company-owned facilities, the
Company has sold to date seven cluster franchises which will
consist of 33 facilities and one single laundromat drop-off
franchise. See "Franchise Agreements" above.
The Company anticipates that agreements relating to
approximately eleven cluster franchises will be reached in fiscal
1997. No assurances, however, can be made that the Company will
achieve such results in this time frame, or ever.
The Company believes that the location of an Ecomat facility
is an essential element of success. Therefore, the Company
intends to focus its development of the franchise program on
store locations which are strategically located within targeted
areas. The site selection process involves an evaluation of a
variety of factors, including demographics (such as population
density); specific site characteristics (such as visibility,
accessibility, and traffic volume); proximity to activity centers
(such as office or retail shopping districts and apartment, hotel
and office complexes); competition in the area; construction or
renovation costs, and lease terms and conditions. The Company
will inspect and approve proposed sites for each Ecomat facility
prior to the execution of a franchise agreement or lease. All
sites are generally subject to the approval of a local planning
board, which approval can take approximately three months.
The Company believes that airports, train stations and
hotels would be excellent sites for Ecomat satellite facilities.
The Company has created a program ("Direct Clean Service")
utilizing United Parcel Service ("UPS") wherein a prefabricated,
collapsible valet case is shipped to customers ("Direct Clean
Customers") where no Ecomat facility exists. An Ecomat Direct
Clean Customer may then ship his/her garments to the nearest
Ecomat cleaning facility (including the Company's franchisees)
and then have it delivered to his/her home or office at no extra
charge for shipping and handling. At February 28, 1997, the
Company currently had 288 regular Direct Clean Customers located
throughout the United States.
Suppliers and Manufacturers of Material
The Company plans to buy equipment from Unimac, Speed Queen
and Huebsch which are divisions of Raytheon, Inc. The Company
also has oral agreements with VeitGMBH and Highsteam Systems,
Inc. to purchase specialized finishing equipment and with Seitz
Chemicals GMBH to purchase special cleaning products. The Company
is not dependent upon any one single supplier and believes that,
if any relationship with any such supplier terminates, the
Company will be able to purchase such materials elsewhere at the
same prices.
Marketing and Public Relations
The Company is currently in the process of expanding its
franchise sales program. In January 1996, a new position of
Vice President of Franchise Sales and Marketing was created to
facilitate the Company's expansion plans. See "Management". A
new franchise sales representative was hired in February 1997 to
augment the Company's anticipated franchise sales growth. The
Company currently markets in local media and at franchise sales
shows, and has developed a site on the Internet which also
markets the Ecomat/UPS Direct Clean service.
The franchise agreement provides that each franchisee must
contribute a monthly advertising and promotion fee of 3% of its
net sales to a fund administered by the Company to be used for
advertising, sales promotion and public relations. The Company is
responsible for using the proceeds of the advertising fund to
develop and implement advertising and promotional plans,
materials and activities on behalf of the Ecomat facilities in
the franchise program. See "Targeted Marketing."
Competition
As of December 31, 1996 management was only aware of four
(4) 100% wet cleaning stores in the United States that are not
Ecomat facilities, two (2) of which were sponsored by the E.P.A.
The first is called The Greener Cleaner in Chicago, Illinois
(which is no longer sponsored by the E.PA.). The second is called
Cleaner by Nature which opened in Los Angeles in 1996. It serves
as a demonstration site to disseminate information about wet-
cleaning and to counter the negative publicity that the dry-
cleaning industry's trade associations are attempting to give its
members on alternatives to perc-cleaning. The third wet-cleaner,
The Cleaner Image, a small cleaners in Ridgefield, Connecticut
which opened in 1995 was purchased by the Company in February
1997. See "Recent Developments" above. The fourth, called
Envirotech, is a small cleaners in Larchmont, NY. While the
Company welcomes the assistance the U.S. government is giving to
alternative methods of dry-cleaning, the Company feels that the
Ecomat system by the nature of its being a for-profit business
not dependent on government funding will be the driving force in
changing the face of the dry cleaning industry. In addition, the
other wet cleaners have as their sole profit center,
wet-cleaning, while an Ecomat facility has a multitude of profit
centers such as wash and fold, self-service, etc.
Management believes that at this time there is no
competition for an environmentally friendly cleaners and
laundromat franchise. There are, however, traditional dry
cleaning/laundromat franchises such as Dryclean USA, Eagle
Cleaners, One Hour Martinizing and Duds n' Suds.
Despite these attempts at franchising, the dry cleaning
industry remains very fragmented. Of over 35,000 dry cleaners
currently in the U.S.A., 95% are individually owned and operated;
98% consist of less than 4 stores. Franchising efforts have been
mediocre. One Hour Martinizing, the largest dry cleaning
franchisor in the U.S., has declined from 5,000 units in 1975 to
856 units in 1995. Management believes that this decline is
largely due to three factors: poor franchisor support, an
industry shake-out in the 1970's that resulted from the
popularity of synthetic fibers, and the bankruptcies of
franchisees. DryClean USA, reached 212 franchises by 1990. Unlike
One Hour Martinizing, which has no company stores, DryClean USA
owned and operated 350 company stores itself in 1995.
In general, a trend toward geographic-area dominance
displayed in service industries such as banking, drug stores and
supermarkets has not yet occurred in the dry cleaning industry.
Therefore, the goal of geographic dominance by the Ecomat
franchise has been addressed via the "cluster program."
The Company believes that the Ecomat concept provides a
competitive advantage over traditional perc-cleaner franchises in
that many of the approved equipment vendors for the Company offer
favorable financing to Ecomat franchisees due to the Company's
arrangement as a national franchise dealer of such equipment. An
additional benefit to an Ecomat franchise is that loans that
would not normally be made to a traditional dry-cleaner because
of the use of perc may be made to an Ecomat franchisee. Fannie
Mae, Freddie Mac and the Small Business Administration all have
stringent disclosure requirements to businesses requesting loans
that may have negative environmental effects on the real estate
in which the business is housed. Such negative environmental
issues do not arise with an Ecomat franchise.
Governmental Regulation
Government agencies responsible for protecting public health
at the local, state, and federal levels have all clearly
recognized that perc pollution from dry cleaners represents an
important environmental health problem. Each level of government
has the jurisdiction to address the problem.
On the Federal level, in 1993, the U.S. EPA issued a
regulation covering the dry cleaning industry. However, the
regulation exempts all but the largest dry cleaners from
requirements to make equipment improvements that would reduce
perc emissions. The majority of cleaners--small operations--were
required to take only minor steps such as repairing leaks quickly
and keeping better records. By 1993, hearings about perc
emissions in residential buildings were held and the EPA promised
to address the issue in future regulation but has not yet done
so. Instead, the EPA funded studies in Chicago to test a variety
of methods to provide an alternative to perc. See "Competition."
On the State level in New York, two agencies, the Department
of Health ('NYSDOH') and the Department of Environmental
Conservation ('NYSDEC') have the authority to address the perc
problem. The 1991 study by NYSDOH which measured perc levels in
apartments above dry-cleaners was the first major study to
document this hazard. However, the NYSDOH has deferred to the
NYSDEC which in turn has focused on developing new regulations
for the dry cleaning industry that is being watched nationwide.
In July 1996 the NYSDEC released (for comment to the public)
revisions to the "perc" dry cleaning regulations (6 NYCR Part
232). On March 19, 1997, these regulations were ratified. Such
regulations require, among other things, perc dry cleaners, at
their own expense, to install a spill-containment system capable
of containing 125% of the largest perc tank on the premises,
upgrade outdated machinery, post notice warnings of the dangers
of "perc" that is prepared and supplied by the Department of
Environmental Protection which must be posted in a conspicuous
location to inform building tenants and/or customers of the
potential health effects associated with exposure to "perc"
construct vapor barriers that, at a minimum, enclose the dry
cleaning equipment, adhere to record keeping requirements, pay
for semi-annual inspections and attend training sessions.
On the local level, two agencies of the New York City
government, the Health Department (NYCDOH) and the Department of
Environmental Protection (NYCDEP) also have some authority to
deal with the perc issue. All New York City dry-cleaners must
have a permit to operate from the NYCDEP, which enforces the NYC
Air Pollution Control Code. NYCDEP can also cite a cleaner for
violating the NYC Air Pollution Code if it creates an odor
problem. During 1993, NYCDOH inspected 133 dry-cleaners in
response to citizen complaints and shut down 63 of them. A bill
that will phase out "perc" dry cleaning from all residential
buildings in New York City was introduced in the New York City
Council in May 1996. A similar bill has been introduced in March
1997 in the New York State Legislature. If such regulation is
passed, all dry-cleaners in New York City with "perc" machines in
residential apartment buildings will be required to remove such
equipment over a two (2) year period.
Currently, groups such as the Consumers Union and Unite
(formerly the Amalgamated Textile Workers Union) are lobbying to
change the building code in New York City to prohibit perc-based
dry cleaning equipment in residential buildings. Other states
such as California and Massachusetts have legislation before
their State Assemblies demanding the total banning of the use of
perc by dry cleaners. Management believes that the next few years
will be very significant in the future of the dry cleaning
industry. Management also believes that all interested parties
will be watching the activities of the Company very carefully as
the potential to change the industry is great and appears to be
imminent.
Since the Company's operations do not include the use of
perc, management believes that its facilities are subject to no
special governmental regulations whatsoever. Normal building code
procedures for filing building plans and obtaining plumbing and
electrical permits, compliance with fire and safety rules and
water usage are the extent to which Ecomat facilities must
comply, all within the bounds of appropriate zoning rules and
regulations. This fact alone gives the Company a distinct
advantage over traditional perc cleaners.
Research and Development
The Company has developed a proprietary computerized control
system for monitoring the operation of all washers, dryers and
extractors in an Ecomat facility. The system consists of up to 99
microprocessor-based unit controllers, a PC-based central site
controller and software which runs them. Unit controllers are
installed in each washer and dryer, and connected (in chain) to
each other and to the site controller (central computer) with
ordinary phone wire. These controllers collect all the
information about operation of their machines, such as number of
cycles run, amount of money collected, possible error conditions
(clogged valves or drains, tampering etc.) and send this
information to the central computer, where it is presented on the
screen and recorded on the disk. The computer screen will show
present status of each machine (on/off, running, available,
error), indicated by color-coded entries in the "STATUS" window,
display recent events, which a user can scroll up and down in the
"EVENT LOG" window, and provide an area for the operator input in
the "INPUT" window. The information entered in this window is
transmitted to the appropriate unit controller and recorded in
its memory. Using this function, operators can set various cycle
options if they are allowed by the machine used (water
temperature, cycle length etc.), set the number of quarters
required to run each particular machine or a group of machines,
etc. Operators also can start any machine from their keyboard,
which allows for 'coinless' operation of a self-service
laundromat; instead of changing the bills and using quarters for
every wash, customers just pay the attendant, and the attendant
starts the appropriate machines from his keyboard. Configuration
with an automatic card reader, which accepts proprietary or major
credit or debit card as a payment for self-service operations is
also possible. The system provides full information on all starts
made by the attendants, so the owner can verify it against the
amount of wash-and-fold business conducted during that given
period of time, to insure efficient operation.
Franchises are and will be equipped with a custom-designed
point of sale ("POS") and accounting system. The system is
interconnected into a network IBM-compatible personal computers
and is expandable to accommodate as many POS terminals
(registers) and accounting computers as a store may need. The POS
system has all information required to complete the sale (items,
prices, payment types, discounts etc.) pre-programmed, so the
clerks only need a minimal training to successfully operate the
register. It is flexible enough to handle cash, credit card,
pre-paid, paid on pickup and Net 30-type payments, split sales,
promotional items, pre-set price matrixes and other advanced
operations, and includes many laundromat/cleaner-specific
functions, such as automatically generated driver's log, tagging
of the garments etc.
The system produces all vital reports necessary to evaluate
the performance of the business, reconcile the cash registers and
insure efficient use of the labor force. Customer information is
also accumulated and can be used for mailings, promotions and
other purposes. The program has outstanding security features,
including multi-level password protection and audit trails. All
information from POS operations is automatically transferred for
further processing into the accounting part of the system. The
accounting part is a complete double entry, accrual-based modular
system capable of automating all financial operations within a
store. Included are general ledger, accounts receivable, accounts
payable, purchasing, inventory control and payroll modules, as
well as system maintenance files and utilities. The information
posted to the ledgers from POS operations, as well as entered in
all other modules is processed to produce a wide variety of
reports, which are pre-programmed to assure that owners receive
all the information necessary to successfully run their business.
An owner can also easily design custom reports to suit his/her
specific needs.
The entire computer network is easily accessible via modem
from any remote location, such as a central office of a
multi-store business, for monitoring of the operations and
downloading any required information. The network is also
protected by a tape back-up system, to prevent loss of important
data in case of an accident or a hardware failure.
The Ecomat system began by using multi-process wet cleaning
methods which were studied by the Environmental Protection Agency
("E.P.A.") and described in the E.P.A. report "Multi-process
Wet-Cleaning--Cost and Comparison of Conventional Dry-Cleaning
and An Alternative Process; U.S. Environmental Protection Agency
EPA 744-R-93-004, September 1993." Such study concluded that the
wet cleaning process was proven to be superior to the traditional
dry cleaning method in the 4 of 6 areas used to compare the two
methods (customer satisfaction, cleanliness, appearance and
odor). It rated equal to traditional dry-cleaning in the other 2
areas (shrinkage and cost). The Company has also developed its
own techniques of treating particular fabrics that can be
problematic to both "dry" and "wet" cleaners alike. "Wet
cleaning" as opposed to "dry cleaning" is a method for deep
cleaning fabrics using water, steam, plant-based cleaning agents
rather than toxic solvents, and natural bleaching agents such as
hydrogen peroxide rather than chlorine-based bleaches. The
special techniques that the Company has developed include: the
tumbling of garments to loosen soil, the choice of a water-based
cleaning method (which can include steaming, steam closet,
mechanical wet cleaning, sink-washing, machine-washing),
specialized drying with humidity control and finishing of
garments with robotic steam finishing equipment. Instead of using
a perc machine, Ecomat utilizes a wet cleaning system that
consists of a specialized washer and a heat and
humidity-sensitive dryer both of 35 or 50 pound capacity. With
the introduction of special non-toxic cleaning products, the
Ecomat cleaner washes garments in water. All of the above
techniques have been developed by Ecomat. The Company has
developed computer programs and manual methods of such techniques
for training of its employees and franchisees.
In January, 1997, the Company received a matching-funds
grant from New York State Energy Research and Development Agency
("NYSERDA") in the amount of approximately $118,000 for the
continued research and development of the Company's unique water
recycling system.
The Company expended $40,000 in 1995 in connection with the
purchase of water recycling components. The Company expects to
spend funds of approximately $118,000 for the further development
of the Ecomat water recycling system. The Company expects to
spend an additional $172,000 for research relating to
cogeneration, passive heat exchange, solar energy for heating hot
water, all of which contribute to energy savings and reductions
and smart card technology and as described below:
o A typical cogeneration system consists of an internal
combustion engine that drives an electric power generator
which serves as a power source for all or a part of the
equipment in a facility. Regular natural gas service is
used as a fuel source for the engine. Use of these units
can result in significant savings on electric bills in many
localities, particularly because this setup eliminates
high "demand rates" assessed by many utilities for
peak usage of power. Besides being a cost-effective
alternative to conventional power, cogenerators also benefit
the environment, since clean natural gas is used as a
source of energy. In addition to providing electric power
for the equipment, it can be used as a source of hot water
for space heating in cold areas, or can run air conditioners in
the hot ones.
o Passive heat exchange is a method of heating the substance
(such as water or the air) by bringing it into contact with
similar substances that have higher initial temperature. In
the Company's application, this method could be used to preheat
water needed for laundromat and cleaning process by circulating
it through the exchanger where the heat from the used (hot) water
would be transferred to clean (cold) water. This clean water
would then be directed to the second stage, where additional
heating by conventional methods would be done in order for the
water to reach required temperature. This strategy allows
significant energy savings because it lowers the amount of energy
needed to be produced by conventional water heaters.
o Solar thermal systems are currently being investigated to
supplement heat and hot water needs through installation
of collectors to absorb the sun's radiant energy which is
converted to heat water. Solar energy use is another alternative
for lowering the energy consumption in producing hot water for
cleaning processes. It is similar in principle to heat exchange,
except the energy of the sun is used instead of, or in
addition to, recouping the energy of used water. The Company is
currently investigating the feasability of "sun-pipes" to
increase natural day light throughout the facility.
o Smart Cards is a new generation of 'stored value' cards, which
are similar in its usage to the debit cards. In 'stored value'
application, consumers can buy a card that has a certain amount of
money pre-recorded on the card and use it as cash at the
locations that accept this card. This setup eliminates time and
expenses of on-line verification needed for processing of debit
card transactions, and does not require the consumer to establish a
relationship with the banking institution in order to obtain the
card. When the value of the card is used up, the card can be
recharged by recording additional amounts at any 'add value'
machine. The enhancement provided by smart card technology is in
the fact that the amount of money stored in the card is recorded
on the microchip embedded in the card, as opposed to it being
recorded on a magnetic stripe. This technology provides
dramatically higher security and reliability compared to the
magnetic card. Ecomat is planning to outfit all of its laundromats
with smart card readers, and will use this card to enhance its
pickup and delivery operations and prepaid account program.
The first installation is expected in May 1997 at a franchisee
location.
In November of 1995, the Company became a participant
in Climate Wise, a program administered jointly by the
E.P.A., Department of Energy and Business for Social
Responsibility. The Company has undergone an environmental
audit and has agreed to participate in reducing all
polluting emissions and utilizing the highest energy-saving
systems in its operations. Keith Emerson, Vice President of
Franchise Sales and Marketing of the Company, has been
appointed to the steering committee of Climate Wise.
Intellectual Property
Other than set forth below, the Company currently does
not have any patent, trademark or copyright applications
pending. However, the Company may file patent, trademarks
and copyright applications relating to certain of the
Company's processes and products. Except as may be required
by the filing of patent, trademark and copyright
applications, the Company will attempt to keep all other
proprietary information secret and to take such actions as
may be necessary to insure the results of its development
activities are not disclosed and are protected under the
common law concerning trade secrets. Such steps will include
the execution of nondisclosure agreements by key Company
personnel and may also include the imposition of restrictive
agreements on purchasers of the Company's products and
services, including franchisees.
The Company applied for registration of its Ecoclean
servicemark (U.S. Trademark Application No. 74/515,635) and
Ecomat service mark (U.S. Trademark Application No.
74,515,480) and has received notices of allowance from the
U.S. Patent and Trademark Office. An extension of the filing
for the statement of use for the first of such service marks
has been filed. A statement of use for the second of such
service marks has been filed and accepted. In addition, the
Company has been granted trademark registration of its
Ecomat and Design service mark (U.S. Trademark Registration
No. 2,014,906) and registration of The Cleaner Choice
service mark (U.S. Trademark Registration No. 2,009,581). In
connection with the Company's purchase of substantially all
of the assets of Clean Living, Inc. (See "Recent
Developments" above), the Company was assigned the rights to
The Cleaner Image service mark, including the corresponding
U.S. Trademark Application No. 74/702,0241, which has
received a notice of allowance; a statement of use for such
service mark was filed in February 1997. No assurance can
be given that the Company will be granted such trademark
protection. The Company has also applied for its Ecomat
trademark with the Office for Harmonization in the Internal
Market (European Community Trademark office) (Application
No. 164,772).
Employees
As of December 31, 1996, the Company employed 29
persons of whom 22 were store employees, and 7 were
corporate personnel. Many store employees work part-time and
most are paid on an hourly basis. None of the Company's
employees are covered by a collective bargaining agreement.
Item 2. PROPERTIES.
The Company (through Ecofranchising, its subsidiary)
leases approximately 10,000 square feet at 147 Palmer
Avenue, Mamaroneck, NY 10543-3632 which consists of 5,000
square feet for its flagship store and prototype of all
Ecomat full-service franchises and 5,000 square feet for its
executive offices. The lease term commenced on March 15,
1995 and expires on March 14, 2005. The annual rental
increases each year from $112,500 in the first year to
$146,787 in the last year of the term. The Company has the
option to extend the term for one 5 year period. Total
rental expense for the years ended December 31, 1995 and
1996 was $128,000 and $134,000, respectively.
The Company (through 8th St., its subsidiary) leases
approximately 2,500 square feet at 140 West 72nd Street, New
York, NY which houses a full-service Ecomat cleaners and
laundromat. The lease term commenced on May 28, 1993 and
expires on May 31, 2003. The annual rental increases from
$21,000 in the first year to $62,700 in the third year and
thereafter is increased by 4.5% each subsequent year. Total
rental expense for the years ended December 31, 1995 and
1996 were $63,930 and $81,718, respectively.
The Company (through Ecoclean Systems International,
Ltd., its subsidiary) leases approximately 1,000 square feet
at 1491 Weaver Street, Scarsdale, NY which houses an Ecomat
satellite facility. Such lease is on a month-to-month basis.
The monthly rent is $1,000. The Company is in the process of
relocating this facility to another location in Scarsdale,
NY.
In connection with the acquisition of The Cleaner
Image, the Company (through a subsidiary) now leases 800
square feet located at 457 Main Street, Ridgefield, CT. The
facilities are used as a satellite store. The lease term
expires June 30, 2000. The annual rent is currently $25,000
and may increase to $29,172.15 in the final year of such
lease.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or
governmental proceedings that management believes would
result in judgements or fines that would have a material
adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
There have been no matters which have been submitted
to a vote of the Company's securityholders.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock commenced trading on the
Nasdaq SmallCap Market on December 10, 1996. The Common
Stock is regularly quoted and traded on the Nasdaq SmallCap
Market under the symbol ECMT.
The following table sets forth the range of high and low
bid quotations for the Company's Common Stock for the period
December 10, 1996 through December 31,1996 and the first
quarter (January 1 - March 31) of 1997 as reported by the
Nasdaq SmallCap Market. The quotes represent inter-dealer
prices without adjustment or mark-ups, mark-downs or
commissions and may not necessarily represent actual
transactions. The trading volume of the Company's Common
Stock fluctuates and may be limited during certain periods.
As a result, the liquidity of an investment in the Common
Stock may be adversely affected.
1996 Calendar Year
High Low
December 10 - December 31,1996 6 5/8 5
1997 Calendar Year
January 1 - March 31 5 7/8 5
On March 31, 1997 the closing price of the Common Stock
as reported on the Nasdaq SmallCap Market was $5 7/8. As of
March 31, 1997 there were 3,603,000 shares of Common Stock
outstanding, held of record by approximately 22 record
holders.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
Ecomat, Inc., is a Delaware corporation ("Ecomat" or
the "Company") that has been formed to develop the Ecomat
concept nationally and internationally which, management
believes, provided the first environmentally sound solution
to current dry cleaning methods in the United States and is
currently the only franchiser of this concept. Ecomat
currently has four Company-owned facilities in New York
City, Mamaroneck, NY, Scarsdale, NY and Ridgefield, CT.
There are currently signed franchise agreements for
seven cluster franchises, two in New Jersey, and one each in
Long Island, NY, Brooklyn, NY, Austin, TX , Westchester
County, NY and Boulder, Co. In addition, there is one Ecomat
self-service laundromat and drop-off facility franchise in
Manhattan, NY. As of March 31, 1997 there were 2 Westchester
route franchise clusters in operation (two (2) drop sites)
and one other facility in Huntington, Long Island. No other
facilities under the cluster agreements are yet in
operation. In addition, the Company has three signed master
franchise agreements for various parts of Europe, Indonesia
and Malaysia/Brunei.
Results of Operations
Fiscal Year Ended December 31, 1996 compared to the Year Ended
December 31, 1995
Revenues. The Company had revenues for the year ended
December 31, 1996 consisting of income from the Company-owned
stores totaling approximately $411,000 and approximately $196,000
for the year ended December 31, 1995. Revenues generated to date
have not been sufficient to cover facilities costs of producing
such revenues. The amount of revenues required to cover fixed
facilities costs continues to vary by location. The amount is
dependent on market factors such as rental, payroll, utilities
and similar operating costs. For the Company's current
facilities, management believes that the amount of revenues
required to cover the fixed facilities costs at the Mamaroneck
store and 8th Street store are approximately $300,000 for each
location. Management anticipates operations for Mamaroneck to
reach break-even by December 31, 1997 or sooner. The 8th Street
store experienced a loss in the fourth quarter. Management is in
the process of making personnel changes and expects the store to
return to break-even during 1997. The Company intends to acquire
a larger full-service facility in Manhattan in 1997 and to
convert the 72nd St. facility to a satellite location.
The increase in cleaning and laundry revenue of
approximately $215,000 or 110% principally was due to increased
volume associated with the revenue generated from the Mamaroneck
store, which opened in October 1995. The revenue generated in
1996 from the Mamaroneck store totaled approximately $162,000
compared to $20,000 in 1995. The revenue from the 8th Street
store increased from approximately $175,000 in 1995 to $248,000
in 1996.
At December 31, 1996 the Company has recorded approximately
$373,000 of deferred franchise revenue relating to franchises
sold by the Company through December 31, 1996. The deferred
franchise fees, net of the $92,000 franchise fees receivable,
have been collected. Two franchise sites have opened and $4,085
has been recognized as income. This includes franchise
development fees of $3,750 and the balance consists of royalties.
Facilities Operating Costs. The costs of cleaning/laundry
facilities increased from $337,000 in 1995 to $579,000 in 1996 or
172%. This increase is primarily due to new costs from operating
the Mamaroneck facility including supplies, rent, utilities and
payroll costs amounting to $322,000.
Advertising and Promotion-Franchise Sales. Advertising and
promotion expenses decreased from $101,000 to $57,000 or 44%
from 1995 to 1996. This was due to the fact that the 1995
expenditures for CD-ROM production, which is used for trade
shows, did not recur in 1996. Those expenses amounted to
approximately $50,000 in 1995. The Company expects to
significantly increase its advertising efforts in 1997.
General and Administrative Expenses. The Company's general
and administrative expenses increased from $757,000 to $805,000
or 6% from December 31, 1995 to December 31, 1996. This increase
is primarily due to the increase in compensation expense from
$261,000 to $332,000 or 27% from 1995 to 1996. Compensation
expense increased principally due to the following reasons: (i)
increases under certain employment agreements and (ii) the hiring
of the Vice President of Franchise Sales. It is expected that in
1997 compensation will increase as additional management and
franchise personnel are hired. Rent expense (other than rent
relating to cleaning/laundry facilities described above)
decreased from approximately $107,000 to $77,000 from 1995 to
1996. This decrease can be attributed to the allocation of a
significant portion of rent towards the Mamaroneck store facility
throughout 1996. This allocation was lower in 1995, when the
utilization of space for cleaning purposes was lower. The
Company accounts for rent expense on a straight line basis over
the respective terms of the Company's leases. The excess of the
rent expense over the required lease payment is reflected as
deferred rent payable on the Company's balance sheet at December
31, 1996 and 1995.
Interest Expense. Interest expense increased from
approximately $30,000 to $96,000 principally due to two notes
payable in 1996 and generally higher average outstanding note
payable balances throughout 1996 as compared to 1995. One of the
notes, amounting to $290,000, was paid in full in December 1996.
In January 1997 the Company paid $1,000,000 of principal for the
note payable to the majority shareholder. Management expects
that interest expense shall decrease in 1997 as a result of these
reductions in the amount of outstanding debt.
Net Loss. The net loss of the Company was $1,253,000 ($0.51
per share) for the year ended December 31, 1996 and $1,119,000
($0.47 per share) for the year ended December 31, 1995. The
Company expects to incur continuing losses until it is able to
generate adequate revenue from franchise sales and/or substantial
revenues from the Company-owned stores.
Results of Operations
Fiscal Year Ended December 31, 1995 compared to the year Ended
December 31, 1994
Revenues. The Company had revenues for the year ended
December 31, 1995 consisting of income from the Company-owned
stores totaling approximately $196,000 and approximately $147,000
for the year ended December 31, 1994. Revenues generated to date
have not been sufficient to cover facilities costs of producing
such revenues. The amount of revenues required to cover fixed
facilities costs varies by location. The amount is dependent on
market factors such as rental, payroll, utilities and similar
operating costs. For the Company's current facilities,
management believes that the amount of revenues required to cover
the fixed facilities costs at the Mamaroneck store and 8th Street
store are approximately $175,000 and $250,000, respectively.
Management anticipates operations for Mamaroneck to reach break-
even by December 31, 1996 and that 8th Street is currently
breaking even. However, there can be no assurance that these
expectations can be met or that current conditions will not
deteriorate.
The increase of approximately $49,000 or 33% principally was
due to increased volume associated with the ongoing business of
the Company-owned facilities and to a lesser extent revenue
generated from the Mamaroneck store opened in October 1995. The
revenue generated in 1995 from the Mamaroneck store totaled
approximately $20,000. At December 31, 1995 the Company has
recorded approximately $76,000 of deferred franchise revenue
relating to two cluster franchises sold by the Company in 1995.
However, the stores have not yet opened and accordingly no
revenue has been recognized.
Facilities Operating Costs. Cost of cleaning/laundry
facilities increased from $206,000 in 1994 to $337,000 in 1995 or
64%. This increase is primarily due to new costs from operating
the Mamaroneck facility including supplies, rent, utilities and
payroll costs amounting to $85,000. In addition, laundry costs
for the 8th Street facility increased by $68,000 which was
principally due to increased payroll costs of $63,000. Payroll
costs for this store increased due to an increase in the number
of personnel and the fact that the manager of 8th Street devoted
his full time to 8th Street beginning in 1995, whereas the
manager previously had other responsibilities (in the area of
franchise sales) prior to 1995.
Advertising and Promotion-Franchise Sales. Advertising and
promotion expenses increased from $52,000 to $101,000 or 94% from
1994 to 1995 due to the Company embarking on a franchise sales
campaign in 1995. In order to further the sales process, the
Company developed, at a cost of approximately $50,000, a CD-ROM
which is used for trade shows, one-on-one presentations and for
marketing analysis in each franchise store.
General and Administrative Expenses. The Company's general
and administrative expenses increased from $575,000 to $858,000
or 49% from December 31, 1994 to December 31, 1995. Rent expense
(other than rent relating to cleaning/laundry facilities
described above) increased from approximately $11,000 to $107,000
from 1994 to 1995. This increase can be attributed to the
Company's corporate relocation to Mamaroneck, NY. The Company
accounts for rent expense on a straight line basis over the
respective terms of the Company's leases. The excess of the rent
expense over the required lease payment is reflected as deferred
rent payable on the Company's balance sheet at December 31, 1995
and 1994. Compensation expense increased from $162,000 to
$261,000 or 61% from 1994 to 1995 principally due to the
following reasons: (i) addition of new franchise sales personnel
amounting to approximately $30,000 and (ii) new staff assisting
in the development of the Company's proprietary software,
hardware and water recycling system amounting to $69,000.
Compensation expense is expected to increase by approximately
$143,000 due to increases under employment agreements and the
hiring of the Company's Vice President of Franchise Sales and
Marketing. See "Management." Loss on the disposition of assets
decreased from approximately $140,000 to $3,000 due to the
closing of a Company-owned store during 1994. As a result of the
store closing, the Company abandoned certain cleaning equipment
and leasehold improvements relating to the renovation of the
property. The leasehold improvements included plumbing,
electrical, utility upgrades and improvements which had a net
book value of $89,000. The cleaning equipment that was abandoned
at the property had a net book value of approximately $51,000.
During 1995, the Company purchased approximately $579,000 of
fixed assets which principally consisted of additions of
cleaning/laundry equipment and leasehold improvements at the
Company's Mamaroneck, NY store. New equipment consisting of
washing machines, cleaning and pressing equipment and other
related equipment amounted to approximately $216,000. Leasehold
improvements consisting of construction costs including plumbing,
electrical and utility upgrades amounted to approximately
$290,000. Furniture and fixtures and new computer equipment
amounted to approximately $55,000 and $18,000 respectively.
Interest Expense. Interest expense increased from
approximately $6,000 to $30,000 principally due to a new
promissory note payable in 1995.
Net Loss. The net loss of the Company was $1,119,000 ($0.47
per share) for the year ended December 31, 1995 and $839,000
($0.35 per share) for the year ended December 31, 1994. The
Company expects to incur continuing losses until it is able to
generate revenue from franchise sales and/or substantial revenues
from the Company-owned stores.
Liquidity and Capital Resources
During the years ended December 31, 1996 and 1995 the Company used
approximately $791,000 and $743,000 of cash in operations. The
Company has intended, upon the achievement of the public offering,
to use the proceeds to establish one (1) cluster development which
consists of one (1) main facility ($330,767) and three (3) satellite
sites ($150,333) for a total expenditure of $481,000 with the
balance of the proceeds to be used to open a combination of twenty-
two (22) drop sites, satellites and route franchises. A drop site
can be as low as $11,250, a route franchise $23,300 and a satellite
$50,111. The following combination is contemplated:
Two (2) satellites $100,222
Four (4) route franchises 93,200
Sixteen (16) drop sites 180,000
Total $373,422
The balance may be allocated to either approximately two (2)
additional satellite units, four (4) additional route franchises, or
ten (10) additional drop sites after completion of the initial
twenty-two (22) units. The above allocated prices for the initial
twenty-two (22) satellite facilities, route franchises, and drop
sites assume the minimum costs for such facilities. The reason for
this assumption is that the Company, at its sole discretion, has
control over the size of the facilities and the amount of equipment
installed as well as the fact that the Company does not incur
franchise fees for its own stores nor does the Company incur fees
for its own proprietary hardware and software (all of which are
factors which would increase start-up costs for such facilities).
For a discussion of the range of start-up costs for the various
franchises offered by the Company, see "Business-Start-Up Costs."
Since December 31, 1996, the Company has advanced approximately
$30,000 towards the establishment of a franchise location to be
leased by a franchisee. The total costs to develop this location
are expected to amount to $85,000.
To date, the Company has financed its operations primarily through
its founders who, contributing approximately $1,610,000 in equity
and $1,215,000 in a note payable, have represented a stable and
reliable source of funds for the Company through its early
development stage. The note is payable to a foreign corporation
wholly owned by a stockholder/director of the Company. The Company
paid $1,000,000 of the note in January 1997. The balance of the
note bears interest at 7% and is payable December 1998 (unless
earlier accelerated due to an event of default). Since the Offering
was completed prior to December 31, 1996, the holder shall have the
right to convert, at maturity, the balance of the indebtedness owned
to it into shares of Common Stock at a purchase price equal to the
book value of the Company's Common Stock on the date of the most
recent fiscal quarter ended prior to conversion. (see Note E to the
Financial Statements). The proceeds from the note payable were
principally used to fund the Company's purchases of fixed assets
during the years 1995 and 1996 and the remaining amounts were used
for operating expenses. The Company also borrowed $290,000
evidenced by notes payable to Jan Wernick (the wife of Judah
Wernick, the manager of the Underwriter's New York office). This
loan was repaid in December 1996.
The Company believes that the proceeds of the offering will be
sufficient to meet anticipated working capital needs of the Company
for at least the next 12 months.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual
Report on Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT OF THE REGISTRANT
The names and ages of the directors and executive
officers of the Company are set forth below:
Name Age Position(s) with the Company
Diane Weiser................. 43 President, Chief Executive Officer,
Secretary, Treasurer and Director
Astrid Hindemith............ 51 Director
R. Keith Emerson............. 54 Vice President of Franchise Sales and
Marketing
Yuri Lumelskiy............... 30 Director of Management Information
Systems
Troy Morano.................. 28 Director of Operations
Paul Lupo.................... 34 Controller
Background of Executive Officers and Directors
Diane Weiser has served as President, Chief Executive Officer,
Treasurer and Director of the Company since December 1995 and
Secretary since August 1996. From May 1993 to present, she acted
in the same capacities for Diaber Laundromat, Inc., a New York
corporation ("Diaber") and predecessor to the Company. Ms. Weiser
also serves as the President of each of the Company's
subsidiaries. Since January 1990, Ms. Weiser has conducted
extensive research into the feasibility of operating
environmentally friendly commercial laundromat and garment
cleaning facilities. Ms. Weiser has conducted research in laundry
and cleaning products and equipment, building materials,
recycling possibilities and over-all facility design. From
January 1991 to May 1993, Ms. Weiser was the co-owner and manager
of a laundromat located in New York, New York, in which she
implemented and tested many of these principles. From 1982 to
June 1988, Ms. Weiser owned and operated two commercial real
estate brokerage firms in New York, New York. From June 1988 to
January 1993, Ms. Weiser was the owner and operator of Columbus
Avenue Management Corporation, a commercial and residential real
estate management company, in New York City. Ms. Weiser holds a
Masters of Business Administration degree from Columbia
University.
Astrid Hindemith was elected Director of the Company in December
1995 and served as a Director of Diaber since 1993. Ms. Hindemith
is a licensed attorney in Zurich, Switzerland and has been
self-employed as a consultant since 1990. From 1992 to present
she has been President and sole shareholder of Palatin, AG, a
Swiss corporation involved in investing. She received her law
degree from the University of Zurich in 1990.
R. Keith Emerson joined the Company in January 1996 as the Vice
President of Franchise Sales and Marketing in order to expand the
Company's franchising program as well as supervise consumer
marketing and public relations. Since 1979 Mr. Emerson has worked
for various companies developing and implementing franchise
development programs including those for Bishop Graphics, Inc.
(from December 1982 to December 1985), PIP Printing, Inc. (from
December 1985 to January 1991), Baskin-Robbins (from January 1991
to June 1992), Futurekids (from June 1992 to August 1993), J.D.
Byrider (from August 1993 to May 1994) and Linda's Flame Roasted
Chicken (from May 1994 to January 1996). Mr. Emerson received a
Business Administration degree in economics from Claremont Men's
College in 1965.
Yuri Lumelskiy has served the Company and Diaber as the Director
of Management Information Systems since April 1995. Mr. Lumelskiy
is an experienced electrical and computer engineer with two
Master's Degrees (Polytechnic University and University of Kiev
both in Electrical Engineering) in these areas. His primary focus
is in development and implementation of computerized control
systems and database and accounting software. This allows Ecomat
to offer its franchisees custom computer equipment that is best
suited to their needs. Prior to his current position with Ecomat,
Mr. Lumelskiy spent four years (from July 1991 to April 1995) as
a Chief Engineer with Enabling Devices, Inc., a developer and
manufacturer of specialized equipment for the handicapped.
Troy Morano joined the Company in March 1997 as Director of
Operations. Since March 1991 Mr. Morano worked for Blimpie
International. In 1993 he was promoted to Director of Operations
and Development for New Jersey.
Paul Lupo joined the Company in March 1997 as Controller in
charge of implementing both accounting and financial controls
which will allow Ecomat to further increase its growth and
profitability. Since 1984, Mr. Lupo has worked for public
accounting firms including those of Rosa & Capano (from June 1984-
September 1986), and Marshall Grainger & Company (from September
1986-November 1987). In 1987 Mr. Lupo moved into the private
sector which included companies such as Asea Brown Boveri, Inc.
(from November 1987-September 1989), G.A. Fleet Associates (from
September 1989-September 1992) and Integen Company (from
September 1992-March 1997). Mr. Lupo is a Certified Public
Accountant who received a Bachelors in Business Administration
from Iona College in 1984, and a Masters Degree in Finance in
1991 from Long Island University.
There are no family relationships between the officers and
directors of the Company.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of a registered class
of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports
of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than
ten percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely upon its review of
the copies of such reports furnished to the Company during the
year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers and directors and greater
than ten percent beneficial owners were satisfied.
Item 10. EXECUTIVE COMPENSATION
Compensation of Directors and Executive Officers
Summary Compensation Table
The following table sets forth the aggregate compensation
paid by the Company for the years ended December 31, 1995 and
1996 to its chief executive officer. No employee received annual
compensation exceeding $100,000 in the aggregate. Each director
of the Company is entitled to receive reasonable out-of-pocket
expenses incurred in attending meetings of the Board of Directors
of the Company but are not compensated for services provided in
their capacities as directors.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Name of Restricted Underlying LTIP All Other
Individual and Other Annual Stock Options/ Payouts Compensation
Principal Postion Year Salary Bonus Compensation Awards SARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diane
Weiser........ 1995 $50,000 ----- $4,800(1) ----- ----- ----- -----
Chief Executive
Officer, President
and Treasurer
1996 $55,000 ----- $4,800(1) ----- ----- ----- -----
</TABLE>
(1) Represents payment for health insurance on behalf of such individual.
Employment Agreements
The Company has entered into 3-year employment
agreement commencing October 1, 1996 and ending September 30,
1999, with Diane Weiser. Under her employment agreement, Ms.
Weiser will receive an annual base salary of $75,000 for each
year of her employment subject to annual review by the Board of
Directors. In addition, she has the right to receive under her
employment agreement (i) up to 20,000 shares of Common Stock if
the after-tax earnings of the Company and its subsidiaries are at
least $1,500,000 in fiscal years 1996 and 1997, and (ii) up to an
aggregate of 40,000 shares of Common Stock if the after-tax
earnings of the Company and its subsidiaries are at least
$2,000,000 for fiscal years ended December 31, 1996-1998 (only
20,000 shares if she was issued 20,000 shares after fiscal 1997).
The employment agreement also entitles her to the use of an
automobile and to employee benefit plans, such as group life,
health, hospitalization and life insurance. Under the employment
agreement, employment terminates upon death or total disability
of the employee and may be terminated by the Company for cause
(such as misconduct, disregard of instructions of the Board,
commission of certain crimes or acts or a material breach of
employment agreement.) The Company intends to maintain a $1
million life insurance policy on the life of Ms. Weiser.
The Company has entered into a 3-year employment agreement
commencing January 15, 1996 and ending January 14, 2000, with
Keith Emerson. Under his employment agreement, Mr. Emerson will
receive an annual base salary of $93,000. In addition, he has the
right to receive (i) up to 20,000 shares of Common Stock if the
after-tax earnings of the Company and its subsidiaries are at
least $1,500,000 in fiscal years 1996 and 1997, and (ii) up to an
aggregate of 40,000 shares of Common Stock if the after-tax
earnings of the Company and its subsidiaries are at least
$2,000,000 for fiscal years 1996-1998 (only 20,000 shares if he
was issued 20,000 shares after fiscal 1997). The employment
agreement also entitles him to the use of an automobile and to
employee benefit plans, such as group life, health,
hospitalization and life insurance. Under the employment
agreement, employment terminates upon death or total disability
of the employee and may be terminated by the Company for cause
(such as misconduct, disregard of instructions of the Board,
commission of certain crimes or acts or a material breach of
employment agreement).
The Company entered into 2-year employment agreement
commencing April 1, 1995 which expired on March 31, 1997, with
Yuri Lumelskiy. Under his employment agreement, Mr. Lumelskiy
received an annual base salary of $62,400. The employment
agreement also entitled him to employee benefit plans, such as
group life, health, hospitalization and life insurance. Under
such employment agreement, employment terminates upon death or
total disability of the employee and may be terminated by the
Company for cause (such as misconduct, disregard of instructions
of the Board, commission of certain crimes or acts or a material
breach of employment agreement). The Company is in the process
of negotiating a new employment agreement with Mr. Lumelskiy.
Stock Option Plans
Incentive Option and Stock Appreciation Rights Plan--In
January 1996, the Directors of the Company adopted and the
stockholders of the Company approved the adoption of the
Company's 1996 Incentive Stock Option and Stock Appreciation
Rights Plan ("Incentive Option Plan"). The purpose of the
Incentive Option Plan is to enable the Company to encourage key
employees and Directors to contribute to the success of the
Company by granting such employees and Directors incentive stock
options ("ISOs"), as well as non-qualified options and stock
appreciation rights ("SARs").
The Incentive Option Plan will be administered by the Board
of Directors or a committee appointed by the Board of Directors
(the "Committee") which will determine, in its discretion, among
other things, the recipients of grants, whether a grant will
consist of ISOs, non-qualified options or SARs (in tandem with an
option or freestanding) or a combination thereof, and the number
of shares to be subject to such options and SARs.
The Incentive Option Plan provides for the granting of ISOs
to purchase Common Stock at an exercise price to be determined by
the Board of Directors or the Committee not less than the fair
market value of the Common Stock on the date the option is
granted. Non-qualified options and freestanding SARs may be
granted with any price. SARs granted in tandem with an option
have the same exercise price as the related option.
The total number of shares with respect to which options and
SARs may be granted under the Incentive Option Plan is 2,000,000.
ISOs may not be granted to an individual to the extent that in
the calendar year in which such ISOs first become exercisable the
shares subject to such ISOs have a fair market value on the date
of grant in excess of $100,000. No option or SAR may be granted
under the Incentive Option Plan after January 2006 and no option
or SAR may be outstanding for more than ten years after its
grant. Additionally, no option or SAR can be granted for more
than five (5) years to a shareholder owning 10% or more of the
Company's outstanding Common Stock and such options must have an
exercise price of not less than 110% of the fair market value on
the date of grant.
Upon the exercise of an option, the holder must make payment
of the full exercise price. Such payment may be made in cash or
in shares of Common Stock, or in a combination of both. The
Company may lend to the holder of an option funds sufficient to
pay the exercise price, subject to certain limitations. SAR's may
be settled, in the Board of Directors's discretion, in cash,
Common Stock, or in a combination of cash and Common Stock. The
exercise of SAR's cancels the corresponding number of shares
subject to the related option, if any, and the exercise of an
option cancels any associated SAR's. Subject to certain
exceptions, options and SAR's may be exercised any time up to
three months after termination of the holder's employment.
The Incentive Option Plan may be terminated or amended at
any time by the Board of Directors, except that, without
stockholder approval, the Incentive Option Plan may not be
amended to increase
the number of shares subject to the Incentive Option Plan, change
the class of persons eligible to receive options or SARs under
the Incentive Option Plan or materially increase the benefits of
participants.
As of December 31, 1996 no options or SARs have been granted
under the Incentive Option Plan. No determinations have been made
regarding the persons to whom options or SARs will be granted in
the future, the number of shares which will be subject to such
options or SARs or the exercise prices to be fixed with respect
to any option or SAR. The Company has agreed with Patterson
Travis, Inc., the underwriter of the Company's initial public
offering (the "Underwriter") that it will not grant more than
200,000 options to purchase Common Stock under the Incentive
Option Plan during the 24 month period commencing on the
Effective Date, without the consent of the Underwriter, provided
that such figure shall be reduced by the amount of options
granted under the Non-Qualified Option Plan (defined below)
during such 24 month period.
Non-Qualified Option Plan--In January 1996, the Directors
and stockholders of the Company adopted the 1996 Non-Qualified
Stock Option Plan (the "Non-Qualified Option Plan"). The purpose
of the Non-Qualified Option Plan is to enable the Company to
encourage key employees, Directors, consultants, distributors,
professionals and independent contractors to contribute to the
success of the Company by granting such employees, Directors,
consultants, distributors, professionals and independent
contractors non-qualified options. The Non-Qualified Option Plan
will be administered by the Board of Directors or the Committee
in the same manner as the Incentive Option Plan.
The Non-Qualified Option Plan provides for the granting of
non-qualified options at such exercise price as may be determined
by the Board of Directors, in its discretion. The total number of
shares with respect to which options may be granted under the
Non-Qualified Option Plan is 2,000,000.
Upon the exercise of an option, the holder must make payment
of the full exercise price. Such payment may be made in cash or
in shares of Common Stock (based on the fair market value of the
Common Stock on the date prior to exercise), or in a combination
of both. The Company may lend to the holder of an option funds
sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be
exercised any time up to three months after termination of the
holder's employment.
The Non-Qualified Option Plan may be terminated or amended
at any time by the Board of Directors, except that, without
stockholder approval, the Non-Qualified Option Plan may not be
amended to increase the number of shares subject to the
Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Plan or materially
increase the benefits of participants.
As of December 31, 1996 no options have been granted under
the Non-Qualified Option Plan. No determinations have been made
regarding the persons to whom non-qualified options will be
granted in the future, the number of shares which will be subject
to such options or the exercise prices to be fixed with respect
to any option. The Company has agreed with the Underwriter that
it will not grant more than 50,000 options to purchase Common
Stock under the Non-Qualified Option Plan during the 24 month
period commencing on the Effective Date without the consent of
the Underwriter.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of March 14,
1997 with respect to the beneficial ownership of the outstanding
shares of the Company's Common Stock by (i) any holder of more
than five percent (5%) of the outstanding shares; (ii) the
Company's officers and directors; and (iii) the directors and
officers of the Company as a group. A person is deemed to be a
beneficial owner of any securities of which that person has the
right to acquire beneficial ownership within 60 days.
Approximate
Amount and nature Percentage(%)of class
Beneficial Ownership (1)
Name and Address
of Beneficial Owner (2)
Diane Weiser(3) 840,000 23.33%
Palatin, AG(4) 1,560,000 43.33%
Astrid Hindemith (4) 1,560,000(4) 43.33%
All officers and directors as
a group (two(2)persons) 2,400,000 66.66%
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Item 403 of Regulation S-B of The Securities Act of 1933
and Rule 13(d) - 3 of The Securities Exchange Act.
(2) The address of each stockholder shown above is c/o Ecomat, Inc., 147
Palmer Avenue, Mamaroneck, NY 10543.
(3) Ms. Weiser is the President, Chief Executive Officer, Secretary,
Treasurer and Director of the Company.
(4) Includes 1,560,000 shares of Common Stock held by Palatin, AG, a Swiss
company wholly-owned by Ms. Hindemith, a director of the Company.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated on December 14, 1995
pursuant to the laws of the State of Delaware. The Company is the
successor to Diaber Laundromat, Inc., a New York corporation
("Diaber") which was incorporated on September 21, 1992. The
Company was organized to enable Diaber to merge with and into the
Company in order to effectuate a reincorporation in the State of
Delaware. Diaber merged with and into the Company on March 29,
1996. In connection with the merger, each share of Diaber common
stock (a total of 10) was converted into 240,000 shares of the
Company's Common Stock, resulting in the issuance of 2,400,000
shares of Common Stock, which constitutes all of the issued and
outstanding Common Stock as of the date of this Prospectus. The
issuance of securities in connection with the merger did not
require registration under the 1933 Act or exemption therefrom,
inasmuch as it did not involve an "offer for sale" as defined in
Section 2(3) of the 1933 Act as provided by Rule 145(a)(2)
because the merger was done for the sole purpose of changing the
Company's domicile.
As of January 31, 1997 the Company was indebted in the
amount of $322,632 to Palatin AG, a Swiss corporation which is
wholly owned by Astrid Hindemith, a director and principal
stockholder. The debt is evidenced by a promissory note bearing
interest at 7% per annum which is payable on December 9, 1998.
Prior to the Company's initial public offering, the Company was
indebted to Palatin, AG in the amount of $1,267,677. The Company
repaid $1,000,000 of such indebtedness in January 1997 in
accordance with the terms of such note. Palatin shall have the
right to convert, at maturity, the balance of the indebtedness
owed to it into shares of Common Stock at a purchase price equal
to the book value of the Company's Common Stock on the date of
the most recent fiscal quarter ended prior to conversion.
As of December 31, 1996 the Company was indebted in the
amount of $71,836 to Diane Weiser, a director and principal
stockholder. The debt is evidenced by a promissory note bearing
interest at 7% per annum which is payable on December 9, 1998.
Ms. Weiser shall have the right to convert, at maturity, the
balance of the indebtedness owed to her into shares of Common
Stock at a purchase price equal to the book value of the
Company's Common Stock on the date of the most recent fiscal
quarter ended prior to conversion.
The Company has entered into a master franchise
agreement with Palatin, AG (as the master franchisee), a Swiss
corporation which is wholly owned by Astrid Hindemith, a director
and principal stockholder of the Company, for the development of
the Ecomat concept in certain European countries. The master
franchisee will have the right to establish, and license to other
parties, the Ecomat concept. The agreement provides provisions
for training, site selection, and assistance (all of which have
been provided) and certain development schedules in certain
countries. Each franchise agreement will be for an initial term
of ten years with three renewal periods of five years each. The
agreement provides for a non-refundable master franchise
agreement fee of $120,000 (all of which has been paid), ongoing
monthly royalty fees in the amount of 1.5% of gross sales from
all facilities, 25% of the development fee or franchisee fee
charged to each unaffiliated developer or franchisee and certain
requirements on advertising. The master franchise agreement was
approved by all of the disinterested directors in such
transaction. Management believes that the terms of the master
franchise agreement are fair and reasonable in all respects.
The Company intends to indemnify its officers and directors
to the full extent permitted by Delaware law. Under Delaware law,
a corporation may indemnify its agents for expenses and amounts
paid in third party actions and, upon court approval in
derivative actions, if the agents acted in good faith and with
reasonable care. A majority vote of the Board of Directors,
approval of the shareholder or court approval is required to
effectuate indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to officers,
directors or persons controlling the Company, the Company has
been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or
paid by an officer, director or controlling person of the Company
in the successful defense of any action, suit or proceeding) is
asserted by such officer, director or controlling person in
connection with the securities being registered, the Company
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
such Act and will be governed by the final adjudication of such
issue.
Transactions between the Company and its officers,
directors, employees and affiliates will be on terms no less
favorable to the Company than can be obtained from unaffiliated
parties. Any such transactions will be subject to the approval of
a majority of the disinterested members (to such transaction) of
the Board of Directors (i.e, members of the Board who are not
directly or indirectly parties to such transaction, or, if such
transaction involves an entity, who are not officers or directors
of, or have any beneficial ownership or financial interests in,
such other entity).
There are currently no transactions contemplated between the
Company and its officers, directors, employees and affiliates.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 7:
Index to Financial Statements F- 1
Report of Independent Certified Public Accountants F- 2
Consolidated Balance Sheet F- 3
Consolidated Statement of Operations F- 4
Consolidated Statement of Stockholders' Equity (deficiency) F- 5
Consolidated Statement of Cash Flows F- 6
Notes to Consolidated Financial Statements F- 7 - F- 16
(a) (2) Exhibits
*1.1 - Form of Underwriting Agreement
1.2 - Intentionally Omitted
*1.3 - Form of Selected Dealer Agreement
*3.1 - Certificate of Incorporation of the Company
*3.2 - Form of Certificate of Merger (Delaware)
*3.3 - Form of Certificate of Merger (New York)
*3.4 - Form of Agreement and Plan of Merger
*3.5 - By-Laws of the Company
*4.1 - Specimen Certificate for shares of Common Stock
4.2 - Intentionally Omitted
4.3 - Intentionally Omitted
4.4 - Intentionally Omitted
*4.5 - Form of Underwriter's Purchase Option
4.6 - Intentionally Omitted
*5 - Opinion of Bernstein & Wasserman, LLP on legality of securities
being registered
*10.1 - Employment Agreement between the Company and Diane Weiser
10.2 - Intentionally Omitted
*10.3 - Company's Franchise Offering Circular
*10.4 - 1996 Incentive Stock Option and Stock Appreciation Rights Plan
*10.5 - 1996 Non-Qualified Stock Option Plan
*10.6 - Agreement of Lease for Premises located at 140-146 West 72nd Street,
New York, New York 10023.
*10.7 - Agreement of Lease for Premises located at 147 Palmer Avenue,
Mamaroneck, NY 10543.
*10.8 - Master Franchise Agreement dated as of January 26, 1996 between
Ecofranchising, Inc. and Palatin, AG
*10.9 - Letter of Intent for Master Franchise Agreement between
Ecofranchising, Inc. and Global Access Corporation
**10.10- Cluster Development Agreement and Attachments dated December 18,
1995 between Opticlean, Inc. and Ecofranchising, Inc.
**10.11- Cluster Development Agreement and Attachments dated February 23,
1996 between P.E.B. Inc. and Ecofranchising, Inc.
**10.12- Cluster Development Agreement and Attachments dated March 25, 1996
between Community Wetcleaners, Inc. and Ecofranchising, Inc.
**10.13- Operating Agreement and Attachments dated June 19, 1996 between
Vincent Nimson and Ecofranchising, Inc.
**10.14- Cluster Development Agreement and Attachments dated July 1, 1996
between Peter J. Carissimi and Ecofranchising, Inc.
**10.15- Cluster Development Agreement and Attachments dated September 30,
1996 between John W. Henderson, Jr. and Ecofranchising, Inc.
***10.16- Asset Purchase Agreement dated February 12, 1997 by and between
Clean Living, Inc. d/b/a The Cleaner Image and Eco Stu, Inc.
10.17- Master License Agreement between Ecofranchising, Inc. and PT
Pranasakti Dewanta.
10.18- Master License Agreement between Ecofranchising, Inc. and Elite-Fame
SDN BHD
*21 - Subsidiaries of the Company
*23.1 - Consent of Bernstein & Wasserman, LLP (included in Exhibit No. 5)
*23.2 - Consent of Grant Thornton, LLP, Independent Certified Public
Accountants
*23.3 - Consent of Pustorino, Puglisi & Co., Inc., Independent Certified
Public Accountants
*99.1 - Acknowledgment of Pustorino, Puglisi & Co., Inc.
* Incorporated by Reference to the Company's Registration Statement on
Form SB-2, No. 333-1524.
** In accordance with Rule 202 of Regulation S-T, these documents were
filed in paper format pursuant to a continuing hardship exemption.
*** Incorporated by reference to Exhibit 1 to the Company's Form 8-K filed
on February 25, 1997.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 1996.
INDEX TO FINANCIAL STATEMENTS
Page
Report of independent certified public accountants
Grant Thornton LLP F-2
Consolidated financial statements
Consolidated balance sheet F-3
Consolidated statements of operations F-4
Consolidated statement of stockholders'
equity/(deficiency) F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-16
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Ecomat, Inc. and Subsidiaries
We have audited the accompanying consolidated balance
sheet of Ecomat, Inc. (a Delaware corporation) and
Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years ended
December 31, 1996 and 1995. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Ecomat, Inc. and Subsidiaries as of
December 31, 1996, and the consolidated results of their
operations and their consolidated cash flows for each of
the two years ended December 31, 1996 and 1995 in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 17, 1997
ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996
ASSETS
Current Assets
Cash and cash equivalents $4,307,955
Accounts receivable 45,126
Franchise fees receivable 26,054
Prepaid expenses 69,186
Total current assets 4,448,321
Property and equipment, net 644,796
Franchise fees receivable 66,196
Other assets 35,505
$ 5,194,818
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable, current portion $ 1,000,000
Accounts payable and accrued expenses 280,744
Prepaid laundry revenue 11,934
Total current liabilities 1,292,678
Notes payable, net of current portion 392,597
Deferred rent payable 179,830
Deferred franchise revenue 373,085
2,238,190
Commitments and contingency
Stockholders' equity
Preferred stock, $.0001 par value; authorized, 1,000,000 shares;
no shares issued and outstanding -
Common stock, $.0001 par value; authorized, 25,000,000
shares; issued and outstanding, 3,600,000 shares 360
Additional paid-in capital 6,441,467
Accumulated deficit (3,485,199)
2,956,628
$5,194,818
The accompanying notes are an integral part of this statement.
ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
Revenues
Cleaning and laundry services $ 411,413 $ 195,709
Franchise revenue 4,085
Costs and expenses
Facilities operating costs
Compensation 235,229 179,870
Advertising and promotion 45,494 14,627
Supplies 25,024 23,069
Rent 138,554 85,246
Utilities 76,647 29,931
Other 58,414 4,621
579,362 337,364
Advertising and promotion - franchise
sales 56,715 101,128
General and administrative expenses
Compensation 332,129 261,369
Rent 77,498 107,131
Professional and consulting fees 58,075 145,680
Other 337,461 242,545
805,163 756,725
Depreciation and amortization 126,550 85,766
Total costs and expenses 1,567,790 1,280,983
Loss on disposition of assets 3,250
Operating loss (1,152,292) (1,088,524)
Other income (expense)
Other income 9,352 5,185
Interest expense (96,357) (29,725)
(87,005) (24,540)
Loss before provision for income taxes (1,239,297) (1,113,064)
Income taxes 13,883 5,698
Net loss $(1,253,180) $(1,118,762)
Net loss per share $(.51) $(.47)
Weighted average shares outstanding 2,449,180 2,400,000
</TABLE>
The accompanying notes are an integral part of these statements.
ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIENCY)
Years ended December 31, 1995 and 1996
<TABLE>
<CAPTION> Total
Additional deficit in
Preferred Common paid-in Accumulated stockholders'
Description stock stock capital deficit equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 - $240 $1,289,760 $(1,113,257) $ 176,743
Shareholder contributions - - 320,000 - 320,000
Net loss - 1995 - - - (1,118,762) (1,118,762)
Balance at December 31, 1995 - 240 1,609,76 (2,232,019) (622,019)
Issuance of shares in a public
offering, net of related costs - 120 4,831,707 - 4,831,827
Net loss - 1996 - - - (1,253,180) (1,253,180)
Balance at December 31, 1996 - $360 $6,441,467 $(3,485,199) $2,956,628
</TABLE>
The accompanying notes are an integral part of this statements.
ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,253,180) $(1,118,762)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 126,550 85,766
Loss on disposition of assets 3,250
Deferred rent payable 18,760 85,960
Changes in assets and liabilities
Accounts receivable and prepaid expenses (201,362) (5,200)
Other assets (4,045) (21,295)
Accounts payable and accrued expenses 144,770 114,744
Accrued interest 75,004 29,500
Deferred revenue 302,019 83,000
Net cash used in operating activities (791,484) (743,037)
Cash flows from investing activities
Purchase of property and equipment
(30,928) (579,017)
Net cash used in investing activities (30,928) (579,017)
Cash flows from financing activities
Proceeds from the issuance of shares in a public
offering, net of related costs 4,831,827
Proceeds from shareholder contributions 320,000
Payment of note payable (290,000)
Proceeds from notes payable 578,093 1,000,000
Net cash provided by financing activities 5,119,920 1,320,000
Net (decrease) increase in cash and cash equivalents 4,297,508 (2,054)
Cash and cash equivalents - beginning of year 10,447 12,501
Cash and cash equivalents - end of year $4,307,955 $10,447
Supplemental disclosures of cash flow information:
information:
Cash paid during the year for
Interest $15,000 $225
Income taxes $ 3,885 $5,698
</TABLE>
The accompanying notes are an integral part of these statements.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note A - Organization and Nature of Business
Ecomat, Inc. (the "Company" or "Ecomat"), a Delaware corporation,
was formed on December 14, 1995 to serve as the successor by merger
(the "Merger") to Diaber Laundromat, Inc. ("Diaber"). The Merger of
the Company and Diaber took place effective March 29, 1996. In
connection with the Merger, each share of the Company's common stock
(a total of 10) converted into 240,000 shares of the Company's
common stock, resulting in the issuance of 2,400,000 shares of common
stock, all of which were issued and outstanding. During December 1996,
the Company completed an initial public offering of 1,200,000 shares of
common stock at $5.00 per share.
The Merger was accounted for at historical cost in a manner similar to a
pooling-of-interests accounting as the entities included in the Merger were
under common control. The accompanying financial statements reflect the
effects of the Merger described above.
The Company, through its wholly-owned subsidiaries, operates and franchises
environmentally sound cleaning and laundromat facilities. The Company and its
franchisees are dependent upon various thirdparty manufacturers and suppliers
to provide laundromat and wet cleaning equipment, as well as specialized
finishing and cleaning products. Ecomat has three subsidiaries:
1. 8th Street Laundromat, Inc. ("8th Street"), a Company-owned full-service
Ecomat cleaners and laundromat located in New York City.
2. Ecoclean Systems International, Ltd. ("Ecoclean Systems"), a Company-
owned full-service cleaners and laundromat located in Mamaroneck, New
York.
3. Ecofranchising, Inc. ("Ecofranchising") is the franchisor of the Ecomat
concept. Ecofranchising has signed four cluster franchise agreements in
the New York metropolitan area and one cluster franchise agreement in
Texas. In addition, Ecofranchising has signed two master franchise
agreements: one covers various parts of Europe and a second, signed in
1997, covers the region of India and Indonesia.
Note B - Summary of Significant Accounting Policies
1. Basis of Combination
The consolidated financial statements include the Company, Diaber and its
three wholly-owned subsidiaries. All intercompany transactions have been
eliminated in consolidation.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note B (continued)
2. Revenue Recognition
Revenue from Company-owned stores is recognized in the period in which
related cleaning and laundry services are sold.
The Company's standard single franchise agreement requires the franchisee
to pay an initial nonrefundable fee, as well as a royalty based on a
percentage of sales, and is for a ten-year period. Revenue derived from
initial franchise fees is recognized when the franchise store opens and
when all material services or conditions relating to the sale have been
substantially completed. Royalties are recognized in the same period in
which related franchise store revenue is generated.
A cluster franchise agreement provides for a franchise to operate multiple
locations from a central facility within a given geographic area.
A master franchise agreement is used for foreign locations and is designed
for a country or group of countries constituting a "territory." The
master franchisee sub-franchises Ecomat units or clusters within the
territory and/or operates stores owned by the master franchisee.
Revenues derived from initial franchise fees for cluster franchises and
master franchises are recognized on a pro-rata basis (based on the
anticipated number of facilities expected to be opened) as facilities,
subject to the terms of the agreement, are opened and when all material
obligations or conditions relating to the agreement have been
substantially satisfied.
At December 31, 1996, the Company had approximately $373,000 of deferred
revenue relating to initial franchise fees (including a master franchise
fee) for which the related franchise stores have not yet opened.
3. Property and Equipment
Property and equipment are stated at cost. Depreciation is determined on
the straight-line method over the estimated useful lives of the assets
(ranging from 5 to 10 years). Maintenance and repairs are expensed as
incurred.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note B (continued)
4. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
5. Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and for income tax net operating loss carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
6. Net Loss Per Share
Net loss per share has been computed using the weighted average number of
common shares outstanding after giving retroactive effect to the Merger.
The supplemental pro forma loss per share is based upon (i) 2,449,180
weighted average shares of common stock outstanding during 1996 and
2,400,000 during 1995 and (ii) the number of shares (216,904 and 80,897)
for the years ended December 31, 1996 and 1995 whose proceeds would be
necessary to repay certain debt of the Company (Note E). The supplemental
pro forma loss per share was $.47 for the year ended December 31, 1996,
and $.45 for the year ended December 31, 1995.
7. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note B (continued)
8. Research and Development Costs
The Company expenses all costs related to research and development as
incurred.
9. New Accounting Standards Adopted
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS
No. 121"), which provides guidance on when to assess and how to measure
impairment of long-lived assets, certain intangibles and goodwill related
to those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement is effective
for financial statements for fiscal years beginning after December 15,
1995. The Company's adoption of SFAS No. 121 did not have a material
effect on the Company.
Note C - Property and Equipment
Property and equipment as of December 31, 1996 are summarized as follows:
Laundry equipment $389,160
Computer equipment 42,153
Leasehold improvements 412,161
Furniture and fixtures 54,146
Automobiles 5,250
902,870
Less accumulated depreciation and 258,074
amortization
$644,796
Depreciation and amortization expense aggregated approximately $127,000
and $86,000 for the years ended December 31, 1996 and 1995, respectively.
During 1995, the Company disposed of old garment presses, resulting in a
loss of $3,250.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note D - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of December 31, 1996 are summarized
as follows:
Payroll and payroll taxes $ 19,738
Professional fees 20,464
Rent 35,180
Insurance premiums 74,127
Other payables 131,235
$280,744
Note E - Notes Payable
Notes payable consist of the following:
Note payable - majority stockholder (a) $1,215,000
Note payable - officer/stockholder (b) 71,836
Accrued interest 105,761
1,392,597
Less current portion 1,000,000
Notes payable, net of current portion $ 392,597
_______________
(a) The note is subject to the following terms:
Amount (including interest) $1,320,000 was outstanding as of December 31, 1996
Interest 7% per annum
Maturity $1,000,000 on the earliest of (i) September 25,
2001,(ii) the closing date of the IPO or (iii)
an event of default(as defined)and the balance
due on the earlier of September 25, 2001 or two
years after the closing of the IPO. See note L.
Conversion The balance remaining after the above $1,000,000
payment of the note is convertible into common
stock at a price equal to the book value of the
Company (as defined) within certain limitations as
defined in the note.
(b) The Company has a note payable to an officer/principal stockholder/director
in the amount of $71,836 at December 31, 1996. The note bears interest at 7%
per annum and matures on the earlier of (i) June 27, 2001 or (ii) two years
after the closing of the IPO and is convertible into common stock at a price
equal to the book value of the Company (as defined) within certain limitations
as defined in the note.
The notes payable are all due in the year 2001, subject to earlier payment as
described.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note F - Income Taxes
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $3,200,000 for income tax purposes expiring through 2011.
The Company's ability to utilize net operating losses may be limited due to
changes in ownership resulting from the shares issued in the IPO, additional
issuances of the Company's common stock or other changes in ownership, as
defined in Internal Revenue Code Section 382 and related regulations. The
Company intends to elect to file consolidated Federal tax returns for 1996.
For financial statement purposes, a valuation allowance equal to the amount
of the net deferred tax asset at December 31, 1996 has been recognized, as
the realization of such deferred tax assets is uncertain.
Components of the Company's deferred tax assets (liabilities) are as follows:
Interest expense $ 42,000
Lease obligation 72,000
Net operating loss carryforwards 1,280,000
1,394,000
Valuation allowance (1,394,000)
Net deferred tax asset $ -
Note G - Commitments
1. Lease Commitments
The Company has entered into various operating leases for its executive
office, Company-owned stores and franchisee stores, as well as certain
equipment expiring at various times through the year 2006.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note G (continued)
Aggregate future minimum lease payments required under noncancellable
operating leases at December 31, 1996 are as follows:
1997 $ 247,000
1998 256,000
1999 264,000
2000 224,000
2001 233,000
Thereafter 530,000
Total future minimum lease payments $ 1,754,000
required
The leasehold commitments summarized above includes a commitment for an
aggregate of approximately $195,000 for a laundry site that will be
utilized by a franchisee. Management intends to finalize discussions
concerning the consideration to be received for the development and the
use of this location.
Total rent expense for the years ended December 31, 1996 and 1995 amounted
to approximately $216,000 and $200,000, respectively. Rent expense is
charged on a straight-line basis over the respective terms of the lease.
The excess of rent expense over the required lease payments is reflected
as deferred rent payable as of December 31, 1996 and 1995.
2. Employment Agreements
The Company entered into five-year employment agreements commencing
January 1, 1996 and ending December 31, 2000, with the Company's Chief
Executive Officer and President and its Chief Operating Officer.
Subsequent to June 30, 1996, the agreement with the Chief Operating
Officer ("COO") was terminated and the Company agreed to pay the former
COO approximately $45,000 (inclusive of certain health benefits) in
severance which was expensed during the year ended December 31, 1996.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note G (continued)
The Company and the CEO have entered into a new agreement effective
October 1, 1996. Under this agreement, the CEO will receive an annual
base salary of $75,000 (that may be increased from time to time by the
Board of Directors). In addition, the CEO has the right to receive for
no additional consideration under the employment agreement (i) up to
20,000 shares of common stock if the after-tax earnings of the Company
and its subsidiaries are at least $1,500,000 in fiscal years 1996 and
1997, and (ii) up to 40,000 shares of common stock if the aftertax
earnings of the Company and its subsidiaries are at least $2,000,000 for
fiscal years 1996-1998 (only 20,000 shares if the CEO was issued 20,000
shares after fiscal 1997). Under the employment agreement, employment
terminates upon death or a total disability of the employee and may be
terminated by the Company for cause.
The Company has entered into a five-year employment agreement commencing
January 15, 1996 and ending January 14, 2000, with its Vice President of
Franchise Sales and Marketing. Under this employment agreement, this
individual will receive an annual base salary of $93,000. In addition,
he has the right to receive (i) up to 20,000 shares of common stock if
the after-tax earnings of the Company and its subsidiaries are at least
$1,500,000 in fiscal years 1996 and 1997, and (ii) up to 40,000 shares
of common stock if the after-tax earnings of the Company and its
subsidiaries are at least $2,000,000 for fiscal years 1996-1998
(only 20,000 shares if he was issued 20,000 shares after fiscal 1997).
Under the employment agreement, employment terminates upon death or
total disability of the employee and may be terminated by the Company
for cause.
The Company has entered into a two-year employment agreement commencing
April 1, 1995 and ending March 31, 1997, with its Director of Management
Information Systems. Under this employment agreement, this individual will
receive an annual base salary of $62,400. Under this employment agreement,
employment terminates upon death or total disability of the employee and
may be terminated by the Company for cause.
Note H - Related Party Transactions
The Company and a director (who also controls a corporation that is the
majority shareholder of the Company) entered into a Master Franchise
Agreement dated January 27, 1996 that gives the director the right to
(i) establish and operate cleaning facilities in Europe and (ii) license
other unaffiliated
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note H (continued)
parties to establish and operate cleaning facilities in Europe. At December
31, 1996, the Company has recorded the master franchise fee of $120,000 as
deferred franchise revenue and will recognize the fee on a pro-rata basis as
facilities subject to the agreement are opened.
Note I - Stock Option Plans
In January 1996, the directors and stockholders of the Company adopted the
1996 Incentive Stock Option and Stock Appreciation Rights Plan ("Incentive
Option Plan") and the 1996 Non-Qualified Stock Option (the "Nonqualified
Option Plan"), collectively the "Plans." Pursuant to the Incentive Option
Plan, key employees and directors are eligible to receive incentive stock
options, stock appreciation rights ("SARs") and nonqualified options.
Pursuant to the Nonqualified Option Plan, key employees, directors,
consultants, distributors, professional and independent contractors are
eligible to receive nonqualified options. The Plans will be administered
by the Board of Directors or an appointed committee which will determine the
recipients of such grants. The Incentive Option Plan and the Nonqualified
Option Plan each provide for options covering 2,000,000 shares of the
Company's common stock to be granted under the Plans. As permitted by the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," the Company has adopted the Accounting
Principles Board Opinion No. 25 or intrinsic value method of accounting for
employee stock options. Accordingly, the determined fair value of stock
options granted will be disclosed rather than recognized in the financial
statements. No options have been granted under the Plan.
Note J - Concentration of Credit Risk
The Company maintains its cash balances in one financial institution in New
York. These balances are insured by the Federal Deposit Insurance Corporation
up to $100,000.
ECOMAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996
Note K - The Fair Values of Financial Instruments
The estimated values of the Company's financial instruments are as
follows:
Carrying Fair
amount value
Cash and cash equivalents $4,307,955 $4,307,955
Notes payable 1,392,597 See below
Cash and cash equivalents
The carrying amounts approximate the fair values because of the short
maturity of those instruments.
Notes payable
It was not practicable to estimate the fair value of the Company's notes
payable because information relating to the value of loans with similar
terms and financial models to evaluate credit to similar businesses is not
readily available.
Note L - Subsequent Events
In January 1997, the Company paid $1,000,000 to its majority stockholder as
a partial repayment of principal of the note payable (Note E).
In February 1997, the Company purchased the business of a cleaner in
Ridgefield, Connecticut. The Company agreed to issue 3,000 shares (valued at
$15,000) to the seller and to pay a maximum cash consideration of $60,000.
The terms of the agreement provide that an additional 12,000 shares will be
issued contingent upon performance of the acquired unit, as defined. Such
contingency consideration will be recorded as additional purchase price if
and when the performance goals are achieved.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ECOMAT, INC.
By:/s/ Diane Weiser
Diane Weiser
President, Chief Executive Officer,
Secretary, Treasurer and Director
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed
below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Diane Weiser President, Chief April 14, 1997
Diane Weiser Executive Officer,
Secretary, Treasurer
and Director
/s/ Astrid Hindemith Director April 14, 1997
Astrid Hindemith
EXIBIT 10.17
ECOFRANCHISING, INC.
MASTER LICENSE AGREEMENT
(INDONESIA)
ECOFRANCHISING, INC.
MASTER LICENSE AGREEMENT
(INDONESIA)
TABLE OF CONTENTS
Page
RECITALS............................................................1
1. GRANT...............................................................2
2. FEES................................................................3
3. DUTIES OF LICENSOR..................................................5
4. TERM; DEVELOPMENT OF TERRITORY......................................8
5. DUTIES OF MASTER LICENSEE...........................................9
6. MARKS..............................................................15
7. MANUALS; CONFIDENTIAL INFORMATION..................................19
8. BOOKS AND RECORDS..................................................22
9. ADVERTISING AND RELATED FEES.......................................23
10. DEFAULT AND TERMINATION............................................24
11. TRANSFER OF INTEREST...............................................29
12. COVENANTS..........................................................35
13. INDEPENDENT CONTRACTOR; INDEMNIFICATION; THIRD PARTY
RIGHTS.............................................................39
14. APPROVALS..........................................................42
15. NON-WAIVER AND REMEDIES............................................42
16. NOTICES............................................................43
17. SEVERABILITY AND CONSTRUCTION......................................47
18. ENTIRE AGREEMENT; APPLICABLE LAW; DISPUTE RESOLUTION...............45
19. ACKNOWLEDGEMENTS...................................................46
EXHIBIT A -- LICENSE AGREEMENT
EXHIBIT B -- DEVELOPMENT AGREEMENT
EXHIBIT C -- MONITORING SOFTWARE AND HARDWARE LICENSE
EXHIBIT D -- ACCOUNTING AND POINT OF SALE SOFTWARE LICENSE
AGREEMENT
EXHIBIT E -- LIST OF OWNERSHIP INTERESTS
EXHIBIT F -- LIST OF PROPRIETARY MARKS
EXHIBIT G -- CONFIDENTIALITY AND NON-COMPETITION COVENANTS
MASTER LICENSE AGREEMENT
(INDONESIA)
This Master License Agreement (the "Agreement") is made and
entered into this 15 day of April, 1997, between
Ecofranchising, Inc., a New York corporation ("Licensor"), and
PT Pranasakti Dewanata("Master Licensee"), a Indonesian corporation.
RECITALS:
As the result of the expenditure of time, skill, effort and
money, Licensor has acquired or developed in the United States
and owns a unique and distinctive system (hereinafter, "System")
for the establishment and operation of environmentally sound
laundromat and cleaning facilities for garments and certain other
fabrics (as further defined in Licensor's agreements, manuals and
other writings, the "System Facilities").
The System Facilities consist of the following:
(i) Facilities where customers can drop off their cleaning
and laundry; have their laundry and cleaning processed on-site;
pick up their cleaning and laundry or have their cleaning and
laundry delivered, and wash and dry their laundry themselves
using self-service equipment ("Ecomat Laundry and Cleaners").
(ii) Facilities where customers can drop off their
cleaning; have their cleaning processed on-site; and pick up
their cleaning or have their cleaning delivered ("Ecomat
Cleaners").
(iii) Facilities where customers can drop off their cleaning
and laundry; have their laundry and cleaning processed off or on-
site; and pick up their cleaning and laundry or have their
cleaning and laundry delivered ("Satellites").
(iv) Routes (including commuter train stations, apartment
buildings, office buildings, military installations, and/or other
central points) where customers can drop off their cleaning and
laundry for off-site processing and pick up their cleaning and
laundry, or have their cleaning and laundry delivered ("Satellite
Routes").
(v) Facilities where customers can drop off their laundry;
have their laundry washed and dried on-site; pick up their
laundry or have their laundry delivered; and, wash and dry their
laundry themselves using self-service equipment ("Laundry").
(vi) Facilities at alternative locations, such as office
buildings, trailers, and kiosks where customers can drop off and
pick up their laundry and cleaning, but no cleaning or laundry
processing occurs ("Drop Site").
An (1) Ecomat Laundry and Cleaner and (2) Ecomat Cleaner are
sometimes referred to in this Agreement as a "Primary Facility",
which term specifically excludes Satellites, Satellite Routes,
Laundries, and Drop Sites. All System Facilities shall be
operated under the System and the Marks.
The distinguishing characteristics of the System, in the
United States, include, without limitation, distinctive exterior
and interior design, decor, color scheme, and furnishings;
special multi-process wet cleaning techniques; standards,
specifications, and procedures for operations; quality and
uniformity of products and services offered; procedures for
inventory, management and financial control; training and
assistance; and advertising and promotional programs, all of
which may be changed, improved, and further developed by Licensor
from time to time.
Licensor identifies the System in the United States by means
of certain trade names, service marks, trademarks, logos, emblems
and indicia of origin, including, but not limited to, the marks
["Ecomat",] ["Ecomat and design"] ["Ecocleaning"] and such other
trade names, service marks, trademarks, logos, insignia, slogans,
emblems, designs, trade dress, and other commercial symbols as
are now designated and may hereafter be designated by Licensor in
writing for use in connection with the System (hereinafter
referred to as "Marks").
Master Licensee wishes to obtain certain exclusive rights
under this Agreement to develop System Facilities by licensing
affiliates of the Master Licensee or unaffiliated third parties
(collectively "Licensees"), pursuant to a license agreement,
under the System and the Marks in the country of Indonesia
("Territory").
Licensor continues to develop, use and control the use of
such Marks in order to identify for the public the source of
services and products marketed thereunder and under the System,
and to represent the System's high standards of quality,
appearance and service.
NOW, THEREFORE, the parties, in consideration of the mutual
undertakings and commitments set forth herein, the receipt and
sufficiency of which are hereby acknowledged, agree as follows:
1. GRANT
1.1 Grant of Rights. Licensor hereby grants to Master
Licensee, and Master Licensee hereby accepts, pursuant to the
terms and conditions of this Agreement, the right and obligation
to develop thirty-six (36) Primary Facilities under the System in
the Territory. Master Licensee shall execute License Agreements
and Development Agreements with Licensees, as described in
Section 1.2 hereof. Primary Facilities shall be developed in
accordance with the development schedule described in Section 4
hereof.
1.2 License Agreements and Development Agreements. Each
System Facility will be established and operated pursuant to a
license agreement between Master Licensee and Licensee ("License
Agreement"). Each License Agreement shall consist of an initial
term of ten (10) years and three (3) renewal terms of five (5)
years each. System Facilities consisting of (a) one (1) Primary
Facility and (b) a total of any combination of at least three (3)
Drop Sites, Satellites, or Laundries ("Cluster") may be developed
in a portion of the Territory pursuant to a cluster development
agreement between Master Licensee and a developer ("Development
Agreement"). Master Licensee shall enter into a separate License
Agreement with each Licensee for a System Facility and, if such
System Facility is not a Primary Facility, such addendum for a
Satellite, Satellite Route, Laundry, or Drop Site as is
applicable thereto and is attached as an Exhibit to the License
Agreement. Such License Agreements and the applicable addenda
shall be included in the term "License Agreement" as used in this
Agreement. Such License Agreement and Development Agreement
shall be based upon the form of license agreement and development
agreement used by Licensor in the United States (copies of which
Master Licensee acknowledges receipt prior to execution hereof)
and shall be prepared by Licensor within sixty (60) days from the
date of execution of this Agreement for conformity with this
Agreement and in accordance with the laws, customs, and market
characteristics of each country in the Territory. When such
License Agreement and Development Agreement are conformed for use
by Licensor, such agreements shall constitute the License
Agreement and Development Agreement for use hereunder and shall
be attached as Exhibits A and B hereto, respectively. Licensor
will deliver a complete and accurate copy of each executed
License Agreement (and exhibits thereto) and executed Development
Agreement (and exhibits thereto) to Licensor within thirty (30)
days after executing each such agreement.
1.3 Territorial Protection. Except as provided in this
Agreement, neither Licensor nor its affiliates shall establish
and operate or authorize any person or entity other than Master
Licensee, to establish and operate, a System Facility in the
Territory during the term of the Development Schedule (the
"Exclusivity Period").
1.4 No Franchise or License Granted. This Agreement does
not grant to Master Licensee any right or license to operate a
System Facility. Such rights are only conferred by the Ecomat
License Agreements referenced herein.
1.5 Affiliate; Affiliated Licensee. For purposes of this
Agreement, (1) an "affiliate" is any person or entity
controlling, controlled by, or under common control with, another
legal entity, and (2) an "Affiliated Licensee" is any Licensee
owned and operated by an affiliate of Master Licensee.
2. FEES
2.1 Master License Fee. As consideration for the rights
granted hereunder, Master Licensee shall pay to Licensor a non-
refundable master license fee of One Hundred Thousand U.S. Dollars
(U.S. $100,000), payable as follows:
2.1.1 Ten Thousand U.S. Dollars (U.S. $10,000), of which
Licensor acknowledges receipt prior to the date hereof; and
2.1.2 Ninety Thousand U.S. Dollars (U.S.$90,000) to be paid
upon the date of execution of this Agreement, of which Licensor
acknowledges receipt.
The master license fee is deemed earned upon the payment thereof,
and Master Licensee shall not be entitled to any refund of any
portion of the master license fee.
2.2 Agreement Fees. During the term hereof, Master
Licensee shall pay to Licensor:
2.2.1 Three Thousand U.S. Dollars (U.S. $3,000) for each
Development Agreement executed with an unaffiliated Licensee
within thirty (30) days of execution of such agreement;
2.2.2 Three Thousand U.S. Dollars (U.S. $3,000) for each
License Agreement for a Primary Facility executed with an unaffiliated
Licensee within thirty (30) days of execution of such agreement; and
2.2.3 Five Hundred U.S. Dollars (U.S. $500) for each License
Agreement for each Satellite Facility, Satellite Route, or Laundry
executed with an unaffiliated Licensee within thirty (30) days of
execution of such agreement.
2.2.4 Four Hundred Fifty U.S. Dollars (U.S. $450) for
each License Agreement for each Drop Site executed with an
unaffiliated Licensee within thirty (30) days of execution of
such agreement.
2.3 Royalty Fees. Master Licensee shall pay to Licensor
an ongoing monthly royalty fee paid quarterly by the twentieth (20th)
day of the first month following the end of the quarter for each System
Facility operating in the preceding month (or any portion thereof) during
the term hereof as follows beginning in the fourth month following opening:
2.3.1 Four Hundred U.S. Dollars (U.S. $400) for each Primary
Facility;
2.3.2 One Hundred Fifty U.S. Dollars (U.S. $150) for each Satellite
or Satellite Route; and
2.3.3 One Hundred U.S. Dollars (U.S. $100) for each Laundry or Drop
Site
[Licensor may, from time to time, authorize certain other
items to be excluded from Gross Sales. Any such permission may
be revoked or withdrawn at any time in writing by Licensor in its
discretion.]
2.4 Currency Conversion. All payments to Licensor made
pursuant to this Agreement shall be paid to Licensor in U.S.
dollars, or such other currency designated by Licensor from time
to time, and wire transferred, at Master Licensee's expense, to
such bank account as Licensor shall designate from time to time.
Computation of any amounts which require conversion from
Indonesian rupiah to U.S. dollars for payments required hereunder
shall be made, at Master Licensee's expense, at the electronic
transfer selling rate for U.S. dollars quoted by Lippo Bank in Jakarta,
Indonesia(or its successor) with respect to ringgit on the date payment
is made. Master Licensee shall bear all costs and expenses
associated with such currency conversion and transfers of Master
Licensee's bank and of any correspondence bank, if any, in the United
States.
2.5 Withholding. Master Licensee shall have the right,
for all payments made by Master Licensee to Licensor hereunder,
to deduct fifty-percent (50%) of the amount of any withholding
taxes on payments Licensor is required to make to the appropriate
tax authorities in Malaysia on such payments. Master Licensee
shall directly pay to the appropriate taxing authorities, on
behalf of Licensor, the full amount which Master Licensee is
required to withhold under any laws in Malaysia on payments made
by Master Licensee to Licensor. Master Licensee shall transmit
to Licensor official receipts for payments of all taxes withheld.
If Master Licensee fails to withhold or pay such taxes, it shall
indemnify Licensor for the full amount of such taxes and for any
loss or liability occasioned by Master Licensee's failure to
withhold as required by law, including, but not limited to, any
penalties, interest, and expense incurred by Licensor. Master
Licensee shall transmit such taxes to the appropriate fiscal
authorities. Such taxes shall not affect Master Licensee's
obligation to make payments to Licensor as required under this
Agreement.
2.6 Currency Restrictions. In the event that any
governmental authority having jurisdiction in Malaysia imposes
restrictions on the transfer of funds or currency to places
outside of Malaysia, Licensor, in its sole discretion, shall have
the option to require that Master Licensee deposit all payments
required under this Agreement to a designated account in
Malaysia, and that payment of such accumulated amounts be made to
Licensor, pursuant to the terms of Section 2.5 hereof, as soon as
possible after any such currency restriction is no longer in
effect.
2.7 Payments to Licensor. Master Licensee shall not be
entitled to withhold payments due Licensor under this Agreement
on grounds of alleged nonperformance by Licensor hereunder. Any
payment not actually received by Licensor on or before the date
due shall be deemed overdue. Time is of the essence with respect
to all payments to be made by Master Licensee to Licensor. All
unpaid obligations under this Agreement shall bear interest from
the date due until paid at the rate of twelve percent (12%) per
annum, for such periods as the payments are overdue. If any
payments are overdue, Master Licensee shall pay Licensor such
amounts on demand, plus such interest. Entitlement to interest
shall be in addition to any other remedies of Licensor.
Notwithstanding anything to the contrary contained herein, no
provision of this Agreement shall require the payment or permit
the collection of interest in excess of the maximum rate allowed
by applicable law. If any excess of interest in such respect is
herein provided for, or shall be adjudicated to be so provided in
this Agreement, the provisions of this paragraph shall govern and
prevail, and Master Licensee shall not be obligated to pay the
excess amount of such interest.
3. DUTIES OF LICENSOR
3.1 Site Selection Guidelines. Licensor shall provide to
Master Licensee Licensor's written site selection guidelines used
in the United States, which Master Licensee shall adapt for use
in each country in the Territory.
3.2 Site Evaluation. Licensor may provide to Master
Licensee such on-site evaluation as Licensor may deem necessary
on its own initiative. Licensor shall have the right to require
Master Licensee to reimburse Licensor (or its designee) for
travel, meals, lodging, and other out-of-pocket expenses incurred
by Licensor's employees in making any on-site evaluation.
3.3 Design Plans. Licensor shall provide to Master
Licensee, on loan, a set of prototypical architectural design
plans and specifications for each type of System Facility used in
the United States. Master Licensee shall independently, and at
Master Licensee's expense, have such architectural and design
plans and specifications adapted for construction or remodeling
of System Facilities in each country in the Territory for use by
Licensees.
3.4 Manuals. Licensor shall furnish to Master Licensee,
on loan, one (1) set of Confidential Operations Manuals and such
other manuals and written materials as Licensor shall have
developed for use in the United States (as the same may be
revised and supplemented by Licensor from time to time, the
"Manuals"), as more fully described in Section 7 hereof.
3.5 Computer Software. Licensor shall furnish to Master
Licensee certain computer software and hardware to be used by
Master Licensee and Licensees in operating under the System.
Such computer monitoring software and hardware and accounting and
point of sale software shall be licensed to Master Licensee by
Licensor as described in the Monitoring Software and Hardware
License Agreement and Accounting and Point of Sale Software
License Agreement. Such agreements shall be based upon the form
of such agreements used by Licensor in the United States (copies
of which Master Licensee acknowledges receipt prior to execution
hereof) and shall be revised by Licensor within sixty (60) days
from the date of execution of this Agreement for conformity with
this Agreement and in accordance with the laws, customs, and
market characteristics of each country in the Territory. When
such agreements are conformed for use by Licensor, Master
Licensee shall promptly execute such agreements which shall
constitute the Monitoring Software and Hardware License Agreement
and Accounting and Point of Sales Software License Agreement for
use hereunder and shall be attached as Exhibits C and D hereto.
Licensor shall also make available to Master Licensee at a
reasonable cost any upgrades, enhancements, or replacements to
the software and hardware that are developed from time to time
by, or on behalf of, Licensor.
3.6 Assistance. Licensor shall furnish to Master Licensee
in the Territory:
3.6.1 One (1) of Licensor's employees for a minimum of
twenty-one (21) business days, which may not be consecutive,
within the first six (6) months after the date first above
written, at Master Licensee's sole cost and expense, to provide
assistance to Master Licensee in operations, cleaning, marketing,
licensee recruitment activities, and such other matters as
Licensor, in its sole discretion, deems appropriate; and
3.6.2 One (1) of Licensor's management personnel for at
least a total of five (5) work-days, which may not be
consecutive, at Master Licensee's expense, to provide assistance
to Master Licensee in operations, cleaning, marketing, licensee
recruitment activities, and such other matters as Licensor, in
its sole discretion, deems appropriate in each twelve-month
period commencing six (6) months after the date first above
written, and in each twelve-month period thereafter, upon Master
Licensee's request; provided, however, that some or all of the
assistance described in this Section 3.6.2 may be furnished by a
third-party authorized by Licensor.
Licensor shall pay the salaries for its employees in furnishing
the assistance under Sections 3.6.1 and 3.6.2 hereof, and Master
Licensee shall promptly reimburse Licensor for all of the out-of-
pocket costs and expenses for the travel, food, lodging, and
related expenses of Licensor's personnel in furnishing the
assistance described in Section 3.6.2 hereof. Any additional in-
country assistance furnished by Licensor at Master Licensee's
request pursuant to Section 3.6.2 hereof shall be at the then-
current rate described in the Manual for additional, subsequent,
and replacement initial training, which Master Licensee shall
pay to Licensor within thirty (30) days after such assistance is
provided.
3.7 Visits. Licensor shall periodically visit the System
Facilities and provide evaluations of the services rendered and
products sold therein from time to time as reasonably determined
by Licensor, at Licensor's cost and expense.
3.8 Advertising and Promotional Materials. Licensor shall
furnish to Master Licensee, prior to the opening of the first
System Facility, and at Licensor's discretion, certain
advertising and promotional materials and information developed
for use in the United States. Licensor may from time to time
thereafter, at Licensor's discretion, provide to Master Licensee,
for use in marketing and conducting local advertising for the
System Facilities in the Territory, certain other advertising and
promotional materials and information that may be developed by
Licensor in the United States at a reasonable cost to Master
Licensee, if Master Licensee wishes to purchase such materials
and information from Licensor.
3.9 Advice and Materials. Licensor shall furnish to
Master Licensee advice and written materials concerning
techniques of managing and operating the System Facilities from
time to time developed by Licensor, for use in the United States,
including new developments and improvements in laundry and
cleaning equipment and products.
3.10 Laundry and Wetcleaning. Licensor shall furnish to
Master Licensee a list of approved suppliers for certain laundry
and wetcleaning equipment with which Master Licensee shall
require Licensees to comply from time to time as Licensor deems
appropriate, as described in Section 5.5.2.7.
3.11 Training. Licensor shall furnish to Master Licensee
an initial training program and other training programs in
accordance with the provisions of Section 5.4.
3.12 System Changes. Master Licensee understands and
agrees that the System must not remain static if it is to meet
presently unforeseen changes in technology, competitive
circumstances, and the needs of customers, and to best serve the
interest of Licensor, Master Licensee, Licensees, and the System.
Accordingly, Master Licensee expressly understands and agrees
that Licensor may from time to time change the components of the
System, including, but not limited to, altering the programs,
services, methods, standards, forms, policies, and procedures of
that System; adding to, deleting from, or modifying those
programs and services which Licensees' System Facilities are
authorized to offer; and, changing, improving, or modifying the
Marks. Subject to the other provisions of this Agreement, Master
Licensee expressly agrees to abide by any such modifications,
changes, additions, deletions, and alterations.
4. TERM; DEVELOPMENT OF TERRITORY
4.1 Term. Unless sooner terminated in accordance with this
Agreement, the term of this Agreement and all rights granted by
Licensor under this Agreement shall expire on the date the last
License Agreement executed pursuant hereto expires or is terminated.
Each License Agreement shall consist of an initial term of ten years
with three renewal terms of five years each.
4.2 Information; Site Approval. Master Licensee shall
provide to Licensor:
4.2.1 At least thirty (30) days prior to the execution of
any Development Agreement or License Agreement, such information
concerning a prospective licensee as Licensor may reasonably
request. Each prospective Developer and Licensee shall be a
person of sufficiently good reputation as to character,
integrity, financial capacity, and operational skills as to be
reasonably expected to comply fully with its obligations under
the Development Agreement and License Agreement, to approve
each such Developer and Licensee prior to execution of an agreement
with any such parties. If Licensor exercises such right, Master
Licensee shall not execute any agreement with such parties without
Licensor's prior written approval, which shall not be unreasonably
withheld.
4.2.2 Such information concerning the proposed site for
any System Facility as Licensor reasonably requests, prior to
authorizing any Licensee or prospective licensee to acquire a
site for any System Facility, and shall consult with Licensor in
such a manner as Licensor reasonably requests prior to
authorizing any Licensee to acquire such site. Licensor reserves
the right to approve the site for each System Facility, and, upon
written notice to Master Licensee, to inspect any such site and
give its prior written approval for the site for each System
Facility. If Licensor exercises such right, Master Licensee
shall not approve any site until Master Licensee has received
Licensor's written approval.
4.3 Development Obligations
4.3.1 Acknowledging that time is of the essence, Master
Licensee agrees to have open and in operation in the Territory
the cumulative total number of Primary Facilities by the dates
indicated in the development schedule (the "Development
Schedule") below, by the end of each of the designated
development periods (the "Development Periods"); provided,
however, that the first Primary Facility shall be developed only
by an Affiliated Licensee.
Development Cumulative Total Number of Primary Facilities
Period By: Which Shall Be Open and in Operation
1 April 15, 1998 Two (2)
2 April 15, 1999 Five (5)
3 April 15, 2000 Eight (8)
4 April 15, 2001 Eleven (11)
5 April 15, 2002 Fourteen (14)
6 April 15, 2003 Twenty (20)
7 February 15, 2004 Twenty-Five (25)
4.3.2 In the event that Master Licensee fails to have
open and in operation in the Territory the cumulative total
number of Primary Facilities in accordance with the Development
Schedule, Licensor shall, at Licensor's option, have the right to
terminate the territorial protection described in Section 1.3 of
this Agreement; provided, however, that Master Licensee shall,
under no circumstances, lose such territorial protection until
April 15, 2001; and further provided, that Licensor shall discuss
with Master Licensee any reasonable revision of the Development
Schedule proposed by Master Licensee, prior to Licensor's
exercise of its option to terminate such territorial protection.
In the event Licensor terminates such protection, Licensor shall
have the right to establish and operate, and to license others to
establish and operate, System Facilities under the System and the
Marks in any country in the Territory during the term of this
Agreement.
5. DUTIES OF MASTER LICENSEE
Master Licensee and the Principals, as applicable, make the
following representations, warranties and covenants and accept
the following obligations:
5.1 Corporate Representations and Warranties. Master
Licensee represents, warrants and covenants that:
5.1.1 Master Licensee is a newly formed corporation, and
Master Licensee is duly organized and validly existing under the
applicable law to its formation;
5.1.2 Master Licensee is duly qualified and is authorized
to do business in each jurisdiction in which its business
activities or the nature of the properties owned by it require
such qualification;
5.1.3 Master Licensee's organizational documents shall at
all times provide that the activities of Master Licensee are
confined exclusively to the development of System Facilities,
unless otherwise consented to by Licensor in writing;
5.1.4 Copies of Master Licensee's articles of
incorporation, bylaws, other governing documents, any amendments
thereto, resolutions of the Board of Directors authorizing entry
into and performance of this Agreement, and any certificates or
other documents as may be reasonably required by Licensor have
been furnished to Licensor prior to the execution of this
Agreement;
5.1.5 The ownership interests in Master Licensee are
accurately and completely described in Exhibit E hereto. Master
Licensee shall maintain at all times a current list of all owners
of record and all beneficial owners of any class of voting
securities in Master Licensee, and shall make its list of owners
available to Licensor upon request;
5.1.6 Master Licensee shall maintain stop-transfer
instructions against the transfer on its records of any of its
equity securities and each stock certificate representing stock
of the corporation shall have conspicuously endorsed upon it a
statement in a form satisfactory to Licensor that it is held
subject to all restrictions imposed upon assignments by this
Agreement; provided, however, that the requirements of this
Section shall not apply to the transfer of equity securities of a
publicly-held corporation (as defined in Section 12.4); and
5.1.7 Master Licensee's Principals shall, jointly and
severally, guarantee Master Licensee's performance of all of
Master Licensee's obligations, covenants and agreements hereunder
pursuant to the terms and conditions of the guaranty contained
herein, and shall otherwise bind themselves to the terms of this
Agreement as stated herein.
5.2 Best Efforts. Master Licensee's Principals shall
devote substantial full time and best efforts to the supervision
and conduct of the business contemplated by this Agreement.
5.3 Compliance with Laws, Rules and Regulations. Master
Licensee shall comply with all requirements of national and local
laws, rules, regulations, and orders in each country in the
Territory.
5.4 Training. Master Licensee agrees that it is necessary
to the continued operation of the System that six (6) of Master
Licensee's employees and such employees of Affiliated Licensees
as Licensor designates receive such training as Licensor may
require, and accordingly agrees as follows:
5.4.1 Not later than ninety (90) days after the date of
execution of this Agreement, for Master Licensee's employees, and
not later than thirty (30) days prior to the date the System
Facility of each Affiliated Licensee is scheduled to open for
each of such Affiliated Licensees' employees, Master Licensee's
and such Affiliated Licensee's employees as Licensor designates
shall attend and complete, to Licensor's satisfaction, Licensor's
initial training program in the United States. Training of such
persons shall be conducted by Licensor or its designee at a
Licensor-operated System Facility or other location designated by
Licensor. Licensor shall provide instructors and training
materials for such initial training at no additional charge to
Master Licensee.
Licensor shall determine, in its sole discretion, whether
such trainees have satisfactorily completed initial training. If
the initial training program is not satisfactorily completed, or
if Licensor, in its reasonable business judgment based upon the
performance of such trainees, determines that the training
program cannot be satisfactorily completed by any such person,
Master Licensee shall designate a replacement to satisfactorily
complete such training.
Any employees replacing any employee that has received
training or any Affiliated Licensee subsequently designated by
Master Licensee shall also receive and complete such initial
training. Licensor reserves the right to charge a reasonable fee
for any initial training provided by Licensor to any such
replacement employee. Master Licensee or the Affiliated
Licensee, as appropriate, shall be responsible for any and all
expenses incurred by Master Licensee or Affiliated Licensee's
employees in connection with any initial training program,
including, without limitation, costs of travel, lodging, meals
and wages.
Licensor will pay no compensation for any services
performed incidental to training by trainees enrolled in
Licensor's initial training program or any subsequent training.
Licensor reserves the sole and exclusive right to determine the
duration of, and what subjects are included in, the curriculum of
its training programs, and to train any number of individuals
from any number of System Facilities, whether licensed or
otherwise affiliated with Licensor, at the same time.
5.4.2 Master Licensee's Principals and such other
personnel of Master Licensee as Licensor shall designate shall
attend, at such location in the Territory or otherwise as
Licensor reasonably designates, such additional training programs
and seminars as Licensor may offer from time to time, if Licensor
requires such attendance. For all such programs and seminars,
Licensor will provide the instructors and training materials.
However, Licensor reserves the right to impose a reasonable fee
for such additional training programs and seminars. Master
Licensee shall be responsible for any and all expenses incurred
by Master Licensee's Principals and other personnel in connection
with such additional training, including, without limitation,
costs of travel, lodging, meals, and wages.
5.4.3 Provided Licensor is satisfied that Master
Licensee's employees have successfully completed initial training
in the United States as provided under Section 5.4.1, and is
further satisfied that Master Licensee is capable of successfully
training managers and employees of each Licensee in the
Territory, notwithstanding any terms and conditions in any
License Agreement to the contrary, Master Licensee shall furnish
training to all Licensees and all of Licensees' employees for all
System Facilities in the Territory, as such training is required
under the License Agreement. Master Licensee agrees to assume,
and does hereby assume, all such obligations of Licensor to
furnish initial training under each License Agreement. Master
Licensee shall employ a trainer fluent in the English language
who shall complete, to Licensor's satisfaction, Licensor's
training program, at Master Licensee's sole cost and expense.
Master Licensee shall immediately employ a replacement trainer if
such trainer ceases to be Master Licensee's trainer. Such
trainer shall provide training to Licensee's employees, at such
System Facility or other reasonable location as Master Licensee
shall designate. Master Licensee shall, at its sole cost and
expense, provide, equip, and commence operation of a training
program using such trainer which will obtain the same results in
training as does Licensor's training school in the United States,
as determined by Licensor, for the purpose of providing training
as required under each License Agreement. From time to time,
Licensor may attend and/or conduct an audit of the Master
Licensee's training program. If Licensor, in its sole judgement,
determines there are deficiencies in Master Licensee's training
program, Master Licensee shall take such action as is required by
Licensor to correct such deficiencies, including, without
limitation, (a) replacing the Master Licensee's trainer, (b)
requiring Master Licensee's trainer to attend additional training
in the United States, at Master Licensee's sole cost and expense,
or (c) requiring Licensees' employees to attend Licensor's
initial training program in the United States.
5.4.4 Advertising and Promotional Materials and Other
Items. Master Licensee shall require all advertising and
promotional materials, signs, decorations, paper goods (including
all forms and stationery used hereunder), and other items which
may be designated by Licensor, to bear the Marks and the
description of the services offered by each System Facility in
the form, color, location, and manner prescribed by Licensor.
5.5 Rights and Obligations Related to Licensees and
Developers.
5.5.1 Prospective Licensees and Developers. In dealing
with prospective licensees and prospective developers, Master
Licensee shall:
5.5.1.1 Make no representations or warranties in
conflict with the terms and conditions of the License Agreement
or Development Agreement, the Manuals, or other related
documents; and
5.5.1.2 Carefully screen and evaluate prospective
Licensees and Developers pursuant to the standards prescribed by
Licensor.
5.5.2 Master Licensee's Duties. For each Licensee and
Developer, Master Licensee shall, at its sole expense, promptly
fulfill all its duties, require each Licensee and Developer to
fulfill all their obligations, and enforce all the terms and
conditions, under each License Agreement and Development
Agreement. In this regard, Master Licensee shall:
5.5.2.1 Provide site selection counseling and
assistance, on-site inspections, site evaluations, and site
recommendations, in accordance with applicable standards for
sites under the System;
5.5.2.2 Provide training programs;
5.5.2.3 Provide to each Licensee the plans for the
construction of the interior design and layout of the System
Facility, advice and consultation to the Licensee with regard to
the construction and/or renovation of each System Facility,
conduct on-site inspections during construction and/or
renovation, and ensure upon completion of construction and/or
renovation that construction and/or renovation has been completed
in accordance with the plans and specifications;
5.5.2.4 Upon completion of construction and/or
renovation, inspect each System Facility to confirm that it has
been equipped in accordance with the plans and specifications;
5.5.2.5 Provide the Manuals and all updates to the
Manuals:
5.5.2.6 Provide such opening assistance, and other
assistance as designated by Licensor and as required by the
License Agreement and Development Agreement;
5.5.2.7 Require each Licensee to acquire certain
laundry and wetcleaning equipment from approved suppliers;
5.5.2.8 Visit each System Facility in the Territory
at least two (2) times each year during the term of the relevant
License Agreement and any renewals, in order to provide
continuing assistance as reasonably requested by the Licensee,
inspect the premises of such System Facility to determine whether
Licensee's continued operation is in conformity with Licensor's
procedures, standards, and specifications, and verify compliance
by Licensee and Licensee's employees with applicable laws and
procedures; and
5.5.2.9 Monitor (and submit to Licensor, at least
once every twelve (12) months) written reports on such forms and
at such times as Licensor may request) and, upon Licensor's
request, promptly take all steps necessary to remedy any and all
matters reasonably requested by Licensor, including:
5.5.2.9.1 Any apparent deficiencies and problems
concerning the uniformity and quality of service provided by the
Licensee;
5.5.2.9.2 Any apparent opportunities for the
Licensee to improve its performance;
5.5.2.9.3 Any apparent deviations from Licensor's
operating procedures, standards, and specifications or from
proper usage of the Marks; and
5.5.2.9.4 Any apparent violations of applicable
laws.
5.5.3 Enforcement of Agreements. Master Licensee shall
enforce each term and condition of each Development Agreement and
of each License Agreement, including timely payments, adherence
to the Manuals, correct use of the Marks, successful completion
of training, compliance with any development obligations,
adherence to site selection and construction criteria, and
compliance with operating standards. Moreover, Master Licensee
must fulfill each of its duties under each Development Agreement
and each License Agreement in a competent and timely manner.
5.5.4 Services, Products, Equipment and Programs
Developed By Master Licensee. Master Licensee hereby agrees and
affirms that any and all cleaning or laundering services,
products, equipment and/or programs, and any inventions,
discoveries, technologies, services or products related thereto,
irrespective of whether they are or are not patented or
patentable, and any sales, marketing, or promotional programs or
campaigns concerning same, which are developed by or on behalf of
Master Licensee or any Licensee in conjunction with, for use in,
arising from, or related to the business licensed hereunder, and
which in any way relate directly or indirectly to any Licensee's
System Facility or the business licensed hereunder, procedural,
technical, or commercial needs, problems, developments, or
projects, or to Master Licensee's production, research or
experimental developments and projects (collectively, "Master
Licensee-developed know-how") are hereby irrevocably and
permanently licensed to Licensor for incorporation in the System
and subsequent use by Licensor, its affiliates, and, if Licensor
determines, for use by other Master Licensees and Licensees, and
Master Licensee agrees to make prompt disclosure to Licensor of
all such inventions and discoveries.
5.5.4.1 Further, Licensor shall have the right to
apply for, obtain, and own for its sole and exclusive benefit
patents for any patentable Master Licensee-developed or Licensee-
developed know-how if Master Licensee declines to apply for and
obtain such patents. Licensor, its affiliates and its Licensees
shall not, as a consequence of Licensor's acquisition of such
license or patent rights, be liable to Master Licensee or any
Licensee in any fashion whatsoever, be it compensation or
otherwise.
5.5.4.2 If Master Licensee or any Licensee declines
to apply for and obtain patents for any patentable Master
Licensee-developed or Licensee-developed know-how, Master
Licensee agrees to, and require Licensee to, execute,
acknowledge, make, and deliver, to Licensor or its attorney
without compensation (but without expense to Master Licensee),
any and all instruments, including United States and foreign
patent applications, applications for securing, protecting, or
registering any property rights embraced within this Agreement,
powers of attorney, assignments, oaths, or affirmations,
supplemental oaths, and sworn statements, and to do any and all
lawful acts which in the judgement of Licensor or its attorney
may be necessary or desirable to vest in, or secure for, or
maintain for the benefit of Licensor adequate patent and other
property rights in the United States and all foreign countries
with respect to any and all such Master Licensee-developed or
Licensee-developed know-how, whether published or unpublished and
whether or not the subject of statutory industrial property or
copyright protection.
5.6 Other Requirements and Obligations. Master Licensee
shall comply with all other requirements and perform such other
obligations as provided hereunder.
5.7 Non-Proprietary Products. Master Licensee shall
comply, and shall require Licensees to comply, with all of
Licensor's standards and specifications relating to the purchase
of all supplies, materials, fixtures, furnishings, equipment
(including computer hardware and software), decor items, signs,
delivery vehicles (including alternative fuel vehicles), food and
beverage items and other products used or offered for sale at or
from each System Facility. Master Licensee shall require
Licensees to obtain all cleaning and laundry equipment used at
System Facilities solely from suppliers (including manufacturers,
distributors and other sources) who continue to demonstrate the
ability to meet Licensor's then-current standards and
specifications for such equipment used at or from System
Facilities and routes and who possess adequate quality controls
and capacity to supply Master Licensee's needs promptly and
reliably; and who have been approved in writing by Licensor prior
to any purchases by Master Licensee from any such supplier, and
who have not thereafter been disapproved by Licensor. If any
Licensee desires to purchase, lease or use any such equipment
from an unapproved supplier, Master Licensee shall submit to
Licensor a written request for such approval, or shall request
the supplier itself to do so. Master Licensee shall not permit
any Licensee to purchase or lease from any supplier until and
unless such supplier has been approved in writing by Licensor.
Licensor shall have the right to require that its representatives
be permitted to inspect the supplier's facilities and that
samples from the supplier be delivered, either to Licensor or to
an independent laboratory designated by Licensor for testing. A
charge not to exceed the reasonable cost of the inspection and
the actual cost of the test shall be paid by Master Licensee or
the supplier. Licensor reserves the right, at its option, to re-
inspect from time to time the facilities and products of any such
approved supplier and to revoke its approval upon the supplier's
failure to continue to meet any of Licensor's then-current
criteria. Nothing in the foregoing shall be construed to require
Licensor to approve any particular supplier.
6. MARKS
6.1 Application for the Marks. Licensor represents with
respect to the Marks that Licensor has the right to use, and to
license others to use, the Marks; Licensor has applied for, or
will apply for, registration in [Malaysia] [Brunei] for the Marks
described in Exhibit F hereto; and all other steps reasonably
necessary to preserve and protect the ownership and validity of
the Marks will be taken. Master Licensee acknowledges that
Licensor has applied for, but has not yet received, registration
of the Marks described in Exhibit F attached hereto. Master
Licensee further acknowledges and agrees that Licensor may be
unable to obtain registration of some or all of the Marks for
which registration has been made, and that Licensor shall incur
no liability to Master Licensee or any Licensee for any failure
to obtain such registration. Master Licensee acknowledges that
Licensor is the owner of all right, title and interest together
with all the goodwill in and to, the Marks, registered and
unregistered.
6.2 Non-Ownership of Marks by Master Licensee. Master
Licensee expressly understands and acknowledges that:
6.2.1 As between Licensor and Master Licensee, Licensor
is the owner of all right, title and interest in and to the Marks
and the goodwill associated with and symbolized by them.
6.2.2 Neither Master Licensee nor any Principals
shall take any action that would prejudice or interfere with the
validity of Licensor's rights with respect to the Marks. Nothing
in this Agreement shall give the Master Licensee any right,
title, or interest in or to any of the Marks or any of Licensor's
service marks, trademarks, trade names, trade dress, logos,
copyrights or proprietary materials, except the right to use the
Marks and the System in accordance with the terms and conditions
of this Agreement.
6.2.3 Master Licensee understands and agrees that any
and all goodwill arising from Master Licensee's and Licensee's
use of the Marks and the System shall inure solely and
exclusively to Licensor's benefit, and upon expiration or
termination of this Agreement and the license herein granted, no
monetary amount shall be assigned as attributable to any goodwill
associated with Master Licensee's use of the Marks.
6.2.4 Master Licensee shall not contest the validity
of Licensor's interest in the Marks or assist others to contest
the validity of Licensor's interest in the Marks.
6.2.5 Master Licensee acknowledges that any unauthorized
use of the Marks shall constitute an infringement of Licensor's
rights in the Marks and a material event of default hereunder.
Master Licensee agrees that it shall provide Licensor with all
assignments, affidavits, documents, information and assistance
Licensor reasonably requests to fully vest in Licensor all such
rights, title and interest in and to the Marks, including all
such items as are reasonably requested by Licensor to register,
maintain and enforce such rights in the Marks.
6.2.6 If it becomes advisable at any time, in the
discretion of Licensor, to modify or discontinue use of any Mark
and/or to adopt or use one (1) or more additional or substituted
Marks, then Master Licensee shall comply with any such
instruction by Licensor, and shall require each Licensee to
comply with such requirement. Master Licensee, and each of the
Licensees, shall promptly make any and all such changes to all
signage, stationery, and other items bearing the Marks, at their
respective cost and expense; provided such changes are not
required by Licensor more than one (1) time in any five-year
period. In the event any such changes are required more than one
time in any five-year period, the sole obligation of Licensor in
such event shall be to reimburse Master Licensee and the
Licensees for their documented expenses (such as changing signs,
stationery, etc.) of compliance therewith. Master Licensee
hereby waives, and Master Licensee shall require each of the
Licensees to waive, any other claim arising from or relating to
any such Mark change, modification or substitution. Except as
provided herein, Licensor shall not be liable to Master Licensee
or any Licensee for any expenses, losses or damages sustained by
Master Licensee or any Licensee as a result of any such Mark
addition, modification, substitution or discontinuation, and
Master Licensee hereby covenants not to commence or join in any
litigation or other proceeding, and to require Licensees to
covenant not to commence or join in any litigation or other
proceeding, against Licensor for any such expenses, losses or
damages.
Specifically, and without limitation to the foregoing,
Master Licensee expressly affirms and agrees that Licensor may
sell its assets, its Marks, or its System outright to a third
party; may go public; may engage in a private placement of some
or all of its securities; may merge, acquire other corporations,
or be acquired by another corporation; may undertake a
refinancing, recapitalization, leveraged buyout or other economic
or financial restructuring; and, with regard to any or all of the
above sales, assignments and dispositions, Master Licensee
expressly and specifically waives any claims, demands or damages
arising from or related to the loss of said Marks (or any
variation thereof) and/or the loss of association with or
identification of "Ecofranchising Inc." as Licensor hereunder.
6.2.7 Master Licensee agrees to assign to Licensor any
and all applications for the use of the Marks in any country in
the Territory which have been filed prior to the execution of
this Agreement.
6.3 Use and Display of Marks. With respect to Master
Licensee's licensed use of the Marks pursuant to this Agreement,
Master Licensee further agrees that:
6.3.1 Unless otherwise authorized or required by
Licensor, Master Licensee shall operate the business licensed
hereunder only under the name "Ecomat" without prefix or suffix.
Master Licensee shall not use the Marks as part of its corporate
or other legal name.
6.3.2 During the term of this Agreement, Master Licensee
shall identify itself as the master licensee in conjunction with
any use of the Marks, including, but not limited to, uses on
invoices, order forms, receipts and contracts.
6.3.3 Master Licensee shall not use the Marks to incur
any obligation or indebtedness on behalf of Licensor.
6.3.4 Master Licensee shall comply with Licensor's
instructions in filing and maintaining the requisite trade name
or fictitious name registrations, and shall execute any documents
deemed necessary by Licensor or its counsel to obtain protection
of the Marks or to maintain their continued validity and
enforceability, including, without limitation, a registered user
agreement.
6.3.5 Master Licensee shall not register, nor seek to
register any trademark or service mark using the words "Ecomat,"
any Mark, or any trademark or service mark confusingly similar
thereto, in the Territory or any other country at any time.
6.3.6 Master Licensee shall use all Marks in full
compliance with rules prescribed from time to time by Licensor in
its Manuals or otherwise. Master Licensee is prohibited (except
as expressly provided or mandated herein) from using any Mark
with any prefix, suffix, or other modifying words, terms, designs
or symbols (other than logos licensed by Licensor to Master
Licensee). In addition, Master Licensee may not use any Mark in
connection with the sale of any unauthorized program, product or
service or in any other manner not explicitly authorized in
writing by Licensor. Further, Master Licensee shall use the
Marks only for the operation of the business licensed hereunder
or in advertising for such business. Master Licensee's right to
use the Marks is limited to such uses as are authorized
hereunder, and any unauthorized use thereof shall constitute an
infringement of Licensor's rights and a material and incurable
breach of this Agreement which, unless waived by Licensor, shall
entitle Licensor to terminate this Agreement unilaterally and
immediately upon notice to Master Licensee, with no opportunity
to cure, and this Agreement shall thereafter be null, void and of
no effect (except for those post-termination and post-expiration
provisions which by their nature shall survive).
6.4 Prosecution of Infringers. Master Licensee shall
notify Licensor immediately of any apparent infringement of the
Marks, or challenge to Master Licensee's use of any Mark, or of
any claim by any person of any rights in any Mark, and Master
Licensee and the Principals shall not communicate with any person
other than Licensor or any designated affiliate thereof, their
counsel and Master Licensee's counsel in connection with any such
infringement, challenge or claim. Licensor shall have complete
discretion to take such action as it deems appropriate in
connection with the foregoing, and the right to control
exclusively, or to delegate control to any of its affiliates of,
any settlement, litigation or any proceeding arising out of any
such alleged infringement, challenge or claim or otherwise
relating to any Mark. Master Licensee agrees to execute, and to
require each Licensee to execute, any and all instruments and
documents, render such assistance, and do such acts or things as
may, in the opinion of Licensor, reasonably be necessary or
advisable to protect and maintain the interests of Licensor or
any affiliate in any litigation or other proceeding or to
otherwise protect and maintain the interests of Licensor or any
other interested party in the Marks.
6.5 Defense of Marks By Licensor. In the event that
Master Licensee or any Licensee receives notice or is informed or
learns of any claim, suit or demand against it on account of any
alleged infringement, unfair competition, or similar matter
relating to the use of the Marks, Master Licensee shall promptly
notify Licensor of any such claim, suit or demand. Thereupon,
Licensor shall promptly take such action as it may deem necessary
to protect and defend Master Licensee or any Licensee against any
such claim by any third party based solely upon any such alleged
infringement, unfair competition, or similar matter relating to
the use of the Marks, and shall indemnify Master Licensee and any
Licensee against any loss, cost or expense incurred in connection
therewith. Neither Master Licensee nor any Licensee shall settle
or compromise any such claim by a third party without the prior
written consent of Licensor. Licensor shall have the right to
defend, compromise and settle any such claim at its sole cost and
expense, using its own counsel, and Master Licensee agrees to
cooperate fully, and to require each Licensee to cooperate fully,
with Licensor in connection with the defense of any such claim.
Licensor is hereby irrevocably granted authority and is appointed
Master Licensee's and each Licensee's attorney in fact to defend
and/or settle all of such claims, demands or suits. Master
Licensee and each Licensee may participate at his own expense in
such defense or settlement, but Licensor's decisions with regard
thereto shall be final. Notwithstanding anything herein
contained to the contrary, Licensor shall have no obligation to
defend or indemnify Master Licensee or any Licensee pursuant to
this Agreement or any License Agreement, respectively, if the
claim, suit or demand against Master Licensee or any Licensee
arises out of or relates to Master Licensee's use of the Marks in
violation of the terms of this Agreement or any License
Agreement, respectively.
6.6 Nonexclusive License. The right and license of the
Marks granted hereunder to Master Licensee is nonexclusive and
Licensor and its affiliates thus have and retain the following
rights, among others, subject only to the limitations of
Section 1:
6.6.1 To grant other licenses for use of the Marks;
6.6.2 To develop and establish other systems using the
Marks or other names or marks and to grant licenses thereto
without providing any rights to Master Licensee; and
6.6.3 To engage, directly or indirectly, through its
affiliates, employees, representatives, licensees, assigns,
agents and others, at wholesale, retail or otherwise, in the
production, distribution, license and sale of products and
services, and to use in connection with such production,
distribution and sale, the Marks and any and all trademarks,
trade names, service marks, logos, insignia, slogans, emblems,
symbols, designs and other identifying characteristics as may be
developed or used from time to time by Licensor.
7. THE MANUALS; CONFIDENTIAL INFORMATION
7.1 The Manuals.
7.1.1 To protect the reputation and goodwill of Licensor
and to maintain high standards of operation under Licensor's
Marks, Master Licensee shall require each Licensee to conduct its
System Facility in accordance with the Manuals, other written
directives which Licensor may issue to Master Licensee from time
to time whether or not such directives are included in the
Manuals, and any other manuals and materials created or approved
for use in the operation of the business licensed hereunder.
Master Licensee acknowledges and agrees that the Manuals, and the
rights to use the System hereunder, relate solely to the
operation of a single System Facility, and do not contain a
description as to operation of Licensor.
7.1.2 Master Licensee may, at any time, propose to
Licensor changes in the Manuals, at its sole cost and expense, to
adapt the Manuals to the laws, customs, and market
characteristics of the countries of Malaysia and Brunei.
Licensor shall use its best efforts to review such proposed
adaptations within thirty (30) days of Licensor's submission to
Licensor. Any conversion of measurements in the Manual to the
metric system shall be made by the Master Licensee at its sole
cost and expense. Master Licensee shall not use the adapted
Manuals without Licensor's prior written approval. All
requirements of this Agreement related to the Manuals shall apply
to both the original version of the Manuals provided to Master
Licensee and any such adapted Manuals. Licensor shall furnish
one (1) copy of adapted Manuals (and approved changes thereto)
for the Malaysian and Bruneian versions of the Manuals to each
Licensee that has executed a License Agreement for each such
country.
7.1.3 Master Licensee and the Principals shall at all
times treat the Manuals, any written directives of Licensor, and
any other manuals and materials, and the information contained
therein, as confidential and shall maintain such information as
secret and confidential in accordance with this Section 7.
Master Licensee and the Principals shall not at any time copy,
duplicate, record or otherwise reproduce such materials, in whole
or in part, or otherwise make the same available to any
unauthorized person.
7.1.4 All copies of the Manuals, written directives,
other manuals and materials and any other confidential
communications provided or approved by Licensor shall at all
times remain the sole property of Licensor, and all such Manuals
and other materials shall be returned to Licensor immediately
upon request or upon termination or expiration of this Agreement.
7.1.5 The Manuals, any written directives, and any other
manuals and materials issued by Licensor and any modifications to
such materials shall supplement this Agreement.
7.1.6 Licensor may from time to time revise the contents
of the Manuals and the contents of any other manuals and
materials created or approved for use in the operation of any
System Facility. Master Licensee expressly agrees to require
each Licensee to comply with each new or changed standard.
7.1.7 Master Licensee shall at all times ensure that the
Manuals are kept current and up to date. In the event of any
dispute as to the contents of the Manuals, the terms of the
master copy of the Manuals in the English language maintained by
Licensor at Licensor's corporate office shall control.
7.1.8 The subject matter of the Manuals used in the
United States may include (but need not be limited to nor
necessarily include all of) the following matters: services,
equipment, technologies and procedures relating to the
establishment and operation of environmentally friendly
laundromat and cleaning facilities, including self-service, drop-
off services, and pickup and delivery services; components,
requirements, duties, standards, procedures, policies, systems,
techniques, guidelines and specifications pertaining to the
System and to the operation of a licensed System Facility;
services, products and programs embraced by the System and
authorized for sale by Licensees; staff composition and
organization systems; programs, procedures and guidelines;
quality assurance programs; supervision systems; recordkeeping
systems and materials; advertising and public relations systems
and materials; purchasing procedures; proprietary books,
catalogues, literature and other writings and manuals; certain
bookkeeping and accounting materials and techniques; management
and control systems; personnel qualifications; reports; forms;
display of signs and notices; authorized or required equipment,
appliances and appurtenances; hours of operation; required uses
of Marks; insurance requirements; license requirements; required
attire; required manner of offering and selling Ecomat programs,
services and products; standards of maintenance and appearance;
customer satisfaction; staff training requirements; training
specifications; and, additions to, deletions from, modifications
to and variations of the programs, services, products and other
components constituting the System, including standards and
specifications relating thereto.
7.2 Confidential Information.
7.2.1 Neither Master Licensee nor any its Principals
shall, during the term of this Agreement or thereafter,
communicate, divulge or use for the benefit of any other person,
persons, partnership, association or corporation and, following
the expiration or termination of this Agreement, they shall not
use for their own benefit, any confidential information,
knowledge or know-how concerning the methods of operation of the
business licensed hereunder which may be communicated to them or
of which they may be apprised in connection with the operation of
any System Facility under the terms of this Agreement. Master
Licensee and the Principals shall divulge such confidential
information only to such of each of Master Licensee's and each of
Licensee's employees as must have access to it in order to
operate a System Facility. Any and all information, knowledge,
know-how, techniques and any materials used in or related to the
System which Licensor provides to Master Licensee in connection
with this Agreement shall be deemed confidential for purposes of
this Agreement. Neither Master Licensee nor the Principals shall
at any time, without Licensor's prior written consent, copy,
duplicate, record or otherwise reproduce such materials or
information, in whole or in part, nor otherwise make the same
available to any unauthorized person. The covenant in this
Section shall survive the expiration, termination or transfer of
this Agreement or any interest herein and shall be perpetually
binding upon Master Licensee and each of the Principals.
Master Licensee specifically understands and affirms that
the following has been deemed to constitute confidential
information (without limitation): all products, services,
equipment, technologies and procedures relating to the
establishment and operation of environmentally friendly
laundromat and cleaning facilities, including self-service, drop-
off services, and pickup and delivery services; all systems of
operation, services, programs, products, procedures, policies,
standards, techniques, specifications and criteria which now
comprise or in the future may comprise a part of the System;
Licensor's Manuals; supplements and/or amendments to the Manuals;
records pertaining to customers or billings; methods of
advertising and promotion; customers; instructional materials;
staff composition and organization systems; quality assurance
programs; supervision systems; recommended services;
recordkeeping systems and materials; bookkeeping systems and
materials; business forms; product and service order forms;
general operations materials; revenue reports; standards of
interior and exterior design and decor; activity schedules; job
descriptions; advertising, promotional and public relations
materials, campaigns, guidelines and philosophy; specifications,
systems, standards, techniques, philosophies and materials,
guidelines, policies and procedures concerning the System;
additions to, deletions from, and modifications and variations of
the components constituting the System or the systems and methods
of operations which are now, or may in the future, be employed by
Licensor, including all standards and specifications relating
thereto and the means and manner of offering and selling same;
and, all other components, specifications, standards,
requirements and duties imposed by Licensor or its affiliates.
7.2.2 At Licensor's request, Master Licensee shall
require and obtain execution of covenants similar to those set
forth in Section 7.2.1 from any personnel of Master Licensee who
have received or will have access to confidential information or
training from Licensor. Such covenants shall be substantially in
the form set forth in Exhibit G.
8. BOOKS AND RECORDS
8.1 Financial Reports. Master Licensee shall comply, and
require Licensees to comply, with the following reporting
obligations:
8.1.1 Master Licensee shall, at Master Licensee's
expense, submit to Licensor, in the form prescribed by Licensor,
a monthly balance sheet and profit and loss statement (which may
be unaudited) for Master Licensee and each Licensee within twenty
(20) days after the end of each month during the term hereof.
Each such statement shall be signed by Master Licensee's and each
Licensee's treasurer or chief financial officer or comparable
officer attesting that it is true, complete and correct;
8.1.2 Master Licensee shall, at its expense, provide to
Licensor an unaudited complete annual financial statement of
Master Licensee and each Licensee, including a balance sheet,
profit and loss statement, statement of cash flows and statement
of financial condition. Master Licensee's annual financial
statement shall be prepared by an independent certified public
accountant satisfactory to Licensor, in accordance with generally
accepted accounting principles in Malaysia, shall be provided to
Licensor within ninety (90) days after the end of each fiscal
year of Master Licensee and each Licensee during the term hereof,
and shall show the results of operations of Master Licensee and
each Licensee during such fiscal year; and
8.1.3 Master Licensee shall also submit to Licensor, for
review or auditing, such other forms, reports, records,
information and data of Master Licensee and each Licensee as
Licensor may reasonably designate, in the form and at the times
and places reasonably required by Licensor, upon request and as
specified from time to time in writing.
8.1.4 All of Master Licensee's financial statements shall
be in the English language.
8.2 Audits. Licensor or its designees shall have the
right at all reasonable times to review, audit, examine and copy
the books and records of Master Licensee as Licensor may require,
and Master Licensee shall require each Licensee to permit
Licensor to review, audit, examine, and copy the books and
records of each Licensee.
8.3 Inconsistencies and Mistakes. Master Licensee
understands and agrees that the receipt or acceptance by Licensor
of any of the statements furnished or royalties paid to Licensor
(or the cashing of any royalty checks or the drafting of Master
Licensee's bank account for royalties due) shall not preclude
Licensor from questioning the correctness thereof at any time
and, in the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately
be rectified by the Master Licensee and the appropriate payment
shall be made by the Master Licensee.
9. ADVERTISING AND RELATED FEES
Recognizing that the System is comprised of System
Facilities, and further recognizing the importance of all such
variations to the System and the value of advertising and the
importance of the standardization of advertising programs to the
furtherance of the goodwill and public image of the System, the
parties agree as follows:
9.1 Local Advertising. Subject to any allocation of each
Licensee's expenditures for local advertising to the Cooperative
as described in Section 9.2, Master Licensee shall require each
Licensee to spend, during each month throughout the term of each
License Agreement, a minimum of three percent (3%) of the Gross
Sales (as defined in Section 2.4) of each System Facility on
advertising for such System Facility in its assigned area as such
term is defined in each License Agreement ("Local Advertising").
Master Licensee shall submit to Licensor an advertising
expenditure report accurately reflecting such expenditures by the
twentieth (20th) day of each month.
9.2 Advertising Cooperatives. Master Licensee shall have
the right, in its sole discretion, to designate any geographic
area as a region for purposes of establishing an advertising
cooperative ("Cooperative"). The members of the Cooperative for
any such area shall consist of all System Facilities in the area.
Each Cooperative shall be organized and governed in a form and
manner, and shall commence operation on a date, determined in
advance in writing by Licensor and Master Licensee. Each
Cooperative shall be organized for the exclusive purposes of
administering advertising programs and developing promotional
materials for use by the members in Local Advertising. Master
Licensee shall administer any such Cooperative as follows:
9.2.1 Master Licensee shall not require any Licensee to
contribute more than two percent (2%) of any Licensee's Gross
Sales during each month to the Cooperative unless, subject to
Licensor's approval, a majority of the Licensees which are
members of the Cooperative agree to the payment of a larger fee.
The payment of any such Cooperative fee (up to two percent (2%)
of any Licensee's monthly Gross Sales) shall be applied by Master
Licensee to any Licensee's Local Advertising requirement set
forth in Section 9.1 hereof;
9.2.2 Master Licensee shall submit to the Cooperative and
to Licensor such statements and reports as may be required by
Licensor or by the Cooperative. All contributions to the
Cooperative shall be maintained and administered in accordance
with the documents governing the Cooperative. The Cooperative
shall be operated solely as a conduit for the collection and
expenditure of the Cooperative fees for the purposes outlined
above; and
9.2.3 All advertising or promotional plans or materials
shall be used by the Cooperative or furnished to its members in
accordance with the terms of Section 9.3 hereof.
9.3 Advertising Standards and Approval. All advertising
and promotion by Master Licensee in any medium shall be conducted
in a dignified manner and shall conform to the standards and
requirements of Licensor as set forth in the Manuals or otherwise
in writing. If any advertising and promotional plans and
materials have not been prepared by Licensor or previously
approved by Licensor during the twelve (12) months prior to their
proposed use, Master Licensee shall submit such plans and
materials to Licensor. Licensor reserves the right to disapprove
the future use of any such materials on written notice to Master
Licensee. Master Licensee shall promptly discontinue use of any
advertising or promotional plans or materials, whether or not
previously approved, upon notice from Licensor. Notwithstanding
any other provision of this Section 9.3, Master Licensee shall
advise Licensor in writing prior to commencing any advertising
campaigns or programs in any portion of the Territory; shall
provide Licensor such information related thereto as Licensor
shall reasonably request; and shall obtain Licensor's prior
written approval prior to commencing any such campaign or
program.
9.4 Pricing. Each Licensee shall have the right to sell
its products and merchandise and offer services at any prices
such Licensee may determine, and shall in no way be bound by any
price which may be recommended or suggested by Licensor.
9.5 Electronic Advertising. Licensor reserves the right
to require the Master Licensee to pay Licensor up to Ten Thousand
U.S. Dollars (U.S. $10,000) for each twelve-month period within
which Master Licensee or any Licensee uses the internet or any
other form of electronic advertising in the Territory related to
the business licensed hereunder or any System Facility.
10. DEFAULT AND TERMINATION
10.1 Automatic Termination Without Notice. Master Licensee
shall be deemed to be materially in default under this Agreement
and all rights granted herein shall automatically terminate
without notice to Master Licensee (1) if Master Licensee becomes
insolvent or makes a general assignment for the benefit of
creditors or files a voluntary petition under any applicable
bankruptcy law or admits in writing its inability to pay its
debts when due; or (2) if Master Licensee is adjudicated bankrupt
or insolvent in proceedings filed against Master Licensee; or (3)
if a bill in equity or other proceeding for the appointment of a
receiver of Master Licensee or other custodian for Master
Licensee's business or assets is filed and consented to by Master
Licensee, or if a receiver or other custodian (permanent or
temporary) of Master Licensee's assets or property, or any part
thereof, is appointed by any court of competent jurisdiction; or
(4) if proceedings for a composition with creditors under any law
are instituted by or against Master Licensee; or (5) if a final
judgment against Master Licensee remains unsatisfied or of record
for thirty (30) days or longer; or (6) if Master Licensee is
dissolved; or (7) if execution is levied against Master
Licensee's business or property; or (8) if suit to foreclose any
lien or mortgage against the premises or equipment of any
business operated hereunder is instituted and not dismissed
within thirty (30) days; or (9) if the real or personal property
of any business operated hereunder shall be sold after levy by
any sheriff, marshal or constable.
10.2 Immediate Termination Upon Notice Without Opportunity
to Cure. Master Licensee shall be deemed to be materially in
default and Licensor may, at its option, terminate this Agreement
and all rights granted hereunder, without affording Master
Licensee any opportunity to cure the default except as provided
below, effective immediately upon written notice to Master
Licensee, upon the occurrence of any of the following events of
default:
10.2.1 If Master Licensee fails to execute each
License Agreement in accordance with Sections 1 and 4;
10.2.2 If Master Licensee or any of its Principals is
convicted of a serious crime, a crime involving moral turpitude
or any other crime or offense that Licensor believes is
reasonably likely to have an adverse effect on the System, the
Marks, the goodwill associated therewith or Licensor's interests
therein;
10.2.3 If a threat or danger to public health or
safety results from the construction, maintenance or operation of
any System Facility developed under any License Agreement;
10.2.4 If Master Licensee or any of its Principals
breach in any material respect any of the representations,
warranties and covenants in Section 5;
10.2.5 If a transfer or an attempt to transfer any
rights or obligations in violation of Section 11 hereof to any
third party is made without Licensor's prior written consent or
without offering Licensor a right of first refusal with respect
to such transfer;
10.2.6 If Master Licensee or any of the Principals
fails to comply with the covenants in Section 12.2 or if Master
Licensee fails to obtain the execution of the covenants required
under Section 12.8 within thirty (30) days following Licensor's
request that Master Licensee obtain the execution of such
covenants;
10.2.7 If an approved transfer upon death or permanent
disability is not effected within the time period and in the
manner prescribed by Section 11.4;
10.2.8 If Master Licensee misuses or makes any
unauthorized use of the Marks or otherwise materially impairs the
goodwill associated therewith or with the System or Licensor's
rights therein and does not cure such default within twenty-four
(24) hours following notice from Licensor;
10.2.9 If Master Licensee or any of its affiliates
fails, refuses, or neglects promptly to pay when due any monetary
obligation owing to Licensor or any of its affiliates under this
Agreement or any other agreement and does not cure such default
within thirty (30) days following notice from Licensor;
10.2.10 If Master Licensee, or any of its Principals,
repeatedly commits a material event of default under this
Agreement, whether or not such defaults are of the same or
different nature and whether or not such defaults have been cured
by Master Licensee after notice by Licensor;
10.2.11 If Master Licensee makes a willful
misrepresentation or fails to make a material disclosure required
by any governmental authority regarding any matter involving or
affecting Master Licensee's obligations under this Agreement;
10.2.12 If Master Licensee interferes or attempts to
interfere with Licensor's contractual relations with other
licensees, clients, employees, advertising agencies or any third
parties;
10.2.13 If Master Licensee interferes or attempts to
interfere with Licensor's ability or right to franchise or
license others to use and employ Licensor's Marks and System;
10.2.14 If Master Licensee, in an unauthorized fashion,
utilizes or duplicates any aspect of Licensor's System, business,
services, programs or products;
10.2.15 If, contrary to the terms of Section 7 hereof,
Master Licensee or any of the Principals discloses or divulges
any confidential information provided to Master Licensee or the
Principals by Licensor; or
10.2.16 If Master Licensee knowingly maintains false
books or records, or submits any false reports to Licensor.
10.3 Termination Upon Notice With Opportunity to Cure.
Except as provided above in Section 10.2, if Master Licensee
fails to comply with any other term or condition imposed by this
Agreement, Licensor may terminate this Agreement only by giving
written notice of termination stating the nature of such default
to Master Licensee at least thirty (30) days prior to the
effective date of termination; provided, however, that Master
Licensee may avoid termination by immediately initiating a remedy
to cure such default and curing it to Licensor's satisfaction
within the thirty (30) day period and by promptly providing proof
thereof to Licensor. If any such default is not cured within the
specified time, this Agreement shall terminate Master Licensee's
rights under this Agreement without further notice to Master
Licensee effective immediately upon the expiration of the thirty
(30) day period. Defaults which are susceptible of cure
hereunder may include, but are not limited to, the following
illustrative events:
10.3.1 If Master Licensee fails to comply with any of
the requirements imposed by this Agreement (except for Master
Licensee's failure to meet the Development Schedule), as it may
from time to time be amended or reasonably be supplemented by
Licensor, or fails to carry out the terms of this Agreement in
good faith;
10.3.2 If Master Licensee fails to fulfill promptly all
its obligations, fails to promptly to require each Licensee or
Developer to fulfill all its obligations, or fails to enforce all
the terms and conditions, under each License Agreement and
Development Agreement;
10.3.3 If Master Licensee fails to maintain or observe
any of the standards, specifications or procedures prescribed by
Licensor in this Agreement or otherwise in writing;
10.3.4 If Master Licensee fails, refuses, or neglects
to obtain Licensor's prior written approval or consent as
required by this Agreement;
10.3.5 If Master Licensee or any of its Principals
engages in any business or markets any service or product under a
name or mark which, in Licensor's opinion, is confusingly similar
to Licensor's Proprietary Marks;
10.3.6 If Master Licensee fails to pay any obligations
to any third parties which may result in liability to Licensor;
10.3.7 If Master Licensee fails to indemnify Licensor
as required by this Agreement;
10.3.8 If Master Licensee fails, for a period of ten
(10) calendar days after notification of non-compliance, to
comply with any national or local law or regulation applicable to
Master Licensee's obligations under this Agreement or the
operation of any System Facilities; or
10.3.9 If Master Licensee, by act or omission, permits
a continued violation in connection with the performance of his
obligations hereunder or the operation of any of the System
Facilities of any law, ordinance, rule or regulation of a
governmental agency in the absence of a good faith dispute over
its application or legality and without promptly resorting to an
appropriate administrative or judicial forum for relief
therefrom.
10.4 Cross-Default. Licensor shall have the right, at its
option, to terminate this Agreement immediately on notice to
Master Licensee in the event of a default by Master Licensee
under any other agreement between Licensor or any of its
affiliates and Master Licensee or any of its affiliates, for
which such agreement has been terminated or for which such
agreement is subject to termination by its terms.
10.5 Post-Termination. Upon termination or expiration of
this Agreement, all rights granted hereunder to Master Licensee
shall forthwith terminate, and:
10.5.1 Upon the termination or expiration of this
Agreement, Master Licensee shall have no right to enter into a
License Agreement for any System Facility for which a License
Agreement has not been executed by Master Licensee and a
Licensee, and been delivered to Licensor at the time of
termination or expiration.
10.5.2 Master Licensee shall immediately and
permanently cease to use, in any manner whatsoever, any
confidential methods, computer software, procedures, and
techniques associated with the System; the mark "Ecomat"; and all
other Marks and distinctive forms, slogans, signs, symbols, and
devices associated with the System. In particular, Master
Licensee shall cease to use, without limitation, all signs,
advertising materials, displays, stationery, forms, and any other
articles which display the Marks.
10.5.3 Master Licensee shall take such action as may be
necessary to cancel any assumed name or equivalent registration
which contains the mark "Ecomat" or any other service mark or
trademark of Licensor, and Master Licensee shall furnish Licensor
with evidence satisfactory to Licensor of compliance with this
obligation within five (5) days after termination or expiration
of this Agreement.
10.5.4 Master Licensee agrees, in the event it
continues to operate or subsequently begins to operate any other
business, not to 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
Licensor's rights in and to the Marks, and further agrees not to
utilize any designation of origin or description or
representation which falsely suggests or represents an
association or connection with Licensor constituting unfair
competition.
10.5.5 Master Licensee and its Principals shall
promptly pay all sums owing to Licensor and its affiliates. Such
sums shall include all damages, costs and expenses, including
reasonable attorneys' fees, incurred by Licensor as a result of
any default by Master Licensee, which obligation shall give rise
to and remain, until paid in full, a lien in favor of Licensor
against any and all of the personal property, furnishings,
equipment, signs, fixtures, and inventory owned by Master
Licensee.
10.5.6 Master Licensee shall immediately transfer to
Licensor all Master Licensee's rights and obligations in all
License Agreements and Development Agreements, and shall execute,
and, upon Licensor's request, require any Licensee or Developer
to execute, all documents reasonably required by Licensor in
connection with such transfer in a form satisfactory to Licensor.
10.5.7 Master Licensee and its Principals shall pay to
Licensor all damages, costs and expenses, including reasonable
attorneys' fees, incurred by Licensor in connection with
obtaining any remedy available to Licensor for any violation of
this Agreement and, subsequent to the termination or expiration
of this Agreement, in obtaining injunctive or other relief for
the enforcement of any provisions under this Agreement.
10.5.8 Master Licensee shall immediately deliver to
Licensor all Manuals, records, files, instructions,
correspondence, any computer hardware and software licensed by
Licensor, all materials related to operating any System Facility,
including, without limitation, agreements, invoices, and any and
all other materials relating to the operation of such facilities
in Master Licensee's possession or control, and all copies
thereof (all of which are acknowledged to be Licensor's
property), and shall retain no copy or record of any of the
foregoing, except Master Licensee's copy of this Agreement and of
any correspondence between the parties and any other documents
which Master Licensee reasonably needs for compliance with any
provision of law.
10.5.9 Master Licensee and its Principals shall comply
with the restrictions on confidential information contained in
Section 7 of this Agreement and shall also comply with the non-
competition covenants contained in Section 12. Any other person
required to execute similar covenants pursuant to Section 12.8
shall also comply with such covenants.
10.5.10 Master Licensee shall also immediately furnish
Licensor an itemized list of all advertising and sales promotion
materials bearing the Marks or any of Licensor's distinctive
markings, designs, labels, or other marks thereon. Licensor
shall have the right to inspect these materials. Licensor shall
have the option, exercisable within thirty (30) days after such
inspection, to purchase any or all of the materials at Master
Licensee's cost. Materials not purchased by Licensor shall not
be utilized by Master Licensee or any other party for any purpose
unless authorized in writing by Licensor.
10.6 Licensor's Rights. If Licensor terminates this
Agreement in accordance with this Section 10, Licensor shall be
entitled to establish, and to license others to establish, System
Facilities in the Territory, except as may be otherwise provided
under any License Agreement which is then in effect.
10.7 No Waiver. Licensor's exercise of any of its rights
hereunder shall not, in the event of a default, constitute a
waiver by Licensor to exercise its option to terminate this
Agreement at any time with respect to a subsequent event of
default of a similar or different nature.
10.8 No Exclusion. No right or remedy herein conferred upon
or reserved to Licensor is exclusive of any other right or remedy
provided or permitted by law or in equity.
11. TRANSFER OF INTEREST
11.1 Transfer by Licensor. Licensor shall have the right to
transfer or assign this Agreement and all or any part of its
rights or obligations herein to any person or legal entity;
provided, however, that Licensor make such transfer or assignment
only if Licensor reasonably believes that such person or legal
entity is capable of performing the rights and obligations of
Licensor transferred or assigned under this Agreement.
Specifically, and without limitation of the foregoing, Master
Licensee agrees that Licensor may sell its assets, the Marks or
the System to a third party; may offer its securities privately
or publicly; may merge, acquire other corporations, or be
acquired by another corporation; may undertake a refinancing,
recapitalization, leveraged buyout or other economic or financial
restructuring; and, with regard to any or all of the above sales,
assignments and dispositions, Master Licensee expressly and
specifically waives any claims, demands or damages against
Licensor arising from or related to the transfer of the Marks (or
any variation thereof) or the System from Licensor to any other
party. Nothing contained in this Agreement shall require
Licensor to remain in the business of operating or licensing the
operation of System Facilities or other facilities or to offer
any services or products, whether or not bearing the Marks, to
Master Licensee, if Licensor assigns its rights in this
Agreement.
11.2 Transfer by Master Licensee.
11.2.1 Master Licensee and its Principals understand
and acknowledge that the rights and duties set forth in this
Agreement are personal to Master Licensee and that Licensor has
granted such rights in reliance on the business skill, financial
capacity and personal character of Master Licensee and its
Principals. Accordingly, neither Master Licensee nor any
Principal, nor any successor or assign of Master Licensee or any
Principal, shall sell, assign, transfer, convey, give away,
pledge, mortgage or otherwise dispose of or encumber any direct
or indirect interest in this Agreement, in Master Licensee, or
any interest of Master Licensee in any License Agreement, or
permit any transfer under any License Agreement by any Licensee
or person with an interest in Licensee, without the prior written
consent of Licensor. Any purported assignment or transfer, by
operation of law or otherwise, made in violation of this
Agreement shall be null and void and shall constitute a material
event of default under this Agreement.
11.2.2 If Master Licensee wishes to transfer any such
interest described in Section 11.2.1 requiring Licensor's
consent, Master Licensee and the proposed transferee shall apply
to Licensor for its consent. Licensor shall not unreasonably
withhold its consent to any such transfer. Licensor may,
however, in its sole discretion, require any or all of the
following as conditions of its approval to any such transfer:
11.2.2.1 All the accrued monetary obligations of
Master Licensee and its affiliates and all other outstanding
obligations to Licensor and its affiliates arising under this
Agreement or any other agreement shall have been satisfied in a
timely manner and Master Licensee shall have satisfied all trade
accounts and other debts, of whatever nature or kind, in a timely
manner;
11.2.2.2 Master Licensee and its affiliates shall not
be in default of any provision of this Agreement, any amendment
hereof or successor hereto, or any other agreement between Master
Licensee or any of its affiliates and Licensor or any of its
affiliates, and Master Licensee shall have substantially and
timely complied with all the terms and conditions of such
agreements during the terms thereof;
11.2.2.3 The transferor and its principals, as
applicable, shall have executed a general release, in a form
satisfactory to Licensor, of any and all claims, against
Licensor, its affiliates, and the respective officers, directors,
shareholders, partners, agents, representatives, independent
contractors, servants and employees of each of them, in their
corporate and individual capacities, including, without
limitation, claims arising under this Agreement, and any other
agreement between Master Licensee and Licensor or any of its
affiliates or under national or local laws, rules, regulations or
orders;
11.2.2.4 The transferee shall demonstrate to
Licensor's satisfaction that transferee meets the criteria
considered by Licensor when reviewing a prospective Master
Licensee's application for master license rights, including, but
not limited to, Licensor's educational, managerial and business
standards, transferee's good moral character, business reputation
and credit rating, transferee's aptitude and ability to conduct
the business contemplated hereunder (as may be evidenced by prior
related business experience or otherwise), transferee's financial
resources and capital for operation of the business licensed
hereunder;
11.2.2.5 The transferee shall enter into a written
agreement, in a form satisfactory to Licensor, assuming full,
unconditional, joint and several, liability for and agreeing to
perform from the date of the transfer, all obligations, covenants
and agreements contained in this Agreement; and such of
transferee's principals as Licensor may designate shall execute
such agreement as transferee's Principals and guarantee the
performance of all such obligations, covenants and agreements;
11.2.2.6 The transferee shall execute the standard
form master license agreement then being offered to new System
master licensees or a revised form of this Agreement, as Licensor
deems appropriate, and such other ancillary agreements as
Licensor may require, all of which shall be adapted for use under
Malaysian law and in accordance with this Agreement and which
agreements shall supersede this Agreement and its ancillary
documents in all respects and the terms of which agreements may
differ from the terms of this Agreement, (except that the
Development Schedule shall remain the same), and such of
transferee's principals as Licensor may designate as Principals
shall execute such agreements as transferee's Principals and
guarantee the performance of all such obligations, covenants and
agreements;
11.2.2.7 The transferor shall remain liable for all of
the obligations to Licensor in connection with this Agreement
incurred prior to the effective date of the transfer and shall
execute any and all instruments reasonably requested by Licensor
to evidence such liability;
11.2.2.8 Master Licensee shall pay to Licensor a
transfer fee of Five Thousand U.S. Dollars (U.S. $5,000) to
reimburse Licensor for its reasonable costs and expenses
associated with reviewing the application to transfer, including,
without limitation, legal and accounting fees;
11.2.2.9 The transferee shall make and will be bound
by any or all of the representations, warranties and covenants
set forth at Section 5 as Licensor requests. Transferee shall
provide to Licensor evidence satisfactory to Licensor that the
terms of such Section 5 have been satisfied and are true and
correct on the date of transfer;
11.2.2.10 The transferor shall furnish to Licensor a
copy of the executed contract of assignment; and
11.2.2.11 The transferor shall remain liable for all
the obligations to Licensor arising out of or related to this
Agreement prior to the effective date of the transfer or
assignment, and shall execute all instruments reasonably
requested by Licensor to evidence such liability.
11.2.3 Master Licensee acknowledges and agrees that
each condition which must be met by the transferee is reasonable
and necessary to assure such transferee's full performance of the
obligations hereunder.
11.2.4 Master Licensee agrees to defend at its own cost
and to indemnify and hold harmless Licensor, its corporate
parent, and the subsidiaries, affiliates, designees,
shareholders, directors, officers, employees and agents of either
entity, from and against any and all losses, costs, expenses
(including attorneys' and experts' fees), court costs, claims,
demands, damages, liabilities, however caused (whether or not
such losses, costs, expenses, court costs, claims, demands,
damages or liabilities are reduced to prejudgment), resulting
directly or indirectly from or pertaining to any statements,
representations or warranties that may be given by Master
Licensee or any of the Master Licensee's Principals to any
proposed assignee of the license.
11.3 Right of First Refusal.
11.3.1 If Master Licensee wishes to transfer all or
part of its interest in this Agreement or if Master Licensee or a
Principals wishes to transfer any ownership interest in Master
Licensee, pursuant to any bona fide offer received from a third
party to purchase such interest, then such proposed seller shall
promptly notify Licensor in writing of each such offer, and shall
provide such information and documentation relating to the offer
as Licensor may require. Licensor shall have the right and
option, exercisable within thirty (30) days after receipt of such
written notification, to send written notice to the transferor
that Licensor intends to purchase the transferor's interest on
the same terms and conditions offered by the third party. In the
event that Licensor elects to purchase the transferor's interest,
closing on such purchase must occur within sixty (60) days from
the date of notice to the transferor of the election to purchase
by Licensor, or such other date the parties agree upon in
writing. Any material change in the terms of any offer prior to
closing shall constitute a new offer subject to the same right of
first refusal by Licensor as in the case of an initial offer.
Failure of Licensor to exercise the option afforded by this
Section 11.3.1 shall not constitute a waiver of any other
provision of this Agreement, including all of the requirements of
this Section 11 relating to a proposed transfer.
11.3.2 In the event an offer from a third party
provides for payment of consideration other than cash or involves
certain intangible benefits, Licensor may elect to purchase the
interest proposed to be sold for the reasonable cash equivalent.
If the parties cannot agree within a reasonable time on the
reasonable cash equivalent of the non-cash part of the offer,
then such amount shall be determined by two (2) appraisers, with
each party selecting one (1) appraiser, and the average of their
determinations shall be final and binding. In the event of such
appraisal, each party shall bear its own legal and other costs
and shall split the appraisal fees. In the event that Licensor
exercises its right of first refusal herein provided, it shall
have the right to set off against any payment therefor (i) all
fees for any such independent appraiser due from Master Licensee
hereunder and (ii) all amounts due from Master Licensee to
Licensor or any of its affiliates.
11.3.3 Failure to comply with the provisions of this
Section 11.3 prior to the transfer of any interest in Master
Licensee or in this Agreement shall constitute a material event
of default under this Agreement.
11.4 Transfer Upon Death or Incapacity.
11.4.1 Upon the death of any Principal who is a natural
person and who has an interest in Master Licensee (the
"Deceased"), the executor, administrator or other personal
representative of the Deceased shall transfer such interest to a
third party in accordance with the conditions described in this
Section 11.4 within twelve (12) months after the death. If no
personal representative is designated or appointed or no probate
proceedings are instituted with respect to the estate of the
Deceased, then the distributee of such interest must be approved
by Licensor. If the distributee is not approved by Licensor,
then the distributee shall transfer such interest to a third
party approved by Licensor within twelve (12) months after the
death of the Deceased.
11.4.2 Upon the permanent disability of any Principal
who is a natural person and who has an interest in Master
Licensee, Licensor may, in its sole discretion, require such
interest to be transferred to a third party in accordance with
the conditions described in this Section 11.4.2 within six (6)
months after notice to Master Licensee. "Permanent disability"
shall mean any physical, emotional or mental injury, illness or
incapacity which would prevent a person from performing the
obligations set forth in this Agreement or in the guaranty made
part of this Agreement for at least ninety (90) consecutive days
and from which condition recovery within ninety (90) days from
the date of determination of disability is unlikely. Permanent
disability shall be determined upon examination of the person by
a licensed practicing physician selected by Licensor; or if the
person refuses to submit to an examination, then such person
shall be automatically deemed permanently disabled as of the date
of such refusal for the purpose of this Section 11.4.2. The
costs of any examination required by this Section shall be paid
by Licensor.
11.4.3 Upon the death or claim of permanent disability
of Master Licensee or any Principals, Master Licensee or a
representative of Master Licensee, must promptly notify Licensor
of such death or claim of permanent disability. Any transfer
upon death or permanent disability shall be subject to the same
terms and conditions as described in this Section 11 for any
inter vivos transfer. If an interest is not transferred upon
death or permanent disability as required in this Section 11.4,
then such failure shall constitute a material event of default
under this Agreement.
11.5 No Waiver. Licensor's consent to a transfer of any
interest described herein shall not constitute a waiver of any
claims which Licensor may have against the transferring party,
nor shall it be deemed a waiver of Licensor's right to demand
exact compliance with any of the terms of this Agreement by the
transferee.
11.6 Public Offerings. Securities of or partnership
interests in Master Licensee may be offered to the public, by
private offering or otherwise, only with the prior written
consent of Licensor which consent shall not be unreasonably
withheld. All materials required for such offering by applicable
law shall be submitted to Licensor for a limited review as
discussed below prior to being filed with any governmental
agency; and any materials to be used in any exempt offering shall
be submitted to Licensor for such review prior to their use. No
offering by Master Licensee shall imply (by use of the Marks or
otherwise) that Licensor is participating in an underwriting,
issuance or offering of Master Licensee's or Licensor's
securities or the securities of any affiliate of Licensor; and
Licensor's review of any offering materials shall be limited
solely to the subject of the relationship between Master Licensee
and Licensor and its affiliates. Licensor may, at its option,
require Master Licensee's offering materials to contain a written
statement prescribed by Licensor concerning the limitations
described in the preceding sentence. Master Licensee, its
Principals and the other participants in the offering must fully
indemnify Licensor and its affiliates, their respective partners,
and the officers, directors, shareholders, partners, agents,
representatives, independent contractors, servants and employees
of each of them, in connection with the offering. For each
proposed offering, Master Licensee shall pay to Licensor a
nonrefundable fee of Five Thousand U.S. Dollars (U.S. $5,000), or
such greater amount as is necessary to reimburse Licensor for its
reasonable costs and expenses associated with reviewing the
proposed offering materials, including, without limitation, legal
and accounting fees. Master Licensee shall give Licensor written
notice at least thirty (30) days prior to the date of
commencement of any offering or other transaction covered by this
Section.
11.7 No Encumbrance. Master Licensee shall not have the
right to pledge, encumber, hypothecate or otherwise give any
third party a security interest in this Agreement, the license
conveyed hereunder or the licensed Business in any manner
whatsoever without the prior written permission of Licensor,
which permission may be withheld for any reason whatsoever in
Licensor's sole subjective judgment.
12. COVENANTS
12.1 Management and Operation of Development Activities.
Master Licensee and its Principals covenant that during the term
of this Agreement, except as otherwise approved in writing by
Licensor, Master Licensee and the Principals shall devote full
energy and best efforts to the management and operation of the
development activities contemplated under this Agreement.
12.2 In-Term Covenant Against Competition. Master Licensee
and the Principals specifically acknowledge that, pursuant to
this Agreement, Master Licensee has the right and the obligation
to develop the Territory for the benefit of the System and, in
connection therewith, that Master Licensee and the Principals
will receive valuable training, trade secrets and confidential
information which are beyond the present skills and experience of
Master Licensee and the Principals and Master Licensee's managers
and employees. Master Licensee and the Principals acknowledge
that such specialized training, trade secrets and confidential
information provide a competitive advantage and will be valuable
to them in the development and operation of the System Facilities
and that gaining access to such specialized training, trade
secrets and confidential information is, therefore, a primary
reason for entering into this Agreement. In consideration for
such specialized training, trade secrets, confidential
information and rights, Master Licensee and the Principals
covenant that with respect to Master Licensee, during the term of
this Agreement (or with respect to each of the Principals, during
the term of this Agreement for so long as such individual or
entity satisfies the definition of "Principals" as defined in
Section 17.5 of this Agreement) except pursuant to valid License
Agreements with Master Licensee or as otherwise approved in
writing by Licensor, neither Master Licensee nor any of the
Principals shall, either directly or indirectly, for themselves
or through, on behalf of or in conjunction with any person(s),
partnership or corporation:
12.2.1 Divert, or attempt to divert, any business or
customer of the business described hereunder 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 and the System.
12.2.2 Employ, or seek to employ, any person who is at
that time or was within the preceding one hundred twenty (120)
days employed by Licensor or by any other Licensee or Master
Licensee of Licensor, or otherwise directly or indirectly induce
such person to leave that person's employment, except as may be
permitted under any existing master license agreement, operating
agreement, or license agreement between Licensor and Master
Licensee.
12.2.3 Own, maintain, operate, engage in or have any
financial or beneficial interest in (including any interest in
corporations, partnerships, trusts, unincorporated associations
or joint ventures), advise, assist or make loans to, any business
located within the Territory, or any other country, province,
state or geographic area in which Licensor has used, sought
registration of or registered the same or similar Marks or
operates or licenses others to operate a business under the same
or similar Marks, which business is of a character and concept
similar to the System Facilities, including any business which
operates or franchises laundromats or cleaning establishments
that provide self-service, drop-off or pickup and delivery
laundry services or drop-off or pickup and delivery cleaning
services for garments and other fabrics, whether such business
utilizes environmentally sound laundry or cleaning techniques or
traditional laundry or dry-cleaning techniques.
12.3 Post-Term Covenant Against Competition. With respect
to Master Licensee, and for a continuous uninterrupted period
commencing upon the expiration, termination, or transfer of all
of Master Licensee's interest in, this Agreement (or with respect
to each of the Principals, commencing upon the earlier of:
(i) the expiration, termination, or transfer of all of Master
Licensee's interest in this Agreement or (ii) the time such
individual or entity ceases to satisfy the definition of
"Principals" as described in Section 17.5 of this Agreement), and
continuing for two (2) years thereafter, except pursuant to valid
License Agreements with Master Licensee or as otherwise approved
in writing by Licensor, neither Master Licensee nor any of the
Principals shall, directly or indirectly, for themselves or
through, on behalf of or in conjunction with any person, persons,
partnership or corporation:
12.3.1 Divert, or attempt to divert, any business or
customer of the business described hereunder 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 Licensor's Marks and the System.
12.3.2 Employ, or seek to employ, any person who is at
that time or was within the preceding one hundred twenty (120)
days employed by Licensor or by any other Licensee or Master
Licensee of Licensor, or otherwise directly or indirectly induce
such person to leave that person's employment, except as may be
permitted under any existing master license agreement, operating
agreement, or license agreement between Licensor and Master
Licensee.
12.3.3 Own, maintain, operate, engage in or have any
financial or beneficial interest in (including any interest in
corporations, partnerships, trusts, unincorporated associations
or joint ventures), advise, assist or make loans to, any business
that is of a character and concept similar to the System
Facilities, including any business which operates or franchises
laundromats or cleaning establishments that provide self-service,
drop-off or pickup and delivery laundry services or drop-off or
pickup and delivery cleaning services for garments and other
fabrics, whether such business utilizes environmentally sound
laundry or cleaning techniques or traditional laundry or dry-
cleaning techniques, as of the earlier of: (i) the expiration,
termination or the transfer of all of Master Licensee's interest
in, this Agreement; or (ii) the time such Principals ceases to
satisfy the definition of a Principals, as applicable, which
business is, or is intended to be, located within:
12.3.3.1 the Territory; or
12.3.3.2 a three (3)-mile radius of any System Facility in
existence or under construction.
12.4 Competitive Business. Master Licensee and the
Principals are prohibited from engaging in any such competitive
business described in Sections 12.2 and 12.3 hereof, as a
proprietor, partner, investor, shareholder, director, officer,
employee, principal, agent, adviser, or consultant thereof. It
is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as
consultation for competitive businesses, service as an
independent contractor for such competitive businesses, or any
assistance or transmission of information of any kind or nature
whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent Master Licensee or the
Principals from owning for investment purposes up to an aggregate
of five (5%) percent of the capital stock of any such competitive
business, provided that said business is a publicly held
corporation, and provided that Master Licensee does not control
any such company. A "publicly held corporation" for purposes of
this Agreement shall mean any corporation which has securities
registered with any national or regional securities exchange or
traded through or on any national or regional securities
association in the Territory.
It is the intention of this provision that any person or
entity having any legal or beneficial interest in or traceable
to, down or through Master Licensee or the Principals be bound by
the provisions of the covenants in Sections 12.2 and 12.3 hereof,
including (without limitation) the spouse, brother,
brother-in-law, sister, sister-in-law, parents, parents-in-law,
child, son-in-law or daughter-in-law of Master Licensee or any of
the Principals; any direct or indirect beneficiary; any partner
(general or limited) or proprietor of Master Licensee; and, any
other such related person or entity, regardless of how many
levels or tiers there may be between any such described person or
entity and Master Licensee.
12.5 Lesser Included Covenants Enforceable at Law. The
parties acknowledge and agree that each of the covenants
contained herein are reasonable limitations as to time,
geographical area, and scope of activity to be restrained and do
not impose a greater restraint than is necessary to protect the
goodwill or other business interests of Licensor. The parties
agree that each of the covenants herein 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 12 is held
unreasonable or unenforceable by a court or agency having valid
jurisdiction in an unappealed final decision to which Licensor is
a party, Master Licensee and the Principals expressly agree to be
bound by any lesser covenant subsumed within the terms of such
covenant that imposes the maximum duty permitted by law, as if
the resulting covenant were separately stated in and made a part
of this Section 12.
12.6 Reduction of Scope by Licensor. Master Licensee and
the Principals understand and acknowledge that Licensor shall
have the right, in its sole discretion, to reduce the scope of
any covenant set forth in Sections 12.2, 12.3, and 12.4 hereof,
or any portion thereof, without their consent, effective
immediately upon notice to Master Licensee; and Master Licensee
and the Principals agree that they shall comply forthwith with
any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 18.1.
12.7 Claims no Defense; Costs and Expenses of Enforcement.
Master Licensee and the Principals expressly agree that the
existence of any claims they may have against Licensor, whether
or not arising from this Agreement, shall not constitute a
defense to the enforcement by Licensor of the covenants in this
Section. Master Licensee and the Principals agree to pay all
costs and expenses (including reasonable attorneys' fees)
incurred by Licensor in connection with the enforcement of this
Section 12.
12.8 Execution of Similar Covenants. At Licensor's request,
Master Licensee shall require and obtain the execution of
covenants similar to those set forth in Sections 12.2, 12.3, and
12.4 (including covenants applicable upon the termination of a
person's employment with Master Licensee) from any personnel of
Master Licensee who have received or will have access to
confidential information or training from Licensor. Such
covenants shall be substantially in the form set forth in
Exhibit G. Notwithstanding the foregoing, Licensor reserves the
right, in its sole discretion, to decrease the period of time or
geographic scope of the noncompetition covenant set forth in
Exhibit G or eliminate such noncompetition covenant altogether
for any party that is required to execute such agreement under
this Section 12.8.
12.9 Enforcement of Covenants. Master Licensee and the
Principals acknowledge that any failure to comply with the
requirements of this Section shall constitute a material event of
default under this Agreement. Master Licensee and the Principals
acknowledge that a violation of this Section would result in
irreparable injury to Licensor for which no adequate remedy at
law may be available, and Master Licensee and the Principals
accordingly consent to the issuance of an injunction prohibiting
any conduct by Master Licensee or the Principals in violation of
the terms of this Section. Master Licensee and the Principals
agree to pay all court costs and reasonable attorneys' fees
incurred by Licensor in connection with the enforcement of this
Section, including payment of all costs and expenses for
obtaining specific performance, injunctive relief or any other
remedy available to Licensor for any violation of the
requirements of this Section.
12.10 In the event of any violation of Section 7.2 hereof or
this Section 12, or of any agreement described in such sections,
the parties hereto agree that Licensor will be damaged and that,
at the time of execution of this Agreement, damages are difficult
to estimate. Accordingly, Licensor and Master Licensee agree
that in the event that Master Licensee violates Section 7.2 or
this Section 12 hereof, or any of Master Licensee's or any of
Licensee's employees, officers, directors, or managers who have
executed Confidentiality Agreement and Ancillary Covenants Not to
Compete, violate any such agreement, or any Licensee or Developer
violates a comparable provision in a License Agreement, Master
Licensee shall pay Fifty Thousand U.S. dollars (U.S. $50,000) to
Licensor as liquidated damages, and not as a penalty, for such
breach. Nothing herein shall bar Licensor from obtaining
injunctive relief or such additional damages as Licensor may
demonstrate it is entitled.
13. INDEPENDENT CONTRACTOR; INDEMNIFICATION; THIRD PARTY RIGHTS
13.1 Relationship of the Parties. The parties acknowledge
and agree that this Agreement does not create a fiduciary
relationship between them, that Master Licensee shall be an
independent contractor and that nothing in this Agreement is
intended to constitute either party an agent, legal
representative, subsidiary, joint venturer, partner, employee,
joint employer or servant of the other for any purpose.
13.2 Notice to Public. During the term of this Agreement,
Master Licensee shall hold itself out to the public as an
independent contractor conducting its operations pursuant to
master license rights and obligations granted by Licensor.
Master Licensee agrees to take such action as shall be necessary
to that end, including, without limitation, exhibiting a notice
of that fact in a conspicuous place at the premises of Master
Licensee's licensed business, the content and form of which
Licensor reserves the right to specify in writing.
13.3 No Ability to Bind or Impose Liability on Licensor.
Master Licensee understands and agrees that nothing in this
Agreement authorizes Master Licensee or any of the Principals to
make any contract, agreement, warranty or representation on
Licensor's behalf, or to incur any debt or other obligation in
Licensor's name and that Licensor shall in no event assume
liability for, or be deemed liable under this Agreement as a
result of, any such action, or for any act or omission of Master
Licensee or any of the Principals or any claim or judgment
arising therefrom.
13.4 Indemnification.
13.4.1 Master Licensee and each of the Principals
shall, at all times, indemnify and hold harmless to the fullest
extent permitted by law Licensor, its affiliates, successors and
assigns, and the respective officers, directors, shareholders,
partners, agents, representatives, independent contractors,
independent contractors, servants and employees of each of them
("Indemnitees") from all "losses and expenses" (as defined in
this Section 13.4 below) incurred in connection with any action,
suit, proceeding, claim, demand, investigation or inquiry (formal
or informal), or any settlement thereof (whether or not a formal
proceeding or action has been instituted) which arises out of or
is based upon any of the following:
13.4.1.1 The infringement, alleged infringement, or
any other violation or alleged violation by Master Licensee or an
Licensee or any of their Principals of any patent, mark,
copyright or other proprietary right owned or controlled by third
parties (except as such may occur with respect to any right to
use the Marks, any copyrights or other proprietary information
granted to Master Licensee or a Licensee hereunder or under a
License Agreement);
13.4.1.2 The violation, breach or asserted violation
or breach by Master Licensee, any of its Principals, any
Licensee, or any principals of any Licensee of any national or
local law, regulation, ruling, standard or directive, or any
industry standard;
13.4.1.3 Libel, slander or any other form of defama
tion of Licensor, the System, or any Master Licensee or Licensee
operating under the System, by Master Licensee, any of its
Principals, any Licensee, or any principals of any Licensee;
13.4.1.4 The violation or breach by Master Licensee,
any of the Principals, any Licensee, or any principals of
Licensee, of any warranty, representation, agreement or
obligation in this Agreement or in any License Agreement or other
agreement between Master Licensee or any of its affiliates and
Licensor or any of its affiliates, or the respective officers,
directors, shareholders, partners, agents, representatives,
independent contractors, servants and employees of any of them;
and
13.4.1.5 Acts, errors or omissions of Master Licensee
or any Licensee, any of Master Licensee's or any Licensee's
affiliates, any of the Principals and the officers, directors,
shareholders, partners, agents, representatives, independent
contractors, servants and employees of each of them in connection
with the performance of the activities contemplated under this
Agreement or the establishment and operation of any System
Facility pursuant to a License Agreement.
13.4.2 Master Licensee and each of the Principals agree
to give Licensor immediate notice of any such action, suit,
proceeding, claim, demand, inquiry or investigation. At the
expense and risk of Master Licensee and each of the Principals,
Licensor may elect to assume (but under no circumstance is
obligated to undertake), associate counsel of its own choosing
with respect to, the defense and/or settlement of any such
action, suit, proceeding, claim, demand, inquiry or investi
gation. Such an undertaking by Licensor shall, in no manner or
form, diminish the obligation of Master Licensee and each of the
Principals to indemnify the Indemnitees and to hold them
harmless.
13.4.3 In order to protect persons or property or its
reputation or goodwill, or the reputation or goodwill of others,
Licensor may, at any time and without notice, as it, in its
judgment deems appropriate, consent or agree to settlements or
take such other remedial or corrective action as it deems expedi
ent with respect to the action, suit, proceeding, claim, demand,
inquiry or investigation if, in Licensor's sole judgment, there
are reasonable grounds to believe that:
13.4.3.1 any of the acts or circumstances enumerated
in Section 13.4.3 above has occurred; or
13.4.3.2 any act, error or omission as described in
Section 13.4.3 may result directly or indirectly in damage,
injury or harm to any person or any property.
13.4.3.3 All losses and expenses incurred under this
Section 13 shall be chargeable to and paid by Master Licensee or
any of the Principals pursuant to its obligations of indemnity
under this Section, regardless of any action, activity or defense
undertaken by Licensor or the subsequent success or failure of
such action, activity or defense.
13.4.3.4 As used in this Section 13, the phrase
"losses and expenses" shall include, without limitation, all
losses, compensatory, exemplary or punitive damages, fines,
charges, costs, expenses, lost profits, legal fees, court costs,
settlement amounts, judgments, compensation for damages to
Licensor's reputation and goodwill, costs of or resulting from
delays, financing, costs of advertising material and media
time/space and costs of changing, substituting or replacing the
same, and any and all expenses of recall, refunds, compensation,
public notices and other such amounts incurred in connection with
the matters described.
13.4.4 The Indemnitees do not assume any liability
whatsoever for acts, errors or omissions of any third party with
whom Master Licensee, any of the Principals, Master Licensee's
affiliates or any of the officers, directors, shareholders,
partners, agents, representatives, independent contractors and
employees of Master Licensee or its affiliates may contract,
regardless of the purpose. Master Licensee and each of the
Principals shall hold harmless and indemnify the Indemnitees for
all losses and expenses which may arise out of any acts, errors
or omissions of Master Licensee, any Licensee, their Principals,
Master Licensee's or any Licensee's affiliates, the officers,
directors, shareholders, partners, agents, representatives,
independent contractors and employees of Master Licensee and
Licensees and their affiliates and any such third parties without
limitation and without regard to the cause or causes thereof or
the negligence of Licensor or any other party or parties arising
in connection therewith, and whether such negligence be sole,
joint or concurrent or active or passive.
13.4.5 Under no circumstances shall the Indemnitees be
required or obligated to seek recovery from third parties or
otherwise mitigate their losses in order to maintain a claim
against Master Licensee or any of the Principals. Master
Licensee and each of the Principals agree that the failure to
pursue such recovery or mitigate loss will in no way reduce the
amounts recoverable from Master Licensee or any of the Principals
by the Indemnitees.
13.4.6 Master Licensee and the Principals expressly
agree that the terms of this Section 13 shall survive the
termination, expiration or transfer of this Agreement or any
interest herein.
13.5 Third-Party Rights. Licensor and Master Licensee
agrees that Licensor shall be, at Licensee's election, and as
specified in the License Agreement, (1) a third-party beneficiary
of each License Agreement and Development Agreement or (2) a
party to each License Agreement and Development Agreement. Under
each such License Agreement and Development Agreement, Licensor
shall have the independent right (without, however, any
obligation) to assert each right of Master Licensee against
Licensee or Developer, respectively, and to enforce each
obligation of any Licensee or Developer, respectively, to Master
Licensee under any such License Agreement or Development
Agreement as if such right was held by Licensor and such
obligation was independently owed to Licensor regardless as to
whether Master Licensee has sought to assert such right or to
enforce such obligation. Master Licensee shall promptly
reimburse Licensor for any costs and expenses incurred by
Licensor in asserting any such right or enforcing any such
obligation, including, without limitation, transportation, food,
lodging, and legal fees and expenses. Licensor and Master
Licensee acknowledge and agree that Licensor has no direct or
indirect obligations to any Licensee or Developer, except to the
extent specifically stated herein.
14. APPROVALS
14.1 Manner of Obtaining Approval. Whenever this Agreement
requires the prior approval or consent of Licensor, Master
Licensee shall make a timely written request to Licensor and such
approval or consent shall be obtained in writing.
14.2 No Warranties or Guarantees. Licensor makes no
warranties or guarantees upon which Master Licensee may rely and
assumes no liability or obligation to Master Licensee or any
third party to which it would not otherwise be subject, by
providing any waiver, approval, advice, consent or suggestion to
Master Licensee in connection with this Agreement, or by reason
of any neglect, delay or denial of any request therefor.
15. NON-WAIVER AND REMEDIES
15.1 Waiver. No delay, waiver, omission or forbearance on
the part of Licensor to exercise any right, option, duty or power
arising out of any breach or default by Master Licensee or the
Principals under this Agreement shall constitute a waiver by
Licensor to enforce any such right, option, duty or power against
Master Licensee or the Principals, or as to a subsequent breach
or default by Master Licensee or the Principals. Acceptance by
Licensor of any payments due to it hereunder subsequent to the
time at which such payments are due shall not be deemed to be a
waiver by Licensor of any preceding breach by Master Licensee or
the Principals of any terms, provisions, covenants or conditions
of this Agreement.
15.2 Rights and Remedies. All rights and remedies of the
parties to this Agreement shall be cumulative and not
alternative, in addition to and not exclusive of any other rights
or remedies which are provided for herein or which may be
available at law or in equity in case of any breach, failure or
default or threatened breach, failure or default of any term,
provision or condition of this Agreement or any other agreement
between Master Licensee or any of its affiliates and Licensor or
any of its affiliates. The rights and remedies of the parties to
this Agreement shall be continuing and shall not be exhausted by
any one or more uses thereof and may be exercised at any time or
from time to time as often as may be expedient; and any option or
election to enforce any such right or remedy may be exercised or
taken at any time and from time to time. The expiration, earlier
termination or exercise of Licensor's rights pursuant to Section
10 of this Agreement shall not discharge or release Master
Licensee or any of the Principals from any liability or
obligation then accrued, or any liability or obligation
continuing beyond, or arising out of, the expiration, the earlier
termination or the exercise of such rights under this Agreement.
Additionally, Master Licensee and the Principals shall pay all
court costs and reasonable attorneys' fees incurred by Licensor
in obtaining any remedy available to Licensor for any violation
of this Agreement.
16. NOTICES
16.1 Any and all notices required or permitted under this
Agreement shall be in writing in the English language and shall
be personally delivered or mailed by expedited delivery service,
or sent by facsimile to the respective parties at the following
addresses unless and until a different address or telefax number
has been designated by written notice to the other party:
Notices to Licensor: Ecofranchising, Inc.
147 Palmer Avenue
Mamaroneck, New York 10538
Attention: President
Telefax Number: 914-777-3502
Notices to Master Licensee and
the Principals: Mr. Yudianto Tri. R
PT. Pranasakti Dewanata
Jl. Wolter Monginsidi 107
Jakarta 12170
Indonesia
Telefax: 6221-572-3345
Any notice shall be deemed to have been given at the time
of personal delivery or, in the case of facsimile upon
transmission (provided confirmation of receipt is furnished) or,
in the case of expedited delivery service, three (3) business
days after the date and time of mailing.
16.2 All other reports, invoices, documents, and
communications provided hereunder shall be given by parties to
one another in the English language, except as otherwise
specifically stated herein.
16.3 The English language version of this Agreement
shall govern and control.
17. SEVERABILITY AND CONSTRUCTION
17.1 Severability. Except as expressly provided to the
contrary herein, each portion, section, part, term and provision
of this Agreement shall be considered severable; and if, for any
reason, any portion, section, part, term or provision is
determined to be invalid and contrary to, or in conflict with,
any existing or future law or regulation by a court or agency
having valid jurisdiction, this shall not impair the operation
of, or have any other effect upon, the other portions, sections,
parts, terms or provisions of this Agreement that may remain
otherwise intelligible, and the latter shall continue to be given
full force and effect and bind the parties; the invalid portions,
sections, parts, terms or provisions shall be deemed not to be
part of this Agreement; and there shall be automatically added
such portion, section, part, term or provision as similar as
possible to that which was severed which shall be valid and not
contrary to or in conflict with any law or regulation.
17.2 Limitation on Persons Upon Whom Rights and Remedies
Conferred. Except as expressly provided to the contrary herein,
nothing in this Agreement is intended, nor shall be deemed, to
confer upon any person or legal entity other than Master Licensee
and Licensor's, officers, directors and personnel and such of
Master Licensee's and Licensor's respective successors and
assigns as may be contemplated any rights or remedies under or as
a result of this Agreement.
17.3 Captions. All captions in this Agreement are
intended solely for the convenience of the parties and shall not
affect the meaning or construction of any provision of this
Agreement.
17.4 Gender and Number. All references to the masculine,
neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, where applicable. Without limiting
the obligations individually undertaken by the Principals under
this Agreement, all acknowledgments, promises, covenants,
agreements and obligations made or undertaken by Master Licensee
in this Agreement shall be deemed, jointly and severally,
undertaken by all of the Principals.
17.5 Master Licensee's "Principals". The term Master
Licensee's "Principals" shall include, collectively and
individually, Master Licensee's spouse, if Master Licensee is an
individual, all officers and directors of Master Licensee
(including the officers and directors of any general partner of
Master Licensee) whom Licensor designates as Master Licensee's
Principals and all holders of an ownership interest in Master
Licensee and of any entity directly or indirectly controlling
Master Licensee. The initial Master Licensee's Principals are
Yudianto Tri R. and Lia Yudianto.
17.6 Counterparts. This Agreement may be executed in
counterparts and each copy so executed shall be deemed an
original.
17.7 Effective Date. This Agreement shall not become
effective until signed by the President of Licensor.
17.8 Expenses of Litigation. Licensor shall be entitled
to recover from Master Licensee reasonable attorneys' fees,
experts' fees, court costs and all other expenses of arbitration
or litigation, in the event that Licensor prevails in any action
instituted by or against Master Licensee.
18. ENTIRE AGREEMENT; APPLICABLE LAW; DISPUTE RESOLUTION
18.1 Integration and Merger. This Agreement, the
documents referred to herein and the exhibits hereto, constitute
the entire, full and complete agreement between Licensor and
Master Licensee and the Principals concerning the subject matter
hereof and shall supersede all prior related agreements between
Licensor and Master Licensee and the Principals. Except for
those permitted to be made unilaterally by Licensor hereunder, no
amendment, change or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties
and executed by their authorized officers or agents in writing.
18.2 Governing Law. This Agreement is to be construed in
accordance with the law of Malaysia without recourse to Malaysian
choice of law or conflicts of law principles.
18.3 Arbitration. Except as described in Section 18.4
hereof, any claim or controversy arising out of or related to
this Agreement or the making, performance, or interpretation of
this Agreement shall be finally settled under the International
Rules of the American Arbitration Association then in force,
including the Supplementary Procedures for International
Commercial Arbitration, by one arbitrator appointed by the
American Arbitration Association in accordance with such rules.
The place of arbitration shall be in New York City, New York, and
the law applicable to the arbitration procedure shall be
determined by referring to the law of the place of arbitration.
The English language shall be used throughout the arbitral
proceedings. All costs of arbitration, including the
arbitrator's fee, shall be borne by the losing party. The
parties agree that the award of the arbitrator shall be the sole
and exclusive remedy between them regarding any claims,
counterclaims, issues, or accountings presented or pled to the
arbitrator; that it shall be made and shall promptly be payable
in U.S. dollars free of any tax, deduction or offset; and that
any costs, fees, or taxes incident to enforcing the award shall,
to the maximum extent permitted by law, be charged against the
party resisting such enforcement. The award shall include
interest from the date of any damages incurred for breach or
other violation of the contract, and from the date of the award
until paid in full, at a rate to be fixed by the arbitrator, but
in no event less than one-and-a-half percent (1.5%) per month, or
part of a month, from the date until paid.
18.4 Waiver. Each of the parties hereto hereby expressly
waive Articles 641 and 650 Paragraph 2 of the Reglement op de
Rechtsvordering (the "R.V."), and Article 15 and 108 of Law No. 1
of 1950 (Supreme Court Rules) and any other Indonesian laws and
regulations, decrees or policies having the force of law which would
otherwise give a right to appeal the decision of the arbitrator, so
that the decision taken by the arbitrator shall be final and there shall
be no other Indonesian authority or panel to appeal said decision. The
parties hereto further expressly agree that Article 631 of the R.V. shall
apply to the extent that the arbitrator shall be bound by strict rules
of law in making their decision and may not prounouce judgement on equitable
principles (ex aequo et bono).
18.5 Injunctive Relief. Nothing herein contained
(including, without limitation, Section 18.3 hereof, regarding
arbitration) shall bar Licensor's or Master Licensee's right to
obtain injunctive relief, from a court of competent jurisdiction,
against threatened conduct that will cause it loss or damage,
under the usual equity rules, including the applicable rules for
obtaining specific performance, restraining orders, and
preliminary injunctions.
18.6 Costs and Expenses. Each party shall bear its own
costs, and expenses, including all court costs, arbitration
costs, and reasonable attorneys' fees, incurred in any
arbitration or legal proceeding relating to this Agreement.
18.7 Nonexclusive Remedies. Neither the foregoing nor
any other remedy exercised by either party shall be deemed
exclusive but both parties shall be entitled cumulatively to
exercise any and all remedies available in law or equity, and its
exercise of any one right or remedy shall not preclude it from
exercising any other right or remedy.
19. ACKNOWLEDGMENTS
19.1 Investigation. Master Licensee acknowledges that it
has conducted an independent investigation of the business
venture contemplated by this Agreement and recognizes that the
success of this business venture involves substantial business
risks and will largely depend upon the ability of Master
Licensee's Principals. Licensor expressly disclaims making, and
Master Licensee acknowledges that it has not received or relied
on, any warranty or guarantee, express or implied, as to the
potential volume, profits or success of the business venture
contemplated by this Agreement. No representation has been made
by Licensor (or any employee, agent or salesperson thereof) and
relied upon by Master Licensee as to the future or past income,
expenses, sales volume or potential profitability, earnings or
income of the System Facility(ies) to be licensed to Master
Licensee, or any other System Facility.
19.2. Acknowledgment. Both Licensor and Master Licensee
further acknowledge and agree that Licensor has operated no
System Facilities in either country in the Territory; that
Licensor has made no representations or guarantees to Master
Licensee as to the viability, marketability, or adaptability in
either country in the Territory of the Licensor's System, System
Facilities or the products or services sold therefrom; and that
Master Licensee has performed its own independent research and
investigation as to the viability, marketability, and
adaptability in the countries in the Territory of Licensor's
System, System Facilities, and the products and services sold
therefrom, and assumes all of the business risks associated
therewith.
19.3 Advice. Master Licensee acknowledges that Master
Licensee has received, read and understands this Agreement and
the related exhibits and agreements and that Licensor has
afforded Master Licensee sufficient time and opportunity to
consult with advisors selected by Master Licensee about the
potential benefits and risks of entering into this Agreement.
19.4 Receipt Master Licensee acknowledges that it
received a complete copy of this Agreement and all related
Exhibits and agreements at least five (5) business days prior to
the date on which this Agreement was executed. Master Licensee
further acknowledges that it has received the disclosure document
required by the Trade Regulation Rule of the Federal Trade
Commission entitled "Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures" at
least ten (10) business days prior to the date on which this
Agreement was executed.
19.5 Reasonableness. The covenants not to compete set
forth in this Agreement are fair and reasonable, and will not
impose any undue hardship on Master Licensee and Master
Licensee's Principals, since Master Licensee and Master
Licensee's Principals have other considerable skills, experience
and education which afford them the opportunity to derive income
from other endeavors.
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this Agreement on the day and year first above
written.
LICENSOR:
ATTEST: ECOFRANCHISING, INC.
By: /s/Diane Weiser
WITNESS Name: Diane Weiser
Title: President & CEO
MASTER LICENSEE:
ATTEST: PT PRANASAKTI DEWANATA
By: /s/YUDIANTO TRI R.
WITNESS Name: YUDIANTO TRI R.
Title: President Director
Guarantee
Each of the undersigned acknowledges and agrees as follows:
(1) Each has read the terms and conditions of the Master
License Agreement and acknowledges that the execution of this
Guarantee and the undertakings of the Principals in the Master
License Agreement are in partial consideration for, and a
condition to, the granting of the rights in the Master License
Agreement, and that Licensor would not have granted such rights
without the execution of this guaranty and such undertakings by
each of the undersigned;
(2) Each is included in the term "Principals" as described
in Section 17.5 of the Master License Agreement;
(3) Each individually, jointly and severally, makes all of
the covenants, representations, warranties and agreements of the
Principals set forth in the Master License Agreement and is
obligated to perform thereunder; and
(4) Each individually, jointly and severally,
unconditionally and irrevocably guarantees to Licensor and its
successors and assigns that all of Master Licensee's obligations
under the Master License Agreement will be punctually paid and
performed. Upon default by Master Licensee or upon notice from
Licensor, each will immediately make each payment and perform
each obligation required of Master Licensee under the Master
License Agreement. Without affecting the obligations of any of
the Principals under this guaranty, Licensor may, without notice
to the Principals, waive, renew, extend, modify, amend or release
any indebtedness or obligation of Master Licensee or settle,
adjust or compromise any claims that Licensor may have against
Master Licensee. Each of the Principals waives all demands and
notices of every kind with respect to the enforcement of this
guaranty, including, without limitation, notice of presentment,
demand for payment or performance by Master Licensee, any default
by Master Licensee or any guarantor and any release of any
guarantor or other security for this guaranty or the obligations
of Master Licensee. Licensor may pursue its rights against any
of the Principals without first exhausting its remedies against
Master Licensee and without joining any other guarantor hereto
and no delay on the part of Licensor in the exercise of any right
or remedy shall operate as a waiver of such right or remedy, and
no single or partial exercise by Licensor of any right or remedy
shall preclude the further exercise of such right or remedy.
Upon receipt by Licensor of notice of the death of any of the
Principals, the estate of the deceased will be bound by the
foregoing guaranty, but only for defaults and obligations under
the Master License Agreement existing at the time of death, and
in such event, the obligations of the remaining Principals shall
continue in full force and effect. Principals agree that the
governing law and dispute resolution provisions contained in
Section 18 of the Agreement apply to this Guarantee.
Principals:
Witness Name:
Printed Name:
Witness Name:
Printed Name:
EXIBIT 10.18
ECOFRANCHISING, INC.
MASTER LICENSE AGREEMENT
(MALAYSIA AND BRUNEI)
MASTER LICENSE AGREEMENT
(MALAYSIA AND BRUNEI)
This Master License Agreement (the "Agreement") is made and
entered into this 27th day of March, 1997, between
Ecofranchising, Inc., a New York corporation ("Licensor"), and
("Master Licensee"), ELITE-FAME SDN BHD, a Malaysian corporation.
RECITALS:
As the result of the expenditure of time, skill, effort and
money, Licensor has acquired or developed in the United States
and owns a unique and distinctive system (hereinafter, "System")
for the establishment and operation of environmentally sound
laundromat and cleaning facilities for garments and certain other
fabrics (as further defined in Licensor's agreements, manuals and
other writings, the "System Facilities").
The System Facilities consist of the following:
(i) Facilities where customers can drop off their cleaning
and laundry; have their laundry and cleaning processed on-site;
pick up their cleaning and laundry or have their cleaning and
laundry delivered, and wash and dry their laundry themselves
using self-service equipment ("Ecomat Laundry and Cleaners").
(ii) Facilities where customers can drop off their
cleaning; have their cleaning processed on-site; and pick up
their cleaning or have their cleaning delivered ("Ecomat
Cleaners").
(iii) Facilities where customers can drop off their cleaning
and laundry; have their laundry and cleaning processed off or on-
site; and pick up their cleaning and laundry or have their
cleaning and laundry delivered ("Satellites").
(iv) Routes (including commuter train stations, apartment
buildings, office buildings, military installations, and/or other
central points) where customers can drop off their cleaning and
laundry for off-site processing and pick up their cleaning and
laundry, or have their cleaning and laundry delivered ("Satellite
Routes").
(v) Facilities where customers can drop off their laundry;
have their laundry washed and dried on-site; pick up their
laundry or have their laundry delivered; and, wash and dry their
laundry themselves using self-service equipment ("Laundry").
(vi) Facilities at alternative locations, such as office
buildings, trailers, and kiosks where customers can drop off and
pick up their laundry and cleaning, but no cleaning or laundry
processing occurs ("Drop Site").
An (1) Ecomat Laundry and Cleaner and (2) Ecomat Cleaner are
sometimes referred to in this Agreement as a "Primary Facility",
which term specifically excludes Satellites, Satellite Routes,
Laundries, and Drop Sites. All System Facilities shall be
operated under the System and the Marks.
The distinguishing characteristics of the System, in the
United States, include, without limitation, distinctive exterior
and interior design, decor, color scheme, and furnishings;
special multi-process wet cleaning techniques; standards,
specifications, and procedures for operations; quality and
uniformity of products and services offered; procedures for
inventory, management and financial control; training and
assistance; and advertising and promotional programs, all of
which may be changed, improved, and further developed by Licensor
from time to time.
Licensor identifies the System in the United States by means
of certain trade names, service marks, trademarks, logos, emblems
and indicia of origin, including, but not limited to, the marks
["Ecomat",] ["Ecomat and design"] ["Ecocleaning"] and such other
trade names, service marks, trademarks, logos, insignia, slogans,
emblems, designs, trade dress, and other commercial symbols as
are now designated and may hereafter be designated by Licensor in
writing for use in connection with the System (hereinafter
referred to as "Marks").
Master Licensee wishes to obtain certain exclusive rights
under this Agreement to develop System Facilities by licensing
affiliates of the Master Licensee or unaffiliated third parties
(collectively "Licensees"), pursuant to a license agreement,
under the System and the Marks in the countries of Malaysia and
Brunei ("Territory").
Licensor continues to develop, use and control the use of
such Marks in order to identify for the public the source of
services and products marketed thereunder and under the System,
and to represent the System's high standards of quality,
appearance and service.
NOW, THEREFORE, the parties, in consideration of the mutual
undertakings and commitments set forth herein, the receipt and
sufficiency of which are hereby acknowledged, agree as follows:
1. GRANT
1.1 Grant of Rights. Licensor hereby grants to Master
Licensee, and Master Licensee hereby accepts, pursuant to the
terms and conditions of this Agreement, the right and obligation
to develop thirty-six (36) Primary Facilities under the System in
the Territory. Master Licensee shall execute License Agreements
and Development Agreements with Licensees, as described in
Section 1.2 hereof. Primary Facilities shall be developed in
accordance with the development schedule described in Section 4
hereof.
1.2 License Agreements and Development Agreements. Each
System Facility will be established and operated pursuant to a
license agreement between Master Licensee and Licensee ("License
Agreement"). Each License Agreement shall consist of an initial
term of ten (10) years and three (3) renewal terms of five (5)
years each. System Facilities consisting of (a) one (1) Primary
Facility and (b) a total of any combination of at least three (3)
Drop Sites, Satellites, or Laundries ("Cluster") may be developed
in a portion of the Territory pursuant to a cluster development
agreement between Master Licensee and a developer ("Development
Agreement"). Master Licensee shall enter into a separate License
Agreement with each Licensee for a System Facility and, if such
System Facility is not a Primary Facility, such addendum for a
Satellite, Satellite Route, Laundry, or Drop Site as is
applicable thereto and is attached as an Exhibit to the License
Agreement. Such License Agreements and the applicable addenda
shall be included in the term "License Agreement" as used in this
Agreement. Such License Agreement and Development Agreement
shall be based upon the form of license agreement and development
agreement used by Licensor in the United States (copies of which
Master Licensee acknowledges receipt prior to execution hereof)
and shall be prepared by Licensor within sixty (60) days from the
date of execution of this Agreement for conformity with this
Agreement and in accordance with the laws, customs, and market
characteristics of each country in the Territory. When such
License Agreement and Development Agreement are conformed for use
by Licensor, such agreements shall constitute the License
Agreement and Development Agreement for use hereunder and shall
be attached as Exhibits A and B hereto, respectively. Licensor
will deliver a complete and accurate copy of each executed
License Agreement (and exhibits thereto) and executed Development
Agreement (and exhibits thereto) to Licensor within thirty (30)
days after executing each such agreement.
1.3 Territorial Protection. Except as provided in this
Agreement, neither Licensor nor its affiliates shall establish
and operate or authorize any person or entity other than Master
Licensee, to establish and operate, a System Facility in the
Territory during the term of the Development Schedule (the
"Exclusivity Period").
1.4 No Franchise or License Granted. This Agreement does
not grant to Master Licensee any right or license to operate a
System Facility. Such rights are only conferred by the Ecomat
License Agreements referenced herein.
1.5 Affiliate; Affiliated Licensee. For purposes of this
Agreement, (1) an "affiliate" is any person or entity
controlling, controlled by, or under common control with, another
legal entity, and (2) an "Affiliated Licensee" is any Licensee
owned and operated by an affiliate of Master Licensee.
2. FEES
2.1 Master License Fee. As consideration for the rights
granted hereunder, Master Licensee shall pay to Licensor a non-
refundable master license fee of One Hundred Twelve Thousand U.S.
Dollars (U.S. $112,000), payable as follows:
2.1.1 Six Thousand U.S. Dollars (U.S. $6,000), of which
Licensor acknowledges receipt prior to the date hereof; and
2.1.2 One Hundred Six Thousand U.S. Dollars (U.S.
$106,000) to be paid upon the date of execution of this
Agreement, of which Licensor acknowledges receipt.
The master license fee is deemed earned upon the payment thereof,
and Master Licensee shall not be entitled to any refund of any
portion of the master license fee.
2.2 Agreement Fees. During the term hereof, Master
Licensee shall pay to Licensor:
2.2.1 Two Thousand Four Hundred U.S. Dollars (U.S.
$2,400) for each Development Agreement executed with an
unaffiliated Licensee within thirty (30) days of execution of
such agreement;
2.2.2 Two Thousand Four Hundred U.S. Dollars (U.S.
$2,400) for each License Agreement for a Primary Facility
executed with an unaffiliated Licensee within thirty (30) days of
execution of such agreement; and
2.2.3 One Thousand Eight Hundred U.S. Dollars (U.S.
$1,800) for each License Agreement for each Satellite Facility,
Satellite Route, or Laundry executed with an unaffiliated
Licensee within thirty (30) days of execution of such agreement.
2.2.4 Four Hundred Fifty U.S. Dollars (U.S. $450) for
each License Agreement for each Drop Site executed with an
unaffiliated Licensee within thirty (30) days of execution of
such agreement.
2.3 Royalty Fees. Master Licensee shall pay to Licensor
an ongoing monthly royalty fee by the twentieth (20th) day of
each month for each System Facility operating in the preceding
month (or any portion thereof) during the term hereof in the
amount of two percent (2%) of the Gross Sales (as defined in
Section 2.4) of each System Facility.
2.4 Gross Sales. "Gross Sales" shall mean the total
selling price of all services and products and all income of
every other kind and nature related to each System Facility
(including, without limitation, all proceeds from frequent user
club programs and all proceeds from the sale of coupons, gift
certificates or vouchers; provided that at the time such coupons,
gift certificates or vouchers are redeemed, the retail price
thereof may be credited against Gross Sales during the month in
which such coupon, gift certificate or voucher is redeemed for
the purpose of determining the amount of Gross Sales upon which
the royalty fee is due) whether for cash or credit and regardless
of collection in the case of credit, but expressly excluding the
following:
2.4.1 Sums representing sales taxes collected directly
from customers, based upon present or future laws of local or
national governments, collected by Licensees in the operation of
any System Facility, and any other tax, excise or duty which is
levied or assessed against Licensees by any local or national
authority, based on sales of specific merchandise sold at or from
System Facilities, provided that such taxes are actually
transmitted to the appropriate taxing authority;
2.4.2 [Returns to shippers or manufacturers;] and
2.4.3 Proceeds from isolated sales of trade fixtures not
constituting any part of Licensees' products and services offered
for resale at such System Facilities nor having any material
effect upon the ongoing operation of such System Facilities
required under any License Agreement.
All barter and/or exchange transactions pursuant to which
Licensees furnish services and/or products in exchange for goods
or services to be provided to Licensees by a vendor, supplier or
customer shall, for the purpose of determining Gross Sales, be
valued at the full retail value of the goods and/or services so
provided to Licensees.
[Licensor may, from time to time, authorize certain other
items to be excluded from Gross Sales. Any such permission may
be revoked or withdrawn at any time in writing by Licensor in its
discretion.]
2.5 Currency Conversion. All payments to Licensor made
pursuant to this Agreement shall be paid to Licensor in U.S.
dollars, or such other currency designated by Licensor from time
to time, and wire transferred, at Master Licensee's expense, to
such bank account as Licensor shall designate from time to time.
Computation of any amounts which require conversion from
Malaysian ringgit to U.S. dollars for payments required hereunder
shall be made, at Master Licensee's expense, at the electronic
transfer selling rate for U.S. dollars quoted by Maybank Berhad,
in Kuala Lumpur, Malaysia (or its successor) with respect to
ringgit on the date payment is made. Master Licensee shall bear
all costs and expenses associated with such currency conversion
and transfers of Master Licensee's bank and of any correspondence
bank, if any, in the United States.
2.6 Withholding. Master Licensee shall have the right,
for all payments made by Master Licensee to Licensor hereunder,
to deduct fifty-percent (50%) of the amount of any withholding
taxes on payments Licensor is required to make to the appropriate
tax authorities in Malaysia on such payments. Master Licensee
shall directly pay to the appropriate taxing authorities, on
behalf of Licensor, the full amount which Master Licensee is
required to withhold under any laws in Malaysia on payments made
by Master Licensee to Licensor. Master Licensee shall transmit
to Licensor official receipts for payments of all taxes withheld.
If Master Licensee fails to withhold or pay such taxes, it shall
indemnify Licensor for the full amount of such taxes and for any
loss or liability occasioned by Master Licensee's failure to
withhold as required by law, including, but not limited to, any
penalties, interest, and expense incurred by Licensor. Master
Licensee shall transmit such taxes to the appropriate fiscal
authorities. Such taxes shall not affect Master Licensee's
obligation to make payments to Licensor as required under this
Agreement.
2.7 Currency Restrictions. In the event that any
governmental authority having jurisdiction in Malaysia imposes
restrictions on the transfer of funds or currency to places
outside of Malaysia, Licensor, in its sole discretion, shall have
the option to require that Master Licensee deposit all payments
required under this Agreement to a designated account in
Malaysia, and that payment of such accumulated amounts be made to
Licensor, pursuant to the terms of Section 2.5 hereof, as soon as
possible after any such currency restriction is no longer in
effect.
2.8 Payments to Licensor. Master Licensee shall not be
entitled to withhold payments due Licensor under this Agreement
on grounds of alleged nonperformance by Licensor hereunder. Any
payment not actually received by Licensor on or before the date
due shall be deemed overdue. Time is of the essence with respect
to all payments to be made by Master Licensee to Licensor. All
unpaid obligations under this Agreement shall bear interest from
the date due until paid at the rate of twelve percent (12%) per
annum, for such periods as the payments are overdue. If any
payments are overdue, Master Licensee shall pay Licensor such
amounts on demand, plus such interest. Entitlement to interest
shall be in addition to any other remedies of Licensor.
Notwithstanding anything to the contrary contained herein, no
provision of this Agreement shall require the payment or permit
the collection of interest in excess of the maximum rate allowed
by applicable law. If any excess of interest in such respect is
herein provided for, or shall be adjudicated to be so provided in
this Agreement, the provisions of this paragraph shall govern and
prevail, and Master Licensee shall not be obligated to pay the
excess amount of such interest.
3. DUTIES OF LICENSOR
3.1 Site Selection Guidelines. Licensor shall provide to
Master Licensee Licensor's written site selection guidelines used
in the United States, which Master Licensee shall adapt for use
in each country in the Territory.
3.2 Site Evaluation. Licensor may provide to Master
Licensee such on-site evaluation as Licensor may deem necessary
on its own initiative. Licensor shall have the right to require
Master Licensee to reimburse Licensor (or its designee) for
travel, meals, lodging, and other out-of-pocket expenses incurred
by Licensor's employees in making any on-site evaluation.
3.3 Design Plans. Licensor shall provide to Master
Licensee, on loan, a set of prototypical architectural design
plans and specifications for each type of System Facility used in
the United States. Master Licensee shall independently, and at
Master Licensee's expense, have such architectural and design
plans and specifications adapted for construction or remodeling
of System Facilities in each country in the Territory for use by
Licensees.
3.4 Manuals. Licensor shall furnish to Master Licensee,
on loan, one (1) set of Confidential Operations Manuals and such
other manuals and written materials as Licensor shall have
developed for use in the United States (as the same may be
revised and supplemented by Licensor from time to time, the
"Manuals"), as more fully described in Section 7 hereof.
3.5 Computer Software. Licensor shall furnish to Master
Licensee certain computer software and hardware to be used by
Master Licensee and Licensees in operating under the System.
Such computer monitoring software and hardware and accounting and
point of sale software shall be licensed to Master Licensee by
Licensor as described in the Monitoring Software and Hardware
License Agreement and Accounting and Point of Sale Software
License Agreement. Such agreements shall be based upon the form
of such agreements used by Licensor in the United States (copies
of which Master Licensee acknowledges receipt prior to execution
hereof) and shall be revised by Licensor within sixty (60) days
from the date of execution of this Agreement for conformity with
this Agreement and in accordance with the laws, customs, and
market characteristics of each country in the Territory. When
such agreements are conformed for use by Licensor, Master
Licensee shall promptly execute such agreements which shall
constitute the Monitoring Software and Hardware License Agreement
and Accounting and Point of Sales Software License Agreement for
use hereunder and shall be attached as Exhibits C and D hereto.
Licensor shall also make available to Master Licensee at a
reasonable cost any upgrades, enhancements, or replacements to
the software and hardware that are developed from time to time
by, or on behalf of, Licensor.
3.6 Assistance. Licensor shall furnish to Master Licensee
in the Territory:
3.6.1 One (1) of Licensor's employees for a minimum of
twenty-one (21) business days, which may not be consecutive,
within the first six (6) months after the date first above
written, at Master Licensee's sole cost and expense, to provide
assistance to Master Licensee in operations, cleaning, marketing,
licensee recruitment activities, and such other matters as
Licensor, in its sole discretion, deems appropriate; and
3.6.2 One (1) of Licensor's management personnel for at
least a total of five (5) work-days, which may not be
consecutive, at Master Licensee's expense, to provide assistance
to Master Licensee in operations, cleaning, marketing, licensee
recruitment activities, and such other matters as Licensor, in
its sole discretion, deems appropriate in each twelve-month
period commencing six (6) months after the date first above
written, and in each twelve-month period thereafter, upon Master
Licensee's request; provided, however, that some or all of the
assistance described in this Section 3.6.2 may be furnished by a
third-party authorized by Licensor.
Licensor shall pay the salaries for its employees in furnishing
the assistance under Sections 3.6.1 and 3.6.2 hereof, and Master
Licensee shall promptly reimburse Licensor for all of the out-of-
pocket costs and expenses for the travel, food, lodging, and
related expenses of Licensor's personnel in furnishing the
assistance described in Section 3.6.2 hereof. Any additional in-
country assistance furnished by Licensor at Master Licensee's
request pursuant to Section 3.6.2 hereof shall be at the then-
current rate described in the Manual for additional, subsequent,
and replacement initial training, which Master Licensee shall
pay to Licensor within thirty (30) days after such assistance is
provided.
3.7 Visits. Licensor shall periodically visit the System
Facilities and provide evaluations of the services rendered and
products sold therein from time to time as reasonably determined
by Licensor, at Licensor's cost and expense.
3.8 Advertising and Promotional Materials. Licensor shall
furnish to Master Licensee, prior to the opening of the first
System Facility, and at Licensor's discretion, certain
advertising and promotional materials and information developed
for use in the United States. Licensor may from time to time
thereafter, at Licensor's discretion, provide to Master Licensee,
for use in marketing and conducting local advertising for the
System Facilities in the Territory, certain other advertising and
promotional materials and information that may be developed by
Licensor in the United States at a reasonable cost to Master
Licensee, if Master Licensee wishes to purchase such materials
and information from Licensor.
3.9 Advice and Materials. Licensor shall furnish to
Master Licensee advice and written materials concerning
techniques of managing and operating the System Facilities from
time to time developed by Licensor, for use in the United States,
including new developments and improvements in laundry and
cleaning equipment and products.
3.10 Laundry and Wetcleaning. Licensor shall furnish to
Master Licensee a list of approved suppliers for certain laundry
and wetcleaning equipment with which Master Licensee shall
require Licensees to comply from time to time as Licensor deems
appropriate, as described in Section 5.5.2.7.
3.11 Training. Licensor shall furnish to Master Licensee
an initial training program and other training programs in
accordance with the provisions of Section 5.4.
3.12 System Changes. Master Licensee understands and
agrees that the System must not remain static if it is to meet
presently unforeseen changes in technology, competitive
circumstances, and the needs of customers, and to best serve the
interest of Licensor, Master Licensee, Licensees, and the System.
Accordingly, Master Licensee expressly understands and agrees
that Licensor may from time to time change the components of the
System, including, but not limited to, altering the programs,
services, methods, standards, forms, policies, and procedures of
that System; adding to, deleting from, or modifying those
programs and services which Licensees' System Facilities are
authorized to offer; and, changing, improving, or modifying the
Marks. Subject to the other provisions of this Agreement, Master
Licensee expressly agrees to abide by any such modifications,
changes, additions, deletions, and alterations.
4. TERM; DEVELOPMENT OF TERRITORY
4.1 Term. Unless sooner terminated in accordance with this
Agreement, the term of this Agreement and all rights granted by
Licensor under this Agreement shall expire twenty-five (25) years
from the effective date of this Agreement; provided, however,
that Licensor agrees to commence discussions with Master Licensee
as to potential extension or renewal of the term twenty-three
(23) years from the effective date of this Agreement.
4.2 Information; Site Approval. Master Licensee shall
provide to Licensor:
4.2.1 At least thirty (30) days prior to the execution of
any Development Agreement or License Agreement, such information
concerning a prospective licensee as Licensor may reasonably
request. Each prospective Developer and Licensee shall be a
person of sufficiently good reputation as to character,
integrity, financial capacity, and operational skills as to be
reasonably expected to comply fully with its obligations under
the Development Agreement and License Agreement. Licensor
reserves the right, upon written notice to Master Licensee, to
approve each such Developer and Licensee prior to execution of an
agreement with any such parties. If Licensor exercises such
right, Master Licensee shall not execute any agreement with such
parties without Licensor's prior written approval, which shall
not be unreasonably withheld.
4.2.2 Such information concerning the proposed site for
any System Facility as Licensor reasonably requests, prior to
authorizing any Licensee or prospective licensee to acquire a
site for any System Facility, and shall consult with Licensor in
such a manner as Licensor reasonably requests prior to
authorizing any Licensee to acquire such site. Licensor reserves
the right to approve the site for each System Facility, and, upon
written notice to Master Licensee, to inspect any such site and
give its prior written approval for the site for each System
Facility. If Licensor exercises such right, Master Licensee
shall not approve any site until Master Licensee has received
Licensor's written approval.
4.3 Development Obligations
4.3.1 Acknowledging that time is of the essence, Master
Licensee agrees to have open and in operation in the Territory
the cumulative total number of Primary Facilities by the dates
indicated in the development schedule (the "Development
Schedule") below, by the end of each of the designated
development periods (the "Development Periods"); provided,
however, that the first Primary Facility shall be developed only
by an Affiliated Licensee.
Development Cumulative Total Number of Primary Facilities
Period By: Which Shall Be Open and in Operation
1 March 31, 1998 One (1)
2 March 31, 1999 Three (3)
3 March 31, 2000 Five (5)
4 March 31, 2001 Ten (10)
5 March 31, 2002 Fifteen (15)
6 March 31, 2003 Twenty-Two (22)
7 March 31, 2004 Twenty-Nine (29)
8 March 31, 2005 Thirty-Six (36)
4.3.2 Master Licensee agrees to have open and in
operation by March 31, 2005 at least one (1) Primary Facility in
each of the following states of Malaysia: Wllayah Persekutuan,
Selangor, Sabah, Sarawak, Penang, Johor, Pahang, Negri Sembilan,
Melaka, Kedah, Perlis, Perak, and Terengganu, and at least one
(1) Primary Facility in the country of Brunei.
4.3.3 In the event that Master Licensee fails to have
open and in operation in the Territory the cumulative total
number of Primary Facilities in accordance with the Development
Schedule, Licensor shall, at Licensor's option, have the right to
terminate the territorial protection described in Section 1.3 of
this Agreement; provided, however, that Master Licensee shall,
under no circumstances, lose such territorial protection until
March 31, 2001; and further provided, that Licensor shall discuss
with Master Licensee any reasonable revision of the Development
Schedule proposed by Master Licensee, prior to Licensor's
exercise of its option to terminate such territorial protection.
In the event Licensor terminates such protection, Licensor shall
have the right to establish and operate, and to license others to
establish and operate, System Facilities under the System and the
Marks in any country in the Territory during the term of this
Agreement.
5. DUTIES OF MASTER LICENSEE
Master Licensee and the Principals, as applicable, make the
following representations, warranties and covenants and accept
the following obligations:
5.1 Corporate Representations and Warranties. Master
Licensee represents, warrants and covenants that:
5.1.1 Master Licensee is a newly formed corporation, and
Master Licensee is duly organized and validly existing under the
applicable law to its formation;
5.1.2 Master Licensee is duly qualified and is authorized
to do business in each jurisdiction in which its business
activities or the nature of the properties owned by it require
such qualification;
5.1.3 Master Licensee's organizational documents shall at
all times provide that the activities of Master Licensee are
confined exclusively to the development of System Facilities,
unless otherwise consented to by Licensor in writing;
5.1.4 Copies of Master Licensee's articles of
incorporation, bylaws, other governing documents, any amendments
thereto, resolutions of the Board of Directors authorizing entry
into and performance of this Agreement, and any certificates or
other documents as may be reasonably required by Licensor have
been furnished to Licensor prior to the execution of this
Agreement;
5.1.5 The ownership interests in Master Licensee are
accurately and completely described in Exhibit E hereto. Master
Licensee shall maintain at all times a current list of all owners
of record and all beneficial owners of any class of voting
securities in Master Licensee, and shall make its list of owners
available to Licensor upon request;
5.1.6 Master Licensee shall maintain stop-transfer
instructions against the transfer on its records of any of its
equity securities and each stock certificate representing stock
of the corporation shall have conspicuously endorsed upon it a
statement in a form satisfactory to Licensor that it is held
subject to all restrictions imposed upon assignments by this
Agreement; provided, however, that the requirements of this
Section shall not apply to the transfer of equity securities of a
publicly-held corporation (as defined in Section 12.4); and
5.1.7 Master Licensee's Principals shall, jointly and
severally, guarantee Master Licensee's performance of all of
Master Licensee's obligations, covenants and agreements hereunder
pursuant to the terms and conditions of the guaranty contained
herein, and shall otherwise bind themselves to the terms of this
Agreement as stated herein.
5.2 Best Efforts. Master Licensee's Principals shall
devote substantial full time and best efforts to the supervision
and conduct of the business contemplated by this Agreement.
5.3 Compliance with Laws, Rules and Regulations. Master
Licensee shall comply with all requirements of national and local
laws, rules, regulations, and orders in each country in the
Territory.
5.4 Training. Master Licensee agrees that it is necessary
to the continued operation of the System that six (6) of Master
Licensee's employees and such employees of Affiliated Licensees
as Licensor designates receive such training as Licensor may
require, and accordingly agrees as follows:
5.4.1 Not later than ninety (90) days after the date of
execution of this Agreement, for Master Licensee's employees, and
not later than thirty (30) days prior to the date the System
Facility of each Affiliated Licensee is scheduled to open for
each of such Affiliated Licensees' employees, Master Licensee's
and such Affiliated Licensee's employees as Licensor designates
shall attend and complete, to Licensor's satisfaction, Licensor's
initial training program in the United States. Training of such
persons shall be conducted by Licensor or its designee at a
Licensor-operated System Facility or other location designated by
Licensor. Licensor shall provide instructors and training
materials for such initial training at no additional charge to
Master Licensee.
Licensor shall determine, in its sole discretion, whether
such trainees have satisfactorily completed initial training. If
the initial training program is not satisfactorily completed, or
if Licensor, in its reasonable business judgment based upon the
performance of such trainees, determines that the training
program cannot be satisfactorily completed by any such person,
Master Licensee shall designate a replacement to satisfactorily
complete such training.
Any employees replacing any employee that has received
training or any Affiliated Licensee subsequently designated by
Master Licensee shall also receive and complete such initial
training. Licensor reserves the right to charge a reasonable fee
for any initial training provided by Licensor to any such
replacement employee. Master Licensee or the Affiliated
Licensee, as appropriate, shall be responsible for any and all
expenses incurred by Master Licensee or Affiliated Licensee's
employees in connection with any initial training program,
including, without limitation, costs of travel, lodging, meals
and wages.
Licensor will pay no compensation for any services
performed incidental to training by trainees enrolled in
Licensor's initial training program or any subsequent training.
Licensor reserves the sole and exclusive right to determine the
duration of, and what subjects are included in, the curriculum of
its training programs, and to train any number of individuals
from any number of System Facilities, whether licensed or
otherwise affiliated with Licensor, at the same time.
5.4.2 Master Licensee's Principals and such other
personnel of Master Licensee as Licensor shall designate shall
attend, at such location in the Territory or otherwise as
Licensor reasonably designates, such additional training programs
and seminars as Licensor may offer from time to time, if Licensor
requires such attendance. For all such programs and seminars,
Licensor will provide the instructors and training materials.
However, Licensor reserves the right to impose a reasonable fee
for such additional training programs and seminars. Master
Licensee shall be responsible for any and all expenses incurred
by Master Licensee's Principals and other personnel in connection
with such additional training, including, without limitation,
costs of travel, lodging, meals, and wages.
5.4.3 Provided Licensor is satisfied that Master
Licensee's employees have successfully completed initial training
in the United States as provided under Section 5.4.1, and is
further satisfied that Master Licensee is capable of successfully
training managers and employees of each Licensee in the
Territory, notwithstanding any terms and conditions in any
License Agreement to the contrary, Master Licensee shall furnish
training to all Licensees and all of Licensees' employees for all
System Facilities in the Territory, as such training is required
under the License Agreement. Master Licensee agrees to assume,
and does hereby assume, all such obligations of Licensor to
furnish initial training under each License Agreement. Master
Licensee shall employ a trainer fluent in the English language
who shall complete, to Licensor's satisfaction, Licensor's
training program, at Master Licensee's sole cost and expense.
Master Licensee shall immediately employ a replacement trainer if
such trainer ceases to be Master Licensee's trainer. Such
trainer shall provide training to Licensee's employees, at such
System Facility or other reasonable location as Master Licensee
shall designate. Master Licensee shall, at its sole cost and
expense, provide, equip, and commence operation of a training
program using such trainer which will obtain the same results in
training as does Licensor's training school in the United States,
as determined by Licensor, for the purpose of providing training
as required under each License Agreement. From time to time,
Licensor may attend and/or conduct an audit of the Master
Licensee's training program. If Licensor, in its sole judgement,
determines there are deficiencies in Master Licensee's training
program, Master Licensee shall take such action as is required by
Licensor to correct such deficiencies, including, without
limitation, (a) replacing the Master Licensee's trainer, (b)
requiring Master Licensee's trainer to attend additional training
in the United States, at Master Licensee's sole cost and expense,
or (c) requiring Licensees' employees to attend Licensor's
initial training program in the United States.
5.4.4 Advertising and Promotional Materials and Other
Items. Master Licensee shall require all advertising and
promotional materials, signs, decorations, paper goods (including
all forms and stationery used hereunder), and other items which
may be designated by Licensor, to bear the Marks and the
description of the services offered by each System Facility in
the form, color, location, and manner prescribed by Licensor.
5.5 Rights and Obligations Related to Licensees and
Developers.
5.5.1 Prospective Licensees and Developers. In dealing
with prospective licensees and prospective developers, Master
Licensee shall:
5.5.1.1 Make no representations or warranties in
conflict with the terms and conditions of the License Agreement
or Development Agreement, the Manuals, or other related
documents; and
5.5.1.2 Carefully screen and evaluate prospective
Licensees and Developers pursuant to the standards prescribed by
Licensor.
5.5.2 Master Licensee's Duties. For each Licensee and
Developer, Master Licensee shall, at its sole expense, promptly
fulfill all its duties, require each Licensee and Developer to
fulfill all their obligations, and enforce all the terms and
conditions, under each License Agreement and Development
Agreement. In this regard, Master Licensee shall:
5.5.2.1 Provide site selection counseling and
assistance, on-site inspections, site evaluations, and site
recommendations, in accordance with applicable standards for
sites under the System;
5.5.2.2 Provide training programs;
5.5.2.3 Provide to each Licensee the plans for the
construction of the interior design and layout of the System
Facility, advice and consultation to the Licensee with regard to
the construction and/or renovation of each System Facility,
conduct on-site inspections during construction and/or
renovation, and ensure upon completion of construction and/or
renovation that construction and/or renovation has been completed
in accordance with the plans and specifications;
5.5.2.4 Upon completion of construction and/or
renovation, inspect each System Facility to confirm that it has
been equipped in accordance with the plans and specifications;
5.5.2.5 Provide the Manuals and all updates to the
Manuals:
5.5.2.6 Provide such opening assistance, and other
assistance as designated by Licensor and as required by the
License Agreement and Development Agreement;
5.5.2.7 Require each Licensee to acquire certain
laundry and wetcleaning equipment from approved suppliers;
5.5.2.8 Visit each System Facility in the Territory
at least two (2) times each year during the term of the relevant
License Agreement and any renewals, in order to provide
continuing assistance as reasonably requested by the Licensee,
inspect the premises of such System Facility to determine whether
Licensee's continued operation is in conformity with Licensor's
procedures, standards, and specifications, and verify compliance
by Licensee and Licensee's employees with applicable laws and
procedures; and
5.5.2.9 Monitor (and submit to Licensor, at least
once every twelve (12) months) written reports on such forms and
at such times as Licensor may request) and, upon Licensor's
request, promptly take all steps necessary to remedy any and all
matters reasonably requested by Licensor, including:
5.5.2.9.1 Any apparent deficiencies and problems
concerning the uniformity and quality of service provided by the
Licensee;
5.5.2.9.2 Any apparent opportunities for the
Licensee to improve its performance;
5.5.2.9.3 Any apparent deviations from Licensor's
operating procedures, standards, and specifications or from
proper usage of the Marks; and
5.5.2.9.4 Any apparent violations of applicable
laws.
5.5.3 Enforcement of Agreements. Master Licensee shall
enforce each term and condition of each Development Agreement and
of each License Agreement, including timely payments, adherence
to the Manuals, correct use of the Marks, successful completion
of training, compliance with any development obligations,
adherence to site selection and construction criteria, and
compliance with operating standards. Moreover, Master Licensee
must fulfill each of its duties under each Development Agreement
and each License Agreement in a competent and timely manner.
5.5.4 Services, Products, Equipment and Programs
Developed By Master Licensee. Master Licensee hereby agrees and
affirms that any and all cleaning or laundering services,
products, equipment and/or programs, and any inventions,
discoveries, technologies, services or products related thereto,
irrespective of whether they are or are not patented or
patentable, and any sales, marketing, or promotional programs or
campaigns concerning same, which are developed by or on behalf of
Master Licensee or any Licensee in conjunction with, for use in,
arising from, or related to the business licensed hereunder, and
which in any way relate directly or indirectly to any Licensee's
System Facility or the business licensed hereunder, procedural,
technical, or commercial needs, problems, developments, or
projects, or to Master Licensee's production, research or
experimental developments and projects (collectively, "Master
Licensee-developed know-how") are hereby irrevocably and
permanently licensed to Licensor for incorporation in the System
and subsequent use by Licensor, its affiliates, and, if Licensor
determines, for use by other Master Licensees and Licensees, and
Master Licensee agrees to make prompt disclosure to Licensor of
all such inventions and discoveries.
5.5.4.1 Further, Licensor shall have the right to
apply for, obtain, and own for its sole and exclusive benefit
patents for any patentable Master Licensee-developed or Licensee-
developed know-how if Master Licensee declines to apply for and
obtain such patents. Licensor, its affiliates and its Licensees
shall not, as a consequence of Licensor's acquisition of such
license or patent rights, be liable to Master Licensee or any
Licensee in any fashion whatsoever, be it compensation or
otherwise.
5.5.4.2 If Master Licensee or any Licensee declines
to apply for and obtain patents for any patentable Master
Licensee-developed or Licensee-developed know-how, Master
Licensee agrees to, and require Licensee to, execute,
acknowledge, make, and deliver, to Licensor or its attorney
without compensation (but without expense to Master Licensee),
any and all instruments, including United States and foreign
patent applications, applications for securing, protecting, or
registering any property rights embraced within this Agreement,
powers of attorney, assignments, oaths, or affirmations,
supplemental oaths, and sworn statements, and to do any and all
lawful acts which in the judgement of Licensor or its attorney
may be necessary or desirable to vest in, or secure for, or
maintain for the benefit of Licensor adequate patent and other
property rights in the United States and all foreign countries
with respect to any and all such Master Licensee-developed or
Licensee-developed know-how, whether published or unpublished and
whether or not the subject of statutory industrial property or
copyright protection.
5.6 Other Requirements and Obligations. Master Licensee
shall comply with all other requirements and perform such other
obligations as provided hereunder.
5.7 Non-Proprietary Products. Master Licensee shall
comply, and shall require Licensees to comply, with all of
Licensor's standards and specifications relating to the purchase
of all supplies, materials, fixtures, furnishings, equipment
(including computer hardware and software), decor items, signs,
delivery vehicles (including alternative fuel vehicles), food and
beverage items and other products used or offered for sale at or
from each System Facility. Master Licensee shall require
Licensees to obtain all cleaning and laundry equipment used at
System Facilities solely from suppliers (including manufacturers,
distributors and other sources) who continue to demonstrate the
ability to meet Licensor's then-current standards and
specifications for such equipment used at or from System
Facilities and routes and who possess adequate quality controls
and capacity to supply Master Licensee's needs promptly and
reliably; and who have been approved in writing by Licensor prior
to any purchases by Master Licensee from any such supplier, and
who have not thereafter been disapproved by Licensor. If any
Licensee desires to purchase, lease or use any such equipment
from an unapproved supplier, Master Licensee shall submit to
Licensor a written request for such approval, or shall request
the supplier itself to do so. Master Licensee shall not permit
any Licensee to purchase or lease from any supplier until and
unless such supplier has been approved in writing by Licensor.
Licensor shall have the right to require that its representatives
be permitted to inspect the supplier's facilities and that
samples from the supplier be delivered, either to Licensor or to
an independent laboratory designated by Licensor for testing. A
charge not to exceed the reasonable cost of the inspection and
the actual cost of the test shall be paid by Master Licensee or
the supplier. Licensor reserves the right, at its option, to re-
inspect from time to time the facilities and products of any such
approved supplier and to revoke its approval upon the supplier's
failure to continue to meet any of Licensor's then-current
criteria. Nothing in the foregoing shall be construed to require
Licensor to approve any particular supplier.
6. MARKS
6.1 Application for the Marks. Licensor represents with
respect to the Marks that Licensor has the right to use, and to
license others to use, the Marks; Licensor has applied for, or
will apply for, registration in [Malaysia] [Brunei] for the Marks
described in Exhibit F hereto; and all other steps reasonably
necessary to preserve and protect the ownership and validity of
the Marks will be taken. Master Licensee acknowledges that
Licensor has applied for, but has not yet received, registration
of the Marks described in Exhibit F attached hereto. Master
Licensee further acknowledges and agrees that Licensor may be
unable to obtain registration of some or all of the Marks for
which registration has been made, and that Licensor shall incur
no liability to Master Licensee or any Licensee for any failure
to obtain such registration. Master Licensee acknowledges that
Licensor is the owner of all right, title and interest together
with all the goodwill in and to, the Marks, registered and
unregistered.
6.2 Non-Ownership of Marks by Master Licensee. Master
Licensee expressly understands and acknowledges that:
6.2.1 As between Licensor and Master Licensee, Licensor
is the owner of all right, title and interest in and to the Marks
and the goodwill associated with and symbolized by them.
6.2.2 Neither Master Licensee nor any Principals
shall take any action that would prejudice or interfere with the
validity of Licensor's rights with respect to the Marks. Nothing
in this Agreement shall give the Master Licensee any right,
title, or interest in or to any of the Marks or any of Licensor's
service marks, trademarks, trade names, trade dress, logos,
copyrights or proprietary materials, except the right to use the
Marks and the System in accordance with the terms and conditions
of this Agreement.
6.2.3 Master Licensee understands and agrees that any
and all goodwill arising from Master Licensee's and Licensee's
use of the Marks and the System shall inure solely and
exclusively to Licensor's benefit, and upon expiration or
termination of this Agreement and the license herein granted, no
monetary amount shall be assigned as attributable to any goodwill
associated with Master Licensee's use of the Marks.
6.2.4 Master Licensee shall not contest the validity
of Licensor's interest in the Marks or assist others to contest
the validity of Licensor's interest in the Marks.
6.2.5 Master Licensee acknowledges that any unauthorized
use of the Marks shall constitute an infringement of Licensor's
rights in the Marks and a material event of default hereunder.
Master Licensee agrees that it shall provide Licensor with all
assignments, affidavits, documents, information and assistance
Licensor reasonably requests to fully vest in Licensor all such
rights, title and interest in and to the Marks, including all
such items as are reasonably requested by Licensor to register,
maintain and enforce such rights in the Marks.
6.2.6 If it becomes advisable at any time, in the
discretion of Licensor, to modify or discontinue use of any Mark
and/or to adopt or use one (1) or more additional or substituted
Marks, then Master Licensee shall comply with any such
instruction by Licensor, and shall require each Licensee to
comply with such requirement. Master Licensee, and each of the
Licensees, shall promptly make any and all such changes to all
signage, stationery, and other items bearing the Marks, at their
respective cost and expense; provided such changes are not
required by Licensor more than one (1) time in any five-year
period. In the event any such changes are required more than one
time in any five-year period, the sole obligation of Licensor in
such event shall be to reimburse Master Licensee and the
Licensees for their documented expenses (such as changing signs,
stationery, etc.) of compliance therewith. Master Licensee
hereby waives, and Master Licensee shall require each of the
Licensees to waive, any other claim arising from or relating to
any such Mark change, modification or substitution. Except as
provided herein, Licensor shall not be liable to Master Licensee
or any Licensee for any expenses, losses or damages sustained by
Master Licensee or any Licensee as a result of any such Mark
addition, modification, substitution or discontinuation, and
Master Licensee hereby covenants not to commence or join in any
litigation or other proceeding, and to require Licensees to
covenant not to commence or join in any litigation or other
proceeding, against Licensor for any such expenses, losses or
damages.
Specifically, and without limitation to the foregoing,
Master Licensee expressly affirms and agrees that Licensor may
sell its assets, its Marks, or its System outright to a third
party; may go public; may engage in a private placement of some
or all of its securities; may merge, acquire other corporations,
or be acquired by another corporation; may undertake a
refinancing, recapitalization, leveraged buyout or other economic
or financial restructuring; and, with regard to any or all of the
above sales, assignments and dispositions, Master Licensee
expressly and specifically waives any claims, demands or damages
arising from or related to the loss of said Marks (or any
variation thereof) and/or the loss of association with or
identification of "Ecofranchising Inc." as Licensor hereunder.
6.2.7 Master Licensee agrees to assign to Licensor any
and all applications for the use of the Marks in any country in
the Territory which have been filed prior to the execution of
this Agreement.
6.3 Use and Display of Marks. With respect to Master
Licensee's licensed use of the Marks pursuant to this Agreement,
Master Licensee further agrees that:
6.3.1 Unless otherwise authorized or required by
Licensor, Master Licensee shall operate the business licensed
hereunder only under the name "Ecomat" without prefix or suffix.
Master Licensee shall not use the Marks as part of its corporate
or other legal name.
6.3.2 During the term of this Agreement, Master Licensee
shall identify itself as the master licensee in conjunction with
any use of the Marks, including, but not limited to, uses on
invoices, order forms, receipts and contracts.
6.3.3 Master Licensee shall not use the Marks to incur
any obligation or indebtedness on behalf of Licensor.
6.3.4 Master Licensee shall comply with Licensor's
instructions in filing and maintaining the requisite trade name
or fictitious name registrations, and shall execute any documents
deemed necessary by Licensor or its counsel to obtain protection
of the Marks or to maintain their continued validity and
enforceability, including, without limitation, a registered user
agreement.
6.3.5 Master Licensee shall not register, nor seek to
register any trademark or service mark using the words "Ecomat,"
any Mark, or any trademark or service mark confusingly similar
thereto, in the Territory or any other country at any time.
6.3.6 Master Licensee shall use all Marks in full
compliance with rules prescribed from time to time by Licensor in
its Manuals or otherwise. Master Licensee is prohibited (except
as expressly provided or mandated herein) from using any Mark
with any prefix, suffix, or other modifying words, terms, designs
or symbols (other than logos licensed by Licensor to Master
Licensee). In addition, Master Licensee may not use any Mark in
connection with the sale of any unauthorized program, product or
service or in any other manner not explicitly authorized in
writing by Licensor. Further, Master Licensee shall use the
Marks only for the operation of the business licensed hereunder
or in advertising for such business. Master Licensee's right to
use the Marks is limited to such uses as are authorized
hereunder, and any unauthorized use thereof shall constitute an
infringement of Licensor's rights and a material and incurable
breach of this Agreement which, unless waived by Licensor, shall
entitle Licensor to terminate this Agreement unilaterally and
immediately upon notice to Master Licensee, with no opportunity
to cure, and this Agreement shall thereafter be null, void and of
no effect (except for those post-termination and post-expiration
provisions which by their nature shall survive).
6.4 Prosecution of Infringers. Master Licensee shall
notify Licensor immediately of any apparent infringement of the
Marks, or challenge to Master Licensee's use of any Mark, or of
any claim by any person of any rights in any Mark, and Master
Licensee and the Principals shall not communicate with any person
other than Licensor or any designated affiliate thereof, their
counsel and Master Licensee's counsel in connection with any such
infringement, challenge or claim. Licensor shall have complete
discretion to take such action as it deems appropriate in
connection with the foregoing, and the right to control
exclusively, or to delegate control to any of its affiliates of,
any settlement, litigation or any proceeding arising out of any
such alleged infringement, challenge or claim or otherwise
relating to any Mark. Master Licensee agrees to execute, and to
require each Licensee to execute, any and all instruments and
documents, render such assistance, and do such acts or things as
may, in the opinion of Licensor, reasonably be necessary or
advisable to protect and maintain the interests of Licensor or
any affiliate in any litigation or other proceeding or to
otherwise protect and maintain the interests of Licensor or any
other interested party in the Marks.
6.5 Defense of Marks By Licensor. In the event that
Master Licensee or any Licensee receives notice or is informed or
learns of any claim, suit or demand against it on account of any
alleged infringement, unfair competition, or similar matter
relating to the use of the Marks, Master Licensee shall promptly
notify Licensor of any such claim, suit or demand. Thereupon,
Licensor shall promptly take such action as it may deem necessary
to protect and defend Master Licensee or any Licensee against any
such claim by any third party based solely upon any such alleged
infringement, unfair competition, or similar matter relating to
the use of the Marks, and shall indemnify Master Licensee and any
Licensee against any loss, cost or expense incurred in connection
therewith. Neither Master Licensee nor any Licensee shall settle
or compromise any such claim by a third party without the prior
written consent of Licensor. Licensor shall have the right to
defend, compromise and settle any such claim at its sole cost and
expense, using its own counsel, and Master Licensee agrees to
cooperate fully, and to require each Licensee to cooperate fully,
with Licensor in connection with the defense of any such claim.
Licensor is hereby irrevocably granted authority and is appointed
Master Licensee's and each Licensee's attorney in fact to defend
and/or settle all of such claims, demands or suits. Master
Licensee and each Licensee may participate at his own expense in
such defense or settlement, but Licensor's decisions with regard
thereto shall be final. Notwithstanding anything herein
contained to the contrary, Licensor shall have no obligation to
defend or indemnify Master Licensee or any Licensee pursuant to
this Agreement or any License Agreement, respectively, if the
claim, suit or demand against Master Licensee or any Licensee
arises out of or relates to Master Licensee's use of the Marks in
violation of the terms of this Agreement or any License
Agreement, respectively.
6.6 Nonexclusive License. The right and license of the
Marks granted hereunder to Master Licensee is nonexclusive and
Licensor and its affiliates thus have and retain the following
rights, among others, subject only to the limitations of
Section 1:
6.6.1 To grant other licenses for use of the Marks;
6.6.2 To develop and establish other systems using the
Marks or other names or marks and to grant licenses thereto
without providing any rights to Master Licensee; and
6.6.3 To engage, directly or indirectly, through its
affiliates, employees, representatives, licensees, assigns,
agents and others, at wholesale, retail or otherwise, in the
production, distribution, license and sale of products and
services, and to use in connection with such production,
distribution and sale, the Marks and any and all trademarks,
trade names, service marks, logos, insignia, slogans, emblems,
symbols, designs and other identifying characteristics as may be
developed or used from time to time by Licensor.
7. THE MANUALS; CONFIDENTIAL INFORMATION
7.1 The Manuals.
7.1.1 To protect the reputation and goodwill of Licensor
and to maintain high standards of operation under Licensor's
Marks, Master Licensee shall require each Licensee to conduct its
System Facility in accordance with the Manuals, other written
directives which Licensor may issue to Master Licensee from time
to time whether or not such directives are included in the
Manuals, and any other manuals and materials created or approved
for use in the operation of the business licensed hereunder.
Master Licensee acknowledges and agrees that the Manuals, and the
rights to use the System hereunder, relate solely to the
operation of a single System Facility, and do not contain a
description as to operation of Licensor.
7.1.2 Master Licensee may, at any time, propose to
Licensor changes in the Manuals, at its sole cost and expense, to
adapt the Manuals to the laws, customs, and market
characteristics of the countries of Malaysia and Brunei.
Licensor shall use its best efforts to review such proposed
adaptations within thirty (30) days of Licensor's submission to
Licensor. Any conversion of measurements in the Manual to the
metric system shall be made by the Master Licensee at its sole
cost and expense. Master Licensee shall not use the adapted
Manuals without Licensor's prior written approval. All
requirements of this Agreement related to the Manuals shall apply
to both the original version of the Manuals provided to Master
Licensee and any such adapted Manuals. Licensor shall furnish
one (1) copy of adapted Manuals (and approved changes thereto)
for the Malaysian and Bruneian versions of the Manuals to each
Licensee that has executed a License Agreement for each such
country.
7.1.3 Master Licensee and the Principals shall at all
times treat the Manuals, any written directives of Licensor, and
any other manuals and materials, and the information contained
therein, as confidential and shall maintain such information as
secret and confidential in accordance with this Section 7.
Master Licensee and the Principals shall not at any time copy,
duplicate, record or otherwise reproduce such materials, in whole
or in part, or otherwise make the same available to any
unauthorized person.
7.1.4 All copies of the Manuals, written directives,
other manuals and materials and any other confidential
communications provided or approved by Licensor shall at all
times remain the sole property of Licensor, and all such Manuals
and other materials shall be returned to Licensor immediately
upon request or upon termination or expiration of this Agreement.
7.1.5 The Manuals, any written directives, and any other
manuals and materials issued by Licensor and any modifications to
such materials shall supplement this Agreement.
7.1.6 Licensor may from time to time revise the contents
of the Manuals and the contents of any other manuals and
materials created or approved for use in the operation of any
System Facility. Master Licensee expressly agrees to require
each Licensee to comply with each new or changed standard.
7.1.7 Master Licensee shall at all times ensure that the
Manuals are kept current and up to date. In the event of any
dispute as to the contents of the Manuals, the terms of the
master copy of the Manuals in the English language maintained by
Licensor at Licensor's corporate office shall control.
7.1.8 The subject matter of the Manuals used in the
United States may include (but need not be limited to nor
necessarily include all of) the following matters: services,
equipment, technologies and procedures relating to the
establishment and operation of environmentally friendly
laundromat and cleaning facilities, including self-service, drop-
off services, and pickup and delivery services; components,
requirements, duties, standards, procedures, policies, systems,
techniques, guidelines and specifications pertaining to the
System and to the operation of a licensed System Facility;
services, products and programs embraced by the System and
authorized for sale by Licensees; staff composition and
organization systems; programs, procedures and guidelines;
quality assurance programs; supervision systems; recordkeeping
systems and materials; advertising and public relations systems
and materials; purchasing procedures; proprietary books,
catalogues, literature and other writings and manuals; certain
bookkeeping and accounting materials and techniques; management
and control systems; personnel qualifications; reports; forms;
display of signs and notices; authorized or required equipment,
appliances and appurtenances; hours of operation; required uses
of Marks; insurance requirements; license requirements; required
attire; required manner of offering and selling Ecomat programs,
services and products; standards of maintenance and appearance;
customer satisfaction; staff training requirements; training
specifications; and, additions to, deletions from, modifications
to and variations of the programs, services, products and other
components constituting the System, including standards and
specifications relating thereto.
7.2 Confidential Information.
7.2.1 Neither Master Licensee nor any its Principals
shall, during the term of this Agreement or thereafter,
communicate, divulge or use for the benefit of any other person,
persons, partnership, association or corporation and, following
the expiration or termination of this Agreement, they shall not
use for their own benefit, any confidential information,
knowledge or know-how concerning the methods of operation of the
business licensed hereunder which may be communicated to them or
of which they may be apprised in connection with the operation of
any System Facility under the terms of this Agreement. Master
Licensee and the Principals shall divulge such confidential
information only to such of each of Master Licensee's and each of
Licensee's employees as must have access to it in order to
operate a System Facility. Any and all information, knowledge,
know-how, techniques and any materials used in or related to the
System which Licensor provides to Master Licensee in connection
with this Agreement shall be deemed confidential for purposes of
this Agreement. Neither Master Licensee nor the Principals shall
at any time, without Licensor's prior written consent, copy,
duplicate, record or otherwise reproduce such materials or
information, in whole or in part, nor otherwise make the same
available to any unauthorized person. The covenant in this
Section shall survive the expiration, termination or transfer of
this Agreement or any interest herein and shall be perpetually
binding upon Master Licensee and each of the Principals.
Master Licensee specifically understands and affirms that
the following has been deemed to constitute confidential
information (without limitation): all products, services,
equipment, technologies and procedures relating to the
establishment and operation of environmentally friendly
laundromat and cleaning facilities, including self-service, drop-
off services, and pickup and delivery services; all systems of
operation, services, programs, products, procedures, policies,
standards, techniques, specifications and criteria which now
comprise or in the future may comprise a part of the System;
Licensor's Manuals; supplements and/or amendments to the Manuals;
records pertaining to customers or billings; methods of
advertising and promotion; customers; instructional materials;
staff composition and organization systems; quality assurance
programs; supervision systems; recommended services;
recordkeeping systems and materials; bookkeeping systems and
materials; business forms; product and service order forms;
general operations materials; revenue reports; standards of
interior and exterior design and decor; activity schedules; job
descriptions; advertising, promotional and public relations
materials, campaigns, guidelines and philosophy; specifications,
systems, standards, techniques, philosophies and materials,
guidelines, policies and procedures concerning the System;
additions to, deletions from, and modifications and variations of
the components constituting the System or the systems and methods
of operations which are now, or may in the future, be employed by
Licensor, including all standards and specifications relating
thereto and the means and manner of offering and selling same;
and, all other components, specifications, standards,
requirements and duties imposed by Licensor or its affiliates.
7.2.2 At Licensor's request, Master Licensee shall
require and obtain execution of covenants similar to those set
forth in Section 7.2.1 from any personnel of Master Licensee who
have received or will have access to confidential information or
training from Licensor. Such covenants shall be substantially in
the form set forth in Exhibit G.
8. BOOKS AND RECORDS
8.1 Financial Reports. Master Licensee shall comply, and
require Licensees to comply, with the following reporting
obligations:
8.1.1 Master Licensee shall, at Master Licensee's
expense, submit to Licensor, in the form prescribed by Licensor,
a monthly balance sheet and profit and loss statement (which may
be unaudited) for Master Licensee and each Licensee within twenty
(20) days after the end of each month during the term hereof.
Each such statement shall be signed by Master Licensee's and each
Licensee's treasurer or chief financial officer or comparable
officer attesting that it is true, complete and correct;
8.1.2 Master Licensee shall, at its expense, provide to
Licensor an unaudited complete annual financial statement of
Master Licensee and each Licensee, including a balance sheet,
profit and loss statement, statement of cash flows and statement
of financial condition. Master Licensee's annual financial
statement shall be prepared by an independent certified public
accountant satisfactory to Licensor, in accordance with generally
accepted accounting principles in Malaysia, shall be provided to
Licensor within ninety (90) days after the end of each fiscal
year of Master Licensee and each Licensee during the term hereof,
and shall show the results of operations of Master Licensee and
each Licensee during such fiscal year; and
8.1.3 Master Licensee shall also submit to Licensor, for
review or auditing, such other forms, reports, records,
information and data of Master Licensee and each Licensee as
Licensor may reasonably designate, in the form and at the times
and places reasonably required by Licensor, upon request and as
specified from time to time in writing.
8.1.4 All of Master Licensee's financial statements shall
be in the English language.
8.2 Audits. Licensor or its designees shall have the
right at all reasonable times to review, audit, examine and copy
the books and records of Master Licensee as Licensor may require,
and Master Licensee shall require each Licensee to permit
Licensor to review, audit, examine, and copy the books and
records of each Licensee.
8.3 Inconsistencies and Mistakes. Master Licensee
understands and agrees that the receipt or acceptance by Licensor
of any of the statements furnished or royalties paid to Licensor
(or the cashing of any royalty checks or the drafting of Master
Licensee's bank account for royalties due) shall not preclude
Licensor from questioning the correctness thereof at any time
and, in the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately
be rectified by the Master Licensee and the appropriate payment
shall be made by the Master Licensee.
9. ADVERTISING AND RELATED FEES
Recognizing that the System is comprised of System
Facilities, and further recognizing the importance of all such
variations to the System and the value of advertising and the
importance of the standardization of advertising programs to the
furtherance of the goodwill and public image of the System, the
parties agree as follows:
9.1 Local Advertising. Subject to any allocation of each
Licensee's expenditures for local advertising to the Cooperative
as described in Section 9.2, Master Licensee shall require each
Licensee to spend, during each month throughout the term of each
License Agreement, a minimum of three percent (3%) of the Gross
Sales (as defined in Section 2.4) of each System Facility on
advertising for such System Facility in its assigned area as such
term is defined in each License Agreement ("Local Advertising").
Master Licensee shall submit to Licensor an advertising
expenditure report accurately reflecting such expenditures by the
twentieth (20th) day of each month.
9.2 Advertising Cooperatives. Master Licensee shall have
the right, in its sole discretion, to designate any geographic
area as a region for purposes of establishing an advertising
cooperative ("Cooperative"). The members of the Cooperative for
any such area shall consist of all System Facilities in the area.
Each Cooperative shall be organized and governed in a form and
manner, and shall commence operation on a date, determined in
advance in writing by Licensor and Master Licensee. Each
Cooperative shall be organized for the exclusive purposes of
administering advertising programs and developing promotional
materials for use by the members in Local Advertising. Master
Licensee shall administer any such Cooperative as follows:
9.2.1 Master Licensee shall not require any Licensee to
contribute more than two percent (2%) of any Licensee's Gross
Sales during each month to the Cooperative unless, subject to
Licensor's approval, a majority of the Licensees which are
members of the Cooperative agree to the payment of a larger fee.
The payment of any such Cooperative fee (up to two percent (2%)
of any Licensee's monthly Gross Sales) shall be applied by Master
Licensee to any Licensee's Local Advertising requirement set
forth in Section 9.1 hereof;
9.2.2 Master Licensee shall submit to the Cooperative and
to Licensor such statements and reports as may be required by
Licensor or by the Cooperative. All contributions to the
Cooperative shall be maintained and administered in accordance
with the documents governing the Cooperative. The Cooperative
shall be operated solely as a conduit for the collection and
expenditure of the Cooperative fees for the purposes outlined
above; and
9.2.3 All advertising or promotional plans or materials
shall be used by the Cooperative or furnished to its members in
accordance with the terms of Section 9.3 hereof.
9.3 Advertising Standards and Approval. All advertising
and promotion by Master Licensee in any medium shall be conducted
in a dignified manner and shall conform to the standards and
requirements of Licensor as set forth in the Manuals or otherwise
in writing. If any advertising and promotional plans and
materials have not been prepared by Licensor or previously
approved by Licensor during the twelve (12) months prior to their
proposed use, Master Licensee shall submit such plans and
materials to Licensor. Licensor reserves the right to disapprove
the future use of any such materials on written notice to Master
Licensee. Master Licensee shall promptly discontinue use of any
advertising or promotional plans or materials, whether or not
previously approved, upon notice from Licensor. Notwithstanding
any other provision of this Section 9.3, Master Licensee shall
advise Licensor in writing prior to commencing any advertising
campaigns or programs in any portion of the Territory; shall
provide Licensor such information related thereto as Licensor
shall reasonably request; and shall obtain Licensor's prior
written approval prior to commencing any such campaign or
program.
9.4 Pricing. Each Licensee shall have the right to sell
its products and merchandise and offer services at any prices
such Licensee may determine, and shall in no way be bound by any
price which may be recommended or suggested by Licensor.
9.5 Electronic Advertising. Licensor reserves the right
to require the Master Licensee to pay Licensor up to Ten Thousand
U.S. Dollars (U.S. $10,000) for each twelve-month period within
which Master Licensee or any Licensee uses the internet or any
other form of electronic advertising in the Territory related to
the business licensed hereunder or any System Facility.
10. DEFAULT AND TERMINATION
10.1 Automatic Termination Without Notice. Master Licensee
shall be deemed to be materially in default under this Agreement
and all rights granted herein shall automatically terminate
without notice to Master Licensee (1) if Master Licensee becomes
insolvent or makes a general assignment for the benefit of
creditors or files a voluntary petition under any applicable
bankruptcy law or admits in writing its inability to pay its
debts when due; or (2) if Master Licensee is adjudicated bankrupt
or insolvent in proceedings filed against Master Licensee; or (3)
if a bill in equity or other proceeding for the appointment of a
receiver of Master Licensee or other custodian for Master
Licensee's business or assets is filed and consented to by Master
Licensee, or if a receiver or other custodian (permanent or
temporary) of Master Licensee's assets or property, or any part
thereof, is appointed by any court of competent jurisdiction; or
(4) if proceedings for a composition with creditors under any law
are instituted by or against Master Licensee; or (5) if a final
judgment against Master Licensee remains unsatisfied or of record
for thirty (30) days or longer; or (6) if Master Licensee is
dissolved; or (7) if execution is levied against Master
Licensee's business or property; or (8) if suit to foreclose any
lien or mortgage against the premises or equipment of any
business operated hereunder is instituted and not dismissed
within thirty (30) days; or (9) if the real or personal property
of any business operated hereunder shall be sold after levy by
any sheriff, marshal or constable.
10.2 Immediate Termination Upon Notice Without Opportunity
to Cure. Master Licensee shall be deemed to be materially in
default and Licensor may, at its option, terminate this Agreement
and all rights granted hereunder, without affording Master
Licensee any opportunity to cure the default except as provided
below, effective immediately upon written notice to Master
Licensee, upon the occurrence of any of the following events of
default:
10.2.1 If Master Licensee fails to execute each
License Agreement in accordance with Sections 1 and 4;
10.2.2 If Master Licensee or any of its Principals is
convicted of a serious crime, a crime involving moral turpitude
or any other crime or offense that Licensor believes is
reasonably likely to have an adverse effect on the System, the
Marks, the goodwill associated therewith or Licensor's interests
therein;
10.2.3 If a threat or danger to public health or
safety results from the construction, maintenance or operation of
any System Facility developed under any License Agreement;
10.2.4 If Master Licensee or any of its Principals
breach in any material respect any of the representations,
warranties and covenants in Section 5;
10.2.5 If a transfer or an attempt to transfer any
rights or obligations in violation of Section 11 hereof to any
third party is made without Licensor's prior written consent or
without offering Licensor a right of first refusal with respect
to such transfer;
10.2.6 If Master Licensee or any of the Principals
fails to comply with the covenants in Section 12.2 or if Master
Licensee fails to obtain the execution of the covenants required
under Section 12.8 within thirty (30) days following Licensor's
request that Master Licensee obtain the execution of such
covenants;
10.2.7 If an approved transfer upon death or permanent
disability is not effected within the time period and in the
manner prescribed by Section 11.4;
10.2.8 If Master Licensee misuses or makes any
unauthorized use of the Marks or otherwise materially impairs the
goodwill associated therewith or with the System or Licensor's
rights therein and does not cure such default within twenty-four
(24) hours following notice from Licensor;
10.2.9 If Master Licensee or any of its affiliates
fails, refuses, or neglects promptly to pay when due any monetary
obligation owing to Licensor or any of its affiliates under this
Agreement or any other agreement and does not cure such default
within thirty (30) days following notice from Licensor;
10.2.10 If Master Licensee, or any of its Principals,
repeatedly commits a material event of default under this
Agreement, whether or not such defaults are of the same or
different nature and whether or not such defaults have been cured
by Master Licensee after notice by Licensor;
10.2.11 If Master Licensee makes a willful
misrepresentation or fails to make a material disclosure required
by any governmental authority regarding any matter involving or
affecting Master Licensee's obligations under this Agreement;
10.2.12 If Master Licensee interferes or attempts to
interfere with Licensor's contractual relations with other
licensees, clients, employees, advertising agencies or any third
parties;
10.2.13 If Master Licensee interferes or attempts to
interfere with Licensor's ability or right to franchise or
license others to use and employ Licensor's Marks and System;
10.2.14 If Master Licensee, in an unauthorized fashion,
utilizes or duplicates any aspect of Licensor's System, business,
services, programs or products;
10.2.15 If, contrary to the terms of Section 7 hereof,
Master Licensee or any of the Principals discloses or divulges
any confidential information provided to Master Licensee or the
Principals by Licensor; or
10.2.16 If Master Licensee knowingly maintains false
books or records, or submits any false reports to Licensor.
10.3 Termination Upon Notice With Opportunity to Cure.
Except as provided above in Section 10.2, if Master Licensee
fails to comply with any other term or condition imposed by this
Agreement, Licensor may terminate this Agreement only by giving
written notice of termination stating the nature of such default
to Master Licensee at least thirty (30) days prior to the
effective date of termination; provided, however, that Master
Licensee may avoid termination by immediately initiating a remedy
to cure such default and curing it to Licensor's satisfaction
within the thirty (30) day period and by promptly providing proof
thereof to Licensor. If any such default is not cured within the
specified time, this Agreement shall terminate Master Licensee's
rights under this Agreement without further notice to Master
Licensee effective immediately upon the expiration of the thirty
(30) day period. Defaults which are susceptible of cure
hereunder may include, but are not limited to, the following
illustrative events:
10.3.1 If Master Licensee fails to comply with any of
the requirements imposed by this Agreement (except for Master
Licensee's failure to meet the Development Schedule), as it may
from time to time be amended or reasonably be supplemented by
Licensor, or fails to carry out the terms of this Agreement in
good faith;
10.3.2 If Master Licensee fails to fulfill promptly all
its obligations, fails to promptly to require each Licensee or
Developer to fulfill all its obligations, or fails to enforce all
the terms and conditions, under each License Agreement and
Development Agreement;
10.3.3 If Master Licensee fails to maintain or observe
any of the standards, specifications or procedures prescribed by
Licensor in this Agreement or otherwise in writing;
10.3.4 If Master Licensee fails, refuses, or neglects
to obtain Licensor's prior written approval or consent as
required by this Agreement;
10.3.5 If Master Licensee or any of its Principals
engages in any business or markets any service or product under a
name or mark which, in Licensor's opinion, is confusingly similar
to Licensor's Proprietary Marks;
10.3.6 If Master Licensee fails to pay any obligations
to any third parties which may result in liability to Licensor;
10.3.7 If Master Licensee fails to indemnify Licensor
as required by this Agreement;
10.3.8 If Master Licensee fails, for a period of ten
(10) calendar days after notification of non-compliance, to
comply with any national or local law or regulation applicable to
Master Licensee's obligations under this Agreement or the
operation of any System Facilities; or
10.3.9 If Master Licensee, by act or omission, permits
a continued violation in connection with the performance of his
obligations hereunder or the operation of any of the System
Facilities of any law, ordinance, rule or regulation of a
governmental agency in the absence of a good faith dispute over
its application or legality and without promptly resorting to an
appropriate administrative or judicial forum for relief
therefrom.
10.4 Cross-Default. Licensor shall have the right, at its
option, to terminate this Agreement immediately on notice to
Master Licensee in the event of a default by Master Licensee
under any other agreement between Licensor or any of its
affiliates and Master Licensee or any of its affiliates, for
which such agreement has been terminated or for which such
agreement is subject to termination by its terms.
10.5 Post-Termination. Upon termination or expiration of
this Agreement, all rights granted hereunder to Master Licensee
shall forthwith terminate, and:
10.5.1 Upon the termination or expiration of this
Agreement, Master Licensee shall have no right to enter into a
License Agreement for any System Facility for which a License
Agreement has not been executed by Master Licensee and a
Licensee, and been delivered to Licensor at the time of
termination or expiration.
10.5.2 Master Licensee shall immediately and
permanently cease to use, in any manner whatsoever, any
confidential methods, computer software, procedures, and
techniques associated with the System; the mark "Ecomat"; and all
other Marks and distinctive forms, slogans, signs, symbols, and
devices associated with the System. In particular, Master
Licensee shall cease to use, without limitation, all signs,
advertising materials, displays, stationery, forms, and any other
articles which display the Marks.
10.5.3 Master Licensee shall take such action as may be
necessary to cancel any assumed name or equivalent registration
which contains the mark "Ecomat" or any other service mark or
trademark of Licensor, and Master Licensee shall furnish Licensor
with evidence satisfactory to Licensor of compliance with this
obligation within five (5) days after termination or expiration
of this Agreement.
10.5.4 Master Licensee agrees, in the event it
continues to operate or subsequently begins to operate any other
business, not to 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
Licensor's rights in and to the Marks, and further agrees not to
utilize any designation of origin or description or
representation which falsely suggests or represents an
association or connection with Licensor constituting unfair
competition.
10.5.5 Master Licensee and its Principals shall
promptly pay all sums owing to Licensor and its affiliates. Such
sums shall include all damages, costs and expenses, including
reasonable attorneys' fees, incurred by Licensor as a result of
any default by Master Licensee, which obligation shall give rise
to and remain, until paid in full, a lien in favor of Licensor
against any and all of the personal property, furnishings,
equipment, signs, fixtures, and inventory owned by Master
Licensee.
10.5.6 Master Licensee shall immediately transfer to
Licensor all Master Licensee's rights and obligations in all
License Agreements and Development Agreements, and shall execute,
and, upon Licensor's request, require any Licensee or Developer
to execute, all documents reasonably required by Licensor in
connection with such transfer in a form satisfactory to Licensor.
10.5.7 Master Licensee and its Principals shall pay to
Licensor all damages, costs and expenses, including reasonable
attorneys' fees, incurred by Licensor in connection with
obtaining any remedy available to Licensor for any violation of
this Agreement and, subsequent to the termination or expiration
of this Agreement, in obtaining injunctive or other relief for
the enforcement of any provisions under this Agreement.
10.5.8 Master Licensee shall immediately deliver to
Licensor all Manuals, records, files, instructions,
correspondence, any computer hardware and software licensed by
Licensor, all materials related to operating any System Facility,
including, without limitation, agreements, invoices, and any and
all other materials relating to the operation of such facilities
in Master Licensee's possession or control, and all copies
thereof (all of which are acknowledged to be Licensor's
property), and shall retain no copy or record of any of the
foregoing, except Master Licensee's copy of this Agreement and of
any correspondence between the parties and any other documents
which Master Licensee reasonably needs for compliance with any
provision of law.
10.5.9 Master Licensee and its Principals shall comply
with the restrictions on confidential information contained in
Section 7 of this Agreement and shall also comply with the non-
competition covenants contained in Section 12. Any other person
required to execute similar covenants pursuant to Section 12.8
shall also comply with such covenants.
10.5.10 Master Licensee shall also immediately furnish
Licensor an itemized list of all advertising and sales promotion
materials bearing the Marks or any of Licensor's distinctive
markings, designs, labels, or other marks thereon. Licensor
shall have the right to inspect these materials. Licensor shall
have the option, exercisable within thirty (30) days after such
inspection, to purchase any or all of the materials at Master
Licensee's cost. Materials not purchased by Licensor shall not
be utilized by Master Licensee or any other party for any purpose
unless authorized in writing by Licensor.
10.6 Licensor's Rights. If Licensor terminates this
Agreement in accordance with this Section 10, Licensor shall be
entitled to establish, and to license others to establish, System
Facilities in the Territory, except as may be otherwise provided
under any License Agreement which is then in effect.
10.7 No Waiver. Licensor's exercise of any of its rights
hereunder shall not, in the event of a default, constitute a
waiver by Licensor to exercise its option to terminate this
Agreement at any time with respect to a subsequent event of
default of a similar or different nature.
10.8 No Exclusion. No right or remedy herein conferred upon
or reserved to Licensor is exclusive of any other right or remedy
provided or permitted by law or in equity.
11. TRANSFER OF INTEREST
11.1 Transfer by Licensor. Licensor shall have the right to
transfer or assign this Agreement and all or any part of its
rights or obligations herein to any person or legal entity;
provided, however, that Licensor make such transfer or assignment
only if Licensor reasonably believes that such person or legal
entity is capable of performing the rights and obligations of
Licensor transferred or assigned under this Agreement.
Specifically, and without limitation of the foregoing, Master
Licensee agrees that Licensor may sell its assets, the Marks or
the System to a third party; may offer its securities privately
or publicly; may merge, acquire other corporations, or be
acquired by another corporation; may undertake a refinancing,
recapitalization, leveraged buyout or other economic or financial
restructuring; and, with regard to any or all of the above sales,
assignments and dispositions, Master Licensee expressly and
specifically waives any claims, demands or damages against
Licensor arising from or related to the transfer of the Marks (or
any variation thereof) or the System from Licensor to any other
party. Nothing contained in this Agreement shall require
Licensor to remain in the business of operating or licensing the
operation of System Facilities or other facilities or to offer
any services or products, whether or not bearing the Marks, to
Master Licensee, if Licensor assigns its rights in this
Agreement.
11.2 Transfer by Master Licensee.
11.2.1 Master Licensee and its Principals understand
and acknowledge that the rights and duties set forth in this
Agreement are personal to Master Licensee and that Licensor has
granted such rights in reliance on the business skill, financial
capacity and personal character of Master Licensee and its
Principals. Accordingly, neither Master Licensee nor any
Principal, nor any successor or assign of Master Licensee or any
Principal, shall sell, assign, transfer, convey, give away,
pledge, mortgage or otherwise dispose of or encumber any direct
or indirect interest in this Agreement, in Master Licensee, or
any interest of Master Licensee in any License Agreement, or
permit any transfer under any License Agreement by any Licensee
or person with an interest in Licensee, without the prior written
consent of Licensor. Any purported assignment or transfer, by
operation of law or otherwise, made in violation of this
Agreement shall be null and void and shall constitute a material
event of default under this Agreement.
11.2.2 If Master Licensee wishes to transfer any such
interest described in Section 11.2.1 requiring Licensor's
consent, Master Licensee and the proposed transferee shall apply
to Licensor for its consent. Licensor shall not unreasonably
withhold its consent to any such transfer. Licensor may,
however, in its sole discretion, require any or all of the
following as conditions of its approval to any such transfer:
11.2.2.1 All the accrued monetary obligations of
Master Licensee and its affiliates and all other outstanding
obligations to Licensor and its affiliates arising under this
Agreement or any other agreement shall have been satisfied in a
timely manner and Master Licensee shall have satisfied all trade
accounts and other debts, of whatever nature or kind, in a timely
manner;
11.2.2.2 Master Licensee and its affiliates shall not
be in default of any provision of this Agreement, any amendment
hereof or successor hereto, or any other agreement between Master
Licensee or any of its affiliates and Licensor or any of its
affiliates, and Master Licensee shall have substantially and
timely complied with all the terms and conditions of such
agreements during the terms thereof;
11.2.2.3 The transferor and its principals, as
applicable, shall have executed a general release, in a form
satisfactory to Licensor, of any and all claims, against
Licensor, its affiliates, and the respective officers, directors,
shareholders, partners, agents, representatives, independent
contractors, servants and employees of each of them, in their
corporate and individual capacities, including, without
limitation, claims arising under this Agreement, and any other
agreement between Master Licensee and Licensor or any of its
affiliates or under national or local laws, rules, regulations or
orders;
11.2.2.4 The transferee shall demonstrate to
Licensor's satisfaction that transferee meets the criteria
considered by Licensor when reviewing a prospective Master
Licensee's application for master license rights, including, but
not limited to, Licensor's educational, managerial and business
standards, transferee's good moral character, business reputation
and credit rating, transferee's aptitude and ability to conduct
the business contemplated hereunder (as may be evidenced by prior
related business experience or otherwise), transferee's financial
resources and capital for operation of the business licensed
hereunder;
11.2.2.5 The transferee shall enter into a written
agreement, in a form satisfactory to Licensor, assuming full,
unconditional, joint and several, liability for and agreeing to
perform from the date of the transfer, all obligations, covenants
and agreements contained in this Agreement; and such of
transferee's principals as Licensor may designate shall execute
such agreement as transferee's Principals and guarantee the
performance of all such obligations, covenants and agreements;
11.2.2.6 The transferee shall execute the standard
form master license agreement then being offered to new System
master licensees or a revised form of this Agreement, as Licensor
deems appropriate, and such other ancillary agreements as
Licensor may require, all of which shall be adapted for use under
Malaysian law and in accordance with this Agreement and which
agreements shall supersede this Agreement and its ancillary
documents in all respects and the terms of which agreements may
differ from the terms of this Agreement, (except that the
Development Schedule shall remain the same), and such of
transferee's principals as Licensor may designate as Principals
shall execute such agreements as transferee's Principals and
guarantee the performance of all such obligations, covenants and
agreements;
11.2.2.7 The transferor shall remain liable for all of
the obligations to Licensor in connection with this Agreement
incurred prior to the effective date of the transfer and shall
execute any and all instruments reasonably requested by Licensor
to evidence such liability;
11.2.2.8 Master Licensee shall pay to Licensor a
transfer fee of Five Thousand U.S. Dollars (U.S. $5,000) to
reimburse Licensor for its reasonable costs and expenses
associated with reviewing the application to transfer, including,
without limitation, legal and accounting fees;
11.2.2.9 The transferee shall make and will be bound
by any or all of the representations, warranties and covenants
set forth at Section 5 as Licensor requests. Transferee shall
provide to Licensor evidence satisfactory to Licensor that the
terms of such Section 5 have been satisfied and are true and
correct on the date of transfer;
11.2.2.10 The transferor shall furnish to Licensor a
copy of the executed contract of assignment; and
11.2.2.11 The transferor shall remain liable for all
the obligations to Licensor arising out of or related to this
Agreement prior to the effective date of the transfer or
assignment, and shall execute all instruments reasonably
requested by Licensor to evidence such liability.
11.2.3 Master Licensee acknowledges and agrees that
each condition which must be met by the transferee is reasonable
and necessary to assure such transferee's full performance of the
obligations hereunder.
11.2.4 Master Licensee agrees to defend at its own cost
and to indemnify and hold harmless Licensor, its corporate
parent, and the subsidiaries, affiliates, designees,
shareholders, directors, officers, employees and agents of either
entity, from and against any and all losses, costs, expenses
(including attorneys' and experts' fees), court costs, claims,
demands, damages, liabilities, however caused (whether or not
such losses, costs, expenses, court costs, claims, demands,
damages or liabilities are reduced to prejudgment), resulting
directly or indirectly from or pertaining to any statements,
representations or warranties that may be given by Master
Licensee or any of the Master Licensee's Principals to any
proposed assignee of the license.
11.3 Right of First Refusal.
11.3.1 If Master Licensee wishes to transfer all or
part of its interest in this Agreement or if Master Licensee or a
Principals wishes to transfer any ownership interest in Master
Licensee, pursuant to any bona fide offer received from a third
party to purchase such interest, then such proposed seller shall
promptly notify Licensor in writing of each such offer, and shall
provide such information and documentation relating to the offer
as Licensor may require. Licensor shall have the right and
option, exercisable within thirty (30) days after receipt of such
written notification, to send written notice to the transferor
that Licensor intends to purchase the transferor's interest on
the same terms and conditions offered by the third party. In the
event that Licensor elects to purchase the transferor's interest,
closing on such purchase must occur within sixty (60) days from
the date of notice to the transferor of the election to purchase
by Licensor, or such other date the parties agree upon in
writing. Any material change in the terms of any offer prior to
closing shall constitute a new offer subject to the same right of
first refusal by Licensor as in the case of an initial offer.
Failure of Licensor to exercise the option afforded by this
Section 11.3.1 shall not constitute a waiver of any other
provision of this Agreement, including all of the requirements of
this Section 11 relating to a proposed transfer.
11.3.2 In the event an offer from a third party
provides for payment of consideration other than cash or involves
certain intangible benefits, Licensor may elect to purchase the
interest proposed to be sold for the reasonable cash equivalent.
If the parties cannot agree within a reasonable time on the
reasonable cash equivalent of the non-cash part of the offer,
then such amount shall be determined by two (2) appraisers, with
each party selecting one (1) appraiser, and the average of their
determinations shall be final and binding. In the event of such
appraisal, each party shall bear its own legal and other costs
and shall split the appraisal fees. In the event that Licensor
exercises its right of first refusal herein provided, it shall
have the right to set off against any payment therefor (i) all
fees for any such independent appraiser due from Master Licensee
hereunder and (ii) all amounts due from Master Licensee to
Licensor or any of its affiliates.
11.3.3 Failure to comply with the provisions of this
Section 11.3 prior to the transfer of any interest in Master
Licensee or in this Agreement shall constitute a material event
of default under this Agreement.
11.4 Transfer Upon Death or Incapacity.
11.4.1 Upon the death of any Principal who is a natural
person and who has an interest in Master Licensee (the
"Deceased"), the executor, administrator or other personal
representative of the Deceased shall transfer such interest to a
third party in accordance with the conditions described in this
Section 11.4 within twelve (12) months after the death. If no
personal representative is designated or appointed or no probate
proceedings are instituted with respect to the estate of the
Deceased, then the distributee of such interest must be approved
by Licensor. If the distributee is not approved by Licensor,
then the distributee shall transfer such interest to a third
party approved by Licensor within twelve (12) months after the
death of the Deceased.
11.4.2 Upon the permanent disability of any Principal
who is a natural person and who has an interest in Master
Licensee, Licensor may, in its sole discretion, require such
interest to be transferred to a third party in accordance with
the conditions described in this Section 11.4.2 within six (6)
months after notice to Master Licensee. "Permanent disability"
shall mean any physical, emotional or mental injury, illness or
incapacity which would prevent a person from performing the
obligations set forth in this Agreement or in the guaranty made
part of this Agreement for at least ninety (90) consecutive days
and from which condition recovery within ninety (90) days from
the date of determination of disability is unlikely. Permanent
disability shall be determined upon examination of the person by
a licensed practicing physician selected by Licensor; or if the
person refuses to submit to an examination, then such person
shall be automatically deemed permanently disabled as of the date
of such refusal for the purpose of this Section 11.4.2. The
costs of any examination required by this Section shall be paid
by Licensor.
11.4.3 Upon the death or claim of permanent disability
of Master Licensee or any Principals, Master Licensee or a
representative of Master Licensee, must promptly notify Licensor
of such death or claim of permanent disability. Any transfer
upon death or permanent disability shall be subject to the same
terms and conditions as described in this Section 11 for any
inter vivos transfer. If an interest is not transferred upon
death or permanent disability as required in this Section 11.4,
then such failure shall constitute a material event of default
under this Agreement.
11.5 No Waiver. Licensor's consent to a transfer of any
interest described herein shall not constitute a waiver of any
claims which Licensor may have against the transferring party,
nor shall it be deemed a waiver of Licensor's right to demand
exact compliance with any of the terms of this Agreement by the
transferee.
11.6 Public Offerings. Securities of or partnership
interests in Master Licensee may be offered to the public, by
private offering or otherwise, only with the prior written
consent of Licensor which consent shall not be unreasonably
withheld. All materials required for such offering by applicable
law shall be submitted to Licensor for a limited review as
discussed below prior to being filed with any governmental
agency; and any materials to be used in any exempt offering shall
be submitted to Licensor for such review prior to their use. No
offering by Master Licensee shall imply (by use of the Marks or
otherwise) that Licensor is participating in an underwriting,
issuance or offering of Master Licensee's or Licensor's
securities or the securities of any affiliate of Licensor; and
Licensor's review of any offering materials shall be limited
solely to the subject of the relationship between Master Licensee
and Licensor and its affiliates. Licensor may, at its option,
require Master Licensee's offering materials to contain a written
statement prescribed by Licensor concerning the limitations
described in the preceding sentence. Master Licensee, its
Principals and the other participants in the offering must fully
indemnify Licensor and its affiliates, their respective partners,
and the officers, directors, shareholders, partners, agents,
representatives, independent contractors, servants and employees
of each of them, in connection with the offering. For each
proposed offering, Master Licensee shall pay to Licensor a
nonrefundable fee of Five Thousand U.S. Dollars (U.S. $5,000), or
such greater amount as is necessary to reimburse Licensor for its
reasonable costs and expenses associated with reviewing the
proposed offering materials, including, without limitation, legal
and accounting fees. Master Licensee shall give Licensor written
notice at least thirty (30) days prior to the date of
commencement of any offering or other transaction covered by this
Section.
11.7 No Encumbrance. Master Licensee shall not have the
right to pledge, encumber, hypothecate or otherwise give any
third party a security interest in this Agreement, the license
conveyed hereunder or the licensed Business in any manner
whatsoever without the prior written permission of Licensor,
which permission may be withheld for any reason whatsoever in
Licensor's sole subjective judgment.
12. COVENANTS
12.1 Management and Operation of Development Activities.
Master Licensee and its Principals covenant that during the term
of this Agreement, except as otherwise approved in writing by
Licensor, Master Licensee and the Principals shall devote full
energy and best efforts to the management and operation of the
development activities contemplated under this Agreement.
12.2 In-Term Covenant Against Competition. Master Licensee
and the Principals specifically acknowledge that, pursuant to
this Agreement, Master Licensee has the right and the obligation
to develop the Territory for the benefit of the System and, in
connection therewith, that Master Licensee and the Principals
will receive valuable training, trade secrets and confidential
information which are beyond the present skills and experience of
Master Licensee and the Principals and Master Licensee's managers
and employees. Master Licensee and the Principals acknowledge
that such specialized training, trade secrets and confidential
information provide a competitive advantage and will be valuable
to them in the development and operation of the System Facilities
and that gaining access to such specialized training, trade
secrets and confidential information is, therefore, a primary
reason for entering into this Agreement. In consideration for
such specialized training, trade secrets, confidential
information and rights, Master Licensee and the Principals
covenant that with respect to Master Licensee, during the term of
this Agreement (or with respect to each of the Principals, during
the term of this Agreement for so long as such individual or
entity satisfies the definition of "Principals" as defined in
Section 17.5 of this Agreement) except pursuant to valid License
Agreements with Master Licensee or as otherwise approved in
writing by Licensor, neither Master Licensee nor any of the
Principals shall, either directly or indirectly, for themselves
or through, on behalf of or in conjunction with any person(s),
partnership or corporation:
12.2.1 Divert, or attempt to divert, any business or
customer of the business described hereunder 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 and the System.
12.2.2 Employ, or seek to employ, any person who is at
that time or was within the preceding one hundred twenty (120)
days employed by Licensor or by any other Licensee or Master
Licensee of Licensor, or otherwise directly or indirectly induce
such person to leave that person's employment, except as may be
permitted under any existing master license agreement, operating
agreement, or license agreement between Licensor and Master
Licensee.
12.2.3 Own, maintain, operate, engage in or have any
financial or beneficial interest in (including any interest in
corporations, partnerships, trusts, unincorporated associations
or joint ventures), advise, assist or make loans to, any business
located within the Territory, or any other country, province,
state or geographic area in which Licensor has used, sought
registration of or registered the same or similar Marks or
operates or licenses others to operate a business under the same
or similar Marks, which business is of a character and concept
similar to the System Facilities, including any business which
operates or franchises laundromats or cleaning establishments
that provide self-service, drop-off or pickup and delivery
laundry services or drop-off or pickup and delivery cleaning
services for garments and other fabrics, whether such business
utilizes environmentally sound laundry or cleaning techniques or
traditional laundry or dry-cleaning techniques.
12.3 Post-Term Covenant Against Competition. With respect
to Master Licensee, and for a continuous uninterrupted period
commencing upon the expiration, termination, or transfer of all
of Master Licensee's interest in, this Agreement (or with respect
to each of the Principals, commencing upon the earlier of:
(i) the expiration, termination, or transfer of all of Master
Licensee's interest in this Agreement or (ii) the time such
individual or entity ceases to satisfy the definition of
"Principals" as described in Section 17.5 of this Agreement), and
continuing for two (2) years thereafter, except pursuant to valid
License Agreements with Master Licensee or as otherwise approved
in writing by Licensor, neither Master Licensee nor any of the
Principals shall, directly or indirectly, for themselves or
through, on behalf of or in conjunction with any person, persons,
partnership or corporation:
12.3.1 Divert, or attempt to divert, any business or
customer of the business described hereunder 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 Licensor's Marks and the System.
12.3.2 Employ, or seek to employ, any person who is at
that time or was within the preceding one hundred twenty (120)
days employed by Licensor or by any other Licensee or Master
Licensee of Licensor, or otherwise directly or indirectly induce
such person to leave that person's employment, except as may be
permitted under any existing master license agreement, operating
agreement, or license agreement between Licensor and Master
Licensee.
12.3.3 Own, maintain, operate, engage in or have any
financial or beneficial interest in (including any interest in
corporations, partnerships, trusts, unincorporated associations
or joint ventures), advise, assist or make loans to, any business
that is of a character and concept similar to the System
Facilities, including any business which operates or franchises
laundromats or cleaning establishments that provide self-service,
drop-off or pickup and delivery laundry services or drop-off or
pickup and delivery cleaning services for garments and other
fabrics, whether such business utilizes environmentally sound
laundry or cleaning techniques or traditional laundry or dry-
cleaning techniques, as of the earlier of: (i) the expiration,
termination or the transfer of all of Master Licensee's interest
in, this Agreement; or (ii) the time such Principals ceases to
satisfy the definition of a Principals, as applicable, which
business is, or is intended to be, located within:
12.3.3.1 the Territory; or
12.3.3.2 a three (3)-mile radius of any System Facility in
existence or under construction.
12.4 Competitive Business. Master Licensee and the
Principals are prohibited from engaging in any such competitive
business described in Sections 12.2 and 12.3 hereof, as a
proprietor, partner, investor, shareholder, director, officer,
employee, principal, agent, adviser, or consultant thereof. It
is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as
consultation for competitive businesses, service as an
independent contractor for such competitive businesses, or any
assistance or transmission of information of any kind or nature
whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent Master Licensee or the
Principals from owning for investment purposes up to an aggregate
of five (5%) percent of the capital stock of any such competitive
business, provided that said business is a publicly held
corporation, and provided that Master Licensee does not control
any such company. A "publicly held corporation" for purposes of
this Agreement shall mean any corporation which has securities
registered with any national or regional securities exchange or
traded through or on any national or regional securities
association in the Territory.
It is the intention of this provision that any person or
entity having any legal or beneficial interest in or traceable
to, down or through Master Licensee or the Principals be bound by
the provisions of the covenants in Sections 12.2 and 12.3 hereof,
including (without limitation) the spouse, brother,
brother-in-law, sister, sister-in-law, parents, parents-in-law,
child, son-in-law or daughter-in-law of Master Licensee or any of
the Principals; any direct or indirect beneficiary; any partner
(general or limited) or proprietor of Master Licensee; and, any
other such related person or entity, regardless of how many
levels or tiers there may be between any such described person or
entity and Master Licensee.
12.5 Lesser Included Covenants Enforceable at Law. The
parties acknowledge and agree that each of the covenants
contained herein are reasonable limitations as to time,
geographical area, and scope of activity to be restrained and do
not impose a greater restraint than is necessary to protect the
goodwill or other business interests of Licensor. The parties
agree that each of the covenants herein 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 12 is held
unreasonable or unenforceable by a court or agency having valid
jurisdiction in an unappealed final decision to which Licensor is
a party, Master Licensee and the Principals expressly agree to be
bound by any lesser covenant subsumed within the terms of such
covenant that imposes the maximum duty permitted by law, as if
the resulting covenant were separately stated in and made a part
of this Section 12.
12.6 Reduction of Scope by Licensor. Master Licensee and
the Principals understand and acknowledge that Licensor shall
have the right, in its sole discretion, to reduce the scope of
any covenant set forth in Sections 12.2, 12.3, and 12.4 hereof,
or any portion thereof, without their consent, effective
immediately upon notice to Master Licensee; and Master Licensee
and the Principals agree that they shall comply forthwith with
any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 18.1.
12.7 Claims no Defense; Costs and Expenses of Enforcement.
Master Licensee and the Principals expressly agree that the
existence of any claims they may have against Licensor, whether
or not arising from this Agreement, shall not constitute a
defense to the enforcement by Licensor of the covenants in this
Section. Master Licensee and the Principals agree to pay all
costs and expenses (including reasonable attorneys' fees)
incurred by Licensor in connection with the enforcement of this
Section 12.
12.8 Execution of Similar Covenants. At Licensor's request,
Master Licensee shall require and obtain the execution of
covenants similar to those set forth in Sections 12.2, 12.3, and
12.4 (including covenants applicable upon the termination of a
person's employment with Master Licensee) from any personnel of
Master Licensee who have received or will have access to
confidential information or training from Licensor. Such
covenants shall be substantially in the form set forth in
Exhibit G. Notwithstanding the foregoing, Licensor reserves the
right, in its sole discretion, to decrease the period of time or
geographic scope of the noncompetition covenant set forth in
Exhibit G or eliminate such noncompetition covenant altogether
for any party that is required to execute such agreement under
this Section 12.8.
12.9 Enforcement of Covenants. Master Licensee and the
Principals acknowledge that any failure to comply with the
requirements of this Section shall constitute a material event of
default under this Agreement. Master Licensee and the Principals
acknowledge that a violation of this Section would result in
irreparable injury to Licensor for which no adequate remedy at
law may be available, and Master Licensee and the Principals
accordingly consent to the issuance of an injunction prohibiting
any conduct by Master Licensee or the Principals in violation of
the terms of this Section. Master Licensee and the Principals
agree to pay all court costs and reasonable attorneys' fees
incurred by Licensor in connection with the enforcement of this
Section, including payment of all costs and expenses for
obtaining specific performance, injunctive relief or any other
remedy available to Licensor for any violation of the
requirements of this Section.
12.10 In the event of any violation of Section 7.2 hereof or
this Section 12, or of any agreement described in such sections,
the parties hereto agree that Licensor will be damaged and that,
at the time of execution of this Agreement, damages are difficult
to estimate. Accordingly, Licensor and Master Licensee agree
that in the event that Master Licensee violates Section 7.2 or
this Section 12 hereof, or any of Master Licensee's or any of
Licensee's employees, officers, directors, or managers who have
executed Confidentiality Agreement and Ancillary Covenants Not to
Compete, violate any such agreement, or any Licensee or Developer
violates a comparable provision in a License Agreement, Master
Licensee shall pay Fifty Thousand U.S. dollars (U.S. $50,000) to
Licensor as liquidated damages, and not as a penalty, for such
breach. Nothing herein shall bar Licensor from obtaining
injunctive relief or such additional damages as Licensor may
demonstrate it is entitled.
13. INDEPENDENT CONTRACTOR; INDEMNIFICATION; THIRD PARTY RIGHTS
13.1 Relationship of the Parties. The parties acknowledge
and agree that this Agreement does not create a fiduciary
relationship between them, that Master Licensee shall be an
independent contractor and that nothing in this Agreement is
intended to constitute either party an agent, legal
representative, subsidiary, joint venturer, partner, employee,
joint employer or servant of the other for any purpose.
13.2 Notice to Public. During the term of this Agreement,
Master Licensee shall hold itself out to the public as an
independent contractor conducting its operations pursuant to
master license rights and obligations granted by Licensor.
Master Licensee agrees to take such action as shall be necessary
to that end, including, without limitation, exhibiting a notice
of that fact in a conspicuous place at the premises of Master
Licensee's licensed business, the content and form of which
Licensor reserves the right to specify in writing.
13.3 No Ability to Bind or Impose Liability on Licensor.
Master Licensee understands and agrees that nothing in this
Agreement authorizes Master Licensee or any of the Principals to
make any contract, agreement, warranty or representation on
Licensor's behalf, or to incur any debt or other obligation in
Licensor's name and that Licensor shall in no event assume
liability for, or be deemed liable under this Agreement as a
result of, any such action, or for any act or omission of Master
Licensee or any of the Principals or any claim or judgment
arising therefrom.
13.4 Indemnification.
13.4.1 Master Licensee and each of the Principals
shall, at all times, indemnify and hold harmless to the fullest
extent permitted by law Licensor, its affiliates, successors and
assigns, and the respective officers, directors, shareholders,
partners, agents, representatives, independent contractors,
independent contractors, servants and employees of each of them
("Indemnitees") from all "losses and expenses" (as defined in
this Section 13.4 below) incurred in connection with any action,
suit, proceeding, claim, demand, investigation or inquiry (formal
or informal), or any settlement thereof (whether or not a formal
proceeding or action has been instituted) which arises out of or
is based upon any of the following:
13.4.1.1 The infringement, alleged infringement, or
any other violation or alleged violation by Master Licensee or an
Licensee or any of their Principals of any patent, mark,
copyright or other proprietary right owned or controlled by third
parties (except as such may occur with respect to any right to
use the Marks, any copyrights or other proprietary information
granted to Master Licensee or a Licensee hereunder or under a
License Agreement);
13.4.1.2 The violation, breach or asserted violation
or breach by Master Licensee, any of its Principals, any
Licensee, or any principals of any Licensee of any national or
local law, regulation, ruling, standard or directive, or any
industry standard;
13.4.1.3 Libel, slander or any other form of defama
tion of Licensor, the System, or any Master Licensee or Licensee
operating under the System, by Master Licensee, any of its
Principals, any Licensee, or any principals of any Licensee;
13.4.1.4 The violation or breach by Master Licensee,
any of the Principals, any Licensee, or any principals of
Licensee, of any warranty, representation, agreement or
obligation in this Agreement or in any License Agreement or other
agreement between Master Licensee or any of its affiliates and
Licensor or any of its affiliates, or the respective officers,
directors, shareholders, partners, agents, representatives,
independent contractors, servants and employees of any of them;
and
13.4.1.5 Acts, errors or omissions of Master Licensee
or any Licensee, any of Master Licensee's or any Licensee's
affiliates, any of the Principals and the officers, directors,
shareholders, partners, agents, representatives, independent
contractors, servants and employees of each of them in connection
with the performance of the activities contemplated under this
Agreement or the establishment and operation of any System
Facility pursuant to a License Agreement.
13.4.2 Master Licensee and each of the Principals agree
to give Licensor immediate notice of any such action, suit,
proceeding, claim, demand, inquiry or investigation. At the
expense and risk of Master Licensee and each of the Principals,
Licensor may elect to assume (but under no circumstance is
obligated to undertake), associate counsel of its own choosing
with respect to, the defense and/or settlement of any such
action, suit, proceeding, claim, demand, inquiry or investi
gation. Such an undertaking by Licensor shall, in no manner or
form, diminish the obligation of Master Licensee and each of the
Principals to indemnify the Indemnitees and to hold them
harmless.
13.4.3 In order to protect persons or property or its
reputation or goodwill, or the reputation or goodwill of others,
Licensor may, at any time and without notice, as it, in its
judgment deems appropriate, consent or agree to settlements or
take such other remedial or corrective action as it deems expedi
ent with respect to the action, suit, proceeding, claim, demand,
inquiry or investigation if, in Licensor's sole judgment, there
are reasonable grounds to believe that:
13.4.3.1 any of the acts or circumstances enumerated
in Section 13.4.3 above has occurred; or
13.4.3.2 any act, error or omission as described in
Section 13.4.3 may result directly or indirectly in damage,
injury or harm to any person or any property.
13.4.3.3 All losses and expenses incurred under this
Section 13 shall be chargeable to and paid by Master Licensee or
any of the Principals pursuant to its obligations of indemnity
under this Section, regardless of any action, activity or defense
undertaken by Licensor or the subsequent success or failure of
such action, activity or defense.
13.4.3.4 As used in this Section 13, the phrase
"losses and expenses" shall include, without limitation, all
losses, compensatory, exemplary or punitive damages, fines,
charges, costs, expenses, lost profits, legal fees, court costs,
settlement amounts, judgments, compensation for damages to
Licensor's reputation and goodwill, costs of or resulting from
delays, financing, costs of advertising material and media
time/space and costs of changing, substituting or replacing the
same, and any and all expenses of recall, refunds, compensation,
public notices and other such amounts incurred in connection with
the matters described.
13.4.4 The Indemnitees do not assume any liability
whatsoever for acts, errors or omissions of any third party with
whom Master Licensee, any of the Principals, Master Licensee's
affiliates or any of the officers, directors, shareholders,
partners, agents, representatives, independent contractors and
employees of Master Licensee or its affiliates may contract,
regardless of the purpose. Master Licensee and each of the
Principals shall hold harmless and indemnify the Indemnitees for
all losses and expenses which may arise out of any acts, errors
or omissions of Master Licensee, any Licensee, their Principals,
Master Licensee's or any Licensee's affiliates, the officers,
directors, shareholders, partners, agents, representatives,
independent contractors and employees of Master Licensee and
Licensees and their affiliates and any such third parties without
limitation and without regard to the cause or causes thereof or
the negligence of Licensor or any other party or parties arising
in connection therewith, and whether such negligence be sole,
joint or concurrent or active or passive.
13.4.5 Under no circumstances shall the Indemnitees be
required or obligated to seek recovery from third parties or
otherwise mitigate their losses in order to maintain a claim
against Master Licensee or any of the Principals. Master
Licensee and each of the Principals agree that the failure to
pursue such recovery or mitigate loss will in no way reduce the
amounts recoverable from Master Licensee or any of the Principals
by the Indemnitees.
13.4.6 Master Licensee and the Principals expressly
agree that the terms of this Section 13 shall survive the
termination, expiration or transfer of this Agreement or any
interest herein.
13.5 Third-Party Rights. Licensor and Master Licensee
agrees that Licensor shall be, at Licensee's election, and as
specified in the License Agreement, (1) a third-party beneficiary
of each License Agreement and Development Agreement or (2) a
party to each License Agreement and Development Agreement. Under
each such License Agreement and Development Agreement, Licensor
shall have the independent right (without, however, any
obligation) to assert each right of Master Licensee against
Licensee or Developer, respectively, and to enforce each
obligation of any Licensee or Developer, respectively, to Master
Licensee under any such License Agreement or Development
Agreement as if such right was held by Licensor and such
obligation was independently owed to Licensor regardless as to
whether Master Licensee has sought to assert such right or to
enforce such obligation. Master Licensee shall promptly
reimburse Licensor for any costs and expenses incurred by
Licensor in asserting any such right or enforcing any such
obligation, including, without limitation, transportation, food,
lodging, and legal fees and expenses. Licensor and Master
Licensee acknowledge and agree that Licensor has no direct or
indirect obligations to any Licensee or Developer, except to the
extent specifically stated herein.
14. APPROVALS
14.1 Manner of Obtaining Approval. Whenever this Agreement
requires the prior approval or consent of Licensor, Master
Licensee shall make a timely written request to Licensor and such
approval or consent shall be obtained in writing.
14.2 No Warranties or Guarantees. Licensor makes no
warranties or guarantees upon which Master Licensee may rely and
assumes no liability or obligation to Master Licensee or any
third party to which it would not otherwise be subject, by
providing any waiver, approval, advice, consent or suggestion to
Master Licensee in connection with this Agreement, or by reason
of any neglect, delay or denial of any request therefor.
15. NON-WAIVER AND REMEDIES
15.1 Waiver. No delay, waiver, omission or forbearance on
the part of Licensor to exercise any right, option, duty or power
arising out of any breach or default by Master Licensee or the
Principals under this Agreement shall constitute a waiver by
Licensor to enforce any such right, option, duty or power against
Master Licensee or the Principals, or as to a subsequent breach
or default by Master Licensee or the Principals. Acceptance by
Licensor of any payments due to it hereunder subsequent to the
time at which such payments are due shall not be deemed to be a
waiver by Licensor of any preceding breach by Master Licensee or
the Principals of any terms, provisions, covenants or conditions
of this Agreement.
15.2 Rights and Remedies. All rights and remedies of the
parties to this Agreement shall be cumulative and not
alternative, in addition to and not exclusive of any other rights
or remedies which are provided for herein or which may be
available at law or in equity in case of any breach, failure or
default or threatened breach, failure or default of any term,
provision or condition of this Agreement or any other agreement
between Master Licensee or any of its affiliates and Licensor or
any of its affiliates. The rights and remedies of the parties to
this Agreement shall be continuing and shall not be exhausted by
any one or more uses thereof and may be exercised at any time or
from time to time as often as may be expedient; and any option or
election to enforce any such right or remedy may be exercised or
taken at any time and from time to time. The expiration, earlier
termination or exercise of Licensor's rights pursuant to Section
10 of this Agreement shall not discharge or release Master
Licensee or any of the Principals from any liability or
obligation then accrued, or any liability or obligation
continuing beyond, or arising out of, the expiration, the earlier
termination or the exercise of such rights under this Agreement.
Additionally, Master Licensee and the Principals shall pay all
court costs and reasonable attorneys' fees incurred by Licensor
in obtaining any remedy available to Licensor for any violation
of this Agreement.
16. NOTICES
16.1 Any and all notices required or permitted under this
Agreement shall be in writing in the English language and shall
be personally delivered or mailed by expedited delivery service,
or sent by facsimile to the respective parties at the following
addresses unless and until a different address or telefax number
has been designated by written notice to the other party:
Notices to Licensor: Ecofranchising, Inc.
147 Palmer Avenue
Mamaroneck, New York 10538
Attention: President
Telefax Number: 914-777-3502
Notices to Master Licensee and
the Principals: ______________________________
______________________________
Malaysia
Telefax Number:_________________
Any notice shall be deemed to have been given at the time
of personal delivery or, in the case of facsimile upon
transmission (provided confirmation of receipt is furnished) or,
in the case of expedited delivery service, three (3) business
days after the date and time of mailing.
16.2 All other reports, invoices, documents, and
communications provided hereunder shall be given by parties to
one another in the English language, except as otherwise
specifically stated herein.
16.3 The English language version of this Agreement
shall govern and control.
17. SEVERABILITY AND CONSTRUCTION
17.1 Severability. Except as expressly provided to the
contrary herein, each portion, section, part, term and provision
of this Agreement shall be considered severable; and if, for any
reason, any portion, section, part, term or provision is
determined to be invalid and contrary to, or in conflict with,
any existing or future law or regulation by a court or agency
having valid jurisdiction, this shall not impair the operation
of, or have any other effect upon, the other portions, sections,
parts, terms or provisions of this Agreement that may remain
otherwise intelligible, and the latter shall continue to be given
full force and effect and bind the parties; the invalid portions,
sections, parts, terms or provisions shall be deemed not to be
part of this Agreement; and there shall be automatically added
such portion, section, part, term or provision as similar as
possible to that which was severed which shall be valid and not
contrary to or in conflict with any law or regulation.
17.2 Limitation on Persons Upon Whom Rights and Remedies
Conferred. Except as expressly provided to the contrary herein,
nothing in this Agreement is intended, nor shall be deemed, to
confer upon any person or legal entity other than Master Licensee
and Licensor's, officers, directors and personnel and such of
Master Licensee's and Licensor's respective successors and
assigns as may be contemplated any rights or remedies under or as
a result of this Agreement.
17.3 Captions. All captions in this Agreement are
intended solely for the convenience of the parties and shall not
affect the meaning or construction of any provision of this
Agreement.
17.4 Gender and Number. All references to the masculine,
neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, where applicable. Without limiting
the obligations individually undertaken by the Principals under
this Agreement, all acknowledgments, promises, covenants,
agreements and obligations made or undertaken by Master Licensee
in this Agreement shall be deemed, jointly and severally,
undertaken by all of the Principals.
17.5 Master Licensee's "Principals". The term Master
Licensee's "Principals" shall include, collectively and
individually, Master Licensee's spouse, if Master Licensee is an
individual, all officers and directors of Master Licensee
(including the officers and directors of any general partner of
Master Licensee) whom Licensor designates as Master Licensee's
Principals and all holders of an ownership interest in Master
Licensee and of any entity directly or indirectly controlling
Master Licensee. The initial Master Licensee's Principals are
Zaleha Read and Nina Ozurah BT. Osu.
17.6 Counterparts. This Agreement may be executed in
counterparts and each copy so executed shall be deemed an
original.
17.7 Effective Date. This Agreement shall not become
effective until signed by the President of Licensor.
17.8 Expenses of Litigation. Licensor shall be entitled
to recover from Master Licensee reasonable attorneys' fees,
experts' fees, court costs and all other expenses of arbitration
or litigation, in the event that Licensor prevails in any action
instituted by or against Master Licensee.
18. ENTIRE AGREEMENT; APPLICABLE LAW; DISPUTE RESOLUTION
18.1 Integration and Merger. This Agreement, the
documents referred to herein and the exhibits hereto, constitute
the entire, full and complete agreement between Licensor and
Master Licensee and the Principals concerning the subject matter
hereof and shall supersede all prior related agreements between
Licensor and Master Licensee and the Principals. Except for
those permitted to be made unilaterally by Licensor hereunder, no
amendment, change or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties
and executed by their authorized officers or agents in writing.
18.2 Governing Law. This Agreement is to be construed in
accordance with the law of Malaysia without recourse to Malaysian
choice of law or conflicts of law principles.
18.3 Arbitration. Except as described in Section 18.4
hereof, any claim or controversy arising out of or related to
this Agreement or the making, performance, or interpretation of
this Agreement shall be finally settled under the International
Rules of the American Arbitration Association then in force,
including the Supplementary Procedures for International
Commercial Arbitration, by one arbitrator appointed by the
American Arbitration Association in accordance with such rules.
The place of arbitration shall be in New York City, New York, and
the law applicable to the arbitration procedure shall be
determined by referring to the law of the place of arbitration.
The English language shall be used throughout the arbitral
proceedings. All costs of arbitration, including the
arbitrator's fee, shall be borne by the losing party. The
parties agree that the award of the arbitrator shall be the sole
and exclusive remedy between them regarding any claims,
counterclaims, issues, or accountings presented or pled to the
arbitrator; that it shall be made and shall promptly be payable
in U.S. dollars free of any tax, deduction or offset; and that
any costs, fees, or taxes incident to enforcing the award shall,
to the maximum extent permitted by law, be charged against the
party resisting such enforcement. The award shall include
interest from the date of any damages incurred for breach or
other violation of the contract, and from the date of the award
until paid in full, at a rate to be fixed by the arbitrator, but
in no event less than one-and-a-half percent (1.5%) per month, or
part of a month, from the date until paid.
18.4 Injunctive Relief. Nothing herein contained
(including, without limitation, Section 18.3 hereof, regarding
arbitration) shall bar Licensor's or Master Licensee's right to
obtain injunctive relief, from a court of competent jurisdiction,
against threatened conduct that will cause it loss or damage,
under the usual equity rules, including the applicable rules for
obtaining specific performance, restraining orders, and
preliminary injunctions.
18.5 Costs and Expenses. Each party shall bear its own
costs, and expenses, including all court costs, arbitration
costs, and reasonable attorneys' fees, incurred in any
arbitration or legal proceeding relating to this Agreement.
18.6 Nonexclusive Remedies. Neither the foregoing nor
any other remedy exercised by either party shall be deemed
exclusive but both parties shall be entitled cumulatively to
exercise any and all remedies available in law or equity, and its
exercise of any one right or remedy shall not preclude it from
exercising any other right or remedy.
19. ACKNOWLEDGMENTS
19.1 Investigation. Master Licensee acknowledges that it
has conducted an independent investigation of the business
venture contemplated by this Agreement and recognizes that the
success of this business venture involves substantial business
risks and will largely depend upon the ability of Master
Licensee's Principals. Licensor expressly disclaims making, and
Master Licensee acknowledges that it has not received or relied
on, any warranty or guarantee, express or implied, as to the
potential volume, profits or success of the business venture
contemplated by this Agreement. No representation has been made
by Licensor (or any employee, agent or salesperson thereof) and
relied upon by Master Licensee as to the future or past income,
expenses, sales volume or potential profitability, earnings or
income of the System Facility(ies) to be licensed to Master
Licensee, or any other System Facility.
19.2. Acknowledgment. Both Licensor and Master Licensee
further acknowledge and agree that Licensor has operated no
System Facilities in either country in the Territory; that
Licensor has made no representations or guarantees to Master
Licensee as to the viability, marketability, or adaptability in
either country in the Territory of the Licensor's System, System
Facilities or the products or services sold therefrom; and that
Master Licensee has performed its own independent research and
investigation as to the viability, marketability, and
adaptability in the countries in the Territory of Licensor's
System, System Facilities, and the products and services sold
therefrom, and assumes all of the business risks associated
therewith.
19.3 Advice. Master Licensee acknowledges that Master
Licensee has received, read and understands this Agreement and
the related exhibits and agreements and that Licensor has
afforded Master Licensee sufficient time and opportunity to
consult with advisors selected by Master Licensee about the
potential benefits and risks of entering into this Agreement.
19.4 Receipt Master Licensee acknowledges that it
received a complete copy of this Agreement and all related
Exhibits and agreements at least five (5) business days prior to
the date on which this Agreement was executed. Master Licensee
further acknowledges that it has received the disclosure document
required by the Trade Regulation Rule of the Federal Trade
Commission entitled "Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures" at
least ten (10) business days prior to the date on which this
Agreement was executed.
19.5 Reasonableness. The covenants not to compete set
forth in this Agreement are fair and reasonable, and will not
impose any undue hardship on Master Licensee and Master
Licensee's Principals, since Master Licensee and Master
Licensee's Principals have other considerable skills, experience
and education which afford them the opportunity to derive income
from other endeavors.
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this Agreement on the day and year first above
written.
LICENSOR:
ATTEST: ECOFRANCHISING, INC.
By: /s/ Diane Weiser
WITNESS Name: Diane Weiser
Title:
MASTER LICENSEE:
ATTEST: ELITE-FAME SDN BHD
By: /s/Zaleha Abdullah/Reed
WITNESS Name: Zaleha Abdullah/Reed
Title: Managing Director
By: /s/Nina Ozurah bt Ozu
Name: Nina Ozurah bt Ozu
Title: Director of Operations
and Training
Guarantee
Each of the undersigned acknowledges and agrees as follows:
(1) Each has read the terms and conditions of the Master
License Agreement and acknowledges that the execution of this
Guarantee and the undertakings of the Principals in the Master
License Agreement are in partial consideration for, and a
condition to, the granting of the rights in the Master License
Agreement, and that Licensor would not have granted such rights
without the execution of this guaranty and such undertakings by
each of the undersigned;
(2) Each is included in the term "Principals" as described
in Section 17.5 of the Master License Agreement;
(3) Each individually, jointly and severally, makes all of
the covenants, representations, warranties and agreements of the
Principals set forth in the Master License Agreement and is
obligated to perform thereunder; and
(4) Each individually, jointly and severally,
unconditionally and irrevocably guarantees to Licensor and its
successors and assigns that all of Master Licensee's obligations
under the Master License Agreement will be punctually paid and
performed. Upon default by Master Licensee or upon notice from
Licensor, each will immediately make each payment and perform
each obligation required of Master Licensee under the Master
License Agreement. Without affecting the obligations of any of
the Principals under this guaranty, Licensor may, without notice
to the Principals, waive, renew, extend, modify, amend or release
any indebtedness or obligation of Master Licensee or settle,
adjust or compromise any claims that Licensor may have against
Master Licensee. Each of the Principals waives all demands and
notices of every kind with respect to the enforcement of this
guaranty, including, without limitation, notice of presentment,
demand for payment or performance by Master Licensee, any default
by Master Licensee or any guarantor and any release of any
guarantor or other security for this guaranty or the obligations
of Master Licensee. Licensor may pursue its rights against any
of the Principals without first exhausting its remedies against
Master Licensee and without joining any other guarantor hereto
and no delay on the part of Licensor in the exercise of any right
or remedy shall operate as a waiver of such right or remedy, and
no single or partial exercise by Licensor of any right or remedy
shall preclude the further exercise of such right or remedy.
Upon receipt by Licensor of notice of the death of any of the
Principals, the estate of the deceased will be bound by the
foregoing guaranty, but only for defaults and obligations under
the Master License Agreement existing at the time of death, and
in such event, the obligations of the remaining Principals shall
continue in full force and effect. Principals agree that the
governing law and dispute resolution provisions contained in
Section 18 of the Agreement apply to this Guarantee.
Principals:
Witness Name: /s/Zaleha Abdullah/Read
Printed Name: Zaleha Abdullah/Read
Witness Name: /s/Nina Ozurah bt Ozu
Printed Name: Nina Ozurah bt Ozu
