UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended December 25, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _____ to _____.
COMMISSION FILE NUMBER: 0-24466
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0945858
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Industrial Boulevard NE
Minneapolis, MN 55413
(Address of principal executive offices)
(612) 331-8500
(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be
filed by Section 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____
On February 6, 1998, the registrant had 2,615,482 outstanding shares of
common stock, $.10 par value.
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings for the Quarter
Ended December 25, 1997 and December 26, 1996
Condensed Consolidated Statements of Financial Position at
December 25, 1997 and September 25, 1997
Condensed Consolidated Statements of Cash Flows for the
Quarter Ended December 25, 1997 and December 26, 1996
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 10.1 Form of Cost Cutters Family Hair Care Franchise Agreement
Exhibit 10.2 Form of Cost Cutters Family Hair Care Development Agreement
Exhibit 10.3 Form of City Looks Salons International Franchise Agreement
Exhibit 10.4 Form of City Looks Salons International Development Agreement
Exhibit 10.5 Form of We Care Hair Franchise Agreement
Exhibit 10.6 Form of We Care Hair Development Agreement
Exhibit 27 Financial Data Schedule
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FIRST QUARTER F1998
(UNAUDITED)
Three Months Ended
December 25, December 26,
1997 1996
------------ ------------
REVENUES
Franchise Royalties $ 1,889,429 $ 1,497,065
Franchise Fees 330,500 231,118
Company-Owned Salons 1,332,704 1,082,049
Beauty Products & Equipment 2,661,215 1,845,292
Other 222,980 187,529
------------ ------------
Total Revenues 6,436,828 4,843,053
COSTS & EXPENSES
Franchise Operations
Salaries & Benefits 553,305 450,085
General & Administrative 402,375 302,903
------------ ------------
Total 955,680 752,988
------------ ------------
Company-Owned Salons
Salaries & Benefits 689,241 581,208
General & Administrative 327,364 318,282
Cost of Products & Services 242,063 160,896
------------ ------------
Total 1,258,668 1,060,386
------------ ------------
Distribution & General Administration
Salaries & Benefits 797,716 660,009
General & Administrative 816,475 604,197
Cost of Products & Equipment 2,090,946 1,412,890
------------ ------------
Total 3,705,137 2,677,096
------------ ------------
OPERATING INCOME 517,343 352,583
OTHER INCOME (EXPENSE)
Interest Income 52,786 29,838
Interest Expense (54,119) (5,698)
Net Gain on Disposal of Assets -- 590
------------ ------------
INCOME BEFORE INCOME TAXES 516,010 377,313
INCOME TAX EXPENSE 217,000 158,000
------------ ------------
NET INCOME $ 299,010 $ 219,313
============ ============
AVERAGE SHARES OUTSTANDING 2,594,097 2,569,069
============ ============
BASIC EARNINGS PER SHARE $ 0.12 $ 0.09
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,865,195 2,805,833
============ ============
DILUTED EARNINGS PER SHARE $ 0.10 $ 0.08
============ ============
See notes to condensed consolidated financial statements.
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 25, September 25,
1997 1997
------------ ------------
ASSETS (Unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash $ 2,633,123 $ 2,789,933
Trade receivable, less allowance for doubtful
accounts of $500,000 in December 1997 and
$450,000 in September 1997 3,260,354 2,846,083
Notes receivable 541,279 596,635
Inventories held for resale 1,801,869 1,684,312
Prepaid expenses 114,354 120,744
Deferred income taxes 360,000 360,000
------------ ------------
Total current assets 8,710,979 8,397,707
Notes receivable, less current portion and allowance for
doubtful notes of $125,000 in December 1997 and
$125,000 in September 1997 597,357 621,877
Property, equipment and leasehold impovements, at cost:
Equipment 2,124,171 2,044,204
Leasehold improvements 945,150 945,150
------------ ------------
3,069,321 2,989,354
Less accumulated depreciation 2,165,883 2,094,285
------------ ------------
Net property, equipment and leasehold improvements 903,438 895,069
Investment in franchise contracts, less accumulated
amortization of $464,007 in December 1997 and
$419,260 in September 1997 2,276,871 2,321,618
Deferred income taxes 386,000 386,000
Other assets 302,091 286,271
------------ ------------
Total assets $ 13,176,736 $ 12,908,542
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital
lease obligations $ 365,880 $ 339,150
Accounts payable 647,625 573,088
Deferred franchise fees 137,500 90,000
Committed advertising 742,029 933,502
Accrued compensation and related payroll taxes 814,584 935,653
Other accrued expenses 431,724 296,548
Income taxes payable 240,670 202,934
------------ ------------
Total current liabilities 3,380,012 3,370,875
Long term debt and capital lease obligations 2,025,443 2,111,689
Deferred franchise fees 201,000 201,000
Deferred compensation 304,199 287,786
Shareholders' equity:
Common stock 260,050 259,195
Additional paid in capital 486,682 457,657
Retained earnings 6,519,350 6,220,340
------------ ------------
Total shareholder's equity 7,266,082 6,937,192
------------ ------------
Total liabilities and shareholders' equity $ 13,176,736 $ 12,908,542
============ ============
</TABLE>
Note 1: The balance sheet at September 25, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain fiscal 1997 items have been
reclassified to conform with the fiscal 1998 presentation.
See notes to condensed consolidated financial statements.
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 25, December 26,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 299,010 $ 219,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 116,345 95,124
Provision for losses on accounts and notes receivable 66,835 34,618
Gain on sales of property and equipment -- (590)
Stock compensation 20,400 19,080
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts and notes receivable (401,230) (444,404)
Inventories held for resale (117,557) (123,855)
Prepaid expenses 6,390 (32,041)
Other assets (15,820) (18,600)
(Decrease) increase in:
Payables and accrued expenses (86,416) (47,949)
Deferred franchise fees 47,500 63,500
Income taxes payable 37,736 55,666
------------ ------------
Net cash provided by (used in) operating activities (26,807) (180,138)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 590
Capital expenditures (79,967) (61,239)
Investment in franchise contracts -- (16,135)
------------ ------------
Net cash used in investing activities (79,967) (76,784)
FINANCING ACTIVITIES
Principle payments on long-term debt (59,516) (18,750)
Proceeds from issuance of stock options 9,480 (3,552)
------------ ------------
Net cash used in financing activities (50,036) (22,302)
------------ ------------
Net decrease in cash and cash equivalents (156,810) (279,224)
Cash and cash equivalents at beginning of period 2,789,933 1,317,448
------------ ------------
Cash and cash equivalents at end of period $ 2,633,123 $ 1,038,224
============ ============
CASH PAID DURING PERIOD FOR:
Interest $ 54,119 $ 5,698
Taxes $ 179,264 $ 102,334
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation of results have been included. Operating results for the three
months ended December 25, 1997, are not necessarily indicative of the results
that may be expected for the year ended September 24, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report for the fiscal year ended
September 25, 1997.
NOTE B - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE. Statement 128
replaced the previously reported primary and fully diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
Quarter Ended
-------------
December 25, December 26,
1997 1996
----------- -----------
Numerator:
Net Income $ 299,010 $ 219,313
=========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average
shares 2,594,097 2,569,069
Effect of dilutive stock options and
warrants 271,098 236,764
----------- -----------
Denominator for diluted earnings
per share - adjusted weighted
average shares 2,865,195 2,805,833
=========== ===========
Basic earnings per share $ 0.12 $ 0.09
=========== ===========
Diluted earnings per share $ 0.10 $ 0.08
=========== ===========
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is engaged in the business of franchising three different
hair care salon concepts that provide hair care services and products for men,
women, and children. Most franchises do business under the names "Cost Cutters
Family Hair Care(R)" ("Cost Cutters") or "City Looks Salons International(R)"
("City Looks"), and "We Care Hair(R)" ("We Care Hair"). The Company also has a
limited number of franchises operating under the names "The Barbers, Hairstyling
for Men & Women(R)", "Family Haircut Stores(R)" and "The Hair Performers(R)".
The Company currently sells only franchises in Cost Cutters, City Looks and We
Care Hair.
The Company had 962 franchised and Company-owned salons in operation as
of December 25, 1997, compared to 801 at December 26, 1996. The Company
primarily earns revenue through its franchise operations from initial franchise
fees, franchise royalties, and sales of beauty products and equipment to the
franchisees.
The Company operates on a 52/53 week year basis. The fiscal years 1998
and 1997 include 52 weeks of operations.
RESULTS OF OPERATIONS
REVENUES: The Company's total revenues were $6,436,828 for the first quarter of
fiscal 1998, an increase of $1,593,775 or 32.9% over the first quarter of the
previous year. Franchise royalties totaled $1,889,429 for the first quarter of
fiscal 1998 which is an increase of 26.2% over the comparable period for the
previous year. This increase was due to an increase in per store sales by
franchised salons as well as an increase in the number of salons in operation in
fiscal 1998 as compared to fiscal 1997 and the purchase of the We Care Hair
franchises. Franchise fee revenue (initial franchise fees) increased $99,382 or
43.0% to $330,500 for the first quarter of fiscal 1998. The increase in
franchise fee revenue was due to a increase in the number of salons opened
during the comparable periods. A total of thirty-one new salons opened in the
first quarter of fiscal 1998 versus nineteen new salons in the first quarter of
the previous year. Revenue from Company-owned salons was $1,332,704 for the
first quarter, an increase of 23.2% over the first quarter of the previous year.
The increase in revenue from Company-owned salons is due primarily to the
addition of new Company-owned salons and sales growth at salons opened last
year. Beauty product and equipment sales for the first quarter of fiscal 1998
were $2,661,215, an increase of $815,923 or 44.2% from the first quarter of the
previous year. The increase in beauty product and equipment sales was
attributable to the addition of new product lines, merchandising programs and an
increase in the total number of new salons opened during the first quarter of
fiscal 1998 compared to the same period for the previous year.
COSTS & EXPENSES - FRANCHISE OPERATIONS: Total franchise operations expenses
were $955,680 for the first quarter of fiscal 1998. This was an increase of
26.9% from the first quarter of fiscal 1997. The increase was due to growth in
field staff and related travel to service new salons including the We Care Hair
salons, and general salary increases averaging about 4%. Also, the operating
expenses of the first quarter of fiscal 1998 include the travel and meeting
costs for a franchisee convention held at a remote location. The franchisee
convention was held locally during the first quarter of fiscal 1997.
COSTS & EXPENSES - COMPANY-OWNED SALONS: The Company presently owns and operates
twenty-three salons: twenty-two operate as Cost Cutters salons and one operates
as a City Looks. Seventeen of the Cost Cutters operate inside Wal-Mart
Supercenters. First quarter operating costs for the Company-owned salons were
$1,258,668 as compared to $1,060,386 for the first quarter of the previous year,
an increase of 18.7%. This increase was primarily due to the costs associated
with increased sales of services and beauty products in the salons.
COSTS & EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION: Total operating
expenses for distribution and general administration for the first quarter of
fiscal 1998 were $3,705,137 which is a increase of $1,028,041 or 38.4% from the
first quarter of the prior year. Most of this increase was due to increased cost
of products and equipment sold, which corresponds to the increase in
<PAGE>
sales of products and equipment. The first quarter cost of products and
equipment sold was $2,090,946 versus a prior year cost of $1,412,890, an
increase of 48.0%. Margins on the sale of products and equipment were 21.4%
versus 23.4% the previous year. The decrease in margins is primarily due to
changes in product mix. Salaries and benefits were $797,716 for the first
quarter of fiscal 1998 versus $660,009 for the first quarter of fiscal 1997, an
increase of 20.9%. This increase was due to increases in staff size and an
average increase in salaries of 4.0%. General and administrative expenses for
the first quarter increased by $212,278 or 35.1% from the previous year to
$816,475. The majority of the increases were primarily legal and professional
fees associated with the acquisition of We Care Hair salons, amortization of the
We Care Hair investment, and increases in reserves for bad debts.
OPERATING INCOME: Operating income was $517,343 for the first quarter of fiscal
1998 as compared to $352,583 for the comparable period of the prior year, an
increase of 46.7%. Operating income as a percent of revenue was 8.0% for the
first quarter of fiscal 1998 versus 7.3% for the comparable period of the
previous fiscal year.
INTEREST INCOME AND EXPENSE: Interest income was $52,786 for the first quarter
of fiscal 1998, which is an increase of $22,948 or 76.9% from the interest
income of the first quarter of fiscal 1997. Interest expense was $54,119 for the
first quarter of fiscal 1998 compared to $5,698 for the comparable period of
fiscal 1997. This increase in interest expense was due to increases in long term
debt associated with the acquisition of We Care Hair.
NET GAIN ON DISPOSAL OF ASSETS: During the first quarter of fiscal 1998 the
Company did not sell any assets. During the comparable period of the previous
year, the $590 gain on the disposal of assets was due to the sale of
miscellaneous assets.
INCOME TAXES: The Company's effective tax rates for the first quarter of fiscal
1998 and fiscal 1997 were 42.1% and 41.9%, respectively. The Company anticipates
that the rate for the balance of fiscal 1998 will be approximately 42%.
NET INCOME: The Company's net income for the first quarter of 1998 was $299,010
or $.10 per diluted share. This was an increase of $79,697 or 36.3% over the
first quarter of fiscal 1997 net income and an increase of $.02 per diluted
share.
LIQUIDITY AND CAPITAL RESOURCES: The Company has generally been able to produce
sufficient cash from operations to support the routine expansion of its
business, and expects to continue to do the same in fiscal 1998. The Company
expects capital expenditures during fiscal 1998 to be approximately $500,000 to
$600,000, primarily due to the addition of new Company-owned salons, routine
replacement of office equipment and the addition of a new warehouse.
The Company currently has a line of credit in the amount of $1,500,000 which
carries an interest rate at the bank's prime rate which expires June 30, 1998.
In addition, the Company also has three term loans with this same lender. One of
these loans carries an interest rate equal to the bank's prime rate and had a
balance of $37,500 at December 25, 1997. A second loan also carries an interest
rate equal to the Bank's prime rate and had a balance of $1,000,000 at the end
of the quarter. The third loan carries an interest rate of 8.82% and had a
balance of $1,353,823.
Management believes that cash generated from operating activities, together with
available funds from its operating line of credit or replacement financing will
be sufficient to fund its anticipated operations, capital expenditures and
required debt repayments for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as set forth below, the Company is not currently a party to
any material pending legal proceedings. From time to time the Company may become
involved in routine litigation incidental to its business.
LELA BISHOP, ET AL. V. DOCTOR'S ASSOCIATES, INC., FREDERICK DELUCA,
PETER H. BUCK, FRANCHISE WORLD HEADQUARTERS, INC., WE CARE HAIR
DEVELOPMENT, INC., JOHN AMICO, SR., FRED FLORIO, THE BARBERS,
HAIRSTYLING FOR MEN & WOMEN, INC., WE CARE HAIR REALTY, INC., FRANCHISE
REAL ESTATE LEASING CORP., JOHN F. AMICO & COMPANY, WCH, INC. AND JAMI
INTERNATIONAL, INC. (Circuit Court, Third Judicial Circuit, Madison
County, Illinois, Cause No. 97-L-231, filed February 4, 1997).
Approximately 58 present or former We Care Hair(R) franchisees have
joined in this lawsuit and requested certification of the lawsuit as a
class action pursuant to 735 ILCS Section 5/2-801 et seq. on behalf of
all past and present We Care Hair(R) franchisees. This lawsuit has been
brought against the above defendants for alleged breaches of fiduciary
duty. The plaintiffs further allege that We Care Hair Development, Inc.
and all other defendants in this lawsuit have violated the Illinois
Anti-trust Statute, 740 ILCS Section 10/3 (2) or (3), by requiring We
Care Hair(R) franchisees to purchase alleged unusable hair care
products. The plaintiffs further allege that We Care Development, Inc.
and all other defendants in this lawsuit have violated the Illinois
Franchise Disclosure Act by using a standard franchise agreement for We
Care Hair(R) franchises that violated the anti-waiver provisions of 815
ILCS Section 705/41, and by engaging in fraudulent practices and
selling franchises at certain times during which We Care Development,
Inc.'s registration with the Illinois Attorney General's Office had
lapsed. The Company and its subsidiary, WCH, Inc., have been named as
defendants in this lawsuit under the theory that they acted with all
other defendants pursuant to a civil conspiracy and/or mutual scheme
with concerted action for the purpose of constructively terminating the
We Care Hair(R) franchises throughout the country by convincing We Care
Hair(R) franchisees to execute new franchise agreements with the
Company to operate as Cost Cutters franchisees and decrease and/or
eliminate all services and advertising for the remaining We Care
Hair(R) franchisees in violation of the Illinois Franchise Disclosure
Act. We Care Hair Realty, Inc., a wholly-owned subsidiary of WCH, Inc.,
has been named as a defendant in this lawsuit under the theory that it
also participated in the conspiracy or scheme by attempting to transfer
the We Care Hair(R) subleases to the Company and WCH, Inc. The
plaintiffs seek to recover an award of actual damages, punitive
damages, treble damages and attorneys fees in an amount not to exceed,
in the aggregate, under all counts of the complaint, against all
defendants, the sum of $74,950 for each franchisee, and for court
costs.
This case is in the early pretrial stage. The Company, WCH, Inc. and We
Care Hair Realty, Inc. have initiated an action in Illinois Federal District
Court seeking to compel arbitration of the claims of the plaintiffs. Although
this Federal Court action was dismissed for lack of jurisdiction, the dismissal
was appealed. Upon appeal, the dismissal has been reversed and remanded to the
Federal District Court to decided whether arbitration should be compelled. The
co-defendants have initiated a separate action in Illinois Federal District
Court also seeking to compel arbitration of the claims of the plaintiffs. By
order dated September 25, 1997, the Federal District Court compelled all
non-Illinois plaintiffs to arbitrate their disputes with the co-defendants, and
enjoined all non-Illinois plaintiffs from continuing the lawsuit against all
defendants, including the Company, WCH, Inc. and We Care Hair Realty, Inc. The
plaintiffs have appealed this ruling.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit
Number Description
- ------ -----------
10.1 Form of Cost Cutters Family Hair Care Franchise Agreement
10.2 Form of Cost Cutters Family Hair Care Development Agreement
10.3 Form of City Looks Salons International Franchise Agreement
10.4 Form of City Looks Salons International Development Agreement
10.5 Form of We Care Hair Franchise Agreement
10.6 Form of We Care Hair Development Agreement
27 Financial Data Schedule
(b) The Company filed a report on Form 8-K under Item 5 on December 15,
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Registrant)
Date: February 6, 1998 By: /s/ Frederick A. Huggins
------------------------
Frederick A. Huggins, Jr.
President
By: /s/ J. Brent Hanson
------------------------
J. Brent Hanson
Chief Financial Officer
EXHIBIT 10.1
FOR USE ONLY IN THE STATE OF /
FRANCHISE AGREEMENT
BETWEEN
COST CUTTERS, a division of The
Barbers, Hairstyling for Men & Women, Inc.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
Fax: (612) 331-2821
AND
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Name(s) of FRANCHISEE
---------------------------------------------------
Street
---------------------------------------------------
City State Zip Code
( )
---------------------------------------------------
Area Code Telephone
FRANCHISED LOCATION:
---------------------------------------------------
Street
---------------------------------------------------
City State Zip Code
( )
---------------------------------------------------
Area Code Telephone
DATE OF FRANCHISE AGREEMENT:
__________________________, 199___
<PAGE>
COST CUTTERS(R)
FRANCHISE AGREEMENT
INDEX
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
- ------- ----- ----
<S> <C>
1 FRANCHISED LOCATION; GRANT OF FRANCHISE............................................2
2 TERM; FRANCHISEE'S OPTION TO REACQUIRE FRANCHISE...................................3
3 COST CUTTERS' RIGHT TO LICENSE MARKS...............................................4
4 INITIAL FEE; APPROVAL OF FRANCHISEE................................................5
5 CONTINUING FEES....................................................................6
6 ADVERTISING........................................................................8
7 QUALITY CONTROL, UNIFORMITY AND STANDARDS REQUIRED OF THE FRANCHISEE..............11
8 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION..............................16
9 COST CUTTERS' TERMINATION RIGHTS..................................................17
10 FRANCHISEE'S TERMINATION RIGHTS...................................................19
11 FRANCHISEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION...........................20
12 FRANCHISEE'S COVENANTS NOT TO COMPETE.............................................21
13 COST CUTTERS' RIGHT OF FIRST REFUSAL TO PURCHASE..................................23
14 TRAINING PROGRAM; PRE-OPENING ASSISTANCE; OPENING ASSISTANCE......................26
15 COST CUTTERS' OTHER OBLIGATIONS...................................................27
16 COST CUTTERS SIGN.................................................................28
17 INSURANCE.........................................................................29
18 INDEPENDENT CONTRACTORS; INDEMNIFICATION..........................................30
19 FINANCIAL STATEMENTS; GROSS REVENUE REPORTS; FORMS AND ACCOUNTING.................31
20 ASSIGNMENT........................................................................33
21 SITE SELECTION; STANDARD STORE LAYOUTS AND PLANS..................................35
22 LEASE AS SECURITY; TERMINATION OF LEASE...........................................36
23 ARBITRATION.......................................................................38
24 ENFORCEMENT.......................................................................40
25 NOTICES...........................................................................43
26 ACKNOWLEDGMENTS...................................................................43
27 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL............................................45
28 GOVERNING LAW; STATE MODIFICATIONS................................................46
29 DEFINITIONS.......................................................................49
</TABLE>
PERSONAL GUARANTY
CONFIDENTIALITY AGREEMENT
LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
<PAGE>
COST CUTTERS(R)
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (this "Agreement") made, entered into and effective
this _____ day of _______________, 19___, by and between Cost Cutters, a
division of The Barbers, Hairstyling for Men & Women, Inc., a Minnesota
corporation ("COST CUTTERS"), and __________________________ (the "FRANCHISEE");
WITNESSETH:
WHEREAS, COST CUTTERS has developed and owns a distinctive business system for
operating hairstyling businesses of a distinctive character with the name "Cost
Cutters Family Hair Care(R)" (the "Business System" or the "Cost Cutters
Business System") and has publicized the name "Cost Cutters Family Hair
Care(R)", and other trademarks, trade names, service marks and commercial
symbols to the public as an organization of hairstyling businesses operating
under the Cost Cutters Business System; and
WHEREAS, COST CUTTERS represents that it has the right and authority to
franchise the use of the names "Cost Cutters(R)", Cost Cutters Family Hair
Care(R)" and certain other trademarks, trade names, service marks, logos and
commercial symbols (the "Marks") for use in connection with hairstyling
businesses operated in conformity with the Business System to selected persons
or entities who will comply with COST CUTTERS' uniformity requirements and
quality standards; and
WHEREAS, the FRANCHISEE desires to operate a Cost Cutters hairstyling business
at the location designated in Article 1 of this Agreement which will conform to
the uniformity requirements and quality standards established and promulgated
from time to time by COST CUTTERS; and
WHEREAS, COST CUTTERS is willing to provide the FRANCHISEE with marketing,
advertising, technology, operational and other business information, experience
and "know how" about the Cost Cutters business that has been developed over time
by COST CUTTERS at significant cost and expense; and
WHEREAS, the FRANCHISEE acknowledges that it would take substantial capital and
human resources to develop a business similar to the Cost Cutters business and,
as a consequence, the FRANCHISEE desires to acquire the right to use the Marks
and the Business System and to own and operate a Cost Cutters business subject
to and under the terms and conditions set forth in this Agreement; and
WHEREAS, the FRANCHISEE acknowledges that COST CUTTERS would not provide the
FRANCHISEE with any business information or "know how" about the Cost Cutters
Business System unless the FRANCHISEE agreed to comply with all of the terms and
conditions of this Agreement and to pay the Initial Fee, the Continuing Fees,
and the Advertising Fees specified in this Agreement; and
WHEREAS, the FRANCHISEE has had a full and adequate opportunity to be thoroughly
advised of the terms and conditions of this Agreement by legal counsel or
another adviser, and has had sufficient time to evaluate and investigate the
Cost Cutters Business System, the financial investment requirements, and the
business risks associated with owning and operating a Cost Cutters business;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement and for other good and valuable consideration, the parties
hereby contract as follows:
<PAGE>
ARTICLE 1
FRANCHISED LOCATION; GRANT OF FRANCHISE
1.1 FRANCHISED LOCATION. COST CUTTERS grants to the FRANCHISEE a nonexclusive
personal right to operate one Cost Cutters business in conformity with the Cost
Cutters Business System (the "Cost Cutters Business" or the "Business") and
further grants the FRANCHISEE a nonexclusive personal right to operate the
Business using the name Cost Cutters Family Hair Care(R) at the following single
location:
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(the "Franchised Location"). This Agreement does not grant any exclusive
territorial rights to the FRANCHISEE, and COST CUTTERS will have the right to
open and operate, and to grant to other franchisees the right to open and
operate, Cost Cutters businesses in conformity with the Business System using
the Marks at locations anywhere.
1.2 FRANCHISED LOCATION NOT DETERMINED. In the event the Franchised Location has
not yet been determined as of the date of this Agreement, then the geographical
area in which the FRANCHISEE'S Cost Cutters Business is to be located will be
described or defined in an exhibit signed by the parties and attached to this
Agreement. At such time as the address of the Franchised Location is determined,
then the address will be inserted into Article 1.1 of this Agreement.
1.3 RELOCATION. Notwithstanding any provisions of this Agreement to the
contrary, the FRANCHISEE may, with the prior written approval of COST CUTTERS,
relocate the Franchised Location to another location during the term of this
Agreement if the proposed new location does not compete with any Cost Cutters
business operated by COST CUTTERS or COST CUTTERS' Franchisees and the proposed
new location is located within two (2) miles of the Franchised Location. The
failure of the FRANCHISEE to obtain the written approval of COST CUTTERS prior
to the relocation of the Franchised Location, or the failure to have the new
location open for business within ten (10) business days after the Franchised
Location is closed, will be a material breach of this Agreement. In the event
the Franchised Location is relocated pursuant to this provision, the "new"
location, including the real estate and the building, must comply with all
applicable provisions of this Agreement and with COST CUTTERS' then-current
specifications.
1.4 DESTRUCTION OF FRANCHISED LOCATION. In the event the Franchised Location is
destroyed or rendered untenantable by fire, flood or other casualty, the term of
this Agreement will be extended for a period of time equal to the period of time
that the FRANCHISEE is unable to operate its Cost Cutters Business. If the
Franchised Location is rebuilt, repaired or restored to tenantable condition by
the owner of the premises, then the FRANCHISEE must resume business operations
within twelve (12) months of the date that the premises are restored to
tenantable condition by the owner. The FRANCHISEE'S failure to resume business
operations within such twelve (12) month period will constitute abandonment of
the Business. If the premises are not restored by the owner, then the FRANCHISEE
must relocate the Franchised Location pursuant to Article 1.3.
1.5 CONDITIONS TO FRANCHISE. The FRANCHISEE undertakes the obligation to operate
a Cost Cutters hairstyling Business at the Franchised Location under the Cost
Cutters Business System
<PAGE>
using the name Cost Cutters Family Hair Care(R) in strict compliance with the
terms and conditions of this Agreement for the entire term of this Agreement.
The rights and privileges granted to the FRANCHISEE by COST CUTTERS under this
Agreement are applicable only to the Franchised Location, are personal in
nature, and may not be used elsewhere or at any other location by the
FRANCHISEE.
1.6 PERSONAL LICENSE. The FRANCHISEE will not have the right to franchise,
subfranchise, license or sublicense its rights under this Agreement. The
FRANCHISEE will not assign or transfer its rights under this Agreement, except
as specifically provided for in this Agreement.
ARTICLE 2
TERM; FRANCHISEE'S OPTION TO REACQUIRE FRANCHISE
2.1 TERM. The term of this Agreement will be for fifteen (15) years, commencing
on the date set forth on Page F-1 of this Agreement. This Agreement will not be
considered executed and will not be enforceable until: (A) it has been signed by
COST CUTTERS and the FRANCHISEE, and, if the FRANCHISEE is a corporation or
partnership, the personal guarantors; and (B) the signed Agreement has been
delivered to the FRANCHISEE.
2.2 RIGHTS UPON EXPIRATION. At the expiration of the term of this Agreement, the
FRANCHISEE will have the option to reacquire the franchise for the Franchised
Location pursuant to Article 2.3 of this Agreement.
2.3 CONDITIONS TO OPTION. At the end of the term of this Agreement, the
FRANCHISEE will have the option to reacquire the franchise for the Franchised
Location provided that the following conditions have been met: (A) the
FRANCHISEE has given COST CUTTERS written notice at least one hundred eighty
(180) days prior to the end of the term of this Agreement of its commitment to
reacquire the franchise for the Franchised Location; (B) during the term of this
Agreement, the FRANCHISEE has complied with all of the material terms and
conditions of this Agreement and has complied with COST CUTTERS' material
operating and quality standards and procedures; (C) all monetary obligations
owed by the FRANCHISEE to COST CUTTERS have been paid or satisfied prior to the
end of the term of this Agreement, and have been timely met throughout the term
of this Agreement; (D) the FRANCHISEE has agreed, in writing, to make the
reasonable capital expenditures necessary to remodel, modernize, upgrade and
redecorate the Franchised Location and to replace and update the furniture,
fixtures, supplies, equipment and techniques used in the FRANCHISEE'S Cost
Cutters Business so that the FRANCHISEE'S Business will reflect the image
portrayed by COST CUTTERS' then-current decor and specifications; (E) the
FRANCHISEE agrees to execute and comply with the then-current standard Franchise
Agreement then being offered to new Franchisees by COST CUTTERS subject further
to the provisions of Article 2.4 of this Agreement; and (F) as of the date the
FRANCHISEE exercises its option to reacquire the franchise for the Franchised
Location, the FRANCHISEE either owns the Franchised Location or has the right to
lease the Franchised Location or a new location as set forth in Article 1.3 for
a term of at least three (3) years.
2.4 TERMS OF OPTION. The FRANCHISEE will have the option to reacquire the
franchise for the Franchised Location under the same terms and conditions then
being offered to other Franchisees by COST CUTTERS under COST CUTTERS'
then-current standard Franchise Agreement. If the FRANCHISEE exercises its right
to reacquire the franchise for the Franchised Location and executes the
then-current standard Franchise Agreement, the FRANCHISEE will not be required
to pay the Initial Fee, if any, specified in the then-current standard Franchise
Agreement. However, the FRANCHISEE will be required to pay the Continuing Fees,
Advertising Fees and any other fees or charges at the rates specified in the
then-current standard Franchise Agreement, and must comply with all other terms
and conditions of
<PAGE>
COST CUTTERS' then-current standard Franchise Agreement. The FRANCHISEE
acknowledges that the terms, conditions and economics of the then-current
standard Franchise Agreement of COST CUTTERS may, at that time, vary in
substance and form from the terms, conditions and economics of this Agreement.
ARTICLE 3
COST CUTTERS' RIGHT TO LICENSE MARKS
3.1 LICENSE OF MARKS. COST CUTTERS warrants that, except as provided for herein,
it has the right to license the name Cost Cutters Family Hair Care(R) and the
other Marks and the Business System to the FRANCHISEE. Any and all improvements
made by the FRANCHISEE relating to the Marks or the Business System will become
the sole and absolute property of COST CUTTERS who will have the sole and
exclusive right to register and protect all such improvements in its name in
accordance with applicable law. The FRANCHISEE'S right to use and identify with
the Marks and the Business System will exist concurrently with the term of this
Agreement and such use by the FRANCHISEE will inure exclusively to the benefit
of COST CUTTERS.
3.2 CONDITIONS TO LICENSE OF MARKS. The FRANCHISEE agrees that its nonexclusive
personal right to use the name Cost Cutters Family Hair Care(R) as the name of
the FRANCHISEE'S Business, and its right to use the Marks and the Business
System, apply only to the Cost Cutters Business operated at the Franchised
Location and only so long as the FRANCHISEE will fully perform and comply with
all of the conditions, terms and covenants of this Agreement. The FRANCHISEE
will not have or acquire any rights in any of the Marks or the Business System
other than the right of use as provided herein. The FRANCHISEE will have the
right to use the Marks and the Business System only in the manner prescribed,
directed and approved by COST CUTTERS in writing and will not have the right to
use the Marks in connection with the sale of any products or services other than
those prescribed or approved by COST CUTTERS. If, in the judgment of COST
CUTTERS, the acts of the FRANCHISEE infringe upon or demean the goodwill,
standards of uniformity or quality, or business image associated with the Marks
or the Business System, then the FRANCHISEE will, upon written notice from COST
CUTTERS, immediately modify its use of the Marks and the Business System in the
manner prescribed by COST CUTTERS in writing. Any and all goodwill associated
with the Marks and the Business System will inure exclusively to COST CUTTERS'
benefit and, upon the expiration or termination of this Agreement, no monetary
amount will be assigned as attributable to any goodwill associated with the
FRANCHISEE'S use of the Marks or the Business System. The FRANCHISEE will at no
time take any action whatsoever to contest the validity or ownership of the
Marks and the goodwill associated therewith and will not allege any ownership in
the Marks.
3.3 ADVERSE CLAIMS. If there is a claim by any party that its rights to the
Marks are superior to those of COST CUTTERS and if COST CUTTERS' legal counsel
opines that such claim is legally meritorious, or if there is an adjudication by
a Court of competent jurisdiction that any party's rights to the Marks are
superior to those of COST CUTTERS, then upon receiving written notice from COST
CUTTERS, the FRANCHISEE will, at its expense, immediately make all changes and
amendments to the Marks as may be specified by COST CUTTERS. If so specified,
the FRANCHISEE will immediately cease using the Marks, and will, as soon as
reasonably possible, commence using the new trademarks, trade names, service
marks, logos and commercial symbols designated by COST CUTTERS in writing. The
FRANCHISEE will not make any changes or amendments whatsoever to the Marks or
the Business System unless approved or specified in advance by COST CUTTERS in
writing.
<PAGE>
3.4 DEFENSE OR ENFORCEMENT OF RIGHTS TO MARKS. The FRANCHISEE will have no right
to and will not defend or enforce any rights associated with the licensed Marks
or the Business System in any Court or other proceedings for or against
imitation, infringement, prior use, or for any other claim or allegation. The
FRANCHISEE will give COST CUTTERS immediate written notice of any and all claims
or complaints made against or associated with the licensed Marks or the Business
System and will, without compensation for its time and at its expense, cooperate
in all respects with COST CUTTERS in any lawsuits or other proceedings involving
the Marks or the Business System. COST CUTTERS will have the sole and absolute
right to determine whether it will commence or defend any litigation involving
the Marks or the Business System, and the cost and expense of all litigation
incurred by COST CUTTERS, including attorneys' fees, specifically relating to
the Marks or the Business System will be paid by COST CUTTERS.
3.5 FRANCHISEE'S RIGHT TO PARTICIPATE IN LITIGATION. The FRANCHISEE may, at its
expense, retain an attorney to represent it individually in all litigation and
Court proceedings involving the Marks or the Business System, and will do so
with respect to matters involving only the FRANCHISEE; however, COST CUTTERS and
its legal counsel will control and conduct all litigation involving the Marks,
the Business System and the rights of COST CUTTERS. Except as expressly provided
for herein, COST CUTTERS will have no liability to the FRANCHISEE for any costs
that the FRANCHISEE may incur in any litigation, and the FRANCHISEE will pay for
all costs, including attorneys' fees, that it may incur in any litigation or
proceeding arising as a result of the matters referred to under this Article,
unless it tenders the defense to COST CUTTERS in a timely manner pursuant to and
in accordance with Article 3.6.
3.6 TENDER OF DEFENSE BY FRANCHISEE. If the FRANCHISEE is named as a defendant
or party in any action involving the Marks or the Business System and if the
FRANCHISEE is named as a defendant or party solely because the plaintiff is
alleging that the FRANCHISEE does not have the right to use the Marks or the
Business System licensed by COST CUTTERS to the FRANCHISEE at the Franchised
Location pursuant to this Agreement, then the FRANCHISEE will have the right to
tender the defense of the action to COST CUTTERS and COST CUTTERS will, at its
expense, defend the FRANCHISEE in the action provided that the FRANCHISEE has
tendered the defense of the action to COST CUTTERS within seven (7) days after
receiving service of the pleadings or Summons and Complaint relating to the
action. COST CUTTERS will indemnify and hold the FRANCHISEE harmless from any
damages assessed against the FRANCHISEE in any actions resulting solely from the
FRANCHISEE'S use of the Marks and the Business System at the Franchised Location
if the FRANCHISEE has timely tendered the defense of the action to COST CUTTERS.
ARTICLE 4
INITIAL FEE; APPROVAL OF FRANCHISEE
4.1 AMOUNT OF INITIAL FEE. The FRANCHISEE will pay COST CUTTERS an Initial Fee
of ________________________ Dollars ($___________ ), of which __________________
____________________________ ($_____________) will be due and payable on the
date this Agreement is executed by the FRANCHISEE, and the remaining balance of
the Initial Fee will be due and payable on the earlier of: (A) ten (10) days
prior to the date the FRANCHISEE commences initial business operations at its
Cost Cutters Business; or (B) on the date the FRANCHISEE'S furniture, fixtures
and equipment are shipped to the FRANCHISEE. The Initial Fee payable by the
FRANCHISEE is payment to COST CUTTERS for costs incurred by COST CUTTERS in
operating its business, including general sales and administrative costs,
business overhead costs, travel costs, long distance telephone calls, training,
public relations, advertising, marketing and promotion, legal and accounting
fees, compliance
<PAGE>
with federal and state franchising and other laws, and for the initial services
and opening assistance rendered to the FRANCHISEE described in this Agreement.
4.2 COST CUTTERS' RIGHT TO REJECT FRANCHISEE. COST CUTTERS will have the
absolute, sole and unilateral right to reject this Agreement or the FRANCHISEE
if COST CUTTERS determines that any financial, personal or other information
provided by the FRANCHISEE to COST CUTTERS is materially false, misleading,
incomplete or inaccurate or the FRANCHISEE (or the FRANCHISEE'S District Manager
if one is employed) is not qualified or competent to properly operate the Cost
Cutters Business because such person has not successfully completed COST
CUTTERS' program or is deemed to be incapable of successfully completing COST
CUTTERS' training program.
4.3 REFUND OF INITIAL FEE. In the event that the FRANCHISEE or this Agreement is
rejected by COST CUTTERS pursuant to Article 4.2, then the Initial Fee will be
refundable to the FRANCHISEE after deducting all reasonable administrative and
out-of-pocket expenses incurred by COST CUTTERS including, but not limited to,
executives' and employees' salaries, costs for the time of its employees,
salespersons' commissions, marketing costs, training costs, attorneys' fees,
accountants' fees, travel expenses and long distance telephone calls. The
FRANCHISEE will be notified by COST CUTTERS in writing if either this Agreement
or the FRANCHISEE is rejected by COST CUTTERS pursuant to Article 4.2. Except as
specifically set forth in this Article 4.3, the Initial Fee payable by the
FRANCHISEE pursuant to Article 4.1 will not be refundable to the FRANCHISEE.
ARTICLE 5
CONTINUING FEES
5.1 APPLICABLE CONTINUING FEES. The FRANCHISEE and COST CUTTERS acknowledge that
as of the date of this Agreement, and including the Business operating pursuant
to this Agreement, the FRANCHISEE owns and operates __________ Cost Cutters
Businesses. Therefore, as of the date of this Agreement (make selection):
___________ Article 5.2 applies or ___________ Article 5.3 applies. It is
understood and agreed that the foregoing selection of whether Articles 5.2 or
5.3 applies is binding only as of the date hereof and reflects the application
of Articles 5.2 or 5.3 to the facts as they exist on the date hereof, and may
change by the application of Articles 5.2 or 5.3 if the number of Businesses
owned and operated by the FRANCHISEE changes after the date hereof.
5.2 AMOUNT OF CONTINUING FEES. In addition to the Initial Fee, the FRANCHISEE
will, commencing on the day which is eighteen (18) weeks after the date that the
FRANCHISEE commences business operations pursuant to this Agreement and
continuing thereafter for the remaining term of this Agreement, pay COST CUTTERS
weekly Continuing Fees equal to a percentage of the FRANCHISEE'S weekly Gross
Revenues, as defined herein, which are received, billed or generated by, as a
result of or from the FRANCHISEE'S Cost Cutters Business. For the first (1st)
through the seventeenth (17th) weeks of the FRANCHISEE'S operation of its Cost
Cutters Business pursuant to this Agreement, the FRANCHISEE will not be
obligated to pay a Continuing Fee to COST CUTTERS. For the eighteenth (18th)
through the thirty-fourth (34th) weeks of the FRANCHISEE'S operation of its Cost
Cutters Business pursuant to this Agreement, the FRANCHISEE will pay COST
CUTTERS a weekly Continuing Fee equal to four percent (4%) of the FRANCHISEE'S
Gross Revenues. For the thirty-fifth (35th) and each subsequent week of the
FRANCHISEE'S operation of its Cost Cutters Business for the balance of the
remaining term of this Agreement, the FRANCHISEE will pay COST CUTTERS a weekly
Continuing Fee equal to six percent (6%) of the FRANCHISEE'S Gross Revenues;
provided, however, that commencing with the fifty-third (53rd) week of the
FRANCHISEE'S operation of its Cost Cutters Business and continuing throughout
the remaining term of this Agreement, the FRANCHISEE will pay
<PAGE>
COST CUTTERS a weekly Continuing Fee equal to the greater of six percent (6%) of
the FRANCHISEE'S weekly Gross Revenues or One Hundred Dollars ($100) per week.
The Continuing Fees paid to COST CUTTERS will not be refundable to the
FRANCHISEE under any circumstances.
5.3 MULTI-SALON CONTINUING FEES. Notwithstanding any language to the contrary
contained in Article 5.2 above, for so long as, but only so long as, the
FRANCHISEE owns and operates ten (10) or more other (not including the Cost
Cutters Business to be operated at the Franchised Location) Cost Cutters
businesses, the FRANCHISEE will, commencing on the date the FRANCHISEE commences
business operations pursuant to this Agreement and continuing thereafter for the
remaining term of this Agreement, be obligated to pay to COST CUTTERS weekly
Continuing Fees equal to four percent (4%) of the FRANCHISEE'S weekly Gross
Revenues, as defined herein, which are received, billed or generated by, as a
result of or from the FRANCHISEE'S Cost Cutters Business operated at the
Franchised Location.
5.4 FRANCHISEE'S OBLIGATION TO PAY CONTINUING FEES. The Continuing Fees payable
to COST CUTTERS under this Article will be calculated and paid to COST CUTTERS
by the FRANCHISEE on a weekly basis during the entire term of this Agreement,
and the FRANCHISEE'S failure to pay the weekly Continuing Fees to COST CUTTERS
will be a material breach of this Agreement. The FRANCHISEE'S obligation to pay
COST CUTTERS the weekly Continuing Fees under the terms of this Agreement will
be absolute and unconditional and will remain in full force and effect until the
term of this Agreement has expired. The FRANCHISEE will not have the right to
"offset" and, as a consequence, the FRANCHISEE will timely pay all weekly
Continuing Fees due COST CUTTERS under this Agreement regardless of any claims
or allegations of liability for damages or other payments that the FRANCHISEE
may allege against COST CUTTERS.
5.5 DATE PAYABLE. The weekly Continuing Fees payable by the FRANCHISEE must be
paid to and received by COST CUTTERS on or before the close of business on
Thursday of each week for the preceding week. The weekly Continuing Fees must be
paid and submitted with the FRANCHISEE'S weekly report of Gross Revenues
required under Article 19 of this Agreement.
5.6 INTEREST ON UNPAID CONTINUING FEES. If the FRANCHISEE fails to remit the
weekly Continuing Fees due to COST CUTTERS by Thursday of each week for the
previous week, as provided for in this Agreement, then the unpaid weekly
Continuing Fees due to COST CUTTERS will bear interest at the maximum legal rate
allowable in the state in which the FRANCHISEE'S Cost Cutters Business is
located. In no event, however, will the rate of interest payable by the
FRANCHISEE on the unpaid weekly Continuing Fees due COST CUTTERS under this
Article exceed eighteen percent (18%) per annum simple interest even if the laws
of that state permit a higher annual interest rate. If the FRANCHISEE does not
submit a report of Gross Revenues pursuant to Article 19, then COST CUTTERS will
have the right, in its sole discretion, to estimate the amount of the Continuing
Fees payable by the FRANCHISEE, and the estimated unpaid weekly Continuing Fees
will bear interest at the rate set forth above. The FRANCHISEE will pay COST
CUTTERS for any and all costs incurred by COST CUTTERS in the collection of
unpaid and past due Continuing Fee payments including, but not limited to, COST
CUTTERS' actual attorneys' fees, deposition costs, expert witness fees,
investigation costs, accounting fees, filing fees, and travel expenses.
ARTICLE 6
ADVERTISING
6.1 APPLICABLE ADVERTISING FEES. The FRANCHISEE and COST CUTTERS acknowledge
that as of the date of this Agreement, and including the Business operated
pursuant to this
<PAGE>
Agreement, the FRANCHISEE owns and operates __________ Cost Cutters Businesses.
Therefore, as of the date of this Agreement (make selection): __________ Article
6.2 applies or __________ Article 6.3 applies. It is understood and agreed that
the foregoing selection of whether Articles 6.2 or 6.3 applies is binding only
as of the date hereof and reflects the application of Articles 6.2 or 6.3 to the
facts as they exist on the date hereof, and may change by the application of
Articles 6.2 or 6.3 if the number of Businesses owned and operated by the
FRANCHISEE changes after the date hereof.
6.2 ADVERTISING FEES. The FRANCHISEE will pay COST CUTTERS weekly Advertising
Fees equal to a percentage of the FRANCHISEE'S weekly Gross Revenues for deposit
in an advertising fund which will be administered and controlled exclusively by
COST CUTTERS. For the first (1st) through the seventeenth (17th) weeks of the
FRANCHISEE'S operation of its Cost Cutters Business pursuant to this Agreement,
the FRANCHISEE will pay to COST CUTTERS a weekly Advertising Fee equal to six
percent (6%) of the FRANCHISEE'S Gross Revenues. For the eighteenth (18th)
through the thirty-fourth (34th) weeks of the FRANCHISEE'S operation of its Cost
Cutters Business pursuant to this Agreement, the FRANCHISEE will pay to COST
CUTTERS a weekly Advertising Fee equal to five percent (5%) of the FRANCHISEE'S
Gross Revenues. For the thirty-fifth (35th) and each subsequent week of the
FRANCHISEE'S operation of its Cost Cutters Business pursuant to this Agreement
for the balance of the remaining term of this Agreement, the FRANCHISEE will pay
to COST CUTTERS a weekly Advertising Fee equal to four percent (4%) of the
FRANCHISEE'S Gross Revenues. The FRANCHISEE'S failure to pay the Advertising
Fees will be a material breach of this Agreement. COST CUTTERS will have the
right to use the advertising fund monies, in its sole discretion, to purchase
and pay for any services or products relating to advertising for Cost Cutters
Franchisees, including the purchase of production materials, ad slicks,
brochures, radio and television commercials, services provided by advertising
agencies, market research and development costs, advertising and promotion
development and production (including all costs relating to media costs for
television, radio, newspaper, direct mail and point-of-purchase advertising, and
all costs of collateral materials required for such advertising), creative
costs, product research costs, all costs and expenses incurred in administering
the advertising fund (including, but not limited to, salaries, travel expenses,
office supplies, and related general and administrative expenses), and all other
costs relating to the advertising and promotion of Cost Cutters Businesses. The
use of the monies in the advertising fund and the administration of the
advertising fund will be under the absolute direction and control of COST
CUTTERS. COST CUTTERS will have the absolute right to determine, in its sole
discretion, the advertising agencies that will be retained, the type, content
and frequency of the advertising, and all other matters pertaining to the
expenditures made by COST CUTTERS from the advertising fund. COST CUTTERS will
not be required to contribute to the advertising fund; however, all Cost Cutters
businesses that are owned and operated by COST CUTTERS will be required to
contribute to the advertising fund in accordance with the terms of their
respective Franchise Agreements. The Advertising Fees paid by the FRANCHISEE
will not be refundable to the FRANCHISEE under any circumstances.
6.3 MULTI-SALON ADVERTISING FEES. Notwithstanding any language to the contrary
contained in Article 6.2 above, for so long as, but only so long as, the
FRANCHISEE owns and operates ten (10) or more other (not including the Cost
Cutters Business to be operated at the Franchised Location) Cost Cutters
businesses, the FRANCHISEE will, commencing on the date the FRANCHISEE commences
business operations pursuant to this Agreement and continuing thereafter for the
remaining term of this Agreement, pay to COST CUTTERS a weekly Advertising Fee
equal to four percent (4%) of the FRANCHISEE'S weekly Gross Revenues, as defined
herein, which are received, billed or generated by, as a result of or from the
FRANCHISEE'S Cost Cutters Business operated at the Franchised Location.
<PAGE>
6.4 COST CUTTERS' USE OF ADVERTISING FEES IN FRANCHISEE'S DMA. Commencing on the
first day of October following the effective date of this Agreement, and
continuing each year (October 1 through September 30) for the remaining term of
this Agreement, COST CUTTERS will spend for advertising and promotion
(including, but not limited to, advertising agency fees) in the FRANCHISEE'S
Designated Market Area ("DMA"), as defined herein, at least fifty percent (50%)
of the weekly Advertising Fees paid into the advertising fund by the FRANCHISEE.
6.5 DATE PAYABLE; INTEREST ON UNPAID ADVERTISING FEES. The weekly Advertising
Fees must be paid directly to and received by COST CUTTERS on or before the
close of business on Thursday of each week for the preceding week. Any
Advertising Fees not paid by the FRANCHISEE as required herein will bear
interest at the maximum legal rate applicable in the state in which the
FRANCHISEE'S Cost Cutters Business is located. In no event, however, will the
rate of interest payable by the FRANCHISEE on the unpaid balance due for
Advertising Fees exceed eighteen percent (18%) per annum simple interest. If the
FRANCHISEE does not submit a report of Gross Revenues pursuant to Article 19,
then COST CUTTERS will have the right, in its sole discretion, to estimate the
amount of the Advertising Fees payable by the FRANCHISEE, and the estimated
unpaid weekly Advertising Fees will bear interest at the rate set forth above.
The FRANCHISEE will pay COST CUTTERS for any and all costs incurred by COST
CUTTERS in the collection of unpaid and past due Advertising Fee payments,
including, but not limited to, COST CUTTERS' actual attorneys' fees, deposition
costs, expert witness fees, investigation costs, accounting fees, filing fees
and travel expenses. COST CUTTERS will have the right to collect unpaid
Advertising Fees in its own name or on behalf of the advertising fund; however,
all Advertising Fees collected will be deposited in the advertising fund.
6.6 LOCAL ADVERTISING. In addition to payment of the Advertising Fees required
by Article 6.1 above, each quarter the FRANCHISEE must spend at least one
percent (1%) of its Gross Revenues for approved local media advertising and
promotion. All local media advertising and promotions conducted by the
FRANCHISEE must conform to COST CUTTERS' standards for media advertising and
promotions. On or before the tenth (10th) day following the end of each quarter,
the FRANCHISEE will furnish to COST CUTTERS, in the form prescribed by COST
CUTTERS, an accurate accounting of the FRANCHISEE'S previous quarter's
expenditures for approved local media advertising and promotion. If the
FRANCHISEE has failed to spend at least one percent (1%) of its Gross Revenues
for approved local media advertising and promotion as required under this
Article, then the FRANCHISEE will be required to deposit with COST CUTTERS the
difference between one percent (1%) of its Gross Revenues and what it actually
spent for such advertising, and this amount will be spent by COST CUTTERS in the
FRANCHISEE'S area for any type of advertising or promotion that COST CUTTERS
deems to be in the best interests of the FRANCHISEE'S Business.
6.7 LOCAL DMA ADVERTISING GROUP. At such time as there are two (2) or more Cost
Cutters businesses (including the FRANCHISEE'S Cost Cutters Business) in the
FRANCHISEE'S DMA, COST CUTTERS will have the right to require that the
FRANCHISEE become a member of, participate in, and contribute to a local DMA
advertising group that will conduct and administer media advertising and
promotions in the FRANCHISEE'S DMA. Each local DMA advertising group will have a
membership with equal representation for each Cost Cutters business in the DMA,
including the Cost Cutters businesses owned and operated in the DMA by COST
CUTTERS. The costs for the media advertising and promotions conducted by the
local DMA advertising group will be allocated among and paid by the members of
the local DMA advertising group, based either on a percentage of Gross Revenues
or on a pro rata basis, the selection of which method to be determined by the
majority of the members of the local DMA advertising group. Payments to the
local DMA advertising group by the FRANCHISEE for media advertising and
promotion will be applied to the quarterly media advertising and promotional
<PAGE>
expenditures required under Article 6.6 above. However, the FRANCHISEE must
contribute its proportionate share of the costs for the local media advertising
and promotions conducted by the local DMA advertising group, as determined by
the majority of its members in accordance with the method of allocation set
forth above, even if this amount exceeds one percent (1%) of the FRANCHISEE'S
Gross Revenues. Notwithstanding the foregoing, for the first (1st) through the
thirty-fourth (34th) weeks of the FRANCHISEE'S operation of its Cost Cutters
Business pursuant to this Agreement, the FRANCHISEE will not be obligated to pay
any portion of the costs for media advertising and promotions conducted by the
local DMA advertising group.
6.8 ALTERNATE USE OF ADVERTISING FEES. If a local DMA advertising group is
established for the FRANCHISEE'S DMA, COST CUTTERS may, as an alternative to the
advertising and promotional expenditures required to be made by COST CUTTERS in
the FRANCHISEE'S DMA pursuant to Article 6.2 above, contribute this amount to
the local DMA advertising group for the FRANCHISEE'S DMA.
6.9 YELLOW PAGES ADVERTISING. The FRANCHISEE will, at its expense, be required
to advertise continually in the Yellow Pages of the local telephone directories
using trademark listings or display formats approved by COST CUTTERS under an
appropriate listing that is in compliance with the laws of the state in which
the Franchised Location is located including, but not limited to, "Barbers" or
"Beauty". Expenditures by the FRANCHISEE for Yellow Pages advertising will be in
addition to all other advertising requirements set forth in this Agreement.
6.10 GRAND OPENING ADVERTISING. The FRANCHISEE will be required to spend a
minimum of Five Thousand Dollars ($5,000) to implement and conduct grand opening
advertising, marketing, public relations and promotional programs for its Cost
Cutters Business which have been approved by COST CUTTERS in writing.
Expenditures by the FRANCHISEE for grand opening advertising may be applied to
the quarterly local media advertising and promotional expenditures required
pursuant to Article 6.4 of this Agreement.
6.11 LOCAL DMA RECRUITING GROUP. At such time as there are two (2) or more Cost
Cutters businesses (including the FRANCHISEE'S Cost Cutters Business) in the
FRANCHISEE'S DMA, COST CUTTERS will have the right to require that the
FRANCHISEE become a member of, participate in, and contribute to a local DMA
stylist recruiting group that will implement a program for the recruitment of
qualified hair stylists for all Cost Cutters businesses in the FRANCHISEE'S DMA.
Although the DMA stylist recruiting group will be separate from the local DMA
advertising group, membership in, and allocation and payment of expenses of, the
local DMA stylist recruiting group will be determined in accordance with the
guidelines applicable to the local DMA advertising group, as set forth in
Article 6.7 above. Expenditures by the FRANCHISEE for local DMA stylist
recruiting expenses will be in addition to all other advertising requirements
set forth in this Agreement.
ARTICLE 7
QUALITY CONTROL, UNIFORMITY AND STANDARDS
REQUIRED OF THE FRANCHISEE
COST CUTTERS will promulgate, from time to time, uniform standards of quality
and service regarding the business operations of the FRANCHISEE'S Cost Cutters
Business so as to protect and maintain (for the benefit of all Cost Cutters
Franchisees and COST CUTTERS) the distinction, valuable goodwill and uniformity
represented and symbolized by the Marks and the Business System. Accordingly, to
insure that all Cost Cutters franchisees will maintain the uniform requirements
and quality standards for products
<PAGE>
and services associated with the Marks and the Business System, the FRANCHISEE
agrees to maintain the uniformity and quality standards required by COST CUTTERS
for all products and services and agrees to comply with the provisions of this
Article to assure the public that all Cost Cutters businesses will be uniform in
nature and will sell and dispense quality products and services:
7.1 IDENTIFICATION OF BUSINESS. The FRANCHISEE will operate its business so that
it is clearly identified and advertised as a Cost Cutters Business. However, the
style and form of the words Cost Cutters Family Hair Care(R) in any advertising,
marketing, public relations, telemarketing or promotional program must have the
prior written approval of COST CUTTERS and must conform to COST CUTTERS'
standards and requirements for use of the Marks. The FRANCHISEE will use the
name Cost Cutters Family Hair Care(R) and all graphics commonly associated with
the Marks which now or hereafter may form a part of COST CUTTERS' Business
System on all paper supplies, furnishings, advertising materials, signs,
stationery, business cards and other articles in the identical combination and
manner prescribed by COST CUTTERS in writing. The FRANCHISEE will, at its
expense, comply with all notices of registration required by COST CUTTERS and
will, at its expense, comply with any other trademark, trade name, service mark,
copyright, patent or other notice marking requirements that are required by COST
CUTTERS or by applicable law.
7.2 IDENTIFICATION AS FRANCHISEE. The FRANCHISEE will not use the words Cost
Cutters Family Hair Care(R) or any combination of these words in its corporate,
partnership or sole proprietorship name. The FRANCHISEE will hold itself out to
the public as an independent contractor operating its Cost Cutters Business
pursuant to a franchise from COST CUTTERS. The FRANCHISEE will clearly indicate
on its business checks, stationery, purchase orders, business cards, receipts,
promotional materials and other written materials that the FRANCHISEE is a Cost
Cutters Franchisee. The FRANCHISEE will display a sign, to be provided by COST
CUTTERS, at the Franchised Location which is clearly visible to the general
public indicating that the Business is independently owned and operated as a
franchised business. The FRANCHISEE will file for a Certificate of Assumed Name
in the manner required by law so as to notify the public that the FRANCHISEE is
operating the franchised Cost Cutters Business as an independent business
pursuant to this Agreement.
7.3 SIGNS. The FRANCHISEE will display only the approved Cost Cutters Sign (the
"Sign") and will not use or display any other signs of any kind or nature
without the express prior written approval of COST CUTTERS.
7.4 ADVERTISING MATERIALS. The FRANCHISEE will use only approved advertising and
promotional materials for the advertising and promotions conducted by the
FRANCHISEE. The FRANCHISEE must obtain written approval from COST CUTTERS prior
to using any other advertising or promotional materials.
7.5 COMPLIANCE WITH STANDARD STORE LAYOUTS AND PLANS. The Franchised Location
and the FRANCHISEE'S business premises must conform to COST CUTTERS' approved
store layouts, floor plans, specifications, exterior and interior decorating
designs and color schemes. The FRANCHISEE will not make any architectural,
structural, design or decorating changes to the interior or exterior of the
Franchised Location without COST CUTTERS' prior written approval. The furniture,
fixtures, supplies and equipment used in the Franchised Location must conform to
the quality standards and uniform requirements established by COST CUTTERS from
time to time.
7.6 PERIODIC REMODELING. The FRANCHISEE will be required to periodically make
the reasonable capital expenditures necessary to remodel, modernize and
redecorate the Franchised Location
<PAGE>
and the FRANCHISEE'S business premises, and to replace and modernize the
FRANCHISEE'S furniture, fixtures, supplies and equipment so that the Franchised
Location and the FRANCHISEE'S business premises will reflect the then-common
image intended to be portrayed by COST CUTTERS ("remodeling"). All remodeling of
the Franchised Location and the FRANCHISEE'S business premises must be done in
accordance with the standards and specifications as prescribed by COST CUTTERS
from time to time and with the prior written approval of COST CUTTERS. All
replacements for the furniture, fixtures, supplies and equipment must conform to
COST CUTTERS' then-current quality standards and must be approved by COST
CUTTERS in writing. The FRANCHISEE will begin remodeling the Franchised Location
within three (3) months from the date that the FRANCHISEE receives written
notice from COST CUTTERS specifying the required remodeling and will diligently
complete such remodeling within a reasonable time after its commencement. Except
as provided in Article 7.12 of this Agreement, the FRANCHISEE will not be
required to remodel the Franchised Location or to replace and modernize its
furniture, fixtures, supplies and equipment more than once every five (5) years
during the term of this Agreement. The FRANCHISEE'S failure to comply with the
requirements of this Article 7.6 will be a material breach of this Agreement.
7.7 USE OF MARKS AND BUSINESS SYSTEM. The FRANCHISEE will use the Marks and the
Business System in strict compliance with the quality standards, moral and
ethical standards, operating procedures, specifications, requirements and
instructions required by COST CUTTERS, which may be amended and supplemented by
COST CUTTERS from time to time.
7.8 PRODUCTS AND SERVICES. The FRANCHISEE will offer for sale all, but only
those, products and services prescribed and approved by COST CUTTERS in writing.
The FRANCHISEE will purchase and carry the full line of COST CUTTERS' exclusive
brand shampoos, conditioners, finishing products and other hair care products at
such minimum levels as may be established by COST CUTTERS. The FRANCHISEE
acknowledges and agrees that it will either: (A) execute and deliver to COST
CUTTERS such sales tax exemption certificates or other documents as may be
reasonably required by COST CUTTERS to establish that the FRANCHISEE'S purchase
of such products from COST CUTTERS is exempt from any and all sales, use or
excise taxes; or (B) pay COST CUTTERS the amount of any sales, use or excise
taxes applicable to the FRANCHISEE'S purchase of such products. The FRANCHISEE
will conform to all customer service standards prescribed by COST CUTTERS in
writing. The FRANCHISEE will have the absolute right to sell all products and
services at whatever prices and on whatever terms it deems appropriate. The
FRANCHISEE will only sell the approved products and services to the FRANCHISEE'S
retail customers at the Franchised Location and will not sell any products or
services at retail or wholesale at or from any other location.
7.9 COST CUTTERS IMAGE. The FRANCHISEE acknowledges that the image intended to
be portrayed by COST CUTTERS is that of a chain of hairstyling businesses that
cater to cost conscious, value-minded customers who are seeking reasonably
priced hair care services and products. Consequently, the FRANCHISEE will sell
only those products that comply with the image portrayed by COST CUTTERS for
Cost Cutters businesses and the FRANCHISEE will not offer for sale in its Cost
Cutter Business "expensive" (as determined by COST CUTTERS) hair care products
or other products that are inconsistent with the Cost Cutters image and that
have not been approved by COST CUTTERS in writing.
7.10 OPERATIONS MANUAL. COST CUTTERS will provide the FRANCHISEE with one copy
of COST CUTTERS' confidential Operations Manual (the "Manual"). The FRANCHISEE
will conform to the common image and identity created by the products and
services associated with Cost Cutters businesses which are portrayed and
described by the Manual, and the FRANCHISEE will conform to all
<PAGE>
changes and modifications made to the Manual by COST CUTTERS and provided to the
FRANCHISEE that are deemed necessary by COST CUTTERS to: (A) improve the
standards of service and products offered for sale to the public under the
Business System; (B) protect the goodwill associated with the Marks; (C) improve
the operation of the FRANCHISEE'S Cost Cutters Business; or (D) maintain the
product and service consistency required by COST CUTTERS. COST CUTTERS reserves
the right to revise the Manual at any time during the term of this Agreement.
The Manual and all written supplements, changes and modifications to the Manual
are confidential in all respects and are and will remain the sole and exclusive
property of COST CUTTERS. The FRANCHISEE will not use the Manual or any
information contained therein in connection with the operation of any other
business or for any purpose other than the operation of the FRANCHISEE'S Cost
Cutters Business.
7.11 APPROVED SUPPLIERS. The FRANCHISEE will purchase from suppliers approved in
writing by COST CUTTERS all products, goods, merchandise, supplies, sundries,
toiletries, grooming aids, furniture, fixtures, equipment and services
(sometimes referred to in this Agreement as "goods and services") to be used or
sold by the FRANCHISEE in conjunction with the operation of its Cost Cutters
Business which COST CUTTERS determines meet the standards of quality and
uniformity required to protect the valuable goodwill and uniformity symbolized
by and associated with the Marks and the Business System. The FRANCHISEE will
have the right and option to purchase all goods and services from other or
outside suppliers provided that such goods and services conform in quality to
COST CUTTERS' standards and specifications. If the FRANCHISEE desires to
purchase any goods and services from other suppliers, then, if requested by COST
CUTTERS, the FRANCHISEE will submit samples, specifications, and information
regarding the manufacturer to COST CUTTERS for review to determine whether the
goods and services comply with COST CUTTERS' standards and specifications. Any
expenses incurred by COST CUTTERS in evaluating unapproved products will be paid
by the FRANCHISEE. The written approval of COST CUTTERS must be obtained by the
FRANCHISEE prior to the time that any previously unapproved goods and services
are used or sold at the FRANCHISEE'S Cost Cutters Business. All such goods and
services must be those classified as "professional" goods and services sold or
provided only in professional hair salons.
7.12 REPAIR AND MAINTENANCE. The FRANCHISEE will, at its expense, repair, paint
and keep in a clean and sanitary condition the interior, the exterior and, where
applicable, the grounds of the Franchised Location and the FRANCHISEE'S business
premises, and will replace all floor coverings, wall coverings, light fixtures,
curtains, blinds, shades, furniture, room furnishings, wall hangings, fixtures
and other decor items as such items become worn-out, soiled or are in disrepair.
All equipment will be kept in good working order by the FRANCHISEE at all times
and will meet COST CUTTERS' quality standards. All replacement equipment must
comply with COST CUTTERS' then-current standards and specifications.
7.13 COMPLIANCE WITH APPLICABLE LAWS. The FRANCHISEE will, at its expense,
comply with all applicable federal, state, city, local and municipal laws,
ordinances, rules and regulations pertaining to the operation of the
FRANCHISEE'S Business, including all laws relating to employees and to the
regulation of barbers and cosmetologists and all applicable federal and state
environmental laws. The FRANCHISEE will, at its expense, be absolutely and
exclusively responsible for determining the licenses and permits required by law
for the FRANCHISEE'S Business, for qualifying for and obtaining all such
licenses and permits, and for maintaining all such licenses and permits in full
force and effect.
7.14 PAYMENT OF OBLIGATIONS. The FRANCHISEE must timely pay all of its
noncontested and liquidated obligations and liabilities due and payable to COST
CUTTERS, and to suppliers, lessors
<PAGE>
and creditors of the FRANCHISEE. The FRANCHISEE'S failure to timely pay all such
obligations will be a material breach of this Agreement.
7.15 PAYMENT OF TAXES. The FRANCHISEE will be absolutely and exclusively
responsible and liable for filing all required tax returns and for the prompt
payment of all federal, state, city and local taxes including, but not limited
to, individual and corporate income taxes sales and use taxes, franchise taxes,
gross receipts taxes, employee withholding taxes, F.I.C.A. taxes and personal
property and real estate taxes payable in connection with the FRANCHISEE'S
Business. COST CUTTERS will have no liability for these or any other taxes and
the FRANCHISEE will indemnify COST CUTTERS for any such taxes that may be
assessed or levied against COST CUTTERS which arise or result from the
FRANCHISEE'S Cost Cutters Business. It is expressly understood and agreed by the
Personal Guarantors to this Agreement that their personal guaranty applies to
the prompt filing of all returns and the prompt payment of all taxes which arise
or result from the FRANCHISEE'S Cost Cutters Business.
7.16 REIMBURSEMENT OF COST CUTTERS FOR TAXES. In the event any "franchise" or
other tax (other than income taxes) which is based upon the Gross Revenues,
receipts, sales, business activities or operation of the FRANCHISEE'S Business
is imposed upon COST CUTTERS by any taxing authority, then the FRANCHISEE will
reimburse COST CUTTERS in an amount equal to the amount of such taxes and
related costs imposed upon and paid by COST CUTTERS. The FRANCHISEE will be
notified in writing when COST CUTTERS is entitled to reimbursement for the
payment of such taxes and, in that event, the FRANCHISEE will pay COST CUTTERS
the amount specified in the written notice within ten (10) days of receipt of
the written notice.
7.17 BUSINESS HOURS; PERSONNEL. The FRANCHISEE'S Cost Cutters Business will be
open for business on such days and for such hours as COST CUTTERS may designate.
The FRANCHISEE will, during business hours, have a salon manager on duty who is
responsible for supervising the employees and the business operations of the
FRANCHISEE'S Business. The FRANCHISEE will have a sufficient number of
adequately trained and competent personnel on duty at all times to guarantee
efficient service to the FRANCHISEE'S customers. The FRANCHISEE will require its
employees to wear the standard attire or uniforms approved by COST CUTTERS. All
persons employed by the FRANCHISEE must practice good personal hygiene and must
wear clean and neat attire or uniforms. The FRANCHISEE must employ at least one
(1) full-time person (a "District Manager") for each six (6) Cost Cutters
Businesses owned and operated by the FRANCHISEE. Each District Manager will be
responsible for the operation and administration of up to six (6) Cost Cutters
Businesses under his or her supervision and control, including supervision of
the salon managers and assistant managers. The District Managers must devote
their full time and attention to administering and overseeing the operations of
the FRANCHISEE'S Cost Cutters Businesses. All District Managers must attend and
successfully complete the training program required by COST CUTTERS, and be
certified and approved by COST CUTTERS in writing.
7.18 COST CUTTERS' INSPECTION RIGHTS. COST CUTTERS will have the absolute right
to inspect and take photographs and videotapes of the interior and exterior of
the Franchised Location at all reasonable times during business hours, to
interview the FRANCHISEE'S employees, to examine representative samples of all
goods and equipment sold or used at the FRANCHISEE'S Cost Cutters Business, and
to evaluate the quality of the services provided by the FRANCHISEE to its
customers. COST CUTTERS will have the right to use all photographs and
videotapes of the FRANCHISEE'S Cost Cutters Business for such purposes as COST
CUTTERS deems appropriate including, but not limited to, use in advertising,
marketing and promotional materials, and as evidence in any court or arbitration
proceeding. The FRANCHISEE will not be entitled to, and hereby expressly waives,
any right that it may have to be compensated by COST CUTTERS, its advertising
agencies or any other Cost Cutters
<PAGE>
franchisees for the use of such photographs or videotapes for advertising,
marketing, promotional or litigation purposes.
7.19 SECURITY INTEREST. This Agreement and the franchise granted to the
FRANCHISEE hereunder may not be the subject of a security interest, lien, levy,
attachment or execution by the FRANCHISEE'S creditors or any financial
institution, except with the prior written approval of COST CUTTERS.
7.20 CREDIT CARDS. The FRANCHISEE will honor all credit cards approved by COST
CUTTERS. The FRANCHISEE must obtain the written approval of COST CUTTERS prior
to honoring any previously unapproved credit cards or other credit devices.
7.21 DEFAULT NOTICES. The FRANCHISEE will immediately deliver to COST CUTTERS a
copy of any notice of default received from any landlord for the Franchised
Location or from any mortgagee, trustee under any deed of trust or lessor with
respect to the FRANCHISEE'S Cost Cutters Business, and copies of all
notifications of any lawsuits, contract breaches, consumer claims, federal or
state administrative or agency proceedings or investigations, or other civil or
governmental claims, actions or proceedings relating to the FRANCHISEE'S Cost
Cutters Business. Upon request from COST CUTTERS, the FRANCHISEE will provide
additional information as may be required by COST CUTTERS regarding the alleged
default, lawsuit, claim or proceeding or any subsequent action or proceeding in
connection with the alleged default, lawsuit, claim or proceeding.
7.22 SALE OF CAPITAL STOCK TO PUBLIC. If the FRANCHISEE is a corporation and
desires to sell any part of its authorized capital stock to the public, then the
FRANCHISEE will provide COST CUTTERS with a copy of the proposed offering
circular or prospectus for its review prior to the time that the offering
circular or prospectus is filed with any state securities commission or the
Securities and Exchange Commission. The shareholders of the FRANCHISEE who owned
the capital stock of the FRANCHISEE prior to the public offering will, at all
times, retain at least a fifty-one percent (51%) ownership of the issued and
outstanding shares of stock of the FRANCHISEE. COST CUTTERS will have the right
to attend all "due diligence" meetings held in preparation for the offer to sell
the FRANCHISEE'S capital stock to the public, and the FRANCHISEE will give COST
CUTTERS at least five (5) business days prior written notice of such meetings.
The FRANCHISEE will not offer its capital stock by use of the name Cost
Cutters(R), Cost Cutters Family Hair Care(R) or any name deceptively similar
thereto. The FRANCHISEE will not have the right to sell any of its capital stock
to the public or to any other person or entity until the FRANCHISEE has complied
in all respects with all applicable provisions of this Agreement, including the
applicable provisions of Articles 13 and 20.
7.23 OPERATION OF COST CUTTERS BUSINESS. The FRANCHISEE will be totally and
solely responsible for the operation of its Cost Cutters Business, and will
control, supervise and manage all the employees, agents and independent
contractors who work for or with the FRANCHISEE. The FRANCHISEE will be
responsible for the acts of its employees, agents and independent contractors,
and will take all reasonable business actions necessary to ensure that its
employees, agents and independent contractors comply with all federal, state and
local laws, rules and regulations including, but not limited to, all employment
laws, discrimination laws, sexual harassment laws and laws relating to the
disabled. COST CUTTERS will not have any right, obligation or responsibility to
control, supervise or manage the FRANCHISEE'S employees, agents or independent
contractors.
<PAGE>
ARTICLE 8
CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION
8.1 COMPLIANCE WITH MANUAL. In order to protect the reputation and goodwill of
COST CUTTERS and to maintain uniform operating standards under the Marks and the
Business System, the FRANCHISEE will at all times during the term of this
Agreement conduct its Business in accordance with COST CUTTERS' confidential
Operations Manual (the "Manual"). The FRANCHISEE acknowledges having received as
a loan one copy of the Manual from COST CUTTERS.
8.2 CONFIDENTIALITY OF MANUAL. The FRANCHISEE must, at all times during the term
of this Agreement and thereafter, treat the Manual, any other manuals created
for or approved for use in the operation of the FRANCHISEE'S Cost Cutters
Business, and the information contained therein as secret and confidential, and
the FRANCHISEE will use all reasonable means to keep such information secret and
confidential. Neither the FRANCHISEE nor its employees will make any copy,
duplication, record or reproduction of the Manual, or any portion thereof,
available to any unauthorized person.
8.3 REVISIONS TO MANUAL. The Manual will, at all times during the term of this
Agreement and thereafter, remain the sole and absolute property of COST CUTTERS.
COST CUTTERS may from time to time revise the Manual and the FRANCHISEE
expressly agrees to operate its Cost Cutters Business in accordance with all
such revisions. The FRANCHISEE will at all times keep its copy of the Manual
current and up-to-date, and in the event of any dispute, the terms of the master
copy of the Manual maintained by COST CUTTERS will be controlling in all
respects.
8.4 OTHER CONFIDENTIAL INFORMATION. The FRANCHISEE expressly acknowledges and
agrees that COST CUTTERS will be disclosing and providing to the FRANCHISEE
certain confidential and proprietary information concerning the Business System
and the procedures, technology, operations and data used in connection with the
Business System. Accordingly, the FRANCHISEE will not, during the term of this
Agreement or thereafter, communicate, divulge or use for the benefit of any
other person or entity any confidential information, knowledge or know-how
concerning the methods of operation of a Cost Cutters business which may be
communicated to the FRANCHISEE, or of which the FRANCHISEE may be apprised, by
virtue of this Agreement. The FRANCHISEE will divulge such confidential
information only to its employees who must have access to it in order to operate
the FRANCHISEE'S Cost Cutters Business. Any and all information, knowledge and
know-how including, without limitation, drawings, materials, equipment,
technology, methods, procedures, specifications, techniques, computer programs,
systems and other data which COST CUTTERS designates as confidential or
proprietary will be deemed confidential and proprietary for the purposes of this
Agreement.
8.5 CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES. The FRANCHISEE will require all
of the FRANCHISEE'S employees who have access to the Manual or other
confidential information to execute an agreement, in the form attached hereto as
Exhibit "A" or other form satisfactory to COST CUTTERS, where the employees
agree to maintain the confidentiality, during the course of their employment and
thereafter, of all information designated by COST CUTTERS as confidential.
Copies of all executed agreements will be submitted to COST CUTTERS upon
request.
8.6 REMEDIES. The FRANCHISEE recognizes that the provisions contained in this
Article are necessary for the protection of COST CUTTERS and all of the
franchisees who own Cost Cutters businesses. If the FRANCHISEE violates any
provisions of this Article, or if any employee of the FRANCHISEE violates his or
her confidentiality agreement executed pursuant to Article 8.5, then COST
CUTTERS will have the right to: (A) terminate this Agreement (as provided for
herein); (B) seek
<PAGE>
injunctive relief from a Court of competent jurisdiction; (C) commence an action
or lawsuit against the FRANCHISEE for damages; and (D) enforce all other
remedies against the FRANCHISEE that are available to COST CUTTERS under common
law, in equity, and pursuant to any federal and state statutes in an action or
lawsuit against the FRANCHISEE.
ARTICLE 9
COST CUTTERS' TERMINATION RIGHTS
9.1 GROUNDS FOR TERMINATION. In addition to the other rights of termination
contained in this Agreement, COST CUTTERS will have the right and privilege to
terminate this Agreement if: (A) the FRANCHISEE fails to open and commence
operations of its Cost Cutters Business within one hundred eighty (180) days of
the date of this Agreement; (B) the FRANCHISEE violates any material provision,
term or condition of this Agreement including, but not limited to, failure to
timely pay the Initial Fee or any Continuing Fees, Advertising Fees, monetary
obligations or other fees to COST CUTTERS; (C) the FRANCHISEE fails to conform
to the Business System, the standards of uniformity and quality for the goods
and services or the policies and procedures promulgated by COST CUTTERS in
connection with the Business System, or is involved in any act or conduct which
materially impairs the goodwill associated with the Marks or the Business
System; (D) the FRANCHISEE fails to timely pay any of its uncontested
obligations or liabilities due and owing to COST CUTTERS, suppliers, banks,
purveyors, other creditors or any federal, state or municipal government
(including, if applicable, federal and state taxes); (E) the FRANCHISEE is
determined to be insolvent within the meaning of any state or federal law, files
for bankruptcy or is adjudicated a bankrupt under any state or federal law; (F)
the FRANCHISEE makes an assignment for the benefit of creditors or enters into
any similar arrangement for the disposition of its assets for the benefit of
creditors; (G) any check issued by the FRANCHISEE is dishonored because of
insufficient funds (except where the check is dishonored because of a
bookkeeping or accounting error) or closed accounts; (H) the FRANCHISEE fails to
finance or purchase and pay for the leasehold improvements, furniture, fixtures,
supplies and equipment required for its Cost Cutters Business prior to the
opening of the FRANCHISEE'S Business; (I) the FRANCHISEE'S lease for the
Franchised Location is terminated or canceled for nonpayment of rent or other
legal reasons; (J) the FRANCHISEE or any of its partners, directors, officers or
majority stockholders is convicted of, or pleads guilty or no contest to, a
charge of violating any law relating to the FRANCHISEE'S Cost Cutters Business
or any felony; or (K) the FRANCHISEE voluntarily or otherwise abandons, as
defined herein, the Cost Cutters Business.
9.2 NOTICE OF BREACH. Except as provided for in Article 9.5 and Article 9.6 of
this Agreement, COST CUTTERS will not have the right to terminate this Agreement
unless and until written notice setting forth the alleged breach in detail has
been given to the FRANCHISEE by COST CUTTERS and, after having been given such
written notice of breach, the FRANCHISEE fails to correct the alleged breach
within the period of time specified by applicable law. If applicable law does
not specify a time period to correct an alleged breach, then the FRANCHISEE will
have thirty (30) days after having been given such written notice to correct the
alleged breach. If the FRANCHISEE fails to correct the alleged breach set forth
in the written notice within the applicable period of time, then this Agreement
may be terminated by COST CUTTERS as provided for in this Agreement. For the
purposes of this Agreement, an alleged breach of this Agreement by the
FRANCHISEE will be deemed to be "corrected" if both COST CUTTERS and the
FRANCHISEE agree in writing that the alleged breach has been corrected.
9.3 ARBITRATION. If the FRANCHISEE gives notice of Arbitration, as provided for
in this Agreement, within the time period established in Article 9.2 for
correcting the alleged breach, then COST CUTTERS will not have the right to
terminate this Agreement until the facts of the alleged breach have
<PAGE>
been submitted to Arbitration as provided for herein, the Arbitrator determines
that the FRANCHISEE has breached this Agreement and the FRANCHISEE fails to
correct the breach within the applicable time period. If the Arbitrator
determines that the FRANCHISEE has breached this Agreement as alleged by COST
CUTTERS in the written notice given to the FRANCHISEE, then the FRANCHISEE will
have thirty (30) days from the date the Arbitrator issues a written
determination on the matter to correct the specified breach or violation of this
Agreement, except where applicable law requires a longer cure period in which
event the cure period specified by applicable law will apply. If the FRANCHISEE
timely corrects the specified breach of this Agreement, then this Agreement will
remain in full force and effect. For the purposes of this Agreement, any
controversy or dispute on the issue of whether the FRANCHISEE has timely
corrected the specified breach of this Agreement will also be subject to
Arbitration as provided for herein. The time limitations set forth in this
Article within which the FRANCHISEE may demand Arbitration of a dispute or
controversy relating to the right of COST CUTTERS to terminate this Agreement
for an alleged breach will be mandatory. If the FRANCHISEE fails to comply with
the time limitations set forth in this Article, COST CUTTERS may terminate this
Agreement as provided for herein.
9.4 NOTICE OF TERMINATION. If COST CUTTERS has complied with the notice
provisions of this Article and the FRANCHISEE has not corrected the alleged
breach set forth in the written notice within the time period specified in this
Article, then COST CUTTERS will have the absolute right to terminate this
Agreement by giving the FRANCHISEE written notice stating to the FRANCHISEE that
this Agreement is terminated, and in that event, unless applicable law provides
to the contrary, the effective date of termination of this Agreement will be the
day such written notice is given.
9.5 GROUNDS FOR IMMEDIATE TERMINATION. COST CUTTERS will have the absolute right
and privilege, unless prohibited by applicable law, to immediately terminate
this Agreement if: (A) the FRANCHISEE or any of its partners, Directors,
officers or majority stockholders is convicted of, or pleads guilty or no
contest to, a charge of violating any law relating to the FRANCHISEE'S Cost
Cutters Business, or any felony; (B) the FRANCHISEE voluntarily or otherwise
abandons, as defined herein, the FRANCHISEE'S Cost Cutters Business; (C) the
FRANCHISEE is involved in any act or conduct which materially impairs the
goodwill associated with COST CUTTERS' Marks or Business System, and the
FRANCHISEE fails to correct such act or conduct within twenty-four (24) hours of
receipt of written notice from COST CUTTERS; or (D) the FRANCHISEE fails or
refuses to produce its books and financial records for audit by COST CUTTERS in
accordance with Article 19.4.
9.6 NOTICE OF IMMEDIATE TERMINATION. If this Agreement is terminated by COST
CUTTERS pursuant to Article 9.5 above, COST CUTTERS will give the FRANCHISEE
written notice that this Agreement is terminated, and in that event, unless
applicable law provides to the contrary, the effective date of termination of
this Agreement will be the day such written notice is given.
9.7 DAMAGES. In the event this Agreement is terminated by COST CUTTERS pursuant
to Article 9, or if the FRANCHISEE breaches this Agreement by a wrongful
termination or a termination that is not in accordance with the terms and
conditions of Article 10 of this Agreement, then COST CUTTERS will be entitled
to seek recovery from the FRANCHISEE for all of the damages that COST CUTTERS
has sustained and will sustain in the future as a result of the FRANCHISEE'S
breach of this Agreement, which will include damages based upon the Continuing
Fees, Advertising Fees and other fees that would have been payable by the
FRANCHISEE for the remaining term of this Agreement.
9.8 OTHER REMEDIES. Nothing in this Article or this Agreement will preclude COST
CUTTERS from seeking other damages or remedies under common law, state or
federal laws or this
<PAGE>
Agreement against the FRANCHISEE including, but not limited to, attorneys' fees,
punitive damages and injunctive relief.
ARTICLE 10
FRANCHISEE'S TERMINATION RIGHTS
10.1 GROUNDS FOR TERMINATION. The FRANCHISEE will have the right and privilege
to terminate this Agreement, as provided for herein, if: (A) COST CUTTERS
violates any material provision, term or condition of this Agreement; (B) COST
CUTTERS fails to timely pay any material obligations due and owing to the
FRANCHISEE; or (C) COST CUTTERS makes an assignment of its assets for the
benefit of creditors.
10.2 NOTICE OF BREACH. The FRANCHISEE will not have the right to terminate this
Agreement or to commence any Arbitration proceeding, action or lawsuit against
COST CUTTERS for breach of this Agreement, injunctive relief, violation of any
federal, state or local law, violation of common law (including allegations of
fraud and misrepresentation), rescission, general or punitive damages, or
termination, unless and until written notice setting forth the alleged breach or
violation in detail has been given to COST CUTTERS by the FRANCHISEE and COST
CUTTERS fails to commence the actions necessary to correct the alleged breach or
violation within thirty (30) days after having been given such written notice,
or to correct the alleged breach within one hundred twenty (120) days after
having been given such written notice. If COST CUTTERS fails to commence the
actions necessary to correct the alleged breach or violation as provided herein
within thirty (30) days after having been given such written notice, or to
correct the alleged breach within one hundred twenty (120) days after having
been given such written notice, then this Agreement may be terminated by the
FRANCHISEE as provided for in this Agreement. For the purposes of this
Agreement, an alleged breach of this Agreement by COST CUTTERS will be deemed to
be "corrected" if both COST CUTTERS and the FRANCHISEE agree in writing that the
alleged breach or violation has been corrected.
10.3 ARBITRATION. If COST CUTTERS gives notice of Arbitration, as provided for
in this Agreement, within thirty (30) days from the date COST CUTTERS was given
written notice of the alleged breach from the FRANCHISEE, then the FRANCHISEE
will not have the right to terminate this Agreement until the facts of the
alleged breach have been submitted to Arbitration, the Arbitrator determines
that COST CUTTERS has breached this Agreement and COST CUTTERS fails to correct
the breach within the time limitation set forth herein. If the Arbitrator
determines that COST CUTTERS breached this Agreement as alleged by the
FRANCHISEE in the written notice given to COST CUTTERS, then COST CUTTERS will
have thirty (30) days from the date the Arbitrator issues a written
determination on the matter to correct the specified breach of this Agreement.
If COST CUTTERS timely corrects the specified breach of this Agreement, then
this Agreement will remain in full force and effect. If COST CUTTERS does not
correct the specified breach of this Agreement, then the FRANCHISEE will have
the right to terminate this Agreement by giving COST CUTTERS written notice that
this Agreement is terminated and, in that event, the effective date of
termination of this Agreement will be the day the written notice of termination
is given to COST CUTTERS. For the purposes of this Agreement, any controversy or
dispute on the issue of whether COST CUTTERS has timely corrected the specified
breach of this Agreement will also be subject to Arbitration as provided for
herein. The time limitation set forth in this Article within which COST CUTTERS
may demand Arbitration of a dispute or controversy relating to the right of the
FRANCHISEE to terminate this Agreement for an alleged breach will be mandatory.
If COST CUTTERS fails to comply with the time limitation set forth in this
Article, then the FRANCHISEE may terminate this Agreement as provided for
herein.
<PAGE>
10.4 WAIVER. The FRANCHISEE must give COST CUTTERS immediate written notice of
an alleged breach or violation of this Agreement after the FRANCHISEE has
knowledge of, determines or is of the opinion that there has been an alleged
breach or violation of this Agreement by COST CUTTERS. If the FRANCHISEE fails
to give written notice to COST CUTTERS as provided for herein of an alleged
breach or violation of this Agreement within one (1) year from the date that the
FRANCHISEE has knowledge of, determines, is of the opinion that, or becomes
aware of facts and circumstances reasonably indicating that the FRANCHISEE may
have a claim under any state law, federal law or common law because there has
been an alleged breach by COST CUTTERS, then the alleged breach or violation
will be deemed to be condoned, approved and waived by the FRANCHISEE, the
alleged breach or violation will not be deemed to be a breach or violation of
this Agreement by COST CUTTERS, and the FRANCHISEE will be barred from
commencing any legal or other action against COST CUTTERS for that alleged
breach or violation.
10.5 INJUNCTIVE RELIEF AVAILABLE TO COST CUTTERS. Notwithstanding any of the
foregoing provisions, if the FRANCHISEE gives COST CUTTERS written notice of an
alleged breach or violation of this Agreement, or of any laws that give rise to
a claim that the FRANCHISEE has the right to terminate this Agreement, then COST
CUTTERS will have the absolute right to immediately commence legal action
against the FRANCHISEE to enjoin and prevent the termination of this Agreement
without giving the FRANCHISEE any notice and without regard to any waiting
period that may be contained in this Agreement. If COST CUTTERS commences such
legal action against the FRANCHISEE, then the FRANCHISEE will not have the right
to terminate this Agreement as provided for herein unless and until it has been
determined that COST CUTTERS has breached this Agreement in the manner alleged
by the FRANCHISEE, and then only if COST CUTTERS fails to commence the actions
necessary to correct the breach or violation within thirty (30) days after a
final decision has been entered against COST CUTTERS and all time for appeals by
COST CUTTERS has expired. If COST CUTTERS commences any legal action against the
FRANCHISEE as contemplated by this provision, which will include actions for
injunctive relief against the FRANCHISEE to enjoin termination of this
Agreement, then unless applicable law provides to the contrary, COST CUTTERS
will not be required to post any bond or security whatever in such legal action.
ARTICLE 11
FRANCHISEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION
11.1 OBLIGATIONS UPON TERMINATION. In the event this Agreement expires or is
terminated for any reason, then the FRANCHISEE will: (A) within five (5) days
after termination, pay all Continuing Fees, Advertising Fees, and other amounts
due and owing to COST CUTTERS under this Agreement or any other contract,
promissory note or other obligation payable by the FRANCHISEE to COST CUTTERS;
(B) return to COST CUTTERS by first class prepaid United States mail all
Manuals, advertising materials and all other printed materials pertaining to the
FRANCHISEE'S Cost Cutters Business; and (C) comply with all other applicable
provisions of this Agreement.
11.2 TERMINATION OF RIGHT TO USE MARKS. Upon expiration or termination of this
Agreement for any reason, the FRANCHISEE'S right to use the name Cost Cutters
Family Hair Care(R), the other Marks and the Business System will terminate
immediately.
11.3 ALTERATION OF FRANCHISED LOCATION. If this Agreement expires or is
terminated for any reason or if the Franchised Location ever ceases to be used
as a Cost Cutters Business, then the FRANCHISEE will, at its expense, alter,
modify and change both the exterior and interior appearance of the Franchised
Location so that it will be easily distinguished from the standard appearance of
a Cost
<PAGE>
Cutters business. At a minimum, such changes and modifications to the Franchised
Location will include: (A) repainting and, where applicable, recovering both the
exterior and interior of the Franchised Location with totally different colors,
including removing any distinctive colors and designs from the walls; (B)
removing all fixtures and other decor items and replacing them with other decor
items not of the general type and appearance customarily used only in Cost
Cutters businesses; (C) removing all exterior and interior Cost Cutters signs;
(D) immediately discontinuing use of the approved wall decor items and window
decals; and (E) refraining from using any names, slogans, designs, decor items,
colors or other items which may be confusingly similar to those customarily used
only in Cost Cutters businesses.
11.4 TRANSFER OF TELEPHONE DIRECTORY LISTINGS. Upon termination or expiration of
this Agreement, COST CUTTERS will have the absolute right to notify the
telephone company and all listing agencies of the termination or expiration of
the FRANCHISEE'S right to use all telephone numbers and all classified and other
directory listings for the FRANCHISEE'S Cost Cutters Business or otherwise
placed under the name Cost Cutters Family Hair Care(R), and to authorize the
telephone company and all listing agencies to transfer to COST CUTTERS or its
assignee all telephone numbers and directory listings for the FRANCHISEE'S Cost
Cutters Business. The FRANCHISEE acknowledges that COST CUTTERS has the absolute
right and interest in and to all telephone numbers and directory listings
associated with the Marks, and the FRANCHISEE hereby authorizes COST CUTTERS to
direct the telephone company and all listing agencies to transfer all of the
FRANCHISEE'S telephone numbers and directory listings to COST CUTTERS or its
assignee if this Agreement expires or is terminated for any reason whatever. The
telephone company and all listing agencies will accept this Agreement as
evidence of the exclusive rights of COST CUTTERS to such telephone numbers and
directory listings. This Agreement will constitute the FRANCHISEE'S
authorization for the telephone company and listing agencies to transfer the
telephone numbers and directory listings for the FRANCHISEE'S Cost Cutters
Business to COST CUTTERS, and will constitute a release of the telephone company
and listing agencies by the FRANCHISEE from any and all claims, actions and
damages that the FRANCHISEE may at any time have the right to allege against
them in connection with this Article 11.
ARTICLE 12
FRANCHISEE'S COVENANTS NOT TO COMPETE
12.1 CONSIDERATION. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors acknowledge that the FRANCHISEE, its partners or officers,
and its employees will receive specialized training, current and future
marketing and advertising plans, business plans and strategies, business
information and procedures, research and development information, operations
information, and trade and business secrets from COST CUTTERS pertaining to the
Business System of a Cost Cutters business. In consideration for the use and
license of such valuable and confidential information, the FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors will comply in all
respects with the provisions of this Article. COST CUTTERS has advised the
FRANCHISEE that this provision is a material provision of this Agreement, and
that COST CUTTERS will not sell a Cost Cutters franchise to any person or entity
that owns or intends to own, operate or be involved in any business that
competes directly or indirectly with a Cost Cutters business.
12.2 IN-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, during the term of this
Agreement, on their own account or as an employee, agent, consultant, partner,
officer, director or shareholder of any other person, firm, entity, partnership
or corporation: (A) seek to employ any person who is at that time employed by
COST CUTTERS or by any other Cost Cutters, City Looks or We Care Hair(R)
franchisee, or induce any such employee to terminate his or her employment; or
(B) own, operate, lease, franchise, conduct, engage
<PAGE>
in, be connected with, have any interest in or assist any person or entity
engaged in any hairstyling, barber or other business that is in any way
competitive with or similar to the Cost Cutters businesses operated by COST
CUTTERS or COST CUTTERS' franchisees, except with the prior written consent of
COST CUTTERS.
12.3 POST-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, for a period of one (1) year
after the termination or expiration of this Agreement, on their own account or
as an employee, agent, consultant, partner, officer, director or shareholder of
any other person, firm, entity, partnership or corporation: (A) seek to employ
any person who is at that time employed by COST CUTTERS or by any other Cost
Cutters, City Looks or We Care Hair(R) franchise, or induce any such employee to
terminate his or her employment or (B) own, operate, lease, franchise, conduct,
engage in, be connected with, have any interest in or assist any person or
entity engaged in any hairstyling, barber or other business that is in any way
competitive with or similar to the Cost Cutters businesses conducted by COST
CUTTERS or COST CUTTERS' franchisees, which is located within six (6) miles of
either the Franchised Location or any other Cost Cutters businesses operated by
COST CUTTERS or any of COST CUTTERS' franchisees, or which is located within any
exclusive area granted by COST CUTTERS or any affiliate or area developer of
COST CUTTERS pursuant to any franchise, development, license or other
territorial agreement. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors expressly agree that the one (1) year period and the six (6)
mile limit are the reasonable and necessary time and distances required to
protect COST CUTTERS and COST CUTTERS' franchisees if this Agreement expires or
is terminated for any reason, and that this covenant not to compete is necessary
to permit COST CUTTERS the opportunity to resell and/or develop a new Cost
Cutters business at or in the area near the Franchised Location.
12.4 INJUNCTIVE RELIEF. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors agree that the provisions of this Article are necessary to
protect the legitimate business interests of COST CUTTERS and COST CUTTERS'
franchisees, including, without limitation, preventing damage to and/or loss of
goodwill associated with the Marks, preventing the unauthorized dissemination of
marketing, promotional and other confidential information to competitors of COST
CUTTERS and COST CUTTERS' franchisees, protection of COST CUTTERS' trade secrets
and the integrity of COST CUTTERS' Business System and preventing duplication of
the Business System. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors acknowledge that damages alone cannot adequately compensate
COST CUTTERS if there is a violation of this Article by the FRANCHISEE and that
injunctive relief against the FRANCHISEE is essential for the protection of COST
CUTTERS and COST CUTTERS' franchisees. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors agree therefore, that if COST CUTTERS
alleges that the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal
Guarantors have breached or violated this Article, then COST CUTTERS will have
the right to petition a Court of competent jurisdiction for injunctive relief
against the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal
Guarantors, in addition to all other remedies that may be available to COST
CUTTERS at law or in equity. Unless provided to the contrary by applicable law,
COST CUTTERS will not be required to post a bond or other security prior to
obtaining injunctive relief pursuant to this Agreement in any action where COST
CUTTERS is seeking to enjoin the FRANCHISEE, the FRANCHISEE'S shareholders or
the Personal Guarantors from violating the provisions of this Article. In cases
where COST CUTTERS is granted ex parte injunctive relief against the FRANCHISEE,
the FRANCHISEE'S shareholders or the Personal Guarantors, then the FRANCHISEE,
the FRANCHISEE'S shareholders and the Personal Guarantors will have the right to
petition the Court for a hearing on the merits at the earliest time convenient
to the Court.
<PAGE>
12.5 SEVERABILITY. It is the desire and intent of the parties to this Agreement,
including the FRANCHISEE'S shareholders and the Personal Guarantors, that the
provisions of this Article be enforced to the fullest extent permissible under
the laws and public policy applied in each jurisdiction in which enforcement is
sought. Accordingly, if any part of this Article is adjudicated to be invalid or
unenforceable, then this Article will be deemed to modify or delete that portion
thus adjudicated to be invalid or unenforceable, such modification or deletion
to apply only with respect to the operation of this Article and the particular
jurisdiction in which the adjudication is made. Further, to the extent any
provision of this Article is deemed unenforceable by virtue of its scope or
limitation, the parties to this Agreement including the FRANCHISEE'S
shareholders and the Personal Guarantors, agree that the scope and limitation
provisions will, nevertheless, be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction where
enforcement is sought.
ARTICLE 13
COST CUTTERS' RIGHT OF FIRST REFUSAL TO PURCHASE
13.1 NOTICE OF PROPOSED SALE. The FRANCHISEE will not sell, pledge, assign,
trade, transfer, lease, sublease, or otherwise dispose of any interest in or any
part of (A) the FRANCHISEE'S Cost Cutters Business, (B) the Franchised Location,
(C) the building or premises lease for the Franchised Location, (D) the
furniture, fixtures, equipment, inventory or other assets used in the
FRANCHISEE'S Cost Cutters Business (except for the sale of any of such items in
the normal course of business), (E) this Agreement, (F) any capital stock in the
FRANCHISEE, or (G) the land and building (if any) for the FRANCHISEE'S Cost
Cutters Business to any party without first offering the same to COST CUTTERS by
written notice that contains all material terms and conditions of the proposed
sale or transfer, including price and payment terms. Within ten (10) business
days after receipt by COST CUTTERS of the FRANCHISEE'S written offer specifying
the proposed price and terms of the proposed sale, COST CUTTERS will give the
FRANCHISEE written notice which will either waive its right of first refusal to
purchase or will state an interest in negotiating to purchase according to the
proposed terms. If COST CUTTERS commences negotiations to purchase the
FRANCHISEE'S Business as set forth herein, then the FRANCHISEE may not sell the
business or assets to a third party for at least sixty (60) days or until COST
CUTTERS and the FRANCHISEE agree in writing that the negotiations have
terminated, whichever comes earlier. If COST CUTTERS waives its right to
purchase, then the FRANCHISEE will have the right to complete the sale or
transfer of the Business according to the terms set forth in the written notice
to COST CUTTERS; however, any such sale, transfer or assignment to a third party
is expressly subject to the terms and conditions set forth in Article 20 of this
Agreement. If the FRANCHISEE does not consummate the sale to a third party upon
the terms and conditions previously presented to COST CUTTERS in writing, but
negotiates a sale price with a third party that is lower or on different terms
than the stated price or terms presented to COST CUTTERS, then the modified
offer must be recommunicated or made to COST CUTTERS by the FRANCHISEE. COST
CUTTERS will give the FRANCHISEE written notice within fifteen (15) business
days thereafter which will state whether or not it is interested in purchasing
the Business according to the proposed new terms. This provision will not apply
to the assignment or pledge of any of the assets described above (with the
exception of this Agreement) by the FRANCHISEE to a bank, financial institution
or other lender in connection with providing financing for the leasehold
improvements, furniture, fixtures, supplies, inventory and equipment used in, or
operating funds for, the FRANCHISEE'S Cost Cutters Business.
13.2 COMPLIANCE WITH AGREEMENT. The FRANCHISEE'S obligations under this
Agreement including, but not limited to, its obligations to pay the Continuing
Fees, the Advertising Fees and to operate as a Cost Cutters Business, will in no
way be affected or changed because of COST CUTTERS' nonacceptance of the
FRANCHISEE'S written offer to purchase the FRANCHISEE'S
<PAGE>
Business or assets, and, as a consequence, the terms and conditions of this
Agreement will remain in full force and effect. COST CUTTERS' decision not to
exercise the rights granted to it pursuant to this Article will not, in any way,
be deemed to grant the FRANCHISEE the right to terminate this Agreement and will
not affect the term of this Agreement. Moreover, if COST CUTTERS does not
exercise the rights granted to it pursuant to this Article and if the FRANCHISEE
complies with Article 20 and sells or otherwise disposes of its Business or
assets to a third party, then both the FRANCHISEE and the third party purchaser
will be required to comply in all respects with the terms and conditions of this
Agreement, and the sale of the Business or assets will not relieve the
FRANCHISEE of its obligations under this Agreement. Any sale, transfer or
assignment of the Business or assets of the FRANCHISEE'S Cost Cutters Business
that does not include assignment of this Agreement to the transferee will
constitute a wrongful termination of this Agreement.
13.3 TRANSFER OF AGREEMENT TO CORPORATION. If the FRANCHISEE is not a
corporation, then the FRANCHISEE will have the right to assign and transfer this
Agreement to a corporation in which the FRANCHISEE owns and controls at least
fifty-one percent (51%) of the issued and outstanding capital stock of the
corporation pursuant to Article 20.2 of this Agreement. If the FRANCHISEE
transfers this Agreement to a corporation owned or controlled by the FRANCHISEE
pursuant to Article 20.2, which will not excuse or release the FRANCHISEE from
any obligations under this Agreement, then the shares of capital stock of the
FRANCHISEE'S corporation (the "capital stock") may not be sold, pledged,
assigned, traded, transferred or otherwise disposed of by the FRANCHISEE until
the capital stock has been first offered to COST CUTTERS in writing under the
same terms and conditions offered to any third party as provided for in Article
13.1.
13.4 TRANSFER OF CAPITAL STOCK. If the FRANCHISEE is a corporation, then the
shares of capital stock of the FRANCHISEE owned by the FRANCHISEE'S shareholders
("capital stock") may not be sold, pledged, assigned, traded, transferred or
otherwise disposed of by the FRANCHISEE'S shareholders until the capital stock
has been first offered to COST CUTTERS in writing under the same terms and
conditions offered to any third party. In the event the FRANCHISEE'S
shareholders desire to sell, assign, trade, transfer or dispose of their shares
of capital stock, the FRANCHISEE'S shareholders will first offer them to COST
CUTTERS in writing under the same terms and conditions as being offered to any
third party. COST CUTTERS will have fifteen (15) business days within which to
accept any shareholder's offer to sell, assign, trade, transfer or dispose of
the capital stock. Notwithstanding the terms of this Article, the FRANCHISEE'S
shareholders may bequeath, sell, assign, trade or transfer their capital stock
to the other shareholders of the FRANCHISEE without first offering it to COST
CUTTERS, provided that each proposed transferee shareholder who will be involved
in the operations or management of the Cost Cutters Business has successfully
completed COST CUTTERS' training program and has been certified by COST CUTTERS
and is, in COST CUTTERS' reasonable judgment, qualified from a managerial and
financial standpoint to operate the Cost Cutters Business in an economic and
businesslike manner. The FRANCHISEE and the FRANCHISEE'S shareholders must
provide COST CUTTERS with written notice of all such transactions, and the
proposed transferee shareholders must agree to be personally liable under this
Agreement and enter into a written agreement where they agree to perform all the
terms and conditions contained in this Agreement. All shares of capital stock
issued by the FRANCHISEE to its shareholders must bear the following legend:
The shares of capital stock represented by this stock
certificate are subject to a written Franchise Agreement which grants Cost
Cutters, a division of The Barbers, Hairstyling for Men & Women, Inc., the right
of first refusal to purchase these shares of capital stock from the shareholder.
Any person acquiring the shares of capital stock represented by this stock
certificate will be subject to the terms and conditions of the Franchise
Agreement between the company specified on the face of this stock
<PAGE>
certificate and Cost Cutters, a division of The Barbers, Hairstyling for Men &
Women, Inc., which includes provisions containing covenants not to compete that
apply to all shareholders.
13.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the Cost Cutters Business System and the Marks, as well as COST CUTTERS'
reputation and image, and are for the protection of COST CUTTERS, the FRANCHISEE
and all other Franchisees who own and operate Cost Cutters businesses. Any
assignment or transfer permitted by Article 13 will not be effective until COST
CUTTERS receives a completely executed copy of all transfer documents and COST
CUTTERS consents to the transfer in writing.
13.6 SELLING SHAREHOLDERS SUBJECT TO COVENANT NOT TO COMPETE. Any shareholder of
the FRANCHISEE that sells or assigns his or her capital stock in the FRANCHISEE
will continue to be subject to provisions of Article 12 of this Agreement after
the sale or assignment.
13.7 RIGHT OF COST CUTTERS TO PURCHASE BUSINESS ASSETS. If this Agreement
expires or is terminated by either COST CUTTERS or the FRANCHISEE for any reason
whatsoever, or if the FRANCHISEE wrongfully terminates this Agreement by failing
to comply with Article 10 or otherwise, or if the FRANCHISEE at any time ceases
to do business at the Franchised Location as a Cost Cutters Business, then COST
CUTTERS will have the right, but not the obligation, to purchase the then-usable
furniture, supplies, inventory, fixtures and equipment, and all other assets
that are required by COST CUTTERS for a standard Cost Cutters business and owned
by the FRANCHISEE in its Cost Cutters Business (the "Business Assets"). COST
CUTTERS will not purchase any assets from the FRANCHISEE that are not part of
the standard Cost Cutters business. The FRANCHISEE must give COST CUTTERS
written notice listing the cost of each one of the Business Assets in detail and
the FRANCHISEE'S asking price for the Business Assets within twenty-four (24)
hours after the FRANCHISEE ceases to do business as a Cost Cutters Business, or
after this Agreement expires or is terminated by either party, or is wrongfully
terminated by the FRANCHISEE.
13.8 DETERMINATION OF FAIR MARKET VALUE. If the FRANCHISEE fails to give COST
CUTTERS written notice of the asking price of the Business Assets, or if COST
CUTTERS and the FRANCHISEE cannot agree on the price of the Business Assets,
then either party will have the right to demand that the price of the Business
Assets be determined by Arbitration in accordance with the Rules and Regulations
of the American Arbitration Association. The Arbitration hearing will be held as
soon as possible, but in no event later than seven (7) business days from the
date Arbitration is demanded by either party. The Arbitrator will determine the
fair market value of the Business Assets. The Arbitrator will not consider any
value for goodwill associated with the names Cost Cutters(R) or Cost Cutters
Family Hair Care(R) or for going concern value in determining the fair market
value of the Business Assets since the right of purchase granted to COST CUTTERS
pursuant to this provision applies only after this Agreement has expired or has
been terminated, or the FRANCHISEE has ceased doing business. Furthermore, the
Arbitrator will not consider any value for the Lease for the Franchised Location
if COST CUTTERS agrees to assume the Lease and pay the rental and operating
costs. If the Arbitrator is unable to determine the fair market value of any of
the Business Assets, then they will be valued at book value (cost less
depreciation). COST CUTTERS will have the right, but not the obligation, to
purchase any or all of the Business Assets from the FRANCHISEE for cash within
fifteen (15) business days after the fair market value of the Business Assets
has been established by the Arbitrator in writing. Nothing in this Article will
prohibit COST CUTTERS from enforcing the terms and conditions of this Agreement,
including the covenants not to compete contained in Article 12.
<PAGE>
ARTICLE 14
TRAINING PROGRAM; PRE-OPENING ASSISTANCE; OPENING ASSISTANCE
14.1 TRAINING PROGRAM. COST CUTTERS will provide a training program for the
FRANCHISEE (and the FRANCHISEE'S District Manager if one is employed) in
Minneapolis, Minnesota to educate, familiarize and acquaint them with the
operations of a Cost Cutters Business. The training program will include
classroom instruction for not less than three (3) days on orientation to the
Business System and basic operating skills such as daily operational procedures,
inventory control, employee relations, scheduling and other topics selected by
COST CUTTERS. The FRANCHISEE and the FRANCHISEE'S District Manager must
successfully complete the training program either (a) prior to commencing any
business operations or (b) at the first scheduling of the training program by
COST CUTTERS after the execution of this Agreement. The training program will be
scheduled by COST CUTTERS in its sole discretion. In the event the FRANCHISEE or
its District Manager fails to successfully complete COST CUTTERS' training
program within the time period expressed in the third sentence of this Article
14.1, he or she will not be permitted or authorized to manage or operate the
FRANCHISEE'S Cost Cutters Business and COST CUTTERS will have the right to
reject the FRANCHISEE pursuant to Article 4.2 of this Agreement. If the
Franchised Location is the FRANCHISEE'S first Cost Cutters Business and there is
not a COST CUTTERS' training program scheduled after the FRANCHISEE has executed
this Agreement or a COST CUTTERS development agreement and prior to the date the
Franchised Location opens for business, then COST CUTTERS will, at COST CUTTERS'
expense, provide assistance at the Franchised Location to manage the
FRANCHISEE'S Cost Cutters Business during the time period that the FRANCHISEE
and its District Manager attend COST CUTTERS' training program, but only if the
FRANCHISEE and its District Manager attend the first training program offered by
COST CUTTERS immediately following the date the Franchised Location opens for
business.
14.2 HIRING OF NEW DISTRICT MANAGER. In the event the FRANCHISEE hires a
District Manager who has not successfully completed the training program(s)
prescribed by COST CUTTERS, and if COST CUTTERS determines, in its sole
discretion, that the new District Manager does not have sufficient knowledge or
experience relating to the management of the FRANCHISEE'S Cost Cutters Business,
then COST CUTTERS will require the individual to successfully complete the
prescribed training prior to the time he or she will be allowed to manage or
operate the FRANCHISEE'S Cost Cutters Business, and the FRANCHISEE will be
required to pay COST CUTTERS the then current training fee charged by COST
CUTTERS.
14.3 PAYMENT OF SALARIES AND EXPENSES DURING TRAINING. The FRANCHISEE will pay
the salaries, fringe benefits, payroll taxes, unemployment compensation,
workers' compensation insurance, lodging, food, automobile rental, travel costs,
and all other expenses for the FRANCHISEE, the FRANCHISEE'S District Manager and
all other persons sent to the training program by the FRANCHISEE, and the
FRANCHISEE will comply with all applicable state and federal laws pertaining to
all employees who attend COST CUTTERS' training program.
14.4 PRE-OPENING ASSISTANCE. If the Franchised Location is the FRANCHISEE'S
first Cost Cutters Business, then COST CUTTERS will provide, at its cost, a
representative for not more than five (5) business days at the Franchised
Location, who will provide pre-opening assistance to the FRANCHISEE, which will
include assisting the FRANCHISEE (and its District Manager if one is employed)
in the interviewing and hiring of employees, review of operational procedures
and facilitating the opening of the Cost Cutters Business.
<PAGE>
14.5 OPENING ASSISTANCE. After the FRANCHISEE and the FRANCHISEE'S District
Manager have successfully completed COST CUTTERS' training program, COST CUTTERS
will assist the FRANCHISEE in scheduling the initial opening of the FRANCHISEE'S
Cost Cutters Business. COST CUTTERS will provide, at its cost, a representative
for not less than five (5) business days at the Franchised Location, who will
provide opening assistance which will include training the FRANCHISEE'S Cost
Cutters staff in daily operational procedures, customer relations, haircutting
techniques, permanent waving, product knowledge and other areas selected by COST
CUTTERS. The FRANCHISEE will not open and commence initial business operations
until COST CUTTERS has given the FRANCHISEE written approval to open the
FRANCHISEE'S Cost Cutters Business.
ARTICLE 15
COST CUTTERS' OTHER OBLIGATIONS
15.1 ADDITIONAL ASSISTANCE. Consistent with COST CUTTERS' uniform requirements
and quality standards, COST CUTTERS will, at its expense: (A) provide the
FRANCHISEE with a written schedule of all furniture, fixtures, supplies and
equipment necessary and required for the operation of the FRANCHISEE'S Cost
Cutters Business; (B) furnish a list of approved sources from whom the
FRANCHISEE can purchase furniture, fixtures, equipment, supplies, toiletries,
grooming aids, products, printed materials, items, goods and services; (C)
review and evaluate the FRANCHISEE'S Business as often as COST CUTTERS deems
necessary and render written reports to the FRANCHISEE as deemed appropriate by
COST CUTTERS; (D) protect, police and, when appropriate, enforce the Marks and
the Business System for the benefit of all Cost Cutters franchisees; (E) render
advisory services pertaining to customer service and the operation of the
FRANCHISEE'S Cost Cutters Business as frequently as COST CUTTERS deems
appropriate; (F) provide the FRANCHISEE with COST CUTTERS' standard Operations
Manual and all supplements and modifications to the Manual; and (G) provide the
FRANCHISEE with COST CUTTERS' approved standard store layouts and plans for the
Franchised Location.
15.2 ANNUAL CONVENTION. COST CUTTERS will, during the term of this Agreement,
conduct an annual convention for all Cost Cutters franchisees at such times and
at such locations as COST CUTTERS deems appropriate. The FRANCHISEE will attend
the annual convention conducted by COST CUTTERS for Cost Cutters franchisees
during each year of this Agreement. All expenses incurred by the FRANCHISEE or
any employees of the FRANCHISEE in traveling to and attending the annual
convention conducted by COST CUTTERS will be paid for by the FRANCHISEE. COST
CUTTERS will charge, and the FRANCHISEE will pay, a registration fee for the
annual convention, regardless of whether the FRANCHISEE, or any representative
of the FRANCHISEE, attends the convention, and an additional registration fee
will be charged for each person in addition to the first person attending the
annual convention on behalf of the FRANCHISEE.
15.3 OPTIONAL ADDITIONAL TRAINING. COST CUTTERS may, during the term of this
Agreement, provide optional additional training and instruction to the
FRANCHISEE on topics determined by COST CUTTERS in its sole discretion. COST
CUTTERS reserves the right to add or delete additional training topics at any
time without notice to the FRANCHISEE. The FRANCHISEE will be required to pay
COST CUTTERS the then-current training fee charged by COST CUTTERS for any
additional training attended by the FRANCHISEE or its employees. All expenses
incurred by the FRANCHISEE or any employees of the FRANCHISEE in traveling to
and attending optional additional training will be paid for by the FRANCHISEE.
<PAGE>
ARTICLE 16
COST CUTTERS SIGN
16.1 INSTALLATION OF SIGN. The FRANCHISEE will, at its expense, purchase the
standard Cost Cutters Sign (the "Sign") which must be displayed at the
Franchised Location. The FRANCHISEE will pay for all costs incurred in
connection with the erection and installation of the Sign. The Sign must conform
exactly to COST CUTTERS' standard Sign plans and specifications and must be
installed at the Franchised Location precisely in the place, location and manner
specified by COST CUTTERS in writing. COST CUTTERS will have the absolute right
to inspect, examine, videotape and photograph the Sign at any time during the
term of this Agreement.
16.2 ADDITIONAL EXPENSES. The FRANCHISEE will, at its expense, be responsible
for any and all permits, licenses, repairs, maintenance, utilities, insurance,
taxes, assessments and levies in connection with the installation or use of the
Sign.
16.3 MODIFICATION AND REPLACEMENT. The FRANCHISEE may not alter, remove, change,
modify or redesign the Sign unless approved by COST CUTTERS in writing. COST
CUTTERS will have the unequivocal and unilateral right to redesign the Sign
plans and specifications during the term of this Agreement without the approval
or consent of the FRANCHISEE. Upon written notice from COST CUTTERS, the
FRANCHISEE will, at its expense, either modify or replace the Sign within thirty
(30) days so that the Sign displayed at the Franchised Location will comply with
COST CUTTERS' redesigned Sign plans and specifications. The FRANCHISEE will not
be required to modify or replace the Sign more than once every five (5) years
during the term of this Agreement.
16.4 INJUNCTIVE RELIEF. The FRANCHISEE agrees that COST CUTTERS will be entitled
to seek injunctive relief against the FRANCHISEE to require the FRANCHISEE, at
the FRANCHISEE'S expense, to: (A) exhibit the approved Cost Cutters Sign at the
Franchised Location during the term of this Agreement; (B) remove the Sign upon
the termination or expiration of this Agreement; or (C) remove the Sign from the
former franchised location upon the relocation of the Franchised Location.
Unless required by applicable law, COST CUTTERS will not be required to post a
bond or other security prior to obtaining injunctive relief pursuant to this
Article.
ARTICLE 17
INSURANCE
17.1 GENERAL LIABILITY. The FRANCHISEE must acquire and maintain in full force
and effect, at its sole cost and expense, a general liability insurance policy
insuring the FRANCHISEE, COST CUTTERS, and their respective officers, directors
and employees from and against any loss, liability, damage, claim or expense of
any kind whatsoever including claims for bodily injury, personal injury, death,
property damage, products liability and malpractice resulting from the
condition, operation, use, business or occupancy of the FRANCHISEE'S Cost
Cutters Business, including the surrounding premises, the parking area and the
sidewalks of the Franchised Location.
17.2 AUTOMOBILE. The FRANCHISEE must acquire and maintain in full force and
effect, at its sole cost and expense, automobile liability coverage insuring the
FRANCHISEE, COST CUTTERS, and their respective officers, directors and employees
from any and all loss, liability, damage, claim or expense of any kind
whatsoever resulting from the use, operation or maintenance of any automobile or
vehicle used by the FRANCHISEE or any of its employees in connection with the
FRANCHISEE'S Cost Cutters Business.
<PAGE>
17.3 COVERAGE LIMITS. Liability coverages for both the general liability
insurance coverage and automobile coverage must have limits of at least Five
Hundred Thousand Dollars ($500,000) for each person and One Million Dollars
($1,000,000) for each occurrence.
17.4 PROPERTY INSURANCE. The FRANCHISEE will maintain in full force and effect,
at its sole cost and expense, "all risks" property insurance coverage for the
equipment, furnishings, fixtures, inventory and signs owned or leased by the
FRANCHISEE and used at the Franchised Location (including fire and extended
coverage) with limits equal to at least "replacement" cost.
17.5 PROFESSIONAL LIABILITY INSURANCE. The FRANCHISEE will maintain in full
force and effect, at its sole cost and expense, professional liability coverage
with coverage limits of a reasonable amount insuring the FRANCHISEE, COST
CUTTERS, and their respective officers, directors and employees from any and all
loss, liability, damage, claim or expense of any kind whatsoever resulting from
actions or omissions of the FRANCHISEE'S officers, directors or any of its
employees in connection with the FRANCHISEE'S Cost Cutters Business.
17.6 OTHER INSURANCE. The FRANCHISEE will, at its sole cost and expense, procure
and pay for all other insurance required by state or federal law, including
workers' compensation insurance for its employees, together with all insurance
required under any lease, mortgage, deed of trust or other legal contract in
connection with the Franchised Location or the operation of the FRANCHISEE'S
Cost Cutters Business.
17.7 INSURANCE COMPANIES; EVIDENCE OF COVERAGE. All insurance companies
providing coverage to the FRANCHISEE must be licensed in the state where
coverage is provided. The FRANCHISEE will provide COST CUTTERS with certificates
of insurance evidencing the required insurance coverage no later than the date
the FRANCHISEE takes possession of the Franchised Location and will provide,
immediately upon expiration, change or cancellation, new certificates of
insurance to COST CUTTERS.
17.8 COST CUTTERS' RIGHTS. All insurance policies procured and maintained by the
FRANCHISEE pursuant to this Article will name COST CUTTERS as an additional
insured, will contain endorsements by the insurance companies waiving all rights
of subrogation against COST CUTTERS, and will stipulate that COST CUTTERS will
receive copies of all notices of cancellation, nonrenewal, or coverage reduction
or elimination at least thirty (30) days prior to the effective date of such
cancellation, nonrenewal or coverage change.
17.9 DEFENSE OF CLAIMS. All liability insurance policies procured and maintained
by the FRANCHISEE will require the insurance companies to provide and pay for
legal counsel to defend any legal actions, lawsuits or claims brought against
the FRANCHISEE, COST CUTTERS, and their respective officers, directors and
employees.
17.10 NO REPRESENTATIONS; RIGHT TO ADDITIONAL COVERAGE. COST CUTTERS makes no
representations with respect to the adequacy of the types of insurance coverage
or coverage amounts set forth herein, and the FRANCHISEE will have the absolute
right to maintain additional types of coverage and higher coverage amounts than
those specified herein as minimum requirements.
<PAGE>
ARTICLE 18
INDEPENDENT CONTRACTORS; INDEMNIFICATION
18.1 INDEPENDENT CONTRACTORS. COST CUTTERS and the FRANCHISEE are each
independent contractors and, as a consequence, there is no employer-employee or
principal-agent relationship between COST CUTTERS and the FRANCHISEE. The
FRANCHISEE will not have the right to and will not make any agreements,
representations or warranties in the name of or on behalf of COST CUTTERS or
represent that their relationship is other than that of Franchisor and
Franchisee. Neither COST CUTTERS nor the FRANCHISEE will be obligated by or have
any liability to the other under any agreements or representations made by the
other to any third parties.
18.2 INDEMNIFICATION. COST CUTTERS will not be obligated to any person or entity
for damages arising out of, from, in connection with, or as a result of the
FRANCHISEE'S negligence or the operation of the FRANCHISEE'S Cost Cutters
Business. The FRANCHISEE will indemnify and hold COST CUTTERS harmless against
all claims, lawsuits, damages, obligations, liability, actions and judgments
alleged or obtained by any person or entity against COST CUTTERS arising out of,
from, as a result of, or in connection with the FRANCHISEE'S negligence, the
operation of the FRANCHISEE'S Cost Cutters Business, the Franchised Location, or
any business conducted by the FRANCHISEE pursuant to this Agreement, including,
without limitation, any claims arising from or relating to: (A) any personal
injury, property damage, commercial loss or environmental contamination
resulting from any act or omission of the FRANCHISEE or its employees, agents or
representatives; (B) any failure on the part of the FRANCHISEE to comply with
any requirement of any governmental authority; (C) any failure of the FRANCHISEE
to pay any of its obligations; or (D) any failure of the FRANCHISEE to comply
with any requirement or condition of this Agreement or any other agreement with
COST CUTTERS or any affiliate of COST CUTTERS. Further, the FRANCHISEE will
indemnify and reimburse COST CUTTERS for all such obligations and damages for
which COST CUTTERS is held liable and for all costs reasonably incurred by COST
CUTTERS in the defense of any such claims brought against it or in any action in
which it is named as a party including, without limitation, costs for attorneys'
fees actually incurred, investigation expenses, court costs, deposition expenses
and travel and living expenses. COST CUTTERS will have the absolute right to
defend any claim made against it that results from or arises out of the
FRANCHISEE'S Cost Cutters Business.
18.3 PAYMENT OF COSTS AND EXPENSES. The FRANCHISEE will pay all costs and
expenses, including attorneys' fees, actually incurred by COST CUTTERS in
enforcing any term, condition or provision of this Agreement or in seeking to
enjoin any violation of this Agreement by the FRANCHISEE.
18.4 CONTINUATION OF OBLIGATIONS. The indemnification and other obligations
contained in this Article will continue in full force and effect subsequent to
and notwithstanding the expiration or termination of this Agreement.
ARTICLE 19
FINANCIAL STATEMENTS; GROSS REVENUE REPORTS; FORMS AND ACCOUNTING
19.1 QUARTERLY AND ANNUAL FINANCIAL STATEMENTS. The FRANCHISEE will, at its
expense, provide COST CUTTERS with a quarterly balance sheet and income
statement, and annual financial statements for the FRANCHISEE'S Cost Cutters
Business which will consist of a balance sheet, income statement, statement of
cash flows and explanatory footnotes. All financial statements provided to COST
CUTTERS for the FRANCHISEE'S Cost Cutters Business will be presented in the
exact form and
<PAGE>
format prescribed by COST CUTTERS in writing and will be categorized according
to the chart of accounts prescribed by COST CUTTERS. The FRANCHISEE'S financial
statements will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis. If the FRANCHISEE'S annual financial
statements are not certified by an independent certified public accountant, then
the FRANCHISEE'S annual financial statements must be verified by the
FRANCHISEE'S President or Chief Financial Officer, or if the FRANCHISEE is not a
corporation, then by the FRANCHISEE'S Managing Partner, Chief Operating Officer
or Chief Financial Officer. The FRANCHISEE'S quarterly financial statements will
be delivered to COST CUTTERS by the FRANCHISEE within thirty (30) days after the
end of the quarter and the annual financial statements will be delivered within
ninety (90) days of the FRANCHISEE'S fiscal year end.
19.2 TAX RETURNS. Within ninety (90) days after the FRANCHISEE'S fiscal year
end, the FRANCHISEE will furnish COST CUTTERS with signed copies of the
FRANCHISEE'S annual federal, and if applicable, state income tax returns, and
copies of any other federal, state or local tax returns filed by the FRANCHISEE
including, but not limited to, any amended tax returns filed by the FRANCHISEE,
together with proof that the FRANCHISEE has paid all federal and state income
and sales taxes due.
19.3 WEEKLY STATEMENT OF GROSS REVENUES. The FRANCHISEE will maintain an
accurate written record of daily Gross Revenues for the FRANCHISEE'S Cost
Cutters Business and the FRANCHISEE will remit a signed and verified statement
of the weekly Gross Revenues generated by, at, as a result of, or from the
FRANCHISEE'S Cost Cutters Business using such forms as COST CUTTERS may
prescribe in writing. The weekly statement of Gross Revenues will accompany the
FRANCHISEE'S weekly Continuing Fees and Advertising Fees and will be provided to
COST CUTTERS on or before Thursday of each week for the preceding week.
19.4 COST CUTTERS' AUDIT RIGHTS. Within three (3) days after having been given
written notice from COST CUTTERS, the FRANCHISEE and its accountants will make
all of their books, ledgers, work papers, accounts, bank statements, tax
returns, sales tax returns, daily cash register tapes and financial records
pertaining to the FRANCHISEE'S Business ("books and financial records")
available to COST CUTTERS during all business hours for review and audit by COST
CUTTERS or its designee. The books and financial records for each fiscal year
will be kept in a secure place by the FRANCHISEE and will be available for audit
by COST CUTTERS for at least the preceding five (5) years. The FRANCHISEE will
provide COST CUTTERS with adequate facilities to conduct the audit, including a
working area with a desk and chair at either the Franchised Location or at the
FRANCHISEE'S accountants' offices. If an audit by COST CUTTERS reveals any
deficiencies, then the FRANCHISEE will, within five (5) days after receipt of an
invoice from COST CUTTERS indicating the amounts owed, pay COST CUTTERS any
deficiency in Continuing Fees or other amounts owed to COST CUTTERS, together
with interest as provided for herein. If an audit by COST CUTTERS results in a
determination that the FRANCHISEE'S Gross Revenues were understated by more than
two percent (2%), or that the FRANCHISEE has underpaid the weekly Continuing
Fees by more than Five Hundred Dollars ($500) in any twelve (12) month period,
then the FRANCHISEE will, in addition to paying any deficiency in Continuing
Fees, Advertising Fees, costs of products purchased from COST CUTTERS or other
amounts due to COST CUTTERS, reimburse COST CUTTERS for all costs and expenses
(including salaries of COST CUTTERS' employees, travel costs, room and board,
and audit fees) that COST CUTTERS has incurred as a result of the audit,
including any fees paid to its accountants to conduct the audit. The FRANCHISEE
will reimburse COST CUTTERS for such costs and expenses within ten (10) days of
receipt of an invoice from COST CUTTERS indicating the amount owed as a result
of the audit. The FRANCHISEE'S failure or refusal to produce the books and
financial records for audit by COST
<PAGE>
CUTTERS in accordance with this Article 19.4 will constitute a material breach
of this Agreement and will be grounds for the immediate termination of this
Agreement by COST CUTTERS.
19.5 WAIVER BY FRANCHISEE. COST CUTTERS will have the right, without notice to,
or further approval of or authorization by the FRANCHISEE, to provide all
vendors that supply any products, goods or services to the FRANCHISEE with
copies of the FRANCHISEE'S: (A) initial application and all financial
information that was provided to COST CUTTERS in conjunction with such
application; (B) most recent financial information provided to COST CUTTERS; and
(C) most recent annual financial statements provided to COST CUTTERS. COST
CUTTERS will also have the right to obtain credit reports maintained by credit
reporting agencies regarding the FRANCHISEE and the right to review the books
and records maintained by the vendors or suppliers that supply products, goods
or services to the FRANCHISEE regarding the purchase made by the FRANCHISEE.
This Agreement will serve as evidence of COST CUTTERS' right to review such
information and will constitute the authority from the FRANCHISEE for credit
reporting agencies, vendors and suppliers to provide such information to COST
CUTTERS.
19.6 PAYMENT BY PRE-AUTHORIZED BANK TRANSFER. The FRANCHISEE will, from time to
time during the term of this Agreement, execute such documents as COST CUTTERS
may request to provide the FRANCHISEE'S unconditional and irrevocable authority
and direction to its bank or financial institution authorizing and directing the
FRANCHISEE'S bank or financial institution to pay and deposit directly to the
account of COST CUTTERS, and to charge to the account of the FRANCHISEE, on
Thursday of each week, the amount of the Continuing Fees, Advertising Fees and
other sums due and payable by the FRANCHISEE pursuant to this Agreement in
accordance with Article 5 and Article 6 of this Agreement. The authorizations
will be in the form prescribed by COST CUTTERS' bank. The FRANCHISEE'S
authorizations will permit COST CUTTERS to designate the amount to be debited or
drafted from the FRANCHISEE'S account and to adjust such amount from time to
time, to the amount of the Continuing Fees, Advertising Fees and other sums then
payable to COST CUTTERS from the FRANCHISEE. If the FRANCHISEE fails at any time
to provide reports of Gross Revenues as required under Article 19.3 of this
Agreement, then COST CUTTERS will have the right, in its sole discretion, to
estimate the amount of the Continuing Fees, Advertising Fees and other sums due
and payable to COST CUTTERS, and to designate such estimated amount as the
amount to be debited or drafted from the FRANCHISEE'S account. The FRANCHISEE
will, at all times during the term of this Agreement, maintain a balance in its
account at its bank or financial institution sufficient to allow the appropriate
amount to be debited from the FRANCHISEE'S account for payment of the Continuing
Fees, Advertising Fees and other sums payable by the FRANCHISEE for deposit in
the account of COST CUTTERS.
ARTICLE 20
ASSIGNMENT
20.1 ASSIGNMENT BY COST CUTTERS. This Agreement may be unilaterally assigned and
transferred by COST CUTTERS without the FRANCHISEE'S approval or consent, and
will inure to the benefit of COST CUTTERS' successors and assigns. COST CUTTERS
will provide the FRANCHISEE with written notice of any such assignment or
transfer, and the assignee will be required to fulfill COST CUTTERS' obligations
under this Agreement.
20.2 ASSIGNMENT BY FRANCHISEE TO CORPORATION. If the FRANCHISEE is an individual
or a partnership, this Agreement may be transferred or assigned by the
FRANCHISEE, without first offering it to COST CUTTERS pursuant to Article 13, to
a corporation which is owned or controlled (ownership of at least fifty-one
percent (51%) of the issued and outstanding capital stock) by the
<PAGE>
FRANCHISEE, provided that: (A) the FRANCHISEE and all of the shareholders of the
assignee corporation sign the personal guaranty and agreement to be bound by the
terms and conditions of this Agreement attached hereto; (B) the FRANCHISEE
furnishes prior written proof to COST CUTTERS substantiating that the
corporation will be financially able to perform all of the terms and conditions
of this Agreement; and (C) none of the shareholders owns, operates, franchises,
develops, manages or controls any hairstyling, barber or other business that is
in any way competitive with or similar to a Cost Cutters business. The
FRANCHISEE will give COST CUTTERS fifteen (15) days written notice prior to the
proposed date of assignment or transfer of this Agreement to an owned or
controlled corporation of the FRANCHISEE; however, the transfer or assignment of
this Agreement will not be valid or effective until COST CUTTERS has received
the legal documents which its legal counsel deems necessary to properly and
legally document the transfer or assignment of this Agreement to the corporation
as provided herein.
20.3 ASSIGNMENT UPON DEATH OR DISABILITY OF INDIVIDUAL FRANCHISEE. If the
FRANCHISEE is an individual, then this Agreement may be assigned, transferred or
bequeathed by the FRANCHISEE to any designated person or beneficiary without
first being offered to COST CUTTERS pursuant to Article 13 upon his or her death
or permanent disability. However, the assignment of this Agreement to the
transferee, assignee or beneficiary of the FRANCHISEE will not be valid or
effective until COST CUTTERS has received the properly executed legal documents
which its legal counsel deems necessary to properly and legally document the
transfer, assignment or bequest of this Agreement, and until the transferee,
assignee or beneficiary agrees to be unconditionally bound by the terms and
conditions of this Agreement and to personally guarantee the performance of the
FRANCHISEE'S obligations under this Agreement.
20.4 APPROVAL OF TRANSFER; CONDITIONS FOR APPROVAL. The rights granted to the
FRANCHISEE pursuant to this Agreement may be assigned or transferred by the
FRANCHISEE only with the prior written approval of COST CUTTERS. COST CUTTERS
will not unreasonably withhold its consent to any transfer of this Agreement
provided that the FRANCHISEE and the transferee Franchisee comply with the
following conditions: (A) the FRANCHISEE has complied in all respects with
Article 13 of this Agreement; (B) all of the FRANCHISEE'S monetary obligations
due to COST CUTTERS have been paid in full, and the FRANCHISEE is not otherwise
in default under this Agreement; (C) the FRANCHISEE has executed a written
agreement in a form satisfactory to COST CUTTERS in which the FRANCHISEE agrees
to observe all applicable obligations and covenants contained in this Agreement;
(D) the transferee Franchisee and its shareholders agree to be personally liable
to discharge all of the FRANCHISEE'S obligations under this Agreement, and will
enter into a written agreement in a form satisfactory to COST CUTTERS assuming
and agreeing to discharge all of the FRANCHISEE'S obligations and covenants
under this Agreement; (E) the transferee Franchisee will have demonstrated to
COST CUTTERS' satisfaction that he, she or it meets COST CUTTERS' managerial,
financial and business standards for new Franchisees, possesses a good business
reputation and credit rating, and possesses the aptitude and ability to conduct
the franchised business (as may be evidenced by prior related business
experience or otherwise); (F) the transferee Franchisee and all parties having a
legal or beneficial interest in the transferee Franchisee including, if
applicable, the shareholders and Personal Guarantors of the transferee
Franchisee will execute COST CUTTERS' then-current standard Franchise Agreement
for a term ending on the expiration date of this Agreement and such other
ancillary agreements as COST CUTTERS may require for the transfer of the
FRANCHISEE'S Business; (G) the transferee Franchisee will not be required to pay
the Initial Fee, however, the transferee Franchisee will be required to pay the
Continuing Fees and the Advertising Fees to COST CUTTERS at the rate specified
in this Agreement; (H) the transferee Franchisee has purchased the Franchised
Location or has acquired a lease for the Franchised Location for a reasonable
term consistent with the remaining term of this Agreement; (I) the transferee
Franchisee (and its District Manager if one is employed) must
<PAGE>
successfully complete the training program(s) prescribed by COST CUTTERS; (J)
the transferee Franchisee will pay the salaries, fringe benefits, payroll taxes,
unemployment compensation, workers' compensation insurance, hotel costs, travel
costs and other expenses for all persons sent to the training program(s), and
will pay to COST CUTTERS COST CUTTERS' then-current training fee for each person
attending COST CUTTERS' training program(s); (K) the FRANCHISEE has paid the
transfer fee required under Article 20.6; (L) the transferee Franchisee has paid
the Training Program Deposit required under Article 20.7; (M) the transferee
Franchisee does not own, operate, franchise, develop, manage or control any
hairstyling, barber or other business that is in any way competitive with or
similar to a Cost Cutters business; and (N) if the transferee Franchisee does
not meet COST CUTTERS' net worth requirements for operation of the Cost Cutters
Business, then the FRANCHISEE and/or its shareholders and the Personal
Guarantors will execute a written agreement in a form satisfactory to COST
CUTTERS agreeing to remain liable to COST CUTTERS for the obligations of the
Cost Cutters Business.
20.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the Cost Cutters Business System and the Marks, as well as COST CUTTERS'
reputation and image, and are for the protection of COST CUTTERS, the FRANCHISEE
and all other franchisees who own and operate Cost Cutters businesses. Any
assignment or transfer permitted by this Article 20 will not be effective until
COST CUTTERS receives a completely executed copy of all transfer documents and
COST CUTTERS consents to the transfer in writing, and any attempted assignment
or transfer made without complying with the requirements of this Article 20 will
be void.
20.6 TRANSFER FEE. If, pursuant to the terms of this Article 20, the rights
granted to the FRANCHISEE in this Agreement are assigned, transferred or
bequeathed to another person or entity, or if the FRANCHISEE'S shareholders
transfer over fifty percent (50%) of their capital stock to another person or
entity, then the FRANCHISEE will pay COST CUTTERS a transfer fee of One Thousand
Dollars ($1,000). This fee is to cover the costs incurred by COST CUTTERS for
attorneys' fees, accountants' fees, compliance with applicable laws,
out-of-pocket expenses, long distance telephone calls, and the time of its
employees and officers.
20.7 TRAINING PROGRAM DEPOSIT. If, pursuant to the terms of this Article 20, the
rights granted in this Agreement are assigned, transferred or bequeathed to
another person or entity, or if the FRANCHISEE'S shareholders transfer over
fifty percent (50%) of their capital stock to another person or entity, then, as
a condition (in addition to the other conditions expressed in this Article 20)
to the approval by COST CUTTERS of such assignment, transfer or bequest, the
transferee Franchisee will pay COST CUTTERS a training program deposit which
will be refunded to the transferee Franchisee in its entirety upon the
transferee Franchisee's successful completion of COST CUTTERS' training program.
The amount of the training program deposit to be paid to COST CUTTERS is Two
Thousand Dollars ($2,000) if the Franchised Location is located within ninety
(90) miles of COST CUTTERS' training facility located in Minneapolis, Minnesota.
If the Franchised Location is located more than ninety (90) miles from COST
CUTTERS' training facility, then the amount of the training program deposit to
be paid to COST CUTTERS is Three Thousand Dollars ($3,000).
ARTICLE 21
SITE SELECTION; STANDARD STORE LAYOUTS AND PLANS
21.1 SITE SELECTION. The FRANCHISEE will be solely responsible for selecting a
site for the Franchised Location and for purchasing, leasing or otherwise
acquiring possession of the site for the Franchised Location. COST CUTTERS has
strongly recommended that the FRANCHISEE should retain
<PAGE>
an experienced commercial real estate broker or salesperson ("real estate
broker") who has at least five (5) years experience in locating and/or leasing
retail space to locate, acquire, purchase or lease a site for the FRANCHISEE'S
Cost Cutters Business. Accordingly, no provision of this Agreement may be
construed to impose any obligation or responsibility on COST CUTTERS to locate
or select a site for the Franchised Location. The FRANCHISEE will not lease,
purchase or otherwise acquire a site for the Franchised Location until the
proposed site has been reviewed in writing by COST CUTTERS to determine
accessibility, visibility, potential traffic flows and other demographic
information. The review of the site conducted by COST CUTTERS will not be deemed
to be a warranty, representation or guaranty by COST CUTTERS that if the
FRANCHISEE'S Cost Cutters Business is opened and operated at that site, it will
be a financial success. COST CUTTERS will have the right to require the
FRANCHISEE to obtain, at the FRANCHISEE'S expense, an economic feasibility and
demographics study for the proposed site of the Franchised Location. Any
feasibility and demographics study required by COST CUTTERS will be completed by
a real estate expert mutually agreed upon by COST CUTTERS and the FRANCHISEE in
writing.
21.2 STANDARD STORE LAYOUTS AND PLANS. After the Franchised Location has been
leased or acquired, the FRANCHISEE will, within sixty (60) days of the date of
this Agreement, provide COST CUTTERS with the following information for the
Franchised Location: (A) a copy of the executed lease (if applicable); (B) the
store front elevation; (C) space documentation (size and lay-out); (D) location
of the plumbing and electrical sources; (E) local signage requirements, laws and
regulations; and (F) all other pertinent information. Based upon the information
provided by the FRANCHISEE, COST CUTTERS will provide approved store layouts and
plans for the Franchised Location. The FRANCHISEE will construct or remodel the
Franchised Location in strict compliance with the store layouts and plans
provided by COST CUTTERS. Any unauthorized variance from the store layouts and
plans prepared by COST CUTTERS will be a material breach of this Agreement.
Providing store layouts and plans does not constitute a representation, warranty
or guaranty by COST CUTTERS that the site will be a financially successful
location for the FRANCHISEE'S Cost Cutters Business, and the FRANCHISEE assumes
all business and economic risks associated with the operation of the Cost
Cutters Business at this site.
21.3 INCORRECT INFORMATION. In the event any of the information provided to COST
CUTTERS by the FRANCHISEE pursuant to this Article is incorrect, inaccurate or
incomplete, then the FRANCHISEE will pay for all costs and expenses incurred by
COST CUTTERS in revising the store layouts and plans prepared by COST CUTTERS
for the Franchised Location.
21.4 FRANCHISEE RESPONSIBLE FOR CONSTRUCTION OR REMODELING. The FRANCHISEE will
be solely responsible for ascertaining and insuring that the Franchised Location
is constructed or remodeled according to the store layouts and plans provided by
COST CUTTERS in compliance with all applicable local, state and federal laws,
ordinances, statutes and building codes. Accordingly, the FRANCHISEE or its
agent will be responsible for inspecting the premises during construction or
remodeling to insure that the Franchised Location complies with the store
layouts and plans and with applicable laws and ordinances.
21.5 COST CUTTERS' OPTION TO VIEW FRANCHISED LOCATION. COST CUTTERS may, at its
expense, view the Franchised Location during construction or remodeling at such
times as it deems necessary for the purpose of determining the progress of the
construction or remodeling and to ascertain that the interior and exterior of
the Franchised Location are generally being constructed or remodeled according
to the store layouts and plans. COST CUTTERS' viewing of the Franchised Location
during construction or remodeling will not be for the purpose of determining
that the Franchised
<PAGE>
Location is being constructed or remodeled in a workmanlike manner or in
compliance with any applicable laws or ordinances. Accordingly, COST CUTTERS
will have no responsibility or liability to the FRANCHISEE or any other person
or entity if the Franchised Location is not constructed or remodeled according
to the store layouts and plans, in a workmanlike manner or in compliance with
any applicable laws or ordinances.
ARTICLE 22
LEASE AS SECURITY; TERMINATION OF LEASE
22.1 COST CUTTERS' REVIEW OF LEASE. The lease for the Franchised Location (the
"Lease") will be submitted to COST CUTTERS by the FRANCHISEE for COST CUTTERS'
review prior to execution of the Lease by the FRANCHISEE. The Lease must, at a
minimum, be conditional upon COST CUTTERS' approval of the FRANCHISEE and give
COST CUTTERS the right to enter the premises to conduct inspections at any time
during regular business hours, and the right, but not the obligation, to assume
the Lease for the remaining term, in accordance with the provisions of this
Article, if the FRANCHISEE is evicted by the Landlord or if this Agreement
expires or is terminated by either COST CUTTERS or the FRANCHISEE for any reason
prior to the expiration of the Lease. COST CUTTERS' review of the Lease prior to
its execution will not be for the purpose of approving the legal aspects,
economics or rental terms of the Lease. Accordingly, COST CUTTERS will have no
responsibility to the FRANCHISEE with regard to the economics, legality or
enforceability of the Lease.
22.2 FRANCHISEE'S ASSIGNMENT OF LEASE. The FRANCHISEE hereby assigns and
transfers all of its right, title and interest in and to the Lease (which is
incorporated herein by reference) to COST CUTTERS as security for the
FRANCHISEE'S performance of the terms and conditions of this Agreement. If this
Agreement is terminated by either COST CUTTERS or the FRANCHISEE for any reason
whatsoever, if the FRANCHISEE wrongfully terminates this Agreement by failing to
comply with Article 10 or for any other reason, if the FRANCHISEE at any time
ceases to do business at the Franchised Location as a Cost Cutters Business, or
if this Agreement expires and the FRANCHISEE does not reacquire the franchise
(an "Event of Default"), then COST CUTTERS will have the right and option, but
not the obligation, to take and assume the Lease for the remaining term under
the same terms and conditions, including rental, as originally contracted by the
FRANCHISEE. The FRANCHISEE will execute a UCC-1 Financing Statement and such
other documents as may be reasonably required by COST CUTTERS' attorneys to
perfect and record COST CUTTERS' security interest in the Lease.
22.3 PERFECTED ASSIGNMENT; NOTICE. This assignment will constitute a perfected,
absolute and present assignment of the Lease; however, COST CUTTERS will have no
right under this assignment to enforce the provisions of the Lease until an
Event of Default has occurred. After an Event of Default has occurred, COST
CUTTERS will have the right, but not the obligation, to enforce the provisions
of this assignment and to take possession of the Franchised Location by giving
the FRANCHISEE and the Landlord written notice that it has affirmatively
exercised its rights under this assignment. The written notice will state: (A)
that COST CUTTERS is taking and assuming the Lease from the FRANCHISEE; (B) the
date that COST CUTTERS will take physical possession of the Franchised Location;
and (C) that COST CUTTERS agrees to be bound by the terms and conditions of the
Lease being assumed. COST CUTTERS will execute an assignment form at the time it
gives written notice to the FRANCHISEE and the Landlord of its assumption of the
Lease.
22.4 NO PRIOR ASSIGNMENTS. The FRANCHISEE represents and warrants that there
have been no prior assignments of the Lease by the FRANCHISEE, that it has good
right to assign and transfer the Lease, that the Lease is a valid and
enforceable agreement, that neither party is in default to the other
<PAGE>
thereunder and that all covenants, conditions and agreements have been performed
as required therein, except those not due to be performed until after the date
hereof. No change in the terms of the Lease will be valid without the written
approval of COST CUTTERS. The FRANCHISEE agrees not to assign, sell, pledge or
otherwise transfer or encumber its interest in the Lease so long as this
assignment is in effect. During the term of this Agreement, the FRANCHISEE will
not lease or sublease all or any part of the Franchised Location without COST
CUTTERS' prior written consent.
22.5 ENFORCEMENT OF FRANCHISEE'S RIGHTS. The FRANCHISEE hereby irrevocably
constitutes and appoints COST CUTTERS as its attorney-in-fact to demand, receive
and enforce the FRANCHISEE'S rights with respect to the Lease, to make payments
under the Lease and give appropriate receipts, releases and satisfactions for
and on behalf of and in the name of the FRANCHISEE or, at the option of COST
CUTTERS, in the name of COST CUTTERS, with the same force and effect as the
FRANCHISEE could do if this assignment had not been made.
22.6 COST CUTTERS' RIGHTS AND REMEDIES. Upon taking physical possession of the
Franchised Location, COST CUTTERS may, without affecting any of its rights or
remedies against the FRANCHISEE under any other instrument, document or
agreement, exercise its rights under this assignment as the FRANCHISEE'S
attorney-in-fact in any manner permitted by law and, in addition, COST CUTTERS
will have and possess, without limitation, any and all rights and remedies of a
secured party under the Uniform Commercial Code, as enacted in the jurisdiction
in which enforcement is sought or as provided by law.
22.7 PRORATION OF RENTS AND EXPENSES. At the time COST CUTTERS takes physical
possession of the Franchised Location, all charges, real estate taxes, utilities
and rentals will be prorated between COST CUTTERS and the FRANCHISEE. COST
CUTTERS will have no obligation to pay any past due obligations or arrearages of
the FRANCHISEE to any person or entity, including the Landlord.
22.8 POSSESSION; OBLIGATIONS OF COST CUTTERS AND FRANCHISEE. COST CUTTERS will
hold the FRANCHISEE harmless from any and all obligations to the Landlord,
including rental payments, arising out of the use of the Franchised Location
from the date that COST CUTTERS takes physical possession of the Franchised
Location. The FRANCHISEE will pay all amounts due to the Landlord and other
parties under the Lease including, but not limited to, rentals, insurance,
rental overrides, real estate taxes, repairs, and maintenance, up to and
including the date that COST CUTTERS takes physical possession of the Franchised
Location. With the specific and limited exception of rental payments and other
obligations to the Landlord arising from COST CUTTERS' use of the Franchised
Location after taking physical possession of the premises, the FRANCHISEE will
indemnify and hold COST CUTTERS harmless from and against any and all claims,
demands, liabilities, losses, lawsuits, judgments, costs and expenses, including
attorneys' fees, to which COST CUTTERS may become exposed, or which COST CUTTERS
may incur, in exercising any of its rights under this assignment.
22.9 LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE AS SECURITY. The FRANCHISEE will
secure the Landlord's written consent to the provisions contained in this
Article in the form of consent attached as Exhibit "B" to this Agreement.
22.10 ASSIGNMENT BY COST CUTTERS. COST CUTTERS will have the right to reassign
its right, title and interest in the Lease to any person or entity upon giving
written notice to the FRANCHISEE and the Landlord without any consent whatever
from the FRANCHISEE or the Landlord, and any such reassignment will be valid and
binding upon the FRANCHISEE and the Landlord as fully as if each had expressly
approved the same. Subject to the limitation on further assignment by the
<PAGE>
FRANCHISEE contained in Article 22.4, this assignment will be binding upon and
inure to the benefit of the heirs, legal representatives, assigns, and
successors in interest of the FRANCHISEE, COST CUTTERS and the Landlord.
22.11 LEASE NOT YET EXECUTED. In the event that the FRANCHISEE has not yet
entered into a premises lease for the Franchised Location at the time this
Agreement is executed, the provisions of Article 22.2, 22.3 and 22.5 of this
Agreement will take effect immediately upon the execution of the Lease. The
representations of the FRANCHISEE contained in Article 22.4 will be true and
complete as of, and will be deemed to have been made at, the time the Lease is
executed. The FRANCHISEE agrees to execute any additional documents as may be
required by COST CUTTERS' attorneys to perfect the assignment of the Lease.
ARTICLE 23
ARBITRATION
23.1 DISPUTES SUBJECT TO ARBITRATION. Except as expressly provided to the
contrary in this Agreement, all disputes and controversies between the parties,
including allegations of fraud, misrepresentation or violation of any state or
federal laws or regulations, arising under, as a result of, or in connection
with this Agreement, the Franchised Location or the FRANCHISEE'S Cost Cutters
Business will be resolved and determined exclusively by Arbitration in
accordance with the Commercial Rules and Regulations of the American Arbitration
Association.
23.2 NOTICE OF DISPUTE. The party alleging the breach, claim, dispute or
controversy ("dispute") must give the other party written notice setting forth
the alleged dispute in detail. The party who is given such written notice
alleging the dispute will have thirty (30) days after having been given such
written notice from the complaining party to correct or resolve the dispute
specified in the written notice.
23.3 DEMAND FOR ARBITRATION. If the dispute alleged by either party has not been
corrected, settled or compromised within the time period provided for in this
Agreement, then either party may notice Arbitration by giving the other party
written notice demanding Arbitration. Within ten (10) days after a written
demand for Arbitration has been given by the party demanding Arbitration, either
party will have the right to request the office of the American Arbitration
Association in Minneapolis, Minnesota to initiate the procedures necessary to
appoint an Arbitrator. The Arbitrator will be appointed within sixty (60) days
after a written demand for Arbitration has been made in accordance with the
Rules and Regulation of the American Arbitration Association.
23.4 VENUE AND JURISDICTION. All Arbitration hearings will take place
exclusively in Minneapolis, Minnesota. COST CUTTERS and the FRANCHISEE and their
officers, Directors and shareholders or partners and the Personal Guarantors
acknowledge that the FRANCHISEE and its officers, Directors and employees have
had substantial business and personal contacts with COST CUTTERS in Minnesota,
do hereby agree and submit to personal jurisdiction in Minnesota in connection
with any Arbitration hearings hereunder and any suits or actions brought to
enforce the decision of the Arbitrator, and do hereby waive any rights they may
have to contest venue and jurisdiction in Minnesota and any claims that venue
and jurisdiction in Minnesota are invalid.
23.5 POWERS OF ARBITRATOR. The authority of the Arbitrator will be limited to
making a finding, judgment, decision and award relating to the interpretation of
or adherence to the written provisions of this Agreement. The Federal Rules of
Evidence (the "Rules") will apply to all Arbitration hearings and the
introduction of all evidence, testimony, records, affidavits, documents and
memoranda in
<PAGE>
any Arbitration hearing must comply in all respects with the Rules and legal
precedents interpreting the Rules. Both parties will have the absolute right to
cross-examine any person who testified against them or in favor of the other
party. The Arbitrator will not have the authority or right to add to, delete,
amend or modify in any manner the terms, conditions and provisions of this
Agreement. All findings, judgments, decisions and awards of the Arbitrator will
be limited to the dispute set forth in the written demand for Arbitration, and
the Arbitrator will not have the authority to decide any other issues. The
Arbitrator will not have the right or authority to award punitive damages to
COST CUTTERS or the FRANCHISEE or their officers, Directors, shareholders or
partners and Personal Guarantors, and COST CUTTERS and FRANCHISEE and their
officers, Directors, shareholders or partners, and Personal Guarantors expressly
waive their rights to plead or seek punitive damages. All findings, judgments,
decisions and awards by the Arbitrator will be in writing, will be made within
sixty (60) days after the Arbitration hearings have been completed, and will be
final and binding on COST CUTTERS and the FRANCHISEE, except as provided for in
Article 23.8. The written decision of the Arbitrator will be deemed to be an
order, judgment and decree and may be entered as such in any Court of competent
jurisdiction by either party.
23.6 NO COLLATERAL ESTOPPEL OR CLASS ACTIONS. Except as provided herein, all
Arbitration findings, conclusions, orders and awards made by the Arbitrator will
be final and binding on COST CUTTERS and the FRANCHISEE and their officers,
Directors, shareholders or partners, and Personal Guarantors; however, such
Arbitration findings, conclusions, orders and awards may not be used to
collaterally estop either party from raising any like or similar issues, claims
or defenses in any other or subsequent Arbitration, litigation, court hearing or
other proceeding involving third parties or other franchisees. No party except
COST CUTTERS, the FRANCHISEE, and their officers, Directors, shareholders or
partners, and Personal Guarantors will have the right to join in any Arbitration
proceeding arising under this Agreement, and, therefore, the Arbitrator will not
be authorized to permit or approve class actions or to permit any person or
entity that is not a party to this Agreement to be involved in or to participate
in any Arbitration hearings conducted pursuant to this Agreement.
23.7 DISPUTES NOT SUBJECT TO ARBITRATION. The disputes and controversies between
COST CUTTERS and the FRANCHISEE which are set forth in Article 24.1 and the
following disputes and controversies between COST CUTTERS and the FRANCHISEE
will not be subject to Arbitration: (A) any dispute involving the Marks or which
arises under or as a result of Article 3 of this Agreement; (B) any dispute
involving immediate termination of this Agreement pursuant to Article 9.5 and
9.6 of this Agreement; (C) any dispute involving enforcement of the
confidentiality provisions set forth in Article 8 of this Agreement; and (D) any
dispute involving enforcement of the covenants not to compete set forth in
Article 12 of this Agreement.
23.8 DE NOVO HEARING ON MERITS. If the Arbitrator awards either COST CUTTERS or
the FRANCHISEE damages (including actual damages, costs and attorneys' fees) in
excess of One Hundred Thousand Dollars ($100,000) in any Arbitration proceeding
commenced pursuant to this Agreement, then the party who has been held liable by
the Arbitrator will have the right to a de novo hearing on the merits by
commencing an action in a court of competent jurisdiction in accordance with the
provisions of this Agreement. If the party held liable by the Arbitrator
commences a court action as provided for herein, then neither party will have
the right to introduce the Arbitrator's decision or findings in any such court
action and the Arbitrator's decision and findings will be of no force and effect
and will not be final or binding on either COST CUTTERS or the FRANCHISEE. If
the party who has been held liable by the Arbitrator for over One Hundred
Thousand Dollars ($100,000) in damages fails to commence a court action within
thirty (30) days after the Arbitrator issues his or her award in writing, then
the Arbitrator's findings, judgments, decisions and awards will be final and
binding on COST CUTTERS and the FRANCHISEE.
<PAGE>
23.9 CONFIDENTIALITY. All evidence, testimony, records, documents, findings,
decisions, judgments and awards pertaining to any Arbitration hearing between
COST CUTTERS and the FRANCHISEE will be secret and confidential in all respects.
COST CUTTERS and the FRANCHISEE will not disclose the decision or award of the
Arbitrator and will not disclose any evidence, testimony, records, documents,
findings, orders, or other matters from the Arbitration hearing to any person or
entity except as required by law.
23.10 SEVERABILITY. It is the desire and intent of the parties to this Agreement
that the provisions of this Article be enforced to the fullest extent
permissible under the laws and public policy applied in each jurisdiction in
which enforcement is sought. Accordingly, if any part of this Article is
adjudicated to be invalid or unenforceable, then this Article will be deemed
amended to delete that portion thus adjudicated to be invalid or unenforceable
to the extent required to make this Article valid and enforceable. Any such
deletion will be effective only in the jurisdiction in which the adjudication is
made. Further, to the extent any provision of this Article is deemed
unenforceable by virtue of its scope, the parties to this Agreement agree that
the same will, nevertheless, be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction where
enforcement is sought, and the scope in such a case will be determined by
Arbitration as provided herein.
ARTICLE 24
ENFORCEMENT
24.1 INJUNCTIVE RELIEF. In addition to the provisions of Article 23.7, COST
CUTTERS will have the right to petition a Court of competent jurisdiction for
the entry of temporary and permanent injunctions and orders of specific
performance enforcing the provisions of this Agreement relating to: (A) the
FRANCHISEE'S improper or unauthorized use of the Marks and the Business System;
(B) the obligations of the FRANCHISEE upon termination or expiration of this
Agreement; (C) the transfer or assignment of this Agreement, the franchised
Business or substantially all of the assets employed in the franchised Business,
or the ownership interests of the FRANCHISEE; (D) the FRANCHISEE'S violation of
the provisions of this Agreement relating to confidentiality and covenants not
to compete; and (E) any act or omission by the FRANCHISEE or the FRANCHISEE'S
employees that, (1) constitutes a violation of any applicable law, ordinance or
regulation, (2) is dishonest or misleading to customers of the FRANCHISEE'S Cost
Cutters Business or other Cost Cutters businesses, (3) constitutes a danger to
the employees, public or customers of the FRANCHISEE'S Cost Cutters Business, or
(4) may impair the goodwill associated with the Marks and the Business System.
In any action brought under this provision where COST CUTTERS prevails against
the FRANCHISEE, the FRANCHISEE will indemnify COST CUTTERS for all costs that it
incurs in any such proceedings including, without limitation, attorneys' fees
actually incurred, expert witness fees, costs of investigation, court costs,
travel and living expenses, and all other costs incurred by COST CUTTERS. Unless
provided to the contrary by applicable law, COST CUTTERS will be entitled to
obtain injunctive relief without the posting of any bond or security.
24.2 SEVERABILITY. All provisions of this Agreement are severable and this
Agreement will be interpreted and enforced as if all completely invalid or
unenforceable provisions were not contained herein and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. If
any applicable law or rule of any jurisdiction requires a greater prior notice
of the termination of or refusal to renew this Agreement than is required
hereunder or the taking of some other action not required hereunder, or if under
any applicable and binding law of any jurisdiction, any provision of this
Agreement or any specification, standard or operating procedure prescribed by
COST CUTTERS is invalid or unenforceable, the prior notice or other action
required by such law or rule will be substituted for the
<PAGE>
notice requirements hereof, or such invalid or unenforceable provision,
specification, standard or operating procedure will be modified to the extent
required to be valid and enforceable. Such modifications to this Agreement will
be effective only in such jurisdiction and will be enforced as originally made
and entered into in all other jurisdictions.
24.3 WAIVER. COST CUTTERS and the FRANCHISEE may, by written instrument signed
by COST CUTTERS and the FRANCHISEE, waive any obligation of or restriction upon
the other under this Agreement. Acceptance by COST CUTTERS of any payment by the
FRANCHISEE and the failure, refusal or neglect of COST CUTTERS to exercise any
right under this Agreement or to insist upon full compliance by the FRANCHISEE
of its obligations hereunder including, without limitation, any mandatory
specification, standard or operating procedure, will not constitute a waiver by
COST CUTTERS of any provision of this Agreement. COST CUTTERS will have the
right to waive obligations or restrictions for other franchisees under their
Franchise Agreements without waiving those obligations or restrictions for the
FRANCHISEE and, except to the extent provided by law, COST CUTTERS will have the
right to negotiate terms and conditions, grant concessions and waive obligations
for other franchisees of COST CUTTERS without granting those same rights to the
FRANCHISEE and without incurring any liability to the FRANCHISEE whatsoever.
24.4 NO RIGHT TO OFFSET. The FRANCHISEE will not, on grounds of the alleged
nonperformance by COST CUTTERS of any of its obligations under this Agreement,
any other contract between COST CUTTERS and the FRANCHISEE, or for any other
reason, withhold payment of any Continuing Fees, Advertising Fees or any other
fees or payments due COST CUTTERS under this Agreement or any other contract,
promissory note or other obligation payable by the FRANCHISEE to COST CUTTERS.
The FRANCHISEE will not have the right to "offset" or withhold any liquidated or
unliquidated amounts allegedly due to the FRANCHISEE from COST CUTTERS against
the Continuing Fees, the Advertising Fees or any other payments due to COST
CUTTERS under this Agreement or any other contract, promissory note or other
obligation payable by the FRANCHISEE to COST CUTTERS.
24.5 COST CUTTERS' RIGHTS CUMULATIVE. The rights of COST CUTTERS hereunder are
cumulative and no exercise or enforcement by COST CUTTERS of any right or remedy
hereunder will preclude the exercise or enforcement by COST CUTTERS of any other
right or remedy hereunder or which COST CUTTERS is entitled by law to enforce.
24.6 VENUE AND JURISDICTION. Unless otherwise required under applicable law, all
Arbitration hearings, litigation, court hearings or other hearings initiated by
either party against the other party must and will be venued exclusively in
Hennepin County, Minnesota. The FRANCHISEE, each of its officers, Directors and
shareholders, and the Personal Guarantors: (A) acknowledge that Minneapolis,
Minnesota is a mutually convenient location for the venue and conduct of any
legal or enforcement proceedings; (B) do hereby agree and submit to personal
jurisdiction in the State of Minnesota for the purposes of any Arbitration
hearings, litigation, court hearings or other hearings brought to enforce or
construe the terms of this Agreement or to resolve any dispute or controversy
arising under, as a result of, or in connection with this Agreement, the
Franchised Location or the FRANCHISEE'S Cost Cutters Business; and (C) do hereby
agree and stipulate that any Arbitration hearings, litigation, court hearings
and other hearings will be venued and held exclusively in Hennepin County,
Minnesota, and waive any rights to contest such venue and jurisdiction and any
claims that such venue and jurisdiction are invalid.
24.7 AGREEMENT BINDING ON HEIRS AND ASSIGNS. This Agreement is binding upon the
parties hereto and their respective executors, administrators, heirs, assigns
and successors in interest.
<PAGE>
24.8 JOINT AND SEVERAL LIABILITY. If the FRANCHISEE consists of more than one
person, their liability under this Agreement will be deemed to be joint and
several.
24.9 ENTIRE AGREEMENT. This FRANCHISE AGREEMENT supersedes and terminates all
prior agreements relating to the operation of a Cost Cutters Business by the
FRANCHISEE at the Franchised Location, either oral or in writing, between the
parties and therefore, any representations, inducements, promises or agreements
between the parties not contained in this Agreement or not in writing signed by
the President or a Vice President of COST CUTTERS and the FRANCHISEE will not be
enforceable. This Agreement will not supersede or terminate any written
Development Agreement or Franchise Agreement(s) executed prior to the date of
this Agreement relating to other Cost Cutters franchises that are or will be
owned and operated by the FRANCHISEE. The preambles are a part of this
Agreement, which constitutes the entire agreement of the parties, and there are
no other oral or written understandings or agreements between COST CUTTERS and
the FRANCHISEE relating to the subject matter of this Agreement.
24.10 HEADINGS; TERMS. The headings of the Articles and the provisions thereof
are for convenience only and do not define, limit or construe the contents of
such Articles. The term "FRANCHISEE" as used herein is applicable to one or more
individuals, a corporation or a partnership, as the case may be, and the
singular usage includes the plural, and the masculine usage includes the neuter
and the feminine, and the neuter usage includes the masculine and the feminine.
References to "FRANCHISEE," "assignee" and "transferee" which are applicable to
an individual or individuals will mean the principal owner or owners of the
equity or operating control of the FRANCHISEE or any such assignee or transferee
if the FRANCHISEE or such assignee or transferee is a corporation or
partnership. If the FRANCHISEE consists of more than one individual, then all
individuals will be bound jointly and severally by the terms and conditions of
this Agreement.
24.11 NO ORAL MODIFICATION. No modification, change, addition, rescission,
release, amendment or waiver of this Agreement and no approval, consent or
authorization required by any provision of this Agreement may be made except by
a written agreement subscribed to by duly authorized officers or partners of the
FRANCHISEE and the President or a Vice President of COST CUTTERS. COST CUTTERS
and the FRANCHISEE will not have the right to amend or modify this Agreement
orally or verbally, and any attempt to do so will be void in all respects.
24.12 EFFECT OF WRONGFUL TERMINATION. If either COST CUTTERS or the FRANCHISEE
takes any action to terminate this Agreement or to convert the FRANCHISEE'S Cost
Cutters Business to another business, and if such action was taken without first
complying with the applicable terms and conditions (including the notice and
opportunity to cure provisions) of this Agreement, then such action will not
relieve either party of, or release either party from, any of its obligations
under this Agreement, and the terms and conditions of this Agreement will remain
in full force and effect and the parties will be obligated to perform all terms
until such time as this Agreement expires or is terminated in accordance with
the provisions of this Agreement and applicable law, as determined by an
Arbitrator or a Court of competent jurisdiction.
ARTICLE 25
NOTICES
All notices to COST CUTTERS will be in writing and will be made by personal
service upon an officer or Director of COST CUTTERS or sent by prepaid
registered or certified United States mail addressed to COST CUTTERS at 300
Industrial Boulevard N.E., Minneapolis, Minnesota 55413 with a copy to John
<PAGE>
W. Fitzgerald, Esq, Gray, Plant, Mooty, Mooty & Bennett, P.A., 3400 City Center,
33 South Sixth Street, Minneapolis, Minnesota 55402-3796. All notices to the
FRANCHISEE will be by personal service upon the FRANCHISEE, District Manager or
a salon manager or assistant manager, (or, if applicable, an officer or Director
of the FRANCHISEE), or sent by prepaid registered or certified United States
mail addressed to the FRANCHISEE at the Franchised Location or such other
address as the FRANCHISEE may designate in writing or by delivery to any
employee of the FRANCHISEE by a recognized overnight delivery service (such as
Federal Express or UPS) which requires a written receipt of delivery from the
addressee. Notice by mail is effective upon depositing the same in the mail in
the manner provided above, notice by personal service is effective upon
obtaining service and notice by overnight delivery service is effective upon
delivery by such delivery service.
ARTICLE 26
ACKNOWLEDGMENTS
26.1 BUSINESS RISKS; NO FINANCIAL PROJECTIONS. The FRANCHISEE acknowledges that
it has conducted an independent investigation of the Cost Cutters Business
franchised hereunder, and recognizes that the business venture contemplated by
this Agreement involves business and economic risks and that the financial and
business success of the Business will be primarily dependent upon the personal
efforts of the FRANCHISEE, its management and employees. COST CUTTERS expressly
disclaims the making of, and the FRANCHISEE acknowledges that it has not
received, any estimates, projections, warranties or guaranties, express or
implied, regarding potential Gross Revenues, profits, earnings or the financial
success of the FRANCHISEE'S Cost Cutters Business, except as expressly set forth
in writing in COST CUTTERS' Uniform Franchise Offering Circular, receipt of
which is acknowledged by the FRANCHISEE.
26.2 NO INCOME OR REFUND WARRANTIES. The FRANCHISEE acknowledges that COST
CUTTERS does not warrant or guarantee to the FRANCHISEE that the FRANCHISEE will
derive income or profit from the FRANCHISEE'S Cost Cutters Business or that COST
CUTTERS will refund all or part of the Initial Fee or the price paid for the
FRANCHISEE'S Cost Cutters Business or repurchase any of the products,
merchandise, furniture, fixtures, equipment, supplies or chattels supplied by
COST CUTTERS or an approved supplier if the FRANCHISEE is unsatisfied with its
Cost Cutters Business.
26.3 TERMS OF OTHER FRANCHISES MAY DIFFER. The FRANCHISEE acknowledges that
other Franchisees of COST CUTTERS have or will be granted franchises at
different times and in different situations, and further acknowledges that the
terms and conditions of such franchises and the resulting Franchise Agreements
may vary substantially in economics, form and in substance from those contained
in this Agreement.
26.4 RECEIPT OF UNIFORM FRANCHISE OFFERING CIRCULAR. The FRANCHISEE acknowledges
that it received a copy of this Agreement with all material blanks fully
completed at least five (5) business days prior to the date that this Agreement
was executed. The FRANCHISEE further acknowledges that it received a Cost
Cutters Uniform Franchise Offering Circular at least ten (10) business days
prior to the date on which this Agreement was executed.
26.5 CITY LOOKS(R) AND HAIR PERFORMERS(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "City Looks(R)," "City Looks Salons International(R),"
"City Looks(R) By The Barbers(R)" and "The Barbers(R)" businesses ("City
Looks(R) businesses") which are operated and franchised by The Barbers,
Hairstyling For Men & Women, Inc. ("The Barbers") and that the "Hair
Performers(R)" businesses serviced by Hair Performers International, Inc., a
wholly-owned subsidiary of The Barbers, are
<PAGE>
full service hair salons that address different markets and, thus, are not
competitive with Cost Cutters businesses. Further, the FRANCHISEE acknowledges
and agrees that The Barbers and Hair Performers International, Inc. will have
the absolute right to develop, own, manage, license or franchise City Looks(R)
and Hair Performers(R) businesses at any location in the world, and the
FRANCHISEE hereby waives any and all rights that it may have or allege against
COST CUTTERS or any affiliate of COST CUTTERS resulting from the opening of any
City Looks(R) or Hair Performers(R) business, including those City Looks(R) or
Hair Performers(R) business that may be near, adjacent or contiguous to the
FRANCHISEE'S Cost Cutters Business.
26.6 WE CARE HAIR(R) AND FAMILY HAIRCUT(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "We Care Hair(R)" businesses which are franchised by WCH,
Inc., a wholly-owned subsidiary of The Barbers and the Family Haircut(R)
business serviced by The Barbers ("We Care Hair(R) and Family Haircut(R)
businesses") are hair salons that address similar markets and, thus, may be
competitive with Cost Cutters businesses. Further, the FRANCHISEE acknowledges
and agrees that WCH, Inc. and The Barbers will have the absolute right to
develop, own, manage, license or franchise We Care Hair(R) and Family Haircut(R)
businesses at any location in the world, and the FRANCHISEE hereby waives any
and all rights that it may have or allege against COST CUTTERS or any affiliate
of COST CUTTERS resulting from the opening of any We Care Hair(R) and Family
Haircut(R) businesses, including those We Care Hair(R) or Family Haircut(R)
business that may be near, adjacent or contiguous to the FRANCHISEE'S Cost
Cutters Business.
ARTICLE 27
DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL
27.1 DISCLAIMER BY COST CUTTERS. COST CUTTERS expressly disclaims the making of
any express or implied representations or warranties regarding the sales,
earnings, income, profits, Gross Revenues, business or financial success, or
value of the FRANCHISEE'S Business, except those expressly set forth in Item 19
of the Cost Cutters Uniform Franchise Offering Circular received by the
FRANCHISEE.
27.2 ACKNOWLEDGMENTS BY FRANCHISEE. The FRANCHISEE acknowledges that it has not
received any express or implied representations or warranties regarding the
sales, earnings, income, profits, Gross Revenues, business or financial success,
value of the Business or any other matters pertaining to the Cost Cutters
Business from COST CUTTERS or any of COST CUTTERS' officers, employees or agents
that were not contained in writing in the Uniform Franchise Offering Circular
(including this Agreement) received by the FRANCHISEE ("representations or
warranties"). The FRANCHISEE further acknowledges that if it had received any
representations or warranties not contained in COST CUTTERS' Uniform Franchise
Offering Circular, it would not have executed this Agreement, and the FRANCHISEE
would have: (A) promptly notified the President of COST CUTTERS in writing of
the person or persons making such representations or warranties; and (B)
provided to COST CUTTERS a specific written statement detailing the
representations or warranties made that were not contained in the Uniform
Franchise Offering Circular received by the FRANCHISEE.
27.3 LEGAL REPRESENTATION. The FRANCHISEE acknowledges that this Agreement
constitutes a legal document which grants certain rights to and imposes certain
obligations upon the FRANCHISEE. The FRANCHISEE was advised by COST CUTTERS to
consult an attorney or other advisor prior to the execution of this Agreement to
review COST CUTTERS' Uniform Franchise Offering Circular and this Agreement in
detail, to review the economics, operations and other business aspects of the
Cost Cutters Business, to determine compliance with franchising and other
applicable laws, to advise
<PAGE>
the FRANCHISEE about all federal, state and local laws, rules, ordinances,
special regulations and statutes that apply to the FRANCHISEE'S Cost Cutters
Business and to advise the FRANCHISEE about the economic risks, liabilities,
obligations and rights under this Agreement. The name of the FRANCHISEE'S
attorney or other advisor is:
Name:
-------------------------------------------------------
Name of Firm:
-----------------------------------------------
Address:
----------------------------------------------------
City, State, Zip Code:
--------------------------------------
Telephone Number: ( )
-------------------------------------------
Fax Number: ( )
-------------------------------------------------
ARTICLE 28
GOVERNING LAW; STATE MODIFICATIONS
28.1 GOVERNING LAW. Except to the extent governed by the United States Trademark
Act of 1946 (Lanham Act, 15 U.S.C. ss.1051 et seq.), this Agreement and the
relationship between COST CUTTERS and the FRANCHISEE will be governed by the
laws of the state in which the Franchised Location is located. The provisions of
this Agreement which conflict with or are inconsistent with applicable governing
law will be superseded and/or modified by such applicable law only to the extent
such provisions are inconsistent. All other provisions of this Agreement will be
enforceable as originally made and entered into upon the execution of this
Agreement by the FRANCHISEE and COST CUTTERS.
28.2 STATE MODIFICATIONS. The following states have statutes which may supersede
the provisions of this Agreement in the FRANCHISEE'S relationship with COST
CUTTERS including the areas of termination and renewal of the Franchise:
ARKANSAS [Stat. Section 70-807], CALIFORNIA [Bus. & Prof. Code Sections
20000-20043], CONNECTICUT [Gen. Stat. Section 42-133e et seq.], DELAWARE [Code
Section 2552], HAWAII [Rev. Stat. Section 482E-1], ILLINOIS [815 ILCS 705/19 and
705/20], INDIANA [Stat. Section 23-2-2.7], IOWA [Code 523H.1-523H.17], MICHIGAN
[Stat. Section 19.854(27)], MINNESOTA [Stat. Section 80C14], MISSISSIPPI [Code
Section 75-24-51], MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat.
Section 87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws
Section 37-5A-51], VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code
Section 19.100.180], WISCONSIN [Stat. Section 135.03]. These and other states
may have court decisions which may supersede the provisions of this Agreement in
the FRANCHISEE'S relationship with COST CUTTERS including the areas of
termination and renewal of the Franchise. If the Franchised Location is located
in any one of the states specifically indicated below in this Article 28.2, or
if the laws of any such state are otherwise applicable, then the designated
provisions of this Agreement will be amended and revised as follows:
CALIFORNIA. If this Agreement is governed by the laws of the State of
California, then the covenant not to compete upon termination or
expiration of this Agreement contained in Article 12.3 may be
unenforceable, except in certain circumstances provided by law.
<PAGE>
ILLINOIS. If this Agreement is governed by the laws of the State of
Illinois, then: (1) the consent by the FRANCHISEE to jurisdiction and
venue in Hennepin County, Minnesota contained in Article 24.6 may be
inapplicable; provided, however, that such inapplicability in the State
of Illinois will not be construed to mean that venue in Hennepin
County, Minnesota is improper, or that the FRANCHISEE and its officers,
Directors and shareholders are not subject to jurisdiction in Hennepin
County, Minnesota, or in any other state; and (2) Section 41 of the
Illinois Franchise Disclosure Act states that "any condition,
stipulation or provision purporting to bind any person acquiring any
franchise to waive compliance with any provision of this Act is void",
accordingly any acknowledgments contained in Article 26.2, Article
26.4, Article 27.2, and the second sentence of Article 26.1 will be
unenforceable against the FRANCHISEE.
INDIANA. If this Agreement is governed by the laws of the State of
Indiana, then: (1) the geographical limitation contained in Article
12.3 will be limited to the exclusive area granted to the FRANCHISEE or
an area of reasonable size; (2) the consent by the FRANCHISEE to
jurisdiction and venue in Hennepin County, Minnesota contained in
Article 24.6 and the Personal Guaranty attached to this Agreement may
be inapplicable; provided, however, that such inapplicability in the
State of Indiana will not be construed to mean that venue in Hennepin
County, Minnesota is improper, or that the FRANCHISEE and its officers,
Directors, shareholders and Personal Guarantors are not subject to
jurisdiction in Hennepin County, Minnesota, or in any other state; (3)
notwithstanding any provisions of this Agreement to the contrary, a
Court of competent jurisdiction will determine the adequacy of money
damages, whether COST CUTTERS will be required to post a bond or other
security, and the amount of such bond or other security, in any
injunctive proceeding commenced by COST CUTTERS against the FRANCHISEE
or the FRANCHISEE'S shareholders; (4) nothing in Article 10.4 will be
construed to act as a waiver of the FRANCHISEE'S right, under Section 7
of the Indiana Deceptive Franchise Practices Act, Ind. Code 23-2-2.7,
ss.ss. 1 through 7, to bring an action against COST CUTTERS for
violation of the Indiana Deceptive Franchise Practices Act at any time
within two (2) years after the occurrence of such violation; (5)
nothing in Article 10.4 will be construed to act as a waiver of the
FRANCHISEE'S right, under Section 30 of the Indiana Franchise
Disclosure Law, Ind. Code 23-2-2.5, to bring an action against COST
CUTTERS for violation of the Indiana Franchise Disclosure Law at any
time within three (3) years after discovery of the facts constituting
the violation; (6) the provisions of Article 23 requiring Arbitration
hearings to take place in Minneapolis, Minnesota will be inapplicable
and in the event of Arbitration between COST CUTTERS and the
FRANCHISEE, such Arbitration will be conducted in Indianapolis, Indiana
or at a mutually agreed upon location; (7) the parties' waiver of their
right to claim punitive damages, as set forth in Article 23.5, will be
inapplicable; (8) notwithstanding any provisions of this Agreement to
the contrary, the FRANCHISEE will have the right to petition a Court of
competent jurisdiction for injunctive relief relating to COST CUTTERS'
improper termination of this Agreement or COST CUTTERS' unreasonable
refusal to consent to transfer or assignment by the FRANCHISEE pursuant
to Article 20 of this Agreement; (9) Article 18.2 is hereby amended to
provide that the FRANCHISEE will not be required to indemnify COST
CUTTERS for any liability imposed upon COST CUTTERS as a result of the
FRANCHISEE'S reliance upon or use of procedures or products which were
required by COST CUTTERS, if such procedures or products were utilized
by the FRANCHISEE in the manner prescribed by COST CUTTERS; (10)
Article 6.5 is hereby amended to provide that the FRANCHISEE will not
be required to
<PAGE>
contribute more than five percent (5%) of the FRANCHISEE'S Gross
Revenues to the local DMA advertising group; (11) Article 6.3 and
Article 18.3 are hereby amended to state that COST CUTTERS has the
right to seek recovery of all costs and expenses, including but not
limited to actual attorneys' fees, deposition costs, expert witness
fees, investigation costs, accounting fees, filing fees and travel
expenses incurred by COST CUTTERS (a) in enforcing any term, condition
or provision of this Agreement, (b) in seeking to enjoin any violation
of this Agreement by the FRANCHISEE, or (c) in the collection of unpaid
and past due Advertising Fee payments from the FRANCHISEE; and (12)
notwithstanding anything to the contrary in Article 24.9, the
FRANCHISEE does not waive any right under the Indiana statutes with
regard to prior representations made in the Indiana Uniform Franchise
Offering Circular.
MARYLAND. If this Agreement is governed by the laws of the State of
Maryland, then: (1) the acknowledgments made by the FRANCHISEE
contained in Article 26 and Article 27 of this Agreement and any
written instrument executed by the FRANCHISEE pursuant to Article 24.3
of this Agreement will not be construed to act as a waiver of the
FRANCHISEE'S rights under the Maryland Franchise Registration and
Disclosure Law, Md. Ann. Code, Article 56, ss.345 et seq.; (2) the one
year limitation period set forth in Article 10.4 will not apply to
claims arising under the Maryland Franchise Registration and Disclosure
Law; and (3) the consent by the Franchisee to jurisdiction and venue in
Hennepin County, Minnesota contained in Article 23.4 and 24.6 will be
inapplicable and the FRANCHISEE will be permitted to commence
litigation in Maryland; provided, however, that such inapplicability in
the State of Maryland will not be construed to mean that venue in
Hennepin County, Minnesota is improper, or that the Franchisee, its
officers, Directors and shareholders and the Personal Guarantors are
not subject to jurisdiction in Hennepin County, Minnesota, or in any
other state.
MINNESOTA. If this Agreement is governed by the laws of the State of
Minnesota, then: (1) Article 2 of this Agreement will be amended to
provide that, except in certain circumstances specified by law, COST
CUTTERS must provide the FRANCHISEE with at least one hundred eighty
(180) days prior written notice of nonrenewal of the franchise; (2)
Article 9.2 will be amended to require that, except as set forth in
Article 9.5 and 9.6, in the event COST CUTTERS gives the FRANCHISEE
written notice that the FRANCHISEE has breached this Agreement, such
written notice will be given to the FRANCHISEE at least ninety (90)
days prior to the date this Agreement is terminated by COST CUTTERS,
and the FRANCHISEE will have sixty (60) days after having been given
such written notice within which to correct the breach specified in the
written notice; and (3) notwithstanding any provisions of this
Agreement to the contrary, a Court of competent jurisdiction will
determine whether COST CUTTERS will be required to post a bond or other
security, and the amount of such bond or other security, in any
injunctive proceeding commenced by COST CUTTERS against the FRANCHISEE
or the FRANCHISEE'S shareholders.
NEW YORK. If this Agreement is governed by the laws of the State of New
York, then Article 20.1 will be amended to reflect that COST CUTTERS
may not assign this Agreement unless in its reasonable judgment the
assignee is able to perform the franchisor's obligations under this
Agreement.
<PAGE>
NORTH DAKOTA. If this Agreement is governed by the laws of the State of
North Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 12.3 may be
unenforceable, except in certain circumstances provided by law; (2) the
consent by the FRANCHISEE to jurisdiction and venue in Hennepin County,
Minnesota contained in Article 24.6 may be inapplicable; provided,
however, that such inapplicability in the State of North Dakota will
not be construed to mean that venue in Hennepin County, Minnesota is
improper, or that the FRANCHISEE and its officers, Directors and
shareholders are not subject to jurisdiction in Hennepin County,
Minnesota, or in any other state; (3) the provisions of Article 23
requiring Arbitration hearings to take place in Minneapolis, Minnesota
will be inapplicable and in the event of Arbitration between COST
CUTTERS and the FRANCHISEE, such Arbitration will be conducted in
Fargo, North Dakota or at a mutually agreed upon location; and (4) the
parties' waiver of their right to claim punitive damages, as set forth
in Article 23.5, may not be enforceable under North Dakota law.
RHODE ISLAND. If this Agreement is governed by the laws of the State of
Rhode Island, then any provision of this Agreement which restricts
jurisdiction or venue to a forum outside the State of Rhode Island is
void with respect to a claim otherwise enforceable under the Rhode
Island Franchise Investment Act.
SOUTH DAKOTA. If this Agreement is governed by the laws of the State of
South Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 12.3 may be
unenforceable, except in certain circumstances provided by law; (2) any
provision of this Agreement which designates jurisdiction or venue
outside of the State of South Dakota or requires the FRANCHISEE to
agree to jurisdiction or venue in a forum outside of the State of South
Dakota is void with respect to any cause of action which is otherwise
enforceable in the State of South Dakota; (3) the provisions of Article
23 requiring Arbitration hearings to take place in Minneapolis,
Minnesota will be inapplicable and in the event of Arbitration between
COST CUTTERS and the FRANCHISEE, such Arbitration will be conducted in
Sioux Falls, South Dakota or at a mutually agreed upon location; and
(4) pursuant to SDCL ss.37-5A-86, any acknowledgment provision,
disclaimer, integration clause or a provision having a similar effect
in this Agreement will not negate or act to remove from judicial review
any statement, misrepresentation or action that violates Chapter 37-5A
or a rule or order under Chapter 37-5A.
WASHINGTON. If this Agreement is governed by the laws of the State of
Washington, then: (1) in any Arbitration involving a franchise
purchased in Washington, the Arbitration site will be either in the
State of Washington, in a place mutually agreed upon at the time of the
Arbitration, or as determined by the Arbitrator; (2) in the event of a
conflict of laws, the provisions of the Washington Franchise Investment
Protection Act, Chapter 19.100 RCW, will prevail; (3) a release or
waiver of rights executed by the FRANCHISEE will not include rights
under the Washington Franchise Investment Protection Act, except when
executed pursuant to a negotiated settlement after this Agreement is in
effect and where the parties are represented by independent counsel;
(4) provisions of this Agreement which unreasonably restrict or limit
the statute of limitations period for claims under the Washington
Franchise Investment Protection Act, rights or remedies under the
Washington Franchise Investment Act such as a right to a jury trial may
not be enforceable; and (5) transfer fees are collectible by COST
CUTTERS to the
<PAGE>
extent that they reflect COST CUTTERS' reasonable estimated or actual
costs in effecting a transfer.
WISCONSIN. If this Agreement is governed by the laws of the State of
Wisconsin, then the provisions of the Wisconsin Fair Dealership Law,
Wis. Stat. Chapter 135, will supersede any conflicting terms of this
Agreement.
28.3 SEVERABILITY. The severability provisions of this Agreement contained in
Article 12.5, Article 23.10 and Article 24.2 of this Agreement will pertain to
all of the applicable laws which conflict with or modify the provisions of this
Agreement including, but not limited to, the provisions of this Agreement
specifically addressed in Article 28.2 above.
ARTICLE 29
DEFINITIONS
For purposes of this Agreement, the following words will have the following
definitions:
29.1 ABANDON. "Abandon" will mean the conduct of the FRANCHISEE, including acts
of omission as well as commission, indicating the willingness, desire or intent
of the FRANCHISEE to discontinue operating the franchised Business in accordance
with the quality standards, uniform requirements and the Business System set
forth in this Agreement and the Manual.
29.2 DESIGNATED MARKET AREA. "Designated Market Area" or "DMA" will mean each
television market exclusive of another based upon a preponderance of television
viewing hours as defined by the ratings service currently being utilized by COST
CUTTERS or its designated advertising agency.
29.3 BUSINESS SYSTEM. "Business System" will mean the distinctive services and
products which are associated with COST CUTTERS' trademarks, trade names,
service marks, copyrights, interior and exterior building designs, slogans,
signs, logos, commercial symbols and color combinations. "Business System" will
include all of the uniform requirements, standards of quality and consistency,
procedures, specifications, training, advertising and instructions promulgated
by COST CUTTERS.
29.4 FINANCIAL STATEMENTS. "Financial statements" will mean a balance sheet,
income statement, statement of cash flows and footnotes prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
any other schedules or forms that may be required by COST CUTTERS.
29.5 GROSS REVENUES. "Gross Revenues" will mean the gross total dollar income of
the FRANCHISEE'S Cost Cutters Business from all cash, credit or charge sales of
all merchandise, products and services sold or rendered in, upon, about or
resulting from, in connection with or as a result of the FRANCHISEE'S Cost
Cutters Business, and will include all sales, receipts and revenues, in any form
and from any and all sources whatsoever, including sales made to employees of
the FRANCHISEE. This definition will be applicable regardless of whether such
sales, receipts or revenues are produced or received by the FRANCHISEE, by any
permitted sublicensee, tenant, agent, employee, concessionaire, vending machine,
coin-operated machine or vendor of the FRANCHISEE, or by any other business
associate of the FRANCHISEE who or which is associated with the FRANCHISEE in
order to receive the benefits of the rights granted hereunder to the FRANCHISEE.
"Gross Revenues" will include all sales made by the FRANCHISEE whether made for
cash or on credit including, but not limited to, those sales charged or made for
orders placed or deliveries from the Business franchised hereunder, including
orders
<PAGE>
placed or filled, or services provided at a location other than the Franchised
Location, including mail order. "Gross Revenues" will not include any sales, use
or gross receipts tax imposed by any federal, state, municipal or governmental
authority directly upon sales, if: (A) the amount of the tax is added to the
selling price and is expressly charged to the customer; (B) a specific record is
made at the time of each sale of the amount of such tax; and (C) the amount
thereof is paid over to the appropriate taxing authority by the FRANCHISEE.
29.6 QUARTERLY. "Quarterly" or "Quarter" will mean three (3) consecutive
calendar months commencing on the first day of the FRANCHISEE'S fiscal or
calendar year.
IN WITNESS WHEREOF, COST CUTTERS, the FRANCHISEE and the shareholders of the
FRANCHISEE have respectively signed this Agreement effective as of the day and
year first above written.
In the Presence of: "COST CUTTERS"
Cost Cutters, a division of The Barbers,
- ----------------------------------- Hairstyling for Men & Women, Inc.
By
-------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
The undersigned individual shareholders of the FRANCHISEE hereby agree to be
bound by the terms and conditions of this Agreement.
Percentage of
In the Presence of: SHAREHOLDERS Ownership
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
<PAGE>
The undersigned spouse(s) of the individual FRANCHISEE(S) hereby agree to be
bound by the terms and conditions of this Agreement regarding confidentiality of
information and covenants not to compete.
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
Print Name Print Name
<PAGE>
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THIS FRANCHISE AGREEMENT
In consideration of the execution of this Agreement by COST CUTTERS, and for
other good and valuable consideration, the undersigned, for themselves, their
heirs, successors, and assigns, do jointly, individually and severally hereby
become surety and guaranty for the payment of all amounts and the performance of
the covenants, terms and conditions in this Agreement, to be paid, kept and
performed by the FRANCHISEE.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement and agree that this PERSONAL GUARANTY will be construed as though the
undersigned and each of them executed an Agreement containing the identical
terms and conditions of this Agreement.
If the FRANCHISEE breaches the terms and conditions of this Agreement, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay COST CUTTERS all monies due and
payable to COST CUTTERS under the terms and conditions of this Agreement.
In addition, if the FRANCHISEE fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors and
assigns, do hereby, individually, jointly and severally, promise and agree to
comply with the terms and conditions of this Agreement for and on behalf of the
FRANCHISEE.
In addition, should the FRANCHISEE at any time be in default on any obligation
to pay monies to COST CUTTERS or any subsidiary or affiliate of COST CUTTERS,
whether for merchandise, products, supplies, furniture, fixtures, equipment,
rent or other goods purchased by the FRANCHISEE from COST CUTTERS or any
subsidiary or affiliate of COST CUTTERS or for any other indebtedness of the
FRANCHISEE to COST CUTTERS or any subsidiary or affiliate of COST CUTTERS, then
the undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay all such monies due and payable
from the FRANCHISEE to COST CUTTERS or any subsidiary or affiliate of COST
CUTTERS.
It is further understood and agreed by the undersigned that the provisions,
covenants and conditions of this GUARANTY will inure to the benefit of the
successors and assigns of COST CUTTERS. Each of the undersigned hereby submits
to personal jurisdiction in the state and federal courts of Minnesota with
respect to any litigation pertaining to this GUARANTY, and agrees that all
litigation pertaining to this GUARANTY will and must be venued exclusively in
Hennepin County, Minnesota.
<PAGE>
PERSONAL GUARANTORS
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
<PAGE>
EXHIBIT A
CONFIDENTIALITY AGREEMENT
Effective this _______day of _______________, 19___, in consideration of
employment with ___________________________________________ (the "Employer"), a
franchisee of Cost Cutters, a division of The Barbers, Hairstyling for Men &
Women, Inc. ("Cost Cutters"), it is hereby agreed that the undersigned employee
(the "Employee") will, at all times during the term of his or her employment and
thereafter, treat the Operations Manual and any other materials (including, but
not limited to, videotapes, films, drawings, diagrams and computer programs)
created for or approved for use in the operation of the Cost Cutters Business,
and the information contained therein, as secret and confidential and as the
sole and absolute property of Cost Cutters, and will use all reasonable means to
keep them secret and confidential. The Employee will not:
(a) Communicate, divulge or use for the benefit of himself/herself personally or
any other person or entity, any information contained in the Operations Manual
or other materials deemed confidential by Cost Cutters.
(b) Copy, duplicate, videotape, photograph, record or otherwise reproduce the
Manual or any other materials, in whole or in part. Neither the Manual nor other
materials created for or used in the Cost Cutters Business will be borrowed or
removed from the Cost Cutters location or business premises without the express
written approval of the Employer. The Employee will not make any Cost Cutters
materials available to any unauthorized person or entity, or allow them access
to the Manual or other materials.
(c) Use any Cost Cutters materials or any information, knowledge, methods or
techniques contained or described herein for any purpose other than the
performance of his or her duties as a Cost Cutters employee. The Employee will
respect the confidentiality of the Manual and all other materials as it relates
to concurrent and future employment.
The Employee and the Employer acknowledge and agree: (1) that Cost Cutters is a
third-party beneficiary of the rights and obligations set forth in this
Agreement; (2) that Cost Cutters will suffer irreparable harm in the event of
any breach or violation of this Agreement; (3) that Cost Cutters shall have the
right to enforce the provisions of this Agreement in its own name in the event
of any breach or violation, or threatened breach or violation, of this
Agreement; and (4) that Cost Cutters shall have the right to obtain specific
performance, temporary restraining orders, preliminary injunctions, injunctions
and other equitable relief to the extent reasonably necessary to protect its
interests in the ownership and confidentiality of the Manual or any other
confidential information from any court of competent jurisdiction or Arbitrator,
subject to and in accordance with the confidentiality and enforcement provisions
of the Franchise Agreement between the Employer and Cost Cutters.
The undersigned Employer and Employee understand and accept the obligations set
forth herein and agree to be bound by them.
Dated: , 199 EMPLOYEE:
----------------------- --
--------------------------------------
EMPLOYER:
--------------------------------------
By
-----------------------------------
Its
-----------------------------
<PAGE>
EXHIBIT B
LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
___________________________________ (the Landlord) hereby consents to the
Assignment by ___________________________________ (the Franchisee) of its right,
title and interest in the premises lease dated ____________________, 19___,
between the Landlord and the Franchisee, (the Premises Lease), to Cost Cutters,
a division of The Barbers, Hairstyling for Men & Women, Inc. (COST CUTTERS),
pursuant to a franchise agreement between COST CUTTERS and the Franchisee dated
_______________, 19___, (the Franchise Agreement), and as an inducement to COST
CUTTERS to enter into the Franchise Agreement with the Franchisee, agrees with
COST CUTTERS as follows:
In the event of default by the Franchisee under the Franchise
Agreement, COST CUTTERS or its designee may assume, enforce and perform the
obligations of the Premises Lease with the same force and effect as if assumed,
enforced and performed by the Franchisee. The Landlord will accept COST
CUTTERS's (or its designee's) performance in lieu of performance by the
Franchisee in satisfaction of the FRANCHISEE'S future obligations under the
Premises Lease.
The Landlord will not terminate the Premises Lease on account
of any default of the Franchisee thereunder without written notice to COST
CUTTERS and first providing to COST CUTTERS a reasonable opportunity, but not
less than thirty (30) days, to: (i) cause the Franchisee to cure the default; or
(ii) declare the Franchisee in default under the Franchise Agreement and
exercise its rights under the Assignment of Lease provisions of the Franchise
Agreement. In the event COST CUTTERS so elects to exercise its rights under the
Assignment, the Landlord agrees not to terminate the Premises Lease so long as
COST CUTTERS or its designee agrees, within thirty (30) days from the date COST
CUTTERS gives written notice to the Landlord of its election to exercise its
rights under this Assignment, to perform the future obligations of the
Franchisee under the Premises Lease. However, nothing herein will require COST
CUTTERS to cure any default of the Franchisee under the Premises Lease, but only
gives it the option to assume the FRANCHISEE'S future rights and obligations
under the Premises Lease.
The Landlord hereby represents and warrants to COST CUTTERS
that (i) the Premises Lease is a valid and enforceable agreement, (ii) there has
been no prior assignment of the Premises Lease of which the Landlord has notice
or is aware, (iii) neither the Landlord nor the Franchisee is in default under
the Premises Lease, and (iv) all covenants, conditions and agreements have been
performed as required therein except those not due to be performed until after
the date hereof.
Dated: , 199 "LANDLORD"
----------------------- --
--------------------------------------
By
-----------------------------------
Its
-----------------------------
EXHIBIT 10.2
FOR USE ONLY IN THE STATE OF /
DEVELOPMENT AGREEMENT
BETWEEN
COST CUTTERS, a division of The
Barbers, Hairstyling for Men & Women, Inc.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
Fax: (612) 331-2821
AND
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Name(s) of FRANCHISEE
-----------------------------------------------------
Street
-----------------------------------------------------
City State Zip Code
( )
-----------------------------------------------------
Area Code Telephone
FRANCHISED AREA:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
DATE OF DEVELOPMENT AGREEMENT:
__________________________, 199___
<PAGE>
COST CUTTERS(R)
DEVELOPMENT AGREEMENT
INDEX
Article Description Page
- ------- ----------- ----
1 FRANCHISED AREA..................................................2
2 TERM OF DEVELOPMENT AGREEMENT; RIGHT OF FIRST REFUSAL............2
3 EXCLUSIVE TERRITORY FEE; INITIAL FEES; DEVELOPMENT SCHEDULE......3
4 OTHER OBLIGATIONS OF FRANCHISEE..................................5
5 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION.............7
6 COST CUTTERS' RIGHT OF TERMINATION...............................9
7 FRANCHISEE'S RIGHTS AND OBLIGATIONS UPON TERMINATION............11
8 FRANCHISEE'S COVENANTS NOT TO COMPETE...........................11
9 INDEPENDENT CONTRACTORS; INDEMNIFICATION........................13
10 ASSIGNMENT......................................................14
11 ARBITRATION.....................................................15
12 ENFORCEMENT.....................................................17
13 NOTICES.........................................................20
14 ACKNOWLEDGMENTS.................................................20
15 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL..........................22
16 GOVERNING LAW; STATE MODIFICATIONS..............................23
17 DEFINITIONS.....................................................26
PERSONAL GUARANTY
<PAGE>
COST CUTTERS(R)
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement"), made, entered into and effective
this _____ day of _______________, 19___, by and between Cost Cutters, a
division of The Barbers, Hairstyling for Men & Women, Inc., a Minnesota
corporation ("COST CUTTERS"), and __________________________ (the "FRANCHISEE");
WITNESSETH:
WHEREAS, COST CUTTERS has developed and owns a distinctive business system for
operating hairstyling businesses of a distinctive character with the name "Cost
Cutters Family Hair Care(R)" (the "Business System" or the "Cost Cutters
Business System") and has publicized the name "Cost Cutters Family Hair Care(R)"
and other trademarks, trade names, service marks and commercial symbols to the
public as an organization of hairstyling businesses operating under the Cost
Cutters Business System; and
WHEREAS, COST CUTTERS represents that it has the right and authority to license
the use of the names "Cost Cutters(R)", "Cost Cutters Family Hair Care" and
certain other trademarks, trade names, service marks, logos and commercial
symbols (the "Marks") for use in connection with hairstyling businesses operated
in conformity with the Business System to selected persons or entities who will
comply with COST CUTTERS' uniformity requirements and quality standards; and
WHEREAS, the FRANCHISEE desires to operate Cost Cutters hairstyling businesses
at locations in the area designated in Article 1 of this Agreement which will
conform to the uniformity requirements and quality standards established and
promulgated from time to time by COST CUTTERS; and
WHEREAS, COST CUTTERS is willing to provide the FRANCHISEE with marketing,
advertising, technology, operational and other business information, experience
and "know how" about the Cost Cutters business that has been developed over time
by COST CUTTERS at significant cost and expense; and
WHEREAS, the FRANCHISEE acknowledges that it would take substantial capital and
human resources to develop a business similar to the Cost Cutters business and,
as a consequence, the FRANCHISEE desires to acquire the right to use the Marks
and the Business System and to own and operate Cost Cutters businesses subject
to and under the terms and conditions set forth in this Agreement; and
WHEREAS, the FRANCHISEE acknowledges that COST CUTTERS would not provide the
FRANCHISEE with any business information or "know how" about the Cost Cutters
Business System unless the FRANCHISEE agreed to comply with all of the terms and
conditions of this Agreement and to pay the Exclusive Territory Fee and the
other fees specified in this Agreement; and
WHEREAS, the FRANCHISEE has had a full and adequate opportunity to be thoroughly
advised of the terms and conditions of this Agreement by its legal counsel or
other advisor, and has had sufficient time to evaluate and investigate the Cost
Cutters Business System, the financial investment requirements, and the business
risks associated with owning and operating Cost Cutters businesses;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement and for other good and valuable consideration, the parties
hereby contract as follows:
<PAGE>
ARTICLE 1
FRANCHISED AREA
1.1 FRANCHISED AREA. COST CUTTERS hereby grants to the FRANCHISEE, for the term
of this Agreement, the right to enter into Franchise Agreements with COST
CUTTERS for the operation of Cost Cutters hairstyling businesses (the "Cost
Cutters Businesses" or the "Businesses"), to be located only within the
following exclusive area ______________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________, (the "Franchised Area"). The Franchised Area may be further
described and delineated in Exhibit A attached hereto and signed by both the
FRANCHISEE and COST CUTTERS.
1.2 EXCLUSIVITY. The rights and privileges granted to the FRANCHISEE in this
Agreement are expressly limited to the Franchised Area and are expressly subject
to the terms and conditions of this Agreement. COST CUTTERS will not franchise,
license, subfranchise, develop, own or operate ("develop") any Cost Cutters
businesses in the Franchised Area while this Agreement is in effect without the
consent of the FRANCHISEE. Notwithstanding the foregoing, if COST CUTTERS
proposes to develop (either by owning, franchising or subfranchising) a Cost
Cutters business in the Franchised Area to be located in or on premises owned or
controlled by a national or regional mass merchandiser such as WalMart, Target,
Venture or Costco ("Mass Merchandiser Location"), then the FRANCHISEE will have
a right of first refusal to own or operate the Mass Merchandiser Location.
Consequently, if COST CUTTERS proposes to develop the Mass Merchandiser Location
in the Franchised Area while this Agreement is in effect, then COST CUTTERS will
give the FRANCHISEE written notice of its proposal to develop the Mass
Merchandiser Location in the Franchised Area and the FRANCHISEE will have thirty
(30) days after such notice to accept in writing COST CUTTERS' proposal to open
the Mass Merchandiser Location in the Franchised Area. The FRANCHISEE will have
the right to own and operate a Mass Merchandiser Location in the Franchised Area
according to the terms and conditions set forth in COST CUTTERS' written
proposal, which may vary in form and substance from the terms, conditions and
economics set forth in this Agreement. If the FRANCHISEE fails to accept in
writing COST CUTTERS' written proposal to open the Mass Merchandiser Location
within thirty (30) days from the date written notice of COST CUTTERS proposal to
open the Mass Merchandiser Location is given to the FRANCHISEE, then COST
CUTTERS will have the absolute right to open and develop a Mass Merchandiser
Location in the Franchised Area while this Agreement is in effect without the
consent of the FRANCHISEE.
1.3 PERSONAL RIGHTS. The FRANCHISEE will not be entitled to franchise,
subfranchise, license or sublicense other persons or entities under this
Agreement and the FRANCHISEE may open, own and operate Cost Cutters Businesses
only in the Franchised Area. The rights, privileges and franchise granted and
conveyed to the FRANCHISEE in this Agreement will be exclusively for the
Franchised Area and may not be assigned, sold or transferred by the FRANCHISEE,
except as specifically provided for in this Agreement.
ARTICLE 2
TERM OF DEVELOPMENT AGREEMENT; RIGHT OF FIRST REFUSAL
2.1 TERM. This Agreement will be for a term of ______________ (___) years,
commencing on the date set forth on Page D-1 of this Agreement. This Agreement
will not be considered executed and will not be enforceable until: (A) it has
been signed by COST CUTTERS and the FRANCHISEE, and, if the
<PAGE>
FRANCHISEE is a corporation or partnership, the Personal Guarantors; and (B) the
signed Agreement has been delivered to the FRANCHISEE.
2.2 RIGHT OF FIRST REFUSAL. At the end of the term of this Agreement, the
FRANCHISEE'S exclusive development rights with respect to the Franchised Area
will automatically terminate, and the FRANCHISEE will not have the right to
renew or extend the term of this Agreement. Following the end of the term of
this Agreement, COST CUTTERS will have the right to reevaluate the prospects for
the establishment of Cost Cutters businesses in the Franchised Area, and COST
CUTTERS may determine that the Franchised Area will be further developed by
opening additional Cost Cutters businesses in the Franchised Area. In the event
COST CUTTERS determines that the Franchised Area will be further developed, the
FRANCHISEE will have a right of first refusal to own and operate any Cost
Cutters Businesses proposed for the Franchised Area by COST CUTTERS.
Consequently, if COST CUTTERS proposes to develop (either by owning, franchising
or subfranchising) any further Cost Cutters businesses in the Franchised Area
after the term of this Agreement has expired, then COST CUTTERS will give the
FRANCHISEE written notice of its proposal to develop additional Cost Cutters
businesses in the Franchised Area and the FRANCHISEE will have thirty (30) days
to accept in writing COST CUTTERS' proposal to own and operate further Cost
Cutters Businesses in the Franchised Area. The FRANCHISEE will have the right to
own and operate Cost Cutters Businesses in the Franchised Area according to the
terms and conditions set forth in COST CUTTERS' written proposal, which may vary
in form and substance from the terms, conditions and economics set forth in this
Agreement. If the FRANCHISEE fails to accept in writing COST CUTTERS' written
proposal within thirty (30) days from the date the written notice of COST
CUTTERS' proposal is given to the FRANCHISEE, then COST CUTTERS will have the
absolute right to open and develop Cost Cutters businesses in the Franchised
Area after the term of this Agreement has expired.
ARTICLE 3
EXCLUSIVE TERRITORY FEE; INITIAL FEES; DEVELOPMENT SCHEDULE
3.1 EXCLUSIVE TERRITORY FEE. On the date this Agreement is executed by the
FRANCHISEE, the FRANCHISEE will pay COST CUTTERS a nonrefundable exclusive
territory fee equal to __________________________________ Dollars ($___________)
(the "Exclusive Territory Fee").
3.2 INITIAL FEES. In addition to the Exclusive Territory Fee, the FRANCHISEE
will pay COST CUTTERS an Initial Fee, as defined in COST CUTTERS' then-current
standard Franchise Agreement, of ______________________________________________
Dollars ($_____________ ) for the first Cost Cutters Business required to be
owned and operated by the FRANCHISEE in the Franchised Area pursuant to the
development schedule contained in this Agreement. The FRANCHISEE will pay COST
CUTTERS an Initial Fee of ________________ ($______________) for each subsequent
Cost Cutters Business required to be owned and operated by the FRANCHISEE in the
Franchised Area pursuant to the development schedule contained in this
Agreement. The amount of each Initial Fee payable to COST CUTTERS for each Cost
Cutters Business opened in the Franchised Area in accordance with the
development schedule will be the amount as set forth in this Article 3.2, even
if the then-current standard Franchise Agreement signed by the FRANCHISEE
specifies an Initial Fee that is greater than or different from the Initial Fee
specified herein. Each such Initial Fee will be payable to COST CUTTERS pursuant
to the terms of this Agreement.
3.3 PAYMENT OF INITIAL FEES. The FRANCHISEE must pay COST CUTTERS the Initial
Fee set forth in Article 3.2 of this Agreement on or before the date the
FRANCHISEE executes the then-
<PAGE>
current standard Franchise Agreement for each Cost Cutters Business required to
be owned and operated in the Franchised Area pursuant to this Agreement. A
then-current standard Cost Cutters Franchise Agreement must be executed by the
FRANCHISEE for each Cost Cutters Business owned and operated by the FRANCHISEE
in the Franchised Area on the earlier of: (A) at least ten (10) days prior to
the date the FRANCHISEE commences initial business operations at each of its
Cost Cutters Businesses in the Franchised Area; or (B) the date the FRANCHISEE'S
furniture, fixtures and equipment are shipped by COST CUTTERS to the FRANCHISEE.
3.4 DEVELOPMENT SCHEDULE. The FRANCHISEE acknowledges and agrees that a material
provision of this Agreement is that the following number of Cost Cutters
Businesses must be opened and continuously operating in the Franchised Area
during the term of this Agreement in accordance with the following development
schedule:
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------- -------------------------------------------- ---------------------------------------------
NUMBER OF COST CUTTERS BUSINESSES REQUIRED CUMULATIVE NUMBER OF COST CUTTERS BUSINESSES
TO BE OPENED AND CONTINUOUSLY OPERATING FOR REQUIRED TO BE OPEN AND CONTINUOUSLY
BUSINESS IN THE FRANCHISED AREA DURING THE OPERATING FOR BUSINESS IN THE FRANCHISED
PERIOD PERIOD AREA AT THE END OF THE PERIOD
- ---------------------------- -------------------------------------------- ---------------------------------------------
-first half:
YEAR 1
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 2
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 3
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 4
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 5
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 6
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 7
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 8
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 9
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
-first half:
YEAR 10
-second half:
- ---------------------------- ------------------------------------------- ----------------------------------------------
</TABLE>
The half-year periods set forth above will be determined from the date of this
Agreement, so that the first half-year period of the development schedule set
forth above will end six (6) months from the date of this Agreement. For
purposes of determining compliance with the development schedule set forth in
this Article 3.4, only the FRANCHISEE'S Cost Cutters Businesses actually open
and continuously operating for business in the Franchised Area as of the end of
a given half-year period will be counted toward the number of Cost Cutters
Businesses required to be open and continuously operating for business.
<PAGE>
3.5 REASONABLENESS OF DEVELOPMENT SCHEDULE. The FRANCHISEE represents that it
has conducted its own independent investigation and analysis of the prospects
for the establishment of Cost Cutters Businesses within the Franchised Area,
approves of the foregoing development schedule as being reasonable and viable,
and recognizes that failure to achieve the results described in the foregoing
development schedule will constitute a material breach of this Agreement.
3.6 FAILURE TO COMPLY WITH DEVELOPMENT SCHEDULE. The FRANCHISEE'S failure to
comply with the above development schedule will constitute a material breach of
this Agreement by the FRANCHISEE and, in that event, COST CUTTERS will have the
right to terminate this Agreement as provided herein. Termination of this
Agreement as a result of the FRANCHISEE'S failure to meet the development
schedule set forth above will not affect the individual Franchise Agreements
signed by the FRANCHISEE for the Cost Cutters Businesses opened and operated in
the Franchised Area pursuant to this Agreement prior to termination; however,
upon termination of this Agreement, all rights to open and operate additional
Cost Cutters Businesses in the Franchised Area and all other rights granted to
the FRANCHISEE under this Agreement will immediately revert to COST CUTTERS,
without affecting those obligations of the FRANCHISEE that continue beyond the
termination of this Agreement.
3.7 TERMINATION FOR FAILURE TO COMPLY WITH DEVELOPMENT SCHEDULE. If this
Agreement is terminated by COST CUTTERS because of the FRANCHISEE'S failure to
meet the development schedule set forth above, the rights and duties of COST
CUTTERS and the FRANCHISEE will be as follows: (A) the FRANCHISEE will have no
further rights to open and operate additional Cost Cutters Businesses within the
Franchised Area; (B) the FRANCHISEE will continue to pay all required fees and
to operate its Cost Cutters Businesses opened and operated in the Franchised
Area pursuant to the terms of the applicable Franchise Agreements signed by the
FRANCHISEE prior to the date of the termination of this Agreement; and (C) COST
CUTTERS will have the absolute right to develop the Franchised Area or to
contract with another franchisee for future development of the Franchised Area.
ARTICLE 4
OTHER OBLIGATIONS OF FRANCHISEE
4.1 COMPLIANCE WITH APPLICABLE LAWS. The FRANCHISEE agrees to and will, at its
expense, comply with all federal, state, city, municipal and local laws,
ordinances, rules and regulations in the Franchised Area pertaining to the
operation of its Cost Cutters Businesses, including all laws relating to
employees and to the regulation of barbers and cosmetologists and all applicable
federal and state environmental laws. The FRANCHISEE will, at its expense, be
absolutely and exclusively responsible for determining all licenses and permits
required by law for the FRANCHISEE'S Cost Cutters Businesses, for qualifying for
and obtaining all such licenses and permits, and for maintaining all such
licenses and permits in full force and effect.
4.2 DISTRICT MANAGER. The FRANCHISEE must employ at least one (1) full-time
person (a "District Manager") for each six (6) Cost Cutters Businesses opened
and operated in the Franchised Area pursuant to this Agreement to supervise the
FRANCHISEE'S Cost Cutters Businesses in the Franchised Area. Each District
Manager will be responsible for the operation and administration of up to six
(6) Cost Cutters Businesses under his or her supervision and control in the
Franchised Area, including supervision of the managers and assistant managers.
The FRANCHISEE'S District Managers must devote their full time and attention to
administering and overseeing the operations of the FRANCHISEE'S Cost Cutters
Businesses in the Franchised Area. All District Managers of the FRANCHISEE'S
Cost Cutters Businesses must attend and successfully complete the training
program required by COST CUTTERS, and be certified and approved by COST CUTTERS
in writing.
<PAGE>
4.3 EXECUTION OF FRANCHISE AGREEMENTS. For each Cost Cutters Business opened,
owned, and operated for business by the FRANCHISEE in the Franchised Area, the
FRANCHISEE (and, if applicable, the FRANCHISEE'S shareholders and Personal
Guarantors) must execute COST CUTTERS' then-current standard Franchise Agreement
(the "Franchise Agreement") in substantially the same form as Exhibit B attached
hereto. If the FRANCHISEE fails to provide COST CUTTERS with an executed
Franchise Agreement on the earlier of: (A) at least ten (10) days prior to the
date the FRANCHISEE commences business at each of its Cost Cutters Businesses in
the Franchised Area; or (B) on the date the FRANCHISEE'S furniture, fixtures and
equipment are shipped by COST CUTTERS to the FRANCHISEE, as required by the
terms of this Agreement, it will be deemed a material breach of this Agreement
and COST CUTTERS will have the right to terminate this Agreement as provided
herein.
4.4 CONTINUING FEES. During the term of each Franchise Agreement signed by the
FRANCHISEE pursuant to this Agreement, the FRANCHISEE will pay to COST CUTTERS
weekly Continuing Fees, as defined in the Franchise Agreement, equal to a
percentage of the weekly Gross Revenues, as defined in the Franchise Agreement,
which are received, billed or generated by or from the FRANCHISEE'S Cost Cutters
Businesses in the Franchised Area. For the first (1st) through the seventeenth
(17th) weeks of the FRANCHISEE'S operation of each of the Cost Cutters
Businesses opened and operated pursuant to this Agreement, the FRANCHISEE will
not be obligated to pay a Continuing Fee to COST CUTTERS. For the eighteenth
(18th) through the thirty-fourth (34th) weeks of the FRANCHISEE'S operation of
each of its Cost Cutters Businesses, the FRANCHISEE will pay to COST CUTTERS a
weekly Continuing Fee equal to four percent (4%) of the FRANCHISEE'S Gross
Revenues. For the thirty-fifth (35th) week of the FRANCHISEE'S operation of each
of the Cost Cutters Businesses opened and operated pursuant to this Agreement,
and thereafter for the balance of the remaining term of the applicable Franchise
Agreement, the FRANCHISEE will pay COST CUTTERS a weekly Continuing Fee equal to
six percent (6%) of the FRANCHISEE'S Gross Revenues; provided, however, that
commencing with the fifty-third (53rd) week of the FRANCHISEE'S operation of
each of its Cost Cutters Businesses, and continuing throughout the remaining
term of the Franchise Agreements for the Cost Cutters Businesses, the FRANCHISEE
will pay COST CUTTERS a weekly Continuing Fee equal to the greater of six
percent (6%) of the FRANCHISEE'S weekly Gross Revenues or One Hundred Dollars
($100) per week. Notwithstanding the foregoing, for as long as, but only so long
as, the FRANCHISEE owns and operates eleven (11) or more Cost Cutters
Businesses, the FRANCHISEE will be obligated to pay COST CUTTERS weekly
Continuing Fees equal to four percent (4%) of the FRANCHISEE'S weekly Gross
Revenues for the eleventh (11th) and any subsequent Cost Cutters Business. This
reduction in Continuing Fees will apply only to the eleventh (11th) and any
subsequent Cost Cutters Businesses owned and operated by the FRANCHISEE and the
rates, steps and minimum set forth in the second, third and forth sentences of
this Article 4.4 shall never apply to the first ten (10) Cost Cutters Businesses
being owned and operated by the FRANCHISEE. The FRANCHISEE will pay Continuing
Fees to COST CUTTERS at the applicable rate stated in the preceding sentences,
even if the Franchise Agreements signed by the FRANCHISEE specify Continuing
Fees that are greater than or different from the Continuing Fees specified
herein. With the possible exception of the percentage of the FRANCHISEE'S Gross
Revenues which will be payable to COST CUTTERS, the Continuing Fees for each of
the FRANCHISEE'S Cost Cutters Businesses will be payable by the FRANCHISEE
according to the terms of the applicable Franchise Agreements signed by the
FRANCHISEE pursuant to this Agreement.
4.5 ADVERTISING FEES. During the term of each Franchise Agreement signed by the
FRANCHISEE pursuant to this Agreement, the FRANCHISEE will pay to COST CUTTERS
weekly Advertising Fees, as defined in the Franchise Agreement, equal to a
percentage of the weekly Gross Revenues, as defined in the Franchise Agreement,
which are received, billed or generated by or from the
<PAGE>
FRANCHISEE'S Cost Cutters Businesses in the Franchised Area. For the first (1st)
through the seventeenth (17th) weeks of the FRANCHISEE'S operation of each of
the Cost Cutters Businesses opened and operated pursuant to this Agreement, the
FRANCHISEE will pay to COST CUTTERS a weekly Advertising Fee equal to six
percent (6%) of the FRANCHISEE'S Gross Revenues. For the eighteenth (18th)
through the thirty-fourth (34th) weeks of the FRANCHISEE'S operation of each of
its Cost Cutters Businesses, the FRANCHISEE will pay a weekly Advertising Fee
equal to five percent (5%) of the FRANCHISEE'S Gross Revenues. For the
thirty-fifth (35th) week of the FRANCHISEE'S operation of each of the Cost
Cutters Businesses opened and operated pursuant to this Agreement, and
thereafter for the balance of the remaining term of the applicable Franchise
Agreement, the FRANCHISEE will pay to COST CUTTERS a weekly Advertising Fee
equal to four percent (4%) of the FRANCHISEE'S Gross Revenues. Notwithstanding
the foregoing, for as long as, but only so long as, the FRANCHISEE owns and
operates eleven (11) or more Cost Cutters Businesses, the FRANCHISEE will be
obligated to pay weekly Advertising Fees equal to four percent (4%) of the
FRANCHISEE'S weekly Gross Revenues for the eleventh (11th) and each subsequent
Cost Cutters Business. This reduction in Advertising Fees will apply only to the
eleventh (11th) and any subsequent Cost Cutters Businesses owned and operated by
the FRANCHISEE and the rates, steps and minimum set forth in the second, third
and forth sentences of this Article 4.5 shall never apply to the first ten (10)
Cost Cutters Businesses being owned and operated by the FRANCHISEE. The
FRANCHISEE will pay Advertising Fees to COST CUTTERS at the applicable rate
stated in the preceding sentences, even if the Franchise Agreements signed by
the FRANCHISEE specify Advertising Fees that are greater than or different from
the Advertising Fees specified herein. With the possible exception of the
percentage of the FRANCHISEE'S Gross Revenues which will be payable to COST
CUTTERS, the Advertising Fees for each of the FRANCHISEE'S Cost Cutters
Businesses will be payable by the FRANCHISEE according to the terms of the
applicable Franchise Agreements signed by the FRANCHISEE pursuant to this
Agreement.
4.6 LOCAL ADVERTISING; OTHER PAYMENTS. During the term of each Franchise
Agreement signed by the FRANCHISEE pursuant to this Agreement, the FRANCHISEE
will be required to spend monies for items such as grand opening advertising and
promotion, local media advertising and promotion, local group advertising and
promotion, and other expenses. The FRANCHISEE will pay all such required
advertising and promotional fees and expenses at the rates established in, and
in accordance with the terms and conditions of, the applicable Franchise
Agreement for each of the FRANCHISEE'S Cost Cutters Businesses opened and
operated by the FRANCHISEE pursuant to this Agreement.
4.7 MODIFICATIONS TO FRANCHISE AGREEMENT. The FRANCHISEE acknowledges that the
Franchise Agreement may be modified from time to time by COST CUTTERS and that
reasonable modifications and amendments to the Franchise Agreement will not
alter the FRANCHISEE'S obligations under this Agreement.
ARTICLE 5
CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION
5.1 COMPLIANCE WITH MANUAL. In order to protect the reputation and goodwill of
COST CUTTERS and to maintain uniform operating standards under the Marks and the
Business System, the FRANCHISEE will, at all times during the term of this
Agreement and the terms of the Cost Cutters Franchise Agreements signed by the
FRANCHISEE, conduct its Cost Cutters Businesses in accordance with COST CUTTERS'
confidential Operations Manual (the "Manual"). The FRANCHISEE acknowledges
having received as a loan one copy of the Manual from COST CUTTERS.
<PAGE>
5.2 CONFIDENTIALITY OF MANUAL. The FRANCHISEE must, at all times during the term
of this Agreement and thereafter, treat the Manual, any other manuals created
for or approved for use in the operation of the FRANCHISEE'S Cost Cutters
Businesses, and the information contained therein as secret and confidential,
and the FRANCHISEE will use all reasonable means to keep such information secret
and confidential. Neither the FRANCHISEE nor its employees will make any copy,
duplication, record or reproduction of the Manual (or any portion thereof)
available to any unauthorized person.
5.3 REVISIONS TO MANUAL. The Manual will, at all times during the term of this
Agreement and thereafter, remain the sole and absolute property of COST CUTTERS.
COST CUTTERS may from time to time revise the Manual and the FRANCHISEE
expressly agrees to operate its Cost Cutters Businesses in accordance with all
such revisions. The FRANCHISEE will at all times keep its copy of the Manual
current and up-to-date, and in the event of any dispute, the terms of the master
copy of the Manual maintained by COST CUTTERS will be controlling in all
respects.
5.4 OTHER CONFIDENTIAL INFORMATION. The FRANCHISEE expressly acknowledges and
agrees that COST CUTTERS will be disclosing and providing to the FRANCHISEE
certain confidential and proprietary information concerning the Business System
and the procedures, technology, operations and data used in connection with the
Business System. Accordingly, the FRANCHISEE will not, during the term of this
Agreement or thereafter, communicate, divulge or use for the benefit of any
other person or entity any confidential information, knowledge or know-how
concerning the methods of operation of the Cost Cutters Businesses which may be
communicated to the FRANCHISEE, or of which the FRANCHISEE may be apprised, by
virtue of this Agreement. The FRANCHISEE will divulge such confidential
information only to its employees that must have access to it in order to
operate the FRANCHISEE'S Cost Cutters Businesses. Any and all information,
knowledge and know-how including, without limitation, drawings, materials,
equipment, technology, methods, procedures, specifications, techniques, computer
programs, systems and other data which COST CUTTERS designates as confidential
or proprietary will be deemed confidential and proprietary for the purposes of
this Agreement.
5.5 CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES. The FRANCHISEE will require all
of the FRANCHISEE'S employees who have access to the Manual or other
confidential information execute an agreement, in the form attached as an
Exhibit to the Franchise Agreement or other form satisfactory to COST CUTTERS,
where the employees agree to maintain the confidentiality, during the course of
their employment and thereafter, of all information designated by COST CUTTERS
as confidential. Copies of all executed agreements will be submitted to COST
CUTTERS upon request.
5.6 REMEDIES. The FRANCHISEE recognizes that the provisions contained in this
Article are necessary for the protection of COST CUTTERS and all of the
franchisees who own Cost Cutters businesses. If the FRANCHISEE violates any
provisions of this Article, or if any employee of the FRANCHISEE violates his or
her confidentiality agreement executed pursuant to Article 5.5, then COST
CUTTERS will have the right to: (A) terminate this Agreement (as provided for
herein); (B) seek injunctive relief from a Court of competent jurisdiction; (C)
commence an action or lawsuit against the FRANCHISEE for damages; and (D)
enforce all other remedies against the FRANCHISEE that are available to COST
CUTTERS under common law, in equity, and pursuant to any federal and state
statutes in an action or lawsuit against the FRANCHISEE.
<PAGE>
ARTICLE 6
COST CUTTERS' RIGHT OF TERMINATION
6.1 GROUNDS FOR TERMINATION. In addition to the other rights of termination
contained in this Agreement, COST CUTTERS will have the right and privilege to
terminate this Agreement if: (A) the FRANCHISEE violates any material provision,
term or condition of this Agreement; (B) the FRANCHISEE fails to conform to the
Business System, the standards of uniformity and quality for the goods and
services or the policies and procedures promulgated by COST CUTTERS in
connection with the Business System, or is involved in any act or conduct which
materially impairs the goodwill associated with the Marks or the Business
System; (C) the FRANCHISEE fails to timely pay any of its uncontested
obligations or liabilities due and owing COST CUTTERS, suppliers, banks,
purveyors, other creditors or any federal, state and municipal government
(including, if applicable, federal and state taxes); (D) the FRANCHISEE is
determined to be insolvent within the meaning of any state or federal law or
becomes a party to any bankruptcy proceedings, files for bankruptcy, or its
adjudicated a bankrupt under any state or federal law; (E) the FRANCHISEE makes
an assignment for the benefit of creditors or enters into any similar
arrangement for the disposition of its assets for the benefit of creditors; (F)
any check issued by the FRANCHISEE is dishonored because of insufficient funds
(except where the check is dishonored because of a bookkeeping or accounting
error) or closed accounts; (G) any Cost Cutters Franchise Agreement executed by
the FRANCHISEE is (1) terminated by COST CUTTERS or (2) wrongfully terminated by
the FRANCHISEE; (H) the FRANCHISEE fails to make, when due, any payment pursuant
to any Franchise Agreement, promissory note, other contract or other obligation
payable by the FRANCHISEE to COST CUTTERS; (I) the FRANCHISEE voluntarily or
otherwise abandons, as defined herein, the Franchised Area; or (J) the
FRANCHISEE or any of its partners, directors, officers or majority stockholders
is convicted of, or pleads guilty or no contest to, a charge of violating any
law relating to the FRANCHISEE'S Cost Cutters Businesses, or any felony.
6.2 NOTICE OF BREACH. Except as provided for in Article 6.5 and Article 6.6 of
this Agreement, COST CUTTERS will not have the right to terminate this Agreement
unless and until written notice setting forth the alleged breach in detail has
been given to the FRANCHISEE by COST CUTTERS and after having been given such
written notice of breach the FRANCHISEE fails to correct the alleged breach
within the period of time specified by applicable law. If applicable law does
not specify a time period to correct an alleged breach, then the FRANCHISEE will
have thirty (30) days after having been given such written notice to correct the
alleged breach. If the FRANCHISEE fails to correct an alleged breach set forth
in the written notice as provided herein within the applicable period of time,
then this Agreement may be terminated by COST CUTTERS as provided in this
Agreement. For the purposes of this Agreement, an alleged breach of this
Agreement by the FRANCHISEE will be deemed to be "corrected" if both COST
CUTTERS and the FRANCHISEE agree in writing that the alleged breach has been
corrected.
6.3 ARBITRATION. If the FRANCHISEE gives notice of Arbitration, as provided for
in this Agreement, within the time period established in Article 6.2 for
correcting the alleged breach, then COST CUTTERS will not have the right to
terminate this Agreement until the facts of the alleged breach have been
submitted to Arbitration as provided for herein, the Arbitrator determines that
the FRANCHISEE has breached this Agreement and the FRANCHISEE fails to correct
the breach within the applicable time period. If the Arbitrator determines that
the FRANCHISEE has breached this Agreement as alleged by COST CUTTERS in the
written notice given to the FRANCHISEE, then the FRANCHISEE will have thirty
(30) days from the date the Arbitrator issues a written determination on the
matter to correct the specified breach or violation of this Agreement, except
where applicable law requires a longer cure period in which event the cure
period specified by applicable law will apply. If the FRANCHISEE timely corrects
the specified breach of this Agreement, then this Agreement will remain in full
force and effect.
<PAGE>
For the purposes of this Agreement, any controversy or dispute on the issue of
whether the FRANCHISEE has timely corrected the specified breach of this
Agreement will also be subject to Arbitration as provided for herein. The time
limitations set forth in this Article within which the FRANCHISEE may demand
Arbitration of a dispute or controversy relating to the right of COST CUTTERS to
terminate this Agreement for an alleged breach will be mandatory. If the
FRANCHISEE fails to comply with the time limitations set forth in this Article,
COST CUTTERS may terminate this Agreement as provided for herein.
6.4 NOTICE OF TERMINATION. If COST CUTTERS has complied with the notice
provisions of this Article and the FRANCHISEE has not corrected the alleged
breach set forth in the written notice within the time period specified in this
Article, then COST CUTTERS will have the absolute right to terminate this
Agreement by giving the FRANCHISEE written notice stating to the FRANCHISEE that
this Agreement is terminated, and in that event, unless applicable law provides
to the contrary, the effective date of termination of this Agreement will be the
day the written notice of termination is given to the FRANCHISEE.
6.5 GROUNDS FOR IMMEDIATE TERMINATION. COST CUTTERS will have the absolute right
and privilege, unless prohibited by applicable law, to immediately terminate
this Agreement if: (A) the FRANCHISEE or any of its partners, directors,
officers or majority stockholders is convicted of, or pleads guilty or no
contest to, a charge of violating any law relating to the FRANCHISEE'S Cost
Cutters Businesses, or any felony; (B) the FRANCHISEE voluntarily or otherwise
abandons, as defined herein, the Franchised Area; or (C) the FRANCHISEE is
involved in any act or conduct which materially impairs the goodwill associated
with COST CUTTERS' Marks or Business System, and the FRANCHISEE fails to correct
such act or conduct within twenty-four (24) hours of receipt of written notice
from COST CUTTERS.
6.6 NOTICE OF IMMEDIATE TERMINATION. If this Agreement is terminated by COST
CUTTERS pursuant to Article 6.5 above, COST CUTTERS will give the FRANCHISEE
written notice that this Agreement is terminated, and in that event, unless
applicable law provides to the contrary, the effective date of termination of
this Agreement will be the day the written notice of termination is given to the
FRANCHISEE.
6.7 DAMAGES. In the event this Agreement is terminated by COST CUTTERS pursuant
to this Article, or if the FRANCHISEE breaches this Agreement by a wrongful
termination of this Agreement, then COST CUTTERS will be entitled to seek
recovery from the FRANCHISEE for all of the damages that COST CUTTERS has
sustained and will sustain in the future as a result of the FRANCHISEE'S breach
of this Agreement, which will include damages based upon the Initial Fees,
Continuing Fees, Advertising Fees and other fees that would have been payable by
the FRANCHISEE pursuant to this Agreement.
6.8 OTHER REMEDIES. Nothing in this Article or this Agreement will preclude COST
CUTTERS from seeking other damages or remedies under common law, state or
federal laws or this Agreement against the FRANCHISEE including, but not limited
to, attorneys' fees, punitive damages and injunctive relief.
<PAGE>
ARTICLE 7
FRANCHISEE'S RIGHTS AND OBLIGATIONS UPON TERMINATION
7.1 OBLIGATIONS UPON TERMINATION. In the event this Agreement is terminated for
any reason, then the FRANCHISEE will: (A) within five (5) days after
termination, pay all amounts due and owing to COST CUTTERS under this Agreement
or any other contract, promissory note or other obligation payable by the
FRANCHISEE to COST CUTTERS; and (B) comply with all other applicable provisions
of this Agreement, including those provisions with obligations that continue
beyond the termination of this Agreement.
7.2 REVERSION OF RIGHTS. Upon termination of this Agreement for any reason, all
rights to open and operate additional Cost Cutters businesses in the Franchised
Area and all other rights granted to the FRANCHISEE pursuant to this Agreement
will automatically revert to COST CUTTERS, and COST CUTTERS will have the right
to develop the Franchised Area or to contract with another franchisee for the
future development of the Franchised Area.
7.3 FRANCHISE AGREEMENTS NOT AFFECTED. The FRANCHISEE will continue to operate
the Cost Cutters Businesses owned and operated by the FRANCHISEE in the
Franchised Area pursuant to the terms of the applicable Franchise Agreements
signed by the FRANCHISEE and COST CUTTERS prior to the termination of this
Agreement, and the rights and obligations of the FRANCHISEE and COST CUTTERS
with respect to the FRANCHISEE'S Cost Cutters Businesses in the Franchised Area
will be governed by the terms of the applicable Franchise Agreements.
ARTICLE 8
FRANCHISEE'S COVENANTS NOT TO COMPETE
8.1 CONSIDERATION. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors acknowledge that the FRANCHISEE, its partners or officers,
and its employees will receive specialized training, current and future
marketing and advertising plans and strategies, business plans and strategies,
business information and procedures, research and development information,
operations information, and trade and business secrets from COST CUTTERS
pertaining to the Business System and the operation of a Cost Cutters business.
In consideration for the use and license of such valuable and confidential
information, the FRANCHISEE, the FRANCHISEE'S shareholders and the Personal
Guarantors will comply in all respects with the provisions of this Article. COST
CUTTERS has advised the FRANCHISEE that this provision is a material provision
of this Agreement, and that COST CUTTERS will not sell a Cost Cutters franchise
to any person or entity that owns or intends to own, operate or be involved in
any business that competes directly or indirectly with a Cost Cutters business.
8.2 IN-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, during the term of this
Agreement, on their own account or as an employee, agent, consultant, partner,
officer, director, member, or shareholder of any other person, firm, entity,
partnership or corporation: (A) seek to employ any person who is at that time
employed by COST CUTTERS or by any other Cost Cutters, City Looks or We Care
Hair(R) franchisee, or induce any such employee to terminate his or her
employment; or (B) own, operate, lease, franchise, conduct, engage in, be
connected with, have any interest in, or assist any person or entity engaged in
any hairstyling, barber or other business that is in any way competitive with or
similar to the Cost Cutters businesses conducted by COST CUTTERS or COST
CUTTERS' franchisees (including, but not limited to, the FRANCHISEE), except
with the prior written consent of COST CUTTERS.
<PAGE>
8.3 POST-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, for a period of one (1) year
after the termination or expiration of this Agreement, on their own account or
as an employee, agent, consultant, partner, officer, director, member or
shareholder of any other person, firm, entity, partnership or corporation: (A)
seek to employ any person who is at that time employed by COST CUTTERS or by any
other Cost Cutters, City Looks or We Care Hair(R) franchisee, or induce any such
employee to terminate his or her employment; or (B) own, operate, lease,
franchise, conduct, engage in, be connected with, have any interest in or assist
any person or entity engaged in any hairstyling, barber or other business that
is in any way competitive with or similar to the Cost Cutters businesses
conducted by COST CUTTERS or COST CUTTERS' franchisees which is located either
within the Franchised Area or within six (6) miles of any Cost Cutters business
operated by COST CUTTERS or any of COST CUTTERS' franchisees, or which is
located within any exclusive area granted by COST CUTTERS or any affiliate or
area developer of COST CUTTERS pursuant to any franchise, development, license
or other territorial agreement. The FRANCHISEE, the FRANCHISEE'S shareholders
and the Personal Guarantors expressly agree that the one (1) year period, the
Franchised Area and the six (6) mile limit are the reasonable and necessary time
and geographical limitations required to protect COST CUTTERS and COST CUTTERS'
franchisees if this Agreement expires or is terminated for any reason, and that
this covenant not to compete is necessary to permit COST CUTTERS the opportunity
to further develop new Cost Cutters businesses in the Franchised Area.
8.4 INJUNCTIVE RELIEF. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors agree that the provisions of this Article are necessary to
protect the legitimate business interests of COST CUTTERS and COST CUTTERS'
franchisees including, without limitation, preventing damage to and/or loss of
goodwill associated with the Marks, preventing the unauthorized dissemination of
marketing, promotional and other confidential information to competitors of COST
CUTTERS and COST CUTTERS' franchisees, protection of COST CUTTERS' trade
secrets, the Business System and the integrity of COST CUTTERS' Business System,
and preventing duplication of the Business System. The FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors also agree that damages
alone cannot adequately compensate COST CUTTERS if there is a violation of this
Article by the FRANCHISEE and that injunctive relief against the FRANCHISEE is
essential for the protection of COST CUTTERS and COST CUTTERS' franchisees. The
FRANCHISEE, the FRANCHISEE'S shareholders and the Personal Guarantors agree
therefore, that if COST CUTTERS alleges that the FRANCHISEE, the FRANCHISEE'S
shareholders or the Personal Guarantors have breached or violated this Article,
then COST CUTTERS will have the right to petition a Court of competent
jurisdiction for injunctive relief against the FRANCHISEE, the FRANCHISEE'S
shareholders or the Personal Guarantors, in addition to all other remedies that
may be available to COST CUTTERS at law or in equity. Unless provided to the
contrary by applicable law, COST CUTTERS will not be required to post a bond or
other security in any action where COST CUTTERS is seeking to enjoin the
FRANCHISEE, the FRANCHISEE'S shareholders or the Personal Guarantors from
violating this Article. In cases where COST CUTTERS is granted ex parte
injunctive relief against the FRANCHISEE, the FRANCHISEE'S shareholders or the
Personal Guarantors, then the FRANCHISEE, the FRANCHISEE'S shareholders or the
Personal Guarantors will have the right to petition the court for a hearing on
the merits at the earliest time convenient to the Court.
8.5 SEVERABILITY. It is the desire and intent of the parties to this Agreement,
including the FRANCHISEE'S shareholders and the Personal Guarantors, that the
provisions of this Article be enforced to the fullest extent permissible under
the laws and public policy applied in each jurisdiction in which enforcement is
sought. Accordingly, if any part of this Article is adjudicated to be invalid or
unenforceable, then this Article will be deemed amended to modify or delete that
portion thus adjudicated to be invalid or unenforceable, such modification or
deletion to apply only with respect to the operation of
<PAGE>
this Article and the particular jurisdiction in which said adjudication is made.
Further, to the extent any provision of this Article is deemed unenforceable by
virtue of its scope or limitation, the parties to this Agreement including the
FRANCHISEE, the FRANCHISEE'S shareholders and the Personal Guarantors agree that
the scope and limitation provisions will, nevertheless, be enforceable to the
fullest extent permissible under the laws and public policies applied in such
jurisdiction where enforcement is sought.
ARTICLE 9
INDEPENDENT CONTRACTORS; INDEMNIFICATION
9.1 INDEPENDENT CONTRACTORS. COST CUTTERS and the FRANCHISEE are each
independent contractors and, as a consequence, there is no employer-employee or
principal-agent relationship between COST CUTTERS and the FRANCHISEE. The
FRANCHISEE will not have the right to and will not make any agreements,
representations or warranties in the name of or on behalf of COST CUTTERS or
represent that their relationship is other than that of franchisor and
franchisee. Neither COST CUTTERS nor the FRANCHISEE will be obligated by or have
any liability to the other under any agreements or representations made by the
other to any third parties.
9.2 INDEMNIFICATION. COST CUTTERS will not be obligated to any person for any
damages arising out of, from, in connection with, or as a result of the
FRANCHISEE'S negligence or the operation of the FRANCHISEE'S Cost Cutters
Businesses that are conducted by the FRANCHISEE pursuant to this Agreement. The
FRANCHISEE will indemnify and hold harmless COST CUTTERS against all claims,
lawsuits, damages, obligations, liability, actions and judgments alleged or
obtained by any person or entity against COST CUTTERS arising out of, from, as a
result of, or in connection with the FRANCHISEE'S negligence or the operation of
the FRANCHISEE'S Cost Cutters Businesses that are conducted by the FRANCHISEE
pursuant to this Agreement, including, without limitation, any claims arising
from or relating to: (A) any personal injury, property damage, commercial loss
or environmental contamination resulting from any act or omission of the
FRANCHISEE or any of its employees, agents or representatives; (B) any failure
on the part of the FRANCHISEE to comply with any requirement of any governmental
authority; (C) any failure of the FRANCHISEE to pay any of its obligations; or
(D) any failure or the FRANCHISEE to comply with any requirement or condition of
this Agreement or any other agreement with COST CUTTERS or any affiliate of COST
CUTTERS. Further, the FRANCHISEE will indemnify and reimburse COST CUTTERS for
all such obligations and damages for which COST CUTTERS is held liable and for
all costs reasonably incurred by COST CUTTERS in the defense of any such claims
brought against it or in any action arising out of the operation of the
FRANCHISEE'S Cost Cutters Businesses in which it is named as a party including,
without limitation, costs for attorneys' fees actually incurred, investigation
expenses, court costs, deposition expenses and travel and living expenses. COST
CUTTERS will have the absolute right to defend any claim made against it that
results from the FRANCHISEE'S Cost Cutters Businesses.
9.3 PAYMENT OF COSTS AND EXPENSES. The FRANCHISEE will pay all costs and
expenses, including actual attorneys' fees, incurred by COST CUTTERS in
enforcing any term, condition or provision of this Agreement or in seeking to
enjoin any violation of this Agreement by the FRANCHISEE.
9.4 CONTINUATION OF OBLIGATIONS. The indemnification and other obligations
contained in this Article will continue in full force and effect subsequent to
and notwithstanding the expiration or termination of this Agreement.
<PAGE>
ARTICLE 10
ASSIGNMENT
10.1 ASSIGNMENT BY FRANCHISOR. This Agreement may be unilaterally assigned and
transferred by COST CUTTERS without the FRANCHISEE'S approval or consent, and
will inure to the benefit of COST CUTTERS' successors and assigns. COST CUTTERS
will provide the FRANCHISEE with written notice of any such assignment or
transfer, and the assignee will be required to fulfill COST CUTTERS' obligations
under this Agreement.
10.2 ASSIGNMENT BY FRANCHISEE TO CORPORATION. If the FRANCHISEE is an individual
or a partnership, this Agreement may be transferred or assigned by the
FRANCHISEE to a corporation which is owned or controlled (ownership of at least
fifty-one percent (51%) of the issued and outstanding capital stock) by the
FRANCHISEE, provided that: (A) the FRANCHISEE and all of the shareholders of the
assignee corporation sign the personal guaranty and agreement to be bound by the
terms and conditions of this Agreement attached hereto: (B) the FRANCHISEE
furnishes prior written proof to COST CUTTERS substantiating that the
corporation will be financially able to perform all of the terms and conditions
of this Agreement; and (C) none of the shareholders owns, operates, franchises,
develops, manages or controls any hairstyling, barber or other business that is
in any way competitive with or similar to a Cost Cutters business. The
FRANCHISEE will give COST CUTTERS fifteen (15) days written notice prior to the
proposed date of assignment or transfer of this Agreement to an owned or
controlled corporation of the FRANCHISEE; however, the transfer or assignment of
this Agreement will not be valid or effective until COST CUTTERS has received
the legal documents which its legal counsel deems necessary to properly and
legally document the transfer or assignment of this Agreement to the corporation
as provided herein.
10.3 ASSIGNMENT UPON DEATH OR DISABILITY OF FRANCHISEE. If the FRANCHISEE is an
individual, then this Agreement may be assigned, transferred or bequeathed by
the FRANCHISEE to any designated person or beneficiary upon his or her death or
permanent disability. However, the assignment of this Agreement to the
transferee, assignee or beneficiary of the FRANCHISEE will not be valid or
effective until COST CUTTERS has received the properly executed legal documents
which its legal counsel deems necessary to properly and legally document the
transfer, assignment or bequest of this Agreement, and until the transferee,
assignee or beneficiary agrees to be unconditionally bound by the terms and
conditions of this Agreement and to personally guarantee the performance of the
FRANCHISEE'S obligations under this Agreement.
10.4 APPROVAL OF TRANSFER; CONDITIONS FOR APPROVAL. This Agreement may be
assigned or transferred by the FRANCHISEE only with the prior written approval
of COST CUTTERS. COST CUTTERS will not unreasonably withhold its consent to any
transfer of this Agreement, provided that the FRANCHISEE and the transferee
Franchisee comply with the following conditions: (A) all of the FRANCHISEE'S
monetary obligations due to COST CUTTERS have been paid in full, and the
FRANCHISEE is not otherwise in default under this Agreement; (B) the FRANCHISEE
has executed a written agreement in a form satisfactory to COST CUTTERS in which
the FRANCHISEE agrees to observe all applicable obligations and covenants
contained in this Agreement; (C) the transferee Franchisee and its shareholders
agree to be personally liable to discharge all of the FRANCHISEE'S obligations
under this Agreement and will enter into a written agreement in a form
satisfactory to COST CUTTERS assuming and agreeing to discharge all of the
FRANCHISEE'S obligations and covenants under this Agreement; (D) the transferee
Franchisee will have demonstrated to COST CUTTERS' satisfaction that he, she or
it meets COST CUTTERS' managerial, financial, and business standards for new
area franchisees, possesses a good business reputation and credit rating, and
possesses the aptitude
<PAGE>
and ability to conduct the Business franchised hereunder (as may be evidenced by
prior related business experience or otherwise); (E) the FRANCHISEE has paid the
transfer fee required under Article 10.6; (F) the transferee Franchisee does not
own, operate, franchise, develop, manage or control any hairstyling, barber or
other business that is in any way competitive with or similar to a Cost Cutters
business; and (G) if the transferee Franchisee does not meet COST CUTTERS' net
worth requirements for operation of the Cost Cutters Businesses, then the
FRANCHISEE and/or its shareholders and the Personal Guarantors will execute a
written agreement in a form satisfactory to COST CUTTERS agreeing to remain
liable to COST CUTTERS for the obligations of the Cost Cutters Businesses.
10.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the Cost Cutters Business System and the Marks, as well as COST CUTTERS'
reputation and image, and are for the protection of COST CUTTERS, the FRANCHISEE
and all other franchisees who own and operate Cost Cutters businesses. Any
assignment or transfer permitted by this Article 10 will not be effective until
COST CUTTERS receives a completely executed copy of all transfer documents and
COST CUTTERS consents to the transfer in writing, and any attempted assignment
or transfer made without complying with the requirements of this Article 10 will
be void.
10.6 TRANSFER FEE. If, pursuant to the terms of this Article, this Agreement is
assigned, transferred or bequeathed to another person or entity, or if the
FRANCHISEE'S shareholders transfer over fifty percent (50%) of their capital
stock to another person or entity, then the FRANCHISEE will pay COST CUTTERS a
transfer fee of One Thousand Dollars ($1,000). This fee is to cover the costs
incurred by COST CUTTERS for attorneys' fees, accountants' fees, out-of-pocket
expenses, long distance telephone calls, administrative expenses, and the time
of its employees and officers.
ARTICLE 11
ARBITRATION
11.1 DISPUTES SUBJECT TO ARBITRATION. Except as expressly provided to the
contrary in this Agreement, all disputes and controversies between the parties,
including allegations of fraud, misrepresentation or violation of any state or
federal laws or regulations, arising under, as a result of, or in connection
with this Agreement, the Franchised Area or the FRANCHISEE'S Cost Cutters
Businesses will be resolved and determined exclusively by Arbitration in
accordance with the Commercial Rules and Regulations of the American Arbitration
Association.
11.2 NOTICE OF DISPUTE. The party alleging the breach, claim, dispute or
controversy ("dispute") must give the other party written notice setting forth
the alleged dispute in detail. The party who has been given such written notice
alleging the dispute will have thirty (30) days after having been given such
written notice from the complaining party to correct or resolve the dispute
specified in the written notice.
11.3 DEMAND FOR ARBITRATION. If the dispute alleged by either party has not been
corrected, settled or compromised within the time period provided for in this
Agreement, then either party may notice Arbitration by giving the other party
written notice demanding Arbitration. Within ten (10) days after a written
demand for Arbitration has been given by the party demanding Arbitration, either
party will have the right to request the office of the American Arbitration
Association in Minneapolis, Minnesota to initiate the procedures necessary to
appoint an Arbitrator. The Arbitrator will be appointed within sixty (60) days
after a written demand for Arbitration has been made in accordance with the
Commercial Rules and Regulation of the American Arbitration Association.
<PAGE>
11.4 VENUE AND JURISDICTION. All Arbitration hearings will take place
exclusively in Minneapolis, Minnesota. COST CUTTERS and the FRANCHISEE and their
officers, Directors and shareholders or partners and the Personal Guarantors
acknowledge that the FRANCHISEE and its officers, Directors and employees have
had substantial business and personal contacts with COST CUTTERS in Minnesota,
do hereby agree and submit to personal jurisdiction in Minnesota in connection
with any Arbitration hearings hereunder and any suits or actions brought to
enforce the decision of the Arbitrator, and do hereby waive any rights they may
have to contest venue and jurisdiction in Minnesota and any claims that venue
and jurisdiction in Minnesota are invalid.
11.5 POWERS OF ARBITRATOR. The authority of the Arbitrator will be limited to
making a finding, judgment, decision and award relating to the interpretation of
or adherence to the written provisions of this Agreement. The Federal Rules of
Evidence (the "Rules") will apply to all Arbitration hearings and the
introduction of all evidence, testimony, records, affidavits, documents and
memoranda in any Arbitration hearing must comply in all respects with the Rules
and the legal precedents interpreting the Rules. Both parties will have the
absolute right to cross-examine any person who testified against them or in
favor of the other party. The Arbitrator will not have the authority or right to
add to, delete, amend or modify in any manner the terms, conditions and
provisions of this Agreement. All findings, judgments, decisions and awards of
the Arbitrator will be limited to the dispute set forth in the written demand
for Arbitration, and the Arbitrator will not have the authority to decide any
other issues. The Arbitrator will not have the right or authority to award
punitive damages to COST CUTTERS or the FRANCHISEE or their officers, Directors,
shareholders or partners and Personal Guarantors, and COST CUTTERS and
FRANCHISEE and their officers, Directors, shareholders or partners, and Personal
Guarantors expressly waive their rights to plead or seek punitive damages. All
findings, judgments, decisions and awards by the Arbitrator will be in writing,
will be made within sixty (60) days after the Arbitration hearings have been
completed, and will be final and binding on COST CUTTERS and the FRANCHISEE,
except as provided for in Article 11.8. The written decision of the Arbitrator
will be deemed to be an order, judgment and decree and may be entered as such in
any Court of competent jurisdiction by either party.
11.6 DISPUTES NOT SUBJECT TO ARBITRATION. The disputes and controversies between
COST CUTTERS and the FRANCHISEE which are set forth in Article 12.1 and the
following disputes between COST CUTTERS and the FRANCHISEE will not be subject
to Arbitration: (A) any dispute involving the Marks; (B) any dispute involving
immediate termination of this Agreement by COST CUTTERS pursuant to Article 6.5
and Article 6.6 of this Agreement; (C) any dispute involving enforcement of the
confidentiality provisions set forth in Article 5 of this Agreement; and (D) any
dispute involving enforcement of the covenants not to compete set forth in
Article 8 of this Agreement.
11.7 NO COLLATERAL ESTOPPEL OR CLASS ACTIONS. Except as provided herein, all
Arbitration findings and awards expressly made by the Arbitrator will be final
and binding on COST CUTTERS and the FRANCHISEE and their officers, Directors,
shareholders or partners, and Personal Guarantors; however, such Arbitration
findings and awards may not be used to collaterally estop either party from
raising any like or similar issues, claims or defenses in any other or
subsequent Arbitration, litigation, court hearing or other proceeding involving
third parties or other franchisees. No party except COST CUTTERS, the
FRANCHISEE, and their officers, Directors, shareholders or partners, and
Personal Guarantors will have the right to join in any Arbitration proceeding
arising under this Agreement, and, therefore, the Arbitrator will not be
authorized to permit or approve class actions or to permit any person or entity
that is not a party to this Agreement to be involved in or to participate in any
Arbitration hearings conducted pursuant to this Agreement.
<PAGE>
11.8 DE NOVO HEARING ON MERITS. If the Arbitrator awards either COST CUTTERS or
the FRANCHISEE damages (including actual damages, costs and attorneys' fees) in
excess of One Hundred Thousand Dollars ($100,000) in any Arbitration proceeding
commenced pursuant to this Agreement, then the party who has been held liable by
the Arbitrator will have the right to a de novo hearing on the merits by
commencing an action in a court of competent jurisdiction in accordance with the
provisions of this Agreement. If the party held liable by the Arbitrator
commences a court action as provided for herein, then neither party will have
the right to introduce the Arbitrator's decision or findings in any such court
action and the Arbitrator's decision and findings will be of no force and effect
and will not be final or binding on either COST CUTTERS or the FRANCHISEE. If
the party who has been held liable by the Arbitrator for over One Hundred
Thousand Dollars ($100,000) in damages fails to commence a court action within
thirty (30) days after the Arbitrator issues his or her award in writing, then
the Arbitrator's findings, judgments, decisions and awards will be final and
binding on COST CUTTERS and the FRANCHISEE.
11.9 CONFIDENTIALITY. All evidence, testimony, records, documents, findings,
decisions, judgments and awards pertaining to any Arbitration hearing between
COST CUTTERS and the FRANCHISEE will be secret and confidential in all respects.
COST CUTTERS and the FRANCHISEE will not disclose the decision or award of the
Arbitrator and will not disclose any evidence, testimony, records, documents,
findings, orders, or other matters from the Arbitration hearing to any person or
entity except as required by law.
11.10 SEVERABILITY. It is the desire and intent of the parties to this Agreement
that the provisions of this Article be enforced to the fullest extent
permissible under the laws and public policy applied in each jurisdiction in
which enforcement is sought. Accordingly, if any part of this Article is
adjudicated to be invalid or unenforceable, then this Article will be deemed
amended to delete that portion thus adjudicated to be invalid or unenforceable
to the extent required to make this Article valid and enforceable. Any such
deletion will be effective only in the particular jurisdiction in which the
adjudication is made. Further, to the extent any provision of this Article is
deemed unenforceable by virtue of its scope, the parties to this Agreement agree
that the same will, nevertheless, be enforceable to the fullest extent
permissible under the laws and public policies applied in such jurisdiction
where enforcement is sought, and the scope in such a case will be determined by
Arbitration as provided herein.
ARTICLE 12
ENFORCEMENT
12.1 INJUNCTIVE RELIEF. In addition to the provisions of Article 11, COST
CUTTERS will be entitled to petition a Court of competent jurisdiction for the
entry of temporary and permanent injunctions and orders of specific performance
enforcing the provisions of this Agreement relating to: (A) the FRANCHISEE'S
improper or unauthorized use of the Marks and the Business System; (B) the
obligations of the FRANCHISEE upon termination or expiration of this Agreement;
(C) the transfer or assignment of this Agreement, the Franchised Area or
ownership interests of the FRANCHISEE; (D) the FRANCHISEE'S violation of the
provisions of this Agreement relating to confidentiality and covenants not to
compete; and (E) any act or omission by the FRANCHISEE or the FRANCHISEE'S
employees that, (1) constitutes a violation of any applicable law, ordinance or
regulation, (2) is dishonest or misleading to customers of the FRANCHISEE'S Cost
Cutters Businesses or other Cost Cutters businesses, (3) constitutes a danger to
the employees, public or customers of the FRANCHISEE'S Cost Cutters Businesses,
or (4) may impair the goodwill associated with the Marks and the Business
System. In any action brought under this provision where COST CUTTERS prevails
against the FRANCHISEE, the FRANCHISEE will indemnify COST CUTTERS for all costs
that it incurs in any such proceedings
<PAGE>
including, without limitation, attorneys' fees actually incurred, expert witness
fees, costs of investigation, court costs, travel and living expenses, and all
other costs incurred by COST CUTTERS. Unless provided to the contrary by
applicable law, COST CUTTERS will be entitled to obtain injunctive relief
without the posting of any bond or security.
12.2 SEVERABILITY. All provisions of this Agreement are severable and this
Agreement will be interpreted and enforced as if all completely invalid or
unenforceable provisions were not contained herein and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. If
any applicable law or rule of any jurisdiction requires a greater prior notice
of the termination of this Agreement than is required hereunder or the taking of
some other action not required hereunder, or if under any applicable and binding
laws of any jurisdiction, any provision of this Agreement or any specification,
standard or operating procedure prescribed by COST CUTTERS is invalid or
unenforceable, the prior notice or other action required by such law or rule
will be substituted for the notice requirements hereof, or such invalid or
unenforceable provision, specification, standard or operating procedure will be
modified to the extent required to be valid and enforceable. Such modifications
to this Agreement will be effective only in such jurisdiction and will be
enforced as originally made and entered into in all other jurisdictions.
12.3 WAIVER. COST CUTTERS and the FRANCHISEE may, by written instrument signed
by COST CUTTERS and the FRANCHISEE, waive any obligation of or restriction upon
the other under this Agreement. Acceptance by COST CUTTERS of any payment by the
FRANCHISEE and the failure, refusal or neglect of COST CUTTERS to exercise any
right under this Agreement or to insist upon full compliance by the FRANCHISEE
of its obligations hereunder will not constitute a waiver by COST CUTTERS of any
provision of this Agreement. COST CUTTERS will have the right to waive
obligations or restrictions for other area franchisees under their Development
Agreements without waiving those obligations or restrictions for the FRANCHISEE
and, except to the extent provided by law, COST CUTTERS will have the right to
negotiate terms and conditions, grant concessions and waive obligations for
other area franchisees of COST CUTTERS without granting those same rights to the
FRANCHISEE and without incurring any liability to the FRANCHISEE whatsoever.
12.4 NO RIGHT TO OFFSET. The FRANCHISEE will not, on grounds of the alleged
nonperformance by COST CUTTERS of any of its obligations under this Agreement,
any other contract between COST CUTTERS and the FRANCHISEE, or for any other
reason, withhold payment of any amounts due COST CUTTERS under this Agreement or
any other contract, promissory note or other obligation payable by the
FRANCHISEE to COST CUTTERS. The FRANCHISEE will not have the right to "offset"
any liquidated or unliquidated amounts allegedly due to the FRANCHISEE from COST
CUTTERS against any payments due to COST CUTTERS under this Agreement or any
other contract, promissory note or other obligation payable by the FRANCHISEE to
COST CUTTERS.
12.5 COST CUTTERS' RIGHTS CUMULATIVE. The rights of COST CUTTERS hereunder are
cumulative and no exercise or enforcement by COST CUTTERS of any right or remedy
hereunder will preclude the exercise or enforcement by COST CUTTERS of any other
right or remedy hereunder or which COST CUTTERS is entitled by law to enforce.
12.6 VENUE AND JURISDICTION. Unless otherwise required by applicable law, all
Arbitration hearings, litigation, court hearings or other hearings initiated by
either party against the other party must and will be venued exclusively in
Hennepin County, Minnesota. The FRANCHISEE, each of its officers, Directors and
shareholders, and the Personal Guarantors: (A) acknowledge that Minneapolis,
Minnesota is a mutually convenient location for the venue and conduct of any
legal or enforcement proceedings; (B)
<PAGE>
do hereby agree and submit to personal jurisdiction in the State of Minnesota
for the purposes of any Arbitration hearings, litigation, court hearings or
other hearings brought to enforce or construe the terms of this Agreement or to
resolve any dispute or controversy arising under, as a result of, or in
connection with this Agreement, the Franchised Area or the FRANCHISEE'S Cost
Cutters Businesses; and (C) do hereby agree and stipulate that any Arbitration
hearings, litigation, court hearings and other hearings will be venued and held
exclusively in Hennepin County, Minnesota, and waive any rights to contest such
venue and jurisdiction and any claims that such venue and jurisdiction are
invalid.
12.7 AGREEMENT BINDING ON HEIRS AND ASSIGNS. This Agreement is binding upon the
parties hereto and their respective executors, administrators, heirs, assigns
and successors in interest.
12.8 JOINT AND SEVERAL LIABILITY. If the FRANCHISEE consists of more than one
person, their liability under this Agreement will be deemed to be joint and
several.
12.9 ENTIRE AGREEMENT. This Agreement supersedes and terminates all prior
agreements relating to the rights granted herein, either oral or in writing,
between the parties and therefore, any representations, inducements, promises or
agreements between the parties not contained in this Agreement or not in writing
signed by the President or a Vice President of COST CUTTERS and the FRANCHISEE
will not be enforceable. This Agreement will not supersede or terminate any
written Development Agreement relating to another Franchised Area or Franchise
Agreement(s) executed prior to the date of this Agreement relating to other Cost
Cutters franchises operated by the FRANCHISEE that are or will be owned and
operated by the FRANCHISEE. The preambles are a part of this Agreement, which
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agreements between COST CUTTERS and the FRANCHISEE
relating to the subject matter of this Agreement.
12.10 CONTROLLING AGREEMENT. The rights and obligations of the FRANCHISEE and
COST CUTTERS with respect to the operation of each Cost Cutters Business opened
in the Franchised Area by the FRANCHISEE will be governed by the terms and
conditions of each Cost Cutters Franchise Agreement executed by the FRANCHISEE.
In the event there is a conflict between the terms of this Agreement and the
terms of any Cost Cutters Franchise Agreement executed by the FRANCHISEE, then
unless specified otherwise herein, the terms of this Agreement will control.
12.11 HEADINGS; TERMS. The headings of the Articles and the provisions thereof
are for convenience only and do not define, limit or construe the contents of
such Articles. The term "FRANCHISEE" as used herein is applicable to one or more
individuals, a corporation or a partnership, as the case may be, and the
singular usage includes the plural, and the masculine usage includes the neuter
and the feminine and the neuter usage includes the masculine and the feminine.
References to "FRANCHISEE" which are applicable to an individual or individuals
will mean the principal owner or owners of the equity or operating control of
the FRANCHISEE if the FRANCHISEE is a corporation or partnership. If the
FRANCHISEE consists of more than one individual, then all individuals will be
bound jointly and severally by the terms and conditions of this Agreement.
12.12 NO ORAL MODIFICATION. No modification, change, addition, rescission,
release, amendment or waiver of, and no approval, consent or authorization
required by any provision of this Agreement may be made except by a written
agreement subscribed to by duly authorized officers or partners of the
FRANCHISEE and the President or a Vice President of COST CUTTERS. COST CUTTERS
and the FRANCHISEE will not have the right to amend or modify this Agreement
orally or verbally, and any attempt to do so will be void in all respects.
<PAGE>
ARTICLE 13
NOTICES
All notices to COST CUTTERS will be in writing and will be made by personal
service upon an officer or Director of COST CUTTERS or sent by prepaid
registered or certified United States mail addressed to COST CUTTERS at 300
Industrial Boulevard N.E., Minneapolis, Minnesota 55413 with a copy to John W.
Fitzgerald, Esq., Gray, Plant, Mooty, Mooty & Bennett, P.A., 3400 City Center,
33 South Sixth Street, Minneapolis, Minnesota 55402-3796. All notices to the
FRANCHISEE will be by personal service upon the FRANCHISEE, a District Manager
or a salon manager or assistant manager, (or, if applicable, an officer or
Director of the FRANCHISEE), or sent by prepaid registered or certified United
States mail addressed to the FRANCHISEE at the first Cost Cutters Business
opened by the FRANCHISEE in the Franchised Area or such other address as the
FRANCHISEE may designate in writing, or by delivery to any employee of the
FRANCHISEE by a recognized overnight delivery service (such as Federal Express
or UPS) which requires a written receipt of delivery from the addressee. Notice
by mail is effective upon depositing the same in the mail in the manner provided
above, notice by personal service is effective upon obtaining service and notice
by overnight delivery service is effective upon delivery by such overnight
delivery service.
ARTICLE 14
ACKNOWLEDGMENTS
14.1 BUSINESS RISKS; NO FINANCIAL PROJECTIONS. The FRANCHISEE acknowledges that
it has conducted an independent investigation of the prospects for the
establishment of Cost Cutters Businesses within the Franchised Area, and
recognizes that the business venture contemplated by this Agreement involves
business and economic risks and that its financial and business success will be
primarily dependent upon the personal efforts of the FRANCHISEE, its management
and employees. COST CUTTERS expressly disclaims the making of, and the
FRANCHISEE acknowledges that it has not received, any estimates, projections,
warranties or guaranties, express or implied, regarding potential Gross
Revenues, profits, earnings or the financial success of the FRANCHISEE'S Cost
Cutters Businesses, except as expressly set forth in writing in COST CUTTERS'
Uniform Franchise Offering Circular, receipt of which is acknowledged by the
FRANCHISEE.
14.2 NO INCOME OR REFUND WARRANTIES. The FRANCHISEE acknowledges that COST
CUTTERS does not warrant or guarantee to the FRANCHISEE that the FRANCHISEE will
derive income or profit from the FRANCHISEE'S Cost Cutters Businesses or that
COST CUTTERS will refund all or part of the Exclusive Territory Fee or the price
paid for the FRANCHISEE'S Cost Cutters Businesses or repurchase any of the
products, merchandise, furniture, fixtures, equipment, supplies or chattels
supplied by COST CUTTERS or an approved supplier if the FRANCHISEE is
unsatisfied with its Cost Cutters Businesses.
14.3 TERMS OF OTHER DEVELOPMENT AGREEMENTS MAY DIFFER. The FRANCHISEE
acknowledges that other area franchisees of COST CUTTERS have or will be granted
Development Agreements at different times and in different situations, and
further acknowledges that the terms and conditions of such Development
Agreements may vary substantially in form and substance from those contained in
this Agreement.
14.4 RECEIPT OF UNIFORM FRANCHISE OFFERING CIRCULAR. The FRANCHISEE acknowledges
that it received a copy of this Agreement with all material blanks fully
completed at least
<PAGE>
five (5) business days prior to the date that this Agreement was executed. The
FRANCHISEE further acknowledges that it received a Cost Cutters Uniform
Franchise Offering Circular at least ten (10) business days prior to the date on
which this Agreement was executed.
14.5 POTENTIAL INCREASES IN INVESTMENT REQUIREMENTS. The FRANCHISEE recognizes
and acknowledges that this Agreement requires it to open additional Cost Cutters
Businesses in the future pursuant to the development schedule set forth in
Article 3. The FRANCHISEE further acknowledges that the estimated expenses and
investment requirements set forth in Items 6 and 7 of COST CUTTERS' Uniform
Franchise Offering Circular are subject to increase over time, and that future
Cost Cutters Businesses opened and operated by the FRANCHISEE may involve
greater initial investment and operating capital requirements than those stated
in the Uniform Franchise Offering Circular provided to the FRANCHISEE prior to
the execution of this Agreement.
14.6 CITY LOOKS(R) AND HAIR PERFORMERS(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "City Looks(R)," "City Looks Salons International(R),"
"City Looks(R) By The Barbers(R)" and "The Barbers(R)" businesses ("City
Looks(R) businesses") which are operated and franchised by The Barbers,
Hairstyling for Men & Women, Inc. ("The Barbers") and the "Hair Performers(R)
businesses which are serviced by Hair Performers International, Inc., a
wholly-owned subsidiary of The Barbers, are full service hair care salons that
address different markets and, thus, are not competitive with Cost Cutters
businesses. Further, the FRANCHISEE acknowledges and agrees that The Barbers and
Hair Performers International, Inc. will have the absolute right to develop,
own, manage, license or franchise City Looks(R) and Hair Performers(R)
businesses at any location in the world, and the FRANCHISEE hereby waives any
and all rights that it may have or allege against COST CUTTERS or any affiliate
of COST CUTTERS resulting from the opening of any City Looks(R) or Hair
Performers(R) business, including those City Looks(R) or Hair Performers(R)
businesses that may be located in the Franchised Area or near, adjacent or
contiguous to any of the FRANCHISEE'S Cost Cutters Businesses.
14.7 WE CARE HAIR(R) AND FAMILY HAIRCUT(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "We Care Hair(R)" businesses which are franchised by WCH,
Inc., a wholly-owned subsidiary of The Barbers and the Family Haircut(R)
business serviced by The Barbers ("We Care Hair(R) and Family Haircut(R)
businesses"), are hair care salons that address similar markets and, thus, may
be competitive with Cost Cutters businesses. Further, the FRANCHISEE
acknowledges and agrees that WCH, Inc. and The Barbers will have the absolute
right to develop, own, manage, license or franchise We Care Hair(R) and Family
Haircut(R) businesses at any location in the world, and the FRANCHISEE hereby
waives any and all rights that it may have or allege against COST CUTTERS or any
affiliate of COST CUTTERS resulting from the opening of any We Care Hair(R) or
Family Haircut(R) business, including those We Care Hair(R) and Family
Haircut(R) businesses that may be located in the Franchised Area or near,
adjacent or contiguous to any of the FRANCHISEE'S Cost Cutters Businesses.
ARTICLE 15
DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL
15.1 DISCLAIMER BY FRANCHISOR. COST CUTTERS expressly disclaims the making of
any express or implied representations or warranties regarding the sales,
earnings, income, profits, Gross Revenues, business or financial success, or
value of the FRANCHISEE'S Businesses, except those expressly set forth in Item
19 of the Cost Cutters Uniform Franchise Offering Circular received by the
FRANCHISEE.
<PAGE>
15.2 ACKNOWLEDGMENTS BY FRANCHISEE. The FRANCHISEE acknowledges that it has not
received any express or implied representations or warranties regarding the
sales, earnings, income, profits, Gross Revenues, business or financial success,
value of the Businesses or any other matters pertaining to the Cost Cutters
Businesses from COST CUTTERS or any of COST CUTTERS' officers, employees or
agents that were not contained in writing in the Uniform Franchise Offering
Circular (including this Agreement) received by the FRANCHISEE ("representations
or warranties"). The FRANCHISEE further acknowledges that if it had received any
representations or warranties not contained in COST CUTTERS' Uniform Franchise
Offering Circular, it would not have executed this Agreement, and the FRANCHISEE
would have: (A) promptly notified the President of COST CUTTERS in writing of
the person or persons making such representations or warranties; and (B)
provided to COST CUTTERS a specific written statement detailing the
representations or warranties made that were not contained in the Uniform
Franchise Offering Circular received by the FRANCHISEE.
15.3 LEGAL REPRESENTATION. The FRANCHISEE acknowledges that this Agreement
constitutes a legal document which grants certain rights to and imposes certain
obligations upon the FRANCHISEE. The FRANCHISEE was advised by COST CUTTERS to
consult an attorney or other advisor prior to the execution of this Agreement to
review COST CUTTERS' Uniform Franchise Offering Circular, to review this
Agreement in detail, to review the economics, operations and other business
aspects of the Cost Cutters Businesses, to determine compliance with franchising
and other applicable laws, to advise the FRANCHISEE about all federal, state and
local laws, rules, ordinances, special regulations and statutes that apply to
the FRANCHISEE'S Cost Cutters Businesses and to advise the FRANCHISEE about the
economic risks, liabilities, obligations and rights under this Agreement. The
name of the FRANCHISEE'S attorney or other advisor is:
Name:
-------------------------------------------------------
Name of Firm:
-----------------------------------------------
Address:
----------------------------------------------------
City, State, Zip Code:
--------------------------------------
Telephone Number: ( )
-------------------------------------------
Fax Number: ( )
-------------------------------------------------
ARTICLE 16
GOVERNING LAW; STATE MODIFICATIONS
16.1 GOVERNING LAW. Except to the extent governed by the United States Trademark
Act of 1946 (Lanham Act, 15 U.S.C. ss.1051 et seq.), this Agreement and the
relationship between COST CUTTERS and the FRANCHISEE will be governed by the
laws of the state in which the Franchised Area is located. If the Franchised
Area contains more than one state, then the laws of the state in which the
FRANCHISEE'S principal place of business is located will govern. The provisions
of this Agreement which conflict with or are inconsistent with applicable
governing law will be superseded and/or modified by such applicable law only to
the extent such provisions are inconsistent. All other provisions of this
Agreement will be enforceable as originally made and entered into upon the
execution of this Agreement by the FRANCHISEE and COST CUTTERS.
<PAGE>
16.2 STATE MODIFICATIONS. The following states have statutes which may supersede
the provisions of this Agreement in the FRANCHISEE'S relationship with COST
CUTTERS including the areas of termination and renewal of the Franchise:
ARKANSAS [Stat. Section 70-807], CALIFORNIA [Bus. & Prof. Code Sections
20000-20043], CONNECTICUT [Gen. Stat. Section 42-133e et seq.], DELAWARE [Code
Section 2552], HAWAII [Rev. Stat. Section 482E-1], ILLINOIS [815 ILCS 705/19 and
705/20], INDIANA [Stat. Section 23-2-2.7], IOWA [Code 523H.1-523H.17], MICHIGAN
[Stat. Section 19.854(27)], MINNESOTA [Stat. Section 80C14], MISSISSIPPI [Code
Section 75-24-51], MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat.
Section 87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws
Section 37-5A-51], VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code
Section 19.100.180], WISCONSIN [Stat. Section 135.03]. These and other states
may have court decisions which may supersede the provisions of this Agreement in
the FRANCHISEE'S relationship with COST CUTTERS including the areas of
termination and renewal of the Franchise. If the Franchised Area is located in
any one of the states specifically indicated below in this Article 16.2, or if
the laws of any such state are otherwise applicable, then the designated
provisions of this Agreement will be amended and revised as follows:
CALIFORNIA. If this Agreement is governed by the laws of the State of
California, then the covenant not to compete upon termination or expiration of
this Agreement contained in Article 8.3 may be unenforceable, except in certain
circumstances provided by law.
ILLINOIS. If this Agreement is governed by the laws of the State of
Illinois, then: (1) the consent by the FRANCHISEE to jurisdiction and venue in
Hennepin County, Minnesota contained in Article 12.6 may be inapplicable;
provided, however, that such inapplicability in the State of Illinois will not
be construed to mean that venue in Hennepin County, Minnesota is improper, or
that the FRANCHISEE and its officers, directors and shareholders are not subject
to jurisdiction in Hennepin County, Minnesota, or in any other state; and (2)
Section 41 of the Illinois Franchise Disclosure Act states that "any condition,
stipulation or provision purporting to bind any person acquiring any franchise
to waive compliance with any provision of this Act is void", accordingly any
acknowledgments contained in Article 14.2, Article 14.4, Article 15.2, and the
second sentence of Article 14.1 will be unenforceable against the FRANCHISEE.
INDIANA. If this Agreement is governed by the laws of the State of
Indiana, then: (1) the geographical limitation contained in Article 8.3 will be
limited to an area of reasonable size; (2) the consent by the FRANCHISEE to
jurisdiction and venue in Hennepin County, Minnesota contained in Article 12.6
and the Personal Guaranty attached to this Agreement may be inapplicable;
provided, however, that such inapplicability in the State of Indiana will not be
construed to mean that venue in Hennepin County, Minnesota is improper, or that
the FRANCHISEE and its officers, directors, shareholders and Personal Guarantors
are not subject to jurisdiction in Hennepin County, Minnesota, or in any other
state; (3) notwithstanding any provisions of this Agreement to the contrary, a
Court of competent jurisdiction will determine the adequacy of money damages,
whether COST CUTTERS will be required to post a bond or other security, and the
amount of such bond or other security, in any injunctive proceeding commenced by
COST CUTTERS against the FRANCHISEE or the FRANCHISEE'S shareholders; (4) the
provisions of Article 11 requiring Arbitration hearings to take place in
Minneapolis, Minnesota will be inapplicable and in the event of Arbitration
between COST CUTTERS and the FRANCHISEE, such Arbitration will be conducted in
Indianapolis, Indiana or at a mutually agreed upon location; (5) the parties'
waiver of their right to claim punitive damages, as set forth in Article 11.5,
will be inapplicable; (6) notwithstanding any provisions of this Agreement to
the contrary, the FRANCHISEE will have the right to petition a Court of
competent jurisdiction for injunctive relief relating to COST CUTTERS' improper
termination of this Agreement or COST CUTTERS' unreasonable refusal to consent
<PAGE>
to transfer or assignment by the FRANCHISEE pursuant to Article 10 of this
Agreement; (7) Article 9.2 is hereby amended to provide that the FRANCHISEE will
not be required to indemnify COST CUTTERS for any liability imposed upon COST
CUTTERS as a result of the FRANCHISEE'S reliance upon or use of procedures or
products which were required by COST CUTTERS, if such procedures or products
were utilized by the FRANCHISEE in the manner prescribed by COST CUTTERS; (8)
Article 9.3 is hereby amended to state that COST CUTTERS has the right to seek
recovery of all costs and expenses, including actual attorneys' fees, incurred
by COST CUTTERS in enforcing any term, condition or provision of this Agreement
or in seeking to enjoin any violation of this Agreement by the FRANCHISEE; and
(9) notwithstanding anything to the contrary in Article 12.9, the FRANCHISEE
does not waive any right under the Indiana statutes with regard to prior
representations made in the Indiana Uniform Franchise Offering Circular.
MARYLAND. If this Agreement is governed by the laws of the State of
Maryland, then: (1) the acknowledgments made by the FRANCHISEE contained in
Article 14 and Article 15 of this Agreement and any written instrument executed
by the FRANCHISEE pursuant to Article 12.3 of this Agreement, will not be
construed to act as a waiver of the FRANCHISEE'S rights under the Maryland
Franchise Registration and Disclosure Law, Md. Ann. Code, Article 56, ss.345 et
seq.; and (2) the consent by the FRANCHISEE to jurisdiction and venue in
Hennepin County, Minnesota contained in Article 11.4 and 12.6 will be
inapplicable and the FRANCHISEE will be permitted to commence litigation in
Maryland; provided, however, that such inapplicability in the State of Maryland
will not be construed to mean that venue in Hennepin County, Minnesota is
improper, or that the FRANCHISEE, its officers, directors and shareholders and
the Personal Guarantors are not subject to jurisdiction in Hennepin County,
Minnesota, or in any other state.
MINNESOTA. If this Agreement is governed by the laws of the State of
Minnesota, then: (1) Article 6.2 will be amended to require that, except as set
forth in Article 6.5 and Article 6.6, in the event COST CUTTERS gives the
FRANCHISEE written notice that the FRANCHISEE has breached this Agreement, such
written notice will be given to the FRANCHISEE at least ninety (90) days prior
to the date this Agreement is terminated by COST CUTTERS, and the FRANCHISEE
will have sixty (60) days after having been given such written notice within
which to correct the breach specified in the written notice; and (2)
notwithstanding any provisions of this Agreement to the contrary, a Court of
competent jurisdiction will determine whether COST CUTTERS will be required to
post a bond or other security, and the amount of such bond or other security, in
any injunctive proceeding commenced by COST CUTTERS against the FRANCHISEE or
the FRANCHISEE'S shareholders.
NORTH DAKOTA. If this Agreement is governed by the laws of the State of
North Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 8.3 may be unenforceable,
except in certain circumstances provided by law; (2) the consent by the
FRANCHISEE to jurisdiction and venue in Hennepin County, Minnesota contained in
Article 12.6 may be inapplicable; provided, however, that such inapplicability
in the State of North Dakota will not be construed to mean that venue in
Hennepin County, Minnesota is improper, or that the FRANCHISEE and its officers,
directors and shareholders are not subject to jurisdiction in Hennepin County,
Minnesota, or in any other state; (3) the provisions of Article 11 requiring
Arbitration hearings to take place in Minneapolis, Minnesota will be
inapplicable and in the event of Arbitration between COST CUTTERS and the
FRANCHISEE, such Arbitration will be conducted in Fargo, North Dakota or at a
mutually agreed upon location; and (4) the parties' waiver of their right to
claim punitive damages, as set forth in Article 11.5, may not be enforceable
under North Dakota law.
<PAGE>
RHODE ISLAND. If this Agreement is governed by the laws of the State of
Rhode Island, then any provision of this Agreement which restricts jurisdiction
or venue to a forum outside the State of Rhode Island is void with respect to a
claim otherwise enforceable under the Rhode Island Franchise Investment Act.
SOUTH DAKOTA. If this Agreement is governed by the laws of the State of
South Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 8.3 may be unenforceable,
except in certain circumstances provided by law; (2) any provision of this
Agreement which designates jurisdiction or venue outside of the State of South
Dakota or requires the FRANCHISEE to agree to jurisdiction or venue in a forum
outside of the State of South Dakota is void with respect to any cause of action
which is otherwise enforceable in the State of South Dakota; (3) the provisions
of Article 11 requiring Arbitration hearings to take place in Minneapolis,
Minnesota will be inapplicable and in the event of Arbitration between COST
CUTTERS and the FRANCHISEE, such Arbitration will be conducted in Sioux Falls,
South Dakota or at a mutually agreed upon location; and (4) Pursuant to SDCL
ss.37-5A-86, any acknowledgment provision, disclaimer, integration clause or a
provision having a similar effect in this Agreement will not negate or act to
remove from judicial review any statement, misrepresentation or action that
violates Chapter 37-5A or a rule or order under Chapter 37-5A.
WASHINGTON. If this Agreement is governed by the laws of the State of
Washington, then (1) in any Arbitration involving a franchise purchased in
Washington, the Arbitration site will be either in the State of Washington, in a
place mutually agreed upon at the time of the Arbitration, or as determined by
the Arbitrator; (2) in the event of a conflict of laws, the provisions of the
Washington Franchise Investment Protection Act, Chapter 19.100 RCW, will
prevail; (3) a release or waiver of rights executed by the FRANCHISEE will not
include rights under the Washington Franchise Investment Protection Act, except
when executed pursuant to a negotiated settlement after this Agreement is in
effect and where the parties are represented by independent counsel; (4)
provisions of this Agreement which unreasonably restrict or limit the statute of
limitations period for claims under the Washington Franchise Investment
Protection Act, rights or remedies under the Washington Franchise Investment Act
such as a right to a jury trial may not be enforceable; and (5) transfer fees
are collectible by COST CUTTERS to the extent that they reflect COST CUTTERS'
reasonable estimated or actual costs in effecting a transfer.
WISCONSIN. If this Agreement is governed by the laws of the State of
Wisconsin, then the provisions of the Wisconsin Fair Dealership Law, Wis. Stat.
Chapter 135, will supersede any conflicting terms of this Agreement.
16.3 SEVERABILITY. The severability provisions of this Agreement contained in
Article 8.5, Article 11.10 and Article 12.2 of this Agreement will pertain to
all of the applicable laws which conflict with or modify the provisions of this
Agreement including, but not limited to, the provisions of this Agreement
specifically addressed in Article 16.2 above.
ARTICLE 17
DEFINITIONS
17.1 ABANDON. "Abandon" as used in this Agreement will mean the conduct of the
FRANCHISEE, including acts of omission as well as commission, indicating the
willingness, desire or intent of the FRANCHISEE to discontinue the opening and
operating of Cost Cutters Businesses in the Franchised Area in accordance with
the terms of this Agreement.
<PAGE>
17.2 TERMS DEFINED IN FRANCHISE AGREEMENT. Capitalized terms used but not
defined in this Agreement will, if defined in the Franchise Agreement, have the
meanings ascribed to such terms in the Franchise Agreement.
IN WITNESS WHEREOF, COST CUTTERS, the FRANCHISEE, and the shareholders or
partners of the FRANCHISEE have executed this Agreement effective as of the day
and year first above written.
"FRANCHISOR"
In the Presence of: Cost Cutters, a division of The Barbers,
Hairstyling for Men & Women, Inc.
- ----------------------------------- ----------------------------------------
By
-------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
<PAGE>
The undersigned individual shareholders or partners of the FRANCHISEE
hereby agree to be bound by the terms and conditions of this Agreement.
Percentage of
In the Presence of: SHAREHOLDERS Ownership
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
The undersigned spouse(s) of the individual FRANCHISEE(S) hereby agree to be
bound by the terms and conditions of this Agreement regarding confidentiality of
information and covenants not to compete.
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
Print Name Print Name
<PAGE>
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THE DEVELOPMENT AGREEMENT
In consideration of the execution of this Agreement by COST CUTTERS,
and for other good and valuable consideration, the undersigned, for themselves,
their heirs, successors, and assigns, do jointly, individually and severally
hereby become surety and guaranty for the payment of all amounts and the
performance of the covenants, terms and conditions in this Agreement, to be
paid, kept and performed by the FRANCHISEE.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement and agree that this PERSONAL GUARANTY will be construed as though the
undersigned and each of them executed an Agreement containing the identical
terms and conditions of this Agreement.
If the FRANCHISEE breaches the terms and conditions of this Agreement,
then the undersigned, their heirs, successors and assigns, do hereby,
individually, jointly and severally, promise and agree to pay to COST CUTTERS
all monies due and payable to COST CUTTERS under the terms and conditions of
this Agreement.
In addition, if the FRANCHISEE fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors and
assigns, do hereby, individually, jointly and severally, promise and agree to
comply with the terms and conditions of this Agreement for and on behalf of the
FRANCHISEE.
In addition, should the FRANCHISEE at any time be in default on any
obligation to pay monies to COST CUTTERS or any subsidiary or affiliate of COST
CUTTERS, whether for merchandise, products, supplies, furniture, fixtures,
equipment or other goods purchased by the FRANCHISEE from COST CUTTERS or any
subsidiary or affiliate of COST CUTTERS or for any other indebtedness of the
FRANCHISEE to COST CUTTERS or any subsidiary or affiliate of COST CUTTERS, then
the undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay all such monies due and payable
from the FRANCHISEE to COST CUTTERS or any subsidiary or affiliate of COST
CUTTERS.
It is further understood and agreed by the undersigned that the
provisions, covenants and conditions of this GUARANTY will inure to the benefit
of the successors and assigns of COST CUTTERS. Each of the undersigned hereby
submits to personal jurisdiction in the state or federal courts of Minnesota
with respect to any litigation pertaining to this GUARANTY, and agrees that all
litigation pertaining to this GUARANTY will and must be venued exclusively in
Hennepin County, Minnesota.
<PAGE>
PERSONAL GUARANTORS
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
EXHIBIT 10.3
FOR USE IN THE STATE OF __________
CITY LOOKS SALONS INTERNATIONAL(R)
FRANCHISE AGREEMENT
BETWEEN
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
FAX: (612) 331-2821
AND
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Name(s) of FRANCHISEE
------------------------------------------
Street
------------------------------------------
City State Zip Code
------------------------------------------
Area Code Telephone
------------------------------------------
Area Code Fax Number
FRANCHISED LOCATION:
------------------------------------------
Street
------------------------------------------
City State Zip Code
------------------------------------------
Area Code Telephone
------------------------------------------
Area Code Fax Number
DATE OF FRANCHISE AGREEMENT:
________________, 199____
<PAGE>
CITY LOOKS SALONS INTERNATIONAL(R)
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
FRANCHISE AGREEMENT
<TABLE>
<CAPTION>
Article Description Page
- ------- ----------- ----
<S> <C>
1 FRANCHISED LOCATION; GRANT OF FRANCHISE..........................................2
2 TERM; FRANCHISEE'S OPTION TO REACQUIRE THE FRANCHISE.............................3
3 CITY LOOKS' RIGHT TO LICENSE THE MARKS...........................................4
4 INITIAL FEE; APPROVAL OF FRANCHISEE..............................................5
5 CONTINUING FEES..................................................................6
6 ADVERTISING......................................................................8
7 QUALITY CONTROL, UNIFORMITY AND STANDARDS REQUIRED OF THE FRANCHISEE............10
8 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION............................15
9 CITY LOOKS' TERMINATION RIGHTS..................................................17
10 FRANCHISEE'S TERMINATION RIGHTS.................................................19
11 FRANCHISEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION.........................20
12 FRANCHISEE'S COVENANTS NOT TO COMPETE...........................................21
13 CITY LOOKS' RIGHT OF FIRST REFUSAL TO PURCHASE..................................23
14 TRAINING PROGRAM; OPENING ASSISTANCE............................................26
15 CITY LOOKS' OTHER OBLIGATIONS...................................................27
16 CITY LOOKS SALONS INTERNATIONAL SIGN............................................27
17 INSURANCE.......................................................................28
18 INDEPENDENT CONTRACTORS; INDEMNIFICATION........................................29
19 FINANCIAL STATEMENTS; GROSS REVENUE REPORTS; FORMS AND ACCOUNTING...............30
20 ASSIGNMENT......................................................................32
21 SITE SELECTION; STANDARD STORE LAYOUTS AND PLANS................................34
22 LEASE AS SECURITY; TERMINATION OF LEASE.........................................35
23 ARBITRATION.....................................................................37
24 ENFORCEMENT.....................................................................40
25 NOTICES.........................................................................42
26 ACKNOWLEDGMENTS.................................................................42
27 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL..........................................43
28 GOVERNING LAW; STATE MODIFICATIONS..............................................45
29 DEFINITIONS.....................................................................46
</TABLE>
PERSONAL GUARANTY
EXHIBIT A - CONFIDENTIALITY AGREEMENT
EXHIBIT B - LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
<PAGE>
CITY LOOKS SALONS INTERNATIONAL(R)
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT, (this "Agreement") made, entered into and effective
this _____ day of ___________________________, 19_____, by and between The
Barbers, Hairstyling for Men & Women, Inc., a Minnesota corporation ("CITY
LOOKS"), and ___________________________, (the "FRANCHISEE");
WITNESSETH:
WHEREAS, CITY LOOKS has developed and owns a distinctive business system for
operating hairstyling businesses of a distinctive character with the names "City
Looks Salons International(R)", "The Barbers(R)", "The Barbers, Hairstyling for
Men & Women" and "City Looks(R) By The Barbers" (the "Business System" or "the
City Looks Business System") and has publicized the names "City Looks Salons
International(R)", "The Barbers(R)", "The Barbers, Hairstyling for Men & Women",
"City Looks(R) By The Barbers" and other trademarks, trade names, service marks,
and commercial symbols to the public as an organization of hairstyling
businesses operating under the City Looks Business System; and
WHEREAS, CITY LOOKS represents that it has the right and authority to franchise
the use of the names "City Looks Salons International(R)", "The Barbers(R)",
"The Barbers, Hairstyling for Men & Women" "City Looks(R) By The Barbers" and
certain other trademarks, trade names, service marks, logos and commercial
symbols (the "Marks") for use in connection with hairstyling businesses operated
in conformity with the Business System to selected persons or entities who will
comply with CITY LOOKS' uniformity requirements and quality standards; and
WHEREAS, the FRANCHISEE desires to operate a City Looks Salons International
hairstyling business at the location set forth and designated in Article 1 of
this Agreement which will conform to the uniformity requirements and quality
standards established and promulgated from time to time by CITY LOOKS; and
WHEREAS, CITY LOOKS is willing to provide the FRANCHISEE with marketing,
advertising, technology, operational and other business information, experience
and "know how" about the City Looks Salons International business that has been
developed over time by CITY LOOKS at significant cost and expense; and
WHEREAS, the FRANCHISEE acknowledges that it would take substantial capital and
human resources to develop a business similar to the City Looks Salons
International business and, as a consequence, the FRANCHISEE desires to acquire
the right to use the Marks and the Business System and to own and operate a City
Looks Salons International business subject to and under the terms and
conditions set forth in this Agreement; and
WHEREAS, the FRANCHISEE acknowledges that CITY LOOKS would not provide the
FRANCHISEE with any business information or "know how" about the City Looks
Salons International Business System unless the FRANCHISEE agreed to comply with
all of the terms and conditions of this Agreement and to pay the Initial Fee,
the Continuing Fees, National Advertising Production Fees and the Advertising
Fees specified in this Agreement; and
<PAGE>
WHEREAS, the FRANCHISEE has had a full and adequate opportunity to be thoroughly
advised of the terms and conditions of this Agreement by legal counsel or
another advisor, and has had sufficient time to evaluate and investigate the
City Looks Salons International Business System, the financial investment
requirements, and the business risks associated with owning and operating a City
Looks Salons International business;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement and for other good and valuable consideration, the parties
hereby contract as follows:
ARTICLE 1
FRANCHISED LOCATION; GRANT OF FRANCHISE
1.1 FRANCHISED LOCATION. CITY LOOKS grants to the FRANCHISEE a nonexclusive
personal right to operate one City Looks Salons International business (the
"City Looks" or "City Looks Salons International" business) in conformity with
the City Looks Business System and further grants the FRANCHISEE a nonexclusive
personal right to operate the business using the name "City Looks Salons
International(R)" at the following single location:_____________________________
_______________________________________________ (the "Franchised Location").
This Agreement does not grant any exclusive territorial rights to the
FRANCHISEE, and CITY LOOKS will have the right to open and operate, and to grant
to other franchisees the right to open and operate, City Looks businesses in
conformity with the Business System using the Marks at locations anywhere.
1.2 FRANCHISED LOCATION NOT DETERMINED. In the event the Franchised Location has
not yet been determined as of the date of this Agreement, then the geographical
area in which the FRANCHISEE'S City Looks business is to be located will be
described or otherwise defined in an exhibit signed by the parties and attached
to this Agreement. At such time as the address of the Franchised Location is
determined, then the address will be inserted into Article 1.1 of this
Agreement.
1.3 RELOCATION. Notwithstanding any provisions of this Agreement to the
contrary, the FRANCHISEE may, with the prior written approval of CITY LOOKS,
relocate the Franchised Location to another location during the term of this
Agreement, if the proposed new location does not compete with any City Looks,
The Barbers or City Looks By The Barbers business operated by CITY LOOKS or CITY
LOOKS' franchisees and the proposed new location is located within two (2) miles
of the Franchised Location. The failure of the FRANCHISEE to obtain the written
approval of CITY LOOKS prior to the relocation of the Franchised Location, or
the failure to have the new location open for business within ten (10) business
days after the Franchised Location is closed, will be a material breach of this
Agreement. In the event the Franchised Location is relocated pursuant to this
provision, the "new" location, including the real estate and the building, must
comply with all applicable provisions of this Agreement and with CITY LOOKS'
then-current specifications.
1.4 DESTRUCTION OF FRANCHISED LOCATION. In the event the Franchised Location is
destroyed or rendered untenantable by fire, flood or other casualty, the term of
this Agreement will be extended for a period of time equal to the period of time
that the FRANCHISEE is unable to operate its City Looks business. If the
Franchised Location is rebuilt, repaired or restored to tenantable condition by
the owner of the premises, then the FRANCHISEE must resume business operations
within twelve (12) months of the date that the premises are restored to
tenantable condition by the owner. The FRANCHISEE'S failure to resume business
operations within such twelve (12) month period will
<PAGE>
constitute abandonment of the business. If the premises are not restored by the
owner, then the FRANCHISEE must relocate the Franchised Location pursuant to
Article 1.3.
1.5 CONDITIONS TO FRANCHISE. The FRANCHISEE hereby undertakes the obligation to
operate a City Looks Salons International hairstyling business at the Franchised
Location under the City Looks Business System using the name "City Looks Salons
International(R)" in strict compliance with the terms and conditions of this
Agreement for the entire term of this Agreement. The rights and privileges
granted to the FRANCHISEE by CITY LOOKS under this Agreement are applicable only
to the Franchised Location, are personal in nature, and may not be used
elsewhere or at any other location by the FRANCHISEE.
1.6 PERSONAL LICENSE. The FRANCHISEE will not have the right to franchise,
subfranchise, license or sublicense its rights under this Agreement. The
FRANCHISEE will not assign or transfer its rights under this Agreement, except
as specifically provided for in this Agreement.
ARTICLE 2
TERM; FRANCHISEE'S OPTION TO REACQUIRE THE FRANCHISE
2.1 TERM. The term of this Agreement will be for fifteen (15) years commencing
on the date set forth on Page F-1 of this Agreement. This Agreement will not be
considered executed and will not be enforceable until: (A) it has been signed by
CITY LOOKS and the FRANCHISEE, and, if the FRANCHISEE is a corporation or
partnership, the personal guarantors; and (B) the signed Agreement is delivered
to the FRANCHISEE.
2.2 RIGHTS UPON EXPIRATION. At the expiration of the term of this Agreement, the
FRANCHISEE will have the option to reacquire the franchise for the Franchised
Location pursuant to Article 2.3 of this Agreement.
2.3 CONDITIONS TO OPTION. At the end of the term of this Agreement, the
FRANCHISEE will have the option to reacquire the franchise for the Franchised
Location provided that the following conditions have been met: (A) the
FRANCHISEE has given CITY LOOKS written notice at least one hundred eighty (180)
days prior to the end of the term of this Agreement of its commitment to
reacquire the franchise for the Franchised Location; (B) during the term of this
Agreement, the FRANCHISEE has complied with all of the material terms and
conditions of this Agreement and has complied with CITY LOOKS' material
operating and quality standards and procedures; (C) all monetary obligations
owed by the FRANCHISEE to CITY LOOKS have been paid or satisfied prior to the
end of the term of this Agreement, and have been timely met throughout the term
of this Agreement; (D) the FRANCHISEE has agreed, in writing, to make the
reasonable capital expenditures necessary to remodel, modernize, upgrade and
redecorate the Franchised Location and to replace and update the furniture,
fixtures, supplies, equipment and techniques used in the FRANCHISEE'S City Looks
business so that the FRANCHISEE'S business will reflect the image portrayed by
CITY LOOKS' then-current decor and specifications; (E) the FRANCHISEE agrees to
execute and comply with the then-current standard Franchise Agreement then being
offered to new Franchisees by CITY LOOKS subject further to the provisions of
Article 2.4 of this Agreement; and (F) as of the date the FRANCHISEE exercises
its option to reacquire the franchise for the Franchised Location, the
FRANCHISEE either owns the Franchised Location or has the right to lease the
Franchised Location or a new location as set forth in Article 1.3 for a term of
at least three (3) years.
2.4 TERMS OF OPTION. The FRANCHISEE will have the option to reacquire the
franchise for the Franchised Location under the same terms and conditions then
being offered to other Franchisees by
<PAGE>
CITY LOOKS under CITY LOOKS' then-current standard Franchise Agreement. If the
FRANCHISEE exercises its right to reacquire the franchise for the Franchised
Location and executes the then-current standard, Franchise Agreement, the
FRANCHISEE will not be required to pay the Initial Fee, if any, specified in the
then-current standard Franchise Agreement. However, the FRANCHISEE will be
required to pay the Continuing Fees, National Advertising Production Fees,
Advertising Fees and any other fees or charges at the rates specified in the
then-current standard Franchise Agreement, and must comply with all other terms
and conditions of CITY LOOKS' then-current standard Franchise Agreement. The
FRANCHISEE acknowledges that the terms, conditions and economics of the
then-current standard Franchise Agreement of CITY LOOKS may, at that time, vary
in substance and form from the terms, conditions and economics of this
Agreement.
ARTICLE 3
CITY LOOKS' RIGHT TO LICENSE THE MARKS
3.1 LICENSE OF MARKS. CITY LOOKS warrants that, except as provided for herein,
it has the right to license the names "City Looks Salons International(R)", "The
Barbers, Hairstyling for Men & Women(R)", "City Looks(R) By The Barbers" and the
other Marks and the Business System to the FRANCHISEE. Any and all improvements
made by the FRANCHISEE relating to the Marks or the Business System will become
the sole and absolute property of CITY LOOKS who will have the sole and
exclusive right to register and protect all such improvements in its name in
accordance with applicable law. The FRANCHISEE'S right to use and identify with
the Marks and the Business System will exist concurrently with the term of this
Agreement and such use by the FRANCHISEE will inure exclusively to the benefit
of CITY LOOKS.
3.2 CONDITIONS TO LICENSE OF MARKS. The FRANCHISEE agrees that its nonexclusive
personal right to use the name "City Looks Salons International(R)" as the name
of the FRANCHISEE'S business, and its right to use the Marks and the Business
System, apply only to the City Looks business operated at the Franchised
Location and only so long as the FRANCHISEE will fully perform and comply with
all of the conditions, terms and covenants of this Agreement. The FRANCHISEE
will not have or acquire any rights in any of the Marks or the Business System
other than the right of use as provided herein. The FRANCHISEE will have the
right to use the Marks and the Business System only in the manner prescribed,
directed and approved by CITY LOOKS in writing and will not have the right to
use the marks in connection with the sale of any products or services other than
those prescribed or approved by CITY LOOKS. If, in the judgment of CITY LOOKS,
the acts of the FRANCHISEE infringe upon or demean the goodwill, standards of
uniformity or quality, or business image associated with the Marks or the
Business System, then the FRANCHISEE will upon written notice from CITY LOOKS,
immediately modify its use of the Marks and the Business System in the manner
prescribed by CITY LOOKS in writing. Any and all goodwill associated with the
Marks and the Business System will inure exclusively to CITY LOOKS' benefit and,
upon the expiration or termination of this Agreement, no monetary amount will be
assigned as attributable to any goodwill associated with the FRANCHISEE'S use of
the Marks or the Business System. The FRANCHISEE will at no time take any action
whatsoever to contest the validity or ownership of the Marks and the goodwill
associated therewith and will not allege any ownership in the Marks.
3.3 ADVERSE CLAIMS. If there is a claim by any party that its rights to the
Marks are superior to those of CITY LOOKS and if CITY LOOKS' legal counsel
opines that such claim is legally meritorious, or if there is an adjudication by
a Court of competent jurisdiction that any party's rights to the Marks are
superior to those of CITY LOOKS, then upon receiving written notice from CITY
LOOKS, the FRANCHISEE will, at its expense, immediately make all changes and
amendments to the Marks as may
<PAGE>
be specified by CITY LOOKS. If so specified, the FRANCHISEE will immediately
cease using the Marks, and will, as soon as reasonably possible, commence using
the new trademarks, trade names, service marks, logos and commercial symbols
designated by CITY LOOKS in writing. The FRANCHISEE will not make any changes or
amendments whatsoever to the Marks or the Business System unless approved by or
specified in advance by CITY LOOKS in writing.
3.4 DEFENSE OR ENFORCEMENT OF RIGHTS TO MARKS. The FRANCHISEE will have no right
to and will not defend or enforce any rights associated with the licensed Marks
or the Business System in any Court or other proceedings for or against
imitation, infringement, prior use, or for any other claim or allegation. The
FRANCHISEE will give CITY LOOKS prompt and immediate written notice of any and
all claims or complaints made against or associated with the licensed Marks or
the Business System and will, without compensation for its time and at its
expense, cooperate in all respects with CITY LOOKS in any lawsuits or other
proceedings involving the Marks or the Business System. CITY LOOKS will have the
sole and absolute right to determine whether it will commence or defend any
litigation involving the Marks or the Business System, and the cost and expense
of all litigation incurred by CITY LOOKS, including attorneys' fees,
specifically relating to the Marks or the Business System will be paid by CITY
LOOKS.
3.5 FRANCHISEE'S RIGHT TO PARTICIPATE IN LITIGATION. The FRANCHISEE may, at its
expense, retain an attorney to represent it individually in all litigation and
Court proceedings involving the Marks or the Business System, and will do so
with respect to matters involving only the FRANCHISEE; however, CITY LOOKS and
its legal counsel will control and conduct all litigation involving the Marks,
the Business System and the rights of CITY LOOKS. Except as expressly provided
for herein, CITY LOOKS will have no liability to the FRANCHISEE for any costs
that the FRANCHISEE may incur in any litigation, and the FRANCHISEE will pay for
all costs, including attorneys' fees, that it may incur in any litigation or
proceeding arising as a result of the matters referred to under this Article,
unless it tenders the defense to CITY LOOKS in a timely manner pursuant to and
in accordance with Article 3.6.
3.6 TENDER OF DEFENSE BY FRANCHISEE. If the FRANCHISEE is named as a defendant
or party in any action involving the Marks or the Business System and if the
FRANCHISEE is named as a defendant or party solely because the plaintiff is
alleging that the FRANCHISEE does not have the right to use the Marks or the
Business System licensed by CITY LOOKS to the FRANCHISEE at the Franchised
Location pursuant to this Agreement, then the FRANCHISEE will have the right to
tender the defense of the action to CITY LOOKS and CITY LOOKS will, at its
expense, defend the FRANCHISEE in the action provided that the FRANCHISEE has
tendered the defense of the action to CITY LOOKS within seven (7) days after
receiving service of the pleadings or Summons and Complaint relating to the
action. CITY LOOKS will indemnify and hold the FRANCHISEE harmless from any
damages assessed against the FRANCHISEE in any actions resulting solely from the
FRANCHISEE'S use of the Marks and the Business System at the Franchised Location
if the FRANCHISEE has timely tendered the defense of the action to CITY LOOKS.
ARTICLE 4
INITIAL FEE; APPROVAL OF FRANCHISEE
4.1 AMOUNT OF INITIAL FEE. The FRANCHISEE will pay CITY LOOKS an Initial Fee of
________________________________________________________ Dollars ($__________ ),
all of which will be due and payable on the date this Agreement is executed by
the FRANCHISEE. The Initial Fee payable by the FRANCHISEE is payment to CITY
LOOKS for costs incurred by CITY LOOKS in
<PAGE>
operating its business, including general sales and administrative costs,
business overhead costs, travel costs, long distance telephone calls, training,
public relations, advertising, marketing and promotion, legal and accounting
fees, compliance with federal and state franchising and other laws, and for the
initial services and opening assistance rendered to the FRANCHISEE described in
this Agreement.
4.2 CITY LOOKS' RIGHT TO REJECT FRANCHISEE. CITY LOOKS will have the absolute,
sole and unilateral right to reject this Agreement or the FRANCHISEE if CITY
LOOKS determines that any financial, personal or other information provided by
the FRANCHISEE to CITY LOOKS is materially false, misleading, incomplete or
inaccurate or the FRANCHISEE (or the FRANCHISEE'S District Manager if one is
employed) is not qualified or competent to properly operate a City Looks
business because such person has not successfully completed CITY LOOKS' training
program or is deemed to be incapable of successfully completing CITY LOOKS'
training program.
4.3 REFUND OF INITIAL FEE. In the event that either this Agreement or the
FRANCHISEE is rejected by CITY LOOKS pursuant to Article 4.2 above, then the
Initial Fee will be refundable to the FRANCHISEE after deducting all reasonable
administrative and out-of-pocket expenses incurred by CITY LOOKS including, but
not limited to, executives' and employees' salaries, costs for the time of its
employees, salespersons' commissions, marketing costs, training costs,
attorneys' fees, accountants' fees, travel expenses and long distance telephone
calls. The FRANCHISEE will be notified by CITY LOOKS in writing if either this
Agreement or the FRANCHISEE is rejected by CITY LOOKS pursuant to Article 4.2.
Except as specifically set forth in this Article 4.3, the Initial Fee payable by
the FRANCHISEE pursuant to Article 4.1 will not be refundable to the FRANCHISEE.
ARTICLE 5
CONTINUING FEES
5.1 AMOUNT OF CONTINUING FEES. In addition to the Initial Fee, the FRANCHISEE
will, commencing on the date which is eighteen (18) weeks after the date that
the FRANCHISEE begins business operations pursuant to this Agreement and
continuing thereafter for the remaining term of this Agreement, pay CITY LOOKS
weekly Continuing Fees equal to a percentage of the FRANCHISEE'S weekly Gross
Revenues, as defined herein, which are received, billed or generated by, as a
result of or from the FRANCHISEE'S City Looks business. For the first (1st)
through the seventeenth (17th) weeks of the FRANCHISEE'S operation of its City
Looks business pursuant to this Agreement, the FRANCHISEE will not be obligated
to pay a Continuing Fee to CITY LOOKS. For the eighteenth (18th) through the
thirty-fourth (34th) weeks of the FRANCHISEE'S operation of its City Looks
business pursuant to this business, the FRANCHISEE will pay to CITY LOOKS a
weekly Continuing Fee equal to two percent (2%) of the FRANCHISEE'S Gross
Revenues. For the thirty-fifth (35th) and each subsequent week of the
FRANCHISEE'S operation of its City Looks business for the balance of the
remaining term of this Agreement, the FRANCHISEE will pay CITY LOOKS a weekly
Continuing Fee equal to four percent (4%) of the FRANCHISEE'S Gross Revenues;
provided, however, that commencing with the fifty-third (53rd) week of the
FRANCHISEE'S operation of its City Looks business and continuing throughout the
remaining term of this Agreement, the FRANCHISEE will pay CITY LOOKS a weekly
Continuing Fee equal to the greater of four percent (4%) of the FRANCHISEE'S
weekly Gross Revenues or One Hundred Dollars ($100.00) per week. The Continuing
Fees paid to CITY LOOKS will not be refundable to the FRANCHISEE under any
circumstances.
5.2 GROSS REVENUES CAP. At such time as the FRANCHISEE achieves Gross Revenues
of One Million Dollars ($1,000,000) (the "Gross Revenues Cap") within a single
calendar year (the first such year being referred to herein as the "Base Year")
in the City Looks business operated pursuant to this
<PAGE>
Agreement, the FRANCHISEE will no longer be obligated, so long as the FRANCHISEE
is in compliance with all terms and conditions of this Agreement including, but
not limited to, the obligation to pay Continuing Fees on all Gross Revenues up
to and including the Gross Revenues Cap, to pay Continuing Fees with respect to
any Gross Revenues in excess of the Gross Revenues Cap which are achieved during
the remainder of such calendar year. Commencing on January 1 of the year
following the Base Year and on each January 1 thereafter, the FRANCHISEE will
resume payment of weekly Continuing Fees pursuant to Article 5.1 above until the
FRANCHISEE has achieved the Gross Revenues Cap for such year. For each year
after the Base Year, the Gross Revenues Cap shall be increased to an amount
equal to the product obtained by multiplying the Gross Revenues Cap for the
immediately preceding calendar year by the sum of one plus the percent of
increase (but not decrease) in the Consumer Price Index, U.S. City Average (All
Items) For All Urban Consumers (CPI-U) (1984 = 100) (the "Index") from the first
day of such immediately preceding calendar year to the last day of such
immediately preceding calendar year, as published by the U.S. Bureau of Labor
Statistics ("BLS"). If the Index is no longer published, the FRANCHISOR will
select a replacement index that will, in the FRANCHISOR's sole discretion, most
closely approximate the Index. Notwithstanding anything to the contrary
contained in this Article 5.2, the relief from paying Continuing Fees with
respect to Gross Revenues in excess of the Gross Revenues Cap granted pursuant
to this Article 5.2 shall immediately cease and terminate in the event the
FRANCHISEE fails to (a) submit the weekly Gross Revenues reports as required
pursuant to Article 19.3 below, (b) pay weekly Continuing Fees with respect to
Gross Revenues up to and including the Gross Revenues Cap as required under this
Article 5 or (c) comply with any other term or provision of this Agreement.
5.3 FRANCHISEE'S OBLIGATION TO PAY CONTINUING FEES. The Continuing Fees payable
to CITY LOOKS under this Article will be calculated and paid to CITY LOOKS by
the FRANCHISEE on a weekly basis during the entire term of this Agreement and
the FRANCHISEE'S failure to pay the weekly Continuing Fees to CITY LOOKS will be
a material breach of this Agreement. The FRANCHISEE'S obligation to pay CITY
LOOKS the weekly Continuing Fees under the terms of this Agreement will be
absolute and unconditional and will remain in full force and effect until the
term of this Agreement has expired. The FRANCHISEE will not have the right to
"offset" and, as a consequence, the FRANCHISEE will timely pay all weekly
Continuing Fees due CITY LOOKS under this Agreement regardless of any claims or
allegations of liability for damages or other payments that the FRANCHISEE may
allege against CITY LOOKS.
5.4 DATE PAYABLE. The weekly Continuing Fees payable by the FRANCHISEE must be
paid to and received by CITY LOOKS on or before the close of business on
Thursday of each week for the preceding week. The Weekly Continuing Fees must be
submitted with the FRANCHISEE'S weekly report of Gross Revenues required under
Article 19 of this Agreement.
5.5 INTEREST ON UNPAID CONTINUING FEES. If the FRANCHISEE fails to remit the
weekly Continuing Fees due to CITY LOOKS by Thursday of each week for the
previous week, as provided for in this Agreement, then the unpaid weekly
Continuing Fees due to CITY LOOKS will bear interest at the maximum legal rate
allowable in the state in which the FRANCHISEE'S City Looks business is located.
In no event, however, will the rate of interest payable by the FRANCHISEE on the
unpaid weekly Continuing Fees due CITY LOOKS under this Article exceed eighteen
percent (18%) per annum simple interest even if the laws of that state permit a
higher annual interest rate. If the FRANCHISEE does not submit a report of Gross
Revenues pursuant to Article 19, then CITY LOOKS will have the right, in its
sole discretion, to estimate the amount of the Continuing Fees payable by the
FRANCHISEE, and the estimated unpaid weekly Continuing Fees will bear interest
at the rate set forth above. The FRANCHISEE will pay CITY LOOKS for any and all
costs incurred by CITY LOOKS in the collection of unpaid and past due Continuing
Fee payments including, but not limited to, CITY LOOKS'
<PAGE>
actual attorneys' fees, deposition costs, expert witness fees, investigation
costs, accounting fees, filing fees, and travel expenses.
ARTICLE 6
ADVERTISING
6.1 NATIONAL ADVERTISING PRODUCTION FEES. The FRANCHISEE will pay CITY LOOKS
weekly National Advertising Production Fees equal to one half of one percent
(.5%) of the FRANCHISEE'S weekly Gross Revenues for deposit in the National
Production Account ("NPA") which will be administered and controlled exclusively
by CITY LOOKS. The FRANCHISEE'S failure to pay the National Advertising
Production Fees will be a material breach of this Agreement. CITY LOOKS will
have the right to use the NPA monies, in its sole discretion, to purchase and
pay for any services or products relating to the production of advertising for
City Looks Franchisees, including the purchase of production materials, ad
slicks, brochures, radio and television commercials, services provided by
advertising agencies, market research and development costs, advertising and
promotion development and production costs (including all costs relating to
media costs for television, radio, newspaper, direct mail and point-of-purchase
advertising, and all costs of collateral materials required for such
advertising), creative costs, product research costs, all costs and expenses
incurred in administering the NPA (including, but not limited to, salaries,
travel expenses, office supplies, and related general and administrative
expenses), and all other costs relating to the advertising and promotion of all
City Looks, The Barbers and City Looks By The Barbers Franchisees and the
Business System. The use of the monies in the NPA and the administration of the
NPA will be under the absolute direction and control of CITY LOOKS. CITY LOOKS
will have the absolute right to determine, in its sole discretion, the
advertising agencies that will be retained, the type and content of the services
and products, and all other matters pertaining to the expenditures made by CITY
LOOKS from the NPA. CITY LOOKS will not be required to contribute to the NPA;
however, all City Looks businesses that are owned and operated by CITY LOOKS
will be required to contribute to the NPA in accordance with the terms of their
respective Franchise Agreements. The National Advertising Production Fees paid
by the FRANCHISEE will not be refundable to the FRANCHISEE under any
circumstances.
6.2 DATE PAYABLE; INTEREST ON UNPAID NATIONAL ADVERTISING PRODUCTION FEES. The
weekly National Advertising Production Fees must be paid directly to and
received by CITY LOOKS on or before the close of business on Thursday of each
week for the preceding week. Any National Advertising Production Fees not paid
by the FRANCHISEE as required herein will bear interest at the maximum legal
rate applicable in the state in which the FRANCHISEE'S City Looks business is
located. In no event, however, will the rate of interest payable by the
FRANCHISEE on the unpaid balance due for National Advertising Production Fees
exceed eighteen percent (18%) per annum simple interest. If the FRANCHISEE does
not submit a report of Gross Revenues pursuant to Article 19, then CITY LOOKS
will have the right, in its sole discretion, to estimate the amount of the
National Advertising Production Fees payable by the FRANCHISEE, and the
estimated unpaid weekly National Advertising Production Fees will bear interest
at the rate set forth above. The FRANCHISEE will pay CITY LOOKS for any and all
costs incurred by CITY LOOKS in the collection of unpaid and past due National
Advertising Production Fees payments, including, but not limited to, CITY LOOKS'
actual attorneys' fees, deposition costs, expert witness fees, investigation
costs, accounting fees, filing fees and travel expenses. CITY LOOKS will have
the right to collect unpaid National Advertising Production Fees in its own name
or on behalf of the NPA; however, all National Advertising Production Fees
collected will be deposited in the NPA.
<PAGE>
6.3 LOCAL ADVERTISING. In addition to payment of the National Advertising
Production Fees required by Article 6.1 above, for the first (1st) through the
thirty-fourth (34th) weeks of the FRANCHISEE'S operation of its City Looks
business, the FRANCHISEE must spend an amount equal to at least four percent
(4%) of its Gross Revenues for approved local media advertising and promotion.
For the thirty-fifth (35th) and each subsequent week of the FRANCHISEE'S
operation of its City Looks Business for the balance of the remaining term of
this Agreement, the Franchisee must spend an amount equal to three percent (3%)
of its Gross Revenues for approved local media advertising and promotion. All
local media advertising and promotions conducted by the FRANCHISEE must conform
to CITY LOOKS' standards for media advertising and promotions. On or before
March 31 and September 30 of each year throughout the term of this Agreement,
the FRANCHISEE will furnish to CITY LOOKS, in the form prescribed by CITY LOOKS,
an accurate accounting of the FRANCHISEE'S expenditures for approved local media
advertising and promotion. If the FRANCHISEE has failed to spend the required
percentage of its Gross Revenues for approved local media advertising and
promotion as required under this Article, then the FRANCHISEE will be required
to deposit with CITY LOOKS the difference between the required percentage of its
Gross Revenues and what it actually spent for such advertising, and this amount
will be spent by CITY LOOKS in the FRANCHISEE'S area for any type of advertising
or promotion that CITY LOOKS deems to be in the best interests of the
FRANCHISEE'S business.
6.4 LOCAL DMA ADVERTISING GROUP. At such time as there are two (2) or more City
Looks Salons International, The Barbers or City Looks By The Barbers businesses
(including the FRANCHISEE'S City Looks business) in the FRANCHISEE'S DMA, as
defined herein, CITY LOOKS will have the right to require that the FRANCHISEE
become a member of, participate in and contribute to a local DMA advertising
group that will conduct and administer media advertising and promotions in the
FRANCHISEE'S DMA. Each local DMA advertising group will have a membership with
equal representation for each City Looks business in the DMA, including the City
Looks businesses owned and operated in the DMA by CITY LOOKS. The costs for the
media advertising and promotions conducted by the local DMA advertising group
will be allocated among and paid by the members of the local DMA advertising
group on a pro rata basis, based either on a percentage of Gross Revenues or on
a pro rata basis, the selection of which method to be determined by the majority
of the members of the local DMA advertising group. Payments to the local DMA
advertising group by the FRANCHISEE for media advertising and promotion will be
applied to the local advertising and promotional expenditures required under
Article 6.3 above. However, the FRANCHISEE must contribute its proportionate
share of the costs for the local media advertising and promotions conducted by
the local DMA advertising group as determined by the majority of its members in
accordance with the method of allocation set forth above, even if this amount
exceeds three percent (3%) of the FRANCHISEE'S Gross Revenues. Notwithstanding
the foregoing, for the first (1st) through the thirty-fourth (34th) weeks of the
FRANCHISEE'S operation of its City Looks business pursuant to this Agreement,
the FRANCHISEE will not be obligated to pay any portion of the costs for media
advertising and promotions conducted by the local DMA advertising group.
6.5 ADVERTISING FUND. In addition to the National Advertising Production Fees
required under Article 6.1 of this Agreement, CITY LOOKS reserves the right, in
its sole discretion, to require the FRANCHISEE to contribute a maximum of three
percent (3%) of the FRANCHISEE'S Gross Revenues into an advertising fund which
will be administered and controlled by CITY LOOKS. The requirement for the
FRANCHISEE to contribute to an advertising fund will not take effect until the
FRANCHISEE has been given not less than thirty (30) days written notice of such
requirement. In the event CITY LOOKS requires the FRANCHISEE to contribute to an
advertising fund, the FRANCHISEE'S requirement to spend an amount for local
advertising under Article 6.3 of this Agreement will be reduced by the same
percentage that the FRANCHISEE will be required to contribute to CITY LOOKS for
the advertising
<PAGE>
fund. The use of the monies in such advertising fund will be under the absolute
discretion and control of CITY LOOKS to purchase and pay for any products or
services relating to advertising for City Looks franchisees. The advertising
fees payable by the FRANCHISEE into the advertising fund will be payable in the
same fashion and under the same terms and conditions as the National Advertising
Production Fees are payable and will not be refundable to the FRANCHISEE under
any circumstances.
6.6 YELLOW PAGES ADVERTISING. The FRANCHISEE will, at its expense, be required
to advertise continually in the Yellow Pages of the local telephone directories
using trademark listings or display formats approved by CITY LOOKS under an
appropriate listing that is in compliance with the laws of the state in which
the Franchised Location is located including, but not limited to, "Barbers" or
"Beauty". Expenditures by the FRANCHISEE for Yellow Pages advertising will be in
addition to all other advertising requirements set forth in this Agreement.
6.7 GRAND OPENING ADVERTISING. The FRANCHISEE will be required to spend between
Two Thousand Five Hundred Dollars ($2,500) and Five Thousand Dollars ($5,000) to
implement and conduct grand opening advertising, marketing, public relations and
promotional programs for its City Looks business which have been approved by
CITY LOOKS in writing. Expenditures by the FRANCHISEE for grand opening
advertising may be applied to the quarterly local media advertising and
promotional expenditures required pursuant to Article 6.3 of this Agreement.
6.8 LOCAL DMA RECRUITING GROUP. At such time as there are two (2) or more City
Looks Salons International, The Barbers or City Looks By The Barbers businesses
(including the FRANCHISEE'S City Looks business) in the FRANCHISEE'S DMA, CITY
LOOKS will have the right to require that the FRANCHISEE become a member of,
participate in, and contribute to a local DMA stylist recruiting group that will
implement a program for the recruitment of qualified hair stylists for all City
Looks businesses in the FRANCHISEE'S DMA. Although the DMA stylist recruiting
group will be separate from the local DMA advertising group, membership in, and
allocation and payment of expenses of, the local DMA stylist recruiting group
will be determined in accordance with the guidelines applicable to the local DMA
advertising group, as set forth in Article 6.4 above. Expenditures by the
FRANCHISEE for local DMA stylist recruiting expenses will be in addition to all
other advertising requirements set forth in this Agreement.
ARTICLE 7
QUALITY CONTROL, UNIFORMITY AND
STANDARDS REQUIRED OF THE FRANCHISEE
CITY LOOKS will promulgate, from time to time, uniform standards of quality and
service regarding the business operations of the FRANCHISEE'S City Looks
business so as to protect and maintain (for the benefit of all City Looks, The
Barbers and City Looks By The Barbers Franchisees and CITY LOOKS) the
distinction, valuable goodwill and uniformity represented and symbolized by the
Marks and the Business System. Accordingly, to insure that all City Looks, The
Barbers and City Looks By The Barbers franchisees will maintain the uniform
requirements and quality standards for products and services associated with the
Marks and the Business System, the FRANCHISEE agrees to comply with the
provisions of this Article to assure the public that all City Looks, The Barbers
and City Looks By The Barbers businesses will be uniform in nature and will sell
and dispense quality products and services:
7.1 IDENTIFICATION OF BUSINESS. The FRANCHISEE will operate its business so that
it is clearly identified and advertised as a City Looks Salons International
business. However, the style and form of the words "City Looks Salons
International(R)" in any advertising, marketing, public relations,
<PAGE>
telemarketing or promotional program must have the prior written approval of
CITY LOOKS and must conform to CITY LOOKS' standards and requirements for use of
the Marks. Whenever practical, the FRANCHISEE will use the name "City Looks
Salons International(R)" and all graphics commonly associated with the Marks
which now or hereafter may form a part of CITY LOOKS' Business System on all
paper supplies, furnishings, advertising materials, signs, stationery, business
cards and other articles in the identical combination and manner as may be
prescribed by CITY LOOKS in writing. The FRANCHISEE will, at its expense, comply
with all notices of registration required by CITY LOOKS and will, at its
expense, comply with any other trademark, trade name, service mark, copyright,
patent or other notice marking requirements that are required by applicable law
or by CITY LOOKS.
7.2 IDENTIFICATION AS FRANCHISEE. The FRANCHISEE will not use the words "City
Looks By The Barbers, Hairstyling for Men & Women" or any or combination of
these words in its corporate, partnership or sole proprietorship name. The
FRANCHISEE will hold itself out to the public as an independent contractor
operating its City Looks business pursuant to a franchise from CITY LOOKS. The
FRANCHISEE will clearly indicate on its business checks, stationery, purchase
orders, business cards, receipts, promotional materials and other written
materials that the FRANCHISEE is a City Looks Salons International Franchisee.
The FRANCHISEE will display a sign, to be provided by CITY LOOKS, at the
Franchised Location which is clearly visible to the general public indicating
that the business is independently owned and operated as a franchised business.
The FRANCHISEE will file for a Certificate of Assumed Name in the manner
required by law so as to notify the public that the FRANCHISEE is operating the
franchised City Looks Salons International business as an independent business
pursuant to this Agreement.
7.3 SIGNS. The FRANCHISEE will display only the approved City Looks Sign (the
"Sign") and will not use or display any other signs of any kind or nature
without the express prior written approval of CITY LOOKS.
7.4 ADVERTISING MATERIALS. The FRANCHISEE will use only approved advertising and
promotional materials for the advertising and promotions conducted by the
FRANCHISEE. The FRANCHISEE must obtain written approval from CITY LOOKS prior to
using any other advertising or promotional materials.
7.5 COMPLIANCE WITH STORE LAYOUTS AND PLANS. The Franchised Location and the
FRANCHISEE'S business premises must conform to CITY LOOKS' approved store
layouts, floor plans, specifications, exterior and interior decorating designs
and color schemes. The FRANCHISEE will not make any architectural, structural,
design or decorating changes to the interior or exterior of the Franchised
Location without CITY LOOKS' prior written approval. The furniture, fixtures,
supplies and equipment used in the Franchised Location must conform to the
quality standards and uniform requirements established by CITY LOOKS from time
to time.
7.6 PERIODIC REMODELING. The FRANCHISEE will be required to periodically make
reasonable the capital expenditures necessary to remodel, modernize and
redecorate the Franchised Location and the FRANCHISEE'S business premises, and
to replace and modernize the FRANCHISEE'S furniture, fixtures, supplies and
equipment so that the Franchised Location and the FRANCHISEE'S business premises
will reflect the then-common image intended to be portrayed by CITY LOOKS
("remodeling"). All remodeling of the Franchised Location and the FRANCHISEE'S
business premises must be done in accordance with the standards and
specifications as prescribed by CITY LOOKS from time to time and with the prior
written approval of CITY LOOKS. All replacements for the furniture, fixtures,
supplies and equipment must conform to CITY LOOKS' then-current quality
standards and must
<PAGE>
be approved by CITY LOOKS in writing. The FRANCHISEE will begin remodeling the
Franchised Location within three (3) months from the date that the FRANCHISEE
receives written notice from CITY LOOKS specifying the required remodeling, and
will diligently complete such remodeling within a reasonable time after its
commencement. Except as provided in Article 7.12 of this Agreement, the
FRANCHISEE will not be required to remodel the Franchised Location or to replace
and modernize its furniture, fixtures, supplies and equipment more than once
every three (3) years during the term of this Agreement. The FRANCHISEE'S
failure to comply with the requirements of this Article 7.6 will be a material
breach of this Agreement.
7.7 USE OF MARKS AND BUSINESS SYSTEM. The FRANCHISEE will use the Marks and the
Business System in strict compliance with the quality standards, moral and
ethical standards, operating procedures, specifications, requirements and
instructions required by CITY LOOKS, which may be amended and supplemented by
CITY LOOKS from time to time.
7.8 PRODUCTS AND SERVICES. The FRANCHISEE will offer for sale all, but only
those, products and services prescribed and approved by CITY LOOKS in writing.
The FRANCHISEE will purchase and carry the full line of CITY LOOKS' exclusive
brand shampoos, conditioners, finishing products and other hair care products at
such minimum levels as may be established by CITY LOOKS. The FRANCHISEE
acknowledges and agrees that it will either: (1) execute and deliver to CITY
LOOKS such sales tax exemption certificates or other documents as may be
reasonably required by CITY LOOKS to establish that the FRANCHISEE'S purchase of
such products from CITY LOOKS is exempt from any and all sales, use or excise
taxes; or (2) pay CITY LOOKS the amount of any sales, use or excise taxes
applicable to the FRANCHISEE'S purchase of such products. The FRANCHISEE will
conform to all customer service standards prescribed by CITY LOOKS in writing.
The FRANCHISEE will have the absolute right to sell all products and services at
whatever prices and on whatever terms it deems appropriate. The FRANCHISEE will
only sell the approved products and services to the FRANCHISEE'S retail
customers at the Franchised Location and will not sell any products or services
at retail or wholesale at or from any other location.
7.9 CUSTOMER RETENTION PROGRAM. The FRANCHISEE will maintain a customer
retention program in the form prescribed by CITY LOOKS. The FRANCHISEE may
either purchase the system from CITY LOOKS, or maintain its own system with the
prior approval of CITY LOOKS. After the FRANCHISEE commences business, the
FRANCHISEE will provide CITY LOOKS with the results of its customer retention
program, in the form prescribed by CITY LOOKS, every eight (8) weeks (Sunday
through Saturday) during the term of this Agreement. This report will be
furnished to CITY LOOKS by Friday of the week following each eight (8) week
period.
7.10 OPERATIONS MANUAL. CITY LOOKS will provide the FRANCHISEE with one copy of
CITY LOOKS' confidential Operations Manual (the "Manual"). The FRANCHISEE will
conform to the common image and identity created by the products and services
associated with City Looks Salons International businesses which are portrayed
and described by the Manual, and the FRANCHISEE will conform to all changes and
modifications made to the Manual by CITY LOOKS and provided to the FRANCHISEE
that are deemed by CITY LOOKS necessary to: (A) improve the standards of service
and products offered for sale to the public under the Business System; (B)
protect the goodwill associated with the Marks; (C) improve the operation of the
FRANCHISEE'S City Looks business; or (D) maintain the product and service
consistency required by CITY LOOKS. CITY LOOKS reserves the right to revise the
Manual at any time during the term of this Agreement. The Manual and all written
supplements, changes and modifications to the Manual are confidential in all
respects and are and will remain the sole and exclusive property of CITY LOOKS.
The FRANCHISEE will not use the Manual or any information
<PAGE>
contained therein in connection with the operation of any other business or for
any purpose other than the operation of the FRANCHISEE'S City Looks business.
7.11 APPROVED SUPPLIERS. The FRANCHISEE will purchase from suppliers approved in
writing by CITY LOOKS all products, goods, merchandise, supplies, sundries,
toiletries, grooming aids, furniture, fixtures, equipment and services
(sometimes referred to in this Agreement as "goods and services") to be used or
sold by the FRANCHISEE in conjunction with the operation of its City Looks
business which CITY LOOKS determines meet the standards of quality and
uniformity required to protect the valuable goodwill and uniformity symbolized
by and associated with the Marks and the Business System. The FRANCHISEE will
have the right and option to purchase all goods and services from other or
outside suppliers provided that such goods and services conform in quality to
CITY LOOKS' standards and specifications. If the FRANCHISEE desires to purchase
any goods and services from other suppliers, then, if requested by CITY LOOKS,
the FRANCHISEE will submit samples, specifications, and information regarding
the manufacturer to CITY LOOKS for review to determine whether the goods and
services comply with CITY LOOKS' standards and specifications. Any expenses
incurred by CITY LOOKS in evaluating unapproved products will be paid by the
FRANCHISEE. The written approval of CITY LOOKS must be obtained by the
FRANCHISEE prior to the time that any previously unapproved goods and services
are used or sold at the FRANCHISEE'S City Looks business. All such goods and
services must be those classified as "professional" goods and services sold or
provided only in professional hair salons.
7.12 REPAIR AND MAINTENANCE. The FRANCHISEE will, at its expense, repair, paint
and keep in a clean and sanitary condition the interior, the exterior and, where
applicable, the grounds of the Franchised Location and the FRANCHISEE'S business
premises, and will replace all floor covering, wall coverings, light fixtures,
curtains, blinds, shades, furniture, room furnishings, wall hangings, fixtures
and other decor items as such items become worn-out, soiled or are in disrepair.
All equipment will be kept in good working order by the FRANCHISEE at all times
and will meet CITY LOOKS' quality standards. All replacement equipment must
comply with CITY LOOKS' then-current standards and specifications.
7.13 COMPLIANCE WITH APPLICABLE LAWS. The FRANCHISEE will, at its expense,
comply with all applicable federal, state, city, local and municipal laws,
ordinances, rules and regulations pertaining to the operation of the
FRANCHISEE'S business, including all laws relating to employees and to the
regulation of barbers and cosmetologists, and all applicable federal and state
environmental laws. The FRANCHISEE will, at its expense, be absolutely and
exclusively responsible for determining the licenses and permits required by law
for the FRANCHISEE'S business, for qualifying for and obtaining all such
licenses and permits, and for maintaining all such licenses and permits in full
force and effect.
7.14 PAYMENT OF OBLIGATIONS. The FRANCHISEE must timely pay all of its
noncontested and liquidated obligations and liabilities due and payable to CITY
LOOKS, and to suppliers, lessors and creditors of the FRANCHISEE. The
FRANCHISEE'S failure to timely pay all such obligations will be a material
breach of this Agreement.
7.15 PAYMENT OF TAXES. The FRANCHISEE will be absolutely and exclusively
responsible and liable for filing all required tax returns and for the prompt
payment of all federal, state, city and local taxes including, but not limited
to, individual and corporate income taxes, sales and use taxes, franchise taxes,
gross receipts taxes, employee withholding taxes, F.I.C.A. taxes and personal
property and real estate taxes payable in connection with the FRANCHISEE'S
business. CITY LOOKS will have no liability for these or any other taxes and the
FRANCHISEE will indemnify CITY LOOKS for any such taxes that may be assessed or
levied against CITY LOOKS which arise or result from the FRANCHISEE'S City Looks
<PAGE>
business. It is expressly understood and agreed by the Personal Guarantors to
this Agreement that their personal guaranty applies to the prompt filing of all
returns and the prompt payment of all taxes which arise or result from the
FRANCHISEE'S City Looks business.
7.16 REIMBURSEMENT OF CITY LOOKS FOR TAXES. In the event any "franchise" or
other tax (other than income taxes) which is based upon the Gross Revenues,
receipts, sales, business activities or operation of the FRANCHISEE'S business
is imposed upon CITY LOOKS by any taxing authority, then the FRANCHISEE will
reimburse CITY LOOKS in an amount equal to the amount of such taxes and related
costs imposed upon and paid by CITY LOOKS. The FRANCHISEE will be notified in
writing when CITY LOOKS is entitled to reimbursement for the payment of such
taxes and, in that event, the FRANCHISEE will pay CITY LOOKS the amount
specified in the written notice within ten (10) days of receipt of the written
notice.
7.17 BUSINESS HOURS; PERSONNEL. The FRANCHISEE'S City Looks business will be
open for business on such days and for such hours as CITY LOOKS may designate.
The FRANCHISEE will, during business hours, have a salon manager on duty who is
responsible for supervising the employees and the business operations of the
FRANCHISEE'S business. The FRANCHISEE will have a sufficient number of
adequately trained and competent personnel on duty at all times to guarantee
efficient service to the FRANCHISEE'S customers. The FRANCHISEE will require its
employees to wear the standard attire or uniforms approved by CITY LOOKS. All
persons employed by the FRANCHISEE must practice good personal hygiene and must
wear clean and neat attire or uniforms. The FRANCHISEE must employ at least one
(1) full-time person (a "District Manager") for each six (6) City Looks
Businesses owned and operated by the FRANCHISEE. Each District Manager will be
responsible for the operation and administration of up to six (6) City Looks
Businesses under his or her supervision and control, including supervision of
the salon managers and assistant managers. The District Managers must devote
their full time and attention to administering and overseeing the operations of
the FRANCHISEE'S City Looks Businesses. All District Managers must attend and
successfully complete the training program required by CITY LOOKS, and be
certified and approved by CITY LOOKS in writing.
7.18 CITY LOOKS' INSPECTION RIGHTS. CITY LOOKS will have the absolute right to
inspect and take photographs and videotapes of the interior and exterior of the
Franchised Location at all reasonable times during business hours, to interview
the FRANCHISEE'S employees, to examine representative samples of all goods and
equipment sold or used at the FRANCHISEE'S City Looks business, and to evaluate
the services provided by the FRANCHISEE to its customers. CITY LOOKS will have
the right to use all photographs and videotapes of the FRANCHISEE'S City Looks
business for such purposes as CITY LOOKS deems appropriate including, but not
limited to, use in advertising, marketing and promotional materials, and as
evidence in any court or arbitration proceeding. The FRANCHISEE will not be
entitled to, and hereby expressly waives, any right that it may have to be
compensated by CITY LOOKS, its advertising agencies or any other City Looks
Salons International franchisees for the use of such photographs or videotapes
for advertising, marketing, promotional, or litigation purposes.
7.19 SECURITY INTEREST. This Agreement and the franchised business granted to
the FRANCHISEE hereunder may not be the subject of a security interest, lien,
levy, attachment or execution by the FRANCHISEE'S creditors or any financial
institution, except with the prior written approval of CITY LOOKS.
7.20 CREDIT CARDS. The FRANCHISEE will honor all credit cards approved by CITY
LOOKS. The FRANCHISEE must obtain the written approval of CITY LOOKS prior to
honoring any previously unapproved credit cards or other credit devices.
<PAGE>
7.21 DEFAULT NOTICES. The FRANCHISEE will immediately deliver to CITY LOOKS a
copy of any notice of default received from any landlord for the Franchised
Location or from any mortgagee, trustee under any deed of trust or lessor with
respect to the FRANCHISEE'S City Looks business, and copies of all notifications
of any lawsuits, contract breaches, consumer claims, federal or state
administrative or agency proceedings or investigations, or other civil or
governmental claims, actions or proceedings relating to the FRANCHISEE'S City
Looks business. Upon request from CITY LOOKS, the FRANCHISEE will provide
additional information as may be required by CITY LOOKS regarding the alleged
default, lawsuit, claim or proceeding or any subsequent action or proceeding in
connection with the alleged default, lawsuit, claim or proceeding.
7.22 SALE OF CAPITAL STOCK TO PUBLIC. If the FRANCHISEE is a corporation and
desires to sell any part of its authorized capital stock to the public, then the
FRANCHISEE will provide CITY LOOKS with a copy of the proposed offering circular
or prospectus for its review prior to the time that the offering circular or
prospectus is filed with any state securities commission or the Securities and
Exchange Commission. The Shareholders of the FRANCHISEE who owned the capital
stock of the FRANCHISEE prior to the public offering will, at all times, retain
at least a 51% ownership of the issued and outstanding shares of stock of the
FRANCHISEE. CITY LOOKS will have the right to attend all "due diligence"
meetings held in preparation for the offer to sell the FRANCHISEE'S capital
stock to the public, and the FRANCHISEE will give CITY LOOKS at least five (5)
business days prior written notice of such meetings. The FRANCHISEE will not
offer its capital stock by use of the names "City Looks(R)", "City Looks Salons
International(R)," "The Barbers(R)", "The Barbers, Hairstyling for Men & Women",
"City Looks By The Barbers Hairstyling for Men & Women" or any names deceptively
similar thereto. The FRANCHISEE will not have the right to sell any of its
capital stock to the public or to any other person or entity until the
FRANCHISEE has complied in all respects with all applicable provisions of this
Agreement, including the applicable provisions of Articles 13 and 20.
7.23 OPERATION OF CITY LOOKS BUSINESS. The FRANCHISEE will be totally and solely
responsible for the operation of its City Looks business, and will control,
supervise and manage all the employees, agents and independent contractors who
work for or with the FRANCHISEE. The FRANCHISEE will be responsible for the acts
of its employees, agents and independent contractors, and will take all
reasonable business actions necessary to ensure that its employees, agents and
independent contractors comply with all federal, state and local laws, rules and
regulations including, but not limited to, all employment laws, discrimination
laws, sexual harassment laws and laws relating to the disabled. CITY LOOKS will
not have any right, obligation or responsibility to control, supervise or manage
the FRANCHISEE'S employees, agents or independent contractors.
ARTICLE 8
CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION
8.1 COMPLIANCE WITH MANUAL. In order to protect the reputation and goodwill of
CITY LOOKS and to maintain uniform operating standards under the Marks and the
Business System, the FRANCHISEE will at all times during the term of this
Agreement conduct its business in accordance with CITY LOOKS' confidential
Operations Manual (the "Manual"). The FRANCHISEE acknowledges having received as
a loan one copy of the Manual from CITY LOOKS.
8.2 CONFIDENTIALITY OF MANUAL. The FRANCHISEE must, at all times during the term
of this Agreement and thereafter, treat the Manual, any other manuals created
for or approved for use in the operation of the FRANCHISEE'S City Looks
business, and the information contained therein as secret
<PAGE>
and confidential, and the FRANCHISEE will use all reasonable means to keep such
information secret and confidential. Neither the FRANCHISEE nor its employees
will make any copy, duplication, record or reproduction of the Manual, or any
portion thereof, available to any unauthorized person.
8.3 REVISIONS TO MANUAL. The Manual will, at all times during the term of this
Agreement and thereafter, remain the sole and absolute property of CITY LOOKS.
CITY LOOKS may from time to time revise the Manual and the FRANCHISEE expressly
agrees to operate its City Looks business in accordance with all such revisions.
The FRANCHISEE will at all times keep the Manual current and up-to-date, and in
the event of any dispute, the terms of the master copy of the Manual maintained
by CITY LOOKS will be controlling in all respects.
8.4 OTHER CONFIDENTIAL INFORMATION. The FRANCHISEE expressly acknowledges and
agrees that CITY LOOKS will be disclosing and providing to the FRANCHISEE
certain confidential and proprietary information concerning the Business System
and the procedures, technology, operations and data used in connection with the
Business System. Accordingly, the FRANCHISEE will not, during the term of this
Agreement or thereafter, communicate, divulge or use for the benefit of any
other person or entity any confidential information, knowledge or know-how
concerning the methods of operation of a City Looks business which may be
communicated to the FRANCHISEE, or of which the FRANCHISEE may be apprised by
virtue of this Agreement. The FRANCHISEE will divulge such confidential
information only to its employees who must have access to it in order to operate
the FRANCHISEE'S City Looks business. Any and all information, knowledge and
know-how including, without limitation, drawings, materials, equipment,
technology, methods, procedures, specifications, techniques, computer programs,
systems and other data which CITY LOOKS designates as confidential or
proprietary will be deemed confidential and proprietary for the purposes of this
Agreement.
8.5 CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES. The FRANCHISEE will require all
of the FRANCHISEE'S employees who have access to the Manual or other
confidential information to execute an agreement, in the form of Exhibit A
attached hereto or other form satisfactory to CITY LOOKS, where the employees
agree to maintain the confidentiality during the course of their employment and
thereafter, of all information designated by CITY LOOKS as confidential. Copies
of all executed agreements will be submitted to CITY LOOKS upon request.
8.6 REMEDIES. The FRANCHISEE recognizes that the provisions contained in this
Article are necessary for the protection of CITY LOOKS and all of the
Franchisees who own City Looks businesses. If the FRANCHISEE violates any
provisions of this Article, or if any employee of the FRANCHISEE violates his or
her confidentiality agreement executed pursuant to Article 8.5, then CITY LOOKS
will have the right to: (A) terminate this AGREEMENT (as provided for herein);
(B) seek injunctive relief from a Court of competent jurisdiction; (C) commence
an action or lawsuit against the FRANCHISEE for damages; and (D) enforce all
other remedies against the FRANCHISEE that are available to CITY LOOKS under
common law, in equity, and pursuant to any federal and state statutes in an
action or lawsuit against the FRANCHISEE.
ARTICLE 9
CITY LOOKS' TERMINATION RIGHTS
9.1 GROUNDS FOR TERMINATION. In addition to the other rights of termination
contained in this Agreement, CITY LOOKS will have the right and privilege to
terminate this Agreement if: (A) the FRANCHISEE fails to open and commence
operations of its City Looks business within one hundred twenty (120) days of
the date of this Agreement; (B) the FRANCHISEE violates any material provision,
<PAGE>
term or condition of this Agreement including, but not limited to, failure to
timely pay any Continuing Fees, National Advertising Production Fees,
Advertising Fees, monetary obligations or other fees to CITY LOOKS; (C) the
FRANCHISEE fails to conform to the Business System, or is involved in any act or
conduct which materially impairs the goodwill associated with the Marks or the
Business System, the standards of uniformity and quality for the goods and
services or the policies and procedures promulgated by CITY LOOKS in connection
with the Business System; (D) the FRANCHISEE fails to timely pay any of its
uncontested obligations or liabilities due and owing to CITY LOOKS, suppliers,
banks, purveyors, other creditors or any federal, state or municipal government
(including, if applicable, federal and state taxes); (E) the FRANCHISEE is
determined to be insolvent within the meaning of any state or federal law, files
for bankruptcy or is adjudicated a bankrupt under any state or federal law; (F)
the FRANCHISEE makes an assignment for the benefit of creditors or enters into
any similar arrangement for the disposition of its assets for the benefit of
creditors; (G) any check issued by the FRANCHISEE is dishonored because of
insufficient funds (except where the check is dishonored because of a
bookkeeping or accounting error) or closed accounts; (H) the FRANCHISEE fails to
finance or purchase and pay for the leasehold improvements, furniture, fixtures,
supplies and equipment required for its City Looks business prior to the opening
of the FRANCHISEE'S business; (I) the FRANCHISEE'S lease for the Franchised
Location is terminated or canceled for nonpayment of rent or other legal
reasons; (J) the FRANCHISEE or any of its partners, directors, officers or
majority stockholders is convicted of, or pleads guilty or no contest to, a
charge of violating any law relating to the FRANCHISEE'S business or any felony;
or (K) the FRANCHISEE voluntarily or otherwise abandons, as defined herein, the
franchised business.
9.2 NOTICE OF BREACH. Except as provided in Article 9.5 and Article 9.6 of this
Agreement, CITY LOOKS will not have the right to terminate this Agreement unless
and until written notice setting forth the alleged breach in detail has been
given to the FRANCHISEE by CITY LOOKS and, after having been given such written
notice of breach, the FRANCHISEE fails to correct the alleged breach within the
period of time specified by applicable law. If applicable law does not specify a
time period to correct an alleged breach, then the FRANCHISEE will have thirty
(30) days after having been given such written notice to correct the alleged
breach. If the FRANCHISEE fails to correct the alleged breach set forth in the
written notice within the applicable period of time, then this Agreement may be
terminated by CITY LOOKS as provided for in this Agreement. For the purposes of
this Agreement, an alleged breach of this Agreement by the FRANCHISEE will be
deemed to be "corrected" if both CITY LOOKS and the FRANCHISEE agree in writing
that the alleged breach has been corrected.
9.3 ARBITRATION. If the FRANCHISEE gives notice of Arbitration, as provided for
in this Agreement, within the time period established in Article 9.2 for
correcting the alleged breach, then CITY LOOKS will not have the right to
terminate this Agreement until the facts of the alleged breach have been
submitted to Arbitration as provided for herein, the Arbitrator determines that
the FRANCHISEE has breached this Agreement and the FRANCHISEE fails to correct
the breach within the applicable time period. If the Arbitrator determines that
the FRANCHISEE has breached this Agreement as alleged by CITY LOOKS in the
written notice given to the FRANCHISEE, then the FRANCHISEE will have thirty
(30) days from the date the Arbitrator issues a written determination on the
matter to correct the specified breach of this Agreement, except where
applicable law requires a longer cure period in which event the cure period
specified by applicable law will apply. If the FRANCHISEE timely corrects the
specified breach of this Agreement, then this Agreement will remain in full
force and effect. For the purposes of this Agreement, any controversy or dispute
on the issue of whether the FRANCHISEE has timely corrected the specified breach
of this Agreement will also be subject to Arbitration as provided for herein.
The time limitations set forth in this Article within which the FRANCHISEE may
demand Arbitration of a dispute or controversy relating to the right of CITY
LOOKS to terminate this Agreement for an alleged
<PAGE>
breach will be mandatory. If the FRANCHISEE fails to comply with the time
limitations set forth in this Article, CITY LOOKS may terminate this Agreement
as provided for herein.
9.4 NOTICE OF TERMINATION. If CITY LOOKS has complied with the notice provisions
of this Article and the FRANCHISEE has not corrected the alleged breach set
forth in the written notice within the time period specified in this Article,
then CITY LOOKS will have the absolute right to terminate this Agreement by
giving the FRANCHISEE written notice stating to the FRANCHISEE that this
Agreement is terminated, and in that event, unless applicable law provides to
the contrary, the effective date of termination of this Agreement will be the
day such written notice is given.
9.5 GROUNDS FOR IMMEDIATE TERMINATION. CITY LOOKS will have the absolute right
and privilege, unless prohibited by applicable law, to immediately terminate
this Agreement if: (A) the FRANCHISEE or any of its partners, Directors,
officers or majority stockholders are convicted of, or pleads guilty or no
contest to a charge of violating any law relating to the franchised business, or
any felony; (B) the FRANCHISEE voluntarily or otherwise abandons, as defined
herein, the FRANCHISEE'S City Looks business; (C) the FRANCHISEE is involved in
any act or conduct which materially impairs the goodwill associated with CITY
LOOKS' Marks or Business System, and the FRANCHISEE fails to correct such act or
conduct within twenty-four (24) hours of receipt of written notice from CITY
LOOKS; or (D) the FRANCHISEE fails or refuses to produce its books and financial
records for audit by CITY LOOKS in accordance with Article 19.4.
9.6 NOTICE OF IMMEDIATE TERMINATION. If this Agreement is terminated by CITY
LOOKS pursuant to Article 9.5 above, CITY LOOKS will give the FRANCHISEE written
notice that this Agreement is terminated, and in that event, unless applicable
law provides to the contrary, the effective date of termination of this
Agreement will be the day such written notice is given.
9.7 DAMAGES. In the event this Agreement is terminated by CITY LOOKS pursuant to
Article 9, or if the FRANCHISEE breaches this Agreement by a wrongful
termination or a termination that is not in accordance with the terms and
conditions of Article 10 of this Agreement, then CITY LOOKS will be entitled to
seek recovery from the FRANCHISEE for all of the damages that CITY LOOKS has
sustained and will sustain in the future as a result of the FRANCHISEE'S breach
of this Agreement, which will include damages based upon the Continuing Fees,
National Advertising Production Fees, Advertising Fees and other fees that would
have been payable by the FRANCHISEE for the remaining term of this Agreement.
9.8 OTHER REMEDIES. Nothing in this Article or this Agreement will preclude CITY
LOOKS from seeking other damages or remedies under common law, state or federal
laws or this Agreement against the FRANCHISEE including, but not limited to,
attorneys' fees, punitive damages and injunctive relief.
ARTICLE 10
FRANCHISEE'S TERMINATION RIGHTS
10.1 GROUNDS FOR TERMINATION. The FRANCHISEE will have the right and privilege
to terminate this Agreement, as provided herein, if: (A) CITY LOOKS violates any
material provision, term or condition of this Agreement; (B) CITY LOOKS fails to
timely pay any material obligations due and owing to the FRANCHISEE; or (C) CITY
LOOKS makes an assignment of its assets for the benefit of creditors.
<PAGE>
10.2 NOTICE OF BREACH. The FRANCHISEE will not have the right to terminate this
Agreement or to commence any Arbitration proceeding, action or lawsuit against
CITY LOOKS for breach of this Agreement, injunctive relief, violation of any
federal, state or local law, violation of common law (including allegations of
fraud and misrepresentation), rescission, general or punitive damages, or
termination, unless and until written notice setting forth the alleged breach or
violation in detail has been given to CITY LOOKS by the FRANCHISEE and CITY
LOOKS fails to commence the actions necessary to correct the alleged breach or
violation within thirty (30) days after having been given such written notice,
or to correct the alleged breach within one hundred twenty (120) days after
having been given such written notice. If CITY LOOKS fails to commence the
actions necessary to correct the alleged breach or violation as provided herein
within thirty (30) days after having been given such written notice, or to
correct the alleged breach within one hundred twenty (120) days after having
been given such written notice, then this Agreement may be terminated by the
FRANCHISEE as provided for in this Agreement. For the purposes of this
Agreement, an alleged breach of this Agreement by CITY LOOKS will be deemed to
be "corrected" if both CITY LOOKS and the FRANCHISEE agree in writing that the
alleged breach or violation has been corrected.
10.3 ARBITRATION. If CITY LOOKS gives notice of Arbitration, as provided for in
this Agreement, within thirty (30) days from the date CITY LOOKS was given
written notice of the alleged breach from the FRANCHISEE, then the FRANCHISEE
will not have the right to terminate this Agreement until the facts of the
alleged breach have been submitted to Arbitration, the Arbitrator determines
that CITY LOOKS has breached this Agreement and CITY LOOKS fails to correct the
breach within the time limitation set forth herein. If the Arbitrator determines
that CITY LOOKS breached this Agreement as alleged by the FRANCHISEE in the
written notice given to CITY LOOKS, then CITY LOOKS will have thirty (30) days
from the date the Arbitrator issues a written determination on the matter to
correct the specified breach of this Agreement. If CITY LOOKS timely corrects
the specified breach of this Agreement, then this Agreement will remain in full
force and effect. If CITY LOOKS does not correct the specified breach of this
Agreement, then the FRANCHISEE will have the right to terminate this Agreement
by giving CITY LOOKS written notice that this Agreement is terminated and, in
that event, the effective date of termination of this Agreement will be the day
the written notice of termination is given to CITY LOOKS. For the purposes of
this Agreement, any controversy or dispute on the issue of whether CITY LOOKS
has timely corrected the specified breach of this Agreement will also be subject
to Arbitration as provided herein. The time limitation set forth in this Article
within which CITY LOOKS may demand Arbitration of a dispute or controversy
relating to the right of the FRANCHISEE to terminate this Agreement for an
alleged breach will be mandatory. If CITY LOOKS fails to comply with the time
limitation set forth in this Article, then the FRANCHISEE may terminate this
Agreement as provided for herein.
10.4 WAIVER. The FRANCHISEE must give CITY LOOKS immediate written notice of an
alleged breach or violation of this Agreement after the FRANCHISEE has knowledge
of, determines or is of the opinion that there has been an alleged breach or
violation of this Agreement by CITY LOOKS. If the FRANCHISEE fails to give
written notice to CITY LOOKS, as provided for herein, of an alleged breach or
violation of this Agreement within one (1) year from the date that the
FRANCHISEE has knowledge of, determines, is of the opinion that, or become aware
of facts and circumstances reasonably indicating that the FRANCHISEE may have a
claim under any state law, federal law or common law because there has been an
alleged breach by CITY LOOKS, then the alleged breach or violation will be
deemed to be condoned, approved and waived by the FRANCHISEE, and the alleged
breach or violation will not be deemed to be a breach or violation of this
Agreement by CITY LOOKS, and the FRANCHISEE will be barred from commencing any
legal or other action against CITY LOOKS for that alleged breach or violation.
<PAGE>
10.5 INJUNCTIVE RELIEF AVAILABLE TO CITY LOOKS. Notwithstanding any of the
foregoing provisions, if the FRANCHISEE gives CITY LOOKS written notice of an
alleged breach or violation of this Agreement, or of any laws, that gives rise
to a claim to terminate this Agreement by the FRANCHISEE, then CITY LOOKS will
have the absolute right to immediately commence legal action against the
FRANCHISEE to enjoin and prevent the termination of this Agreement without
giving the FRANCHISEE any notice and without regard to any waiting period that
may be contained in this Agreement. If CITY LOOKS commences such legal action
against the FRANCHISEE, then the FRANCHISEE will not have the right to terminate
this Agreement as provided for herein unless and until it has been determined
that CITY LOOKS has breached this Agreement in the manner alleged by the
FRANCHISEE, and then only if CITY LOOKS fails to commence the actions necessary
to correct the breach or violation within thirty (30) days after a final
decision has been entered against CITY LOOKS and all time for appeals by CITY
LOOKS has expired. If CITY LOOKS commences any legal action against the
FRANCHISEE as contemplated by this provision, which will include actions for
injunctive relief against the FRANCHISEE to enjoin termination of this
Agreement, then unless applicable law provides to the contrary, CITY LOOKS will
not be required to post any bonds or security whatever in such legal action.
ARTICLE 11
FRANCHISEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION
11.1 OBLIGATIONS UPON TERMINATION. In the event this Agreement expires or is
terminated for any reason, then the FRANCHISEE will: (A) within five days after
termination, pay all Continuing Fees, National Advertising Production Fees,
Advertising Fees, and other amounts due and owing to CITY LOOKS under this
Agreement or any other contract or obligation; (B) return to CITY LOOKS by first
class prepaid United States mail all Manuals, advertising materials and all
other printed materials pertaining to the FRANCHISEE'S City Looks business; and
(C) comply with all other applicable provisions of this Agreement.
11.2 TERMINATION OF RIGHT TO USE MARKS. Upon expiration or termination of this
Agreement for any reason, the FRANCHISEE'S right to use the names "City
Looks(R)", "City Looks Salons International(R)", "The Barbers, Hairstyling for
Men & Women", "City Looks By The Barbers, Hairstyling for Men & Women" the other
Marks and the Business System will terminate immediately.
11.3 ALTERATION OF FRANCHISED LOCATION. If this Agreement expires or is
terminated for any reason or if the Franchised Location ever ceases to be used
as a City Looks Salons International business, then the FRANCHISEE will, at its
expense, alter, modify and change both the exterior and interior appearance of
the Franchised Location so that it will be easily distinguished from the
standard appearance of a City Looks Salons International business. At a minimum,
such changes and modifications to the Franchised Location will include: (A)
re-painting and, where applicable, recovering both the exterior and interior of
the Franchised Location with totally different colors, including removing any
distinctive colors and designs from the walls; (B) removing all fixtures and
other decor items and replacing them with other decor items not of the general
type and appearance customarily used only in City Looks Salons International
businesses; (C) removing all exterior and interior City Looks Salons
International signs; (D) immediately discontinuing use of the approved wall
decor items and window decals; and (E) refraining from using any names, slogans,
designs, decor items, colors or other items which may be confusingly similar to
those customarily used only in City Looks Salons International businesses.
<PAGE>
11.4 TRANSFER OF TELEPHONE DIRECTORY LISTINGS. Upon termination or expiration of
this Agreement, CITY LOOKS will have the absolute right to notify the telephone
company and all listing agencies of the termination or expiration of the
FRANCHISEE'S right to use all telephone numbers and all classified and other
directory listings for the FRANCHISEE'S City Looks business or otherwise placed
under the names "City Looks(R)", "City Looks Salons International(R)" or "City
Looks By The Barbers, Hairstyling for Men & Women" and to authorize the
telephone company and all listing agencies to transfer to CITY LOOKS or its
assignee all telephone numbers and directory listings for the FRANCHISEE'S City
Looks business. The FRANCHISEE acknowledges that CITY LOOKS has the absolute
right and interest in and to all telephone numbers and directory listings
associated with the Marks and the FRANCHISEE hereby authorizes CITY LOOKS to
direct the telephone company and all listing agencies to transfer all of the
FRANCHISEE'S telephone numbers and directory listings to CITY LOOKS or its
assignee if this Agreement expires or is terminated for any reason whatever. The
telephone company and all listing agencies will accept this Agreement as
evidence of the exclusive rights of CITY LOOKS to such telephone numbers and
directory listings. This Agreement will constitute the FRANCHISEE'S
authorization for the telephone company and listing agencies to transfer the
telephone numbers and directory listings for the FRANCHISEE'S City Looks
business to CITY LOOKS and will constitute a release of the telephone company
and listing agencies by the FRANCHISEE from any and all claims, actions and
damages that the FRANCHISEE may at any time have the right to allege against
them in connection with this Article 11.
ARTICLE 12
FRANCHISEE'S COVENANTS NOT TO COMPETE
12.1 CONSIDERATION. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors acknowledge that the FRANCHISEE, its partners or officers,
and its employees will receive specialized training, current and future
marketing and advertising plans, business plans and strategies, business
information and procedures, research and development information, operations
information, and trade and business secrets from CITY LOOKS pertaining to the
Business System of a City Looks Salons International business. In consideration
for the use and license of such valuable and confidential information, the
FRANCHISEE, the FRANCHISEE'S shareholders and the Personal Guarantors will
comply in all respect with the provisions of this Article. CITY LOOKS has
advised the FRANCHISEE that this provision is a material provision of this
Agreement, and that CITY LOOKS will not sell a City Looks Salons International
franchise to any person or entity that owns or intends to own, operate, or be
involved in any business that competes directly or indirectly with a City Looks
Salons International business.
12.2 IN-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, during the term of this
Agreement, on their own account or as an employee, agent, consultant, partner,
officer, director or shareholder of any other person, firm, entity, partnership
or corporation: (A) seek to employ any person who is at that time employed by
CITY LOOKS or by any other City Looks, Cost Cutters or We Care Hair(R)
franchisee, or induce any such employee to terminate his or her employment; or
(B) own, operate, lease, franchise, conduct, engage in, be connected with, have
any interest in or assist any person or entity engaged in any hairstyling,
barber or other business that is in any way competitive with or similar to the
City Looks, City Looks Salons International, The Barbers or City Looks By The
Barbers businesses operated by CITY LOOKS or CITY LOOKS' franchisees, except
with the prior written consent of CITY LOOKS.
12.3 POST-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, for a period of one (1) year
after the termination or
<PAGE>
expiration of this Agreement, on their own account or as an employee, agent,
consultant, partner, officer, director or shareholder of any other person, firm,
entity, partnership or corporation: (A) seek to employ any person who is at that
time employed by CITY LOOKS or by any other City Looks, Cost Cutters or We Care
Hair(R) franchise, or induce any such employee to terminate his or her
employment; or (B) own, operate, lease, franchise, conduct, engage in, be
connected with, have any interest in or assist any person or entity engaged in
any hairstyling, barber or other business that is in any way competitive with or
similar to the City Looks, City Looks Salons International, The Barbers or City
Looks By The Barbers businesses conducted by CITY LOOKS or CITY LOOKS'
franchisees, which is located within six (6) miles of either the Franchised
Location or any other City Looks, City Looks Salons International, The Barbers
or City Looks By The Barbers businesses operated by CITY LOOKS or any of CITY
LOOKS' franchisees, or which is located within any exclusive area granted by
CITY LOOKS or any affiliate or area developer of CITY LOOKS pursuant to any
franchise, development, license or other territorial agreement. The FRANCHISEE,
the FRANCHISEE'S shareholders and the Personal Guarantors expressly agree that
the one (1) year period and the six (6) mile limit are the reasonable and
necessary time and distances required to protect CITY LOOKS and CITY LOOKS'
franchisees if this Agreement expires or is terminated for any reason, and that
this covenant not to compete is necessary to permit CITY LOOKS the opportunity
to resell and/or develop a new City Looks business at or in the area near the
Franchised Location.
12.4 INJUNCTIVE RELIEF. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors agree that the provisions of this Article are necessary to
protect the legitimate business interests of CITY LOOKS and CITY LOOKS'
franchisees, including, without limitation, preventing damage to and/or loss of
goodwill associated with the Marks, preventing the unauthorized dissemination of
marketing, promotional and other confidential information to competitors of CITY
LOOKS and CITY LOOKS' franchisees, protection of CITY LOOKS' trade secrets and
the integrity of CITY LOOKS' Business System and preventing duplication of the
Business System. The FRANCHISEE, the FRANCHISEE'S shareholders and the Personal
Guarantors acknowledge that damages alone cannot adequately compensate CITY
LOOKS if there is a violation of this Article by the FRANCHISEE and that
injunctive relief against the FRANCHISEE is essential for the protection of CITY
LOOKS and CITY LOOKS' franchisees. The FRANCHISEE, the FRANCHISEE'S shareholders
and the Personal Guarantors agree therefore, that if CITY LOOKS alleges that the
FRANCHISEE, the FRANCHISEE'S shareholders or the Personal Guarantors have
breached or violated this Article, then CITY LOOKS will have the right to
petition for injunctive relief against the FRANCHISEE, the FRANCHISEE'S
shareholders or the Personal Guarantors, in addition to all other remedies that
may be available to CITY LOOKS at law or in equity. Unless applicable law
provides to the contrary, CITY LOOKS will not be required to post a bond or
other security prior to obtaining injunctive relief pursuant to this Agreement
in any action where CITY LOOKS is seeking to enjoin the FRANCHISEE, the
FRANCHISEE'S shareholders or the Personal Guarantors from violating the
provisions of this Article. In cases where CITY LOOKS is granted ex parte
injunctive relief against the FRANCHISEE, the FRANCHISEE'S shareholders or the
Personal Guarantors, then the FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors will have the right to petition the court for a hearing on
the merits at the earliest time convenient to the court.
12.5 SEVERABILITY. It is the desire and intent of the parties to this Agreement,
including the FRANCHISEE'S shareholders and the Personal Guarantors, that the
provisions of this Article be enforced to the fullest extent permissible under
the laws and public policy applied in each jurisdiction in which enforcement is
sought. Accordingly, if any part of this Article is adjudicated to be invalid or
unenforceable, then this Article will be deemed to modify or delete that portion
thus adjudicated to be invalid or unenforceable, such modification or deletion
to apply only with respect to the operation of this Article and the particular
jurisdiction in which the adjudication is made. Further, to the extent any
<PAGE>
provision of this Article is deemed unenforceable by virtue of its scope or
limitation, the parties to this Agreement, including the FRANCHISEE'S
shareholders and the Personal Guarantors, agree that the scope and limitation
provisions will, nevertheless, be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction where
enforcement is sought.
ARTICLE 13
CITY LOOKS' RIGHT OF FIRST REFUSAL TO PURCHASE
13.1 NOTICE OF PROPOSED SALE. The FRANCHISEE will not sell, pledge, assign,
trade, transfer, lease, sublease, or otherwise dispose of any interest in or any
part of (A) the FRANCHISEE'S City Looks business, (B) the Franchised Location,
(C) the building or premises lease for the Franchised Location, (D) the
furniture, fixtures, equipment, inventory, customer list or other assets used in
the FRANCHISEE'S City Looks business (except for the sale of any of such items
in the normal course of business), (E) this Agreement, (F) any capital stock in
the FRANCHISEE, or (G) the land and building (if any) for the FRANCHISEE'S City
Looks business, to any party without first offering the same to CITY LOOKS by
written notice that contains all material terms and conditions of the proposed
sale or transfer, including price and payment terms. Within ten (10) business
days after receipt by CITY LOOKS of the FRANCHISEE'S written offer specifying
the proposed price and terms of the proposed sale, CITY LOOKS will give the
FRANCHISEE written notice which will either waive its right of first refusal to
purchase, or will state an interest in negotiating to purchase according to the
proposed terms. If CITY LOOKS commences negotiations to purchase the
FRANCHISEE'S business as set forth herein, then the FRANCHISEE may not sell the
business or assets to a third party for at least sixty (60) days or until CITY
LOOKS and the FRANCHISEE agree in writing that the negotiations have terminated,
whichever comes earlier. If CITY LOOKS waives its right to purchase, then the
FRANCHISEE will have the right to complete the sale or transfer of the business
according to the terms set forth in the written notice to CITY LOOKS; however,
any such sale, transfer or assignment to a third party is expressly subject to
the terms and conditions set forth in Article 20 of this Agreement. If the
FRANCHISEE does not consummate the sale to a third party upon the terms and
conditions previously presented to CITY LOOKS in writing, but negotiates a sale
price with a third party that is lower or on different terms than the stated
price or terms presented to CITY LOOKS, then the modified offer must be
recommunicated or made to CITY LOOKS by the FRANCHISEE. CITY LOOKS will give the
FRANCHISEE written notice within fifteen (15) business days thereafter which
will state whether or not it is interested in purchasing the business according
to the proposed new terms. This provision will not apply to the assignment or
pledge of any of the assets described above (with the exception of this
Agreement) by the FRANCHISEE to a bank, financial institution or other lender in
connection with providing financing for the leasehold improvements, furniture,
fixtures, supplies, inventory and equipment used in, or operating funds for, the
FRANCHISEE'S City Looks business.
13.2 COMPLIANCE WITH AGREEMENT. The FRANCHISEE'S obligations under this
Agreement including, but not limited to, its obligations to pay the Continuing
Fees, the National Advertising Production Fees, the Advertising Fees and to
operate the business as a City Looks Salons International business, will in no
way be affected or changed because of CITY LOOKS' nonacceptance of the
FRANCHISEE'S written offer to purchase the FRANCHISEE'S business or assets, and
as a consequence, the terms and conditions of this Agreement will remain in full
force and effect. CITY LOOKS' decision not to exercise the rights granted to it
pursuant to this Article will not, in any way, be deemed to grant the FRANCHISEE
the right to terminate this Agreement and will not affect the term of this
Agreement. Moreover, if CITY LOOKS does not exercise the rights granted to it
pursuant to this Article and if the FRANCHISEE complies with Article 20 and
sells or otherwise disposes of its business or assets to a third party, then
both the FRANCHISEE and the third party purchaser will be required to
<PAGE>
comply in all respects with the terms and conditions of this Agreement, and the
sale of the business or assets will not relieve the FRANCHISEE of its
obligations under this Agreement. Any sale, transfer or assignment of the
business or assets of the FRANCHISEE'S City Looks business that does not include
assignment of this Agreement to the transferee will constitute a wrongful
termination of this Agreement.
13.3 TRANSFER OF AGREEMENT TO CORPORATION. If the FRANCHISEE is not a
corporation, then the FRANCHISEE will have the right to assign and transfer this
Agreement to a corporation in which the FRANCHISEE owns and controls at least
fifty-one percent (51%) of the issued and outstanding capital stock of the
corporation pursuant to Article 20.2 of this AGREEMENT. If the FRANCHISEE
transfers this AGREEMENT to a corporation owned or controlled by the FRANCHISEE
pursuant to Article 20.2 (which will not excuse or release the FRANCHISEE from
any obligations under this AGREEMENT), then the shares of capital stock of the
FRANCHISEE'S corporation (the "capital stock") may not be sold, pledged,
assigned, traded, transferred or otherwise disposed of by the FRANCHISEE until
the capital stock has been first offered to CITY LOOKS in writing under the same
terms and conditions offered to any third party as provided for in Article 13.1.
13.4 TRANSFER OF CAPITAL STOCK. If the FRANCHISEE is a corporation, then the
shares of capital stock of the FRANCHISEE owned by the FRANCHISEE'S shareholders
("capital stock") may not be sold, pledged, assigned, traded, transferred or
otherwise disposed of by the FRANCHISEE'S shareholders until the capital stock
has been first offered to CITY LOOKS in writing under the same terms and
conditions offered to any third party. In the event the FRANCHISEE'S
shareholders desire to sell, assign, trade, transfer or dispose of their shares
of capital stock, the FRANCHISEE'S shareholders will first offer them to CITY
LOOKS in writing under the same terms and conditions as being offered to any
third party. CITY LOOKS will have fifteen (15) business days within which to
accept any shareholder's offer to sell, assign, trade, transfer or dispose of
the capital stock. Notwithstanding the terms of this Article, the FRANCHISEE'S
shareholders may bequeath, sell, assign, trade or transfer their capital stock
to the other shareholders of the FRANCHISEE without first offering it to CITY
LOOKS, provided that each proposed transferee shareholder who will be involved
in the operations or management of the City Looks business has successfully
completed CITY LOOKS' training program and has been certified by CITY LOOKS and
is, in CITY LOOKS' reasonable judgment, qualified from a managerial and
financial standpoint to operate the City Looks business in an economic and
businesslike manner. The FRANCHISEE and the FRANCHISEE'S shareholders must
provide CITY LOOKS with written notice of all such transactions, and the
proposed transferee shareholders must agree to be personally liable under this
Agreement and enter into a written agreement where they agree to perform all the
terms and conditions contained in this Agreement. All shares of capital stock
issued by the FRANCHISEE to its shareholders must bear the following legend:
The shares of capital stock represented by this stock certificate are
subject to a written Franchise Agreement which grants The Barbers,
Hairstyling for Men & Women, Inc., the right of first refusal to
purchase these shares of capital stock from the shareholder. Any person
acquiring the shares of capital stock represented by this stock
certificate will be subject to the terms and conditions of the
Franchise Agreement between the company specified on the face of this
stock certificate and The Barbers, Hairstyling for Men & Women, Inc.,
which includes provisions containing covenants not to compete that
apply to all shareholders.
13.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the City Looks Business System and the Marks, as well as CITY LOOKS'
reputation and image, and are for the
<PAGE>
protection of CITY LOOKS, the FRANCHISEE and all other Franchisees who own and
operate City Looks businesses. Any assignment or transfer permitted by Article
13 will not be effective until CITY LOOKS receives a completely executed copy of
all transfer documents and CITY LOOKS consents to the transfer in writing.
13.6 SELLING SHAREHOLDERS SUBJECT TO COVENANT NOT TO COMPETE. Any shareholder of
the FRANCHISEE that sells or assigns his or her capital stock in the FRANCHISEE
will continue to be subject to provisions of Article 12 of this Agreement after
the sale or assignment.
13.7 RIGHT OF CITY LOOKS TO PURCHASE BUSINESS ASSETS. If this Agreement expires
or is terminated by either CITY LOOKS or the FRANCHISEE for any reason
whatsoever, or if the FRANCHISEE wrongfully terminates this Agreement by failing
to comply with Article 10 or otherwise, or if the FRANCHISEE at any time ceases
to do business at the Franchised Location as a City Looks Salons International
business, then CITY LOOKS will have the right, but not the obligation, to
purchase the then-usable furniture, supplies, inventory, fixtures and equipment,
and all other assets that are required by CITY LOOKS for a standard City Looks
Salons International business and owned by the FRANCHISEE in its business (the
"Business Assets"). CITY LOOKS will not purchase any assets from the FRANCHISEE
that are not part of the standard City Looks Salons International business. The
FRANCHISEE must give CITY LOOKS written notice listing the cost of each one of
the Business Assets in detail and the FRANCHISEE'S asking price for the Business
Assets within twenty-four (24) hours after the FRANCHISEE ceases to do business
as a City Looks Salons International business, or after this Agreement expires
or is terminated by either party, or is wrongfully terminated by the FRANCHISEE.
13.8 DETERMINATION OF FAIR MARKET VALUE. If the FRANCHISEE fails to give CITY
LOOKS written notice of the asking price of the Business Assets, or if CITY
LOOKS and the FRANCHISEE cannot agree on the price of the Business Assets, then
either party will have the right to demand that the price of the Business Assets
be determined by Arbitration in accordance with the Rules and Regulations of the
American Arbitration Association. The Arbitration hearing will be held as soon
as possible, but in no event later than seven (7) business days from the date
Arbitration is demanded by either party. The Arbitrator will determine the fair
market value of the Business Assets. The Arbitrator will not consider any value
for goodwill associated with the name "City Looks(R)" or for going concern value
in determining the fair market value of the Business Assets since the right of
purchase granted to CITY LOOKS pursuant to this provision applies only after
this Agreement expires or has been terminated, or the FRANCHISEE has ceased
doing business. Furthermore, the Arbitrator will not consider any value for the
Lease for the Franchised Location if CITY LOOKS agrees to assume the Lease and
pay the rental and operating costs. If the Arbitrator is unable to determine the
fair market value of any of the Business Assets, then they will be valued at
book value (cost less depreciation). CITY LOOKS will have the right, but not the
obligation, to purchase any or all of the Business Assets from the FRANCHISEE
for cash within fifteen (15) business days after the fair market value of the
Business Assets has been established by the Arbitrator in writing. Nothing in
this Article will prohibit CITY LOOKS from enforcing the terms and conditions of
this Agreement, including the covenants not to compete contained in Article 12.
ARTICLE 14
TRAINING PROGRAM; OPENING ASSISTANCE
14.1 TRAINING PROGRAM. CITY LOOKS will provide a training program for the
FRANCHISEE (and the FRANCHISEE'S District Manager if one is employed) in
Minneapolis, Minnesota (or such other location designated by CITY LOOKS) to
educate, familiarize and acquaint them with the operations of a City Looks
Salons International business. The training program will include classroom
instruction for not
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less than three (3) days on basic operating skills including preparation of
gross revenue reports, basic accounting procedures, inventory control and other
topics selected by CITY LOOKS. The FRANCHISEE and the District Manager must
successfully complete the training program either (a) prior to commencing any
business operations or (b) at the first scheduling of the training program by
CITY LOOKS after the execution of this Agreement. The training program will be
scheduled by CITY LOOKS in its sole discretion. In the event the FRANCHISEE or
its Manager fails to successfully complete CITY LOOKS' training program within
the time period expressed in the third sentence of this Article 14.1, he or she
will not be permitted or authorized to manage or operate the FRANCHISEE'S City
Looks business and CITY LOOKS will have the right to reject the FRANCHISEE
pursuant to Article 4.2 of this Agreement.
14.2 HIRING OF NEW DISTRICT MANAGER. The FRANCHISEE will immediately notify CITY
LOOKS in writing of any personnel changes in the management positions of the
FRANCHISEE'S City Looks Salons International business. In the event the
FRANCHISEE hires a District Manager who has not successfully completed the
training program prescribed by CITY LOOKS, and if CITY LOOKS determines, in its
sole discretion, that the new District Manager does not have sufficient
knowledge or experience relating to the management of the FRANCHISEE'S City
Looks business, then CITY LOOKS will require the individual to successfully
complete the prescribed training program prior to the time he or she will be
allowed to manage or operate the FRANCHISEE'S City Looks business, and the
FRANCHISEE will be required to pay CITY LOOKS its then-current training fee for
each such person.
14.3 PAYMENT OF SALARIES AND EXPENSES DURING TRAINING. The FRANCHISEE will
provide and pay for the room and board for all persons attending the training
program on behalf of the FRANCHISEE. The FRANCHISEE will pay the salaries,
fringe benefits, payroll taxes, unemployment compensation, workers' compensation
insurance, lodging, food, automobile rental, travel costs, and all other
expenses for the FRANCHISEE, the FRANCHISEE'S District Manager and all other
persons sent to the training program by the FRANCHISEE, and the FRANCHISEE will
comply with all applicable state and federal laws pertaining to all employees
who attend CITY LOOKS' training program.
14.4 OPENING ASSISTANCE. After the FRANCHISEE and the FRANCHISEE'S District
Manager have successfully completed CITY LOOKS' training program, CITY LOOKS
will assist the FRANCHISEE in scheduling the initial opening of the FRANCHISEE'S
City Looks business. CITY LOOKS will furnish a representative for not less than
five (5) business days at the Franchised Location, who will provide opening
assistance which will include hairstylist training, daily managerial and
operational training and other areas selected by CITY LOOKS. The FRANCHISEE will
not open and commence initial business operations until CITY LOOKS has given the
FRANCHISEE written approval to open the FRANCHISEE'S City Looks business. The
FRANCHISEE will schedule the "Grand Opening" for its City Looks business within
two (2) weeks after the FRANCHISEE commences initial business operations.
ARTICLE 15
CITY LOOKS' OTHER OBLIGATIONS
15.1 ADDITIONAL ASSISTANCE. Consistent with CITY LOOKS' uniform requirements and
quality standards, CITY LOOKS will, at its expense: (A) provide the FRANCHISEE
with a written schedule of all furniture, fixtures, supplies and equipment
necessary and required for the operation of the FRANCHISEE'S City Looks
business; (B) furnish a list of approved sources from whom the FRANCHISEE can
purchase furniture, fixtures, equipment, supplies, toiletries, grooming aids,
products, printed materials, items, goods and services; (C) review and evaluate
the FRANCHISEE'S business as often as CITY LOOKS deems necessary and render
written reports to the FRANCHISEE as deemed
<PAGE>
appropriate by CITY LOOKS; (D) protect, police and, when appropriate, enforce
the Marks and the Business System for the benefit of all City Looks Salons
International, City Looks By The Barbers and The Barbers franchisees; (E) render
advisory services pertaining to customer service and the operation of the
FRANCHISEE'S City Looks business as frequently as CITY LOOKS deems appropriate;
(F) provide the FRANCHISEE with CITY LOOKS' standard Operations Manual and all
supplements and modifications to the Manual; and (G) provide the FRANCHISEE with
CITY LOOKS' approved standard store layouts and plans for the Franchised
Location.
15.2 ANNUAL CONVENTION. CITY LOOKS will, during the term of this Agreement,
conduct an annual convention for all City Looks franchisees at such times and at
such locations as CITY LOOKS deems appropriate. The FRANCHISEE will attend the
annual convention conducted by CITY LOOKS for City Looks franchisees during each
year of this Agreement. All expenses incurred by the FRANCHISEE or any employees
of the FRANCHISEE in traveling to and attending the annual convention conducted
by CITY LOOKS will be paid for by the FRANCHISEE. CITY LOOKS will charge, and
the FRANCHISEE will pay, a registration fee for the annual convention,
regardless of whether the FRANCHISEE, or any representative of the FRANCHISEE,
attends the convention, and an additional registration fee will be charged for
each person in addition to the first person attending the annual convention on
behalf of the FRANCHISEE.
15.3 OPTIONAL ADDITIONAL TRAINING. CITY LOOKS may, during the term of this
Agreement, provide optional additional training and instruction to the
FRANCHISEE on topics determined by CITY LOOKS in its sole discretion. CITY LOOKS
reserves the right to add or delete additional training topics at any time,
without notice to the FRANCHISEE. The FRANCHISEE will be required to pay CITY
LOOKS the then-current training fee charged by CITY LOOKS for any additional
training attended by the FRANCHISEE or its employees. All expenses incurred by
the FRANCHISEE or any employees of the FRANCHISEE in traveling to and attending
optional additional training will be paid for by the FRANCHISEE.
ARTICLE 16
CITY LOOKS SALONS INTERNATIONAL SIGN
16.1 INSTALLATION OF SIGN. The FRANCHISEE will, at its expense, purchase the
standard City Looks Salons International Sign (the "Sign") which must be
displayed at the Franchised Location. The FRANCHISEE will pay for all costs
incurred in connection with the erection and installation of the Sign. The Sign
must conform exactly to CITY LOOKS' standard Sign plans and specifications and
must be installed at the Franchised Location precisely in the place, location
and manner specified by CITY LOOKS in writing. CITY LOOKS will have the absolute
right to inspect, examine, videotape and photograph the Sign at any time during
the term of this Agreement.
16.2 ADDITIONAL EXPENSES. The FRANCHISEE will, at its expense, be responsible
for any and all permits, licenses, repairs, maintenance, utilities, insurance,
taxes, assessments and levies in connection with the installation or use of the
Sign.
16.3 MODIFICATION AND REPLACEMENT. The FRANCHISEE may not alter, remove, change,
modify or redesign the Sign unless approved by CITY LOOKS in writing. CITY LOOKS
will have the unequivocal and unilateral right to redesign the Sign plans and
specifications during the term of this Agreement without the approval or consent
of the FRANCHISEE. Upon written notice from CITY LOOKS, the FRANCHISEE will, at
its expense, either modify or replace the Sign within thirty (30) days so that
the Sign displayed at the Franchised Location will comply with CITY LOOKS'
redesigned Sign
<PAGE>
plans and specifications. The FRANCHISEE will not be required to modify or
replace the Sign more than once every three (3) years during the term of this
Agreement.
16.4 INJUNCTIVE RELIEF. The FRANCHISEE agrees that CITY LOOKS will be entitled
to petition a Court of competent jurisdiction for an order of injunctive relief
against the FRANCHISEE to require the FRANCHISEE, at the FRANCHISEE'S expense,
to: (A) exhibit the approved City Looks Salons International Sign during the
term of this Agreement; (B) remove the Sign upon the termination or expiration
of this Agreement; or (C) remove the Sign from the former franchised location
upon the relocation of the Franchised Location. Unless required by applicable
law, CITY LOOKS will not be required to post a bond or other security prior to
obtaining injunctive relief pursuant to this Article.
ARTICLE 17
INSURANCE
17.1 GENERAL LIABILITY. The FRANCHISEE must acquire and maintain in full force
and effect, at its sole cost and expense, a general liability insurance policy
insuring the FRANCHISEE, CITY LOOKS, and their respective officers, directors
and employees from and against any loss, liability, damage, claim or expense of
any kind whatsoever including claims for bodily injury, personal injury, death,
property damage, products liability and malpractice resulting from the
condition, operation, use, business or occupancy of the FRANCHISEE'S City Looks
business, including the surrounding premises, the parking area and the sidewalks
of the Franchised Location.
17.2 AUTOMOBILE. The FRANCHISEE must acquire and maintain in full force and
effect, at its sole cost and expense, automobile liability coverage insuring the
FRANCHISEE, CITY LOOKS, and their respective officers, directors and employees
from any and all loss, liability, damage, claim or expense of any kind
whatsoever resulting from the use, operation or maintenance of any automobile or
vehicle used by the FRANCHISEE or any of its employees in connection with the
FRANCHISEE'S City Looks business.
17.3 COVERAGE LIMITS. Liability coverages for both the general liability
insurance coverage and automobile coverage must have limits of at least Five
Hundred Thousand Dollars ($500,000) for each person and One Million Dollars
($1,000,000) for each occurrence.
17.4 PROPERTY INSURANCE. The FRANCHISEE will maintain in full force and effect,
at its sole cost and expense, "all risks" property insurance coverage for the
machinery, equipment, furnishings, fixtures, inventory and signs owned or leased
by the FRANCHISEE and used at the Franchised Location (including fire and
extended coverage) with limits equal to at least "replacement" cost.
17.5 PROFESSIONAL LIABILITY INSURANCE. The FRANCHISEE will maintain in full
force and effect, at its sole cost and expense, professional liability coverage
with coverage limits of a reasonable amount insuring the FRANCHISEE, CITY LOOKS,
and their respective officers, directors and employees from any and all loss,
liability, damage, claim or expense of any kind whatsoever resulting from
actions or omissions of the FRANCHISEE'S officers, directors or any of its
employees in connection with the FRANCHISEE'S City Looks Business.
17.6 OTHER INSURANCE. The FRANCHISEE will, at its sole cost and expense, procure
and pay for all other insurance required by state or federal law, including
workers' compensation insurance for its employees, together with all insurance
required under any lease, mortgage, deed of trust or other legal
<PAGE>
contract in connection with the Franchised Location or the operation of the
FRANCHISEE'S City Looks business.
17.7 INSURANCE COMPANIES; EVIDENCE OF COVERAGE. All insurance companies
providing coverage to the FRANCHISEE must be licensed in the state where
coverage is provided. The FRANCHISEE will provide CITY LOOKS with certificates
of insurance evidencing the required insurance coverage no later than the date
the FRANCHISEE takes possession of the Franchised Location and will provide,
immediately upon expiration, change or cancellation, new certificates of
insurance to CITY LOOKS.
17.8 CITY LOOKS' RIGHTS. All insurance policies procured and maintained by the
FRANCHISEE pursuant to this Article will name CITY LOOKS as an additional
insured, will contain endorsements by the insurance companies waiving all rights
of subrogation against CITY LOOKS, and will stipulate that CITY LOOKS will
receive copies of all notices of cancellation, nonrenewal, or coverage reduction
or elimination at least thirty (30) days prior to the effective date of such
cancellation, nonrenewal or coverage change.
17.9 DEFENSE OF CLAIMS. All liability insurance policies procured and maintained
by the FRANCHISEE will require the insurance companies to provide and pay for
legal counsel to defend any legal actions, lawsuits or claims brought against
the FRANCHISEE, CITY LOOKS, and their respective officers, directors and
employees.
17.10 NO REPRESENTATIONS; RIGHT TO ADDITIONAL COVERAGE. CITY LOOKS makes no
representations with respect to the adequacy of the types of insurance coverage
or coverage amounts set forth herein, and the FRANCHISEE will have the absolute
right to maintain additional types of coverage and higher coverage amounts than
those specified herein as minimum requirements.
ARTICLE 18
INDEPENDENT CONTRACTORS; INDEMNIFICATION
18.1 INDEPENDENT CONTRACTORS. CITY LOOKS and the FRANCHISEE are each independent
contractors and, as a consequence, there is no employer-employee or
principal-agent relationship between CITY LOOKS and the FRANCHISEE. The
FRANCHISEE will not have the right to and will not make any agreements,
representations or warranties in the name of or on behalf of CITY LOOKS or
represent that their relationship is other than that of Franchisor and
Franchisee. Neither CITY LOOKS nor the FRANCHISEE will be obligated by or have
any liability to the other under any agreements or representations made by the
other to any third parties.
18.2 INDEMNIFICATION. CITY LOOKS will not be obligated to any person for damages
arising out of, from, in connection with, or as a result of the FRANCHISEE'S
negligence or the operation of the FRANCHISEE'S City Looks business. The
FRANCHISEE will indemnify and hold CITY LOOKS harmless against all claims,
lawsuits, damages, obligations, liability, actions and judgments alleged or
obtained by any person or entity against CITY LOOKS arising out of, from, as a
result of, or in connection with the FRANCHISEE'S negligence, the operation of
the FRANCHISEE'S City Looks business, the Franchised Location, or any business
conducted by the FRANCHISEE pursuant to this Agreement including, without
limitation, any claims arising from or relating to: (A) any personal injury,
property damage, commercial loss or environmental contamination resulting from
any act or omission of the FRANCHISEE or its employees, agents or
representatives; (B) any failure on the part of the FRANCHISEE to comply with
any requirement of any governmental authority; (C) any failure of the
<PAGE>
FRANCHISEE to pay any of its obligations; or (D) any failure of the FRANCHISEE
to comply with any requirement or condition of this Agreement or any other
agreement with CITY LOOKS or any affiliate of CITY LOOKS. Further, the
FRANCHISEE will indemnify and will reimburse CITY LOOKS for all such obligations
and damages for which CITY LOOKS is held liable and for all costs reasonably
incurred by CITY LOOKS in the defense of any such claims brought against it or
in any action in which it is named as a party including, without limitation,
costs for attorneys' fees actually incurred, investigation expenses, court
costs, deposition expenses and travel and living expenses. CITY LOOKS will have
the absolute right to defend any claim made against it that results from or
arises out of the FRANCHISEE'S City Looks business.
18.3 PAYMENT OF COSTS AND EXPENSES. The FRANCHISEE will pay all costs and
expenses, including actual attorneys' fees, incurred by CITY LOOKS in enforcing
any term, condition or provision of this Agreement or in seeking to enjoin any
violation of this Agreement by the FRANCHISEE.
18.4 CONTINUATION OF OBLIGATIONS. The indemnification and other obligations
contained in this Article will continue in full force and effect subsequent to
and notwithstanding the expiration or termination of this Agreement.
ARTICLE 19
FINANCIAL STATEMENTS; GROSS REVENUE REPORTS;
FORMS AND ACCOUNTING
19.1 QUARTERLY AND ANNUAL FINANCIAL STATEMENTS. The FRANCHISEE will, at its
expense, provide CITY LOOKS with a quarterly balance sheet and income statement,
and annual financial statements for the FRANCHISEE'S City Looks business which
will consist of a balance sheet, income statement, statement of cash flows and
explanatory footnotes. All financial statements provided to CITY LOOKS for the
FRANCHISEE'S City Looks business will be presented in the exact form and format
prescribed by CITY LOOKS in writing and will be categorized according to the
chart of accounts prescribed by CITY LOOKS. If the FRANCHISEE'S annual financial
statements are not certified by an independent certified public accountant, then
the FRANCHISEE'S annual financial statements must be verified by the
FRANCHISEE'S President or Chief Financial Officer, or if the FRANCHISEE is not a
corporation, then by the FRANCHISEE'S Managing Partner, Chief Operating Officer
or Chief Financial Officer. The FRANCHISEE'S financial statements will be
prepared in accordance with generally accepted accounting principles applied on
a consistent basis. The FRANCHISEE'S quarterly financial statements will be
delivered to CITY LOOKS by the FRANCHISEE within thirty (30) days after the end
of the quarter and the annual financial statements will be delivered within
ninety (90) days of the FRANCHISEE'S fiscal year end.
19.2 TAX RETURNS. Within ninety (90) days after the FRANCHISEE'S fiscal year
end, the FRANCHISEE will furnish CITY LOOKS with signed copies of the
FRANCHISEE'S annual federal, and if applicable, state income tax returns, and
copies of any other federal, state or local tax returns filed by the FRANCHISEE
including, but not limited to, any amended tax returns filed by the FRANCHISEE,
together with proof that the FRANCHISEE has paid all federal and state income
and sales taxes due.
19.3 WEEKLY STATEMENT OF GROSS REVENUES. The FRANCHISEE will maintain an
accurate written record of daily Gross Revenues for the FRANCHISEE'S City Looks
business and the FRANCHISEE will remit a signed and verified statement of the
weekly Gross Revenues generated by, at, as a result of, or from the FRANCHISEE'S
City Looks business using such forms as CITY LOOKS may prescribe in writing. The
weekly statement of Gross Revenues will accompany the FRANCHISEE'S
<PAGE>
weekly Continuing Fees, National Advertising Production Fees, and Advertising
Fees and will be provided to CITY LOOKS on or before Thursday of each week for
the preceding week.
19.4 CITY LOOKS' AUDIT RIGHTS. Within three (3) days after having been given
written notice from CITY LOOKS, the FRANCHISEE and its accountants will make all
of their books, ledgers, work papers, accounts, bank statements, tax returns,
sales tax returns, daily cash register tapes and financial records pertaining to
the FRANCHISEE'S City Looks business, ("books and financial records") available
to CITY LOOKS during all business hours for review and audit by CITY LOOKS or
its designee. The books and financial records for each fiscal year will be kept
in a secure place by the FRANCHISEE and will be available for audit by CITY
LOOKS for at least the preceding five (5) years. The FRANCHISEE will provide
CITY LOOKS with adequate facilities to conduct the audit, including a working
area with a desk and chair, at either the Franchised Location or at the
FRANCHISEE'S accountants' offices. If an audit by CITY LOOKS reveals any
deficiencies, then the FRANCHISEE will, within five (5) days after receipt of an
invoice from CITY LOOKS indicating the amounts owed, pay CITY LOOKS any
deficiency in Continuing Fees or other amounts owed to CITY LOOKS, together with
interest as provided for herein. If an audit by CITY LOOKS results in a
determination that the FRANCHISEE'S Gross Revenues were understated by more than
two percent (2%), or that the FRANCHISEE has underpaid the weekly Continuing
Fees by more than Five Hundred Dollars ($500) in any twelve month period, then
the FRANCHISEE will, in addition to paying any deficiency in Continuing Fees,
National Advertising Production Fees, Advertising Fees, costs of products
purchased from CITY LOOKS or other amounts due to CITY LOOKS, reimburse CITY
LOOKS for all costs and expenses (including salaries of CITY LOOKS' employees,
travel costs, room and board, and audit fees) that CITY LOOKS has incurred as a
result of the audit, including any fees paid to its accountants to conduct the
audit. The FRANCHISEE will reimburse CITY LOOKS for such costs and expenses
within ten (10) days of receipt of an invoice from CITY LOOKS indicating the
amount owed as a result of the audit. The FRANCHISEE'S failure or refusal to
produce the books and financial records for audit by CITY LOOKS in accordance
with this Article 19.4 will constitute a material breach of this Agreement and
will be grounds for the immediate termination of this Agreement by CITY LOOKS.
19.5 WAIVER BY FRANCHISEE. CITY LOOKS will have the right, without notice to, or
further approval of or authorization by, the FRANCHISEE, to provide all vendors
that supply any products, goods or services to the FRANCHISEE with copies of the
FRANCHISEE'S: (A) initial application and all financial information that was
provided to CITY LOOKS in conjunction with such application; (B) most recent
financial information provided to CITY LOOKS; and (C) most recent annual
financial statements provided to CITY LOOKS. CITY LOOKS will also have the right
to obtain credit reports maintained by credit reporting agencies regarding the
FRANCHISEE and the right to review the books and records maintained by the
vendors or suppliers that supply products, goods or services to the FRANCHISEE
regarding the purchases made by the FRANCHISEE. This Agreement will serve as
evidence of CITY LOOKS' right to review such information and will constitute the
authority from the FRANCHISEE for credit reporting agencies, vendors and
suppliers to provide such information to CITY LOOKS.
19.6 PAYMENT BY PRE-AUTHORIZED BANK TRANSFER. The FRANCHISEE will, from time to
time during the term of this Agreement, execute such documents as CITY LOOKS may
request to provide the FRANCHISEE'S unconditional and irrevocable authority and
direction to its bank or financial institution authorizing and directing the
FRANCHISEE'S bank or financial institution to pay and deposit directly to the
account of CITY LOOKS, and to charge to the account of the FRANCHISEE, on
Thursday of each week, the amount of the Continuing Fees, National Advertising
Production Fees, Advertising Fees and other sums due and payable by the
FRANCHISEE pursuant to this Agreement in accordance with Article 5 and Article 6
of this Agreement. The authorizations will be in the form prescribed by COST
<PAGE>
CUTTERS' bank. The FRANCHISEE'S authorizations will permit CITY LOOKS to
designate the amount to be debited or drafted from the FRANCHISEE'S account and
to adjust such amount from time to time, to the amount of the Continuing Fees,
National Advertising Production Fees, Advertising Fees and other sums then
payable to CITY LOOKS from the FRANCHISEE. If the FRANCHISEE fails at any time
to provide reports of Gross Revenues as required under Article 19.3 of this
Agreement, then CITY LOOKS will have the right, in its sole discretion, to
estimate the amount of the Continuing Fees, National Advertising Production
Fees, Advertising Fees and other sums due and payable to CITY LOOKS, and to
designate such estimated amount as the amount to be debited or drafted from the
FRANCHISEE'S account. The FRANCHISEE will, at all times during the term of this
Agreement, maintain a balance in its account at its bank or financial
institution sufficient to allow the appropriate amount to be debited from the
FRANCHISEE'S account for payment of the Continuing Fees, National Advertising
Production Fees, Advertising Fees and other sums payable by the FRANCHISEE for
deposit in the account of CITY LOOKS.
ARTICLE 20
ASSIGNMENT
20.1 ASSIGNMENT BY CITY LOOKS. This Agreement may be unilaterally assigned and
transferred by CITY LOOKS without the FRANCHISEE'S approval or consent, and will
inure to the benefit of CITY LOOKS' successors and assigns. CITY LOOKS will
provide the FRANCHISEE with written notice of any such assignment or transfer,
and the assignee will be required to fulfill CITY LOOKS' obligations under this
Agreement.
20.2 ASSIGNMENT BY FRANCHISEE TO CORPORATION. If the FRANCHISEE is an individual
or partnership, this Agreement may be transferred or assigned by the FRANCHISEE,
without first offering it to CITY LOOKS pursuant to Article 13, to a corporation
which is owned or controlled (ownership of at least fifty-one percent (51%) of
the issued and outstanding capital stock) by the FRANCHISEE, provided that: (A)
the FRANCHISEE and all of the shareholders of the assignee corporation sign the
personal guaranty and agreement to be bound by the terms and conditions of this
Agreement attached hereto; (B) the FRANCHISEE furnishes prior written proof to
CITY LOOKS substantiating that the corporation will be financially able to
perform all of the terms and conditions of this Agreement; and (C) none of the
shareholders owns, operates, franchises, develops, manages or controls any
hairstyling, barber or other business that is in any way competitive with or
similar to a City Looks Salons International business. The FRANCHISEE will give
CITY LOOKS fifteen (15) days written notice prior to the proposed date of
assignment or transfer of this Agreement to an owned or controlled corporation
of the FRANCHISEE; however, the transfer or assignment of this Agreement will
not be valid or effective until CITY LOOKS has received the legal documents
which its legal counsel deems necessary to properly and legally document the
transfer or assignment of this Agreement to the corporation as provided herein.
20.3 ASSIGNMENT UPON DEATH OR DISABILITY OF INDIVIDUAL FRANCHISEE. If the
FRANCHISEE is an individual, then this Agreement may be assigned, transferred or
bequeathed by the FRANCHISEE to any designated person or beneficiary without
first being offered to CITY LOOKS, pursuant to Article 13, upon his or her death
or permanent disability. However, the assignment of this Agreement to the
transferee, assignee or beneficiary of the FRANCHISEE will not be valid or
effective until CITY LOOKS has received the properly executed legal documents
which its legal counsel deems necessary to properly and legally document the
transfer, assignment or bequest of this Agreement, and until the transferee,
assignee or beneficiary agrees to be unconditionally bound by the terms and
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conditions of this Agreement and to personally guarantee the performance of the
FRANCHISEE'S obligations under this Agreement.
20.4 APPROVAL OF TRANSFER; CONDITIONS FOR APPROVAL. The rights granted to the
FRANCHISEE pursuant to this Agreement may be assigned or transferred by the
FRANCHISEE only with the prior written approval of CITY LOOKS. CITY LOOKS will
not unreasonably withhold its consent to any transfer of this Agreement provided
that the FRANCHISEE and the transferee Franchisee comply with the following
conditions: (A) The FRANCHISEE has complied in all respects with Article 13 of
this Agreement; (B) All of the FRANCHISEE'S monetary obligations due to CITY
LOOKS have been paid in full, and the FRANCHISEE is not otherwise in default
under this Agreement; (C) The FRANCHISEE has executed a written agreement in a
form satisfactory to CITY LOOKS in which the FRANCHISEE agrees to observe all
applicable obligations and covenants contained in this Agreement; (D) The
transferee Franchisee and its shareholders agree to be personally liable to
discharge all of the FRANCHISEE'S obligations under this Agreement, and will
enter into a written agreement in a form satisfactory to CITY LOOKS assuming and
agreeing to discharge all of the FRANCHISEE'S obligations and covenants under
this Agreement; (E) The transferee Franchisee will have demonstrated to CITY
LOOKS' satisfaction that he, she or it meets CITY LOOKS' managerial, financial
and business standards for new Franchisees, possesses a good business reputation
and credit rating, and possesses the aptitude and ability to conduct the
franchised business (as may be evidenced by prior related business experience or
otherwise); (F) The transferee Franchisee and all parties having a legal or
beneficial interest in the transferee Franchisee including, if applicable, the
shareholders and Personal Guarantors of the transferee Franchisee will execute
CITY LOOKS' then-current standard Franchise Agreement for a term ending on the
expiration date of this Agreement and such other ancillary agreements as CITY
LOOKS may require for the transfer of the FRANCHISEE'S business; (G) The
transferee Franchisee will not be required to pay the Initial Fee; however, the
transferee Franchisee will be required to pay the Continuing Fees, the National
Advertising Production Fees, and the Advertising Fees to CITY LOOKS at the rate
specified in this Agreement; (H) The transferee FRANCHISEE has purchased the
Franchised Location or has acquired a lease for the Franchised Location for a
reasonable term consistent with the remaining term of this Agreement; and (I)
The transferee Franchisee and its District Manager (if one is employed) must
successfully complete the training programs prescribed by CITY LOOKS; (J) the
transferee Franchisee will pay the salaries, fringe benefits, payroll taxes,
unemployment compensation, workers' compensation insurance, hotel costs, travel
costs and other expenses for all persons sent to the training programs, and will
pay to CITY LOOKS CITY LOOKS' then-current training fee for each person
attending CITY LOOKS' training program(s); (K) the FRANCHISEE has paid the
transfer fee required under Article 20.6; (L) the transferee Franchisee does not
own, operate, franchise, develop, manage or control any hairstyling, barber or
other business that is in any way competitive with or similar to a City Looks
Salons International business; and (M) if the transferee Franchisee does not
meet CITY LOOKS' net worth requirements for operation of the City Looks Salons
International Business, then the FRANCHISEE and/or its shareholders and the
Personal Guarantors will execute a written agreement in a form satisfactory to
CITY LOOKS agreeing to remain liable to CITY LOOKS for the obligations of the
City Looks Salons International Business.
20.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the City Looks Business System and the Marks, as well as CITY LOOKS'
reputation and image, and are for the protection of CITY LOOKS, the FRANCHISEE
and all other franchisees who own and operate City Looks businesses. Any
assignment or transfer permitted by this Article 20 will not be effective until
CITY LOOKS receives a completely executed copy of all transfer documents and
CITY LOOKS consents
<PAGE>
to the transfer in writing, any attempted assignment or transfer made without
complying with the requirements of this Article 20 will be void.
20.6 TRANSFER FEE. If, pursuant to the terms of this Article 20, the rights
granted to the FRANCHISEE in this Agreement are assigned, transferred or
bequeathed to another person or entity, or if the FRANCHISEE'S shareholders
transfer over fifty percent (50%) of their capital stock to another person or
entity, then the FRANCHISEE will pay CITY LOOKS a transfer fee of One Thousand
Dollars ($1,000). The transfer fee is to cover the costs incurred by CITY LOOKS
for attorneys' fees, accountants' fees, compliance with applicable laws,
out-of-pocket expenses, long distance telephone calls, and the time of its
employees and officers.
ARTICLE 21
SITE SELECTION; STANDARD STORE LAYOUTS AND PLANS
21.1 SITE SELECTION. The FRANCHISEE will be solely responsible for selecting a
site for the Franchised Location and for purchasing, leasing or otherwise
acquiring possession of the site for the Franchised Location. CITY LOOKS has
strongly recommended that the FRANCHISEE should retain an experienced commercial
real estate broker or salesperson ("real estate broker") who has at least five
years experience in locating and/or leasing retail space to locate, acquire,
purchase or lease a site for the FRANCHISEE'S City Looks business. Accordingly,
no provision of this Agreement may be construed to impose any obligation or
responsibility on CITY LOOKS to locate or select a site for the Franchised
Location. The FRANCHISE will not lease, purchase or otherwise acquire a site for
the Franchised Location until the proposed site has been reviewed in writing by
CITY LOOKS to determine accessibility, visibility, potential traffic flows and
other demographic information. The review of the site conducted by CITY LOOKS
will not be deemed to be a warranty, representation or guaranty by CITY LOOKS
that if the FRANCHISEE'S City Looks business is opened and operated at that
site, it will be a financial success. CITY LOOKS will have the right to require
the FRANCHISEE to obtain, at the FRANCHISEE'S expense, an economic feasibility
and demographics study for the proposed site for the Franchised Location. Any
feasibility and demographics study required by CITY LOOKS will be completed by a
real estate expert mutually agreed upon by CITY LOOKS and the FRANCHISEE in
writing.
21.2 STANDARD STORE LAYOUTS AND PLANS. After the Franchised Location has been
leased or acquired, the FRANCHISEE will, within sixty (60) days of the date of
this Agreement, provide CITY LOOKS with the following information for the
Franchised Location: (A) a copy of the executed lease (if applicable), (B) the
store front elevation; (C) space documentation (size and lay-out); (D) the
location of the plumbing and electrical sources; (E) local signage requirements,
laws and regulations; and (F) all other pertinent information. Based upon the
information provided by the FRANCHISEE, CITY LOOKS will provide approved store
layouts and plans for the Franchised Location. The FRANCHISEE will construct or
remodel the Franchised Location in strict compliance with the store layouts and
plans provided by CITY LOOKS. Any unauthorized variance from the store layouts
and plans provided by CITY LOOKS will be a material breach of this Agreement.
Providing store layouts and plans does not constitute a representation, warranty
or guaranty by CITY LOOKS that the site will be a financially successful
location for the FRANCHISEE'S City Looks business, and the FRANCHISEE assumes
all business and economic risks associated with the operation of the City Looks
business at this site.
21.3 INCORRECT INFORMATION. In the event any of the information provided to CITY
LOOKS by the FRANCHISEE pursuant to this Article 21 is incorrect, inaccurate or
incomplete, then the FRANCHISEE will pay for all costs and expenses incurred by
CITY LOOKS in revising the store layouts and plans prepared by CITY LOOKS for
the Franchised Location.
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21.4 FRANCHISEE RESPONSIBLE FOR CONSTRUCTION OR REMODELING. The FRANCHISEE will
be solely responsible for ascertaining and insuring that the Franchised Location
is constructed or remodeled according to the store layouts and plans provided by
CITY LOOKS in compliance with all applicable local, state and federal laws,
ordinances, statutes and building codes. Accordingly, the FRANCHISEE or its
agent will be responsible for inspecting the premises during construction or
remodeling to insure that the Franchised Location complies with the store
layouts and plans and with applicable laws and ordinances.
21.5 CITY LOOKS' OPTION TO VIEW FRANCHISED LOCATION. CITY LOOKS may, at its
expense, view the Franchised Location during construction or remodeling at such
times as it deems necessary for the purpose of determining the progress of the
construction or remodeling and to ascertain that the interior and exterior of
the Franchised Location are generally being constructed or remodeled according
to the store layouts and plans. CITY LOOKS' viewing of the Franchised Location
during construction or remodeling will not be for the purpose of determining
that the Franchised Location are being constructed or remodeled in a workmanlike
manner or in compliance with any applicable laws or ordinances. Accordingly,
CITY LOOKS will have no responsibility or liability to the FRANCHISEE or any
other person or entity if the Franchised Location is not constructed or
remodeled according to the store layouts and plans, in a workmanlike manner or
in compliance with any applicable laws or ordinances.
ARTICLE 22
LEASE AS SECURITY; TERMINATION OF LEASE
22.1 CITY LOOKS' REVIEW OF LEASE. The lease for the Franchised Location (the
"Lease") will be submitted to CITY LOOKS by the FRANCHISEE for CITY LOOKS'
review prior to execution of the Lease by the FRANCHISEE. The Lease must, at a
minimum, be conditional upon CITY LOOKS' approval of the FRANCHISEE and give
CITY LOOKS the right to enter the premises to conduct inspections at any time
during regular business hours, and the right, but not the obligation, to assume
the Lease for the remaining term, in accordance with the provisions of this
Article, if the FRANCHISEE is evicted by the Landlord or if this Agreement
expires or is terminated by either CITY LOOKS or the FRANCHISEE for any reason
prior to the expiration of the Lease. CITY LOOKS' review of the Lease prior to
its execution will not be for the purpose of approving the legal aspects,
economics or rental terms of the Lease. Accordingly, CITY LOOKS will have no
responsibility to the FRANCHISEE with regard to the economics, legality or
enforceability of the provisions of the Lease.
22.2 FRANCHISEE'S ASSIGNMENT OF LEASE. The FRANCHISEE hereby assigns and
transfers all of its right, title and interest in and to the Lease (which is
incorporated herein by reference) to CITY LOOKS as security for the FRANCHISEE'S
performance of the terms and conditions of this Agreement. If this Agreement is
terminated by either CITY LOOKS or the FRANCHISEE for any reason whatsoever, if
the FRANCHISEE wrongfully terminates this Agreement by failing to comply with
Article 10 or for any other reason, if the FRANCHISEE at any time ceases to do
business at the Franchised Location as a City Looks business, or if this
Agreement expires and the FRANCHISEE does not reacquire the franchise (an "Event
of Default"), then CITY LOOKS will have the right and option, but not the
obligation, to take and assume the Lease for the remaining term under the same
terms and conditions, including rental, as originally contracted by the
FRANCHISEE. The FRANCHISEE will execute a UCC-1 Financing Statement and other
documents as may be reasonably required by CITY LOOKS' attorneys to perfect and
record CITY LOOKS' security interest in the Lease.
<PAGE>
22.3 PERFECTED ASSIGNMENT; NOTICE. This assignment will constitute a perfected,
absolute and present assignment of the Lease; provided, however, CITY LOOKS will
have no right under this assignment to enforce the provisions of the Lease until
an Event of Default has occurred. After an Event of Default has occurred, CITY
LOOKS will have the right, but not the obligation, to enforce the provisions of
this assignment and to take possession of the Franchised Location by giving the
FRANCHISEE and the Landlord written notice that it has affirmatively exercised
its rights under this assignment. The written notice will state: (A) that CITY
LOOKS is taking and assuming the Lease from the FRANCHISEE; (B) the date that
CITY LOOKS will take physical possession of the Franchised Location; and (C)
that CITY LOOKS agrees to be bound by the terms and conditions of the Lease
being assumed. CITY LOOKS will execute an assignment form at the time it gives
written notice to the FRANCHISEE and the Landlord of its assumption of the
Lease.
22.4 NO PRIOR ASSIGNMENTS. The FRANCHISEE represents and warrants that there
have been no prior assignments of the Lease by the FRANCHISEE, that it has good
right to assign and transfer the Lease, that the Lease is a valid and
enforceable agreement, that neither party is in default to the other thereunder
and that all covenants, conditions and agreements have been performed as
required therein, except those not due to be performed until after the date
hereof. No change in the terms of the Lease will be valid without the written
approval of CITY LOOKS. The FRANCHISEE agrees not to assign, sell, pledge or
otherwise transfer or encumber its interest in the Lease so long as this
assignment is in effect. During the term of this Agreement, the FRANCHISEE will
not lease or sublease all or any part of the Franchised Location without CITY
LOOKS' prior written consent.
22.5 ENFORCEMENT OF FRANCHISEE'S RIGHTS. The FRANCHISEE hereby irrevocably
constitutes and appoints CITY LOOKS as its attorney-in-fact to demand, receive
and enforce the FRANCHISEE'S rights with respect to the Lease, to make payments
under the Lease and give appropriate receipts, releases and satisfactions for
and on behalf of and in the name of the FRANCHISEE or, at the option of CITY
LOOKS, in the name of CITY LOOKS, with the same force and effect as the
FRANCHISEE could do if this assignment had not been made.
22.6 CITY LOOKS' RIGHTS AND REMEDIES. Upon taking physical possession of the
Franchised Location, CITY LOOKS may, without affecting any of its rights or
remedies against the FRANCHISEE under any other instrument, document or
agreement, exercise its rights under this assignment as the FRANCHISEE'S
attorney-in-fact in any manner permitted by law and, in addition, CITY LOOKS
will have and possess, without limitation, any and all rights and remedies of a
secured party under the Uniform Commercial Code, as enacted in the jurisdiction
in which enforcement is sought or as provided by law.
22.7 PRORATION OF RENTS AND EXPENSES. At the time CITY LOOKS takes physical
possession of the Franchised Location, all charges, real estate taxes, utilities
and rentals will be prorated between CITY LOOKS and the FRANCHISEE. CITY LOOKS
will have no obligation to pay any past due obligations or arrearages of the
FRANCHISEE to any person or entity, including the Landlord.
22.8 POSSESSION; OBLIGATIONS OF CITY LOOKS AND FRANCHISEE. CITY LOOKS will hold
the FRANCHISEE harmless from any and all obligations to the Landlord, including
rental payments, arising out of the use of the Franchised Location from the date
that CITY LOOKS takes physical possession of the Franchised Location. The
FRANCHISEE will pay all amounts due to the Landlord and other parties under the
Lease including, but not limited to, rentals, insurance, rental overrides, real
estate taxes, repairs and maintenance, up to and including the date that CITY
LOOKS takes physical possession of the Franchised Location. With the specific
and limited exception of rental
<PAGE>
payments and other obligations to the Landlord arising from CITY LOOKS' use of
the Franchised Location after taking physical possession of the premises, the
FRANCHISEE will indemnify and hold CITY LOOKS harmless from and against any and
all claims, demands, liabilities, losses, lawsuits, judgments, costs and
expenses, including attorneys' fees, to which CITY LOOKS may become exposed, or
which CITY LOOKS may incur, in exercising any of its rights under this
assignment.
22.9 LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE AS SECURITY. The FRANCHISEE will
secure the Landlord's written consent to the provisions contained in this
Article in the form of consent attached as Exhibit B to this Agreement.
22.10 ASSIGNMENT BY CITY LOOKS. CITY LOOKS will have the right to reassign its
right, title and interest in the Lease to any person or entity upon giving
written notice to the FRANCHISEE and the Landlord without any consent whatever
from the FRANCHISEE or the Landlord, and any such reassignment will be valid and
binding upon the FRANCHISEE and the Landlord as fully as if each had expressly
approved the same. Subject to the limitation on further assignment by the
FRANCHISEE contained in Article 22.4; this assignment will be binding upon and
inure to the benefit of the heirs, legal representatives, assigns, and
successors in interest of the FRANCHISEE, CITY LOOKS and the Landlord.
22.11 LEASE NOT YET EXECUTED. In the event that the FRANCHISEE has not yet
entered into a premises lease for the Franchised Location at the time this
Agreement is executed, the provisions of Article 22.2, 22.3 and 22.5 of this
Agreement will take effect immediately upon the execution of the Lease. The
representations of the FRANCHISEE contained in Article 22.4 will be true and
complete as of, and will be deemed to have been made at, the time the Lease is
executed. The FRANCHISEE agrees to execute any additional documents as may be
required by CITY LOOKS' attorneys to perfect the assignment of the Lease.
ARTICLE 23
ARBITRATION
23.1 DISPUTES SUBJECT TO ARBITRATION. Except as expressly provided to the
contrary in this Agreement, all disputes and controversies between the parties,
including allegations of fraud, misrepresentation or violation of any state or
federal laws or regulations, arising under, as a result of, or in connection
with this Agreement, the Franchised Location or the FRANCHISEE'S City Looks
business will be resolved and determined exclusively by Arbitration in
accordance with the Commercial Rules and Regulations of the American Arbitration
Association.
23.2 NOTICE OF DISPUTE. The party alleging the breach, claim, dispute or
controversy ("dispute") must give the other party written notice setting forth
the alleged dispute in detail. The party who is given such written notice
alleging the dispute will have thirty (30) days after having been given such
written notice from the complaining party to correct or resolve the dispute
specified in the written notice.
23.3 DEMAND FOR ARBITRATION. If the dispute alleged by either party has not been
corrected, settled or compromised within the time period provided for in this
Agreement, then either party may notice Arbitration by giving the other party
written notice demanding Arbitration. Within ten (10) days after a written
demand for Arbitration has been given by the party demanding Arbitration, either
party will have the right to request the office of the American Arbitration
Association in Minneapolis, Minnesota to initiate the procedures necessary to
appoint an Arbitrator. The Arbitrator will be appointed within sixty
<PAGE>
(60) days after a written demand for Arbitration has been made in accordance
with the Rules and Regulation of the American Arbitration Association.
23.4 VENUE AND JURISDICTION. All Arbitration hearings will take place
exclusively in Minneapolis, Minnesota. CITY LOOKS and the FRANCHISEE and their
officers, Directors and shareholders or partners and the Personal Guarantors
acknowledge that the FRANCHISEE and its officers, directors and employees have
had substantial business and personal contacts with CITY LOOKS in Minnesota, do
hereby agree and submit to personal jurisdiction in Minnesota in connection with
any Arbitration hearings hereunder and any suits or actions brought to enforce
the decision of the Arbitrator, and do hereby waive any rights they may have to
contest venue and jurisdiction in Minnesota and any claims that venue and
jurisdiction in Minnesota are invalid.
23.5 POWERS OF ARBITRATOR. The authority of the Arbitrator will be limited to
making a finding, judgment, decision and award relating to the interpretation of
or adherence to the written provisions of this Agreement. The Federal Rules of
Evidence (the "Rules") will apply to all Arbitration hearings and the
introduction of all evidence, testimony, records, affidavits, documents and
memoranda in any arbitration hearing must comply in all respects with the Rules
and legal precedents interpreting the Rules. Both parties will have the absolute
right to cross-examine any person who testified against them or in favor of the
other party. The Arbitrator will not have the authority or right to add to,
delete, amend or modify in any manner the terms, conditions and provisions of
this Agreement. All findings, judgments, decisions and awards of the Arbitrator
will be limited to the dispute set forth in the written demand for Arbitration,
and the Arbitrator will not have the authority to decide any other issues. The
Arbitrator will not have the right or authority to award punitive damages to
CITY LOOKS or the FRANCHISEE or their officers, directors, shareholders or
partners and Personal Guarantors, and CITY LOOKS and FRANCHISEE and their
officers, directors, shareholders or partners, and Personal Guarantors expressly
waive their rights to plead or seek punitive damages. All findings, judgments,
decisions and awards by the Arbitrator will be in writing, will be made within
sixty (60) days after the Arbitration hearings have been completed, and will be
final and binding on CITY LOOKS and the FRANCHISEE except as provided for in
Article 23.8. The written decision of the Arbitrator will be deemed to be an
order, judgment and decree and may be entered as such in any Court of competent
jurisdiction by either party.
23.6 DISPUTES NOT SUBJECT TO ARBITRATION. The disputes and controversies between
CITY LOOKS and the FRANCHISEE which are set forth in Article 24.1 and the
following disputes and controversies between CITY LOOKS and the FRANCHISEE will
not be subject to Arbitration: (A) any dispute involving the Marks or which
arises under or as a result of Article 3 of this Agreement; (B) any dispute
involving immediate termination of this Agreement by CITY LOOKS pursuant to
Article 9.5 and 9.6 of this Agreement; (C) any dispute involving enforcement of
the confidentiality provisions set forth in Article 8 of this Agreement; and (D)
any dispute involving enforcement of the covenants not to compete set forth in
Article 12 of this Agreement.
23.7 NO COLLATERAL ESTOPPEL OR CLASS ACTIONS. Except as provided herein, all
Arbitration findings, conclusions, orders and awards made by the Arbitrator will
be final and binding on CITY LOOKS and the FRANCHISEE and their officers,
directors, shareholders or partners, and Personal Guarantors; however, such
Arbitration findings, conclusions, orders and awards may not be used to
collaterally estop either party from raising any like or similar issues, claims
or defenses in any other or subsequent Arbitration, litigation, court hearing or
other proceeding involving third parties or other Franchisees. No party except
CITY LOOKS, the FRANCHISEE, and their officers, directors, shareholders or
partners, and Personal Guarantors will have the right to join in any Arbitration
proceeding arising under this AGREEMENT, and, therefore, the Arbitrator will not
be authorized to permit or
<PAGE>
approve class actions or to permit any person or entity that is not a party to
this Agreement to be involved in or to participate in any Arbitration hearings
conducted pursuant to this Agreement.
23.8 DE NOVO HEARING ON THE MERITS. If the Arbitrator awards either CITY LOOKS
or the FRANCHISEE damages (including actual damages, costs and attorneys' fees)
in excess of One Hundred Thousand Dollars ($100,000) in any Arbitration
proceeding commenced pursuant to this Agreement, then the party who has been
held liable by the Arbitrator will have the right to a de novo hearing on the
merits by commencing an action in a court of competent jurisdiction in
accordance with the provisions of this Agreement. If the party held liable by
the Arbitrator commences a court action as provided for herein, then neither
party will have the right to introduce the Arbitrator's decision and findings
will be of no force and effect and will not be final or binding on either CITY
LOOKS or FRANCHISEE. If the party who has been held liable by the Arbitrator for
over One Hundred Thousand Dollars ($100,000) in damages fails to commence a
court action within thirty (30) days after the Arbitrator issues his or her
award in writing, then the Arbitrator's findings, judgments, decisions and
awards will be final and binding on CITY LOOKS and the FRANCHISEE.
23.9 CONFIDENTIALITY. All evidence, testimony, records, documents, findings,
decisions, judgments and awards pertaining to any Arbitration hearing between
CITY LOOKS and FRANCHISEE will be secret and confidential in all respects. CITY
LOOKS and FRANCHISEE will not disclose any evidence, testimony, records,
documents, findings, orders, or other matters from the Arbitration hearing to
any person or entity except as provided by law.
23.10 SEVERABILITY. It is the desire and intent of the parties to this Agreement
that the provisions of this Article be enforced to the fullest extent
permissible under the laws and public policy applied in each jurisdiction in
which enforcement is sought. Accordingly, if any part of this Article is
adjudicated to be invalid or unenforceable, then this Article will be deemed
amended to delete that portion thus adjudicated to be invalid or unenforceable
to the extent required to make this Article valid and enforceable. Any such
deletion will be effective only in the jurisdiction in which the adjudication is
made. Further, to the extent any provision of this Article is deemed
unenforceable by virtue of its scope, the parties to this Agreement agree that
the same will, nevertheless, be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction where
enforcement is sought, and the scope in such a case will be determined by
Arbitration as provided herein.
ARTICLE 24
ENFORCEMENT
24.1 INJUNCTIVE RELIEF. In addition to the provisions of Article 23.6, CITY
LOOKS will have the right to petition a Court of competent jurisdiction for the
entry of temporary and permanent injunctions and orders of specific performance
enforcing the provisions of this Agreement relating to: (A) the FRANCHISEE'S
improper or unauthorized use of the Marks and the Business System; (B) the
obligations of the FRANCHISEE upon termination or expiration of this Agreement;
(C) the transfer or assignment of this Agreement, the franchised business or
substantially all of the assets employed in the franchised business, or the
ownership interests of the FRANCHISEE; (D) the FRANCHISEE'S violation of the
provisions of this Agreement relating to confidentiality and covenants not to
compete; and (E) any act or omission by the FRANCHISEE or the FRANCHISEE'S
employees that, (1) constitutes a violation of any applicable law, ordinance or
regulation, (2) is dishonest or misleading to customers of the FRANCHISEE'S City
Looks Salons International business or other The Barbers or City Looks By The
Barbers businesses, (3) constitutes a danger to the employees, public or
customers of the FRANCHISEE'S City Looks business, or (4) may impair the
goodwill associated with the Marks and the Business System.
<PAGE>
In any action brought under this provision where CITY LOOKS prevails over the
FRANCHISEE, the FRANCHISEE will indemnify CITY LOOKS for all costs that it
incurs in any such proceedings including, without limitation, attorneys' fees
actually incurred, expert witness fees, costs of investigation, court costs,
travel and living expenses, and all other costs incurred by CITY LOOKS.
24.2 SEVERABILITY. All provisions of this Agreement are severable and this
Agreement will be interpreted and enforced as if all completely invalid or
unenforceable provisions were not contained herein and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. If
any applicable law or rule of any jurisdiction requires a greater prior notice
of the termination of or refusal to renew this Agreement than is required
hereunder or the taking of some other action not required hereunder, or if under
any applicable and binding law of any jurisdiction, any provision of this
Agreement or any specification, standard or operating procedure prescribed by
CITY LOOKS is invalid or unenforceable, the prior notice or other action
required by such law or rule will be substituted for the notice requirements
hereof, or such invalid or unenforceable provision, specification, standard or
operating procedure will be modified to the extent required to be valid and
enforceable. Such modifications to this Agreement will be effective only in such
jurisdiction and will be enforced as originally made and entered into in all
other jurisdictions.
24.3 WAIVER. CITY LOOKS and the FRANCHISEE may, by written instrument signed by
CITY LOOKS and the FRANCHISEE, waive any obligation of or restriction upon the
other under this Agreement. Acceptance by CITY LOOKS of any payment by the
FRANCHISEE and the failure, refusal or neglect of CITY LOOKS to exercise any
right under this Agreement or to insist upon full compliance by the FRANCHISEE
of its obligations hereunder including, without limitation, any mandatory
specification, standard or operating procedure, will not constitute a waiver by
CITY LOOKS of any provision of this Agreement. CITY LOOKS will have the right to
waive obligations or restrictions for other franchisees under their franchise
agreements without waiving those obligations or restrictions for the FRANCHISEE
and, except to the extent provided by law, CITY LOOKS will have the right to
negotiate terms and conditions, grant concessions and waive obligations for
other franchisees of CITY LOOKS without granting those same rights to the
FRANCHISEE and without incurring any liability to the FRANCHISEE whatsoever.
24.4 NO RIGHT TO OFFSET. The FRANCHISEE will not, on grounds of the alleged
nonperformance by CITY LOOKS of any of its obligations under this Agreement, any
other contract between CITY LOOKS and FRANCHISEE, or for any other reason,
withhold payment of any Continuing Fees, National Advertising Production Fees,
Advertising Fees or any other fees or payments due CITY LOOKS under this
Agreement or any other contract or obligation. The FRANCHISEE will not have the
right to "offset" or withhold any liquidated or unliquidated amounts allegedly
due to the FRANCHISEE from CITY LOOKS against the Continuing Fees, the National
Advertising Production Fees, the Advertising Fees or any other payments due to
CITY LOOKS under this Agreement or any other contract or obligation.
24.5 CITY LOOKS' RIGHTS CUMULATIVE. The rights of CITY LOOKS hereunder are
cumulative and no exercise or enforcement by CITY LOOKS of any right or remedy
hereunder will preclude the exercise or enforcement by CITY LOOKS of any other
right or remedy hereunder or which CITY LOOKS is entitled by law to enforce.
24.6 VENUE AND JURISDICTION. Unless otherwise required under applicable law, all
Arbitration hearings, litigation, court hearings or other hearings initiated by
either party against the other party must and will be venued exclusively in
Hennepin County, Minnesota. The FRANCHISEE, each of
<PAGE>
its officers, directors and shareholders, and the Personal Guarantors: (A)
acknowledge that Minneapolis, Minnesota is a mutually convenient location for
the venue and conduct of any legal or enforcement proceedings; (B) do hereby
agree and submit to personal jurisdiction in the State of Minnesota for the
purposes of any Arbitration hearings, litigation, court hearings or other
hearings brought to enforce or construe the terms of this Agreement or to
resolve any dispute or controversy arising under, as a result of, or in
connection with this Agreement, the Franchised Location or the FRANCHISEE'S City
Looks business; and (C) do hereby agree and stipulate that any Arbitration
hearings, litigation, court hearings and other hearings will be venued and held
exclusively in Hennepin County, Minnesota, and waive any rights to contest such
venue and jurisdiction and any claims that such venue and jurisdiction are
invalid.
24.7 AGREEMENT BINDING ON HEIRS AND ASSIGNS. This Agreement is binding upon the
parties hereto and their respective executors, administrators, heirs, assigns
and successors in interest.
24.8 JOINT AND SEVERAL LIABILITY. If the FRANCHISEE consists of more than one
person, their liability under this Agreement will be deemed to be joint and
several.
24.9 ENTIRE AGREEMENT. This Agreement supersedes and terminates all prior
agreements relating to the operation of a City Looks business by the FRANCHISEE
at the Franchised Location, either oral or in writing, between the parties and
therefore, any representations, inducements, promises or agreements between the
parties not contained in this Agreement or not in writing signed by the
President or a Vice President of CITY LOOKS and the FRANCHISEE will not be
enforceable. This Agreement will not supersede or terminate any written
Development Agreement or Franchise Agreement(s) executed prior to the date of
this Agreement relating to other City Looks franchises that are or will be owned
and operated by the FRANCHISEE. The preambles are a part of this Agreement,
which constitutes the entire agreement of the parties, and there are no other
oral or written understandings or agreements between CITY LOOKS and the
FRANCHISEE relating to the subject matter of this Agreement.
24.10 HEADINGS; TERMS. The headings of the Articles and the provisions thereof
are for convenience only and do not define, limit or construe the contents of
such Articles. The term "FRANCHISEE" as used herein is applicable to one or more
individuals, a corporation or a partnership, as the case may be, and the
singular usage includes the plural, and the masculine usage includes the neuter
and the feminine, and the neuter usage includes the masculine and the feminine.
References to "FRANCHISEE," "assignee" and "transferee" which are applicable to
an individual or individuals will mean the principal owner or owners of the
equity or operating control of the FRANCHISEE or any such assignee or transferee
if the FRANCHISEE or such assignee or transferee is a corporation or
partnership. If the FRANCHISEE consists of more than one individual, then all
individuals will be bound jointly and severally by the terms and conditions of
this Agreement.
24.11 NO ORAL MODIFICATION. No modification, change, addition, rescission,
release, amendment or waiver of this Agreement and no approval, consent or
authorization required by any provision of this Agreement may be made except by
a written agreement subscribed to by duly authorized officers or partners of the
FRANCHISEE and the President or a Vice President of CITY LOOKS respectively.
CITY LOOKS and the FRANCHISEE will not have the right to amend or modify this
Agreement orally or verbally, and any attempt to do so will be void in all
respects.
24.12 EFFECT OF WRONGFUL TERMINATION. If either CITY LOOKS or the FRANCHISEE
takes any action to terminate this Agreement or to convert the FRANCHISEE'S City
Looks business to another business, and if such action was taken without first
complying with the applicable terms and conditions (including the notice and
opportunity to cure provisions) of this Agreement, then such action
<PAGE>
will not relieve either party of, or release either party from, any of its
obligations under this Agreement, and the terms and conditions of this Agreement
will remain in full force and effect and the parties will be obligated to
perform all terms until such time as this Agreement expires or is terminated in
accordance with the provisions of this Agreement and applicable law, as
determined by an Arbitrator or a Court of competent jurisdiction.
ARTICLE 25
NOTICES
All notices to CITY LOOKS will be in writing and will be made by personal
service upon an officer or Director of CITY LOOKS or sent by prepaid registered
or certified United States mail addressed to CITY LOOKS at 300 Industrial
Boulevard N.E., Minneapolis, Minnesota 55413 with a copy to John W. Fitzgerald,
Esq., Gray, Plant, Mooty, Mooty & Bennett, P.A., 3400 City Center, 33 South
Sixth Street, Minneapolis, Minnesota 55402-3796. All notices to the FRANCHISEE
will be by personal service upon the FRANCHISEE, District Manager or a salon
manager or assistant manager, (or, if applicable, an officer or Director of the
FRANCHISEE), or sent by prepaid registered or certified United States mail
addressed to the FRANCHISEE at the Franchised Location or such other address as
the FRANCHISEE may designate in writing or by delivery to any employee of the
FRANCHISEE by a recognized overnight delivery service (such as Federal Express
or UPS) which requires a written receipt of delivery from the addressee. Notice
by mail is effective upon depositing the same in the mail in the manner provided
above, notice by personal service is effective upon obtaining service and notice
by overnight delivery service is effective upon delivery by such delivery
service.
ARTICLE 26
ACKNOWLEDGMENTS
26.1 BUSINESS RISKS; NO FINANCIAL PROJECTIONS. The FRANCHISEE acknowledges that
it has conducted an independent investigation of the City Looks Salons
International business franchised hereunder, and recognizes that the business
venture contemplated by this Agreement involves business and economic risks and
that the financial and business success of the business will be primarily
dependent upon the personal efforts of the FRANCHISEE, its management and
employees. CITY LOOKS expressly disclaims the making of, and the FRANCHISEE
acknowledges that it has not received, any estimates, projections, warranties or
guaranties, express or implied, regarding potential Gross Revenues, profits,
earnings or the financial success of the FRANCHISEE'S City Looks business,
except as may be expressly set forth in writing in CITY LOOKS' Uniform Franchise
Offering Circular, receipt of which is acknowledged by the FRANCHISEE.
26.2 NO INCOME OR REFUND WARRANTIES. The FRANCHISEE acknowledges that CITY LOOKS
does not warrant or guarantee to the FRANCHISEE that the FRANCHISEE will derive
income or profit from the FRANCHISEE'S City Looks business or that CITY LOOKS
will refund all or part of the Initial Fee or the price paid for the
FRANCHISEE'S City Looks business or repurchase any of the products, merchandise,
furniture, fixtures, equipment, supplies or chattels supplied by CITY LOOKS or
an approved supplier if the FRANCHISEE is unsatisfied with its City Looks
business.
26.3 TERMS OF OTHER FRANCHISES MAY DIFFER. The FRANCHISEE acknowledges that
other Franchisees of CITY LOOKS have or will be granted franchises at different
times and in different situations, and further acknowledges that the terms and
conditions of such franchises and the resulting Franchise Agreements may vary
substantially in economics, form and in substance from those contained in this
Agreement.
<PAGE>
26.4 RECEIPT OF UNIFORM FRANCHISE OFFERING CIRCULAR. The FRANCHISEE acknowledges
that it received a copy of this Agreement with all material blanks fully
completed at least five (5) business days prior to the date that this Agreement
was executed. The FRANCHISEE further acknowledges that it received a copy of
CITY LOOKS' Uniform Franchise Offering Circular at least ten (10) business days
prior to the date on which this Agreement was executed.
26.5 HAIR PERFORMERS(R) BUSINESSES. The FRANCHISEE agrees and acknowledges that
the "Hair Performers(R)" businesses serviced by Hair Performers International,
Inc., a wholly-owned subsidiary of The Barbers, Hairstyling for Men & Women,
Inc. ("The Barbers") are hair salons that address similar markets and, thus, may
be competitive with City Looks businesses. Further, the FRANCHISEE acknowledges
and agrees that Hair Performers International, Inc. will have the absolute right
to develop, own, manage, license or franchise Hair Performers(R) businesses at
any location in the world, and the FRANCHISEE hereby waives any and all rights
that it may have or allege against CITY LOOKS or any affiliate of CITY LOOKS
resulting from the opening of any Hair Performers(R) business, including those
Hair Performers(R) businesses that may be near, adjacent or contiguous to the
FRANCHISEE'S City Looks Business.
26.6 COST CUTTERS(R), WE CARE HAIR(R) AND FAMILY HAIRCUT(R) BUSINESSES. The
FRANCHISEE agrees and acknowledges that the "Cost Cutters Family Hair Care(R)"
businesses which are franchised by The Barbers, the "We Care Hair(R)" businesses
which are franchised by WCH, Inc., a wholly-owned subsidiary of The Barbers, and
the Family Haircut(R) business serviced by The Barbers ("Cost Cutters(R), We
Care Hair(R) and Family Haircut(R) businesses") are hair salons that address
different markets and, thus, are not competitive with City Looks Salons
International businesses. Further, the FRANCHISEE acknowledges and agrees that
WCH, Inc. and The Barbers will have the absolute right to develop, own, manage,
license or franchise Cost Cutters(R), We Care Hair(R) and Family Haircut(R)
businesses at any location in the world, and the FRANCHISEE hereby waives any
and all rights that it may have or allege against CITY LOOKS or any affiliate of
CITY LOOKS resulting from the opening of any Cost Cutters(R), We Care Hair(R) or
Family Haircut(R) businesses, including those Cost Cutters(R), We Care Hair(R)
or Family Haircut(R) businesses that may be near, adjacent or contiguous to the
FRANCHISEE'S City Looks Business.
ARTICLE 27
DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL
27.1 DISCLAIMER BY CITY LOOKS. CITY LOOKS expressly disclaims the making of any
express or implied representations or warranties regarding the sales, earnings,
income, profits, Gross Revenues, business or financial success, or value of the
FRANCHISEE'S business, except as may be expressly set forth in Item 19 of the
Uniform Franchise Offering Circular received by the FRANCHISEE.
27.2 ACKNOWLEDGMENTS BY FRANCHISEE. The FRANCHISEE acknowledges that it has not
received any express or implied representations or warranties regarding the
sales, earnings, income, profits, Gross Revenues, business or financial success,
value of the business or any other matters pertaining to the City Looks Salons
International business from CITY LOOKS or any of CITY LOOKS' officers, employees
or agents that were not contained in writing in the Uniform Franchise Offering
Circular (including this Agreement) received by the FRANCHISEE ("representations
or warranties"). The FRANCHISEE further acknowledges that if it had received any
representations or warranties not contained in CITY LOOKS' Uniform Franchise
Offering Circular, it would not have executed this Agreement, and the FRANCHISEE
would have: (A) promptly notified the President of CITY LOOKS in
<PAGE>
writing of the person or persons making such representations or warranties; and
(B) provided to CITY LOOKS a specific written statement detailing the
representations or warranties made that were not contained in the Uniform
Franchise Offering Circular received by the FRANCHISEE.
27.3 LEGAL REPRESENTATION. The FRANCHISEE acknowledges that this Agreement
constitutes a legal document which grants certain rights to and imposes certain
obligations upon the FRANCHISEE. The FRANCHISEE was advised by CITY LOOKS to
consult an attorney or other advisor prior to the execution of this Agreement to
review CITY LOOKS' Uniform Franchise Offering Circular, to review this Agreement
in detail, to review the economics, operations and other business aspects of the
City Looks Salons International business, to determine compliance with
franchising and other applicable laws, to advise the FRANCHISEE about all
federal, state and local laws, rules, ordinances, special regulations and
statutes that apply to the FRANCHISEE'S City Looks business and to advise the
FRANCHISEE about the economic risks, liabilities, obligations and rights under
this Agreement. The name of the FRANCHISEE'S attorney or other advisor is:
Name:
-------------------------------------------------------
Name of Firm:
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Address:
----------------------------------------------------
City, State, Zip Code:
--------------------------------------
Telephone Number: ( )
-------------------------------------------
Fax Number: ( )
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ARTICLE 28
GOVERNING LAW; STATE MODIFICATIONS
28.1 GOVERNING LAW. Except to the extent governed by the United States Trademark
Act of 1946 (Lanham Act, 15 U.S.C. ss.1051 et seq.), this Agreement and the
relationship between CITY LOOKS and the FRANCHISEE will be governed by the laws
of the state in which the Franchised Location is located. The provisions of this
Agreement which conflict with or are inconsistent with applicable governing law
will be superseded and/or modified by such applicable law only to the extent
such provisions are inconsistent. All other provisions of this Agreement will be
enforceable as originally made and entered into upon the execution of this
Agreement by the FRANCHISEE and CITY LOOKS.
28.2 STATE MODIFICATIONS. The following states have statutes which may supersede
the provisions of this Agreement in the FRANCHISEE'S relationship with CITY
LOOKS including the areas of termination and renewal of the Franchise: ARKANSAS
[Stat. Section 70-807], CALIFORNIA [Bus. & Prof. Code Sections 20000-20043],
CONNECTICUT [Gen. Stat. Section 42-133e et seq.], DELAWARE [Code Section 2552],
HAWAII [Rev. Stat. Section 482E-1], ILLINOIS [815 ILCS 705/19 and 705/20],
INDIANA [Stat. Section 23-2-2.7], IOWA [Code 523H.1-523H.17], MICHIGAN [Stat.
Section 19.854(27)], MINNESOTA [Stat. Section 80C14], MISSISSIPPI [Code Section
75-24-51], MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat. Section
87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws Section
37-5A-51], VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code Section
19.100.180], WISCONSIN [Stat. Section 135.03]. These and other states may have
court decisions which may supersede the provisions of this Agreement in the
FRANCHISEE'S relationship with CITY LOOKS including the areas of termination and
renewal of the Franchise. If the Franchised Location is located in any one of
the states specifically indicated below in this Article 28.2, or
<PAGE>
if the laws of any such state are otherwise applicable, then the designated
provisions of this Agreement will be amended and revised as follows:
ILLINOIS. If this Agreement is governed by the laws of the
State of Illinois, then: (1) the consent by the FRANCHISEE to
jurisdiction and venue in Hennepin County, Minnesota contained in
Article 24.6 may be inapplicable; provided, however, that such
inapplicability in the State of Illinois will not be construed to mean
that venue in Hennepin County, Minnesota is improper, or that the
FRANCHISEE and its officers, Directors and shareholders are not subject
to jurisdiction in Hennepin County, Minnesota, or in any other state;
and (2) Section 41 of the Illinois Franchise Disclosure Act states that
"any condition, stipulation or provision purporting to bind any person
acquiring any franchise to waive compliance with any provision of this
Act is void", accordingly any acknowledgments contained in Article
26.2, Article 26.4, Article 27.2, and the second sentence of Article
26.1 will be unenforceable against the FRANCHISEE.
MINNESOTA. If this Agreement is governed by the laws of the
State of Minnesota, then: (1) Article 2 of this Agreement will be
amended to provide that, except in certain circumstances specified by
law, CITY LOOKS must provide the FRANCHISEE with at least one hundred
eighty (180) days prior written notice of nonrenewal of the franchise;
(2) Article 9.2 will be amended to require that, except as set forth in
Article 9.5 and 9.6 in the event CITY LOOKS gives the FRANCHISEE
written notice that the FRANCHISEE has breached this Agreement, such
written notice will be given to the FRANCHISEE at least ninety (90)
days prior to the date this Agreement is terminated by CITY LOOKS, and
the FRANCHISEE will have sixty (60) days after having been given such
written notice within which to correct the breach specified in the
written notice; and (3) notwithstanding any provisions of this
Agreement to the contrary, a Court of competent jurisdiction will
determine whether CITY LOOKS will be required to post a bond or other
security, and the amount of such bond or other security, in any
injunctive proceeding commenced by CITY LOOKS against the FRANCHISEE or
the FRANCHISEE'S shareholders.
NORTH DAKOTA. If this Agreement is governed by the laws of the
State of North Dakota, then: (1) the covenant not to compete upon
termination or expiration of this Agreement contained in Article 12.3
may be unenforceable, except in certain circumstances provided by law;
(2) the consent by the FRANCHISEE to jurisdiction and venue in Hennepin
County, Minnesota contained in Article 24.6 may be inapplicable;
provided, however, that such inapplicability in the State of North
Dakota will not be construed to mean that venue in Hennepin County,
Minnesota is improper, or that the FRANCHISEE and its officers,
Directors and shareholders are not subject to jurisdiction in Hennepin
County, Minnesota, or in any other state; (3) the provisions of Article
23 requiring Arbitration hearings to take place in Minneapolis,
Minnesota will be inapplicable and in the event of Arbitration between
CITY LOOKS and the FRANCHISEE, such Arbitration will be conducted in
Fargo, North Dakota or at a mutually agreed upon location; and (4) the
parties' waiver of their right to claim punitive damages, as set forth
in Article 23.5, may not be enforceable under North Dakota law.
WISCONSIN. If this Agreement is governed by the laws of the
State of Wisconsin, then the provisions of the Wisconsin Fair
Dealership Law, Wis. Stat. Chapter 135, will supersede any conflicting
terms of this Agreement.
28.3 SEVERABILITY. The severability provisions of this Agreement contained in
Article 12.5, Article 23.10 and Article 24.2 of this Agreement will pertain to
all of the applicable laws which conflict
<PAGE>
with or modify the provisions of this Agreement including, but not limited to,
the provisions of this Agreement specifically addressed in Article 28.2 above.
ARTICLE 29
DEFINITIONS
For purposes of this Agreement, the following words will have the following
definitions:
29.1 ABANDON. "Abandon" will mean the conduct of the FRANCHISEE, including acts
of omission as well as commission, indicating the willingness, desire or intent
of the FRANCHISEE to discontinue operating the franchised business in accordance
with the quality standards, uniform requirements and the Business System set
forth in this Agreement and the Manual.
29.2 DESIGNATED MARKET AREA. "Designated Market Area" or "DMA" will mean each
television market exclusive of another based upon a preponderance of television
viewing hours as defined by the ratings service currently being utilized by CITY
LOOKS or its designated advertising agency.
29.3 BUSINESS SYSTEM. "Business System" will mean the distinctive services and
products which are associated with CITY LOOKS' trademarks, trade names, service
marks, copyrights, interior and exterior building designs, slogans, signs,
logos, commercial symbols and color combinations. "Business System" will include
all of the uniform requirements, standards of quality and consistency,
procedures, specifications, training, advertising and instructions promulgated
by CITY LOOKS.
29.4 FINANCIAL STATEMENTS. "Financial statements" will mean a balance sheet,
income statement, statement of cash flows and footnotes prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
any other schedules or forms that may be required by CITY LOOKS.
29.5 GROSS REVENUES. "Gross Revenues" will mean the gross total dollar income of
the FRANCHISEE'S City Looks business from all cash, credit or charge sales of
all merchandise, products and services sold or rendered in, upon, about or
resulting from, in connection with, or as a result of the FRANCHISEE'S City
Looks business, and will include all sales, receipts and revenues, in any form
and from any and all sources whatsoever, including sales made to employees of
the FRANCHISEE. This definition will be applicable regardless of whether such
sales, receipts or revenues are produced or received by the FRANCHISEE, by any
permitted sublicensee, tenant, agent, employee, concessionaire, vending machine,
coin-operated machine or vendor of the FRANCHISEE, or by any other business
associate of the FRANCHISEE who or which is associated with the FRANCHISEE in
order to receive the benefits of the rights granted hereunder to the FRANCHISEE.
"Gross Revenues" will include all sales made by the FRANCHISEE whether made for
cash or on credit including, but not limited to, those sales charged or made for
orders placed or deliveries from the business Franchised hereunder, including
orders placed or filled, or services provided at a location other than the
Franchised Location, including mail order. "Gross Revenues" will not include any
sales, use or gross receipts tax imposed by any federal, state, municipal or
governmental authority directly upon sales, if: (A) the amount of the tax is
added to the selling price and is expressly charged to the customer; (B) a
specific record is made at the time of each sale of the amount of such tax; and
(C) the amount thereof is paid over to the appropriate taxing authority by the
FRANCHISEE.
29.6 QUARTERLY. "Quarterly" or "Quarter" will mean three (3) consecutive
calendar months commencing on the first day of the FRANCHISEE'S fiscal or
calendar year.
<PAGE>
IN WITNESS WHEREOF, CITY LOOKS, the FRANCHISEE and the shareholders of the
FRANCHISEE have respectively signed this Agreement effective as of the day and
year first above written.
"CITY LOOKS"
In the Presence of: THE BARBERS, HAIRSTYLING FOR MEN &
WOMEN, INC.
- ----------------------------------- ----------------------------------------
By
-------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
The undersigned shareholders or partners of the FRANCHISEE hereby agree to be
bound by the terms and conditions of this Agreement.
PERCENTAGE OF
In the Presence of: SHAREHOLDERS/PARTNERS OWNERSHIP
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
The undersigned spouse(s) of the individual FRANCHISEE(S) hereby agree to be
bound by the terms and conditions of this Agreement regarding confidentiality of
information and covenants not to compete.
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
Print Name Print Name
<PAGE>
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THIS FRANCHISE AGREEMENT
In consideration of the execution of this Agreement by CITY LOOKS, and for other
good and valuable consideration the undersigned, for themselves, their heirs,
successors, and assigns, do jointly, individually and severally hereby become
surety and guaranty for the payment of all amounts and the performance of the
covenants, terms and conditions in this Agreement, to be paid, kept and
performed by the FRANCHISEE.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement and agree that this PERSONAL GUARANTY will be construed as though the
undersigned and each of them executed an Agreement containing the identical
terms and conditions of this Agreement.
If the FRANCHISEE breaches the terms and conditions of this Agreement, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay CITY LOOKS all monies due and
payable to CITY LOOKS under the terms and conditions of this Agreement.
In addition, if the FRANCHISEE fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors and
assigns, do hereby, individually, jointly and severally, promise and agree to
comply with the terms and conditions of this Agreement for and on behalf of the
FRANCHISEE.
In addition, should the FRANCHISEE at any time be in default on any obligation
to pay monies to CITY LOOKS or any subsidiary or affiliate of CITY LOOKS,
whether for merchandise, products, supplies, furniture, fixtures, equipment,
rent or other goods purchased by the FRANCHISEE from CITY LOOKS or any
subsidiary or affiliate of CITY LOOKS, or for any other indebtedness of the
FRANCHISEE to CITY LOOKS or any subsidiary or affiliate of CITY LOOKS, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay all such monies due and payable
from the FRANCHISEE to CITY LOOKS or any subsidiary or affiliate of CITY LOOKS.
It is further understood and agreed by the undersigned that the provisions,
covenants and conditions of this GUARANTY will inure to the benefit of the
successors and assigns of CITY LOOKS. Each of the undersigned hereby submits to
personal jurisdiction in the state and federal courts of Minnesota with respect
to any litigation pertaining to this GUARANTY, and agrees that all litigation
pertaining to this GUARANTY will and must be venued exclusively in Hennepin
County, Minnesota.
<PAGE>
PERSONAL GUARANTORS
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Print Name Print Name
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Print Name Print Name
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Print Name Print Name
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
<PAGE>
EXHIBIT A
CONFIDENTIALITY AGREEMENT
Effective this _____ day of ___________, 19__, in consideration of employment
with (the "Employer"), a franchisee of The Barbers, Hairstyling for Men & Women,
Inc. ("The Barbers"), it is agreed that the undersigned employee (the
"Employee") will, at all times during the term of his or her employment and
thereafter, treat the Operations Manual and any other materials (including, but
not limited to, videotapes, films, drawings, diagrams and computer programs)
created for or approved for use in the operation of the City Looks Salons
International business, and the information contained therein, as secret and
confidential and as the sole and absolute property of The Barbers, and will use
all reasonable means to keep them secret and confidential. The Employee will
not:
Communicate, divulge or use for the benefit of himself/herself
personally or any other person or entity, any information contained in the
Operations Manual or other materials deemed confidential by The Barbers.
Copy, duplicate, videotape, photograph, record or otherwise reproduce
the Manual or any other materials, in whole or in part. Neither the Manual nor
other materials created for or used in the City Looks Salons International
business will be borrowed or removed from the City Looks Salons International
location or business premises by the Employee without the express written
approval of the Employer. The Employee will not make any City Looks materials
available to any unauthorized person or entity, or allow them access to the
Manual or other materials.
Use any City Looks materials or any information, knowledge, methods or
techniques contained or described herein for any purpose other than the
performance of his or her duties as a City Looks Salons International employee.
The Employee will respect the confidentiality of the Manual and all other
materials as it relates to concurrent and future employment.
The Employee and the Employer acknowledge and agree: (1) that The Barbers is a
third-party beneficiary of the rights and obligations set forth in this
Agreement; (2) that The Barbers will suffer irreparable harm in the event of any
breach or violation of this Agreement; (3) that The Barbers shall have the right
to enforce the provisions of this Agreement in its own name in the event of any
breach or violation, or threatened breach or violation, of this Agreement; and
(4) that The Barbers shall have the right to obtain specific performance,
temporary restraining orders, preliminary injunctions, injunctions and other
equitable relief to the extent reasonably necessary to protect its interests in
the ownership and confidentiality of the Manual or any other confidential
information from any Court of competent jurisdiction or Arbitrator, subject to
and in accordance with the confidentiality and enforcement provisions of the
Franchise Agreement between the Employer and The Barbers.
The undersigned Employer and Employee understand and accept the obligations set
forth herein and agree to be bound by them.
EMPLOYER: EMPLOYEE:
- ------------------------------------- --------------------------------------
By
--------------------------------- --------------------------------------
Its Signature
-------------------------------
--------------------------------------
Print Name
<PAGE>
EXHIBIT B
LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
______________________________________ (the Landlord) hereby consents to the
Assignment by _________________________________________ (the Franchisee) of its
right, title and interest in the premises lease dated _____________________,
19____, between the Landlord and the Franchisee, (the Premises Lease), to The
Barbers, Hairstyling for Men & Women, Inc. (the Franchisor), pursuant to a
franchise agreement between the Franchisor and the Franchisee dated
______________________, 19____, (the Franchise Agreement), and as an inducement
to the Franchisor to enter into the Franchise Agreement with the Franchisee,
agrees with the Franchisor as follows:
In the event of default by the Franchisee under the Franchise
Agreement, the Franchisor or its designee may assume, enforce and perform the
obligations of the Premises Lease with the same force and effect as if assumed,
enforced and performed by the Franchisee. The Landlord will accept CITY LOOKS'
(or its designee's) performance in lieu of performance by the Franchisee in
satisfaction of the FRANCHISEE'S future obligations under the Premises Lease.
The Landlord will not terminate the Premises Lease on account of any
default of the Franchisee thereunder without written notice to the Franchisor
and first providing to the Franchisor a reasonable opportunity, but not less
than thirty (30) days, to: (i) cause the Franchisee to cure the default; or (ii)
declare the Franchisee in default under the Franchise Agreement and exercise its
rights under the Assignment of Lease provisions of the Franchise Agreement. In
the event the Franchisor so elects to exercise its rights under the Assignment,
the Landlord agrees not to terminate the Premises Lease so long as the
Franchisor or its designee agrees, within thirty (30) days from the date the
Franchisor gives written notice to the Landlord of its election to exercise its
rights under this Assignment, to perform the future obligations of the
Franchisee under the Premises Lease. However, nothing herein will require the
Franchisor to cure any default of the Franchisee under the Premises Lease, but
only gives it the option to assume the FRANCHISEE'S future rights and
obligations under the Premises Lease.
The Landlord hereby represents and warrants to the Franchisor that (i)
the Premises Lease is a valid and enforceable agreement, (ii) there has been no
prior assignment of the Premises Lease of which the Landlord has notice or is
aware, (iii) neither the Landlord nor the Franchisee is in default under the
Premises Lease, and (iv) all covenants, conditions and agreements have been
performed as required therein except those not due to be performed until after
the date hereof.
"Landlord"
Dated: , 19
--------------------- -- ---------------------------------------
By
---------------------------------
Its
-------------------------------
EXHIBIT 10.4
FOR USE ONLY IN THE STATE OF ILLINOIS
CITY LOOKS SALONS INTERNATIONAL(R)
DEVELOPMENT AGREEMENT
BETWEEN
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
Fax: (612) 331-2821
AND
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Name(s) of FRANCHISEE
--------------------------------------------
Street
--------------------------------------------
City State Zip Code
( )
--------------------------------------------
Area Code Telephone
( )
--------------------------------------------
Area Code Telephone
DATE OF DEVELOPMENT AGREEMENT
________________, 199___
<PAGE>
CITY LOOKS SALONS INTERNATIONAL(R)
DEVELOPMENT AGREEMENT
Article Description Page
- ------- ----------- ----
1 FRANCHISED AREA....................................................2
2 TERM OF DEVELOPMENT AGREEMENT; RIGHT OF FIRST REFUSAL..............2
3 EXCLUSIVE TERRITORY FEE; INITIAL FEES; DEVELOPMENT SCHEDULE........3
4 OTHER OBLIGATIONS OF FRANCHISEE....................................5
5 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION...............8
6 CITY LOOKS' RIGHT OF TERMINATION...................................9
7 FRANCHISEE'S RIGHTS AND OBLIGATIONS UPON TERMINATION..............11
8 FRANCHISEE'S COVENANTS NOT TO COMPETE.............................12
9 INDEPENDENT CONTRACTORS; INDEMNIFICATION..........................13
10 ASSIGNMENT........................................................14
11 ARBITRATION.......................................................16
12 ENFORCEMENT.......................................................18
13 NOTICES...........................................................20
14 ACKNOWLEDGMENTS...................................................21
15 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL............................22
16 GOVERNING LAW; STATE MODIFICATIONS................................23
17 DEFINITIONS.......................................................25
PERSONAL GUARANTY
<PAGE>
CITY LOOKS SALONS INTERNATIONAL(R)
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement"), made, entered into and effective
this _____ day of _______________, 199____, by and between The Barbers,
Hairstyling for Men & Women, Inc., a Minnesota corporation ("CITY LOOKS"), and
___________________________________________, a _______________________________
(the "FRANCHISEE");
WITNESSETH:
WHEREAS, CITY LOOKS has developed and owns a distinctive business system for
operating hairstyling businesses of a distinctive character with the name "City
Looks Salons International(R)" (the "Business System" or "the City Looks
Business System") and has publicized the name "City Looks(R)", "City Looks
Salons International(R)", and other trademarks, trade names, service marks, and
commercial symbols to the public as an organization of businesses operating
under the City Looks Business System; and
WHEREAS, CITY LOOKS represents that it has the right and authority to license
the use of the name "City Looks(R)", "City Looks Salons International(R)" and
certain other trademarks, trade names, service marks, logos and commercial
symbols (the "Marks") for use in connection with hairstyling businesses operated
in conformity with the Business System to selected persons or entities who will
comply with CITY LOOKS' uniformity requirements and quality standards; and
WHEREAS, the FRANCHISEE desires to operate City Looks Salons International
hairstyling businesses at locations in the area designated in Article 1 of this
Agreement which will conform to the uniformity requirements and quality
standards established and promulgated from time to time by CITY LOOKS; and
WHEREAS, CITY LOOKS is willing to provide the FRANCHISEE with marketing,
advertising, technology, operational and other business information, experience
and "know how" about the City Looks Salons International business that has been
developed over time by CITY LOOKS at a significant cost and expense; and
WHEREAS, the FRANCHISEE acknowledges that it would take substantial capital and
human resources to develop a business similar to the City Looks Salons
International business and, as a consequence, the FRANCHISEE desires to acquire
the right to use the Marks and the Business System and to own and operate City
Looks Salons International businesses subject to and under the terms and
conditions set forth in this Agreement; and
WHEREAS, the FRANCHISEE acknowledges that CITY LOOKS would not provide the
FRANCHISEE with any business information or "know how" about the City Looks
Business System unless the FRANCHISEE agreed to comply with all of the terms and
conditions of this Agreement and to pay the Exclusive Territory Fee and the
other fees specified in this Agreement; and
WHEREAS, the FRANCHISEE has had a full and adequate opportunity to be thoroughly
advised of the terms and conditions of this Agreement by its legal counsel or
other advisor, and has had sufficient time to evaluate and investigate the City
Looks Business System, the financial investment requirements, and the business
risks associated with owning and operating City Looks Salons International
businesses;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement and for other good and valuable consideration, the parties
hereby contract as follows:
ARTICLE 1
FRANCHISED AREA
1.1 FRANCHISED AREA. CITY LOOKS hereby grants to the FRANCHISEE, for the term of
this Agreement, the right to enter into Franchise Agreements with CITY LOOKS for
the operation of hairstyling businesses under the name "City Looks Salons
International(R)" and the other Marks, and operated in conformity with the City
Looks Business System (the "City Looks" or "City Looks Salons International"
businesses), to be located only within the following exclusive area: ___________
__________________________________________________________________________ (the
"Franchised Area"). The Franchised Area may be further described and delineated
in Exhibit A attached hereto and signed by both the FRANCHISEE and CITY LOOKS.
1.2 EXCLUSIVITY. The rights and privileges granted to the FRANCHISEE in this
Agreement are expressly limited to the Franchised Area and are expressly subject
to the terms and conditions of this Agreement. CITY LOOKS will not franchise,
license, subfranchise, develop or own any City Looks businesses in the
Franchised Area while this Agreement is in effect without the consent of the
FRANCHISEE.
1.3 PERSONAL RIGHTS. The FRANCHISEE will not be entitled to franchise,
subfranchise, license or sublicense other persons or entities under this
Agreement and the FRANCHISEE may develop, own and operate City Looks businesses
only in the Franchised Area. The rights, privileges and franchise granted and
conveyed to the FRANCHISEE in this Agreement will be exclusively for the
Franchised Area and may not be assigned, sold or transferred by the FRANCHISEE,
except as specifically provided for in this Agreement.
ARTICLE 2
TERM OF DEVELOPMENT AGREEMENT;
RIGHT OF FIRST REFUSAL
2.1 TERM. This Agreement will be for a term of ____________________ (_____)
years, commencing on the date set forth on Page D-1 of this Agreement. This
Agreement will not be considered executed and will not be enforceable until: (A)
it has been signed by CITY LOOKS and the FRANCHISEE, and, if the FRANCHISEE is a
corporation or partnership, the Personal Guarantors; and (B) the signed
Agreement has been delivered to the FRANCHISEE.
2.2 RIGHT OF FIRST REFUSAL. At the end of the term of this Agreement, the
FRANCHISEE'S exclusive development rights with respect to the Franchised Area
will automatically terminate, and the FRANCHISEE will not have the right to
renew or extend the term of this Agreement. Following the end of the term of
this Agreement, CITY LOOKS will have the right to reevaluate the prospects for
the establishment of City Looks businesses in the Franchised Area, and CITY
LOOKS may determine that the Franchised Area will be further developed by
opening additional City Looks businesses in the Franchised Area. In the event
CITY LOOKS determines that the Franchised Area will be further developed, the
FRANCHISEE will have a right of first refusal to own and operate any City Looks
businesses proposed for the Franchised Area by CITY LOOKS. Consequently, if CITY
LOOKS proposes to develop (either by owning, franchising or subfranchising) any
further City Looks businesses in the Franchised Area after the
<PAGE>
term of this Agreement has expired, then CITY LOOKS must give the FRANCHISEE
written notice of its proposal to develop additional City Looks businesses in
the Franchised Area and the FRANCHISEE will have thirty (30) days to accept in
writing CITY LOOKS' proposal to own and operate further City Looks businesses in
the Franchised Area. The FRANCHISEE will have the right to own and develop City
Looks businesses in the Franchised Area according to the terms and conditions
set forth in CITY LOOKS' written proposal, which may vary in form and substance
from the terms, conditions and economics set forth in this Agreement. If the
FRANCHISEE fails to accept in writing CITY LOOKS' written proposal within thirty
(30) days from the date the written notice of CITY LOOKS' proposal is given to
the FRANCHISEE, then CITY LOOKS will have the absolute right to open and develop
City Looks businesses in the Franchised Area after the term of this Agreement
has expired.
ARTICLE 3
EXCLUSIVE TERRITORY FEE;
INITIAL FEES; DEVELOPMENT SCHEDULE
3.1 EXCLUSIVE TERRITORY FEE. On the date this Agreement is executed by the
FRANCHISEE, the FRANCHISEE will pay CITY LOOKS a nonrefundable exclusive
territory fee equal to _______________________________________________________
Dollars ($____________) (the "Exclusive Territory Fee").
3.2 INITIAL FEES. In addition to the Exclusive Territory Fee, the FRANCHISEE
will pay CITY LOOKS an Initial Fee, as defined in CITY LOOKS' then-current
standard Franchise Agreement, of Seventeen Thousand Dollars ($17,000) for the
first City Looks business required to be owned and operated by the FRANCHISEE in
the Franchised Area pursuant to the development schedule contained in this
Agreement. The FRANCHISEE will pay CITY LOOKS an Initial Fee of Ten Thousand
Dollars ($10,000) for each subsequent City Looks business required to be owned
and operated by the FRANCHISEE in the Franchised Area pursuant to the
development schedule contained in this Agreement. The amount of each Initial Fee
payable to CITY LOOKS for each City Looks business opened in the Franchised Area
in accordance with the development schedule will be as set forth above, even if
the then-current standard Franchise Agreement signed by the FRANCHISEE specifies
an Initial Fee that is greater than or different from the Initial Fee specified
herein. Each such Initial Fee will be payable to CITY LOOKS pursuant to the
terms of this Agreement.
3.3 PAYMENT OF INITIAL FEES. The FRANCHISEE must pay CITY LOOKS the Initial Fee
for each City Looks business required to be owned and operated in the Franchised
Area pursuant to this Agreement on or before the date that the FRANCHISEE
executes the then-current standard Franchise Agreement for each such City Looks
business. A then-current standard City Looks Salons International Franchise
Agreement must be executed by the FRANCHISEE for each City Looks business opened
and operated by the FRANCHISEE in the Franchised Area at least ten (10) days
prior to the date on which the FRANCHISEE commences initial business operations
at each of its City Looks businesses in the Franchised Area.
3.4 DEVELOPMENT SCHEDULE. The FRANCHISEE acknowledges and agrees that a material
provision of this Agreement is that the following number of City Looks Salons
International businesses must be opened and continuously operating in the
Franchised Area during the term of this Agreement in accordance with the
following development schedule:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------- ------------------------------------------ --------------------------------------------
NUMBER OF CITY LOOKS BUSINESSES REQUIRED CUMULATIVE NUMBER OF CITY LOOKS
TO BE OPENED AND CONTINUOUSLY OPERATING BUSINESSES REQUIRED TO BE OPEN AND
FOR BUSINESS IN THE FRANCHISED AREA CONTINUOUSLY OPERATING FOR BUSINESS IN
PERIOD DURING THE PERIOD. THE FRANCHISED AREA AT THE END OF THE PERIOD.
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 1
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 2
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 3
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 4
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 5
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 6
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 7
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
YEAR 8
- first half
- second half
- ------------------------- ------------------------------------------ --------------------------------------------
</TABLE>
The half-year periods set forth above will be determined from the date of this
Agreement, so that the first half-year of the development schedule set forth
above will be six (6) months from the date of this Agreement. For purposes of
determining compliance with the development schedule set forth in this Article
3.4, only the FRANCHISEE'S City Looks businesses actually open and continuously
operating for
<PAGE>
business in the Franchised Area as of the end of a given half-year period will
be counted toward the number of City Looks businesses required to be open and
continuously operating for business.
3.5 REASONABLENESS OF DEVELOPMENT SCHEDULE. The FRANCHISEE represents that it
has conducted its own independent investigation and analysis of the prospects
for the establishment of City Looks Salons International businesses within the
Franchised Area, approves of the foregoing development schedule as being
reasonable and viable, and recognizes that failure to achieve the results
described in the foregoing development schedule will constitute a material
breach of this Agreement.
3.6 FAILURE TO COMPLY WITH DEVELOPMENT SCHEDULE. The FRANCHISEE'S failure to
comply with the above development schedule will constitute a material breach of
this Agreement by the FRANCHISEE and, in that event, CITY LOOKS will have the
right to terminate this Agreement as provided herein. Termination of this
Agreement as a result of the FRANCHISEE'S failure to meet the development
schedule set forth above will not affect the individual Franchise Agreements
signed by the FRANCHISEE for City Looks businesses opened and operated in the
Franchised Area pursuant to this Agreement prior to termination; however, upon
termination of this Agreement, all rights to open and operate additional City
Looks businesses in the Franchised Area and all other rights granted to the
FRANCHISEE under this Agreement will immediately revert to CITY LOOKS, without
affecting those obligations of the FRANCHISEE that continue beyond the
termination of this Agreement.
3.7 TERMINATION FOR FAILURE TO COMPLY WITH DEVELOPMENT SCHEDULE. If this
Agreement is terminated by CITY LOOKS because of the FRANCHISEE'S failure to
meet the development schedule set forth above, the rights and duties of CITY
LOOKS and the FRANCHISEE will be as follows: (A) the FRANCHISEE will have no
further rights to open and operate additional City Looks businesses within the
Franchised Area; (B) the FRANCHISEE will continue to pay all required fees and
to operate its City Looks businesses opened and operated in the Franchised Area
pursuant to the terms of the applicable Franchise Agreements signed by the
FRANCHISEE prior to the date of the termination of this Agreement; and (3) CITY
LOOKS will have the absolute right to develop the Franchised Area or to contract
with another franchisee for future development of the Franchised Area.
ARTICLE 4
OTHER OBLIGATIONS OF FRANCHISEE
4.1 COMPLIANCE WITH APPLICABLE LAWS. The FRANCHISEE agrees to and will, at its
expense, comply with all federal, state, city, municipal and local laws,
ordinances, rules and regulations in the Franchised Area pertaining to the
operation of its City Looks businesses, including all laws relating to employees
and to the regulation of barbers and cosmetologists and all applicable federal
and state environmental laws. The FRANCHISEE will, at its expense be absolutely
and exclusively responsible for determining all licenses and permits required by
law for the FRANCHISEE'S City Looks businesses, for qualifying for and obtaining
all such licenses and permits, and for maintaining all such licenses and permits
in full force and effect.
4.2 DISTRICT MANAGER. The FRANCHISEE must employ at least one (1) full-time
person (a "District Manager") for each six (6) City Looks businesses opened and
operated in the Franchised Area pursuant to this Agreement to supervise the
FRANCHISEE'S City Looks businesses in the Franchised Area. Each District Manager
will be responsible for the operation and administration of up to six (6) City
Looks businesses under his or her supervision and control in the Franchised
Area, including supervision of the managers and assistant managers. The
FRANCHISEE'S District Managers must devote their full time and attention to
administering and overseeing the operations of the FRANCHISEE'S City Looks
<PAGE>
businesses in the Franchised Area. All District Managers of the FRANCHISEE'S
City Looks businesses must attend and successfully complete the training program
required by CITY LOOKS, and be certified and approved by CITY LOOKS in writing.
4.3 EXECUTION OF FRANCHISE AGREEMENTS. For each City Looks business opened,
owned, and operated for business by the FRANCHISEE in the Franchised Area, the
FRANCHISEE (and, if applicable, the FRANCHISEE'S shareholders and Personal
Guarantors) must execute CITY LOOKS' then-current standard Franchise Agreement
(the "Franchise Agreement") in substantially the same form as Exhibit B attached
hereto. If the FRANCHISEE fails to provide CITY LOOKS with an executed City
Looks Salons International Franchise Agreement at least ten (10) days prior to
the date on which the FRANCHISEE commences business at each City Looks business
in the Franchised Area as provided by the terms of this Agreement, it will be
deemed a material breach of this Agreement and CITY LOOKS will have the right to
terminate this Agreement as provided herein.
4.4 CONTINUING FEES. During the term of each Franchise Agreement signed by the
FRANCHISEE, the FRANCHISEE will pay to CITY LOOKS weekly Continuing Fees, as
defined in the Franchise Agreement, equal to a percentage of the weekly Gross
Revenues, as defined in the Franchise Agreement, which are received, billed or
generated by or from the FRANCHISEE'S City Looks businesses in the Franchised
Area. For the first (1st) through the seventeenth (17th) weeks of the
FRANCHISEE'S operation of each of the City Looks businesses opened and operated
pursuant to this Agreement, the FRANCHISEE will not be obligated to pay a
Continuing Fee to CITY LOOKS. For the eighteenth (18th) through the
thirty-fourth (34th) weeks of the FRANCHISEE'S operation of each of its City
Looks businesses, the FRANCHISEE will pay to CITY LOOKS a weekly Continuing Fee
equal to two percent (2%) of the FRANCHISEE'S Gross Revenues. For the
thirty-fifth (35th) week of the FRANCHISEE'S operation of each of the City Looks
businesses opened and operated pursuant to this Agreement and thereafter for the
balance of the remaining term of the applicable Franchise Agreement, the
FRANCHISEE will pay to CITY LOOKS a weekly Continuing Fee equal to four percent
(4%) of the FRANCHISEE'S Gross Revenues; provided, however, that commencing with
the fifty-third (53rd) week of the FRANCHISEE'S operation of each of its City
Looks businesses, and continuing throughout the remaining term of the Franchise
Agreements for the City Looks businesses, the FRANCHISEE will pay to CITY LOOKS
a weekly Continuing Fee equal to the greater of four percent (4%) of the
FRANCHISEE'S weekly Gross Revenues or One Hundred Dollars ($100) per week. The
FRANCHISEE will pay Continuing Fees to CITY LOOKS at the applicable rate stated
in the preceding sentences, even if the Franchise Agreements signed by the
FRANCHISEE specify Continuing Fees that are greater than or different from the
Continuing Fees specified herein. With the possible exception of the percentage
of the FRANCHISEE'S Gross Revenues which will be payable to CITY LOOKS, the
Continuing Fees for each of the FRANCHISEE'S City Looks businesses will be
payable by the FRANCHISEE according to the terms of the applicable Franchise
Agreements signed by the FRANCHISEE pursuant to this Agreement.
4.5 GROSS REVENUES CAP. At such time as the FRANCHISEE achieves Gross Revenues
of One Million Dollars ($1,000,000) (the "Gross Revenues Cap") within a single
calendar year (the first such year being referred to herein as the "Base Year")
in any single City Looks business opened pursuant to this Agreement, the
FRANCHISEE will no longer be obligated, so long as the FRANCHISEE is in
compliance with all terms and conditions of the applicable Franchise Agreement
including, but not limited to, the obligation to pay Continuing Fees on all
Gross Revenues up to and including the Gross Revenues Cap, to pay Continuing
Fees with respect to any Gross Revenues in excess of the Gross Revenues Cap
which are achieved during the remainder of such calendar year from such single
City Looks business. Commencing on January 1 of the year following the Base Year
and on each January 1 thereafter, the FRANCHISEE will resume payment of weekly
Continuing Fees pursuant to the applicable Franchise
<PAGE>
Agreement until the FRANCHISEE has achieved the Gross Revenues Cap for such year
for such business. For each year after the Base Year, the Gross Revenues Cap for
such City Looks business shall be increased to an amount equal to the product
obtained by multiplying the Gross Revenues Cap for the immediately preceding
calendar year by the sum of one plus the percent of increase (but not decrease)
in the Consumer Price Index, U.S. City Average (All Items) For All Urban
Consumers (CPI-U) (1984 = 100) (the "Index") from the first day of such
immediately preceding calendar year to the last day of such immediately
preceding calendar year, as published by the U.S. Bureau of Labor Statistics
("BLS"). If the Index is no longer published, the FRANCHISOR will select a
replacement index that will, in the FRANCHISOR's sole discretion, most closely
approximate the Index. Notwithstanding anything to the contrary contained in
this Article 4.5 or the applicable Franchise Agreement, the relief from paying
Continuing Fees with respect to Gross Revenues in excess of the Gross Revenues
Cap granted pursuant to the applicable Franchise Agreement and this Agreement
shall immediately cease and terminate in the event the FRANCHISEE fails to (a)
submit the weekly Gross Revenues reports as required pursuant to the applicable
Franchise Agreement, (b) pay weekly Continuing Fees with respect to Gross
Revenues up to and including the Gross Revenues Cap as required under the
applicable Franchise Agreement or (c) comply with any other term or provision of
this the applicable Franchise Agreement; in addition, for purposes of the Gross
Revenues Cap and this Article 4.5, Gross Revenues must be calculated for each
City Looks business separately and Gross Revenues from more than one such
business may not be combined.
4.6 NATIONAL ADVERTISING PRODUCTION FEES. During the term of each Franchise
Agreement signed by the FRANCHISEE pursuant to this Agreement, the FRANCHISEE
will pay to CITY LOOKS weekly National Advertising Production Fees, as defined
in the Franchise Agreement, equal to one-half of one percent (.5%) the weekly
Gross Revenues, as defined in the Franchise Agreement, which are received,
billed or generated by or from the FRANCHISEE'S City Looks businesses in the
Franchised Area. The FRANCHISEE will pay National Advertising Production Fees to
CITY LOOKS at the applicable rate stated in the preceding sentences, even if the
Franchise Agreements signed by the FRANCHISEE specify National Advertising
Production Fees that are greater than or different from the National Advertising
Production Fees specified herein. With the possible exception of the percentage
of the FRANCHISEE'S Gross Revenues which will be payable to CITY LOOKS, the
National Advertising Production Fees for each of the FRANCHISEE'S City Looks
businesses will be payable by the FRANCHISEE according to the terms of the
applicable Franchise Agreements signed by the FRANCHISEE pursuant to this
Agreement.
4.7 LOCAL ADVERTISING. For the first (1st) through the thirty-fourth (34th)
weeks of the FRANCHISEE'S operation of each of its City Looks businesses opened
pursuant to this Agreement, the FRANCHISEE must spend an amount equal to at
least four percent (4%) of its Gross Revenues from each such business for
approved local media advertising and promotion. For the thirty-fifth (35th) and
each subsequent week of the FRANCHISEE'S operation of each of its City Looks
businesses opened pursuant to this Agreement through the balance of the
remaining term of the applicable Franchise Agreements, the FRANCHISEE must spend
an amount equal to three percent (3%) of its Gross Revenues for approved local
media advertising and promotion. The FRANCHISEE will make such expenditures in
accordance with the terms and conditions of the applicable Franchise Agreement
for each of the FRANCHISEE'S City Looks businesses opened and operated by the
FRANCHISEE pursuant to this Agreement.
4.8 ADVERTISING FUND. In addition to the National Advertising Production Fees
required under Article 4.6 of this Agreement, CITY LOOKS reserves the right, in
its sole discretion, to require the FRANCHISEE to contribute a maximum of three
percent (3%) of the FRANCHISEE'S Gross Revenues of each of its City Looks
businesses opened pursuant to this Agreement into an advertising fund which
<PAGE>
will be administered and controlled by CITY LOOKS. The requirement for the
FRANCHISEE to contribute to an advertising fund will not take effect until the
FRANCHISEE has been given not less than thirty (30) days written notice of such
requirement. In the event CITY LOOKS requires the FRANCHISEE to contribute to an
advertising fund, the FRANCHISEE'S requirement to spend an amount for local
advertising under Article 4.7 of this Agreement will be reduced by the same
percentage that the FRANCHISEE will be required to contribute to CITY LOOKS for
the advertising fund. The use of the monies in such advertising fund will be
under the absolute discretion and control of CITY LOOKS to purchase and pay for
any products or services relating to advertising for City Looks franchisees. The
advertising fees payable by the FRANCHISEE into the advertising fund will be
payable in the same fashion and under the same terms and conditions as the
National Advertising Production Fees are payable and will not be refundable to
the FRANCHISEE under any circumstances.
4.9 OTHER PAYMENTS. During the term of each Franchise Agreement signed by the
FRANCHISEE pursuant to this Agreement, the FRANCHISEE will be required to spend
monies for items such as grand opening advertising and promotion, local media
advertising and promotion, local group advertising and promotion, and other
expenses. The FRANCHISEE will pay all such required advertising and promotional
fees and expenses at the rates established in, and in accordance with the terms
and conditions of, the applicable Franchise Agreement for each of the
FRANCHISEE'S City Looks businesses opened and operated by the FRANCHISEE
pursuant to this Agreement.
4.10 MODIFICATIONS TO FRANCHISE AGREEMENT. The FRANCHISEE acknowledges that the
Franchise Agreement may be modified from time to time by CITY LOOKS and that
reasonable modifications and amendments to the Franchise Agreement will not
alter the FRANCHISEE'S obligations under this Agreement.
ARTICLE 5
CONFIDENTIAL OPERATIONS MANUAL
AND OTHER INFORMATION
5.1 COMPLIANCE WITH MANUAL. In order to protect the reputation and goodwill of
CITY LOOKS and to maintain uniform operating standards under the Marks and the
Business System, the FRANCHISEE will, at all times during the term of this
Agreement and the terms of each City Looks Salons International Franchise
Agreement signed by the FRANCHISEE, conduct its City Looks businesses in
accordance with CITY LOOKS' confidential Operations Manual (the "Manual"). The
FRANCHISEE acknowledges having received as a loan one copy of the Manual from
CITY LOOKS.
5.2 CONFIDENTIALITY OF MANUAL. The FRANCHISEE must, at all times during the term
of this Agreement and thereafter, treat the Manual, any other manuals created
for or approved for use in the operation of the FRANCHISEE'S City Looks
businesses, and the information contained therein as secret and confidential,
and the FRANCHISEE will use all reasonable means to keep such information secret
and confidential. Neither the FRANCHISEE nor its employees will make any copy,
duplication, record or reproduction of the Manual, or any portion thereof,
available to any unauthorized person.
5.3 REVISIONS TO MANUAL. The Manual will, at all times during the term of this
Agreement and thereafter, remain the sole and absolute property of CITY LOOKS.
CITY LOOKS may from time to time revise the Manual and the FRANCHISEE expressly
agrees to operate its City Looks businesses in accordance with all such
revisions. The FRANCHISEE will at all times keep its copy of the Manual current
and up-to-date, and in the event of any dispute, the terms of the master copy of
the Manual maintained by CITY LOOKS will be controlling in all respects.
<PAGE>
5.4 OTHER CONFIDENTIAL INFORMATION. The FRANCHISEE expressly acknowledges and
agrees that CITY LOOKS will be disclosing and providing to the FRANCHISEE
certain confidential and proprietary information concerning the Business System
and the procedures, technology, operations and data used in connection with the
Business System. Accordingly, the FRANCHISEE will not, during the term of this
Agreement or thereafter, communicate, divulge or use for the benefit of any
other person or entity any confidential information, knowledge or know-how
concerning the methods of operation of a City Looks business which may be
communicated to the FRANCHISEE, or of which the FRANCHISEE may be apprised, by
virtue of this Agreement. The FRANCHISEE will divulge such confidential
information only to its employees who must have access to it in order to operate
the FRANCHISEE'S City Looks businesses. Any and all information, knowledge and
know-how including, without limitation, drawings, materials, equipment,
technology, methods, procedures, specifications, techniques, computer programs,
systems and other data, which CITY LOOKS designates as confidential or
proprietary will be deemed confidential and proprietary for the purposes of this
Agreement.
5.5 CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES. The FRANCHISEE will require all
of the FRANCHISEE'S employees who have access to the Manual or other
confidential information execute an agreement, in the form attached as an
Exhibit to the Franchise Agreement or other form satisfactory to CITY LOOKS,
where the employees agree to maintain the confidentiality during the course of
their employment and thereafter, of all information designated by CITY LOOKS as
confidential. Copies of all executed agreements will be submitted to CITY LOOKS
upon request.
5.6 REMEDIES. The FRANCHISEE recognizes that the provisions contained in this
Article are necessary for the protection of CITY LOOKS and all of the
Franchisees who own City Looks businesses. If the FRANCHISEE violates any
provisions of this Article, or if any employee of the FRANCHISEE violates his or
her confidentiality agreement executed pursuant to Article 5.5, then CITY LOOKS
will have the right to: (A) terminate this Agreement (as provided for herein);
(B) seek injunctive relief from a Court of competent jurisdiction; (C) commence
an action or lawsuit against the FRANCHISEE for damages; and (D) enforce all
other remedies against the FRANCHISEE that are available to CITY LOOKS under
common law, in equity, and pursuant to any federal and state statutes in an
action or lawsuit against the FRANCHISEE.
ARTICLE 6
CITY LOOKS' RIGHT OF TERMINATION
6.1 GROUNDS FOR TERMINATION. In addition to the other rights of termination
contained in this Agreement, CITY LOOKS will have the right and privilege to
terminate this Agreement if: (A) the FRANCHISEE violates any material provision,
term or condition of this Agreement; (B) the FRANCHISEE fails to conform to the
Business System, the standards of uniformity and quality for the goods and
services or the policies and procedures promulgated by CITY LOOKS in connection
with the Business System, or is involved in any act or conduct which materially
impairs the goodwill associated with the Marks or the Business System; (C) the
FRANCHISEE fails to timely pay any of its uncontested obligations or liabilities
due and owing CITY LOOKS, suppliers, banks, purveyors, other creditors or any
federal, state and municipal government (including, if applicable, federal and
state taxes); (D) the FRANCHISEE is determined to be insolvent within the
meaning of any state or federal law or becomes a party to any bankruptcy
proceedings, files for bankruptcy, or its adjudicated a bankrupt under any state
or federal law; (E) the FRANCHISEE makes an assignment for the benefit of
creditors or enters into any similar arrangement for the disposition of its
assets for the benefit of creditors; (F) any check issued by the FRANCHISEE is
dishonored because of insufficient funds (except where the check is dishonored
because
<PAGE>
of a bookkeeping or accounting error) or closed accounts; (G) any City Looks
Salons International Franchise Agreement executed by the FRANCHISEE is (1)
terminated by CITY LOOKS or (2) wrongfully terminated by the FRANCHISEE; (H) the
FRANCHISEE voluntarily or otherwise abandons, as defined herein, the Franchised
Area; or (I) the FRANCHISEE or any of its partners, Directors, officers or
majority stockholders is convicted of, or pleads guilty or no contest to, a
charge of violating any law relating to the FRANCHISEE'S City Looks businesses,
or any felony.
6.2 NOTICE OF BREACH. Except as provided in Article 6.5 and Article 6.6 of this
Agreement, CITY LOOKS will not have the right to terminate this Agreement unless
and until written notice setting forth the alleged breach in detail has been
given to the FRANCHISEE by CITY LOOKS and after having been given such written
notice of breach the FRANCHISEE fails to correct the alleged breach within the
period of time specified by applicable law. If applicable law does not specify a
time period to correct an alleged breach, then the FRANCHISEE will have thirty
(30) days after having been given such written notice to correct the alleged
breach. If the FRANCHISEE fails to correct an alleged breach set forth in the
written notice as provided herein within the applicable period of time, then
this Agreement may be terminated by CITY LOOKS as provided in this Agreement.
For the purposes of this Agreement, an alleged breach of this Agreement by the
FRANCHISEE will be deemed to be "corrected" if both CITY LOOKS and the
FRANCHISEE agree in writing that the alleged breach has been corrected.
6.3 ARBITRATION. If the FRANCHISEE gives notice of Arbitration, as provided for
in this Agreement, within the time period established in Article 6.2 for
correcting the alleged breach, then CITY LOOKS will not have the right to
terminate this Agreement until the facts of the alleged breach have been
submitted to Arbitration as provided for herein, the Arbitrator determines that
the FRANCHISEE has breached this Agreement and the FRANCHISEE fails to correct
the breach within the applicable time period. If the Arbitrator determines that
the FRANCHISEE has breached this Agreement as alleged by CITY LOOKS in the
written notice given to the FRANCHISEE, then the FRANCHISEE will have thirty
(30) days from the date the Arbitrator issues a written determination on the
matter to correct the specified breach or violation of this Agreement, except
where applicable law requires a longer cure period in which event the cure
period specified by applicable law will apply. If the FRANCHISEE timely corrects
the specified breach of this Agreement, then this Agreement will remain in full
force and effect. For the purposes of this Agreement, any controversy or dispute
on the issue of whether the FRANCHISEE has timely corrected the specified breach
of this Agreement will also be subject to Arbitration as provided for herein.
The time limitations set forth in this Article within which the FRANCHISEE may
demand Arbitration of a dispute or controversy relating to the right of CITY
LOOKS to terminate this Agreement for an alleged breach will be mandatory. If
the FRANCHISEE fails to comply with the time limitations set forth in this
Article, CITY LOOKS may terminate this Agreement as provided for herein.
6.4 NOTICE OF TERMINATION. If CITY LOOKS has complied with the notice provisions
of this Article and the FRANCHISEE has not corrected the alleged breach set
forth in the written notice within the time period specified in this Article,
then CITY LOOKS will have the absolute right to terminate this Agreement by
giving the FRANCHISEE written notice stating to the FRANCHISEE that this
Agreement is terminated and in that event, unless applicable law provides to the
contrary, the effective date of termination of this Agreement will be the day
the written notice of termination is given to the FRANCHISEE.
6.5 GROUNDS FOR IMMEDIATE TERMINATION. CITY LOOKS will have the absolute right
and privilege, where permitted by applicable law, to immediately terminate this
Agreement if: (A) the FRANCHISEE or any of its partners, directors, officers or
majority stockholders is convicted of, or pleads guilty to or no contest to, a
charge of violating any law relating to the FRANCHISEE'S City Looks
<PAGE>
businesses, or any felony; (B) the FRANCHISEE voluntarily or otherwise abandons,
as defined herein, the Franchised Area; or (C) the FRANCHISEE is involved in any
act or conduct which materially impairs the goodwill associated with CITY LOOKS'
Marks or Business System and which the FRANCHISEE fails to correct within
twenty-four (24) hours of receipt of written notice from CITY LOOKS.
6.6 NOTICE OF IMMEDIATE TERMINATION. If this Agreement is terminated by CITY
LOOKS pursuant to Article 6.5 above, CITY LOOKS will give the FRANCHISEE written
notice, unless applicable law provides to the contrary, that this Agreement is
terminated and in that event the effective date of termination of this Agreement
will be the day the written notice of termination is given to the FRANCHISEE.
6.7 DAMAGES. In the event this Agreement is terminated by CITY LOOKS pursuant to
this Article, or if the FRANCHISEE breaches this Agreement by a wrongful
termination of this Agreement, then CITY LOOKS will be entitled to seek recovery
from the FRANCHISEE for all of the damages that CITY LOOKS has sustained and
will sustain in the future as a result of the FRANCHISEE'S breach of this
Agreement, which will include damages based upon the Initial Fees, Continuing
Fees, Advertising Fees and other fees that would have been payable by the
FRANCHISEE pursuant to this Agreement.
6.8 OTHER REMEDIES. Nothing in this Article or this Agreement will preclude CITY
LOOKS from seeking damages or other remedies under common law, state or federal
laws or this Agreement against the FRANCHISEE including, but not limited to,
attorneys' fees, punitive damages and injunctive relief.
ARTICLE 7
FRANCHISEE'S RIGHTS AND
OBLIGATIONS UPON TERMINATION
7.1 OBLIGATIONS UPON TERMINATION. In the event this Agreement is terminated for
any reason, then the FRANCHISEE will: (A) within five (5) days after
termination, pay all amounts due and owing to CITY LOOKS under this Agreement or
any other contract or obligation; (B) return to CITY LOOKS by first class
prepaid United States mail all Manuals, advertising and promotional materials
and all other printed materials pertaining to the operation of a City Looks
Salons International business; and (C) comply with all other applicable
provisions of this Agreement, including those provisions with obligations that
continue beyond the termination of this Agreement.
7.2 REVERSION OF RIGHTS. Upon termination of this Agreement for any reason, all
rights to open and operate additional City Looks Salons International businesses
in the Franchised Area and all other rights granted to the FRANCHISEE pursuant
to this Agreement will automatically revert to CITY LOOKS, and CITY LOOKS will
have the right to develop the Franchised Area or to contract with another
franchisee for the future development of the Franchised Area.
7.3 FRANCHISE AGREEMENTS NOT AFFECTED. The FRANCHISEE will continue to operate
the City Looks businesses owned and operated by the FRANCHISEE in the Franchised
Area pursuant to the terms of the applicable Franchise Agreements signed by the
FRANCHISEE and CITY LOOKS prior to the termination of this Agreement, and the
rights and obligations of the FRANCHISEE and CITY LOOKS with respect to the
FRANCHISEE'S City Looks businesses in the Franchised Area will be governed by
the terms of the applicable Franchise Agreements.
<PAGE>
ARTICLE 8
FRANCHISEE'S COVENANTS NOT TO COMPETE
8.1 CONSIDERATION. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors acknowledge that, pursuant to this Agreement, the
FRANCHISEE, its partners or officers, and its employees will receive specialized
training, current and future marketing and advertising plans and strategies,
business plans and strategies, business information and procedures, research and
development information, operations information and trade secrets from CITY
LOOKS pertaining to the Business System and the operation of a City Looks Salons
International business. In consideration for the use and license of such
valuable and confidential information, the FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will comply in all respects with the
provisions of this Article. CITY LOOKS has advised the FRANCHISEE that this
provision is a material provision of this Agreement, and that CITY LOOKS will
not sell a City Looks Salons International franchise to any person or entity
that owns or intends to own, operate or be involved in any business that
competes directly or indirectly with a City Looks Salons International business.
8.2 IN-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, during the term of this
Agreement, on their own account or as an employee, agent, consultant, partner,
officer, director, member or shareholder of any other person, firm, entity,
partnership or corporation: (A) seek to employ any person who is at that time
employed by CITY LOOKS or by any other City Looks Salon, The Barbers, City Looks
By The Barbers, Cost Cutters or We Care Hair(R) franchisee, or induce any such
employee to terminate his or her employment; or (B) own, operate, lease,
franchise, conduct, engage in, be connected with, have any interest in, or
assist any person or entity engaged in any hairstyling, barber or other business
that is in any way competitive with or similar to the City Looks Salon, The
Barbers or City Looks By The Barbers businesses conducted by CITY LOOKS or CITY
LOOKS' franchisees (including, but not limited to, the FRANCHISEE), except with
the prior written consent of CITY LOOKS.
8.3 POST-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, for a period of one (1) year
after the termination or expiration of this Agreement, on their own account or
as an employee, agent, consultant, partner, officer, director, member or
shareholder of any other person, firm, entity, partnership or corporation: (A)
seek to employ any person who is at that time employed by CITY LOOKS or by any
other City Looks Salon, The Barbers, City Looks By The Barbers, Cost Cutters or
We Care Hair(R) franchisee, or induce any such employee to terminate his or her
employment; or (B) own, operate, lease, franchise, conduct, engage in, be
connected with, have any interest in or assist any person or entity engaged in
any hairstyling, barber or other business that is in any way competitive with or
similar to The Barbers, City Looks Salons International, or the City Looks By
The Barbers businesses conducted by CITY LOOKS or CITY LOOKS' franchisees which
is located either within the Franchised Area or within six (6) miles of any City
Looks Salons International, The Barbers or City Looks By The Barbers business
operated by CITY LOOKS or any of CITY LOOKS' franchisees, or which is located
within any exclusive area granted by CITY LOOKS or any affiliate or area
developer of CITY LOOKS pursuant to any franchise, development, license or other
territorial agreement. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors expressly agree that the one (1) year period, the Franchised
Area and the six (6) mile limit are the reasonable and necessary time and
geographical limitations needed to protect CITY LOOKS and CITY LOOKS'
franchisees if this Agreement expires or is terminated for any reason, and that
this covenant not to compete is necessary to permit CITY LOOKS the opportunity
to further develop new City Looks businesses in the Franchised Area.
<PAGE>
8.4 INJUNCTIVE RELIEF. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors agree that the provisions of this Article are necessary to
protect the legitimate business interests of CITY LOOKS and CITY LOOKS'
franchisees including, without limitation, preventing damage to or loss of
goodwill associated with the Marks, preventing the unauthorized dissemination of
marketing, promotional and other confidential information to competitors of CITY
LOOKS and CITY LOOKS' franchisees, protection of CITY LOOKS' trade secrets, the
Business System and the integrity of CITY LOOKS' Business System, and the
prevention of duplication of the Business System. The FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors acknowledge that damages
alone cannot adequately compensate CITY LOOKS if there is a violation of this
Article by the FRANCHISEE and that injunctive relief against the FRANCHISEE is
essential for the protection of CITY LOOKS and CITY LOOKS' franchisees. The
FRANCHISEE, the FRANCHISEE'S shareholders and the Personal Guarantors agree
therefore, that if CITY LOOKS alleges that the FRANCHISEE, the FRANCHISEE'S
shareholders or the Personal Guarantors have breached or violated this Article,
then CITY LOOKS will have the right to petition for injunctive relief against
the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal Guarantors in
addition to all other remedies that may be available to CITY LOOKS at law or in
equity. Unless applicable law provides to the contrary, CITY LOOKS will not be
required to post a bond or other security in any action where CITY LOOKS is
seeking to enjoin the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal
Guarantors from violating this Article. In cases where CITY LOOKS is granted ex
parte injunctive relief against the FRANCHISEE, the FRANCHISEE'S shareholders or
the Personal Guarantors (if any), then the FRANCHISEE, the FRANCHISEE'S
shareholders or the Personal Guarantors will have the right to petition the
court for a hearing on the merits at the earliest time convenient to the court.
8.5 SEVERABILITY. It is the desire and intent of the parties to this Agreement,
including the FRANCHISEE'S shareholders and the Personal Guarantors, that the
provisions of this Article be enforced to the fullest extent permissible under
the laws and public policy applied in each jurisdiction in which enforcement is
sought. Accordingly, if any part of this Article is adjudicated to be invalid or
unenforceable, then this Article will be deemed amended to modify or delete that
portion thus adjudicated to be invalid or unenforceable, such modification or
deletion to apply only with respect to the operation of this Article and the
particular jurisdiction in which the adjudication is made. Further, to the
extent any provision of this Article is deemed unenforceable by virtue of its
scope or limitation, the parties to this Agreement, including the FRANCHISEE,
the FRANCHISEE'S shareholders and the Personal Guarantors, agree that the scope
and limitation provisions will, nevertheless, be enforceable to the fullest
extent permissible under the laws and public policies applied in such
jurisdiction where enforcement is sought.
ARTICLE 9
INDEPENDENT CONTRACTORS; INDEMNIFICATION
9.1 INDEPENDENT CONTRACTORS. CITY LOOKS and the FRANCHISEE are each independent
contractors and, as a consequence, there is no employer-employee or
principal-agent relationship between CITY LOOKS and the FRANCHISEE. The
FRANCHISEE will not have the right to, and will not make any agreements,
representations or warranties in the name of or on behalf of CITY LOOKS or
represent that their relationship is other than that of franchisor and
franchisee. Neither CITY LOOKS nor the FRANCHISEE will be obligated by or have
any liability to the other under any agreements or representations made by the
other to any third parties.
9.2 INDEMNIFICATION. CITY LOOKS will not be obligated to any person for any
damages arising out of, from, in connection with, or as a result of the
FRANCHISEE'S negligence or the operation of the FRANCHISEE'S City Looks
businesses that are conducted by the FRANCHISEE pursuant to this
<PAGE>
Agreement. Therefore, the FRANCHISEE will indemnify and hold harmless CITY LOOKS
against all claims, lawsuits, damages, obligations, liability, actions and
judgments alleged or obtained by any person or entity against CITY LOOKS arising
out of, from, as a result of, or in connection with the FRANCHISEE'S negligence
or the operation of the FRANCHISEE'S City Looks businesses that are conducted by
the FRANCHISEE pursuant to this Agreement, including, without limitation, any
claims arising from or relating to: (A) any personal injury, property damage,
commercial loss or environmental contamination resulting from any act or
omission of the FRANCHISEE or any of its employees, agents or representatives;
(B) any failure on the part of the FRANCHISEE to comply with any requirement of
any governmental authority; (C) any failure of the FRANCHISEE to pay any of its
obligations; or (D) any failure or the FRANCHISEE to comply with any requirement
or condition of this Agreement or any other agreement with CITY LOOKS or any
affiliate of CITY LOOKS. Further, the FRANCHISEE will indemnify and reimburse
CITY LOOKS for all such obligations and damages for which CITY LOOKS is held
liable and for all costs reasonably incurred by CITY LOOKS in the defense of any
such claim brought against it or in any action arising out of the operation of
the FRANCHISEE'S City Looks businesses in which it is named as a party
including, without limitation, costs for attorneys' fees actually incurred,
investigation expenses, court costs, deposition expenses and travel and living
expenses. CITY LOOKS will have the absolute right to defend any claim made
against it that results from the FRANCHISEE'S City Looks businesses.
9.3 PAYMENT OF COSTS AND EXPENSES. The FRANCHISEE will pay all costs and
expenses, including actual attorneys' fees, incurred by CITY LOOKS in enforcing
any term, condition or provision of this Agreement or in seeking to enjoin any
violation of this Agreement by the FRANCHISEE.
9.4 CONTINUATION OF OBLIGATIONS. The indemnification provisions and other
obligations contained in the Article will continue in full force and effect
subsequent to and notwithstanding the expiration or termination of this
Agreement.
ARTICLE 10
ASSIGNMENT
10.1 ASSIGNMENT BY CITY LOOKS. This Agreement may be unilaterally assigned and
transferred by CITY LOOKS without the FRANCHISEE'S approval or consent, and will
inure to the benefit of CITY LOOKS' successors and assigns. CITY LOOKS will
provide the FRANCHISEE with written notice of any such assignment or transfer,
and the assignee will be required to fulfill CITY LOOKS' obligations under this
Agreement.
10.2 ASSIGNMENT BY FRANCHISEE TO CORPORATION. If the FRANCHISEE is an individual
or a partnership, this Agreement may be transferred or assigned by the
FRANCHISEE to a corporation which is owned or controlled (ownership of at least
fifty-one percent (51%) of the issued and outstanding capital stock) by the
FRANCHISEE, provided that: (A) the FRANCHISEE and all of the shareholders of the
assignee corporation sign the personal guaranty and agreement to be bound by the
terms and conditions of this Agreement attached hereto; (B) the FRANCHISEE
furnishes prior written proof to CITY LOOKS substantiating that the corporation
will be financially able to perform all of the terms and conditions of this
Agreement; and (C) none of the shareholders owns, operates, franchises,
develops, manages or controls any hairstyling, barber or other business that is
in any way competitive with or similar to a City Looks Salons International
business. The FRANCHISEE will give CITY LOOKS fifteen (15) days written notice
prior to the proposed date of assignment or transfer of this Agreement to an
owned or controlled corporation of the FRANCHISEE; however, the transfer or
assignment of this Agreement will not be valid or effective until CITY LOOKS has
received the legal documents which its
<PAGE>
legal counsel deems necessary to properly and legally document the transfer or
assignment of this Agreement to the corporation as provided herein.
10.3 ASSIGNMENT UPON DEATH OR DISABILITY OF FRANCHISEE. If the FRANCHISEE is an
individual, then this Agreement may be assigned, transferred or bequeathed by
the FRANCHISEE to any designated person or beneficiary upon his or her death or
permanent disability. However, the assignment of this Agreement to the
transferee, assignee or beneficiary of the FRANCHISEE will not be valid or
effective until CITY LOOKS has received the properly executed legal documents
which its legal counsel deems necessary to properly and legally document the
transfer, assignment or bequest of this Agreement, and until the transferee,
assignee or beneficiary agrees to be unconditionally bound by the terms and
conditions of this Agreement and to personally guarantee the performance of the
FRANCHISEE'S obligations under this Agreement.
10.4 APPROVAL OF TRANSFER; CONDITIONS FOR APPROVAL. This Agreement may be
assigned or transferred by the FRANCHISEE only with the prior written approval
of CITY LOOKS. CITY LOOKS will not unreasonably withhold its consent to any
transfer of this Agreement, provided that the FRANCHISEE and the transferee
Franchisee comply with the following conditions: (A) all of the FRANCHISEE'S
monetary obligations due to CITY LOOKS have been paid in full, and the
FRANCHISEE is not otherwise in default under this Agreement; (B) the FRANCHISEE
has executed a written agreement in a form satisfactory to CITY LOOKS in which
the FRANCHISEE agrees to observe all applicable obligations and covenants
contained in this Agreement; (C) the transferee Franchisee and its shareholders
agree to be personally liable to discharge all of the FRANCHISEE'S obligations
under this Agreement and will enter into a written agreement in a form
satisfactory to CITY LOOKS assuming and agreeing to discharge all of the
FRANCHISEE'S obligations and covenants under this Agreement; (D) the transferee
Franchisee will have demonstrated to CITY LOOKS' satisfaction that he, she or it
meets CITY LOOKS' managerial, financial, and business standards for new area
Franchisees, possesses a good business reputation and credit rating, and
possesses the aptitude and ability to conduct the business franchised hereunder
(as may be evidenced by prior related business experience or otherwise); (E) the
FRANCHISEE has paid the transfer fee required under Article 10.6; (F) the
transferee Franchisee does not own, operate, franchise, develop, manage or
control any hairstyling, barber or other business that is in any way competitive
with or similar to a City Looks Salons International business; and (G) if the
transferee Franchisee does not meet CITY LOOKS' net worth requirements for
operation of the City Looks Salons International Businesses, then the FRANCHISEE
and/or its shareholders and the Personal Guarantors will execute a written
agreement in a form satisfactory to CITY LOOKS agreeing to remain liable to CITY
LOOKS for the obligations of the City Looks Businesses.
10.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the City Looks Business System and the Marks, as well as CITY LOOKS'
reputation and image, and are for the protection of CITY LOOKS, the FRANCHISEE
and all other franchisees who own and operate City Looks businesses. Any
assignment or transfer permitted by this Article 10 will not be effective until
CITY LOOKS receives a completely executed copy of all transfer documents and
CITY LOOKS consents to the transfer in writing, any attempted assignment or
transfer made without complying with the requirements of this Article 10 will be
void.
10.6 TRANSFER FEE. If, pursuant to the terms of this Article, this Agreement is
assigned, transferred or bequeathed to another person or entity, or if the
FRANCHISEE'S shareholders transfer over fifty percent (50%) of their capital
stock to another person or entity, then the FRANCHISEE will pay CITY LOOKS a
transfer fee of One Thousand Dollars ($1,000). This fee is to cover the costs
incurred by
<PAGE>
CITY LOOKS for attorneys' fees, accountants' fees, out-of-pocket expenses, long
distance telephone calls, administrative expenses, and the time of its employees
and officers.
ARTICLE 11
ARBITRATION
11.1 DISPUTES SUBJECT TO ARBITRATION. Except as expressly provided to the
contrary in this Agreement, all disputes and controversies between the parties,
including allegations of fraud, misrepresentation or violation of any state or
federal laws or regulations, arising under, as a result of, or in connection
with this Agreement, the Franchised Area or the FRANCHISEE'S City Looks
businesses will be resolved and determined exclusively by Arbitration in
accordance with the Commercial Rules and Regulations of the American Arbitration
Association.
11.2 NOTICE OF DISPUTE. The party alleging the breach, claim, dispute or
controversy ("dispute") must give the other party written notice setting forth
the alleged dispute in detail. The party who has been given such written notice
alleging the dispute will have thirty (30) days after having been given such
written notice from the complaining party to correct or resolve the dispute
specified in the written notice.
11.3 DEMAND FOR ARBITRATION. If the dispute alleged by either party has not been
corrected, settled or compromised within the time period provided for in this
Agreement, then either party may notice Arbitration by giving the other party
written notice demanding Arbitration. Within ten (10) days after a written
demand for Arbitration has been given by the party demanding Arbitration, either
party will have the right to request the office of the American Arbitration
Association in Minneapolis, Minnesota to initiate the procedures necessary to
appoint an Arbitrator. The Arbitrator will be appointed within sixty (60) days
after a written demand for Arbitration has been made in accordance with the
Commercial Rules and Regulation of the American Arbitration Association.
11.4 VENUE AND JURISDICTION. All Arbitration hearings will take place
exclusively in Minneapolis, Minnesota. CITY LOOKS and the FRANCHISEE and their
officers, directors and shareholders or partners and the Personal Guarantors
acknowledge that the FRANCHISEE and its officers, Directors and employees have
had substantial business and personal contacts with CITY LOOKS in Minnesota, do
hereby agree and submit to personal jurisdiction in Minnesota in connection with
any Arbitration hearings hereunder and any suits or actions brought to enforce
the decision of the Arbitrator, and do hereby waive any rights they may have to
contest venue and jurisdiction in Minnesota and any claims that venue and
jurisdiction in Minnesota are invalid.
11.5 POWERS OF ARBITRATOR. The authority of the Arbitrator will be limited to
making a finding, judgment, decision and award relating to the interpretation of
or adherence to the written provisions of this Agreement. The Federal Rules of
Evidence (the "Rules") will apply to all Arbitration hearings and the
introduction of all evidence, testimony, records, affidavits, documents and
memoranda in any Arbitration hearing must comply in all respects with the Rules
and the legal precedents interpreting the Rules. Both parties will have the
absolute right to cross-examine any person who testified against them or in
favor of the other party. The Arbitrator will not have the authority or right to
add to, delete, amend or modify in any manner the terms, conditions and
provisions of this Agreement. All findings, judgments, decisions and awards of
the Arbitrator will be limited to the dispute set forth in the written demand
for Arbitration, and the Arbitrator will not have the authority to decide any
other issues. The Arbitrator will not have the right or authority to award
punitive damages to CITY LOOKS or the FRANCHISEE or their officers, Directors,
shareholders or partners and Personal Guarantors, and CITY LOOKS and FRANCHISEE
and their officers, Directors, shareholders or partners, and Personal Guarantors
expressly waive their rights to plead or seek punitive damages. All findings,
judgments, decisions and awards by the Arbitrator will be in writing, will be
made within sixty (60) days after the
<PAGE>
Arbitration hearings have been completed, and will be final and binding on CITY
LOOKS and the FRANCHISEE except as provided for in Article 11.8. The written
decision of the Arbitrator will be deemed to be an order, judgment and decree
and may be entered as such in any Court of competent jurisdiction by either
party.
11.6 DISPUTES NOT SUBJECT TO ARBITRATION. The disputes and controversies between
CITY LOOKS and the FRANCHISEE which are set forth in Article 12.1 and the
following disputes between CITY LOOKS and the FRANCHISEE will not be subject to
Arbitration: (A) any dispute involving the Marks; (B) any dispute involving
immediate termination of this Agreement by CITY LOOKS pursuant to Article 6.5
and Article 6.6 of this Agreement; (C) any dispute involving enforcement of the
confidentiality provisions set forth in Article 5 of this Agreement; and (D) any
dispute involving enforcement of the covenants not to compete set forth in
Article 8 of this Agreement.
11.7 NO COLLATERAL ESTOPPEL OR CLASS ACTIONS. Except as provided herein, all
Arbitration findings and awards expressly made by the Arbitrator will be final
and binding on CITY LOOKS and the FRANCHISEE and their officers, Directors,
shareholders or partners, and Personal Guarantors; however, such Arbitration
findings and awards may not be used to collaterally estop either party from
raising any like or similar issues, claims or defenses in any other or
subsequent Arbitration, litigation, court hearing or other proceeding involving
third parties or other franchisees. No party except CITY LOOKS, the FRANCHISEE,
and their officers, directors, shareholders or partners, and Personal Guarantors
will have the right to join in any Arbitration proceeding arising under this
Agreement, and, therefore, the Arbitrator will not be authorized to permit or
approve class actions or to permit any person or entity that is not a party to
this Agreement to be involved in or to participate in any Arbitration hearings
conducted pursuant to this Agreement.
11.8 DE NOVO HEARING ON MERITS. If the Arbitrator awards either CITY LOOKS or
the FRANCHISEE damages (including actual damages, costs and attorneys' fees) in
excess of One Hundred Thousand Dollars ($100,000) in an Arbitration proceeding
commenced pursuant to this Agreement, then the party who has been held liable by
the Arbitrator will have the right to a de novo hearing on the merits by
commencing an action in a court of competent jurisdiction in accordance with the
provisions of this Agreement. If the party held liable by the Arbitrator
commences a court action as provided for herein, then neither party will have
the right to introduce the Arbitrator's decision or findings in any such court
action and the Arbitrator's decision and findings will be of no force and effect
and will not be final or binding on either CITY LOOKS or the FRANCHISEE. If the
party who has been held liable by the Arbitrator for over One Hundred Thousand
Dollars ($100,000) in damages fails to commence a court action within thirty
(30) days after the Arbitrator issues his or her award in writing, then the
Arbitrator's findings, judgments, decisions and awards will be final and binding
on CITY LOOKS and the FRANCHISEE.
11.9 CONFIDENTIALITY. All evidence, testimony, records, documents, findings,
decision, judgments and awards pertaining to any Arbitration hearing between
CITY LOOKS and the FRANCHISEE will be secret and confidential in all respects.
CITY LOOKS and the FRANCHISEE will not disclose the decision or award of the
Arbitrator and will not disclose any evidence, testimony, records, documents,
findings, orders, or other matters from the Arbitration hearing to any person or
entity except as required by law.
11.10 SEVERABILITY. It is the desire and intent of the parties to this Agreement
that the provisions of this Article be enforced to the fullest extent
permissible under the laws and public policy applied in each jurisdiction in
which enforcement is sought. Accordingly, if any part of this Article is
adjudicated to be invalid or unenforceable, then this Article will be deemed
amended to delete that portion thus
<PAGE>
adjudicated to be invalid or unenforceable to the extent required to make this
Article valid and enforceable. Any such deletion will be effective only in the
particular jurisdiction in which the adjudication is made. Further, to the
extent any provision of this Article is deemed unenforceable by virtue of its
scope, the parties to this Agreement agree that the same will, nevertheless, be
enforceable to the fullest extent permissible under the laws and public policies
applied in such jurisdiction where enforcement is sought, and the scope in such
a case will be determined by Arbitration as provided herein.
ARTICLE 12
ENFORCEMENT
12.1 INJUNCTIVE RELIEF. In addition to the provisions of Article 11, CITY LOOKS
will be entitled to petition a Court of competent jurisdiction for the entry of
temporary and permanent injunctions and orders of specific performance enforcing
the provisions of this Agreement relating to: (A) the FRANCHISEE'S improper or
unauthorized use of the Marks and the Business System; (B) the obligations of
the FRANCHISEE upon termination or expiration of this Agreement; (C) the
transfer or assignment of this Agreement, the Franchised Area or ownership
interests of the FRANCHISEE; (D) the FRANCHISEE'S violation of the provisions of
this Agreement relating to confidentiality and covenants not to compete; and (E)
any act or omission by the FRANCHISEE or the FRANCHISEE'S employees that, (1)
constitutes a violation of any applicable law, ordinance or regulation, (2) is
dishonest or misleading to customers of the FRANCHISEE'S City Looks businesses
or other City Looks or The Barbers businesses, (3) constitutes a danger to the
employees, public or customers of the FRANCHISEE'S City Looks businesses, or (4)
may impair the goodwill associated with the Marks and the Business System. In
any action brought under this provision where CITY LOOKS prevails against the
FRANCHISEE, the FRANCHISEE will indemnify CITY LOOKS for all costs that it
incurs in any such proceedings including, without limitation, attorneys' fees
actually incurred, expert witness fees, costs of investigation, court costs,
travel and living expenses, and all other costs incurred by CITY LOOKS. Unless
provided to the contrary by applicable law, CITY LOOKS will be entitled to
obtain injunctive relief without the posting of any bond or security.
12.2 SEVERABILITY. All provisions of this Agreement are severable and this
Agreement will be interpreted and enforced as if all completely invalid or
unenforceable provisions were not contained herein and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. If
any applicable law or rule of any jurisdiction requires a greater prior notice
of the termination of this Agreement than is required hereunder or the taking of
some other action not required hereunder, or if under any applicable and binding
law of any jurisdiction, any provision of this Agreement or any specification,
standard or operating procedure prescribed by CITY LOOKS is invalid or
unenforceable, the prior notice or other action required by such law or rule
will be substituted for the notice requirements hereof, or such invalid or
unenforceable provision, specification, standard or operating procedure will be
modified to the extent required to be valid and enforceable. Such modifications
to this Agreement will be effective only in such jurisdiction and will be
enforced as originally made and entered into in all other jurisdictions.
12.3 WAIVER. CITY LOOKS and the FRANCHISEE may, by written instrument signed by
CITY LOOKS and the FRANCHISEE, waive any obligation of or restriction upon the
other under this Agreement. Acceptance by CITY LOOKS of any payment by the
FRANCHISEE and the failure, refusal or neglect of CITY LOOKS to exercise any
right under this Agreement or to insist upon full compliance by the FRANCHISEE
of its obligations hereunder will not constitute a waiver by CITY LOOKS of any
provision of this Agreement. CITY LOOKS will have the right to waive obligations
or restrictions for other area franchisees under their Development Agreements
without waiving those obligations or
<PAGE>
restrictions for the FRANCHISEE and, except to the extent provided by law, CITY
LOOKS will have the right to negotiate terms and conditions, grant concessions
and waive obligations for other area franchisees of CITY LOOKS without granting
those same rights to the FRANCHISEE and without incurring any liability to the
FRANCHISEE whatsoever.
12.4 NO RIGHT TO OFFSET. The FRANCHISEE will not, on grounds of the alleged
nonperformance by CITY LOOKS of any of its obligations under this Agreement or
any other contract between CITY LOOKS and the FRANCHISEE, or for any other
reason, withhold payment of any amounts due CITY LOOKS under this Agreement or
any other contract or obligation. The FRANCHISEE will not have the right to
"offset" any liquidated or unliquidated amounts allegedly due to the FRANCHISEE
from CITY LOOKS against any payments due to CITY LOOKS under this Agreement or
any other contract or obligation.
12.5 CITY LOOKS' RIGHTS CUMULATIVE. The rights of CITY LOOKS hereunder are
cumulative and no exercise or enforcement by CITY LOOKS of any right or remedy
hereunder will preclude the exercise or enforcement by CITY LOOKS of any other
right or remedy hereunder or which CITY LOOKS is entitled by law to enforce.
12.6 VENUE AND JURISDICTION. Unless otherwise required by applicable law, all
Arbitration hearings, litigation, court hearings or other hearings initiated by
either party against the other party must and will be venued exclusively in
Hennepin County, Minnesota. The FRANCHISEE, each of its officers, Directors and
shareholders, and the Personal Guarantors: (A) acknowledge that Minneapolis,
Minnesota is a mutually convenient location for the venue and conduct of any
legal or enforcement proceedings; (B) do hereby agree and submit to personal
jurisdiction in the State of Minnesota for the purposes of any Arbitration
hearings, litigation, court hearings or other hearings brought to enforce or
construe the terms of this Agreement or to resolve any dispute or controversy
arising under, as a result of, or in connection with this Agreement, the
Franchised Area or the FRANCHISEE'S City Looks businesses; and (C) do hereby
agree and stipulate that any Arbitration hearings, litigation, court hearings
and other hearings will be venued and held exclusively in Hennepin County,
Minnesota, and waive any rights to contest such venue and jurisdiction and any
claims that such venue and jurisdiction are invalid.
12.7 AGREEMENT BINDING ON HEIRS AND ASSIGNS. This Agreement is binding upon the
parties hereto and their respective executors, administrators, heirs, assigns
and successors in interest.
12.8 JOINT AND SEVERAL LIABILITY. If the FRANCHISEE consists of more than one
person, their liability under this Agreement will be deemed to be joint and
several.
12.9 ENTIRE AGREEMENT. This Agreement supersedes and terminates all prior
agreements relating to the rights granted herein, either oral or in writing,
between the parties and therefore, any representations, inducements, promises or
agreements between the parties not contained in this Agreement or not in writing
signed by the President or a Vice President of CITY LOOKS and the FRANCHISEE
will not be enforceable. This Agreement will not supersede or terminate any
written Development Agreement relating to another Franchised Area or Franchise
Agreement(s) executed prior to the date of this Agreement relating to other City
Looks franchises operated by the FRANCHISEE that are or will be owned and
operated by the FRANCHISEE. The preambles are a part of this Agreement, which
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agreements between CITY LOOKS and the FRANCHISEE
relating to the subject matter of this Agreement.
<PAGE>
12.10 CONTROLLING AGREEMENT. The rights and obligations of the FRANCHISEE and
CITY LOOKS with respect to the operation of each City Looks business opened in
the Franchised Area by the FRANCHISEE will be governed by the terms and
conditions of each City Looks Franchise Agreement executed by the FRANCHISEE. In
the event there is a conflict between the terms of this Agreement and the terms
of any City Looks Franchise Agreement executed by the FRANCHISEE, then unless
specified otherwise herein, the terms of this Agreement will control.
12.11 HEADINGS; TERMS. The headings of the Articles and the provisions thereof
are for convenience only and do not define, limit or construe the contents of
such Articles. The term "FRANCHISEE" as used herein is applicable to one or more
individuals, a corporation or a partnership, as the case may be, and the
singular usage includes the plural, and the masculine usage includes the neuter
and the feminine, and the neuter usage includes the masculine and the feminine.
References to "FRANCHISEE" which are applicable to an individual or individuals
will mean the principal owner or owners of the equity or operating control of
the FRANCHISEE if the FRANCHISEE is a corporation or partnership. If the
FRANCHISEE consists of more than one individual, then all individuals will be
bound jointly and severally by the terms and conditions of this Agreement.
12.12 NO ORAL MODIFICATION. No modification, change, addition, rescission,
release, amendment or waiver of, and no approval, consent or authorization
required by any provision of this Agreement may be made except by a written
agreement subscribed to by duly authorized officers or partners of the
FRANCHISEE and the President or a Vice President of CITY LOOKS. CITY LOOKS and
the FRANCHISEE will not have the right to amend or modify this Agreement orally
or verbally, and any attempt to do so will be void in all respects.
ARTICLE 13
NOTICES
All notices to CITY LOOKS will be in writing and will be made by personal
service upon an officer or Director of CITY LOOKS or sent by prepaid registered
or certified United States mail addressed to CITY LOOKS at 300 Industrial
Boulevard N.E., Minneapolis, Minnesota 55413 with a copy to John W. Fitzgerald,
Esq., Gray, Plant, Mooty, Mooty & Bennett, P.A., 3400 City Center, 33 South
Sixth Street, Minneapolis, Minnesota 55402-3796. All notices to the FRANCHISEE
will be by personal service upon the FRANCHISEE or a District Manager or Salon
manager (or, if applicable, an officer or director of the FRANCHISEE), or sent
by prepaid registered or certified United States mail addressed to the
FRANCHISEE at the first City Looks Salons International business opened by the
FRANCHISEE in the Franchised Area or such other address as the FRANCHISEE may
designate in writing, or by delivery to any employee of the FRANCHISEE by a
recognized overnight delivery service (such as Federal Express or UPS) which
requires a written receipt of delivery from the addressee. Notice by mail is
effective upon depositing the same in the mail in the manner provided above,
notice by personal service is effective upon obtaining service and notice by
overnight delivery service is effective upon delivery by such overnight delivery
service.
ARTICLE 14
ACKNOWLEDGMENTS
14.1 BUSINESS RISKS; NO FINANCIAL PROJECTIONS. The FRANCHISEE acknowledges that
it has conducted an independent investigation of the prospects for the
establishment of City Looks Salons International businesses within the
Franchised Area, and recognizes that the business venture contemplated by this
Agreement involves business and economic risks and that its financial and
business
<PAGE>
success will be primarily dependent upon the personal efforts of the FRANCHISEE,
its management and employees. CITY LOOKS expressly disclaims the making of, and
the FRANCHISEE acknowledges that it has not received, any estimates,
projections, warranties or guaranties, express or implied, regarding potential
Gross Revenues, profits, earnings or the financial success of the FRANCHISEE'S
City Looks businesses, except as expressly set forth in writing in CITY LOOKS'
City Looks Salons International Uniform Franchise Offering Circular, receipt of
which is acknowledged by the FRANCHISEE.
14.2 NO INCOME OR REFUND WARRANTIES. The FRANCHISEE acknowledges that CITY LOOKS
does not warrant or guarantee to the FRANCHISEE that the FRANCHISEE will derive
income or profit from the FRANCHISEE'S City Looks businesses or that CITY LOOKS
will refund all or part of the Exclusive Territory Fee or the price paid for the
FRANCHISEE'S City Looks businesses or repurchase any of the products,
merchandise, furniture, fixtures, equipment, supplies or chattels supplied by
CITY LOOKS or an approved supplier if the FRANCHISEE is unsatisfied with its
City Looks businesses.
14.3 TERMS OF OTHER DEVELOPMENT AGREEMENTS MAY DIFFER. The FRANCHISEE
acknowledges that other area franchisees of CITY LOOKS have or will be granted
Development Agreements at different times and in different situations, and
further acknowledges that the terms and conditions of such Development
Agreements may vary substantially in form and substance from those contained in
this Agreement.
14.4 RECEIPT OF UNIFORM FRANCHISE OFFERING CIRCULAR. The FRANCHISEE acknowledges
that it received a copy of this Agreement with all material blanks fully
completed at least five (5) business days prior to the date that this Agreement
was executed. The FRANCHISEE further acknowledges that it received a City Looks
Uniform Franchise Offering Circular at least ten (10) business days prior to the
date on which this Agreement was executed.
14.5 POTENTIAL INCREASES IN INVESTMENT REQUIREMENTS. The FRANCHISEE recognizes
and acknowledges that this Agreement requires it to open additional City Looks
businesses in the future pursuant to the development schedule set forth in
Article 3. The FRANCHISEE further acknowledges that the estimated expenses and
investment requirements set forth in Items 6 and 7 of CITY LOOKS' City Looks
Salons International Uniform Franchise Offering Circular are subject to increase
over time, and that future City Looks businesses opened and operated by the
FRANCHISEE may involve greater initial investment and operating capital
requirements than those stated in the Uniform Franchise Offering Circular
provided to the FRANCHISEE prior to the execution of this Agreement.
14.6 HAIR PERFORMERS(R) BUSINESSES. The FRANCHISEE agrees and acknowledges that
the "Hair Performers(R)" businesses serviced by Hair Performers International,
Inc., a wholly-owned subsidiary of The Barbers, Hairstyling for Men & Women,
Inc. ("The Barbers") are hair salons that address similar markets and, thus, may
be competitive with City Looks businesses. Further, the FRANCHISEE acknowledges
and agrees that Hair Performers International, Inc. will have the absolute right
to develop, own, manage, license or franchise Hair Performers(R) businesses at
any location in the world, and the FRANCHISEE hereby waives any and all rights
that it may have or allege against CITY LOOKS or any affiliate of CITY LOOKS
resulting from the opening of any Hair Performers(R) business, including those
Hair Performers(R) businesses that may be located in the Franchised Area or
near, adjacent or contiguous to any of the FRANCHISEE'S City Looks businesses.
14.7 COST CUTTERS(R), WE CARE HAIR(R) AND FAMILY HAIRCUT(R) BUSINESSES. The
FRANCHISEE agrees and acknowledges that the "Cost Cutters Family Hair Care(R)"
businesses which are franchised by The Barbers, the "We Care Hair(R)" businesses
which are franchised by WCH, Inc., a
<PAGE>
wholly-owned subsidiary of The Barbers, and the Family Haircut(R) business
serviced by The Barbers ("Cost Cutters(R), We Care Hair(R) and Family Haircut(R)
businesses") are hair salons that address different markets and, thus, are not
competitive with City Looks Salons International businesses. Further, the
FRANCHISEE acknowledges and agrees that WCH, Inc. and The Barbers will have the
absolute right to develop, own, manage, license or franchise Cost Cutters(R), We
Care Hair(R) and Family Haircut(R) businesses at any location in the world, and
the FRANCHISEE hereby waives any and all rights that it may have or allege
against CITY LOOKS or any affiliate of CITY LOOKS resulting from the opening of
any Cost Cutters(R), We Care Hair(R) or Family Haircut(R) businesses, including
those Cost Cutters(R), We Care Hair(R) or Family Haircut(R) businesses that may
be located in the Franchised Area or near, adjacent or contiguous to any of the
FRANCHISEE'S City Looks businesses.
ARTICLE 15
DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL
15.1 DISCLAIMER BY CITY LOOKS. CITY LOOKS expressly disclaims the making of any
express or implied representations or warranties regarding the sales, earnings,
income, profits, Gross Revenues, business or financial success, or value of the
FRANCHISEE'S businesses, except those expressly set forth in writing in Item 19
of the City Looks Salons International Uniform Franchise Offering Circular
received by the FRANCHISEE.
15.2 ACKNOWLEDGMENTS BY FRANCHISEE. The FRANCHISEE acknowledges that it has not
received any express or implied representations or warranties regarding the
sales, earnings, income, profits, Gross Revenues, business or financial success,
value of the businesses or any other matters pertaining to the City Looks Salons
International businesses from CITY LOOKS or any of CITY LOOKS' officers,
employees or agents that were not contained in writing in the Uniform Franchise
Offering Circular (including this Agreement) received by the FRANCHISEE
("representations or warranties"). The FRANCHISEE further acknowledges that if
it had received any representations or warranties not contained in CITY LOOKS'
City Looks Salons International Uniform Franchise Offering Circular, it would
not have executed this Agreement, and the FRANCHISEE would have: (A) promptly
notified the President of CITY LOOKS in writing of the person or persons making
such representations or warranties; and (B) provided to CITY LOOKS a specific
written statement detailing the representations or warranties made that were not
contained in the City Looks Salons International Uniform Franchise Offering
Circular received by the FRANCHISEE.
15.3 LEGAL REPRESENTATION. The FRANCHISEE acknowledges that this Agreement
constitutes a legal document which grants certain rights to and imposes certain
obligations upon the FRANCHISEE. The FRANCHISEE was advised by CITY LOOKS to
consult an attorney or other advisor prior to the execution of this Agreement to
review CITY LOOKS' City Looks Salons International Uniform Franchise Offering
Circular, to review this Agreement in detail, to review the economics,
operations and other business aspects of the City Looks Salons International
businesses, to determine compliance with franchising and other applicable laws,
to advise the FRANCHISEE about all federal, state and local laws, rules,
ordinances, special regulations and statutes that apply to the FRANCHISEE'S City
Looks Salons International businesses and to advise the FRANCHISEE about the
economic risks, liabilities, obligations and rights under this Agreement. The
name of the FRANCHISEE'S attorney or other advisor is:
<PAGE>
Name:
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Name of Firm:
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Address:
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City, State, Zip Code:
--------------------------------------
Telephone Number: ( )
-------------------------------------------
Fax Number: ( )
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ARTICLE 16
GOVERNING LAW; STATE MODIFICATIONS
16.1 GOVERNING LAW. Except to the extent governed by the United States Trademark
Act of 1946 (Lanham Act, 15 U.S.C. ss.1051 et seq.), this Agreement and the
relationship between CITY LOOKS and the FRANCHISEE will be governed by the laws
of the state in which the Franchised Area is located. If the Franchised Area
contains more than one state, then the laws of the state in which the
FRANCHISEE'S principal place of business is located will govern. The provisions
of this Agreement which conflict with or are inconsistent with applicable
governing law will be superseded and/or modified by such applicable law only to
the extent such provisions are inconsistent. All other provisions of this
Agreement will be enforceable as originally made and entered into upon the
execution of this Agreement by the FRANCHISEE and CITY LOOKS.
16.2 STATE MODIFICATIONS. The following states have statutes which may supersede
the provisions of this Agreement in the FRANCHISEE'S relationship with CITY
LOOKS including the areas of termination and renewal of the Franchise: ARKANSAS
[Stat. Section 70-807], CALIFORNIA [Bus. & Prof. Code Sections 20000-20043],
CONNECTICUT [Gen. Stat. Section 42-133e et seq.], DELAWARE [Code Section 2552],
HAWAII [Rev. Stat. Section 482E-1], ILLINOIS [815 ILCS 705/19 and 705/20],
INDIANA [Stat. Section 23-2-2.7], IOWA [Code 523H.1-523H.17], MICHIGAN [Stat.
Section 19.854(27)], MINNESOTA [Stat. Section 80C14], MISSISSIPPI [Code Section
75-24-51], MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat. Section
87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws Section
37-5A-51], VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code Section
19.100.180], WISCONSIN [Stat. Section 135.03]. These and other states may have
court decisions which may supersede the provisions of this Agreement in the
FRANCHISEE'S relationship with CITY LOOKS including the areas of termination and
renewal of the Franchise. If the Franchised Area is located in any one of the
states specifically indicated below in this Article 16.2, or if the laws of any
such state are otherwise applicable, then the designated provisions of this
Agreement will be amended and revised as follows:
ILLINOIS. If this Agreement is governed by the laws of the
State of Illinois, then: (1) the consent by the FRANCHISEE to
jurisdiction and venue in Hennepin County, Minnesota contained in
Article 12.6 may be inapplicable; provided, however, that such
inapplicability in the State of Illinois will not be construed to mean
that venue in Hennepin County, Minnesota is improper, or that the
FRANCHISEE and its officers, directors and shareholders are not subject
to jurisdiction in Hennepin County, Minnesota, or in any other state;
and (2) Section 41 of the Illinois Franchise Disclosure Act states that
"any condition, stipulation or provision purporting to bind any person
acquiring any franchise to waive compliance with any provision of this
Act is
<PAGE>
void", accordingly any acknowledgments contained in Article 14.2,
Article 14.4, Article 14.5, Article 15.2, and the second sentence of
Article 14.1 will be unenforceable against the FRANCHISEE.
MINNESOTA. If this Agreement is governed by the laws of the
State of Minnesota, then: (1) Article 6.2 will be amended to require
that, except as set forth in Article 6.5 and Article 6.6, in the event
CITY LOOKS gives the FRANCHISEE written notice that the FRANCHISEE has
breached this Agreement, such written notice will be given to the
FRANCHISEE at least ninety (90) days prior to the date this Agreement
is terminated by CITY LOOKS, and the FRANCHISEE will have sixty (60)
days after having been given of such written notice within which to
correct the breach specified in the written notice; and (2)
notwithstanding any provisions of this Agreement to the contrary, a
Court of competent jurisdiction will determine whether CITY LOOKS will
be required to post a bond or other security, and the amount of such
bond or other security, in any injunctive proceeding commenced by CITY
LOOKS against the FRANCHISEE or the FRANCHISEE'S shareholders.
NORTH DAKOTA. If this Agreement is governed by the laws of the
State of North Dakota, then: (1) the covenant not to compete upon
termination or expiration of this Agreement contained in Article 8.3
may be unenforceable, except in certain circumstances provided by law;
(2) the consent by the FRANCHISEE to jurisdiction and venue in Hennepin
County, Minnesota contained in Article 12.6 may be inapplicable;
provided, however, that such inapplicability in the State of North
Dakota will not be construed to mean that venue in Hennepin County,
Minnesota is improper, or that the FRANCHISEE and its officers,
directors and shareholders are not subject to jurisdiction in Hennepin
County, Minnesota, or in any other state; (3) the provisions of Article
11 requiring Arbitration hearings to take place in Minneapolis,
Minnesota will be inapplicable and in the event of Arbitration between
CITY LOOKS and the FRANCHISEE, such Arbitration will be conducted in
Fargo, North Dakota or at a mutually agreed upon location; and (4) the
parties' waiver of their right to claim punitive damages, as set forth
in Article 11.5, may not be enforceable under North Dakota law.
WISCONSIN. If this Agreement is governed by the laws of the
State of Wisconsin, then the provisions of the Wisconsin Fair
Dealership Law, Wis. Stat. Chapter 135, will supersede any conflicting
terms of this Agreement.
17.3 SEVERABILITY. The severability provisions of this Agreement contained in
Article 8.5, Article 11.10 and Article 12.2 of this Agreement will pertain to
all of the applicable laws which conflict with or modify the provisions of this
Agreement including, but not limited to, the provisions of this Agreement
specifically addressed in Article 16.2 above.
ARTICLE 17
DEFINITIONS
17.1 ABANDON. "Abandon" as used in this Agreement will mean the conduct of the
FRANCHISEE, including acts of omission as well as commission, indicating the
willingness, desire or intent of the FRANCHISEE to discontinue the opening and
operating of City Looks Salons International businesses in the Franchised Area
in accordance with the terms of this Agreement.
<PAGE>
17.2 TERMS DEFINED IN FRANCHISE AGREEMENT. Capitalized terms used but not
defined in this Agreement will, if defined in the Franchise Agreement, have the
meanings ascribed to such terms in the Franchise Agreement.
IN WITNESS WHEREOF, CITY LOOKS, the FRANCHISEE and the shareholders or partners
of the FRANCHISEE have executed this Agreement effective as of the day and year
first above written.
In the Presence of: "CITY LOOKS"
THE BARBERS, HAIRSTYLING FOR MEN &
WOMEN, INC.
----------------------------------------
By
- ----------------------------------- -------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
The undersigned individual shareholders or partners of the FRANCHISEE hereby
agree to be bound by the terms and conditions of this Agreement.
PERCENTAGE OF
In the Presence of: SHAREHOLDERS/PARTNERS OWNERSHIP
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
<PAGE>
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THE DEVELOPMENT AGREEMENT
In consideration of the execution of this Agreement by CITY LOOKS, and for other
good and valuable consideration, the undersigned, for themselves, their heirs,
successors, and assigns, do jointly, individually and severally hereby become
surety and guaranty for the payment of all amounts and the performance of the
covenants, terms and conditions in this Agreement, to be paid, kept and
performed by the FRANCHISEE.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement and agree that this PERSONAL GUARANTY will be construed as though the
undersigned and each of them executed an Agreement containing the identical
terms and conditions of this Agreement.
If the FRANCHISEE breaches the terms and conditions of this Agreement, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay to CITY LOOKS all monies due and
payable to CITY LOOKS under the terms and conditions of this Agreement.
In addition, if the FRANCHISEE fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors and
assigns, do hereby, individually, jointly and severally, promise and agree to
comply with the terms and conditions of this Agreement for and on behalf of the
FRANCHISEE.
In addition, should the FRANCHISEE at any time be in default on any obligation
to pay monies to CITY LOOKS or any subsidiary or affiliate of CITY LOOKS,
whether for merchandise, products, supplies, furniture, fixtures, equipment,
rent or other goods purchased by the FRANCHISEE from CITY LOOKS or any
subsidiary or affiliate of CITY LOOKS or for any other indebtedness of the
FRANCHISEE to CITY LOOKS or any subsidiary or affiliate of CITY LOOKS, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay all such monies due and payable
from the FRANCHISEE to CITY LOOKS or any subsidiary or affiliate of CITY LOOKS.
It is further understood and agreed by the undersigned that the provisions,
covenants and conditions of this GUARANTY will inure to the benefit of the
successors and assigns of CITY LOOKS. Each of the undersigned hereby submits to
personal jurisdiction in the state and federal courts of Minnesota with respect
to any litigation pertaining to this GUARANTY, and agrees that all litigation
pertaining to this GUARANTY will and must be venued exclusively in Hennepin
County, Minnesota.
<PAGE>
PERSONAL GUARANTORS
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Print Name Print Name
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Print Name Print Name
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Print Name Print Name
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
EXHIBIT 10.5
FOR USE ONLY IN THE STATE OF /
FRANCHISE AGREEMENT
BETWEEN
WCH, INC.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
Fax: (612) 331-2821
AND
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Name(s) of FRANCHISEE
-----------------------------------------------
Street
-----------------------------------------------
City State Zip Code
( )
-----------------------------------------------
Area Code Telephone
FRANCHISED LOCATION:
-----------------------------------------------
Street
-----------------------------------------------
City State Zip Code
( )
-----------------------------------------------
Area Code Telephone
DATE OF FRANCHISE AGREEMENT:
__________________________, 199___
<PAGE>
WE CARE HAIR(R)
FRANCHISE AGREEMENT
INDEX
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
- ------- ----- ----
<S> <C>
1 FRANCHISED LOCATION; GRANT OF FRANCHISE........................................2
2 TERM; FRANCHISEE'S OPTION TO REACQUIRE FRANCHISE...............................3
3 WCH'S RIGHT TO LICENSE MARKS...................................................4
4 INITIAL FEE; APPROVAL OF FRANCHISEE............................................5
5 CONTINUING FEES................................................................6
6 ADVERTISING....................................................................7
7 QUALITY CONTROL, UNIFORMITY AND STANDARDS REQUIRED OF THE FRANCHISEE...........9
8 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION..........................14
9 WCH'S TERMINATION RIGHTS......................................................15
10 FRANCHISEE'S TERMINATION RIGHTS...............................................17
11 FRANCHISEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION.......................19
12 FRANCHISEE'S COVENANTS NOT TO COMPETE.........................................20
13 WCH'S RIGHT OF FIRST REFUSAL TO PURCHASE......................................21
14 TRAINING PROGRAM; PRE-OPENING ASSISTANCE; OPENING ASSISTANCE..................24
15 WCH'S OTHER OBLIGATIONS.......................................................25
16 WCH SIGN......................................................................26
17 INSURANCE.....................................................................27
18 INDEPENDENT CONTRACTORS; INDEMNIFICATION......................................28
19 FINANCIAL STATEMENTS; GROSS REVENUE REPORTS; FORMS AND ACCOUNTING.............29
20 ASSIGNMENT....................................................................30
21 SITE SELECTION; STANDARD STORE LAYOUTS AND PLANS..............................33
22 LEASE AS SECURITY; TERMINATION OF LEASE.......................................34
23 ARBITRATION...................................................................36
24 ENFORCEMENT...................................................................38
25 NOTICES.......................................................................40
26 ACKNOWLEDGMENTS...............................................................41
27 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL........................................42
28 GOVERNING LAW; STATE MODIFICATIONS............................................43
29 DEFINITIONS...................................................................46
</TABLE>
PERSONAL GUARANTY
CONFIDENTIALITY AGREEMENT
LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
<PAGE>
WE CARE HAIR(R)
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (this "Agreement") made, entered into and effective
this ______ day of _______________, 19___, by and between WCH, Inc., a Minnesota
corporation ("WCH"), and ______________________________________________________
(the "FRANCHISEE");
WITNESSETH:
WHEREAS, WCH has developed and owns a distinctive business system for operating
hairstyling businesses of a distinctive character with the name "We Care
Hair(R)" (the "Business System" or the "We Care Hair Business System") and has
publicized the name "We Care Hair(R)", and other trademarks, trade names,
service marks and commercial symbols to the public as an organization of
hairstyling businesses operating under the We Care Hair Business System; and
WHEREAS, WCH represents that it has the right and authority to franchise the use
of the names "We Care Hair(R)" and certain other trademarks, trade names,
service marks, logos and commercial symbols (the "Marks") for use in connection
with hairstyling businesses operated in conformity with the Business System to
selected persons or entities who will comply with WCH'S uniformity requirements
and quality standards; and
WHEREAS, the FRANCHISEE desires to operate a We Care Hair hairstyling business
at the location designated in Article 1 of this Agreement which will conform to
the uniformity requirements and quality standards established and promulgated
from time to time by WCH; and
WHEREAS, WCH is willing to provide the FRANCHISEE with marketing, advertising,
technology, operational and other business information, experience and "know
how" about the We Care Hair business that has been developed over time by WCH at
significant cost and expense; and
WHEREAS, the FRANCHISEE acknowledges that it would take substantial capital and
human resources to develop a business similar to the We Care Hair business and,
as a consequence, the FRANCHISEE desires to acquire the right to use the Marks
and the Business System and to own and operate a We Care Hair business subject
to and under the terms and conditions set forth in this Agreement; and
WHEREAS, the FRANCHISEE acknowledges that WCH would not provide the FRANCHISEE
with any business information or "know how" about the We Care Hair Business
System unless the FRANCHISEE agreed to comply with all of the terms and
conditions of this Agreement and to pay the Initial Fee, the Continuing Fees,
and the Advertising Fees specified in this Agreement; and
WHEREAS, the FRANCHISEE has had a full and adequate opportunity to be thoroughly
advised of the terms and conditions of this Agreement by legal counsel or
another adviser, and has had sufficient time to evaluate and investigate the We
Care Hair Business System, the financial investment requirements, and the
business risks associated with owning and operating a We Care Hair business;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement and for other good and valuable consideration, the parties
hereby contract as follows:
<PAGE>
ARTICLE 1
FRANCHISED LOCATION; GRANT OF FRANCHISE
1.1 FRANCHISED LOCATION. WCH grants to the FRANCHISEE a nonexclusive personal
right to operate one We Care Hair business in conformity with the We Care Hair
Business System (the "We Care Hair Business" or the "Business") and further
grants the FRANCHISEE a nonexclusive personal right to operate the Business
using the name We Care Hair(R) at the following single location:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(the "Franchised Location"). This Agreement does not grant any exclusive
territorial rights to the FRANCHISEE, and WCH will have the right to open and
operate, and to grant to other franchisees the right to open and operate, We
Care Hair businesses in conformity with the Business System using the Marks at
locations anywhere.
1.2 FRANCHISED LOCATION NOT DETERMINED. In the event the Franchised Location has
not yet been determined as of the date of this Agreement, then the geographical
area in which the FRANCHISEE'S We Care Hair Business is to be located will be
described or defined in an exhibit signed by the parties and attached to this
Agreement. At such time as the address of the Franchised Location is determined,
then the address will be inserted into Article 1.1 of this Agreement.
1.3 RELOCATION. Notwithstanding any provisions of this Agreement to the
contrary, the FRANCHISEE may, with the prior written approval of WCH, relocate
the Franchised Location to another location during the term of this Agreement if
the proposed new location does not compete with any We Care Hair business
operated by WCH or WCH'S Franchisees and the proposed new location is located
within two (2) miles of the Franchised Location. The failure of the FRANCHISEE
to obtain the written approval of WCH prior to the relocation of the Franchised
Location, or the failure to have the new location open for business within ten
(10) business days after the Franchised Location is closed, will be a material
breach of this Agreement. In the event the Franchised Location is relocated
pursuant to this provision, the "new" location, including the real estate and
the building, must comply with all applicable provisions of this Agreement and
with WCH'S then-current specifications.
1.4 DESTRUCTION OF FRANCHISED LOCATION. In the event the Franchised Location is
destroyed or rendered untenantable by fire, flood or other casualty, the term of
this Agreement will be extended for a period of time equal to the period of time
that the FRANCHISEE is unable to operate its We Care Hair Business. If the
Franchised Location is rebuilt, repaired or restored to tenantable condition by
the owner of the premises, then the FRANCHISEE must resume business operations
within twelve (12) months of the date that the premises are restored to
tenantable condition by the owner. The FRANCHISEE'S failure to resume business
operations within such twelve (12) month period will constitute abandonment of
the Business. If the premises are not restored by the owner, then the FRANCHISEE
must relocate the Franchised Location pursuant to Article 1.3.
1.5 CONDITIONS TO FRANCHISE. The FRANCHISEE undertakes the obligation to operate
a We Care Hair hairstyling Business at the Franchised Location under the We Care
Hair Business System using the name We Care Hair(R) in strict compliance with
the terms and conditions of this Agreement for the entire term of this
Agreement. The rights and privileges granted to the FRANCHISEE by WCH under
<PAGE>
this Agreement are applicable only to the Franchised Location, are personal in
nature, and may not be used elsewhere or at any other location by the
FRANCHISEE.
1.6 PERSONAL LICENSE. The FRANCHISEE will not have the right to franchise,
subfranchise, license or sublicense its rights under this Agreement. The
FRANCHISEE will not assign or transfer its rights under this Agreement, except
as specifically provided for in this Agreement.
ARTICLE 2
TERM; FRANCHISEE'S OPTION TO REACQUIRE FRANCHISE
2.1 TERM. The term of this Agreement will be for fifteen (15) years, commencing
on the date set forth on Page F-1 of this Agreement. This Agreement will not be
considered executed and will not be enforceable until: (A) it has been signed by
WCH and the FRANCHISEE, and, if the FRANCHISEE is a corporation or partnership,
the personal guarantors; and (B) the signed Agreement has been delivered to the
FRANCHISEE.
2.2 RIGHTS UPON EXPIRATION. At the expiration of the term of this Agreement, the
FRANCHISEE will have the option to reacquire the franchise for the Franchised
Location pursuant to Article 2.3 of this Agreement.
2.3 CONDITIONS TO OPTION. At the end of the term of this Agreement, the
FRANCHISEE will have the option to reacquire the franchise for the Franchised
Location provided that the following conditions have been met: (A) the
FRANCHISEE has given WCH written notice at least one hundred eighty (180) days
prior to the end of the term of this Agreement of its commitment to reacquire
the franchise for the Franchised Location; (B) during the term of this
Agreement, the FRANCHISEE has complied with all of the material terms and
conditions of this Agreement and has complied with WCH'S material operating and
quality standards and procedures; (C) all monetary obligations owed by the
FRANCHISEE to WCH have been paid or satisfied prior to the end of the term of
this Agreement, and have been timely met throughout the term of this Agreement;
(D) the FRANCHISEE has agreed, in writing, to make the reasonable capital
expenditures necessary to remodel, modernize, upgrade and redecorate the
Franchised Location and to replace and update the furniture, fixtures, supplies,
equipment and techniques used in the FRANCHISEE'S We Care Hair Business so that
the FRANCHISEE'S Business will reflect the image portrayed by WCH'S then-current
decor and specifications; (E) the FRANCHISEE agrees to execute and comply with
the then-current standard Franchise Agreement then being offered to new
Franchisees by WCH subject further to the provisions of Article 2.4 of this
Agreement; and (F) as of the date the FRANCHISEE exercises its option to
reacquire the franchise for the Franchised Location, the FRANCHISEE either owns
the Franchised Location or has the right to lease the Franchised Location or a
new location as set forth in Article 1.3 for a term of at least three (3) years.
2.4 TERMS OF OPTION. The FRANCHISEE will have the option to reacquire the
franchise for the Franchised Location under the same terms and conditions then
being offered to other Franchisees by WCH under WCH'S then-current standard
Franchise Agreement. If the FRANCHISEE exercises its right to reacquire the
franchise for the Franchised Location and executes the then-current standard
Franchise Agreement, the FRANCHISEE will not be required to pay the Initial Fee,
if any, specified in the then-current standard Franchise Agreement. However, the
FRANCHISEE will be required to pay the Continuing Fees, Advertising Fees and any
other fees or charges at the rates specified in the then-current standard
Franchise Agreement, and must comply with all other terms and conditions of
WCH'S then-current standard Franchise Agreement. The FRANCHISEE acknowledges
that the terms, conditions and
<PAGE>
economics of the then-current standard Franchise Agreement of WCH may, at that
time, vary in substance and form from the terms, conditions and economics of
this Agreement.
ARTICLE 3
WCH'S RIGHT TO LICENSE MARKS
3.1 LICENSE OF MARKS. WCH warrants that, except as provided for herein, it has
the right to license the name We Care Hair(R) and the other Marks and the
Business System to the FRANCHISEE. Any and all improvements made by the
FRANCHISEE relating to the Marks or the Business System will become the sole and
absolute property of WCH who will have the sole and exclusive right to register
and protect all such improvements in its name in accordance with applicable law.
The FRANCHISEE'S right to use and identify with the Marks and the Business
System will exist concurrently with the term of this Agreement and such use by
the FRANCHISEE will inure exclusively to the benefit of WCH.
3.2 CONDITIONS TO LICENSE OF MARKS. The FRANCHISEE agrees that its nonexclusive
personal right to use the name We Care Hair(R) as the name of the FRANCHISEE'S
Business, and its right to use the Marks and the Business System, apply only to
the We Care Hair Business operated at the Franchised Location and only so long
as the FRANCHISEE will fully perform and comply with all of the conditions,
terms and covenants of this Agreement. The FRANCHISEE will not have or acquire
any rights in any of the Marks or the Business System other than the right of
use as provided herein. The FRANCHISEE will have the right to use the Marks and
the Business System only in the manner prescribed, directed and approved by WCH
in writing and will not have the right to use the Marks in connection with the
sale of any products or services other than those prescribed or approved by WCH.
If, in the judgment of WCH, the acts of the FRANCHISEE infringe upon or demean
the goodwill, standards of uniformity or quality, or business image associated
with the Marks or the Business System, then the FRANCHISEE will, upon written
notice from WCH, immediately modify its use of the Marks and the Business System
in the manner prescribed by WCH in writing. Any and all goodwill associated with
the Marks and the Business System will inure exclusively to WCH'S benefit and,
upon the expiration or termination of this Agreement, no monetary amount will be
assigned as attributable to any goodwill associated with the FRANCHISEE'S use of
the Marks or the Business System. The FRANCHISEE will at no time take any action
whatsoever to contest the validity or ownership of the Marks and the goodwill
associated therewith and will not allege any ownership in the Marks.
3.3 ADVERSE CLAIMS. If there is a claim by any party that its rights to the
Marks are superior to those of WCH and if WCH'S legal counsel opines that such
claim is legally meritorious, or if there is an adjudication by a Court of
competent jurisdiction that any party's rights to the Marks are superior to
those of WCH, then upon receiving written notice from WCH, the FRANCHISEE will,
at its expense, immediately make all changes and amendments to the Marks as may
be specified by WCH. If so specified, the FRANCHISEE will immediately cease
using the Marks, and will, as soon as reasonably possible, commence using the
new trademarks, trade names, service marks, logos and commercial symbols
designated by WCH in writing. The FRANCHISEE will not make any changes or
amendments whatsoever to the Marks or the Business System unless approved or
specified in advance by WCH in writing.
3.4 DEFENSE OR ENFORCEMENT OF RIGHTS TO MARKS. The FRANCHISEE will have no right
to and will not defend or enforce any rights associated with the licensed Marks
or the Business System in any Court or other proceedings for or against
imitation, infringement, prior use, or for any other claim or allegation. The
FRANCHISEE will give WCH immediate written notice of any and all claims or
complaints made against or associated with the licensed Marks or the Business
System and will, without
<PAGE>
compensation for its time and at its expense, cooperate in all respects with WCH
in any lawsuits or other proceedings involving the Marks or the Business System.
WCH will have the sole and absolute right to determine whether it will commence
or defend any litigation involving the Marks or the Business System, and the
cost and expense of all litigation incurred by WCH, including attorneys' fees,
specifically relating to the Marks or the Business System will be paid by WCH.
3.5 FRANCHISEE'S RIGHT TO PARTICIPATE IN LITIGATION. The FRANCHISEE may, at its
expense, retain an attorney to represent it individually in all litigation and
Court proceedings involving the Marks or the Business System, and will do so
with respect to matters involving only the FRANCHISEE; however, WCH and its
legal counsel will control and conduct all litigation involving the Marks, the
Business System and the rights of WCH. Except as expressly provided for herein,
WCH will have no liability to the FRANCHISEE for any costs that the FRANCHISEE
may incur in any litigation, and the FRANCHISEE will pay for all costs,
including attorneys' fees, that it may incur in any litigation or proceeding
arising as a result of the matters referred to under this Article, unless it
tenders the defense to WCH in a timely manner pursuant to and in accordance with
Article 3.6.
3.6 TENDER OF DEFENSE BY FRANCHISEE. If the FRANCHISEE is named as a defendant
or party in any action involving the Marks or the Business System and if the
FRANCHISEE is named as a defendant or party solely because the plaintiff is
alleging that the FRANCHISEE does not have the right to use the Marks or the
Business System licensed by WCH to the FRANCHISEE at the Franchised Location
pursuant to this Agreement, then the FRANCHISEE will have the right to tender
the defense of the action to WCH and WCH will, at its expense, defend the
FRANCHISEE in the action provided that the FRANCHISEE has tendered the defense
of the action to WCH within seven (7) days after receiving service of the
pleadings or Summons and Complaint relating to the action. WCH will indemnify
and hold the FRANCHISEE harmless from any damages assessed against the
FRANCHISEE in any actions resulting solely from the FRANCHISEE'S use of the
Marks and the Business System at the Franchised Location if the FRANCHISEE has
timely tendered the defense of the action to WCH.
ARTICLE 4
INITIAL FEE; APPROVAL OF FRANCHISEE
4.1 AMOUNT OF INITIAL FEE. The FRANCHISEE will pay WCH an Initial Fee of
__________________________________________________ Dollars ($__________), of
which __________________________________________________ Dollars ($__________)
will be due and payable on the date this Agreement is executed by the
FRANCHISEE, and the remaining balance of the Initial Fee will be due and payable
on the earlier of: (A) ten (10) days prior to the date the FRANCHISEE commences
initial business operations at its We Care Hair Business; or (B) on the date the
FRANCHISEE'S furniture, fixtures and equipment are shipped to the FRANCHISEE.
The Initial Fee payable by the FRANCHISEE is payment to WCH for costs incurred
by WCH in operating its business, including general sales and administrative
costs, business overhead costs, travel costs, long distance telephone calls,
training, public relations, advertising, marketing and promotion, legal and
accounting fees, compliance with federal and state franchising and other laws,
and for the initial services and opening assistance rendered to the FRANCHISEE
described in this Agreement.
4.2 WCH'S RIGHT TO REJECT FRANCHISEE. WCH will have the absolute, sole and
unilateral right to reject this Agreement or the FRANCHISEE if WCH determines
that any financial, personal or other information provided by the FRANCHISEE to
WCH is materially false, misleading, incomplete or inaccurate or the FRANCHISEE
(or the FRANCHISEE'S District Manager if one is employed) is not qualified or
competent to properly operate the We Care Hair Business because such
<PAGE>
person has not successfully completed WCH'S program or is deemed to be incapable
of successfully completing WCH'S training program.
4.3 REFUND OF INITIAL FEE. In the event that the FRANCHISEE or this Agreement is
rejected by WCH pursuant to Article 4.2, then the Initial Fee will be refundable
to the FRANCHISEE after deducting all reasonable administrative and
out-of-pocket expenses incurred by WCH including, but not limited to,
executives' and employees' salaries, costs for the time of its employees,
salespersons' commissions, marketing costs, training costs, attorneys' fees,
accountants' fees, travel expenses and long distance telephone calls. The
FRANCHISEE will be notified by WCH in writing if either this Agreement or the
FRANCHISEE is rejected by WCH pursuant to Article 4.2. Except as specifically
set forth in this Article 4.3, the Initial Fee payable by the FRANCHISEE
pursuant to Article 4.1 will not be refundable to the FRANCHISEE.
ARTICLE 5
CONTINUING FEES
5.1 APPLICABLE CONTINUING FEES. The FRANCHISEE and WCH acknowledge that as of
the date of this Agreement, and including the Business operating pursuant to
this Agreement, the FRANCHISEE owns and operates __________ We Care Hair
Businesses. Therefore, as of the date of this Agreement (make selection):
___________ Article 5.2 applies or ___________ Article 5.3 applies. It is
understood and agreed that the foregoing selection of whether Articles 5.2 or
5.3 applies is binding only as of the date hereof and reflects the application
of Articles 5.2 or 5.3 to the facts as they exist on the date hereof, and may
change by the application of Articles 5.2 or 5.3 if the number of Businesses
owned and operated by the FRANCHISEE changes after the date hereof.
5.2 AMOUNT OF CONTINUING FEES. In addition to the Initial Fee, the FRANCHISEE
will, for the entire term of this Agreement, pay WCH weekly Continuing Fees
equal to __________ percent (____%) of the FRANCHISEE'S weekly Gross Revenues,
as defined herein, which are received, billed or generated by, as a result of or
from the FRANCHISEE'S We Care Hair Business. The Continuing Fees paid to WCH
will not be refundable to the FRANCHISEE under any circumstances.
5.3 MULTI-SALON CONTINUING FEES. Notwithstanding any language to the contrary
contained in Article 5.2 above, for so long as, but only so long as, the
FRANCHISEE owns and operates ten (10) or more other (not including the We Care
Hair Business to be operated at the Franchised Location) We Care Hair
businesses, the FRANCHISEE will, commencing on the date the FRANCHISEE commences
business operations pursuant to this Agreement and continuing thereafter for the
remaining term of this Agreement, be obligated to pay to WCH weekly Continuing
Fees equal to four percent (4%) of the FRANCHISEE'S weekly Gross Revenues, as
defined herein, which are received, billed or generated by, as a result of or
from the FRANCHISEE'S We Care Hair Business operated at the Franchised Location.
5.4 FRANCHISEE'S OBLIGATION TO PAY CONTINUING FEES. The Continuing Fees payable
to WCH under this Article will be calculated and paid to WCH by the FRANCHISEE
on a weekly basis during the entire term of this Agreement, and the FRANCHISEE'S
failure to pay the weekly Continuing Fees to WCH will be a material breach of
this Agreement. The FRANCHISEE'S obligation to pay WCH the weekly Continuing
Fees under the terms of this Agreement will be absolute and unconditional and
will remain in full force and effect until the term of this Agreement has
expired. The FRANCHISEE will not have the right to "offset" and, as a
consequence, the FRANCHISEE will timely
<PAGE>
pay all weekly Continuing Fees due WCH under this Agreement regardless of any
claims or allegations of liability for damages or other payments that the
FRANCHISEE may allege against WCH.
5.5 DATE PAYABLE. The weekly Continuing Fees payable by the FRANCHISEE must be
paid to and received by WCH on or before the close of business on Wednesday of
each week for the preceding week ending on Friday. The weekly Continuing Fees
must be paid and submitted with the FRANCHISEE'S weekly report of Gross Revenues
required under Article 19 of this Agreement.
5.6 INTEREST ON UNPAID CONTINUING FEES. If the FRANCHISEE fails to remit the
weekly Continuing Fees due to WCH by Wednesday of each week for the previous
week, as provided for in this Agreement, then the unpaid weekly Continuing Fees
due to WCH will bear interest at the maximum legal rate allowable in the state
in which the FRANCHISEE'S We Care Hair Business is located. In no event,
however, will the rate of interest payable by the FRANCHISEE on the unpaid
weekly Continuing Fees due WCH under this Article exceed eighteen percent (18%)
per annum simple interest even if the laws of that state permit a higher annual
interest rate. If the FRANCHISEE does not submit a report of Gross Revenues
pursuant to Article 19, then WCH will have the right, in its sole discretion, to
estimate the amount of the Continuing Fees payable by the FRANCHISEE, and the
estimated unpaid weekly Continuing Fees will bear interest at the rate set forth
above. The FRANCHISEE will pay WCH for any and all costs incurred by WCH in the
collection of unpaid and past due Continuing Fee payments including, but not
limited to, WCH'S actual attorneys' fees, deposition costs, expert witness fees,
investigation costs, accounting fees, filing fees, and travel expenses.
ARTICLE 6
ADVERTISING
6.1 ADVERTISING FEES. The FRANCHISEE will, for the entire term of this
Agreement, pay WCH weekly Advertising Fees equal to four percent (4%) of the
FRANCHISEE'S weekly Gross Revenues for deposit in the Franchisee Advertising
Fund (the "FAF") which will be administered and controlled exclusively by WCH.
The FRANCHISEE'S failure to pay the Advertising Fees will be a material breach
of this Agreement. WCH will have the right to use the FAF monies, in its sole
discretion, to purchase and pay for any services or products relating to
advertising for We Care Hair Franchisees, including the purchase of production
materials, ad slicks, brochures, radio and television commercials, services
provided by advertising agencies, market research and development costs,
advertising and promotion development and production (including all costs
relating to media costs for television, radio, newspaper, direct mail and
point-of-purchase advertising, and all costs of collateral materials required
for such advertising), creative costs, product research costs, all costs and
expenses incurred in administering the FAF (including, but not limited to,
salaries, travel expenses, office supplies, and related general and
administrative expenses), and all other costs relating to the advertising and
promotion of We Care Hair Businesses. The use of the monies in the FAF and the
administration of the FAF will be under the absolute direction and control of
WCH. WCH will have the absolute right to determine, in its sole discretion, the
advertising agencies that will be retained, the type, content and frequency of
the advertising, and all other matters pertaining to the expenditures made by
WCH from the FAF. WCH will not be required to contribute to the FAF; however,
all We Care Hair businesses that are owned and operated by WCH will be required
to contribute to the FAF in accordance with the terms of their respective
Franchise Agreements. The Advertising Fees paid by the FRANCHISEE will not be
refundable to the FRANCHISEE under any circumstances.
6.2 WCH'S USE OF ADVERTISING FEES IN FRANCHISEE'S DMA. Commencing on the first
day of October following the effective date of this Agreement, and continuing
each year (October 1
<PAGE>
through September 30) for the remaining term of this Agreement, WCH will spend
for advertising and promotion (including, but not limited to, advertising agency
fees) in the FRANCHISEE'S Designated Market Area ("DMA"), as defined herein, at
least fifty percent (50%) of the weekly Advertising Fees paid into the FAF by
the FRANCHISEE.
6.3 DATE PAYABLE; INTEREST ON UNPAID ADVERTISING FEES. The weekly Advertising
Fees must be paid directly to and received by WCH on or before the close of
business on Wednesday of each week for the preceding week ending on Friday. Any
Advertising Fees not paid by the FRANCHISEE as required herein will bear
interest at the maximum legal rate applicable in the state in which the
FRANCHISEE'S We Care Hair Business is located. In no event, however, will the
rate of interest payable by the FRANCHISEE on the unpaid balance due for
Advertising Fees exceed eighteen percent (18%) per annum simple interest. If the
FRANCHISEE does not submit a report of Gross Revenues pursuant to Article 19,
then WCH will have the right, in its sole discretion, to estimate the amount of
the Advertising Fees payable by the FRANCHISEE, and the estimated unpaid weekly
Advertising Fees will bear interest at the rate set forth above. The FRANCHISEE
will pay WCH for any and all costs incurred by WCH in the collection of unpaid
and past due Advertising Fee payments, including, but not limited to, WCH'S
actual attorneys' fees, deposition costs, expert witness fees, investigation
costs, accounting fees, filing fees and travel expenses. WCH will have the right
to collect unpaid Advertising Fees in its own name or on behalf of the FAF;
however, all Advertising Fees collected will be deposited in the FAF.
6.4 LOCAL ADVERTISING. In addition to payment of the Advertising Fees required
by Article 6.1 above, each quarter the FRANCHISEE must spend at least one
percent (1%) of its Gross Revenues for approved local media advertising and
promotion. All local media advertising and promotions conducted by the
FRANCHISEE must conform to WCH'S standards for media advertising and promotions.
On or before the tenth (10th) day following the end of each quarter, the
FRANCHISEE will furnish to WCH, in the form prescribed by WCH, an accurate
accounting of the FRANCHISEE'S previous quarter's expenditures for approved
local media advertising and promotion. If the FRANCHISEE has failed to spend at
least one percent (1%) of its Gross Revenues for approved local media
advertising and promotion as required under this Article, then the FRANCHISEE
will be required to deposit with WCH the difference between one percent (1%) of
its Gross Revenues and what it actually spent for such advertising, and this
amount will be spent by WCH in the FRANCHISEE'S area for any type of advertising
or promotion that WCH deems to be in the best interests of the FRANCHISEE'S
Business.
6.5 LOCAL DMA ADVERTISING GROUP. At such time as there are two (2) or more We
Care Hair businesses (including the FRANCHISEE'S We Care Hair Business) in the
FRANCHISEE'S DMA, WCH will have the right to require that the FRANCHISEE become
a member of, participate in, and contribute to a local DMA advertising group
that will conduct and administer media advertising and promotions in the
FRANCHISEE'S DMA. Each local DMA advertising group will have a membership with
equal representation for each We Care Hair business in the DMA, including the We
Care Hair businesses owned and operated in the DMA by WCH. The costs for the
media advertising and promotions conducted by the local DMA advertising group
will be allocated among and paid by the members of the local DMA advertising
group, based either on a percentage of Gross Revenues or on a pro rata basis,
the selection of which method to be determined by the majority of the members of
the local DMA advertising group. Payments to the local DMA advertising group by
the FRANCHISEE for media advertising and promotion will be applied to the
quarterly media advertising and promotional expenditures required under Article
6.6 above. However, the FRANCHISEE must contribute its proportionate share of
the costs for the local media advertising and promotions conducted by the local
DMA advertising group, as determined by the majority of its members in
accordance with the method of
<PAGE>
allocation set forth above, even if this amount exceeds one percent (1%) of the
FRANCHISEE'S Gross Revenues. Notwithstanding the foregoing, for the first (1st)
through the thirty-fourth (34th) weeks of the FRANCHISEE'S operation of its We
Care Hair Business pursuant to this Agreement, the FRANCHISEE will not be
obligated to pay any portion of the costs for media advertising and promotions
conducted by the local DMA advertising group.
6.6 ALTERNATE USE OF ADVERTISING FEES. If a local DMA advertising group is
established for the FRANCHISEE'S DMA, WCH may, as an alternative to the
advertising and promotional expenditures required to be made by WCH in the
FRANCHISEE'S DMA pursuant to Article 6.2 above, contribute this amount to the
local DMA advertising group for the FRANCHISEE'S DMA.
6.7 YELLOW PAGES ADVERTISING. The FRANCHISEE will, at its expense, be required
to advertise continually in the Yellow Pages of the local telephone directories
using trademark listings or display formats approved by WCH under an appropriate
listing that is in compliance with the laws of the state in which the Franchised
Location is located including, but not limited to, "Barbers" or "Beauty".
Expenditures by the FRANCHISEE for Yellow Pages advertising will be in addition
to all other advertising requirements set forth in this Agreement.
6.8 GRAND OPENING ADVERTISING. The FRANCHISEE will be required to spend a
minimum of Five Thousand Dollars ($5,000) to implement and conduct grand opening
advertising, marketing, public relations and promotional programs for its We
Care Hair Business which have been approved by WCH in writing. Expenditures by
the FRANCHISEE for grand opening advertising may be applied to the quarterly
local media advertising and promotional expenditures required pursuant to
Article 6.4 of this Agreement.
6.9 LOCAL DMA RECRUITING GROUP. At such time as there are two (2) or more We
Care Hair businesses (including the FRANCHISEE'S We Care Hair Business) in the
FRANCHISEE'S DMA, WCH will have the right to require that the FRANCHISEE become
a member of, participate in, and contribute to a local DMA stylist recruiting
group that will implement a program for the recruitment of qualified hair
stylists for all We Care Hair businesses in the FRANCHISEE'S DMA. Although the
DMA stylist recruiting group will be separate from the local DMA advertising
group, membership in, and allocation and payment of expenses of, the local DMA
stylist recruiting group will be determined in accordance with the guidelines
applicable to the local DMA advertising group, as set forth in Article 6.7
above. Expenditures by the FRANCHISEE for local DMA stylist recruiting expenses
will be in addition to all other advertising requirements set forth in this
Agreement.
ARTICLE 7
QUALITY CONTROL, UNIFORMITY AND STANDARDS
REQUIRED OF THE FRANCHISEE
WCH will promulgate, from time to time, uniform standards of quality and service
regarding the business operations of the FRANCHISEE'S We Care Hair Business so
as to protect and maintain (for the benefit of all We Care Hair Franchisees and
WCH) the distinction, valuable goodwill and uniformity represented and
symbolized by the Marks and the Business System. Accordingly, to insure that all
We Care Hair franchisees will maintain the uniform requirements and quality
standards for products and services associated with the Marks and the Business
System, the FRANCHISEE agrees to maintain the uniformity and quality standards
required by WCH for all products and services and agrees to comply with the
provisions of this Article to assure the public that all We Care Hair businesses
will be uniform in nature and will sell and dispense quality products and
services:
<PAGE>
7.1 IDENTIFICATION OF BUSINESS. The FRANCHISEE will operate its business so that
it is clearly identified and advertised as a We Care Hair Business. However, the
style and form of the words We Care Hair(R) in any advertising, marketing,
public relations, telemarketing or promotional program must have the prior
written approval of WCH and must conform to WCH'S standards and requirements for
use of the Marks. The FRANCHISEE will use the name We Care Hair(R) and all
graphics commonly associated with the Marks which now or hereafter may form a
part of WCH'S Business System on all paper supplies, furnishings, advertising
materials, signs, stationery, business cards and other articles in the identical
combination and manner prescribed by WCH in writing. The FRANCHISEE will, at its
expense, comply with all notices of registration required by WCH and will, at
its expense, comply with any other trademark, trade name, service mark,
copyright, patent or other notice marking requirements that are required by WCH
or by applicable law.
7.2 IDENTIFICATION AS FRANCHISEE. The FRANCHISEE will not use the words "We" or
"Care" or "Hair" in its corporate, partnership or sole proprietorship name. The
FRANCHISEE will hold itself out to the public as an independent contractor
operating its We Care Hair Business pursuant to a franchise from WCH. The
FRANCHISEE will clearly indicate on its business checks, stationery, purchase
orders, business cards, receipts, promotional materials and other written
materials that the FRANCHISEE is a We Care Hair Franchisee. The FRANCHISEE will
display a sign, to be provided by WCH, at the Franchised Location which is
clearly visible to the general public indicating that the Business is
independently owned and operated as a franchised business. The FRANCHISEE will
file for a Certificate of Assumed Name in the manner required by law so as to
notify the public that the FRANCHISEE is operating the franchised We Care Hair
Business as an independent business pursuant to this Agreement.
7.3 SIGNS. The FRANCHISEE will display only the approved We Care Hair Sign (the
"Sign") and will not use or display any other signs of any kind or nature
without the express prior written approval of WCH.
7.4 ADVERTISING MATERIALS. The FRANCHISEE will use only approved advertising and
promotional materials for the advertising and promotions conducted by the
FRANCHISEE. The FRANCHISEE must obtain written approval from WCH prior to using
any other advertising or promotional materials.
7.5 COMPLIANCE WITH STANDARD STORE LAYOUTS AND PLANS. The Franchised Location
and the FRANCHISEE'S business premises must conform to WCH'S approved store
layouts, floor plans, specifications, exterior and interior decorating designs
and color schemes. The FRANCHISEE will not make any architectural, structural,
design or decorating changes to the interior or exterior of the Franchised
Location without WCH'S prior written approval. The furniture, fixtures, supplies
and equipment used in the Franchised Location must conform to the quality
standards and uniform requirements established by WCH from time to time.
7.6 PERIODIC REMODELING. The FRANCHISEE will be required to periodically make
the reasonable capital expenditures necessary to remodel, modernize and
redecorate the Franchised Location and the FRANCHISEE'S business premises, and
to replace and modernize the FRANCHISEE'S furniture, fixtures, supplies and
equipment so that the Franchised Location and the FRANCHISEE'S business premises
will reflect the then-common image intended to be portrayed by WCH
("remodeling"). All remodeling of the Franchised Location and the FRANCHISEE'S
business premises must be done in accordance with the standards and
specifications as prescribed by WCH from time to time and with the
<PAGE>
prior written approval of WCH. All replacements for the furniture, fixtures,
supplies and equipment must conform to WCH'S then-current quality standards and
must be approved by WCH in writing. The FRANCHISEE will begin remodeling the
Franchised Location within three (3) months from the date that the FRANCHISEE
receives written notice from WCH specifying the required remodeling and will
diligently complete such remodeling within a reasonable time after its
commencement. Except as provided in Article 7.12 of this Agreement, the
FRANCHISEE will not be required to remodel the Franchised Location or to replace
and modernize its furniture, fixtures, supplies and equipment more than once
every five (5) years during the term of this Agreement. The FRANCHISEE'S failure
to comply with the requirements of this Article 7.6 will be a material breach of
this Agreement.
7.7 USE OF MARKS AND BUSINESS SYSTEM. The FRANCHISEE will use the Marks and the
Business System in strict compliance with the quality standards, moral and
ethical standards, operating procedures, specifications, requirements and
instructions required by WCH, which may be amended and supplemented by WCH from
time to time.
7.8 PRODUCTS AND SERVICES. The FRANCHISEE will offer for sale all, but only
those, products and services prescribed and approved by WCH in writing. The
FRANCHISEE will purchase and carry shampoos, conditioners, finishing products
and other hair care products at such minimum levels as may be established by
WCH. The FRANCHISEE acknowledges and agrees that it will either: (A) execute and
deliver to WCH such sales tax exemption certificates or other documents as may
be reasonably required by WCH to establish that the FRANCHISEE'S purchase of
such products from WCH is exempt from any and all sales, use or excise taxes; or
(B) pay WCH the amount of any sales, use or excise taxes applicable to the
FRANCHISEE'S purchase of such products. The FRANCHISEE will conform to all
customer service standards prescribed by WCH in writing. The FRANCHISEE will
have the absolute right to sell all products and services at whatever prices and
on whatever terms it deems appropriate. The FRANCHISEE will only sell the
approved products and services to the FRANCHISEE'S retail customers at the
Franchised Location and will not sell any products or services at retail or
wholesale at or from any other location.
7.9 WCH IMAGE. The FRANCHISEE acknowledges that the image intended to be
portrayed by WCH is that of a chain of hairstyling businesses that cater to cost
conscious, value-minded customers who are seeking reasonably priced hair care,
tanning and nail care services and products. Consequently, the FRANCHISEE will
sell only those products that comply with the image portrayed by WCH for We Care
Hair businesses and the FRANCHISEE will not offer for sale in its We Care Hair
Business products that are inconsistent with the We Care Hair image and that
have not been approved by WCH in writing.
7.10 OPERATIONS MANUAL. WCH will provide the FRANCHISEE with one copy of WCH'S
confidential Operations Manual (the "Manual"). The FRANCHISEE will conform to
the common image and identity created by the products and services associated
with We Care Hair businesses which are portrayed and described by the Manual,
and the FRANCHISEE will conform to all changes and modifications made to the
Manual by WCH and provided to the FRANCHISEE that are deemed necessary by WCH
to: (A) improve the standards of service and products offered for sale to the
public under the Business System; (B) protect the goodwill associated with the
Marks; (C) improve the operation of the FRANCHISEE'S We Care Hair Business; or
(D) maintain the product and service consistency required by WCH. WCH reserves
the right to revise the Manual at any time during the term of this Agreement.
The Manual and all written supplements, changes and modifications to the Manual
are confidential in all respects and are and will remain the sole and exclusive
property of WCH. The FRANCHISEE will not use the Manual or any information
contained therein in connection with the operation of any other business or for
any purpose other than the operation of the FRANCHISEE'S We Care Hair Business.
<PAGE>
7.11 APPROVED SUPPLIERS. The FRANCHISEE will purchase from suppliers approved in
writing by WCH all products, goods, merchandise, supplies, sundries, toiletries,
grooming aids, furniture, fixtures, equipment and services (sometimes referred
to in this Agreement as "goods and services") to be used or sold by the
FRANCHISEE in conjunction with the operation of its We Care Hair Business which
WCH determines meet the standards of quality and uniformity required to protect
the valuable goodwill and uniformity symbolized by and associated with the Marks
and the Business System. The FRANCHISEE will have the right and option to
purchase all goods and services from other or outside suppliers provided that
such goods and services conform in quality to WCH'S standards and
specifications. If the FRANCHISEE desires to purchase any goods and services
from other suppliers, then, if requested by WCH, the FRANCHISEE will submit
samples, specifications, and information regarding the manufacturer to WCH for
review to determine whether the goods and services comply with WCH'S standards
and specifications. Any expenses incurred by WCH in evaluating unapproved
products will be paid by the FRANCHISEE. The written approval of WCH must be
obtained by the FRANCHISEE prior to the time that any previously unapproved
goods and services are used or sold at the FRANCHISEE'S We Care Hair Business.
All such goods and services must be those classified as "professional" goods and
services sold or provided only in professional hair salons.
7.12 REPAIR AND MAINTENANCE. The FRANCHISEE will, at its expense, repair, paint
and keep in a clean and sanitary condition the interior, the exterior and, where
applicable, the grounds of the Franchised Location and the FRANCHISEE'S business
premises, and will replace all floor coverings, wall coverings, light fixtures,
curtains, blinds, shades, furniture, room furnishings, wall hangings, fixtures
and other decor items as such items become worn-out, soiled or are in disrepair.
All equipment will be kept in good working order by the FRANCHISEE at all times
and will meet WCH'S quality standards. All replacement equipment must comply
with WCH'S then-current standards and specifications.
7.13 COMPLIANCE WITH APPLICABLE LAWS. The FRANCHISEE will, at its expense,
comply with all applicable federal, state, city, local and municipal laws,
ordinances, rules and regulations pertaining to the operation of the
FRANCHISEE'S Business, including all laws relating to employees and to the
regulation of barbers and cosmetologists and all applicable federal and state
environmental laws. The FRANCHISEE will, at its expense, be absolutely and
exclusively responsible for determining the licenses and permits required by law
for the FRANCHISEE'S Business, for qualifying for and obtaining all such
licenses and permits, and for maintaining all such licenses and permits in full
force and effect.
7.14 PAYMENT OF OBLIGATIONS. The FRANCHISEE must timely pay all of its
noncontested and liquidated obligations and liabilities due and payable to WCH,
and to suppliers, lessors and creditors of the FRANCHISEE. The FRANCHISEE'S
failure to timely pay all such obligations will be a material breach of this
Agreement.
7.15 PAYMENT OF TAXES. The FRANCHISEE will be absolutely and exclusively
responsible and liable for filing all required tax returns and for the prompt
payment of all federal, state, city and local taxes including, but not limited
to, individual and corporate income taxes sales and use taxes, franchise taxes,
gross receipts taxes, employee withholding taxes, F.I.C.A. taxes and personal
property and real estate taxes payable in connection with the FRANCHISEE'S
Business. WCH will have no liability for these or any other taxes and the
FRANCHISEE will indemnify WCH for any such taxes that may be assessed or levied
against WCH which arise or result from the FRANCHISEE'S We Care Hair Business.
It is expressly understood and agreed by the Personal Guarantors to this
Agreement that their personal guaranty applies to the prompt filing of all
returns and the prompt payment of all taxes which arise or result from the
FRANCHISEE'S We Care Hair Business.
<PAGE>
7.16 REIMBURSEMENT OF WCH FOR TAXES. In the event any "franchise" or other tax
(other than income taxes) which is based upon the Gross Revenues, receipts,
sales, business activities or operation of the FRANCHISEE'S Business is imposed
upon WCH by any taxing authority, then the FRANCHISEE will reimburse WCH in an
amount equal to the amount of such taxes and related costs imposed upon and paid
by WCH. The FRANCHISEE will be notified in writing when WCH is entitled to
reimbursement for the payment of such taxes and, in that event, the FRANCHISEE
will pay WCH the amount specified in the written notice within ten (10) days of
receipt of the written notice.
7.17 BUSINESS HOURS; PERSONNEL. The FRANCHISEE'S We Care Hair Business will be
open for business on such days and for such hours as WCH may designate. The
FRANCHISEE will, during business hours, have a salon manager on duty who is
responsible for supervising the employees and the business operations of the
FRANCHISEE'S Business. The FRANCHISEE will have a sufficient number of
adequately trained and competent personnel on duty at all times to guarantee
efficient service to the FRANCHISEE'S customers. The FRANCHISEE will require its
employees to wear the standard attire or uniforms approved by WCH. All persons
employed by the FRANCHISEE must practice good personal hygiene and must wear
clean and neat attire or uniforms. The FRANCHISEE must employ at least one (1)
full-time person (a "District Manager") for each six (6) We Care Hair Businesses
owned and operated by the FRANCHISEE. Each District Manager will be responsible
for the operation and administration of up to six (6) We Care Hair Businesses
under his or her supervision and control, including supervision of the salon
managers and assistant managers. The District Managers must devote their full
time and attention to administering and overseeing the operations of the
FRANCHISEE'S We Care Hair Businesses. All District Managers must attend and
successfully complete the training program required by WCH, and be certified and
approved by WCH in writing.
7.18 WCH'S INSPECTION RIGHTS. WCH will have the absolute right to inspect and
take photographs and videotapes of the interior and exterior of the Franchised
Location at all reasonable times during business hours, to interview the
FRANCHISEE'S employees, to examine representative samples of all goods and
equipment sold or used at the FRANCHISEE'S We Care Hair Business, and to
evaluate the quality of the services provided by the FRANCHISEE to its
customers. WCH will have the right to use all photographs and videotapes of the
FRANCHISEE'S We Care Hair Business for such purposes as WCH deems appropriate
including, but not limited to, use in advertising, marketing and promotional
materials, and as evidence in any court or arbitration proceeding. The
FRANCHISEE will not be entitled to, and hereby expressly waives, any right that
it may have to be compensated by WCH, its advertising agencies or any other We
Care Hair franchisees for the use of such photographs or videotapes for
advertising, marketing, promotional or litigation purposes.
7.19 SECURITY INTEREST. This Agreement and the franchise granted to the
FRANCHISEE hereunder may not be the subject of a security interest, lien, levy,
attachment or execution by the FRANCHISEE'S creditors or any financial
institution, except with the prior written approval of WCH.
7.20 CREDIT CARDS. The FRANCHISEE will honor all credit cards approved by WCH.
The FRANCHISEE must obtain the written approval of WCH prior to honoring any
previously unapproved credit cards or other credit devices.
7.21 DEFAULT NOTICES. The FRANCHISEE will immediately deliver to WCH a copy of
any notice of default received from any landlord for the Franchised Location or
from any mortgagee, trustee under any deed of trust or lessor with respect to
the FRANCHISEE'S We Care Hair Business, and copies of all notifications of any
lawsuits, contract breaches, consumer claims, federal or state administrative or
<PAGE>
agency proceedings or investigations, or other civil or governmental claims,
actions or proceedings relating to the FRANCHISEE'S We Care Hair Business. Upon
request from WCH, the FRANCHISEE will provide additional information as may be
required by WCH regarding the alleged default, lawsuit, claim or proceeding or
any subsequent action or proceeding in connection with the alleged default,
lawsuit, claim or proceeding.
7.22 SALE OF CAPITAL STOCK TO PUBLIC. If the FRANCHISEE is a corporation and
desires to sell any part of its authorized capital stock to the public, then the
FRANCHISEE will provide WCH with a copy of the proposed offering circular or
prospectus for its review prior to the time that the offering circular or
prospectus is filed with any state securities commission or the Securities and
Exchange Commission. The shareholders of the FRANCHISEE who owned the capital
stock of the FRANCHISEE prior to the public offering will, at all times, retain
at least a fifty-one percent (51%) ownership of the issued and outstanding
shares of stock of the FRANCHISEE. WCH will have the right to attend all "due
diligence" meetings held in preparation for the offer to sell the FRANCHISEE'S
capital stock to the public, and the FRANCHISEE will give WCH at least five (5)
business days prior written notice of such meetings. The FRANCHISEE will not
offer its capital stock by use of the name We Care Hair(R) or any name
deceptively similar thereto. The FRANCHISEE will not have the right to sell any
of its capital stock to the public or to any other person or entity until the
FRANCHISEE has complied in all respects with all applicable provisions of this
Agreement, including the applicable provisions of Articles 13 and 20.
7.23 OPERATION OF WCH BUSINESS. The FRANCHISEE will be totally and solely
responsible for the operation of its We Care Hair Business, and will control,
supervise and manage all the employees, agents and independent contractors who
work for or with the FRANCHISEE. The FRANCHISEE will be responsible for the acts
of its employees, agents and independent contractors, and will take all
reasonable business actions necessary to ensure that its employees, agents and
independent contractors comply with all federal, state and local laws, rules and
regulations including, but not limited to, all employment laws, discrimination
laws, sexual harassment laws and laws relating to the disabled. WCH will not
have any right, obligation or responsibility to control, supervise or manage the
FRANCHISEE'S employees, agents or independent contractors.
ARTICLE 8
CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION
8.1 COMPLIANCE WITH MANUAL. In order to protect the reputation and goodwill of
WCH and to maintain uniform operating standards under the Marks and the Business
System, the FRANCHISEE will at all times during the term of this Agreement
conduct its Business in accordance with WCH'S confidential Operations Manual
(the "Manual"). The FRANCHISEE acknowledges having received as a loan one copy
of the Manual from WCH.
8.2 CONFIDENTIALITY OF MANUAL. The FRANCHISEE must, at all times during the term
of this Agreement and thereafter, treat the Manual, any other manuals created
for or approved for use in the operation of the FRANCHISEE'S We Care Hair
Business, and the information contained therein as secret and confidential, and
the FRANCHISEE will use all reasonable means to keep such information secret and
confidential. Neither the FRANCHISEE nor its employees will make any copy,
duplication, record or reproduction of the Manual, or any portion thereof,
available to any unauthorized person.
8.3 REVISIONS TO MANUAL. The Manual will, at all times during the term of this
Agreement and thereafter, remain the sole and absolute property of WCH. WCH may
from time to time revise the Manual and the FRANCHISEE expressly agrees to
operate its We Care Hair Business in accordance with
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all such revisions. The FRANCHISEE will at all times keep its copy of the Manual
current and up-to-date, and in the event of any dispute, the terms of the master
copy of the Manual maintained by WCH will be controlling in all respects.
8.4 OTHER CONFIDENTIAL INFORMATION. The FRANCHISEE expressly acknowledges and
agrees that WCH will be disclosing and providing to the FRANCHISEE certain
confidential and proprietary information concerning the Business System and the
procedures, technology, operations and data used in connection with the Business
System. Accordingly, the FRANCHISEE will not, during the term of this Agreement
or thereafter, communicate, divulge or use for the benefit of any other person
or entity any confidential information, knowledge or know-how concerning the
methods of operation of a We Care Hair business which may be communicated to the
FRANCHISEE, or of which the FRANCHISEE may be apprised, by virtue of this
Agreement. The FRANCHISEE will divulge such confidential information only to its
employees who must have access to it in order to operate the FRANCHISEE'S We
Care Hair Business. Any and all information, knowledge and know-how including,
without limitation, drawings, materials, equipment, technology, methods,
procedures, specifications, techniques, computer programs, systems and other
data which WCH designates as confidential or proprietary will be deemed
confidential and proprietary for the purposes of this Agreement.
8.5 CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES. The FRANCHISEE will require all
of the FRANCHISEE'S employees who have access to the Manual or other
confidential information to execute an agreement, in the form attached hereto as
Exhibit "A" or other form satisfactory to WCH, where the employees agree to
maintain the confidentiality, during the course of their employment and
thereafter, of all information designated by WCH as confidential. Copies of all
executed agreements will be submitted to WCH upon request.
8.6 REMEDIES. The FRANCHISEE recognizes that the provisions contained in this
Article are necessary for the protection of WCH and all of the franchisees who
own We Care Hair businesses. If the FRANCHISEE violates any provisions of this
Article, or if any employee of the FRANCHISEE violates his or her
confidentiality agreement executed pursuant to Article 8.5, then WCH will have
the right to: (A) terminate this Agreement (as provided for herein); (B) seek
injunctive relief from a Court of competent jurisdiction; (C) commence an action
or lawsuit against the FRANCHISEE for damages; and (D) enforce all other
remedies against the FRANCHISEE that are available to WCH under common law, in
equity, and pursuant to any federal and state statutes in an action or lawsuit
against the FRANCHISEE.
ARTICLE 9
WCH'S TERMINATION RIGHTS
9.1 GROUNDS FOR TERMINATION. In addition to the other rights of termination
contained in this Agreement, WCH will have the right and privilege to terminate
this Agreement if: (A) the FRANCHISEE fails to open and commence operations of
its We Care Hair Business within one hundred eighty (180) days of the date of
this Agreement; (B) the FRANCHISEE violates any material provision, term or
condition of this Agreement including, but not limited to, failure to timely pay
the Initial Fee or any Continuing Fees, Advertising Fees, monetary obligations
or other fees to WCH; (C) the FRANCHISEE fails to conform to the Business
System, the standards of uniformity and quality for the goods and services or
the policies and procedures promulgated by WCH in connection with the Business
System, or is involved in any act or conduct which materially impairs the
goodwill associated with the Marks or the Business System; (D) the FRANCHISEE
fails to timely pay any of its uncontested obligations or liabilities due and
owing to WCH, suppliers, banks, purveyors, other creditors or any federal, state
or municipal government (including, if applicable, federal and state taxes); (E)
the
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FRANCHISEE is determined to be insolvent within the meaning of any state or
federal law, files for bankruptcy or is adjudicated a bankrupt under any state
or federal law; (F) the FRANCHISEE makes an assignment for the benefit of
creditors or enters into any similar arrangement for the disposition of its
assets for the benefit of creditors; (G) any check issued by the FRANCHISEE is
dishonored because of insufficient funds (except where the check is dishonored
because of a bookkeeping or accounting error) or closed accounts; (H) the
FRANCHISEE fails to finance or purchase and pay for the leasehold improvements,
furniture, fixtures, supplies and equipment required for its We Care Hair
Business prior to the opening of the FRANCHISEE'S Business; (I) the FRANCHISEE'S
lease for the Franchised Location is terminated or canceled for nonpayment of
rent or other legal reasons; (J) the FRANCHISEE or any of its partners,
directors, officers or majority stockholders is convicted of, or pleads guilty
or no contest to, a charge of violating any law relating to the FRANCHISEE'S We
Care Hair Business or any felony; or (K) the FRANCHISEE voluntarily or otherwise
abandons, as defined herein, the We Care Hair Business.
9.2 NOTICE OF BREACH. Except as provided for in Article 9.5 and Article 9.6 of
this Agreement, WCH will not have the right to terminate this Agreement unless
and until written notice setting forth the alleged breach in detail has been
given to the FRANCHISEE by WCH and, after having been given such written notice
of breach, the FRANCHISEE fails to correct the alleged breach within the period
of time specified by applicable law. If applicable law does not specify a time
period to correct an alleged breach, then the FRANCHISEE will have thirty (30)
days after having been given such written notice to correct the alleged breach.
If the FRANCHISEE fails to correct the alleged breach set forth in the written
notice within the applicable period of time, then this Agreement may be
terminated by WCH as provided for in this Agreement. For the purposes of this
Agreement, an alleged breach of this Agreement by the FRANCHISEE will be deemed
to be "corrected" if both WCH and the FRANCHISEE agree in writing that the
alleged breach has been corrected.
9.3 ARBITRATION. If the FRANCHISEE gives notice of Arbitration, as provided for
in this Agreement, within the time period established in Article 9.2 for
correcting the alleged breach, then WCH will not have the right to terminate
this Agreement until the facts of the alleged breach have been submitted to
Arbitration as provided for herein, the Arbitrator determines that the
FRANCHISEE has breached this Agreement and the FRANCHISEE fails to correct the
breach within the applicable time period. If the Arbitrator determines that the
FRANCHISEE has breached this Agreement as alleged by WCH in the written notice
given to the FRANCHISEE, then the FRANCHISEE will have thirty (30) days from the
date the Arbitrator issues a written determination on the matter to correct the
specified breach or violation of this Agreement, except where applicable law
requires a longer cure period in which event the cure period specified by
applicable law will apply. If the FRANCHISEE timely corrects the specified
breach of this Agreement, then this Agreement will remain in full force and
effect. For the purposes of this Agreement, any controversy or dispute on the
issue of whether the FRANCHISEE has timely corrected the specified breach of
this Agreement will also be subject to Arbitration as provided for herein. The
time limitations set forth in this Article within which the FRANCHISEE may
demand Arbitration of a dispute or controversy relating to the right of WCH to
terminate this Agreement for an alleged breach will be mandatory. If the
FRANCHISEE fails to comply with the time limitations set forth in this Article,
WCH may terminate this Agreement as provided for herein.
9.4 NOTICE OF TERMINATION. If WCH has complied with the notice provisions of
this Article and the FRANCHISEE has not corrected the alleged breach set forth
in the written notice within the time period specified in this Article, then WCH
will have the absolute right to terminate this Agreement by giving the
FRANCHISEE written notice stating to the FRANCHISEE that this Agreement is
terminated, and in that event, unless applicable law provides to the contrary,
the effective date of termination of this Agreement will be the day such written
notice is given.
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9.5 GROUNDS FOR IMMEDIATE TERMINATION. WCH will have the absolute right and
privilege, unless prohibited by applicable law, to immediately terminate this
Agreement if: (A) the FRANCHISEE or any of its partners, Directors, officers or
majority stockholders is convicted of, or pleads guilty or no contest to, a
charge of violating any law relating to the FRANCHISEE'S We Care Hair Business,
or any felony; (B) the FRANCHISEE voluntarily or otherwise abandons, as defined
herein, the FRANCHISEE'S We Care Hair Business; (C) the FRANCHISEE is involved
in any act or conduct which materially impairs the goodwill associated with
WCH'S Marks or Business System, and the FRANCHISEE fails to correct such act or
conduct within twenty-four (24) hours of receipt of written notice from WCH; or
(D) the FRANCHISEE fails or refuses to produce its books and financial records
for audit by WCH in accordance with Article 19.4.
9.6 NOTICE OF IMMEDIATE TERMINATION. If this Agreement is terminated by WCH
pursuant to Article 9.5 above, WCH will give the FRANCHISEE written notice that
this Agreement is terminated, and in that event, unless applicable law provides
to the contrary, the effective date of termination of this Agreement will be the
day such written notice is given.
9.7 DAMAGES. In the event this Agreement is terminated by WCH pursuant to
Article 9, or if the FRANCHISEE breaches this Agreement by a wrongful
termination or a termination that is not in accordance with the terms and
conditions of Article 10 of this Agreement, then WCH will be entitled to seek
recovery from the FRANCHISEE for all of the damages that WCH has sustained and
will sustain in the future as a result of the FRANCHISEE'S breach of this
Agreement, which will include damages based upon the Continuing Fees,
Advertising Fees and other fees that would have been payable by the FRANCHISEE
for the remaining term of this Agreement.
9.8 OTHER REMEDIES. Nothing in this Article or this Agreement will preclude WCH
from seeking other damages or remedies under common law, state or federal laws
or this Agreement against the FRANCHISEE including, but not limited to,
attorneys' fees, punitive damages and injunctive relief.
ARTICLE 10
FRANCHISEE'S TERMINATION RIGHTS
10.1 GROUNDS FOR TERMINATION. The FRANCHISEE will have the right and privilege
to terminate this Agreement, as provided for herein, if: (A) WCH violates any
material provision, term or condition of this Agreement; (B) WCH fails to timely
pay any material obligations due and owing to the FRANCHISEE; or (C) WCH makes
an assignment of its assets for the benefit of creditors.
10.2 NOTICE OF BREACH. The FRANCHISEE will not have the right to terminate this
Agreement or to commence any Arbitration proceeding, action or lawsuit against
WCH for breach of this Agreement, injunctive relief, violation of any federal,
state or local law, violation of common law (including allegations of fraud and
misrepresentation), rescission, general or punitive damages, or termination,
unless and until written notice setting forth the alleged breach or violation in
detail has been given to WCH by the FRANCHISEE and WCH fails to commence the
actions necessary to correct the alleged breach or violation within thirty (30)
days after having been given such written notice, or to correct the alleged
breach within one hundred twenty (120) days after having been given such written
notice. If WCH fails to commence the actions necessary to correct the alleged
breach or violation as provided herein within thirty (30) days after having been
given such written notice, or to correct the alleged breach within one hundred
twenty (120) days after having been given such written notice, then this
Agreement may be terminated by the FRANCHISEE as provided for in this Agreement.
For the purposes of this Agreement, an alleged
<PAGE>
breach of this Agreement by WCH will be deemed to be "corrected" if both WCH and
the FRANCHISEE agree in writing that the alleged breach or violation has been
corrected.
10.3 ARBITRATION. If WCH gives notice of Arbitration, as provided for in this
Agreement, within thirty (30) days from the date WCH was given written notice of
the alleged breach from the FRANCHISEE, then the FRANCHISEE will not have the
right to terminate this Agreement until the facts of the alleged breach have
been submitted to Arbitration, the Arbitrator determines that WCH has breached
this Agreement and WCH fails to correct the breach within the time limitation
set forth herein. If the Arbitrator determines that WCH breached this Agreement
as alleged by the FRANCHISEE in the written notice given to WCH, then WCH will
have thirty (30) days from the date the Arbitrator issues a written
determination on the matter to correct the specified breach of this Agreement.
If WCH timely corrects the specified breach of this Agreement, then this
Agreement will remain in full force and effect. If WCH does not correct the
specified breach of this Agreement, then the FRANCHISEE will have the right to
terminate this Agreement by giving WCH written notice that this Agreement is
terminated and, in that event, the effective date of termination of this
Agreement will be the day the written notice of termination is given to WCH. For
the purposes of this Agreement, any controversy or dispute on the issue of
whether WCH has timely corrected the specified breach of this Agreement will
also be subject to Arbitration as provided for herein. The time limitation set
forth in this Article within which WCH may demand Arbitration of a dispute or
controversy relating to the right of the FRANCHISEE to terminate this Agreement
for an alleged breach will be mandatory. If WCH fails to comply with the time
limitation set forth in this Article, then the FRANCHISEE may terminate this
Agreement as provided for herein.
10.4 WAIVER. The FRANCHISEE must give WCH immediate written notice of an alleged
breach or violation of this Agreement after the FRANCHISEE has knowledge of,
determines or is of the opinion that there has been an alleged breach or
violation of this Agreement by WCH. If the FRANCHISEE fails to give written
notice to WCH as provided for herein of an alleged breach or violation of this
Agreement within one (1) year from the date that the FRANCHISEE has knowledge
of, determines, is of the opinion that, or becomes aware of facts and
circumstances reasonably indicating that the FRANCHISEE may have a claim under
any state law, federal law or common law because there has been an alleged
breach by WCH, then the alleged breach or violation will be deemed to be
condoned, approved and waived by the FRANCHISEE, the alleged breach or violation
will not be deemed to be a breach or violation of this Agreement by WCH, and the
FRANCHISEE will be barred from commencing any legal or other action against WCH
for that alleged breach or violation.
10.5 INJUNCTIVE RELIEF AVAILABLE TO WCH. Notwithstanding any of the foregoing
provisions, if the FRANCHISEE gives WCH written notice of an alleged breach or
violation of this Agreement, or of any laws that give rise to a claim that the
FRANCHISEE has the right to terminate this Agreement, then WCH will have the
absolute right to immediately commence legal action against the FRANCHISEE to
enjoin and prevent the termination of this Agreement without giving the
FRANCHISEE any notice and without regard to any waiting period that may be
contained in this Agreement. If WCH commences such legal action against the
FRANCHISEE, then the FRANCHISEE will not have the right to terminate this
Agreement as provided for herein unless and until it has been determined that
WCH has breached this Agreement in the manner alleged by the FRANCHISEE, and
then only if WCH fails to commence the actions necessary to correct the breach
or violation within thirty (30) days after a final decision has been entered
against WCH and all time for appeals by WCH has expired. If WCH commences any
legal action against the FRANCHISEE as contemplated by this provision, which
will include actions for injunctive relief against the FRANCHISEE to enjoin
termination of this Agreement, then unless applicable law provides to the
contrary, WCH will not be required to post any bond or security whatever in such
legal action.
<PAGE>
ARTICLE 11
FRANCHISEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION
11.1 OBLIGATIONS UPON TERMINATION. In the event this Agreement expires or is
terminated for any reason, then the FRANCHISEE will: (A) within five (5) days
after termination, pay all Continuing Fees, Advertising Fees, and other amounts
due and owing to WCH under this Agreement or any other contract, promissory note
or other obligation payable by the FRANCHISEE to WCH; (B) return to WCH by first
class prepaid United States mail all Manuals, advertising materials and all
other printed materials pertaining to the FRANCHISEE'S We Care Hair Business;
and (C) comply with all other applicable provisions of this Agreement.
11.2 TERMINATION OF RIGHT TO USE MARKS. Upon expiration or termination of this
Agreement for any reason, the FRANCHISEE'S right to use the name We Care
Hair(R), the other Marks and the Business System will terminate immediately.
11.3 ALTERATION OF FRANCHISED LOCATION. If this Agreement expires or is
terminated for any reason or if the Franchised Location ever ceases to be used
as a We Care Hair Business, then the FRANCHISEE will, at its expense, alter,
modify and change both the exterior and interior appearance of the Franchised
Location so that it will be easily distinguished from the standard appearance of
a We Care Hair business. At a minimum, such changes and modifications to the
Franchised Location will include: (A) repainting and, where applicable,
recovering both the exterior and interior of the Franchised Location with
totally different colors, including removing any distinctive colors and designs
from the walls; (B) removing all fixtures and other decor items and replacing
them with other decor items not of the general type and appearance customarily
used only in We Care Hair businesses; (C) removing all exterior and interior We
Care Hair signs; (D) immediately discontinuing use of the approved wall decor
items and window decals; and (E) refraining from using any names, slogans,
designs, decor items, colors or other items which may be confusingly similar to
those customarily used only in We Care Hair businesses.
11.4 TRANSFER OF TELEPHONE DIRECTORY LISTINGS. Upon termination or expiration of
this Agreement, WCH will have the absolute right to notify the telephone company
and all listing agencies of the termination or expiration of the FRANCHISEE'S
right to use all telephone numbers and all classified and other directory
listings for the FRANCHISEE'S We Care Hair Business or otherwise placed under
the name We Care Hair(R), and to authorize the telephone company and all listing
agencies to transfer to WCH or its assignee all telephone numbers and directory
listings for the FRANCHISEE'S We Care Hair Business. The FRANCHISEE acknowledges
that WCH has the absolute right and interest in and to all telephone numbers and
directory listings associated with the Marks, and the FRANCHISEE hereby
authorizes WCH to direct the telephone company and all listing agencies to
transfer all of the FRANCHISEE'S telephone numbers and directory listings to WCH
or its assignee if this Agreement expires or is terminated for any reason
whatever. The telephone company and all listing agencies will accept this
Agreement as evidence of the exclusive rights of WCH to such telephone numbers
and directory listings. This Agreement will constitute the FRANCHISEE'S
authorization for the telephone company and listing agencies to transfer the
telephone numbers and directory listings for the FRANCHISEE'S We Care Hair
Business to WCH, and will constitute a release of the telephone company and
listing agencies by the FRANCHISEE from any and all claims, actions and damages
that the FRANCHISEE may at any time have the right to allege against them in
connection with this Article 11.
<PAGE>
ARTICLE 12
FRANCHISEE'S COVENANTS NOT TO COMPETE
12.1 CONSIDERATION. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors acknowledge that the FRANCHISEE, its partners or officers,
and its employees will receive specialized training, current and future
marketing and advertising plans, business plans and strategies, business
information and procedures, research and development information, operations
information, and trade and business secrets from WCH pertaining to the Business
System of a We Care Hair business. In consideration for the use and license of
such valuable and confidential information, the FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will comply in all respects with the
provisions of this Article. WCH has advised the FRANCHISEE that this provision
is a material provision of this Agreement, and that WCH will not sell a We Care
Hair franchise to any person or entity that owns or intends to own, operate or
be involved in any business that competes directly or indirectly with a We Care
Hair business.
12.2 IN-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, during the term of this
Agreement, on their own account or as an employee, agent, consultant, partner,
officer, director or shareholder of any other person, firm, entity, partnership
or corporation: (A) seek to employ any person who is at that time employed by
WCH or by any other We Care Hair, City Looks or Cost Cutters(R) franchisee, or
induce any such employee to terminate his or her employment; or (B) own,
operate, lease, franchise, conduct, engage in, be connected with, have any
interest in or assist any person or entity engaged in any hairstyling, barber or
other business that is in any way competitive with or similar to the We Care
Hair businesses operated by WCH or WCH'S franchisees, except with the prior
written consent of WCH.
12.3 POST-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, for a period of one (1) year
after the termination or expiration of this Agreement, on their own account or
as an employee, agent, consultant, partner, officer, director or shareholder of
any other person, firm, entity, partnership or corporation: (A) seek to employ
any person who is at that time employed by WCH or by any other We Care Hair,
City Looks or Cost Cutters(R) franchise, or induce any such employee to
terminate his or her employment or (B) own, operate, lease, franchise, conduct,
engage in, be connected with, have any interest in or assist any person or
entity engaged in any hairstyling, barber or other business that is in any way
competitive with or similar to the We Care Hair businesses conducted by WCH or
WCH'S franchisees, which is located within six (6) miles of either the
Franchised Location or any other We Care Hair businesses operated by WCH or any
of WCH'S franchisees, or which is located within any exclusive area granted by
WCH or any affiliate or area developer of WCH pursuant to any franchise,
development, license or other territorial agreement. The FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors expressly agree that the
one (1) year period and the six (6) mile limit are the reasonable and necessary
time and distances required to protect WCH and WCH'S franchisees if this
Agreement expires or is terminated for any reason, and that this covenant not to
compete is necessary to permit WCH the opportunity to resell and/or develop a
new We Care Hair business at or in the area near the Franchised Location.
12.4 INJUNCTIVE RELIEF. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors agree that the provisions of this Article are necessary to
protect the legitimate business interests of WCH and WCH'S franchisees,
including, without limitation, preventing damage to and/or loss of goodwill
associated with the Marks, preventing the unauthorized dissemination of
marketing, promotional and other confidential information to competitors of WCH
and WCH'S franchisees, protection of WCH'S trade secrets and the integrity of
WCH'S Business System and
<PAGE>
preventing duplication of the Business System. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors acknowledge that damages alone cannot
adequately compensate WCH if there is a violation of this Article by the
FRANCHISEE and that injunctive relief against the FRANCHISEE is essential for
the protection of WCH and WCH'S franchisees. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors agree therefore, that if WCH alleges
that the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal Guarantors
have breached or violated this Article, then WCH will have the right to petition
a Court of competent jurisdiction for injunctive relief against the FRANCHISEE,
the FRANCHISEE'S shareholders or the Personal Guarantors, in addition to all
other remedies that may be available to WCH at law or in equity. Unless provided
to the contrary by applicable law, WCH will not be required to post a bond or
other security prior to obtaining injunctive relief pursuant to this Agreement
in any action where WCH is seeking to enjoin the FRANCHISEE, the FRANCHISEE'S
shareholders or the Personal Guarantors from violating the provisions of this
Article. In cases where WCH is granted ex parte injunctive relief against the
FRANCHISEE, the FRANCHISEE'S shareholders or the Personal Guarantors, then the
FRANCHISEE, the FRANCHISEE'S shareholders and the Personal Guarantors will have
the right to petition the Court for a hearing on the merits at the earliest time
convenient to the Court.
12.5 SEVERABILITY. It is the desire and intent of the parties to this Agreement,
including the FRANCHISEE'S shareholders and the Personal Guarantors, that the
provisions of this Article be enforced to the fullest extent permissible under
the laws and public policy applied in each jurisdiction in which enforcement is
sought. Accordingly, if any part of this Article is adjudicated to be invalid or
unenforceable, then this Article will be deemed to modify or delete that portion
thus adjudicated to be invalid or unenforceable, such modification or deletion
to apply only with respect to the operation of this Article and the particular
jurisdiction in which the adjudication is made. Further, to the extent any
provision of this Article is deemed unenforceable by virtue of its scope or
limitation, the parties to this Agreement including the FRANCHISEE'S
shareholders and the Personal Guarantors, agree that the scope and limitation
provisions will, nevertheless, be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction where
enforcement is sought.
ARTICLE 13
WCH'S RIGHT OF FIRST REFUSAL TO PURCHASE
13.1 NOTICE OF PROPOSED SALE. The FRANCHISEE will not sell, pledge, assign,
trade, transfer, lease, sublease, or otherwise dispose of any interest in or any
part of (A) the FRANCHISEE'S We Care Hair Business, (B) the Franchised Location,
(C) the building or premises lease for the Franchised Location, (D) the
furniture, fixtures, equipment, inventory or other assets used in the
FRANCHISEE'S We Care Hair Business (except for the sale of any of such items in
the normal course of business), (E) this Agreement, (F) any capital stock in the
FRANCHISEE, or (G) the land and building (if any) for the FRANCHISEE'S We Care
Hair Business to any party without first offering the same to WCH by written
notice that contains all material terms and conditions of the proposed sale or
transfer, including price and payment terms. Within ten (10) business days after
receipt by WCH of the FRANCHISEE'S written offer specifying the proposed price
and terms of the proposed sale, WCH will give the FRANCHISEE written notice
which will either waive its right of first refusal to purchase or will state an
interest in negotiating to purchase according to the proposed terms. If WCH
commences negotiations to purchase the FRANCHISEE'S Business as set forth
herein, then the FRANCHISEE may not sell the business or assets to a third party
for at least sixty (60) days or until WCH and the FRANCHISEE agree in writing
that the negotiations have terminated, whichever comes earlier. If WCH waives
its right to purchase, then the FRANCHISEE will have the right to complete the
sale or transfer of the Business according to the terms set forth in the written
notice to WCH; however, any such sale, transfer or assignment to a third party
is
<PAGE>
expressly subject to the terms and conditions set forth in Article 20 of this
Agreement. If the FRANCHISEE does not consummate the sale to a third party upon
the terms and conditions previously presented to WCH in writing, but negotiates
a sale price with a third party that is lower or on different terms than the
stated price or terms presented to WCH, then the modified offer must be
recommunicated or made to WCH by the FRANCHISEE. WCH will give the FRANCHISEE
written notice within fifteen (15) business days thereafter which will state
whether or not it is interested in purchasing the Business according to the
proposed new terms. This provision will not apply to the assignment or pledge of
any of the assets described above (with the exception of this Agreement) by the
FRANCHISEE to a bank, financial institution or other lender in connection with
providing financing for the leasehold improvements, furniture, fixtures,
supplies, inventory and equipment used in, or operating funds for, the
FRANCHISEE'S We Care Hair Business.
13.2 COMPLIANCE WITH AGREEMENT. The FRANCHISEE'S obligations under this
Agreement including, but not limited to, its obligations to pay the Continuing
Fees, the Advertising Fees and to operate as a We Care Hair Business, will in no
way be affected or changed because of WCH'S nonacceptance of the FRANCHISEE'S
written offer to purchase the FRANCHISEE'S Business or assets, and, as a
consequence, the terms and conditions of this Agreement will remain in full
force and effect. WCH'S decision not to exercise the rights granted to it
pursuant to this Article will not, in any way, be deemed to grant the FRANCHISEE
the right to terminate this Agreement and will not affect the term of this
Agreement. Moreover, if WCH does not exercise the rights granted to it pursuant
to this Article and if the FRANCHISEE complies with Article 20 and sells or
otherwise disposes of its Business or assets to a third party, then both the
FRANCHISEE and the third party purchaser will be required to comply in all
respects with the terms and conditions of this Agreement, and the sale of the
Business or assets will not relieve the FRANCHISEE of its obligations under this
Agreement. Any sale, transfer or assignment of the Business or assets of the
FRANCHISEE'S We Care Hair Business that does not include assignment of this
Agreement to the transferee will constitute a wrongful termination of this
Agreement.
13.3 TRANSFER OF AGREEMENT TO CORPORATION. If the FRANCHISEE is not a
corporation, then the FRANCHISEE will have the right to assign and transfer this
Agreement to a corporation in which the FRANCHISEE owns and controls at least
fifty-one percent (51%) of the issued and outstanding capital stock of the
corporation pursuant to Article 20.2 of this Agreement. If the FRANCHISEE
transfers this Agreement to a corporation owned or controlled by the FRANCHISEE
pursuant to Article 20.2, which will not excuse or release the FRANCHISEE from
any obligations under this Agreement, then the shares of capital stock of the
FRANCHISEE'S corporation (the "capital stock") may not be sold, pledged,
assigned, traded, transferred or otherwise disposed of by the FRANCHISEE until
the capital stock has been first offered to WCH in writing under the same terms
and conditions offered to any third party as provided for in Article 13.1.
13.4 TRANSFER OF CAPITAL STOCK. If the FRANCHISEE is a corporation, then the
shares of capital stock of the FRANCHISEE owned by the FRANCHISEE'S shareholders
("capital stock") may not be sold, pledged, assigned, traded, transferred or
otherwise disposed of by the FRANCHISEE'S shareholders until the capital stock
has been first offered to WCH in writing under the same terms and conditions
offered to any third party. In the event the FRANCHISEE'S shareholders desire to
sell, assign, trade, transfer or dispose of their shares of capital stock, the
FRANCHISEE'S shareholders will first offer them to WCH in writing under the same
terms and conditions as being offered to any third party. WCH will have fifteen
(15) business days within which to accept any shareholder's offer to sell,
assign, trade, transfer or dispose of the capital stock. Notwithstanding the
terms of this Article, the FRANCHISEE'S shareholders may bequeath, sell, assign,
trade or transfer their capital stock to the other shareholders of the
FRANCHISEE without first offering it to WCH, provided that each proposed
transferee shareholder who
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will be involved in the operations or management of the We Care Hair Business
has successfully completed WCH'S training program and has been certified by WCH
and is, in WCH'S reasonable judgment, qualified from a managerial and financial
standpoint to operate the We Care Hair Business in an economic and businesslike
manner. The FRANCHISEE and the FRANCHISEE'S shareholders must provide WCH with
written notice of all such transactions, and the proposed transferee
shareholders must agree to be personally liable under this Agreement and enter
into a written agreement where they agree to perform all the terms and
conditions contained in this Agreement. All shares of capital stock issued by
the FRANCHISEE to its shareholders must bear the following legend:
The shares of capital stock represented by this stock certificate are
subject to a written Franchise Agreement which grants WCH, Inc., the right of
first refusal to purchase these shares of capital stock from the shareholder.
Any person acquiring the shares of capital stock represented by this stock
certificate will be subject to the terms and conditions of the Franchise
Agreement between the company specified on the face of this stock certificate
and WCH, Inc., which includes provisions containing covenants not to compete
that apply to all shareholders.
13.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the We Care Hair Business System and the Marks, as well as WCH'S
reputation and image, and are for the protection of WCH, the FRANCHISEE and all
other Franchisees who own and operate We Care Hair businesses. Any assignment or
transfer permitted by Article 13 will not be effective until WCH receives a
completely executed copy of all transfer documents and WCH consents to the
transfer in writing.
13.6 SELLING SHAREHOLDERS SUBJECT TO COVENANT NOT TO COMPETE. Any shareholder of
the FRANCHISEE that sells or assigns his or her capital stock in the FRANCHISEE
will continue to be subject to provisions of Article 12 of this Agreement after
the sale or assignment.
13.7 RIGHT OF WCH TO PURCHASE BUSINESS ASSETS. If this Agreement expires or is
terminated by either WCH or the FRANCHISEE for any reason whatsoever, or if the
FRANCHISEE wrongfully terminates this Agreement by failing to comply with
Article 10 or otherwise, or if the FRANCHISEE at any time ceases to do business
at the Franchised Location as a We Care Hair Business, then WCH will have the
right, but not the obligation, to purchase the then-usable furniture, supplies,
inventory, fixtures and equipment, and all other assets that are required by WCH
for a standard We Care Hair business and owned by the FRANCHISEE in its We Care
Hair Business (the "Business Assets"). WCH will not purchase any assets from the
FRANCHISEE that are not part of the standard We Care Hair business. The
FRANCHISEE must give WCH written notice listing the cost of each one of the
Business Assets in detail and the FRANCHISEE'S asking price for the Business
Assets within twenty-four (24) hours after the FRANCHISEE ceases to do business
as a We Care Hair Business, or after this Agreement expires or is terminated by
either party, or is wrongfully terminated by the FRANCHISEE.
13.8 DETERMINATION OF FAIR MARKET VALUE. If the FRANCHISEE fails to give WCH
written notice of the asking price of the Business Assets, or if WCH and the
FRANCHISEE cannot agree on the price of the Business Assets, then either party
will have the right to demand that the price of the Business Assets be
determined by Arbitration in accordance with the Rules and Regulations of the
American Arbitration Association. The Arbitration hearing will be held as soon
as possible, but in no event later than seven (7) business days from the date
Arbitration is demanded by either party. The Arbitrator will determine the fair
market value of the Business Assets. The Arbitrator will not consider any value
for goodwill associated with the names We Care Hair(R) or We Care Hair(R) or for
going concern value in determining the fair market value of the Business Assets
since the right of purchase granted to
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WCH pursuant to this provision applies only after this Agreement has expired or
has been terminated, or the FRANCHISEE has ceased doing business. Furthermore,
the Arbitrator will not consider any value for the Lease for the Franchised
Location if WCH agrees to assume the Lease and pay the rental and operating
costs. If the Arbitrator is unable to determine the fair market value of any of
the Business Assets, then they will be valued at book value (cost less
depreciation). WCH will have the right, but not the obligation, to purchase any
or all of the Business Assets from the FRANCHISEE for cash within fifteen (15)
business days after the fair market value of the Business Assets has been
established by the Arbitrator in writing. Nothing in this Article will prohibit
WCH from enforcing the terms and conditions of this Agreement, including the
covenants not to compete contained in Article 12.
ARTICLE 14
TRAINING PROGRAM; PRE-OPENING ASSISTANCE; OPENING ASSISTANCE
14.1 TRAINING PROGRAM. WCH will provide a training program for the FRANCHISEE
(and the FRANCHISEE'S District Manager if one is employed) in Minneapolis,
Minnesota to educate, familiarize and acquaint them with the operations of a We
Care Hair Business. The training program will include classroom instruction for
not less than three (3) days on orientation to the Business System and basic
operating skills such as daily operational procedures, inventory control,
employee relations, scheduling and other topics selected by WCH. The FRANCHISEE
and the FRANCHISEE'S District Manager must successfully complete the training
program either (a) prior to commencing any business operations or (b) at the
first scheduling of the training program by WCH after the execution of this
Agreement. The training program will be scheduled by WCH in its sole discretion.
In the event the FRANCHISEE or its District Manager fails to successfully
complete WCH'S training program within the time period expressed in the third
sentence of this Article 14.1, he or she will not be permitted or authorized to
manage or operate the FRANCHISEE'S We Care Hair Business and WCH will have the
right to reject the FRANCHISEE pursuant to Article 4.2 of this Agreement. If the
Franchised Location is the FRANCHISEE'S first We Care Hair Business and there is
not a WCH'S training program scheduled after the FRANCHISEE has executed this
Agreement or a WCH development agreement and prior to the date the Franchised
Location opens for business, then WCH will, at WCH'S expense, provide assistance
at the Franchised Location to manage the FRANCHISEE'S We Care Hair Business
during the time period that the FRANCHISEE and its District Manager attend WCH'S
training program, but only if the FRANCHISEE and its District Manager attend the
first training program offered by WCH immediately following the date the
Franchised Location opens for business.
14.2 HIRING OF NEW DISTRICT MANAGER. In the event the FRANCHISEE hires a
District Manager who has not successfully completed the training program(s)
prescribed by WCH, and if WCH determines, in its sole discretion, that the new
District Manager does not have sufficient knowledge or experience relating to
the management of the FRANCHISEE'S We Care Hair Business, then WCH will require
the individual to successfully complete the prescribed training prior to the
time he or she will be allowed to manage or operate the FRANCHISEE'S We Care
Hair Business, and the FRANCHISEE will be required to pay WCH the then current
training fee charged by WCH.
14.3 PAYMENT OF SALARIES AND EXPENSES DURING TRAINING. The FRANCHISEE will pay
the salaries, fringe benefits, payroll taxes, unemployment compensation,
workers' compensation insurance, lodging, food, automobile rental, travel costs,
and all other expenses for the FRANCHISEE, the FRANCHISEE'S District Manager and
all other persons sent to the training program by the FRANCHISEE, and the
FRANCHISEE will comply with all applicable state and federal laws pertaining to
all employees who attend WCH'S training program.
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14.4 PRE-OPENING ASSISTANCE. If the Franchised Location is the FRANCHISEE'S
first We Care Hair Business, then WCH will provide, at its cost, a
representative for not more than five (5) business days at the Franchised
Location, who will provide pre-opening assistance to the FRANCHISEE, which will
include assisting the FRANCHISEE (and its District Manager if one is employed)
in the interviewing and hiring of employees, review of operational procedures
and facilitating the opening of the We Care Hair Business.
14.5 OPENING ASSISTANCE. After the FRANCHISEE and the FRANCHISEE'S District
Manager have successfully completed WCH'S training program, WCH will assist the
FRANCHISEE in scheduling the initial opening of the FRANCHISEE'S We Care Hair
Business. WCH will provide, at its cost, a representative for not less than five
(5) business days at the Franchised Location, who will provide opening
assistance which will include training the FRANCHISEE'S We Care Hair staff in
daily operational procedures, customer relations, haircutting techniques,
permanent waving, tanning, nail care, product knowledge and other areas selected
by WCH. The FRANCHISEE will not open and commence initial business operations
until WCH has given the FRANCHISEE written approval to open the FRANCHISEE'S We
Care Hair Business.
ARTICLE 15
WCH'S OTHER OBLIGATIONS
15.1 ADDITIONAL ASSISTANCE. Consistent with WCH'S uniform requirements and
quality standards, WCH will, at its expense: (A) provide the FRANCHISEE with a
written schedule of all furniture, fixtures, supplies and equipment necessary
and required for the operation of the FRANCHISEE'S We Care Hair Business; (B)
furnish a list of approved sources from whom the FRANCHISEE can purchase
furniture, fixtures, equipment, supplies, toiletries, grooming aids, products,
printed materials, items, goods and services; (C) review and evaluate the
FRANCHISEE'S Business as often as WCH deems necessary and render written reports
to the FRANCHISEE as deemed appropriate by WCH; (D) protect, police and, when
appropriate, enforce the Marks and the Business System for the benefit of all We
Care Hair franchisees; (E) render advisory services pertaining to customer
service and the operation of the FRANCHISEE'S We Care Hair Business as
frequently as WCH deems appropriate; (F) provide the FRANCHISEE with WCH'S
standard Operations Manual and all supplements and modifications to the Manual;
and (G) provide the FRANCHISEE with WCH'S approved standard store layouts and
plans for the Franchised Location.
15.2 ANNUAL CONVENTION. WCH will, during the term of this Agreement, conduct an
annual convention for all We Care Hair franchisees at such times and at such
locations as WCH deems appropriate. The FRANCHISEE will attend the annual
convention conducted by WCH for We Care Hair franchisees during each year of
this Agreement. All expenses incurred by the FRANCHISEE or any employees of the
FRANCHISEE in traveling to and attending the annual convention conducted by WCH
will be paid for by the FRANCHISEE. WCH will charge, and the FRANCHISEE will
pay, a registration fee for the annual convention, regardless of whether the
FRANCHISEE, or any representative of the FRANCHISEE, attends the convention, and
an additional registration fee will be charged for each person in addition to
the first person attending the annual convention on behalf of the FRANCHISEE.
15.3 OPTIONAL ADDITIONAL TRAINING. WCH may, during the term of this Agreement,
provide optional additional training and instruction to the FRANCHISEE on topics
determined by WCH in its sole discretion. WCH reserves the right to add or
delete additional training topics at any time without notice to the FRANCHISEE.
The FRANCHISEE will be required to pay WCH the then-current training fee charged
by WCH for any additional training attended by the FRANCHISEE or its employees.
<PAGE>
All expenses incurred by the FRANCHISEE or any employees of the FRANCHISEE in
traveling to and attending optional additional training will be paid for by the
FRANCHISEE.
ARTICLE 16
WCH SIGN
16.1 INSTALLATION OF SIGN. The FRANCHISEE will, at its expense, purchase the
standard We Care Hair Sign (the "Sign") which must be displayed at the
Franchised Location. The FRANCHISEE will pay for all costs incurred in
connection with the erection and installation of the Sign. The Sign must conform
exactly to WCH'S standard Sign plans and specifications and must be installed at
the Franchised Location precisely in the place, location and manner specified by
WCH in writing. WCH will have the absolute right to inspect, examine, videotape
and photograph the Sign at any time during the term of this Agreement.
16.2 ADDITIONAL EXPENSES. The FRANCHISEE will, at its expense, be responsible
for any and all permits, licenses, repairs, maintenance, utilities, insurance,
taxes, assessments and levies in connection with the installation or use of the
Sign.
16.3 MODIFICATION AND REPLACEMENT. The FRANCHISEE may not alter, remove, change,
modify or redesign the Sign unless approved by WCH in writing. WCH will have the
unequivocal and unilateral right to redesign the Sign plans and specifications
during the term of this Agreement without the approval or consent of the
FRANCHISEE. Upon written notice from WCH, the FRANCHISEE will, at its expense,
either modify or replace the Sign within thirty (30) days so that the Sign
displayed at the Franchised Location will comply with WCH'S redesigned Sign
plans and specifications. The FRANCHISEE will not be required to modify or
replace the Sign more than once every five (5) years during the term of this
Agreement.
16.4 INJUNCTIVE RELIEF. The FRANCHISEE agrees that WCH will be entitled to seek
injunctive relief against the FRANCHISEE to require the FRANCHISEE, at the
FRANCHISEE'S expense, to: (A) exhibit the approved We Care Hair Sign at the
Franchised Location during the term of this Agreement; (B) remove the Sign upon
the termination or expiration of this Agreement; or (C) remove the Sign from the
former franchised location upon the relocation of the Franchised Location.
Unless required by applicable law, WCH will not be required to post a bond or
other security prior to obtaining injunctive relief pursuant to this Article.
ARTICLE 17
INSURANCE
17.1 GENERAL LIABILITY. The FRANCHISEE must acquire and maintain in full force
and effect, at its sole cost and expense, a general liability insurance policy
insuring the FRANCHISEE, WCH, and their respective officers, directors and
employees from and against any loss, liability, damage, claim or expense of any
kind whatsoever including claims for bodily injury, personal injury, death,
property damage, products liability and malpractice resulting from the
condition, operation, use, business or occupancy of the FRANCHISEE'S We Care
Hair Business, including the surrounding premises, the parking area and the
sidewalks of the Franchised Location.
17.2 AUTOMOBILE. The FRANCHISEE must acquire and maintain in full force and
effect, at its sole cost and expense, automobile liability coverage insuring the
FRANCHISEE, WCH, and their respective officers, directors and employees from any
and all loss, liability, damage, claim or expense of
<PAGE>
any kind whatsoever resulting from the use, operation or maintenance of any
automobile or vehicle used by the FRANCHISEE or any of its employees in
connection with the FRANCHISEE'S We Care Hair Business.
17.3 COVERAGE LIMITS. Liability coverages for both the general liability
insurance coverage and automobile coverage must have limits of at least Five
Hundred Thousand Dollars ($500,000) for each person and One Million Dollars
($1,000,000) for each occurrence.
17.4 PROPERTY INSURANCE. The FRANCHISEE will maintain in full force and effect,
at its sole cost and expense, "all risks" property insurance coverage for the
equipment, furnishings, fixtures, inventory and signs owned or leased by the
FRANCHISEE and used at the Franchised Location (including fire and extended
coverage) with limits equal to at least "replacement" cost.
17.5 PROFESSIONAL LIABILITY INSURANCE. The FRANCHISEE will maintain in full
force and effect, at its sole cost and expense, professional liability coverage
with coverage limits of a reasonable amount insuring the FRANCHISEE, WCH, and
their respective officers, directors and employees from any and all loss,
liability, damage, claim or expense of any kind whatsoever resulting from
actions or omissions of the FRANCHISEE'S officers, directors or any of its
employees in connection with the FRANCHISEE'S We Care Hair Business.
17.6 OTHER INSURANCE. The FRANCHISEE will, at its sole cost and expense, procure
and pay for all other insurance required by state or federal law, including
workers' compensation insurance for its employees, together with all insurance
required under any lease, mortgage, deed of trust or other legal contract in
connection with the Franchised Location or the operation of the FRANCHISEE'S We
Care Hair Business.
17.7 INSURANCE COMPANIES; EVIDENCE OF COVERAGE. All insurance companies
providing coverage to the FRANCHISEE must be licensed in the state where
coverage is provided. The FRANCHISEE will provide WCH with certificates of
insurance evidencing the required insurance coverage no later than the date the
FRANCHISEE takes possession of the Franchised Location and will provide,
immediately upon expiration, change or cancellation, new certificates of
insurance to WCH.
17.8 WCH'S RIGHTS. All insurance policies procured and maintained by the
FRANCHISEE pursuant to this Article will name WCH as an additional insured, will
contain endorsements by the insurance companies waiving all rights of
subrogation against WCH, and will stipulate that WCH will receive copies of all
notices of cancellation, nonrenewal, or coverage reduction or elimination at
least thirty (30) days prior to the effective date of such cancellation,
nonrenewal or coverage change.
17.9 DEFENSE OF CLAIMS. All liability insurance policies procured and maintained
by the FRANCHISEE will require the insurance companies to provide and pay for
legal counsel to defend any legal actions, lawsuits or claims brought against
the FRANCHISEE, WCH, and their respective officers, directors and employees.
17.10 NO REPRESENTATIONS; RIGHT TO ADDITIONAL COVERAGE. WCH makes no
representations with respect to the adequacy of the types of insurance coverage
or coverage amounts set forth herein, and the FRANCHISEE will have the absolute
right to maintain additional types of coverage and higher coverage amounts than
those specified herein as minimum requirements.
<PAGE>
ARTICLE 18
INDEPENDENT CONTRACTORS; INDEMNIFICATION
18.1 INDEPENDENT CONTRACTORS. WCH and the FRANCHISEE are each independent
contractors and, as a consequence, there is no employer-employee or
principal-agent relationship between WCH and the FRANCHISEE. The FRANCHISEE will
not have the right to and will not make any agreements, representations or
warranties in the name of or on behalf of WCH or represent that their
relationship is other than that of Franchisor and Franchisee. Neither WCH nor
the FRANCHISEE will be obligated by or have any liability to the other under any
agreements or representations made by the other to any third parties.
18.2 INDEMNIFICATION. WCH will not be obligated to any person or entity for
damages arising out of, from, in connection with, or as a result of the
FRANCHISEE'S negligence or the operation of the FRANCHISEE'S We Care Hair
Business. The FRANCHISEE will indemnify and hold WCH harmless against all
claims, lawsuits, damages, obligations, liability, actions and judgments alleged
or obtained by any person or entity against WCH arising out of, from, as a
result of, or in connection with the FRANCHISEE'S negligence, the operation of
the FRANCHISEE'S We Care Hair Business, the Franchised Location, or any business
conducted by the FRANCHISEE pursuant to this Agreement, including, without
limitation, any claims arising from or relating to: (A) any personal injury,
property damage, commercial loss or environmental contamination resulting from
any act or omission of the FRANCHISEE or its employees, agents or
representatives; (B) any failure on the part of the FRANCHISEE to comply with
any requirement of any governmental authority; (C) any failure of the FRANCHISEE
to pay any of its obligations; or (D) any failure of the FRANCHISEE to comply
with any requirement or condition of this Agreement or any other agreement with
WCH or any affiliate of WCH. Further, the FRANCHISEE will indemnify and
reimburse WCH for all such obligations and damages for which WCH is held liable
and for all costs reasonably incurred by WCH in the defense of any such claims
brought against it or in any action in which it is named as a party including,
without limitation, costs for attorneys' fees actually incurred, investigation
expenses, court costs, deposition expenses and travel and living expenses. WCH
will have the absolute right to defend any claim made against it that results
from or arises out of the FRANCHISEE'S We Care Hair Business.
18.3 PAYMENT OF COSTS AND EXPENSES. The FRANCHISEE will pay all costs and
expenses, including attorneys' fees, actually incurred by WCH in enforcing any
term, condition or provision of this Agreement or in seeking to enjoin any
violation of this Agreement by the FRANCHISEE.
18.4 CONTINUATION OF OBLIGATIONS. The indemnification and other obligations
contained in this Article will continue in full force and effect subsequent to
and notwithstanding the expiration or termination of this Agreement.
ARTICLE 19
FINANCIAL STATEMENTS; GROSS REVENUE REPORTS; FORMS AND ACCOUNTING
19.1 QUARTERLY AND ANNUAL FINANCIAL STATEMENTS. The FRANCHISEE will, at its
expense, provide WCH with a quarterly balance sheet and income statement, and
annual financial statements for the FRANCHISEE'S We Care Hair Business which
will consist of a balance sheet, income statement, statement of cash flows and
explanatory footnotes. All financial statements provided to WCH for the
FRANCHISEE'S We Care Hair Business will be presented in the exact form and
format prescribed by WCH in writing and will be categorized according to the
chart of accounts prescribed by WCH. The FRANCHISEE'S financial statements will
be prepared in accordance with generally accepted accounting
<PAGE>
principles applied on a consistent basis. If the FRANCHISEE'S annual financial
statements are not certified by an independent certified public accountant, then
the FRANCHISEE'S annual financial statements must be verified by the
FRANCHISEE'S President or Chief Financial Officer, or if the FRANCHISEE is not a
corporation, then by the FRANCHISEE'S Managing Partner, Chief Operating Officer
or Chief Financial Officer. The FRANCHISEE'S quarterly financial statements will
be delivered to WCH by the FRANCHISEE within thirty (30) days after the end of
the quarter and the annual financial statements will be delivered within ninety
(90) days of the FRANCHISEE'S fiscal year end.
19.2 TAX RETURNS. Within ninety (90) days after the FRANCHISEE'S fiscal year
end, the FRANCHISEE will furnish WCH with signed copies of the FRANCHISEE'S
annual federal, and if applicable, state income tax returns, and copies of any
other federal, state or local tax returns filed by the FRANCHISEE including, but
not limited to, any amended tax returns filed by the FRANCHISEE, together with
proof that the FRANCHISEE has paid all federal and state income and sales taxes
due.
19.3 WEEKLY STATEMENT OF GROSS REVENUES. The FRANCHISEE will maintain an
accurate written record of daily Gross Revenues for the FRANCHISEE'S We Care
Hair Business and the FRANCHISEE will remit a signed and verified statement of
the weekly Gross Revenues generated by, at, as a result of, or from the
FRANCHISEE'S We Care Hair Business using such forms as WCH may prescribe in
writing. The weekly statement of Gross Revenues will accompany the FRANCHISEE'S
weekly Continuing Fees and Advertising Fees and will be provided to WCH on or
before Wednesday of each week for the preceding week ending on Friday.
19.4 WCH'S AUDIT RIGHTS. Within three (3) days after having been given written
notice from WCH, the FRANCHISEE and its accountants will make all of their
books, ledgers, work papers, accounts, bank statements, tax returns, sales tax
returns, daily cash register tapes and financial records pertaining to the
FRANCHISEE'S Business ("books and financial records") available to WCH during
all business hours for review and audit by WCH or its designee. The books and
financial records for each fiscal year will be kept in a secure place by the
FRANCHISEE and will be available for audit by WCH for at least the preceding
five (5) years. The FRANCHISEE will provide WCH with adequate facilities to
conduct the audit, including a working area with a desk and chair at either the
Franchised Location or at the FRANCHISEE'S accountants' offices. If an audit by
WCH reveals any deficiencies, then the FRANCHISEE will, within five (5) days
after receipt of an invoice from WCH indicating the amounts owed, pay WCH any
deficiency in Continuing Fees or other amounts owed to WCH, together with
interest as provided for herein. If an audit by WCH results in a determination
that the FRANCHISEE'S Gross Revenues were understated by more than two percent
(2%), or that the FRANCHISEE has underpaid the weekly Continuing Fees by more
than Five Hundred Dollars ($500) in any twelve (12) month period, then the
FRANCHISEE will, in addition to paying any deficiency in Continuing Fees,
Advertising Fees, costs of products purchased from WCH or other amounts due to
WCH, reimburse WCH for all costs and expenses (including salaries of WCH'S
employees, travel costs, room and board, and audit fees) that WCH has incurred
as a result of the audit, including any fees paid to its accountants to conduct
the audit. The FRANCHISEE will reimburse WCH for such costs and expenses within
ten (10) days of receipt of an invoice from WCH indicating the amount owed as a
result of the audit. The FRANCHISEE'S failure or refusal to produce the books
and financial records for audit by WCH in accordance with this Article 19.4 will
constitute a material breach of this Agreement and will be grounds for the
immediate termination of this Agreement by WCH.
19.5 WAIVER BY FRANCHISEE. WCH will have the right, without notice to, or
further approval of or authorization by the FRANCHISEE, to provide all vendors
that supply any products, goods or services to the FRANCHISEE with copies of the
FRANCHISEE'S: (A) initial application and all
<PAGE>
financial information that was provided to WCH in conjunction with such
application; (B) most recent financial information provided to WCH; and (C) most
recent annual financial statements provided to WCH. WCH will also have the right
to obtain credit reports maintained by credit reporting agencies regarding the
FRANCHISEE and the right to review the books and records maintained by the
vendors or suppliers that supply products, goods or services to the FRANCHISEE
regarding the purchase made by the FRANCHISEE. This Agreement will serve as
evidence of WCH'S right to review such information and will constitute the
authority from the FRANCHISEE for credit reporting agencies, vendors and
suppliers to provide such information to WCH.
19.6 PAYMENT BY PRE-AUTHORIZED BANK TRANSFER. The FRANCHISEE will, from time to
time during the term of this Agreement, execute such documents as WCH may
request to provide the FRANCHISEE'S unconditional and irrevocable authority and
direction to its bank or financial institution authorizing and directing the
FRANCHISEE'S bank or financial institution to pay and deposit directly to the
account of WCH, and to charge to the account of the FRANCHISEE, on Wednesday of
each week, the amount of the Continuing Fees, Advertising Fees and other sums
due and payable by the FRANCHISEE pursuant to this Agreement in accordance with
Article 5 and Article 6 of this Agreement. The authorizations will be in the
form prescribed by WCH'S bank. The FRANCHISEE'S authorizations will permit WCH
to designate the amount to be debited or drafted from the FRANCHISEE'S account
and to adjust such amount from time to time, to the amount of the Continuing
Fees, Advertising Fees and other sums then payable to WCH from the FRANCHISEE.
If the FRANCHISEE fails at any time to provide reports of Gross Revenues as
required under Article 19.3 of this Agreement, then WCH will have the right, in
its sole discretion, to estimate the amount of the Continuing Fees, Advertising
Fees and other sums due and payable to WCH, and to designate such estimated
amount as the amount to be debited or drafted from the FRANCHISEE'S account. The
FRANCHISEE will, at all times during the term of this Agreement, maintain a
balance in its account at its bank or financial institution sufficient to allow
the appropriate amount to be debited from the FRANCHISEE'S account for payment
of the Continuing Fees, Advertising Fees and other sums payable by the
FRANCHISEE for deposit in the account of WCH.
ARTICLE 20
ASSIGNMENT
20.1 ASSIGNMENT BY WCH. This Agreement may be unilaterally assigned and
transferred by WCH without the FRANCHISEE'S approval or consent, and will inure
to the benefit of WCH'S successors and assigns. WCH will provide the FRANCHISEE
with written notice of any such assignment or transfer, and the assignee will be
required to fulfill WCH'S obligations under this Agreement.
20.2 ASSIGNMENT BY FRANCHISEE TO CORPORATION. If the FRANCHISEE is an individual
or a partnership, this Agreement may be transferred or assigned by the
FRANCHISEE, without first offering it to WCH pursuant to Article 13, to a
corporation which is owned or controlled (ownership of at least fifty-one
percent (51%) of the issued and outstanding capital stock) by the FRANCHISEE,
provided that: (A) the FRANCHISEE and all of the shareholders of the assignee
corporation sign the personal guaranty and agreement to be bound by the terms
and conditions of this Agreement attached hereto; (B) the FRANCHISEE furnishes
prior written proof to WCH substantiating that the corporation will be
financially able to perform all of the terms and conditions of this Agreement;
and (C) none of the shareholders owns, operates, franchises, develops, manages
or controls any hairstyling, barber or other business that is in any way
competitive with or similar to a We Care Hair business. The FRANCHISEE will give
WCH fifteen (15) days written notice prior to the proposed date of assignment or
transfer of this Agreement to an owned or controlled corporation of the
FRANCHISEE; however, the transfer or assignment of this Agreement will not be
valid or effective until WCH has received the legal documents
<PAGE>
which its legal counsel deems necessary to properly and legally document the
transfer or assignment of this Agreement to the corporation as provided herein.
20.3 ASSIGNMENT UPON DEATH OR DISABILITY OF INDIVIDUAL FRANCHISEE. If the
FRANCHISEE is an individual, then this Agreement may be assigned, transferred or
bequeathed by the FRANCHISEE to any designated person or beneficiary without
first being offered to WCH pursuant to Article 13 upon his or her death or
permanent disability. However, the assignment of this Agreement to the
transferee, assignee or beneficiary of the FRANCHISEE will not be valid or
effective until WCH has received the properly executed legal documents which its
legal counsel deems necessary to properly and legally document the transfer,
assignment or bequest of this Agreement, and until the transferee, assignee or
beneficiary agrees to be unconditionally bound by the terms and conditions of
this Agreement and to personally guarantee the performance of the FRANCHISEE'S
obligations under this Agreement.
20.4 APPROVAL OF TRANSFER; CONDITIONS FOR APPROVAL. The rights granted to the
FRANCHISEE pursuant to this Agreement may be assigned or transferred by the
FRANCHISEE only with the prior written approval of WCH. WCH will not
unreasonably withhold its consent to any transfer of this Agreement provided
that the FRANCHISEE and the transferee Franchisee comply with the following
conditions: (A) the FRANCHISEE has complied in all respects with Article 13 of
this Agreement; (B) all of the FRANCHISEE'S monetary obligations due to WCH have
been paid in full, and the FRANCHISEE is not otherwise in default under this
Agreement; (C) the FRANCHISEE has executed a written agreement in a form
satisfactory to WCH in which the FRANCHISEE agrees to observe all applicable
obligations and covenants contained in this Agreement; (D) the transferee
Franchisee and its shareholders agree to be personally liable to discharge all
of the FRANCHISEE'S obligations under this Agreement, and will enter into a
written agreement in a form satisfactory to WCH assuming and agreeing to
discharge all of the FRANCHISEE'S obligations and covenants under this
Agreement; (E) the transferee Franchisee will have demonstrated to WCH'S
satisfaction that he, she or it meets WCH'S managerial, financial and business
standards for new Franchisees, possesses a good business reputation and credit
rating, and possesses the aptitude and ability to conduct the franchised
business (as may be evidenced by prior related business experience or
otherwise); (F) the transferee Franchisee and all parties having a legal or
beneficial interest in the transferee Franchisee including, if applicable, the
shareholders and Personal Guarantors of the transferee Franchisee will execute
WCH'S then-current standard Franchise Agreement for a term ending on the
expiration date of this Agreement and such other ancillary agreements as WCH may
require for the transfer of the FRANCHISEE'S Business; (G) the transferee
Franchisee will not be required to pay the Initial Fee, however, the transferee
Franchisee will be required to pay the Continuing Fees and the Advertising Fees
to WCH at the rate specified in this Agreement; (H) the transferee Franchisee
has purchased the Franchised Location or has acquired a lease for the Franchised
Location for a reasonable term consistent with the remaining term of this
Agreement; (I) the transferee Franchisee (and its District Manager if one is
employed) must successfully complete the training program(s) prescribed by WCH;
(J) the transferee Franchisee will pay the salaries, fringe benefits, payroll
taxes, unemployment compensation, workers' compensation insurance, hotel costs,
travel costs and other expenses for all persons sent to the training program(s),
and will pay to WCH WCH'S then-current training fee for each person attending
WCH'S training program(s); (K) the FRANCHISEE has paid the transfer fee required
under Article 20.6; (L) the transferee Franchisee has paid the Training Program
Deposit required under Article 20.7; (M) the transferee Franchisee does not own,
operate, franchise, develop, manage or control any hairstyling, barber or other
business that is in any way competitive with or similar to a We Care Hair
business; and (N) if the transferee Franchisee does not meet WCH'S net worth
requirements for operation of the We Care Hair Business, then the FRANCHISEE
and/or its shareholders and the Personal Guarantors will execute a written
agreement in a form satisfactory to WCH agreeing to remain liable to WCH for the
obligations of the We Care Hair Business.
<PAGE>
20.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the We Care Hair Business System and the Marks, as well as WCH'S
reputation and image, and are for the protection of WCH, the FRANCHISEE and all
other franchisees who own and operate We Care Hair businesses. Any assignment or
transfer permitted by this Article 20 will not be effective until WCH receives a
completely executed copy of all transfer documents and WCH consents to the
transfer in writing, and any attempted assignment or transfer made without
complying with the requirements of this Article 20 will be void.
20.6 TRANSFER FEE. If, pursuant to the terms of this Article 20, the rights
granted to the FRANCHISEE in this Agreement are assigned, transferred or
bequeathed to another person or entity, or if the FRANCHISEE'S shareholders
transfer over fifty percent (50%) of their capital stock to another person or
entity, then the FRANCHISEE will pay WCH a transfer fee of One Thousand Dollars
($1,000). This fee is to cover the costs incurred by WCH for attorneys' fees,
accountants' fees, compliance with applicable laws, out-of-pocket expenses, long
distance telephone calls, and the time of its employees and officers.
20.7 TRAINING PROGRAM DEPOSIT. If, pursuant to the terms of this Article 20, the
rights granted in this Agreement are assigned, transferred or bequeathed to
another person or entity, or if the FRANCHISEE'S shareholders transfer over
fifty percent (50%) of their capital stock to another person or entity, then, as
a condition (in addition to the other conditions expressed in this Article 20)
to the approval by WCH of such assignment, transfer or bequest, the transferee
Franchisee will pay WCH a training program deposit which will be refunded to the
transferee Franchisee in its entirety upon the transferee Franchisee's
successful completion of WCH'S training program. The amount of the training
program deposit to be paid to WCH is Two Thousand Dollars ($2,000) if the
Franchised Location is located within ninety (90) miles of WCH'S training
facility located in Minneapolis, Minnesota. If the Franchised Location is
located more than ninety (90) miles from WCH'S training facility, then the
amount of the training program deposit to be paid to WCH is Three Thousand
Dollars ($3,000).
ARTICLE 21
SITE SELECTION; STANDARD STORE LAYOUTS AND PLANS
21.1 SITE SELECTION. The FRANCHISEE will be solely responsible for selecting a
site for the Franchised Location and for purchasing, leasing or otherwise
acquiring possession of the site for the Franchised Location. WCH has strongly
recommended that the FRANCHISEE should retain an experienced commercial real
estate broker or salesperson ("real estate broker") who has at least five (5)
years experience in locating and/or leasing retail space to locate, acquire,
purchase or lease a site for the FRANCHISEE'S We Care Hair Business.
Accordingly, no provision of this Agreement may be construed to impose any
obligation or responsibility on WCH to locate or select a site for the
Franchised Location. The FRANCHISEE will not lease, purchase or otherwise
acquire a site for the Franchised Location until the proposed site has been
reviewed in writing by WCH to determine accessibility, visibility, potential
traffic flows and other demographic information. The review of the site
conducted by WCH will not be deemed to be a warranty, representation or guaranty
by WCH that if the FRANCHISEE'S We Care Hair Business is opened and operated at
that site, it will be a financial success. WCH will have the right to require
the FRANCHISEE to obtain, at the FRANCHISEE'S expense, an economic feasibility
and demographics study for the proposed site of the Franchised Location. Any
feasibility and demographics study required by WCH will be completed by a real
estate expert mutually agreed upon by WCH and the FRANCHISEE in writing.
<PAGE>
21.2 STANDARD STORE LAYOUTS AND PLANS. After the Franchised Location has been
leased or acquired, the FRANCHISEE will, within sixty (60) days of the date of
this Agreement, provide WCH with the following information for the Franchised
Location: (A) a copy of the executed lease (if applicable); (B) the store front
elevation; (C) space documentation (size and lay-out); (D) location of the
plumbing and electrical sources; (E) local signage requirements, laws and
regulations; and (F) all other pertinent information. Based upon the information
provided by the FRANCHISEE, WCH will provide approved store layouts and plans
for the Franchised Location. The FRANCHISEE will construct or remodel the
Franchised Location in strict compliance with the store layouts and plans
provided by WCH. Any unauthorized variance from the store layouts and plans
prepared by WCH will be a material breach of this Agreement. Providing store
layouts and plans does not constitute a representation, warranty or guaranty by
WCH that the site will be a financially successful location for the FRANCHISEE'S
We Care Hair Business, and the FRANCHISEE assumes all business and economic
risks associated with the operation of the We Care Hair Business at this site.
21.3 INCORRECT INFORMATION. In the event any of the information provided to WCH
by the FRANCHISEE pursuant to this Article is incorrect, inaccurate or
incomplete, then the FRANCHISEE will pay for all costs and expenses incurred by
WCH in revising the store layouts and plans prepared by WCH for the Franchised
Location.
21.4 FRANCHISEE RESPONSIBLE FOR CONSTRUCTION OR REMODELING. The FRANCHISEE will
be solely responsible for ascertaining and insuring that the Franchised Location
is constructed or remodeled according to the store layouts and plans provided by
WCH in compliance with all applicable local, state and federal laws, ordinances,
statutes and building codes. Accordingly, the FRANCHISEE or its agent will be
responsible for inspecting the premises during construction or remodeling to
insure that the Franchised Location complies with the store layouts and plans
and with applicable laws and ordinances.
21.5 WCH'S OPTION TO VIEW FRANCHISED LOCATION. WCH may, at its expense, view the
Franchised Location during construction or remodeling at such times as it deems
necessary for the purpose of determining the progress of the construction or
remodeling and to ascertain that the interior and exterior of the Franchised
Location are generally being constructed or remodeled according to the store
layouts and plans. WCH'S viewing of the Franchised Location during construction
or remodeling will not be for the purpose of determining that the Franchised
Location is being constructed or remodeled in a workmanlike manner or in
compliance with any applicable laws or ordinances. Accordingly, WCH will have no
responsibility or liability to the FRANCHISEE or any other person or entity if
the Franchised Location is not constructed or remodeled according to the store
layouts and plans, in a workmanlike manner or in compliance with any applicable
laws or ordinances.
ARTICLE 22
LEASE AS SECURITY; TERMINATION OF LEASE
22.1 WCH'S REVIEW OF LEASE. The lease for the Franchised Location (the "Lease")
will be submitted to WCH by the FRANCHISEE for WCH'S review prior to execution
of the Lease by the FRANCHISEE. The Lease must, at a minimum, be conditional
upon WCH'S approval of the FRANCHISEE and give WCH the right to enter the
premises to conduct inspections at any time during regular business hours, and
the right, but not the obligation, to assume the Lease for the remaining term,
in accordance with the provisions of this Article, if the FRANCHISEE is evicted
by the Landlord or if this Agreement expires or is terminated by either WCH or
the FRANCHISEE for any reason prior to the
<PAGE>
expiration of the Lease. WCH'S review of the Lease prior to its execution will
not be for the purpose of approving the legal aspects, economics or rental terms
of the Lease. Accordingly, WCH will have no responsibility to the FRANCHISEE
with regard to the economics, legality or enforceability of the Lease.
22.2 FRANCHISEE'S ASSIGNMENT OF LEASE. The FRANCHISEE hereby assigns and
transfers all of its right, title and interest in and to the Lease (which is
incorporated herein by reference) to WCH as security for the FRANCHISEE'S
performance of the terms and conditions of this Agreement. If this Agreement is
terminated by either WCH or the FRANCHISEE for any reason whatsoever, if the
FRANCHISEE wrongfully terminates this Agreement by failing to comply with
Article 10 or for any other reason, if the FRANCHISEE at any time ceases to do
business at the Franchised Location as a We Care Hair Business, or if this
Agreement expires and the FRANCHISEE does not reacquire the franchise (an "Event
of Default"), then WCH will have the right and option, but not the obligation,
to take and assume the Lease for the remaining term under the same terms and
conditions, including rental, as originally contracted by the FRANCHISEE. The
FRANCHISEE will execute a UCC-1 Financing Statement and such other documents as
may be reasonably required by WCH'S attorneys to perfect and record WCH'S
security interest in the Lease.
22.3 PERFECTED ASSIGNMENT; NOTICE. This assignment will constitute a perfected,
absolute and present assignment of the Lease; however, WCH will have no right
under this assignment to enforce the provisions of the Lease until an Event of
Default has occurred. After an Event of Default has occurred, WCH will have the
right, but not the obligation, to enforce the provisions of this assignment and
to take possession of the Franchised Location by giving the FRANCHISEE and the
Landlord written notice that it has affirmatively exercised its rights under
this assignment. The written notice will state: (A) that WCH is taking and
assuming the Lease from the FRANCHISEE; (B) the date that WCH will take physical
possession of the Franchised Location; and (C) that WCH agrees to be bound by
the terms and conditions of the Lease being assumed. WCH will execute an
assignment form at the time it gives written notice to the FRANCHISEE and the
Landlord of its assumption of the Lease.
22.4 NO PRIOR ASSIGNMENTS. The FRANCHISEE represents and warrants that there
have been no prior assignments of the Lease by the FRANCHISEE, that it has good
right to assign and transfer the Lease, that the Lease is a valid and
enforceable agreement, that neither party is in default to the other thereunder
and that all covenants, conditions and agreements have been performed as
required therein, except those not due to be performed until after the date
hereof. No change in the terms of the Lease will be valid without the written
approval of WCH. The FRANCHISEE agrees not to assign, sell, pledge or otherwise
transfer or encumber its interest in the Lease so long as this assignment is in
effect. During the term of this Agreement, the FRANCHISEE will not lease or
sublease all or any part of the Franchised Location without WCH'S prior written
consent.
22.5 ENFORCEMENT OF FRANCHISEE'S RIGHTS. The FRANCHISEE hereby irrevocably
constitutes and appoints WCH as its attorney-in-fact to demand, receive and
enforce the FRANCHISEE'S rights with respect to the Lease, to make payments
under the Lease and give appropriate receipts, releases and satisfactions for
and on behalf of and in the name of the FRANCHISEE or, at the option of WCH, in
the name of WCH, with the same force and effect as the FRANCHISEE could do if
this assignment had not been made.
22.6 WCH'S RIGHTS AND REMEDIES. Upon taking physical possession of the
Franchised Location, WCH may, without affecting any of its rights or remedies
against the FRANCHISEE under any other instrument, document or agreement,
exercise its rights under this assignment as the FRANCHISEE'S attorney-in-fact
in any manner permitted by law and, in addition, WCH will have and
<PAGE>
possess, without limitation, any and all rights and remedies of a secured party
under the Uniform Commercial Code, as enacted in the jurisdiction in which
enforcement is sought or as provided by law.
22.7 PRORATION OF RENTS AND EXPENSES. At the time WCH takes physical possession
of the Franchised Location, all charges, real estate taxes, utilities and
rentals will be prorated between WCH and the FRANCHISEE. WCH will have no
obligation to pay any past due obligations or arrearages of the FRANCHISEE to
any person or entity, including the Landlord.
22.8 POSSESSION; OBLIGATIONS OF WCH AND FRANCHISEE. WCH will hold the FRANCHISEE
harmless from any and all obligations to the Landlord, including rental
payments, arising out of the use of the Franchised Location from the date that
WCH takes physical possession of the Franchised Location. The FRANCHISEE will
pay all amounts due to the Landlord and other parties under the Lease including,
but not limited to, rentals, insurance, rental overrides, real estate taxes,
repairs, and maintenance, up to and including the date that WCH takes physical
possession of the Franchised Location. With the specific and limited exception
of rental payments and other obligations to the Landlord arising from WCH'S use
of the Franchised Location after taking physical possession of the premises, the
FRANCHISEE will indemnify and hold WCH harmless from and against any and all
claims, demands, liabilities, losses, lawsuits, judgments, costs and expenses,
including attorneys' fees, to which WCH may become exposed, or which WCH may
incur, in exercising any of its rights under this assignment.
22.9 LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE AS SECURITY. The FRANCHISEE will
secure the Landlord's written consent to the provisions contained in this
Article in the form of consent attached as Exhibit "B" to this Agreement.
22.10 ASSIGNMENT BY WCH. WCH will have the right to reassign its right, title
and interest in the Lease to any person or entity upon giving written notice to
the FRANCHISEE and the Landlord without any consent whatever from the FRANCHISEE
or the Landlord, and any such reassignment will be valid and binding upon the
FRANCHISEE and the Landlord as fully as if each had expressly approved the same.
Subject to the limitation on further assignment by the FRANCHISEE contained in
Article 22.4, this assignment will be binding upon and inure to the benefit of
the heirs, legal representatives, assigns, and successors in interest of the
FRANCHISEE, WCH and the Landlord.
22.11 LEASE NOT YET EXECUTED. In the event that the FRANCHISEE has not yet
entered into a premises lease for the Franchised Location at the time this
Agreement is executed, the provisions of Article 22.2, 22.3 and 22.5 of this
Agreement will take effect immediately upon the execution of the Lease. The
representations of the FRANCHISEE contained in Article 22.4 will be true and
complete as of, and will be deemed to have been made at, the time the Lease is
executed. The FRANCHISEE agrees to execute any additional documents as may be
required by WCH'S attorneys to perfect the assignment of the Lease.
ARTICLE 23
ARBITRATION
23.1 DISPUTES SUBJECT TO ARBITRATION. Except as expressly provided to the
contrary in this Agreement, all disputes and controversies between the parties,
including allegations of fraud, misrepresentation or violation of any state or
federal laws or regulations, arising under, as a result of, or in connection
with this Agreement, the Franchised Location or the FRANCHISEE'S We Care Hair
Business
<PAGE>
will be resolved and determined exclusively by Arbitration in accordance with
the Commercial Rules and Regulations of the American Arbitration Association.
23.2 NOTICE OF DISPUTE. The party alleging the breach, claim, dispute or
controversy ("dispute") must give the other party written notice setting forth
the alleged dispute in detail. The party who is given such written notice
alleging the dispute will have thirty (30) days after having been given such
written notice from the complaining party to correct or resolve the dispute
specified in the written notice.
23.3 DEMAND FOR ARBITRATION. If the dispute alleged by either party has not been
corrected, settled or compromised within the time period provided for in this
Agreement, then either party may notice Arbitration by giving the other party
written notice demanding Arbitration. Within ten (10) days after a written
demand for Arbitration has been given by the party demanding Arbitration, either
party will have the right to request the office of the American Arbitration
Association in Minneapolis, Minnesota to initiate the procedures necessary to
appoint an Arbitrator. The Arbitrator will be appointed within sixty (60) days
after a written demand for Arbitration has been made in accordance with the
Rules and Regulation of the American Arbitration Association.
23.4 VENUE AND JURISDICTION. All Arbitration hearings will take place
exclusively in Minneapolis, Minnesota. WCH and the FRANCHISEE and their
officers, Directors and shareholders or partners and the Personal Guarantors
acknowledge that the FRANCHISEE and its officers, Directors and employees have
had substantial business and personal contacts with WCH in Minnesota, do hereby
agree and submit to personal jurisdiction in Minnesota in connection with any
Arbitration hearings hereunder and any suits or actions brought to enforce the
decision of the Arbitrator, and do hereby waive any rights they may have to
contest venue and jurisdiction in Minnesota and any claims that venue and
jurisdiction in Minnesota are invalid.
23.5 POWERS OF ARBITRATOR. The authority of the Arbitrator will be limited to
making a finding, judgment, decision and award relating to the interpretation of
or adherence to the written provisions of this Agreement. The Federal Rules of
Evidence (the "Rules") will apply to all Arbitration hearings and the
introduction of all evidence, testimony, records, affidavits, documents and
memoranda in any Arbitration hearing must comply in all respects with the Rules
and legal precedents interpreting the Rules. Both parties will have the absolute
right to cross-examine any person who testified against them or in favor of the
other party. The Arbitrator will not have the authority or right to add to,
delete, amend or modify in any manner the terms, conditions and provisions of
this Agreement. All findings, judgments, decisions and awards of the Arbitrator
will be limited to the dispute set forth in the written demand for Arbitration,
and the Arbitrator will not have the authority to decide any other issues. The
Arbitrator will not have the right or authority to award punitive damages to WCH
or the FRANCHISEE or their officers, Directors, shareholders or partners and
Personal Guarantors, and WCH and FRANCHISEE and their officers, Directors,
shareholders or partners, and Personal Guarantors expressly waive their rights
to plead or seek punitive damages. All findings, judgments, decisions and awards
by the Arbitrator will be in writing, will be made within sixty (60) days after
the Arbitration hearings have been completed, and will be final and binding on
WCH and the FRANCHISEE, except as provided for in Article 23.8. The written
decision of the Arbitrator will be deemed to be an order, judgment and decree
and may be entered as such in any Court of competent jurisdiction by either
party.
23.6 NO COLLATERAL ESTOPPEL OR CLASS ACTIONS. Except as provided herein, all
Arbitration findings, conclusions, orders and awards made by the Arbitrator will
be final and binding on WCH and the FRANCHISEE and their officers, Directors,
shareholders or partners, and Personal
<PAGE>
Guarantors; however, such Arbitration findings, conclusions, orders and awards
may not be used to collaterally estop either party from raising any like or
similar issues, claims or defenses in any other or subsequent Arbitration,
litigation, court hearing or other proceeding involving third parties or other
franchisees. No party except WCH, the FRANCHISEE, and their officers, Directors,
shareholders or partners, and Personal Guarantors will have the right to join in
any Arbitration proceeding arising under this Agreement, and, therefore, the
Arbitrator will not be authorized to permit or approve class actions or to
permit any person or entity that is not a party to this Agreement to be involved
in or to participate in any Arbitration hearings conducted pursuant to this
Agreement.
23.7 DISPUTES NOT SUBJECT TO ARBITRATION. The disputes and controversies between
WCH and the FRANCHISEE which are set forth in Article 24.1 and the following
disputes and controversies between WCH and the FRANCHISEE will not be subject to
Arbitration: (A) any dispute involving the Marks or which arises under or as a
result of Article 3 of this Agreement; (B) any dispute involving immediate
termination of this Agreement pursuant to Article 9.5 and 9.6 of this Agreement;
(C) any dispute involving enforcement of the confidentiality provisions set
forth in Article 8 of this Agreement; and (D) any dispute involving enforcement
of the covenants not to compete set forth in Article 12 of this Agreement.
23.8 DE NOVO HEARING ON MERITS. If the Arbitrator awards either WCH or the
FRANCHISEE damages (including actual damages, costs and attorneys' fees) in
excess of One Hundred Thousand Dollars ($100,000) in any Arbitration proceeding
commenced pursuant to this Agreement, then the party who has been held liable by
the Arbitrator will have the right to a de novo hearing on the merits by
commencing an action in a court of competent jurisdiction in accordance with the
provisions of this Agreement. If the party held liable by the Arbitrator
commences a court action as provided for herein, then neither party will have
the right to introduce the Arbitrator's decision or findings in any such court
action and the Arbitrator's decision and findings will be of no force and effect
and will not be final or binding on either WCH or the FRANCHISEE. If the party
who has been held liable by the Arbitrator for over One Hundred Thousand Dollars
($100,000) in damages fails to commence a court action within thirty (30) days
after the Arbitrator issues his or her award in writing, then the Arbitrator's
findings, judgments, decisions and awards will be final and binding on WCH and
the FRANCHISEE.
23.9 CONFIDENTIALITY. All evidence, testimony, records, documents, findings,
decisions, judgments and awards pertaining to any Arbitration hearing between
WCH and the FRANCHISEE will be secret and confidential in all respects. WCH and
the FRANCHISEE will not disclose the decision or award of the Arbitrator and
will not disclose any evidence, testimony, records, documents, findings, orders,
or other matters from the Arbitration hearing to any person or entity except as
required by law.
23.10 SEVERABILITY. It is the desire and intent of the parties to this Agreement
that the provisions of this Article be enforced to the fullest extent
permissible under the laws and public policy applied in each jurisdiction in
which enforcement is sought. Accordingly, if any part of this Article is
adjudicated to be invalid or unenforceable, then this Article will be deemed
amended to delete that portion thus adjudicated to be invalid or unenforceable
to the extent required to make this Article valid and enforceable. Any such
deletion will be effective only in the jurisdiction in which the adjudication is
made. Further, to the extent any provision of this Article is deemed
unenforceable by virtue of its scope, the parties to this Agreement agree that
the same will, nevertheless, be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction where
enforcement is sought, and the scope in such a case will be determined by
Arbitration as provided herein.
<PAGE>
ARTICLE 24
ENFORCEMENT
24.1 INJUNCTIVE RELIEF. In addition to the provisions of Article 23.7, WCH will
have the right to petition a Court of competent jurisdiction for the entry of
temporary and permanent injunctions and orders of specific performance enforcing
the provisions of this Agreement relating to: (A) the FRANCHISEE'S improper or
unauthorized use of the Marks and the Business System; (B) the obligations of
the FRANCHISEE upon termination or expiration of this Agreement; (C) the
transfer or assignment of this Agreement, the franchised Business or
substantially all of the assets employed in the franchised Business, or the
ownership interests of the FRANCHISEE; (D) the FRANCHISEE'S violation of the
provisions of this Agreement relating to confidentiality and covenants not to
compete; and (E) any act or omission by the FRANCHISEE or the FRANCHISEE'S
employees that, (1) constitutes a violation of any applicable law, ordinance or
regulation, (2) is dishonest or misleading to customers of the FRANCHISEE'S We
Care Hair Business or other We Care Hair businesses, (3) constitutes a danger to
the employees, public or customers of the FRANCHISEE'S We Care Hair Business, or
(4) may impair the goodwill associated with the Marks and the Business System.
In any action brought under this provision where WCH prevails against the
FRANCHISEE, the FRANCHISEE will indemnify WCH for all costs that it incurs in
any such proceedings including, without limitation, attorneys' fees actually
incurred, expert witness fees, costs of investigation, court costs, travel and
living expenses, and all other costs incurred by WCH. Unless provided to the
contrary by applicable law, WCH will be entitled to obtain injunctive relief
without the posting of any bond or security.
24.2 SEVERABILITY. All provisions of this Agreement are severable and this
Agreement will be interpreted and enforced as if all completely invalid or
unenforceable provisions were not contained herein and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. If
any applicable law or rule of any jurisdiction requires a greater prior notice
of the termination of or refusal to renew this Agreement than is required
hereunder or the taking of some other action not required hereunder, or if under
any applicable and binding law of any jurisdiction, any provision of this
Agreement or any specification, standard or operating procedure prescribed by
WCH is invalid or unenforceable, the prior notice or other action required by
such law or rule will be substituted for the notice requirements hereof, or such
invalid or unenforceable provision, specification, standard or operating
procedure will be modified to the extent required to be valid and enforceable.
Such modifications to this Agreement will be effective only in such jurisdiction
and will be enforced as originally made and entered into in all other
jurisdictions.
24.3 WAIVER. WCH and the FRANCHISEE may, by written instrument signed by WCH and
the FRANCHISEE, waive any obligation of or restriction upon the other under this
Agreement. Acceptance by WCH of any payment by the FRANCHISEE and the failure,
refusal or neglect of WCH to exercise any right under this Agreement or to
insist upon full compliance by the FRANCHISEE of its obligations hereunder
including, without limitation, any mandatory specification, standard or
operating procedure, will not constitute a waiver by WCH of any provision of
this Agreement. WCH will have the right to waive obligations or restrictions for
other franchisees under their Franchise Agreements without waiving those
obligations or restrictions for the FRANCHISEE and, except to the extent
provided by law, WCH will have the right to negotiate terms and conditions,
grant concessions and waive obligations for other franchisees of WCH without
granting those same rights to the FRANCHISEE and without incurring any liability
to the FRANCHISEE whatsoever.
24.4 NO RIGHT TO OFFSET. The FRANCHISEE will not, on grounds of the alleged
nonperformance by WCH of any of its obligations under this Agreement, any other
contract between
<PAGE>
WCH and the FRANCHISEE, or for any other reason, withhold payment of any
Continuing Fees, Advertising Fees or any other fees or payments due WCH under
this Agreement or any other contract, promissory note or other obligation
payable by the FRANCHISEE to WCH. The FRANCHISEE will not have the right to
"offset" or withhold any liquidated or unliquidated amounts allegedly due to the
FRANCHISEE from WCH against the Continuing Fees, the Advertising Fees or any
other payments due to WCH under this Agreement or any other contract, promissory
note or other obligation payable by the FRANCHISEE to WCH.
24.5 WCH'S RIGHTS CUMULATIVE. The rights of WCH hereunder are cumulative and no
exercise or enforcement by WCH of any right or remedy hereunder will preclude
the exercise or enforcement by WCH of any other right or remedy hereunder or
which WCH is entitled by law to enforce.
24.6 VENUE AND JURISDICTION. Unless otherwise required under applicable law, all
Arbitration hearings, litigation, court hearings or other hearings initiated by
either party against the other party must and will be venued exclusively in
Hennepin County, Minnesota. The FRANCHISEE, each of its officers, Directors and
shareholders, and the Personal Guarantors: (A) acknowledge that Minneapolis,
Minnesota is a mutually convenient location for the venue and conduct of any
legal or enforcement proceedings; (B) do hereby agree and submit to personal
jurisdiction in the State of Minnesota for the purposes of any Arbitration
hearings, litigation, court hearings or other hearings brought to enforce or
construe the terms of this Agreement or to resolve any dispute or controversy
arising under, as a result of, or in connection with this Agreement, the
Franchised Location or the FRANCHISEE'S We Care Hair Business; and (C) do hereby
agree and stipulate that any Arbitration hearings, litigation, court hearings
and other hearings will be venued and held exclusively in Hennepin County,
Minnesota, and waive any rights to contest such venue and jurisdiction and any
claims that such venue and jurisdiction are invalid.
24.7 AGREEMENT BINDING ON HEIRS AND ASSIGNS. This Agreement is binding upon the
parties hereto and their respective executors, administrators, heirs, assigns
and successors in interest.
24.8 JOINT AND SEVERAL LIABILITY. If the FRANCHISEE consists of more than one
person, their liability under this Agreement will be deemed to be joint and
several.
24.9 ENTIRE AGREEMENT. This FRANCHISE AGREEMENT supersedes and terminates all
prior agreements relating to the operation of a We Care Hair Business by the
FRANCHISEE at the Franchised Location, either oral or in writing, between the
parties and therefore, any representations, inducements, promises or agreements
between the parties not contained in this Agreement or not in writing signed by
the President or a Vice President of WCH and the FRANCHISEE will not be
enforceable. This Agreement will not supersede or terminate any written
Development Agreement or Franchise Agreement(s) executed prior to the date of
this Agreement relating to other We Care Hair franchises that are or will be
owned and operated by the FRANCHISEE. The preambles are a part of this
Agreement, which constitutes the entire agreement of the parties, and there are
no other oral or written understandings or agreements between WCH and the
FRANCHISEE relating to the subject matter of this Agreement.
24.10 HEADINGS; TERMS. The headings of the Articles and the provisions thereof
are for convenience only and do not define, limit or construe the contents of
such Articles. The term "FRANCHISEE" as used herein is applicable to one or more
individuals, a corporation or a partnership, as the case may be, and the
singular usage includes the plural, and the masculine usage includes the neuter
and the feminine, and the neuter usage includes the masculine and the feminine.
References to "FRANCHISEE," "assignee" and "transferee" which are applicable to
an individual or individuals will
<PAGE>
mean the principal owner or owners of the equity or operating control of the
FRANCHISEE or any such assignee or transferee if the FRANCHISEE or such assignee
or transferee is a corporation or partnership. If the FRANCHISEE consists of
more than one individual, then all individuals will be bound jointly and
severally by the terms and conditions of this Agreement.
24.11 NO ORAL MODIFICATION. No modification, change, addition, rescission,
release, amendment or waiver of this Agreement and no approval, consent or
authorization required by any provision of this Agreement may be made except by
a written agreement subscribed to by duly authorized officers or partners of the
FRANCHISEE and the President or a Vice President of WCH. WCH and the FRANCHISEE
will not have the right to amend or modify this Agreement orally or verbally,
and any attempt to do so will be void in all respects.
24.12 EFFECT OF WRONGFUL TERMINATION. If either WCH or the FRANCHISEE takes any
action to terminate this Agreement or to convert the FRANCHISEE'S We Care Hair
Business to another business, and if such action was taken without first
complying with the applicable terms and conditions (including the notice and
opportunity to cure provisions) of this Agreement, then such action will not
relieve either party of, or release either party from, any of its obligations
under this Agreement, and the terms and conditions of this Agreement will remain
in full force and effect and the parties will be obligated to perform all terms
until such time as this Agreement expires or is terminated in accordance with
the provisions of this Agreement and applicable law, as determined by an
Arbitrator or a Court of competent jurisdiction.
ARTICLE 25
NOTICES
All notices to WCH will be in writing and will be made by personal service upon
an officer or Director of WCH or sent by prepaid registered or certified United
States mail addressed to WCH at 300 Industrial Boulevard N.E., Minneapolis,
Minnesota 55413 with a copy to John W. Fitzgerald, Esq, Gray, Plant, Mooty,
Mooty & Bennett, P.A., 3400 City Center, 33 South Sixth Street, Minneapolis,
Minnesota 55402-3796. All notices to the FRANCHISEE will be by personal service
upon the FRANCHISEE, District Manager or a salon manager or assistant manager,
(or, if applicable, an officer or Director of the FRANCHISEE), or sent by
prepaid registered or certified United States mail addressed to the FRANCHISEE
at the Franchised Location or such other address as the FRANCHISEE may designate
in writing or by delivery to any employee of the FRANCHISEE by a recognized
overnight delivery service (such as Federal Express or UPS) which requires a
written receipt of delivery from the addressee. Notice by mail is effective upon
depositing the same in the mail in the manner provided above, notice by personal
service is effective upon obtaining service and notice by overnight delivery
service is effective upon delivery by such delivery service.
ARTICLE 26
ACKNOWLEDGMENTS
26.1 BUSINESS RISKS; NO FINANCIAL PROJECTIONS. The FRANCHISEE acknowledges that
it has conducted an independent investigation of the We Care Hair Business
franchised hereunder, and recognizes that the business venture contemplated by
this Agreement involves business and economic risks and that the financial and
business success of the Business will be primarily dependent upon the personal
efforts of the FRANCHISEE, its management and employees. WCH expressly disclaims
the making of, and the FRANCHISEE acknowledges that it has not received, any
estimates, projections, warranties or guaranties, express or implied, regarding
potential Gross Revenues, profits, earnings or the
<PAGE>
financial success of the FRANCHISEE'S We Care Hair Business, except as expressly
set forth in writing in WCH'S Uniform Franchise Offering Circular, receipt of
which is acknowledged by the FRANCHISEE.
26.2 NO INCOME OR REFUND WARRANTIES. The FRANCHISEE acknowledges that WCH does
not warrant or guarantee to the FRANCHISEE that the FRANCHISEE will derive
income or profit from the FRANCHISEE'S We Care Hair Business or that WCH will
refund all or part of the Initial Fee or the price paid for the FRANCHISEE'S We
Care Hair Business or repurchase any of the products, merchandise, furniture,
fixtures, equipment, supplies or chattels supplied by WCH or an approved
supplier if the FRANCHISEE is unsatisfied with its We Care Hair Business.
26.3 TERMS OF OTHER FRANCHISES MAY DIFFER. The FRANCHISEE acknowledges that
other Franchisees of WCH have or will be granted franchises at different times
and in different situations, and further acknowledges that the terms and
conditions of such franchises and the resulting Franchise Agreements may vary
substantially in economics, form and in substance from those contained in this
Agreement.
26.4 RECEIPT OF UNIFORM FRANCHISE OFFERING CIRCULAR. The FRANCHISEE acknowledges
that it received a copy of this Agreement with all material blanks fully
completed at least five (5) business days prior to the date that this Agreement
was executed. The FRANCHISEE further acknowledges that it received a We Care
Hair Uniform Franchise Offering Circular at least ten (10) business days prior
to the date on which this Agreement was executed.
26.5 CITY LOOKS(R) AND HAIR PERFORMERS(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "City Looks(R)," "City Looks Salons International(R),"
"City Looks(R) By The Barbers(R)" and "The Barbers(R)" businesses ("City
Looks(R) businesses") which are operated and franchised by The Barbers,
Hairstyling For Men & Women, Inc. ("The Barbers") and that the "Hair
Performers(R)" businesses serviced by Hair Performers International, Inc., a
wholly-owned subsidiary of The Barbers, are full service hair salons that
address different markets and, thus, are not competitive with We Care Hair
businesses. Further, the FRANCHISEE acknowledges and agrees that The Barbers and
Hair Performers International, Inc. will have the absolute right to develop,
own, manage, license or franchise City Looks(R) and Hair Performers(R)
businesses at any location in the world, and the FRANCHISEE hereby waives any
and all rights that it may have or allege against WCH or any affiliate of WCH
resulting from the opening of any City Looks(R) or Hair Performers(R) business,
including those City Looks(R) or Hair Performers(R) business that may be near,
adjacent or contiguous to the FRANCHISEE'S We Care Hair Business.
26.6 COST CUTTERS(R) AND FAMILY HAIRCUT(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "Cost Cutters Family Hair Care(R)" businesses which are
franchised by The Barbers and the Family Haircut(R) business serviced by The
Barbers ("Cost Cutters(R) and Family Haircut(R) businesses") are hair salons
that address similar markets and, thus, may be competitive with We Care Hair
businesses. Further, the FRANCHISEE acknowledges and agrees that The Barbers
will have the absolute right to develop, own, manage, license or franchise Cost
Cutters(R) and Family Haircut(R) businesses at any location in the world, and
the FRANCHISEE hereby waives any and all rights that it may have or allege
against WCH or any affiliate of WCH resulting from the opening of any Cost
Cutters(R) and Family Haircut(R) businesses, including those Cost Cutters(R) or
Family Haircut(R) business that may be near, adjacent or contiguous to the
FRANCHISEE'S We Care Hair Business.
<PAGE>
ARTICLE 27
DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL
27.1 DISCLAIMER BY WCH. WCH expressly disclaims the making of any express or
implied representations or warranties regarding the sales, earnings, income,
profits, Gross Revenues, business or financial success, or value of the
FRANCHISEE'S Business, except those expressly set forth in Item 19 of the We
Care Hair Uniform Franchise Offering Circular received by the FRANCHISEE.
27.2 ACKNOWLEDGMENTS BY FRANCHISEE. The FRANCHISEE acknowledges that it has not
received any express or implied representations or warranties regarding the
sales, earnings, income, profits, Gross Revenues, business or financial success,
value of the Business or any other matters pertaining to the We Care Hair
Business from WCH or any of WCH'S officers, employees or agents that were not
contained in writing in the Uniform Franchise Offering Circular (including this
Agreement) received by the FRANCHISEE ("representations or warranties"). The
FRANCHISEE further acknowledges that if it had received any representations or
warranties not contained in WCH'S Uniform Franchise Offering Circular, it would
not have executed this Agreement, and the FRANCHISEE would have: (A) promptly
notified the President of WCH in writing of the person or persons making such
representations or warranties; and (B) provided to WCH a specific written
statement detailing the representations or warranties made that were not
contained in the Uniform Franchise Offering Circular received by the FRANCHISEE.
27.3 LEGAL REPRESENTATION. The FRANCHISEE acknowledges that this Agreement
constitutes a legal document which grants certain rights to and imposes certain
obligations upon the FRANCHISEE. The FRANCHISEE was advised by WCH to consult an
attorney or other advisor prior to the execution of this Agreement to review
WCH'S Uniform Franchise Offering Circular and this Agreement in detail, to
review the economics, operations and other business aspects of the We Care Hair
Business, to determine compliance with franchising and other applicable laws, to
advise the FRANCHISEE about all federal, state and local laws, rules,
ordinances, special regulations and statutes that apply to the FRANCHISEE'S We
Care Hair Business and to advise the FRANCHISEE about the economic risks,
liabilities, obligations and rights under this Agreement. The name of the
FRANCHISEE'S attorney or other advisor is:
Name:
-------------------------------------------------------
Name of Firm:
-----------------------------------------------
Address:
----------------------------------------------------
City, State, Zip Code:
--------------------------------------
Telephone Number: ( )
-------------------------------------------
Fax Number: ( )
-------------------------------------------------
ARTICLE 28
GOVERNING LAW; STATE MODIFICATIONS
28.1 GOVERNING LAW. Except to the extent governed by the United States Trademark
Act of 1946 (Lanham Act, 15 U.S.C. ss.1051 et seq.), this Agreement and the
relationship between WCH and the
<PAGE>
FRANCHISEE will be governed by the laws of the state in which the Franchised
Location is located. The provisions of this Agreement which conflict with or are
inconsistent with applicable governing law will be superseded and/or modified by
such applicable law only to the extent such provisions are inconsistent. All
other provisions of this Agreement will be enforceable as originally made and
entered into upon the execution of this Agreement by the FRANCHISEE and WCH.
28.2 STATE MODIFICATIONS. The following states have statutes which may supersede
the provisions of this Agreement in the FRANCHISEE'S relationship with WCH
including the areas of termination and renewal of the Franchise: ARKANSAS [Stat.
Section 70-807], CALIFORNIA [Bus. & Prof. Code Sections 20000-20043],
CONNECTICUT [Gen. Stat. Section 42-133e et seq.], DELAWARE [Code Section 2552],
HAWAII [Rev. Stat. Section 482E-1], ILLINOIS [815 ILCS 705/19 and 705/20],
INDIANA [Stat. Section 23-2-2.7], IOWA [Code 523H.1-523H.17], MICHIGAN [Stat.
Section 19.854(27)], MINNESOTA [Stat. Section 80C14], MISSISSIPPI [Code Section
75-24-51], MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat. Section
87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws Section
37-5A-51], VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code Section
19.100.180], WISCONSIN [Stat. Section 135.03]. These and other states may have
court decisions which may supersede the provisions of this Agreement in the
FRANCHISEE'S relationship with WCH including the areas of termination and
renewal of the Franchise. If the Franchised Location is located in any one of
the states specifically indicated below in this Article 28.2, or if the laws of
any such state are otherwise applicable, then the designated provisions of this
Agreement will be amended and revised as follows:
CALIFORNIA. If this Agreement is governed by the laws of the State of
California, then the covenant not to compete upon termination or
expiration of this Agreement contained in Article 12.3 may be
unenforceable, except in certain circumstances provided by law.
ILLINOIS. If this Agreement is governed by the laws of the State of
Illinois, then: (1) the consent by the FRANCHISEE to jurisdiction and
venue in Hennepin County, Minnesota contained in Article 24.6 may be
inapplicable; provided, however, that such inapplicability in the State
of Illinois will not be construed to mean that venue in Hennepin
County, Minnesota is improper, or that the FRANCHISEE and its officers,
Directors and shareholders are not subject to jurisdiction in Hennepin
County, Minnesota, or in any other state; and (2) Section 41 of the
Illinois Franchise Disclosure Act states that "any condition,
stipulation or provision purporting to bind any person acquiring any
franchise to waive compliance with any provision of this Act is void",
accordingly any acknowledgments contained in Article 26.2, Article
26.4, Article 27.2, and the second sentence of Article 26.1 will be
unenforceable against the FRANCHISEE.
INDIANA. If this Agreement is governed by the laws of the State of
Indiana, then: (1) the geographical limitation contained in Article
12.3 will be limited to the exclusive area granted to the FRANCHISEE or
an area of reasonable size; (2) the consent by the FRANCHISEE to
jurisdiction and venue in Hennepin County, Minnesota contained in
Article 24.6 and the Personal Guaranty attached to this Agreement may
be inapplicable; provided, however, that such inapplicability in the
State of Indiana will not be construed to mean that venue in Hennepin
County, Minnesota is improper, or that the FRANCHISEE and its officers,
Directors, shareholders and Personal Guarantors are not subject to
jurisdiction in Hennepin County, Minnesota, or in any other state; (3)
notwithstanding any provisions of this Agreement to the contrary, a
Court of competent
<PAGE>
jurisdiction will determine the adequacy of money damages, whether WCH
will be required to post a bond or other security, and the amount of
such bond or other security, in any injunctive proceeding commenced by
WCH against the FRANCHISEE or the FRANCHISEE'S shareholders; (4)
nothing in Article 10.4 will be construed to act as a waiver of the
FRANCHISEE'S right, under Section 7 of the Indiana Deceptive Franchise
Practices Act, Ind. Code 23-2-2.7, ss.ss. 1 through 7, to bring an
action against WCH for violation of the Indiana Deceptive Franchise
Practices Act at any time within two (2) years after the occurrence of
such violation; (5) nothing in Article 10.4 will be construed to act as
a waiver of the FRANCHISEE'S right, under Section 30 of the Indiana
Franchise Disclosure Law, Ind. Code 23-2-2.5, to bring an action
against WCH for violation of the Indiana Franchise Disclosure Law at
any time within three (3) years after discovery of the facts
constituting the violation; (6) the provisions of Article 23 requiring
Arbitration hearings to take place in Minneapolis, Minnesota will be
inapplicable and in the event of Arbitration between WCH and the
FRANCHISEE, such Arbitration will be conducted in Indianapolis, Indiana
or at a mutually agreed upon location; (7) the parties' waiver of their
right to claim punitive damages, as set forth in Article 23.5, will be
inapplicable; (8) notwithstanding any provisions of this Agreement to
the contrary, the FRANCHISEE will have the right to petition a Court of
competent jurisdiction for injunctive relief relating to WCH'S improper
termination of this Agreement or WCH'S unreasonable refusal to consent
to transfer or assignment by the FRANCHISEE pursuant to Article 20 of
this Agreement; (9) Article 18.2 is hereby amended to provide that the
FRANCHISEE will not be required to indemnify WCH for any liability
imposed upon WCH as a result of the FRANCHISEE'S reliance upon or use
of procedures or products which were required by WCH, if such
procedures or products were utilized by the FRANCHISEE in the manner
prescribed by WCH; (10) Article 6.5 is hereby amended to provide that
the FRANCHISEE will not be required to contribute more than five
percent (5%) of the FRANCHISEE'S Gross Revenues to the local DMA
advertising group; (11) Article 6.3 and Article 18.3 are hereby amended
to state that WCH has the right to seek recovery of all costs and
expenses, including but not limited to actual attorneys' fees,
deposition costs, expert witness fees, investigation costs, accounting
fees, filing fees and travel expenses incurred by WCH (a) in enforcing
any term, condition or provision of this Agreement, (b) in seeking to
enjoin any violation of this Agreement by the FRANCHISEE, or (c) in the
collection of unpaid and past due Advertising Fee payments from the
FRANCHISEE; and (12) notwithstanding anything to the contrary in
Article 24.9, the FRANCHISEE does not waive any right under the Indiana
statutes with regard to prior representations made in the Indiana
Uniform Franchise Offering Circular.
MINNESOTA. If this Agreement is governed by the laws of the State of
Minnesota, then: (1) Article 2 of this Agreement will be amended to
provide that, except in certain circumstances specified by law, WCH
must provide the FRANCHISEE with at least one hundred eighty (180) days
prior written notice of nonrenewal of the franchise; (2) Article 9.2
will be amended to require that, except as set forth in Article 9.5 and
9.6, in the event WCH gives the FRANCHISEE written notice that the
FRANCHISEE has breached this Agreement, such written notice will be
given to the FRANCHISEE at least ninety (90) days prior to the date
this Agreement is terminated by WCH, and the FRANCHISEE will have sixty
(60) days after having been given such written notice within which to
correct the breach specified in the written notice; and (3)
notwithstanding any provisions of this Agreement to the contrary, a
Court of competent jurisdiction will determine whether WCH will be
required to post a bond or other security, and the amount of such bond
or
<PAGE>
other security, in any injunctive proceeding commenced by WCH against
the FRANCHISEE or the FRANCHISEE'S shareholders.
NEW YORK. If this Agreement is governed by the laws of the State of New
York, then Article 20.1 will be amended to reflect that WCH may not
assign this Agreement unless in its reasonable judgment the assignee is
able to perform the franchisor's obligations under this Agreement.
NORTH DAKOTA. If this Agreement is governed by the laws of the State of
North Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 12.3 may be
unenforceable, except in certain circumstances provided by law; (2) the
consent by the FRANCHISEE to jurisdiction and venue in Hennepin County,
Minnesota contained in Article 24.6 may be inapplicable; provided,
however, that such inapplicability in the State of North Dakota will
not be construed to mean that venue in Hennepin County, Minnesota is
improper, or that the FRANCHISEE and its officers, Directors and
shareholders are not subject to jurisdiction in Hennepin County,
Minnesota, or in any other state; (3) the provisions of Article 23
requiring Arbitration hearings to take place in Minneapolis, Minnesota
will be inapplicable and in the event of Arbitration between WCH and
the FRANCHISEE, such Arbitration will be conducted in Fargo, North
Dakota or at a mutually agreed upon location; and (4) the parties'
waiver of their right to claim punitive damages, as set forth in
Article 23.5, may not be enforceable under North Dakota law.
RHODE ISLAND. If this Agreement is governed by the laws of the State of
Rhode Island, then any provision of this Agreement which restricts
jurisdiction or venue to a forum outside the State of Rhode Island is
void with respect to a claim otherwise enforceable under the Rhode
Island Franchise Investment Act.
SOUTH DAKOTA. If this Agreement is governed by the laws of the State of
South Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 12.3 may be
unenforceable, except in certain circumstances provided by law; (2) any
provision of this Agreement which designates jurisdiction or venue
outside of the State of South Dakota or requires the FRANCHISEE to
agree to jurisdiction or venue in a forum outside of the State of South
Dakota is void with respect to any cause of action which is otherwise
enforceable in the State of South Dakota; (3) the provisions of Article
23 requiring Arbitration hearings to take place in Minneapolis,
Minnesota will be inapplicable and in the event of Arbitration between
WCH and the FRANCHISEE, such Arbitration will be conducted in Sioux
Falls, South Dakota or at a mutually agreed upon location; and (4)
pursuant to SDCL ss.37-5A-86, any acknowledgment provision, disclaimer,
integration clause or a provision having a similar effect in this
Agreement will not negate or act to remove from judicial review any
statement, misrepresentation or action that violates Chapter 37-5A or a
rule or order under Chapter 37-5A.
WISCONSIN. If this Agreement is governed by the laws of the State of
Wisconsin, then the provisions of the Wisconsin Fair Dealership Law,
Wis. Stat. Chapter 135, will supersede any conflicting terms of this
Agreement.
<PAGE>
28.3 SEVERABILITY. The severability provisions of this Agreement contained in
Article 12.5, Article 23.10 and Article 24.2 of this Agreement will pertain to
all of the applicable laws which conflict with or modify the provisions of this
Agreement including, but not limited to, the provisions of this Agreement
specifically addressed in Article 28.2 above.
ARTICLE 29
DEFINITIONS
For purposes of this Agreement, the following words will have the following
definitions:
29.1 ABANDON. "Abandon" will mean the conduct of the FRANCHISEE, including acts
of omission as well as commission, indicating the willingness, desire or intent
of the FRANCHISEE to discontinue operating the franchised Business in accordance
with the quality standards, uniform requirements and the Business System set
forth in this Agreement and the Manual.
29.2 DESIGNATED MARKET AREA. "Designated Market Area" or "DMA" will mean each
television market exclusive of another based upon a preponderance of television
viewing hours as defined by the ratings service currently being utilized by WCH
or its designated advertising agency.
29.3 BUSINESS SYSTEM. "Business System" will mean the distinctive services and
products which are associated with WCH'S trademarks, trade names, service marks,
copyrights, interior and exterior building designs, slogans, signs, logos,
commercial symbols and color combinations. "Business System" will include all of
the uniform requirements, standards of quality and consistency, procedures,
specifications, training, advertising and instructions promulgated by WCH.
29.4 FINANCIAL STATEMENTS. "Financial statements" will mean a balance sheet,
income statement, statement of cash flows and footnotes prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
any other schedules or forms that may be required by WCH.
29.5 GROSS REVENUES. "Gross Revenues" will mean the gross total dollar income of
the FRANCHISEE'S We Care Hair Business from all cash, credit or charge sales of
all merchandise, products and services sold or rendered in, upon, about or
resulting from, in connection with or as a result of the FRANCHISEE'S We Care
Hair Business, and will include all sales, receipts and revenues, in any form
and from any and all sources whatsoever, including sales made to employees of
the FRANCHISEE. This definition will be applicable regardless of whether such
sales, receipts or revenues are produced or received by the FRANCHISEE, by any
permitted sublicensee, tenant, agent, employee, concessionaire, vending machine,
coin-operated machine or vendor of the FRANCHISEE, or by any other business
associate of the FRANCHISEE who or which is associated with the FRANCHISEE in
order to receive the benefits of the rights granted hereunder to the FRANCHISEE.
"Gross Revenues" will include all sales made by the FRANCHISEE whether made for
cash or on credit including, but not limited to, those sales charged or made for
orders placed or deliveries from the Business franchised hereunder, including
orders placed or filled, or services provided at a location other than the
Franchised Location, including mail order. "Gross Revenues" will not include any
sales, use or gross receipts tax imposed by any federal, state, municipal or
governmental authority directly upon sales, if: (A) the amount of the tax is
added to the selling price and is expressly charged to the customer; (B) a
specific record is made at the time of each sale of the amount of such tax; and
(C) the amount thereof is paid over to the appropriate taxing authority by the
FRANCHISEE.
<PAGE>
29.6 QUARTERLY. "Quarterly" or "Quarter" will mean three (3) consecutive
calendar months commencing on the first day of the FRANCHISEE'S fiscal or
calendar year.
IN WITNESS WHEREOF, WCH, the FRANCHISEE and the shareholders of the FRANCHISEE
have respectively signed this Agreement effective as of the day and year first
above written.
In the Presence of: "WCH"
WCH, INC.
- -----------------------------------
By
-------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
The undersigned individual shareholders of the FRANCHISEE hereby agree to be
bound by the terms and conditions of this Agreement.
Percentage of
In the Presence of: SHAREHOLDERS Ownership
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
The undersigned spouse(s) of the individual FRANCHISEE(S) hereby agree to be
bound by the terms and conditions of this Agreement regarding confidentiality of
information and covenants not to compete.
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
Print Name Print Name
<PAGE>
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THIS FRANCHISE AGREEMENT
In consideration of the execution of this Agreement by WCH, and for other good
and valuable consideration, the undersigned, for themselves, their heirs,
successors, and assigns, do jointly, individually and severally hereby become
surety and guaranty for the payment of all amounts and the performance of the
covenants, terms and conditions in this Agreement, to be paid, kept and
performed by the FRANCHISEE.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement and agree that this PERSONAL GUARANTY will be construed as though the
undersigned and each of them executed an Agreement containing the identical
terms and conditions of this Agreement.
If the FRANCHISEE breaches the terms and conditions of this Agreement, then the
undersigned, their heirs, successors and assigns, do hereby, individually,
jointly and severally, promise and agree to pay WCH all monies due and payable
to WCH under the terms and conditions of this Agreement.
In addition, if the FRANCHISEE fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors and
assigns, do hereby, individually, jointly and severally, promise and agree to
comply with the terms and conditions of this Agreement for and on behalf of the
FRANCHISEE.
In addition, should the FRANCHISEE at any time be in default on any obligation
to pay monies to WCH or any subsidiary or affiliate of WCH, whether for
merchandise, products, supplies, furniture, fixtures, equipment, rent or other
goods purchased by the FRANCHISEE from WCH or any subsidiary or affiliate of WCH
or for any other indebtedness of the FRANCHISEE to WCH or any subsidiary or
affiliate of WCH, then the undersigned, their heirs, successors and assigns, do
hereby, individually, jointly and severally, promise and agree to pay all such
monies due and payable from the FRANCHISEE to WCH or any subsidiary or affiliate
of WCH.
It is further understood and agreed by the undersigned that the provisions,
covenants and conditions of this GUARANTY will inure to the benefit of the
successors and assigns of WCH. Each of the undersigned hereby submits to
personal jurisdiction in the state and federal courts of Minnesota with respect
to any litigation pertaining to this GUARANTY, and agrees that all litigation
pertaining to this GUARANTY will and must be venued exclusively in Hennepin
County, Minnesota.
<PAGE>
PERSONAL GUARANTORS
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
<PAGE>
EXHIBIT A
CONFIDENTIALITY AGREEMENT
Effective this _______day of _______________, 19___, in consideration of
employment with ___________________________________________ (the "Employer"), a
franchisee of WCH, Inc. ("WCH"), it is hereby agreed that the undersigned
employee (the "Employee") will, at all times during the term of his or her
employment and thereafter, treat the Operations Manual and any other materials
(including, but not limited to, videotapes, films, drawings, diagrams and
computer programs) created for or approved for use in the operation of the We
Care Hair Business, and the information contained therein, as secret and
confidential and as the sole and absolute property of WCH, and will use all
reasonable means to keep them secret and confidential. The Employee will not:
(a) Communicate, divulge or use for the benefit of himself/herself personally or
any other person or entity, any information contained in the Operations Manual
or other materials deemed confidential by WCH.
(b) Copy, duplicate, videotape, photograph, record or otherwise reproduce the
Manual or any other materials, in whole or in part. Neither the Manual nor other
materials created for or used in the We Care Hair Business will be borrowed or
removed from the We Care Hair location or business premises without the express
written approval of the Employer. The Employee will not make any We Care Hair
materials available to any unauthorized person or entity, or allow them access
to the Manual or other materials.
(c) Use any We Care Hair materials or any information, knowledge, methods or
techniques contained or described herein for any purpose other than the
performance of his or her duties as a We Care Hair employee. The Employee will
respect the confidentiality of the Manual and all other materials as it relates
to concurrent and future employment.
The Employee and the Employer acknowledge and agree: (1) that WCH is a
third-party beneficiary of the rights and obligations set forth in this
Agreement; (2) that WCH will suffer irreparable harm in the event of any breach
or violation of this Agreement; (3) that WCH shall have the right to enforce the
provisions of this Agreement in its own name in the event of any breach or
violation, or threatened breach or violation, of this Agreement; and (4) that
WCH shall have the right to obtain specific performance, temporary restraining
orders, preliminary injunctions, injunctions and other equitable relief to the
extent reasonably necessary to protect its interests in the ownership and
confidentiality of the Manual or any other confidential information from any
court of competent jurisdiction or Arbitrator, subject to and in accordance with
the confidentiality and enforcement provisions of the Franchise Agreement
between the Employer and WCH.
The undersigned Employer and Employee understand and accept the obligations set
forth herein and agree to be bound by them.
Dated: , 199 EMPLOYEE:
----------------------- --
--------------------------------------
EMPLOYER:
--------------------------------------
By
-----------------------------------
Its
-----------------------------
<PAGE>
EXHIBIT B
LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
___________________________________ (the Landlord) hereby consents to the
Assignment by ___________________________________ (the Franchisee) of its right,
title and interest in the premises lease dated ____________________, 19___,
between the Landlord and the Franchisee, (the Premises Lease), to WCH, Inc.
(WCH), pursuant to a franchise agreement between WCH and the Franchisee dated
_______________, 19___, (the Franchise Agreement), and as an inducement to WCH
to enter into the Franchise Agreement with the Franchisee, agrees with WCH as
follows:
In the event of default by the Franchisee under the Franchise
Agreement, WCH or its designee may assume, enforce and perform the obligations
of the Premises Lease with the same force and effect as if assumed, enforced and
performed by the Franchisee. The Landlord will accept WCH'S (or its designee's)
performance in lieu of performance by the Franchisee in satisfaction of the
FRANCHISEE'S future obligations under the Premises Lease.
The Landlord will not terminate the Premises Lease on account
of any default of the Franchisee thereunder without written notice to WCH and
first providing to WCH a reasonable opportunity, but not less than thirty (30)
days, to: (i) cause the Franchisee to cure the default; or (ii) declare the
Franchisee in default under the Franchise Agreement and exercise its rights
under the Assignment of Lease provisions of the Franchise Agreement. In the
event WCH so elects to exercise its rights under the Assignment, the Landlord
agrees not to terminate the Premises Lease so long as WCH or its designee
agrees, within thirty (30) days from the date WCH gives written notice to the
Landlord of its election to exercise its rights under this Assignment, to
perform the future obligations of the Franchisee under the Premises Lease.
However, nothing herein will require WCH to cure any default of the Franchisee
under the Premises Lease, but only gives it the option to assume the
FRANCHISEE'S future rights and obligations under the Premises Lease.
The Landlord hereby represents and warrants to WCH that (i)
the Premises Lease is a valid and enforceable agreement, (ii) there has been no
prior assignment of the Premises Lease of which the Landlord has notice or is
aware, (iii) neither the Landlord nor the Franchisee is in default under the
Premises Lease, and (iv) all covenants, conditions and agreements have been
performed as required therein except those not due to be performed until after
the date hereof.
Dated: , 199 "LANDLORD"
----------------------- --
--------------------------------------
By
-----------------------------------
Its
-----------------------------
EXHIBIT 10.6
FOR USE ONLY IN THE STATE OF /
DEVELOPMENT AGREEMENT
BETWEEN
WCH, INC.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
Fax: (612) 331-2821
AND
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Name(s) of FRANCHISEE
-----------------------------------------------
Street
-----------------------------------------------
City State Zip Code
( )
-----------------------------------------------
Area Code Telephone
FRANCHISED AREA:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
DATE OF DEVELOPMENT AGREEMENT:
__________________________, 199___
<PAGE>
WE CARE HAIR(R)
DEVELOPMENT AGREEMENT
INDEX
Article Description Page
- ------- ----------- ----
1 FRANCHISED AREA..................................................2
2 TERM OF DEVELOPMENT AGREEMENT; RIGHT OF FIRST REFUSAL............2
3 EXCLUSIVE TERRITORY FEE; INITIAL FEES; DEVELOPMENT SCHEDULE......3
4 OTHER OBLIGATIONS OF FRANCHISEE..................................5
5 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION.............6
6 WCH'S RIGHT OF TERMINATION.......................................7
7 FRANCHISEE'S RIGHTS AND OBLIGATIONS UPON TERMINATION.............9
8 FRANCHISEE'S COVENANTS NOT TO COMPETE...........................10
9 INDEPENDENT CONTRACTORS; INDEMNIFICATION........................11
10 ASSIGNMENT......................................................12
11 ARBITRATION.....................................................14
12 ENFORCEMENT.....................................................16
13 NOTICES.........................................................18
14 ACKNOWLEDGMENTS.................................................18
15 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL..........................20
16 GOVERNING LAW; STATE MODIFICATIONS..............................21
17 DEFINITIONS.....................................................23
PERSONAL GUARANTY
<PAGE>
WE CARE HAIR(R)
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement"), made, entered into and effective
this _____ day of _______________, 19___, by and between WCH, Inc., a Minnesota
corporation ("WCH"), and ____________________________________________ (the
"FRANCHISEE");
WITNESSETH:
WHEREAS, WCH has developed and owns a distinctive business system for operating
hairstyling businesses of a distinctive character with the name "We Care
Hair(R)" (the "Business System" or the "We Care Hair Business System") and has
publicized the name "We Care Hair(R)" and other trademarks, trade names, service
marks and commercial symbols to the public as an organization of hairstyling
businesses operating under the We Care Hair Business System; and
WHEREAS, WCH represents that it has the right and authority to license the use
of the names "We Care Hair(R)" and certain other trademarks, trade names,
service marks, logos and commercial symbols (the "Marks") for use in connection
with hairstyling businesses operated in conformity with the Business System to
selected persons or entities who will comply with WCH'S uniformity requirements
and quality standards; and
WHEREAS, the FRANCHISEE desires to operate We Care Hair hairstyling businesses
at locations in the area designated in Article 1 of this Agreement which will
conform to the uniformity requirements and quality standards established and
promulgated from time to time by WCH; and
WHEREAS, WCH is willing to provide the FRANCHISEE with marketing, advertising,
technology, operational and other business information, experience and "know
how" about the We Care Hair business that has been developed over time by WCH at
significant cost and expense; and
WHEREAS, the FRANCHISEE acknowledges that it would take substantial capital and
human resources to develop a business similar to the We Care Hair business and,
as a consequence, the FRANCHISEE desires to acquire the right to use the Marks
and the Business System and to own and operate We Care Hair businesses subject
to and under the terms and conditions set forth in this Agreement; and
WHEREAS, the FRANCHISEE acknowledges that WCH would not provide the FRANCHISEE
with any business information or "know how" about the We Care Hair Business
System unless the FRANCHISEE agreed to comply with all of the terms and
conditions of this Agreement and to pay the Exclusive Territory Fee and the
other fees specified in this Agreement; and
WHEREAS, the FRANCHISEE has had a full and adequate opportunity to be thoroughly
advised of the terms and conditions of this Agreement by its legal counsel or
other advisor, and has had sufficient time to evaluate and investigate the We
Care Hair Business System, the financial investment requirements, and the
business risks associated with owning and operating We Care Hair businesses;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement and for other good and valuable consideration, the parties
hereby contract as follows:
<PAGE>
ARTICLE 1
FRANCHISED AREA
1.1 FRANCHISED AREA. WCH hereby grants to the FRANCHISEE, for the term of this
Agreement, the right to enter into Franchise Agreements with WCH for the
operation of We Care Hair hairstyling businesses (the "We Care Hair Businesses"
or the "Businesses"), to be located only within the following exclusive area
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________, (the "Franchised Area"). The
Franchised Area may be further described and delineated in Exhibit A attached
hereto and signed by both the FRANCHISEE and WCH.
1.2 EXCLUSIVITY. The rights and privileges granted to the FRANCHISEE in this
Agreement are expressly limited to the Franchised Area and are expressly subject
to the terms and conditions of this Agreement. WCH will not franchise, license,
subfranchise, develop, own or operate ("develop") any We Care Hair businesses in
the Franchised Area while this Agreement is in effect without the consent of the
FRANCHISEE.
1.3 PERSONAL RIGHTS. The FRANCHISEE will not be entitled to franchise,
subfranchise, license or sublicense other persons or entities under this
Agreement and the FRANCHISEE may open, own and operate We Care Hair Businesses
only in the Franchised Area. The rights, privileges and franchise granted and
conveyed to the FRANCHISEE in this Agreement will be exclusively for the
Franchised Area and may not be assigned, sold or transferred by the FRANCHISEE,
except as specifically provided for in this Agreement.
ARTICLE 2
TERM OF DEVELOPMENT AGREEMENT; RIGHT OF FIRST REFUSAL
2.1 TERM. This Agreement will be for a term of ______________ (___) years,
commencing on the date set forth on Page D-1 of this Agreement. This Agreement
will not be considered executed and will not be enforceable until: (A) it has
been signed by WCH and the FRANCHISEE, and, if the FRANCHISEE is a corporation
or partnership, the Personal Guarantors; and (B) the signed Agreement has been
delivered to the FRANCHISEE.
2.2 RIGHT OF FIRST REFUSAL. At the end of the term of this Agreement, the
FRANCHISEE'S exclusive development rights with respect to the Franchised Area
will automatically terminate, and the FRANCHISEE will not have the right to
renew or extend the term of this Agreement. Following the end of the term of
this Agreement, WCH will have the right to reevaluate the prospects for the
establishment of We Care Hair businesses in the Franchised Area, and WCH may
determine that the Franchised Area will be further developed by opening
additional We Care Hair businesses in the Franchised Area. In the event WCH
determines that the Franchised Area will be further developed, the FRANCHISEE
will have a right of first refusal to own and operate any We Care Hair
Businesses proposed for the Franchised Area by WCH. Consequently, if WCH
proposes to develop (either by owning, franchising or subfranchising) any
further We Care Hair businesses in the Franchised Area after the term of this
Agreement has expired, then WCH will give the FRANCHISEE written notice of its
proposal to develop additional We Care Hair businesses in the Franchised Area
and the FRANCHISEE will have thirty (30) days to accept in writing WCH'S
proposal to own and operate further We Care Hair Businesses in the Franchised
Area. The FRANCHISEE will have the right to own and operate We Care Hair
Businesses in the Franchised Area according to the terms and conditions set
forth in WCH'S written proposal, which may vary in form and
<PAGE>
substance from the terms, conditions and economics set forth in this Agreement.
If the FRANCHISEE fails to accept in writing WCH'S written proposal within
thirty (30) days from the date the written notice of WCH'S proposal is given to
the FRANCHISEE, then WCH will have the absolute right to open and develop We
Care Hair businesses in the Franchised Area after the term of this Agreement has
expired.
ARTICLE 3
EXCLUSIVE TERRITORY FEE; INITIAL FEES; DEVELOPMENT SCHEDULE
3.1 EXCLUSIVE TERRITORY FEE. On the date this Agreement is executed by the
FRANCHISEE, the FRANCHISEE will pay WCH a nonrefundable exclusive territory fee
equal to ____________________________________________ Dollars ($___________)
(the "Exclusive Territory Fee").
3.2 INITIAL FEES. In addition to the Exclusive Territory Fee, the FRANCHISEE
will pay WCH an Initial Fee, as defined in WCH'S then-current standard Franchise
Agreement, of ___________________________________ Dollars ($__________) for the
first We Care Hair Business required to be owned and operated by the FRANCHISEE
in the Franchised Area pursuant to the development schedule contained in this
Agreement. The FRANCHISEE will pay WCH an Initial Fee of ________________
($______________) for each subsequent We Care Hair Business required to be owned
and operated by the FRANCHISEE in the Franchised Area pursuant to the
development schedule contained in this Agreement. The amount of each Initial Fee
payable to WCH for each We Care Hair Business opened in the Franchised Area in
accordance with the development schedule will be the amount as set forth in this
Article 3.2, even if the then-current standard Franchise Agreement signed by the
FRANCHISEE specifies an Initial Fee that is greater than or different from the
Initial Fee specified herein. Each such Initial Fee will be payable to WCH
pursuant to the terms of this Agreement.
3.3 PAYMENT OF INITIAL FEES. The FRANCHISEE must pay WCH the Initial Fee set
forth in Article 3.2 of this Agreement on or before the date the FRANCHISEE
executes the then-current standard Franchise Agreement for each We Care Hair
Business required to be owned and operated in the Franchised Area pursuant to
this Agreement. A then-current standard We Care Hair Franchise Agreement must be
executed by the FRANCHISEE for each We Care Hair Business owned and operated by
the FRANCHISEE in the Franchised Area on the earlier of: (A) at least ten (10)
days prior to the date the FRANCHISEE commences initial business operations at
each of its We Care Hair Businesses in the Franchised Area; or (B) the date the
FRANCHISEE'S furniture, fixtures and equipment are shipped by WCH to the
FRANCHISEE.
3.4 DEVELOPMENT SCHEDULE. The FRANCHISEE acknowledges and agrees that a material
provision of this Agreement is that the following number of We Care Hair
Businesses must be opened and continuously operating in the Franchised Area
during the term of this Agreement in accordance with the following development
schedule:
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------- ------------------------------------------- --------------------------------------------
NUMBER OF WE CARE HAIR BUSINESSES REQUIRED CUMULATIVE NUMBER OF WE CARE HAIR BUSINESSES
TO BE OPENED AND CONTINUOUSLY OPERATING FOR REQUIRED TO BE OPEN AND CONTINUOUSLY
BUSINESS IN THE FRANCHISED AREA DURING THE OPERATING FOR BUSINESS IN THE FRANCHISED
PERIOD PERIOD AREA AT THE END OF THE PERIOD
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 1
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 2
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
<PAGE>
-first half:
YEAR 3
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 4
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 5
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 6
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 7
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 8
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 9
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
-first half:
YEAR 10
-second half:
- ----------- ---------------- ------------------------------------------- --------------------------------------------
</TABLE>
The half-year periods set forth above will be determined from the date of this
Agreement, so that the first half-year period of the development schedule set
forth above will end six (6) months from the date of this Agreement. For
purposes of determining compliance with the development schedule set forth in
this Article 3.4, only the FRANCHISEE'S We Care Hair Businesses actually open
and continuously operating for business in the Franchised Area as of the end of
a given half-year period will be counted toward the number of We Care Hair
Businesses required to be open and continuously operating for business.
3.5 REASONABLENESS OF DEVELOPMENT SCHEDULE. The FRANCHISEE represents that it
has conducted its own independent investigation and analysis of the prospects
for the establishment of We Care Hair Businesses within the Franchised Area,
approves of the foregoing development schedule as being reasonable and viable,
and recognizes that failure to achieve the results described in the foregoing
development schedule will constitute a material breach of this Agreement.
3.6 FAILURE TO COMPLY WITH DEVELOPMENT SCHEDULE. The FRANCHISEE'S failure to
comply with the above development schedule will constitute a material breach of
this Agreement by the FRANCHISEE and, in that event, WCH will have the right to
terminate this Agreement as provided herein. Termination of this Agreement as a
result of the FRANCHISEE'S failure to meet the development schedule set forth
above will not affect the individual Franchise Agreements signed by the
FRANCHISEE for the We Care Hair Businesses opened and operated in the Franchised
Area pursuant to this Agreement prior to termination; however, upon termination
of this Agreement, all rights to open and operate additional We Care Hair
Businesses in the Franchised Area and all other rights granted to the FRANCHISEE
under this Agreement will immediately revert to WCH, without affecting those
obligations of the FRANCHISEE that continue beyond the termination of this
Agreement.
3.7 TERMINATION FOR FAILURE TO COMPLY WITH DEVELOPMENT SCHEDULE. If this
Agreement is terminated by WCH because of the FRANCHISEE'S failure to meet the
development schedule set forth above, the rights and duties of WCH and the
FRANCHISEE will be as follows: (A) the FRANCHISEE will have no further rights to
open and operate additional We Care Hair Businesses within
<PAGE>
the Franchised Area; (B) the FRANCHISEE will continue to pay all required fees
and to operate its We Care Hair Businesses opened and operated in the Franchised
Area pursuant to the terms of the applicable Franchise Agreements signed by the
FRANCHISEE prior to the date of the termination of this Agreement; and (C) WCH
will have the absolute right to develop the Franchised Area or to contract with
another franchisee for future development of the Franchised Area.
ARTICLE 4
OTHER OBLIGATIONS OF FRANCHISEE
4.1 COMPLIANCE WITH APPLICABLE LAWS. The FRANCHISEE agrees to and will, at its
expense, comply with all federal, state, city, municipal and local laws,
ordinances, rules and regulations in the Franchised Area pertaining to the
operation of its We Care Hair Businesses, including all laws relating to
employees and to the regulation of barbers and cosmetologists and all applicable
federal and state environmental laws. The FRANCHISEE will, at its expense, be
absolutely and exclusively responsible for determining all licenses and permits
required by law for the FRANCHISEE'S We Care Hair Businesses, for qualifying for
and obtaining all such licenses and permits, and for maintaining all such
licenses and permits in full force and effect.
4.2 DISTRICT MANAGER. The FRANCHISEE must employ at least one (1) full-time
person (a "District Manager") for each six (6) We Care Hair Businesses opened
and operated in the Franchised Area pursuant to this Agreement to supervise the
FRANCHISEE'S We Care Hair Businesses in the Franchised Area. Each District
Manager will be responsible for the operation and administration of up to six
(6) We Care Hair Businesses under his or her supervision and control in the
Franchised Area, including supervision of the managers and assistant managers.
The FRANCHISEE'S District Managers must devote their full time and attention to
administering and overseeing the operations of the FRANCHISEE'S We Care Hair
Businesses in the Franchised Area. All District Managers of the FRANCHISEE'S We
Care Hair Businesses must attend and successfully complete the training program
required by WCH, and be certified and approved by WCH in writing.
4.3 EXECUTION OF FRANCHISE AGREEMENTS. For each We Care Hair Business opened,
owned, and operated for business by the FRANCHISEE in the Franchised Area, the
FRANCHISEE (and, if applicable, the FRANCHISEE'S shareholders and Personal
Guarantors) must execute WCH'S then-current standard Franchise Agreement (the
"Franchise Agreement") in substantially the same form as Exhibit B attached
hereto. If the FRANCHISEE fails to provide WCH with an executed Franchise
Agreement on the earlier of: (A) at least ten (10) days prior to the date the
FRANCHISEE commences business at each of its We Care Hair Businesses in the
Franchised Area; or (B) on the date the FRANCHISEE'S furniture, fixtures and
equipment are shipped by WCH to the FRANCHISEE, as required by the terms of this
Agreement, it will be deemed a material breach of this Agreement and WCH will
have the right to terminate this Agreement as provided herein.
4.4 CONTINUING FEES. During the term of each Franchise Agreement signed by the
FRANCHISEE pursuant to this Agreement, the FRANCHISEE will pay to WCH weekly
Continuing Fees, as defined in the Franchise Agreement, equal to a percentage of
the weekly Gross Revenues, as defined in the Franchise Agreement, which are
received, billed or generated by or from the FRANCHISEE'S We Care Hair
Businesses in the Franchised Area. Notwithstanding the foregoing, for as long
as, but only so long as, the FRANCHISEE owns and operates eleven (11) or more We
Care Hair Businesses, the FRANCHISEE will be obligated to pay WCH weekly
Continuing Fees equal to four percent (4%) of the FRANCHISEE'S weekly Gross
Revenues for the eleventh (11th) and any subsequent We Care Hair Business. This
reduction in Continuing Fees will apply only to the eleventh (11th) and any
subsequent
<PAGE>
We Care Hair Businesses owned and operated by the FRANCHISEE. The FRANCHISEE
will pay Continuing Fees to WCH at the applicable rate stated in the preceding
sentences, even if the Franchise Agreements signed by the FRANCHISEE specify
Continuing Fees that are greater than or different from the Continuing Fees
specified herein. With the possible exception of the percentage of the
FRANCHISEE'S Gross Revenues which will be payable to WCH, the Continuing Fees
for each of the FRANCHISEE'S We Care Hair Businesses will be payable by the
FRANCHISEE according to the terms of the applicable Franchise Agreements signed
by the FRANCHISEE pursuant to this Agreement.
4.5 ADVERTISING FEES. During the term of each Franchise Agreement signed by the
FRANCHISEE pursuant to this Agreement, the FRANCHISEE will pay to WCH weekly
Advertising Fees, as defined in the Franchise Agreement, equal to four percent
(4%) of the weekly Gross Revenues, as defined in the Franchise Agreement, which
are received, billed or generated by or from the FRANCHISEE'S We Care Hair
Businesses in the Franchised Area. The FRANCHISEE will pay Advertising Fees to
WCH at the applicable rate stated in the preceding sentence, even if the
Franchise Agreements signed by the FRANCHISEE specify Advertising Fees that are
greater than or different from the Advertising Fees specified herein. With the
possible exception of the percentage of the FRANCHISEE'S Gross Revenues which
will be payable to WCH, the Advertising Fees for each of the FRANCHISEE'S We
Care Hair Businesses will be payable by the FRANCHISEE according to the terms of
the applicable Franchise Agreements signed by the FRANCHISEE pursuant to this
Agreement.
4.6 LOCAL ADVERTISING; OTHER PAYMENTS. During the term of each Franchise
Agreement signed by the FRANCHISEE pursuant to this Agreement, the FRANCHISEE
will be required to spend monies for items such as grand opening advertising and
promotion, local media advertising and promotion, local group advertising and
promotion, and other expenses. The FRANCHISEE will pay all such required
advertising and promotional fees and expenses at the rates established in, and
in accordance with the terms and conditions of, the applicable Franchise
Agreement for each of the FRANCHISEE'S We Care Hair Businesses opened and
operated by the FRANCHISEE pursuant to this Agreement.
4.7 MODIFICATIONS TO FRANCHISE AGREEMENT. The FRANCHISEE acknowledges that the
Franchise Agreement may be modified from time to time by WCH and that reasonable
modifications and amendments to the Franchise Agreement will not alter the
FRANCHISEE'S obligations under this Agreement.
ARTICLE 5
CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION
5.1 COMPLIANCE WITH MANUAL. In order to protect the reputation and goodwill of
WCH and to maintain uniform operating standards under the Marks and the Business
System, the FRANCHISEE will, at all times during the term of this Agreement and
the terms of the We Care Hair Franchise Agreements signed by the FRANCHISEE,
conduct its We Care Hair Businesses in accordance with WCH'S confidential
Operations Manual (the "Manual"). The FRANCHISEE acknowledges having received as
a loan one copy of the Manual from WCH.
5.2 CONFIDENTIALITY OF MANUAL. The FRANCHISEE must, at all times during the term
of this Agreement and thereafter, treat the Manual, any other manuals created
for or approved for use in the operation of the FRANCHISEE'S We Care Hair
Businesses, and the information contained therein as secret and confidential,
and the FRANCHISEE will use all reasonable means to keep such information secret
and confidential. Neither the FRANCHISEE nor its employees will make any copy,
duplication, record or reproduction of the Manual (or any portion thereof)
available to any unauthorized person.
<PAGE>
5.3 REVISIONS TO MANUAL. The Manual will, at all times during the term of this
Agreement and thereafter, remain the sole and absolute property of WCH. WCH may
from time to time revise the Manual and the FRANCHISEE expressly agrees to
operate its We Care Hair Businesses in accordance with all such revisions. The
FRANCHISEE will at all times keep its copy of the Manual current and up-to-date,
and in the event of any dispute, the terms of the master copy of the Manual
maintained by WCH will be controlling in all respects.
5.4 OTHER CONFIDENTIAL INFORMATION. The FRANCHISEE expressly acknowledges and
agrees that WCH will be disclosing and providing to the FRANCHISEE certain
confidential and proprietary information concerning the Business System and the
procedures, technology, operations and data used in connection with the Business
System. Accordingly, the FRANCHISEE will not, during the term of this Agreement
or thereafter, communicate, divulge or use for the benefit of any other person
or entity any confidential information, knowledge or know-how concerning the
methods of operation of the We Care Hair Businesses which may be communicated to
the FRANCHISEE, or of which the FRANCHISEE may be apprised, by virtue of this
Agreement. The FRANCHISEE will divulge such confidential information only to its
employees that must have access to it in order to operate the FRANCHISEE'S We
Care Hair Businesses. Any and all information, knowledge and know-how including,
without limitation, drawings, materials, equipment, technology, methods,
procedures, specifications, techniques, computer programs, systems and other
data which WCH designates as confidential or proprietary will be deemed
confidential and proprietary for the purposes of this Agreement.
5.5 CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES. The FRANCHISEE will require all
of the FRANCHISEE'S employees who have access to the Manual or other
confidential information execute an agreement, in the form attached as an
Exhibit to the Franchise Agreement or other form satisfactory to WCH, where the
employees agree to maintain the confidentiality, during the course of their
employment and thereafter, of all information designated by WCH as confidential.
Copies of all executed agreements will be submitted to WCH upon request.
5.6 REMEDIES. The FRANCHISEE recognizes that the provisions contained in this
Article are necessary for the protection of WCH and all of the franchisees who
own We Care Hair businesses. If the FRANCHISEE violates any provisions of this
Article, or if any employee of the FRANCHISEE violates his or her
confidentiality agreement executed pursuant to Article 5.5, then WCH will have
the right to: (A) terminate this Agreement (as provided for herein); (B) seek
injunctive relief from a Court of competent jurisdiction; (C) commence an action
or lawsuit against the FRANCHISEE for damages; and (D) enforce all other
remedies against the FRANCHISEE that are available to WCH under common law, in
equity, and pursuant to any federal and state statutes in an action or lawsuit
against the FRANCHISEE.
ARTICLE 6
WCH'S RIGHT OF TERMINATION
6.1 GROUNDS FOR TERMINATION. In addition to the other rights of termination
contained in this Agreement, WCH will have the right and privilege to terminate
this Agreement if: (A) the FRANCHISEE violates any material provision, term or
condition of this Agreement; (B) the FRANCHISEE fails to conform to the Business
System, the standards of uniformity and quality for the goods and services or
the policies and procedures promulgated by WCH in connection with the Business
System, or is involved in any act or conduct which materially impairs the
goodwill associated with the Marks or the Business System; (C) the FRANCHISEE
fails to timely pay any of its uncontested obligations or liabilities due and
owing WCH, suppliers, banks, purveyors, other creditors or any federal,
<PAGE>
state and municipal government (including, if applicable, federal and state
taxes); (D) the FRANCHISEE is determined to be insolvent within the meaning of
any state or federal law or becomes a party to any bankruptcy proceedings, files
for bankruptcy, or its adjudicated a bankrupt under any state or federal law;
(E) the FRANCHISEE makes an assignment for the benefit of creditors or enters
into any similar arrangement for the disposition of its assets for the benefit
of creditors; (F) any check issued by the FRANCHISEE is dishonored because of
insufficient funds (except where the check is dishonored because of a
bookkeeping or accounting error) or closed accounts; (G) any We Care Hair
Franchise Agreement executed by the FRANCHISEE is (1) terminated by WCH or (2)
wrongfully terminated by the FRANCHISEE; (H) the FRANCHISEE fails to make, when
due, any payment pursuant to any Franchise Agreement, promissory note, other
contract or other obligation payable by the FRANCHISEE to WCH; (I) the
FRANCHISEE voluntarily or otherwise abandons, as defined herein, the Franchised
Area; or (J) the FRANCHISEE or any of its partners, directors, officers or
majority stockholders is convicted of, or pleads guilty or no contest to, a
charge of violating any law relating to the FRANCHISEE'S We Care Hair
Businesses, or any felony.
6.2 NOTICE OF BREACH. Except as provided for in Article 6.5 and Article 6.6 of
this Agreement, WCH will not have the right to terminate this Agreement unless
and until written notice setting forth the alleged breach in detail has been
given to the FRANCHISEE by WCH and after having been given such written notice
of breach the FRANCHISEE fails to correct the alleged breach within the period
of time specified by applicable law. If applicable law does not specify a time
period to correct an alleged breach, then the FRANCHISEE will have thirty (30)
days after having been given such written notice to correct the alleged breach.
If the FRANCHISEE fails to correct an alleged breach set forth in the written
notice as provided herein within the applicable period of time, then this
Agreement may be terminated by WCH as provided in this Agreement. For the
purposes of this Agreement, an alleged breach of this Agreement by the
FRANCHISEE will be deemed to be "corrected" if both WCH and the FRANCHISEE agree
in writing that the alleged breach has been corrected.
6.3 ARBITRATION. If the FRANCHISEE gives notice of Arbitration, as provided for
in this Agreement, within the time period established in Article 6.2 for
correcting the alleged breach, then WCH will not have the right to terminate
this Agreement until the facts of the alleged breach have been submitted to
Arbitration as provided for herein, the Arbitrator determines that the
FRANCHISEE has breached this Agreement and the FRANCHISEE fails to correct the
breach within the applicable time period. If the Arbitrator determines that the
FRANCHISEE has breached this Agreement as alleged by WCH in the written notice
given to the FRANCHISEE, then the FRANCHISEE will have thirty (30) days from the
date the Arbitrator issues a written determination on the matter to correct the
specified breach or violation of this Agreement, except where applicable law
requires a longer cure period in which event the cure period specified by
applicable law will apply. If the FRANCHISEE timely corrects the specified
breach of this Agreement, then this Agreement will remain in full force and
effect. For the purposes of this Agreement, any controversy or dispute on the
issue of whether the FRANCHISEE has timely corrected the specified breach of
this Agreement will also be subject to Arbitration as provided for herein. The
time limitations set forth in this Article within which the FRANCHISEE may
demand Arbitration of a dispute or controversy relating to the right of WCH to
terminate this Agreement for an alleged breach will be mandatory. If the
FRANCHISEE fails to comply with the time limitations set forth in this Article,
WCH may terminate this Agreement as provided for herein.
6.4 NOTICE OF TERMINATION. If WCH has complied with the notice provisions of
this Article and the FRANCHISEE has not corrected the alleged breach set forth
in the written notice within the time period specified in this Article, then WCH
will have the absolute right to terminate this Agreement by giving the
FRANCHISEE written notice stating to the FRANCHISEE that this Agreement is
terminated,
<PAGE>
and in that event, unless applicable law provides to the contrary, the effective
date of termination of this Agreement will be the day the written notice of
termination is given to the FRANCHISEE.
6.5 GROUNDS FOR IMMEDIATE TERMINATION. WCH will have the absolute right and
privilege, unless prohibited by applicable law, to immediately terminate this
Agreement if: (A) the FRANCHISEE or any of its partners, directors, officers or
majority stockholders is convicted of, or pleads guilty or no contest to, a
charge of violating any law relating to the FRANCHISEE'S We Care Hair
Businesses, or any felony; (B) the FRANCHISEE voluntarily or otherwise abandons,
as defined herein, the Franchised Area; or (C) the FRANCHISEE is involved in any
act or conduct which materially impairs the goodwill associated with WCH'S Marks
or Business System, and the FRANCHISEE fails to correct such act or conduct
within twenty-four (24) hours of receipt of written notice from WCH.
6.6 NOTICE OF IMMEDIATE TERMINATION. If this Agreement is terminated by WCH
pursuant to Article 6.5 above, WCH will give the FRANCHISEE written notice that
this Agreement is terminated, and in that event, unless applicable law provides
to the contrary, the effective date of termination of this Agreement will be the
day the written notice of termination is given to the FRANCHISEE.
6.7 DAMAGES. In the event this Agreement is terminated by WCH pursuant to this
Article, or if the FRANCHISEE breaches this Agreement by a wrongful termination
of this Agreement, then WCH will be entitled to seek recovery from the
FRANCHISEE for all of the damages that WCH has sustained and will sustain in the
future as a result of the FRANCHISEE'S breach of this Agreement, which will
include damages based upon the Initial Fees, Continuing Fees, Advertising Fees
and other fees that would have been payable by the FRANCHISEE pursuant to this
Agreement.
6.8 OTHER REMEDIES. Nothing in this Article or this Agreement will preclude WCH
from seeking other damages or remedies under common law, state or federal laws
or this Agreement against the FRANCHISEE including, but not limited to,
attorneys' fees, punitive damages and injunctive relief.
ARTICLE 7
FRANCHISEE'S RIGHTS AND OBLIGATIONS UPON TERMINATION
7.1 OBLIGATIONS UPON TERMINATION. In the event this Agreement is terminated for
any reason, then the FRANCHISEE will: (A) within five (5) days after
termination, pay all amounts due and owing to WCH under this Agreement or any
other contract, promissory note or other obligation payable by the FRANCHISEE to
WCH; and (B) comply with all other applicable provisions of this Agreement,
including those provisions with obligations that continue beyond the termination
of this Agreement.
7.2 REVERSION OF RIGHTS. Upon termination of this Agreement for any reason, all
rights to open and operate additional We Care Hair businesses in the Franchised
Area and all other rights granted to the FRANCHISEE pursuant to this Agreement
will automatically revert to WCH, and WCH will have the right to develop the
Franchised Area or to contract with another franchisee for the future
development of the Franchised Area.
7.3 FRANCHISE AGREEMENTS NOT AFFECTED. The FRANCHISEE will continue to operate
the We Care Hair Businesses owned and operated by the FRANCHISEE in the
Franchised Area pursuant to the terms of the applicable Franchise Agreements
signed by the FRANCHISEE and WCH prior to the termination of this Agreement, and
the rights and obligations of the FRANCHISEE and WCH
<PAGE>
with respect to the FRANCHISEE'S We Care Hair Businesses in the Franchised Area
will be governed by the terms of the applicable Franchise Agreements.
ARTICLE 8
FRANCHISEE'S COVENANTS NOT TO COMPETE
8.1 CONSIDERATION. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors acknowledge that the FRANCHISEE, its partners or officers,
and its employees will receive specialized training, current and future
marketing and advertising plans and strategies, business plans and strategies,
business information and procedures, research and development information,
operations information, and trade and business secrets from WCH pertaining to
the Business System and the operation of a We Care Hair business. In
consideration for the use and license of such valuable and confidential
information, the FRANCHISEE, the FRANCHISEE'S shareholders and the Personal
Guarantors will comply in all respects with the provisions of this Article. WCH
has advised the FRANCHISEE that this provision is a material provision of this
Agreement, and that WCH will not sell a We Care Hair franchise to any person or
entity that owns or intends to own, operate or be involved in any business that
competes directly or indirectly with a We Care Hair business.
8.2 IN-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, during the term of this
Agreement, on their own account or as an employee, agent, consultant, partner,
officer, director, member, or shareholder of any other person, firm, entity,
partnership or corporation: (A) seek to employ any person who is at that time
employed by WCH or by any other We Care Hair, City Looks or Cost Cutters(R)
franchisee, or induce any such employee to terminate his or her employment; or
(B) own, operate, lease, franchise, conduct, engage in, be connected with, have
any interest in, or assist any person or entity engaged in any hairstyling,
barber or other business that is in any way competitive with or similar to the
We Care Hair businesses conducted by WCH or WCH'S franchisees (including, but
not limited to, the FRANCHISEE), except with the prior written consent of WCH.
8.3 POST-TERM COVENANT NOT TO COMPETE. The FRANCHISEE, the FRANCHISEE'S
shareholders and the Personal Guarantors will not, for a period of one (1) year
after the termination or expiration of this Agreement, on their own account or
as an employee, agent, consultant, partner, officer, director, member or
shareholder of any other person, firm, entity, partnership or corporation: (A)
seek to employ any person who is at that time employed by WCH or by any other We
Care Hair, City Looks or Cost Cutters(R) franchisee, or induce any such employee
to terminate his or her employment; or (B) own, operate, lease, franchise,
conduct, engage in, be connected with, have any interest in or assist any person
or entity engaged in any hairstyling, barber or other business that is in any
way competitive with or similar to the We Care Hair businesses conducted by WCH
or WCH'S franchisees which is located either within the Franchised Area or
within six (6) miles of any We Care Hair business operated by WCH or any of
WCH'S franchisees, or which is located within any exclusive area granted by WCH
or any affiliate or area developer of WCH pursuant to any franchise,
development, license or other territorial agreement. The FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors expressly agree that the
one (1) year period, the Franchised Area and the six (6) mile limit are the
reasonable and necessary time and geographical limitations required to protect
WCH and WCH'S franchisees if this Agreement expires or is terminated for any
reason, and that this covenant not to compete is necessary to permit WCH the
opportunity to further develop new We Care Hair businesses in the Franchised
Area.
8.4 INJUNCTIVE RELIEF. The FRANCHISEE, the FRANCHISEE'S shareholders and the
Personal Guarantors agree that the provisions of this Article are necessary to
protect the legitimate
<PAGE>
business interests of WCH and WCH'S franchisees including, without limitation,
preventing damage to and/or loss of goodwill associated with the Marks,
preventing the unauthorized dissemination of marketing, promotional and other
confidential information to competitors of WCH and WCH'S franchisees, protection
of WCH'S trade secrets, the Business System and the integrity of WCH'S Business
System, and preventing duplication of the Business System. The FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors also agree that damages
alone cannot adequately compensate WCH if there is a violation of this Article
by the FRANCHISEE and that injunctive relief against the FRANCHISEE is essential
for the protection of WCH and WCH'S franchisees. The FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors agree therefore, that if
WCH alleges that the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal
Guarantors have breached or violated this Article, then WCH will have the right
to petition a Court of competent jurisdiction for injunctive relief against the
FRANCHISEE, the FRANCHISEE'S shareholders or the Personal Guarantors, in
addition to all other remedies that may be available to WCH at law or in equity.
Unless provided to the contrary by applicable law, WCH will not be required to
post a bond or other security in any action where WCH is seeking to enjoin the
FRANCHISEE, the FRANCHISEE'S shareholders or the Personal Guarantors from
violating this Article. In cases where WCH is granted ex parte injunctive relief
against the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal
Guarantors, then the FRANCHISEE, the FRANCHISEE'S shareholders or the Personal
Guarantors will have the right to petition the court for a hearing on the merits
at the earliest time convenient to the Court.
8.5 SEVERABILITY. It is the desire and intent of the parties to this Agreement,
including the FRANCHISEE'S shareholders and the Personal Guarantors, that the
provisions of this Article be enforced to the fullest extent permissible under
the laws and public policy applied in each jurisdiction in which enforcement is
sought. Accordingly, if any part of this Article is adjudicated to be invalid or
unenforceable, then this Article will be deemed amended to modify or delete that
portion thus adjudicated to be invalid or unenforceable, such modification or
deletion to apply only with respect to the operation of this Article and the
particular jurisdiction in which said adjudication is made. Further, to the
extent any provision of this Article is deemed unenforceable by virtue of its
scope or limitation, the parties to this Agreement including the FRANCHISEE, the
FRANCHISEE'S shareholders and the Personal Guarantors agree that the scope and
limitation provisions will, nevertheless, be enforceable to the fullest extent
permissible under the laws and public policies applied in such jurisdiction
where enforcement is sought.
ARTICLE 9
INDEPENDENT CONTRACTORS; INDEMNIFICATION
9.1 INDEPENDENT CONTRACTORS. WCH and the FRANCHISEE are each independent
contractors and, as a consequence, there is no employer-employee or
principal-agent relationship between WCH and the FRANCHISEE. The FRANCHISEE will
not have the right to and will not make any agreements, representations or
warranties in the name of or on behalf of WCH or represent that their
relationship is other than that of franchisor and franchisee. Neither WCH nor
the FRANCHISEE will be obligated by or have any liability to the other under any
agreements or representations made by the other to any third parties.
9.2 INDEMNIFICATION. WCH will not be obligated to any person for any damages
arising out of, from, in connection with, or as a result of the FRANCHISEE'S
negligence or the operation of the FRANCHISEE'S We Care Hair Businesses that are
conducted by the FRANCHISEE pursuant to this Agreement. The FRANCHISEE will
indemnify and hold harmless WCH against all claims, lawsuits, damages,
obligations, liability, actions and judgments alleged or obtained by any person
or entity against WCH arising out of, from, as a result of, or in connection
with the FRANCHISEE'S negligence or the
<PAGE>
operation of the FRANCHISEE'S We Care Hair Businesses that are conducted by the
FRANCHISEE pursuant to this Agreement, including, without limitation, any claims
arising from or relating to: (A) any personal injury, property damage,
commercial loss or environmental contamination resulting from any act or
omission of the FRANCHISEE or any of its employees, agents or representatives;
(B) any failure on the part of the FRANCHISEE to comply with any requirement of
any governmental authority; (C) any failure of the FRANCHISEE to pay any of its
obligations; or (D) any failure or the FRANCHISEE to comply with any requirement
or condition of this Agreement or any other agreement with WCH or any affiliate
of WCH. Further, the FRANCHISEE will indemnify and reimburse WCH for all such
obligations and damages for which WCH is held liable and for all costs
reasonably incurred by WCH in the defense of any such claims brought against it
or in any action arising out of the operation of the FRANCHISEE'S We Care Hair
Businesses in which it is named as a party including, without limitation, costs
for attorneys' fees actually incurred, investigation expenses, court costs,
deposition expenses and travel and living expenses. WCH will have the absolute
right to defend any claim made against it that results from the FRANCHISEE'S We
Care Hair Businesses.
9.3 PAYMENT OF COSTS AND EXPENSES. The FRANCHISEE will pay all costs and
expenses, including actual attorneys' fees, incurred by WCH in enforcing any
term, condition or provision of this Agreement or in seeking to enjoin any
violation of this Agreement by the FRANCHISEE.
9.4 CONTINUATION OF OBLIGATIONS. The indemnification and other obligations
contained in this Article will continue in full force and effect subsequent to
and notwithstanding the expiration or termination of this Agreement.
ARTICLE 10
ASSIGNMENT
10.1 ASSIGNMENT BY FRANCHISOR. This Agreement may be unilaterally assigned and
transferred by WCH without the FRANCHISEE'S approval or consent, and will inure
to the benefit of WCH'S successors and assigns. WCH will provide the FRANCHISEE
with written notice of any such assignment or transfer, and the assignee will be
required to fulfill WCH'S obligations under this Agreement.
10.2 ASSIGNMENT BY FRANCHISEE TO CORPORATION. If the FRANCHISEE is an individual
or a partnership, this Agreement may be transferred or assigned by the
FRANCHISEE to a corporation which is owned or controlled (ownership of at least
fifty-one percent (51%) of the issued and outstanding capital stock) by the
FRANCHISEE, provided that: (A) the FRANCHISEE and all of the shareholders of the
assignee corporation sign the personal guaranty and agreement to be bound by the
terms and conditions of this Agreement attached hereto: (B) the FRANCHISEE
furnishes prior written proof to WCH substantiating that the corporation will be
financially able to perform all of the terms and conditions of this Agreement;
and (C) none of the shareholders owns, operates, franchises, develops, manages
or controls any hairstyling, barber or other business that is in any way
competitive with or similar to a We Care Hair business. The FRANCHISEE will give
WCH fifteen (15) days written notice prior to the proposed date of assignment or
transfer of this Agreement to an owned or controlled corporation of the
FRANCHISEE; however, the transfer or assignment of this Agreement will not be
valid or effective until WCH has received the legal documents which its legal
counsel deems necessary to properly and legally document the transfer or
assignment of this Agreement to the corporation as provided herein.
10.3 ASSIGNMENT UPON DEATH OR DISABILITY OF FRANCHISEE. If the FRANCHISEE is an
individual, then this Agreement may be assigned, transferred or bequeathed by
the FRANCHISEE to
<PAGE>
any designated person or beneficiary upon his or her death or permanent
disability. However, the assignment of this Agreement to the transferee,
assignee or beneficiary of the FRANCHISEE will not be valid or effective until
WCH has received the properly executed legal documents which its legal counsel
deems necessary to properly and legally document the transfer, assignment or
bequest of this Agreement, and until the transferee, assignee or beneficiary
agrees to be unconditionally bound by the terms and conditions of this Agreement
and to personally guarantee the performance of the FRANCHISEE'S obligations
under this Agreement.
10.4 APPROVAL OF TRANSFER; CONDITIONS FOR APPROVAL. This Agreement may be
assigned or transferred by the FRANCHISEE only with the prior written approval
of WCH. WCH will not unreasonably withhold its consent to any transfer of this
Agreement, provided that the FRANCHISEE and the transferee Franchisee comply
with the following conditions: (A) all of the FRANCHISEE'S monetary obligations
due to WCH have been paid in full, and the FRANCHISEE is not otherwise in
default under this Agreement; (B) the FRANCHISEE has executed a written
agreement in a form satisfactory to WCH in which the FRANCHISEE agrees to
observe all applicable obligations and covenants contained in this Agreement;
(C) the transferee Franchisee and its shareholders agree to be personally liable
to discharge all of the FRANCHISEE'S obligations under this Agreement and will
enter into a written agreement in a form satisfactory to WCH assuming and
agreeing to discharge all of the FRANCHISEE'S obligations and covenants under
this Agreement; (D) the transferee Franchisee will have demonstrated to WCH'S
satisfaction that he, she or it meets WCH'S managerial, financial, and business
standards for new area franchisees, possesses a good business reputation and
credit rating, and possesses the aptitude and ability to conduct the Business
franchised hereunder (as may be evidenced by prior related business experience
or otherwise); (E) the FRANCHISEE has paid the transfer fee required under
Article 10.6; (F) the transferee Franchisee does not own, operate, franchise,
develop, manage or control any hairstyling, barber or other business that is in
any way competitive with or similar to a We Care Hair business; and (G) if the
transferee Franchisee does not meet WCH'S net worth requirements for operation
of the We Care Hair Businesses, then the FRANCHISEE and/or its shareholders and
the Personal Guarantors will execute a written agreement in a form satisfactory
to WCH agreeing to remain liable to WCH for the obligations of the We Care Hair
Businesses.
10.5 ACKNOWLEDGMENT OF RESTRICTIONS. The FRANCHISEE acknowledges and agrees that
the restrictions on transfer imposed herein are reasonable and are necessary to
protect the We Care Hair Business System and the Marks, as well as WCH'S
reputation and image, and are for the protection of WCH, the FRANCHISEE and all
other franchisees who own and operate We Care Hair businesses. Any assignment or
transfer permitted by this Article 10 will not be effective until WCH receives a
completely executed copy of all transfer documents and WCH consents to the
transfer in writing, and any attempted assignment or transfer made without
complying with the requirements of this Article 10 will be void.
10.6 TRANSFER FEE. If, pursuant to the terms of this Article, this Agreement is
assigned, transferred or bequeathed to another person or entity, or if the
FRANCHISEE'S shareholders transfer over fifty percent (50%) of their capital
stock to another person or entity, then the FRANCHISEE will pay WCH a transfer
fee of One Thousand Dollars ($1,000). This fee is to cover the costs incurred by
WCH for attorneys' fees, accountants' fees, out-of-pocket expenses, long
distance telephone calls, administrative expenses, and the time of its employees
and officers.
<PAGE>
ARTICLE 11
ARBITRATION
11.1 DISPUTES SUBJECT TO ARBITRATION. Except as expressly provided to the
contrary in this Agreement, all disputes and controversies between the parties,
including allegations of fraud, misrepresentation or violation of any state or
federal laws or regulations, arising under, as a result of, or in connection
with this Agreement, the Franchised Area or the FRANCHISEE'S We Care Hair
Businesses will be resolved and determined exclusively by Arbitration in
accordance with the Commercial Rules and Regulations of the American Arbitration
Association.
11.2 NOTICE OF DISPUTE. The party alleging the breach, claim, dispute or
controversy ("dispute") must give the other party written notice setting forth
the alleged dispute in detail. The party who has been given such written notice
alleging the dispute will have thirty (30) days after having been given such
written notice from the complaining party to correct or resolve the dispute
specified in the written notice.
11.3 DEMAND FOR ARBITRATION. If the dispute alleged by either party has not been
corrected, settled or compromised within the time period provided for in this
Agreement, then either party may notice Arbitration by giving the other party
written notice demanding Arbitration. Within ten (10) days after a written
demand for Arbitration has been given by the party demanding Arbitration, either
party will have the right to request the office of the American Arbitration
Association in Minneapolis, Minnesota to initiate the procedures necessary to
appoint an Arbitrator. The Arbitrator will be appointed within sixty (60) days
after a written demand for Arbitration has been made in accordance with the
Commercial Rules and Regulation of the American Arbitration Association.
11.4 VENUE AND JURISDICTION. All Arbitration hearings will take place
exclusively in Minneapolis, Minnesota. WCH and the FRANCHISEE and their
officers, Directors and shareholders or partners and the Personal Guarantors
acknowledge that the FRANCHISEE and its officers, Directors and employees have
had substantial business and personal contacts with WCH in Minnesota, do hereby
agree and submit to personal jurisdiction in Minnesota in connection with any
Arbitration hearings hereunder and any suits or actions brought to enforce the
decision of the Arbitrator, and do hereby waive any rights they may have to
contest venue and jurisdiction in Minnesota and any claims that venue and
jurisdiction in Minnesota are invalid.
11.5 POWERS OF ARBITRATOR. The authority of the Arbitrator will be limited to
making a finding, judgment, decision and award relating to the interpretation of
or adherence to the written provisions of this Agreement. The Federal Rules of
Evidence (the "Rules") will apply to all Arbitration hearings and the
introduction of all evidence, testimony, records, affidavits, documents and
memoranda in any Arbitration hearing must comply in all respects with the Rules
and the legal precedents interpreting the Rules. Both parties will have the
absolute right to cross-examine any person who testified against them or in
favor of the other party. The Arbitrator will not have the authority or right to
add to, delete, amend or modify in any manner the terms, conditions and
provisions of this Agreement. All findings, judgments, decisions and awards of
the Arbitrator will be limited to the dispute set forth in the written demand
for Arbitration, and the Arbitrator will not have the authority to decide any
other issues. The Arbitrator will not have the right or authority to award
punitive damages to WCH or the FRANCHISEE or their officers, Directors,
shareholders or partners and Personal Guarantors, and WCH and FRANCHISEE and
their officers, Directors, shareholders or partners, and Personal Guarantors
expressly waive their rights to plead or seek punitive damages. All findings,
judgments, decisions and awards by the Arbitrator will be in writing, will be
made within sixty (60) days after the Arbitration hearings have been completed,
<PAGE>
and will be final and binding on WCH and the FRANCHISEE, except as provided for
in Article 11.8. The written decision of the Arbitrator will be deemed to be an
order, judgment and decree and may be entered as such in any Court of competent
jurisdiction by either party.
11.6 DISPUTES NOT SUBJECT TO ARBITRATION. The disputes and controversies between
WCH and the FRANCHISEE which are set forth in Article 12.1 and the following
disputes between WCH and the FRANCHISEE will not be subject to Arbitration: (A)
any dispute involving the Marks; (B) any dispute involving immediate termination
of this Agreement by WCH pursuant to Article 6.5 and Article 6.6 of this
Agreement; (C) any dispute involving enforcement of the confidentiality
provisions set forth in Article 5 of this Agreement; and (D) any dispute
involving enforcement of the covenants not to compete set forth in Article 8 of
this Agreement.
11.7 NO COLLATERAL ESTOPPEL OR CLASS ACTIONS. Except as provided herein, all
Arbitration findings and awards expressly made by the Arbitrator will be final
and binding on WCH and the FRANCHISEE and their officers, Directors,
shareholders or partners, and Personal Guarantors; however, such Arbitration
findings and awards may not be used to collaterally estop either party from
raising any like or similar issues, claims or defenses in any other or
subsequent Arbitration, litigation, court hearing or other proceeding involving
third parties or other franchisees. No party except WCH, the FRANCHISEE, and
their officers, Directors, shareholders or partners, and Personal Guarantors
will have the right to join in any Arbitration proceeding arising under this
Agreement, and, therefore, the Arbitrator will not be authorized to permit or
approve class actions or to permit any person or entity that is not a party to
this Agreement to be involved in or to participate in any Arbitration hearings
conducted pursuant to this Agreement.
11.8 DE NOVO HEARING ON MERITS. If the Arbitrator awards either WCH or the
FRANCHISEE damages (including actual damages, costs and attorneys' fees) in
excess of One Hundred Thousand Dollars ($100,000) in any Arbitration proceeding
commenced pursuant to this Agreement, then the party who has been held liable by
the Arbitrator will have the right to a de novo hearing on the merits by
commencing an action in a court of competent jurisdiction in accordance with the
provisions of this Agreement. If the party held liable by the Arbitrator
commences a court action as provided for herein, then neither party will have
the right to introduce the Arbitrator's decision or findings in any such court
action and the Arbitrator's decision and findings will be of no force and effect
and will not be final or binding on either WCH or the FRANCHISEE. If the party
who has been held liable by the Arbitrator for over One Hundred Thousand Dollars
($100,000) in damages fails to commence a court action within thirty (30) days
after the Arbitrator issues his or her award in writing, then the Arbitrator's
findings, judgments, decisions and awards will be final and binding on WCH and
the FRANCHISEE.
11.9 CONFIDENTIALITY. All evidence, testimony, records, documents, findings,
decisions, judgments and awards pertaining to any Arbitration hearing between
WCH and the FRANCHISEE will be secret and confidential in all respects. WCH and
the FRANCHISEE will not disclose the decision or award of the Arbitrator and
will not disclose any evidence, testimony, records, documents, findings, orders,
or other matters from the Arbitration hearing to any person or entity except as
required by law.
11.10 SEVERABILITY. It is the desire and intent of the parties to this Agreement
that the provisions of this Article be enforced to the fullest extent
permissible under the laws and public policy applied in each jurisdiction in
which enforcement is sought. Accordingly, if any part of this Article is
adjudicated to be invalid or unenforceable, then this Article will be deemed
amended to delete that portion thus adjudicated to be invalid or unenforceable
to the extent required to make this Article valid and enforceable. Any such
deletion will be effective only in the particular jurisdiction in which the
<PAGE>
adjudication is made. Further, to the extent any provision of this Article is
deemed unenforceable by virtue of its scope, the parties to this Agreement agree
that the same will, nevertheless, be enforceable to the fullest extent
permissible under the laws and public policies applied in such jurisdiction
where enforcement is sought, and the scope in such a case will be determined by
Arbitration as provided herein.
ARTICLE 12
ENFORCEMENT
12.1 INJUNCTIVE RELIEF. In addition to the provisions of Article 11, WCH will be
entitled to petition a Court of competent jurisdiction for the entry of
temporary and permanent injunctions and orders of specific performance enforcing
the provisions of this Agreement relating to: (A) the FRANCHISEE'S improper or
unauthorized use of the Marks and the Business System; (B) the obligations of
the FRANCHISEE upon termination or expiration of this Agreement; (C) the
transfer or assignment of this Agreement, the Franchised Area or ownership
interests of the FRANCHISEE; (D) the FRANCHISEE'S violation of the provisions of
this Agreement relating to confidentiality and covenants not to compete; and (E)
any act or omission by the FRANCHISEE or the FRANCHISEE'S employees that, (1)
constitutes a violation of any applicable law, ordinance or regulation, (2) is
dishonest or misleading to customers of the FRANCHISEE'S We Care Hair Businesses
or other We Care Hair businesses, (3) constitutes a danger to the employees,
public or customers of the FRANCHISEE'S We Care Hair Businesses, or (4) may
impair the goodwill associated with the Marks and the Business System. In any
action brought under this provision where WCH prevails against the FRANCHISEE,
the FRANCHISEE will indemnify WCH for all costs that it incurs in any such
proceedings including, without limitation, attorneys' fees actually incurred,
expert witness fees, costs of investigation, court costs, travel and living
expenses, and all other costs incurred by WCH. Unless provided to the contrary
by applicable law, WCH will be entitled to obtain injunctive relief without the
posting of any bond or security.
12.2 SEVERABILITY. All provisions of this Agreement are severable and this
Agreement will be interpreted and enforced as if all completely invalid or
unenforceable provisions were not contained herein and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. If
any applicable law or rule of any jurisdiction requires a greater prior notice
of the termination of this Agreement than is required hereunder or the taking of
some other action not required hereunder, or if under any applicable and binding
laws of any jurisdiction, any provision of this Agreement or any specification,
standard or operating procedure prescribed by WCH is invalid or unenforceable,
the prior notice or other action required by such law or rule will be
substituted for the notice requirements hereof, or such invalid or unenforceable
provision, specification, standard or operating procedure will be modified to
the extent required to be valid and enforceable. Such modifications to this
Agreement will be effective only in such jurisdiction and will be enforced as
originally made and entered into in all other jurisdictions.
12.3 WAIVER. WCH and the FRANCHISEE may, by written instrument signed by WCH and
the FRANCHISEE, waive any obligation of or restriction upon the other under this
Agreement. Acceptance by WCH of any payment by the FRANCHISEE and the failure,
refusal or neglect of WCH to exercise any right under this Agreement or to
insist upon full compliance by the FRANCHISEE of its obligations hereunder will
not constitute a waiver by WCH of any provision of this Agreement. WCH will have
the right to waive obligations or restrictions for other area franchisees under
their Development Agreements without waiving those obligations or restrictions
for the FRANCHISEE and, except to the extent provided by law, WCH will have the
right to negotiate terms and conditions, grant concessions and waive obligations
for other area franchisees of WCH without granting those same rights to the
FRANCHISEE and without incurring any liability to the FRANCHISEE whatsoever.
<PAGE>
12.4 NO RIGHT TO OFFSET. The FRANCHISEE will not, on grounds of the alleged
nonperformance by WCH of any of its obligations under this Agreement, any other
contract between WCH and the FRANCHISEE, or for any other reason, withhold
payment of any amounts due WCH under this Agreement or any other contract,
promissory note or other obligation payable by the FRANCHISEE to WCH. The
FRANCHISEE will not have the right to "offset" any liquidated or unliquidated
amounts allegedly due to the FRANCHISEE from WCH against any payments due to WCH
under this Agreement or any other contract, promissory note or other obligation
payable by the FRANCHISEE to WCH.
12.5 WCH'S RIGHTS CUMULATIVE. The rights of WCH hereunder are cumulative and no
exercise or enforcement by WCH of any right or remedy hereunder will preclude
the exercise or enforcement by WCH of any other right or remedy hereunder or
which WCH is entitled by law to enforce.
12.6 VENUE AND JURISDICTION. Unless otherwise required by applicable law, all
Arbitration hearings, litigation, court hearings or other hearings initiated by
either party against the other party must and will be venued exclusively in
Hennepin County, Minnesota. The FRANCHISEE, each of its officers, Directors and
shareholders, and the Personal Guarantors: (A) acknowledge that Minneapolis,
Minnesota is a mutually convenient location for the venue and conduct of any
legal or enforcement proceedings; (B) do hereby agree and submit to personal
jurisdiction in the State of Minnesota for the purposes of any Arbitration
hearings, litigation, court hearings or other hearings brought to enforce or
construe the terms of this Agreement or to resolve any dispute or controversy
arising under, as a result of, or in connection with this Agreement, the
Franchised Area or the FRANCHISEE'S We Care Hair Businesses; and (C) do hereby
agree and stipulate that any Arbitration hearings, litigation, court hearings
and other hearings will be venued and held exclusively in Hennepin County,
Minnesota, and waive any rights to contest such venue and jurisdiction and any
claims that such venue and jurisdiction are invalid.
12.7 AGREEMENT BINDING ON HEIRS AND ASSIGNS. This Agreement is binding upon the
parties hereto and their respective executors, administrators, heirs, assigns
and successors in interest.
12.8 JOINT AND SEVERAL LIABILITY. If the FRANCHISEE consists of more than one
person, their liability under this Agreement will be deemed to be joint and
several.
12.9 ENTIRE AGREEMENT. This Agreement supersedes and terminates all prior
agreements relating to the rights granted herein, either oral or in writing,
between the parties and therefore, any representations, inducements, promises or
agreements between the parties not contained in this Agreement or not in writing
signed by the President or a Vice President of WCH and the FRANCHISEE will not
be enforceable. This Agreement will not supersede or terminate any written
Development Agreement relating to another Franchised Area or Franchise
Agreement(s) executed prior to the date of this Agreement relating to other We
Care Hair franchises operated by the FRANCHISEE that are or will be owned and
operated by the FRANCHISEE. The preambles are a part of this Agreement, which
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agreements between WCH and the FRANCHISEE relating to
the subject matter of this Agreement.
12.10 CONTROLLING AGREEMENT. The rights and obligations of the FRANCHISEE and
WCH with respect to the operation of each We Care Hair Business opened in the
Franchised Area by the FRANCHISEE will be governed by the terms and conditions
of each We Care Hair Franchise Agreement executed by the FRANCHISEE. In the
event there is a conflict between the terms of this Agreement and the terms of
any We Care Hair Franchise Agreement executed by the FRANCHISEE, then unless
specified otherwise herein, the terms of this Agreement will control.
<PAGE>
12.11 HEADINGS; TERMS. The headings of the Articles and the provisions thereof
are for convenience only and do not define, limit or construe the contents of
such Articles. The term "FRANCHISEE" as used herein is applicable to one or more
individuals, a corporation or a partnership, as the case may be, and the
singular usage includes the plural, and the masculine usage includes the neuter
and the feminine and the neuter usage includes the masculine and the feminine.
References to "FRANCHISEE" which are applicable to an individual or individuals
will mean the principal owner or owners of the equity or operating control of
the FRANCHISEE if the FRANCHISEE is a corporation or partnership. If the
FRANCHISEE consists of more than one individual, then all individuals will be
bound jointly and severally by the terms and conditions of this Agreement.
12.12 NO ORAL MODIFICATION. No modification, change, addition, rescission,
release, amendment or waiver of, and no approval, consent or authorization
required by any provision of this Agreement may be made except by a written
agreement subscribed to by duly authorized officers or partners of the
FRANCHISEE and the President or a Vice President of WCH. WCH and the FRANCHISEE
will not have the right to amend or modify this Agreement orally or verbally,
and any attempt to do so will be void in all respects.
ARTICLE 13
NOTICES
All notices to WCH will be in writing and will be made by personal service upon
an officer or Director of WCH or sent by prepaid registered or certified United
States mail addressed to WCH at 300 Industrial Boulevard N.E., Minneapolis,
Minnesota 55413 with a copy to John W. Fitzgerald, Esq., Gray, Plant, Mooty,
Mooty & Bennett, P.A., 3400 City Center, 33 South Sixth Street, Minneapolis,
Minnesota 55402-3796. All notices to the FRANCHISEE will be by personal service
upon the FRANCHISEE, a District Manager or a salon manager or assistant manager,
(or, if applicable, an officer or Director of the FRANCHISEE), or sent by
prepaid registered or certified United States mail addressed to the FRANCHISEE
at the first We Care Hair Business opened by the FRANCHISEE in the Franchised
Area or such other address as the FRANCHISEE may designate in writing, or by
delivery to any employee of the FRANCHISEE by a recognized overnight delivery
service (such as Federal Express or UPS) which requires a written receipt of
delivery from the addressee. Notice by mail is effective upon depositing the
same in the mail in the manner provided above, notice by personal service is
effective upon obtaining service and notice by overnight delivery service is
effective upon delivery by such overnight delivery service.
ARTICLE 14
ACKNOWLEDGMENTS
14.1 BUSINESS RISKS; NO FINANCIAL PROJECTIONS. The FRANCHISEE acknowledges that
it has conducted an independent investigation of the prospects for the
establishment of We Care Hair Businesses within the Franchised Area, and
recognizes that the business venture contemplated by this Agreement involves
business and economic risks and that its financial and business success will be
primarily dependent upon the personal efforts of the FRANCHISEE, its management
and employees. WCH expressly disclaims the making of, and the FRANCHISEE
acknowledges that it has not received, any estimates, projections, warranties or
guaranties, express or implied, regarding potential Gross Revenues, profits,
earnings or the financial success of the FRANCHISEE'S We Care Hair Businesses,
except as expressly set forth in writing in WCH'S Uniform Franchise Offering
Circular, receipt of which is acknowledged by the FRANCHISEE.
<PAGE>
14.2 NO INCOME OR REFUND WARRANTIES. The FRANCHISEE acknowledges that WCH does
not warrant or guarantee to the FRANCHISEE that the FRANCHISEE will derive
income or profit from the FRANCHISEE'S We Care Hair Businesses or that WCH will
refund all or part of the Exclusive Territory Fee or the price paid for the
FRANCHISEE'S We Care Hair Businesses or repurchase any of the products,
merchandise, furniture, fixtures, equipment, supplies or chattels supplied by
WCH or an approved supplier if the FRANCHISEE is unsatisfied with its We Care
Hair Businesses.
14.3 TERMS OF OTHER DEVELOPMENT AGREEMENTS MAY DIFFER. The FRANCHISEE
acknowledges that other area franchisees of WCH have or will be granted
Development Agreements at different times and in different situations, and
further acknowledges that the terms and conditions of such Development
Agreements may vary substantially in form and substance from those contained in
this Agreement.
14.4 RECEIPT OF UNIFORM FRANCHISE OFFERING CIRCULAR. The FRANCHISEE acknowledges
that it received a copy of this Agreement with all material blanks fully
completed at least five (5) business days prior to the date that this Agreement
was executed. The FRANCHISEE further acknowledges that it received a We Care
Hair Uniform Franchise Offering Circular at least ten (10) business days prior
to the date on which this Agreement was executed.
14.5 POTENTIAL INCREASES IN INVESTMENT REQUIREMENTS. The FRANCHISEE recognizes
and acknowledges that this Agreement requires it to open additional We Care Hair
Businesses in the future pursuant to the development schedule set forth in
Article 3. The FRANCHISEE further acknowledges that the estimated expenses and
investment requirements set forth in Items 6 and 7 of WCH'S Uniform Franchise
Offering Circular are subject to increase over time, and that future We Care
Hair Businesses opened and operated by the FRANCHISEE may involve greater
initial investment and operating capital requirements than those stated in the
Uniform Franchise Offering Circular provided to the FRANCHISEE prior to the
execution of this Agreement.
14.6 CITY LOOKS(R) AND HAIR PERFORMERS(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "City Looks(R)," "City Looks Salons International(R),"
"City Looks(R) By The Barbers(R)" and "The Barbers(R)" businesses ("City
Looks(R) businesses") which are operated and franchised by The Barbers,
Hairstyling for Men & Women, Inc. ("The Barbers") and the "Hair Performers(R)
businesses which are serviced by Hair Performers International, Inc., a
wholly-owned subsidiary of The Barbers, are full service hair care salons that
address different markets and, thus, are not competitive with We Care Hair
businesses. Further, the FRANCHISEE acknowledges and agrees that The Barbers and
Hair Performers International, Inc. will have the absolute right to develop,
own, manage, license or franchise City Looks(R) and Hair Performers(R)
businesses at any location in the world, and the FRANCHISEE hereby waives any
and all rights that it may have or allege against WCH or any affiliate of WCH
resulting from the opening of any City Looks(R) or Hair Performers(R) business,
including those City Looks(R) or Hair Performers(R) businesses that may be
located in the Franchised Area or near, adjacent or contiguous to any of the
FRANCHISEE'S We Care Hair Businesses.
14.7 COST CUTTERS(R) AND FAMILY HAIRCUT(R) BUSINESSES. The FRANCHISEE agrees and
acknowledges that the "Cost Cutters Family Hair Care(R)" businesses which are
franchised by The Barbers and the Family Haircut(R) business serviced by The
Barbers ("Cost Cutters(R) and Family Haircut(R) businesses"), are hair care
salons that address similar markets and, thus, may be competitive with We Care
Hair businesses. Further, the FRANCHISEE acknowledges and agrees that The
Barbers will have the absolute right to develop, own, manage, license or
franchise Cost Cutters(R) and Family Haircut(R)
<PAGE>
businesses at any location in the world, and the FRANCHISEE hereby waives any
and all rights that it may have or allege against WCH or any affiliate of WCH
resulting from the opening of any Cost Cutters(R) or Family Haircut(R) business,
including those Cost Cutters(R) and Family Haircut(R) businesses that may be
located in the Franchised Area or near, adjacent or contiguous to any of the
FRANCHISEE'S We Care Hair Businesses.
ARTICLE 15
DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL
15.1 DISCLAIMER BY FRANCHISOR. WCH expressly disclaims the making of any express
or implied representations or warranties regarding the sales, earnings, income,
profits, Gross Revenues, business or financial success, or value of the
FRANCHISEE'S Businesses, except those expressly set forth in Item 19 of the We
Care Hair Uniform Franchise Offering Circular received by the FRANCHISEE.
15.2 ACKNOWLEDGMENTS BY FRANCHISEE. The FRANCHISEE acknowledges that it has not
received any express or implied representations or warranties regarding the
sales, earnings, income, profits, Gross Revenues, business or financial success,
value of the Businesses or any other matters pertaining to the We Care Hair
Businesses from WCH or any of WCH'S officers, employees or agents that were not
contained in writing in the Uniform Franchise Offering Circular (including this
Agreement) received by the FRANCHISEE ("representations or warranties"). The
FRANCHISEE further acknowledges that if it had received any representations or
warranties not contained in WCH'S Uniform Franchise Offering Circular, it would
not have executed this Agreement, and the FRANCHISEE would have: (A) promptly
notified the President of WCH in writing of the person or persons making such
representations or warranties; and (B) provided to WCH a specific written
statement detailing the representations or warranties made that were not
contained in the Uniform Franchise Offering Circular received by the FRANCHISEE.
15.3 LEGAL REPRESENTATION. The FRANCHISEE acknowledges that this Agreement
constitutes a legal document which grants certain rights to and imposes certain
obligations upon the FRANCHISEE. The FRANCHISEE was advised by WCH to consult an
attorney or other advisor prior to the execution of this Agreement to review
WCH'S Uniform Franchise Offering Circular, to review this Agreement in detail,
to review the economics, operations and other business aspects of the We Care
Hair Businesses, to determine compliance with franchising and other applicable
laws, to advise the FRANCHISEE about all federal, state and local laws, rules,
ordinances, special regulations and statutes that apply to the FRANCHISEE'S We
Care Hair Businesses and to advise the FRANCHISEE about the economic risks,
liabilities, obligations and rights under this Agreement. The name of the
FRANCHISEE'S attorney or other advisor is:
Name:
-------------------------------------------------------
Name of Firm:
-----------------------------------------------
Address:
----------------------------------------------------
City, State, Zip Code:
--------------------------------------
Telephone Number: ( )
-------------------------------------------
Fax Number: ( )
-------------------------------------------------
<PAGE>
ARTICLE 16
GOVERNING LAW; STATE MODIFICATIONS
16.1 GOVERNING LAW. Except to the extent governed by the United States Trademark
Act of 1946 (Lanham Act, 15 U.S.C. ss.1051 et seq.), this Agreement and the
relationship between WCH and the FRANCHISEE will be governed by the laws of the
state in which the Franchised Area is located. If the Franchised Area contains
more than one state, then the laws of the state in which the FRANCHISEE'S
principal place of business is located will govern. The provisions of this
Agreement which conflict with or are inconsistent with applicable governing law
will be superseded and/or modified by such applicable law only to the extent
such provisions are inconsistent. All other provisions of this Agreement will be
enforceable as originally made and entered into upon the execution of this
Agreement by the FRANCHISEE and WCH.
16.2 STATE MODIFICATIONS. The following states have statutes which may supersede
the provisions of this Agreement in the FRANCHISEE'S relationship with WCH
including the areas of termination and renewal of the Franchise: ARKANSAS [Stat.
Section 70-807], CALIFORNIA [Bus. & Prof. Code Sections 20000-20043],
CONNECTICUT [Gen. Stat. Section 42-133e et seq.], DELAWARE [Code Section 2552],
HAWAII [Rev. Stat. Section 482E-1], ILLINOIS [815 ILCS 705/19 and 705/20],
INDIANA [Stat. Section 23-2-2.7], IOWA [Code 523H.1-523H.17], MICHIGAN [Stat.
Section 19.854(27)], MINNESOTA [Stat. Section 80C14], MISSISSIPPI [Code Section
75-24-51], MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat. Section
87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws Section
37-5A-51], VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code Section
19.100.180], WISCONSIN [Stat. Section 135.03]. These and other states may have
court decisions which may supersede the provisions of this Agreement in the
FRANCHISEE'S relationship with WCH including the areas of termination and
renewal of the Franchise. If the Franchised Area is located in any one of the
states specifically indicated below in this Article 16.2, or if the laws of any
such state are otherwise applicable, then the designated provisions of this
Agreement will be amended and revised as follows:
CALIFORNIA. If this Agreement is governed by the laws of the State of
California, then the covenant not to compete upon termination or expiration of
this Agreement contained in Article 8.3 may be unenforceable, except in certain
circumstances provided by law.
ILLINOIS. If this Agreement is governed by the laws of the State of
Illinois, then: (1) the consent by the FRANCHISEE to jurisdiction and venue in
Hennepin County, Minnesota contained in Article 12.6 may be inapplicable;
provided, however, that such inapplicability in the State of Illinois will not
be construed to mean that venue in Hennepin County, Minnesota is improper, or
that the FRANCHISEE and its officers, directors and shareholders are not subject
to jurisdiction in Hennepin County, Minnesota, or in any other state; and (2)
Section 41 of the Illinois Franchise Disclosure Act states that "any condition,
stipulation or provision purporting to bind any person acquiring any franchise
to waive compliance with any provision of this Act is void", accordingly any
acknowledgments contained in Article 14.2, Article 14.4, Article 15.2, and the
second sentence of Article 14.1 will be unenforceable against the FRANCHISEE.
INDIANA. If this Agreement is governed by the laws of the State of
Indiana, then: (1) the geographical limitation contained in Article 8.3 will be
limited to an area of reasonable size; (2) the consent by the FRANCHISEE to
jurisdiction and venue in Hennepin County, Minnesota contained in Article 12.6
and the Personal Guaranty attached to this Agreement may be inapplicable;
provided,
<PAGE>
however, that such inapplicability in the State of Indiana will not be construed
to mean that venue in Hennepin County, Minnesota is improper, or that the
FRANCHISEE and its officers, directors, shareholders and Personal Guarantors are
not subject to jurisdiction in Hennepin County, Minnesota, or in any other
state; (3) notwithstanding any provisions of this Agreement to the contrary, a
Court of competent jurisdiction will determine the adequacy of money damages,
whether WCH will be required to post a bond or other security, and the amount of
such bond or other security, in any injunctive proceeding commenced by WCH
against the FRANCHISEE or the FRANCHISEE'S shareholders; (4) the provisions of
Article 11 requiring Arbitration hearings to take place in Minneapolis,
Minnesota will be inapplicable and in the event of Arbitration between WCH and
the FRANCHISEE, such Arbitration will be conducted in Indianapolis, Indiana or
at a mutually agreed upon location; (5) the parties' waiver of their right to
claim punitive damages, as set forth in Article 11.5, will be inapplicable; (6)
notwithstanding any provisions of this Agreement to the contrary, the FRANCHISEE
will have the right to petition a Court of competent jurisdiction for injunctive
relief relating to WCH'S improper termination of this Agreement or WCH'S
unreasonable refusal to consent to transfer or assignment by the FRANCHISEE
pursuant to Article 10 of this Agreement; (7) Article 9.2 is hereby amended to
provide that the FRANCHISEE will not be required to indemnify WCH for any
liability imposed upon WCH as a result of the FRANCHISEE'S reliance upon or use
of procedures or products which were required by WCH, if such procedures or
products were utilized by the FRANCHISEE in the manner prescribed by WCH; (8)
Article 9.3 is hereby amended to state that WCH has the right to seek recovery
of all costs and expenses, including actual attorneys' fees, incurred by WCH in
enforcing any term, condition or provision of this Agreement or in seeking to
enjoin any violation of this Agreement by the FRANCHISEE; and (9)
notwithstanding anything to the contrary in Article 12.9, the FRANCHISEE does
not waive any right under the Indiana statutes with regard to prior
representations made in the Indiana Uniform Franchise Offering Circular.
MINNESOTA. If this Agreement is governed by the laws of the State of
Minnesota, then: (1) Article 6.2 will be amended to require that, except as set
forth in Article 6.5 and Article 6.6, in the event WCH gives the FRANCHISEE
written notice that the FRANCHISEE has breached this Agreement, such written
notice will be given to the FRANCHISEE at least ninety (90) days prior to the
date this Agreement is terminated by WCH, and the FRANCHISEE will have sixty
(60) days after having been given such written notice within which to correct
the breach specified in the written notice; and (2) notwithstanding any
provisions of this Agreement to the contrary, a Court of competent jurisdiction
will determine whether WCH will be required to post a bond or other security,
and the amount of such bond or other security, in any injunctive proceeding
commenced by WCH against the FRANCHISEE or the FRANCHISEE'S shareholders.
NORTH DAKOTA. If this Agreement is governed by the laws of the State of
North Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 8.3 may be unenforceable,
except in certain circumstances provided by law; (2) the consent by the
FRANCHISEE to jurisdiction and venue in Hennepin County, Minnesota contained in
Article 12.6 may be inapplicable; provided, however, that such inapplicability
in the State of North Dakota will not be construed to mean that venue in
Hennepin County, Minnesota is improper, or that the FRANCHISEE and its officers,
directors and shareholders are not subject to jurisdiction in Hennepin County,
Minnesota, or in any other state; (3) the provisions of Article 11 requiring
Arbitration hearings to take place in Minneapolis, Minnesota will be
inapplicable and in the event of Arbitration between WCH and the FRANCHISEE,
such Arbitration will be conducted in Fargo, North Dakota or at a mutually
agreed upon location; and (4) the parties' waiver of their right to claim
punitive damages, as set forth in Article 11.5, may not be enforceable under
North Dakota law.
<PAGE>
RHODE ISLAND. If this Agreement is governed by the laws of the State of
Rhode Island, then any provision of this Agreement which restricts jurisdiction
or venue to a forum outside the State of Rhode Island is void with respect to a
claim otherwise enforceable under the Rhode Island Franchise Investment Act.
SOUTH DAKOTA. If this Agreement is governed by the laws of the State of
South Dakota, then: (1) the covenant not to compete upon termination or
expiration of this Agreement contained in Article 8.3 may be unenforceable,
except in certain circumstances provided by law; (2) any provision of this
Agreement which designates jurisdiction or venue outside of the State of South
Dakota or requires the FRANCHISEE to agree to jurisdiction or venue in a forum
outside of the State of South Dakota is void with respect to any cause of action
which is otherwise enforceable in the State of South Dakota; (3) the provisions
of Article 11 requiring Arbitration hearings to take place in Minneapolis,
Minnesota will be inapplicable and in the event of Arbitration between WCH and
the FRANCHISEE, such Arbitration will be conducted in Sioux Falls, South Dakota
or at a mutually agreed upon location; and (4) Pursuant to SDCL ss.37-5A-86, any
acknowledgment provision, disclaimer, integration clause or a provision having a
similar effect in this Agreement will not negate or act to remove from judicial
review any statement, misrepresentation or action that violates Chapter 37-5A or
a rule or order under Chapter 37-5A.
WISCONSIN. If this Agreement is governed by the laws of the State of
Wisconsin, then the provisions of the Wisconsin Fair Dealership Law, Wis. Stat.
Chapter 135, will supersede any conflicting terms of this Agreement.
16.3 SEVERABILITY. The severability provisions of this Agreement contained in
Article 8.5, Article 11.10 and Article 12.2 of this Agreement will pertain to
all of the applicable laws which conflict with or modify the provisions of this
Agreement including, but not limited to, the provisions of this Agreement
specifically addressed in Article 16.2 above.
ARTICLE 17
DEFINITIONS
17.1 ABANDON. "Abandon" as used in this Agreement will mean the conduct of the
FRANCHISEE, including acts of omission as well as commission, indicating the
willingness, desire or intent of the FRANCHISEE to discontinue the opening and
operating of We Care Hair Businesses in the Franchised Area in accordance with
the terms of this Agreement.
17.2 TERMS DEFINED IN FRANCHISE AGREEMENT. Capitalized terms used but not
defined in this Agreement will, if defined in the Franchise Agreement, have the
meanings ascribed to such terms in the Franchise Agreement.
<PAGE>
IN WITNESS WHEREOF, WCH, the FRANCHISEE, and the shareholders or partners of the
FRANCHISEE have executed this Agreement effective as of the day and year first
above written.
"WCH"
In the Presence of: WCH, INC.
----------------------------------------
By
- ------------------------------------- -------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
<PAGE>
The undersigned individual shareholders or partners of the FRANCHISEE
hereby agree to be bound by the terms and conditions of this Agreement.
Percentage of
In the Presence of: SHAREHOLDERS Ownership
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
The undersigned spouse(s) of the individual FRANCHISEE(S) hereby agree to be
bound by the terms and conditions of this Agreement regarding confidentiality of
information and covenants not to compete.
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
Print Name Print Name
<PAGE>
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE TERMS AND CONDITIONS
OF THE DEVELOPMENT AGREEMENT
In consideration of the execution of this Agreement by WCH, and for
other good and valuable consideration, the undersigned, for themselves, their
heirs, successors, and assigns, do jointly, individually and severally hereby
become surety and guaranty for the payment of all amounts and the performance of
the covenants, terms and conditions in this Agreement, to be paid, kept and
performed by the FRANCHISEE.
Further, the undersigned, individually and jointly, hereby agree to be
personally bound by each and every condition and term contained in this
Agreement and agree that this PERSONAL GUARANTY will be construed as though the
undersigned and each of them executed an Agreement containing the identical
terms and conditions of this Agreement.
If the FRANCHISEE breaches the terms and conditions of this Agreement,
then the undersigned, their heirs, successors and assigns, do hereby,
individually, jointly and severally, promise and agree to pay to WCH all monies
due and payable to WCH under the terms and conditions of this Agreement.
In addition, if the FRANCHISEE fails to comply with any other terms and
conditions of this Agreement, then the undersigned, their heirs, successors and
assigns, do hereby, individually, jointly and severally, promise and agree to
comply with the terms and conditions of this Agreement for and on behalf of the
FRANCHISEE.
In addition, should the FRANCHISEE at any time be in default on any
obligation to pay monies to WCH or any subsidiary or affiliate of WCH, whether
for merchandise, products, supplies, furniture, fixtures, equipment or other
goods purchased by the FRANCHISEE from WCH or any subsidiary or affiliate of WCH
or for any other indebtedness of the FRANCHISEE to WCH or any subsidiary or
affiliate of WCH, then the undersigned, their heirs, successors and assigns, do
hereby, individually, jointly and severally, promise and agree to pay all such
monies due and payable from the FRANCHISEE to WCH or any subsidiary or affiliate
of WCH.
It is further understood and agreed by the undersigned that the
provisions, covenants and conditions of this GUARANTY will inure to the benefit
of the successors and assigns of WCH. Each of the undersigned hereby submits to
personal jurisdiction in the state or federal courts of Minnesota with respect
to any litigation pertaining to this GUARANTY, and agrees that all litigation
pertaining to this GUARANTY will and must be venued exclusively in Hennepin
County, Minnesota.
<PAGE>
PERSONAL GUARANTORS
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
- ------------------------------------- ---------------------------------------
INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE FIRST QUARTER OF FISCAL 1998 CONTAINED IN
THE COMPANY'S REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-24-1998
<PERIOD-START> SEP-26-1997
<PERIOD-END> DEC-25-1997
<CASH> 2,633,123
<SECURITIES> 0
<RECEIVABLES> 4,301,633
<ALLOWANCES> (500,000)
<INVENTORY> 1,801,869
<CURRENT-ASSETS> 8,710,979
<PP&E> 3,069,321
<DEPRECIATION> (2,165,883)
<TOTAL-ASSETS> 13,176,736
<CURRENT-LIABILITIES> 3,380,012
<BONDS> 0
0
0
<COMMON> 260,050
<OTHER-SE> 7,006,032
<TOTAL-LIABILITY-AND-EQUITY> 13,176,736
<SALES> 2,661,215
<TOTAL-REVENUES> 6,436,828
<CGS> 2,090,946
<TOTAL-COSTS> 3,349,614
<OTHER-EXPENSES> 2,569,871
<LOSS-PROVISION> 66,835
<INTEREST-EXPENSE> 54,119
<INCOME-PRETAX> 516,010
<INCOME-TAX> 217,000
<INCOME-CONTINUING> 299,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299,010
<EPS-PRIMARY> .12
<EPS-DILUTED> .10
</TABLE>
