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 24, 1998
[ ] 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 5, 1999, the registrant had 3,990,769 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 24, 1998 and December 25, 1997
Condensed Consolidated Statements of Financial Position at December 24,
1998 and September 24, 1998
Condensed Consolidated Statements of Cash Flows for the Quarter Ended
December 24, 1998 and December 25, 1997
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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 2.1 Agreement and Plan of Merger between Regis Corporation, Regis
Merger Sub, Inc. and The Barbers, Hairstyling for Men & Women,
Inc. dated January 25, 1999
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 We Care Hair Franchise Agreement
Exhibit 10.4 Form of We Care Hair Development Agreement
Exhibit 10.5 Form of City Looks Salons International Franchise Agreement
Exhibit 10.6 Form of City Looks Salons International Development Agreement
Exhibit 99.1 Press Release
Exhibit 27 Financial Data Schedule
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FIRST QUARTER F1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 24, December 25,
1998 1997
------------- -------------
<S> <C> <C>
REVENUES
Franchise Royalties $ 2,150,143 $ 1,889,429
Franchise Fees 226,636 330,500
Company-Owned Salons 1,793,239 1,332,704
Beauty Products & Equipment 2,722,920 2,661,215
Other 230,791 222,980
------------- -------------
Total Revenues 7,123,729 6,436,828
COSTS & EXPENSES
Franchise Operations
Salaries & Benefits 542,135 553,305
General & Administrative 356,458 402,375
------------- -------------
Total 898,593 955,680
------------- -------------
Company-Owned Salons
Salaries & Benefits 942,677 689,241
General & Administrative 452,387 327,364
Cost of Products & Services 362,135 242,063
------------- -------------
Total 1,757,199 1,258,668
------------- -------------
Distribution & General Administration
Salaries & Benefits 901,372 797,716
General & Administrative 905,256 816,475
Cost of Products & Equipment 2,053,204 2,090,946
------------- -------------
Total 3,859,832 3,705,137
------------- -------------
OPERATING INCOME 608,105 517,343
OTHER INCOME (EXPENSE)
Interest Income 63,361 52,786
Interest Expense (26,966) (54,119)
Net Gain on Disposal of Assets 150 --
------------- -------------
INCOME BEFORE INCOME TAXES 644,650 516,010
INCOME TAX EXPENSE 264,000 217,000
------------- -------------
NET INCOME $ 380,650 $ 299,010
============= =============
AVERAGE SHARES OUTSTANDING 3,978,750 3,891,146
============= =============
BASIC EARNINGS PER SHARE $ 0.10 $ 0.08
============= =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,427,753 4,297,793
============= =============
DILUTED EARNINGS PER SHARE $ 0.09 $ 0.07
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 24, September 24,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS (Unaudited) (Note 1)
Current assets:
Cash $ 2,867,984 $ 2,931,376
Trade receivable, less allowance for doubtful 3,114,599 2,693,108
accounts of $410,000 in December 1998 and
$400,000 in September 1998
Notes receivable 498,081 398,585
Inventories held for resale 2,108,232 2,166,420
Prepaid expenses 123,267 111,682
Deferred income taxes 419,000 419,000
------------- -------------
Total current assets 9,131,163 8,720,171
Notes receivable, less current portion and allowance for
doubtful notes of $200,000 in December 1998 and
$200,000 in September 1998 829,334 975,394
Property, equipment and leasehold impovements, at cost:
Equipment 2,975,260 2,807,858
Leasehold improvements 1,012,700 1,012,700
------------- -------------
3,987,960 3,820,558
Less accumulated depreciation 2,463,697 2,370,837
------------- -------------
Net property, equipment and leasehold improvements 1,524,263 1,449,721
Investment in franchise contracts, less accumulated
amortization of $628,766 in December 1998 and
$563,741 in September 1998 2,351,610 2,416,635
Deferred income taxes 417,000 417,000
Other assets 376,976 353,191
------------- -------------
Total assets $ 14,630,346 $ 14,332,112
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 191,743 $ 187,576
Accounts payable 479,292 858,097
Deferred franchise fees 83,376 60,500
Committed advertising 1,255,011 1,087,310
Accrued compensation and related payroll taxes 958,472 1,187,813
Other accrued expenses 402,538 264,853
Income taxes payable 285,663 101,983
------------- -------------
Total current liabilities 3,656,095 3,748,132
Long term debt and capital lease obligations 987,675 1,036,866
Deferred franchise fees 298,250 298,250
Deferred compensation 383,624 363,857
Shareholders' equity:
Common stock 398,319 397,524
Additional paid in capital 502,144 463,894
Retained earnings 8,404,239 8,023,589
------------- -------------
Total shareholder's equity 9,304,702 8,885,007
------------- -------------
Total liabilities and shareholders' equity $ 14,630,346 $ 14,332,112
============= =============
</TABLE>
Note 1: The balance sheet at September 24, 1998 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 1998 items have been
reclassified to conform with the fiscal 1999 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 24, December 25,
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 380,650 $ 299,010
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 157,884 116,345
Provision for losses on accounts and notes receivable 42,973 66,835
Gain on sales of property and equipment (150) --
Stock compensation 35,895 20,400
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts and notes receivable (417,900) (401,230)
Inventories held for resale 58,188 (117,557)
Prepaid expenses (11,585) 6,390
Other assets (23,785) (15,820)
(Decrease) increase in:
Payables and accrued expenses (282,993) (86,416)
Deferred franchise fees 22,876 47,500
Income taxes payable 183,680 37,736
------------- -------------
Net cash provided by (used in) operating activities 145,733 (26,807)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 150 --
Capital expenditures (167,401) (79,967)
Investment in franchise contracts -- --
------------- -------------
Net cash used in investing activities (167,251) (79,967)
FINANCING ACTIVITIES
Principle payments on long-term debt (45,024) (59,516)
Proceeds from issuance of stock options 3,150 9,480
------------- -------------
Net cash used in financing activities (41,874) (50,036)
------------- -------------
Net decrease in cash and cash equivalents (63,392) (156,810)
Cash and cash equivalents at beginning of period 2,931,376 2,789,933
------------- -------------
Cash and cash equivalents at end of period $ 2,867,984 $ 2,633,123
============= =============
CASH PAID DURING PERIOD FOR:
Interest $ 26,966 $ 54,119
Taxes $ 80,320 $ 179,264
</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-QSB 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 24, 1998, are not necessarily indicative of the results
that may be expected for the year ended September 30, 1999. 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 24, 1998.
NOTE B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share as defined by the Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Quarter Ended
-------------
December 24, December 25,
1998 1997
---- ----
<S> <C> <C>
Numerator:
Net Income $ 380,650 $ 299,010
============ ============
Denominator:
Denominator for basic earnings
per share - weighted average
shares 3,978,750 3,891,146
Effect of dilutive stock options and
warrants 449,003 406,647
------------ ------------
Denominator for diluted earnings
per share - adjusted weighted
average shares 4,427,753 4,297,793
============ ============
Basic earnings per share $ 0.10 $ 0.08
============ ============
Diluted earnings per share $ 0.09 $ 0.07
============ ============
</TABLE>
<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"), "City Looks Salons International(R)"
("City Looks"), or "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 979 franchised and company-owned salons in operation as
of December 24, 1998, compared to 962 at December 25, 1997. 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 year 1999
includes 53 weeks of operation and 1998 includes 52 weeks of operations.
RESULTS OF OPERATIONS
REVENUES: The Company's total revenues were $7,123,729 for the first quarter of
fiscal 1999, an increase of $686,901 or 10.7% over the first quarter of the
previous year. Franchise royalties totaled $2,150,143 for the first quarter of
fiscal 1999, which is an increase of 13.8% 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 1999 as compared to fiscal 1998. Franchise fee revenue (initial franchise
fees) decreased $103,864 or 31.4% to $226,636 for the first quarter of fiscal
1999. The decrease in franchise fee revenue was due to a decrease in the number
of new salons opened during the comparable periods. A total of 18 franchised and
two company-owned salons opened in the first quarter of fiscal 1999 compared to
31 new franchised salons in the first quarter of the previous year. Revenue from
company-owned salons was $1,793,239 for the first quarter, an increase of 34.6%
over the first quarter of the previous year. The increase in revenue from
company-owned salons is due primarily to the addition of nine new company-owned
salons opened over the last twelve months and sales growth at salons opened in
previous years. Beauty product and equipment sales for the first quarter of
fiscal 1999 were $2,722,920, an increase of $61,705 or 2.3% from the first
quarter of the previous year. Beauty product sales increased 16.4%, however
equipment sales decreased 18.2% because of fewer openings of new salons versus
the first quarter of last year.
COSTS & EXPENSES - FRANCHISE OPERATIONS: Total franchise operations expenses
were $898,593 for the first quarter of fiscal 1999. This was a decrease of 6.0%
from the first quarter of fiscal 1998. Several factors contributed to this
reduction in expenses. There was a decrease in franchise sales commissions paid
due to the decrease in the number of franchised salons opened during the
quarter. Some staff positions were repositioned to administrative departments.
Travel, vehicle and printing costs were also less than the prior year.
COSTS & EXPENSES - COMPANY-OWNED SALONS: The Company presently owns and operates
32 salons: 31 operate as Cost Cutters salons and one operates as a City Looks.
25 of the Cost Cutters operate inside Wal-Mart Supercenters. This compares to 23
salons open during the first quarter of the prior fiscal year. First quarter
operating costs for the Company-owned salons were $1,757,199 as compared to
$1,258,668 for the first quarter of the previous year, an increase of 39.6%.
This increase was primarily due to an increase in the number of salons in
operation and an increase in the direct costs associated with increased sales of
services and beauty products.
COSTS & EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION: Total operating
expenses for distribution and general administration for the first quarter of
fiscal 1999 were $3,859,832 which is a increase of $154,695 or 4.2% from the
first quarter of the prior year. The first quarter cost of products and
equipment sold was $2,053,204 versus a prior year cost of $2,090,946, a decrease
of 1.8%. Margins on the sale of products and equipment were 24.6% versus 21.4%
the previous year. The increase in margins is primarily due to changes in
product mix: more beauty products and less equipment. Salaries and benefits were
$901,372 for the first quarter of fiscal 1999 versus $797,716 for the first
quarter of fiscal 1998, an increase of 13.0%. This increase was due
<PAGE>
to increases in staff size and an average increase in salaries of 4.0%. General
and administrative expenses for the first quarter increased by $88,781 or 10.9%
from the previous year to $905,256. This increase was due to increased
depreciation costs associated with the Company's new distribution center and
professional fees incurred in a secondary stock offering. This stock offering
was announced in September 1998 and withdrawn in January 1999.
OPERATING INCOME: Operating income was $608,105 for the first quarter of fiscal
1999 as compared to $517,343 for the comparable period of the prior year, an
increase of 17.5%. Operating income as a percent of revenue was 8.5% for the
first quarter of fiscal 1999 versus 8.0% for the comparable period of the
previous fiscal year.
INTEREST INCOME AND EXPENSE: Interest income was $63,361 for the first quarter
of fiscal 1999, which is an increase of $10,575 or 20.0% from the interest
income of the first quarter of fiscal 1998. Interest expense was $26,966 for the
first quarter of fiscal 1999 compared to $54,119 for the comparable period of
fiscal 1998. This decrease in interest expense was due to early repayment of
long-term debt associated with the acquisition of We Care Hair.
INCOME TAXES: The Company's effective tax rates for the first quarter of fiscal
1999 and fiscal 1998 were 41.0% and 42.1%, respectively. The Company anticipates
that the rate for the balance of fiscal 1999 will be approximately 41%.
NET INCOME: The Company's net income for the first quarter of 1999 was $380,650
or $.09 per diluted share. This was an increase of $81,640 or 27.3% over the
first quarter of fiscal 1998 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 1999. The Company
expects capital expenditures during fiscal 1999 to be approximately $1,000,000
to $1,500,000, primarily due to the addition of new company-owned salons,
investments in computer upgrades and routine replacement of office equipment.
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, 1999.
In addition, the Company also has a term loan with this same lender. The loan
carries an interest rate of 8.82% and had a balance of $1,179,418 at December
24, 1998.
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.
YEAR 2000
The Year 2000 issue focuses on whether computer systems will properly
recognize date-sensitive information in the Year 2000 and beyond. Many installed
computer systems and software products are coded to accept only two digit
entries in the date code field. As the Year 2000 approaches, these code fields
will need to accept four digit entries to distinguish years beginning with "19"
from those beginning with "20." This inability to recognize or properly treat
the Year 2000 may cause systems to process financial and operational information
incorrectly. As a result, in the next year, computer systems and/or software
products used by many companies may need to be upgraded to comply with such Year
2000 requirements. The Company is dependent on computer processing in its
business activities and the Year 2000 issue creates risk for the Company from
unforeseen problems in the Company's computer system and from third parties with
whom the Company does business. The failure of the Company's computer system
and/or third parities computer systems from unforeseen problems could have a
material adverse effect on the Company's ability to conduct its business.
The Company is in the process of conducting an assessment of its
computer hardware and software for Year 2000 compliance. The Company does not
have a scheduled completion date for this assessment, but it anticipates that
all necessary upgrades and corrections necessitated by the results of this
assessment will be completed before January 1, 2000. As part
<PAGE>
of this assessment, the Company is also examining whether it needs to develop
contingency plans related to Year 2000 issues. The Company does not currently
have any such contingency plans. The Company believes that the results of this
assessment will indicate that the Company's primary computer system is Year 2000
compliant. The Company also believes that the results of this assessment will
require the company to upgrade certain of its computer hardware and software to
replace obsolete equipment and to ensure that all such hardware and software is
Year 2000 compliant. The Company anticipates that the aggregate costs of this
upgrade will be $500,000 to $1,000,000 and that such costs will be incurred
during the next two fiscal years. If the Company encounters any unanticipated
delays in, or costs associated with the upgrading or replacement of this system,
or if this assessment indicates that the Company's primary computer is not Year
2000 compliant, the Company may incur additional costs.
The Company has completed an assessment of its non-information
technology systems. As a result of this assessment, the Company is in the
process of replacing its phone system in order to insure that it is Year 2000
compliant. The estimated cost of this phone system replacement is $60,000. If
the Company encounters any unanticipated delays in, or costs associated with the
upgrading or replacement of this system, the Company may incur additional costs.
As part of its assessment of its computer hardware and software for
Year 2000 compliance, the Company has also contacted each of its vendors and
suppliers who provide computer hardware and software products to the Company on
a regular basis with regard to Year 2000 compliance. The Company has received
assurances from these vendors and suppliers that the hardware and software
currently being purchased by the Company from these vendors and suppliers is
Year 2000 compliant. The Company is in the process of developing procedures to
test hardware and software products previously purchased from these vendors and
suppliers to determine if those products are Year 2000 compliant. As an
additional part of this assessment, the Company intends to contact its
significant vendors and suppliers of products other than computer hardware and
software regarding their Year 2000 compliance. The failure to be Year 2000
compliant by any of the Company's significant vendors and suppliers could result
in an interruption in or a failure of, certain normal business activities or
operations of the Company. Such failures could materially and adversely affect
the Company's business, results of operations, and financial condition. Due to
the general uncertainty inherent in the Year 2000 problem, resulting from the
uncertainty of the Year 2000 readiness of the Company's significant vendors and
suppliers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
business, results of operations, or financial condition.
The Company is also working with its franchisees to assist them in
identifying Year 2000 issues. Although the Company's current version of its
point of sale software is Year 2000 compliant, the Company believes that many of
its franchisee's hardware systems are not Year 2000 compliant. The Company is in
the process of developing test procedures to assist its franchisees in testing
their hardware systems for Year 2000 compliance. The Company does not anticipate
incurring significant costs related to assisting its franchisees in this manner.
<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 and are awaiting
the Court's decision on their pending motion to compel arbitration. 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, in the
co-defendants' action, 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. In
addition, on March 9, 1998, the Appellate Court of Illinois - Fifth District
ordered the State Court proceeding to be transferred to the Circuit Court of
Cook County, Illinois.
<PAGE>
ITEM 5. OTHER INFORMATION
On January 25, 1999, The Barbers, Hairstyling for Men & Women, Inc.
("The Barbers") and Regis Corporation ("Regis") entered into a definitive Merger
Agreement for Regis to acquire The Barbers.
A copy of the press release disclosing the execution of the Merger
Agreement is attached hereto as Exhibit 99.1 and is incorporated by reference
herein.
The description contained in this Form 10-QSB and in the press release
attached hereto as Exhibit 99.1 does not purport to be complete and qualified in
its entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Exhibit 2.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger between Regis Corporation, Regis
Merger Sub, Inc. and The Barbers, Hairstyling for Men & Women,
Inc. dated January 25, 1999
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 We Care Hair Franchise Agreement
10.4 Form of We Care Hair Development Agreement
10.5 Form of City Looks Salons International Franchise Agreement
10.6 Form of City Looks Salons International Development Agreement
99.1 Press Release
27 Financial Data Schedule
<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 5, 1999 By: /s/ Frederick A. Huggins
------------------------
Frederick A. Huggins, Jr.
President
By: /s/ J. Brent Hanson
-------------------
J. Brent Hanson
Chief Financial Officer
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of January 25, 1999 by and between Regis
Corporation, a Minnesota corporation ("BUYER"), Regis Merger Sub, Inc., a
Minnesota corporation ("SUB") and The Barbers, Hairstyling for Men & Women,
Inc., a Minnesota corporation ("COMPANY"). BUYER, SUB and COMPANY are referred
to individually herein as a "Party" and collectively herein as the "Parties."
This Agreement contemplates a merger of SUB, a newly formed, wholly
owned first tier subsidiary of BUYER with and into COMPANY in a reorganization
pursuant to Code ss. 368(a)(1)(A) and 368(a)(2)(E) whereby the COMPANY
stockholders will receive voting common stock of BUYER in exchange for all of
their capital stock in COMPANY, all pursuant to the plan of reorganization set
forth herein.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Definitions.
"Acquisition Proposal" means any bona fide proposal by a Person
which proposes a (A) merger, consolidation or similar transaction involving
COMPANY, (B) sale, lease or other disposition directly or indirectly, by merger,
consolidation, share exchange or otherwise, of substantially all of the assets
of COMPANY and its Subsidiaries taken together, (C) issuance, sale or other
disposition of (including by way of merger, consolidation, share exchange or any
similar transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing a majority of the
voting power of COMPANY or (D) a transaction in which any Person, including,
without limitation, COMPANY and any Subsidiary, or any affiliate thereof (other
than BUYER) shall acquire beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act), or the right to acquire beneficial ownership of
50% or more of the outstanding Common Stock of COMPANY, or if any Person shall
have commenced a tender or exchange offer for 50% or more (or which, assuming
the maximum amount of securities which could be purchased, would result in any
Person beneficially owning 50% or more) of the then outstanding Common Stock.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Benefit Plans" has the meaning set forth in Section 3.11 below.
"Break-up Fee" has the meaning set forth in Section 5.10(b).
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"BUYER" has the meaning set forth in the preface above.
"BUYER Share" means any share of the Common Stock, $.05 par value
per share, of BUYER.
"BUYER's Knowledge" means the actual knowledge of any of either
Myron Kunin, Paul D. Finkelstein, Randy L. Pearce, Christopher A. Fox, Mary
Andert, Bruce D. Johnson, Gordon Nelson, Mark Kartarik and/or Bert M. Gross.
"Certificate" and "Certificates" have the meanings set forth in
Section 2.9(a) below.
"Certificate of Incorporation" has the meaning set forth in Section
2.4(b) below.
"Certificate of Merger" has the meaning set forth in Section 2.3
below.
"Claim" and "Claims" have the meanings set forth in Section 5.5(a)
below.
"Closing" has the meaning set forth in Section 2.2 below.
"Closing Agreement" has the meaning set forth in Section 3.9(s)(iv)
below.
"Closing Date" has the meaning set forth in Section 2.2 below.
"Code" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY Proxy Statement" has the meaning set forth in Section
3.17(ii) below.
"COMPANY Share" means any share of the Common Stock, $.10 par value
per share, of COMPANY.
"COMPANY Stockholder" means any Person who or which holds any
COMPANY Shares.
"COMPANY's Knowledge" means the actual knowledge of any of either
Florence F. Francis, Frederick A. Huggins, Jr., Connie L. Boltinghouse, John A.
Fox, James W. George, J. Brent Hanson, Donna R. Hazelton, Patricia D. Kessler,
Kathryn L. Waycaster, and/or John W. Francis.
"Conversion Ratio" has the meaning set forth in Section 2.5 below.
"Disclosure Schedule" has the meaning set forth in Article 3 below.
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"Effective Time" has the meaning set forth in Section 2.4(a) below.
"Environmental Laws" has the meaning set forth in Section 3.12(a)
below.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Agent" has the meaning set forth in Section 2.9(b) below.
"Expenses" has the meaning set forth in Section 8.1 below.
"Fairness Opinion" has the meaning set forth in Section 6.2(i)
below.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Hazardous Substance" has the meaning set forth in Section 3.12(b)
below.
"Indemnitee" has the meaning set forth in Section 5.5(a) below.
"IRS" means the Internal Revenue Service.
"Loss" and "Losses" have the meanings set forth in Section 5.5(a)
below.
"Material Adverse Effect" has the meaning set forth in Section 3.1
below.
"Material Subsidiaries" means WCH, Inc., CLS International, Inc.,
and The Barbers Export, Inc.
"Merger" has the meaning set forth in Section 2.1 below.
"Merger Consideration" has the meaning set forth in Section 2.5
below.
"Minnesota Business Corporation Act" means the Minnesota Business
Corporation Act, Minnesota Statutes Chapter 302A, as amended.
"Most Recent Fiscal Quarter End" has the meaning set forth in
Section 4.6 below.
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"Multiemployer Pension Plans" has the meaning set forth in Section
3.11(c) below.
"Option Plans" has the meaning set forth in Section 2.6 below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parties" has the meaning set forth in the preface above.
"Party" has the meaning set forth in the preface above.
"Pension Plans" has the meaning set forth in Section 3.11 below.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prospectus" means the final prospectus relating to the registration
of the BUYER Shares under the Securities Act.
"Public Reports" has the meaning set forth in Sections 3.5 and 4.5
below.
"Registration Statement" has the meaning set forth in Section
3.18(i) below.
"Requisite COMPANY Stockholder Approval" means the affirmative vote
of a majority of the COMPANY shares in favor of this Agreement and the Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
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"Special COMPANY Meeting" has the meaning set forth in Section 5.6
below.
"Stock Option" has the meaning set forth in Section 2.6 below.
"SUB" has the meaning set forth in the preface above.
"SUB Share" means any share of Common Stock, $1.00 par value per
share, of SUB.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2.1
below.
"Taxes" has the meaning set forth in Section 3.9(s)(i) below.
"Tax Return" has the meaning set forth in Section 3.9(s)(ii) below.
"Tax Ruling" has the meaning set forth in Section 3.9(s)(iii) below.
"Willful Breach" has the meaning set forth in Section 7.1(c) below.
2. Basic Transaction.
2.1 The Merger. At the Effective Time, on and subject to the terms
and conditions of this Agreement, SUB will merge with and into COMPANY (the
"Merger"). The separate existence of SUB shall cease, and COMPANY shall be the
corporation surviving the Merger (the "Surviving Corporation") and shall be
governed by the laws of the State of Minnesota.
2.2 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the BUYER,
7201 Metro Boulevard, Minneapolis, Minnesota, commencing at 9:00 a.m. local time
on the second business day following the satisfaction or waiver of the
conditions set forth in Section 6 (other than conditions with respect to actions
the respective Parties will take at the Closing itself) or such other date as
the Parties may mutually determine (the "Closing Date").
2.3 Actions at the Closing. At the Closing, (i) COMPANY will deliver
to BUYER and SUB the various certificates, instruments, and documents referred
to in Section 6.1 below, (ii) BUYER and SUB will deliver to COMPANY the various
certificates, instruments, and documents referred to in Section 6.2 below, (iii)
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SUB and COMPANY will file with the Secretary of State of the State of Minnesota
a Certificate of Merger in such form as required by, and executed and certified
in accordance with, the relevant provisions of the Minnesota Business
Corporation Act (the "Certificate of Merger"), and (iv) BUYER will deliver to
the Exchange Agent in the manner provided below in this Article 2 the
certificate evidencing the BUYER Shares issued in the Merger.
2.4 Effect of Merger.
(a) General. The Merger shall become effective at the time (the
"Effective Time") SUB and COMPANY file the Certificate of Merger with the
Secretary of State of the State of Minnesota. The Merger shall have the effect
set forth in the Minnesota Business Corporation Act. The Surviving Corporation
may, at any time after the Effective Time, take any action (including executing
and delivering any document) in the name and on behalf of either SUB or COMPANY
in order to carry out and effectuate the transactions contemplated by this
Agreement.
(b) Certificate of Incorporation. The Certificate of Incorporation
of SUB in effect at and as of the Effective Time will be the Certificate of
Incorporation of the Surviving Corporation upon and following the Merger.
(c) Bylaws. The Bylaws of SUB in effect at and as of the Effective
Time will be the Bylaws of the Surviving Corporation upon and following the
Merger.
(d) Directors and Officers. The directors and officers of SUB in
office at and as of the Effective Time will be the directors and officers of the
Surviving Corporation upon and following the Merger.
2.5 Conversion and Dissenting Shareholders.
(a) Conversion. At and as of the Effective Time, except as otherwise
provided in Section 2.5(b) below and subject to Section 2.9, each COMPANY Share
shall be canceled and retired and shall be converted into the right to receive
one-third (1/3) of one BUYER Share (the ratio of one-third (1/3) of one BUYER
Share to one COMPANY Share is referred to herein as the "Conversion Ratio" and
the BUYER Shares so received are referred to as the "Merger Consideration"),
provided, however, that the Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split,
or other change in the number of COMPANY Shares outstanding. No COMPANY Share
shall be deemed to be outstanding or to have any rights other than those set
forth above in this Section 2.5 after the Effective Time. From the date of this
Agreement to the Closing Date, COMPANY's Board of Directors shall not adopt any
new "poison pill," stockholder rights plan or other similar plan applicable to
the transactions contemplated by this Agreement.
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(b) Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary, any COMPANY Shares held by a person (a "Dissenting
Shareholder") who duly demands appraisal of his or its COMPANY Shares pursuant
to the Minnesota Business Corporation Act and complies with all the provisions
of the Minnesota Business Corporation Act concerning the right of holders of
COMPANY Shares to demand appraisal of their shares in connection with the Merger
shall not be converted as described in Section 2.5(a), but shall become the
right to receive such cash consideration as may be determined to be due to such
Dissenting Shareholder as provided in the Minnesota Business Corporation Act.
If, however, such Dissenting Shareholder withdraws his demand for appraisal or
fails to perfect or otherwise loses his or its right of appraisal, in any case
pursuant to the Minnesota Business Corporation Act, such shares shall be deemed
to be converted as of the Effective Time into the right to receive BUYER Shares,
without interest, pursuant to Section 2.5(a). The COMPANY shall give BUYER (i)
prompt notice of any demands for appraisal of shares received by the COMPANY and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demand. The COMPANY shall not, without the
prior written consent of BUYER, make any payment with respect to, or settle,
offer to settle or otherwise negotiate any such demands.
2.6 Stock Options or Warrants and Related Matters. Prior to the
expiration of twenty business days after the date hereof, COMPANY shall deliver
to BUYER a list setting forth each stock option and warrant issued by the
COMPANY outstanding on the date hereof, whether or not fully exercisable
(collectively, "Stock Options" and individually, a "Stock Option"), to purchase
COMPANY Shares pursuant to all Stock Option Plans of COMPANY, in each case as
amended and in effect as of the date of this Agreement (collectively, the
"Option Plans"). Prior to the Effective Time, the COMPANY shall use its best
efforts to (i) cancel the rights of holders of Stock Options to purchase COMPANY
Shares, and (ii) amend all Stock Options so that, effective at the Effective
Time, COMPANY Shares shall no longer be deliverable upon exercise thereof and in
lieu of COMPANY Shares, such Stock Options shall be exercisable for a number of
BUYER Shares equal to the number of COMPANY Shares subject to such Stock Options
outstanding multiplied by the Conversion Ratio. The per share exercise price for
each such Stock Option shall be the current exercise price per COMPANY Share
divided by the Conversion Ratio. Effective as of the Effective Time, BUYER shall
assume all obligations of COMPANY with respect to such Stock Options, as so
modified. Promptly following the Effective Time, BUYER shall issue option
agreements representing such Stock Options, as so modified.
2.7 No Fractional Shares. No fraction of a BUYER Share will be
issued, but in lieu thereof each holder of COMPANY Shares who would otherwise be
entitled to a fraction of a BUYER Share will, upon surrender thereof to the
Exchange Agent, be paid an amount in cash equal to the value of such fraction of
a share based on the closing sale price for BUYER Shares on the Nasdaq National
Market
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on the last day prior to the Closing Date on which BUYER Shares were traded. No
interest shall be paid on such amount.
2.8 SUB Shares. Each SUB Share issued and outstanding at and as of
the Effective Time shall be canceled and retired and shall be converted into the
right to receive one share of the Surviving Corporation.
2.9 Procedure for Payment.
(a) Merger Consideration. Except as set forth herein, from and after
the Effective Time, each holder of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of
COMPANY stock ("Certificate" or "Certificates") shall be entitled to receive in
exchange therefor, upon surrender thereof to the Exchange Agent, the Merger
Consideration for each share of COMPANY stock so represented by the Certificate
or Certificates surrendered by such holder thereof.
(b) Exchange Agent. Immediately after the Effective Time, (A) BUYER
will furnish to Norwest Bank Minnesota, N.A. (the "Exchange Agent") a stock
certificate (issued in the name of the Exchange Agent or its nominee)
representing that number of BUYER Shares equal to the product of (I) the
Conversion Ratio times (II) the number of outstanding COMPANY Shares plus the
number of such shares subject to options and (B) BUYER will cause the Exchange
Agent to mail a letter of transmittal (with instructions for its use) to each
record holder of outstanding COMPANY Shares for the holder to use in
surrendering the Certificates which represented his or its COMPANY Shares in
exchange for a Certificate representing the number of BUYER Shares to which he
or it is entitled. Such letter of transmittal shall specify that delivery shall
be effected, and risk of loss and title to the Certificate or Certificates shall
pass, only upon proper delivery of the Certificate or Certificates to the
Exchange Agent, shall advise such holder of the effectiveness of the Merger and
the procedures to be used in effecting the surrender of the Certificate or
Certificates for exchange therefor. Upon surrender to the Exchange Agent of a
Certificate or Certificates, together with such letter of transmittal duly
executed and completed in accordance with the instructions thereon, and such
other documents as may be reasonably requested, the Exchange Agent shall,
pursuant to the Merger, promptly deliver to the person entitled to the Merger
Consideration for each share of COMPANY stock so represented by the Certificate
or Certificates surrendered by such holder thereof, and such Certificate or
Certificates shall forthwith be canceled.
(c) Transfer. If delivery of all or part of the Merger Consideration
is to be made to a person other than the person in whose name a surrendered
Certificate is registered, it shall be a condition of such delivery or exchange
that the Certificate so surrendered shall be properly endorsed or shall be
otherwise in
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proper form for transfer and that the person requesting such delivery or
exchange shall have paid any transfer and other taxes required by reason of such
delivery or exchange in a name other than that of the registered holder of the
Certificate surrendered or shall have established to the reasonable satisfaction
of BUYER that such tax either has been paid or is not payable.
(d) Right to Merger Consideration. Until surrendered and exchanged
in accordance with this Section 2.9, each such Certificate shall, after the
Effective Time, represent solely the right to receive the Merger Consideration,
multiplied by the number of shares of COMPANY Shares evidenced by such
Certificate, and shall have no other rights. No interest shall accrue or be
payable on any Merger Consideration. Neither BUYER nor COMPANY shall be liable
to any holder of shares of COMPANY Shares for any Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(e) Dividends on BUYER Shares. From and after the Effective Time, no
holder of a Certificate or Certificates shall be entitled to receive any
dividend or other distribution from BUYER until surrender of such holder of
Certificate or Certificates for a Certificate or Certificates representing BUYER
Shares. Upon such surrender, there shall be paid to the holder the amount of any
dividends or other distributions (without interest) that theretofore became
payable by BUYER, but were not paid by reason of the foregoing with respect to
the number of whole shares of BUYER Shares represented by the Certificate or
Certificates issued upon such surrender. From and after the Effective Time,
BUYER shall, however, be entitled to treat such Certificate or Certificates that
have not yet been surrendered or exchanged as evidencing the ownership of the
aggregate Merger Consideration into which such BUYER Shares represented by such
Certificate or Certificates shall have been converted, notwithstanding any
failure to surrender such Certificate or Certificates.
(f) Termination of Exchange Agent. BUYER may cause the Exchange
Agent to return any BUYER Shares remaining unclaimed 180 days after the
Effective Time, and thereafter each remaining record holder of outstanding
COMPANY Shares shall be entitled to look to BUYER (subject to abandoned
property, escheat, and other similar laws) as a general creditor thereof with
respect to the BUYER Shares and dividends and distributions thereon to which he
or it is entitled upon surrender of his or its certificates.
(g) Fees of Exchange Agent. BUYER shall pay all charges and expenses
of the Exchange Agent.
2.10 Closing of Transfer Records. As of and after the Effective
Time, transfers of COMPANY Shares outstanding prior to the Effective Time shall
not be made on the stock transfer books of the Surviving Corporation.
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2.11 Taking of Necessary Action; Future Action. Each of the parties
will take all such reasonable and lawful action as may be necessary or
appropriate in order to effectuate the Merger as promptly as possible. If, at
any time after the Effective Time, any such further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of both Parties, the officers and
directors of the Surviving Corporation are fully authorized in the name of their
corporation or otherwise to take, and will take, all such lawful and necessary
action.
3. Representations and Warranties of COMPANY.
Except as set forth in the Public Reports (as defined below) of the
COMPANY or the disclosure schedule accompanying this Agreement (the "Disclosure
Schedule"), which shall be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Article 3, COMPANY represents and
warrants to BUYER that:
3.1 Organization, Qualification, and Corporate Power. Each of
COMPANY and its Material Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of COMPANY and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required except for such failures to be so qualified
and in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on COMPANY. As used in this Agreement, the term
"Material Adverse Effect" means with respect to any person, any change or effect
that is materially adverse to the financial condition, business or results of
operations of such person and its subsidiaries, taken as a whole. Each of
COMPANY and its Subsidiaries has full corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. COMPANY beneficially owns all of the outstanding capital stock
of each of its Subsidiaries, except as described in the Disclosure Schedule.
3.2 Capitalization. The entire authorized capital stock of COMPANY
consists of 7,500,000 COMPANY Shares, of which as of December 31, 1998,
3,983,269 COMPANY Shares are issued and outstanding and no COMPANY Shares are
held in treasury. All of the issued and outstanding COMPANY Shares have been
duly authorized and are validly issued, fully paid, and nonassessable. Except as
set forth in the Disclosure Schedule, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require COMPANY to
issue, sell, or otherwise cause to become outstanding any of its capital stock.
Except as set forth in the Disclosure Schedule, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to COMPANY.
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3.3 Authorization of Transaction. COMPANY has full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder subject to receiving the Requisite COMPANY Stockholder
Approval. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly approved by the board of
directors of the COMPANY and no other corporate proceedings on the part of the
COMPANY or its shareholders are necessary to authorize this Agreement and to
consummate the transactions so contemplated other than the Requisite COMPANY
Stockholder Approval and the filing of the Certificate of Merger. Assuming that
this Agreement constitutes a valid and binding obligation of BUYER, this
Agreement has been duly executed and delivered and constitutes the valid and
legally binding obligation of COMPANY, enforceable in accordance with its terms
and conditions except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally; and
(ii) the remedy of specific performance and injunctive and other forms of
equitable remedies may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) materially violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of COMPANY and its Subsidiaries is
subject or any provision of the charter or bylaws of any of COMPANY and its
Subsidiaries or (ii) materially conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material agreement, contract, lease, license, instrument or other arrangement to
which any of COMPANY and its Subsidiaries is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). Other than in connection with the
provisions of the Hart-Scott-Rodino Act, the Minnesota Business Corporation Act,
the Securities Exchange Act, the Securities Act, and the state securities laws,
none of COMPANY and its Subsidiaries needs to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
3.5 Filings with the SEC. COMPANY has made all filings with the SEC
that it has been required to make under the Securities Act and the Securities
Exchange Act (collectively, the "Public Reports"). Each of the Public Reports
has complied with the Securities Act and the Securities Exchange Act in all
material
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respects. None of the Public Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. BUYER and SUB
acknowledge that (i) the COMPANY's Public Reports contain projections, (ii)
BUYER and SUB have not relied on such projections in entering into this
Agreement, and (iii) that the COMPANY may not achieve such projections.
3.6 Financial Statements. COMPANY has filed an Annual Report on Form
10-KSB for the fiscal year ended September 24, 1998. The financial statements
included in or incorporated by reference into this Public Report (including the
related notes and schedules) have been prepared in accordance with GAAP applied
on a consistent basis throughout the period covered thereby, present fairly the
financial condition of COMPANY and its Subsidiaries as of the indicated dates
and the results of operations of COMPANY and its Subsidiaries for the indicated
periods, and are consistent with the books and records of COMPANY and its
Subsidiaries.
3.7 Events Subsequent to Most Recent Fiscal Year End. Except as set
forth in the Disclosure Schedule, since September 24, 1998, there has not been
(a) any material adverse change in the business, financial condition or
operations of COMPANY and its Subsidiaries taken as a whole (except for changes
resulting from a change in general economic conditions), (b) in the case of the
COMPANY, any declaration, setting aside or payment of any dividend or any other
distribution with respect to its capital stock, or (c) any change by the COMPANY
in accounting principles or methods.
3.8 Litigation. Except as set forth in the Disclosure Schedule, or
as disclosed in the COMPANY Public Reports, there are no claims, actions, suits,
investigations or proceedings pending or, to the knowledge of COMPANY,
threatened against or adversely affecting the COMPANY or any of its Subsidiaries
or any of their respective properties at law or in equity, before or by any
federal, state, municipal or other governmental agency or authority, or before
any arbitration board or panel which individually or in the aggregate are likely
to have a Material Adverse Effect on COMPANY; provided, however, the Disclosure
Schedule lists all pending lawsuits against the COMPANY or any of its
Subsidiaries except for lawsuits as of the date hereof covered by insurance
maintained by the COMPANY.
3.9 Tax Matters. Except as set forth in the Disclosure Schedule:
(a) Filing of Timely Tax Returns. COMPANY and each of its
Subsidiaries have filed (or there has been filed on its behalf) all material Tax
Returns (as hereinafter defined) required to be filed by each of them under
applicable law. All such Tax Returns were filed on a timely basis. To the extent
requested by BUYER, COMPANY has delivered to BUYER correct and complete copies
of all
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Tax Returns, examination reports, statements of deficiencies assessed against or
agreed to by any of COMPANY and its Subsidiaries since January 2, 1996 and all
Tax Rulings and Closing Agreements.
(b) Payment of Taxes. COMPANY and each of its Subsidiaries have,
within the time and in the manner prescribed by law, paid all material Taxes (as
hereinafter defined) that are currently due and payable except for those
contested in good faith and for which adequate reserves have been taken.
(c) Tax Reserves. COMPANY and its Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of COMPANY or
any of its Subsidiaries except liens for Taxes not yet due or being contested in
good faith through appropriate proceedings.
(e) Withholding Taxes. COMPANY and each of its Subsidiaries have
complied in all material respects with the provisions of the Code relating to
the withholding of Taxes, as well as similar provisions under any other laws,
and have, within the time and in the manner prescribed by law, withheld from any
employee wages and any amounts owed to any independent contractor, creditor,
stockholder, or other third party and paid over to the proper governmental
authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither COMPANY nor
any of its Subsidiaries has requested any extension of time within which to file
any material Tax Return, which Tax Return has not since been timely filed.
(g) Waivers of Statute of Limitations. Neither COMPANY nor any of
its Subsidiaries has executed any outstanding waivers of comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any material Taxes or Tax Returns of COMPANY or any of its
Subsidiaries.
(i) Powers of Attorney. No power of attorney currently in force has
been granted by COMPANY or any of its Subsidiaries concerning any material Tax
matter.
(j) Tax Rulings. Neither COMPANY nor any of its Subsidiaries has
received a Tax Ruling (as hereinafter defined) or entered into a Closing
Agreement (as hereinafter defined) with any taxing authority that would have a
continuing material adverse effect after the Closing Date.
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(k) Tax Sharing Agreements. Neither COMPANY nor any Subsidiary is a
party to any agreement relating to allocating or sharing of Taxes.
(l) Code Sections 280G and 162(m). Neither COMPANY nor any of its
Subsidiaries is a party to any agreement, contract, or arrangement that could
result, on account of the transactions contemplated hereunder, separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code or nondeductible compensation under Code
162(m).
(m) Liability for Others. None of COMPANY or any of its Subsidiaries
(A) has any liability for Taxes of any person other than COMPANY and its
Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, (ii) by
contract, or (iii) otherwise.
(n) Continuity of Business Enterprises. COMPANY operates at least
one significant historic business line, or owns at least a significant portion
of its historic business assets, in each case within the meaning of Treasury
Reg. ss.1.368-1(d).
(o) Tax-Free Reorganization. Neither the COMPANY nor any of its
Subsidiaries has through the date of this Agreement taken or agreed to take any
action that would prevent the Merger from qualifying as a reorganization under
the Code. COMPANY and its Subsidiaries will not, at the time of the transaction,
have any outstanding warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in the COMPANY
that, if exercised or converted, would affect BUYER's acquisition or retention
of "control" of COMPANY within the meaning of Section 368(c) of the Code.
(p) Other. None of the COMPANY and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations. None of
the COMPANY and its Subsidiaries has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii).
(q) As used in this Agreement:
(i) "Taxes" means any Federal, state, county, local or
foreign taxes, charges, fees, levies, or other assessments,
including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal
property, gross receipts, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental
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entity, and includes any interest and penalties (civil or criminal)
on or additions to any such taxes;
(ii) "Tax Return" means a report, return or other
information required to be supplied to a governmental entity with
respect to Taxes including, where permitted or required, combined or
consolidated returns for a group of entities;
(iii) "Tax Ruling" means a written ruling of a taxing
authority relating to Taxes; and
(iv) "Closing Agreement" means a written and legally
binding agreement with a taxing authority relating to Taxes.
3.10 Labor Matters. Except as set forth in Schedule 3.10, there are
no collective bargaining or other labor union agreements to which the COMPANY or
any of its Subsidiaries is a party or by which any of them is bound. Except as
set forth in Schedule 3.10, neither the COMPANY nor any of its Subsidiaries has
encountered any labor union organizing activity, or had any actual or, to
COMPANY's Knowledge, threatened employee strikes, work stoppages, slowdowns or
lockouts.
3.11 ERISA Compliance.
(a) Schedule 3.11 contains a list of all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
and all other bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, Christmas bonus,
hospitalization, medical or other plan, arrangement or understanding (whether or
not legally binding) maintained, or contributed to, by the COMPANY or any of its
Subsidiaries for the benefit of any officers, employees or directors of the
COMPANY or any of its Subsidiaries currently or within the last five years
(collectively, "Benefit Plans"). The COMPANY agrees to deliver or make available
to BUYER within fourteen (14) days after the date of this Agreement true,
complete and correct copies of (1) each Benefit Plan (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (2) the most recent annual
report on Form 5500 filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required), (3) the most recent summary plan
description for each Benefit Plan for which such summary plan description is
required, (4) each trust agreement and group annuity contract relating to any
Benefit Plan, and (5) the most recent actuarial report relating to any Benefit
Plan.
(b) Except as disclosed in Schedule 3.11, all Pension Plans have
been the subject of determination letters from the Internal Revenue Service to
the effect that such Pension Plans are
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qualified and exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been revoked
nor, to the knowledge of the COMPANY, has revocation been threatened, nor has
any such Pension Plan been amended since the date of its most recent
determination letter or application therefore in any respect that would
adversely affect its qualification or materially increase its costs.
(c) Except as disclosed on Schedule 3.11, no Pension Plan that the
COMPANY or any of its Subsidiaries maintains, or to which the COMPANY or any of
its Subsidiaries is or was previously obligated to contribute, other than any
Pension Plan that is a "multiemployer plan" (as such term is defined in Section
4001(a)(3) of ERISA; collectively, the "Multiemployer Pension Plans"), had, as
of the respective last annual valuation date for each such Pension Plan, any
"unfunded benefit liabilities" (as such term is defined in Section 4001(a)(18)
of ERISA), based on actuarial assumptions which have been furnished to BUYER.
None of the COMPANY's Pension Plans has an "accumulated funding deficiency" (as
such term is defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived. To the best knowledge of the COMPANY, none of the
COMPANY, any of its Subsidiaries, any officer of the COMPANY or any of its
Subsidiaries or any of the Benefit Plans which are subject to ERISA, including
the Pension Plans, or any trusts created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code) or any other
breach of fiduciary responsibility that could subject the COMPANY, any of its
Subsidiaries or any officer of the COMPANY or any of its Subsidiaries to the tax
or penalty on prohibited transactions imposed by such Section 4975 or to any
liability under Sections 502(i) or 502(1) of ERISA. Except as disclosed on
Schedule 3.12, neither any of such Pension Plans nor any of such trusts have
been terminated, nor has there been any "reportable event" (as that term is
defined in Section 4043 of ERISA) with respect to which the 30-day notice
requirement has not been waived and the COMPANY is not aware of any other
reportable events with respect thereto during the last five years. Neither the
COMPANY nor any of its Subsidiaries has suffered or otherwise caused a "complete
withdrawal" or a "partial withdrawal" (as such terms are defined in Section 4203
and Section 4205, respectively, of ERISA) since the effective date of such
Sections 4203 and 4205 with respect to any of the Multiemployer Pension Plans.
Neither the COMPANY nor any of its Subsidiaries is secondarily liable for any
withdrawal liability as a result of the sale of assets within the meaning of
Section 4204 of ERISA. To the knowledge of the COMPANY, in the event a "complete
withdrawal" currently occurred with respect to any of the Multiemployer Pension
Plans, there would be no withdrawal liability assessed against the COMPANY or
any of its Subsidiaries.
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(d) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Schedule 3.11, (i) no such Benefit Plan is
unfunded or funded through a welfare benefits fund, as such term is defined in
Section 419(e) of the Code, (ii) each such Benefit Plan that is a group health
plan, as such term is defined in Section 5000(b)(1) of the Code, complies in all
material respects with the applicable requirements of Section 4980B(f) of the
Code and Section 1862(b)(1) of the Social Security Act and (iii) each such
Benefit Plan (including any such Plan covering retirees or other former
employees) may be amended or terminated without material liability to the
COMPANY or any of its Subsidiaries on or at any time after the Effective Time.
(e) Except as disclosed on Schedule 3.11, each Benefit Plan conforms
in all material respects and, to the knowledge of the COMPANY, in form and
operation to all applicable laws and regulations, and all reports or information
relating to such Benefit Plan required to be filed with any governmental entity
or disclosed to participants have been timely filed and disclosed. Except as
disclosed on Schedule 3.11, no Pension Plan holds any employer security or
employer real property within the meaning of Section 407 of ERISA.
(f) Except as disclosed on Schedule 3.11, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee of the COMPANY or any Subsidiary thereof to severance pay,
unemployment compensation or any other payment or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due to any such
employee or former employee.
(g) Except as disclosed on Schedule 3.11, neither the COMPANY nor
any of its Subsidiaries has announced a plan to create or a legally binding
commitment to amend any Benefit Plan or to create any new arrangement which
would be a Benefit Plan.
(h) All insurance premiums with respect to any Benefit Plan
(including premiums to the Pension Benefit Guaranty Corporation) have been paid
in full. Except as disclosed on Schedule 3.11, there are no retrospective
adjustments provided for under any insurance contracts maintained pursuant to
any Benefit Plan with regard to policy years or other periods ending on or
before the Effective Time.
(i) Except as disclosed in Schedule 3.11, no Benefit Plan or the
deduction of any contributions thereto by the COMPANY or any of its Subsidiaries
has been the subject of audit by the Internal Revenue Service or the Department
of Labor, and no litigation or asserted claims exist against the COMPANY or any
of its Subsidiaries or any Benefit Plan or fiduciary with respect thereto (other
than such benefit claims as are made in the normal operation of a Benefit Plan).
To the knowledge of the COMPANY, there are no facts which would give rise to or
could give rise to any action, suit, grievance, arbitration or other claim.
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3.12 Environmental Matters.
(a) Except as set forth on Schedule 3.12, to the COMPANY's
Knowledge, the COMPANY and each of its Subsidiaries are in material compliance
with all applicable federal, state, regional and local laws, statutes,
ordinances, judgments, rulings and regulations relating to any matters of
pollution, protection of the environment or environmental regulation or control
(collectively, "Environmental Laws"). Neither the COMPANY nor any of its
Subsidiaries has received any written notice (i) of any violation of an
Environmental Law or (ii) of the institution of any suit, action, claim, or
proceedings alleging such violation or investigation by any Governmental Entity
or any third party of any such violation.
(b) Except as disclosed on Schedule 3.12 and as to matters that are
not anticipated to have a Material Adverse Effect on the COMPANY, to the
COMPANY's Knowledge, neither the COMPANY nor any of its Subsidiaries has (i)
released, transported or disposed of any Hazardous Substances (as hereinafter
defined) on, under, or at any of the COMPANY's or any of its Subsidiaries'
properties or any other properties, (ii) reason to know of the release or
disposal of any Hazardous Substances on, under or at any of COMPANY's or any of
its Subsidiaries' properties, arising from the conduct of operations on the
COMPANY's or any of its Subsidiaries' properties, or (iii) received any written
notice which has not been paid, settled or otherwise resolved (w) of any
violation of any Environmental Law or any other law, statute, rule or regulation
regarding Hazardous Substances on or under any of the COMPANY's or any of its
Subsidiaries' properties or any other properties, (x) of the institution or
pendency of any suit, action, claim, proceeding or investigation by any
Governmental Entity or any third party of any such violation, (y) of any actual
or potential liability for the response to or remediation of Hazardous Substance
at or arising from any of the COMPANY's or any of its Subsidiaries' properties
or any other properties, or (z) of any actual or potential liability for the
costs of response to or remediation of Hazardous Substances at or arising from
any of the COMPANY's or any of its Subsidiaries' properties or any other
properties. For purposes of this Agreement, the term "Hazardous Substance" shall
mean any toxic or hazardous materials or substances, including asbestos, buried
contaminants, chemicals, flammable explosives, radioactive materials, petroleum
and petroleum products and any substances defined as, or included in the
definition of, "hazardous substances", "hazardous wastes", "hazardous materials"
or "toxic substances" under any Environmental Law.
(c) To the COMPANY's Knowledge, no Environmental Law imposes any
obligation upon the COMPANY or its Subsidiaries arising out of or as a condition
to any transaction contemplated hereby, including, without limitation, any
requirement to modify or to transfer any permit or license, any requirement to
file any notice
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or other submission with any Governmental Entity, the placement of any notice,
acknowledgement, or covenant in any land records, or the modification of or
provision of notice under any agreement, consent order, or consent decree. To
the COMPANY's Knowledge, no lien has been placed upon any of the COMPANY's
properties or its Subsidiaries' properties under any Environmental Law.
3.13 Material Contract and Agreements.
(a) Except as listed on Schedule 3.13, there are no contracts or
agreements that are material to the business, financial condition, properties,
assets, liabilities or results of operations of the COMPANY and its Subsidiaries
taken as a whole.
(b) As of the date hereof and except as disclosed on Schedule 3.13,
no default in performance or failure to perform under, and no anticipatory
breach of, any of the contracts listed on Schedule 3.13 has occurred or is
continuing, and none of the parties to any such contract has alleged that the
other has defaulted in performance or failed to perform, other than (i) a
default in payment that shall not have continued more than 60 days from the date
on which the payment was originally due pursuant to the terms of the applicable
contracts, and (ii) a default or failure that is immaterial with respect to all
such contracts. To COMPANY's Knowledge, as of the date hereof and except as
disclosed on Schedule 3.13, there are no legal, administrative or other
proceedings threatened, pending or outstanding relating to the performance or
status of any of such contracts. As of the date hereof and except as disclosed
on Schedule 3.13, the COMPANY has not received notice of any anticipatory
breach, pending dispute or anticipated litigation arising from or relating to
any of such contracts, or notice that any of such contracts has been or will be
canceled, revoked or otherwise terminated.
(c) Except as listed on Schedule 3.13, neither the COMPANY nor any
Subsidiary is subject to any agreement which restricts competition with any
other person or provides that the COMPANY, any Subsidiary or affiliate may not
engage in any business or sell or distribute any product or service.
3.14 Intellectual Property. The COMPANY and its Subsidiaries own, or
are licensed or otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, service marks,
service mark rights, copyrights and other proprietary intellectual property
rights and computer programs currently used in the business. Except as set forth
on Schedule 3.14, no claims are pending or, to the knowledge of the COMPANY,
threatened that the COMPANY is infringing or otherwise adversely affecting the
rights of any person with regard to any patent, license, trademark, trade name,
service mark, copyright or other intellectual property right. To the knowledge
of the COMPANY, no person is infringing the rights of the COMPANY with respect
to any patent, license, trademark, trade name, service mark, copyright or other
intellectual property
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right.
3.15 Certain Fees. Except for fees payable to Piper Jaffray, Inc.,
none of the COMPANY and its Subsidiaries has any liability or obligation to pay
any fees or commissions to any financial advisor, broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
3.16 COMPANY Board of Directors Action. The Board of Directors of
COMPANY (at a meeting duly called and held) has by the requisite vote of all
directors present, (a) determined that the Merger is advisable and in the best
interest of the COMPANY and its shareholders, and (b) resolved to recommend the
approval of this Agreement and the Merger by the holders of the COMPANY Shares
and directed that the Merger be submitted for consideration by the holders of
the COMPANY Shares at the Meeting.
3.17 Registration Statement and Proxy Statement.
None of the information supplied or to be supplied by or on behalf
of COMPANY for inclusion or incorporation by reference in:
(i) the registration statement on Form S-4 to be filed
with the SEC by BUYER in connection with the issuance of BUYER
Shares in the Merger (the "Registration Statement") will, at the
time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; and
(ii) the COMPANY proxy statement, in definitive form,
relating to the meeting of COMPANY shareholders to be held in
connection with the Merger (the "COMPANY Proxy Statement") will, at
the date mailed to shareholders and at the time of the meeting of
shareholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
are made, not misleading;
3.18 Pooling of Interests Accounting. After review and discussion
with Ernst & Young LLP, independent certified public accountants for COMPANY, to
COMPANY's Knowledge there is no fact pertaining to it which would prevent the
Merger from being accounted for as a pooling of interests in accordance with
GAAP.
To COMPANY's Knowledge, neither the COMPANY nor any of its
Subsidiaries has through the date of this Agreement taken or agreed to take any
action that would prevent the COMPANY and the BUYER from accounting for the
business combination to be effected by the Merger as a "pooling of interests" in
conformity with GAAP.
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3.19 Non-Survival of Certain Representations and Warranties. No
representations or warranties contained in Section 3 of this Agreement shall
survive the Merger.
4. Representations and Warranties of BUYER. Except as set forth in
the disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule"), which shall be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Article 4, BUYER
represents and warrants to COMPANY that:
4.1 Organization, Qualification, and Corporate Power. Each of BUYER
and its Material Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
Each of BUYER and its Material Subsidiaries is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required except for such failures to be so qualified and in
good standing that would not, individually or in the aggregate, have a Material
Adverse Effect on BUYER. BUYER beneficially owns all of the outstanding capital
stock of each of its Subsidiaries, except as described in the Disclosure
Schedule.
4.2 Capitalization. The entire authorized capital stock of BUYER
consists of 50,000,000 BUYER Shares, of which as of December 31, 1998,
23,935,080 BUYER Shares are issued and outstanding. The total number of shares
subject to options is 721,118. All of the BUYER Shares to be issued in the
Merger have been duly authorized and, upon consummation of the Merger, will be
validly issued, fully paid, and nonassessable. The entire authorized capital
stock of SUB consists of 1,000 SUB Shares, all of which are issued and
outstanding.
4.3 Authorization of Transaction. BUYER and SUB have full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly approved by
the board of directors of the BUYER and no other corporate proceedings on the
part of the BUYER or its shareholders are necessary to authorize this Agreement
and to consummate the transactions so contemplated other than the filing of the
Certificate of Merger. Assuming that this Agreement constitutes a valid and
binding obligation of COMPANY, this Agreement has been duly executed and
delivered and constitutes the valid and legally binding obligation of BUYER,
enforceable in accordance with its terms and conditions except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect relating
to creditors' rights generally; and (ii) the remedy of specific performance and
injunctive and other forms of equitable remedies may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
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4.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) materially violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which BUYER or any of its Subsidiaries is
subject or any provision of the charter or bylaws of BUYER or any of its
Subsidiaries or (ii) materially conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material agreement, contract, lease, license, instrument or other arrangement to
which BUYER or any of its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject. Other than in connection with the provisions
of the Hart-Scott-Rodino Act, the Minnesota Business Corporation Act, the
Securities Exchange Act, the Securities Act, and the state securities laws,
BUYER does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
4.5 Filings with the SEC. BUYER has made all filings with the SEC
that it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Public Reports"). Each of the Public Reports has
complied with the Securities Act and the Securities Exchange Act in all material
respects. None of the Public Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
4.6 Financial Statements. BUYER has filed a Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998 (the "Most Recent Fiscal
Quarter End"), and an Annual Report on Form 10-K for the fiscal year ended June
30, 1998. The financial statements included in or incorporated by reference into
these Public Reports (including the related notes and schedules) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
period covered thereby, present fairly the financial condition of BUYER and its
Subsidiaries as of the indicated dates and the results of operations of BUYER
and its Subsidiaries for the indicated periods, and are consistent with the
books and records of BUYER and its Subsidiaries; provided, however, that the
interim statements are subject to normal year-end adjustments.
4.7 Events Subsequent to Most Recent Fiscal Quarter End. Except as
set forth in the Disclosure Schedule, since the Most Recent Fiscal Quarter End,
there has not been (a) any material adverse change in the business, financial
condition, operations or results of operations, of BUYER and its Subsidiaries
taken as a
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whole, (b) in the case of the BUYER, any declaration, setting aside or payment
of any dividend or any other distribution with respect to its capital stock, or
(c) any material change by the BUYER in accounting principles or methods.
4.8 Certain Fees. None of BUYER and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any financial advisor,
broker, finder, or agent with respect to the transactions contemplated by this
Agreement.
4.9 Continuity of Business Enterprise. It is the present intention
of BUYER to continue at least one significant historic business line of COMPANY,
or to use at least a significant portion of COMPANY's historic business assets
in a business, in each case within the meaning of Treasury Reg. ss.1.368-1(d).
4.10 Litigation. Except as set forth in the Disclosure Schedule, or
as disclosed in the BUYER Public Reports, there are no claims, actions, suits,
investigations or proceedings pending or, to the knowledge of BUYER, threatened
against or adversely affecting the BUYER or any of its Subsidiaries or any of
their respective properties at law or in equity, before or by any federal,
state, municipal or other governmental agency or authority, or before any
arbitration board or panel which individually or in the aggregate are likely to
have a Material Adverse Effect on BUYER.
4.11 Tax Matters. Except as set forth in the Disclosure Schedule:
(a) Filing of Timely Tax Returns. BUYER and each of its Subsidiaries
have filed (or there has been filed on its behalf) all material Tax Returns (as
hereinafter defined) required to be filed by each of them under applicable law.
All such Tax Returns were filed on a timely basis. To the extent requested in
writing by COMPANY, BUYER has delivered to COMPANY correct and complete copies
of all Tax Returns, examination reports, statements of deficiencies assessed
against or agreed to by any of COMPANY and its Subsidiaries since July 1, 1995
and all Tax Rulings and Closing Agreements.
(b) Payment of Taxes. BUYER and each of its Subsidiaries have,
within the time and in the manner prescribed by law, paid all material Taxes (as
hereinafter defined) that are currently due and payable except for those
contested in good faith and for which adequate reserves have been taken.
(c) Tax Reserves. BUYER and its Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of BUYER or
any of its Subsidiaries except liens for Taxes not yet
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due or being contested in good faith through appropriate proceedings.
(e) Withholding Taxes. BUYER and each of its Subsidiaries have
complied in all material respects with the provisions of the Code relating to
the withholding of Taxes, as well as similar provisions under any other laws,
and have, within the time and in the manner prescribed by law, withheld from any
employee wages and any amounts owed to any independent contractor, creditor,
stockholder, or other third party and paid over to the proper governmental
authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither BUYER nor any
of its Subsidiaries has requested any extension of time within which to file any
material Tax Return, which Tax Return has not since been timely filed.
(g) Waivers of Statute of Limitations. Neither BUYER nor any of its
Subsidiaries has executed any outstanding waivers of comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any material Taxes or Tax Returns of BUYER or any of its Subsidiaries.
(i) Powers of Attorney. No power of attorney other than to
PricewaterhouseCoopers currently in force has been granted by BUYER or any of
its Subsidiaries concerning any material Tax matter.
(j) Tax Rulings. Neither BUYER nor any of its Subsidiaries has
received a Tax Ruling (as hereinafter defined) or entered into a Closing
Agreement (as hereinafter defined) with any taxing authority that would have a
continuing material adverse effect after the Closing Date.
(k) Tax Sharing Agreements. Neither BUYER nor any Subsidiary is a
party to any agreement relating to allocating or sharing of Taxes.
(l) Code Sections 280G and 162(m). Neither BUYER nor any of its
Subsidiaries is a party to any agreement, contract, or arrangement that could
result, on account of the transactions contemplated hereunder, separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code or nondeductible compensation under Code
ss.162(m).
(m) Liability for Others. None of BUYER or any of its Subsidiaries
(A) has any material liability for Taxes of any person other than BUYER and its
Subsidiaries (i) under Treasure
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Regulations Section 1.1502-6 (or any similar provision of state, local or
foreign law) as a transferee or successor, (ii) by contract, or (iii) otherwise.
(n) Tax-Free Reorganization. Neither the BUYER nor any of its
Subsidiaries has through the date of this Agreement taken or agreed to take any
action that would prevent the Merger from qualifying as a reorganization under
the Code.
(o) Other. None of the BUYER and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations. None of
the BUYER and its Subsidiaries has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii).
4.12 Labor Matters. Except as set forth in Schedule 4.12, there are
no collective bargaining or other labor union agreements to which the BUYER or
any of its Subsidiaries is a party or by which any of them is bound. Except as
set forth in Schedule 4.12, neither the BUYER nor any of its Subsidiaries has
encountered any labor union organizing activity, or had any actual or, to
BUYER's Knowledge, threatened employee strikes, work stoppages, slowdowns or
lockouts.
4.13 ERISA Compliance.
(a) Except as disclosed in Schedule 4.13, all Pension Plans have
been the subject of determination letters from the Internal Revenue Service to
the effect that such Pension Plans are qualified and exempt from federal income
taxes under Section 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the knowledge of the BUYER, has
revocation been threatened, nor has any such Pension Plan been amended since the
date of its most recent determination letter or application therefore in any
respect that would adversely affect its qualification or materially increase its
costs.
(b) Except as disclosed on Schedule 4.13, no Pension Plan that the
BUYER or any of its Subsidiaries maintains, or to which the BUYER or any of its
Subsidiaries is or was previously obligated to contribute, other than any
Pension Plan that is a "multiemployer plan" (as such term is defined in Section
4001(a)(3) of ERISA; collectively, the "Multiemployer Pension Plans"), had, as
of the respective last annual valuation date for each such Pension Plan, any
"unfunded benefit liabilities" (as such term is defined in Section 4001(a)(18)
of ERISA). None of the BUYER's Pension Plans has an "accumulated funding
deficiency" (as such term is defined in Section 302 of ERISA or Section 412 of
the Code), whether or not waived. To the best knowledge of the BUYER, none of
the BUYER, any of its Subsidiaries, any officer of the BUYER or any of its
Subsidiaries or any of the Benefit Plans which are subject to ERISA, including
the Pension Plans, or any
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trusts created thereunder, or any trustee or administrator thereof, has engaged
in a "prohibited transaction" (as such term is defined in Section 406 of ERISA
or Section 4975 of the Code) or any other breach of fiduciary responsibility
that could subject the BUYER, any of its Subsidiaries or any officer of the
BUYER or any of its Subsidiaries to the tax or penalty on prohibited
transactions imposed by such Section 4975 or to any liability under Sections
502(i) or 502(1) of ERISA. Except as disclosed on Schedule 4.13, neither any of
such Pension Plans nor any of such trusts have been terminated, nor has there
been any "reportable event" (as that term is defined in Section 4043 of ERISA)
with respect to which the 30-day notice requirement has not been waived and the
BUYER is not aware of any other reportable events with respect thereto during
the last five years. Neither the BUYER nor any of its Subsidiaries has suffered
or otherwise caused a "complete withdrawal" or a "partial withdrawal" (as such
terms are defined in Sections 4203 and Section 4205, respectively, of ERISA)
since the effective date of such Sections 4203 and 4205 with respect to any of
the Multiemployer Pension Plans. Neither the BUYER nor any of its Subsidiaries
is secondarily liable for any withdrawal liability as a result of the sale of
assets within the meaning of Section 4204 of ERISA. To the knowledge of the
BUYER, in the event a "complete withdrawal" currently occurred with respect to
any of the Multiemployer Pension Plans, there would be no withdrawal liability
assessed against the BUYER or any of its Subsidiaries.
(c) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Schedule 4.13, (i) no such Benefit Plan is
unfunded or funded through a welfare benefits fund, as such term is defined in
Section 419(e) of the Code, (ii) each such Benefit Plan that is a group health
plan, as such term is defined in Section 5000(b)(1) of the Code, complies in all
material respects with the applicable requirements of Section 4980B(f) of the
Code and Section 1862(b)(1) of the Social Security Act and (iii) each such
Benefit Plan (including any such Plan covering retirees or other former
employees) may be amended or terminated without material liability to the BUYER
or any of its Subsidiaries on or at any time after the Effective Time.
(d) Except as disclosed on Schedule 4.13, each Benefit Plan conforms
in all material respects, and to the knowledge of the BUYER, in form and
operation to all applicable laws and regulations, and all reports or information
relating to such Benefit Plan required to be filed with any governmental entity
or disclosed to participants have been timely filed and disclosed. Except as
disclosed on Schedule 4.13, no Pension Plan holds any employer security or
employer real property within the meaning of Section 407 of ERISA.
(e) Except as disclosed on Schedule 4.13, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee of the BUYER or any Subsidiary thereof to severance pay,
unemployment compensation or
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any other payment or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due to any such employee or former employee.
(f) Except as disclosed on Schedule 4.13, neither the BUYER nor any
of its Subsidiaries has announced a plan to create or a legally binding
commitment to amend any Benefit Plan or to create any new arrangement which
would be a Benefit Plan.
(g) All insurance premiums with respect to any Benefit Plan
(including premiums to the Pension Benefit Guaranty Corporation) have been paid
in full. Except as disclosed on Schedule 4.13, there are no retrospective
adjustments provided for under any insurance contracts maintained pursuant to
any Benefit Plan with regard to policy years or other periods ending on or
before the Effective Time.
(h) Except as disclosed in Schedule 4.11, no Benefit Plan or the
deduction of any contributions thereto by the BUYER or any of its Subsidiaries
has been the subject of audit by the Internal Revenue Service or the Department
of Labor, and no litigation or asserted claims exist against the COMPANY or any
of its Subsidiaries or any Benefit Plan or fiduciary with respect thereto (other
than such benefit claims as are made in the normal operation of a Benefit Plan).
To the knowledge of the BUYER, there are no facts which would give rise to or
could give rise to any action, suit, grievance, arbitration or other claim.
4.14 Environmental Matters.
(a) Except as set forth on Schedule 4.14, to the BUYER's Knowledge,
the BUYER and each of its Subsidiaries are in material compliance with all
applicable federal, state, regional and local laws, statutes, ordinances,
judgments, rulings and regulations relating to any matters of pollution,
protection of the environment or environmental regulation or control
(collectively, "Environmental Laws"). Neither the BUYER nor any of its
Subsidiaries has received any written notice (i) of any violation of an
Environmental Law or (ii) of the institution of any suit, action, claim,
proceedings or investigation by any Governmental Entity or any third party of
any such violation.
(b) Except as disclosed on Schedule 4.14 and as to matters that are
not anticipated to have a Material Adverse Effect on the BUYER, to the BUYER's
Knowledge, neither the BUYER nor any of its Subsidiaries has (i) released,
transported or disposed of any Hazardous Substances (as hereinafter defined) on,
under, or at any of the BUYER's or any of its Subsidiaries' properties or any
other properties, (ii) reason to know of the release or disposal of any
Hazardous Substances on, under or at any of BUYER's or any of its Subsidiaries'
properties, arising from the conduct of operations on the BUYER's or any of its
Subsidiaries' properties, or (iii) received any written notice which has not
been paid, settled or otherwise resolved (w) of any violation of any
Environmental Law
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or any other law, statute, rule or regulation regarding Hazardous Substances on
or under any of the BUYER's or any of its Subsidiaries' properties or any other
properties, (x) of the institution or pendency of any suit, action, claim,
proceeding or investigation by any Governmental Entity or any third party of any
such violation, (y) of any actual or potential liability for the response to or
remediation of Hazardous Substance at or arising from any of the BUYER's or any
of its Subsidiaries' properties or any other properties, or (z) of any actual or
potential liability for the costs of response to or remediation of Hazardous
Substances at or arising from any of the BUYER's or any of its Subsidiaries'
properties or any other properties. For purposes of this Agreement, the terms
"Hazardous Substance" shall mean any toxic or hazardous materials or substances,
including asbestos, buried contaminants, chemicals, flammable explosives,
radioactive materials, petroleum and petroleum products and any substances
defined as, or included in the definition of, "hazardous substances", "hazardous
wastes", "hazardous materials" or "toxic substances" under any Environmental
Law.
(c) To the BUYER's Knowledge, no Environmental Law imposes any
obligation upon the BUYER or its Subsidiaries arising out of or as a condition
to any transaction contemplated hereby, including, without limitation, any
requirement to modify or to transfer any permit or license, any requirement to
file any notice or other submission with any Governmental Entity, the placement
of any notice, acknowledgement, or covenant in any land records, or the
modification of or provision of notice under any agreement, consent order, or
consent decree. To the BUYER's Knowledge, no lien has been placed upon any of
the BUYER's properties or its Subsidiaries' properties under any Environmental
Law.
4.15 Material Contract and Agreements.
(a) As of the date hereof and except as disclosed on Schedule 4.15,
no default in performance or failure to perform under, and no anticipatory
breach of, any of the BUYER's material contracts has occurred or is continuing,
and none of the parties to any such contract has alleged that the other has
defaulted in performance or failed to perform, other than (i) a default in
payment that shall not have continued more than 30 days from the date on which
the payment was originally due pursuant to the terms of the applicable
contracts, and (ii) a default or failure that is immaterial with respect to all
such contracts. To BUYER's Knowledge, as of the date hereof and except as
disclosed on Schedule 3.14, there are no legal, administrative or other
proceedings threatened, pending or outstanding relating to the performance or
status of any of such contracts. As of the date hereof and except as disclosed
on Schedule 3.14, the BUYER has not received notice of any anticipatory breach,
pending dispute or anticipated litigation arising from or relating to any of
such contracts, or notice that any of such contracts has been or will be
canceled, revoked or otherwise terminated.
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(b) Except as listed on Schedule 4.15, neither the BUYER nor any
Subsidiary is subject to any material agreement which restricts competition with
any other person or provides that the BUYER, any Subsidiary or affiliate may not
engage in any business or sell or distribute any product or service.
4.16 Intellectual Property. The BUYER and its Subsidiaries own, or
are licensed or otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, service marks,
service mark rights, copyrights and other proprietary intellectual property
rights and computer programs which are material to the business, financial
condition or results of operations of the BUYER and its Subsidiaries taken as a
whole. Except as set forth on Schedule 4.16, no claims are pending or, to the
knowledge of the BUYER, threatened that the BUYER is infringing or otherwise
adversely affecting the rights of any person with regard to any patent, license,
trademark, trade name, service mark, copyright or other intellectual property
right. To the knowledge of the BUYER, no person is infringing the rights of the
BUYER with respect to any patent, license, trademark, trade name, service mark,
copyright or other intellectual property right.
4.17 BUYER Board of Directors Action.
(a) The Board of Directors of BUYER at a meeting duly called and
held has by the requisite vote of all directors present determined that the
Merger is advisable and in the best interests of the BUYER and its shareholders.
(b) The Board of Directors of SUB at a meeting duly called and held
has by the requisite vote of all directors present determined that the Merger is
advisable and in the best interests of the SUB and its shareholders.
4.18 COMPANY Proxy Statement. (a) None of the information supplied
or to be supplied by or on behalf of BUYER for inclusion or incorporation by
reference in the COMPANY Proxy Statement, in definitive form, relating to the
meeting of the COMPANY shareholders to be held in connection with the Merger
will, at the date mailed to shareholders and at the time of the meeting of
shareholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(b) The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act, respectively, and the applicable rules and regulations thereunder.
4.19 Survival of Certain Representations and Warranties. The
representations and warranties contained in Section 4 of this
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Agreement shall survive the Merger for one year after the Effective Time.
5. Covenants.
5.1 Interim Operations. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement, or as otherwise approved in advance by BUYER in writing:
(a) Conduct of Business. The COMPANY will, and will cause each of
its Subsidiaries to, conduct their respective businesses only in, and not take
any action except in, the ordinary and usual course of business and consistent
with past practice. The COMPANY will use reasonable efforts to preserve intact
the business organization of the COMPANY and each of its Subsidiaries, to keep
available the service of its and their present officers and key employees and to
preserve the goodwill of those having business relationships with it or its
Subsidiaries.
(b) Articles and Bylaws. The COMPANY will not and will not permit
any of its Subsidiaries to make any change or amendment to their respective
articles of incorporation or bylaws (or comparable governing instruments).
(c) Capital Stock. The COMPANY will not, and will not permit any of
its Subsidiaries to, issue or sell any shares of capital stock or any other
securities of any of them (other than pursuant to Stock Options and the Employee
Stock Purchase Plan) or issue any securities convertible into or exchangeable
for, or options, warrants to purchase, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or enter into any contract,
understanding or arrangement with respect to the issuance of, any shares of
capital stock or any other securities of any of them or purchase or enter into
any arrangement or contract with respect to the purchase or voting of shares of
their capital stock, or adjust, split, combine or reclassify any of their
capital stock or other securities or make any other changes in their capital
structures.
(d) Dividends. The COMPANY will not and will not permit any of its
Subsidiaries to declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to, or
purchase or redeem, any shares of the capital stock of any of them.
(e) Employee Plans, Compensation, Etc. Except in the ordinary course
of its business, the COMPANY will not, and will not permit any of its
Subsidiaries to, amend any Benefit Plan or to adopt any arrangement which would
be a "Benefit Plan" or, except as provided in Schedule 5.1 or pursuant to
collective bargaining agreements as presently in effect, increase the
compensation or fringe benefits of any director, officer or employee or pay any
benefit not required by any existing plan or
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arrangement or take any action or grant any benefit not required under the terms
of any existing agreements, trusts, plans, funds or other such arrangements to
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing.
(f) Debt. The COMPANY and its Subsidiaries will not, (a) assume or
incur any indebtedness or, except (i) in the ordinary course of business and
(ii) with respect to expenses incurred in connection with the consummation of
the Merger, or (b) except in the ordinary course of business consistent with
past practice, make any loans, advances or capital contributions to, or
investments (other than short-term investments pursuant to customary cash
management systems of the COMPANY) in, any other person other than such of the
foregoing as are made by the COMPANY to, in or from a wholly owned Subsidiary of
the COMPANY. The COMPANY will not enter into any new credit agreements but may
enter into amendments or modifications or replacements of any existing credit
agreements.
(g) Representation and Warranty. The COMPANY will advise BUYER and
BUYER will advise COMPANY within 48 hours of any information which becomes known
to it or to any Subsidiary of COMPANY or BUYER that would make any
representation or warranty of the COMPANY herein materially not true or not
correct.
(h) Acquisitions. The COMPANY and its Subsidiaries will not acquire
(i) by merging or consolidating with, or by purchasing a substantial portion of
the stock or assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
(ii) any assets, except purchases of inventory items or supplies or other
purchases in the ordinary course of business consistent with past practice, and
strategic purchases of franchised stores.
(i) Assets Sales. The COMPANY and its Subsidiaries will not sell,
lease, mortgage or otherwise encumber or otherwise dispose of any of its
properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice and strategic sales of corporate stores
and franchises.
(j) Tax Settlements. The COMPANY and its Subsidiaries will not make
any material tax election other than tax elections in the ordinary course and
consistent with past practices or settle or compromise any material income tax
or other tax liability or refund.
(k) Other Settlements. The COMPANY and its Subsidiaries will not
pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms except for any
existing scheduled litigations.
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5.2 Access and Information. Subject to a confidentiality agreement
between COMPANY and BUYER, COMPANY and BUYER will (and will cause each of their
respective representatives to) afford to the other (or representatives of the
COMPANY or BUYER, including without limitation directors, officers and employees
of COMPANY and BUYER or their affiliates and counsel, accountants and other
professionals retained by COMPANY and BUYER) such access throughout the period
prior to the Effective Time to books, records (including without limitation tax
returns and work papers of independent auditors), agreements, properties
(including for the purpose of making any reasonable Phase I environmental
investigation), personnel, suppliers and franchisees as COMPANY or BUYER
requests from the other.
5.3 Certain Filings, Consents and Arrangements. BUYER and the
COMPANY will (a) promptly make their respective filings, and will thereafter use
their best efforts to promptly make any required submissions, under the
Hart-Scott-Rodino Act with respect to the Merger and the other transactions
contemplated by this Agreement and (b) cooperate with one another (i) in
promptly determining whether any filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained under any other
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such consents, approvals, permits or authorizations.
5.4 Employee Matters. On and after the Effective Time, the Surviving
Corporation will honor (but only in accordance with their terms in effect at the
date hereof) those employment, executive bonus program, indemnification,
severance, termination, consulting and retirement agreements to which the
COMPANY or any of its Subsidiaries is presently a party.
5.5 Indemnification and Insurance.
(a) From and after the Effective Time, BUYER will indemnify and hold
harmless each of the current directors, officers, agents and other
representatives, who have acted in such capacity prior to or after the date
hereof, of the COMPANY or any of its Subsidiaries (collectively, the
"Indemnitees" and individually, an "Indemnitee") against any and all claims,
damages, liabilities, losses, costs, charges, expenses (including without
limitation reasonable costs of investigation, and the fees and disbursements of
legal counsel and other advisers and experts), judgments, fines, penalties and
amounts paid in settlement, asserted against, incurred by or imposed upon any
Indemnitee (collectively, "Losses" and individually, a "Loss"), (i) in
connection with or arising out of any threatened, pending or completed claim,
action, suit or proceeding (whether civil, criminal, administrative or
investigative), including without limitation any and all claims, actions, suits,
proceedings or investigations by or on behalf of or in the right of or against
the COMPANY or any of its
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Subsidiaries or their affiliates, or by any present or former shareholder of the
COMPANY (collectively, "Claims" and individually, a "Claim"), which is based
upon, arises out of or in any way relates to the Merger, the COMPANY Proxy
Statement, or any of the transactions contemplated by this Agreement, excluding
any successful Claim that such indemnitee has violated Section 16(b) of the
Exchange Act or Section 10(b) of the Exchange Act, or Rule 10b-5 promulgated
thereunder, and (ii) in connection with or arising out of the enforcement of the
obligations of BUYER set forth in this Section 5.5. This Section 5.5(a) will be
construed as an agreement, as to which the Indemnitees are intended to be third
party beneficiaries, between BUYER and the Indemnitees, as unaffiliated third
parties, and is not subject to any limitations to which BUYER may be subject to
indemnifying its own directors.
(b) From and after the Effective Time, any and all obligations of
COMPANY to indemnify the current officers and directors of COMPANY, whether
pursuant to applicable law, COMPANY's Certificate of Incorporation or Bylaws or
by agreement between COMPANY and the officers and directors, shall be assumed
and paid and performed to the fullest extent permitted by law by BUYER. BUYER
will promptly after the Effective Time, confirm to each such executive officer
and director of COMPANY in writing of such assumption of COMPANY's obligations.
(c) In the event the Surviving Corporation or any of its successors
or assign (i) reorganizes or consolidates with or merges into or enters into
another business combination transaction with any other person or entity and is
not the resulting, continuing or surviving corporation or entity of such
consolidation, merger or transaction (ii) liquidates, dissolves or transfers all
or substantially all of its properties and assets to any person or entity, then,
and in each such case, proper provision will be made so that the successors and
assigns of the Surviving Corporation assume the obligations set forth in this
Section 5.5.
5.6 Special COMPANY Meeting. The COMPANY shall take all action
necessary, in accordance with applicable law and its certificate of
incorporation and bylaws, to convene a special meeting of the holders of COMPANY
Shares ("Special COMPANY Meeting") as promptly as practicable for the purpose of
considering and taking action upon this Agreement. The board of directors of the
COMPANY will recommend that holders of COMPANY Shares vote in favor of and
approve the Merger and this Agreement at the Special COMPANY Meeting.
5.7 COMPANY Proxy Statement; Registration Statement.
(a) As soon as practicable after the date hereof, the COMPANY shall
prepare the COMPANY Proxy Statement, file it with the SEC, use its best efforts
to respond to comments of the Staff of the SEC and clear the COMPANY Proxy
Statement with the Staff of the SEC. Promptly after such clearance the COMPANY
shall mail the
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COMPANY Proxy Statement to all holders of record of COMPANY Shares who are
holders on the record date for the meeting of shareholders of the COMPANY. BUYER
and the COMPANY shall cooperate with each other in the preparation of the
COMPANY Proxy Statement and the processing thereof with the SEC.
(b) BUYER shall prepare and file the Registration Statement with the
SEC as soon as is reasonably practicable following receipt of comments from the
Staff of the SEC on the COMPANY Proxy Statement or advice that such Staff will
not review such filing (or earlier in the discretion of BUYER and COMPANY) and
shall use its best efforts to have the Registration Statement declared effective
by the SEC as promptly as practicable and to maintain the effectiveness of such
Registration Statement until the Effective Time. BUYER shall also use its best
efforts to take any action required to be taken under state blue sky or
securities laws in connection with the issuance of the BUYER Common Stock
pursuant to the Merger, and the COMPANY shall furnish BUYER all information
concerning the COMPANY and the holders of its capital stock and shall take any
action as BUYER may reasonably request in connection with any such action.
5.8 Compliance with the Securities Act; Pooling; Reorganization.
(a) Prior to the Effective Time, the COMPANY shall cause to be
delivered to BUYER an opinion of legal counsel of the COMPANY, identifying all
persons who were in its opinion, as of the date of the COMPANY Proxy Statement,
"affiliates" of the COMPANY as that term is used in Paragraphs (c) and (d) of
Rule 145 under the Securities Act (the "Affiliates"). The COMPANY shall cause
the person rendering such opinion to deliver to BUYER at the Closing a second
opinion updating such opinion to the time at which the holders of Common Stock
vote on the Merger.
(b) The COMPANY shall obtain a written agreement from each current
executive officer and director who is identified as a possible Affiliate in the
opinions referred to in clause (a) above, in a form reasonably acceptable to
BUYER, that (i) such person will not offer to sell, sell or otherwise dispose of
any of the BUYER Common Stock issued to such person pursuant to the Merger,
except in compliance with Rule 145 or another exemption from the registration
requirements of the Securities Act and (ii) such person will not sell or in any
other way reduce such person's risk relative to any shares of BUYER Common Stock
received in the Merger (within the meaning of the SEC's rules and relating to
pooling of interest accounting), until such time as financial results (including
combined sales and net income) covering at least 30 days of post-merger
operations have been published. The COMPANY shall deliver such written
agreements to BUYER on or prior to the Closing.
5.9 Additional Agreements. (a) Subject to the terms and conditions
herein provided each of the parties hereto agrees to
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use its best efforts to take promptly, or cause to be taken, all actions and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using its best efforts to
obtain all necessary actions or non-actions, extensions, waivers, consents and
approvals from all applicable Governmental Entities, effecting all necessary
registrations and filings (including without limitation filings under the
Hart-Scott-Rodino Act) and obtaining any required contractual consents. If, at
any time after the Effective Time, the Surviving Corporation considers or is
advise that any deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable to vest, perfect or confirm of
record or otherwise in the Surviving Corporation its right, title or interest
in, to or under any of the rights, properties or assets of either of the
Constituent Corporations acquire or to be acquired by the Surviving Corporation
as a result of, or in connection with the Merger or otherwise to carry out the
purposes of this Agreement, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the name and on behalf
of each of the Constituent Corporations or otherwise, as such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of each of the Constituent Corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
(b) The COMPANY and BUYER shall use their best efforts to file as
soon as reasonably practicable notifications under the HSR Act in connection
with the Merger and the transactions contemplated hereby and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") for additional information or documentation and to
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other Governmental Entity in connection with
antitrust matters. The COMPANY and BUYER shall take such actions as are
necessary to overcome any objections which may be raised by the FTC or Antitrust
Division.
5.10 Certain Covenants.
(a) No Solicitation. COMPANY shall not directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) any
Takeover Proposal (as hereinafter defined) from any person, or engage in or
continue discussions or negotiations relating to any Takeover Proposal, and will
use its reasonable best efforts to prevent any of its directors, officers,
attorneys, financial advisors and other authorized representatives from,
directly or indirectly, taking any such action, provided,
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however, that if, prior to the Effective Time, COMPANY shall receive an
Acquisition Proposal that the Board of Directors of COMPANY, based upon the
advice of its outside counsel, reasonably believes that it has a fiduciary duty
to consider, and which it reasonably and in good faith believes is more
favorable to COMPANY and its shareholders than the transactions herein
contemplated then COMPANY shall notify BUYER and thereupon, COMPANY, without
violating this Agreement, may thereafter furnish information to such third party
and, if thereafter, COMPANY's Board of Directors reasonably and in good faith
determines that such Acquisition Proposal is more favorable to COMPANY and its
shareholders than the transactions herein contemplated, then upon written notice
to BUYER, COMPANY may terminate this Agreement and the transactions contemplated
thereby.
(b) Break-Up Fee. Upon any termination by COMPANY of this Agreement
permitted by subsection (a) hereof COMPANY shall within ten (10) days after such
termination pay to BUYER the sum of $1,500,000 ("Break-Up Fee").
(c) Certain Actions. BUYER and COMPANY shall not, nor shall either
permit any of its Subsidiaries to, take or consent to be taken any action,
whether before or after the Effective Time, which would disqualify the Merger as
"reorganization" within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
5.11 Best Efforts to List Shares. BUYER shall use its best efforts
to ensure that, prior to the Effective Time, the BUYER Shares that will be
issued in the Merger will be approved for trading on the NASDAQ National Market
System subject to official notice of issuance.
5.12 Updated Schedules. Fifteen (15) business days prior to the
Effective Time and at the Effective Time, BUYER and COMPANY will each update
their respective Schedules referred to in this Agreement in the event that
changes with respect to items required to be set forth in any such Schedule
result in any such Schedule omitting or misstating information. A Schedule to
this Agreement shall be updated only for the purpose of making the
representations and warranties contained in this Agreement to which such
Schedule relates true and correct in all material respects as of the date such
Schedule is updated, and an updated Schedule shall not have the effect of making
any representation or warranty contained in this Agreement true and correct in
all material respects as of a date prior to the date of such updated Schedule.
Representations and warranties may only be updated as of a subsequent date on or
prior to the Effective Time only for occurrences or events subsequent to the
date hereof, or subsequent to the most recent updated representations and
warranties, as applicable. The parties hereby acknowledge that such update in
and of itself does not constitute a breach of any such representation or
warranty.
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6. Conditions to Obligation to Close.
6.1 Conditions to Obligation of BUYER and SUB. The obligation of
BUYER and SUB to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(a) Representations True. The representations and warranties set
forth in Article 3 above shall be true and correct in all material respects at
and as of the Closing Date (after giving effect to any updated Schedules as
contemplated by Section 5.13) except for any representation and warranty made
expressly with respect to a specific date and except for such failures to be
true and correct as do not have a Material Adverse Effect (after giving effect
to any insurance/indemnification) on the COMPANY and its Subsidiaries, taken as
a whole;
(b) Covenants. COMPANY shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) No Injunction. No preliminary or permanent injunction or other
order by any federal or state court in the United States which prevents the
consummation of the Merger shall have been issued and remain in effect (COMPANY
and BUYER agreeing to use their reasonable best efforts to have any such
injunction lifted).
(d) Stockholder Approval. This Agreement and the Merger shall have
received the Requisite COMPANY Stockholder Approval;
(e) HSR Waiting Period. All applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated;
(f) Registration Statement. The Registration Statement shall have
become effective under the Securities Act;
(g) Legal Opinion. BUYER shall have received an acceptable opinion
from counsel to the COMPANY.
(h) Pooling of Interests Accounting. BUYER shall not have received a
final objection from the SEC to BUYER's accounting for the Merger as a "pooling
of interests."
(i) Lease Termination. The lease between the COMPANY and the Francis
Family Limited Partnership for the COMPANY's headquarters shall be amended to
provide that the lease may be terminated at the option of the lessee upon six
(6) months' notice.
(j) Material Adverse Change. There shall have been no material
adverse change from the date hereof in the business, condition or operations of
COMPANY, except changes contemplated, permitted or required by this Agreement
and changes resulting from
37
<PAGE>
a change in general economic conditions;
(k) Officer's Certificate. COMPANY shall have delivered to BUYER a
certification of one of its executive officers in such person's capacity as an
officer and without personal liability to the effect that each of the conditions
specified in Section 6.1(a)-(d) is satisfied in all respects.
BUYER may waive any condition specified in this Section 6.1 if it
executes a writing so stating at or prior to the Closing.
6.2 Conditions to Obligations of COMPANY. The obligation of COMPANY
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) Representations True. The representations and warranties set
forth in Section 4 above shall be true and correct in all material respects at
and as of the Closing Date (after giving effect to any updated Schedules as
contemplated by Section 5.13) except for any representation and warranty made
expressly with respect to a specific date and except for such failures to be
true and correct as do not have a Material Adverse Effect (after giving effect
to any insurance/indemnification) on the BUYER and its Subsidiaries, taken as a
whole;
(b) Covenants. BUYER shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) No Injunction. No preliminary or permanent injunction or other
order by any federal or state court in the United States which prevents the
consummation of the Merger shall have been issued and remain in effect (COMPANY
and BUYER agreeing to use their reasonable best efforts to have any such
injunction lifted);
(d) Stockholder Approval. This Agreement and the Merger shall have
received the Requisite COMPANY Stockholder Approval;
(e) Hart-Scott-Rodino Act. All applicable waiting periods (and any
extension thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the Parties shall have received all other
authorizations, consents, and approvals of governments and governmental agencies
referred to in Section 3.4 and Section 4.4 above;
(f) Registration Statement. The Registration Statement shall have
become effective under the Securities Act;
(g) Listing of BUYER Shares. The BUYER Shares that will be issued in
the Merger shall have been approved for listing on the NASDAQ National Market
System, subject to official notice of issuance;
38
<PAGE>
(h) Legal Opinion. COMPANY shall have received an acceptable opinion
from BUYER's general counsel;
(i) Fairness Opinion. The Board of Directors of COMPANY shall have
received from Piper Jaffray, Inc. a written opinion, dated as of the date of
mailing the COMPANY Proxy Statement to holders of COMPANY Common Stock
reasonably satisfactory in form and substance to such board, to the effect that
the terms of the Merger are fair to the COMPANY Stockholders from a financial
point of view;
(j) Officer's Certificate. BUYER shall have delivered to COMPANY a
certificate of one of its executive officers in such person's capacity as an
officer and without personal liability to the effect that each of the conditions
specified above in Section 6.2(a)-(d), (g) is satisfied in all respects (other
than with respect to Requisite COMPANY Stockholder Approval);
(k) Tax Opinion. COMPANY shall have received from
Gray, Plant, Mooty, Mooty & Bennett, PA, dated as of the Closing Date and based
upon certain factual representations from officers of COMPANY, BUYER and SUB
that such counsel may reasonably request and upon such other facts,
representations, assumptions, and agreements as counsel may reasonably deem
relevant, a written opinion in a form reasonably satisfactory to COMPANY
confirming that the Merger will be treated as a "reorganization" within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code;
COMPANY may waive any condition specified in this Section 6.2 if it
executes a writing so stating at or prior to the Closing.
7. Termination.
7.1 Termination Prior to the Effective Time. This Agreement may be
terminated and the Merger contemplated hereby may be abandoned at any time
(except as provided in Section 7.1(e) below), notwithstanding approval thereof
by the stockholders, but prior to the Effective Time:
(a) By mutual written consent of each of BUYER and the COMPANY (upon
board approval of each); or
(b) By either the BUYER or the COMPANY, if the Merger has not
occurred on or before August 31, 1999; provided, however, if the reason that the
Merger has not occurred by such date is the failure of the Securities and
Exchange Commission to act promptly with respect to the Registration Statement
on Form S-4 filed by BUYER therewith, or the failure of the Federal Trade
Commission or the Justice Department to grant termination, or early termination,
of the waiting period under the Hart Scott Rodino Act, and such failure of the
Securities and Exchange Commission, the Federal Trade Commission or the Justice
Department is not the result of action or inaction of the parties hereto, then
the right to terminate pursuant to this Section 7.1(b) shall not be available
39
<PAGE>
until November 30, 1999.
(c) By the BUYER or the COMPANY if any court of competent
jurisdiction in the United States shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
Merger or declaring same invalid or unlawful and such order, decree, ruling or
other action shall have become final and nonappealable; or
(d) By the COMPANY pursuant to 5.10(a) hereof, upon payment of the
Break-Up Fee.
(e) By the COMPANY in the event that the closing price of the BUYER
Share closes below $31.60 on any five (5) consecutive trading days between the
execution of this Agreement and the Effective Time, provided that notice of
termination for such event shall be given by the COMPANY to the BUYER not more
than ten (10) days after the expiration of the five (5) day-trading period
referred to herein.
7.2 Effect of Termination.
If any Party terminates this Agreement pursuant to Section 7.1(a),
(b) (c) or (e) above, all rights and obligations by the Parties hereunder shall
terminate without any liability of any Party to any other Party; provided that
nothing in this Section 7.2 shall relieve either party hereto for liability
resulting from the breach of any covenant contained in this Agreement and except
for the provisions of Section 5.10(b) which shall survive such termination.
8. Miscellaneous.
8.1 Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior approval of the other Party; provided,
however, each Party agrees not to unreasonably withhold consent to the other
Party's request to make any public disclosure that the requesting Party believes
in good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities.
8.2 No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (i) the
provision in Section 2 above concerning issuance of the BUYER Shares and are
intended for the benefit of the COMPANY Stockholders and, (ii) the provisions in
Section 5.11(c) are intended for the benefit of the holders of COMPANY Shares,
(iii) the provisions in Section 5.5 above concerning indemnification are
intended for the benefit of the individuals specified therein and their
respective legal representatives.
40
<PAGE>
8.3 Entire Agreement. No discussions regarding, or exchange of
drafts or comments in connection with, the transactions contemplated herein
shall constitute an agreement among the parties hereto. Any agreement among the
parties shall exist only when the parties have fully executed and delivered this
Agreement. This Agreement (including any other documents referred to herein)
constitutes the entire agreement between the Parties and supersedes any prior
understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
8.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
8.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
8.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to COMPANY:
The Barbers, Hairstyling for Men & Women, Inc.
300 Industrial Boulevard N.E.
Minneapolis, MN 55413
Attention: President
Copy to:
Joseph T. Kinning, Esq.
Gray, Plant, Mooty, Mooty & Bennett, P.A.
33 South Sixth Street
3400 City Center
Minneapolis, MN 55402
41
<PAGE>
If to BUYER or SUB:
Regis Corporation
7201 Metro Boulevard
Minneapolis, MN 55439
Attention: President
Copy to:
Bert M. Gross, Esq.
Regis Corporation
7201 Metro Boulevard
Minneapolis, MN 55439
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
8.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Minnesota or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Minnesota.
8.9 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective board of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Minnesota Business Corporation Act. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the Parties. No waiver by any Party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
effect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
8.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
42
<PAGE>
8.11 Expenses. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby, except as otherwise
contemplated by Sections 5.11 and 7.2 hereof.
8.12 Specific Performance. The parties hereto agree that if for any
reason any party hereto shall have failed to perform its obligations under this
Agreement, then any other party hereto seeking to enforce this Agreement against
such non-performing party shall be entitled to specific performance and
injunctive and other equitable relief, and the parties hereto further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such injunctive or other equitable relief.
8.13 Construction. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
8.14 Incorporation of Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the date first above written.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
("COMPANY")
By:________________________________
Title: ____________________________
REGIS CORPORATION
("BUYER")
By:________________________________
Title: ____________________________
REGIS MERGER SUB, INC.
("SUB")
By:________________________________
Title: ____________________________
43
EXHIBIT 10.1
COST CUTTERS FAMILY HAIR CARE(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
FRANCHISED LOCATION:
---------------------------------------------------
Street
---------------------------------------------------
City State Zip Code
( )
---------------------------------------------------
Area Code Telephone
DATE OF FRANCHISE AGREEMENT:
_____________________, ____
<PAGE>
COST CUTTERS FAMILY HAIR CARE(R)
FRANCHISE AGREEMENT
INDEX
ARTICLE TITLE PAGE
- ------- ----- ----
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............................................................28
18 INDEPENDENT CONTRACTORS; INDEMNIFICATION.............................30
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..........................................................38
24 ENFORCEMENT..........................................................40
25 NOTICES..............................................................42
26 ACKNOWLEDGMENTS......................................................42
27 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL...............................44
28 GOVERNING LAW; STATE MODIFICATIONS...................................45
29 DEFINITIONS..........................................................45
PERSONAL GUARANTY
CONFIDENTIALITY AGREEMENT
AUTHORIZATION FOR DIRECT PAYMENT
LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
i
<PAGE>
COST CUTTERS FAMILY HAIR CARE(R)
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (this "Agreement") made, entered into and effective
this _____ day of _______________, _______, by and between 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:
F-1
<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:
________________________________________________________________________________
________________________________________________________________________________
(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 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
F-2
<PAGE>
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 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
F-3
<PAGE>
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.
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
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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 ($_______________),
to be paid as indicated below (select one):
______ A. Dollars ($ ) of the Initial Fee 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: (i) ten
(10) days prior to the date the FRANCHISEE commences initial business
operations at its Cost Cutters Business; or (ii) on the date the
FRANCHISEE'S furniture, fixtures and equipment are shipped to the
FRANCHISEE.
______ B. If and only if the FRANCHISEE enters into equipment and Initial Fee
leases with Evans Enterprises Leasing, Inc. for the equipment and
Initial Fee utilized in and applicable to the Franchised Location (the
"Evans Leases"), the Initial Fee will be due to COST CUTTERS in
accordance with terms substantially identical to those terms of the
Evans Leases applicable to the Initial Fee. Should any default occur by
the FRANCHISEE in the payment of any sums
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due under the Evans Leases or any sums due under this Article 4.1(B),
or should any default by the FRANCHISEE occur under this Agreement,
then the entire unpaid balance of the Initial Fee shall be immediately
due and payable in full without further notice. Notwithstanding the
provisions of Article 4.3 below or any other provision of this
Agreement to the contrary, the Initial Fee is not refundable to the
FRANCHISEE.
______ C. The entire amount of the Initial Fee 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 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 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, only if
paid to COST CUTTERS under the provisions of Articles 4.1(A) or 4.1(C) above,
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
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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 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
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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 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
have no fiduciary duty to the FRANCHISEE with respect to collection or
expenditure of the Advertising Fees, and any advertising fund will not be a
trust or escrow account. 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.
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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.
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
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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
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.
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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 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
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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 FRANCHISEE will be solely responsible for
ascertaining and insuring that the Franchised Location and the business premises
are construed or remodeled according to all applicable local, state and federal
laws, ordinances, statutes and building codes, including compliance with the
Americans with Disabilities Act. 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 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
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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 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
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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 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
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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
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.
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7.24 PARTICIPATION IN CERTAIN PROGRAMS AND PROMOTIONS. The FRANCHISEE must honor
all terms and conditions of any customer relations, warranty, gift certificate,
complimentary pass or similar programs established by COST CUTTERS for the Cost
Cutters franchise system. In addition, the FRANCHISEE must participate in any
system-wide program developed by COST CUTTERS to build brand awareness and
promote customer loyalty for the Cost Cutters franchise system.
7.25 COMPUTER SYSTEM TO BE YEAR 2000 COMPLIANT. The FRANCHISEE will be totally
and solely responsible for (A) ensuring that any computer hardware and software
utilized in its Cost Cutters Business is "year 2000 compliant" and will function
accurately and without material interruption in the year 2000 and beyond and (B)
protecting itself from the problems that might arise in its Cost Cutters
Business if the computer hardware and software of third parties with whom it
does business are not year 2000 compliant.
7.26 USE OF INTERNET. The FRANCHISEE'S conduct on the Internet, including
without limitation, its use of the Marks on the Internet and in domain names for
the Internet, is subject to the provisions of this Agreement. COST CUTTERS
reserves the right to establish and modify, from time to time, rules which will
govern the FRANCHISEE'S conduct and use of the Internet in connection with the
FRANCHISEE'S Cost Cutters Business, and the FRANCHISEE agrees to abide by such
rules. The FRANCHISEE'S right to use the Marks and the Business System on the
Internet will terminate when this Agreement terminates or expires.
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
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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, vendor and
supplier lists, customer lists, 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 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
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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 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.
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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 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
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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.
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
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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 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
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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 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
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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.
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
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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 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:
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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 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
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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.
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
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employed) in the interviewing and hiring of employees, review of operational
procedures and facilitating the opening of the Cost Cutters Business.
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. If the Franchised Location is the FRANCHISEE'S first Cost
Cutters Business, then COST CUTTERS will provide, at its cost, a representative
for not less than eight (8) 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. If the FRANCHISEE is an existing Cost Cutters franchisee, then COST
CUTTERS will provide, at its cost, a representative for not less than five (5)
business days at the Franchised Location. 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
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FRANCHISEE or any employees of the FRANCHISEE in traveling to and attending
optional additional training will be paid for by the FRANCHISEE.
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
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vehicle used by the FRANCHISEE or any of its employees in connection with the
FRANCHISEE'S Cost Cutters 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, 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.
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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 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
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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 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
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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 execute an
authorization for direct payment in the form attached hereto as Exhibit "B" and
will, from time to time during the term of this Agreement, execute such other
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 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 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
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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 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
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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 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
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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 and is in compliance with all applicable local, state and federal
laws, ordinances, statutes and building codes, including compliance with the
Americans with Disabilities Act. 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 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
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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 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.
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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 "C" 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
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.
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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 appropriate office of the American
Arbitration Association 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 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
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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.
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
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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 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
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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.
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
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"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 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
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<PAGE>
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)" 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 The Barbers, are 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 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.
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26.7 OTHER HAIR CARE BUSINESSES. The FRANCHISEE acknowledges and agrees that The
Barbers, WCH, Inc. and any affiliate of either organization will have the
absolute right to develop, own, manage, license or franchise hair care or
product businesses under any trademark, service mark or trade name at any
location or through any channel of distribution anywhere in the world, and the
FRANCHISEE hereby waives any and all rights that it may have or allege against
The Barbers, WCH, Inc. or any affiliate of either organization resulting from
the opening of any such hair care or product businesses, including those hair
care or product businesses 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 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: ( )
-------------------------------------------
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<PAGE>
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.
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
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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 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"
The Barbers, Hairstyling for Men & Women,
Inc.
- -----------------------------------
By
-------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
----------------------------------------
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<PAGE>
----------------------------------------
----------------------------------------
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
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<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.
F-48
<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
F-49
<PAGE>
EXHIBIT A
CONFIDENTIALITY AGREEMENT
Effective this _______day of _______________, ______, in consideration of
employment with ___________________________________________ (the "Employer"), a
franchisee 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,
supplier and vendor lists, customer lists, 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: , EMPLOYEE:
------------------- -----
-----------------------------------------
EMPLOYER:
-----------------------------------------
By
-------------------------------------
Its
-----------------------------------
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<PAGE>
EXHIBIT B
AUTHORIZATION FOR DIRECT PAYMENT
I hereby authorize The Barbers, Hairstyling for Men & Women, Inc. to
initiate DRAFTS, Electronic Funds Transfer (EFT) or Automated Clearing House
(ACH) transactions against my checking/savings account and I instruct the
financial institution named below to honor said transactions. This authorization
shall remain in force until revocation in writing is received by you.
-----------------------------------------
Name of Franchisee (please print)
-----------------------------------------
Cost Cutters store location & number*
-----------------------------------------
Signature of Franchisee
- ---------------------------
Date
- --------------------------------------------------------------------------------
Name of Financial Institution
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City/State/Zip Code
Account Number: Checking Savings
---------------------------- ----- -----
STAPLE VOIDED CHECK HERE:
* please submit one form per store. Make additional copies
of this form if necessary.
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<PAGE>
EXHIBIT C
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 ____________________, ______,
between the Landlord and the Franchisee, (the Premises Lease), to The Barbers,
Hairstyling for Men & Women, Inc. (COST CUTTERS), pursuant to a franchise
agreement between COST CUTTERS and the Franchisee dated _______________, ______,
(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'
(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: , "LANDLORD"
------------------- ----
-----------------------------------------
By
-------------------------------------
Its
-----------------------------------
F-52
EXHIBIT 10.2
COST CUTTERS FAMILY HAIR CARE(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
( )
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Area Code Telephone
FRANCHISED AREA:
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DATE OF DEVELOPMENT AGREEMENT:
____________________, ____
<PAGE>
COST CUTTERS FAMILY HAIR CARE(R)
DEVELOPMENT AGREEMENT
INDEX
Article Title 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.....................................6
5 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION................8
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............................................................19
14 ACKNOWLEDGMENTS....................................................20
15 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL.............................21
16 GOVERNING LAW; STATE MODIFICATIONS.................................22
17 DEFINITIONS........................................................23
PERSONAL GUARANTY
i
<PAGE>
COST CUTTERS FAMILY HAIR CARE(R)
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement"), made, entered into and effective
this _____ day of _______________, _____, by and between 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:
D-1
<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. The term of this Agreement will commence on the date set forth on Page
D-1 of this Agreement (the "Commencement Date") and will continue, unless
earlier terminated in accordance with Article 6 below or other provisions of
this Agreement, until the first to occur of (A) the expiration of ____________
(___) years from the Commencement Date and (B) that date upon which ____________
(___) Cost Cutters Businesses owned by the FRANCHISEE are open and operating for
business in the
D-2
<PAGE>
Franchised Area. This Agreement will not be considered executed and will not be
enforceable until: (i) it has been signed by COST CUTTERS and the FRANCHISEE,
and, if the FRANCHISEE is a corporation or partnership, the Personal Guarantors;
and (ii) 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. If the FRANCHISEE wishes to acquire
the exclusive development rights with respect to the Franchised Area following
the end of the term of this Agreement, then the FRANCHISEE must so notify COST
CUTTERS at least one hundred twenty (120) days prior to the end of the term of
this Agreement. Upon being given such notice from the FRANCHISEE, 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 may, at this time, be further developed by opening
additional Cost Cutters businesses in the Franchised Area. In the event COST
CUTTERS determines that the Franchised Area may not, at this time, be further
developed, or that the FRANCHISEE does not comply with the then-current
requirements of COST CUTTERS for area developers, then COST CUTTERS will so
notify the FRANCHISEE and all rights of the FRANCHISEE under this Article 2.2
shall terminate. In the event COST CUTTERS determines that the Franchised Area
may, at this time, be further developed, and if the FRANCHISEE meets all of the
then-current requirements of COST CUTTERS for area developers, 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
sixty (60) days to (A) accept in writing COST CUTTERS' proposal to own and
operate further Cost Cutters Businesses in the Franchised Area and (B) sign the
then-current form of COST CUTTERS development agreement incorporating the terms
of such proposal. If so accepted, 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 the development agreement, 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 and to sign such development agreement within sixty (60) days from the
date the written notice of COST CUTTERS' proposal is given to the FRANCHISEE,
then all rights of the FRANCHISEE under this Article 2.2 shall automatically
terminate and COST CUTTERS will have the absolute right to open and develop Cost
Cutters businesses in the Franchised Area anytime after the term of this
Agreement has expired. The FRANCHISEE acknowledges that circumstances and
judgments may change and that if the FRANCHISEE'S rights under this Article 2.2
have terminated as provided above, then such rights will not be revived in the
event COST CUTTERS later determines that the Franchised Area may be further
developed.
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 ($_______________) for the first Cost Cutters Business required to be
owned and operated by the FRANCHISEE in the Franchised Area pursuant to the
development schedule contained in this Agreement. The FRANCHISEE will pay COST
CUTTERS an Initial Fee of _____________________________________________________
Dollars
D-3
<PAGE>
($_______________) 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-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>
<S> <C> <C>
- ---------------------------- -------------------------------------------- ---------------------------------------------
NUMBER OF COST CUTTERS BUSINESSES REQUIRED CUMULATIVE NUMBER OF COST CUTTERS
TO BE OPENED AND CONTINUOUSLY OPERATING BUSINESSES REQUIRED TO BE OPEN AND
FOR BUSINESS IN THE FRANCHISED AREA DURING CONTINUOUSLY OPERATING FOR BUSINESS IN THE
PERIOD THE PERIOD FRANCHISED 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:
- ---------------------------- ------------------------------------------- ----------------------------------------------
</TABLE>
D-4
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------- -------------------------------------------- ---------------------------------------------
NUMBER OF COST CUTTERS BUSINESSES REQUIRED CUMULATIVE NUMBER OF COST CUTTERS
TO BE OPENED AND CONTINUOUSLY OPERATING BUSINESSES REQUIRED TO BE OPEN AND
FOR BUSINESS IN THE FRANCHISED AREA DURING CONTINUOUSLY OPERATING FOR BUSINESS IN THE
PERIOD THE PERIOD FRANCHISED AREA AT THE END OF THE PERIOD
- ---------------------------- -------------------------------------------- ---------------------------------------------
-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.
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
D-5
<PAGE>
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.
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,
D-6
<PAGE>
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 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
D-7
<PAGE>
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.
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, vendor and supplier lists,
customer lists, 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.
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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.
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
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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. 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
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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.
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
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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.
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.
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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. 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.
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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 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'
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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 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 appropriate office of the American
Arbitration Association 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.
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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.
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
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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 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.
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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) 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.
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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.
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
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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 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.
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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)" 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 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 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.
14.8 OTHER HAIR CARE BUSINESSES. Except as expressly provided to the contrary in
Articles 1.2 and 2.2 of this Agreement with respect to the development of Cost
Cutters Businesses in the Franchised Area, the FRANCHISEE acknowledges and
agrees that The Barbers, WCH, Inc., and any affiliate of either organization
will have the absolute right to develop, own, manage, license or franchise hair
care or product businesses under any trademark, service mark or trade name at
any location or through any channel of distribution anywhere in the world, and
the FRANCHISEE hereby waives any and all rights that it may have or allege
against The Barbers, WCH, Inc. or any affiliate of either organization resulting
from the opening of any such hair care or product business, including those hair
care or product 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.
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
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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.
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.
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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.
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.
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: The Barbers, Hairstyling for Men & Women,
Inc.
- ----------------------------------- ----------------------------------------
By
-------------------------------------
Its
-----------------------------------
In the Presence of: "FRANCHISEE"
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
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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
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<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
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INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
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City State Zip Code City State Zip Code
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Telephone Telephone
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INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
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INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
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Telephone Telephone
EXHIBIT 10.3
FRANCHISE AGREEMENT
BETWEEN
WCH, INC.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
Fax: (612) 331-2821
AND
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Name(s) of FRANCHISEE
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Street
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City State Zip Code
( )
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Area Code Telephone
FRANCHISED LOCATION:
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Street
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City State Zip Code
( )
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Area Code Telephone
DATE OF FRANCHISE AGREEMENT:
______________________, ____
<PAGE>
WE CARE HAIR(R)
FRANCHISE AGREEMENT
INDEX
ARTICLE TITLE PAGE
- ------- ----- ----
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............................................................26
18 INDEPENDENT CONTRACTORS; INDEMNIFICATION.............................27
19 FINANCIAL STATEMENTS; GROSS REVENUE REPORTS; FORMS AND ACCOUNTING....28
20 ASSIGNMENT...........................................................30
21 SITE SELECTION; STANDARD STORE LAYOUTS AND PLANS.....................32
22 LEASE AS SECURITY; TERMINATION OF LEASE..............................33
23 ARBITRATION..........................................................35
24 ENFORCEMENT..........................................................37
25 NOTICES..............................................................40
26 ACKNOWLEDGMENTS......................................................40
27 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL...............................41
28 GOVERNING LAW; STATE MODIFICATIONS...................................42
29 DEFINITIONS..........................................................43
PERSONAL GUARANTY
CONFIDENTIALITY AGREEMENT
AUTHORIZATION FOR DIRECT PAYMENT
LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
i
<PAGE>
WE CARE HAIR(R)
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (this "Agreement") made, entered into and effective
this _____ day of _______________, ______, 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:
F-1
<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 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.
F-2
<PAGE>
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 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.
F-3
<PAGE>
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 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.
F-4
<PAGE>
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 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
F-5
<PAGE>
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 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
F-6
<PAGE>
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 have no fiduciary duty to the FRANCHISEE with respect
to collection or expenditure of the Advertising Fees, and any advertising fund,
including but not limited to the FAF, will not be a trust or escrow account. 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 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
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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 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.
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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 6.5
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:
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.
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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 FRANCHISEE will be solely
responsible for ascertaining and ensuring that the Franchised Location and the
business premises are constructed or remodeled according to all applicable
local, state and federal laws, ordinances, statutes and building codes,
including without limitation compliance with the Americans with Disabilities
Act. 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 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
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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.
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
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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.
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
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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
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
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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 WE CARE HAIR 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.
7.24 PARTICIPATION IN CERTAIN PROGRAMS AND PROMOTIONS. The FRANCHISEE must honor
all terms and conditions of any customer relations, warranty, gift certificate,
complimentary pass or similar programs established by WCH for the We Care Hair
franchise system. In addition, the FRANCHISEE must participate in any
system-wide program developed by WCH to build brand awareness and promote
customer loyalty for the We Care Hair franchise system.
7.25 COMPUTER SYSTEM TO BE YEAR 2000 COMPLIANT. The FRANCHISEE will be totally
and solely responsible for (A) ensuring that any computer hardware and software
utilized in its We Care Hair Business is "year 2000 compliant" and will function
accurately and without material interruption in the year 2000 and beyond and (B)
protecting itself from the problems that might arise in its We Care Hair
Business if the computer hardware and software of third parties with whom it
does business are not year 2000 compliant.
7.26 USE OF INTERNET. The FRANCHISEE'S conduct on the Internet, including
without limitation, its use of the Marks on the Internet and in domain names for
the Internet, is subject to the provisions of this Agreement. WCH reserves the
right to establish and modify, from time to time, rules which will govern the
FRANCHISEE'S conduct and use of the Internet in connection with the FRANCHISEE'S
We Care Hair Business, and the FRANCHISEE agrees to abide by such rules. The
FRANCHISEE'S right to use the Marks and the Business System on the Internet will
terminate when this Agreement terminates or expires.
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.
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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 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, vendor and supplier lists, customer lists, 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
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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 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 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.
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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.
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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.
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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 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
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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 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
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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 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
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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 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
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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.
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
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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.
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.
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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 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.
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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.
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
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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 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.
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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 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.
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19.6 PAYMENT BY PRE-AUTHORIZED BANK TRANSFER. The FRANCHISEE will execute an
authorization for direct payment in the form attached hereto as Exhibit "B" and
will, from time to time during the term of this Agreement, execute such other
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
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 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
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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.
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.
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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.
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
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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 ensuring that the Franchised Location
is constructed or remodeled according to the store layouts and plans provided by
WCH and is in compliance with all applicable local, state and federal laws,
ordinances, statutes and building codes, including without limitation compliance
with the Americans with Disabilities Act. 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 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
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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 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
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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 "C" 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 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 appropriate office of the American
Arbitration Association 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.
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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 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
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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.
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.
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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 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
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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 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.
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<PAGE>
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 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.
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<PAGE>
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)" 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)" business serviced by 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 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.
26.7 OTHER HAIR CARE BUSINESSES. The FRANCHISEE acknowledges and agrees that
WCH, The Barbers and any affiliate of either organization will have the absolute
right to develop, own, manage, license or franchise hair care or product
businesses under any trademark, service mark or trade name at any location or
through any channel of distribution anywhere in the world, and the FRANCHISEE
hereby waives any and all rights that it may have or allege against WCH, The
Barbers or any affiliate of either organization resulting from the opening of
any such hair care or product businesses, including those hair care or product
businesses that may be near, adjacent or contiguous to the FRANCHISEE'S We Care
Hair Business.
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
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<PAGE>
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 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.
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<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.
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.
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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
F-44
<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.
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<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
F-46
<PAGE>
EXHIBIT A
CONFIDENTIALITY AGREEMENT
Effective this _____ day of _______________, _____, 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, supplier and vendor lists, customer lists,
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: , EMPLOYEE:
------------------- -----
-----------------------------------------
EMPLOYER:
-----------------------------------------
By
-------------------------------------
Its
-----------------------------------
<PAGE>
EXHIBIT B
AUTHORIZATION FOR DIRECT PAYMENT
I hereby authorize WCH, Inc. to initiate DRAFTS, Electronic Funds
Transfer (EFT) or Automated Clearing House (ACH) transactions against my
checking/savings account and I instruct the financial institution named below to
honor said transactions. This authorization shall remain in force until
revocation in writing is received by you.
-----------------------------------------
Name of Franchisee (please print)
-----------------------------------------
Cost Cutters store location & number*
-----------------------------------------
Signature of Franchisee
- ---------------------------
Date
- --------------------------------------------------------------------------------
Name of Financial Institution
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City/State/Zip Code
Account Number: Checking Savings
---------------------------- ----- -----
STAPLE VOIDED CHECK HERE:
* please submit one form per store. Make additional
copies of this form if necessary.
<PAGE>
EXHIBIT C
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 _______________, _____, between
the Landlord and the Franchisee, (the Premises Lease), to WCH, Inc. (WCH),
pursuant to a franchise agreement between WCH and the Franchisee dated
_______________, _____, (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: , "LANDLORD"
------------------- ----
-----------------------------------------
By
-------------------------------------
Its
--------------------------------
EXHIBIT 10.4
DEVELOPMENT AGREEMENT
BETWEEN
WCH, INC.
300 Industrial Boulevard N.E.
Minneapolis, Minnesota 55413
(612) 331-8500
Fax: (612) 331-2821
AND
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Name(s) of FRANCHISEE
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Street
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City State Zip Code
( )
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Area Code Telephone
FRANCHISED AREA:
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DATE OF DEVELOPMENT AGREEMENT:
____________________, ____
<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......................................................13
12 ENFORCEMENT......................................................15
13 NOTICES..........................................................18
14 ACKNOWLEDGMENTS..................................................18
15 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL...........................20
16 GOVERNING LAW; STATE MODIFICATIONS...............................21
17 DEFINITIONS......................................................21
PERSONAL GUARANTY
i
<PAGE>
WE CARE HAIR(R)
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement"), made, entered into and effective
this _____ day of _______________, _____, 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:
D-1
<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. The term of this Agreement will commence on the date set forth on Page
D-1 of this Agreement (the "Commencement Date") and will continue, unless
earlier terminated in accordance with Article 6 below or other provisions of
this Agreement, until the first to occur of (A) the expiration of ____________
(___) years from the Commencement Date and (B) that date upon which ____________
(___) We Care Hair Businesses owned by the FRANCHISEE are open and operating for
business in the Franchised Area. This Agreement will not be considered executed
and will not be enforceable until: (i) it has been signed by WCH and the
FRANCHISEE, and, if the FRANCHISEE is a corporation or partnership, the Personal
Guarantors; and (ii) 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. If the FRANCHISEE wishes to acquire
the exclusive development rights with respect to the Franchised Area following
the end of the term of this Agreement, then the FRANCHISEE must so notify WCH at
least one hundred twenty (120) days prior to the end of the term of this
Agreement. Upon being given such notice from the FRANCHISEE, 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 may, at this time, be
D-2
<PAGE>
further developed by opening additional We Care Hair businesses in the
Franchised Area. In the event WCH determines that the Franchised Area may not,
at this time, be further developed, or that the FRANCHISEE does not comply with
the then-current requirements of WCH for area developers, then WCH will so
notify the FRANCHISEE and all rights of the FRANCHISEE under this Article 2.2
shall terminate. In the event WCH determines that the Franchised Area may, at
this time, be further developed, and if the FRANCHISEE meets all of the
then-current requirements of WCH for area developers, 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 sixty (60) days
to (A) accept in writing WCH' proposal to own and operate further We Care Hair
businesses in the Franchised Area and (B) sign the then-current form of WCH
development agreement incorporating the terms of such proposal. If so accepted,
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 the
development agreement, 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 WCH' written proposal and to sign such development agreement
within sixty (60) days from the date the written notice of WCH' proposal is
given to the FRANCHISEE, then all rights of the FRANCHISEE under this Article
2.2 shall automatically terminate and WCH will have the absolute right to open
and develop We Care Hair businesses in the Franchised Area anytime after the
term of this Agreement has expired. The FRANCHISEE acknowledges that
circumstances and judgments may change and that if the FRANCHISEE'S rights under
this Article 2.2 have terminated as provided above, then such rights will not be
revived in the event WCH later determines that the Franchised Area may be
further developed.
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 ($_______________) for the
first We Care Hair Business required to be owned and operated by the FRANCHISEE
in the Franchised Area pursuant to the development schedule contained in this
Agreement. The FRANCHISEE will pay WCH an Initial Fee of _______________ Dollars
($_______________) 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
D-3
<PAGE>
and continuously operating in the Franchised Area during the term of this
Agreement in accordance with the following development schedule:
<TABLE>
<S> <C> <C>
- ---------------------------- -------------------------------------------- ---------------------------------------------
NUMBER OF WE CARE HAIR BUSINESSES REQUIRED CUMULATIVE NUMBER OF WE CARE HAIR
TO BE OPENED AND CONTINUOUSLY OPERATING BUSINESSES REQUIRED TO BE OPEN AND
FOR BUSINESS IN THE FRANCHISED AREA DURING CONTINUOUSLY OPERATING FOR BUSINESS IN THE
PERIOD THE PERIOD FRANCHISED 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 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
D-4
<PAGE>
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 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.
D-5
<PAGE>
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 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.
D-6
<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 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.
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, vendor and supplier lists, customer lists, 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
D-7
<PAGE>
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, 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.
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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, 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
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prior to the termination of this Agreement, and the rights and obligations of
the FRANCHISEE and WCH 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
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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 operation of the FRANCHISEE'S We Care
Hair Businesses that are conducted by the FRANCHISEE
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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 any designated person or beneficiary upon his or her death or
permanent disability. However, the
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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.
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
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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 appropriate office of the American
Arbitration Association 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,
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
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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
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
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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.
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.
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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.
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.
D-17
<PAGE>
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.
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
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<PAGE>
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)" 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)" business serviced by 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 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) 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.
14.8 OTHER HAIR CARE BUSINESSES. Except as expressly provided to the contrary in
Articles 1.2 and 2.2 of this Agreement with respect to the development of We
Care Hair Businesses in the Franchised Area, the FRANCHISEE acknowledges and
agrees that WCH, The Barbers, and any affiliate of either organization will have
the absolute right to develop, own, manage, license or franchise hair care or
product businesses under any trademark, service mark or trade name at any
location or through any channel of distribution anywhere in the world, and the
FRANCHISEE hereby waives any and all rights that it may have or allege against
WCH, The Barbers or any affiliate of either organization resulting from the
opening of any such hair care or product business, including those hair care or
product businesses that
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<PAGE>
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: ( )
-------------------------------------------------
D-20
<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.
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.
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<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"
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
- ----------------------------------- ----------------------------------------
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
D-22
<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
EXHIBIT 10.5
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:
________________, _____
<PAGE>
CITY LOOKS SALONS INTERNATIONAL(R)
FRANCHISE AGREEMENT
Article Description Page
- ------- ----------- ----
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...........................................................7
7 QUALITY CONTROL, UNIFORMITY AND STANDARDS REQUIRED OF THE FRANCHISEE.10
8 CONFIDENTIAL OPERATIONS MANUAL AND OTHER INFORMATION.................15
9 CITY LOOKS'TERMINATION RIGHTS........................................16
10 FRANCHISEE'S TERMINATION RIGHTS......................................18
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........................22
14 TRAINING PROGRAM; OPENING ASSISTANCE.................................25
15 CITY LOOKS'OTHER OBLIGATIONS.........................................26
16 CITY LOOKS SALONS INTERNATIONAL SIGN.................................27
17 INSURANCE............................................................27
18 INDEPENDENT CONTRACTORS; INDEMNIFICATION.............................29
19 FINANCIAL STATEMENTS; GROSS REVENUE REPORTS; FORMS AND ACCOUNTING....29
20 ASSIGNMENT...........................................................31
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..............................................................41
26 ACKNOWLEDGMENTS......................................................41
27 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL...............................42
28 GOVERNING LAW; STATE MODIFICATIONS...................................43
29 DEFINITIONS..........................................................44
PERSONAL GUARANTY
EXHIBIT A - CONFIDENTIALITY AGREEMENT
EXHIBIT B - AUTHORIZATION FOR DIRECT PAYMENT
EXHIBIT C - LANDLORD'S CONSENT TO ASSIGNMENT OF LEASE
i
<PAGE>
CITY LOOKS SALONS INTERNATIONAL(R)
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT, (this "Agreement") made, entered into and effective
this _____ day of _______________, ______, by and between The Barbers,
Hairstyling for Men & Women, Inc., a Minnesota corporation ("CITY LOOKS" and
sometimes "THE BARBERS"), 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 name "City
Looks Salons International(R) (the "Business System" or the "City Looks Business
System") and has publicized the name "City Looks Salons International(R)" 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 name "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 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
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;
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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
Salons International or 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 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
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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 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.
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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 name "City Looks Salons International(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 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 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
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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 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
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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 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
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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' 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
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administrative expenses), and all other costs relating to the advertising and
promotion of all City Looks Salons International and 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 have no fiduciary duty to the FRANCHISEE
with respect to collection or expenditure of the National Advertising Production
Fees, and any advertising fund will not be a trust or escrow account. 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.
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 or The Barbers businesses (including the FRANCHISEE'S
City Looks
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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 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 or 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
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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 Salons
International 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 Salons International 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 Salons International 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, 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.
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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 FRANCHISEE will be
solely responsible for ascertaining and insuring that the Franchised Location
and the business premises are construed or remodeled according to all applicable
local, state and federal laws, ordinances, statutes and building codes,
including compliance with the Americans with Disabilities Act. 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 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
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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 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
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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
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
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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.
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"
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.
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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.
7.24 PARTICIPATION IN CERTAIN PROGRAMS AND PROMOTIONS. The FRANCHISEE must honor
all terms and conditions of any customer relations, warranty, gift certificate,
complimentary pass or similar programs established by CITY LOOKS for the City
Looks franchise system. In addition, the FRANCHISEE must participate in any
system-wide program developed by CITY LOOKS to build brand awareness and promote
customer loyalty for the City Looks franchise system.
7.25 COMPUTER SYSTEM TO BE YEAR 2000 COMPLIANT. The FRANCHISEE will be totally
and solely responsible for (A) ensuring that any computer hardware and software
utilized in its City Looks Business is "year 2000 compliant" and will function
accurately and without material interruption in the year 2000 and beyond and (B)
protecting itself from the problems that might arise in its City Looks Business
if the computer hardware and software of third parties with whom it does
business are not year 2000 compliant.
7.26 USE OF INTERNET. The FRANCHISEE'S conduct on the Internet, including
without limitation, its use of the Marks on the Internet and in domain names for
the Internet, is subject to the provisions of this Agreement. CITY LOOKS
reserves the right to establish and modify, from time to time, rules which will
govern the FRANCHISEE'S conduct and use of the Internet in connection with the
FRANCHISEE'S City Looks business, and the FRANCHISEE agrees to abide by such
rules. The FRANCHISEE'S right to use the Marks and the Business System on the
Internet will terminate when this Agreement terminates or expires.
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 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-
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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, vendor and supplier lists, customer
lists, 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,
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
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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 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.
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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.
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
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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.
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
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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 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.
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 name "City Looks Salons International(R)" 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
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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 Salons International or 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 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
Salons International, The Barbers,, 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
Salons International or 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 Salons International or 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.
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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
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
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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 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
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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 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.
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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 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,
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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 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 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
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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 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
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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 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.
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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 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
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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 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.
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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 execute an
authorization for direct payment in the form attached hereto as Exhibit "B" and
will, from time to time during the term of this Agreement, execute such other
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 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
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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
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
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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 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
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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.
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 and is in compliance with all applicable local, state and federal
laws, ordinances, statutes and building codes, including compliance with the
Americans with Disabilities Act. 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.
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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.
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.
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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 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 "C" 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
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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 appropriate office of the American
Arbitration Association 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. 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.
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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 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
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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 business or other City Looks Salons
International or 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. 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
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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 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.
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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 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
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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 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 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 THE BARBERS
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 THE BARBERS or any
affiliate of THE BARBERS 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 THE BARBERS or any affiliate
of THE BARBERS 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 writing of the
person or persons making such representations or warranties; and (B) provided to
CITY
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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:
-----------------------------------------------
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 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.
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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 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.
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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
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<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.
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<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
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<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, supplier and vendor lists, customer lists, 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
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EXHIBIT B
AUTHORIZATION FOR DIRECT PAYMENT
I hereby authorize The Barbers, Hairstyling for Men & Women, Inc. to
initiate DRAFTS, Electronic Funds Transfer (EFT) or Automated Clearing House
(ACH) transactions against my checking/savings account and I instruct the
financial institution named below to honor said transactions. This authorization
shall remain in force until revocation in writing is received by you.
-----------------------------------------
Name of Franchisee (please print)
-----------------------------------------
Cost Cutters store location & number*
-----------------------------------------
Signature of Franchisee
- ---------------------------
Date
- --------------------------------------------------------------------------------
Name of Financial Institution
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City/State/Zip Code
Account Number: Checking Savings
---------------------------- ----- -----
STAPLE VOIDED CHECK HERE:
* Please submit one form per store. Make additional copies
of this form if necessary.
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<PAGE>
EXHIBIT C
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.
Dated: , "Landlord"
------------------- ----
-----------------------------------------
By
-------------------------------------
Its
-----------------------------------
F-50
EXHIBIT 10.6
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:
__________________, ____
<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...................................................20
15 DISCLAIMER; FRANCHISEE'S LEGAL COUNSEL............................22
16 GOVERNING LAW; STATE MODIFICATIONS................................23
17 DEFINITIONS.......................................................23
PERSONAL GUARANTY
i
<PAGE>
CITY LOOKS SALONS INTERNATIONAL(R)
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement"), made, entered into and effective
this _____ day of _______________, ________, by and between The Barbers,
Hairstyling for Men & Women, Inc., a Minnesota corporation ("CITY LOOKS" and
sometimes "THE BARBERS"), 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 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 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;
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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. The term of this Agreement will commence on the date set forth on Page
D-1 of this Agreement (the "Commencement Date") and will continue, unless
earlier terminated in accordance with Article 6 below or other provisions of
this Agreement, until the first to occur of (A) the expiration of ____________
(___) years from the Commencement Date and (B) that date upon which ____________
(___) City Looks Businesses owned by the FRANCHISEE are open and operating for
business in the Franchised Area. This Agreement will not be considered executed
and will not be enforceable until: (i) it has been signed by CITY LOOKS and the
FRANCHISEE, and, if the FRANCHISEE is a corporation or partnership, the Personal
Guarantors; and (ii) 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. If the FRANCHISEE wishes to acquire
the exclusive development rights with respect to the Franchised Area following
the end of the term of this Agreement, then the FRANCHISEE must so notify CITY
LOOKS at least one hundred twenty (120) days prior to the end of the term of
this Agreement. Upon being given such notice from the FRANCHISEE, 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
D-2
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the Franchised Area may, at this time, be further developed by opening
additional City Looks businesses in the Franchised Area. In the event CITY LOOKS
determines that the Franchised Area may not, at this time, be further developed,
or that the FRANCHISEE does not comply with the then-current requirements of
CITY LOOKS for area developers, then CITY LOOKS will so notify the FRANCHISEE
and all rights of the FRANCHISEE under this Article 2.2 shall terminate. In the
event CITY LOOKS determines that the Franchised Area may, at this time, be
further developed, and if the FRANCHISEE meets all of the then-current
requirements of CITY LOOKS for area developers, then CITY LOOKS will give the
FRANCHISEE written notice of its proposal to develop additional City Looks
businesses in the Franchised Area and the FRANCHISEE will have sixty (60) days
to (A) accept in writing CITY LOOKS' proposal to own and operate further City
Looks businesses in the Franchised Area and (B) sign the then-current form of
CITY LOOKS development agreement incorporating the terms of such proposal. If so
accepted, the FRANCHISEE will have the right to own and operate City Looks
businesses in the Franchised Area according to the terms and conditions set
forth in the development agreement, 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 and to sign
such development agreement within sixty (60) days from the date the written
notice of CITY LOOKS' proposal is given to the FRANCHISEE, then all rights of
the FRANCHISEE under this Article 2.2 shall automatically terminate and CITY
LOOKS will have the absolute right to open and develop City Looks businesses in
the Franchised Area anytime after the term of this Agreement has expired. The
FRANCHISEE acknowledges that circumstances and judgments may change and that if
the FRANCHISEE'S rights under this Article 2.2 have terminated as provided
above, then such rights will not be revived in the event CITY LOOKS later
determines that the Franchised Area may be further developed.
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
D-3
<PAGE>
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:
<TABLE>
<S> <C> <C>
- ---------------------- ------------------------------------------- -------------------------------------------
NUMBER OF CITY LOOKS BUSINESSES REQUIRED CUMULATIVE NUMBER OF CITY LOOKS BUSINESSES
TO BE OPENED AND CONTINUOUSLY OPERATING REQUIRED TO BE OPEN AND CONTINUOUSLY
PERIOD FOR BUSINESS IN THE FRANCHISED AREA DURING OPERATING FOR BUSINESS IN THE FRANCHISED
------ THE PERIOD. 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
- ---------------------- ------------------------------------------- -------------------------------------------
</TABLE>
D-4
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------- ------------------------------------------- -------------------------------------------
NUMBER OF CITY LOOKS BUSINESSES REQUIRED CUMULATIVE NUMBER OF CITY LOOKS BUSINESSES
TO BE OPENED AND CONTINUOUSLY OPERATING REQUIRED TO BE OPEN AND CONTINUOUSLY
PERIOD FOR BUSINESS IN THE FRANCHISED AREA DURING OPERATING FOR BUSINESS IN THE FRANCHISED
------ THE PERIOD. AREA AT THE END OF THE PERIOD.
- ---------------------- ------------------------------------------- -------------------------------------------
-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 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
D-5
<PAGE>
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
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.
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<PAGE>
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 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
D-7
<PAGE>
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 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.
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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.
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, vendor and supplier lists, customer
lists, 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
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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 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.
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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 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.
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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 Salons International, 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 Salons International or
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 Salons International, 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 City Looks Salons International or 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
or 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.
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
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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 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
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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 legal counsel deems necessary to properly
and legally document the transfer or assignment of this Agreement to the
corporation as provided herein.
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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 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.
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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 appropriate office of the American
Arbitration Association 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 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
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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 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
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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 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.
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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.
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.
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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 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
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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 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 THE BARBERS
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 THE BARBERS or any
affiliate of THE BARBERS 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 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 THE BARBERS or any affiliate
of THE BARBERS 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.
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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:
Name:
-------------------------------------------------------
Name of Firm:
-----------------------------------------------
Address:
----------------------------------------------------
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:
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 City Looks Salons International 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.
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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.
In the Presence of: SHAREHOLDERS/PARTNERS PERCENTAGE OF
OWNERSHIP
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
%
- ------------------------------ --------------------------- -----------------
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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.
D-25
<PAGE>
PERSONAL GUARANTORS
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INDIVIDUALLY INDIVIDUALLY
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Address Address
- ------------------------------------- ---------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
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INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
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City State Zip Code City State Zip Code
- ------------------------------------- ---------------------------------------
Telephone Telephone
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INDIVIDUALLY INDIVIDUALLY
- ------------------------------------- ---------------------------------------
Address Address
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City State Zip Code City State Zip Code
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Telephone Telephone
D-26
EXHIBIT 99.1
REGIS CORPORATION SIGNS DEFINITIVE AGREEMENT TO MERGE WITH THE BARBERS,
HAIRSTYLING FOR MEN & WOMEN INC.
- - REGIS BECOMES SOLE PROVIDER OF SALON SERVICES IN WAL-MART STORES -
January 25, 1999 05:22 PM
MINNEAPOLIS, Jan. 25 /PRNewswire/ -- In a joint press release, Regis Corporation
RGIS , the largest owner, operator, franchisor, and consolidator of hair and
retail product salons in the world, and The Barbers, Hairstyling for Men &
Women, Inc., BBHF , a national franchisor, owner and operator of 979 affordable
hair care salons, announced today they have signed a definitive agreement to
merge in a stock-for-stock transaction. Upon completion of the merger, Regis
Corporation will own, operate and franchise over 4,600 salons world wide,
including over 1,700 franchised units.
Terms of the agreement call for each shareholder of The Barbers to receive 0.33
shares of Regis common stock, or approximately 1.5 million shares in total,
representing a fully diluted ownership interest of approximately 5.8 percent of
the combined companies. Based on Regis' closing stock price of $38.31 per share
on January 22, 1999, The Barbers shareholders would receive a value of $12.77
per share. The transaction is intended to be accounted for as a
pooling-of-interests. Piper Jaffray, Inc. acted as financial advisor to the
Board of Directors of The Barbers.
Paul D. Finkelstein, President and Chief Executive Officer of Regis Corporation,
stated, "We are most pleased to announce this transaction. The merger of The
Barbers with Regis Corporation not only makes strong financial sense but also
strategically combines two of the industry's leading companies. The Barbers
management team brings Regis 35 years of experience in franchising hair salons.
In addition, with the merger, Regis becomes the sole provider of salon services
in Wal-Mart. This opportunity should allow Regis to exceed 1,000 Wal-Mart salons
in the near future. Currently, on a combined basis there are 336 company-owned
salons and 149 franchised units operating in Wal- Mart. Within the next four
years we foresee 750 company-owned and 250 franchised Wal-Mart salons."
Following completion of the transaction, Fred Huggins, Jr., President and Chief
Executive Officer of The Barbers will join the senior management team of Regis
Corporation.
The Barbers Chairman of the Board, Flo Francis, commented, "We are extremely
pleased to reach this agreement with Regis Corporation and look forward to The
Barbers becoming a part of this very successful and talented company. This
merger accomplishes many long-sought and desirable goals."
Mr. Finkelstein further commented, "It is important to note that The Barbers
compounded annual growth rate for earnings the last four years has exceeded that
of Regis and we expect this transaction to be immediately accretive to future
earnings. In addition, Regis will provide The Barbers franchise group with an
exit strategy they otherwise currently do not have. Lastly, we strongly believe
that the merger is complimentary to Regis' Supercuts division and The Barbers
salon concepts as the customer bases and operational strategies are sufficiently
different."
The transaction is subject to shareholder approval of The Barbers, and is
anticipated to be completed near the end of Regis' fiscal year ending, June
1999.
The Barbers, Hairstyling for Men & Women, Inc., based in Minneapolis, provides
hair styling and hair care products through 979 franchised and company-owned
salons, operating primarily under the names Cost Cutters, City Looks Salons
International and We Care Hair. At the end of their
<PAGE>
most recent fiscal year, September 24, 1998, The Barbers generated annualized
revenue of $26 million and system-wide sales of $211 million.
Regis Corporation, based in Minneapolis, is the largest owner, operator,
franchisor and consolidator of hair and retail salons in the world. Regis
operates and franchises over 3,600 salons in six divisions: Regis Hairstylists,
Strip Center Salons (primarily Supercuts), MasterCuts, Trade Secret,
Wal-Mart/SmartStyle Family Hair Salons, and International and has more than
29,000 employees worldwide.
SOURCE Regis Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE 1ST QUARTER OF FISCAL 99 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-30-1999
<PERIOD-START> SEP-25-1998
<PERIOD-END> DEC-24-1998
<CASH> 2,867,984
<SECURITIES> 0
<RECEIVABLES> 3,524,599
<ALLOWANCES> (410,000)
<INVENTORY> 2,108,232
<CURRENT-ASSETS> 9,131,163
<PP&E> 3,987,960
<DEPRECIATION> (2,463,697)
<TOTAL-ASSETS> 14,630,346
<CURRENT-LIABILITIES> 3,656,095
<BONDS> 0
0
0
<COMMON> 398,319
<OTHER-SE> 8,906,383
<TOTAL-LIABILITY-AND-EQUITY> 14,630,346
<SALES> 2,722,920
<TOTAL-REVENUES> 7,123,729
<CGS> 2,053,204
<TOTAL-COSTS> 3,810,403
<OTHER-EXPENSES> 2,705,221
<LOSS-PROVISION> 42,973
<INTEREST-EXPENSE> 26,966
<INCOME-PRETAX> 644,650
<INCOME-TAX> 264,000
<INCOME-CONTINUING> 380,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380,650
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
