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Franchise Agreement

This Franchise Agreement is made on [AGREEMENT DATE] between [FRANCHISOR NAME], a [CORPORATE JURISDICTION] corporation with its principal place of business at [FRANCHISOR ADDRESS] (the "Franchisor") and [FRANCHISEE NAME], [whose principal place of residence is at/a [CORPORATE JURISDICTION] corporation with its principal place of business at] [FRANCHISEE ADDRESS] (the "Franchisee").

The parties agree as follows (the capitalized terms used in this agreement, in addition to those above, being defined in section 30 (Definitions)):

1. Grant of Franchise. The Franchisor grants to the Franchisee the exclusive right

(a) to operate the Franchised Business within the Territory, but only at the Franchise Location, and

(b) for that purpose, to use the Licensed Marks.

2. Key Terms:

2.1. Franchise Location: [FRANCHISE LOCATION]

2.2. Territory: [TERRITORY / As described in Schedule A]

2.3. Initial Term: [INITIAL TERM]

2.4. Renewal Terms: [RENEWAL TERM]

2.5. Start Date: [START DATE]

2.6. Initial Franchise Fee: $[INITIAL FRANCHISE FEE]

2.7. Monthly Royalty Fee: [ROYALTY PERCENT]% of previous month's gross sales

2.8. Monthly Advertising Fee: [ADVERTISING FEE PERCENTAGE]% of previous month's gross sales

3. Operation of Franchised Business

3.1. Operation Only at Franchise Location. The Franchisee shall, at the Franchise Location, engage only in the business of operating the Franchised Business.

3.2. Training

(a) Training Programs. The Franchisee shall attend and complete the following training programs:

(i) Initial training program at the next scheduled training class after the Effective Date,

(ii) Regional training programs, in accordance with the Franchisor's training guidelines, and

(iii) Annual updates, in accordance with the Franchisor's training guidelines.

(b) Employee Training. Each manager of the Franchised Business must attend and complete the initial training.

(c) Fees. The Franchisor may establish or change tuition fees for its training programs.

3.3. Operating Hours. Subject to applicable laws, the Franchisee shall prominently post the operating hours of the Franchised Business at the Franchise Location. Any change to the operating hours can be made only by mutual agreement.

3.4. Employees. The Franchisee shall employ a sufficient number of trained and competent employees to ensure sufficient customer service. No Franchisee employee will be deemed an employee of the Franchisor.

3.5. Local Marketing Expenses. Each month, the Franchisee must incur Local Marketing Expenses of at least [MINIMUM MARKETING PERCENTAGE]% of gross sales. The Franchisee shall document its Local Marketing Expenses and report them to the Franchisor in the manner that the Franchisor specifies.

3.6. Approval of Advertising. In promoting the Franchised Business, the Franchisee shall use only Franchisor-approved advertising, marketing, and promotional materials. The Franchisee may not undertake advertising in any media or at any location without the Franchisor's prior written approval. If the Franchisee does not receive any response from the Franchisor within [10] days of its request for approval, the materials will be deemed not to have been approved.

3.7. Manuals

(a) Operation of Franchised Business. The Franchisee shall operate the Franchised Business in accordance with the Manuals. The Franchisor may provide the Manuals and any other written information to the Franchisee entirely in electronic format.

(b) Franchisor's Property. The Manuals will at all times remain Franchisor's property.

(c) Revisions. The Franchisor may, on one or more occasions, revise the contents of the Manuals. The Franchisee shall comply the revised requirements.

3.8. Condemnation. The Franchisee shall promptly give Notice to the Franchisor of any proposed taking of the Franchise Location [by any governmental authority] through the exercise of the power of eminent domain. If it is to be taken, the Franchisee may request a change of location. Any relocation of the Franchised Business, however, will be made at the Franchisor's discretion.

3.9. Damage to Franchise Location. If the Franchise Location is damaged, the Franchisee shall expeditiously repair the damage.

4. Franchisor's Assistance

4.1. Copy of Manual. The Franchisor shall lend the Franchisee a copy of its Manual to assist the Franchisee and its employees in the conduct of the Franchised Business.

4.2. Operating Assistance. The Franchisor shall make the following services available to the Franchisee:

(a) upon the Franchisee's reasonable request, consultation by phone regarding the Franchised Business, and

(b) access to any Franchise sales, advertising, and promotional materials that the Franchisor develops, the reasonable cost of which may be passed on to the Franchisee.

5. Licensed Marks

5.1. Use of Marks. The Franchisee shall use and display the Licensed Marks only

(a) in association with the[ manufacture,] distribution, and sale of the Franchised Products and Services,

(b) in the manner and form that they are registered under the US Trademark Act of 1946, and

(c) in accordance with the terms of this agreement.

5.2. [Franchisor's Approval of Proposed Uses. The Franchisee shall submit to the Franchisee, for its approval, all representations of the Marks that it intends to use.]

5.3. Notice on Marks. The Franchisee shall place the following notice (or any other notice that the Franchisor may request[ in writing] on one or more occasions) in a legible manner on each Franchised product that forms part of the Franchised Products and Services and on any Promotional Materials (including any content posted on any Internet site):

"Trademark(s) of [FRANCHISOR NAME]; used under Franchise by [FRANCHISEE NAME]."

5.4. Actions in Franchisor's Best Interests. The Franchisee shall act in the best interests of the Franchisor as owner of the Licensed Marks and in such a way as to preserve and protect the Franchisor's interest in the Licensed Marks.

5.5. Trademark Use Policy. The Franchisee shall abide strictly by the guidelines set out in Trademark Use Policy. The Franchisor shall give reasonable Notice to the Franchisee of any changes to the Trademark Use Policy.

5.6. Protection of Marks. The Franchisee shall not directly or indirectly

(a) register or use any other trade name, trademark, or service mark incorporating or based in whole or in part on any of the Licensed Marks,

(b) use any Licensed Mark as part of any corporate or trade name, as part of prominent signage displaying its business name, or in connection with unauthorized goods or services,

(c) use the Licensed Marks in combination with any other trademarks,

(d) debrand, rebrand, or private label any of the Licensed Marks,

(e) hold itself out as having any ownership interest in the Licensed Marks,

(f) engage in any conduct that would constitute Infringement of or otherwise affect either the Franchisor's interest in the Licensed Marks or the goodwill associated with them,

(g) dispute the validity, ownership, or enforceability of any of the Licensed Marks,

(h) invalidate, dilute, or otherwise adversely affect the value of the goodwill associated with the Licensed Marks, or

(i) engage in any conduct that would constitute infringement of, or otherwise harm, the intellectual property rights of third parties.

5.7. Discontinuing Use. If the Franchisor chooses to modify or discontinue using any of the Licensed Mark or to use any substitute trademarks or service marks, the Franchisee shall, at its own expense and within a reasonable time, change all items in the Franchised Business bearing the Licensed Marks.

6.  Fees

6.1. Initial Franchise Fee. The Franchisee shall, upon signature of this agreement, pay to the Franchisor and initial [non-refundable] franchise fee of $[INITIAL FRANCHISE FEE].

6.2. Royalty Fee. The Franchisee shall pay to the Franchisor each month a royalty fee equal to [ROYALTY PERCENT]% of the previous month's gross sales.

6.3. Advertising Fee. The Franchisee shall pay to the Franchisor each month an advertising fee of [ADVERTISING FEE PERCENTAGE]% of the previous month's gross sales.

7.   Payment Obligations

7.1. Payment of Fees. The Franchisee shall pay the Franchisor the fees owing under this agreement as detailed in the Franchisor's monthly invoice. All amounts payable will be due [30] days after the receipt of the Franchisor’s invoice.

7.2. Payment Net of Taxes. All payments owed by the Franchisee are exclusive of taxes. The Franchisee shall pay, and the Franchisor shall collect and remit, any taxes payable in connection with the operation of the Franchised Business.

7.3. Late Payments. Any amount not paid when due will bear interest from the due date until paid at a rate equal to [1]% per month ([12.68]% annually) or the maximum allowed by law, whichever is less.

8. Term

8.1. Initial Term. The initial term of this agreement (the "Initial Term") will begin on [EFFECTIVE DATE] (the "Effective Date") for a term of [INITIAL TERM YEARS] years.

8.2. Renewal Terms

(a) Option to Renew. The Franchisee may, if eligible, renew this agreement for up to [two] additional consecutive terms (each, a "Renewal Term") of [RENEWAL TERM YEARS] years each. Before the start of a Renewal Term, the Franchisee shall execute the Franchisor's then-current form of Franchise agreement.

(b) Eligibility for Renewal. To be eligible for a Renewal Term, the Franchisee must

(i) not be in default under this or any other agreement with the Franchisor, and

(ii) have paid all outstanding amounts owing to the Franchisor.

9. Franchisor's Representations

9.1. Ownership of Marks. The Franchisor is the sole owner of the Licensed Marks.

9.2. Right to License. The Franchisor has the[ exclusive] right to use and grant rights to use the Proprietary Marks in the Territory.

9.3. [No Assignment. The Franchisor has not assigned, or agreed to assign, the Licensed Marks to any other Person in the Territory.]

9.4. No Conflicts. The Franchisor is under no restriction or obligation that may affect the performance of its obligations under this agreement.

9.5. No Breach. The Franchisor's execution, delivery, and performance of its obligations under this agreement do not and will not breach or result in a default under

(a) its articles, by-laws, or any unanimous shareholders agreement,

(b) any Law to which it is subject,

(c) any judgment, order, or decree of any Governmental Authority to which it is subject, or

(d) any agreement to which it is a party or by which it is bound.

9.6. No Infringement by Franchisor's Use. The Franchisor's use of the Licensed Marks in the Territory does not infringe upon the intellectual property, contractual, or other proprietary or personal rights of any Person.

10. Franchisee's Representations

10.1. No Conflicts. The Franchisee is under no restriction or obligation that may affect the performance of its obligations under this agreement.

11. Franchisor's Warranties

11.1. No Infringement by Franchisee's Use. The Franchisee's use of the Licensed Marks in the Territory will not infringe upon the intellectual property or other proprietary or personal rights of any Person.

11.2. Disclaimer of Warranties. The Franchisor makes no representation or warranty to the Franchisee regarding any of the Licensed Marks other than those contained in this agreement.

12. Franchisee's Acknowledgements

12.1. Independent Investigation. The Franchisee has conducted an independent investigation of the Franchise and the proposed Franchise Business and has been afforded the opportunity to ask questions and review materials relevant to its decision to enter into this agreement.

12.2. No Warranty of Success. The success or failure of the Franchised Business contemplated by this agreement depends largely upon

(a) the Franchisee's abilities as an independent businessperson, and

(b) economic conditions beyond the control of either party.

12.3. Additional Franchises. The Franchisor is not obligated to grant any additional franchises, but may grant to others the right to operate a Franchised Business anywhere it wishes (other than in the Territory) and under whatever conditions it deems appropriate.

12.4. Right to Use Marks. The Franchisee's right to use the Licensed Marks derives solely from this agreement and is limited to the Franchised Business.

12.5. Benefit of Goodwill. The Franchisee's usage of the Licensed Marks and any resulting goodwill will accrue solely to the Franchisor's benefit.

12.6. Limited Grant of Rights. The Franchisee does not acquire any interest under this agreement other than the rights to the Franchised Business and the Licensed Marks granted here. Any rights not expressly granted to the Franchisee are reserved to the Franchisor.

12.7. Acknowledgement of Contract Terms. The Franchisee acknowledges that he or she

(a) has read the agreement,

(b) understands its terms,

(c) has had the opportunity to consult[ and has consulted] with independent legal counsel, and

(d) has signed this agreement voluntarily.

13. Currency of Registrations. The Franchisor shall, at its own expense, keep current all registrations necessary to maintain its interest in the Licensed Marks.

14. Compliance with Laws. The Franchisee shall comply with all Laws and industry regulations relating to the operation of the Franchised Business. [The Franchisee shall keep such records and provide the Franchisor with such reporting or evidence of compliance as the Franchisor may reasonably require to evidence its having met its obligations under this section 13 (Compliance with Laws).]

15. Usage of Marks

15.1. Documenting Use of Marks. The Franchisee shall assist the Franchisor, if requested, in providing documentation of its use of the Licensed Marks in connection with any trademark application.

15.2. Evidence of Use in Territory. The Franchisee shall, upon the Franchisor's request, provide any declaration, or other document that the Franchisor considers reasonably necessary to evidence use of the Licensed Marks in the Territory.

16. Books and Records

16.1. Recordkeeping. The Franchisee shall keep at its principal office complete, accurate, and commercially reasonable records of the operations of the Franchised Business, together with all reasonably necessary related documents required to accurately calculate the fees owing under this agreement.

16.2. Copies of Financial Statements. At the Franchisor's request, the Franchisee shall, at its own expense, provide to the Franchisor either a reviewed or an audited profit-and-loss statement and balance sheet for the Franchised Business within [60] days of the end of each fiscal [quarter/year].

16.3. Records Retention. The Franchisee shall retain all financial information relating to the operations of the Franchised Business for at least [RECORD PERIOD] years following a given reporting period.

16.4. Confidentiality of Financial Information. The Lessor shall keep confidential all financial information that it acquires under this section, except as may be required to exercise its rights under this agreement.

17. Insurance

17.1. Coverage. The Franchisee shall obtain and maintain

(a) workers' compensation insurance in the amount required by law,

(b) product liability insurance coverage appropriate to the risk involved in operating the Franchised Business, which in no event will be less than $[MINIMUM INSURANCE AMOUNT], and

(c) comprehensive general liability insurance with coverage of at least $[INSURANCE COVERAGE] per occurrence for bodily injury, property damage, or other losses.

17.2. Additional Insured. The Franchisee shall ensure that its insurance coverage will list the Franchisor as an additional insured.

17.3. Proof of Insurance. At the Franchisor's request, the Franchisee shall provide it with

(a) certificates or other acceptable evidence of insurance evidencing its coverage, and

(b) at least [30] days' prior Notice of any change in or cancellation of the insurance coverage.

18. Confidentiality

18.1. Confidentiality Obligations. During the Term and for a period of [two] years after its termination or expiration of this agreement, the Franchisee shall hold all Confidential Information in confidence in accordance with the terms of this agreement.

18.2. Use Solely for Purpose. The Franchisee shall use the Confidential Information solely for the purpose of carrying on the Franchised Business.

18.3. Standard of Care. In protecting the Confidential Information, the Franchisee shall exercise at least the same degree of care as it uses with its own Confidential Information, but in no event less than reasonable care.

18.4. Permitted Disclosure. The Franchisee may disclose Confidential Information to its representatives but only

(a) to the extent necessary for the purpose of carrying on the Franchised Business,

(b) if the Franchisee first informs them of, and directs them to maintain, its confidential nature in accordance with the terms of this agreement[, and

(c) upon the Franchisor's request in connection with any of the Franchisee's representatives[ other than a director, officer, shareholder, partner, or employee], if they each first enter into separate written agreements to that effect[ in a form acceptable to the Franchisor].

18.5. Required Disclosure. The Franchisee may disclose Confidential Information to a third party if it is required to do so by Law but only if, before that disclosure, the Franchisee, to the extent permitted by Law,

(a) gives the Franchisor Notice to allow it a reasonable opportunity to either seek a protective order or other appropriate remedy or waive the Franchisee's compliance with this section,

(b) reasonably cooperates with the Franchisor[, at the Franchisor's expense,] in its reasonable efforts to obtain a protective order or other appropriate remedy,

(c) discloses only that portion of the Confidential Information that[, having consulted with its counsel,] it is legally required to disclose, and

(d) uses reasonable efforts to obtain reliable written assurance from the third party that the Confidential Information will be kept confidential.

18.6. Value and Nature of Confidential Information. The parties acknowledge that the Confidential Information is proprietary and has competitive value. Accordingly, any disclosure to the Franchisor's competitors or to the public would be detrimental to the best interests of the Franchisor, which may incur losses, costs, and damages as a result.

18.7. Burden of Proof. The Franchisee will have the burden of proof relating to all exceptions to the definition of Confidential Information.

19. Non-Competition. During the Term and for a period of [NON-COMPETITION PERIOD] years after the termination or expiration of this agreement, the Franchisee shall not, within the Territory, [engage in any Restricted Business.] OR

(a) [own, control, finance, manage, or operate a Restricted Business,

(b) participating in the ownership, control, financing, management, or operation of a Restricted Business, or

(c) provide any services to or on behalf of[, or be connected as a director, officer, shareholder, partner, principal, agent, advisor, or consultant of any Person engaged in,] a Restricted Business.]

20. Non-Solicitation. During the Term, the Franchisee[, on its own behalf or in the service or on behalf of others,] shall not

(d) solicit or divert, or attempt to solicit or divert, business of any Franchise to any competitor, or

(e) do anything that is or may be injurious or prejudicial to the goodwill associated with the Licensed Marks.

21. Inspection and Audit

21.1. Inspection. The Franchisee shall, upon reasonable Notice from the Franchisor, provide access to the Franchise Location during normal business hours for the purpose of conducting an inspection to verify that the Franchisee is in compliance with the terms of this agreement.

21.2. Conduct of Inspection. The Franchisee shall cooperate with the Franchisor in its inspection. The Franchisor shall conduct any inspection in a manner not intended to unreasonably disrupt the Franchised Business. The Franchisor shall restrict the scope, manner, and duration of any inspection to that reasonably necessary to achieve its purpose.

21.3. Audit. The Franchisor may also, on one or more occasions and at its own expense, conduct an audit of the Franchised Business records, upon the same terms as any inspection of the Franchisee's records.

21.4. Confidentiality of Information. The Franchisor shall keep confidential any information that it obtains from any inspection or audit, except as may be required to exercise its rights under this agreement.

22. Right of First Refusal

22.1. Notice of Offer to Purchase. If an Offeree receives and wishes to accept any bona fide offer to purchase all or any part of its interest in the Franchisee or the Franchised Business and the transfer of the Offeree's interest would result in a Change in Control of the Franchisee, then the Franchisee shall give Notice to the Franchisor of the terms of the offer.

22.2. Franchisor's Right to Purchase. The Franchisor will have the right, exercisable within [30] days after receipt of the Franchisee's Notice of the offer, to give Notice to the Offeree that the Franchisor or its designate intends to purchase the Offeree's interest on the same terms as those offered by the third party, but the Franchisor or its designate will be entitled to receive the representations and warranties customary in the sale of a similarly-sized business and will not be responsible for the payment of any broker commission or other transactional fee.

23. Transfer of Franchise

23.1. Transfer by Franchisee. The Franchisee acknowledges that the obligations created under this agreement are personal to the Franchisee (or its shareholders or partners if the Franchisee is a corporation or partnership), and that the Franchisor has entered into this agreement in reliance upon the Franchisor's perceptions of the individual or collective character, skill, aptitude, attitude, business ability, and financial capacity of the Franchisee (or its shareholders, members, managers, or partners). Accordingly, the Franchisee may not assign this agreement or any of its rights or obligations under this agreement without the Franchisor's prior written consent, which the Franchisor may not unreasonably withhold or delay if the Franchisee has met the conditions for approval of the transfer.

23.2. Conditions for Approval of Transfer. The Franchisor will not be obliged to approve a proposed transfer unless the following conditions have been satisfied:

(a) the Franchisee has paid all amounts owing under this agreement and has otherwise fully satisfied all of its obligations under this agreement,

(b) the proposed transferee has sufficient business experience to act as a franchisor of the Franchise,

(c) the Franchisee pays the Franchisor a transfer fee of $[TRANSFER FEE],

(d) the Franchisee signs a general release of all claims that it has or may have against the Franchisor,

(e) the proposed transferee by written agreement assumes all of the Franchisee's obligations under this agreement, and

(f) the Franchisee signs a non-competition agreement satisfactory to the Franchisor in favor of the Franchisor and the proposed transferee.

24. Indemnification

24.1. Franchisee's Indemnity. The Franchisee shall indemnify each Indemnitee against all claims, liability, costs, and expenses (including attorneys' fees) arising from any third party claim or proceeding brought against any Indemnitee resulting from, or alleged to have resulted from, directly or indirectly, or in connection with, the Franchisee's operation of the Franchised Business in accordance with the terms of this agreement.

24.2. Mutual Indemnity. Each party shall indemnify the other party[ and its directors, officers, employees, shareholders, partners, agents, and affiliates,] against all claims, liability, costs, and expenses (including attorneys' fees) arising from any third party claim or proceeding brought against one party that alleges any [grossly] negligent act or omission or willful conduct of the other party[ or its directors, officers, employees, shareholders, partners, agents, or affiliates].

24.3. Notice of Claim. A party shall give prompt Notice to the other party of any claim or potential claim for indemnification under this section.

24.4. Exclusive Remedies. The rights granted under this section 23 (Indemnification) are the exclusive remedies available under this agreement in connection with the claims and losses that this section addresses.

25. Release of Franchisor. The Franchisee releases the Franchisor, its parent, any subsidiaries and affiliates, and their respective past and present directors, officers, employees, shareholders, and agents, and undertakes not to sue any of them, for any claims arising out of conduct or omission occurring on or before the date of this agreement. This release does not, however, include a release of any claims arising from representations in franchise disclosure document that the Franchisor provided to the Franchisee.

26. Third Party Infringement

26.1. Notice to Franchisor. The Franchisee shall promptly give Notice to the Franchisor when it becomes aware of any actual, suspected, or threatened Infringement of the Licensed Marks by a third party in the Territory. The Franchisor may, in that case, take any steps it considers appropriate to enforce its rights in the Licensed Marks. The Franchisee shall[, at its own expense,] cooperate with the Franchisor to the fullest possible extent.

26.2. Franchisee's Rights. If, within [10] business days of receipt of the Franchisee's Notice, the Franchisor either fails to respond to the Franchisee's Notice or gives Notice to the Franchisee that it elects not to take any steps to enforce its rights, the Franchisee may, upon Notice to the Franchisor, take any steps it considers appropriate in the circumstances in the name and on behalf of the Franchisor. The Franchisee may then keep any damages or proceeds of settlement it obtains as a result.

27. Claim of Infringement against Franchisee

27.1. Notice to Franchisor. The Franchisee shall promptly give Notice to the Franchisor of any action, claim, or demand brought or threatened by a third party against it arising out of its use of the Licensed Marks in accordance with this agreement. The Franchisor shall, in that case, take all steps it considers appropriate, at its own expense, to defend the Franchisee and the Licensed Marks (including settling any legal actions in the Franchisee's name). The Franchisee shall, at its own expense, cooperate with the Franchisor to the fullest possible extent.

27.2. Claims Resulting from Franchisee's Breach. If it is established that the third party's action, claim, or demand resulted from a material breach of the Franchisee's obligations under this agreement, the Franchisee shall reimburse the Franchisor for all costs and expenses (including legal fees) incurred in defending the Franchisee and the Licensed Marks.

28. Termination

28.1. Termination by Franchisor with Right to Cure. If the Franchisee

(a) commits any material breach or material default in the performance of any of its obligations under this agreement, and

(b) the breach or default continues for a period of [CURE PERIOD] days after the Franchisor delivers Notice to it reasonably detailing the breach or default,

then the Franchisor may terminate this agreement, with immediate effect, upon Notice to the Franchisee.

28.2. Termination by Franchisor without Right to Cure. This agreement will terminate immediately upon the occurrence of any of the following events:

(a) Failure to Pay. The Franchisee fails on three separate occasions during the preceding [12] months to pay any amounts due under this agreement.

(b) Loss of Franchise Location. The Franchisee loses the right to occupy the Franchise Location.

(c) Felony Conviction. The Franchisee or any of its owners is convicted of a felony.

(d) Insolvency Event. Any Insolvency Event.

28.3. Termination by Franchisee with Right to Cure. If

(a) the Franchisee is in compliance with the terms of this agreement, and

(b) the Franchisor commits any material breach or material default in the performance of any of its obligations under this agreement, and

(c) the Franchisor's breach or default continues for a period of [CURE PERIOD] days after the Franchisee delivers Notice to it reasonably detailing the breach or default,

then the Franchisee may terminate this agreement, with immediate effect, upon Notice to the Franchisor.

29. Effect of Termination

29.1. Payment of Amounts Owed. Within [14] days after the effective date of termination or expiration of this agreement, the Franchisee shall pay all amounts due and owing to the Franchisor (including amounts accrued but not invoiced).

29.2. Other Obligations. Immediately upon the termination or expiration of this agreement, the Franchisee shall

(a) not identify itself as a current franchisee of the Franchise or as a Franchisee of or as otherwise associated with the Franchisor,

(b) not use any trade name, trademark, or service mark or other commercial symbol that suggests or indicates a connection or association with the Franchisor,

(c) cease using any Confidential Information, and

(d) return to the Franchisor all Confidential Information and any other property belonging to the Franchisor.

29.3. Option to Purchase Assets

(a) Franchisor's Option. Upon the termination or expiration of this agreement, the Franchisor may purchase from the Franchisee any of the assets used in the Franchised Business that the Franchisor designates as being for sale.

(b) Purchase Price. The purchase price will be the fair market value determined as of the effective date of purchase, in a manner that accounts for reasonable depreciation and condition of the assets. If the parties are unable to agree on the fair market value within [30] days of the Franchisee's receipt of the Franchisor's Notice to exercise its option to purchase, the value will be determined by two professionally certified appraisers, one selected by each party.

30. Definitions. In addition to the terms defined at the top of the first page, the following definitions apply:

30.1. "Change in Control" means any

(a) any sale, transfer, exchange, or other disposition of ownership interests in, or any merger, acquisition, or other reorganization of, the Franchisee that results in a change in the Control of the Franchisee that is currently exercised by one or more Persons, or

(b) any sale, transfer, or other disposition of all or substantially all of the Franchisee's assets.

30.2. "Confidential Information" means all information, written or oral, whether or not it is marked as confidential, relating to the Franchise disclosed or made available, directly or indirectly, through any means of communication or observation to the Franchisee, its affiliates, or any of its representatives, but does not include information that

(a) is or becomes publicly known through no wrongful act of the Franchisee,

(b) the Franchisee received in good faith on a non-confidential basis from a source other than the Franchisor or its representatives,

(c) was in the Franchisee's possession before its disclosure by the Franchisor or its representatives,

(d) the Franchisee developed independently without breach of this agreement, or

(e) the Franchisor has explicitly approved, by Notice to the Franchisee, for release to a third party.

30.3. "Control" means, for a Person, the ownership interest in an entity that has the practical effect of giving that Person, either alone or with others, the majority voting interest in that entity.

30.4. "Effective Date" is defined in section 8.1 (Initial Term).

30.5. "Franchise" means the comprehensive method of conducting, operating, and marketing a business that the Franchisor has developed and that is identified with certain trade names, trademarks, and service marks.

30.6. "Franchise Location" means [FRANCHISE LOCATION].

30.7. "Franchised Business" means the Franchisee's business, operated under Franchise from the Franchisor in accordance with the terms of this agreement.

30.8. "Indemnitees" means the Franchisor and any of its directors, officers, employees, shareholders, partners, agents, or affiliates.

30.9. "Initial Term" is defined in section 8.1 (Initial Term).

30.10. "Insolvency Event" means any of the following:

(a) Insolvency. The Franchisee admits in writing that it is insolvent or unable to pay its debts, or fails generally to pay its debts as they become due.

(b) Bankruptcy. The Franchisee files a voluntary petition, or one or more of its creditors file a petition, seeking its rehabilitation, liquidation, or reorganization under any law relating to bankruptcy, insolvency, or other relief of debtors and the petition is not removed within [90] days of filing.

(c) Receivership. A receiver or other custodian is appointed to take possession of substantially all of the Franchisee's assets.

(d) Dissolution. The Franchisee takes any action toward the dissolution or winding up of its affairs or the cessation or suspension of its activities.

(e) Liquidation. A court of competent jurisdiction enters a decree or order directing the winding up or liquidation of the Franchisee or of all or substantially all of its assets.

(f) Assignment. The Franchisee makes a general assignment for the benefit of its creditors.

(g) Attachment. Any attachment, execution, or other judicial seizure is levied against all or substantially all of the Franchisee's assets.

30.11. "Local Marketing Expense" means the marketing expenses that the Franchisee incurs in promoting the Franchised Business in the local area.

30.12. "Manuals" means the Franchisor's operations manuals as to the development, operation, and marketing of the Franchised Business.

30.13. "Notice" means any notice, request, direction, or other document that a party can or must make or give under this agreement.

30.14. "Offeree" means the Franchisee or any other Person with an ownership interest in the Franchisee or the Franchised Business that has received a bona fide offer to purchase all or any part of its interest in the Franchisee or the Franchised Business.

30.15. "Person" includes

(a) any corporation, company, limited liability company, partnership, governmental authority, joint venture, fund, trust, association, syndicate, organization, or other entity or group of persons, whether incorporated or not, and

(b) any individual.

30.16. "Licensed Marks" means any trademark, service mark, or source identifier associated with the Franchisor that the Franchisor designates as forming part of the Franchisee's Franchised Business.

30.17. "Renewal Term" is defined in paragraph (a) (Option to Renew) of section 8.2 (Renewal Terms).

30.18. "Restricted Business" means a business that is the same as or similar to the Franchised Business.

30.19. "Term" means the Initial Term, as it may be extended by any Renewal Terms.

30.20. "Territory" means [FRANCHISE TERRITORY / the territory designated in the map attached as Schedule A].

30.21. "Trademark Use Policy" means the Franchisor's Trademark Use Policy[, a copy of which is attached as Schedule B], in effect and as amended on one or more occasions.

31. General

31.1. Entire Agreement. This agreement contains all the terms agreed to by the parties relating to its subject matter. It replaces all previous discussions, understandings, and agreements.

31.2. Further Assurances. Each party, upon receipt of Notice from the other party, shall sign (or cause to be signed) all further documents, do (or cause to be done) all further acts, and provide all assurances as may reasonably be necessary or desirable to give effect to the terms of this agreement.

31.3. Amendment. This agreement may only be amended by a written document signed by both parties.

31.4. Binding Effect. This agreement benefits and binds the parties and their respective heirs, successors, and permitted assigns.

31.5. Assignment. The Franchisee may assign this agreement or any of its rights or obligations under this agreement, but only in accordance with section 11 (Transfer of Franchise). The Franchisor may assign this agreement or any of its rights or obligations under this agreement, effective upon Notice to the Franchisee.

31.6. No Partnership. Nothing contained in this agreement creates a partnership, joint venture,[ employer/employee,] principal-and-agent, or any similar relationship between the parties.

31.7. Third Party Beneficiaries. The Indemnification terms of this agreement confer rights and remedies upon the [parties'/Franchisor's] directors, officers, employees, shareholders, partners, agents or affiliates. No Person other than the parties themselves and those beneficiaries has any rights or remedies under this agreement.

31.8. Payment of Costs. Each party is responsible for all costs (including legal fees) and expenses that it incurs in connection with the negotiation and preparation of this agreement.

31.9. Notices

(a) Form of Notice. All notices and other communications between the parties must be in writing.

(b) Method of Notice. Notices must be given by (i) personal delivery, (ii) a nationally-recognized, next-day courier service, (iii) first-class registered or certified mail, postage prepaid[, (iv) fax][ or (v) electronic mail] to the party's address specified in this agreement, or to the address that a party has notified to be that party's address for the purposes of this section.

(c) Receipt of Notice. A notice given in accordance with this agreement will be effective upon receipt by the party to which it is given or, if mailed, upon the earlier of receipt and the fifth day following mailing.

31.10. Remedies Cumulative. Except as provided in section 22.4 (Exclusive Remedies), the rights and remedies available to a party under this agreement are cumulative and in addition to, not exclusive of or in substitution for, any rights or remedies otherwise available to that party.

31.11. Survival. Sections 5.01 (Use of Marks), 6 (Payment Obligations), 14.04 (Confidentiality of Financial Information), 16 (Confidentiality), 17 (Non-competition), 18 (Non-solicitation), 22 (Indemnification), 23 (Release of Franchisor), and 27 (Effect of Termination) survive the termination or expiration of this agreement.

31.12. Severability. If any part of this agreement is declared unenforceable or invalid, the remainder will continue to be valid and enforceable.

31.13. Waiver. A party's failure or neglect to enforce any of rights under this agreement will not be deemed to be a waiver of that party's rights.

31.14. Equitable Relief. The Franchisee acknowledges that its breach or threatened breach of any its obligations under sections 14.04 (Confidentiality of Financial Information), 16 (Confidentiality), 17 (Non-competition), and 18 (Non-solicitation) would not be susceptible to adequate relief by way of monetary damages only. Accordingly, the Franchisor may, in that case, apply to court for any applicable equitable remedies (including injunctive relief), without the need to post any security.

31.15. Governing Law. This agreement will be governed by and construed in accordance with the laws of the State of [GOVERNING LAW STATE ], without regard to its conflict of laws rules.

31.16. Waiver of Jury Trial. Each party irrevocably waives its rights to trial by jury in any action or proceeding arising out of or relating to this agreement or the transactions relating to its subject matter.

31.17. Attorney Fees. If either party brings legal action to enforce its rights under this agreement, the prevailing party will be entitled to recover its costs and expenses (including reasonable attorneys' fees) incurred in connection with the action and any appeal.

31.18. Interpretation

(a) Currency. Unless otherwise specified, all dollar amounts expressed in this agreement refer to American currency.

(b) Number and Gender. Unless the context requires otherwise, words importing the singular number include the plural and vice versa; words importing gender include all genders.

(c) Headings. The headings used in this agreement and its division into sections, schedules, and other subdivisions do not affect its interpretation.

(d) Internal References. References in this agreement to sections and other subdivisions are to those parts of this agreement.

31.19. Schedules. The following are attached to and form part of this agreement:

(a) Schedule A: Franchise Territory

(b) Schedule B: Trademark Use Policy

31.20. Counterparts. This agreement may be signed in any number of counterparts, each of which is an original and all of which taken together form one single document.

31.21. Effectiveness of Agreement. This agreement is effective as of the date shown at the top of the first page, even if any signatures are made after that date.

This agreement has been signed by the parties.

[FRANCHISOR NAME]

By:   ___________________________________

Name:

Title:

Date:

[FRANCHISEE NAME]

By:   ___________________________________

Name:

[Title:]

Date:

Schedule A - Franchise Territory

Schedule B - Trademark Use Policy

Overview

A Franchise Agreement is made between a party that owns a company, the franchisor, and a party that wishes to invest in and open a branch of that same company, the franchisee. We see examples of franchises everywhere, and across all industries. Examples of well-known franchises include McDonald’s, Ben and Jerry’s, Hilton Hotels and Resorts, and Toys “R” Us.

The franchise model of ownership relies on the goodwill built-up in the franchisor’s company, the franchisor’s brand. In essence, the franchisee is paying for the right to use the franchisor’s brand, most notably its trademarks. Of course, this right is not unlimited, and the Franchise Agreement includes a plethora of limitations and checks on how the franchisee can use the franchisor’s brand.

Franchise Agreements are governed by federal and state law. First, a Federal Trade Commission regulation, the Franchise Rule, governs the initial interactions between a franchisor and potential franchisee. The full text of the Franchise Rule, as well as a compliance guide written by the FTC, can be found can be found on the FTC’s website.

The Franchise Rule requires a potential franchisee be supplied with a Franchise Disclosure Document (FDD) detailing twenty-three “items” pertaining to the franchisor’s business. An FDD is meant to give potential franchisees a clear picture of the franchisor’s business, its officers, and other franchises. Some of the 23 required “items” include past or pending litigation involving the franchise, the financial health of the franchise, training and other support programs the franchisor provides to franchisees, a list of existing franchise outlets, and the franchise’s trademarks, copyrights, and patents.

Under the Franchise Rule, the franchisor must give the franchisee a valid FDD at least two weeks prior to signing a franchise agreement or making any payment to the franchisor. Once the Franchise Agreement is in place, state law governs, varying state-to-state.

The Franchise Rule has the force and effect of law, and it may be enforced through civil penalty actions in federal courts.(10) The FTC Act authorizes courts to impose civil penalties of not more than $11,000 per compliance violation.

Key Elements in a Franchise Agreement:

  • Operations Manual. The Operations Manual is key for the franchisor to ensure consistent standards of operation across its franchises.  The Operations Manual should cover all the minutia of running a franchise, from the operating hours and employee dress code, to prescribing a system of record keeping and reporting. A common issue is failing to clearly define the Operations Manual, and the ways in which it can be updated and communicated. Franchisors will want a broad enough definition of the Operations Manual so that it can easily create and update the standards franchises are held to, but not so broad that it becomes unclear just what counts as the Operations Manual, and thus unclear what is binding on the franchisee, and what are merely guidelines or suggestions.
  • Trademark Usage and Quality Control. As with any form of trademark license, the trademark owner—the franchisor in this case—needs to take steps to control the way the marks are used. In particular, the franchise owner needs to 1) avoid its marks being used in a way that they could become generic, and thus lose their distinctiveness and trademark protection, and 2) include quality control provisions in the franchise agreement, prescribing consistent quality standards of the goods and services offered with the mark to avoid naked licensing. The franchisor’s Operations Manual should include a trademark use policy, outlining exactly how the trademark can be used so that it does not become generic, as well as explicit quality standards. Trademarks are only protected insofar they are distinctive, and lose protection if they ever become generic for the goods and services offered with the mark. Similarly, engaging in naked licensing will result in the franchisor losing its trademark rights. Naked licensing describes licensing the use of one’s trademark without including sufficient quality control standards to maintain consistent quality. A fundamental goal of trademark law is to protect consumer expectations by ensuring consistent quality from brands. Therefore, if a franchisor licensed the use of one’s trademark without quality control provisions to ensure that the franchisee’s use would be of the quality consumers expect from franchisor’s brand, that license would violate this underlying objective. The consequence of naked licensing is that the trademark owner, the franchisor in this case, would lose its trademark rights altogether. For more on controlling one’s trademarks, genericness, and naked licensing, see the Trademark License Agreement or the Proprietary Marks clause.
  • Renewals and the use of the “Then Current Form.” Many Franchise Agreements dictate that renewals will be made using the “then current form,” instead of simply renewing the same Franchise Agreement used for the initial agreement. Typically, the updated form will include only small updates and modifications, say new ways of reporting to account for new technologies, Sometimes, however, the new form could include a new royalties rate or structure, new training provisions, or other equally onerous changes. Courts typically honor “then current form” clauses, even when they contain significant updates, so long as the franchisor can show the new form is actually in use across the franchise, and is not an arbitrary imposition on the particular franchise. Franchisors with a “then current form” clause should be in frequent communication with its franchisees to alert them of more significant updates, and give franchisees enough time to adjust.
  • Get Everything Necessary. While obtaining the trademark license grant is the most obvious concern of a opening a successful franchise, the franchisee cannot forget to secure other IP and know-how fundamental to the franchise. The franchisee needs to makes sure that included in the Franchise Grant clause are rights to any necessary trade secrets or know-how—for example, if opening a restaurant, the franchisee needs to acquire the right to use any recipes protected as trade secrets, ensure that the franchisor will provide copies of recipe books or other instruction manuals, and ensure the franchise will be provided with any POS or other software or system needed to operate. Additionally, franchisees need assurances of the requisite training and support by the franchisor. It is in the franchisor’s best interest to provide the franchisee with everything it needs, as a poorly-functioning franchise only reflects poorly on the franchise as a whole.
  • Implied Covenant of Good Faith and and Fair Dealing.  Both franchisee and franchisor have a significant amount of discretion over the life of a Franchise Agreement. There have been some attempts to impose a fiduciary relationship between franchisors and franchisees. Largely, courts have been reluctant to impose a fiduciary duty. However, it is acknowledged that the Implied Covenant of Good Faith and Fair Dealing does limit each party’s discretion. The Implied Covenant requires that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” This most typically comes up if a Franchise Agreement and/or Operating Manual is silent, or in other instances where one party is potentially abusing its discretion. For an in depth look into the Implied Covenant in Franchise Agreements, see Franchising’s Enlightened Compromise: The Implied Covenant of Good Faith and Fair Dealing, Carmen D. Caruso for the American Bar Association Forum on Franchising, Spring 2007.