Sample Franchise Agreement




FRANCHISE AGREEMENT

This agreement is made, as of _____________________________ by and between _______________________________, a corporation duly existing under the laws in the State of _______________, with its place of business at _________________________________________ hereinafter referred to as Franchiser, and _______________________________ hereinafter referred to as Franchisee.

WITNESSETH:

A. Franchiser is the originator and creator of a _________________________ (Type of franchise) known as _____________________________________________________ (Franchise name). Such includes special design of a building, specifically designed equipment and signs, equipment layout plans inventory and bookkeeping system, and a schedule of business policies and practices, and is herein referred to as the Franchise system. The Franchise is currently used and advertised throughout the United States.

B. Franchiser has developed and used, and continues to use and control the usage of, in connection with the Franchise and the business of its Franchises, proprietary interest, trademarks, service marks, and trade names, including __________________________ (Name of Trademark and Trade name), which is registered as a trademark on the Principal Register of the United States Patent Office.

C. Franchisee desires to acquire a license to adopt and use the Franchise, and the trademarks, service marks, and trade names, in the conduct of a business at a specified location, under the supervision of and in accordance with the service standards approved by Franchiser.

D. Franchisee understands the importance of Franchiser's high and uniform standards of quality, cleanliness, appearance, and service to the value of the franchise and the necessity of opening and conducting franchise operations in conformity with the franchise and in accordance with Franchiser's standards and specifications.

In consideration of the mutual covenants set forth below, Franchiser and Franchisee agree as follows:

1. GRANT OF FRANCHISE

1.1 Franchiser grants to franchise a license to use, during the term and on the conditions set forth in this agreement, the names, symbols, and trademark associated with Franchiser's name, and the franchise system, from premises the location of which is to be determined according to the procedure specified herein below.

1.2. Franchiser shall not, while this agreement is in force, conduct a similar operation, or grant a similar franchise to any other Franchisee, within ___________________________________________________________________________ (Describe a territorial limitation).

1.3 Franchisee shall use the name of Franchiser and the trademarks associated with the name of Franchiser in the _________________________________ (Type of franchise), and Franchisee¡®s place of business for such sales shall be known only as __________ ________________________________________________________ (set forth name).

1.4 The name of any corporation operating this franchise may include the words _______________________________ (set forth words) or any other trademark owned by or licensed to Franchiser, but only with the prior, express, and written consent of Franchiser. On termination of this agreement for any reason, the name of any such corporation shall be duly amended to delete such words.

2. TERM

2.1 This agreement shall continue for a period of __________ years from the effective date of this agreement, and shall be automatically renewed for __________ additional year terms, unless at least __________ months before the expiration of any year term, Franchisee gives to Franchiser notice in writing of termination at the end of such term.

3. LOCATION AND CONSTRUCTION

3.1 Franchiser shall obtain for Franchisee a location for the construction and establishment of the franchise operation within the City of _______________, in the State of __________. Such location shall be secured by Franchiser signing as prime tenant on a lease with the landowner of such location. In the event Franchiser fails to execute such a lease within the area herein designated within one year from the effective date of this agreement, Franchisee may terminate this agreement and receive a refund of any of Franchisee¡®s payments plus __________ percent interest.

3.2 Franchiser agrees to construct on the chosen location, a standard franchise system building, such building to be built in accordance with the plans and specifications furnished by Franchiser. Franchiser shall also provide periodic inspections of the construction at the franchise site to determine if there has been compliance with the franchise system plans and specifications.

3.3 Franchiser shall sublet the above-described realty and improvements to Franchisee for the same rental cost and on the same terms and conditions as Franchiser is obligated on the prime lease. Franchiser specifically agrees that it shall not charge any override to Franchisee, so that the basic terms of the lease on which Franchiser is obligated shall be those terms and conditions upon which Franchisee shall be obligated.

4. PAYMENTS

4.1 Franchise Fee. Franchisee shall make payment to Franchiser of __________ Dollars payable as follows: __________ Dollars on execution of this agreement, receipt of which is hereby acknowledged; ____________ Dollars on execution of any lease for the franchise location; and any remaining unpaid balances prior to attendance by Franchisee, or Franchisee¡¯s designated representative, at Franchiser's training course, or __________ days prior to the scheduled opening of the franchise operation, whichever date is earlier. In return for this payment, Franchisee shall receive the right to do business as a licensed Franchisee under the terms of this agreement, and to receive the services and assistance set forth in this agreement. At any time prior to the time when the second payment required under the terms of this paragraph becomes due, Franchisee may, by written notice, terminate this agreement. Upon such termination, Franchiser will return the ____________ Dollars payable on execution of this agreement, less a charge of ______________ Dollars to compensate Franchiser for assistance rendered Franchisee to the date of termination.

4.2 Promotional Advertising Fee. Franchisee shall pay ___________ Dollars to Franchiser's Franchise Owner Advertising and Sales Promotion Fund for a grand opening promotional advertising program. This fee shall be nonrefundable after the opening of the operation and shall be paid prior to attendance by Franchisee, or Franchisee¡®s designated representative, at Franchiser's training course or __________ days prior to the scheduled opening of the franchise operation, whichever date is earlier.

4.3 Service Charge. For the first __________ months that Franchisee¡®s business is in operation, Franchisee shall, on ________________ (set forth time period, such as: the __________ day of each month), pay to Franchiser the sum equal to __________ percent of the gross sales of Franchisee for the preceding month. Payments shall be sent to Franchiser at the address set forth above. Thereafter, so long as this agreement is in effect, Franchisee shall pay, in the same manner, the sum equal to __________ percent of gross sales. As used in this agreement, the term ¡°gross sales¡± shall include all sales made by Franchisee under and pursuant to this agreement, but shall not include any sums collected and paid out for any sales or excise tax imposed by any duly constituted governmental authority.

4.4 Advertising and Sales Promotion Allowance. Franchisee shall pay to Franchiser as an advertising and sales promotion allowance, the sum equal to __________ percent of Franchisee¡¯s monthly gross sales. The sum shall be paid on or before __________ (set forth the day of the month) and shall be based on the gross sales of the preceding such date of payment. The amount of Franchisee¡®s gross sales shall be determined in the same manner as that specified in subsection C of this section, above.

4.5 Payment Defaults. If, as the result of the failure of Franchisee to remit the payments required under subsections 4.1 through 4.4 of this section, above, Franchiser places the unpaid accounts in the hands of an attorney for collection, Franchisee shall pay all collection costs, reasonable attorney¡¯s fees, and interest on the unpaid amounts at the highest permissible rate, in addition to the unpaid amounts.

5. FINANCIAL INSPECTION

5.1 Within __________ days after the close of Franchisee¡®s fiscal year, Franchisee will furnish to Franchiser a full and complete statement in writing of income and expenses for the franchise operation during the preceding year. The statement shall be prepared in accordance with accepted accounting standards and practices by an independent accountant or auditor and certified by the accountant or auditor to be correct.

5.2 Franchisee agrees to open its books and records to the inspection of Franchiser; however, Franchisee shall have been given reasonable advance notice, and such inspection shall not interfere with the operation of Franchisee¡¯s business.

5.3 Franchisee agrees to furnish Franchiser with a weekly report of each week¡®s business no later than _______________ (set forth the day of the following week).

6. FOOD PRODUCTS, SUPPLIES, AND EQUIPMENT

Franchisee understands and acknowledges that every detail of the franchise system is important to Franchiser, to Franchisee, and to other Franchisees to develop, maintain, and insure high and uniform standards of quality, cleanliness, appearance, services, facilities, products, and techniques, and to increase demand for the franchise products, and to protect and enhance the reputation and good will of the franchise system. Accordingly, Franchisee agrees:

6.1 To use all materials, ingredients, supplies, paper goods, uniforms, fixtures, furnishings, signs, equipment, methods of exterior and interior design and construction, and methods of production and preparation prescribed by, or that conform with, Franchiser's standards and specifications.

6.2 To refrain from using or selling any products, materials, ingredients, supplies, paper goods, uniforms, fixtures, furnishings, signs, equipment, and methods of product preparation that do not meet with Franchiser's standards and specifications.

6.3 To offer for sale only such products as shall be expressly approved for sale in writing by Franchiser, and to offer for sale all products that have been designated as approved by Franchiser.

6.4 To maintain at all times a sufficient supply of approved products.

6.5 To purchase all food products, supplies, equipment, and materials required for conduct of the franchise operation from suppliers who demonstrate, to the reasonable satisfaction of Franchiser, the ability to meet all of Franchiser's standards and specifications for such items; who possess adequate capacity and facilities to supply Franchisee¡®s needs in the quantities, at the times, and with the reliability requisite to an efficient operation; and who have been approved, in writing, by Franchiser. Prior to purchasing any items from any supplier not previously approved by Franchiser, Franchisee shall submit to Franchiser a written request for approval of such supplier. Franchiser may require that samples from the supplier be delivered to Franchiser or to a designated independent testing laboratory for testing prior to approval and use. A charge not to exceed the actual cost of the test shall be made by Franchiser and shall be paid by Franchisee; however, the cost of the first test requested by the Franchisee in any calendar year shall be borne by Franchiser.

7. INSTRUCTION AND SUPERVISION

7.1 Franchiser agrees to make personal training facilities available to Franchisee, to furnish an operations manual, to make promotional and other recommendations, and to furnish Franchisee at Franchisee¡¯s place of business, a trained supervisor for not less than __________ days during the initial __________ period of Franchisee¡®s operation.

7.2 Franchiser shall disclose to and instruct Franchisee as to special preparations, packaging, and methods and systems of operation in the preparation and sale of _________________________ (Specific Information) Franchisee acknowledges that such information constitutes trade secrets, and Franchisee agrees not to disclose such information to anyone except Franchisee¡¯s store employees, the use of such information to be restricted to operation of the franchise.

7.3 Franchisee will not divulge any business information, whether written or oral, received from Franchiser or from any meetings of Franchiser's other Franchisees, nor use such information in Franchisee¡¯s business, until such time as disclosure to the public may be required by the nature of the information. Such information may include, but is not limited to, promotional material or plans, expansion plans, new products, marketing information, costs or other financial data, development of cooking or packaging procedures.

8. HEALTH STANDARDS AND INSPECTION

8.1 Franchisee shall maintain the business premises and all equipment, fixtures, and facilities in such manner as required by law, and conform with Franchiser's standards of health, cleanliness, and neatness.

8.2 Franchisee agrees to allow Franchiser, at any reasonable time, the privilege of complete inspection of Franchisee¡¯s business premises.

9. FRANCHISER'S DUTIES

9.1 Initial Services. Franchiser shall:

9.1.1 Make available to Franchisee any assistance that may be required, based on the experience and judgment of Franchiser, in the pre-opening, opening, and initial conduct of the franchise operation and in conforming to the requirements of the franchise system.

9.1.2 Prepare and coordinate the grand opening promotional advertising program for Franchisee.

9.1.3 Provide operating procedures to assist Franchisee in developing financial records and controls, personnel policies, production methods, and approved sources of supply.

9.2 Continuing Services. Franchiser shall:

9.2.1 Maintain a continuing advisory relationship with Franchisee, including consultation in the areas of marketing, merchandising, and general business operation.

9.2.2 Provide Franchisee with operating manuals containing the standards, specifications, procedures, and techniques of the franchise system, and revise, from time to time, the content of the manuals incorporating new developments regarding standards, specifications, procedures, and techniques.

9.2.3 Continue its efforts to maintain high and uniform standards of quality, cleanliness, appearance, and service at all franchise locations, thus protecting and enhancing the reputation of the franchise system and the demand for the products of the franchise system. To that end, Franchiser shall make every reasonable effort to disseminate its standards and specifications to potential suppliers of Franchisee upon written request of Franchisee.

9.2.4 Review all proposed advertising and promotional materials prepared by Franchisee for use in local advertising.

9.2.5 Administer the Franchise Owner Advertising and Sales Promotion Fund, and direct the development of all advertising and promotional programs. Franchiser will utilize __________ (set forth quantity, such as: one-half) of Franchisee¡¯s advertising and sales promotion contributions for advertising in the advertising area in which Franchisee¡®s business is located. The content of the advertising, as well as the media in which the advertising is to be placed and the defined advertising area, shall be at the discretion of Franchiser. The remaining __________ (set forth amount) of Franchisee¡¯s advertising and sales promotion contributions will be utilized, at the discretion of Franchiser, to provide for the administrative expenses of the fund, merchandising materials, advertising production and distribution costs, and for programs designed to increase sales and enhance and further develop public reputation and image of Franchiser and the franchise system. Franchiser will provide Franchisee with a statement of receipts and disbursements of the fund, prepared by an independent certified public accountant, for each fiscal year of the fund.

10. MANAGEMENT AND PERSONNEL STANDARDS

10.1 Management Method. Franchisee shall adopt and use Franchiser's management system, as well as Franchiser's standards with respect to product preparation, merchandising, employee recruitment, training, equipment, and facility maintenance and sanitation. From time to time Franchiser will revise these programs to meet changing conditions of retail operation in the general best interest of the franchise system.

10.2 Training. Franchisee shall, at Franchisee¡®s expense, attend Franchiser's store management training at a place to be designated by Franchiser prior to the opening of Franchisee¡®s business. If, during the term of this agreement, Franchisee conducts the business with a manager other than __________ (himself or herself), Franchisee shall, at Franchisee¡¯s expense, send such manager through the same program.

10.3 Personnel. Franchisee shall hire and supervise efficient, competent, sober, and courteous operators and employees for conduct of the business, and shall pay their wages, commissions, and other compensation with no liability for such wages, commissions, and other compensation on the part of Franchiser. Franchisee shall require all of Franchisee¡®s employees to work in clean uniforms approved by Franchiser but furnished at the cost of either Franchisee or the employees as Franchisee may determine.

10.4 Personnel Training Program. Franchiser shall provide or make available through Franchisee an in-store training program for all store employees. Franchisee shall train and periodically retrain all store employees using the training aids made available by Franchiser. From time to time training materials will be updated and added to as required by Franchiser, and such training materials and aids shall be made available by Franchiser for purchase by Franchisee.

10.5 Regional Meetings. Franchisee, or the manager of Franchisee, shall, at Franchisee¡¯s expense, attend at least one national or regional meeting each year, originated by Franchiser for and on behalf of franchise operators, with the purpose of setting forth new methods and programs in store operation, training, management, sales, and sales promotion programs

11. INSURANCE

11.1 Franchisee shall, at Franchisee¡®s expense, procure before the commencement of business, and maintain in full force and effect during the entire term of this agreement, an insurance policy or policies protecting Franchisee and Franchiser, and their directors and employees, against any loss, liability, or expense whatsoever from fire, personal injury, theft, death, property damage or otherwise, arising or occurring upon or in connection with the franchise operation or by reason of Franchisee¡¯s occupancy of the business premises.

11.2 The insurance required by this section shall expressly cover claims based on product liability.

11.3 Franchiser shall be named as an additional insured in such policy or policies of insurance, statutory policies excepted.

11.4 Such policy or policies of insurance shall be written by an insurance company acceptable to Franchiser and shall include general liability coverage of _____________ Dollars per person and __________ Dollars per incident; property damage coverage of ____________ Dollars; and such statutory insurance as may be required in the State of ______________________.

11.5 The insurance afforded by the policy or policies respecting liability shall not be limited in any way by reason of any insurance that may be maintained by Franchiser.

11.6 No later than the day before the date on which the business premises are equipped, evidence showing compliance with the requirements of this section shall be furnished by Franchisee to Franchiser. Evidence of insurance shall include a statement that the policy or policies may not be canceled or altered without at least __________ days¡® prior notice to Franchiser

11.6 Maintenance of insurance and the performance by Franchisee of the obligations under this section shall not relieve Franchisee of liability under the default provisions set forth in this agreement.

12. TERMINATION

12.1 Bankruptcy. Franchisee shall be deemed to be in default under this agreement, and all rights granted to Franchisee shall terminate without any need for notice to Franchisee, and this agreement shall be terminated if

12.1.1 Franchisee becomes insolvent or makes an assignment for the benefit of creditors;

12.1.2 A petition in bankruptcy is filed by Franchisee, or such a petition is filed against and consented to by Franchisee and is not dismissed within __________ days;

12.1.3 Franchisee is adjudicated a bankrupt;

12.1.4 A bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee¡¯s business or assets is filed and is consented to by Franchisee and is not dismissed within __________ days, or a receiver or other custodian of the business or assets of Franchisee is
appointed;

12.1.5 Proceedings for composition with creditors under any state or federal law are instituted by or against Franchisee; or

12.1.6 The real or personal property of Franchisee shall be sold after levy on such property by any sheriff, marshal, or duly-constituted public authority.

12.2 Failure to Comply with Agreement. Except as otherwise expressly provided in this agreement, if Franchisee defaults under the terms of this agreement and such default is not cured within __________ days after receipt of written notice to cure from Franchiser, then, in addition to all other remedies at law or in equity, Franchiser may immediately terminate this agreement. Termination under such circumstances shall become effective immediately on the date of receipt by Franchisee of a written notice of termination. Franchisee shall be in default under this agreement if

12.2.1 Franchisee fails, refuses, or neglects to pay when due any moneys owing to Franchiser or to the Franchise Owners Advertising and Sales Promotion Fund.

12.2.2 Franchisee fails to submit when due reports or financial data that Franchiser requires under this agreement.

12.2.3 Franchisee fails to carry out in all respects its obligations under any lease for the business premises and the lease is terminated, or under any equipment agreement, promissory note, conditional sales contract or other contract materially affecting the franchise operation, to which Franchisee is a party or by which Franchisee is bound.

12.2.4 Franchisee fails to comply substantially with any of the requirements imposed upon Franchisee by this agreement.

12.3 Duties Upon Termination or Expiration of Agreement. On termination or expiration of this agreement

12.3.1 Franchisee shall promptly pay all sums owing or accrued under this agreement prior to termination or expiration, payments to be made to Franchiser or to the Franchise Owners Advertising and Sales Promotion Fund, as appropriate. Such sums shall include any damages, costs, and expenses, including reasonable attorneys¡® fees, incurred by Franchiser by reason of default on the part of Franchisee.

12.3.2 Franchisee shall immediately thereafter cease to use, by advertising or in any manner whatsoever, any methods associated with the name of the franchise any or all of the proprietary marks and names, and any other trade secrets, confidential information, operating manuals, slogans, signs, symbols, or devices forming part of the franchise system or otherwise used in connection with conduct of the franchise operation.

12.3.3 Franchisee shall immediately thereafter return to Franchiser all operating manuals, plans, specifications, and other materials containing information prepared by Franchiser and relative to the franchise system.

12.3.4 All Rights to be Cumulative. No right or remedy conferred in this agreement upon or reserved to Franchiser is exclusive of any other right or remedy in this agreement, or provided or permitted by law or in equity, but each shall be cumulative of every other right or remedy given under this agreement.

13. TRANSFER OF FRANCHISE

Franchisee¡¯s rights in the franchise are transferable only as follows:

13.1 Upon Franchisee¡®s death, the rights of Franchisee in the franchise may pass to Franchisee¡¯s next of kin or legatees, provided such next of kin or legatees agree in a written instrument satisfactory to Franchiser to assume Franchisee¡®s obligations under this agreement.

13.2 Franchisee may sell the franchise to a natural person and be relieved of further obligations under this agreement, provided that (1) the purchaser has a satisfactory credit rating, is of good moral character, has business qualifications satisfactory to Franchiser, will comply with Franchiser's training requirements, and enters into any and all direct agreements with Franchiser that Franchiser is then requiring of newly-franchised persons; (2) all money obligations of Franchisee under this agreement are fully paid, Franchisee is not in default under this agreement, and Franchisee executes a general release of all claims against Franchiser; (3) Franchisee pays Franchiser __________ Dollars for its legal fees and other expenses in connection with the transfer; and (4) Franchisee has first offered to sell Franchisee¡®s franchise to Franchiser upon the same terms as the purchaser has offered Franchisee in writing, and Franchiser has refused the offer or failed to accept it for a period of __________ days.

13.3 The name of the franchise shall not be used in any advertisement for the sale of Franchisee¡¯s franchise or equipment.

13.4 Franchisee may assign and transfer Franchisee¡®s rights under and pursuant to this agreement to a corporation without, however, being relieved of any personal liability, provided (1) the corporation is newly organized and its activities are confined exclusively to operating Franchisee¡¯s franchise; (2) Franchisee is the owner of the controlling stock interest in the corporation and is the principal executive officer of such corporation; (3) all money obligations of Franchisee to Franchiser are fully paid; (4) the corporation agrees, in a written instrument satisfactory to Franchiser, to assume all Franchisee¡®s obligations under this agreement; and (5) all stockholders of the corporation guarantee, in a written instrument satisfactory to Franchiser, the full and prompt payment and performance by the corporation of all of its obligations to Franchiser.

14. FRANCHISEE AS INDEPENDENT CONTRACTOR

14.1 This agreement does not constitute Franchisee an agent, legal representative, joint venturer, partner, employee, or employee of Franchiser for any purpose.

14.2 Franchisee shall be an independent contractor and is in no way authorized to make a contract, agreement, warranty, or representation on behalf of Franchiser or to create any obligation, express or implied, on behalf of Franchiser.

14.3 The parties agree that this agreement does not create a fiduciary relationship between Franchiser and Franchisee.

15. WAIVER

No failure of Franchiser to exercise any power reserved under this agreement, or to insist upon strict compliance by Franchisee with any obligation or condition under this agreement, and no custom or practice of the parties in variance with the terms of this agreement, shall constitute a waiver of Franchiser's right to demand strict compliance with the terms of this agreement. Waiver by Franchiser of any particular default by Franchisee shall not affect or impair Franchiser¡®s right in respect to any subsequent default of the same or of a different nature. No delay, waiver, forbearance, or omission of Franchiser to exercise any power or rights arising out of any breach or default by Franchisee of any of the terms, provisions, or covenants of this agreement shall affect or impair Franchiser's rights; nor shall such failure constitute a waiver by Franchiser of any rights under this agreement or of the right to declare any subsequent breach or default. Subsequent acceptance by Franchiser of the payments due it hereunder shall not be deemed to be a waiver by Franchiser of any preceding breach by Franchisee of any terms, covenants, or conditions of this agreement.

16. NOTICE

All notices required or permitted by this agreement shall be in writing and shall be deemed sufficient where sent by certified mail to the receiving party at the address set forth above or at such other address as that party may have designated in writing.

17. LIABILITY FOR BREACH

17.1 In the event of any defaults on the part of Franchisee that remain uncured for a period of __________ days from the date of a written notice to cure specifying the nature of such default, Franchisee shall pay to Franchiser all damages, costs, and expenses, including reasonable attorneys¡® fees, incurred by Franchiser as a result of any such default.

17.2 All damages, costs, and expenses, including reasonable attorneys¡¯ fees, may be included in and form a part of the judgment entered in any proceedings brought by Franchiser against Franchisee.

18. ENTIRE AGREEMENT

This agreement shall constitute the entire agreement between the parties and any prior understanding or representation of any kind preceding the date of this agreement shall not be binding upon either party except to the extent incorporated in this agreement.

19. MODIFICATION OF AGREEMENT

Any modification of this agreement or additional obligation assumed by either party in connection with this agreement shall be binding only if placed in writing and signed by each party or an authorized representative of each party.

20. SEVERABILITY

Each section, part, term, and provision of this agreement shall be considered severable. If, for any reason, any section, part, term, or provision of this agreement is determined to be invalid and contrary to, or in conflict with, any existing or future law or regulation of a court or agency having valid jurisdiction, such determination shall not impair the operation or affect the remaining portions, sections, parts, terms, or provisions of this agreement, and the latter will continue to be given full force and effect and bind the parties to this agreement. The invalid section, part, term, or provision shall be deemed not to be a part of this agreement.

21. GOVERNING LAW

It is agreed that this agreement shall be governed by, construed, and enforced in accordance with the laws of the State of ________________________________.

22. ARBITRATION OF DISPUTES

All disputes, claims, and questions regarding the rights and obligations of the parties under the terms of this agreement are subject to arbitration. Either party may make a demand for arbitration by filing such demand in writing with the other party within __________ days after the dispute first arises. Thereafter, arbitration shall be conducted by __________ (set forth terms of arbitration, such as: three arbitrators acting under the rules of commercial arbitration of the American Arbitration Association).

In witness whereof, each party to this agreement has caused it to be executed at __________ (Place of Execution) on the date indicated below.
_________________________________ ___________________
Signature and Title Date
_________________________________ ___________________
Signature and Title Date
_________________________________ ___________________
Signature and Title Date