EXHIBIT 10.5
ZAP POWER SYSTEMS
FRANCHISE AGREEMENT
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ZAP POWER SYSTEMS
FRANCHISE AGREEMENT
TABLE OF CONTENTS
ARTICLE I
GRANT OF FRANCHISE....................................................6
ARTICLE II
TERM AND RENEWAL......................................................7
ARTICLE III
FEES..................................................................9
ARTICLE IV
SERVICES BY FRANCHISOR...............................................12
ARTICLE V
LIMITATIONS OF THE FRANCHISE.........................................14
ARTICLE VI
PROPRIETARY MARKS....................................................16
ARTICLE VII
LEASE AGREEMENTS.....................................................20
ARTICLE VIII
EQUIPMENT AND FURNISHINGS............................................22
ARTICLE IX
TRAINING PROGRAM.....................................................22
ARTICLE X
OPENING..............................................................23
ARTICLE XI
OBLIGATIONS OF FRANCHISEE............................................24
ARTICLE XII
ACCOUNTING AND RECORDS...............................................29
ARTICLE XIII
CONFIDENTIAL POLICIES AND PROCEDURES MANUAL..........................31
ARTICLE XIV
ADVERTISING AND PROMOTIONS...........................................32
ARTICLE XV
RENOVATION OF OUTLET, EQUIPMENT AND FURNISHINGS......................36
ARTICLE XVI
INSURANCE............................................................37
ARTICLE XVII
RELATIONSHIP OF THE PARTIES: INDEMNIFICATION.........................39
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ARTICLE XVIII
FORCE MAJEURE........................................................41
ARTICLE XIX
DEFAULT AND TERMINATION..............................................41
ARTICLE XX
RIGHTS AND DUTIES OF THE PARTIES UPON EXPIRATION OR TERMINATION......45
ARTICLE XXI
COMMENCEMENT AND HOURS OF OPERATION..................................48
ARTICLE XXII
TRANSFERABILITY OF INTEREST..........................................49
ARTICLE XXIII
OPERATION IN THE EVENT OF ABSENCE OR DISABILITY......................55
ARTICLE XXIV
RISK OF OPERATIONS...................................................56
ARTICLE XXV
TAXES, PERMITS AND INDEBTEDNESS......................................56
ARTICLE XXVI
NON-COMPETITION; CONFIDENTIALITY.....................................57
ARTICLE XXVII
MODIFICATION OF THE AGREEMENT........................................58
ARTICLE XXVIII
ENTIRE AGREEMENT.....................................................58
ARTICLE XXIX
DISPUTE RESOLUTIONS..................................................58
ARTICLE XXX
EFFECTIVE DATE.......................................................59
EXHIBIT A
GEOGRAPHIC AREA......................................................60
EXHIBIT B
OUTLET LOCATION......................................................61
EXHIBIT C
AREA OF PRIMARY RESPONSIBILITY.......................................62
EXHIBIT D
UNDERTAKING TO FIND SUITABLE LOCATION (180 DAYS).....................63
EXHIBIT E
AGREEMENT AND CONDITIONAL ASSIGNMENT OF LEASE........................68
EXHIBIT F
MINIMUM SALES QUOTA..................................................72
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ZAP POWER SYSTEMS
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT, ("Agreement") entered into this ____ day of
_______19_, by and between ZAP Power Systems, a California Corporation doing
business as ZAP Power Systems, having its principal place of business at ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (hereinafter "ZAP" or "Franchisor")
and ___________________________________________________________________residing
at______________________________________________________________________________
__________________________________________________(hereinafter Franchisee).
WHEREAS, Franchisor has spent time, effort and money in developing a
business plan and method in connection with the operation of a retail electric
vehicle outlet selling electric bicycle power kits, electric bicycles and
tricycles, electric scooters and other low-power electric transportation
vehicles ("Proprietary Products"), and other non-proprietary products, utilizing
certain standards, specifications, methods, procedures, designs, techniques,
management systems, identification schemes and proprietary marks, copyrights and
information (collectively, the ASystem"); all of which may be changed, improved
and further developed from time to time by Franchisor; and
WHEREAS, the distinguishing characteristics of the System include, but
are not limited to, the trade name and trademark "ZAP", a unique and readily
recognizable design, color scheme and layout for the premises wherein such
business is conducted; furnishings, signs, emblems and the trade names,
trademarks, copyrights, insignias, slogans, methods of preparation, and
merchandising, the aforesaid Proprietary Products for utilizing certain
standards, specifications, procedures, designs, management systems, techniques
and identification schemes (the "Proprietary Rights"); all of which
characteristics may be changed, revised, improved and further developed from
time to time; and
WHEREAS, the reputation and good will with the public with respect to
the quality of products available for purchase from ZAP Electric Vehicle Outlets
have been and continue to be of major benefit to Franchisor and its franchisees;
and
WHEREAS, Franchisee recognizes the benefits to be derived from being
identified with and being a franchisee of ZAP Power Systems and being able to
utilize the System and the Proprietary Rights which Franchisor makes available
to its franchisees; and
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WHEREAS, Franchisee desires to own and operate a "ZAP Electric Vehicle
Outlet" (hereinafter "Outlet" or "Franchised Business," at the location
described in Exhibit "A" hereof upon the terms and conditions set forth herein,
which terms and conditions are reasonably necessary to maintain the Franchisor's
high and uniform standards of quality and service and to protect the good will
and enhance the public image of the System and the Proprietary Rights; and
WHEREAS, if this Franchise Agreement is being executed pursuant to a
Zone Development Agreement, then the location described in Article I of the
Franchise Agreement is within the Development Area as that term is defined in
the aforementioned Zone Development Agreement and has been accepted by
Franchisor as a site for an Outlet pursuant to the Zone Development Agreement;
and
WHEREAS, Franchisee desires to obtain a franchise to use the System and
the Proprietary Rights at the location described in Exhibit "A," pursuant to the
provisions hereof, and Franchisee has had a full and adequate opportunity to be
advised thoroughly of the terms and conditions of this Franchise Agreement by
counsel of his/her own choosing and represents and warrants that he/she has the
business experience and financial ability to operate an "ZAP Electric Vehicle
Outlet."
WHEREAS, Franchisee acknowledges that Franchisee has read this
Agreement and Franchisor's Franchise Offering Prospectus and that Franchisee
understands and accepts the terms, conditions and covenants contained in this
Agreement as being reasonably necessary to maintain uniform high standards of
quality at all Outlets and to protect the goodwill of the Proprietary Marks.
WHEREAS, Franchisor expressly disclaims the making of any warranty or
guarantee, expressed or implied, oral or written, regarding the potential
revenues, profits or success of the business venture contemplated by this
Agreement. Franchisee acknowledges that Franchisee has not received or relied
upon any such warranty or guarantee.
WHEREAS, Franchisee acknowledges that Franchisee has no knowledge of
any representations by Franchisor, its officers, directors, shareholders or
representatives about the franchise offered hereunder, about Franchisor or its
franchising programs and policies that are contrary to the statements in
Franchisor's Franchise Offering Prospectus or to the terms of this Agreement.
WHEREAS, Franchisee acknowledges that this Agreement places detailed
and substantial obligations on Franchisee including strict adherence to
Franchisor's reasonable
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present and future requirements regarding facilities, equipment, suppliers,
operating procedures, management methods, merchandising strategies, sales
promotion programs and related matters. Franchisee acknowledges that future
improvements, changes and developments in the System may require additional
expense to be undertaken by Franchisee.
BEFORE SIGNING THIS AGREEMENT, FRANCHISEE SHOULD READ IT CAREFULLY WITH
ASSISTANCE OF LEGAL COUNSEL.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
herein contained, the parties intending to be bound legally, hereby agree as
follows:
ARTICLE I
GRANT OF FRANCHISE
1.1 Franchisor hereby grants to Franchisee, upon the terms and
conditions herein contained, the right and franchise, and Franchisee undertakes
the obligation to operate a Outlet in conjunction with the Proprietary Rights
and to use the System solely in connection therein. Franchisee shall locate the
Outlet only at the location set forth in Exhibit "B" hereto. If, at the time of
execution of this Agreement, a location of the Outlet has not been agreed to by
the parties, then Franchisee shall execute Exhibit "D" hereof, which will
obligate Franchisee to find a suitable location within one hundred and eighty
(180) days from the date of this Agreement. In the event however, that a
location for the Outlet has been selected as of the date hereof, Franchisee must
submit to Franchisor for its approval, which approval shall not be unreasonably
withheld, the address of the location Franchisee wishes to use for the Outlet
which shall be within the geographic area described in Exhibit "A" of this
Agreement; and after Franchisor has approved the Outlet's location, a written
description of such location shall be attached to this Agreement as Exhibit "B,"
and shall form a part hereof, and Franchisee shall deliver a form of lease for
such location, which form shall contain the conditional lease assignment
language set forth in Exhibit "E" hereof. Franchisee shall not relocate the
Outlet without the prior written approval of the Franchisor, which approval may
be reasonably withheld.
1.2 During the term of this Agreement, the Franchisor agrees not to
establish or operate a company-owned Outlet, nor will it grant a franchise to
others to operate Outlets under the System at a location within the area
described in Exhibit "C" hereto ("Area of Primary Responsibility" or "APR").
Except as specified in the preceding sentence, this franchise is nonexclusive.
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1.3 Franchisee acknowledges the Franchisor's right to develop, operate and
franchise other similar or different systems outside Franchisee's Area of
Primary Responsibility, without offering same to Franchisee.
1.4 Franchisee further acknowledges the right of Franchisor to sell or
market the Proprietary Products on a wholesale basis to other franchisees of
Franchisor, bicycle dealers, utility companies, institutions, and in other
distribution channels and to commence selling and marketing the Proprietary
Products on a wholesale basis to franchisees of Franchisor, bicycle dealers, and
to institutions outside Franchisee's Area of Primary Responsibility, under the
Proprietary Marks outside the Area of Primary Responsibility and under a
different name within Franchisee's Area of Primary Responsibility. However,
nothing contained herein shall preclude or prevent Franchisee from selling the
Proprietary Products on a wholesale basis within his or her APR.
1.5 This Agreement is not a development agreement and does not grant to
Franchisee any development rights within the area described in Exhibit "A"
hereto, except for his/her particular Outlet.
1.6 Franchisee accepts the franchise set forth above and agrees to
undertake the obligation to operate the Outlet in conformity with the System and
under the conditions set forth in this Agreement for the entire term, subject to
its termination provisions.
ARTICLE II
TERM AND RENEWAL
2.1 Unless sooner terminated as hereinafter provided, this Agreement
shall expire one (1) year from the date Outlet opened for business. The term
will automatically renew for one year if Franchisee meets the Minimum Sales
Quotas (the "Minimum Sales Quotas") as set forth in Exhibit F. In the event
Franchisee fails to meet the Minimum Sales Quotas, this Agreement shall expire
as provided herein unless renewed by Franchisor in its sole discretion.
2.2 Franchisee may, but shall have no obligation to, renew the
franchise to own and operate the Outlet and the right to use the System and the
Proprietary Rights at the Outlet for successive terms of one year, provided that
prior to the expiration of the initial term and each successor term, the
following conditions are first met:
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A. Franchisee gives Franchisor written notice of election to
renew not less than twelve (12) months, nor more than eighteen (18) months,
prior to the end of the initial term and each successive term thereafter.
B. Franchisee is not, when notice is given, in default of any
provision of this Agreement, any amendment hereof or successor hereto, or any
other agreement between Franchisee and Franchisor, including any other Franchise
Agreement, lease or sublease and has substantially complied with the terms and,
conditions of all such agreements during the term of this Agreement, and has not
failed to remedy any breach specified by Franchisor in any default notice then
outstanding.
C. All monetary obligations owed by Franchisee to Franchisor,
its subsidiaries or affiliates, the advertising fund, as hereinafter defined,
have been satisfied prior to renewal and paid when due throughout the initial
and all prior renewal terms of this Agreement.
D. Franchisee executes, within thirty (30) days of receipt,
the Franchisor's standard form of Franchise Agreement being executed by other
franchisees renewing their franchises on the renewal date, which may contain
certain terms and conditions substantially different from those set forth
herein, including, without limitation, a different continuing weekly service fee
and different advertising expenditure requirements (and new methods computing
same) and different fees for Proprietary Products.
E. Franchisee executes, within thirty (30) days of receipt, a
general release under seal, in a form satisfactory to Franchisor, of any and all
claims it may have against Franchisor and its officers, directors, shareholders
and employees, in their corporate and individual capacities, including without
limitation, all claims arising under any federal, state or local law, rule or
ordinance, provided however, that all Rights enjoyed by the Franchisee and any
causes of action arising in favor from the provisions of the Franchise
Investment Law of the State of California and the regulations issued thereunder
shall remain in force; it being the intent of this proviso to the nonwaiver
provisions.
F. Franchisee and any other person who has an interest in
Franchisee (if Franchisee is a group of individuals or a corporation,
partnership, unincorporated association or similar entity) attends and
satisfactorily completes such retraining or refresher training program as
Franchisor may require, in its sole discretion, at such time and place, prior to
expiration of this Agreement, as Franchisor may reasonably designate.
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G. Franchisee provides Franchisor with evidence that
Franchisee has the right to remain in possession of the location of the Outlet
or other premises acceptable to Franchisor for the new term.
H. Franchisee performs, at its own expense, such remodeling,
repairs, replacements and redecorating as Franchisor may reasonably require to
cause the Outlet equipment, fixtures, furnishings and furniture to conform to
the plans and specifications being used for new or remodeled Outlet as of the
renewal date however, same shall be reasonable and will not place a significant
economic burden on the Franchisee.
2.3 Renewal of the Franchise Agreement shall be conditioned upon
Franchisee's compliance with such requirements and continued compliance with all
the terms and conditions of the Franchise Agreement up to the date of renewal.
If Franchisor decides not to renew, it shall give Franchisee written notice
thereof as soon as reasonably practical under the circumstances, but in any
event not less than thirty (30) days prior to expiration. Such notice shall
specify the reasons for non-renewal. Under such circumstances, Franchisee may
request extension of the term for a reasonable period of time not to exceed six
(6) months during which period Franchisee may pursue the sale of its business as
a franchised Outlet. Franchisor shall grant such extension so long as Franchisee
exercises best efforts to sell and complies with the Franchise Agreement.
ARTICLE III
FEES
3.1 In consideration of the franchise granted herein, Franchisee shall
pay to Franchisor the following fees once Franchisor has fulfilled and performed
all of its initial obligations to Franchisee:
A. Upon the opening of the Franchisee=s unit, Franchisee shall
pay to the Franchisor the initial franchise fee of twelve thousand five hundred
dollars ($12,500), which shall be paid upon execution of this Agreement and
which shall be deemed fully earned and non-refundable upon receipt thereof and
which shall be in consideration of expenses incurred by Franchisor in furnishing
assistance and services to Franchisee and for Franchisor's lost or deferred
opportunity to grant franchises to others within Franchisee's designated
exclusive area.
B. During the term of this Agreement, if Franchisor so elects
at its sole discretion to stop selling Proprietary Products then Franchisee
agrees to pay to Franchisor a "Continuing Monthly Service Fee" of two percent
(2%) of gross sales ("CMSF") on all
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sales generated by, from or through the Outlet during each month. The CMSF shall
be payable from the date the Outlet is opened or upon the election of Franchisor
to stop selling Proprietary Products, whichever last occurs. Such CMSF shall be
based upon the gross sales of the Outlet during each month of operation. Payment
of the CMSF shall be made by the fifth day of the following month.
C. On the fifth day following each reporting month, Franchisee
shall report to Franchisor by facsimile transmission a true and correct
statement of Franchisee's total gross receipts (as defined below) for the
reporting week. Further, on or before the fifth day following each reporting
month, Franchisee will submit to Franchisor on a form approved by Franchisor, a
correct statement, signed by Franchisee of Franchisee's total gross receipts for
the previous month. Franchisee will make available for reasonable inspection and
copying at reasonable times by Franchisor, all original books and records that
Franchisor may deem necessary to ascertain Franchisee's total gross receipts.
D. Franchisee shall give Franchisor authorization (in the form
attached at Exhibit C or such other form as Franchisor shall accept) for
prearranged payments (debits) from Franchisee's business operating account.
Under this procedure, Franchisee shall authorize Franchisor to initiate debit
entries and/or credit correction entries to a designated checking or savings
account for the monthly payment of CMSF and Advertising Fees payable hereunder
and any delinquent charges due thereon. Franchisee shall make the funds
available for withdrawal by electronic transfer by Franchisor no later than the
fifth day of the following month. The electronic transfer debit shall be based
on the monthly total gross receipts orally reported to Franchisor by Franchisee
on such day as required above. In the event that for any reporting month
Franchisee has not electronically faxed reported total gross receipts to
Franchisor, then Franchisor shall be authorized to debit Franchisee's account in
an amount equal to the fees debited to Franchisee's account for the previous
reporting month for which a report of Franchisee's total gross receipts was
provided to Franchisor as required hereunder.
E. If, following Franchisor's receipt of any written monthly
gross receipts report, such report discloses an underpayment of CMSF or
Advertising Fees, Franchisor shall be authorized to initiate a debit to
Franchisee's account in the appropriate amount in accordance with the foregoing
procedure. Any overpayment shall be credited to Franchisee's account.
3.2 Franchisee shall pay to the Franchisor's Advertising Fund the
amount required to be paid pursuant to Article XIV hereof.
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3.3 As used in this Agreement, the term "gross sales" shall mean the
amount of sales of all electric vehicles and parts, merchandise, services and
Proprietary Products sold in, on, about or from the Outlet by Franchisee,
whether for cash, cash equivalents, redeemed gift certificates, check, charge
account, credit or time basis, including but not limited to such sales and
services:
(i) Where orders originate and/or are accepted by Franchisee
in the Outlet, but delivery or performance thereof is made from or at any place
other than the Outlet;
(ii) Pursuant to telephone or other similar orders received or
filled at or in the Outlet; or
There shall be deductible from gross sales:
(i) The amount of over-rings, refunds, allowances or discounts
to customers (including coupon sales), provided they have been included in gross
sales;
(ii) The amount of an excise or sales tax levied upon retail
sales and payable over to the appropriate government authority; and
(iii) Isolated sales of non-inventory items or the bulk sale
of the business itself, if the same have been included in gross sales.
3.4 In addition to any other remedies Franchisor may have, if
Franchisee is more than three (3) days late making any of the payments
referenced in this Article III, an annual interest rate of eighteen percent
(18%), shall be payable on the unpaid CMSF from the date such payment was due.
Franchisee acknowledges that this paragraph shall not constitute
agreement by Franchisor or its affiliates to accept such payments after same are
due or a commitment by Franchisor to extend credit to, or otherwise finance
Franchisee's operation hereunder. The foregoing remedy shall be in addition to
any other remedy Franchisor may have, including termination of this Agreement.
3.5 Notwithstanding any designation by Franchisee, Franchisor shall
have the sole discretion to apply any payments by Franchisee to any past due
indebtedness of Franchisee for CMSF, advertising fees, purchases from Franchisor
and or Franchisor's Proprietary Suppliers.
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ARTICLE IV
SERVICES BY FRANCHISOR
4.1 Franchisor or its designated Zone Development Agent agrees to use
its best efforts to maintain the excellent reputation of all Outlets and, in
connection therewith, to make available to Franchisee the following:
A. Such standard prototypical construction plans,
specifications and layouts for the leasehold improvements, equipment, furniture,
decor and signs identified with Outlets as Franchisor makes available to all new
franchisees from time to time.
B. Review of Franchisee's site proposal and approve or
disapprove same, review the lease and approve and disapprove same, review
Franchisee's site plans and final construction plans and specifications of the
System upon Franchisor's receipt of Franchisee's written request for approval
thereof.
C. Initial training in the System, including standards,
methods, procedures and techniques, at such times and places as Franchisor may
designate for its training program in its discretion and subject to Article IX
hereof.
D. Such opening assistance from Franchisor's personnel,
including planning and developing opening and promotional programs, as
Franchisor determines is necessary or appropriate.
E. The use of Franchisor's confidential standard business
policies and operations manuals (here collectively called the "Manual") and
training aids as may be revised, updated or replaced from time to time by
Franchisor.
F. Such special parts, techniques, assembly instructions, new
products and other merchandising, new services, standardized cost and portion
control system, marketing and other data and advice as may from time to time be
developed by Franchisor and deemed by it to be helpful in the operation of the
Outlet by Franchisee.
G. Such periodic individual or group advice, consultation and
assistance, rendered by telephone, or by newsletter or bulletins made available
from time to time to all franchisees of Franchisor, as Franchisor may, from time
to time deem necessary or appropriate, in its discretion.
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H. Such bulletins, brochures and reports as may from time to
time be published by Franchisor in its discretion regarding its plans, policies,
research, developments and activities.
I. Such other resources and assistance as may hereafter be
developed and offered from time to time by Franchisor to its franchisees.
J. The Franchisor may provide Franchisee with advertising,
marketing and other promotional materials created and developed by Franchisor
for Franchisee's use at cost, and guidance and advice regarding local
advertising and promotion for the grand opening of the Outlet.
K. The Franchisor shall inspect, from time to time,
Franchisee's Outlet in order to evaluate the proper execution of the System, and
confer with Franchisee and Franchisee's employees in connection therewith in
order to assist in the proper business operation of Franchisee's Outlet, and to
insure Franchisee's compliance with this Agreement and with the System. The
Franchisor, at its discretion, shall have the right to make inspections at such
times and frequencies during normal business hours, without prior notice to
Franchisee.
L. The Franchisor shall use its best efforts to require
maintenance of high and uniform standards in the execution of the System at all
Outlets utilizing the System, thus protecting and enhancing the reputation of
the Proprietary Rights.
M. The Franchisor, in order to insure that the distinguishing
characteristics of the System are uniformly maintained, Franchisor may
establish, from time to time, reasonable standards for the Proprietary Products,
equipment, commodities and supplies and for the use of same by Franchisee in the
execution of the System.
4.2 The Franchisor or its designee shall sell to Franchisee all of
his/her requirements of the Proprietary Products as is set forth herein, unless
prevented from so doing by Force Majeure, governmental restrictions, labor
disputes, inability to obtain supplies, or similar contingency. Under no
circumstances however, will the Franchisor be responsible or liable for any
consequential damages which Franchisee may incur as a result of the occurrence
of any of the aforesaid incidents.
4.3 The Franchisor or its designee shall offer for sale to Franchisee
many non-Proprietary Products which Franchisee offers to the public. These
products may include electric motors and electric motor kits which are
commercially prepared by large manufacturers.
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ARTICLE V
LIMITATIONS OF THE FRANCHISE
5. 1 Franchisee understands and acknowledges and agrees that every
detail of the System is important to the Franchisor and its other franchisees.
Therefore in order to develop and maintain uniformly high standards to increase
the demand for the Proprietary Products and to protect the reputation and good
will of the Franchisor, Franchisee agrees that:
A. The Franchisee's use of the System and Proprietary Rights
granted hereunder are personal to Franchisee and cannot be sold, assigned or
transferred, in whole or in part, except as set forth in Article XV hereof.
B. Franchisee acknowledges that he/she has had no part in the
creation or development of Franchisor's trademarks, service marks and trade
names and that Franchisor owns the exclusive worldwide license of the
Proprietary Rights and of the identification schemes, standards, specifications,
operating procedures and other concepts embodied in the System. Franchisee will
use the System and the Proprietary Rights strictly in accordance with the terms
of this Agreement, and any unauthorized use of the System and the Proprietary
Rights is and shall be deemed an infringement of Franchisor's rights as set
forth hereunder. Except as expressly provided by this Agreement, and any other
Franchise Agreements, Franchisee shall acquire no right, title or interest to
the System, or the Proprietary Rights, or any and all good will associated with
the System, and the Proprietary Rights shall inure exclusively to Franchisor's
benefit; and upon the expiration or termination of this Agreement, no monetary
amount shall be assigned as attributable to any good will associated with
Franchisee's use of the System and the Proprietary Rights. Franchisee will, at
no time, take any action whatsoever to question or contest the validity, right,
title or interest of Franchisor as to the Proprietary Rights and the good will
associated therewith.
C. Franchisee shall have no right to use the words "ZAP" in
his/her corporate or partnership name or other names. Upon termination of the
Franchise Agreement, Franchise shall discontinue all usage in any manner of the
words "ZAP" and any and all trademarks, service marks or Proprietary Rights.
D. All materials loaned or made available to the Franchisee
and all disclosures not made to the general public are considered trade secrets
and shall be kept confidential and used only in connection with the operation of
the Outlet. The Manual and other confidential materials may not be duplicated,
copied or exhibited, except with the prior written consent of Franchisor.
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E. Except as provided in Article I hereof, the franchise and
Proprietary Rights granted hereunder are nonexclusive and Franchisor retains the
right, in its sole discretion:
(i) To continue to franchise and operate other Outlets
and to use the System and the Proprietary Rights at any location outside the
APR, and to license others to do so;
(ii) To develop, use and franchise the rights to any
trade names, trademarks, service marks, trade symbols, emblems, signs, slogans,
insignias, patents or copyrights not designed by Franchisor as Proprietary
Rights, for use with similar or different products or services other than in
connection with the System at any location, on such terms and conditions as
Franchisor may deem advisable and without granting Franchisee any rights herein;
(iii) To develop, merchandise, sell and license others
to sell the Proprietary Products and other products, including clothing, to the
public through non-retail channels of distribution in the Development Area, if
an Area Development Agreement is in effect, and APR and to use the Proprietary
Rights in connection therewith; and
(iv) To promote or conduct special sales at fairs,
charity events, athletic contests or other special events through mobile units
or temporary locations within the Development Area if an Area Development
Agreement is in effect and the APR; provided however, that the opportunity to
conduct each special sale shall first be offered to Franchisee on such terms and
conditions as Franchisor, in its sole discretion, shall specify.
F. Franchisee shall not conduct any special sale at a fair,
charity event, athletic contest or special event through mobile units or
temporary locations or sell any Proprietary Products at any location, temporary
or permanent, other than at the Outlet, without the prior written consent of
Franchisor.
G. Franchisor has the right to determine, approve and
supervise the quality of service, the tools and equipment used by Franchisee and
the method of assembly of all products sold from the Outlet; to conduct periodic
inspections of the Outlet and the equipment, furnishings and products therein,
without notice, during normal business hours, to examine the electric vehicles
assembled, offered for sale and sold by Franchisee and to take all action it
deems necessary to maintain the quality and standards of the Proprietary
Products, the Outlet, Proprietary Rights, and Proprietary Marks.
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H. Franchisee, or at least one person executing this
Agreement, shall participate personally in the direct day to day operations of
the Outlet and shall carefully monitor the performance of any person who is
actively in involved in the operation of the Outlet
I. Any disputes between Franchisee and Franchisor as to
matters such as merchandising, production distribution, promotions, advertising,
sales and general business policies which may have an effect on the reputation
or goodwill of Franchisor shall be resolved as determined in the reasonable
discretion of Franchisor.
J. Because complete and detailed uniformity under many varying
conditions may not be possible or practical, Franchisor specifically reserves
the right and privilege, in its reasonable discretion and as it may be deemed to
be in the best interest of all franchisees and the System in any specific
instance, to reasonably vary the standard specifications and practices for any
franchisee based upon the peculiarities of a particular site or circumstance,
density of population, business potential, population of trade area, existing
business practices or any other condition which Franchisor deems to be of
importance to the successful operation of such franchisee's business. Franchisee
shall have no recourse against Franchisor on account of any variation from
standard specifications and practices granted to any of the franchisees and
shall not be entitled to require Franchisor to grant to Franchisee a like or
similar variation.
K. In all public records in its relationship with other
persons, in any document, and at the Outlet, Franchisee shall indicate clearly
that Franchisee is an authorized Franchisee and of the independent ownership of
Franchisee=s business and that the operations of said business are separate and
distinct from the operation of the Franchise.
5.2 Franchisee shall use his/her Outlet for the exclusive conduct of
the business franchised hereunder, and a material deviation therefrom, without
the Franchisor's prior written approval, shall constitute a material breach of
this Agreement, and any renewal thereof.
ARTICLE VI
PROPRIETARY MARKS
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6.1 When used in this Agreement, "Proprietary Marks" mean trademark,
service ▇▇▇▇ or other word, system device or any combination thereof, used to
identify "ZAP" and the Proprietary Products.
6.2 Franchisee is hereby granted the nonexclusive right to use "ZAP"
Proprietary Marks, good and trade secrets in the operation of the Outlet only at
the location specified in Article I hereof. Nothing in this Agreement shall be
construed as authorizing or permitting their use at any other location or for
any other purposes.
6.3 Franchisee acknowledges that the ownership of all of the
Proprietary Marks, goodwill and trade secrets remain solely with Franchisor and
that Franchise shall not register or attempt to register the Proprietary Marks
or to assert any rights in them other than as specifically granted in this
Agreement, or claim any right, title or interest therein nor shall Franchisee
contest the validation or ownership of the Proprietary Marks.
6.4 At the Franchisor's request, Franchisee shall assign, transfer and
convey to the Franchisor, in writing, additional rights, if any, that may be
acquired by Franchisee as a result of his use of Proprietary Marks during the
term of this Agreement.
6.5 The Franchisor reserves the right to approve within fourteen (14)
days of submission, all signs, memos, stationery, business cards, advertising
material, forms and all other objects and supplies using the Proprietary Marks.
All advertising, publicity, point of sale materials, signs, decorations,
furnishings, equipment, or other materials employing the word "ZAP" shall be
designed and prepared in accordance with this Agreement and/or any manuals,
directives or memos, and Franchisee shall obtain the Franchisor's approval prior
to such use, which approval shall not be unreasonably withheld or delayed.
6.6 If at any time and in its sole discretion, Franchisor modifies,
discontinues or adopts new Proprietary Marks, or elects to substitute or add
trade names, trademarks or service marks, Franchisee shall adopt, use and
display such Proprietary Marks and he/she shall promptly discontinue use and
display of the outmoded or superseded marks, at Franchisor's sole cost and
expense.
6.7 Franchisee shall immediately, i.e., within three (3) business days,
notify the Franchisor of any claim, demand, or suit based upon or arising from
the unauthorized use of, or any attempt by any other person, firm, or
corporation to use, withhold authorization, or any infringement of or challenge
to, any of, the Franchisor's Proprietary Marks, or any other litigation
instituted by any person, firm, corporation or governmental entity against
Franchise, regardless of the nature of same.
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6.8 At its own expense, the Franchisor shall undertake the defense or
prosecution of any litigation which relates to the use of any of the Proprietary
Marks or that, in the Franchisor's judgment, may affect the goodwill of the
System; and the Franchisor may, in such circumstances undertake any other action
which it deems appropriate. The Franchisor shall have sole and complete
discretion in the conduct of any defense, prosecution or other action which it
undertakes. Franchisee shall be required to execute and convey any and all
documents and perform those acts which, in the opinion of the Franchisor, are
reasonably necessary for the defense or prosecution of the litigation or for
such other action as may be undertaken by the Franchisor.
6.9 In order to develop and maintain high uniform standards of quality
and service and to protect the reputation and goodwill of the Franchisor,
Franchisee agrees to do business and conduct advertising using only the name
"ZAP Electric Vehicle Outlet". Franchisee shall not do business or advertise
using any other name. Franchisee is not authorized to, nor shall he/she use the
word "ZAP" as a part of the legal name of any corporation, partnership,
proprietorship or other business entity to which Franchisee is associated, or
with a bank account, trade account or in any legal or financial connection.
6.10 Franchisee shall be required to affix the (R)sm symbol upon all
advertising, publicity, signs, decorations, furnishings, equipment or other
printed or graphic material employing the word "ZAP" and/or any other of the
Proprietary Marks.
6.11 Franchisee acknowledges that he/she does not have any right to
deny the use of the Proprietary Marks to any other ZAP Electric Vehicle Outlet
franchisees. In consideration therefore, Franchisee shall execute all documents
and take such action as may be requested to allow other franchisees to have full
use of the Proprietary Marks.
6.12 If, during the term of this Agreement, there is a claim or
assertion of a prior use of the trademarks in "ZAP" or any other of the
Proprietary Marks in the area in which Franchisee is doing business or in
another area or areas, Franchisee, upon notice from Franchisor, shall so use the
Proprietary Marks in such a way and at the Franchisor's discretion to avoid or
alleviate such conflict.
6.13 In order to make certain that the products and services offered
under the Proprietary Marks meet the quality and performance standards set by
Franchisor, Franchisor and its agents shall at all reasonable times have the
right:
(i) to enter and inspect the Outlet and observe the manner in
which Franchisee is selling his/her products and rendering his/her services;
(ii) to confer with Franchisee's employees and customers; and
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(iii) to select electric vehicles and supplies for test and
evaluation purposes.
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ARTICLE VII
LEASE AGREEMENTS
7.1 The approval of any particular location by Franchisor pursuant to
the terms of this Agreement is subject to Franchisee executing Conditional
Assignment of Lease Agreement which is annexed hereto as Exhibit "E." No
warranty or representation as to the availability of the location, potential for
success or any other representations are to be implied by said approval on
behalf of Franchisor or upon actually leasing said premises then subleasing same
back to Franchisee. It shall be the Franchisee's sole obligation to obtain a
suitable location for the Outlet within one hundred and eighty (180) days from
the date hereof. Approval by Franchisor only signifies its bona fide belief that
the site meets the minimum site criteria set by Franchisor. It is the sole
responsibility of Franchisee to undertake site selection activities, to
investigate all applicable zoning, licensing, leasing and other requirements for
a proposed site, to insure that the site selected complies with all such
requirements and to otherwise secure premises for the establishment and
operation of the Outlet. The failure to find such location shall provide the
Franchisor with the right, but not the duty, to terminate this Agreement.
7.2 The lease or sublease shall be specifically for the operation of a
ZAP Electric Vehicle Outlet, which lease shall provide upon termination or
expiration of this Agreement for any reasons, Franchisor shall have the right,
but not the obligation, in its sole discretion, to assume Franchisee's status
and replace Franchisee as lessee and Franchisee shall, upon exercise of that
right by Franchisor, be fully released and discharged from all liability for
rent and all other future liability under such lease (though not from any
liability for unpaid rent and any then existing liabilities under said lease to
which Franchisor shall have no responsibility or obligation).
7.3 Except as otherwise provided in this Agreement, Franchisee will not
assign, transfer lease or rent any portion of the premises containing the Outlet
without the prior written approval of Franchisor, which approval may not be
unreasonably withheld.
7.4 In the event Franchisee's lease for the Outlet is terminated or
expires and cannot be renewed during the initial or any renewal terms of the
Franchise, Franchisee may apply for the right to relocate the Outlet, which
application shall not be unreasonably denied provided that:
A. Franchisee is not in default of any of the material
provisions of this Agreement or any successor hereto; and
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B. Franchisee=s proposed new location is approved in writing
by Franchisor as satisfying its then current procedures and criteria for site
approval, which approval may not be unreasonably withheld.
7.5 Subject to the existence of other Outlets including those not yet
established but under agreement, upon any such relocation, Franchisee's APR
shall be established according to the provisions hereof or as the parties
otherwise may agree upon in writing.
7.6 Franchisee's execution of a lease or sublease for a site for
his/her Outlet shall constitute approval by Franchisee of such site and location
of the terms of such lease or sublease and shall be deemed to be a waiver of any
claim or rights against Franchisor relating to the choice of such site and
location or the terms of such lease or sublease.
7.7 Franchisee shall not execute any documents of purchase, lease or
sublease for any such location without the prior written approval of Franchisor
as to the location and terms of sale in the event of purchase, or as to the
location or terms of the lease or sublease, which approval may not be
unreasonable withheld.
7.8 Franchisee agrees to pursue diligently the fixturing and build-out
of the Outlet. All leasehold improvements shall be completed and the Outlet will
be in operation within ninety (90) days from the date the Franchisee receives
all necessary permits. The Outlet shall be constructed in accordance with the
plans and specifications provided or approved by Franchisor and in compliance
with all applicable laws, regulation laws and ordinances.
7.9 If Franchisee is renovating an existing building, all plans and
specifications, including final work drawings, must be approved by Franchisor in
writing before any work is begun on the Outlet, which approval may not be
unreasonably withheld.
7.10 Franchisee shall not deviate from the approved plans and
specifications in any manner in the fixturing, build-out or renovation of the
Outlet without the prior written approval of Franchisor. If at any time,
Franchisor determines that Franchisee has not fixtured, built-out or renovated
the Outlet in accordance with the plans and specifications approved or provided
by Franchisor, Franchisor shall, in addition to any other remedies, have the
right to obtain an injunction from a court of competent authority against the
continued construction and the opening of the Outlet, or, if the Outlet has
already opened, against the continued operation of the Outlet.
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ARTICLE VIII
EQUIPMENT AND FURNISHINGS
8.1 Franchisee agrees to install only in and about the Outlet such
equipment including but not limited to a security system, vinyl floorcoverings,
a workbench and storage and display cases, fixtures, furnishings, furniture,
interior and exterior signs and other personal property, as are required and
which strictly conform to appearance, uniform standards, specifications and
layout of Franchisor as exist from time to time, which include but are not
limited to being brand new equipment manufactured by a first quality
manufacturer. Franchisor shall have the right to inspect all equipment,
fixtures, furnishings, furniture and signs, and their installation, to assure
Franchisee's compliance with its standards, specifications and layout, prior to
the opening of the Outlet.
8.2 In the event Franchisee installs any equipment, fixtures,
furniture, interior and exterior signs or any other personal property which is
not in conformity with Franchisor's appearance, uniform standards,
specifications or layout, Franchisor may, in addition to any remedies under this
Agreement, demand that Franchisee close the Outlet and take the necessary steps
to bring his equipment, fixtures, furnishings, furniture, interior and exterior
signs and other personal property into conformity with Franchisor's appearance,
uniform standards, specifications and layouts. Franchisee shall not reopen the
Outlet until Franchisor has issued its written consent to do so.
8.3 Franchisee agrees to maintain all equipment and furnishings in good
working order and appearance, and as items of equipment become obsolete or
mechanically defective to the extent that they require replacement, Franchisee
shall replace such items with either the same or substantially the same type and
kind of equipment as are being installed in all Outlets at the time such
replacement becomes necessary.
ARTICLE IX
TRAINING PROGRAM
9.1 The following persons shall satisfy all of the conditions
established by Franchisor, from time to time, for admission to and graduation
from Franchisor's initial mandatory training program at the training school
designated by Franchisor and shall attend and satisfactorily complete additional
training programs established by Franchisor from time to time:
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(i) Franchisee, if Franchisee is an individual, or one of the
persons executing this Agreement if the Franchisee is a corporation, partnership
or other entity, provided that the Franchisee has not previously completed the
training program; and
(ii) Two persons who are actively involved in the management
or operation of the franchised business.
9.2 Each person shall successfully complete the mandatory training
program to Franchisor's reasonable satisfaction. In the event of the failure of
Franchisee or any other person to complete the training program successfully,
for any reason, a substitute trainee, satisfactory to Franchisor, shall attend
and successfully complete the program and shall operate or supervise the
operation of the Outlet thereafter if Franchisor, at its option, so directs.
9.3 No fee shall be charged by Franchisor for the participation of
those individuals referenced in Section 9.1 above in the Franchisor=s initial
training program. However, Franchisee shall be responsible for the costs and
expenses (such as room, board and transportation) of each person who attends the
program. However, Franchisor shall charge the sum of five hundred dollars ($500)
for each additional person who Franchisee wishes to have trained by Franchisor.
Persons listed above shall also attend any advanced training program or
seminars conducted by Franchisor if requested to do so by Franchisor
9.4 The persons listed above shall also attend the sessions if
requested to do so by Franchisor, free of charge. Franchisee shall be
responsible for the cost and expense of each person who attends any such
program.
9.5 Franchisor shall also maintain an on-site training program.
Franchisor will provide on the job training at the Outlet for approximately six
(6) business days during the grand opening of the Outlet.
Franchisor shall not charge a fee for this service.
ARTICLE X
OPENING
Franchisee shall give Franchisor at least fifteen (15) days prior
written notice of the opening of the Outlet by delivering to Franchisor an
executed "Notice of Intent to Open," including any attachments thereto, which
Notice of Intent to Open shall be delivered within
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sixty (60) days following the execution of a lease or sublease. If such notice
is not given, Franchisor shall be relieved of its obligation under this
Agreement to provide assistance in connection with the opening of the Outlet and
the planning and development of pre-opening promotions and programs, except if
such failure is the result of circumstances beyond Franchisee's control.
ARTICLE XI
OBLIGATIONS OF FRANCHISEE
11.1 Franchise covenants and agrees that:
A. In order to further protect the System, the Proprietary
Rights and the goodwill associated therewith, Franchisee shall:
(i) Operate under the Proprietary Marks and only in a
manner consistent with the scope of the registration of such marks and advertise
only under the Proprietary Rights designated by Franchisor for use for that
purpose and will use such rights without prefix or suffix;
(ii) Feature and use the Proprietary ZAP Electric
Vehicle Outlet solely in the manner prescribed by Franchisor pursuant to this
Agreement and the Manual and as Franchisor may, from time to time, direct in
writing;
(iii) Observe such requirement with respect to
service ▇▇▇▇, trade name, trademark and fictitious name registrations, patents
and copyright notices in conformance with applicable law and as Franchisor may,
from time to time, direct in writing; and
(iv) Upon receipt of written notice from Franchisor
to discontinue the use, modify or substitute any name, ▇▇▇▇ or patent as
Franchisor may direct, do so immediately.
B. Franchisee sells from the Outlet, all electric vehicle
products, including but not limited to the Proprietary Products, and render such
services specified by Franchisor; and not sell or offer for sale any other
electric vehicle products or services of any kind or character without first
obtaining the prior express written consent of Franchisor. Franchisee shall use
only such Proprietary Products, methods of assembly and service as conform to
the standards and specifications of Franchisor in effect from time to time.
However, Franchisor shall not be responsible for any miscalculation with respect
to
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the assemblage of electric vehicles, except with respect to those Proprietary
Products manufactured and sold to Franchisee by Franchisor. Franchisee shall
discontinue selling or offering for sale any products Franchisor may, in its
discretion, disapprove in writing at any time.
C. Cause himself, herself and his or her employees to wear
apparel which conforms strictly to the specifications, design, color and style
approved by Franchisor from time to time.
D. Maintain at all times, at its expense, the Outlet,
equipment, fixtures, furnishings and furniture and related premises, parking
areas, landscape areas and interior and exterior signs in good, clean attractive
and safe condition in conformity with Franchisor's high standards and public
image, and in connection therewith, shall make such repairs and replacements
thereto as may be required to keep the Outlet in the highest degree of
sanitation, repair and condition, including, without limitation, such periodic
repainting, repairs to equipment, and replacement of outdated signs, as
Franchisor may reasonably direct. However, Franchisee shall not undertake any
alterations or additions to the buildings, equipment or parking area without the
prior written consent of Franchisor.
E. Franchisee will comply with all laws, ordinances and
regulations affecting the operation of the Outlet. Without limiting the
generality of the foregoing, Franchisee specifically agrees to comply with
applicable health and safety laws, ordinances and regulations so as to be rated
in the highest available health and safety classification by the appropriate
governmental authorities and to furnish to Franchisor within one (1) day of
Franchisee's receipt thereof, copies of all inspection reports, warnings,
certificates and ratings issued by any governmental agency which reflects
Franchisee's failure to meet and maintain the highest applicable ratings, or
Franchisee's non-compliance or less than full compliance with any applicable
law, rule or regulation.
F. Franchisee will permit authorized personnel of Franchisor
to enter the Outlet at any time, without prior notice, during normal business
hours, for the purpose of inspecting and examining the operations and facilities
(including, but not limited to, testing, sampling and inspecting the products
assembled or manufactured by Franchisee and all products including the
Proprietary Products, sold at the Outlet, as well as the storage and preparation
of such products). Franchisee shall cooperate with Franchisor's representatives
in such inspections by permitting and rendering such assistance as they may
reasonably request. Franchisee shall permit Franchisor's representatives to
remove from the Outlet, samples of any products, without payment therefor, in
amounts reasonably necessary for testing by Franchisor or, at Franchisor's
option, testing by an independent certified laboratory/site to determine whether
said products meet Franchisor's
25
then current standards and specifications. In addition to any other remedies it
may have under this Agreement, Franchisor may require Franchisee to bear the
cost of such testing if the supplier from whom such products were acquired has
not been approved by Franchisor or if the product fails to conform to
Franchisor's specifications. Upon notice from Franchisor or its agents,
Franchisee shall take such steps as may be necessary to correct immediately any
deficiencies detected during any inspection or by such testing, including
without limitation, immediately ceasing to use any methods, products or
advertising materials which do not conform to Franchisor's then current
specifications, standards or requirements.
G. Franchisee shall purchase all fixtures, furnishings, signs,
equipment, non-electric vehicle inventory and other supplies used in the
operation of the Outlet solely from suppliers who demonstrate the ability to
meet Franchisor's standards and specifications for such items and who possess
adequate quality controls and capacity to supply Franchisee's needs promptly and
reliably. Franchisor shall have the right, without prior notice, to inspect and
test any of the products any supplier used by Franchisee to insure the supplier
meets with Franchisor's standards and specifications. Upon written notice from
Franchisor that any supplier does not meet Franchisor's standards and
specifications, Franchisee shall immediately cease using the products of that
supplier.
H. Franchisee shall purchase and/or order all Proprietary
Products from or through Franchisor or suppliers approved by Franchisor, except
if Franchisee shall have received prior written approval from the Franchisor to
use another supplier. If Franchisee desires to purchase any such items from a
supplier other than Franchisor or a supplier who has been approved by
Franchisor, Franchisee shall submit to Franchisor a written request for such
approval or shall request the supplier to do so. Franchisor shall have the right
to require, as a condition of its approval, that its representatives be
permitted to inspect the supplier's facilities and that samples from the
supplier be delivered, at Franchisor's option, to Franchisor or its designee for
testing and that such samples demonstrate to Franchisor's satisfaction an
ability to meet Franchisor's standards and specifications. A charge not to
exceed the cost of such inspection and testing shall be paid by the Franchisee
or by the supplier seeking approval, and Franchisor shall not be liable for
damage to any sample which may result from the testing process. Supplier
controls and the financial and managerial capacity to supply Franchisee's needs
promptly and reliably, shall be preconditions to Franchisor's approval of a
supplier. Franchisor reserves the right, at its option, to reinspect the
facilities and to retest the products of any such approved supplier at any time,
without prior notice, and to revoke such approval if the supplier has failed to
continue to meet any of the foregoing criteria.
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I. Notwithstanding the foregoing, Franchisor reserves the
absolute right to be either the sole source of supply or the sole designator of
suppliers who will provide the Proprietary Products, supplies or parts involving
trade secrets or confidential formulae and shall have no obligation to release
any trade secrets or confidential formulae to the Franchisee or any supplier. In
either instance, Franchisee shall be obligated to place all such orders through
the Franchisor.
J. Franchisee will at all times maintain sufficient supplies
of ZAP Electric Vehicles, parts and Proprietary Products and employ sufficient
help so as to operate the Outlet at its maximum efficiency.
K. In connection with the operation of the Franchisee's
Outlet, the Franchisee is required to purchase certain containers, packaging
supplies, paper goods and other product service items for the preparation, sale
and service of approved Electric vehicle products. To the extent that Franchisor
is able to supply the same, Franchisee shall have the right to purchase same, if
he/she so desires, from Franchisor, at prices established by Franchisor from
time to time. Franchisee's obligations hereunder shall be satisfied so long as
Franchisee uses such items and keeps the Outlet maintained in accordance with
Franchisor's strict specifications and standards for the these items. In the
event that Franchisee desires to purchase containers, packaging supplies, paper,
goods and products service items from sources other than Franchisor, Franchisor
shall, without charge, make a license available to such other sources of such
products to print the required name, trademarks, and text thereon, but in no
event shall Franchisee be entitled to use any containers packaging supplies,
paper goods and other product service items at his/her Outlet which do not
duplicate those authorized by Franchisor for use in connection with the service
and sales of approved electric vehicle products. Prior to the use of any such
items, Franchisee shall have requested in writing and obtained Franchisor's
written approval to have the required name, trademark, and text printed thereon
in the form and style directed by Franchisor, and also have had the same so
imprinted on the goods prior to using them.
L. Franchisee shall only sell or offer for sale, such electric
vehicles, parts and Proprietary Products as are prescribed in the Manual, which
have heretofore been approved or authorized by Franchisor, and which must appear
in the catalog. In no event shall Franchisee sell non-Proprietary Products or
any clothing or other hard good items which contain the Proprietary ▇▇▇▇, ZAP
Electric Vehicle Outlet, without Franchisor's prior consent, which consent may
be withheld at Franchisor's sole discretion. Franchisee must obtain Franchisor's
written approval for any contemplated catalog or product changes and all
additions to and/or deletions in items sold in the Franchisee's Outlet which
approvals may be withheld.
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M. Franchisee shall use the standard ZAP Electric Vehicle
Outlet catalog and catalog format as required by Franchisor. Franchisee may
employ any reputable printer to reproduce Franchisee's catalogs using the
Franchisor's format and specifications. This provision shall not constitute a
license of any copyright or trademark to the prospective printer of such
catalogs. Any changes in the catalog used at Franchisee's Outlet shall be
approved in writing by Franchisor prior to use. At Franchisor's sole discretion,
the standard catalog format may contain advertising reference to other ZAP
Electric Vehicle Outlet franchisees and may contain a toll free telephone number
for franchise information.
N. Franchisor and Franchisee understand and agree that the
operation of the Outlet, maintenance of its premises and equipment, conduct and
appearance of its personnel, and the preparation and sale of products therefrom
are all regulated by governmental statutes and regulations. To this end,
Franchisor and Franchisee agree that Franchisee owes an obligation to the
patrons of the Outlet, the Franchisor, the System and to himself or herself to
comply fully and faithfully with all applicable governing authorities and all of
the same are made a part of this agreement as if fully set forth herein. It is
further agreed that in the event any product sold, manufactured or assembled at
the Franchisee's Outlet evidences deviation from the standards of Franchisor's
Proprietary Products or are in violation of applicable law or regulations, or in
the event the products premises, equipment, personnel or operation of the Outlet
fail to be maintained in accordance with the governmental requirements
incorporated in this Agreement as aforesaid, Franchisee shall immediately recall
said products and/or close its Outlet until Franchisor's inspection evidences a
compliance with the applicable governmental requirements and with the standards
of Franchisor's Proprietary Products. In the event Franchisee or his/her agents
or employees fail or refuse to comply with all of the foregoing remedial
measures or in the event of any repetition of any deviation in the Outlet:
(i) The prevailing party shall be paid the costs and
expenses, including attorney's fees, of both parties, incurred in enforcing the
provisions of this subsection or any other provision of this Agreement in
obtaining Franchisee's compliance herewith, by the losing party. The remedies
set forth herein are in addition to and not in substitution for those set for in
Article XVIII of this Agreement.
O. Franchisee acknowledges that all telephone numbers and
directory listing for the Outlet will be the property of Franchisor upon
termination, expiration or non-removal of this Agreement. Franchisor will have
the sole and exclusive right and authority to transfer, terminate and amend such
telephone numbers and directory listings as Franchisor, in its sole discretion,
deems appropriate upon termination or expiration of this Agreement. In the event
Franchisor takes any action pursuant to this section, or with
28
respect to the termination of this Agreement, the appropriate telephone company
and all listing agencies, without liability to Franchisor, may accept this
Agreement, the Assignment of the Telephone Numbers and the directive of
Franchisor as conclusive evidence of the rights of Franchisor in such telephone
numbers and directory listings.
P. Franchisee shall pay, on a timely basis, for all electric
bicycle kits, motors, bicycles, tricycles, electric scooters and other low power
electric vehicles, and other product service items and other items used in the
operation of the Outlet. Franchisee is aware that failure to make prompt payment
to its suppliers may cause irreparable harm to the reputation and credit of
Franchisor and other franchisees.
Q. Franchisee shall promptly pay when due, all taxes levied or
assessed by reason of its operation and performance under this Agreement
including, but not limited to, if applicable, state employment tax, state sales
tax, (including any sale or use tax on equipment purchased or leased) and all
other taxes and expenses of operating the Outlet. In the event of bona fide
dispute as to the liability for the taxes assessed against Franchisee,
Franchisee may contest the validity or the amount of the tax in accordance with
procedures of the appropriate taxing authority. In no event however, shall
Franchisee permit a tax sale or seizure by levy or execution or similar writ or
warrant to occur against the Outlet's premises or equipment.
R. Franchisee may be required to pay all shipping,
transportation, handling, and storage costs incurred from the delivery of the
Proprietary Products to the Outlet. In addition, Franchisee may be required to
maintain additional storage space if deemed necessary by Franchisor, to supply
adequately and properly Proprietary Products to the Outlet. This may also
include the purchase, lease, or rental of a vehicle to deliver the Proprietary
Products to the Outlet.
ARTICLE XII
ACCOUNTING AND RECORDS
12.1 Franchisee shall maintain during the term of this Agreement, and
shall preserve for the time period specified in the Manual, full, complete, and
accurate books, records and accounts in accordance with the standard accounting
system prescribed by Franchisor in the Manual or otherwise in writing.
12.2 Franchisee shall submit to Franchisor, no later than the fifth day
of each month during the term of this Agreement, a monthly profit and loss
statement, on forms prescribed by or supplied by Franchisor, which accurately
reports all gross sales during the
29
preceding month and such other data and information regarding the operation of
the Outlet as Franchisor may reasonably require.
12.3 Franchisee shall submit to Franchisor upon request, a certified
copy of any and all federal and/or state sales or income tax returns applicable
to the Outlet.
12.4 Franchisee shall, at his expense, submit to Franchisor within
thirty (30) days at the end of each quarter during the term of this Agreement or
any renewals thereof, on forms prescribed by Franchisor, an unaudited financial
statement for the preceding quarter, including both an income statement and
balance sheet. Each financial statement shall be signed by Franchisee or by
Franchisee's treasurer or chief financial officer, attesting that the statement
is true and correct.
12.5 Fanchisee shall, at his/her expense, submit to Franchisor within
ninety (90) days of each fiscal or calendar year during the term of this
Agreement, a complete financial statement for the said fiscal or calendar year,
including but not limited to both an income statement and a balance sheet
prepared by an independent certified public accountant, together with such other
information in such form as Franchisor may reasonable require. Franchisor
reserves the right to require this fiscal or calendar year financial statement
to be a certified audited financial statement including both an income statement
and a balance sheet certified by an independent certified public accountant.
12.6 Franchisee shall also submit to Franchisor current financial
statements and such other forms, report records, information, and data as
Franchisor may reasonably designate, in the form and at the times and places
reasonably required by Franchisor, upon request and as specified from time to
time in the Manual or otherwise.
12.7 Franchisee shall equip the Outlet with a point of sale cash
register and financial information collection system which meets Franchisor's
standards and specifications therefor. Such point of sale system shall utilize
computer equipment or like terminal, with telecommunications capabilities
compatible with Franchisor's business systems including applicable computer
hardware and software without the necessity of any alteration by Franchisor of
its software or equipment. Franchisee shall acquire such equipment, hardware and
software from a supplier designated or approved by Franchisor at Franchisee=s
expense.
12.8 Franchisor or its designated agents shall have the right, at all
reasonable times, without prior notification to examine a copy, made at
Franchisor=s expense, of any and all of Franchisee's records and books of
account. Franchisor shall also have the right, at any reasonable time, to have
an independent audit made of the books and records of the
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Franchisee. If an audit should reveal that payments due Franchisor have been
understated by two percent (2%) or more in any report to Franchisor, then
Franchisor may, at its option, charge Franchisee for any and all costs and
expenses connected with the audit conducted by the independent auditors
(including, without limitation reasonable accounting and attorneys fees).
Franchisee shall also immediately pay to Franchisor the amount understated upon
demand, in addition to interest from the date such amount was due until paid, at
the annual rate of eighteen percent (18%). The foregoing remedies shall be in
addition to any other remedies Franchisor may have hereunder.
ARTICLE XIII
CONFIDENTIAL POLICIES AND PROCEDURES MANUAL
13.1 In order to protect the reputation and goodwill of Franchisor, and
the System and to maintain requisite operating standards under the Proprietary
Rights, Franchisee shall conduct his Outlet in accordance the provisions,
standards, and procedures set forth in Franchisor's Confidential Policies and
Procedures Manual (hereinafter the "Manual").
13.2 Franchisee shall, at all times, treat the Manual, any other
manuals created for or approved for in the operation of the Outlet, and the
information contained therein as confidential, and shall use all reasonable
efforts to maintain such information as secret and confidential. Franchisee
shall not at any time, without Franchisor's prior written consent, copy,
duplicate, record, or otherwise reproduce the foregoing material
13.3 The Manual shall at all times remain the sole property of
Franchisor, and shall be returned immediately upon termination of this
Agreement.
13.4 Franchisor may, from time to time, revise the contents of the
Manual when it reasonably considers such revisions to be necessary to improve or
maintain the standards of the System and Franchisee expressly agrees to comply
with each new or changed standard, provided, however that such revisions are
made for Franchisees and are reasonable in nature. Any revisions to the contents
of the Manual shall be deemed effective seven (7) days after the date of mailing
such revisions to Franchisee unless otherwise specified by Franchisor.
13.5 Franchisee shall at all times insure that its copy of the Manual
is kept current and up to date, and in the event of any dispute as to the
contents of the Manual, the terms of the master copy of the Manual maintained by
Franchisor at its home office shall be controlling.
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13.6 Franchisee acknowledges that the contents of the Manual and any
revisions or modification made thereto, shall constitute provisions of this
Agreement as if fully set forth herein.
ARTICLE XIV
ADVERTISING AND PROMOTIONS
14.1 Franchisor and Franchisee agree that there are substantial
benefits to be derived from advertising the System and Proprietary Products, and
that the cooperative efforts of Franchisor, Franchisee and other franchisees
will maximize the potential success of the advertising program by providing a
more uniform advertising program, creating greater product, trademark and trade
name identity, and a higher quality program. Franchisee will also benefit from
the experience Franchisor provides in administering the advertising program and
the lower rates obtained by joint advertising with other ZAP Electric Vehicle
Outlet franchisees and Franchisor.
14.2 In the event Franchisor elects to establish a regional or national
advertising fund ("Advertising Fund") Franchisee shall contribute a sum equal to
one percent (1%) of the gross sales, as defined herein, of the Outlet for each
week in which the Outlet is open and operating (the "Advertising Fee"). The
Advertising Fee shall be due and payable in accordance with Article III hereof.
Franchisor shall contribute to the Advertising Fund an amount equal to one
percent (1%) of Franchisor's gross sales derived from its company-owned ZAP
Electric Vehicle Outlet.
14.3 Franchisor agrees that the Advertising Fee shall be aggregated
with fees collected from other franchisees and shall be used by Franchisor for:
(i) Formulating, developing, administering, preparing,
producing and conducting advertising and promotions for the benefit of all
franchisees, including Franchisee, either on a national, regional or local basis
(including without limitation, the cost of preparing and conducting television,
radio, magazine, and newspaper advertising campaigns, direct mail campaigns,
marketing surveys and other public relations activities, providing brochures,
advertising slicks and other marketing materials to franchisees of the System);
(ii) Formulating Yellow Page advertising copy; and
(iii) Advertising agency fees, if any;
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14.4 All sums paid by Franchisee to the Advertising Fund shall be
maintained in an account separate from other monies of Franchisor and shall not
be used to defray any of Franchisor's other operating expenses, nor in any way
inure to the benefit of Franchisor. Franchisor shall maintain separate
bookkeeping accounts for the Advertising Fund.
14.5 Within one hundred and twenty (120) days after the end of each of
its fiscal years, Franchisor shall render to Franchisee an annual statement,
prepared by Franchisor and reviewed by its independent accountants, of all
advertising and promotional expenditures made in accordance with Section 14.3
hereof during the preceding fiscal year.
14.6 The form, content, time and medium for all advertising and
promotional activities conducted pursuant to this Article shall be determined by
Franchisor in its sole and absolute subjective discretion exercised in good
faith, and Franchisee agrees to permit Franchisor to use its discretion in
conducting all advertising.
14.7 Franchisor shall direct all advertising and/or promotional
programs, with the sole discretion over concepts, materials, and media used in
such programs and the placement and allocation thereof. Franchisee acknowledges
and agrees that the Advertising Fund is intended to maximize general public
recognition and acceptance of the trademarks and service marks and for the
benefit of the System, and that Franchisor and its designees undertake no
obligation in administering the Advertising Fund to make expenditures for the
Franchisee which are either equivalent or proportionate to his/her contribution
or which insure that any particular franchise benefits directly or pro rata from
the placement or use of any advertising.
14.8 It is anticipated that all contributions to and earnings of the
Advertising Fund shall be expended for advertising and/or promotional purposes
during the taxable year within which the contributions and earnings are
received. If, however, excess amounts should remain in the Advertising Fund at
the end of such taxable year, all expenditures in the following taxable year(s)
shall be made first out of accumulated earnings from previous years, next out of
earnings in the current year and finally, from contributions.
14.9 Although the Advertising Fund is intended to be of perpetual
duration, Franchisor maintains the absolute right to terminate same upon sixty
(60) days notice to all franchisees. However the Advertising Fund shall not be
terminated until all monies have been expended for advertising and/or
promotional purposes.
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14.10 Franchisor shall have the right to include, in such national or
regional advertising programs as it may administer, "suggested retail prices" of
the goods or services sold by Franchisee and other franchisees of Franchisor
similarly situated; provided that Franchisor shall include within all such
advertising the phrase "available at participating locations only" or such other
cautionary language as shall advise the consumer that suggested retail prices
may not be adhered to by all franchisees of Franchisor. Franchisor shall have no
right to compel Franchisee to charge "suggested retail prices."
14.11 Franchisor may, from time to time, develop, establish and market
special discount or coupon programs designed to induce volume users of
Franchisee's goods or services to patronize Franchisee's Outlet, and Franchisee
shall have the right, but not the obligation, to participate therein. Franchisor
shall notify Franchisee of the creation of all such discount or coupon programs
and shall advise Franchisee with respect to all of the elements thereof. Within
five (5) days after receipt of such notice, Franchisee shall advise Franchisor
as to whether or not Franchisee wishes to participate in such discount or coupon
programs. If Franchisee notified Franchisor that he/she wishes to participate,
Franchisee shall in all respects adhere to all elements of said program. If
Franchisee elects to be excluded from discount or coupon program or programs,
Franchisor shall have the right to advise consumers, by advertising, sales
solicitation or otherwise, that Franchisee is not a participant in such program,
and Franchisee shall not be entitled to the benefits thereof. Franchisor shall
establish all such discount or coupon programs in its sole, subjective
discretion, and shall not consult or confer with Franchisee or any other
franchisee with respect to the nature, content or amount of any discount or
coupon established pursuant to any such program.
14.12 Franchisee shall make such refunds as are required by reason of
complaints to the Better Business Bureau or other similar offices or
organizations. Franchisee shall immediately inform and forward to Franchisor all
written complaints from customers or others.
14.13 Franchisee shall make customer service complaint cards available
to his/her customers on a daily basis, and forward same to Franchisor's home
office for inspection and review. In addition, Franchisee shall be obligated to
display franchise information cards on its sales counter.
14.14 Franchisor may provide Franchisee, from time to time, with
approved local advertising and marketing plans and materials, including, without
limitation, newspaper mats, radio commercial tapes, television commercial prints
sales aids, and other promotional and marketing materials, at a price equal to
Franchisor's cost thereof. Local
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advertising and marketing materials not prepared or previously approved by
Franchisor or its designated agents shall be submitted (by certified mail,
return receipt requested) to Franchisor for approval (except with respect to
prices to be charged), which approval shall not be unreasonably withheld, prior
to their use by Franchisee. If written disapproval is not received by Franchisee
within seven (7) days from the date of receipt by Franchisor of such materials,
Franchisor shall be deemed to have waived the required approval; provided,
however, that Franchisee shall discontinue the use thereof within a reasonable
time, if Franchisor subsequently requests such action in writing.
14.15 Franchisee understands that certain of Franchisor's other
franchisees do or will operate under different agreements with Franchisor. Such
franchisees may be required to contribute to the Advertising Fund, if at all, at
rates that differ from the rate(s) provided in this Agreement and/or based on
formula that differ from the formula provided in this Agreement. Franchisor does
not represent that Franchisee, or other franchisees will contribute to or
benefit from the Advertising Fund equally.
14.16 Franchisee shall use the trademarks only in strict conformity to
the Manual, and shall include in any advertising, or promotional materials which
use the trademarks, such trademark notices as are required by the Manual. All
copyrighted materials supplied by Franchisor to Franchisee, and used by
Franchisee in connection with the Franchised Business, shall contain such
copyright notices as are required by the Manual.
14.17 Franchisee shall be obligated to spend a minimum of two and
one-half percent (2.5%) of gross sales per month on local advertising within
his/her Area of Primary Responsibility. Such sum shall not be included in or
deducted from the fees paid to the National Advertising Fund. Such advertising
shall first be submitted to Franchisor for its approval seven (7) days prior to
its use and Franchisor shall provide its approval or disapproval within seven
(7) days.
14.18 Franchisor shall maintain the right to audit Franchisee's books
and records, upon twenty-four (24) hours notice, with respect to whether local
advertising sums are being spent thereon.
14.19 Franchisor recognizes Franchisee's concern that Franchisor not
abuse its discretion in administering the Advertising Fund and Franchisee
recognizes Franchisor's concern that it retain sufficient flexibility and
control over the Advertising Fund to use it for the benefit of the System as a
whole and in a manner that will allow it to compete effectively. Accordingly,
Franchisor agrees that in carrying out its rights and responsibilities hereunder
it shall do so honestly and in good faith for the benefit of the System and the
ZAP Electric Vehicle franchised and non-franchised Outlets as it may
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exist from time to time. Moreover, in its decision making with respect to the
Advertising Fund and otherwise pursuant to this Article, Franchisor shall give
serious consideration to the views of Franchisee and other System franchisees.
14.20 Franchisee shall advertise continually in the classified or
Yellow Pages of the local telephone directory using such copy as may be
reasonably specified by Franchisor. If requested by Franchisor, Franchisee shall
participate in a joint listing, the cost of which shall be shared equally by
Franchisee and other participating franchisees. The expenditure for such
advertising shall not be considered as credit toward any other advertising
expenditures required under this Article XIV.
14.21 Franchisee shall not advertise or use in advertising or any other
form of promotion, the Proprietary Marks or copyrighted materials of Franchisor
without appropriate [(R), (C) or TM] copyright and registration marks or the
designations or sign where applicable.
14.22 Regarding Franchisee's grand opening, Franchisee shall spend the
sum of between five and ten thousand dollars ($5,000 - $10,000). Such monies
shall be expended by Franchisee on grand opening advertising and promotion in or
for Franchisee's market area during the first forty-five (45) days of the
Outlet's business operations. All such grand opening advertising and promotional
materials shall be submitted by Franchisee to Franchisor for a review and
approval prior to use consistent with this Article. The expenditure required
under this Section 14.22 shall be in addition to all other advertising/promotion
expenditure required of Franchisee hereunder.
ARTICLE XV
RENOVATION OF OUTLET, EQUIPMENT AND FURNISHINGS
15.1 To maintain a modern, progressive, sanitary and uniform
operational image, Franchisor shall have the right, at any time after expiration
of five (5) years from the opening for business of the Outlet by Franchisee, to
require Franchisee to perform such remodeling, repairs, replacements and
redecoration in and upon the Outlet, equipment and furnishings used by
Franchisee and which Franchisor shall deem reasonable, necessary and practicable
to bring the Outlet, equipment and furnishings up to the then current standards
of other Outlets; provided, however, that in making and performing same,
Franchisee shall not be required to expend at any one time an amount in excess
of fifty percent (50%) of the aggregate depreciation allowable on a straight
line basis over the useful life of the personal property located in the Outlet
from the date the Outlet was opened for business to the date of such
expenditure, less amounts previously expended for
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remodeling, repairs, replacements and redecoration in and upon such Outlet,
equipment and furnishings notwithstanding the fact that Franchisee leases the
Outlet or any depreciable personal property. It is understood and agreed that
Franchisor shall perform remodeling, repairs, replacements and redecoration in
and upon Outlets owned by it and the equipment and furnishings used by it in
connection with the operations of such Outlet comparable to that required of
Franchisee hereunder.
15.2 If Franchisee shall, at any time, deem it necessary and practical to
replace any signs, equipment or furnishings repair or remodel the Outlet or take
any similar action, Franchisee shall perform such replacement, repairs or
remodeling in accordance with Franchisor's then current standards and
specifications and, in addition, if the cost of such replacement, repairs or
remodeling exceeds two thousand five hundred dollars ($2,500) Franchisee shall
obtain the prior written consent of Franchisor. In the event Franchisee violates
this provision, Franchisor shall have all of the rights and remedies set forth
in this Agreement.
ARTICLE XVI
INSURANCE
16.1 Franchisee agrees to maintain insurance during the term of this
Agreement and any renewals hereof at Franchisee's expense as follows:
A. All insurable properties shall be insured against loss or
damage by fire, lightning, windstorm, flood, hail, explosion, riot, riot
attending a strike, civil commotion, air traffic, vehicle, smoke, or other risks
usually insured against by persons operating like properties in the localities
where the properties operated by Franchisee are located, in amounts sufficient
to prevent Franchisee from becoming coinsurer consistent within the terms of the
policies in question, and in any event in amounts not less than one hundred
percent (100%) of the replacement cost thereof.
B. During the build-out of the Outlet, policies of "Builder's
Risk Insurance" shall be maintained in amounts not less than customarily
required in the area in which the Outlet is located.
C. Insurance against all types of public liability including
but not limited to products liability, shall be maintained against claims for
personal injury death or property damage suffered by others upon, in or about
the Outlet or as a result of the use of products sold by it or services rendered
by it or any claims arising out of the business of Franchisee pursuant to this
Agreement or the operation of the Outlet or occurring as a
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result of the maintenance or operation by Franchisee of any automobiles, trucks
or other vehicles or airplanes or other facilities; with a minimum of personal
injury coverage of One Million Dollars ($1,000,000) per occurrence and property
damage coverage of not less than One Million Dollars ($1,000,000).
D. Worker's compensation, unemployment compensation,
disability insurance, social security and other insurance coverages, shall be
maintained in such amounts as may now or hereafter be required by any applicable
law.
E. Products Liability Insurance in an amount not less than One
Million Dollars ($1,000,000).
16.2 All such policies shall insure Franchisee and name Franchisor, its
officers, directors, principal stockholders and employees as additional
insureds, and shall stipulate that Franchisor shall receive a thirty (30) day
written notice of cancellation or modification, and shall protect the Franchisee
and Franchisor against any liability which may accrue by reason of this
Agreement, the Franchise, the Proprietary Rights or the ownership, maintenance
operation of the Outlet by Franchisee.
16.3 Franchisee's obligation to obtain and maintain the foregoing
policy or policies of insurance shall not be limited in any way by reason of any
insurance which may be maintained by Franchisor, nor shall Franchisee's
performance of this obligation relieve it of liability under the indemnity
provision set forth in Paragraph 17.3 hereof. Franchisee shall deliver to
Franchisor certificates of insurance, together with proof of payment therefor at
least ten (10) days prior to opening the Outlet. All policies shall be renewed
and evidence of renewal mailed to Franchisor prior to their respective
expiration dates.
16.4 The insurance shall cover the acts or omissions of each and all of
the persons who perform services of whatsoever nature at the Franchisee's Outlet
and any other persons who patronize the Outlet while in such attendance and for
whatever purpose.
16.5 Fifteen (15) days prior to the opening of Franchisee's Outlet
Franchisee will deliver to the Franchisor certificates of the insurance together
with copies of the actual policies issued and will promptly pay all premiums
thereon as and when the same become due. The Franchisor shall have the right,
but shall not be obligated to pay premiums due and unpaid by Franchisee or else
to obtain substitute coverage in case of cancellation. Any cost thereof to the
Franchisor shall be added to the CMSF otherwise payable to the Franchisor under
this Agreement, provided however, that same shall be due and payable to the
Franchisor by the Franchisee within five (5) days of demand therefor.
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16.6 The Franchisor reserves the right to make reasonable demand that
Franchisee obtain insurance from time to time which is different in coverage,
risks, amount or otherwise from the foregoing in order to protect fully the
parties having insurable interests in the Franchisee's Outlet.
16.7 Franchisee shall immediately notify the Franchisor, in writing, of
any accidents, injury, occurrence claim that might give rise to a liability or
claim against the Franchisor or which could materially affect Franchisee's
business, and such notice shall be provided no later than the date upon which
Franchisee notifies his/her insurance carrier.
ARTICLE XVII
RELATIONSHIP OF THE PARTIES: INDEMNIFICATION
17.1 The relationship between the Franchisor and Franchisee is strictly
that of a franchisor and franchisee, and Franchisee shall be deemed to be an
independent contractor. This Agreement does not create a joint venture,
partnership or agency, or any fiduciary relationship and any act or omission of
either party shall not bind or obligate the other except as expressly set forth
in this Agreement.
17.2 Franchisee recognizes that the Franchisor has entered into this
Agreement in reliance upon and in recognition of the fact that Franchisee will
have full responsibility for the management and operation of the business and
that the amount of profit or loss resulting from the operation of the business
will be directly attributable to the performance of Franchisee.
17.3 Franchisee will, at all times, indemnify and hold harmless, to the
fullest extent permitted by law, Franchisor, its corporate affiliates,
successors and assigns and the respective directors, officers, employees, agents
and representatives of each (Franchisor and all others hereinafter collectively
"Indemnities") from all "losses and expenses" (as defined below) incurred in
connection with any action, suit, proceeding, claim, demand, investigation or
inquiry (formal or informal) or any settlement thereof (whether or not a formal
proceeding or action has been instituted) which arises out of or is based upon
any of the following:
A. Franchisee's infringement, alleged infringement, or any
other violation or alleged violation of any patent, service ▇▇▇▇ or copyright or
other proprietary right owned or controlled by third parties,
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B. Franchisee's violation, breach or asserted violation or
breach of contract, federal, state or local law, regulation, ruling, standard or
directive or of any industry standard.
C. Libel, slander or any other form of defamation by
Franchisee.
D. Franchisee's violation or breach of any warranty,
representation, agreement or obligation in this Agreement.
E. Acts, errors or omissions of Franchisee or any of its
agents, servants, employees, contractors, partners, affiliates or
representatives.
17.4 Franchisee agrees to give Franchisor notice of any such action,
suit, proceeding, claim, demand, inquiry or investigation. At the expense and
risk of Franchisee, Franchisor may elect to assume (but under no circumstances
is obligated to undertake), the offense and/or settlement of any such action,
suit, proceeding, claims, demand, inquiry or investigation. Such an undertaking
by Franchisor shall, in no manner or form, diminish Franchisee's obligation to
indemnify Franchisor and to hold it harmless.
17.5 In order to protect persons or property, or its reputation or
goodwill, or the reputation or goodwill of others, Franchisor may at any time
and without notice, as it in its judgment deems appropriate, order, consent or
agree to settlements or take such other remedial or corrective action as it
deems expedient with respect to the action, suit proceeding, claim, demand
inquiry or investigation, if in Franchisor's sole judgment there are reasonable
grounds to believe that:
A. Any of the acts or circumstances enumerated in Section 17.3
of this Article have occurred; or
B. Any act, error or omission of Franchisee may result
directly or indirectly in damage, injury or harm to any person or any property.
17.6 All losses and expenses incurred under this Article XVII shall be
chargeable to and paid by Franchisee pursuant to its obligations of indemnity
under this Section, regardless of any actions, activity or defense undertaken by
Franchisor or the subsequent success or failure of such actions, activity or
defense.
17.7 As used in this Article XVII the phrase "losses and expenses"
shall include without limitation, all losses compensatory, exemplary damages,
fines, charges, costs, expenses, lost profits, attorney's fees, court costs,
settlement amount, judgments,
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compensation for damages to the Franchisor's reputation and goodwill, costs of
or resulting from delays, financing, costs of advertising material and media
time/space and costs of changing, substituting or replacing the same and any and
all expenses of recall, refunds, compensation, public notices and other such
amounts incurred in connection with the matters described.
17.8 Indemnities do not assume any liability whatsoever for acts,
errors, or omissions of those with whom Franchisee may contract, regardless of
the purpose. Franchisee shall hold harmless and indemnify Indemnities for all
losses and expenses which may arise out of any acts, errors or omissions of
these third parties.
17.9 Under no circumstances shall Indemnities be required or obligated
to seek recovery from third parties or otherwise mitigate their losses in order
to maintain a claim against Franchisee. Franchisee agrees that the failure to
pursue such recovery or mitigate loss will in no way reduce the amounts
recoverable by Indemnities from Franchisee.
17.10 In accordance with the Manual, Franchisee shall prominently
display, by posting of a sign within public view, on or in the premises of the
franchised facility, a statement that clearly indicates that said business is
independently owned and operated by the Franchisee as a ZAP Electric Vehicle
Outlet franchisee of Franchisor and not as an agent thereof.
ARTICLE XVIII
FORCE MAJEURE
Neither party shall be responsible to the other for nonperformance or
delay in performance occasioned by, and causes beyond its control, including
without limiting the generality of the foregoing acts or omissions of other
party, acts of civil or military authority, strikes, lockouts, embargoes,
insurrections or acts of God, inability of Franchisor to purchase, deliver
and/or manufacture the Proprietary Products, provided that inability of a party
to obtain funds shall be deemed to be a cause within the control of such party.
If any such delay occurs, any applicable time period shall be automatically
extended for a period equal to the time lost, provided that the party affected
makes reasonable efforts to correct the reason for such delay and gives to the
other party prompt notice of any such delay.
ARTICLE XIX
DEFAULT AND TERMINATION
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19.1 Franchisor may terminate this Agreement upon the occurrence of any
of the following events of default:
A. Failure by Franchisee to make complete and timely payment
of any and all fees regardless of their nature, and ▇▇▇▇▇▇▇▇ due Franchisor or
any of its subsidiary or affiliated corporations.
B. Failure to comply with the reporting or record keeping
requirements of this Agreement.
C. The intentional misstatement by Franchisee of any material
fact, or failure to disclose or understatement of any material fact in any
report furnished by Franchisor pursuant to this Agreement.
D. A material breach by Franchisee of any provision of this
Agreement, or any other agreement between Franchisor and Franchisee or any of
its subsidiary or affiliated corporations.
E. Failure by Franchisee to make good faith efforts to carry
out the provisions of this Agreement.
F. Franchisee=s engaging in any conduct or practice that is
detrimental or harmful to the good name, good will or reputation of Franchisor,
the System, other franchisees or the public, for example, keeping the Outlet in
a dirty state, not maintaining proper inventory levels, selling unapproved
items, or that is a fraud upon consumers, or is an unfair, unethical or
deceptive trade act or practice.
G. The pledge of or the attempted pledge of Franchisor's
credit by Franchisee, or an attempt by Franchisee to bind the Franchisor to any
obligation not authorized by Franchisor.
H. Failure by Franchisee to promote actively his/her Outlet or
to participate in the advertising, promotional, or marketing activities,
services and programs that are established by Franchisor or the Advertising
Fund; provided same does not contravene applicable anti-trust laws.
I. Unauthorized or improper use by Franchisee of Franchisor's
Proprietary Rights, or misuse or unauthorized disclosure by Franchisee of the
Manual, information or materials.
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J. Failure to use or sell the Proprietary Products authorized
by Franchisor to the exclusion of any others and the failure to perform all of
the services required by Franchisor, including but not limited to the forwarding
of copies of all health or sanitation or other regulatory agency reports to
Franchisor immediately upon receipt thereof.
K. Failure to secure an approved location for a Outlet within
one hundred and eighty (180) days from the date of this Agreement or failure to
open Franchisee's ZAP Electric Vehicle Outlet at the location designated by
Franchisee within ninety (90) days after all applicable permits for the Outlet
are obtained.
L. Failure to correct, or if unable to undertake efforts to
begin to correct, any local, state or municipal health or sanitation law or code
violations within twenty-four (24) hours after being cited for such violation.
M. Sale of non-Proprietary Products or products not previously
approved by Franchisor from the Outlet.
19.2 To terminate Franchisee for default of this Agreement pursuant to
Section 19.1 above, Franchisor shall first provide Franchisee with written
notice of termination, which notice shall specify the reason for and the
Effective Date of Termination. This Agreement shall terminate on the date
specified therein, which shall not be less than thirty (30) days from the posted
day of the notice (or such longer period as provided by State law), unless:
A. Franchisee cures the default or reason for termination
during the notice period; or
B. Franchisee has, in good faith, initiated a cure of the
default or reasons for termination within the notice period and such default or
reason cannot be completely cured during the notice period because of factors
reasonably beyond the exclusive control of Franchisee, in which event,
Franchisor, by notice, shall permit Franchisee a reasonable opportunity in light
of such factors to effect a complete cure.
C. The provisions of Section 19.2 (A) and 19.2 (B)
notwithstanding, this Agreement shall nonetheless terminate automatically if any
default or any reason for termination has been set forth in three (3) prior
notices of termination within any prior twelve (12) month period, and/or if four
(4) or more health code violations have been committed within any prior twelve
(12) month period.
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19.3 Franchisor may immediately terminate this Agreement upon the
occurrence of any of the following events of default and upon written notice to
Franchisee:
A. Any action by Franchisee, any of his/her partners, if
Franchisee is a partnership, or any of its officers, directors or stockholders
of Franchisee is a corporation, which results in:
(i) An affirmative act of insolvency;
(ii) In assignment for the benefit of creditors; or ,
(iii) The filing of a petition under any bankruptcy,
reorganization, insolvency, or moratorium law,
or any law for the relief of, or relating to
debtors.
B. The filing of any involuntary petition under any bankruptcy
statute against Franchisee, any of its partners or any of its stockholders
owning at least fifty percent (50%) of any class of stock or the appointment of
any receiver or trustee to take possession of property of Franchisee, any of its
partners or any of its stockholders owning fifty percent (50%) of any class of
stock of Franchisee, provided such petition is not vacated within one hundred
twenty (120) days of filing.
C. Failure by Franchisee to satisfy fully a civil judgment
obtained against Franchisee for a period of more than thirty (30) days after all
rights of appeal have been exhausted or execution of such a judgment, execution
of lien or foreclosure by a secured party or mortgage against Franchisee's
property, which judgment, execution of lien or foreclosure by a secured party or
mortgage would have an adverse or detrimental effect upon Franchisee's Outlet.
D. Conviction of Franchisee or any partner of Franchisee or
any officer, director or stockholder owning at least fifty percent (50%) of any
class of stock of Franchisee, of any crime which would adversely affect the
goodwill interest of Franchisee or Franchisee's business.
E. The uncured default by Franchisee under any lease or
sublease of Franchisee's Outlet which results in the loss of the right to
possession therein for any reason whatsoever.
F. A final judgment or the unappealed decision of a court,
regulatory officer, agency or quasi-regulatory agency that results in the
temporary or permanent
44
suspensions or revocations of any permits or licenses, possession of which is a
prerequisite to the operation of Franchisee's business or is required under
applicable law.
G. The direct or indirect assignment, transfer, sale or
encumbrance by Franchisee of this Agreement of franchisee or any of his rights
or privileges contrary to this Agreement, or any attempt by Franchisee to sell,
assign, transfer or encumber the Outlet contrary to the terms and conditions of
this Agreement.
H. Failure by Franchisee to remain open for business as
required by this Agreement or as may be required by the Manual, as may be
limited by local law, the prime landlord or the abandonment or vacating by
Franchisee of his Outlet for three (3) or more consecutive days with the intent
not to return (or for such other period as would be grounds for termination of
Franchisee's lease or sublease).
ARTICLE XX
RIGHTS AND DUTIES OF THE PARTIES UPON EXPIRATION OR TERMINATION
20.1 For the purpose of this Agreement, the "Effective Date of
Termination" shall be the date indicated in any notice of termination sent
pursuant to Article 19.2 or 19.3 of this Agreement or the day after the Term as
set forth in Article 2.1 of this Agreement.
20.2 Upon the Effective Date of Termination, Franchisee shall no longer
be an authorized ZAP Electric Vehicle Outlet franchisee and Franchisee shall pay
all sums of money due Franchisor or any of its subsidiary or affiliated
corporations within fifteen (15) days of the Effective Date of Termination,
unless Franchisor gives written notice of an extension of this period.
20.3 Upon the Effective Date of Termination, Franchisee shall
discontinue the use of all Proprietary Marks owned by or associated with
Franchisor and all similar names and marks, or any other designation or
associating Franchisee with the System. If Franchisee is a corporation or
partnership and, notwithstanding prohibition of utilizing the Proprietary Marks
in a corporate or partnership name, has used the Proprietary Marks or
designations that associate Franchisee with Proprietary Marks in its corporate
designations that associate Franchisee with the Proprietary Marks in its
corporate or partnership name, Franchisee shall, within fifteen days of the
Effective Date of Termination, take all
45
necessary steps to eliminate the Proprietary Marks from corporate or partnership
name, at his/her own cost and expense.
20.4 Upon the Effective Date of Termination, Franchisee shall cease
displaying and using all signs, stationery, letterheads, forms, manuals, printed
matter, advertising and other material containing the Proprietary Rights or
Proprietary Marks, ZAP Electric Vehicle Outlet or any other names, marks or
designations that associate Franchise with the System.
20.5 After the Effective Date of Termination, Franchisee shall refrain
from taking any action indicating or implying that he/she is or was an
authorized franchisee.
20.6 Franchisee shall, at the Franchisor's option, assign to Franchisor
or the Franchisor's designee, Franchisee interest in any lease then in effect
for the premises of the Outlet, and Franchisor shall notify franchisee to whom
such interest must be assigned within thirty (30) days after termination or
expiration of this Agreement or shall vacate the Outlet immediately after
termination or expiration of this Agreement and pursuant to the lease or
sublease a agreement.
20.7 Franchisee shall immediately cease to use any telephone numbers,
post office box, and any other business listings used by Franchisee in the
Outlet, and the assignment of telephone numbers shall be deemed effective in
order to accomplish the foregoing results. In the event Franchisor requires
Franchisee to assign, lease or sublease for the Outlet pursuant to Article 19.6
hereof, Franchisee shall execute such documents and such other acts as may be
necessary to permit Franchisor or its designee, at Franchisor's option, to
assume telephone number and listing, receive mail, and otherwise commence
operations under the System and Proprietary Rights immediately at the location
of the Outlet.
20.8 In the event that Franchisee is permitted to, and does remain in
business at the premises of the Outlet, Franchisee shall make such modifications
or alterations to the premises as dictated by Franchisor, including, but without
limitation, removing and changing all signage, obtaining a new telephone number,
changing the catalog, the colors and decor design and the trade names and
trademarks, immediately upon termination or expiration of this Agreement as may
be necessary to prevent the operation of any business thereon by himself, or
others derogation of this Article XX, and shall make such specific additional
changes thereto as Franchisor may reasonably request for that purpose and to
distinguish said premises from their former appearance and from other ZAP
Electric Vehicle Outlets. In the event Franchisee fails or refuses to comply
with the requirements of Article XX, Franchisor shall have the right subject to
local law, to enter upon the
46
premises of the Outlet, without being liable for trespass, for the purpose of
making or causing to be made such changes as may be required at the expense of
Franchisee, which expense Franchisee shall pay upon demand.
20.9 Franchisee agrees that in the event he continues to operate or
subsequently begins to operate any other business from the premises where the
Outlet activities are conducted, he shall not use any reproduction, counterfeit,
copy or colorable imitation of the Proprietary Marks, either in connection with
such other business or in the promotion thereof, which is likely to cause
confusion, mistake or deception, or which is likely to dilute Franchisor's
exclusive rights in and to the Proprietary Marks, and further agrees not to
utilize any designation of origin or description or representation which falsely
suggests or represents an association or connection with Franchisor or the
System.
20.10 Franchisee shall pay to Franchisor all damages, costs and
expenses, including reasonable attorney fees incurred by Franchisor subsequent
to the termination or expiration of the franchise herein granted in the event
Franchisor is required to seek injunctive or any other judicial relief for the
enforcement of the provisions of this Article XX.
20.11 Franchisee shall immediately turn over to the Franchisor, the
Manual, trade secrets, catalogs, records, files, instructions, correspondence
and brochures and any and all other materials relating to the operation of the
Outlet which are in Franchisee's possession, custody or control and all copies
thereof (all of which are acknowledged to be the Franchisor's property) and
shall retain no copies or records of the foregoing, excepting only Franchisee's
copy of this Agreement and any correspondence between the parties and any other
documents which Franchisee reasonably needs for compliance with any provision of
law.
20.12 Franchisor shall have the right (but not the duty), to be
exercised by notice of intent to do so within thirty (30) days after the
Effective date of Termination, to purchase any or all equipment, supplies,
inventory, signs, advertising materials, and items bearing the service ▇▇▇▇
"ZAP" at fair market value (less the amount of any outstanding liens or
encumbrances) giving no effect to goodwill. If the parties cannot agree on fair
market value within a reasonable time, an independent appraiser shall be
designated by the parties and his determination shall be binding. If Franchisor
elects to exercise any option to purchase herein provided, it shall have the
right to set off all amounts due from Franchisee and the cost of the appraisal,
if any, against any payment therefor.
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20.13 Franchisee shall comply with all provisions of this Agreement
which explicitly or implicitly concern Franchisee's obligations after
termination, including without limitation, the covenant contained in Article XXV
of this Agreement.
20.14 Franchisee shall maintain all financial records and reports
required pursuant to this Agreement for a period of not less than three (3)
years after the Effective Date of Termination. Franchisee shall permit
Franchisor to make final inspection of Franchisee's financial records, books,
tax returns, and other accounting records within three (3) years of the
Effective Date of Termination.
20.15 In the event of termination for any default by Franchisee
hereunder, the extent of all damage which Franchisor has suffered by virtue of
such default shall be and remain a lien in favor of Franchisor against any and
all the personal property, machinery, fixtures and equipment owned by Franchisee
on the Outlet premises at the time of such default.
20.16 Termination of this Agreement shall not affect the rights of
Franchisee to operate ZAP Electric Vehicle Outlets in accordance with the terms
of any other Franchise Agreements until and unless such other Franchise
Agreements, or any of them, are terminated in accordance with their terms.
Notwithstanding the foregoing, termination of this Agreement or any uncured
default hereunder constitutes grounds for termination of the Area Development
Agreement, if same is in effect at the time of said termination or uncured
default.
20.17 No right or remedy herein conferred upon or reserved to
Franchisor is exclusive or any other right or remedy herein granted or by law or
equity provided or permitted, but each shall be cumulative of every other right
or remedy given hereunder.
20.18 Nothing contained herein shall be deemed to relieve Franchisee of
any obligations or responsibilities or liabilities incurred by Franchisee during
the term of this Agreement or any renewals hereof, and which obligations,
responsibilities or liabilities shall survive the termination, expiration or
non-renewal of this Agreement.
ARTICLE XXI
COMMENCEMENT AND HOURS OF OPERATION
Franchisee recognizes that continuous and daily operations of the Outlet is
essential to the adequate promotion of Franchisee's Outlet. Franchisee or
his/her designated manager shall be personally available to operate the Outlet
from 7 a.m. to 8 p.m. Monday through Saturday
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and from 9 a.m. to 8 p.m. on Sunday, or as required by any lease or sublease if
different, or as dictated by local trade custom, except where prohibited or
otherwise regulated by governmental authority, including any state or local
licensing authority and shall otherwise conduct the business in accordance with
generally accepted business standards. These requirements may be changed by
Franchisor from time to time upon reasonable notice to Franchisee.
ARTICLE XXII
TRANSFERABILITY OF INTEREST
22.1 The Franchisor shall have the right to transfer or assign all or
any part of its rights or obligations herein to any person or legal entity,
provided such person or legal entity agrees to be bound by all of the terms and
conditions set forth herein and agrees to assume same.
22.2 Franchisee understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Franchisee, and that the Franchisor
has granted this franchise in reliance on Franchisee's business skill, financial
capacity, and personal character. Accordingly, neither Franchisee nor any
immediate or remote successor to any part of Franchisee's interest in this
franchise nor any individual, partnership, corporation, or other legal entity
which directly or indirectly controls Franchisee shall sell, assign, transfer,
convey, give away, pledge, mortgage, or otherwise encumber any interest in this
franchise or in any legal entity which directly or indirectly owns this
franchise without the prior written consent of the Franchisor, which consent
shall be subject to the conditions precedent, but which will not be unreasonably
withheld; provided, however, that the Franchisor=s prior written consent shall
not be required for a transfer of less than a five percent (5%) interest in a
publicly-held corporation. A publicly-held corporation is a corporation
registered under the Securities Exchange Act of 1934. Any purported assignment
or transfer, by operation of law or otherwise, not having had written consent of
the Franchisor required by this Article XXII shall be null and void and shall
constitute a material breach of this Agreement, for which the Franchisor may
then terminate without opportunity to cure pursuant to Article XIX of this
Agreement.
22.3 The Franchisor shall not unreasonably withhold its consent to a
transfer of any interest in Franchisee or in this franchise; provided, however,
that if the transfer, alone or together with other previous, simultaneous, or
proposed transfers, would have the effect of transferring a controlling interest
in the Outlet, either directly or indirectly, the Franchisor may, in its sole
discretion, require all of the following as conditions precedent to its
approval:
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A. All of Franchisee's monetary obligations to Franchisor, to
affiliates, subsidiaries, landlord, vendors and all suppliers shall have been
satisfied;
B. Franchisee is not in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and Franchisor;
C. The transferor shall have executed a general release, in a
form satisfactory to the Franchisor, of any and all claims against the
Franchisor and its officers, directors, principal shareholders, and employees,
in their corporate and individual capacities, including without limitation,
claims arising under federal, state and local laws, rules, and ordinances,
provided however, that all rights enjoyed by the transferor and any causes of
action arising in its favor from the provisions of this Agreement shall not be
released except to the extent identified in the release.
D. The transferee shall, at Franchisor's option, either (i)
enter into a written assignment under seal and in a form satisfactory to the
Franchisor, assuming and agreeing to discharge all of Franchisee's obligations
for the balance of the term of this Agreement; and if the obligations of the
Franchisee were guaranteed by the transferor, the transferee, has the option to
continue operating under the Franchise Agreement or shall guarantee the
performance of all such obligations in writing in a form satisfactory to the
Franchisor, or (ii) the transferee shall execute (and/or, upon the Franchisor's
request, shall cause all interested parties to execute) for a full new term, the
then-current standard form of Franchise Agreement and other ancillary agreements
shall as the Franchisor may require for the Outlet, which agreements supersede
this Agreement in all respects and the terms of which agreements may differ from
the terms of this Agreement; including but not limited to the increase in the
CMSF, Advertising Fee, and Proprietary Products fees then being paid by all new
franchisees entering the System.
E. The transferee shall demonstrate to the Franchisor=s
reasonable satisfaction that it meets the Franchisor=s managerial and business
standards; possesses a good moral character, business reputation, and credit
rating; has the aptitude and ability to conduct the business franchised herein
(as may be evidenced by prior related business experience or otherwise); and has
adequate financial resources and capital to operate the business;
F. At the transferee=s expense, the transferee or the
transferee's manager shall complete any training programs then in effect for all
new franchisees entering the System;
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G. At the transferee's expense, the transferee shall upgrade,
renovate or remodel the Outlet to conform to the standards then prescribed by
the Franchisor of all Outlets under the System, and shall complete such
upgrading and other reasonable remodeling or refurbishing requirements within
the time reasonably specified by the Franchisor;
H. Franchisee shall remain liable for all of the obligations
to the Franchisor in connection with the Outlet prior to the effective date of
the transfer and shall execute any and all instruments reasonably requested by
the Franchisor to evidence such liability.
I. Except in the case of a transfer to a corporation formed
solely for the convenience of ownership, a transfer fee equal to twenty-five
percent (25%) of the initial fee then being charged to new franchisees shall
have been paid by the transferee to the Franchisor to cover the Franchisor's
administrative, training and other expenses incurred in connection with the
transfer.
J. Franchisee shall comply with Article XXV hereof, subsequent
to the transfer or sale.
22.4 Franchisee acknowledges and agrees that each of the foregoing
conditions which must be met by the transferee are necessary to assure such
transferee's full performance of the obligations hereunder.
22.5 In the event Franchisee wishes to form a corporation after this
Agreement is executed, solely for the convenience of ownership, the following
requirements shall also apply to Franchisee:
A. Franchisee's newly formed corporation shall be duly
organized and its charter shall at all times provide that its activities are
confined exclusively to operating the Franchised Business.
B. Copies of Franchisee's Articles of Incorporation, Bylaws,
and other governing documents, and any amendments thereto, including the
resolutions of the Board of Directors authorizing entry into this Agreement,
shall be delivered promptly to the Franchisor.
C. All stock certificates of such corporation bear the
following legend, which shall be printed legibly and conspicuously on the face
of each such stock certificate:
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"The transfer of this stock certificate is subject to
the terms and conditions of a certain Franchise Agreement entered into with ZAP
Power Systems dated __________________, 19___."
D. Franchisee shall maintain a current list of all owners of
record and all beneficial owners of any class of voting stock of Franchisee and
shall furnish the list to the Franchisor upon request. In the event that the
Franchisee is an individual who is transferring this franchise to a corporation
solely for the convenience of ownership, said Franchisee shall own at least the
majority of equity and voting stock in such corporation.
E. All shareholders or general partners of Franchisee shall
jointly and severally guarantee Franchisee's performance hereunder and shall
bind themselves to the terms of this Agreement, by executing a Transfer of
Franchise to a corporation form, if the Franchisee is an individual who is then
forming the corporation solely for the convenience of ownership, provided,
however, that the Requirements of this Section 22.5 E. shall not apply to a
publicly-held corporation.
F. In no event shall the formation of the corporation relieve
the individual Franchisee from his or her personal liability under this
Agreement.
22.6 Securities of the Franchisee may not be offered to the public
without the prior written consent of the Franchisor. All registration materials
required for such offering by federal or state law shall be submitted to the
Franchisor for review prior to their being filed with any government agency and
any materials to be used in any exempt offering shall be submitted to the
Franchisor for review prior to their use. No public offering by Franchisee shall
imply (by way of Proprietary Rights or otherwise) that the Franchisor is
participating in an underwriting, issuance or public offering of Franchisee's or
the Franchisor's securities, and the Franchisor's review of any offering shall
be limited solely to the subject of the relationship between Franchisee and the
Franchisor. Franchisee and the other participants in the registration must fully
indemnify the Franchisor in connection with the registration. For each proposed
public offering, Franchisee shall reimburse the Franchisor for its reasonable
costs and expenses associated with reviewing the proposed offering, including,
without limitation, legal and accounting fees. Franchisee shall give the
Franchisor at least sixty (60) days prior written notice prior to the effective
date of any public offering, or other transaction covered by this Section 22.6.
22.7 Any party holding any interest in Franchisee or in this
franchise and who desires to accept any bona fide offer from a third party to
purchase such interest shall first notify the Franchisor in writing of each such
offer, and the Franchisor shall have
52
the right and option, exercisable within fifteen (15) days after receipt of such
written notification, to send written notice to the Franchisee that the
Franchisor intends to purchase the Franchisee's interest on the same terms and
conditions offered by the third party. Any material change in the terms of any
offer prior to closing shall constitute a new offer subject to the same rights
of first refusal by the Franchisor as in the case of an initial offer. Failure
of the Franchisor to exercise the option afforded by this Section 22.7 shall not
constitute a waiver of any other provision of this Agreement, including all of
the requirements of this Article XXII, with respect to a proposed transfer and
all requirements with respect thereto.
22.8 In the event the consideration, terms and/or conditions offered by
a third party are such that the Franchisor may not reasonably be required to
furnish the same consideration, terms, and/or conditions, then it may purchase
interest in the Outlet proposed to be sold for the reasonable equivalent in
cash. If the parties cannot agree, within a reasonable time, on the reasonable
equivalent in cash of the consideration, terms and/or conditions offered by a
third party, an independent appraiser shall be designated by the parties and his
determinations shall be binding on both.
22.9 In the event that a proposed transfer is between any two
individuals or entities holding any interest in Franchisee as of the date of
this Agreement, or in the event that the proposed transferee is the spouse, son,
daughter, or heir of any individual who seeks to transfer any interest in
Franchisee, the Franchisor shall not have any right of first refusal as provided
in this Section.
22.10 In the event of the death or incapacity of an individual
Franchisee, or any principal owner owning fifty percent (50%) or more of the
equity of Franchisee, the heirs, beneficiaries, devisee or legal representatives
of said individual or principal owner shall, within one hundred eighty (180)
days of such event:
A. Apply to Franchisor for the right to continue to operate
the Franchise for the duration of the term of the Agreement and any renewals
hereof, which right shall be granted upon the fulfillment of all of the
conditions set forth in Article XXI of this Agreement (except that no transfer
fee shall be required); or
B. Sell, assign, transfer, or convey Franchisee's interest in
compliance with the provisions of Article XXI of this Agreement; provided
however, in the event a proper and timely application for the right to continue
to operate has been made and rejected, the one hundred eighty (180) days to
sell, assign, transfer or convey shall be computed from the date of said
rejection. For purposes of this section, Franchisor's silence on an application
made pursuant to Section 21.10.A though the one hundred eighty days
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(180) days following the event of death or incapacity shall be deemed a
rejection made on the last day of such period.
22.11 In the event of the death or incapacity of an individual
Franchisee, or any principal owner described in paragraph 22.10 above, where the
aforesaid provisions of Article XXII have not been fulfilled within the time
provided, all rights licensed to Franchisee under this Agreement shall, at the
option of Franchisor, terminate forth-with and automatically revert to
Franchisor.
22.12 The Franchisor's consent to a transfer of any interest in the
franchise granted herein shall not constitute a waiver of any claims it may have
against the transferring party, nor shall it be deemed waiver of the
Franchisor's right to demand exact compliance with any of the terms of this
Agreement by the transferee.
22.13 Franchisee acknowledges and agrees that the restrictions on
transfer imposed herein are reasonable and are necessary to protect the
franchise, the System and the Proprietary Rights, as well as ZAP's excellent
reputation and image, and are for the protection of Franchisor and its
franchisees. Any assignment or transfer permitted by this Article XXII shall not
be effective until Franchisor receives a completely executed copy of all
transfer documents, and Franchisor issues its consent in writing thereto.
22.14 Franchisee shall not, without the prior written consent of
Franchisor place in, on or upon the Outlet or in any communication media, any
form of advertising relating to the sale of the business franchised or the
rights granted hereunder. Further, in the event Franchisor shall procure a
purchaser for Franchisee (or any principal owner), in addition to all other fees
payable hereunder in connection with the transfer, Franchisee or the assignee
shall pay Franchisor a commission equal to ten percent (10%) of the total
purchase price payable by the purchaser.
22.15 Notwithstanding anything to the contrary above or herein, it is
contemplated that Franchisee, in connection with the initial financing of the
establishment of Franchisee's Outlet, its business and operations, maybe
required to provide a bank or financial institution with a security interest in
substantially all of its assets, including a pledge of this Agreement and
Franchisee's common stock or other equity. Franchisor will not have a right of
first refusal in connection with Franchisee's giving of such security interest.
Further, Franchisor's consent to the giving of such security interest and/or
pledge will be granted so long as Franchisee is in compliance with this
Agreement as well as its other agreements with Franchisor, if any, the security
interest in the assets of the Outlet is given in order to facilitate the
financing of the development of such Outlet or other Outlets of Franchisee and
subject to the following:
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In connection with any pledge of this Agreement, any lease (or similar
agreement) in respect of any premises for the Outlet and/or the stock or other
equity of Franchisee, Franchisee's bank or financial institution must agree to
the reasonable satisfaction of Franchisor that: (i) it will notify Franchisor
reasonably promptly of any defaults by Franchisee of any of Franchisee's
obligations in connection with any loan made to Franchisee; (ii) if it seeks to
reassign or transfer the stock or other equity of Franchisee and/or Franchisee's
interest in this Agreement or the business conducted hereunder to a third party,
such third party must meet Franchisor's then current criteria for its
franchisees to Franchisor's satisfaction (but Franchisor shall exercise
reasonableness in making this determination) and the other conditions set forth
herein in connection with obtaining Franchisor=s consent to an assignment or
transfer shall apply; and (iii) if, regarding the premises for the Outlet,
Franchisee must give it a security interest in the lease for such premises,
then; (a) such security interest must be given solely to facilitate the
development of that or another Outlet of Franchisee (or its affiliate); and (b)
the bank or financial institution must agree, with respect to such lease to
furnish Franchisor with a right of first refusal (exercisable on not less than
thirty (30) days written notice to Franchisor) to take over the lease by
agreeing to be bound by the original terms and conditions thereof.
ARTICLE XXIII
OPERATION IN THE EVENT OF ABSENCE OR DISABILITY
In order to prevent any interruption of the Franchised Business which
would cause harm to said business and thereby depreciate the value thereof,
Franchisee authorizes the Franchisor, which may, if it so chooses, in the event
that Franchisee abandons or is absent or incapacitated by reason of illness for
a period in excess of three (3) consecutive business days, and is not,
therefore, in the sole judgment of the Franchisor, able to operate the
Franchised Business hereunder, to operate said business for so long as the
Franchisor deems necessary and practical and without waiver of any other rights
or remedies the Franchisor may have under this Agreement. All monies received
from the operation of the business during such period of operation by the
Franchisor shall be kept in a separate account and the expenses of the business,
including reasonable compensation and expenses for the Franchisor's
representative, shall be charged to said account. If, as herein provided, the
Franchisor temporarily operates for Franchisee the business licensed herein,
Franchisee agrees to indemnify and hold harmless the Franchisor and any
representative of the Franchisor who may act hereunder from any and all acts
which the Franchisor may perform in regard to the interests of Franchisee or any
third party. This remedy shall be cumulative to any other remedy available to
the Franchisor.
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ARTICLE XXIV
RISK OF OPERATIONS
Franchisee recognizes that there are many uncertainties in this
business and therefore, Franchisee agrees and acknowledges that, except as
specifically set forth in this Agreement, no representations, warranties,
guaranties or agreements have been made to Franchisee, either by the Franchisor
or by anyone acting on its behalf or purporting to represent it, including, but
not limited to, the prospects for successful operations, the level of business
or profits that Franchisee might reasonably expect to achieve, the desirability,
profitability or expected traffic volume of the ZAP Electric Vehicle Outlet
franchised hereby, whether or not the Franchisor assisted Franchisee in the
selection of the location of the Outlet. Franchisee hereby acknowledges that all
such factors are necessarily dependent upon variables which are beyond the
Franchisor's control, including, without limitation, the ability, motivation,
amount and quality of effort expended by Franchisee. Franchisee therefore
releases the Franchisor, its subsidiary or affiliated corporations, officers,
directors, affiliates and employees from any and all claims, suits and liability
relating to the operation of Franchisee's Outlet including, but not limited to,
the results of its operation, except to the extent that the same is predicated
on the breach of a specific written obligation of the Franchisor contained in
this Agreement.
ARTICLE XXV
TAXES, PERMITS AND INDEBTEDNESS
25.1 Franchisee shall promptly pay, when due, all taxes and assessments
against the premises, inventory, and the equipment used in connection with
Franchisee's business, and all liens and encumbrances of every kind or character
created or placed upon or against any of said property, and all accounts and
other indebtedness of every kind incurred by Franchisee in the conduct of said
business.
25.2 Franchisee shall comply with all applicable federal, state and
local laws, rules and regulations; and shall timely obtain, maintain and renew
any and all permits, certificates, or licenses necessary for the full and proper
conduct of the business under this agreement including, without limitation
operating licenses, licenses to business, fictitious name registrations and
sales tax permits, as applicable.
25.3 Franchisee shall notify Franchisor in writing within five (5) days
of the commencement of any action, suit or proceeding, and of the issuance of
any order, writ,
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injunction, award or decree of any court, agency other governmental
instrumentality which may adversely affect the operation or financial condition
of the Franchised Business.
ARTICLE XXVI
NON-COMPETITION; CONFIDENTIALITY
26.1 Franchisee, and persons controlling, controlled by or under common
control with Franchisee, acknowledge that pursuant to this Agreement, they will
receive valuable training and confidential information, including, without
limitation, information regarding the promotional, operational sales and
marketing methods and techniques of the Franchisor and the System, and
accordingly covenant that during the term of this Agreement, except as otherwise
approved in writing by the Franchisor, the Franchisee and persons controlling,
controlled by or under common control with Franchisee will not, either directly
or indirectly, for himself, herself, or through, on behalf of, or in conjunction
with any person, persons or legal entity:
A. Divert or attempt to divert any business or customer of the
business franchised under this Agreement to any competitor, or to any other
Outlet operation, by direct or indirect inducement or otherwise, or do or
perform, directly or indirectly, any other act injurious or prejudicial to the
good will associated with the Franchisor's Proprietary Rights and the System;
B. Employ or seek to employ any person who is at that time
employed by the Franchisor or by any other franchisee, or otherwise directly or
indirectly induce or seek to induce such person to leave his or her employment
thereat; or
C. Own, maintain, advise, help, invest in or make loans to, be
employed by, engage in, or have any interest in any business (including any
business operated by the Franchisee prior to entry into the Agreement)
specializing in whole or in part, in operating any Outlet, electric vehicle
business, store or facility which sells electric vehicles or related products as
the franchisee of the System.
26.2 The Franchisee and persons controlling, controlled by or under
common control with Franchisee, covenant that except as otherwise approved in
writing by the Franchisor, the Franchisee will not, for a continuous
uninterrupted period commencing upon the expiration or termination of this
Agreement, regardless of the cause for termination, or upon transfer of the
Outlet, and continuing for two (2) years thereafter (and, in the case of any
violation of this covenant, for two (2) years after the violation ceases),
either directly or indirectly, for himself, or herself, or through, on behalf of
or in
57
conjunction with any persons, partnership or corporation, own, maintain, advise,
help, invest in, make loans to, be employed by, engage in or have any interest
in any business specializing, in whole or in part in operating any Outlet,
business, store or facility which sells electric bicycles, tricycles and
vehicles or related products and/or similar Proprietary Products as the
franchisees of the System, which is located:
A. Within a radius of ten (10) miles of the location of the Outlet.
ARTICLE XXVII
MODIFICATION OF THE AGREEMENT
This Agreement cannot be modified unless by the written agreement of
the Franchisor and Franchisee.
The Operations Manual may be modified by the Franchisor and such change
shall be binding on the Franchisee.
ARTICLE XXVIII
ENTIRE AGREEMENT
This Agreement is the entire agreement of the Franchisor and
Franchisee. All previous written or verbal agreements are merged herein and only
the terms hereof are binding.
ARTICLE XXIX
DISPUTE RESOLUTIONS
Initially all claims and controversies of any kind relating to this
Agreement shall be submitted to mediation pursuant to the services of an
established mediation services with the venue being in San Francisco,
California.
In the event the matter cannot be disposed by mediation, all claims and
controversies of any kind relating to this Agreement shall be finally settled by
arbitration before a single arbitrator in San Francisco, in accordance with
rules then obtaining of the American Arbitration Association. Said arbitration
shall be subject to the laws of the State of California and all parties to this
Agreement shall be bound by the decision in any such arbitration. Judgment upon
such arbitration may be entered by any court of proper
58
jurisdiction. In any such arbitration, the arbitrators: (i) shall apply the
provisions of this Agreement with varying therefrom in any respect, and they
shall not have the power to add to, modify or change the provisions of this
Agreement; (ii) shall make specific written findings of fact or law; and (iii)
shall apply the law of California to all substantive issues of law. The
foregoing shall not preclude the parties from seeking injunctive relief or other
equitable relief from any court of proper jurisdiction pending the outcome of
any arbitration.
Attorneys fees and costs shall be allocated by agreement in mediation
and by the arbitrators in arbitration. In the event of injunctive relief, the
prevailing party shall be entitled to reasonable attorney's fees and costs.
ARTICLE XXX
EFFECTIVE DATE
This Agreement shall be effective as of the date it is executed by ZAP
Power Systems.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement.
WITNESS: ZAP POWER SYSTEMS
_______________________________ By: ________________________________
Date: _________________________ Date: ______________________________
WITNESS: FRANCHISEE:
_______________________________ By: ________________________________
Date: _________________________ Date: ______________________________
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EXHIBIT A
GEOGRAPHIC AREA
The following describes the geographic area within which Franchisee will locate
the Outlet.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Refer to Section 1.1 of Agreement)
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EXHIBIT B
OUTLET LOCATION
The following is the address of Franchisee's Outlet.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Refer to Section 1.1 of Agreement)
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EXHIBIT C
AREA OF PRIMARY RESPONSIBILITY
The following describes the area within which the Franchisor will not establish
or operate a company owned Outlet or grant franchises to others to operate any
Outlet under the System:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Refer to Section 1.1 of Agreement)
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EXHIBIT D
UNDERTAKING TO FIND SUITABLE LOCATION (180 DAYS)
ZAP Power Systems (hereinafter "Franchisor") and ___________________
(hereinafter "Franchisee") have this date _____________, l9___, entered into a
certain Franchise Agreement (hereinafter "Agreement") and desire to supplement
terms, as set forth below. The parties hereto agree as follows:
A. Site Location
Within one hundred and eighty (l80) days after execution of this
Addendum, Franchisor shall acquire, by lease or sublease, at Franchisee's
expense and subject to Franchisor's approval as hereinafter provided, a location
for the Franchised Business. Such location shall be within the following
geographic area (which is described solely for the purpose of selecting a site
for the Franchised Business):
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
B. Guidelines and Evaluation
In connection with Franchisee's selection of a site for the Franchises
Business, the Franchisor shall furnish to Franchisee the following:
l. Site selection guidelines, and such site selection, counseling and
assistance as the Franchisor
may deem advisable.
2. Such site evaluation as Franchisor may deem advisable in response to
Franchisee's request for site approval.
C. Site Approval
Prior to the acquisition by lease or purchase of any proposed location
for the Franchised Business, Franchisee shall submit to the Franchisor, in the
form specified by Franchisor, a description of the proposed location, a market
feasibility study for the proposed location, and such other information or
materials as Franchisor may reasonably require, together with a letter of intent
or other evidence satisfactory to Franchisor which confirms Franchisee's
favorable prospects for obtaining the proposed location. Recognizing that time
is of the essence, Franchisee agrees that it must submit such
63
information and material for the proposed location to Franchisor for its
approval no later than _____________ (__) days after the execution of the
Franchise Agreement. Franchisor shall have ______________(__) days after receipt
of such information and materials from Franchisee to approve or disapprove, in
its sole discretion, the proposed location as the location for the Franchised
Business. The proposed location shall not be deemed approved unless written
notice of approval is given to Franchisee by Franchisor.
D. Pre-Approved Site
If at the time of execution of this Franchise Agreement, the Franchisee
has already obtained Franchisor's approval of a location for the Franchised
Business, Franchisee shall not be required to comply with Paragraphs A through C
hereof, but shall comply with all provisions of this Addendum and the Franchise
Agreement.
E. Lease Provisions
The lease, if any, for the premises of the Franchised Business, shall
be submitted to Franchisor for its written approval prior to execution by
Franchisee and the lessor, and shall contain the following terms and conditions:
l . That the premises shall be used only for the operation of the
business franchised hereunder.
2. That the landlord has examined Franchisor's standard design concepts
and consents to Franchisee's use of such Property Marks and signage as
Franchisor may prescribe for the Franchised Business.
3. That the landlord agrees to furnish Franchisor with copies of any
and all letters and notices sent to Franchisee pertaining to the lease and
premises, at the same time such letters and notices are sent to Franchisee.
4. Franchisee may not sublease or assign all or any part of its
occupancy rights, or extend the term of or renew the lease, without Franchisor's
prior written consent.
5. That Franchisor shall have the right to enter the premises to make
any modification necessary to protect Franchisor's Proprietary Marks or to sure
any default under the lease or under this Agreement.
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6. That Franchisor shall have the option to assume Franchisee's
occupancy rights, and the right to sublease, for all or any part of the
remaining term, Franchisee's default or termination under such lease or under
this Agreement, without Landlord's consent.
7. That Franchisor shall be furnished a copy of the executed lease,
including all attachments thereto and related agreements, if any, within five
(5) days after its execution, and no change or amendment to such lease affecting
the above terms and conditions shall be effective without Franchisor's prior
approval.
F. Relocation
Upon Franchisor's approval of a location for the Franchised Business,
or upon execution of this Agreement, whichever occurs earlier, the street
address of the approved location of the Franchised Business shall be recorded
and shall be attached as Exhibit "A" to this Franchise Agreement. Franchisee
shall not relocate the Franchised Business without the prior written consent of
Franchisor.
G. Designs
Franchisor shall make available at no charge to Franchisee standard
conceptual designs for the exterior and interior appearance and layout of the
Franchised Business, and lists of required or approved fixtures, furnishings,
and signs. Franchisor shall also provide Franchisee with specifications for
equipment, supplies, and inventory necessary to establish and operate the
Franchised Business.
H. Plans
Before commencing any construction or improvements upon the Franchised
Business, Franchisee, at its expense, shall comply, to Franchisor's
satisfaction, with all of the following requirements:
l. Franchisee shall employ an architect to prepare detailed plans and
specifications for construction or leasehold improvement of the Franchised
Business and, Franchisee shall submit to Franchisor a copy of Franchisee's
agreement with the architect.
2. Franchisee shall submit to Franchisor, for Franchisor's approval,
detailed plans and specifications adapting Franchisor's standard conceptual
designs to Franchisee's location and to local and state laws, regulations, and
ordinances. When approved by Franchisor, such plans and specifications shall not
thereafter be changed or modified without the prior written consent of
Franchisor.
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3. Franchisee shall employ a qualified general contractor to supervise
construction or leasehold improvements of the Franchised Business and Franchisee
shall submit to Franchisor a copy of Franchisee's agreement with the general
contractor and copies of agreements with subcontractors working on the premises,
if any.
4. Franchisee shall obtain all necessary building, zoning, sign and
construction permits, as well as insurance required under Article XVI of the
Franchise Agreement, and shall certify in writing to Franchisor that all such
permits and insurance have been obtained.
I. Construction
Franchisee shall commence construction or leasehold improvements
(hereinafter "Construction") of the Franchised Business within ___________(__)
days after Franchisee executes this Addendum, executes a lease, or obtains the
right to possession of the premises, whichever occurs latest. Franchisee shall
provide written notice to Franchisor of the date construction of the Franchised
Business commences within __________(__) days after commencement. Franchisee
shall maintain continuous construction of the Franchised Business premises and
shall complete construction, including all exterior and interior carpentry,
electrical, painting and finishing work, and installation of all furnishings,
fixtures, equipment, and signs, in accordance with the approved plans and
specifications at Frachisee's expense, within __________ (__) months after
commencement (exclusive of time lost by reason of strikes, lockouts, fire and
other casualties and acts of God). Each week during the construction period,
Franchisee and Franchisee's architect or general contractor shall certify in
writing to Franchisor that all work is proceeding on schedule, and in accordance
with the approved plans and specifications and all applicable laws, regulations,
ordinances and restrictive covenants. Franchisee further agrees that Franchisor
and its agents shall have the right to inspect the construction at all
reasonable times.
J. Permits and Approvals
Before or upon completion of construction, Franchisee shall obtain, and
shall furnish to Franchisor copies of all necessary permits, approvals and
certificates required for occupancy of the premises and operation of the
Franchised Business. Franchisee shall obtain Franchisor's approval for opening
and shall open the Franchised Business within __________(__) months after the
date of commencement of construction.
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K. Time of Essence
Franchisee and Franchisor agree that time is of the essence in
Franchisee's performance of its obligations hereunder. Any failure by Franchisee
to meet the time limits imposed under this Addendum shall constitute a default
under Section 19.2 of the Agreement, for which Franchisor may terminate this
Agreement upon notice to Franchisee.
L. Effect of Franchise Agreement
This addendum shall be considered an integral part of the Agreement
between the parties hereto, and the terms of this Addendum shall be controlling
with respect to the subject matter hereof. Except as modified or supplemented by
this Addendum, the terms of the Agreement are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have duly executed sealed and
delivered this Addendum in triplicate on the day and year first above written.
ZAP POWER SYSTEMS
_________________________ By: _________________________
Witness
_________________________ By: _________________________
Witness Franchisee
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EXHIBIT E
AGREEMENT AND CONDITIONAL ASSIGNMENT OF LEASE
This Agreement and Conditional Assignment of Lease ("Agreement") is made of this
___ day of __________, l9___, by and among the following parties:
LESSOR: _________________________
_________________________
_________________________
LESSEE: _________________________
_________________________
_________________________
FRANCHISOR: ZAP Power Systems
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
RECITALS:
WHEREAS, Under the terms of the Lease Agreement attached hereto as
Exhibit A, Lessor has agreed to lease to Lessee certain premises (the
"Premises") located at the following street address:
WHEREAS, Franchisor has accepted the Premises as a suitable location
for Lessee's Outlet, subject to the provisions of the Franchise Agreement and
further subject to the terms and conditions set-for therein.
WHEREAS, THEREFORE, in consideration of the mutual covenants herein
contained other good and valuable consideration, including the acceptance by
Franchisor of the Premises as a location for a ZAP Electric Vehicle Outlet, the
parties hereby agree as follows:
1. Use of Premises
Lessee shall use the Premises only for the Operation of a ZAP Electric
Vehicle Outlet pursuant to its Franchise Agreement with franchiser and for no
other purposes whatsoever.
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2. Signage, Etc.
Lessor hereby consents to Lessee's use and display on the Premises of
such exterior and interior signs, posters, promotional materials, and equipment,
furnishings, and decor as are currently required by Franchisor pursuant to the
Franchise Agreement. In the event that such requirements are changed in the
future, Lessor agrees that it will not unreasonably withhold its consent to
Lessee's compliance with such changes. In the event that local ordinances or
zoning requirements prohibit the use of the Franchisor's standard signage,
Franchisor will not unreasonably withhold its consent to the modification of its
standard signage to comply with such requirements.
3. Notices
Lessor agrees to furnish Franchisor copies of any and all letters and
notices to Lessee pertaining to any default by Lessee under the Lease at the
same time and in the same manner as any such notice is sent to Lessee. Lessee
agrees to furnish Franchisor prompt written notice of ally and all amendments,
waivers, extensions, renewals or other modifications of the Lease. All notices
hereunder shall be mailed or delivered to the addresses set forth above, unless
changed from time to time by any party through written notice mailed or
delivered to the other parties.
4. Assignment
Lessor hereby acknowledges that Lessee has agreed under the Franchise
Agreement that, in the event of termination or expiration of the Franchise
Agreement or Lessee's default under the Lease, Lessee shall, at Franchisor's
option, assign to Franchisor any and all interests of Lessee in the Lease,
including any rights to renew the Lease or to sublease the Premises; and Lessor
hereby consents to such assignment, sublease the Premises; and Lessor hereby
consents to such assignment, subject to the following conditions:
(A) Franchisor shall notify Lessor in writing within thirty (30) days
after termination or expiration of the Franchise Agreement or Frachisor's
receipt of any notice or default by Lessee under the Lease if Franchisor elects
to accept assignment of the Lease; Franchisor's failure to accept assignment of
the Lease upon any default of Lessee under the Lease shall not be deemed a
waiver of Franchisor's future right to accept such assignment in the event of
any future default by Lessee;
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(B) If Franchisor elects to accept assignment of the Lease, Franchisor
shall take possession of the Premises within thirty (30) days after notice of
such election to Lessor, and Franchisor shall commence payment of rent upon
taking possession of the Premises;
(C) If Franchisor elects to accept assignment of the Lease, Franchisor
shall take possession of the Premises within thirty (30) days after notice of
such election to Lessor, and Franchisor shall commence payment of rent upon
taking possession of the Premises;
(D) Nothing herein shall affect Lessor's right to recover from Lessee
any and all amounts due under the Lease or to exercise any rights of Lessor
against Lessee as provided under the Lease.
5. Assignment to Third Party
At any time after giving notice of its election to accept assignment of
the lease, Franchisor may request to assign its lease, or sublease the Premises,
to a third party. Lessor agrees not to unreasonably withold its consent to any
such assignment or sublease on the same terms as the Lease; provided however,
that if Lessor refuses to consent to such assignment or sublease by Franchisor,
Franchisor shall have no further obligations thereunder.
6. Entry of Franchisor
Lessor and Lessee hereby acknowledge that Lessee has agreed under the
Franchise Agreement that Franchisor and its employees or agents shall have the
right to enter the Outlet operated by Lessee at the Premises at any time during
business hours for the purpose of conducting inspections, protecting
Franchisor's Proprietary Marks, and correcting deficiencies of Lessee. Lessor
and Lessee hereby agree not to interfere with or prevent such entry by
Franchisor, its employees or agents.
7. De-Identification
Lessor and Lessee hereby acknowledge that in the event the Franchise
Agreement expires or is terminated, Lessee is obligated under the Franchise
Agreement to take certain steps to de-identify the location as a "ZAP Electric
Vehicle Outlet" operated by Lessee. Lessor agrees to cooperate fully with
Franchisor in enforcing such provisions of the Franchise Agreement against
Lessee, including allowing Franchisor, its employees and agents to enter and
remove signs, decor and materials bearing or displaying any marks, designs or
logos of Franchisor; provided, however, that Lessor shall not be required to
bear any expenses thereof. Lessee agrees that if Lessee fails to de-identify the
Premises
70
promptly upon termination or expiration as required under the Franchise
Agreement, Franchisor may cause all required de-identification to be completed
at Lessee's expense.
8. General Provisions
(A) This Agreement shall be binding upon the parties hereto and their
successors, assigns, heirs, executors, and administrators. The rights and
obligations herein contained shall continue notwithstanding changes in the
persons or entities that may hold any leasehold or ownership in the land or
building. Any party hereto may record this agreement or a memorandum hereof.
(B) Any party hereto may seek equitable relief, including without
limitation injunctive relief or specific performance, for actual threatened
violation or nonperformance of this Agreement by any other party. Such remedies
shall be in addition to all other rights provided for under this or other
agreements between any of the parties. The prevailing party in any action shall
be entitled to recover its legal fees together with court costs and expenses of
litigation.
(C) Nothing contained in this Agreement shall affect any term or
condition in the Franchise Agreement between Lessee and Franchisor. Nothing
herein shall be deemed to constitute a guaranty or endorsement by Franchisor of
the terms and conditions of the Lease between Lessor and Lessee. In the event
that Franchisor, in its sole discretion, determines not to accept assignment of
the Lease as permitted hereunder, neither Lessor nor Lessee shall have any
claims against Franchisor. No terms or conditions contained in the Lease shall
be binding on Franchisor unless and until it elects to accept assignment of the
Lease hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date first above written.
WITNESS: LESSOR:
--------------------------------- ---------------------------------
WITNESS: LESSEE:
--------------------------------- ---------------------------------
FRANCHISOR: ZAP POWER SYSTEMS
By: _____________________________ Title: ___________________________
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EXHIBIT F
MINIMUM SALES QUOTA
This Agreement shall automatically renew for a period of one year in the event
that Franchisee meets the Minimum Sales Quotas, as determined on a cumulative
average basis (the "Cumulative Average"), in each respective year as set forth
below.
1. Year One. Net Sales in excess of one hundred twenty-five thousand
dollars ($125,000).
2. Year Two. Net Sales in excess of two hundred thousand dollars
($200,000).
3. Year Three and thereafter. Net Sales in excess of two hundred
fifty thousand dollars ($250,000).
Net Sales are defined as Gross Sales less returns and allowances and applicable
sales tax.
Example: Assume Franchisee has Net Sales of $100,000 in Year One. This means
that the Franchisee does not meet the Minimum Sales Quota for Year One, and
Franchisor can terminate the franchise relationship pursuant to Article II of
the Franchise Agreement. However, assuming Franchisor decides to extend the term
of the Franchise Agreement (pursuant to Article II) despite Franchisee's failure
to meet the Minimum Sales Quota for Year One, and assuming further that
Franchisee has Net Sales of $350,000 in Year Two, then the Cumulative Average
for Years One and Two is $225,000 ($100,000 + $350,000 = $450,000 divided by 2).
In this case, Franchisee does meet the Minimum Sales Quota for Year Two because
the Cumulative Average is greater than the Minimum Sales Quota required for Year
Two ($225,000 > $200,000). As a result, the term of the Franchise Agreement is
automatically renewed for one year. After the third year, the Cumulative Average
shall be calculated on a three-year basis, with the same right in Franchisor to
terminate or extend this Agreement pursuant to Article II.
--------------------------------
Franchisee's Initials
(Refer to Article 2.1 of the Agreement)
72
ZAP POWER SYSTEMS
INFORMATION FOR PROSPECTIVE FRANCHISEES
REQUIRED BY THE FEDERAL TRADE COMMISSION
TO PROTECT YOU, WE HAVE REQUIRED YOUR FRANCHISOR TO GIVE YOU THIS INFORMATION.
WE HAVE NOT CHECKED IT. AND DO NOT KNOW IF IT IS CORRECT. IT SHOULD HELP YOU
MAKE UP YOUR MIND. STUDY IT CAREFULLY. WHILE IT INCLUDES SOME INFORMATION ABOUT
YOUR CONTRACT, DO NOT RELY ON IT ALONE TO UNDERSTAND YOUR CONTRACT. READ ALL OF
YOUR CONTRACT CAREFULLY. BUYING A FRANCHISE IS A COMPLICATED INVESTMENT. TAKE
YOUR TIME TO DECIDE. IF POSSIBLE, SHOW YOUR CONTRACT AND THIS INFORMATION TO AN
ADVISOR, LIKE A LAWYER OR AN ACCOUNTANT. IF YOU FIND ANYTHING YOU THINK MAY BE
WRONG OR ANYTHING IMPORTANT THAT HAS BEEN LEFT OUT, YOU SHOULD LET US KNOW ABOUT
IT. IT MAY BE AGAINST THE LAW.
THERE MAY ALSO BE LAWS ON FRANCHISING IN YOUR STATE. ASK YOUR STATE AGENCIES
ABOUT THEM.
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
1
FRANCHISE OFFERING CIRCULAR
[LOGO HERE]
ZAP Power Systems, a California Corporation
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
Website: ▇▇▇▇▇▇▇▇.▇▇▇
Brief Description of Business
The Franchisee will operate a ZAP Electric Vehicle Outlet that sells proprietary
electric power bicycle kits, electric bicycles and tricycles, electric scooters,
and other low-power electric transportation vehicles. The Franchisor offers
franchises for single locations and multiple locations as well as zone
franchises.
Payments Required
Under single and/or multiple franchises, the initial fee will be $12,500 for the
first Outlet and $10,000 for each one thereafter. These franchise fees are not
due until Franchisor has fulfilled and performed all of its initial obligations
to the Franchisee. This sum does not include rent for the business location.
Under a zone franchise, the initial development fee (representing cumulative
initial franchise fees) depends upon the number of Outlets required to be opened
in a given zone. The estimated initial investment required ranges from $99,500
to $158,000. Except for the prepayment of franchise fees and certain working
capital funds needed to commence operations, there is no initial investment
required upon execution of a zone development agreement following the opening of
multiple locations.
RISK FACTORS:
1. THE FRANCHISE AND ZONE DEVELOPMENT AGREEMENTS REQUIRE THE FRANCHISEE AND
DEVELOPER TO ARBITRATE ANY CLAIMS AGAINST THE FRANCHISOR ONLY IN THE COUNTY OF
SAN FRANCISCO, STATE OF CALIFORNIA OUT OF STATE ARBITRATION MAY FORCE YOU TO
ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO
ARBITRATE IN CALIFORNIA THAN IN YOUR OWN STATE.
2
2. THE FRANCHISE AND ZONE DEVELOPMENT AGREEMENTS STATE THAT CALIFORNIA LAW
GOVERNS THE AGREEMENTS, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND
BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.
3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators
listed in Exhibit 1 or your public library for sources of information.
Registration of this franchise with the state does not mean that the state
recommends it or has verified the information in this Offering Circular. If you
learn that anything in this Offering Circular is untrue, contact the Federal
Trade Commission and the state authority listed on Exhibit 1.
Effective Date:______________________________, 1997
3
ZAP POWER SYSTEMS OFFERING CIRCULAR
TABLE OF CONTENTS
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES ................................ 5
BUSINESS EXPERIENCE ............................................................ 6
LITIGATION ..................................................................... 7
BANKRUPTCY ..................................................................... 7
INITIAL FRANCHISE FEE .......................................................... 8
OTHER FEES ..................................................................... 9
INITIAL INVESTMENT .............................................................10
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES ...............................13
FRANCHISEE'S OBLIGATIONS .......................................................15
FRANCHISOR'S OBLIGATION ........................................................16
TERRITORY ......................................................................22
TRADEMARKS .....................................................................23
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION ................................25
OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS ....25
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL ...................................26
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION ..........................27
PUBLIC FIGURES .................................................................31
EARNINGS CLAIMS ................................................................31
LIST OF OUTLETS ................................................................31
FINANCIAL STATEMENTS ...........................................................31
CONTRACTS ......................................................................31
RECEIPT ........................................................................32
APPENDIX 1 .....................................................................34
APPENDIX 2 .....................................................................35
EXHIBITS
1 Franchise Agreement
2 Zone Development Agreement
3 Audited Balance Sheet
4
Item 1
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
The Franchisor is ZAP Power Systems doing business as ZAP Power Systems, and
will be referred to as "we", "us", "our", "Franchisor", or "ZAP" in this
Offering Circular. We will refer to the person who buys the franchise as "you"
or "your" throughout the Offering Circular. If you are a corporation, certain
provisions of the agreement also apply to your owners and will be noted. We are
a California corporation incorporated in September of 1994. We do business as
"ZAP Power Systems." Our principal business address is ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. We do not have a predecessor company nor do we
have any affiliates.
ZAP develops, manufactures and markets lightweight low-powered electric
vehicles. We currently produce an electric power assist kit for bicycles and
tricycles and assemble complete electric-powered bicycles and tricycles. We also
distribute electric scooters. Several members of ZAP's management team have more
than two decades of work in the electric vehicle and transportation industries.
We franchise the right to sell ZAP Electric Vehicles and Power Kits to the
public. We have no other business activities.
Each Outlet will be operated under our standard Franchise Agreement (the
"Franchise Agreement"), which is attached as Exhibit I of this Offering
Circular. You will be required to operate your "ZAP Electric Vehicle Outlet"
(the "Outlet") according to our standards and specifications and you will have
to sign our Franchise Agreement. Our Outlets sell high quality, proprietary
electric vehicle products (collectively, the "Proprietary Products"), and a wide
variety of non-proprietary products. Our Outlets operate under a uniform
business format, consisting of methods, procedures, building designs, decor,
color schemes and trade dress. This format also includes certain trademarks,
service marks, logos, copyrights and commercial symbols owned by us (the
"Marks"). You will be competing with other bicycle retailers and other
distributors. The market for bicycle retailers is developed in some major cities
but is undeveloped in many areas. There are no regulations specific to the
operation of this type of Outlet although you will be required to comply with
all local, state and federal health and sanitation laws in the operation of your
Outlet. There may be other laws
5
applicable to your business and we urge you to make further inquiries about
these laws.
Item 2
BUSINESS EXPERIENCE
The following is the list of directors, principal officers and other executives
who have management responsibility in the operation of our business relating to
the franchises described in this Offering Circular. Each person's principal
occupation and business experience during the past five years, including the
names and locations of prior employers, is described below.
Managing Director ▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇ is Managing Director for ZAP. He has been building and driving
electric cars for more than 20 years. In addition to overseeing the marketing of
more than 5,000 electric vehicles, ▇▇. ▇▇▇▇▇ has invented several solar electric
products and conservation devices. ▇▇. ▇▇▇▇▇ founded U.S. Electricar's electric
vehicle operations in 1983.
▇▇. ▇▇▇▇▇ also serves as an advisor to Zebra Motors, Inc., a designer of an
electric sports car, and has been a technical advisor to UCLA's ▇▇▇▇▇ Center for
Regional Policy Studies. He's been a member of the California Environmental
Technology Advisory Council and has been a guest lecturer at Stanford
University's Graduate School of Business.
In 1993, ▇▇. ▇▇▇▇▇ earned a Private Industry Council Recognition Award for
creating job opportunities in the Electric Vehicle industry and was named as one
of the ten most influential electric car authorities by Automotive News. More
recently, he was honored by the American Lung Association of San Francisco with
a Clean Air Award in Technology and was recognized by U.S. Senator ▇▇▇▇▇▇▇ ▇▇▇▇▇
for his contributions towards clean air.
President and Director: ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ has over 25 years experience in design, development, engineering,
manufacturing and marketing. He has brought over 100 successful consumer
products from conception to the mass market. He has been a pioneer in the
ultralight aircraft, personal watercraft, and motorcycle racing fields. He is
the founder and/or former president of Prototype Exhaust systems, Inc., ▇▇▇▇▇▇▇
Metalworking, ▇▇▇▇▇▇▇▇ Racing and ▇▇▇▇▇▇▇ Development. His commitment to
electric transportation began in 1991 with
6
successful competition in electrathon racing. He holds several records and
winning times for this lightweight electric vehicle class. He has been a racer
of motorcycles and has built motor parts, frames, chassis and other specialty
parts for both manufacturers and other racers. ▇▇. ▇▇▇▇▇▇▇ has also designed and
built composite racing sail boats. A skilled machinist, welder, and tool and die
maker, he has designed and built nearly every kind of lightweight motorized
vehicle. A prolific inventor, ▇▇. ▇▇▇▇▇▇▇ has filed five patents (1 granted, 2
pending, 2 expired) in the resource conservation and transportation fields.
General Manager: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇ has been involved in the retail bicycle industry since he was 11
years old when he worked for his family's retail bicycle shop. He successfully
started, managed, and operated a retail bicycle store for 11 years prior to
selling it for several times his initial costs. Before opening his bicycle
store, ▇▇. ▇▇▇▇▇▇▇▇ worked in the insurance industry, specializing in sales and
management. ▇▇. ▇▇▇▇▇▇▇▇ received a degree in Business Economics and
Communication Studies from the University of California at Santa ▇▇▇▇▇▇▇.
Item 3
LITIGATION
No material litigation involving ZAP has occurred, nor is any required to be
disclosed in this Offering Circular. Furthermore, neither Franchisor, nor any
individuals named in Item 2, above, is subject to any currently effective order
of any national securities association or national securities exchange, as
defined in the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et seq.,
suspending or expelling such persons from membership in such association or
exchange.
Item 4
BANKRUPTCY
No person previously identified in Items 1 or 2 of this Offering Circular has
been involved as a debtor in proceedings under the U.S. Bankruptcy Code (or
comparable foreign laws) in a manner required to be disclosed in this Item.
7
Item 5
INITIAL FRANCHISE FEE
Single and Multiple Franchises
You must pay an initial franchise fee of $12,500 (the "Initial Franchise Fee")
for the first Outlet and $10,000 for each one after the first. You must pay the
full amount of the initial franchise fee when you sign the Franchise Agreement,
but not until Franchisor has fulfilled and performed all of its initial
obligations to the Franchisee. The Initial Franchise Fee is payable by all
franchisees who buy a franchise. If within 180 days after the Franchise
Agreement is signed you cannot find a suitable site for your Outlet or do not
sign a lease or sublease, or obtain some type of possession rights, and if we
elect to cancel the Franchise fee, then you are entitled to a refund of the
Initial Franchise fee less $500.
If you wish to buy multiple franchises (with a limit of ten), you will be
required to pay the Initial Franchise Fee of $12,500 in advance for each
franchise. For example, if you buy six franchises, you will have to pay a total
of $62,500. This fee is not refundable except as discussed above.
Zone Franchises
A Zone Developer is a person or entity who purchases at least a minimum of 10
franchises (the actual minimum number of franchises may vary from region to
region) to be developed and built over a period of time. If you become a Zone
Developer, you must pay us a Zone Development Fee as follows: (1) upon signing
the Zone Development Agreement, but after we have fulfilled and performed all of
our initial obligations with respect to your franchises, you must pay to us 100%
of the Initial Franchise Fee for the minimum number of Outlets (e.g., $125,000)
and a negotiated percentage of the Initial Franchise Fees for the additional
Outlets to be developed under the terms of the Zone Development Agreement; (2)
upon the signing of any particular Franchise Agreement, you must pay us the
remaining balance, if any, of the Initial Fee for the Outlet referenced in the
Franchise Agreement being signed. Each and every Franchise Agreement referenced
in the Zone Development Agreement must be signed and all Initial Franchise Fees
must be paid in full before construction can be started on any Outlet location.
8
Even though there are contrary provisions in the Franchise Agreement, you must
understand that the entire Zone Development Fee is non-refundable.
Additional Initial Fees
In addition to the initial fees mentioned above, you must purchase your initial
supply of Proprietary Products from us. These additional fees are not due until
Franchisor has fulfilled and performed all of its initial obligations to the
Franchisee.
Item 6
OTHER FEES
These franchise fees are not due until Franchisor has fulfilled and performed
all of its initial obligations to the Franchisee.
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Name of Fee Amount Due Date Remarks
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Continuing 2% of Gross Payable monthly Gross sales
Monthly Service Sales by the fifth day include any and
Fee(1) ("CMSF") of the following all items sold
month less certain
taxes and
discounts
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National 1% of Gross Payable monthly Commences when a
Advertising Receipts by the fifth day national or
of the following regional fund is
month established
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Local 2.5% of Gross Spent Monthly 2.5% is a
Advertising Sales monthly average
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Refresher No charge N/A You pay your own
Training(2) expenses
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Transfer Fee 25% of Initial Prior to Payable upon
Franchise Fee transfer transfer
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Renewal No charge N/A No Fee upon
renewal
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Audit Cost of Audit or 15 days after Payable only
Inspection billing upon failure to
properly report
and pay
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Interest Highest rate 15 days after Payable on all
allowable by law billing past due
accounts
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Operations No charge N/A N/A
Manual
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Costs and Will vary under As incurred Payable upon
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-------------------------
(1) At our sole discretion, a CMSF may be charged in lieu of selling
Proprietary Products to you.
(2) The initial training class is for two persons. We do not charge a training
fee for this initial training class, which is held in Sebastopol,
California. You are responsible for the travel, living expense and related
costs.
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Attorney's Fees circumstances Default
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Indemnification Will Vary As incurred You are
responsible for
reimbursing us
if we are held
liable for
claims arising
from your Outlet
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Testing Cost of Testing 15 days after Covers the cost
billing of testing
products or
suppliers you
propose
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Relocation Cost of 15 days after Covers our cost
relocation billing of your
relocation
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Purchase of Costs Vary 15 days after Includes the
Proprietary billing cost of shipping
Products
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Commission on 10% of Sales Upon Closing If we procure
sale of Outlet Price the purchaser
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You should understand that if we do not sell the Proprietary Products to you, we
may charge you a 10% "Continuing Monthly Service Fee" (see first item in chart
above). This "CMSF" is like a royalty fee.
Item 7
INITIAL INVESTMENT
Expenditure Estimated When Method of Whether To Whom
Amount Payable Payment Refundable Paid
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Franchise $12,500 Upon Lump Sum Partially Us
Fee (1) Signing of
Franchise
Agreement,
but after
Franchisor
has
fulfilled
its
initial
obligations
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Leasehold $5,000 to As As Agreed No Other
Improvements $15,000 incurred Suppliers
(2)
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Furniture $20,000 to As As Agreed No Us and
Fixtures $40,000 Incurred Other
Equipment Suppliers
(2)
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Signage $2,000 to As As Agreed No Us and
$5,000 Incurred Outside
Suppliers
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Rent & $7,200 Per Lease Lump Sum Yes Landlord
Security (est.)
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10
Deposit (3)
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Opening $52,000 to As As Agreed No Us and
Inventory $75,000 Incurred Outside
and Suppliers
Supplies
(4)
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Grand $5,000 to As As Agreed No Advertising
Opening (5) $10,000 Incurred Sources
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Training $2,000 to As As No Us
Expense $2,500 Incurred Incurred
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Misc. (6) $2,500 As As No Third
Incurred Incurred Parties
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Advertising $1,250 Monthly Lump Sum No Us
Fees (7) (est.)
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Royalty (8) 2% Monthly Lump Sum No Us
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Working $5,000 to As As No Third
Capital (9) $10,000 Incurred Incurred Parties
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Estimated Min. As
Total (10) $99,500 Incurred
Max.
$158,000
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1. This fee is required for each Outlet, unless otherwise negotiated under a
Zone Development Agreement. This fee(s) is refundable only under the
circumstances set forth in Item 5
2. You may qualify for leasing of equipment from any non-affiliated third
party leasing company in which event your initial cash outlay would be
reduced. A leasing company may require only three months worth of lease
payments as the only initial cash payment. The typical equipment package
you will be required to obtain includes but is not limited to computer
hardware and software, telephone equipment, credit card machine, and
bicycle tools. We currently do not lease equipment to you.
3. A typical Outlet will range from 1,000 to 3,000 square feet. This example
is for 1,000 square feet at $2.40 per square foot with first and last
month's rent plus security deposit of one month's rent. The annual rent
for such a space will depend upon the location but will typically range
anywhere from $1.00 to $3.00 per square foot. Under such a lease, you
typically will be obligated to pay in the first month for the first and
last month's rent, plus a security deposit which is usually equivalent to
one month's rent. In addition, certain utility companies may require you
to pay a security deposit.
4. The actual amount will depend on the size of the Outlet and the amount and
variety of the ZAP Electric Vehicle products, materials and supplies
necessary for the opening of the Outlet under our standards.
ll
5. Advertising costs or expenses will vary depending upon the market in which
your Outlet is located and the type of advertising. You can expect a
variety of promotional activities to take place during the first month of
operation. These would include print media, broadcast media, direct mail,
coupons, press releases, and/or give away promotions, all of which shall
be consistent with the size of the market. You are required to spend a
minimum of 2.5% (on average per month) of your weekly gross sales on local
advertising and marketing and, when formed, to pay 1% of such sales to the
National Advertising Fund.
6. This item covers miscellaneous opening costs and expenses, e.g., telephone
installation costs, deposits for gas, electricity and related items ($500
approximately), business licenses ($500 approximately), legal and
accounting expenses and insurance premiums ($500 approximately).
7. This is your 2.5% of local advertising based on an estimated first month's
gross of $50,000.
8. There will be a royalty of two percent (2%) based on monthly Net Sales
(defined as Gross Sales less returns and allowances and applicable sales
tax).
9. This item estimates your initial start up expenses. These expenses include
payroll costs, which can be as high as $1,250 per week for the first few
weeks of operation, but do not include any draw or salary for you. These
figures are estimates, and we do not represent or guarantee that you will
not have additional expenses starting the business. Your actual costs may
depend on factors such as: the extent to which you deviate from our
prescribed methods and procedures; your management skill, experience and
business acumen; local economic conditions; the local market for your
products and services; the prevailing wage rate; competition; and the
sales level reached during the initial period.
10. These figures are estimates based on general experience. You should review
these figures carefully with a business advisor before making any decision
to purchase the franchise. We do not currently offer financing directly or
indirectly for any part of the initial investment. The availability and
terms of financing will depend on factors such as the availability of
financing generally, your creditworthiness, collateral you may have and
the lending policies of financial institutions.
12
Except for the Initial Franchise Fee and the opening advertising and promotion
fee, all other costs related to the development of your Outlet will be owing by
you as you incur them. Except as noted in the Franchise Agreement and/or the
Zone Development Agreement, none of these costs are refundable. We do not
currently offer, either directly or indirectly, financing to you for any items,
costs or fees. However, you may be able to finance your initial investment in
whole or in part through a financial institution or directly from suppliers of
specific items. The availability and terms of financing will depend on such
factors as the availability of financing generally and your creditworthiness,
loan security available from you, the lender's policies regarding financing and
similar considerations.
Franchise Agreement
Your estimated initial cash investment with respect to the opening of each
Outlet and the operation of that Outlet during the first three months that it is
open is shown in the above chart. These costs are estimates only. Actual costs
may vary depending upon the area of the country in which the Outlet is located
and other factors.
Zone Development Agreement
If you enter into a Zone Development Agreement, you will need certain working
capital funds to commence operations, and you will have to pay the Initial
Development Fee. Also, an initial investment will be required each time you open
a Outlet within the exclusive development zone. A copy of our Zone Development
Agreement is attached as Exhibit 2.
The Initial Development Fee you will be required to pay will depend upon the
number of Outlets you are required to open under the Zone Development Agreement.
Please refer to Item 5 of this Offering Circular for specifics regarding the
Initial Development Fee.
Item 8
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
You are required to purchase the Proprietary Products only from us. The
Proprietary Products are our electric power bicycle kits, electric bicycles and
tricycles, electric scooters, and other low-power electric transportation
vehicles, and various "ZAP" branded
13
products. We are presently the sole source of supply which provides Proprietary
Products. We derive revenue from the sale of the Proprietary Products to you.
The cost of the Proprietary Products is estimated at $240,000 of all purchases
made in operating the Outlet and they are estimated to be approximately 60% of
the total electric vehicle-related expenses in the on-going operation of the
Outlet. Other than your purchase from us of our Proprietary Products, we do not
require that you purchase or lease from a designated supplier goods, services,
supplies, fixtures, equipment, or inventory. We do, however reserve the right to
set product and equipment specifications from time to time which impose certain
quality standards.
You must submit to us for approval all supplies and materials before using them.
We may examine the facilities of any supplier or distributor and test any
materials or supplies to determine whether they meet our standards and
specifications. We have the right to charge reasonable fees for testing and
evaluating any new equipment, fixture, furniture, or sign that you propose to
use as well as for testing and evaluating proposed and approved suppliers or
distributors. We also may impose reasonable limitations on the number of
approved suppliers or distributors of any product. We will notify you within a
reasonable time (generally not to exceed 30 days) whether any supplies,
materials, suppliers or distributors that you submit or propose meet with our
approval. We may revoke prior approval for any reason. Our criteria for supplier
approval are not available to you, although approval of a supplier or
distributor may be conditioned on factors such as frequency of delivery,
standards of service including prompt attention to complaints, the ability to
service and supply Outlets within Zones designated by us and the quality of
products sold. Further, your ability to purchase from other suppliers, including
those who sell to our Outlets, will depend on such factors as a willingness of
the suppliers to sell directly to you, the availability of various products and
whether there are suppliers who are willing or able to manufacture products
meeting our specifications.
In addition to the purchases described above, you are obligated to obtain and
maintain, at your own expense, such insurance coverage that we require. Our
system may regulate the following- the types, amounts, terms and conditions of
insurance coverage required for the Outlet; the standards for underwriters of
policies providing required insurance coverage; our protection and rights under
such policies as an additional named insured; required or impermissible
insurance contract provisions; assignment of policy rights to us; periodic
verification of insurance coverage that must be furnished
14
to us; our right to obtain insurance coverage at your expense if you fail to
obtain required coverage; our right to defend claims; and similar matters
relating to insured and uninsured claims. We have the right to obtain insurance
coverage at your expense if you fail to obtain required coverage and to defend
claims brought against any policy.
Currently, you are required to have One Million Dollars ($1,000,000) coverage
for your comprehensive liability insurance coverage, including property damage,
bodily injury, business interruption, dram shop, automobile liability and as set
by local law, workers' compensation insurance coverage. The cost of this
coverage will vary depending on the insurance carrier's charges, terms of
payment and your history. All insurance policies must name us as an additional
insured party.
We will loan to you an operating manual containing mandatory and suggested
standards. We have formulated these standards to ensure high quality services
and products, the efficient operation of the Outlet, and the protection of the
goodwill associated with the Marks. We may modify the manual to improve any of
these factors. However, no modification will alter your rights under the
Franchise Agreement. We may issue portions of the manual to approved suppliers.
There are currently no purchasing or distribution cooperatives.
Item 9
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER
AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR
OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
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OBLIGATION ARTICLE IN SECTION IN ZONE ITEM IN OFFERING
FRANCHISE DEVELOPMENT CIRCULAR
AGREEMENT AGREEMENT
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(a) Site selection Article VII N/A Items 7 and 11
and acquisition
lease
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(b) Pre-opening Article VII and N/A Item 8
purchases/leases XI
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(c) Site Articles VII and N/A Items 6, 7 and
development and VIII 11
other pre-opening
requirements
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(d) Initial and Article IX N/A Items 7 and 11
ongoing training
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15
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(e) Opening Article X N/A Item 11
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(f) Fees Articles III, XI Section II Items 5, 6, 7
and XIV and 11
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(g) Compliance Articles XI and N/A Item 11
with standards and XIII
policies
/Operations Manual
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(h) Trademarks Article VI, XI Section VI Items 13 and 14
with proprietary and XXVI
information
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(i) Restrictions Article XI Section VI Items 8, 11 and
on products 16
/services offered
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(j) Warranty and None None None
customer service
requirements
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(k) Territorial Article II; None Item 12
development and Exhibit F
sales quotas
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(1) On-going Article XI N/A Item 8
product/service
purchases
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(m) Maintenance, Articles XI and N/A Item 11
appearance and XV
remodeling
requirements
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(n) Insurance Article XVI N/A Items 7 and 8
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(o) Advertising Article XIV N/A Items 6, 7 and
11
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(p) Article XVII Section XV Item 6
Indemnification
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(q) Owner's Article XI Section VI Items 11 and 15
participation/
management
/staffing
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(r) Records/ Article XII N/A Items 6 and 11
Reports
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(s) Inspection/ Article XII N/A Item 6
Audits
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(t) Transfer Article XXII Section X Item 17
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(u) Renewal Article II Section IV Item 17
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(v) Post- Article XX Section IX Item 17
termination
obligations
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(w) Non- Article XXVI Section XI Item 17
competition
covenants
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(x) Dispute Articles XIX and Section XXI Item 17
resolutions XX
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Item 11
FRANCHISOR'S OBLIGATION
Except as listed below, we need not provide any assistance to you.
16
Before you open the Outlet, we will:
(1) Give you our site selection criteria for the Outlet and, after you have
selected and we have appropriated the site, designate your exclusive Zone. The
site must meet our criteria for demographic characteristics, traffic patterns,
parking, character of neighborhood, competition from and proximity to other
businesses, the nature of other businesses in proximity to the site and other
consumer characteristics, and the size, appearance and other physical
characteristics of the proposed site. We will approve or disapprove a location
you propose for the Outlet within 30 days after we receive a complete site
report and other materials we request. We do not guarantee the success of any
site or any lease. (Franchise Agreement-Section 4.1.B).
(2) Give you mandatory and suggested specifications and layouts for your Outlet,
including requirements for dimensions, design, image, interior layout, decor,
fixtures, equipment, signs, furnishings and color scheme. (Franchise Agreement
Section 4.1A) .
(3) Loan you one copy of the Operations Manual. (Franchise Agreement - Article
XIII).
(4) Assist you in your grand opening advertising and promotional program for the
Outlet. (Franchise Agreement, Section 4.1.J).
(5) Train you and your manager. (Franchise Agreement - Article IX) This training
is described in detail later in this Item.
During the operation of the Outlet, we will:
(1) Advise you regarding operating issues concerning the Outlet disclosed by
reports you submit and inspections we make. In addition, we will give you
guidance on standards, specifications and methods used by other Outlets in the
System; new products and display methods; purchasing required fixtures,
furnishings, equipment, signs, products, materials and supplies; advertising and
marketing programs; employee training; and administrative, bookkeeping and
accounting procedures. At our sole discretion, some or all of this guidance will
be furnished in our Operations Manual, bulletins or other written materials
and/or during telephone consultations at our office or the Outlets. (Franchise
Agreement Section 4.1.F., G., H.).
17
(2) Provide you at our discretion with advertising, marketing and other
promotional materials, at cost, and revise and approve or disapprove of proposed
advertising materials prepared by you for use in local advertising (Franchise
Agreement, Section 4.1 .J)
(3) Sell you, or have a designee sell you, your entire supply of Proprietary
Products, unless prevented by Force Majeure or other uncontrollable
circumstances, and will be one source for some non-proprietary products
(Franchise Agreement, Section 4.2) .
(4) Inspect and observe the operations of the Outlet from time to time to
determine whether you and the Outlet are complying with the Franchise Agreement
and all System standards. (Franchise Agreement, Section 4.1.K) .
(5) For a Developer, at our sole discretion, build a commissary for the
production of Proprietary Products or build on as a jointventure with a
Developer. (Zone Development Agreement, Section VII.
(6) Establish, maintain and administer an advertising fund (the "Advertising
Fund") at our sole discretion, for such national or regional advertising,
marketing and public relations programs and materials that we deem necessary or
appropriate. You will have to contribute to the Advertising Fund 1% of your
gross sales. (See Item 6). Outlets owned and operated by us are obligated to
contribute to the Advertising Fund when it is created.
When and if established, we will direct all programs financed by the Advertising
Fund, with sole discretion over the creative concepts, materials and
endorsements used and the geographic, ▇▇▇▇ and media placement and allocation of
the programs. The Advertising Fund may be used to pay for the following- the
costs of preparing and producing video, audio and written advertising materials;
the costs to administer regional and Multi-Regional advertising programs,
including, without limitation, the costs of purchasing direct mail and other
media advertising and employing advertising, promotion and marketing agencies to
provide assistance; and the costs to support public relations, market research
and other advertising, promotion and marketing activities. The Advertising Fund
will furnish you with samples of advertising marketing and promotional formats
and materials at no cost. Multiple copies of such materials with be furnished to
you at our direct cost of producing them, plus any related shipping, handling
and storage charges.
18
The Advertising Fund will be accounted for separately from our other funds and
will not be used to defray any of our general operating expenses, except for
such reasonable salaries, administrative costs, travel expenses and overhead as
we may incur in activities related to the administration of the Advertising Fund
and its programs, including conducting market research, preparing advertising,
promotion and marketing materials and collecting and accounting for
contributions to the Advertising Fund. We may spend, on behalf of the
Advertising Fund, in any fiscal year, an amount greater or less than the
aggregate contribution of all ZAP Electric Vehicle Outlets to the Advertising
Fund in that year and the Advertising Fund may borrow from us or others to cover
deficits or invest any surplus for future use. All interest earned on monies
contributed to the Advertising Fund will be used to pay advertising costs before
other assets of the Advertising Fund are expended. We will prepare an annual
statement of monies collected and costs incurred by the Advertising Fund and
furnish it to you upon written request. No money will be spent by the
Advertising Fund to solicit new franchisees. We have the right to cause the
Advertising Fund to be incorporated or operated through a separate entity at
such time as we deem appropriate, and the successor entity will have all of the
rights and duties described here.
The Advertising Fund when created will be used to maximize recognition of the
Marks and patronage at all of the Outlets. We will try to utilize the
Advertising Fund to develop advertising and marketing materials and programs and
to place advertising that will benefit all of the Outlets. We are not obligated
to guarantee that expenditures by the Advertising Fund in or affecting any
geographic zone are proportionate or equivalent to the contributions to the
Advertising Fund by the Outlets operating in that geographic Zone or that any of
the Outlets will benefit directly or in proportion to its contribution to the
Advertising Fund from the development of advertising and marketing material or
the placement of advertising. We assume no other direct or indirect liability or
obligation to you with respect to collecting amounts due to, or maintaining,
directing or administering, the Advertising Fund.
All advertising, promotion and marketing must be completely clear and factual
and not misleading and conform to the highest standards of ethical marketing and
the promotion policies which we prescribe from time to time. Samples of all
advertising, promotional and marketing materials that we have not prepared or
previously approved must be submitted for approval before you use them. If you
do not receive written disapproval within 15 days
]9
after we receive the materials, we will be deemed to have given the required
approval. You may not use any advertising or promotional materials that we have
disapproved. Franchise Agreement - Article XIV).
There currently are no franchise advertising councils.
We have no advertising cooperatives.
You must keep your books and business records according to our formats. To help
your reporting to us and other communications, you will have to operate an
electronic cash register at the Outlet. The cash register system that you must
use is:
================================================================================
We have the right to access your register at any time.
We estimate that there will be an interval of 4 to 6 months between the
execution of the Franchise Agreement and the opening of the Outlet, but the
interval may vary based upon such factors as the location and condition of the
site, the construction schedule for the Outlet, the extent to which an existing
location must be upgraded or remodeled, the delivery schedule for equipment and
supplies, delays in securing financing arrangements and completing training, and
your compliance with local laws and regulations. You may not open the Outlet for
business until all the following events have occurred- (1) we approve the Outlet
as developed according to our specifications and standards (2) preopening
training has been completed to our satisfaction; (3) the Initial Franchise Fee
and all other amounts then due to us have been paid in full; and (4) we have
been furnished with copies of all required insurance policies such other
evidence of insurance coverage and payment of premiums as we request. You must
open the Outlet for business within 180 days after the execution of the
Franchise Agreement and 5 days after we notify you that the Outlet is ready to
open.
Our site selection approval is based on residential population, traffic counts
and patterns, competing establishments, median income levels, availability of
parking, rental and lease terms, physical configuration of the site and growth
trends in the Zone. We must approve any site selected but our consent will not
be unreasonably withheld, provided that your lease contains a Conditional
Assignment of the Lease in a form designated by us.
20
Before the Outlet's opening, we will provide initial training for the operation
of an Outlet to you and your manager for 4 to 6 days. This training will be
given in Sebastopol, California. One day of training will take place at your
location. Each of you must complete the initial training to our satisfaction.
You also must participate in all other activities required to open the Outlet.
Although there are no additional fees for this training, you are responsible for
all travel and living expenses that you and your employees incur in connection
with training.
You must replace the manager if we determine that he or she is not qualified to
serve in this position. If you (or your managing shareholder or partner) are
unable to complete initial training to our satisfaction, we can terminate the
Franchise Agreement.
We expect that training will be conducted for you and your personnel after the
Franchise Agreement has been signed and while the Outlet is being developed. We
plan to be flexible in scheduling training to accommodate our personnel, you and
your personnel. There currently are no fixed (i.e., monthly or bimonthly)
training schedules. We plan on providing the following training which may be
modified by us:
------------------------------------------------------------------------------------------------------------------------------------
SUBJECT TIME BEGUN INSTRUCTION HOURS OF HOURS OF JOB
MANUAL CLASSROOM TRAINING
TRAINING
------------------------------------------------------------------------------------------------------------------------------------
ASSEMBLY/ Day 1 OPS Manual 8
INSTALLATION
------------------------------------------------------------------------------------------------------------------------------------
PERSONNEL Day 2 OPS Manual 4
------------------------------------------------------------------------------------------------------------------------------------
ADMIN Day 3 OPS Manual 4
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS Day 4 OPS Manual 8
------------------------------------------------------------------------------------------------------------------------------------
ADVERTISING Day 5 OPS Manual 4
------------------------------------------------------------------------------------------------------------------------------------
CUSTOMER Day 5 OPS Manual 4
SERVICE
------------------------------------------------------------------------------------------------------------------------------------
REPAIR Day 6 OPS Manual 3
------------------------------------------------------------------------------------------------------------------------------------
INVENTORY Day 6 OPS Manual 3
CONTROL
------------------------------------------------------------------------------------------------------------------------------------
MARKETING Day 6 OPS Manual 2
------------------------------------------------------------------------------------------------------------------------------------
You (or your managing shareholder or partner) and/or previously trained managers
must attend any periodic refresher training courses that we designate. You also
will have to pay us for training new managers hired after the Outlet's opening.
Zone Development Agreement
Except as listed below, we need not provide any assistance to Developer.
21
If we determine that a Developer has the financial capacity, that a proposed
site for the Outlet within the development Zone is a suitable site and that
Developer is in compliance with the Zone Development Agreement and all Franchise
Agreements have been signed pursuant to the provisions of the Development
Agreement, then we will grant to Developer a franchise for the operation of an
Outlet at the site proposed by Developer. (Zone Development Agreement, Section
VIII)
Item 12
TERRITORY
Franchise Agreement
You will have the exclusive right to operate an Outlet at the single location
designated in the Franchise Agreement and will have the exclusive right to
operate an Outlet within a two to three mile radius of that location in suburban
areas and from five blocks to ten blocks in a downtown area such as Los Angeles
or San Francisco. However, no exclusivity will be granted with respect to
Outlets located in regional malls. We will not operate or grant a franchise for
the operation of a competing Outlet within your Exclusive Zone. We may designate
certain Zones within which we will not grant exclusive rights.
We reserve the right to sell our Proprietary Products through other channels of
distribution under our trademark or service ▇▇▇▇ in airports and sports stadiums
located in your Exclusive Area. But we have not nor will we establish other
franchises or company-owned Outlets under a different trademark or service ▇▇▇▇
in your Exclusive Area. We also have the right to operate or franchise Outlets
outside of your Exclusive Area.
We have not nor will we establish a Company-owned Outlet or other channels of
distribution using the name "ZAP Electric Vehicle Outlet" in your Exclusive
Area.
The minimum sales quota is ________________ in Gross Sales per year (see Exhibit
F of Franchise Agreement). Your Outlet location and exclusive Area may not be
altered except by a written agreement between you and us.
Zone Development Agreement
22
Under a Zone Development Agreement, a developer may be granted an exclusive Zone
within which to develop Outlets. We will not operate or grant a franchise to
another for the operation of an Outlet within this Zone, except for certain
pre-existing franchises, if any, disclosed in the Development Agreement. The
development territory will not contain less than 500,000 residential or
transient people ("transient" being defined as commuters or workers). The
boundaries of the exclusive Zone will be outlined on a map attached to the
Development Agreement.
The exact number of Outlets which Developer must open each year will be
specified in the Development Agreement and will be based, in part, upon the
market potential of the development Zone. Developer may develop more Outlets
than required in the Development Schedule with our consent for each Outlet. For
each Outlet Developer must pay the fees required under the Franchise Agreement
for that Outlet.
We may terminate the Development Agreement, including Developer's territorial
rights, and retain all fees paid by Developer if Developer fails to timely open
the number of Outlets required in the Development Agreement or if we terminate
any Franchise Agreement entered into by Developer pursuant to the Development
Agreement.
The operation by Developer of each Outlet is governed by the terms of the
Franchise Agreement signed in connection with the opening and operation of each
such Outlet. Thus, the termination of the Development Agreement will have no
effect on the Franchise Agreement previously entered into by Developer.
Item 13
TRADEMARKS
We grant to you the right to use certain trademarks, service marks and other
commercial symbols in connection with the operation of your Outlet. Our primary
trademark is "ZAP" and certain associated designs (the "Marks"). This ▇▇▇▇ was
registered on the Principal Register of the United States Patent and Trademark
Office on September 28, 1993, under registration no. 1,794,866. We also have
three other trademarks pending before the United States Patent and Trademark
Office.
You must follow our rules when you use these Marks. You cannot use the Marks as
part of a corporate name or with modifying words, designs or symbols except for
those which we license to you. You
23
may not use the Marks in connection with the sale of any unauthorized products
or services or in any manner not authorized in writing by us.
There are no currently effective material determinations of the United States
Patent and Trademark Office, the Trademark Trial and Appeal Board, or the
trademark administrator of any state or any court, nor are there any pending
infringement, opposition or cancellation proceedings or material litigation,
involving the Marks anywhere, including in your exclusive Zone. There are no
agreements currently in effect which significantly limit our right to use or
license the use of the Marks in any manner material to the franchise.
You must notify us immediately of any apparent infringement or challenge to your
use of the ▇▇▇▇, or of any claim by any person of any rights in any ▇▇▇▇, and
may not communicate with any person other than us, our attorneys and your
attorneys in connection with any such infringement, challenge or claim. We have
sole discretion to take such action as we deem appropriate and the right to
control exclusively any litigation, United States Patent and Trademark Office
proceeding or any other administrative proceeding arising from such
infringement, challenge or claim or otherwise relating to the ▇▇▇▇. You must
sign any instruments and documents, provide such assistance and take any action
that, in the opinion of our attorneys, may be necessary or advisable to protect
and maintain our interests in any litigation or United States Patent and
Trademark Office proceeding or other proceeding or otherwise to protect and
maintain our interests in the Marks. The Franchise Agreement requires us to
participate in your defense and/or indemnify you for expenses or damages if you
are a party to an administrative or judicial proceeding involving a ▇▇▇▇
licensed to you by us or if the proceeding is resolved unfavorably to you.
If it becomes advisable at any time in our sole discretion for us and/or you to
modify or discontinue the use of any ▇▇▇▇ and/or use one or more additional or
substitute trade or service marks, you must comply with our directions within a
reasonable period of time after receiving notice. We will reimburse you for your
reasonable direct expenses of changing the Outlet's signage. However, we will
not be obligated to reimburse you for any loss of revenue attributable to any
modified or discontinued ▇▇▇▇ or for any expenditures you make to promote a
modified or substitute trademark or service ▇▇▇▇.
Item 14
24
PATENTS, COPYRIGHTS AND PROPRIETARY INFORM3%TION
The ZAP electric bicycle power system was registered on the Principal Register
of the United States Patent and Trademark Office on February 13, 1996, under
registration no. 5,491,390. We also have two other patents pending before the
United States Patent and Trademark Office. We claim copyright protection of our
Operations Manual and related materials although these materials have not been
registered with the United States Registrar of Copyrights. The Operations Manual
and related materials are considered proprietary and confidential and are
considered our property and may be used by you only as provided in the Franchise
Agreement. You may not use our confidential information in any unauthorized way
and you must take reasonable steps to prevent its disclosure to others.
We may reveal certain proprietary information to you, which includes: designs,
plans, schematics, formulae, customer lists, and information in the manuals
provided to you. You and your employees are obligated to maintain the absolute
confidentiality of this information at all times.
There currently are no effective determinations of the Copyright Office (Library
of Congress) or any court regarding any of the copyrighted materials. There are
no agreements in effect which significantly limit our right to use or license
the copyrighted materials. Finally, there are no infringing uses actually known
to us which could materially affect a franchisee's use of the copyrighted
materials in any state. We are not required by any agreement to protect or
defend copyrights or confidential information, although we intend to do so when
this action is in the best interest of our System.
Item 15
OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE
BUSINESS
Franchise Agreement
You must at all times directly supervise the operation of the Outlet or you may
employ a manager for this purpose. Notwithstanding, we recommend that you
conduct direct, on-premises supervision of the Outlet and not delegate this duty
to another. If you do appoint a manager for these duties, we must train him or
her. Also, you must inform us of your manager's identity, and each manager must
sign an agreement not to divulge any trade secret or
25
confidential or proprietary information, or to engage in any other donut store
business.
You must devote your full time and efforts to managing the general business
matters of the Outlet. Further, you may not, during the term of the Franchise
Agreement, engage in any conflicting enterprises. Also, you are bound by
confidentiality requirements discussed and noncompetition covenants discussed in
Article XXVI in the Franchise Agreement.
Zone Development Agreement
Developer must devote his or her full time to the supervision of Outlets
operated in the development Zone unless Developer designates an individual to
supervise the Outlets known as an "operator." Developer, if it is a corporation
or a partnership, may not engage in any other related business activities during
the term of the Zone Development Agreement without our consent.
We may require Developer to hire an experienced bicycle retailer service
professional who will operate Developer's Outlets.
Developer, or the operator designated by the developer, must successfully
complete our training course. Any operator designated by Developer must (i)
devote his or her full time to the development and supervision of Outlets, (ii)
sign the confidentiality and non-competition covenants by which Developer is
bound, and (iii) be approved in writing by us. Also, Developer is bound by
confidentiality requirements and non-competition covenants discussed in the Zone
Development Agreement.
Item 16
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
You must offer for sale and sell only those products and services that we have
approved. You may not offer for sale any products or perform any services that
we have not authorized or approved (see Item 8). We have the right to change the
types of authorized products and services and there are no limits upon our right
to do so.
We place no restrictions upon your ability to serve customers provided you do so
from the location of your Outlet.
26
The Zone Development Agreement does not contain any provision relating to the
restrictions on goods and services offered by a Developer. However, certain
restrictions will be contained in the Franchise Agreement signed by a Developer
for Outlets located within the development zone.
Item 17
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION
This table lists certain important provisions of the Franchise Agreement and
related agreements. You should read these provisions in the agreements attached
to this Offering Circular.
------------------------------------------------------------------------------------------------------------------------------------
Provision Article in Franchise Summary
Agreement
------------------------------------------------------------------------------------------------------------------------------------
a. Term of the Article II; Exhibit F 1 year
Franchise
------------------------------------------------------------------------------------------------------------------------------------
b. Renewal or Article II If you are in good
extension of the term standing, sign the
current form of
franchise agreement.
No renewal fee is
charged.
------------------------------------------------------------------------------------------------------------------------------------
c. Requirements for Article II; Exhibit F You have been in
you to renew or extend substantial compliance
with agreement. No
fees are charged, but
you may have to
remodel, at your
expense.
------------------------------------------------------------------------------------------------------------------------------------
d. Termination by you N/A The Franchise
Agreement does not
provide for this. But
you may seek to
terminate on any
grounds available to
you at law.
------------------------------------------------------------------------------------------------------------------------------------
e. Termination by us None None
without cause
------------------------------------------------------------------------------------------------------------------------------------
f. Termination by us Article XIX; Article We can terminate only
with cause II; Exhibit F if you commit any one
of several listed
violations or if you
do not meet the
minimum sales quotas
set forth in Exhibit F
------------------------------------------------------------------------------------------------------------------------------------
g. "Cause" defined- Article XIX 30 days for operations
defaults which can be defaults, 30 days for
cured monetary defaults, 24
hours for health code
violations
------------------------------------------------------------------------------------------------------------------------------------
27
------------------------------------------------------------------------------------------------------------------------------------
h. "Cause" defined- Article XIX Conviction of a
defaults which cannot felony, abandonment,
be cured unapproved transfers,
bankruptcy, assignment
for benefit of
creditors, repeated
violations
------------------------------------------------------------------------------------------------------------------------------------
i. Your obligations Article XX Pay outstanding
on termination amounts, de-
/nonrenewal identification, return
of confidential
information and
telephone numbers
------------------------------------------------------------------------------------------------------------------------------------
j. Assignment of Article XXII No restriction on our
contract by us right to assign.
------------------------------------------------------------------------------------------------------------------------------------
k. "Transfer" by you Article XXII No restriction on our
- definition right to assign.
Includes transfer of contract
or assets or any ownership change.
------------------------------------------------------------------------------------------------------------------------------------
1. Our approval of Article XXII We have the right to
transfer by you approve all transfer,
our consent not to be
unreasonably withheld
------------------------------------------------------------------------------------------------------------------------------------
m. Conditions for our Article XXII Transferee qualifies,
approval or transfer all amounts due are paid
in full, transferee
completes training, transfer
fee paid, then current
contract signed.
------------------------------------------------------------------------------------------------------------------------------------
n. Our right of first Article XXII We can match any offer
refusal to acquire
your business
------------------------------------------------------------------------------------------------------------------------------------
o. Our option to Article XXII We can buy the business on
purchase your business termination or non-
renewal for the
formula price
. described in Article XXII
------------------------------------------------------------------------------------------------------------------------------------
p. Your death or Article XXIII Franchise must be
disability assigned to approved
buyer within 12
months.
------------------------------------------------------------------------------------------------------------------------------------
q. Non-competition Article XXVI Can't divert business
covenants during the or operate a competing
term of the franchise business anywhere.
------------------------------------------------------------------------------------------------------------------------------------
r. Non-competition Article XXVI No competing business
covenants after the for 2 years, within 10
franchise is miles of any other ZAP
terminated or expires Electric Vehicle
Outlet
------------------------------------------------------------------------------------------------------------------------------------
s. Modification of Article XXVII No modifications
the agreement generally but
Operations Manual
------------------------------------------------------------------------------------------------------------------------------------
28
------------------------------------------------------------------------------------------------------------------------------------
subject to change
------------------------------------------------------------------------------------------------------------------------------------
t. Integration/merge Article XXVIII Only terms of
clause franchise agreement
are binding (subject
to state law)
------------------------------------------------------------------------------------------------------------------------------------
u. Dispute resolution Article XXIX All disputes must be
by arbitration or arbitrated in
mediation California (subject to
state law)
------------------------------------------------------------------------------------------------------------------------------------
v. Choice of forum Article XXIX Arbitration in
California (subject to
state law)
------------------------------------------------------------------------------------------------------------------------------------
w. Choice of law Article XXIX California law applies
(subject to state law)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Provision Section in Zone Summary
Development Agreement
------------------------------------------------------------------------------------------------------------------------------------
a. Term Section V Length of the
Development Schedule,
but no less than 5 years
------------------------------------------------------------------------------------------------------------------------------------
b. Renewal or Section IV None
extension of the terms
------------------------------------------------------------------------------------------------------------------------------------
c. Requirements for None None
you to renew or extend
------------------------------------------------------------------------------------------------------------------------------------
d. Termination by you Section VIII You may terminate on
30 days notice
------------------------------------------------------------------------------------------------------------------------------------
e. Termination by us None None
without cause
------------------------------------------------------------------------------------------------------------------------------------
f. Termination by us Section VIII We can terminate only
with cause if you commit any one
of several listed
violations or if you
do not meet the
minimum sales quotas
set forth in Exhibit F
of the Franchise
Agreement.
------------------------------------------------------------------------------------------------------------------------------------
g. "Cause" defined- Section VIII These are listed in
defaults which can be this Section
cured
------------------------------------------------------------------------------------------------------------------------------------
h. "Cause" defined- Section VIII These are also listed
defaults which cannot in this Section
be cured
------------------------------------------------------------------------------------------------------------------------------------
i. Your obligations Section IX Stop selecting sites,
on termination/nonrenewal can't open outlets
------------------------------------------------------------------------------------------------------------------------------------
j. Assignment of Section X No restriction on our
contract by us right to assign
------------------------------------------------------------------------------------------------------------------------------------
k. "Transfer" by you Section X Conditions for
- definition transfer are listed
------------------------------------------------------------------------------------------------------------------------------------
1. Our approval of Section X We have the right to
transfer by you approve all transfers,
our consent not be
------------------------------------------------------------------------------------------------------------------------------------
29
------------------------------------------------------------------------------------------------------------------------------------
unreasonably withheld.
------------------------------------------------------------------------------------------------------------------------------------
m. Conditions for our Section X Transferee must meet
approval of transfers our qualifications
then current contract
signed
------------------------------------------------------------------------------------------------------------------------------------
n. Our right of first Section X We have the right to
refusal to acquire match the offer
your business
------------------------------------------------------------------------------------------------------------------------------------
o. Our option to None None
purchase your business
------------------------------------------------------------------------------------------------------------------------------------
p. Your death or Section X Option passes to
disability estate
------------------------------------------------------------------------------------------------------------------------------------
q. Non-competition Section XI Can't divert business
covenants during the or operate a competing
term of the franchise business anywhere
------------------------------------------------------------------------------------------------------------------------------------
r. Non-competition Section XI Non competing business
covenants after the for 2 years, within 10
franchise is miles of any Outlet
terminated or expires
------------------------------------------------------------------------------------------------------------------------------------
s. Modification of Section XIX No modifications
the agreement generally but
Operations Manual
subject to change
------------------------------------------------------------------------------------------------------------------------------------
t. Integration/merge Section XIX Only terms of
clause agreement are binding
(subject to state law)
------------------------------------------------------------------------------------------------------------------------------------
u. Dispute resolution Section XXI Arbitration in
by arbitration or California
mediation
------------------------------------------------------------------------------------------------------------------------------------
v. Choice of forum Section XIX Arbitration in
California (subject to
state law)
------------------------------------------------------------------------------------------------------------------------------------
w. Choice of law Section XIX California law applies
(subject to state law)
------------------------------------------------------------------------------------------------------------------------------------
These states have statutes which may supersede the franchise agreement in your
relationship with the franchisor, including the areas of termination and renewal
of your franchise: ARKANSAS [Stat. Section 70-807], CALIFORNIA [Bus. & Prof.
Code Sections 20000-20043], CONNECTICUT [Gen. Stat. Section 42-133e et seq.],
DELAWARE [Code Sections 2551-2556], HAWAII, [Rev. Stat. 482E-1] ILLINOIS [ILCS,
Ch. 815, Sections 705/19-705/20], INDIANA [Stat. Section 23-2-2.7], IOWA [Code
Sections 523H.1-523H.17], MICHIGAN [Stat. Section 19.854(27)], MINNESOTA [Stat.
Section 80C.14], MISSISSIPPI [Code Section 75-24-51], MISSOURI Stat. Section
407.400], NABRASKA [Rev. Stat. Section 87-401], NEW JERSEY [Stat. Section
56:10-11], 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.
Sec. 135.03]. These and other state may have court decisions which may supersede
the franchise agreement in your relationship with the franchisor, including the
areas of termination and renewal of your franchise.
SEE ALSO APPENDIX 2.
Item 18
30
PUBLIC FIGURES
We do not use any public figures to promote our franchise.
Item 19
EARNINGS CLAIMS
We do not furnish or authorize our salespersons to furnish any oral or written
information concerning the actual or potential sales, costs, income or profits
of a Outlet. Actual results may vary from unit to unit, and we cannot estimate
the results of any particular franchise.
Item 20
LIST OF OUTLETS
There are no company owned or franchised outlets.
PROJECTED OPENINGS AS OF DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------------------------------------
STATE Franchise Projected Projected Company-
Agreements Signed Franchise New owned Openings in
but Location Not Locations in the the Next Fiscal
Opened Next Fiscal Year Year
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Item 21
FINANCIAL STATEMENTS
Attached to this Offering Circular as Exhibit 3 is our audited balance sheet as
of December 31, 1996 and Interim Unaudited Financial Statements as of June 30,
1997.
Item 22
CONTRACTS
The following agreements are attached as exhibits to this Offering Circular.
Franchise Agreement - Exhibit 1
Zone Development Agreement - Exhibit 2
31
Item 23
RECEIPT
Attached is an acknowledgment of receipt by you, acknowledging receipt of this
Offering Circular by you, together with accompanying documents.
32
RECEIPT
This Offering Circular summarizes certain provisions of the Franchise Agreement
and other information in plain language. Read this Offering Circular and all
Agreements carefully.
If ZAP Power Systems offers you a franchise, ZAP Power Systems must offer you
this Offering Circular to you by the earliest of:
(1) The first personal meeting to discuss our franchise; or (2) Ten business
days before the signing of a binding agreement; or (3) Ten business days before
a payment to ZAP Power Systems.
You must also receive a Franchise Agreement containing all material terms at
least five business days before you sign a franchise agreement.
If ZAP Power Systems does not deliver this Offering Circular on time or if it
contains a false or misleading statement, or a material omission, a violation of
Federal and State law may have occurred and should be reported to the ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇ and the Department of Corporations of
the State of California.
The ZAP Power Systems authorizes ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ of ▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP at ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ to receive
service of process for ZAP Power Systems.
I have received a Uniform Franchise Offering Circular dated _____.
This Offering Circular included the following exhibits:
1. Franchise Agreement
2. Zone Development Agreement
3. Audited Balance Sheet
Dated: __________________________________________
Franchisee: _____________________________________
33
APPENDIX 1
THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED
AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE
OFFERING CIRCULAR.
34
APPENDIX 2
A. California Business and Professions Code Sections 20000 through 20043
provide rights to the franchisee concerning termination or non-renewal of a
franchise. If the Franchise Agreement contains a provision that is inconsistent
with the law, the law will control.
B. i. The Franchise Agreement provides for termination upon bankruptcy. This
provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec.
101 et seq.).
ii. The Franchise Agreement contains a covenant not to compete which
extends beyond the termination of the franchise. This provision may not be
enforceable under California law.
iii. The Franchise Agreement requires binding arbitration. The
arbitration will occur at San Francisco, California, with the costs being borne
as allocated by the arbitrators. This provision may not be enforceable under
California law.
iv. The Franchise Agreement requires application of the laws of the State
of California. This provision may not be enforceable under California law.
35
ZAP POWER SYSTEMS
ZONE DEVELOPMENT AGREEMENT
THIS ZONE DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this ___
day of _________, 199__ between ZAP Power Systems, a California Corporation,
whose present address is ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(hereinafter "Company" or "Franchisor") and ___________________________________
whose principal address is ___________________________________________________
(hereinafter "Developer").
RECITALS
THIS AGREEMENT sets forth the terms and conditions pursuant to which
the Company will license Developer to develop and operate within the Development
Zone (as defined in Schedule A attached hereto) "ZAP Electric Vehicle" Outlet
utilizing the System and Proprietary Marks (as defined in Franchise Agreement),
and certain related matters agreed upon by the parties.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party the other party set forth herein, hereby agree as
follows:
SECTION I
GRANT
A. The Company hereby grants to Developer, pursuant to the terms and conditions
of this Agreement, certain development rights ("Development Rights") to
establish and operate franchised Shop, and to use the System solely in
connection therewith, at specific locations to be designated in separate
Franchise agreements executed as provided in Section III A. hereof, and pursuant
to the schedule set forth in Exhibit "A" of this agreement (hereinafter
"Development Schedule"). Each Outlet developed hereunder shall be located in the
zone described in Exhibit "B" of this Agreement (hereinafter "Development
Zone").
B. Each Outlet for which a development right is granted hereunder shall be
established and operated pursuant to a Franchise Agreement to be entered into
between Developer and the Company in accordance with Section III A. hereof.
C. Except as otherwise provided in this Agreement, the Company shall not
establish nor franchise anyone other than Developer to establish an Shoppe in
the Development Zone during the term of this Agreement, provided Developer is
not in default hereunder.
D. This Agreement is not a Franchise Agreement and does not grant to Developer
any right to use the Company's Proprietary Marks or System.
E. Developer shall have no right under this Agreement to franchise others under
the Proprietary Marks or System.
SECTION II
DEVELOPMENT FEE
A. In consideration of the development rights granted herein, Developer shall
pay to the Company a Development Fee as set forth on Exhibit "C" hereof once the
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Company has fulfilled and performed all of its initial obligations with respect
to the Franchise.
B. The Development Fee shall be fully earned by the Company and is
non-refundable upon execution of this Agreement, and shall be for administrative
and other expenses incurred by the Company and for the development opportunities
lost or deferred as a result of the Development Rights granted Developer herein.
SECTION III
SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS
A. Prior to Developer's selection of a proposed site for an Outlet, Developer
shall submit to the Company for its evaluation and approval, in the form
specified by the Company, a description of the site, the terms of the lease or
purchase, a market feasibility study for the site and such other information and
materials as the Company may reasonably require, together with a letter of
intent or other evidence satisfactory to the Company, which confirms Developer's
favorable prospects for obtaining the site. The Company shall have fifteen (15)
business days after receipt of such information and materials from Developer to
approve or disapprove the site in its sole discretion. In the event the Company
does not disapprove the site by submitting written notice to Developer within
said fifteen (15) business days, such site will be deemed approved by the
Company. Developer will then be presented with the Franchise Agreement annexed
hereto for execution.
B. Recognizing that time is of the essence, Developer agrees to exercise each of
the Development Rights granted hereunder in the manner specified herein, and to
satisfy the Development Schedule in a timely manner. Failure by Developer to
adhere to the Development Schedule shall constitute a default under this
Agreement as provided in Section VIII hereof.
C. Developer shall exercise each Development Right granted herein only by
executing a Franchise Agreement for each Outlet at a site approved by the
Company in the Development Zone as hereinafter provided, within ten (10) days
after receipt of said Franchise Agreement from the Company for the approved site
and returning the same to the Company for its execution. The Franchise Agreement
for the first Development Right exercised hereunder shall be in the form
attached hereto as Exhibit "D". The Franchise Agreement for each additional
Development Right exercised hereunder shall be the same form as the Franchise
Agreement annexed hereto as Exhibit "D", subject to any non-material changes
therein which are required to be made by changes in any applicable law,
regulation or ordinance in effect from time to time. In the event the Company
does not receive the properly executed Franchise Agreement together with the
initial franchise fee, with the appropriate number of copies within said ten
(10) days from delivery thereof to Developer, the Company's approval of the site
shall be void and Developer shall have no rights with respect to said site.
D. Developer acknowledges that the approval of a particular site for an Outlet
by the Company shall not be deemed to be an assurance or guaranty that the
Outlet will operate successfully or at a profit from such site.
E. Developer shall be required to execute each Franchise Agreement and own a
minimum of fifty-one percent (51%) of the issued and outstanding stock for each
Outlet to be opened pursuant to said Franchise.
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SECTION IV
RENEWAL
This Agreement shall not be subject to renewal.
SECTION V
TERM AND RIGHT OF FIRST REFUSAL
A. The term of this Agreement shall expire on the required opening date for the
last Outlet to be developed and opened in accordance with the Development
Schedule attached hereto. Within twelve months prior to the expiration of this
Agreement, Franchisor shall reassess the potential of the Development Zone for
the five years immediately following the expiration date. If Franchisor
concludes that potential for additional Outlet exists within the Development
Zone, Franchisor (subject to the provisions of Subparagraphs B. and C. below)
shall offer Developer the right to enter into a new Zone Development Agreement
having a term not to exceed five (5) years, based on the new Development
Schedule established by Franchisor. If Developer believes the new Development
Schedule offered by Franchisor is excessive in relation to the potential of the
Development Zone, the Developer, before the expiration of the sixty (60) day
period (described in Subparagraph C. below) for entering into the new Zone
Development Agreement, may request that the issue be reviewed by Franchisor.
B. Initial franchise fees for units to be developed under the Zone Development
Agreement shall be one hundred percent (100%) of then current initial franchise
fees for individual units and is nonrefundable.
C. Developer must exercise the right to enter into the new Zone Development
Agreement by executing such agreement no later than sixty (60) days after it is
tendered by Franchisor to the Developer. Franchisor shall be under no obligation
to offer Developer a new Zone Development Agreement unless Developer:
(i) Has timely opened all Outlets in accordance with the Development
Schedule set forth in Exhibit "A";
(ii) Is in compliance with this Agreement and (if applicable its
affiliates are in compliance with) the Franchise Agreement and other agreements,
if any, for each unit;
(iii) Qualifies for expansion under Franchisor's then current Guidelines
for Multi-unit Development and operations; and
(iv) Provides Franchisor with a General Release in form and substance
acceptable to Franchisor (which release shall include similar general releases
from each principal owner), provided, however, that all rights enjoyed by the
Developer and causes of action arising in its favor under applicable laws or
regulations shall remain in force.
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SECTION VI
OBLIGATIONS OF DEVELOPER
Developer acknowledges and agrees that:
A. Except as otherwise provided herein, this Agreement includes only the right
to select sites for the establishment of Outlet and to submit the same to the
Company for its approval in accordance with the terms of this Agreement. This
Agreement does not include the grant of a license by the Company to Developer of
any rights to use the Proprietary Marks, the System, or to open or operate any
Outlet within the Development Zone. Developer shall obtain the license to use
such additional rights at each Outlet upon the execution of each Franchise
Agreement by both Developer and the Company and only in accordance with the
terms of the Franchise Agreement.
B. The Development Rights granted hereunder are personal to Developer and cannot
be sold, assigned, transferred or encumbered, in whole or in part, except as set
forth in Section X hereof.
C. The Development Rights granted hereunder are nonexclusive and the Company
retains the right, in its sole discretion:
1. To continue to construct and operate other Outlet and to use the
System and the Proprietary Marks at any location outside the Development Zone,
and to license others to do so.
2. To develop, use and franchise the rights to any trade names,
trademarks, service marks, trade symbols, emblems, signs, slogans, insignia or,
copyrights not designated by the Company as Proprietary Marks for the use with
different franchise systems for the sale of the different products or services
not in connection with the System at any location, on such terms and conditions
as the Company may deem advisable and without granting Developer any rights
therein.
3. To develop, merchandise, sell and license others to sell any of the
Company's products, proprietary or otherwise, presently existing or to be
developed in the future, to the public through grocery and other non-Shoppe
Stores in the Development Zone and to use the Proprietary Marks in connection
therewith.
4. To promote or conduct special events within the Development Zone,
provided, however, that the opportunity to conduct each special event shall
first be offered to Developer in accordance with the terms of any valid and
effective Franchise Agreement.
D. Developer has sole responsibility for the performance of all obligations
arising out of the operation of his business pursuant to this Agreement,
including, but not limited to, the payment when due of any and all taxes levied
or assessed by reason of such operation.
E. In all public records, in its relationship with other persons, and in any
documents, Developer shall indicate clearly the independent ownership of
Developer's business and that the operations of said business are separate and
distinct from the operation of the Company's business.
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F. Developer shall at all times preserve in confidence any and all materials and
information furnished or disclosed to Developer by the Company and Developer
shall disclose such information or materials only to such of the Developer's
employees or agents who must have access to it in connection with their
employment. Developer shall not at any time, without the Company's prior written
consent, copy, duplicate, record or otherwise reproduce such materials or
information, in whole or in part, nor otherwise make the same available to an
unauthorized person.
G. Developer shall comply with all requirements of federal state and local laws,
rules and regulations.
H. Developer shall at no time have the right to sub-franchise any of its
development rights hereunder.
SECTION VII
SERVICES OF THE COMPANY
The Company shall, at its expense, provide the following services:
A. Review the Developer's site selection for conformity to the Company's
prototypical standards and criteria for selection and acquisition of sites upon
the Company's receipt of Developer's written request for approval thereof.
B. Provide Developer with standard specifications and layouts for the
structures, equipment, furnishings, decor and signs identified with the Outlet
as the Company makes available to all developers and franchisees from time to
time.
C. Review of the Developer's site plan and final build-out plans and
specifications for conformity to the construction standards and specifications
of the System, upon the Company's receipt of Developer's written request for
approval thereof.
D. Conduct such on site evaluation as the Company may, in its sole discretion,
deem advisable as part of its evaluation of Developer's request for site
approval, provided however, that the Company shall not be required to provide
such on site evaluation for any proposed site prior to the Company's receipt of
a description of such proposed site and a letter of intent (subject to Company's
approval) or other evidence satisfactory to the Company, which confirms
Developer's favorable prospects for obtaining the proposed site. If deemed
appropriate and if the site requires inspection, the Company may conduct one (1)
on site inspection.
E. Provide such other resources and assistance as may hereafter be developed and
offered by the Company to its other developers.
SECTION VIII
DEFAULT AND TERMINATION
A. The occurrence of any of the following events of default shall constitute
good cause for the Company, at its option and without prejudice to any other
rights or remedies provided for hereunder or by law or equity, to terminate this
Agreement:
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1. If Developer shall, in any respect, fail to meet the Development Schedule.
2. If Developer shall use the System or Proprietary Rights, or any other names,
marks, systems, insignia, symbols or rights which are the property of the
Company except pursuant to, and in accordance with, a valid and effective
Franchise Agreement.
3. If Developer, or persons controlling, controlled by or under common control
with Developer, shall have any interest, direct or indirect, in the ownership or
operation of any Outlet engaged in the sale of products similar to those
permitted to be sold by Developer within the Development Zone or in any Outlet
which looks like, copies or imitates the Outlet or operates in a manner tending
to have such effect, other than pursuant to a valid and effective Franchise
Agreement.
4. If Developer shall fail to remit to the Company any payments pursuant to
Section II when same are due.
5. If Developer shall begin work upon any Outlet at any site unless all the
conditions set forth in Section III hereof have been met.
6. If Developer shall purport to effect an assignment other than in accordance
with Section X hereof.
7. Except as provided in Section X hereof, if Developer attempts to sell,
assign, transfer or encumber this Agreement prior to the time that at least
twenty-five percent (25%) of the Outlet to be constructed and opened for
business in accordance with the Development Schedule are, in fact, open or under
construction.
8. If Developer makes, or has made, any material misrepresentation to the
Company in connection with obtaining this Agreement, any site approval
hereunder, or any Franchise Agreement.
9. If Developer fails to obtain the Company's prior written approval or consent,
including but not limited to site approval or site plan approval, as expressly
required by this Agreement.
10. If Developer defaults in the performance of any other obligation under this
Agreement.
11. If Developer defaults in the performance of any obligation under any
Franchise Agreement with the Company, provided such default results in the
termination of the Franchise Agreement.
12. If Developer suffers a violation of any law, ordinance, rule or regulation
of a governmental agency in connection with the operation of the Outlet, and
permits the same to go uncorrected after notification thereof, unless there is a
bona fide dispute as to the violation or legality of such law, ordinance, rule
or regulation, and Developer promptly resorts to courts or forums of appropriate
jurisdiction to contest such violation or legality of such law.
13. If Developer or a shareholder of Developer owning twenty-five percent (25%)
or more of Developer's voting stock is convicted in court of a competent
jurisdiction of an indictable offense punishable by a term of imprisonment in
excess of one (1) year.
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14. If Developer, or any person controlling, controlled by or under Common
control with Developer, shall become insolvent by reason of inability to pay
their debts as they mature; shall be adjudicated a bankrupt; shall file or have
filed against any of them a petition in bankruptcy, reorganization or similar
proceeding under the bankruptcy laws of the United States; or if a receiver,
permanent or temporary, of the business, assets or property of Developer or any
such person, or any part thereof, is appointed by a court of competent authority
or if Developer, or any such person, requests the appointment of a receiver or
makes a general assignment for the benefit of creditors, or if a final judgment
against Developer, or any such person, in the amount of $10,000 or more remains
unsatisfied on record for sixty (60) days or longer; or if the bank accounts,
property or receivables of Developer or any such person are attached and such
attachment proceedings are not dismissed within a sixty (60) day period; or if
execution is levied against the business or property of Developer or any such
person or suit to foreclose any lien or mortgage against any of the Outlet, the
premises thereof or equipment thereon is instituted and not dismissed within
thirty (30) days.
B. Upon occurrence of any of the events set forth in Section VIII, Paragraph A,
the Company may, without prejudice to any other rights or remedies contained in
this Agreement or provided by law or equity, terminate this Agreement. Such
termination shall be effective thirty (30) days after written notice (or such
other notice as may be required by applicable state law) is given by the Company
to Developer of any of the events set forth in Section VIII, Paragraph A,
Subparagraphs 1 through 14, if such defaults are not cured within such period.
However, at the sole discretion of the Company, termination shall be effective
immediately, without notice and without necessity of further action by the
Company, upon occurrence of any of the events specified in Section VIII,
Paragraph A, Subparagraphs 1 or 2, except where prohibited by an applicable
state or federal law in which case this Agreement shall be terminated only in
accordance with the provisions of any such law.
C. Developer shall have the right to terminate this Agreement upon thirty (30)
days written to the Company.
SECTION IX
DEVELOPER'S OBLIGATIONS FOLLOWING TERMINATION
A. Upon termination of this Agreement becoming effective for any reason, or upon
expiration to the term hereof, Developer agrees as follows:
1. To cease immediately any attempts to select sites on which to establish
Outlet.
2. To cease immediately to hold itself out in any way as a Developer of the
Company or to do anything that would indicate a relationship between it and the
Company.
B. Termination of this Agreement shall not affect the rights of Developer to
operate Outlet in accordance with the terms of any Franchise Agreement with the
Company executed prior to the termination of this Agreement until and unless
such Franchise Agreement, or any of them, are terminated in accordance their
terms, renewed or expire.
C. No right or remedy herein conferred upon or reserved to the Company is
exclusive of any other right or remedy provided by law.
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SECTION X
TRANSFERABILITY OF INTEREST
A. This agreement is personal to Developer and Developer shall neither sell,
assign, transfer nor encumber this Agreement, the Development Rights, or any
other interest hereunder, nor suffer or permit any such assignment, transfer or
encumbrance to occur directly, indirectly or contingently by agreement or by
operation of law without prior written consent of the Company. Developer
understands that this agreement may not be pledged, mortgaged, hypothecated,
given as security for an obligation or in any manner encumbered. The assignment
or transfer of any interest, except in accordance with this Paragraph, shall
constitute a material breach of this Agreement.
B. In the event that Developer is a corporation or desires to conduct business
in a corporate capacity, said corporation or assignee corporation of any of
Developer's rights under this Agreement to a corporation must receive the prior
written approval of the Company and Developer agrees to comply with the
provisions hereinafter specified including, without limitation, restriction on
the number of shareholders of the corporation or assignee corporation and, where
appropriate in the Company's discretion, personal guarantees by one or more
shareholders of all of the obligations of said corporation or assignee
corporation to the Company and other parties designed by the Company. The
corporation or assignee corporation shall not engage in any business activities
other than those directly related to the operation of the Outlet(s) pursuant to
the terms and conditions of the Franchise Agreements with the Company; and all
assets related to the operation of the Outlet(s) shall be held by the
corporation or assignee corporation. There shall be no transfer fee charged by
the Company if such assignment to a corporation is made within 90 days after the
execution of this agreement.
C. If Developer is a corporation or if Developer's rights hereunder are assigned
to a corporation, the Developer, or those individuals disclosed on Exhibit "E"
attached hereto, shall be the legal and beneficial owner of not less than
fifty-one percent (51%) of the outstanding stock of said corporation and shall
act as such corporate principal officer. The assignment to a corporation will
not relieve Developer of personal liability to the Company for performance of
any of the obligations under this Agreement . Any subsequent transfer of voting
rights of the stock of the corporation or assignee corporation, and any transfer
or issuance of shares of the corporation or assignee corporation shall be
subject to the Company's prior written approval. The Company agrees that it will
not reasonably restrict the issuance or transfer of shares of stock, provided
that Developer complies with the provisions of this Section X, and provided that
in no event shall any share stock of such corporation or assignee corporation be
sold, transferred or assigned to a business competitor of the Company. The
articles of incorporation and bylaws of the corporation or assignee corporation
shall reflect that the issuance and transfer of shares of stock are restricted,
and all stock certificates shall bear the following legend, which shall be
printed legibly and conspicuously on each stock certificate:
"The transfer of this stock is subject to the terms and conditions of a Zone
Development Agreement with ZAP Power Systems dated _____________________.
Reference is made to said Zone Development Agreement and related Franchise
Agreement and to restrictive provisions of the charter and bylaws of this
corporation".
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D. The corporation or assignee corporation's corporate records shall indicate
that a stop transfer order shall be in effect against the transfer of any stock,
except for transfers permitted by this Section X. In addition to the foregoing,
the stock of such corporation or assignee corporation shall not be publicly sold
or traded without the prior express written consent of the Company which shall
be given at the sole discretion of the Company. In the event the Company
approves a public offering of the Developer, Developer shall present offering
circular or prospectus to the Company for its review within a reasonable time
prior to such offering becoming effective. In no event shall Developer offer its
securities by use of the "Proprietary Marks" or any name deceptively similar
thereto; however, Developer may make appropriate reference to the fact the
Developer has a development agreement with the Company. Developer shall not
relinquish control of the new public company without the prior written consent
of the Company. Developer agrees to indemnify and hold Franchisor harmless from
and against any claims, suits, actions or otherwise which arise out of or from
such public offering.
E. In the event of the death, disability or permanent incapacity of Developer,
the Company shall consent to the transfer of all of the interest of Developer to
Developer's spouse, heirs or relatives, by blood or marriage, or if this
Agreement was originally executed by more than one party, then to the remaining
party who originally executed this Agreement, whether such transfer is made by
Developer's last will and testament or operation of law, provided that the
requirements of Section X hereof have been met. In the event that Developer's
heirs do not obtain the consent of the Company as prescribed herein, the
personal representative of Developer shall have a reasonable time to dispose of
Developer's interest hereunder, which disposition shall be subject to all the
terms and conditions for transfers under this Agreement.
F. Developer has represented to the Company that he is entering into this
Agreement with the intention of complying with its terms and conditions and not
for the purpose of resale of the Development Rights hereunder. Therefore,
Developer agrees that any attempt to assign this Agreement, prior to the time
that at least twenty-five percent (25%) of the Outlet(s) to be constructed
hereunder are opened or under construction, shall be deemed to be an event of
default hereunder except in the event of a transfer to a corporation pursuant to
Section X, Paragraphs B and C hereof.
G. Except as provided in Section X, Paragraph D, if Developer receives from a
third person and desires to accept a bona fide written offer to purchase its
business, i.e. one hundred percent (100%) of the Development Rights and
interest, the Company shall have the option, exercisable within thirty (30) days
after receipt of written notice setting forth the name and address of the
prospective purchaser, the price and terms of such offer, a copy of such offer
and the other information set forth in this Section X, Paragraph E, to purchase
such business, Development Rights and interests, including Developer's right to
develop sites within the Assigned Zone on the same terms and conditions as
offered by said third party. In order that the Company may have information
sufficient to enable it to determine whether to exercise its option, the Company
may require Developer to deliver to the Company certified financial statements
as of the end of Developer's recent fiscal year and such other information about
the business and operations of Developer as the Company may request. If the
Company declines, or does not accept the offer in writing within thirty (30)
days, Developer may, within thirty (30) days from the expiration of the option
period, sell assign and transfer it business, Development Rights and
9
interest to said third party, provided the Company has consented to such
transfer as required by this Section X. Any material change in the terms of the
offer prior to closing of the sale to such third party shall constitute a new
offer, subject to the same rights of first refusal by the Company or its nominee
as in the case of an initial offer. Failure by the Company to exercise the
option afforded by this Paragraph shall not constitute a waiver of any other
provision of this Agreement, including the requirements of this Section with
respect to the proposed transfer.
H. Developer acknowledges and agrees that the restrictions on transfer imposed
herein are reasonable and are necessary to protect the Development Rights, the
System and the Proprietary Rights, as well as the Company's reputation and
image, and are for the protection of the Company, Developer and other
developers. Any assignment or transfer permitted by this Section X shall not be
effective until the Company receives a completely executed copy of all transfer
documents, and the Company consents in writing thereto.
I. Except as provided in this section the Company agrees not to unreasonably
withhold its consent to a sale, assignment or transfer by Developer hereunder.
Consent to such transfer otherwise permitted or permissible as reasonable may be
refused unless:
1. All obligations of the Developer created by this Agreement, all
other franchise documents, including all Franchise Agreements, and the
relationships created hereunder are assumed by the transferee.
2. All ascertained or liquidated debts of Developer to the Company or
its affiliated or subsidiary corporations are paid.
3. Developer is not in default hereunder.
4. The Company is reasonably satisfied that the transferee meets all
of the requirements of the Company for new developers, including but not limited
to, good reputation and character, business acumen, operational ability,
management skills, financial strength and other business considerations.
5. Transferee executes or, in appropriate circumstances, causes all
necessary parties to execute, the Company's standard form of Zone Development
Agreement, Franchise Agreements for all Outlet open or under construction
hereunder, and such other then current ancillary agreements being required by
the Company of new developers on the date of transfer.
6. Developer executes a general release under seal, in a form
satisfactory to the Company, of any and all claims against the Company, its
officers, directors, employees and principal stockholders provided however, that
all rights enjoyed by the Developer and only causes of action arising in its
favor from the provisions law and regulations shall remain in force.
7. Developer or transferee pays to the Company a transfer fee in an
amount equal to twenty-five percent (25%) of the Development Fee paid by
Developer to cover the Company's reasonable costs in affecting the transfer and
in providing training and other initial assistance to transferee.
8. All shareholders of transferee, if transferee is a corporation,
shall personally guaranty the fill payment and performance of transferee
corporation's obligations and other arrangements satisfactory to the Company
relative to such payment and performance, subject to Subparagraph N.2 of this
Section X below;
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J. In the event of the death of Developer, or any principal owner thereof, at
any time during the term this Agreement, the legal representative of Developer
or such principal owner, together with all surviving principal owners, if any,
jointly, shall, within three (3) months of Such event, apply in writing, for the
right transfer this Agreement, or the interest of the deceased principal owner
in this Agreement, to such person or persons as the legal representative may
specify. Such transfer shall be approved by Franchisor upon the fulfillment of
all of the conditions set forth herein, except that no transfer fee, upgrade
requirements, or rights of first refusal shall be required if the proposed
transferee is a beneficiary or heir of Developer or such principal owner. If the
legal representative and all surviving principal owners, if any, do not comply
with the aforesaid provisions or do not propose a transferee in accordance with
the foregoing, all rights licensed to Developer under this Agreement shall
terminate forthwith and automatically revert to Franchisor.
K. The Company's consent to a transfer of any interest in Developer or in the
development rights pursuant to this Section shall not constitute a waiver of any
claims it may have against the transferring party nor shall it be deemed a
waiver of the Company's right to demand exact compliance with any of the terms
this Agreement by the transferee.
L. The Company shall have the right to transfer or assign all or any part of its
rights or obligations herein to any person or legal entity provided such person
or legal entity agrees to be bound by all of the terms and conditions of this
Agreement and, upon request, Developer shall provide, in a form prepared by the
Company, an estopped letter which recites the fact that this Agreement is in
full force and effect, etc.
M. This Agreement shall inure to the benefit of the Company, its successors and
assigns and the Company shall have the right to transfer or assign all or any
part of its interest herein to any person or legal entity, provided such
transferee agrees to perform all of the Company's obligations hereunder.
N. Notwithstanding anything contained in this Agreement to the contrary the
parties hereto agree as follows:
1. If applicable, certain of Developer's minority owners who hold
interests of twenty percent (20%) less of the equity in Developer need not
obtain Franchisor's approval or consent to their assignment, sale or other
transfer of their equity interests in Developer, nor shall such assignment, sale
or transfer be subject to any right of first refusal, upgrading of units,
payment to Franchisor of a transfer fee or any other conditions precedent to
Franchisor's consent to any transfer hereunder so long as: (a) each minority
owner exercises or holds (alone or in combination with others) no right to
exercise voting power or management control or direction over Developer or any
aspect of Developer's business; and (b) each such minority owner has not been
exposed to and has not been permitted access to Franchisor's trade secrets or
Confidential Information as defined in any Franchise Agreement between Developer
or its affiliate and Franchisor (and one or more principal owners confirms such
facts in writing to Franchisor prior to consummation of any such transfer),
except that if any such minority owner has had access to or been exposed to such
secrets or information, then such minority owner promptly shall execute an
agreement which:
(i) Prohibits disclosure or use of Franchisor's trade secrets and
confidential information.
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(ii) Contains a non-competition covenant similar in scope to that
contained in the form of Franchise Agreement attached hereto as Exhibit "D", all
in a form reasonably satisfactory to Franchisor, and may not so assign, sell or
transfer without having done so. The principal owners who execute this Agreement
shall manage Developer's business and affairs in such a manner that all of the
Developer's minority owners comply with the foregoing.
Further, except as otherwise provided herein, so long as Developer and
all principal owners comply with this Agreement and so long as such principal
owners retain all voting rights in Developer and ownership of not less than
fifty-one percent (51%) of the equity in Developer, Developer may arrange for
the grant or issuance of equity interests in Developer to minority owners who
each may hold or control, directly or indirectly, not more than twenty percent
(20%) of such equity without first obtaining Franchisor's advance written
consent therefor.
2. Notwithstanding anything to the contrary contained in this
Agreement, if applicable, promptly following their execution of this Agreement,
the principal owners also shall execute such documentation as Franchisor may
reasonably request to place voting control and management control over the
business of Developer in the hands of the survivor of them, in the event all but
one of them dies, irrespective of who succeeds to ownership of each deceased
person's interest in Developer under such circumstances. Section X Paragraph J
shall not apply to the death of any other person or to the first to die of them
so long as the preceding condition is satisfied and the voting and management
control over the business of Developer resides, in Franchisor's reasonable
opinion, in one of such principal owners and so long as one of them actively
manages business and affairs of Developer.
3. Developer must notify Franchisor in writing and in advance as to
the identity of any proposed principal owners and minority owners with whom
Developer may wish to do business hereunder. All principal owners and all
minority owners holding twenty percent (20%) or more of the equity in any entity
contemplated hereunder first must be approved as suitable owners by Franchisor
which approval will not be unreasonably withheld. Developer shall provide
Franchisor, with such information and documentation as it may reasonably request
to determine such suitability. Franchisor shall notify Developer of its approval
or disapproval with five business days of its receipt of such documentation and
information. All proposed principal owners must execute the applicable Franchise
Agreement as a principal owner. Further, each minority owner must execute
agreement containing nondisclosure and non-competition covenants, in such form
as Franchisor may reasonably require, but in any event similar in scope to those
referenced in paragraphs above which covenants shall apply if such owner has
been permitted access to or has been exposed to Franchisor's trade secrets or
confidential information, which one or more of the principal owners who execute
this Agreement shall confirm or deny in writing promptly, following a request of
Franchisor. Notwithstanding anything to the contrary contained in this
Agreement, or in any other agreement involving Developer or its affiliate,
neither Developer nor its affiliate may enter into any arrangement or agreement
with such a minority owner which does not satisfy Section X above in all
respects. No such transfer of interest to a minority owner alone shall be deemed
a transfer of an interest hereunder.
4. In addition to the other requirements of this transfer paragraph,
in the event Developer or a direct or indirect owner of Developer prepares or
participates in the preparation of any written materials in connection with a
private or public offering of any interest in Developer or its affiliate, all
12
materials required for such offering by federal and state law shall be submitted
to Franchisor for review prior to the date filed with any government agency and
any materials to be used in any exempt offering shall be submitted to Franchisor
for review prior to their use. No such offering shall imply that Franchisor is
participating as an underwriter, issuer or offeror of Developer's, such
affiliate's or Franchisor's securities; and Franchisor's review of any offering
shall be limited to the subject of the relationship between Developer and the
subject of the relationship between Developer and Franchisor. Developer and the
other participants in the offering shall fully indemnify Franchisor in
connection with the Offering.
5. Notwithstanding anything to the contrary above or herein, it is
contemplated that Developer, in connection with the initial financing of the
establishment of the Developer's Outlet, its business and operations, will be
required to provide a bank or financial institution with a security interest in
substantially all of its assets, including a pledge of this Agreement and
Developer's common stock or other equity. Franchisor will not have a right of
first refusal in connection with Developer's giving of such security interest.
Further, Franchisor's consent to the giving of such security interest and/or
pledge of stock or other equity will be granted so long as Developer (and its
affiliates, if applicable) is in compliance with this agreement as well as all
other agreements with Franchisor, the security interest in the assets of any
particular Outlet is given in order to facilitate the financing of the
development of such unit or other Shop and subject to the following:
In connection with the pledge of this Agreement, any lease (or similar
agreement) in respect any premises for and/or the stock (or other equity) of
Developer, Developer's bank or financial institution must agree to the
reasonable satisfaction of Franchisor that: (i) it will notify Franchisor
reasonably promptly of any defaults by Developer of any of Developer's
obligations in connection with any loan made to Developer; (ii) if it seeks to
reassign or transfer the stock of Developer and/or Developer's interest in this
Agreement or the business conducted hereunder to a third party, such third party
must meet Franchisor's then current criteria for its area developers to
Franchisor's satisfaction (but Franchisor shall exercise reasonableness in
making this determination) and the other conditions set forth herein in
connection with obtaining Franchisor's consent before an assigmnent or transfer
shall apply; and (iii) if, regarding the premises for any Outlet, Developer must
give it a security interest in the lease(s) for such premises, then: (a) such
security interest(s) must be given solely to facilitate the development of that
or another Outlet of Developer (b) the bank or financial institution must agree;
with respect to such lease(s) to furnish Franchisor with a right of first
refusal (exercisable on not less than thirty days written notice to Franchisor)
to take over the lease by agreeing to be bound by the original terms and
conditions thereof.
SECTION XI
COVENANTS
A. Developer specifically acknowledges that, pursuant to this Agreement,
Developer will receive valuable training and confidential information,
including, without limitation, assembly guidelines and instructions, information
regarding the marketing methods and techniques of the Company and the System.
Developer covenants that during the term of this Agreement except as otherwise
approved in writing by the Company, Developer and persons controlling,
controlled by or under common control with Developer, shall not, either directly
13
or indirectly, for itself or through, on behalf of or in conjunction with any
person, persons or legal entity:
1. Divert or attempt to divert any business or client of the
franchised business to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly any other act injurious or
prejudicial to the goodwill associated with the Proprietary Marks and the
System.
2. Employ or seek to employ any person who is at the time employed by
the Company or by any other franchisee or developer of the Company, or otherwise
directly or indirectly induce or seek to induce such person to leave his or her
employment thereat.
3. Own, maintain, advise, help, invest in, make loans to, be employed
by, engage in or have any interest in any Outlet (including any business
operated by Developer prior to entry into this Agreement) specializing, in whole
or in part, in the sale of the Proprietary Products both on a retail and
wholesale basis and/or operating similar Outlet concept selling those food items
by the Company or any of its franchisees or which Developer may be authorized to
offer in connection with the Franchised Business.
B. Developer covenants that except as otherwise approved in writing by the
Company, Developer shall not, for a continuous and uninterrupted period
commencing upon the expiration or termination of this Agreement, and continuing
for two (2) years thereafter (and, in case of any violation of this covenant,
for two (2) years after the violation ceases), either directly or indirectly,
for himself or herself, or through, on behalf of or in conjunction with any
person, persons, partnership or corporation, own, maintain, advise, help, invest
in, make loans to, be employed by, engage in or have any interest in any
business other than the franchised business specializing, in whole or in part,
in providing the sale of the Proprietary Products both on a retail and wholesale
basis and or operating a similar concept selling those food items sold by the
Company and its franchisees or any other type of service which Developer may be
authorized to offer in connection with the Franchised Business which is located:
1. Within the Development Area, or
2. Within a radius of ten (10) miles of the location of any Franchised Business;
3. Within a radius of ten (10) miles of the location of any other business using
the System whether franchised or owned by the Company.
C. Subsections A.3 and B. of this Section shall not apply to ownership by
Developer of less than a five percent (5%) beneficial interest in the
outstanding equity securities of any corporation which is registered under the
Securities Exchange Act of 1934.
D. The parties agree that each of the foregoing covenants shall be construed as
independent of any other covenant or provision of this Agreement. If all or any
portion of a covenant in this Section XI is held unreasonable or unenforceable
by a court or agency having valid jurisdiction in any unappealed final decision
to which the Company is a party, Developer expressly agrees to be bound by any
lesser covenant subsumed within the terms of such covenant that imposes the
maximum duty permitted by law, as if the resulting covenant were separately
stated in and made a part of this Section XI.
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E. Developer understands and acknowledges that the Company shall have the right,
in its sole discretion, to reduce the scope of any covenant set forth in
Subsection A and B of this Section XI or any portion thereof, without
Developer's consent, effective immediately upon receipt by Developer of written
notice thereof, and Developer agrees that it shall comply forthwith with any
covenant as so modified, which shall be fully enforceable notwithstanding the
provisions of Section XXV hereof.
F. Developer expressly agrees that the existence of any claim it may have
against the Company, whether or not arising from this Agreement, shall not
constitute a defense to the enforcement by the Company of the covenants in this
Section XI.
G. Developer acknowledges that any failure to comply with the requirements of
this Section XI would cause the Company irreparable injury for which no adequate
remedy at law may be available, and Developer hereby accordingly consents to the
Company seeking injunctive relief prohibiting any conduct by Developer in
violation of the terms of this Section XI. The Company may further avail itself
of any other legal or equitable rights and remedies which it may have under this
Agreement or otherwise.
H. At the Company's request, Developer shall require and obtain the execution of
covenants similar to those set forth in this Section XI (including covenants
applicable upon the termination of a person's relationship with Developer) from
any or all of the following persons:
1. All Outlet managers of Developer and any other personnel employed
by Developer who have received training from the Company;
2. All officers, directors and holders of a beneficial interest of
five percent (5%) or more of the securities of Developer and or any corporation
directly or indirectly controlling Developer if Developer is a corporation; and
3. The general partners and any limited partners (including any
corporation, and the officers, directors and holders of a beneficial interest of
five percent (5%) or more of the securities of any corporation which controls
directly or indirectly any general or limited partner) if Developer is a
partnership.
Each covenant required by this Subsection H. shall be in a form
satisfactory to the Company, including, without limitation, specific
identification of the Company as a third party beneficiary of such covenants
with the independent right to enforce them. Failure by Developer to obtain
execution of a covenant required by this Subsection H. shall constitute a
default under Section VIII hereof.
I. During the term of this Agreement, an officer or agent of the Company shall
have the right to inspect any Outlet in which Developer has an interest at
reasonable times during normal business hours to the extent reasonably necessary
to determine whether conditions of this Section XI are being satisfied. If, by
reason of such inspections or otherwise, the Company has reason to believe that
Developer is not in full compliance with the terms of this Section, the Company
shall give notice of such default to Developer specifying the nature such
default. If Developer denies that it is in default hereunder, as specified by
the Company, it shall have burden of establishing that such default does not
exist and shall give notice to the Company of its position within ten (10) days
of receipt of the notice from the Company. Unless Developer so denies such
15
default, it shall immediately take all steps to cure said default in a manner
satisfactory to the Company.
SECTION XII
SUBSTITUTION OF OUTLET
Except where substitution may conflict with third party contracts, Developer
may, with Franchisor's prior written consent, close any Outlet opened hereunder
and substitute therefor another Outlet of the same type at a location within the
Development Zone approved by Franchisor. The new Outlet must open within one (1)
year following the closing of the old Outlet. Upon Franchisor's approval of the
location for the new Outlet, Developer shall execute a new Franchise Agreement
and related agreements for the new unit on the form of Franchise and related
agreements then required by Franchisor. Before the new Outlet opens, Developer
shall reimburse Franchisor for Franchisor's out of pocket expenses, if any,
incurred in assisting Developer to develop the new unit and in approving the new
Outlet. lithe term of the Franchise Agreement for the new Outlet shall be the
unexpired term of the Franchise Agreement for the closed Outlet with no increase
in fees; however, Developer must spend the $5,000 grand opening advertising
budget. If Franchisor, at the request Developer, in Franchisor's sole and
absolute discretion, grants Developer a new Franchise Agreement for a term
longer than the unexpired term of the Franchise Agreement for the closed Outlet,
Developer shall pay to Franchisor, upon the execution of the new Franchise
Agreement, Franchisor's then current Initial Franchise Fee prorated for the
extended term.
SECTION XIII
LIMITED EXCLUSIVITY
A. In the event Developer opens each Outlet in accordance with the Development
Schedule set forth in Schedule A. and additionally, has complied with and has
not breached or defaulted under provisions of this Agreement and, additionally,
Developer has complied with and has not breached or defaulted under the
provisions of the Franchise Agreement and other agreements, if any, for each
unit and continues to be qualified for expansion under Franchisor's then current
Guidelines for Multi-Unit Development and operations then, during the term of
this Agreement, Franchisor shall not operate or franchise any new ZAP Electric
Vehicle Outlets within the Development Zone Area, except as set forth in
Paragraph XIII B. below.
B. From time to time during the term of this Agreement, special distribution
opportunities (excluding short term special athletic and outdoor recreational
event opportunities) may arise within the Development Area that are not
available to Developer. Examples of such special distribution opportunities
include, but are not limited to, utility company promotions, donations, etc.
Franchisor shall have the right to pursue such special distribution
opportunities either directly or by franchising to Developer or to others. If
however, any such opportunity is available for Franchisor to franchise to
Developer, and if Developer meets the conditions set forth in Paragraph XIII A
above, then Franchisor shall first offer Developer the right to enter into
Franchise and other agreements required by Franchisor with respect to such
opportunity. Such right of first refusal shall expire forty-five (45) days after
Franchisor offers the same to Developer in the event all such required documents
have not been executed by Developer and delivered to Franchisor within such
forty-five (45) day period. The rights reserved to Franchisor hereunder are
16
intended to ensure that distribution within the Development Zone Area is
maximized.
C. If, during the term of this Agreement, Franchisor grants a franchise to a
third party within the Development Zone Area or operates directly within the
Development Zone Area pursuant to the rights reserved to Franchisor under
Paragraph XIII B., then Franchisor will offer to Developer one or more
alternatives depending on the extent, if any, to which Franchisor, in its sole
and absolute discretion, determines that the potential number of Shop available
for Developer to develop within the Development Zone Area has been or is likely
to be diminished by reason of Franchisor's activities within the Development
Zone Area Such alternatives may include extending the term of the Development
Schedule, reducing the initial franchise fees payable by Developer for Outlet,
changing the number of Outlet, expanding the Development Zone Area or such other
alternative, as Franchisor determines to be appropriate under the circumstances.
If Developer does not accept the alternative offered by Franchisor, Developer
may request that the issue be reviewed by the Franchisor. If Developer accepts
the alternative offered by Franchisor, Developer shall execute agreements
prepared by Franchisor to implement the arrangement within thirty (30) days
after the agreements have been submitted to Developer; otherwise, Franchisor's
offer shall be deemed withdrawn. Franchisor shall be under no obligation to
offer alternatives to Developer if Developer has failed to open units in
accordance with the Development Schedule set forth in Schedule A. or is not in
compliance with this Agreement and the Franchise Agreement and other agreements,
if any, for each unit.
SECTION XIV
NOTICES
Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally delivered or mailed by certified or registered
mail, return receipt requested, to the respective parties at the following
addresses unless and until a different address has been designated by written
notice to the other party:
Notices to the Company: ZAP POWER SYSTEMS
ATTENTION: ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Notice to the Developer: _________________________________________
_________________________________________
_________________________________________
Any notice by certified or registered mail shall be deemed to have been given at
the date and time of mailing.
SECTION XV
INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. It is understood and agreed by the parties hereto that this Agreement does
not create a fiduciary relationship between them, and that nothing in this
Agreement is intended to constitute either party an agent, legal representative,
subsidiary, joint venturer, partner, employee or servant of the other for any
17
purpose whatsoever. Each party to this Agreement is an independent contractor,
and neither shall be responsible the debts or liabilities incurred by the other.
B. Developer shall hold itself out to the public to be an independent contractor
operating pursuant to this Agreement. Developer agrees to take such actions as
shall be necessary to that end.
C. Developer understands and agrees that nothing in this Agreement authorizes
Developer to make any contract, agreement, warranty or representation on the
Company's behalf, or to incur any debt or other obligation in the Company's
name, and that the Company assumes no liability for, nor shall it be deemed
liable by reason of, any act or omission of Developer or any claim or judgment
arising therefrom. Developer shall indemnify and hold the Company and the
Company's officers, directors, and employees harmless against and all such
claims arising directly or indirectly from, as a result of, or in connection
with Developer's activities hereunder, as well as the cost, including reasonable
attorney's fees, of defending against them, except that the foregoing shall not
apply to infringement actions regarding the Proprietary Marks which are caused
solely by actions of the Company or actions caused by the negligent acts of the
Company or its agents.
SECTION XVI
APPROVALS
A. Whenever this Agreement requires the prior approval or consent of the
Company, Developer shall make a timely written request to the Company therefor,
and, except as otherwise provided herein, any approval or consent granted shall
be in writing.
B. The Company makes no warranties or guarantees upon which Developer may rely
and assumes no liability or obligation to Developer or any third party to which
it would not otherwise be subject, by providing any waiver, approval, advise,
consent or services to Developer in connection with this Agreement, or by reason
of any neglect, delay or denial of any request therefor.
SECTION XVII
NON-WAIVER
No failure of the Company to exercise any power reserved to it under this
Agreement or to insist upon compliance by Developer with any obligation or
condition in this Agreement, and no custom or practice of the parties at
variance with the terms hereof, shall constitute a waiver of the Company's
rights to demand exact compliance with the terms of this Agreement. Waiver by
the Company of any particular default shall not affect or impair the Company's
right with respect to any subsequent default of the same or of a different
nature; nor shall any delay, forbearance or omission of the Company to exercise
any power or right arising out of any breach or default by Developer of any of
the terms, provisions or covenants of this Agreement affect or impair the
Company's rights; nor shall such constitute a waiver by the Company of any
rights hereunder or rights to declare any subsequent breach or default.
18
SECTION XVIII
SEVERABILITY AND CONSTRUCTION
A. Each covenant and provision of this Agreement shall be construed as
independent of any other covenant or provision of this Agreement. The provisions
of this Agreement shall be deemed severable.
B. If all or any portion of a covenant or provision of this Agreement is held
unreasonable or unenforceable by a court or agency having valid jurisdiction in
a decision to which the Company is a party, Developer expressly agrees to be
bound by any lesser covenant or provision imposing the maximum duty permitted
law which is subsumed within the terms of such covenant or provision, as if that
lesser covenant or provision were separately stated in and made a part of this
Agreement.
C. Nothing in this Agreement shall confer upon any person or legal entity other
than the Company or Developer, and such of their respective successors and
assigns as may be contemplated by Section X hereof any rights or remedies under
or by reason of this Agreement.
D. All captions in this Agreement are intended solely for the convenience of the
parties, and none shall be deemed to affect the meaning or construction of any
provision hereof.
E. All references herein to gender and number shall be construed to include the
masculine, feminine, neuter, or plural, where applicable, and all
acknowledgments, promises, covenants, agreements, and obligations herein made or
undertaken by Developer shall be deemed jointly and severally undertaken by
those executing this Agreement on behalf of Developer.
F. This Agreement may be executed in triplicate and each copy so created shall
be deemed to be an original.
SECTION XIX
ENTIRE AGREEMENT APPLICABLE LAW
This Agreement, the documents referred to herein and the Exhibits attached
hereto, constitute the entire, full and complete agreement between the Company
and Developer concerning the subject matter hereof and supersede any and all
prior agreements. No amendment, change or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties and executed by
their authorized officers or agents in writing. This Agreement shall be
interpreted and construed under the laws of the State of California, and the
parties hereto submit to the jurisdiction of all courts located within the State
of California.
SECTION XX
TIMELY PERFORMANCE
Developer hereby acknowledges that its timely development of the Outlet in the
Development Zone in accordance with the Development Schedule is of material
importance to the Company and Developer. Developer agrees, as a condition of the
19
continuance of the rights granted hereunder, to develop and open Outlet within
the Development Zone in accordance with the Development Schedule, to operate
such Outlet pursuant to the terms of the Franchise Agreements and to maintain
all such Outlet in operation continuously. The Company agrees to diligently act
upon any request of or approval from Developer and any material delay in
Developer's ability to meet the Development Schedule which is directly caused by
the Company's failure to act diligently upon a request for approval shall not
constitute a default hereunder. Further, a failure or delay in performance by
any party to this Agreement shall not be a default hereunder if such failure or
delay arises out of or results from a force majeure, which for purposes of this
Agreement shall be defined as fire, earthquake or other natural disasters or
acts of a public enemy, war, rebellion or sabotage.
SECTION XXI
ARBITRATION
A. In the event any party is required to employ legal counsel or to incur other
reasonable expenses to enforce any obligation of another party hereunder, or to
defend against any claim, demand, action, or proceeding by reason of another
party's failure to perform any obligation imposed upon such part by this
Agreement, and provided that legal action is filed by or against the first party
and such action or the settlement thereof establishes the other party's default
hereunder, then the prevailing party shall be entitled to recover from the other
party the amount of all reasonable attorney's fees of such counsel and all other
expenses reasonably incurred in enforcing such obligation or in defending
against such claim, demand, action, or proceeding, whether incurred prior to or
in preparation for or contemplation of the filing of such action thereafter.
Nothing contained in this Paragraph shall relate to arbitration proceedings
pursuant to this Agreement.
B. Except as otherwise specifically provided in this Agreement, the parties
agree that all contract disputes that cannot be amicably settled shall be
determined solely and exclusively by arbitration under the Federal Arbitration
Act as amended and in accordance with the rules of the American Arbitration
Association or any successor thereof. Arbitration shall take place at an
appointed time and place in the State of California.
C. Each party shall select one arbitrator (who shall not be counsel for the
party), and the two so designated shall select a third arbitrator. If either
party shall fail to designate an arbitrator within seven (7) days after
arbitration is requested, or if the two arbitrators shall fail to select a third
arbitrator within fourteen (14) days after arbitration is requested, then an
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. Judgment upon any award of
the majority of the arbitrators shall be binding and shall be entered in a court
of competent jurisdiction. The award of the arbitrators may grant any relief
which might be granted by a court of general jurisdiction, including, without
limitation by reason of enumeration, award of damages (but excluding injunctive
relief), and may, in the discretion of the arbitrators, assess, in addition, the
costs of arbitration, including the reasonable fees of the arbitrators and
reasonable attorney's fees, against either or both parties, in proportions as
the arbitrators shall determine.
D. Nothing herein contained shall bar the right of either party to seek and
obtain temporary and permanent injunctive relief from a court of competent
jurisdiction consistent in accordance with applicable law against threatened
20
conduct that will in all probability cause loss or damage to Developer or
Franchisor.
E. It is the intent of the parties that any arbitration between the Developer
and the Company regarding claim of Developer shall be of Developer's individual
claim and that no such claim subject to arbitration shall be arbitrated on a
class-wide basis.
F. Developer shall not assert any claim or cause of action against Franchisor,
its officers, directors, shareholders, employees or affiliates after one year
following the event giving rise to such claim or cause of action.
SECTION XXII
ACKNOWLEDGMENTS
A. Developer acknowledges that the success of the business venture contemplated
by this agreement involves substantial business risks and will be totally and
completely dependent upon the ability of Developer as an independent business
person. The Company expressly disclaims the making of, and Developer
acknowledges not having received, any warranty or guarantee, express or implied,
as to the potential volume, profits or success of the business venture
contemplated by this Agreement.
B. Developer acknowledges having received, read and understood this Agreement,
the Exhibits attached hereto and agreements relating hereto, if any, and the
Offering Prospectus delivered simultaneously herewith, and the Company has
accorded Developer ample time and opportunity to consult with advisors of
Developer's own choosing about the potential risks of entering into this
Agreement.
C. Developer acknowledges that he, she or it, whichever the case, received a
complete copy of this Agreement, the Exhibits hereto and agreements relating
hereto, if any, at least five (5) business days prior the date on which this
Agreement was executed. Developer further acknowledges having received the
disclosure, document required by the Trade Regulation Rule of the Federal Trade
Commission entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures" least ten (10) business days
prior to the date on which this Agreement was executed.
SECTION XXIII
EFFECTIVE DATE
This Agreement shall be effective as of the date it is executed by the Company
IN WITNESS WHEREOF, the parties hereto have duty executed, sealed and delivered
Agreement in triplicate on the day and year first above written.
---------------------------------------- ---------------------------
ZAP POWER SYSTEMS WITNESS
By: ____________________________________
Date: __________________________________
---------------------------------------- ---------------------------
DEVELOPER WITNESS
21
ZAP POWER SYSTEMS
EXHIBIT "A"
DEVELOPMENT SCHEDULE
THE AGREEMENT authorizes and obliges Franchisee to establish and
operate ( ) Outlet pursuant to a Franchise Agreement for each Outlet. The
following Developer's Development Schedule:
Cumulative Total Number of
Outlets for which Developer
Shall have an Executed
Franchise Agreement
By: _______________________________________
___________________________________________
(Date)
(Refer to Sections I A., III A. and III B. of Agreement)
22
ZAP POWER SYSTEMS
EXHIBIT "B"
DEVELOPMENT ZONE
The following describes the Development Area within which Developer may locate
Outlet under this Agreement:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Refer to Section I.A. of Agreement)
23
ZAP POWER SYSTEMS
EXHIBIT "C"
DEVELOPMENT FEE
A. Number of Units:
B. Initial Franchise Fees:
UNITS PER UNIT # OF UNITS TOTAL
TOTAL INITIAL FRANCHISE FEES
Total Initial Franchise Fees are a payable in full even if some or all of the
units to which they relate do not open.
Initial Franchise Fee Payment Schedule
One full Franchise Fee payable for the first ten stores and a percentage of the
then current franchise fee to be negotiated of each additional Franchise Fee
upon execution of Agreement:
The remaining installment of each initial franchise fee shall be payable upon
the earlier of the date of execution of the franchise agreement for each such
Outlet or the required opening date for each such Outlet as set forth below, but
only to the extent applicable for the number of Outlet set forth in 1. A. above.
In any event, however, such installment must be signed before commencement of
construction of any such Outlet.
1). Notwithstanding the provisions of "B" and "C" above, until the Franchisor
had five (5) open and operating franchises, the fees provided above shall not be
payable until the opening of each respective stores in a Zone arrangement. After
the Franchisor has at least five (5) open and operating franchises, the Zone
franchise fees shall be paid upon the execution of the Zone Agreement, unless
said agreement provides otherwise.
The initial franchise fee is not due until Franchisor has fulfilled and
performed all of its initial obligations to the Franchisee.
24
ZAP POWER SYSTEMS
EXHIBIT D
FRANCHISE AGREEMENT
SEE ATTACHED FORM OF AGREEMENT
25
ZAP POWER SYSTEMS
EXHIBIT E
TRANSFER OF A FRANCHISE TO A CORPORATION
The undersigned, an Officer, Director and Owner of a majority of the issued and
outstanding voting stock of the corporation set forth below and the Franchisee
of the Outlet under a Franchise Agreement executed on the date set forth below,
between himself or herself and ZAP POWER SYSTEMS, as a Franchisor, granting him
or her a franchise to operate at the location set forth below and the other
undersigned Directors, Officers, and Shareholders of the Corporation, who
together with Franchisee constitute all of the Shareholders of the Corporation,
in order to induce Franchisor to consent to the assignment of the Franchise
Agreement to the Corporation in accordance with the provisions of Article XXI of
the Franchise Agreement, agree as follows:
1. The undersigned Franchisee shall remain personally liable in all
respects under the Franchise Agreement and all the other undersigned Officers,
Directors and Stockholders of the Corporation intending to be legally bound
hereby, agree jointly and severally to be personally bound by the provisions of
the Franchise Agreement including the restrictive covenants contained in Article
XVI thereof, to the same extent as if each of them were the Franchisee set forth
in the Franchise Agreement and they jointly and severally personally guarantee
all of the Franchisee's obligations set forth in said Agreement.
2. The undersigned agree not to transfer any stock in the Corporation
without the prior written approval of the Franchisee and agree that all stock
certificates representing shares in the Corporation shall bear the following
legend: "The shares of stock represented by this certificate are subject to the
terms and conditions set forth in a Franchise Agreement dated _________________
between ______________________ and ZAP Power Systems"
3. _______________________________ or his designee shall devote his
best efforts to the day to day operation and development of the Outlet.
4. ________________________________ hereby agrees to become a party to
and to be bound by all of the provisions of the Franchise Agreement executed on
the date set forth below between Franchise Agreement executed on the date set
forth below between Franchise Agreement executed on the date set forth below
between Franchisee and ZAP Power Systems.
Date of Franchise Agreement: ___________________________________________________
Location of Outlet: ____________________________________________________________
WITNESS: _______________________________________________________________________
Name of Corporation: ___________________________________________________________
ATTEST: ________________________________________________________________________
By: ___________________________________________________ (SEAL)
In consideration of the execution of the above Agreement ZAP Power Systems,
hereby consents to the above referred to assignment on this _____ day of
___________________.
26
ZAP POWER SYSTEMS
EXHIBIT F
CERTIFICATION OF DEVELOPER
The undersigned, personally and as an officer or partner of Developer, as
applicable, does hereby certify that he has conducted an independent
investigation of the business contemplated by the ZAP Power Systems Zone
Development Agreement, and The ZAP Power Systems Franchise Agreement, and that
the decision to execute the Development Agreement was based entirely upon the
independent investigation by the undersigned; and the undersigned further
certifies that he has not relied upon, in any way, any claims regarding
potential sales, income, or earnings to be derived from the business
contemplated by the Franchise Agreement and Zone Development Agreement, and has
not relied upon any claims regarding past or current sales, income or earnings
of company operated Zap Electric Vehicle Outlet. The undersigned further
certifies that he understands the risks involved in this investment and that ZAP
Power Systems makes no representation or guaranty, explicit or implied, that the
Developer will be successful or will recoup his investment.
IN WITNESS WHEREOF, the undersigned has signed, sealed and delivered this
Certificate this _____ day of __________________________________.
WITNESS ______________________________ ___________________________
WITNESS ______________________________ ___________________________
Each of the undersigned owns a five percent (5%) or greater beneficial interest
in Developer; each has read this Development Agreement; and each agrees to be
individually bound by all obligations of Developer hereunder.
WITNESS ______________________________ ___________________________
WITNESS ______________________________ ___________________________
27
ZAP POWER SYSTEMS
EXHIBIT G
AUDITED BALANCE SHEET
28