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                 EXHIBIT 10

 

LA BOXING FRANCHISE AGREEMENT Between LA Boxing Franchise Corporation, a
California corporation (Franchisor)

 

and

Fitness USA, Inc.

(Franchisee)

Dated: March 7, 2008

 

 

Location: To be determined in the Beverly Hills or another mutually acceptable
location in the Los Angeles, CA area.

 

 

 

© LA BOXING FRANCHISE CORPORATION

2915 Tech Center Drive

Santa, Ana, CA 92705

(714) 668-0911

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TABLE OF CONTENTS

 

 

ARTICLE 1 – APPOINTMENT

5

 

SECTION 1.1

GRANT OF FRANCHISE

5

 

SECTION 1.2

LOCATION OF YOUR LA BOXING FRANCHISE

5

 

SECTION 1.3

EXCLUSIVE TERRITORY

5

 

SECTION 1.4

RELOCATION OF YOUR LA BOXING FRANCHISE

6

 

ARTICLE 2 - OUR DUTIES

6

 

SECTION 2.1

SITE SELECTION ASSISTANCE

6

 

SECTION 2.2

PLANS AND SPECIFICATIONS

6

 

SECTION 2.3

BUSINESS PLANNING ASSISTANCE

7

 

SECTION 2.4

ACCOUNTING, COST CONTROL AND INVENTORY CONTROL SYSTEMS

7

 

SECTION 2.5

LISTS, FORMS AND SCHEDULES

7

 

SECTION 2.6

EMPLOYEE INFORMATION AND ASSISTANCE

7

 

SECTION 2.7

INITIAL TRAINING

8

 

SECTION 2.8

LOAN OF THE MANUALS

8

 

SECTION 2.9

PRE-OPENING INSPECTION

8

 

SECTION 2.10

PRE-OPENING ON-SITE TRAINING; OPENING SUPERVISOR

 

8

 

SECTION 2.11

CONTINUED ASSISTANCE AND SUPPORT

8

 

SECTION 2.12

LICENSE OF INTELLECTUAL PROPERTY

9

 

SECTION 2.13     OUR TEMPORARY OPERATION OF YOUR UNIT

5

 

SECTION 2.14

DUTIES SOLELY TO YOU

10

 

SECTION 2.15

OUR RIGHT TO DELEGATE DUTIES

10

 

ARTICLE 3 -         FEES AND PAYMENTS

10

 

SECTION 3.1

      TYPES OF FEES

10

 

SECTION 3.2

PAYMENT SCHEDULE

10

 

SECTION 3.3

        PAYMENT SYSTEM

11

    SECTION 3.4           INTEREST ON LATE PAYMENTS; LATE
CHARGE                                      11

 

SECTION 3.5

        APPLICATION OF PAYMENTS

11

 

SECTION 3.6

        NO WITHHOLDING

12

 

ARTICLE 4 -          YOUR DUTIES

12

 

SECTION 4.1

        ACQUISITION OF THE SITE

12

 

SECTION 4.2

        CONSTRUCTION PLANS AND PERMITS

12

 

SECTION 4.3

       CONSTRUCTION REQUIREMENTS

13

 

SECTION 4.4

       OPENING

13

 

SECTION 4.5

       USE OF THE PREMISES

13

 

SECTION 4.6

       MAINTENANCE AND REPAIRS

13

 

SECTION 4.7

      OPERATIONAL REQUIREMENTS

14

 

SECTION 4.8

      HIRING, TRAINING AND APPEARANCE OF EMPLOYEES

14

 

SECTION 4.9

      MANAGEMENT OF YOUR LA BOXING FRANCHISE

15

 

SECTION 4.10

APPROVED SPECIFICATIONS AND SOURCES OF SUPPLY

15

 

SECTION 4.11

LA BOXING PRODUCTS

16

 

SECTION 4.12

SALES OF PRODUCTS AND SERVICES BY YOU TO YOUR AFFILIATES.

16

 

SECTION 4.13

TELEPHONES AND ANSWERING SERVICE

16

 

SECTION 4.14

PROFESSIONAL AFFILIATION

17

 

SECTION 4.15

COMPLIANCE WITH LAWS, RULES AND REGULATIONS

17

 

 

1

 

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SECTION 4.16               TAX PAYMENTS; CONTESTED
ASSESSMENTS                                      17

 

SECTION 4.17

CUSTOMER SURVEYS; CUSTOMER LIST

17

 

SECTION 4.18

INSPECTIONS

17

 

SECTION 4.19

NOTICES TO US

18

 

SECTION 4.20

OPERATIONAL SUGGESTIONS

18

 

SECTION 4.21

RENOVATION AND UPGRADING

18

 

SECTION 4.22

LIQUIDATED DAMAGES FOR SALE OF PROHIBITED

18

 

SECTION 4.23

FINANCIAL COVENANTS

18

 

SECTION 4.24

PUBLICITY

19

 

SECTION 4.25

MINIMUM PERFORMANCE STANDARD

19

 

ARTICLE 5 -               INTELLECTUAL PROPERTY

19

 

SECTION 5.1

           OUR REPRESENTATIONS AS TO THE INTELLECTUAL PROPERTY

19

 

SECTION 5.2

           YOUR USE OF THE INTELLECTUAL PROPERTY

19

 

SECTION 5.3

            INFRINGEMENT BY YOU

20

 

SECTION 5.4

            CLAIMS AGAINST THE INTELLECTUAL PROPERTY

20

 

SECTION 5.5

            YOUR INDEMNIFICATION.

20

 

SECTION 5.6

            OUR RIGHT TO MODIFY THE INTELLECTUAL PROPERTY

21

 

SECTION 5.7

            OUR RESERVATION OF RIGHTS

21

    SECTION 5.8              OWNERSHIP; INUREMENT SOLELY TO
US                                             21

 

ARTICLE 6 -              THE MANUALS AND OTHER CONFIDENTIAL INFORMATION

21

 

SECTION 6.1

            IN GENERAL

21

 

SECTION 6.2

            CONFIDENTIAL USE

22

 

SECTION 6.3

            PERIODIC REVISIONS

22

 

ARTICLE 7 -              ADVERTISING

22

 

SECTION 7.1

            LOCAL ADVERTISING

22

 

SECTION 7.2

            REGIONAL COOPERATIVE ADVERTISING

23

 

SECTION 7.3

            WEB SITE ADVERTISING

24

 

SECTION 7.4

            SPECIAL ADVERTISING EXPENDITURES

24

 

SECTION 7.5

           MARKETING FUND

24

 

SECTION 7.6

           CONTENT AND CONCEPTS

25

 

SECTION 7.7

           TERMINATION OF EXPENDITURES

25

 

SECTION 7.8

           ADVERTISING CONTRIBUTIONS BY US

25

 

ARTICLE 8 -              ACCOUNTING AND RECORDS

25

 

SECTION 8.1

           RECORDS

25

    SECTION 8.2              REPORTS AND STATEMENTS;
CONFIDENTIALITY                               25

 

SECTION 8.3

           REVIEW AND AUDIT

26

 

SECTION 8.4

           YOUR NAME, ADDRESS AND TELEPHONE NUMBER

26

 

 

 

2

 

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ARTICLE 9 - INSURANCE

26

 

 

SECTION 9.1

            TYPES AND AMOUNTS OF COVERAGE

26

 

SECTION 9.2

            EVIDENCE OF YOUR INSURANCE

27

 

SECTION 9.3

            REQUIREMENTS FOR CONSTRUCTION AND RENOVATION

27

 

SECTION 9.4

           OUR RIGHT TO PARTICIPATE IN CLAIMS PROCEDURE

28

 

SECTION 9.5

           WAIVER OF SUBROGATION

28

 

SECTION 9.6

            EFFECT OF OUR INSURANCE

28

 

SECTION 9.7

            FAILURE TO MAINTAIN INSURANCE

28

 

SECTION 9.8

           GROUP INSURANCE

28

 

ARTICLE 10 -            INDEPENDENT ASSOCIATION OF LA BOXING FRANCHISEES

28

    SECTION 10.1          YOUR RIGHT TO JOIN THE INDEPENDENT ASSOCIATION

                                       OF LA BOXING 
FRANCHISEES                                                                 28

 

SECTION 10.2

OUR DEALINGS WITH THE FRANCHISEE ASSOCIATION.

28

 

SECTION 10.3

ANNUAL CONVENTION

28

 

ARTICLE 11 -            TRANSFER OF INTEREST

29

 

SECTION 11.1

TRANSFER BY US

29

 

SECTION 11.2

TRANSFER BY YOU

29

 

SECTION 11.3

TRANSFER UPON DIVORCE OR PARTNERSHIP DISSOLUTION

30

 

SECTION 11.4

TRANSFER UPON DEATH OR DISABILITY

31

 

SECTION 11.5

OUR PURCHASE OBLIGATION UPON YOUR DEATH.

31

 

SECTION 11.6

OUR RIGHT OF FIRST PURCHASE

31

 

SECTION 11.7

YOUR TRANSFER OF ACCOUNTS TO ANOTHER FRANCHISEE

33

 

ARTICLE 12 -             DEFAULT AND TERMINATION

33

 

SECTION 12.1

TERMINATION BY YOU

33

 

SECTION 12.2

TERMINATION BY US - WITHOUT NOTICE

33

 

SECTION 12.3

TERMINATION BY US - AFTER NOTICE

33

 

SECTION 12.4

TERMINATION BY US - AFTER NOTICE AND RIGHT TO CURE

34

   ARTICLE 13 -             YOUR OBLIGATIONS UPON TERMINATION DUE TO YOUR
DEFAULT

                                        OR ON NONRENEWAL       
                                                                         34

 

SECTION 13.1

CEASE OPERATIONS

35

 

SECTION 13.2

PAYMENT OF OUTSTANDING AMOUNTS

35

 

SECTION 13.3

DISCONTINUANCE OF USE OF TRADE NAME

35

 

SECTION 13.4

OUR OPTION TO PURCHASE YOUR LA BOXING FRANCHISE

35

 

SECTION 13.5

DISTINGUISHING OPERATIONS

36

 

SECTION 13.6

UNFAIR COMPETITION

37

 

SECTION 13.7

RETURN OF MATERIALS

37

 

SECTION 13.8

OUR PURCHASE RIGHTS OF ITEMS BEARING INTELLECTUAL PROPERTY

37

 

SECTION 13.9

LIQUIDATED DAMAGES FOR PREMATURE TERMINATION

37

 

ARTICLE 14 -

YOUR INDEPENDENT COVENANTS

38

    SECTION 14.1           DIVERSION OF BUSINESS; COMPETITION AND INTERFERENCE

                                        WITH
US.                                                                                                      
38

 

SECTION 14.2

INDEPENDENT COVENANTS; THIRD PARTY BENEFICIARIES

39

 

 

3

 

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ARTICLE 15 -             INDEPENDENT CONTRACTOR AND INDEMNIFICATION

39

 

SECTION 15.1

INDEPENDENT STATUS

39

 

SECTION 15.2

INDEMNIFICATION

39

 

ARTICLE 16 -            REPRESENTATIONS AND WARRANTIES

40

 

SECTION 16.1

OUR REPRESENTATIONS

40

 

SECTION 16.2

YOUR REPRESENTATIONS

40

 

SECTION 16.3

RECEIPT OF FRANCHISE OFFERING CIRCULAR (FOC)

40

 

SECTION 16.4

RECEIPT OF COMPLETED FRANCHISE AGREEMENT

41

 

SECTION 16.5

ACKNOWLEDGMENT OF RISK

41

 

ARTICLE 17 -            TERM

41

 

SECTION 17.1

TERM

41

 

SECTION 17.2

OPTION TO OBTAIN SUCCESSOR LA BOXING FRANCHISE AGREEMENT

41

 

SECTION 17.3

REINSTATEMENTS AND EXTENSIONS

42

 

ARTICLE 18 -            DISPUTE RESOLUTION

42

 

SECTION 18.1

MEDIATION

42

 

SECTION 18.2

ARBITRATION

42

SECTION 18.3               EXCEPTIONS TO MEDIATION AND ARBITRATION; EQUITABLE

                                       
RELIEF                                                                                                          
43

 

SECTION 18.4

JURISDICTION AND VENUE

44

 

SECTION 18.5

ENFORCEMENT COSTS

44

 

SECTION 18.6

GOVERNING LAW

44

 

SECTION 18.7

WAIVER OF PUNITIVE DAMAGES CLAIMS

44

 

SECTION 18.8

WAIVER OF JURY TRIAL

45

 

ARTICLE 19 -             DEFINITIONS

45

 

SECTION 19.1

DEFINITIONS

45

 

SECTION 19.2

OTHER DEFINITIONAL PROVISIONS

48

 

ARTICLE 20 -            GENERAL PROVISIONS

48

 

SECTION 20.1

AMENDMENTS

48

 

SECTION 20.2

MODIFICATION OF THE SYSTEM

48

 

SECTION 20.3

BINDING EFFECT

48

 

SECTION 20.4

NOTICES

49

 

SECTION 20.5

HEADINGS

49

 

SECTION 20.6

SEVERABILITY

49

 

SECTION 20.7

WAIVERS

50

 

SECTION 20.8

REMEDIES CUMULATIVE

50

    SECTION 20.9           EFFECTIVENESS;
COUNTERPARTS                                                         50

 

SECTION 20.10

REASONABLENESS

50

 

SECTION 20.11

SURVIVAL

50

 

SECTION 20.12

FORCE MAJEURE

50

 

SECTION 20.13

THIRD PARTIES

50

 

SECTION 20.14

ENTIRE AGREEMENT

51

EXHIBIT A - DESCRIPTION OF TERRITORY

 

 

4

 

 

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LA BOXING FRANCHISE AGREEMENT

 

THIS LA BOXING FRANCHISE AGREEMENT is signed on March 7, 2008, between LA Boxing
Franchise Corporation and Fitness USA, Inc.

 

This Agreement is written in an informal style to make it easy to read and to
help you become thoroughly familiar with all of the important rights and
obligations that the Agreement covers before you sign it. In this Agreement, LA
Boxing Franchise Corporation is referred to as the “Franchisor,” “we,” “us” or
“our.” You are referred to as the “Franchisee,” “you” or “your.”

 

BACKGROUND

 

A.        We have developed and own a membership fitness system consisting of
unique boxing and kickboxing training regimens, and, including a proprietary
system featuring membership software and accounting programs, boxing equipment,
operations manuals, sales manuals, training and instruction programs that
include cardio boxing, cardio kick boxing, Jui Jitsu, Muay Thai boxing,
utilizing a weight room, and a professional boxing ring with unique construction
and design features. We have rights to and own the name “LA Boxing” and a unique
system for the operation of a membership recreational boxing fitness gym
utilizing skilled boxer and kick boxer instructors.

 

B.           You recognize the benefits from receiving an LA Boxing Franchise
and desire to enter into this Agreement subject to the terms of this Agreement
and to receive the benefits provided by us under this Agreement.

 

C.         We have reviewed your franchise application and have decided to award
an LA Boxing Franchise to you on the terms stated in this Agreement and as
evidenced by this Agreement.

 

TERMS

 

 

The parties agree as follows:

 

ARTICLE 1 - APPOINTMENT

 

 

SECTION 1.1

GRANT OF FRANCHISE

 

We grant to you, subject to the terms of this Agreement, the right and you
undertake the obligation, to operate one (1) LA Boxing Franchise under the
System only at the location and within the territory described in Section 1.2.
Other than this right, you will have no rights to open additional LA BOXING
Franchise Businesses under this Agreement.

 

 

SECTION 1.2

LOCATION OF YOUR LA BOXING FRANCHISE

 

You agree that you will operate your LA Boxing Franchise only at the location
described on the cover page or, if none is stated, the Premises will be
designated by you and approved by us and delineated in Exhibit A (attached
hereto and incorporated herein), and completed ninety (90) days after you select
a site in accordance with Section 4.1. The location cannot be changed without
our prior written consent and compliance with our relocation procedures. You
will not solicit business outside your Exclusive Territory through the use of an
800 number, catalog, direct mail, Internet, Web Site or other advertising or
solicitation method without our prior written consent.

 

 

SECTION 1.3

EXCLUSIVE TERRITORY

 

Your Exclusive Territory is defined in Section 19.1 and further delineated in
Exhibit A. The written boundaries of your territory shall be defined as the
Beverly Hills/Brentwood, CA area. During the Term, if you are not in default, we
agree not to open a Company-Owned Unit or franchise another LA Boxing Franchise
within your Exclusive Territory.

 

5

 

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All capitalized terms are defined in ARTICLE 19

 

 

SECTION 1.4

RELOCATION OF YOUR LA BOXING FRANCHISE

 

(a)           Loss of Lease.      If the Premises is leased by you and the lease
expires or is terminated (provided termination is not due to your default)
before the expiration or termination of this Agreement, you then have 90 days to
secure a new location within your Exclusive Territory but not within the
exclusive territory of a Company Unit or another Franchise Unit of the System
whether operating or under development. We must approve the new location in
writing. You have 90 days from the date the new lease is signed to open and
begin full operation of the new LA Boxing Franchise in compliance with this
Agreement unless we otherwise agree in writing. Your failure to secure a new
location and begin operation within the specified times is an Event of Default
on your part.

 

(b)           Casualty.If the Premises is damaged or destroyed by fire or other
casualty, or is required by any governmental authority, to be repaired or
constructed you will, at your expense, repair or reconstruct the Premises within
a reasonable time under the circumstances. The minimum acceptable appearance for
the restored Premises will be as existed just before the casualty. However,
every reasonable effort must be made to have the restored Premises reflect the
then current trade dress of the newest LA Boxing Franchises within the System.
If the Premises is substantially destroyed by fire or other casualty, you may,
with our written agreement, terminate this Agreement instead of reconstructing
the Premises or relocating your LA Boxing Franchise.

 

(c)           Condemnation.    You will, as soon as possible, give us notice of
any proposed taking by eminent domain. If we agree that your LA Boxing Franchise
or a substantial portion is to be taken, we will give prompt consideration to
transferring your LA Boxing Franchise to a nearby location you select within
your Exclusive Territory but not within the exclusive territory of a Company
Unit or another Franchise Unit whether operating or under development as quickly
as reasonably possible. You will complete this undertaking within 90 days of the
taking. If the new location is acceptable and we authorize the transfer, and if
you open a new LA Boxing Franchise at the new location in accordance with our
specifications within 90 days after obtaining the new location, your new LA
Boxing Franchise will be deemed to be your LA Boxing Franchise under this
Agreement. If a condemnation takes place and a new LA Boxing Franchise does not,
for any reason, open for business within 90 days after the taking, this is an
Event of Default on your part.

 

ARTICLE 2 - OUR DUTIES

 

We will provide you with the following initial and ongoing assistance and
services, as long as you are not in default under this Agreement:

 

 

SECTION 2.1

SITE SELECTION ASSISTANCE

 

We will supply to you our site selection criteria. We will not unreasonably
withhold approval of any site that meets our standards for demographic
characteristics, traffic patterns, parking, the predominant character of the
neighborhood, competition from other businesses providing similar services
within the area, the proximity to other businesses, the nature of other
businesses in proximity to the site and other commercial characteristics, the
size, appearance and other physical characteristics of the site, and any other
factors that we consider relevant in approving or disapproving a site. We will
review site approval submissions on a first-received basis. If we do not approve
the selected site, you have 30 days to submit a new site within the Reserved
Area for our written approval. WE DO NOT REPRESENT THAT WE HAVE ANY SPECIAL
EXPERTISE IN SELECTING SITES. OUR APPROVAL OF A SITE IS NOT A REPRESENTATION OR
WARRANTY THAT THE LA BOXING FRANCHISE WILL BE PROFITABLE OR THAT YOUR SALES WILL
ATTAIN ANY PREDETERMINED LEVELS. APPROVAL IS INTENDED ONLY TO INDICATE THAT THE
PROPOSED SITE MEETS OUR MINIMUM CRITERIA FOR IDENTIFYING SITES. YOU AGREE THAT
OUR APPROVAL OR DISAPPROVAL OF A PROPOSED SITE DOES NOT IMPOSE ANY LIABILITY ON
US.

 

 

SECTION 2.2

PLANS AND SPECIFICATIONS

 

 

(a)

We will loan to you:

 

6

 

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(i)       A sample set of standard building plans and specifications and/or
standard recommended floor plans prepared by an architect;

 

(ii)        Specifications of our requirements for design, decoration, layout,
equipment, furniture, fixtures and signs for the LA Boxing Franchise
(collectively, the "Design Specifications"); and

 

(iii)       Specifications for LA Boxing uniforms for your employees, which are
to be purchased directly from our approved suppliers.

 

(b)          On or before the Opening Date, you must return to us the plans and
specifications described in Subsection 2.2(a).

 

 

SECTION 2.3

BUSINESS PLANNING ASSISTANCE

 

After this Agreement is signed by the parties, we will review and comment on any
business plan and pro forma financial projections you prepare. WE DO NOT
REPRESENT THAT WE HAVE ANY SPECIAL EXPERTISE IN REVIEWING OR DEVELOPING BUSINESS
PLANS. OUR REVIEW AND COMMENTARY OF A BUSINESS PLAN OR FINANCIAL PROFORMA IS NOT
A REPRESENTATION OR WARRANTY THAT THE LA BOXING FRANCHISE WILL BE PROFITABLE OR
THAT YOUR SALES WILL ATTAIN ANY PREDETERMINED LEVELS. OUR REVIEW AND COMMENTARY
IS INTENDED ONLY TO PROVIDE INFORMATION SHARING TO YOU AND YOU AGREE THAT SUCH
REVIEW AND COMMENTARY DOES NOT IMPOSE ANY LIABILITY ON US.

 

 

SECTION 2.4

ACCOUNTING, COST CONTROL AND INVENTORY CONTROL SYSTEMS

 

 

We will provide you with membership accounting, cost control, and inventory
control systems.

 

 

SECTION 2.5

LISTS, FORMS AND SCHEDULES

 

 

We will loan to you:

 

(a)          A list of required boxing and gym equipment, supplies, materials,
inventory and other items necessary to open and operate your LA Boxing Franchise
and a list of approved suppliers of these items;

 

(b)          An initial sample set of forms, including training class schedules,
daily reports, membership agreements, standard brochure and various operational
forms, standardized periodic weekly reporting forms for reporting accounting
information, cost analysis and purchase order forms;

 

(c)          A schedule of items that must be purchased from us, or our
Affiliates, including inventory, business forms, brochures and other items; and

 

(d)        A schedule of recommended equipment and supplies that can be
purchased from third-party suppliers.

 

These forms and schedules are set forth in the Manuals. WE DO NOT WARRANT THE
COMPLETENESS, LEGALITY OR ENFORCEABILITY OF ANY AGREEMENTS OR FORMS. YOU MUST
RETAIN YOUR OWN COUNSEL TO REVIEW AND REVISE SUCH AGREEMENTS AND DOCUMENTS TO
CONFORM TO ALL APPLICABLE FEDERAL AND STATE LAWS.

 

 

SECTION 2.6

EMPLOYEE INFORMATION AND ASSISTANCE

 

We will give to you a standardized interviewing/selection system. You are solely
responsible for the hiring, disciplining, supervising, promoting, and firing of
your employees and the establishment of their salaries as further provided in
Section 4.8.

 

7

 

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SECTION 2.7

INITIAL TRAINING

 

(a)           Initial Training.   We will provide you with three (3) Business
Days of Initial Training for up to three (3) Trainees at our training facilities
in Costa Mesa, California. Unless otherwise agreed in writing, at least 1
Trainee must be the Franchise Owner. If you will not be active in the day-to-day
activities of your LA Boxing Franchise, you may designate another person as your
Manager who will be active in the day-to-day activities of your LA Boxing
Franchise to be another Trainee. All Trainees must be acceptable to us. Initial
Training includes daily operations, membership selling techniques, instructor
training, instruction in administration, operations, event promotions, and
marketing and franchisor relations. Training programs may differ in content and
length for Franchise Owners or employees depending upon their responsibilities
at the LA Boxing Franchise. We will provide, at our expense, (as Initial
Training is included in the Initial Franchise Fee), instructors, facilities,
equipment, training materials and technical training tools for Initial Training.
You are responsible for all expenses of the Trainees in attending Initial
Training including all travel, lodging and meal expenses. You will pay all
expenses incurred to have your additional employees attend Initial Training,
including reasonable training fees.

 

(b)           Failure to Complete Initial Training.         If any Trainee fails
to satisfactorily complete Initial Training, as reasonably determined by us, we
may: (i) at your expense and direction, retrain the Trainee or train another
Trainee; or (ii) elect to terminate this Agreement and refund the Initial
Franchise Fee and other fees collected under this Agreement to you without
interest, less our out-of-pocket costs and our standard fees for the training
provided (currently $500 per day per person).

 

 

SECTION 2.8

LOAN OF THE MANUALS

 

We will loan to you one registered copy of each volume of the Manuals (with
revisions as required). Our practice is to deliver the Manuals to you at, or
shortly before, Initial Training.

 

 

SECTION 2.9

PRE-OPENING INSPECTION

 

We will inspect your Franchise Location before you open. We will provide you
with advice, as we deem appropriate, to insure that you conform to applicable
Franchise standards before the Opening Date.

 

 

SECTION 2.10

PRE-OPENING ON-SITE TRAINING; OPENING SUPERVISOR

 

We will make available to you pre-opening, on-site training for a Business Day
by our Opening Supervisor, in most instances to be conducted at your LA Boxing
Franchise Location shortly before the Opening Date. The on-site training program
involves a review of all personnel, equipment, supplies, systems and operations.
The Opening Supervisor will also observe boxing and fitness training classes and
oversee the operation. We will pay the expenses of the Opening Supervisor.

 

 

SECTION 2.11

CONTINUED ASSISTANCE AND SUPPORT

 

 

Upon the opening of your LA Boxing Franchise, we will, or may provide to you the
following:

 

(a)           Accounting Services.        We will provide you with the following
accounting services: membership sales, product sales, and general and
administrative.

 

(b)           Field Visits.         We will provide assistance to you in the
development and operation of your LA Boxing Franchise by means of periodic
visits by one of our field representatives.

 

(c)            Telephone Assistance.     We will provide informational
assistance by telephone, including consultation on matters involving operations,
advertising, promotion and business methods.

 

(d)           Advertising and Public Relations Campaigns.         We will
generally promote our franchisees' businesses through advertising and public
relations campaigns.

 

 

(e)

Local Advertising.

We will provide you advice on Local Advertising.

 

8

 

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(f)           Promotional Methods and Materials.         We will provide you
with promotional methods and materials that we develop.

 

(g)           Radio and Television Commercials.           We may provide at our
discretion, a preapproved radio script, and camera-ready television commercials
(not including airtime) for your use in your ADI.

 

(h)           Periodic Assistance.         We may provide advisory assistance in
the operation and promotion of the LA Boxing Franchise, as we deem advisable.
Advisory assistance may include additional training and assistance,
communication of new developments, improvements in equipment and supplies, and
new techniques in advertising, service and management relevant to the operation
of the LA Boxing Franchise.

 

(i)           Refresher or Additional Training.  We may provide refresher
training programs, seminars or advanced management training for you and your
employees at our principal training facility in Costa Mesa, California, as may
be required at our option. Training is not required more often than once a year.
However, if you receive an unsatisfactory inspection report from us and fail to
promptly remedy the deficiencies, we may require your Manager and designated
employees to attend refresher training as soon as reasonably possible. You are
solely responsible for all expenses associated with these programs including the
then prevailing standard training fee we charge for these programs and all
travel, meals and lodging costs of your attendees.

 

(j)           Special Assistance.           If you request, we will furnish
non-routine guidance and assistance to address your unusual or unique operating
problems at our customary per diem rates. Franchisee shall be responsible for
all expenses and out-of-pocket expenses we incur.

 

(k)           Research and Development.          We will continue to research
and develop new equipment, products and services, introductions and techniques,
as we deem appropriate in our sole discretion. We may conduct market research
and testing to determine consumer trends and the salability of new products and
services. If we choose you, and if you agree, you will participate in our market
research programs, in test marketing new products and services in the LA Boxing
Franchise and by providing us with timely reports and other relevant information
regarding that market research. If you participate in any test marketing, you
agree to purchase a reasonable quantity of the products or services being tested
and to effectively promote and make a good faith effort to sell them.

 

 

SECTION 2.12

LICENSE OF INTELLECTUAL PROPERTY

 

Subject to this Agreement, and only for so long as this Agreement is in effect,
we sublicense to you the right to use the “LA Boxing™” trade name and the other
Intellectual Property.

 

SECTION 2.13OUR TEMPORARY OPERATION OF YOUR UNIT At our option, if: (a)you fail
to keep your LA Boxing Franchise open for business during normal business hours;

 

 

(b)

you are absent from your LA Boxing Franchise more than 5 days or abandon the
Premises;

 

(c)          you or the Franchise Owner dies or becomes permanently
incapacitated and the Franchise or the ownership interest in the Franchisee is
not assigned promptly pursuant to Section 11.4 hereunder;

 

(d)          you materially breach any of our standards and specifications for
the operation of your LA Boxing Franchise; or

 

(e)          your LA Boxing Franchise is terminated and we elect to purchase
your business assets as provided in Section 13.4;

 

 

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then, we are entitled (but have no obligation) to enter your Premises and to
operate and manage your LA Boxing Franchise for your (or your estate's) account
until the LA Boxing Franchise is terminated, transferred to a party under
Subsection 11.2(f), purchased by us, or until you resume control over your LA
Boxing Franchise and operate it in accordance with this Agreement. Our operation
and management will not continue for more than 90 days without your written
consent or the consent of the representatives of your estate. If we operate your
LA Boxing Franchise, we will account to you or your estate for all net income
from the operation less our reasonable expenses incurred in, and a reasonable
management fee for, our operation of your LA Boxing Franchise.

 

 

SECTION 2.14

DUTIES SOLELY TO YOU

 

All of our obligations under this Agreement are only to you. No other party is
entitled to rely on, enforce, or obtain relief for breach of the obligations
either directly or by subrogation.

 

 

SECTION 2.15

OUR RIGHT TO DELEGATE DUTIES

 

You agree to our right to delegate our duties under this Agreement to a
Designee. You must discharge your duties with the Designee to the extent we
request, as you must do with us. We remain responsible for our obligations under
this Agreement even if delegated to the Designee.

 

ARTICLE 3 - FEES AND PAYMENTS

 

 

SECTION 3.1

TYPES OF FEES

 

In consideration of our signing this Agreement, you must pay to us the following
fees, in addition to any others required under this Agreement, all payable in
United States currency at our principal office:

 

(a)           Initial Franchise Fee.       You must pay to us an Initial
Franchise Fee of Twenty-Five Thousand Dollars ($25,000) payable at the same time
this Agreement is signed. The Initial Franchise Fee is fully earned by us on
receipt and, except as expressly provided otherwise in this Agreement, is
non-refundable upon signing this Agreement.

 

(b)           Royalty Fee.        You will pay a continuing monthly
non-refundable Royalty Fee during the Term equal to Six Percent (6.0%) of
monthly Franchise Gross Revenues.

 

(c)           Advertising Contributions.           If we institute an
Advertising Contribution, you will be required to pay a continuing monthly
Advertising Contribution to the Marketing Fund from the time of notice and
continuing for the balance of the Term in an amount equal to Two Percent (2.0%)
of monthly Franchise Gross Revenues. We have the sole right to institute and
enforce your obligations and all other franchisees that are required to make
Advertising Contributions. Neither you, nor any other franchisee obligated to
make Advertising Contributions, is a third party beneficiary of the funds or has
any right to enforce any obligation to contribute the funds.

 

 

SECTION 3.2 PAYMENT SCHEDULE

 

The Royalty Fee and Advertising Contributions must be paid to us by the fifth
(5th) day of each month during the Term for the previous month. All other
amounts due to us from you will be paid as specified in this Agreement. If no
time is specified, these amounts are due upon receipt of an invoice from us. Any
payment or report not actually received by us on or before the due date is
overdue.

 

 

 

 

 

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SECTION 3.3

PAYMENT SYSTEM

 

(a)          If we institute an automatic payment system, you will be required
to convert to such system with payments in accordance with such system. If the
automatic payment system is instituted by us, all payments by you to us or our
Affiliates, upon our request, will be effectuated by a Payment System by the use
of pre-authorized transfers from your operating account through the use of
special checks or electronic fund transfers, that we will process at the time
any payment is due or through the use of any other payment system we designate.
You will cooperate with us to implement the Payment System within 15 days before
the Opening Date. You agree to cooperate with us in maintaining the efficient
operation of the Payment System, including your deposit of all Franchise Gross
Revenues you receive in your operating account accessed by the Payment System
within one (1) Business Day of receipt.

 

(b)          You will give your financial institution instructions in a form we
provide or approve and will obtain the financial institution's agreement to
follow these instructions. You will provide us with copies of these instructions
and agreement. The financial institution's agreement may not be withdrawn or
modified without our written approval and approval is within our sole
discretion. You will also sign all other forms for funds transfer as the
financial institution or we may request.

 

(c)          We may require your financial institution to send a monthly
statement of all activity in the designated account to us at the same time as it
sends these statements to you, and any other reports of the activity in the
operating account as we reasonably determine and request.

 

(d)          If you maintain any other bank accounts for your LA Boxing
Franchise, you must identify these accounts to us and provide to us copies of
the monthly statements for all these accounts and the details of all deposits
and withdrawals to them.

 

(e)          You will pay all charges imposed by your financial institution. We
will pay the charges imposed by our financial institution for the Payment
System.

 

(f)          You agree that your obligations to make payments under this
Agreement and any other agreement entered into with us or our Affiliates for
your LA Boxing Franchise, and our rights and those of our Affiliates, if any, to
receive these payments, are absolute and unconditional, and are not subject to
any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims that
you have or may have against us, any of our Affiliates, any of our Designees, or
against any other person for any reason.

 

 

SECTION 3.4

INTEREST ON LATE PAYMENTS; LATE CHARGE

 

Although each failure to pay monies when due is an Event of Default, to
encourage prompt payment and to cover the costs involved in processing late
payments, if any payment under this Agreement or any other agreement between us
or our Affiliates and you for your LA Boxing Franchise is overdue for any
reason, you must pay to us, on demand, in addition to the overdue amount, any
insufficient funds (NSF) charges we incur and interest on the overdue amount
from the date it was due until paid equal to the lesser of: (i) ) eighteen
percent (18%) per annum; or (ii) the maximum rate of interest permitted by law.
You must also pay a late charge of Two Hundred Fifty Dollars ($250) for each
payment that is overdue. If we owe you money, we will pay the same interest and
late charge, if we pay you late.

 

 

SECTION 3.5

APPLICATION OF PAYMENTS

 

We have sole discretion to apply any payments you make to your past due
indebtedness including the Royalty Fee, Advertising Contributions, purchases
from us or our Affiliates, interest, insufficient funds (NSF) charges, or any
other indebtedness of you to us or our Affiliates in any manner we choose
regardless of your designation.

 

 

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SECTION 3.6

NO WITHHOLDING

 

You agree that under no circumstances will you withhold or suspend payment of,
or reduce the amount of the Royalty Fee and Advertising Contributions Fee, if
instituted, payable under this Agreement. Notwithstanding the foregoing, if you
dispute in good faith the amount of an individual payment due under this
Agreement, you may pay only the amount you believe is due, provided that you
give us prompt notice of the reasons you dispute the amount of the payment and
proceed to make good faith efforts to resolve the dispute.

 

ARTICLE 4 - YOUR DUTIES 

 

 

SECTION 4.1

ACQUISITION OF THE SITE

 

(a)           Site Approval.     You are solely responsible for selecting the
site. If a site for your LA Boxing Franchise has not been selected on the
Agreement Date, you must complete the acquisition or lease arrangements for your
Premises located in the Reserved Area, at your expense within 30 days after the
Agreement Date, after obtaining our written approval under Section 2.1. If a
site has not been approved within three (3) months of the Agreement Date, we may
terminate this Agreement and refund the Initial Franchise Fee to you without
interest, less our out-of-pocket costs and our standard fees and expenses for
the assistance we have provided under this Agreement including site location
assistance, and our fees for any training (currently, $500 per person per day).

 

(b)           Lease of the Site. We must approve any lease of the Premises. You
must deliver a copy of the proposed lease to us at least 15 days before it is to
be signed by you.

 

 

SECTION 4.2

CONSTRUCTION PLANS AND PERMITS

 

 

For the construction of your Premises, you will do the following:

 

(a)          You must employ a qualified architect or engineer with adequate
errors and omissions insurance to prepare a site plan and plans and
specifications adapting our standard plans and specifications to your approved
location and to applicable laws, lease requirements and restrictions, and market
conditions. The architect or engineer must be especially mindful of all zoning,
signage, seating capacity, parking requirements and storage requirements. Any
material modification to the standard plans and specifications must be sealed
and stamped by the architect or engineer and approved by us. The modified plans
and approvals, once approved by us, will not be materially changed or modified
without our written approval;

 

(b)          You will employ professional supervision satisfactory to us over
preparation of the site layout and plan and over construction of your Premises;
and

 

(c)          You must obtain all permits and certifications required for the
lawful construction and operation of your LA Boxing Franchise, together with
certifications from all governmental authorities having jurisdiction over your
Premises and your LA Boxing Franchise. You must provide us with evidence that
all necessary permits have been obtained and that all requirements for
construction and operation have been met, including zoning, access, sign, fire,
health, environmental and safety requirements.

 

 

 

 

 

 

 

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SECTION 4.3

CONSTRUCTION REQUIREMENTS

 

You must begin construction within sixty (60) days after a site is obtained and
provide written notice to us of the date construction of your LA Boxing
Franchise is completed. You will construct the Premises in accordance to the
approved plans described in Section 4.2 and the Design Specifications. You must
maintain continuous construction of the Premises and must complete construction,
including all exterior and interior carpentry, electrical, painting and
finishing work and installation of all with the approved fixtures, equipment and
signs, in accordance with the site plans and Design Specifications, at your
expense, within ninety (90) days from the Agreement Date. If you fail to
complete construction timely, you are in material default of this Agreement and
we have the right to terminate this Agreement. You agree that our
representatives and we have the right to inspect the construction at all
reasonable times. You will within five (5) days after completion of construction
obtain a certificate of occupancy, and after obtaining our approval for opening,
will open your LA Boxing Franchise within ten (10) days after the date of the
certificate of occupancy. You and we agree that time is of the essence in
constructing and opening your LA Boxing Franchise.

 

 

SECTION 4.4

OPENING

 

You agree not to open your LA Boxing Franchise for business until: (a) all your
obligations under Sections 4.1 through 4.3 have been fulfilled; (b) we determine
that your LA Boxing Franchise has been constructed, furnished, equipped, and
decorated in accordance with approved plans and specifications; (c) the training
of the Trainees has been completed to our reasonable satisfaction; (d) the
Initial Franchise Fee and all amounts due to us and our Affiliates under this
Agreement have been paid in full; (e) we have been furnished with certificates
of insurance and copies of all insurance policies or all other evidence of
insurance coverage as we reasonably request; (f) you have obtained a certificate
of occupancy for your Premises; and (g) you have obtained all necessary licenses
and permits to operate your LA Boxing Franchise. Final approval by us of the
opening of your LA Boxing Franchise will be given in writing. You agree to
comply with these conditions and be prepared to open your LA Boxing Franchise
for business within thirty six (36) months after execution of this Agreement.

 

 

SECTION 4.5

USE OF THE PREMISES

 

You must use your Premises only for the operation of your LA Boxing Franchise.
You must keep your LA Boxing Franchise open for business and in normal operation
for the minimum hours and days as we reasonably require in the Manuals or
otherwise in writing except as may be limited by local law or the landlord's
rules and regulations.

 

 

SECTION 4.6

MAINTENANCE AND REPAIRS

 

(a)          You must maintain your LA Boxing Franchise in the highest and most
uniform degree of sanitation, repair, appearance, condition and security as
stated in the Manuals and as a modern, clean, adequately lighted and efficiently
operated LA Boxing Franchise providing high quality products and services with
efficient, courteous and friendly customer service as we require. You must make
all additions, alterations, repairs and replacements to your LA Boxing Franchise
(but no others without our written consent) as reasonably required for that
purpose, including all periodic repainting, changes in appearance, repairs to
impaired equipment and replacement of obsolete signs as we direct subject to
Capital Expenditure Limitation stated in Section 4.21. You must meet and
maintain the highest safety standards and ratings applicable to the operation of
your LA Boxing Franchise, as we reasonably require.

 

(b)          You must maintain contracts with reputable firms for the
maintenance of the Premises and the machinery and equipment and, if we determine
to be appropriate or necessary, for the landscaped areas of the Premises.
Contracts for maintenance of the Premises and the machinery and equipment must
provide for the performance of services, including preventative maintenance
services, and be with financially responsible firms, that: (i) maintain adequate
insurance and bonding; (ii) have personnel who are factory trained to service
equipment of the type in the Premises; and (iii) maintain an adequate supply of
parts for the machinery, equipment and tools. Contracts for landscape
maintenance must be with financially responsible firms. You will provide us,
upon our request, with a copy of any contract for maintenance that you enter
into with any outside maintenance firm. If you fail to keep these contracts in
full effect, we may do so at your expense.

 

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SECTION 4.7

OPERATIONAL REQUIREMENTS

 

 

You agree to:

 

(a)        Operate your LA Boxing Franchise in conformity with all uniform
methods, standards and specifications required in the Manuals or otherwise, to
ensure that the highest degree of quality and service is uniformly maintained.
You agree to:

 

(b)          Comply with the procedures and systems we reasonably institute on a
System-wide basis both now and in the future, including those on recommended
salary levels, sales, good business practices, advertising and other obligations
and restrictions; and

 

(c)          Maintain in sufficient supply (as we may reasonably prescribe in
the Manuals or otherwise in writing) and use at all times, only inventory,
equipment, materials, advertising methods and formats, and supplies that conform
with our standards and specifications, if any, at all times sufficient to meet
the anticipated volume of business, and to refrain from deviating from these
requirements without our written consent; and

 

(d)          Adhere to the highest standards of honesty, integrity, fair dealing
and ethical conduct in all dealings with customers, suppliers, employees,
independent contractors, us and the public; and

 

(e)          Sell or offer for sale only the products and services that meet our
reasonable uniform standards of quality and quantity; have been expressly
approved for sale in the Manuals or otherwise in writing by us at retail to
consumers only from your LA Boxing Franchise; not sell any items for
redistribution or resale; sell or offer for sale all approved products and
services; refrain from any deviation from our standards and specifications for
providing or selling the products and services without our written consent; and
discontinue selling and offering for sale any products and services that we
reasonably disapprove on a System-wide basis in writing at any time; and

 

(f)          Comply with all warranty policies and procedures we reasonably
require in the Manuals or otherwise under authorized warranties on LA Boxing
Products; and

 

(g)          Purchase and install, at your expense, all fixtures, furnishings,
web-based camera systems, signs and equipment we reasonably specify. The
equipment must be maintained in a condition that meets the operational standards
specified in the Manuals. As equipment becomes obsolete or inoperable, you will
replace the equipment with equipment that is then approved for use in the LA
Boxing Franchise. If we determine that additional or replacement equipment is
needed on a System-wide basis because of a change in décor, method of fitness
training, a change in technology, customer concerns or health or safety
considerations, you will install the additional equipment or replacement
equipment within the time we specify, subject to the Capital Expenditure
Limitation in Section 4.21.

 

 

SECTION 4.8

HIRING, TRAINING AND APPEARANCE OF EMPLOYEES

 

You will maintain a competent, conscientious staff and employ the number of
employees and independent contractors, necessary to meet the anticipated volume
of business and to achieve the goals of the LA Boxing System. You will take all
steps necessary to ensure that your employees and independent contractors meet
the employment criteria and skill levels for General Manager and Class
Instructor positions and keep a neat appearance and comply with any LA BOXING
dress code we require. You are solely responsible for the terms of their
employment and compensation and, except for training required under this
Agreement, for the proper training of the employees in the operation of your LA
Boxing Franchise. Subject to System-wide recommendations in the Manuals, you are
solely responsible for all employment decisions and functions, including hiring,
firing, establishing wage and hour requirements, disciplining, supervising and
record keeping. You will not recruit or hire any employee of a LA Boxing
Franchise operated by us or another franchisee within the System without
obtaining the employer's written permission, which will not be unreasonably
withheld, subject to any covenant not to compete, the provisions of which will
be respected and not challenged.

 

 

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SECTION 4.9

MANAGEMENT OF YOUR LA BOXING FRANCHISE

 

(a)          If this Agreement is signed by 2 or more individuals or by a
business entity, you agree to designate in writing one (1) individual as the
Manager upon signing this Agreement. We have the right to rely solely on
instructions of the Manager concerning the operation of the LA Boxing Franchise
until we receive a duly signed written notice changing the designated Manager.

 

(b)          The Manager must devote his or her best full-time efforts to the
management and operation of your LA Boxing Franchise. You agree that your LA
Boxing Franchise requires the day-to-day supervision of the Manager at all times
your LA Boxing Franchise is open for business. The Manager, and all successive
Managers, if any, is required to complete Initial Training before managing your
LA Boxing Franchise, unless we otherwise agree to waive such requirement in
writing.

 

(c)          If we have permitted the Manager to be an individual other than the
Franchise Owner, and the Manager fails to satisfy his or her obligations
provided in Subsection 4.9(b) due to death, disability, termination of
employment or for any other reason, the Franchise Owner will satisfy these
obligations until you designate a new Manager of your LA Boxing Franchise
acceptable to us, who has successfully completed Initial Training. You are
solely responsible for the expenses associated with Initial Training, including
the then-prevailing standard training fee we charge (currently $500 per day).

 

(d)          Neither you nor any designated Manager may act in the capacity of
General Manager or Class Instructor. You agree that you will only hire or retain
General Managers and Class Instructors that meet the criteria, skill levels, and
standards set by us and the system-wide recommendations in the Manuals.

 

 

SECTION 4.10

APPROVED SPECIFICATIONS AND SOURCES OF SUPPLY

 

(a)           Purchases from Us or Our Affiliates. You must purchase from our
Affiliates or us the LA Boxing Products and other items that we require as
implemented on a System-wide basis. You will be charged the same prices then
being charged to all franchisees and Company Units.

 

(b)           Authorized Specifications and Suppliers.   You must purchase or
lease equipment, supplies, inventory, advertising materials, construction
services and other products and services used for the operation of your LA
Boxing Franchise solely from authorized manufacturers, contractors and other
suppliers who demonstrate, to our continuing reasonable satisfaction: (i) the
ability to meet our standards and specifications for these items; (ii) possess
adequate quality controls and capacity to supply your needs promptly and
reliably; and (iii) have been approved in writing by us and not later
disapproved. We will use our best reasonable efforts to negotiate agreements
with suppliers that, in our good faith belief, are in the best interest of all
LA Boxing franchisees. We may approve a single supplier for any brand and may
approve a supplier only as to a certain brand or brands. We retain the right to
receive compensation from such suppliers for such negotiation. In approving
suppliers for the System, we may take into consideration factors like the price
and quality of the products or services and the supplier's reliability. We may
concentrate purchases with one (1) or more suppliers to obtain the lowest prices
and/or the best advertising support and/or services for any group of Franchise
Units or Company Units within the Chain. Approval of a supplier may be
conditioned on requirements on the frequency of delivery, standards of service,
warranty policies including prompt attention to complaints, and concentration of
purchases, as stated above, and may be temporary, pending our additional
evaluation of the supplier.

 

 

 

 

 

 

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(c)           Approval of New Specifications and Suppliers.       If you propose
to purchase or lease any equipment, supplies, inventory, advertising materials,
construction services or other products or services from an unapproved supplier,
you must submit to us a written request for approval, or request the supplier to
do so. We will have the right to require, as a condition of our approval, that
our representatives be permitted to inspect the supplier's facilities, and that
samples from the supplier be delivered, at our option, either to us or to an
independent, certified laboratory designated by us for testing. We are not
liable for damage to any sample that results from the testing process. You will
pay a charge not to exceed the reasonable cost of the inspection and the actual
cost of the testing. We may also require as a condition to our approval, that
the supplier present satisfactory evidence of insurance, for example, product
liability insurance, protecting us and our franchisees against all claims from
the use of the item within the System. We will make the determination as to
suitability within ten (10) days after receipt of all requested information,
inspection and testing. We reserve the right, at our option, to reinspect the
facilities and products of any approved supplier and continue to sample the
products at the supplier's expense and to revoke approval upon the supplier's
failure to continue to meet our standards and specifications. You will receive
notification of approval or disapproval of a supplier within seven (7) days
after we have investigated and inspected the supplier.

 

 

SECTION 4.11

LA BOXING PRODUCTS

 

You agree that we have already developed or have distribution rights to the LA
Boxing Products and may continue to develop for use in the System certain
additional products that are all highly confidential and constitute trade
secrets. Due to the importance of quality control and uniformity of these
products and the significance of the proprietary products to the System, it is
to the mutual benefit of the parties that we closely control the production and
distribution of the LA Boxing Products. Accordingly, you will use the LA Boxing
Products and will purchase from us or from an approved source we designate and
license all of your supplies of the LA Boxing Products, all in accordance with
our requirements then in effect. EXCEPT AS WE STATE IN WRITING AND ON PRODUCT
LABELS, WE DO NOT MAKE ANY EXPRESS OR IMPLIED WARRANTIES ON THESE LA BOXING
PRODUCTS, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. OUR EXCLUSIVE LIABILITY FOR ANY WARRANTIES EXTENDED AS
PROVIDED IN THIS AGREEMENT IS TO REPAIR OR REPLACE, AT OUR OPTION, ANY OF THE LA
BOXING PRODUCTS WE SOLD TO YOU THAT DO NOT COMPLY WITH THIS WARRANTY, IF ANY.
UNDER NO CIRCUMSTANCES WILL OUR LIABILITY EXCEED THE DOLLAR AMOUNT OF THE
PURCHASE PRICE YOU PAID FOR ANY LA BOXING PRODUCTS NOT IN COMPLIANCE WITH THIS
WARRANTY, IF ANY, WHICH MAY BE EXTENDED AS PROVIDED IN THIS AGREEMENT. WE WILL
NOT BE LIABLE TO ANY PARTY, INCLUDING YOU AND YOUR CUSTOMERS, FOR ANY DAMAGES,
DIRECT OR INDIRECT, SPECIAL, GENERAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF
PROFITS OR ANTICIPATED PROFITS AND LOSS OF GOOD WILL, FROM THE USE OF (OR
INABILITY TO USE) THE LA BOXING PRODUCTS FOR ANY PURPOSE.

 

 

SECTION 4.12

SALES OF PRODUCTS AND SERVICES BY YOU TO YOUR AFFILIATES.

 

All sales of products and services by you to your affiliates, if any, must be on
terms regularly applicable to your non-affiliated customers, and in all cases
must be arm's-length.

 

 

SECTION 4.13

TELEPHONES AND ANSWERING SERVICE

 

 

You will:

 

(a)          Maintain continuously no less than four (4) operating telephone
lines and telephone numbers to be used exclusively for the operation of your LA
Boxing Franchise as are reasonably required, with sufficient staff to handle
telephone calls in an efficient and courteous manner at all times during normal
business hours; and

 

 

(b)

Maintain an answering machine or voice mail service after normal business hours.

 

 

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SECTION 4.14

PROFESSIONAL AFFILIATION

 

You will join within thirty (30) days from written notice by us, if not already
a member, any Association that we require as implemented on a System-wide basis,
and maintain your membership in good standing throughout the Term.

 

 

SECTION 4.15

COMPLIANCE WITH LAWS, RULES AND REGULATIONS

 

You will comply with all federal, state, and local laws, rules and regulations,
and will timely obtain, maintain and renew when required all permits,
certificates, licenses or franchises necessary for the proper conduct of your LA
Boxing Franchise under this Agreement, including qualification to do business,
fictitious, trade or assumed name registration, building and construction
permits, occupational licenses, sales tax permits, health and sanitation permits
and ratings, fire clearances and environmental permits.

 

 

SECTION 4.16

TAX PAYMENTS; CONTESTED ASSESSMENTS

 

You will promptly pay when due all taxes required by any federal, state or local
tax authority including unemployment taxes, withholding taxes, sales taxes, use
taxes, income taxes, tangible commercial personal property taxes, real estate
taxes, intangible taxes and all other indebtedness you incur in the conduct of
your LA Boxing Franchise. You will pay to us an amount equal to any sales tax,
goods and services taxes, gross receipts tax, or similar tax imposed on us for
any payments to us required under this Agreement, unless the tax is measured by
or involves the net income or our corporate status in a state. If we pay any tax
for you, you will promptly reimburse us the amount paid. If there is any bona
fide dispute as to liability for taxes assessed or other indebtedness, you may
contest the validity or the amount of the tax or indebtedness in accordance with
procedures of the taxing authority or applicable law. However, you will not
permit a tax sale or seizure by levy or execution or similar writ or warrant, or
attachment by a creditor, to occur against the Premises or any assets used in
your LA Boxing Franchise.

 

 

SECTION 4.17

CUSTOMER SURVEYS; CUSTOMER LIST

 

You will present to customers any evaluation forms we require and will
participate and/or request your customers to participate in any marketing
surveys performed by or for us. You will maintain a current customer list
containing each customer's name, address, telephone number and zip code, email
address and supply an updated copy of the list to us on a quarterly basis. You
must participate in any process we develop to record all customer information.
You retain ownership of your customer lists. We will not sell or use your
customer list for any activity adverse to, or in competition with, you.

 

 

SECTION 4.18

INSPECTIONS

 

You will permit us and/or our representatives to enter your Premises or office
at any time during normal business hours upon reasonable notice, for purposes of
conducting inspections. The inspections will be performed in a manner that
minimizes interference with the operation of your LA Boxing Franchise. You will
cooperate fully with us and/or our representatives in inspections by rendering
assistance as they may reasonably request and by permitting them, at their
option, to observe how you are selling the products and rendering the services,
to monitor sales volume, to conduct a physical inventory, to confer with your
employees and customers and to remove samples of any products, supplies and
materials in amounts reasonably necessary to return to our office for inspection
and record-keeping. We and/or you may videotape the inspections. Upon notice
from us, and without limiting our other rights under this Agreement, you will
take all steps necessary to correct immediately any deficiencies detected during
inspections, including immediately stopping use of any equipment, advertising,
materials, products, supplies or other items that do not conform to our
then-current requirements. If you fail or refuse to correct any deficiency, we
have the right, without any claim to the contrary by you, to enter your Premises
or office without being guilty of trespass or any other tort, for the purposes
of making or causing to be made all corrections as required, at your expense,
payable by you upon demand.

 

 

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SECTION 4.19

NOTICES TO US

 

(a)          You must notify us in writing and supply us copies of all relevant
documents within five (5) days of any of the following events:

 

(i)        The start of, any action, suit, administrative proceeding or other
action or proceeding against you, or any of your employees that may have a
material adverse effect on the Franchise Business or the System;

 

(ii)        Any communication by any governmental entity relating to the conduct
of your LA Boxing Franchise that indicates your material non-compliance with any
applicable law, rule or regulation; or

 

(iii)       The issuance of any order, writ, injunction, award or decree of any
court, agency or other governmental instrumentality against you or any of your
employees that may have a material adverse effect on the Franchise Business or
the System.

 

(b)          You will provide us with any information we request, within five
(5) days of request, about the progress and outcome of these events.

 

 

SECTION 4.20

OPERATIONAL SUGGESTIONS

 

You are encouraged to submit suggestions in writing to us for improving elements
of the System, including products, services, equipment, service format,
advertising and any other relevant matters, so that we may consider adopting or
modifying standards, specifications and procedures for the System. You agree
that any suggestions you make become our exclusive property. We have no
obligation to use any suggestions. You may not use any suggestions inconsistent
with your obligations under this Agreement without our written consent.

 

 

SECTION 4.21

RENOVATION AND UPGRADING

 

You will abide by our requirements for alterations, remodeling, upgrading or any
other improvements to your LA Boxing Franchise to achieve the strategic
marketing goals of the System. Generally, the standards to comply satisfactorily
will not exceed those applicable to new Franchise Units and new Company Units.
These requirements will not impose an undue economic burden or occur more
frequently than every two (2) years. You will bear the entire cost of changes or
additions, for any changes in, or additions of, equipment, furnishings,
fixtures, lighting, carpeting, painting or the taking of other actions we
specify to satisfy our then-current standards for image, positioning, marketing
strategy, cleanliness or appearance but not to exceed total capital expenditures
of Six Thousand Dollars ($6,000) every two (2) years (the "Capital Expenditure
Limitation") without your consent.

 

 

SECTION 4.22

LIQUIDATED DAMAGES FOR SALE OF PROHIBITED

PRODUCTS OR SERVICES.             You agree that the offer to sell or the sale
of unauthorized or prohibited products and services will result in damages to
us. You agree that these damages will be compensated at the rate of One Hundred
Dollars ($100.00) for each day of the prohibited offer or sale, payable to us
upon demand. These damages are in addition to our other rights or remedies,
including our right to strictly enforce or terminate this Agreement as provided
in this Agreement and obtain injunctive relief, except to the extent any other
rights are excluded by law in light of this Section. The parties agree that a
precise calculation of the full extent of the damages that we will incur from
the offer or sale of unauthorized products and services is difficult to
determine and the parties desire certainty in this matter and agree that the
above-referenced liquidated damages are reasonable and are not a penalty.

 

 

SECTION 4.23

FINANCIAL COVENANTS

 

During the Term, the Franchisee must always maintain a net worth of at least One
Hundred Fifty Thousand Dollars ($150,000).

 

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SECTION 4.24

PUBLICITY

 

You grant us the right to freely use, without your consent, any pictures,
financial information, or biographical material relating to you or your LA
Boxing Franchise for use in promotional literature or in any other way
beneficial to the LA Boxing organization as a whole. You will cooperate in
securing photographs, including obtaining consents from any persons appearing in
photographs. If we publish anything you feel reflects unfairly or inaccurately
on your LA Boxing Franchise or yourself, we will take all reasonable steps in
our power to retract the material.

 

 

SECTION 4.25

MINIMUM PERFORMANCE STANDARD

 

The grant of your Exclusive Territory is expressly conditioned upon your
successful penetration of the market in the Exclusive Territory. You agree to
promote actively and aggressively the products and services of your LA Boxing
Franchise within the Exclusive Territory. You must maintain minimum Gross
Revenues every calendar year during the Term of at least eighty percent (80%) of
the "designated average" of Gross Revenues of all franchisees within the System,
including you, except during the first calendar year (partial or full) of the
Term, when no performance standard is in effect. The "designated average" is the
average Gross Revenues of all Franchisees within the System during each calendar
year of the Term, without taking into consideration those franchisees that are
in the top and bottom 20th percentile of Gross Revenues during this period. Your
failure to maintain the minimum performance standard is a material breach of
this Agreement. THIS MINIMUM PERFORMANCE STANDARD DOES NOT INFER THAT YOU WILL
EXPERIENCE GROSS REVENUES OF ANY PARTICULAR LEVEL.

 

ARTICLE 5 - INTELLECTUAL PROPERTY

 

 

SECTION 5.1

OUR REPRESENTATIONS AS TO THE INTELLECTUAL PROPERTY

 

 

We represent to you that:

 

(a)          LA Boxing Franchise Corporation, a California corporation, is the
sole owner of the Intellectual Property;

 

(b)        We have not sublicensed the Intellectual Property to any others
except other LA Boxing Franchisees; and

 

(c)          We will take all steps necessary to preserve and protect the
ownership and validity of the Intellectual Property.

 

 

SECTION 5.2

YOUR USE OF THE INTELLECTUAL PROPERTY

 

You may use the Intellectual Property only in accordance with standards and
specifications we reasonably determine and implement on a System-wide basis. You
agree that:

 

(a)          You will use the Intellectual Property only for the operation of
your LA Boxing Franchise at the Premises;

 

(b)          You agree not to employ any of the Intellectual Property in signing
any contract, check, purchase agreement, negotiable instrument or legal
obligation, application for any license or permit, or in a manner that may
result in liability to us for any indebtedness or obligation of yours;

 

(c)          You will use the Intellectual Property as the sole service mark
identifications for your LA Boxing Franchise and will display prominently the
Intellectual Property on and/or with all materials we designate and authorize,
and in the manner we require;

 

 

(d)  

You will not use any of the Intellectual Property as security for any obligation
or indebtedness;

 

 

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(e)          You will comply in filing and maintaining any required fictitious,
trade or assumed name registrations for the "LA Boxing" trade name, and will
sign all documents we or our counsel deem reasonably necessary to obtain
protection for the trademarks and our interest in the trademarks, for example,
John Jones d/b/a "LA Boxing" or ABC Athletic Club, Inc. d/b/a "LA Boxing;"

 

(f)          You will maintain a suitable sign or graphics package at, or near
the front of the Premises, on any pylon sign, building directory or other area
identifying the Premises only as "LA Boxing." The signage must conform in all
respects to our requirements except to the extent prohibited by local
governmental restrictions or landlord regulations;

 

(g)        All materials including membership forms, order books, plastic or
paper products and other supplies and promotional materials used in the System
will bear our Intellectual Property, as required by us;

 

(h)        Without our prior written approval, you will not use any of our
trademarks as part of any e-mail address, Web Site, domain name or any other
electronic media (including use with any prefix, suffix or other modifying
words, term designs, or symbols), or in any other manner connected with a Web
Site, advertisements on a Web Site, or other similar electronic media; and

 

(i)          You will exercise caution when using the Intellectual Property to
ensure that the Intellectual Property is not jeopardized in any manner.

 

 

SECTION 5.3

INFRINGEMENT BY YOU

 

You acknowledge that the use of the Intellectual Property outside the scope of
this Agreement, without our written consent, is an infringement of our rights in
the Intellectual Property. You agree that during the Term, and after the
expiration or termination of this Agreement, you will not, directly or
indirectly, commit an act of infringement or contest or aid in contesting the
validity of, or our right to, the Intellectual Property, or take any other
action in derogation of our rights.

 

 

SECTION 5.4

CLAIMS AGAINST THE INTELLECTUAL PROPERTY

 

If there is any claim of infringement, unfair competition or other challenge to
your right to use any Intellectual Property, or if you become aware of any use
of, or claims to, any Intellectual Property by persons other than us or our
franchisees, you will promptly, within seven (7) days, notify us in writing. You
will not communicate with anyone except us and our counsel on any infringement,
challenge or claim except under judicial process. We have sole discretion as to
whether we take any action on any infringement, challenge or claim, and the sole
right to control any litigation or other proceeding arising out of any
infringement of, challenge or claim to any Intellectual Property. You must sign
all documents, render all assistance, and do all acts that our attorneys deem
necessary or advisable in order to protect and maintain our interest in any
litigation or proceeding involving the Intellectual Property or otherwise to
protect and maintain our interests in the Intellectual Property.

 

 

SECTION 5.5

YOUR INDEMNIFICATION.

 

We indemnify you against and will reimburse you for all damages you are held
liable for in any proceeding from your use of any Intellectual Property in
accordance with this Agreement, but only if you: (a) have timely notified us of
the claim or proceeding in accordance with Section 5.4; (b) have otherwise
complied with this Agreement; (c) allow us sole control of the defense and
settlement of the action in accordance with Section 5.4; and (d) cooperate fully
with us and our counsel in the defense of the action.

 

 

 

 

 

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SECTION 5.6

OUR RIGHT TO MODIFY THE INTELLECTUAL PROPERTY

 

(a)          If we deem it advisable to modify or discontinue the use of any of
the Intellectual Property and/or the use of one (1) or more additional or
substitute names or marks, due to the rejection of any pending registration or
revocation of any existing registration of any of the Intellectual Property, or
due to the rights of senior users, or due to our negligence or due to a radical
change in direction of the System unilaterally caused or mandated by us, you are
obligated to do so at your own expense within thirty (30) days of our request.
We will only be liable to reimburse you for your reasonable direct printing and
signage expenses in modifying or discontinuing the use of the Intellectual
Property and substituting different Intellectual Property (these expenses will
not include any expenditures made by you to promote the modified or substituted
Intellectual Property).

 

(b)          If the modification or discontinuation of the use of any of the
Intellectual Property is due to a continuing need to modernize the System, you
will be liable for all expenses in substituting the modified or new Intellectual
Property in your LA Boxing Franchise.

 

 

SECTION 5.7

OUR RESERVATION OF RIGHTS

 

(a)        You agree that the license of the Intellectual Property granted to
you has limited exclusivity and that, in addition to our right to use and grant
others the right to use the Intellectual Property outside the Exclusive
Territory, all rights not expressly granted in this Agreement to you, concerning
the Intellectual Property or other matters, are expressly reserved for us,
including the right to sell LA Boxing Products and services authorized for the
LA Boxing Franchise using our trademarks through dissimilar channels of
distribution including National Accounts and under any terms that LA Boxing
deems appropriate within or outside the Exclusive Territory, without offering or
providing you the right to participate.

 

(b)        If we acquire a Competitive Business and units of the Competitive
Business encroach upon your Exclusive Territory, we will have one (1) year from
the date of acquisition of the Competitive Business to sell or consolidate the
encroaching units without being in default under this Agreement.

 

 

SECTION 5.8

OWNERSHIP; INUREMENT SOLELY TO US

 

You agree that: (a) you have no ownership or other rights in the Intellectual
Property, except as expressly granted in this Agreement; and (b) we are the
owner or authorized licensor of the Intellectual Property. You agree that all
good will associated with the LA Boxing Franchise inures directly and
exclusively to our benefit and is our sole and exclusive property except through
profit received from the operation or possible permitted sale of your LA Boxing
Franchise during the Term. You will not in any manner prohibit, or do anything
that would restrict, us or any existing or future franchisee of a business
either similar or dissimilar to the Franchise Business from using the names or
the Intellectual Property or from filing any trade name, assumed name or
fictitious name registration with respect to any business to be conducted
outside the Exclusive Territory or any business within the Exclusive Territory
that is permitted by this Agreement. If you secure in any jurisdiction any
rights to any of the Intellectual Property (or any other Intellectual Property)
not expressly granted under this Agreement, you will immediately notify us and
immediately assign to us all of your right, title and interest to the
Intellectual Property.

 

ARTICLE 6 - THE MANUALS AND OTHER

CONFIDENTIAL INFORMATION

 

 

SECTION 6.1

IN GENERAL

 

To protect our reputation and good will, and to maintain uniform standards of
operation under the Intellectual Property, you will conduct your LA Boxing
Franchise in accordance with the Manuals. The Manuals are deemed an integral
part of this Agreement with the same effect as if fully stated in this
Agreement.

 

                

 

 

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SECTION 6.2

CONFIDENTIAL USE

 

(a)          You will treat and maintain the Confidential Information as our
confidential trade secrets. The Manuals will be kept in a secure area within the
Premises. You will strictly limit access to the Confidential Information to your
employees, to the extent they have a "need to know" in order to perform their
jobs. You will report the theft, loss or destruction of the Manuals immediately
to us. Upon the theft, loss or destruction of the Manuals, we will loan to you a
replacement copy at a fee of Two Hundred Fifty Dollars ($250.00) for each
Manual. A partial loss or failure to update any Manual is considered a complete
loss.

 

 

(b)

You agree that, during and after the Term, you, your owners and employees will:

 

(i)        Not use the Confidential Information in any other business or
capacity, including any derivative or spin-off of the LA Boxing concept;

 

(ii)        Maintain the absolute secrecy and confidentiality of the
Confidential Information during and after the Term;

 

(iii)       Not make unauthorized copies of any portion of the Confidential
Information disclosed or recorded in written or other tangible form; and

 

(iv)       Adopt and implement all procedures that we prescribe to prevent
unauthorized use or disclosure of, or access to, the Confidential Information.

 

(c)          All persons whom you permit to have access to the Manuals or any
other Confidential Information must first be required by you to sign our form of
confidentiality agreement set forth in the Manuals.

 

 

SECTION 6.3

PERIODIC REVISIONS

 

We may change the contents of the Manuals. You will comply with each new or
changed provision beginning on the thirtieth (30th) day (or any longer time as
we specify) after our written notice. Revisions to the Manuals will be based on
what we, in our sole discretion, deem is in the best interests of the System,
our interest and the interest of our Franchisees, including to promote quality,
enhance good will, increase efficiency, decrease administrative burdens, or
improve profitability subject to the Capital Expenditure Limitation stated in
Section 4.21. You agree that because complete and detailed uniformity under many
varying conditions may not be possible or practical, we reserve the right, in
our sole discretion and as we may deem in the best interests of all concerned in
any specific instance, to vary standards for any franchisee due to the
peculiarities of the particular site or circumstances, density of population,
business potential, population of trade area, existing business practices or any
condition that we deem important to the successful operation of that
franchisee's LA Boxing Franchise. You are not entitled to require us to grant to
you a similar variation under this Agreement. You will ensure that your copy of
the Manuals contains all updates you receive from us. In any dispute as to the
contents of the Manuals, the terms contained in our master copy of each of the
Manuals we maintain at our home office is controlling.

 

ARTICLE 7 - ADVERTISING

 

Recognizing the value of advertising, and the importance of the standardization
of advertising programs to the good will and public image of the System, the
parties agree:

 

 

SECTION 7.1

LOCAL ADVERTISING

 

(a)          You must spend during each month during the Term, beginning on the
Opening Date, at least Five Thousand Dollars ($5,000) per month for Local
Advertising in your Exclusive Territory.

 

 

 

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(b)          You must submit to us for our approval, all materials to be used
for Local Advertising, unless they have been approved before or they consist
only of materials we provide. All materials containing the Intellectual Property
must include the applicable designation - service mark sm, trademark ™,
registered ® or copyright ©, or any other designation we specify. If you have
not received the written or oral disapproval of materials submitted within ten
(10) days from the date we received the materials, the materials are deemed
approved. We may require you to withdraw and/or discontinue the use of any
promotional materials or advertising, even if previously approved, if in our
judgment, the materials or advertising may injure or be harmful to the System.
We must make this requirement in writing, and you have five (5) days after
receipt of notice to withdraw and discontinue use of the materials or
advertising, unless otherwise agreed in writing. The submission of advertising
to us for our approval does not affect your right to determine the prices that
you sell your products or services.

 

(c)          You may maintain a listing or listings in the Yellow Pages of your
local telephone directories servicing the location of the LA Boxing Franchise
under the "Exercise and Physical Fitness" or similar sections, in the form and
size we specify in the Manuals or otherwise in writing.

 

 

SECTION 7.2

REGIONAL COOPERATIVE ADVERTISING

 

You agree that we have the right, in our discretion, to establish a regional
advertising cooperative in any ADI. You will immediately, upon our request,
become a member of the Cooperative for the ADI where some or all of the
Exclusive Territory is located. Your LA Boxing Franchise is not required to be a
member of more than one (1) Cooperative. The Cooperative will be governed in the
manner required by us. The Cooperative has the right to require each of its
members to make contributions to the Cooperative, not to exceed two percent (2%)
of each Cooperative member's monthly Gross Revenues. We do not receive any
portion of the contributions to the Cooperative. The following provisions apply
to each Cooperative:

 

(a)          The Cooperative will be organized and governed in form and manner,
and will begin operation on a date, approved in advance by us in writing;

 

(i)        If the Cooperative is established, it will be organized for the
exclusive purpose of administering equitable advertising programs that fairly
distribute costs of developing, subject to our approval, standardized
promotional materials for use by all the members in the Cooperative's Local
Advertising ADI;

 

(ii)        The Cooperative may adopt its own rules and procedures, but the
rules or procedures must be pre-approved by us and will not restrict nor expand
your rights or obligations under this Agreement. Except as otherwise provided in
this Agreement, and subject to our approval, any lawful action of the
Cooperative at a meeting attended by 2/3s of the members, including assessments
for Local Advertising, is binding upon you if approved by 2/3s of the members
present, with each LA Boxing Franchise and Company Unit having one (1) vote;
however no Franchisee (or controlled group of Franchisees) may exercise more
than 25% of the vote in the Cooperative regardless of the number of LA Boxing
Franchises a Franchisee may own;

 

(iii)       No advertising or promotional plans or materials may be used by the
Cooperative or furnished to its members without our prior written approval. All
plans and materials must be submitted to us in accordance with the procedure
stated in Section 7.1;

 

(iv)       The Cooperative has the right to require its members to make a
contribution to the Cooperative in any amount the Cooperative determines. This
amount will be credited against your obligation for Local Advertising as
provided by Section 7.1; but you are not required to contribute a sum to the
Cooperative in excess of two percent (2%) of your monthly Franchise Gross
Revenues;

 

(v)        Each member will submit to the Cooperative, no later than the fifth
(5th) day of each month, for the preceding calendar month, his or her
contribution as provided in Subsection 7.3(a)(iv), together with all other
statements or reports required by us or by the Cooperative with our written
approval;

 

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(vi)       If an impasse occurs owing to the inability or failure of the
Cooperative members to resolve within forty-five (45) days any issue affecting
the establishment or effective functioning of the Cooperative, the issue will,
upon request of a member of the Cooperative, be submitted to the Independent
Association of LA Boxing Franchisees (or us, if the association does not exist)
for consideration and its resolution of the issue will be final and binding on
all members of the Cooperative; and

 

 

(vii)

The Cooperative will render quarterly reports to us of its advertising
expenditures.

 

(b)          We, in our sole discretion, may grant to any franchisee an
exemption for any length of time from the requirement of membership in the
Cooperative, upon written request of the franchisee stating reasons supporting
the exemption. Our decision concerning the request for exemption is final. If an
exemption is granted to a franchisee, that franchisee must expend, on Local
Advertising, the full amount provided in Section 7.1.

 

 

SECTION 7.3

WEB SITE ADVERTISING

 

Any Web Site is deemed Local Advertising under this Agreement and is subject to,
among other things, our prior written consent. Before establishing a Web Site,
you must submit to us a sample of the Web Site format and information in the
form and manner that we reasonable require. In addition to any other applicable
requirements, you must comply with our standards and specifications for Web
Sites as set forth in the Manuals. If required by us, you must establish your
Web Site as part of any Web Site that we establish and/or establish electronic
links to any Web Site we establish. If you propose any material revision to your
Web Site or any information contained in your Web Site, you must submit each
revision to us for our prior written approval.

 

 

SECTION 7.4

SPECIAL ADVERTISING EXPENDITURES

 

If you fail to meet your requirements for Local Advertising during any period
specified in this Agreement, upon our request and in addition to our rights and
remedies for your failure to make the proper expenditures, you will contribute
the amount that you failed to spend on Local Advertising directly to the
Marketing Fund.

 

 

SECTION 7.5

MARKETING FUND

 

(a)          If we institute a Regional Advertising Cooperative contribution
requirement, we will create a special fund called the "LA Boxing Marketing Fund"
(the "Marketing Fund"), into which Cooperative Advertising Contributions are
deposited for the benefit of all Franchise Units and Company Units who
contribute to the Marketing Fund.

 

(b)          The Marketing Fund is administered by the Marketing Fund Committee
(the “MFC”). The Franchisees will elect or appoint two (2) members to the MFC
and we will appoint two (2) members to the MFC to serve for a one-year term
corresponding to the calendar year. The 4-member MFC will, by a majority vote,
determine the selection and placement of regional advertising. Each MFC member
has one vote. If the MFC is deadlocked, our President will decide. The Marketing
Fund is maintained and operated by the MFC as a fiduciary to you and used to
meet the costs of conducting regional advertising and promotional activities
(including the cost of advertising campaigns, test marketing, marketing surveys,
public relations activities and marketing materials) which the MFC deems
beneficial to the System.

 

(c)        All expenditures are at the sole discretion of the MFC. The MFC may
spend in any calendar year more or less than the total Advertising Contributions
to the Marketing Fund in that year. The MFC may borrow from us or other lenders
on behalf of the Marketing Fund to cover deficits of the Marketing Fund or cause
the Marketing Fund to invest any surplus for future use by the Marketing Fund.

 

(d)        You authorize us to act as your sole agent to enter into contracts
with parties offering promotion, discount or other programs whereby you would
receive rebates or marketing allowances ("Rebates") from handling items offered
for sale by the parties. All Rebates will be paid to us and we will contribute
them to the Marketing Fund. By signing this Agreement, you assign all of your
right, title and interest in all Rebates to us, and authorize us to furnish any
proof of purchase evidence as may be required in accordance with the contracts.
All Rebates received by us from our Company-Units will also be contributed to
the Marketing Fund.

 

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(e)          The MFC will retain our independent certified public accountants to
prepare an annual audit of the Marketing Fund, at the expense of the Marketing
Fund, and send a copy of the audit to you and all other Franchisees within 120
days after the end of each fiscal year.

 

 

SECTION 7.6

CONTENT AND CONCEPTS

 

(a)          The MFC retains sole discretion over all advertising, marketing and
public relations programs and activities financed by the Marketing Fund,
including the creative concepts, materials and endorsements used and the
geographic market, media placement and allocation. You agree that the Marketing
Fund may be used to pay the costs of preparing and producing associated
materials and programs as we determine, including video, audio and written
advertising materials employing advertising agencies; sponsorship of sporting,
charitable or similar events, administering regional and multi-regional
advertising programs including purchasing direct mail and other media
advertising, and employing advertising agencies to assist with marketing
efforts; and supporting public relations, market research and other advertising,
promotional and marketing activities.

 

(b)         You acknowledge that the Advertising Contributions are intended to
maximize general public recognition of and the acceptance of the Intellectual
Property for the benefit of the System as a whole. Despite Section 7.2(a)(1),the
MFC undertakes no obligation, in administering the Marketing Fund, to make
expenditures for you that are equivalent or proportionate to your contribution,
or to insure that any particular Franchisee or Company Unit benefits directly or
pro rata from advertising or promotion conducted with the Advertising
Contributions.

 

 

SECTION 7.7

TERMINATION OF EXPENDITURES

 

We maintain the right to terminate the collection and disbursement of the
Advertising Contributions and the Marketing Fund. Upon termination, we will
disburse the remaining funds for the purposes authorized under this Agreement.

 

 

SECTION 7.8

ADVERTISING CONTRIBUTIONS BY US

 

Company Units are required to contribute to the Marketing Fund and any
Cooperative on the same basis as you are required to contribute.

 

ARTICLE 8 - ACCOUNTING AND RECORDS

 

 

SECTION 8.1

RECORDS

 

You will maintain complete and accurate financial and sales records for the
operations of your LA Boxing Franchise. Records must be segregated from all
other records that do not concern your LA Boxing Franchise. You must preserve
these records for no less than seven (7) years from the dates of their
preparation (including after the termination, transfer or expiration of this
Agreement).

 

 

SECTION 8.2

REPORTS AND STATEMENTS; CONFIDENTIALITY

 

(a)           Monthly Reports.You will submit to us by the fifth (5th) day of
each month during the Term, in the form that we require, accurate records
reflecting all Gross Revenues of the previous month and all other information we
require. If you must collect and remit sales or use taxes, you must also supply
to us copies of your sales tax returns.

 

 

 

 

 

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(b)           Annual Financial Statements.       You must also submit to us,
within ninety (90) days of the close of your fiscal year, an annual balance
sheet and income statement, prepared in accordance with Generally Accepted
Accounting Principles and compiled by an independent certified public
accountant. Each annual statement must be signed by you or by your treasurer or
chief financial officer attesting that the financial statements are true and
correct and fairly present your financial position at, and for, the periods
indicated. You will also supply to us copies of your federal and state income
tax returns at the time these returns are filed with the appropriate taxing
authorities. The financial statements and/or other periodic reports described
above must be prepared to segregate the income and related expenses of your LA
Boxing Franchise from those of any other business that you may conduct.

 

(c)           Confidentiality.   We agree to maintain the confidentiality of all
financial information we obtain about your operations, and will not disclose
this financial information to any third party who is not bound to maintain the
confidentiality of the information; provided however, that: (i) we may use the
information in preparing any earnings claims or other information required or
permitted by federal or state franchise law; and (ii) we may prepare a composite
list of financial performances by our franchisees for dissemination among the
franchisees, identifying your Gross Revenues and advertising expenditures. This
composite list will not include your identity nor will the information be
presented in such a manner that your identity can be easily ascertained.

 

 

SECTION 8.3

REVIEW AND AUDIT

 

We, and our agents or representatives, have the right, at all reasonable times,
to examine and copy, at our expense, your records and to inspect all cash
control devices and systems, and to conduct a physical inventory. We have the
right to access your computer, system to determine, among other things, sales
activity and Gross Revenues. We also have the right, at any time, to have an
independent audit made of your records but not more frequently than two (2)
times a year, provided you are not in default. If an inspection reveals that any
financial information reported to us (including Gross Revenues or payments owed
to us) has been understated in any report to us, you must immediately pay to us,
upon demand, the amount understated in addition to interest at the maximum rate
permitted by law beginning from the time the required payment was due. If any
inspection discloses an understatement of two percent (2%) or more of Gross
Revenues, you must, in addition, reimburse us for the expenses for the
inspection (including reasonable accounting and attorneys' fees and costs). In
addition, we reserve the right to require that all your future year-end
financial statements be audited by an independent certified public accountant
reasonably acceptable to us at your expense. These remedies are in addition to
any other remedies we have under this Agreement or under applicable law. If the
audit discloses an overpayment in any amount you paid to us, we will promptly
pay you the amount of the overpayment or offset the overpayment against any
amounts owed to us.

 

 

SECTION 8.4

YOUR NAME, ADDRESS AND TELEPHONE NUMBER

 

Under federal and state franchise laws and other applicable laws, we are
required to disclose your name, address and telephone number (home address and
telephone number if you are no longer a franchisee) and you agree to the
disclosure of your name, address and telephone number. You must notify us of any
change in your name, address and telephone number within ten (10) days of such
change. You release us and our officers, directors, stockholders, agents and
legal successors and assigns from all causes of action, suits, debts, covenants,
agreements, damages, judgments, claims and demands, in law or in equity, that
you ever had, now have, or that you later may have, from our disclosure of your
name, address and telephone number.

 

ARTICLE 9 - INSURANCE

 

 

SECTION 9.1

TYPES AND AMOUNTS OF COVERAGE

 

(a)           Your Insurance.  You must obtain and maintain insurance, at your
expense, as we require, in addition to any other insurance that may be required
by applicable law, your landlord, lender or otherwise. All policies must be
written by an insurance company reasonably satisfactory to us with an A.M. Best
rating of "A" or better and include the types and amounts of insurance as stated
in the Manuals. We may periodically adjust the amounts of coverage required
under the insurance policies and require different or additional kinds of
insurance at any time, including excess liability insurance, to reflect
inflation, identification of new risks, changes in law or standards of
liability, higher damage awards, or other relevant changes in circumstances, if
the changes are required throughout the System including any Company Units.

 

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(b)         Life Insurance. To provide us with cash to purchase your LA Boxing
Franchise upon your death in accordance with Section 11.4, you will, and we may
at our sole option, during the Term:

 

(i)        Have us own and maintain in force, at our sole option, during the
Term, a life insurance policy on your life (the "Insured") in the face amount of
up to Five Hundred Thousand Dollars ($500,000), provided the Insured is
insurable. The parties may increase the amount of insurance to reflect the
then-fair market value of your LA Boxing Franchise. The insurance company must
be licensed to do business in the state where your LA Boxing Franchise is
located and must be rated by A.M. Best or a comparable rating agency at "A" or
better. We will not, without your written consent, revoke or change the
designation of any direct beneficiary, or exercise any loan, surrender or
transfer the policy or trigger any other privilege under the policy if that
would defeat or tend to defeat the purposes for which the insurance was
procured. If the Insured engages in a permitted transfer of the LA Boxing
Franchise, retires, or this Agreement is not renewed, we may surrender the
insurance policy on the life of the Insured to the insurance company for the net
cash surrender value, if any, or hold, transfer or discontinue the policy in any
lawful manner we deem advisable. The Insured may, within 30 days after he or
she: (i) engages in a permitted transfer of the LA Boxing Franchise: (ii)
retires or: (iii) the Agreement is not renewed, purchase the policy from us at
the cash surrender value before surrender changes, if any, plus any unearned
premium and reimburse us for all premiums paid by us for the policy. We will,
upon receipt of a cashier's check for this amount, deliver the policy to the
Insured and sign any necessary instruments of transfer and change of beneficiary
as he or she requests.

 

(ii)        If the policy is canceled or terminated before maturity and the
Insured still operates the LA Boxing Franchise, at our sole option, we will use
our best efforts to procure a replacement policy in the same amount on the life
of the Insured, who will cooperate fully in our efforts.

 

(iii)       The proceeds of the insurance policy will be payable directly to us
as the beneficiary. We will use the insurance proceeds to effectuate a purchase
of the LA Boxing Franchise under Section 11.4. Should we elect to purchase a
life insurance policy on your life during the Term, we will pay the premiums for
such policy. All insurance carriers issuing any policies referred to above are
authorized and directed to give the Insured, upon his or her request, any
information concerning the status of any policy.

 

(c)           Our Insurance.    We will maintain for our benefit, and for the
benefit of our Franchisees, errors and omissions insurance and commercial
general liability insurance.

 

 

SECTION 9.2

EVIDENCE OF YOUR INSURANCE

 

At least: (i) thirty (30) days before your commencement of tenant improvement
construction is begun; or (ii) ten (10) days from the Agreement Date, if the
Premises is constructed and presently owned or leased by you; or (iii) ten (10)
days after a lease of the Premises is signed and you take occupancy, whichever
is applicable, you must furnish to us a certificate of insurance issued by an
approved insurance company showing compliance with these requirements and a paid
receipt showing the policy number. The certificate of insurance must include a
statement by the insurer that the policy will not be canceled, subject to
nonrenewal or materially altered without at least thirty (30) days' advance
written notice to us. Copies of all insurance policies and proof of payment will
be submitted promptly to us upon our request. You will send to us current
certificates of insurance and copies of all insurance policies on an annual
basis.

 

 

SECTION 9.3

REQUIREMENTS FOR CONSTRUCTION AND RENOVATION

 

For any construction, renovation, refurbishment, or remodeling of the Premises,
you must require the general contractor to maintain, with an approved insurer,
commercial general liability insurance (with comprehensive automobile liability
coverage for both owned and non-owned vehicles, builder's risk, product
liability, and independent contractor's coverage) with limits of no less than
one million dollars ($1,000,000), per claim, naming you and us as additional
insureds, as their interests may appear, together with workers' compensation and
employer's liability insurance as required by law. It is your responsibility to
obtain certificates of insurance from your contractor prior to the initiation of
any construction on your behalf.

 

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SECTION 9.4

OUR RIGHT TO PARTICIPATE IN CLAIMS PROCEDURE

 

Our insurer, or we, has the right to participate in discussions with your
insurance company or any claimant (with your insurance company) regarding any
claim. You agree to adopt our reasonable recommendations to your insurance
carrier regarding the settlement of any claims.

 

 

SECTION 9.5

WAIVER OF SUBROGATION

 

The parties agree that, for any loss that is covered by insurance then being
carried by them, their respective insurance companies have no right of
subrogation against the other.

 

 

SECTION 9.6

EFFECT OF OUR INSURANCE

 

Your obligation to maintain the policies in the amounts required is not limited
by reason of any insurance we maintain, nor will our performance of your
obligations relieve you of liability under the indemnity provisions in this
Agreement.

 

 

SECTION 9.7

FAILURE TO MAINTAIN INSURANCE

 

If either party fails to maintain the insurance required by this Agreement, the
other party has the right and authority (without any obligation to do so)
immediately to procure the insurance and to charge the cost of the insurance to
the party obligated to maintain the insurance, plus interest on the premium
amount at the maximum rate permitted by law. The obligated party agrees to pay
these charges, together with a reasonable fee for the party's expenses in so
acting upon five (5) days notice to the other party.

 

 

SECTION 9.8

GROUP INSURANCE

 

If we make insurance coverage available to you through group, captive, or master
policies we obtain or arrange for, including property and casualty, workers'
compensation, liability and health, life and disability insurance, you may
participate, if you qualify, and at your expense, in these group insurance
programs.

 

ARTICLE 10 - INDEPENDENT ASSOCIATION

OF LA BOXING FRANCHISEES

 

 

SECTION 10.1

YOUR RIGHT TO JOIN THE INDEPENDENT ASSOCIATION

OF LA BOXING FRANCHISEES

 

We recognize your right and the other franchisees' right to freely associate.
You and the other franchisees have the right to create an independent franchise
association to be known as the "Independent Association of LA Boxing
Franchisees" (the "Franchisee Association"). The decision to join the Franchisee
Association is solely your decision.

 

 

SECTION 10.2

OUR DEALINGS WITH THE FRANCHISEE ASSOCIATION.

 

Once at least ten (10) franchisees, representing at least 51% of the total
franchisees within the System, are members of the Franchisee Association, we
will recognize the Franchisee Association as the official body representing the
franchisees as a group. Any material changes to the renewal form of this
Agreement must be collectively negotiated with the Franchisee Association with
both parties agreeing to negotiate in good faith.

 

 

SECTION 10.3

ANNUAL CONVENTION

 

We, and the Franchisee Association, if any, will coordinate and conduct an
annual convention of the LA Boxing Franchise System when we and the Franchisee
Association deem it appropriate. We will pay the reasonable cost of the annual
convention. Each Franchisee will pay their own travel, lodging and meal costs to
the extent not paid for by us, the Franchisee Association, or sponsors.
Representatives of the Franchisor and the Franchisee Association will coordinate
in the planning and agenda of each annual convention.

 

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ARTICLE 11 - TRANSFER OF INTEREST

 

 

SECTION 11.1

TRANSFER BY US

 

We have the right to assign this Agreement to any person without your consent
provided the transfer is part of a merger or sale of the entire System and the
transferee has sufficient business experience, aptitude and financial resources
to competently assume our obligations under this Agreement.

 

 

SECTION 11.2

TRANSFER BY YOU

 

(a)           Personal Rights.  You agree that, unless otherwise expressly
permitted by this ARTICLE, you will not sell, assign, transfer, convey or give
voluntarily, involuntarily, directly or indirectly, by operation of law or
otherwise (collectively "transfer") any direct or indirect interest in this
Agreement, the Franchise, the Franchisee, or a major portion of the Business
Assets without our written consent. Any sale of all or a substantial portion of
the assets must include an assignment and assumption of this Agreement. However,
our written consent is not required for: (i) a transfer of less than a five
percent (5%) interest in a publicly held corporation; or (ii) a transfer of all
or any part of any interest in the Franchisee if an entity to one of the other
original shareholders or partners. A transfer of fifty percent (50%) or more of
the voting or ownership interests in your corporation, partnership or limited
liability company, individually or in the aggregate, directly or indirectly, is,
for all purposes of this Agreement, considered a transfer of an interest in this
Agreement by you. Any purported transfer by you, by operation of law or
otherwise in violation of this Agreement, is void and is an Event of Default on
your part.

 

(b)           Transfer to Your Corporation.     This Agreement may be assigned
to a corporation where you own a majority of the issued and outstanding capital
stock if:

 

(i)        You, or a Manager approved by us actively manages the corporation and
continues to devote his or her best efforts and full and exclusive time to the
day-to-day operation of your LA Boxing Franchise. You must advise us of the name
of the Manager and the Manager must meet our standards including training;

(ii)        The corporation cannot use the trade name "LA Boxing" in any
derivative or form in the corporate name;

 

(iii)       An authorized officer of the corporation signs a document in a form
we approve, agreeing to become a party bound by all the provisions of this
Agreement; and

 

(iv)       All stock certificates representing shares bear a legend that they
are subject to this Agreement.

 

You understand that, if you transfer this Agreement to your corporation, you
remain personally liable for all the monetary and non-monetary obligations under
this Agreement.

 

 

(c)

No Subfranchising Rights.

You have no right to grant a subfranchise.

 

(d)           No Encumbrance of Franchise Right and Controlling
Interest.         While you may encumber the assets comprising your Franchise
Business, you may not encumber your interest in this Agreement nor encumber a
controlling interest in a business entity if this Agreement is assigned to a
business entity. You agree that your rights under this Agreement and any voting
or ownership interest of more than fifty percent (50%) in you (or any Franchise
Owner) may not be pledged, mortgaged, hypothecated, given as security for an
obligation or in any manner encumbered. Any attempted encumbrance is void and is
an Event of Default on your part.

 

(e)           "For Sale" Restrictions.   You will not permit to be placed upon
the Premises a "Business For Sale" or "For Sale" sign, or any sign of a similar
nature or purpose, nor in any manner use the Intellectual Property to advertise
the sale of your LA Boxing Franchise or the sale or lease of the Premises. These
prohibitions apply to any activities under a listing agreement that you may
enter into with a real estate or business broker.

 

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(f)           Permitted Transfer.         We will consent to a transfer of this
Agreement if the following requirements are satisfied or waived by us in our
sole discretion:

 

 

(i)

We have not exercised our right of first purchase as provided in Section 11.6;

 

(ii)        You are not in default of any term of this Agreement or any other
agreement between you and us or our Affiliates;

 

(iii)       The transferee interviews at our principal office without expense to
us and demonstrates to our reasonable satisfaction that the transferee has the
business and personal skills, reputation and financial capacity we require;

 

(iv)       The transferee satisfactorily completes our application procedures
for new franchisees;

 

(v)     The transferee demonstrates to our reasonable satisfaction that he or
she has properly assumed your obligations under this Agreement and will be able
to comply with all of his or her obligations to the LA Boxing Franchise,
including an assumption of the lease, if the Premises is leased. You will remain
liable for all obligations to us under this Agreement before the effective date
of the transfer and will sign all instruments we reasonably request to evidence
these liabilities;

 

(vi)       At the transferee's expense, the transferee or transferee's Manager
completes Initial Training then in effect for new franchisees upon all terms as
we reasonably require; and

 

(vii)      You will pay us a transfer fee of $10,000. If the transferee is a
wholly owned corporation, spouse or child of the transferor, or another
Franchisee within the System, no transfer fee will be charged provided a trained
manager continues to operate the Franchise.

 

No disapproval of the transferee for failure to satisfy the transfer conditions
described in this Subsection, or of any other condition to transfer stated in
this Agreement, causes any liability on our part to the transferee.

 

Our consent to a transfer is not a waiver of any claims we may have against you,
nor is it a waiver of our right to demand the transferee's exact compliance with
this Agreement. No transfer (even if we approve) relieves you of liability for
your conduct before the transfer, including conduct in breach of this Agreement.

 

 

SECTION 11.3

TRANSFER UPON DIVORCE OR PARTNERSHIP DISSOLUTION

 

If this Agreement is in the name of two persons who are husband and wife or two
or more persons who are partners as franchisees, this Section describes the
policies to be applied upon divorce or dissolution of the partnership. During
the period when a divorce or partnership dissolution action is pending, you must
adopt one of the following methods of operation:

 

(a)          If one of the parties is willing to relinquish his or her right and
interest in the Franchise, thereby leaving his or her spouse or partners to
carry on the Franchise Business, he or she may do so by assigning the interest
to the spouse or to his or her partners provided the remaining spouse or partner
has successfully completed Initial Training.

 

(b)          If the parties to a divorce or dissolution action agree that,
despite their difficulties, they can continue to operate the Franchise Business
jointly on a "business-as-usual" basis during the proceeding, they may do so.

 

(c)          If the parties in a divorce action or in a partnership dissolution
are not agreeable to operate under alternates (a) or (b) then they must make
arrangements to have their Franchise Business operated by a third party as a
Manager until the divorce or dissolution has been completed. The Manager must be
approved by us and have satisfactorily completed Initial Training.

 

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(d)          Divorcing parties may, after a final order or judgment, continue to
operate their Franchise Business in the form of a partnership or other business
entity even though they are no longer husband and wife. In such a case, however,
they must enter a formal agreement, which defines their respective rights and
obligations, file a signed copy with us, assign this Agreement to the new
entity, and comply with all other requirements for establishing the Franchise
Business as a partnership or other business entity.

 

 

SECTION 11.4

TRANSFER UPON DEATH OR DISABILITY

 

(a)          If any Franchise Owner becomes disabled from any cause and is
unable to perform his or her obligations under this Agreement for a continuous
period in excess of three (3) consecutive months, or on the death of the
Franchise Owner, you (or your legal representative) will within thirty (30) days
after the three (3) months of disability or death, provide and maintain a
replacement satisfactory to us to perform the obligations. If a replacement is
not provided or maintained as required, we may hire and maintain your
replacement. You will compensate the replacement for his or her services at the
rate we establish in our reasonable discretion. For all purposes of this
Agreement, any period of disability that is interrupted by a return to active
work and proper performance of duties under this Agreement for fourteen (14)
days or more is deemed continuous.

 

(b)          If: (i) any individual who holds a fifty percent (50%) or greater
voting or ownership interest in the Franchisee (or in any Franchise Owner); or
(ii) you die during the Term, your interests in the Franchisee (or in any
Franchise Owner) or in this Agreement are required to be transferred within
twelve (12) months of the death to an approved transferee in accordance with the
terms of this ARTICLE.

 

 

SECTION 11.5

OUR PURCHASE OBLIGATION UPON YOUR DEATH.

 

(a)          Upon your death while the life insurance under Subsection 9.1(b) is
in effect, your personal representative is obligated to sell, and we are
obligated to purchase, your LA Boxing Franchise. The purchase price of your LA
Boxing Franchise will be equal to the lesser of: (i) the fair market value of
the LA Boxing Franchise at the time of death; or (ii) the proceeds of the life
insurance policy.

 

(b)          The closing of the purchase of your LA Boxing Franchise will be
held at our then principal office on or before the 90th day after the death,
provided the insurance proceeds have been paid to us. At the closing, you, if
not the Insured, or your personal representative, if the Insured, must deliver
to us, free and clear of all liens, claims, charges and encumbrances,
appropriate instruments of conveyance conveying all of the assets comprising
your LA Boxing Franchise to us. We will simultaneously make payment of the life
insurance proceeds by our check, less any amounts you owe to us.

 

 

SECTION 11.6

OUR RIGHT OF FIRST PURCHASE

 

(a)          If during the Term you or any person who owns at least a fifty
percent (50%) ownership or voting interest in a corporation or other entity that
owns your LA Boxing Franchise (or in any entity with an ownership interest in a
corporation or other entity that owns your LA Boxing Franchise) desire to sell
your LA Boxing Franchise, (whether as a sale of assets or a sale of stock or
other equity interests), you must first approach us with a specific price and
terms and offer us the opportunity to purchase your LA Boxing Franchise. We have
thirty (30) days to accept or reject your offer at the designated price. If we
reject your offer and you and we cannot otherwise reach agreement within the
30-day period, you then have the right to list the LA Boxing Franchise and offer
it for sale to third parties (either in or outside the System) at or above the
designated price and on terms no less favorable than offered to us, for a period
of 120 days, with a closing to take place within sixty (60) days after the date
of the purchase agreement. If a third party purchases your LA Boxing Franchise
at a price or terms equal or more favorable (higher) to you than offered to and
rejected by us; the sale can proceed, provided you and the third party comply
with the terms of Subsection 11.2(f).

 

(b)          If you decide within the 120-day period to offer your LA Boxing
Franchise or accept an offer from a third party (the "Offeror") at a lower price
and/or terms less favorable to you (the "Offer") than offered to and rejected by
us, you must then give us a right of first refusal.

 

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(c)          If we give notice of acceptance of the Offer, then you will sell
the LA Boxing Franchise to us and we will purchase the LA Boxing Franchise for
the consideration and upon the terms stated in the Offer. Our creditworthiness
is deemed at least equal to the creditworthiness of any proposed purchaser. If
we are, or our Affiliate is, a public company at that time having shares traded
on a national securities exchange, the Offeror must accept a quantity of stock
at our then-current value, or our Affiliate's, registered shares in lieu of cash
or Unique Consideration.

 

(d)          If an independent third party's written Offer (and the Offeror's
corresponding offer to us) provides for the purchaser's payment of a Unique
Consideration that is of a nature that cannot reasonably be duplicated by us, we
may, in our notice of exercise, in lieu of the Unique Consideration, substitute
cash or stock (if a public company with registered shares) consideration
determined by mutual agreement of you and us within 45 days after the Offer is
made or, failing agreement, by an independent appraiser selected by us.

 

(e)          If the proposed sale includes assets of the Offeror that are not
part of the operation of the LA Boxing Franchise, we may, at our option, elect
to purchase only the assets that are part of the operation of the LA Boxing
Franchise and an equitable purchase price will be determined in our reasonable
discretion and allocated to each asset included in the sale.

 

(f)          We will purchase your LA Boxing Franchise subject to all customary
warranties given by a seller of the assets of a business or voting stock of a
corporation, as applicable, including warranties as to ownership, condition and
title to the shares and/or assets, liens and encumbrances on the shares and/or
assets, validity of contracts and liabilities of the corporation whose stock is
purchased and affecting the assets, contingent or otherwise.

 

(g)          Unless otherwise agreed by you and us, the closing of the purchase
of your LA Boxing Franchise will be held at our then principal office or other
location designated by us, no later than the 60th day after the Offer is
delivered to us. The closing of any purchase where a cash or stock consideration
is determined in accordance with Subsection 11.6(d) will be held on the 15th day
after the cash or stock consideration is finally determined. At any closing, the
Offeror must deliver to us an assignment and other documents reasonably
requested by us representing a transfer of ownership of your LA Boxing Franchise
free and clear of all liens, claims, pledges, options, restrictions, charges and
encumbrances, in proper form for transfer and with evidence of payment by the
Offeror of all applicable transfer taxes. We will simultaneously make payment of
any cash consideration for your LA Boxing Franchise by a cashier's check drawn
on a bank or thrift doing business in the county of our principal place of
business or payment by the issuance of our or our Affiliate's registered shares,
after set off against the amount due to the Offeror for all amounts you owe us,
if any. The remaining terms of the purchase and sale will be stated in the
Offer.

 

(h)          If we do not accept the Offer, you are free, for ninety (90) days
after we have elected not to exercise our option, to sell your LA Boxing
Franchise to the prospective purchaser for the consideration and upon the terms
stated in the prospective purchaser written Offer, subject to full compliance
with all terms of transfer required under this Agreement, including those in
Section 11.2. Before any sale of the shares to a prospective purchaser, there
must be delivered by the prospective purchaser an acknowledgment that the shares
purchased by the prospective purchaser is subject to the terms of this Agreement
and that the prospective purchaser agrees to be bound to the terms of this
Section on transferring the shares, in the same manner as the Offeror. If you do
not sell your LA Boxing Franchise within the 90-day period, then any transfer by
you of your LA Boxing Franchise is again subject to the restrictions stated in
this Agreement.

 

(i)          If a proposed transferee is to a corporation wholly owned by you or
to your spouse or child, we will not have any right of first purchase.

 

(j)          All transferees are subject to all of the restrictions on transfer
of ownership imposed on you under this Agreement.

 

 

 

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SECTION 11.7

YOUR TRANSFER OF ACCOUNTS TO ANOTHER FRANCHISEE

 

Notwithstanding the other Sections of this ARTICLE, you may transfer accounts on
an individual and occasional basis if requested by the customer, but only to
another Franchisee. You must notify us immediately and we reserve the right to
investigate into the reasons for the request. We will resolve any dispute
between you and another Franchisee over the right to a customer, and our
decision will be binding.

 

ARTICLE 12 - DEFAULT AND TERMINATION

 

 

SECTION 12.1

TERMINATION BY YOU

 

If you have substantially complied with this Agreement and we materially breach
this Agreement, you have the right to terminate this Agreement if we do not cure
the breach within thirty (30) days after we receive a written notice of default
from you. However, if the breach cannot reasonably be cured within thirty (30)
days, you have the right to terminate this Agreement if, after our receipt of a
written notice of default from you, we do not within thirty (30) days undertake
and continue efforts to cure the breach until completion. You may also terminate
this Agreement upon the mutual written agreement with us. Any termination of
this Agreement by you other than as stated above, is a wrongful termination by
you.

 

 

SECTION 12.2

TERMINATION BY US - WITHOUT NOTICE

 

(a)          Subject to applicable law, this Agreement automatically terminates
without notice to you or your having an opportunity to cure on the date of the
occurrence of any of the following Events of Default: if you damage the LA
Boxing System through violation of federal, state or local environmental laws;
if you make a general assignment for the benefit of creditors; a petition in
bankruptcy is filed by you or a petition is filed against or consented to by you
and the petition is not dismissed within forty-five (45) days; you are
adjudicated as bankrupt; a bill in equity or other proceeding for the
appointment of your receiver or other custodian for your business or assets is
filed and consented to you; a receiver or other custodian (permanent or
temporary) of your business or assets is appointed by any court of competent
jurisdiction; proceedings for a composition with creditors under federal or any
state law is begun by or against you; a final judgment in excess of $25,000
remains unsatisfied or of record for thirty (30) days or longer (unless a
supersedeas bond is filed); execution is levied against your operation or
property, or suit to foreclose any lien or mortgage against the Premises or your
assets is begun against you and not dismissed within forty-five (45) days; or a
substantial portion of your real or personal property used in your LA Boxing
Franchise is sold after levy by any sheriff, marshal or constable.

 

(b)          You will notify us within three (3) days of the occurrence of any
of the events described in Subsection 12.2(a).

 

 

SECTION 12.3

TERMINATION BY US - AFTER NOTICE

 

We may, at our option, terminate all rights granted to you under this Agreement,
without affording you any opportunity to cure the default, effective immediately
upon notice to you, upon the occurrence of any of the following Events of
Default:

 

(a)          If you cease to do business at the Premises for more than fourteen
(14) days in any calendar year or for more than seven (7) consecutive days, or
lose the right to possession of the Premises after the expiration of all
redemption periods and have not satisfied the provisions of Section 1.4, if
applicable, or otherwise forfeit the right to do or transact business in the
jurisdiction where your LA Boxing Franchise is located;

 

(b)          If a serious or imminent threat or danger to public health or
safety results from the construction, maintenance or operation of your LA Boxing
Franchise and the threat or danger remains uncorrected for five (5) days after
your receipt of written notice from a governmental authority or us. If a cure
cannot be reasonably completed in this time, then all reasonable steps to cure
must begin within this time, but a cure must be completed promptly within thirty
(30) days after receipt of written notice;

 

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(c)          If you fail or refuse to comply with any mandatory specification,
standard or operating procedure required by us in this Agreement, in the Manuals
or otherwise in writing, on the cleanliness or sanitation of your LA Boxing
Franchise or violates any health, safety, or sanitation law, ordinance, or
regulation and do not correct the failure or refusal within three (3) days after
written notice from us or a governmental authority. If a cure cannot be
reasonably completed in this time, then all reasonable steps to cure must begin
within this time, but a cure must be completed within thirty (30) days after
receipt of written notice;

 

(d)          If you, or your officer, director, owner or managerial employee are
convicted of a felony, a crime of moral turpitude or any other crime or offense
that we reasonably believe is likely to have a material adverse effect on the
System, the Intellectual Property, the good will associated with the
Intellectual Property, or our interest in any of the Intellectual Property,
unless you immediately and legally terminate the individual as your officer,
director, owner and employee;

 

 

(e)

If you deny us the right to inspect your LA Boxing Franchise or to audit your
records;

 

(f)          If you engage in conduct that is deleterious to or reflects
unfavorably on you or the System in that the conduct exhibits a reckless
disregard for the physical or mental well being of employees, customers, our
representatives or the public at large, including battery, assault, sexual
harassment or discrimination, racial harassment or discrimination, alcohol or
drug abuse or other forms of threatening, outrageous or unacceptable behavior as
determined in our sole discretion;

 

(g)          If you, contrary to this Agreement, purport to encumber or transfer
any rights or obligations under this Agreement (including transfers of any
interest in a corporation or other entity which owns your LA Boxing Franchise),
without our written consent;

 

(h)          If any breach occurs under Sections 6.2 or 14.1 concerning
confidentiality and non-competition covenants;

 

 

(i)

If you knowingly maintain false records, or knowingly submit any false reports
to us; or

 

(j)          If you misuse or make any unauthorized use of the Intellectual
Property or otherwise materially impairs the good will associated with the
Intellectual Property or our rights in the Intellectual Property.

 

 

Section 12.4

Termination by Us - After Notice and Right to Cure

 

(a)        Except as otherwise provided above, you have thirty (30) days after
delivery from us of a written Notice of Default specifying the nature of the
default to remedy any default and provide evidence of cure satisfactory to us.
If any default is not cured within that time, or any longer time as applicable
law may require, an Event of Default has occurred by you and all your rights
under this Agreement terminate without additional notice to you effective
immediately upon the expiration of the thirty (30) days or any longer time as
applicable law may require. In addition to the Events of Default specified in
Sections 12.2 and 12.3, an Event of Default by you occurs if you fail to comply
with any of the requirements imposed by this Agreement, as it may be revised or
supplemented by the Manuals, or to carry out this Agreement in good faith. You
have the burden of proving that you properly and timely cured any default, to
the extent a cure is permitted under this Agreement.

 

 

(b)

During a cure period, we reserve the right to refuse to sell you LA Boxing
Products.

 

ARTICLE 13 - YOUR OBLIGATIONS UPON TERMINATION

DUE TO YOUR DEFAULT OR ON NONRENEWAL

 

Upon the termination of this Agreement due to your default or upon expiration
and nonrenewal of the Agreement, the Sections of this ARTICLE apply to the
rights and obligations of the parties.

 

 

 

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SECTION 13.1

CEASE OPERATIONS

 

You will immediately cease to operate your LA Boxing Franchise. You will not,
directly or indirectly, use any of the Intellectual Property nor represent
yourself as a present or former Franchisee of us or in any other way affiliate
yourself with the System. You will immediately cease using all stationery,
signage and other materials containing the Intellectual Property. You will also
immediately cease using all telephone numbers for the LA Boxing Franchise used
at any time before termination or expiration, and empower us to take whatever
actions are necessary to comply with this Section. You must cease using the URL
and Internet addresses used for your business and immediately cause the URL and
Internet addresses to be transferred to us.

 

 

SECTION 13.2

PAYMENT OF OUTSTANDING AMOUNTS

 

We may retain all fees paid under this Agreement except for refunds expressly
required in this Agreement. In addition, within ten (10) days after the
effective date of the termination or any later dates as we determine that
amounts are due to us, you must pay to us all Royalty Fees and Advertising
Contributions amounts owed for products or services you purchased from us or our
Affiliates, and all other amounts owed to us, our Affiliates and your other
creditors that are then unpaid.

 

 

SECTION 13.3

DISCONTINUANCE OF USE OF TRADE NAME

 

You will cancel any fictitious, trade or assumed name registration that contains
our trademark, trade name or service mark or colorable imitation of our
trademark, trade name or service mark. You will furnish us with evidence of
compliance with this obligation to cancel the registration within thirty (30)
days after termination or expiration of this Agreement. If you fail to cancel,
you appoint us as your attorney-in-fact to do so.

 

 

SECTION 13.4

OUR OPTION TO PURCHASE YOUR LA BOXING FRANCHISE

 

(a)          We have the option, exercisable by giving written notice within
thirty (30) days from the date of termination, to purchase from you all the
assets used in your LA Boxing Franchise. As used in this Section, "assets" means
leasehold improvements, equipment, vehicles, furnishings, fixtures, signs,
inventory (non-perishable products, materials and supplies) and the lease or
sublease for the Premises. We have the unrestricted right to assign this option
to purchase. We, or our assignee, are entitled to all customary warranties given
by a seller of a business, including: (i) ownership, condition and title to the
assets; (ii) the absence of liens and encumbrances on the assets; and (iii)
validity of contracts and liabilities, inuring to us or affecting the assets,
contingent or otherwise. The purchase price for the assets of your LA Boxing
Franchise is their fair market value, determined as of the effective date of
purchase in a manner consistent with reasonable depreciation of your leasehold
improvements and the equipment, vehicles, furnishings, fixtures, signs and
inventory of your LA Boxing Franchise. The purchase price will take into account
the termination of the LA Boxing Franchise granted under this Agreement and will
not contain any factor or increment for any trademark, service mark or other
commercial symbol used in the operation of your LA Boxing Franchise.

 

(b)          If the parties cannot agree on the fair market value of the assets
within thirty (30) days after your receipt of our notice exercising our option,
the fair market value will be determined by an independent appraiser the parties
selected. If they are unable to agree on an independent appraiser within ten
(10) days after expiration of the 30-day period, the parties will each select
one independent appraiser, who will select a third independent appraiser (the
"Third Appraiser"), and the fair market value will be the value determined by
the Third Appraiser. If either party fails to select an appraiser and give
notice to the other of the identity of the appraiser within the 10-day period,
the appraiser selected by the other party will select the Third Appraiser. The
Third Appraiser will be given full access to your LA Boxing Franchise, the
Premises and your records during customary business hours to conduct the
appraisal and must value the leasehold improvements, equipment, furnishings,
fixtures, signs and inventory in accordance with the standards of this Section.
The parties will pay the Third Appraiser’s costs equally.

 

 

 

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(c)          The purchase price will be paid in cash equivalent, or our
marketable securities or the marketable securities of an Affiliate of equivalent
value at the closing of the purchase, which will take place no later than ninety
(90) days after your receipt of notice of exercise of the option to purchase. At
the closing, you will deliver instruments transferring to us or our assignee:
(i) good and merchantable title to the assets purchased, free and clear of all
liens and encumbrances (other than liens and security interests acceptable to us
or our assignee), with all your sales and other transfer taxes paid; (ii) all
licenses and permits of your LA Boxing Franchise that may be assigned or
transferred; and (iii) the lease for the Premises. If you cannot deliver clear
title to all of the purchased assets, or if there are other unresolved issues,
the closing of the sale will be accomplished through an escrow. The parties will
comply with all applicable legal requirements, including the bulk sales
provisions of the Uniform Commercial Code of the state where your LA Boxing
Franchise is located, if any, and the bulk sales provisions of any applicable
tax laws and regulations. You will, before or simultaneously with the closing of
the purchase, pay all tax liabilities incurred in the operation of your LA
Boxing Franchise. We have the right to set off against and reduce the purchase
price by all amounts you owe to us, and the amount of any encumbrances or liens
against the assets or any obligations we assume.

 

(d)          If our assignee or we exercise the option to purchase, pending the
closing of the purchase, we have the right to appoint a manager to maintain the
operation of your LA Boxing Franchise. Alternatively, we may require you to
close your LA Boxing Franchise during this time period without removing any
assets. You will maintain in force all insurance policies required in this
Agreement until the date of closing. If the Premises is leased, we agree to use
reasonable efforts to effect a termination of the existing lease for the
Premises and enter into a new lease on reasonable terms with the landlord. If we
are unable to enter into a new lease and your rights under the existing lease
are assigned to us or we sublease the Premises from you, we indemnify you from
any ongoing liability under the lease that occurs after the date we assume
possession of the Premises. If you own the Premises, upon purchase of the
assets, you, at your option, may enter into a new lease with us under a standard
lease on terms comparable to those for similar commercial properties in the area
that are then being leased, for a term of at least ten (10) years and for a
rental equal to the fair market rental value of the Premises. If the parties
cannot agree on the fair market rental value of the Premises, then the rental
value will be determined by the Appraiser (selected in the manner described
above).

 

 

SECTION 13.5

DISTINGUISHING OPERATIONS

 

(a)          If we do not exercise our option under Section 13.4 and you desire
to remain in possession of the Premises and operate a noncompetitive business,
you must make all modifications or alterations to the Premises immediately upon
termination of this Agreement as necessary to distinguish the appearance of the
Premises from that of other LA Boxing Franchisees operating under the System.
You will make all specific additional changes to the Premises as we reasonably
request for that purpose including a change of use of the Premises. You agree to
refrain from taking any direct or indirect action to reduce the good will of
your customers or potential customers toward us, our Franchisees or any other
aspect of the System.

 

(b)          You must remove immediately all identifying architectural
superstructure and signage on or about the Premises bearing the name or logos of
LA Boxing (or any name or logo similar to LA Boxing), in the manner we specify.
You will hold all property belonging to us for delivery to us, at our expense,
upon request. Any signage that you are unable to remove within one (1) Business
Day of the termination of this Agreement must be completely covered by you until
the time of its removal. If you fail or refuse to comply with this obligation,
we have the right to enter upon the Premises, without being guilty of trespass
or any other tort for the purpose of removing the signage and storing it at
another location, at a reasonable expense (for signage not owned by us) payable
by you on demand.

 

(c)          Until all modifications and alterations required by this Section
are completed, you must: (i) maintain a conspicuous sign at the Premises in a
form specified by us stating that your business is no longer associated with our
System; and (ii) advise all customers or prospective customers telephoning your
business that the business is no longer associated with our System.

 

 

 

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(d)          If you fail or refuse to comply with the requirements of this
Section, we have the right to enter upon the Premises for the purpose of making
or causing to be made, all changes as may be required, at a reasonable expense
(this expense you must pay upon demand) and at your sole risk and expense,
without responsibility for any actual or consequential damages to your property
or others, and without liability for trespass or other tort or criminal act. You
agree that your failure to make these alterations will cause irreparable injury
to us.

 

 

SECTION 13.6

UNFAIR COMPETITION

 

You agree, if you continue to operate or later begin to operate any other
business, not to use any reproduction or colorable imitation of the Intellectual
Property, trade dress, methods of operation or undertake any other conduct
either in any other business or the promotion of any other business, that is
likely to cause confusion, mistake or deception, or that is likely to dilute our
rights in and to the Intellectual Property. In addition, you agree not to
utilize any designation of origin or description or representation that falsely
suggests or represents an association or connection with us, or any of our
Affiliates. This Section does not relieve, directly or indirectly, your
obligations under ARTICLE 14.

 

 

SECTION 13.7

RETURN OF MATERIALS

 

You will immediately deliver to us all tangible Intellectual Property in your
possession or control, and all copies and any other forms of reproductions of
these materials. You agree that all these materials are our exclusive property.

 

 

SECTION 13.8

OUR PURCHASE RIGHTS OF ITEMS BEARING INTELLECTUAL PROPERTY

 

Even if we do not exercise our option under Section 13.4, we have the option
(but not the obligation) to exercise by notice of intent to do so within thirty
(30) days after termination to purchase any items bearing the Intellectual
Property owned by you including signs, advertising materials, supplies,
inventory or other items at a price equal to the lesser of your cost or fair
market value. If the parties cannot agree on fair market value within a
reasonable time, we will designate an independent appraiser whose cost will be
paid equally by the parties, and the appraiser's determination will be binding.
The fair market value of tangible assets will be determined without reference to
good will, going concern value, or other intangible assets. If we elect to
exercise our option to purchase, we will have the right to set off all amounts
due from you under this Agreement, and ½ the cost of the appraisal, if any,
against any payment to you. If you fail to sign and deliver the necessary
documents to transfer good title to your assets to us or our nominee, we are
entitled to apply to any court of competent jurisdiction for a mandatory
injunction to compel you to comply with the rights granted in this Agreement.
All expenses, including our reasonable attorneys' fees, you will pay to us and
may be credited by us to the agreed purchase price.

 

 

SECTION 13.9

LIQUIDATED DAMAGES FOR PREMATURE TERMINATION

 

If termination is the result of your default, you will pay to us a lump sum
payment (as liquidated damages for causing the premature termination of this
Agreement and not as a penalty) equal to the total of all Royalty Fees for: (i)
the 36 calendar months of operation of your LA Boxing Franchise preceding your
default; (ii) the period of time your LA Boxing Franchise has been in operation
preceding the notice, if less than 36 calendar months, projected on a
36-calendar month basis; or (iii) any shorter period as equals the unexpired
Term at the time of termination. The parties agree that a precise calculation of
the full extent of the damages that we will incur on termination of this
Agreement as a result of your default is difficult and the parties desire
certainty in this matter in the extreme, and agree that the lump sum payment
provided under this Section is reasonable in light of the damages for premature
termination that we will incur in this event. This payment is not exclusive of
any other remedies that we have including attorney's fees and costs.

 

 

 

 

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ARTICLE 14 - YOUR INDEPENDENT COVENANTS

 

 

SECTION 14.1

DIVERSION OF BUSINESS; COMPETITION AND INTERFERENCE WITH US.

 

(a)         Existing and Prospective Customers Database.       You recognize and
agree that we have been in the business of membership boxing and fitness
training before you ever contacted us and had already developed a proprietary
database of existing and prospective customers. You agree not to solicit nor
accept contracts from an existing customer of ours or an existing customer of
one of our Franchisees. You are obligated to determine whether a prospect is an
existing customer of ours or an existing customer of one of our Franchisees. If
the person determined to be an existing customer, you will cease all contact
with this person. You further agree not to probe into the existing relationship
with us and another Franchisee and ask any further questions.

 

(b)         Covenant Not to Compete.           You agree that we would be unable
to protect the Confidential Information against unauthorized use or disclosure
and would be unable to encourage a free exchange of ideas and information among
the Franchisees within the System if Franchisees were permitted to hold
interests in any Competitive Business.

 

(i)         In-Term. You covenant that during the Term, except as we otherwise
approve in writing, you will not, directly or indirectly:

 

A.        Solicit or otherwise attempt to induce, by combining or conspiring
with, or attempting to do so, or in any other manner influence any Business
Associate to terminate or modify his, her or its business relationship with us
or to compete against us;

 

B.         As owner, officer, director, employee, agent, lender, broker,
consultant, franchisee or in any other capacity be connected with the ownership,
management, operation, control or conduct of a Competitive Business (this
restriction will not apply to a 5% or less beneficial interest in a
publicly-held corporation); or

 

C.         Interfere with, disturb, disrupt, decrease or otherwise jeopardize
our business or the business of any of our Franchisees.

 

(ii)         Post-Term.         You also covenant that, for twenty-four (24)
months after the termination of this Agreement due to your default, for
twenty-four (24) months after the expiration and non-renewal of this Agreement,
or for twenty-four (24) months after you transfer your LA Boxing Franchise,
except as we otherwise approve in writing, you will not, directly or indirectly:

 

A.        Solicit or otherwise attempt to induce, by combining or conspiring
with, or attempting to do so, or in any other manner influence any Business
Associate to terminate or modify his, her or its business relationship with us
or to compete against us;

 

B         As owner, officer, director, employee, agent, lender, broker,
consultant, franchisee or in any other capacity be connected with the ownership,
management, operation, control or conduct of a Competitive Business within the
Exclusive Territory twenty-five (25) miles of the Premises or within twenty-five
(25) miles of any LA Boxing Franchise or Company-Owned Unit then in operation;
or

 

C.         Interfere with, disturb, disrupt, decrease or otherwise jeopardize
our business or the business of any of our Franchisees.

 

If you violate this Subsection and compete with us, we have the right to require
that all sales made by the Competitive Business be reported to us. You will also
pay to us, on demand, a weekly fee of Two Thousand Dollars ($2,000) without
being deemed to revive or modify this Agreement. These payments are liquidated
damages to compensate us for our damages from your violation of the covenant not
to compete and are not a penalty.

 

 

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(c)           Reasonableness of Covenant.        You agree that the length of
the term and geographical restrictions contained in this Section are fair and
reasonable and not the result of overreaching, duress or coercion of any kind.
You agree that your full, uninhibited and faithful observance of each of the
covenants in this Section will not cause any undue hardship, financial or
otherwise, and that enforcement of each of the covenants in this Section will
not impair your ability to obtain employment commensurate with your abilities
and on terms fully acceptable to you or otherwise to obtain income required for
the comfortable support of yourself and your family, and the satisfaction of
your creditors. You agree that your special knowledge of the business of a LA
Boxing Franchise (and anyone acquiring this knowledge through you) would cause
us and our Franchisees serious injury and loss if you (or anyone acquiring this
knowledge through you) were to use this knowledge to the benefit of a competitor
or were to compete with us or any of our other Franchisees.

 

(d)           Court Modification.         If any court finally holds that the
time or territory or any other provision in this Section is an unreasonable
restriction upon you, you agree that the provisions of this Agreement are not
rendered void, but apply as to time and territory or to any other extent as the
court may judicially determine or indicate is a reasonable restriction under the
circumstances involved.

 

 

SECTION 14.2

INDEPENDENT COVENANTS; THIRD PARTY BENEFICIARIES

 

(a)           Independent Covenants.   The parties agree that the covenants in
this ARTICLE are independent of any other provision of this Agreement. You agree
that the existence of any claim you may have against us or any of our
Affiliates, regardless of whether the claim is brought under this Agreement, is
not a defense to our enforcement of these covenants.

 

(b)           Third Party Beneficiaries.The parties agree that all other
Franchisees are third party beneficiaries of the terms of Section 14.1 and have
the right to separately enforce these covenants at their expense, if we are
unwilling or unable to enforce these covenants.

 

ARTICLE 15 - INDEPENDENT CONTRACTOR

AND INDEMNIFICATION

 

 

SECTION 15.1

INDEPENDENT STATUS

 

You are an independent contractor and unless expressly provided to the contrary,
nothing in this Agreement is intended to designate either party an agent, legal
representative, subsidiary, joint venturer, joint employer, partner, employee,
affiliate or servant of the other party for any purpose. The parties agree that
nothing in this Agreement authorizes either party to make any agreement,
warranty or representation for the other party, nor to incur any debt or other
obligation in the other party's name. You will take all affirmative action as we
request to indicate that you are an independent contractor, including placing
and maintaining a plaque in a conspicuous place within the Premises and a notice
on all stationery, business cards, sales literature, contracts and similar
documents that states that your LA Boxing Franchise is independently owned and
operated by you. The content of any plaque and notice is subject to our written
approval.

 

 

SECTION 15.2

INDEMNIFICATION

 

You are responsible for all losses or damages from contractual liabilities to
third persons from the possession, ownership and operation of your LA Boxing
Franchise and for all claims and demands for damages to property or for injury,
illness or death of persons directly or indirectly resulting from your actions.
You indemnify us from all costs, losses and damages (including reasonable
attorneys' fees and costs, even if incident to appellate, post-judgment or
bankruptcy proceedings) from claims brought by third parties involving the
ownership or operation by you of your LA Boxing Franchise unless caused by our
negligence or intentional misconduct. This indemnity obligation continues in
full effect even after the expiration, transfer or termination of this
Agreement. We will notify you of any claims and you will be given the
opportunity to assume the defense of the matter. If you fail to assume the
defense, we may defend the action in the manner we deem appropriate and you will
pay to us all costs, including attorneys' fees that we incur in effecting the
defense, in addition to any sum that we may pay by reason of any settlement or
judgment against us. Our right to indemnity under this Agreement arises and is
valid regardless of any joint or concurrent liability that may be imposed on us
by statute, ordinance, regulation or other law.

 

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ARTICLE 16 - REPRESENTATIONS AND WARRANTIES

 

 

SECTION 16.1

OUR REPRESENTATIONS

 

We make the following representations and warranties to you that are true and
correct upon the signing of this Agreement:

 

(a)           Organization.      We are a corporation duly organized, validly
existing and in good standing under the laws of the State of California.

 

(b)           Authorization.     We have the corporate power to sign, deliver,
and carry out the terms of this Agreement. We have taken all necessary action
for proper authorization. This Agreement has been duly authorized, signed and
delivered by us and is our valid, legal and binding agreement and obligation in
accordance with this Agreement, except as may be limited by applicable
bankruptcy, insolvency, reorganization and other laws and equitable principles
affecting creditors' rights generally.

 

(c)           No Violation.       Our performance of our obligations under this
Agreement will not result in: (i) the breach of any term of any contract or
agreement that we are a party to or bound by, or be an event that, with notice,
lapse of time or both, would result in a breach or event of default; nor (ii)
result in the violation by us of any statute, rule, regulation, ordinance, code,
judgment, order, injunction or decree.

 

 

SECTION 16.2

YOUR REPRESENTATIONS

 

You make the following representations and warranties to us that are true and
correct upon signing this Agreement and throughout the Term:

 

(a)           Authorization.     You have the power to sign, deliver, and carry
out this Agreement. You have taken all necessary action for proper
authorization. This Agreement has been duly authorized, signed and delivered by
you and is your valid, legal and binding agreement and obligation in accordance
with this Agreement, except as may be limited by applicable bankruptcy,
insolvency, reorganization and other laws and equitable principles affecting
creditors' rights generally.

 

(b)           No Violation.      The performance by you of your obligations
under this Agreement will not result in: (i) the breach of any term of, or be a
default under, any term of any contract, agreement or other commitment that you
are a party to or are bound by, or be an event that, with notice, lapse of time
or both, would result in a breach or event of default; nor (ii) result in the
violation by you of any statute, rule, regulation, ordinance, code, judgment,
order, injunction or decree.

 

(c)           No Speculative Intent.      You are not obtaining this LA Boxing
Franchise for speculative or investment purposes and have no present intention
to sell or transfer or attempt to sell or transfer any part of this Agreement or
the LA Boxing Franchise.

 

(d)           True Copies.       Copies of all documents you are required to
furnish to us are correct copies of the documents, including all amendments or
modifications, and contain no misleading or incorrect statements or material
omissions.

 

 

SECTION 16.3

RECEIPT OF FRANCHISE OFFERING CIRCULAR (FOC)

 

You agree that you received from us a FOC for the state where your LA Boxing
Franchise will be located and your state of residence, with all exhibits and
supplements to the FOC, on or before the first personal meeting with our
representatives and at least ten (10) Business Days before: (a) signing this
Agreement and any other agreement imposing a binding obligation on you; and (b)
any payment by you of any consideration for the sale or proposed sale, of a
franchise.

 

 

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SECTION 16.4

RECEIPT OF COMPLETED FRANCHISE AGREEMENT

 

You agree that you received from us a completed copy of this Agreement and all
related agreements, containing all material terms, (except for the date,
signatures and any minor matters not material to the agreements), with all
blanks filled in, at least five (5) Business Days before signing this Agreement.

 

 

SECTION 16.5

ACKNOWLEDGMENT OF RISK

 

 

You agree to the following:

 

(A)          YOUR SUCCESS IN OWNING AND OPERATING YOUR LA BOXING FRANCHISE IS
SPECULATIVE AND DEPENDS ON MANY FACTORS INCLUDING, TO A LARGE EXTENT, YOUR
INDEPENDENT BUSINESS ABILITY. NO REPRESENTATIONS OR PROMISES, EXPRESS OR
IMPLIED, HAVE BEEN MADE BY US OR ANY OF OUR EMPLOYEES, BROKERS OR
REPRESENTATIVES, TO INDUCE YOU TO ENTER INTO THIS AGREEMENT EXCEPT AS INCLUDED
IN THIS AGREEMENT. NO OFFICER, DIRECTOR, EMPLOYEE, BROKER OR OTHER
REPRESENTATIVE IS AUTHORIZED TO DO OTHERWISE.

 

(B)          YOU AGREE THAT IN ALL OF YOUR DEALINGS WITH US, OUR OFFICERS,
DIRECTORS, EMPLOYEES, BROKERS (IF ANY) AND OTHER REPRESENTATIVES ACT ONLY IN A
REPRESENTATIVE CAPACITY AND NOT IN AN INDIVIDUAL CAPACITY. YOU AGREE THAT THIS
AGREEMENT AND ALL BUSINESS DEALINGS BETWEEN YOU AND ANY INDIVIDUALS AS A RESULT
OF THIS AGREEMENT, ARE ONLY BETWEEN YOU AND US.

 

(C)          IN ADDITION, WE MAKE NO WARRANTY AS TO YOUR ABILITY TO OPERATE THE
LA BOXING FRANCHISE IN THE JURISDICTION WHERE YOUR LA BOXING FRANCHISE IS TO BE
OPERATED. IT IS YOUR OBLIGATION TO SEEK OR OBTAIN ADVICE OF COUNSEL SPECIFICALLY
ON THIS ISSUE. IF LEGISLATION ENACTED BY, OR REGULATION OF, ANY GOVERNMENTAL
BODY PREVENTS YOU FROM OPERATING YOUR LA BOXING FRANCHISE, WE ARE NOT LIABLE FOR
DAMAGES NOR REQUIRED TO INDEMNIFY YOU OR TO RETURN ANY MONIES RECEIVED FROM YOU.

 

ARTICLE 17 - TERM

 

 

SECTION 17.1

TERM

 

The Term of this Agreement is ten (10) years from the Agreement Date, unless
sooner terminated under ARTICLE 12. The conditions to obtain a Successor LA
Boxing Franchise Agreement at the expiration of this Agreement are those stated
in Section 17.2.

 

 

SECTION 17.2

OPTION TO OBTAIN SUCCESSOR LA BOXING FRANCHISE AGREEMENT

 

(a)           Evergreen Renewal.         You are granted unlimited options to
obtain a Successor LA Boxing Franchise Agreement for terms of ten (10) years
each provided the following conditions are met at the time the option is
exercised and immediately before the beginning of the Succeeding Term, unless
another time is specified below:

 

(i)        You must give us written notice of your intention to exercise the
option by submitting your application at least six 6) months but not more than
twelve (12) months before the end of the Term;

 

(ii)        You cannot be in default of any provision of this Agreement or any
other agreement between you and us or our Affiliates;

 

(iii)       You, within ten (10) days before the end of the Term, must sign and
deliver to us a Successor LA Boxing Franchise Agreement, that agreement may vary
in the material business terms reflected in this Agreement;

 

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(iv)       You must comply with all other requirements imposed by us under the
Successor LA Boxing Franchise Agreement upon signing, except that there will be
no Initial Franchise Fee; and

 

(v)        You are entitled to continue to occupy the Premises for the entire
Succeeding Term including, if you are then leasing the Premises from us or a
third party, you are entitled to renew the lease or obtain our approval of a new
location for the LA Boxing Franchise within the Exclusive Territory, but not
within the Exclusive Territory of a Company Unit or Franchise Unit, in
accordance with our relocation procedures.

 

(b)           Our Right Not to Renew.  If you have not met all of the conditions
stated in Subsection 17.2(a), we may elect not to enter into a Successor LA
Boxing Franchise Agreement. If, within five (5) days of notice from us that you
have elected not to enter into a Successor LA Boxing Franchise Agreement, you
request our permission for you to sell your Franchise Business, then for a
180-day period following this notice (this notice will extend the Term, as
necessary, to the end of the 180-day period, unless we have grounds to otherwise
terminate the Term), we will permit you to sell your LA Boxing Franchise to a
purchaser subject to our right of first refusal. This transfer must be in
compliance with the provisions of Subsection 11.2(f) and all the other
applicable terms of this Agreement. During this period, you must continue to
operate your LA Boxing Franchise.

 

 

SECTION 17.3

REINSTATEMENTS AND EXTENSIONS

 

If any termination or expiration of the Term would violate any applicable law,
we may reinstate or extend the Term for the purpose of complying with the law,
for the duration provided by us in a written notice to you, without waiving any
of our rights under this Agreement or otherwise modifying this Agreement.

 

ARTICLE 18 - DISPUTE RESOLUTION

 

 

SECTION 18.1

MEDIATION

 

For any dispute involving this Agreement, before any arbitration proceeding
takes place, either party may, at his, her or its option, submit the controversy
or claim to non-binding mediation before the Center for Public Resources --
National Franchise Mediation Program, the American Arbitration Association, or
another mutually agreeable mediator. Both parties will sign a confidentiality
agreement reasonably satisfactory to us. Upon submission, the obligation to
attend mediation in the county and state where our principal place of business
is then located (currently Orange County, California) is binding on both
parties. Each party will bear his, her or its own costs for the mediation except
the mediation fee and the fee for the mediator will be split equally.

 

 

SECTION 18.2

ARBITRATION

 

(a)          Except as specifically modified by this ARTICLE and excepting
matters involving remedies in Section 18.3, any controversy or claim under this
Agreement, including any claim that this Agreement, or any part of this
Agreement, is invalid, illegal or otherwise voidable or void, including any
claim of fraud in the inducement, may be submitted to arbitration, if determined
by the parties when the dispute arises, before the American Arbitration
Association in accordance with its commercial arbitration rules, or any other
mutually agreeable arbitration association by one arbitrator.

 

(b)          The provisions of this Section are independent of any other
covenant or provision of this Agreement. If a court of competent jurisdiction
determines that any provisions are unlawful in any way, that court will modify
or interpret the provisions to the minimum extent necessary to have them comply
with the law. All issues of the arbitrability or the enforcement of the
agreement to arbitrate are governed by the United States Arbitration Act (9
U.S.C. §§ 1 et seq.) and the federal common law of arbitration.

 

 

(c)

All claimants with substantially similar claims may join the proceedings.

 

(d)          All parties who may be legally responsible agree to participate in
the arbitration and all potential legal claims can be joined in the arbitration
forum.

 

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(e)          The rules governing the conduct of the arbitration proceedings are
consistent with generally prevailing standards of due process.

 

(f)          The panel from which the arbitrator is chosen is comprised of
persons knowledgeable in the franchise industry and who have demonstrated a
capability for unbiased decision making consistent with the principles embodied
in the Commercial Rules of the American Arbitration Association for appointment
of neutral arbitrators.

 

(g)        Limited discovery is allowed, consistent with Rule 10 of the
Commercial Rules of the American Arbitration Association and pursuant to a
discovery plan approved by the arbitrators.

 

(h)          Actual hearing on the merits occurs within six (6) months of the
date of the filing of the arbitration proceeding.

 

(i)          The arbitrator must issue a reasoned written opinion on the merits
within thirty (30) days of the completion of the hearings on the merits.

 

(j)          Judgment on an arbitration award may be entered in any court having
competent jurisdiction and is binding, final and non-appealable. If any party to
arbitration wishes to appeal any final award (there will be no appeal of interim
awards or other interim relief), the party may appeal, within thirty (30) days
of the final award, to a 3-arbitrator panel appointed by the same organization
that conducted the arbitration. The issues on appeal will be limited to the
proper application of the law to the facts found at the arbitration hearing and
will not include any trial de novo or other fact-finding function. The party
requesting the appeal must pay all expense charged by the arbitration appeal
panel and/or arbitration organization in the appeal and must post any bond
deemed appropriate by the arbitration organization or arbitration appeal panel.
In addition, a party requesting appeal that does not prevail on the appeal will
pay the other party's attorneys' fees and other costs of responding to the
appeal.

 

(k)          Before any arbitration proceeding takes place, either party may, at
his, her or its respective option, elect to have the arbitrator conduct, in a
separate proceeding before the actual arbitration, a preliminary hearing, at
this hearing testimony and other evidence may be presented and briefs may be
submitted, including a brief stating the then applicable statutory or common law
methods of measuring damages in respect of the controversy or claim being
arbitrated.

 

(l)          This arbitration provision is self-executing and remains in full
effect after the expiration, transfer or termination of this Agreement. If
either party fails to appear at any properly noticed arbitration proceeding, an
award may be entered against that party by default or otherwise.

 

 

SECTION 18.3

EXCEPTIONS TO MEDIATION AND ARBITRATION; EQUITABLE RELIEF

 

(a)          The obligation to mediate or arbitrate is not binding on either
party for claims involving the Intellectual Property; claims involving any lease
of real property between the parties or their related entities; the Franchisee's
obligations upon the termination, transfer or expiration of this Agreement; any
encumbrances or transfers restricted under this Agreement concerning interests
in the Franchisee, the LA Boxing Franchise and this Agreement; matters involving
actions that may impair the good will associated with the Intellectual Property;
matters involving claims of danger, health or safety involving the Franchisee,
the employees, customers or the public; or requests for restraining orders,
injunctions or other procedures in a court of competent jurisdiction to obtain
specific performance when deemed necessary by any court to preserve the status
quo or prevent irreparable injury pending resolution by mediation or arbitration
of the actual dispute between the parties.

 

 

 

 

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(b)          The Franchisee recognizes that the LA Boxing Franchise is intended
to be one (1) of a large number of businesses identified by the Intellectual
Property in selling to the public the products and services associated with the
Intellectual Property, and that the failure on the part of a single franchisee
to comply with the terms of his or her franchise agreement is likely to cause
irreparable damage to the Franchisor and damages at law would be an inadequate
remedy. The Franchisee agrees that upon the Franchisee's breach or threatened
breach of any of the terms of this Agreement concerning any matters referenced
in Subsection 18.3(a), the Franchisor is entitled to seek an injunction
restraining the breach and/or to a decree of specific performance, without
showing or proving any actual damage, together with recovery of reasonable
attorneys' fees and costs incurred in obtaining equitable relief. This equitable
remedy is in addition to all remedies that the Franchisor has by virtue of the
Franchisee's breach of this Agreement. The Franchisor is entitled to seek this
relief without the posting of any bond or security or, if a bond is nevertheless
be required by a court of competent jurisdiction, the parties agree that the sum
of $1,000 is a sufficient bond.

 

 

SECTION 18.4

JURISDICTION AND VENUE

 

The parties irrevocably and unconditionally: (i) agree that any mediation,
arbitration or suit, action or legal proceeding involving your LA Boxing
Franchise or this Agreement and us, will be conducted in the county where our
principal place of business is then located or may be brought in the District
Court of the United States, in the district where our principal place of
business is then located or, if this court lacks jurisdiction, the courts of
record of the state and county where our principal place of business is then
located; (ii) consent to the jurisdiction of each court in any suit, action or
proceeding; (iii) waive any objection that he, she or it may have to the laying
of venue of any suit, action or proceeding in any of these courts; and (iv)
agree that service of any court paper may be effected on the party by mail at
the last known address, as provided in this Agreement, or in any other manner as
may be provided under applicable laws or court rules in the state where our
principal place of business is then located (currently, Orange County,
California).

 

 

SECTION 18.5

ENFORCEMENT COSTS

 

Each party will bear his, her or its own costs in any mediation. If any
arbitration, legal action or other proceeding is begun for the enforcement of
this Agreement, or for an alleged dispute, breach, default or misrepresentation
under any term of this Agreement, the prevailing party is entitled to recover
reasonable pre-institution and post-institution attorneys' fees, court costs and
all expenses even if not taxable as court costs (including all fees and expenses
incident to arbitration, appellate, bankruptcy and post-judgment proceedings),
incurred in the action or proceeding, in addition to any other relief that the
party is entitled. Attorneys' fees include paralegal fees, administrative costs,
investigative costs, costs of expert witnesses, court reporter fees, sales and
use taxes, if any, and all other charges billed by the attorneys to the
prevailing party. If we engage a collection agency or legal counsel for your
failure to pay when due any monies owed under this Agreement or submit when due
any reports, information or supporting records, or for any failure otherwise to
comply with this Agreement, you must reimburse us on demand for all of the
above-listed expenses we incur.

 

 

SECTION 18.6

GOVERNING LAW

 

Except to the extent governed by the United States Trademark Act of 1946 (Lanham
Act, 15 U.S.C. §§ 1051 et seq. or the United States Arbitration Act, 9 U.S.C. §§
1 et seq.), this Agreement and any other agreement between the parties and all
transactions contemplated by this Agreement and all disputes between the parties
are governed by the laws of the State of California without regard to principles
of conflicts of laws. However, any dispute regarding the enforceability of the
post-term covenant not to compete will be governed under the laws of the State
in which the LA Boxing Franchise is located.

 

 

SECTION 18.7

Waiver of Punitive Damages Claims

 

THE PARTIES WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO ANY
PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT UPON A DISPUTE
BETWEEN THEM, EACH IS LIMITED TO THE RECOVERY OF ACTUAL DAMAGES HE, SHE OR IT
SUSTAINS.

 

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SECTION 18.8

Waiver of Jury Trial

 

THE PARTIES WAIVE THE RIGHT TO A TRIAL BY JURY OF ALL CLAIMS MADE BETWEEN THEM
WHETHER EXISTING NOW OR IN THE FUTURE, INCLUDING ALL CLAIMS, DEFENSES,
COUNTERCLAIMS, CROSS CLAIMS, THIRD PARTY CLAIMS AND INTERVENOR'S CLAIMS
INVOLVING THE SALE, NEGOTIATION, SIGNING OR PERFORMANCE OF THE TRANSACTIONS
INVOLVING THIS AGREEMENT.

 

ARTICLE 19 - DEFINITIONS

 

 

SECTION 19.1

DEFINITIONS

 

As used in this Agreement, the Exhibits attached to this Agreement and any other
document signed incidental to this Agreement and any exhibits to those
documents, the following terms have the following meanings:

 

"ADI" means an Area of Dominant Influence, and is a geographic survey area
created and defined by Arbitron based on measurable patterns of television
viewing.

 

"Advertising Contributions" means the payments described in Subsection 3.1(c),if
we institute an Advertising Contribution .

 

"Affiliate" means a company related to us as a parent corporation,
brother/sister corporation or subsidiary corporation.

 

"Agreement" means this LA Boxing Franchise Agreement, as it may be amended,
supplemented or otherwise modified by an agreement in writing signed by you and
us under Section 20.1.

 

 

"Agreement Date" means the date of signing this Agreement.

 

"LA Boxing Franchise" means the membership boxing and fitness training business
you are authorized to establish and operate under this Agreement.

 

"LA Boxing Products" means boxing and fitness equipment and supplies
manufactured by us, and all other equipment, supplies and products that are
manufactured for us and our franchisees under the "LA Boxing" label.

 

"Business Associate" means any of our employees, officers, directors, agents,
consultants, representatives, contractors, suppliers, distributors, franchisees
or other business contacts.

 

"Business Day" means a day other than Saturday, Sunday or a U.S. national
holiday. Any time period ending on a Saturday, Sunday or U.S. national holiday
will be extended until 5:00 p.m. on the next Business Day.

 

 

"Chain " means the group of Company Units and Franchise Units each operating a
LA Boxing Business.

 

"Company Unit" means an LA Boxing Business operated under the System and owned
by us or any Affiliate.

 

"Competitive Business" means a business that is engaged, wholly or partially,
directly or indirectly, in boxing and fitness training, and any other business
in which we and our other franchisees are then engaged.

 

"Confidential Information" means all information, knowledge, know-how, and
technologies that we designate as confidential, proprietary or trade secrets.
Confidential Information includes, but not limited to, the Manuals and LA Boxing
Products, equipment design, instruction programs, videocassettes, web page
design, customer lists and computer programs.

 

 

"Cooperative " means the regional advertising cooperative described in Section
7.2.

 

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"Designee" means one (1) or more of our representatives who are independent
contractors and are appointed by us to perform certain of our duties under this
Agreement as described in ARTICLE 2.

 

 

"Design Specifications" means the specifications described in Subsection
2.2(a)(ii).

 

 

"Enforcement Costs" means the costs described in Section 18.5.

 

"Event of Default" means a breach of this Agreement including those situations
described in Sections 1.4(a), 1.4(c), 3.5, 11.2(a), 11.2(d), 12.2, 12.3 and
12.4, assuming any requirement for the giving of notice, the lapse of time, or
both, or any other condition is satisfied.

 

"Exclusive Territory" means you will be assigned as a protected territory a 5-
mile radius of the location selected in the Beverly Hills/Brentwood, CA area.

 

 

"FOC " means our current Franchise Offering Circular and all its exhibits and
supplements.

 

 

"Franchise " means the rights granted to you under this Agreement.

 

“Franchisee” means you upon signing this Agreement, or another person who is a
party with us under another LA Boxing Franchise Agreement.

 

"Franchise Owner" means: (i) if you are an individual, it means you; (ii) if you
are a privately held corporation, the individual who owns a majority of the
voting and ownership interests in the corporation; (iii) if you are a
partnership, the individual who is, or owns a majority of the voting and
ownership interests in an entity that is a general partner of the partnership;
and (iv) if you are a limited liability company, the individual who owns the
majority of the membership interests in the company.

 

 

"Franchise Unit" means a LA Boxing Franchise owned and operated under the System
by a franchisee.

 

"Franchisee Association" means the Independent Association of LA Boxing
Franchisees described in Section 10.1.

 

"Generally Accepted Accounting Principles" means those standards, conventions
and rules accountants follow in recording and summarizing transactions, and in
the preparation of financial statements. Generally accepted accounting
principals derive, in order of importance, from: (i) issuances from an
authoritative body designated by the American Institute of Certified Public
Accountants ("AICPA") Council; other AICPA issuances including AICPA Industry
Guides; (iii) industry practice; and (iv) accounting literature in the form of
books and articles.

 

"Gross Revenues" means the entire amount of all of your revenues from the
ownership or operation of your LA Boxing Franchise or any business at or about
the Premises including the proceeds of any business interruption insurance and
any revenues received from the lease or sublease of a portion of the Premises,
whether the revenues are evidenced by cash, credit, checks, services, property
or other means of exchange, excepting only the amount of any sales taxes that
are collected and paid to the taxing authority (based on the cash method of
accounting). Cash refunded and credit given to customers and receivables
uncollectible from customers will be deducted in computing Gross Revenues to the
extent that the cash, credit or receivables represent amounts previously
included in Gross Revenues where Royalty Fees and Advertising Contributions were
paid. Gross Revenues are deemed received by you at the time the goods, products,
merchandise or services from which they derive are delivered or rendered or at
the time the relevant sale takes place, whichever occurs first. Gross Revenues
consisting of property or services (for example, "bartering" or "trade outs")
are valued at the prices applicable, at the time the Gross Revenues are
received, to the products or services exchanged for the Gross Revenues.

 

 

"Initial Franchise Fee" means the fee described in Subsection 3.1(a).

 

 

"Initial Training" means the training described in Subsection 2.7(a).

 

 

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"Intellectual Property" means the Trademarks, any patents, the Confidential
Information and copyrighted information of us or our Affiliates that you are
entitled to use under this Agreement as described in ITEMS 13 and 14 of the FOC.

 

"Local Advertising" means advertising and promotion you undertake in media
directed primarily in your Exclusive Territory, or local market area including
television, radio, newspapers, magazines, billboards, posters, handbills, direct
mail, yellow pages, sports program booklet advertising, church bulletins,
collateral promotional and novelty items (for example, matchbooks, pens and
pencils, bumper stickers, calendars) that prominently display the Intellectual
Property, advertising on public vehicles including cabs and buses, the cost of
producing materials necessary to participate in these media and agency
commissions on the production of the advertising and amounts paid to an approved
regional advertising cooperative or to a merchant's association for advertising
where you are a member. Local Advertising does not include payments to the
Marketing Fund nor payments for permanent on-premises signs, lighting,
purchasing or maintaining vehicles even though the vehicles display in some
manner the Intellectual Property (except the cost of the materials displayed are
included), contributions, sponsorships (unless the Intellectual Property are
prominently displayed by the group or activity receiving the contribution or
sponsorship), premium or similar offers including discounts, price reductions,
special offers, free offers and sweepstake offers (except that the media costs
associated with promoting the premium offers are included), employee incentive
programs and other similar payments that we may determine in our sole discretion
should not be included in determining whether you have met your obligation for
Local Advertising.

 

 

"Manager " means the Franchise Owner, unless we otherwise agree in writing.

 

"Manuals" means all manuals produced by, or for the benefit of, us and loaned to
you and any revisions prepared for the internal use of the LA Boxing Franchise
relating to the operation and management of the Franchise Business. The Manuals
may consist of printed text, computer disks, other electronically stored media,
and videotapes

 

"Marketing Fund" means the fund described in Section 7.5 that Advertising
Contributions will be deposited for use in regional and national marketing
activities to promote the System, if we institute a System-wide Advertising
Contributions requirement in the future.

 

 

“MFC ” means the Marketing Fund Committee referred to in Subsection 7.5(b).

 

 

“National Accounts” means those customers that have locations in more than one
(1) location.

 

 

"Notice of Default" means the notices described in Section 12.4.

 

"Opening Date" means: the date your LA Boxing Franchise is first opened for
business to the general public.

 

"Payment System" means the system created by you to make payments to us as
described in Section 3.4.

 

"Premises" means the entire real property, either owned or leased by you, where
your LA Boxing Franchise will be located, as described in Exhibit A.

 

 

“Rebates ” means the payments described in Subsection 7.5(d).

 

"Reserved Area" means the geographic area where you will undertake your site
selection process to submit proposed sites for our approval in accordance with
our site approval process. The Reserved Area will be Beverly Hills/Brentwood, CA
area but excluding any exclusive territory of a Company Unit or another
Franchise Unit within the Chain who already has an LA Boxing Franchise in
operation or to be operated in the Reserved Area.

 

 

"Royalty Fee" means the fee described in Subsection 3.1(b).

 

 

"Succeeding Term" means the term of the Successor LA Boxing Franchise Agreement.

 

 

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"Successor LA Boxing Franchise Agreement" means the form of franchise agreement
for new LA Boxing Franchisees at the time you elect to enter into an agreement
in accordance with Section 17.2.

 

"System" means our business system for operating a LA Boxing Franchise. The
System includes specific standards and procedures and the Intellectual Property
that may be changed.

 

 

"Term " means the term of the Agreement described in Section 17.1.

 

"Trademarks" means the service mark and logo "LA Boxing®" and all other
trademarks, service marks, trade names, logos and commercial symbols authorized
by us as part of the System.

 

 

"Trainees " means the persons approved by us who attend Initial Training.

 

 

"Transfer Fee" means the fee described in Subsection 11.2(f)(vii).

 

 

"Unique Consideration" means the consideration described in Subsection 11.6(d).

 

 

"Unit " means either a Company Unit or a Franchise Unit.

 

“Web Site” means any interactive electronic document contained in a network of
computers linked by communications software, that you operate or authorize
others to operate, and that refers to the Franchise Business, the Intellectual
Property or the System. The term Web Site also includes the Internet and World
Wide Web home pages.

 

 

SECTION 19.2

OTHER DEFINITIONAL PROVISIONS

 

(a)          All of the words or terms defined in this Agreement have these
defined meanings when used in other documents issued under or delivered under
this Agreement unless the context otherwise requires or unless specifically
otherwise defined in the other document; and

 

(b)          The term "person" includes any corporation, limited liability
company, partnership, estate, trust, association, branch, bureau, subdivision,
venture, associated group, individual, government, institution, instrumentality
and other entity, enterprise, association or endeavor of every kind.

 

ARTICLE 20 - GENERAL PROVISIONS

 

 

SECTION 20.1

AMENDMENTS

 

Except as stated in this Agreement, the provisions of this Agreement cannot be
amended, supplemented, waived or changed orally, except by a written document
signed by the party against whom enforcement of any amendment, supplement,
waiver or modification is sought and making specific reference to this
Agreement. Only our President has the authority to sign an amendment for us.
This Section is expressly limited by the terms of Sections 20.2 and 20.6.

 

 

SECTION 20.2

MODIFICATION OF THE SYSTEM

 

YOU AGREE THAT AFTER THE AGREEMENT DATE WE MAY MODIFY THE SYSTEM. YOU AGREE TO
ACCEPT AND BE BOUND BY ANY MODIFICATIONS IN THE SYSTEM AS IF THEY WERE PART OF
THIS AGREEMENT AT THE TIME OF SIGNING OF THIS AGREEMENT. YOU WILL MAKE ALL
EXPENDITURES AND MODIFICATIONS OF THE SYSTEM, AS WE REQUIRE SUBJECT TO THE
CAPITAL EXPENDITURE LIMITATION CONTAINED IN SECTION 4.21.

 

 

SECTION 20.3

BINDING EFFECT

 

The provisions of this Agreement are binding upon, benefit and are enforceable
by the parties and their respective personal representatives, legal
representatives, heirs, successors and permitted assigns.

 

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SECTION 20.4

NOTICES

 

All notices, requests, consents and other communications required or permitted
under this Agreement must be in writing (including telex, telecopied and
telegraphic communication) and must be (as elected by the person giving the
notice) hand delivered by messenger or courier service, telecopied,
telecommunicated, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:

 

 

If to us:

 

 

LA Boxing Franchise Corporation

2915 Tech Center Drive

 

Santa Ana, CA 92705

 

 

Attn: Anthony Geisler, President

 

                

If to you:

 

Fitness USA, Inc.

1403 East 900 South

Salt Lake City

UT 84105

 

Attn: Ruairidh Campbell

 

or to any other address any party designates by notice complying with the terms
of this Section. Each notice is deemed delivered: (a) on the date delivered if
by personal delivery; (b) on the date of transmission with confirmed answer back
if by telex, telefax or other telegraphic method; and (c) on the date the return
receipt is signed or delivery is refused or the notice is designated by the
postal authorities as not deliverable if mailed.

 

 

SECTION 20.5

HEADINGS

 

The headings and subheadings in this Agreement are for convenience of reference
only, are not to be considered a part of this Agreement and will not limit or
otherwise affect in any way the meaning or interpretation of this Agreement.

 

 

SECTION 20.6

SEVERABILITY

 

(a)          If any provision of this Agreement or any other agreement entered
into under this Agreement is contrary to, prohibited by or invalid under
applicable law or regulation, that term only will be inapplicable and omitted to
the extent so contrary, prohibited or invalid, but the remainder of this
Agreement will not be invalidated and will be given full effect so far as
possible. If any provision of this Agreement may be construed in two or more
ways, one that would render the term invalid or otherwise voidable or
unenforceable and another that would render the term valid and enforceable, that
provision has the meaning that renders it valid and enforceable.

 

(b)          If any applicable law of any jurisdiction requires a greater notice
of the termination of or non-renewal of this Agreement (if permitted) than is
required under this Agreement, or the taking of some other action not required
under this Agreement, or if under any applicable law of any jurisdiction, any
term of this Agreement or any of our requirements is invalid or unenforceable,
the notice and/or other action required by that law will be substituted for the
comparable provisions of this Agreement. We have the right, in our sole
discretion, to modify any invalid or unenforceable requirement to the extent
required to be valid and enforceable. Any modification to this Agreement will be
effective only in that jurisdiction, unless we elect to give the modification
greater applicability, and this Agreement will be enforced as originally made
and entered into in all other jurisdictions.

 

 

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SECTION 20.7

WAIVERS

 

The failure or delay of any party at any time to require performance by another
party of any term of this Agreement, even if known, will not affect the right of
that party to require performance of that provision or to exercise any right or
remedy under this Agreement. Any waiver by any party of any breach of any term
of this Agreement is not a waiver of any continuing or later breach of that
term, a waiver of the term itself, or a waiver of any right or remedy under this
Agreement. No notice to or demand on any party in any case, of itself, entitles
that party to any other notice or demand in similar or other circumstances.

 

 

SECTION 20.8

REMEDIES CUMULATIVE

 

Except as otherwise stated in this Agreement, no remedy in this Agreement for
any party is intended to be exclusive of any other remedy. Each remedy is
cumulative and is in addition to every other remedy given under this Agreement,
now or later existing, at law, in equity, by statute or otherwise. No single or
partial exercise by any party of any right or remedy under this Agreement
precludes any other exercise of any other right or remedy.

 

 

SECTION 20.9

EFFECTIVENESS; COUNTERPARTS

 

This Agreement is not effective or binding and enforceable against us until it
is accepted by us at our home office in Costa Mesa, California and signed by our
President. You are advised not to incur any expenses for opening your LA Boxing
Franchise until you have received a final signed copy of this Agreement from our
home office. This Agreement may be signed in counterparts, each is deemed an
original, but together are the same instrument. Confirmation of signing by
telex, telecopy, or telefax of a facsimile signature page is binding upon any
party to the confirmation.

 

 

SECTION 20.10

REASONABLENESS

 

We both agree to act reasonably in all dealings with each other pursuant to this
Agreement. Whenever the consent or approval of either party is required or
contemplated under this Agreement, the party whose consent is required agrees
not to unreasonably withhold or delay the consent.

 

 

SECTION 20.11

SURVIVAL

 

All of the parties' obligations that expressly or by their nature survive the
expiration or termination of this Agreement continue in full force after the
transfer, expiration or termination of this Agreement until they are satisfied
or by their nature expire.

 

 

SECTION 20.12

FORCE MAJEURE

 

Neither party is liable for loss or damage or is in breach of this Agreement if
the failure to perform the obligations results solely from the following causes
beyond his, her or its reasonable control, specifically: (a) transportation
shortages, inadequate supply of equipment, merchandise, supplies, labor,
material, or energy; (b) compliance with any applicable law; or (c) war,
strikes, natural disaster or acts of God. Any delay resulting from any of these
causes extends performance accordingly or excuses performance as may be
reasonable, except that these causes do not excuse payments of amounts owed to
us for any reason.

 

 

SECTION 20.13

THIRD PARTIES

 

Except as provided in this Agreement to the contrary for any Affiliates or other
LA Boxing Franchisees, nothing in this Agreement, whether express or implied, is
intended to confer any rights or remedies under this Agreement on any persons
(including other LA Boxing Franchisees) other than the parties and their
respective personal representatives, other legal representatives, heirs,
successors and permitted assigns. Except as provided in this Agreement to the
contrary for any Designee of us, nothing in this Agreement is intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor will any provision give any third persons any right
of subrogation or action over or against any party to this Agreement.

 

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SECTION 20.14

ENTIRE AGREEMENT

 

This Agreement, its Exhibits and all other written agreements involving this
Agreement and expressly referenced in this Agreement, represent the entire
understanding and agreement between the parties on the subject matter of this
Agreement and supersede all other negotiations, understandings and
representations, if any, made between the parties. No representations,
inducements, promises or agreements, oral or otherwise, if any, not embodied in
this Agreement, its Exhibits and all other written agreements concerning this
Agreement and expressly referenced in this Agreement are of any effect.

 

 

IN WITNESS WHEREOF, the parties have duly signed this Agreement.

 

 

FRANCHISEE:

 

 

Fitness USA, Inc.

 

 

By: /s/ Ruairidh Campbell

 

Ruairidh Campbell, President

 

 

                

 

 

FRANCHISOR:

 

 

LA Boxing Franchise Corporation

 

 

By: /s/ Anthony Geisler

 

Anthony Geisler, President

 

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EXHIBIT A - DESCRIPTION OF THE PREMISES AND EXCLUSIVE TERRITORY

 

LOCATION OF FRANCHISE BUSINESS

 

You agree that you will operate your LA Boxing Franchise only at the location
described as:

 

LA BOXING STREET LOCATION: To be determined in the Beverly Hills or another
mutually acceptable location in the Los Angeles, CA, area.  

 

 

 

DESCRIPTION OF EXCLUSIVE TERRITORY

 

The boundaries of your exclusive territory are defined as a 5-mile radius of
from the specific location you select within the Beverly Hills/Brentwood, CA
area.

 

 

Under no circumstances shall your location infringe upon any existing Franchisee
Territory.

 

 

Initial: /s/ RC

 

RC

 

 

Initial: /s/ AG

 

AG

 

 

 

 

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