Source: http://www.freefranchisedocs.com/sea-tow-services-UFOC.php
Timestamp: 2019-04-24 14:19:57+00:00

Document:
The franchise offered is for the right to own and operate a single "Sea Tow" marine services business, consisting of all services provided in or via the water, including, without limitation, assistance, towing, transportation and environmental services on a membership and non-membership basis, and the marketing of such services.
The initial franchise fee for a franchise will range from $5,500 to $35,000 depending on the size of the area, and in certain circumstances will also include a franchise membership valuation, where there is an existing membership base and revenue. The estimated initial investment required for the establishment of a "Sea Tow" franchise, including the initial franchise fee, is from $79,530 to $151,820 total investment, which is described more fully in Item 7 of this Offering Circular.
1. THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE TO LITIGATE WITH THE FRANCHISOR ONLY IN NEW YORK. OUT OF STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO LITIGATE WITH THE FRANCHISOR IN NEW YORK THAN IN YOUR HOME STATE.
2. THE FRANCHISE AGREEMENT STATES THAT NEW YORK LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.
INFORMATION COMPARING FRANCHISORS IS AVAILABLE. CALL THE STATE ADMINISTRATOR LISTED ON EXHIBIT 1 OR YOUR PUBLIC LIBRARY FOR SOURCES OF INFORMATION.
REGISTRATION OF THIS FRANCHISE WITH THE STATE DOES NOT MEAN THAT THE STATE RECOMMENDS IT OR HAS VERIFIED THE INFORMATION IN THIS OFFERING CIRCULAR. IF YOU LEARN THAT ANYTHING IN THIS OFFERING CIRCULAR IS UNTRUE, CONTACT THE FEDERAL TRADE COMMISSION AND THE APPROPRIATE STATE AGENCY LISTED IN EXHIBIT 1.
The Franchisor is SEA TOW SERVICES INTERNATIONAL, INC. For ease of reference, SEA TOW SERVICES INTERNATIONAL, INC. will be referred to as "we," "us" or "Sea Tow," which is the name that you will be trading under. We will refer to the person or entity who buys the franchise as "you" throughout the Offering Circular. If you are a corporation, certain provisions of the agreement also apply to your owners and will be noted.
Our agents for service of process are disclosed in Exhibit 1.
We are a New York corporation established on September 3, 1983. Our franchisees will do business as "Sea Tow" with a descriptive indicator of geographical location. Our principal address is 1560 Youngs Avenue, Southold, New York 11971 and our telephone number is (631) 765-3660. We have no affiliates or predecessors.
Our founder, Joseph J. Frohnhoefer, has been in this business since 1983. He has been our President since inception. We are a membership system consisting of licensees who have offered services similar to those being offered by you. We will offer a conversion program to these licensees to convert them to franchisees once our registration is approved by the New York State Department of Law ("Conversion Program"). The licensees who do not convert will continue to operate under their existing license agreements until those license agreements expire or are terminated, under their terms.
Mr. Frohnhoefer is an investor in a company known as Sea Spill Services International, Inc. ("SSSI"), which licenses marine spill control and cleanup services under the trademark "Sea Spill". Some of SSSI's licensees are also licensees under our current licensing structure, and these SSSI licenses will continue until expiration or termination, or until that licensee converts under the Conversion Program. We will administer the SSSI program, under exclusive license from SSSI.
We have created a system that enables franchisees to offer and provide the delivery of 24 hour on the water marine assistance, transportation and environmental services on a membership and non-membership basis. You will have the ability to offer memberships in the "Sea Tow" System. Your members will call upon you to provide the services that each of our franchisees will provide and you must respond accordingly. These services may include marine towing, soft ungrounding, prop disentanglement, jump start, fuel drop, and minor on-site repair services. You will also supply salvage services and related environmental services and may also offer other marine services such as line handling, operating marine taxi services, construction support and other vessel-based marine services appropriate for the type of vessel(s) operated. We do not operate a business of the type being franchised.
The franchise grants you the right to own and operate a "Sea Tow" business (the "Franchised Business") and offer all of the services which comprise the System. In addition, you are granted an exclusive right to use and display the Proprietary Marks and trade names and to use the Sea Tow Know How and copyrighted materials in a defined geographical location called an Area of Responsibility or "AOR."
We have never offered franchises before. But, since 1983, we have offered licenses for the operation of the Sea Tow business in various geographical areas. These licenses are not franchises, as was determined by the New York State Department of Law in 1989.
We have not offered franchises in any other lines of business, and will be selling franchises for the first time when this Offering Circular has been registered.
You will compete with other companies offering similar marine services, including NBOA, Vessel Assist and Boat/US.
The market for on the water marine assistance is all waters navigable by recreational small private craft in the U.S, and internationally. The service is seasonal in some areas due to weather and is offered primarily to boaters.
The marine assistance services supplied by you are regulated by the U.S. Coast Guard and the Department of Transportation ("DOT"). You must be Coast Guard licensed and have the required Assistance Towing, CPR, First Aid and Radar endorsements on your Coast Guard license, and you must also meet DOT law regarding mandatory drug testing. You are obligated to participate in the "Sea Spill" program, unless you qualify for a "grandfathered" exception to this program. This program is administered by us and requires you to be in compliance with OSHA guidelines concerning the qualification of your personnel to respond to local spills as a result of sinking, salvage or other spill conditions, or to assist in any regionally significant environmental event. You have the option of becoming qualified and listed for participation in the Sea Spill United States Coast Guard Basic Ordering Agreement ("BOA").
He is our President, Operations formerly Vice President, Operations since June 2001. From December 1994 to June 2001 he was a Supervisor with Dayton T. Brown, Inc. in Bohemia, New York.
Has been our Vice President since inception in 1983.
Has been our Controller since June 1998. Prior to this he was the Finance/Personnel Manager at the Plum Island Animal Disease Center from 1993 through 1996 and Controller/Office Manager for J. Tortorella Construction from 1996 to 1998.
the entire action, including all counterclaims, with prejudice; the parties agreed to disband the association that was formed by the plaintiffs; each plaintiff paid a nominal sum of money to defendants as reimbursement for costs and fees incurred in defending the action; and plaintiffs agreed to withdraw all complaints previously made to any state regulatory agency. We received $75,000 as part of the overall settlement of this action.
Sea Tow Services International, Inc. and Sea Tow Services of Central New Jersey, Inc. v. Island Boat Enterprises, Inc. d/b/a Island Boat Towing, and Randy J. Drackwicz, 94-4145 (GEB) (U.S.D.Ct. District of New Jersey); filed 1994, in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in a final judgment granting a permanent injunction against the infringing defendants, entered September 1997, thereby ending the case.
Sea Tow Services International, Inc. v. Sea Tow Services Western Long Island Sound, Inc. and Peter Stegemann, CV-85-3589 (U.S.D.Ct., E.D.N.Y.); filed 1985, in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in a Consent Decree against the defendants enjoining their infringement, signed by the defendants upon their consent and entered January 1986, thereby ending the case.
Sea Tow Services International, Inc. v. John Ives, Shaun Ives, Linda Ives, Kevin Ives individually and Ives Maritime Operations, CV-89-1676 (U.S.D.Ct., E.D.N.Y.); filed 1989 in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in an injunction on consent against the defendants, signed by the defendants upon their consent and entered October 1989, thereby ending the case.
Sea Tow Services International, Inc. v. John D. Andrews Harbor Ready Marine, Inc. Seatow, Inc., Sea Tow Services of Rhode Island, Inc. C.A. CV89-2480 (U.S.D.Ct., E.D.N.Y.); filed 1990 in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in a permanent injunction on consent against the defendants, signed by the defendants upon their consent and entered June 1990, thereby ending the case.
Sea Tow Services International, Inc. v. Donald B. Rich, Southeastern Marine Towing, and Sea Tow Southeastern Connecticut, Inc., CV 89-2481 (U.S.D.Ct., E.D.N.Y.); filed 1989 in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in a permanent injunction on consent against the defendants, signed by the defendants upon their consent and entered June 1990, thereby ending the case.
Sea Tow Services International, Inc. v. William Braillard, Blanche Braillard, Marine Recovery Services, Marine Associates, Inc., Marine Recovery Services, Inc. and Marine Services, Inc., 92 Civ. 3744 (U.S.D.Ct., S.D.N.Y.); filed 1992 in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in a final order on consent, including an injunction against defendants' continued infringement, signed by the defendants upon their consent and entered January 1993 thereby ending the case.
Sea Tow Services International, Inc. and City Island Marine Towing Inc. v. Sound Tow Co., Kenneth Graefe and Daniel Cavaluzzi, 92 Civ. 5302 (U.S.D.Ct., S.D.N.Y.); filed 1992 in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in a judgment on consent including an injunction against defendants' continued infringement, signed by the defendants upon their consent and entered March 1993, thereby ending the case.
resulting in an order setting forth a permanent injunction on consent against plaintiffs continued infringement, signed by the defendants upon their consent, and dismissing all other claims, together with full releases entered September 1993, thereby ending the case.
Offshore Marine Towing, Inc. v. Coastal Towing & Salvage, Inc., et al. and Sea Tow Services International, Inc., et al., Civil Action No. 96-11414(13) CACE (Cir. Ct., 17th Judicial Circuit Broward County, Florida, Judge Moe); filed 1996, in which Franchisor sued defendants for, among other things, trademark infringement through the misappropriation of the Franchisor's rights, resulting in an order granting a temporary injunction against the Offshore parties from the bench on October 6, 1999, entered March 2000, affirmed on appeal, 778 So. 2d 510 (4th D.C.A.) February 2001. The case is ongoing with respect to issues that relate to the Offshore parties and the local franchisee's rules of operation.
Offshore Marine Towing, Inc. v. Sea Tow Services International, Inc., et al, 778 So. 2d 510 (4th D.C.A.); filed 2000 with the U.S. Patent and Trademark Office, by a competitor against us seeking cancellation of the marks. The Board has already denied Offshore's motion to disqualify counsel. Since that matter has already been litigated and lost by the competitor in the action referenced immediately above in Florida, we have moved to dismiss and our motion is currently pending.
Frohnhoefer v. Lee County Marine Services Inc., 99-920 CA-WCM (20th Judicial Circuit, Lee County, Florida); filed 1999. This action involved an ownership dispute over a licensee in Lee County, Florida, including a claim by Joseph J. Frohnhoefer, the President and CEO of the Franchisor and his son against a terminated licensee. The case was settled and disposed of, with a small financial gain. The settlement, entered in or about November 2001, involved the payment to the Frohnhoefers of less than $10,000, and otherwise a complete dismissal of all claims and counterclaims, with prejudice and with releases, thereby ending the case.
Pontin aVb/a Spirit Towing v. Sea Tow Services International, Inc., et al., CA-K-01-1111 (16th Judicial Circuit, Monroe Cty, Key West Division, Florida, 2001). This action involves a border dispute between adjoining licensees who each contend that a small region is within each of their respective areas of operation. This case will have no impact on the Franchisor's business, and the outcome will only impact the boarder between the two licensees. We have recently been served papers in connection with this matter and intend to defend ourselves vigorously.
Other than the preceding 13 actions, no litigation is required to be disclosed in this Offering Circular.
In areas that have an existing membership base you may be asked to pay, in addition to the Initial Franchise Fee, an amount up to the amount calculated as the franchise membership valuation, which is implicated when there is already a pre-existing membership base in the geographical AOR that is being franchised to you. This amount is between $80 and $120 per member.
Territory A - metropolitan areas with large boating population and year-round boating season.
Territory B - metropolitan areas with seasonal boating or medium-sized markets with year-round boating season.
Territory C - small markets with coastal access.
Territory D - inland lakes and rivers.
The Initial Franchise Fee (and any additional franchise membership valuation) is payable on signing the Franchise Agreement. On written application by you, and upon demonstration of a financial need and by providing adequate collateral, we will allow a payout of the Initial Franchise Fee over five years at an interest rate of 12.5% per annum. This payment schedule will be evidenced by a personally executed promissory note.
In addition, before opening your business, you are required to undergo mandatory training, for which you pay for your expenses, purchase membership software from us, the cost of which is $75, and remit an amount of $5,000, or $400 per month for 13 months, which will be placed in an escrow amount by us for the purpose of paying (if necessary) the Franchisee's business debts during the off-season. This amount will be refunded to you, with interest, after 3 years.
We intend to offer rescission to each non-converting franchisee to whom we sold a franchise since our initial registration with the New York State Department of Law.
In the States of Minnesota only, we will defer the payment of the Initial Franchise Fee and any other initial payment until all of our material pre-opening obligations have been satisfied. The Initial Franchise Fee is deferred until you open your business and it is operating. However, you must execute the Franchise Agreement prior to looking for a site or beginning training.
All membership fees are due within 10 days of receipt of membership.
A $50 service charge will be assessed if this fee is not paid within the specified time.
Gross Revenue means all fees received by you less taxes, refunds, gross receipts from the sale of a covered asset, monies received from the Reciprocal Towing Fund and membership fees paid to us. The Fund is administered jointly by us and the National Marketing Council for the purpose of regional and national advertising of the System. Fee will be set each year at the Annual Meeting by a majority vote of the attendees.
We will require reporting of the money spent monthly with annual proof of compliance.
be used to pay bills during off-season or if you stop doing business as a "Sea Tow" franchisee. If your Franchise Agreement is terminated prior to your leaving the System, you shall not be entitled to any return or refund.
We retain $7.00 of the membership fee which we place into a Reciprocal Towing Fund which is paid to a franchisee who performs towing services for members of another franchisee in his own area of responsibility ("AOR"). This fee may be adjusted each year at the Annual Meeting.
You are required to participate in our "Sea Spill" program. This program is administered by us and requires you to be in compliance with OSHA guidelines concerning the qualification of your personnel to respond to local spills as a result of sinking, salvage or other spill conditions, or to assist in any regionally significant environmental event. You have the option of becoming qualified and listed for participation in the Sea Spill United States Coast Guard Basic Ordering Agreement ("BOA").
(1) These fees are imposed by and are payable to us with the exception of your local advertising expenditure.
All of these fees are non-refundable.
(2) All membership fees are paid directly to us by each member.
(1) The Initial Franchise Fee that you pay will depend on the size of the marketing area that you wish to buy, and whether you are a converting franchisee or a new franchisee. In the State of Washington, the payment of the Initial Franchise Fee is deferred until all of our pre-opening obligations to you have been met.
(2) You must own a primary towing vessel that meets our specifications and a back-up vessel. The primary vessel cannot be less than 24 feet and the secondary should be no less than 20 feet. You must also have a truck or a van with towing capabilities; radio base equipment and a cell phone.
(3) Includes transportation, lodging and food for two weeks.
(4) If you choose not to operate your base operations from your home, you will need to lease or sublease a suitable location for your office. At a minimum the office should be between 500 and 750 square feet. Although real estate values vary dramatically from region to region, we estimate that your rent will range from $750 to $1,000 per month, inclusive of real estate taxes and insurance costs. Three months will cost between $2,250 and $3,000. Your vessel dockage site will be located reasonably close to where your vessel is docked. The cost of this site will vary depending upon geographic area and cannot be calculated by us.
(5) This amount is for your pre-opening marketing and promotional campaign.
(6) Miscellaneous expenses include legal, accounting and licensing fees.
(7) Represents recommended working capital for 3 months of operation, excluding salaries.
(8) Certain activities may be designated as Grandfathered Activities and will not be subject to the Royalty Fee. The designation of such activities will be at our sole discretion. The items that we will consider in our decision include: (i) the business activity was performed, without interruption, by you prior to your joining Sea Tow, (ii) the activity does not use any of the Sea Tow Propriety Properties, (iii) the activity is operated as a completely separate business and utilizes completely separate assets.
We relied on our more than 15 years in business to compile these estimates. These figures are estimates only and there is no guarantee that you will not incur additional expense.
All equipment, supplies and accessories, office supplies and materials required for the operation of your franchise must be purchased by you only from suppliers designated or approved in writing by us, or from suppliers selected by you and whom we approve, or from us. See Item 7 and Item 11 for more details regarding real estate, office supplies, equipment and computer hardware and software and the requirement that you purchase, if you do not already own, a primary towing vessel and a bak-up vessel. We have developed dealership relationships with vendors such as engine manufacturers. We will act as a distributor for franchisees when requested to do so by the manufacturers. You will not be required to utilize us unless you want to. We will derive revenue if you purchase these products from us. The estimated proportion of required purchases and leases to all purchases and leases by you of goods and services in establishing the Franchised Business ranges approximately from 20% to 25% and in operating your Franchised Business ranges approximately 3% to 5%.
We will give you specifications for the minimum standards of any products, equipment (including your vessels) and supplies.
3. The supplier must show us that it is in good standing in the business community and that it is financially sound and that its product is reliable.
We will notify you in writing if and when a supplier is approved, which approval will not be unreasonably withheld. We currently do not charge a fee for approving suppliers, but we reserve the right to do so at our reasonable discretion. We reserve the right to re-inspect any supplier to ensure that the supplier continues to conform to our reasonable specifications and standards. If a supplier fails to conform to our reasonable specifications and standards, we may revoke our approval of the supplier, and you will be required to discontinue using the unapproved supplier after notice from us.
We do not derive revenue if you buy products from our approved suppliers.
At the present time we are the designated supplier of our logoed items such as shirts, belts, hats, etc., as well as other service marked promotional materials. We will sell these items to you at cost plus 10%, on average, to cover our administrative costs. The purchases of these items represent less than 1% of your total purchases and leases to establish your Franchised Business and approximately l%-2% of your total purchases incurred in the operation of your Franchised Business.
At the present time there are no purchasing or distribution cooperatives established by us, nor have we negotiated any terms of any purchases that you will make.
We do not give you any benefits, like renewal or the granting of additional franchises, based on your buying any items from our approved suppliers.
Except as otherwise stated in this Item and other than the payment of ongoing fees referenced in Item 6, there are no required purchases in establishing the Franchised Business, and none in the ongoing operation of the Franchised Business.
During calendar year ending December 31, 2004, the total revenues derived from the sale of products to our franchisees was $846,181, which amount represented 13% of our .total revenues for that year.
In the operation of your franchise, you are required to use our Proprietary Software, which will be licensed to you by us. You will pay $75 when you sign your Franchise Agreement and you will pay $150 annually as a maintenance fee for the upkeep of the Software. This fee may increase as the Consumer Price Index increases.
In addition to the purchases described above, you are obligated to obtain and maintain, at your own expense, insurance coverage. Our System may regulate the types, amounts, terms and conditions of insurance coverage required for your franchise and standards for underwriters of policies providing required insurance coverage; our protection and rights under such policies as an additional named insured; required or impermissible insurance contract provisions; assignment of policy rights to us; periodic verification of insurance coverage that must be furnished to us; our right to obtain insurance coverage at your expense if you fail to obtain required coverage; our right to defend claims; and similar matters relating to insured and uninsured claims.
You currently are required to have $1,000,000 of comprehensive liability insurance coverage, including property damage, bodily injury, business interruption, automobile liability and statutory workers' compensation insurance coverage. The cost of this coverage will vary depending on the insurance carrier's statutory charges, terms of payment and your history. All insurance policies must name us as an additional insured party.
We will loan to you an operation and training manual containing mandatory and suggested standards. We have formulated these standards to ensure high quality services and products, the efficient operation of your franchise, and the protection of the goodwill associated with the Proprietary Marks. We may modify the manual to improve any of these factors. However, no modification may alter your rights under the Franchise Agreement, and modifications that may have a negative material impact upon you, as determined by the Franchisee National Advisory Council (of which you may qualify for membership), and subject to a vote at the next subsequent Annual Meeting. We expect you to use your best efforts to promote our Proprietary Marks and our brand-name identity as it relates to your business.
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AGREEMENT. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THIS AGREEMENT AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
We do not offer direct or indirect financing. We do not guarantee any note, lease or any other obligations. We do permit our Converting Franchisees to pay their Initial Franchise Fee over a five year period in equal monthly installments. Interest will be charged at the rate of 12.5% per annum. You will have to sign a personal promissory note. This note requires you to waive presentment, demand, protest, dishonor and all other notices and demands in connection with the delivery, acceptance, performance default or endorsement of the note. We do not sell or assign these notes. You must sign a security agreement and pledge your Franchise Agreement , furniture, fixtures, equipment and leasehold improvements. Default under the note will cause a default under your Franchise Agreement and cause the note to accelerate, and include court costs and attorney's fees. The note can be prepaid without penalty.
We will comply with all appropriate laws governing any direct financing offered by us to you including, if applicable, the California Finance Lenders Law.
1. We will, in conjunction with our Training Program, lend you one copy of our Confidential Operations Manual (Franchise Agreement - Paragraph 5.1).
2. We will offer our Initial Training Program to new franchisees only (which is described below) (Franchise Agreement - Paragraph 5.3).
3. We will license, for a $75 fee, our proprietary software to you. You are required to execute the Software License Agreement attached to the Franchise Agreement as Exhibit C (Franchise Agreement -Paragraph 5.6).
4. We will specify the particular computer hardware and peripheral equipment which you must purchase or lease (Franchise Agreement - Paragraph 5.7).
approval for this facility. This facility will be determined based upon an analysis of your area of responsibility's ("AOR") target market as determined by analysis of boat registrations (Franchise Agreement - Paragraph 9.1.2).
1. In addition to the training program, we may from time to time furnish you with instructions, forms or other information developed by us in connection with the operation of the System (Franchise Agreement -Paragraph 5.2).
2. In order to maintain uniformity of concept and quality, all products utilized by you shall be purchased from us or our approved suppliers in accordance with the terms and procedures in the Manual. The sale of unapproved products or services or the sale of products purchased from an unapproved source is a breach of the Agreement (Franchise Agreement - Paragraph 5.5).
3. With the cooperation of our franchisees, we will have a booth at three National Boat Shows, one in New York, one in Miami and one on the west coast, at the expense of the marketing fund and such others as the marketing council deems advisable (Franchise Agreement - Paragraph 5.11).
4. As part of the System, we will offer and sell to you certain materials (including letterhead, business cards, brochures, labels, etc.), forms and promotional materials bearing the Proprietary Marks. We reserve the right to earn a profit on the sale of such items to you. You, however, are under no obligation to purchase any non-proprietary materials from us, but any non-proprietary materials not purchased from us shall conform to our quality control requirements. You are, however, obligated to purchase from us any proprietary materials specified for use in the System (Franchise Agreement - Paragraph 5.5.2).
5. We will, at all times during the term of the Franchise Agreement, provide information pertaining to sources of supply of those proprietary and non-proprietary products and services which may be used in this System (Franchise Agreement - Paragraph 5.5.3).
6. We will advise you, from time to time, concerning fees which you should charge your customers for System products and services. This should not be viewed as a representation by us that if you follow this advice you will generate or optimize profits. You must inform us of all prices charged for services and products sold and of any modifications of your prices. We will also collect all membership dues on your behalf The amount of these dues is determined by us which is why they are paid directly to us. From these collections, we will deduct our portion of the dues, as per the Franchise Agreement, and remit the balance to you (Franchise Agreement - Paragraph 5.8).
7. We will formulate and conduct a national marketing program. The cost of these forms of marketing and promotion will be paid from the National Marketing Fund (Franchise Agreement - Paragraph 10.2).
8. We will produce a member national newsletter at the expense of the National Marketing Fund (Franchise Agreement - Paragraph 5.12).
9. Following the opening of your franchise, we will be available for consultation with you to discuss any problems in the operation of the business. Additionally, we may hold conferences to discuss matters such as sales techniques, instructional methods, training of personnel, performance standards, advertising, and merchandising procedures (Franchise Agreement - Paragraph 5.3.3).
10. We will create and administer a reciprocal towing fund to which you must contribute (Franchise Agreement - Paragraph 8.7).
We and a National Marketing Council will administer a National Marketing Fund for national advertising programs and promotional programs, as we consider necessary. Advertising and promotional activities conducted by the National Fund are funded by the National Marketing Fee paid by you to us. This fee will range from ! .5% to 4% of your Gross Revenue (Franchise Agreement - Paragraph 8.3). The National Advertising Fee is set each year by a majority vote of attendees at the mandatory annual meeting of franchisees and shall govern the following year. The National Marketing Fee for the calendar year 2005 is 2%. None of these funds will be used to solicit new franchisees. We will contribute to this fund on the same basis as our franchisees for any units that we own or which are owned by us or our sister companies. During the calendar year ending December 31, 2004, a total of $378,142 was spent on marketing. From this total, we contributed $140,820 (37%); the National Marketing Fund contributed $237,3220 (63%); our franchisees contributed $202,241 (53%) and advertising contributions from magazine placements amounted to $35,081 (9%). The placement breakdown is a follows: Print - 95%; Trade Shows - 5%.
There is presently a marketing council that will direct the National Marketing Fund with us. The council will have up to 13 members: 12 regional franchisees and us. The council will have sole discretion regarding the adoption of the concepts, materials and media used in the advertising campaigns. We will have veto power only if the campaigns create a program that threatens our Proprietary Marks or which might create a liability problem for the System (Franchise Agreement - Paragraph 10.2).
The National Marketing Fund is intended to further the general public's awareness and acceptance of the System.
The marketing council is not obligated to make expenditures for you which are proportionate to your contributions or to ensure that any particular franchisee benefits pro rata from the placement of national advertising (Franchise Agreement - Paragraph 10.2.2).
The National Marketing Fund may be used to meet all costs and expenses related to national promotional activities, including production of brochures, mailers, trade show materials and a national newsletter for members (Franchise Agreement - Paragraph 10.2.3).
All sums paid by franchisees to the National Marketing Fund, and any income earned will be maintained by us in a separate account. Up to 10% of the National Marketing Fund may be used by us for administrative costs and overhead related to the National Marketing Fund. We will, within 120 days following the close of our fiscal year, distribute to all franchisees an audited statement detailing National Fund income and expenses for the fiscal year just ended (Franchise Agreement - Paragraph 10.2.4).
You are required to spend a minimum of 1.5% of Gross Revenue per year on local advertising and, in addition, place an ad in your local Yellow Page Directory (Franchise Agreement - Paragraph 10.3). We encourage the formation of local and regional cooperatives, with their memberships based on the use of area of dominance criteria, e.g., Boston/Cape Cod area, Southeast Florida or the greater Los Angeles area.
You will be required to purchase or lease a computer system. The minimum configuration shall include: Pentium II, 233MHz, 16MB RAM, 400MB Hard Drive, 9600 bps Modem, Windows 98, Color VGA Monitor, 3.5" Floppy Drive, CD-ROM Drive, Printer which supports Hewlett Packard PCL 3, Surge protector and other miscellaneous computer supplies. But we strongly recommend the following configuration: Pentium III, 333 MHZ or higher, 32 MB RAM, 2GB Hard Drive, 28800 bps Fax/Modem, Windows 98, Color SVGA Monitor, 3.5" Floppy Drive, CD-ROM Drive, Printer which supports Hewlett Packard PCL 4, Surge protector and other miscellaneous computer supplies. This is the minimum requirement only; you may upgrade if you choose to do so, or we may require you to upgrade periodically. There is currently no contractual obligation on the frequency and cost for you to upgrade your computer system, but we may require you to do so if we deem it to be in the best interest of all of our franchisees.
the number of a particular marine service and similar data. There are no contractual limits on our access to the information and data on your system.
The Table of Contents of our Manual, which has a total of 131 pages, is included in Exhibit 4.
We estimate that there will be an interval of 3 to 6 months between the execution of the Franchise Agreement and the opening of the Franchised Business. The interval may vary based upon the time required to acquire/prepare vessels, the time required to schedule training and the weather, which could affect opening.
Our site selection approval is based upon our evaluation of the geographic characteristics of the area and a review of the dockage location selected. The dockage location must have reasonable response times for the entire area of responsibility, must be conducive to patrol and take in the various weather factors in the area.
We have 60 days to approve your dockage and office once your AOR has been agreed upon. Your office location may be your home if you choose.
In the event we do not approve your location, we will terminate your Franchise Agreement and retain the Initial Franchise Fee paid.
Within 30 days after the execution of the Franchise Agreement, we will offer to new franchisees only, who must complete, a Training Program to be conducted at our headquarters in Southold, New York for one week and another week at location(s) that allow us to train you on a vessel so that your water training can be completed. The training program will include training regarding the operational, management and marketing pertaining to the "Sea Tow" System. If you are a corporation or a partnership, your duty to complete the Training Program will be discharged by the completion of the Training Program by any shareholder owning at least 50% of the issued and outstanding shares of the corporation, or the chief executive officer, or, in the case of a partnership, by any holder of at least 50% of the partnership's equity.
We may require you to be retrained if we (or our training staff) believe that, after completion of the Training Program, you or your shareholder, officer or partner have failed to successfully complete the training.
We will not pay compensation for any services performed by you in the course of training. You will pay all expenses incurred in connection with and during training, including transportation, meals, lodging and other expenses.
We will determine the subject matter of our Training Program.
We will provide additional advisory assistance and training that we feel is advisable in the operation of the System, on such terms and conditions as we set forth in our Manual. We may telephone or visit you from time to time for the purposes of rendering advice and consultation with respect to the operation of the Franchised Business, assessing your overall performance and determining whether you are conducting (he Franchised Business in compliance with the standards of the System.
We may, at your request, enroll additional individuals in our Training Program if you pay us our then-current training fee (as set forth in the Manual). The request will be honored based upon the availability of our training staff.
We may train any number of individuals from any number of franchises at the same time.
In the event of the sale of your franchise, we will train the new franchisee in the same manner and under the same circumstances as those described above. The new franchisee must pay our then-current training fee for each individual to be trained.
Once a year, at your cost and expense, you are required to attend our national meeting, which will be held in a city designated by us.
Our instructors are members of our management, previously disclosed in Item 2. Our instructors have more than five years of experience.
You have the exclusive right to operate your Franchised Business at the single location designated in the Franchise Agreement and will have the exclusive right to operate your Franchised Business within a selected AOR. We will determine the designation of the AOR, based upon the number of vessel registrations within a given marketing area, length of the season, population in season and number of actual cases. We will not operate or grant a franchise for the operation of a Franchised Business within your AOR.
We have the right to operate or sell franchises outside of your AOR only.
There are no minimum membership quotas.
You may not relocate your Franchised Business without our prior approval. We will not unreasonably withhold our approval, except that the new location must be within your AOR and must not have any adverse impact on the sales of franchisees in an adjoining AOR.
You are prohibited from selling memberships, doing any advertising or soliciting outside of your AOR except for participation in a national boat show. You will be able to provide marine assistance services outside your AOR where a member or non-member requires assistance in a non-franchised area or another franchised area. In these circumstances, such assistance shall: (a) be restricted to a per incident basis; (b) be subject to our permission, which we will not withhold unreasonably; and (c) require the consent, in advance of the incident, of the franchisee in whose AOR the incident is to occur.
The AOR boundaries are set, solely by us, based on our internal guidelines regarding member service, the reciprocal towing fund and franchisee performance criteria. Disputes regarding the location of boundaries between adjacent franchisees (referred to as "Parties" for the purposes of this Section) that cannot be resolved to the satisfaction of those Parties by us, will be resolved in binding arbitration between the Parties, and with us as an additional party, by application of the procedures set forth in the Shortened Arbitration Procedure of the Society of Maritime Arbitrators, Inc.
We will credit memberships sold for a franchisee's AOR that are sold through national solicitation.
(b) the marine service is listed as a Grandfathered Activity, and hence we are permitted to compete in your AOR with respect to such Grandfathered Activities; or (c) in an emergency situation requiring disaster response in which you are unable, unwilling or fail to respond; or (d) you request such assistance or services from us and we agree to provide the same.
In the event an existing licensee chooses not to convert, we will not put a new franchisee into that licensee's AOR until the License Agreement for that licensee expires or is terminated prior to expiration.
The "SEA TOW" word mark, the "SEAWTOW" logo, and the phrase "Your Road Service at Sea" were registered on June 3, 1986, July 29, 1986 and December 28, 1993 and August 23, 1994 in different International Classes on the principal register of the United States Patent & Trademark Office (Registration No. 1,396,210, in Class 42; Registration No. 1,396,112 in Class 37; Registration No. 1,403,537 in Class 42; Registration No. 1,814,085 in Classes 39 and 42; and Registration No. 1,850,914 in Class 39), and the "Sea Spill" service mark was registered on the principal register of the United States Patent and Trademark Office on May 30, 1995 under Reg. No. 1,896,492. We have filed the appropriate affidavits for the "Sea Tow" mark and the appropriate affidavits for the "Sea Spill" marks.
There are no effective determinations of the United States Patent and Trademark Office, the Trademark Trial and Appeal Board, the Trademark Administrator of any State, or any Court; nor is there any pending infringement, opposition or cancellation proceeding or any pending material litigation involving the above-referenced service marks which is relevant to their use in this State or any state in which the Franchised Business may be located, other than the Offshore Marine action, disclosed in Item 3.
There are currently no agreements in effect which significantly limit our rights to use or license the use of the Proprietary Marks in a manner material to the franchise.
The Franchise Agreement does not grant you any ownership rights to any of our Proprietary Marks, Software, copyrighted materials or trade secrets. The license applies only to those Proprietary Marks, trade names, copyrighted materials and trade secrets which are designated by us. You may not represent to others or conduct yourself in any way that might indicate that you have any other rights in our Proprietary Marks, trade names, Software, copyrighted materials or trade secrets.
You may not do anything to damage or contest or dispute any of our rights to our Proprietary Marks, trade names,.copyrighted materials and/or trade secrets.
You must use and display the Proprietary Marks, trade names and use the copyrighted materials and trade secrets in accordance with the specifications set forth in the Manual.
You may not use the Proprietary Marks, trade names, copyrighted materials, or trade secrets, or any similar words, in your trade name. However, you shall identify yourself to the public as doing business as "Sea Tow" followed by a geographically distinctive designation.
We do not actually know of either superior prior rights or infringing uses that could materially affect your use of the Proprietary Marks in this state or the state in which the Franchised Business is to be located, except for the Offshore Marine Towing. Inc. v. Sea Tow Services International, Inc., et. al case which is described in Item 3.
If you learn of any actual or potential claim against you or us relating to the use of the Proprietary Marks, trade names, or copyrighted materials, you must promptly notify us. We have the discretionary right to take such action as we deem necessary to address any such claim. We have the discretionary right to defend, compromise or settle any claim using attorneys of our own choosing and you must cooperate fully with us. We will protect, defend and indemnify you in connection with the claim unless the claim arises out of or relates to your use of the Proprietary Marks, trade names, and copyrighted materials in violation of the Franchise Agreement, the Manual or otherwise.

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