INTERNATIONAL FRANCHISE AGREEMENT
FOR PAYLESS SHOESOURCE
STATE OF LIBYA
INTERNATIONAL FRANCHISE AGREEMENT FOR PAYLESS SHOESOURCE
THIS INTERNATIONAL FRANCHISE AGREEMENT (the “Agreement”) is made and entered into
on _________________ (the “Agreement Date”), by and between Collective Franchising, Ltd., a
Cayman Islands company (“Payless”), with an address as set forth on the signature pages to this
Agreement, and Al Rowad Retail for Shoes and Accessories, a Libyan company, with an address as set
forth on the signature pages to this Agreement (“Franchisee”, and together with Payless, the
“Parties”).
PREAMBLE
Payless and its affiliated companies, as the result of the expenditure of time, skill, effort, and
money, have developed and own methods of operating retail stores which operate under the trademark
and service mark “PAYLESS SHOESOURCE®” and specialize in the sale of footwear and related
products and services (“Payless Products”), and which feature distinctive and uniform color schemes,
business formats, signs, construction, graphics, equipment, layouts, systems, methods, procedures,
designs and marketing and advertising standards and formats, and a value-orientated, customer selfselection business concept, all of which Payless may modify from time to time (the “System”);
The System is identified by means of certain trademarks, trade names, service marks, logos,
emblems, and other indicia of origin, including, without limitation, the Marks set forth on Exhibit B,
and such other trade names, service marks, trademarks, logos, emblems, and other indicia of origin as
may hereafter be designated by Payless in writing for use in connection with the System in the
Development Area (as defined in Exhibit A) (collectively, the “Marks”);
Payless continues to develop, use, and control the use of the Marks worldwide in order to identify
for the public the source of Payless Products and to represent to the public the System's high standards
of quality, appearance, and service; and,
Franchisee wishes to obtain from Payless the right and obligation to develop and open Stores
within the current boundaries of the Development Area in accordance with this Agreement.
NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the Parties agree as follows:
1.
CERTAIN DEFINITIONS.
“Affiliate” means any person or entity that directly or indirectly owns or controls, that is directly
or indirectly owned or controlled by, or that is under common ownership or control with, Payless or
Franchisee. For purposes of this definition, the term “control” will mean the power to direct or cause
the direction of the management and policies of a person or entity, whether through ownership of voting
rights, by contract or otherwise.
“Agreement Term” means the period commencing upon the execution of this Agreement and
ending on the last day of the Initial Term or the expiration of the First Renewal Term or Second Renewal
Term granted pursuant to Section 2.4, unless terminated sooner in accordance with the provisions of this
Agreement.
“Authorized Products” means the products that Payless authorizes Franchisee to use, offer or
sell at Stores (as defined below) consistent with the System from time to time including, without
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limitation, footwear and related or complementary products, accessories, packaging materials.
Authorized Products are subject to modification and discontinuance from time to time and may include
additional replacement or substitute products authorized by Payless.
“Business Day” means a day during which ordinary business is conducted in Topeka, Kansas,
USA, and specifically excluding holidays generally observed in Topeka, Kansas, USA and Saturdays
and Sundays. In this Agreement, a time period denominated in days which are not specifically
designated as Business Days, will be understood to be calculated in calendar days.
“Cost of Goods Sold” means the cost of products sold by Payless or its Affiliates to Franchisee,
as set forth in an applicable invoice, and will only include the costs set forth in paragraphs (a) through
(d) below. The Cost of Goods Sold will be calculated in a substantially identical manner as for other of
Payless franchisees or Payless Affiliates’ franchisees so that the Cost of Goods Sold afforded to
Franchisee is the same as the Cost of Goods Sold afforded to other of Payless and its Affiliates’
franchisees for identical quantities of identical products ordered at the same point in time. The Cost of
Goods Sold includes:
a) Payless or its Affiliate’s first cost plus container freight station fees, drayage and
transportation fees (to the point of title transfer), design fees, third party agent commissions, third party
sourcing commissions, product inspection fees, lab testing fees, costs associated with the acquisition of
intellectual property rights, license fees (including but not limited to AIRWALK®, AMERICAN
EAGLE®, and other third party rights), and documentation fees;
b) A charge for Payless’s international sourcing organization’s overhead equal to 2.5% of first
cost;
c) A reasonable allocation of the centrally-incurred U.S. overhead costs for sourcing, buying
and design services provided by Payless and its Affiliates, including, without limitation, buying,
sourcing administration, quality assurance, design office, and product development. Overhead costs
for such services are (a) calculated as: total annual included costs divided by annual footwear units
purchased using Payless's prior year data once published and available and (b) charged on a per unit
basis for both footwear and accessories based on the calculation above; and
d) A reasonable allocation of all other costs reasonably associated with the design and
acquisition of the products sold to Franchisee.
Franchisee will have the right to audit the costs under sub-paragraphs (a), (c) and (d) above and Payless
will, upon written request from Franchisee, provide reasonable documentation showing in sufficient
detail the components of Cost of Goods Sold with the exception of the cost outlined in (b) above. Title
to the product will transfer to Franchisee at the consolidated freight station designated by Payless.
“Development Period” means each full calendar year (January 1 – December 31) during the
Agreement Term.
“Dollars”, “USD” and “$” means the legal currency of the United States.
“Intellectual Property” means trademarks (including the Marks), service marks, copyrights
(including the Copyrighted Works), trade secrets, know-how, ideas, and concepts of Payless and its
Affiliates that Payless, in its sole and absolute discretion, authorizes Franchisee to use in the
development and operation of Stores pursuant to this Agreement.
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“Legal Requirements” means applicable laws, ordinances, regulations, rules, administrative
orders, decrees and policies of any government. This includes the governments of the Development
Area and the United States.
“Marks” means the trademarks, service marks, logos and other commercial symbols set forth on
Exhibit B hereto which Payless authorizes Franchisee to use to identify Stores in the Development
Area provided that such trademarks, service marks, logos, and other commercial symbols are subject to
modification and discontinuance by Payless in its sole and absolute discretion and may include
additional or substitute trademarks, service marks, logos, and commercial symbols authorized by Payless
in writing for use in the Development Area as provided in this Agreement. For the avoidance of doubt,
no brand will constitute a Mark until such time as Payless consents to the addition of that brand to the
list set forth on Exhibit B and advises Franchisee in writing that such brand has been added to Exhibit
B.
“Minimum Site Selection Criteria” means the criteria as set forth on Exhibit 7.1 hereto and
subject to modification as determined by Payless from time to time.
“Monthly Statement of Accounts” means a monthly invoice or statement provided by Payless
to Franchisee that includes invoiced amounts for costs and fees, including but not limited to Store
Design Fees, Royalty Fees, Promotional Event Fees, and costs of Authorized Products.
“Net Revenue” means the total of all revenue of a Store. This includes revenue from the sale of
all goods and services sold at or from the Store, Digital Store, or elsewhere, or through or by means of
the Store. “Net Revenue” includes both cash and credit transactions. “Net Revenue” does not include:
(a) ad valorem taxes actually collected from customers and paid to the appropriate taxing authority; or
(b) customer returns and credits.
“Owners” - All persons or entities holding direct legal or beneficial Ownership Interests in
Franchisee and all persons who have other direct property rights in Franchisee and/or this Agreement,
or who have any other legal or equitable interests in the revenue, profits, rights or assets thereof. For the
purposes of Section 11.7 only, if an Owner is a business entity, the term “Owners” includes all persons
holding direct legal or beneficial Ownership Interests in such Owner. The persons or entities who are
Owners as of the date of this Agreement are listed on Exhibit 11.10 hereto.
“Ownership Interest” – Any of the following: (a) in relation to a corporation, the ownership of
shares in the corporation; (b) in relation to a partnership, the ownership of a general or limited partnership
interest; or (c) in relation to any other business entity, the ownership of an ownership interest in the
business entity.
“Point of Transfer” – In respect of any Authorized Products, the container freight station as
determined by Payless or otherwise agreed by the Parties.
“Site” means the physical location of a Store operated pursuant to this Agreement and specified
on the site report in the form set out in Exhibit 7.1 (which may be revised by Payless in its sole
discretion) for such Store.
“Store” means a PAYLESS SHOESOURCE® retail store including a Digital Store (as defined
in Section 6.2) that offers Authorized Products for sale, meets Payless’s standards and specifications,
operates under the Marks and the System and is either operated by Payless or its Affiliates or any other
entity pursuant to this Agreement.
“Store Items” means the fixtures, furnishings, equipment, computer hardware and software,
signs, graphics, materials, supplies, and other items that Payless requires Franchisee to use in
developing and operating Stores.
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“Substantial Interest” means fifty percent (50%) or more of the voting shares or other
Ownership Interests in the entity.
2.
GRANT OF DEVELOPMENT RIGHTS
2.1.
Grant. Subject to the terms and conditions of this Agreement (including, without
limitation, Section 2.2), Payless grants to Franchisee the right, and Franchisee undertakes the
obligation to develop, open and operate Stores solely within the Development Area in accordance
with the terms of this Agreement, and to use the Marks and the System solely in connection with
such activities (the “Development Rights”).
2.2.
Development Schedule.
(a)
General. Subject to Section 2.2(d), Franchisee will develop Stores in the
Development Area in accordance with the following schedule (the “Development Schedule”).
Royalties payable by Franchisee for each of the initial five (5) Development Period s will in
no case be lower than the Annual Minimum Royalty Amounts listed below:
Development
Period
Number of new
Stores (net of any
closings or
relocations) that
must be opened
during the
Development
Period
Annual Net
Sales Plan
(USD)
Annual
Minimum
Royalty
Amount
(USD)
2
Number of total
Stores that must
be open and in
operation as of
the last day of the
Development
Period (net of any
Store closings or
relocations)
2
Agreement
Date –
12/31/15
1/1/16 –
12/31/16
1/1/17 –
12/31/17
1/1/18 –
12/31/18
1/1/19 –
12/31/19
$751,667
$63,892
2
4
$1,754,500
$149,133
3
7
$3,614,220
$307,209
4
11
$5,320,279
$452,224
7
18
$6,288,342
$534,509
(b)
Limitations. Payless and Franchisee agree and acknowledge that Payless is
entering into this Agreement in part due to Franchisee’s agreement to promote and enhance the
development, operation and success of PAYLESS SHOESOURCE® brand in the Development
Area, which includes compliance by Franchisee with the Development Schedule. If Franchisee
does not comply with the Development Schedule, then Payless will have the right, in addition to
other recourse, to (i) terminate the Agreement; and/or (ii) terminate the Development Rights.
Payless's rights under this Section 2.2(b) will be in addition to any other remedy Payless may
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have with respect to noncompliance with the Development Schedule.
(c) If Franchisee is not in compliance with the Development Schedule or if net sales
are insufficient to meet the agreed Annual Minimum Royalty Amount, Franchisee shall pay to
Payless the amount necessary to meet the applicable Annual Minimum Royalty Amount within
30 days of the end of the relevant Development Period, and Payless will have the right, in its
sole discretion, to terminate the Agreement.
2.3.
Real Estate Plan.
(a) General. No later than July 1 before the commencement of each Development
Period, Franchisee will submit for review by Payless a preliminary written plan for the
development of Stores in the Development Area during the upcoming Development Period in
accordance with the Development Schedule (the “Real Estate Plan”). The Real Estate Plan for
the initial Development Period will be provided within sixty (60) days of execution of this
Agreement. Such plan will include all information set forth in Exhibit C (which may be revised
by Payless at its sole discretion) and any additional detail as Payless may reasonably request
regarding Franchisee’s real estate strategy, including real estate locations which have been
already identified as possible Store sites. Franchisee agrees to consider any Payless comments
to a Real Estate Plan. The final Real Estate Plan for the upcoming Development Period will be
due 60 days before the start of the period.
(b) Changes. On a monthly basis, Franchisee will notify Payless of any material
modifications Franchisee proposes to make to the Real Estate Plan, and will not modify such
Real Estate Plan until Franchisee has received Payless’s comments on the proposed
modifications.
(c) Acknowledgment. Franchisee acknowledges that Payless’ acts or omissions with
respect to the Real Estate Plan do not constitute an assurance, representation or warranty of any
kind.
2.4.
Agreement Term.
(a) Initial Term. Subject to the terms and conditions of this Agreement, the initial term
of this Agreement ends on January 31, 2020 (“Initial Term”).
(b) First Renewal Term. The Agreement will renew for a further five (5) years after
the expiration of the Initial Term (“First Renewal Term”) if (i) Payless and Franchisee have
agreed to a new development schedule for the First Renewal Term, (ii) Franchisee and their
Principals have signed a general release form in a form satisfactory to both Payless and
Franchisee, and (iii) Franchisee is in compliance with the terms of this Agreement, including
compliance with the Development Schedule.
(c) Second Renewal Term. The Agreement will renew for a further five (5) years after
the expiration of the First Renewal Term (“Second Renewal Term”) if (i) Payless and
Franchisee have agreed to a new development schedule for the Second Renewal Term, (ii)
Franchisee and their Principals have signed a general release form in a form satisfactory to both
Payless and Franchisee, and (iii) Franchisee is in compliance with the terms of this Agreement,
including compliance with the Development Schedule.
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3.
FEES AND SECURITY.
3.1.
Development Fee.
In order to compensate Payless for certain initial operations, administrative, and other services
that will be performed by Payless prior to the opening of the first Store in the Development Area
by Franchisee, Franchisee will pay to Payless a non-refundable and payable fee of One
Hundred Eighty Thousand US Dollars (USD $180,000) on the date of this Agreement.
3.2.
Store Design Fee.
(a) General. In order to compensate Payless for its Store design services, Franchisee
will pay Payless a non-refundable, fully-earned and payable fee of Five Thousand US Dollars
(USD $5,000) per Store (the “Store Design Fee”), for each of the Franchisee’s first five (5)
Stores in the Development Area. Thereafter, Franchisee will pay to Payless a fee of One
Thousand US Dollars (USD $1,000) for Payless to review each of Franchisee’s additional Store
designs. However, if Franchisee requests Payless to provide design services for additional
Stores, the fee will be Five Thousand US Dollars (USD $5,000) for each Store.
(b) Deposit. On or prior to the first day of each Development Period, Franchisee will
pay a prepaid Store Review Fee deposit equal to (i) the Store Review Fee multiplied by (ii) the
number of new Stores required to be opened during such Development Period pursuant to Section
3.2(a) (the “Annual Development Deposit”). Such Annual Development Deposit will be applied
as a credit against due and payable Store Review Fees during such Development Period. If
Franchisee fails to meet the annual new Store development requirement for such Development
Period, one hundred percent (100%) of any unapplied Annual Development Deposit will be
permanently forfeited by Franchisee in favor of Payless and deemed to be fully earned and
recognized by Payless.
3.3.
Royalty Fee.
(a) General. For each month during the Agreement Term, Franchisee will pay to
Payless a monthly royalty fee (the “Royalty Fee”) equal to Eight and One-Half Percent
(8.5%) multiplied by the Net Revenue of the Stores during the immediately preceding
calendar month.
(b) Other Terms. Franchisee will provide monthly gross sales reports and Net
Revenue reports to Payless no later than the fifteenth (15th) of each calendar month for the
prior month, and Payless will promptly provide a monthly invoice to Franchisee for the
payment of the Royalty Fee by the end of that calendar month. Franchisee acknowledges
that the invoices prepared by Payless or its Affiliate are based on the gross sales and Net
Revenue information provided by Franchisee, and therefore this sales information and the
resulting Royalty Fee payment will be subject to Payless’s audit rights as provided in this
Agreement. Calculation of the Royalty Fee will be determined by Payless.
3.4.
Letter of Credit.
(a) General. In order to provide security to Payless and ensure that it will pay its debts,
Franchisee will maintain in effect at all times during the Agreement Term a standby letter of
credit (“Letter of Credit”) drawable by Payless in the event Franchisee either (i) fails to make
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payment for purchase of Authorized Products and/or Annual Minimum Royalty Amount, or fails
to make any other payment due to Payless in accordance with this Agreement or any ancillary
agreements, or (ii) breaches this Agreement or any other ancillary agreement to the extent of
damages to Payless as determined in accordance with the process described in Section 14 of this
Agreement.
(b) Form. The Letter of Credit will be issued by a U.S. bank approved by Payless or
by a foreign bank but confirmed by Payless’s U.S. bank, in the form provided by Payless. The
initial Letter of Credit will be issued no later than the Agreement Date.
(c) Amount. The amount of the Letter of Credit will be, at any given date from the
Agreement Date and the end of the first Development Period, equal to the sum of (i) the total
amount that Payless would receive as payment for Authorized Product during any ninety (90)
day peak sales period and (ii) One Hundred Thousand US Dollars (USD $100,000). For each
subsequent Development Period, the amount of the Letter of Credit will be recalculated to an
amount equal to one-half (1/2) of the Annual Minimum Royalty Amount for that Development
Period (as detailed in the Development Schedule), plus the total amount that Payless would
receive as payment for Authorized Product during any ninety (90) day peak sales period during
such Development Period. If there are any overdue amounts owed by Franchisee or its affiliates
or representatives to Payless as of the end of a Development Period, then Payless will draw on
the Letter of Credit in an amount equal to such overdue amount on the 45th calendar day after the
end of such Development Period.
3.5
Guaranty.
Al Zwetina General Trading LLC, P.O. Box 28086, Dubai, U.A.E. (“Guarantor”) will
absolutely, unconditionally and irrevocably guarantee, as primary and direct obligor and not
merely as surety, the full and prompt payment of all fees, charges, interest and other sums owed
by Franchisee or its affiliates pursuant to this Agreement at the times and according to the terms
expressed herein and therein, and in furtherance of such, will execute a Continuing Guaranty in
form attached as Exhibit 3.5, the execution of which is a condition precedent to the validity,
enforceability, and effectiveness of this Agreement. Guarantor hereby represents, warrants and
acknowledges that this Agreement and other related agreements with Payless are to Guarantor’s
direct interest and advantage as an interest holder of Franchisee.
4.
PRODUCTS
4.1.
General.
Franchisee agrees that the quality and uniformity of Authorized Products and Store Items and
the manner of operation of Stores is essential to protect the goodwill and reputation of the System.
As a result, Franchisee will acquire all (a) Authorized Products from Payless and its Affiliates
or their designated suppliers and (b) Store Items in accordance with Payless’s standards and
specifications. Franchisee will offer Authorized Products for sale only at Stores and only on a
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retail basis. In order to maintain the identity and reputation of Stores, Franchisee will not offer
for sale any products or services other than Authorized Products.
4.2.
Product Requirements.
(a) Product Designation. Payless and those of its Affiliates that provide sourcing
services and pricing for the Stores (“Payless Providers”) have developed or will develop and
may, from time to time, modify requirements for the Authorized Products which are authorized
by Payless for sale in Stores. For the purposes of the preceding sentence, each item identified as
a separate stock-keeping unit or lot number by Payless and Payless Affiliates in the United States
is a separate product. The designation of a product as an Authorized Product signifies only
Payless Providers’ determination that such product is consistent with the image of Payless’
stores.
(b) Product Availability. Payless will use reasonable efforts to cause Payless Providers
to provide sourcing services from their then-existing factory base in connection with Authorized
Products to Franchisee and will sell Authorized Products to Franchisee, provided that Payless
does not represent or warrant that: (i) all Authorized Products will be available to Franchisee or
(ii) all Authorized Products will be available to Franchisee on commercially reasonable terms
or on the same or similar terms as such Authorized Products are available to Payless or its
Affiliates. Franchisee agrees that the sale of some Authorized Products may require Franchisee
to directly or indirectly pay royalties, design fees or license fees to third parties in addition to the
purchase price of such items or pay for these as part of the Cost of Goods Sold.
4.3.
Pricing and Shipment/Transportation Terms.
(a)
General. Payless or its Affiliates or designated suppliers will sell Authorized
Products to Franchisee for a price equal to the Cost of Goods Sold.
(b) Timing. Franchisee will pay for all Authorized Products as follows: (i) if the
Monthly Statement of Accounts is delivered ten (10) or less days from the beginning of any given
calendar month, by the final day of that month, and (ii) otherwise, by the final day of the
following calendar month.
(c)
Product Terms. All Authorized Products ordered by Franchisee and supplied by
Payless providers will be delivered pursuant to shipment, payment and transportation terms
specified by Payless.
5.
MARKETING AND PROMOTION
5.1.
Marketing Expenditures.
(a) Annual Marketing Expenditures. During each Development Period, Franchisee
will spend for local advertising and promotion of the Stores in the Development Area an amount
equal to at least four percent (4%) of the Net Revenue of all Stores in the Development Area
during the immediately preceding Development Period (or for the first Development Period, an
amount equal to at least four percent (4%) of the projected sales of all Stores in the Development
Area during such Development Period based upon the approved business plan for that
Development Period (containing merchandise margin, percentage and expense structure)
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developed in accordance with the System Standards) (the “Minimum Marketing Amount”). In
the event that Franchisee does not expend the required four percent (4%) Minimum Marketing
Amount in any Development Period, the difference between the amount expended and the
Minimum Marketing Amount shall be paid to Payless within thirty (30) days of the end of the
Development Period.
(b) Expenditure Rules. The Minimum Marketing Amount may include in-store
signage, posters, other point-of-sale materials, external/outdoor signs and billboards, direct mail,
SMS text, social media and other advertising, but will exclude discounts, coupon redemptions,
cost of products or services given without charge, and costs of operating the Digital Store.
Franchisee’s required spending on advertising and promotion of Stores will be applied
exclusively to the Stores and Franchisee’s PAYLESS SHOESOURCE® business. Franchisee
will not commingle the funds described in this Section 5 with, or otherwise spend any portion of
such funds on, any other business concept or endeavor without Payless’s prior written approval.
(c) Grand Opening Marketing. Franchisee will also spend at least Five Thousand
US Dollars (USD $5,000) on approved public relations and other marketing activities
immediately prior to the grand opening of each Store in order to effectively promote such
opening.
(d) Fee-Based Payless Provided Marketing Services. Payless will provide marketing
and advertising design services for, and Franchisee will participate in, up to ten (10) promotional
events (“Promotional Events”) during each Payless advertising calendar year. As consideration
for Payless providing services related to the Promotional Events, Franchisee shall pay Payless
Ten Thousand Five Hundred US Dollars (USD $10,500) for each Promotional Event for the first
Development Period (the “Promotional Events Fee”). The Promotional Events Fee shall be
counted towards the Minimum Marketing Amount.
(e) Acknowledgments. Franchisee acknowledges that the number of marketing
elements comprising each Promotional Event may differ depending on the nature of the
event. Depending on the specific Promotional Event, the marketing elements may include one
or more of the following: (i) in-store promotional kits; (ii) secondary in-store elements; (iii)
long-term elements; (iv) miscellaneous in-store elements; (v) external elements; and/or (vi)
packaging (collectively the “Payless Marketing Elements” and individually a “Payless
Marketing Element”). Payless will only provide the Payless Marketing Elements attributable
to the specific Promotional Event selected and paid for by Franchisee, which Payless Marketing
Elements will be generally the same as those offered to other of Payless’s franchisees for such
Promotional Event.
(f) Changes. The Promotional Events Fee may be reviewed by Payless and Franchisee
on an annual basis. Any increases or decreases in the Promotional Events Fee shall be discussed
by Payless with Franchisee, and the parties shall exercise commercially reasonable efforts to
agree upon any such increases or decreases within thirty (30) days prior the end of any Year. If
the parties are unable to agree upon an increase or decrease in the annual Promotional Events
Fee, Payless may, at its option, not provide Franchisee any such marketing support for the
Promotional Events, as of the commencement of the next Development Period.
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5.2.
Prior Approval of Advertising.
Samples of all advertising materials (including without limitation, in-store posters and signage,
newspaper and other print advertisements, text messages and email campaigns, direct mail
pieces, and all other advertising materials) must be submitted to Payless for review and approval
prior to being viewed or otherwise made available to the public. All such materials must be
submitted to Payless in English, in a form acceptable to Payless. If Payless does not approve or
disapprove the materials within ten (10) business days from the date of receipt, Payless will be
deemed to have approved the submitted materials. All advertising materials used by Franchisee
will comply with the requirements of this Agreement, including containing copyright and
trademark notice designated by Payless.
5.3.
Free Payless Provided Marketing Services.
Payless will provide Franchisee electronic access to certain generic digital creative materials
such as artwork, imagery, photos and similar materials as are generally made available free of
charge to other Payless franchisees. These materials are made available on an “as is” basis, such
as being available only in English and without prices, and Payless will not be required to make
modifications to them specifically for Franchisee. Should Franchisee decide to make any
changes to any such materials, such changes must be approved by Payless in accordance with
Section 5.2 above and shall be at Franchisee’s sole expense.
5.4.
Quarterly Reports.
For each completed quarter of operations, Franchisee will accurately complete the form attached
as Exhibit 5.4 and deliver such completed form to Payless within forty-five (45) days after the
end of such quarter.
5.5.
Social Media Activities.
Payless has the right to approve or disapprove, in its sole discretion, Franchisee’s use of social
media platforms including without limitation Facebook®, Instagram®, Pinterest®, and text and
email campaigns using the Marks to advertise PAYLESS SHOESOURCE® Stores in the
Development Area (collectively “Social Media”). Franchisee must request such approval which
if granted by Payless will require Franchisee to follow the Social Media guidelines and brand
guidelines provided by Payless, and provide monthly metrics reports to Payless in the form
required by Payless. Payless requires administrative access to all of Franchisee’s Social Media
platforms and that Franchisee implement Social Media settings so as to target only the
Development Area. All creative, post content, and brand images must be submitted to Payless
for written approval ten (10) days prior to any live launch on each platform. Franchisee will
employ at least one (1) personnel dedicated to Social Media activities and updates. Franchisee
is solely responsible and liable for any and all claims, damages, expenses or other implications
brought about or related to Social Media. Payless is not liable in any way for any liability arising
out of any Social Media content created or managed by Franchisee, including user sentiments
and comments made in the Social Media outlets created and/or managed by Franchisee.
Franchisee must release, indemnify, and forever discharge Payless from any and all actions,
causes of actions, claims and demands for, upon, by reason of, or related to any damage, loss or
injury alleged to have arisen from any Social Media created and/or managed by Franchisee.
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6.
OPERATIONS
6.1.
General.
Franchisee acknowledges and agrees that uniformity of products and services and the manner
of operation of Stores is essential to protect the goodwill and reputation of the System, and
Payless has the right to establish System Standards. Accordingly, Franchisee will at all times
operate the Stores in conformance with the System Standards and as specified in the Operating
Manual. Complete uniformity may not be possible or practical throughout the System, and
Payless may from time to time vary standards as Payless deems necessary or desirable for the
System. Payless may modify System Standards, and any such modifications may obligate
Franchisee to incur capital expenditures for each Store, provided that Franchisee shall not be
obliged to incur capital expenditures due to modifications of the System Standards exceeding a
total of Ten Thousand US Dollars (USD $10,000) for any one Store more frequently than once
during any five-year period and such capital expenditures shall only be required if they are also
required with respect to a significant portion of the chain of PAYLESS SHOESOURCE® Stores.
6.2.
Digital Store.
Franchisee may seek Payless approval to operate a PAYLESS SHOESOURCE® branded ecommerce Internet site or other digital commerce channel or platform on which Franchisee has
the right to market, advertise, distribute and sell Authorized Products to end-use customers in the
Development Area (“Digital Store”) in accordance with Section 6.2(a), provided all
Development Plans preceding the date of request have been met and Franchisee is otherwise not
in breach of this Agreement. All proposed sales of Authorized Products via the Digital Store
must be submitted to Payless in writing for approval. Franchisee will provide Payless with
details regarding the manner of distribution and transportation of the Authorized Products, and
any other information reasonably necessary for Payless's evaluation of the proposed Digital
Store. Franchisee will comply strictly with all brand guidelines including, without limitation, all
of the quality assurance/product delivery standards as prescribed by Payless, as may be modified
or added to from time to time by Payless. Payless reserves unto itself the right to disapprove or
revoke any approval of Digital Store upon written notice to Franchisee. Digital Stores are
considered Stores under all relevant terms and conditions of this Agreement, including without
limitation for calculations of Net Revenue, Royalty Fee and all other fees.
(a) Approval. In order to obtain Payless’s approval, Franchisee must deliver a written
request to Payless no less than 180 days prior to the proposed launch date of the Digital Store.
The request must at least include the following in enough reasonable detail to enable Payless to
adequately assess Franchisee’s request: (i) The planned format and operation of the Digital
Store; (ii) “Wireframes” or schematic diagrams which show the structure, organization and flow
of the Digital Store; (iii) Description of Franchisee’s planned organization to support the Digital
Store; (iv) Description of Franchisee’s plan for supplying content, such as product images and
pricing information, to the website; and, (v) Description of Franchisee’s proposed use, if any, of
social media to steer or draw users of the Internet to the Digital Store.
1) Within thirty (30) days after its receipt of such notice, Payless will either grant
or withhold its approval or withhold its approval subject to Franchisee’s satisfaction of Payless’s
questions or concerns. Payless may withhold its approval in its sole discretion, but its approval
is contingent upon, among other things, its satisfaction that: (i) The look and feel of the Digital
11
Store and the end-user experience will be consistent with Payless’s own e-commerce presence;
(ii) Franchisee either has the organizational infrastructure in place to support the Digital Store
from a back office and logistics standpoint or is implementing changes to its infrastructure which
will permit servicing of online orders in a manner which Payless considers reasonably timely
and efficient; (iii) The Digital Store will be operated in such a way that Payless’s brand standards
are maintained and Payless’s brand will be supported, if not enhanced, in the Development Area;
and, (iv) Such other considerations as Payless finds relevant.
2) In the event Payless grants its approval to Franchisee’s proposed Digital
Store, Franchisee will thereupon obtain a non-transferable, limited right to establish and
maintain a Digital Store in the language of the Development Area. Franchisee will use its best
efforts to operate any approved Digital Store in compliance with such style guidance and
standards as Payless may from time to time provide. This right shall be terminable by Payless
as set forth below and shall, in any case, be co-terminus with the Agreement.
3)
Digital Store may, if approved by Payless, also include mobile applications
which enable end-use customers to interact with Franchisee’s Digital Store in a manner similar
to the user of a personal computer. Unless explicitly approved by Payless in accordance with
the below procedure, Franchisee’s right to operate an approved Digital Store does not include
the right to market, advertise, distribute or sell Authorized Product through, or to use any of
Payless’s Marks, name or brand names on, any social media or social networking site. Any
approved use by Franchisee of social media or a social networking sites shall be limited to
steering or drawing users of the Internet to the Digital Store website and shall not include the
distribution or selling of Authorized Product through such social media or social networking site.
Any such approved use shall be incorporated within the definition of Digital Store for purposes
of this Section.
(b) Other Requirements. Franchisee shall only have the right to advertise, sell or
distribute Authorized Product and, subject to the limitations in this Agreement, Licensed
Products, via its Digital Store. Unless the parties otherwise agree in writing, Franchisee shall
not advertise, sell or distribute any other products via its Digital Store.
1) Franchisee will not sell Authorized Products or any other products which are
identical to the Authorized Products via the Internet other than through the Digital Store and will
not operate a Competitive Business via the Internet.
2) Franchisee shall only have the right to fulfill Digital Store orders placed
within the Development Area.
3) Notwithstanding the foregoing, Licensed Products may be advertised,
distributed and sold by Franchisee or its affiliates through the Digital Store only if, and only for
so long as, Payless or its Affiliate has the right to sub-license and authorize Franchisee to do so.
In the event Payless notifies Franchisee that Payless no longer has the right to authorize
Franchisee’s sale of any Licensed Product via the Digital Store, Franchisee will immediately
cease the advertisement and offering for sale of any such Licensed Products on its Digital Store
and Payless shall have no liability to Franchisee for any losses or damages it may incur as a
result of such cessation.
4)
Payless does not warrant that its products, including Authorized Products, will
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not be sold in or into the Development Area by any other third parties via the Internet or other
digital commerce channels.
5) Unless the parties otherwise agree in writing, Franchisee’s launch of a Digital
Store shall not satisfy or count towards the satisfaction of its obligations contained elsewhere in
the Agreement to open and operate a certain minimum number of physical store locations.
6) Payless shall apply for, own and, at its cost, register the related country
specific URL’s, Internet addresses or other domain name like identifiers (URLs) for all pages
within any approved Digital Store which include any of Payless’s Marks, name or brand names.
Franchisee shall bear the cost, if any, of acquiring (as distinct from registering) any URL. The
parties will work in good faith to identify and obtain the least expensive URLs which serve
Franchisee’s needs.
(c) Termination. Payless may terminate Franchisee’s right to operate a Digital Store
under the following circumstances:
1) Franchisee has failed, in Payless’s reasonable discretion, to operate the
Digital Store in a manner consistent with the plans and vision described in its initial request;
2) Sales generated by the Digital Store are materially below projections and,
following consultation with Payless, Franchisee has failed to take appropriate steps to resolve
the issues which impede sales;
3) Franchisee’s continued operation of the Digital Store will, in Payless’s sole
discretion, damage Payless’s reputation or harm or impair Payless’s Brands in the Development
Area;
4) Franchisee is otherwise in breach of the Agreement beyond any applicable
period for cure; or,
5)
Payless has the right to terminate the Agreement and/or has exercised such
right.
(d) Right to Deactivate. Payless may exercise its right to terminate by delivering
notice of its intent to terminate in accordance with Section 13 of the Agreement, provided that
Payless shall have the right to deactivate the URL for the main page of the Digital Store following
termination and/or during the period of any uncured breach of sub-sections (a) and (c) above.
6.3
System Standards. Franchisee shall comply with the mandatory specifications,
standards, practices and procedures Payless prescribes for the development and operation of
Stores, as periodically modified and supplemented by Payless, including but not limited to the
following: (i) design, layout, décor, graphics appearance and lighting; periodic maintenance,
cleaning and sanitation; periodic remodeling; replacement of obsolete or worn-out leasehold
improvements, equipment, software, fixtures, furnishings and signs; periodic painting; and use
of interior and exterior signs, emblems, lettering and logos and the illumination thereof; (ii)
Types, models and brands of Authorized Products and Store Items; (iii) Specifications for
Authorized Products and Store Items; (iv) Production, presentation and packaging of Authorized
Products; (v) Sales, marketing, advertising and promotional programs and materials and media
used in such programs subject to considerations of local law and customs within the Development
13
Area; (vi) Use and display of the Marks and other Intellectual Property and use of Payless’s
advertising content and artwork subject to local law and customs within the Development Area;
(vii) staffing levels for and management of the Stores; communication to Payless of the identities
of the employees of the Stores and of Franchisee’s business conducted pursuant hereto who are
at the level of store manager or above; and qualifications and appearance of Store employees
(subject to applicable law); (viii) Payless’s operational processes including the Payless customer
engagement model, automated traffic counting, and measurement of conversion; (ix)
participation in product and service development programs; (x) implementation and modification
of an electronic funds transfer system and procedures by means of which Franchisee will pay
amounts due Payless; (xi) Formats, content and frequency of reports to Payless of sales, margin,
markdowns, inventory turns and aged inventory; (xii) Compliance with applicable laws;
obtaining required licenses and permits; adhering to good business practices; observing high
standards of honesty, integrity, fair dealing, employment practices and ethical business conduct
in all dealings with customers, suppliers, public officials and Payless; and notifying Payless if
any material action, suit or proceeding is commenced against Franchisee or any Store; (xiii)
Implementation of and specifications for training programs to be provided by Franchisee to its
managers and other employees; and (xiv) regulation of such other material aspects of the
operation and maintenance of the Stores that Payless determines from time to time to be useful
to preserve or enhance the efficient operation, image or goodwill of the Marks and other
Intellectual Property, the Stores and other Stores (the “System Standards”).
6.4
Staffing.
Franchisee must maintain sufficient financial, managerial, staff, support, design, construction,
purchasing, distribution and other resources to fulfill its obligations under this Agreement.
Franchisee will establish a Payless operational team that shall consist of a minimum of three
individuals with English fluency and expertise in merchandising, marketing and retail operations,
respectively.
6.5
Operating Manual.
Payless will loan to Franchisee, in English, a copy of its manuals, consisting of such materials
(including, if applicable, written materials, audio tapes, video tapes, electronic documents, and
computer software) that Payless uses for the development and operation of Stores (the
“Operating Manual”). Franchisee will propose to Payless in English any modifications to the
System and System Standards that Franchisee believes to be necessary to comply with the Legal
Requirements of the Development Area or for the commercial success of Stores. Payless agrees
to consider such proposed modifications in good faith and to notify Franchisee in writing of
Payless’s acceptance or rejection of such modifications. Payless will specify the reasons for any
rejections. Modifications to the System and System Standards will be reflected in the Operating
Manual for the Development Area. Franchisee will translate the Operating Manual into the
languages of the Development Area prior to the opening of the first Store to the extent required
as a commercial necessity. Franchisee will bear the costs of such modifications. Franchisee
agrees to keep its copy of the Operating Manual, including the adaptation thereof, current and
updated. In the event of a dispute relating to the contents or meaning of the Operating Manual,
the version maintained by Payless, at its headquarters, in the English language will be controlling.
Franchisee may not distribute any part of the Operating Manual and will not disclose any part
of the Operating Manual to any person other than its employees who have a need to know the
contents of the Operating Manual in order to perform their jobs. The Operating Manual, any
14
translations and copies of the Operating Manual and all copyrights in all of them will be Payless’s
property. Franchisee will sign any documents and take such actions as may be necessary or
advisable to establish and protect Payless’s interests in the Operating Manual and those
copyrights.
6.6.
Merchandising.
Franchisee will work with Payless to develop a promotional calendar prior to the start of each
merchandise product review meeting. Such calendar will serve as the basis of the seasonal
promotional cadence that corresponding product purchases will support. Franchisee will also
ensure that the percentage of aged product (defined as product older than 6 months) does not
exceed Twenty-Five Percent (25%). If the aged product percentage exceeds Twenty-Five
Percent (25%) for more than a four (4) week period, the Franchisee must provide a written action
plan to reduce the aged product percentage to below Twenty-Five Percent (25%) within the next
two (2) months.
6.7.
Operational Business Reviews.
During each Development Period:
(a)
a review of operations will be conducted within the first 6 months of each
Development Period at a time and location determined by Payless and which is reasonably
acceptable to Franchisee; provided that if Payless determines to conduct the review at Payless’s
annual Customer Celebration that will be deemed to be acceptable to Franchisee. Franchisee
will, at its sole cost and expense, send such senior personnel but, at least the Key Contact, as it
deems appropriate to this meeting.
(b)
Payless will, at its sole cost and expense, send such personnel it deems appropriate
to a meeting at a time (but in any event prior to the expiration of the last six (6) months of any
Development Period) and location determined by Franchisee and reasonably acceptable to
Payless (inside or outside the Development Area) for the purpose of an annual business review
of operations, provided that this review will not be considered to be an Operational Audit.
(c)
Franchisee, at its sole cost and expense, will send such members of its Payless
operational team to Payless’s corporate headquarters as Franchisee decides, but no less than two
members, for merchandise product review meetings as scheduled at least ninety (90) days in
advance by Payless with Franchisee to build the product line for the subsequent period.
(d)
Payless will provide to Franchisee a “score card of performance” derived from
such audits, as well as from other performance criteria, such as merchandise execution, which
score card of performance will show suggested areas of improvement with suggested time lines
for effecting such improvements.
6.8.
Third Party Providers.
Payless acknowledges that Franchisee may wish to engage third parties to provide services to
support the operation of the Stores. Payless agrees that Franchisee may so engage such third
parties with the prior written approval of Payless, provided that such engagement will not
diminish or relieve Franchisee of any of its obligations under this Agreement.
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7.
STORE DEVELOPMENT
7.1.
Site Selection.
(a)
General. Franchisee will submit to Payless a complete site report in the form
and containing the types of information shown on Exhibit 7.1 (which may be revised by Payless
at its sole discretion) for each site at which Franchisee proposes to establish and operate a Store.
Payless will have the right, but not the obligation, to accept or reject any proposed site based
upon whether a site satisfies the Minimum Site Selection Criteria. Franchisee will not establish
a Store at any site which Payless has rejected. Payless agrees to act reasonably with respect to
the approval of sites. Site approval packages must be submitted for approval to Payless at least
60 days before a Store is to open.
(b)
Franchisee hereby acknowledges and agrees that Payless’s acceptance, if any, of
a site does not constitute an assurance, representation or warranty of any kind, as to the suitability
of the site for a Store or for any other purpose. Payless’s approval of the site indicates only that
Payless believes that the site complies with acceptable minimum criteria established by Payless
solely for its purposes as of the time of the evaluation. Both Franchisee and Payless
acknowledge that application of criteria that have been effective with respect to other sites and
premises may not be predictive of potential for all sites and that, subsequent to Payless’s approval
of a site, demographic and/or economic factors, such as competition from other similar
businesses, included in or excluded from Payless’s criteria could change and alter the potential
of a site. Such factors are unpredictable and are beyond Payless’s control and Payless will not
be responsible for the failure of a site accepted by Payless to meet Franchisee’s expectations as
to revenue or operations. Franchisee further acknowledges and agrees that operation of a Store
at the site is based on its own independent investigation of the suitability of the site.
(c)
Payless will have ten (10) Business Days after receipt of a complete site report to
approve or disapprove a proposed site. All approvals of sites will be by delivery of written notice
to Franchisee; provided that an electronic mail message sent by Payless will satisfy this notice
requirement. Payless’s failure to timely provide Franchisee with notice of its disapproval of a
proposed store site will constitute Payless’s approval of such site. However, Payless’s failure to
provide Franchisee with notice of its approval or disapproval of one or more proposed sites will
in no event constitute a waiver of Payless’s right to approve or disapprove future sites.
(d)
Notwithstanding any other provision in this Agreement, Payless may disapprove
in its sole discretion any site located on a military base of any country.
7.2.
Store Design.
(a) Payless will furnish to Franchisee specifications of Payless’s general requirements
for design, decoration, layout, equipment, furniture, fixtures and signs for Stores (the “Design
Specifications”). Franchisee acknowledges and agrees that the Design Specifications are an
integral part of the System and that, therefore, each Store will be developed, constructed and
designed in accordance with the Design Specifications.
(b) Franchisee agrees at its expense to do or cause to be done the following in
connection with the development of each Store: (i) cause to be prepared and submit to Payless
for acceptance a space and fixture plan for the Store which complies with the Design
16
Specifications and all Legal Requirements; (ii) obtain all required governmental permits, licenses
and approvals; (iii) construct all required improvements in compliance with construction plans
and specifications approved by Payless; (iv) decorate the Store in compliance with the Design
Specifications; and (v) purchase and install all required Store Items.
(c) In the event that Franchisee has not received acceptance or rejection of the
construction plans and specifications and the space plans for a proposed Store within thirty (30)
calendar days after their receipt, in complete form, by Payless, Payless will be deemed to have
accepted them. Payless’s failure to provide Franchisee with notice of its acceptance or rejection
of any such plans or specifications for one or more Stores will in no event constitute a waiver of
Payless’s right to accept or reject subsequent plans and specifications for other Stores.
7.3.
Equipment, Fixtures, Signs and Graphics.
In order to maintain the identity and reputation of Stores, Franchisee agrees to use only Store
Items which meet Payless’s specifications that Payless communicates to Franchisee from time
to time. With respect to Franchisee’s use of third parties to supply Store Items for Stores,
Franchisee must provide samples of all such Store Items for prior approval by Payless’s
designated representative to ensure that the Store Items satisfies Payless’s specifications. If such
review by Payless’s representative takes place within the Development Area at a location agreed
to by the parties, Franchisee will reimburse Payless all reasonable travel expenses incurred by
Payless’s representative in performing such review. Such reimbursement will be made in
accordance with Monthly Statement of Accounts.
7.4.
Computer Networks.
Franchisee agrees to use a computer network (the "Computer Network") approved by Payless,
in its reasonable judgment, in operating and managing the Stores and Franchisee’s business
under this Agreement. Payless may require Franchisee to obtain specified computer hardware
and/or software (including, without limitation, security components such as a firewall) and may
periodically modify specifications for and components of the Computer Network. Payless's
modification of specifications for the Computer Network and/or other technological
developments or events may require Franchisee to purchase, lease and/or license new or
modified, computer hardware and/or software and to obtain service and support for the Computer
Network. Franchisee agree to comply with all of Payless’s applicable policies, standards and
specifications relating to computer network configuration, management and security, which may
require adherence to an industry standard (e.g., COBIT). Payless will, on providing Franchisee
with reasonable prior notice, have the right to inspect, test and audit the Computer Network and
Franchisee agrees to fully cooperate with Payless and any designated representatives hired by
Payless to conduct such inspections, tests and audits. Payless has no obligation to reimburse
Franchisee for any Computer Network costs.
7.5.
Store Relocations and Closures.
Franchisee will not relocate, reduce the size of, or close any Store without obtaining Payless’s
prior approval. The provisions of this Section 7.5 pertaining to Store closings will be construed
so as to apply also to Store relocations. For any Store which Franchisee proposes to close,
Franchisee will submit to Payless a site report and profit and loss statement for such Store in
the form and containing the types of information shown on Exhibit 7.1 (which may be revised
17
by Payless in its sole discretion) except that such report will also include Franchisee’s ’s reasons
for closing the Store. Payless will, subject to the following paragraph, have the right, but not
the obligation, to accept or reject any proposed Store closure. Franchisee will not close any
Store unless Payless has approved such closure. Payless will have ten (10) Business Days after
receipt of a site report to approve or disapprove a proposed Store closure. All such approvals
will be by delivery of written notice to Franchisee. Payless’s failure to timely provide
Franchisee with notice of its disapproval of a proposed Store closure will constitute Payless’s
approval of such closure. However, Payless’s failure to provide Franchisee with notice of its
approval or disapproval of one or more proposed closures will in no event constitute a waiver of
Payless’s right to approve or disapprove future closures. Notwithstanding this Section 7.5, in
no event will any Store be converted to some other form of store without the prior written
approval of Payless, except where Payless has approved or has deemed to have approved the
closure of such Store. If Franchisee closes a Store without obtaining Payless’s prior approval,
Payless will be entitled to compensation equal to the amount of Annual Minimum Royalties for
such Store for the remaining balance of the Term.
7.6.
Store Maintenance.
Franchisee understands and agrees that, in order to comply with System Standards; they must
at all times maintain the Stores in a high quality of repair, appearance and condition. Franchisee
will make additions, alterations, repairs, and replacements to each Store in order to maintain
such quality including, without limitation, repainting, retiling, re-carpeting and otherwise
refreshing the appearance of each Store regularly. Furthermore, Franchisee will replace all
worn-out or obsolete equipment in each Store. Franchisee will remodel each Store during the
fifth year following its opening, and at least once every five years thereafter, in accordance with
Payless’s then-current standard remodel protocol and design criteria; provided that Franchisee
and/ will not be required to remodel a Store where Payless has approved its closure due to loss
of possession of the premises or poor financial performance (meaning negative cash flow),
within two (2) years of the date by which it would otherwise be required to be remodeled in
accordance with this Section 7.6.
7.7.
Preconditions to Store Openings or Relocations.
Franchisee agrees not to open any Store or relocate an existing Store for business unless and
until (i) Payless has approved the space and fixture plan for that Site; and (ii) all amounts then
due to Payless have been paid. Franchisee will be prepared to open each Store or relocated
Store for business within one hundred eighty (180) calendar days after Payless has provided its
approval of the location of such Store or within such time period as is dictated by the lease
governing Franchisee’s occupancy of such Site. If Franchisee is unable to comply with the
schedule for opening or relocating a Store, Franchisee must notify Payless immediately but in
no event less than thirty (30) days prior to such scheduled opening or relocation.
8. TRAINING
8.1.
Key Contact.
Concurrently with the execution of this Agreement, Franchisee will employ a person who is
fluent in English who will be the key contact primary representative of Franchisee for the
purposes of receiving and responding to correspondence and communications from Payless in
18
relation to the business operated by Franchisee pursuant to this Agreement (“Key Contact”).
The Key Contact will attend and complete to Payless’s satisfaction a training program prescribed
by Payless (which may be conducted in whole or in part at one or more locations of Payless or
its Affiliates in the United States or any other country in which Payless or its Affiliates operate
Stores). If the relationship of the Key Contact with Franchisee terminates or if the proposed
Key Contact is unable to satisfactorily complete the training program, Franchisee agrees to
promptly designate a replacement Key Contact, who will satisfactorily complete the training
program. Payless will provide such initial training to the initially appointed Key Contact at times
and places designated by Payless at no charge to Franchisee, provided however, that Franchisee
will be responsible for all travel and living expenses incurred by Franchisee and compensation
of the Key Contact as a consequence of his attendance at such training program. Any subsequent
training of any replacement Key Contact performed by Payless will be at times and places
designated by Payless and Payless’s reasonable, actual expenses will be reimbursed by
Franchisee. The Key Contact will use diligent and commercially reasonable efforts to maintain
his full-time availability to receive and respond to correspondence and communications from
Payless. The Key Contact will speak, read and write English fluently.
8.2.
Other Senior Managers.
Before opening the first Store, Franchisee will employ senior management personnel (the
“Senior Managers”) sufficient in number, skill level and qualifications to ensure that
Franchisee satisfies all of its obligations under this Agreement. Franchisee will keep Payless
informed of the identities of the Senior Managers. The Senior Managers, other than those Senior
Managers responsible for distribution and logistics or coordinating the direction and
implementation of the computer network and technical developments for Stores, must complete
to Payless’s satisfaction a training program prescribed by Payless (which may be conducted in
whole or in part at one or more locations of Payless or its Affiliates in the United States or any
other country in which Payless or its Affiliates operate Stores). If a Senior Manager’s
employment with Franchisee terminates or if a proposed Senior Manager is unable to
satisfactorily complete the initial training program or any subsequent training program,
Franchisee agrees to promptly designate a replacement Senior Manager, who must satisfactorily
complete Payless’s initial training program.
8.3.
Store Management Personnel.
Franchisee will hire, train and maintain the number and level of management personnel required
for the proper conduct of its business contemplated by this Agreement, including, without
limitation, the adequate management and supervision of all Stores, in accordance with guidelines
established from time to time by Payless. Franchisee will keep Payless advised of the identities
of such managers. Franchisee will be responsible for ensuring that such personnel are properly
trained to perform their duties.
8.4.
Retail Operations Training Process.
(a) Initial Manager and Senior Manager Training. Payless will conduct a training
program at least one (1) month prior to the opening of the first Store (the “Initial Operations
Training”) at a location designated by Payless. Franchisee shall send at least two (2) and no
more than six (6) of its initially appointed senior managers who have been approved by the parties
to the Initial Operations Training at its sole expense. In the event that Payless reasonably
19
believes that all of Franchisee’s senior managers who attended such Initial Operations Training
have not completed it successfully, Payless may require them to be retrained at an additional
follow-up training located in Topeka, Kansas, U.S.A., or at another location designated by
Payless, and Franchisee shall reimburse Payless for the reasonable documented out of pocket
expenses in conducting such additional training program.
(b) Franchisee’s Replacement Managers. If Franchisee does not have any senior
managers capable of providing adequate training to individuals who replace a previously trained
senior manager, as reasonably determined by Payless, then such replacement senior managers
must attend the Initial Operations Training referenced in Section 8.4(a) above at Franchisee’s
sole expense at a location designated by Payless. Franchisee shall reimburse Payless for all of
its reasonable documented out of pocket expenses in conducting such training and sending its
employees to conduct such training. If, however, Franchisee has a senior manager capable of
providing adequate training to individuals who replace a previously trained senior manager, then
such replacement senior managers may be trained by such senior manager.
(c) Initial Training. Payless will conduct an initial training program that will take
place prior to expiry of one year after the opening of the first store (the “Initial Training”) at the
location of such first store in the Development Area or at a mutually agreed upon location.
Payless is not required to send any personnel to the Development Area. Payless shall send up
to four (4) representative(s) to the Development Area or mutually agreed upon location to
conduct the Initial Training. Franchisee shall reimburse Payless its actual and reasonable costs
and expenses, including air travel and hotel expenses determined in accordance with Payless’s
then existing travel policy in conducting the Initial Training. Franchisee is accountable for
conducting training and teaching store staff after the initial training. Training is to include, but
is not limited to customer service standards, rack plan, display standards, operational standards,
etc.
8.5.
On-Site Assistance.
(a) After conducting the Initial Training, Payless may, at its sole cost and expense, send
its representatives to the Development Area or mutually agreed upon location up to four (4)
occasions each year to provide on-site assistance, guidance, operating instructions and training
to Franchisee and its personnel.
(b) The Parties agree that they shall discuss the agenda for any of Payless’s planned
visits to the Development Area or mutually agreed upon location so that Payless may be able to
provide on-site training to Franchisee’s Store employees as part of such visit at no incremental
cost to Franchisee.
8.6.
Additional Training.
(a) Training Requested by Franchisee. If Franchisee requests Payless to provide any
training or assistance in the Development Area or mutually agreed upon location that is in addition
to the training discussed in Sections 8.4 and 8.5 above, then Payless shall use reasonable efforts
to perform such training or assistance, with the exception that Payless shall not be required to
send any personnel to the Development Area. Franchisee shall reimburse Payless for all actual
and reasonable travel expenses incurred by Payless in providing such additional training or
20
assistance in accordance with its then current travel policy. Payless shall determine, in its
reasonable discretion, the composition and size of the on-site assistance team.
(b) Training Due to System Failures. Payless will have the right to require any one
of Franchisee’s senior managers designated by Franchisee to attend training programs if, in
Payless’s reasonable judgment, the additional training is required due to failure to comply with
one or more material System Standards. Payless shall also, and shall procure that its Affiliates
shall, invite representatives of Franchisee, to attend any substantial ongoing training sessions that
it conducts for a majority of its franchisees. Payless shall not charge Franchisee any fees for such
training programs. Franchisee will be responsible for all travel and living expenses and
compensation of its managers who attend any training referred to in this Section 8.6(b).
8.7.
Continuing Guidance and Support. Payless may provide ongoing advice and guidance
to Franchisee concerning the development and operation of Stores. Payless may furnish
information and its personnel to communicate the System to Franchisee from time to time.
Payless’s personnel will be available for periodic consultation with Franchisee’s personnel by
telephone, electronic mail, facsimile and correspondence.
9.
Payments; Reporting; Audit and Inspection Rights.
9.1.
Payment Terms and Conditions.
(a)
General. Payments by Franchisee to Payless or its Affiliates hereunder will be
made in Dollars unless otherwise specified by Payless or its Affiliates. All payments made under
this Agreement will be made by telegraphic or electronic transfer to a financial institution as
specified by Payless. To the extent that any governmental entity restricts any fees payable to
Payless under this Agreement, Franchisee will make alternate arrangements for payment so that
Payless receives all payments in accordance with this Agreement.
(b) Currency Conversion. All payments hereunder to be calculated in the currency of
the Development Area and converted into Dollars for payment to Payless or its Affiliates will be
converted by and through the rates published on the date payment is transmitted by the
First Gulf Libyan Bank, plus 2.5%. The First Gulf Libyan Bank is located and may be
contacted as follows: Sikka Street, P.O. Box 81200, Tripoli, Libya, Tel: (+218 21) 362 22 62,
Fax: (+218 21) 362 22 05. However, if a payment is transmitted after the date payment is due,
the currency exchange rate used will be (i) the rate as of the date payment was due or (ii) the
rate as of the date the payment is transmitted, whichever rate produces the larger amount in
Dollars. Franchisee must provide written evidence of the rate applied when making any payment
pursuant to this Agreement.
(c)
Interest. All amounts which Franchisee owes to Payless or its Affiliates under
this Agreement or any related agreement will bear interest after due date at a rate equal to the
lesser of: (1) one and one-half percent (1.5%) per month; or (2) the highest legal rate permitted
by applicable law. Such interest will be payable in the same currency as the principal debt on
which interest accrues. Franchisee acknowledges that this Section 9.1 will not constitute
Payless’s or its Affiliates’ agreement that it is obliged to accept such payments after same are
due or a commitment by Payless or its Affiliates to extend credit to, or otherwise finance
Franchisee’s business. Franchisee acknowledges that its failure to pay all such amounts to
Payless or its Affiliates when due will constitute grounds for termination of this Agreement, in
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accordance with Section 13 hereof (which provides for termination by notice if a failure to make
payment is not corrected within ten (10) days following notice of such failure), notwithstanding
the provisions of this Section 9.1.
(d) Application of Payments. Notwithstanding any designation by Franchisee ,
Payless has the right to apply any payments received from Franchisee to any past due
indebtedness of Franchisee to Payless or its Affiliates of whatever nature and without regard to
when such indebtedness arose, in which case Payless will notify Franchisee of how the payment
has been applied.
(e)
Payment Restrictions. Franchisee will immediately notify Payless if at any time
any legal restrictions will be imposed upon the purchase of U.S. Dollars or the transfer to or
credit of a non-resident corporation with payments in U.S. Dollars. Franchisee will use its best
efforts to obtain any consents or authorizations, which may be necessary to effect payment in
U.S. Dollars. If Franchisee, despite its best efforts, is unable to effect payment in U.S. Dollars,
Payless may direct Franchisee to make payment to Payless in another currency and in another
territory or jurisdiction as Payless may select. Payless may (to the extent permissible by law)
require Franchisee to make such payments to a separate account for the exclusive and sole use
and benefit of Payless and provide Payless with evidence of such payments. Payless's acceptance
of payment in a currency other than U.S. Dollars will not relieve or release Franchisee of or
from its obligations to make future payments in U.S. Dollars to the extent permitted by law. If,
having used its best efforts, Franchisee is unable to obtain consent to or authorization of a
method and manner of payment acceptable to Payless, then Payless may, by written notice to
Franchisee, forthwith terminate this Agreement without any claim being made by either party
against the other with respect to such termination, but subject to the provisions of this Agreement
which expressly or by implication become effective or continue in effect subsequent to such
termination.
(f)
Taxes. In the event that any amounts payable by Franchisee to Payless or its
Affiliates hereunder are subject to withholding taxes that Franchisee is required to deduct from
such payments, (i) the amount due to Payless or its Affiliates will be adjusted so that the amount
ultimately received by Payless or its Affiliates after such deduction is equal to the amount which
Payless or its Affiliates would have received pursuant to this Agreement but for such deduction;
and (ii) Franchisee will remit the tax to the appropriate governmental agency and will provide
Payless and its Affiliate a copy of each withholding or other tax remittance notice which it files
with such agency. Furthermore, Franchisee will promptly deliver to Payless and its Affiliate
receipts for applicable governmental authorities for all such taxes withheld or paid. Franchisee
will be responsible for and will indemnify and hold Payless and its Affiliates harmless against
any penalties, interest and expenses incurred by or assessed against Payless or its Affiliates as a
result of Franchisee’s failure to withhold such taxes or to remit them to the appropriate taxing
authority. Franchisee will fully and promptly cooperate with Payless and its Affiliates to
provide such information and records as Payless or its Affiliates may request in connection with
any application by Payless or its Affiliates to any taxing authority for tax credits, exemptions or
refunds available for any withholding or other taxes paid or payable by Franchisee. In the event
Payless or any Affiliate is required to refund to Franchisee any amounts paid hereunder pursuant
to the terms and conditions of this Agreement, Payless and its Affiliate will not be required to
refund that portion of those amounts which were withheld by Franchisee in order to comply
with any applicable tax law unless and until Payless or its Affiliate receives a refund of such
amounts from the applicable government and/or agency thereof or utilizes a foreign tax credit
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which is directly attributable to such amounts on its United States federal income tax return which
is accepted by the United States Treasury or with respect to which the period within which such
credit may be reduced or is allowed has expired. If any breach of this Agreement by Franchisee
results in an increase in any withholding or other taxes that Franchisee is required to deduct from
amounts payable to Payless or its Affiliates hereunder, the amount due to Payless or its Affiliates
will be grossed up so that the amount ultimately received by Payless or its Affiliates after such
deduction is equal to the amount which Payless or its Affiliates would have received pursuant to
this Agreement but for such deduction.
9.2.
Net Asset Value.
Franchisee will maintain a minimum net asset value of at least Twenty Million US Dollars (USD
$20,000,000). Upon request from Payless, Franchisee will promptly provide Payless with a
letter from an independent audit firm, which letter must confirm that Franchisee satisfies the
above minimum net asset value.
9.3.
Reporting.
(a) General. Franchisee agrees, at its expense, to maintain and preserve at its principal
office, full, complete and accurate records and reports pertaining to the development and
operation of Stores and the performance by Franchisee of its obligations under this Agreement,
including, but not limited to, records and information relating to the following: Site reports,
leases for Stores, supervisory reports relating to the operation of Stores, records reflecting the
financial condition and performance of Franchisee, and such other records and reports as may
be reasonably prescribed by Payless from time to time subject to the terms of this Agreement.
(b) Specific Reports. Franchisee will furnish to Payless, in electronic format or other
form prescribed by Payless from time to time (or, if a time is indicated below, then at such time),
the following reports:
1)
Daily Net Revenue for each Store (excluding VAT) and the 4-Lever Data:
Traffic, Units Per Transactions, Conversion, and Average Selling Price;
2)
Weekly sales and corresponding weekly Authorized Products sales dollars
and units by store by lot, BOP On-hand inventory by lot in dollars and units in stores and in the
DC, (in the form attached hereto as Exhibit 9.3(b)2), original retail by lot, selling retail by lot,
markdown dollars by lot, markdown rate by lot, sales by size, and 4-Lever Data: Traffic, Units
Per Transaction, Conversion, and Average Selling Price;
3)
On or before the fifteenth (15th) day of each month, a report of the Net
Revenue of all Stores for the preceding month;
4)
On or before the fifteenth (15th) day of each month, a development progress
report, including: (a) a report of the Stores opened and closed during the immediately preceding
month; (b) the status of and an updated construction schedule for all Stores under development;
(c) a listing of and status report for all Sites which have been approved by Payless for which a
lease has not been signed (including the status of any lease negotiations), and (d) a listing of sites
under consideration for development;
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5)
Within forty-five (45) days after the end of Franchisee’s fiscal year, a
statement of the annual Net Revenue of all Stores certified by Franchisee’s independent
chartered accountants for the franchised business operated pursuant to this Agreement and so
long as Payless’s buy-in right set out in Section 12.1 is in effect, an unaudited income statement
therefor;
6)
Upon request by Payless, such other data, reports, information and
supporting records as Payless may from time to time prescribe;
7)
Information in accordance with Section 12.2; and,
8)
Annual Profit and Loss statements.
(c) Annual Sales Plan. By July 31 of each Development Period, Franchisee will
provide to Payless a written annual sales plan for the upcoming Development Period based upon
existing stores and projected store openings from such upcoming Development Period. Such
plan will show (i) sales by category, (such categories, at a minimum, being a men’s category,
women’s category, kids category, and accessories, category, and, to the extent any additional
categories or subcategories are available to Franchisee at greater detail, then such greater number
of categories), and (ii) projected inventory and receipts in units by month at a minimum and
preferably by week, as well as average ownership and selling retail prices therefor.
(d) Taxes. Franchisee agrees to maintain and to furnish to Payless, upon filing,
complete copies of all withholding, income, sales, value added, use and service tax returns filed
by Franchisee.
(e) Verification. Franchisee will sign and verify as correct each report and financial
statement submitted by Franchisee in the manner reasonably prescribed by Payless.
(f) Material Events. Franchisee will immediately report to Payless any events or
developments which may have a significant or material adverse impact on the operation of any
Store (including material damage, theft or fines), the performance of Franchisee under this
Agreement or the goodwill associated with the Marks and Stores. The foregoing will include
Franchisee’s obligation to immediately advise Payless of the content and details of any notice
received by Franchisee from any landlord (or lessor) of a Store, or a landlord’s notice of
termination of the lease for a Store, or any written allegation by a landlord that Franchisee is in
material breach or default of any of its obligations under a lease for any Store.
9.4.
Operational Audits and Reviews.
(a) General. Payless and/or its agents or designees will have the right at any time during
business hours, and without prior notice to Franchisee, to perform audits (“Operational
Audits”) which will be conducted for the purpose of ensuring Franchisee’s compliance with the
Operating Manual, Design Specifications, authorized use of Intellectual Property and this
Agreement. Operational Audits may include, but will not be limited to the following activities:
(i) inspect the Site or any Store and all equipment, software, fixtures, signs, operating materials
and supplies for such Store; (ii) observe, photograph and video tape the operations of any Store
for such consecutive or intermittent periods as Payless deems necessary; (iii) remove samples of
Authorized Products or other products for testing and analysis; (iv) interview personnel of any
Store; (v) interview customers of any Store and to require Franchisee to present to its customers
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such evaluation forms as are periodically prescribed by Payless and to participate and/or request
its customers to participate in any surveys performed by or on behalf of Payless; (vi) inspect the
inventory of any Store; (vii) inspect and copy any books, records and documents relating to the
operation of any Store; and (viii) during the first year following execution of this Agreement, an
inspection or review regarding Franchisee’s start-up of operations within the Development Area
or training of employees involved in the start-up of operations within the Development Area.
Payless will not conduct more than four (4) inspections of any one Store during any year unless
Payless has notified Franchisee that such Store is not in compliance with this Agreement and
Payless will in all events use reasonable commercial efforts to avoid disruption of Franchisee’s
business. Franchisee agrees to cooperate fully with Payless, its agents and designees in this
regard. If any Operational Audit discloses, in the reasonable judgment of Payless, a failure to
comply with System Standards, Franchisee agrees to participate in any further training required
by Payless to ensure compliance with the System Standards.
(b) Operational Audit Expenses. Franchisee will reimburse Payless’s reasonable
costs and expenses, including air travel and hotel expenses, in performing the following
Operational Audits and training:
1) Up to two (2) Operational Audits by one (1) Payless executive, (with any
combination of persons designated by Payless equal to two Operational Audits), conducted in
the Development Area or mutually agreed upon location prior to the first anniversary of the
opening of the first Store.
2) Any Operational Audit conducted at Payless’s discretion following the first
Operational Audits and resulting training required by Payless; provided that the Operational
Audit discloses, in the reasonable judgment of Payless exercised in good faith, a failure to
comply with System Standards; provided further that Payless will follow its standard procedures
and practices with respect to initiating and conducting Operational Audits that apply to Stores
generally to the extent applicable to Franchisee.
All travel will be performed consistent with the then applicable Payless travel policy.
9.5.
Audits.
Payless will have the right at any time during business hours, and with reasonable prior notice to
Franchisee, to inspect and audit, or cause to be inspected and audited by Payless’s agents or
designees, the business, sales and inventory, sales tax records, and value added tax records of
any Store and Franchisee. The foregoing right of inspection and audit will be inclusive of all
records pertaining to Franchisee’s performance of its obligations under this Agreement.
Franchisee will fully cooperate and will cause its employees and agents to fully cooperate with
representatives of Payless and independent accountants hired by Payless to conduct any such
inspection or audit. In the event any such inspection or audit reveals an understatement of the
Net Revenue of any Store, Franchisee will pay to Payless, within fifteen (15) days after receipt
of the inspection or audit report, all fees which are due based on the correct Net Revenue, plus
interest (at the rate and on the terms provided in this Agreement) from the date originally due
until the date of payment. Further, in the event such inspection or audit is made necessary by the
failure of Franchisee to timely furnish any reports or supporting records required to be submitted
under this Agreement or if an understatement of Net Revenue for the period of any audit is
determined by any such audit or inspection to be greater than three percent (3%) of the amount
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actually owed, Franchisee will reimburse Payless for the cost of such inspection or audit,
including, without limitation, legal fees, accountants’ fees and travel expenses in accordance with
Payless’s then current policy. The foregoing remedies will be in addition to all other remedies
and rights of Payless hereunder or under applicable law. Payless will not conduct more than one
audit pursuant to this Section 9.5 per year unless Payless has notified Franchisee of its noncompliance with this Agreement, such notice to contain details of the action required by Payless
for Franchisee to cure the non-compliance. Notwithstanding the foregoing, if for any given year
Franchisee will fail to provide the required certified statement of the total Net Revenue of all
Stores within the time period specified hereunder, Payless may conduct an audit as provided
herein at Franchisee’s expense.
9.6.
Assurances.
To protect the brand equity of Payless, and to provide reasonable assurance to Payless that all
terms of this Agreement are fully complied with, and further that Payless shall have all
information it shall determine it requires to comply with its reporting and compliance obligations
to regulatory authorities, Franchisee shall, on written request of Payless:
(a) Provide to Payless such comfort and assurance as it shall require that Franchisee
has the financial resources, ability, and personal commitment of its board of directors (or other
applicable governing body) and key shareholders, officers and other principals, to timely meet
its obligations under this Agreement, including without limitation, annual and long range
operations and development plans approved by Payless, achievement of operating excellence,
and high standards of customer service, and compliance with all other agreements with Payless.
Such comfort and assurance as Payless shall require of Franchisee shall be provided, to the
satisfaction of Payless, within thirty (30) Business Days of request by Payless. Such comfort
and assurance shall include, but not be limited to, access to the financial records, external
accountants and auditors, and tax advisors of Franchisee, and may require officer certificates in
support of the requested comfort and assurance, and
(b) Provide to Payless, on written demand for comfort and assurance, such additional
or different financial and business information as Payless shall require to ensure Payless meets
reporting and compliance requirements of regulatory authorities. Franchisee shall use good faith
and best efforts to provide such comfort and assurance, if requested by Payless, in a timely
manner.
10.
Intellectual Property.
10.1.
Goodwill and Ownership of Intellectual Property.
(a) Franchisee acknowledges that their right to use the Intellectual Property is derived
solely from this Agreement and is limited to uses expressly approved by Payless in connection
with the development and operation of Stores pursuant to and in compliance with this Agreement
and all applicable standards, specifications and operating procedures prescribed by Payless
and/or its Affiliates from time to time. Any unauthorized use of the Intellectual Property by
Franchisee will constitute a breach of this Agreement and an infringement of the rights of
Payless and/or its Affiliates in and to the Intellectual Property. Franchisee acknowledge and
agree that all usage of the Marks by Franchisee and any goodwill established thereby will inure
to the exclusive benefit of Payless and/or its Affiliates and that this Agreement does not confer
26
any goodwill or other interests in the Intellectual Property upon Franchisee (other than the right
to develop Stores in compliance with this Agreement). Payless and its Affiliates retain all
ownership rights in and to the Intellectual Property. All provisions of this Agreement applicable
to the Marks and other Intellectual Property will apply to any other trademarks, service marks
and commercial symbols hereafter authorized for use by and licensed to Franchisee by Payless.
Franchisee covenant that it will not, directly or indirectly, either alone or in conjunction with
others, challenge or take any action to cause a challenge to the validity of the Intellectual
Property, or to obstruct the efforts of Payless or its Affiliates with respect to the registration
thereof. Franchisee will not, whether within or outside the Development Area, apply for
registration of any copyright, trademark or trade name that in any way refers to, mentions or uses
the Marks, or any confusingly similar marks or names.
(b) Franchisee agrees to disclose to Payless all trade secrets, know-how, ideas,
concepts, designs, apparatuses, methods, techniques, processes, domain names, business names,
fictitious names, inventions, trademarks, service marks, trade dress, commercial symbols, trade
names, patents, copyrights and all other intellectual property relating to the development and
operation of Stores conceived, developed or created by Franchisee, its Owners, their respective
Affiliates, and all of their respective employees, agents and contractors during the Agreement
Term (“System Improvements”). Payless and its Affiliates will have, and Franchisee hereby
grants and agrees to procure from its Owners and its Affiliates and all of their respective
employees, agents and contractors, a perpetual, exclusive and worldwide right to incorporate
System Improvements in the System for use in all Stores operated by Payless, its Affiliates and
its and their licensees. System Improvements which are integral or distinctly applicable to the
System or to Stores (“Integral Improvements”) are hereby expressly assigned to Payless
without further consideration as of and from the date of creation. For Integral Improvements,
Franchisee will sign any documents and take such actions as may be necessary or advisable to
document the assignment and to establish and protect Payless’s interest in such Integral
Improvements and will cause its Affiliates and Owners, and all of their respective employees,
agents and contractors to assign all of their rights therein to Payless. Without limiting the
definition of Integral Improvements, the parties acknowledge that all registerable and patentable
designs, copyrighted works, trade dress, trademarks and service marks which will be seen by
customers in the Stores will be automatically deemed Integral Improvements hereunder. Neither
Payless nor its Affiliates will have any obligation to make any payment to Franchisee or any
other person or entity with respect to any System Improvement as the consideration included
herein is deemed sufficient. Franchisee agrees that it will not use, nor will it permit the use of,
any System Improvement without obtaining Payless’s prior written approval. Franchisee agrees
to procure, from its Affiliates and Owners, and its and their employees and agents, a waiver of
any and all legal or moral rights any of them may have in or to any System Improvements.
10.2.
Limitation on Franchisee’s Use of Marks.
Franchisee will not use any Mark: (1) as part of any corporate or trade name or business name
registration; (2) as part of any domain name or other electronic identifier; (3) with any prefix,
suffix or other modifying words, terms, designs or symbols; (4) in any modified form; (5) in
connection with the performance or sale of any unauthorized services or products; or (6) in any
other manner not expressly authorized in writing by Payless. Franchisee agrees to display the
Marks prominently in the manner prescribed by Payless, to give such notices of trademark and
service mark registrations as Payless specifies and to comply with all laws of the Development
Area regulating the operation of a business under a licensed trademark.
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10.3.
Notification of Infringements and Claims.
As soon as they become aware, Franchisee will immediately notify Payless of any apparent
infringement of or challenge to Franchisee’s ’s use of any Intellectual Property, or claim by any
person of any rights in any Intellectual Property or a confusingly or substantially similar
trademark, service mark or other item of intellectual property. Franchisee will not communicate
with any person other than Payless and/or its Affiliates and their counsel with respect to any such
infringement, challenge or claim. Franchisee will not admit any liability in a challenge by a
third party to Franchisee’s use of any Intellectual Property, or claim by any person of any rights
in any Intellectual Property, including any third party claim of a confusingly or substantially
similar trademark, service mark or other item of intellectual property. Payless will have the right
to take such action as it concludes to be appropriate in connection with any such infringement,
challenge or claim of rights, and the right to control exclusively any settlement or legal
proceeding arising out of any such infringement, challenge or claim or otherwise relating to any
Intellectual Property. Franchisee agree to execute any and all instruments and documents,
render such assistance, and do such acts and things as may, in the opinion of Payless’s counsel,
be necessary or advisable to protect and maintain the interests of Payless and/or its Affiliates in
any litigation or other proceeding or to otherwise protect and maintain the interests of Payless
and/or its Affiliates in the Intellectual Property. Payless will reimburse Franchisee for the
reasonable documented out-of-pocket expenses incurred and paid by Franchisee in complying
with the requirements imposed by this paragraph. Franchisee will not have the right to
commence any infringement proceedings against any third parties on their own record. The
foregoing will not be construed as a warranty by Payless regarding clear title to or ownership of
any Intellectual Property, which such warranty is hereby expressly disclaimed. Exhibit B hereto
is provided solely for Franchisee’s convenience and reference and will not be construed as a
warranty or guaranty of any kind by Payless with respect to the validity or registration status of
the Marks or any of them and Payless makes no representation or warranty that Exhibit B is
complete or comprehensive.
10.4.
Disputed Marks.
Franchisee acknowledge that they are fully aware of the issues relating to Payless’s ownership
and licensing rights for certain Marks (“Disputed Marks”) existing in the Development Area as
set out in Exhibit B as of the date of execution of this Agreement. Such acknowledgement has
no effect on other provisions of this Agreement. The parties agree to discuss and agree on a
strategy relating to the management and use of each Disputed Mark within the Development Area
prior to the Franchisee commencing operations in the Development Area. In the event that a
third party commences proceedings against Franchisee in connection with its use of a Disputed
Mark pursuant to and in compliance with this Agreement, Franchisee must, at Payless’s request,
cease use of the Disputed Mark in the Development Area and/or replace the Disputed Mark with
a different trade name specified by Payless for the purpose of conducting business in the
Development Area. If Payless does not require the withdrawal or replacement of a Disputed
Mark as provided for in this Section 10.4, Franchisee may cease operations in the Development
Area under the Disputed Mark provided that (1) the failure to withdraw the Disputed Mark is or
is likely to cause, in the reasonable opinion of Franchisee, exercising its judgment in good faith,
a detrimental effect on the goodwill and reputation associated with the business operated pursuant
28
to this Agreement in the Development Area; and (2) the proceeding in respect of the Disputed
Mark is not frivolous, vexatious or otherwise without proper basis.
10.5.
Discontinuance.
Subject to the following paragraph, if it becomes advisable at any time in Payless’s sole
judgment for Franchisee to modify or discontinue use of any Mark or other Intellectual Property
and/or for Franchisee to use one or more additional or substitute trademarks or service marks,
Franchisee agrees to immediately comply with Payless’s directions to modify or otherwise
discontinue the use of such Mark or other Intellectual Property, and/or use one or more additional
or substitute trademarks, service marks, logos or commercial symbols. Payless will have no
obligation to reimburse Franchisee for any goodwill related to the discontinued Mark or other
Intellectual Property. If Payless requests that Franchisee discontinue use of a Disputed Mark,
Payless will reimburse Franchisee an amount equal to the lesser of (x) Franchisee’s ’s actual,
documented and reasonable costs to transport the Authorized Products bearing such Disputed
Marks, if so requested by Payless, to other Stores within the Development Area in which such
Authorized Products can be sold; or (y) the price paid by Franchisee to Payless for such
Authorized Products as well as any international freight costs, duties and local delivery costs,
less any mitigating amounts recovered therefor by Franchisee. All such prices and costs must
be reasonable, actual, paid and documented.
10.6.
Authorized and Registered User Agreements.
(a) Franchisee will, at the request of Payless, do all acts and execute all documents
necessary for establishing Franchisee as a user of the Marks hereunder, and where applicable
for the registration of Franchisee’s permitted use with the requisite governmental agencies at
Franchisee’s cost and expense. Following such request, Franchisee will not be entitled to
exercise any of the rights herein granted if Franchisee will have failed within ten (10) days after
receipt of such document to have executed it and returned it to Payless. Any authorized user
agreement will be in a form approved by Payless, and will, inter alia, grant to Payless and/or its
Affiliates the right to control the specifications and quality of the products and services to which
the Marks apply, and the rights given to Franchisee will be limited to use in accordance with
the terms of this Agreement and by all applicable standards, specifications and operating
procedures prescribed by Payless and/or its Affiliates from time to time during the term of this
Agreement.
(b) If Franchisee is required to provide any local, administrative or governmental
authority within the Development Area with documentary evidence of its right to use the Marks
in order to obtain permission to open Stores the parties agree to execute a registered user
agreement in the form provided by Payless and co-operate with respect to submission of the same
to the relevant local authority. Franchisee acknowledge that it may not disclose the content of
any such registered user agreement other than as necessary in order to affect registration as set
out in this paragraph, or use the same for any purpose other for the purposes set out in this
paragraph. In the event that any such authority requires revisions to the form of registered user
agreement, Payless and Franchisee will cooperate in good faith to endeavor to agree on revisions
to such form, provided such revisions will in all events be consistent with the terms and
conditions of this Agreement.
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10.7.
Copyrighted Works.
(a) Ownership. Franchisee acknowledge and agree that Payless or its Affiliates owns
or is the licensee of the owner of certain valuable copyrighted or copyrightable works and may
further create, acquire or obtain licenses for certain copyrights in various works of authorship
used in connection with the operation of Stores, all of which will be deemed to be “Copyrighted
Works” hereunder. Such Copyrighted Works include the Operating Manual and may include all
or part of the Marks and other portions of the System. Payless intends that all works of
authorship related to the System and created in the future will be deemed to be Copyrighted
Works. Payless may authorize Franchisee to use certain Copyrighted Works solely on the
condition that Franchisee complies with the terms of this Section 10.7.
(b) Limitations. Franchisee acknowledges that their right to use the Copyrighted
Works is derived solely from this Agreement and is limited to the use of such Copyrighted Works
pursuant to and in compliance with this Agreement and all applicable standards, specifications,
and operating procedures prescribed by Payless from time to time during the term of this
Agreement. Franchisee will ensure that all Copyrighted Works used hereunder will bear an
appropriate copyright notice under the Universal Copyright Convention or other copyright laws
as prescribed by Payless, specifying that Payless, its Payless or its Affiliate is the owner of the
copyright. Any unauthorized adaptation, translation, publication, reproduction, preparation of
derivative works, distribution of copies (by sale or other transfer of ownership, or by rental, lease
or lending), or recreation of all or a portion of such Copyrighted Works will constitute a breach
of this Agreement and an infringement of the rights of Payless, its Payless and its Affiliates in
and to the Copyrighted Works. Any new works, adaptations, reproductions, translations or
derivative works from the Copyrighted Works created by Franchisee will be the property of
Payless or its Affiliates and Franchisee hereby assigns, and will cause all authors or owners
thereof likewise to assign, all its right, title and interest in and to such new works, adaptations,
reproductions, translations and derivative works to Payless or its designee including, without
limitation, all moral or legal rights therein. Franchisee will submit all such distribution,
reproduction or other new works, translations or derivative works to Payless for approval prior
to use.
10.8.
Notification of Infringements and Claims.
As soon as it becomes aware, Franchisee will immediately notify Payless of any actual or
apparent infringement of or challenge to any of the Copyrighted Works, or claim by any person
of any rights in the Copyrighted Works. Franchisee will not communicate with any person other
than Payless and its counsel with respect to any such infringement, challenge or claims.
Franchisee agree that Payless will have the sole discretion to take such action, at its cost, as it
deems appropriate in connection with the foregoing, and the right to control exclusively any
settlement or legal proceeding arising out of any such alleged infringement, challenge or claim
or otherwise relating to the Copyrighted Works. The foregoing will not be construed as a
warranty by Payless regarding clear title to ownership or license of any Copyrighted Works,
which such warranty is hereby expressly disclaimed.
10.9.
Discontinuance of Use.
If it becomes advisable at any time in Payless’s sole judgment for Franchisee to modify or
discontinue use of any Copyrighted Work and/or for Franchisee to use one or more additional
30
or substitute copyrighted or copyrightable items, Franchisee agrees to immediately comply with
Payless’s directions to modify or otherwise discontinue the use of the Copyrighted Works and/or
use additional or substitute items. In the event that any of the foregoing events require Franchisee
to remove Authorized Products from Stores, Payless will reimburse Franchisee an amount equal
to the lesser of: (x) Franchisee’s actual, documented and reasonable costs to transport the
Authorized Products bearing such Copyrighted Work, if so requested by Payless, to other Stores
within the Development Area in which such Authorized Products can be sold; or (y) the price
paid by Franchisee to Payless for such Authorized Products as well as any international freight
costs, duties and local delivery costs, less any mitigating amounts recovered therefor by
Franchisee. All such prices and costs must be reasonable, actual, paid and documented.
11.
Other Obligations.
11.1.
Payless Confidential Information
(a) General. Payless and its Affiliates possess and may further develop certain
confidential and proprietary information and trade secrets, including, but not limited to, the
following categories of information, methods, techniques, procedures and knowledge developed
or to be developed by Payless, its Affiliates, or franchisees and licensees (including Franchisee)
developing and operating Stores (“Payless’s Confidential Information”): (i) methods, techniques,
specifications, standards, policies, procedures, processes, apparatuses, designs, prototypes,
inventions, business records, information, concepts, systems and knowledge of and experience
in the development and operation of Stores; (ii) marketing and promotional programs for Stores;
(iii) knowledge concerning proprietary computer software programs (if any) and all data
generated by the use of such computer software programs, including the structure of the database
file thereof, and all additions, modifications and enhancements thereto; (iv) standards and
specifications for websites; (v) knowledge of, specifications for and suppliers of Authorized
Products and Store Items; (vi) sales data and inventory mixes relating to Authorized Products;
(vii) knowledge concerning operating results and financial performance of Stores; (viii)
information regarding, including the method of calculation of, Cost of Goods Sold and any other
pricing information; (ix) the Operating Manual; and (x) the terms of this Agreement and any
related agreement.
(b) Disclosure. Payless will disclose to Franchisee such parts of Payless’s
Confidential Information Payless determines in its reasonable discretion to be required for the
development of Stores in providing guidance, training and assistance to Franchisee under this
Agreement, and Franchisee may learn or otherwise obtain from Payless additional Payless’s
Confidential Information during the Agreement Term.
(c) Covenants. Franchisee acknowledges and agrees that neither Franchisee nor any
other person or entity will acquire any interest in Payless’s Confidential Information pursuant to
this Agreement, other than Franchisee’s right to use it in the development of Stores, and that the
use or duplication of Payless’s Confidential Information in any other business would constitute
an unlawful and unfair method of competition with Payless, its Affiliates and other franchisees
and licensees of Stores. Franchisee further acknowledge and agree that Payless’s Confidential
Information, individually and in combination, is a valuable asset of Payless and/or its Affiliates
and is proprietary and includes trade secrets of Payless and/or its Affiliates. Consequently,
Franchisee agrees, that during the Agreement Term and thereafter, Franchisee and its Owners
and any and all of their affiliates, directors, officers, shareholders, partners, employees,
31
representatives and agents (i) will not use Payless’s Confidential Information in any other
business or capacity, (ii) will maintain the absolute confidentiality of Payless’s Confidential
Information during and after the Agreement Term; (iii) will not disclose Payless’s Confidential
Information to any party other than employees who need to know Payless’s Confidential
Information to perform job functions in connection with the development and operation of the
Stores; (iv) with the exception of financial information necessary to evaluate the financial
performance and condition of the business of Franchisee conducted pursuant to this Agreement,
Franchisee will not disclose Payless’s Confidential Information to any of its employees unless
the relevant employee is also a Senior Manager or an employee of Franchisee who needs to
know Payless’s Confidential Information to perform job functions in connection with the
development and operation of the Stores; (v) will not make unauthorized copies of any portion
of Payless’s Confidential Information disclosed or recorded in written or other tangible form;
and (vi) will, in addition to the procedures described herein, adopt and implement all procedures
prescribed from time to time by Payless to prevent unauthorized use or disclosure of or access
to Payless’s Confidential Information.
(d) Exceptions. In the event that Franchisee becomes a publicly held company, the
Franchisee may disclose the terms of this Agreement if in its reasonable judgment such
disclosure is required under applicable law or is advisable as a disclosure for a publicly traded
company; provided that Franchisee gives Payless notice of any such disclosure if reasonably
practicable. Notwithstanding anything to the contrary contained in this Agreement, the
restrictions on Franchisee’s ’s disclosure and use of Payless’s Confidential Information will not
apply to the following: (i) information, methods, procedures, techniques and knowledge which
are or become generally known within the Development Area, other than through disclosure
(whether deliberate or inadvertent) by Franchisee, or their officers, directors, shareholders,
partners, employees or agents; and (ii) the disclosure of Payless’s Confidential Information in
judicial or administrative proceedings to the extent that Franchisee is legally compelled to
disclose such information, provided Franchisee notifies Payless prior to disclosure and will
have used its diligent and commercially reasonable efforts to obtain, and will have afforded
Payless the opportunity to obtain an appropriate protective order or other assurance satisfactory
to Payless of confidential treatment for the information required to be so disclosed. Payless’s
Confidential Information may or may not be labeled “confidential.” Franchisee agree that if it
has any question as to whether any information or other item constitutes Payless’s Confidential
Information, Franchisee will inquire of Payless in writing and Payless will advise accordingly.
Franchisee acknowledges and agrees that the restrictions in this Section 11.1 are necessary to
maintain the identity and reputation of Stores.
(e)
Representatives.
1) No Breaches. Franchisee warrants that to the best of its knowledge, as at
execution of this Agreement and as at the execution of each Non-Competition Agreement
(defined below) contemplated by it, neither it, nor any other person having any obligation to
maintain confidentiality pursuant to this Section, any Non-Competition Agreement or any other
confidentiality agreement in full force and effect at the time of execution of this Agreement, has
engaged in any act or omission that would constitute a breach of this Section or any such
agreement had that act or omission been engaged in during the Agreement Term or following
execution of any of the other agreements referred to in this Section.
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2) Agreement Execution. Franchisee agrees that it will cause each Key
Contact, brand manager and merchandiser of Franchisee so designated by Franchisee to enter
into a Confidentiality and Non-Competition Agreement with Franchisee and Payless, in the
form attached hereto as Exhibit 11.1 (the “Non-Competition Agreement”) within thirty (30)
days of the execution of this Agreement (or upon the hiring of a Key Contact, brand manager, or
merchandiser of Franchisee). Franchisee will send to Payless executed originals of any such
Non-Competition Agreements signed by all parties thereto within ten (10) days after execution
thereof and copies of any Confidentiality Agreement within ten (10) days after any request by
Payless therefor. Franchisee agrees to use its diligent and best efforts to enforce all
Non-Competition Agreements.
(f) Relief. Subject to the terms and conditions of this Agreement, Franchisee
acknowledges and agrees that the failure of any person or entity restricted by this Section to
comply with this Section will constitute a breach of this Agreement by Franchisee. In addition,
Franchisee acknowledge that the disclosure of Payless’s Confidential Information could cause
irreparable injury to Payless and that, therefore, Payless will be entitled to injunctive relief, in
addition to all other remedies available to it at law or in equity, in the event of any actual or
threatened disclosure of Payless’s Confidential Information in violation of this Agreement.
Without otherwise limiting this Section the parties agree that Franchisee will not be liable for
any inadvertent disclosure of Payless’s Confidential Information causing no material harm
provided that Franchisee promptly and diligently takes measures acceptable to Payless to
prevent future disclosures.
11.2.
Noncompetition.
Franchisee acknowledges that, pursuant to this Agreement, Franchisee will receive valuable
Confidential Information and that Franchisee has the limited right and obligation under this
Agreement to develop the Development Area for the benefit of the System. Accordingly,
Franchisee covenants that:
(a) During the term hereof, Franchisee or its subsidiaries, parent, affiliates, employees
or agents will not, either directly or indirectly, for itself or through, on behalf of, or in conjunction
with any person or legal entity, own, maintain, operate, engage in, be employed by, or have any
interest in any other business involving the manufacture, distribution, or sale of products the
same as or similar to the Authorized Products; and
(b) For two years following the transfer or expiration of this Agreement or its
termination for any reason, Franchisee will not, either directly or indirectly, for itself or through,
on behalf of, or in conjunction with any person or legal entity, own, maintain, operate, engage
in, be employed by, or have any interest in any business involving the manufacture, distribution,
or sale of Authorized Products or similar products within the Development Area.
11.3.
Insurance.
During the Agreement Term Franchisee agrees to maintain such insurance as is necessary to
comply with all Legal Requirements concerning insurance and to maintain general and motor
vehicle liability insurance against claims for bodily and personal injury, death and property
damage caused by or occurring in conjunction with the conduct of business by Franchisee
pursuant to this Agreement under one or more policies of insurance containing the following
33
minimum liability coverages: (i) Mandatory motor vehicle liability insurance coverage per the
local law at each country of operation of the Franchisee; and (ii) Commercial general liability
insurance, including coverage for tort liability that the Franchisee assume under this Agreement
to pay for bodily injury or property damage to a third party, with a combined single limit of at
least Two Million US Dollars (USD $2,000,000) per occurrence written on an occurrence basis.
Except to the extent Franchisee fails to fulfill its obligations pursuant to Section 11.8, (i) the
Franchisee will have no obligation to indemnify for product liability claims in respect of
products supplied by Payless and (ii) Payless will be responsible to indemnify such claims and
maintain necessary insurance to cover for such obligations. Commercial general liability
insurance policy will contain a waiver of all subrogation rights against Payless, its Affiliates, and
their successors and assigns, and will provide for thirty (30) days’ prior written notice to Payless
of any cancellation of such policy. Franchisee will add Payless as an additional insured under
their respective motor vehicle liability and commercial general liability policies. Upon execution
of this Agreement, Franchisee will provide Payless with evidence of such insurance when
requested for in writing by Payless; thereafter, Franchisee will, annually and upon its
replacement of an existing insurance policy with a new policy, furnish to Payless a copy of the
certificate of insurance or other evidence when requested by Payless that all required insurance
coverage is in force. The maintenance of sufficient insurance coverage will be the responsibility
of Franchisee. Notwithstanding any other provision of this Agreement, but subject to
Franchisee’s obligations contained in this Section 11.3, Payless will have no obligation to
prescribe types or amounts of insurance coverage and will have no obligation to indemnify
Franchisee if it does not do so or if the types or amounts of insurance coverage prescribed by
Payless are insufficient to fully cover a claim made against Franchisee.
11.4. Government Approvals.
Franchisee agrees to execute any and all instruments and documents, render such assistance,
and do such acts and things which are required in order to obtain all governmental approvals
necessary, in the reasonable opinion of Payless counsel, in order to comply with applicable law,
including, without limitation, obtaining visas for Payless personnel. Payless will have the right
to submit this Agreement to any governmental entity or agency (the “Agency”) for registration
or approval in the event Payless determines in its reasonable judgment that such registrations or
approvals are necessary in order to comply with applicable law. If the Agency requires that any
amendments be made to this Agreement as a condition to such approval or registration and such
amendments are acceptable to Payless, Payless will provide to Franchisee for execution by the
parties an addendum to the relevant agreement or other appropriate document in form satisfactory
to Payless, to reflect such amendments, and Franchisee agrees to execute such document. If,
however, the effect of any amendment required by the Agency as a condition to registration or
approval would, in the view of Payless, be detrimental to its interests, Payless may terminate
this Agreement by delivering written notice thereof to the Franchisee. If the Agency has not
registered or approved this Agreement within ninety (90) days of the date of their submission to
the Agency for approval or registration, Payless may, in its sole discretion, terminate this
Agreement by delivering written notice thereof to Franchisee. If any such governmental
registration or approval is required in order to establish the relationship of Payless and
Franchisee pursuant to this Agreement, Franchisee acknowledges and agrees that, at Payless’s
option, except for the obligations set forth in this paragraph and in Sections 3, 9 and 11, all of the
rights and obligations of the parties under this Agreement will be contingent upon the Agency’s
registration or approval of this Agreement.
34
11.5.
Product Safety and Labeling Requirements.
(a) General. Franchisee will be responsible for ensuring that the Authorized Products
comply with all Legal Requirements, including, without limitation, any product safety standards
or requirements or labeling requirements imposed by any governmental agency within the
Development Area. Franchisee acknowledge that Payless has not, and will not provide any
warranties or representations as to compliance of the Authorized Products with these standards
or requirements and that Payless has no obligation to, and has not and will not investigate or
research such standards or requirements. Franchisee will bear all costs and expenses related to
obtaining any necessary governmental approvals for or for the sale of Authorized Products in the
Development Area. If any change to the design, labeling or fabrication of any Authorized
Product is required as a condition of any necessary governmental approval, or to comply with
any Legal Requirement, Franchisee will submit the required changes to Payless for review. If
Payless determines that the required changes would be detrimental to or fundamentally alter the
image of Authorized Products or the System, Payless may, at its option: (i) prohibit Franchisee
from selling the Authorized Product at issue, or (ii) propose a replacement product for which
Franchisee must seek any required governmental approval and evaluate for compliance with all
Legal Requirements.
(b) Recalls. In the event that Payless, any of its Affiliates or any government authority
requires the recall of Authorized Products, Franchisee agree to comply with all reasonable
directions of Payless, its Affiliates and any relevant government authority in connection with the
recall. Franchisee acknowledges that Payless and its Affiliates have sole discretion as to the
conduct of any recall and Franchisee agrees to provide its full cooperation in this regard. Payless
is responsible for all costs associated with any recall of Authorized Products unless the recall was
necessary due to a failure of the Franchisee to comply with the preceding paragraph.
11.6.
Compliance with Laws and Good Business Practices.
(a) General. Franchisee will secure and maintain in force in its name all required
licenses, permits and certificates relating to the conduct of its business pursuant to this
Agreement. Franchisee will comply with all applicable laws, ordinances and regulations,
including all laws and regulations pertaining to the importation and customs clearance of
Authorized Products into the Development Area. All advertising by Franchisee will be
completely factual, in good taste in the judgment of Payless, and will conform to high standards
of ethical advertising. Franchisee will in all dealings with Payless, public officials and other
third parties adhere to high standards of honesty, integrity, fair dealing and ethical conduct.
Franchisee agree to refrain from any business or advertising practice which may be injurious to
the business of Payless and the goodwill associated with the Marks and Stores. Franchisee will
notify Payless in writing within five (5) Business Days of the commencement of any action, suit
or proceeding, and/or of the issuance of any order, writ, injunction, award or decree of any court,
agency or other governmental instrumentality which may adversely affect the operation or
financial condition of Franchisee or the Stores.
(b) Representatives. Neither Franchisee nor any Owner of the same will through or
by their respective agents, employees, representatives or otherwise, directly or indirectly make,
give or promise any payment or other thing of value to any person for any purpose that is unlawful
under the laws of the United States or the Development Area, including without limitation, the
U.S. Foreign Corrupt Practices Act. In particular, neither Franchisee nor any Owner of the same
35
will through or by their respective agents, employees, representatives or otherwise, directly or
indirectly use any payment or other benefit derived from Franchisee to offer, promise or pay any
money, gift or any other thing of value to any person for the purpose of influencing official
actions or decisions affecting this Agreement or the construction, opening or operation of any
Store, while knowing or having reason to know that any portion of this money, gift or thing will,
directly or indirectly, be given, offered or promised to (i) an employee, officer or other person
acting in an official capacity for any government or its instrumentalities, or (ii) any political
party, party official or candidate for political office.
11.7.
Anti-Terrorism and Anti-Boycott Law Compliance.
(a) General. Franchisee and their Owners agree to comply with and/or to assist
Payless to the fullest extent possible in Payless’s efforts to comply with Anti-Terrorism Laws
(defined below) and U.S. Anti-Boycott laws (defined below). In connection with such
compliance, Franchisee and their Owners certify, represent, and warrant that none of their
property or interests is subject to being “blocked” under any of the Anti-Terrorism Laws and that
Franchisee and their Owners are not otherwise in violation of any of the Anti-Terrorism Laws.
For the purposes of this Section 11.7, “Anti-Terrorism Laws” means Executive Order 13224
issued by the President of the United States, the Terrorism Sanctions Regulations (Title 31, Part
595 of the U.S. Code of Federal Regulations), the Foreign Terrorist Organizations Sanctions
Regulations (Title 31, Part 597 of the U.S. Code of Federal Regulations), the Cuban Assets
Control Regulations (Title 31, Part 515 of the U.S. Code of Federal Regulations), the USA
PATRIOT Act, and all other present and future federal, state and local laws, ordinances,
regulations, policies, lists and any other requirements of any governmental authority (including,
without limitation, the United States Department of Treasury Office of Foreign Assets Control)
addressing or in any way relating to terrorist acts and acts of war.
(b) Certifications. Franchisee and their Owners certify and covenant that none of
Franchisee, Franchisee’s Owners and management personnel, or anyone associated with
Franchisee, is listed or will be listed in the Annex to Executive Order 13224 (the Annex is
available
at
http://www.treasury.gov/offices/enforcement/ofac/sanctions/terrorism.html).
Franchisee agrees not to hire any individual who is listed in the Annex. Franchisee and its
Owners certify that they have no knowledge or information that Franchisee, their Owners, their
management personnel, or anyone associated with them has engaged, are engaged or intend to
engage in terrorist activities.
(c) Liability. Franchisee are responsible for ascertaining what actions must be taken
by it to comply with the Anti-Terrorism Laws and U.S. Anti-Boycott laws, and specifically
acknowledge and agree that its indemnification responsibilities set forth in Section 11.8 of this
Agreement include Franchisee’s ’s obligations under this Section 11.7.
(d) Remedies. Any misrepresentation by Franchisee under this Section, any violation
of the Anti-Terrorism Laws or U.S. Anti-Boycott laws by Franchisee or their Owners or
management personnel, or the inclusion of Franchisee, an Owner or manager of them or anyone
associated with them or any of their Owners on the Annex will constitute grounds for immediate
termination of this Agreement and any other Agreement Franchisee has entered with Payless
or one of its Affiliates, in accordance with the terms of Section 11.7 of this Agreement.
36
(e) Anti-Boycott Laws. For purposes of this Section 11.7., U.S. Anti-Boycott Laws
will be inclusive of Section 8 of the Export Administration Act of 1979, as amended, 50 U.S.C.
app. §§ 2401 – 2420 (2000), International Emergency Economic Powers Act, 50 U.S.C. §§ 1701
– 1707 (2000); Part 760 “Restrictive Trade Practices and Boycotts” of the Export Administration
Regulations (15 C.F.R. Part 760) (2008); the “Ribicoff Amendment” to the Tax Reform Act of
1976, adding § 999 to the Internal Revenue Code; the Treasury Guidelines (TG), and any and all
modifications, supplements, substitutions or additions to any of the foregoing.
(f)
Privacy Policies. Franchisee agrees to maintain and comply with a written privacy
policy to be drafted by Franchisee and approved by Payless, which Franchisee will ensure
satisfies all applicable Legal Requirements. Franchisee will permit Payless to review and
comment on Franchisee's proposed privacy policy and any subsequent proposed amendments.
Payless will give Franchisee access to its privacy policy for use in the development of, and any
revision of the privacy policy to be applied by Franchisee pursuant to this Section. Franchisee
will provide a copy of its privacy policy to Payless upon request.
11.8.
Indemnification.
(a) General. Franchisee agrees to indemnify, defend and hold Payless, its Affiliates,
and their respective shareholders, directors, officers, employees, agents, successors and assignees
harmless against and to reimburse them for all claims, causes of action, costs, expenses, loss,
liability, damages or obligations arising from or relating to: (i) Franchisee’s obligations
pursuant to this Section and any breaches of this Agreement; (ii) any and all taxes described in
Section 11.9; (iii) the operation of Franchisee’s business pursuant to this Agreement; and (iv) the
operation of any Store and/or the transfer of any interest in this Agreement or a Store or an
Ownership Interest in Franchisee in any manner not in accordance with this Agreement. Payless
will have the right to defend any claim against it in such manner as Payless deems appropriate
or desirable in its sole discretion, but at Franchisee’s sole cost and expense. This indemnity will
continue in full force and effect subsequent to and notwithstanding the expiration or termination
of this Agreement.
(b) Claims Definition. For purposes of the indemnities set out in this Section 11.8,
“claims” will mean and include all obligations, actual damages (and in the case of claims by third
parties, any consequential, punitive or exemplary damages), and costs incurred in the defense of
any claim against a party, including without limitation reasonable accountants’, attorneys’,
attorney assistants’, arbitrators’ and expert witness fees, costs of investigation and proof of facts,
court costs, other litigation expenses, and travel and living expenses.
11.9.
Taxes.
(a) Neither Payless nor its Affiliates will have liability for any sales, value added, use,
service, stamp duty, occupation, excise, gross receipts, income (other than income taxes
assessed against Payless or its Affiliates), property or other taxes, whether levied upon this
Agreement, Franchisee, one or more Stores or Franchisee’s ’s property, or upon Payless or its
Affiliates respectively, in connection with activities of Franchisee under this Agreement
(except any taxes Payless or its Affiliates is required by law to collect from Franchisee with
respect to purchases from Payless or its Affiliates, and Franchisee will have no such liability
in connection with the activities of Payless under this Agreement). Payment of all such taxes
will be the responsibility of Franchisee and Franchisee shall account for such taxes in
37
accordance with all applicable law. Invoices issued by Franchisee to Payless or its Affiliates
shall not include any charges for such taxes. Payless may provide any and all information and
documentation, including Franchisee’s Confidential Information, to any taxing authority which
it reasonably deems necessary or desirable, for the purpose of complying with any applicable
Legal Requirements or for the purpose of challenging any tax assessment issued. Franchisee
will reasonably cooperate with Payless in this regard, including by providing all information
and documentation reasonably requested by Payless. Payless will take reasonable consideration
of the extent to which it discloses any of Franchisee’s Confidential Information to any taxing
authority. Prior to providing Franchisee’s Confidential Information, Payless will give
Franchisee written notice thereof and, if Franchisee so chooses, the parties may discuss the
matter prior to a disclosure.
(b) If Payless or its any of its Affiliates suffer any adverse tax consequence relating in
any way to Franchisee’s and/’s default under or breach of this Agreement or any ancillary
agreement, Franchisee will promptly indemnify and compensate Payless and/ or its Affiliate
(as appropriate) to make it whole as if it had not suffered such adverse tax consequence.
11.10. No Public Statements.
Without the prior written consent of Payless, which may be withheld for any reason, Franchisee
will not make any press release or public announcement concerning this Agreement.
11.11. Anti-Corruption Law Compliance.
Franchisee is familiar with the prohibitions of anti-bribery/anti-corruption laws and treaties
applicable to Franchisee and the transactions contemplated under this Agreement, including
those within the Development Area, the UK Bribery Act and the United States Foreign Corrupt
Practices Act (collectively, “Anti-Corruption Laws”). Franchisee agrees and acknowledges
that Franchisee has not previously been accused of violating any anti-corruption law or engaging
in any practice that would be deemed to be the making of an improper payment under any anticorruption law. Franchisee represents and warrants to the following:
(a) None of Franchisee's “Personnel” (and none of those Personnel's “Family
Members”) are “Government Officials” (as defined below). For the purposes of this Agreement,
(i) “Personnel” means shareholders, members, partners, officers, directors, executives, and
employees, as well as any of their Family Members, (ii) “Government Official” means an
official of any government, government agency, or political party whether by election,
appointment, employment, or otherwise, and also includes: (A) candidates to become a
Government Official, (B) a Family Member of any of the foregoing persons, and (C) Personnel
of a company that is owned by a government; and (iii) “Family Member” means a person's
spouse, children, parents, siblings, and/or first- or second-cousins.
(b) If any of Franchisee's Personnel or their Family Members become a Government
Official, Franchisee will immediately notify Payless in writing.
(c) Franchisee has not made, and will not make, any payment or transfer of value,
directly or indirectly, to any Governmental Official or to any other person or entity if that
payment or transfer would violate any Anti-Corruption Law.
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(d) Franchisee has not made, and will not make, any payment or transfer of value,
directly or indirectly, for the purpose or effect of public or commercial bribery, or acceptance of
or acquiescence in extortion, kickbacks, money laundering or other unlawful or improper means
of obtaining or retaining business.
(e)
12.
Franchisee will comply with any and all Anti-Corruption Laws.
Transfers.
12.1.
Buy-In Right.
(a) General. Franchisee (and each of its Owners) each grant Payless or its designated
Affiliate (for purposes of this Section 12.1 only, Payless or its designated Affiliate will be
collectively or individually referred to as “Payless”) the right to buy an Ownership Interest of
not more than Fifty Percent (50%) in the franchised business operated by Franchisee pursuant
to this Agreement, the actual percentage to be decided by Payless in its sole and absolute
discretion, subject to the consent of Franchisee and its Owners in their sole discretion to final
terms of definitive documentation. Such right may be exercised by Payless at any time after the
execution of this Agreement. Payless will exercise its right by providing written notice to
Franchisee.
(b) Mechanics. Such buy-in may occur by equity investment, by joint venture, or by
some other form of agreement, as Payless and Franchisee reasonably determine in conformance
with Legal Requirements. Payless and Franchisee will also agree upon the documentation
(including organizational documents) for such structure, and Payless will be entitled to undertake
a full due diligence of all aspects of the franchise business operated by Franchisee pursuant to
this Agreement. The organizational documents will provide for supermajority approval of
deviations from capital spending plans and store opening plans as set forth in a five year business
plan established as of the date of such buy-in. If no such agreement for the structure of the buyin (or for the referenced documentation) is reached within thirty (30) days of Payless’s exercise
of its right pursuant to this Section 12.1, the procedure described in this Agreement will be used
to determine the most appropriate structure (or documentation); provided that, notwithstanding
Section 14.5, the arbitrator will make its decision no later than thirty (30) days after arbitration
is commenced, but the supermajority approvals, the rights to board representation and rights
necessary to consolidate the sales of the business in an indirect or direct parent company of
Payless consolidated sales under U.S. GAAP as specified herein will be provided by the
arbitrators. Notwithstanding the terms of this Agreement, upon the exercise of Payless’s buy-in
right described in this Section 12.1, Payless may require Franchisee to form a wholly-owned
subsidiary and transfer its respective franchise business operated pursuant to this Agreement (and
will use best efforts to assign all real property leases relating to Stores) to such respective
subsidiary; the newly-formed subsidiary will be the target of the buy-in right described in this
Section 12.1. All costs associated with forming such subsidiary and transferring the franchise
businesses will be borne proportionately (in accordance with the Ownership Interest upon buyin) by, on the one hand, Franchisee, and on the other hand, Payless. Franchisee covenants that
the subsidiary will be a single-purpose entity, with no operations or assets other than those
relating to this Agreement. Additionally, provided that Payless purchases at least a twenty
percent (20%) Ownership Interest in the franchise business resulting from this Agreement,
Payless will have the right to proportionate representation on the board of directors or similar
governing body.
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(c) Purchase Price. Upon the buy-in structure being finalized pursuant to the foregoing
paragraph, the consideration for the exercise of the buy-in right will be determined. The
consideration payable for the purchase of the Ownership Interest will be (a) the fair market value
of the Ownership Interest being purchased as determined by a suitably qualified independent
appraiser with experience in international franchising jointly engaged by the parties, or (b) by
multiplying Franchisee’s EBITDA attributable to the interest being purchased in the franchise
business by a factor of six (6). If Payless purchases at least a twenty percent (20%) ownership
interest in the franchise business, Franchisee shall allow any direct or indirect parent of Payless
to (i) consolidate the sales of the franchise business under U.S. GAAP and provide such input as
consistent therewith and (ii) implement such minimum accounting procedures and business
systems (e.g. merchandise planning, allocation and pricing systems) to allow such parent to
comply with U.S. GAAP and to consolidate sales derived from Payless’s Ownership Interest in
the franchise business.
(d) The parties agree to share all costs incurred in respect of the appraiser equally. If
parties are unable to agree on an independent appraiser as above provided, each party will select
an appraiser. No appraisers appointed under this Section 12.1 is permitted to have provided
consultancy or other services to any of the parties, either as an employee or contractor, within
the two (2) years preceding such appointment. The two appraisers so selected will select a third
appraiser. The parties agree that the third appraiser will determine the fair market value of the
Ownership Interest being acquired, provided that the appraised value of the Ownership Interest
will be determined within sixty (60) days of Payless’s written notice to Franchisee of the
exercise of its right to purchase an Ownership Interest in the franchise business established
pursuant to this Agreement. Upon receipt of the appraised value, Payless will be free to (i) elect
not to purchase the Ownership Interest in which case its option to purchase an Ownership Interest
will expire or (ii) modify (no more than one time) the percent of Ownership Interest it desires to
purchase, in which case the appraiser will re-evaluate the fair market value of the Ownership
Interest being acquired.
(e) Closing. The purchase price will be paid in cash at the closing of the purchase,
which will take place no later than one hundred twenty (120) days after receipt by the parties of
the final appraised value, at which time Franchisee will deliver instruments transferring to
Payless good merchantable title to the Ownership Interest free and clear of all liens and
encumbrances (other than liens and security interest acceptable to Payless).
(f) Expenses. Except for those fees due to Payless pursuant to this Agreement (e.g.,
royalties), in the event Payless exercises its “buy-in” right, as described in this Section 12.1,
related party fees and charges (including management fees paid to Affiliates) relating to the
Franchises will be at cost (i.e., no mark-up) and all overhead expenses allocated to the franchise
business established by this Agreement will be equitably and fairly apportioned to such franchise
business. Any such related party fees and charges paid to Franchisee or its Affiliate may
continue only until such time as such services can be provided at comparable or less cost by
Payless.
(g) Real Estate. Franchisee will use its best efforts to ensure that all real property
leases relating to Stores will contain language satisfactory to Payless that permits assignment or
novation of such leases from Franchisee to that certain entity into which Payless will exercise
its “buy-in” right, as described in this Section 12 without any required consent (including that of
the landlord) upon the effectiveness of Payless’s buy-in, as described in this Section 12, and upon
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such buy-in, such leases will be appropriately assigned. All real property leases relating to Stores
will have Franchisee as the tenant during the Agreement Term until their assignment or novation
pursuant to this Section 12. No real property lease relating to Stores may be assigned or otherwise
transferred by Franchisee without Payless’s written approval. For the purpose of the first
sentence of this paragraph, the following language will be deemed satisfactory to Payless:
“Without landlord’s prior consent, tenant may assign or novate this lease to any affiliate to which
tenant is assigning or novating all or substantially all of its leases of Stores operated within the
Development Area.”
12.2.
Structuring of Jointly Owned Entity.
The parties agree that in the event that Payless exercises its right to purchase an Ownership
Interest in the franchised business operated pursuant to this Agreement, they will each use their
best efforts to structure all relevant rights and entities to achieve joint ownership of that business.
For the purpose of facilitating this process, and at the time that Payless exercises its right to
purchase, Franchisee agrees to use commercially reasonable efforts to timely provide, as soon
as is reasonably practicable, all business and financial records including unaudited profit and loss
statements of the business conducted by Franchisee pursuant to this Agreement, and other
evidence of the financial position, of the franchised business operated pursuant to this
Agreement, including but not limited to stock and inventory records and a list of assets and their
value.
12.3.
Transfer by Payless.
This Agreement is fully transferable by Payless and will inure to the benefit of any assignee or
other legal successor to the interests of Payless herein and Payless will procure that such assignee
or legal successor will be bound by this Agreement. Furthermore, Franchisee acknowledges
and agrees that Payless may assign or delegate any or all of its rights and obligations under this
Agreement to an Affiliate or an unaffiliated third party provided that Payless ensures that any
such entity is bound by this Agreement.
12.4.
Transfers by Franchisee or its Owners.
(a) General. Franchisee understands and acknowledges that the rights and duties
created by this Agreement are personal to Franchisee and that Payless has entered into this
Agreement in reliance upon the character, skill, attitude, business ability, and financial capacity
of Franchisee and its Owners. Therefore, no interest in this Agreement, a Store, some or all of
the assets of a Store (except for transfers in the ordinary course of business) or any Ownership
Interest in Franchisee may be transferred, and no transfer of the operational control of the
business conducted by Franchisee pursuant to this Agreement may occur, without the prior
written consent of Payless and in strict compliance with this Section 12.4. Any such transfer,
without the prior written consent of Payless, will constitute a breach of this Agreement and will
convey no rights to or interests in this Agreement, such Store, or the assets of such Store, or
Franchisee.
(b) Definition of Transfer. As used in this Agreement, the term “transfer” will mean
and include the voluntary, involuntary (including by operation of law), direct or indirect
assignment, sale, gift, pledge, mortgage, grant of lien, charge or other transfer by Franchisee or
an Owner either of them of an interest in (i) this Agreement; (ii) Franchisee or an Owner of
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either of them; (iii) a Store; or (iv) some or all of the assets of any Store developed pursuant to
this Agreement (other than in the ordinary course of business). As used above, an assignment,
sale, gift, pledge, mortgage, grant of lien, charge, or other transfer will include: (i) the transfer of
an Ownership Interest in a corporation, partnership or other business entity; (ii) merger or
consolidation, or issuance of Ownership Interests or redemption of Ownership Interests; (iii)any
sale of voting stock or any security convertible to voting stock, or agreements granting the right
to exercise or control the exercise of the voting rights of any holder of an Ownership Interest;
(iv) a transfer: (A) in a divorce; (B) in a corporate, partnership or other business entity insolvency
or dissolution proceeding; (C) in the event of death, a transfer by will, declaration of or transfer
in trust, or under the laws of intestate succession; or (D) otherwise by operation of law; or (E)
the collateral assignment of this Agreement or the grant of a security interest in or charge over
this Agreement, a Store, the assets of a Store or Ownership Interests in Franchisee.
12.5.
Transfer in the Case of Death or Incapacity.
Upon the death or permanent incapacity (which, for purposes of this Agreement, will mean the
inability to conduct business in the ordinary course for a period of six (6) months) of an Owner,
all of such person’s Ownership Interest, if any, in Franchisee, the Stores or this Agreement will
be transferred to a transferee approved by Payless. Such disposition (including, without
limitation, transfer by bequest or inheritance) will be completed within a reasonable time, not to
exceed six (6) months from the date of death or permanent incapacity and will be subject to
Payless’s approval. Failure to so dispose of such interests within said period of time will
constitute a breach of this Agreement.
12.6. Conditions for Transfers.
As a condition to granting its approval of a transfer, Payless may require satisfaction of or
compliance with any reasonable conditions imposed by Payless, including without limitation,
the following:
(a) the proposed transferee and its owners must be of good moral character and
otherwise meet Payless’s standards for franchisees of Stores;
(b) a transfer of an Ownership Interest in a Store or some or all of the assets of a Store
(other than in the ordinary course of business) may be made only in conjunction with a transfer
of this Agreement;
(c) a transfer of this Agreement may be made only in connection with the transfer of
all of Franchisee’s ’s Ownership Interests in every Store developed pursuant to this Agreement;
(d) Franchisee and/or the transferring Owner(s) (or their executor, guardian, personal
representative or other person or entity with similar powers), as applicable, will have executed a
general release, in form satisfactory to Payless, of any and all claims against Payless, its
Affiliates, and their respective shareholders, officers, directors, employees, and agents;
(e) the transferor will have paid to Payless a transfer fee in an amount equal to equal to
the then-current initial Store Design Fee in the Development Area at the time of the transfer
multiplied by the number of Stores in the Development Area at such time; and,
(f)
the transfer must be made in compliance with all applicable laws.
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If the proposed transfer is of this Agreement, or a Substantial Interest in Franchisee and/, or is
one of a series of transfers which in the aggregate constitute the transfer of a Substantial Interest
in Franchisee, or if a transfer of the operational control of the business operated by Franchisee
pursuant to this Agreement is proposed all of the following conditions (in addition to the
conditions set forth in paragraphs (a) through (f) above) must be met prior to, or concurrently
with, the effective date of the transfer:
(g) the transferee must have sufficient business experience, aptitude, and financial
resources to develop and operate Stores and to perform Franchisee’s obligations under this
Agreement and neither the transferee nor its owners may be engaged in or intend to engage in a
business that competes with Stores;
(h) all obligations of Franchisee and its Owners incurred in connection with this
Agreement will be assumed by the transferee (and its owners, if applicable) in a manner
satisfactory to Payless;
(i) Franchisee must have paid all amounts owed to Payless and its Affiliates which
are then due and unpaid;
(j) the transferee and/or its managers who will perform the management functions
described in this Agreement will meet the qualifications for those functions and will agree to
successfully complete Payless’s training program;
(k) Payless will have approved the material terms and conditions of such transfer,
including, without limitation, a determination by Payless that the price and terms of payment are
not so burdensome as to adversely affect Payless’s rights and interests under this Agreement;
(l)
if Franchisee and/or the transferring Owner finances any part of the sale price of
the transferred interest, such fact will be considered a material term which Franchisee will have
an affirmative duty to disclose to Payless and Franchisee, and/or the transferring Owner will
have agreed that all obligations of the transferee under or pursuant to any promissory notes,
agreements or security interests reserved by Franchisee, and/or the transferring Owner in the
transferred property will be subordinate to the obligations of the transferee to pay all amounts
due to Payless and its Affiliates pursuant to this Agreement, and otherwise to comply with this
Agreement; and
(m) in the case of a transfer of this Agreement, Franchisee will, at Payless’s option,
either cancel or transfer to Payless or the transferee all business name registrations registered in
the name of Franchisee and will cooperate with and will reimburse Payless for all expenses it
incurs in connection with the cancellation of Franchisee’s rights as a registered user of the Marks
and in connection with the preparation and filing of a new authorized user agreement for the
transferee.
Additionally, the transferor(s) (which in the event of a transfer of this Agreement, will be deemed
to include Franchisee and all holders of Ownership Interests in the same) must execute a
noncompetition agreement in favor of Payless and the transferee, providing that the transferor(s)
will not for a period of two (2) years commencing on the effective date of the transfer, directly
or indirectly:
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(1) have any interest as a legal or beneficial owner of, or perform services as a
director, officer, manager, employee, consultant representative, agent, or otherwise for, any
business competing with Payless, which business is located or operating within:
(a) the Development Area;
(b) any other country in which a PAYLESS SHOESOURCE store is in
operation or under construction on the effective date of the transfer; or
(2) employ or seek to employ, any person who is employed by Payless, by its
Affiliates or by any other franchisee or licensee of Payless, nor induce nor attempt to induce any
such person to leave said employment without the prior written consent of Payless and such
person’s employer.
The aforementioned restrictions will not be applicable to the ownership of shares of a class of
securities listed on a stock exchange or traded on a public stock market that represent less than
three percent (3%) of the number of that class of shares which are issued and outstanding, and
will not be construed to prohibit Franchisee or any Owner or their Owners from having a direct
or indirect Ownership Interest in any Store or any development agreement for the development
or operation of any PAYLESS SHOESOURCE Store, or any entity owning, controlling or
operating a PAYLESS SHOESOURCE Store, or from providing services to a PAYLESS
SHOESOURCE Store pursuant to other agreements with Payless. Franchisee acknowledges
and agrees that the failure of any person or entity restricted by this Section to comply with this
Section will constitute a breach of this Agreement by Franchisee.
If the transfer is of an Ownership Interest in Franchisee to a person or entity other than an Owner,
the transferee’s name will be added to the list of Owners on Exhibit 11.10 and in the event the
transferee is an entity, all names of all of the holders of Ownership Interests in such entity will
also be added to the list of Owners. All such additional Owners will execute Non-Competition
Agreements as required hereunder.
12.7.
Intra-Owner Transfer.
If an Owner proposes to transfer some or all of its Ownership Interests in Franchisee to one or
more existing Owners, Payless will not unreasonably withhold its consent. Any such permitted
transfer must meet all of the conditions set forth in this Section 12.
12.8.
Franchisee Offerings.
Ownership Interests in or securities of Franchisee, or an entity owning a direct or indirect
ownership interest in this Agreement, a Store, the assets of any Store, Franchisee may be offered
in any offering which is required by law to be accompanied by a prospectus, or which is otherwise
regulated by law; provided that Franchisee gives Payless prior notice of any such offer (which
will explain any change in the operational control of the business operated by Franchisee
pursuant to this Agreement likely to result from the offering) and that Payless does not, within
fourteen (14) days of any such notice advise Franchisee that it objects to the offer proceeding
on the grounds that the proposed offer would result in a change in operational control of the
business operated by Franchisee pursuant to this Agreement. If Ownership Interests in
Franchisee are offered to investors in any such manner, the parties who were Owners prior to
the offering will retain ownership of not less than fifty-one percent (51%) of the voting shares of
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Franchisee. No offering of Ownership Interests in Franchisee will imply (by use of the Marks
or otherwise) that Payless or its Affiliates are participating in the underwriting, issuance or
offering of securities. The offering documents and related materials utilized in any such offering
will state explicitly and prominently that neither Payless nor any of its Affiliates is involved in
the offering, sponsors it or has any responsibility for its content. Franchisee agrees to indemnify,
defend and hold harmless Payless and its Affiliates and their respective officers, directors,
employees and agents from any and all claims, demands, liabilities, and all costs and expenses
(including, without limitation, reasonable attorneys’ fees) incurred in the defense of such claims,
demands or liabilities, arising from the offer or sale of such securities, whether asserted by a
security holder, purchaser of any such securities or by a government agency. Payless will have
the right (but not the obligation) to defend, at the expense of Franchisee, any such claims,
demands or liabilities and/or to participate in the defense of any action to which it is named as a
party.
12.9.
Effect of Consent to Transfer.
Payless’s consent to a transfer of this Agreement or any interest subject to the restrictions of this
Section will not constitute a waiver of any claims it may have against Franchisee, or its Owners,
nor will it be deemed a waiver of Payless’s right to demand exact compliance with any of the
terms or conditions of this Agreement by the transferee.
12.10. Ownership Structure and Initial Capitalization.
Franchisee represents and warrants that Franchisee’s ownership structure and capitalization as
of the date of this Agreement are as set forth on Exhibit 11.10 hereto and covenants that it will
not vary from that structure without complying with the terms and conditions set forth in this
Section.
13.
Termination of the Agreement
13.1.
TERMINATION WITHOUT CURE PERIOD
Payless may terminate this Agreement, effective upon delivery of notice of termination to
Franchisee, if:
(a) any person or entity makes an assignment or transfer in violation of Section 12 of
this Agreement (or fails to transfer in violation of Section 12 of this Agreement) or in the event
of a transfer of operational control of the business operated by Franchisee pursuant to this
Agreement in violation of Section 12 of this Agreement;
(b) Franchisee or any of their Owners transfers operational control of any Store
without prior written approval of Payless;
(c) If Franchisee at any time ceases to operate or otherwise abandons any of the Stores,
or loses the right to possession of the premises, or otherwise forfeits the right to do or transact
business in the jurisdiction where the Stores are located; provided, however, that if, through no
fault of Franchisee, the premises are damaged or destroyed by an event such that repairs or
reconstruction cannot be completed within 90 days thereafter, then Franchisee will have 30 days
45
after such event in which to apply for Payless's approval to relocate and/or reconstruct the
premises, which approval will not be unreasonably withheld;
(d) Franchisee or any Owner is convicted of a felony, a crime involving moral
turpitude, or any other crime or offense that Payless believes is reasonably likely to have an
adverse effect on the System, the Marks, the goodwill associated with the Marks, or Payless's
interest therein;
(e) A threat or danger to public health or safety (including, without limitation, acts of
war or terrorism) results from the construction, maintenance, or operation of the Stores;
(f) Franchisee sells any other item that is a replacement for an Authorized Product
and that is purchased from an unauthorized source;
(g) Franchisee, any Owner, any Affiliate of Franchisee or any Affiliate of an Owner
makes any unauthorized use of the Intellectual Property or unauthorized use or disclosure of
Payless’s Confidential Information other than an inadvertent disclosure causing no material harm
provided that Franchisee promptly and diligently take measures acceptable to Payless to prevent
future disclosures;
(h) Franchisee becomes insolvent in the sense that Franchisee (i) is unable to pay its
bills as they become due or the liabilities of Franchisee exceed its assets; (ii) makes an
assignment for the benefit of creditors or an admission of its inability to pay its obligations as
they become due; (iii) allows any judgment to remain unsatisfied for a period of five (5) business
days; or (iv) files a voluntary petition in bankruptcy, files any pleading seeking any
reorganization, liquidation or dissolution under any law, admits or fails to contest the material
allegations of any such pleading filed against it, is adjudicated as bankrupt or insolvent, a
receiver, trustee, liquidator or other person acting in a comparable capacity is appointed for a
substantial part of the assets of Franchisee, or for the Ownership Interest in one or more Owners,
or the claims of creditors of Franchisee or its Owners are abated or subject to a moratorium
under any law;
(i) Franchisee, any Owner, any Affiliate of Franchisee or any Affiliate of an Owner
violates the restrictions set forth in Section 11.1 of this Agreement;
(j) Franchisee challenges or seeks to challenge the validity of the Marks, the
Copyrighted Works or any patent or other Intellectual Property owned by Payless or to which
Payless has the right to utilize;
(k) Franchisee or any of their Owners fails on two (2) or more separate occasions
within any period of twelve (12) consecutive months to comply with this Agreement, whether or
not such failures to comply are corrected after notice of default is given (provided that
Franchisee received notice of default and an opportunity to cure the first default), or fails on
two (2) or more separate occasions within any period of twelve (12) consecutive months to
comply with the same requirement under this Agreement, whether or not such failures to comply
are corrected after notice of default is given (provided that Franchisee received notice of default
and an opportunity to cure the first default);
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(l) Franchisee or any of their Owners materially violates U.S. Foreign Corrupt
Practices Act or any other obligation of Franchisee, or any of their Owners, as specified in the
second paragraph of Section 11.7 of this Agreement; and,
(m) In the event that Franchisee is in default with regard to any other agreement with
Payless, including but not limited to, the International Franchise Agreement between Collective
Franchising Ltd. and Al Rowad Retail for Shoes and Accessories, with a Development Area for
the Republic of Malta.
13.2.
Termination by Payless with Cure Period.
Payless may terminate this Agreement in part or in total (including with respect to any Store),
effective upon delivery of notice to Franchisee, if:
(a) Franchisee fails to report accurately the Net Revenue of any Store or fails to make
payments of any fees or other amounts due to Payless or its Affiliates and does not correct such
failure within twenty (20) calendar days after written notice of such failure is delivered to
Franchisee; or
(b) Franchisee or any of their Owners fails to comply with any other provision of this
Agreement (including any System Standard) at any Store and does not: (a) correct such failure
within thirty (30) days after written notice of such failure to comply is delivered to Franchisee;
or (b) if such failure cannot reasonably be corrected within the aforesaid thirty (30) day period,
undertake within thirty (30) days after such written notice is delivered to Franchisee, and
continue until completion, diligent efforts to bring such Store into full compliance, and furnish
proof acceptable to Payless, upon its request, of such efforts and the date full compliance will be
achieved.
13.3.
Termination of Development Rights.
In addition to and without limiting the rights of Payless under this Agreement, in the event that
Payless is entitled to terminate this Agreement in accordance with this Section 13, Payless will
have the option, in its sole discretion, to terminate Franchisee’s right to develop additional
Stores but will permit Franchisee to continue to operate each then existing Store until such date
as of which the eighteen (18) month anniversary of the opening of all such Stores has been
reached, unless the Franchise as to such Store is terminated sooner in accordance with this
Agreement. Upon such eighteen (18) month anniversary of the opening of all such Stores, this
Agreement will automatically terminate. In addition, should the Initial Term or the First
Renewal Term of this Agreement not be automatically renewed pursuant to the terms and
conditions of this Agreement, and should the parties not otherwise agree to a renewal of the term
at the end of either the Initial Term or the First Renewal Term (with Payless having no obligation
to agree to any such renewal), then Payless agrees that Franchisee may continue to operate
each then existing Store until such date as of which the eighteen (18) month anniversary of the
opening of all such Stores has been reached, unless the Franchise as to any such Store is
terminated sooner in accordance with this Agreement. Upon such eighteen (18) month
anniversary of the opening of all such Stores, this Agreement will automatically terminate. If
Franchisee terminates this Agreement or Payless terminates the Development Rights in
accordance with this Section 13, Payless will be entitled to compensation equal to the amount
of Annual Minimum Royalties for each Store for the remaining balance of the Term.
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13.4.
Post-Termination Obligations.
(a) Payment of Amounts Owed to Payless. Franchisee will immediately pay to
Payless upon termination of this Agreement or expiration of the Agreement Term all amounts
owed to Payless and its Affiliates which are then unpaid and any interest due on any of the
foregoing. Payless will have no obligation to reimburse Franchisee for any goodwill, and in the
case of termination or expiration of this Agreement, Franchisee shall not be entitled to any
compensation or payment with respect to goodwill.
(b) Marks and Copyrighted Works. Upon the termination of this Agreement or
expiration of the Agreement Term, Franchisee will:
(1) not directly or indirectly at any time or in any manner identify itself or any
business as a current or former franchisee or licensee of Stores or as otherwise associated with
Payless, or use any Mark or any colorable imitation thereof or any mark substantially identical
to or substantially similar to any Mark in any manner or for any purpose, or utilize for any purpose
any trade name, trademark or service mark, other commercial symbol or trade dress that suggests
or indicates a connection or association with Payless (including, without limitation, any artwork,
graphics or designs that Payless authorized Franchisee to use or display at Stores);
(2) cease all use of the Intellectual Property, remove all signs containing any
Mark, and return to Payless or destroy all Copyrighted Works and all forms and materials
containing any Intellectual Property or otherwise identifying or relating to the Marks or other
Intellectual Property;
(3) take such action as may be required to cancel or, at Payless’s request, transfer
to Payless or its designee all fictitious name, assumed name, business name or equivalent
registrations relating to its use of any Mark;
(4) cease operation, maintenance and display of any Franchisee Website
established pursuant to Section 7.5;
(5) make such modifications and alterations to such Store, including removal of
all distinctive physical and structural features associated with the Intellectual Property (including,
without limitation, any artwork, graphics or designs that Payless authorized Franchisee to use
or display at Stores) as may be necessary to distinguish the Site for such Store so clearly from its
former appearance and from other Stores as to prevent any possibility that the public will
associate the Site for such Store with a PAYLESS SHOESOURCE Store. Franchisee will
furnish to Payless (i) within thirty (30) days after the effective date of termination or expiration,
evidence satisfactory to Payless of Franchisee’s compliance with Subparagraphs (1) and (3) of
the foregoing obligations.
(c) Confidential Information. Franchisee agree that upon termination of this
Agreement or expiration of the Agreement Term: (1) it will immediately cease to use in any
business or otherwise any of Payless’s Confidential Information disclosed to or otherwise
learned or acquired by Franchisee; and (2) it will return to Payless all copies of the Operating
Manual and any other confidential materials which have been loaned or made available to
Franchisee by Payless pursuant to this Agreement. Payless agrees that upon termination of this
Agreement or expiration of the Agreement Term it will immediately cease to use in any business
or otherwise any of Franchisee’s Confidential Information.
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13.5.
Continuing Obligations.
All obligations of Payless, Franchisee which expressly or by their nature survive the
termination of this Agreement or the expiration of the Agreement Term will continue in full force
and effect subsequent to and notwithstanding its expiration or termination and until they are
satisfied in full or by their nature expire.
13.6.
Payless’s Right to Purchase Store Assets.
Upon (i) termination of this Agreement by Payless for cause, (ii) termination of this Agreement
by Franchisee without cause, or (iii) expiration of this Agreement (without the grant of an
extension), Payless will have the option, exercisable by giving written notice thereof within sixty
(60) days from the date of such expiration or termination, to purchase from Franchisee all the
inventory and Store Items of the Stores specified by Payless in such notice at depreciated value
for cash. Payless will have the unrestricted right to assign this option to purchase. Subject to the
terms and conditions of this Agreement, Franchisee will in no event sell any asset referred to in
this paragraph or bearing the Marks to a third party. Payless will have the right to set off against
and reduce the purchase price of the assets of any Store by any and all amounts owed by
Franchisee to Payless (regardless of whether the amount owed relate to such Store), and the
amount of any encumbrances or liens against the assets purchased by Payless.
13.7.
Liquidation of Inventory Upon Expiration.
If Payless does not exercise its option under Section 13.6, Franchisee may, within sixty (60)
days following the earlier of expiry of Payless’s option or the date on which Payless notifies
Franchisee that it will not exercise its option, sell all inventory not purchased by Payless by
means of a reputable liquidation service, except for those assets bearing any Marks, which assets
may not be sold or otherwise transferred until such Marks are removed to the commercially
reasonable satisfaction of Payless.
14.
Miscellaneous.
14.1.
Independent Contractors.
It is understood and agreed by the parties hereto that this Agreement does not create a fiduciary
relationship between them, that they are and will be independent contractors, and that nothing in
this Agreement is intended to make either party a general or special agent, joint venturer, partner,
or employee of the other for any purpose. Franchisee will conspicuously identify itself in all
dealings with others as a licensee of Stores under a license granted by Payless and will
conspicuously and prominently place such other notices of independent ownership on such
forms, business cards, stationery, and other materials as Payless may require from time to time.
It is the intent of the parties that Franchisee will not be a commercial agent, and Payless,
Franchisee will cooperate to ensure that Franchisee will not register as a commercial agent or
otherwise acquire the rights of a commercial agent with respect to this Agreement. It is further
understood and agreed that Franchisee is not, and will not be, a commercial agent of Payless,
and Payless and Franchisee will cooperate with each other to ensure that Franchisee will not
register to be or be deemed to be a commercial agent or otherwise having the rights of a
commercial agent.
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14.2.
No Liability for Acts of Other Party.
Franchisee will not employ any of the Marks or other Intellectual Property in signing any
contract or application for any license or permit, or in a manner that may result in liability of
Payless or its Affiliates for any indebtedness or obligation of Franchisee, nor will Franchisee
use the Marks or other Intellectual Property in any way not expressly authorized herein. Except
as expressly authorized in writing, neither party will make any express or implied agreements,
warranties, guarantees or representations, or incur any debt in the name of or on behalf of the
other, or represent that their relationship is other than Payless and licensee, and neither party will
be obligated by or have any liability under any agreements or representations made by the other
that are not expressly authorized in writing, nor will Payless be obligated for any damages to any
person or property directly or indirectly arising out of the development or operation of Stores or
Franchisee’s ’s business authorized by or conducted pursuant to this Agreement.
14.3.
Force Majeure
Neither party shall be liable for loss or damage or deemed to be in breach of this Agreement if
its failure to perform its obligations results from: compliance with any law, ruling, order,
regulation, requirement, or instruction of any government or any department or agency
thereof; unavailability of any essential equipment, materials or service, including interruptions
in telephone service; lockout, other industrial disturbance or labor difficulty; war, civil unrest,
act of public enemy, terrorist act, blockade, revolution, riot or insurrection; lightning, storm,
flood, fire, earthquake, other natural disaster, explosion; embargo; or unavoidable accident,
which are not the fault of the non-performing party. Any delay resulting from any of said causes
shall extend performance accordingly or excuse performance, in whole or in part, as may be
reasonable, except that said causes shall not excuse payment of amounts owed at the time of such
occurrence or payment of Royalty Fees on Net Revenue of the Store or any and all other payments
which may become due from Franchisee thereafter.
14.4.
Judicial Enforcement, Injunction and Specific Performance.
Notwithstanding anything to the contrary contained in Section 14.5, Payless will be entitled to
the entry of injunctions, interdicts, restraining orders and orders of specific performance
enforcing the provisions of this Agreement, and Payless and Franchisee agree to submit the
dispute for arbitration on the merits in accordance with Section 14.5; provided that any dispute
relating to Franchisee’s use of the Intellectual Property or Payless’s Confidential Information
will be resolved solely by a court of competent jurisdiction and will not be submitted to
arbitration pursuant to this Section. Franchisee agrees that Payless will not be required to post
a bond to obtain any injunctive relief and that Franchisee’s only remedy if an injunction or
interdict is entered against it will be the dissolution of that injunction, if warranted, upon due
hearing (all claims for damages by reason of the wrongful issuance of such injunction or interdict
being expressly waived hereby). If Payless secures any such injunction, interdict or order of
specific performance, Franchisee agrees to pay to Payless an amount equal to the aggregate of
its costs of obtaining such relief, including without limitation reasonable attorney’s fees, costs
and expenses as provided in Section 14.11, and any damages incurred by Payless as a result of
the breach of any such provision.
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14.5.
Arbitration.
(a) General. Subject to Section 14.4, all controversies, disputes or claims arising
between Payless, its Affiliates or their respective shareholders, partners, officers, directors,
employees, agents and attorneys (in their representative capacity) and Franchisee (or their
Owners and the guarantors of this Agreement) arising out of or related to the relationship of the
parties hereto, this Agreement, the validity of this Agreement or any specification, standard or
operating procedure relating to the establishment or operation of Stores will be submitted for
arbitration on demand of either party.
(b) Venue. If any dispute of any kind arises between the Parties including (without
limitation) in relation to any question regarding the Agreement’s existence, formation,
performance, interpretation, validity or termination and any alleged breach hereof, that dispute
shall be referred to and finally resolved by arbitration under the arbitration rules of the DIFCLCIA Arbitration Centre (the "Rules”) from time to time in force, which Rules are deemed to be
incorporated by reference into this 14.5(b) save for Article 5.6 of the Rules which is deemed to
be amended to give effect to Clause 14.5(c) below. The "seat", or legal place, of the arbitration
shall be the Dubai International Financial Centre, Dubai, United Arab Emirates. The hearings
will take place in Dubai, United Arab Emirates. The arbitration shall be conducted in the English
language.
(c) Arbitrators. The number of arbitrators shall be three. The Parties shall each
nominate one arbitrator for appointment by the LCIA Court (as defined in the Rules) within
twenty-eight (28) days of the Request for Arbitration (as defined in the Rules). Within twentyeight (28) days of the nomination of the Respondent’s arbitrator the Party-nominated arbitrators
shall together nominate the third arbitrator (the Arbitration Chairman) for appointment by the
LCIA Court, but if, by the end of that period the Party-nominated arbitrators have failed to
nominate a third arbitrator then the third arbitrator shall be nominated and appointed by the LCIA
Court.
(d) Confidentiality. The Parties undertake to keep confidential all awards in any
arbitration, together with all materials in the proceedings created for the purpose of the arbitration
and all other documents produced by another Party in the proceedings not otherwise in the public
domain, save and to the extent that disclosure may be required of a party by legal duty, to protect
or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before
a state court or other judicial authority
(e) Awards. The arbitrators will have the right to award or include in their award any
relief which they deem proper in the circumstances, including without limitation, money
damages (with interest on unpaid amounts from date due), specific performance, injunctive relief,
legal fees and costs in accordance with Section 14.11, provided that the arbitrators will not have
the authority to award exemplary or punitive damages. The award and decision of the arbitrators
will be conclusive and binding upon all parties hereto and judgment upon the award may be
entered in any court of competent jurisdiction, and the parties waive any right to contest the
validity or enforceability of such award. Any arbitration proceeding commenced with respect to
any controversy that arises between the parties due to Payless’s exercise of its buy-in right
specified in Section 12.1 will promptly be concluded, and the parties agree to exercise best efforts
51
to fully cooperate with such arbitration proceeding so that the arbitration might be completed
within sixty (60) days from the date of submission of either party’s demand for arbitration, or
such additional time is reasonably required.
(f) Other Terms. The parties further agree to be bound by the provisions of any
applicable limitation on the period of time in which claims must be brought under applicable law
or this Agreement, whichever is less. The parties further agree that in connection with any such
arbitration proceeding each will submit or file all claims which it has against the other party
within the same proceeding as the claim to which it relates. Any such claim which is not
submitted or filed as described above will be barred. The parties agree that arbitration will be
conducted on an individual, not a class-wide basis and that any arbitration proceeding between
parties will not be consolidated with any other arbitration proceeding involving Payless and any
other person, corporation, partnership or entity.
(g) Survival. This arbitration provision will continue in full force and effect
subsequent to and notwithstanding expiration or termination of this Agreement.
14.6.
Severability and Substitution of Valid Provisions.
If any one or more of the exclusive dealing covenants set forth in this Agreement is declared or
made invalid or unenforceable by legislation or judicial action, Payless, in its sole discretion, if
it believes that the continuation of this Agreement would not be in its best interests, may
terminate this Agreement upon sixty (60) days’ written notice to Franchisee. All other
provisions of this Agreement are severable in the event of any invalidity or unenforceability
under any applicable law or in the event of any conflict with any prohibition or restriction in, or
inconsistency with, any loan agreement or other finance related agreement to which Payless or
any of its Affiliates is a party and this Agreement will be interpreted and enforced as if all
completely invalid, unenforceable or inconsistent provisions were not contained herein and
partially valid, enforceable and consistent provisions will be enforced to the extent valid,
enforceable and consistent. To the extent that the post-transfer restrictive covenant or the
post-termination restrictive covenant set forth in this Agreement are deemed unenforceable by
virtue of its scope in terms of area or length of time, but may be made enforceable by reductions
of either or both of them, the parties agree that same will be enforced to the fullest extent
permissible under the laws and public policies applied in the jurisdiction in which enforcement
is sought. If any applicable and binding law requires a greater prior notice of the termination of
this Agreement than is required hereunder or the taking of some other action not required
hereunder, or if under any applicable and binding law or rule of any jurisdiction, any provision
of this Agreement or any specification, standard or operating procedure prescribed by Payless is
invalid or unenforceable, the prior notice and/or other action required by such law or rule will be
substituted for the notice requirements hereof, or such invalid or unenforceable provision,
specification, standard or operating procedure will be modified to the extent required to be valid
and enforceable. Such modifications to this Agreement will be effective only in such jurisdiction
and will be enforced as originally made and entered into in all other jurisdictions.
14.7.
Waiver of Obligations.
(a) Any waiver of a breach, right, obligation or restriction under this Agreement will
be in writing and signed by the waiving party, and if a party waives a breach, right, obligation or
restriction in writing, such waiver will not constitute a waiver of any other breach, right,
52
obligation or restriction or of a subsequent infringement of the same breach, right, obligation or
restriction that has been waived. No acceptance by Payless of any payment by Franchisee or
any other person or entity and no failure, refusal or neglect of Payless, Franchisee to exercise
any right under this Agreement or to insist upon compliance by the other with its obligations
hereunder will constitute a waiver of any provision of this Agreement.
(b) Any waiver granted by Payless will be without prejudice to any other rights Payless
may have, will be subject to continuing review by Payless, and may be revoked, in Payless’s
sole discretion, at any time and for any reason, effective upon delivery to Franchisee of ten (10)
days’ prior written notice.
(c) Payless and its Affiliates makes no warranties or guarantees upon which
Franchisee may rely, and assumes no liability or obligation to Franchisee , by granting any
waiver, approval, or consent to Franchisee , or by reason of any neglect, delay, or denial of any
request therefor.
(d) The parties will not be deemed to have waived or impaired any right, power or
option reserved by this Agreement (including, without limitation, the right to demand exact
compliance with every term, condition and covenant herein, or to declare any breach thereof to
be a default and to terminate this Agreement prior to the expiration of its term), by virtue of any
(i) custom or practice of the parties at variance with the terms hereof; (ii) any failure, refusal, or
neglect of either party to exercise any right under this Agreement or to insist upon exact
compliance by the other with its obligations hereunder, including, without limitation, any
mandatory specification, standard or operating procedure; (iii) any waiver, forbearance, delay,
failure, or omission by Payless to exercise any right, power, or option, whether of the same,
similar or different nature, with respect to any PAYLESS SHOESOURCE Store or any
development or license agreement therefor; or (iv) the acceptance by Payless of any payment
from Franchisee after any breach of this Agreement.
14.8.
Rights of Parties are Cumulative.
The rights of the parties hereunder are cumulative and no exercise or enforcement by either party
of any right or remedy hereunder will preclude the exercise or enforcement by either party of any
other right or remedy hereunder or which either party is entitled by law to enforce.
14.9.
Waiver of Punitive and Consequential Damages and Jury Trial.
The parties hereby waive to the fullest extent permitted by law, any right to or claim for any
punitive or exemplary damages against the other and agree that in the event of a dispute between
them, except as otherwise provided herein, each will be limited to the recovery of any actual and
statutory damages sustained by it. The parties irrevocably waive trial by jury in any action,
proceeding or counterclaim, whether at law or in equity, brought by either of them. Neither party
will be liable to the other for indirect or consequential damages incurred by the other party or
any third party, whether in an action in contract or tort or otherwise, even if such party has been
advised of the possibility of such damages.
14.10. Limitation of Claims.
Except with regard to Franchisee’s obligations to make payments to Payless or its Affiliates
pursuant to this Agreement, any and all claims arising out of or relating to this Agreement or the
53
relationship of Franchisee and Payless or its Affiliates will be barred unless an arbitration
proceeding is commenced within one (1) year from the date Payless, its Affiliates or Franchisee
knew or, exercising reasonable diligence should have known, of the facts giving rise to such
claims.
14.11. Costs and Attorneys’ Fees.
If either party is required to enforce this Agreement in a judicial or arbitration proceeding, the
party prevailing in such proceeding will recover from the other party its costs and expenses,
including without limitation reasonable attorneys’ fees (for attorneys and legal assistants),
accountants’ fees, and expert witness fees, whether incurred prior to, in preparation for or in
contemplation of the filing of any such proceeding.
14.12. Governing Law/Consent to Jurisdiction.
The parties agree that, except to the extent governed by the United States Federal Arbitration Act
(9 U.S.C. §1 et seq.) or other U.S. federal law, this Agreement will be governed by the internal
laws of the State of Kansas, U.S.A., exclusive of the choice of law and conflict of law rules of
that state, provided that no state or federal U.S. franchise law or regulation will apply; provided
further that this Agreement is not in any way to be construed or governed by the laws of the
Development Area. The parties agree that any action against Franchisee arising out of or relating
to this Agreement seeking an order pursuant to Section 14.4 or the enforcement of an arbitration
award may be brought in a state or federal court of competent jurisdiction Topeka, Kansas,
U.S.A. Payless may file an action seeking an order pursuant to Section 14.4 or to enforce any
arbitration award, judgment or order in any such court or in any court located in the Development
Area. Franchisee irrevocably submits to the jurisdiction of such courts and waives any objection
it may have to either the jurisdiction or venue of such courts.
14.13. Binding Effect; Modification.
This Agreement is binding upon the parties hereto and their respective heirs, assigns and
successors in interest, and will not be modified except by written agreement signed by all parties
hereto.
14.14. Construction.
The preambles and Exhibits are a part of this Agreement, which constitutes the entire agreement
of the parties. Except for statements made by Franchisee and information provided by
Franchisee to Payless or its Affiliates in connection with Franchisee’s application for the rights
granted pursuant to this Agreement or related agreements, there are no other oral or written
understandings or agreements between Payless or its Affiliates and Franchisee relating to the
subject matter of this Agreement or related agreements. The headings of the several sections and
paragraphs hereof are for convenience only and do not define, limit or construe the contents of
such sections or paragraphs. The terms “Franchisee” as used herein are each applicable to one
or more persons, a corporation or a partnership, as the case may be, and the singular usage
includes the plural and the masculine and neuter usages include the other and the feminine. If
two or more persons are at any time Franchisee hereunder, whether or not as partners or joint
venturers, their respective obligations and liabilities to Payless will be joint and several. This
Agreement may be executed in multiple copies, each of which will be deemed an original. This
54
Agreement constitutes the entire agreement between the Parties and supercedes all prior
agreements. It may be modified only by a written document signed by both Parties.
14.15. Governing Language.
This Agreement, all related agreements and the Operating Manual originally will be written in
the English language, and all questions of interpretation of this Agreement or the Operating
Manual will be resolved by reference to the same as written in English. All communications
between the parties arising out of or in connection with this Agreement will be in English.
Franchisee and its Owners represent and warrant to Payless that the said Owners are fluent in
the English language, fully understand this Agreement, and do not require any translation.
14.16. Waiver of Defense.
Each of Franchisee covenants that it will not, and expressly waives the right to, assert lack of
enforceability of this Agreement, and any other related agreement with Payless, in the
Development Area as a defense to its responsibilities and obligations pursuant to such
agreements, as applicable, including Franchisee’s obligation to pay royalties to Payless.
14.17. Notices.
All written notices and reports permitted or required to be delivered by the provisions of this
Agreement or of the Operating Manual will be deemed so delivered: (a) at the time delivered by
hand, (b) one (1) business day after transmission by telegraph, facsimile or other electronic
system (evidenced by machine generated receipt), (c) five (5) Business Days after being placed
in the hands of a commercial courier service for express delivery, (d) or ten (10) Business Days
after transmittal via registered or certified mail, Return Receipt Requested, postage prepaid and
addressed to the following addressee or a party’s most current principal business address of which
the party sending the notice has been notified:
Payless:
Collective Franchising, Ltd.
P.O. Box 309, Ugland House
Grand Cayman, Cayman Islands KY1-1104
With a copy to:
Payless International Franchising, LLC.
c/o Payless ShoeSource, Inc.
3231 SE Sixth Avenue
Topeka, KS 66607 U.S.A.
Attention: General Counsel
Franchisee:
Al Rowad Retail for Shoes and Accessories
Sanaa Street, Misurata, Libya
Attention: AlBashir AlShabah, CEO, General Manager
Any required payment or report not actually received by Payless during regular business hours
on the date due (or postmarked by postal authorities at least two (2) Business Days prior
thereto) will be deemed delinquent.
55
15.
ACKNOWLEDGMENTS AND REPRESENTATIONS
15.1.
Acknowledgments.
(a) Franchisee acknowledges that it has read this Agreement and that it understands
and accepts the terms, conditions and covenants contained in this Agreement as being reasonably
necessary to maintain Payless’s high standards of quality and service and the uniformity of those
standards at all Stores in order to protect and preserve the goodwill of the Marks.
(b) Franchisee acknowledges that it has conducted an independent investigation of the
business contemplated by this Agreement and recognizes that, like any other business, the nature
of the business conducted by Stores may evolve and change over time, that an investment in
Stores involves business risks, and that the success of the venture is largely dependent upon the
business abilities and efforts of Franchisee.
(c) Each party expressly disclaims that it has made and acknowledges that it has not
received or relied upon, any warranty or guaranty, express or implied, as to the revenues, profits
or success of the business venture contemplated by this Agreement. Each party acknowledges
that it has not received or relied on any representations made by any other party, its Affiliates or
its respective officers, directors, employees or agents concerning the rights granted herein, that
are contrary to the terms set forth herein.
(d) Franchisee acknowledges that in all of their dealings with Payless, the officers,
directors, employees, and agents of Payless act only in a representative capacity and not in an
individual capacity. Franchisee further acknowledge that this Agreement, and all business
dealings between Franchisee and such individuals as a result of this Agreement, are solely
between Franchisee and Payless and Franchisee will not under any circumstances have any
claims against any such officer, director, employee or agent.
(e) Payless and Franchisee each acknowledge that they have been fully represented by
counsel, or have had the opportunity to be fully represented by counsel, in the review and
negotiation of this Agreement; and further, that this Agreement will not be construed for or
against any of Payless, Franchisee.
(f) Payless acknowledges that in all of its dealings with Franchisee, the officers,
directors, employees, and agents of Franchisee act only in a representative capacity and not in
an individual capacity. Payless further acknowledges that this Agreement, and all business
dealings between Payless and such individuals as a result of this Agreement, are solely between
Franchisee and Payless and Payless will not under any circumstances have any claims against
any such officer, director, employee or agent.
(g) Payless expressly disclaims that it has made, and Franchisee acknowledges that it
has not received or relied upon, any warranty or guaranty, express or implied, that third parties
will not sell Authorized Products or products similar or the same as Authorized Products within
the Development Area including in competition with the businesses operated by Franchisee
pursuant to this Agreement. Furthermore, Franchisee acknowledges that Payless and its
Affiliates have no control over the distribution through other channels of certain Authorized
Products sold or licensed to Payless or its Affiliates by third parties.
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15.2.
Representations.
(a) Franchisee represents to Payless, as an inducement to its entering into this
Agreement, that Franchisee have made no misrepresentations or omissions of material facts in
their application for the development rights granted hereunder.
(b) If Franchisee is a legal entity, it represents and warrants that it is duly organized
and validly existing in good standing under the laws of the jurisdiction of its incorporation or
organization, and has the corporate or other authority to execute, deliver and carry out all of the
terms of this Agreement.
(c) If Payless is a legal entity, Payless represents and warrants that it is duly organized
and validly existing in good standing under the laws of the jurisdiction of its incorporation or
organization, and has the corporate or other authority to execute, deliver and carry out all of the
terms of this Agreement.
(d) Franchisee further represents and warrants that all Owners of Franchisee and their
interests in Franchisee are completely and accurately listed on Exhibit 15.2.
(e) Franchisee represents and warrants to Payless that nothing contained in this
Agreement is inconsistent with any other agreement to which Franchisee is a party and that
compliance with this Agreement by Franchisee will not result in a breach of any such other
agreement.
(f) Franchisee represents and warrants to Payless that they operate existing franchises
or other types of businesses as of the date of this Agreement as listed in Exhibit 15.2.
[Signature page follows]
57
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in multiple originals on the day and year first above written.
COLLECTIVE FRANCHISING, LTD.
By:
Name: Miguel R. Rivera, Sr.
Title: DSVP and General Counsel
Address: P.O. Box 309, Ugland House, Grand Cayman,
Cayman Islands KY1-1104
AL ROWAD RETAIL FOR SHOES AND
ACCESSORIES
By:
Name: AlBashir AlShabah
Title: CEO, General Manager
Address: Sanaa Street, Misurata, Libya
EXHIBIT A
DEVELOPMENT AREA
The State of Libya
A-1
EXHIBIT B
TRADEMARK EXHIBITS
STATE OF LIBYA
As of the date of this Agreement, Franchisee shall be authorized to use the following Marks in
the following classes as indicated for each trademark (excluding e-commerce rights), in connection
with the development of the PAYLESS SHOESOURCE® Stores pursuant to this Agreement:
REGISTRATIONS
None
PENDING APPLICATIONS
1. P PAYLESS SHOESOURCE & Design (25, 35)
2. P PAYLESS SHOESOURCE & Design (Arabic) (25, 35)
3. PAYLESS (35)
4. PAYLESS SHOESOURCE (25, 35)
LICENSED MARKS
A Design (Peak A) (18, 25)
ABT (18, 25)
AIRWALK (18, 25)
AMERICAN BALLET THEATRE (18, 25)
AMERICAN EAGLE (18, 25)
CHRISTIAN SIRIANO (25)
DISNEY (25) (certain properties)
REALTREE (camouflage pattern)
SESAME STREET (25) (certain properties)
STAR WARS (25) (certain properties)
ISSUES RELATED TO THE PENDING APPLICATIONS
Payless does not make any representations or warranties regarding the validity or registration
status of the Pending Applications listed above, except that the applications are pending with the
Libyan Trademark Office. Payless is not liable for the use of the trademarks by Franchisee and
B-1
Franchisee fully indemnifies Payless for any intellectual property violations that may arise from
its use of the Marks. Franchisee acknowledges and agrees that each pending application may be
subject to an adverse decision by the Libyan Trademark Office, and specifically acknowledges
and agrees that its indemnification responsibilities set forth in Section 11.8 of this Agreement
include Franchisee’s obligations under this Exhibit B.
Additional third party rights may exist of which Payless may not be aware that could be an issue
for any pending application, and could result in the Marks not being available for use in the
Development Area.
ISSUES RELATED TO THE LICENSED MARKS
Payless has been granted only a license for use of the Licensed Marks and makes no
representations or warranties as to the status of the applications, registrations, copyrights or any
other intellectual property. The Licensed Marks listed above are those currently available for use
in the Development Area, with the exclusion of e-commerce rights which will be determined in
the event Payless grants the Franchisee the right to operate a Digital Store in accordance with
Section 6.2(a) of the Agreement. The Licensed Marks are terminable and may not run concurrently
with the entire Term of the Agreement. Additional third party rights may exist of which Payless
may not be aware that could be an issue for any licensed mark, and could result in the Licensed
Marks not being available for use in the Development Area.
B-2
EXHIBIT C
REAL ESTATE PLAN
Franchising - Real Estate Development Plan
Real Estate Plan: Payless Franchisee
Store
Count
Year
Country
City
Location
RE Type
Mall
Grade
Site
Grade
2015
2016
2017
2018
2019
Area (m2 )
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Store Opening Schedule
Country
New Stores - Country Names
Cummulative Store Count
• Narrative explanation of FRANCHISEE's plan for ascertaining and developing such additional real estate locations as are necessary to meet
the Development Plan for this year
Such other information and detail as reasonably requested by the COMPANY
1 Overview of Real Estate Strategy
2 Mix of Mall vs Non-Mall
3 Mix of "A" vs "B" vs "C" locations, both of the Mall and space within the mall
4 Potential store density within the trade area
5 Potential trade-off sales between new stores and existing stores within trade area
C-1
Projected
Sales (USD)
Opening
Date
EXHIBIT 3.5
CONTINUING GUARANTY
FOR VALUE RECEIVED, and in consideration of Collective Franchising, Ltd., P.O. Box
309, Ugland House, Grand Cayman, Cayman Islands KY1-1104, a company organized under the
laws of the Cayman Islands (“Payless”), executing that certain International Franchise Agreement
of even date herewith (the “Agreement”), with Al Rowad Retail for Shoes and Accessories, Sanaa
Street, Misurata, Libya, a company organized under the laws of the State of Libya (“Franchisee”),
and those certain ancillary and/or related agreements between Payless and Franchisee
(collectively with the Agreement, the “Agreements”), the undersigned, Al Zwetina General
Trading LLC, P.O. Box 28086, Dubai, U.A.E., a company organized under the laws of the United
Arab Emirates (“Guarantor”), agrees as follows. Capitalized terms used but not defined herein
shall have that meaning ascribed to them by the Agreements
1.
Guaranty of Obligations
Guarantor unconditionally, absolutely and irrevocably guarantees the full and prompt
payment and performance when due of all obligations of the Franchisee to Payless and its
affiliates, however created, arising or evidenced, whether direct or indirect, absolute or contingent,
or now or in the future existing or due or to become due, including, without limitation, under or in
connection with the Agreements, and each of the documents, instruments and agreements executed
and delivered in connection with the Agreements or this Continuing Guaranty, as each may be
modified, amended, supplemented or replaced from time to time (all such obligations are referred
to collectively as the “Obligations”), and all documents evidencing or securing any of the
Obligations. This continuing guaranty (this “Continuing Guaranty”) is a guaranty of payment
and performance when due and not of collection.
In the event of any default by Franchisee in making payment of, or default by Franchisee
in performance of, any of the Obligations, Guarantor agrees on demand by Payless to pay and
perform all of the Obligations as are then or thereafter become due and owing or are to be
performed under the terms of the Obligations. Guarantor further agrees to pay all expenses
(including attorneys’ fees and expenses) paid or incurred by Payless in endeavoring to collect the
Obligations, or any part thereof, and in enforcing this Continuing Guaranty.
2.
Continuing Nature Of Guaranty And Obligations. This Continuing Guaranty shall be
continuing and shall not be discharged, impaired or affected by: (1) the insolvency of Franchisee
or the payment in full of all of the Obligations at any time or from time to time; (2) the power or
authority or lack thereof of Franchisee to incur the Obligations; (3) the existence or non-existence
of any of the Franchisee as a legal entity; (4) the ability of Payless to enforce this Continuing
Guaranty, the Obligations or any provision of the Obligations; or (5) any right of offset,
counterclaim or defense of Guarantor, including, without limitation, those which have been
waived by Guarantor pursuant to Paragraph 4 of this Continuing Guaranty.
3.
Permitted Actions Of Payless. Payless may from time to time, in its sole discretion and
without notice to Guarantor, take any or all of the following actions: (1) retain or obtain the
3.5-1
primary or secondary obligation of any obligor or obligors, in addition to Guarantor, with respect
to any of the Obligations; (2) extend or renew for one or more periods (whether or not longer than
the original period), alter, amend or exchange any of the Obligations; (3) waive, ignore or forbear
from taking action or otherwise exercising any of its default rights or remedies with respect to any
default by Franchisee under the Obligations; (4) release, waive or compromise any obligation of
Guarantor under this Continuing Guaranty or any obligation of any nature of any other obligor
primarily or secondarily obligated with respect to any of the Obligations; (5) demand payment or
performance of any of the Obligations from Guarantor at any time or from time to time, whether
or not Payless shall have exercised any of its rights or remedies with respect to any property
securing any of the Obligations or any obligation under this Continuing Guaranty; or (6) proceed
against any other obligor primarily or secondarily liable for payment or performance of any of the
Obligations.
4.
Specific Waivers
Without limiting the generality of any other provision of this Continuing Guaranty,
Guarantor expressly waives: (i) notice of the acceptance by Payless of this Continuing Guaranty;
(ii) notice of the existence, creation, payment, nonpayment, performance or nonperformance of all
or any of the Obligations; (iii) presentment, demand, notice of dishonor, protest, notice of protest
and all other notices whatsoever with respect to the payment or performance of the Obligations or
the amount thereof or any payment or performance by Guarantor under this Continuing Guaranty;
(iv) all diligence in collection or protection of or realization upon the Obligations or any thereof,
any obligation under this Continuing Guaranty or any security for or guaranty of any of the
foregoing; (v) any right to direct or affect the manner or timing of Payless’s enforcement of its
rights or remedies; (vi) any and all defenses which would otherwise arise upon the occurrence of
any event or contingency described in Paragraph 1 hereof or upon the taking of any action by
Payless permitted under this Continuing Guaranty; (vii) any defense, right of set-off, claim or
counterclaim whatsoever and any and all other rights, benefits, protections and other defenses
available to Guarantor now or at any time hereafter; and (viii) all other principles or provisions
of law, if any, that conflict with the terms of this Continuing Guaranty, including, without
limitation, the effect of any circumstances that may or might constitute a legal or equitable
discharge of a guarantor or surety.
Guarantor waives all rights and defenses arising out of an election of remedies by Payless.
Guarantor further waives all rights to revoke this Continuing Guaranty at any time, and
all rights to revoke any agreement executed by Guarantor at any time to secure the payment and
performance of Guarantor’s obligations under this Continuing Guaranty.
5.
Subordination; Subrogation. Guarantor subordinates any and all indebtedness of
Franchisee to Guarantor to the full and prompt payment and performance of all of the
Obligations. Payless shall be entitled to receive payment of all Obligations prior to Guarantor’s
receipt of payment of any amount of any indebtedness of Franchisee to Guarantor. Guarantor
will not exercise any rights which it may acquire by way of subrogation under this Continuing
Guaranty, by any payment hereunder or otherwise, until all of the Obligations have been paid in
full, in cash, and Payless shall have no further obligations to Franchisee under the Obligations or
3.5-2
otherwise.
6.
Agreement Provisions. Sections 3.5 and 14 of the Agreement are incorporated into this
Continuing Guaranty by reference, and Guarantor agrees to comply with and perform each of
such covenants as though fully set forth in this Continuing Guaranty as a direct and primary
obligation of Guarantor. Furthermore, Guarantor hereby agrees to be bound by, and upon
breach held liable for, those provisions of the Agreements that provide for obligations,
representations, and/or covenants of the “Owner” (as defined in the Agreement).
7.
Assignment Of Rights. Payless may, from time to time, without notice to Guarantor,
assign or transfer any or all of the Obligations or any interest therein and, notwithstanding any
assignment(s) or transfer(s), the Obligations shall be and remain Obligations for the purpose of
this Continuing Guaranty. Each and every immediate and successive assignee or transferee of any
of the Obligations or of any interest therein shall, to the extent of such party’s interest in the
Obligations, be entitled to the benefits of this Continuing Guaranty to the same extent as if such
assignee or transferee were Payless. Guarantor shall not assign or transfer this Continuing
Guaranty or any obligation herein without the written consent of Payless, which may be withheld
in Payless’s sole discretion.
8.
Indulgences Not Waivers. No delay in the exercise of any right or remedy shall operate
as a waiver of the such right or remedy, and no single or partial exercise by Payless of any right
or remedy shall preclude other or further exercise of such right or remedy or the exercise of any
other right or remedy; nor shall any modification or waiver of any of the provisions of this
Continuing Guaranty be binding upon Payless, except as expressly set forth in a writing signed by
Payless. No action of Payless permitted under this Continuing Guaranty shall in any way affect
or impair the rights of Payless or the obligations of Guarantor under this Continuing Guaranty.
9.
Financial Condition Of Franchisee. Guarantor represents and warrants that it is fully
aware of the financial condition of Franchisee, and Guarantor delivers this Continuing Guaranty
based solely upon its own independent investigation of Franchisee’s financial condition.
Guarantor waives any duty on the part of Payless to disclose to Guarantor any facts it may now
or hereafter know about Franchisee, regardless of whether Payless has reason to believe that any
such facts materially increase the risk beyond that which Guarantor intends to assume or has
reason to believe that such facts are unknown to Guarantor. Guarantor knowingly accepts the
full range of risk encompassed within a contract of “Continuing Guaranty” which includes, without
limitation, the possibility that Franchisee will contract for additional obligations and indebtedness
for which Guarantor may be liable hereunder.
10.
Representation and Warranty; Covenant. Guarantor represents and warrants to
Payless that this Continuing Guaranty has been duly executed and delivered by Guarantor and
constitutes a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in
accordance with its terms. Guarantor represents, warrants, and acknowledges that the
Agreements are to Guarantor’s direct interest and advantage as an affiliate of Franchisee.
Guarantor covenants that it shall not, and expressly waives the right to, assert lack of
enforceability of this Continuing Guaranty and the Agreements in the State of Libya and/or
Guarantor’s country of domicile and formation as a defense to its responsibilities and obligations
3.5-3
pursuant to such agreements, including Guarantor’s obligation to guaranty Franchisee’s
obligations to Payless.
11.
Binding Upon Successors; Death Of Guarantor; Joint And Several
This Continuing Guaranty shall inure to the benefit of Payless and its successors and
assigns.
All references herein to Franchisee shall be deemed to include its successors and permitted
assigns, and all references herein to Guarantor shall be deemed to include Guarantor and
Guarantor’s successors and permitted assigns.
All of the Guarantor’s obligations and the other obligations, representations, warranties,
covenants and other agreements of any Guarantor under this Continuing Guaranty shall be joint
and several obligations and liabilities of each Guarantor.
In addition and notwithstanding anything to the contrary contained in this Continuing
Guaranty or in any other document, instrument or agreement between or among any of Payless,
Franchisee, Guarantor or any third party, the obligations of Guarantor with respect to the
Obligations shall be joint and several with each and every other person or entity that now or
hereafter executes a guaranty of any of the Obligations separate from this Continuing Guaranty.
12.
Governing Law. This Continuing Guaranty has been delivered and shall be governed by
and construed in accordance with the internal laws (as opposed to the conflicts of law provisions)
of the State of Kansas, United States of America. Wherever possible each provision of this
Continuing Guaranty shall be interpreted as to be effective and valid under applicable law, but if
any provision of this Continuing Guaranty shall be prohibited by or invalid under such law, such
provision shall be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this Continuing
Guaranty.
13.
Arbitration
Any dispute, controversy or claim between Payless and Guarantor arising out of or relating to
this Continuing Guaranty or any alleged default under this Continuing Guaranty, including any
disputes arising out of or concerning the Agreements between Franchisee (or any affiliate of
Franchisee) and Payless, including any issues pertaining to the arbitrability of such dispute,
controversy or claim and any claim that this Continuing Guaranty or any part of this Continuing
Guaranty is invalid, illegal, or otherwise voidable or void, shall be submitted to binding arbitration
under the arbitration rules of the DIFC-LCIA Arbitration Centre (the "Rules”) from time to time
in force, which Rules are deemed to be incorporated by reference save for Article 5.6 of the Rules
which is deemed to be amended to give effect to Clause 13(b) below.
(a) The "seat", or legal place, of the arbitration shall be the Dubai International
Financial Centre, Dubai, United Arab Emirates. The hearings will take place in Dubai,
United Arab Emirates. The arbitration shall be conducted in the English language.
3.5-4
(b) The number of arbitrators shall be three. The Parties shall each nominate one
arbitrator for appointment by the LCIA Court (as defined in the Rules) within twenty-eight
(28) days of the Request for Arbitration (as defined in the Rules). Within twenty-eight (28)
days of the nomination of the Respondent’s arbitrator the Party-nominated arbitrators shall
together nominate the third arbitrator (the Arbitration Chairman) for appointment by the
LCIA Court, but if, by the end of that period the Party-nominated arbitrators have failed to
nominate a third arbitrator then the third arbitrator shall be nominated and appointed by the
LCIA Court.
In no event may the material provisions of this Continuing Guaranty, or any ancillary agreement
executed in connection with this Continuing Guaranty, including without limitation, the method
of operation, authorized product line sold or monetary obligations specified in this Continuing
Guaranty, amendments to this Continuing Guaranty or the Operating Manual be amended, waived,
modified or changed by the arbitrator at any arbitration hearing. The substantive law applied in
such arbitration shall be the laws of the State of Kansas, U.S.A. The arbitration and the parties’
agreement to arbitrate shall be deemed to be self-executing, and if either party fails to appear at
any properly-noticed arbitration proceeding, an award may be entered against such party despite
said failure to appear. Failure by either party to pay the fees (or provide a required deposit) of the
arbitrator and/or the arbitration administrator in accordance with the applicable rules and policies
shall result in a forfeiture by the non-paying party of the right to prosecute or defend the claim
which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the
arbitration proceedings. The arbitral decision shall be binding and conclusive on the parties. A
judgment confirming the award may be given by any court having jurisdiction, or that court may
vacate, modify, or correct the award in accordance with the prevailing provisions of the Kansas
statute governing arbitration.
Nothing in this Section shall prejudice the right of any party to obtain provisional relief or
other equitable remedies from a court of competent jurisdiction as shall otherwise be available
under the Legal Requirements.
14. Waiver of Jury Trial; Venue
THE PARTIES: (1) WAIVE THEIR RIGHT TO JURY TRIAL WITH RESPECT TO ALL
CLAIMS AND ISSUES ARISING UNDER, IN CONNECTION WITH, TOUCHING UPON OR
RELATING TO THIS CONTINUING GUARANTY, INCLUDING ANY BREACH AND/OR
THE SCOPE OF THE PROVISIONS OF THIS SECTION, WHETHER SOUNDING IN
CONTRACT OR TORT, AND INCLUDING WITHOUT LIMITATION ANY CLAIM FOR
FRAUDULENT INDUCEMENT; AND (2) AGREE THAT DUBAI, UNITED ARAB
EMIRATES SHALL BE THE VENUE FOR ANY ARBITRATION ARISING UNDER THIS
CONTINUING GUARANTY. THE PARTIES ACKNOWLEDGE THAT THEY HAVE
REVIEWED THIS SECTION AND HAVE HAD THE OPPORTUNITY TO SEEK
INDEPENDENT LEGAL ADVICE AS TO ITS MEANING AND EFFECT.
___________
GUARANTOR
INITIALS
_____________
PAYLESS
INITIALS
3.5-5
15.
ADVICE OF COUNSEL. GUARANTOR ACKNOWLEDGES THAT GUARANTOR
HAS OBTAINED THE ADVICE OF COUNSEL IN CONNECTION WITH THE TERMS AND
PROVISIONS OF THIS CONTINUING GUARANTY.
16.
Entire Agreement. This Continuing Guaranty contains the complete understanding of the
parties hereto with respect to the subject matter herein. Guarantor acknowledges that Guarantor
is not relying upon any statements or representations of Payless not contained in this Continuing
Guaranty and that such statements or representations, if any, are of no force or effect and are fully
superseded by this Continuing Guaranty. This Continuing Guaranty may only be modified by a
writing executed by Guarantor and Payless.
IN WITNESS WHEREOF, Guarantor has executed this Continuing Guaranty this ____ day of
__________, 2015.
Al Zwetina General Trading LLC, P.O. Box 28086, Dubai, U.A.E, a company organized under the
laws of the United Arab Emirates.
By:
_________________________________
Name: _________________________________
Title: _________________________________
3.5-6
EXHIBIT 5.4
MARKETING EXPENSE REPORT SUMMARY
Marketing Expense Report Summary
Marketing Expenses
YTD 20__
Quarter 1
January
$
-
February
$
-
March
$
-
Quarter 2
April
$
-
May
$
-
June
$
-
Quarter 3
July
$
-
August
$
-
September
$
-
Quarter 4
Monthly Totals
October
$
-
November
$
-
December
$
-
Grand Opening Expenses
Quarter 1
$
-
February
$
-
March
$
-
Quarter 2
April
$
-
May
$
-
June
$
-
Quarter 3
July
$
-
August
$
-
September
$
-
Quarter 4
Monthly Totals
January
October
$
-
November
$
-
December
$
-
5.4-1
Quarterly Totals
$
-
$
-
$
-
$
-
Quarterly Totals
$
-
$
-
$
-
$
-
Marketing expense report
Quarter __ - 20__
Month _______
Date
Receipt
No.
Description
Design
$
-
Print
Production
$
-
Media Buying
$
-
Distribution/
Postage
$
-
Public
Relations
$
-
Entertainment
$
-
Misc.
Research
$
-
$
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Subtotal
Month _______
Date
Receipt
No.
Description
Design
$
-
Print
Production
$
-
Media Buying
$
-
Distribution/
Postage
$
-
Public
Relations
$
-
Entertainment
$
-
Misc.
Research
$
-
$
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Subtotal
Month _______
Date
Receipt
No.
Description
Design
$
-
Print
Production
$
-
Media Buying
$
-
Distribution/
Postage
$
-
Public
Relations
$
-
Entertainment
$
-
Misc.
Research
$
-
$
Total
Monthly Total
Quarter __ Total
Month _______
$
-
Month _______
$
-
Month _______
$
-
$
-
5.4-2
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Subtotal
Summary
$
[DOCUMENT TITLE]
EXHIBIT 7.1
SITE REPORT
SDC Executive Summary
Store Name:
Store Opening Date:
Franchise Partner
Date Submitted:
IRR %
Latitude
NPV:
Longitude
Square Feet
5 ft section count
Square Meters
Rec. 5ft Section count
Yr 1 sales Projection (USD)
Site Grade
Country
Location Grade
City
RE Type -
CAPX (Est. Build-Out Expense)
Occupancy Expense % (Year 1)
Occupancy Growth
Payroll Expense (as a % of sales)
Signed Lease
Lease Term
Mall Sales Per Sq Ft
Mall Gross Leasable Area
Y / N
Date:
(A.B.C)
(A.B.C)
(M, FS, CBD,JC, LD)
Recommendation/Business Case
Real Estate Considerations
1
1
2
2
Examples
Traffic Flow
Visibility
Co Tenants
3
Majors
3
Entrances
4
4
5
5
Transportation
Parking
Buses
Subways
6
6
Retail Operations Viewpoint
Key Site Risks
1
1
2
2
3
3
4
4
Additional Comments/Detail
Examples for Detail
1
Disposable Income
Density of Population
Proximity to other stores
Demographics of area
Previous tennant of site
New Mall or exsisting
2
3
4
6
Franchise Approval
Franchising RE & Store
Development
Date
Franchise V.P. Approval
EVP ROPS
Franchise Director Approval
Update 3/14
7.1-1
[DOCUMENT TITLE]
EXHIBIT 9.3(b)2
DATA WAREHOUSE SAMPLE TEMPLATES
Daily Store Data
Partner
Code
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
store#
10
11
30
31
40
51
60
70
170
280
32
350
Total Sales
Total Sales
Value Plan
Store Name
W/E Date Value(w/ VAT) (w/ VAT)
Day 1
Day 2
Day 3
Mega Mall
3/13/2014
7,067
4,500
0
0
SLP
3/13/2014
5,647
4,500
0
0
Ali Mall
3/13/2014
5,089
4,500
0
0
Galleria Mall
3/13/2014
6,277
4,500
0
0
Greenhill Mall
3/13/2014
3,771
4,500
0
0
Rockwell Mall (Power Plant)
3/13/2014
8,716
4,500
0
0
Market Market
3/13/2014
10,618
4,500
0
0
Festival
3/13/2014
14,588
4,500
0
0
Marquee Mall
3/13/2014
4,598
4,500
0
0
Paseo Mall
3/13/2014
13,905
4,500
0
0
Trinoma
3/13/2014
6,367
4,500
0
0
Ayala Center
3/13/2014
3,625
4,500
0
0
Day 4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Day 5 Day 6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Day 7
Transactions Day 1
Day 2
Day 3
7,067
54
0
0
5,647
29
0
0
5,089
32
0
0
6,277
47
0
0
3,771
33
0
0
8,716
65
0
0
10,618
85
0
0
14,588
101
0
0
4,598
27
0
0
13,905
100
0
0
6,367
44
0
0
3,625
29
0
0
Day 4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Day 5 Day 6
0
0
0
0
0
0
0
0
0
0
0
0
Day 7
0
0
0
0
0
0
0
0
0
0
0
0
54
29
32
47
33
65
85
101
27
100
44
29
Traffic Day 1
Day 2
Day 3
0
0
0
0
0
0
0
0
0
560
0
0
0
0
0
888
0
0
1,809
0
0
18
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Day 4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Day 5 Day 6
0
0
0
0
0
0
0
0
0
0
0
0
Day 7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
560
0
888
1,809
18
0
0
0
0
Total Sales
Units
Day 1
66
52
48
59
43
76
104
128
48
133
57
32
Day 2
0
0
0
0
0
0
0
0
0
0
0
0
Day 3
0
0
0
0
0
0
0
0
0
0
0
0
Day 4
0
0
0
0
0
0
0
0
0
0
0
0
Day 5
0
0
0
0
0
0
0
0
0
0
0
0
“Daily Store Data” file is required to be uploaded to Payless SFTP server daily prior to 4 a.m.
CST. A completed daily file for each ending week should also be uploaded every Monday
prior to 4 a.m. CST.
Weekly Lot Data
Parnter
Code
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
SSPH
Week
Ending
Store #
3/13/2014
10
3/13/2014
10
3/13/2014
10
3/13/2014
10
3/13/2014
10
3/13/2014
11
3/13/2014
11
3/13/2014
11
3/13/2014
11
3/13/2014
11
3/13/2014
30
3/13/2014
30
3/13/2014
30
3/13/2014
30
3/13/2014
30
3/13/2014
31
3/13/2014
31
3/13/2014
31
3/13/2014
31
3/13/2014
31
Store Name
Mega Mall
Mega Mall
Mega Mall
Mega Mall
Mega Mall
SLP
SLP
SLP
SLP
SLP
Ali Mall
Ali Mall
Ali Mall
Ali Mall
Ali Mall
Galleria Mall
Galleria Mall
Galleria Mall
Galleria Mall
Galleria Mall
PSS Lot
#
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
126305
Partner Lot
Partner Lot # PSS Lot Description
Description
Size
CCP126305
CCP BRN PAMELA ESP MID WDG
PAMELA
SLG-S
ESP MID WDG SLG 50
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
60
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
70
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
80
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
90
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
50
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
60
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
70
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
80
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
90
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
50
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
60
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
70
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
80
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
90
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
50
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
60
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
70
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
80
CCP126305
CCP BRN PAMELA ESP MID WDGPSS
SLG-S
Sandal Example
90
Cat
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Womens
Dept
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
Class
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
Partner
Season
Code
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
S14
Own Retail
(include
VAT)
15
15
15
15
15
15
15
15
15
15
15
15
15
15
15
15
15
15
15
15
VAT
Rate
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
Tagged
Retail
(Include
VAT)
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
Gross
Sales
Value (w/
VAT)
10
50
20
60
40
10
50
20
60
40
10
50
20
60
40
200
100
50
700
110
Sales
Units
1
5
2
6
4
1
5
2
6
4
1
5
2
6
4
20
10
5
70
11
EOP OH
Inv U
7
6
3
5
2
7
6
3
5
2
7
6
3
5
2
9
11
15
12
20
Intransit
Gross
Units
Markdown $
2
5
1
25
3
10
5
30
2
20
2
5
1
25
3
10
5
30
2
20
2
5
1
25
3
10
5
30
2
20
1
100
2
50
6
25
4
350
8
55
“Weekly Lot Data” file is required to be uploaded to Payless server every Monday prior to 4
a.m. CST.
9.3(b)2-1
Day 6
0
0
0
0
0
0
0
0
0
0
0
0
Day 7
0
0
0
0
0
0
0
0
0
0
0
0
66
52
48
59
43
76
104
128
48
133
57
32
[DOCUMENT TITLE]
EXHIBIT 11.1
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into this
_________________________, 2015, by and between the following parties:
____
day
of
[Payless], a company organized under the laws of [ ] with its principal office at
_________________________________________________ (“PAYLESS”).
__________________________________, a company organized under the laws of ____________
with
its
principal
office
at
____________________________________________________________ (“__________”)and
[_________________] are collectively referred to as “___________________”)
____________________________________________________________________________of
____________________________________________________________ (“you”)
Preambles
A.
PAYLESS and ______________ are parties to an International Franchise
Agreement dated the ____________________, _____ (the “Franchise Agreement”).
B.
Pursuant to the Franchise Agreement ________ is obliged to cause you to enter into
this Agreement for the purpose of protecting confidential and proprietary information disclosed by
PAYLESS to ____________ for the purposes of the Franchise Agreement.
C.
At the request of ______________ and in consideration for Payless entering into
the Franchise Agreement you agree to the terms and conditions of this Agreement.
Operative Terms
1.
Non-Disclosure. You are strictly prohibited from communicating with any person
outside _________________ or its affiliates (the “Group"), or with any person within the Group
(save to the extent necessary in the performance of duties or where specifically authorized) about
any current or future activities or matter (which includes confidential information provided by
Payless and its affiliates and the identity of Customers, Prospective Customers, and suppliers) not
known to the public at large ("Confidential Information"), whether during or after your
employment with ____________. Confidential information of Payless that is included in the
“Confidential Information” includes, among other things, information concerning Payless’s:
(i)
Cost of goods sold and other pricing information;
(ii)
Operations Manual;
11.1-1
(iii) Methods, specifications, inventions, business records, systems and
knowledge of its business
(iv)
Marketing and promotional programs;
(v)
Software and databases;
(vi)
Sales and inventory mixes;
(vii)
Operating and financial information; and
(viii) The terms of the Franchise Agreement
If you receive any requests for Confidential Information, you should make no comment,
and immediately refer the matter to management.
2.
Confidentiality. At no time during or after employment with ______________,
unless properly authorized to do so, should you use, disclose or permit the disclosure of
Confidential Information for any purpose (commercial or otherwise), whether individually or in
association with a third party.
This does not prevent you from disclosing Confidential Information if: ordered to do so
by a court of law; authorized by ______________ in writing; or if such information has become
public other than by your fault.
3.
Post-employment Representations. After you cease to be employed by the
Group, you will not represent to any third party that you are still employed by the Group or lead
them to believe you are in any way still connected with the Group, and you agree not to make any
derogatory remarks about the Group, Payless or any of its employees, officers, customers or
suppliers.
4.
Non-Solicitation. After the termination of your employment for any reason (the
"Leaving Date") you will not, whether directly or indirectly, and whether on your own behalf or
on behalf of any third party at any time during the period of 12 months immediately following
your Leaving Date:
(i)
seek employment from, or accept employment with, or offer to provide, or
provide services to; or
(ii)
carry on or assist with, or otherwise be interested in any business which
sells, provides or intends to provide, products or services competitive with, or which might
be seen as competitive with, Stores or any business or brand with which you have been
involved in the course of your work with the Group in the 12 months prior to such Leaving
Date; or
(iii) (for the benefit of a business in competition with Stores or any business of
the Group): directly or indirectly and whether by yourself or through a third party offer or
facilitate the offer of employment to, or enter into partnership with, any person employed
11.1-2
by or who acted as a consultant to the Group at any point in the 12 months prior to such
Leaving Date; or
(iv)
business):
(for the benefit of a business competitive with Stores or any Group
(a)
canvass or solicit the business of (or so procure or assist); or
(b)
transact or otherwise deal with (or so procure or assist) any
Customer or Prospective Customer, provided that this will not prohibit general
advertising which is not specifically targeted at or sent to Customers or Prospective
Customers.
For the purposes of the above, the following words will have the following meanings:
Customer means:
(a)
Payless; and
(b)
any other person, firm or company who within the period of 12
months preceding the Leaving Date was a customer, client of the Group, being a
person, firm or company with whom the employee dealt personally on behalf of
_______________ or its affiliates, or for whose account the employee had
responsibility during the said period of 12 months; and
Prospective Customer means any person, firm or company who has been engaged in
negotiations with the Group within the 12-month period prior to the Leaving Date with a view to
them becoming a Customer.
5.
General. Please be aware that unauthorized disclosure of Confidential Information
is a serious disciplinary offence, justifying termination without notice or compensation, and may
also result in further legal action (including claims for loss and damages). Either ______________
or Payless may enforce this Agreement.
By countersigning this Agreement you, as an employee, acknowledge that:
(a)
each of the above clauses is an entirely separate and independent restriction on you;
and
11.1-3
(b)
this document constitutes an agreed variation to your existing employment
contract terms.
Signed by the Employee:
Employee Number:
Department:
Signed for and on behalf of Payless:
Name in capitals:
Date:
Date:
Signed for and on behalf of
______________________:
Date:
11.1-4
[DOCUMENT TITLE]
EXHIBIT 15.2
OWNERSHIP
Franchisee and its Owners represent and warrant that the ownership structure and initial
capitalization of Franchisee is as follows:
Share Structure
Owner
Percentage Ownership
AlBashir AlShabah
Mohammed AlShabah
50%
50%
As of the date hereof, Franchisee has issued ____________________ (_________________)
shares or other Ownership Interests. There are no other classes of shares or Ownership Interests.
Initial Capitalization of Franchisee
100,000 LYD
Franchisee represents and warrants that (i) each of Franchisee’s Affiliates is owned, directly or
indirectly, by AlBashir AlShabah.
Franchisee’s Existing Businesses
None
_______________________________
_______________________________
_______________________________
15.2-1