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Tumbleweed - Master International License Agreement
MASTER INTERNATIONAL LICENSE AGREEMENT
This is a Master International License Agreement ("Agreement") dated as of August 29, 1997, between TUMBLEWEED, LLC, a Kentucky limited liability company (the "LICENSOR") and TUMBLEWEED INTERNATIONAL LLC, a Kentucky limited liability company (the "LICENSEE").
RECITALS
A. LICENSOR is engaged in the restaurant and restaurant franchising business and is the owner of the TUMBLEWEED-Registered Trademark- System which is the LICENSOR's total business system, as it now exists or may be changed by the LICENSOR, that LICENSOR has developed or LICENSOR may develop for the operation of Tumbleweed Restaurants and includes: (a) the Trade names "Southwest Mesquite Grill & Bar" and "Tumbleweed Mexican Food & Mesquite Grill"; (b) the LICENSOR's confidential operations manual; (c) a sales reporting system; (d) certain menus, products and secret recipes; (e) the Tumbleweed Marks (as defined below); (f) LICENSOR's trade secrets and know-how for the operation of Tumbleweed Restaurants; (g) a distinctive exterior sign design and arrangement; and (h) a standardized, uniform restaurant service, identified with the word "Tumbleweed" providing distinctive Mexican, Tex-Mex and American Southwest-style food, mesquite-flavored food and other foods, using certain standards, specifications, methods, techniques, procedures, and management systems, all in accordance with fair and ethical policies and practices, high standards of efficiency, courtesy, and cleanliness, and of a distinctive nature and high quality (collectively, the "TUMBLEWEED SYSTEM").
B. The TUMBLEWEED SYSTEM is identified by the trade name Tumbleweed, and the marks Tumbleweed and Tumbleweed Mexican Food, both of which are used together with a distinctive circular design that features either a depiction of (1) a cactus plant, sun and mountain range, or (2) saloon with a desert/sun background design, and other distinctive service marks and trademarks that LICENSOR may own and that LICENSOR may identify in writing as a Tumbleweed mark for use only as LICENSOR may prescribe, in a full service and food court Tumbleweed Restaurants (collectively, the "TUMBLEWEED MARKS")
C. LICENSOR desires to promote, primarily through the grant of sublicenses or franchises, the use of the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS in international restaurants and retail trade and operations (exclusive of the Western Hemisphere) and has the right to use the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS in said restaurant and retail trade and operation. For purposes of this Agreement: (i) "Western Hemisphere" is defined to mean the half of the earth that includes all of North and South America, the surrounding waters, and all neighboring islands, and (ii) "International Territory" is defined to mean the earth, excluding the Western Hemisphere.
D. LICENSEE has or will develop the expertise and structure necessary to promote, develop and support the sublicensing/franchising of the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS in the international markets (exclusive of the Western Hemisphere); and
E. LICENSOR is willing to grant an exclusive license to LICENSEE to use the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS under the terms and conditions provided herein.
THE PARTIES AGREE AS FOLLOWS:
1. EXCLUSIVE RIGHTS.
(a) LICENSOR hereby grants LICENSEE the exclusive right and license to use the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS in the International Territory, in connection with restaurant and bar/lounge services and in connection with the retail or wholesale sale of food products (including alcoholic and nonalcoholic beverages) and for any other lawful purpose. This grant specifically includes the right to grant sublicenses or franchises for the use of the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS within the licensed area and LICENSOR acknowledges that LICENSEE intends to enter into such sublicenses or franchises. This grant is exclusive to LICENSEE, and LICENSOR shall not, during the term of this Agreement, in the International Territory (i) use or license, or attempt to use or license, the TUMBLEWEED MARKS, directly or indirectly, (ii) hold interests in a full service or food court restaurant (as opposed to delivery service) that offers as its primary food-products Mexican, Tex-Mex, American Southwest-style or mesquite-flavored food restaurant business, or (iii) hold interests in a business or enterprise that as its primary food-product manufactures or sells Mexican, Tex-Mex, American Southwest-style or mesquite-flavored food products at retail.
(b) LICENSEE shall have the exclusive right to utilize, develop, sublicense or franchise the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS by itself or with any person, firm, or entity in all or any part of the International Territory on terms negotiated by LICENSEE.
(c) LICENSEE agrees and acknowledges that LICENSOR is the sole owner of the TUMBLEWEED MARKS for the uses intended by LICENSEE as set forth in this Agreement and for all other uses, and that this Agreement shall not create in LICENSEE, nor shall this Agreement be construed as assigning to LICENSEE, any ownership interest or legal title in or to any of the TUMBLEWEED MARKS. All goodwill associated with the TUMBLEWEED MARKS arising from LICENSEE'S use of the TUMBLEWEED MARKS shall inure solely to the benefit of LICENSOR and not to that of LICENSEE. LICENSEE shall not take any action that would have the effect of contesting or challenging the validity of LICENSOR'S ownership of, or legal title in or to, any of the TUMBLEWEED MARKS or any registration of the TUMBLEWEED MARKS.
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(d) Notwithstanding anything in this Agreement to the contrary, LICENSEE shall not sell any of the Tumbleweed Products through delivery services substantially similar to the Tumbleweed Delivery Business. Each of the capitalized terms in this Section 1(d) shall have the meanings given to them in the License and Distribution Agreement between LICENSOR and TM Riders, LLC f/k/a Tex-Mex to You, LLC ("TM Riders, LLC").
2. DISCLOSURE AND USE OF TRADE SECRETS.
(a) LICENSOR will disclose to LICENSEE its TUMBLEWEED SYSTEM upon execution of this Agreement and from time to time as modifications are made to existing TUMBLEWEED SYSTEM as new information is developed or obtained. LICENSEE shall have the exclusive right and license during the term of this Agreement to use LICENSOR'S TUMBLEWEED SYSTEM for the purpose of utilizing, developing, promoting, sublicensing or franchising the license rights covered by this Agreement.
(b) LICENSEE agrees that all disclosures and communications of TUMBLEWEED SYSTEM made by LICENSOR to LICENSEE, and not available to the general public or otherwise available to LICENSEE through means not involving a breach of obligations of confidentiality, shall be kept confidential and LICENSEE shall not disclose any information to any persons or entities, except as provided below.
(c) Notwithstanding any provision or inference to the contrary, LICENSEE may disclose and communicate the TUMBLEWEED SYSTEM to its employees and sublicensees or franchisees, their respective legal and financial advisors, employees, agents, representatives and banks, but only to such extent as shall be necessary to the proper operation of LICENSEE'S business, or the business of such sublicensees and franchisees related thereto. LICENSEE agrees to cause each such persons or entities to undertake to keep the TUMBLEWEED SYSTEM confidential.
3. TERM OF LICENSE. This Agreement shall exist for a term of twenty-five (25) years, and thereafter shall be renewable for successive five (5) year terms at the option of LICENSEE by giving LICENSOR written notice of such intent on the part of LICENSEE on or before six (6) months prior to the expiration of the then current term; provided, however, if LICENSEE elects to extend the term of this Agreement beyond the initial term hereof, the territory to be included in this Agreement subsequent to the initial term shall only be (1) those countries which LICENSOR then approves in writing, and (2) those countries which LICENSEE has utilized, or licensed or franchised, rights to the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS prior to the expiration of the initial term hereof.
4. LICENSE FEE.
(a) LICENSEE will pay to LICENSOR a license fee for the exclusive license rights granted hereunder equal to the greater of (i) One Hundred Dollars ($100.00) per year, or (ii) an amount equal to 15% of any initial license or territory fee and continuing royalty fee received by LICENSEE in connection with the sublicense or franchise of license rights to utilize
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the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS; provided, that any sublicense or franchise granted by LICENSEE shall provide for a minimum initial license or territory fee of Twenty-Five Thousand Dollars ($25,000.00) times the number of Tumbleweed Restaurants to be initially developed in the sublicense or franchise territory (as determined by LICENSEE) and for a minimum continuing royalty of three percent (3%) of gross receipts by the sublicensee or franchisee from the sale of licensed or franchised services or products (subject to deductions normally permitted by LICENSOR to be excluded by its franchisees in the calculation of gross receipts subject to continuing royalty). Any other fees or payments of whatsoever kind or character charged or collected by LICENSEE on account of license rights granted hereunder shall be for the exclusive account of LICENSEE and LICENSOR shall not share or participate in such fees or payments, provided, however, if any restaurant opening or franchise fee or similar fee charged by LICENSEE exceeds Fifty Thousand Dollars ($50,000.00) per restaurant (excluding LICENSOR'S share of the profits if it owns an interest in the restaurant), the excess shall, for purposes of this Agreement only, be deemed to be initial license fees. Any brokerage (excluding real estate or similar brokerage fees) fees paid by LICENSEE to an unrelated third party in connection with a transaction that results in the payment of an initial license or territory fee to LICENSEE shall be offset against the amount of the license or territory fee for purposes of determining LICENSOR'S share of such fee pursuant to this Section 4(a).
(b) The fee payable to LICENSOR with respect to initial license or territory fees received by LICENSEE shall be paid to LICENSOR within thirty (30) days of receipt of such initial license, territory or similar fee by LICENSEE. The fee in respect of continuing royalty fees received by LICENSEE shall be paid no later than thirty (30) days after receipt of the continuing royalty fee by LICENSEE, or, in respect of any direct use of license rights by LICENSEE, no later than thirty (30) days after the close of each fiscal quarter of LICENSEE during the term hereof in respect of sales of licensed services or products for that fiscal quarter (computed in the same manner and at the same rate as if LICENSEE were a sublicensee of the LICENSEE). All payments of fees hereunder shall be accompanied by a written statement showing the amount of sales and license fee received or accrued during the period in respect of which such fee is paid. Each such statement shall be certified as correct and accurate by LICENSEE. Within thirty (30) days after the close of each fiscal year of LICENSEE, LICENSEE shall send a written statement showing the total of gross receipts subject to continuing royalty and the sales of licensed products during that fiscal year and the amount of the license fees received during such year.
(c) LICENSOR shall have the right, upon reasonable notice, to audit the books and records of LICENSEE to determine license fees and royalties received by LICENSEE, provided LICENSOR may not exercise such audit right more frequently than twice during any twelve (12) month period.
(d) In the event that governmental laws or regulations in a particular country prevent or restrict LICENSEE from collecting from a sublicensee or franchisee or repatriating from a particular country initial license, franchise, territory or royalty fees as contemplated herein, then LICENSOR and LICENSEE will negotiate in good faith a satisfactory alternate fee arrangement hereunder prior to completion of the sublicense or franchise in such country.
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(e) If LICENSEE pays LICENSOR pursuant to Section 4(a) of this Agreement an aggregate of $300,000.00 or more in license fees during any 12 month period commencing as of the date of this Agreement, or any 12 month period commencing as of an anniversary date of this Agreement (in each case, a "Contract Year"), then the 15% license fee percentage set forth in Section 4(a) shall be reduced by 2% per year for the next five succeeding Contract Years (i.e., a reduction of the license fee from 15% to 5% over the next five succeeding Contract Years); provided, however, that the minimum license fee payable by LICENSEE to LICENSOR during any Contract Year commencing after the Contract Year triggering the license fee percentage reduction pursuant to this Section 4(e) shall be $300,000.00.
(f) Notwithstanding anything in this Section 4 to the contrary, if LICENSEE has converted any existing restaurants of LICENSEE to Tumbleweed Restaurants, then LICENSEE shall be entitled to a credit against any fees due pursuant to this Section 4 until LICENSEE has fully recovered the agreed-upon cost of conversion. LICENSEE shall be entitled to a credit with respect to the conversion of a particular restaurant equal to the actual cost of such conversion, upon providing LICENSOR with satisfactory documentation of such expenditures. Notwithstanding the previous sentence, the credit with respect to the conversion of a restaurant shall not exceed $60,000.00, unless LICENSEE obtains advance approval from LICENSOR of any expenditures in excess of such amount, which approval shall not be unreasonably withheld.
5. DEVELOPMENT SCHEDULE.
(a) LICENSEE shall construct and open, or convert from another restaurant concept, or cause to be constructed and opened, or converted from another concept, whether through sublicensees, franchisees or otherwise, a minimum of four (4)Tumbleweed Restaurants per Contract Year starting with the Contract Year commencing during calendar year 1998.
(b) In the event that during any Contract Year LICENSEE or its sublicensees or franchisees construct and open or convert from another concept more than four (4) Tumbleweed Restaurants, then LICENSEE'S development obligation for subsequent Contract Years (starting with the very next Contract Year) shall be reduced by such number.
(c) In the event LICENSEE defaults in the performance of its development obligations set forth in this Section 5 during any Contract Year, and LICENSEE or a sublicensee or franchisee of LICENSEE does not, within six (6) months following the end of such Contract Year have open or under construction, or in the process of conversion from another restaurant concept, such number of Tumbleweed Restaurants as would, if opened, satisfy LICENSEE'S development obligations for the then-Contract Year and all preceding Contract Years on a cumulative basis, then LICENSOR, as its sole and exclusive remedy, may terminate this Agreement as a result of such default unless LICENSEE notifies LICENSOR that it desires to continue this Agreement and agrees to pay, and thereafter does pay LICENSOR as liquidated damages, and as LICENSOR'S sole and exclusive remedy for such default, an amount equal to the license fee from continuing royalties LICENSOR would have received had LICENSEE satisfied its development obligations hereunder, and in such event this Agreement shall not be
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terminated as a result of such default. For purposes of this Section 5, the license fee from continuing royalties will be payable as if (i) the license fee charged was 15 percent (15%); (ii) the restaurant or restaurants had opened on the last day of the six (6) month period referred to above; and (iii) the weekly gross revenues of each restaurant were equal to 1/52nd of the trailing 12 month per store average for all Tumbleweed Restaurants opened pursuant to this Agreement which as of the date of computation have been opened for at least 12 months; provided, however, that if there are less than six Tumbleweed Restaurants opened pursuant to this Agreement as of the date of computation, then all Tumbleweed Restaurants, including those located in the Western Hemisphere, shall be used in making the computation.
(d) In the event LICENSEE does not elect to pay, or having elected to pay, LICENSEE fails to pay, the liquidated damages as set forth in Section 5(c) to continue this Agreement and LICENSOR terminates this Agreement, this Agreement shall, in any event, continue in full force and effect in respect of (i) any territory sublicensed or franchised by LICENSEE provided such sublicensee or franchisee is not then in default of its development obligation and (ii) a territory defined as a six (6) mile radius of any Tumbleweed Restaurant then opened or under construction or conversion by LICENSEE or any sublicensee or franchisee of LICENSEE in any other territory.
6. TRADEMARK REGISTRATION. In any country where the TUMBLEWEED MARKS are not registered (or the registration may be subject to expiration or cancellation) and LICENSEE has a definitive agreement to exploit the license rights in such country, or in good faith believes it will have such agreement within 12 months, LICENSEE may request LICENSOR to make necessary application to register the TUMBLEWEED MARKS in such country. LICENSEE shall bear costs of such registration or continuation for all marks for any particular country. LICENSOR, at LICENSEE's expense, shall make such filings and take such other actions reasonably necessary to keep effective and continue any existing international trademark or service mark registration of the TUMBLEWEED MARKS.
7. DEFENSE OF MARK AND INFRINGEMENTS. LICENSEE shall notify LICENSOR promptly of any written allegation or claim that the use by LICENSEE or LICENSOR of any TUMBLEWEED SYSTEM OR TUMBLEWEED MARKS infringes upon the rights of any other person or entity. Except as provided in this Section 7, LICENSOR shall have absolute control of any claim or litigation involving allegations of infringement of any trademark, service mark, trade name or copyright by third parties. If LICENSEE learns of any use by any third party of a trade name or trademark or service mark or copyright the same as or confusingly similar to any TUMBLEWEED MARK, LICENSEE shall promptly notify LICENSOR, and, if requested by LICENSOR, shall join with LICENSOR, at LICENSOR'S expense, in such action as LICENSOR, in its sole discretion, may deem advisable for the protection of LICENSEE'S rights. Except as provided in this Section 7, LICENSEE shall not take any action with respect to any TUMBLEWEED MARK which is substantially adversarial in nature and not otherwise explicitly permitted under this Agreement without the LICENSOR'S express prior written approval, provided, if after notice from LICENSEE, LICENSOR does not promptly commence a defense of the TUMBLEWEED MARKS or an action to contest any confusingly similar use then LICENSEE may commence such action as its legal advisors indicate is necessary or desirable to
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protect the license rights acquired by LICENSEE hereunder. LICENSOR shall defend the TUMBLEWEED MARKS and agrees to pay for the cost of defending the TUMBLEWEED MARKS; provided, however, that LICENSOR'S obligation to pay such cost in any Contract Year shall be limited to an amount equal to the aggregate licensee fees received by LICENSOR from LICENSEE during the Contract Year from Tumbleweed Restaurants located in the country in which such controversy arose. If LICENSOR has reached its required limit with respect to defending the TUMBLEWEED MARKS in a given country as contemplated in the preceding sentence, then LICENSOR shall have the option of withdrawing from the defense of such action, unless LICENSEE agrees to pay for the cost of continuing the defense of the TUMBLEWEED MARKS in such country during such Contract Year.
8. SUPERVISION AND QUALITY CONTROL. LICENSEE and its sublicensees and franchisees shall provide services and produce and distribute products pursuant to the license rights granted hereunder of high quality in accordance with all applicable laws and regulations. The exploitation by LICENSEE of the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS shall be of a high standard that shall not reflect in any material adverse manner upon the good name of LICENSOR or the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS. The quality of any products bearing the TUMBLEWEED MARKS shall be subject to approval by LICENSOR prior to distribution or sale. LICENSOR shall not withhold such approval unless LICENSOR determines in good faith that the sale of such product would have a material adverse effect on the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS or the operation of Tumbleweed Restaurants by LICENSOR or its franchisees in the Western Hemisphere. Any product sample submitted to LICENSOR by LICENSEE shall be deemed approved unless disapproved by LICENSOR in writing specifying the reason for such disapproval within twenty-one (21) days following receipt thereof. Any substantial changes in any product previously approved by LICENSOR shall be submitted to LICENSOR for its approval in accordance with this Section 8.
9. IMPROVEMENTS BY LICENSEE. If LICENSEE or any of its sublicensees or franchisees or the employees, agents or independent contractors of any of them make, develop or invent improvements to the TUMBLEWEED SYSTEM and/or products or services sold pursuant to this Agreement, LICENSEE shall grant to LICENSOR and shall use its reasonable best efforts to cause its sublicensees, franchisees, employees, agents or independent contractors to grant to LICENSOR a limited, non-exclusive, royalty-free license in the Western Hemisphere to use such improvements in its or any of its subsidiary, parent or affiliate's restaurant and restaurant franchising businesses.
10. ADDITIONAL AGREEMENTS OF LICENSOR. LICENSOR agrees that, at all times during the term of this Agreement, it shall upon request of LICENSEE:
(a) provide to LICENSEE a copy of any of its architectural plans and specifications for the prototype Tumbleweed Restaurant and will provide to LICENSEE upon request any materially updated or changed plans and specifications for the prototype Tumbleweed Restaurant, in each case free of cost to LICENSEE;
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(b) furnish LICENSEE with a copy of its operations and training manuals and recipes and all updates and revisions thereto and furnish to LICENSEE a set of such manuals concurrently with the opening of each Tumbleweed Restaurant by any sublicensee or franchisee of LICENSEE, free of cost to LICENSEE;
(c) permit LICENSEE and its sublicensees or franchisees, at LICENSEE'S cost, to utilize LICENSOR'S in-store management training programs in the United States, free of any fees charged by LICENSOR for training, but otherwise at LICENSEE'S expense;
(d) furnish LICENSEE with menus and marketing materials as requested by LICENSEE upon payment of the cost thereof plus twenty percent (20%);
(e) furnish LICENSEE with all training materials at LICENSOR's reproduction cost;
(f) provide, in the International Territory, at LICENSEE'S reasonable request and at LICENSEE'S cost (including direct expenses of salary, fringe benefits and travel), LICENSOR's training personnel;
(g) provide support services to LICENSEE, and at such cost to LICENSOR and/or LICENSEE, as may be mutually agreed upon from time to time; and
(h) use reasonable best efforts to cause all product suppliers to LICENSEE to include labeling information provided by LICENSEE, to the extent that such supplies are obtained through LICENSOR or through a contract negotiated by LICENSOR.
11. ADDITIONAL AGREEMENTS OF LICENSEE. LICENSEE agrees that, at all times during the term of this Agreement, it shall:
(a) insure that all food or other products served or sold by LICENSEE hereunder or pursuant to sublicensees or franchisees granted by LICENSEE is of high quality and substantially conforms to the ingredients, portions, presentation, method of service, quality, coloring, flavoring, formula, packaging and other characteristics specified by LICENSOR, subject to such changes as may be reasonably be made by LICENSEE or its sublicensee or franchisee to satisfy local demographics, cultural or market conditions;
(b) maintain or cause to be maintained, in each Tumbleweed Restaurant operated by it or pursuant to sublicense or franchise from LICENSEE, the equipment and all of the property located in such restaurant in a first-class condition and repair and shall keep the same clean, neat, well lit and sanitary, all in substantial compliance with written standards prescribed from time to time by LICENSOR. LICENSEE agrees to promptly effect all maintenance, repairs and replacements needed in connection with maintaining each Tumbleweed Restaurant in a good condition and appearance;
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(c) substantially comply with all applicable laws, ordinances, regulations, rules and other requirements of all applicable governmental authorities in connection with licensed activities of LICENSEE or its sublicensees or franchisees;
(d) permit LICENSOR at any and all reasonable times without prior notification to enter and inspect each restaurant or other place of business operated by LICENSEE or any sublicensee or franchisee of LICENSEE utilizing the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS and to (i) test and evaluate any and all equipment, food products, food ingredients, beverages and supplies and other products, if any, located therein and (ii) evaluate, interview and meet with any and all employees and agents of LICENSEE or any such sublicensee or franchisee, in order to assure itself that the provisions of this Agreement are being observed and complied with. If LICENSOR finds that any food, ingredients, supplies or other products do not substantially meet current standards of LICENSOR after giving effect to reasonable local demographic, cultural or market conditions, same shall immediately be removed, even if such removal results in the disposal of products held in its inventory; and
(e) exploit the license rights granted hereunder in good faith in a manner reasonably determined to promote the maximum license fee payments to LICENSOR, consistent with sound business and financial considerations of LICENSEE. LICENSEE agrees to take such measures as are commercially prudent to insure that any sublicensee or franchisee of it make timely payments of license and franchise fees due LICENSEE.
12. TERMINATION.
(a) This Agreement shall be subject to termination by either party upon a material default by the other party in the performance of any material term, condition or covenant of this Agreement, and failure to remedy such default within thirty (30) days after notice or demand by the other party. If the default cannot reasonably be remedied within said thirty (30) day period, this Agreement shall not be subject to termination as long as the defaulting party is diligently and in good faith remedying the default.
(b) This Agreement may be terminated by LICENSOR, if after notice by LICENSOR to LICENSEE, LICENSEE fails to remedy such default...
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