Master Franchise Agreement

ADVANCED COMMUNICATIONS


INTERNATIONAL MASTER FRANCHISE AGREEMENT


Between


ACCESS POWER, INC.,
a Florida corporation


(Franchisor)


and


ACCESS POWER CANADA, INC.,
a Federal corporation


(Master Franchisee)


Dated: April 26, 1998


Master Franchise Territory:


Canada


ACCESS POWER INTERNATIONAL MASTER FRANCHISE AGREEMENT


BACKGROUND 6


ARTICLE 1 - APPOINTMENT 7


SECTION 1.1 GRANT. 7 SECTION 1.2 MASTER FRANCHISE TERRITORY. 7 SECTION 1.3 EXCLUSIVITY. 7


ARTICLE 2 - DUTIES OF THE FRANCHISOR 8


SECTION 2.1 TRAINING. 8 SECTION 2.2 LOAN OF THE ACCESS POWER MANUALS. 8 SECTION 2.3 ASSISTANCE AND SUPPORT. 9 SECTION 2.4 PRIVATE LABEL PRODUCTS. 10 SECTION 2.5 LIQUIDATED DAMAGES FOR SALE OF PROHIBITED PRODUCTS OR
SERVICES. 10 SECTION 2.6 LICENSES. 11 SECTION 2.7 DUTIES SOLELY TO THE MASTER FRANCHISEE. 11 SECTION 2.8 THE FRANCHISOR'S RIGHT TO DELEGATE DUTIES. 11


ARTICLE 3 - DUTIES OF THE MASTER FRANCHISEE 12


SECTION 3.1 MANAGEMENT OF MASTER FRANCHISEE OPERATIONS. 12 SECTION 3.2 TRAINING OF EMPLOYEES AND FRANCHISEES. 12 SECTION 3.3 HIRING AND TRAINING OF EMPLOYEES. 12 SECTION 3.4 FRANCHISE SALES. 12 SECTION 3.5 PRE-OPENING ASSISTANCE TO FRANCHISEES. 13 SECTION 3.6 CONTINUED ASSISTANCE AND SUPPORT OF FRANCHISEES. 13 SECTION 3.7 OTHER OBLIGATIONS AND REQUIREMENTS. 14 SECTION 3.8 INSURANCE. 15 SECTION 3.9 WAIVER OF SUBROGATION. 16 SECTION 3.10 EFFECT OF FRANCHISOR INSURANCE. 16 SECTION 3.11 FAILURE TO MAINTAIN INSURANCE. 16 SECTION 3.12 CONFIDENTIALITY. 16 SECTION 3.13 COMPLIANCE WITH FRANCHISE AGREEMENTS. 16


ARTICLE 4 - FEES, COMPENSATION AND INCENTIVES 17


SECTION 4.1 MASTER FRANCHISE FEE. 17 SECTION 4.2 MASTER FRANCHISE FEE RELIEF. 17 SECTION 4.3 ADDITIONAL MASTER FRANCHISE FEE PAYMENT TERMS. 17 SECTION 4.4 POPULATION COVERAGE INCENTIVE. 18 SECTION 4.5 ROYALTIES AND OTHER FEES. 18


ARTICLE 5 - BILLING AND PAYMENTS 19


SECTION 5.1 STANDARD BILLING PRACTICES. 19 SECTION 5.2 SPECIAL SERVICES BILLING. 19 SECTION 5.3 BILLING OF USAGE ACROSS THE NETWORK. 19 SECTION 5.4 INTEREST ON LATE PAYMENTS; LATE CHARGE. 19 SECTION 5.5 PAYMENT TO THE FRANCHISOR; CURRENCY. 20 SECTION 5.6 WITHHOLDING TAXES; VALUE-ADDED TAXES AND OTHER TAXES. 20 SECTION 5.7 COLLATERAL ASSIGNMENT OF FRANCHISE AGREEMENTS. 21


2 ARTICLE 6 - OPERATION OF MASTER FRANCHISEE IP TELEPHONY UNITS 21


SECTION 6.1 ADVERTISING. 21 SECTION 6.2 LINK AND MONITOR OF IP TELEPHONY UNITS. 21 SECTION 6.3 FRANCHISOR TEMPORARY OPERATION OF MASTER FRANCHISEE IP
TELEPHONY UNIT(S). 21 SECTION 6.4 OPERATIONAL REQUIREMENTS. 22


ARTICLE 7 - PROPRIETARY PROPERTY 23


SECTION 7.1 THE FRANCHISOR'S REPRESENTATIONS AS TO THE PROPRIETARY MARKS. 23 SECTION 7.2 THE MASTER FRANCHISEE'S USE AND SUBLICENSE OF THE
PROPRIETARY PROPERTY. 24 SECTION 7.3 INFRINGEMENT BY THE MASTER FRANCHISEE. 24 SECTION 7.4 CLAIMS AGAINST THE PROPRIETARY PROPERTY. 25 SECTION 7.5 INDEMNIFICATION OF THE MASTER FRANCHISEE. 25 SECTION 7.6 THE FRANCHISOR'S RIGHT TO MODIFY THE PROPRIETARY MARKS. 25 SECTION 7.7 OWNERSHIP; INUREMENT SOLELY TO THE FRANCHISOR. 25 SECTION 7.8 FRANCHISOR RESERVATION OF RIGHTS. 26


ARTICLE 8 - ACCESS POWER MANUALS AND OTHER CONFIDENTIAL INFORMATION 26


SECTION 8.1 IN GENERAL. 26 SECTION 8.2 CONFIDENTIAL USE. 26 SECTION 8.3 PERIODIC REVISIONS. 27 SECTION 8.4 PRIOR INFORMATION. 27


ARTICLE 9 - ACCOUNTING AND RECORDS 27


SECTION 9.1 BOOKS AND RECORDS. 27 SECTION 9.2 REPORTS AND STATEMENTS. 28 SECTION 9.3 REVIEW AND AUDIT BY THE FRANCHISOR. 28 SECTION 9.4 CONFIDENTIALITY. 28 SECTION 9.5 MASTER FRANCHISEE NAME, HOME ADDRESS AND TELEPHONE NUMBER. 28


ARTICLE 10 - TRANSFER OF INTEREST 29


SECTION 10.1 TRANSFER BY THE FRANCHISOR. 29 SECTION 10.2 TRANSFER BY MASTER FRANCHISEE. 29 SECTION 10.3 THE FRANCHISOR'S RIGHT OF FIRST REFUSAL. 31 SECTION 10.4 SECURITIES OFFERINGS BY THE MASTER FRANCHISEE. 32


ARTICLE 11 - DEFAULT AND TERMINATION 33


SECTION 11.1 TERMINATION BY THE MASTER FRANCHISEE. 33 SECTION 11.2 TERMINATION BY THE FRANCHISOR - WITHOUT NOTICE. 34 SECTION 11.3 TERMINATION BY THE FRANCHISOR - AFTER NOTICE. 34 SECTION 11.4 TERMINATION BY THE FRANCHISOR - AFTER NOTICE AND RIGHT TO CURE. 35 SECTION 11.5 TERMINATION NON-PARTY INITIATED. 35


ARTICLE 12 - OBLIGATIONS OF THE MASTER FRANCHISEE UPON TERMINATION OR EXPIRATION 36


SECTION 12.1 PAYMENT OF OUTSTANDING AMOUNTS. 36 SECTION 12.2 RETURN OF MATERIALS. 36 SECTION 12.3 LOSS OF EXCLUSIVITY; CESSATION OF SALES; CESSATION OF SERVICES. 36 SECTION 12.4 CHANGE OF CORPORATE NAME. 37 SECTION 12.5 COMPETITION DIFFERENTIATION. 37


3 ARTICLE 13 - INDEPENDENT COVENANTS OF THE MASTER FRANCHISEE 37


SECTION 13.1 DEVOTION TO THE SALE AND SERVICE OF FRANCHISES. 37 SECTION 13.2 DIVERSION OF BUSINESS; COMPETITION AND INTERFERENCE WITH THE
FRANCHISOR. 37 SECTION 13.3 MODIFICATION OF COVENANTS. 39 SECTION 13.4 INDEPENDENT COVENANTS. 39


ARTICLE 14 - INDEPENDENT CONTRACTOR AND INDEMNIFICATION 39


SECTION 14.1 INDEPENDENT STATUS. 39 SECTION 14.2 INDEMNIFICATION. 39


ARTICLE 15 - REPRESENTATIONS AND WARRANTIES 40


SECTION 15.1 NO RELIANCE. 40 SECTION 15.2 REPRESENTATIONS OF THE FRANCHISOR. 40 SECTION 15.3 REPRESENTATIONS OF THE MASTER FRANCHISEE; OPINION OF COUNSEL. 40 SECTION 15.4 ACKNOWLEDGEMENT OF RISK. 41


ARTICLE 16 - MEDIATION AND ARBITRATION; EQUITABLE RELIEF 42


SECTION 16.1 MEDIATION AND ARBITRATION. 42 SECTION 16.2 EXCEPTIONS TO MEDIATION AND ARBITRATION; EQUITABLE RELIEF. 43


ARTICLE 17 - TERM 43


SECTION 17.1 MASTER FRANCHISE TERM. 43 SECTION 17.2 OPTION TO OBTAIN SUCCESSOR ACCESS POWER INTERNATIONAL MASTER
FRANCHISE AGREEMENT. 44 SECTION 17.3 REINSTATEMENTS AND EXTENSIONS. 44


ARTICLE 18 - DEFINITIONS 44


SECTION 18.1 DEFINITIONS. 44 SECTION 18.2 OTHER DEFINITIONAL PROVISIONS. 48


ARTICLE 19 -GENERAL PROVISIONS 48


SECTION 19.1 RELEASE OF PRIOR CLAIMS. 48 SECTION 19.2 AMENDMENTS. 48 SECTION 19.3 PROMOTIONAL ALLOWANCES. 49 SECTION 19.4 MODIFICATION OF THE SYSTEM. 49 SECTION 19.5 BINDING EFFECT. 49 SECTION 19.6 NOTICES. 49 SECTION 19.7 HEADINGS. 50 SECTION 19.8 SEVERABILITY. 50 SECTION 19.9 WAIVERS. 50 SECTION 19.10 ENFORCEMENT COSTS. 51 SECTION 19.11 JURISDICTION AND VENUE. 51 SECTION 19.12 REMEDIES CUMULATIVE. 51 SECTION 19.13 EFFECTIVENESS; COUNTERPARTS. 51 SECTION 19.14 CONSENTS, APPROVALS AND SATISFACTION. 52 SECTION 19.15 GOVERNING LAW. 52 SECTION 19.16 INTERPRETATION. 52 SECTION 19.17 ENTIRE AGREEMENT. 53 SECTION 19.18 SURVIVAL. 53


4 SECTION 19.19 FORCE MAJEURE. 53 SECTION 19.20 THIRD PARTIES. 53 SECTION 19.21 RIGHT OF PARTIES. 53 SECTION 19.22 LANGUAGE. 53 SECTION 19.23 WAIVER OF PUNITIVE DAMAGES CLAIMS. 54 SECTION 19.24 WAIVER OF JURY TRIAL. 54


FORM OF ACCESS POWER FRANCHISE AGREEMENT 56


TRADEMARKS GRANTED AND FILED 57


VOCAL TEC GATEWAY SOFTWARE LICENSE AGREEMENT 58


DEPLOYMENT/PERFORMANCE SCHEDULE 59


COLLATERAL ASSIGNMENT OF FRANCHISE AGREEMENTS 60


RIDER TO UCC-1 FINANCING STATEMENT 64


5
ACCESS POWER INTERNATIONAL MASTER FRANCHISE AGREEMENT


THIS INTERNATIONAL MASTER FRANCHISE AGREEMENT IS SIGNED ON APRIL 26, 1998, BETWEEN ACCESS POWER, INC., A FLORIDA CORPORATION (THE "FRANCHISOR") AND ACCESS POWER CANADA, INC., A FEDERAL CORPORATION (THE "MASTER FRANCHISEE").


BACKGROUND


A. The Franchisor has developed and owns a special advanced communications system under the trade name "Access Power Advanced Communications" that offers Internet telephony products and services to the global consumer marketplace, with an emphasis on marketing to businesses and individual consumers.


B. The distinguishing characteristics of the System include: Private Label Products; Software; uniform standards and procedures for business operations; customer billing; training in the operation, management and promotion of the Access Power Franchise; promotional programs; customer development and service techniques; other technical assistance; and ongoing research and development.


C. The Franchisor desires to engage the Master Franchisee as a subfranchisor of Access Power Franchises in the Master Franchise Territory and the Master Franchisee desires to be so engaged.


D. The Master Franchisee recognizes the benefits to be derived from receiving a Master Franchise from the Franchisor to operate its own IP Telephony Units, establish, sell and service Access Power Franchises in the Master Franchise Territory and desires to enter into this International Master Franchise Agreement subject to the conditions and controls prescribed in this Agreement and to receive the benefits provided by the Franchisor in connection with this Agreement.


E. The Franchisor has reviewed the application of the Master Franchisee and has decided to award an International Master Franchise to the Master Franchisee pursuant to the terms of this Agreement.


F. The Master Franchisee has had sufficient opportunity to be advised thoroughly of the terms and conditions of this Agreement by advisors of the Master Franchisee's own choosing, has had an opportunity to review the Franchisor's current U.S. form of Franchise Offering Circular and has made an independent investigation of the Franchisor's operations, and the Master Franchisee and the Franchisor have concluded an agreement that they reduce to this written document, which is intended to fully set forth as between the parties all of their understanding and agreements, representations and warranties pertaining to their relationship and which terms are acknowledged by the parties to be material and reasonable.


G. The Franchisor is aware of the Master Franchisee's desire to provide long distance telephone service Offnet (without use of the Internet). Franchisor will permit the Master Franchisee to market and sell Offnet services under the Access Power name. Master Franchisee can offer Offnet long distance telephone service based upon least cost routing and quality considerations.


The parties agree as follows:


6


ARTICLE 1 - APPOINTMENT
-----------------------


Section 1.1 Grant.
-----


The Franchisor grants to the Master Franchisee and the Master Franchisee accepts from the Franchisor, subject to the terms contained in this Agreement, the right to, within the Master Franchise Territory, operate its own IP Telephony Units and sell Franchises to Franchisees pursuant to the form of Franchise Agreement attached as Exhibit A, as it may be amended from time to time only upon the mutual written agreement of the parties. The Master Franchisee is permitted to adapt the form of Franchise Agreement to reflect the laws, commercial usage, customs and business realities of the federal and provincial laws of Canada and to use a form of Franchise Agreement that is consistent with the form of other commercial agreements in use in Canada.


Section 1.2 Master Franchise Territory.
--------------------------


(a) DEFINITION. The Master Franchisee agrees that the Master Franchise confers the exclusive right to operate its own IP Telephony Units and sell Franchises to be located in Canada (the "Master Franchise Territory").


(b) PROVINCE OF ALBERTA. The Master Franchisee shall not "trade in a franchise" in the Province of Alberta, as such term is defined in the Franchises Act of Alberta, as amended, nor engage in any conduct in or related to the Province of Alberta which would be a violation of any applicable law, rule or regulation thereof until: (seq level3 romani) the Franchisor has been granted an exemption in respect to this Master Franchise; and (seq level3 romanii) the Master Franchisee is properly registered as a subfranchisor or otherwise complied with the Act. For application under the Franchises Act of Alberta, the Franchisor shall be responsible for the development and presentation of franchise documents, including costs associated therewith. The Franchisor shall be responsible for obtaining the exemption or approval and the Master Franchisee shall be responsible for all expenses associated therewith, including, but not limited to administrative costs, filing costs, and registration fees. Nothing herein is intended to prevent the Master Franchisee from operating its own IP Telephony Unit(s) in the Province of Alberta, if such operation is not in violation of any applicable law, rule or regulation thereof, including, but not limited to the Franchises Act of Alberta, as amended.


Section 1.3 Exclusivity.
-----------


(a) IP TELEPHONY UNITS. During the Agreement Term and provided that the Master Franchisee has not defaulted upon any of its obligations under this Agreement, the Franchisor shall not itself, nor grant the right to any third party to, sell any Franchises nor install or operate any IP Telephony Units within the Master Franchise Territory nor originate any traditional long distance service therein. Upon termination or expiration of this Agreement, the Franchisor shall not be bound by the restrictions in this Section, notwithstanding any agreed upon continuation of this Agreement.


(b) SERVICE SALES. In addition, the Master Franchisee understands the Franchisor network marketing program where independent sales representatives sell Private Label Products and secure subscriptions for Franchisor services within the Master Franchise Territory. Master Franchisee receives no override or other commission in connection with the sales by such independent sales representatives. However, Master Franchisee recognizes the benefit to be received in terms of additional usage of its own and its Franchisee's IP Telephony Units.


7
ARTICLE 2 - DUTIES OF THE FRANCHISOR
------------------------------------


The Franchisor shall provide the Master Franchisee with the following assistance and services so long as such assistance and services are necessary for the operation of the Master Franchisee's business and provided the Master Franchisee is not in default under this Agreement:


SECTION 2.1 TRAINING.
--------


(a) INITIAL TRAINING. The Franchisor shall provide 5 days of Initial Training for up to 4 Trainees at the Master Franchisee's location in Toronto, Canada. All Trainees must be acceptable to the Franchisor. In addition to a written test, Initial Training includes instruction in marketing, promotion and advertising, sales techniques, servicing of Franchisees and computer applications at a time scheduled by the Franchisor. The Franchisor shall provide, at its expense, instructors, facilities, training materials and technical training tools in connection with Initial Training. The Master Franchisee shall be responsible for all expenses of the Trainees in attending Initial Training including all travel, lodging and meal expenses. All costs and expenses incurred to have additional employees or agents of the Master Franchisee attend Initial Training, including reasonable training fees, shall be borne by the Master Franchisee, and are subject to the prior written approval of the Franchisor.


(b) FAILURE TO COMPLETE INITIAL TRAINING. In the event any Trainee fails to complete satisfactorily Initial Training, as determined by the Franchisor, the Master Franchisee must: (iii) have the Trainee retrained; or (2) hire another Trainee to complete Initial Training. Any Initial Training which is required as a result of the failure of any Trainee to satisfactorily complete the training will be conducted at the at the expense of the Master Franchisee including all travel, lodging and meal expenses of attendee(s) and trainers and reasonable facility and training fees.


(c) CONTENT. The content of, operation of, and manner of conducting Initial Training shall be in the sole control of the Franchisor.


(d) ATTEND FRANCHISEE'S CORPORATE MANAGEMENT TRAINING. The Master Franchisee must also attend at least one session of the Franchisor's Corporate Management Training for Franchisees to learn to operate its own IP Telephony units and to more fully understand and coordinate its training of Franchisees. There shall be no fees or costs charged by the Franchisor for such Corporate Management Training program.


(e) REFRESHER OR ADDITIONAL TRAINING. The Franchisor from time to time may provide refresher training programs, seminars or advanced management training for the Master Franchisee at a facility designated by the Franchisor which may be required, at the option of the Franchisor. Such training shall not be required more often than once a year. The Master Franchisee shall be responsible for costs and expenses associated with all travel, meals and lodging for the Master Franchisee's attendees but there shall be no fees or costs charged by the Franchisor for the programs, seminars or training. Required refresher or additional training may take any form of training as the Franchisor may choose, including, but not limited to CD-ROM and long distance learning via videoconference.


SECTION 2.1 LOAN OF THE ACCESS POWER MANUALS.
--------------------------------


The Franchisor shall loan to the Master Franchisee one registered copy of the Access Power Manuals (with periodic revisions as required), it being the Franchisor's practice to deliver to the Master Franchisee the Access Power Manuals at or shortly before the time of Initial Training. The Master Franchisee shall be responsible for any translation of the Access Power Manuals and all future updates and modifications into French and for dissemination of the Access Power Manuals to Franchisees.


8
SECTION 2.3 ASSISTANCE AND SUPPORT.
----------------------


(a) SALE OF PRODUCTS AND EQUIPMENT. The Franchisor will sell to the Master Franchisee for its use and resale to Franchisees the Access Power Telephony Gateway Server at prevailing wholesale prices. Gateway Server purchases are non-refundable and cannot be paid in installments. Such sales will be inclusive of the necessary Gateway software licensing fees. The sale shall occur and title shall pass in the United States. All shipments shall be F.O.B. point of origin or determined by the Franchisor. The Master Franchisee shall be responsible for their shipment and importation into Canada. The Master Franchisee is not required to obtain equipment for itself nor its Franchisees from Franchisor, as long as any equipment to be used in the provision of the services hereunder meets the specific technical requirements set forth by Franchisor and are available to the Master Franchisee upon written request. This fee includes the licensing of the Gateway software if purchased from Franchisor.


(b) PURCHASES FROM FRANCHISOR OR FRANCHISOR AFFILIATES. Master Franchisee must purchase or license from Franchisor or Franchisor Affiliates the Private Label Products and other items that Franchisor require if implemented on a System-wide basis.


(c) AUTHORIZED SPECIFICATIONS AND SUPPLIERS. Master Franchisee must purchase or lease equipment, supplies, inventory, advertising materials and other products and services used for the operation of Master Franchisee Access Power Franchise solely from authorized manufacturers, contractors and other suppliers who demonstrate, to Franchisor continuing reasonable satisfaction: (seq level3 romani) the ability to meet Franchisor standards and specifications for these items; (seq level3 romanii) possess adequate quality controls and capacity to supply Master Franchisee needs promptly and reliably; and (seq level3 romaniii) have been approved in writing by Franchisor and not later disapproved. Franchisor will use Franchisor best reasonable efforts to negotiate agreements with suppliers that, in Franchisor good faith belief, are in the best interest of all Access Power franchisees. Franchisor may approve a single supplier for any brand and may approve a supplier only as to a certain brand or brands. In approving suppliers for the System, Franchisor may take into consideration factors like the price and quality of the products or services and the supplier's reliability. Franchisor may concentrate purchases with 1 or more suppliers to obtain the lowest prices and/or the best advertising support and/or services for any group of Franchise Units or Company Units. Approval of a supplier may be conditioned on requirements on the frequency of delivery, standards of service, warranty policies including prompt attention to complaints, and concentration of purchases, as stated above, and may be temporary, pending Franchisor additional evaluation of the supplier.


(d) APPROVAL OF NEW SPECIFICATIONS AND SUPPLIERS. If Master Franchisee propose to purchase or lease any equipment, supplies, inventory, advertising materials or other products or services for the provision of IP Telephony services from an unapproved supplier, Master Franchisee must submit to Franchisor a written request for approval, or request the supplier to do so. Franchisor will have the right to require, as a condition of Franchisor approval, that Franchisor representatives be permitted to inspect the supplier's facilities, and that samples from the supplier be delivered, at Franchisor option, either to Franchisor or to an independent, certified laboratory designated by Franchisor for testing. Franchisor is not liable for damage to any sample that results from the testing process. Master Franchisee will pay a charge not to exceed the reasonable cost of the inspection and the actual cost of the testing. Franchisor reserve the right, at Franchisor option, to reinspect the facilities and products of any approved supplier and continue to sample the products at the supplier's expense and to revoke approval upon the supplier's failure to continue to meet Franchisor standards and specifications. Franchisor may also require as a condition to Franchisor approval, that the supplier present satisfactory evidence of insurance, for example, product liability insurance, protecting Franchisor and Franchisor franchisees against all claims from the use of the item within the System.


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