Franchise Agreement

EXHIBIT 10.6


IT'S ABOUT GAMES(TM)


FRANCHISE AGREEMENT


BETWEEN


GROW BIZ INTERNATIONAL, INC.
4200 Dahlberg Drive
Minneapolis, Minnesota 55422-4837
(612) 520-8500


AND


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Name(s) of Franchisee


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Street


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City State Zip Code


(-----)------------------------------------
Area Code Telephone


FRANCHISED LOCATION:


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Street


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City State Zip Code


(-----)------------------------------------
Area Code Telephone


IT'S ABOUT GAMES(TM)


FRANCHISE AGREEMENT


INDEX


SECTION DESCRIPTION PAGE - ------- ----------- ----


1. GRANT OF FRANCHISE; FRANCHISED LOCATION...........................1 2. TERM OF FRANCHISE; RENEWAL RIGHTS.................................2 3. OWNERSHIP AND USE OF MARKS........................................3 4. INITIAL FRANCHISE FEE.............................................4 5. CONTINUING FEE....................................................4 6. ADVERTISING AND PROMOTION.........................................4 7. FRANCHISOR'S OBLIGATIONS..........................................6 8. OPERATION OF THE FRANCHISEE'S BUSINESS............................7 9. CONFIDENTIAL INFORMATION.........................................10 10. INSURANCE; BONDING...............................................11 11. INDEPENDENT CONTRACTORS; INDEMNIFICATION.........................11 12. SALES REPORTS, FINANCIAL STATEMENTS AND AUDIT RIGHTS.............12 13. FRANCHISOR'S RIGHT OF FIRST REFUSAL TO PURCHASE..................12 14. ASSIGNMENT OF FRANCHISE AGREEMENT................................13 15. FRANCHISOR'S TERMINATION RIGHTS..................................14 16. FRANCHISEE'S TERMINATION RIGHTS; NOTICE REQUIRED.................15 17. FRANCHISEE'S OBLIGATIONS UPON TERMINATION........................15 18. FRANCHISEE'S COVENANTS NOT TO COMPETE............................16 19. ARBITRATION; ENFORCEMENT.........................................17 20. SEVERABILITY AND CONSTRUCTION....................................18 21. NOTICES..........................................................18 22. ACKNOWLEDGMENTS..................................................19


EXHIBITS A - FRANCHISEE'S DEVELOPMENT AREA AND EXCLUSIVE TERRITORY
B - COMPUTER SOFTWARE LICENSE AGREEMENT
C - PERSONAL GUARANTY


01 GK082597
02 GK030698


IT'S ABOUT GAMES(TM)


FRANCHISE AGREEMENT


THIS FRANCHISE AGREEMENT is made and entered into this _______ day of _______________, 19____, by and between GROW BIZ INTERNATIONAL, INC., a Minnesota corporation ("Franchisor"), and ____________________________________ ("Franchisee").


BACKGROUND:


A. Franchisor franchises video and computer game resale stores known as "It's About Games" stores ("It's About Games(TM) Stores") which feature quality used and new video and computer games and related accessories. Franchisor uses and licenses certain trademarks, including "It's About Games," and may hereafter adopt, use and license additional or substitute trademarks, service marks, logos and commercial symbols in connection with the operation of It's About Games(TM) Stores (collectively, the "Marks"). It's About Games(TM) Stores use Franchisor's methods, procedures, standards, specifications and the Marks (all of which are collectively referred to as the "Business System"), which Franchisor may periodically improve, further develop or otherwise modify.


B. Franchisee has had an adequate opportunity to be thoroughly advised of the provisions of this Agreement and Franchisor's Offering Circular and has had sufficient time and opportunity to evaluate and investigate the Business System and the procedures and financial requirements associated with the Business System as well as the competitive market in which it operates.


C. Franchisee desires to operate an "It's About Games" Store which will conform to the uniform requirements and quality standards of the Business System.


AGREEMENTS:


The Franchisor and Franchisee agree as follows:


1. GRANT OF FRANCHISE; FRANCHISED LOCATION


A. Grant of Franchise. Subject to the provisions stated below, Franchisor grants to Franchisee a personal license and franchise to operate an It's About Games(TM) Store (the "Store") in conformity with Franchisor's Business System at a location within the development area specified in Exhibit A attached hereto. The specified area identified in Exhibit A is referred to as the "Development Area." Franchisee will operate the Store under the Business System in strict compliance with the provisions of this Agreement and only at a location within the Development Area approved by Franchisor (the "Franchised Location").


B. Franchisee's Protected Area; Rights Reserved By Franchisor. During the term of this Agreement, Franchisor will not establish for its own account or franchise others to operate an It's About Games(TM) Store or any other business generally classified as a video and computer game retail business within the exclusive area specified in Exhibit A. The exclusive area identified in Exhibit A, which includes the Development Area, is referred to as the "Exclusive Territory." Franchisee understands, however, that Franchisor may sell any products or services under trademarks other than the Marks (subject to those


restrictions described above). Franchisor also may sell products or services under the Marks through other channels of distribution, provided any such products or services Franchisor intends to sell directly within the Exclusive Territory will first be offered to Franchisee on the same terms and conditions as would otherwise be offered within the Exclusive Territory. The rights and privileges granted to Franchisee under this Agreement are personal in nature, and may not be used at any location other than the Franchised Location. Franchisee will not relocate the Store without Franchisor's prior written consent and will not open any other It's About Games(TM) Store in the Exclusive Territory. Franchisee will not have the right to subfranchise or sublicense any of its rights under this Agreement. Franchisee will not use the Franchised Location for any purposes other than the operation of an It's About Games(TM) Store.


2. TERM OF FRANCHISE; RENEWAL RIGHTS


A. Term. The term of this Agreement will be for ten (10) years commencing on the date of this Agreement.


B. Renewal. Franchisee will have the right to renew its It's About Games(TM) franchise for the Franchised Location for continuing ten (10) year terms, provided Franchisee meets the following conditions:


1. Franchisee has given Franchisor written notice at least one
hundred eighty (180) days before the end of the term of this Agreement
of its intention to renew;


2. Franchisee has complied with all of the material provisions
of this Agreement, including the payment of all monetary obligations
owed by Franchisee to Franchisor, and has complied with Franchisor's
material operating and quality standards and procedures;


3. Franchisee has at its expense made such reasonable capital
expenditures necessary to remodel, modernize and redecorate the Store
premises and to replace and modernize the supplies, fixtures, and
equipment used in Franchisee's business so that Franchisee's business
reflects the then-current physical appearance of new It's About
Games(TM) Stores;


4. Franchisee has paid a Renewal Fee of Five Thousand Dollars
($5,000) to Franchisor at least thirty (30) days before the expiration
of the initial (and any renewal) term of this Agreement expires;


5. Franchisee executes the standard Franchise Agreement then
being used by Franchisor; provided that Franchisee will be required to
pay the Renewal Fee in lieu of the Initial Franchise Fee stated in the
then-current Franchise Agreement; and


6. Franchisee is able to secure a renewal or extension of the
lease for the Franchised Location or is able to secure a new location
within the Development Area which has been accepted by Franchisor, such
acceptance not to be unreasonably withheld.


3. OWNERSHIP AND USE OF MARKS


A. Ownership. Franchisor is the owner of the Marks. Any and all improvements by Franchisee relating to the Marks and Business System will become the sole property of Franchisor who has the exclusive right to register and protect all such improvements in its name.


B. Use. Franchisee's right to use and identify with the Marks and Business System applies only to the operation of the Store at the Franchised Location, and exists concurrently with the term of this Agreement and only so long as Franchisee is in complete compliance with Franchisor's quality standards. Franchisee will have the right to use the Marks and Business System only in the manner Franchisor directs and approves in writing. Franchisee will not have or acquire any rights in any of the Marks or Business System other than the right of use as governed by this Agreement. If, in the judgment of Franchisor, Franchisee's acts infringe upon or harm the goodwill, standards of uniformity or quality, or business standing associated with the Marks and Business System, Franchisee will immediately, upon written notice from Franchisor, modify its use of the Marks and Business System in the manner Franchisor directs in writing. Franchisee will not during or after the term of this Agreement do anything directly or indirectly which would infringe upon, harm, mislead or contest Franchisor's rights in the Marks or Business System. Franchisee cannot advertise any liquidation sale or similar type of activity.


C. Promotion. Franchisee will operate the Store so that it is clearly identified and advertised as an It's About Games(TM) Store. The style, form and use of the words "It's About Games" in any advertising, written materials or supplies must, however, have Franchisor's prior written approval, which approval will not be unreasonably withheld. Franchisee will use the name "It's About Games" and the other Marks which now or hereafter may form a part of the Business System, on all paper supplies, business cards, letterhead, envelopes, uniforms, advertising materials, signs or other articles in the identical combination and manner as Franchisor may require in writing. Franchisee will comply with all trademark, trade name, service mark and copyright notice marking requirements.


D. Identity. Franchisee will not use the words "It's About Games" in its corporate or partnership name. Franchisee will clearly indicate on its business checks, purchase orders, business cards, receipts, promotional materials and other written materials that Franchisee is the owner of the Store and that Franchisee is an It's About Games(TM) franchisee. Franchisee will display a sign which is clearly visible to the general public indicating that the Store is independently owned and operated.


E. Substitutions. If any third party claims that its rights to use any of the Marks are superior and if Franchisor determines that such claim is legally meritorious, Franchisee will, upon receiving written notice from the Franchisor, immediately use such changes and amendments to the Marks as Franchisor may require. Franchisee will not make any changes or amendments in or to the use of the Marks and Business System unless directed by Franchisor in writing.


F. Litigation. Franchisee will have no obligation to and will not, without Franchisor's prior written consent, defend or enforce any of the Marks in any court or other proceedings for or against imitation, infringement, any claim of prior use, or for any other allegation. Franchisee will, however, immediately notify Franchisor of any claims or complaints made against Franchisee respecting the Marks and will, at its expense, cooperate in all respects with Franchisor in any court or other proceedings involving the Marks. Franchisor will pay the cost and expense of all litigation Franchisor incurs, including attorneys' fees, specifically relating to the Marks. Franchisor and its legal counsel will have the right to control and conduct any litigation relating to the Marks.


4. INITIAL FRANCHISE FEE


A. Initial Franchisee Fee. Franchisee will pay Franchisor a nonrefundable Initial Franchise Fee of _____________ Thousand Dollars ($______), which will be due and payable on the date of this Agreement. The Initial Fee payable by Franchisee is payment to Franchisor for the costs that it will incur to get Franchisee into business including costs Franchisor incurs for training, site evaluation, business overhead costs, travel costs, and for the other initial services Franchisor provides hereunder.


B. Refund of Fee. If Franchisor subsequently determines that Franchisee is not qualified to properly operate the Store, Franchisor will refund to Franchisee the Initial Franchise Fee. Franchisor will notify Franchisee in writing within one hundred eighty (180) days of the date of this Agreement if this Agreement is subject to termination under this Section 4(B).


5. CONTINUING FEE


A. Continuing Fee. Franchisee will, for the term of this Agreement, pay to Franchisor a Continuing Fee equal to four percent (4%) of Franchisee's Gross Sales (as defined below). Franchisee's obligation to pay Franchisor the Continuing Fee under the terms of this Agreement will remain in full force and effect until this Agreement has expired or is terminated under the provisions herein.


B. Payment. At Franchisor's request, Franchisee will promptly execute and deliver to Franchisor appropriate pre-authorized check forms or such other instruments or drafts Franchisor's bank requires payable against Franchisee's bank account, so that Franchisor may electronically collect (draft on Franchisee's account by electronic withdrawal) the Continuing Fee due pursuant to Section 5(A) above. Franchisor will report to Franchisee on or before Wednesday of each week its Gross Sales for the previous week. If Franchisee fails to report its Gross Sales on a timely basis, Franchisor may estimate Franchisee's Gross Sales to prepare a provisional estimate for billing purposes for that week. On Thursday of each week, Franchisor will bill Franchisee for all amounts due for the previous week and deposit into its account Franchisee's pre-authorized check or other instrument for the amounts due either pursuant to Franchisee's report or Franchisor's estimate. Any unpaid Continuing Fee or other amounts past due and owing to Franchisor will bear interest at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is less. Franchisee will pay Franchisor for any and all costs Franchisor incurs in collecting any unpaid and past due Continuing Fees, including reasonable attorneys' fees.


C. Gross Sales. The term "Gross Sales" means the total amount of all revenues Franchisee receives from the sale of goods and services, whether for cash or by check, credit card or trade, in connection with the Store, less customer refunds and returns. Gross Sales will include sales made through the Internet and wholesale transactions involving any party other than an It's About Games(TM) franchisee who is in good standing with Franchisor. Gross Sales will not include sales tax collected from customers and paid to appropriate tax authorities.


6. ADVERTISING AND PROMOTION


A. Cooperative Advertising. Franchisee will participate in, support and contribute a proportionate share, but no more than an amount equal to four percent (4%) of the Gross Sales for the Store, of the cost of regional cooperative advertising programs either designated by Franchisor or approved by a regional advertising council established by Franchisor or other It's About Games(TM) franchisees in Franchisee's area. Franchisor reserves the right to designate regional advertising markets, to establish regional advertising councils and to establish the rules under which such councils will operate.


B. Local Advertising Expenditures. To the extent Franchisee's annual contributions to cooperative advertising programs described in Section 6(A) above are less than four percent (4%) of the Gross Sales for the Store, or if the Franchisee cannot participate in any regional cooperative advertising program because such a program has not been established in Franchisee's geographic area, Franchisee will then be obligated to conduct advertising and promotional activities in Franchisee's local geographic area; provided that Franchisee's local advertising activities will not reduce, eliminate or otherwise impact Franchisee's obligations under Section 6(A) above. Franchisee's local advertising expenditures will include advertising, merchandising, sales promotion and other forms of advertising at the local level. Within thirty (30) days following the end of each calendar quarter, Franchisee will provide Franchisor with an accounting of the monies that it has spent for approved regional cooperative advertising and local advertising for the preceding calendar quarter. If Franchisee has failed to spend at least four percent (4%) of its Gross Sales for the calendar quarter for approved regional cooperative advertising or local advertising, Franchisee will deposit with Franchisor the difference between what it should have spent for advertising during the calendar quarter and what it actually spent for advertising during the calendar quarter. Franchisor will spend such amount for any type of advertising or promotion that Franchisor deems appropriate for Franchisee's business, although Franchisor will use reasonable efforts to spend such amounts in Franchisee's local geographic area.


C. Marketing Fee. In addition to Franchisee's local advertising obligations described in Section 6(B) above, Franchisee will pay to Franchisor an annual Marketing Fee of Five Hundred Dollars ($500) which will be payable in two (2) installments of Two Hundred Fifty Dollars ($250) each on the first day of January and July of each year. Franchisor will use the Marketing Fee to develop marketing programs, produce advertising and/or promotional materials, conduct advertising research, and implement advertising and promotional campaigns.


D. Yellow Page Advertising. Franchisee will, at its expense, obtain an annual yellow page listing in the primary yellow page directory serving the geographic area in which the Store is located. At a minimum, this listing will consist of a bold heading in such directory. Amounts spent for yellow page advertising will be credited towards Franchisee's local advertising obligations described in Section 6(B) above.


E. Future Advertising Programs. Franchisee acknowledges and agrees that as the It's About Games(TM) franchise system continues to expand and mature, it will be necessary to revise Franchisee's advertising obligations. Franchisee therefore agrees that Franchisor may increase Franchisee's minimum advertising expenditures (as described in Section 6(B) above) up to a total of five percent (5%) of Franchisee's Gross Sales. Franchisee further agrees that of the five percent (5%), up to two percent (2%) of Franchisee's Gross Sales will be paid in the form of an "Advertising Fee" to Franchisor for deposit in an "Advertising Fund." In such event, Franchisee's advertising obligations under Section 6(A) (and, if appropriate, Section 6(B)) above will be reduced to three percent (3%) of the Gross Sales for the Store. Franchisor will provide Franchisee with at least sixty (60) days' written notice before the commencement of an Advertising Fee. All Advertising Fees will be placed in an Advertising Fund managed by Franchisor. Reasonable disbursements from the Advertising Fund will be made solely for the payment of expenses incurred in connection with the general promotion of the Marks and the Business System, including the cost of formulating, developing and implementing advertising and promotional campaigns; and the reasonable costs of administering the Advertising Fund, including accounting expenses and the actual costs of salaries and fringe benefits paid to Franchisor's employees engaged in administration of the Advertising Fund. Although Franchisor will strive to manage the Advertising Fund in such a manner that benefits franchisees uniformly, taking into account regional and/or local advertising costs and forms of media available,


Franchisor cannot insure that any individual franchisee will benefit directly or on a pro rata basis from the future placement of any such advertising in its local market. The methods of advertising, media employed and contents, terms and conditions of advertising campaigns and promotional programs will be within Franchisor's sole discretion. Franchisor will provide Franchisee an annual unaudited statement of the receipts and disbursements of the Advertising Fund.


F. Approved Advertising Materials. Franchisee will use only approved advertising and promotional materials. If Franchisee desires to use any unapproved advertising or promotional materials bearing the name "It's About Games" or other Marks, Franchisee must obtain written approval from Franchisor before using any such materials, which approval will not be unreasonably withheld.


G. Promotion. Franchisee will use its best efforts to promote and advertise its It's About Games(TM) business and will participate in all advertising and promotional programs Franchisor establishes. Franchisee will have the right to advertise and sell its products at whatever prices Franchisee determines.


7. FRANCHISOR'S OBLIGATIONS


A. Location. Franchisor will provide Franchisee with assistance respecting site location and evaluation for the Store. Franchisee acknowledges that Franchisor's assistance in site location and acceptance of the premises does not constitute a representation or guaranty by Franchisor that the location will be a successful location for Franchisee's It's About Games(TM) Store.


B. Lay-Out and Design. Franchisor will designate the standard design, lay-out and motif for Franchisee's premises and will furnish prototype specifications for the premises.


C. Equipment, Supplies and Inventory. Franchisor will designate the standard fixtures, equipment, supplies, signs and initial inventory for use in the Store. Franchisee will purchase only such types, models or brands of fixtures, furniture, equipment, signs and supplies that Franchisor approves for It's About Games(TM) Stores as meeting its specifications and standards, including specifications and standards for quality, design, warranties, appearance, function and performance.


D. Training. Franchisor will, at its expense, provide a three-part training program in Minneapolis, Minnesota or other location Franchisor designates to educate, familiarize and acquaint Franchisee with the business of operating an It's About Games(TM) Store. The first session of the training program will include instruction on general business issues related to the ownership of a privately-owned retail business, including real estate matters, business plan development, inventory management and point-of-sales systems. The period of this session will be at Franchisor's discretion but generally will be for not less than two and one-half (2 1/2) days and will be scheduled by Franchisor at its discretion. The second session of the training program will address personnel issues, store buildout, used product purchasing, Franchisor's preferred vendor program and other topics Franchisor selects. The period of this session will be at Franchisor's discretion but generally will be for not less than two and one-half (2 1/2) days and will be scheduled by Franchisor in its sole discretion. The third session of the training program will include instruction on sales and marketing, inventory purchasing, computer operation, store management and other topics Franchisor selects. The period of this session will be at Franchisor's discretion but generally will be for not less than five (5) days and will be scheduled by Franchisor in its sole discretion. Franchisee must successfully complete all sessions of the training program. If Franchisee fails to successfully complete all sessions, he/she will not be permitted or authorized to manage Franchisee's business and Franchisor may terminate this Agreement pursuant to Section 15(A)(2) below. Franchisee will be responsible for travel


costs, room and board, the salaries, fringe benefits and other expenses Franchisee and its employees incur in attending all sessions of the training program.


E. Opening Assistance. Franchisor will assist in scheduling the opening of the Store. Franchisee will not open or commence business operations until Franchisor has approved the opening. Franchisor will, at no charge, provide at least one (1) person to assist Franchisee with the opening of the Store for at least two (2) days around the time of opening. If Franchisee is opening its second or subsequent Store, Franchisee will provide this assistance only at Franchisee's request.


F. Operations Manual. Franchisor will loan Franchisee one copy of the Operations Manual wherein Franchisor will describe its operational policies, standards, requirements and practices. Franchisee will comply with all provisions of the Operations Manual. Franchisor reserves the right to revise the Operations Manual at any time.


G. Additional Initial Assistance. Franchisor will assist Franchisee in the development of a business plan. Franchisor and Franchisee may also agree that Franchisor provide management assistance and other services, in addition to the usual initial assistance and supervision Franchisor provides to all franchisees, for additional agreed upon compensation.


H. Ongoing Assistance. During the operation of Franchisee's business, Franchisor will: (1) inspect the Store as often as Franchisor deems necessary and provide written reports to Franchisee on operations; (2) provide, upon the written request of Franchisee, advisory services pertaining to operation of Franchisee's business; (3) periodically make available to Franchisee all changes, improvements and additions to the Business System to the same extent as made available to other franchisees; (4) provide Franchisee with all supplements and modifications to the Operations Manual; and (5) develop advertising and marketing materials.


8. OPERATION OF THE FRANCHISEE'S BUSINESS


The Marks and Business System licensed to Franchisee represent valuable goodwill distinctive of Fr ...