FRANCHISE DISCLOSURE DOCUMENT
KAIA F.I.T. FRANCHISE DISCLOSURE DOCUMENT KAIA F.I.T. A Nevada Corporation 769 Basque Way, #600 Carson City, NV 89706 (866) 496-2267 www.kaiafit.com The franchise offered is to operate a KAIA F.I.T. Location, which is a membership facility and physical fitness and functional intense training system for women only. The total investment necessary to begin operation of a KAIA F.I.T. Location ranges from $7,350 to $52,750. This includes $2,500 to $5,000 that must be paid to the franchisor. This disclosure document summarizes certain provisions of your franchise agreement and other information in plain English. Read this disclosure document and all accompanying agreements carefully. You must receive this disclosure document at least 14 calendar-days before you sign a binding agreement with, or make any payment to, the franchisor or an affiliate in connection with the proposed franchise sale. Note, however, that no governmental agency has verified the information contained in this document. You may wish to receive your disclosure document in another format that is more convenient for you. To discuss the availability of disclosures in a different format, contact , us at 769 Basque Way, #600, Carson City, NV 89706; telephone (866) 496-2267; email
[email protected]. The terms of your contract will govern your franchise relationship. Don’t rely on the disclosure document alone to understand your contract. Read all of your contract carefully. Show your contract and this disclosure document to an advisor, like a lawyer or an accountant. Buying a franchise is a complex investment. The information in this disclosure document can help you make up your mind. Information on franchising, such as “A Consumer’s Guide to Buying a Franchise,” which can help you understand how to use this disclosure document, is available from the Federal Trade Commission. You can contact the FTC at 1-877-FTC-HELP or by writing to the FTC at 600. Pennsylvania Avenue, NW, Washington, D.C. 20580. You can also visit your public library for other sources of information on franchising. There may also be laws on franchising in your state. Ask your state agencies about them. Issuance date of this Franchise Disclosure Document: December 12, 2012.
STATE COVER PAGE Your state may have franchise law that requires a franchisor to register or file with a state franchise administrator before offering or selling in your state. REGISTRATION OF A FRANCHISE BY A STATE DOES NOT MEAN THAT THE STATE RECOMMENDS THE FRANCHISE OR HAS VERIFIED THE INFORMATION IN THIS DISCLOSURE DOCUMENT. Call the state franchise administrator listed in Exhibit A for information about the franchisor or about franchising in you state. MANY FRANCHISE AGREEMENTS DO NOT ALLOW YOU TO RENEW UNCONDITIONALLY AFTER THE INITIAL TERM EXPIRES. YOU MAY HAVE TO SIGN A NEW AGREEMENT WITH DIFFERENT TERMS AND CONDITIONS IN ORDER TO CONTINUE TO OPERATE YOUR BUSINESS. BEFORE YOU CAN BUY, CONSIDER WHAT RIGHTS YOU HAVE TO RENEW YOUR FRANCHISE, IF ANY, AND WHAT TERMS YOU MIGHT HAVE TO ACCEPT IN ORDER TO RENEW. Please consider the following RISK FACTORS before you buy this franchise: 1.
THE FRANCHISE AGREEMENT REQUIRES YOU TO RESOLVE DISPUTES WITH US BY ARBITRATION OR LITIGATION ONLY IN NEVADA. OUT-OF-STATE ARBITRATION OR LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO ARBITRATE OR LITIGATE WITH US IN NEVADA THAN IN YOUR OWN STATE.
2.
THE FRANCHISE AGREEMENT STATES THAT NEVADA LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.
3.
THIS IS A NEW FRANCHISE OFFERING AND THE MARKET FOR A KAIA F.I.T. FRANCHISEE’S SERVICES IS NEW AND NOT WELL DEVELOPED. IT IS SPECULATIVE AND INVOLVES RISK.
4.
THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
5.
Effective Dates: See the next page for state effective dates.
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STATE EFFECTIVE DATES The following states require that the Franchise Disclosure Document be registered or filed with the state, or be exempt from registration: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. This Franchise Disclosure Document is registered, on file or exempt from registration in the following states having franchise registration and disclosure laws, with the following effective dates: CALIFORNIA
EFFECTIVE DATE:
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DECEMBER 12, 2012
TABLE OF CONTENTS ITEM
PAGE
1
THE FRANCHISOR AND ANY PARENTS, PREDECESSORS, AND AFFILIATES ......................................................................................................... 6
2
BUSINESS EXPERIENCE ....................................................................................8
3
LITIGATION .........................................................................................................8
4
BANKRUPTCY .....................................................................................................8
5
INITIAL FEES .......................................................................................................9
6
OTHER FEES ......................................................................................................10
7
ESTIMATED INITIAL INVESTMENT ..............................................................15
8
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES ................18
9
FRANCHISEE’S OBLIGATIONS ......................................................................21
10
FINANCING ........................................................................................................23
11
FRANCHISOR’S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING .................................................................................................23
12
TERRITORY ........................................................................................................32
13
TRADEMARKS ...................................................................................................33
14
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION ................33
15
OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS ......................................................................35
16
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL ........................36
17
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION....36
18
PUBLIC FIGURES ..............................................................................................41
19
FINANCIAL PERFORMANCE REPRESENTATIONS .....................................41
20
LICENSEE CONVERSION .....................................................................................42
21
OUTLETS LICENSEE AND FRANCHISEE INFORMATION ........................ 43
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22
PROJECTIONS ....................................................................................................... 46
23
FINANCIAL STATEMENTS………………………………………………….. 46
24
CONTRACTS ………………………………………………………………….. 47
25
RECEIPT……………………………………………………………………….. 47
Exhibits A.
List of State Agencies/Agents for Service of Process
B.
Franchise Agreement
C.
California Addendum To The KAIA F.I.T. Franchise Disclosure Document
D.
Franchise Conversion Rider
E.
Manual Table of Contents
F.
Projected Franchise Financial Grid
G.
Financial Statements of Franchisor
H.
Financial Statements of Franchisor’s Licensee for Carson City, NV and Minden, NV
APPLICABLE STATE LAW MIGHT REQUIRE ADDITIONAL DISCLOSURES RELATED TO THE INFORMATION IN THIS DISCLOSURE DOCUMENT. THESE ADDITIONAL DISCLOSURES, IF ANY, APPEAR IN EXHIBIT C.
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Item 1 THE FRANCHISOR AND ANY PARENTS, PREDECESSORS, AND AFFILIATES Us and Our Related Companies, The franchisor is KAIA F.I.T. (called “we” or “us” in this disclosure document). “You” means the person or entity acquiring a franchise. If you are a corporation, limited liability company, or other entity, your owners must sign either the Full Continuing Guaranty or the Owner’s Representations and Undertakings attached to the Franchise Agreement (Exhibits B and C, respectively), which means that some or all provisions of the Franchise Agreement also will apply to your owners. (See Item 15) We incorporated in Nevada on February 8, 2010. We do business as KAIA F.I.T. Our principal business address is 769 Basque Way, #600, Carson City, Nevada 89706. We currently have no parent companies or affiliates. We own the Marks and other intellectual property rights associated with the KAIA F.I.T. name and training concept. Our principals have operated businesses upon which the KAIA F.I.T. model was based since 2004. We have previously licensed the use of the KAIA F.I.T. name and program to certain third party facilities, and we are now offering franchises for the first time with this offering. As of the effective date of this offering, we will not grant any further use licenses and all existing licensees will be given the opportunity to convert to a franchise. Except as described herein, we have no other business activities, and we have not offered franchises in any other line of business. If we have an agent for service of process in your state, we disclose that agent in Exhibit A. Franchise Opportunity The franchise that we are offering and the business that you must conduct as a KAIA F.I.T. Location is a membership physical fitness system and functional intense training program for women only. The franchise will be operated under the service mark “KAIA F.I.T.”, and related commercial symbols we periodically specify (the “Marks”) and it will follow the mandatory specifications, standards, operating procedures and rules that we periodically specify for the development, operation and maintenance of the KAIA F.I.T. Location (the “System Standards”). The KAIA F.I.T. Location will also offer a limited number of products and other services to members as we will periodically specify. The core service offered to members will be year-round fitness programs for women consisting of three yearly boot camps (“BRIKs”) of six week duration each, and between each BRIK, six CORE sessions of five weeks each. The programs involve functional intense training, which are monitored to achieve individual nutrition and fitness goals. KAIA F.I.T. Locations also provide general nutritional information and overall health and wellness support. KAIA F.I.T. Locations will also utilize a comprehensive and uniform approach to facility advertising, marketing and promotion. In this disclosure document, we call your KAIA F.I.T. Location, the “Location”. You must operate the Location from a site that we approve (the “Site”). We will assist you in Site selection and such services are described in Items 5, 8, and 11. In addition, before you begin selling memberships for your Location, you must apply 6 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
for and use Mindbody Software (a trademark of and product offered by Mindbody, Inc., which is not affiliated with KAIA F.I.T.). You will also need to work with us in establishing a web page on our website. All client memberships and class registrations will be made on your webpage as well as all class and membership payments by credit card, debit card and automatic clearing house (“ACH”). We will have access to your webpage to monitor registrations and payments, and through the Electronic Funds Transfer Authorization (Exhibit E to the Franchise Agreement) we will have authorization to automatically withdraw our Monthly Fees, Marketing Contributions, (if any), and Webpage Hosting Fees, and Merchant Account Credit Card Fees directly from your bank account. We described these services in Items 6, 8, and 11. Market and Regulations Your Location will compete with other fitness programs and businesses that offer similar products and services, including other national chains. The market is developed but is expanding to satisfy the needs of health and fitness enthusiasts. Depending upon your Location’s location and demographics, certain high/low seasons exist. You will offer your products and services to the general public throughout the year. Certain states and local governments have passed laws relating specifically to health clubs, including laws requiring postings concerning steroids and other drug use, requiring certain medical equipment in the club, limiting the supplements that health clubs can sell, requiring bonds if a health club sells memberships valid for more than a specified time period, requiring club owners to deposit into escrow certain amounts collected from members before the club opens (so-called “presale” memberships), and imposing other restrictions on memberships that health clubs sell. Depending upon the nature of the state and local laws these regulations and restrictions may or may not apply to a KAIA F.I.T. Location. For example, in California (and in some other states), franchisees of certain health club related franchises may be required to deposit any money received from a consumer before the fitness center fully opens for business into a separate escrow account. Other than these laws, there are no regulations specific to the operation of a KAIA F.I.T. Location, but you must comply with all applicable local, state, and federal laws that apply generally to all businesses. You should investigate these laws. Item 2 BUSINESS EXPERIENCE President, Nicole Warren Ms. Warren has been our president since our formation in 2009. She has twenty years of experience in gymnastics and fitness training and has an in depth knowledge of health and fitness businesses at all levels. Ms. Warren was the founder and is currently the owner and manager of Tumbleweeds Gymnastics in Carson City and Minden, Nevada, and has operated KAIA F.I.T. locations in Carson City and Minden as a licensee since 2009. Her skills and expertise include membership, administration, financial planning, event organization, marketing, customer services and all aspects of functional intense training.
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Secretary, Sharon Kassity Ms. Kassity has been our secretary since our formation in 2009. Prior to her work in the fitness industry, Ms. Kassity worked as a consultant in the computer industry and as a franchised Talent Agent. She has been involved in the fitness industry since she opened her first gym in West Hollywood, CA in 1994. Ms. Kassity and her husband are also franchisees of a national fast food franchise. She is skilled in all aspects of functional intense training and has an expertise in the local location marketing aspects of franchise businesses. Treasurer, Kristen Loos Ms. Loos has been our treasurer since 2009. She has a BS degree in Marketing and International Business from the University of Colorado. She has previously worked as a flight attendant and as a sales representative for a pharmaceutical company. Ms. Loos has been actively involved in the fitness industry since 2006, with an expertise in functional intense training, marketing and customer relations. Item 3 LITIGATION There has been no litigation involving us and no litigation is required to be disclosed in this Item. California residents, please see the California Addendum attached hereto as Exhibit C for information that California law requires.
Item 4 BANKRUPTCY No bankruptcy information is required to be disclosed in this Item.
Item 5 INITIAL FEES Application Fee If you apply for a KAIA F.I.T. Franchise, the Application requires that you will pay us an “Application Fee” of $250 in a lump sum when you sign and submit the Application. The Application Fee is not refundable under any circumstances. Fee for KAIA Fitness Certification Training You will be required to participate in the KAIA Fitness Certification Training and Certification Program and receive a certificate of successful completion of the training before you will be considered for a franchise. We will initially certify up to 2 people from your 8 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
Location for a total fee of $1,000. Additional personnel may attend our Certification Training (depending on our capacity) at your expense. We currently charge $500 per person per session after the first two people per Location. These training fees are not refundable and are payable in advance of the training. We describe our Certification Training program in Item 11. Charges for Site Evaluation You must promptly reimburse our reasonable travel and other costs and expenses in evaluating any site that you propose for your Location. We estimate these costs and expenses will range from $500 to $1,000 for each evaluation, and these payments to us are not refundable. Range of Initial Fees We are offering franchises for the first time with this offering, so no franchisees signed an agreement to develop or operate a KAIA F.I.T. Location in 2011. Bond Your fees will be paid directly to us will not be deposited into an impound account monitored by the Departments of Corporations, nor will your payments to us be otherwise deferred. In order to secure our financial performance under the Franchise Agreement, we have obtained a surety bond in the amount of $27,000, which is on file with the Department of Corporations. Item 6 OTHER FEES Column 1
Column 2
Column 3
Column 4
Type of Fee
Amount
Due Date
Remarks
Monthly Fee (for each of the first six months of operation)
$350
15th day of each month (but see Note (3))
Monthly Fee (for each month of operation after the first six months)
12% of your monthly Gross Revenue From Fitness Classes Only for the first 20 members/clients, 10% of your monthly Gross Revenue From Fitness Classes Only for the next 20 members/clients, 8% of your monthly Gross Revenue From Fitness Classes Only for the
15th day of each month (but see Note (3))
See Note (1)
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Marketing Fund Contribution
Webpage Hosting Fees
next 40 members/clients, 6% of your Monthly Gross Revenue From Fitness Classes Only for all members/clients over 80 total members/clients (See Note (2)). We currently do not have a Marketing Fund Contribution requirement, but reserve the right to implement such Marketing Fund Contribution requirement upon 30 days’ written notice. If and when implemented, the Marketing Fund Contribution will be 1% of monthly Gross Revenue, From Fitness Classes Only, not to exceed $1,000 per month An initial website setup fee of $200 and thereafter $119 per month
15th day of each month (but see Note (3))
Once enacted we also may periodically increase your Marketing Fund contribution, on 30 days’ written notice to you, by any amount if at least 50% of the owners of all KAIA F.I.T. Locations in the United States vote for the increase.
15th day of each month
This fee is collected directly from Franchisee’s bank account by electronic transfer and is payable for Mindbody software charges and the hosting of your webpage on the Franchisor’s Registration and Payment Services Website. Payable by Franchisee for the processing of credit card charges.
Merchant Account Credit Card Fees
Varies dependent upon the amount and volume of credit card charges by your clients/members
As incurred
Relocation Fee
Actual out-of-pocket costs and expenses we incur inspecting the proposed new site
Promptly Due only if you request to relocate upon receipt the Location of our invoice
Fee for Artwork and other Marketing Materials KAIA Fitness
Our costs
As incurred
Currently $500 per
As incurred 10
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Due only if you request new artwork or Marketing Materials (defined in Note (4)) and we develop them for you (See Item 11) Due only if you request initial
Training and Certification Fee
person per session
Fee on Transfer Outside the System
150% of all unpaid Monthly Fees and Marketing Fund contributions, if any then required, for unexpired contract term (or 100% if Location will not operate as a competitive business), if any Management Fee 10% of Gross Revenue (See Note (2)) Costs and Will vary under Attorneys’ Fees circumstances
At or before transfer’s closing
Indemnification
Will vary under circumstances
As incurred
Administrative Fee and Interest on Delinquent Payments
$100 administrative fee and interest at 10% per year or highest interest rate the law allows, whichever is less, on all overdue amounts and dishonored payments Approximately $300 to $500 per evaluation, but could increase if our costs increase Cost of audit
As incurred
Evaluation Fees
Audit Expenses
As incurred As incurred
When invoiced
As incurred
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training for more than 2 people, or if we train any new manager, or for mandatory annual training during the Franchise Agreement’s term. For training at your location, or training requested by you not regularly scheduled by us, you will be charged an additional $500 per person. Due only if you transfer (whether during the Franchise Agreement’s term of within 6 months after expiration or termination) to a third party who will not operate the Location as KAIA F.I.T. Location
Due only if we manage your Location after your death, disability or default Payable if we incur costs as a result of your non-compliance with Franchise Agreement You must reimburse us if we are held liable for claims arising from your Location’s development or operation, your breach of the Franchise Agreement, or acts of your members
Payable if we re-inspect the Location to determine whether you have corrected deficiencies or you request evaluation Due only if you fail to timely finish reports or understate amounts by 2% or more
Explanatory Notes. (1) All fees are imposed and collected by and payable to us. All fees are nonrefundable. We also may charge fees for additional products and services that we later determine to provide to you during the Franchise Agreement’s term. Except as otherwise provided herein, these fees are uniform for franchisees signing the Franchise Agreement. As set forth below in Item 20, there are certain KAIA F.I.T. Locations which are currently operating under a license agreement with us. These licensees will be given the opportunity to convert to a KAIA F.I.T. franchise pursuant to the terms of the Conversion Rider attached hereto as Exhibit D. If they elect to convert, seven of these licensees, in recognition of their efforts in developing, testing and promoting the KAIA F.I.T. functional intense training methods will be provided negotiated changes in the Monthly Fee for as long as the designated franchise is owned and operated by the current owner. The subject locations, owners, and negotiated Monthly Fee for these seven exceptions are as follows: Location
Owner
Monthly Fee
Carson City, NV
Nicole Warren
0
Minden, NV
Nicole Warren
0
West Reno, NV
Nathalie Atwell
$350
South Reno, NV
Jillaine Geddes
$350
Fallon, NV
Andrea Schell
$350
Sacramento, CA
Cassandra Neitling
$350
Roseville, CA
Denise Rhyne
$350
You must sign and deliver to us the documents we periodically require to authorize us to either debit your checking account automatically for the payment of the Monthly Fee, Marketing Fund contributions (if any), Webpage Hosting Fees, Merchant Account Credit Card Fees, and other amounts due under the Franchise Agreement or any related agreement between us and you. You must make required funds available for withdrawal by electronic transfer before the due date. If you fail to report the Location’s Gross Revenue From Fitness Classes Only, we may debit your account for 150% of the last Monthly Fee and Marketing Fund contribution (if any) that we debited. If the amounts debited from your account are less than the amounts you actually owe us (once we have determined the Location’s actual Gross Revenue From Fitness Classes Only), we will debit your account for the balance, plus the administrative fees and interest, on the day we specify. If the amounts debited from your account are greater than the amounts you actually owe us (once we have determined the Location’s actual Gross Revenue from fitness classes), we will credit the excess (without interest) against the amounts we otherwise would debit from your account during the following month(s). We may periodically change the mechanism for your payments of Monthly Fees, Marketing Fund contributions (if any) and other amounts you owe to us and our affiliates under the Franchise Agreement, or any related agreement.
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(2) “Gross Revenue From Fitness Classes Only” means the total gross revenue from the provision of all services sold or performed by or for you or your affiliates relating to the Location, whether in, at, from or away from the Location, or through or by means of the Location’s business, whether from cash, check, credit card, debit card, auto withdrawal, barter or exchange, or other credit transactions, and regardless of collection, and including the following: (a) membership fees, including initiation fees, enrollment fees, processing fees, paidin-full dues, renewal fees, corporate/third party payer fees, and monthly dues; (b) fees for classes and fitness training; (c) fees charged to non-members using the Location’s services; (d) payments (for example, rent and license fees) that contractors or other third parties make to you or your affiliates relating to the Location or its operations. However, the following amounts are deducted from “Gross Revenue”: (i) sales taxes, use taxes, and other similar taxes you add to the sales price, collect from the customer and pay to the appropriate taxing authority; and (ii) any bona fide refunds and credits that you actually provide to customers. Gross Revenue does not include rent, license fees and other fees that you or your affiliate receives in return for authorizing an unrelated third party contractor to operate an unrelated business (which has no connection with or relation to the Location or the health’ and fitness industry) from part of the property on which the Location is located, if the unrelated business has a separate street address and entrance that its customers must use without using any part of the Location. (3) The due date for the first Monthly Fee payment and first Marketing Fund contribution (if any), is the earlier of: (a) the 15th day of the month after you first open the Location for member workouts (which is the Franchise Agreement’s effective date if the Location is then operating), or (b) the 15th day of the month which is 4 calendar months after the month during which you sign the lease or sublease for the Site. If you become delinquent in paying your Marketing Fund contributions, (if any), in addition to our other remedies, we may require you to pay your estimated Marketing Fund contributions annually in advance. (4) You must at your expense participate in and use the advertising, marketing and promotional programs and materials we periodically specify that cover the Location and some or all other KAIA F.I.T. Locations. We describe our right to implement a Marketing Fund in Item 11. (5) Through our website, your hosted webpage and your Mindbody software we will provide to you a platform for membership and fitness session registration and payment and other services relating to your client/membership management. We describe these services in Item 11. On or before the 5th day of each month, we will provide you access to a report identifying the number of the Location’s paid memberships and paid fitness sessions during the previous month. If, for any reason you cease using Mindbody software or it is no longer available, you agree to pay to us a reasonable fee to convert your database information to a format that allows you to transmit that information to your next billing services provider.
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Item 7 ESTIMATED INITIAL INVESTMENT Franchise Agreement YOUR ESTIMATED INITIAL INVESTMENT (based on 1,500 square foot KAIA F.I.T. Location)
Column 1
Column 2
Column 3
Column 4
Column 5
Type of expenditure
Amount
Method of Payment
When due
To whom payment is to be made
Application Fee
$250
Lump sum
On submission to us of the application for franchise
Us
Expenses for Site Selection and Training (1)
$1,500 - $2,000
Lump sum
As incurred
Us and outside suppliers
3 Months’ Rent (2)
$1,000 - $10,000
Installments
As agreed in rental agreement, lease or sublease
Landlord
Deposit for Leasehold (2)
$0 - $3,000
Lump sum
On signing lease or sublease
Landlord
Leasehold Improvements and Location Costs (3)
$0 - $2,500
As agreed
As incurred
Us and outside contractors and suppliers
Equipment (4)
$500 - $10,000
As agreed
As incurred
Us and Outside suppliers
Signage
$500 - $2,000
As agreed
As incurred
Us and Outside suppliers
Initial Product
$500 - $2,500
As
As incurred
Us and
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Inventory and Supplies
agreed
Outside suppliers
Insurance (One year policy)
$600 - $2,000
As agreed
Prior to opening
Outside suppliers
Computer, Software, and website set -up (5)
$500 - $4,000
As agreed
As incurred
Us and Outside suppliers
Grand Opening, Initial Marketing, and Free Demo Classes (6)
$500 - $2,500
As agreed
As incurred before and after Location opens
Outside suppliers
Miscellaneous Opening Costs (7)
$500 - $2,000
Lump sum
As incurred
Outside suppliers
Additional Funds – 3 Months’ overhead (8)
$1,000 - $10,000
As agreed
As incurred after Location opens
Us and outside suppliers
TOTAL ESTIMATED INITIAL INVESTMENT
$ 7,350 - $ 52,750
(excluding real estate purchased costs) (9) Explanatory Notes (1) Expenses for Site Selection and During Training. This includes your payments to us for our reasonable travel and other costs in evaluating sites; $1,000 for the initial training and Certification for two individuals and amounts for lodging, transportation, and meals for 2 individuals while they attend our training and Certification program. It also includes training fees if more than 2 people from the Location attend training. (See Items 5 and 11) (2) 3 Months’ Rent and Deposit for Leasehold. The figures in the table reflect our estimates for a rental or leased KAIA F.I.T. Location. The Site may be in a rural or metropolitan area as long as we think there is a sufficient market in the area for the Location’s services. Rent and security deposit depend on the Site’s size, condition, and location and demand for the premises among prospective lessees. However, rent can range from 25¢ per square foot per month for suitable warehouse space to $3.50 per square foot per month for prime space in a major metropolitan area. You might choose to purchase, rather than rent, real estate on which a building suitable for the Location already is constructed or could be constructed. Real estate costs depend ,on location, size, visibility, economic conditions, accessibility, competitive market conditions, and the type of ownership interest you are buying. Because of the numerous variables that affect the value of a particular piece of real estate, this initial investment table 15 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
does not reflect the potential purchase cost of real estate or the costs of constructing a building suitable for the Location. (3) Leasehold Improvements and Location Costs. Leasehold improvements, including floor covering, wall treatment, ceilings, painting, and electrical, carpentry, and similar work, can range from $1 to $5 per square foot for a KAIA F.I.T. Location. Actual costs depend on location, the condition of the premises being remodeled, economic factors, and the Location’s size. This figure also covers costs for remodeling, decorating, fixtures and other fixed assets. (See Items 5 and 11) Depending on the lease terms, your landlord might cover some of these costs. Subleasing or renting from an existing fitness facility or gymnasium may defray some or even all of these costs. (4) Equipment. Costs for KAIA training equipment are minimal, but can range from $500 to $10,000 per Location. (5) Computer, Software, and Website Set-Up. We describe the Computer, Software, Website and related registration and payment services in Item 11. These figures cover amounts to acquire the Computer, Software and Website Set-Up and the ongoing fees payable to KAIA F.I.T. during the pre-opening period. (6) Grand Opening and Initial Marketing. You must implement a grand opening marketing program for the Location according to our requirements and other System Standards. At least 30 days before you intend to begin selling Location memberships, we (or a supplier we designate) and you will prepare a proposed grand opening marketing program that requires spending at least the minimum amount that we reasonably specify, up to $2,500. You must make the changes to the program that we specify and implement the program as we approve it. The program will include the requirement that you provide “Free Demo Classes”. (See Items 6, 7, 8, and 11) (7) Miscellaneous Opening Costs. This figure includes amounts for business licenses, legal and accounting expenses, utility costs, etc. (the costs depending in part on gross membership sales and the number of employees you have). (8) Additional Funds - 3 Months. This item estimates your initial start-up expenses (other than the items identified separately in the table) for your Location’s first 3 months of operation, including miscellaneous supplies, inventory and equipment, laundry and janitorial services, payroll costs (but not any draw or salary for you), and other miscellaneous costs. These figures are estimates, and we cannot guarantee that you will not have additional expenses in starting to operate your Location. Your costs depend on how closely you follow our methods and procedures; your management skill, experience, and business acumen; local economic conditions; the local market for your services; the prevailing wage rate; competition; and the sales level reached during the initial period. (9) Total Estimated Initial Investment. We relied on our management’s experience in operating health and fitness facilities similar to KAIA F.I.T. businesses since 2004, along with our research and conversations with contractors, equipment vendors and other providers of products and services to existing KAIA F.I.T. licensees and similar concepts, to compile the estimate for additional funds and other estimates. You should review these figures carefully with a business advisor before deciding to acquire the franchise. We do not offer financing directly for any part of the initial investment. The availability and terns of financing depend 16 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
on many factors, including the availability of financing generally, your creditworthiness and collateral, and lending policies of financial institutions. The estimate does not include any finance charge, interest, or debt service obligation. Except for the security deposit under the Site’s lease, which typically is refundable if you comply with the lease, no amounts in the chart are refundable.
Item 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES Franchise Agreement System Standards You must operate the Location according to our System Standards, which may regulate, among other things, the brands, types, and models of equipment and other products and services you use to operate your Location; required or authorized products and services or product and service categories; designated or approved suppliers of these items (which might include or be limited to us); and standards and procedures for memberships. (See Item 16) The System Standards may regulate any aspect of the Location’s development, operation and maintenance, including the Location’s condition and appearance, schedules for the maintenance, repair and replacement of equipment, and participation in and requirements for group purchasing programs for certain Operating Assets (defined below) and/or other products that KAIA F.I.T. Locations use or sell, (See Item 11). “Operating Assets” means the equipment (including exercise and related equipment), fixtures, furniture, furnishings, and signs that we periodically specify for the Location. To maintain the quality of the goods and services that KAIA F.I.T. Locations offer and the reputation of the KAIA F.I.T. franchise network, you must purchase or lease all Operating Assets and other products and services that you use or sell at the Location only according to our System Standards and, if we require, only from suppliers or distributors that we designate or approve. We issue and modify our System Standards based on our, and our franchisees’ experience in licensing, franchising, and/or operating KAIA F.I.T. Locations. We will notify you in our Manuals (defined in Item 11) of our System Standards and names of designated and approved suppliers. Currently, the purchases and leases that you must make from us, from approved suppliers, or according to our System Standards represent approximately 25% of your total purchases and leases in establishing and operating your Location. Suppliers Except for our providing services relating to the Location’s development, and providing registration and payment processing services and related services on our Website (see Items 6 and 11), neither we nor any of our affiliates currently are approved suppliers or the only approved suppliers for any products or services that KAIA F.I.T. Location franchisees sell or use. In the future, we may designate us or an affiliate as approved suppliers or the only approved supplier for certain products and services. We and/or an affiliate may derive revenue based on your purchases and leases, including from charging you for products and services that we or our affiliates provide to you (for example, for selling memberships and providing collection services for the Location through the System Website (defined in Item 11) and from 17 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
promotional allowances, volume discounts and’ other payments designated, approved or recommended suppliers make to us for some or all KAIA F.I.T. Location franchisees. We and our affiliates may use all amounts received from suppliers, whether or not based on your and other franchisees’ prospective or actual dealings with them, without restriction for any purposes that we and our affiliates deem appropriate. We have no KAIA F.I.T. Location franchisees as of the date of this disclosure document, so neither we nor our affiliates received any revenue or other material consideration from our or their selling or leasing products or services directly to KAIA F.I.T. Location franchisees during 2010. We plan to receive revenue from providing billing and related services during 2012. None of our officers owns an interest in any supplier to KAIA F.I.T. Location franchisees. You currently must utilize the Mindbody Business Management Software and related services only from us or an approved supplier (see Items 6 and 11). You also currently must acquire all Operating Assets and other products and services for the Location’s development (as described below and in Item 11), and certain equipment, supplies, and marketing-related services relating to the Location’s ongoing operation, only from suppliers that we designate or approve. Except as described in this Item, there currently are no goods, services, supplies, fixtures, equipment, inventory, computer hardware or software, real estate, or comparable items related to establishing or operating your Location that you must purchase from us or designated or approved suppliers. If you wish to purchase or lease any Operating Assets or other products or services from a supplier or distributor which we have not then approved (if we require you to buy or lease the product or service only from an approved supplier or distributor), then you must establish to our reasonable satisfaction that the product or service is of equivalent quality and functionality to the product or service it replaces and that the supplier or distributor is, among other things, reputable, financially responsible, and adequately insured for product liability claims. We may condition our approval of a supplier or distributor on requirements relating to product quality, prices, consistency, warranty, reliability, financial capability, labor relations, customer relations, frequency of delivery, concentration of purchases, standards of service (including prompt attention to complaints), and/or other criteria. We have the right to inspect the proposed supplier’s or distributor’s facilities and to require the proposed supplier or distributor to deliver product samples or items, at our option, either directly to us or to any third party we designate for testing. We will use commercially reasonable efforts to notify you of our approval or disapproval within 90 days after receiving all information we require. If we determine at any time that a product, supplier or distributor no longer satisfies our System Standards, we may revoke our approval by notifying you and/or the supplier in writing. Despite these rights, we may limit the number of approved suppliers and/or distributors with whom you may deal, designate sources that you must use, and/or refuse any of your requests for any reason, including that we have already designated any exclusive source (which might be us or our affiliate) for a particular item or service or if we believe that doing so is in the best interests of the KAIA F.I.T. Location network. We will not provide material benefits, like renewal or additional franchises, to franchisees based on their purchase of particular products or services or use of particular suppliers. We negotiate purchase arrangements with vendors and other suppliers, including price terms. In doing so, we seek to promote the overall interests of our franchise system and our interests as franchisor. There currently are no formal purchasing or distribution cooperatives in the KAIA F.I.T. Location franchise network.
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Marketing Materials You must participate in the manner we periodically specify in all advertising, marketing and promotional programs that we periodically designate for the Location in the System Standards or otherwise in writing. We may (at our option) provide samples of Marketing Materials for your use. You must notify us in advance if you desire to develop additional artwork or other Marketing Materials for the Location (other than artwork and Marketing Materials we provided to you or have previously approved). At our option, we may (i) develop the requested artwork or Marketing Materials for the Location at your expense (see Item 6), (ii) allow you to develop the artwork or Marketing Materials at your expense, or (iii) reject your request to use the artwork or Marketing Materials. At our option, you must acquire Marketing Materials and other advertising, marketing and promotional products and services only from suppliers that we designate or approve. In addition, at least 15 business days before you intend to use or implement them, you must send us (a) samples or proofs of all Marketing Materials that we have not prepared or already approved, or that we previously approved and which you propose to change in any way; and (b) descriptions of all other advertising, marketing or promotional programs for the Location that we have not already approved. However, you do not need to send us any Marketing Materials for which you have simply completed the missing Location-specific or pricing information based on templates that we sent to you. If we do not notify you of our disapproval of these materials or programs within 10 business days after we actually receive them, they are deemed disapproved. You may not use any Marketing Materials or conduct any advertising, marketing or promotional programs for the Location that we have not approved or have disapproved. Site Selection and Location Development You may not begin developing the Location until we have approved your proposed Site. (See Items 11 and 12) You must send us for our approval (which we will not unreasonably withhold) interior and exterior photographs of the Site, and a copy of the proposed rental agreement, lease or sublease for the Site before you sign it. The rental agreement, lease or sublease must contain the provisions we periodically specify to protect our interests as your franchisor. If you or your affiliate owns the property where the Site is located, then in addition to complying with the obligations described above concerning the lease with your affiliate (if your affiliate owns the Site), you must provide us with a copy of the deed for the property. The Location must satisfy our standard design requirements and specifications for layout, color scheme, finishes, improvements and décor for KAIA F.I.T. Locations similar to the Location. The Location must contain all Operating Assets, and only those Operating Assets, that we specify. All decisions relating to the Location’s development and its layout, design, color scheme, finishes, improvements, decor and Operating Assets are subject to our approval. You must buy these Operating Assets and other products and services for the Location only from suppliers that we designate or approve. Location Upgrades In addition to your obligations to maintain the Location according to System Standards, we may periodically, but not more than once during the Franchise Agreement’s term (after the Location’s grand opening), require you to substantially alter the Location’s appearance, 19 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
branding, layout and/or design, and/or replace a material portion of the Operating Assets, in order to meet our then current requirements for new KAIA F.I.T. Locations. This obligation could result in your making extensive structural changes to, and significantly remodeling and renovating, the Location, and/or in your spending substantial amounts for new Operating Assets. You must incur any capital expenditures required in order to comply with this obligation and our requirements, even if those expenditures cannot be amortized over the Franchise Agreement’s remaining term. Item 9 FRANCHISEE’S OBLIGATIONS This table lists your principal obligations under the franchise and other agreements. It will help you find more detailed information about your obligations in these agreements and in other items of this disclosure document. Obligations
Section in agreement
Disclosure document
a. Site selection and acquisition/lease
B.1 and B.2 of Franchise Agreement
5, 7, 8, 11 and 12
b. Pre-opening purchases/leases
B.3 and B.4 of Franchise Agreement
5, 7, 8 and 11
c. Site development and other pre-opening requirements
B.3 and B.4 of Franchise Agreement
6, 7, 8 and 11
d. Initial and ongoing training
B.4(b) and D of Franchise Agreement
7 and 11
e. Opening
B.4 of Franchise Agreement
11
f. Fees
B.1, C, D.1, D.2, D.4, F.2, F.6, 5, 6, 7 and 11 F.9, G.3, G.4, H.1, H.2, I.3, I.4, J.2, K.3, L.3, M.1, M.2, N.3, and O.4 of Franchise Agreement
g. Compliance with standards and D.3 and F of Franchise policies/Operating Manual Agreement
5, 8 and 11
h. Trademarks and proprietary information
13 and 14
E of Franchise Agreement
i. Restrictions on products/services D.2, and F of Franchise offered Agreement
8, 11, and 16
j. Warranty and customer service requirements
F of Franchise Agreement
11
k. Territorial development
B. of Franchise Agreement
12
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1. On-going product/service purchases
D.3, and F of Franchise Agreement
8, 11 and 16
m. Maintenance, appearance and remodeling requirements
B.3, D.3, F.1, and K.1 of Franchise Agreement
8 and 11
n. Insurance
B.4(d) and N.4 of Franchise Agreement
7 and 8
o. Advertising
6, 7, 8 and 11
p. Indemnification
F.2 and G of Franchise Agreement N.3 of Franchise Agreement
q. Owner’s participation / management / staffing
D.1, D.2, F.2, F.3, J.2, and L.3 of 11 and 15 Franchise Agreement
r. Records and reports
H.1 and H.3 of Franchise Agreement
6 and 11
s. Inspections and audits
H.1 and H.2 of Franchise Agreement
6
t. Transfer
I of Franchise Agreement
6 and 17
u. Renewal
K of Franchise Agreement
6 and 17
v. Post-termination obligations
E.7 and M of Franchise Agreement
6 and 17
w. Non-competition covenants
E.8 and M.4 of Franchise Agreement
17
x. Dispute resolution
O of Franchise Agreement
17
6
Item 10 FINANCING We do not offer direct or indirect financing. We do not guarantee your note, lease, or other obligation. Item 11 FRANCHISOR’S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING Except as listed below, we are not required to provide you with any assistance. Before you open the Location, we will: 21 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
(1) Approve a Site that meets our requirements, based on your submission to us of the location, dimensions, pictures (inside and outside) and the lease/rental agreement. If you do not have an approved Site when you sign the Franchise Agreement, you must propose a suitable site in the Site Selection Area (see Item 12) promptly after the Franchise Agreement’s effective date; otherwise, we may terminate the Franchise Agreement. The Site must meet our criteria for demographic characteristics; traffic patterns; parking; character of neighborhood; competition from, proximity to, and nature of other businesses; size; appearance; and other physical and commercial characteristics. In determining whether to approve or disapprove a proposed Site, we also may consider the Site’s proximity both to the Site Selection Area’s boundaries and to other existing or potential sites for KAIA F.I.T. Locations and located outside the Site Selection Area. We typically will approve or disapprove a location you propose within 15 days after receiving the complete site report, photographs, and other materials we request. You must reimburse the reasonable travel and other expenses we incur in evaluating any sites you propose, however we have no obligation to physically visit or inspect the site. (See Item 5) (Franchise Agreement - Section B.1) (2) Approve a rental agreement or a lease that meets our requirements. You must present to us for approval a copy of the proposed rental agreement or lease or sublease for the Site at least 30 days before you intend to sign it. The rental agreement, lease or sublease must contain the provisions we periodically specify to protect our interests as your franchisor. Those lease terms currently include the following: • • • •
allowing you to display the Marks and signs at the Location according to the System Standards and requiring cooperation with us to de-identify the Location when the franchise term ends; requiring the landlord to send us copies of all lease default notices and provide us 30 days’ prior written notice of its intent to terminate the lease or evict you; allowing us 30 days to cure any of your alleged defaults under the lease; and allowing us or our designee to take an assignment of the lease, at our option, if you default under the lease, Franchise Agreement or related agreement or we or you terminate the Franchise Agreement before its term expires (unless you terminate because of our default).
We also may (but have no obligation to) provide you guidance or assistance relating to the rental agreement, lease or sublease and its negotiation. We typically will approve or disapprove a lease or sublease you propose within 15 days after receiving it. You must sign a rental agreement, lease or sublease that we approve for an approved Site within 6 months after the Franchise Agreement’s effective date; otherwise, we may terminate the Franchise Agreement. (Franchise Agreement - Section B.2) (3) Perform facilities development services for the Location’s construction, remodeling and decorating. In general, we will: • • • •
assist with project planning and the Location’s layout and design, which are subject to our approval; help you prepare an estimated timeline for the project; coordinate the delivery and installation of Operating Assets; and oversee the Location’s opening. 22
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We will perform these services with care, skill and diligence and comply with standards applicable generally to professionals performing similar services. We will use good faith efforts to expedite the performance of these services and our other obligations so the project is completed within the agreed time schedule. As discussed in Item 8, all decisions relating to the Location’s development and its layout, design, color scheme, finishes, improvements, decor and Operating Assets are subject to our approval. You must buy these Operating Assets and other products, materials and supplies for the Location only from suppliers that we designate or approve. We currently do not provide these items directly or deliver or install any items, but we do coordinate the suppliers who will provide, deliver and install items and, where appropriate, provide written specifications. To the extent that performance of these services requires us to travel to your Location, you must reimburse us for all related travel expenses. (Franchise Agreement — Section B.3) (4) Provide Certification Training for up to 2 people from your Location for a fee of $1,000 plus $500 for each additional person which includes training on how to operate a KAIA F.I.T. Location and receipt of Certification for the instruction of the KAIA F.I.T. fitness programs. We describe this training later in this Item. (Franchise Agreement - Section D) (See Item 5). (5) Provide you access to one set of the confidential manuals and forms used in operating KAIA F.I.T. Locations (the “Manual”), provided in hard copy or flashdrive. A copy of the Table of Contents of the hard copy of the Manual is attached hereto as Exhibit E. Our Manual, bulletins, and other written and electronic materials contain our System Standards and other information on your obligations under the Franchise Agreement. However, except where the Franchise Agreement specifies otherwise (see Item 15), System Standards will not include any employment-related policies or procedures and will not regulate the terms and conditions of employment for your employees. Except where the Franchise Agreement specifies otherwise, any information we provide (whether in the Manuals or otherwise) concerning employment-related policies or procedures or relating to the terms and conditions of employment for your employees is for your optional use. You must comply with the Manual. We periodically may modify the Manual to reflect changes in System Standards. Our master copy controls. You must keep the Manual confidential and current and in a secure location at the Location. You may not copy any part of the Manual other than to operate the Location. (Franchise Agreement - Sections D.3 and F) At our option, we may post the Manuals and other bulletins and written materials containing System Standards on a restricted website to which you will have access. If we do so, you must periodically monitor the website for any updates to the Manuals or System Standards. You must keep confidential any passwords and other digital identifications necessary to access the Manuals on that website. (6) Approve a grand opening marketing program that meets our requirements in the Manuals and other System Standards. At least 30 days before you intend to begin selling Location memberships, we (or a supplier we designate) and you will prepare a proposed grand opening marketing program that requires spending at least the minimum amount that we reasonably specify, up to $2,500, You must make the changes to the program that we specify and implement the program as we approved it. (Franchise Agreement - Section G.1) 23 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
(7) At our option inspect the Location and approve the Location for opening if it meets our requirements. (Franchise Agreement - Section B.4(a)) During your operation of the Location, we will: (1) Through our franchisee Manual (flashdrive documents), provide you with suggestions concerning the Location’s operation based on your reports and our evaluations, and on specifications, standards, operating procedures, and rules that KAIA F.I.T. Locations use; purchasing required products, equipment, materials and supplies; and advertising and marketing programs. We will guide you in the Manual, bulletins, or other written materials; during telephone consultations; and/or during consultations at our office or the Location. Our System Standards may regulate terms of membership offerings, class fees and fee programs, initial opening discounting or fee specials, and other products, services and programs, including prices. (Franchise Agreement – Sections D.3 and F.2) (See Item 16) (2) Provide membership and fitness session registration-related services and revenue collection services through your webpage on our website under which we will (a) process membership and fitness session registrations; (b) provide revenue collection for all membership and session charges to your members/clients; and (c) prepare and provide to you periodic reports, benchmarking and other analysis based on revenue information that we obtain. (3) At your request, coordinate with companies who may provide collections assistance and related services to past due amounts that members/clients owe to you. (4) Give you updates to the Manual and System Standards. Changes in System Standards may require you to invest additional capital in the Location and incur higher operating costs. (Franchise Agreement - Sections D.3 and F) (See Item 8) (5) Periodically evaluate the Location to determine your compliance with our System Standards. (Franchise Agreement - Section H.1) (6) Maintain and administer the Marketing Fund, if implemented, and System Websites. (Franchise Agreement - Sections G.3 and G.4) We describe the Marketing Fund option reserved to us and System Website below. Advertising, Marketing, and Promotion; Local Advertising Local Advertising You must participate in the manner we periodically specify in all advertising, marketing and promotional programs that we periodically designate for Location. System Standards may regulate your participation in and requirements for sales, promotional, public relations, advertising and/or marketing programs, and materials and media used in these programs. In addition, at least 15 Business Days before you intend to use or implement them, you must send us (a) samples or proofs of all Marketing Materials that we have not prepared or already approved, or that we previously approved and which you propose to change in any way; and (b) descriptions of all other advertising, marketing or promotional programs for the Location that we have not already approved. However, you do not need to send us any Marketing 24 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
Materials for which you have simply completed the missing Location-specific or pricing information based on templates that we sent to you. If we do not notify you of our disapproval of these materials or programs within 10 business days after we actually receive them, they are deemed disapproved. You may not use any Marketing Materials or conduct any advertising, marketing or promotional programs for the Location that we have not approved or have disapproved. (Franchise Agreement — Sections F.2 and G.1) (See Item 8) Marketing Fund We currently do not have a Marketing Fund which requires franchisee contributions, however we reserve the right to implement a Marketing Fund, upon thirty days written notice to all franchisees. If implemented we will administer and control, a fund (the “Marketing Fund”) for advertising, marketing, and public relations programs and materials and related activities for the KAIA F.I.T. Location franchise network. (Franchise Agreement - Section G.3) Item 6 describes the amount you would be required to contribute to the Marketing Fund. Each KAIA F.I.T. Location that we operate would contribute to the Marketing Fund at the same rate, as you. We expect that all KAIA F.I.T. Location franchisees initially would contribute to the Marketing Fund at the same rate. At our option, we may begin collecting Marketing Fund contributions for a reasonable period before we start spending these contributions in order to collect sufficient assets for the Marketing Fund’s programs. If implemented, we will direct all programs that the Marketing Fund finances and have sole control over all creative and business aspects. The Marketing Fund may pay for preparing, producing and placing video, audio, and written materials, electronic media and social media; developing, maintaining and administering one or more System Websites, including online membership capabilities, lead management and customer retention programs; administering national, regional and multi-regional marketing and advertising programs, including purchasing trade journal, direct mail, and other media advertising and using advertising, promotion, and marketing agencies and other advisors to provide assistance; and supporting public and member relations, market research, and other advertising, promotion, marketing and brand-related activities. We may place advertising in any media, including print, radio, television and Internet, on a regional or national basis. Our in-house staff and/or national or regional advertising agencies may produce advertising, marketing, and promotional materials. The Marketing Fund, if implemented, may periodically provide you samples of advertising, marketing, and promotional formats and materials at no extra cost. If the Marketing Fund is implemented we will account for the Marketing Fund separately from our other funds and not use the Marketing Fund to pay any of our general operating expenses, except for reasonable salaries, administrative costs, travel expenses, and overhead we incur in activities we perform for the Marketing Fund, including administering the Marketing Fund and its programs, conducting market research, preparing advertising, promotion, and marketing materials, developing, maintaining and administering the System Website, and collecting and accounting for Marketing Fund contributions. We would not use any Marketing Fund contributions principally to solicit new franchise sales, although part of the System Website is devoted to franchise sales. The Marketing Fund would not be our asset nor a trust, and we would not owe you fiduciary obligations because of our maintaining, directing or administering the Marketing Fund or for any other reason. In any fiscal year, we may spend on the Marketing Fund’s behalf more or less than the aggregate contributions of all KAIA F.I.T. Locations in that year, and the Marketing Fund may borrow from us or others to 25 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
cover deficits and invest any surplus for future use. We will use interest earned on Marketing Fund contributions to pay costs before spending the Fund’s other assets. If the Marketing Fund is implemented, upon your written request, we will send you a copy of the Marketing Fund’s most recent budget and unaudited financial statements. We currently do not plan to have independent accountants audit the Marketing Fund, Because the Marketing Fund is not yet operational, we do not have any historical information about its expenditures. We may delegate some or all of our rights and responsibilities regarding the Marketing Fund to any affiliate or other responsible third party, and that entity will have all of the rights and responsibilities described here. If we do, we will have no further liability or responsibility relating to the delegated rights and responsibilities. The Marketing Fund if implemented, would develop recognition and goodwill of the Marks, the products and services associated with the Marks, and patronage of all KAIA F.I.T. Locations. We would have no. obligation to ensure that Marketing Fund expenditures proportionately benefit any particular geographic area or KAIA F.I.T. Location, and we need not spend any amount on advertising in the area where your Location is located. We assume no other direct or indirect liability to you for collecting amounts due to, maintaining, directing, or administering the Marketing Fund. We may at any time defer or reduce a franchisee’s Marketing Fund contributions and, on 30 days’ notice, reduce or temporarily suspend the Marketing Fund’s operations for one or more periods of any length and terminate (and, if terminated, reinstate) the Marketing Fund. If we terminate the Marketing Fund, we will refund all unspent funds to us and our affiliates and franchisees who are then contributing to the Marketing Fund in proportion to our and their respective contributions during the preceding 12 month period. We also may forgive, waive, settle, and compromise all claims by or against the Marketing Fund. There currently are no franchisee advertising councils that advise us on advertising policies for KAIA F.I.T. Locations and no local or regional advertising cooperatives in which KAIA F.I.T. Location franchisees must participate. System Website We or one or more of our designees will maintain one or more websites to advertise, market, and promote KAIA F.I.T. Locations, the products and services that they offer and sell, and the KAIA F.I.T. Location franchise opportunity (each a “System Website”). (Franchise Agreement - Section G.6) We will also provide you with a webpage that references your Location on one or more of the System Websites that we designate. You must give us the information and materials that we periodically request to develop, update and modify that webpage. We will update and modify the webpage on a schedule that we periodically specify. By providing the information and materials to us, you represent to us that they are accurate and not misleading and do not infringe upon any third party’s rights. However, we will own all intellectual property and other rights in the System Website, your webpage, and all information they contain (including the domain name or URL for that webpage, the log of “hits” by visitors, and any personal or business data that visitors, members, or clients supply). We will maintain the System Website, including your webpage, and may, if implemented, use the Marketing Fund’s assets to develop, maintain and update the System Website. We periodically may update and modify the System Website (including your 26 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
webpage). You must notify us whenever any information on your webpage changes or is not accurate. We will update or add information that we approve to your webpage at reasonable intervals but you will have the primary responsibility for the maintenance of your webpage. We have final approval rights over all information on the System Website (including your webpage). We may implement and periodically modify System Standards relating to the System Website. We will maintain your webpage on the System Website only while you are in full compliance with the Franchise Agreement and all System Standards (including those relating to the System Website). If you are in default of any obligation under the Franchise Agreement or the System Standards, then we may, in addition to our other remedies, temporarily remove your webpage from the System Website until you fully cure the default. We will permanently remove your webpage from the System Website upon the Franchise Agreement’s expiration or termination. We also may, at our option, discontinue any or all System Websites at any time. All advertising, marketing and promotional materials that you develop for your Location must contain notices of the System Website’s domain name in the manner we designate. You may not develop, maintain or authorize any other website, other online presence or other electronic medium (such as mobile applications, kiosks and other interactive properties or technology-based programs) that mentions or describes you or the Location or displays any of the Marks. You may not conduct commerce or directly or indirectly offer or sell any products or services using any website, another electronic means or medium, or otherwise over the Internet or using any other technology-based program. Nothing limits our right to maintain websites other than the System Website or to offer and sell merchandise bearing the Marks from the System Website, another website or otherwise over the Internet without payment or obligation of any kind to you. (See Item 12) Computer System and Billing Services System You must operate a Billing Services System at the Location as we specify which will be operated through the System Website, your Webpage and Mindbody Software. “Billing Services System” means the integrated, computer-based systems and services utilized for membership and session registration, billing, revenue collection and member/client records for each KAIA F.I.T. location. The Billing Services System might include one or more point of sale, member management, prospect management, sales and marketing, billing and collections, and communications functions. You must acquire all of the Computer System components and other products and services necessary for the Billing Services. “Computer” means the computer hardware, dedicated telephone and power lines, modems, other computer-related accessories and peripheral equipment, software, and related technology that we periodically specify. Currently we require that you use Mindbody Business Management Software. The Computer through your Mindbody Software, and your webpage will store all data relating to the Billing Services System’s functions, including member information, prospect information and financial and other operational data. All client/member registrations and payments will be made through the Billing Services System and you will enter into the Billing Services System any payments by check or cash that you receive. It will cost about $500 to $4,000 to acquire a Computer. The monthly fee due to us for website hosting is $119, and additional fees will be payable for Merchant Account Credit Card Fees. (See Item 6) 27 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
We may, at our option, periodically change the Billing Services System that we designate or approve for KAIA F.I.T. locations. If we change the Billing Services System, you must acquire the Computer System components software and other products and services required for the replacement Billing Services System and switch the Location’s operations to the replacement Billing Services system in the manner we specify. No contract limits the frequency or cost of this obligation. We will have independent, unlimited access to the information and data on your Webpage. We, through our access to your Computer, your Webpage the Billing Services System, or otherwise, have access to names, contact information, financial information and other personal information of or relating to the Location’s clients/members and prospective members (“Member Information”): We may use Member Information in our business activities, but during the Franchise Agreement’s term we will not use the Member Information that we learn from you or from accessing the Billing Services System to compete directly with the Location. Upon the Franchise Agreement’s termination, we and our affiliates may make all disclosures and use the Member Information in any manner that we or they deem necessary or appropriate. You must obtain from your clients/members all authorizations, and provide them all notices that applicable law periodically specifies, to enable us and our affiliates to use the Member Information in the manner that the Franchise Agreement contemplates. (Franchise Agreement — Sections E.8 and F.9) Through your computer, your webpage and the Mindbody software we will also have access to your monthly Gross Revenue From Fitness Classes Only which we will use to calculate your Monthly Fee due to us and your Marketing Fund Contribution (if any), and through this access and an electronic transfer of funds authorization (Exhibit E to the Franchise Agreement) we will transfer the Monthly Fee, Marketing Fund Contribution (if any), Webpage Hosting Fee and Merchant Account Credit Card Fees due to us from your bank account to our bank account (Franchise Agreement – Section F9). Opening We estimate that you will open your KAIA F.I.T. Location within 180 days after you sign the Franchise Agreement. The timing depends on the time it takes you to locate an approved Site and sign an approved rental agreement or lease; the Site’s location and condition; the work needed to develop the Location according to our System Standards; completing training; obtaining insurance; and complying with local laws and regulations. You must open and begin operating the Location within 90 days after you sign an approved rental agreement or lease or sublease for the Site (regardless of that lease’s or sublease’s effective date) or we may terminate the Franchise Agreement. You must give us written notice of the Location’s first Demonstration Classes and grand opening date no later than one month before that date. You may not pre-sell memberships until we have authorized you in writing to sell memberships to the public, we have approved the location and facilities from which you will sell memberships, we have approved your grand opening marketing program, you (or your managing owner) or the Location’s proposed general manager has completed pre-opening training, and you have secured all permits necessary to develop, build and fully equip the Location. You alone are responsible for ensuring that your membership agreements comply with all applicable laws. 28 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
You may not open the Location for business until (a) we have approved the Location for opening; (b) you (or your managing owner) or your Location’s general manager has satisfactorily completed training; (c) you have satisfied all bonding, licensing, and other legal requirements; (d) you have complied with your obligations relating to your pre-sale and grand opening marketing plan; (e) you have paid us and our affiliates all amounts due; (f) you have obtained the required insurance; and (g) you have signed and delivered to us our Request for Opening Form under which, among other things, you certify that all of the requirements in subsections (a) through (f) have been satisfied. (Franchise Agreement - Sections B.4.) Certification Training Before the Location opens, we will provide a Certification and management training program (“Certification Training”) at our headquarters in Carson City, Nevada for up to 2 people from your Location on operating a KAIA F.I.T. Location and instructing KAIA F.I.T functional intense training methods. More personnel may attend training (depending on our capacity) at your expense. We currently charge $500 per person per session. (See Item 5) You must pay your and your employee’s travel, living, and other expenses during training. Training occurs for you (or your managing owner) and/or the Location’s manager(s) before you sign the Franchise Agreement and Certification of successful completion of the training is required before we accept you as a franchisee. Certification Training for other Location personnel may occur after you open the Location for business for $500 per person. Because training may include site selection and other pre-opening issues, we recommend that you and your personnel attend the first scheduled training class after submitting your franchise application. Certification Training is mandatory for all franchisees and all coaches at each Franchise location. You (or your managing owner) or the Location’s general manager must complete our initial Certification Training program to our satisfaction before you are accepted as a franchisee. You must replace any manager who fails to satisfactorily complete our initial Certification Training program. (Franchise Agreement - Section D) (See Item 6) We currently plan to schedule our Certification Training program as often as necessary, but probably about 3 times per year. The following chart describes our Certification Training program requirements as of the date of this disclosure document: TRAINING PROGRAM Column 1
Column 2
Column 3
Column 4
Subject
Hours of Classroom Training
Hours of On-The-Job Training
Location
KAIA Fitness Certification Training Program
18
-
Carson City, NV
Advanced Management Training
30 minutes
-
Carson City, NV
Human Resources
30 minutes
-
Carson City, NV
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Running Your Marketing Campaign
30 minutes
-
Carson City, NV
Providing A+ Client Service
30 minutes
-
Carson City, NV
Billing Services System
30 minutes
-
Carson City, NV
The Manual and certain handouts that vendors prepare serve as our instructional materials. Our executive staff serves as coaches/instructors. Other vendors and outside coaches/instructors may also provide some assistance concerning the training and the products and services they provide. You or your new general managers must attend and complete to our satisfaction our Certification Training and management training programs. (See Item 6) Also, you and/or the Location’s general manager and all of your coaches must attend and satisfactorily complete any required supplemental and refresher training programs we offer on an annual basis. You must pay our then current training fee. (See Item 6) You also must pay your and your manager’s compensation and travel and living expenses during training. Item 12 TERRITORY Franchise Agreement You will operate the Location at a specific Site that we first must approve. If you have not yet located an approved Site when you sign the Franchise Agreement, we will designate a “Site Selection Area” when you sign that Agreement. We typically identify Site Selection Areas using municipal boundaries or maps and there is no minimum size for a Site Selection Area. The Site Selection Area is the area within which you must look for your Site. (See Item 11) During the period beginning on the Franchise Agreement’s effective date and ending on the date we deliver our written notice approving the Location’s site (the “Site Approval Date”), we and our affiliates will not ourselves operate or authorize others to operate a KAIA F.I.T. Location the physical premises of which are located within the Site Selection Area. Except as described above, we may engage in any other activities we desire within and outside the Site Selection Area during the period before the Site Approval Date. After the Site Approval Date, your rights under the Franchise Agreement are nonexclusive in all respects and you will not receive an exclusive territory. You may face competition from other franchisees or from outlets that we own. We and our designees have the right without any restrictions to engage (directly or through franchisees, licensees or other representatives) in any and all activities we desire, at any time and place, whether or not using the Marks or any aspect of the KAIA F.I.T. systems, whether or not those activities compete with your Location (including the operation of other KAIA F.I.T. Locations near the Location), and whether or not we start those activities or purchase, merge with, acquire, or affiliate with 30 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
businesses that already engage in those activities. This includes providing, and granting rights to other persons to provide, goods and services similar or dissimilar to, and/or competitive with, those provided at KAIA F.I.T. Locations, whether identified by the Marks or other trademarks or service marks, at any location and through any channel of distribution. If you want to relocate the Location, you must obtain our prior written consent, comply with our then current relocation policies and procedures, and reimburse us for our out-ofpocket costs. (See Item 6) You have no options, rights of first refusal or similar rights to acquire additional franchises. There are no restrictions on your soliciting and accepting clients/memberships from any area or otherwise competing with other KAIA F.I.T. Locations which are now, or may in the future be, located inside or outside your Location’s market area. We currently offer and sell certain products (including KAIA F.I.T. branded apparel, workout accessories, and equipment) and services directly to clients through our System Website and other direct selling methods. Except as described above, neither we nor our affiliates operate, franchise, or have plans to operate or franchise a business under a different trademark that sells or will sell goods or services similar to those that you will offer, although we have the right to do so. Item 13 TRADEMARKS We grant you the non-exclusive right to use and display the Marks in operating, marketing, and advertising your Location. We have obtained federal trademark registration for the use of the KAIA F.I.T. trademark on certain items of wearing apparel and exercise weights, gloves and mats. We have also obtained federal trademark registration for the use of the KAIA F.I.T. trademark on dietary supplements. We have also obtained federal trademark registration for the use of the service mark KAIA F.I.T. for physical training and fitness classes and physical fitness instruction. Other than as stated above, there are no currently effective material determinations of the PTO, the Trademark Trial and Appeal Board, the trademark administrator of any state, or any court, and no pending infringement, opposition, or cancellation proceedings or material litigation, involving the Marks. No agreement currently in effect significantly limits our right to use or sublicense the Marks in any manner material to the franchise. You must notify us promptly of any claim by others (1) that you are infringing their trademark rights by using the Marks or (2) to any rights in the Marks which are inconsistent with the Franchise Agreement or our exclusive rights to the Marks. You must fully cooperate with us in prosecuting any infringement claim or defending a claim that you are infringing any other party’s trademark rights. We may exclusively control any action or proceeding concerning the Marks. If you comply with the Franchise Agreement, we will defend you with counsel we select and indemnify you against all damages that you incur in a proceeding disputing your right to use the Marks under the Franchise Agreement. However, we will not defend or indemnify you for any claims involving unauthorized use of the Marks.
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If, in our reasonable opinion, it is desirable to modify or discontinue using any of the Marks and/or to use one or more additional or substitute marks, you must comply with our directions within a reasonable time after receiving notice. We will not reimburse you for any costs or expenses associated with this obligation, such as costs to change the Location’s signs, loss of revenue or profits, start-up or similar expenses, or other incidental or consequential expenses due to the change in Marks. We do not know of either superior prior rights or infringing uses that could materially affect your use of the Marks. Item 14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION No patents are material to the franchise. We claim copyrights in the Manual, advertising, training and promotional materials, and similar items used in operating the franchise. We have not registered any copyrighted materials with the U.S. Registrar of Copyrights but need not do so at this time to protect them. You must modify or discontinue using the copyrighted materials as we direct. There currently are no effective determinations of the PTO, United States Copyright Office or any court regarding any of the copyrighted materials. No agreement limits our right to use or license the copyrighted materials. We do not know of any superior prior rights or infringing uses that could materially affect your using the copyrighted materials. We need not protect or defend copyrights or take any action if notified of infringement, although we intend to do so if in our system’s best interests. We may control any action involving the copyrights. No agreement requires us to participate in your defense or indemnify you for damages or expenses in a proceeding involving a copyright or claims arising from your use of copyrighted items. We will disclose certain Confidential Information to you during the Franchise Agreement’s term. The Manuals contain Confidential Information. “Confidential Information” means information, processes, methods, techniques, procedures and knowledge, including know-how (which includes information that is secret and substantial), manuals and trade secrets (whether or not judicially recognized as a trade secret), that we or our affiliates developed or will develop relating directly or indirectly to the development or operation of a KAIA F.I.T. Location. For this definition, “secret” means that the know-how as a body or in its precise configuration is not generally known or easily accessible and “substantial” means information which is important and useful to you in developing and operating the Location. Confidential Information includes: (1) methods, techniques, equipment, specifications, standards, policies, procedures and information relating to the development, operation, and franchising of KAIA F.I.T. Locations; (2) knowledge of suppliers and specifications for certain materials, equipment and fixtures for KAIA F.I.T. Locations; (3) operating results and financial performance of KAIA F.I.T. Locations other than your Location; 32 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
(4) all marketing, promotional or training materials used in the operation of or relating to KAIA F.I.T. Locations; and (5)
the System Standards and the Manuals.
You may disclose the Confidential Information to your owners and employees only to the extent reasonably necessary for the development and operation of your Location. You and those of your owners and employees who have access to the Confidential Information must maintain the confidentiality of the Confidential Information and may not, during or after the Franchise Agreement’s term, use the Confidential Information in any other business or capacity or make unauthorized copies of any portion of the Confidential Information disclosed in written or other tangible or intangible form. You also must adopt and implement all reasonable procedures we specify to prevent unauthorized use or disclosure of the Confidential Information, which includes requiring those of your owners and employees with access to the Confidential Information to sign confidentiality agreements in form we specify. The restrictions on the disclosure and use of the Confidential Information will not apply to: (a) information, methods, procedures, techniques and knowledge which are or become generally known to the general public, other than through disclosure (whether deliberate or inadvertent) by you or any owner or employee, and (b) the disclosure of the Confidential Information in judicial or administrative proceedings to the extent that you are legally compelled to disclose the information, if you have notified us before disclosure and used your best efforts to obtain, and afforded us the opportunity to obtain, an appropriate protective order or other assurance satisfactory to us of confidential treatment for the information. You must promptly disclose to us all ideas, concepts, methods, techniques and products that you and/or your affiliates, owners, agents, representatives, contractors and employees conceive or develop during the term of the Franchise Agreement relating to the development or operation of a KAIA F.I.T. Location (collectively, “Innovations”). All Innovations are our sole and exclusive property, part of the franchise system, and works made-for-hire for us. If any Innovation does not qualify as a work made-for-hire for us, you must help us obtain all intellectual property rights in the Innovation. We have no obligation to make any lump sum or other payments to you or any other person relating to any Innovations. You must not use, nor allow any other person to use, those Innovations, whether at the Location or otherwise, without obtaining our prior written approval. Item 15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS Franchise Agreement We require that you (or your managing owner) personally supervise your Location. If you do not personally supervise and conduct the training at your Location, the supervisor and training functions need to be performed by a manager that you have designated, who has completed our Certification Training. You must ensure that your managers agree to comply with the Franchise Agreement’s confidentiality, non-competition, and innovations provisions. Unless we approve, you must at all times retain and exercise direct management control over 33 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
all aspects of the Location’s business and the products and services it offers. You may not enter into any management arrangement, subcontracting arrangement or other arrangement under which any other party (including your affiliate) provides or exercises management control over any aspect of the Location’s operations or the products or services it offers without our approval. The Location’s manager need not have an equity interest in the Location (or in you). If you are a corporation, limited liability company, partnership, or other business entity, each owner we designate as a Guarantor must fully guarantee all of your monetary and nonmonetary obligations to us under the Franchise Agreement and agree to be personally bound by, and personally liable for the breach of, every provision of the Franchise Agreement, including the confidentiality, non-competition, fees and arbitration provisions, by signing the Full Continuing Guaranty in the form found at Exhibit B to the Franchise Agreement. Each other owner who is not a Guarantor must (regardless of the size of his or her ownership interest) agree personally to comply only with certain non-monetary obligations under the Franchise Agreement, including the confidentiality, non-competition and arbitration provisions, by signing the Owner’s Representations and Undertakings in the form found at Exhibit C to the Franchise Agreement. “Guarantors” means each owner having an ownership interest in you or any entity directly or indirectly controlling you of 20% or more (regardless of whether that owner is entitled to vote) and any other owner we may designate when the Franchise Agreement is signed. Item 16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL You must offer all products and services that we periodically require for KAIA F.I.T. Locations. We may require you to stop offering any products or services that we no longer authorize. You may not offer for sale any products or services that are unrelated to the fitness industry and may not sell any products through a website or other technology-based program, other than a KAIA F.I.T. website, or at any location other than the Site. We may periodically change the types of authorized services and products for your Location. (See Items 8, 11 and 12) Our System Standards may regulate the terms of membership offerings and maximum, minimum and other pricing requirements for memberships, fitness classes, and other products and services that the Location offers, including requirements and time limitations for promotions, special offers and discounts in which some or all KAIA F.I.T. Locations participate, in each case to the maximum extent the law allows. They also may regulate participation in and requirements for member/client loyalty programs, reciprocity programs, membership transfer policies and programs, and similar programs for members of KAIA F.I.T. Locations including the terms we periodically specify for (a) providing Location access to members of other KAIA F.I.T. Locations; (b) honoring memberships covering some or all KAIA F.I.T. Locations and providing Location access to those members; (c) accepting memberships that we or our affiliates process or assist in processing for the Location; and (d) each KAIA F.I.T. Location bearing, or sharing in, the costs and expenses associated with participating in any of these programs. You also must participate in the manner we specify in any Group Membership Programs that we periodically establish during the term of the Franchise Agreement. (See Items 8 and 11) 34 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
Item 17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION THE FRANCHISE RELATIONSHIP This table lists certain important provisions of the franchise and related agreements. You should read these provisions in the agreements attached to this disclosure document. Provision
a. Length of the franchise term
Section in franchise or other agreement
A.2 of Franchise Agreement
Summary
Franchise Agreement expires 5 years after the earlier of the Location’s actual opening date or the 1st day of the 4th month after the Franchise Agreement’s effective date.
b. Renewal or K of Franchise extension of the term Agreement
If you have complied with the Franchise Agreement during its term, you may acquire one renewal franchise under our then current form of franchise agreement (which may be materially different from the Franchise Agreement). (See Item 6)
c. Requirements for franchisee to renew or extend
K of Franchise Agreement
You maintain possession of and modify, remodel, and/or expand the Location to meet then current standards or secure substitute site and develop as a new Location; are then in full compliance, and have been in substantial compliance, with existing Franchise Agreement and all other agreements between you and us; give us 12 months’ notice and information demonstrating that you meet our then current financial and operational criteria; sign then current form of franchise agreement and ancillary documents; pay renewal fee (see Item 6); and sign general releases (if state law allows). We may require you to relocate the Location only if market and economic conditions change, and then only at the end of the lease term. “Renewal” means signing our then current franchise agreement, which could contain materially different terms.
d. Termination by franchisee
L.1 of Franchise Agreement
You may terminate if we materially breach the Franchise Agreement and fail to cure within 30 days after notice (or, if breach cannot reasonably be cured in 30 days, then within a reasonable time).
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e. Termination by franchisor without cause
L.2 of Franchise Agreement
We may not terminate the Franchise Agreement without cause.
f. Termination by L.2 of Franchise franchisor with cause Agreement
We may terminate if you or your owners breach the Franchise Agreement.
g. “Cause” defined L of Franchise - curable defaults Agreement
Under the Franchise Agreement you have the time period (if any) that the law allows to cure violations of law (unless contesting liability), 5 days to cure payment defaults and failure to provide reports or maintain insurance, 60 days to cure bankruptcyrelated filings, and 30 days to cure other defaults not listed in (h) below. Upon your default we also may suspend your right to participate in advertising and marketing (including the System Website), suspend or terminate fee reductions, stop providing support and/or assume the Location’s management.
h. “Cause” defined - noncurable defaults
Non-curable defaults under Franchise Agreement include material misrepresentation or omission in application for franchise or in operating Location; failure to sign an approved lease or open on time; abandonment or failure to actively operate the Location for more than 10 consecutive days or more than 15 days in any given month (without our consent); unauthorized transfer; plea or conviction to felony or other crime of lesser offense which adversely affects your or the Location’s reputation or the goodwill of the Marks; dishonest, dangerous or unethical conduct; loss of possession of the Location and failure to obtain a substitute Site; lender’s foreclosure; unauthorized use of Confidential Information or violation of covenant not to compete; failure to pay taxes; repeated failure to pay amounts to our designated, approved, or recommended suppliers within 30 days after due (unless contesting in good faith); default and failure to cure under note, lease, or agreement we deem material; repeated defaults; termination of an agreement with us or our affiliates; and bankruptcy.
L.2 of Franchise Agreement
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i. Franchisee’s obligations on termination/ nonrenewal
M of Franchise Agreement
Under the Franchise Agreement you must pay amounts due (See Item 6); de-identify Location; cancel assumed or fictitious name registrations and assign or cancel electronic address, domain name, search engine, or website; deliver or destroy property containing the Marks; make necessary alterations to the Location to prevent a likelihood of confusion with other KAIA F.I.T. Locations; assign telephone numbers with “KAIA” suffix; notify members of termination and offer refund of membership fees; cease using Confidential Information and Marks; return Manual; and satisfy continuing obligations. See also (o) and (r) below.
j. Assignment of I.1 of Franchise contract by franchisor Agreement
We may assign to any person or entity capable of performing our obligations and change our ownership or form.
k. “Transfer” by franchisee - defined
I and P of Franchise Agreement.
Includes transfer of any interest in the Franchise Agreement, Location, Location’s assets, or in you.
l. Franchisor’s approval of transfer by franchisee
I.3 to I.5 of Franchise Agreement
We have the right to approve all transfers under the Franchise Agreement.
m. Conditions for franchisor approval of transfer.
I.3 and I.4 of Transferee qualifies, you are in full compliance with Franchise Agreement agreements, you provide information, proposed transferee completes training (if applicable), you pay us transfer fee (see Item 6), transferee’s obligations to transferor are subordinated, transferor signs confidentiality and non-compete agreement, transferee agrees to be bound by Franchise Agreement, and transferor and owners sign general releases (if state law allows). Your owners may transfer a non-controlling interest if you provide information, transferee qualifies, you are in full compliance with agreements, all parties sign releases (if state law allows) and you pay transfer fee. (See Item 6) Conditions do not apply if you transfer to a third party who, will not operate a KAIA F.I.T. Location at the Site, although you then must pay us termination payment (see Item 6), sign general release (if state law allows), and comply with (i) above and (r) below.
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n. Franchisor’s right I.6 of Franchise Agreement of first refusal to acquire franchisee’s business
We have the right to match offers under certain conditions.
o. Franchisor’s M.5 of Franchise option to purchase Agreement franchisee’s business
We may purchase Location’s assets for fair market value when the Franchise Agreement terminates or expires.
p. Death or disability of franchisee
Must transfer to an approved transferee within 6 months and appoint a new manager (if applicable) within 30 days. We may assume the Location’s management.
J of Franchise Agreement
q. Non-competition E.9 of Franchise covenants during the Agreement term of the franchise
No involvement in related business anywhere in U.S., its territories, or any area where Marks are used or registered; no hiring our or a KAIA F.I.T. facility’s employee; and no directing business or economic opportunities to a related business.
r. Non-competition M.4 of Franchise covenants after the Agreement franchise is terminated or expires
For 2 years, no direct or indirect ownership interest in, or performing services for, a related business at the Site or within a 5 mile radius of the Site.
s. Modification of the agreement
Modifications only by written agreement of the parties, but we may change Manual and System Standards
O.2 of Franchise Agreement
t. Integration/merger O.11 of Franchise clause Agreement
Only terms of the agreement (including the Manual and System Standards) are binding (subject to state law). Any other promises might not be enforceable. Nothing is intended to disclaim any representation made in this disclosure document
u. Dispute resolution by arbitration or mediation
We and you must arbitrate all disputes in Washoe County, Nevada.
O.6 of Franchise Agreement
v. Choice of forum O.8 of Franchise Agreement
Subject to arbitration obligations, litigation under Franchise Agreement, is in Washoe County, Nevada (subject to state law).
w. Choice of law
Except for Federal Arbitration Act and other federal law, Nevada law applies (subject to state law).
O.7 of Franchise Agreement
California residents, please see the Additional Disclosures in Exhibit C for information that California law requires. 38 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
Item 18 PUBLIC FIGURES We do not use any public figure to promote our franchise. Item 19 FINANCIAL PERFORMANCE REPRESENTATIONS The FTC’s Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances. Other than as set forth in Item 23 herein and Exhibit E attached hereto, we do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. We also do not authorize our employees or representatives to make any such representations either orally or in writing. In Item 21 of the Disclosure Document and in Exhibit G hereto we have unaudited financial statements for the KAIA F.I.T. Locations at Carson City, Nevada and Minden, Nevada which have been owned and operated by Nicole Warren, an owner and officer of Franchisor, under a License Agreement with Franchisor. These are records of historical performance only and are not to be considered as representations of a franchisee’s future financial performance. In addition, if you are purchasing an existing outlet, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor’s management by contacting us at 769 Basque Way, #600, Carson City, NV 89706, (866) 496-2267, the Federal Trade Commission, and the appropriate state regulatory agencies. Item 20 LIST OF OUTLETS (WITH TABLES) Table No. 1 System-Wide Outlet Summary - For years 2008 to 2011 Column 1
Column 2
Outlet Type
Year
Column 3
Column 5
Outlets at the Outlets at the Net Change Start of the End of the Year Year
2008
0 39
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Column 4
2
2
Franchised
Company Owned
Total Outlets
2009 2010 2011 2008 2009 2010 2011 2008
2 2 5 0 0 0 0 0
2 7 12 0 0 0 0 0
0 5 7 0 0 0 0 0
2009 2010
0 0
0. 0
0 0
2011
0
0
0
2008
0
2
2
2009
2
2
0
2010
2
7
5
2011
5
12
7
Table No. 2 Transfers of Outlets from Franchisees to New Owners (other than the Franchisor) For years 2008 to 2011 Column 1
Column 2
Column 3
State
Year
Number of Transfers
2008 2009 2010 2011 2008 2009 2010
0 0 0 0 0 0 0
2011
0
All States
Totals
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Table No. 2A Transfers of Outlets from Licensees to New Owners (other than the Licensor) For years 2008 to 2011 Column 1
Column 2
Column 3
State
Year
Number of Transfers
2008 2009 2010 2011 2008 2009 2010
0 0 0 1 0 0 0
2011
1
All States
Totals
Table No. 3 Status of Franchised Outlets - For years 2008 to 2011 Col. 1
State
All States
Totals
Col.
Col. 3
Col. 4
Col. 5
Col. 6
Col. 7
Col. 8
Col. 9
Year Outlets Outlets Terminations Non- Reacquired Ceased Outlets at Renewals by Operations End of at Start Opened Franchisor Year of Year 2008 2009 2010 2011 2008 2009 2010
0 0 0 0 0 0 0
0 0 0 0 0 0 0
0 0 0 0 0 0 0
0 0. 0 0 0 0 0
0 0 0 0 0 0 0
0 0 0 0 0 0 0
0 0 0 0 0 0 0
2011
0
0
0
0
0
0
0
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Table No. 4 Status of Company-Owned Outlets For years 2008 to 2011 Col. 1
Col.2
State
Year Outlets Outlets Outlets at Start Opened Reacquired of the from Year Franchisee
All States
Totals
Col.3
Col. 4
Col. 5
Col. 6
Outlets Closed
Col. 7
Col. 8
Outlets Outlets at End of Sold to the Year Franchisee
2008
0
0
0
0
0
0
2009 2010
0 0
0 0
0 0
0 0
0 0
0 0
2011 2008 2009 2010
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
2011
0
0
0
0
0
0
Table No. 5 Projected Openings As Of December 31, 2011 Column 1
State
CA NV
Column 2
Column 3
Franchise Projected New Agreements Signed Franchised Outlets But Outlet Not In The Next Fiscal Opened Year 0 12 0 12
UT Total
0 0
5 29
Column 4
Projected New Company-Owned Outlet In the Next Fiscal Year 0 0 0 0
As of the date of this disclosure document, we have no franchisees or franchised KAIA F.I.T. Locations. There are no franchisees who had outlets terminated, canceled, or not renewed, or otherwise voluntarily or involuntarily ceased to do business under a franchise agreement with us, before the date of this disclosure document; or who have not communicated with us within 10 weeks of this disclosure document’s issuance date. If you buy this franchise, your contact information may be disclosed to other buyers when you leave the franchise system. 42 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
Item 21 FINANCIAL STATEMENTS Exhibit G is our reviewed financial statements as of and for the 9-month period ending September 30, 2012, our reviewed financial statements as of and for the 12-month period ending December 31, 2011, and as of and for the 10-month period ending December 31, 2010.. Exhibit H attached hereto is the unaudited 2010 and 2011 financial statements for the KAIA F.I.T. Locations in Carson City, NV and Minden, NV which are owned and operated by Nicole Warren, and owner and officer of Franchisor, under a License Agreement with Franchisor. Franchisor fiscal year end date is December 31st (calendar year.) Item 22 CONTRACTS The following agreements are exhibits to this disclosure document: 1.
Franchise Agreement - Exhibit B Item 23 PROJECTIONS
Although labor rates and other costs per location will vary, attached on Exhibit F is a matrix which indicates monthly and annual net income per location based upon the number of monthly clients/members and estimated payroll and operating costs (“Projected Franchise Financial Grid”). The estimated payroll costs presume that you will follow our staffing recommendations as to when to add employee/coaches based upon estimated monthly clients/members. This is a projection only and not a representation of actual results. Item 24 LICENSEE CONVERSION As of the end of 2011 there were twelve KAIA F.I.T. locations operating under a license agreement from us. With the license agreement the owners of each location have been permitted to use the KAIA F.I.T. Marks and to teach and provide classes utilizing the KAIA F.I.T. functional intense training system for women. As of the effective date of registration of this franchise in the State of California, we will no longer grant license agreements for the operation of KAIA F.I.T. locations. All existing licensees will be given the opportunity to convert to a KAIA F.I.T. franchise pursuant to the terms of the Conversion Rider attached hereto as Exhibit D. For those licensees who do not accept the offer to convert to a franchise, their license agreements will not be renewed beyond the present term of each. If they elect to convert, seven of these licensees, in recognition of their efforts in developing, testing and promoting the KAIA F.I.T. functional intense training methods will be provided negotiated changes in the Monthly Fee for as long as the designated franchise is 43 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
owned and operated by the current owner. The subject locations, owners, and negotiated Monthly Fee for these seven exceptions are as follows: Location
Owner
Carson City, NV
Nicole Warren
0
Minden, NV
Nicole Warren
0
West Reno, NV
Nathalie Atwell
$350
South Reno, NV
Jillaine Geddes
$350
Fallon, NV
Andrea Schell
$350
Sacramento, CA
Cassandra Neitling
$350
Roseville, CA
Denise Rhyne
$350
Monthly Fee
Item 25 RECEIPT Our and your copies of the Franchise Disclosure Document Receipt are the last pages of this disclosure document.
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Item 25 RECEIPT This disclosure document summarizes certain provisions of the franchise agreement and other information in plain language. Read this disclosure document and all agreements carefully. If we offer you a franchise, we must provide this disclosure document to you 14 calendar days before you sign a binding agreement with, or make a payment to, the franchisor or an affiliate in connection with the franchise sale. New York and Rhode Island require that we give you this disclosure document at the earlier of the first personal meeting or 10 business days before the execution of the franchise or other agreement or payment of any consideration that relates to the franchise relationship. Michigan and Washington require that we give you this disclosure document at least 10 business days before the execution of any binding franchise or other agreement or the payment of any consideration, whichever occurs first. If we do not deliver this disclosure document on time or it if contains a false or misleading statement, or a material omission, a violation of federal law and state law may have occurred and should be reported to the Federal Trade Commission, Washington, D.C. 20580 and the appropriate state agency identified on Exhibit A. The franchisor is KAIA F.I.T. located at 769 Basque Way, #600, Carson City, Nevada 89706, Its telephone number is (866) 496-2267. Issuance date: ____________________, 2013 The name, principal business address, and telephone number of each franchise seller offering the franchise are as follows: Nicole Warren, Sharon Kassity and Kristen Loos, whose contact information is 769 Basque Way, #600, Carson City, Nevada 89706, (866) 496-2267. We authorize the respective state agents identified in Exhibit A to receive service of process for us in the particular states. I received a Franchise Disclosure Document from KAIA F.I.T. dated as of December 12, 2012 that included the following exhibits: A. B. C. D. E. F. G. H.
List of State Agencies/Agents for Service of Process Franchise Agreement California Addendum To The KAIA F.I.T. Franchise Disclosure Document Franchise Conversion Rider Manual Table of Contents Projected Franchise Financial Grid Financial Statements of Franchisor Financial Statements of Franchisor’s Licensee for Carson City, NV and Minden, NV
Date: ___________________, 2013
_______________________________ Prospective Franchisee [Print Name] _______________________________ Prospective Franchisee [Signature]
(Please sign, date and return this copy to us.)
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Item 25 RECEIPT This disclosure document summarizes certain provisions of the franchise agreement and other information in plain language. Read this disclosure document and all agreements carefully. If we offer you a franchise, we must provide this disclosure document to you 14 calendar days before you sign a binding agreement with, or make a payment to, the franchisor or an affiliate in connection with the franchise sale. New York and Rhode Island require that we give you this disclosure document at the earlier of the first personal meeting or 10 business days before the execution of the franchise or other agreement or payment of any consideration that relates to the franchise relationship. Michigan and Washington require that we give you this disclosure document at least 10 business days before the execution of any binding franchise or other agreement or the payment of any consideration, whichever occurs first. If we do not deliver this disclosure document on time or it if contains a false or misleading statement, or a material omission, a violation of federal law and state law may have occurred and should be reported to the Federal Trade Commission, Washington, D.C. 20580 and the appropriate state agency identified on Exhibit A. The franchisor is KAIA F.I.T. located at 769 Basque Way, #600, Carson City, Nevada 89706, Its telephone number is (866) 496-2267. Issuance date: ____________________, 2013 The name, principal business address, and telephone number of each franchise seller offering the franchise are as follows: Nicole Warren, Sharon Kassity and Kristen Loos whose contact information is 769 Basque Way, #600, Carson City, Nevada 89706, (866) 496-2267. We authorize the respective state agents identified in Exhibit A to receive service of process for us in the particular states. I received a Franchise Disclosure Document from KAIA F.I.T. dated as of December 12, 2012 that included the following exhibits: A. B. C. D. E. F. G. H.
List of State Agencies/Agents for Service of Process Franchise Agreement California Addendum To The KAIA F.I.T. Franchise Disclosure Document Franchise Conversion Rider Manual Table of Contents Projected Franchise Financial Grid Financial Statements of Franchisor Financial Statements of Franchisor’s Licensee for Carson City, NV and Minden, NV
Date: _____________________, 2013
_______________________________ Prospective Franchisee [Print Name] _______________________________ Prospective Franchisee [Signature]
(Please sign, date and keep this copy for your records.) 46 FRANCHISE DISCLOSURE DOCUMENT \\Fsprolaw\ProLawDocs\K1300.001\244145_6.doc
EXHIBIT A LIST OF STATE AGENCIES/AGENTS FOR SERVICE OF PROCESS Listed here are the names, addresses and telephone numbers of the state agencies having responsibility for franchising disclosure/registration laws. We may not yet be registered to sell franchised in any or all of these states. If a state is not listed, we have not appointed an agent for service of process in that state in connection with the requirements of the franchise laws. There may be states in addition to those listed below in which we have appointed an agent for service of process. There also may be additional agents appointed in some of the states listed. HAWAII
CALIFORNIA Corporations Commissioner: 1 (866) 275-2677 Los Angeles Suite 750 320 West 4th St. Los Angeles, CA 90013-2344 (213) 576-7500 Sacramento 1515 K St. Ste 200 Sacramento, CA 95814-4052 (916) 445-7205
For service of process and for other matters: Commissioner of Securities Business Registration Division Dept. of Commerce and Consumer Affairs 335 Merchant St., Rm. 203 Honolulu, HI 96813 (808) 568-2722 ILLINOIS Illinois Attorney General 500 South Second St. Springfield, IL 62706 (217) 782-4465 INDIANA
San Diego
For service of process:
1350 Front St., Rm. 2034 San Diego, CA 92101-3697 (619) 525-4233
Indiana Secretary of State 201 State House 200 West Washington St. Indianapolis, IN 46204 (317) 232-6531
San Francisco 71 Stevenson St., Ste 2100 San Francisco, CA 94105-2980 (415) 972-8559
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State agency: Indiana Secretary of State Securities Division 302 West Washington St. Rm E-111 Indianapolis, IN 46204 (317) 232-6681
MARYLAND For service of process: Maryland Securities Commissioner at the Office of the Attorney General - Securities Division 200 St. Paul Place Baltimore MD 21202-2021 (410) 576-6360 State agency: Office of the Attorney General – Securities Division 200 St. Paul Place Baltimore MD 21202-2021 (410) 576-6360 MICHIGAN Consumer Protection Division – Franchise P. O. Box 30213 Lansing, MI 78909 (517) 373-7117 MINNESOTA Commissioner of Commerce Department of Commerce 85 7th Place East. Ste 500 St. Paul, MN 55101 (612) 296-6328
NORTH DAKOTA Office of Securities Commissioner Fifth Floor 600 East Boulevard Bismarck, ND 58505 (701) 328-2910 OREGON Oregon Division of Finance and Corporate Securities 350 Winter Street NE, Room 410 Salem OR 97310 (503) 378-4387 RHODE ISLAND Securities Division Department of Business Regulations 1511 Pontiac Avenue John O. Pastore Complex, Building 69-1 Cranston, RI 02920 (401) 462-9500 SOUTH DAKOTA Division of Securities 445 East Capitol Avenue Pierre, SD 57501-3185 (605) 773-4823 VIRGINIA
NEW YORK For service of process: New York Dept. of State Division of Corporations, State Records & Uniform Commercial Code One Commerce Plaza 99 Washington Ave., 6th Floor Albany, NY 12231 (518) 474-4770 For other matters: New York State Department of Law Investor Protection and Securities Bureau 120 Broadway, 23rd Floor New York, NY 10271-0332 (212) 416-8000
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For service of process: Clerk, State Corporation Commission 1300 East Main Street Richmond, VA 23219 (804) 371-9733 For other matters: State Corporation Commission Division of Securities and Retail Franchising 1300 East Main Street – Ninth Floor Richmond, VA 23219 (804) 371-9051
WASHINGTON For service of process: Director Department of Financial Institutions Securities Division General Administration Building – 3rd Floor 210-11th Avenue S.W. Olympia WA 98504 For other matters: Director Department of Financial Institutions Securities Division P. O. Box 9033 Olympia WA 98501-9033 (360) 902-8760
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WISCONSIN Commissioner of Securities 345 W. Washington Avenue 4th Floor Madison WI 53703 (608) 266-8557
CALIFORNIA ADDENDUM TO THE KAIA F.I.T. FRANCHISE DISCLOSURE DOCUMENT
The following are additional disclosures for the Franchise Disclosure Document of KAIA F.I.T. required by various state franchise laws. Each provision of these additional disclosures will not apply unless, with respect to that provision, the jurisdictional requirements of the applicable state franchise registration and disclosure law are met independently, without reference to these additional disclosures. CALIFORNIA 1. THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE DISCLOSURE DOCUMENT. 2. OUR WEBSITE, http://www.kaiafit.com/, HAS NOT BEEN REVIEWED OR APPROVED BY THE CALIFORNIA DEPARTMENT OF CORPORATIONS. ANY COMPLAINTS CONCERNING THE CONTENT OF THE WEBSITE MAY BE DIRECTED TO THE CALIFORNIA DEPARTMENT OF CORPORATIONS AT www.corp.ca.gov. 3. SECTION 31125 OF THE FRANCHISE INVESTMENT LAW REQUIRES US TO GIVE YOU A DISCLOSURE DOCUMENT APPROVED BY THE COMMISSIONER OF CORPORATIONS BEFORE WE ASK YOU TO CONSIDER A MATERIAL MODIFICATION OF YOUR FRANCHISE AGREEMENT. 4. Neither KAIA F.I.T. nor any person in Item 2 of the Franchise Disclosure Document is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities and Exchange Act of 1934, 15 U.S.C.A. Section 78 et seq., suspending or expelling such person from membership in such association or exchange. 5. California Business and Professions Code Sections 20000 through 20043 provide rights to franchisees concerning termination or nonrenewal of the franchise. If the Franchise Agreement contains an provision that is inconsistent with the law, and the law applies, then the law will control. 6. The Franchise Agreement provides for termination upon bankruptcy. These provisions might not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.) 7. The Franchise Agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law. 8. The Franchise Agreement contains liquidated damages clauses. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.
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9. The Franchise Agreement requires binding arbitration. The arbitration will be conducted by one (1) arbitrator and will occur in Washoe County, Nevada. The prevailing party is entitle to recover reasonable pre-institution and post-institution attorneys’ fees, court costs and all expenses even if not taxable as courts costs. Prospective franchisees are encouraged to consult private legal counsel to determine the applicability of California and federal laws (such as California Business and Professions Code Section 20040.5, California Code of Civil Procedure Section 1281, and the Federal Arbitration Act) to any provision of the Franchise Agreement restricting venue to a forum outside of the State of California. 10. The Franchise Agreement requires application of the laws of the State of Nevada with certain exceptions. This provision might not be enforceable under California law. 11. Section 31125 of the California Corporations Code requires us to give you a disclosure document in a form containing the information that the Commissioner may be rule or order require, before a solicitation of the proposed material modification of an existing franchise. (California Corporation Codes §§ 31000 through 31516) 12. Business and Professional Code § 20010 voids a waiver of your rights under the Franchise Relations Act. (Business and Professions Code §§ 20000 through 20043) 13. The Franchise Agreement requires you to sign a general release of claims upon renewal or transfer of the Franchise Agreement. California Corporations Code § 31512 and Business and Professions Code § 20010 might void a waiver of your rights.
OTHER STATE ADDENDA The states of California, Hawaii, Illinois, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia and Washington require that the Franchise Disclosure Document and the Franchise Agreement be amended to conform to their state’s franchise laws as part of the state’s registration and approval of the franchise offering. This must be done before we offer or sell any franchises in those states or to residents of these states. If we have registered in any of these states, attached are the applicable Addenda to the Franchise Disclosure Document and Franchise Agreement that apply only to residents of that state and/or where the KAIA F.I.T. Franchise will be located in such state.
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CONVERSION RIDER
KAIA F.I.T. (“Franchisor”) and _________________________, (“Franchisee”) entered into a KAIA F.I.T. Franchise Agreement (“Agreement”) on _____________________, 2013, and desire to supplement and amend certain terms and conditions of such Agreement in consideration of Franchisee’s conversion of a currently operating KAIA F.I.T. location, operating under a KAIA F.I.T. License Agreement, to operation of said location as a KAIA F.I.T. franchisee. The parties therefore agree as follows: 1. For the duration of the term specified in the License Agreement in effect between Franchisor and Franchisee, the only fee obligations owed by Franchisee to Franchisor shall be the License Fees specified in the License Agreement which shall be payable to Franchisor in lieu of the Fees specified in Section C of the Franchise Agreement and the Marketing Fund payments specified in Section G3 of the Franchise Agreement. From and after the expiration of the term of the License Agreement, for the remaining term of the Franchise Agreement, Franchisee will be required to pay the Fees specified in Section C and the Marketing Fund payments specified in Section G3. 2. As Franchisee is currently operating a KAIA F.I.T. Location and has previously received the initial training and certification, Franchisee will not be required to repeat the initial training and certification as required under Section D of the Franchise Agreement. 3. In all other respects the Agreement is effective as of the date of its execution and it replaces and supersedes the License Agreement between Franchisor and Franchisee.
Franchisor
Franchisee
KAIA F.I.T. (Name of Franchisee) Dated:
Dated:
by:
by: Nichole Warren, President
by: Sharon Kassity, Secretary
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(Name/Title)
KAIA F.I.T. FRANCHISEE MANUAL TABLE OF CONTENTS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39.
FINDING AN EXISTING LOCATION FLASH DRIVE 101 KAIA F.I.T. BASICS KAIA FIT INSURANCE REQUIREMENTS RUNNING A DEMO SAN DIEGO GROUP INTERVIEW SECRET MARKETING PLAN THE BRIKS THE FIT SESSIONS BUSINESS 101 BUSINESS NECESSITIES CRAIGSLIST AD DEMO SIGN-UP SHEET FIT SESSION EXAMPLE CUSTOMER MANUAL LICENSEE TIMELINE PROPOSAL TO RENT A FACILITY WAIVER AND RELEASE OF LIABILITY BRIK EXAMPLE MANUAL ACCIDENT REPORT BRIK SIGN UP EMPLOYMENT APPLICATION EXAMPLE EMAILS TO CUSTOMERS FIT SESSION SIGN UP SHEET KAIA KLIPS DEMO CLASS STARTUP & RECURRING COSTS ACCEPTING PAYMENTS BRIK CALENDAR DEMO WORKOUT CARDS FIT SESSION ROLL SHEET COACH REGISTRATION FORM BANNER EMPLOYEE NON-COMPETE AGREEMENT ORIENTATION SCRIPT SWAG ORDER FORM BRIK ROLL SHEET BUSINESS CARD EMPLOYEE CALENDAR SATURDAY ROLL SHEET BI-WEEKLY TIMESHEET 1
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NO. OF PAGES 1 1 4 1 1 5 9 4 1 1 1 1 1 13 2 2 2 31 2 1 1 3 1 1 3 1 2 1 1 2 1 2 6 3 1 2 2 1 1
40. 41. 42. 43. 44. 45.
CORPORATION WELLNESS PROGRAM LETTER FINAL RESULTS AWARDS COACHES WALL PRESS RELEASE 1 PRESS RELEASE 2
2 1 1 1 1 1
ATTACHED FORMS • • • • • • • • • • • • • • • • • • • • • • • • • •
AGING DOWN WITH KAIA F.I.T. BUSINESS CONTACT FORM COVER PAGE LOGO BUSINESS EXECUTIVE SUMMARY FOOD & EXERCISE JOURNAL FOOD JOURNAL FREE CLASS COUPON FULL PAGE FLYER 1 FULL PAGE FLYER 2 FULL PAGE FLYER 3 GIFT CERTIFICATE GYM EQUIPMENT KAIA CONTACT FORM KAIA FLO MUSIC LIST KAIA KAN ROCK MUSIC LIST KAIA LOGO KAIA LOGOS LETTERHEAD MARKETING TRACKING FORM QUARTER PG. BRIK BACK QUARTER PG. BRIK FRONT QUARTER PG. DEMO FLYER BACK QUARTER PG. DEMO FLYER FRONT REFERRAL CARDS BACK REFERRAL CARDS FRONT RETRACTABLE BANNER TOTAL NUMBER OF PAGES
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1 1 1 3 1 4 1 1 1 1 1 3 1 1 2 1 1 1 1 1 1 1 1 1 1 1 156
