Exhibit 10.8

 

FORM OF

 

DIEDRICH COFFEE, INC.,

 

AREA DEVELOPMENT AGREEMENT

 

Dated:            

 

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TABLE OF CONTENTS

 

I.

GRANT OF AREA DEVELOPMENT FRANCHISE

 

1.1

Grant of Area Development Franchise

 

1.2

No Trademark License

 

1.3

Definitions

 

 

II.

DEVELOPER’S DEVELOPMENT OBLIGATION

 

2.1

Minimum Development Obligation

 

2.2

Force Majeure

 

2.3

Developer May Exceed Minimum Development Obligation

 

 

 

III.

EXCLUSIVITY

 

3.1

Exclusivity

 

 

 

IV.

TERM OF AREA DEVELOPMENT AGREEMENT

 

4.1

Term

 

4.2

Limited Additional Development Right

 

4.3

Renewal

 

4.4

Exercise of Right of Additional Development.

 

4.5

Conditions to Exercise of Right of Additional Development

 

 

 

V.

PAYMENTS BY DEVELOPER

 

5.1

Development Area Fees

 

5.2

Franchise Agreements for Each Coffeehouse

 

5.3

Credit Against Initial Fee

 

 

 

VI.

EXECUTION OF INDIVIDUAL FRANCHISE AGREEMENTS, TRAINING

 

6.1

Site Approval, Submission of Offering Circular, Execution of Franchise Agreement

 

6.2

Condition Precedent to Company’s Obligations

 

6.3

Lease

 

6.4

Training

 

 

 

VII.

ASSIGNMENT AND SUBFRANCHISING

 

7.1

Assignment By Company

 

7.2

No Subfranchising by Developer

 

7.3

Assignment by Developer

 

7.4

Individual Franchise Agreements

 

 

 

VIII.

NON-COMPETITION, NON-SOLICITATION, TRADE SECRETS

 

8.1

In Term

 

8.2

Post-Term

 

8.3

Modification

 

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8.4

Personnel

 

8.5

Trade Secrets.

 

8.6

Developer’s Affiliates

 

 

 

IX.

TERMINATION

 

9.1

Termination Pursuant to a Material Breach of This Agreement.

 

9.2

Termination by Reason of a Material Breach of Other Agreement

 

9.3

Effect of Termination

 

 

 

X.

BUSINESS ENTITY DEVELOPER

 

10.1

Business Entity Developer

 

10.2

Limitation on Activities

 

10.3

Guaranty and Subordination Agreement

 

 

 

XI.

GENERAL CONDITIONS AND PROVISIONS

 

11.1

Relationship of Developer to Company

 

11.2

Indemnity by Developer

 

11.3

Limitation of Liability

 

11.4

Waiver and Delay

 

11.5

Survival of Covenants

 

11.6

Successors and Assigns

 

11.7

Joint and Several Liability

 

11.8

Governing Law

 

11.9

Entire Agreement

 

11.10

Titles For Convenience

 

11.11

Gender And Construction

 

11.12

Severability

 

11.13

Counterparts

 

11.14

Fees and Expenses

 

11.15

Notices

 

 

 

XII.

SUBMISSION OF AGREEMENT

 

12.1

General

 

 

 

XIII.

ACKNOWLEDGMENT

 

13.1

General

 

 

 

EXHIBIT A

DEVELOPMENT AREA

 

EXHIBIT B

MINIMUM DEVELOPMENT OBLIGATIONS

 

EXHIBIT C

DEVELOPER INFORMATION

 

EXHIBIT D

EXCEPTIONS TO SECTION 8.1

 

 

EXHIBIT E

GUARANTY AND SUBORDINATION AGREEMENT

 

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AREA DEVELOPMENT AGREEMENT

 

THIS AREA DEVELOPMENT AGREEMENT (the “Agreement”) is made and entered into
this        day of                              ,                   , (the
“Effective Date”) by and between Diedrich Coffee, Inc. (“Company”), a Delaware
corporation,
and                                                                                           ,
[  ] an individual OR [  ] a                         organized under t he laws
of                                      (“the Developer”), with reference to the
following facts:

 

A.            Company owns and intends to license certain proprietary and other
property rights and interests in and to the “Diedrich Coffee” trademark and
service mark, and such other trademarks, trade names, service marks, logo types,
insignias, trade dress,  designs, and commercial symbols which Company may from
time to time authorize or direct Developer to use in connection with the
operation of “Diedrich Coffee” Coffeehouses (the “Marks”).

 

B.            Company has developed and continues to develop a system for the
operation of coffeehouses, kiosks and coffee carts and merchandising of Diedrich
Coffee Authorized Products, which system features distinctive signs, recipes,
and various Trade Secrets and other confidential information, and in some cases
also includes architectural designs, trade dress, uniforms, equipment
specifications, layout plans, inventory, record-keeping and marketing techniques
(the “System”).

 

C.            Company desires to expand and develop its system of “Diedrich
Coffee” Coffeehouses, and seeks sophisticated and efficient multi-unit
franchisees who will develop numerous “Diedrich Coffee” Coffeehouses within
designated areas.

 

D.            Developer desires to build and operate “Diedrich Coffee”
Coffeehouses, and Company desires to grant to Developer the right to build and
operate said “Diedrich Coffee” Coffeehouses in accordance with the terms and
upon the conditions contained in this Agreement.

 

WHEREFORE IT IS AGREED

 

I.

GRANT OF AREA DEVELOPMENT FRANCHISE

 

1.1           Grant of Area Development Franchise.

 

Upon the terms and subject to the conditions of this Agreement, Company hereby
grants to Developer, and Developer hereby accepts, the right and obligation
during the Term hereof, to develop “Diedrich Coffee” Coffeehouses solely at
Venues within the Development Area.

 

1.1.1        Developer within thirty (30) days of execution of this Agreement,
shall meet with Company and begin preparation of a market development plan for
the Development Area (identifying and specifying key areas and trade areas in
the Development Area) and all development pursuant to this Agreement shall be in
accordance with this plan (the “Market Plan”).  The Market Plan shall include
proposed target trade areas where sites are to be located, ranking and
prioritization of site locations and other information customarily utilized by
market planners in the restaurant industry.  Developer shall

 

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propose the Market Plan and Company shall approve or disapprove the Market Plan
in its reasonable discretion.  The initial Market Plan shall be completed and
approved by Company and Developer no later than sixty (60) days from the date of
execution of this Agreement.  Developer acknowledges that no extensions of time
with regard to the Minimum Development Obligation shall be granted by Company to
Developer as a result of Developer’s failure to complete a satisfactory Market
Plan within sixty  (60) days of execution of this Agreement.  The parties
recognize that demographics, market economics, real estate values, competition
and other conditions may change in the Development Area over the term of this
Agreement and that such changes may impact the Market Plan. Therefore, the
parties agree that it is in their respective best interests to review the Market
Plan periodically throughout the term of this Agreement.  On the first
anniversary of the approval of the initial Market Plan and at least once
annually thereafter, Developer and Company shall review the Market Plan and make
such revisions as are required to maximize the successful development of the
Diedrich Coffee brand in the Development Area.

 

1.1.2        From time to time, Company may request updates, status reports, or
other information from Developer regarding development of the Market Area. 
Developer shall respond promptly, accurately and completely to such requests
within a reasonable time, but in no event more than 30 days after the request by
Company.  Without limiting the generality of the foregoing, the information
requested may relate to demographics, market economics, real estate values,
competition and other conditions in the Development Area.

 

1.2           No Trademark License.

 

No right or license is granted to Developer hereunder to use the Marks or the
System or any other trademarks, trade names, service marks, logotypes,
insignias, trade dress or designs owned by Company, such right and license being
granted solely pursuant to Franchise Agreement(s) executed pursuant to
Section 6.1 below.

 

1.3           Definitions.  In this Agreement, (a) capitalized terms not
otherwise defined herein shall have the meaning given such term in the Franchise
Agreement, and (b) the following capitalized terms shall have the meanings set
forth below, unless the context otherwise requires:

 

“Applicable Law” means and includes applicable common law and all applicable
statutes, laws, rules, regulations, ordinances, policies and procedures
established by any Governmental Authority, governing the development or
operation of a “Diedrich Coffee” Coffeehouse, including all immigration, labor,
disability, food and drug laws, health and safety regulations, and Americans
With Disabilities Act requirements, as in effect on the Effective Date hereof,
and as may be amended, supplemented or enacted  from time to time.

 

“Authorized Products” means the specific espresso drinks and coffees, roasted
coffee beans and blends, premium teas, baked goods, snacks and other food items
and ancillary products, which may include coffee making equipment, cups, hats,
t-shirts and novelty items, as specified by Company from time to time in
Company’s Manuals, or as otherwise directed by Company in writing, for sale at
the Developer’s “Diedrich Coffee” Coffeehouses, prepared and served in strict
accordance with Company’s recipes, quality standards and specifications,
including specifications as to ingredients, brand names, preparation and
presentation.

 

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“Business Entity” means any limited liability company or Partnership, and any
association, corporation or other entity which is not an individual.

 

“Competitive Activities” shall mean to, own, operate, lend to, advise, be
employed by, or have any financial interest in any business that engages in the
roasting of green coffee beans; the sale of roasted coffee beans or ground
coffee produced by third parties; or the production or sale at retail or
wholesale of any espresso or coffee product, or any other food products featured
by “Diedrich Coffee” coffeehouses.

 

“Development Area” shall mean and refer to the geographical area set forth in
Exhibit “A” which is annexed hereto and by this reference made a part hereof

 

“Development Period” shall mean each of the time periods during which Developer
shall have the right and obligation to construct, equip, open and thereafter
continue to operate “Diedrich Coffee” Coffeehouses in accordance with the
Minimum Development Obligation.

 

“Diedrich Coffee Branded Product” is any product now existing or developed in
the future that bears or is packaged under any of the Marks.

 

“‘Diedrich Coffee’ Coffeehouse” means a full service location, kiosk, or coffee
cart operated under the Marks and in accordance with the System and specializing
in the sale of Authorized Products, pursuant to a validly executed Franchise
Agreement.

 

“Effective Date” means the date indicated in the first paragraph of this
Agreement.

 

“Franchise Agreement” means the Then-current form of agreement prescribed by
Company and used to grant to Developer (as “Franchisee”) the right to own and
operate a single “Diedrich Coffee” Coffeehouse in the Development Area,
including all exhibits, riders, guarantees or other related instruments, all as
amended from time to time (references in this Agreement to “Developer’s
Franchise Agreements” will mean Franchise Agreements issued to Developer as
“Franchisee” under those Franchise Agreements).

 

“Full Service Coffeehouse” means a “Diedrich Coffee” Coffeehouse consisting of
at least 1,200 rentable square feet and which has at least 24 seats dedicated
(i.e. exclusive of common seating areas) for use by customers of such “Diedrich
Coffee” Coffeehouse.

 

“Governmental Authority” means and includes all federal, state, county,
municipal and local governmental and quasi-governmental agencies, commissions
and authorities.

 

“Gross Sales” of each of Developer’s “Diedrich Coffee” Coffeehouses means gross
revenues (excluding allowances and sales taxes) received or receivable by
Developer as payment, whether in cash or for credit or barter (and, if for
credit or barter, whether or not payment is received therefor), for all
espresso, coffee, tea and other beverages, roasted coffee beans, food, and other
goods, services, and supplies sold or prepared in the “Diedrich Coffee”
Coffeehouse, or which are promoted or sold under any of the Marks.

 

“Internet” means collectively the myriad of computer and telecommunications
facilities, including equipment and software, which comprise the interconnected
worldwide network of networks that employ the TCP/IP [Transmission Control
Protocol/Internet Protocol], or any predecessor or successor protocols

 

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to such protocol, to communicate information of all kinds by fiber optics, wire,
radio, or other methods of transmission

 

“Lease” means the lease or sublease or other agreement or instrument pursuant to
which Developer obtains the right to occupy a “Diedrich Coffee” Coffeehouse
location and Premises.

 

“Manuals” means Company’s Front Line Team Member Training Guide;  training
software; Diedrich Coffee Operations Manual and Support Manual, and related
manuals now or hereafter created by Company for use in connection with the
operation of a “Diedrich Coffee” Coffeehouse, as the same may be amended and
revised from time to time, including all bulletins, supplements and ancillary
manuals.

 

“Marks” shall have the meaning set forth in Recital A.

 

“Minimum Development Obligation” shall mean the Developer’s right and obligation
to construct, equip, open and thereafter continue to operate at Venues within
the Development Area not less than the cumulative number of Full Service
Coffeehouses set forth in Exhibit “B,” which is annexed hereto and by this
reference made a part hereof, and within each of the Development Periods
specified therein.

 

“Non-Exclusive Venues” shall mean stores operated at institutional settings and
locations of a “non-standard” nature, including, but not limited to, airports
and other public transportation facilities, colleges, universities, schools,
hospitals, military and other governmental/municipal facilities, office or
in-plant food service facilities, shopping mall food courts, hotels, motels,
resorts, theme parks, stadiums, and any venue in which food service is or may be
provided by a master concessionaire or contract food service provider.

 

“Offering Circular” means the Uniform Franchise Offering Circular or its
equivalent as may be required by applicable law.

 

“Owner” means any shareholder, member, general or limited partner, trustee, or
other equity owner of a Business Entity; except that if Company has any
ownership interest in Licensee, the term “Owner” shall not include or refer to
the Company or its Owners or affiliates, and no obligation or restriction upon
the “Developer”, or its Owners, directors or officers shall bind Company, its
Owners or affiliates, or their respective Owners, directors or officers.

 

“Partnership” means any general partnership, limited partnership or limited
liability company

 

“Partnership Rights” means voting power, property, profits or losses, or
partnership interests of a Partner.

 

“Permits” means and include all applicable franchises, licenses, permits,
registrations, certificates and other operating authority required by Applicable
Law.

 

“Premises” means, in the case of a kiosk or cart, the property at which such
“Diedrich Coffee” Coffeehouse is located, including unless otherwise expressly
provided, any ancillary common areas, campus, buildings and other structures
associated with the Premises.

 

“Term” shall have the meaning set forth in Section 4.1 including any extensions
thereof.

 

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“Then-current” as used in this Agreement and applied to the Offering Circular,
Franchise Agreement or area development agreement shall mean the form then
currently provided to prospective franchisees or area developers, or if not then
being so provided, then such form selected by the Company which previously shall
have been delivered to and executed by a franchisee or area developer of
Company.

 

“Trade Secrets” shall have the meaning set forth in Section 8.5.1.

 

“System” shall have the meaning set forth in Recital B.

 

“Venue” shall mean all types of locations other than “Non-Exclusive Venues”.

 

“Week” shall refer to the 7 day period ending on Sunday of each calendar week,
or such other reporting period hereafter specified by Company.

 

II.

DEVELOPER’S DEVELOPMENT OBLIGATION

 

2.1           Minimum Development Obligation.

 

2.1.1        Developer shall construct, equip, open and thereafter continue to
operate at Venues within the Development Area not less than the cumulative
number of Full Service Coffeehouses within each of the Development Periods
specified in Exhibit “B”.

 

2.1.2        Within any 12 month period, Developer shall have the right to close
one “Diedrich Coffee” Coffeehouse opened pursuant to this Agreement if Developer
demonstrates to Company’s reasonable satisfaction that the site has not operated
profitably and is unlikely in the future to operate profitably, provided that
Developer obtains Company’s prior written consent to such closure, which Company
shall grant or withhold in Company’s reasonable business judgment.  Upon
Company’s request, Developer shall promptly provide such substantiating
financial data concerning the “Diedrich Coffee” Coffeehouse’s historical
performance and its future prospects as Company may require, and which may
include market studies prepared by qualified, reputable and independent third
parties or other objective evidence satisfactory to Company.  For purposes of
Developer’s Minimum Development Obligation, any Full Service Coffeehouse closed
pursuant to this Section 2.1.2 with Company’s consent shall continue to be
counted as an operating Full Service Coffeehouse for a period of 12 months
following closure, and Developer shall be deemed in breach of the Minimum
Development Obligation if immediately after said 12 month period the cumulative
number of Full Service Coffeehouses then-operating is not equal to or greater
than the cumulative number required to have been in operation as of the end of
the immediately preceding Development Period. Developer shall execute a new
Franchise Agreement pursuant to Section 6.1 for each subsequently opened
“Diedrich Coffee” Coffeehouse, even if opened as a “replacement” for the closed
“Diedrich Coffee” Coffeehouse.

 

2.1.3        If a Full Service Coffeehouse opened and operated by Developer is
destroyed or damaged, other than by a voluntary act of Developer, so that such
“Diedrich Coffee” Coffeehouse cannot continue to operate, the destroyed or
damaged Full Service Coffeehouse shall continue to count toward satisfaction of
the Minimum Development Obligation (during the period until such substitute
location

 

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opens), but only if (i) Developer shall repair and restore such Full Service
Coffeehouse to Company’s then approved plans and specifications within 120 days
after the occurrence of such destruction or damage, subject to delays permitted
by Section 2.2, or (ii) Developer shall, within 120 days after the occurrence of
such destruction or damage, open a Full Service Coffeehouse at a substitute
location within the Development Area in accordance with Company’s then approved
plans and specifications (any such substitute location and the Lease for such
location must be approved in writing in advance by Company pursuant hereto and
Developer shall execute a new Franchise Agreement therefor, pursuant to
Section 6.1).

 

2.2           Force Majeure.

 

Should Developer be unable to meet the Minimum Development Obligation solely as
the result of “Force Majeure,” including, but not limited to strikes, material
shortages, fires, floods, earthquakes, and other acts of God, or by force of law
(including, but not limited to any legal disability of Company to deliver any
Offering Circular required by law to be delivered as contemplated by Section 6.1
of this Agreement), which result in the inability of Developer to construct or
operate “Diedrich Coffee” Coffeehouse(s) in all or substantially all of the
Development Area, and which Developer could not by the exercise of due diligence
have avoided, Developer may request that Company extend the affected Development
Periods by the amount of time during which such Force Majeure shall exist. 
Company will not unreasonably decline to extend the applicable Development
Period(s) in such event, provided that Developer shall have promptly (in any
event not more than 30 days after commencement of the Force Majeure) submitted
its request therefor in writing and promptly furnished Company such information
concerning the circumstances as Company may reasonably require.  In the event of
any said legal disability of Company to deliver an Offering Circular, Company
shall diligently use all commercially reasonable efforts promptly to remove such
legal disability.

 

2.3           Developer May Exceed Minimum Development Obligation.

 

2.3.1        Provided that Company is satisfied, in its sole subjective
judgment, that Developer has the requisite skills, financial resources,
management structure, personnel and other capabilities to do so, and subject to
the terms and conditions of this Agreement and the Franchise Agreements,
Developer may during the Term construct, equip, open and operate more “Diedrich
Coffee” Coffeehouses at Venues within the Development Area than required in the
Minimum Development Obligation. Only with Company’s prior written consent in
each instance, Developer may open Coffeehouses at Non-Exclusive Venues in the
Development Area, but such “Diedrich Coffee” Coffeehouses shall not count toward
the Developer’s Minimum Development Obligation.  Further, Developer shall not
contact or solicit any owner, lessee or operator of a Non-Exclusive Venue about
the possibility of opening a “Diedrich Coffee” Coffeehouse without first having
obtained Company’s prior written consent to do so.

 

2.3.2        Although Company reserves the right to assess Developer’s 
capabilities to exceed the Minimum Development Obligation, nothing in this
Section 2.3 is intended to limit or restrict Developer’s right or ability,
subject to the terms of this Agreement, to construct, equip, open and operate
the number of “Diedrich Coffee” Coffeehouses within the Development Area
required by the Minimum Development Obligation.

 

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III.

EXCLUSIVITY

 

3.1           Exclusivity.

 

3.1.1        During the Term of this Agreement, subject to Sections 3.1.2 and
3.1.3, Company shall not operate or grant a license or franchise to any other
person to operate a “Diedrich Coffee” coffeehouse at any site within the
Development Area other than a Non-Exclusive Venue.

 

3.1.2        Company expressly reserves the exclusive, unrestricted right, in
its sole and absolute discretion, directly and indirectly, through its
employees, affiliates, representatives, licensees, assigns, agents and others,
to own or operate and to franchise or license others (which may include its
affiliates and joint ventures in which it or its affiliates are participants) to
own or operate “Diedrich Coffee” coffeehouses (i) at any location outside the
Development Area, including immediately adjacent to the Development Area, and
(ii) at any site or location which is a Non-Exclusive Venue, even if located
within the Development Area, and regardless of its proximity to any “Diedrich
Coffee” Coffeehouse developed or under development or consideration by
Developer.

 

3.1.3        In addition, Company expressly reserves the exclusive, unrestricted
right, in its sole and absolute discretion, directly and indirectly, through its
employees, affiliates, representatives, licensees, assigns, agents and others,
(i) to own or operate and to franchise or license others (which may include its
affiliates and joint ventures in which it or its affiliates are participants) to
own or operate coffeehouses, restaurants and other businesses which operate
under names other than “Diedrich Coffee” at any location, and of any type or
category whatsoever, and whether within or outside the Development Area, and
regardless of its proximity to any “Diedrich Coffee” Coffeehouse developed or
under development or consideration by Developer; and (ii) to produce, promote,
license, distribute and market Diedrich Coffee Branded Products, and products
bearing other marks, including espresso, ground coffee and roasted coffee beans,
tea, and other food and beverage products, clothing, souvenirs and novelty
items, at or through any location or outlet, including grocery stores and
convenience stores (including those which may be located within the Development
Area), and through any distribution channel, at wholesale or retail, including
by means of mail order catalogs, direct mail advertising, the Internet, and
other distribution methods.

 

IV.

TERM OF AREA DEVELOPMENT AGREEMENT

 

4.1           Term.

 

The Term of this Agreement shall commence on the Effective Date and, unless
sooner terminated in accordance with the provisions herein, or extended as
provided in Section 2.2, shall continue for a period of                        
(     ) years.

 

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4.2           Limited Additional Development Right.

 

Within 60 days prior to the expiration of the Term, if Company shall determine
that further development of the Development Area is desirable, Company shall
notify Developer in writing of Company’s determination to develop additional
“Diedrich Coffee” Coffeehouses in the Development Area and a plan for such
development over a five year term.  Subject to the conditions set forth in
Section 4.5 of this Agreement, Developer shall have a prior right to undertake
the additional development which Company shall have set forth in its notice to
Developer. This right of additional development by Developer shall be exercised
only in accordance with Section 4.4.  If such right of additional development is
not exercised by Developer, Company or any franchisee or area developer of
Company may construct, equip, open and operate additional “Diedrich Coffee”
Coffeehouses in the Development Area.

 

4.3           Renewal.

 

Except to the extent otherwise provided in any area development agreement
executed pursuant to Section 4.4, Developer shall have no right to renew this
Agreement and after the expiration of the Term, or the sooner termination of
this Agreement, Company, and its affiliates may construct, equip, open and
operate, and license or franchise others to construct, equip, open and operate
additional “Diedrich Coffee” Coffeehouses in the Development Area, without any
restriction.

 

4.4           Exercise of Right of Additional Development.

 

At the time Company delivers to Developer Company’s written notice of its
determination to undertake additional development in the Development Area,
Company shall also deliver to Developer a copy of Company’s Then-current
Offering Circular and two copies of the Then-current area development
agreement.  The new area development agreement, which may vary substantially
from this Agreement, will reflect Developer’s new development obligation
consistent with Company’s plan for additional development set forth in its
notice to Developer.  Notwithstanding the foregoing or inconsistent terms of
such area development agreement, (a) upon execution thereof, Developer shall pay
Company a Development Area Fee for each “Diedrich Coffee” Coffeehouse required
to be opened thereunder equal to the then-current Development Area Fee and (b)
each Franchise Agreement signed pursuant thereto shall provide for an Initial
Fee and Continuing Royalty at the rates specified in the Franchise Agreement.  
Within thirty (30) days after Developer’s receipt of the Offering Circular and
the new area development agreement, but no sooner than immediately after any
applicable waiting periods prescribed by Applicable Law have passed, Developer
shall execute two copies of the area development agreement described in the
Offering Circular and return them to Company together with the applicable
Development Area Fee. If Developer has so executed and returned the copies and
has satisfied the conditions set forth in Section 4.5, Company will execute the
copies and return one fully executed copy to Developer.

 

4.5           Conditions to Exercise of Right of Additional Development.

 

Developer’s right to additional development described in Section 4.2 shall be
subject to Developer’s fulfillment of the following conditions precedent:

 

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4.5.1        Developer shall have fully performed all of its obligations under
this Agreement and all other agreements between Company and Developer.

 

4.5.2        Developer shall have demonstrated to Company Developer’s  financial
capacity to perform the additional development obligations set forth in the new
area development agreement. In determining if Developer is financially capable,
Company will apply the same criteria to Developer as it applies to prospective
area developers at that time.

 

4.5.3        At expiration of the Term, Developer shall continue to operate, in
the Development Area, not less than the cumulative number of Full Service
Coffeehouses required by the Minimum Development Obligation set forth in Exhibit
“B”.

 

4.5.4        Developer and all affiliates of Developer who then have a currently
effective Franchise Agreement or area development agreement with Company shall
have signed a general release on a form prescribed by Company.

 

V.

PAYMENTS BY DEVELOPER

 

5.1           Development Area Fees.  Developer shall pay a “Development Area
Fee” of $                      , payable upon execution of this Agreement.  The
Development Area Fees shall be deemed fully earned upon the payment thereof and
shall be non-refundable under any circumstances.

 

5.2           Franchise Agreements for Each Coffeehouse.  Notwithstanding the
terms of Company’s Franchise Agreement that Developer shall execute pursuant to
Section  6.1 of this Agreement for each “Diedrich Coffee” Coffeehouse opened in
the Development Area, the definition of “Gross Sales” set forth herein shall
apply to all Franchise Agreements executed by Developer pursuant to Section 6.1,
notwithstanding any inconsistent definition in such Franchise Agreements.

 

5.3           Credit Against Initial Fee.  For each Full Service Coffeehouse
developed by Developer in accordance with this agreement, Developer shall
receive a credit of $5,000 against the Initial Fee at the time Franchise
Agreement is signed, up to a maximum cumulative number of full service
Coffeehouses that Developer has committed to develop in accordance with Exhibit
“B.”  Developer will receive no credit against the initial fee of “Diedrich
Coffee” Coffeehouses that are kiosks or coffee carts, nor will Developer receive
any credit for Full Service Coffeehouses in excess of the Minimum Development
Obligation.

 

VI.

EXECUTION OF INDIVIDUAL FRANCHISE AGREEMENTS, TRAINING

 

6.1           Site Approval, Submission of Offering Circular, Execution of
Franchise Agreement.

 

6.1.1        After Developer has located a site for construction of a “Diedrich
Coffee” Coffeehouse, Developer shall submit to Company such information
regarding the proposed site as Company shall require, in the form which Company
shall from time to time require, together with a copy

 

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of an executed letter of intent containing the terms of the proposed Lease for
such site.  Company may seek such additional information as it deems necessary
within 30 days after Developer’s submission of the letter of intent and required
site information, and Developer shall respond promptly, accurately and
completely to such request for additional information.

 

6.1.2        If Company shall not reject the site in writing within 30 days, or
within 30 days after a receipt of such additional information, whichever is
later, the site shall be deemed preliminarily accepted by Company.  Company’s
acceptance of a site proposed by Developer will not be unreasonably withheld or
delayed.

 

6.1.3        Promptly after Company’s preliminary acceptance of each site:

 

(a)        Company shall, if required by Applicable Law and if it has not done
so already, transmit to Developer an Offering Circular and two execution copies
of the Franchise Agreement pertaining to the approved site.  Immediately upon
receipt of the Offering Circular, Developer shall return to Company a signed
copy of the Acknowledgment of Receipt of the Offering Circular; and

 

(b)        Developer shall proceed promptly to negotiate a Lease for the site
(which shall comply with Section 6.3 below) and shall submit the proposed Lease
to Company for review and approval. Developer shall not execute the Lease for
the site until it has been reviewed and accepted by Company; and

 

(c)        Following Company’s delivery of any such required Offering Circular
and any waiting period required by Applicable Law, but not later than the date
on which Developer executes the Lease which has been reviewed and accepted by
Company: (i) Developer shall execute and deliver to Company two copies of said
Franchise Agreement; (ii) Developer and each of its affiliates who then has a
currently effective Franchise Agreement or area development agreement with
Company shall execute and deliver two copies of a general release on a form
prescribed by Company, and (iii) Developer shall pay to the Company the Initial
Fee therefor as provided in the applicable Franchise Agreement.

 

6.1.4        Company shall, promptly upon receipt of said documents and Initial
Fee, execute and return to Developer one copy of the Franchise Agreement. 
Developer shall then procure the site by purchase or lease, and return one copy
of the fully executed Lease (which shall conform to the terms approved by
Company) or, if purchased, the deed evidencing Developer’s right to occupy the
approved site.  Developer shall then commence construction and operation of the
“Diedrich Coffee” Coffeehouse pursuant to the terms of the Franchise Agreement.

 

6.1.5        Notwithstanding the foregoing, Company’s obligation to deliver
Franchise Agreements shall be subject to Company’s legal authority to do so, and
if Company is not legally able to deliver an Offering Circular to Developer by
reason of any lapse or expiration of its franchise registration, or because
Company is in the process of amending any such registration, or for any reason
beyond Company’s reasonable control, Company may delay approval of the site for
Developer’s proposed “Diedrich Coffee” Coffeehouse and delivery of its Offering
Circular until such time as Company is legally able to deliver an Offering
Circular.  In no event shall Company be liable to Developer for any loss, cost
or expense occasioned by such delays.

 

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6.2           Condition Precedent To Company’s Obligations.

 

It shall be a condition precedent to Company’s obligations pursuant to
Section 6.1, that Developer shall have performed all of his obligations under
and pursuant to all agreements between Developer and Company.

 

6.3           Lease.

 

If a site is leased or subleased by Developer, (i) Company shall have the right
of approval of such lease or sublease, as applicable (the “Lease”), a true and
correct copy of which shall be delivered to Company at least 15 days prior to
the execution thereof; (ii) the term of said Lease shall be for a period which
is not less than the term of the applicable Franchise Agreement, unless Company
shall approve, in writing, a shorter term; (iii) Developer shall neither create
nor purport to create any obligations on behalf of Company, nor grant or purport
to grant to the landlord thereunder any rights against Company, nor agree to any
other term, condition, or covenant which is inconsistent with any provision of
the applicable Franchise Agreement; (iv) Developer shall duly and timely perform
all of the terms, conditions, covenants and obligations imposed upon him under
the Lease; (v) the site shall be constructed and improved pursuant to the
provisions of the applicable Franchise Agreement; (vi) the Lease shall grant
Company an option, without cost or expense to Company, to assume the Lease in
the event of termination or expiration of the applicable Franchise Agreement for
any reason, and shall expressly provide that Company shall have the right (but
not the obligation) to succeed to Developer’s rights under the Lease if
Developer fails to exercise any option to renew, and upon Developer’s default
thereunder, and that upon any alleged breach thereof by Developer, the landlord
thereunder shall be obligated to notify Company in writing at least 15 days
prior to its termination or non-renewal and, in the case of a default, Company
shall have the right, but not the obligation, to cure the breach and to succeed
to Developer’s rights under said Lease by giving written notice of such election
to Developer and such landlord; Developer hereby appoints Company as its
attorney-in-fact to execute an assignment and all other documents and
instruments which Company deems necessary or appropriate to effectuate the
foregoing; (vii) a fully executed copy of said Lease shall be delivered to
Company promptly following the execution thereof; (viii) the Lease shall provide
that it may not be assigned, subleased, modified or amended without Company’s
prior written consent and that Company shall be provided with copies of all such
assignments, subleases, modifications and amendments, and the landlord shall
consent in advance to any assignment or sublease to Company or a “Diedrich
Coffee” franchisee or licensee approved by Company during the initial term or
any renewal term of the Lease; and (ix) the Lease may not contain a
non-competition covenant which purports to restrict the Company, or any
developer or licensee of the Company (or its affiliates), from operating a
“Diedrich Coffee” Coffeehouse or any other retail establishment, unless such
covenant is approved by the Company in writing prior to the execution of the
Lease.  In all cases, the Lease shall provide that upon expiration or
termination thereof for any reason, Developer shall, upon Company’s demand,
remove all of the Marks from the site and modify the decor of the site so that
it no longer resembles, in whole or in part, a “Diedrich Coffee” coffeehouse,
kiosk or cart and that if Developer shall fail do so, Company will be given
written notice and the right to enter the site to make such alterations, in
which event Developer shall reimburse Company for all direct and indirect costs
and expense it may incur in connection therewith, including attorney’s fees.

 

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6.4           Training.

 

At no extra charge, Company shall provide to up to 3 persons selected by
Developer and acceptable to Company an initial developer orientation program to
familiarize Developer with Company’s System and methods of operation.  Said
initial orientation program shall be for a period of up to 3 days of training,
as Company in its reasonable judgment may determine, at one or more of the
following locations: (i) Company’s corporate headquarters in Irvine, California,
(ii) at a Company-owned or franchised coffeehouse, or (iii) at such place or
places as may be designated by Company.  In the case of a Developer which is a
Business Entity, Company may require the trainees to include the Developer’s
general manager and one or more Owners, officers or other designated
representative selected by Developer and acceptable to, and approved by Company
(“Designated Developer Representative”). Company will bear its costs of
providing the initial orientation program concurrently to up to 3 persons
pursuant to this Section 6.4, including Company’s staff salaries, materials, and
all technical training tools.  Developer shall pay all travel, living,
compensation, and other expenses, if any, incurred by Developer and/or
Developer’s Owners and employees in connection with attendance at the program.  
Company shall pay no compensation for any services performed by trainee(s) in
connection with such training programs.

 

6.4.1        The contents of the initial orientation program and manner of
conducting such program shall be at Company’s sole discretion and control,
however, the training course will be structured to provide guidance in locating
potential sites for “Diedrich Coffee” Coffeehouses in the Development Area and
an overview of the topics which will be addressed in the initial training
program that will be provided in connection with the first Coffeehouse opened by
Developer.

 

6.4.2        Pursuant to the first Franchise Agreement executed hereunder,
Company shall provide an additional initial training program for the general
manager and one or more assistant managers and other employees acceptable to
Company (up to a total of 5 persons) for Developer’s first “Diedrich Coffee”
Coffeehouse.  Company shall also train Developer’s Designated Developer
Representative, or other person acceptable to Company, to act as Developer’s
certified trainer who will in turn train the manager, assistant manager(s) and
staff of each “Diedrich Coffee” Coffeehouse, other than the first one,  in
accordance with Company’s policies and standards. Developer may not open any
“Diedrich Coffee” Coffeehouse until the general manager, assistant manager and
staff shall have been certified by Company or by Developer’s Company-approved
certified trainer as having successfully completed such training.

 

VII.

ASSIGNMENT AND SUBFRANCHISING

 

7.1           Assignment By Company.

 

This Agreement is fully transferable by Company, in whole or in part, without
the consent of Developer and shall inure to the benefit of any transferee or
their legal successor to Company’s interests herein; provided, however, that
such transferee and successor shall expressly agree to assume Company’s
obligations under this Agreement.  Without limiting the foregoing, Company may
(i) assign any or all of its rights and obligations under this Agreement to a
subsidiary or affiliated entity; (ii) sell its assets, its Marks, or its System
outright to a third party (including or subject to this Agreement); (iii) go
public; (iv) engage in a private placement of some or all of its securities; (v)
merge, acquire other

 

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corporations, or be acquired by another corporation; or (vi) undertake a
refinancing, recapitalization, leveraged buy-out or other economic or financial
restructuring.  Company shall be permitted to perform such actions without
liability or obligation to Developer who expressly and specifically waives any
claims, demands or damages arising from or related to any or all of the above
actions (or variations thereof).  Company shall have no liability for the
performance of any obligations contained in this Agreement after the effective
date of such transfer or assignment.

 

7.2           No Subfranchising by Developer.

 

Developer shall not offer, sell, or negotiate the sale of “Diedrich Coffee”
franchises to any third party, either in Developer’s own name or in the name and
on behalf of Company, or otherwise subfranchise, subcontract, share, divide or
partition this Agreement, and nothing in this Agreement will be construed as
granting Developer the right to do so.

 

7.3           Assignment by Developer.

 

7.3.1        This Agreement has been entered into by Company in  reliance upon
and in consideration of the individual or collective character, reputation,
skill, attitude, business ability, and financial capacity of Developer or, if
applicable, its Owners who will actively and substantially participate in the
development, ownership and operation of the “Diedrich Coffee” Coffeehouses.
Accordingly, except as otherwise may be permitted herein, neither Developer nor
any of Developer’s Owners shall directly or indirectly sell, assign, transfer,
convey, give away, pledge, mortgage, or otherwise encumber any direct or
indirect interest in this Agreement or in all or substantially all of
Developer’s assets, voluntarily or involuntarily, in whole or in part, by
operation of law or otherwise (an “Assignment”), without Company’s prior written
consent,  which consent may be withheld for any reason whatsoever in Company’s
sole subjective judgment.

 

7.3.2        If Developer is a Business Entity, each of the following shall be
deemed to be an Assignment of this Agreement: (i) the sale, assignment,
transfer, conveyance, gift, pledge, mortgage, or other encumbrance of 50% or
more in the aggregate, whether in one or more transactions, of the assets,
capital stock, membership interests or voting power of Developer, by operation
of law or otherwise; (ii) the issuance of any securities by Developer which
itself or in combination with any other transaction(s) results in the Owners
existing as of the Effective Date, owning 50% or less of the outstanding shares,
membership interests or voting power of Developer as constituted as of the date
hereof; (iii) if Developer is a Partnership, the withdrawal, death or legal
incapacity of a general partner or limited partner owning 50% or more of the
voting power, property, profits or losses, or partnership interests of the
Partnership (each of which is referred to hereinafter as a “Partnership Right”),
or the admission of any additional general partner or the transfer by any
general partner of any of its Partnership Rights in the Partnership; (iv) the
death or legal incapacity of any Owner owning 50% or more of the capital stock,
voting power, or Partnership Rights of Developer; and (v) any merger, stock
redemption, consolidation, reorganization, recapitalization or other transfer
control of the Developer, however effected.

 

7.3.3        Developer shall not in any event have the right to pledge,
encumber, hypothecate or otherwise give any third party a security interest in
this Agreement in any manner

 

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whatsoever without the express prior written permission of Company, which
permission may be withheld for any reason whatsoever in Company’s sole
subjective judgment.

 

7.4           Individual Franchise Agreements.

 

Developer shall not execute any Franchise Agreement, or construct or equip any
“Diedrich Coffee” Coffeehouse with the intent of transferring or assigning such
Franchise Agreement or “Diedrich Coffee” Coffeehouse.  Developer acknowledges
and agrees that it will not be permitted to assign any Franchise Agreement
executed pursuant to this Agreement except in conjunction with a concurrent
assignment to the same assignee of this Agreement and all of the Franchise
Agreements executed pursuant to this Agreement, and otherwise in accordance with
the terms and conditions of said Franchise Agreement(s).

 

VIII.

NON-COMPETITION, NON-SOLICITATION, TRADE SECRETS

 

8.1           In Term.

 

Subject to the terms and to the exceptions, if any, explicitly set forth in
Exhibit “D” hereto, during the Term, neither Developer, nor any officer,
director, or direct or indirect Owner of a Developer which is a Business Entity,
shall in any capacity, either directly or indirectly, through one or more
subsidiaries or affiliated companies engage in any Competitive Activities, at
any location, whether within or outside the Development Area, unless Company
shall consent thereto in writing; provided that, with Company’s prior written
consent, which Company will not unreasonably withhold, Developer or any Owner,
officer or director of Developer may own and operate one or more restaurants, or
any other retail establishment, which sells brewed coffee, espresso or coffee
products if and for so long as such restaurant, or retail establishment, does
not derive 20% or more of its gross revenues from the sale of espresso drinks,
brewed coffee, roasted coffee beans and blends, premium teas, and coffee-related
products and equipment, or any of them, during any day part.

 

8.2           Post-Term.

 

Subject to the terms and to the exceptions, if any, explicitly set forth in
Exhibit “D”, to the extent permitted by Applicable Law, upon the expiration or
termination of this Agreement, or if Developer shall make any Assignment to any
person or Business Entity, or if any Owner, officer or director of Developer
shall terminate his or her relationship with Developer, then for a period of 24
months thereafter, such terminating Owner, officer or director, if applicable,
or in the case of expiration, termination or Assignment, Developer, and each
officer, director, and direct or indirect Owner of Developer shall not in any
capacity, either directly or indirectly, through one or more subsidiaries or
affiliated companies, engage in any Competitive Activities, (i) within the
Development Area, (ii) within the County in which any “Diedrich Coffee”
Coffeehouse operated by Developer is located, or (iii) within an area within ten
(10) miles from the location or any then existing “Diedrich Coffee” Coffeehouse,
without the Company’s prior written consent.  In applying for such consent,
Developer will have the burden of establishing that any such activity by it will
not involve the use of benefits provided under this Agreement or constitute
unfair competition with Company or other franchisees or area developers of the

 

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Company; provided that, with Company’s prior written consent, which Company will
not unreasonably withhold, Developer or any Owner, officer or director of
Developer may own and operate one or more restaurants, or any other retail
establishment,  which sells brewed coffee, espresso or coffee products if and
for so long as such restaurant, or retail establishment, does not derive 20% or
more of its gross revenues from the sale of espresso drinks, brewed coffee,
roasted coffee beans and blends, premium teas, and coffee-related products and
equipment, or any of them, during any day part.

 

8.3           Modification.

 

The parties have attempted in Sections 8.1 and 8.2 above to limit the
Developer’s right to compete only to the extent necessary to protect the Company
from unfair competition.  The parties hereby expressly agree that if the scope
or enforceability of Section  8.1 and 8.2 is disputed at any time by Developer,
a court or arbitrator, as the case may be, may modify either or both of such
provisions to the extent that it deems necessary to make such provision(s)
enforceable under Applicable Law.  In addition, the Company reserves the right
to reduce the scope of either, or both, of said provisions without Developer’s
consent, at any time or times, effective immediately upon notice to Developer.

 

8.4           Personnel.

 

8.4.1        During the Term of this Agreement, Developer shall not, without the
prior written consent of Company, directly or indirectly: (a) employ or attempt
to employ any person who at that time is employed by Company, an affiliate of
Company, or any other franchisee or area developer, including, without
limitation, any coffeehouse manager, assistant coffeehouse manager, or head chef
(“Personnel”); (b) employ or attempt to employ any Personnel who within six (6)
months prior thereto had been employed by Company, an affiliate of Company, or
any other franchisee or area developer; or (c) induce or attempt to induce any
Personnel to leave his or her employment with Company, an affiliate of Company,
or any other franchisee or area developer.

 

8.4.2        The prohibitions set forth in Section 8.4.1 above shall also apply
during the one (1) year period after the expiration or termination of this
Agreement.

 

8.4.3        During the Term of this Agreement, Company shall not, without the
prior written consent of Developer, directly or indirectly: (a) employ or
attempt to employ any person who at that time is employed by Developer or an
affiliate of Developer; or (b) induce or attempt to induce any person to leave
his or her employment with Developer or an affiliate of Developer.

 

8.5           Trade Secrets.

 

8.5.1        Company possesses and continues to develop, and during the course
of the relationship established hereunder, Developer shall have access to,
proprietary and confidential information, including recipes, secret ingredients,
specifications, procedures, concepts and methods and techniques of developing,
marketing and operating coffeehouses, restaurants and other retail outlets
featuring espresso, ground coffee and roasted coffee beans, tea, and other food
and beverage products (the “Trade Secrets”).  Certain of the Trade Secrets may
be disclosed to Developer in Operating Manuals, bulletins, supplements,
confidential correspondence, or other confidential communications, and through
the Company’s training program and other guidance and management assistance, and
in performing

 

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Company’s other obligations and exercising Company’s rights under this Agreement
or the Franchise Agreements executed pursuant hereto. “Trade Secrets” shall not
include information which: (a) has entered the public domain or was known to
Developer prior to Company’s disclosure of such information to Developer, other
than by the breach of an obligation of confidentiality owed (by anyone) to
Company; (b) becomes known to Developer from a source other than Company and
other than by the breach of an obligation of confidentiality owed (by anyone) to
Company; or (c) was independently developed by Developer without the use or
benefit of Company’s Trade Secrets.  The burden of proving the applicability of
the foregoing will reside with Developer.

 

8.5.2        Developer shall acquire no interest in the Trade Secrets other than
the right to use them in developing and operating “Diedrich offee” Coffeehouses
pursuant to the Franchise Agreements executed pursuant to Section 6.1 during the
Term thereof.  Developer’s duplication or use of the Trade Secrets in any other
endeavor or business shall constitute an unfair method of competition. 
Developer shall: (i) not use the Trade Secrets in any business or other endeavor
other than in connection with such “Diedrich Coffee” Coffeehouses; (ii) maintain
absolute confidentiality of the Trade Secrets during and after this Agreement’s
Term; (iii) make no unauthorized copy of any portion of the Trade Secrets,
including without limitation, all or any part of the Manuals, bulletins,
supplements, confidential correspondence, or other confidential communications,
whether written or oral; and (iv) operate and implement all reasonable
procedures prescribed from time to time by Company to prevent unauthorized use
and disclosure of the Trade Secrets, including without limitation, restrictions
limiting disclosure to certain employees and use of non-disclosure and
non-competition provisions as Company prescribes in employment agreements with
employees who may have access to the Trade Secrets.  Promptly upon Company’s
request, Developer shall deliver executed copies of such agreements to Company. 
The provisions of this Section 8.5 shall be in additional to and not in lieu of
any other confidentiality obligation of Developer, or any other person, whether
pursuant to another agreement, or pursuant to Applicable Law.

 

8.6           Developer’s Affiliates.  For purposes of this Article only,
“Developer” shall mean and include the individual Developer; Developer’s spouse
and minor children and its Owners, officers and directors if Developer is a
Business Entity and Developer shall, except as Company may otherwise agree,
cause each such person to acknowledge and agree to be bound by the provisions of
Section 8.1 through 8.5.  The provisions of this Article shall not limit,
restrain or otherwise affect any right or cause of action which may accrue to
Company for any infringement of, violation of, or interference with, this
Agreement, or Company’s Marks, System, trade secrets, or any other proprietary
aspects of Company’s business.

 

IX.

TERMINATION

 

9.1           Termination Pursuant to a Material Breach of This Agreement. 

 

This Agreement may be terminated by Company in the event of any material breach
by Developer of this Agreement, unless such default is cured by Developer within
15 days following written notice of the default (or 5 days in the case of a
default in the payment of money); provided that the following defaults shall be
deemed incurable: (i) any attempt by Developer to make any Assignment in
violation of the terms of this Agreement, or without the written consents
required, pursuant to this

 

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Agreement; (ii) failure of Developer to meet the Minimum Development Obligation;
and (iii) any violation by Developer of Article VIII.

 

9.2           Termination by Reason of a Material Breach of Other Agreement.

 

This Agreement may be terminated, at the election of Company, in the event of
the termination by reason of a material breach by Developer of an individual
Franchise Agreement or any other agreement between Company and Developer,
subject to the notice and the opportunity to cure, if any, specified in the
Franchise Agreement or other such agreement.

 

9.3           Effect of Termination.

 

Upon the expiration of the Term, or upon the prior termination of this
Agreement:

 

9.3.1        Developer shall have no further right to construct, equip, own,
open or operate additional “Diedrich Coffee” Coffeehouses which are not, at the
time of such termination or expiration, the subject of a then existing Franchise
Agreement between Developer and Company which is in full force and effect; and

 

9.3.2        Company and its affiliates may construct, equip, open, own or
operate, or franchise or license others to construct, equip, open, own or
operate “Diedrich Coffee” Coffeehouses in the Development Area, except as may be
expressly provided to the contrary in any Franchise Agreement executed pursuant
to this Agreement.

 

 

X.

BUSINESS ENTITY DEVELOPER

 

10.1         Business Entity Developer.  If Developer is a Business Entity, the
following provisions will apply:

 

10.1.1      Developer represents and warrants that the information set forth in
Exhibit “C” which is annexed hereto and by this reference made a part hereof, is
accurate and complete in all material respects.

 

10.1.2      Developer shall notify Company in writing within ten (10) days of
any change in the information set forth in Exhibit “C”.

 

10.1.3      Developer promptly shall provide such additional information as
Company may from time to time request concerning all persons who may have any
direct or indirect financial interest in Developer.

 

10.2         Limitation on Activities.  If Developer is a Business Entity, all
of Developer’s organizational documents (including articles of partnership,
partnership agreements, articles of incorporation, bylaws, shareholders’
agreements, trust instruments, or their equivalent) will provide that the
issuance and transfer of any interest in Developer is restricted by the terms of
this Agreement, and

 

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that the sole purpose for which Developer is formed (and the sole activity in
which Developer is or will be engaged) is the development and operation of
“Diedrich Coffee” Coffeehouses, pursuant to one or more area development
agreements and one or more franchise agreements from Company.  Developer will
submit to Company, upon the execution of this Agreement, a resolution of
Developer (or its governing body) confirming that Developer is in compliance
with this provision.

 

10.3         Guaranty and Subordination Agreement.  Upon the execution of this
Agreement, upon each transfer of an interest in Developer, and at any other time
upon Company’s request, all holders of a 10% or greater interest in Developer
will execute a written agreement in the form of Exhibit “E”, personally
guaranteeing, jointly and severally, with all other holders of a 10% or greater
interest in Developer, the full payment and performance of Developer’s
obligations to Company and to Company’s affiliates.

 

XI.

GENERAL CONDITIONS AND PROVISIONS

 

11.1         Relationship of Developer to Company.

 

It is expressly agreed that the parties intend by this Agreement to establish
between Company and Developer the relationship of franchisor and franchisee.  It
is further agreed that Developer has no authority to create or assume in
Company’s name or on behalf of Company, any obligation, express or implied, or
to act or purport to act as agent or representative on behalf of Company for any
purpose whatsoever.  Neither Company nor Developer is the employer, employee,
agent, partner or co-venturer of or with the other, each being independent. 
Developer agrees that he will not hold himself out as the agent, employee,
partner or co-venturer of Company.  All employees hired by or working for
Developer shall be the employees of Developer and shall not, for any purpose, be
deemed employees of Company or subject to Company control.  Each of the parties
agrees to file its own tax, regulatory and payroll reports with respect to its
respective employees and operations, saving and indemnifying the other party
hereto of and from any liability of any nature whatsoever by virtue thereof.

 

11..2        Indemnity by Developer.

 

Developer hereby agrees to protect, defend and indemnify Company, and all of its
past, present and future direct and indirect Owners, subsidiaries, affiliates,
officers, directors, employees, attorneys and designees and hold them harmless
from and against any and all costs and expenses, including attorneys’ fees,
court costs, losses, liabilities, damages, claims and demands of every kind or
nature on account of any actual or alleged loss, injury or damage to any person
or Business Entity or to any property arising out of or in connection with
Developer’s operation of “Diedrich Coffee” Coffeehouses pursuant hereto, except
to the extent resulting from the negligence or intentional misconduct of
Company.

 

11..3        Limitation of Liability

 

11.3.1      Company shall not be liable to Developer for any consequential
damages, including but not limited to lost profits, interest expense, increased
construction or occupancy  costs, or other costs and expenses incurred by
Developer by reason of any delay in the delivery of Company’s

 

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Offering Circular caused by legal incapacity during the Term, events beyond
Company’s reasonable control, or other conduct not due to the gross negligence
or misfeasance of Company.

 

11.3.2      In the event of the termination of this Agreement solely by reason
of Developer’s breach of its Minimum Development Obligation, Company shall waive
its right to recover lost profits on account of the undeveloped “Diedrich
Coffee” Coffeehouses on condition that Developer shall abide by its obligations
under Article VIII.  This Section 11.3.2 shall not otherwise limit any other
remedy available to Company at law or in equity, nor limit the recovery of
damages to Company, except as provided herein.

 

11.4         Waiver and Delay.

 

No waiver by Company of any breach or series of breaches or defaults in
performance by Developer, and no failure, refusal or neglect of Company to
exercise any right, power or option given to it hereunder or under any other
franchise agreement between Company and Developer, whether entered into before,
after or contemporaneously with the execution hereof (and whether or not related
to the “Diedrich Coffee” Coffeehouses) or to insist upon strict compliance with
or performance of Developer’s obligations under this Agreement or any Franchise
Agreement between Company and Developer, whether entered into before, after or
contemporaneously with the execution hereof (and whether or not related to the
“Diedrich Coffee” Coffeehouses), shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
Company of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.

 

11.5         Survival of Covenants.

 

The covenants contained in this Agreement which, by their terms, require
performance by the parties after the expiration or termination of this
Agreement, shall be enforceable notwithstanding said expiration or other
termination of this Agreement for any reason whatsoever.

 

11.6         Successors and Assigns.

 

This Agreement shall be binding upon and inure to the benefit of the successors
and assigns of Company and shall be binding upon and inure to the benefit of
Developer and his or their respective heirs, executors, administrators,
successors and assigns, subject to the prohibitions against Assignment contained
herein.

 

11.7         Joint and Several Liability.

 

If Developer consists of more than one person or business entity, or a
combination thereof, the obligations and liabilities of each such person or
business entity to Company are joint and several.

 

11.8         Governing Law.

 

This Agreement shall be governed by and construed in accordance with the laws of
the State of California, without giving effect to any conflict of laws,
excepting however the provisions of Article

 

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VIII which shall be construed and enforced in accordance with the laws of the
State where the breach of said Section occurs.

 

THE PARTIES HEREBY WAIVE THEIR RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
DISPUTE ARISING UNDER THIS AGREEMENT, AND THEY AGREE THAT, EXCEPT TO THE EXTENT
PROHIBITED BY LAW, ORANGE COUNTY, CALIFORNIA SHALL BE THE VENUE FOR ANY
LITIGATION ARISING UNDER THIS AGREEMENT.  THE PARTIES ACKNOWLEDGE THAT THEY HAVE
REVIEWED THIS SECTION AND HAVE HAD THE OPPORTUNITY TO SEEK INDEPENDENT LEGAL
ADVICE AS TO ITS MEANING AND EFFECT.

 

11.9         Entire Agreement.

 

This Agreement and the Exhibits incorporated herein contain all of the terms and
conditions agreed upon by the parties hereto concerning the subject matter
hereof.  No other agreements concerning the subject matter hereof, written or
oral, shall be deemed to exist or to bind any of the parties hereto and all
prior agreements, understandings and representations, are merged herein and
superseded hereby.  Developer represents that there are no contemporaneous
agreements or understandings between the parties relating to the subject matter
of this Agreement that are not contained herein.  No officer or employee or
agent of Company has any authority to make any representation or promise not
contained in this Agreement or any Offering Circular for prospective franchisees
required by Applicable Law, and Developer agrees that he has executed this
Agreement without reliance upon any such representation or promise.  This
Agreement cannot be modified or changed except by written instrument signed by
all of the parties hereto.

 

11.10       Titles For Convenience.

 

Article and paragraph titles used in this Agreement are for convenience only and
shall not be deemed to affect the meaning or construction of any of the terms,
provisions, covenants, or conditions of this Agreement.

 

11.11       Gender And Construction.

 

All terms used in any one number or gender shall extend to mean and include any
other number and gender as the facts, context, or sense of this Agreement or any
article or paragraph hereof may require.  As used in this Agreement, the words
“include,” “includes” or “including” are used in a non-exclusive sense.  Unless
otherwise expressly provided herein to the contrary, any consent, approval or
authorization of Company which Developer may be required to obtain hereunder may
be given or withheld by Company in its sole discretion, and on any occasion
where Company is required or permitted hereunder to make any judgment or
determination, including any  decision as to whether any condition or
circumstance meets Company’s standards or satisfaction, Company may do so in its
sole subjective judgment.

 

11.12       Severability.

 

Nothing contained in this Agreement shall be construed as requiring the
commission of any act contrary to law.  Whenever there is any conflict between
any provisions of this Agreement and any

 

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present or future statute, law, ordinance or regulation contrary to which the
parties have no legal right to contract, the latter shall prevail, but in such
event the provisions of this Agreement thus affected shall be curtailed and
limited only to the extent necessary to bring it within the requirements of the
law.  In the event that any part, article, paragraph, sentence or clause of this
Agreement shall be held to be indefinite, invalid or otherwise unenforceable,
the indefinite, invalid or unenforceable provision shall (subject to
Section 8.3) be deemed deleted, and the remaining part of this Agreement shall
continue in full force and effect.

 

11.13       Counterparts.

 

This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument.

 

11.14       Fees and Expenses.

 

Should any party hereto commence any action or proceeding for the purpose of
enforcing, or preventing the breach of, any provision hereof, whether by
arbitration, judicial or quasi-judicial action or otherwise, or for damages for
any alleged breach of any provision hereof, or for a declaration of such party’s
rights or obligations hereunder, then the prevailing party shall be reimbursed
by the losing party for all costs and expenses incurred in connection therewith,
including, but not limited to, reasonable attorneys’ fees for the services
rendered to such prevailing party.

 

11.15       Notices.

 

Except as otherwise expressly provided herein, all written notices and reports
permitted or required to be delivered by the parties pursuant hereto shall be
deemed so delivered at the time delivered by hand, one (1) business day after
confirmed transmission by facsimile or other electronic system (with
confirmation copy sent by regular U.S. Mail), or three (3) business days after
placement in the United States Mail by Registered or Certified Mail, Return
Receipt Requested, postage prepaid and addressed as follows:

 

If to Company:

 

 

Diedrich Coffee, Inc.

 

2144 Michelson Drive

 

Irvine, California 92612

 

Attention: Vice President Franchise Sales

 

Facsimile No.:  (949) 260-6731

 

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If to Developer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facsimile No.:  (      )

 

 

With Copy to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facsimile No.:  (      )

 

 

or to such other address as such party may designate by ten (10) days’ advance
written notice to the other party.

 

XII.
SUBMISSION OF AGREEMENT

 

12.1         General.

 

The submission of this Agreement does not constitute an offer and this Agreement
shall become effective only upon the execution thereof by Company and Developer.

 

XIII.
ACKNOWLEDGMENT

 

13.1         General.

 

Developer, and its Owners, jointly and severally acknowledge that they have
carefully read this Agreement and all other related documents to be executed
concurrently or in conjunction with the execution hereof, that they have
obtained the advice of counsel in connection with entering into this Agreement,
that they understand the nature of this Agreement, and that they intend to
comply herewith and be bound hereby.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the first date set forth above.

 

ACCEPTED on this      day of                          ,                  .

 

COMPANY:

Diedrich Coffee, Inc.

 

 

 

By:

 

 

 

Its:

 

 

 

 

DEVELOPER:

 

 

By:

 

 

 

Its:

 

 

 

 

 

an Individual

 

 

 

an Individual

 

 

 

an Individual

 

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EXHIBIT A

DEVELOPMENT AREA

 

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EXHIBIT B

MINIMUM DEVELOPMENT OBLIGATIONS

 

 

Development
Period
Ending

 

Cumulative Number of
Full Service Coffeehouses
to be in Operation

 

 

 

1                , 20    

 

 

 

 

 

2                , 20    

 

 

 

 

 

3                , 20    

 

 

 

 

 

4                , 20    

 

 

 

 

 

5                , 20    

 

 

 

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EXHIBIT C

DEVELOPER INFORMATION

 

Developer is a (check as applicable):

o corporation    o limited partnership

o limited liability company    o general partnership

o Other (specify):                                                   

 

The name and address of each Owner of Developer is:

 

NAME

 

ADDRESS

 

NUMBER OF
SHARES OR
PERCENTAGE
INTEREST

 

 

 

 

 

 

 

 

 

 

 

There is set forth below the name and address of each director, member, or
general partner, as applicable, of Developer:

 

NAME

 

ADDRESS

 

 

 

 

 

 

 

There is set forth below the names, and addresses and titles of Developer’s
principal officers or partners who will be devoting their full time to the
“Diedrich Coffee” Coffeehouses:

 

NAME

 

ADDRESS

 

 

 

 

 

 

 

The address where Developer’s Financial Records, and Business Entity records
(e.g. Articles of Incorporation, Bylaws, Operating Agreement, Partnership
Agreement, etc.) are maintained is:

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT D

 

EXCEPTIONS TO SECTION 8.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If no exceptions are inserted above and initialed by both parties, no exceptions
apply.  If any exception is described above, it is limited to the identified
business as it exists on the Effective Date of this Agreement and does not
extend to or include any material change made to the business after the
Effective Date, including any change in the menu or products or services
featured by the business.  In no event shall any identified exception include
any business if (a) its sales of espresso drinks,  coffee, roasted coffee beans
and blends, and premium teas, or any of them, exceeds 20% during any day part,
or (b) its sales of bakery goods exceeds 9% of all revenues derived by the
business during any day part, or (c) 85% or more of such business’ total
beverage sales are comprised of non-coffee beverages.  By way of illustration,
and not limitation, even if a restaurant is identified above, the exception will
be void if the restaurant’s sales of coffee or bakery goods exceed the stated
thresholds, whether on the Effective Date, or by reason of a subsequent change
in the restaurant’s menu or marketing.

 

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EXHIBIT E

 

GUARANTY AND SUBORDINATION AGREEMENT

 

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SPOUSAL CONSENT

 

Each of the undersigned, each being the spouse of an individual who executed
this Agreement as Developer (or if Developer is a partnership, a spouse of a
general partner), consents to all of the terms of this Agreement and the
execution thereof, and agrees not to assist any person who is a party to this
Agreement to violate any of that party’s duties under this Agreement.

 

 

By:

 

 

Dated:

 

 

 

 

By:

 

 

Dated:

 

 

 

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