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Exhibit 10.5
 
First Franchise Capital Corporation
 
MASTER SECURITY AGREEMENT        #24675
 

MASTER SECURITY AGREEMENT, made this 9th day of May, 2013 by and between
HEARTHSTONE PARTNERS, LLC, a Massachusetts limited liability company having an
office at 85 Main Street, Hopkinton, MA 01748 (the "Borrower"), and First
Franchise Capital Corporation, an Indiana corporation, having an office at One
Maynard Drive, Suite 2104, Park Ridge, NJ 07656 (the "Lender").
 
WITNESSETH:
 
WHEREAS, Lender intends to make one or more loans (individually "Loan" and
collectively "Loans") to Borrower in such sums as may be evidenced by a
promissory note or notes (individually the "Note" and collectively the "Notes");
and
 
WHEREAS, in order to induce Lender to make the Loan and any such future loans or
financial accommodations to Borrower, Borrower has agreed to execute and deliver
this Master Security Agreement (the "Agreement").
 
NOW, THEREFORE, in consideration of the foregoing, and of any extension of
credit heretofore, now or hereafter made by Lender to Borrower, the parties
hereto hereby agree as follows:
 
1.    Security Interest. To secure the due payment and performance by Borrower
of all indebtedness and other liabilities and obligations, whether now existing
or hereafter arising, of Borrower to Lender under, arising out of or in any way
connected with this Agreement, the Note(s) and all agreements, guaranties,
instruments and other documents executed and delivered in connection herewith or
therewith, or otherwise, and to secure any other indebtedness, liabilities and
obligations of Borrower to Lender, whether now existing or hereafter arising
(all hereinafter referred to collectively as the "Obligations"), Borrower hereby
assigns, grants, mortgages, pledges, hypothecates, transfers and sets over to
Lender, a first priority lien on and security interest in (i) the property of
Borrower set forth in the Schedule to the Note(s) (the "Equipment"), together
with all accessories, attachments and accessions now or hereafter affixed
thereto and all substitutions and replacements of, and proceeds of the
foregoing, plus any and all chattel paper, accounts, contract rights and general
intangibles arising from the sale, lease or other disposition thereof, including
but not limited to insurance proceeds and general intangibles, (ii) any cash or
cash equivalents held by Lender on Borrower's behalf, including, without
limitation, any refunds, security deposits or undisbursed advances or proceeds
arising in connection with any loan or equipment lease (whether given hereunder
or otherwise), (iii) all property, tangible or intangible, in which Lender has
or may acquire hereafter a security interest, and (iv) all of Borrower's present
and future accounts, documents, general intangibles, and other personal
property, whether now owned or hereafter acquired and wherever located (all the
foregoing hereinafter referred to as the "Collateral"). Lender shall not be
obligated to release its security interest in any of the Collateral until all
Obligations of Borrower to Lender are paid and performed in full. Any security
deposit made by Borrower to Lender, and not subject to a separate Security
Deposit Agreement, shall be held by Lender to secure the payment and performance
of the Obligations and may not be used by Borrower for any payments due under
the Note(s) or this Agreement or any other loan documents. Lender may, but is
not obligated to, apply the security deposit to cure any monetary default, and
Borrower agrees to immediately restore the security deposit to its full amount.
Except as may otherwise be required by applicable law, the security deposit may
be commingled with Lender's other funds and any unapplied portion of the
security deposit will be refunded to Borrower without interest only upon full
payment and performance of the Obligations.
 
2.     Term and Repayment: The term of each Note shall commence on the date
specified in such Note and shall continue for the number of months, and the
proration thereof, specified in the Note. Payments shall be in the amounts and
shall be due and payable as set forth in the applicable Note(s). No Note may be
prepaid, in whole or in part, without the written consent of Lender. Borrower
agrees that any monies received by Lender for application to the payments due
under the Note(s), may be applied by Lender in such amounts and to such Notes as
Lender, in its sole discretion, determines. If Lender receives excess monies to
be applied to a particular Note, such monies will be applied to the payments due
under such Note in the reverse order of maturities. Borrower agrees that any
original Note and a copy of this Agreement constitute a separately enforceable
and assignable contract which incorporates all of the terms and conditions set
forth in this Agreement. If any payment due under this Agreement or under any
Note is not paid when due, Borrower agrees to pay, in addition to any other
permitted charges, a late fee equal to ten percent (10%) of the amount past due,
but in no event shall any late fee exceed the maximum amount allowed by
applicable law. Lender shall have no obligation to accept any payments hereunder
not accompanied by all outstanding late payment fees. This provision is not
intended to create any grace period by Lender with respect to the punctual
payment by Borrower. Borrower acknowledges that the late payment fee is not
imposed as a charge for the use of money, but to permit Lender to offset its
administrative expenses and other costs in dealing with loans not paid on time.
The late payment fee shall in no way be deemed an interest charge.
 
3.    Financing Statements. At Lender's request, Borrower shall execute and
deliver to Lender, at any time or times hereafter, all Uniform Commercial Code
financing statements and amendments and all other agreements, documents and
instruments requested by Lender to perfect and maintain Lender's first priority
lien on and security interest in the Collateral. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. To the extent
permitted by law, Borrower hereby appoints Lender (and any officer of Lender) as
Borrower's agent to do all things necessary to carry out the provisions of this
paragraph, including, but not limited to, signing Borrower's name to, and
filing, any financing statements, amendments and other documents to preserve,
protect and perfect the priority of Lender's lien and security interest in any
and all of the Collateral. This appointment as agent shall be irrevocable for
the term of this Agreement.
 
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4.    Location Of Collateral. Borrower warrants that it owns and has possession
of the Collateral and keeps and will keep the Equipment and other individual
items of Collateral at the locations specified in the applicable Note and if no
location is specified, then at the Borrower's principal office (the
"Location(s)"), and Borrower shall not remove any items of Collateral from such
Location(s) without Lender's prior written consent.
 
5.    Lender's Payment Of Claims Asserted Against The Collateral. Lender may,
but shall have no obligation to, pay, acquire, discharge and/or accept an
assignment of any security interest, lien, claim or encumbrance asserted by any
person against the Collateral, provided that Lender shall first give Borrower
written notice of Lender's intent to do the same, and Borrower does not, within
ten (10) days of such notice, pay such claim or tax and/or obtain to Lender's
reasonable satisfaction the release of the security interests, liens, claims or
encumbrances to which such notice relates. All sums paid by Lender in respect
thereof and all costs, fees and expenses, including reasonable attorneys' fees,
court costs, expenses and other charges relating thereto, which are incurred by
Lender on account thereof, shall be payable, on demand, by Borrower to Lender
and shall be additional Obligations hereunder secured by the Collateral.
 
6.    Representations And Warranties. Borrower represents and warrants as of
each Closing Date (but only with respect to the Loan being made as of such date)
that:
 
(a)   If an entity, Borrower is duly organized and existing under the laws of
the State of its organization or formation (as the case may be), and is duly
authorized to do business and in good standing wherever the ownership of its
property or the conduct of its business requires such authorization. Borrower
represents and warrants that the Loans are not consumer loans, and that proceeds
of any Loan shall be used only for business or commercial purposes.
 
(b)  Borrower has the right and power and is duly authorized and empowered to
enter into, execute, deliver and perform this Agreement and any other agreement
or instrument referred to herein, and this Agreement and all such other
agreements and instruments are valid and binding upon and enforceable against
Borrower in accordance with their respective terms. Borrower has taken all
action required to authorize the execution, delivery and performance of this
Agreement and all other agreements or documents required hereunder and the
transactions contemplated hereby.
 
(c)  The execution, delivery and/or performance by Borrower of this Agreement
and any other agreement or instrument referred to herein shall not, by the lapse
of time, the giving of notice or otherwise, constitute a violation of, or result
in the breach of or accelerate or permit the acceleration of, the performance
required by the terms of any applicable law, rule or regulation of any
governmental body, or any provision contained in Borrower's certificate of
incorporation or organization and by-laws, partnership agreement or operating
agreement (as appropriate) or contained in any agreement, instrument or document
to which Borrower is now a party or by which it or its assets are bound, or
result in the creation of any claim, lien, charge or encumbrance upon any of the
property or assets of Borrower (except those granted to Lender pursuant hereto).
No consent, approval, authorization or declaration of, designation by or filing
with any governmental authority or other person or entity on the part of
Borrower is required in connection with the valid execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby, except as have been obtained prior to the date hereof or
are necessary to perfect Lender's security interest in the Collateral.
 
(d)  Borrower has good, indefeasible and merchantable title to and ownership of
the Collateral, free and clear of all liens, claims, security interests and
encumbrances except those of Lender.
 
(e)  Borrower is not in violation of any applicable law, statute, regulation or
ordinance of any governmental entity or authority, including, without
limitation, the United States of America, any state, city, town, municipality,
county or of any other Jurisdiction, or of any agency thereof, which could in
any respect adversely affect the Collateral or Borrower's business, property,
assets, operations or condition, financial or otherwise.
 
(f)   Borrower is not in default, and there is no event which, with the lapse of
time or the giving of notice or both, would constitute a default under any
indenture, loan agreement, mortgage, lease, deed or other similar agreement
relating to the borrowing of monies to which Borrower is a party, or by which
Borrower or Borrower's assets may be bound. Borrower is not in default and there
is no event which, with the lapse of time, the giving of notice or both, would
constitute a default under the terms of any of the franchise agreement(s) for
the Locations ("License").
 
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(g)  Borrower has delivered to Lender Borrower's financial statements as part of
Lender's credit review (the "Financial Statements"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
consistently applied and fully and fairly present the assets, liabilities and
financial condition of Borrower as of the respective dates thereof and for the
periods covered thereby; there are no omissions of other facts or circumstances
which are or may be material in Lender's sole discretion, and there has been no
adverse change in the financial condition of Borrower or any guarantor of the
Obligations ("Guarantor") or other owners since the date of such Financial
Statements.
 
(h)  There are no actions or proceedings which are pending or threatened in any
court or before any governmental agency or instrumentality against Borrower, its
assets, or the Collateral or any Guarantor which may adversely affect Borrower
or the Collateral or the Guarantor.
 
(i)    Borrower has filed or has obtained extensions for the filing of all
federal, state and local tax returns and other reports it is required by law to
file and has paid all taxes, assessments and charges reflected thereon that are
due and payable and has reserved funds or made adequate provision for the
payment of such taxes, assessments and charges accruing but not yet payable.
 
(j)    The security interest granted by Borrower to Lender in the Collateral
constitutes a valid first perfected lien and security interest in the
Collateral. There are no other liens or security interests covering the
Collateral.
 
(k)   Borrower has not, within the six (6) year period immediately preceding the
date of this Agreement, (i) changed its name, been the surviving entity of a
merger or consolidation, or acquired all or substantially all of the assets of
any person or entity, or (ii) been known as or used any other corporate or
fictitious name, trade name, division name or other name.
 
(1)   No representation or warranty by Borrower contained herein or in any
certificate or other document furnished by Borrower pursuant hereto, in
connection with the transactions contemplated hereby, contains any untrue or
misleading statement of fact, or omits to state a fact necessary to make it not
misleading, or necessary to provide Lender with proper information as to
Borrower and Borrower's affairs.
 
(m)  All representations and warranties of Borrower are true at the time of
Borrower's execution of this Agreement, and shall survive the execution,
delivery and acceptance hereof, and shall continue until all Obligations of
Borrower to Lender are paid and performed in full.
 
7.    Covenants Of Borrower. Borrower covenants that:
 
(a)   Preservation of Existence. If Borrower is a partnership, a corporation or
limited liability company, it will preserve and maintain its partnership,
corporate or limited liability company existence and status and good standing in
each State where it conducts business.
 
(b)   Personal Property; Liens. The Collateral is and shall remain personal
property at all times regardless of how attached or installed at or to the
Location(s). Borrower will not create nor permit to exist any mortgage, pledge,
title retention lien, or other lien, encumbrance or security interest with
respect to the Collateral or permit any financing statement to be filed with
respect thereto, other than liens to which Lender shall have given its prior
written consent, and encumbrances in favor of Lender. Borrower will defend
Borrower's title to the Collateral and Lender's first priority security interest
therein against the claims and demand of all Persons. Borrower shall obtain and
deliver to Lender any and all landlord's and mortgagee's waivers, estoppel
certificates and other similar documents to confirm, among other things, that
the Collateral shall remain personal property and that such persons have no
interest in the Collateral. Borrower shall also deliver, or cause to be
delivered, such Uniform Commercial Code termination and partial releases and/or
lien waivers or subordinations with respect to the Collateral as Lender may
request.
 
(c)   Franchise. If Borrower is a franchisee, Borrower will maintain its
Licenses and will give Lender notice of any threat or action to terminate or
withdraw or fail to renew any License.
 
(d)  Insurance. From and after the date hereof, Borrower shall bear the entire
risk of loss of, damage to, or destruction of the Collateral. Borrower will, at
its own expense, keep all of the Collateral insured to the full replacement
value thereof against all risks of loss and damage by policies of insurance
issued by companies approved by Lender. The policies evidencing such insurance
shall be duly endorsed in favor of Lender with such loss payable rider as Lender
may designate and such policies shall be delivered to Lender and shall provide
for at least thirty (30) days prior written notice to Lender of the exercise of
any right of cancellation or reduction of coverage and right to cure monetary
defaults. Borrower shall also maintain at its cost such liability insurance with
such insurance companies as Lender shall request and Lender shall be named as
additional insured with respect thereto. Should Borrower fail to furnish Lender
with such insurance, Lender shall have the right to effect same and charge the
cost thereof to Borrower, together with interest thereon at the rate of eighteen
percent (18%) per annum (but not to exceed the maximum rate permitted by
applicable law). Such cost, including interest, shall be additional Obligations
hereunder and secured by the Collateral. Lender's sole obligation hereunder
shall be to credit Borrower's account with the net proceeds of any insurance
payments received on account of any loss and Lender shall have no liability with
respect to any loss. Borrower hereby appoints Lender as Borrower's agent to
file, adjust or settle all insurance claims and endorse in Borrower's name all
checks and drafts in settlement thereof and to execute release and to cancel any
insurance coverage. This appointment as agent shall be irrevocable for the
entire term of this agreement.
 
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(e)   Books and Records: Inspection. Borrower shall keep accurate and complete
books of accounts and records and books covering Borrower's business operations
and covering the Collateral.. Lender and its employees and agents shall have the
right to review such books and records and to copy them and to make extracts
therefrom, all at such reasonable times upon reasonable notice and as often as
Lender may reasonably require. Borrower will permit Lender, its officers,
employees and/or agents, at all times, during normal business hours to enter
into and upon any premises where the Collateral is located for the purpose of
inspecting the Collateral, observing the Collateral's use or otherwise
protecting the interests of Lender therein.
 
(f)    Financial Statements. Borrower agrees that during the term of this
Agreement, Borrower shall provide Lender, within 120 days of Borrower's fiscal
year-ended December 31, 2012 with annual financial statements prepared in
accordance with Generally Accepted Accounting Principles, consistently applied,
in the form of Audited statements prepared by an independent public accountant,
plus such interim period financial statements as Lender may request, which be
internally prepared by the Borrower but must be certified by the Borrower's
Chief Executive Officer or Chief Financial Officer as being true and complete
copies of such interim period financial statements, and any such other data and
information (financial and otherwise). All statements, reports, information,
financial or otherwise, to be provided hereunder shall be (as of the date so
furnished) true, complete and correct. During the term of this Master Security
Agreement, Borrower shall maintain a FCCR, on a consolidated corporate level, in
accordance with FCCR Minimum Multiples and FCCR Testing dates detailed in the
following table, excepting, however that those Cosi's franchised restaurants
that have been open for less than eighteen (18) months as at the period end-date
for such financial statements that are subject to the FCCR test, will be
excluded from such FCCR analysis.
 

 
FCCR Minimum Multiples
Covenant Testing Year -end Financial Statement Dates
Pre-distributions
Post-Distributions
December 31,2013 through and including December 31,2014
1.25x
1.05x
Thereafter through Loan Maturity
1.35x
1.15x

 
For purposes hereof, FCCR shall mean, with respect to Borrower for the last
twelve month period, the sum of Borrower's earnings before interest, taxes,
depreciation, amortization, rents and leases ("EBITDARL") divided by the sum of
Borrower's "Fixed Charges" (as defined below) which includes rents, leases and
debt service (inclusive of the interest portion), EBITDARL may be adjusted to
[i] exclude any non-recurring income that is classified as one time source(s) of
income not typically incurred in the normal course of business, and [ii] include
any non-recurring costs and expenses that are classified as one time charges not
typically incurred in the normal course of business. Any adjustments to compute
the EBITDARL will be at the sole judgment of the Lender. The term "Fixed
Charges" shall include Borrower's annual rents, operating and capitalized leases
and debt service (inclusive of principal and interest) on all obligations."
 
(g)   Litigation. Borrower will notify Lender in writing, promptly upon learning
thereof, of the institution of any suit or administrative proceeding against
Borrower with respect to the Collateral, or directly against the Collateral,
whether or not the claim is considered by Borrower to be covered by insurance,
and of the institution of any suit or administrative proceeding which may
adversely affect the operations, financial condition or business of Borrower or
Lender's security interest in the Collateral.
 
(h)  Payment of Taxes and Claims. Borrower will duly pay and discharge when due
and payable, all taxes, assessments and governmental and other charges, levies
or claims levied or imposed, which are, or which if unpaid might become, a lien
or charge upon the Collateral, or the properties, assets, franchises, earnings
or business of Borrower, provided, however, that nothing contained in this
paragraph shall require Borrower to pay and discharge, or cause to be paid and
discharged, any such tax, assessment, charge, levy or claim so long as Borrower
in good faith shall contest the validity thereof and shall set aside on its
books adequate reserves with respect thereto.
 
(i)   Maintenance And Use of Collateral. Borrower will maintain the Collateral
in good condition and repair (normal wear and tear excepted) and pay and
discharge, or cause to be paid and discharged, when due, the cost of repairs or
maintenance, and pay or cause to be paid all rent due on the Locations where any
Collateral is or may be held. If the vendor or manufacturer of the Collateral
has provided Borrower with a standard maintenance schedule, such schedule will
constitute minimum maintenance compliance, and Borrower, upon request, will
supply Lender with evidence of such compliance. Borrower shall use the
Collateral solely for business or commercial purposes, in compliance with all
applicable laws, ordinances, regulations, and the conditions of all insurance
policies required to be maintained by Borrower pursuant to this Agreement. Any
alteration, modification, additions or improvements to any items of the
Collateral shall forthwith upon the making thereof become subject to the
security interest of Lender granted herein. Borrower agrees that the Collateral
shall be used and operated only by trained and competent operators in accordance
with the manufacturer's instructions, any insurance requirement and any
governmental rules and/or regulations.
 
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(j)    Principal Place of Business. Borrower shall maintain and keep its
principal place of business and its chief executive office at the address set
forth above, and at no other location without giving Lender at least thirty (30)
days prior written notice of any move. Borrower shall maintain and keep its
records concerning the Collateral at that address and at no other location
without giving Lender at least thirty (30) days prior written notice of any
move.
 
(k)  Guarantees and Contingent Liabilities. Borrower shall not at any time
directly or indirectly assume, guarantee, endorse or otherwise agree, become or
remain directly or contingently liable upon or with respect to any obligations
or liability of any other person or entity.
 
(1)   Dispositions of Assets. Borrower shall not sell, convey, assign, lease,
abandon or otherwise transfer or dispose of, voluntarily or involuntarily, the
Collateral or all or a substantial portion of its assets.
 
8.     Events Of Default, Rights And Remedies On Default.
 
(a)   Event of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
 
(i)     Borrower fails to pay any of the Note(s) or any of the installment(s)
thereunder on the due date thereof; or Borrower fails to make any other payment
due to Lender however arising on the due date thereof and such default continues
for five (5) days; or
 
(ii)    Borrower fails or neglects to perform or observe any other term,
covenant, warranty or representation contained in this Agreement or any other
Loan Document, which is required to be performed or observed by Borrower (other
than for the payment of money) and the same is not cured to Lender's reasonable
satisfaction within ten (10) days after the giving of notice by Lender to
Borrower of such failure; or
 
(iii)    The Collateral or a significant part of Borrower's other assets are
attached, seized, levied upon or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors and the same is not cured within ten (10) days
thereafter; or
 
(iv)   Any guarantor of the Obligations defaults under or otherwise breaches any
of the terms of his/her/its guaranty of the Obligations or any guarantor of the
Obligations fails or neglects to perform or observe any other term, covenant,
warranty or representation contained in any Loan Document executed by a
guarantor, which is required to be performed or observed by a guarantor (other
than a guaranty) and the same is not cured to Lender's reasonable satisfaction
within ten (10) days after the giving of notice by Lender to such guarantor of
such failure; or
 
(v)    Borrower breaches or defaults under the terms of any other agreement,
instrument or document with or for the benefit of Lender, including, without
limitation, promissory notes, guaranties, equipment leases and security
documents (including security agreements and deeds of trust); or
 
(vi)   Any guarantor of the Obligations breaches or defaults under the terms of
any other agreement, instrument or document with or for the benefit of Lender,
including, without limitation, promissory notes, guaranties, equipment leases
and security documents (including security agreements and deeds of trust); or
 
(vii)  An application is made by Borrower or by any person other than Borrower
for the appointment of a receiver, trustee or custodian for the Collateral or
any other of Borrower's assets and in the case of an application made by a third
party, the same is not dismissed within sixty (60) days after the application
therefor; or
 
(viii) A petition under any section or chapter of the Bankruptcy Code or any
similar law or regulation shall be filed by or against Borrower, and in the case
of any petition filed by any third party, such petition is not dismissed within
sixty (60) days of such filing, or Borrower makes an assignment for the benefit
of its creditors or any case or proceeding is filed by or against Borrower for
its dissolution, liquidation, or termination; or
 
(ix)    The indictment or threatened indictment of Borrower or any guarantor of
Borrower's Obligations under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any guarantor
of Borrower's Obligations pursuant to which the proceedings, penalties or
remedies sought or available include forfeiture of any of the property of
Borrower or of any guarantor; or
 
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(x)     Borrower sells, leases, assigns, conveys, abandons or otherwise
transfers or disposes of all or substantially all of its assets or a majority of
voting stock in Borrower is transferred; or
 
(xi)    Borrower ceases to conduct its business or is enjoined, restrained or in
any way prevented by court order from conducting all or any material part of its
business affairs, and/or Borrower dies or is declared incompetent if Borrower is
an individual; or
 
(xii)   Lender in good faith believes that either (i) the prospect of payment or
performance of the Obligations is impaired, or (ii) the Collateral is not
sufficient to secure fully any of the Obligations; or
 
(xiii)  There is an adverse change in the Collateral or in the business of
Borrower; or
 
(xiv) If any representations or warranties made or given either heretofore or
hereafter by Borrower in connection with this Agreement or the extension of
credit by Lender hereunder is false or misleading.
 
(b)    Remedies. Upon and after an Event of Default, Lender shall have the
following rights and remedies:
 
(i)     All of the rights and remedies of a secured party under the Uniform
Commercial Code or other applicable law, all of which rights and remedies shall
be cumulative, and nonexclusive, in addition to any other rights and remedies
contained in this Agreement or in any Loan Document or available to Lender in
law or in equity.
 
(ii)     All of the Obligations may, at the option of Lender and without
presentment, demand, notice, protest or legal process of any kind, be declared,
and immediately shall become, due and payable.
 
(iii)    Recover from Borrower, for loss of a bargain and not as a penalty, all
accrued but unpaid payments, interest and other monies due under the Note(s),
this Agreement and under any loan documents to the date Lender declares Borrower
in default under this Agreement with respect to each Note, plus the present
value of all future payments to be paid by Borrower under the Note(s) discounted
at the rate of three and one-half percent (3.5%) plus all other monies owing
hereunder, under each of the Notes or under any other loan documents, whether
then due or not.
 
(iv)   The right to enter upon the Location(s) and any other premises of
Borrower, or any other place or places where the Collateral is located and kept,
without any obligation to pay rent to Borrower, through self-help and without
judicial or other legal process, without first obtaining a final judgment or
giving Borrower notice and opportunity for a hearing on the validity of Lender's
claim, and remove the Collateral therefrom to the premises of Lender or any
agent of Lender, for such time as Lender may desire in order to effectively
collect or liquidate the Collateral. At Lender's request Borrower shall assemble
the Collateral and make it available to Lender at a place to be designated by
Lender, in its sole discretion.
 
(v)     The right to sell or otherwise dispose of all or any Collateral, in its
then condition or after any further manufacturing or processing thereof, at
public or private sale or sales, with such notice as may be required by law, in
lots or in bulk, for cash or on credit, all as Lender, in its sole discretion,
may deem advisable; such sales may be adjourned from time to time with or
without notice. Lender shall have the right to conduct such sales on Borrower's
premises or elsewhere and shall have the right to use Borrower's premises
without charge for such sales for such time or times as Lender may see fit.
Lender is hereby granted license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any matter, or any
property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral, and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit. Lender may
purchase all or any part of the Collateral at public or, if permitted by law,
private, sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Obligations. The proceeds realized from the
sale of any Collateral shall be applied first to the reasonable costs, expenses
and attorneys' fees and expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of the
Collateral, second to interest due upon any of the Obligations, and third to the
principal of the Obligations. If any deficiency shall arise, Borrower shall
remain liable to Lender therefor. If any excess shall arise, it shall be paid
over to Borrower.
 
(c)    Notice. Except as otherwise provided herein, any notice required
hereunder shall be in writing, and shall be deemed to have been validly served
if delivered by overnight courier, such as Federal Express, with delivery
charges prepaid, or by hand or by certified mail, return receipt requested, and
addressed to the intended party at its respective address set forth herein, or
at such other address as said party may provide in writing from time to time.
Such notice shall be deemed received, if sent by overnight courier, the next
day, if sent by hand, upon delivery and if sent by certified mail, three (3)
days after deposit with the U.S. Postal Service.
 
(d)    No Duty. Lender shall have no duty to collect or protect the Collateral
or any part thereof beyond exercising reasonable care in the custody of any
Collateral actually in the possession of Lender.
 
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9.     Miscellaneous
 
(a)   Payments. All payments under this Agreement and the Note(s) shall be made
by Borrower to Lender without defense, setoff or counterclaim and without
deduction for any present or future income, stamp or other taxes, levies,
imposts, deductions, charges or withholdings whatsoever imposed, assessed,
levied or collected by or for die benefit of any jurisdiction or taxing
authority. In addition, Borrower shall pay any and all taxes (stamp or
otherwise) payable or determined to be payable in connection with the execution
and delivery of this Agreement, the Note(s) and the other loan documents to be
delivered hereunder, and on all payments to be made by Borrower hereunder and
under the Note(s) (other than Lender's income taxes) and all taxes payable in
connection with or related to the Collateral. Borrower shall pay Lender a
transaction initiation fee equal to one-half of one percent (.5%) of the Loan
but not less than $100.00 nor more than $750.00. Borrower shall also pay Lender
a fee equal to the greater of (i) $25.00 or (ii) the actual bank charges to
Lender for each check of Borrower that is returned unpaid for any reason. All
payments due under this Agreement, any Note(s) or any other loan documents shall
be paid to Lender without notice or demand at its address set forth herein or
such other place as Lender directs in writing.
 
(b)   Further Assurances. Borrower shall at any time and from time to time upon
the written request of Lender, execute and deliver such further agreements,
instruments and documents and do such further acts and things as Lender may
reasonably request in order to effect the purposes of this Agreement.
 
(c)   Costs and Expenses. Borrower shall pay (or at Lender's option, reimburse
Lender for) all of Lender's fees, costs and expenses (including attorneys' fees
and costs) incurred in connection with the drafting, negotiation, closing and
enforcement of this Agreement, the Note(s) and the other loan documents.
Borrower shall also pay (or at Lender's option, reimburse Lender for) all
recording and filing fees and other costs and expenses incurred in connection
with the transactions contemplated by this Agreement.
 
(d)  Modification of Agreement: Sale of Interest. This Agreement, the Note(s)
and the other loan documents are the complete agreement of the parties with
respect to the subject matter hereof and thereof. This Agreement may not be
modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer this Agreement,
or any portion hereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and/or duties hereunder. ALL ORAL NEGOTIATIONS ARE
MERGED HEREIN. THERE ARE NO ORAL COVENANTS OR AGREEMENTS MADE BY EITHER PARTY
HERETO EXCEPT AS REDUCED TO WRITING HERETO. Borrower hereby consents to Lender's
sale, assignment, mortgaging, transfer or other disposition, without notice at
any time or times hereafter, of this Agreement, the Note(s) and/or other loan
documents or any portion hereof or thereof, including, without limitation,
Lender's rights, title, interests, remedies, powers, and/or duties hereunder or
thereunder. Borrower agrees that any assignee shall have all of the rights, but
none of the obligations, of Lender under the transferred documents.
 
(e)  Waiver by Lender. Lender's failure, at any time or times hereafter, to
require strict performance by Borrower of any provision of this Agreement shall
not waive, affect or diminish any right of Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver by Lender of any
Event of Default by Borrower under this Agreement shall not suspend, waive or
affect any other Event of Default by Borrower under this Agreement, whether the
same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement and no Event of Default
by Borrower under this Agreement shall be deemed to have been suspended or
waived by Lender, unless such suspension or waiver is by an instrument in
writing specifying such suspension or waiver and signed by an officer or other
authorized person of Lender and directed to Borrower.
 
(f)   Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or be invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of this Agreement.
 
(g)  Parties. This Agreement shall be binding upon Borrower and the heirs,
administrator, personal representative, successor and assigns of Borrower, and
shall inure to the benefit of Lender and its successors and assigns.
 
(h) Governing Law: Personal Jurisdiction: Service of Process. THIS AGREEMENT
SHALL BE DEEMED TO HAVE BEEN DELIVERED AT AND SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS CONFLICT OF LAW PROVISIONS.
BORROWER HEREBY IRREVOCABLY CONSENTS TO PERSONAL JURISDICTION AND VENUE IN ANY
COURT OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE STATE OF NEW
YORK, AND HEREBY WAIVES ANY CLAIM BORROWER MAY HAVE THAT SUCH COURT IS AN
INCONVENIENT FORUM FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF THIS AGREEMENT, THE NOTE(S), ANY OTHER INSTRUMENT OR ANY OF THE
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, WHICH IS BROUGHT
AGAINST BORROWER, AND HEREBY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT,
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN ANY SUCH COURT. BORROWER
FURTHER CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH ABOVE, SUCH SERVICE TO
BECOME EFFECTIVE THREE (3) DAYS AFTER SUCH MAILING.
 
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(i)    Waiver of Jury Trial. BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTE(S)
OR ANY AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION
HEREWITH OR THEREWITH.
 
(j)    Notice. Except as otherwise provided herein, any notice required
hereunder shall be in writing, and shall be deemed to have been validly served
if delivered by overnight courier, such as Federal Express, with proper postage
prepaid, or by hand or certified mail, return receipt requested, and addressed
to the party to be notified at the address of such party set forth in this
Agreement or to such other address as each party may designate for itself by
like notice. Such notice shall be deemed received, if sent by overnight courier,
the next day, if sent by hand, upon delivery and if sent by certified mail,
three (3) days after deposit with the U.S. Postal Service.
 
(k)   Section Titles, Definitions. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
"Closing Date" shall mean the date on which the Loan proceeds are disbursed to
or on behalf of Borrower by Lender.
 
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
specified at the beginning hereof.
 
LENDER: 
First Franchise Capital Corporation
 

 
By:
/s/ Andrea Miranda
 
Andrea Miranda
 
Title: 
Vice President
 

 
BORROWER: 
HEARTHSTONE PARTNERS, LLC
 
 
Hearthstone Associates, LLC - its Member
 

 
By:
/s/ Robert J. Dourney
 
Name:  Robert J. Dourney Title: Manager

 
 
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