**Exhibit 10.7**

 

**FORM OF**

**GLORIA JEAN’S**

**FRANCHISE AGREEMENT**

 

 
| **UNIT NO.:**   |   |   |   | **DATE:** |   |   |   |
|-----------------|--------|--------|--------|-----------|--------|--------|--------|
|            |   |   |
| **FRANCHISEE:** |   |   |   |      |
|                 |        |        |        |           |        |        |        |  |  |

 

----

 

**TABLEOF CONTENTS**

 
| 1.     | BUSINESS BACKGROUND AND PRELIMINARY AGREEMENTS         |
|--------|--------------------------------------------------------|
|   |                                                   |
| 2.     | GRANT  AND RENEWAL OF FRANCHISE                        |
|   | A.                                                     | GRANT OF FRANCHISE |
|   | B.                                                     | NON-EXCLUSIVITY |
|   | C.                                                     | RIGHT OF FIRST OPPORTUNITY |
|   | D.                                                     | TERM |
|   | E.                                                     | RENEWAL OF FRANCHISE |
|   | F.                                                     | MANNER OF RENEWAL |
|   |                                                   |   |
| 3.     | DEVELOPMENT AND OPENING OF STORE                       |
|   | A.                                                     | LEASE  OR SUBLEASE OF PREMISES OF STORE |
|   | B.                                                     | DEVELOPMENT OF THE STORE |
|   | C.                                                     | FIXTURES, EQUIPMENT, STOREFRONT, SUPPLIES  AND SIGNS |
|   | D.                                                     | STORE  OPENING |
|   | E.                                                     | TERMINATION  UPON FAILURE OF FRANCHISEE TO OPEN THE STORE |
|   | F.                                                     | GRAND OPENING PROGRAM |
|   |                                                   |   |
| 4.     | TRAINING  AND OPERATING ASSISTANCE                     |
|   | A.                                                     | TRAINING |
|   | B.                                                     | HIRING AND TRAINING OF EMPLOYEES BY FRANCHISEE |
|   | C.                                                     | OPERATING ASSISTANCE |
|   |                                                   |   |
| 5.     | OPERATING  MANUAL                                      |
|   |                                                   |
| 6.     | STORE IMAGE AND OPERATING STANDARD                     |
|   | A.                                                     | CONDITION AND APPEARANCE OF STORE |
|   | B.                                                     | ALTERATIONS  TO THE STORE |
|   | C.                                                     | REFURBISHING  THE STORE |
|   | D.                                                     | AUTHORIZED PRODUCTS |
|   | E.                                                     | APPROVED  BRANDS AND/OR SUPPLIES |
|   | F.                                                     | SUPPLIERS  OF COFFEE |
|   | G.                                                     | USE OF SUPPLIES IMPRINTED WITH NAMES AND MARKS |
|   | H.                                                     | STANDARDS  OF SERVICE |
|   | I.                                                     | DETERIORATED PRODUCTS AND COMPLAINTS |
|   | J.                                                     | SPECIFICATIONS,  STANDARDS AND PROCEDURES |
|   | K.                                                     | COMPLIANCE  WITH LAWS AND GOOD BUSINESS PRACTICES |
|   | L.                                                     | MANAGEMENT  OF THE STORE |
|   | M.                                                     | CONFLICTING  AND COMPETING INTERESTS |
|   | N.                                                     | INSURANCE |
|   |                                                   |   |
| 7.     | PROPRIETARY AND CONFIDENTIAL INFORMATION OF FRANCHISOR |
|   |                                                   |
| 8.     | ADVERTISING AND PROMOTION                              |
|   | A.                                                     | BY  FRANCHISOR |

 

i

----

 
|   | B.                                                          | MARKETING  FUND                                                                                   |
|--------|-------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|   | C.                                                          | BY  FRANCHISEE                                                                                    |
|   | D.                                                          | WEBSITE                                                                                           |
|   |                                                        |                                                                                              |
| 9.     | REPORTS, BOOKS AND RECORDS, INSPECTIONS                     |
|   | A.                                                          | GENERAL REPORTING                                                                                 |
|   | B.                                                          | INSPECTIONS                                                                                       |
|   | C.                                                          | AUDITS                                                                                            |
|   |                                                        |                                                                                              |
| 10.    | NAMES  AND MARKS                                            |
|   | A.                                                          | OWNERSHIP OF NAMES AND MARKS                                                                      |
|   | B.                                                          | LIMITATIONS  ON FRANCHISEE’S USE OF NAMES AND MARKS                                          |
|   | C.                                                          | NOTIFICATION  OF INFRINGEMENTS AND CLAIMS                                                         |
|   | D.                                                          | DISCONTINUANCE  OF USE OF NAME AND/OR MARKS                                                       |
|   | E.                                                          | INDEMNIFICATION  OF THE FRANCHISEE.                                                               |
|   |                                                        |                                                                                              |
| 11.    | INITIAL FRANCHISE FEE                                       |
|   |                                                        |
| 12.    | ROYALTY FEE                                                 |
|   | A.                                                          | AMOUNT OF ROYALTY FEE                                                                             |
|   | B.                                                          | DEFINITION  OF “GROSS SALES”                                                            |
|   | C.                                                          | PAYMENT OF ROYALTY FEE AND MARKETING FUND  CONTRIBUTION             |
|   | D.                                                          | INTEREST ON LATE PAYMENTS AND LATE FEES                                                           |
|   |                                                        |                                                                                              |
| 13.    | TERMINATION OF FRANCHISE                                    |
|   | A.                                                          | TERMINATION  BY FRANCHISEE                                                                        |
|   | B.                                                          | BY  FRANCHISOR                                                                                    |
|   | C.                                                          | RIGHT  OF FRANCHISOR TO DISCONTINUE PRODUCTS TO FRANCHISEE AFTER NOTICE OF DEFAULT  TO FRANCHISEE |
|   | D.                                                          | CROSS-DEFAULTS,  NON-EXCLUSIVE REMEDIES, ETC.                                                     |
|   |                                                        |                                                                                              |
| 14.    | FRANCHISEE’S OBLIGATION UPON TERMINATION OR EXPIRATION |
|   | A.                                                          | PAYMENT OF AMOUNTS OWED TO FRANCHISOR                                                             |
|   | B.                                                          | RETURN OF MANUALS.                                                                                |
|   | C.                                                          | CANCELLATION  OF ASSUMED NAMES AND TRANSFER OF PHONE NUMBERS.                                     |
|   | D.                                                          | FRANCHISOR  HAS RIGHT TO PURCHASE STORE.                                                          |
|   | E.                                                          | COVENANT  NOT TO COMPETE                                                                          |
|   | F.                                                          | CONTINUING  OBLIGATIONS                                                                           |
|   |                                                        |                                                                                              |
| 15.    | ASSIGNMENT,  TRANSFER AND ENCUMBRANCE                       |
|   | A.                                                          | BY  FRANCHISOR                                                                                    |
|   | B.                                                          | FRANCHISEE MAY NOT ASSIGN WITHOUT APPROVAL OF  FRANCHISOR           |
|   | C.                                                          | ASSIGNMENT TO PARTNERSHIP, LIMITED LIABILITY COMPANY OR CORPORATION                               |
|   | D.                                                          | FRANCHISOR’S RIGHT OF FIRST REFUSAL                                                          |
|   | E.                                                          | DEATH OR PERMANENT DISABILITY OF FRANCHISEE                                                       |
|   | F.                                                          | RELEASE, EFFECT OF TRANSFER                                                                       |

 

ii

----

 
| 16.    | DISPUTE RESOLUTION                              |
|--------|-------------------------------------------------|
|   | A.                                              | MEDIATION |
|   | B.                                              | ARBITRATION |
|   | C.                                              | WAIVER  OF PUNITIVE DAMAGES AND JURY TRIAL. |
|   | D.                                              | LIMITATION  OF CLAIMS. |
|   | E.                                              | CONSENT TO JURISDICTION. |
|   | F.                                              | SURVIVAL AND CONSTRUCTION |
|   | G.                                              | COSTS AND ATTORNEYS’ FEES |
|   | H.                                              | INJUNCTIVE  RELIEF |
|   | I.                                              | BINDING EFFECT, MODIFICATION AND  REPRESENTATIONS |
|   |                                            |   |
| 17.    | CONSTRUCTION,  ETC                              |
|   |                                            |
| 18.    | NON-RETENTION  OF FUNDS                         |
|   |                                            |
| 19.    | SEVERABILITY;  SUBSTITUTION OF VALID PROVISIONS |
|   |                                            |
| 20.    | WAIVERS                                         |
|   |                                            |
| 21.    | CHOICE  OF LAWS                                 |
|   |                                            |
| 22.    | ENTIRE  AGREEMENT                               |
|   |                                            |
| 23.    | INDEPENDENT CONTRACTORS AND INDEMNIFICATION     |
|   |                                            |
| 24.    | NOTICES                                         |
|   |                                            |
| 25.    | EFFECTIVE  DATE OF AGREEMENT                    |
|   |                                            |
| 26.    | ACKNOWLEDGMENTS                                 |

 

iii

----

 

**GLORIA JEAN’S®**

**FRANCHISE AGREEMENT**

 

This Agreementis made and entered into by and between Gloria Jean’s Gourmet CoffeesFranchising Corp., an Illinois corporation (“FRANCHISOR”), with its principaloffice at 2144 Michelson Drive, Irvine, California 92612, and                        (“FRANCHISEE”) whose principal address is                                                                             ..

 

**1.****                                      BUSINESS BACKGROUND AND PRELIMINARYAGREEMENTS**

 

FRANCHISOR andits affiliated company, Gloria Jean’s Gourmet Coffees Corp. (“GJGC Corp.”),have developed a full service store offering for retail sale bulk gourmetcoffees, teas, beverages, coffee and tea makers and related supplies,accessories and gifts.  These stores areknown as GLORIA JEAN’S COFFEES STORES (hereinafter referred to as a “GJCSTORE(S)”).  Most GJC STORES carrybeverages for immediate consumption on the premises, including coffee,espresso, cappuccino and tea.  Inaddition, some GJC STORES carry pastries, cookies and baked goods and haveseating areas.  FRANCHISOR and GJGCCorp. have also developed a kiosk concept and a cart concept, both offeringbeverages and certain other products offered by GJC STORES (hereinafterreferred to as a “GJC KIOSK(S)” and a “GJC CART(S)”).  (Unless otherwise specified, all references to GJC STORES hereininclude GJC KIOSKS and GJC CARTS.) Products authorized by FRANCHISOR for sale by GJC STORES are referred toherein as the “PRODUCTS.”  All such GJCSTORES are operated with uniform formats, signs, equipment, layout, systems,methods, procedures and designs which utilize a unique architectural design,offer uniform products, and utilize certain trademarks, service marks, tradedress and other commercial symbols, including “Gloria Jean’s Coffees” “GloriaJean’s Coffee Bean” and “Gloria Jean’s.” (Such trademarks, service marks and other commercial symbols arehereinafter referred to as the “Names and Marks.”)  GJC STORES operate at locations that feature a distinctive formatand method of doing business, including color scheme, signs, equipment,layouts, systems, methods, procedures, designs and marketing and advertisingstandards and formats (the “GLORIA JEAN’S System”), any element of whichFRANCHISOR can modify from time-to-time and with which FRANCHISEE will promptlycomply.

 

FRANCHISORgrants to qualified persons franchises to own and operate GJC STORES, GJCKIOSKS and GJC CARTS offering the PRODUCTS authorized and approved byFRANCHISOR and utilizing the GLORIA JEAN’S System and the Names and Marks.  FRANCHISEE has applied for a franchise toown and operate a GJC STORE, a GJC KIOSK or a GJC CART at the premisesidentified in Paragraph A of Section 2 below and such application has beenapproved by FRANCHISOR in reliance upon all of the representations madetherein.

 

FRANCHISEEacknowledges receiving and reading this Agreement and any addenda hereto andFRANCHISOR’s Uniform Franchise Offering Circular (with all exhibits) and hasbeen given an opportunity to clarify any provision FRANCHISEE did notunderstand. FRANCHISEE further acknowledges that he understands and accepts theterms, conditions and covenants contained in this Agreement as being reasonablynecessary to maintain FRANCHISOR’s high standards of quality and service andthe uniformity of those standards at all GJC STORES and thereby to protect andpreserve the goodwill of the Names and Marks.

 

----

 

**2.****                                      GRANT AND RENEWAL OF FRANCHISE**

 

**A****.****                                    GRANTOF FRANCHISE**

 

Subjectto the provisions of this Agreement, FRANCHISOR hereby grants to FRANCHISEE afranchise (the “FRANCHISE”) to operate a [ ] GJC STORE or [  ] GJC KIOSK or[  ] GJC CART (check one) (the “STORE”)and to use the Names and Marks and the GLORIA JEAN’S System during the Term (asdefined below) at the following location:                                                                                                                                                                             (the “Location”).  FRANCHISEE may not relocate the STORE for any purpose, including,without limitation, a temporary relocation for the purpose of remodeling,without prior written consent of FRANCHISOR. FRANCHISEE also may not sell any PRODUCTS at other locations or throughother channels of distribution without prior written consent of FRANCHISOR,including, without limitation, utilizing any computer media or electronic media(e.g., World Wide Web, Internet, Telnet, electronic mail, bulletin boards, FTP,newsgroup and the like).  Any attempt todo so shall be a material breach hereof.

 

FRANCHISEEacknowledges and agrees that FRANCHISOR’s approval of the Location does not constitutean assurance, representation or warranty of any kind, express or implied, as tothe suitability of the Location for a GJC STORE.  FRANCHISOR’s approval of the Location indicates only thatFRANCHISOR believes the Location complies with acceptable minimum criteriaestablished by FRANCHISOR solely for its purposes as of the time of theevaluation.  FRANCHISEE furtheracknowledges and agrees that its acceptance of a franchise for the operation ofa GJC STORE at the Location is based on its own independent investigation ofthe suitability of the site.  It shallbe the sole responsibility of FRANCHISEE to undertake site selection andotherwise secure premises for the STORE.

 

**B****.****                                    NON-EXCLUSIVITY**

 

The FRANCHISEis a “spot” franchise only and is awarded for a single location only.  FRANCHISEE does not have and has not paidfor, any “exclusive territory” or any “exclusive,” “protected” or “reserved”territorial or other rights, and no such rights are granted or will be inferred.  FRANCHISOR (on behalf of itself and itsaffiliates) retains all rights with respect to GJC STORES, the Names and Marks,the sale of PRODUCTS and any other products and services, anywhere in theworld, including, without limitation: (a) the right to operate or grant others the right to operate gourmetcoffee stores and/or other coffee beverage facilities under the Names and Marksor any other trademark at such locations as it deems appropriate regardless ofthe proximity to the STORE and on such terms and conditions as FRANCHISOR andits affiliates deem appropriate; (b) the right to roast, develop, wholesale,market, distribute and sell PRODUCTS through any channel of distribution(including, without limitation, mail order, the Internet, and wholesale) underor in association with the Names and Marks or any other trademark; and (c) theright to roast, develop, wholesale, market, distribute or sell any otherproduct or service or own or operate any other business under the Names andMarks or any other trademark.

 

2

----

 

**C****.****                                    RIGHTOF FIRST OPPORTUNITY**

 

If, during theterm of this Agreement, FRANCHISEE is in compliance with this Agreement andFRANCHISOR decides to establish and/or grant a franchisee the right toestablish a GJC STORE in the shopping mall in which the STORE is located,FRANCHISOR will give FRANCHISEE the opportunity to be considered for suchGJC STORE.  In those circumstances,FRANCHISOR will provide FRANCHISEE with notification of its intent, and mayrequire FRANCHISEE to submit to FRANCHISOR, within thirty (30) days afterFRANCHISOR’s notification, any information and material that FRANCHISOR thentypically considers in selecting franchisees and granting franchises in orderto determine whether FRANCHISEE’s application should be accepted. FRANCHISEEacknowledges the foregoing right of opportunity is only available if the STOREis located in a shopping mall and that FRANCHISOR’s obligation to considerFRANCHISEE for additional GJC STORES apply only with respect toGJC STORES to be located in the same shopping mall as the STORE.  In the event FRANCHISOR accepts FRANCHISEE’sapplication, FRANCHISEE must acquire an additional franchise for the operationof the GJC STORE by executing FRANCHISOR’s then current form of franchiseagreement and paying FRANCHISOR the then current initial franchise fee.

 

**D****.****                                    TERM**

 

Subject toearlier termination pursuant to Section 13, the term of this Agreement shallbegin on the effective date of this Agreement as provided in Section 25 and endon the ten (10) year anniversary of such effective date or the expiration ofthe initial term of the lease or sublease for the STORE, whichever shall firstoccur (the “Term”).

 

**E****.****                                      RENEWALOF FRANCHISE**

 

If uponexpiration of the initial term of the FRANCHISE: (1) FRANCHISEE has fully andcontinuously complied with this Agreement and all other agreements withFRANCHISOR (and/or any affiliate of FRANCHISOR), in each case without anydefaults, cured or uncured, during the Term; and (2) FRANCHISEE maintainspossession of the premises of the STORE and, prior to any renewal termbeginning, refurbishes, remodels, expands and otherwise brings the STORE andits operation into full compliance with all then-applicable standards(including then-applicable design standards, including equipment) applicable tofranchises awarded for new GJC STORES and in compliance with any lease orsublease requirements applicable to the STORE premises, then FRANCHISEE shallhave the right to renew the FRANCHISE for a single additional term for a periodof ten (10) years or the remaining term of the lease or sublease, whichever isless; provided, however, that in no event shall FRANCHISOR be obligated tonegotiate or obtain any renewal, extension or otherwise of any lease orsublease, or solicit or accept any proposal from the landlord (or otherperson/entity controlling the premises) for a renewal, extension or otherwiseof any lease or sublease, even if on the same terms and conditions as havepreviously been applicable to the premises.

 

Such renewalshall be with payment of a non-refundable (unless renewal is denied) renewalfranchise fee equal to fifty percent (50%) of FRANCHISOR’s then-current initialfranchise fee for a first GJC STORE franchise. FRANCHISEE (and its owners) must also

 

3

----

 

execute a general release in a form approvedby FRANCHISOR releasing any and all claims, liabilities and/or obligationsagainst FRANCHISOR and its affiliates, officers, directors, employees, agents,successors and assigns.

 

In connectionwith any renewal, FRANCHISEE must meet FRANCHISOR’s then-current qualificationand training requirements.  FRANCHISORmay require FRANCHISEE and/or any of its personnel to attend and successfullycomplete any retraining program(s), and at such times and location(s), asFRANCHISOR then specifies.  There willbe no charge for any retraining program(s), but FRANCHISEE will be responsiblefor all compensation, travel, meals, lodging and other expenses of itspersonnel.

 

**F****.****                                     ****MANNER OFRENEWAL**

 

Renewal of theFRANCHISE shall be effected by the execution by FRANCHISOR and FRANCHISEE ofFRANCHISOR’s then-current form of franchise agreement (which may provide forhigher royalty fees and advertising contributions and other significantprovisions of which may vary, but without any further term, successor franchiseor right of renewal), general releases and all other agreements and legalinstruments and documents then customarily used by FRANCHISOR in the grant offranchises for the ownership and operation of a GJC STORE.  FRANCHISEE agrees to notify FRANCHISOR notmore than nine (9) months nor less than six (6) months prior to expiration ofthe Term in writing of FRANCHISEE’s election to renew the FRANCHISE and pay therenewal fee at the same time.  If FRANCHISORrefuses to renew the FRANCHISE, FRANCHISOR shall state the reasons for itsrefusal.  Failure or refusal byFRANCHISEE to execute such agreements, instruments and documents necessary torenew the FRANCHISE within sixty (60) days after delivery thereof to FRANCHISEEshall be deemed an election by FRANCHISEE not to renew the FRANCHISE.

 

**3.****                                      DEVELOPMENT AND OPENING OF STORE**

 

**A.****                                   ****LEASE OR SUBLEASE****OFPREMISES OF STORE**

 

FRANCHISEEwill contemporaneously with the execution of this Agreement or such later datespecified by FRANCHISOR, lease or sublease the Location in the form and mannerprescribed by FRANCHISOR and deliver a copy of such lease or sublease toFRANCHISOR at least 15 days prior to the execution thereof.  FRANCHISOR has the right to review and approveany lease or sublease for the premises of the STORE.  FRANCHISEE agrees not to execute any lease or sublease which hasnot been approved in writing by FRANCHISOR. FRANCHISEE shall neither create nor purport to create any obligations onbehalf of FRANCHISOR, not grant or purport to grant to the landlord thereunderany rights against FRANCHISOR, nor agree to any other term, condition, orcovenant which is inconsistent with any provision of this Agreement.  The lease obtained by FRANCHISEE shall becollaterally assigned to FRANCHISOR pursuant to the terms of FRANCHISOR’sstandard collateral assignment of lease form, to secure the performance byFRANCHISEE of its obligations hereunder. The lease or sublease for the premises of the STORE shall contain substantiallythe following provisions:

 

4

----

 

(1)           “Anything contained in this lease tothe contrary notwithstanding, Lessor agrees that, without its consent, thislease and the right, title and interest of the Lessee hereunder, may beassigned by the Lessee to Gloria Jean’s Gourmet Coffees Franchising Corp. orits designee; provided that said corporation shall execute such documentsevidencing its agreement to thereafter keep and perform, or cause to be keptand performed, all of the obligations of the Lessee arising under this leasefrom and after the time of such assignment.”

 

(2)           “Lessee hereby agrees that Lessormay, upon the written request of Gloria Jean’s Gourmet Coffees FranchisingCorp., disclose to said corporation all reports, information or data inLessor’s possession with respect to sales made in, upon or from the leasedpremises.”

 

(3)           “Lessor shall give written notice toGloria Jean’s Gourmet Coffees Franchising Corp. concurrently with the giving ofsuch notice to Lessee of any default or non-renewal by Lessee under the leaseand the said corporation shall have, after the expiration of the period duringwhich the Lessee may cure such default, an additional fifteen (15) days tocure, at its sole option, any such default.”

 

(4)           “Gloria Jean’s Gourmet CoffeesFranchising Corp. or its designee will have an option, without cost or expenseto Gloria Jean’s Gourmet Coffees Franchising Corp. or its designee, to assumethe lease upon termination or expiration of the Franchise Agreement for anyreason.”

 

The lease may not contain any non-competitioncovenant which purports to restrict FRANCHISOR, its affiliates or any ofFRANCHISOR’s franchisees or licensees from operating a GJC STORE or any otherretail establishment.

 

**B.****                                   ****DEVELOPMENTOF THE STORE**

 

Following theeffective date and prior to any construction or renovation of the STORE,FRANCHISOR shall provide FRANCHISEE with copies of FRANCHISOR’s standardspecifications for the design and layout of a typical GJC STORE and requiredleasehold improvements.  FRANCHISEEshall, in all respects, comply with all such specifications and criteria unlessFRANCHISOR shall, in writing, agree to modifications thereof.  FRANCHISEE shall employ licensed architects,engineers and general contractors, at its sole cost and expense, to preparesuch architectural, engineering and construction drawings and site plans(collectively referred to as the “Constructions Documents”), and/or to modifythe standard Construction Documents which may be provided by FRANCHISOR; and to obtain all permits required toconstruct, remodel, renovate, and/or equip the STORE.  All such Construction Documents, and all modifications andrevisions thereto, shall be submitted to FRANCHISOR for its prior review andapproval before FRANCHISEE’s commencement of construction pursuantthereto.  FRANCHISOR may, from time totime, provide a list of recommended architects and/or general contractors.

 

Whencompleted, the STORE shall in all respects strictly comply with FRANCHISOR’sspecifications therefor, as modified or revised if applicable with FRANCHISOR’sprior written consent.  FRANCHISEE mustsubmit to FRANCHISOR one (1) set of “Project Record Drawings” within sixty (60)days of the STORE opening.  “Project

 

5

----

 

Record Drawings” are hereby defined as theset of Construction Documents that are marked to show the changes made in thefield, with particular attention paid to the information on concealed elements(e.g. underground utilities) that cannot be readily identified at a latertime.  Such drawings should be clearlymarked as “Project Record Drawings.”

 

**C.****                                   ****FIXTURES****, EQUIPMENT, STOREFRONT, SUPPLIES AND SIGNS**

 

FRANCHISEEagrees to use in the operation of the STORE those fixtures, items of equipment,supplies and signs that FRANCHISOR has approved for a GJC STORE as meeting itsspecifications and standards for appearance, function, design, quality andperformance.  FRANCHISEE further agreesto place or display at the premises of the STORE (interior and exterior) onlysuch signs, emblems, lettering, logos and display materials that are from timeto time approved in writing by FRANCHISOR. If FRANCHISEE proposes to purchase, lease or otherwise use any fixture,equipment, supply or sign which is not then approved by FRANCHISOR, FRANCHISEEshall first notify FRANCHISOR in writing and shall submit to FRANCHISORsufficient specifications, photographs, drawings and/or other information orsamples for a determination by FRANCHISOR of whether such fixture, equipment,supply or sign complies with its specifications and standards, whichdetermination shall be made and communicated in writing to FRANCHISEE within areasonable time.

 

**D.****                                   ****STORE OPENING**

 

FRANCHISEEagrees to use its best efforts to merchandise the STORE as soon as possibleafter obtaining possession of the STORE premises and to open the STORE forbusiness and commence the conduct of its business by the period required byFRANCHISEE’s lease or sublease or, if sooner, within five (5) days after noticefrom FRANCHISOR that it is in suitable condition therefor.  FRANCHISOR may, as it may so deemappropriate, supply an employee who will for a period up to seven (7) daysassist FRANCHISEE in the opening of the STORE.

 

**E.****                                     ****TERMINATION****UPON FAILURE OF FRANCHISEE TO OPENTHE STORE**

 

If FRANCHISEEfails to lease or sublease the STORE premises as required by Paragraph A ofthis Section 3, or fails to proceed with the merchandising of the STORE asrequired by or fails to open the STORE by the date required in Paragraph E ofthis Section 3,  FRANCHISOR, at its soleoption, shall have the right to terminate this Agreement effective upon givingwritten notice to FRANCHISEE.

 

**F.****                                     ****GRAND****OPENING PROGRAM**

 

FRANCHISEEagrees to spend between One Thousand Dollars ($1,000.00) and Four ThousandDollars ($4,000.00) to conduct grand opening advertising and promotions, suchadvertising and promotions (which must be approved in advance in writing byFRANCHISOR) to occur within the four (4) month period following the opening ofthe STORE for business.

 

6

----

 

**4.****                                     ****TRAINING AND****OPERATING ASSISTANCE**

 

**A.****                                   ****TRAINING**

 

Prior to theopening of the STORE, FRANCHISOR shall furnish and FRANCHISEE (or the ManagingOwner (as defined in Section 6.L) if FRANCHISEE is a business entity) shallattend and complete to FRANCHISOR’s satisfaction a training program on theoperation of a GJC STORE, furnished at such time and place as FRANCHISOR maydesignate.  Such training will be givenby FRANCHISOR without charge; provided that FRANCHISEE shall be solelyresponsible for the compensation of the trainees as well as such trainees’travel, lodging and personal expenses. Such****training will consist of and four (4) to five (5) weeks of instore training, three (3) days of classroom training, and such additional daysas FRANCHISOR may elect of training.** **IfFRANCHISEE (or the Managing Owner) fails to complete training to FRANCHISOR’ssatisfaction, FRANCHISOR may require such person to undergo further training byFRANCHISOR at a time scheduled by FRANCHISOR, until FRANCHISOR is satisfiedthat FRANCHISEE (or the Managing Owner) has satisfactorily completed thetraining course.  In such event,FRANCHISEE shall advance or reimburse, at FRANCHISOR’s option, all direct andindirect costs and expenses that FRANCHISOR may incur for the wages, lodging,subsistence and travel of FRANCHISOR’s personnel for the duration of theextended training and shall pay FRANCHISOR the then-current standard trainingfee charged by FRANCHISOR.

 

**B.****                                   ****HIRING AND TRAINING****OFEMPLOYEES BY FRANCHISEE**

 

FRANCHISEEshall hire all employees of the STORE, be exclusively responsible for the termsof their employment and compensation and implement a training program foremployees of the STORE in compliance with FRANCHISOR’s standards.  FRANCHISEE agrees to maintain at all times astaff of trained employees sufficient to operate the STORE in compliance withFRANCHISOR’s standards.  FRANCHISEEagrees that all management personnel hired by FRANCHISEE may be required tosign an agreement containing non-competition and confidential informationcovenants substantially similar to those contained in Paragraph E ofSection 14 and in Section 7 herein.

 

**C.****                                   ****OPERATING ASSISTANCE**

 

FRANCHISORwill advise FRANCHISEE from time to time of operating problems of the STOREdisclosed by reports submitted to or inspections made by FRANCHISOR.  Further, FRANCHISOR will furnish toFRANCHISEE such assistance in connection with the operation of the STORE as isfrom time to time deemed appropriate by FRANCHISOR.  Operating assistance may consist of advice and guidance withrespect to:

 

(1)           methods and operating proceduresutilized by a GJC STORE or the STORE;

 

(2)           additional products and servicesauthorized for a GJC STORE;

 

(3)           purchasing of PRODUCTS and supplies;

 

7

----

 

(4)           formulating and implementingadvertising, merchandising and promotional programs; and

 

(5)           the establishment of administrative,bookkeeping, accounting, inventory control, sales training and generaloperating procedures for the proper operation of a GJC STORE.

 

FRANCHISEEunderstands and agrees that all advice and guidance provided by FRANCHISOR isonly supportive of the operation of the STORE and that the overall success ofthe STORE is primarily dependent upon FRANCHISEE’s business abilities andefforts.  FRANCHISOR will not chargeFRANCHISEE for such operating assistance unless such operating assistance ismade necessary by FRANCHISEE’s failure to comply with this Agreement or ifFRANCHISEE requests operating assistance in excess of what is normally providedby FRANCHISOR.  Any such charges will bereasonable and payable upon FRANCHISEE’s receipt of an invoice for the same.

 

**5.****                                     ****OPERATING MANUAL**

 

                FRANCHISOR will loan to FRANCHISEE during the term of the FRANCHISE onecopy of an operating manual, which consists of one or more manuals (hereinafterreferred to as the “OPERATING MANUAL”), for a GJC STORE containing mandatoryand suggested specifications, standards and operating procedures prescribedfrom time to time by FRANCHISOR for a GJC STORE and information relative toother obligations of FRANCHISEE hereunder. FRANCHISOR shall have the right to add to and otherwise modify theOPERATING MANUAL from time to time to reflect changes in the type or quantityof authorized PRODUCTS, standards of service or product quality, the operationof a GJC STORE or to meet competition. Any such addition or modification takes precedence over all priorcommunications and in the event of a dispute, the master OPERATING MANUALmaintained at FRANCHISOR’s office shall control.  The provisions of the OPERATING MANUAL as modified from time totime by FRANCHISOR and communicated to FRANCHISEE constitute provisions of thisAgreement and as such are binding upon FRANCHISEE.  The OPERATING MANUAL contains proprietary information ofFRANCHISOR and FRANCHISEE agrees to keep the OPERATING MANUAL and informationcontained therein confidential at all times during and after the term of theFRANCHISE.

 

**6.****                                     ****STORE IMAGE AND OPERATING****STANDARD**

 

**A.****                                   ****CONDITION AND APPEARANCE****OF STORE**

 

FRANCHISEEagrees to maintain the condition and appearance of the STORE consistent withthe image of a GJC STORE as an attractive, clean, convenient and efficientlyoperated specialty shop offering high quality PRODUCTS and efficient andcourteous service, and pleasant ambiance. FRANCHISEE agrees to effect such maintenance of the STORE as isreasonably required from time to time to maintain such condition, appearanceand efficient operation, including, without limitation, replacement of worn outor obsolete fixtures, equipment and signs, repair of the interior and exteriorof the STORE and periodic cleaning and decorating or as is required byFRANCHISEE’s lease or sublease. FRANCHISEE shall also replace and/or

 

8

----

 

add additional fixtures and equipment whichFRANCHISOR at a later day may require to be installed in all the GJCSTORES.  If at any time in FRANCHISOR’sreasonable judgment the general state of repair, appearance or cleanliness ofthe premises of the STORE or its fixtures, equipment or signs does not meetFRANCHISOR’s standards therefor, FRANCHISOR shall so notify FRANCHISEE,specifying the action to be taken by FRANCHISEE to correct suchdeficiency.  If FRANCHISEE fails orrefuses to initiate within fifteen (15) days after receipt of such notice orsuch lesser period required by the lease or sublease, and thereafter continue abona fide program to undertake and complete any such required maintenance,FRANCHISOR shall have the right (in addition to its rights under Section 13),but shall not be obligated, to enter upon the premises of the STORE and effectsuch repairs, painting and replacement of fixtures, equipment or signs onbehalf of FRANCHISEE and FRANCHISEE shall pay the entire costs therefor toFRANCHISOR on demand.

 

**B.****                                   ****ALTERATIONS TO****THE STORE**

 

FRANCHISEEshall make no material alterations to the leasehold improvements or appearanceof the STORE nor shall FRANCHISEE make any material replacements of oralterations to the fixtures, equipment or signs of the STORE without priorwritten approval by FRANCHISOR and any approval that may be necessary under thelease or sublease for the premises.

 

**C.****                                   ****REFURBISHING THE****STORE**

 

AtFRANCHISOR’s request, which shall not be more than once every five (5) years,FRANCHISEE shall refurbish the STORE at its own expense to conform to thebuilding design, trade dress, color schemes, and presentation of the Names andMarks in a manner consistent with the image then in effect for new GJC STORESunder the GLORIA JEAN’S System, including, without limitation, remodeling,redecoration, structural changes, and modifications to existing improvementsand equipment.

 

**D.****                                   ****AUTHORIZED PRODUCTS**

 

Thepresentation of a uniform image to the public and the offering of uniformproduct lines is an essential element of a successful franchise system.  FRANCHISEE therefore agrees that the STOREwill offer brands and types of PRODUCTS and services from time to timespecified by FRANCHISOR.  FRANCHISEEfurther agrees that the STORE will not, without prior written approval byFRANCHISOR, offer any other products or services nor shall the STORE or thepremises which it occupies be used for any purpose other than the operation ofa GJC STORE in compliance with this Agreement and FRANCHISEE’s lease orsublease for the premises.

 

**E.****                                     ****APPROVED BRANDS****AND/OR SUPPLIES**

 

The reputationand goodwill of GJC STORES is based upon, and can be maintained only by, thesale of high-quality products. FRANCHISEE therefore agrees that the STORE will only offer for saleauthorized PRODUCTS as specified by FRANCHISOR and other products approved forthe STORE from time to time as being acceptable and from approvedsuppliers.  The term PRODUCTS as used inthis Agreement, include all products

 

9

----

 

hereafter approved and/or developed byFRANCHISOR.  FRANCHISOR may from time totime modify the list of approved brands and/or suppliers and FRANCHISEE shallnot, after receipt in writing of such modification, reorder any brand or fromany supplier which has been determined to be no longer of acceptablequality.  Subject to Section 6.F.below, if FRANCHISEE proposes to sell any product of a brand which has not beenapproved as being acceptable or from a supplier which has not been approved, itshall first notify FRANCHISOR in writing and submit sufficient photographs,drawings, specifications, samples and/or other information concerning theproduct and/or the supplier and FRANCHISOR shall, within a reasonable time,notify FRANCHISEE in writing whether or not such proposed brand and/or suchproposed supplier is acceptable. FRANCHISOR may approve a supplier for any PRODUCTS and may approve asupplier only as to certain PRODUCTS. FRANCHISOR may concentrate purchases with one or more suppliers toobtain lower prices and/or the best advertising support and/or services for agroup of GJC STORES owned or franchised by FRANCHISOR or its affiliates.  FRANCHISOR and its affiliates reserve theright to receive revenue from approved suppliers based on transactions withfranchisees and FRANCHISOR (or its affiliate). Approval of a supplier may be conditioned on requirements related to thefrequency of delivery, standards of service, including prompt attention tocustomer complaints, consistency and reliability and may be temporary pending afurther evaluation of such supplier by FRANCHISOR.  FRANCHISOR will require any supplier applying for approval toallow FRANCHISOR or its affiliates to inspect the proposed supplier’sfacilities to assist FRANCHISOR in determining if the proposed supplier meetsFRANCHISOR’s criteria.  FRANCHISEE shallat all times maintain an adequate and representative inventory of PRODUCTS,sufficient in quality, quantity and variety, to satisfy customer demand andrealize the full potential of the STORE, as prescribed from time to time byFRANCHISOR.  The inventory of the STOREshall contain a representative number of each “Gloria Jean’s” brand or otherprivate brands of FRANCHISOR which shall be given representative displayarea.  FRANCHISOR shall not have anyliability to FRANCHISEE if FRANCHISOR is at any time unable for any reason tooffer any “Gloria Jean’s” brand or other brand of PRODUCTS for purchase byFRANCHISEE or at competitive prices. Certain PRODUCTS may be offered by an affiliate of FRANCHISOR.

 

**F.****                                      SUPPLIERS OF COFFEE**

 

In recognitionthat the quality and uniformity of the coffee carried by GJC STORES are ofparamount importance to the reputation and goodwill of GJC STORES, FRANCHISEEmust purchase all coffee offered at the STORE from GJGC Corp.  In the event GJGC Corp. ceases supplyingFRANCHISEE with coffee, FRANCHISOR will designate another supplier or suppliersof coffee.  In such event, FRANCHISEEmay propose a supplier to FRANCHISOR in accordance with the procedure forobtaining approval of suppliers with respect to other PRODUCTS offered byFRANCHISEE, set forth in Section 6.E. above.  In addition to the criteria listed in Section 6.E. aproposed supplier must also meet FRANCHISOR’s criteria as to the size of thecoffee bean, the method of preparation of the bean, the region of origin of thebean, the quality of flavoring used in bean preparation the consistency of beancolor and moisture content after roasting, the type of packaging and the typeof roaster used.  FRANCHISOR willrequire any supplier applying for approval to allow FRANCHISOR or itsaffiliates to inspect the proposed supplier’s roasting facilities and greenbean purchase contracts to assist FRANCHISOR in determining if the proposedsupplier meets FRANCHISOR’s criteria.

 

10

----

 

**G.****                                    USE OF SUPPLIES IMPRINTED WITH NAMESAND MARKS**

 

FRANCHISEEshall in the operation of the STORE use displays, boxes, bags, paper, forms,packaging materials, labels and other paper and plastic products and suppliesimprinted with the Names and Marks as prescribed from time to time byFRANCHISOR.

 

**H.****                                    STANDARDS OF SERVICE**

 

The STOREshall at all times give prompt, courteous and efficient service to itscustomers.  FRANCHISEE and the STOREshall in all dealings with customers, suppliers and the public adhere to thehighest standards of honesty, integrity, fair dealing and ethical conduct.

 

**I.****                                         DETERIORATED PRODUCTS AND COMPLAINTS**

 

FRANCHISEEshall not advertise, offer for sale or sell any damaged, molded or deterioratedPRODUCTS or PRODUCTS which are “out of date” as provided in the OPERATINGMANUAL or as specified on the PRODUCT itself. All damaged, molded, deteriorated or “out of date” PRODUCTS shall bewithdrawn from sale and removed from the STORE.  All reasonable complaints by customers shall be honored pursuantto the policy set forth in the OPERATING MANUAL.

 

**J.****                                      SPECIFICATIONS, STANDARDS AND PROCEDURES**

 

FRANCHISEEagrees to comply with all mandatory specifications, standards and operatingprocedures (whether contained in the OPERATING MANUAL or any other document ornotice) relating to the operation of a GJC STORE and the STORE, including,without limitation, those relating to:

 

(1)           type, quality and shelf life ofPRODUCTS offered;

 

(2)           PRODUCT dating programs, includingremoval of “out of date” PRODUCT;

 

(3)           merchandising techniques;

 

(4)           the safety, maintenance, cleanliness,function and appearance of the STORE premises and its fixtures, equipment andsigns;

 

(5)           uniforms and aprons to be worn by andgeneral appearance of STORE employees;

 

(6)           use of Names and Marks;

 

(7)           hours during which the STORE will beopen for business;

 

(8)           use and retention of standard forms;

 

(9)           use and illumination of signs,posters, displays, standard formats and similar items; and

 

11

----

 

(10)         identification of FRANCHISEE as theowner of the STORE.

 

Mandatoryspecifications, standards and operating procedures prescribed from time to timeby FRANCHISOR in the OPERATING MANUAL or otherwise communicated to FRANCHISEEin writing, shall constitute provisions of this Agreement as if fully set-forthherein.  All references herein to thisAgreement shall include all such mandatory specifications, standards andoperating procedures.  Though FRANCHISORretains the right to establish and periodically modify such mandatoryspecifications, standards and operating procedures which FRANCHISEE has agreedto maintain in the operation of the STORE, FRANCHISEE retains the right andsole responsibility for the day-to-day management and operation of the STOREand the implementation and maintenance of such mandatory specifications,standards and operating procedures at the STORE.

 

**K.****                                    COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES**

 

FRANCHISEEshall secure and maintain in force all required licenses, permits andcertificates relating to the operation of the STORE and shall operate the STOREin full compliance with all applicable laws, ordinances and regulations,including, without limitation, all government regulations relating to handlingof food products, occupational hazards and health, worker’s compensationinsurance, unemployment insurance and withholding and payment of federal, stateand local income taxes, social security taxes and sales taxes.  All advertising and promotion by FRANCHISEEshall be completely factual and shall conform to the highest standards ofethical advertising.  FRANCHISEE agreesto refrain from any business or advertising practice which may be injurious tothe business of FRANCHISOR and the goodwill associated with the Names and Marksand other GJC STORES.

 

**L.****                                     MANAGEMENT OF THE STORE**

 

The STOREshall be managed by FRANCHISEE.  IfFRANCHISEE is a corporation, partnership or limited liability company, one ofthe owners of FRANCHISEE must be designated as the “Managing Owner” who must bea natural person who owns and controls not less than ten percent (10%) of theequity and voting power of FRANCHISEE. FRANCHISEE (or the Managing Owner) musthave at least two (2) years of retail or restaurant management experience.  FRANCHISEE (or the Managing Owner) mustcomplete, to the satisfaction of FRANCHISOR, the training program.  If FRANCHISEE (or the Managing Owner) hascompleted the franchise training, FRANCHISEE shall be qualified to train itsmanagers.  If and in the eventFRANCHISOR, in its sole discretion, determines that the FRANCHISEE (or theManaging Owner) is not properly performing his duties, FRANCHISOR shall adviseFRANCHISEE and FRANCHISEE shall take such corrective measures as are necessaryto immediately rectify the situation. FRANCHISEE shall keep FRANCHISOR informed at all times of the identityof any Managing Owner(s) of the STORE.

 

**M.****                                  CONFLICTING AND COMPETING INTERESTS**

 

FRANCHISEEagrees that FRANCHISEE will at all times faithfully, honestly and diligentlyperform its obligations hereunder, that it will continuously exert its bestefforts to promote and enhance the business of the STORE and that it will notengage in any business or

 

12

----

 

other activity that will conflict with itsobligations hereunder.  FRANCHISEE shallnot divert elsewhere any trade, commerce or business which ordinarily would betransacted by FRANCHISEE in or from the STORE and to this end, FRANCHISEE shallnot at any time sell or rent to anyone any list of customers or permit the useof such list by anyone for any purpose other than the mailing of advertisingmaterial for the STORE.  FRANCHISEEfurther agrees that neither FRANCHISEE nor any of its owners (through a memberof the immediate family of FRANCHISEE or an owner of FRANCHISEE or otherwise)will, during the term of the FRANCHISE, have any interest as an owner of(except of publicly-traded securities or interests in other GJC STORES pursuantto other franchise agreements with FRANCHISOR or its affiliates), or assist orperform services as a director, officer, employee, consultant, representative,agent, or in any other capacity for, any other business principally offeringproducts substantially similar to the PRODUCTS then being offered by themajority of the GJC STORES, nor will they have any interest, as aforesaid, inany entity which franchises or otherwise grants to others the right to sellproducts similar to the PRODUCTS then being offered by the majority of the GJCSTORES.

 

**N.****                                    INSURANCE**

 

FRANCHISEEshall obtain and maintain insurance coverage with an insurance company approvedby FRANCHISOR, which approval shall not be unreasonably withheld as follows:

 

(1)           comprehensive general liabilityinsurance (including products liability); with coverage of $2,000,000.00 to$4,000,000.00 combined single limit for death, personal injury, and $100,000.00property damage coverage;

 

(2)           business liability annual aggregatecoverage of $4,000,000;

 

(3)           business interruption insurance,including Continuing Royalty coverage, for 12 months after casualty, in amountsequal to at least $150,000;

 

(4)           workers’ compensation insurancecoverage of $1,000,000 per employee, $1,000,000 per accident, $1,000,000 perdisease; and

 

(5)           windstorm, fire, and extendedcoverage insurance, insuring the construction of improvements and completedSTORE operated by FRANCHISEE, for the full replacement value thereof.

 

In the eventof damage to the STORE covered by insurance, the proceeds of any such insuranceshall be used to restore the STORE to its original condition (but in accordancewith FRANCHISOR’s then-current standards and specifications) as soon aspossible, unless such restoration is prohibited by the lease or FRANCHISOR hasotherwise consented to in writing. FRANCHISEE shall promptly provide to FRANCHISOR proof of such insurancecoverage upon the obtaining of such insurance, and at such other times upon therequest of FRANCHISOR.

 

FRANCHISEEshall, prior to opening the STORE, file with FRANCHISOR, certificates of suchinsurance and shall promptly pay all premiums on the policies as they becomedue. All such liability insurance policies shall name FRANCHISOR and itsaffiliates as

 

13

----

 

additional insureds.  In addition, the policies shall contain aprovision requiring 30 days prior written notice to FRANCHISOR of any proposedcancellation, modification, or termination of insurance.  If FRANCHISEE at any time fails or refusesto maintain in effect any insurance coverage required by FRANCHISOR, or tofurnish satisfactory evidence thereof, FRANCHISOR, at its option and inaddition to its other rights and remedies hereunder, may, but need not, obtainsuch insurance coverage, on behalf of FRANCHISEE, and FRANCHISEE shall promptlyexecute any applications or other forms or instruments required to obtain anysuch insurance and pay to FRANCHISOR, on demand, any costs and premiumsincurred by FRANCHISOR.

 

**7.****                                      PROPRIETARY AND CONFIDENTIALINFORMATION OF FRANCHISOR**

 

FRANCHISEEacknowledges and agrees that FRANCHISOR possesses certain confidential andproprietary information in which FRANCHISOR possesses valuable industrial andintellectual property rights consisting of the methods, techniques, formats,specifications, procedures, information, systems, methods of businessmanagement, sales and promotion techniques and knowledge of and experience inthe operation and franchising of GJC STORES (the “ConfidentialInformation”).  FRANCHISOR will disclosesuch parts of the Confidential Information as are required for the operation ofa GJC STORE to FRANCHISEE in furnishing FRANCHISEE the training program, theOPERATING MANUAL and in guidance furnished to FRANCHISEE during the term of theFRANCHISE.

 

FRANCHISEEacknowledges and agrees that it will not acquire any interest in theConfidential Information, other than the right to utilize it in the developmentand operation of the STORE during the term of the FRANCHISE, and that the useor duplication of the Confidential Information in any other business wouldconstitute an unfair method of competition with FRANCHISOR and other GJC STOREfranchisees.  FRANCHISEE acknowledgesthat the Confidential Information is disclosed to FRANCHISEE solely on thecondition that FRANCHISEE agrees, and FRANCHISEE does hereby agree, thatFRANCHISEE (and each of its owners, if the FRANCHISEE is a company, partnershipor limited liability company): (1) will not use the Confidential Information in any other businessor capacity; (2) will maintain the absolute confidentiality of theConfidential Information during and after the term of this Agreement;(3) will not make unauthorized copies of any portion of the ConfidentialInformation disclosed in written form; and (4) will adopt and implementall reasonable procedures prescribed from time to time by FRANCHISOR to preventunauthorized use or disclosure of the Confidential Information, includingwithout limitation, requiring (a) all owners, officers, directors, managingmembers, and full time managers of FRANCHISEE and any other employee ofFRANCHISEE designated by FRANCHISOR to execute confidentiality andnon-competition agreements in the form attached hereto as Exhibit B (the“Confidentiality and Non-Competition Agreement”) and (b) any other person whowill have access to Confidential Information to execute confidentialityagreements in the form attached hereto as Exhibit C (the “ConfidentialityAgreement”).

 

Notwithstandinganything to the contrary contained in this Agreement, the restrictions onFRANCHISEE’s disclosure and use of the Confidential Information shall not applyto (a) information, processes or techniques which are or become generallyknown by operators of businesses that are competitive with franchisees ofFRANCHISOR, other than through

 

14

----

 

disclosure (whether deliberate orinadvertent) by FRANCHISEE; or (b) disclosure of Confidential Informationin judicial, arbitral or administrative proceedings to the extent FRANCHISEE islegally compelled to disclose such information, provided FRANCHISEE shall haveused its best efforts, and shall have afforded FRANCHISOR the opportunity, toobtain an appropriate protective order or other assurance satisfactory toFRANCHISOR of confidential treatment for the information required to be sodisclosed.

 

All ideas,concepts, techniques or materials relating to a GJC STORE, whether or not protectableintellectual property and whether created by or for FRANCHISEE or FRANCHISEE’semployees, must be promptly disclosed to FRANCHISOR and will be deemed to beFRANCHISOR’s sole and exclusive property, part of the GLORIA JEAN’S System, andworks made-for-hire for FRANCHISOR.  Tothe extent any item does not qualify as a “work made-for-hire” for FRANCHISOR,by this paragraph FRANCHISEE assigns ownership of that item and all relatedrights to that item, to FRANCHISOR and agrees to sign whatever assignment orother documents FRANCHISOR requests to evidence FRANCHISOR’s ownership or tohelp FRANCHISOR obtain intellectual property rights in the item.

 

**8.****                                      ADVERTISING AND PROMOTION**

 

**A.****                                    BY FRANCHISOR**

 

FRANCHISORwill develop, prepare and offer to FRANCHISEE (with or without charge) suchposters, ad formats, direct mail, point of sale and other advertising materialsfor the STORE as FRANCHISOR deems appropriate and will implement a marketingprogram as described below.  FRANCHISEEshall be required to participate in all advertising and/or promotionalcampaigns which FRANCHISOR may establish.

 

**B.****                                    MARKETING FUND**

 

FRANCHISOR’sexperience and business judgment is that a unified marketing program, on both alocal and broader level, is an essential factor in the potential success of allGJC STORES, to achieve top-of-mind awareness in potential customers, to buildand retain goodwill associated with the Name and Marks thereby hopefullybenefiting all GJC STORE operators, to create improved brand loyalty among newand future customers and to achieve a favorable retail position for all GJCSTORES.  To maximize the possibility ofobtaining these goals, FRANCHISOR and FRANCHISEE have agreed to a marketingprogram as follows:

 

(1)           FRANCHISOR has instituted anadvertising, publicity and marketing fund (the “Marketing Fund”) for suchadvertising, advertising-related, marketing and/or public relations programs,services and/or materials as FRANCHISOR may deem necessary or appropriate topromote GJC STORES.  The Marketing Fundmay be combined with any marketing fund otherwise established for GJC STORESand the funds merged for use in accordance with this Agreement.  FRANCHISEE will contribute to the MarketingFund two percent (2%) of the gross sales of the STORE (as defined in Paragraph Bof Section 13), payable as provided in Paragraph C ofSection 12.  FRANCHISOR reservesthe right to increase the amount FRANCHISEE is required to contribute to anamount not to exceed three percent (3%) of the gross sales of the STORE.  FRANCHISOR will cause all GJC STORES ownedby it to

 

15

----

 

make contributions to the Marketing Fundbased on the contribution rate generally in effect at the time such GJC STORESmost recently came under FRANCHISOR’s ownership.  FRANCHISEE understands that, due to differing forms of franchiseagreements or otherwise, some GLORIA JEAN’S franchisees may have differentMarketing Funds and/or other obligations than in this Agreement.

 

(2)           FRANCHISOR will have sole andabsolute discretion over all matters relating to the Marketing Fund inany way, including (but not limited to) its management, all financial matters,expenditures, receipts and/or investments by the Marketing Fund, timing ofexpenditures, creative concepts, content, materials and endorsements for anymarketing programs, together with the geographic, market, and media placementand allocation thereof.  The MarketingFund may be used, in FRANCHISOR’s sole and absolute discretion, to (among otherthings) pay costs of preparing, producing, distributing and using marketing,advertising and other materials and programs; administering national, regionaland other marketing programs, purchasing media, employing advertising, publicrelations and other agencies and firms; and supporting public relations, marketresearch and other advertising and marketing activities, as well as anyexpenses associated with any Franchisee Advisory Council(s), if those Councils,and such expenses, are approved by FRANCHISOR. A brief statement regarding the availability of information regardingthe purchase of GLORIA JEAN’S franchises may be included in advertising andother items produced and/or distributed using the Marketing Fund.

 

(3)           FRANCHISOR may arrange for services,goods and otherwise, including (but not limited to) creative concepts,production, placement, purchase of media, legal, accounting and other services,to be provided to the Marketing Fund by itself, any of its affiliates and/ortheir employees or agents, including persons/entities who may be owned,operated, controlled by, and/or affiliated with, FRANCHISOR (such as an“in-house advertising agency”) or who may be independent.  FRANCHISOR may use the Marketing Fund tocompensate and reimburse any of such persons/entities (including itself)as FRANCHISOR deems appropriate in its sole and absolute discretion (includingpayment of commissions) and to compensate itself and/or others foradministrative and other services, materials, etc. rendered to the MarketingFund, provided that any compensation to FRANCHISOR or any affiliate will not beunreasonable in amount.  WhileFRANCHISOR is not required to submit any proposed or other expenditures by (orany other matters relating to) the Marketing Fund for approval by anyFranchisee Advisory Council, if FRANCHISOR does submit any matters for approvaland approval is granted by a majority of such Franchisee Advisory Council, suchapproval will be final and binding on FRANCHISEE.

 

(4)           FRANCHISEE will participate in alladvertising and public relations programs instituted by the Marketing Fund butwill retain full freedom to set FRANCHISEE’s own prices, except that FRANCHISORmay specify maximum prices above which FRANCHISEE will not sell or otherwiseprovide any goods or services and FRANCHISEE will comply with all such maximumprices.  The Marketing Fund will, asavailable, furnish FRANCHISEE with marketing, advertising and promotionalformats and sample materials and may charge the direct cost of producing themplus shipping and handling.  FRANCHISORmay use the Marketing Fund to pay the costs of advertising,advertising-related, marketing and/or public relations programs, servicesand/or materials with respect to locations, programs or

 

16

----

 

concepts where products and/or servicesoffered under the Name and/or Marks are to be offered in conjunction withproducts and/or services offered under other marks, including (but not limitedto) any co-branding, dual franchising or other programs, and any otherfranchised or non-franchised alternative channel of distribution, whether ornot controlled by FRANCHISOR.

 

(5)           The Marketing Fund will be accountedfor separately from FRANCHISOR’s other funds (but may be commingled withFRANCHISOR’s other funds) and will not be used to defray any of FRANCHISOR’sgeneral operating expenses, except for such salaries, administrative costs,overhead and other expenses as FRANCHISOR may reasonably incur in activitiesrelated to the Marketing Fund and its programs (including, without limitation,conducting market research, preparing advertising and marketing materials,insurance, legal costs and collecting and accounting for the MarketingFund.)  FRANCHISOR may, in FRANCHISOR’ssole and absolute discretion, spend in any fiscal year an amount greater orless than the aggregate contributions to the Marketing Fund in that year andthe Marketing Fund may borrow from FRANCHISOR or other lenders to coverdeficits of the Marketing Fund or cause the Marketing Fund to invest any surplusfor future use by the Marketing Fund. FRANCHISEE authorizes FRANCHISOR to collect for remission to theMarketing Fund any advertising or promotional monies or credits offered by anysupplier based upon purchases by FRANCHISEE or otherwise.  All interest earned on monies contributed tothe Marketing Fund will be contributed to the Marketing Fund and will be usedto pay costs before using the Marketing Fund’s other assets.  A statement of monies collected and costsincurred by the Marketing Fund will be prepared annually by FRANCHISOR and befurnished to FRANCHISEE upon written request. FRANCHISOR may (but is not required to) have financial statements of theMarketing Fund audited and any costs in connection therewith will be paid bythe Marketing Fund.  FRANCHISOR willhave the right to cause the Marketing Fund to be incorporated or operatedthrough an entity separate from FRANCHISOR as FRANCHISOR deems appropriate inits sole and absolute discretion, and such successor entity will have allrights and duties of FRANCHISOR relating to the Marketing Fund.

 

(6)           FRANCHISOR may (but is not requiredto) remit a portion of Marketing Fund contributions back to a franchisee onsuch terms and conditions as determined by FRANCHISOR including (but notlimited to) reimbursement of local advertising expenditures made by aFranchisee and FRANCHISOR may waive and/or compromise claims for contributionsto, and/or claims against or with respect to, the Marketing Fund inFRANCHISOR’s sole and absolute discretion, using the Marketing Fund to pay anysuch claims.  FRANCHISOR will have soleand absolute discretion as to whether or not FRANCHISOR takes legal or otheraction against any franchisee who is in default of his or her obligations withrespect to the Marketing Fund (including obligations to make contributions) orotherwise and whether a franchisee may be allowed to make direct advertisingexpenditures in place of contributions to the Marketing Fund.

 

(7)           FRANCHISEE acknowledges and agreesthat the Marketing Fund is generally intended to maximize general recognitionof the Name and/or Marks and patronage of GJC STORES.  FRANCHISEE understands and acknowledges that the STORE may notbenefit directly or in proportion to its contribution to the Marketing Fundfrom the development and placement of advertising and development of marketingmaterials. FRANCHISOR will have no

 

17

----

 

obligation to cause other GJC STORES,licensees or outlets (some of which may be under different arrangements) tocontribute to the Marketing Fund, any cooperative or engage in localmarketing.  FRANCHISEE and FRANCHISOR,each having a mutual interest in, and agreeing on the critical practicalbusiness importance of, FRANCHISEE’s and FRANCHISOR’s relationship beinggoverned solely by written instruments signed by the parties to be bound (andnot having either FRANCHISEE or FRANCHISOR subject to the uncertainty andambiguity inherent in the application of legal or other concepts not expresslyagreed to in writing by FRANCHISEE and FRANCHISOR), agree that FRANCHISEE’s andFRANCHISOR’s rights and obligations with respect to the Marketing Fund and allrelated matters are governed solely by the express terms of this Agreement andthat this Agreement (and the parties’ relationship and all rights andobligations with respect to the Marketing Fund) does not create a “trust,”“fiduciary relationship” or similar special arrangement.  FRANCHISOR may maintain Marketing Fundassets in one or more accounts designated as “trust accounts” (or similarlydesignated), for purposes of protecting such assets from claims of third-partycreditors or otherwise, but such designation and/or treatment will not operateto create any “trust,” “fiduciary relationship” or similar special arrangementas to the Marketing Fund, its assets or otherwise.

 

**C.****                                    BY FRANCHISEE.**

 

FRANCHISEEshall submit for prior approval by FRANCHISOR, any and all advertising andpromotional materials prepared by FRANCHISEE for the STORE and FRANCHISEE shallnot use any disapproved or unapproved advertising or promotionalmaterials.  FRANCHISEE shall comply withany advertising requirements contained in its lease or sublease for thepremises of the STORE.  All advertisingand promotional materials used by FRANCHISEE must be completely factual, complywith all applicable laws and conform to the highest standards of ethicaladvertising and policies prescribed from time to time by FRANCHISOR.

 

FRANCHISEEshall list and advertise the STORE in the principal classified telephonedirectory distributed within its primary trading area, in such businessclassifications as FRANCHISOR prescribes from time to time, utilizingFRANCHISOR’s standard classified telephone directory advertisement atFRANCHISEE’s sole expense.  When morethan one GJC STORE serves a metropolitan area, FRANCHISOR may require all suchGJC STORES to be listed in the classified directory advertisement andFRANCHISEE shall pay an equal share of the cost thereof.

 

**D.****                                    WEBSITE.**

 

FRANCHISEEspecifically acknowledges and agrees that any Website (as defined below) shallbe deemed “advertising” under this Agreement, and will be subject to (amongother things) FRANCHISOR’s approval under Paragraph C of thisSection.  (As used in this Agreement,the term “Website” means an interactive electronic document, contained in anetwork of computers linked by communications software that refers to theSTORE, other GJC STORES or the Names and Marks.  The term Website includes, but is not limited to, Internet andWorld Wide Web home pages.)  Inconnection with any Website, FRANCHISEE agrees to the following:

 

18

----

 

(1)           FRANCHISEE shall not establish aseparate Website without the prior written consent of FRANCHISOR.  FRANCHISOR shall have the right, but not theobligation, to designate one or more web page(s) to describe FRANCHISEE and/orthe STORE, such web page(s) to be located within FRANCHISOR’s Website;

 

(2)           If FRANCHISOR approves, in writing, aseparate Website for FRANCHISEE, then each of the following provisions shallapply:

 

(a)           FRANCHISEE shall notestablish or use the Website without FRANCHISOR’s prior written approval.

 

(b)           Before establishingthe Website, FRANCHISEE shall submit to FRANCHISOR, for FRANCHISOR’s priorwritten approval, a sample of the proposed Website domain name, format, visiblecontent (including, but not limited to, proposed screen shots), and non-visiblecontent (including, but not limited to, meta tags) in the form and mannerFRANCHISOR may reasonably require; and FRANCHISEE shall not use or modify suchWebsite without FRANCHISOR’s prior written approval as to such proposed use ormodification.

 

(c)           In addition to anyother applicable requirements, FRANCHISEE shall comply with FRANCHISOR’sstandards and specifications for Websites as prescribed by FRANCHISOR from timeto time in the OPERATING MANUAL or otherwise in writing.

 

(d)           If required byFRANCHISOR, FRANCHISEE shall establish such hyperlinks to FRANCHISOR’s Websiteand others as FRANCHISOR may request in writing.

 

(e)           FRANCHISOR mayrevoke its approval at any time, in writing, and require that FRANCHISEEdiscontinue use of a separate Website.

 

**9.****                                      REPORTS, BOOKS AND RECORDS, INSPECTIONS**

 

**A.****                                    GENERAL REPORTING**

 

FRANCHISEEshall submit monthly financial reporting forms and such other financial,operational and statistical information as FRANCHISOR may require to: (i)assist FRANCHISEE in the operation of the STORE in accordance with the GLORIAJEAN’S System; (ii) allow FRANCHISOR to monitor FRANCHISEE’s Gross Sales,purchases, costs and expenses; (iii) enable FRANCHISOR to develop chain widestatistics which may improve bulk purchasing; (iv) assist FRANCHISOR in thedevelopment of new authorized PRODUCTS or the removal of existing unsuccessfulproducts; (v) enable FRANCHISOR to refine existing authorized PRODUCTS;(vi) generally improve chain-wide understanding of the GLORIA JEAN’SSystem.  Without limiting the generalityof the foregoing:

 

19

----

 

FRANCHISEEwill allow FRANCHISOR to poll on a daily basis, at a time selected byFRANCHISOR, FRANCHISEE’s computerized point of sales system for the STORE toretrieve sales, usage, and operations data.

 

On or beforenoon (pacific standard time) each Friday, during the Term hereof, FRANCHISEEshall submit a weekly sales summary, on a form prescribed by FRANCHISOR,reporting all Gross Sales for the preceding week (defined as the seven dayperiod beginning each Thursday and ending on the following Wednesday) either byelectronic mail (“e-mail”), by facsimile or, by any other electronic meansprescribed by FRANCHISOR.

 

On or beforethe 10th day of each month, or fiscal period (if FRANCHISEE has adoptedFRANCHISOR’s fiscal accounting cycle, during the Term hereof, FRANCHISEE shallsubmit a monthly sales summary signed by FRANCHISEE, on a form prescribed byFRANCHISOR, reporting all Gross Sales for the preceding month, or fiscal periodas applicable, together with such additional financial information asFRANCHISOR may from time to time request.

 

On or beforethe 30th day following each calendar quarter during the Term hereof, FRANCHISEEshall submit to FRANCHISOR financial statements for the preceding quarter,including a Balance Sheet and Profit and Loss Statement, prepared in the form andmanner prescribed by FRANCHISOR and in accordance with generally acceptedaccounting principles (“GAAP”), which shall be certified by FRANCHISEE to beaccurate and complete.  FRANCHISEE shallalso provide FRANCHISOR with quarterly sales and menu mix data in the formatand manner prescribed by FRANCHISOR.

 

FRANCHISEEshall submit to FRANCHISOR a semi-annual Profit and Loss Statement, signed andcertified by FRANCHISEE.  The Profit andLoss Statement shall be prepared by a Certified Public Accountant, in accordancewith GAAP, and shall provide FRANCHISEE’s sales, expenses and financial statuswith respect to the STORE.  FRANCHISEEshall submit to FRANCHISOR a copy of the original signed 1120 or 1120S tax formeach and every year or any other forms which take the place of the 1120 or1120S forms.  FRANCHISEE shall alsoprovide FRANCHISOR with copies of signed original sales and use tax formscontemporaneously with their filing with the appropriate state or local authority.  FRANCHISOR reserves the right to requiresuch further information concerning the STORE as FRANCHISOR may from time totime reasonably request.

 

Within sixty(60) days following the end of each calendar year, FRANCHISEE shall submit toFRANCHISOR an unaudited annual financial statement prepared in accordance withGAAP, and in such form and manner prescribed by FRANCHISOR, which shall becertified by FRANCHISEE to be accurate and complete.

 

FRANCHISEEshall immediately (in no event more than 24 hours following) notify FRANCHISORof any (a) incident that may adversely affect the operation or financialcondition of the STORE, FRANCHISOR or its affiliates; (b) legal action(including the commencement of a suit or proceeding, or the threat thereof),(c) issuance of any writ, order, injunction, award or decree of any court,agency or government authority, including any citation,

 

20

----

 

fine or closing order, or (d) any otheradverse inquiry, notice, demand or sanction received by FRANCHISEE relating tothe operation of the STORE or the Location, including any alleged violation ofany law, including health, safety or employment law violations, and includingany labor dispute or actual or threatened labor strike, work stoppage, lock-outor other incident relating to any labor agreement, and shall provide FRANCHISORwith copies of all related correspondence and other communications andinformation relating thereto.

 

**B.****                                    INSPECTIONS**

 

FRANCHISOR’sauthorized representatives shall have the right to enter the Location and theSTORE during business hours, with or without notice, without unreasonablydisrupting FRANCHISEE’s business operations, for the purposes of examiningsame, conferring with FRANCHISEE’s employees, inspecting and checkingoperations, food, beverages, furnishings, interior and exterior decor,supplies, fixtures, and equipment, and determining whether the business isbeing conducted in accordance with this Agreement, the GLORIA JEAN’S System andthe OPERATING MANUALS.  If any suchinspection indicates any deficiency or unsatisfactory condition with respect toany matter required under this Agreement or the OPERATING MANUALS, includingbut not limited to quality, cleanliness, service, health and authorized productline, FRANCHISOR will notify FRANCHISEE in writing of FRANCHISEE’snon-compliance with the OPERATING MANUALS, the GLORIA JEAN’S System, or thisAgreement.  FRANCHISEE shall have 24hours after receipt of such notice, or such other greater time period asFRANCHISOR may provide, to correct or repair such deficiency or unsatisfactorycondition, if it can be corrected or repaired within such period of time.  If not, FRANCHISEE shall within such timeperiod commence such correction or repair and thereafter diligently pursue itto completion.

 

**C.****                                    AUDITS**

 

Upon ten (10)days prior written notice, FRANCHISOR, its agents or representatives may auditFRANCHISEE’s books and records.  Inconnection with such audit(s) or other operational visits, FRANCHISEE shallkeep its cash receipts records, monthly control forms, accounts payable recordsincluding all payments to FRANCHISEE’s suppliers at the Location or at itsbusiness office for five (5) years after their due date, which records shall beavailable for examination by FRANCHISOR or its representative(s), atFRANCHISOR’s request.  Without any priorwritten notice, FRANCHISOR, its agents or representatives may inspect the STOREand FRANCHISEE’s daily, weekly and monthly statistical information which isrequired under the OPERATING MANUAL. FRANCHISEE shall make such information available for such inspections inrecognition that an operational inspection cannot succeed without review ofessential statistical information.  Ifany audit or other investigation reveals an under-reporting or under-recordingerror of two percent (2%) or more, then in addition to any other sums due, theexpenses of the audit/inspection shall be borne and paid by FRANCHISEE uponbilling by FRANCHISOR, plus interest as provided under Section 12.D below.

 

21

----

 

**10.****                               NAMES AND MARKS**

 

**A.****                                    OWNERSHIP OF NAMES AND MARKS**

 

FRANCHISOR isthe licensee of GJGC Corp. of the Names and Marks licensed to FRANCHISEE bythis Agreement and FRANCHISEE’s right to use the Names and Marks is derivedsolely from this Agreement and is limited to the operation of the STORE incompliance with this Agreement at the Location (or a substitute premiseshereafter approved by FRANCHISOR as provided in Section 2), and by allapplicable standards, specifications and operating procedures prescribed byFRANCHISOR from time to time during the term of this FRANCHISE.  FRANCHISEE agrees that all usage of theNames and Marks, including usage on computerized media and/or electronic mediaif approved by FRANCHISOR (including but not limited to the World Wide Web, theInternet, Telnet, newsgroups, bulletin boards, FTP, and the like), byFRANCHISEE and any goodwill established thereby shall inure to the exclusivebenefit of FRANCHISOR and GJGC Corp. FRANCHISEE further agrees that after the termination or expiration ofthe FRANCHISE, it will not directly or indirectly at any time or in any manneridentify, the STORE, FRANCHISEE, any owner or other business as a GJC STORE, aformer GJC STORE or as a franchisee of or otherwise associated with FRANCHISOR,or use in any manner or for any purpose any of the Names and Marks or otherindicia of a GJC STORE.

 

**B.****                                    LIMITATIONS ON FRANCHISEE’S USE OF NAMES ANDMARKS**

 

FRANCHISEEagrees to use the Names and Marks as the sole service mark and trade name identificationof the STORE.  FRANCHISEE shall displaya notice in such form as FRANCHISOR may prescribe that FRANCHISEE is anindependent owner of the STORE pursuant to this Agreement.  FRANCHISEE shall not use any of the Namesand Marks as part of any corporate name or with any prefix, suffix or othermodifying words, terms, designs or symbols (other than logos licensed toFRANCHISEE hereunder), or in any modified form, nor may FRANCHISEE use anyNames and Marks in connection with the sale of any unauthorized product orservice or in any other manner including via computerized media and electronicmedia not explicitly authorized in writing by FRANCHISOR.  All bank accounts, licenses, permits orother similar documents shall contain the actual name of the person or entityowning the STORE and may contain “d/b/a GLORIA JEAN’S COFFEES.”  FRANCHISEE shall obtain any fictitious name,assumed name or “doing business” registration as may be required by law.

 

**C.****                                    NOTIFICATION OF INFRINGEMENTS AND CLAIMS**

 

FRANCHISEE shallimmediately notify FRANCHISOR of any apparent infringement of or challenge toFRANCHISEE’s use of any of the Names and Marks or claim by any person of anyrights in any of the Names and Marks and FRANCHISEE shall not communicate withany person other than FRANCHISOR and GJGC Corp. and their counsel in connectionwith any such infringement, challenge or claim.  FRANCHISOR and its affiliates shall have sole discretion to takesuch action as they deem appropriate and the right to exclusively control anylitigation or Patent and Trademark Office or other administrative proceedingarising out of any such infringement, challenge or claim or otherwise relatingto any Names and Marks.  FRANCHISEEagrees to execute any and all instruments and documents, render suchassistance, and do such acts and things as may, in the opinion of FRANCHISOR’sor

 

22

----

 

GJGC Corp.’s counsel, be necessary oradvisable to protect and maintain FRANCHISOR’s and GJGC Corp.’s interests in anylitigation or Patent and Trademark Office or other proceeding or to otherwiseprotect and maintain FRANCHISOR’s and GJGC Corp.’s interests in any of theNames and Marks.

 

**D.****                                    DISCONTINUANCE OF USE OF NAME AND/OR MARKS**

 

If FRANCHISORbelieves at any time that it is advisable for FRANCHISOR and/or for FRANCHISEEto modify or discontinue the use of the Name and/or any of the Marks and/or useone or more additional or substitute name(s), trademarks or service marks,FRANCHISEE will promptly comply (at FRANCHISEE’s sole expense) withFRANCHISOR’s directions to modify or otherwise discontinue the use of such Nameand/or Marks, or use one or more additional or substitute names, trademarks orservice marks, including (but not limited to) replacement of all signage,etc.  Neither FRANCHISOR nor any of itsaffiliates, including GJGC Corp., will have any liability or obligation(whether of indemnity, expense reimbursement or otherwise) to FRANCHISEE, andFRANCHISEE agrees to make no claim, for, or in connection with, anymodification, discontinuance or otherwise, and/or any dispute regarding theName and/or any of the Marks and/or FRANCHISEE’s and/or FRANCHISOR’s rights inor to them.  FRANCHISOR makes noguaranty that a modification, discontinuance or otherwise may not be required,whether as a result of expiration, termination or limitation of FRANCHISOR’srights to the Name and/or Marks or otherwise.

 

**E.****                                      INDEMNIFICATION OF THE FRANCHISEE.**

 

FRANCHISORagrees to indemnify FRANCHISEE against and to reimburse FRANCHISEE for alldamages for which FRANCHISEE is held liable in any proceeding rising out ofFRANCHISEE’s use of any of the Names and Marks pursuant to and in compliancewith this Agreement and for all costs reasonably incurred by FRANCHISEE in thedefense of any such claim brought against FRANCHISEE or in any such proceedingin which FRANCHISEE is named as a party; provided that FRANCHISEE has timelynotified FRANCHISOR of such claim or proceeding and has otherwise complied withthis Agreement.

 

**11.****                               INITIAL FRANCHISE FEE**

 

FRANCHISEEshall pay to FRANCHISOR an initial franchise fee for the FRANCHISE in theamount of Thirty Thousand Dollars ($30,000). The initial franchise fee is payable in immediately available funds uponthe execution of this Agreement and is deemed fully earned by FRANCHISOR uponexecution of this Agreement and shall be non-refundable in whole or in part,under any circumstances.

 

**12.****                               ROYALTY FEE**

 

**A.****                                    AMOUNT OF ROYALTY FEE**

 

FRANCHISEEagrees to pay to FRANCHISOR a royalty fee of six percent (6%) of the grosssales of the STORE, as defined in Paragraph B below, payable as providedin Paragraph C below.

 

23

----

 

**B.****                                    DEFINITION OF “GROSS SALES”**

 

As used inthis Agreement, the term “gross sales” shall mean and include the total actualgross charges for all products and services sold to customers of the STORE, forcash or credit, whether such sales are made at or from the premises of theSTORE, or any other location or other channels of distribution if approved inwriting in advance by FRANCHISOR but excluding:  sales, use, service or excise taxes collected from customers andpaid to the appropriate taxing authority; customer refunds and adjustments.

 

**C.****                                    PAYMENT OF ROYALTY FEE AND MARKETING FUNDCONTRIBUTION**

 

The royaltyfee (as above provided) and the Marketing Fund contribution (as provided inSection 8) shall be payable on the tenth (10th) day following the end ofeach four (4) week period, as determined by FRANCHISOR.  This payment shall be accompanied by a salesreport (the form of which will be created and furnished by FRANCHISOR)completed, verified and signed by FRANCHISOR.

 

As directed byFRANCHISOR, FRANCHISEE must participate in FRANCHISOR’s then-current electronicfunds transfer program authorizing FRANCHISOR to utilize a pre-authorized bankdraft system on a every four-week basis, or otherwise as FRANCHISOR specifiesfrom time-to-time in FRANCHISOR’s sole and absolute discretion.  All royalty fees, advertising contributionsand other amounts due FRANCHISOR (and/or any affiliate) for each period must bereceived by FRANCHISOR (or such affiliate) or credited to the appropriateaccount by pre-authorized bank debit before 5:00 p.m. on the tenth (10th)day after each four-week period, or other point in time specified byFRANCHISOR.  If FRANCHISEE fails tosubmit the sales report by the tenth (10th) day after any four-week period,FRANCHISOR may specify the amount to be credited to FRANCHISOR’s account forroyalty fees, advertising contributions and other amounts due to FRANCHISORbased on past reports submitted by FRANCHISEE.

 

**D.****                                    INTEREST ON LATE PAYMENTS AND LATE FEES**

 

All royaltyfees, advertising contributions and any other amounts owed to FRANCHISOR or itsaffiliates by FRANCHISEE, pursuant to FRANCHISE, shall bear interest after duedate at the highest legal rate for open account business credit in the state inwhich the STORE is located not to exceed one and one-half percent (1 1/2%) permonth.  FRANCHISEE must also payFRANCHISOR or its affiliates a late fee of Two Hundred Fifty Dollars ($250.00)per occurrence subject to applicable law. FRANCHISEE acknowledges that this Paragraph D shall not constituteFRANCHISOR’s agreement to accept such payments after they are due or acommitment by FRANCHISOR to extend credit to or otherwise “finance”FRANCHISEE’s operation of the STORE. Further, FRANCHISEE acknowledges that its failure to pay any amountswhen due will constitute a breach of this Agreement as provided in Paragraph Aof Section 13 notwithstanding the provisions of this Paragraph D.

 

24

----

 

**13.****                               TERMINATION OF FRANCHISE**

 

**A.****                                    TERMINATION BY FRANCHISEE**

 

If FRANCHISEEhas materially complied with all of its obligations under this Agreement andFRANCHISOR has materially breached this Agreement, FRANCHISEE will have a rightto terminate this Agreement if (1) FRANCHISEE provides FRANCHISOR with writtennotice of FRANCHISOR’s breach within ninety (90) days of the occurrence of thematerial breach and (2) FRANCHISOR fails to cure FRANCHISOR’s breach withinsixty (60) days after FRANCHISOR receives the written notice of such breach or,in a case where FRANCHISOR’s breach cannot reasonably be cured within sixty(60) days after FRANCHISOR receives written notice of its breach, fail toprovide FRANCHISEE with reasonable evidence of FRANCHISOR’s continuing effortsto correct its breach within a reasonable time. If FRANCHISOR disputes theoccurrence of a material breach or FRANCHISEE’s allegation that FRANCHISOR hasfailed to timely cure any breach or to provide FRANCHISEE with reasonableevidence of FRANCHISOR’s continuing efforts to correct its breach within areasonable time, then FRANCHISOR will provide FRANCHISEE with written notice ofthe dispute.  FRANCHISEE must then commencemediation pursuant to this Agreement within twenty (20) days after FRANCHISEEreceives such written notice. FRANCHISEE’s failure to commence mediation within such twenty (20) dayperiod shall operate as a waiver of any alleged breach by FRANCHISOR todate.  During the pendency of themediation proceeding (or arbitration proceeding if the dispute cannot beresolved by mediation pursuant to Paragraph A of Section 16), this Agreementshall not terminate unless otherwise terminable by FRANCHISOR hereunder or uponagreement of the parties.

 

To terminatethis Agreement under this Paragraph A, FRANCHISEE must give FRANCHISOR aseparate written notice of termination which will be effective thirty (30) daysafter delivery of such notice to FRANCHISOR.

 

**B.****                                    BY FRANCHISOR**

 

FRANCHISOR mayterminate this Agreement effective upon delivery of notice of termination toFRANCHISEE, if:

 

(1)           FRANCHISEE or any of its owners makesan assignment for the benefit of creditors or an admission of its/his inabilityto pay its/his obligations as they become due;

 

(2)           FRANCHISEE or any of its owners filesa voluntary petition in bankruptcy, files any pleading seeking any reorganization, liquidation or dissolutionunder any law, admits or fails to contest the material allegations of any suchpleading filed against it/him, is adjudicated a bankrupt or insolvent, areceiver is appointed for a substantial part of the assets of FRANCHISEE or anyof its owners or the STORE, or the claims of creditors of FRANCHISEE or any ofits owners or the STORE are abated or subject to a moratorium under any law;

 

(3)           FRANCHISEE abandons or fails toactively operate the STORE for three (3) or more consecutive days;

 

25

----

 

(4)           FRANCHISEE or any of its ownerssurrenders or transfers control of the STORE’s operations without FRANCHISOR’sprior written consent;

 

(5)           FRANCHISEE suffers termination of orfails to obtain renewal or extension of the lease or sublease for, or otherwisefails to maintain possession of the Location or a substitute premises approvedby FRANCHISOR;

 

(6)           FRANCHISEE submits to FRANCHISOR ontwo (2) or more separate occasions at any time during any two (2) year periodof the term of the FRANCHISE a monthly report, financial statement, tax return,schedule or other information or supporting record which understates the grosssales of the STORE for any period by more than two percent (2%);

 

(7)           FRANCHISEE operates the STORE in amanner that presents a health or safety hazard to its customers, employees orthe public;

 

(8)           FRANCHISEE or any of its owners areconvicted of, or pleads no contest or guilty to, a felony or other crime whichsubstantially impairs the goodwill associated with the Names and Marks orengages in any misconduct which affects the reputation of the STORE or thegoodwill associated with the Names and Marks;

 

(9)           FRANCHISEE or any of its owners makesan unauthorized assignment of the FRANCHISE, this Agreement, the STORE or itsassets or an ownership interest in FRANCHISEE as hereinafter defined inParagraphs B and C of Section 15;

 

(10)         FRANCHISEE fails to pay any amount owedto FRANCHISOR or its affiliates when the same is due and payable and does notcorrect such failure within five (5) days after written notice of such failureto comply is delivered to FRANCHISEE;

 

(11)         FRANCHISEE sells coffee not purchasedfrom GJGC Corp. pursuant to the requirements set forth herein;

 

(12)         FRANCHISEE or any affiliate fails ontwo (2) or more separate occasions within any period of twelve (12) consecutivemonths, or on three (3) or more separate occasions within any period oftwenty-four (24) consecutive months, to comply with any provisions (whether thesame or different) of this Agreement, any lease or sublease, any otheragreement with FRANCHISOR and/or any affiliate and/or the OPERATING MANUAL,whether or not such failures to comply are timely corrected; or

 

(13)         FRANCHISEE fails to comply with anyother material provision of this Agreement, any lease or sublease, any otheragreement with FRANCHISOR and/or any of its affiliates or any mandatoryspecification, standard or operating procedure prescribed by FRANCHISOR anddoes not correct such failure within fifteen (15) days after written notice ofsuch failure to comply (which shall describe the action that FRANCHISEE musttake) is delivered to FRANCHISEE.

 

26

----

 

**C.****                                    RIGHT OF FRANCHISOR TO DISCONTINUE PRODUCTSTO FRANCHISEE AFTER NOTICE OF DEFAULT TO FRANCHISEE**

 

If FRANCHISORdelivers to FRANCHISEE a notice of default or non-compliance pursuant toSection 13 of this Agreement, in addition FRANCHISOR’s other rights andremedies, FRANCHISOR reserves the right of FRANCHISOR (and its affiliates) ifcurrently selling PRODUCTS, to discontinue selling PRODUCTS to FRANCHISEE untilsuch time as FRANCHISEE corrects the default. Additionally, if FRANCHISEE fails to adhere to the standard credit termsof FRANCHISOR’s affiliates with respect to payment for any PRODUCTS sold byFRANCHISOR’s affiliates to FRANCHISEE, FRANCHISOR’s affiliates reserve theright to cease selling PRODUCTS to FRANCHISEE or requiring FRANCHISEE to payC.O.D. (i.e., cash on delivery) by certified check until such time asFRANCHISEE corrects this problem.

 

**D.****                                    CROSS-DEFAULTS, NON-EXCLUSIVE REMEDIES, ETC.**

 

Any default byFRANCHISEE (or any person/company affiliated with FRANCHISEE) under the termsand conditions of this Agreement or any lease or sublease, or any otheragreement between FRANCHISOR, or its affiliate, and FRANCHISEE, shall be deemedto be a material default of each and every said agreement, and furthermore, inthe event of termination, for any cause, of this Agreement, or any otheragreement between the parties hereto, FRANCHISOR may, at its option, terminateany or all said agreements.  No right orremedy which FRANCHISOR may have (including termination) is exclusive of anyother right or remedy provided under law or equity and FRANCHISOR may pursueany rights and/or remedies available.

 

**14.****                               FRANCHISEE’S OBLIGATION UPONTERMINATION OR EXPIRATION**

 

**A.****                                    PAYMENT OF AMOUNTS OWED TO FRANCHISOR**

 

FRANCHISEEagrees to pay to FRANCHISOR and its affiliates within ten (10) days after theeffective date of termination or expiration of the FRANCHISE, or such laterdate that the amounts due to FRANCHISOR and its affiliates are determined, suchroyalty fees, advertising contributions, amounts owed for PRODUCTS purchased byFRANCHISEE from FRANCHISOR and its affiliates and all other amounts owed toFRANCHISOR and its affiliates which are then unpaid, including any interest andlate fees due pursuant to this Agreement as provided in Paragraph D ofSection 12.

 

**B.****                                    RETURN OF MANUALS.**

 

FRANCHISEEagrees that upon termination or expiration of the FRANCHISE, it willimmediately return to FRANCHISOR all copies of the OPERATING MANUAL for a GJCSTORE which have been loaned to it by FRANCHISOR.

 

**C.****                                    CANCELLATION OF ASSUMED NAMES AND TRANSFER OFPHONE NUMBERS.**

 

FRANCHISEEagrees that upon termination or expiration of the FRANCHISE, it will take suchaction as may be required to cancel all assumed names or equivalentregistrations

 

27

----

 

relating to its use of the Names and Marksand to notify the telephone company and all listing agencies of the terminationor expiration of FRANCHISEE’s right to use any telephone number and anyclassified and other telephone directory listings associated with any Names andMarks and with a GJC STORE and to authorize transfer of same to FRANCHISOR orits designee.  FRANCHISEE acknowledgesthat as between FRANCHISOR and FRANCHISEE, FRANCHISOR has the sole right to andinterest in all telephone numbers and directory listings associated with anyNames and Marks of the STORE and FRANCHISEE authorizes FRANCHISOR, and herebyappoints FRANCHISOR and any officer of FRANCHISOR as its attorney-in-fact, todirect the telephone company and all listing agencies to transfer the same toFRANCHISOR or its designee should FRANCHISEE fail or refuse to do so.  The telephone company and all listingagencies may accept such direction or this Agreement as conclusive evidence ofthe exclusive rights of FRANCHISOR in such telephone numbers and directorylistings and its authority to direct their transfer.

 

FRANCHISEEshall also be required to cancel or if FRANCHISOR so elects to have assigned toFRANCHISOR, all ownership of any and all computerized media or electronicmedia, including but not limited to the World Wide Web, the Internet, Telnet,news groups, bulletin boards, FTP, and the like which presently or which maylater exist.

 

**D.****                                    FRANCHISOR HAS RIGHT TO PURCHASE STORE.**

 

If thisAgreement is terminated prior to its scheduled expiration date by FRANCHISOR inaccordance with the provisions of this Agreement, FRANCHISOR or its designeeshall have the right and option (exercisable by written notice thereof withinthirty (30) days after the determination of the purchase price pursuant to thisParagraph) to purchase (at the purchase price determined pursuant to thisParagraph) from FRANCHISEE some or all of the assets (including FRANCHISEE’sinventory of saleable PRODUCTS which have been fully paid for by FRANCHISEE) ofthe STORE and if the premises were not leased to FRANCHISEE by FRANCHISOR orits affiliates, the right to an assignment of FRANCHISEE’s lease or subleasefor the premises of the STORE (or, if assignment is prohibited, a sublease forthe full remaining term and on the same terms and conditions as FRANCHISEE’slease).  There shall be no provision forpayment for leasehold improvements, the title of which shall be governed by theterms of FRANCHISEE’s lease or sublease for the STORE premises.  The purchase price for the assets of theSTORE shall be the depreciated value of those assets as shown on FRANCHISEE’smost current federal tax return; provided that the purchase price shall notcontain any factor or increment for “goodwill” or “going concern value.”  FRANCHISOR may exclude from the assetspurchased hereunder any fixtures, equipment, signs or PRODUCTS and supplies inthe inventory of the STORE that are not approved as meeting quality standardsfor a GJC STORE.  The purchase priceshall be paid by FRANCHISOR in cash at the closing of the purchase.  Contemporaneously therewith, FRANCHISEEshall: (i) deliver instruments transferring good and merchantable title tothe assets purchased, free and clear of all liens and encumbrances toFRANCHISOR or its nominee with all sales and other transfer taxes paid byFRANCHISEE; and (ii) assign or transfer all licenses or permits which maybe assigned or transferred.  In theevent that FRANCHISEE cannot deliver clear title to all of the purchased assetsas aforesaid, or in the event there shall be other unresolved issues, theclosing of the sale shall be accomplished through an escrow.  Further, FRANCHISEE and FRANCHISOR shall,prior to closing, comply with any applicable bulk filings required in the statewhere the STORE is located.  IfFRANCHISOR

 

28

----

 

exercises its option to purchase, pending theclosing of such purchase as hereinabove provided, FRANCHISOR shall have theright to appoint a manager to maintain the operation of the STORE.  Alternatively, FRANCHISOR may requireFRANCHISEE to close the STORE during such time period without removingtherefrom any assets.  FRANCHISEE shallmaintain in force all required insurance policies until the date of closing. Inconnection with such purchase, FRANCHISEE (and each owner and/or affiliate ofFRANCHISEE) will execute a general release, in form prescribed by FRANCHISOR,of any and all claims, liabilities and/or obligations against FRANCHISOR andits affiliates.

 

If agreementon the depreciated value is not reached by FRANCHISEE and FRANCHISOR within ten(10) days after the effective date of termination, the determination of depreciatedvalue (as above defined) shall be submitted to an independent appraiserselected by FRANCHISOR.  All fees, costsand expenses of such independent appraiser shall be borne equally by FRANCHISORand FRANCHISEE.

 

In the eventFRANCHISOR does not exercise said option to purchase, FRANCHISEE shall, withinten (10) days after the earlier of (i) the expiration of the option periodwithout exercise by FRANCHISOR of its option or (ii) service by FRANCHISORupon FRANCHISEE of written notice that FRANCHISOR does not intend to exerciseits option, remove from the STORE by physical removal or in the case of signs,by obliteration, painting over or otherwise, and cease to use, either at theSTORE or elsewhere, all names, distinctive architectural or other designs, signs,pictures, crests, shields, and other advertising and equipment which areindicative of FRANCHISOR or FRANCHISEE. All PRODUCTS which are not merchantable due to physical deterioration orwhich are “out-of-date” shall be destroyed by FRANCHISEE.

 

**E.****                                      COVENANT NOT TO COMPETE**

 

If thisAgreement expires or is terminated by FRANCHISOR for any reason, FRANCHISEE andits owners agree that for a period of two (2) years, commencing on theeffective date of termination of this Agreement or the date on which FRANCHISEEceases to conduct the business conducted pursuant to this Agreement, whicheveris later, neither FRANCHISEE nor its owners (through a member of the immediatefamily of FRANCHISEE or otherwise) will have any interest as an owner (exceptof publicly-traded securities and interests in other GJC STORES pursuant toother franchise agreements heretofore or hereafter entered into) of, or assistor perform services as a director, officer, employee, consultant,representative, agent, or in any other capacity for, any business principallyoffering products substantially similar to the PRODUCTS then being offered bythe majority of the GJC STORES and located within either: (i) the StandardMetropolitan Statistical Area wherein the STORE is located; or (ii) a ten(10) mile radius from any then existing GJC STORE, nor will they have anyinterest, as aforesaid, in any entity which franchises or grants to others theright to sell products similar to the PRODUCTS then being offered by themajority of the GJC STORES.

 

**F.****                                      CONTINUING OBLIGATIONS**

 

Allobligations of FRANCHISOR and FRANCHISEE which expressly or by their naturesurvive the expiration or termination of the FRANCHISE shall continue in fullforce and

 

29

----

 

effect subsequent to and notwithstanding theexpiration or termination of this Agreement and until they are satisfied infull or by their nature expire.

 

**15.****                               ASSIGNMENT, TRANSFER AND ENCUMBRANCE**

 

**A.****                                    BY FRANCHISOR.**

 

ThisAgreement, and any or all of FRANCHISOR’s rights and/or obligations under it,are fully transferable by FRANCHISOR in whole or in part, without the consentof FRANCHISEE and shall inure to the benefit of any person or entity to whomFRANCHISOR transfers it, or to any other legal successor to FRANCHISOR’sinterests in this Agreement.

 

**B.****                                    FRANCHISEE MAY NOT ASSIGN WITHOUT APPROVAL OFFRANCHISOR**

 

The FRANCHISEis personal to FRANCHISEE (and its owners) and neither the FRANCHISE, thisAgreement (except as hereinafter provided with respect to assignment to apartnership, limited liability company or corporation), the STORE or its assets(other than in the ordinary course of its business) nor any part or all of theownership of FRANCHISEE may be voluntarily, involuntarily, directly orindirectly assigned, subdivided, subfranchised or otherwise transferred byFRANCHISEE or its owners (including, without limitation, in the event of thedeath of FRANCHISEE or an owner of FRANCHISEE, by will, declaration of ortransfer in trust or the laws of intestate succession) without the priorwritten consent of FRANCHISOR, and any such assignment or transfer without suchconsent shall constitute a breach hereof and shall convey no rights to orinterest in the FRANCHISE, this Agreement, the STORE or its assets or any part orall of the ownership interest in FRANCHISEE, and shall be null and void.  A transfer of ownership in the STORE mayonly be made in conjunction with a transfer of the FRANCHISE.  If the transfer is of the FRANCHISE, thisAgreement or a controlling interest in FRANCHISEE, or is one of a series oftransfers which in the aggregate constitute the transfer of the FRANCHISE, thisAgreement or a controlling interest in FRANCHISEE, all of the followingconditions must be met prior to, or concurrently with the effective date of thetransfer: (1) the transferee must have sufficient business experience andfinancial resources; (2) the transferee must assume all existingobligations of the transferor hereunder and under the lease or sublease;(3) the transferee must attend and complete the training program to thesatisfaction of FRANCHISOR; (4) if any part of the sale price of thetransferred interest is financed, FRANCHISEE and its owners and the transferorshall have agreed that all obligations of the transferee to either of themshall be subordinate to the obligations of the transferee to pay all fees andother amounts due to FRANCHISOR and its affiliates, and otherwise comply withthe Agreement or the franchise agreement executed by the transferee;(5) the STORE must be in compliance with or be brought up to thethen-current design and equipment standards for GJC STORES; and (6) thetransferee must execute and be bound by all provisions of FRANCHISOR’sthen-current form of franchise agreement (and sublease if the STORE wassubleased directly from FRANCHISOR or its affiliates), which may provide for ahigher royalty fee and advertising contributions and other significantprovisions may vary from what is provided hereunder and shall provide for aterm equal to the remaining term of the FRANCHISE.  FRANCHISOR shall not charge such transferee an initial franchisefee for the

 

30

----

 

FRANCHISE, but will charge the transferor anassignment fee of Five Thousand Dollars ($5,000), to cover FRANCHISOR’s costsin approving and effectuating the assignment.

 

**C.****                                    ASSIGNMENT TO PARTNERSHIP, LIMITEDLIABILITY COMPANY OR CORPORATION.**

 

If FRANCHISEEis in full compliance with this Agreement, FRANCHISOR shall not unreasonablywithhold its consent to a transfer of the FRANCHISE, this Agreement, the STOREand its assets to a partnership, limited liability company or corporation whichconducts no business other than the STORE (and other GJC STORES under franchiseagreements with FRANCHISOR), which is actively managed by FRANCHISEE and inwhich FRANCHISEE owns and controls not less than fifty-one percent (51%) of theequity and voting power of all issued and outstanding stock or membership orpartnership interest; provided that the corporation, limited liability companyor partnership execute FRANCHISOR’s standard assignment and assumptionagreement, and the shareholders, members or partners, in form approved byFRANCHISOR, agree to be personally bound jointly and severally by allprovisions of this Agreement and guarantee the performance thereof and allother agreements between FRANCHISEE and FRANCHISOR and its affiliates, to thesame extent as if they had been parties to the original agreements, and allissued and outstanding stock certificates of such corporation shall bear alegend reflecting or referring to the restrictions of Paragraph B of thisSection.

 

**D.****                                    FRANCHISOR’S RIGHT OF FIRST REFUSAL.**

 

If FRANCHISEEor its owners shall at any time determine to sell the FRANCHISE, thisAgreement, the STORE or its assets or an ownership interest in FRANCHISEE,FRANCHISEE or its owners shall obtain a bona fide, executed written offeraccompanied by a cashier’s check for ten percent (10%) of the purchase price toserve as forfeitable earnest money thereunder, from a responsible and fullydisclosed purchaser and shall submit an exact copy of such offer toFRANCHISOR.  FRANCHISOR or its designeeshall, for a period of thirty (30) days from the date of delivery of such offer,have the right, exercisable by written notice to FRANCHISEE or its owners, topurchase the interest for the price and on the terms and conditions containedin such offer; provided that FRANCHISOR or its designee may substitute cash forany form of payment proposed in such offer. If FRANCHISOR or its designee does not exercise this right of firstrefusal, FRANCHISEE or its owners may complete the sale of the FRANCHISE, theSTORE and its assets or such ownership interest to such purchaser (on the termsof the bona fide offer subject to FRANCHISOR’s approval of the purchaser asprovided in Paragraph B of this Section); provided that if the sale to suchpurchaser is not completed within one hundred twenty (120) days after deliveryof such offer to FRANCHISOR, FRANCHISOR or its designee shall again have theright of first refusal as herein provided.

 

**E.****                                      DEATH OR PERMANENT DISABILITY OF FRANCHISEE**

 

Upon the deathor permanent disability of FRANCHISEE or if FRANCHISEE is a corporation,limited liability company or partnership, upon the death or permanentdisability of the owner of the controlling interest in FRANCHISEE, theexecutor, administrator, conservator

 

31

----

 

or other personal representative of suchperson shall transfer his interest to the heirs or beneficiaries of such personor to a third party approved by FRANCHISOR within a period of twelve (12)months.  Such transfers, including,without limitation, transfers by devise or inheritance or trust provisions,shall be subject to the same conditions for transfers contained in thisAgreement.  Failure to so dispose ofsuch interest within said period of time shall constitute a breach of thisAgreement.  FRANCHISEE shall be deemedto have a “permanent disability” if the usual, active participation in the GJCSTORE by FRANCHISEE as contemplated pursuant to this Agreement is for anyreason curtailed for a continuous period of six (6) months.

 

If after thedeath or permanent disability of FRANCHISEE (or the Managing Owner), the STOREis not being managed by a competent and trained manager (as determined byFRANCHISOR in its sole discretion), FRANCHISOR is authorized to immediatelyappoint a manager to maintain the operation of the STORE for a period not toexceed twelve (12) months or until an approved assignee shall be able to assumethe management and operation of the STORE.

 

**F.****                                      RELEASE, EFFECT OF TRANSFER**

 

In connectionwith **any**assignment, etc. of any interest of or by FRANCHISEE (including, but notlimited to, an assignment to a corporation) FRANCHISEE and each of its ownersand/or affiliates and the transferee (and each owner and/or affiliate of thetransferee) if the transferee or such owner and/or affiliate is or has been afranchisee of, or had any other relationship with, FRANCHISOR or any of its affiliatesmust execute a general release in the form approved by FRANCHISOR.

 

FRANCHISOR’sconsent to a transfer, or failure to exercise any right-of-first-refusal, willnot constitute a waiver of any claims FRANCHISOR may have against FRANCHISEE(or its owners or affiliates), nor will it be deemed a waiver of FRANCHISOR’sright to demand exact compliance with any of the terms or conditions of thisAgreement or any other agreement by any transferor or transferee.  Unless FRANCHISOR expressly in writing releasesFRANCHISEE from its obligations under this Agreement (which FRANCHISOR has noobligation to do), FRANCHISEE will remain and be liable for all of the paymentand other obligations under this Agreement (and any other agreement with usand/or any affiliate) and any Franchise Agreement and/or other agreementexecuted by any transferee.  Anytransfer (including any transfer consented to by FRANCHISOR and even if thetransferee executes a new franchise agreement) will not act as a termination ofFRANCHISEE’s (or its owner’s) confidentiality, indemnity, covenant not tocompete and other obligations under this Agreement which by their naturesurvive the term of this Agreement.  Inthe event of a transfer of an ownership interest in FRANCHISEE, thetransferring owner must also comply with such obligations, including, withoutlimitation, the covenant not to compete under Section 14.E.

 

**16.****                               DISPUTE RESOLUTION**

 

**A.****                                    MEDIATION**

 

Except forcontroversies, disputes, or claims related to or based on FRANCHISEE’s use ofthe Names and Marks, FRANCHISEE’s obligation to make royalty or

 

32

----

 

other payments to FRANCHISOR or FRANCHISEE’spost-termination obligations, the parties agree to submit any dispute arisingbetween them to non-binding mediation before submitting dispute toarbitration.  The mediation is to beadministered by the American Arbitration Association and conducted by one (1)mediator selected by the American Arbitration Association under thethen-current commercial mediation rules of the American ArbitrationAssociation, at a facility selected by the mediator that is located withinfifty (50) miles of FRANCHISOR’s then-current principal place of business.  FRANCHISOR and FRANCHISEE agree thatstatements made by FRANCHISOR, FRANCHISEE or any other party in any suchmediation proceeding will not be admissible in any arbitration or other legalproceeding.  Each party shall bear itsown costs and expenses of conducting the mediation and share equally the costsof any third parties who are required to participate in the mediation.

 

If any disputebetween the parties cannot be resolved through mediation within forty-five (45)days following the appointment of the mediator, the parties agree to submitsuch dispute to arbitration subject to the terms and conditions ofParagraph B below, provided that FRANCHISOR shall have the right at anytime to seek injunctive relief as provided in Paragraph H of this Section.

 

**B.****                                    ARBITRATION**

 

ALLCONTROVERSIES, DISPUTES OR CLAIMS ARISING BETWEEN FRANCHISOR, ITS AFFILIATES,OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND ATTORNEYS (IN THEIR REPRESENTATIVECAPACITY) AND FRANCHISEE (AND ITS OWNERS AND GUARANTORS, IF APPLICABLE) ARISINGOUT OF OR RELATED TO IN WHOLE OR IN PART: (1) THIS AGREEMENT OR ANY RELATED AGREEMENT; (2) THERELATIONSHIP OF THE PARTIES HERETO; (3) THE VALIDITY OF THIS AGREEMENT ORANY RELATED AGREEMENT, OR ANY PROVISION THEREOF; OR (4) ANY SPECIFICATION,STANDARD OR OPERATING PROCEDURE RELATING TO THE ESTABLISHMENT OR OPERATION OFTHE STORE, SHALL BE SUBMITTED FOR BINDING ARBITRATION TO BE ADMINISTERED BY THEAMERICAN ARBITRATION ASSOCIATION; PROVIDED THAT FRANCHISOR AND ITS AFFILIATESSHALL HAVE THE RIGHT TO ENFORCE BY JUDICIAL PROCESS ANY RIGHTS IT MAY HAVE TOPOSSESSION OF THE PREMISES OF THE STORE UNDER ANY SUBLEASE OR COLLATERALASSIGNMENT OF LEASE WITH FRANCHISEE. SUCH ARBITRATION PROCEEDING SHALL BE CONDUCTED BY A SINGLE ARBITRATORAPPROVED BY THE AMERICAN ARBITRATION ASSOCIATION IN ACCORDANCE WITH ITS RULESAT A FACILITY DETERMINED BY THE ARBITRATOR THAT IS LOCATED WITHIN FIFTY (50)MILES OF FRANCHISOR’S PRINCIPAL PLACE OF BUSINESS AND SHALL BE CONDUCTED INACCORDANCE WITH THE THEN-CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICANARBITRATION ASSOCIATION.  JUDGMENT UPONTHE AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. THE PARTIESFURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACHSHALL SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM(AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THESAME PROCEEDING AS THE CLAIM TO WHICH IT RELATES.  ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED IN SUCH PROCEEDINGSHALL BE FOREVER BARRED.

 

33

----

 

THIS PROVISION SHALL CONTINUE IN FULL FORCEAND EFFECT SUBSEQUENT TO AND NOTWITHSTANDING EXPIRATION OR TERMINATION OF THISAGREEMENT.  FRANCHISEE AND FRANCHISORAGREE THAT ARBITRATION SHALL BE CONDUCTED ON AN INDIVIDUAL, NOT A CLASS-WIDE,BASIS AND THAT FRANCHISOR (AND/OR ITS AFFILIATE AND THEIR RESPECTIVESHAREHOLDER, OFFICER, DIRECTORS, AGENTS, AND/OR EMPLOYEES) AND FRANCHISEE(AND/OR ITS OWNERS, GUARANTORS, AFFILIATES, AND/OR EMPLOYEES) SHALL BE THE ONLYPARTIES TO ANY ARBITRATION PROCEEDING DESCRIBED IN THIS SECTION AND THAT NOSUCH ARBITRATION PROCEEDING MAY BE CONSOLIDATED WITH ANY OTHER ARBITRATIONPROCEEDING, NOR SHALL ANY OTHER PERSON BE JOINED AS A PARTY TO SUCH ARBITRATIONPROCEEDING.

 

**C.****                                    WAIVER OF PUNITIVE DAMAGES AND JURY TRIAL.**

 

Except asprovided under Section 23, FRANCHISOR and FRANCHISEE hereby waive to thefullest extent permitted by law, any right to or claim for any punitive orexemplary damages against the other and agree that in the event of a disputebetween them (including arbitration proceedings) each shall be limited to therecovery of any actual damages sustained by it.  FRANCHISOR and the FRANCHISEE irrevocably waive trial by jury inany action, proceeding or counterclaim, whether at law or in equity, brought byeither of them.

 

**D.****                                    LIMITATION OF CLAIMS.**

 

Except claimsfor royalty fees and advertising contributions and other amounts owed toFRANCHISOR, any and all claims arising out of or relating to this Agreement orthe relationship of FRANCHISEE and FRANCHISOR in connection with FRANCHISEE’soperation of the STORE shall be barred unless an action or proceeding iscommenced within one (1) year from the date FRANCHISEE or FRANCHISOR knew orshould have known of the facts giving rise to such claims.

 

**E.****                                      CONSENT TO JURISDICTION.**

 

FRANCHISEE agreesthat any action arising out of or relating to this Agreement otherwise as aresult of the relationship between FRANCHISOR and FRANCHISEE (which is notrequired to be arbitrated hereunder or as to which arbitration is waived) mustbe commenced in the state or federal court of general jurisdiction closest toFRANCHISOR’s then-current principal place of business, and FRANCHISEE and eachof its owners irrevocably submits to the jurisdiction of such courts and waivesany objection to jurisdiction or venue of such court.

 

**F.****                                      SURVIVAL AND CONSTRUCTION**

 

Each provisionof this Section 16, together with the provisions of Section 23, will be deemedto be self-executing and continue in full force and effect subsequent to andnotwithstanding the expiration, termination, setting aside, cancellation,rescission, unenforceability or otherwise of this Agreement (or any part of it)for any reason, and will survive and will govern any claim for rescission orotherwise.

 

34

----

 

Each partyreserves the right to challenge any law, rule or judicial or other constructionwhich would have the effect of varying or rendering ineffective any provisionof this Agreement. The benefits and protections of this Agreement which applyto FRANCHISOR (including, but not limited to, all provisions relating toindemnification and/or releases) shall also apply to any past, current and/orfuture affiliates as if they were expressly named beneficiaries of suchprovisions.

 

**G.****                                    COSTS AND ATTORNEYS’ FEES **

 

If a claim foramounts owed by FRANCHISEE to FRANCHISOR or its affiliate is asserted in anylegal proceeding before a court of competent jurisdiction or an arbitrator, orif FRANCHISOR or FRANCHISEE is required to enforce this Agreement in a judicialor arbitration proceeding, the party prevailing in such proceeding shall beentitled to recover from the other its costs and expenses, including reasonableaccounting, paralegal, legal, expert witness, attorneys’ fees and arbitratorfees, whether incurred prior to, in preparation for or in contemplation of thefiling of any such proceeding.  IfFRANCHISOR engages legal counsel in connection with any failure by FRANCHISEEto pay when due amounts due the FRANCHISOR or to submit when due any reports,information or supporting records, or in connection with any failure tootherwise comply with this Agreement, the FRANCHISEE shall reimburse theFRANCHISOR for any of the above listed costs and expenses incurred by it,whether or not legal proceedings are initiated.

 

**H.****                                    INJUNCTIVE RELIEF**

 

Nothing inthis Agreement bars FRANCHISOR’s right to obtain specific performance of theprovisions of this Agreement and injunctive relief against threatened conductthat will cause FRANCHISOR, the Names and Marks or the GLORIA JEAN’S Systemloss or damage, under customary equity rules, including applicable rules forobtaining restraining orders and preliminary injunctions (subject toFRANCHISOR’s obligation to arbitrate the underlying claim if required bySection 16.B).  FRANCHISEE  agrees that FRANCHISOR may obtain suchinjunctive relief in addition to such further or other relief as may beavailable at law or in equity. FRANCHISEE agrees that FRANCHISOR will not be required to post a bond toobtain injunctive relief and that FRANCHISEE’s only remedy if an injunction isentered against FRANCHISEE will be the dissolution of that injunction, ifwarranted, upon due hearing (all claims for damages by injunction beingexpressly waived hereby).

 

**I.****                                         BINDING EFFECT, MODIFICATION AND REPRESENTATIONS**

 

This Agreementis binding on the parties hereto and their respective executors,administrators, heirs, assigns, and successors in interest, and will not bemodified or supplemented except by means of a written agreement signed by bothFRANCHISEE and FRANCHISOR’s President or one of FRANCHISOR’s Vice Presidents,provided that changes to the OPERATING MANUAL may be made by FRANCHISOR at anytime and will be fully binding on FRANCHISEE notwithstanding any provisions ofthis Section or otherwise.  No otherofficer, field representative, salesperson or other person has the right orauthority to sign on behalf of FRANCHISOR, to make oral or writtenmodifications to this Agreement, or to make

 

35

----

 

any representations or agreements on behalfof FRANCHISOR, and any such modifications, representations and/or agreementsshall not be binding on FRANCHISOR.

 

**17.          CONSTRUCTION,ETC.**

 

Except asexpressly provided otherwise, nothing in this Agreement is intended, nor willbe deemed, to confer any rights or remedies on any person or legal entity not aparty hereto.  The headings of theseveral Sections hereof are for convenience only and do not define, limit, orconstrue the contents of such Sections. The term “attorneys’ fees” will include, without limitation, legal fees,whether incurred prior to, in preparation for, or in contemplation of, thefiling of any written demand or claim, action, hearing or proceeding to enforcethe obligations of this Agreement. References to a “controlling interest” in a business entity will meanfifty percent (50%) or more of the voting control of such entity if such entityis a corporation, and any equity interest if such entity is a partnership orlimited liability company.  The term “affiliate”means any past, present or future person, company or other entity whichcontrols, is controlled by or is under common control with another person,company or other entity.  For purposesof this Agreement, “affiliates” of FRANCHISOR includes, without limitation,Gloria Jean’s Gourmet Coffee Corp., Diedrich Coffee, Inc., Gloria Jean’s Inc.,Coffee People Inc., Second Cup USA Holdings Ltd. and The Second Cup Ltd.  The singular usage includes the plural andthe masculine and neuter usages include the other and the feminine.  If two or more persons are at any timeFRANCHISEE hereunder, whether or not as partners or joint venturers, theirobligations and liabilities to FRANCHISOR will be joint and several.  This Agreement will be executed in multiplecopies, each of which will be deemed an original.  Each of the provisions of this Agreement (including Sections 16and 23) apply to any claim brought (or which could be brought) by any ownerand/or affiliate of FRANCHISEE’s or by or on FRANCHISEE’s behalf.  If any limitation on FRANCHISEE’s rights(including, but not limited to, any limitation on damages, waiver of jurytrial, shortened period in which to make any claim or otherwise) is heldunenforceable with respect to FRANCHISEE, then such limitation will not applyto FRANCHISOR.

 

**18.****                               NON-RETENTION OF FUNDS**

 

FRANCHISEEdoes not have the right to offset or withhold payments owed to FRANCHISOR(and/or any affiliate) for amounts purportedly due FRANCHISEE (or any affiliateof FRANCHISEE’s) from FRANCHISOR and/or any of its affiliates as a result ofany dispute of any nature or otherwise, but will pay such amounts to FRANCHISOR(or FRANCHISOR’s affiliate) and only thereafter seek reimbursement inaccordance with the provisions of Section 16. If FRANCHISEE believes that FRANCHISOR or any other person/entity hasviolated any legal duty to FRANCHISEE, FRANCHISEE will, notwithstanding suchdispute, pay as designated all sums specified under this Agreement or any otheragreement, whether to be paid to FRANCHISOR or any affiliate (includingroyalties, any unpaid portion of the initial franchise fee and any marketingcontributions and/or amounts payable to franchisee councils and/orcooperatives) and will not withhold any payments until and unless such disputehas been finally determined in FRANCHISEE’s favor.

 

36

----

 

**19.****                               SEVERABILITY; SUBSTITUTION OF VALID PROVISIONS**

 

Except asotherwise stated in this Agreement, each provision of this Agreement, and anyportion of any provision, is severable (including, but not limited to, anyprovision affecting any rights to recovery for breach of any legal obligation,including but not limited to waiver of statutory benefits such as rights tojury trial, exemplary or punitive damages, recovery of attorney’s fees and/orshortening of statutes of limitations),****and the remainder of this Agreement willcontinue in full force and effect.  Tothe extent that any provision restricting FRANCHISEE’s competitive activitiesis deemed unenforceable, FRANCHISEE and FRANCHISOR agree that such provisionswill be enforced to the fullest extent permissible under governing law.  FRANCHISOR may modify any invalid orunenforceable provision to the extent required to be valid and enforceable andFRANCHISEE will be bound by the modified provisions.

 

**20.****                               WAIVERS**

 

FRANCHISOR’swaiver of any breach(es) under this or any other agreement (whether by failureto exercise a power or right available to FRANCHISOR, failure to insist onstrict compliance with the terms, obligations or conditions of any agreement,development of a custom or practice between FRANCHISEE and FRANCHISOR (orothers) which is at variance with the terms of any agreement, acceptance ofpartial or other payments or otherwise), whether with respect to FRANCHISEE orothers, will not affect FRANCHISOR’s rights with regard to any breach byFRANCHISEE or anyone else or constitute a waiver of FRANCHISOR’s right todemand exact compliance by FRANCHISEE with the terms of this Agreement orotherwise.  Subsequent or otheracceptance by FRANCHISOR of any payments or performance by FRANCHISEE will notbe deemed a waiver of any preceding or other breach by FRANCHISEE of thisAgreement or otherwise.  The rights andremedies provided in this Agreement are cumulative and FRANCHISOR will not beprohibited from exercising any rights or remedies provided under this Agreementor permitted under law or equity.

 

**21.****                               CHOICE OF LAWS**

 

Except to theextent governed by the United States Trademark Act of 1946 (Lanham Act, 15U.S.C. §§ 1051 etseq.) and except that all issues relatingto arbitrability or the enforcement or interpretation of the agreement toarbitrate set forth in Paragraph B of this Section shall be governed bythe Federal Arbitration Act (9 U.S.C. §§ 1 etseq.) and thefederal common law relating to arbitration, this Agreement, the FRANCHISE andall other matters concerning FRANCHISEE and FRANCHISOR (and its affiliates)shall be governed by the internal laws of the state where the STORE is located(without reference to the choice of law and conflict of law rules of thatstate), except that the provisions of any law of that state regarding franchisedisclosure, registration or relationship and the regulations thereunder shallnot apply unless its jurisdictional requirements are met independently withoutreference to this Paragraph.

 

**22.****                               ENTIRE AGREEMENT**

 

ThisAgreement, including the introduction and exhibits to it, together with theOPERATING MANUAL, constitutes the entire agreement between FRANCHISOR and

 

37

----

 

FRANCHISEE and there are no other oral orwritten understandings or agreements between FRANCHISOR and FRANCHISEEconcerning the subject matter of this Agreement.  Except as expressly provided otherwise in this Agreement, thisAgreement may be modified only by written agreement signed by both FRANCHISORand FRANCHISEE.

 

**23.****                               INDEPENDENT CONTRACTORS ANDINDEMNIFICATION**

 

FRANCHISOR andFRANCHISEE are independent contractors. FRANCHISOR and FRANCHISEE agree that there does not exist any fiduciaryrelationship between them.  FRANCHISEEshall conspicuously identify FRANCHISEE at the premises of the STORE and in alldealings with suppliers, as the owner of the STORE.  Neither FRANCHISOR nor FRANCHISEE shall make any agreements orrepresentations in the name of or on behalf of the other or that theirrelationship is other than FRANCHISOR and FRANCHISEE and neither FRANCHISOR norFRANCHISEE shall be obligated by or have any liability under any agreements orrepresentations made by the other that are not expressly authorized hereunder,nor shall FRANCHISOR be obligated for any damages to any person or propertydirectly or indirectly arising out of the operation of the STORE orFRANCHISEE’s business conducted pursuant to the FRANCHISE, whether caused byFRANCHISEE’s negligent or willful action or failure to act, FRANCHISOR shallhave no liability for any sales, use, excise, income, property or other taxeslevied upon the STORE or its assets or in connection with the sales made or businessconducted by the STORE.  FRANCHISEEagrees to indemnify FRANCHISOR, its affiliates, and their respectiveshareholders, directors, officers, employees, agents, representatives,successors and assigns (the “Indemnified Parties”) from and against, and toreimburse any of the Indemnified Parties for, any and all claims, obligations,damages, costs and taxes arising directly or indirectly out of the STORE’soperations, the business FRANCHISEE conducts under this Agreement, orFRANCHISEE’s breach of this Agreement. This indemnification shall be fully applicable, and shall not be voidedor otherwise affected by any allegation or claims that FRANCHISOR has beennegligent in any degree.  For thepurposes of this indemnification, “claims” includes all obligations, damages(actual, consequential, punitive or otherwise) and costs that any IndemnifiedParty reasonably incurs in defending any claim against it, including, withoutlimitation, reasonable accountants’, arbitrators’, attorneys’ and expertwitness fees, costs of investigation and proof of facts, court costs, and otherexpenses of litigation, arbitration or alternative dispute resolution,including travel and living expenses, regardless of whether litigation,arbitration or alternative dispute resolution is commenced.  FRANCHISOR shall have the right to defendany such claim against it.  Theindemnities and assumptions of liabilities and obligations herein shallcontinue in full force and effect subsequent to and notwithstanding theexpiration or termination of this Agreement.

 

**24.****                               NOTICES**

 

                All written notices permitted or required to be delivered by theprovisions of this Agreement or of the OPERATING MANUAL, shall be deemed sodelivered on the date when hand delivered; one (1) day after sending bytelegraph or after the date of deposit, if deposited with a commercial deliveryservice which guarantees next day delivery; or three (3) days after placed inthe mail by Registered or Certified Mail, Return Receipt Requested, postageprepaid and addressed to the party to be notified at its most-current principalbusiness address of which the notifying party has been notified.

 

38

----

 

**25.****                               EFFECTIVE DATE OF AGREEMENT**

 

The “Term” ofthis Agreement shall take effect upon the date of FRANCHISOR’s execution ofthis Agreement.

 

**26.****                               ACKNOWLEDGMENTS**

 

FRANCHISEEacknowledges that it has conducted an independent investiga­tion of thebusiness authorized hereunder and recognizes that the business venture con­templatedby this Agreement involves business risks and that its success will be largelydependent upon the ability of FRANCHISEE as an independentbusiness-person.  FRANCHISOR expresslydisclaims the making of, and FRANCHISEE acknowledges that it has not received,any warranty or guarantee, express or implied, as to the potential volume,profits, or success of the business venture contemplated by thisAgreement.  FRANCHISEE acknowledges thatit has read this Agree­ment and the FRANCHISOR’s Uniform Franchise OfferingCircular and that it has no knowledge of any representation by the FRANCHISOR,or its officers, directors, sharehold­ers, employees or agents that arecontrary to the statements made in the FRANCHISOR’s Uniform Franchise OfferingCircular or to the terms herein.

 

FRANCHISEEacknowledges that it has received, read, and understood this Agreement andFRANCHISOR’s Uniform Franchise Offering Circular; that FRANCHISOR has fully andadequately explained the provisions of each to FRANCHISEE’s satisfaction; andthat FRANCHISOR has accorded FRANCHISEE ample time and opportunity to consultwith advisors of its own choosing about the potential benefits and risks ofentering into this Agreement.

 

FRANCHISEEacknowledges that it received a copy of this Agreement, and any agreements relatingthereto, at least five (5) business days prior to the date on which thisAgreement has been executed.  FRANCHISEEfurther acknowledges that FRANCHISEE has received the disclosure documentrequired by the Trade Regulation Rule of the Federal Trade Commission entitledDisclosure Requirement and Prohibitions Concern­ing Franchising and BusinessOpportunity Ventures and applicable state laws, if any, at least ten (10)business days prior to the date on which this Agreement has been executed.

 

39

----

 

**IN WITNESS WHEREOF**,the parties hereto have executed this Agreement on the date stated below.

 
| **FRANCHISOR:**                                           | **FRANCHISEE(S) (INDIVIDUAL):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **GLORIA JEAN’S GOURMET  COFFEES FRANCHISING CORP.** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      | Name                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| By:                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Signature |
|                                                      | Signature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|                                                      | Name                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| Name                                                      | Signature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| Title                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Date:                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      | **FRANCHISEE (Corp., LLC or  Partnership)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      | Name                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      | a/an                                       corporation  a/an                                        partnership  a/an                               limited  liability company |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      | By:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|                                                      | Signature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                      | Name and Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |

 

40

----

 

**EXHIBIT A**

**GUARANTY AND ASSUMPTION OFOBLIGATIONS**

 

 

Inconsideration of, and as an inducement to, the execution of the above FranchiseAgreement and any Addenda thereto (individually or collectively the“Agreement”) by GLORIA JEAN’S GOURMET COFFEES FRANCHISING CORP. (“FRANCHISOR”),each of the undersigned (“GUARANTORS”) hereby personally and unconditionally(1) guarantees to FRANCHISOR and its successors and assigns, for the term ofthe Agreement and thereafter as provided in the Agreement, that                                        (“FRANCHISEE”)shall punctually pay and perform each and every undertaking, agreement andcovenant set forth in the Agreement and (2) agrees to be personally bound by,and personally liable for the breach of, each and every provision in theAgreement, both monetary obligations and obligations to take or refrain fromtaking specific actions or to engage or refrain from engaging in specificactivities.  Each of the undersignedwaives:

 

(1)                                  acceptanceand notice of acceptance by FRANCHISOR of the foregoing undertakings;

 

(2)                                  noticeof demand for payment of any indebtedness or nonperformance of any obligationshereby guaranteed;

 

(3)                                  protestand notice of default to any party with respect to the indebtedness ornonperformance of any obligations hereby guaranteed; and

 

(4)                                  anyright he may have to require that an action be brought against FRANCHISEE orany other person as a condition of liability.

 

Each of theundersigned consents and agrees that:

 

(a)                                  hisdirect and immediate liability under this guaranty shall be joint and several;

 

(b)                                 heshall render any payment or performance required under the Agreement upondemand if FRANCHISEE fails or refuses punctually to do so;

 

(c)                                  suchliability shall not be contingent upon or conditioned upon pursuit byFRANCHISOR of any remedies against FRANCHISEE or any other person; and

 

(d)                                 suchliability shall not be diminished, relieved or otherwise affected by anyextension of time, credit or the indulgence which FRANCHISOR may from time totime grant to FRANCHISEE or to any other person, including, without limitation,the acceptance of any partial payment or performance, or the compromise orrelease of any claims, none of which shall in any way modify or amend thisguaranty, which shall be continuing and irrevocable during the term of theAgreement.

 

If FRANCHISORis required to enforce this Guaranty and Assumption of Obligations in anyjudicial or arbitration proceeding or appeal thereof, the GUARANTORS shallreimburse

 

A-1

----

 

FRANCHISOR for its costs and expenses,including but not limited to, reasonable accountants’, attorneys’, attorneyassistants’, arbitrators’ and expert witness fees, costs of investigation andproof of facts, court costs, other litigation expenses and travel and livingexpenses, whether incurred prior to, in preparation for or in contemplation ofthe filing of any written demand, claim, action, hearing or proceeding toenforce this Guaranty and Assumption of Obligations.

 

Each of theundersigned agrees to be personally bound by the arbitration obligations underSection 16 of the Agreement, including, without limitation, the obligationto submit to binding arbitration the claims described in Section 16 of theAgreement in accordance with its terms.

 

**IN WITNESS WHEREOF**,each of the undersigned has hereunto affixed his signature on the same day andyear as the Agreement was executed.

 
| **WITNESS** |   | **GUARANTORS** |
|-------------|--------|----------------|
|        |   |           |
|        |   |           |   |
|        |   | Name           |
|        |   |           |   |
|        |   | Signature      |
|        |   |           |
|        |   |           |   |
|        |   | Name           |
|        |   |           |   |
|        |   | Signature      |
|             |        |                |  |  |

 

Stateof                                   }

Countyof                               }                                       ss.

 

On                               ,  beforeme,                                                                                                                                         ,
| Date | Name and Title of Officer (e.g., “Jane Doe, Notary Public”) |
|------|-----------------------------------------------------------------------|

 
| personally  appeared                                                                                                                                                                 , |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Name(s) of Signer(s) |   |

 

•                  personallyknown to me

•                  provedto me on the basis of satisfactory evidence

 

to be theperson(s) whose name(s) is/are subscribed to the within instrument andacknowledged to me that he/she/they executed the same in his/her/theirauthorized capacity(ies), and that his/her/their authorized signature(s) on theinstrument the person(s), or the entity upon behalf of which the person(s)acted, executed the instrument.

 
|                    | Witness my hand and official seal. |   |
|-------------------------|------------------------------------|--------|
|                    |                               |
|                    |                               |   |
| Place Notary Seal Above | Signature of Notary Public         |   |
|                         |                                    |        |  |

 

A-2

----

 

**EXHIBIT B**

 

**CONFIDENTIALITY ANDNON-COMPETITION AGREEMENT**

 

This“Agreement” is made and entered into as ofthis                dayof                                ,20     , by and among Franchisee, Covenantor andGLORIA JEAN’S GOURMET COFFEES FRANCHISING CORP., an Illinois corporation(“Franchisor”).

 

“Franchisee”:

 

“Covenantor”:                                                                ,being [an owner], [an officer], [a director] [general partner], [managingmember] or [manager] of Franchisee.

 

Address:

 

 

 

1.                                       **PREAMBLES**

 

Franchisor hasexecuted or intends to execute a “Franchise Agreement” with Franchisee underwhich Franchisor grants to Franchisee certain rights with regard to a “GloriaJeans Coffees Store” (“GJC Store”), a “Gloria Jeans Coffees Kiosk” (“GJCKiosk”) or a “Gloria Jeans Coffees Cart” (“GJC Cart”).  Unless otherwise specified, all referencesherein to GJC Stores include GJC Kiosks and GJC Carts.  Before allowing Covenantor to have access tothe Confidential Information (as defined below) and as a material term of theFranchise Agreement necessary to protect Franchisor’s confidential know-how anddistinctive systems, designs, decor, trade dress, specifications, standards andprocedures authorized or required by Franchisor from time to time for use inthe operation of Franchisee’s GJC Store, GJC Kiosk or GJC Cart (the “Store”)and Franchisor’s proprietary rights in and Franchisee’s right to use theConfidential Information, Franchisor and Franchisee require that Covenantorenter into this Agreement.

 

To induceFranchisor to enter into the Franchise Agreement and/or to avoid a materialbreach thereof Franchisor, Franchisee and Covenantor desire and consider it tobe in Covenantor’s best interests that Covenantor enter into this Agreement.  Due to the nature of Franchisor’s andFranchisee’s business any use or disclosure of the Confidential Informationother than in accordance with this Agreement will cause Franchisor andFranchisee substantial harm.

 

B-1

----

 

2.                                       **PROTECTIONOF CONFIDENTIAL INFORMATION**

 

Covenantoracknowledges and agrees that Franchisor possesses certain confidential andproprietary information in which Franchisor possesses valuable industrial andintellectual property rights consisting of the methods, techniques, formats,specifications, procedures, information, systems, methods of businessmanagement, sales and promotion techniques and knowledge of and experience inthe operation and franchising of GJC STORES (the “Confidential Information”).  Franchisor and Franchisee will disclose suchparts of the Confidential Information as are required for Covenantor to performits obligations to Franchisee in furnishing Covenantor the training program,the Operating Manual (as defined in the Franchise Agreement) and in guidancefurnished to Covenantor for his/her performance of services to Franchisee.

 

Covenantoragrees to use the Confidential Informa­tion only to the extent reasonablynecessary to perform Covenantor’s duties for Franchisee taking intoconsideration the confidential nature of the Confidential Information.  Covenantor may disclose the ConfidentialInformation only as agent for Franchisee. Covenantor acknowledges and agrees that the unauthorized use orduplication of the Confidential Information, including, without limitation, inconnection with any other business would be detrimental to Franchisor andFranchisee and would constitute a breach of Covenantor’s obligations ofconfidentiality and an unfair method of competition with Franchisor and otherGJC Stores owned by Franchisor, its affiliates or franchisees.

 

Covenantoracknowledges and agrees that the Confidential Information is confidential toand a valuable asset of Franchisor.  TheConfidential Information will be disclosed to Covenantor solely on thecondition that Covenantor agrees to the terms and conditions of thisAgreement.  Covenantor therefore agreesthat during the term of the Franchise Agreement and thereafter, he/she:  (a) will not use the ConfidentialInformation in any other business or capacity; (b) will maintain theabsolute confidentiality of the Confidential Information; (c) will notmake unauthorized copies of any portion of the Confidential Informationdisclosed or recorded in written or other tangible form; and (d) willadopt and implement all reasonable procedures prescribed from time to time byFranchisor and Franchisee to prevent unauthorized use or disclosure of oraccess to the Confidential Information.

 

Notwithstandinganything to the contrary contained in this Agreement the restrictions onCovenantor’s disclosure and use of the Confidential Information shall not applyto the following:  (a) information,methods, procedures, techniques and knowledge which are or become generallyknown or easily accessible other than by Covenantor’s breach of an obligationof confidentiality; and (b) the disclosure of the Confidential Informationpursuant to applicable law or in judicial or administrative proceedings to theextent that Covenantor is legally compelled or required by a regulatory body todisclose such information, provided Covenantor has notified Franchisor andFranchisee prior to disclosure and shall have used his/her best efforts toobtain, and shall have afforded Franchisor and Franchisee the opportunity toobtain, an appropriate assurance reasonably

 

B-2

----

 

satisfactory to Franchisor of confidentialtreatment for the information required to be so disclosed.

 

3.                                       **IN-TERMRESTRICTIVE COVENANT**.

 

Covenantoracknowledges and agrees that Franchisor and Franchisee would be unable toprotect the Confidential Information against unauthorized use or disclosure andFranchisor would be unable to achieve a free exchange of ideas and informationamong GJC Stores if persons authorized to use the Confidential Information werepermitted to engage in, have ownership interests in or perform services forCompetitive Businesses (as defined below). Covenantor therefore agrees that for as long as Covenantor is an owner,director, officer, general partner, managing member or manager of Franchisee oris otherwise employed or engaged by Franchisee, Covenantor shall not  (through a member of the immediate family orotherwise) have any interest as an owner of (except of publicly-tradedsecurities or interests in other GJC Stores pursuant to other franchiseagreements with Franchisor or its affiliates), or assist or perform services asa director, officer, employee, consultant, representative, agent or in anyother capacity, for, any business principally offering products substantiallysimilar to the products then being offered by the majority of the GJC Stores (a“Competitive Business”), nor will Covenantor have any interest, as aforesaid,in, or serve in any capacity, any entity which franchises or otherwise grants toothers the right to operate a Competitive Business.

 

4.                                       **RESTRICTIVECOVENANT UPON TERMINATION OR EXPIRATION OF THE FRANCHISE AGREEMENT ORCOVENANTOR’S ASSOCIATION WITH FRANCHISEE**.

 

Upon the firstto occur of:  (a) termination orexpiration without renewal of the Franchise Agreement; or (b) the date asof which Covenantor ceases to be an owner, director, officer, general partner,managing member or manager of, or otherwise employed or engaged by, Franchisee(both referred to herein as a “Termination Event”), Covenantor agrees that, fora period of two (2) years commencing on the effective date of a TerminationEvent, Covenantor shall not  (through amember of the immediate family or otherwise) have any interest as an owner of(except of publicly-traded securities or interests in other GJC Stores pursuantto other franchise agreements with Franchisor or its affiliates), or assist orperform services as a director, officer, employee, consultant, representative,agent or in any other capacity for, any Competitive Business located withineither (i) the Standard Metropolitan Statistical Area wherein the Store islocated or (ii) a ten (10) mile radius from any then existing GJC Store, norwill Covenantor have any interest, as aforesaid, in, or serve in any capacity,any entity which franchises or otherwise grants to others the right to operatea Competitive Business

 

Covenantorrecognizes the broad scope of the restrictive covenants set forth in Sections 3and 4 of this Agreement, but agrees that they are reasonable.  If any court or tribunal of competentjurisdiction shall refuse to enforce any such covenant because it is moreextensive whether as to time limit, geographic area, scope of business orotherwise than is deemed reasonable, it is expressly understood and agreed thatsuch covenants

 

B-3

----

 

shall not be void, but that the restrictionscontained therein shall be deemed reduced to the extent necessary to permit theenforcement of such covenants.

 

Covenantorexpressly acknowledges and agrees that Covenantor possesses skills andabilities of a general nature and has opportunities for exploiting suchskills.  Consequently enforcement of thecovenants made in Sections 3 and 4 of this Agreement will not deprive Covenantorof the ability to earn a living.

 

5.                                       **SURRENDEROF DOCUMENTS.**

 

Covenantoragrees that, as of the effective date of a Termination Event, Covenantor shallimmediately cease to use the Confidential Information disclosed to or otherwiselearned or acquired by Covenantor and return to Franchisee or to Franchisor ifdirected by Franchisor all copies of the Confidential Information loaned ormade available to Covenantor.

 

6.                                       **COSTS ANDATTORNEYS’ FEES**.

 

In the eventthat Franchisor or Franchisee is required to enforce this Agreement in anaction against Covenantor, Covenantor shall reimburse Franchisor and/orFranchisee if it/they prevail (whether or not awarded a money judgment) forits/their reasonable attorneys’ fees, whether such fees are incurred before, duringor after any trial or administrative proceeding or on appeal.

 

7.                                       **WAIVER**.

 

Failure toinsist upon strict compliance with any of the terms, covenants or conditionshereof shall not be deemed a waiver of such term, covenant or condition, norshall any waiver or relinquishment of any right or remedy hereunder at any oneor more times be deemed a waiver or relinquishment of such right or remedy atany other time or times.

 

8.                                       **SEVERABILITY**.

 

Each section,paragraph, term and provision of this Agreement and any portion thereof shallbe considered severable and if for any reason any such provision is held to beinvalid or contrary to or in conflict with any applicable present or future lawor regulation in a final, unappealable ruling issued by any court, agency ortribunal with competent jurisdiction in a proceeding to which Franchisor is aparty, that ruling shall not impair the operation of or have any other effectupon such other portions of this Agreement as may remain otherwiseintelligible. Such other portions shall continue to be given full force andeffect and bind the parties hereto.  Anyportion held to be invalid shall be deemed not to be a part of this Agreementfrom the date the time for appeal expires if Covenantor is a party thereto orupon Covenantor’s receipt of a notice from Franchisor that it will not enforcethe section, paragraph, term or provision in question.

 

B-4

----

 

9.                                       **RIGHTS OFPARTIES ARE CUMULATIVE**.

 

The rights ofthe parties hereunder are cumulative and no exercise or enforcement by a partyhereto of any right or remedy granted hereunder shall preclude the exercise orenforcement by them of any other right or remedy hereunder or which they areentitled by law to enforce.

 

10.                                 **BENEFIT**.

 

This Agreementshall inure to the benefit of and be binding upon the parties hereto and theirrespective successors and assigns.  Inthe event Franchisor does not execute this Agreement (regardless of the reason)Franchisor shall be deemed a third party beneficiary of  this Agreement and shall have the right toenforce this Agreement directly.

 

11.                                 **EFFECTIVENESS**.

 

This Agreementshall be enforceable and effective when signed by Covenantor regardless ofwhether and when Franchisor or Franchisee signs this Agreement.

 

12.                                 **GOVERNINGLAW/CONSENT TO JURISDICTION**.

 

This Agreementand the relationship between the parties hereto shall be construed and governedin accordance with the internal laws of the state in which the Store is locatedwithout regard to its conflict of laws principles.  Covenantor and Franchisee agree that they shall institute andthat Franchisor may institute any action against any of the parties hereto inany state or federal court of general jurisdiction in the state court ofgeneral jurisdiction or the Federal District Court nearest to Franchisor’sprincipal place of business at the time such action is filed.  Covenantor and Franchisee irrevocably submitto the jurisdiction of such courts and waive any objections to either thejurisdiction or venue of such court.

 

B-5

----

 

**IN WITNESS WHEREOF**,the parties hereto have executed this Agreement in multiple counterparts as ofthe day and year first above written.

 

 
| **Covenantor**:              | **Franchisee**: |
|------------------------------|-----------------|
|                         |            |
|                         |            |
|                         |            |   |   |
| Print name of **Covenantor** |            | Print name of **Franchisee** |
|                         |            |
|                         |            |
|                         |            | By: |   |   |   |
| Signature of **Covenantor**  |            | Print Name: |   |   |   |
|                         |            | Title: |   |   |
|                         |            |   |
|                         |            |   |
|                         |            | **Franchisor**: |
|                         |            |   |
|                         |            | **GLORIA JEAN’S GOURMET  COFFEES FRANCHISING  CORP.** |
|                         |            | an Illinois corporation |
|                         |            |   |
|                         |            |   |
|                         |            | By: |   |   |
|                         |            | Print Name: |   |   |
|                         |            | Title: |   |   |
|                              |                 |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

B-6

----

 

**EXHIBIT C**

 

**CONFIDENTIALITY AGREEMENT**

 

This“Agreement” is made and entered into as ofthis          dayof                            ,20     , by and among Franchisee, Covenantor andGLORIA JEAN’S GOURMET COFFEES FRANCHISING CORP., an Illinois corporation(“Franchisor”).

 

“Franchisee”:

 

“Covenantor”:                                                                         ,employed or engaged by Franchisee as                                            .

 

Address:

 

 

1.                                       **PREAMBLES**

 

Franchisor hasexecuted or intends to execute a “Franchise Agreement” with Franchisee underwhich Franchisor grants to Franchisee certain rights with regard to “GloriaJean’s Coffees Stores” (“GJC Stores”), “Gloria Jean’s Coffees Kiosks” (“GJCKiosks”) or “Gloria Jean’s Coffees Carts” (“GJC Carts”).  Unless otherwise specified, all referencesherein to GJC Stores include GJC Kiosks and GJC Carts.  Before allowing Covenantor to have access tothe Confidential Information (as defined below) and as a material term of theFranchise Agreement necessary to protect Franchisor’s confidential know-how anddistinctive systems, designs, decor, trade dress, specifications, standards andprocedures authorized or required by Franchisor from time to time for use inthe operation of Franchisee’s GJC Store, GJC Kiosk or GJC Cart (the “Store”)and Franchisor’s proprietary rights in and Franchisee’s right to use theConfidential Information, Franchisor and Franchisee require that Covenantor enterinto this Agreement.

 

To induceFranchisor to enter into the Franchise Agreement and/or to avoid a materialbreach thereof Franchisor, Franchisee and Covenantor desire and consider it tobe in Covenantor’s best interests that Covenantor enter into this Agreement.  Due to the nature of Franchisor’s andFranchisee’s business any use or disclosure of the Confidential Informationother than in accordance with this Agreement will cause Franchisor andFranchisee substantial harm.

 

2.                                       **PROTECTIONOF CONFIDENTIAL INFORMATION**.

 

Covenantoracknowledges and agrees that Franchisor possesses certain confidential andproprietary information in which Franchisor possesses valuable industrial andintellectual property rights consisting of the methods, techniques, formats, specifications,procedures,

 

C-1

----

 

information, systems, methods of businessmanagement, sales and promotion techniques and knowledge of and experience inthe operation and franchising of GJC STORES (the “ConfidentialInformation”).  Franchisor andFranchisee will disclose such parts of the Confidential Information as arerequired for Covenantor to perform his/her obligations to Franchisee infurnishing Covenantor the training program, the Operating Manual (as defined inthe Franchise Agreement) and in guidance furnished to Covenantor for his/herperformance of services to Franchisee.

 

Covenantoragrees to use the Confidential Informa­tion only to the extent reasonablynecessary to perform Covenantor’s duties for Franchisee taking intoconsideration the confidential nature of the Confidential Information.  Covenantor may disclose the ConfidentialInformation only as agent for Franchisee. Covenantor acknowledges and agreesthat the unauthorized use or duplication of the Confidential Information,including, without limitation, in connection with any other business would bedetrimental to Franchisor and Franchisee and would constitute a breach ofCovenantor’s obligations of confidentiality and an unfair method of competitionwith Franchisor and other GJC Stores owned by Franchisor, its affiliates orfranchisees.

 

Covenantoracknowledges and agrees that the Confidential Information is confidential toand a valuable asset of Franchisor.  TheConfidential Information will be disclosed to Covenantor solely on thecondition that Covenantor agrees to the terms and conditions of thisAgreement.  Covenantor therefore agreesthat during the term of the Franchise Agreement and thereafter, he/she:  (a) will not use the ConfidentialInformation in any other business or capacity; (b) will maintain theabsolute confidentiality of the Confidential Information; (c) will notmake unauthorized copies of any portion of the Confidential Informationdisclosed or recorded in written or other tangible form; and (d) willadopt and implement all reasonable procedures prescribed from time to time byFranchisor and Franchisee to prevent unauthorized use or disclosure of oraccess to the Confidential Information.

 

Notwithstandinganything to the contrary contained in this Agreement the restrictions onCovenantor’s disclosure and use of the Confidential Information shall not applyto the following:  (a) information,methods, procedures, techniques and knowledge which are or become generallyknown or easily accessible other than by Covenantor’s breach of an obligationof confidentiality; and (b) the disclosure of the Confidential Informationpursuant to applicable law or in judicial or administrative proceedings to theextent that Covenantor is legally compelled or required by a regulatory body todisclose such information, provided Covenantor has notified Franchisor andFranchisee prior to disclosure and shall have used his/her best efforts toobtain, and shall have afforded Franchisor and Franchisee the opportunity toobtain, an appropriate assurance reasonably satisfactory to Franchisor ofconfidential treatment for the information required to be so disclosed.

 

4.                                       **SURRENDEROF DOCUMENTS.**

 

Covenantoragrees that as of the date on which Covenantor ceases to perform services forFranchisee in connection with the Store, Covenantor shall immediately cease touse the Confidential Information disclosed to or otherwise learned or acquiredby Covenantor and return

 

C-2

----

 

to Franchisee or to Franchisor if directed byFranchisor all copies of the Confidential Information loaned or made availableto Covenantor.

 

5.                                       **COSTS ANDATTORNEYS’ FEES**.

 

In the eventthat Franchisor or Franchisee is required to enforce this Agreement in anaction against Covenantor, Covenantor shall reimburse Franchisor and/orFranchisee if it/they prevail (whether or not awarded a money judgment) forits/their reasonable attorneys’ fees, whether such fees are incurred before,during or after any trial or administrative proceeding or on appeal.

 

6.                                       **WAIVER**.

 

Failure toinsist upon strict compliance with any of the terms, covenants or conditionshereof shall not be deemed a waiver of such term, covenant or condition, norshall any waiver or relinquishment of any right or remedy hereunder at any oneor more times be deemed a waiver or relinquishment of such right or remedy atany other time or times.

 

7.                                       **SEVERABILITY**.

 

Each section,paragraph, term and provision of this Agreement and any portion thereof shallbe considered severable and if for any reason any such provision is held to beinvalid or contrary to or in conflict with any applicable present or future lawor regulation in a final, unappealable ruling issued by any court, agency ortribunal with competent jurisdiction in a proceeding to which Franchisor is aparty, that ruling shall not impair the operation of or have any other effectupon such other portions of this Agreement as may remain otherwiseintelligible. Such other portions shall continue to be given full force andeffect and bind the parties hereto.  Anyportion held to be invalid shall be deemed not to be a part of this Agreementfrom the date the time for appeal expires if Covenantor is a party thereto orupon Covenantor’s receipt of a notice from Franchisor that it will not enforcethe section, paragraph, term or provision in question.

 

8.                                       **RIGHTS OFPARTIES ARE CUMULATIVE**.

 

The rights ofthe parties hereunder are cumulative and no exercise or enforcement by a partyhereto of any right or remedy granted hereunder shall preclude the exercise orenforcement by them of any other right or remedy hereunder or which they areentitled by law to enforce.

 

9.                                       **BENEFIT**.

 

This Agreementshall inure to the benefit of and be binding upon the parties hereto and theirrespective successors and assigns.  Inthe event Franchisor does not execute this Agreement (regardless of the reason)Franchisor shall be deemed a third party beneficiary of  this Agreement and shall have the right toenforce this Agreement directly.

 

C-3

----

 

10.                                 **EFFECTIVENESS**.

 

This Agreementshall be enforceable and effective when signed by Covenantor regardless ofwhether and when Franchisor or Franchisee signs this Agreement.

 

11.                                 **GOVERNING LAW/CONSENT TO JURISDICTION**.

 

This Agreementand the relationship between the parties hereto shall be construed and governedin accordance with the internal laws of the state in which the Store is locatedwithout regard to its conflicts of laws principles.  Covenantor and Franchisee agree that they shall institute andthat Franchisor may institute any action against any of the parties hereto inany state or federal court of general jurisdiction in the state court ofgeneral jurisdiction or the Federal District Court nearest to Franchisor’sprincipal place of business at the time such action is filed.  Covenantor and Franchisee irrevocably submitto the jurisdiction of such courts and waive any objections to either thejurisdiction or venue of such court.

 

**IN WITNESS WHEREOF**,the parties hereto have executed this Agreement in multiple counterparts as ofthe day and year first above written.

 
| **Covenantor**:              | **Franchisee**:              |
|------------------------------|------------------------------|
|                         |                         |
|                         |                         |   |   |
| Print name of **Covenantor** | Print name of **Franchisee** |
|                         |                         |
|                         |                         |
|                         |                         | By: |   |   |
| Signature of **Covenantor**  |                         | Print Name: |   |   |
|                         |                         | Title: |   |   |
|                         |                         |   |
|                         |                         | **Franchisor**: |
|                         |                         |   |
|                         |                         | **GLORIA JEAN’S GOURMET  COFFEES FRANCHISING CORP.** |
|                         |                         | an Illinois corporation |
|                         |                         |   |
|                         |                         |   |
|                         |                         | By: |   |   |
|                         |                         | Print Name: |   |   |
|                         |                         | Title: |   |   |
|                              |                              |  |  |  |  |  |  |  |  |

 

C-4

----