FRANCHISE AGREEMENT DATED OCT 2, 2004



 





Exhibit 10.30




FRANCHISE AGREEMENT



THIS FRANCHISE AGREEMENT is made as of the 15 day of October, 2004.



BETWEEN:



LULULEMON ATHLETICA INC., a corporation incorporated

under the laws of Canada, having its registered office at 1945

McLean Drive, Vancouver, B.C., Canada V5W 3J7



(the “Franchisor” or “Lululemon”)



AND:



LULULEMON ATHLETICA (AUSTRALIA) PTY. LTD.

ACN 110 186 233, a corporation incorporated under the laws of

Australia, having its registered office at 208 Chapel Street,

Prahran, Victoria 3141



(the “Franchisee”)




RECITALS



WHEREAS:




          A.     Franchisor has developed a format, system and plan for the operation of retail stores
featuring and offering for sale Lululemon Athletica trade-marked clothing and accessories, and
related products and services, all of controlled quality, in accordance with Franchisor’s
prescribed standards, specifications, policies and procedures, under the name, trade mark and style
of “Lululemon Athletica” (the “system”);




          B.     Franchisor owns and controls the trade name and trade mark Lululemon Athletica and related
trade marks and designs used in connection with the franchised business and system (the “Marks” or
the “Trade Marks”); and




          C.     Franchisee has applied for a franchise to operate a Lululemon Athletica retail store
utilizing and in conformity with Franchisor’s Winning Formula, business method (including the 80/20
Store Operations Guide), format and system and the Trade Marks, at one or more approved retail
locations, and to distribute Lululemon Athletica trade-marked clothing and accessories at such
approved retail locations within the Franchised Territory set out below, and Franchisor has agreed
to supply Lululemon Athletica trade-marked clothing and accessories and to grant such a franchise
to Franchisee upon the terms and conditions of this Agreement.



NOW THEREFORE in consideration of the premises and of the mutual covenants and agreements herein
contained, and for other consideration acknowledged by the parties to be of good and sufficient
value, the parties agree as follows:




1.     Definitions




 









 








                    In this Agreement, the following capitalized terms shall have the following meanings unless
the context requires otherwise:





	 	(a)	 	“Agreement” means this Agreement and all schedules thereof and
any subsequent agreement in writing which amends or supplements this Agreement;
	 
	 	(b)	 	“Applicable Taxes” means all taxes, duties, levies and other
governmental charges levied from time to time in respect of the sale of the
Products by Lululemon to Franchisee including, without limitation, all federal,
state, district and regional sales, excise, value added, consumption, social
services and goods and services taxes, but excluding all such taxes, duties,
levies and other governmental charges levied from time to time in respect of
Lululemon’s income, capital, business premises, facilities, equipment or
operations, or the procurement by Lululemon of any materials, supplies or
subcontract work;
	 
	 	(c)	 	“Approved Retail Location” or “Approved Retail Locations” means
the retail location or locations which has or have been approved by Lululemon
for the operation by Franchisee of a retail sales outlet or retail sales
outlets as set forth in Schedule “C”, as may be amended or supplemented from
time to time;
	 
	 	(d)	 	“Commencement Date” means the Commencement Date as set forth in
Schedule “C”;
	 
	 	(e)	 	“Effective Date” means the Effective Date as set forth in
Schedule “C”;
	 
	 	(f)	 	“Focus Area Exclusive Zone” means the Focus Area Exclusive Zone
as set forth in Schedule “C”;
	 
	 	(g)	 	“Franchise” means a business operated by a Franchisee which is
engaged in the retail sale of Lululemon Products in the Territory or any part
thereof;
	 
	 	(h)	 	“Franchise Agreement” means an agreement between Lululemon and
a Franchisee or prospective Franchisee the subject matter of which relates to
the acquisition or operation of a Franchise;
	 
	 	(i)	 	“Franchise Fee” means a direct or indirect payment (whether
payable on a one-time or recurring basis) which is required to be paid by a
Franchisee to Lululemon, or to any affiliate of Lululemon, as consideration for
the grant of a right to acquire or operate a Franchise;
	 
	 	(j)	 	“Franchised Territory” means the same thing as “Territory”;




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	 	(k)	 	“Franchisee” means the Franchisee under this Agreement as the
authorized retailer of Lululemon Products at an Approved Retail Location or
Approved Retail Locations;
	 
	 	(l)	 	“Gross Sales” means, for a specified period, the gross sales of
all Products sold by Franchisee at an Approved Retail Location during that
period less:






	 	(i)	 	returns of Products at the
Approved Retail Location during that period,
	 
	 	(ii)	 	refunds and allowances made by
Franchisee at the Approved Retail Location during that period,
	 
	 	(iii)	 	store credits redeemed by
Franchisee at the Approved Retail Location during that period,
	 
	 	(iv)	 	amounts received by Franchisee
from the sale of gift certificates at the Approved Retail
Location during that period (it being understood and agreed that
the redemption of gift certificates will be included as Gross
Sales for the period in which they are redeemed), and
	 
	 	(v)	 	amounts collected by Franchisee
at the Approved Retail Location during that period on account of
taxes;






	 	(m)	 	“License Agreement” means the same thing as “Franchise
Agreement”, except as may otherwise be specified in this Agreement;
	 
	 	(n)	 	“License Fee” means the same thing as “Franchise Fee”, except
as may otherwise be specified in this Agreement in respect of the Approved
Retail Locations;
	 
	 	(o)	 	“Lululemon Products” means clothing and accessories which are
acquired from or through Lululemon, and which (i) display the Marks, or (ii)
are distributed or sold under a system of distribution or sale in which the use
or display of the Marks is an integral part thereof
	 
	 	(p)	 	“Marks” means the trade-marks, trade names and other commercial
symbols and related logos as set forth in Schedule “D” hereto, including the
trade names LULULEMON and LULULEMON ATHLETICA, together with such other trade
names, trade-marks, symbols, logos, distinctive names, slogans, service marks,
certification marks, logo designs, insignia or otherwise which may be
designated by Lululemon from time to time;




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	 	(q)	 	“MSRP” for Products means the prices, in Canadian dollars,
published from time to time by Lululemon Athletica Inc. as the manufacturer’s
suggested retail sale prices for those Products in Canada;
	 
	 	(r)	 	“Principal Franchisees” means Karen Newton and Devin Wilkins or
their permitted successors or assigns and “Principal Franchisee” means any one
of them;
	 
	 	(s)	 	“Products” means the Lululemon Products;
	 
	 	(t)	 	“Scheduled Opening Date” means the Scheduled Opening Date(s) as
set forth in Schedule “C”;
	 
	 	(u)	 	“Shareholders Agreement” means the agreement made on 15 October
2004 between Chip Wilson, Karen Newton and Devin Wilkins in relation to shares
in the Franchisee;
	 
	 	(v)	 	“Territory” means the Territory as set forth in Schedule “C”;
	 
	 	(w)	 	“Trade Marks” means the same thing as “Marks”.





2.     Term, Renewal and License Fee





	 	(a)	 	Subject to any right of earlier termination as provided for
herein, the initial term of this Agreement shall be for a period of five (5)
years (the “Initial Term”). The Initial Term shall commence on the
Commencement Date.
	 
	 	(b)	 	Provided that Franchisee achieves Gross Sales at the Approved
Retail Location or at each of the Approved Retail Locations, in respect of the
renewal rights for that Approved Retail Location, as the case may be, in either
of the last of two (2) years of the Initial Term of the amount as set forth in
Schedule “C”, it shall have the right to renew this Agreement for a single
further term of five (5) years, unless Franchisee shall fail to meet the
then-current terms and conditions of renewal as specified herein or in the
then-current Franchise Agreement. The terms and conditions for renewal of this
Agreement are as follows:






	 	(i)	 	Franchisee shall notify
Franchisor in writing at least six (6) months prior to the
expiry of the term that it wishes to exercise this option to
renew;
	 
	 	(ii)	 	Franchisee’s option to renew
shall only be effective if at the time of its exercise and at
the time of commencement of the renewal term Franchisee shall
have fully complied with all of the material terms and
conditions of this Agreement;
	 
	 	(iii)	 	in the event of non-compliance
by Franchisee, if Franchisor shall determine not to allow
Franchisee to renew this




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	 	 	 	Agreement, then Franchisor shall notify Franchisee in writing
setting forth Franchisor’s reasons for non-renewal, and
Franchisor shall give as much notice of non-renewal to
Franchisee as is reasonably practicable in the circumstances;
	 
	 	(iv)	 	Franchisee shall execute and
deliver to Franchisor prior to the commencement of the renewal
term a new Franchise Agreement for the renewal term in
Franchisor’s then-current standard form, which may include terms
and conditions which differ from those contained in this
Agreement, except that Franchisee shall pay as a License Fee for
the renewal term for each Approved Retail Location the sum as
set forth in Schedule “C”, and the royalties to be paid by
Franchisee during the renewal term shall not exceed the
percentage royalties to be paid by Franchisee during the last
year of the Initial Term;
	 
	 	(v)	 	Franchisee shall carry out
Franchisor’s reasonably required upgrading and improvements to
the franchised business in order to conform with Franchisor’s
then-current standards and specifications; and
	 
	 	(vi)	 	Franchisee shall reimburse
Franchisor for all of its reasonable costs and expenses incurred
in connection with the renewal, including inspection of the
franchised business and providing any required additional
training.






	 	(c)	 	Franchisee shall pay Lululemon as a License Fee for this
Agreement and one (1) Approved Retail Location the sum as set forth in Schedule
“C” for the Initial Term. In the event of more than one (1) Approved Retail
Location, the said License Fee sum shall again be paid in respect of each
additional Approved Retail Location.
	 
	 	(d)	 	The License Fee shall be deemed to have been fully earned by
and payable to Franchisor upon the granting of this Franchise, and no portion
of the License Fee shall be refundable to or become not payable by Franchisee
for any reason.
	 
	 	(e)	 	The License Fee for the Initial Term shall be paid within
thirty (30) days of the Effective Date. In the event of more than one (1)
Approved Retail Location, the said License Fee sum shall again be paid within
thirty (30) days of the Effective Date of the Franchise Agreement entered into
in respect of each additional Approved Retail Location, or within thirty (30)
days of the Scheduled Opening Date for each such additional Approved Retail
Location to open for business, whichever is the earlier date.




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3.     Appointment and Use of Marks on Products and at Stores





	 	(a)	 	Subject to any termination or non-renewal of this Agreement,
and except as otherwise provided in this Agreement, Lululemon appoints
Franchisee, for so long as this Agreement remains in effect, as a non-exclusive
retailer of Lululemon Products at one or more Approved Retail Locations in the
Territory.
	 
	 	(b)	 	Each Approved Retail Location to be established and operated by
Franchisee in the Territory must first be approved by Franchisor, such approval
to be at Franchisor’s discretion, and, except for the Approved Retail Location
or the first (1st) Approved Retail Location, as the case may be, as
set forth in Schedule “C”, shall be the subject of a separate Franchise
Agreement to be entered into between the parties prior to its Scheduled Opening
Date. Each such Franchise Agreement will contain the same financial
obligations of Franchisee, including payment of a License Fee for each such
Approved Retail Location in the same amount as is set forth in this Agreement,
and will otherwise contain substantially the same terms and conditions as are
set forth in this Franchise Agreement pertaining to the Approved Retail
Location. If for any reason the parties do not enter into a separate Franchise
Agreement, then the terms and conditions of this Franchise Agreement will apply
to each such Approved Retail Location, except that the Effective Date will be
read as thirty (30) days prior to the Scheduled Opening Date of such Approved
Retail Location; and the Commencement Date will be read as being the same as
the Scheduled Opening Date of such Approved Retail Location.
	 
	 	(c)	 	Each Approved Retail Location shall be constructed, developed,
furnished, fixtured, equipped, set up and maintained in accordance with
Franchisor’s standard sample plans, specifications, layout and design, as
provided by Franchisor to Franchisee. No changes shall be made unless first
approved in writing by Franchisor, such approval not to be unreasonably
withheld or delayed. Franchisee shall use all reasonable efforts to have each
Approved Retail Location open for business by the Scheduled Opening Date as set
forth in Schedule “C”.
	 
	 	(d)	 	During the currency of this Agreement, but except as otherwise
provided in this Agreement, Lululemon shall permit Franchisee to hold itself
out as an authorized retailer of Lululemon Products at Approved Retail
Locations.
	 
	 	(e)	 	Franchisee shall prepare and submit for Lululemon’s review and
reasonable approval a budget for the development and first year’s operations of
each Approved Retail Location, at the time of presenting each proposed retail
location to Lululemon for its approval. Lululemon will provide assistance to
Franchisee upon request, but only for the




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	 	 	 	purposes of guidance. Franchisee will be solely responsible to work with
its own advisors in preparing and finalizing such budgets.
	 
	 	(f)	 	If Franchisee wishes to relocate any existing Approved Retail
Location to another location due to:






	 	(i)	 	unfavourable business conditions;
or
	 
	 	(ii)	 	a change in the nature or
character of the area where the Approved Retail Location is
located; or
	 
	 	(iii)	 	the Approved Retail Location is
no longer adequate to support actual or potential business
volumes, then Franchisee shall submit a written request to
Lululemon requesting such permission and providing the reasons
for such request and Lululemon, acting reasonably, shall
consider and respond to any such request and shall notify
Franchisee in writing within thirty (30) days following receipt
of such request of its decision thereof.






	 	(g)	 	During the first twelve (12) months of the Initial Term,
Lululemon shall not, without Franchisee’s prior written consent, which consent
may be withheld in Franchisee’s sole discretion, enter into any franchise,
license or distribution agreement for the operation of a retail outlet in the
Territory or grant any other party a license to use the Marks in association
with the retail marketing, sale or promotion of Products in the Territory.
	 
	 	(h)	 	During the last forty-eight (48) months of the Initial Term and
during the renewal term, Lululemon shall not, without Franchisee’s prior
written consent, which consent may be withheld in Franchisee’s sole discretion,
enter into any franchise, license or distribution agreement for the operation
of a retail outlet in the Focus Area Exclusive Zone as set forth in Schedule
“C” or grant any other party a license to use the Marks in association with the
retail marketing, sale or promotion of Products in the Focus Area Exclusive
Zone as set forth in Schedule “C”.
	 
	 	(i)	 	During the last forty-eight (48) months of the Initial Term and
during the renewal term, so long as Franchisee is in compliance with all of the
material terms and conditions of this Agreement, Lululemon shall not enter into
any Franchise Agreement or grant any other party a license or right to use the
Marks in association with the retail marketing, sale or promotion of Products
in the Territory unless it first gives not less than ninety (90) days’ prior
written notice to Franchisee of its intention to do so and grants to Franchisee
in such notice a right of first refusal to enter into such proposed Franchise
Agreement, license or right to use, as applicable, on terms and conditions
which are no less favourable to Franchisee than those which it has offered to
such third party. Any such notice shall




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	 	 	 	contain the terms and conditions of such third party offer and shall notify
Franchisee that it may accept such offer on giving written notice of its
acceptance to Lululemon within the time so provided, which shall not be less
than thirty (30) days from the date Franchisee receives such notice. If
Franchisee rejects a right of first refusal, then notwithstanding any other
provisions in this Agreement, Franchisor shall be entitled to proceed and
enter into the proposed agreement on substantially the same terms and
conditions as contained in such notice. If the terms and conditions of the
proposed agreement will change materially or substantially from those
contained in such notice, this shall again give rise to a right of first
refusal to Franchisee as described above. Notwithstanding the foregoing,
Franchisor acknowledges and agrees that nothing in this paragraph shall be
construed as granting to it the right to enter into any franchise, license
or distribution agreement for the operation of a retail outlet in the Focus
Area Exclusive Zone as set forth in Schedule “C” or to grant any other party
a license to use the Marks in association with the retail marketing, sale or
promotion of Products in the Focus Area Exclusive Zone as set forth in
Schedule “C”, otherwise than in compliance with paragraph 3(h) of this
Agreement.
	 
	 	(j)	 	Notwithstanding the above provisions, Lululemon shall have the
right to establish its own retail locations in the Territory other than the
Focus Area Exclusive Zone as set forth in Schedule “C” during the last
forty-eight. (48) months of the Initial Term, and at any time thereafter,
acting in a commercially reasonable manner as to their retail locations not
being too close in proximity to the Approved Retail Locations of Franchisee.
	 
	 	(k)	 	Franchisee shall not use any Mark in association with any third
party product or engage in the retail sale of any third party product at an
Approved Retail Location unless such product is a Lululemon Product. Where
Franchisee wishes to obtain the approval of Lululemon for the sale of a third
party product as a Lululemon Product, it shall submit a request in writing or
by electronic mail to Lululemon and shall provide Lululemon with one (1) sample
of such proposed product and, where applicable, a colour scheme for such
proposed product. Lululemon shall advise Franchisee in writing or by
electronic mail of its acceptance or rejection of such request within a
reasonable time, provided that if Franchisee has not been so advised within
thirty (30) days of making its request, then such request shall be deemed to
have been rejected by Lululemon. Lululemon shall act reasonably in making any
such determination and where it elects to reject any such request it shall
advise Franchisee of its reasons for doing so.
	 
	 	(l)	 	Franchisee will be responsible for the reasonable cost of
adding the Approved Retail Location and subsequent Approved Retail Locations of
Franchisee to Lululemon’s existing master website. Lululemon will refer leads
from prospective retail customers in the Territory to Franchisee, or




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	 	 	 	upon the establishment of additional retail locations, to the retail
location which is closest to the prospective retail customer’s place of
residence.
	 
	 	(m)	 	Franchisee shall not solicit or fill any orders from
prospective wholesale or retail customers located outside the Territory,
provided that nothing in this paragraph shall prevent Franchisee from selling
Products at an Approved Retail Location to customers resident outside the
Territory.
	 
	 	(n)	 	Franchisee shall be entitled to fill any and all athletic team
and telephone orders in the Territory.





4.     Reservation of Rights to Franchisor





	 	(a)	 	Franchisor may also acquire, develop, operate, licence and
franchise other types of retail locations which may involve the distribution
and sale of similar products and services but which operate under different
trade marks and which may be located anywhere including nearby to the Approved
Retail Locations and within the Franchised Territory, and in particular
Franchisor may establish a lower-priced brand of athletic apparel intended for
mall-based dedicated retail stores, and Franchisor shall incur no liability to
Franchisee in connection therewith.
	 
	 	(b)	 	Franchisor may go public, or be acquired by or merge with a
competing business which may involve the distribution and sale of similar
products and services under different trade marks and which may have locations
anywhere including nearby to the Approved Retail Locations and within the
Franchised Territory, and Franchisor shall incur no liability to Franchisee in
connection therewith.
	 
	 	(c)	 	Notwithstanding any other provision of this Agreement,
Franchisor may itself or through an affiliate acquire, develop, operate,
licence or franchise any form of business anywhere which is not specifically
granted, franchised and licensed to Franchisee under this Agreement; and it may
do so under the same, a similar or a different trade-mark; and any such form of
business may be competitive with the franchised business but operate under a
different trade-mark; and if any such business uses the same or a similar
trade-mark, Franchisor will act in a commercially reasonable manner in the
exercise of such rights and will endeavour through such use of the same or a
similar trade mark to enhance the overall public recognition and goodwill
thereof, and Franchisor shall incur no liability to Franchisee in connection
therewith. Franchisor or its affiliates shall not operate, license or
franchise any business which would be competitive with the franchised business
within the Focus Area Exclusive Zone as set forth in Schedule “C” during the
first twelve (12) months of the Initial Term of this Agreement.





5.     Management Personnel




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                    Franchisee acknowledges that Franchisor has granted this Franchise on the representations of
Franchisee that the Principal Franchisees have each entered into an Employment Agreement with the
Franchisee (collectively, the “Employment Agreements”) and shall participate actively on a
full-time basis in the management and operation of the franchised business and work at least five
(5) days per week (forty (40) hours) on average on the store floor of an Approved Retail Location.
Franchisee shall not appoint replacement management personnel without the prior written approval of
Franchisor who will not unreasonably withhold such approval but who in granting such approval may
prescribe, as a condition thereof, that any such replacement management personnel satisfactorily
complete the training requirements set out herein. Franchisor reserves the right to charge a
reasonable standard fee and its reasonable expenses incurred in providing such training.




6.     Training of Franchisee





	 	(a)	 	Franchisor shall furnish Franchisee and the management
personnel, if any, proposed to be employed by Franchisee in the franchised
business with initial training of at least seven (7) days in duration in
respect of the management, administration and operation of a Lululemon
Athletica franchised business. The training shall be given at a location
designated by Franchisor. Franchisor will pay no compensation for any services
performed by trainees during such training and all expenses incurred by
Franchisee or the trainees in connection with such training shall be for the
account of Franchisee. Such initial training is intended to enable Franchisee
or its management personnel thereafter to hire and train its assistant manager
and other employees. Franchisor shall also furnish Franchisee with retail
store opening assistance of seven (7) days in duration but only upon the
opening of the first Approved Retail Location of Franchisee. The cost of such
initial training for up to three (3) persons at the same time and of such
retail store opening assistance shall be charged back to the Franchisee as
outlined in Schedule “C”. Additional persons will be accommodated for such
initial training or for subsequent equivalent training at Franchisee’s request,
or in the event that the initial trainees shall fail to satisfactorily complete
such initial training and Franchisee is required to hire a manager or
replacement manager to satisfactorily complete such initial training, and in
the event of a change of management personnel for the franchised business.
Franchisor reserves the right to charge a reasonable standard fee and its
reasonable expenses incurred in providing such additional training.
	 
	 	(b)	 	Franchisee and each manager, if any, of the franchised business
shall satisfactorily complete such training prior to the commencement of the
franchised business, or in the case of a new manager, prior to or immediately
upon and after taking charge, unless waived by Franchisor in its discretion by
reason of such person’s prior training and experience or by reason of
Franchisee’s ability to satisfactorily train its management personnel.
Franchisee shall advise Franchisor of its proposed operational structure and
personnel prior to the commencement of business, and




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	 	 	 	Franchisor will determine and advise Franchisee as to which personnel will
require training. Franchisor may require retraining of any personnel at any
time based upon performance. Franchisor may specify additional training
which may be mandatory at any time due to system upgrades or changes.
Franchisor may also conduct follow-up training seminars covering various
topics from time to time. Franchisor may designate one (1) of such
follow-up training seminars per year to be mandatory for Franchisee and its
management personnel. Franchisee’s refusal to complete such training will
be deemed as a material breach of contract. Franchisor reserves the right
to charge a reasonable standard fee and its reasonable expenses incurred in
providing such training. Franchisee acknowledges that Franchisor’s training
programs and materials are proprietary confidential information forming part
of the Lululemon Athletica system.
	 
	 	(c)	 	If additional assistance or training over and above that
normally furnished by Franchisor is required or requested by Franchisee at any
time, Franchisor and Franchisee shall discuss and reasonably agree upon what is
required and Franchisor will furnish such additional assistance or training.
Franchisor reserves the right to charge a reasonable standard fee and its
reasonable expenses incurred in providing such additional assistance or
training.
	 
	 	(d)	 	The Principal Franchisees who will participate actively on a
full-time basis in the management and operation of the franchised business and
all management personnel shall take and complete the course entitled “the
Landmark Forum” presented by Landmark Education International Inc., and listen
to the Brian Tracy “Psychology of Achievement” audio tapes/CD’s, and to set
annual goals in the specific framework of two (2) business goals, two (2)
personal goals and two (2) health goals for each of two (2), five (5) and ten
(10) years, demonstrating an understanding of these courses in the goal
setting, and to annually submit the goals to Lululemon for review, within three
(3) months after the opening date of the retail store. All other principals of
Franchisee who will participate actively in the management and operation of the
franchised business shall also complete the same requirements within six (6)
months of such Scheduled Opening Date or hiring date. Failure to complete
these courses and the annual goal setting and submission shall be a material
breach of this Agreement, entitling Franchisor to terminate this Agreement
under section 28 below.
	 
	 	(e)	 	The Principal Franchisees who will participate actively on a
full-time basis in the management and operation of the franchised business and
all management personnel shall read and complete the following books, namely,
Good to Great: Why Some Companies Make the Leap by Jim Collins, The
Wal-Mart Story: Made in America by John Huey and Sam Walton, and Pour
Your Heart Into It: How Starbucks Built a Company 




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	 	 	 	One Cup At A Time by Howard Schultz, within three (3) months of the
Scheduled Opening Date of the Approved Retail Location. All other
principals of Franchisee who will participate actively in the management and
operation of the franchised business shall also complete the same
requirements within six (6) months of such Scheduled Opening Date.





7.     Consultation




                    Lululemon agrees to consult with Franchisee from time to time as to market conditions,
merchandising trends and potential product line opportunities in the Territory. Lululemon will act
reasonably and give due consideration to Franchisee’s views on such matters; however, Franchisee
acknowledges that Lululemon will have final discretion to determine matters related to the
production and design of all Lululemon Products. Franchisee will report to Lululemon as reasonably
required from time to time as to market conditions, merchandising trends and potential product line
opportunities in the Territory.




8.     Pricing, Ordering and Payment





	 	(a)	 	Franchisee will provide Lululemon with a six (6) month, sales
dollar amount, rolling forecast of its requirement for Lululemon Products at
least six (6) months in advance of the desired delivery date. The first such
delivery date shall be not later than the Scheduled Opening Date for each
Approved Retail Location.
	 
	 	(b)	 	Lululemon shall sell Lululemon Products to Franchisee at prices
that are no more than fifty-five percent (55%) less than the Canadian
Manufacturer’s Suggested Retail Prices set by Lululemon from time to time; and
on product that the Franchisor does not manufacture, prices on such items will
be at cost plus twenty five percent (25%) mark up. All prices shall include
all costs of packaging, but shall exclude any and all Applicable Taxes,
freight, insurance, shipping and transportation charges, which shall be the
responsibility of Franchisee.
	 
	 	(c)	 	Franchisee will receive a percentage of total Lululemon monthly
production determined by Franchisor in its discretion, based on Franchisee’s
forecast for the month, weighted by the ratio of Franchisee’s forecast, as
adjusted by Franchisor in its discretion, compared to the total of all
Lululemon stores’ forecasts combined. The quantities and breakdown of styles,
colours and sizes of goods delivered to Franchisee will be determined by
Franchisor. Franchisee shall pay Lululemon an amount equal to fifty percent
(50%) of the estimated purchase price of the goods for each of the months of
January through October, and one hundred percent (100%) of the estimated
purchase price of the goods for each of the months of November and December, as
a downpayment (“Downpayment”) in respect of each order. Such payments shall be
made to Lululemon by electronic bank transfer or cheque and shall be provided
not less than sixty-five (65) days prior to the first day of the scheduled




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	 	 	 	delivery month of such order. Lululemon shall not commence production of
any Lululemon Products ordered by Franchisee until such time as it has
received the applicable Downpayment. Franchisee shall pay the balance of
the actual purchase price to Lululemon in advance of delivery, by electronic
bank transfer on or before the first day of the scheduled delivery month of
such order, or by cheque not less than five (5) days prior to the first day
of the scheduled delivery month of such order.
	 
	 	(d)	 	At the end of each month, Lululemon will send a statement of
shipping status and an invoice. Any shortfalls or overages in shipments of
Lululemon Products to Franchisee at the end of any month will be carried
forward to the following month for shipment (if a shortfall) or for treatment
as a partial fulfillment of a subsequent order (if an overage), provided that
payments for Lululemon Products delivered to Franchisee shall be made in
accordance with the payment terms set forth herein. Franchisee shall report to
Franchisor any discrepancy between Lululemon Products received and those
invoiced, within ten (10) days of receiving each invoice.
	 
	 	(e)	 	The Lululemon Products so ordered shall be delivered to
Franchisee F.O.B. (INCOTERMS 2003) on the transport carrier of Franchisee’s
choice from Lululemon’s warehouse and payment of any remaining balance of the
purchase price shall be due on the first day of the month of delivery and shall
be paid to Lululemon by credit card authorization or electronic bank transfer.
	 
	 	(f)	 	Franchisor will endeavour to send Franchisee Lululemon Products
above the forecast amount on request of Franchisee and dependent upon
availability of inventory. Such shipments shall be paid for in full by
Franchisee by electronic bank transfer before the goods are shipped.
	 
	 	(g)	 	In the event of any payment irregularities by Franchisee,
Franchisor reserves the right to increase the amount of Franchisee’s required
Downpayment to one hundred percent (100%) of the estimated purchase price of
the goods for each order for each of the months of January through October,
until Franchisee is able to satisfy Franchisor that it is able to meet its
payment obligations in the normal course of business, as required by this
Agreement.





9.     Title, Risk of Loss, Warranty and Liability





	 	(a)	 	Title to and the risk of loss of any products ordered by one
party from the other party shall pass at the time of delivery, F.O.B.
Lululemon’s warehouse.
	 
	 	(b)	 	Franchisor will from time to time set standards based on its
experience and that of its other franchisees, as to the maximum anticipated
inventory




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	 	 	 	shrinkage rate at each Approved Retail Location. If at any time
Franchisee’s inventory shrinkage rate at an Approved Retail Location exceeds
such maximum, Franchisor will have the right to specific reasonable measures
which Franchisee must implement at its own expense in order to increase
inventory security at that Approved Retail Location, or at all Approved
Retail Locations, as reasonably specified by Franchisor.
	 
	 	(c)	 	Lululemon warrants to Franchisee that:






	 	(i)	 	all Products supplied by
Lululemon under this Agreement will be delivered to Franchisee
free and clear of all liens, claims and encumbrances whatsoever;
	 
	 	(ii)	 	all Products supplied by
Lululemon under this Agreement will conform to Lululemon’s
specifications and shall be free from any latent defects in
materials or workmanship; and
	 
	 	(iii)	 	upon delivery to the Franchisee,
all Products shall be free from patent defects in materials or
workmanship.






	 	(d)	 	Unless Franchisee notifies Lululemon in writing of some defect
or deficiency in any Product within 30 days of Franchisee’s receipt of such
Product, Franchisee will be deemed to have accepted the Product despite any
patent defects. Acceptance shall not affect Lululemon’s warranty regarding
conformity with specifications and latent defects.
	 
	 	(e)	 	FRANCHISEE EXPRESSLY ACKNOWLEDGES THAT THE FOREGOING LULULEMON
WARRANTY SHALL EXPIRE AND SHALL NOT APPLY TO ANY DEFECT, FAILURE OR
NON-CONFORMITY WITH SPECIFICATIONS CAUSED BY OR RESULTING FROM ANY ERROR OR
DEFAULT OF FRANCHISEE, OR ANY INCOMPATIBILITY OF THE PRODUCTS, OR ANY PRODUCTS
WHICH ARE DAMAGED OR MODIFIED IN ANY WAY AS A RESULT OF ANY ACCIDENT,
NEGLIGENCE, USE IN ANY APPLICATION OTHER THAN THAT FOR WHICH IT WAS ORIGINALLY
DESIGNED OR INTENDED, MODIFICATIONS, REWORK, REPAIRS OR ADAPTATIONS BY ANYONE
OTHER THAN LULULEMON, OR BY OTHER CAUSES UNRELATED TO WORKMANSHIP OF LULULEMON
OR LULULEMON SUPPLIERS OR SUBCONTRACTORS.
	 
	 	(f)	 	EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS ARTICLE,
LULULEMON DOES NOT OFFER AND FRANCHISEE SPECIFICALLY WAIVES ANY OTHER
CONDITIONS, REPRESENTATIONS AND WARRANTIES, STATUTORY OR OTHERWISE, WHETHER
EXPRESSED OR IMPLIED, INCLUDING




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	 	 	 	ANY IMPLIED CONDITION, REPRESENTATION OR WARRANTY OF DURABILITY,
COMPATIBILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE SYSTEM, THE SPECIFICATIONS OR ANY PRODUCTS SUPPLIED
HEREUNDER.
	 
	 	(g)	 	FRANCHISEE SHALL NOT IN ANY EVENT BE ENTITLED TO RECOVER ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE INCLUDING,
BUT NOT BEING LIMITED TO, LOSS OF PROFIT, PROMOTIONAL OR MANUFACTURING
EXPENSES, OVERHEAD COSTS OR INJURY TO REPUTATION. LULULEMON’S CUMULATIVE
LIABILITY TO FRANCHISEE FOR ANY AND ALL CLAIMS WHATSOEVER SHALL NOT EXCEED THE
PURCHASE PRICE PAID FOR ORDERED PRODUCTS, IRRESPECTIVE OF THE NATURE OF THE
CLAIM, WHETHER IN CONTRACT, TORT, WARRANTY OR OTHERWISE.
	 
	 	(h)	 	All customer returns shall be to Franchisee’s business
premises. Repairs or replacement of defective Products shall be at the sole
discretion of Lululemon.





10.     Winning Formula and the 8 Principals of Store Success




                    Franchisee shall adhere to the Winning Formula described in the attached Schedule “A” and to
the 8 Principals of Store Success as described in the attached Schedule “B”, which is a summary of
the 80/20 Store Operations Guide that is acknowledged to have been provided to the franchisee and
as amended by Lululemon from time to time, provided that Lululemon and Franchisee each acting
reasonably may jointly agree to amend the 8 Principals of Store Success and/or the 80/20 Store
Operations Guide, as amended by Lululemon from time to time, provided that Lululemon and Franchisee
each acting reasonably may jointly agree to amend the Winning Formula and/or the 8 Principals of
Store Success and/or the 80/20 Store Operations Guide, where changes in local market conditions
reasonably require any such change. The Winning Formula is the essence of the Lululemon Athletica
Franchise, and failure to follow the Winning Formula shall be a material breach entitling
Franchisor to terminate this Agreement under section 28 below. The 80/20 Store Operations Guide
has been determined as the areas that define the success of Lululemon Athletica Franchise, and
failure to follow the 80/20 Store Operations Guide shall be a material breach entitling Franchisor
to terminate this Agreement under section 28 below.




11.     Performance




                    The Franchisee will be required to complete the following in order to comply with the
expectations of a Lululemon retail store:




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	 	(a)	 	$2,500,000 gross sales in twelve (12) consecutives months
within the first eighteen (18) months of the Approved Retail store location’s
operation, opening date is as outlined in Schedule “C”.
	 
	 	(b)	 	Each Principal Franchisee is required to work a minimum of
forty (40) hours per week in the Approved Retail store location, in the context
as management and operations of the day-to-day business.
	 
	 	(c)	 	Each Principal Franchisee must identify any of the 8 Principals
of Store Success described in the attached Schedule “B” they require training
on by the Franchisor or they hire the appropriate resources. Each of the 8
principals of this guide must be covered by a principal or appropriately
appointed resource within six (6) months of opening date. Successful
implementation and satisfaction of the 8 principals of this guide will be
measured by sales and by checks by Franchisor as outlined in Schedule “B” and
commencing quarterly from opening date as outlined in Schedule “C”.
	 
	 	(d)	 	The Winning Formula as described in the attached Schedule “A”
must be completely executed within three (3) months of opening date as outlined
in Schedule “C”.





                    Failure to execute and complete these performance expectations will considered to be a
material breach of this Agreement, entitling Lululemon to terminate this Agreement under section 28
below.




12.     Quarterly Reporting




                    Franchisee shall provide to Franchisor on a quarterly basis, on or before the twentieth
(20th) day of each month following each calendar quarter, an income and expense
statement and a balance sheet in such form and detail as shall from time to time be reasonably
required by Franchisor in respect of the franchised business during the preceding calendar quarter,
which shall be certified as accurate by Franchisee.




13.     Annual Reporting




                    Franchisee shall also provide to Franchisor on an annual basis, within ninety (90) days
following the end of each fiscal year of Franchisee, a balance sheet and a profit and loss
statement for the franchised business for the preceding fiscal year, prepared by an independent
chartered or certified general accountant in accordance with generally accepted accounting
principles applied on a consistent basis from year to year, and which upon the reasonable request
of Franchisor shall be accompanied by the accountant’s review engagement report prepared in
accordance with the standards for same as set forth in the Canadian Institute of Chartered
Accountants Handbook from time to time, or if Franchisee has been in material breach under this
Agreement, shall at the discretion of Franchisor be audited.




     14.     Overdue Payments



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                    All overdue payments of Franchisee shall bear interest from the due date until paid at the
rate of fifteen percent (15%) per annum. All such overdue interest shall be calculated at the
aforesaid effective annual rate and then paid to Franchisor on a monthly basis.




15.     License and Use of Marks





	 	(a)	 	Subject to any termination or non-renewal of this Agreement,
Lululemon grants to Franchisee for so long as this Agreement remains in effect
a non-exclusive right and license to use and display the Marks in and only in
the manner contemplated by this Agreement in connection with the merchandising,
marketing, advertising, distribution and sale of Lululemon Products at and from
Approved Retail Locations in the Territory, subject to such other grants of
Franchises or Licenses to Third Parties in the Territory as are made in
accordance with and as contemplated by this Agreement.
	 
	 	(b)	 	Except as provided for in this Agreement, Franchisee shall have
no right to use or display the Marks or to grant any rights to use or display
the Marks to any third party without the prior written agreement of Lululemon.
	 
	 	(c)	 	Franchisee will acknowledge by public notice at each Approved
Retail Location that its use and display of the Marks is a licensed use and
that the owner of the Marks is Lululemon. Franchisee acknowledges that
Lululemon has the right to exercise direct or indirect control of the character
and quality of the Products, and of the retail services which Franchisee offers
in association with the Marks at Approved Retail Locations.
	 
	 	(d)	 	Franchisee shall use the Marks only in their exact form and not
in combination with any other trade-mark or trade name not owned by Franchisor
and only in such media and as otherwise prescribed or approved by Lululemon
from time to time.





16.     Other Obligations





	 	(a)	 	Franchisee will exercise its reasonable best efforts to
advertise and promote the sale and distribution of Lululemon Products
throughout the Territory.
	 
	 	(b)	 	Franchisee further agrees:






	 	(i)	 	to ensure that Lululemon Products
are distributed and Products are sold and Approved Retail
Locations are operated in compliance with applicable local laws;




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	 	(ii)	 	to be responsible for any and all
taxes, assessments, duties and other expenses related to
purchasing, importing, distributing, marketing, advertising and
selling Products;
	 
	 	(iii)	 	to take all steps that are
reasonably necessary to prevent Products from being sold or
distributed outside of the Territory or at unapproved locations
by or through the actions of Franchisee;
	 
	 	(iv)	 	to maintain the cleanliness,
condition and appearance of each Approved Retail Location;
	 
	 	(v)	 	to maintain an adequate inventory
of Products and sufficient staff to satisfy and properly service
customer demand;
	 
	 	(vi)	 	to refrain from conducting any
business other than the franchised business at each Approved
Retail Location;
	 
	 	(vii)	 	to refrain from contesting or
assisting any other party in contesting Lululemon’s rights in
the Marks;
	 
	 	(viii)	 	to clearly indicate its own name to the public and to all
third parties with whom it deals in the operation of the
franchised business, in order to clearly indicate that
Franchisee is the independent owner and operator of its
business;
	 
	 	(ix)	 	to refrain from using the names
Lululemon or Lululemon Athletica or any confusingly-similar name
as part of the corporate name of Franchisee in the event of any
change of its name;
	 
	 	(x)	 	to refrain from using the names
Lululemon or Lululemon Athletica or any confusingly-similar name
as part of any uniform resource locator, Internet domain name,
electronic mail address, website name or search engine metatag
or keyword of Franchisee without the prior written approval of
Lululemon;
	 
	 	(xi)	 	to refrain from using the Marks
in association with any business other than the franchised
business, and all goodwill accruing to all uses of the Marks
shall accrue to Lululemon as the owner thereof;
	 
	 	(xii)	 	to refrain from acting or
assisting any other party in acting in derogation of the Marks
or so as to depreciate the value of the goodwill therein;




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	 	(xiii)	 	to refrain from contesting or assisting any other party in
contesting Lululemon’s control over the Internet domain name of
Lululemon and the uniform resource locator and Internet website
connected to it, and Franchisee acknowledges that offering a
uniform image and format and uniform procedures and systems,
including on the Internet, is an essential part of the Lululemon
Athletica franchise system;
	 
	 	(xiv)	 	to refrain from registering its
own Internet domain name or uniform resource locator for the
franchised business or otherwise conducting its own separate
Internet marketing or electronic commerce, and Franchisee shall
only establish its Internet website for the franchised business
so that it can be accessed only by first going through
Franchisor’s Internet website;
	 
	 	(xv)	 	to refrain from using or
continuing to use any design or contents of any Internet website
associated with the franchised business which is not first
approved by Franchisor, and Franchisee agrees to remove or cause
the removal forthwith of all designs or contents disapproved by
Franchisor;
	 
	 	(xvi)	 	to refrain from any use, such as
by linking or framing, of any Internet website associated with
the franchised business, with any other Internet website or
business or in association with any other trade-mark not owned
or controlled by Franchisor;
	 
	 	(xvii)	 	to refrain from any use on its Internet website of any
advertising or other materials of or coming from a third party
without the prior written approval of Franchisor;
	 
	 	(xviii)	 	to use Franchisor’s required forms and privacy statements and
adhere to Franchisor’s policies and procedures in the franchised
business regarding collection, disclosure, use and retention of
personal information and of data from time to time, in order to
obtain all required permission from all required parties
regarding such collection, disclosure, use and retention of
personal information and data in accordance with applicable law;
	 
	 	(xix)	 	to sell only Products at the
Approved Retail Locations, except as may otherwise be authorized
in writing by Franchisor from time to time, and Franchisee
agrees to use all commercially reasonable best efforts to cause
the Gross




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	 	 	 	Sales at each Approved Retail Location to consist of one
hundred percent (100%) Lululemon Products;
	 
	 	(xx)	 	to purchase only from Franchisor
or its designated or approved suppliers, and to use in, but only
in, the franchised business all those items of packaging such as
bags and boxes, decals, and such other forms, materials and
supplies which are labelled or imprinted with the Marks, and
Franchisor warrants that it does not and will not profit
unfairly from Franchisee’s use of such items through the receipt
of hidden rebates, discounts or other allowances from such
designated or approved suppliers;
	 
	 	(xxi)	 	to be responsible for all of its
own advertising and marketing within the Territory at its own
expense, and to submit all of its proposed advertising methods
and materials to Franchisor for its reasonable written approval
prior to use, such approval not to be unreasonably withheld or
delayed, provided that Franchisor shall have the right to
require changes to ensure consistency with its image and
branding, and to provide monthly advertising reports to
Franchisor within fifteen (15) days of the end of each month
consisting of copies of all of its advertising during each such
month including details of all places where such advertising
appeared and the number of times it was repeated, in such form
and detail as shall be reasonably required from time to time by
Franchisor, and to refrain from using any advertising methods or
materials not provided or first approved in writing by
Franchisor;
	 
	 	(xxii)	 	to meet with Franchisor or its personnel, together with the
principals and store managers of Franchisee, at least two (2)
times per calendar year in the Territory, for the purposes of
discussing product design and requirements, providing or
discussing any required additional training and providing any
required general assistance to Franchisee;
	 
	 	(xxiii)	 	to permit Franchisor at any reasonable time to have such
access as may be required to audit and inspect Franchisee’s
inventory including inventory counts, and generally to inspect,
review, verify, test and take samples of Franchisee’s products
and supplies and its operation of the franchised business in
order to determine Franchisee’s compliance with the Winning
Formula, the eight principals of store success as defined in the
80/20 Store Operations Guide and this Agreement, and Franchisee
shall cooperate with Franchisor for such purposes; and




-20-









 






	 	(xxiv)	 	to comply with all specifications, standards, operating
procedures, policies, methods and systems prescribed by
Franchisor from time to time as being essential in order to
maintain the standardization, uniformity and integrity of the
Lululemon Athletica system, any or all of which may be set forth
in a confidential operating manual belonging to Franchisor and
provided on loan to Franchisee or otherwise communicated to
Franchisee in writing and amended from time to time, and all of
which shall constitute provisions of this Agreement as if they
were fully set forth herein.






	 	(c)	 	Franchisee will provide the amount as set forth in Schedule “C”
per person two (2) times a year for air and hotel for two (2) Lululemon staff
to participate in the design meetings with Franchisee in the Territory.
	 
	 	(d)	 	Franchisee will obtain, use, maintain and upgrade as required
from time to time the inventory and point of sale (“POS”) system specified by
Franchisor, which will interact with the Lululemon head office system as
upgraded from time to time. Further, Franchisee will be responsible to pay to
Lululemon or its designated or approved suppliers as part of acquiring, using,
maintaining and upgrading the inventory and POS system, such reasonable
hardware, software, ongoing licensing, Internet connection, periodic software
upgrading and other charges as may be incurred from time to time for
installation, operation, maintenance and upgrading of such system at each
Approved Retail Location.
	 
	 	(e)	 	Lululemon shall at all times determine and take such steps as
may reasonably be required to preserve its rights in the Marks and to prohibit
the use or display of the Marks by any unauthorized third party.
	 
	 	(f)	 	Lululemon shall continue to be available at its home office for
consultation and guidance of Franchisee at no charge in respect of the
operation, administration and management of the franchised business.





17.     Substandard Items




                    In order to maintain quality, standardization, uniformity and consistency among all Lululemon
Athletica retail stores, Franchisor reserves the right to require Franchisee to remove from use or
sale at the Approved Retail Locations any items of equipment, supplies or products that do not
conform to Franchisor’s specifications and quality control standards upon ten (10) days’ written
notice to that effect.




18.     Pricing




                    Franchisor may recommend or suggest MSRP prices for products or services to Franchisee based
upon its experience, however such recommended or suggested MSRP prices are not binding upon
Franchisee, who is at all times free to charge prices of its own choosing for any product or
service, and failure to accept or follow any such recommendation or suggestion




-21-









 







will not hinder or adversely affect the business relationship between Franchisee and
Franchisor or any other person, firm or corporation. Where Franchisor offers printed items that
contain prices, Franchisee may specify its own prices and pay any incremental costs incurred for
its special printing orders. Where Franchisor may conduct advertising from time to time for the
Lululemon Athletica system or for specified locations which include the Approved Retail Locations,
which refers to exact retail prices, or where Franchisor may enter into national, regional or
multiple location accounts from time to time for the provision of services or the sale of products
which may involve Franchisee and which include pre-determined prices, such prices shall be deemed
to be maximum prices designated by Franchisor for the specific items or services which shall be
binding on Franchisee for the duration of the ad or the period referred to in the ad, or for the
duration of the pre-determined price arrangement, and Franchisee in such instances shall be
restricted from selling above (but not below) the advertised or pre-determined prices during such
periods.




19.     Promotional Programs




                    Franchisee agrees to cooperate and participate fully in all in-store POS advertising and
promotional programs reasonably designated by Franchisor from time to time.




20.     Advertising Fund





	 	(a)	 	When in Franchisor’s opinion there are sufficient franchised
Lululemon Athletica locations in operation, Franchisor shall have the right
upon six (6) months’ written notice to institute an advertising fund,
Franchisor agrees that all Franchisees entering into Franchise Agreements after
this one and all of Franchisor’s corporate owned and affiliate owned retail
locations shall make contributions to the advertising fund of at least the same
percentage of Gross Sales and at the same times as are applicable to Franchisee
under this Agreement.
	 
	 	(b)	 	In addition to all other payments required to be made by
Franchisee to Franchisor hereunder, Franchisee agrees to contribute to the
advertising fund by paying to Franchisor monthly, by the fifteenth
(15th) day of each month following the month in which such Gross
Sales were made, an amount equal to one percent (1%) of all Gross Sales made at
or from the Approved Retail Locations and in the franchised business during the
preceding month.
	 
	 	(c)	 	The advertising fund shall be administered and allocated by
Franchisor in its discretion and spent or reserved for expenditure exclusively
on any and all aspects of advertising, marketing, promotion and public
relations relating to the Lululemon Athletica system in such media, including
the Internet, and in such geographic areas, regionally, nationally or
internationally, as Franchisor shall determine in its discretion from time to
time.




-22-









 






	 	(d)	 	Franchisor agrees to advise is franchisees from time to time of
its proposed advertising program to be paid for out of the advertising fund,
and to seek the input of the franchisees in respect thereof, through a
representative elected on a yearly basis by the franchisees as a group.
Franchisee acknowledges that although Franchisor agrees to advise Franchisee
and seek Pits input, all decisions regarding the advertising fund remain in the
discretion of Franchisor as outlined above.





21.     Administration of Advertising Costs and Accounting by Franchisor




                    Franchisor shall administer and coordinate the use of the advertising funds and shall be
entitled to charge a reasonable amount to the advertising fund, not to exceed ten percent (10%) of
the total annual contributions to the fund, to cover its actual administrative and accounting
expenses and overhead incurred in connection therewith. In the event that Franchisor shall loan
money to the advertising fund to cover advertising expenses which are in excess of the amount of
contributions received by Franchisor for the advertising fund to date, Franchisor shall be entitled
to be repaid for any such loaned funds out of subsequent contributions made to the advertising
fund. Franchisor shall account for the advertising fund separately from its other funds, and shall
maintain the advertising fund in a separate bank account segregated from its other funds.
Franchisor shall provide to Franchisee a yearly accounting of the receipts and expenditures of the
advertising fund, within one hundred and twenty (120) days following Franchisor’s fiscal year end.
Franchisor undertakes in administering the advertising fund to use its reasonable best efforts to
use the advertising fund for the benefit of all members of the Lululemon Athletica system, however
Franchisee acknowledges that Franchisor is under no obligation to use the advertising fund for the
benefit of all contributors on an equal or proportionate basis to the amount contributed.




22.     Insurance





	 	(a)	 	Franchisee agrees to procure and maintain during the term of
this Agreement insurance against the insurable risks and for not less than the
amounts of coverage which may be specified by Franchisor from time to time, and
in particular, Franchisee agrees to procure and maintain the following
insurance coverage:






	 	(i)	 	commercial general liability
“insurance against civil public liability, including personal
and bodily injuries or death and damage to or destruction of
property in at least the amount of Two Million Dollars
($2,000,000.00) per person or occurrence and with the following
additional endorsements or coverage: personal injury liability;
supplementary payments coverage; non-owned automobile liability;
blanket contractual liability; contingent employer’s liability;
products liability; advertising injury liability; completed
operations liability; employees added as additional insureds;
and medical payments each person, each accident, in at least the
amount of Ten Thousand




-23-









 






	 	 	 	Dollars ($10,000.00) per person or occurrence with aggregate
coverage limits of at least ten (10) times that amount;
	 
	 	(ii)	 	appropriate business class rated
vehicle insurance with underinsured motorist protection or
non-owned automobile liability coverage, as applicable, and
comprehensive third party liability coverage in at least the
above amount covering all vehicles owned, operated, used or
licensed by Franchisee and its employees in connection with the
franchised business or in any way used or identified with the
Marks;






	 	(b)	 	All such policies of insurance shall name Franchisor as an
additional named insured, as its interests may be from time to time; and shall
apply as primary coverage and not as excess to any other insurance available to
Franchisor; and shall contain a waiver of the insurer’s rights of subrogation
in respect of any claim against Franchisor; and (if reasonably available) shall
not contain any exclusion clause for the claims of one insured versus another
insured or for the acts of one insured affecting another insured, but instead
shall contain a severability of interests clause and a cross liability clause
whereby each such policy shall be treated as though a separate policy had been
issued to each insured; and shall provide that Franchisor shall receive at
least thirty (30) days’ prior written notification of any cancellation,
termination, lapse, expiry, change, alteration, amendment or modification
thereof that is material to this Agreement; and shall have deductible limits
which do not exceed Two Thousand Dollars ($2,000.00) per person or event.
	 
	 	(c)	 	Franchisee shall provide certificates evidencing such required
insurance coverage to Franchisor prior to commencing the franchised business
and prior to each expiry date of such insurance policies.
	 
	 	(d)	 	Franchisee agrees to consider participating in such group
insurance coverage programs as Franchisor may arrange from time to time, and,
if it elects to participate, to pay its proportionate share of the premiums
therefor.
	 
	 	(e)	 	Franchisee may also obtain such other or additional insurance
as it deems proper in connection with its operation of the franchised business.
	 
	 	(f)	 	Franchisor may also suggest other or additional insurance from
time to time for Franchisee’s consideration in connection with its operation of
the franchised business.
	 
	 	(g)	 	Nothing contained herein shall be construed as a representation
or warranty by Franchisor that such insurance as may be specified by




-24-









 






	 	 	 	Franchisor from time to time will insure Franchisee against all insurable
risks or amounts of loss which may or can arise out of or in connection with
the operation of the franchised business.
	 
	 	(h)	 	Maintenance of any such insurance and compliance by Franchisee
with its obligations under this paragraph shall not relieve Franchisee of its
liability under the indemnity provisions of this Agreement.





23.     System Changes




                    Franchisor shall have the right to make reasonable changes, modifications, additions or
deletions to the Lululemon Athletica system including the Winning Formula and 80/20 Store
Operations Guide as described herein from time to time by reasonable notice in writing to
Franchisee. Franchisee acknowledges that some of such changes may be material and may involve
required expenditures due to the addition or substitution of new products, services, inventory,
supplies, equipment or technology, or an alteration of specifications or standards. Upon receipt
of notice, Franchisee agrees to comply with and carry out all such changes, modifications,
additions and deletions, and to undertake and satisfactorily complete any additional training
requirements, at its own expense, promptly as required and within the time specified by such
notice, as if they were a part of the Lululemon Athletica system at the time of execution of this
Agreement, and in order to ensure consistency with Lululemon’s image and branding.




24.     Rectification of Defaults




                    Franchisee shall promptly rectify all defaults or failures to perform any of its obligations
under this Agreement upon receipt of written notice from Franchisor specifying the default or
failure and the requirements to cure such default or failure.




25.     Confidentiality




                    Neither party shall disclose, publish or use for any purpose inconsistent with this Agreement
any information which it receives in confidence from the other or which the other party has
designated as confidential, including any operating manual provided on loan by Franchisor, training
materials, the Winning Formula, the 80/20 Store Operations Guide, custom proprietary computer
software, and any information about the sourcing or cost of producing any of the Products.
Notwithstanding the foregoing, the obligations of confidentiality imposed by this Agreement shall
not apply to any information that:





	 	(a)	 	is already known to the receiving party;
	 
	 	(b)	 	is or becomes publicly known through no wrongful act or
omission of the receiving party;
	 
	 	(c)	 	is rightfully received from a third party without a similar
restriction and without any breach of this Agreement;




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	 	(d)	 	is independently developed by the receiving party without any
breach of this Agreement;
	 
	 	(e)	 	is approved for release by the disclosing party or its
authorized representative; or (0 is required to be disclosed by law.





                    The covenants of this paragraph shall also extend to cover and bind each director, officer and
principal of Franchisee who has in any capacity affixed his or her signature to this Agreement.




26.     Assignment





	 	(a)	 	Franchisee may not assign or transfer its interest in this
Agreement in any manner directly or indirectly in whole or in part to any third
party without the prior written consent of Lululemon, which consent shall not
be unreasonably withheld or delayed. Franchisee agrees not to assign or
transfer its interest in this Agreement, and in particular in the first
Approved Retail Location, during the first three (3) years of the Initial Term,
and that Franchisor may refuse its consent to any such assignment or transfer
during such time in its sole discretion.
	 
	 	(b)	 	Franchisor’s consent to any assignment shall not constitute a
waiver of any claim against Franchisee. Franchisor’s consent to any assignment
shall be conditioned upon the following:






	 	(i)	 	the assignee shall reasonably
meet Franchisor’s then-current criteria for the selection and
approval of franchisees;
	 
	 	(ii)	 	the assignee and the management
personnel proposed to be employed by the assignee for the
franchised business shall satisfactorily complete Franchisor’s
initial training program;
	 
	 	(iii)	 	the assignee shall assume and
agree in writing to be bound by and perform all of the covenants
and obligations of Franchisee under this Agreement;
	 
	 	(iv)	 	all obligations of Franchisee
under this Agreement shall be brought up to date and into full
compliance;
	 
	 	(v)	 	Franchisee shall deliver to
Franchisor a complete release of all claims against Franchisor
and its officers in respect of all matters arising under or
pursuant to this Agreement;
	 
	 	(vi)	 	Franchisee acknowledges that
Franchisor will provide assistance and other services, including
training, and will incur expenses in connection with any
assignment or




-26-









 






	 	 	 	proposed assignment, and thus Franchisee shall reimburse
Franchisor for its reasonable actual expenses incurred in
connection with the assignment or proposed assignment,
including the expenses of one of Franchisor’s personnel
attending at the Franchised Territory for an inspection if
required in Franchisor’s reasonable opinion, and in
connection with the assignment shall pay to Franchisor a
non-refundable Assignment Fee in the amount of Five Thousand
Dollars ($5,000.00), the payment of which shall be a
condition of Franchisor granting consent to the assignment.






	 	(c)	 	Right of First Refusal.






	 	(i)	 	Prior to granting consent to any
proposed assignment, Franchisor shall have a right of first
refusal to purchase the franchised business from Franchisee.
Franchisee shall notify Franchisor of its desire to sell, assign
or transfer the franchised business by written notice setting
forth the proposed terms and conditions for such sale,
assignment or transfer. Franchisor shall then notify Franchisee
in writing within thirty (30) days after receipt of such notice
as to whether or not Franchisor wishes to exercise its right of
first refusal on such terms and conditions. In the event an
offer is received by Franchisee from a third party within the
same time frame as an offer from Franchisor under paragraph 27
of this Agreement is sent to Franchisee to purchase the
Franchise, the letter dated first to or from Franchisor shall
take precedence.
	 
	 	(ii)	 	If Franchisor determines not to
exercise its right of first refusal at that time, then
Franchisor may assist Franchisee to find a suitable buyer from
among those prospective franchisees with whom Franchisor has
been in contact. If within the said thirty (30) day period
Franchisor has not been able to assist Franchisee, then
Franchisee may commence its efforts to sell the franchised
business; provided, however, that Franchisee shall submit all
proposed advertisements for the sale of the franchised business
to Franchisor for its reasonable prior written approval as to
form.
	 
	 	(iii)	 	Once Franchisee receives a bona
fide offer to purchase from a third party, Franchisee shall
deliver written notice to Franchisor setting forth all of the
terms and conditions of the proposed sale and all available
information concerning the proposed assignee, as well as a
statutory declaration of




-27-









 






	 	 	 	Franchisee or an officer thereof attaching a true and
complete copy of the offer. Franchisor shall have the right
to communicate directly with the offeror upon Franchisee’s
acceptance of the offer conditional upon Franchisor’s prior
right of first refusal, or upon Franchisee notifying
Franchisor that Franchisee is willing and intends to accept
the offer if Franchisor does not exercise its right of first
refusal. Within thirty (30) days after Franchisor’s receipt
of such notice and information, Franchisor shall notify
Franchisee in writing as to whether or not it will exercise
its right of first refusal on the same terms and conditions
excluding any agent or broker fees that would be payable by
Franchisee, or if not, whether or not it consents or does not
consent to the proposed sale and assignment of this Agreement
to the proposed assignee, together with any reasonable
conditions of Franchisor’s consent, or the reasons for
Franchisor’s non-consent. Franchisor’s consent, if any, will
be conditioned upon the same factors as set forth above in
respect of any proposed assignment.






	 	(d)	 	If Franchisee is a corporation, a transfer, re-acquisition,
cancellation, alteration or issuance of shares, or any other transaction or
series of transactions involving the same which alone or together would affect
twenty-five percent (25%) or more of or would result in a change in control of
the majority of the voting or equity interests in Franchisee directly or
indirectly shall constitute an assignment for the purposes of this Agreement.
In the event that any transaction such as the above shall occur but shall not
constitute an assignment, or in the event of any change in the directors,
officers or shareholders of Franchisee, or in the voting or equity interests in
Franchisee, Franchisee shall notify Franchisor in writing of the details of
such transaction within five (5) days of its occurrence.
	 
	 	(e)	 	Franchisee shall not have the right to pledge, encumber,
charge, hypothecate or otherwise give any third party a security interest in
this Agreement without the prior written consent of Franchisor.





27.     The Take-Over or Buy-Out Clause




                    At any time during the Initial Term of this Agreement, and during the renewal term, in the
event that Lululemon or its principals or any affiliate or related company of any of them should
receive an offer from a third party for the purchase of all or substantially all of the Lululemon
business including designing, manufacturing and selling apparel to retail customers (wherever
situated in the world) by way of either an asset purchase or a share purchase or by going public,
Lululemon will have the right to include in such transaction an option (the “Option”) to the
purchaser to acquire the Franchise carried on by the Franchisee and all of the Approved Retail
Locations from Franchisee in accordance with the formula for the Transfer Price set out and as
defined in the Shareholders Agreement. The formula for the Transfer Price




-28-









 







set out and as defined in the Shareholders Agreement will apply as the exercise price of the
Option notwithstanding that the offer from a third party may relate to an asset purchase.




28.     Termination




                    Lululemon will be entitled to terminate the Franchise Agreement in the event of a material
breach, either after written notice of default and an opportunity to cure as set forth in paragraph
28(a) below or in the event of material breaches which, by their nature, are non-curable, by
written notice of termination without prior notice of default and opportunity to cure. Specific
events of material breach, whether curable or non-curable, are as set forth in paragraphs 28(a) and
28(b) below.





	 	(a)	 	Termination After Notice of Default.
	 
	 	 	 	Franchisor may terminate this Agreement for good cause, namely for material
breach after written notice of default setting forth Franchisor’s intent to
terminate, the reasons for such termination, and the effective date thereof,
as follows:






	 	(i)	 	if Franchisee fails to comply
with Franchisor’s Winning Formula, the 8 Principals of Store
Success, or specifications and quality standards for products,
services, inventory, supplies, signs, equipment and procedures
as called for in this Agreement and such default shall not be
wholly rectified within a period of thirty (30) days after
written notice, specifying such default and such time period for
curing such default, shall be given by Franchisor to Franchisee;
provided, however, that if any such default other than a failure
to comply with Franchisor’s Winning Formula is capable of being
cured but cannot reasonably be cured within such thirty (30) day
period, and Franchisee is prosecuting such cure with diligence,
such thirty (30) day period shall be extended for a longer
period of time as may be necessary to complete such cure so long
as in the opinion of Franchisor, the same is being and continues
to be prosecuted with diligence by Franchisee;
	 
	 	(ii)	 	if Franchisee operates the
franchised business in a dishonest, illegal, unsafe, unsanitary
or unethical manner, or engages in any conduct related to the
franchised business which in Franchisor’s reasonable opinion
materially and adversely affects or may affect the reputation,
identification and image of the Lululemon Athletica system or
the Trade Marks, for a period of ten (10) days after written
notice, specifying such default and such time period for curing
such default, shall be given by Franchisor to Franchisee;




-29-









 






	 	(iii)	 	if Franchisee fails to pay any
amount due and owing to Franchisor pursuant to the terms of this
Agreement for a period of fifteen (15) days after written
notice, specifying such default and such time period for curing
such default, shall be given by Franchisor to Franchisee;
	 
	 	(iv)	 	if the Franchisee fails to
achieve gross retail sales totalling at least A $1.5 million
during any given 12 month period commencing on the opening date
of the Franchise;
	 
	 	(v)	 	if Franchisee fails to comply
with any other covenant or obligation under this Agreement for a
period of sixty (60) days after written notice, specifying such
default and such time period for curing such default, shall be
given by Franchisor to Franchisee; provided that in extenuating
circumstances Franchisor may by written notice to Franchisee
allow such additional period of time as Franchisor determines
for curing any such default.






	 	(b)	 	Termination Without Prior Notice of Default.
	 
	 	 	 	The following events shall be deemed material breaches of this Agreement and
shall be grounds for termination of this Agreement by Franchisor for good
cause and without prior notice of default. Such material breaches shall, by
their nature, be deemed non-curable. Any notice of termination given by
Franchisor to Franchisee upon or after the happening of any of such events
shall be in writing and shall set forth Franchisor’s reasons for such
termination and the effective date thereof. The events of non-curable
material breach of this Agreement are as follows:






	 	(i)	 	if either or both of the
Principal Franchisees resign from their employment with the
Franchisee or either or both of the Employment Agreements are
otherwise terminated;
	 
	 	(ii)	 	if Franchisee shall abandon the
franchised business by failing to keep the franchised business
operating under the name Lululemon Athletica for ten (10)
consecutive business days or more, or for an aggregate of ten
(10) business days or more in any thirty (30) day period,
without the prior written consent of Franchisor, which consent
shall not be unreasonably withheld where the closure results
from a cause beyond Franchisee’s reasonable control;
	 
	 	(iii)	 	if Franchisee shall become
bankrupt, or be in receivership for a period exceeding ten (10)
business days, or shall be dissolved, liquidated or wound-up, or
if Franchisee shall make a general assignment for the benefit of
its creditors or




-30-









 






	 	 	 	a composition, arrangement or proposal involving its
creditors, or otherwise acknowledge its insolvency, and the
insolvency or other action is not cured within such ten (10)
business days;
	 
	 	(iv)	 	if Franchisee, or any partner,
director or officer shall be convicted of any indictable
criminal offence, or any crime involving moral turpitude, or
shall be found liable for or guilty of fraud, fraudulent
conversion, embezzlement, or any comparable action in any civil
or criminal action or proceeding pertaining or relevant in
Franchisor’s opinion to the franchised business;
	 
	 	(v)	 	if Franchisee shall be convicted
of misleading advertising or any other sales-related statutory
offence pertaining to the franchised business, or shall be
enjoined from or ordered to cease operating the franchised
business or any material part thereof by reason of dishonest,
illegal, unsafe, unsanitary or unethical conduct;
	 
	 	(vi)	 	if Franchisee shall have its
business licence or any other licence, permit or registration
pertaining to the franchised business suspended for just cause
or cancelled and not reinstated or re-issued within ten (10)
business days;
	 
	 	(vii)	 	if Franchisee shall attempt to
pledge, encumber, charge, hypothecate or otherwise give any
third party a security interest in, or assign this Agreement
without the prior written consent of Franchisor, or if an
assignment of this Agreement shall occur by operation of law or
judicial process without such consent;
	 
	 	(viii)	 	if Franchisee shall attempt to assign, transfer or convey the
Lululemon Athletica or related Trade Marks, trade name, Internet
domain name, uniform resource locator, copyrights, custom
proprietary computer software, confidential information or trade
secrets, or if Franchisee shall duplicate, publish, disclose,
use or misuse any of the same in a manner or at or from a
location not authorized by Franchisor;
	 
	 	(ix)	 	if Franchisee shall intentionally
falsify, misrepresent or misstate to Franchisor any financial
statements, reports or information required pursuant to this
Agreement; or
	 
	 	(x)	 	if Franchisee shall unilaterally
repudiate this Agreement or the performance or observance of any
of the terms and




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	 	 	 	conditions of this Agreement by word or conduct evidencing
Franchisee’s intention to no longer comply with or be bound
by the same.





29.     Effect of Termination





	 	(a)	 	Upon termination of this Agreement, all rights granted by one
party to the other party shall automatically revert back to the granting party.
No termination shall deprive either party of any of its remedies or relieve
either party from making payments or meeting any other obligation to the other
party which may have accrued prior to the effective date of such termination.
	 
	 	(b)	 	Telephone Numbers and Listings, Internet Domain Names,
Electronic Mail Addresses, Metatags and Keywords






	 	(i)	 	Upon expiry or termination of
this Agreement for whatever reason, Franchisor shall have the
right to require that Franchisee forthwith upon written notice
cease use of all of the existing telephone numbers (including
fax numbers) of the Approved Retail Locations, Internet domain
names, uniform resource locators, electronic mail addresses and
search engine metatags and keywords for the franchised business.
Franchisor shall have the further right to arrange for call and
message forwarding and to take over and have assigned to it or
its designee the existing telephone numbers and directory
listings, Internet domain names, uniform resource locators,
electronic mail addresses and search engine metatags and
keywords for the franchised business.
	 
	 	(ii)	 	The Telephone Company and any
Internet domain name granting authority, Internet service
provider and web search engine shall be entitled to treat this
Agreement or a notarized copy thereof as executed by Franchisee
as good and sufficient authority for such call and message
forwarding, assignment and transfer, and as evidence of
Franchisee’s irrevocable consent thereto, and the provisions of
this paragraph shall in such instance be deemed to constitute an
absolute and irrevocable assignment by Franchisee of all of its
rights and interests in such telephone numbers and directory
listings, Internet domain names, uniform resource locators,
electronic mail addresses and search engine metatags and
keywords to Franchisor or its designee; and Franchisee hereby
irrevocably nominates, constitutes and appoints the person
serving from time to time as the President of Franchisor to be
its attorney-in-fact




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	 	 	 	to execute in Franchisee’s name and on its behalf a surrender
of such telephone numbers and directory listings, Internet
domain names, uniform resource locators, electronic mail
addresses and search engine metatags and keywords to the
Telephone Company or any Internet domain name granting
authority, Internet service provider or web search engine, or
an assignment of the said telephone numbers and directory
listings, Internet domain names, uniform resource locators,
electronic mail addresses and search engine metatags and
keywords to Franchisor or its designee as the successor to
Franchisee in the event of such expiry or termination, and to
execute all such other documents and instruments and to carry
out all such acts and deeds as may be reasonably required in
order to perfect such surrender or assignment as the case may
be, and Franchisee hereby allows, ratifies and confirms all
actions taken in pursuance of the authority herein conferred
upon the President of Franchisor by the granting of this
power of attorney. In accordance with the Power of Attorney
legislation applicable hereto, Franchisee hereby declares
that the power of attorney herein shall continue unrevoked
and may be exercised during any subsequent legal incapacity
on the grantor’s part. Where Franchisee is a corporation, it
hereby waives any provisions of the Power of Attorney
legislation requiring the common seal of the corporation to
be actually affixed hereto in order for the power of attorney
granted herein to be valid. This Agreement shall be treated
for all purposes as if the common seal of the corporate
Franchisee has been affixed hereto under the hands and in the
presence of its duly authorized officers. This Agreement,
including the powers of attorney granted herein, is intended
to take effect as a sealed instrument of Franchisee. The
Telephone Company and any Internet domain name granting
authority, Internet service provider and web search engine
may accept this Agreement or a notarized copy thereof as
executed by Franchisee as evidence of such power of attorney.
	 
	 	(iii)	 	Franchisor shall also be
entitled to require at any time during the term of this
Agreement that Franchisee execute and deliver to Franchisor the
appropriate Telephone Company, Internet domain name granting
authority, Internet service provider or web search engine form
of assignment of such telephone numbers and directory listings,
Internet domain names, uniform resource locators, electronic
mail addresses and search engine metatags and keywords to
Franchisor, which Franchisor shall be entitled




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	 	 	 	to treat as irrevocable, and to hold and to use to effect
such assignment with the Telephone Company, Internet domain
name granting authority, Internet service provider or web
search engine upon expiry or termination of this Agreement.






	 	(c)	 	Upon expiration or termination of this Agreement for whatever
reason, Franchisee shall forthwith discontinue use of the Lululemon Athletica
and related Trade Marks, trade name, Internet domain names, uniform resource
locators, electronic mail addresses, search engine metatags and keywords,
copyrights, custom computer software, operating manuals, training materials,
advertising, marketing, promotional and merchandising methods and materials,
and all other confidential information and trade secrets, and shall not
thereafter or after assignment of this Agreement operate or do business under
any name or in any manner that might tend to give the general public the
impression that it is, either directly or indirectly, associated, affiliated,
licensed by or related to Franchisor or the Lululemon Athletica system; or in
any manner refer to itself as having been a former franchisee of the Lululemon
Athletica system without the prior written consent of Franchisor; or, either
directly or indirectly, use any trade-mark, name, Internet domain name, uniform
resource locator, electronic mail address, search engine metatag or keyword,
logo, slogan, copyright, custom computer software, trade secret, confidential
information, advertising, design (including any Internet website design),
graphic, script, colour combination, distinguishing feature or other element
which is confusingly similar to or colourably imitative of those used by the
Lululemon Athletica system. Franchisee acknowledges the proprietary rights as
set out in this Agreement and agrees upon expiration or termination of this
Agreement for whatever reason to forthwith return to Franchisor all copies in
its possession of the operating manuals, training materials and all other
confidential and proprietary information and materials and custom computer
programs relating to the Lululemon Athletica system or bearing or containing
the Lululemon Athletica or related Trade Marks. Franchisee also agrees upon
expiration or termination of this Agreement to forthwith change the corporate
name of the Franchisee to a name that does not contain and is not confusingly
similar to any of the Trade Marks, and de-identify the Approved Retail Location
premises including removal therefrom of all signs or other references to the
Lululemon Athletica or related Trade Marks, and all colours and colour
combinations and any other distinctive elements of the Lululemon Athletica
system as specified by Franchisor to Franchisee from time to time or upon or
after expiration or termination of this Agreement. The covenants of this
paragraph shall also extend to cover and bind each director, officer and
principal of Franchisee who has in any capacity affixed his or her signature to
this Agreement.




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	 	(d)	 	Upon expiration or termination of this Agreement for whatever
reason, Franchisor shall have the right to immediately establish, operate or
franchise a Lululemon Athletica business anywhere within the Franchised
Territory.
	 
	 	(e)	 	Non-Competition.






	 	(i)	 	Franchisee and its shareholders,
directors and officers shall not, during the term and currency
of this Agreement, directly or indirectly, in any manner or
capacity whatsoever, compete with the Lululemon Athletica
franchised business which is the subject matter of this
Agreement, or conduct or license or otherwise be engaged or
interested in or assist any wholesale or retail business which
features or offers for sale products or services substantially
or confusingly similar to or colourably imitative of those
featured and offered for sale at Lululemon Athletica retail
stores, or which utilizes some or all of the essential
distinctive elements of Franchisor’s system, or which has a
substantially or confusingly similar or colourably imitative
Trade Mark, trade name, Internet domain name, electronic mail
address, search engine metatag or keyword, Internet website
design, custom computer software or business format to those of
the Lululemon Athletica system.
	 
	 	(ii)	 	The covenants of this paragraph
shall continue to apply to Franchisee and its shareholders,
directors and officers, and shall survive any assignment or
transfer of this Agreement, or the expiration or termination of
this Agreement, for a period of two (2) years, and during such
time shall be applicable within the Franchised Territory.
	 
	 	(iii)	 	The covenants of this paragraph
shall also be applicable during such time over the Internet
where any substantially or confusingly similar or colourably
imitative Trade Mark, trade name, Internet domain name,
electronic mail address, search engine metatag or keyword,
Internet website design, custom computer software or business
format to those of the Lululemon Athletica system is used.
	 
	 	(iv)	 	The covenants of this paragraph
shall also extend to cover and bind each director, officer and
principal of Franchisee who has in any capacity affixed his or
her signature to this Agreement.




-35-









 






	 	(v)	 	The covenants of this paragraph
shall not operate to prevent Franchisee or such other persons
from being involved in the athletic apparel and related product
or service business generally following expiration or
termination of this Agreement, but shall operate so as to have
the effect of preventing Franchisee and such other persons from
being involved in the athletic apparel and related product and
service business in any way, directly or indirectly, which
features a substantially or materially similar custom computer
software or Internet presence or sales formula or business
format or product and service line to that of the franchised
business or which otherwise utilizes any of the essential
distinctive elements or practices belonging to the Lululemon
Athletica system as detailed in this Agreement.
	 
	 	(vi)	 	The covenants of this paragraph
are given in part in consideration of Franchisee being given
access to confidential information and trade secrets that form a
part of the Lululemon Athletica proprietary system.






	 	(f)	 	Franchisee shall not attempt to obtain any unfair advantage or
head start either during the term of this Agreement or thereafter by soliciting
or attempting to induce any customer, employee, supplier, contractor, agent,
distributor, licensee or franchisee of Franchisor to divert his or her
business, employment or contract to Franchisee or any other competitive
business, by the use of information derived from Franchisee’s knowledge of and
association and experience with the franchised business and the Lululemon
Athletica system during the term hereof, and Franchisee acknowledges that all
such information and the customer lists constitute confidential information and
are trade secrets belonging to the Lululemon Athletica system, and that any
unauthorized retention, disclosure or use of personal information or data may
be a violation of Franchisor’s policies and statements regarding data privacy,
collection, disclosure, use and retention which Franchisee subscribed to, used,
displayed and participated in giving while a franchisee operating the
franchised business. The covenants of this paragraph shall also extend to
cover and bind each director, officer and principal of Franchisee who has in
any capacity affixed his or her signature to this Agreement.





30.     Indemnification




                    Except as expressly provided elsewhere in this Agreement, Franchisee agrees to save Franchisor
and its officers and employees harmless from and to indemnify them against all claims, demands,
actions, causes of action, suits, proceedings, judgments, settlements, debts, losses, damages,
costs, charges, fines, penalties, assessments, taxes, liens, liabilities and expenses, including
legal fees and disbursements and costs of any action, suit or proceeding on a solicitor and his own
client basis, of whatever kind or character arising out of or incurred as a




-36-









 







result of or in connection with any breach, default, violation, repudiation or non-performance
of this Agreement by Franchisee, or any act or error of omission or commission on the part of
Franchisee or anyone for whom Franchisee is responsible in law, or on account of any actual or
alleged loss, injury or damage to any person, firm or corporation or to any property in any way
arising out of, resulting from or connected with Franchisee’s business conducted pursuant to this
Agreement.




31.     No Reliance by Franchisee




                    Franchisee acknowledges that the success of the franchised business is dependent upon the
personal efforts of Franchisee, or Franchisee’s directors, officers and active shareholders if
Franchisee is a corporation. Franchisee acknowledges that neither Franchisor nor any other party
has guaranteed to Franchisee or warranted that Franchisee will succeed in the operation of the
franchised business or provided any sales or income projections, forecasts or earnings claims of
any kind to Franchisee, and Franchisee has not relied upon any such guarantee, warranty,
projection, forecast or earnings claim, whether express, implied, purported or alleged, in entering
into this Agreement. Franchisee acknowledges that any financial information which may have been
provided to it by Franchisor or any other party acting on behalf of Franchisor was provided for
information or guidance purposes only, to assist Franchisee in making its own financial forecasts
or projections, and that neither Franchisor nor any other party has given any warranty of accuracy
or reliability to Franchisee in connection therewith. Franchisor shall not be liable to Franchisee
in any way for any losses sustained by Franchisee in the operation of the franchised business, it
being understood and agreed that Franchisee is an independent contractor entitled to retain all
profits derived from its operations of the franchised business after payment of all sums due to
Franchisor and others. Franchisee acknowledges that prior to signing this Agreement or paying any
non-refundable consideration for it to Franchisor, Franchisee has had adequate opportunity to
review this Agreement with legal counsel and other advisors of its own choosing and that Franchisee
is aware of the terms and conditions of this Agreement and of the business risks involved in
entering into this Agreement and the business contemplated by it. The provisions of this paragraph
shall also extend to cover and bind each director, officer and principal of Franchisee who has in
any capacity affixed his or her signature to this Agreement.




32.     Relationship




                    The parties are each independent contractors, neither of whom shall hold itself out as an
agent or authorized representative of the other. This is not an agency, fiduciary or employment
relationship, joint venture or partnership. The provisions of this paragraph shall also extend to
cover and bind each director, officer and principal of Franchisee who has in any capacity affixed
his or her signature to this Agreement.




33.     Covenant to Provide Security




                    The Franchisee acknowledges that in entering into this Agreement that it will be indebted to
the Franchisor for various amounts from time to time during the term of this Agreement, As general
and continuing security for the performance of all covenants under this Agreement, the Franchisee
agrees to execute and deliver to the Franchisor a general security




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agreement granting and creating a security interest over all of the presently owned and after
acquired personal property of the Franchisee, in form acceptable to the Franchisor in its
discretion.




34.     Covenant to Execute Further Documents or Acts




                    The parties agree to acknowledge, execute and deliver all such further documents, instruments
or assurances and to perform all such further acts or deeds as may be reasonably required from time
to time in order to carry out the terms and conditions of this Agreement in accordance with their
intent. The covenants of this paragraph shall also extend to cover and bind each director, officer
and principal of Franchisee who has in any capacity affixed his or her signature to this Agreement.




35.     Offset




                    In respect of all payments due and owing by one party to the other party under this Agreement,
such amounts may be offset by the paying party, and only the difference between what is owing and
what is owed shall be required to be paid.




36.     Notice




                    Any notice required to be sent by one party to the other party in the normal course will be
deemed to have been delivered, if sent by fax (with confirmation of receipt) or email (with no
notice of delivery failure), one (1) full day following its transmission to the other party, and,
in the case of a notice in writing sent by courier, at the time of its delivery to the other party:





	 	(a)	 	Lululemon:
	 
	 	 	 	Lululemon Athletica Inc.

1945 McLean Drive, Vancouver

B.C. V5W 3J7

Fax: (604)874-6124 Email: chip@lululemon.com






	 	(b)	 	To Franchisee: as set forth in Schedule “C”.





                    Either party may give notice to the other party at any time of a change to its address, fax
number or email address.




37.     Entire
Agreement





	 	(a)	 	This Agreement sets forth the entire understanding between the
parties and contains all of the terms and conditions agreed upon by the parties
with reference to the subject matter of this Agreement. No other agreements,
oral or otherwise, shall be deemed to exist or to bind any of the parties, and
all prior agreements and understandings with respect to the same subject matter
are superseded hereby. No officer, employee or agent of Franchisor has any
authority to make any agreement, warranty, representation or promise not
contained in this Agreement, and Franchisee




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	 	 	 	agrees that it has executed this Agreement without reliance upon any such
agreement, warranty, representation or promise.
	 
	 	(b)	 	This Agreement may only be modified as expressly provided
herein or otherwise by a written agreement signed by both Franchisor and
Franchisee.





38.     Severability




                    In the event that any paragraph or sub-paragraph of this Agreement or any portion thereof
shall be held to be indefinite, invalid, illegal or otherwise void, voidable or unenforceable, it
shall be severed from this Agreement, and the balance of this Agreement shall continue in full
force and effect.




39.     Survival of Covenants




                    The terms and conditions of this Agreement which by their nature require performance by
Franchisee or others after assignment, expiration or termination shall remain enforceable
notwithstanding the assignment, expiration or termination of this Agreement.




40.     Without Limitation




                    The words “includes”, “including” and “inclusive” and the phrases “in particular”, “such as”,
“i.e.” and “for example” shall be interpreted and construed so as not to limit the generality of
the words of general application or nature which precede those words and phrases.




41.     Time of the Essence




                    Time shall be of the essence of this Agreement.




42.     Governing Law




                    This Agreement shall be interpreted in accordance with the laws of the jurisdiction as set
forth in Schedule “C”, and any federal laws of general application in that jurisdiction. The
parties irrevocably attorn to the jurisdiction of the courts of the jurisdiction as set forth in
Schedule “C”.




43.     French and English Language




                    The parties hereto agree that they expressly require that the Franchise Agreement to be
entered into between them, together with all related documents and pre-contractual disclosures, all
be drawn up, executed and distributed in the English language only. Les parties aux présentes
conviennent expressément que le Contrat De Concession qu’ils concluront entre eux, ainsi que tous
les documents connexes ou qui s’y rattachent et révélations pre-contractuels, soient entièrernent
rédigés, signés et distribués en Anglais seulernent.




44.     Force Majeure




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                    Neither party shall be liable to the other party for any delay or failure to perform its
obligations under this Agreement where such delay or failure is caused by circumstances beyond its
reasonable control.




45.     No Waiver




                    The failure of either party at any time to exercise any of its rights under this Agreement
shall not operate as a waiver of that party’s right to exercise its rights at any other time.




46.     Interpretation and Liability




                    The word “Franchisee” may be applicable to one or more persons, firms or corporations, as the
case may be; and if there is more than one person, firm or corporation referred to as Franchisee
hereunder, their obligations and liabilities are joint and several. In the interpretation of this
Agreement, the singular shall include the plural, and the masculine shall include the feminine and
neuter, and vice versa, as the context requires.




47.     Successors and Assigns




                    This Agreement shall be to the benefit of and shall be binding on the legal representatives,
successors and permitted assigns of each of the parties.




                    IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and
year first written below.



Dated this 15 day of October, 2004.




	 	 	 	 	 
	LULULEMON ATHLETICA INC.

 	 	 
	Per:	 	/s/ Dennis J. Wilson 	 	Dated:_______________________________
	 	 	Dennis J. (Chip) Wilson, President



	Print Name: Dennis J. Wilson



Print Title: CEO 	 	 
	 



	 	 	 	 	 
	LULULEMON ATHLETICA (AUSTRALIA) PTY. LTD

 	 	 
	Per:	 	/s/ Dennis J. Wilson	 	Dated:_______________________________
	 	 	(Director) 	 	 
	 	 	 



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	Per:	 	/s/ K. Newton 	 	 
	 	 	(Director/Secretary)


	Print Name: Dennis J. Wilson


Print Title: CEO 	 	 
	 


THE UNDERSIGNED EACH AGREE THAT IN CONSIDERATION OF THE PREMISES AND OF THE GRANTING OF THIS
FRANCHISE AGREEMENT TO FRANCHISEE AT THE SEPARATE REQUEST OF EACH OF US INDIVIDUALLY, ALL OF THE
UNDERSIGNED ARE PERSONALLY BOUND INDIVIDUALLY BY THOSE PROVISIONS OF THIS AGREEMENT WHICH
SPECIFICALLY EXPRESS THEMSELVES AS BEING BINDING UPON US PERSONALLY AS SIGNATORIES HERETO.




	 	 	 	 	 
	/s/ Darrell Kopke 	 	 
	(Signature)

	 
	Print Name: Darrell Kopke	 	Date:_______________________________
	Relationship to Franchisee: Director	 	 



	 	 	 	 	 
	/s/ Brian Bacon 	 	 
	(Signature)

	 	 
	Print Name: Brian Bacon	 	Date:_______________________________
	Relationship to Franchisee: Director	 	 
	 




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