FRANCHISE AGREEMENT DATED AUG 1, 2005



 





EXHIBIT 10.26




FRANCHISE AGREEMENT



THIS FRANCHISE AGREEMENT is made as of August 1, 2005.



BETWEEN:



LULULEMON ATHLETICA INC., 1945 McLean Drive. Vancouver, British

Columbia, V5N 3J7

(the “Franchisor” or “Lululemon”)



AND:



RYAN SMITH and, KIM SMITH, on behalf of themselves and CB Ventures

Inc., both of 5073 Cordova Bay Road, Victoria, B.C., V8Y 2K1

(Hereinafter called the “Franchisee”)




RECITALS



WHEREAS:




          A.      Franchisor has developed a format, system and plan for the operation of retail stores
featuring and offering for sale Oqoqo 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 “Oqoqo” (the
“Franchise System”);




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




          C.      Franchisee has applied for a franchise to operate an Oqoqo retail store at the location set
forth in Schedule “B”, utilizing and in conformity with Franchisor’s business method, format and
Franchise System and the Trade Marks at one or more approved retail locations, and distributing
Oqoqo trade-marked clothing and accessories within the Franchised Territory set out below, and
Franchisor has agreed to supply Oqoqo 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)      “Additional Amount” means the book value of the inventory paid for and in the possession
of the Franchisee, plus the value of all leasehold improvements after depreciation of 33.333% per
annum and on a pro-rated basis, plus any prepaid amounts by the Franchisee to the Franchisor;



     (b)      “Agreement” means this Franchise Agreement and all schedules thereof and any subsequent
agreement in writing which amends or supplements this Agreement;



     (c)      “Approved Retail Location” means the retail location which has been approved by Lululemon
for the operation by Franchisee of a retail sales outlet as set forth in Schedule “B”, as may be
amended or supplemented from time to time;



     (d)      “Commencement Date” means the Commencement Date as set forth in Schedule “B”;



     (e)      “CPI” means the Consumer Price Index For Canada, All Items (Not Seasonally Adjusted), 1992
= 100, Annual, or any successor Index thereto, as published by Statistics Canada or any successor
Agency thereto;



     (f)      “Disposition Transaction” has the meaning specified in Section 25;



     (g)      “Effective Date” means the Effective Date as set forth in Schedule “B”:



     (h)      “Franchise” means a business operated by a Franchisee which is engaged in the retail sale
of Oqoqo Products in the Territory or any part thereof:



     (i)      “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;



     (j)     
“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;



     (k)      “Franchised Territory” means the same thing as “Territory”;



     (l)      “Franchisee” means Franchisee as the authorized retailer of Oqoqo Products at an Approved
Retail Location, as well as a person at arm’s length to Franchisee who is granted a right or
license by Lululemon to operate a Franchise in the Territory;



     (m)      “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 Product at the Approved Retail Location during that period,




          (ii)      refunds and allowances made by Franchisee at the Approved Retail Location during that
period,




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          (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;




     (n)      “License Agreement” means the same thing as “Franchise Agreement”;



     (o)      “License Fee” means the same thing as “Franchise Fee”, except as otherwise specified in
this Agreement in respect of the Approved Retail Locations;



     (p)      “Licensed Product” means a third party product which is approved for sale by Lululemon in
association with the Marks and which is distributed or sold by Franchisee;



     (q)      “Marks” means the trade-marks, trade names and other commercial symbols and related logos
as set forth in Schedule “C” hereto, including the trade names OQOQO, 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;



     (r)      “Oqoqo Products” means clothing and accessories, other than Licensed Products, 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;



     (s)      “Products” means collectively Oqoqo Products and Licensed Products;



     (t)      “Territory” means the Territory as set forth in Schedule “B”;



     (u)      “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 sales after taxes in either of the last of two (2) years
of the Initial Term of the amount as set forth in Schedule “B”. it shall have the further right to
renew this Agreement for subsequent terms of five (5) years each, 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:



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          (i)      Franchisee shall notify Franchisor in writing at least three (3) 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 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 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 not be obligated
to pay any License Fee for the renewal term, and the royalties to be paid by the Franchisee during
the renewal term shall not exceed the percentage royalties to be paid by Franchisee during the last
year of the Initial Term and the Franchisee will continue to have the rights provided it under
paragraphs 3(f), 4(b) and 25 of this Agreement;




          (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 Franchisor as a License Fee for this Agreement and any further
Approved Retail Locations the sum as set forth in Schedule “B” for the Initial Term.



     (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 to he paid for the Initial Term is payable within thirty (30) days of the
Effective Date.




	3.	 	Appointment and Use of Marks on Products





     (a)      Subject to any termination or non-renewal of this Agreement, and except as otherwise
provided in this Agreement, Franchisor appoints Franchisee, for so long as this Agreement remains
in effect, as a non-exclusive retailer of Oqoqo 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 not to be unreasonably



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withheld or delayed, and, except for the Approved Retail Location as set forth in Schedule
“B”, shall be the subject of a separate Franchise Agreement to be entered into between the parties
prior to its opening. Each such Franchise Agreement will contain the same financial obligations of
Franchisee, including payment of a License Fee for each Approved Retail Location in an amount
agreed to by the parties thereto, 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 fifteen (15) days prior to the opening date of such
Approved Retail Location; and the Commencement Date will be read as being the same as the opening
date of such Approved Retail Location; and the amount of sales that Franchisee will be required to
achieve after taxes in either of the last two (2) years of the Initial Term in order to have the
right to renew the Franchise Agreement for a subsequent term of five (5) years will be adjusted
upwards from the Commencement Date of this Agreement to the first day of the last year of the
Initial Term which pertains to such Approved Retail Location in accordance with increases in the
CPI over such period.



     (c)      During the currency of this Agreement, but except as otherwise provided in this Agreement,
Franchisor shall permit Franchisee to hold itself out as an authorized retailer of Oqoqo Products.



     (d)      Franchisee shall prepare and submit for Franchisor’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 Franchisor for its approval. Franchisor will
provide assistance to Franchisee, but only for the purposes of guidance. Franchisee will be solely
responsible to work with its own advisors in preparing and finalizing such budgets.



     (e)      In the event that 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 Franchisor requesting such permission and
providing the reasons for such request and Franchisor, acting reasonably, shall consider and
respond to any such request and shall notify Franchisee in writing within 30 days following receipt
of such request of its decision thereof




     (f)      For so long as the Approved Retail Location provided for herein operates in accordance
with the terms of this Agreement. Franchisor shall not establish its own retail locations, or
license any other person to establish a retail location, selling Licensed Products or Oqoqo
Products in the Territory, except as provided for in Section 4(b).



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     (g)      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
Licensed Product. Where Franchisee wishes to obtain the approval of Franchisor for the sale of a
third party product as a Licensed Product, it shall submit a request in writing or by electronic
mail to Franchisor and shall provide Franchisor with one (1) sample of such proposed product and,
where applicable, a colour scheme for such proposed product. Franchisor shall within thirty (30)
days of receipt of Franchisee’s request, or such longer period of time as may be required if Dennis
J. (Chip) Wilson or the party designated by Franchisor as the approving party from time to time is
away from Franchisor’s home office, in which ease such period of thirty (30) days shall commence
upon that party’s return, advise Franchisee in writing or by electronic mail of its acceptance or
rejection of such request. Franchisor 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.
In the event that Franchisor fails to notify Franchisee of its decision within the thirty (30) day
period provided as aforesaid, it shall be deemed to have refused Franchisee’s request.



     (h)      Franchisee will be responsible for the reasonable cost of adding the Approved Retail
Location and subsequent Approved Retail Locations of Franchisee to Franchisor’s master website,
when developed by Franchisor. Lululemon will refer leads from prospective retail customers in the
Territory to Franchisee, or upon the establishment of additional retail locations, to the retail
location which is closest to the prospective retail customer’s place of residence.



     (i)      Franchisee shall be entitled to fill any and all athletic team, group, corporate or
similar 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 higher-priced or lower-priced brand of apparel similar in design and composition to the
Oqoqo Products and Franchisor shall incur no liability to Franchisee in connection therewith.



     (b)      In the second (2nd) year of the initial term of this Agreement Franchisor or
its principals shall have the right to purchase all assets located at or used in the operation of
the Franchise Store and the entire equity ownership of Franchisee. Upon written notice of the
exercise of such right or option from Franchisor, Franchisee shall sell the Franchised Store to
Franchisor at a price determined as set for in schedule 4(b)(i). The closing of the sale of the
assets of the Franchised Store or the equity of Franchisee, as the case may be, shall be completed
on or before the sixtieth (60th) day following receipt by Franchisee of such notice, or on such
other day as the parties reasonably agree.



     The purchase price payable by Franchisor to Franchisee pursuant to this paragraph shall be
paid in 24 equal and consecutive monthly payments commencing on the



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closing of the sale and of the Franchisee’s Franchise and thereafter on the first day of each
month until paid in full.


(i) Buy-out price for the initial term is as follows:



Year one (I) $500,000 plus 100% of Additional Amounts



Year two (2) $400,000 plus 100% of Additional Amounts



Year three (3) $300,000 plus 100% of Additional Amounts



Year four (4) $200,000 plus 100% of Additional Amounts



Year five (5) and any subsequent terms -



$100,000 plus 100% of Additional Amounts




     (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 using 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 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.




	5.	 	Management Personnel





          Franchisee acknowledges that Franchisor has granted this Franchise on the representations of
Franchisee that, except with the Franchisor’s prior approval, which approval shall not be
unreasonably withheld or delayed, the current principals of Franchise shall in aggregate
participate actively on a full-time basis (40 hours per week) in the management and operation of
the franchised business (which, for the purposes of this Section 5 shall include the Approved
Retail Location provided for hereunder and any other Approved Retail Locations, if any, established
by Franchisee or his affiliates) and each work at least one (1) day per week (eight (8) hours) on
average on the store floor. 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 he
employed by Franchisee in the franchised business including at each Approved Retail Location with
initial training of three (3) weeks in duration in respect of the management,



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administration and operation of an Oqoqo 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 is included in the License Fee.
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 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 acknowledges that
Franchisor’s training programs and materials are proprietary confidential information forming part
of the Franchise 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 including but not limited to
salaries, materials, transportation and accommodation.




	7.	 	Consultation





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

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Franchisor 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 Franchisor with a retail dollar amount forecast of its requirement
for Oqoqo Products at least six (6) months in advance of the desired delivery date.



     (b)      Franchisor shall sell Oqoqo Products to Franchisee at an amount equal to 35% of the lesser
of the suggested retail price for the Oqoqo Products purchased and the retail price charged for
such Oqoqo Products at the retail locations (other than factory outlets) owned by the Franchisor.



     (c)      In the event of any shortfall in availability, Franchisee will receive a percentage of
monthly production, in styles, colours and sizes, based on the production forecast for the month,
divided by the total of all Oqoqo stores forecasts. Franchisee shall pay Franchisor the entire
amount of the estimated purchase price of the goods for each month as a downpayment (“Downpayment”)
in respect of each order. Such payments shall be made to Franchisor by electronic bank transfer or
cheque and shall be provided not less than 35 days prior to the first day of the scheduled delivery
month of such order. Franchisor shall not commence production of any Oqoqo Products ordered by
Franchisee until such time as it has received the applicable Downpayment.



          If, as a result of any Disposition Transaction, Dennis J. (Chip) Wilson will not control the
Franchisor (or any successor of the Franchisor) after the completion of the Disposition
Transaction, the Franchisor agrees that it will cause any successor to acknowledge and agree:




          (i)      to accept responsibility for the delivery of all orders for which a Downpayment has been
made prior to the completion of the Disposition Transaction but which has not been completed as at
such date; and




          (ii)      that that any Downpayment or other payment made by the Franchisee pursuant to this
paragraph prior to the completion of the Disposition Transaction will be applied to satisfy or
reduce the purchase price for the order to which such payment(s) relate.




     (d)      At the end of each month, Franchisor will send a statement of shipping status and an
invoice. Any shortfalls or overages in shipments of Oqoqo 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 Oqoqo
Products delivered to Franchisee shall be made in accordance with the payment terms set forth
herein.



     (e)      The Oqoqo Products so ordered shall be delivered to Franchisee f.o.b. on the transport
carrier of Franchisee’s choice from Franchisor’s Vancouver warehouse.



     (f)      Franchisor will endeavour to send Franchisee Oqoqo Products above the forecast amount on
request of Franchisee and dependent upon availability of inventory. Such shipments



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shall be paid for in full by Franchisee by credit card authorization or electronic bank
transfer before the goods are shipped.




	9.	 	Title and Risk of Loss





          Title to and the risk of loss in any products ordered by one party from the other party shall
pass at the time of delivery.





	10.	 	Winning Formula





          Franchisee will adhere in a commercially reasonable manner to the Winning Formula described in
the attached Schedule “A” and, as amended by Franchisor from time to time, provided that Franchisor
and Franchisee each acting reasonably may jointly agree to amend the Winning Formula where changes
in local market conditions reasonably require any such change.





	11.	 	Royalties





          For so long as this Agreement remains in effect, Franchisee shall pay Franchisor a monthly
royalty in the following amounts:




     (a)      for the first 12 month period following the Commencement Date, 5% of its Gross Sales
during each such month;



     (b)      for the second 12 month period following the Commencement Date, 12.5% of its Gross Sales
for each such month; and



     (c)      thereafter, 25% of its Gross Sales for each such month.


The monthly royalty shall be paid within fifteen (15) days of the end of each month and will be
paid to Franchisor by electronic transfer, credit card authorization or bank draft.




          Franchisee will provide Franchisor with a monthly sales report showing the calculation of the
monthly royalty amount, in such form and containing such detail as Franchisor may reasonably
require from time to time.




          Franchisor will have the right to audit and inspect Franchisee’s records during normal
business hours in order to verify the accuracy of the monthly royalty payments on giving Franchisee
not less than twenty-four (24) hours’ prior written notice. If Franchisee’s Gross Sales as
reported to Franchisor should be found to be understated by more than three percent (3%) or if
Franchisee shall have failed to report its Gross Sales to Franchisor as required, Franchisee shall
pay the cost of the review or audit as well as the additional amount payable as shown thereby. In
addition, if Franchisee’s Gross Sales as reported to Franchisor should be found to be understated
by more than five percent (5%), or if Franchisee shall have failed to report its Gross Sales to
Franchisor on two or more occasions, or if Franchisee’s Gross Sales as reported to Franchisor
should be found to be understated by more than three percent (3%) on two or more occasions, this
shall constitute a default under and a material breach of this Agreement.




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          Franchisee’s sales will be downloaded daily to Franchisor.





	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 during such fiscal year, shall at the discretion of Franchisor be audited.





	14.	 	Overdue Payments





          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, Franchisor 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 Oqoqo Products 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 the Marks to any third party without the prior written
agreement of Franchisor.



     (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 Franchisor.
Franchisee acknowledges that Franchisor 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.



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     (d)      Franchisee shall use the Marks only in their exact form and only in such media and as
otherwise prescribed or approved by Franchisor from time to time.




	16.	 	Other Obligations





     (a)      Franchisee will exercise its reasonable best efforts to advertise and promote the sale and
distribution of Oqoqo Products throughout the Territory.



     (b)      Franchisee further agrees:



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




          (ii)      to be responsible for any and all taxes, assessments, duties and other expenses related
to importing, distributing, marketing and selling Products;




          (iii)      to take all steps that are reasonably necessary to prevent Products from being
distributed outside of the Territory 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 and the sale of any products which are provided by Franchisor to
Franchisee (or his affiliate) under a different franchise system in accordance with the terms of a
franchise agreement entered into between Franchisee (or his affiliates) and the Franchisor;




          (vii)      to refrain from contesting or assisting any other party in contesting Franchisor’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 Oqoqo 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 Oqoqo or any confusingly-similar name as part of any
uniform resource locator, Internet domain name, electronic mail address, website name or search
engine metatag of Franchisee without the prior written approval of Franchisor;




          (xi)      to refrain from using the Marks in association with any business other than the
franchised business or a different franchised business conducted by Franchisee (or his affiliates)
which is the subject of a franchise agreement between Franchisor and Franchisee (or

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his affiliate), and all goodwill accruing to all uses of the Marks shall accrue to Franchisor
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;




          (xiii)      to refrain from contesting or assisting any other party in contesting Franchisor’s
control over the Internet domain name of Oqoqo 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 Franchise Systems, including on the Internet, is an essential part of the
Franchise System;




          (xiv)      except with the Franchisor’s prior consent, which consent shall not be unreasonably
withheld or delayed, 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 one of Franchisor’s Internet
websites;




          (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 (which, for the purposes of this Agreement, does not include any
affiliate of the Franchisee which conducts a different franchised business pursuant to a franchise
agreement entered into between Franchisor and an affiliate of Franchisee) without the prior written
approval of Franchisor;




          (xviii)      to use Franchisor’s required forms and privacy statements and adhere to Franchisor’s
policies in the franchised business regarding collection and use of data from time to time, in
order to obtain all required permission from all required parties regarding such collection and use
of information 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 its
commercially reasonable efforts to cause the Gross Sales at each Approved Retail Location to
consist of at least ninety percent (90%) Oqoqo 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

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use of such items through the receipt of hidden rebates, discounts or other allowances from
such designated or approved suppliers;




          (xxi)      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,
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 permit Franchisor at any reasonable time to have such access as may be required 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 this
Agreement, and Franchisee shall cooperate with Franchisor for such purposes; and




          (xxiii)      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 Franchise 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 obtain and maintain and upgrade from time to time a point of sale (“POS”)
system which Franchisor will denote. Notwithstanding the foregoing, Franchisor agrees that the
amounts required to be expended by Franchisee to upgrade the POS system shall not exceed Twenty
Thousand Dollars ($20,000.00) for each year following the most recent previous upgrade to the POS
system.



     (d)      Franchisor shall at all times 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.



     (e)      Franchisor 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 Supplies





          In order to maintain quality, standardization, uniformity and consistency among all Oqoqo
retail stores, Franchisor reserves the right to require Franchisee to remove from use 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.




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	18.	 	Pricing





          Franchisor may recommend or suggest prices for products or services to Franchisee based upon
its experience, however such recommended or suggested 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 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 which 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 Franchise 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 predetermined price arrangement, and Franchisee
in such instances shall be restricted from selling above 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.	 	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; non-owned automobile liability; blanket
contractual liability; contingent employer’s liability products liability; advertising injury
liability; completed operations liability; occurrence basis property damage; employees added as
additional insureds; and medical payments each person, each accident, in at least the amount of Ten
Thousand Dollars ($10,000.00) per person or occurrence;




          (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 he from time to time; and shall apply as primary coverage and not as



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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 (acting in a commercially reasonable manner) to consider participating
in such group insurance coverage programs as Franchisor may arrange from time to time, and if
participating 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 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.




	21.	 	System Changes





          Franchisor shall have the right to make reasonable changes, modifications, additions or
deletions to the Franchise System 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 Franchise System at the time of execution of this Agreement.
Notwithstanding the foregoing, Franchisor agrees that Franchisee shall not be required in any year
to expend more than one percent (1%) of the previous year’s Gross Sales on any changes required
pursuant to the terms of this paragraph.




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	22.	 	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.





	23.	 	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, 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;



     (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



     (f)      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.




          Notwithstanding anything contained in this Agreement, Franchisor acknowledges and agrees that
Franchisee may be prohibited or restricted from providing certain information relating to its
customers, suppliers and business contacts as a result of the application of the Personal
Information Protection Act.





	24.	 	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
Franchisor, 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 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.



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     (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 he 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 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
nonrefundable 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.




          (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.




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          (iii)      Once Franchisee receives a bona tide 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 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. 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.




	25.	 	The Take-Over Clause





          During the term of this Agreement. and during any renewal term as provided for in this
Agreement, in the event that Franchisor or its principals should receive an offer from a third
party for the purchase of all or substantially all of the Franchisor’s business by way of either an
asset purchase or a share purchase or by going public (any of such events being referred to in this
paragraph as a “Disposition Event”), Franchisor will have the right to include in such transaction
an option to the purchaser to acquire this Franchise and all of the Approved Retail Locations from
Franchisee in accordance with the following formula, and Franchisee agrees to sell to such
purchaser in accordance with this formula if such option is exercised. The purchase price
applicable to the individual Oqoqo retail stores will be based on Gross Sales for that store. The
purchase price for each store will be paid in cash to Franchisee on the closing of the sale of the
individual retail store and will be calculated as follows:




          (i)      if the Disposition Event occurs within the first three years of the Initial Term, the
purchase price shall be equal to 25% of Gross Sales for the previous 12 month period ending on the
last date of the month in which the Disposition Event occurred (such 12 month period being referred
to in this section as the “Determination Period”) plus 100% of the Additional Amount;




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          (ii)      if the Disposition Event occurs within the fourth or fifth years of the Initial Term, the
purchase price shall be equal to 20% of the Gross Sales for the Determination Period plus 100% of
the Additional Amount; and




          (iii)      if the Disposition Event occurs after the expiration of the Initial Term, the purchase
price shall be equal to 15% of the Gross Sales for the Determination Period plus 100% of the
Additional Amount.



For clarity, if a retail store has not been open for operation for the entire 12 month period, the
Gross Sales for the purposes of calculating such purchase price shall equal the quotient obtained
by dividing the Gross Sales (determined in the manner provided for in this paragraph) for the
period during which such retail store was open for operation by the fraction, the numerator of
which is the number of days the retail store was open for operation and the denominator of which is
365.





	26.	 	Termination





     (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 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 such default is capable of being
cured but cannot reasonably he 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 if the same 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 Franchise 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;




          (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; or




          (iv)      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

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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 he 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 Franchisee shall abandon the franchised business by failing to keep the franchised
business operating under the name Oqoqo 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;




          (ii)      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 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;




          (iii)      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;




          (iv)      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;




          (v)      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;




          (vi)      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;




          (vii)      if Franchisee shall attempt to assign, transfer or convey the Oqoqo 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

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shall duplicate, publish, disclose, use or misuse any of the same in a manner or at or from a
location not authorized by Franchisor;




          (viii)      if Franchisee shall intentionally falsify, misrepresent or misstate to Franchisor any
financial statements, reports or information required pursuant to this Agreement: or




          (ix)      if Franchisee shall unilaterally repudiate this Agreement or the performance or
observance of any of the terms and conditions of this Agreement by word or conduct evidencing
Franchisee’s intention to no longer comply with or be bound by the same.





	27.	 	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 and
Metatags



          (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 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 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 to Franchisor or its designee; and Franchisee hereby irrevocably
nominates, constitutes and appoints the person serving from time to time as the Secretary of
Franchisor to be its attorney-in-fact 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 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 to Franchisor or its designee as the
successor to Franchisee

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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 Secretary 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 to Franchisor, which
Franchisor shall be entitled 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 Oqoqo and related Trade Marks, trade name, Internet domain names,
uniform resource locators, electronic mail addresses, search engine metatags, 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 Franchise
System; or in any manner refer to itself as having been a former franchisee of the Franchise 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, 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 Franchise 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 Franchise System or bearing or containing the Oqoqo or related
Trade Marks. Franchisee also agrees upon expiration or termination of this Agreement to forthwith
de-identify the



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Approved Retail Location premises including removal therefrom of all signs or other references
to the Oqoqo or related Trade Marks, and all colours and colour combinations and any other
distinctive elements of the Franchise 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.



     (d)      Upon expiration or termination of this Agreement for whatever reason, Franchisor shall
have the right to immediately establish, operate or franchise an Oqoqo 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 Oqoqo 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 Oqoqo retail stores, or which
utilizes some or all of the essential distinctive elements of the Franchise 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, Internet website design, custom
computer software or business format to those of the Franchise System. Notwithstanding the
foregoing, neither the Franchisee nor its shareholders, directors or officers will be in breach of
the provisions of this paragraph where any one or more of them have entered into a franchise
agreement with the Franchisor to operate another business franchised by the Franchisor.




          (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, Internet website
design, custom computer software or business format to those of the Franchise 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.




          (v)      The covenants of this paragraph shall not operate to prevent Franchisee or such other
persons from being involved in the apparel similar in design and composition to the Oqoqo Products
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

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and such other persons from being involved in the apparel similar in design and composition to
the Oqoqo Products 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,
other than any Internet presence, web page design or software developed by Franchisee in the
operation of the Franchised Business, 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 Franchise 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 Franchise
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, 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 Franchise 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 Franchise System, and that any unauthorized retention or use of data may
be a violation of Franchisor’s policies and statements regarding data privacy, collection and use
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.




	28.	 	Indemnification





          Except as expressly provided elsewhere in this Agreement, Franchisee agrees to save Franchisor
and its officers 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 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.





	29.	 	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

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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.





	30.	 	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.





	31.	 	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.





	32.	 	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.





	33.	 	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 or email, at the time of 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)	 	To Franchisor:
	 
	 	 	 	1945 McLean Drive

Vancouver, British Columbia

V5N 3J7

Fax: (604) 874-6124

Email: chip@lululemon.com
	 
	 	(b)	 	To Franchisee: as set forth in Schedule “B”.




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





	34.	 	Entire Agreement





     (a)      All terms and conditions pursuant to any and all agreements previously made between
Franchisor and Franchisee shall merge hereunder and shall be replaced by the provisions hereof.
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
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.




	35.	 	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.





	36.	 	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.





	37.	 	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.





	38.	 	Time of the Essence





          Time shall be of the essence of this Agreement.





	39.	 	Governing Law





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




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	40.	 	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 entièrement
rédigés, signés et distribués en Anglais seulement.





	41.	 	Force Majeure





          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.





	42.	 	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.





	43.	 	Successors and Assigns





          This Agreement shall be to the benefit of and shall be binding on the 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 1st day of August, 2005.




	 	 	 	 	 
	LULULEMON ATHLETICA INC.

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




 



Date





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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.




	 	 	 	 	 	 	 
	Franchisee:	 	Franchisee:
	 
	 	 	 	 	 	 
	RYAN SMITH on behalf of themselves

and CB Ventures Inc.	 	KIM SMITH on behalf of themselves and

CB Ventures Inc.
	 
	 	 	 	 	 	 
	Per:
	 	/s/ Ryan Smith	 	Per:	 	/s/ Kim Smith
	 
	 	 	 	 	 	 
	 
	 	Authorized Signatory

Print Name: Ryan Smith
	 	 	 	Authorized Signatory

Print Name: Kim Smith







	 	 	 	 	 	 	 
	Date:

	 	 	 	Date:	 	 
	 

	 	 
	 	 	 	 






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