FRANCHISE AGREEMENT DATED AUGUST 1, 2005



 





EXHIBIT 10.27




FRANCHISE AGREEMENT



THIS FRANCHISE AGREEMENT is made as of the 16 day of OCTOBER, 2002.




BETWEEN:




LULULEMON ATHLETICA INC., 2113 West 4th Avenue, Vancouver, British Columbia,
V6K 1N6

(hereinafter called the “Franchisor” or “Lululemon”)

                                                                                
                    OF THE FIRST PART



AND:




OQQO ENTERPRISES INC. of 1257 a Haultain St, Victoria B.C.

(hereinafter called the “Franchisee”)

                                                                                
                    OF THE SECOND PART



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 business method, format and system and the Trade
Marks at one or more approved retail locations, and to distribute Lululemon Athletica trade-marked
clothing and accessories 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)     “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;



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



     (d)     “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;



     (e)     “Effective Date” means the Effective Date as set forth in Schedule “B”;



     (f)     “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;



     (g)     “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;



     (h)     “Franchise Fee” means a direct or indirect payment (whether payable on a onetime 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;



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



     (j)     “Franchisee” means Franchisee as the authorized retailer of Lululemon 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,



     (k)     “Gross Sales” means, for a specified period, the gross sales of all Products sold by the
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 the Franchisee at the Approved Retail Location during that
period,




               (iii)     any store credits redeemed by the Franchisee at the Approved Retail Location during that
period,




               (iv)     any amounts received by the Franchisee from the sale of gift certificates at the Approved
Retail Location during that period (it being understood that the redemption of gift certificates
will be included as Gross Sales), and




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               (v)     any amounts collected by the Franchisee at the Approved Retail Location during that period
on account of taxes;




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



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



     (n)     “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;



     (o)     “Lululemon 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;



     (p)     “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 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;



     (q)     “Products” means collectively Lululemon Products and Licensed Products;



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



     (s)     “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 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. The terms and
conditions for renewal of this Agreement are as follows:



               (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




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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 The royalties payable by the Franchisee in the
renewal term shall not exceed the percentage royalties payable 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 (I) Approved
Retail Location:



               (i)     the sum as set forth in Schedule “B” for the first year of the Initial Term, and




     (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 be paid for the first year of the Initial Term is payable within 30
days of the Effective Date.



     (f)     The License Fee payable in each year following the first year of the Initial Term shall be
paid within 30 days of the anniversary date of the Commencement 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, 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 not to be unreasonably withheld or
delayed, and, except for the Approved Retail Location set forth in Schedule “B”, shall be the
subject of a separate Franchise Agreement to he entered into between the parties prior to its
opening. Each such Franchise Agreement will contain the same financial obligations of Franchisee,
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



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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,
Lululemon shall permit Franchisee to hold itself out as an authorized retailer of Lululemon
Products.



     (d)     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, 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 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 30 days
following receipt of such request of its decision thereof.




     (f)     During the first twenty-four (24) months of the Initial Term, Lululemon shall not, without
Franchisee’s prior written consent, which consent may be withheld in the 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 wholesale or retail marketing, sale or promotion of Products in the Territory.



     (g)     During the last thirty-six (36) months of the initial Term and any renewal term as
provided for in this Agreement, Lululemon shall not, without Franchisee’s prior written consent,
which consent may be withheld in the 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 “B” or grant any other party a license to use the Marks in



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association with the wholesale or retail marketing, sale or promotion of Products in the Focus
Area Exclusive Zone as set forth in Schedule “B”.




     (h)     During the last thirty-six (36) months of the Initial Term and any renewal term as
provided for in this Agreement, 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 wholesale or
retail marketing, sale or promotion of Products in the Territory unless it first gives not less
than 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 of 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 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 30 days from the date of receipt by the Franchisee of the notice provided for in this
paragraph. 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, the 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 “B” or grant any other party a license to use the Marks in
association with the wholesale or retail marketing, sale or promotion of Products in the Focus Area
Exclusive Zone as set forth in Schedule “B”, otherwise than in compliance with Paragraph (g).



     (i)     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
“B” during the last thirty-six (36) months of the Initial Term, and at any time thereafter, acting
in a commercially reasonable manner as to their locations not being too close in proximity to the
Approved Retail Locations of Franchisee.



     (j)     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 shipped by
Lululemon Athletica.



     (k)     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 upon the establishment of additional retail locations, to the retail location which
is closest to the prospective retail customer’s place of residence.



     (l)     Franchisor will fill all orders from customers for Lululemon Products which are received
over the Internet from within the Territory. Franchisor will pay the net profits from such sales
to Franchisee at the end of each calendar quarter, calculated as follows. The gross



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revenues received by Franchisor from electronic commerce retail sales of Lululemon Products to
customers in the Territory shall have deducted therefrom Franchisor’s cost of goods sold, the
shipping and insurance costs for delivery of such goods to customers, royalties at the rate
provided for herein, plus the amounts of all returns, refunds, allowances, credits, goods and
services taxes and sales taxes applicable to such sales, and the resulting amount will constitute
the net profits from such sales.




     (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 the
Franchisee from selling Products at an Approved Retail Location to persons resident outside the
Territory.



     (n)     Franchisee shall be entitled to fill any and all athletic team 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, 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 a same, 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 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 “B” during the first twenty-four (24) months of the
Initial Term of this Agreement.



5.     Management Personnel




               Franchisee acknowledges that Franchisor has granted this Franchise on the representations of
Franchisee that one of the (2) current principals of Franchisee shall participate actively on a
full-time basis in the management and operation of the franchised business and




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work at least 5 days a week (40 hrs) 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 be
employed by Franchisee in the franchised business including at each Approved Retail Location with
initial training of three (3) 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 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 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



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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)     Each person trained before the opening of a first franchise will work seven (7) days in an
existing Lululemon Athletica franchise before signing the agreement.



     (e)     The Signor of the franchise agreement will take a course called the “Forum” presented by
Landmark Communication before the store opening Failure to complete this course before the store
opening will result in default of this agreement.



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 sales dollar amount forecast of its requirement for
Lululemon Products at least six (6) months in advance of the desired delivery date.



     (b)     Lululemon. shall sell Lululemon Products to Franchisee at an amount equal to Lululemon’s
actual cost of manufacturing and delivery to Lululemon’s Vancouver warehouse, plus ten percent
(10%). The cost of manufacturing is defined as all fabrics, trims and findings, labour costs,
screening. hang tags, labels, prewashing and other production services, allowances and taxes. The
10% added is an arbitrary figure attached to pay for design and manufacturing overhead.



     (c)     Franchisee will receive a percentage of total Lululemon monthly production based on the
Franchisee’s forecast for the month weighted by the ratio of Franchisee’s forecast compared to the
total of all stores’ forecasts combined. The quantity and breakdown of goods delivered to
Franchisee with regard to styles, colors and sizes will be solely dictated by Franchisor. The
franchisee will pay fifty percent (50%) of the forecasted cost of goods for each month as a
downpayment. Such payment 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
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 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. During the first
three (3) months of the Initial Term of this Agreement, if requested by Franchisee and deemed to be
necessary by Franchisee for cash flow purposes, Franchisor will allow Franchisee to pay the balance
of the actual purchase price just prior to the scheduled



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delivery. For the months of November and December only, 100% of the forecast cost of goods
amount will be paid 65 days in advance




     (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 shipped 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.



     (e)     The Lululemon Products so ordered shall be delivered to Franchisee fob. on the transport
carrier of Franchisee’s choice from Lululemon’s Vancouver warehouse and payment of the 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 the franchisee product above the forecast amount on
request of the franchisee and dependant on availability of inventory. Such shipments will be paid
for by electronic 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 Lululemon from time to time, provided that Lululemon
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




     (a)     Franchisee shall pay Lululemon a monthly royalty in an amount equal to twenty-five percent
(25%) of its Gross Sales during each such month.



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




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




               Lululemon will have the right to audit and inspect Franchisee’s records during regular
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



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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 Franchisees 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.




               Franchisee’s sales will be downloaded daily to Lululemon.




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 the Franchisee has been in material breach under
this Agreement, shall at the discretion of the 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, 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 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.



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     (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 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 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,




               (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;




               (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;




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               (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 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;




               (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 Lulu lemon
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 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 (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




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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 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 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 “B” per person two times a
year for air and hotel for two Lululemon staff to participate in the design meetings.



     (d)     Franchisee will obtain and maintain and upgrade from time to time a point of sale (“POS”)
system that will easily interact with the Lululemon head office system as upgraded from time to
time. Further, Franchisee will pay a one-time fee of the amount as set forth in Schedule “B” to
Lululemon as part of downloading the information system. Notwithstanding the foregoing, the
Franchisor covenants that the Franchisee the amounts required to be expended to upgrade the POS
system shall not exceed more than $10,000 for each year following the most recent previous upgrade
to the POS system.



     (e)     Lululemon 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.



     (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.



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17.     Substandard Supplies




               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 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 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 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 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. The Franchisor agrees that all Franchisees and all corporate owned retail
locations and affiliate owned retail locations shall make contributions to the advertising fund at
the same percentage of Gross Sales and at the same time as applicable to the Franchisee under this
Agreement.



     (b)     In addition to all other payments required to be made by Franchisee to Franchiser
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 outlined in schedule “B” during the preceding month.



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     (c)     All Lululemon Athletica locations operated by Franchisor or its affiliates shall
contribute to the advertising fund in the same manner as the franchisees.



     (d)     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.



     (e)     Franchisor agrees to advise its 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 its 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 of the approved retail location, outlined in schedule “B” 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; non-owned automobile




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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 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 Franchiser; 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 fur
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.



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23.     System Changes




               Franchisor shall have the right to make reasonable changes, modifications, additions or
deletions to the Lululemon Athletica 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 Lululemon Athletica system at the time of
execution of this Agreement.




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, 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.




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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 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 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




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conditions. In the event an offer is sent to the Franchisee from a third party at the same
time an offer from Franchisor under clause 28 is sent to the franchisee to purchase Franchisee, the
letter dated first to or from the franchisor shall take precedent.




               (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 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. 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 Clause




               In the third (3rd) year of the Initial Term of this Agreement, in every subsequent
year for the remainder of the term of this Agreement and in any renewal term as provided for in
this Agreement, in the event that Lululemon or its principals should want to purchase the franchise
or receive an offer from a third party for the purchase of all or substantially all of the
Lululemon business 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 to the purchaser to acquire




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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 for the equity value of each
franchise location in accordance with this formula if such option is exercised. The equity value
of the individual Lululemon retail stores will be based on Gross Sales for that store (which, for
greater certainty, will include any amounts received by the Franchisee from the Franchisor for
Internet sales, as provided for in Section 3(1)). The equity value for each store will be
calculated at five percent (5%) of the previous twelve (12) months of Gross Sales measured back
from the end of the calendar month in which the offer to purchase Lululemon was received.
Franchised stores cannot be so purchased within the first two (2) years of operation without the
express written consent of Franchisee. On top of the purchase price Lululemon Athletica will pay
for the depreciated leasehold improvements and the book value of the inventory.




28.     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 be cured within such 30 day period, and the Franchisee is prosecuting such
cure with diligence, such 30 day period shall be extended for a longer period of time as may be
necessary to complete such cure if the same is prosecuted with diligence, such diligence evaluated
at the sole discretion of Franchisor;




               (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,




               (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 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.




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     (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 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;




               (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 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;




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               (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.




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 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 to 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 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




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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 Lululemon Athletica 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 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, 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 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



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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.




     (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, 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 he 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 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.




               (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 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.




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               (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, 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 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.



30.     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.




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




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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.




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.




33.     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.




34.     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.




35.     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 Lululemon:
	 
	 	 	 	2113 West 4th Avenue

Vancouver, British Columbia

V6K 1N6

Fax: (604) 732-6113

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




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




36.     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



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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.



37.     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.




38.     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.




39.     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.




40.     Time of the Essence




               Time shall be of the essence of this Agreement.




41.     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”.




42.     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 entierement
rédigés, signés et distribués en Anglais seulement.




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43.     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.




44.     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.




45.     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 16 day of October, 2002.




LULULEMON ATHLETICA INC.




	 	 	 
	Per

	 	/s/ Dennis J. Wilson                                                            
	 

	 	Dennis J. (Chip) Wilson, President






OCT 16, 2002                         

Date



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:




RYAN SMITH on behalf of OQQO

ENTERPRISES INC.




	 	 	 
	Per:

	 	/s/ Ryan Smith                                                  
	 

	 	Authorized Signatory
	 

	 	Print Name: Ryan Smith          






Date: 2002/OCT/16                         





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