In this task, you're given a passage that represents a legal contract or clause between multiple parties, followed by a question that needs to be answered. Based on the paragraph, you must write the index where the answer starts. If multiple answers seem to exist, write the index of the answer that is the most plausible. If multiple indices must be used to answer the question, the output should be a common separated list of indices.

Example Input: BW-3 FRANCHISE SYSTEMS, INC.                                  FRANCHISE AGREEMENT

                                  TABLE OF CONTENTS

ARTICLE                                                                     PAGE - -------                                                                     ----                                                                           I.     APPOINTMENT AND FRANCHISE FEE. . . . . . . . . . . . . . . . . . . . .1 II.    TERM AND RENEWAL . . . . . . . . . . . . . . . . . . . . . . . . . . .3 III.   RESTAURANT AND LOCATION. . . . . . . . . . . . . . . . . . . . . . . .4 IV.    TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 V.     PROPRIETARY MARKS. . . . . . . . . . . . . . . . . . . . . . . . . . .6 VI.    CONFIDENTIAL MANUALS . . . . . . . . . . . . . . . . . . . . . . . . .7 VII.   CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .7 VIII.  MODIFICATION OF THE SYSTEM . . . . . . . . . . . . . . . . . . . . . .8 IX.    ADVERTISING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 X.     CONTINUING FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 XI.    ACCOUNTING AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . 12 XII.   STANDARDS OF QUALITY AND PERFORMANCE . . . . . . . . . . . . . . . . 13 XIII.  OPERATIONS ASSISTANCE. . . . . . . . . . . . . . . . . . . . . . . . 17 XIV.   INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 XV.    COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 XVI.   DEFAULT AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . 20 XVII.  RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR        TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 XVIII. TRANSFERABILITY OF INTEREST. . . . . . . . . . . . . . . . . . . . . 24 XIX.   YOUR DEATH OR INCAPACITY . . . . . . . . . . . . . . . . . . . . . . 26 XX.    RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . 26 XXI.   OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH . . . . . . . 26 XXII.  INDEPENDENT CONTRACTOR AND INDEMNIFICATION . . . . . . . . . . . . . 27 XXIII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 XXIV.  APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 XXV.   DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . 29 XXVI.  OWNER AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 31 XXVII. ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 31

EXHIBITS:

A.     OWNER AGREEMENT B.     DESCRIPTION OF DESIGNATED AREA C.     LEASE ADDENDUM

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                            bw-3 FRANCHISE SYSTEMS, INC.

                                FRANCHISE AGREEMENT

       This Franchise Agreement (Agreement) made this _____ day of ________, 19____, by and between bw-3 FRANCHISE SYSTEMS, INC. an Ohio corporation which has its principal place of business at 1919 Interchange Tower, 600 South Highway 169, Minneapolis, Minnesota 55426 (we or us), and __________________________ ________________________________________________________________________________ ________________________________________________________________________________ _______________ (you).  If you are a corporation, partnership or limited liability company, certain provisions of the Agreement also apply to your owners and will be noted.

                                    BACKGROUND:

       A.   Our parent company has developed a unique system (System) for establishing and operating restaurants which use the service mark BUFFALO WILD WINGS and which feature chicken wings, sandwiches, and other products and beverages, which are all prepared according to specified recipes and procedures (Menu Items), some of which use proprietary mixes (Trade Secret Food Products), and has granted to us the right to sublicense the System to others.

       B.   The distinguishing characteristics of the System include, without limitation, distinctive exterior and interior layout, design and color scheme, signage, decorations, furnishings and materials, special recipes, formulae, menus and food and beverage designations, Confidential Manuals, food and beverage storage, preparation service and delivery procedures and techniques, operating procedures for sanitation and maintenance, and methods and techniques for inventory and cost controls, record keeping and reporting, purchasing, sales promotion and advertising, Trade Secret Food Products, all of which may be





changed, improved and further developed from time to time.

       C.   Our parent company is the owner of the trade names, service marks and trademarks BUFFALO WILD WINGS, bw-3 and other logos and commercial symbols, and such other trade names, service marks, and trademarks as are now designated (and may later be designated by us in writing) as part of the System (Marks).

       D.   We grant franchises to qualified candidates for the operation of Buffalo Wild Wings Restaurants offering the Menu Items and utilizing the System and Marks.  You desire to operate a Buffalo Wild Wings Restaurant using the System and Marks and have applied for a franchise, which application has been approved by us in reliance upon all of the representations you have made.

       E.   You understand and acknowledge the importance of our high and uniform standards of quality and service and the necessity of operating the Buffalo Wild Wings business in conformity with our standards and specifications.

                                    AGREEMENTS:

       We and you agree as follows:

I.     APPOINTMENT AND FRANCHISE FEE

       A.   Subject to the provisions stated below, we hereby grant you a license to use the Buffalo Wild Wings Marks and System, and you undertake the obligation to operate a Buffalo Wild Wings restaurant facility featuring the Menu Items and providing sit-down, carry-out and other restaurant services (Franchised

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Restaurant), and to use the Marks solely in connection with the System, as it is currently established, and as it may be changed, improved and further developed from time to time, at one (1) location only, such location to be: 1) ____________________________________________________________________________ ___________________________________________________________________________, or 2)  at a location to be designated, as provided in Paragraph III within the area described on EXHIBIT B.  When a location has been designated and approved by you and us, it will become part of Paragraph I.A.1., as if originally incorporated in that Paragraph.  You shall not relocate your Franchised Restaurant without our prior written approval.

       B.   You receive a Designated Area within which we and our affiliates shall not operate or grant to anyone else a franchise to operate a Buffalo Wild Wings or bw-3 Restaurant so long as this Agreement is in force and effect.  The Designated Area is described in writing and on a map attached to the Agreement as EXHIBIT B and is made a part of the Agreement.  You do not have any right to sublicense or subfranchise others within or outside of the Designated Area and do not have the right to operate more than one (1) Franchised Restaurant within the Designated Area.

       C.   You acknowledge and agree that we have the right, in our sole discretion, to grant other franchises outside of the Designated Area as we deem appropriate.  Although we will not operate a Buffalo Wild Wings or bw-3 business within the Designated Area, we reserve the right, both within and outside of the Designated Area, to offer and sell at special events (at our option, if you elect not to participate in such events) or at wholesale, through channels of distribution distinct from those of a Franchised Restaurant, products and services which comprise, or may in the future comprise a part of the System, which products may be resold at retail to the general public by such entities. Further, you acknowledge that certain locations within the Designated Area are by their nature unique and separate in character from sites generally developed as Franchised Restaurants.  As a result, you agree that the following locations (Special Sites) are excluded from the Designated Area and we shall have the right to develop (by direct ownership or franchising) such locations: 1) public transportation facilities, including airports, train stations and bus stations; 2) military bases; 3) sports facilities, including race tracks; and 4) amusement and/or theme parks.

       D.   We and our affiliated companies shall not engage in catering and delivery services and activities in the Designated Area.  You shall not engage in catering and delivery services and activities outside of the Designated Area. We shall have no obligation to enforce similar covenants against any other System franchisee.  Other System franchisees shall be deemed third party beneficiaries of such.  You shall not offer for sale any Menu Items or Proprietary Products by means of Internet/World Wide Web programming or advertising.  We reserve the right to market and sell Menu Items and Trade Secret Food Products on the Internet/World Wide Web.

       E.   You pay us a nonrefundable Initial Franchise Fee of ________________ _______________________ Dollars ($________) which is payable in full on the date of this Agreement.  The Initial Franchise Fee has been fully earned upon receipt and is nonrefundable in consideration of the expenses incurred by us in granting this franchise and for the lost or deferred opportunity to franchise others.

       F.   You acknowledge that because complete and detailed uniformity under many varying conditions may not be possible or practical, we specifically reserve the right, at our sole discretion, to vary standards for any System franchisee based upon the peculiarities of the particular site or circumstance, density of population, business potential, population of trade area, existing business practices or any other condition which we deem to be of importance to the successful operation of such franchisee's business.  You shall not be entitled to require us to grant to you a like or similar variation.





       G.   In consideration of our agreement not to grant another franchise in the area described in Paragraph I.C., you at all times shall use your best efforts to promote and increase the sales and service of Menu

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Items and to effect the widest and best possible distribution throughout the Designated Area, soliciting and servicing all potential customers and accounts for Buffalo Wild Wings food products and services.

II.    TERM AND RENEWAL

       A.   The term of this Agreement is for ten (10) years commencing on the date of this Agreement, unless terminated as provided by this Agreement.

       B.   You have the right to renew the franchise for two (2) successive terms equal to five (5) years each, providing you meet all of the following conditions:

            1.    You have, during the entire term, complied with all the provisions of the Agreement;

            2.    The premises of the Franchised Restaurant meet our then-current standards for Buffalo Wild Wings restaurants and you are able to maintain possession of the Franchised Restaurant.  Before the expiration date of this Agreement you must bring the Franchised Restaurant into full compliance with the specifications and standards then applicable for new or renewing Buffalo Wild Wings businesses and present us with evidence satisfactory that you have the right to remain in possession of the Franchised Restaurant premises for the duration of the renewal term.  In the event you are unable to maintain possession of the premises of the Franchised Restaurant or if the premises do not meet our then-current standards, you may secure substitute premises approved by us and provided that you have furnished, stocked and equipped such premises to bring the Franchised Restaurant at its substituted premises into full compliance with the then-current specifications and standards before the expiration date of this Agreement;

            3.    You have given us written notice of your desire to renew at least six (6) months but not more than twelve (12) months prior to the end of the term;

            4.    You have satisfied all of your monetary obligations to us and our affiliates and have timely met these obligations throughout the term of this Agreement;

            5.    You have executed for the renewal term our then-current form of Franchise Agreement (with appropriate modifications to reflect the fact that the agreement relates to the grant of a renewal franchise), which shall supersede in all respects this Agreement, and the terms of which may differ from the terms of this Agreement, including, without limitation, a different percentage Continuing Fee and advertising contribution; provided, however, that the percentage Continuing Fee shall not exceed seven percent (7%) during any renewal period.  You will not be required to pay the then-current initial franchise fee or its equivalent;

            6.    You have complied with our then-current qualification and training requirements; and

            7.    You have executed a general release, in a form prescribed by us, of all claims against us and our affiliates, and respective officers, directors, agents, shareholders and employees.

       C.   Within ninety (90) days of our receipt of your notice to renew, we will furnish you with written notice of:  (i) reasons which could cause us not to grant a renewal to you including but not limited to any deficiencies which require correction and a schedule for correction by you; and (ii) our then-current requirements relating to the image, appearance, decoration, furnishing, equipping and stocking of Buffalo Wild Wings businesses, and a schedule for effecting upgrading or modifications in order to bring the Franchised Restaurant in compliance, as a condition of renewal.  Renewal of the franchise shall be conditioned upon your compliance with such requirements and continued compliance with all the terms and conditions of this Agreement up to the date of termination of the initial term.

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       D.   We shall give you written notice of our election not to renew the franchise at least three (3) months prior to the expiration of the initial or first renewal term of this Agreement.

III.   RESTAURANT AND LOCATION

       A.   You shall operate the Franchised Restaurant only at the location specified in Paragraph I of this Agreement.  If the lease for the site of the Franchised Restaurant expires or terminates for reasons other than your breach, or if the site is destroyed, condemned or otherwise rendered unusable, or as otherwise may be agreed upon in writing by us and you, we will grant permission for relocation of the Franchised Restaurant within your Designated Area at a location and site acceptable to us.  Any such relocation shall be at your sole expense and we shall have the right to charge you for any and all reasonable costs incurred by us, and a reasonable fee for our services, in connection with any such relocation of the Franchised Restaurant.





       B.   You shall be responsible for purchasing or leasing a suitable site for the Franchised Restaurant.  Prior to the acquisition by lease or purchase of any site for the premises of the Franchised Restaurant, you shall submit a description of the proposed site to us, together with a letter of intent or other evidence satisfactory to us which confirms your favorable prospects for obtaining the proposed site.  We shall provide you written notice of approval or disapproval of the proposed site within fifteen (15) business days after receiving your written proposal.  Our approval is not a determination or warranty that the proposed site will be a profitable location for the Franchised Restaurant.

       C.   After receiving our written approval of the location of the Franchised Restaurant as provided in Paragraph III.B. above, you shall, subject to our prior approval of terms, execute a lease (if the premises are to be leased) or a binding agreement to purchase the site.  All leases pertaining to the Franchised Restaurant premises must contain an Addendum in the form of EXHIBIT C attached hereto, or contain terms and conditions substantially similar to those contained in EXHIBIT C that we approve.  You shall provide us with a copy of the executed lease for the Franchised Restaurant within five (5) days of its execution, and prior to its execution, provide us with a copy for our approval.  A copy of the executed Addendum must also be provided to us.

       D.   You shall promptly after obtaining possession of the site for the Franchised Restaurant: (i) retain the services of an architect and a contractor each of whom has been approved by us; (ii) have prepared and submitted for our approval a site survey and basic architectural plans and specifications (not for construction) consistent with our general atmosphere, image, color scheme and ambience requirements as set forth from time to time in the Manuals for a Buffalo Wild Wings restaurant (including requirements for dimensions, exterior design, materials, interior design and layout, equipment, fixtures, furniture, signs and decorating); (iii) obtain all required zoning changes, building, utility, health, sanitation, liquor and sign permits and licenses and any other required permits and licenses; (iv) purchase or lease equipment, fixtures, furniture and signs as provided herein; (v) complete the construction and/or remodeling, equipment, fixtures, furniture and sign installation and decorating of the Franchised Restaurant in full and strict compliance with plans and specifications therefore approved by us and all applicable ordinances, building codes and permit requirements; (vi) obtain all customary contractors' sworn statements and partial and final waivers of lien for construction, remodeling, decorating and installation services; and (vii) otherwise complete development of and have the Franchised Restaurant ready to open and commence the conduct of its business in accordance with Paragraph XII of this Agreement.  Our approval of your site survey and architectural plans is not a representation or warranty of any type.

       E.   You shall be required to periodically make reasonable capital expenditures to remodel, modernize and redecorate the premises of the Franchised Restaurant so that the Franchised Restaurant will reflect the then-image intended to be portrayed by Buffalo Wild Wings businesses.  All remodeling, modernization, or redecoration of the premises of the Franchised Restaurant must be done in accordance with the standards and specifications as prescribed by us from time to time and with our prior written approval.  All replacements must

                                          4

conform to our then-current quality standards and specifications and must be approved in writing.  Your total expenditures during the term of the Franchise Agreement for such remodeling, modernizing and redecorating will not exceed ONE HUNDRED THOUSAND Dollars ($100,000.00) adjusted for inflation from the date of this Agreement.  Maintenance of the premises of the Franchised Restaurant and modifying or replacing equipment may exceed this amount, and maintenance costs and equipment costs may not be credited to remodeling, modernization or redecoration expenditures.

IV.    TRAINING

       A.   Before you commence operations, we shall make initial training available to you.  At least three (3) persons designated by you and approved by us must attend and successfully complete the training to our satisfaction.  The training will be at least three (3) weeks in duration and will be conducted at either our Cincinnati, or Columbus, Ohio training facilities or at such other place as we may designate.  The training program covers material aspects of the operation of a Buffalo Wild Wings business, including financial controls, general bookkeeping procedures, food preparation, service and operational techniques, familiarization with recipes and cooking procedures, marketing and advertising techniques, sanitation and maintenance procedures, deployment of labor, and maintenance of quality standards.  We reserve the right to provide less training if you have one or more Franchised Restaurants in operation.  All expenses incurred by you and your employees in attending the program, including without limitation, travel costs, room and board expenses, and the employee compensation shall be your sole responsibility.

       B.   We will, from time to time upon your written request, make available, at your expense, training for additional managers designated by you and approved by us.  Such training shall take place at our Cincinnati, or Columbus, Ohio training facilities or such other place as we may designate.  You acknowledge that the time period within which we provide additional training will be subject to available openings in our regular training program with preference being given to initial training for new franchisees.

       C.   We will schedule the opening of your Franchised Restaurant.  For one (1) week prior to and one (1) week concurrent with the commencement of operations of the Franchised Restaurant, we will furnish to you, at your





Restaurant and at our expense, one (1) or more of our representatives for the purpose of training your employees and management team in the operation of a Franchised Restaurant.  During this period, the representatives will assist in establishing and standardizing procedures and techniques essential to the operation of a Buffalo Wild Wings business.  If you request additional assistance from us in order to facilitate the opening of the Franchised Restaurant, and if, we, in our discretion, deem it necessary, feasible and appropriate to comply with the request, you will reimburse us for our expenses in providing such additional assistance, which may include our then-current service fee.  You agree that during the week preceding the opening, you will have four (4) full days during which the Restaurant is fully operational and will host two (2) opening parties.

       D.   If we determine, in our sole discretion, that you or your manager is unable to satisfactorily complete the required training program, you will have thirty (30) days to provide an alternate person to complete the training program at your sole expense.  At least three (3) persons actively involved in the management and operation of the Franchised Restaurant must successfully complete the training program.  If you fail to provide three (3) persons who can complete the training program, we will have the right to terminate this Agreement and you will not be entitled to a refund of any portion of the franchise fees paid.

       E.   From time to time we may provide and if we do, may require that previously-trained and experienced franchisees, their managers and/or employees attend and successfully complete refresher training programs or seminars to be conducted at our training facility or at such other place as we shall designate. Attendance at such refresher training programs or seminars will be at your sole expense, provided, however, that attendance will not be required at more than two (2) such programs in any calendar year.

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V.     PROPRIETARY MARKS

       A.   You acknowledge that our parent company is the owner of all right, title and interest together with all the goodwill of the Marks and has licensed the use of such Marks to us with the right to sublicense others.  You further acknowledge that your right to use the Marks is derived solely from this Agreement and is limited to the conduct of business by you pursuant to and in compliance with this Agreement and all applicable standards, specifications, and operating procedures prescribed by us from time to time during the term of the Agreement.  Any unauthorized use of the Marks by you is a breach of this Agreement and an infringement of the rights of us in and to the Marks.  You acknowledge that your usage of the Marks and any goodwill established by your use of the Marks shall inure to the exclusive benefit of us and our affiliate, and that this Agreement does not confer any goodwill or other interests in the Marks upon you.  Any developments and improvements by you relating to the Marks or the System shall be our sole property.  You will not, at any time during the term of this Agreement or after its termination or expiration, contest the validity or ownership of any of the Marks or assist any other person in contesting the validity or ownership of the Marks.  All provisions of this Agreement applicable to the Marks apply to any and all additional trademarks, service marks, and commercial symbols authorized for use by and licensed to you by us after the date of this Agreement.

       B.   You will not use any Mark or portion of any Mark as part of a corporate or trade name, or with any prefix, suffix, or other modifying words, terms, designs, or symbols, or in any modified form.  You will not use any Mark in connection with the sale of any unauthorized product or service or in any other manner not expressly authorized in writing by us.  You shall give such notices of trademark and service mark registrations as we specify and to obtain such fictitious or assumed name registrations as may be required under applicable law.  Your use of any of the Marks on the Internet/World Wide Web (including any Home Page) or any other medium must have our prior written approval.  We reserve the right to prohibit your use of the Marks on the Internet.

       C.   You will promptly notify us of any claim, demand or cause of action based upon or arising from any attempt by any other person, firm or corporation to use the Marks or any colorable imitation of the Marks.  You shall also notify us of any action, claim or demand against you relating to the Marks within ten (10) days after you receive notice of said action, claim or demand.  Upon receipt of timely notice of an action, claim or demand against you relating to the Marks, we and our affiliate shall have the sole right and duty to defend any such action.  We and our affiliate will have the exclusive right to contest or bring action against any third party regarding the third party's use of any of the Marks and will exercise such right in our and our affiliate's sole discretion.  In any defense or prosecution of any litigation relating to the Marks or components of the System undertaken by us, you shall cooperate in all respects with us and our affiliate and execute any and all documents and take all actions as may be desirable or necessary in the opinion of our counsel, to carry out such defense or prosecution.  Both parties shall make every effort consistent with the foregoing to protect, maintain, and promote the Marks as identifying the System and only the System.

       D.   If, in our sole discretion, it becomes advisable at any time, for us to modify or discontinue use of any Mark, and/or use one or more additional or substitute trade names, trademarks, service marks, or other commercial symbols, either systemwide or with respect to use by any selected franchisee, you will comply with our directions within a reasonable time after notice to you.  We will have no liability or obligation whatsoever with respect to your modification or discontinuance of any Mark.

       E.   In order to preserve the validity and integrity of the Marks and





copyrighted material licensed to you and to assure that you are properly employing the same in the operation of your Franchised Restaurant, we and our agents have the right of entry and inspection of your premises and operating procedures at all reasonable times.  We will have the right to observe the manner in which you are rendering your services and conducting your operations, to confer with your employees and customers, and to select Menu Items, ingredients, food and

                                          6

non-food products, beverages, and other items, products, delivery vehicles, products and supplies for test of content and evaluation purposes to make certain that the Menu Items, ingredients, food and non-food products, beverages and other items, products, delivery vehicles, materials and supplies are satisfactory and meet our quality control provisions and performance standards.

VI.    CONFIDENTIAL MANUALS

       A.   We will loan to you during the term of the franchise one (1) copy of our Confidential Operations Manual and other confidential manuals and written materials (all of which are collectively referred to herein as the Manuals) containing reasonable, mandatory and suggested specifications, standards, operating procedures and rules prescribed from time to time by us for Buffalo Wild Wings businesses and information relative to your other obligations.  You will not at any time, without our prior written consent, copy, duplicate, record or otherwise reproduce the Manuals in whole or in part or otherwise make the same available to any person.  Any authorized duplication or copying of any of the Manuals shall be performed by us at your expense.  We have the right to add to and otherwise modify, combine, or replace the Manuals from time to time to reflect changes in the specifications, standards, operating procedures and rules prescribed by us for Buffalo Wild Wings businesses, provided that no such addition or modification shall alter your fundamental status and rights under this Franchise Agreement.

       B.   The Manuals shall at all times remain our sole property and shall promptly be returned upon the expiration or termination of this Agreement.

       C.   The Manuals contain our proprietary information which you shall keep confidential both during the term of the franchise and subsequent to the expiration and/or termination of the franchise.  You will at all times insure that your copy of the Manuals are available at the Franchised Restaurant premises in a current and up-to-date manner.  At all times that the Manuals are not in use by authorized personnel, you will maintain the Manuals in a locked receptacle at the premises of the Franchised Restaurant, and will only grant authorized personnel, as defined in the Manuals, access to the key or lock combination of such receptacle.  In the event of any dispute as to the contents of the Manuals, the terms of the master copy of the Manuals maintained by us at our home office will be controlling.

VII.        CONFIDENTIAL INFORMATION

       A.   You acknowledge that your entire knowledge of the operation of a Buffalo Wild Wings business, including, without limitation, the method of preparation of Menu Items and other food products, and other specifications, recipes, standards and operating procedures of a Buffalo Wild Wings business is derived from information disclosed to you by us and that such information is proprietary, confidential and our trade secret.  You will maintain the absolute confidentiality of all such information during and after the term of the franchise and you will not use any such information in any other business or in any manner not specifically authorized or approved in writing by us.

       B.   You will divulge such confidential information only to the extent and only to such of your employees as must have access to it in order to operate the Franchised Restaurant.  Any and all information, knowledge and know-how, including, without limitation, drawings, materials, equipment, techniques, restaurant systems, product formulae, recipes and other data which we designate as confidential will be deemed confidential for purposes of this Agreement, except information: 1) which you can demonstrate lawfully came to your attention prior to disclosure thereof by us, or 2) which, at the time of disclosure by us to you, had lawfully become a part of the public domain, through publication or communication by others, or 3) which, after disclosure to you by us, lawfully becomes a part of the public domain, through publication or communication by others.

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       C.   Due to the special and unique nature of our confidential information, Marks and Manuals, you acknowledge that we will be entitled to immediate equitable remedies, including but not limited to, restraining orders and injunctive relief in order to safeguard our proprietary, confidential, unique, and special information and you acknowledge that money damages alone would be an insufficient remedy with which to compensate us for any breach of the terms of Paragraph V, VI and VII of this Agreement.  All of your employees having access to our confidential and proprietary information and all of your shareholders, directors, officers, partners and/or members will be required to execute non-disclosure agreements in the form acceptable to us.

VIII.       MODIFICATION OF THE SYSTEM

       You acknowledge that from time to time we may change or modify the System presently identified by the Marks, including, without limitation, the adoption and use of new or modified trade names, trademarks, service marks or copyrighted





materials, new Menu Items, new products, new equipment or new techniques.  You will accept, use and display for the purpose of this Agreement any such changes in the System, as if they were part of this Agreement at the time of execution. You will make such expenditures as are reasonably required by such changes or modifications in the System.  Except as directed by us, you will not change, modify or alter the System in any way.

IX.         ADVERTISING

       Recognizing the value of advertising and the importance of the standardization of advertising and promotion to the furtherance of the goodwill and the public image of Buffalo Wild Wings businesses, you agree:

       A.   Before using any promotional and advertising materials, you will submit to us or our designated agency, for our prior approval, all information pertaining to promotional materials and advertising initiated by you, including, but not limited to, newspapers, radio and television advertising, Internet or any other medium, specialty and novelty items, signs, boxes, napkins, bags and wrapping papers.  In the event written disapproval of any such advertising and promotional material has not been given by us to you within twenty (20) days from the date such information has been received by us, the materials will be deemed approved.  Your failure to conform with these provisions and subsequent nonaction by us to require you to cure or remedy any such failure and default will not be deemed a waiver of future or additional failures and defaults by you under this provision and/or any other provision of this Agreement.  The submission of advertising information to us for our approval will not affect your right to determine the prices at which you sell your products and/or services.

       B.   You will contribute to the Buffalo Wild Wings Advertising and Development Fund (Fund) (which may be one of several regional Funds, if we elect to establish separate Funds to serve various regions in which multiple franchisees are located) an amount equal to three percent (3%) of your Gross Sales, as defined in Paragraph X.  Your required payments to the Fund will be made on or before the fifteenth day of the month for the preceding month.  These contributions may be withdrawn from your bank account as provided in Paragraph X.  We will use such funds to conduct local, regional or national advertising. Such payments shall be made in addition to and exclusive of any sums that you may be required to spend on system or grand opening advertising and promotion. The Fund shall be maintained and administered by us or our designee, as follows:

            1.    We will oversee all advertising programs and have sole discretion over the creative concepts, materials and media used in such programs including the placement and allocation.  We will use the Fund to conduct national advertising, and/or, if regional Funds are developed, to conduct regional or local advertising on your behalf, at our sole discretion.  We may also use such funds to conduct advertising in your local advertising market. However, we cannot and do not ensure that any particular franchisee will benefit directly or pro rata from the placement of advertising.

                                          8

            2.    For each of our company-owned and affiliate-owned Restaurants (except Special Sites identified in Paragraph I.C.) offering products and services similar to the Franchised Restaurant we will make contributions to the Fund or to regional Funds equivalent to the contributions required of Franchised Restaurants within the System or, if applicable, region in which the company-owned or affiliate-owned store is located.

            3.    We will administer and control the Fund and we will have the absolute and unilateral right to determine how, when and where the monies in the Fund will be spent.  This includes the right to use Fund monies for (1) the creation, development and production of advertising and promotional materials, (2) any marketing or related research and development, and (3) advertising and marketing expenses, including without limitation, the absolute right to purchase and pay for product and food research and development, advertising materials, production costs, brochures, ad slicks, radio, film and television commercials, videotapes, newspaper, magazine and other print advertising, direct mail pieces, photographer costs, photographs, pictures, designs, services provided by advertising agencies, public relations firms or other marketing, research or consulting firms or agencies, market research and marketing surveys, menu design and graphics, customer incentive programs, sponsorships, marketing meetings and sales incentives, development of Home Pages on the Internet, Internet access provider costs, Internet/World Wide Web programming and advertising, subscriptions to industry newsletters or magazines, marketing or industry studies, books and research materials, administrative costs and salaries for marketing support personnel.  All sums paid by you to the Fund will be maintained in a separate account from our other funds and shall not be used to defray any of our general operating expenses, except for such reasonable administrative costs and overhead, if any, as we may incur in activities reasonably related to the administration or direction of the Fund and advertising programs including, without limitation, costs incurred in collecting and accounting for assessments for the Fund.

            4.    It is our intent that all contributions to the Fund will be expended for advertising and promotional purposes during our fiscal year within which contributions are made.  Any monies not expended in the fiscal year in which they were contributed will be applied and used for Fund expenses in the following year.

            5.    Although we intend the Fund to be of perpetual duration, we have the right to terminate the Fund.  We will not terminate the Fund, however, until all monies in the Fund have been expended for advertising and promotional purposes.





            6.    An unaudited accounting of Fund contributions and expenditures will be prepared annually and will be made available to you upon request.  At our option, any such annual accounting may include an audit of the contributions and expenditures of the Fund prepared by an independent certified public accountant selected by us and prepared at the expense of the Fund.

            7.    Once you make contributions to the Fund, all such monies will be used as required by this Paragraph IX and will not be returned to you.        C.   In addition to your contributions to the Fund, you may be required to spend up to two percent (2%) of your Gross Sales on approved local advertising.  We may direct that your local advertising expenditures be made either individually or to a local advertising group as described below.

            1.    We shall have the right to designate local advertising markets and you will participate in cooperative advertising and marketing programs in your designated local advertising market as described in this Paragraph.  Each Buffalo Wild Wings and bw-3 Restaurant (except Special Sites identified in Paragraph I.C.) within the designated local advertising area shall be a member of the local advertising group and each member shall have one vote on all matters requiring a vote.  We reserve the right to designate the Bylaws which will govern the operation of local advertising groups.

                                          9

            2.    If we direct you to spend your advertising funds locally, all such expenditures will be made directly by you or the local advertising group, subject to approval and direction by us or our designated advertising agency. You acknowledge that we may direct local advertising to be spent according to a seasonally adjusted schedule; however, such expenditures shall not exceed two percent (2%) of your annual Gross Sales.  You shall furnish to us an accurate accounting of all expenditures on local advertising and promotion.

            3.    You will submit documentation of your advertising expenditures at such times and in such form as we designate.  If you fail to make any required advertising expenditures, we have the right to require you to contribute the amount of any deficiency to the Fund to be used by us for general advertising and promotion.

       D.   We may require you to expend up to FIVE THOUSAND Dollars ($5,000) on newspaper, direct mail or advertising through other media prior to your opening and during your initial ninety (90) days of operation of the Franchised Restaurant.  We retain the right to collect such funds directly from you and expend the funds on your behalf.  Such advertising and promotion will be designated as Grand Opening advertising and promotion and will be conducted in accordance with the specifications set forth in the Manuals.

       E.   You must carry and offer for sale to your customers a representative supply of trademarked clothing.  We may, from time to time, develop and market special promotional items which will be made available to you at our cost plus a reasonable mark up and you will maintain a representative inventory of such promotional items to meet public demand.  You will have the right to purchase alternative promotional items provided that such alternative goods conform to the specifications and quality standards established by us.  You will, on an annual basis, participate in a minimum of fifty percent (50%) of the promotional programs introduced by us from time to time.  You will participate in the specific promotional programs designated by us.

       F.   You will maintain a business phone and advertise continuously in the classified or Yellow Pages of a local telephone directory approved by us or such other directories under the listing Restaurant, or such other listings as deemed appropriate by us using mats of the type and size approved in advance by us.  We reserve the right to require you to advertise in more than one local telephone directory.  When more than one (1) Buffalo Wild Wings and/or bw-3 restaurant serves a metropolitan area, classified advertisements shall list all such restaurants operating within the distribution area of the classified directories, and you shall contribute your equal share in the cost of such advertisement.

       G.   You will not use in advertising or any other form of promotion, or in any manner any of the marks without the appropriate -Registered Trademark- registration mark or the designations TM or SM where applicable.

X.     CONTINUING FEE

       A.   You will pay us without offset, credit or deduction of any nature, so long as this Agreement is in effect, a monthly Continuing Fee equal to five percent (5%) of the Gross Sales derived from the Franchised Restaurant.  The Continuing Fee will be paid monthly in the manner specified below or as otherwise prescribed in the Manuals.

            1.    We must receive from you within five (5) days after the end of each month, a correct statement of your Gross Sales for the preceding fiscal month as determined by us on a form approved by us and signed by you.  Each monthly statement of Gross Sales shall be accompanied by the Continuing Fee payment based on the Gross Sales reported in the statement so submitted.  You will make available to us all original books and records that we may deem necessary to ascertain your Gross Sales for reasonable inspection at reasonable times.

                                          10

            2.    The term Gross Sales, as used in this Agreement, means and





includes the total amount of all revenue from the sale of services, products and merchandise and all income of every kind and nature related to the Franchised Restaurant whether or not sold or performed at or from the Franchised Restaurant and the proceeds from all games, cover charges, service, license, use and similar fees collected by the Franchised Restaurant.  Gross sales do not include any sales tax, use tax, or service taxes collected and paid to the appropriate taxing authority.

       B.   Prior to the opening of your Restaurant (and thereafter as requested by us), you shall execute and deliver to us, our bank(s) and your bank, as necessary, all forms and documents that we may request to permit us to debit your account, either by check, via electronic funds transfer or other means or such alternative methods as we may designate (Payment Methods).  You must comply with all procedures specified by us from time to time to take such actions as we may request to assist in utilizing any of the Payment Methods.  We may use the Payment Methods to collect the amount of each month's Continuing Fee, Advertising Contributions, and any other amounts due to us or our affiliates under this Agreement or otherwise.  The Continuing Fee shall be withdrawn from your designated bank account by electronic fund transfer on the fifth of each month for the previous month, or if the fifth falls on a weekend or bank holiday, then on the next business day.  Advertising Contributions will be withdrawn on the fifteenth of each month or on the next business day. Payments for commissary purchases will be debited one business day after products are delivered to the Restaurant.  We will determine your Gross Sales by means of the approved information system, or if we are unable to do so, you shall report your Gross Sales in writing on or before the fifth day of the month for the preceding month.  You shall notify us at least twenty (20) days before closing or changing the account against which such debits are to be made.  If such account is closed or ceases to be used, you shall immediately provide all documents and information necessary to permit us to debit the amounts due from an alternative account.  You acknowledge that these requirements are only a method to facilitate prompt and timely payment of amounts due and shall not affect any obligation or liability for amounts owed.  If for any reason your account cannot be electronically debited, you shall submit payments by check (certified or cashier's check if requested by us) on or before the dates when due.  You shall indemnify, defend and hold us harmless from and against all claims, damages, losses, costs and expenses resulting from any dishonored debit against your account, regardless whether resulting from the act or omission of you or your bank; provided that you shall not be obligated to indemnify us for any dishonored debit caused by our negligence or mistake.

       C.   All Continuing Fees, Advertising Contributions, amounts due for purchases by you from us and our affiliates, and other amounts which you owe us or our affiliates shall bear interest after due date at the highest applicable legal rate for open account business credit, not to exceed one and one-half percent (1.5%) per month.  You acknowledge that this Paragraph does not constitute agreement by us or our affiliates to accept such payments after same are due or a commitment by us to extend credit to, or otherwise finance your operation of, the Franchised Restaurant.  Further, you acknowledge that your failure to pay all amounts when due shall constitute grounds for termination of this Agreement, as provided in Paragraph XVI hereof, notwithstanding the provisions of this Paragraph.

       D.   Notwithstanding any designation by you, we have the sole discretion to apply any payments by you to any past due indebtedness of yours for Continuing Fees, Advertising Contributions, purchases from us and our affiliates, interest or any other indebtedness.  Further, if you are delinquent in the payment of any fees or indebtedness we have the right to require you to prepay estimated Continuing Fees and Advertising Contributions.

XI.    ACCOUNTING AND RECORDS

       A.   You will maintain during the term of this Agreement, and preserve for the time period specified by us, full, complete, and accurate books, records, and accounts in accordance with the standard accounting

                                          11

system prescribed by us from time to time in writing.  You will retain for a period of three (3) years all books and records related to the Franchised Restaurant, including without limitation, sales checks, purchase orders, invoices, payroll records, customer lists, check stubs, sales tax records and returns, cash receipts and disbursement journals and general ledgers.  If a computerized accounting system is developed by us for use throughout the franchise System, you will at your expense implement and utilize such a system according to the standards and procedures established by us.

       B.   You will supply to us on or before the twenty-eighth (28th) day after the end of each fiscal quarter, in the form approved by us, an activity report and a detailed profit and loss statement, balance sheet and statement of cash flow for the last preceding fiscal quarter.  Additionally, you will, at your expense, submit to us within ninety (90) days after the end of each fiscal year during the term of this Agreement, a detailed profit and loss statement and statement of cash flow for such fiscal year and a balance sheet as of the last day of such fiscal year, prepared on an accrual basis including all adjustments necessary for fair presentation of the financial statements.  Such financial statements must be certified to be true and correct by you and be reviewed by an independent certified public account.

       C.   You will submit to us such other periodic reports, forms and records as specified, and in the manner and at the time as specified in the Manuals or as we otherwise require in writing from time to time.

       D.   You will record all sales on electronic cash registers approved by





us or on such other types of cash registers as may be designated by us in the Manuals or otherwise in writing.  We reserve the right to designate the information system used in your Franchised Restaurant including the computer hardware, software, other equipment and enhancements.  At such time as we designate the approved information system, you will have one hundred eighty (180) days in which to install and commence using the approved information system.  In connection with the approved information system, you agree to the following:

            1.    You understand that you will be required to acquire the right to use the information system, obtain peripheral equipment and accessories and arrange for required maintenance and support services, all at your cost.

            2.    We shall have the right at all times to access the information system and to retrieve, analyze, download and use all software, data and files stored or used on the information system.  We may access the information system in the Franchised Restaurant or from other locations.  You shall store all data and information on the information system that we designate from time to time.

            3.    All modifications and enhancements made to the approved information system shall be our property (or the appropriate vendor if we so designate), without regard to the source of the modification or enhancement. You agree to execute any documents, in the form provided by us, that we determine are necessary to reflect such ownership.

            4.    Upon expiration or termination of this Agreement, you shall allow our employees or agents to remove the required software from the information system, shall immediately return to us the software, each component thereof, any data generated by the use thereof, all documentation for the software and other materials or information that relate to or reveal the software and its operation.  You shall immediately destroy any and all back-up or other copies of the software or parts thereof, and any data generated by the use of the software (other than financial information relating solely to you).

            5.    You acknowledge and agree that there will be fees payable by you in connection with the installation, use, support, maintenance, and periodic enhancements of the approved information system.  These fees will include but are not necessarily limited to an on-site installation and support fee,

                                          12

software support fees and software maintenance fees.  These fees will be payable to us or a vendor designated by us and may be increased from time to time.

            6.    You will be required to execute a software license agreement setting forth in more detail your rights and obligations in connection with your use of the approved information system.

You agree that we have the right to use your data as part of our earnings claim in our Franchise Offering Circular.

       E.   We or our designated agents have the right at all reasonable times to examine and copy, at our expense, your books, records, and tax returns.  We also have the right, at any time, to have an independent audit made of your books and records at our expense.  If an inspection reveals that any payments due to us have been understated in any report to us, then you will immediately pay to us the amount understated upon demand, in addition to interest from the date such amount was due until paid, at the maximum rate permitted by law not to exceed one and half percent (1.5%) per month.  If an inspection discloses an understatement in any report of two percent (2%) or more, you will also reimburse us for any and all costs and expenses connected with the inspection (including, without limitation, reasonable accounting and attorneys' fees), and we will thereafter have the right to require you to submit annual financial statements, prepared in accordance with generally accepted accounting principles, audited by an independent certified public accountant.  The foregoing remedies shall be in addition to any other remedies we may have.

       F.   You acknowledge that nothing contained in this Agreement constitutes our agreement to accept any payments after they are due or a commitment by us to extend credit to or otherwise finance your operation of the Franchised Restaurant.  Further, you acknowledge that your failure to pay all amounts when due constitutes a material default of, and grounds for, termination of this Agreement.

XII.   STANDARDS OF QUALITY AND PERFORMANCE

       In order to promote and protect the value of the Marks and the System, and to insure optimum quality control as to products and services provided and sold in Franchised Restaurants, you acknowledge and agree that substantial uniformity must be maintained in the quality, type and standard of Franchised Restaurant, and in their facilities, products, services and operations. Therefore, you will comply with all requirements described in this Agreement, the Manuals and other written policies supplied by us.  Mandatory specifications, standards, operating procedures and rules prescribed from time to time by us in the Manuals or otherwise communicated to you in writing, shall constitute provisions of this Agreement as if fully set forth herein.  All references herein to this Agreement shall include all such mandatory specifications, standards and operating procedures and rules.

       A.   You will commence operation of your Franchised Restaurant within nine (9) months of the execution of this Agreement or as otherwise required or approved in writing by us.  Before opening, you will have procured all necessary licenses, permits, and approvals, including, but not limited to, liquor and construction permits; hired and trained personnel, made all leasehold





improvements, and acquired initial inventory.  At the time of opening you must have a minimum of Fifty Thousand Dollars ($50,000) in immediately accessible working capital funds to be used solely to defray the costs of operating the Restaurant for the initial several months.  If for any reason you fail to commence operation within the nine (9) month period, we may terminate this Agreement immediately upon delivery of written notice of termination to you.

B.     You will maintain the condition and appearance of the premises of the Franchised Restaurant consistent with our quality controls and standards.  You will effect reasonable maintenance of the Franchised Restaurant as is from time to time required to maintain or improve the appearance and efficient operation of the Franchised Restaurant, including but not limited to replacement of worn out or obsolete fixtures and signs, repair of the exterior and interior of the premises of the Franchised Restaurant, and purchasing and installation of new or

                                          13

modified equipment.  If at any time in our judgment the general state of repair or the appearance of the premises of the Franchised Restaurant or its equipment, fixtures, signs or decor does not meet our quality control and standards therefor, we will notify you, specifying the action to be taken by you to correct such deficiency.  If you fail or refuse to initiate a bona fide program to complete any required maintenance, within thirty (30) days after receipt of such notice, we will have the right, but not the obligation, in addition to all other remedies, to enter upon the premises of the Franchised Restaurant and effect such repairs, painting, maintenance or replacements of equipment, fixtures or signs on your behalf and you shall pay the entire costs thereof on demand.

       C.   You will not make any material alterations to the premises of the Franchised Restaurant make any material replacements of or alterations to the equipment, fixtures or signs of the Franchised Restaurant without our prior written approval.

       D.   The Franchised Restaurant may be used solely for the purpose of conducting a Buffalo Wild Wings Franchised Restaurant.  The operating entity (corporation, partnership or limited liability company) will be dedicated solely to the operation of your Franchised Restaurant(s) and will not hold any interest in, operate or manage any other business of any kind without our prior written approval.

       E.   We have developed and own proprietary sauces for use in preparing chicken wings, the weck kaiser roll and other menu items and specially prepared pocket pizza mix and Buffalo Breath Chili mix (Trade Secret Food Products). In order to protect our trade secrets and to monitor the manufacture, packaging, processing and sale of Trade Secret Food Products, we will (i) manufacture, supply, and sell Trade Secret Food Products to our franchisees; (ii) disclose the formulae for and methods for preparation of the Trade Secret Food Products to a limited number of suppliers who may be authorized by us to manufacture Trade Secret Food Products to our precise specifications and sell Trade Secret Food Products to our franchisees; and/or (iii) disclose the formulae for and methods for preparation of the pocket pizza mix and the Buffalo Breath Chili mix to you who will be authorized by us to manufacture them to our precise specifications for sale only at the location of the Franchised Restaurant specified herein, unless otherwise approved by us.  Under no circumstances will we disclose the formulae for and methods of preparation of any of our proprietary sauces to you.  You acknowledge that you may be required to purchase Trade Secret Food Products (and other products whose consistency and quality is key to the success of the System) from us or a limited number of suppliers so authorized by us and will be required to use Trade Secret Food Products as designated by us.

       F.   You will offer for sale and sell at the Franchised Restaurant all Menu Items, other food and beverage products and other products that we from time to time require and shall not offer for sale or sell at the Franchised Restaurant or the premises which you occupy any unapproved products or menu items or use such premises for any purpose other than the operation of a Franchised Restaurant in full compliance with this Agreement.  You will offer all Menu Items on a menu specified by us.

       G.   In order to ensure that all Menu Items produced by you meet our high standards of taste, texture, appearance and freshness, and in order to protect our goodwill and Marks, all Menu Items and other food products shall be prepared only by properly trained personnel strictly in accordance with our recipes, cooking techniques and processes, and the Manuals, and shall be sold only at retail to customers in conformity with our marketing plan and concept.  You acknowledge that such recipes, cooking techniques and processes are integral to the System and failure to adhere to such recipes, cooking techniques and processes shall be detrimental to the System and Marks.

       H.   From time to time, we will provide you with a list of approved manufacturers, suppliers and distributors (Approved Suppliers List) and approved inventory products, fixtures, furniture, equipment, signs, stationery, supplies, and other items or services necessary to operate the Franchised Restaurant (Approved Supplies List).  The list will specify the manufacturer, supplier and distributor and the inventory products,

                                          14

fixtures, furniture, equipment, signs, stationery, supplies and services which we have approved to be carried or used in the System.  We may revise the Approved Suppliers List and Approved Supplies List from time to time in our sole





discretion and such lists shall be submitted to you as we deem advisable.  If you propose to offer for sale at the Franchised Restaurant any brand of product, or to use in the operation of the Franchised Restaurant any brand of food ingredient or other material or supply which is not then approved by us as meeting its minimum specifications and quality standards, or to purchase any product from a supplier that is not then designated by us as an approved supplier, you must first notify us and shall upon our request submit samples and such other information as we require for examination and/or testing or to otherwise determine whether such product, material or supply, or such proposed supplier meets its specifications and quality standards.  We may charge you a fee in connection with such examination and/or testing which will not exceed the reasonable cost of the inspection and evaluation and the actual cost of the test.  In some cases we may refuse to consider an alternate supplier of certain items.  We reserve the right to re-inspect the facilities and products of any supplier of an approved item and to revoke its approval of any item or supplier which fails to continue to meet any of our criteria.

       I.   All inventory, products and materials, and other items and supplies used in the operation of the Franchised Restaurant which are not specifically required to be purchased in accordance with our Approved Supplies List and Approved Suppliers List must conform to the specifications and quality standards established by us from time to time.

       J.   You will fully comply with all mandatory specifications, standards, operating procedures and rules as in effect from time to time relating to:

            1.    The safety, maintenance, cleanliness, sanitation, function and appearance of the Franchised Restaurant premises and its equipment, fixtures, decor and signs and maintenance and service agreements therefor;

            2.    Training, dress, general appearance and demeanor of Franchised Restaurant employees;

            3.    Type, quality, taste, portion control and uniformity, and manner of preparation, packaging, displays and sale of all Menu Items, beverages and other food items sold by the Franchised Restaurant and of all food, beverages and other products used in the preparation and packaging thereof;

            4.    The promotion and sale of novelty items bearing the Marks, such as cups, T-shirts and related merchandise and accessories;

            5.    Hours during which the Franchised Restaurant will be open for business;

            6.    Advertising and promotional programs;

            7.    Use and retention of standard forms;

            8.    Our recipes;

            9.    Use and illumination of signs, posters, displays, menu boards and similar items;

            10.   Your identification as the owner of the Franchised Restaurant;

            11.   The handling of customer complaints; and

            12.   Any other standard, specification or procedure designated by us.

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       K.   You will secure and maintain in force all required licenses, including liquor licenses, permits and certificates relating to the operation of the Franchised Restaurant and will operate the Franchised Restaurant in full compliance with all applicable laws, ordinances and regulations, including without limitation all government regulations relating to occupational hazards and health, dispensing of food products, consumer protection, trade regulation, worker's compensation, unemployment insurance and withholding and payment of Federal and State income taxes and social security taxes and sales, use and property taxes.

       L.   You will refrain from any merchandising, advertising or promotional practice which is unethical or may be injurious to our business and/or the business of other Franchised Restaurants or to the goodwill associated with the Marks or System.

       M.   In the operation of the Franchised Restaurant you will use only displays, trays, boxes, bags, wrapping paper, labels, forms and other paper and plastic products imprinted with the Marks and colors as prescribed from time to time by us.

       N.   You acknowledge that the Franchised Restaurant shall at all times maintain an inventory of ingredients, food and beverage products and other products, materials and supplies that will permit operation of the Franchised Restaurant at maximum capacity.

       O.   The Franchised Restaurant shall at all times be under your direct, on-premises supervision, unless, upon sixty (60) days prior written notice and approval by us you designate a trained and competent employee to act as full-time general manager.  Your designation of a general manager shall be subject to our prior written approval, and shall further be subject to the designated general manager successfully completing our training course.  All costs for the attendance of the designated general manager at our training





course shall be at your cost, except as set forth in Section IV(A).  We will have the right at any time to revoke our approval of a designated manager.  The use of a general manager will in no way relieve you of your obligations to observe, perform and comply with this Agreement and the Manuals and to insure that the Franchised Restaurant is properly managed and operated or the responsibility for the on-site, day to day operation of the Franchised Restaurant.  You will employ a sufficient number of competent and trained employees to insure efficient service to your customers.

       P.   You will not install or maintain on the premises of the Franchised Restaurant any newspaper racks, video games, jukeboxes, gaming machines, gum machines, games, rides, vending machines, pool tables, automated teller machines, or other similar devices without our written approval.  The income derived from any approved machines will be included in gross sales for purposes of your Continuing Fee and advertising contribution.

       Q.   You will timely pay all of your obligations and liabilities due to us, our parent, bw-3, Inc., our affiliates and other suppliers, lessors and creditors.

       R.   You will notify us in writing within five (5) days of the commencement of any action, suit, or proceeding, and of the issuance of any order, writ, injunction, award or decree of any court, agency, or other governmental instrumentality, which may adversely affect the operation or financial condition of the Franchised Restaurant.

       S.   We reserve the right to require you to offer delivery service to customers located within a reasonable radius of the Franchised Restaurant.  As of the date of this Agreement, such delivery service is at your option.  If the Franchised Restaurant offers delivery service to customers located within its Designated Area, in order to maintain the quality of all food products, the Franchised Restaurant will not offer delivery service to any customer whose order cannot be delivered within a reasonable time from when such order is placed, in

                                          16

accordance with our standards.  You will charge the same price for products offered by the Franchised Restaurant whether delivered or sold over the counter in the Franchised Restaurant, plus a reasonable delivery charge.

XIII.  OPERATIONS ASSISTANCE

       A.   We may from time to time advise or offer guidance to you relative to prices for the food and other products offered for sale by the Franchised Restaurant that in our judgment constitute good business practice.  Such guidance will be based on our experience in operating and franchising Restaurants and an analysis of the costs of such products and prices charged for competitive products.  You will not be obligated to accept any such advice or guidance and shall have the sole right to determine the prices to be charged from time to time by the Franchised Restaurant and no such advice or guidance shall be deemed or construed to impose upon you any obligation to charge any fixed, minimum or maximum prices for any product offered for sale by the Franchised Restaurant.  We may from time to time establish promotional practices which you are required to follow such as free refill, buy one and get one free or similar practices.

       B.   Before the opening of the Franchised Restaurant we will provide you with the following:

            1.    A comprehensive list of established sources of equipment, foods, supplies and containers necessary for the operation of the Franchised Restaurant and provide specifications for such products;

            2.    Coordination of product distribution for local, regional and national suppliers; and

            3.    Regulation of quality standards and products in conformance throughout the network of Franchised Restaurants.

       C.   We may furnish you with such assistance in connection with the operation of the Franchised Restaurant as we reasonably determined to be necessary from time to time.  Operations assistance may consist of advice and guidance with respect to:

            1.    Proper utilization of procedures to be utilized by the Franchised Restaurant regarding the service and sale of all Menu Items and other food and beverage items, and related items and materials as approved by us;

            2.    Additional products and services authorized for sale by Franchised Restaurants;

            3.    Purchase of ingredients and other food and beverage items, materials and supplies;

            4.    The institution of proper administrative, bookkeeping, accounting, inventory control, supervisory and general operating procedures for the effective operation of the Franchised Restaurant; and

            5.    Advertising and promotional programs.

       D.   We will make periodic visits to the Franchised Restaurant for the purposes of consultation, assistance, and guidance in all aspects of the operation and management of the Franchised Restaurant as we reasonably determine





to be necessary from time to time.  We or our representatives who visit the Franchised Restaurant will prepare, for the benefit of both us and you, written reports with respect to such visits outlining any suggested changes or improvements in the operations of the Franchised Restaurant and detailing any defaults in such operations which become evident as a result of any such visit, and a copy of each such written report shall be provided to both us and you.  We will advise you of problems arising out of the operation of the Franchised

                                          17

Restaurant as disclosed by reports submitted to us by you or by inspections conducted by us of the Franchised Restaurant.

       E.   We will provide to you the specifications, Approved Suppliers Lists, Approved Supplies Lists, training and Manuals at various times between the execution of this Agreement and the opening of the Franchised Restaurant.

       F.   In the event you request additional operational assistance or services, we have the right to condition the rendering of such services upon the payment of a per diem fee and all of our expenses incurred in rendering the services.

XIV.   INSURANCE

       A.   You will procure at your expense and maintain in full force and effect during the term of this Agreement, an insurance policy or policies protecting you, us and our designated affiliates, and their officers, directors, partners and employees against any loss, liability, personal injury, death, or property damage or expense whatsoever arising or occurring upon or in connection with the Franchised Restaurant, as we may reasonably require for our own and your protection.  We will be named an additional insured in such policy or policies.

       B.   The policy or policies shall be written by an insurance company satisfactory to us in accordance with standards and specifications set forth in the Manuals or otherwise in writing, and shall include, at a minimum (except as different coverages and policy limits may reasonably be specified for all franchisees from time to time by us in the Manuals or otherwise in writing) the following:

            1.    All risks coverage insurance on the Franchised Restaurant and all fixtures, equipment, supplies and other property used in the operation of the Franchised Restaurant, for full repair and replacement value of the machinery, equipment, improvements and betterments, without any applicable co-insurance clause, except that an appropriate deductible clause shall be permitted.

            2.    Worker's compensation and employer's liability insurance as well as such other insurance as may be required by statute or rule of the state in which the Franchised Restaurant is located and operated.

            3.    Comprehensive general liability insurance and product liability insurance with minimum limits of ONE MILLION Dollars ($1,000,000) combined single limit including the following coverages: contractual liability; personal injury; products/completed operation; and tenant's fire legal liability; insuring against all claims, suits, obligations, liabilities and damages, including attorneys' fees, based upon or arising out of actual or alleged personal injuries or property damage resulting from, or occurring in the course of, or on or about or otherwise relating to the Franchised Restaurant, provided that the required amounts herein may be modified from time to time by us to reflect inflation or future experience with claims.

            4.    If you offer delivery service or utilize motor vehicles for any other purpose in the operation of the Franchised Restaurant, automobile liability insurance, including owned, hired and non-owned vehicle coverage, with a combined single limit of at least ONE MILLION Dollars ($1,000,000).

            5.    Such insurance and types of coverage as may be required by the terms of any lease for the Franchised Restaurant, or as may be required from time to time by us.

            6.    Liquor liability coverage in a minimum amount of ONE MILLION Dollars ($1,000,000) or such other amount as may be specified by us.

                                          18

       C.   The insurance afforded by the policy or policies respecting liability shall not be limited in any way by reason of any insurance which may be maintained by us.  The insurance coverage must commence as of the date the location of the Franchised Restaurant has been secured.  You agree to deliver to us prior to opening and periodically at any time upon our request, proper certificate evidencing the existence of the insurance coverage which names us as a named insured.  Such certificate shall state that said policy or policies will not be canceled or altered without at least twenty (20) days prior written notice to us and shall reflect proof of payment of premiums.  Maintenance of such insurance and the performance by you of the obligations under this Paragraph will not relieve you of liability under the indemnity provision set forth in this Agreement.  Minimum limits as required above may be modified from time to time, as conditions require, by written notice to you and we may require you to provide periodic proof of payment of premiums.

       D.   If you, for any reason, do not procure and maintain such insurance





coverage as required by this Agreement, we have the right and authority (without, however, any obligation to do so) immediately to procure such insurance coverage and to charge same to you, which charges, together with a reasonable fee for expenses incurred by us in connection with such procurement, shall be payable by you immediately upon notice.

XV.    COVENANTS

       A.   Unless otherwise specified, the term you as used in this Paragraph XV shall include, collectively and individually, all officers, directors, managers, and holders of a beneficial interest of your securities, and of any corporation directly or indirectly controlling you, if you are a corporation, the general and limited partners (including any corporation and the officers, directors, and holders of a beneficial interest of your securities, of a corporation which controls, directly or indirectly, any general or limited partner), if you are a partnership, and all members if you are a limited liability company.

       B.   You covenant that during the term of this Agreement, except as otherwise approved in writing by us, you (if you are an individual), a shareholder of a beneficial interest of ten percent (10%) or more of your securities (if you are a corporation), a general partner of yours (if you are a partnership), a member (if you are a limited liability company) or your full-time manager approved by us shall devote full time, energy and best efforts to the management and operation of the Franchised Restaurant.  At all times during the term of this Agreement, the on-site day to day management and operation of the Franchised Restaurant shall be conducted by someone who has been approved by us and who has satisfactorily completed our training program.

       C.   You covenant that during the term of this Agreement, except as otherwise approved in writing by us, you will not, either directly or indirectly, for yourself, or through, on behalf of, or in conjunction with any person, persons, partnership, corporation or company:

            1.    Divert or attempt to divert any business or customer of the Franchised Restaurant to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks or the System.

            2.    Employ or seek to employ any person who is at that time employed by us, our affiliates, or by any other franchisee of ours, or otherwise directly or indirectly induce or seek to induce such person to leave his or her employment thereat.

            3.    Directly or indirectly, for yourself or through, on behalf of, or in conjunction with any person or entity, own, manage, operate, maintain, engage in, consult with or have any interest in: a) any restaurant business, b) any prepared food business, or c) any other business which sells or offers to dispense prepared food products the same as or similar to the type sold in the System.

                                          19

       D.   You specifically acknowledge that, pursuant to this Agreement, you will receive valuable training and confidential information, including, without limitation, information regarding our promotional, operational, sales and marketing methods and techniques and the System.  Accordingly, you covenant that, except as otherwise approved in writing by us, you will not, for a period of two (2) years after the expiration or termination of this Agreement, regardless of the cause of termination, or within two (2) years of the sale of the Franchised Restaurant or any interest in you, either directly or indirectly, for yourself, or through, on behalf of, or in conjunction with any person or entity, own, manage, operate, maintain, engage in, consult with or have any interest in: i) any restaurant business, ii) any prepared food business, or iii) any other business which sells or offers to dispense prepared food products the same as or similar to the type sold in the System:

            1.    At the premises of the former Franchised Restaurant;

            2.    Within a radius of ten (10) miles of the former Franchised Restaurant; or

            3.    Within a radius of ten (10) miles of the location of any other business using the System, whether franchised or owned by us or our affiliates.

       E.   You will not, at any time during or after the term of this Agreement, divulge to any person, partnership, corporation or any other entity any information, trade secrets, the ingredients, recipes, cooking techniques and processes, used in the Trade Secret Food Products, and other food and beverage products and Menu Items used in the System or any information stated in the Manuals.

       F.   The parties agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement. If all or any portion of a covenant in this Paragraph XV is held unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which we are a party, you will be bound by any lesser covenant subsumed within the terms of such covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Paragraph XV.

       G.   You understand and acknowledge that we have the right, in our sole discretion, to reduce the scope of any covenant set forth in Paragraphs XV.C. and XV.D. in this Agreement, or any portion thereof, without your consent,





effective immediately upon receipt by you of written notice thereof, and you shall comply forthwith with any covenant as so modified, which shall be fully enforceable notwithstanding the provisions of Paragraph XXVI hereof.

       H.   We have the right to require all of your current and future shareholders, directors, officers, partners, members, managers and all personnel performing managerial or supervisory functions and all personnel receiving training from us to execute similar covenants in a form satisfactory to us.

XVI.   DEFAULT AND TERMINATION

       A.   If you are in substantial compliance with this Agreement and we materially breach this Agreement and fail to cure such breach within a reasonable time after written notice thereof is delivered to us, you may terminate this Agreement.  Reasonable time, as used herein, shall be construed as allowing us at least thirty (30) days within which to commence curing any such material breach.  Such termination shall be effective thirty (30) days after delivery to us of written notice that such breach has not been cured and you elect to terminate this Agreement.  An attempted termination of this Agreement by you except as provided in this Paragraph shall be deemed a termination without cause and a breach of this Agreement.

                                          20

       B.   This Agreement shall terminate automatically upon delivery of written notice of termination to you, if you or any shareholder, officer, partner, member or manager:

            1.    Fails to satisfactorily complete the training program, including the opportunity to provide an alternate manager, as provided in Paragraph IV of this Agreement;

            2.    Has made any material misrepresentation or omission in your application for the franchise;

            3.    Is convicted of or pleads no contest to a felony or other crime or offense that is likely to adversely affect your reputation, the Franchised Restaurant, or the goodwill associated with the Marks or System;

            4.    Makes any unauthorized use, disclosure or duplication of any portion of the Manuals or duplicates or discloses or makes any unauthorized use of any trade secret or confidential information provided to you by us;

            5.    Abandons or fails or refuses to actively operate the Franchised Restaurant for more than five (5) days in any twelve (12) month period or for more than two (2) consecutive business days in any twelve (12) month period, unless the Franchised Restaurant has been closed for a purpose approved by us or due to force majeure, or fails to relocate to approved premises within an approved period of time following expiration or termination of the lease for the premises of the Franchised Restaurant;

            6.    Surrenders or transfers control of the operation of the Franchised Restaurant, makes an unauthorized direct or indirect assignment of the franchise or an ownership interest in you or fails or refuses to assign the franchise or the interest in you of a deceased or disabled controlling owner thereof as herein required;

            7.    Submits to us on five (5) or more separate occasions at any time during the term of this Agreement or on two (2) or more separate occasions during any twelve (12) month period any reports or other data, information or supporting records which understate by more than two percent (2%) the Continuing Fees for any period of, or periods aggregating, three (3) or more months, and you are unable to demonstrate that such understatements resulted from inadvertent error;

            8.    Commits any affirmative act of insolvency, or files any petition or action of insolvency, or for appointment of a receiver or trustee, or makes any assignment for the benefit of creditors, or fails to vacate or dismiss within sixty (60) days after filing any such proceedings commenced against you by a third party;

            9.    Materially misuses or makes an unauthorized use of any Marks or commits any act which can reasonably be expected to materially impair the goodwill associated with any Marks;

            10.   Materially misuses or makes an unauthorized use of our Proprietary Software Program;

            11.   Fails on three (3) or more separate occasions within any period of twelve (12) consecutive months or eight (8) or more separate occasions at any time during the term of this Agreement to submit when due reports or other information or supporting records, to pay when due the Continuing Fees, advertising contributions, amounts due for purchases from us and our affiliates or other payments due to us and our affiliates, or otherwise fails to comply with this Agreement, whether or not such failures to comply are corrected;

                                          21

            12.   Continues after written notice from us and/or any governmental authority to violate any health, safety or sanitation law, ordinance or regulation or operates the Franchised Restaurant in a manner that presents a health or safety hazard to your customers or the public;





            13.   Fails to commence operations within nine (9) months after execution of this Agreement, or as otherwise required or approved in writing by us; or

            14.   Defaults under the lease, if any, for the Franchised Restaurant.

       C.   This Agreement shall terminate at our sole option without further action by us or notice to you if you or your owner:

            1.    Fails or refuses to make payments of any amounts due to us or our affiliates for Continuing Fees, advertising contributions, purchases from us or our affiliates or any other amounts due to us or our affiliates, and does not correct such failure or refusal within ten (10) days after written notice of such failure is delivered to you;

            2.    Fails or refuses to comply with any other provision of this Agreement, or any mandatory specification, standard or operating procedure prescribed in the Manuals or otherwise in writing, and does not correct such failure within thirty (30) days (or provide proof acceptable to us that you have made all reasonable efforts to correct such failure and will continue to make all reasonable efforts to cure until a cure is effected if such failure cannot reasonably be corrected within thirty (30) days) after written notice of such failure to comply is delivered to you.

            3.    Fails to devote your best efforts to adequately represent the Franchised Restaurant in your Designated Area through your sales and service efforts and does not correct such failure within thirty (30) days (or provide proof acceptable to us that you have made all reasonable efforts to correct such failure and will continue to make all reasonable efforts to cure until a cure is effected if such failure cannot reasonably be corrected within thirty (30) days) after written notice of such failure to comply is delivered to you.

       D.   To the extent that the provisions of this Agreement provide for periods of notice less than those required by applicable law, or provide for termination, cancellation, non-renewal or the like other than in accordance with applicable law, such provisions shall, to the extent such are not in accordance with applicable law, not be effective, and we will comply with applicable law in connection with each of these matters.

       E.   In addition to our right to terminate this Agreement, and not in lieu of such right or any other rights against you, we, in the event that you have not cured a default under this Agreement within the twenty (20) days after receipt of a written notice to cure from us, may, at our option, enter upon the premises of the Franchised Restaurant and exercise complete authority with respect to the operation of the Franchised Restaurant until such time as we determine that your default has been cured and that there is compliance with the requirements of this Agreement.  You specifically acknowledge that our designated representative may take over, control, and operate the Franchised Restaurant, and that you will pay us a service fee of not less than TWO HUNDRED Dollars ($200) per day plus all travel expenses, room and board and other expenses reasonably incurred by such representative so long as it shall be required by the representative to enforce compliance herewith.  You further acknowledge that if, as herein provided, we temporarily operate for you the Franchised Restaurant, you will indemnify, defend and hold us harmless and any representative of ours who may act hereunder, from any and all claims arising from the operation of the Franchised Restaurant, including without limitation, acts and omissions of us or our representatives.

                                          22

XVII.  RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION

Upon termination or expiration, this Agreement and all rights granted hereunder to you will forthwith terminate, and:

       A.   You will immediately cease to operate the Franchised Restaurant under this Agreement, and shall not thereafter, directly or indirectly, represent to the public or hold yourself out as a present or former franchisee of ours.

       B.   Upon our demand, you will assign to us your interest in any lease then in effect for the Franchised Restaurant premises.

       C.   You will immediately and permanently cease to use, by advertising or in any manner whatsoever, any confidential methods, procedures, and techniques associated with the System; the Marks and distinctive forms, slogans, signs, symbols, logos, or devices associated with the System.  In particular, you will cease to use, without limitation, all signs, advertising materials, stationery, forms, and any other articles which display the Marks associated with the System.

       D.   You will take such action as may be necessary to cancel or assign to us or our designee, at our option, any assumed name rights or equivalent registration filed with state, city, or county authorities which contains the name Buffalo Wild Wings, bw-3 or any Mark, and you will furnish us with evidence satisfactory to us of compliance with this obligation within thirty (30) days after termination or expiration of this Agreement.

       E.   You will, in the event you continue to operate or subsequently begin to operate any other business, not use any reproduction, counterfeit, copy or colorable imitation of the Marks either in connection with such other business or the promotion thereof, which is likely to cause confusion, mistake or deception, or which is likely to dilute our exclusive rights in and to the Marks





and will not utilize any designation of origin or description or representation which falsely suggests or represents an association or connection with us so as to constitute unfair competition.  You will make such modifications or alterations to the premises of the Franchised Restaurant (including, without limitation, the changing of the telephone number) immediately upon termination or expiration of this Agreement as may be necessary to prevent any association between us or the System and any business thereon subsequently operated by you or others, and will make such specific additional changes thereto as we may reasonably request for that purpose, including, without limitation, removal of all distinctive physical and structural features identifying the System.  In the event you fail or refuse to comply with the requirements of this Paragraph XVII, we have the right to enter upon the premises where your Franchised Restaurant was conducted, without being guilty of trespass or any other tort, for the purpose of making or causing to be made such changes as may be required at your expense, which expense you will pay upon demand.

       F.   You will promptly pay all sums owing to us and our affiliates.  In the event of termination for any default, such sums will include all damages, costs, and expenses, including reasonable attorneys' fees, incurred by us as a result of the default.

       G.   You will pay to us all damages, costs and expenses, including reasonable attorneys' fees, incurred by us in obtaining injunctive or other relief for the enforcement of any provisions of this Agreement.

       H.   You will immediately return to us at your cost all Manuals, our Proprietary Software Program, customer lists, records, files, instructions, brochures, agreements, disclosure statements, and any and all other materials provided by us to you relating to the operation of the Franchised Restaurant (all of which are acknowledged to be our property).

                                          23

       I.   We will have the right, title and interest to any sign or sign faces bearing the Marks.  You hereby acknowledge our right to access the premises of the Franchised Restaurant if we elect to take possession of any sign or sign faces bearing the Marks.

       J.   You hereby acknowledge that all telephone numbers used in the operation of the Franchised Restaurant constitute assets of the Franchised Restaurant; and upon termination or expiration of this Agreement  you will assign to us or our designee, all right, title, and interest in and to your telephone numbers and will notify the telephone company and all listing agencies of the termination or expiration of your right to use any telephone number and any regular, classified or other telephone directory listing associated with the Marks and to authorize a transfer of same to or at our direction.

       K.   We will have the right (but not the duty), to be exercised by notice of intent to do so within sixty (60) days after termination or expiration, to purchase for cash any or all assets of the Franchised Restaurant, including leasehold improvements, equipment, supplies, and other inventory, advertising materials, and all items bearing the Marks, at your cost or fair market value, whichever is less.  You acknowledge that, pursuant to Paragraph XVII.I. of this Agreement, all signs and sign faces bearing the Marks are specifically excluded from this provision as such signs and sign faces are deemed to be our property. If the parties cannot agree on fair market value within a reasonable time, the determination of fair market value shall be determined by an appraiser selected by us and you.  If you and we cannot agree on a single appraiser, each party shall select one appraiser, who together will select a third appraiser and the fair market value will be the average of the three (3) independent appraisers. Each party will pay their own appraiser and the cost of the third appraiser will be shared equally by the parties.  If we elect to exercise any option to purchase as herein provided, we have the right to set off all amounts due from you under this Agreement, if any, against any payment therefor.

       L.   You will comply with the covenants contained in Paragraph XV of this Agreement.

XVIII. TRANSFERABILITY OF INTEREST

       A.   This Agreement and all rights hereunder can be assigned and transferred by us and, if so, shall be binding upon and inure to the benefit of our successors and assigns.

       B.   This Agreement, and your rights and obligations under it, are and shall remain personal to you.  The term Transfer shall mean any sale, assignment, gift, pledge, mortgage or any other encumbrance, transfer by bankruptcy, transfer by judicial order, merger, consolidation, share exchange, transfer by operation of law or otherwise, whether direct or indirect, voluntary or involuntary, of this Agreement or any interest in it, or any rights or obligations arising under it, or of any material portion of your assets, or of any interest in you.  You (and your shareholders, partners and members) will not directly or indirectly make a Transfer without our prior written consent.  We will not withhold our consent to a Transfer, subject to all of the following conditions being satisfied:

            1.    You are in full compliance with this Agreement, you have no uncured defaults, all your fees, debts and financial obligations to us, our affiliates and the Fund are current, and you are current in your required local advertising expenditures;

            2.    You execute a written agreement in a form satisfactory to us in which you and your owners covenant to observe all applicable post-term obligations and covenants contained in this Agreement;





            3.    The proposed transferee enters into a written agreement in a form satisfactory to us assuming and agreeing to discharge all of your obligations and covenants under this Agreement for the remainder of its term or, at our option, execute our then-current standard form of franchise agreement (which

                                          24

may provide for different fees, advertising requirements, duration, and other rights and obligations from those provided in this Agreement);

            4.    The proposed transferee agrees in writing to perform such maintenance, remodeling and re-equipping of the Restaurant that we determine necessary to bring the Restaurant in compliance with our then-current standards;

            5.    Prior to the date of the proposed Transfer, the proposed transferee's management team successfully completes such training and instruction as we deem necessary;

            6.    We are satisfied that the proposed transferee (and if the proposed transferee is an entity, all holders of any interest in such entity) meets all of the requirements for our new franchisees applicable on the date we receive notice of the proposed transfer and including, but not limited to, good reputation and character, business experience, restaurant management experience, and financial strength and liquidity;

            7.    You and all holders of an interest in you execute a general release, in the form prescribed by us, releasing, to the fullest extent permitted by law, all claims that you or any of your investors may have against us and our affiliates, including our and their respective shareholders, officers, directors and employees, in both their individual and corporate capacities;

            8.    You pay us a transfer fee equal to one-half (1/2) of the then-current Initial Franchise Fee; and

            9.    We waive our right of first refusal under Paragraph XX.

       C.   Application for our consent to a transfer and tender of the right of first refusal provided for in Paragraph XX, will be accompanied by the documents (including a copy of the proposed purchase or other transfer agreement) or other information required by us.  Any agreement used in connection with a transfer including a lease or management agreement, shall be subject to our prior written approval.

       D.   In the event you are a corporation, partnership, limited liability company or other entity, any transfer of stock (or other form of ownership interest) constituting a controlling interest in you will be subject to the consent, right of first refusal, transfer fee and all other applicable provisions of this Agreement.  For purposes of this Paragraph XVIII, any change in the percentage you owned, directly or indirectly, by any person or entity who directly or indirectly owns an interest in you (including any addition or deletion of any such person or entity) which results in a change in forty-nine percent (49%) or more of your ownership or any series of changes in the percentage you owned, directly or indirectly, by any such person or entity (including any addition or deletion of any such person or entity) which results within a period of three (3) years in any change in forty-nine percent (49%) or more of your ownership shall be deemed a transfer of a controlling interest in you.  Any individual transfer of an interest less than a controlling interest in you or the Franchised Restaurant must have our prior written consent, which will not be unreasonably withheld, but will not be subject to our right of first refusal or the payment of the transfer fee.  You will however, reimburse us for its out-of-pocket expenses incurred in approving the transfers including our attorneys' fees.  Any person who acquires any interest in you, this Agreement or the Franchised Restaurant must execute the Owner Agreement attached as EXHIBIT A to this Agreement.

       E.   You will not, without our prior written consent, place in, on or upon the location of the Franchised Restaurant, or in any communication media, any form of advertising, or list with any business, real estate broker, agent, or attorney any information relating to the sale of the Franchised Restaurant or the rights granted hereunder.

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XIX.   YOUR DEATH OR INCAPACITY

       A.   In the event of your death or incapacity, or the death or incapacity of any partner, any shareholder owning fifty percent (50%) or more of your capital stock, or any Member who owns a majority interest in a limited liability company, the heirs, beneficiaries, devisees, or legal representatives of said individual, partner or shareholders shall, within one hundred eighty (180) days of such event:

            1.    Apply to us for the right to continue to operate the franchise for the duration of the term of this Agreement and any renewals hereof, which right shall be granted upon the fulfillment of all of the conditions set forth in Paragraph XVIII. of this Agreement (except that no transfer fee shall be required); or

            2.    Sell, assign, transfer, or convey your interest in compliance with the provisions of Paragraphs XVIII and XX of this Agreement; provided,





however, in the event a proper and timely application for the right to continue to operate has been made and rejected, the one hundred eighty (180) days to sell, assign, transfer or convey shall be computed from the date of said rejection.  For purposes of this Paragraph, our silence on an application made pursuant to Paragraph XIX.A.1. through the one hundred and eighty (180) days following the event of death or incapacity shall be deemed a rejection made on the last day of such period.

       B.   In the event of the death or incapacity of an individual franchisee, or any partner or shareholder of you which is a partnership or corporation, where the aforesaid provisions of Paragraph XVIII have not been fulfilled within the time provided, all rights licensed to you under this Agreement shall, at our option, terminate forthwith and we will have the option to purchase the assets of the Franchised Restaurant in accordance with Paragraph XVII.K. herein.

XX.    RIGHT OF FIRST REFUSAL

       If you or your owners propose to sell the Franchised Restaurant (or its assets) or a controlling interest in the ownership of you as defined in Paragraph XVIII, you or your owners will obtain and deliver a bona fide, executed written offer to purchase same to us, which shall, for a period of thirty (30) days from the date of delivery of such offer to us, have the right, exercisable by written notice to you or your owners, to purchase the Franchised Restaurant, (its assets) or an ownership interest in you for the price and on the terms and conditions contained in such offer, provided that we may substitute cash for any form of payment proposed in such offer.  If we do not exercise this right of first refusal, you may accept the offer, subject to our prior written approval, as provided in Paragraph XVIII hereof, provided that if such offer is not so accepted within six (6) months of the date thereof, we will again have the right of first refusal herein described.

XXI.   OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH

       In order to prevent any interruption of the Franchised Restaurant which would cause harm to the Franchised Restaurant and thereby depreciate the value thereof, you authorize us, in the event that you are absent or incapacitated by reason of illness or death and are not, therefore, in our sole judgment, able to operate the Franchised Restaurant, to operate the Franchised Restaurant for so long as we deem necessary and practical, and without waiver of any other rights or remedies we may have under this Agreement.  Provided, however, that we shall not be obligated to so operate the Franchised Restaurant.  All monies from the operation of the business during such period of operation by us shall be kept in a separate account and the expenses of the Franchised Restaurant, including reasonable compensation and expenses for our representative, shall be charged to said account.  If, as herein provided, we temporarily operate for you the Franchised Restaurant, you will indemnify and hold us harmless and any representative of ours who may act hereunder, from any and all claims arising from

                                          26

the operation of the Franchised Restaurant, including, without limitation, our acts and omissions and acts and omissions of our representatives.

XXII.  INDEPENDENT CONTRACTOR AND INDEMNIFICATION

       A.   This Agreement does not make, appoint or constitute you as our agent, legal representative, joint venturer, partner, employee, or servant for any purpose whatsoever.  You cannot represent to third parties that you are our agent and it is understood between the parties that you will be an independent contractor who is in no way authorized to make any contract, agreement, warranty or representation on our behalf, or to create any obligation, express or implied, on our behalf.  As an independent entrepreneur, you are solely responsible for the control,  management and day-to-day operation of the Franchised Restaurant, including but not limited to, such matters as determining the prices at which you will offer and sell approved products and services, hiring and discharging your employees and setting and paying wages and benefits of your employees and that we will have no power, responsibility or liability with respect to such pricing, hiring, discharging, setting and paying of wages or related matters.  All standards of quality and performance, including those listed in Paragraph XII, are established to promote and protect the value of the Marks and the System and to insure optimum quality control as to products and services.  You alone are responsible for the food production and preparation at the Franchised Restaurant.

       B.   You will prominently display, by posting of a sign within public view, on or in the premises of the Franchised Restaurant, a statement that clearly indicates that the Franchised Restaurant is independently owned and operated by you as a franchisee and not as an agent.

       C.   You agree to indemnify, defend and hold us and our affiliates harmless from and against any and all claims, losses, damages and liabilities, however caused, arising directly or indirectly from, as a result of, or in connection with, the use and operation of the Franchised Restaurant, as well as the costs, including attorneys' fees, of defending against them (hereinafter are Franchise Claims).  Franchise Claims include, but are not limited to, those arising from any death, personal injury or property damage (whether caused wholly or in part through our active or passive negligence), latent, or other defects in the Franchised Restaurant, or your employment practices.  In the event a Franchise Claim is made against us, we reserve the right in our sole discretion to select our own legal counsel to represent our interests and you will reimburse us for our attorneys' fees immediately upon our request as they are incurred.





XXIII. MISCELLANEOUS

       A.   Our failure to exercise any power reserved to us hereunder, or to insist upon strict compliance by you with any obligation or condition hereunder, and any custom or practice of the parties in variance with the terms hereof, shall not constitute a waiver of our right to demand exact compliance with the terms hereof.  Our waiver of any default by you shall not be binding unless in writing and executed by us and shall not affect or impair our right with respect to any subsequent default of the same or of a different nature.

       B.   Any and all notices required or permitted under this Agreement shall be in writing and shall be personally delivered, mailed by certified mail, return receipt requested, or sent overnight courier to the respective parties at the following addresses unless and until a different address has been designated by written notice to the other party:

Notices to Us:    bw-3 FRANCHISE SYSTEMS, INC.                   1919 Interchange Tower                   600 South Highway 169                   Minneapolis, Minnesota 55426

                                          27

Copy to           Mary Beth Brody, Esq.                   Fredrikson & Byron, P.A.                   1100 International Centre                   900 Second Avenue South                   Minneapolis, MN 55402

Notices to You:   At the address specified on Page 1 of this Agreement.

Copy to:                   -------------------------------

                  -------------------------------

                  -------------------------------

Any notice by certified mail shall be deemed to have been given at the date and time of mailing.  If you fail to provide us with written notice of alleged breach of this Agreement or any other legal claims within one (1) year from the date that you have knowledge of or becomes aware of such breach or grounds for claim, then the alleged breach or claim shall be deemed waived.

       C.   In the event either party brings an action to enforce the terms of this Agreement or to enjoin the violation of any of its terms and prevails, such party shall be entitled to recover all litigation costs including attorneys' fees.

       D.   This Agreement and the Exhibits attached shall be construed together and constitute the entire, full and complete agreement between the parties concerning the subject matter hereof, and supersede all prior agreements.  No other representation has induced you to execute this Agreement, and there are no representations, inducements, promises, or agreements, oral or otherwise, between the parties not embodied herein, which are of any force or effect with reference to this Agreement or otherwise.  No amendment, change or variance from this Agreement shall be binding on either party unless executed in writing, signed by both parties.

       E.   Each Paragraph, part, term and/or provision of this Agreement shall be considered severable, and if, for any reason, any Paragraph, part, term and/or provision herein is determined to be invalid and contrary to, or in conflict with any existing or future law or regulation, such shall not impair the operation of or affect the remaining portions, sections, parts, terms and/or provisions of this Agreement, and the latter will continue to be given full force and effect and bind the parties hereto; and said invalid sections, parts, terms and/or provisions shall be reformed to most nearly implement the intentions of the parties hereto or, if reformation is not possible, be deemed not part of this Agreement; provided, however, that if we determine that said finding of illegality adversely affects the basic consideration of this Agreement, we may, at our option, terminate this Agreement.  Anything to the contrary herein notwithstanding, nothing in this Agreement is intended, nor shall be deemed, to confer upon any person or legal entity other than you and us and such of their respective successors and assigns as may be contemplated by this Agreement, any rights or remedies under or by reason of this Agreement.

XXIV.  APPLICABLE LAW

       A.   THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY US, AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE LAWS OF THE STATE IN WHICH THE FRANCHISED RESTAURANT IS LOCATED, EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15, U.S.C. SECTIONS 1051 ET SEQ).  YOU AGREE THAT ANY DISPUTES BETWEEN YOU AND US, bw-3, INC. OR OUR OTHER AFFILIATES SHALL ALSO BE CONSTRUED UNDER THE LAWS OF THE STATE IN WHICH THE FRANCHISED RESTAURANT IS LOCATED.

                                          28

       B.   ANY ACTION SOUGHT TO BE BROUGHT BY EITHER PARTY OR ANY ACTION BROUGHT BY YOU AGAINST OUR PARENT OR OTHER AFFILIATE, SHALL BE BROUGHT IN THE UNITED STATES DISTRICT COURT OR THE STATE DISTRICT COURT IN THE STATE IN WHICH





OUR COMPANY HEADQUARTERS ARE LOCATED.  AS OF THE DATE OF THIS AGREEMENT, THE LOCATION IS HENNEPIN COUNTY, MINNESOTA.  THE PARTIES DO HEREBY WAIVE ALL QUESTIONS OF PERSONAL JURISDICTION OR VENUE FOR THE PURPOSES OF CARRYING OUT THIS PROVISION.

       C.   NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO US OR YOU BY THIS AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE OF ANY OTHER RIGHT OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR PERMITTED, BUT EACH SHALL BE CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.

       D.   NOTHING HEREIN CONTAINED SHALL BAR OUR RIGHT TO OBTAIN INJUNCTIVE RELIEF AGAINST THREATENED CONDUCT THAT WILL CAUSE US LOSS OR DAMAGES, UNDER THE USUAL EQUITY RULES, INCLUDING THE APPLICABLE RULES FOR OBTAINING RESTRAINING ORDERS AND PRELIMINARY INJUNCTIONS.

XXV.   DISPUTE RESOLUTION

       A.   The parties have entered into this Agreement in good faith and in the belief that it is mutually advantageous to them.  It is with that same spirit of cooperation that they pledge to attempt to resolve any dispute amicably without the necessity of litigation.  Accordingly, they agree that except as set forth below, if any dispute arises between them relating to this Agreement that prior to the commencement of any legal action to interpret or enforce this Agreement, they will first use the procedures specified in this Section.

       B.   The party seeking to initiate the procedure shall give written notice to the other party, describing in general terms the nature of the dispute, the claim for relief and identifying one or more individuals with authority to settle the dispute on such party's behalf.  The party receiving such notice shall have ten (10) business days within which to designate by written notice one or more individuals with authority to settle the dispute on such party's behalf.

       C.   The authorized individuals shall be entitled to make such investigation of the dispute as they deem appropriate, but agree to meet promptly, and in no event later than thirty (30) days from the date of the initial written notice, to discuss resolution of the dispute.  The authorized individuals shall meet at such times and places and with such frequency as they may agree.  If the dispute has not been resolved within thirty (30) days from the date of their initial meeting, the parties shall cease direct negotiations and shall submit the dispute to mediation in accordance with the following procedure.

       D.   The authorized individuals shall have five (5) business days from the date they cease direct negotiations to submit to each other a written list of acceptable qualified mediators not affiliated with any of the parties. Within five (5) days from the date of receipt of such list, the authorized individuals shall rank the mediators in numerical order of preference and exchange such rankings.  If one or more names are on both lists, the highest ranking person shall be designated as the mediator.  If no mediator has been selected under this procedure, the parties agree jointly to request the local administrative judge of the County in which our corporate headquarters are situated to supply within ten (10) business days a list of potential qualified mediators.  Within five (5) business days of receipt of the list, the parties shall again rank the proposed mediators in numerical order of preference and shall simultaneously exchange such lists and shall select as the mediator the individual

                                          29

receiving the highest combined ranking.  If such mediator is not available to serve, they shall proceed to contact the mediator who was next highest in ranking until they are able to select a mediator.

       E.   In consultation with the mediator selected, the parties shall promptly designate a mutually convenient time and place for the mediation, and unless circumstances require otherwise, such time is to be not later than forty-five (45) days after selection of the mediator.  In the event any party to this Agreement has substantial need for information in the possession of another party to this Agreement in order to prepare for the mediation, all parties shall attempt in good faith to agree on procedures for the expeditious exchange of such information, with the help of the mediator if required.  At least seven (7) days prior to the first scheduled session of the mediation, each party shall deliver to the mediator and to the other party a concise written summary of its views on the matter in dispute, and such other matters required by the mediator. The mediator may also request that a confidential issue paper be submitted to him by each party.

       F.   In the mediation, each party shall be represented by an authorized individual and may be represented by counsel.  In addition, each party may, with permission of the mediator, bring such additional persons as are needed to respond to questions, contribute information and participate in the negotiations.

       G.   The mediator shall determine the format for the meetings, designed to assure that both the mediator and the authorized individuals have an opportunity to hear an oral presentation of each party's views on the matter in dispute, and that the authorized parties attempt to negotiate a resolution of the matter in dispute, with or without the assistance of counsel or others, but with the assistance of the mediator.  To this end, the mediator is authorized to conduct both joint meetings and separate private caucuses with the parties.  The mediation session shall be private.  The mediator will keep confidential all information learned in private caucus with any party unless specifically





authorized by such party to make disclosure of the information to the other party.  The parties agree to sign a document agreeing that the mediator shall be governed by the provisions of the local Rules of Civil Procedure and such other rules as the mediator shall prescribe.  The parties commit to participate in the proceedings in good faith with the intention of resolving the dispute, if at all possible.

       H.   The parties agree to participate in the mediation procedure to its conclusion.  The mediation shall be terminated (i) by the execution of a settlement agreement by the parties, (ii) by a declaration of the mediator that the mediation is terminated, or (iii) by a written declaration of a party to the effect that the mediation process is terminated at the conclusion of one full day's mediation session.  Even if the mediation is terminated without a resolution of the dispute, the parties agree not to terminate negotiations and not to commence any legal action or seek other remedies prior to the expiration of five (5) days following the mediation.  The fees and expenses of the mediator shall be shared equally by the parties.  The mediator shall be disqualified as a witness, consultant, expert or counsel for any party with respect to the dispute and any related matters.

       I.   Mediation is a compromise negotiation for purposes of the Federal and State Rules of Evidence and constitutes privileged communication.  The entire mediation process is confidential, and no stenographic, visual or audio record shall be made.  All conduct, statements, promises, offers, views and opinions, whether oral or written, made in the course of the mediation by any party, by their agents, employees, representatives or other invitees and by the mediator are confidential and shall, in addition and where appropriate, be deemed to be privileged.  Such conduct, statements, promises, offers, views and opinions shall not be discoverable or admissible for any purposes, including impeachment, in any litigation or other proceeding involving the parties, and shall not be disclosed to anyone not an agent, employee, expert, witness, or representative of any of the parties;  provided however, that evidence otherwise discoverable or admissible is not excluded from discovery or admission as a result of its use in the mediation.

                                          30

       J.   Nothing herein contained shall bar our right to seek and obtain temporary injunctive relief from a court of competent jurisdiction in accordance with applicable law against any conduct or threatened conduct by you which could impair the goodwill associated with the Marks.

       K.   The parties (and their respective owners) agree to waive, to the fullest extent permitted by law, the right to or claim for any punitive or exemplary damages against the other and agree that in the event of a dispute between them, each will be limited to the recovery of actual damages sustained.

XXVI.  OWNER AGREEMENT

       The franchisee (you) includes all persons who succeed to the interest of the original franchisee by permitted transfer or operation of law and shall be deemed to include not only the individual or entity described in the introductory paragraph of this Agreement but shall also include all partners if you are a partnership, all shareholders if you are a corporation and all members if you are a limited liability company.  By their signatures hereto, all of your officers, partners, members and managers acknowledge and accept the duties and obligations imposed upon each of them, individually, by the terms of this Agreement.  All partners, all shareholders, or all members, as the case may be, and your restaurant manager must execute the Owner Agreement attached as EXHIBIT A and made a part hereof.

XXVII. ACKNOWLEDGEMENTS

       A.   You acknowledge that the success of the business venture contemplated to be undertaken by you by virtue of this Agreement is speculative and depends, to a large extent, upon your ability as an independent businessperson, and your participation in the daily affairs of the business as well as other factors.  We do not make any representation or warranty, express or implied, as to the potential success of the business venture contemplated hereby.

       B.   You acknowledge that other of our franchisees have been or will be granted franchises at different times and in different situations, and further acknowledges that the provisions of such franchises may vary substantially from those contained in this Agreement.

       C.   You represent and acknowledge that you have received, read and understood this Agreement and our Uniform Franchise Offering Circular, and that we have fully and adequately explained the provisions of each to your satisfaction, and that we have accorded you ample time and opportunity to consult with advisors of your own choosing about the potential benefits and risks of entering into this Agreement.

       D.   You and each agent signing on your behalf acknowledge that the officers, partners, members and/or managers who are signing this Agreement on your behalf are authorized to execute the Agreement and bind you to its terms.

                                          31

       E.   It is contemplated that the parties may execute this Agreement on different dates.  The date of execution and the commencement of the term of this Agreement shall take place on the date this Agreement is executed by us.





       IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have duly executed and delivered this Agreement in duplicate the day and year first above written.

                                    FRANCHISOR:

ATTEST:                             BW-3 FRANCHISE SYSTEMS, INC.

                                    By - ------------------------------        ------------------------------------------ Witness                                     Its                                         ----------------------------------------

                                    FRANCHISEE:

ATTEST:                                     --------------------------------------------

                                    By - ------------------------------        ------------------------------------------ Witness                                     Its                                         ----------------------------------------

ATTEST:

                                    By - ------------------------------        ------------------------------------------ Witness                                     Its                                         ----------------------------------------

                                          32

                                     EXHIBIT A

                                 BUFFALO WILD WINGS                                   OWNER AGREEMENT

       As a condition to the granting by bw-3 Franchise Systems, Inc. (we or us) of an Area Development Agreement and/or one or more Franchise Agreements executed (collectively the Agreements) providing certain rights relating to Buffalo Wild Wings Restaurants (the Restaurants) to ________________________ ________________ (Franchisee), each of the undersigned individuals (you), who constitute each beneficial holder of an interest in the Franchisee, covenants and agrees to be bound by the terms and restrictions of this Agreement (Agreement):

       1.   ACKNOWLEDGMENTS.  Each of you, jointly and severally, represents and warrants to us:

            A.    That you are the holders of all equity, voting and other interests in Franchisee and/or all options, warrants and rights to acquire an interest in Franchisee and that the address and telephone number set forth next to your name below are accurate and complete and you will immediately advise us of any change in the information and we may use or distribute the same as required by law, including in our Uniform Franchise Offering Circular;

            B.    That Franchisee is a corporation, limited liability company or partnership, duly organized, validly existing and in good standing under the laws of the State of ____________________, and that Franchisee is qualified to do business in the state where the Restaurant(s) are to be located;

            C.    It is a condition to the granting of the franchise to Franchisee that you enter into this Agreement and we have entered into the Agreements in reliance upon your agreement to do so, and will continue to do so;

            D.    That, as Franchisee's owners, you have received adequate consideration to support your execution of this Agreement.

       2.   CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS.

            A.    IN TERM COVENANT NOT-TO-COMPETE.  Each of you agrees that during the period Franchisee operates any Buffalo Wild Wings and/or bw-3 Restaurants, or has any beneficial interest therein, or holds any rights to develop one or more such Restaurants (including all renewal periods) you shall not directly or indirectly on your own account or as an employee, consultant, partner, officer, director, shareholder or member of any person, firm, entity, partnership, corporation or company, own, operate, lease franchise, engage in, be connected with, have any interest in, or assist any person or entity engaged in:  1) any restaurant business, 2) any prepared food business, or 3) any other business which sells prepared food products the same or similar as the type sold in our System.

            B.    POST TERM COVENANT NOT-TO-COMPETE.  Each of you agrees that





for a two-year period after Franchisee ceases to have any interest in any Restaurants or any rights to develop Restaurants, regardless of the reasons such interest ceases or terminates, you will not directly or indirectly on your own account or as an employee, consultant, partner, officer, director, shareholder or member of any person, firm, entity, partnership, corporation or company, own operate, lease franchise, engage in, be connected with, have any interest in, or assist any person or entity engaged in:  1) any restaurant business, 2) any prepared food business, or 3) any other business which sells prepared food products the same or similar as the type sold in our System; which is located at or within a ten (10) mile radius of your former Franchised Restaurant or any Buffalo Wild Wings or bw-3 Restaurant.

                                          33

            C.    APPROPRIATION AND DISCLOSURE OF INFORMATION.  Except as permitted under the Agreements, you will not at any time use, copy or duplicate the System or any aspect thereof, or any of our trade secrets, recipes, methods of operation, processes, formulas, advertising, marketing, designs, plans, software, programs, know-how or other proprietary ideas or information, nor will you convey, divulge, make available or communicate such information to any third party or assist others in using, copying or duplicating any of the foregoing.

            D.    INFRINGEMENT; VALIDITY OF MARKS AND COPYRIGHTS; REGISTRATIONS. You will not at any time commit any act that would infringe upon or impair the value of the System or the Marks, nor will you engage in any business or market any product or service under a name, mark, or design that is confusingly or deceptively similar to any of the Marks.  You agree that you will not, at any time directly or indirectly challenge or contest the validity of, or take any action to jeopardize our rights in or ownership of, any of the Marks or any registration of a Mark or any copyrighted work.  If you violate this provision, we shall be entitled to all equitable, monetary, punitive and any other relief that may be available under applicable law, as well as the recovery of all costs, expenses and attorneys' fees incurred by us as a result of such violation.

            E.    SOLICITATION OF EMPLOYEES.  You agree that from and after the date hereof, you will not solicit, entice, induce to leave employment or hire directly or indirectly, any person who has been employed by us or by our affiliates or franchisees within the previous twelve (12) month period.

            F.    TRADE SECRETS AND CONFIDENTIAL INFORMATION.  You understand and agree that we have disclosed or may disclose to you certain confidential or proprietary information and trade secrets.  Except as necessary in connection with the operation of the Restaurant and as approved by us, you shall not, at any time (during or after term), regardless of the cause of termination, directly or indirectly, use for your own benefit or communicate or divulge to, or use for the benefit of any other person or entity, any trade secrets, confidential information, knowledge or know-how concerning the recipes, food products, advertising, marketing, designs, plans, software, programs or methods of operation of the Restaurant or the System.  You shall disclose to your employees only such confidential, proprietary or trade secret information as is necessary to operate your business hereunder and then only while this Agreement is in effect.  Any and all information, knowledge, or know-how, including without limitation, drawings, materials, equipment, marketing, recipes and other data, that we designate under the Agreements as secret or confidential shall be deemed secret and confidential for purposes of this Agreement.

            G.    REASONABLENESS OF SCOPE AND DURATION.  You agree that the covenants and agreements contained in Section 2 are, taken as a whole, reasonable with respect to the activities covered and their geographic scope and duration, and no party shall raise any issue of the reasonableness of the areas, activities or duration of any such covenants in any proceeding to enforce any such covenants.  Each of you acknowledge and agree that you have other skills and resources and that the restrictions contained in this Section will not hinder your activities or ability to make a living either under the Agreement or in general.

            H.    ENFORCEABILITY.  Each of you agree that we may not be adequately compensated by damages for a breach of any of the covenants and agreements contained herein, and that we shall, in addition to all other remedies, be entitled to injunctive relief and specific performance.  The covenants and agreements contained in this Section 2 shall be construed as separate covenants and agreements, and if any court shall finally determine that the restraints provided for in any such covenants and agreements are too broad as to the area, activity or time covered, said area, activity or time covered may be reduced to whatever extent the court deems reasonable, and such covenants and agreements shall be enforced as to such reduced area, activity or time.  To the extent required by the laws of the state in which the Restaurant is located, the duration or the geographic areas included within the foregoing covenants, or both, shall be deemed amended in accordance with Section 2.

                                          34

       3.   GUARANTY.

            A.    GUARANTY.  Each of you personally and unconditionally guaranty to us and to our parent and other affiliates, as well as any of their successors or assigns, the punctual payment when due of all sums, indebtedness and liabilities of every kind and nature that Franchisee may now or in the future owe to any of us (including interest, and all attorneys' fees, costs and expenses incurred by any of us in collection).





            B.    COVENANTS AND ACKNOWLEDGMENTS.  Each of you covenant and agree that: (1) liability under this guaranty shall be joint and several; (2) that this is a guaranty of payment and not of collection and you shall render any payment required under the Agreements or this guaranty upon demand; (3) this guaranty shall extend to all amounts you may now or in the future owe to any of us, whether pursuant to the Agreements, another agreement with us or otherwise; (4) your liability under this guaranty shall not be contingent or conditioned upon pursuit by us of any remedies against Franchisee or any of you; (5) your liability hereunder shall not be diminished, relieved, or otherwise affected by any extension of time, credit, or other indulgence or waiver that we may from time to time grant to Franchisee or to any of you, including, without limitation, the acceptance of partial payment or performance, the compromise or release of any claims, the release of any other guarantor, or our consent to any transfer or assignment of the franchise or any interest therein and expressly reserve all rights that we may have against you.

            C.    TERM OF GUARANTY.  This guaranty and your obligations under it shall continue in effect so long as you operate any Buffalo Wild Wing Restaurant or hold any beneficial interest therein and for a one (1) year period thereafter.  Further, this guaranty shall be extended during any period in which (1) any of us is involved in any judicial or administrative process with Franchisee or any of you (i) to collect any amounts owed us by you, or (ii) to enforce the terms of this guaranty, or (2) any bankruptcy or similar proceeding involving Franchisee or any of you.  Your obligations under this guaranty shall remain in full force and effect without regard to, and shall not be released, discharged or in any way modified or affected by, any circumstance or condition of Franchisee (whether or not you shall have any knowledge or notice thereof), including, without limitation, bankruptcy, insolvency, reorganization, composition, liquidation or similar proceeding or any action taken by any trustee or receiver or by any court in any such proceeding.

            D.    WAIVERS.  Each of you waives notice of demand, notice of protest, nonpayment or default, and all other notices to which Franchisee or you may be entitled, and all suretyship and guarantor's defenses generally and any and all other notices and legal or equitable defenses to which you may be entitled.  You waive all exemptions to which you may now or hereafter be entitled under the laws of this or any other state or of the United States.  You waive any right that you may have to require that an action be brought against Franchisee or any other payments and claims for reimbursement or subrogation that you may have against Franchisee arising as a result of your execution and performance of this guaranty.

            E.    ASSIGNMENT.  This guaranty is personal to you and the obligations and duties imposed in it may not be delegated or assigned; provided, this guaranty shall be binding upon your successors, assigns, estates and personal representatives.  This guaranty shall inure to our benefit, and the benefit of our affiliates, successors and assigns.

            F.    ENFORCEMENT.  If any one or more provisions in this guaranty shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof and this guaranty shall be construed to bind you to the maximum extent permitted by law that is subsumed within the terms of such provision as though it were separately articulated herein.

                                          35

       4.   COVENANT NOT TO TRANSFER INTERESTS.  The Agreements, and your rights and obligations under them, are and shall remain personal to you.  Any proposed transfer by you (regardless of the form of transfer) shall be subject to the same terms and conditions contained in the Franchise Agreement.  As used herein, the term Transfer shall mean any sale, assignment, gift, pledge, mortgage or any other encumbrance, transfer by bankruptcy, transfer by judicial order, merger, consolidation, share exchange, transfer by operation of law or otherwise, whether direct or indirect, voluntary or involuntary, of the Agreements or any interest in any of them or any rights or obligations arising under them, or of any material portion of the business assets, or of any interest in the Franchisee.  Each of you agree and covenant that you will not at any time during which Franchisee is a Buffalo Wild Wings/bw-3 franchisee and/or developer, directly or indirectly, voluntarily or involuntarily, make any Transfer, unless you first obtain our written approval in compliance with the same provisions applicable to a transfer by you as set forth in the Agreements. You shall cause all stock certificates (or other documents evidencing an interest or right to acquire an interest) issued by Franchisee to bear a legend indicating that such stock (or other documents) is subject to the restrictions provided for in the applicable Agreement.

       5.   MISCELLANEOUS.

            A.    CAPITALIZED TERMS.  For purposes of this Agreement, all capitalized terms shall have the same meaning as those terms are defined in the Franchise Agreement.

            B.    DISPUTES.  Disputes under this Agreement shall be resolved in the same manner as provided under the Franchise Agreement.  You expressly acknowledge that the provisions of the Franchise Agreement pertaining to mediation, venue, applicable law, time periods and limitations govern any disputes between us and you.

       IN WITNESS WHEREOF, each of you have signed this Agreement on the date set forth opposite your signature.

Signature:                                      Date:           --------------------------                 -------------------





Name:      ------------------------------- Address:         ----------------------------

- ------------------------------------

- ------------------------------------ Percentage Interest:                     ----------

Signature:                                      Date:           --------------------------                 ------------------- Name:      ------------------------------- Address:         ----------------------------

- ------------------------------------

- ------------------------------------ Percentage Interest:                     ----------

Signature:                                      Date:           --------------------------                 ------------------- Name:      ------------------------------- Address:         ----------------------------

- ------------------------------------

- ------------------------------------ Percentage Interest:                     ---------- Signature:                                      Date:           --------------------------                 -------------------

                                          36

Name:      ------------------------------- Address:         ----------------------------

- ------------------------------------

- ------------------------------------ Percentage Interest:                     ----------

Signature:                                      Date:           --------------------------                 ------------------- Name:      ------------------------------- Address:         ----------------------------

- ------------------------------------

- ------------------------------------ Percentage Interest:                     ----------

TO BE COMPLETED IF MANAGER IS NOT AN OWNER.

I represent and acknowledge that I am the Manager of a Restaurant and that I agree to be bound by the provisions of Section 2 of this Agreement.

MANAGER

Signature:                                      Date:           --------------------------                 ------------------- Name:      ------------------------------- Address:         ----------------------------

- ------------------------------------

- ------------------------------------

                                          37

                                     EXHIBIT B





                           DESCRIPTION OF DESIGNATED AREA

FRANCHISOR:                               FRANCHISEE:

BW-3 FRANCHISE SYSTEMS, INC.                                           ------------------------------------

By                                        By   ----------------------------------        ----------------------------------

   Its                                       Its        -----------------------------            ------------------------------

                                          By                                             ----------------------------------

                                             Its                                                 ------------------------------

                                          38

                                     EXHIBIT C                                  ADDENDUM TO LEASE

       THIS ADDENDUM TO LEASE, dated ______________, 199__, is entered into by and between _______________________(Lessor), and __________________________ (Lessee).

       RECITALS:

       A.   The parties hereto have entered into a certain Lease Agreement, dated _____________, 199__, and pertaining to the premises located at _________ __________________________________ (the Lease).

       B.   Lessor acknowledges that Lessee intends to operate a Restaurant from the leased premises (the Premises) pursuant to a Franchise Agreement (the Franchise Agreement) with bw-3 Franchise Systems, Inc. (bw-3) under the name Buffalo Wild Wings or other name designated by bw-3 (Franchised Restaurant).

       C.   The parties now desire to amend the Lease in accordance with the terms and conditions contained herein.

       AGREEMENT:

       NOW, THEREFORE, it is hereby mutually covenanted and agreed between Lessor and Lessee as follows:

       1.   REMODELING AND DECOR.  Lessor agrees that Lessee shall have the right to remodel, equip, paint and decorate the interior of the Premises and to display such proprietary marks and signs on the interior and exterior of the Premises as Lessee is reasonably required to do pursuant to the Franchise Agreement and any successor Franchise Agreement under which Lessee may operate a Franchised Restaurant on the Premises.

       2.   ASSIGNMENT.  Lessee shall have the right to assign all of its right, title and interest in the Lease to bw-3 or any affiliate of bw-3 at any time during the term of the Lease, including any extensions or renewals thereof, without first obtaining Lessor's consent.  However, no assignment shall be effective until such time as bw-3 or its designated affiliate gives Lessor written notice of its acceptance of such assignment, and nothing contained herein or in any other document shall constitute bw-3 or its designated affiliate a party to the Lease, or  guarantor thereof, and shall not create any liability or obligation of bw-3 or any affiliate of bw-3 unless and until the Lease is assigned to, and accepted in writing by, bw-3 or its designated affiliate.  In the event of an assignment, Lessee shall remain liable under the terms of the Lease.

       3.   DEFAULT AND NOTICE.

            (a)   In the event there is a default or violation by Lessee under        the terms of the Lease, Lessor shall give Lessee and bw-3 written notice        of such default or violation within a reasonable time after Lessor        receives knowledge of its occurrence.  bw-3 will notify Lessor whether it        intends to cure the default and take an automatic assignment of Lessee's        interest as provided in Paragraph 4(a).  bw-3 will have an additional        fifteen (15) days in which to cure the default or violation.

            (b)   All notices to bw-3 shall be sent by registered or certified        mail, postage prepaid, to the following address:

                  bw-3 Franchise Systems, Inc.                   1919 Interchange Tower                   600 South Highway 169                   Minneapolis, MN 55426





                                          39

                  Attention: Chief Financial Officer bw-3 may change its address for receiving notices by giving Lessor written notice of such new address.  Lessor agrees that it will notify both Lessee and bw-3 of any change in Lessor's mailing address to which notices should be sent.

       4.   TERMINATION OR EXPIRATION.

            (a)   Upon the expiration or termination of either the Lease or the        Franchise Agreement, bw-3 will, at its option, have the right (but not        the requirement) to take an automatic assignment of Lessee's interest.

            (b)   Upon the expiration or termination of either the Lease or the        Franchise Agreement, Landlord will cooperate with and assist us in        gaining possession of premises and if bw-3 does not elect to take an        assignment of the Lessee's interest, Lessor will allow bw-3 to enter the        Premises, without being guilty of trespass and without incurring any        liability to Lessor, to remove all signs, awnings, and all other items        identifying the Premises as a Franchised Restaurant and to make such        other modifications (such as repainting) as are reasonably necessary to        protect the bw-3 marks and system, and to distinguish the Premises from        Franchised Restaurants.  In the event bw-3 exercises its option to        purchase assets of Lessee, Lessor shall permit bw-3 to remove all such        assets being purchased by bw-3.

       5.   CONSIDERATION; NO LIABILITY.

            (a)   Lessor hereby acknowledges that the provisions of this        Addendum to Lease are required pursuant to the Franchise Agreement under        which Lessee plans to operate its business and the Lessee would not lease        the Premises without this Addendum.

            (b)   Lessor further acknowledges that Lessee is not an agent or        employee of bw-3 and the Lessee has no authority or power to act for, or        to create any liability on behalf of, or to in any way bind bw-3 or any        affiliate of bw-3, and that Lessor has entered into this Addendum to        Lease with full understanding that it creates no duties, obligations or        liabilities of or against bw-3 or any affiliate of bw-3.

       6.   SALES REPORTS.  If requested by bw-3, Lessor will provide bw-3 with whatever information Lessor has regarding Lessee's sales from the Restaurant.

       7.   AMENDMENTS.  No amendment or variation of the terms of this Addendum to the Lease shall be valid unless made in writing and signed by the parties hereto.

       8.   REAFFIRMATION OF LEASE.  Except as amended or modified herein, all of the terms, conditions and covenants of the Lease shall remain in full force and effect and are incorporated herein by reference and made a part hereof as though copied herein in full.

       9.   BENEFICIARY.  Lessor and Lessee expressly agree that bw-3 is a third party beneficiary of this Addendum.

                                          40

       IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first written above.

                              ------------------------------------------

                              By:                                      -----------------------------------                               Title:                                      -----------------------------------                                                 (Lessor)

                              ------------------------------------------

                              By:                                      -----------------------------------                               Title:                                      -----------------------------------                                                 (Lessee)

                                          41 
Question: Highlight the parts (if any) of this contract related to Third Party Beneficiary that should be reviewed by a lawyer. Details: Is there a non-contracting party who is a beneficiary to some or all of the clauses in the contract and therefore can enforce its rights against a contracting party?
Example Output: 9025

Example Input: Exhibit 10.10   ASIA PACIFIC CABLE NETWORK 2     CONSTRUCTION AND MAINTENANCE   AGREEMENT     Singapore   April 18th, 2000





  TABLE OF CONTENTS   PARAGRAPH

    1 Definitions and Interpretations

      2 APCN 2 Configuration

      3 Establishment of the APCN 2 Management Committee

      4 Provision, Construction and Ownership of Segments

      5 Definition of APCN 2 Capital Costs

      6 Definition of Operation and Maintenance Costs

      7 Allocation and Billing of APCN 2 Costs

      8 Currency of Payment

      9 Keeping and Inspection of Books for Segment S and T

      10 Duties and Rights as to Operation and Maintenance of Segments

      11 Use of Segment T

      12 Acquisition and Use of Capacity

      13 Expansion of Equipped Capacity

      14 Increase or Decrease of Design Capacity

      15 Obligation to Provide Transiting Facilities to Extend APCN2 Capacity

      16 Obligation to Connect the APCN 2 with Inland Systems

      17 Direct Access to Network Interface and Equal Access to Terminal Station

      18 Duration of Agreement and Realization of Assets

      19 Obtaining of Approvals

      20 Privileges for Documents or Communications

      21 Relationship of Parties

      22 Assignment of Rights and Obligations

      23 Default

  1







  24 Waiver

      25 Compliance with Law

      26 Ratification of Decisions and Actions

      27 Resolution of Disputes

      28 Supplements and Amendments to this Agreement

      29 Execution of Agreement

      30 Successors Bound

      31 Confidentiality

      32 Settlement of Claims by Parties

      33 Force Majeure

      34 Severability

      35 Entire Agreement



Testamonium

  2





  SCHEDULES   Schedule A Parties to the Agreement     Schedule B Investment Shares, Ownership Interest, Voting Interests, and Allocation of Capital Cost and O&M Costs     Schedule C Capacity Allocation and Interest in Unallocated Capacity     Schedule D Sales of IRU Capacity         ANNEXES

    Annex 1 Terms of Reference for the Procurement Group     Annex 2 Terms of Reference for the AR&RSC, O&MSC, F&ASC and I&ASC     Annex 3 Terms of Reference for the Network Administrator     Annex 4 Terms of Reference for the Central Billing Party     Annex 5 Configuration of APCN 2     Annex 6 Billing Currency and Source of Rate for Financial Charges     Annex 7 Rules on Use of Capacity     Annex 8 Segment T Facilities and Functions   3





  ASIA PACIFIC CABLE NETWORK 2 CONSTRUCTION & MAINTENANCE AGREEMENT   THIS AGREEMENT, made and entered into this 18th day of April 2000, between and among the Parties signatory hereto (hereinafter collectively called Parties and individually called Party), which Parties are identified in Schedule A,   WITNESSETH:   WHEREAS, digital telecommunications services are being provided in the Asia Pacific Region by means of fiber optic submarine cable and satellite facilities; and   WHEREAS, other digital light-wave submarine cable systems, presently in service in the Asia Pacific Region, have facilitated a rapid growth of new telecommunications requirements designed to take advantage of reliable, secure and economically priced services based on state of the art and available digital technology; and   WHEREAS, it is now apparent that this rapid growth in traffic demand will lead to a greater demand for facilities in the Asia Pacific Region necessitating the construction of additional Asia Pacific fiber optic submarine cable facilities (hereinafter referred to as the Asia Pacific Cable Network 2 or APCN 2); and   WHEREAS, the reliability of telecommunications services and its usefulness to customers requires the availability of the appropriate facilities and technology, including the APCN 2 for diverse routing and instantaneous restoration of services; and   WHEREAS, China Telecom, CWHKTI, Chunghwa Telecom, Korea Telecom, Japan Telecom, NTT Com, KDD Corp., Telekom Malaysia, SingTel, and Telstra, (the MOU Parties) signed a Memorandum of Understanding to plan the APCN 2 effective from 16th June 1999 (hereinafter referred to as the MOU) to permit activities, as defined in the MOU; and   WHEREAS, the First Supplemental MOU, the Second Supplemental MOU, the Third Supplemental MOU and the Fourth Supplemental MOU were effective from October 5, 1999, October 6, 1999, February 29, 2000 and April 4, 2000 respectively; and   WHEREAS, the MOU and the Supplemental MOUs are hereinafter collectively called the MOU; and   WHEREAS, the MOU states that it shall continue in force until the signing, by the Parties, of the APCN 2 Construction and Maintenance Agreement; and   WHEREAS, the Parties now desire to construct the APCN 2 as a fully integrated Asia Pacific network comprised of 4 fully restorable fiber optic pairs; and   WHEREAS, the Parties now desire to define the terms and conditions upon which the APCN 2 will be provided, constructed, operated and maintained.   4





  NOW, THEREFORE, the Parties hereto, in consideration of the mutual covenants herein expressed, covenant and agree with each other as follows:   1. DEFINITIONS AND INTERPRETATIONS   1.1 The following definitions and interpretations shall apply to certain terms used in this Agreement:   (a) Affiliate: A company is the Affiliate of another if either company owns directly or indirectly less than 50% but no less than 10% of its equity.   (b) Branching Unit (BU): Equipment that permits interconnection between 3 cable Segments and provides the optical fiber and power conductor between 3 cable Segments.   (c) Cable Landing Point: Cable Landing Point shall be the beach joint or the mean low watermark of ordinary spring tides if there is no beach joint.   (d) Capacity Types shall be categorized as follows:   Allocated Capacity - capacity allocated in the APCN 2 to a Party in return for its financial investment.       Design Capacity - the maximum capacity that the APCN 2 is designed to provide which shall be no less than 2.5 Tbit/s.

      Equipped Capacity - the amount of capacity physically provided in the APCN 2 at any one time.       Initial Equipped Capacity - Initial Equipped Capacity of the APCN 2 shall be at least 80Gbit/s.       IRU Capacity - capacity acquired after execution of this Agreement on an IRU basis from the Unallocated Capacity.

      Unallocated Capacity - the difference in capacity between the Equipped Capacity and the Allocated Capacity.

  (e) Carrier: Any entity authorized or permitted under the laws of its respective Country, or another Country in which it operates, to acquire and use international transmission facilities for the provision of international telecommunications services and which is in possession of any necessary operating license to enable it to do so.   (f) Country: The word Country as used in this Agreement shall mean a country, territory or place, as appropriate.   5





  (g) Direct Access: The direct connection to the Network Interface of Segment S without going through any other party's equipment.   (h) Initial Parties: The Initial Parties are Advantel, C&W, China Telecom, China Unicom, Concert Ltd, Chunghwa Telecom, CWHKTI, Global One, JT, KDD, KPN, KT, Layer 2, MCIITI, MFN, NCIC, NTT Com, Onelink, PLDT, SingTel, StarHub, Teleglobe, Telstra, TFN, TM and Williams.   (i) IRU: Indefeasible Right of Use which does not convey ownership and voting rights in the management of the APCN 2.   (j) Minimum Investment Unit: A unit designated as the minimum unit of investment in the APCN 2, which is equivalent to one whole STM- 1 ring, allowing the use of two (2) half STM-1 ring circuits on any Path within the APCN 2. The Minimum Investment Unit is hereinafter termed as a MIU.   (k) Network Interface: The nominal STM-l digital/optical input/output ports, and/or STM-4, STM-16 and STM-64 on the digital/optical distribution frame (including the digital/optical distribution frame itself).   (l) Parent Company: A company that owns directly or indirectly no less than 50% of equity of a company.   (m) Path: The connectivity in the APCN 2 between any two Network Interfaces which is independent of the actual physical links used to connect these Network Interfaces.   (n) Provisional Acceptance: The issuance of a certificate of Provisional Acceptance shall be that of Segment S pursuant to the terms and conditions set forth in the Supply Contract.   (o) Ready For Provisional Acceptance Date: The date on which the entire Wet Segment of the APCN 2 is provisionally accepted by the Procurement Group on behalf of the Parties. The Ready for Provisional Acceptance Date (hereinafter referred to as the RFPA Date) shall be 31st August 2001, or such other date as may be agreed by the Management Committee.   (p) Ready for Service Date: The date on which commercial service can be placed on the entire APCN 2. For the purposes of this Agreement, the Ready For Service Date (hereinafter referred to as the RFS Date) shall be 30th September 2001, or such other date as may be agreed by the Management Committee.   (q) Subsidiary: A company that is directly or indirectly owned by a Parent Company holding no less than 50% of its equity.   6





  (r) Supply Contract: The contracts placed by the Procurement Group on behalf of the Parties for the supply of the Wet Segment of the APCN 2.   (s) Terminal Parties: The Terminal Parties are China Telecom, CWHKTI, Chunghwa Telecom, KDD, Korea Telecom, NTT Com, PLDT, SingTel, and Telekom Malaysia.   (t) Wet Segment: For the purposes of this Agreement, Segments S1, S2, S3, S4, S5, S6, S7, and S8 as defined below are collectively called the Wet Segment.   1.2 Schedules and Annexes   The Schedules and Annexes to this Agreement, and any written amendments thereto or any Schedules or Annexes substituted therefore, shall form part of this Agreement, and any Paragraph which contains a reference to a Schedule or Annex shall be read as if the Schedule or Annex was set out at length in the body of the Paragraph itself. In the event that there is any conflict between the terms and conditions of this Agreement and the Schedules and Annexes to this Agreement, the terms and conditions of this Agreement shall prevail.   1.3 Paragraph headings   The headings of the paragraphs are inserted for convenience and do not form part of this Agreement and shall not have any effect on the interpretation thereof.   1.4 Interpretation   Where the sense requires, words denoting the singular only shall also include the plural and vice versa. References to persons shall include firms and companies and vice versa. Reference to the male shall include the female.   2. APCN 2 CONFIGURATION   2.1 The configuration of APCN 2 shall be as shown in Annex 5, which shall be regarded as consisting of a terrestrial section (hereinafter called Segment T) and a submarine section (herein called Segment S or the Wet Segment).   2.2 Segment T shall be regarded as comprising of the following Segments:   Segment T1: A Terminal Station at Katong   Segment T2: A Terminal Station at Kuantan   Segment T3: A Terminal Station at Lantau   Segment T4: A Terminal Station at Chongming   7





  Segment T5: A Terminal Station at Pusan   Segment T6: A Terminal Station at Kitaibaraki   Segment T7: A Terminal Station at Chikura   Segment T8: A Terminal Station at Tanshui   Segment T9: A Terminal Station at Shantou   Segment T10: A Terminal Station at Batangas   2.3 Segments T1, T2, T3, T4, T5, T6, T7, T8, T9 and T10 shall each consist of:   (i) an appropriate share of land and buildings at the specified locations for the cable landing, Terminal Station and for the cable route including cable rights-of-way and ducts or conduits between the Terminal Station and its respective Cable Landing Point, and an appropriate share of common services and equipment at each of those locations together with equipment in each of those Terminal Stations and at a remote location as necessary which is solely associated with the APCN 2, but not part of the Wet Segment; and   (ii) An appropriate share of the test equipment.   2.4 Segment S shall be regarded as comprising of the following Segments:   Segment S1: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Katong; and the Network Interface at the Terminal Station at Kuantan.   Segment S2: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Kuantan; and the Network Interface at the Terminal Station at Lantau.   Segment S3: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Lantau; and the Network Interface at the Terminal Station at Chongming.   Segment S4: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Chongming; and the Network Interface at the Terminal Station at Pusan; and the Network Interface at the Terminal Station at Kitaibaraki.   8





  Segment S4A:

The whole of the submarine cable containing four (4) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Chongming and BU1.       Segment S4B:

The whole of the submarine cable containing two (2) optical fiber pairs provided between BU1 and BU2.       Segment S4C:

The whole of the submarine cable containing four (4) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Kitaibaraki and BU2.       Segment S4W:

The whole of the submarine cable containing two (2) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Pusan and BU1.       Segment S4E:

The whole of the submarine cable containing two (2) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Pusan and BU2.   Segment S5: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Kitaibaraki; and the Network Interface at the Terminal Station at Chikura.   Segment S6: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Chikura; and the Network Interface at the Terminal Station at Tanshui.   Segment S7: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Tanshui; and the Network Interface at the Terminal Station at Shantou.   Segment S8: The whole of the submarine cable containing four (4) optical fiber pairs provided between and including the Network Interface at the Terminal Station at Shantou; and the Network Interface at the Terminal Station at Batangas; and the Network Interface at the Terminal Station at Katong.   9





  Segment S8A:

The whole of the submarine cable containing four (4) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Shantou and BU3.       Segment S8B:

The whole of the submarine cable containing two (2) optical fiber pairs provided between BU3 and BU4.       Segment S8C:

The whole of the submarine cable containing four (4) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Katong and BU4.       Segment S8N:

The whole of the submarine cable containing two (2) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Batangas and BU3.       Segment S8S:

The whole of the submarine cable containing two (2) optical fiber pairs, provided between and including the Network Interface at the Terminal Station at Batangas and BU4.   2.5 Segment S shall include:   (i) all transmission, power feeding, system management, Network Protection Equipment and test equipment directly associated with, and required to operate and maintain the submersible plant including, where applicable, a remote control and supervisory equipment;   (ii) the power equipment provided wholly for use with the equipment listed in (i) above;   (iii) the transmission cable equipped with appropriate optical amplifiers, BUs, and joint housings between the applicable Terminal Stations:   (iv) the sea earth cable and electrode system and/or the land earth system, or an appropriate share thereof, associated with the terminal power feeding equipment in the respective Terminal Stations; and   (v) terminal equipment, including Network Interface for STM-1, STM-4, STM-16 and STM-64 levels, in each of the Terminal Stations.   2.6 In this Agreement, references to any Segment, however expressed, shall be deemed to include, unless the context otherwise requires, additional property incorporated therein by agreement of the Management Committee. Each Segment shall be regarded as including   10





  its related spare and standby units and components, including, but not limited to, optical amplifiers, BUs, cable lengths, and terminal equipment.   11





  3. ESTABLISHMENT OF THE APCN 2 MANAGEMENT COMMITTEE   3.1 The Parties shall form an APCN 2 Management Committee (hereinafter referred to as the Management Committee), for the purpose of directing the progress of engineering, provision, installation, bringing into service and continued operation of the APCN 2, consisting of one representative of each of the Parties to this Agreement. The Management Committee shall make all major decisions necessary to effectuate the purposes of this Agreement.   3.2 Two or more Parties may designate the same Party to serve as their representative at specific meetings of the Management Committee and/or its Subcommittees established pursuant to Subparagraph 3.7 of this Agreement.   3.3 Each of the Initial Parties shall, on a rotational basis, provide the Chairman of the Management Committee which will meet on the call of a Chairman or whenever requested by one or more Parties together representing at least five per cent (5%) of the total voting interests specified in Schedule B. The Chairman shall give at least thirty (30) days' advance notice of each meeting, together with a copy of the draft agenda. In cases of emergency, such notice period may be reduced where at least seventy-five (75) percent of the total voting interests are in agreement. Documents for the meeting should be made available to members at least fourteen (14) days before the meeting, but the Management Committee may agree to discuss papers distributed on less than fourteen (14) days' notice.   3.4 The Management Committee shall make every reasonable effort to reach agreement with respect to matters to be decided. Unless otherwise provided for in this Agreement, in the event an agreement cannot be reached, the decision will be carried on the basis of simple majority of the total voting interests specified in Schedule B, which must include a simple majority of the voting interests of the Terminal Parties and a simple majority of the voting interests of the non-Terminal Parties. A member of the Management Committee representing more than one Party shall separately cast the votes to which each Party he represents is entitled.   3.5 Any Party not represented at a Management Committee meeting, but entitled to vote, may vote on any matter on the agenda of such a meeting by either appointing a proxy in writing or giving notice of such vote to the Chairman prior to the submission of such matters for vote at such meetings.   3.6 No decisions of the Management Committee, its Subcommittees or any other groups established by the Management Committee shall override any provisions of this Agreement or in any way diminish the rights or prejudice the interests granted to any Party under this Agreement.   3.7 To aid the Management Committee in the performance of its duties, the following Subcommittees shall be formed, and said Subcommittees, under the direction of the   12





  Management Committee, shall be responsible for their respective areas of interest listed in Annex 2 and any other areas of interest designated by the Management Committee:   (i) Investment and Agreement Subcommittee (hereinafter referred to as I&ASC)   (ii) Financial and Administrative Subcommittee (hereinafter referred to as F&ASC)   (iii) Operations and Maintenance Subcommittee (hereinafter referred to as O&MSC)   (iv) Assignments, Routing, and Restoration Subcommittee (hereinafter referred to as AR&RSC)   3.8 The Management Committee shall form a Procurement Group (hereinafter referred to as PG), consisting of representatives from each of the Initial Parties. This group shall act on behalf of the Parties to this Agreement for the purpose of arranging for the construction, implementation, and installation of the Wet Segment of APCN 2 and be solely responsible for all actions as may be required to contract with the Suppliers to provide the Wet Segment of the APCN 2. The Terms of Reference of the PG are contained in Annex 1.   3.9 The Management Committee may establish such other subcommittees or working groups as it shall determine within its discretion to provide assistance in the performance of its responsibilities. The PG and the Subcommittees shall meet at least once annually after the execution date of this Agreement and more frequently if necessary, until two years following the RFS Date and thereafter as may be appropriate. Meetings of the PG and a Subcommittee may be called to consider specific questions at the discretion of its Co-Chairmen whenever requested by one or more Initial Parties.   3.10 The respective Co-Chairmen of each Subcommittee, or a designated representative of each Subcommittee, shall attend the Management Committee meetings and meetings of each other Subcommittee in an advisory capacity as necessary. On or about two (2) years after the RFS Date, the Management Committee shall determine whether any of its Subcommittees should remain in existence. If the Management Committee determines that one or more of its Subcommittees shall not remain in existence, the responsibilities assigned to a Subcommittee whose existence has been terminated under this Subparagraph 3.10 shall revert to the Management Committee unless otherwise provided for in this Agreement.   3.11 The Terms of Reference for the Network Administrator (hereinafter referred to as NA) are as set forth in Annex 3 of this Agreement.   3.12 The Terms of Reference for the Central Billing Party (hereinafter referred to as CBP) are as set forth in Annex 4 of this Agreement. At or after the RFS Date the CBP shall be reappointed or a new CBP appointed from the Parties by an open tendering process.   3.13 The Terms of Reference of all Subcommittees, the NA, the CBP and the PG established pursuant to this Paragraph 3 shall be amended by the Management Committee as and when as it is necessary.   13





  4. PROVISION, CONSTRUCTION AND OWNERSHIP OF SEGMENTS   4.1 The following Parties shall own, provide and agree to act as the Terminal Parties for the following Segments;   SEGMENT

TERMINAL PARTY       T1

SingTel T2

TM T3

CWHKTI T4

China Telecom T5

KT T6

NTT Com T7

KDD T8

Chunghwa Telecom T9

China Telecom T10

PLDT   4.2 The Terminal Parties shall make available to the other Parties hereto any reasonable information requested by the Parties relating to the engineering, provision, construction, or installation of Segment T in a timely manner. The various Segment T shall be provided in sufficient time to permit APCN 2 to be placed into operation by the RFS Date.   4.3 Ownership of the Wet Segment shall be as shown in Schedule B to this Agreement. The Wet Segment of APCN 2 shall be owned by the Parties in common and undivided shares.   4.4 The provision of the Wet Segment shall be through a Supply Contract to be placed by the PG with Suppliers subject to approval by the Management Committee.   4.5 Each of the Parties shall be entitled, on request and at its own expense, to receive from the PG a copy of the Supply Contract subject to the acceptance by each such Party of any reasonable conditions of confidentiality imposed by the Supply Contract. 4.6 The PG shall ensure that the Supply Contract specifies that the Wet Segment is to be provided by the RFPA Date.   4.7 The PG shall ensure that the Supply Contract shall afford them or their designated representatives reasonable rights of access to examine, test, and inspect the APCN 2 cable equipment, material, supplies and installation activities.   4.8 In the event that the Wet Segment fails to meet the specifications referred to in the Supply Contract for its provision, fails to provide the specified capacity, or is not engineered, provided, installed and ready in sufficient time to meet the RFPA Date as specified in the Supply Contract, or if the Suppliers are otherwise in material breach of the Supply Contract, the PG may, pursuant to this Paragraph 4 and in accordance with the Supply Contract, take such actions as may be necessary to exercise the rights and   14





  remedies available under the terms and conditions of the Supply Contract. Such actions by the PG shall be subject to any direction deemed necessary by the Management Committee.   4.9 The members of the PG shall not be liable to any other Party or to each other for any loss or damage sustained by reason of a Supplier's failure to perform in accordance with the terms and conditions of its Supply Contract, or as a result of APCN 2 not meeting the RFPA Date as specified in the Supply Contract, or if APCN 2 does not perform in accordance with the technical specifications and other requirements of the Supply Contract, or APCN 2 is not integrated or placed into operation. The Parties recognize and agree that the PG does not make any representations or warranties, including, but not limited to, any representation or warranty regarding:   (i) the performance of the Supply Contract by the Supplier   (ii) the performance or reliability of the Wet Segment, or   (iii) that APCN 2 shall be integrated or placed into operation and the Parties hereby agree that nothing in this Agreement shall be construed as such a warranty or guarantee.   5. DEFINITION OF APCN 2 CAPITAL COSTS   5.1 The capital costs (herein referred to as the Capital Costs) are the costs incurred in connection with the engineering, provision, construction and installation of Segment S and Segment T, or causing them to be engineered, provided, constructed and installed and shall include:   (a) appropriate costs, including appropriate financial charges, incurred under the MOU in respect of specific activities such as desk top surveys and meeting expenses that are reasonably related to the construction of the APCN 2;   (b) those costs payable to the Supplier(s) under the Supply Contract attributable to the Wet Segment;   (c) the fixed costs and the additional Capital Costs to be reimbursed to the Terminal Parties for the provision of the Terminal Stations in accordance with the costs schedule and scope of work given in Annex 8;   (d) those costs directly incurred by the Initial Parties which shall be fair and reasonable in amount and not included in the Supply Contract and which have been directly and reasonably incurred solely for the purpose of, or to be properly chargeable in respect of, such engineering, provision, construction, installation and laying of the Wet Segment, including but not limited to, the costs of engineering, design, materials, manufacturing, procurement and inspection, installation, removing (with appropriate reduction for salvage), cable ship and other ship costs, burying, fisherman's compensation including reasonable related   15





  expenses, testing associated with laying or installation, customs duties, taxes (except income tax imposed upon the net income of a Party), appropriate financial charges, supervision, billing activities, overheads and insurance of or a reasonable allowance in lieu of insurance if such Party elects to carry a risk itself, being a risk which is similar to one against which a supplier has insured or against which insurance is usual or recognized or would have been reasonable;   (e) those fees payable to the NA, up to the RFS Date, in fulfilling its responsibilities as set forth in Annex 3;   (1) those fees payable to the CBP, up to the RFS Date, in fulfilling its responsibilities as set forth in Annex 4;   (g) those costs incurred, up to the RFS Date, by the custodians of the original, amendments and supplements to this Agreement, for distributing certified photocopies of this Agreement and/or amendments or supplements to the Parties to this Agreement;   (h) those costs reasonably incurred (as approved by the Management Committee) by the Parties, up to the RFS Date, hereto in the holding of' the meetings of the PG and I&ASC;   (i) those costs reasonably incurred (as approved by the Management Committee) by the Parties, up to the RFS Date, hereto in the hosting of the meetings of the Management Committee and its Subcommittees; and   (j) the costs associated with any additional work or property incorporated into the Segment S or Segment T subsequent to the RFS Date by agreement of the Management Committee.   5.2 For purposes of this Agreement, the cost of the repair or replacement of any part of the APCN 2 in the event of damage or loss arising during construction, laying, burying installing and the bringing into operation of the APCN 2, which is attributable under the Supply Contract to the Parties, shall be regarded as part of the Capital Costs.   5.3 Any of the Parties may at its own expense insure against risks so far as its own share of such costs is concerned. Should the Parties jointly agree to insure against risks, the costs of such insurance shall form part of the Capital Costs, as approved by the Management Committee.   16





  6. DEFINITION OF OPERATION AND MAINTENANCE COSTS   The costs associated with the operation and maintenance duties (herein called the O&M Costs) are the costs reasonably incurred in the operation and maintenance of Segment S and Segment T including, but not limited to:   (a) the cost of attendance, testing, adjustments, repairs and replacements, cable ships, (including standby costs), cable depots, maintenance and repair devices that are or may hereafter become available, customs duties, taxes, (except income tax imposed on the net income of a Party) paid in respect of such facilities, billing activities, financial charges attributable to other Parties, shares of costs incurred by a Terminal Parties, supervision, overheads and costs and expenses reasonably incurred on account of claims made by or against other persons in respect of such facilities or any part thereof and damages or compensation payable by the Parties concerned on account of such claims;   (b) those costs incurred by the Terminal Parties, including additions thereto, with respect to the operation and maintenance of their respective Terminal Stations, allocable to the APCN 2. Where the use of a Terminal Station or of certain equipment situated therein, such as power supply or testing and maintenance equipment, is shared, by agreement of the Parties, by the APCN 2 and other communications systems terminating at that Terminal Station, the costs of operation and maintenance of such shared Terminal Station or equipment (not solely attributable to a particular communication system or systems) will be allocated among the systems involved in the proportions in which they use the shared equipment or facility. For such purposes, the Management Committee shall approve the method for determining the portion of a shared Terminal Station allocable to the APCN 2. Costs as used in this Paragraph 6 with reference to each of the Terminal Stations shall include costs reasonably incurred in operation and maintenance of the facilities involved, including, but not limited to, the cost of attendance, testing, adjustments, repairs and replacements, customs duties, taxes (except income tax imposed upon the net income of a Party) paid in respect of such facilities, billing activities, administrative costs, financial charges, and costs and expenses reasonably incurred on account of claims made by or against other persons in respect of such facilities or any part thereof and damages or compensation payable by the Terminal Station owner on account of such claims;   (c) those fees payable to the NA, after the RFS Date, in fulfilling its responsibilities as set forth in Annex 3;   (d) those fees payable to the CBP after the RFS Date, in fulfilling its responsibilities as set forth in Annex 4;   17





  (e) those costs reasonably incurred (as approved by the Management Committee) by the Parties, after the RFS Date, hereto in the holding of the meetings of the PG and the I&ASC; and   (f) those costs reasonably incurred (as approved by the Management Committee) by the Parties, after the RFS Date, hereto in the hosting of the meetings of the Management Committee and its Subcommittees.   7. ALLOCATION AND BILLING OF APCN 2 COSTS   7.1 The APCN2 Capital Costs as defined in Paragraph 5 shall be borne by the Parties in the proportions set forth in Schedule B.   7.2 The O&M Costs as defined in Paragraph 6 shall be borne by the Parties in the proportions set forth in Schedule B.   7.3 The Terminal Parties shall each render invoices to the CBP for any O&M Costs incurred as outlined in Paragraph 6 not more frequently than quarterly and by the tenth (10th) day of the appropriate month in accordance with procedures to be established by the F&ASC and approved by the Management Committee. The Party rendering an invoice shall furnish such further details of such invoice as the other Parties may reasonably require. On the basis of such invoices, the CBP shall pay such amounts as may be owed sixty (60) days from the 10th calendar day of the month in which the invoice was rendered or on the following working day if day sixty (60) is not a working day in the CBP's Country.   7.4 The Terminal Parties shall each render invoices to the CBP for any Capital Costs incurred as outlined in Paragraph 5 (except Terminal Station cost) not more frequently than quarterly and by the tenth (10th) day of the appropriate month in accordance with procedures to be established by the F&ASC and approved by the Management Committee. The Party rendering an invoice shall furnish such further details of such invoice as the other Parties may reasonably require. On the basis of such invoices, the CBP shall pay such amounts as may be owed sixty (60) days from the 10th calendar day of the month in which the invoice was rendered or on the following working day if day sixty (60) is not a working day in the CBP's Country.   7.5 Unless the Management Committee authorizes changes to the procedure for the rendering of bills associated with the Capital Costs or O&M Costs, the CBP shall promptly render bills, in accordance with this Paragraph 7 and the billing and payment procedures established by the F&ASC and approved by the Management Committee, to each of the Parties for such Parties' pro rata shares of these costs. Such bills shall be rendered by the CBP not more frequently than quarterly and shall contain a reasonable amount of detail to substantiate them. On the basis of such bills, each Party shall pay the CBP, such amounts as may be owed by the end of the calendar month following the calendar month in which the bill was rendered, on the date specified by the CBP.   18





  7.6 In the case of bills containing costs billed on a preliminary billing basis, appropriate adjustments will be made in subsequent bills promptly after the actual costs involved are determined. As soon as practicable the CBP shall make such adjustments and render such bills or arrange for such credits as appropriate due to changes in the cost actually incurred.   7.7 As soon as practicable after the RFS Date, the amount of each Party's share of the Capital Costs shall be computed by the CBP who shall make appropriate adjustments and render any necessary bills or arrange for any necessary refunds by way of final settlement in order that each Party may bear its proper share of the costs as provided in this Paragraph 7.   7.8 For purposes of this Agreement, financial charges shall be computed as applicable on a daily basis from the date payment is incurred until the date payment is due, at a rate equal to the lowest publicly announced prime rate or minimum commercial lending rate, however described, for 90 day loans in the currencies of the Initial Parties or the currency of billing, as applicable, charged by established commercial banks in the countries concerned on the fifteenth day of the month in which the costs were incurred by the invoicing Parties. If such a day is not a business day, the rate prevailing on the next business day shall be used. The source of the rate of such financial charges shall be as shown at Annex 6. The application of financial charges relating to costs incurred for the APCN 2 Capital Costs and O&M Costs shall be limited to a maximum of 120 days, unless otherwise approved by the Management Committee.   7.9 Amounts billed and not paid when due shall accrue extended payment charges from the day following the date on which payment was due until paid. If the due date is not a business day, the due date shall be postponed to the next business day. For the purpose of this Agreement, extended payment charges shall be computed at three hundred percent (300%) of the rate described in Subparagraph 7.8 on the day following the date payment on the bill was due. In the event that applicable law does not allow the imposition of extended payment charges at the rate established in accordance with this Subparagraph 7.9, extended payment charges shall be at the highest rate permitted by applicable law, which in no event shall be higher than the rate computed in accordance with this Subparagraph 7.9. For purposes of this Agreement, paid shall mean that the funds are immediately available for use by the recipient.   7.10 Credits for refunds of financial charges and bills for extended payment charges shall not be rendered if the amount of charges involved is less than the equivalent of one hundred ($100) US dollars or its equivalent in the billing currency.   7.11 A bill shall be deemed to have been accepted by the Party to whom it is rendered if that Party does not present a written objection on or before the date when payment is due. If such objection is made, the Parties concerned shall make every reasonable effort to settle promptly the dispute concerning the bill in question. If the objection is sustained and the billed Party has paid the disputed bill, the agreed upon overpayment shall be promptly refunded to the objecting Party by the invoicing Party together with any financial charges   19





  calculated thereon at a rate determined in accordance with Subparagraph 7.8 of this Agreement from the date of payment of the bill to the date on which the refund is transmitted to the objecting Party. If the objection is not sustained and the billed Party has not paid the disputed bill, said Party will pay such bill promptly together with any extended payment charges calculated thereon at a rate determined in accordance with Subparagraph 7.9 of this Agreement from the day following the day on which payment was due until paid. Nothing in this Subparagraph 7.11 shall relieve a Party from paying those parts of a bill that are not in dispute.   7.12 Upon the signing of this Agreement, the CBP shall render bills to the Parties for approximately five percent (5%) of their financial commitment in APCN2 as determined by Schedule B. The exact amount of the bills and the billing procedure shall be determined by the Management Committee. The funds received by the CBP from these bills shall be kept in an interest bearing account for the benefit of the Parties to be maintained by the CBP and the used solely and in their entirety to pay the first invoices received by the CBP.   8. CURRENCY OF PAYMENT   All invoices rendered to the CBP shall be in the currency of the United States, or in the currency of the invoicing Party which is specified in Annex 6 or the currency in which the cost was incurred in the case of O&M Costs. Such invoices shall be paid in the currency in which the invoices are rendered. The CBP shall render bills to the Parties in the currency of the United States and be paid in the same currency. In conjunction with the CBP, the F&ASC shall develop procedures to deal with the differences between the exchange rates in the circumstances when the currency of invoices rendered to the CBP is not the currency of the United States.   9. KEEPING AND INSPECTION OF BOOKS FOR SEGMENT S AND T   9.1 For those portions of the Wet Segment, if any, specified in the Supply Contract as cost incurred items, the PG shall ensure that the Supply Contract requires the Supplier to keep and maintain such books, records, vouchers and accounts of all such costs with respect to the engineering, provision and installation of those items for a period of five (5) years from the RFPA Date of the Wet Segment, as specified in the Supply Contract.   9.2 For those portions of the Wet Segment specified in the Supply Contract as fixed cost items, the PG shall ensure that the Supply Contract requires the Supplier to keep and maintain records with respect to their respective billing of those items for a period of five (5) years from the RFPA Date of the Wet Segment, as specified in the Supply Contract.   9.3 The PG shall ensure that the Supply Contract requires the Supplier to obtain from their contractors and subcontractors such supporting records, for other than the cost of fixed cost items, as may be reasonably required by Subparagraph 9.1 and to keep and maintain such records for a period of five (5) years from the RFPA Date of the Wet Segment, as specified in the Supply Contract.   20





  9.4 The PG shall ensure that the Supply Contract shall afford the Parties to this Agreement the right to review the books, records, vouchers, and accounts required to be kept, maintained, and obtained pursuant to Subparagraphs 9.1, 9.2 and 9.3.   9.5 With respect to costs incurred for the provision of the Wet Segment by a Party, comparable records to those specified in Subparagraphs 9.l, 9.2 and 9.3 as appropriate, shall be maintained by the Party for a period of five (5) years from the date that such costs were incurred.   9.6 The PG and the Terminal Parties shall each keep and maintain such books, records, vouchers, and accounts of all costs that are incurred in the engineering, provision and installation of the Wet Segment and Segment T and not included in the Supply Contract, which they incur directly, for a period of five (5) years from the RFS Date or the date the work is completed, whichever is later. The CBP shall keep and maintain such books, records, vouchers and accounts with respect to its billing of costs incurred by the Terminal Parties and any other Party having incurred costs for implementation of APCN 2 as authorized by the Management Committee, and costs billable under the Supply Contract for a period of five (5) years from the System RFS Date or the date on which the work is completed, whichever is later.   9.7 With respect to the operation and maintenance costs of Segments T and the Wet Segment, such books, records, vouchers, and accounts of costs, as are relevant, shall be kept and maintained by the Terminal Parties for a period of five (5) years from the date on which the corresponding bills are rendered to the Parties. If a Terminal Party does not retain these records beyond this period, a summary of important items should be retained for the life of APCN 2.   9.8 Any Party shall have the right to review or audit the relevant books, records, vouchers, and accounts of costs pursuant to this Paragraph 9. In affording the right to review or audit, any such Party whose records are being reviewed or audited shall be permitted to recover, from the Party or Parties requesting the review or audit, the entire costs reasonably incurred in complying with the review or audit. In the case of an audit initiated by the Management Committee and exercised by the F&ASC, the audited Party or Parties shall be permitted to recover the entire costs of the review or audit from the Parties in the proportions specified in Schedule B.   9.9 Any rights of review and audit pursuant to this Paragraph 9 shall only be exercisable through the F&ASC in accordance with the F&ASC's audit procedures.   10. DUTIES AND RIGHTS AS TO OPERATION AND MAINTENANCE OF SEGMENTS   10.1 Each Terminal Party shall be solely responsible for the operation and maintenance of their respective Segment T as identified in Paragraph 4 and that portion of Segment S between the Network Interface at the Terminal Station and their respective Cable   21





  Landing Point. Such Terminal Party shall use all reasonable efforts to maintain or cause to be maintained economically their respective Segment T and such portion of Segment S, in efficient working order.   10.2 The Terminal Parties (for the purposes of this Paragraph 10, collectively called the Maintenance Authorities and each individual called a Maintenance Authority or MA), shall be jointly responsible for the operation and maintenance of the Wet Segment and shall use all reasonable efforts to maintain economically the Wet Segment in efficient working order and with an objective of achieving effective and timely repairs when necessary.   10.3 Prior to the RFS Date the MAs shall submit for review by the O&MSC and approval by the Management Committee appropriate practices and procedures for the continued operation and maintenance of the Wet Segment. The MAs shall each provide information to the O&MSC regarding the practices and procedures for the continued operation and maintenance of their respective Segments. The MAs shall also furnish such budgetary estimates of the cost of such operation and maintenance of the APCN 2 as the Management Committee may reasonably request. Following the RFS Date, the MAs shall provide the O&MSC and the Management Committee with such reports as it may reasonably require on the operation of the APCN 2 including any proposals for planned repair or improvement work, together with appropriately revised budgetary estimates relating to the operation and maintenance of the APCN 2. The O&MSC may review and amend the practices and procedures for the operation and maintenance of the Wet Segment, subject to the approval of the Management Committee. To facilitate in the maintenance of the APCN 2, the MAs may revise the allocation of responsibilities amongst themselves for the Wet Segment between the Cable Landing Points and any such decision shall be subject to the approval of the Management Committee.   10.4 The MAs shall have the right to deactivate the Wet Segment or any part thereof, in order to perform their duties. Prior to such deactivation, reasonable notice shall be given to, and coordination shall be made with, the other Parties hereto. To the extent possible, sixty (60) days prior to initiating action, the MA involved shall advise the other Parties hereto in writing of the timing, scope, and costs of significant planned maintenance operations, of significant changes to existing operations and maintenance methods and of contractual arrangements for cable ships that will have a significant impact on operation or maintenance costs. Should one or more Parties representing at least two- thirds (66.67%) of the total voting interests in accordance with Schedule B, wish to review such an operation or change prior to its occurrence, such Party or Parties shall notify the appropriate Maintenance Authority and a O&MSC Co-Chairman in writing within thirty (30) days of such advice. Upon such notification, the O&MSC shall initiate action to convene an ad hoc meeting for such review.   10.5 Notwithstanding Paragraph 32, each MA shall be authorized to pursue claims in its own name, on behalf of the Parties, in the event of any damage or loss to the APCN 2 and may file appropriate lawsuits or other proceedings on behalf of the Parties. The MA shall immediately inform the Management Committee and comply with any direction   22





  therefrom. Subject to obtaining the prior concurrence of the Management Committee, a MA may settle or compromise any such claims and execute releases and settlement agreements on behalf of the Parties as necessary to effect a settlement or compromise.   10.6 Each Party that has designed or procured equipment used in the APCN 2 shall give necessary information relating to the operation and maintenance of such equipment to the MA responsible for operating and maintaining such equipment, as reflected in this Paragraph 10. Each Maintenance Authority shall have prompt access necessary for the performance of its   10.7 [Missing]   interruption. if the MA responsible, as specified in this Paragraph 10, fails to restore those facilities to efficient working order and operation within a reasonable time after having been called upon to do so by any other Party to whom capacity is assigned by this Agreement, the Management Committee may, to the extent that it is practical to do so, place, or cause to be placed, such facilities in efficient working order and operation and charge the Parties their proportionate shares of the costs reasonably incurred in doing so.   10.8 Each Party to this Agreement, at its own expense, shall have the right to inspect from time to time the operation and maintenance of any portion of the APCN 2 and to obtain copies of the maintenance records. For this purpose, the Maintenance Authority shall retain significant records, for a period of not less than five (5) years from the date of the record. If these records are destroyed at the end of this period, a summary of important items should be retained for the life of the APCN 2.   10.9 The MAs shall be entitled to establish the necessary agreements in respect of the crossings by the Wet Segment of other undersea plant, including but not limited to pipelines, and may sign these agreements on behalf of the Parties after approval by the Management Committee and shall provide the Parties with appropriate copies of these agreements on request.   11. USE OF SEGMENT T   11.1 The Terminal Parties hereby grant to the Parties accessing APCN 2 at their respective terminal station, the right of use in the relevant Segment T (hereinafter referred to as Terminal Station Right of Use) on the terms and conditions stated in this Paragraph 11, to the extent required for the use of its Allocated Capacity, for the purpose of using APCN 2 and carrying on the related activities at that location in accordance with this Agreement. This Terminal Station Right of Use shall commence on the RFS Date and shall continue for the duration of this Agreement.   11.2 In the event that an agreement for another cable system utilizing any Terminal Station of the APCN 2 is terminated prior to the termination of this Agreement, the owner of the respective Segment T, with the agreement of the Parties hereto, shall take all necessary   23





  measures to ensure that the Terminal Station in question will be available for the APCN 2 for the duration of this Agreement on fair and equitable terms. If the Terminal Station in question is not available for the landing and terminating of the APCN 2 for any reason, the owner of the Terminal Station shall provide reasonable advance notice to all Parties and such owner, in agreement with the Parties hereto, shall take all necessary measures to ensure that another appropriate Terminal Station will be available for the APCN 2 for the duration of this Agreement on terms and conditions similar to those contained in this Agreement. Applicable costs to the Parties will be determined by the Management Committee.   11.3 For each Terminal Station Right of Use, the Parties hereto shall not be required to pay any additional charges over and above the Capital Costs and O&M costs.   11.4 Notwithstanding Subparagraph 11.1 of this Agreement, a Party thereby granted a Terminal Station Right of Use interest in Segment T may, prior to the commencement of that Terminal Station Right of Use interest, elect to renounce its Terminal Station Right of Use entitlement and to instead have use of any Segment T for the duration of this Agreement on such terms and conditions as are agreed between that Party and the relevant Terminal Party, and in such event the provisions of Subparagraphs 11.1 of this Agreement shall apply in relation to such use except insofar as they may be modified by such agreements. This Subparagraph 11.4 shall not operate to confer on a Party any financial or other benefit of substance to which that Party would not otherwise be entitled under this Agreement.   11.5 The Terminal Parties agree to grant a Terminal Station Right of Use to APCN 2 IRU purchasers.   11.6 In the event of a sale or other disposition of Segment T1, T2,T3, T4, T5, T6, T7, T8, T9 and T10, or part thereof prior to the termination of this Agreement, the owner shall share with the other Parties hereto any net proceeds, or costs, of such sale or disposition received, or expended, by the owner, to the extent allocable to the Capital Costs, in the proportions set forth in Schedule B.   12. ACQUISITION AND USE OF CAPACITY   12.1 Capacity of APCN 2 can only be used by a carrier.   12.2 Parties shall obtain Allocated Capacity in the form of MIU on an ownership basis as shown in Schedule C, in return for their financial investment as identified in Schedule B.   12.3 Procedures for Parties activation of their Allocated Capacity will be developed by the AR&RSC and the NA for Management Committee approval.   24





  ASSIGNMENT OF CAPACITY   12.4 For each MIU of its Allocated Capacity, a Party is allowed to assign two (2) half STM-l circuits on any Path within the APCN 2. All such circuits are ring-protected. Additional ring-protected half STM-1 circuits may be granted proportionately to a Party's Allocated Capacity as shown in Schedule C at the discretion of the Management Committee according to the recommendation of the AR&RSC and the NA.   12.5 The Parties may designate a portion of their Allocated Capacity in specific Paths of the APCN 2 as:   (i) Jointly Assigned Circuit (hereinafter referred to as JAC) which shall be considered as consisting of two half STM-I circuits, with one half STM-1 circuit assigned to a Party, which together with the corresponding half STM-1 circuit, shall be used for the provision of international telecommunications services between such a Party and another Carrier that has received the right of use pursuant to this Paragraph 12 or an APCN 2 IRU purchaser. Any alteration to the JAC is subject to bilateral agreement between both Carriers.   (ii) Wholly Assigned Circuit (hereinafter referred to as WAC) which shall be considered as consisting of two half STM-1 circuits assigned to one Party.   USE OF WHOLLY ASSIGNED CIRCUIT   12.6 A Party is allowed to use its WAC for the provision of international telecommunications services with itself, its Subsidiary, its Parent Company and/or the Subsidiary of the Party's Parent Company provided that the correspondent parties are also Carriers.   12.7 A Party is also allowed to use its WAC to interconnect with other communication systems for the provision of international telecommunications services terminating outside the APCN 2 landing Countries. If such WAC is originated from any APCN 2 landing Country, such Party must be a Carrier of that Country.   12.8 A Party is also allowed to use its WAC for the provision of international telecommunications services with its Affiliate and/or the Affiliate of the Party's Parent Company provided that this Affiliate is a Carrier and a cash contribution is made by the Party to a special fund dedicated solely to fund future upgrades to increase the Equipped Capacity. The amount of the contribution is described in Annex 7.   PORTABILITY OF CAPACITY   12.9 A Party is allowed to de-assign its JAC and/or WAC to its Allocated Capacity provided that bilateral agreement is given by the concerned Camera and according to the guidelines to be developed by the AR&RSC and the NA.   12.10 Re-assignment of Allocated Capacity which resulted from the de-assignment of the JAC and/or WAC shall give priority to the assignment of Allocated Capacity which has not   25





  been de-assigned before, in the event that there is any conflicting requirement for use of capacity on the APCN 2.   12.11 Under no circumstances shall a Party's JAC and/or WAC be de-activated due to the assignment of other Parties' Allocated Capacity.   TRANSFER OF CAPACITY   12.12 For the purpose of this Agreement, Transfer of capacity (hereinafter called Transfer) is the making available of all the right of use of the capacity being made available that is accorded to a Party by this Agreement to a third party without transferring the Party's other obligations and rights including the right of Transfer.   12.13 Transfer of a Party's Allocated Capacity to its Subsidiary or its Parent Company or the Subsidiary of the Party's Parent Company is allowed provided that the capacity transferred is in multiples of the MIU and that the recipient of the transferred capacity is a Carrier.   12.14 Transfer of a Party's Allocated Capacity to its Affiliate and/or the Affiliate of the Party's Parent Company is also allowed provided that the capacity transferred is in multiples of the MIU and that the recipient of the transferred capacity is a Carrier. For the Transfer to an Affiliate, the transferring party shall make a cash contribution to a special fund dedicated solely to fund future upgrades to increase the Equipped Capacity. The amount of the contribution is described in Annex 7.   12.15 The conditions applicable to the use and Transfer of capacity as specified in Annex 7 shall be relaxed after the Equipped Capacity is expanded to four (4) times of Initial Equipped Capacity or two (2) years after the RFS date whichever comes first unless an earlier date is approved by the Management Committee. Any relaxations on these conditions shall be approved by a vote of the members of the Management Committee representing at least seventy-five percent (75%) of the total voting interests as specified in Schedule B.   12.16 The Unallocated Capacity in the APCN 2 shall be owned by the Parties in common and undivided shares in accordance with the percentages in Schedule C.   12.17 IRU Capacity will be sold at the MJU level. Such IRU Capacity will be sold from the Unallocated Capacity. Proceeds from the sale of such IRU Capacity shall be used to fund the Expansion of the APCN 2 Equipped Capacity.   12.18 A Party or IRU purchaser may use its MIU with itself, another Party, or IRU purchaser to form matched circuits.   12.19 The distribution of capacity from the initial Unallocated Capacity shall be made no later than three (3) years from the RFS date on a pro rata basis, in MIUs, in accordance with the percentages in Schedule C. The exact time to implement such distribution of capacity   26





  shall be decided by a vote of members of the Management Committee representing at least two-thirds (66.67%) of the total voting interests as specified in Schedule B.   12.20 Once the Equipped Capacity is expanded to six (6) times of Initial Equipped Capacity or three (3) years after the RFS date whichever comes first unless an earlier date is approved by the Management Committee, any Party is entitled to sell IRU to other Carriers from its Allocated Capacity on a private basis without any restrictions except that the IRU shall be for the life of APCN 2. The terms and conditions including pricing of such private IRU sales are bilateral matters between granting Party and purchaser.   12.21 When Unallocated Capacity is depleted, and during the period until the availability of additional Unallocated Capacity, a Party may be allowed to sell IRU to other Carriers from its Allocated Capacity privately subject to the Management Committee's approval on a case by case basis. The terms and conditions including pricing of such private IRU sales are bilateral matters between granting Party and purchaser.   12.22 Notwithstanding any other provisions in this Paragraph 12, when the Equipped Capacity is expanded to six (6) times of Initial Equipped Capacity or three (3) years after the RFS date whichever comes first, any Party is entitled to make available any of its Allocated Capacity for use by other Carriers on any commercial basis without any restrictions.   12.23 Guidelines for use of the IRU Capacity and Terms and Conditions of the IRU agreement shall be developed by the I&ASC and approved by a vote of members of the Management Committee representing at least two-thirds (66.67%) of the total voting interests as specified in Schedule B. The NA shall be authorized to execute IRU agreements for one or more whole MIUs with APCN 2 IRU Capacity purchasers on behalf of the Parties to this Agreement. No provisions of the IRU agreement shall override the provisions of this Agreement.   12.24 Schedules B, C, and D shall be modified by the NA, as appropriate, to reflect any revised ownership of capacity or sales of IRU Capacity pursuant to this Paragraph 12.   12.25 The Management Committee may authorize use of the Unallocated Capacity for restoration of telecommunications services and other purposes. The terms and conditions of such use shall be determined by the Management Committee based, in part, on terms to be agreed to by the relevant Terminal Parties of the APCN 2, in recognition of the technical and operational impact on the Terminal Station operations. Parties will receive revenues in accordance with Schedule C.   12.26 The communications capability of any capacity may be optimized by the Parties to whom such capacity is allocated by the use of equipment which will more efficiently use such capacity provided that the use of such equipment does not cause an interruption of, or interference, impairment, or degradation to, the use of any other capacity in the APCN 2 or prevent the use of similar equipment by other Parties. A Party to whom capacity is allocated shall permit the use of such equipment by a Carrier to which such Party has   27





  made available the use of any such capacity, provided that such Carrier agrees that its use of the equipment will satisfy the conditions set forth in this Subparagraph 12.26.   12.27 A Party may sell capacity in fascicles smaller than a STM-1 in the APCN 2 at any time on any basis other than by transfer of ownership. The APCN 2 shall not be responsible for aggregating such capacity to the STM-1 level.   13. EXPANSION OF EQUIPPED CAPACITY   13.1 Any upgrade of Equipped Capacity of APCN 2, including any costs, financial adjustments and allocation of capacity associated with such upgrade, shall be approved by vote of members of the Management Committee representing at least two-thirds (66.67%) of the total voting interests as specified in Schedule B.   13.2 All Parties shall have the might to a pro-rata share of the upgrade capacity in accordance with Schedule C. However, no Party shall be forced to participate in such an upgrade. Parties not   14. INCREASE OR DECREASE OF DESIGN CAPACITY   14.1 In the event that the Initial Parties consider that it is beneficial to increase the Design Capacity of APCN 2, a Design Capacity expansion, including any costs, financial adjustments and allocation of capacity associated with such upgrade, shall be decided by the Management Committee representing at least two-thirds (66.67%) of the total voting interests as specified in Schedule B. However, no Party shall be forced to participate in such an upgrade, in the event that incremental funding is required to execute such an upgrade. Schedules B and C shall be appropriately modified to reflect the revisions associated with such increase of Design Capacity.   14.2 In the event that the capacity which APCN 2 or any Segment thereof is capable of providing is reduced below the capacity required to support the Allocated Capacity on its existing or planned routings as a result of physical deterioration, or for other reasons beyond the control of the Parties, the Management Committee shall initiate a review of the capacity routings, in order to support the rerouting of such Allocated Capacity.   14.3 In the event that the capacity which APCN 2 or any Segment thereof is capable of providing is lower than the capacity needed to support the routing of circuits assigned in APCN 2, the Allocated Capacity of the Parties may be reduced or changed as necessary and agreed by the Parties affected, and financial adjustments shall be made among the Parties, as necessary, on the terms and conditions to be agreed by the Management Committee. The Schedules shall be modified, as appropriate, to reflect the revised Allocated Capacity associated with such decrease of the Design Capacity.   28





  15. OBLIGATION TO PROVIDE TRANSITING FACILITIES TO EXTEND APCN2 CAPACITY TO EXTEND APCN 2 CAPACITY   15.1 The Terminal Parties shall use all reasonable efforts to provide and maintain or cause to be provided and maintained in working order for the duration of this Agreement, the necessary transit facilities within their respective Countries as may be reasonably required for extending capacity in the APCN 2 so as to provide connections to the other international cables' transmission facilities.   15.2 The facilities provided pursuant to Subparagraph 15.1 shall be suitable for extending capacity in the APCN 2 of all payload types as defined in Subparagraph 15.3 and shall be furnished and maintained on terms and conditions which shall be no less favorable than those granted to another Carrier for transmission facilities of similar type and quantity transiting the location involved. Such terms and conditions shall not be inconsistent with applicable governmental regulations in the Countries in which the facilities are located.   15.3 As required the Terminal Parties shall support payloads of STM-l, STM-4, STM-l6 and STM-64.   16. OBLIGATION TO CONNECT THE APCN 2 WITH INLAND SYSTEMS   16.1 The Parties shall, at their own expense, on or before the RFS Date, do or cause to be done, all such acts and things as may be necessary within its operating Country to provide and maintain throughout the period of this Agreement suitable connection of capacity from APCN 2 with appropriate inland communications facilities in its operating Country.   16.2 The Terminal Parties will provide connection to APCN 2 to other Carriers within their Countries on terms and conditions negotiated and agreed by the parties concerned.   17. DIRECT ACCESS TO NETWORK INTERFACE AND EQUAL ACCESS TO TERMINAL STATION   17.1 The Terminal Parties agree to confer the right of Direct Access at the Network Interface to each Party and all other Carriers that have received the Right of Use pursuant to Paragraph 12. The connection to the Network Interface at specific Terminal Stations shall be provided at a reasonable cost in accordance with the physical, engineering and any locally applicable arrangements between the Carriers accessing the Network Interface and the respective Terminal Parties at the Terminal Station.   17.2 Upon request by the Parties or the other Carriers, the Terminal Party shall enter into negotiation in good faith with these parties to agree the above arrangements in a timely manner. Any arrangements agreed upon shall be reasonable and non-discriminatory.   29





  17.3 The physical and engineering arrangements to be negotiated shall include all reasonable arrangements such as mid-span interconnection, equipment co-location (whether physical or virtual), or the sharing of Direct Access facilities by one or more Carriers in accordance with applicable commercial arrangements to be negotiated between the Terminal Party and the Carriers concerned.   17.4 The Terminal Parties shall not and hereby pledge not to impede or cause to impede any qualified Carriers in exercising their right of Direct Access hereby conferred, including but not limited to the negotiation between the non-Terminal Parties and Carriers for their own facilities to access their Allocated Capacity including for purpose of providing backhaul and transiting facilities.   18. DURATION OF AGREEMENT AND REALIZATION OF ASSETS   18.1 This Agreement shall become effective on the date and year first above written and shall continue in operation for at least an initial period of twenty-five (25) years following the RFS Date (hereinafter referred to as initial Period) and shall be terminable thereafter by agreement of the Parties. However, any Party may terminate its participation in this Agreement at the end of the Initial Period or any time thereafter by giving not less than one (1) year's prior notice thereof, in writing, to the other Parties.   18.2 This Agreement may be terminated at any time during the Initial Period by agreement in writing of all the Parties. If unanimous agreement cannot be reached between all the Parties for the retirement of APCN 2 during its specified useful life, this subject matter shall be referred to the Management Committee for resolution in accordance with paragraph 3 but in this case a ninety percent (90%) majority of the total voting interests as specified in Schedule B is required.   18.3 After the Initial Period of twenty-five (25) years, decommissioning can be implemented by agreement of a number of Parties representing at least two-thirds (66.67%) of the voting interests specified in Schedule B.   18.4 If a Terminal Party terminates its participation in this Agreement pursuant to Subparagraph 18.1 of this Agreement after the Initial Period of twenty-five (25) years, the remaining Parties and the said Terminal Party will negotiate a reasonable agreement in order to ensure the continuous operation of the said Terminal Party's Terminal Station after the Initial Period.   18.5 Upon the effective date of termination of participation of a Party, Schedules of this Agreement shall be appropriately modified. The remaining Parties to this Agreement shall assume the obligations, capital, operation, and maintenance interests of the Party terminating its participation in proportion to their interests assigned immediately preceding such effective date of termination, except for the continuing rights and obligations of the terminating Party as specified in Subparagraph 18.7 of this Agreement.   30





  No credit for capital costs will be made to a Party that terminates its participation in accordance with Subparagraph 18.1.   18.6 Upon decommissioning of the APCN 2, the Parties shall use all reasonable efforts to liquidate Segment S1, S2, S3, S4, S5, S6, S7, and S8 of the APCN 2, within one (1) year, by sale or other disposition between the Parties or any of them or by sale to other entities or persons; but no sale or disposition shall be effected except by agreement between or among the Parties to this Agreement at the time of decommissioning. In the event agreement cannot be reached, the decision will be carried on the basis of a simple majority vote of the total voting interests as specified in Schedule B. The net proceeds, or costs of decommissioning, removal, every sale or other disposition shall be divided between or among the Parties to this Agreement who have or were deemed to have interests in the subject thereof, in the proportions in which such Parties, interests are specified in Schedule B immediately preceding the time any Party terminates its participation in this Agreement. The Parties shall execute such documents and take such action as may be necessary to effectuate any sale or other disposition made pursuant to this Paragraph 18.   18.7 Unless the Management Committee shall otherwise determine, a Party's termination of its participation in this Agreement or the termination of this Agreement, pursuant to Subparagraph 18.1, shall not relieve that Party or the Parties hereto from any liabilities arising from events occurring before a Party's termination on account of claims made by third parties in respect of such facilities or any part thereof and damages or compensation payable on account of such claims, or obligations which may arise in relation to the APCN 2 due to any law, order or regulation made by any government or supranational legal authority pursuant to any international convention, treaty or agreement. Any such liabilities or costs incurred or benefits accruing in satisfying such obligations shall be divided among the Parties hereto in the proportions in which such Parties, interests are specified in Schedule B immediately preceding the time a Party terminates its participation in this Agreement or this Agreement is terminated pursuant to Subparagraph 18.1, whichever occurs first.   19. OBTAINING OF APPROVALS   19.1 The performance of this Agreement by the Terminal Parties is contingent upon the obtaining and continuance of such governmental approvals, consents, authorizations, licenses, and permits as may be required or be deemed necessary by the Terminal Parties and as may be satisfactory to them, and the Terminal Parties shall use all reasonable efforts to obtain and to have continued in effect such approvals, consents, authorizations, licenses, and permits.   19.2 The Terminal Parties shall make all reasonable efforts to handle matters relating to the obtaining and continuance of such governmental approvals, consents, authorizations, licenses, and permits for the Landing, construction and operation of APCN 2 in their respective Countries.   31





  19.3 In the event that any Terminal Party fails, or is likely to fail, to obtain such approvals, consents, authorizations, licenses or permits, that Terminal Party shall give immediate notice to the Management Committee for it to take appropriate action pursuant to this Agreement.   20. PRIVILEGES FOR DOCUMENTS OR COMMUNICATIONS   In the event that the Management Committee decides to go to arbitration in accordance with Paragraph 27, each Party specifically reserves, and is granted by each of the other Parties, in any action, arbitration or other proceeding between or among the Parties or any of them in a country other than that Party's own country, the right of privileges, in accordance with the laws of the country in which the arbitration or litigation takes place with respect to any documents or communications which are material and pertinent to the subject matter of the action, arbitration or proceeding in which privilege could be claimed or asserted by that Party in accordance with those laws.   21. RELATIONSHIP OF PARTIES   21.1 The relationship among the Parties shall not be that of partners, and nothing herein contained shall be deemed to constitute a partnership among them. The common enterprise between and among the Parties shall be limited to the express provisions of this Agreement. The liability of the Parties shall be several and not joint or collective.   21.2 Each Patty agrees to indemnify each of the other Parties in respect of all costs, expenses, damages and demands, arising out of or in connection with any claim against, or liability of, the latter as an owner of APCN 2 where such claim is made by, or the liability is to, any third party not being a Party hereto and arises out of or in connection with APCN 2 provided that no indemnifying Party shall be obligated to contribute more than its share of liability as per Schedule B. Subject to there being no conflict of interest, each Party so indemnifying shall have the right, at its sole cost and expense, to observe but not directly participate in any discussions, meetings or conferences held prior to or during any settlement or legal proceedings resulting from any such claim or liability.   21.3 Under no circumstances shall any Party be liable to any other Party in contract, tort, (including negligence or breach of statutory duty) or otherwise for loss (whether direct or indirect) of profits, property, traffic, business or anticipated savings, or for any indirect or consequential loss or damage in connection with the operation of this Agreement howsoever caused. Such causes shall include (but not be limited to):   (i) any delay in the provision of the APCN 2; (ii) any damage to, breakdown in or failure of the APCN 2; and (iii) any interruption of service,   32





  whatever may be the reason or duration for such loss, damage or delay and for however long it shall continue.   22. ASSIGNMENT OF RIGHTS AND OBLIGATIONS   22.1 Except as otherwise provided in Paragraph 12 and Subparagraphs 22.2, 22.3, 22.4 and 22.5, during the term of this Agreement, no Party may assign, sell, transfer or dispose of the whole or any parts of its rights or obligations under this Agreement   22.2 A Party may at any time, with the prior written consent of the Management Committee, assign, sell or transfer the whole of its rights and obligations under this Agreement. The Management Committee must not unreasonably withhold or delay its approval.   22.3 A Party may at any time assign, sell or transfer the whole of' its rights and obligations under this Agreement to:   (a) a successor of that Party; (b) a Parent Company of that Party; (e) a Subsidiary or Affiliate of that Party; and (d) another Subsidiary or Affiliate of that Party's Parent Company.   22.4 A Party (hereafter Assignor) may assign, sell or transfer a portion of its rights under this Agreement to a Parent Company, its Subsidiary, and/or the Subsidiary of the Party's Parent Company (hereafter Assignee). Such partial assignment shall be allowed only once to any such Assignee, and shall not negate any of the obligations of the Assignor. If the Assignor is an Initial Party, then the Initial Party status of the Assignor shall be maintained and the Assignor's voting rights shall be shared with such Assignee. The relevant Schedules to this Agreement shall be revised to reflect each such partial assignment permitted hereunder, showing the Assignee as a Party. No subsequent assignment shall be effected by the Assignee except as provided in Subparagraph 22.3(a).   22.5 Without limiting the applicability of Subparagraph 22.4, a Party may assign its rights, title and interests in any portion of APCN 2 within the territorial limits of any Country (both under the current and any future configuration) to a Subsidiary, Parent Company or a Subsidiary of a Parent Company of that Party only if:   a) the Assignee shall own and be responsible for the capital, operations and maintenance costs listed against the Party for that portion of APCN 2 within the territorial limits of any Country (both under the current and future configuration); the Party shall own and be responsible for the capital, operating and maintenance costs listed against the Party for the remainder of APCN 2; and   b) the Assignee will have no tights and obligations independent from the rights and obligations of the Party in respect of the assigned portion of the APCN 2   33





  The aforementioned provision shall not be used to circumvent the provisions under Paragraph 12.   22.6 A Party exercising its rights under Subparagraphs 22.2, 22.3, 22.4 or 22.5 must give notice in writing to all other Parties in a timely manner.   23. DEFAULT   23.1 If any Party fails to make any payment required by this Agreement on the date when it is due and such default continues for a period of at least one (1) month after the payment due date, the CBP shall notify the billed Party and also the Management Committee in writing of the status of the matter and will request the reclamation of capacity, as provided for in this Paragraph 23, if full payment is not received within two (2) months of such notification. If full payment is not received within such specified period, the Management Committee may reclaim the Capacity in the APCN 2 allocated to the billed Party.   23.2 The Management Committee shall consider any extenuating circumstances not within the specific control of the billed Party in determining whether or not to reclaim the capacity assigned to such billed Party. If the Management Committee nevertheless reclaims any capacity in the APCN 2 assigned to such defaulting Party, the defaulting Party shall not be entitled to any payment or credit for the reclaimed capacity. The Management Committee shall determine arrangements for disposition of any reclaimed capacity. All rights of a defaulting Party under this Agreement shall terminate as of the time all its capacity in the APCN 2 is reclaimed by the Management Committee; and concurrent with such reclamation of capacity, the defaulting Party will no longer be deemed to be a Party to this Agreement. Such reclamation shall not relieve the defaulting Party from its obligations under this Agreement, including but not limited to the payment of its unpaid accounts, which have been incurred prior to the actual reclamation. The defaulting Party is not entitled to any reimbursement of any amounts it had paid under this Agreement. In such circumstances, the Schedules shall be revised to reflect the default of a Party and the reallocation of interests pursuant to the arrangements determined by the Management Committee.   23.3 Notwithstanding Subparagraph 23.2, reclamation of a Terminal Party's capacity will not release the Terminal Party from providing, operating and maintaining its respective Terminal Station until a reasonable agreement is negotiated in order to ensure the continuous operation of the said Terminal Party's Terminal Station after reclamation of its capacity.   24. WAIVER   The failure of any Party, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder shall not thereafter be   34





  construed as a waiver of any breach or default, or as a waiver of any such provision, right, or privilege hereunder.   25. COMPLIANCE WITH LAW   In the performance of their obligations hereunder, the Parties agree to comply with all applicable laws of all Countries having jurisdiction over the activities performed under or stipulated by this Agreement.   26. RATIFICATION OF DECISIONS AND ACTIONS   Each Party to this Agreement does hereby unconditionally ratify and accept as binding on it, its successors, permitted assigns or trustees all decisions and actions theretofore taken directly or indirectly by any other Party or Parties or any committee or Subcommittee or group pursuant to and in accordance with this Agreement.   27. RESOLUTION OF DISPUTES   27.1 If a dispute should arise under this Agreement between or among the Parties they shall make every reasonable effort to resolve such dispute. However, in the event that they are unable to resolve such dispute, the matter shall be referred to the Management Committee which shall either resolve the matter or determine the method, such as arbitration, by which the matter should be resolved. This procedure shall be the sole and exclusive remedy for any dispute which may arise under this Agreement between or among the Parties. The performance of this Agreement by the Parties shall continue during the resolution of any dispute.   27.2 If any difference shall arise between or among the Parties or any of them in respect of the interpretation or effect of this Agreement or any part or provision thereof or their rights and obligations thereunder, and by reasons thereof there shall arise the need to decide the question by what municipal or national law this Agreement or any part or provision thereof is governed, the following facts shall be excluded from consideration, namely that this Agreement was made in a particular country and that it may appear by reason of its form, style, language or otherwise to have been drawn preponderantly with reference to a particular system of municipal or national law; the intention of the Parties being that such facts shall be regarded by the Parties and in all courts and tribunals wherever situated as irrelevant to the question aforesaid and to the decision thereof.   28. SUPPLEMENTS AND AMENDMENTS TO THIS AGREEMENT   28.1 This Agreement shall not be amended, supplemented, or modified unless the Parties representing at least ninety percent (90%) of the voting interests specified in Schedule B   35





  have indicated their approval in writing. The Chairman of the Management Committee must provide advance written notice, of at least thirty (30) days, to all Parties of the proposed amendment, supplement or modification and shall notify all Parties in writing once the required level of approval has been obtained and at least ten (10) days prior to execution of the amendatory or supplementary agreement   28.2 Each Party except SingTel and PLDT authorizes the Chairman of the Management Committee to execute on its behalf any amendatory or supplementary agreement implementing an amendment, supplement or modification approved under Subparagraph 28.1. SingTel and PLDT shall provide the Power of Attorney to the Chairman of the Management Committee to execute on its behalf any amendatory or supplementary agreement implementing an amendment, supplement or modification approved under Subparagraph 28.1 in a timely manner.   28.3 Subparagraphs 28.1 and 28.2 shall not apply to any Schedule or Annex modified in accordance with other provisions of this Agreement, and any Schedule or Annex so modified shall be deemed to be part of this Agreement in substitution for the immediately preceding version of that Schedule or Annex.   29. EXECUTION OF AGREEMENT   29.1 This Agreement and any Supplements and Amendments hereto shall be executed in one (1) original in the English language. Identical counterparts may be executed and when so executed shall be considered as an original. Such counterparts shall together, as well as separately constitute one and the same instrument.   29.2 The NA shall be the custodian of the original and will provide certified copies to Parties to this Agreement.   30. SUCCESSORS BOUND   This Agreement shall be binding on the Parties, their successors, and permitted assigns.   31. CONFIDENTIALITY   31.1 All data and information that is acquired or received by any Party in connection with the APCN 2 in anticipation of or under this Agreement shall be held confidential and shall not be divulged in any way to any third party, without the prior approval of the Management Committee.   31.2 Notwithstanding Subparagraph 31.1, any Party may, without such approval, disclose such data and information to:   36





  (i) the extent required by any applicable laws, or the requirements of any recognized stock exchange in compliance with its rules and regulations or in the case of a Party wholly owned by a sovereign government, by the rules of governance of the Party; or   (ii) any government agency lawfully requesting such information; or   (iii) any Court of competent jurisdiction acting in pursuance of its powers.   31.3 Any Party may disclose such data and information to such persons as may be necessary in connection with the conduct of the operations of the APCN 2 upon obtaining a similar undertaking of confidentiality from such persons to whom such information may be disclosed.   31.4 Each Party shall remain bound by the provisions of this Paragraph 31 during the period of this Agreement and for the period of five (5) years following termination of this Agreement.   32. SETTLEMENT OF CLAIMS BY PARTIES   32.1 If any Party is obliged by a final judgment of a competent tribunal or under a settlement approved by the Management Committee, to discharge any claim by a third party, including all costs and expenses associated therewith, resulting from the implementation of this Agreement, the Party which has discharged the claim shall be entitled to receive from the other Parties reimbursement in the proportions as set out in Schedule B.   32.2 If any claim is brought against a Party in connection with the APCN 2, the Party shall, as a condition of reimbursement under Subparagraph 32.1, give written notice thereof to the Management Committee as soon as practicable and shall not admit liability nor settle, adjust or compromise the claim without the approval of the Management Committee.   32.3 Before any Party brings a claim against any third party in respect of loss or damage to any part of the APCN 2, it shall first consult with the Management Committee and shall not settle, adjust, or compromise such a claim without the approval of the Management Committee.   32.4 Notwithstanding Subparagraphs 32.2 and 32.3, if the Management Committee issues any directions to a Party relating to the conduct of any such claim, then that Party must comply with those directions.   32.5 Costs, expenses, damages, or compensation payable to the Parties on account of claims made against third parties shall be shared by the Parties in the proportions as set out in Schedule B.   37





  32.6 Upon termination of this Agreement pursuant to Paragraph l8, the Parties shall not be relieved from any liabilities, costs, damages or obligations which may arise in connection with claims made by third parties with respect to the APCN 2, or any part thereof, or which may arise in relation to the APCN 2 due to any law, order or regulation made by any government or international convention, treaty or agreement. Any such liabilities, costs, damages or obligations shall be divided among the Parties in the proportions as set out in Schedule B.   33. FORCE MAJEURE   If any Party cannot fulfill its obligations in this Agreement due to an event beyond its reasonable control, including, but not limited to lighting, flood, exceptionally severe weather, fire or explosion, civil disorder, war or military operations, national or local emergency,   35.2  This Agreement supersedes the MOU. Any liabilities which any Party has incurred arising out of or by virtue of the MOU shall be dealt with in accordance with the provisions of this Agreement.   38





  TESTIMONIUM   IN WITNESS WHEREOF, the Parties hereto have severally subscribed these presents or caused them to be subscribed in their names and on their behalf by their respective officers thereunto duly authorized.     For and on behalf of Advantage Telecommunications Ltd.         By:

        For and on behalf of Cable & Wireless Global Network Limited         By:

        For and on behalf of Cable & Wireless HKT international Limited         By:

        For and on behalf of China Telecom         By:

  39





  For and on behalf of China United Telecommunications Corporation         By:

        For and on behalf of Chunghwa Telecom Co., Ltd.,         By:

        For and on behalf of Concert Global Network Services, Ltd.         By:

        For and on behalf of Global One Communications Network, Inc.



        By:

        For and on behalf of Japan Telecom Co., Ltd.



        By:

  40





  For and on behalf of KDD Corporation



        By:

        For and on behalf of Korea Telecom



        By:

        For and on behalf of KPN Telecom B.V.



        By:

        For and on behalf of Layer 2 Communications Group Ltd.



        By:

        For and on behalf of MCI International Telecommunications. Inc.



        By:

  41





  For and on behalf of Metromedia Fiber Network Services, Inc.



        By:

        For and on behalf of New Century InfoComm Ltd., Preparatory Office         By:

        For and on behalf of NTT Communications Corporation



        By:

        For and on behalf of Onelink Cable Network Limited



        By:

        By:

        For and .on behalf of Philippine Long Distance Telephone Company         By:

  42





  For and on behalf of Singapore Telecommunications Limited



        By:

        For and on behalf of StarHub Pte Ltd



        By:

        For and on behalf of Taiwan Fixed Network Co., Ltd. Preparatory Office



        By:

        For and on behalf of Teleglobe USA Inc.



        By:

        For and on behalf of Telekom Malaysia Berhad (128740-P)



        By:

  43





  For and on behalf of Telstra Global Networks Limited         By:

        For and on behalf of Williams Communications, Inc.,         By:

        For and on behalf of APT Satellite Telecommunications Limited         By:

        For and on behalf of Bayan Telecommunications, Inc.



        By:

  44





  For and on behalf of China Netcom Corporation Ltd.



        By:

        For and on behalf of The Communications Authority of Thailand



        By:

        For and on behalf of CTI International Limited



        By:

        For and on behalf of Dacom Corporation



        By:

        For and on behalf of edge2net Inc.



        By:

  45





  For and on behalf of Eastern Telecommunications Philippines, Incorporated         By:

        For and on behalf of Global Access Ltd.



        By:

        For and on behalf of Globe Telecom, Inc.



        By:

        For and on behalf of GNG Networks. Inc.



        By:

        For and on behalf of GTE Intelligent Network Service Incorporated         By:

  46





  For and on behalf of PT Indosat (Persero) Tbk



        By:

        For and on behalf of Maxis International Sdn. Bhd



        By:

        For and on behalf of New World Telephone Limited



        By:

        For and on behalf of NTT Com Asia Ltd.



        By:

        For and on behalf of Onse Telecom Corporation



        By:

  47





  For and on behalf of Telia AB (publ)



        By:

        For and on behalf of TT dotCom Sdn Bhd



        By:

  48 
Question: Highlight the parts (if any) of this contract related to Cap On Liability that should be reviewed by a lawyer. Details: Does the contract include a cap on liability upon the breach of a party’s obligation? This includes time limitation for the counterparty to bring claims or maximum amount for recovery.
Example Output: 76429

Example Input: Exhibit 10.2   Portions of this Exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange  Commission. The omissions have been indicated by asterisks (*****), and the omitted text has been filed separately with the  Securities and Exchange Commission.      CONTENT LICENSE, MARKETING AND SALES AGREEMENT    This CONTENT LICENSE, MARKETING AND SALES AGREEMENT (the Agreement) is entered into and  effective as of January 15, 2008, (the Effective Date) by and between eFashion Solutions, LLC, a New Jersey limited liability  company having its principal place of business at 80 Enterprise Avenue South, Secaucus, NJ 07094 (EFS) and Playboy.com,  Inc., a Delaware corporation with offices at 680 North Lake Shore Drive, Chicago, IL 60611 (Client, which shall include  affiliates controlling, controlled by or under common control with Playboy.com, Inc.).    WHEREAS, Client is in the business of, inter alia, developing, marketing, promoting, distributing and selling branded and  unbranded merchandise via physical media, worldwide, via mail order catalogs (the Catalogs) where orders are taken via  multiple order channels including online, phone, fax and mail and via the Internet through its PLAYBOY-branded and BUNNY  SHOP-branded e-commerce websites as designated on Exhibit 1 (the Websites) (the Catalogs and Websites shall be  collectively referred to as the Playboy Commerce Business).    WHEREAS, the parties intend that EFS will operate under license from Client the Playboy Commerce Business,  including, but not limited to, the marketing, promotion and distribution of branded, unbranded and co-branded soft and hard  goods which include but are not limited to men's and women's apparel, home, lingerie, men's and women's accessories, jewelry,  books and DVD's and related products (collectively, Merchandise) via the Catalogs and the Websites (including other Micro- Sites (as defined in Section 1.1(d)(vii))).    NOW THEREFORE, in consideration of the promises contained herein, the receipt and sufficiency of which are hereby  acknowledged, the parties hereto each intending to be legally bound, agree as follows:    1. Operation of the Playboy Commerce Business     1.1. Obligations of EFS.    (a) Operations. EFS, at its sole cost and expense, shall be solely responsible for (i) developing, designing,  operating, maintaining and distributing the Catalogs; (ii) developing, designing, operating, maintaining and hosting the Websites; (iii)  except as otherwise set forth in this Agreement, the creation (except for that provided by Client) and use of all content to be  displayed in the Catalogs and on the Websites; and (iv) marketing and promotion of the Playboy Commerce Business. EFS shall  be permitted to display on the bottom of each page of the Websites Powered by eFashionSolutions which shall appear  substantially as set forth in Exhibit 2, attached hereto and hereby incorporated by reference.

1

Source: PLAYBOY ENTERPRISES INC, 10-Q/A, 2/20/2009





   (b) Fulfillment Services. EFS, at its sole cost and expense or (with respect to pass-through expenses such as  shipping, gift wrapping, etc.) at the consumer's expense, shall be solely responsible for conducting all business activities related to  the Playboy Commerce Business, including, but not limited to the following activities: (i) setting the price consumers will pay for  Merchandise offered through the Catalogs and Websites and for shipping thereof; (ii) processing all Catalog and Website orders  placed by consumers, including, but not limited to, all picking, packing, billing, shipping, gift wrapping and other value-added  services necessary to process orders from order placement to delivery, which shall be performed substantially as set forth in  Exhibit 3, attached hereto and hereby incorporated by reference (collectively, Fulfillment Services); (iii) providing pricing, billing  and financial clearinghouse services in connection with the Playboy Commerce Business; (iv) handling all customer service matters  (provided, however, that Client and EFS shall agree upon a hot transfer process whereby non-e-commerce-related customer  calls will be rerouted); (v) handling all financial transactions related to the Playboy Commerce Business, including, but not limited  to, establishing merchant accounts with a banking institution to be approved by Client; (vi) handling all aspects of procuring  Merchandise to be made available for sale through the Playboy Commerce Business, including, without limitation, all warehouse  and inventory maintenance and control; and (vii) except as otherwise set forth in this Agreement, handling all advertising,  promotion and marketing relating to the Playboy Commerce Business. Client acknowledges that the efficient and cost effective  fulfillment of orders on the Websites will require that third parties that provide Merchandise to EFS under a Playboy license  adhere to certain shipping and packaging guidelines provided by EFS, and which comply with Client's packaging guidelines as set  forth in Exhibit 3. Client agrees to provide reasonable assistance to EFS to enable EFS to have such third parties agree to abide  by the EFS guidelines.    (c) Client Approval. All aspects of the Websites and the Catalogs, including, but not limited to, their look and  feel (including as set forth in Section 1.1(d)(iii) below), use of the Playboy Marks (as defined in Section 7.2), functionality,  models to be used and all Merchandise sold therein, shall be subject to Client's prior written approval, which shall not be  unreasonably withheld. Further, EFS acknowledges that Client reserves the right to change the names of the PlayboyStore and  ShopTheBunny/BunnyShop Catalog and Websites to new Client brands and/or to add names to be used provided that Client  provides EFS with no less than six (6) months prior written notice. In the event that names are changed, except to the extent that  there is an extenuating reason for such name change, EFS shall be permitted to continue to use domain names then in use for  purposes of Micro Sites and/or forwarding domains (i.e., driving traffic to the new names).    (d) Websites    (i) Unless otherwise agreed by the parties and provided that this Agreement is executed not later than  January 15, 2008, EFS agrees that no later than March 1, 2008, both Websites shall launch and be fully operational, with the  exception of the gift wrapping which EFS shall make available as set forth in the time and action calendar (attached hereto as  Exhibit 12 and hereby incorporated by reference) and local billing (pursuant to Section 3.1, below), and EFS shall be ready to  perform all aspects of administration of the Website business, including, but not limited to, all Fulfillment Services. In furtherance of  this launch

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Source: PLAYBOY ENTERPRISES INC, 10-Q/A, 2/20/2009





   date, EFS and Client shall perform all activities and deliver all deliverables in accordance with the time and action calendar. Client  acknowledges that if it is unable to perform any obligations within the time period agreed to in the time and action calendar that the  launch of the Websites may be delayed accordingly.    (ii) Client and EFS acknowledge that design and functionality of the Websites consistent with best  practices for e-commerce is critical to ensure the maximum sales performance of the Websites and to maintain the goodwill of  Client's customers. EFS will utilize best industry practices to maintain the shopping areas of the Websites in order to ensure that  such areas feature functionality that is deemed best practice in the e-commerce industry and is updated with all content and brand  imagery necessary to keep the shopping areas of the Websites up-to-date and fresh, in all instances maintaining the high level of  brand integrity of the PLAYBOY brand while focusing on customer experience. From time to time, Client will provide updated  photo and brand elements for purposes of utilization by EFS in Website design.    (iii) In addition to any guidelines provided by Client, EFS shall use and comply with any style guides  provided by Client to ensure consistency among retail channels (e.g., graphics, patterns, colors, logos, etc.), visual brand displays  and seasonal color palettes. EFS shall maintain the shopping areas of the Websites consistent with the style guides (as modified for  e-commerce) to maximize sales, brand appearance and marketability. Client will provide new brand and content assets from time- to-time along with updated style guides in both digital and hard copies, and EFS will update the Websites and future Catalogs  accordingly within a commercially reasonable time following receipt. As of the Effective Date hereof, updated style guides are  provided twice per year. EFS will have not less than six (6) months advance notice of upcoming new style guides.    (iv) EFS will host all content displayed on the Websites on an EFS-hosted server provided by EFS at its  sole cost and expense. EFS may at its election use a reputable third party hosting service to host the Websites; provided,  however, that EFS shall nevertheless be responsible for ensuring the availability of the Websites as set forth in this Agreement.  EFS shall provide as required all updates of content on the Websites, including enhancements, modifications and additions thereto.   (v) EFS agrees to at all times during the Term use its best efforts to market the Websites no less diligently  than it does other online properties managed by EFS on behalf of third parties (including without limitation, maintaining best  practice functionality, search engine optimization tactics, utilizing customer acquisition and retention campaigns, etc.).    (vi) EFS shall take all reasonable measures to ensure the performance of each of the Websites, including,  at a minimum, availability at least ninety-nine and one-half percent (99.5%) of the time per month as averaged over any one (1)  month period, excepting scheduled maintenance or a Force Majeure Event (as defined in Section 14.7).    (vii) Subject to the prior, written approval of Client, which shall not be unreasonably withheld, EFS shall  have the right at its sole cost and expense to design and launch as many micro- and sub-domain websites as EFS deems  appropriate in order to take full

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   advantage of online marketing channels (collectively, Micro Sites); provided, however, that all such Micro Sites shall be  designed and maintained consistent with the terms of this Agreement. At a minimum, EFS agrees to launch a version of the  PlayboyStore.com Website, which does not contain products or content containing nudity, marital aid or massager Merchandise,  within forty-five (45) days following launch of the PlayboyStore.com Website.     (viii) Front-End Platform. In the event that EFS chooses to use the Demandware, Inc. (Demandware)  front-end platform software and services for the Websites, EFS shall enter into a separate agreement directly with Demandware;  provided, however, that the terms of any such agreement must be approved by Client in advance in writing.    (e) Catalogs    (i) EFS agrees that (A) the first issue of each of the Catalogs shall be sent to consumers by March 15,  2008; and (B) no later than March 1, 2008, EFS shall be ready to perform all aspects of administration of the Catalog business,  including, but not limited to, all Fulfillment Services.    (ii) EFS shall provide a copy of each Catalog to Client for review and approval not less than five (5)  business days prior to printing. EFS shall promptly make any changes to the Catalog as may be reasonably requested by Client.  No Catalog shall be sent to printing without the written approval of Client, which shall not be unreasonably withheld.    (f) Models and Photography. EFS agrees that all female models depicted in or in connection with the Playboy  Commerce Business shall be approved by Client and shall be Playmates (or other Playboy models, including, but not limited The  Girls Next Door) as requested by the Client unless otherwise mutually agreed in advance in writing by the parties. In addition,  EFS agrees to shoot major photography in connection with the Playboy Commerce Business in Los Angeles and in coordination  with Client, as requested by Client and in line with current and past practices (taking into account changes in Client's Catalog- related strategy) with respect to process, cost and frequency. EFS shall be responsible for all costs and expenses in connection  with such photography, including, but not limited to, payments to models and photographers, based upon an estimated schedule of  costs attached as Exhibit 4. EFS shall secure model and photographer releases in a form provided by Client and shall provide all  content created under this Section 1.1(f) to Client within thirty (30) days of creation. All such photographs shall be deemed  Playboy Content for purposes of this Agreement, for which EFS shall have a license to use during the Term solely in connection  with the Playboy Commerce Business and as is necessary to promote the Websites. During the Term, Client shall not be  permitted to sell or otherwise provide such photographs to third party retailers (except for those retailers operating under the  PLAYBOY brand) or Licensees (as defined in Section 2.4), without the prior written approval of EFS.     (i) Client shall own all content produced pursuant to Section 1.1(f) (whether or not actually used), and  EFS hereby assigns to Client all right, title and interest, including all rights in copyright, in and to the photographs and materials,  and agrees to cooperate with all reasonable requests by Client, and take all reasonable actions, to effect or perfect such  assignment. EFS hereby provides Client with an irrevocable power of attorney appointing Client as its irrevocable attorney-in-fact  coupled with an interest to execute all such assignments on

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   behalf of EFS in the event that EFS fails to do so within thirty (30) days following written request by Client. Client hereby grants  to EFS a limited and perpetual right and license to use such photographs and materials for research and forecasting purposes,  including, but not limited to, combining the same with reports and analytics concerning the performance of the Websites, providing  information to strategic partners to better define consumer purchasing habits, and for trend forecasting and planning purposes. In  addition, during the Term, EFS may use such photographs and materials to provide information to Client Licensees to better  define consumer purchasing habits, refine the design and performance of the Websites and EFS Portals on which the Merchandise  is sold in connection with any EFS Analysis (as defined below), and for marketing and planning purposes. For the avoidance of  doubt, no information provided to third parties under this Section 1.1(i) shall: (i) specifically or by inference identify or in any way  reference Client; (ii) disclose any proprietary information of Client; or (iii) disclose any personally identifiable information of or  otherwise identify any consumer of the Websites or the Catalogs.     (g) Compliance with Guidelines. EFS shall at all times comply with the provisions and limitations set forth in  Client's editorial and advertising guidelines, which are attached hereto as Exhibit 5 and hereby incorporated by reference, as the  same may be amended from time to time at Client's sole discretion, effective upon fifteen (15) business days prior written notice  to EFS (the Guidelines).    (h) Compliance with Laws. Throughout the Term, EFS shall be solely responsible for knowledge of and  compliance with all applicable international, federal, state and local laws, rules, regulations, ordinances, industry guidelines and  similar restrictions (collectively, Laws) in connection with operation of the Playboy Commerce Business. EFS shall be  responsible for monitoring such Laws and taking any actions necessary to keep compliant all aspects of the Playboy Commerce  Business, including, but not limited to, the Privacy Policy (as defined in Section 5.1(a)), as well as best practices relating to Direct  Marketing Association (DMA) Guidelines (as they relate to the DMA Privacy Promise, pander files, etc.).     (i) Product Placement. At no additional cost to Client, EFS will provide preferential placement in the Catalogs  and/or on the Websites, as requested by Client, for certain Merchandise from time-to-time, e.g. apparel, magazines, books,  DVD's, etc. or marketing campaigns that tie to events and initiatives of Client and its affiliates, consistent with Client's past  practices in the prior placement of such items in the Catalogs and/or on the Websites.    (j) Staffing/Retention of Client Employees. EFS agrees to staff the Playboy Commerce Business sufficiently to  operate and grow the Playboy Commerce Business. An initial organizational chart approved by both parties is attached as Exhibit  6, attached hereto and hereby incorporated by reference. EFS agrees to employ certain individuals who are currently employed  by the Client (names, titles and current salaries are listed in Exhibit 6), the hiring of whom shall be complete no later than March 1,  2008. Client shall coordinate with EFS regarding the termination of these employees and their subsequent hire by EFS. Each of  the hired employees shall be required to comply with all policies and procedures of EFS which are generally applicable to its  employees; provided however that levels of seniority and tenure of hired employees (as they relate to vacation time, etc.) will  carry over to EFS. Client shall have

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   input and approval rights regarding the hiring of key positions in connection with the Playboy Commerce Business, including  replacement personnel, which approval shall not be unreasonably withheld. EFS agrees that ***** primary responsibilities will  continue to be the Playboy Commerce Business.    (k) Keywords. EFS may use Playboy Marks as keyword-targeted advertising on any portal, search engine or  other website; provided, however that such use is directly related to the Merchandise available on the Playboy Commerce  Business or the promotion of the Websites. Any use of Playboy Marks as keywords not directly related to Merchandise shall be  subject to Client's prior written approval.     (l) Service Model Option. Client shall have the right upon not less than six (6) months prior written notice to  request that, at any time as of the third anniversary of the Effective Date, EFS provide its services to Client via a service model,  in which case, upon effective date of transition to a service model, EFS will no longer be a licensee but rather a vendor. In such  transition to a service model, the parties will work in good faith to establish a reasonably equivalent economic benefit for EFS  (adjusting for operational responsibilities and economic risk being transferred to Client). The parties agree that Client will not be  charged a higher fee than what is being made available by EFS to its other Clients for similar services. The terms of such  arrangement will allow for Client to recognize the top-line revenues from the Playboy Commerce Business as well as assume  responsibility for various operations of the business as determined by Client, with the remaining services to be provided by EFS.  In such event, EFS shall provide Client with all best practice services and tools that are provided to EFS' largest clients. The  parties further agree that in the event Client elects to receive services hereunder via the service model, during the transition to the  service model, the operation of the Websites will remain on the EFS core technology platform.     (m) Insurance. EFS shall maintain at all times during the Term of this Agreement insurance as provided below and  shall name Client, its parent company, subsidiaries and affiliated entities and their respective officers, directors, shareholders,  agents and employees as additional insureds to the extent of indemnity provided herein under its liability policies as follows:     (i) Commercial general liability insurance including premises/operations, broad form property damage,  independent contractors, and contractual liability covering EFS' obligations hereunder for bodily injury and property damage, with  a combined single limit of not less than $1,000,000 each occurrence and $6,000,000 umbrella coverage;     (ii) Workers' compensation insurance in statutory amounts covering EFS and its employees; and     (iii) Errors and omissions insurance, and employer's liability insurance in an amount not less than  $1,000,000 per accident/disease.     (iv) All insurance required above shall be carried with insurance companies licensed to do business in the  state(s) where operations are maintained with a rating

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   of no less than A-. EFS shall deliver to Client, upon execution of the Agreement, certificates of insurance as evidence of the  required coverages. EFS agrees that these policies shall not be canceled or materially changed without at least thirty (30) days'  prior written notice to Client. Such notice shall include written confirmation and details of replacement insurance coverages and  other material revisions to the policies, which shall be effective immediately upon any cancellation or material change in EFS'  policies in order that no gap in coverage results.     1.2. Obligations of Client.    (a) Client will provide instructions and specifications for linking to the Licensed Domain Names (as defined in  Section 7.3) from the EFS-hosted server.    (b) Client will provide image and descriptive content, the selection of which shall be at Client' discretion, related  to the Client Inventory (as defined in Section 2.2) as may be in Client's possession, subject to rights availability and the license  grant contained in Section 7.1 (collectively, the Playboy Content), for use by EFS in connection with the Playboy Commerce  Business. Client shall use commercially reasonable efforts to ensure that all digital images provided to EFS conform to the file  format and size requirements specified by EFS. Client will use commercially reasonable efforts to provide EFS with at least six (6)  months notice prior to providing any new brand imagery, brand elements or style guides, and EFS will prepare a time and action  calendar for the updating of respective sections of the Websites and/or Catalogs.    (c) Client shall be solely responsible for the design and maintenance of www.playboy.com (the Playboy Site).  Client agrees to place a persistent shopping button on the main navigation bar of the Playboy Site (with Shop Playboy or such  other wording as may be mutually agreed upon by the parties), and Client further agrees that the shopping button will be located  on the main navigation bar of all sub pages. Client will also promote the Playboy Commerce Business with calls to action in its  rotation of house ads throughout the Playboy Site (the placement of which to be determined by Client in its sole reasonable  discretion, taking into account conversion rates and click-through success), with creative to be provided by EFS and approved by  Client. EFS acknowledges that the Playboy Site is currently undergoing a redesign. The parties will work together in good faith to  provide additional promotion on the Playboy Site of the Playboy Commerce Business, which shall fit within context of the new  design of the Playboy Site. Notwithstanding the foregoing, Client agrees that the shopping button directing customers to the  Websites will continue to be located on the main navigation bar appearing above the fold on the Playboy Site and all sub pages.  Client and EFS will work together in good faith to provide additional promotion of the Websites licensed by EFS.    2. Merchandise.     2.1. Merchandise Assortment.     (a) The Merchandise mix shall be determined by EFS in its reasonable discretion in operating the business with  input and collaboration from Client, provided that EFS agrees it will merchandise individual items as directed by Client based on  factors such as alignment with Client's retail stores (for Bunny Shop only) or for new Client media initiatives (e.g., a new book,  special edition of PLAYBOY Magazine, etc.) with unit decisions made by

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   EFS in its reasonable discretion. The parties agree that there will be regular merchandising meetings between the parties to discuss  sales performance, fashion, brand and retail trends, and initiatives. It is contemplated that such meetings shall take place no less  than once per month during the first year of the Term and then no less than quarterly thereafter.     (b) The parties agree that the Merchandise mix as of the Effective Date for each of the Websites and Catalogs is  an approved baseline of categories and the general mix of Merchandise and that there will be no material deviations from such mix  without the mutual agreement of Client and EFS, provided however that (i) EFS shall use commercially reasonable efforts to work  with Client to align the merchandising of the Bunny Shop with that of Client's retail stores and (ii) EFS shall collaborate with Client  to reduce the amount of unbranded (i.e., non-Playboy branded) apparel from its current levels (currently ***** of all apparel and  ***** of the total Merchandise mix), which shall in no event comprise more than ***** of EFS' total Merchandise mix. For the  avoidance of doubt, Merchandise shall not include ticket sales to Client-sponsored or other events. For purposes of this  Agreement, the term branded Merchandise shall refer to Merchandise which contains or references any of the Playboy Marks  or is otherwise branded or labeled with a Playboy Mark, and the term unbranded Merchandise shall refer to Merchandise  which does not contain or make reference to any of the Playboy Marks.     (c) Notwithstanding the provisions of this Section 2.1, if Client determines in its sole discretion that certain  Merchandise must be removed or altered for legal reasons, EFS shall promptly take such action required by Client. If Client  requests that EFS change or discontinue any Merchandise for reasons other than legal, Client will provide EFS with sufficient  notice and a reasonable sell-off period to minimize any disruption to the Playboy Commerce Business and EFS shall comply. In  the event that the Merchandise required to be removed is a current item being sold and such removal results in an actual material  impact on revenues or Merchandise Gross Margin as demonstrated by EFS, EFS and Client will work together to agree on an  equitable adjustment to the Minimum Royalty.     2.2. Purchase and Use of Existing Inventory. EFS will purchase from Client all existing product inventory of Merchandise  held by or on behalf of Client in connection with the Playboy Commerce Business, including, but not limited to, back issues of  PLAYBOY Magazine held by Client as of forty-five (45) days after as of the Effective Date hereof, as determined by Client  (collectively, the Client Inventory), as set forth in Section 6.6. During the Term, Client Inventory supplied to EFS shall be sold  by EFS solely through the Playboy Commerce Business.     2.3. Transition Period. In addition, prior to launch of the Websites, Client (in collaboration with EFS) shall purchase new  and replenishment Merchandise on behalf of EFS for March 1, 2008 orders, with such Merchandise to be shipped to EFS  directly. For such orders, EFS shall pay the vendor in full, with such payments to be made directly to each vendor in accordance  with such vendor's payment terms, and therefore, the Merchandise purchased in connection with March 1, 2008 orders shall not  be subject to the discount for Client Inventory set forth in Section 6.6.     2.4. Licensees. Client shall notify each of its Licensees (as defined below) of the provisions of this Agreement relating to  the sale and provision of Merchandise to EFS. EFS

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   shall be permitted to deal directly with and purchase Merchandise directly from those third parties licensed by Client to produce  products under the PLAYBOY brand (Licensees). EFS shall be free to negotiate directly with Licensees, and Client will use  commercially reasonable efforts to assist EFS in securing favorable terms on pricing and service levels. EFS acknowledges,  however, that Client cannot guarantee that EFS will secure such favorable terms. EFS shall enter into separate agreements with all  Licensees and any such agreements shall supersede any agreement between Client and such Licensee solely with respect to EFS'  relationship with such Licensee, as approved by Client.     2.5. International Sales. For a period of one (1) year after launch of the Websites, EFS shall be permitted to fulfill orders  placed by customers in the UK and Australia *****; provided, however that: (a) EFS is solely responsible for the collection and  remittance of all regulations, tariffs, VAT and any other taxes or charges; and (b) during this period, EFS may not sell or otherwise  ship EFS Produced Merchandise apparel. During the foregoing one (1) year period (the US Shipping Period), EFS shall be  permitted to initiate negotiations for the terms of purchase of Merchandise from local Licensees in the territories. In the event that  EFS has not entered into meaningful negotiations with any Licensee within three (3) months following the end of the US Shipping  Period, or if negotiations do not result in an actual agreement within six (6) months following the end of the US Shipping Period,  then Client may remove such market(s) from the Territory (as defined in Section 3.4) in its sole discretion.     2.6. Manufacture of Merchandise.     (a) Subject to provisions in existing agreements as disclosed herein on Exhibit 7, which shall be updated from  time-to-time, Client's prior written consent and the Licensees' right of first refusal as set forth below, EFS shall be permitted to  design and manufacture, or arrange for third parties (which have been approved by Client in advance in writing, said approval not  to be unreasonably withheld) to manufacture on its behalf, products branded with the Playboy Marks to be sold on the Websites  and/or through the Catalogs (EFS Produced Merchandise). EFS agrees that it shall approach Licensees regarding any planned  EFS Produced Merchandise and give such Licensees a seven (7) day right of first refusal with respect to the design and  manufacture thereof, whereby EFS may set forth commercially reasonable requirements with respect to pricing, delivery and  product specifications. If such Licensee is unwilling or unable to comply with EFS' request, EFS shall be free to proceed with the  manufacturing of EFS Produced Merchandise as set forth in this Section 2.6. *****     (b) In EFS' discretion, EFS Produced Merchandise may be created in any product categories where there is no  exclusivity conflict with a Client Licensee, as set forth in Exhibit 7.     (c) Subject to Sections 2.6(a) and (b), EFS may subcontract the manufacture of EFS Produced Merchandise,  provided: (i) EFS notifies Client in advance of any intended supplier/subcontractor and obtains Client's prior written approval of  such supplier/subcontractor, which shall not be unreasonably withheld; (ii) EFS obtains from each such supplier/subcontractor an  executed written agreement in the form substantially identical to that attached hereto and made a part hereof as Exhibit 8; and (iii)  furnishes a copy of each such executed agreement to Client. EFS shall abide by, and shall ensure that any third-party

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   supplier/subcontractor it uses to design and/or manufacture any EFS Produced Merchandise abides by any design, manufacturing  and other guidelines of Client. At the end of each Year of the Term hereof and at any other time so requested by Client during the  Term, EFS shall provide Client with an updated list of the names and addresses of all manufacturing sources, subcontractors,  suppliers and others which have been engaged in the design and/or manufacture of EFS Produced Merchandise.     (d) EFS understands and agrees that any and all EFS Produced Merchandise and any other items bearing the  Playboy Marks or intended for use in connection with the EFS Produced Merchandise must be approved in accordance with the  approval process as set forth in Exhibit 9, attached hereto and hereby incorporated by reference. In the event Client fails to  provide its approval or disapproval of any or all things submitted to Client pursuant to this Section 2.6(d) within fourteen (14)  days of Client's receipt thereof, EFS may send written notice to Client advising no response was received. If Client does not  respond within five (5) days of Client's receipt thereof, then Client shall be deemed to have given disapproval.     2.7. Co-branding. EFS shall have the right to co-brand or co-market certain Merchandise, combining a Playboy Mark  with other current EFS clients, subject to Client's approval at Client's sole discretion as to the co-brand partner, the Merchandise  that will be co-branded and the appearance of the branding on the Merchandise. Any co-branding with non-EFS clients will be  subject to prior written approval by Client on a case by case basis. The parties agree that the co-branding or co-marketing of any  Merchandise shall be subject to a separate agreement to be negotiated between the parties, including provisions regarding the  royalties to be paid to Client for such Merchandise and any approval process to be followed.     2.8. Shopping Portal. EFS shall be permitted to sell Merchandise on EFS owned and operated shopping portal websites  (EFS Portals) subject in all respects to the standards, approvals and requirements applicable to the sale of Merchandise on the  Websites and provided that integration with third party brands and products is acceptable to Client, approval not to be  unreasonably withheld. EFS agrees that it will use the merchandising presence on the EFS Portals to also market the Websites in  order to drive additional customer acquisition.     2.9. Mass-Customized Merchandise. Client agrees that mass-customized Merchandise (i.e., Merchandise allowing  consumers to choose customizable options, including, but not limited to, color) shall be available for sale on the Websites and/or  through the Catalogs, such that customers may select and order pre-configured semi-customized Merchandise based upon  specifications that shall be agreed upon in advance by Client and EFS. EFS shall be responsible for fulfilling orders of all semi- customized Merchandise, including fulfilling any build-to-order or special features requested by the customer, as permitted during  the order process.     2.10. Exclusive Merchandise. Subject to Client's prior written approval in each case, EFS shall have the right to work  with Client's manufacturers for the production of Merchandise that will be designed and offered for sale exclusively via the  Playboy Commerce Business.     2.11. Merchandise. All EFS Produced Merchandise, co-branded Merchandise, mass-customized Merchandise,  exclusive Merchandise and Client Inventory shall be deemed Merchandise for purposes of the calculation of Royalties (defined  below) to be paid by EFS.

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   2.12. Merchandise Supplied to Client and Employees. EFS agrees to make Merchandise available to Client for Client's  own use, such as for events, photo shoots, gifts, etc. ***** when at least two (2) weeks' notice is provided, and ***** when  less than two (2) weeks' notice is provided. In addition, employees of Client and EFS shall be permitted to purchase  Merchandise through the Playboy Commerce Business and shall receive a ***** discount on posted prices. Further, EFS  acknowledges that Client may offer discounts of up to ***** to Client's premium customers at Client's discretion as part of a  loyalty program or other promotional incentive, and EFS shall honor such discounts.      2.13. Product Quality. EFS hereby warrants and agrees that: (a) the Merchandise designed, manufactured, advertised,  promoted, sold or distributed under this Agreement shall meet the high standards of quality, workmanship, material, design, size,  color and style established by Client from time to time and in accordance with the terms and conditions of this Agreement,  provided that EFS can rely on the approvals granted by Client pursuant to Section 2.6; (b) EFS will not knowingly or negligently  cause or authorize any or all of the Merchandise not conforming to this Agreement to be sold or distributed, as doing so may  adversely affect Client's goodwill in the Playboy Marks; and (c) any such non-conforming Merchandise shall be destroyed at  EFS' expense. All of the Merchandise shall conform to and comply with, in all respects, all Laws governing the design, quality,  labeling and safety of such Merchandise and shall not violate the rights of any third parties. EFS shall not cause, condone or  authorize: (x) the use of any substandard or offensive materials in or in connection with any of the Merchandise; (y) any violation  of any Law, including, but not limited to, provisions thereof imposing advertising standards or requiring trade or content  description of the Merchandise; or (z) the use of any Playboy Mark or any other word, device or symbol associated in any way  with any or all of Client and its subsidiaries and affiliates in connection with any product or activity that is not the subject of this  Agreement.     3. Territory.    3.1. International Sales. Upon the launch of Websites, the exclusive territory for the Websites will include the USA,  Canada, UK and Australia (collectively, the Website Territory). For any market that is included in the initial Website Territory  or is added later, EFS agrees to (a) actively market, including, but not limited to, via SEO (optimizing the Websites and creating  custom pages to maximize search engine optimization in local markets), search engine marketing and affiliate marketing, (b)  provide local billing and customized Websites for local audiences, vis a vis language and targeted merchandising, and (c) provide  competitive and timely fulfillment. Client agrees to register and maintain the applicable domain name extensions in each such  market, including .ca, .au, .com, and .uk for the Websites; provided that such domain names are available. Client acknowledges  that the functionality for local billing will not be deployed by March 1, 2008, but will be deployed for the UK and Australia not  later than ninety (90) days following launch of the Websites.    3.2. Pilot Program. Client agrees that within six (6) months of the launch of the Websites, Client and EFS will use  commercially reasonable efforts to collaborate on a strategy for an international expansion of the customer base for the Websites  beyond the established Website Territory and to identify up to two (2) markets for a pilot test to actively market. If the test is  successful as determined by Client in its reasonable discretion, these markets will be added

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   to the Territory under the terms of the Agreement.    3.3. Continuation of Current Online Business. Client agrees that, barring cultural sensitivities, or regulatory or legal  circumstances, EFS shall be permitted to continue operating the Websites to fulfill international online business as is currently being  conducted.    3.4. Catalog Territory. Upon the launch of the Catalogs, the exclusive territory for the Catalog will include the USA and  Canada (Catalog Territory). The Website Territory and the Catalog Territory shall be collectively referred to as the Territory.  The parties agree that the Catalog Territory is the initial territory for the Catalogs and, within a reasonable time period after the  launch of the Websites, to discuss and agree upon the strategy for the distribution of the Catalogs throughout the Website  Territory. In the event that if within one (1) year of launch of the Websites, EFS has not begun distribution of the Catalogs in the  UK or Australia, Client may, in its sole discretion: (a) rescind EFS' right to pursue such distribution; and (b) either by itself or  through third parties, effect Catalog distribution in those countries; provided that in either case, EFS shall perform all order  fulfillment in connection therewith in accordance with the terms and conditions of this Agreement and provided the parties can  reach agreement on the financial terms associated with such services.    3.5. Pre-Existing Domestic and International Partners. EFS understands that Client has pre-existing agreements  internationally and domestically (e.g., product Licensees, retail store partners, location-based entertainment venues and media  partners). EFS agrees that it will work in good faith with such Client partners to identify areas of cross promotion and other  synergies.     3.6. International Products. EFS understands that certain markets will have their own product Licensees, and EFS will  comply fully with all restrictions (including, but not limited to, with respect to regulatory and brand issues) and exclusive  arrangements for all markets. Given that there may be different product margins in such territories, the associated Royalty will be  computed separately for international markets (pursuant to Section 6.1(c)), as necessary.     4. Advertising Commitments.    4.1. Catalog Budget. EFS will commit to an annual Catalog budget equal to or greater than *****, which represents  ***** of the actual amount spent by Client on the Catalogs for 2007. In addition, EFS shall use commercially reasonable efforts  to achieve a target in 2008 of not less than ***** of 2007 Catalog circulated pages. It is EFS' intent to maximize both Website  and Catalog sales, and the parties agree that they will collaborate during the Term to define the budget and sales matrix to  maximize sales in both channels to bring the greatest overall sales growth. EFS shall have the right to decrease the Catalog budget  below the ***** minimum only if EFS can demonstrate that online marketing activities yield a higher return-on-investment and  provided all such reduced dollars are then reinvested in online marketing spend over and above the minimum online marketing  commitment described in Section 4.2, below.

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   4.2. Online Marketing Budget. EFS understands and acknowledges that agreement to an online marketing plan is critical  to the success of the Playboy Commerce Business. Accordingly, EFS agrees it will spend annually a minimum of ***** of Net  Website Sales (as defined below) on online marketing (Online Marketing Budget). Net Website Sales shall mean total  Merchandise sales derived through the Websites via any order channel less applicable, actual Merchandise returns, if any, during  the applicable period. In the event such online marketing yields a ***** return or more on spend at an average gross margin  return on advertising of *****, then EFS will increase the Online Marketing Budget as it deems appropriate to maximize sales of  Merchandise. The Online Marketing Budget will be used by the EFS marketing team to promote the PLAYBOY and BUNNY  SHOP brands online, drive traffic to and sales on the Websites, purchase search engine placement, drive affiliate sales and to  participate in other online marketing initiatives. In addition, EFS commits to continuous SEO efforts during the Term to maximize  discovery of, and algorithmic search results for, the Websites.    4.3. Corporate Marketing Commitments. Client agrees that the following marketing activities shall be performed:    (a) Client and EFS shall jointly issue a press release following the execution of this Agreement announcing  Client's selection of EFS as its end-to-end ecommerce services and platform provider for the Websites; which release shall be  subject to Client's final approval not to be unreasonably withheld;    (b) Subject to confidentiality obligations hereunder, EFS may prepare and distribute a case study upon launching  the Websites with respect to the business arrangement between EFS and Client, subject to Client's prior written approval not to  be unreasonably withheld;    (c) Subject to confidentiality obligations hereunder, EFS may to prepare and distribute a second case study  within three (3) to six (6) months of the launch of the Websites detailing the return on investment resulting from the business  relationship between Client and EFS, subject to Client's prior written approval not to be unreasonably withheld;     (d) Client shall provide a reasonable and appropriate reference on behalf of EFS to EFS customers and potential  customers contingent upon EFS' successful implementation of services hereunder;    (e) Client shall provide reasonable press and investment analyst (in the event that EFS becomes a publicly traded  company) support for articles, interviews, and other public relations activities relating to the relationship between EFS and Client.    (f) EFS may not issue any press release or make any public statement concerning the subject matter of this  Agreement or the parties' relationship without Client's prior review and written approval, which shall not be unreasonably  withheld. EFS agrees to promptly make any changes reasonably requested by Client to any public announcement, statement or  use of Client's name and/or intellectual property prior to any public release.

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   4.4. Third Party Advertising. Client grants EFS the right to: (a) sell and place on the Websites promotional banner  advertisements (the frequency, placement and volume of which to be mutually agreed upon by the parties) that advertise and  market third party products and services that do not compete with Client's products or services and comply with Client's  advertising guidelines (Advertisements), provided that such advertising efforts are mutual (i.e., equivalent promotion of Client  and its affiliates on third party websites) and are executed in a manner that minimizes adverse impact on sales; and (b) send emails  containing Advertisements to customers who specifically opt in to receive email notifications from EFS and Client. All  Advertisements on the Websites and emails to Playboy Commerce Business customers will require the prior written consent of  Client (which will not be unreasonably withheld or delayed). EFS shall provide quarterly reports detailing page exits, abandonment  rates and overall Website conversion rates. If Client determines based upon such reports that any such advertising is adversely  impacting Website conversions, EFS will, at Client's direction, cease placing Advertisements on the Websites and/or sending third  party Advertisement emails. Client shall be entitled to receive an Advertising Fee in connection with the sale of Advertisements as  set forth in Section 6.4.    (a) EFS shall be responsible for maintaining the Advertisements on the Websites. EFS shall ensure that the  Advertisements do not violate any Law or right of any third party or otherwise contain content reasonably likely to diminish the  value of Client's brand or detract from the goodwill of the Client. Upon written request of Client, EFS shall discontinue or modify  any Advertisement that in the reasonable opinion of Client is not appropriate for the Client brand or is competitive with Client  business.    4.5. Promotion of Client Partners. At no additional cost to Client, EFS will continuously and prominently promote  Client's related businesses on the Websites and in emails to customers confirming orders, including without limitation PLAYBOY- branded online, publishing and television properties, or such other businesses as Client may request from time to time; provided,  however, that in the event any such promotional activities interfere with or diminish sales on a Website, as demonstrated by EFS  to Client's reasonable satisfaction, EFS shall be permitted to reduce or restructure such promotions as reasonably necessary to  improve sales on the applicable Website. EFS shall be responsible for determining the timing, frequency and scope of all such  promotional activities with input from Client. Creative shall be provided by Client at Client's expense. Where there is traceable  resulting commerce from the above activities, EFS will be entitled to Client's then current standard bounties or affiliate fees.    4.6. Catalog Inserts & Packaging Onserts. At Client's cost for materials (but excluding costs for labor or other EFS  charges), EFS agrees to include up to two (2) inserts per month in each of the Catalogs and up to two (2) onserts per month in all  outgoing Merchandise packaging, promoting Client products and services and/or those of Client's affiliates, Licensees or  sponsors. Client shall be responsible for all creative and printing costs associated with such inserts and onserts. EFS may include  onserts in product packaging but only with the prior written approval of Client, not to be unreasonably withheld.    5. User Agreements and Data.

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   5.1. Terms of Use & Privacy Policy.    (a) EFS shall prominently display, as is customary in the industry, and implement a terms of use policy (TOU)  on the Websites, which shall comply with all applicable Laws and which at a minimum prohibits orders from any customer under  eighteen (18) years of age (or the applicable age of majority in the jurisdiction in which the customer resides) and explains EFS'  purchasing and return policies. EFS shall implement a privacy policy (Privacy Policy) applicable to users of the Websites and  the Catalogs that is no less protective of user privacy than is required under the Laws of or otherwise applicable to the Territory.  Such Privacy Policy shall be prominently displayed, as is customary in the industry, within the Websites and the Catalogs and be  easily accessible to users. EFS shall not take any action, and shall not operate the Websites or the Catalogs, in contravention of  such Privacy Policy or of any applicable Law, including, but not limited to, data protection provisions imposed by the United  Sates, the European Union or the other countries of the Territory and other applicable Laws.     (b) Client shall have the right to review the TOU and Privacy Policy, to require reasonable changes thereto  (subject to applicable Laws), and to request certification from EFS that it is complying with this Section 5.1. All such requests  shall be promptly met.     5.2. Information on Usage and Users. EFS shall be solely responsible for and shall ensure the security of all customer  data collected in connection with the Playboy Commerce Business, including, but not limited to, personally identifiable information  and transaction information (collectively, the User Data). Client and EFS shall jointly own and have rights to all User Data  collected hereunder provided, however, that EFS shall only use the User Data in strict accordance with the Privacy Policy and,  subject to the remainder of this Section 5, solely in connection with the Playboy Commerce Business. EFS shall gather, retain in its  records, and take all necessary measures (which may include disclosure in the Privacy Policy and/or an opt-in mechanism) in  order to provide such User Data to Client, as well as information on usage and viewing of the Websites and such additional  information as Client may reasonably request. EFS warrants that it has implemented and will maintain during the Term of this  Agreement an information security program that is reasonably designed to: (a) ensure the security, integrity and confidentiality of  User Data collected hereunder; (b) protect against anticipated threats or hazards to the security or integrity of User Data; and (c)  protect against unauthorized access to or use of User Data. EFS agrees that included in EFS' information security program are  policies and administrative and technical measures specifically prohibiting and preventing the placement of User Data in or on any  form of mobile media (e.g., CD's or flash drives and other external storage media). EFS shall notify Client immediately in the  event EFS believes that User Data collected hereunder has been or potentially could have been accessed by an unauthorized  individual and shall cooperate with Client and indemnify Client regarding any investigation or response to a security breach,  including any claims, notifications or protection of Client's employees related therewith.     5.3. Existing User Data. Client holds certain customer data relating to the Playboy Commerce Business (Existing  Customer Data) and hereby grants to EFS a non-exclusive, limited, non-sublicensable, non-transferable, revocable license to  store and use such Existing Customer Data solely for purposes of the operation and promotion of the Playboy Commerce

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   Business. To the extent that EFS makes available to Client any customer data previously collected by EFS and permitted to be  disclosed to Client (EFS Customer Data), EFS shall retain ownership of such EFS Customer Data and Client shall have the  right to use such user data solely in connection with the Websites. Existing Customer Data shall be deemed User Data for  purposes of this Agreement; provided, however, that notwithstanding anything to the contrary in Section 5.2, Existing Customer  Data shall be owned solely by Client.      5.4. Reporting and Use of User Data. Upon request from Client, EFS agrees to provide to Client any and all User Data  generated hereunder and such reports as reasonably requested by Client from time to time relating to User Data. EFS shall use  User Data solely for purposes of the operation and promotion of the Playboy Commerce Business, and except as specifically  approved in advance in writing by Client, shall not use such User Data to market any other EFS or third-party products or  services to users or otherwise use, transfer or sell any User Data collected hereunder. Notwithstanding the foregoing, EFS may  use and exchange User Data in accordance with standard DMA practices for purposes of customer prospecting solely in order to  grow the Playboy Commerce Business. EFS shall not cross-market between the PLAYBOY-branded Catalog and Website and  the BUNNY SHOP-branded Catalog and Website. Client may use User Data free of charge and in any manner (including, to the  extent permitted by applicable Laws, sharing such data with its affiliates and partners). Client reserves the right to periodically  audit EFS' customer lists to ensure compliance with this Section 5.4 provided, however, that any such audit shall be performed at  the offices of EFS (or at such other location(s) as EFS' customer lists may be held) and conducted in such a manner so as to  preserve EFS' customer lists as a trade secret. In no event shall Client be permitted to copy, possess, or use EFS' confidential  customer data other than to ensure compliance with this Section 5.4.     5.5. Opt-In List. EFS shall be permitted to offer customers who visit the Websites the option to receive emails from EFS  concerning the Merchandise as well as offers by EFS or third-parties with which EFS has an established relationship and which  have been approved in advance in writing by Client. Any customers who do not specifically opt-in to receiving email  communications from EFS shall be excluded from such communications.     5.6. Demographic Data. EFS shall be permitted to collect demographic data from customers that visit the Websites,  which shall include: IP address, geographic information regarding the location of the customer (i.e., zip code, area code, city, state  and country), age, and gender (Demographic Data). Client and EFS shall jointly own and have rights to all Demographic Data  collected hereunder.     5.7. Analysis of User Data and Demographic Data. EFS shall have the right to analyze the User Data and Demographic  Data for a variety of purposes including, but not limited to, performing market studies, trend reporting, sales performance,  demographic studies and comparison/analysis with third party market data and consumer purchasing information (EFS  Analysis). EFS shall be permitted to combine the EFS Analyses with other EFS studies and, further, to share the EFS Analyses  with third parties provided that no proprietary information of Client or personally identifiable information of consumers is disclosed  to such third parties.     6. Payments and Fees.

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   6.1. Royalties. EFS shall pay a royalty (Royalty) to Client to be calculated and paid as follows: (a) the Royalty shall be  determined based upon the percentage applicable to the Merchandise Gross Margin (pursuant to the chart in Exhibit 10, attached  hereto and hereby incorporated by reference); (b) multiplied by the Net Merchandise Sales (as defined below) as applicable in  each case for the applicable Calendar Quarter or Year (each as defined below). The Royalty calculation period shall begin upon  the first order received by EFS via any order channel (e.g., on a Website, via mail, fax or telephone) and shall be paid to Client  within fifteen (15) days following the conclusion of each calendar quarter (Calendar Quarter) based on the calendar year  (Year), as calculated on the actual Merchandise Gross Margin and Net Merchandise Sales (each as defined below) for such  Calendar Quarter.    (a) For purposes of this Agreement, Merchandise Gross Margin shall be defined as the Net Merchandise Sales  through the Playboy Commerce Business during the applicable Calendar Quarter or Year, less (i) the actual unit cost of goods  sold paid by EFS for the manufacture of such goods, which shall not include expenses relating to overhead or allocations, (ii)  reductions for markdowns, discounts and allowances, and (iii) actual Merchandise inventory shrinkage during the same period,  which shall in no event exceed *****. The Merchandise Gross Margin scale for purposes of calculating the Royalty shall be  determined from Exhibit 10 based upon the Minimum Royalty (as defined in Section 6.2) set forth in Exhibit 10.    (b) For purpose of this Agreement, Net Merchandise Sales shall be defined as total Merchandise sales derived  through the Playboy Commerce Business via any order channel less applicable, actual Merchandise returns, if any, during the  applicable Calendar Quarter.    (c) Pursuant to Section 3.6, EFS shall pay a quarterly Royalty to Client calculated as set forth in Section 6.1  using separate Royalty percentages on a country-by-country basis based on product margins for each such country, as agreed  upon by the parties.    6.2. Minimum Royalty. Notwithstanding revenue actually generated by EFS in connection with the Playboy Commerce  Business hereunder, it is understood and agreed that the Royalty paid to Client in each Year of the Term shall not be less than the  amounts set forth in Exhibit 10 (the Minimum Royalty). In the event the Minimum Royalty is not achieved in any Year based on  the Royalty payments made in such Year, EFS shall pay the shortfall between the Royalty earned and the applicable Minimum  Royalty due, if any, within sixty (60) days of the end of such Year.    (a) In the event that the Minimum Royalty is met in any applicable Year, (i) EFS shall not be permitted to carry  over any overages into the next Year and (ii) EFS will not be eligible for any refund from any Minimum Royalty or Royalty  previously owed or paid to Client. In the event EFS does not meet the full amount of the Minimum Royalty during the applicable  Year in which such Minimum Royalty was owed to Client, EFS will not be permitted to offset the shortfall with any overages from  any previous or subsequent Year, and a new Minimum Royalty will be due as set forth in this Section 6.2. For the avoidance of  doubt, the Minimum Royalty is a minimum net sum from which no taxes or charges of any sort may be deducted.

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   (b) In the event that this Agreement is terminated prior to the end of the Initial Term, any portion of the Year 1  Minimum Royalty that has been spread across Years 2 through 5 of the Term pursuant to Exhibit 10 and which has not yet been  paid to Client, shall immediately become due and owing.    6.3. Royalty on Shipping Charges. In addition, Client shall be entitled to receive a royalty payment on the shipping and  handling charges paid by customers during the applicable Calendar Quarter (Shipping Royalty) equal to the Royalty percentage  multiplied by the shipping profit. For purposes of this Section 6.3, the shipping profit shall be calculated as the gross charges for  shipping less shipping materials, cost of freight and dunnage. The Shipping Royalties paid to Client shall be counted towards the  Minimum Royalty for the applicable Year. If there is no shipping profit, Client shall not be owed any Shipping Royalty, nor will  Client be impacted by any shipping losses.    6.4. Advertising Revenues. Client shall be entitled to receive an advertising fee of ***** of the Net Advertising Revenue  derived by EFS from Advertisements pursuant to Section 4.4 (Advertising Fee). Net Advertising Revenue shall be defined as  the gross revenue derived from the sale of Advertisements less: (a) all direct costs (i.e., commissions and ad-server related fees)  incurred by EFS and third party fees paid out by EFS for the execution, maintenance and ongoing facilitation of Advertisements  on the Websites and (b) ***** of gross revenue derived from the sale of Advertisements, which shall be reinvested by EFS for  online promotions and advertising (Advertising Marketing Allocation). Neither Net Advertising Revenue nor the Advertising Fee  shall be counted toward the Minimum Royalty obligation of EFS.     6.5. Payment of Royalties; Reports. Except as otherwise specifically set forth, all fees due to Client shall be due and

payable on or before the fifteenth (15t h) day following the applicable Calendar Quarter. EFS shall use commercially reasonable  efforts to provide within three (3) days, but in no event later than five (5) days, following such Calendar Quarter, regardless of  whether any payment is due, a report that includes at a minimum: (a) gross sales broken down by each Website, Catalog and  product, gross shipping charges and gross advertising revenue generated during such Calendar Quarter; (b) a detailed calculation  of Merchandise Gross Margin, Net Merchandise Sales, shipping profit and Net Advertising Revenue; (c) a detailed calculation of  the Royalty, Shipping Royalty and Advertising Fee payable to Client for such Calendar Quarter; (d) Client's aggregate Royalty,  Shipping Royalty and Advertising Fee earned and paid to date; and (e) such other information as may be requested by Client from  time to time. In addition, EFS shall provide to Client interim monthly reports.     6.6. Purchase of Product Inventory. Pursuant to Section 2.2, EFS shall pay Client a non-refundable purchase price of  ***** of the wholesale price (i.e., the Client's original cost) as determined as of forty-five (45) days after the Effective Date for  all Client Inventory. Such amount shall be paid Net ninety (90) days following entry of such Client Inventory into EFS' system;  provided, however, that EFS shall enter all such Client Inventory upon receipt or shall promptly notify Client in the event it is  unable to do so due to missing information (i.e. barcodes) or because any product is incomplete or otherwise in a condition not fit  for immediate resale.

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   6.7. Method of Payment. All payments required to be made by EFS hereunder shall be made by electronic transfer of  immediately available funds in United States Dollars through a bank designated by Client. In the event that EFS receives orders  through the Playboy Commerce Business or otherwise hereunder involving foreign currency, in order to determine the proper rate  of exchange to be applied to the payments due hereunder, it is agreed that EFS shall calculate such payments on a Calendar  Quarter basis in local currency (with each such quarter considered to be a separate accounting period for the purpose of  computing the payments) and that EFS shall compute a conversion of each such Calendar Quarter total into United States Dollars  utilizing the selling rate of exchange in effect on the last day of each relevant Calendar Quarter as quoted by Reuters in the Wall  Street Journal.     6.8. Costs and Expenses. Unless expressly stated otherwise in this Agreement or otherwise agreed in writing, each party  shall be responsible for any costs or expenses incurred by it in connection with its obligations under this Agreement.     6.9. Taxes. As between the parties, EFS shall be responsible for, without limitation, any tax, duty, levy, income, royalty,  withholding tax or charge required by any Law now in effect or hereafter enacted (other than Client's direct net income taxes)  including, without limitation, sales, use, value-added, property, royalty and excise or other similar taxes, licenses, import permits,  state, county, city or other taxes arising out of or relating to this Agreement. EFS will be responsible for the timely notification,  remittance, filing and reporting of all such taxes to the proper tax authorities at the rates required by Law.     6.10. Accounting Reports. EFS shall provide, at its sole expense:     (a) Client acknowledges that EFS is not currently able to provide a SAS 70 Type II Report. EFS will endeavor  to become SAS 70 compliant and once compliant, shall provide a SAS 70 Type II Report to Client or its affiliates. Until EFS  becomes compliant EFS may provide an alternative report acceptable to Client or its affiliates. Reports pursuant to this Section  6.10(a) shall be provided for the one-year period ending September 30th of each year by December 31st of each year of the  Term; and     (b) A copy of EFS' Independent Auditors' Report and audited balance sheet for each Year of the Term within  thirty (30) days of the close of such audit.     6.11. Verification of Information; Audit Right Generally. During the Term of this Agreement and for two (2) years  thereafter, (a) EFS shall maintain complete and accurate books and records relating to revenue generated under this Agreement;  and (b) Client and/or its authorized representative(s) shall have the right to examine, review, copy and audit EFS' books and  records relating to revenue generated under this Agreement to verify the accuracy of the payments and associated information  provided by EFS and to verify EFS' compliance with the terms and conditions of this Agreement. If the result of the audit reveals  deviations that indicate that Client was underpaid, EFS shall immediately pay the sum of such underpayment plus interest at a rate  of ***** from the date such payment was first due. If the result of the audit reveals deviations by ***** or more for any one year  of the Term, EFS shall pay the sum due plus interest as set out above and shall further bear the reasonable costs and expenses  associated with audit.

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   7. License Grants    7.1. Playboy Content. During the Term and subject to the terms, conditions, and limitations set forth in this Agreement,  Client grants EFS a limited, non-exclusive, non-transferable, non-assignable (without any right to sublicense), world-wide license  to use, modify, create derivative works of, publish, reproduce, broadcast, exhibit and display the Playboy Content solely in  connection with the design, publication, distribution, operation and promotion of the Playboy Commerce Business.    (a) In the event that EFS creates any modifications, alterations or other derivative works of any Playboy Content  (Derivative Works), EFS hereby irrevocably assigns to Client all right, title and interest in and to all of those Derivative Works,  including the copyrights and other proprietary rights therein. EFS further agrees to cooperate with Client's reasonable requests to  effect or perfect such assignment and hereby provides Client with an irrevocable power of attorney appointing Client as EFS'  irrevocable attorney-in-fact coupled with an interest to execute all such assignments on behalf of EFS. All Derivative Works are  hereby licensed back to EFS subject to the limitations that are applicable hereunder to the Playboy Content. EFS shall deliver to  Client all original versions of Derivative Works upon the request of Client.    7.2. Client Trademarks. During the Term and subject to the terms, conditions, and limitations set forth in this Agreement,  Client grants EFS a limited, non-exclusive, non-transferable, non-assignable (without any right to sublicense), world-wide license  to use the Client trademarks and/or service marks as set forth on Part A of Exhibit 1 (the Playboy Marks) solely in connection  with the design, publication, distribution, operation and promotion of the Playboy Commerce Business. Except in connection with  marketing obligations hereunder or as otherwise expressly permitted by Client in writing, EFS shall not use any Playboy Mark on  or in connection with, or to permit or facilitate any presentation or promotion of, any Internet website(s) other than the Websites  or any other catalog other than the Catalogs.    (a) Use of Playboy Marks. EFS recognizes and acknowledges that the Playboy Marks are internationally well- known by the general public and are associated in the public mind with Client's affiliate, Playboy Enterprises International, Inc.  (PEII), and are marks in which PEII has acquired considerable and valuable goodwill. EFS acknowledges that Client and PEII  have an interest in maintaining the worldwide goodwill, recognition and standards of the Playboy Marks. Consequently, with  respect to uses of the Playboy Marks in the normal course of business (i.e., for marketing and promotional purposes), EFS shall  submit representative samples of such uses to Client as soon as practicable for purposes of post-use audit. If as a result of any  post use audit, Client determines in its reasonable discretion that the use of a Playboy Mark is improper or inappropriate, Client  will notify EFS, and EFS shall correct the problem as soon as reasonably practicable. Any uses not in the ordinary course must be  approved in advance in writing by Client, and Client shall have the right to require EFS to make any changes and/or corrections  with regard to the Playboy Marks as Client may reasonably deem necessary to maintain the quality standards and the goodwill  associated with the Playboy Marks. EFS agrees to make and incorporate such changes or corrections promptly upon notice from  Client and at EFS' sole cost and expense.

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   (b) Modifications of Playboy Marks. EFS may modify or alter the Playboy Marks or combine the Playboy  Marks with any other words or symbols only if, and to the extent that, Client shall have authorized such modification or alteration  or combination specifically in advance in writing. Any such permitted modification/alteration and/or combination shall be referred  to herein as an Authorized Modification. No such authorization by Client shall constitute a representation or warranty that use of  the Authorized Modification(s) by EFS or by anyone else will not violate the rights of others in any jurisdiction or that such  Authorized Modification will constitute an enforceable trademark in any jurisdiction.     (c) Assignment of Authorized Modifications. EFS hereby irrevocably assigns, and Client hereby accepts, all right,  title and interest in and to each and every Authorized Modification, and EFS agrees to cooperate with all reasonable requests by  Client to effect or perfect such assignment. All Authorized Modifications (if any) are hereby licensed back to EFS subject to the  limitations applicable to the Playboy Marks hereunder.     (d) Goodwill. EFS will not obtain any right, title or interest in the Playboy Marks by virtue of their use of the  Playboy Marks under this Agreement and any additional goodwill associated with the Playboy Marks that is created through use  of the Playboy Marks shall inure solely to the benefit of PEII.     (e) Variations. During and after the Term, EFS will not apply for or use any domain names, trademarks or service  marks that include or are confusingly similar to any of the Licensed Domain Names (as defined in Section 7.3, below), Playboy  Marks or any other similar marks or variations thereto.     (f) Notices. EFS must display on the Websites and Catalogs such trademark and copyright notices as requested  by Client and/or as required by applicable Law. Except as expressly approved in writing by Client, neither the Playboy Marks nor  any notices associated therewith may be changed, manipulated or modified in appearance.     7.3. Domain Names. During the Term and subject to the terms, conditions and limitations of this Agreement, Client  hereby grants EFS, a limited, non-transferable, non-assignable (without any right to sublicense) world-wide license to use the  Internet location or resource designators (URLs, domain names, etc.) set forth in Part B of Exhibit 1 hereto, and/or to the extent  approved in advance in writing by Client, as the case may be, modifications thereof (the Licensed Domain Names), as the  domain name(s) and Internet locators/designators for the Websites during the Term. The Licensed Domain Names shall at all  times be owned by PEII as registrant. Client agrees that the registration for the Licensed Domain Names and for any successor  URL's shall be maintained and that EFS shall remain the technical contact for the duration of the Agreement. If EFS desires to use  any other domain names or Internet locators/designators in connection with the Websites, Micro Sites or otherwise utilizing  PLAYBOY- or PLAYBOY-related marks, EFS shall so notify Client, which may at its sole discretion, choose to register the  same at its expense. Any such additional domain names or Internet locators/designators shall be owned by PEII as registrant, and  EFS shall receive a limited license to use the same as Licensed Domain Names hereunder, solely in connection with the Websites  and/or Micro Sites during the Term. Unless otherwise agreed by the parties in

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   writing, the Licensed Domain Names shall at all times remain on PEII servers and will be redirected to the Websites.     7.4. Client Take-Down Rights. Despite conformity to the Guidelines and/or the terms and conditions of this Agreement  and/or the prior written approval by Client, Client shall be entitled to review all uses of the Playboy Marks and all utilizations of  the Playboy Content at any time and in its sole discretion. Client shall be entitled to require alteration or termination of any specific  use if it determines in its reasonable and good faith discretion that such action is necessary or appropriate and EFS shall promptly  comply with any such demand. Nothing in this Section 7.4 shall create any obligation on the part of Client to identify or prevent  improper uses of material or inclusion of improper material in connection with the Playboy Commerce Business, nor shall Client or  its affiliates have any liability for nonfeasance, negligence, or other conduct in such reviews or for failing to conduct any such  reviews.    7.5. Exclusions. Nothing in this Agreement shall restrict Client (or its affiliates) from the following commerce activities in  the Territory: any DVD commerce (rental or sales), sales by product Licensees via third-party commerce websites or mail order  sales or similar activities. In addition, EFS agrees that Client's location-based entertainment partners, as listed in Exhibit 11,  attached hereto and hereby incorporated by reference, which may be updated from time to time, may engage in limited e- commerce activities primarily, but not limited to, for co-branded products (e.g., Playboy at the Palms co-branded merchandise).    8. Confidentiality.    8.1. Confidential Information. EFS and Client each acknowledge that during the Term of this Agreement each party may  have access to the proprietary or trade secret information of the other concerning the other's business affairs, property, methods  of operation, processing system or other information provided by the disclosing party to the receiving party that is identified as, or  should reasonably be understood to be (given its content or the circumstance of its disclosure), proprietary (collectively, the  Confidential Information). Information shall not be considered Confidential Information under this Agreement that the recipient  can document: (a) is publicly known prior to or after disclosure hereunder other than through acts or omissions attributable to the  recipient or its employees or representatives; (b) is already known to the recipient at the time of disclosure hereunder without  reference to the disclosing party's Confidential Information; (c) is disclosed in good faith to the recipient by a third party having a  lawful right to do so; (d) is the subject of written consent of the party which supplied such information authorizing disclosure; or (e)  is independently developed by the receiving party without reference to Confidential Information of the disclosing party.    8.2. Obligations. EFS and Client each agree to use the Confidential Information of the other party solely to the extent  necessary to fulfill its obligations or exercise its rights hereunder, and not for any other purpose. Each party agrees (a) that it will  not disclose to any third party or use any Confidential Information disclosed to it by the other except as expressly permitted in this  Agreement and (b) that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the  other party using at least the degree of care and security as each uses to maintain the confidentiality of its own Confidential  Information. Notwithstanding the foregoing, each party may disclose Confidential Information (x) to their officers, directors,

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   employees, agents, attorneys and consultants who need to know such information and who are bound by restrictions regarding  disclosure and use of such information comparable to and no less restrictive than those set forth herein, (y) as required by  applicable Law, provided that in the case of any filing with a governmental authority that would result in public disclosure of the  terms hereof, the parties shall mutually cooperate to limit the scope of public disclosure to the greatest extent possible; and (z) to  the extent required by a court of competent jurisdiction or other governmental authority or otherwise as required by Law,  provided that the receiving party uses reasonable efforts to provide the disclosing party with prior notice of such obligation in  order to permit the disclosing party a reasonable opportunity to take legal action to prevent or limit the scope of such disclosure.    9. Ownership.    9.1. In General. Each party hereby reserves for itself all rights not specifically granted to the other party in this  Agreement. Each party will use good faith efforts to cooperate with the other party in the protection of their intellectual property  rights.    9.2. EFS. As between the parties, EFS retains ownership of, and all right, title and interest in and to any intellectual  property including trademark, trade name, patent, copyright, technology, trade secret, software, source code or know-how  created for or relating to the Playboy Commerce Business that was affixed to, used with or incorporated into the Playboy  Commerce Business by EFS, but specifically excluding the Client Property, as defined below (collectively, the EFS Property).  Nothing contained in this Agreement shall be deemed to transfer or convey to Client any ownership rights whatsoever in or to the  EFS Property or grant any license to the EFS Property other than in connection with the Playboy Commerce Business. To the  extent that Client is deemed to obtain any interest or ownership rights in the EFS Property, Client hereby assigns, transfers and  conveys to EFS, to the maximum extent permitted by applicable Law, all of Client's right, title and interest therein used by Client  under or in connection with this Agreement so that EFS will be the sole owner of all rights therein and further agrees to cooperate  with EFS during and after the Term to effect and perfect all assignments.    9.3. Client. As between the parties, Client retains ownership of, and all right, title and interest in and to any and all  Playboy Marks, Playboy Content, Derivative Works, Licensed Domain Names, User Data and any other materials provided by  or on behalf of Client to EFS hereunder, which are incorporated in or are otherwise related to the Playboy Commerce Business  (collectively, the Client Property). Nothing contained in this Agreement shall be deemed to transfer or convey to EFS any  ownership rights whatsoever in or to the Client Property. To the extent that EFS is deemed to obtain any interest or ownership  rights in the Client Property, EFS hereby assigns, transfers and conveys to Client, to the maximum extent permitted by applicable  Law, all of EFS' right, title and interest therein used or created by EFS under or in connection with this Agreement so that Client  will be the sole owner of all rights therein and further agrees to cooperate with Client during and after the Term to effect and  perfect all assignments.    10. Term and Termination.

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   10.1. Term. This Agreement shall commence as of the Effective Date and, unless earlier terminated as provided under  this Agreement, shall terminate five (5) years following the date of launch of the first Website, but in no event later than February  28, 2013 (the Initial Term). This Agreement shall automatically renew for an additional period of three (3) years (such renewal  and each subsequent renewal shall be defined as a Renewal Term) provided that EFS achieves Net Merchandise Sales of at  least ***** during the fourth year following launch of the first Website. In such event, the annual Minimum Royalty during the  Renewal Term, if any, shall be equal to the greater of: (a) ***** of the actual Royalty paid to Client in Year 5; and (b) *****.  The Initial Term and any and all Renewal Terms shall be collectively referred to as the Term.    10.2. Termination for Breach. Each party shall have the right to terminate this Agreement, in whole or in part, if the other  party materially breaches this Agreement and such breach is not cured within thirty (30) days' written notice from the non- breaching party.    10.3. Termination for Bankruptcy. Each party shall have the right to immediately terminate this Agreement if the other  party (a) is involuntarily made subject to any bankruptcy or insolvency proceedings and such proceedings are not dismissed within  sixty (60) days of the filing of such proceedings or (b) voluntarily institutes any bankruptcy or insolvency proceedings, corporate  reorganization, liquidation, assignment for the benefit of creditors, or appointment of a receiver or trustee.    10.4. Effects of Termination. Upon and after the termination of this Agreement (the Termination Date):     (a) All accrued and unpaid amounts shall become immediately due and payable, including the pro rata amount of  the annual Minimum Royalty for the applicable Year based upon the Termination Date;     (b) All licenses granted pursuant to this Agreement shall immediately terminate;     (c) EFS shall cease the display and use of the Playboy Content, Derivative Works, Playboy Marks, Authorized  Modifications, Licensed Domain Names in any manner;     (d) EFS shall return any and all Playboy Content and Derivative Works to Client within five (5) business days of  the Termination Date;     (e) Each party will promptly, at the direction of the other party, return or destroy any and all Confidential  Information of the other party in any medium and all copies thereof;     (f) EFS shall discontinue the use of any User Data collected hereunder, and subject to applicable Laws, shall  promptly deliver and assign all User Data to Client per Client's instructions; and

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     (g) If so requested by Client in connection with a planned or potential continuation of the business, EFS shall  cooperate with Client and its affiliates in order to transfer any remaining operations to them or any other entity that Client may so  designate without interruption of the Playboy Commerce Business' availability.    10.5. Outstanding Orders. As of the Termination Date, EFS shall not process any new orders placed through the  Playboy Commerce Business. Notwithstanding the foregoing, EFS may fulfill any outstanding orders placed through the Playboy  Commerce Business prior to the Termination Date and may continue collection activities related thereto, which shall be subject to  Section 6 hereof.    10.6. Survival. Sections 6.11, 7.5, 8, 9, 10.4, 10.5, 10.6, 11.4, and 12 through 14 shall survive any expiration or  termination of this Agreement. In addition, Sections 6.1 through 6.10 shall survive any termination of this Agreement until all  amounts due in connection with activities during the Term are paid and all reports provided.    11. Warranties and Disclaimers.    11.1. By Both Parties. Each party represents and warrants that (a) it has the full right and authority to enter into this  Agreement, perform its obligations and grant the rights and licenses granted hereunder; and (b) its execution, delivery and  performance of this Agreement will not result in a breach of any material agreement or understanding to which it is a party or by  which it or any of its material properties may be bound.    11.2. By EFS. EFS further represents and warrants that (a) the Websites and the Catalogs and all content contained  therein (but specifically excluding the Playboy Marks and Playboy Content) do not and will not infringe any intellectual property  right of any third party; (b) it has all necessary intellectual property rights in and to the Merchandise to be offered for sale through  the Playboy Commerce Business; (c) it will at all times abide by and comply with the Privacy Policy and all other Laws applicable  to operation of the Playboy Commerce Business, including, but not limited to the CANSPAM Act of 2003 and those related to  privacy; (d) it (i) shall use its best efforts to ensure that all performers featured in any content and/or Merchandise offered for sale  through the Catalogs and/or the Websites were at least eighteen (18) years of age at the time of production and (ii) shall comply  with all record keeping, labeling and other requirements pursuant to Section 2257, as the same may be amended from time to  time; (e) it will at all times take commercially reasonable steps to ensure the accuracy of all information contained on the Websites  and in the Catalogs; and (f) the Playboy Commerce Business, including, without limitation, the Catalogs and Websites and all  aspects thereof, will be operated in a workmanlike, timely and professional manner consistent with industry standards and EFS'  operation of other third-party branded commerce offerings.    11.3. By Client. Client further represents and warrants that it has the full right and authority to grant the rights and licenses  to the Playboy Marks, the Licensed Domain Names and Playboy Content set forth herein.

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   11.4. Disclaimer. Except as expressly set forth in this Agreement, and to the extent permitted by Law, each party  expressly disclaims all warranties and representations, whether express, implied or statutory, including any implied warranty of  merchantability, non-infringement or fitness for a particular purpose. Client does not warrant that the Playboy Content will be  error-free or will meet EFS' specific needs. Client makes no warranty whatsoever regarding the accuracy of the information  contained in the Playboy Content.    12. Indemnification.    12.1. By EFS. EFS shall indemnify, defend and hold Client, its parent, subsidiaries and affiliates and the directors,  officers, shareholders, employees and agents of each harmless against any claims, suits, losses, liabilities, injuries or damages  (including, without limitation, reasonable attorneys' fees and litigation expenses) arising out of any third party claim relating to (a)  the Playboy Commerce Business, including, the marketing and operation thereof; (b) the Privacy Policy; (c) EFS' use of any  Client Property not permitted by or inconsistent with this Agreement; (d) any claims brought by users, service providers or others  in connection with this Agreement; (e) the User Data, including the collection, storage and/or use thereof; (f) any alleged action or  failure to act whatsoever in regard to EFS' performance of its obligations and duties under this Agreement; (g) the EFS Sites,  including, but not limited to, the operation of the EFS Sites and content contained thereon; (h) any breach by EFS of any of its  representations and warranties set forth above; (i) the sale or availability through the Catalogs and/or Websites of any content  and/or Merchandise, which includes any performer who was less than eighteen (18) years of age at the time of production; (j) any  EFS Produced Merchandise; (k) any alleged non-conformity to or non-compliance with any Law, including, but not limited to,  pertaining to the content, design or quality of any portion of the Playboy Commerce Business; or (l) any claim or allegation by a  third party claiming rights (including, but not limited to, any copyright, trademark or patent rights) in or to EFS Property, the  Derivative Works (to the extent caused by EFS), the Merchandise available for sale via the Playboy Commerce Business or the  operation of the Playboy Commerce Business.    12.2. By Client. Client will indemnify, defend and hold EFS, its parent, subsidiaries and affiliates and the directors,  officers, shareholders, employees and agents of each harmless against any claims, suits, losses, liabilities, injuries or damages  (including, without limitation, reasonable attorneys' fees and litigation expenses) arising out of any third party claim relating to (a)  the authorized use by EFS in compliance with this Agreement of the Client Property in connection with Playboy Commerce  Business; (b) any alleged action or failure to act whatsoever in regard to Client's performance of its obligations and duties under  this Agreement; (c) any breach by Client of any of its representations and warranties set forth above; (d) any alleged non- conformity to or non-compliance with any Law, including, but not limited to, pertaining to the content, design or quality of any  portion of the Client Property; or (e) any claim or allegation by a third party claiming rights in or to Client Property.    12.3. Procedure. If a claim is made against an indemnified party, such party will promptly notify the indemnifying party of  such claim. Failure to so notify the indemnifying party will not relieve the indemnifying party of any liability which the indemnifying  party might have, except to the extent that such failure materially prejudices the indemnifying party's legal

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   rights. The indemnified party shall cooperate with the indemnifying party in the defense and/or settlement of the claims at the  expense of the indemnifying party; provided however, the indemnifying party shall assume control of the defense of such claim.  The indemnified party may participate in the defense of the claim at its own cost. Notwithstanding anything contained herein, (a)  the indemnified party shall not enter into any settlement or compromise that provides for any remedy of the claim without the prior  written approval of the indemnifying party, which approval will not be unreasonably withheld; and (b) EFS may not enter into any  settlement or compromise that involves or affects any Playboy Mark, Licensed Domain Name, Playboy Content, Derivative  Work or Authorized Modification without Client's prior written approval.    13. Limitation of Liability. EXCEPT IN THE EVENT OF A BREACH OF SECTION 8 (CONFIDENTIALITY) OR  LIABILITY ARISING UNDER A PARTY'S INDEMNIFICATION OBLIGATIONS UNDER SECTION 12, IN NO  EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR  CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR  ANY MATTER RELATED HERETO, INCLUDING WITHOUT LIMITATION, LOST BUSINESS OR LOST PROFITS,  EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.    14. Miscellaneous.    14.1. Independent Contractors. The rights and powers herein granted to EFS are those rights and powers of an  independent contractor only, and this Agreement shall not, and is not intended to, create any other relationship nor make,  constitute or appoint EFS an agent or employee of Client. It is expressly understood and agreed that Client shall not under any  circumstances be liable to EFS for all or any part of any losses EFS may sustain. EFS shall have no power to obligate or bind  Client in any manner whatsoever.    14.2. Severability. Each provision of this Agreement shall be severable. If, for any reason, any provision herein is finally  determined to be invalid and contrary to, or in conflict with, any existing or future law or regulation by a court or agency having  valid jurisdiction, such determination shall not impair the operation or affect the remaining provisions of this Agreement, and such  remaining provisions will continue to be given full force and effect and bind the parties hereto. Each invalid provision shall be  curtailed only to the extent necessary to bring it within the requirements of such law or regulation.     14.3. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their  respective heirs, legal representatives, successors and permitted assigns. Notwithstanding the foregoing, this Agreement and all  rights and duties hereunder shall not, without the prior written consent of Client, in any manner be assigned, mortgaged, licensed,  or otherwise transferred or encumbered by EFS or by operation of law; provided, however, that EFS may assign this Agreement  to an acquirer of all or substantially all of its assets without Client's consent, but only in the event that in Client's reasonable  determination (a) key EFS management (as defined by Client at the time of acquisition) will remain indefinitely with EFS or  replacement management is reasonably acceptable to Client and no less experienced than those in place as of the Effective Date  hereof; (b) the acquirer can demonstrate to Client's reasonable satisfaction the availability of financial resources, and the ability  and intention, to

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   adequately invest in growing the Playboy Commerce Business (by way of example, the acquirer shall have a minimum net worth  equal to or above that of EFS as of the Effective Date hereof); (c) such assignment will not have a detrimental impact on the  Playboy Commerce Business or Client's other businesses; and (d) the acquirer is otherwise able to honor all financial terms and  assume all obligations of EFS hereunder. In addition, EFS may not assign this Agreement without Client's consent to a competitor  of Client or any of Client's businesses. Client's consent to any proposed assignment hereunder shall not be unreasonably withheld  or delayed. Any purported transaction not specifically permitted under this Section 14.3 shall be null and void ab initio.     14.4. Entire Agreement; Counterparts. This Agreement constitutes the entire agreement between the parties and  supersedes any prior understandings, agreements or representations by or among the parties, written or oral, to the extent they  relate to the subject matter hereof. This Agreement may be executed in any number of counterparts, each of which shall be  deemed an original, but all of which together shall constitute one and the same instrument.     14.5. No Waiver; No Third Party Beneficiary. None of the terms of this Agreement may be waived or modified except  by an express agreement in writing signed by the parties. There are no representations, promises, warranties, covenants or  undertakings other than those contained in this Agreement. No custom or practice of the parties hereto at variance with the terms  hereof shall constitute a waiver of either party's right to demand exact compliance with any of the terms herein at any time. The  failure of either party hereto to enforce, or the delay by either party hereto in enforcing, any or all of its rights under this Agreement  shall not be deemed as constituting a waiver or a modification thereof, and either party hereto may, within the time provided by  applicable Law, commence appropriate proceedings to enforce any or all of such rights. Except as expressly provided in this  Agreement, no individual or entity other than EFS and Client shall be deemed to have acquired any rights by reason of anything  contained in this Agreement.     14.6. Headings. The headings used herein are for convenience only and shall not be deemed to define, limit or construe  the contents of any provision of this Agreement. The wording of this Agreement will be deemed to be the wording chosen by the  parties hereto to express their mutual intent, and no rule of strict construction will be applied against any such party. Time is the  essence of this Agreement.     14.7. Force Majeure. Neither party to this Agreement shall be liable for its failure to perform any of its obligations  hereunder during any period in which such performance is delayed by circumstances beyond its reasonable control (each a Force  Majeure Event), including but not limited to: fire, act of nature, embargo, riot, or the intervention of any government authority;  provided, however, that as soon as reasonably practicable prior to any such circumstance, and in any event promptly thereafter,  the affected party (a) has so notified the other in writing; (b) takes reasonable measures to avoid or limit the effect or duration of  such circumstances; and (c) cooperates with the other party to reasonably alter its obligations hereunder and/or resume  performance under this Agreement as soon as reasonably practicable. If any such circumstance persists for longer than ninety (90)  days, Client may terminate this Agreement immediately upon written notice without penalty.

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   14.8. Notices. All notices, demands, claims, requests, undertakings, consents and other communications which may or  are required to be given hereunder shall be in writing and shall be deemed to be properly given when personally delivered to the  party entitled to receive the notice or when sent via confirmed email or facsimile, or by United States or International mail, postage  prepaid, properly addressed to the respective parties as follows:    If to Client:    Playboy.com, Inc.  730 Fifth Avenue  New York, NY 10019  Attn: Executive Vice President, Business Development    With a copy to:    Playboy Enterprises International, Inc.  680 North Lake Shore Drive  Chicago, IL 60611  Attn: General Counsel    If to EFS:    eFashion Solutions, LLC  80 Enterprise Avenue South  Secaucus, NJ 07094  Attn: Edward Foy, Jr., CEO    With a copy to:    OlenderFeldman, LLP  2840 Morris Avenue  Union, NJ 07083  Attn: Kurt D. Olender, Esq.    14.9. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws  of the Illinois without giving effect to its conflict of laws principles.

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   IN WITNESS WHEREOF, the parties hereto, intending this Agreement to be effective as of the Effective Date, have  caused this Agreement to be executed by a duly authorized representative of each.



PLAYBOY.COM, INC. EFASHION SOLUTIONS, LLC  By: /s/ Jeremy S. Westin By: /s/ Edward Foy  Name: Jeremy S. Westin Name: Edward Foy  Title: EVP, Business Development Title: CEO

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   Exhibit 1  Playboy Marks & Licensed Domain Names

  * THE GIRLS NEXT DOOR & RABBIT HEAD DESIGN mark may be used in advertising Merchandise bearing the mark only. It  should not be used to advertise other goods, such as PLAYBOY goods. If a cast member of The Girls Next Door models  PLAYBOY clothing for the Playboy Commerce Business or wears PLAYBOY clothing on the show, an informational reference to  that may be made, but THE GIRLS NEXT DOOR & RABBIT HEAD DESIGN mark should not be used in connection with such  informational reference. Examples of acceptable informational references include As seen on The Girls Next Door and Modeled  by the stars of The Girls Next Door.



A. Playboy Marks:  · PLAYBOY  · PLAYBOY.COM  · PLAYBOY STORE  · SHOPTHEBUNNY.COM  · BUNNY  · BUNNY SHOP  · BUNNY(RABBIT HEAD DESIGN)SHOP  · BUNNY(SILHOUETTE)SHOP  · BUNNY COSTUME  · RABBIT HEAD DESIGN  · THE GIRLS NEXT DOOR *  · THE GIRLS NEXT DOOR & RABBIT HEAD DESIGN *  · FEMLIN  · FEMLIN DESIGN  · CYBER GIRL  · CYBER CLUB  · CENTERFOLD  · PLAYBOY CENTERFOLD  · CLASSIC CENTERFOLD  · PLAYMATE  · PLAYMATE OF THE MONTH  · PLAYMATE OF THE YEAR  · PMOY  · INNER VIXEN  · HMH  · HUGH M. HEFNER  · MISS (MONTH)

B. Licensed Domain Names:  · www.playboystore.com  · www.playboycatalog.com  · www.shopthebunny.com  · www.bunnyshopcatalog.com  · www.bunnyshopcatalog.net  · www.bunnyshopstore.com  · Other URLs as may be approved in advance by Client in writing on a case by case basis, including mutually agreed  upon Micro Sites

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   Exhibit 2    Powered by eFashionSolutions Creative



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   Exhibit 3  Fulfillment Services      Fulfillment Services shall be handled by EFS as follows:    (a) Substantially all Catalog and Website orders, including, without limitation, regular phone, mail direct and online orders,  received by the end of a Business Day will be processed, picked, packed and shipped on the same day received, and in no event  later than the end of the next Business Day. Saturday and Sunday orders will be processed with Monday orders. For purposes of  this Exhibit, Business Day shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the  State of New Jersey for the USA or the applicable country of the Territory are authorized or required by law or executive order  to close and shall begin at 9:00 AM and end at 6:00 PM (Eastern Time).    (b) Substantially all expedited (next day and 2-day delivery) orders, regardless of channel, received in time for the Monday  through Friday 2:00 PM ET cutoff will be picked, packed and shipped that same day. Exceptions: Credit card irregularities, which  cannot be resolved same day, will ship the following Business Day with notification to the customer. In the event of system  problems that prevent turnover to shipper by last pickup, customers will be notified and packages will be shipped expedited the  next Business Day.    (c) Substantially all customer returns will be processed within two (2) Business Days of dock receipt.    (d) Websites order confirmations or back order or cancellation notices to customers will be provided within one (1) Business Day  of receipt. Direct order letters will be produced the next Business Day and substantially all will be mailed that same day.    (e) Exact Merchandise ordered at the price(s) specified will be shipped unless the customer approves a substitution.    (f) Orders will be packed in professional packaging material including appropriate filler to prevent damage while in transit.    Customer Service shall consist of the following:    (a) Telephone-based order processing Monday through Friday, 7:00am to 9:00pm, Saturday and Sunday, 9:00am to 5:00pm  (Eastern Time).    (b) Telephonic and online (e-mail) customer service Monday through Friday, 8:00am to 7:00pm, Saturday, 9:00am to 5:00pm  (Eastern Time).    (c) Customer service shall address inquiries and complaints with respect to any Merchandise, gift certificates, Catalog orders,  Website orders, etc.

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   (d) All costs in connection with postage, printing and stationary expenses incurred by EFS in furtherance of its customer service  obligations hereunder shall be borne solely by EFS.    Order Processing shall consist of the following:    • Mail order processing and data entry  • Phone order processing and data entry  • Fax order processing and data entry  • Check verification processing  • Gift certificate processing and support  • Deposit preparation  • Held order processing for fraud review/AVS  • Customer Service

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  Exhibit 4  Photography Costs *      Costs per day for a typical photo shoot (based on a 7-day shoot):    Photographer & Assistants: *****    Equipment & Rentals: *****    Set Design: *****    Styling: *****    Make Up Artist: *****    Playmates/Models: *****    Travel & Hotel: *****    Catering: *****    Estimate: *****

* The information set forth in this Exhibit 4 is provided only as an example and estimate of costs associated a typical  photo shoot. Nothing herein shall be deemed or interpreted as a guarantee of costs or expenses that may be encountered  by EFS.

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  Exhibit 5  Guidelines      A. PURPOSE OF GUIDELINES GENERALLY    The purpose of these Guidelines is to help ensure, among other things, that:    1) The Playboy Commerce Business meets the standards of excellence in content, graphic appeal and other qualities that Client and  its affiliates seek to maintain;    2) The Playboy Marks are associated only with material of the type and quality generally associated therewith;    3) The validity and effectiveness of the Playboy Marks and the Playboy Commerce Business and the rights and value therein are  fully protected; and    4) EFS and its affiliates conduct their activities, both relating to the Playboy Commerce Business and otherwise, in a way that does  not jeopardize the Playboy Marks or the reputation and image of any Playboy entity or activity.    B. CONTENT GUIDELINES    *****    C. LANGUAGE    *****    D. PROHIBITED ADVERTISING CONTENT     *****

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   Exhibit 6  Staffing





A. Organizational Chart        *****

B. Client Employees to be Hired by EFS        *****

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  Exhibit 7  Licensee Exclusives Restricting EFS Produced Merchandise    *****

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  Exhibit 9  EFS Produced Merchandise Approval Process



1. EFS understands and agrees that any and all EFS Produced Merchandise and any other items bearing the Playboy Marks or  intended for use in connection with the Merchandise (hereinafter collectively referred to as the Materials) must be approved  in advance in writing by Client through Client's online approval submission system. The Materials include, but are not limited  to, photography, cartons, containers, labels, wrappers, packaging and other inner and outer packaging materials, fixtures,  displays, artwork and printing, advertising, sales, marketing and promotional materials. EFS shall, at its own expense, submit  to Client or its designee for written approval, samples of any EFS Produced Merchandise and the Materials at each stage of  development thereof, which shall include, but not be limited to: (i) an initial sketch or photograph prior to any manufacture  thereof; (ii) a sample prototype or equivalent acceptable to Client; and (iii) two final production-quality samples of that which  will be mass produced or manufactured. EFS must obtain Client's written approval of each stage of development before  proceeding to the next stage, and in no event shall EFS commence or permit the mass manufacture, advertising, promotion,  sale or distribution of any EFS Produced Merchandise or Materials unless and until EFS has received Client's written  approval of the samples provided pursuant to (iii) of this Section 1. In the event Client fails to provide its approval or  disapproval of any or all things submitted to Client pursuant to this Section 1 within ***** of Client's receipt thereof, EFS  may send written notice to Client advising no response was received. If Client does not respond within ***** of Client's  receipt thereof, then Client shall be deemed to have given disapproval.    2. To ensure that EFS Produced Merchandise and the Materials are constantly maintained in conformance with the previously  approved samples pursuant to Section 1 of this Exhibit 9 above, EFS shall, within ten (10) days of receipt of a request from  Client, send or cause to be sent to Client at EFS' expense: (i) such actual samples requested by Client of the EFS Produced  Merchandise and the Materials EFS is using, manufacturing, selling, distributing or otherwise disposing of; and (ii) a listing or  revised listing of each location where any of the EFS Produced Merchandise and the Materials or either thereof are designed,  manufactured, stored or otherwise dealt with, except to the extent such listing or revised listing duplicates currently accurate  information previously provided. Client and its nominees, employees, agents and representatives shall have the right to enter  upon and inspect, at all reasonable hours of the day, any and all such location(s) and to take, without payment, individual  samples of any of the EFS Produced Merchandise and the Materials as Client reasonably requires for the purposes of such  inspection.    3. If any of the EFS Produced Merchandise or Materials sent or taken pursuant to Section 2 of this Exhibit 9 above or that  otherwise come to the attention of Client does or do not conform in Client's sole opinion to the previously approved samples,  Client shall so notify EFS, in writing, specifying in what respect such of the EFS Produced Merchandise or Materials is or are  unacceptable. Immediately upon receipt of such notice, EFS shall suspend all manufacture, sale and distribution of all such  EFS Produced Merchandise and Materials and shall not resume the manufacture, sale or distribution thereof unless and until  EFS has made

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    all necessary changes to the satisfaction of Client and has received Client's written re-approval of each of such EFS  Produced Merchandise and Materials.    4. Except as otherwise specifically provided in this Agreement, all EFS Produced Merchandise and/or Materials that are not  approved by Client or that are determined by Client to be non-conforming or unacceptable shall not be sold, distributed or  otherwise dealt with by EFS. All such EFS Produced Merchandise and Materials shall be destroyed by EFS with, if Client so  requests, an appropriate certificate of destruction furnished to Client.    5. Any and all sales, distribution or use by EFS of unapproved, non-conforming or unacceptable EFS Produced Merchandise  or Materials shall not only constitute an incurable default under the terms of this Agreement, but such EFS Produced  Merchandise or Materials also shall be considered unlicensed and an infringement of Client's proprietary rights, and Client  shall have the right to bring legal action against EFS for any and all remedies available to Client in addition to the remedies  available under this Agreement. EFS acknowledges and agrees that to the extent EFS has followed the approval process as  outlined in this Exhibit 9 with respect to EFS Produced Merchandise, EFS shall have had notice of any non-approval, non- conformance and/or unacceptability thereof.    6. Client shall have final approval with respect to the following elements of the Products: (i) selection of Client's images for use  on such Merchandise; (ii) manipulation and adaptation of the Playboy Marks for reproduction on such Merchandise; (iii)  approval of strike offs or other pre-production samples as the parties may agree; and (iv) approval of actual materials to be  used for manufacture of such Merchandise.    7. It is specifically agreed by EFS that there shall be no approval by default. No product may be manufactured unless there is a  written approval by Client.

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  Exhibit 10  Payments and Fees    *****

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Source: PLAYBOY ENTERPRISES INC, 10-Q/A, 2/20/2009





   Exhibit 11  Location-Based Entertainment Partners      Playboy Club at the Palms Casino Resort  Playboy Mansion at Macao Studio City

45

Source: PLAYBOY ENTERPRISES INC, 10-Q/A, 2/20/2009





   Exhibit 12  Time & Action Calendar





EFS Transition Key Dates  Date  Contract Signing 1/15/2008  Shipping & Receiving  IRI to Prepare Inventory for Shipment Week of 1/21/2008  3 Stages  60 Days + Week of 1/28/2008  Majority of Inventory Week of 2/11/2008  Final Shipment Week of 3/1/2008  EFS to Receive Inventory

Customer Service  Transfer of 800 numbers 2/15/2008  Test Orders 2/18/2008-2/23/2008  Create Live Chat 2/15/2008  Turn on phone Lines 3/1/2008  IRI terminates taking returns 6/1/2008  Turn off IRI CS Lines 6/1/2008

Site Development  Recreation of current store design 1/1/2008-2/15/2008  Site Testing 2/23/2008  Change DNS from current Host 2/1/2008  Point DNS to new EFS IP 2/27/2008  Go Live 3/1/2008

Other IT  Abacus/Epsilon Integration 1/1/2008-2/15/2008

PLAYBOY/BUNNY SHOP Summer Catalog 2008  START END  PRODUCTION SCHEDULE  Style Out 11/27/2007 Merchandiser  Samples due Final 12/5/2007  Photography 12/10/2007 12/14/2007 Complete  tabletop pre pro 12/7/2007  TableTop Photography 12/10/2007 12/17/2007 Creative  Page Building 12/12/2007 12/25/2007 Creative  Selects Review 1/3/2008 Mktng/Merch/Crtve  Proof One 1/7/2008 1/11/2008 Mktng/Merch  Proof one Revisions 1/14/2008 1/16/2008 Creative  Proof Two 1/16/2008 1/23/2008 Mktng/Merch  Final Proof 1/28/2008 2/1/2008 Mktng/Merch  Release Pages 2/4/2008 2/8/2008 Separator

46

Source: PLAYBOY ENTERPRISES INC, 10-Q/A, 2/20/2009







          47

Proof Separations 2/11/2008 2/15/2008 Creative/Separator  Files DUE to Printer 2/21/2008 Separator  Printer Proofs DUE 2/22/2008 Printer  Correction Due to Printer 2/22/2008 Creative  ON PRESS 2/25/2008 Printer  PRINTING SCHEDULES  Paper DUE (40 Days Prior) 2/20/2008 Creative  Print Order/Distrib. info Due 2/17/2008 Creative/Mktng  Process Tapes DUE 2/21/2008 Marketing  Postal DUE 3/6/2008 Marketing  Order Form DUE 2/19/2008 Creative  Begin Bindery 2/26/2006 3/2/2006 Printer  DROP 1-IN HOME 3/19/2008 3/21/2008 Printer  DROP 2-IN HOME 4/23/2008 4/25/2008 Printer  DROP 3-IN HOME 5/21/2008 5/23/2008

Source: PLAYBOY ENTERPRISES INC, 10-Q/A, 2/20/2009 
Question: Highlight the parts (if any) of this contract related to Insurance that should be reviewed by a lawyer. Details: Is there a requirement for insurance that must be maintained by one party for the benefit of the counterparty?
Example Output:
20125